Baker, et al v. Washington Mtl Fin, et al

United States Court of Appeals
Fifth Circuit
F I L E D
July 24, 2006
Charles R. Fulbruge III
Clerk
UNITED STATES COURT OF APPEALS
for the Fifth Circuit
No. 05-60572
LEVI BAKER, On Behalf of Himself
and all others similarly situated,
Plaintiff-Appellee,
VERSUS
WASHINGTON MUTUAL FINANCE GROUP, LLC, ET AL
Defendants,
WASHINGTON MUTUAL FINANCE GROUP, LLC; WASHINGTON MUTUAL FINANCE
OF MISSISSIPPI, LLC,
Defendants-Appellees,
VERSUS
THOMAS SIMMONS; GEORGIA IVY,
Intervenors-Appellants,
RAYMON HAM; LINDA HAM; SAMMIE WILSON; MARGARET WILSON; CONSUELO
MARTIN; ROXIE MCALLISTER; JANICE WARD,
Appellants.
Appeal from the United States District Court
for the Southern District of Mississippi
(1:04-CV-137)
Before DeMOSS, BENAVIDES, and PRADO, Circuit Judges.

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*Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
1Because we hold that certification was not an abuse of
discretion under subsection (b)(1)(B), we need not address
whether certification was also available under subsection (b)(2).
2
PER CURIAM:*
Intervenors-Appellants and numerous potential class members
(collectively “Appellants”) appeal the district court’s
certification of a mandatory punitive damages settlement class in
a lawsuit against Washington Mutual Finance Group, LLC and
Washington Mutual Finance of Mississippi, LLC (collectively
“Washington Mutual”) by individuals alleging that Washington Mutual
engaged in various illegal business practices. The district court
certified the class under subdivisions (b)(1)(B) and (b)(2) of
Federal Rule of Civil Procedure 23. Appellants argue that neither
subdivision was a proper vehicle for class certification. We AFFIRM
the district court’s certification pursuant to Rule 23(b)(1)(B).1
FACTUAL BACKGROUND
The litigation underlying this appeal is a class action
lawsuit brought on behalf of individuals who took out loans and
bought insurance from Washington Mutual in Mississippi. Generally,
the class alleged that Washington Mutual used fraudulent and
misleading disclosures to get thousands of borrowers to take out
loans and purchase worthless or overpriced insurance products.
Specifically, the class alleged that, among other things,

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Washington Mutual inflated the value of collateral to charge higher
premiums, failed to disclose various charges and commissions,
charged unauthorized fees, and engaged in “insurance packing” and
“loan flipping.”
The class action described above is not the only ongoing
litigation against Washington Mutual. In 1998, counsel for the
class in this case also filed an action (“the Blackmon case”)
against Washington Mutual on behalf of 23 individuals alleging
similar misconduct. In 2001, a jury awarded those individuals
$2.265 million in compensatory damages and $69 million in punitive
damages. On appeal, the punitive damages award was reduced to $54
million.
PROCEDURAL HISTORY
Plaintiff-Appellee Levi Baker (“Baker”) filed the instant
class action on March 23, 2004. Two days later, Baker moved for
preliminary approval of a class settlement.
The settlement defines the class to include individuals who
purchased credit and insurance products in Mississippi from
Washington Mutual or City Finance, LLC, a company purchased by
Washington Mutual. The district court estimated that approximately
45,000 potential class members exist. The settlement agreement
excludes from the class persons who have already obtained a
judgment or arbitration award against City Finance, LLC or
Washington Mutual, even if the judgement or arbitration award has

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not yet been finally adjudicated to be meritorious. Therefore, the
Blackmon case plaintiffs are excluded from participation.
The settlement agreement does not provide for injunctive or
declaratory relief. Rather, it attempts to resolve the claims by
establishing a $7 million fund for class members who file claim
forms. The agreement designates $3.5 million as compensatory
damages and $3.5 million as punitive damages. And, the settlement
agreement permits class members to opt out their claims for
compensatory damages, but precludes them from opting out their
claims for punitive damages.
In May 2004, the district court preliminarily approved the
settlement agreement. Appellants Thomas Simmons and Georgia Ivy
(joined later by other potential class members) moved to intervene
and filed a statement of objections challenging the certification
of the mandatory punitive damages class. Appellants argued that
certification was improper under Rule 23(b)(1)(B) because Baker and
Washington Mutual (collectively “Appellees”) failed to satisfy the
certification requirements established by the United States Supreme
Court in Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999).
In October 2004, the district court conducted a fairness
hearing. Ultimately, in May 2005, the district court certified the
mandatory punitive damages class under subdivision (b)(1)(B). This
timely appeal followed.
DISCUSSION

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We review a district court’s decision to certify a class for
an abuse of discretion. Stirman v. Exxon Corp., 280 F.3d 554, 561
(5th Cir. 2002).
A class can be certified only if it meets each of the
requirements outlined in Rule 23(a), which are numerosity,
commonality, typicality, and adequate representation. See FED. R.
CIV. P. 23(a). Appellants concede that the class meets these
requirements.
In addition, a class must satisfy at least one of the
subdivisions of Rule 23(b). At issue here is subdivision (b)(1)(B).
Rule 23(b)(1)(B), which does not provide potential class members
with a guaranteed opt-out right, Ortiz, 527 U.S. at 834 n.13,
permits certification of a mandatory class when:
(1) the prosecution of separate actions by or against
individual members of the class would create a risk of .
. . (B) adjudications with respect to individual members
of the class which would as a practical matter be
dispositive of the interests of the other members not
parties to the adjudications or substantially impair or
impede their ability to protect their interests.
FED. R. CIV. P. 23(b)(1)(B).
This subdivision is usually applied when a “limited fund” exists,
such that non-class members seeking damages would likely deplete
the fund and deprive class members of any recovery. See Ortiz, 527
U.S. at 842.
Cases in which mandatory class treatment is proper on a
limited fund theory have three “presumptively necessary”

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characteristics. Id. at 838-842. First, the totals of the fund and
the claims against that fund, “set definitely at their maximums,
demonstrate the inadequacy of the fund to pay all the claims.” Id.
at 838. “Second, the whole of the inadequate fund [will] be
devoted to the overwhelming claims.” Id. at 839. And third, “the
claimants identified by [the] common theory of recovery [will be]
treated equitably among themselves.” Id. The issue in this case is
the first element--i.e., the inadequacy of the fund to pay all
claims.
Appellants contend that Appellees have not established the
inadequacy of the fund to pay all claims because they have not
demonstrated with precision “the upper limit” of the fund, which is
necessarily a prerequisite to an inadequacy showing. See id. at
850.
Appellees counter that the $3.5 million of punitive damages
agreed upon in the settlement is an adequately defined “upper
limit,” creating a limited fund which is insufficient to pay all
claims. Appellees argue that the basis of this $3.5 million limit
is twofold. First, they argue that as a matter of law, substantive
due process prohibits excessive punitive damages. See BMW of N.
Am., Inc. v. Gore, 517 U.S. 559, 562 (1996). Second, Appellees
contend that Washington Mutual’s net worth is in fact valued
between $50 million and $70 million and that net worth value limits
the amount of punitive damages it can pay. Appellants respond that

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both arguments give rise to some theoretical limit, but that
neither one provides an acceptably precise limit.
The district court accepted both of Appellees’ arguments and
held that a limited fund existed both legally and factually. We
need not address the district court’s legal finding that
substantive due process and its ban on excessive punitive damages
can create a limited fund because the district court’s factual
finding that a limited fund existed was not an abuse of discretion.
The district court, contrary to Appellants’ assertion, relied
on more than the simple fact that Washington Mutual’s net worth has
fallen from approximately $200 million to between $50 and $70
million. Appellants state in their brief that if Washington
Mutual’s net worth is between $50 and $70 million, $3.5 million
must have been “plucked out of thin air” by the settling parties as
the limit of what Washington Mutual can pay as punitive damages.
But, after citing Washington Mutual’s dwindling net worth, the
district court went on to explain that the $3.5 million figure was
not simply “plucked out of thin air.”
As the court noted, Washington Mutual has already ceased
operations in Mississippi; thus, the court found it unlikely that
Washington Mutual’s net worth would increase in the near future.
The court then recognized the outstanding $56.265 million award
against Washington Mutual from the Blackmon case, which has been
upheld on appeal by a Mississippi state appellate court and is now

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pending before the Mississippi State Supreme Court. If the Blackmon
award is finally adjudicated to be meritorious, Washington Mutual’s
net worth will be greatly diminished and perhaps completely
eradicated.
In addition, the district court found that if the class is not
certified it is likely that tens of thousands of individual
lawsuits will ensue. After considering the breathtaking cost of
defending against so many individual lawsuits, the district court
determined that $3.5 million was the most that Washington Mutual
would be able to pay as punitive damages.
After a thorough review of the district court’s order, the
parties’ briefs, and the entire record, we cannot deem the district
court’s factual determination that $3.5 million was the upper limit
an abuse of discretion.
CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s
certification of the mandatory punitive damages settlement class
under Rule 23(b)(1)(B).
AFFIRMED.

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