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Leroy Grayson and Alvin Mckenzie, On v. 7-Eleven

June 10, 2011

LEROY GRAYSON AND ALVIN MCKENZIE, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED,
PLAINTIFFS,
v.
7-ELEVEN, INC., A TEXAS CORPORATION, AND DOES 1 THROUGH 100,INCLUSIVE, DEFENDANTS.



The opinion of the court was delivered by: Hon. Michael M. Anello United States District Judge

ORDER DECERTIFYING CLASS

Plaintiffs Leroy Grayson and Alvin McKenzie, former 7-Eleven store franchisees, bring this nationwide class action against Defendant 7-Eleven, Inc. ("7-Eleven"), seeking to recover federal excise tax refunds issued to 7-Eleven. On July 20, 2010, the parties filed a joint motion stipulating to class certification, which the Court granted. Currently pending are the parties' cross-motions for summary judgment pursuant to Federal Rule of Civil Procedure 56. [Doc. Nos. 31,32.] Upon reviewing the parties' Rule 56 motions, the Court recognized a concern pertaining to the propriety of class certification in this case, and ordered the parties to show cause why the class should not be decertified. Having reviewed and considered the materials submitted by the parties, the Court concludes maintaining this lawsuit as a nationwide class action is not appropriate.

I.BACKGROUND

On July 20, 2010, the parties submitted a joint motion stipulating to class certification under Federal Rule of Civil Procedure 23 for the purpose of accommodating Rule 56 motions. [Doc. No. 24.] The parties agreed the class should be certified under Rule 23(b)(2) as follows:

All former franchisees of Defendant 7-Eleven, Inc., located in the United States and/or in any of its Territories (1) who were 7-Eleven Franchisees at any time from July 2000 through July 2006 and who sold certain pre-paid long distance telephone cards to the public that were subject to a 3% federal excise tax; (2) who terminated their franchise agreements at any time between July 2000 and September 17, 2007; and (3) to whom 7-Eleven refused to pay any portion of the U.S. Treasury's excise tax refund. [Doc. No. 24.]

The parties also sought certification of the class under Rule 23(b)(3), such that notice and an opportunity to opt-out could be provided if claims for monetary relief remained after the Rule 56 motions were decided. The Court granted the joint motion on July 21, 2010. [Doc. No. 25.]

Thereafter, both parties moved for summary judgment on Plaintiffs' claims for conversion, common counts "money had and received," and breach of implied contract. Throughout their papers, the parties analyzed Plaintiffs' claims under California law. Neither party, however, explained why the Court should analyze Plaintiffs' common law and equitable claims affecting a nationwide class solely under California law. Concerned that the claims could not be decided only under California law, the Court ordered the parties to show cause why the class should not be decertified. [Doc. No. 40.] On May 2, 2011, the parties filed a joint statement regarding the propriety of nationwide certification, and why it is proper to analyze Plaintiffs' claims under California law. [Doc. No. 41.]

II. LEGAL STANDARD

"A previously certified class is subject to modification at the Court's discretion." Cruz v. Dollar Tree Stores, Inc., 270 F.R.D. 499, 502 (N.D. Cal. 2010); see FED. R. CIV. P. 23(c)(1)(C) ("An order that grants or denies class certification may be altered or amended before final judgment"); Gen. Tel. Co. of the Southwest v. Falcon, 457 U.S. 147, 160 (1982) (noting that even after a class is certified, the district court "remains free to modify it in the light of subsequent developments in the litigation"); Officers for Justice v. Civil Serv. Comm'n of City and County of San Francisco, 688 F.2d 615, 633 (9th Cir. 1982) ("before entry of final judgment on the merits, a district court's order respecting class status is not final or irrevocable, but rather, it is inherently tentative").

The standards used to determine whether to decertify a class are the same standards used to evaluate whether to certify a class; namely, whether the requirements under Federal Rule of Civil Procedure 23 are met. O'Connor v. Boeing North American, Inc., 197 F.R.D. 404, 410 (C.D. Cal. 2000). Rule 23(a) requires that class members demonstrate numerosity, commonality, typicality, and adequate representation of the class interest. FED. R. CIV. P. 23(a); Hanon v. Dataproducts Corp., 976 F.2d 497, 508 (9th Cir.1992). In addition to meeting these four requirements, one of the Rule 23(b) requirements must also be met.

The decertification inquiry here focuses on the requirements under Rule 23(b)(2) and (b)(3). A class action may be maintained under Rule 23(b)(2) if "the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole." FED. R. CIV. P.23(b)(2). A class action can also be maintained under Rule 23(b)(3) if "the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." FED. R.CIV. P. 23(b)(3).

III.DISCUSSION

The Court originally certified the class under the hybrid approach of Rule 23(b)(2) and (b)(3). Under the hybrid approach, the "highly cohesive Rule 23(b)(2) phase of the proceedings, including liability, can be adjudicated without the costly class notice and opt-out process required under Rule 23(b)(3)." Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571, 622 (9th Cir. 2010). Although the law is not entirely clear whether a hybrid class should be examined solely under the more stringent requirements of (b)(2), it appears that a hybrid class must satisfy both (b)(2) and (b)(3) requirements. See, DeBoer v. Mellon Mortg. Co., 64 F.3d 1171, 1175 (8th Cir. 1995) (where both Rule 23(b)(2) and (b)(3) apply, court should treat suit as (b)(2) action), but see Dukes, 603 F.3d at 620 (in discussing hybrid approach, court characterizes (b)(2) and ...


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