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7th Circuit reverses decertification of used car dealer class

February 14, 2019

The 7th Circuit Court of Appeals vacated a district court’s decision decertifying a class in a used auto dealership’s case when it found the stark change of mind lacked sufficient reasoning.

NextGear Capital, an automotive financing company, provided lines of credit to used car dealerships Red Barn Motors, Platinum Motors, and Mattingly Auto Sales. NextGear solicited the dealerships to enter into a “floorplan agreement” in which NextGear would issue a revolving line of credit for them to access in purchasing used vehicles at automobile auctions.

Red Barn Motors argued that instead of charging interest and curtailment fees from the date of possession, NextGear began charging from the date of initial purchase before it even received the vehicle title.

The dealerships then brought an action challenging the imposition of interest fees during the period prior to receipt of title, when NextGear was not yet paying any funds to the auction house. The U.S. District Court for the Southern District of Indiana granted class certification to the dealerships, finding they met the requirements of Federal Rule of Civil Procedure 23(a) and that class action was superior to other methods of adjudication under Rule 23(b)(3).

The district court changed its mind two weeks later after NextGear filed a motion to reconsider, arguing the court failed to consider evidence and arguments submitted after the initial class certification briefing. Specifically, NextGear contended the dealerships asserted for the first time in summary judgment briefing that the floorplan agreements were ambiguous on their face.

The district court then held that class certification was not appropriate, stating that while it agreed the contract was ambiguous, that ambiguity required “consideration of extrinsic evidence, necessitates individualized proof, and undermines the elements of commonality and predominance for class certification.”

But the 7th Circuit vacated that decision in Red Barn Motors, Inc. v. NextGear Capital, Inc., 18-1409, finding the district court’s denial of class certification lacked sufficient reasoning compared to its initial decision which it found to be clear and thoroughly analyzed.

The 7th Circuit pointed out the reference to the decision’s Order on Motions for Summary Judgment offered little insight to its decision. In that order, the district court held that the floorplan contracts were ambiguous as to when interest could begin to accrue, which required consideration of extrinsic evidence.

“Those holdings are insufficient to sustain the court’s assumption that commonality and predominance were lacking. Neither the categorization of the contract as ambiguous, nor the prospect of extrinsic evidence, necessarily imperils class status,” Circuit Judge Ilana Rovner wrote.

The panel further found that the district court previously held the agreement’s ambiguity did not prevent class certification because it was capable of a common answer. The 7th Circuit noted that the mere need for extrinsic evidence did not in itself render a case an improper vehicle for class litigation. 

“The district court, to conclude otherwise, would have to identify why that extrinsic evidence would lead to another conclusion,” Rovner wrote. “But here, although the case was nearing the trial date, we have no indication as to what evidence the court believed would render class certification improper.”

The panel therefore found that absent a more thorough explanation of its reasoning, the denial of class certification could not be upheld. It thus vacated and remanded the case for further proceedings.

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