Opinion
Case No. 3:01 CV 7388.
October 6, 2004
ORDER
This is a suit by former employees of CSX Transportation (CSX) in which the plaintiffs claim they were induced by fraudulent representations to enroll in training courses to qualify them for employment as conductors on the defendant's railroad. Plaintiffs assert claims for fraud, promissory estoppel, and breach of contract. This suit is brought pursuant to 28 U.S.C. § 1332(a)(1).
Pending is plaintiffs' motion for class certification. For the following reasons, plaintiffs' motion shall be denied.
BACKGROUND
Defendant CSX supports programs at several colleges located throughout the eastern United States to train employees to operate its freight trains. Plaintiffs claim that CSX engaged in a fraudulent scheme to recruit them and others to enroll in those training programs. Plaintiffs represent a putative class of individuals who attended and completed CSX-sponsored training programs and were later furloughed or unable to work the hours and earn the salaries that plaintiffs allege CSX guaranteed during pre-enrollment sessions.
Defendant worked with the colleges offering the training programs to develop materials for preenrollment sessions. To induce prospective students to enroll in the training programs, these materials, according to plaintiffs, promised job openings "at specific locations on specific dates," with "substantial salaries." In addition, plaintiffs allege that defendant's recruiting materials "virtually guaranteed" placement in the promised job opening upon successful completion of the college's training program.
Plaintiffs claim that defendant's promises were false because plaintiffs were furloughed shortly after being hired and were unable to earn as much money as defendant had promised.
A. Training Program Recruiting Seminars
Plaintiffs base their claims of fraud, promissory estoppel, and breach of contract primarily on information given by presenters at recruiting sessions designed to persuade potential students to enroll in the conductor training programs. Nine colleges in sixteen states presented the programs. They and the defendant developed the recruiting materials. The presenters were usually representatives of the colleges, though defendant sometimes had representatives at the seminars. All seminars relevant to this case were conducted at Owens Community College ("Owens") by James Kronberg.
Plaintiffs allege that presenters at the recruiting sessions promised that defendant had current openings at locations throughout its system, which operates in twenty-three states, the District of Columbia, Ontario, and Quebec. Plaintiffs allege that, in general, presenters represented to potential students that CSX train service employees made a base salary of approximately $30,000 to $40,000, with the potential to earn $50,000 to $80,000 shortly after going to work for the railroad. According to the plaintiffs, recruiters also told prospective trainees that individuals willing to work long hours could expect to earn upwards of $100,000.
To obtain these jobs, plaintiffs were instructed to enroll in the conductor training program. They allege they were told that only those individuals who falsified information would not receive jobs after completing the program. Plaintiffs also claim that, at the conclusion of each session, presenters stated that acceptance into the program constituted confirmation of the existence of an open position that would be held for the trainee at a specific CSX location. Plaintiffs allege that the various presentations at Owens essentially were uniform in content.
Defendant counters that it did not guarantee jobs for students who enrolled in the colleges' training programs, though it did work with the colleges to project its need for new employees. Defendant admits that the colleges attempted to admit a limited number of students into the training programs to match defendant's hiring needs with the number of program graduates. Prospective students were told at the recruiting seminars that they would only be admitted into the training program if CSX had a projected opening available in that student's selected area.
Defendant points out that the seminars informed prospective students that they were not legally guaranteed a job. Despite this evidence about notice about the risk of furlough and lay-off, the named plaintiffs contend that they and many others were not informed about that possibility. Plaintiffs assert that the Owens presentations essentially were uniform and that the possibility of furlough was either not mentioned at all or was played down substantially to convince recruits to enroll. Though Plaintiffs admit that prospective students were told that the college could not legally guarantee them jobs, they allege that:
[R]ecruits were consistently told that 95% to 99% of those students successfully completing the program were hired by CSX . . . Any who participated in the program and were denied employment missed that opportunity not based on the subjective determination of the railroad, but because of a failure to meet criteria set by CSX. . . .
(Doc. 33 at 22).
B. The Training Programs
Each of the plaintiffs and proposed class members paid approximately $4,000 to enroll in a CSX training program at one of the colleges offering the program. Several of the enrollees, plaintiffs allege, did not pursue or accept other employment opportunities or resigned from other jobs to complete the training. During the training program, according to the plaintiffs, they received identical written "offers of employment" confirming that each would be employed by defendant if they satisfactorily completed the program, passed several physical tests, and truthfully provided all information required in the application. Plaintiffs and other proposed class members signed these offers and completed all of the training requirements.
C. Plaintiffs' Employment after Completing the Training Programs
Following the training program, plaintiffs and the proposed class members completed a field training course and worked several shifts on the railroad as "conductor-trainees." Immediately or shortly thereafter, they were furloughed, sometimes without working a single shift as a conductor. Both named plaintiffs endured long periods of furlough, followed by shorter periods during which they worked. The named plaintiffs allege that neither has earned the amount of money nor had the opportunity to work as many shifts as CSX and the colleges promised. Plaintiffs allege that all proposed class members were furloughed shortly after qualifying as conductors.
The named plaintiffs admit that defendant offered them the opportunity to work in other cities within their CSX "seniority districts" while they were furloughed. Both allege, however, that they had been promised work at their "home" locations, and that CSX's offer to allow them to work from other locations within the seniority district contravened its promise that they would be employed, with specific wages and sufficient work opportunities, at the home locations of their choice.
Plaintiffs claim that defendant repeatedly and knowingly presented false information and promises of employment. Plaintiffs also allege that defendant's failure to provide them with immediate regular employment was in violation contractual obligations, including those created by an "offer of employment."
STANDARD OF REVIEW
"`In determining the propriety of a class action, the question is not whether the plaintiff or plaintiffs have stated a cause of action or will prevail on the merits, but rather whether the requirements of Rule 23 are met.'" Eisen v. Carlisle Jacquelin, 417 U.S. 156, 178 (1974) (citation omitted). The court must conduct a "rigorous analysis" into whether the prerequisites of Rule 23 are met. Gen. Tel. Co. v. Falcon, 457 U.S. 147, 161 (1982). This means that a class is not maintainable simply because the complaint repeats the legal requirements of Rule 23. Am. Med. Sys., Inc., 75 F. 3d 1069, 1079 (6th Cir. 1996). "`[I]t may be necessary for the court to probe behind the pleadings before coming to rest on the certification question.'" Id. (quoting Falcon, 457 U.S. at 160).
DISCUSSION
To have a class certified, a plaintiff must establish that the class meets all the requirements of Fed.R.Civ.P. 23(a) and also meets the requirements of one of the three subsections of Fed.R.Civ.P. 23(b).
Plaintiffs request certification under Rule 23(b)(3). The relevant portion of Rule 23 states:
(a) One or more members of a class may sue or be sued as representative parties on behalf of all only if.
(1) the class is so numerous that joinder of all members is impracticable;
(2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and
(4) the representative parties will fairly and adequately protect the interests of the class.
(b) Class Actions Maintainable. An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition:
* * * * *
(3) the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available for the fair and efficient adjudication of the controversy.
To satisfy Rule 23, plaintiffs must clearly define the class so that its prospective members can be reasonably identified. A court faced with an unsuitable class definition may reject certification. Alternatively, the court may "construct a definition of the class . . . or may modify a proposed definition where the original is inadequate." Hagen v. City of Winnemucca, 108 F.R.D. 61, 64 (D. Nev. 1985) (citing Metcalf v. Edelman, 64 F.R.D. 407 (N.D. Ill. 1974); Metropolitan Area Hous. Alliance v. H.U.D., 69 F.R.D. 633 (N.D. Ill. 1976)).
A. Whether the Class Definition is Proper
Plaintiffs define the class as:
all persons who became qualified train service employees for CSX Transportation, Inc. by successfully completing a "conductor training program" at Owens Community College and the training and qualification procedure as set forth b CSX, from 1999 to present, and were thereafter furloughed at their designated home terminal within the first twenty-four (24) months after marking up as regular train service employees.
(Doc. 86 at 1).
Defendant does not challenge plaintiff's definition in this motion. Because a check of defendant's employment records could confirm the employment history of each proposed member, this definition is sufficiently definite to permit consideration of the factors presented in Rule 23.
B. Requirements of Rule 23(a)
To be certified, a proposed class must meet all four requirements of Fed.R.Civ.P. 23(a): numerosity, commonality, typicality, and adequacy of representation. Defendants contend plaintiffs have failed to meet the requirements of numerosity and typicality.
1. Numerosity
Plaintiffs must establish that the "class is so numerous that joinder of all members is impracticable." Fed.R.Civ.P. 23(a)(1). Courts consider the number of prospective class members and several other factors related to the practicality of joinder, including "avoidance of multiplicity of actions, geographic dispersment of class members, size of individual claims, financial resources of class members, and the ability of claimants to institute individual suits. . . ." 1 Alba Conte Herbert B. Newberg, Newberg on Class Actions § 3:6, at 251 (4th ed. 2002).
Plaintiffs have identified 205 members of their current proposed class based on records obtained from defendant. Defendant counters that plaintiffs have not provided any affadivits, declarations, or testimony from other members of this class who claim to have been victimized by the alleged scheme. Furthermore, defendant contends that this "inability to produce any evidence" (Doc. 90 at 7) essentially results from a lack of class members who would have meritorious claims or who would share plaintiffs' views of the facts.
This is not the issue; the underlying merit of the claims is not an appropriate issue at this stage. Eisen, 417 U.S. at 178. The question is not whether plaintiff has identified a "class of individuals in need of this court's protection" (Doc. 90 at 8.); the question is whether the plaintiffs have proposed a class that is "so numerous that joinder of all members is impracticable." Fed.R.Civ.P. 23(a)(1). Defendant has presented no arguments which go to the actual size of the class as proposed or the practicability of joinder. By establishing a class of at least 205 persons, plaintiffs have established sufficient numerosity to meet the requirements of Rule 23(a)(1).
Defendant's contention that certain members of the class could not meet the amount in controversy requirement cannot be maintained in light of the Sixth Circuit's recent holding in Olden v. LaFarge Corp., 2004 Fed App. 0296P (6th Cir. 2004) that class members may aggregate damages to meet the jurisdictional amount in controversy requirement.
2. Typicality
Rule 23(a)(3) requires that "claims or defenses of the representative parties [be] typical of the claims or defenses of the class." A claim is typical if "it arises from the same event or practice or course of conduct that gives rise to the claims of other class members, and if his or her claims are based on the same legal theory." In re Am. Med. Sys., Inc., 75 F.3d 1069, 1082 (6th Cir. 1996).
Plaintiffs claims arise under the same legal theory and the same alleged course of conduct by the defendant. While this would normally suffice to satisfy Rule 23(a)(3), the named plaintiffs' decisions not to accept transfers could put them at odds with those class members who did accept transfers, as those members may well have stronger cases which could be compromised by this action. Such a problem normally could be cured by creating two subclasses: one for those who accepted transfers and one for those who did not. The rule that the litigant must be part of the class he seeks to represent, however, applies equally to subclasses. Betts v. Reliable Collection Agency, Ltd., 659 F.2d 1000, 1005 (9th Cir. 1981); see also Rodriguez v. Berrybrook Farms, Inc., 672 F. Supp. 1009, 1012 (W.D. Mich. 1987). Because both named plaintiffs would be part of the same subclass, there would be no named plaintiff to represent the subclass of employees who did accept transfers. Because of this lack of representation, certification would improper.
This argument could also have been framed as an objection to the adequacy of representation. Courts have addressed similar circumstances from the standpoint of typicality and adequacy of representation. See Bacon v. Honda, 370 f.3d 565, 574 (6th Cir. 2004); Levels v. Akzo Nobel Sal, Inc., 178 F.R.D. 171, 179 (N.D. Ohio 1998). Because defendant asserts lack of typicality, the parties' contentions will be viewed from that perspective.
C. Requirements of Rule 23(b)(3)
Plaintiffs seek certification under Rule 23(b)(3), which allows for certification if "the court finds that questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy." The Advisory Committee Note to 1966 Amendment to Fed.R.Civ.P. 23(b)(3) is instructive on this issue. It states that, "a fraud case may be unsuited for treatment as a class action if there was material variation in the representations made or in the kinds or degrees of reliance by the persons to whom they were addressed." (emphasis added).
The laws of both Michigan, Novak v. Nationwide Mut. Ins. Co., 599 N.W.2d 546 (Mich.App. 1999), and Ohio, Rose v. Zaving Homes, Inc., 122 Ohio App. 3d 739 (1st Dist. 1997), require plaintiffs to show justifiable and reasonable reliance to succeed on their fraud claims. Ohio requires reasonable and foreseeable reliance on a unambiguous promise that proximately results in injury for estoppel claims. Andersons, Inc. v. Consol, Inc., 185 F. Supp. 2d 833 (N.D. Ohio 2001). Michigan requires that the promisor reasonably should have expected the promisee to rely and a showing of actual reliance. Lovely v. Dierkes, 347 N.W.2d 752, 753 (Mich.App. 1984). Because many of these questions would necessarily require individual determinations based on facts specific to each individual class member, I cannot find that common issues predominate over questions affecting only individual members.
Plaintiffs contend that this court can presume reliance because defendant made substantially uniform representations. Plaintiffs cite considerable of authority that reliance can be presumed in securities fraud cases. Plaintiffs are correct in this proposition. Basic, Inc. v. Levinson, 484 U.S. 224 (1988). This is not, however, a securities case. The presumption of reliance that is available in securities fraud cases is rooted in an understanding of the specific workings of the securities industry and the processes by which the markets efficiently incorporate new information. This presumption does not arise outside the specific circumstances of the securities industry and has not been applied to common law fraud actions.
Plaintiffs, furthermore, argue that the uniformity of the alleged misrepresentations supports certification. Generally, fraud claims based on oral misrepresentations are not proper for class treatment because they are presumptively individualized. Simon v. Merrill, Lynch, Pierce, Fenner Smith, Inc., 482 F.2d 880, 882 (5th Cir. 1973). Other courts have suggested, largely in dicta, that presumption may be inappropriate if the representations are uniform or scripted. E.g. Morgan v. Markerdowne Corp., 201 F.R.D. 341, 349 (D.N.J. 2001).
As the Court of Appeals for the Ninth Circuit recognized in Poulos v. Caeser's World, No. 02-16604, 2004 WL 1774835 (9th Cir. Jan 15, 2004), however, "[t]he misrepresentations standing alone have little legal significance. To connect the dots between the bare allegations and the injury, the class needs something more. Here reliance a key causal link." The decision to choose a certain career path is inherently a personal one, based on numerous factors, as is the decision to enroll in a certain school. Here, as defendant points out, the proposed class members come from divergent backgrounds that likely provide them with different understandings of the railroad industry and different expectations about it. Such facts are likely to be crucial to establishing justifiable reliance and will differ from class member to class member. Moreover, even if the recruiting sessions were substantially uniform, the language of those presentations, as recorded in the Powerpoint slides, is ambiguous enough that the expectations generated by the presentations may well have varied from student to student.
In Stout v. J.D. Byrider, the Sixth Circuit held that, where "the factual core of the case was whether each putative class member relied upon false representations or failures to disclose, and if so, what damages where proximately caused by that reliance," the district court's refusal to certify a class was not an abuse of discretion because "`[a] fraud class action cannot be certified when individual reliance will be an issue.'" 228 F.3d 709, 718 (6th Cir. 2000) (quoting Castano v. American Tobacco Co., 84 F.3d 634, 745 (5th Cir. 1996)). Likewise, "[b]ecause of their focus on individualized proof, estoppel claims are typically inappropriate for class treatment." Sprague v. General Motors Corp., 133 F.3d 388, 398 (6th Cir. 1998) (en banc).
Because individual reliance will be the factual core of this case, certification of the proposed class is inappropriate under Rule 23(b)(3).
Conclusion
In light of the foregoing, it is
ORDERED THAT
Plaintiffs' motion for class certification be, and hereby is, denied.
So ordered.