New York Federal Court Denies Class Certification Due To Rule 23(a)(4) Adequacy Requirement Based On Employer’s Strong Defense To Plaintiff’s Individual Claims

By Gerald L. Maatman, Jr., Katelynn Gray, and Gregory S. Slotnick 

Duane Morris TakeawaysLack of adequacy of the named plaintiff in a class action can result in the denial of Rule 23 class certification in appropriate circumstances.  In Cheng, et al. v. HSBC Bank USA, N.A., No. 20-CV-01551, 2023 U.S. Dist. LEXIS 161453 (E.D.N.Y. Sept. 12, 2023), the plaintiff filed a class action against the defendant alleging breach of contract and violation of § 349 of the New York General Business Law.  The plaintiff filed a motion for class certification pursuant to Rule 23, and the court denied the motion on the basis of the bank’s strong defense to the plaintiff’s individual claims, which was was likely to impede the claims of other class members – even though the class members were not subject to the same defense.  Employers in New York defending Rule 23 class actions should carefully consider the court’s reasoning and finding that plaintiff was an inadequate representative of his sought-after class.  As shown in Cheng, potential defenses to a named plaintiff’s individual claims may be sufficient to defeat class certification.  

Case Background

In Cheng, the plaintiff asserted that defendant HSBC Bank USA, N.A. (“HSBC” or “the bank”) failed to apply interest to plaintiff’s bank savings account deposits in a timely manner.  After the plaintiff made a deposit with the bank on May 31, 2019, he alleged HSBC did not apply any interest on the account until June 4, 2019, four days after the deposit.  Plaintiff claimed the bank also delayed applying interest on another deposit made on November 26, 2019 until November 29, 2019.  In November and December 2019, the plaintiff made phone calls to HSBC to address the alleged delays in crediting interest to his deposits.  Id. at *2.  The bank responded that its policy was to not credit interest on account deposits until 3 to 5 business days after they were made.  In the 2019 phone calls, the plaintiff indicated that he understood interest could not accrue until the bank had his “money on hand,” and that his concern was that the bank was failing to post the funds and initiate interest accrual upon receipt of those funds, despite the fact that it already had the “money on hand.”  Id. at *3.  In one of the 2019 phone calls, when a bank representative explained that plaintiff should have received an email indicating his deposit needed to pass through a clearing process before HSBC could post it to his account (and presumably, begin interest accrual), plaintiff responded, “I don’t care about the email…I look at when is my money withdraw[n] from other bank, when is the money posted to my HSBC account, okay?  Don’t tell me HSBC takes five days to post the money after you receive it.”  Id. at *4.

In plaintiff’s lawsuit, brought on behalf of himself and a prospective class of customers, plaintiff claimed HSBC was obligated to credit interest to his account on the day he initiated the deposit or transfer, rather than when the bank actually received the money.  Plaintiff contended the class consisted of at least 100 members and the amount in controversy exceeded $5 million.  Id. at *5.  At his deposition, plaintiff attempted to contextualize the 2019 phone calls, but admitted that he had read HSBC’s Terms and Charges Disclosures (“Disclosures”) when opening his account.  The Disclosures stated that “[i]nterest begins to accrue on the Business Day you deposit noncash items.”  Noncash items are instruments like checks and wire transfers.  Id. at *1-2.

Although the court previously had denied the bank’s motion for summary judgment on the claims by drawing all reasonable inferences in plaintiff’s favor, it expressed in that decision its view that the 2019 phone calls “strongly suggested” plaintiff shared HSBC’s understanding that the “you deposit” language in the Disclosures meant interest would begin to accrue once HSBC had cleared funds on hand, not when he initiated the deposit.  Id. at *6.  The court also opined that in the calls, plaintiff appeared to recognize HSBC could not apply interest until it was in receipt of his funds, and plaintiff told the bank multiple times that if the delay in accruing interest was due to a delay in receiving the funds, “that’s perfect” and “that’s fine.”  Id.

The Court’s Opinion Denying Class Certification

In its decision denying class certification under Rule 23, the court set forth Rule 23’s threshold requirements for class certification – numerosity, commonality, typicality, and adequacy – and confirmed plaintiff bears the burden of establishing each element.  Id. at *8.  The court pointed specifically to the adequacy requirement of Rule 23(a)(4), which focuses on the fitness of purported class representative to competently litigate the case on behalf of absent class members, and reiterated that the interests of the named plaintiff cannot be antagonistic to those of the rest of the class.  Id.

The court found that plaintiff faced “serious obstacles to recovery on his individual claims,” and that plaintiff’s statements made in the 2019 phone calls were compelling evidence he understood that he would not begin accruing interest until the bank had his cash on hand.  Id. at *10.  The court reasoned that in his class certification motion, plaintiff now alleged that the bank misled him to believe that interest would begin accruing as soon as he initiated a deposit, which was contradicted by the statements made by plaintiff in the 2019 phone calls.  The court determined that the 2019 phone calls, plaintiff’s conflicting allegations about whether he read the Disclosures, and his prior relevant litigation and banking history were all likely to weaken his claims, and that there was a strong argument that plaintiff “knew precisely what he was doing and that he and HSBC shared the same understanding about what the key term ‘you deposit’ meant.”  Id. at *11.

As a result, the court determined that the plaintiff could not be an adequate representative of the class he sought to represent because he acknowledged in the 2019 phone calls that he understood the key terms of the bank’s policies.  The court opined there was a strong argument that the plaintiff understood the defendant’s terms, but was attempting to represent a class based on the bank’s alleged misconduct.  Id. at *10-11.  The court ruled that it was “not comfortable” making plaintiff the representative of all other class members’ claims and allowing him to bind hundreds of absent class members to plaintiff’s story, conditioning their recovery on how well plaintiff’s story held up.  Id. at *12.  For these reasons, the court denied plaintiff’s motion for class certification under Rule 23(a)(4).

Implications For Employers

The court’s decision denying class certification based on its finding that plaintiff failed to meet Rule 23’s adequacy threshold requirement is a potentially helpful roadmap for employers facing class action claims.  The court’s analysis centered on an individualized determination of plaintiff’s particular factual background in ultimately holding it was uncomfortable the plaintiff could adequately represent hundreds of absent class members based on his own contradictory and inconsistent testimony and evidence.  Businesses defending class actions should consider each named plaintiff’s individual circumstances and factual background for issues that could preclude their ability to adequately represent class members.  The decision confirms that in the appropriate circumstances, courts will not hesitate to deny class certification to named plaintiffs on such grounds.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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