New Jersey Appellate Panel Upholds Pre-Discovery Dismissal of Weak Class Action Claims
In Myska, et al. v. New Jersey Manufacturers Insurance Co. et al., New Jersey’s Appellate Division recently upheld a pre-discovery striking of a complaint’s class allegations and dismissal of its Consumer Fraud Act claims because the complaint, the underlying policies, and other documents referenced by the complaint showed that class treatment was not warranted and that the plaintiffs could not prevail on their Consumer Fraud Act claims.
In Myska, the plaintiffs, who were each insured by one of two insurance companies and had been involved in different accidents, filed class action lawsuits against the two insurers for their failure to provide adequate coverage for accidents caused by underinsured or uninsured motorists. On a pre-answer motion to dismiss, the trial judge struck plaintiff’s class allegations, “concluding a class action would be unsuitable based on the nature of the significant factual differences regarding the allegations supporting each plaintiff’s action.”
The Appellate Division affirmed. Although the panel acknowledged that “courts must liberally view class allegations and allow reasonable inferences to be gleaned from the complaint’s allegations and search for a possible basis for class relief to avoid premature dismissals,” it held that “the test does not merely turn on the stage of the litigation” and the striking of class allegations is not precluded when a court, following the required analysis, “determines alleged claims do not properly lend themselves to class certification.” The Court “flatly reject[ed] plaintiffs’ urging to impose a bright-line rule prohibiting examination of the propriety of class certification until discovery is undertaken[.]” Here, class action treatment was inappropriate because the complaint and documents referenced by it showed that “the facts underpinning each plaintiff’s claims were dependent upon the individual insurance policy provisions, the distinct vehicle damaged, and the specific calculation of damages alleged, which require separate litigation of every action.” Moreover, citing the New Jersey Supreme Court’s decision in Iliadis v. Wal-Mart Stores, Inc., the court held that the plaintiffs’ individual damages amounts were not insignificant and could support individual suits, whereas the purpose of the class action device is to adjudicate small-value claims. The Appellate Division also left undisturbed the trial court’s dismissal of the policyholders’ CFA claims, noting the inapplicability of the CFA to the dispute regarding payment or scope of coverage.
Of additional note, although the trial court ordered surviving claims against Palisades Insurance Company to arbitration consistent with the arbitration provision included in the subject policy, the appellate panel reversed that holding, concluding that the arbitration provision of Defendant Palisades’ policy did not comply with Atalese v. U.S. Legal Servs. Grp., L.P. and, as such, the provision was unenforceable. In Atalese, the New Jersey Supreme Court held that an arbitration provision in a consumer contract was unenforceable because it “did not clearly and unambiguously signal to plaintiff that she was surrendering her right to pursue her statutory claims in court.” The Defendant in Atalese has pending a petition for certiorari to the Supreme Court of the United States.
Overall, Myska demonstrates a reluctance by the courts to force a class action defendant to engage in costly discovery where the asserted class claims are not tenable, but it is possible that the opinion may be narrowly applied to analogous facts. While the decision has the potential to help slow the use of class-action claims as sword with which to intimidate defendants into settlement prior to class certification, it will be interesting to watch its impact of on class action litigation in New Jersey. Stay tuned to this blog for additional developments.