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Class Action Defense Cases-Barnes v. First American: Ohio Federal Court Denies Motion To Amend Class Action Complaint To Substitute New Class Representatives

Federal Court Holds that Putative Class Members are not “Current Parties” to Class Action, and that Rule 41 Applies to Class Action Plaintiffs Requiring Consent of Defendant for Dismissal

Plaintiffs filed a putative class action against their title insurer, First American, alleging that the prices charged by First American for title insurance issued in connection with refinance transactions violate state law. First American filed a counterclaim against plaintiffs and joined two parties as third-party defendants. Ten months after filing the class action, plaintiffs’ lawyer sought leave of court to file a second amended class action complaint for the purpose of substituting class representatives. Barnes v. First American Title Ins. Co., 473 F.Supp.2d 798, 799 (N.D. Ohio 2007). Defense attorneys opposed the motion on several grounds including (1) the existence of counterclaims unique to plaintiffs, precluding dismissal absent a stipulation with First American; (2) the absence of good cause in that plaintiffs knew the facts underlying the motion at the time they filed the class action; (3) the proposed amendment to the class action complaint “does not assert new claims but rather seeks a wholesale substitution of parties with different facts and discovery”; (4) the resulting prejudice to First American in that substantial discovery had been completed during the preceding 10 months; and (5) the joinder by First American, as third-party defendants, the agents who sold plaintiffs the title policies at issue. Id. The district court agreed with the first and third arguments, and denied the motion to substitute class representatives.

Believing that they could not adequately represent the proposed class, plaintiffs’ lawyer sought to substitute in as class representatives Dean and Aimee Hickman in place of Randolph and Stacie Barnes because the Barnes’ are involved in probate court litigation in which “Mr. Barnes’ brother asserts the deed for the subject property that was subsequently refinanced by the Barnes was forged or obtained by fraud.” Barnes, at 799. Plaintiffs relied upon the general rule that leave to amend should be liberally granted and argued that “courts routinely grant leave to substitute parties in class action litigation.” Id. The district court recognized that the Sixth Circuit is “very liberal” in allowing complaints to be amended, id., at 800, but nonetheless denied the motion.

The federal court based its ruling on two grounds. First, after a detailed analysis, see id., at 799-802, the court held that putative class members are not “current parties” to a class action until the court grants class certification; accordingly, “the claims presented by the Hickmans in their proposed Second Amended Complaint involve claims of new parties.” Barnes, at 802. Second, the court agreed with defense attorneys that the Barnes could not “amend themselves out of this action,” id. As the district court explained at page 802:

Pursuant to Rule 41, no voluntary dismissal can occur without the stipulation of Defendant and Plaintiffs’ proposed Second Amended Complaint effectively dismisses current named Plaintiffs’ causes of action against Defendant. No such stipulation of dismissal has occurred. Therefore, named Plaintiffs must remain in this action not only as counterclaim defendants but also as Plaintiffs. The Barnes’ assertion that they will retain their own counsel to represent them on the counterclaim does not relieve them of their obligation to prosecute their claims as alleged in the Complaint pursuant to Rule 41.

Accordingly, the court held that it “cannot grant Plaintiffs’ Motion for Leave to Amend because the proposed amendment seeks to remove named Plaintiffs in favor of substitute Plaintiffs.” Id.

NOTE: The district court also noted that the Barnes had not filed a motion for joinder, and that the Hickmans had not filed a motion to intervene. Barnes, at 802.

Download PDF file of Barnes v. First American Title