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Childress v. JPMorgan Chase & Co.

United States District Court, E.D. North Carolina, Western Division

July 2, 2019

GARY and ANNE CHILDRESS, et al, Plaintiffs,
JPMORGAN CHASE & CO., et al, Defendants.



         This cause comes before the Court on plaintiffs' motion to certify class and appoint class counsel as well as defendants' motions to exclude plaintiffs' expert testimony and evidence of damages. The appropriate responses and replies have been filed, and a hearing on the matters was held before the undersigned on May 28, 2019, at Raleigh, North Carolina. In this posture the motions are ripe for ruling and, for the reasons that follow, the motion to certify class is granted in part, the motion to exclude the testimony of Arthur Olsen is denied, the motion to exclude the testimony of Jonathan Shefftz is granted, and the motion to exclude damages evidence is denied without prejudice.


         Plaintiffs Gary and Ann Childress, Russell and Suzannah Ho, and Michael Clifford, filed this case on behalf of themselves and others similarly situated alleging claims against defendants for violations of the Servicemembers Civil Relief Act (SCRA), 50 U.S.C. §§ 3901 et seq., breach of contract, violation of the Truth in Lending Act, 15 U.S.C. § 1637(b), negligence, negligent misrepresentation, violation of the Delaware Consumer Fraud Act, Del. Code Ann. Tit. 6 § 2511, et seq., violation of the North Carolina Unfair and Deceptive Trade Practices Act, N.C. Gen. Stat. § 75-1.1, et seq., and breach of fiduciary duty. In addition to damages, plaintiffs seek a constructive trust and an accounting. [DE 1].

         The SCRA requires that all debts incurred by members of the armed services before being called to active duty are reduced to a 6% interest rate from the date of deployment through the period of active duty, and that all financial institutions must forgive interest above the rate of 6%. Id.¶1. Plaintiffs allege that defendants, JP Morgan Chase & Co., JP Morgan Chase Bank, N.A., Chase Bank USA, and Chase BankCard Services (collectively referred to herein as Chase), offered active duty military members more generous benefits than those required by the SCRA. Id. ¶ 2. Plaintiffs allege that, despite the requirements of the SCRA and its own beneficial contractual terms with active-duty customers, Chase charged an illegally high interest rate and improper fees on the debts of thousands of servicemembers, allowed these unlawful interest charges to improperly inflate servicemembers' principal balances, and then charged compound interest on these inflated balances. Id. ¶ 3. Plaintiffs then allege that Chase concealed its SCRA violations from the thousands of military families impacted. Plaintiffs and others did not discover the violations until 2016 when Chase sent misleading correspondence and checks to some military customers. Id. ¶ 4.

         On September 18, 2013, Chase Bank USA, JP Morgan Chase Bank, and JPMorgan Bank and Trust Company entered into a consent order with the Office of the Comptroller of the Currency (OCC). [DE 196] Delaney Decl. ¶ 14. The consent order concerned Chase's discovery that it had not implemented effective controls of its SCRA benefits process, and Chase self-reported this issue to the OCC. [DE 195 at 12]. Chase contends that the consent order was designed to remediate any customers potentially affected by Chase's ineffective SCRA controls. Id. The remediation was designed to be overinclusive and to minimize the risk that SCRA-eligible customers would be excluded. Delaney Decl. ¶ 16. For those accounts identified, Chase identified the amount of interest charged over 6% and any eligible fees assessed. Id. ¶ 29. For any amount of remediation that was $10 or more, Chase "provided the greater of $500 or three times the total remediation amount, net (after trebling) of any prior correction credits it had granted the servicemember." Id. ¶ 30. The consent order covered the period of January 1, 2005, through September 18, 2013. Id. ¶14.

         On May 6, 2016, Chase Bank USA, with whom he maintained accounts, mailed plaintiff Gary Childress a check for $6, 899, in remediation funds. Id. ¶ 47. The check was accompanied by a letter which stated

We're writing to apologize because we may have charged you interest and/or fees incorrectly when you may have been eligible for Servicemember's Civil Relief Act benefits or protections. . . . We're refunding you the interest and/or fees, plus an additional amount for that inconvenience.

Id. Gary Childress deposited the check on or about May 16, 2016. Id.

         Chase Bank USA calculated a remediation amount for plaintiff Russell Ho of $570.00, and mailed him a check for the same with a substantially similar letter as above on May 13, 2016. Russell Ho deposited the check on May 27, 2016. Id. ¶ 69. After determining that plaintiff Michael Clifford had previously been fully compensated for any overcharges by prior remediations, Chase Bank USA calculated a remediation amount of $1, 044.00 meant only to compensate Clifford for any inconvenience that the prior overcharges had caused. Id. ¶ 98. Chase Bank USA mailed plaintiff Clifford a check for that amount along with a substantially similar letter as above, with the clarification that the amount enclosed was an inconvenience payment, on May 6, 2016. Clifford deposited the check on May 17, 2016. Id. ¶ 99.

         Plaintiffs seek to define the class as follows:

All persons who, at any time on or after September 11, 2001 (the "Class Period"), received reduced interest and/or fee benefits from Defendants on a credit card obligation or account because of an obligor's military service, but excluding persons who have executed a release of the rights claimed in this action.

[DE 229; 231]. Plaintiffs further seek appointment of plaintiffs Gary Childress, Russell Ho, and Michael Clifford as class representatives. Id. Plaintiffs have clarified that the class will be limited to credit card holders whose claims concern only defendant Chase Bank USA, N.A. [DE 229 at 4-5]. Plaintiffs have further clarified that their claims proceed against Chase for its own conduct and not for those of predecessor banks. Id. at 5. Finally, plaintiffs seek appointment of the law firms of Shanahan McDougal, Smith and Lowney, and Keller Rohrback as class counsel. Id.

         In support of their motion to certify class, plaintiffs have proffered the opinions of two experts, Arthur Olsen and Jonathan Shefftz, which defendants seek to exclude under Federal Rule of Evidence 702, Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), and Federal Rule of Evidence 37. Defendants further seek to exclude any evidence of damages offered by plaintiffs in connection with any motion or at trial for failure to comply with Federal Rule of Civil Procedure 26(a)(1)(A)(iii).


         I. Motions to exclude expert testimony.

         At the outset, the Court notes that there is no controlling precedent which dictates whether to conduct a Daubert analysis at the class certification stage or how focused or full that analysis should be. See, generally, 3 Newberg on Class Actions § 7:24 (5th ed. 2014). The Court is persuaded by authorities which have concluded that where a movant has proffered expert testimony in support of its motion for class certification, and such testimony is critical to the issue of class certification, a full Daubert inquiry is appropriate. In re Blood Reagents Antitrust Litig., 783 F.3d 183, 187 (3d Cir. 2015); see also Campbell v. Nat'l R.R. Passenger Corp., 311 F.Supp.3d 281, 295 (D.D.C. 2018); Soutter v. Equifax Info. Servs. LLC, 299 F.R.D. 126, 131 (E.D. Va. 2014).

         Rule 702 of the Federal Rules of Evidence allows a qualified witness to offer an expert opinion if

(a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
(b) the testimony is based on sufficient facts or data;
(c) the testimony is the product of reliable principles and methods; and
(d) the expert has reliably applied the principles and methods to the facts of the case.

Fed. R. Evid. 702(a)-(d). The offering party bears the burden of demonstrating by a preponderance of the evidence that the expert testimony it seeks to introduce meets the requirements of Fed.R.Evid. 702. See Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 592 n.10 (1993). The court must make a preliminary assessment as to whether the proposed expert's reasoning and methodology is scientifically valid and whether such reasoning and methodology may be appropriately applied to the facts that are at issue. Id. at 592. The primary concern for a court is whether the proposed expert testimony is reliable and relevant. In re Lipitor (Atorvastatin Calcium) Mktg., Sales Practices & Prod. Liab. Litig. (No II) MDL 2502, 892 F.3d 624, 637 (4th Cir. 2018). In making such determination, a court is not bound by a definitive list and may consider a wide variety of factors, including testing, error rates, and acceptability in the relevant community. Daubert, 50 U.S. at 593; Kumho Tire Co. v. Carmichael, 526 U.S. 137, 141 (1999).

         A. Testimony of Arthur Olsen.

         Arthur Olsen is an information technology consultant and has offered an expert opinion on the acertainability of the putative class and the calculation of potential class members' damages. Olsen is the principal of an information technology (IT) firm and has over twenty years of professional IT experience; Olsen specializes in the areas of data analysis, database development, and database administration support. [DE 175] Olsen Decl. ¶ 2. Olsen has litigation experience in which he has analyzed historical bank data from over thirty U.S. banks in order to determine whether damaged class members could be ascertained and to calculate individual damages from those class members. Id. ¶6.

         Chase's primary challenges to Olsen's testimony are that it is not grounded in fact and that it relies on insufficient assumptions. For example, Olsen opines that the class is readily identifiable based upon Chase's data, specifically the data that Chase used to generate customers who may qualify for its OCC-approved remediation. As to class members outside the remediation period, Olsen opines that they can be identified because Chase provided them with military benefits, and Chase maintains a database that codes borrowers based upon the membership in its SCRA program. Id. ¶¶ 12-13. Olsen further opines that the calculation of class damages can be accomplished using data available to Chase, and that an algorithm can be developed to accomplish this objective. Id. ¶¶ 14-15.

         Chase objects to Olsen's opinions because he does not identify specific data on which he will rely, but rather relies somewhat broadly on "data available to Chase." While such an objection may be appropriate in other circumstances, Olsen's declaration is clear that, as in other litigation involving large banks, including litigation involving JP Morgan Chase Bank, Olsen has been and would here be able to use customer and account information that Chase maintains in order to accurately ascertain the class and calculate class damages. While Chase makes much of Olsen's reliance on Chase's own calculations and formulations for its remediation payments, arguing that the parameters for remediation qualification were different from the parameters which would be used to identify class members or calculate class damages here, it is difficult to understand how if Chase could utilize an algorithm and data searches to determine which of its customers should be remediated, Olsen could not, using the same and possibly additional data, perform similar calculations. See [DE 207] Olsen Dep. at 90-91. It cannot be seriously disputed that Chase knows who its customers are and which are members of its SCRA program. Chase further has access to account information, including the interest rates that it has been charging.

         Additionally, what constrains Olsen's expert opinion at this stage is the subject of discovery disputes between the parties. What is before the Court today, however, is not whether Olsen's damages calculation is accurate, but whether his expert opinion that he will be able to ascertain the class and calculate class damages is sufficiently relevant and reliable. See [DE 207] Olsen Dep. at 83 ("My role is to say... this type of data exist, and it can be used. I can use it, but I'll need some further information about exactly how this data should be used."). The Court finds that it is. Olsen has conducted similar analyses in other cases and, when permitted access to the relevant data, the Court persuaded that he can do so here. The Court is mindful of the limited extent of Olsen's current opinion - that he believes that the data exist and that he can use the data to determine the members of the putative class and the calculation of class damages. Of course, Chase may challenge any future opinion Olsen renders as to actual class members or damages when the case is ready for trial, but at this stage the Court will not exclude his testimony.

         B. Testimony of Jonathan Shefftz.

         Jonathan Shefftz is an independent consultant who focuses on the application of financial economics to the analysis of individuals, businesses, and municipalities. [DE 176] Shefftz Decl. ¶ 3. He has been qualified as an expert a number of times in United States District Court. Id. ¶ 4. Here, he opines that plaintiffs Gary and Anne Childress suffered post-remediation period damages in the form of overcharges and excess tax liability. Id. ¶ 5. In order to reach this conclusion Shefftz relied on the analysis provided by Chase's expert Jennifer McCabe. In essence, Shefftz reviewed McCabe's analysis and performed simple arithmetical calculations to determine that the Childresses incurred damages after Chase had provided them with a remediation check. See [DE 212] Shefftz Dep. at 93.

         Although plaintiffs oppose excluding Shefftz's testimony, they concede that "all of the same conclusions reached by Mr. Shefftz could be reached by the Court without any expert assistance . . .." [DE 228 at 6]. Shefftz's declaration does not offer any technical or specialized expertise that will assist the Court in making its determination as to whether plaintiffs have satisfied the burden under Fed.R.Civ.P. 23 to certify a class. See McCall v. Skyland Grain LLC, No. 08-CV-01128PABBNB, 2010 WL 1435369, at *3 (D. Colo. Apr. 9, 2010) (conducting simple ...

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