Class Actions Brief Blog

Although Rule 23(a) provides that members of a class may “sue or be sued,” a defendant class is quite the rarity. But the court-appointed receiver of Rex Venture Group LLC d/b/a www.ZeekRewards.com was successful in persuading Judge Mullen to certify a defendant class comprised of “Net Winners” in a Ponzi scheme in which over 700,000 participants lost over $700 million. See Bell v. Disner, No. 3:14-cv-91 (W.D.N.C. Feb. 10, 2015). Over $238 million in net winnings, according to the receiver, were obtained by 9,400 individuals from the net losers’ money. Judge Mullen found that a class action was a particularly suitable vehicle to recover unjust gains received in a fraudulent transfer setting, noting that “the efficiency of one action in which all parties can argue their case and assert their rights will benefit both the Receiver and small winners.” The Court was “firmly convinced a class action is the only means to reasonably and efficiently resolve the Receiver’s claims against 9,400 Net Winners.” The Court cited two bankruptcy decision from outside the Fourth Circuit which concluded that Rule 23(a) requires only that a “single issue” be common to the class, and concluded that “any potential dissimilarities among the members of the proposed class do not impair the ability to reach a common resolution to the core issues of law and fact in this case.”

Certification of a defendant class raises obvious due process issues: if the common question is decided against an absent class member, his or her personal pocket book becomes at risk, and the affected class member must ride the coattails of the named representatives to protect against financial loss. Judge Mullen indicated he was “mindful of due process concerns,” but nevertheless chose to proceed under Rule 23. Most class actions notices are thrown away by class members – here’s hoping that the 9,400 “net winners” will pay a bit more attention to their mail.