The United States District Court for the Northern District of California recently issued an order demonstrating the effects that a release in a settlement in one class action may have on claims in subsequent class actions.  In McNeary-Calloway v. JP Morgan Chase Bank, N.A., Case No. C-11-03058 JCS, United States Magistrate Judge Joseph C. Spero granted in part the defendants’ motion to dismiss, finding that some of the putative class’s claims were barred as a result of a settlement reached in a prior class action brought in the same district.  Applying the “identical factual predicate” doctrine, the court found that a portion of the plaintiffs’ claims in McNeary-Calloway had been released as a result of the prior settlement.

The plaintiffs in McNeary-Calloway brought an action on behalf of a purported nationwide class consisting of all persons who were allegedly harmed when hazard insurance was “force-placed” by their mortgage lender or servicer.  Plaintiffs alleged that the defendants purchased force-placed insurance from insurers that provided a financial benefit to defendants at rates that exceeded borrower-purchased hazard insurance, while at the same time providing less coverage.  Plaintiffs further alleged an excessive collection of premiums because the force-placed policies were improperly backdated and duplicative of other insurance available to the lenders.

Defendants moved to dismiss plaintiffs’ claims, in part based on the release in a settlement that had been previously entered in Wahl v. Am. Sec. Ins. Co., C08-00555-RS (N.D. Cal. 2011).  In Whal, a class was certified for purposes of settling claims brought on behalf of all California homeowners relating to force-placed insurance policies issued by American Security Insurance Company (“ASIC”) that included periods during which prior hazard insurance had been in effect.  The settlement, in pertinent part, released all claims arising out of the facts alleged in Wahl and included all lenders and servicers who purchased or originated insurance from ASIC or its affiliates.  The defendants in McNeary-Calloway, who were lenders and/or servicers that purchased insurance policies from ASIC, asserted that the releases in the Whal settlement precluded the claims of the individual California plaintiffs and the purported California subclass in McNeary-Calloway.

The court held that a class settlement may release factually related claims against parties not named as defendants, and thus it did not matter that the defendants in McNeary-Calloway were not identified by name in the Wahl settlement.  Following Ninth Circuit precedent, the court applied the “identical factual predicate” doctrine to determine which claims fell within the Wahl settlement.  The court found that the Wahl settlement precluded claims based on force-placed insurance that was duplicative of other insurance with respect to the California plaintiffs in McNeary-Calloway.

The court’s decision in McNeary-Calloway highlights the impact that the release in a prior settlement can have in limiting later claims by a plaintiff class.  This is particularly significant in cases where injunctions to limit competing litigation are not available in the class settlement context.