_____

IN THE

United States Court of Appeals

FOR THE FOURTH CIRCUIT

RECORD NO. 00-1944

_____

TRANSOUTH FINANCIAL CORPORATION, et al.,

Appellant,

NORA CHISOLM,

Appellee

_____

OPPOSITION TO TRANSOUTH’S PETITION

FOR WRIT OF MANDAMUS

Filed August 7, 2000

______

F. Paul Bland, Jr.

Trial Lawyers for Public Justice

1717 Massachusetts Avenue, N.W., Suite 800

Washington, D.C. 20036

(202) 797-8600

Kieron F. Quinn

Richard S. Gordon

Quinn, Gordon & Wolf

40 West Chesapeake Ave., No. 408

Baltimore, Maryland 21204

(410) 825‑2300

TABLE OF CONTENTS

PAGE

TABLE OF AUTHORITIES............................................................................................................ iii

COUNTER STATEMENT OF THE ISSUES PRESENTED............................................................ 1

COUNTER STATEMENT OF STANDARD OF REVIEW............................................................. 1

SUMMARY OF ARGUMENT........................................................................................................ 2

STATEMENT OF FACTS............................................................................................................... 8

I. STATEMENT OF FACTS................................................................................................... 8

II. STATEMENT OF PROCEDURAL FACTS...................................................................... 17

ARGUMENT................................................................................................................................. 25

1. THE DRASTIC AND EXTRAORDINARY REMEDY

OF MANDAMUS IS NOT AVAILABLE IN THESE CIRCUMSTANCES..................... 25

II. THE DISTRICT COURT’S DECISION TO CERTIFY

THE CLASS IS PLAINLY CORRECT.............................................................................. 34

A. DESPITE TRANSOUTH’S STATEMENTS TO THE

CONTRARY, THE DISTRICT COURT HAS NOT

“CONCLUSIVELY” RESOLVED THE ISSUE OF

JUSTIFIABLE RELIANCE, BUT HAS INSTEAD

LEFT THE ISSUE TO BE TRIED TO THE JURY................................................. 34

B. TRANSOUTH’S POSITION THAT THE SEVENTH

AMENDMENT ALWAYS BARS ANY CLASS ACTION

IN ANY RICO CASE WOULD REQUIRE THIS COURT

TO DISAPPROVE OF THE HOLDINGS IN MORE

THAN A SCORE OF REPORTED CASES........................................................... 36

C. THE U.S. SUPREME COURT HAS REJECTED TRANSOUTH’S
POSITION THAT CLASS ACTIONS ARE IMPERMISSIBLE IN ALL
COMMON LAW FRAUD CASES 38

D. TRANSOUTH’S CONSTITUTIONAL ARGUMENT

IS ROOTED IN ITS CONTINUING REFUSAL TO

ACCEPT THIS COURT’S TWO EARLIER RULINGS

IN THIS CASE ON RELIANCE........................................................................... 40

E. THIS COURT SHOULD PLACE NO WEIGHT UPON TRANSOUTH’S
ATTACK ON THE TESTIMONY OF CURTIS GOODWIN 41

III. THERE IS NO CONFLICT BETWEEN SUBCLASSES HERE........................................ 46

1. THERE IS NO CONFLICT BETWEEN SUBCLASSES

A AND B, AS THE U.C.C. DOES NOT PERMIT

TRANSOUTH TO USE A PHONY BID PROCESS TO

EITHER STEAL SURPLUSES OWED OR TO PURSUE

CLASS MEMBERS FOR FRAUDULENT DEFICIENCY JUDGMENTS............ 46

B. THERE IS NO CONFLICT BETWEEN SUBCLASSES

A AND B ON THE ONE HAND, AND SUBCLASS C

ON THE OTHER HAND, BECAUSE THE U.C.C.

DOES NOT PERMIT A SECURED PARTY TO SEND

OUT A FRAUDULENT NOTICE MERELY BECAUSE

IT WILL TRANSFER COLLATERAL TO ANOTHER

PARTY (THAT WILL THEN BECOME THE SECURED PARTY)
THAT WILL ULTIMATELY SELL THE CAR...................................................... 50

CONCLUSION............................................................................................................................. 55

TABLE OF AUTHORITIES

CASES

Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997) ............................................ 6, 30, 38, 39

Arenson v. Whitehall Convalescent & Nursing Home, Inc., 164 F.R.D. 659

(N.D.Ill. 1996) ................................................................................................................... 37

In re Beard, 811 F.2d 818 (4th Cir. 1987), citing In re Ralston Purina Co.,

726 F.2d 1002 (4th Cir. 1984) ........................................................................................... 26

Broussard v. Meinecke Discount Muffler Shops, Inc., 155 F.3d 331

(4th Cir. 1988) ..................................................................................................................... 2

In re Catawba Indian Tribe, 973 F.2d 1133 (4th Cir. 1992) ......................................................... 26

Central Wesleyan College v. W.R. Grace & Co., 6 F.3d 177 (4th Cir. 1993) ................................. 1

Chisolm v. TranSouth Fin. Corp., 95 F.3d 331 (4th Cir. 1996) ............................................. passim

Chisolm v. TranSouth Fin. Corp., 164 F.3d 623 (1998)

(unpublished decision) ................................................................................................... 10, 20

Chisolm v. TranSouth Fin. Corp., 184 F.R.D. 556 (E.D. Va. 1999) ...................................... passim

Cook v. Hayden, 183 Va. 203 (1944) ........................................................................................... 35

Cope v. Metropolitan Life Ins. Co., 696 N.E.2d 1001 (Ohio 1998) .............................................. 39

Dept. of Economic Dev. v. Arthur Andersen & Co., 683 F. Supp. 1463

(S.D.N.Y. 1988) .................................................................................................................. 2

Dornberger v. Metropolitan Life Ins. Co., 182 F.R.D. 72

(S.D.N.Y. 1998) ................................................................................................................ 37

Duhaime v. John Hancock Mut. Life Ins. Co., 177 F.R.D. 54

(D. Mass. 1997) ................................................................................................................. 39

Falk v. TranSouth, 296 CV 828 (E.D. Va) ................................................................................... 23

Fallert Tool & Engg. Co. v. McClain, 579 S.W.2d 751

(Mo. Ct. App. 1979) .......................................................................................................... 49

Fogie v. Rent‑A‑Center, 867 F. Supp. 1398 (D. Minn. 1993) ....................................................... 37

In re First Fed'l Sav. & Loan Ass'n of Durham,

860 F.2d 135 (4th Cir. 1988) ......................................................................................... 8, 26

In re Ford Motor Co., 27 U.C.C. Rep. Serv. 1118 (FTC 1979)

rev'd on other grounds, Ford Motor Co. v. FTC,

673 F.2d 1008 (9th Cir. 1981) ........................................................................................... 54

Garner v. Healy, 184 F.R.D. 598 (N.D. Ill. 1999) ......................................................................... 37

Gary v. Sheahan, 188 F.3d 891 (7th Cir. 1999) rehrng denied,

1999 U.S. App. LEXIS 25192 (7th Cir. October 7, 1999).................................................. 28

Heastie v. Community Bank of Greater Peoria, 125 F.R.D. 669

(N.D. Ill. 1989) .................................................................................................................. 37

Hoban v. USLife Credit Life Ins. Co., 163 F.R.D. 509

(N.D. Ill. 1995) .................................................................................................................. 37

Hoxworth v. Blinder, Robinson & Co., , 980 F.2d 912

(3rd Cir. 1992) ................................................................................................................... 36

Iron Workers Local Union No. 17 Ins. Fund v. Philip Morris, Inc.,

182 F.R.D. 523 (N.D. Ohio 1998) ............................................................................... 12, 37

Johnson v. Rohr‑Ville Motors, Inc., 189 F.R.D. 363 (N.D. Ill. 1999) ............................................ 37

Joncek v. Local 714 Int'l Bhd. of Teamsters Health and Welfare Fund,

1999 U.S. Dist. LEXIS 14853 (N.D. Ill. Sept. 3, 1999) ..................................................... 37

LILCO v. Transamerica Delaval, Inc., 648 F. Supp. 988 (S.D.N.Y. 1986) .................................. 29

Longden v. Sunderman, 123 F.R.D. 547 (N.D. Tex. 1988) .......................................................... 37

Mace v. Van Ru Credit Corp., 109 F.3d 338 (1997) .................................................................... 39

Martin v. Williams, 194 Va. 437 (1952) ....................................................................................... 35

Matlack, Inc. v. Hupp Corp., 57 F.R.D. 151 (E.D. Pa. 1972) ....................................................... 29

McDonnell Douglas Fin. Corp. v. Pennsylvania Power & Light Co.,

849 F.2d 761 (2nd Cir. 1988) ............................................................................................ 28

McMahon Books, Inc. v. Willow Grove Assoc., 108 F.R.D. 32

(E.D. Pa. 1985) .................................................................................................................. 37

Morse v. Bankers Life & Cas. Co., 2000 U.S. Dist. LEXIS 2211

(N.D. Ill. Feb. 23, 2000) .................................................................................................... 37

In re Prudential Ins. Co. Am. Sales Practice Litig. Agent Actions,

148 F.3d 283 (3d Cir. 1998), cert. denied,

Krell v. Prudential Ins. Co. of Am., 525 U.S. 1114 (1999) .............................................. 39

In re Rhone‑Poulenc Rover, Inc., 51 F.3d 1293 (7th Cir. 1995) ........................................ 29, 30, 31

Rhoten v. United Virginia Bank, 269 S.E.2d 781 (Va. 1980) ................................................. 51, 52

Rodriguez v. McKinney, 156 F.R.D. 112 (E.D. Pa. 1994) ............................................................. 37

Scholes v. Tomlinson, 145 F.R.D. 485 (N.D. Ill. 1992) ................................................................. 37

Smith v. MCI Telecomm. Corp., 124 F.R.D. 665 (D. Kan. 1989) ................................................. 37

Somerville v. Major Exploration, Inc., 102 F.R.D. 500

(S.D.N.Y. 1984) ................................................................................................................ 38

Stewart v. Associates Consumer Discount Co., 183 F.R.D. 189

(E.D. Pa. 1998) .................................................................................................................. 37

In re Synthroid Mktg. Litig., 188 F.R.D. 287 (N.D. Ill. 1999) ....................................................... 37

Trautz v. Weisman, 846 F. Supp. 1160 (S.D.N.Y. 1994) .............................................................. 37

U.S. v. 9,947.71 Acres of Land, 220 F. Supp. 328 (D. Nev. 1963) ............................................... 29

In re Virginia Beach, 42 F.3d 881 (4th Cir. 1994),

quoting Kerr v. United States District Court, 426 U.S. 394 (1976) ................................. 26

Walco Inv. v. Thenen, 168 F.R.D. 315 (S.D. Fla. 1996) ............................................................... 37

Waste Management Holdings, Inc. v. Mowbray, 208 F.3d 288

(1st Cir. 2000) ................................................................................................................... 28

Wells v. McDonough, 1998 U.S. Dist. LEXIS 4441

(N.D. Ill. Mar. 23, 1998) .................................................................................................... 39

STATUTES AND RULES

U.S. Constitution, Seventh Amendment..................................................................................... passim

The Racketeer Influenced and Corrupt Organizations Act ("RICO"),

18 U.S.C. §§ 1962(a) and 1962(d) ............................................................................. passim

Fed. R. Civ. P. 23(b)(3) ................................................................................................................... 6

Fed. R. Civ. P. 23(f) ................................................................................................................ passim

Va. Code Ann. § 8.9‑504........................................................................................................ passim

COUNTER STATEMENT OF THE ISSUES PRESENTED

1. HAS TRANSOUTH DEMONSTRATED THAT THE DISTRICT COURT COMMITTED “A JUDICIAL USURPATION OF POWER,” AS THIS COURT HAS REQUIRED AS A PREREQUISITE TO THE GRANT OF A WRIT OF MANDAMUS IN THE CLASS CERTIFICATION CONTEXT? (NO.)

II. WHETHER THE SEVENTH AMENDMENT FORBIDS CLASS ACTION TRIALS IN ALL RICO AND COMMON LAW FRAUD CASES? (NO.)

III. WHETHER A DISTRICT COURT RULING THAT A JURY MAY (OR MAY NOT) INFER JUSTIFIABLE RELIANCE FROM CIRCUMSTANTIAL EVIDENCE TO BE PRESENTED AT TRIAL IS A “CONCLUSIVE DETERMINATION” OF THE ISSUE THAT VIOLATES THE SEVENTH AMENDMENT? (NO.)

IV. WHERE A CLASS OF PLAINTIFFS ALLEGES THAT A BANK AND A USED CAR DEALER ENGAGED IN BOGUS “SALES” OF REPOSSESSED CARS AND THEN LATER ACTUALLY SELLING THE CARS AT A HIGHER PRICE, IS THERE A CONFLICT BETWEEN A SUBCLASS WHICH ALLEGES THAT THE CONSPIRATORS STOLE THE SURPLUS THAT SHOULD HAVE BEEN PAID TO THEM FOR WHOM THE ACTUAL SALE PRICE EXCEEDED THEIR DEBT, AND THE OTHER SUBCLASS WHICH ALLEGES THAT THE CONSPIRATORS PURSUE FRAUDULENT DEFICIENCY ACTIONS AGAINST THEM? (NO.)

COUNTER STATEMENT OF STANDARD OF REVIEW

Furthermore, TranSouth’s petition should not be granted because the District Court’s decision is proper and well within its discretion. TranSouth claims that the District Court has violated its Seventh Amendment rights by “determin[ing] as a matter of law” the question of reliance against it for all class members. E.g., Petition at 1. In making this argument, TranSouth completely mischaracterizes the District Court’s rulings. The District Court has not resolved the justifiable reliance issue at all, much less as a matter of law, but has merely held that the jury may hear and draw conclusions from circumstantial evidence on the issue in one phase of the trial, with the understanding that those conclusions may be challenged by rebuttal evidence at a later phase. The fact is that the District Court has performed a Herculean task of protecting TranSouth’s opportunity to contest the reliance issue in this complex and intricate trial, and TranSouth’s description of the Order outlining this plan is a distorted and unfair cartoon image of the Order.

Further, TranSouth’s argument amounts to the following: a plaintiff bringing RICO claims and consumer fraud claims must show reliance, reliance may only be established through individual trials under the Seventh Amendment, and thus any class action trial in any RICO or consumer fraud case violates the Seventh Amendment. This sweeping argument would require this Court to disapprove of more than a score of reported cases where federal courts have certified class actions in RICO cases. The District Court found here, as dozens of courts have found in similar cases, that class members would have no realistic remedy if they were forced to proceed on an individual basis. TranSouth’s proposed rule would ensure that most of the victims of even the most egregious frauds would be denied any effective remedy.

Fourth, TranSouth then sent false and misleading “notices of private sale” to its customers.[7] The notices fraudulently suggest that a genuine legal “sale” was to take place on the date identified.[8] In addition, the notices did not provide any information that would suggest to any of the class members that anything was wrong or improper about the supposed sales, nor do the notices contain any information from which a class member could deduce that TranSouth's overall operation was in any way illegitimate. Because TranSouth was contractually bound to transfer the cars back to Falk, it was a violation of law for TranSouth to send the required notices. Falk should have sent these notices, but did not. Instead, it was TranSouth that sent the notices and then effected the illegal “sale” back to Falk. TranSouth’s documents show that TranSouth’s reason for issuing these “notices of private sale” was that doing so was a “precondition to reassignment of contracts to Falk.” See Memo from Armstrong to McKinney, January 22, 1992, Attachment at 14.

Fifth, TranSouth and Falk would then engage in a phony bid process. The crucial documents best setting this out are the notorious “20^th of the Month Reports.” The number of Falk repossessions was enormous and some standardized procedure had to be constructed. Therefore, each month TranSouth would send to Falk a list of each of the cars that had been repossessed during the prior month on a form known as a “20th of the Month Report.” An illustrative 20^th of the Month Report is included in the Attachment at 16. That list, which had to reach Falk by the 20th of the month in which payment was expected (hence the name), contained the following columns: Name, Vehicle, Lot # (identifying to which of Falk’s used car lots the repossessed car had been taken to), ID # (representing the last four digits of the VIN), Repo-Expenses, Net Payoff (the balance owed on the account minus an accrued interest), Total Payoff (the net payoff plus repossession expenses), “BID”, Stock #, and Notes (used to note whether force placed insurance was added to the customer’s account).

TranSouth and Falk then held a “sale” or “disposition” of the vehicle. According to the testimony of TranSouth’s branch managers, the “BID” column, was the only column left blank when the “20^th of the Month Reports” were sent from TranSouth to Falk. Working off of the “20th of the Month Report,” TranSouth and Falk filled in the “BID” column with the number that, for purposes of further enforcing the security agreement, would constitute the required sale or disposition under Va. Code Ann. § 8.9-504. Timothy Doe, Falk’s business manager, described the auction or sale that would take place at TranSouth’s office, and the process that brought about the disposition of the Class members’ repossessed cars:

A. Our wholesalers went, Mr. Falk and his several people who work for him. They place a bid on the car. TranSouth either accepts it or rejects it. If they accepted it, we bought the car.

* * *

Q. With whom did you deal at TranSouth?

A. The manager.

* * *

Q. When you attended this sale, were other purchasers there?

A. No.

Q. It was always someone from TranSouth and someone from [Falk] and no one else; is that correct?

A. Correct.

Doe depo., 2/14/97 at 44, 48, 51, Attachment at 17-20 (emphasis added).

The TranSouth Branch Managers described a variation on the process for filling in the “BID” column. Branch Managers Hairfield, Bowser-Jordan and Powell testified that the “BID” column was filled in when an executive of Falk telephoned the Branch. For example, Hairfield, who was a TranSouth Branch Manager from 1991-92 stated as follows:

We would be given a bid, and what a bid would tell me was that the unit was going to be paid off. If I got a bid on a unit, then I needed to get the repo title work and reassignment for the – for the note to be paid off on it; so we weren’t spending time – hours and hours – getting paperwork ready for units we weren’t going to be paid off on.

Hairfield depo. at 38-39, Attachment at 21-24. See also Bowser-Jordan depo. at 16, Attachment at 26; Powell depo. at 52, Attachment at 30.

Whether the bidding took place in person or by telephone is immaterial. The Branch Managers each agreed that a “bid” was placed by Falk, and only by Falk, and that Timothy Doe was one of the individuals from Falk that they would deal with in this regard. Hairfield depo. at 39, Attachment at 23; Bowser-Jordan depo. at 42, Attachment at 28; Powell depo. at 55, Attachment at 31.

Defendants TranSouth Financial Corp., JB Collection Corp. and Charlie Falk’s Auto Wholesale, Inc. are prohibited from destroying, tampering with, altering in any way, or removing any and all documents, books, records, computer tapes; computer data or computer archives pertaining to putative class members in this case, specifically including but not limited to documents pertaining to sale, repossession, or repossession sales, any subsequent resale and calculations of any surplus or any deficiency resulting from the repossession of any putative class members’ automobile. The Court considers this material to be potentially pertinent both on substantive issues and on the question of class certification. Destruction of this evidence may severely prejudice plaintiffs and the class. If the evidence is lost or destroyed, it is irretrievable and the harm to plaintiffs in such case is, by definition, irreparable.

Attachment at 50 (emphasis added).

The District Court dismissed the case in May of 1994. Falk and JB then settled the case with the class, leaving TranSouth as the only defendant. “Falk's and JB agreed to forgive approximately $10 million in deficiency judgments and to pay $400,000 to the class and its attorneys. The companies also agreed to conduct all future dispositions of repossessed automobiles in compliance with Virginia law.” Chisolm I, 95 F.3d at 335. In connection with this settlement, the District Court certified this class in 1994. It found that numerosity, typicality, commonality and adequacy of representation were all present, and a money damage class settlement was effected, administered, and seamlessly distributed to those who filed claims.

Plaintiffs appealed TranSouth’s dismissal to this Court, which reversed the District Court in Chisolm I. TranSouth argued to this Court that to meet the reliance requirement, plaintiffs must allege that they took affirmative steps in response to TranSouth’s notices. Instead, Chisolm I held that to allege reliance under RICO, plaintiffs need only allege that they had assumed that the “liquidation of the collateral was proceeding legally and legitimately, thus influencing them to accept the process without question. . . .” 95 F.3d at 339.

After remand, the District Court again dismissed the case, holding that plaintiffs had not alleged reliance with sufficient particularity. On appeal, TranSouth again made reliance its principal argument. This Court again reversed. Chisolm v. TranSouth Fin. Corp., 164 F.3d 623 (1998) (unpublished decision).

Upon remand, plaintiffs renewed their motion for class certification. Plaintiffs put extensive documentary evidence before the District Court to establish that TranSouth’s scheme was uniform with respect to each class member. These documents included 35 selected Notices of Sale, Attachment at 52-86, 35 Warrants in Debt, Attachment at 87-121, 35 Selected Installment Sales Contracts, Attachment at 122-156, the Repurchase Agreement that governed TranSouth and Falk’s relationship with respect to all class members, and more than a dozen documents and excerpts from deposition testimony establishing TranSouth’s knowledge of and participation in Falk’s illegal activities. TranSouth submitted no evidence in opposing the motion for class certification.

The very power of the writ of mandamus demands that its availability be limited to narrow circumstances lest it quickly become a shortcut by which disappointed litigants might circumvent the requirements of appellate procedure mandated by Congress. Accordingly, the courts have established a standard for the grant of a writ of mandamus sufficiently demanding to prevent its discriminate use.

Id.

This Court then explained that mandamus is uniquely disfavored in the context of class certification decisions:

Further, when mandamus is sought to compel an act normally committed to the discretion of the district court the petitioner faces an even more rigorous standard. “[B]efore the writ should issue in a case in which the matter at hand is entrusted to the discretion of the district court the district court’s abuse of discretion must amount to the ‘judicial usurpation of power.’”. . .

Second, the decision whether to certify a class pursuant to Fed. R. Civ. P. 23 clearly is one committed to the “broad discretion of the district court. . . . Consequently, the Tribe must make the most difficult showing, that of an abuse of discretion amounting to the usurpation of the judicial power, before mandamus will lie to replace the district court’s decision.

973 F2d. At 1136 (citations omitted). In short, TranSouth must bear a truly heavy burden of establishing that the District Court committed a “judicial usurpation of power” by not decertifying the class in this case. As this brief will establish below, TranSouth has not approached meeting this burden.

188 F.3d at 893 (emphasis added). See also McDonnell Douglas Fin. Corp. v. Pennsylvania Power & Light Co., 849 F.2d 761, 764 (2^nd Cir. 1988). TranSouth would have this Court effectively throw this principle out the window. This Court should be particularly mindful of the prejudicial effects upon these plaintiffs of further delay. This case was filed in June of 1993, more than seven years ago, and has already three times been before this Court through no fault of the plaintiffs. If TranSouth gains yet another lengthy delay by engineering yet another appeal, plaintiffs’ ability to establish their case – which depends in part upon the recollections of unsophisticated consumers about transactions and events now eight or more years in the past – will suffer still further. Courts have often refused to permit permissive interlocutory appeals under § 1292(b), by analogy, where such an appeal would further delay a case that had already been pending for a long time. See LILCO v. Transamerica Delaval, Inc., 648 F. Supp. 988, 991 (S.D.N.Y. 1986) (“As for materially advancing the ultimate termination of this litigation, an interlocutory appeal is more likely to delay its conclusion. The roots of this case date back more than ten years.”); Matlack, Inc. v. Hupp Corp., 57 F.R.D. 151, 159 (E.D. Pa. 1972) (denying § 1292(b) interlocutory appeal where the case was already 8 years old and “would be even older when it returned from the Court of Appeals”); U.S. v. 9,947.71 Acres of Land, 220 F. Supp. 328, 337 (D. Nev. 1963) (refusing to certify order for § 1292(b) interim appeal where case had been pending for many years and a “final determination should not be delayed for the additional time it would take for an interim appeal under the above section.”).

While TranSouth does not mention this Court’s leading precedent dealing with petitions for a writ of mandamus arising out of a class certification decision, In re Catawba Indians, it repeatedly cites to In re Rhone-Poulenc Rover, Inc., 51 F.3d 1293 (7^th Cir. 1995). The holding in that extraordinary and very different case tells little about the law applicable to this case.

This case involves a pernicious but relatively simple scheme based upon standard form documents that operates in the same way toward all class members; it involves only one defendant; and it involves the laws of only one state, not 50. The case should hardly be less like Rhone-Poulenc. Rhone-Poulenc involved “an abuse of discretion that can fairly be characterized as gross, very clear, or unusually serious.” 51 F.3d at 1295. In this case, as noted below, TranSouth claims that the District Court abused its discretion by doing something that more than twenty other federal appellate and trial courts have done: certify a RICO case as a class action despite the defendants’ assertions that individual reliance barred such a ruling.

Rhone-Poulenc is also easily distinguished because the Seventh Circuit was principally concerned there that the order certifying the class would permit the plaintiffs to secure a large recovery even though they had an extremely weak case on the merits:

A notable feature of this case, and one that has not been remarked upon or encountered, so far as we are aware, in previous cases, is the demonstrated great likelihood that the plaintiffs’ claims, despite their human appeal, lack legal merit. This is the inference from the defendants’ having won 92.3 percent (12/13) of the cases to have gone to judgment.

51 F.3d at 1299. This represents a remarkably sharp contrast with this case, where TranSouth has been clearly demonstrated to be enmeshed in a system of bogus “bids” used to steal surplus auto sales funds and to generate fraudulent deficiencies.

Under these circumstances TranSouth’s reliance upon Rhone-Poulenc is unfounded. That case, and others like it, involve Courts of Appeals looking for ways to overturn class certification orders in cases that appear to have no substantive merit. In this case, by contrast, this Court has already spoken directly to the pernicious nature of the scheme, and the evidence that has come to light has greatly strengthened the already strong case for liability.

II. THE DISTRICT COURT’S DECISION TO CERTIFY THE CLASS IS PLAINLY CORRECT.

A. DESPITE TRANSOUTH’S STATEMENTS TO THE CONTRARY, THE DISTRICT COURT HAS NOT RESOLVED THE ISSUE OF JUSTIFIABLE RELIANCE, “AS A MATTER OF LAW,” BUT HAS INSTEAD LEFT THE ISSUE TO BE TRIED TO THE JURY.

TranSouth’s Seventh Amendment argument begins with the premise that “without notice, evidence or a hearing, the court determined as a matter of law that these class members relied on the mailings.” Petition at 1. TranSouth’s argument does not accurately describe the District Court’s rulings, however. The District Court has found that Plaintiffs have adequate evidence to put the question of justifiable reliance to the jury, but it has not resolved this question:

The Court’s May 1999 ruling does conclude that those class members who meet the Subclass A and B definitions may be said to have relied. It is not a determination that the reliance is per se reasonable. The question of reasonableness is a matter which must await trial. The additional factors Defendant argues now are issues for rebuttal.

July 5^th Order at 11 (TranSouth Petition Addenda at 66).

TranSouth also misdescribes the District Court’s decision as a presumption of reliance. As the District Court explained, it was not compelling a finding of reliance but was permitting a jury to infer (or not infer) reliance from circumstantial evidence:

This is not so much a showing of presumed reliance as it is a showing of demonstrated reliance via circumstantial proof. The Court notes that common law fraud in Virginia sets “[t]he burden . . . upon the one alleging it, and if it is not strictly and clearly proven as alleged, by circumstantial or direct evidence, no relief will be granted.” Martin v. Williams, 194 Va. 437, 445-46 (1952). Fraud cannot be presumed, but reliance may be demonstrated by circumstantial or direct evidence, indeed, “[c]ircumstantial evidence is not only sufficient, but in most cases is the only proof that can be adduced.” Cook v. Hayden, 183 Va. 203, 209 (1944). “Moreover, ‘A transaction may of itself and by itself furnish the most satisfactory proof of fraud, so conclusive as to outweigh the answer of the defendant and even the evidence of witnesses.’” Id.

May 12 Order at 36 n. 24. Thus, the District Court has not “conclusively resolved” a factual dispute without notice or evidence, as TranSouth’s unfair lampoon of the District Court claims, but it has merely held that the jury may be given the opportunity to hear circumstantial evidence and possibly infer a finding of reliance from the evidence. Nothing in this approach violates the Seventh Amendment.

Such a categorical rule may be in TranSouth’s interests, but it is certainly not the law. This sweeping position runs afoul of a remarkable number of cases where courts have done precisely what TranSouth says is impossible: constitutionally handle RICO cases on a class action basis. In fact, courts have regularly certified classes in RICO actions despite concerns raised by defendants about the question of reliance. See, e.g., Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912 (3d Cir. 1992); Morse v. Bankers Life & Cas. Co., 2000 U.S. Dist. LEXIS 2211 (N.D. Ill. Feb. 23, 2000); Joncek v. Local 714 Int’l Bhd. of Teamsters Health and Welfare Fund, 1999 U.S. Dist. LEXIS 14853 (N.D. Ill. Sept. 3, 1999) ; In re Synthroid Mktg. Litig., 188 F.R.D. 287 (N.D. Ill. 1999); Johnson v. Rohr-Ville Motors, Inc., 189 F.R.D. 363, 370 (N.D. Ill. 1999); Garner v. Healy, 184 F.R.D. 598 (N.D. Ill. 1999); Stewart v. Associates Consumer Discount Co., 183 F.R.D. 189, 197 (E.D. Pa. 1998); Iron Workers Local Union No. 17 Ins. Fund v. Philip Morris, Inc., 182 F.R.D. 523, 536-37, 539-41 (N.D. Ohio 1998); Dornberger v. Metropolitan Life Ins. Co., 182 F.R.D. 72, 79-81 (S.D.N.Y. 1998); Arenson v. Whitehall Convalescent & Nursing Home, Inc., 164 F.R.D. 659, 664 (N.D.Ill. 1996); Walco Inv. v. Thenen, 168 F.R.D. 315, 337 (S.D. Fla. 1996); Hoban v. USLife Credit Life Ins. Co., 163 F.R.D. 509, 515 (N.D. Ill. 1995); Trautz v. Weisman, 846 F. Supp. 1160 (S.D.N.Y. 1994); Rodriguez v. McKinney, 156 F.R.D. 112, 117 (E.D. Pa. 1994); Fogie v. Rent-A-Center, 867 F. Supp. 1398, 1404 (D. Minn. 1993); Scholes v. Tomlinson, 145 F.R.D. 485, 493 (N.D. Ill. 1992); Heastie v. Community Bank of Greater Peoria, 125 F.R.D. 669 (N.D. Ill. 1989); Smith v. MCI Telecomm. Corp., 124 F.R.D. 665, 679 (D. Kan. 1989); Longden v. Sunderman, 123 F.R.D. 547, 555 (N.D. Tex. 1988); McMahon Books, Inc. v. Willow Grove Assoc., 108 F.R.D. 32 (E.D. Pa. 1985); Somerville v. Major Exploration, Inc., 102 F.R.D. 500, 504 (S.D.N.Y. 1984).

TranSouth would have this Court announce a sweeping rule of law that disapproved of the holdings in each and every one of these cases. TranSouth offers no explanation reconciling its theory and these holdings.

C. THE U.S. SUPREME COURT HAS REJECTED TRANSOUTH’S POSITION THAT CLASS ACTIONS ARE IMPERMISSIBLE IN ALL COMMON LAW FRAUD CASES.

As noted above, TranSouth has also suggested that the Seventh Amendment bars class action trials in all common law fraud cases. While the Supreme Court has not addressed the Seventh Amendment issue directly, the Court did state in the Amchem case that “predominance is a test readily met” in consumer fraud cases, plainly indicating that class action treatment was common and far from problematic in those settings. 521 U.S. at 625. This language cuts directly against TranSouth’s allegation that no class action may ever be certified in a case involving reliance.

In addition to supporting plaintiffs’ position on the predominance question, the Supreme Court's decision in Amchem also strongly supports the plaintiffs’ position on the superiority of the class action mechanism in a case such as this one:

In this case, this Court found that the Notices that give rise to the mail fraud allegations play only a limited role in the scheme to defraud. As quoted above, this Court analogized them to the structure supporting a guillotine, instead of the blade. Accordingly, this Court has previously held that only passive reliance need be shown in this case. TranSouth has twice vigorously insisted to this Court that the reliance element requires the taking of an active step and that a plaintiff’s failure to act meant nothing, and twice this Court has flatly rejected TranSouth’s position. This Court held in Chisolm I and re-affirmed in Chisolm II that class members need only show that the Notices led them to believe that the sales of their cars were taking place legally and legitimately, and thus that they did not take any action that they otherwise might have taken to protect their interests.

In its petition for a writ of mandamus, TranSouth continues to defy this Court’s holding and to insist that passive reliance is not sufficient. Petition at 23 (“Courts refuse to presume anything from the failure to act, except in securities fraud cases founded on a ‘fraud on the market theory.’”). In short, TranSouth’s petition for a writ of mandamus is not so much a plea for this Court to overturn the District Court as it is for this Court to overturn its own two previous decisions in this case. TranSouth still does not accept, acknowledge or respect that this Court has twice previously rejected TranSouth’s arguments and held that the plaintiffs in this case need not prove the sort of active reliance that is necessary in some other types of RICO and consumer fraud cases.

E. THIS COURT SHOULD PLACE NO WEIGHT UPON TRANSOUTH’S ATTACK ON THE TESTIMONY OF CURTIS GOODWIN.

TranSouth’s rendition of Mr. Goodwin’s deposition not only skips over the key elements of Mr. Goodwin’s testimony, it also omits the actions of TranSouth’s counsel. This is significant, because on several occasions TranSouth’s counsel interrupted Mr. Goodwin’s testimony just as he began to move towards the issue of reliance, and prevented him from speaking directly to the point. When Mr. Goodwin was asked what he recalled about TranSouth’s notice of sale, for example, the following exchange took place:

Q. What else do you recall that it said?

A. The car will be sold at an auction, and at that time I was thinking the car was going to be sold and, you know, like I said –

Q. No, no. I’m going to get in a minute to what you thought, but I want you to first tell me what you recall the letter told you other than the fact that the car would be sold.

Deposition at 45-46, Attachment at 190-191. The “minute” never came when Mr. Goodwin was asked to complete his answer or speak to his thoughts. Thus, TranSouth’s counsel interrupted Mr. Goodwin before the could say what he “thought” (a question of central concern to determining reliance), but then led the questioning away from the issue. Later, counsel again interrupted Mr. Goodwin when he was addressing the issue of reliance, and again sought to limit his testimony:

Q. During this time period did you ever seek to talk with a lawyer?

A. At the time I thought everything was being done.

Q. Well, that’s not my question.

. . .

Q. Did you ever seek to talk to a lawyer? That’s a yes or a no. Either you did or you didn’t.

As set forth above, the central allegations of this case (now proven by the sworn testimony of numerous employees of the defendants and the plain language of defendants’ own documents) are that instead of properly selling the repossessed cars in a public auction or by other legitimate method, TranSouth and Falk had a secret deal whereby phony “bids” were made to create a bogus “sale price” for the cars. The phony “bid” prices were then used to cheat many class members by, inter alia, (a) not paying them the surplus funds they were owed when the cars were actually sold for more than the class members owed; and/or (b) recovering fraudulent deficiency payments from the class members. Plaintiffs contend that both results are illegal under the U.C.C. It is illegal to use phony “bids” to cheat consumers out of their surplus, and it is also illegal to use phony “bids” as a basis to collect fraudulent deficiency judgments.

Applying an Alice in Wonderland logic, TranSouth claims that the U.C.C. “cannot” prohibit both types of cheating. According to TranSouth, it “must” be permissible under the U.C.C. to either cheat consumers through phony deficiency judgments or refuse to pay legally owed surpluses.

Such an interpretation of Plaintiffs’ claims in this case is plainly wrong. Without restating all of Plaintiffs’ allegations, which have been laid out exhaustively above, this case is based upon a fraudulent scheme cooked up between TranSouth and Falk to cheat the class members (that is, all class members), out of the equity in their cars, their rights under the U.C.C. and any surplus to which they may have been entitled.

In order to recover statutory damages for Subclass C, Plaintiffs need only demonstrate that TranSouth was the “secured creditor” under the U.C.C. at the time that a misleading or bad faith “notice” is sent or at the time of the phony “bid” process. All persons to whom the misleading notices were sent are eligible for statutory damages. Court's May 12, 2000 Order at 53. TranSouth has never in seven years attempted to deny that it was TranSouth’s unwavering policy to send out these notices simultaneously with the repossession.

On the other hand, in order to recover surplus damages on a class-wide basis, Plaintiffs need to demonstrate that TranSouth conspired or participated in the RICO and/or fraud scheme and that the sale of the class’ cars off of Falk’s lot after completion of the phony “bid” process, was the only true “marketplace sale” for purposes of measuring surplus damages. These arguments are consistent and, contrary to TranSouth’s claims, in line with Plaintiffs’ theory of the case since day one.

Moreover, TranSouth’s argument completely ignores the role of conspiracy in this case. As the District Court explained in its July 5^th opinion, at 5-6:

Defendant’s argument is premised upon a belief that Subclass B must argue that the disputed transaction was not a sale, but a transfer under a repurchase agreement to permit Subclass B to recover. This belief is based on two erroneous assumptions: (1) that Subclass B may only recover damages if the Charlie Falk disposition is characterized as a U.C.C. Article 9 sale and (2) that Subclass B will assert that the Charlie Falk sale was a U.C.C. Article 9 sale.

Numerous other courts have joined the District Court in holding that co-conspirators are liable even if they did not perpetrate the scheme themselves; all that is necessary to saddle a co-conspirator with liability is for the co-conspirator to have actual or constructive knowledge of the illegal act and accept the benefits of the act. See Fallert Tool & Engg. Co. v. McClain, 579 S.W.2d 751, 755 (Mo. Ct. App. 1979) (holding that “even in the absence of a principal-agent or partnership relationship, a party not actually making the representation is liable if he accepted the benefits of the transaction and had either actual or constructive knowledge at the time of the act, or at the time he accepted the benefits, that an illegal act had been committed); Williams v. Aetna Finance Co., 700 N.E.2d 859, 868 (Ohio 1998) (“All those who, in pursuance of a common plan or design to commit a tortious act, actively take part in it, or further it by cooperation or request, or who lend aid or encouragement to the wrongdoer, or ratify and adopt the wrongdoer’s act done for their benefit, are equally liable.”) (quoting Prosser & Keeton on Torts (5th ed. 1984) 323, Section 46).

B. THERE IS NO CONFLICT BETWEEN SUBCLASSES A AND B ON THE ONE HAND, AND SUBCLASS C ON THE OTHER HAND, BECAUSE THE U.C.C. DOES NOT PERMIT A SECURED PARTY TO SEND OUT A FRAUDULENT NOTICE MERELY BECAUSE IT WILL TRANSFER COLLATERAL TO ANOTHER PARTY (THAT WILL THEN BECOME THE SECURED PARTY) THAT WILL ULTIMATELY SELL THE CAR.

TranSouth argues that there is a conflict between the members of Subclasses A and B on the one hand, and the members of Subclass C on the other. TranSouth bases this argument upon the premise that it is not possible for both of the following two things to occur: (a) TranSouth repossesses a class member’s car, as the “secured creditor” under the U.C.C., and then sends out a fraudulent notice to class members that violates the U.C.C.; and (b) at a later point, after the phony “bid” process has been completed and after Falk has taken possession of both the car and the loan documents, Falk becomes the “secured creditor” under the U.C.C., such that it is subject to the rules of the U.C.C. at the time that it (still later) sells the car off the lot to some new person.

Falk also was the secured creditor when the only true marketplace sale of the vehicle took place – that is, when Falk put the car back on his lot and resold the car to the next victim of the scheme (always at a price which far exceeded the phony “bid” and often at a price which exceeded that imposed on the first victim). This sale off of Falk’s lot was the only true “marketplace sale” that occurred for purposes of measuring surplus damages. See In re Ford Motor Co., 27 U.C.C. Rep. Serv. 1118 (FTC 1979) rev’d on other grounds, Ford Motor Co. v. FTC, 673 F.2d 1008 (9th Cir. 1981).

Plaintiff Laura Richard’s case demonstrates these timelines and the shifting roles of TranSouth and Falk:

Laura Richards

o Car purchased and financed through TranSouth May 7, 1991

(TranSouth is Secured Creditor)

o Car repossessed

(TranSouth is Secured Creditor) Early June 1992

o Notice of Private Sale sent by Transouth June 4, 1992

(TranSouth is Secured Creditor)

o Date that right of redemption

expired according to Notice of

Private Sale June 18, 1992

(TranSouth is Secured Creditor)

o Date of phony “bid” disposition Late June 1992

(TranSouth is Secured Creditor)

Stephen C. Swain

SHUTTLEWORTH, RULOFF,

GIORDANO & SWAIN

4525 South Blvd., Suite 300

Virginia Beach, VA 23452

(757) 671-6000

Peter F. Herrick

STAFFORD & HERRICK

1021 Eden Way North

Eden North Centre, Suite 119

Chesapeake, VA 23320

(804) 547-4477

David Rubinstein

524B Caroline Street

Fredericksburg, VA 22401

(540) 373-0558

Kieron F. Quinn

Richard S. Gordon

QUINN, GORDON & WOLF

40 W. Chesapeake Street, No. 408

Baltimore, Maryland 21204

(410) 825-2300

G. Robert Blakey

Notre Dame Law School

Notre Dame, IN 46556

(219) 631-5717

[1] Deference should be particularly great where, as here, the District Court’s ruling that TranSouth’s scheme was uniform as to each class member rested upon the weighing of extensive documentary and other evidence. See Dept. of Economic Dev. v. Arthur Andersen & Co., 683 F. Supp. 1463, 1487 (S.D.N.Y. 1988) (“Determining the relative weight to give specific evidence is part of the fact-finding job to be performed at nisi prius, and a task ill-suited for an appeals court on an interlocutory appeal.”).

[2] This Court denied an appeal of class certification under Rule 23(f) in 1999 and TranSouth is currently attempting a second 23(f) petition of the District Court’s refusal to decertify the class.

[3] Taking note of the pendency of this case before this Court, on August 2, 2000 the District Court sua sponte ordered a continuance and vacated the trial date.

[4] TranSouth petitions this Court to grant a writ of mandamus without providing the Court any of the underlying documents or testimony that have been gathered to date and upon factual assertions that are wildly inaccurate. Because the actual facts of this controversy, and the outrageous nature of the conduct that has been proven, necessarily bear very heavily upon the issues before this Court, plaintiffs have attached key documents and excerpts of transcripts to this brief, and will cite throughout this brief to the materials contained in this Attachment.

[5] This same issue was the centerpiece of TranSouth’s Rule 23(f) petition in 1999 which this Court declined to permit and the argument has not gained any favor in the interval.

[6] See Retail Dealer Credit Review dated January 11, 1991, attached to Memo from Dennis L. Craft, President, TranSouth, to Credit Committee, April 11, 1990, Attachment at 5, at HW 151 (“Due to the type of paper we buy, almost all the customers have had credit problems. We have not experienced any losses with this dealer.”)

[7] In its effort to make “reliance” seem like the dominant issue in this litigation, TranSouth’s Petition focuses extensively upon these Notices. In fact, however, the Notices are only a small (though necessary) aspect of a broader scheme. As this Court characterized them, the Notices are not “the blade rushing down toward the guillotine victim,” but are instead “but part of the frame that holds the blade.” Chisolm I, 95 F.3d at 338.

[8] TranSouth argued vehemently to this Court on the second appeal that the Notices were not misleading, and were entirely innocent. Judge Butzner gave the lie to this claim during the oral argument, noting that “it’s a false statement to say that there is a private sale when I see no indication that there was a private sale by anybody.” April 9, 1998 Transcript at 28.

[9] For example, TranSouth executives toured CFAW’s corporate headquarters, meeting with CFAW’s key personnel, attorneys and accountants. E.g. Letter from Craft to Falk, March 18, 1992, Attachment at 33. TranSouth also had access to and reviewed audits of CFAW’s operation. See Memo from Oney Hervey, Senior Vice President, TranSouth, to McKinney, November 24, 1992, Attachment at 34. In another document, a TranSouth executive referred to TranSouth’s “careful monitoring” of CFAW’s wholesale line operations. See Letter from Oney Hervey to Charles Falk, Sr., February 2, 1993, Attachment at 35. At the end of the time period covered in this case, TranSouth and CFAW, in the words of one of its executives, had enjoyed “an excellent working relationship . . . for more than sixteen years.” See Letter from Oney Hervey to Charles Falk, Sr., May 12, 1993, Attachment at 36.

[10] The fact that Falk was using the phony “bid” as the “sale” for purposes of establishing the deficiency was well known to TranSouth. Falk, in each and every instance, was the only party bidding on the car at the so-called private or public sale that took place when the “20th of the Month Reports” were negotiated. Doe depo. 2/14/97 at 51, Attachment at 20. Even TranSouth’s Branch Managers acknowledged that Falk was the only one bidding on the Class members’ cars. Hairfield depo. at 40, Attachment at 24; Powell depo. at 52, Attachment at 30; Bowser-Jordan depo. at 40, Attachment at 27. The Branch Managers also were well aware that Falk was using the phony “bid” to establish the legal “deficiency” against the customer. Bowser-Jordan at 40, Attachment at 27; Powell depo. at 63, Attachment at 32.

[11] In Chisolm I, 95 F.3d at 334-35 n.4, this Court described how this scam worked for a particular plaintiff. While subsequent discovery, as noted above, has allowed a much more complete explanation of the scheme, the essential elements of this Court’s description in Chisolm I are still correct.

[12] Deposition Testimony of Charles McKinney, at 9-10, Attachment at 47-48.

[13] Plaintiff then were required to have that same data constructed and analyzed by outside consultants at a cost to date in excess of $100,000.

[14] In Rhone-Poulenc, itself the Seventh Circuit also took care to distinguish between attempted class actions involving serious personal injuries (such as that case) and consumer cases involving relatively small individual stakes (such as this one): “In most class actions – and those are the ones in which the rationale for the procedure is most compelling – individual suits are infeasible because the claim of each class member is tiny relative to the expense of litigation. That plainly is not the situation here.” 51 F.3d at 1299. Judge Posner’s opinion thus explicitly distinguishes that case from this one, and describes this sort of case as the type where the rationale for class certification is “most compelling.”

[15] The fact that TranSouth’s co-conspirator Falk settled the case by giving up judgments with a value exceeding $10 million, Chisolm I, 95 F.3d at 335, is also a strong indication that plaintiffs’ claims are serious and well founded.

[16] One document conclusive establishing the knowledge of these officials, despite their sworn testimony to the contrary, is “The McCaig Report.” This report is included in the Attachment at 162 to 165. Given the huge volume of repossessions, TranSouth began to worry about losing Falk’s business. Craft depo. at 19, Attachment at 167. In an effort to analyze its exposure on the Falk accounts, TranSouth requested that The Associates undertake an internal study that, in the end, again documented the “bid” process. In that study, dated January 15, 1992, Shannon McCaig, now a Vice-President with The Associates, was asked by TranSouth’s management to review the company’s monthly contributions to a “special loss reserve” which TranSouth had started as a hedge against losing all of Falk’s business. McCaig talked with TranSouth executives, Depo. at 25-27, Attachment at 169-171, and gathered TranSouth documents relating to the repurchase process and to support his analysis, summarized 20 randomly selected repurchase transactions. Id. at 68, Attachment at 172.

In the course of reporting his findings, McCaig reproduced the format of the “20th of the Month Reports” but dismissed the bid column as an unreliable figure upon which to base any analysis. The “bid,” according to McCaig, is “Charlie Falk low bid set to establish a legal deficiency against the customer, not actual cash values per NADA or Blackbook publishings.” The McCaig Report was reviewed, praised and adopted by TranSouth’s President, Dennis Craft, in reporting to The Associates. It was also approved by McCaig’s supervisors at The Associates. Hollingsworth depo. at 27, Attachment at 174. It was reviewed, analyzed and approved by TranSouth’s Credit Committee. See Notes from Credit Committee at 11, TSC007026, Attachment at 185.