Sherry Lewis v. GEICO

                                          PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
______________
No. 22-3449
______________
SHERRY LEWIS; DAVID V. LEWIS,
individually and on behalf of all others similarly situated
v.
GOVERNMENT EMPLOYEES INSURANCE COMPANY,
Appellant
________________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil No. 1-18-cv-05111)
District Judge: Honorable Robert B. Kugler
________________
Argued on December 12, 2023
Before: BIBAS, PORTER, and FREEMAN, Circuit Judges
(Opinion filed: April 2, 2024)
________________
Alexander Fuchs
Kymberly Kochis [ARGUED]
Eversheds Sutherland
1114 Avenue of the Americas
The Grace Building, 40th Floor
New York, NY 10036
Counsel for Appellant
Samir Deger-Sen [ARGUED]
Latham & Watkins
1271 Avenue of the Americas
New York, NY 10020
Cherish A. Drain
Raymond Gans
Gregory G. Garre
Marguerite M. Sullivan
Latham & Watkins
555 11th Street NW
Suite 1000
Washington, DC 20004
Counsel for Amicus CCC Intelligent Solutions Inc.
John M. DeStefano, III [ARGUED]
Hagens Berman Sobol Shapiro
11 W Jefferson Street
Suite 1000
Phoenix, AZ 85003
Counsel for Appellees
2
__________
OPINION OF THE COURT
__________
FREEMAN, Circuit Judge.
Sherry and David Lewis sued their auto insurer,
GEICO, for breaching their insurance contract when their car
was totaled. They claim that GEICO undercompensated them
in two ways: (1) by applying a “condition adjustment” that
artificially reduced its valuation of their car; and (2) by failing
to reimburse them for taxes and fees necessary to replace the
car. For each instance of underpayment, they sought to certify
a class of similarly underpaid insureds.
The District Court certified both classes under Federal
Rule of Civil Procedure 23. We will affirm the order certifying
the class for the taxes-and-fees claim. But the Lewises (the
only named plaintiffs) failed to show that GEICO caused them
concrete harm when it applied the condition adjustment. They
therefore lack standing to bring the condition-adjustment
claim, so we will vacate the District Court’s order in part and
remand with instructions to dismiss that claim.
I
A
When an insured’s car is totaled, GEICO agrees to pay
the Actual Cash Value (“ACV”) of the totaled car—effectively
its fair market value before the accident, plus certain
3
replacement costs. 1      But determining a car’s ACV is
challenging. It involves valuing the insured’s specific car in
its pre-accident condition, which no longer exists. And many
factors influence a car’s value, including its trim level, options,
after-market alterations, and condition.
Because of these challenges, GEICO uses a multi-step
process to determine ACV. First, an adjuster inspects the
totaled car and assesses its condition. GEICO then sends the
assessment results to a vendor, CCC Intelligent Solutions Inc.
(“CCC”), which maintains data on cars for sale across the
country. From this data, CCC identifies a set of comparable
cars and uses that set to extrapolate a value for the totaled car.
During that extrapolation process, CCC makes two
adjustments to account for differences between the totaled car
and the set of comparable cars. First, CCC assumes that the
average privately owned car is in worse condition than the
1
GEICO’s New Jersey insurance policy says that “[t]he limit
of our liability for loss . . . [i]s the actual cash value of the
property at the time of loss,” and that the “[a]ctual cash value
of property will be determined at the time of the loss and will
include an adjustment for depreciation and/or betterment and
for the physical condition of the property.” App. 151
(emphases omitted). The policy defines ACV as “the
replacement cost of the auto . . . less depreciation and/or
betterment.” App. 149 (emphases omitted). And it defines
“depreciation” as “a decrease or loss in value to the
auto . . . because of use, disuse, physical wear and tear, age,
outdatedness, or other causes” and “betterment” as
“improvement of the auto . . . to a value greater than its pre-
loss condition.” Id.
4
average car on a dealership lot. So CCC applies a downward
adjustment—known as a “condition adjustment”—to the value
of the comparable cars, which in turn reduces the extrapolated
value of the totaled car. Second, CCC adjusts the value of the
totaled car upward if any of its components are in above-
average condition according to the GEICO adjuster’s post-
accident assessment.
CCC compiles this information into a Market Valuation
Report (“MVR”), which it provides to GEICO. GEICO then
uses the MVR’s valuation as a starting point for settlement
negotiations with the insured. In some circumstances,
GEICO’s adjusters also look at other sources and review any
information the insured provides before making a settlement
offer. And its adjusters may settle claims for more than the
MVR’s valuation.
In recent years, GEICO has compensated insureds for
the taxes and fees they must pay to replace their totaled car.
But before 2020, it took a different approach. If an insured
owned her car, GEICO would pay sales taxes based on the
value of the car when it was totaled. But if an insured leased
her car, it would only pay a portion of the taxes. And it
declined to pay title or license plate transfer fees to both owners
and lessees.
B
Named plaintiffs Sherry and David Lewis are a married
couple who insured their leased Volkswagen Jetta through
GEICO. Their daughter, a covered driver under their insurance
policy, crashed their car in January 2018.
5
After the accident, GEICO followed its standard
process to calculate the Lewises’ payout. It determined that
the car was totaled. 2 It obtained an MVR, which identified a
set of comparable vehicles valued at $17,325, $18,879, and
$17,770. The MVR applied a condition adjustment that
reduced the value of each of the comparable vehicles—and, by
extension, the extrapolated value of the Lewises’ car—by
$1,006. 3 Next, the MVR increased the extrapolated value by
$886 because some components of the Lewises’ car were in
above-average condition. This second adjustment partially
offset the condition adjustment, resulting in a final valuation of
$17,058.
Working from that valuation, GEICO made an initial
settlement offer of $17,058. 4 On January 18, 2018, the
Lewises emailed their GEICO agent to object to the offer.
They attached information about several comparable cars with
an average value of $21,870 and asserted that their car was
worth $19,096. They also engaged in negotiations with
GEICO over the phone. On February 13, GEICO sent a revised
settlement offer of $18,258. The difference between the
revised offer and the valuation in the MVR reflects a $1,200
2
A car is totaled if the cost of repairs exceeds a certain
percentage of the car’s value.
3
The MVR also applied a mileage adjustment to the
comparable vehicles. The Lewises do not challenge that
adjustment.
4
When discussing GEICO’s settlement offers, we refer to the
amount before subtracting the Lewises’ $1,000 deductible,
because that figure better reflects GEICO’s assessment of the
car’s ACV.
6
“adjustment to settle.” App. 896. That amount, minus the
Lewises’ $1,000 deductible, was what GEICO ultimately paid
to the Lewises’ auto lender, Volkswagen Credit. GEICO did
not compensate them for any portion of the taxes and fees.
C
The Lewises sued GEICO for breach of contract. 5 Their
claim asserted two distinct theories: (1) that GEICO
mechanically applied CCC’s condition adjustment to
artificially lower its valuation of their car, 6 and (2) that GEICO
failed to compensate them for taxes and fees as required by
their contract and New Jersey law.
The Lewises sought certification of two classes of
GEICO insureds in New Jersey: (1) those who received a
settlement offer on their totaled car that did not include taxes
and fees (“the taxes-and-fees class”); and (2) those who
received a settlement offer on their totaled car that was “based
in whole or in part on the price of comparable vehicles reduced
5
The Lewises brought other claims in their complaint, but the
District Court dismissed all but the breach of contract claim,
and the Lewises did not appeal the dismissal.
6
This theory is based primarily on a New Jersey insurance
regulation, 

N.J. Admin. Code § 11:3-10.4

(a). The Lewises
argue that the condition adjustments violate this provision
because they are arbitrary and insufficiently itemized. And
they argue that their insurance policy incorporates this
provision, so a violation of the provision is a violation of their
policy.
7
by a condition adjustment” (“the condition-adjustment
class”). 

7 App. 120

–21, 616 (internal quotation marks omitted).
The District Court certified both classes, holding that
each met the threshold requirements of Federal Rule of Civil
Procedure 23(a) and the predominance and superiority
requirements of Rule 23(b)(3). It then denied GEICO’s motion
for reconsideration. GEICO timely sought and obtained leave
to file this interlocutory appeal.
II
The District Court had jurisdiction under 

28 U.S.C. § 1332

(d). We have jurisdiction under 

28 U.S.C. § 1292

(e)
and Federal Rule of Civil Procedure 23(f), which provides that
“[a] court of appeals may permit an appeal from an order
granting or denying class-action certification.”
We “review a class certification order for abuse of
discretion, which occurs if the district court’s decision rests
upon a clearly erroneous finding of fact, an errant conclusion
of law or an improper application of law to fact.” In re
Hydrogen Peroxide Antitrust Litig., 

552 F.3d 305

, 312 (3d Cir.
2008) (internal quotation marks omitted). “We exercise
plenary review over a threshold question of law, such as that
presented by an Article III standing challenge.” Neale v. Volvo
Cars of N. Am., LLC, 

794 F.3d 353

, 358 (3d Cir. 2015).
7
The parties agreed at oral argument that the condition-
adjustment class and the taxes-and-fees class are two classes.
Oral Arg. Tr. at 3:15-23, 4:22-6:6, 25:7-20.
8
III
Article III of the Constitution empowers federal courts
to hear “[c]ases” and “[c]ontroversies.” U.S. Const. art. III,
§ 2. “For there to be a case or controversy under Article III,
the plaintiff must have a personal stake in the case—in other
words, standing.” TransUnion LLC v. Ramirez, 

594 U.S. 413

,
423 (2021) (internal quotation marks omitted). The standing
requirement ensures that “federal courts exercise their proper
function in a limited and separated government”—resolving
“real controvers[ies] with real impact on real persons.” 

Id.

 at
423–24 (internal quotation marks omitted).
To satisfy the standing requirement, “[t]he plaintiff
must have (1) suffered an injury in fact, (2) that is fairly
traceable to the challenged conduct of the defendant, and
(3) that is likely to be redressed by a favorable judicial
decision.” Spokeo, Inc. v. Robins, 

578 U.S. 330

, 338 (2016).
“To show an injury in fact, the first and foremost of standing’s
three elements, a plaintiff must show an invasion of a legally
protected interest that is both concrete and particularized, and
actual or imminent, not conjectural or hypothetical.” Yaw v.
Del. River Basin Comm’n, 

49 F.4th 302

, 310–11 (3d Cir. 2022)
(cleaned up).
In a class action, the class’s standing turns on the named
plaintiffs’ standing. Neale, 

794 F.3d at 369

 (“[S]o long as a
named class representative has standing, a class action presents
a valid case or controversy under Article III.” (internal
quotation marks omitted)). 8 So we evaluate whether the
8
GEICO argues that the Supreme Court’s holding in
TransUnion that “[e]very class member must have Article III
9
Lewises meet these requirements. And because “standing is
not dispensed in gross,” we assess standing for each claim they
bring. Town of Chester v. Laroe Ests., Inc., 

581 U.S. 433

, 439
(2017) (internal quotation marks omitted). 9
A
We begin with the condition-adjustment claim. GEICO
argues that the Lewises lack standing to bring this claim
because they suffered no concrete harm from its application of
the condition adjustment. See TransUnion, 594 U.S. at 417
(“No concrete harm, no standing.”). We agree.
To be concrete enough to confer standing, an injury
must be “real, and not abstract.” Spokeo, 578 U.S. at 340
(cleaned up). In other words, the asserted harm must “ha[ve]
a close relationship to a harm traditionally recognized as
providing a basis for a lawsuit in American courts.”
TransUnion, 594 U.S. at 417 (internal quotation marks
omitted).
standing in order to recover individual damages,” 594 U.S. at
431, abrogated our holding in Neale. We recently rejected that
argument. Huber v. Simon’s Agency, Inc., 

84 F.4th 132

, 154–
55 (3d Cir. 2023) (discussing the limited scope of
TransUnion’s holding and “abid[ing] by Neale’s precept” that
the named plaintiffs determine standing for class actions).
9
While plaintiffs combine the condition-adjustment claim and
the taxes-and-fees claim in one count of the complaint, we may
separately assess aggregated claims for standing. See Boley v.
Universal Health Servs., Inc., 

36 F.4th 124

, 131 (3d Cir. 2022).
10
Financial harm is among “[t]he most obvious” concrete
injuries. 

Id. at 425

; see also Cottrell v. Alcon Lab’ys, 

874 F.3d 154

, 163 (3d Cir. 2017) (“[F]inancial harm is a classic and
paradigmatic form of injury in fact.” (cleaned up)). “If a
defendant has caused . . . monetary injury to the plaintiff, the
plaintiff has suffered a concrete injury in fact under Article
III.” TransUnion, 594 U.S. at 425. “[A] loss of even a small
amount of money is ordinarily” sufficient. Czyzewski v. Jevic
Holding Corp., 

580 U.S. 451

, 464 (2017).
The Lewises allege that GEICO financially harmed
them when it valued their car based on the condition
adjustment. Specifically, they claim that CCC applied a
$1,006 downward adjustment to each of the comparable cars
in the MVR it prepared, that this adjustment reduced CCC’s
extrapolated valuation of their car by the same amount, and that
GEICO used this depressed valuation to determine how much
it would pay to resolve their insurance claim. As a result, they
assert, GEICO paid them less than their car was worth—a
quintessential financial injury.
Ordinarily, our standing inquiry would end there. See
Cottrell, 874 F.3d at 163 (“[W]here a plaintiff alleges financial
harm, standing is often assumed without discussion.” (internal
quotation marks omitted)). Here, however, both the complaint
and the record undercut the Lewises’ claim of financial harm. 10
10
Article III standing “may be challenged facially or
factually.” Thorne v. Pep Boys Manny Moe & Jack Inc., 

980 F.3d 879

, 885 (3d Cir. 2020). Facial challenges “contest[] the
sufficiency of the pleadings,” meaning that “the court must
only consider the allegations of the complaint and documents
11
True, CCC applied a condition adjustment that reduced its
valuation of the comparable cars—and, by extension, the
Lewises’ car—by $1,006. But this adjustment was not the end
of CCC’s or GEICO’s valuation process. After applying the
downward adjustment, CCC boosted its valuation of the
Lewises’ car by $886 to account for its condition. With that
valuation in hand, GEICO then negotiated with the Lewises,
eventually applying a $1,200 upward “adjustment to settle”
before paying their claim. App. 896. Even if the condition
adjustment harmed the Lewises by $1,006, as they allege, these
other adjustments more than offset it. The Lewises stake their
claim on an isolated intermediate step within GEICO’s
valuation process, but they ultimately avoided any financial
injury.
The Lewises urge us to ignore these later steps and treat
the condition adjustment alone as a harm. But doing that would
impermissibly divorce their standing to sue from any real-
world financial injury. Under their theory, they would still
have suffered financial harm even if GEICO had applied a
$12,000 (or a $12,000,000) upward adjustment before settling
their claim. This approach conflicts with our obligation to
referenced therein and attached thereto, in the light most
favorable to the plaintiff.” In re Schering Plough Corp.
Intron/Temodar Consumer Class Action, 

678 F.3d 235

, 243
(3d Cir. 2012) (internal quotation marks omitted). Factual
challenges contest standing based on “the facts of the case,”
meaning the court “may look beyond the pleadings to ascertain
the facts.” Const. Party of Pa. v. Aichele, 

757 F.3d 347

, 358
(3d Cir. 2014). The District Court treated GEICO’s challenge
to the Lewises’ standing as a factual attack, but the complaint
and the record support the same conclusion.
12
assess the Lewises’ standing as of when they filed suit, Davis
v. Fed. Election Comm’n, 

554 U.S. 724

, 734 (2008), by which
point GEICO had applied the countervailing adjustments and
paid the claim.
Although the Lewises argue that GEICO might have
paid them even more if CCC had not applied the condition
adjustment, this theory is too speculative to confer standing. In
re Johnson & Johnson Talcum Powder Prods. Mktg., Sales
Pracs. & Liab. Litig., 

903 F.3d 278

, 285 (3d Cir. 2018)
(holding that a plaintiff “must allege facts that would permit a
factfinder to value the purported injury at something more than
zero dollars without resorting to mere conjecture”). Instead,
“[w]e can only speculate—and speculation is not enough to
sustain Article III standing.” Finkelman v. Nat’l Football
League, 

810 F.3d 187

, 200 (3d Cir. 2016). Conjecture about
how a negotiation might have played out, without more, is not
enough to support the Lewises’ allegations of financial injury.
Lacking any financial harm, the Lewises’ only
remaining injury is a bare violation of New Jersey insurance
rules, which they claim forbade GEICO’s method of
calculating ACV. But “bare procedural violations, divorced
from any concrete harm . . . do[] not suffice for Article III
standing.” TransUnion, 594 U.S. at 440 (cleaned up); cf. Lara
v. First Nat’l Ins. Co. of Am., 

25 F.4th 1134

, 1140 (9th Cir.
2022) (“[C]alling Defendants’ adjustments ‘illegal’ . . . [is] an
argument for the [state] insurance commissioner . . . .”). 11
11
In the alternative, the Lewises claim that they suffered an
informational injury. But they failed to make this argument in
13
We cannot consider whether other insureds in New
Jersey suffered a financial injury from GEICO’s application of
the condition adjustment.             The standing inquiry
“focus[es] . . . on whether the plaintiff is the proper party to
bring [a] claim[].” Cottrell, 874 F.3d at 162. Here, the Lewises
are not the proper parties. Therefore, we will remand with
instructions for the District Court to dismiss the condition-
adjustment claim for lack of standing. See Boley v. Universal
Health Servs., Inc., 

36 F.4th 124

, 130 (3d Cir. 2022) (“[A] lack
of standing necessitates dismissal of claims, whether brought
in a class action or in any other kind of suit.”).
B
The taxes-and-fees claim fares better. The Lewises
allege—and the record supports—that GEICO failed to
compensate them for the taxes and fees necessary to replace
their totaled car. They claim that their contract entitled them
to more, and that GEICO’s failure to live up to it cost them
money. This financial harm satisfies the injury-in-fact
requirement. See Weichsel v. JP Morgan Chase Bank, N.A.,

65 F.4th 105

, 111 (3d Cir. 2023).
The Lewises also meet the causation and redressability
requirements for Article III standing.           The causation
requirement demands a “connection between the injury-in-fact
and a defendant’s conduct.” Lutter v. JNESO, 

86 F.4th 111

,
127 (3d Cir. 2023). And “[t]he redressability requirement
ensures that the asserted injury-in-fact is capable of resolution
in a manner consistent with the traditional understanding of the
the District Court, so they forfeited it. See Holland v. Warden
Canaan USP, 

998 F.3d 70

, 75 (3d Cir. 2021).
14
judicial process.” 

Id. at 128

. The Lewises have shown that
their alleged financial injury stems from GEICO’s pre-2020
practice of declining to pay taxes and fees to lessee insureds,
and they ask for damages, which “are a recognized form of
judicial redress for past injuries.” 

Id.

 They therefore have
standing to bring their taxes-and-fees claim.
IV
Because the Lewises have standing to bring their taxes-
and-fees claim, we must next decide whether the District Court
abused its discretion in certifying a class based on that claim.
We conclude that it did not.
GEICO challenges the District Court’s certification of
the taxes-and-fees class on only one ground: that the class is
not sufficiently ascertainable. 12      “A plaintiff seeking
certification of a Rule 23(b)(3) class must prove by a
preponderance of the evidence that the class is ascertainable.”
Byrd v. Aaron’s Inc., 

784 F.3d 154

, 163 (3d Cir. 2015); see
also In re Niaspan Antitrust Litig., 

67 F.4th 118

, 133 (3d Cir.
2023) (“Rule 23(b)(3) has an implicit requirement that class
members be ascertainable.”). To prove ascertainability, the
Lewises must show that “(1) the class is defined with reference
to objective criteria; and (2) there is a reliable and
administratively feasible mechanism for determining whether
putative class members fall within the class definition.” Byrd,
784 F.3d at 163 (cleaned up).
12
GEICO raises no other arguments about the taxes-and-fees
class in its opening brief and acknowledged at oral argument
that its challenge is limited to ascertainability.
15
The District Court did not abuse its discretion in holding
that the Lewises met these requirements. Objective criteria
define the class, which covers GEICO insureds in New Jersey
whose settlement “did not include applicable sales tax, title
fees, or license plate fees.” App. 65. As to administrative
feasibility, the Lewises presented evidence that GEICO
systematically underpaid taxes and fees before 2020 and that a
review of claim files and other sources could identify insureds
whose settlements did not include taxes and fees.
GEICO protests that it can only determine which
insureds were affected by the taxes and fees underpayment
“through a file-by-file review” of the class members. App.
677. But “matching of records is precisely the sort of exercise
we have found sufficiently administrable to satisfy
ascertainability in other cases.” Kelly v. RealPage Inc., 

47 F.4th 202

, 223 (3d Cir. 2022). Indeed, we have held that “a
straightforward ‘yes-or-no’ review of existing records to
identify class members is administratively feasible even if it
requires review of individual records with cross-referencing of
voluminous data from multiple sources.” 

Id. at 224

. That type
of review is what plaintiffs proposed and the District Court
endorsed. 13 The District Court therefore did not abuse its
13
The District Court relied on Hargrove v. Sleepy’s LLC, 

974 F.3d 467

 (3d Cir. 2020), to hold that defects in GEICO’s
records requiring individualized review did not preclude
certification because they “are of GEICO’s own making.”
App. 81. GEICO argues that this was error because the holding
in Hargrove is limited to employment cases where the
defendant failed to keep records as required by law. But
GEICO reads that case too narrowly. We have relied on
16
discretion when it found that the taxes-and-fees class was
ascertainable.
*      *      *
For the reasons stated above, we will affirm the part of
the District Court’s order certifying the taxes-and-fees class,
but we will vacate the part of the District Court’s order
certifying the condition-adjustment class and remand with
instructions to dismiss that claim.
Hargrove outside of the employment context for the
proposition that a defendant’s faulty recordkeeping will not
preclude certification of an otherwise ascertainable class. See
RealPage, 47 F.4th at 223.
17