RESPA/TILA Class Actions

Posted On: April 19, 2010 by Michael J. Hassen Email This Post

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Wells Fargo Class Action Defense Cases–Martinez v. Wells Fargo: Ninth Circuit Court Affirms Dismissal Of Class Action Holding RESPA and UCL Claims Preempted By National Bank Act

Class Action Alleging Violations of Federal Real Estate Settlement Procedures Act (RESPA) and California’s Unfair Competition Law (UCL) Properly Dismissed by District Court because Class Action Claims were Preempted by National Bank Act Ninth Circuit Holds

Plaintiffs filed a putative class action against Wells Fargo alleging violations of the federal Real Estate Settlement Procedures Act (RESPA) and California’s Unfair Competition Law (UCL); specifically, the class action complaint alleged that Wells Fargo violated RESPA’s prohibition against “unearned fees” by “overcharging” its customers, and that “Wells Fargo’s conduct was ‘unfair,’ ‘fraudulent’ and ‘illegal,’ all in violation of the UCL.” Martinez v. Wells Fargo Home Mortgage, Inc., ___ F.3d ___ (9th Cir. March 9, 2010) [Slip Opn., at 3763, 3767]. According to the allegations underlying the class action complaint, Wells Fargo charged plaintiffs an $800 underwriting fee in connection with refinancing their home loan. Id., at 3767. The class action alleges that the fee violated was excessive “because it was not reasonably related to Wells Fargo’s actual costs of performing the underwriting,” id., at 3767-68. Plaintiffs earlier sought to intervene in a New York lawsuit that contained identical claims; but the federal court denied intervention and dismissed the class action, and “the Second Circuit affirmed in part and remanded, holding that RESPA Section 8(b) clearly and unambiguously does not apply to excessive fees charged by a lender.” Id., at 3768. The essence of the present class action complaint was that “Wells Fargo marked up certain charges and overcharged for services in connection with mortgage loans, in violation of federal and state law.” Id. Defense attorneys moved to dismiss the class action, and the district court granted the motion on the grounds that RESPA does not apply to “overcharge” claims and that the class action’s UCL claims were preempted by the National Bank Act and “failed to identify an underlying illegal predicate act.” Id., at 3768-69. Plaintiffs appealed, and the Ninth Circuit affirmed.

The Ninth Circuit first held that the district court properly dismissed the class action’s RESPA claim because the statute does not apply to overcharge claims: “The language of Section 8(b) prohibits only the practice of giving or accepting money where no service whatsoever is performed in exchange for that money: ‘No person shall give and no person shall accept . . . any charge made or received . . . other than for services actually performed.’ 12 U.S.C. § 2607(b) (emphasis added). By negative implication, Section 8(b) cannot be read to prohibit charging fees, excessive or otherwise, when those fees are for services that were actually performed.” Martinez, at 3770 (footnote omitted). This was a matter of first impression in the Ninth Circuit, but the Court followed the holdings of the Second, Third and Eleventh Circuits in reaching this conclusion. Id., at 3771-72 (citing Kruse v. Wells Fargo Home Mortgage, Inc., 383 F.3d 49 (2d Cir. 2004); Santiago v. GMAC Mortgage Group, Inc., 417 F.3d 384 (3d Cir. 2005); Friedman v. Mkt. St. Mortgage, 520 F.3d 1289 (11th Cir. 2008)).

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Posted On: February 11, 2010 by Michael J. Hassen Email This Post

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TILA Class Action Defense Cases–Lymburner v. U.S. Financial: California Federal Court Grants Class Action Treatment To TILA/UCL Class Action Complaint Holding Requirements Of Rule 23 Satisfied

Class Action Complaint Alleging TILA Violations for Failing to Disclose “Key Terms” Associated with Negative Amortization/Option ARM Loan Satisfied Rule 23 Requirements for Class Action Certification California Federal Court Holds

Plaintiff filed a class action against U.S. Financial Funds, with whom she had refinanced her home loan, alleging violations of the federal Truth in Lending Act (TILA) and asserting various California statutory and common law claims; specifically, the class action complaint challenged disclosures made by defendant “in connection with the terms of a residential mortgage product that was sold to Plaintiff.” Lymburner v. U.S. Financial Funds, Inc., ___ F.3d ___ (N.D.Cal. January 22, 2010) [Slip Opn., at __]. According to the allegations underlying the class action complaint, plaintiff refinanced her home loan in 2006, obtaining an Option ARM loan. Id., at 1-2. The initial payments due on the loan reflected a “substantially discounted initial interest rate,” and while the interest rate could adjust monthly, the minimum monthly payment was fixed for five years. Id., at 2. U.S. Financial served as plaintiff’s mortgage broker and originated the loan, id. The loan documents disclosed the maximum interest rate that would be charged, as well as the maximum “unpaid principal that might result from negative amortization.” Id. The class action complaint alleged that just before her retirement in October 2006, defendant contacted her and advised that it could reduce her monthly mortgage payment to $700; plaintiff agreed to the loan without realizing that the principal amount owing on the loan could increase. Id. (The loan documents inflated plaintiff’s income; she initialed this page of the loan application and asserted that “the higher numbers did not strike her as being incorrect.” Id.) When plaintiff received her first bill and discovered the 9% interest rate and negative amortization, she tried to refinance the loan and made two mortgage payments before successfully refinancing her loan in April 2007. Id., at 2-3. The class action alleged that the failure to disclose “the key terms of the loan” violated TILA and constituted fraud under California’s Unfair Competition Law (UCL). Id., at 3. Plaintiff’s counsel moved to certify the litigation as a class action. Id., at 1, 3. The district court initially indicated that it planned to grant class action treatment, but ordered the parties to meet and confer concerning the proposed definition of the class because the court believed it to be inadequate. Id., at 1. Based on a joint letter proposing a new definition of the class, the federal court granted the motion for class action certification. Id.

The district court began by analyzing the adequacy of the proposed definition of the class, which focused on whether the loan documents disclosed that the interest rate “may” change (instead of “will” change), and that negative amortization “may” result (instead of “will” result). See Lymburner, at 4-5. The court held that the proposed class is ascertainable, particularly given that defendant used only one set of loan documents. Id., at 5. The federal court concluded at page 5 that “class membership can be ascertained by looking at the documents, particularly in light of the joint revised class definition.” The numerosity test in Rule 23(a)(1) for class action certification was met because the class contained at least 100 members, id., at 5. The district court also rejected defense challenges to the commonalty test in Rule 23(a)(2) because plaintiff’s class action was not premised on any representations made to her orally but, rather, on the disclosures contained in the written loan documents. Id., at 5-6. And the court rejected defendant’s claim that plaintiff’s claims were not “typical” as required by Rule 23(a)(3) because of differences in the remedies available to class members. Id., at 6-7. “Plaintiff’s claims are based on loans issued by Defendant allegedly without proper disclosures.” Id., at 7. Further, there was no evidence that defendant treated plaintiff differently or that her loan documents were materially different from those of other class members. Id. Accordingly, the typicality requirement was satisfied. Id. Finally, the court held that plaintiff satisfied the adequacy of representation test of Rule 23(a)(4). See id., at 7-8.

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Posted On: January 11, 2010 by Michael J. Hassen Email This Post

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RESPA Class Action Defense Cases–Mims v. Stewart Title: Fifth Circuit Reverses Class Action Certification Of RESPA Claim Holding Individual Issues Predominate

Class Action Alleging Illegal Fee Splitting of Title Insurance Premiums in Violation of RESPA (Real Estate Settlement Procedure Act) did not Warrant Class Action Treatment because Individual Inquiries Predominate as to Whether Section 8(b) Violation Occurred Fifth Circuit Holds

Plaintiffs filed a putative class action against their title insurer, Stewart Title Guaranty, alleging inter alia violations of the federal Real Estate Settlement Procedure Act (RESPA); the class action complaint alleged that Stewart Title failed to provide certain discounts to class members and split with its agents “the illegal, unearned charges on the policies.” Mims v. Stewart Title Guaranty Co., 590 F.3d 298, 2009 WL 4642631, *1 (5th Cir. 2009). According to the allegations underlying the class action complaint, “consumers who refinanced their home mortgages…[were entitled ] to receive a mandatory discount on their premiums for new title insurance policies acquired from Stewart” provided that the new title insurance policy “is issued within seven years of the closing of the prior mortgage.” Id. The class action alleged that Stewart Title “consistently failed to provide the reissue insurance discount” but, instead, split the savings with its agents, and that this conduct constituted illegal splitting of unearned fees in violation of § 8(b) of RESPA. Id., at *1-*2. Plaintiffs filed a motion to certify the litigation as a class action, id., at *2; defense attorneys opposed class action treatment, but the district court granted the motion, see id., at *1. Stewart Title sought permission to appeal the class action certification order. Id., at *2. The Fifth Circuit reversed, holding that “individual factual issues predominate the RESPA claim.” Id.

The Circuit Court first addressed Stewart Title’s claim that plaintiffs lacked standing to prosecute the class action’s RESPA claim, and explained that the challenge was more accurately denominated an attack on the merits of the claim rather than an issue of standing. See Mims, at *2. The Fifth Circuit stated at page *2, “There is no serious question that the plaintiffs have standing to bring this claim.” The defense argument went to the merits of the RESPA claim which – in light of the limited scope of review under Rule 23(f) – “may only be considered in this case if relevant to the class certification question.” Id., at *3. After summarizing Section 8(b) of RESPA, see id., at *4, the Circuit Court explained that the question is whether Stewart Title’s alleged failure to give consumers discounts represented the retention of a fee for services that were not performed, id. In sum, “plaintiffs' argument thus rests on the theory that the title insurance premium can be split between the amount allowed under Rule R-8 after the appropriate discount is applied and the amount in excess of that amount; they argue that this excess amount represents a charge for which no services were actually performed.” Id. In the Fifth Circuit’s view, the class action alleged: “Stewart charged excessive premiums. Stewart gave, and title agents accepted, a portion of the excessive premiums. The portion accepted by the title agents was excessive and not ‘for services actually performed,’ but instead were in the nature of kickbacks or referral fees.” Id., at *5. The district court had denied Stewart Title’s previous motion to dismiss the RESPA claim because it would that the splitting of such fees “may” violate Section 8(b), depending on the circumstances. Id. The Circuit Court held that class action treatment of the RESPA claim was therefore inappropriate, “because the district court's liability model for violations of RESPA § 8(b) requires an inquiry into the facts of each individual class member's title insurance transaction.” Id. In other words, “The only way the overall practice may be proven to violate RESPA, consistently with the HUD liability standard, is to examine the reasonableness of payments for goods and services. This inquiry must be performed on a transaction-by-transaction basis, because a single finding of liability on an unreasonable relationship between goods and services does not necessitate the conclusion that such unreasonableness exists on a class-wide basis.” Id., at *6. Accordingly, the district court abused its discretion in granting class action treatment to the RESPA claim, id., at *8.

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Posted On: November 24, 2009 by Michael J. Hassen Email This Post

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Class Action Defense Cases–Tasaranta v. Homecomings Financial: California Federal Court Dismisses Class Action Complaint Holding Allegations Insufficient To Support TILA, RESPA, HOEPA Or FDCPA Claims

Class Action Arising out of Home Loan Transaction and Alleging Violations of Various State and Federal Laws Dismissed, without Opposition from Plaintiffs, because Class Action Complaint Failed to Satisfy Pleading Requirements California Federal Court Holds

Plaintiffs filed a putative class action in California state court against Homecomings Financial and American Mortgage Network (which apparently was never served) arising out of a home loan they obtained that was secured by real property in Chula Vista, California. Tasaranta v. Homecomings Financial LLC, ___ F.Supp.2d___ (S.D. Cal. September 9, 2009) [Slip Opn., at 1-2.] Specifically, the class action complaint alleged that defendants violated the federal Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA), Home Ownership and Equity Protection Act (HOEPA) and Fair Debt Collection Practices Act (FDCPA), as well various California-state laws. Id., at 2. The class action prayed for compensatory and punitive damages, and sought “rescission of the contract and loan.” Id. Defense attorneys for Homecomings Financial removed the class action to federal court on the basis of federal question jurisdiction, id., at 1., and then filed a motion to dismiss the class action which plaintiffs did not oppose, id., at 1-2. Id. The district court granted the motion and dismissed the class action complaint without prejudice.

Even though the motion to dismiss the class action was unopposed, the district court reviewed each claim for relief on the merits. With respect to the class action’s TILA claim, the federal court found that the statute of limitations had run on the claim, Tasaranta, at 4-5, and that, separately, the complaint failed to adequately plead a “plausibly suggestive” claim “entitling the plaintiff to relief,” Tasaranta, at 4 (citation omitted). With respect to RESPA, the district court ruled that the class action failed to adequately plead the alleged transfer of the servicing contract in order to support a claim against “Servicers” under RESPA, id., at 5, and that the “yield spread premium” (YSP) claim under RESPA failed because YSPs are not per se illegal under RESPA, id., at 5-6. With respect to HOEPA, the class action complaint failed to allege sufficient details about the loan to support a claim that the interest rate fell within the scope of the statute. See id., at 6-7. And with respect to the FDCPA claim, the federal court observed that the class action did not “include sufficient factual allegations to support the conclusion that Defendants violated the FDCPA, such as how, when and to whom Plaintiffs ‘requested validation,’ and how and when each Defendant responded.” Id., at 7. Accordingly, the district court dismissed the class action complaint against Homecomings Financial without prejudice. Id., at 9.

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Posted On: November 2, 2009 by Michael J. Hassen Email This Post

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Countrywide RESPA Class Action Defense Cases–Alston v. Countrywide: Third Circuit Reverses Dismissal Of RESPA Class Action Alleging Payment Of Kickbacks Holding Plaintiffs Had Standing To Prosecute Class Action

District Court Erred in Dismissing RESPA Class Action because Kickback Prohibition does not Require that Consumers Suffer an Overcharge as a Prerequisite to Prosecuting Claim for RESPA Violation Third Circuit Holds

Plaintiffs filed a putative class action against Countrywide Financial Corporation, Countrywide Home Loans and Balboa Reinsurance Company alleging violations of the federal Real Estate Settlement Procedures Act of 1974 (RESPA); the class action complaint was “brought by homebuyers who sought to recover statutory treble damages pursuant to section 8(d)(2) of [RESPA], codified at 12 U.S.C. § 2607(d)(2).” Alston v. Countrywide Fin. Corp., 585 F.3d 753 (3d Cir. 2009) [Slip Opn., at 1, 3]. According to the allegations underlying the class action complaint, “[plaintiffs’] private mortgage insurance premiums were channeled into an unlawful ‘captive reinsurance arrangement’ – essentially, a kickback scheme – operated by their mortgage lender, Countrywide Home Loans… and its affiliated reinsurer, Balboa Reinsurance…in violation of RESPA section 8(a) and section 8(b),” id., at 3. The class action alleged that “in enacting and amending section 8, Congress bestowed upon the consumer the right to a real estate settlement free from unlawful kickbacks and unearned fees, and Countrywide’s invasion of that statutory right, even without a resultant overcharge, was an injury-in-fact for purposes of Article III standing.” Id. Defense attorneys moved to dismiss the class action complaint for lack of jurisdiction on the ground that “plaintiffs’ monthly PMI premiums were filed with the PID [Pennsylvania Insurance Department] and, therefore, per se reasonable under the filed rate doctrine.” Id., at 7. Defense attorneys also argued that because plaintiffs’ PMI rates had been approved by the state, they could not have suffered an overcharge and, absent an overcharge, they had not suffered the “injury-in-fact” required for Article III standing. Id. The district court granted the motion and dismissed the class action without prejudice. Id., at 3, 7-8. Plaintiffs appealed, and the Third Circuit reversed.

The class action was premised on the theory that Countrywide steered homebuyers who needed PMI insurance to companies that would “reinsure” the PMI policies with Balboa pursuant to a “captive reinsurance arrangement.” Alston, at 5. Further, the lawsuit claimed that because “Balboa did not assume risk commensurate with the amount of premiums it received” – having purportedly collected almost $900 million without paying any money in claims – the premiums paid to Balboa constituted “kickbacks to Countrywide by the primary insurer, in return for Countrywide’s referral of PMI business to the primary insurer, thereby violating RESPA’s anti-kickback provision,” id., at 6. In other words, Countrywide “offered only ‘sham’ reinsurance coverage,” id. Plaintiffs alleged that because of the kickback scheme they were entitled to statutory damages under RESPA even if the scheme did not result in overcharges to the consumer. Id., at 6-7. The Circuit Court defined the issue as follows: “What is before us for decision turns on a question of statutory interpretation—does or does not the plain language of RESPA section 8 indicate that Congress created a private right of action without requiring an overcharge allegation? We conclude that it does. Accordingly, we will reverse the Order of the District Court.” Id., at 3.

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Posted On: September 30, 2009 by Michael J. Hassen Email This Post

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RESPA Class Action Defense Cases–Yeatman v. D.R. Horton: Eleventh Circuit Affirms Dismissal Of Class Action Holding Mere Offering Of Closing Cost Discount For Use Of Affiliated Lender Does Not Violate RESPA Or HUD Regulations

Class Action Alleging RESPA Violations by Home Builder for Offering Discount on Closing Costs for use of Affiliated Lender Properly Dismissed because Mere Offering of such an Option does not Violate RESPA or HUD Regulations Eleventh Circuit Holds

Plaintiffs filed a putative class action against home builder D.R. Horton and its affiliated mortgage lender, DHI Mortgage, alleging violations of the federal Real Estate Settlement Procedures Act (RESPA). Yeatman v. D.R. Horton, Inc., 577 F.3d 1329, 1329 (11th Cir. 2009). According to the allegations underlying the class action complaint, plaintiffs agreed to purchase a home built by D.R. Horton and agreed to finance the home through its affiliate because the purchase agreement gave them “the option of receiving a discount on their closing costs on the house, provided they used DHIM as their mortgage lender.” Id., at 1329-30. The purchase agreement did not require plaintiffs to use DHIM as their lender, id., at 1330. Defense attorneys moved to dismiss the class action on the ground that the offer to discount closing costs if purchasers used an affiliate did not violate RESPA; the district court agreed, concluding that “the mere offering of an option of a discount on closing costs does not violate [RESPA],” and that it also did not violate the regulations promulgated by the Department of Housing and Urban Development (HUD) “prohibiting arrangements where consumers are required to use a specified service in order to buy another service or product.” Id. (citations omitted). Id., at 3-4. Accordingly, the district court granted defendants’ motion and dismissed the class action with prejudice. Id., at 1329. Plaintiffs appealed, and the Eleventh Circuit affirmed. The sum total of the Circuit Court’s analysis was, “We have considered the briefs and the well-reasoned opinion of the district court. We conclude that the district court properly dismissed [plaintiffs’] complaint with prejudice.” Id., at 1330. It therefore affirmed the dismissal of the class action, id.

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Posted On: September 21, 2009 by Michael J. Hassen Email This Post

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Target Class Action Defense Cases–Muro v. Target: Seventh Circuit Affirms Denial Of Class Action Treatment Of TILA Class Action Holding Plaintiff Lack Standing To Appeal Denial Of Class Certification As She Settled Individual Claim

As Matter of First Impression, because Plaintiff Settled her Individual Claims Following Denial of Class Action Certification Motion of Class Action Alleging Violations of Truth in Lending Act (TILA), Plaintiff Lacked Standing to Appeal Propriety of District Court Order Denying Class Certification Seventh Circuit Holds

Plaintiff filed a putative class action against various Target entities alleging violations of the federal Truth in Lending Act (TILA); the class action complaint alleged that Target sent plaintiff an unsolicited Target Visa card in the mail in violation of TILA’s prohibition against sending credit cards in the absence of a request or application by the consumer. Muro v. Target Corp., ___ F.3d ___ (7th Cir. August 31, 2009) [Slip Opn., at 1-2]. According to the allegations underlying the class action complaint, Target sent unsolicited Visa Cards, which may be used anywhere that accepts Visa cards, to holders of Target Guest Card, which may be used only at Target stores. Id., at 2 and n.2. Guest Card holders were given the option of activating the Visa cards, and if they elected to do so, then the corresponding Guest Card would be deactivated and any balance on the Guest Card would be transferred to the Visa card. Id., at 2-3. Plaintiff had a Guest Card account that she closed in 1999; plaintiff “received no further correspondence from Target for nearly five years” at which time she received the unsolicited Visa card. Id., at 2. Plaintiff did not activate the Visa card and did not incur any charges or fees in connection with the solicitation. Id. Nonetheless, plaintiff filed her class action complaint alleging TILA violations, id. Plaintiff moved the district court to certify the litigation as a class action and defense attorneys moved for summary judgment; the district court “granted summary judgment as to Target and denied class certification.” Id. The Seventh Circuit affirmed.

The Seventh Circuit began its analysis by noting that while TILA states “[n]o credit card shall be issued expect in response to a request or application therefor,” this provision “does not apply to the issuance of a credit card in renewal of, or in substitution for, an accepted credit card.” Muro, at 3-4 (quoting 15 U.S.C. § 1642). According to the district court, any class members that had Guest Card accounts fell within the exception of credit cards issued in “renewal or substitution” thereof, id., at 4. The district court also had denied class action treatment because plaintiff’s claims were not typical of those of the class – “unlike most of the proposed class members, [plaintiff] had alleged that she had closed her Guest Card account.” Id., at 4-5. And while plaintiff could adequately represent a class defined as recipients of the unsolicited Visa cards that previously had closed their Guest Card accounts, the district court found that plaintiff had not demonstrated that such a class would be sufficiently numerous to warrant class action treatment. Id., at 5. Plaintiff then settled her individual claim but claimed to reserve the right to appeal the denial of her class action certification motion, id. The Circuit Court held that plaintiff had “no cognizable interest” in the class action certification issue because she accepted the offer of judgment, so the Court focused on the issue of whether she could nevertheless appeal the district court’s decision not to certify the proposed class. Id., at 5-6.

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Posted On: August 31, 2009 by Michael J. Hassen Email This Post

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RESPA Class Action Defense Cases–Tubbs v. North American Title: New Jersey Federal Court Dismisses Class Action RESPA Claim And Dismisses Balance Of Class Action After Declining Jurisdiction Over Class Action’s State Law Claims

Class Action Alleging Improper Charges for Settlement Services Failed to State Claim under Real Estate Settlement Practices Act (RESPA) because Class Action Described an “Overcharge” Rather than a “Markup” or a “Fee Split” and Remaining Class Action State Law Claims Dismissed without Prejudice because Court Refused to Exercise Supplemental Jurisdiction over them New Jersey Federal Court Holds

Plaintiffs filed a putative class action against various North American Title entities alleging inter alia violations of the federal Real Estate Settlement Practices Act (RESPA) and the New Jersey Consumer Fraud Act; specifically, the class action complaint alleged that defendants charged improper fees in connection with the refinancing of residential mortgages. Tubbs v. North Am. Title Agency, Inc., 622 F.Supp.2d 207, 207-08 (D.N.J. 2009). According to the allegations underlying the class action complaint, defendants acted as closing agent when plaintiffs refinanced home loans that they had with Wachovia Bank, id., at 208. Among the closing costs charged by defendants was “release recording fee” of $150, but defendants “did not actually record the release of the mortgages”; instead, “Wachovia prepared and recorded the necessary documents…, and passed through to the borrower the $40 per mortgage recording fee charged by the County.” Id. Defense attorneys moved to dismiss the class action, and plaintiffs filed an amended class action complaint that largely tracked the original. Id., at 208-09. Defense attorneys again moved to dismiss the class action, id., at 209. The district court granted the motion.

The federal court explained that the gravamen of the class action’s RESPA claim was that defendants “violated RESPA by charging a settlement fee for which no services were performed.” Tubbs, at 209. Relying on Santiago v. GMAC Mortgage Group, Inc., 417 F.3d 384 (3d Cir. 2005), plaintiffs argued that defendants’ charge for recording a release was a “markup” prohibited by Section 8(b) of RESPA. Tubbs, at 209. But the district court explained that Santiago drew a distinction between a “markup” and an “overcharge,” which “occurs when the settlement service provider charges the consumer a fee, of which only one portion is a fee for the reasonable value of ‘services rendered.” Id. (citing Santiago, at 387). The distinction is important because under Santiago “the plain language of Section 8(b) does not provide a cause of action for overcharges.” Id., at 210 (citation omitted). Defendants did not actually engage in “fee splitting” because the fee charged by Wachovia “was not for the same settlement service.” Id. The district court explained at page 210 that the $40 fee charged by Wachovia was “not a fee for any service Wachovia was providing” but represented “the actual cost of recording the discharge with the Camden County Clerk’s office” and Wachovia “was passing on the county recording fee for the mortgage satisfaction as permitted by New Jersey Statute.” Further, the $25 fee charged by Wachovia was “for its work in preparing the mortgage satisfaction and arranging for its recording.” Id.

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Posted On: June 9, 2009 by Michael J. Hassen Email This Post

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TILA Class Action Defense Cases–Barrer v. Chase: Ninth Circuit Reverses Dismissal Of TILA Class Action Holding “Buried” Disclosures Did Not As A Matter Of Law Comply With TILA

Lender’s Disclosures that APR may Increase based on Information in Credit Report not Clear and Conspicuous Within Meaning of TILA so District Court Erred in Dismissing Class Action Complaint Ninth Circuit Holds

Plaintiffs filed a class action against Chase Bank alleging violations of the federal Truth in Lending Act (TILA), and Regulation Z promulgated thereunder; the class action complaint alleged that plaintiffs “have been the victims of a practice they now call ‘adverse action repricing,’ which apparently means ‘raising . . . a preferred rate to an essentially non-preferred rate based upon information in a customer’s credit report.’” Barber v. Chase Bank USA, N.A., 566 F.3d 883 (9th Cir. 2009) [Slip Opn., at 5996 ]. Specifically, Chase increased plaintiffs’ annual percentage rate (APR) on their outstanding credit card balance from 8.99% to 24.24% based on information obtained from a consumer credit reporting agency; Chase stated that it increased the interest rate “‘outstanding credit loan(s) on revolving accounts . . . [were] too high’ and there were ‘too many recently opened installment/revolving accounts.’” Id., at 5995-96. The class action did not allege that Chase’s practice of increasing the APR based on information in a consumer’s credit report was illegal, but rather that Chase violated federal law by failing to fully disclose it to them. Id. Defense attorneys moved to dismiss the class action complaint for failure to state a claim; the district court agreed with Chase and dismissed the class action. Id., at 5997. Plaintiffs appealed, and the Ninth Circuit reversed.

The Ninth Circuit explained, “We must decide whether a credit card company violates the Truth in Lending Act when it fails to disclose potential risk factors that allow it to raise a cardholder’s Annual Percentage Rate.” Barber, at 5994. Given the purpose of TILA – viz., “to assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit,” 15 U.S.C. § 1601(a) – the Ninth Circuit reversed. The Circuit Court explained that TILA requires disclosure of “[t]he conditions under which a finance charge may be imposed,” “[t]he method of determining the amount of the finance charge,” and, “[w]here one or more periodic rates may be used to compute the finance charge, each such rate . . . and the corresponding nominal annual percentage rate.” Barber, at 5998 (quoting § 1637(a)(1), (a)(3) & (a)(4)). And under Reg. Z, “creditors must make the required disclosures ‘clearly and conspicuously in writing.’” Id., at 5999 (quoting 12 C.F.R. § 226.5(a)(1)). According to the class action, “Chase failed to disclose completely under the Act why it would change the APRs of its cardholders, in violation of subsection 226.6(a)(2) of Regulation Z.” Id., at 6000.

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Posted On: May 18, 2009 by Michael J. Hassen Email This Post

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TILA Class Action Defense Cases–Frazier v. Accredited Home Lenders: Alabama Federal Court Grants Lender’s Summary Judgment Motion In TILA Class Action

Lender Motion for Summary Judgment as to Class Action Claims Alleging Lender Violated TILA and HOEPA Properly Granted because Disclosed Finance Charges Fell within TILA’s Tolerance for Accuracy and because HOEPA did not Apply as Transaction was not High-Cost Loan Alabama Federal Court Holds

Plaintiff filed a class action against Accredited Home Lenders, dba Home Funds Direct, alleging violations of the federal Truth in Lending Act (TILA) and Home Ownership and Equity Protection Act (HOEPA), which requires additional disclosures be made in connection with “high cost” loans; the class action complaint asserted that her lender “improperly understated the finance charge on credit it extended to her” and “failed t comply with the additional disclosure requirements” of HOEPA. Frazier v. Accredited Home Lenders, Inc., 607 F.Supp.2d 1254, 2009 WL 931167, *1 (M.D.Ala. 2009). According to the allegations underlying the class action, the lender improperly excluded several charges from its calculation of the finance charge – a claim the lender denied. Id., at *2. The class action sought rescission and damages, id., at *1. Defense attorneys moved summary judgment, id.; the lender argued that its disclosures were “accurate, complete, and in compliance with both TILA and HOEPA.” Id., at *2. The class action complaint alleged that the lender charged an “endorsement fee” for a service that was never provided, and that it charged an excessive fee for “a title search, a title examination, recording, and title insurance,” each of which allegedly should have been included in the finance charge. Id. Defense attorneys countered that the fees in question were “imposed by a third party” and that they were not excessive; further, the lender argued that the finance charge disclosed “falls within TILA’s tolerance for accuracy” (that is, one half of one percent of the loan amount). Id. Alternatively, defense attorneys argued that any errors fell within the safe harbor provision of TILA and fell outside the scope of HOEPA. Id. The district court granted the motion and entered judgment in favor of the lender on the class action complaint.

The federal court observed that the “dispositive question” was “how to calculate properly the finance charge” for the loan extended to plaintiff. Frazier, at *2. The court observed that this task was complicated by “the imprecise language of TILA itself and the maze of federal regulations interpreting the statute.” Id. Turning to the merits, the district court rejected the lender’s claim that it was not responsible for charges imposed by third parties, observing that the relevant inquiry is whether it required the services in question. Id., at *3. But the court agreed with defense attorneys that the lender did not “require” the “endorsement fee” charged by the third party, particularly as no service was ever provided in connection with that third party charge, id. Accordingly, the federal court held that “the endorsement fee must be excluded from the finance charge.” Id. The question then, was whether the remaining fees were “excessive” and whether the lender understated that amount of the finance charge, id.

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Posted On: March 31, 2009 by Michael J. Hassen Email This Post

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TILA Class Action Defense Cases–McCoy v. Chase: Ninth Circuit Reverses Dismissal Of TILA Class Action Holding Lender Must Give Notice Of Interest Rate Increase Based On Late Payments To Other Creditor

District Court Erred in Dismissing TILA Class Action because Regulation Z Required Lender to Notify Credit Card Holder of Increase in Interest Rate Based on Late Payments to Other Creditor Ninth Circuit Holds

Plaintiff filed a class action against Chase Manhattan Bank alleging violations of the federal Truth in Lending Act (TILA); the class action complaint asserted that Chase violated TILA by “increase[ing] his interest rates retroactively to the beginning of his payment cycle after his account was closed to new transactions as a result of a late payment to Chase or another creditor,” but failing to give him notice of the increase until after it had already taken effect. McCoy v. Chase Manhattan Bank, USA, ___ F.3d ___ (9th Cir. March 16, 2009) [Slip Opn., at 3325, 3328]. Defense attorneys moved to dismiss the class action on the grounds that Chase was not required to give notice of the rate increase because it had disclosed in its Cardmember Agreement the highest rate that the Bank could apply in the event of a cardmember default. Id., at 3328. The district court agreed and dismissed the class action, id. Plaintiff appealed. The Ninth Circuit explained at page 3328, “This case presents the question of whether the notice requirements of [TILA] and Regulation Z…, as interpreted by the Federal Reserve Board’s Official Staff Commentary, apply to discretionary interest rate increases that occur because of consumer default. We hold that Regulation Z requires a creditor to provide contemporaneous notice of such rate increases.” The Circuit Court therefore affirmed in part and reversed in part.

The Ninth Circuit began its discussion by noting that “Congress enacted TILA to ‘assure a meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.’” McCoy, at 3329 (quoting 15 U.S.C. § 1601(a)). Toward that end, the Federal Reserve Board adopted Regulation Z, which addresses when and how notice of changes in terms must be given and which provides, in part, that written notice is required “[w]henever any term required to be disclosed under § 226.6 is changed or the required minimum periodic payment is increased,” 12 C.F.R. § 226.9(c)(1). Section 226.6, in turn, requires that creditors to disclose “each periodic rate that may be used to compute the finance charge.” 12 C.F.R. § 226.9(a)(2). The Circuit Court explained that the parties “dispute the meaning of the phrase ‘any term required to be disclosed under § 226.6’”; defense attorneys argued that “the phrase applies only to the contractual terms of Chase’s Cardmember Agreement,” while plaintiff argued that “the phrase also applies to the list of specific ‘items’ § 226.6(a)(2) requires be disclosed, which includes the interest rate that may be used.” McCoy, at 3329. The Ninth Circuit found the language of Regulation Z to be “ambiguous,” and noted that it would defer to the Federal Reserve’s “interpretation of its own ambiguous regulation” so long as that interpretation is not “‘plainly erroneous or inconsistent with the regulation.’” Id., at 3330 (citation omitted).

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Posted On: March 24, 2009 by Michael J. Hassen Email This Post

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RESPA Class Action Defense Cases–Hazewood v. Foundation Financial: Eighth Circuit Affirms Dismissal Of RESPA Class Action Holding Excess Title Premium Charged Not An Unearned Fee Under RESPA

District Court Properly Dismissed RESPA Class Action Complaint because Title Insurers Provided Service (Title Insurance) for Fee Alleged Overcharged to Plaintiff, and Plaintiff cannot Manufacture RESPA Claim by Alleging “Portion” of Fee (Excess Premium) was “Unearned” Eighth Circuit Holds

Plaintiff filed a class action against her title insurer, Foundation Financial Group, and other title insurers and title insurance agents alleging inter alia violations of the Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA); the class action complaint asserted that defendants overcharged for title insurance in violation of Alabama law, and that they charged borrowers for “other than for services actually performed” in violation of RESPA. Hazewood v. Foundation Fin. Group, LLC, 551 F.3d 1223, 1224 (8th Cir. 2008). The theory of the class action is that the title insurer charged a premium in excess of that allowed by state law, and that the amount of the excess constituted a “portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service ... other than for services actually performed” in violation of RESPA. Id., at 1225 (quoting 12 U.S.C. § 2607(b)). Put another way, the class action was premised on the theory that “the overcharge was, as a matter of law, ‘other than for services actually performed.’” Id. The class action also alleged that the title insurance premium “was, or may have been, split” between two defendants, id., at 1224. Defense attorneys moved to dismiss the class action; they argued that RESPA is violated “only when fees are charged in exchange for no services at all, not for mere overcharges or excessive fees.” Id., at 1225. The district court agreed, dismissing the RESPA claim because plaintiff in fact received title insurance, and dismissing the state law claims as barred by Alabama law because a private right of action does not exist for charging an insurance rate in excess of the filed rate. Id. The Eighth Circuit affirmed.

The Eighth Circuit noted that Alabama law “requires title insurers to submit their rates to the Insurance Commissioner, who must then approve the ‘fairness and justness’ of this ‘filed rate.’” Hazewood, at 1224 (citation omitted). Title insurers may not charge a premium in excess of the filed rate, but plaintiff allegedly was charged such a rate which was allegedly split between the settlement agent and the title insurer. Id., at 1224-25. Plaintiff argued on appeal that the class action’s RESPA claim should not have been dismissed because “a portion of her title insurance premium was unearned.” Id., at 1225. The Circuit Court cited well-settled Eighth Circuit authority holding that “RESPA § 8(b) does not provide a cause of action for excessive fees – that is, charges where a service was performed, but the plaintiff feels she was overcharged by the service provider.” Id. (citing Friedman v. Market Street Mortg. Corp., 520 F.3d 1289, 1296 (11th Cir. 2008)). If the fee is charged for a service that is actually rendered, then RESPA is not violated; the RESPA claim must allege that “no services were rendered in exchange for a settlement fee.” Id. (citation omitted). Further, the plaintiff cannot avoid this limitation by arguing, as the present class action does, that a portion of the fee charged – the “excess” portion – was “unearned.” Id., at 1225-26. Accordingly, her RESPA class action claim was properly dismissed, id., at 1226. The Eighth Circuit also rejected plaintiff’s invitation to “overrule, modify, or distinguish” its prior case law so that her class action claim could survive, id., at 1227. Accordingly, the Circuit Court affirmed the judgment of the district court dismissing the class action, id.

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Posted On: March 18, 2009 by Michael J. Hassen Email This Post

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TILA Class Action Defense Cases–Jordan v. Paul Financial: California Federal Court Denies Class Action Treatment To TILA Law Class Action Holding Plaintiff Lacks Standing And His Claims Lack Typicality

Class Action Complaint Alleging Violations of Federal Truth in Lending Act (TILA) did not Warrant Class Action Treatment because Plaintiff Lacked Standing to Prosecute TILA Claim, Plaintiff was an Inadequate Representative because he could not Establish Traceability, and Plaintiff’s Claims were not Typical of the Putative Class Claims California Federal Court Holds

Plaintiff filed a putative class action against Paul Financial concerning option adjustable rate mortgages (Option ARMs); specifically, the class action complaint alleged that Option ARMs are “deceptively devised” in that they “promise that the loan [will] have a low, fixed interest rate” when in fact the loan carries a much higher interest rate. The class action alleged further that defendant “disguised” the fact that the Option ARM “was designed to cause negative amortization.” Jordan v. Paul Financial, LLC, ___ F.Supp.2d ___ (N.D. Cal. January 27, 2009) [Slip Opn., at 1-2]. The class action alleged, inter alia, violations of the federal Truth in Lending Act (TILA) and California’s Unfair Competition Law (UCL), id., at 2, and amendments to the class action complaint added HSBC and Luminent Capital Mortgage as defendants, id., at 1. Plaintiff sought to represent two classes of borrowers who received Option ARM loans secured by their primary residences: (1) a nationwide class, and (2) a California statewide class, id., at 1-2. Plaintiff’s attorney moved the district court to certify the litigation as a class action; defense attorneys argued against class action treatment. Id., at 1. The district court determined that class action treatment was not warranted and therefore denied plaintiff’s class action certification motion.

Paul Financial originated residential loans, and while it also serviced loans, Paul Financial sold 75% of its loans to third party investors and sold the servicing rights to other investors. Jordan, at 2. Defendant “sold the loans to about ten investors,” but does not have records of subsequent sales by those investors, id., at 2-3. Plaintiff’s loan, for example, was sold to defendant Luminent, and then pooled with other Option ARM loans into a mortgage-backed security pool; defendant HSBC was the trustee of the pool. Id., at 3. Defendant sold the servicing rights for plaintiff’s loan to yet another investor, Greenwich Capital, id. By December 2008, Paul Financial had less than $1000 and planned to cease operations on December 31, 2008. Id., at 2. After discussing the general rules regarding class action certification under Rule 23, see id., at 3-4, the district court turned to whether plaintiff had standing to represent the TILA class or the California class.

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Posted On: February 16, 2009 by Michael J. Hassen Email This Post

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Class Action Defense Cases–Hauk v. JP Morgan Chase: Ninth Circuit Affirms Summary Judgment On Class Action’s TILA Claim But Reverses As To Class Action’s UCL And False Advertising Claims

District Court Properly Granted Summary Judgment in Favor of Bank as to Claim Alleging Violation of Federal Truth In Lending Act (TILA) because Bank’s Disclosures were Accurate, but Genuine Issue of Material Fact Precluded Summary Judgment as to Unfair Competition Law (UCL) and False Advertising Law (FAL) Claims Ninth Circuit Holds

Plaintiff filed a class action against JP Morgan Chase alleging violations of the federal Truth in Lending Act (TILA), the federal Fair Credit Reporting Act (FCRA) and California’s Consumers Legal Remedies Act (CLRA); plaintiff’s amended class action complaint added claims for alleged violations of California’s Unfair Competition Law (UCL) and False Advertising Law (FAL). Hauk v. JP Morgan Chase Bank USA, ___ F.3d ___ (9th Cir. January 23, 2009) [Slip Opn., at 827]. The class action complaint asserted that plaintiff opened a Chase credit card, subject to a Cardmember Agreement (CMA), and later took advantage of a “balance transfer offer” that promised a promotional fixed 4.99% APR by transferring $10,000 to his Chase card. Id., at 825. According to the allegations underlying the class action, the CMA allowed Chase to increase the interest rate if plaintiff made a late payment to Chase or any other creditor, id. The class action centered on the allegation that Chase charged plaintiff an APR of 28.74% because it maintained that “he was no longer eligible to receive the promotional 4.99% APR,” id., at 825-26; specifically, Chase argued that plaintiff had made a late payment to another creditor three months before he accepted the balance transfer offer from Chase, id., at 826. While Chase would have automatically canceled the balance transfer offer to plaintiff had it discovered the late payment as part of its monthly cardmember account review, which includes reviewing Experian credit reports, Chase claimed that it did not discover the late payment until after plaintiff had accepted the offer to transfer a balance to his credit card. Id. Defense attorneys removed the class action to federal court, and moved for summary judgment on the grounds that the class action’s state law claims were preempted by federal law and that plaintiff’s TILA and CLRA claims were defeated by the disclosures in Chase’s CMA. Id., at 827. The district court rejected the preemption argument, but agreed with the defense that plaintiff could not prove Chase knew of the late payment before accepting the balance transfer offer and so plaintiff’s state law claims could not survive. Id. The Ninth Circuit reversed as to the UCL and FAL claims for relief.

The Ninth Circuit noted that plaintiff voluntarily withdrew his FCRA claim and did not appeal from the dismissal of the class action’s CLRA claim; accordingly, the appeal was directed to the grant of summary judgment as to plaintiff’s TILA, UCL and FAL claims. Hauk, at 827. The Circuit Court devoted most of its attention to the TILA claim. The Ninth Circuit summarized TILA and Regulation Z, see id., at 828-29, and the disclosures made by Chase in conjunction with the balance transfer offer, see id., at 830-31. In pertinent part, Chase may waive its right to increase a cardholder’s APR because of a late payment if it knows of, but does not promptly act on, that default, id., at 830-31; however, Chase does not waive its right to increase the APR “based on a late payment it discovered after it mailed the [balance transfer offer], even if that late payment occurred before it mailed the [balance transfer offer],” id., at 831 (citations omitted). The Circuit Court noted further that “TILA is only a ‘disclosure statute’ and ‘does not substantively regulate consumer credit,’” id. In this case, then, the district court properly granted summary judgment on the class action’s TILA claim because “the injury [plaintiff] suffered neither resulted from any lack of TILA disclosures nor gave rise to a claim under TILA.” Id. The Ninth Circuit explained that “while an inaccurate disclosure that itself breaches a credit agreement may also violate TILA…, the breach of a credit agreement based on conduct independent of the disclosures does not necessarily give rise to a TILA claim.” Id., at 832-33 (citation omitted). In affirming the dismissal of the TILA claim, the Ninth Circuit recognized contrary authority out of the Third Circuit, see id., at 833-34 (citing Rossman v. Fleet Bank (R.I.) Nat’l Ass’n, 280 F.3d 384, 399-400 (3d Cir. 2002)), but rejected that circuit’s “expansive reading of Regulation Z,” id., at 833. Rather, the Ninth Circuit concluded at page 835, “We hold that a creditor’s undisclosed intent to act inconsistent with its disclosures is irrelevant in determining the sufficiency of those disclosures under sections 226.5, 226.6, and 226.9 of Regulation Z.” And because defendant’s disclosures complied with TILA and Regulation Z, summary judgment was proper, id.

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Posted On: November 13, 2008 by Michael J. Hassen Email This Post

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Class Action Defense Cases–Munoz v. Financial Freedom: California Federal Court Grants Defense Motion To Dismiss Class Action Claims As Preempted By HOLA But Grants Leave To File Amended Class Action Complaint

Home Owners’ Loan Act (HOLA) Preempted Class Action Claims Premised on Scheme to Defraud Senior Citizens into Entering into Reverse Mortgages but Plaintiff given Leave to File Amended Class Action Complaint California Federal Court Holds

Plaintiff filed a putative class action against Financial Freedom Senior Funding Corporation alleging that “Financial Freedom instituted a complex scheme to defraud senior citizens in the structuring, origination, underwriting, marketing and sale of reverse mortgages.” Munoz v. Financial Freedom Senior Funding Corp., 567 F.Supp.2d 1156, 1158 (C.D. Cal. 2008). The class action complaint alleged ten claims for relief: elder abuse, violation of California’s Unfair Competition Law (UCL) practices by violating the Real Estate Settlement Procedures Act (RESPA) and Regulation X, false advertising, breach of fiduciary duty and aiding and abetting breach of fiduciary duty, fraudulent concealment, unjust enrichment and imposition of constructive trust, violation of the Consumer Legal Remedies Act (CLRA), breach of the implied covenant of good faith and fair dealing, and negligent misrepresentation. Id., at 1161. At bottom, the class action alleged that defendant “included a number of hidden costs and fees in the reverse mortgage transactions, and also to have paid brokers ‘kickbacks’ for directing borrowers to the company.” Id., at 1158. Defense attorneys moved the district court for judgment on the pleadings as to the class action claims under Rule 12(c) on the ground that the class action claims are preempted by federal law. Id., at 1159. The district court granted the motion in part and denied it in part.

The district court summarized the three ways in which federal law may preempt state law, and noted that while there is generally a presumption against federal presumption, that presumption does not apply to the banking industry because it is “‘an area where there has been a history of significant federal presence.’” Munoz, at 1159 (citation omitted). Defense attorneys argued that the class action claims were preempted by the Home Owners’ Loan Act of 1933 (HOLA), which gave “broad authority” to the Office of Thrift Supervision (OTS) to “promulgate regulations governing savings and loan institutions,” id., at 1160. The OTS regulations, in turn, expressly provide, “OTS hereby occupies the entire field of lending regulation for federal savings associations.” Id. (quoting 12 C.F.R. § 560.2(a)). Under Ninth Circuit authority, “HOLA preempts all state regulation of savings associations under the doctrine of field preemption.” Id. (citations omitted). Specifically, HOLA expressly preempts state laws governing “Loan-related fees, including without limitation, initial charges, late charges, prepayment penalties, servicing fees, and over limit fees,” § 560.2(b)(5), and “Disclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related documents,” § 560.2(b)(9).

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Posted On: November 4, 2008 by Michael J. Hassen Email This Post

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TILA Class Action Defense Cases–Christ v. Beneficial: Eleventh Circuit Reverses Class Action Certification And Damage Award In Truth-In-Lending-Act Class Action Holding TILA Does Not Authorize Actions Seeking Private Injunctive Relief

Private Injunctive Relief Unavailable Under Truth in Lending Act, so District Court in TILA Class Action Seeking such Relief Improperly Granted Class Action Treatment under Rule 23(b)(2) and Erred Further in Awarding $22 Million in Damages as “Restitution or Disgorgement” under Declaratory Judgment Act Eleventh Circuit Holds

Plaintiff filed a class action against Beneficial Florida, Inc. and numerous affiliates (the Bank) alleging violations of the federal Truth in Lending Act (TILA) in the disclosures made by the Bank in connection with a $2000 loan; the class action complaint alleged that the Bank violated TILA by listing the fee for non-filing insurance (NFI) in the wrong column on the disclosure form. Christ v. Beneficial Corp., ___ F.3d ___ (11th Cir. October 28, 2008) [Slip Opn., at 1-2]. Specifically, the class action alleged that the Bank disclosed the NFI as an “amount charged” when it should have been disclosed as a “finance charge,” id., at 4. In part, plaintiff’s class action complaint sought damages, injunctive relief, declaratory relief, and disgorgement, id., at 4-5. The Judicial Panel on Multi-District Litigation centralized the class action with other related class actions against the Bank in the Middle District of Alabama, and ultimately the Alabama federal court certified a nationwide class action against the Bank under Rule 23(b)(2), id., at 5-6, which authorizes class actions where a defendant acted “on grounds that apply generally to the class, so that injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole,” FRCP Rule 23(b)(2). In certifying the class action, the district court held that “[i]njunctive and declaratory relief are available under TILA,” id., at 6 (citation omitted). The district court later granted summary judgment in favor of the plaintiff class “and awarded injunctive relief and over $22 million in restitution and disgorgement pursuant to the Declaratory Judgment Act.” Id., at 3. The Eleventh Circuit reversed.

The Eleventh Circuit primarily addressed whether “private injunctive relief” is available under TILA: it noted that TILA is silent on the issue, neither expressly authorizing such relief nor prohibiting it, and that the district court “inferred from TILA’s silence that TILA provides private injunctive relief.” Christ, at 8. Based on its detailed analysis, the Circuit Court disagreed. See id., at 8-12. The Eleventh Circuit then held that certification of a Rule 23(b)(2) class action was inappropriate because the Declaratory Judgment Act, standing alone, would not support such an order. Id., at 12. The Court explained, “The relief sought under the Declaratory Judgment Act is essentially a declaration of liability under TILA, and can only ‘lay the basis for a damage award rather than injunctive relief.’” Id. (citation omitted). Accordingly, because it held that TILA did not authorize private injunctive relief, the Eleventh Circuit vacated the class action certification order. Id.

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Posted On: October 24, 2008 by Michael J. Hassen Email This Post

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Class Action Defense Cases—In re Countrywide Financial: Judicial Panel On Multidistrict Litigation (MDL) Grants Defense Motion To Centralize Class Action Litigation But Transfers Class Actions To Southern District of California

Judicial Panel Grants Defense Request for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407, Opposed by Some Class Action Plaintiffs and Two Attorneys General, but Transfers Actions to Southern District of California

Seven class actions – three in the Central District of California, two in the Southern District of California, one in Illinois and one in Kentucky – were filed against Countrywide Financial Corp. and affiliated entities; the various class action complaints “aris[e] out of allegations that Countrywide engaged in predatory lending practices by (1) originating and/or servicing residential mortgages in an unlawful, unfair or deceptive fashion, (2) misrepresenting or concealing the terms, risk, or suitability of the loans; and/or (3) placing borrowers in loans that they could not afford.” In re Countrywide Financial Corp. Mortgage Marketing & Sales Practices Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. October 14, 2008) [Slip Opn., at 1-2]. Four related class actions were filed in Connecticut, Florida , Indiana and the West Virginia, and were treated as potential tag-along actions by the Judicial Panel. Id., at 1 n.2 Defense attorneys for Countrywide Bank, Countrywide Home Loans, and Bank of America filed a motion with the Judicial Panel for Multidistrict Litigation (MDL) requesting centralization of the class actions pursuant to 28 U.S.C. § 1407 in the Central District of California; plaintiffs in both class actions supported the motion. Id., at 1. The various class action plaintiffs generally agreed on centralization, but could not agree on an appropriate transferee court. Class action plaintiffs in one of the putative nationwide class actions pending in the Central District of California supported the defense motion, but plaintiffs in another class action pending in the Central District of California, as well as plaintiffs in the Kentucky tag-along class action, argued for centralization in the Western District of Kentucky. Id. Still other plaintiffs – including Attorneys General for California and Illinois – opposed centralization entirely. Id.

The Judicial Panel granted the motion to centralize the class action lawsuits. In re Countrywide Financial, at 2. The Panel explained at page 2, “Centralization under Section 1407 will eliminate duplicative discovery; avoid inconsistent pretrial rulings, including on the issue of class certification in some actions; and conserve the resources of the parties, their counsel and the judiciary. The sufficiency of class allegations is an overarching issue in the putative nationwide class actions in this MDL proceeding.” With respect to the argument of the Attorneys General that federal jurisdiction over their actions is improper and that their actions should be remanded to state court, the Judicial Panel concluded that “these motions can be presented to the transferee judge”; however, the Panel “urge[d] the transferee judge to consider them expeditiously.” Id., at 2. The Judicial Panel transferred the class actions to the Southern District of California, because “(1) two of the seven actions in this docket are pending in this district, (2) Countrywide’s principal place of business is in California, and parties, witnesses and documents may be found there, and (3) the Southern District of California has the capacity to handle this litigation.” Id., at 2-3.

Download PDF file of In re Countrywide Financial Transfer Order

Posted On: October 15, 2008 by Michael J. Hassen Email This Post

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Arbitration Class Action Defense Cases–Pleasants v. American Express: Eighth Circuit Affirms Order Dismissing Class Action And Compelling Arbitration Of Individual Claim Holding Class Action Waiver In Arbitration Clause Enforceable Under FAA

District Court Properly Dismissed Class Action and Granted Defense Motion to Compel Plaintiff to Arbitrate her Claims on an Individual Basis, Rather than as a Class Action, because Class Action Waiver in Arbitration Clause was not Substantively or Procedurally Unconscionable Eighth Circuit Holds

Plaintiff filed a putative class action against American Express Company and American Express Incentive Services (AEIS) alleging violations of the federal Truth in Lending Act (TILA); specifically, the class action complaint alleged that American Express violated TILA by “issuing pre-loaded, stored-value cards without making the disclosures required under the TILA.” Pleasants v. American Express Co., 541 F.3d 853, 855 (8th Cir. 2008). Defense attorneys moved to dismiss American Express Company on the ground that it was not a “creditor” within the meaning of TILA; plaintiff did not oppose the motion and the district court dismissed American Express Company from the putative class action. Id. Defense attorneys then moved to compel arbitration of plaintiff’s claims pursuant to an arbitration provision governed by the Federal Arbitration Act (FAA) that contained a class action waiver, id. The district court rejected plaintiff’s claim that the class action waiver was unconscionable, dismissed the class action and compelled plaintiff to arbitrate her individual claims against AEIS. Id. The Eighth Circuit affirmed.

Briefly, AEIS sent plaintiff three pre-paid cards, in the amounts of $25, $10, and $5, in return for her participation in online surveys; the cards could be used at any establishment that accepted American Express credit cards. Pleasants, at 855. Along with the cards, AEIS sent plaintiff the “Card Terms and Conditions,” which included a “Participant Agreement” that provided in part that any claims would be resolved by arbitration and that the parties “WILL NOT HAVE THE RIGHT TO PARTICIPATE IN A REPRESENTATIVE CAPACITY OR AS A MEMBER OF ANY CLASS OF CLAIMANTS PERTAINING TO ANY CLAIM SUBJECT TO ARBITRATION,” id. A separate provision reiterated that all claims “shall be arbitrated on an individual basis” and that there “shall be no right” for any claims “to be arbitrated on a class action basis,” id., at 855-56. Plaintiff’s class action complaint alleged that at a time when the cards had a combined remaining balance of $25, she used the cards at a restaurant to pay for a $20 meal “but the restaurant processed one or more of the cards for $45 more than their stored value.” Id., at 856. AEIS demanded that plaintiff pay the $45 difference; when she failed to do so, AEIS sent her another letter requesting not only the $45 difference but, pursuant to the terms and conditions of the card usage agreement, a late fee of $10 and a transaction fee of $25. Id. Plaintiff disputed the charge and filed the class action when AEIS continued with collection efforts, id.

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Posted On: September 26, 2008 by Michael J. Hassen Email This Post

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TILA Class Action Defense Cases–Andrews v. Chevy Chase: Seventh Circuit Reverses Class Action Certification Of TILA Class Action Against Chevy Chase Bank Holding Rescission Not Available In Class Actions Under TILA

Truth-in-Lending Act (TILA) Class Action Lawsuit Erroneously Granted Class Action Status because TILA does not Permit Rescission as a Class Action Remedy only Damages Seventh Circuit Holds

Plaintiffs filed a putative class action against Chevy Chase Bank for violations of the federal Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq.; the class action complaint alleged that, in connection with its adjustable rate mortgage loans, the Bank failed to make the disclosures required by federal law. Andrews v. Chevy Chase Bank, 545 F.3d 570 (7th Cir. 2008) [Slip Opn., at 3-4]. The class action sought not only statutory damages and attorney fees, but prayed for rescission as well, id., at 4.. The district court granted plaintiffs’ motion for class action certification, see Andrews v. Chevy Chase Bank, FSB, 240 F.R.D. 612 (E.D. Wis. 2007); our summary of that opinion may be found here. The author stated in that summary, “[T]he author notes that the court’s analysis is brief and superficial, and fails to address any of the cases that hold rescission to be unavailable on a class-wide basis. See, e.g., McKenna v. First Horizon Home Loan Corp., 475 F.3d 418, 423 (1st Cir. 2007) (holding that ‘as a matter of law, class certification is not available for rescission claims, direct or declaratory, under the TILA’).” Defense attorneys filed an interlocutory appeal: the Seventh Circuit explained, “we are called on to answer one question: May a class action be certified for claims seeking the remedy of rescission under the Truth in Lending Act (‘TILA’), 15 U.S.C. § 1635? The only two federal appellate courts to have addressed this question have answered ‘no,’ see McKenna v. First Horizon Home Loan Corp., 475 F.3d 418 (1st Cir. 2007); James v. Home Constr. Co. of Mobile, Inc., 621 F.2d 727 (5th Cir. 1980), and we agree. TILA’s statutory-damages remedy, § 1640(a)(2), specifically references class actions (by providing a damages cap), but TILA’s rescission remedy, § 1635, omits any reference to class actions. This omission, and the fundamental incompatibility between the statutory-rescission remedy set forth in § 1635 and the class form of action, persuade us as a matter of law that TILA rescission class actions may not be maintained.” Id., at 1-2. Accordingly, the Seventh Circuit reversed.

The Circuit Court noted that because the issue presented in the appeal is “purely legal” – viz., whether class action claims for rescission may be pursued under TILA – the district court order is subject to de novo review, rather than the “abuse of discretion” standard generally employed when reviewing an order granting class action certification. Andrews, at 5. The Seventh Court noted at page 6, “Whether TILA allows claims for rescission to be maintained in a class-action format is an issue of first impression in our circuit, but the First and Fifth Circuits, in addition to California’s court of appeals, have held as a matter of law that rescission class actions are unavailable under TILA.” (Citations omitted.) The problem, in the Circuit Court’s words, was simple: TILA provides borrowers with a right of rescission under certain circumstances: “Debtors may rescind under TILA by midnight of the third business day after the transaction for any reason whatsoever…. Rescinding a loan transaction under TILA ‘“requires unwinding the transaction in its entirety and thus requires returning the borrowers to the position they occupied prior to the loan agreement.”’ Id. (citations omitted). The remedy is considered “purely personal”: “It is intended to operate privately, at least initially, ‘with the creditor and debtor working out the logistics of a given rescission.’” Id., at 7 (citations omitted). Moreover, the rescission remedy provided for in TILA “appears to contemplate only individual proceedings; the personal character of the remedy makes it procedurally and substantively unsuited to deployment in a class action.” Id. (citation omitted). Put simply, “Rescission is a highly individualized remedy as a general matter, and rescission under TILA is no exception. The variations in the transactional ‘unwinding’ process that may arise from one rescission to the next make it an extremely poor fit for the class-action mechanism.” Id.

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Posted On: July 22, 2008 by Michael J. Hassen Email This Post

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TILA Class Action Defense Cases–Megitt v. IndyMac: Massachusetts Federal Court Dismisses Class Action Holding Technical Deficiencies In TILA 3-Day Notice Of Right To Cancel Underlying Class Action Claims Were Not Actionable

Defense Motion to Dismiss Truth in Lending Act (TILA) Class Action Granted because Failure to Specify Date by which Right to Cancel must be Exercised was merely a Technical TILA Violation and, Viewed Objectively, a Reasonably Alert Borrower would have Understood her Rights Massachusetts Federal Holds

Plaintiffs filed a putative class action against IndyMac for violations of the federal Truth in Lending Act (TILA); the class action complaint alleged that IndyMac failed to provide the requisite notice of a borrower’s three-day right to cancel because the disclosure “[left] blank the specific date by which the notice of cancellation had to be sent.” Megitt v. IndyMac Bank, F.S.B., 547 F.Supp.2d 56, 56 (D.Mass. 2008). More specifically, the class action complaint revealed that IndyMac provided plaintiffs with a Notice of Right to Cancel, which stated in part that the borrower had “a legal right under federal law to cancel this transaction, without cost, within three (3) business days from whichever of the following events occurs last: (1) the date of the transaction, which is: June 16, 2006; or (2) the date you received your Truth in Lending disclosures; or (3) the date you received this notice of your right to cancel.” Id., at 57-58. However, the class action further alleged that IndyMac’s notices provided, “If you cancel by mail or telegram, you must send notice no later than midnight of, __________, (or midnight of the third business day following the latest of the three events listed above).” Id., at 58. Thus, the notices from IndyMac left the date blank, id. Defense attorneys moved to dismiss the class action: The chief magistrate issued and report and recommendation that the motion to dismiss should be granted, relying in part on Palmer v. Champion Mortgage, 465 F.3d 24 (1st Cir. 2006), and the district court adopted the recommendation. Id., at 57. The federal court explained at page 57, “The import of the First Circuit's Palmer decision with regard to the purely technical omission in the document embodying the notice makes the ruling here compelling and inevitable.” Accordingly, the court dismissed the class action.

Defense attorneys argued that, under the First Circuit’s decision in Palmer, the “technical” deficiency underlying the class action is not actionable under TILA, Regulation Z or Massachusetts state law. Megitt, at 58. Palmer, from which the district court quoted at length, essentially holds that if a lender’s 3-day notice of a borrower’s right to cancel tracks the model form for such disclosures is “at the very least, prima facie evidence of the adequacy of the disclosure.” Id., at 59 (quoting Palmer, at 29). As the district court noted, “The court went so far as to recognize that there was both statutory and case law support for the proposition that adherence to a model form bars a TILA non-disclosure claim entirely” but “it left ‘for another day the question of whether such adherence invariably brings a creditor within a safe harbor.’” Id. n.2 (citations omitted). Palmer also explained that courts should rely on “the text of the disclosures themselves rather than on plaintiffs' descriptions of their subjective understandings,” and base their decisions on objectively reasonable factors rather than the plaintiff’s subjective understanding, id., at 59 (citations omitted).

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