Class Action Defense Blog

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.

Continue reading "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" »

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions

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 In: Class Action Court Decisions, RESPA/TILA Class Actions

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).

Continue reading "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" »

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions

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 In: Class Action Court Decisions, RESPA/TILA Class Actions

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 In: Certification of Class Actions, Class Action Court Decisions, RESPA/TILA Class Actions

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 In: FCRA Class Actions, Class Action Court Decisions, RESPA/TILA Class Actions

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 In: Class Action Court Decisions, RESPA/TILA Class Actions

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 In: Certification of Class Actions, Multidistrict Litigation, Class Action Court Decisions, RESPA/TILA Class Actions

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.

Posted In: Multidistrict Litigation, Class Action Court Decisions, RESPA/TILA Class Actions

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 In: Arbitration, Class Action Court Decisions, RESPA/TILA Class Actions

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.

Continue reading "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" »

Posted In: Certification of Class Actions, Class Action Court Decisions, RESPA/TILA Class Actions

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).

Continue reading "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" »

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions

Securities Class Action Claims Pending in California Paralleled Class Action Claims in Delaware and Colorado River Factors Supported Stay of California Class Action California Federal Court Holds

Several class action lawsuits were filed against Countrywide Financial Corp. and others alleging violations of various state and federal securities laws, including class action complaints that were filed in the United States District Court for the Central District of California. In re Countrywide Financial Corp. Derivative Litig., ___ F.Supp.2d ___ (C.D. Cal. March 28, 2008) [Slip Opn., at 2-3]. Last Friday, the California district court addressed three separate motions that “generally relate to the series of cases before [it] and other courts involving Countrywide…, Bank of America…, and several current and former Countrywide directors and officers.” Id., at 1. The district court summarized four separate categories of class action lawsuits that had been filed in state and federal courts against Countrywide prior to the announced merger with Bank of America, see id., at 3-6, as well as the various state and federal class action complaints filed immediately after the announced merger, see id., at 7-8. One of the pre-merger series of class action lawsuits “consolidated under Arkansas Teachers, No. CV-07-06923,” were filed in the California federal court “alleging that Countrywide directors engaged in an extensive pattern of misconduct in disregard of their fiduciary duties to the corporation,” id., at 6, and plaintiffs a 200-page amended consolidated class action complaint after the announcement of the merger to add class action claims against Bank of America, id., at 8-9.

The district court first addressed the defense motion to stay Arkansas Teachers in favor of litigation pending in Delaware. In re Countrywide, at 9. The court concluded that “the federal and state class action merger claims are substantially similar,” id., at 10-11; accordingly, “the ‘parallelism requirement for a [Colorado River Water Conservation Dist. V. United States, 424 U.S. 800 (1976)] stay is easily met due to the striking similarity of the class action claims in Arkansas Teachers and Freedman,” id., at 11. The federal court next held that partial stays are permissible under Colorado River, id., at 12-13, and that it would issue such a stay in this case because “while the class action claims are sufficiently parallel, the Delaware case does not contain the derivative claims present in this case,” id., at 11-12. The court’s Colorado River analysis may be found at pages 14 through 16 of the slip opinion.

Continue reading "Countrywide Class Action Defense Cases--In re Countrywide: California Federal Court Stays Class Action Claims Against Countrywide And Denies Plaintiffs' Motion For Constructive Trust/Preliminary Injunction And Plaintiffs' Request For Expedited Discovery" »

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions

Defense Judgment in Class Action for Kickback and Markup Violations of RESPA (Real Estate Settlement Procedures Act) Proper because Increased Credit Report Fee Requested by Lender was Passed through to Borrowers and no Additional Business was Given in Exchange for New Pricing Policy Requested by Lender Eleventh Circuit Holds

Plaintiffs filed a class action lawsuit against Countrywide Home Loans and Landsafe Credit (each subsidiaries of Countrywide Financial) alleging violations of the federal Real Estate Settlement Procedures Act (RESPA); the class action complaint alleged that Countrywide obtained virtually all of its credit reports from Landsafe, that prior to August 2002 Landsafe charged Countrywide $25 per credit report, and that Countrywide passed this fee on to borrowers who “locked in” or obtained a loan from Countrywide, but absorbed the fee if the loan did not go through. Krupa v. Landsafe, Inc., 514 F.3d 1153, 1154-55 (11th Cir. 2008). The class action alleged further that Countrywide asked Landsafe to modify its pricing policy in order to allow Countrywide to avoid absorbing credit report fees; specifically, “Countrywide asked Landsafe to change its pricing policy to charge more for the cost of credit reports on applicants who locked in loans and nothing for the reports on applicants who did not.” Id., at 1155. Landsafe modified its pricing schedule in August 2002, charging $35 for the credit report if a loan closed, and nothing if the loan did not; Countrywide passed the $35 fee on if a loan closed. Id. The class action alleged that this modification violated the anti-kickback and anti-markup provisions of RESPA; defense attorneys moved for and obtained summary judgment, with the district court agreeing that the challenged conduct was not improper. Id., at 1155. The Eleventh Circuit affirmed.

In discussing the pricing change, the Eleventh Circuit noted at page 1155, “The price point was set so that the new pricing policy would be ‘revenue-neutral,’ and it achieved that goal: Landsafe's revenues from the credit reports it sold to Countrywide were the same after the new policy was implemented as they had been before.” Nonetheless, plaintiffs complained that Landsafe was giving Countrywide “free credit reports” in connection with loan transactions that did not close. Krupa, at 1155. The district court had held “that the revised pricing policy did not violate RESPA's anti-kickback provision because it is undisputed that: (1) Landsafe made no more or less money as a result; and (2) Countywide purchased the same percentage (virtually all) of the credit reports it needed from Landsafe as it had before the change”; and the Circuit Court agreed. Id. RESPA prohibits paying a kickback in return for referral of business, but here Landsafe already received virtually all of Countrywide’s business: “In order for there to have been a forbidden kickback, there would have to have been an agreement between the two that Countrywide would give Landsafe more of its credit reporting business than it was giving Landsafe before the agreement, or at least an agreement that it would not give Landsafe any less of that business.” id., at 1156. Even if Countrywide received “value” by the changed pricing schedule, it could not constitute a forbidden kickback unless Countrywide promised Landsafe that it would receive business in return. Id. As plaintiffs conceded that this was not the case, the district court did not err in concluding that the class action kickback claim failed as a matter of law. Id.

Continue reading "Countrywide RESPA Class Action Defense Cases-Krupa v. Landsafe: Eleventh Circuit Affirms Summary Judgment In Favor Of Defense In RESPA Class Action Holding No Kickback Or Markup Violations Occurred" »

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions

Class Action Alleging Unfair Competition Law (UCL) and False Advertising Preempted by Federal Law because Class Action Claims were Premised on Alleged Violations of Truth in Lending Act (TILA) for Conduct Governed by HOLA (Home Owners’ Loan Act) and Implementing OTS Regulations Ninth Circuit Holds

Plaintiffs filed a class action in California state court against E*Trade Mortgage alleging violations of the state’s Unfair Competition Law (UCL); the gravamen of the class action complaint was that E*Trade failed to refund loan rate lock-in fees following the exercise of a right of rescission under the federal Truth in Lending Act (TILA). Silvas v. E*Trade Mortgage Corp., 514 F.3d 1001, 1003 (9th Cir. 2008). Plaintiffs alleged that they paid a $400 fee to lock in an interest rate but subsequently exercised their 3-day right to rescind the loan transaction under TILA; E*Trade refused to reimburse the $400 fee, and the class action alleged that it was corporate policy not to refund lock-in fees following such rescissions. Id. Defense attorneys removed the class action to federal court, and then moved to dismiss the class action complaint on the ground that federal law preempted the UCL claims. Id. The agreed with the defense and dismissed the class action, id.; the Ninth Circuit affirmed.

Preliminarily, the Ninth Circuit held that the general presumption against federal preemption did not apply to this case because it involved a field long-regulated by the federal government. Silvas, at 1004. Congress enacted the Home Owners’ Loan Act (HOLA) for the purpose of restoring public confidence in federal savings and loan associations, and the Ninth Circuit previously has “described HOLA and its following agency regulations as a ‘radical and comprehensive response to the inadequacies of the existing state system,’ and ‘so pervasive as to leave no room for state regulatory control.’” Id., at 1004-05 (citation omitted). Congress provided the Office of Thrift Supervision (OTS) “broad authority to issue regulations governing thrifts,” and these, too, are afforded preemptive effect. Id., at 1005. Because E*Trade is subject to HOLA and the OTS regulations, see id., at 1006 n.2, and because the false advertising and other UCL claims are expressly preempted by federal law, see id., at 1006-07, the district court did not err in dismissing the class action.

Continue reading "E*Trade TILA Class Action Defense Cases-Silvas v. E*Trade: Ninth Circuit Affirms Dismissal Of UCL Class Action Premised On TILA Violations For Failure To Refund Loan Lock-In Fees Holding Federal Law Preempted Class Action Claims" »

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions

Judicial Panel Grants Plaintiffs’ Request, Unopposed by Defense, for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 and Concurs with Request to Transfer Class Actions Alleging Violations of Federal Truth in Lending Act (TILA) to Northern District of Illinois

Three class action lawsuits were filed against Long Beach Mortgage and other defendants alleging violations of the federal Truth in lending Act (TILA) or state law equivalent statutes. In re Long Beach Mortgage Co. Truth in Lending Act 1-4 Family Rider Litig., ___ F.Supp.2d ___ (Jud.Pan.Mult.Lit. November 14, 2007) [Slip Opn., at 1]. Plaintiffs’ lawyers in all three class actions 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 Northern District of Illinois; no opposition was filed by the defense. Id. The Judicial Panel granted the motion to centralize the class action lawsuits and agreed with plaintiffs’ recommendation of the Northern District of Illinois as the appropriate transferee court. Id.

Posted In: Multidistrict Litigation, Class Action Court Decisions, RESPA/TILA Class Actions

District Court Grants Plaintiffs’ Motion for Partial Summary Judgment as to Whether in Connection with Plaintiffs’ Loans NovaStar Fell Within the Bona Fide Secondary Market Transaction Exemption Afforded by RESPA (Real Estate Settlement Procedures Act), but Triable Issues of Fact as to the Adequacy of NovaStar’s Disclosures of Yield Spread Premiums (YSPs) Precluded Summary Judgment on RESPA Claims

Plaintiffs filed a class action against NovaStar Mortgage alleging that it failed to adequately disclose yield spread premiums (YSPs) - payments made to mortgage brokers by lenders “as an incentive to induce borrowers to enter into mortgages with higher interest rates” - on its good faith estimates, in violation of Washington’s Consumer Protection Act (CPA). Pierce v. NovaStar Mortgage, Inc., 489 F.Supp.2d 1206, 1208 (W.D. Wash. 2007). The district court certified the litigation as a class action, id., at 1208-09. Plaintiffs’ lawyer filed a motion for partial summary judgment on the ground that NovaStar’s conduct was “per se unfair or deceptive under the CPA” and thus violated the Consumer Loan Act (CLA), id., at 1209; defense attorneys opposed the motion, arguing that it purchased the loans “in a bona fide secondary market transaction,” id., at 1210. The district court rejected the defense argument as to whether the disclosures were required, but agreed that triable issues of fact existed that precluded summary judgment.

The class action complaint alleged that in May 2004 plaintiff Larry Brown sought to refinance his home loan through NovaStar Home Mortgage, and Brown maintained that he was “not aware of any distinction between NovaStar Home and NovaStar Mortgage or that NovaStar Mortgage agreed to pay a fee to NovaStar Home” but that the payment of that fee “significantly increased interest rate on his loan.” Pierce, at 1209. NovaStar Mortgage’s “Loan Approval Summary” to NovaStar Home described the latter as a “customer,” stated the initial interest rate on Brown’s adjustable rate loan would be 8.2%, and discloses that NovaStar Mortgage would pay NovaStar Home a broker fee of 3% of the loan amount. Id. This summary also revealed that the interest rate on the loan in the absence of the YSP would have been 6.45%, id. The class action alleged that Brown never received a good faith estimate; an allegation NovaStar disputed. Id., at 1209-10. Brown signed the promissory note on May 28, 2004, and that same date NovaStar Home transferred the loan to NovaStar Mortgage through an allonge. Id., at 1209. The loan was funded through a “UBS warehouse loan,” and then transferred to a Wachovia Bank line of credit, id., at 1210. The loan documents provided to Brown “[did] not clearly distinguish between NovaStar Home and NovaStar Mortgage,” id.

Continue reading "RESPA Class Action Defense Cases-Pierce v. NovaStar: Washington Federal Court Rejects Defense Claim In RESPA Class Action That NovaStar Purchased Loans On Secondary Market But Finds Triable Issues As To Whether Lender Violated RESPA" »

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions

Class Action Requirements of FRCP Rule 23 Satisfied in Class Action Complaint Allegation Violations of federal Truth in Lending Act (TILA), Bank’s TILA-Mandated Disclosure Statements Failed Adequately to Inform Borrowers of Loan Payment Schedule and Interest Rate, and Class Action Plaintiffs may seek Rescission and Attorney Fees, but not Statutory Damages, Wisconsin Federal Court 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., in that the Bank allegedly failed to make the requisite disclosures in connection with adjustable rate mortgage loans. Andrews v. Chevy Chase Bank, FSB, 240 F.R.D. 612, 614 (E.D. Wis. 2007). Defense and plaintiffs’ counsel filed cross-motions for summary judgment, and plaintiffs moved the court to certify the litigation as a class action; the district court granted in part and denied in part each of the summary judgment motions, and granted class action status to the TILA complaint.

Plaintiffs secured a loan from Chevy Chase bank in June 2004 to refinance their Wisconsin home. Andrews, at 614. The Bank’s initial disclosures included a handbook on adjustable rate mortgages (ARMs), an ARM disclosure and a preliminary disclosure statement as required by TILA, id., at 615. Additional disclosures were provided at closing, including an Adjustable Rate Note (ARN), a Truth in Lending Disclosure Statement (TILDS) and an Adjustable Rate Rider (ARR), id. The class action complaint alleged that plaintiffs’ believed the interest rate and payments “were fixed for five years and became variable thereafter”; in fact, the payment was fixed but the interest rate was not. Id. As the district court explained at page 615, “The loan carried a discounted or ‘teaser’ interest rate of 1.950 percent, but that rate applied only to the first monthly payment, after which the interest rate increased every month according to a formula. As the interest rate increased, an ever increasing portion of the minimum monthly payment of $701.21 was needed to cover interest, and the minimum payment itself soon became insufficient to cover accrued interest.” The class action complaint alleged that the Bank’s disclosures failed to comply with TILA.

Continue reading "TILA Class Action Defense Cases-Andrews v. Chevy Chase: Wisconsin Federal Court Certifies Lawsuit As Class Action And Holds Lender Violated TILA And That Class Action Complaint May Seek Rescission And Attorney Fees" »

Posted In: Certification of Class Actions, Class Action Court Decisions, RESPA/TILA Class Actions

Uncertainty as to Whether Seventh Circuit will Hold that Class Action Under TILA (Truth-in-Lending Act) may seek Rescission Warrants Stay of Proceedings Pending Appeal Wisconsin Federal Court Holds

Plaintiff filed a class action against Chevy Chase Bank alleging various violations of the federal Truth-in-Lending Act (TILA). Ultimately, the district court extended by three years the borrowers’ rescission period based on its finding that the bank materially violated TILA, and certified the litigation as a class action “leaving the decision as to whether to actually seek rescission to each individual class member.” Andrews v. Chevy Chase Bank, FSB, 474 F.Supp.2d 1006, 1007 (E.D. Wis. 2007). Defense attorneys sought appellate review of the class action certification order under FRCP Rule 23(f), and the Circuit Court permitted the appeal, id. The defense thereafter sought a stay of the trial court proceedings pending appeal; the district court granted the request.

The district court applied the standard balancing test applicable to stay requests in the Seventh Circuit: “(1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies.” Andrews, at 1007 (citation omitted). The bulk of the court’s order is devoted to an analysis of the First Circuit’s opinion in McKenna v. First Horizon Home Loan Corp., 475 F.3d 418 (1st Cir. 2007), which held that class actions seeking rescission are inappropriate under TILA. Id., at 1007-10. Not surprisingly, the district court found it unlikely that the defense would prevail on appeal with respect to the class certification order, id., at 1110.

However, the federal court recognized that the Seventh Circuit may well accept the reasoning of its sister circuit in McKenna, and recognized further the likelihood that it “defined the class too broadly” in that the district court failed to “take into account that TILA prohibits certain borrowers from rescinding.” Andrews, at 1110. The court decided to grant the defense stay request because, even though it considered the irreparable injury/public interest factors to be “close,” in that both the plaintiffs and defense presented cogent arguments concerning prejudice, the court concluded that clarification as to whether a TILA class action can seek rescission tipped the scale in favor of the stay. Id.

Posted In: Certification of Class Actions, Class Action Court Decisions, RESPA/TILA Class Actions

As Matter of First Impression, Massachusetts Federal Court Holds that Rider Creates Security Interest in Property Required to be Disclosed under Federal Truth in Lending Act (TILA)

Plaintiff filed a putative class action against his mortgage lender, Long Beach Mortgage Company, for alleged violations of the federal Truth in Lending Act (TILA), later amending the class action complaint to add two additional party plaintiffs and two additional claims – a class action claim under TILA’s state law counterpart, the Massachusetts Consumer Cost Disclosure Act (MCCDA), and an individual claim for under TILA and MCCDA for rescission. Carye v. Long Beach Mortgage Co., 470 F.Supp.2d 3, 5 (D. Mass. 2007). Defense attorneys moved to dismiss the class action claim and plaintiff Carye’s individual claims for rescission pursuant Rule 12(b)(6), and moved also to sever the claims of the newly added plaintiffs. Id. The defense argued that the class action claim failed because TILA does not require the disclosure of the security interest created by Id.

As the district court explained, TILA requires that a creditor disclose to the borrower any security interest taken in property purchased as part of the loan transaction and in any property not purchased as part of the transaction but separately identified. Carye, at 6-7. In this case, plaintiffs borrowed money from Long Beach Mortgage secured by their residences, and each of them signed a 1-4 Family Rider/Assignment of Rents (Rider) as part of their loan documentation. Carye, at 5-6. The Riders created a security interest in property separately identified in detail (see Note, below). Plaintiffs urged that this constituted a violation of TILA; Long Beach argued that the interest was merely “incidental” and, accordingly, was not required to be disclosed under TILA. Id., at 7. Plaintiffs countered that the Rider “created a security interest in virtually all of the plaintiffs' personal property” and had to be disclosed. Id., at 7-8.

Continue reading "TILA Class Action Defense Cases-Carye v. Long Beach: Massachusetts Federal Court Dismisses Individual Rescission Claims In TILA Class Action But Denies Defense Request To Dismiss Class Action Claim And Motion To Sever" »

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions

Maryland Federal Court Redefines Class to Address Typicality Concerns In Federal Real Estate Settlement Procedures Act (RESPA) Class Action and then Certifies Class Action Alleging Illegal Kickbacks and Payment of Unearned Fees Under RESPA

Plaintiffs filed a class action in Maryland state court against various defendants alleging that they charged excessive fees in connection with mortgage brokerage, title or settlement services and would pay referral fees in violation of the federal Real Estate Settlement Procedures Act (RESPA); defense attorneys removed the class action to federal court. Benway v. Resource Real Estate Serv., LLC, 239 F.R.D. 419, 421 (D. Md. 2006). Plaintiffs moved to certify the lawsuit as a class action; defense attorneys objected that commonality, typicality and adequacy did not exist under Rule 23(a), and that the motion failed to establish that the requirements of Rule 23(b). Id., at 422. The district court granted the motion but limited the scope of the class action. Specifically, the court certified a class action on behalf of “All borrowers who entered into mortgage loan transactions using the services of Resource Real Estate where the HUD-1 Settlement Statement, or other documents in the loan file, included a charge for or payment to Clipper City Settlement Services, Inc.” Id., at 427.

The class action complaint alleged that Resource Real Estate Services provides real estate title and mortgage loan closing services and that Millard Rubenstein is its majority owner and its Managing Member, that Access One Mortgage Group provides mortgage broker services, and that Resource and Access One formed an affiliated business arrangement (ABA) called Clipper City Settlement Services “to appear on mortgage closing documents as an entity which had performed title work or settlement services.” Benway, at 421. The class action alleged “Resource and Access One conducted a scheme to extract referral fees from borrowers using ABAs like Clipper City”; specifically, Access One would refer borrowers to Resource for title work and Resource would perform the title work, but “the loan closing documents would attribute that work to Clipper City, and the fees charged for the work would exceed the customary fees charged by Resource.” Id. Plaintiffs also allege that Resource “would channel a portion of the fees collected by Clipper City to Access One as a referral reward, without notifying the borrower.” Id.

Continue reading "RESPA Class Action Defense Cases-Benway v. Resource Real Estate Services: Maryland Federal Court Rejects Defense Arguments And Certifies Class Action Under RESPA (Real Estate Settlement Procedures Act)" »

Posted In: Certification of Class Actions, Class Action Court Decisions, RESPA/TILA Class Actions

As Matter of First Impression, Class Action Treatment for Rescission Claims Under TILA (Truth in Lending Act) is not Proper First Circuit Holds

Plaintiffs filed a putative class action in Massachusetts federal court against First Horizon Home Loan alleging that it violated the federal Truth in Lending Act (TILA) and its state law equivalent, the Massachusetts Consumer Credit Cost Disclosure Act (MCCCDA) by failing to accurately disclose to borrowers their statutory rescission rights. McKenna v. First Horizon Home Loan Corp., 475 F.3d 418, 420 (1st Cir. 2007). Plaintiffs moved for class certification; defense attorneys objected that class action treatment was inappropriate. Id. The district court certified a class that included borrowers who had refinanced or paid off their loan with First Horizon, id., at 420-21. The First Circuit granted a defense request for interlocutory review of “an appeal that requires us to explore, for the first time, the crossroads at which class-action rules intersect with the rescission provisions of [TILA] and [MCCCDA].” Id., at 420. The Circuit Court concluded that “the district court lacked the authority to certify a class of residential borrowers who might potentially be eligible for rescissionary relief.” Id.

The First Circuit began by summarizing TILA’s and the MCCCDA’s statutory scheme, McKenna, at 421-22, and noted that while the class action complaint sought rescissionary relief under the MCCCDA, the parties agreed that “TILA supplies the applicable rules of decision,” id., at 422. The Circuit Court then addressed the “flagship claim” of defense attorneys that “as a matter of law, class actions for rescission are unavailable under the TILA,” id. The Court noted that central issue before it – “whether TILA claims focused on rescission are maintainable in a class-action format” – is a matter of first impression in the First Circuit. Id., at 423. The Fifth Circuit, however, has held that “rescission class actions are not maintainable under the TILA.” Id. (citing James v. Home Constr. Co. of Mobile, Inc., 621 F.2d 727, 731 (5th Cir. 1980)). The theory behind this line of cases is that “rescission claims, unlike damages claims, are not subject to any aggregate statutory cap and, therefore, rescission class actions, if permitted, could easily render a creditor insolvent.” Id. (citation omitted). The First Circuit recognized that some district courts have certified TILA class actions seeking rescission, but followed James based on its conclusion that “Congress did not intend rescission suits to receive class-action treatment.” Id. The Circuit Court’s statutory intent analysis is well worth reading. See id., at 423-27.

Posted In: Certification of Class Actions, Class Action Court Decisions, RESPA/TILA Class Actions

Whether Lender Violated TILA, RESPA or State's Consumer Loan Act Irrelevant to Determination of Class Certification Motion because Plaintiffs Adequately Alleged such Violations Washington Federal Court Holds

Plaintiffs filed a class action against their lender NovaStar Mortgage for violations of Washington's Consumer Protection Act (CPA) alleging that it failed to disclose it paid mortgage brokers a yield spread premium (YSP) in connection with their loans; the class action complaint was premised on NovaStar's purported failure to provide written disclosures required by the federal Real Estate Settlement Procedures Act (RESPA), the federal Truth in Lending Act (TILA), Washington's Consumer Loan Act (CLA), and the plaintiffs' deeds. Pierce v. NovaStar Mortgage, Inc., 238 F.R.D. 624, 625 (W.D. Wash. 2006). In response to plaintiffs' first motion to certify the lawsuit as a class action, the district court agreed with defense attorneys that plaintiffs had failed to demonstrate numerosity or typicality as required by Rule 23(a) and also failed to establish the predominance and superiority elements required by Rule 23(b); it therefore denied the motion, but did so without prejudice. Id. On plaintiffs' renewed motion for class certification, the court rejected defense objections and granted the motion.

By way of background, to establish a violation of the CPA one must prove "(1) an unfair or deceptive act or practice; (2) occurring in trade or commerce; (3) that impacts the public interest; (4) and causes injury to the plaintiff in his or her business or property; and (5) such injury is causally linked to the unfair or deceptive act." Pierce, at 626 (citation omitted). A plaintiff may satisfy the first two elements by proving that the act in question is a per se unfair trade practice: "A per se unfair trade practice exists when, by statute, the Legislature declares an unfair or *627 deceptive act in trade or commerce and the statute has been violated." Id., at 626-27 (citations omitted). Under Washington law, "[a] violation of the CLA . . . is explicitly deemed a violation of the first and second elements of the CPA," id., at 627 (citation omitted). In denying the first motion for class certification, the district court believed that "verbal disclosures and independent knowledge of the YSP were relevant to determining whether NovaStar violated the CPA." Id., at 626. Plaintiffs' lawyers disagreed, arguing in the renewed motion that "verbal disclosures are irrelevant to class certification because they seek to establish a per se violation of the Consumer Protection Act by proving that NovaStar violation the Consumer Loan Act." Id.

Continue reading "Pierce v. NovaStar-Class Action Defense Cases: Washington Federal Court Certifies Truth-In-Lending/Real Estate Settlement Procedures Act Class Action Against NovaStar Mortgage Based On Failure To Disclose Yield Spread Premiums (YSPs)" »

Posted In: Certification of Class Actions, Class Action Court Decisions, RESPA/TILA Class Actions

California Court Surprisingly Holds that Under Certain Circumstances Plaintiffs need not be Members of Class to Serve as Class Representatives and that, as Matter of First Impression, Rescission Under TILA (Truth-in-Lending Act) is a Personal Remedy Unsuitable for Class Action Treatment

Plaintiffs filed a putative class-action lawsuit against their lender alleging inter alia violations of the federal Truth In Lending Act (TILA) arising from the lender’s failure to disclose certain closing fees charged in connection with refinance loans. LaLiberte v. Pacific Merc. Bank, 147 Cal.App.4th 1. 53 Cal.Rptr.3d 745, 746 (Cal.App. 2007). Defense attorneys demurred to the class-action complaint on the ground that the class allegations failed to establish commonality; the trial court agreed but granted plaintiffs leave to amend. After extensive motion practice, plaintiffs filed a third amended class-action complaint seeking to represent a single class of borrowers who obtained loans after November 20, 2002. Id., at 746-47. Defense attorneys again demurred, this time on the ground that because the putative class representatives secured their loans in April 2002, they were not members of the class they sought to represent. Id., at 747. The trial court agreed, and sustained the demurred to the class action allegations without leave to amend. Id. as a matter of first impression, the California appellate court affirmed the trial court's order, holding that rescission under TILA was not suitable for class action treatment.

Under California law, “An order sustaining demurs to class action allegations ‘is appealable to the extent that it prevents further proceedings as a class action.’” LaLiberte, at 747 (citation omitted). In this case, two standards of review apply on appeal. The first involves the independent judgment exercised by an appellate court in reviewing an order sustaining a demurrer; the second involves whether the trial court abused its discretion in denying leave to amend. Id., at 747-48 (citations omitted). The trial court had relied upon Payne v. United California Bank, 23 Cal.App.3d 850 (Cal.App. 1972), in support of its conclusion that plaintiffs lacked standing to sue on behalf of the proposed class because they were never members of that class. See id., at 748. The Court of Appeal disagreed, holding that La Sala v. American Sav. & Loan Ass’n, 5 Cal.3d 864 (Cal. 1971), was more on point. Id.

Continue reading "TILA Class Action Defense Cases-LaLiberte v. Pacific Mercantile Bank: As Matter Of First Impression California Court Holds That Rescission Under Federal Truth-In-Lending Act (TILA) Not Suitable For Class Action Treatment" »

Posted In: Certification of Class Actions, Class Action Court Decisions, RESPA/TILA Class Actions

Maryland Court Holds that Federal Real Estate Settlement Procedures Act (RESPA) Claims were not Tolled by Filing of Class Action Complaint Where Defendants were not Named and had No Notice of RESPA Claims Until After Limitations Period Expired

In October 2003 plaintiff filed a putative class action in Maryland federal court against four entitles for violations of RESPA (Real Estate Settlement Procedures Act) and various state laws, arising out of her May 2003 purchase of a home, alleging sham business arrangements and the charging of fees in violation of RESPA. Robinson v. Fountainhead Title Group Corp., 447 F.Supp.2d 478, 481 (D. Md. 2006). In January 2006, plaintiff filed a Third Amended Complaint naming three new defendants which were served on January 20. 2006; prior to being served, none of these defendants had notice of any of the prior class action complaints. Id., at 482. Defense attorneys moved to dismiss the action; the federal court agreed with defense arguments that RESPA's one year statute of limitations period had run and granted the motion.

Plaintiff purchased a home in May 2003 and financed the purchase. Robinson, at 482. The district court explained that "RESPA claims brought under [12 U.S.C.] § 2607 must be brought within '1 year . . . from the date of the occurrence of the violation.'" Id., at 483 (quoting 12 U.S.C. § 2614). The defense argued that the limitations period began to run on the date that escrow closed on the home purchase, and that the new defendants had not been added as party-defendants until after the one-year period expired. Id. Plaintiff's lawyer, relying on American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), countered that the filing of the original complaint tolled the statute of limitations period on the RESPA claims. Id. The district court disagreed, concluding that American Pipe did not support plaintiff's theory.

Continue reading "Robinson v. Fountainhead Title-Class Action Defense Cases: Federal Court Holds Class Action Complaint Did Not Toll RESPA (Real Estate Settlement Procedures Act) Statute Of Limitations Against New Defendants" »

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions

Lawsuit Alleging Violations of Federal Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA) Based on Failure to Provide Written Disclosure of YSPs (Yield Spread Premiums) Allowed to Proceed as Class Action

Plaintiffs filed a class action against NovaStar Mortgage alleging violations of Washington's Consumer Protection Act (CPA) based on the lender's failure to disclose in writing the payment of yield spread premiums (YSPs) in violation of the federal Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA), and Washington's Consumer Loan Act (CLA). Pierce v. NovaStar Mortgage, Inc., ___ F.Supp.2d ___ (W.D. Wash. October 31, 2006) [Slip Opn., at 1-2]. The district court denied plaintiffs' first motion to certify a class, agreeing with defense counsel that plaintiffs had not demonstrated numerosity or typicality under Rule 23(a) and had failed to establish the predominance and superiority elements of Rule 23(b). Id., at 2. Defense attorneys opposed class certification largely on the ground that YSPs were not required to be disclosed in writing; the federal court agreed, holding that "verbal disclosures and independent knowledge of the YSP were relevant" in evaluating whether NovaStar violated RESPA, TILA or CLA, id. However, in connection with a renewed motion to certify the lawsuit as a class action, the court rejected that defense argument and granted plaintiffs' motion.

In considering the renewed motion for class certification, the district court stated that class certification turned on "whether verbal disclosures are legally relevant" to the CPA claims. Slip Opn., at 3. Plaintiffs argued that verbal disclosures were irrelevant because the lender was required to disclose YSPs in writing under the CLA, and because violations of the CLA are per se violations of the CPA. Id., at 2. Defense attorneys argued that the CLA does not require written disclosure of YSPs. Id., at 4. While the federal court found that plaintiffs had not cited any provision of the CLA requiring lenders to disclose YSPs, it determined that this was irrelevant, explaining at page 5:

Continue reading "NovaStar Class Action Defense Case-Pierce v. NovaStar Mortgage: Washington Federal Court Certifies RESPA/TILA Class Action Over Defense Objection That YSP (Yield Spread Premium) Need Not Be Disclosed In Writing" »

Posted In: Certification of Class Actions, Class Action Court Decisions, RESPA/TILA Class Actions

California Court Holds as Matter of First Impression that RESPA Prohibits Lender from Marking Up Costs of Another Provider's Services Without Providing Additional Services of its Own

Plaintiffs filed a putative class action lawsuit against Washington Mutual Bank in California state court alleging inter alia violations of California’s unfair competition laws (UCL), Consumers Legal Remedies Act (CLRA), and breach of contract. “The basis of all causes of action was defendants’ overcharging plaintiffs for underwriting, tax services, and wire transfer fees in conjunction with home loans. Defendants charged plaintiffs more for these services than defendants paid the service providers.” McKell v. Washington Mutual Bank, ___ Cal.App.4th ___, 2006 WL 2664130 (Cal.App. September 18, 2006) [Slip Opn., at 2]. Plaintiffs’ UCL claim was premised upon alleged violations of the California Residential Mortgage Lending Act (CRMLA) and the federal Real Estate Settlement Procedures Act (RESPA) and Regulations X, among other state and federal laws. Slip Opn., at 5. The trial court granted a defense motion to dismiss the class action complaint, presumably on the ground that the claims “turn on the alleged existence of an agreement requiring Washington Mutual to charge no more than pass-through costs for underwriting, tax services, and wire transfers,” id., at 3, which plaintiffs could not do. The California Court of Appeal affirmed in part and reversed in part. We do not here discuss those aspects of the trial court’s ruling that the divided appellate court opinion affirmed. Rather, we focus on the Court of Appeal’s holdings that plaintiffs had adequately pleaded UCL and breach of contract claims.

The appellate court first held that the trial court did not err “in requiring plaintiffs to plead a factual basis for implying an agreement by [the Bank] to charge only pass-though costs,” Slip Opn., at 8. But in analyzing the UCL claims, the Court of Appeal explained at page 10,

Continue reading "McKell v. Washington Mutual-Class Action Defense Cases: Defense Motion To Dismiss Class Action Improperly Granted As To Breach of Contract And UCL Claims Based On Federal RESPA Violations California Court Holds" »

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions

Federal District Court Properly Granted Defense Motion to Dismiss RESPA Class Action Because Congress did not Expressly Prohibit Servicers from Charging Fees for Payoff Statements

Borrowers filed a putative class action against GMAC Mortgage Corporation alleging that it violated the federal Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. §§ 2601-2617, “by charging a $20 fee each time the plaintiffs requested their payoff amount from GMAC’s website,” and alleging also breach of contract. The defense moved to dismiss the complaint. The district court granted the motion to dismiss the RESPA claim, but declined to exercise jurisdiction over the contract claim. The Eighth Circuit affirmed. Watt v. GMAC Mortgage Corp., 457 F.3d 781, 782 (8th Cir. 2006).

Plaintiffs argued that RESPA requires responses to “qualified written requests” be provided free of charge because RESPA does not affirmatively state that loan servicers may charge fees for such responses: “Since RESPA imposes a duty to respond but does not stated that servicers may charge fees for statements sent in response to qualified written requests, the [plaintiffs] argue, servicers are prohibited from charging fees.” Watt, at 783. The Circuit Court disagreed, holding at page 783:

Continue reading "Watt v. GMAC Mortgage-RESPA Class Action Defense Cases: Defense Motion To Dismiss RESPA Class Action Properly Granted Because RESPA Does Not Prohibit Servicer From Charging A Fee For Payoff Statements And Does Not Cap Fee Charged Eighth Circuit Holds" »

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions

Georgia Federal District Court Holds that TILA (Truth in Lending Act) and Regulation Z do not Require Disclosure of "Administrative Charges"

A putative class action was filed in state court alleging inter alia that a dental fee payment plan violated the federal Truth in Lending Act (TILA), 15 U.S.C. §§ 1601 et seq., and Regulation Z because the lender kept a portion of the loan proceeds to cover an "administrative charge" rather than forwarding all sums borrowed to the dentist. Jones v. People's Heritage Bank, 433 F.Supp.2d 1328 (S.D. Ga. 2006). The district court agreed with defense attorneys that the terms of the loan were fairly disclosed, and so dismissed the federal TILA claim in the class action complaint and remanded the balance of the action to state court.

Plaintiff required $10,000 in dental work, half of which was covered by insurance. To pay the remaining $5,000, plaintiff elected to finance the dental work through a dental fee plan offered by her dentist through a lender, AmeriFee. The loan contract stated that the $5,000 would be paid to the dentist; AmeriFee, however, kept 7.5% of the loan amount ($375) as an "administrative charge." Plaintiff's class action complaint alleged that the failure to disclose the "administrative charge" for loan transactions violated TILA. Jones, at 1329. Specifically, the class action complaint alleged that this conduct violated state law and constituted a breach of contract, and that it also violated TILA and Reg Z "by failing to disclose and by making a misrepresentation of the amount financed and to whom the amount of the loan was paid." Id., at 1331. In essence, plaintiff argued that her loan amount should have been only $4,625 - the amount the dentist received - and that the $375 administrative fee qualified as a "finance charge," id., at 1333.

Continue reading "Jones v. People's Heritage Bank-Class Action Defense Cases: Lender's Retention of Portion Of Loan Proceeds As "Administrative Charge" Does Not Violate Federal Truth In Lending Act Georgia Court Holds" »

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions

Federal District Court Grants Defense Motion to Dismiss TILA Claims Against Lender Upholding Releases Signed by Plaintiffs and Distinguishing Case from Others that Held TILA Releases Void

Two homeowners filed suit against a lender seeking rescission and statutory damages for its alleged failure to make disclosures required under the federal Truth in Lending Act (TILA), 15 U.S.C. §§ 1601 et seq. Tucker v. Beneficial Mortgage Co., ___ F.Supp.2d ___, 2006 WL 1975769 (E.D. Va. 2006). Defense attorneys moved to dismiss the complaint on the grounds that plaintiffs were bound by a class action settlement negotiated by the Virginia Attorney General, and that the action was brought outside TILA's one-year limitations period. The district court agreed with the defense, specifically holding that plaintiffs released their TILA claims as part of the class action settlement, and that "[p]laintiffs may waive their rights to bring TILA claims in a class action lawsuit." Slip Opn., at 2.

Briefly, plaintiffs refinanced their home with Beneficial Mortgage in September 2002 - three months before the Virginia Attorney General negotiated a settlement of a consumer class action lawsuit against the lender. Plaintiffs affirmatively joined the settlement and in October 2003 signed a general release absolving Beneficial of liability for "all civil claims . . . whether known or unknown." Slip Opn., at 3-4 (citation omitted). In September 2004, plaintiffs sought to rescind their Beneficial loan on the grounds that Beneficial "failed to make certain material TILA and Home Ownership and Equity Protection Act ('HOEPA') disclosures regarding the loan, including finance charges, the amount financed, and the annual percentage rate." Id., at 4. Plaintiffs then filed suit in October 2005, alleging that these failures extended their right to rescind the transaction to three years. Id. The district court disagreed.

Continue reading "Beneficial Mortgage TILA Class Action Defense Case: By Joining Class Action Settlement Homeowners Released Any Federal Truth In Lending Act (TILA) Claims Against Lender Virginia Court Holds" »

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions

Federal District Court Grants Motion to Strike Third-Party Complaint for Indemnity/Contribution Against Parent

Plaintiffs Kristen and William McSherry Jr. ("William Jr.") filed suit against Capital One FSB and others alleging violations of the federal Fair Credit Reporting Act (FCRA), Fair Debt Collection Practices Act (FDCPA), and Truth in Lending Act (TILA), together with Washington state law claims for defamation and invasion of privacy. McSherry v. Capital One FSB, ___ F.R.D. ___, 2006 WL 1420839 (W.D. Wash. 2006). Capital One filed a third-party complaint against plaintiff's father, William McSherry Sr., ("William Sr.") for indemnity and contribution because "[a]ccording to several documents in the record, including Plaintiffs' complaint, it appears that the debt allegedly incurred by [William Jr.], may have been incurred by [William Sr.]." Slip Opn., at 2. The district court granted plaintiffs' motion to strike, finding that "[w]hile it does appear that Capital One's allegedly tortuous actions or omissions would not have occurred but for [William Sr.'s] alleged actions, this is not enough." Id., at 1 and 12.

The federal court began with a summary of federal law on impleader actions, noting that it must be based on "an assertion of the third-party defendant's derivative liability to the third-party plaintiff" and that it "cannot be used to assert any . . . rights to recovery arising from the same transaction or occurrence as the underlying action." Slip Opn., at 3-4 (citation omitted). Here, the plaintiffs' complaint was carefully drafted to seek damages solely based on Capital One's acts or omissions in response to communications from plaintiffs concerning the debt:

Continue reading "McSherry v. Capital One-Class Action Defense Issues: No Right Of Indemnity Under FCRA (Fair Credit Reporting Act) Or TILA (Truth In Lending Act) Federal Court Holds" »

Posted In: FCRA Class Actions, Class Action Court Decisions, RESPA/TILA Class Actions

Green Tree v. Randolph: U.S. Supreme Court Upholds Order Compelling Arbitration Pursuant to Lender's Arbitration Provision under Federal Arbitration Act (FAA) Because Plaintiff Did Not Establish that Arbitral Forum would be Prohibitively Expensive: Truth in Lending Act (TILA) Class Action Claims Properly Dismissed

In Green Tree Financial Corp. v. Randolph, 531 U.S. 79 (2000), the United States Supreme Court addressed two issues: (1) whether a court order granting a defense motion to compel arbitration and dismissing (rather than staying) the plaintiff's claims is immediately appealable under the Federal Arbitration Act (FAA), 9 U.S.C. § 16(a)(3) as a "final decision with respect to an arbitration"; and (2) whether an arbitration provision that is silent on the question of allocation and amount of arbitration fees and costs is unenforceable for failure to "affirmatively protect a party from potentially steep arbitration costs." Id., at 82. The putative class action against Green Tree alleged violations of the federal Truth in Lending Act (TILA), 15 U.S.C. §§ 1601 et seq., and arose from a loan to the putative class action representative for the purchase of a mobile home evidenced by a Manufactured Home Retail Installment Contract and Security Agreement that expressly provided for all disputes to be resolved by finding arbitration under the provisions of the FAA. Id., at 82-83 and n.1. Plaintiff asserted that Green Tree violated TILA by failing to disclose a specific insurance requirement as a finance charge; she later added a claim under the federal Equal Credit Opportunity Act (ECOA), 15 U.S.C. §§ 1691 et seq. based on the requirement that she arbitrate her statutory claims for relief. The district court granted the class action defense team's motion to compel arbitration and dismissed plaintiff's claims with prejudice. The court also denied the plaintiff's request to certify the case as a class action. Id., at 83.

Continue reading "Federal Court Order Compelling Arbitration And Granting Class Action Defense Motion To Dismiss TILA Case Is Appealable Under FAA And Plaintiff Did Not Meet Burden Of Establishing Prohibitive Cost of Arbitration-Class Action Defense Cases " »

Posted In: Arbitration, Class Action Court Decisions, RESPA/TILA Class Actions

Class Action Settlement Approval of Nationwide Class Action Reversed and Remanded for District Court Failure to Analyze Value of Class Claims Under the State Laws of Each Applicable Jurisdiction Seventh Circuit Holds

On June 19, 2006, the Seventh Circuit Court of Appeals considered for the second time a proposed class action settlement of a nationwide class action against Fleet Mortgage brought under the Truth in Lending Act (TILA), the Fair Credit Reporting Act (FCRA) and various state laws. Mirfasihi v. Fleet Mortgage Corp., ___ F.3d ___, 2006 WL 1667802 (7^th Cir. 2006) (“Fleet II”). As explained below, the class action involved two classes: a “telemarketing class,” and an “information-sharing class.” The Seventh Circuit previously reversed district court approval of a proposed settlement of the class action claims because “the district court failed to consider adequately the value of the claims of the so-called ‘information-sharing class’ (a class of consumers whose privacy interests were purportedly intruded upon, but who did not suffer any out-of-pocket damages).” Slip Opn., at 1-2 (citing Mirfasihi v. Fleet Mortgage Corp., 356 F.3d 781 (7^th Cir. 2004) (“Fleet I”).

The class action involved claims that Fleet sold mortgage information to third-party telemarketers, and that Fleet “was an active collaborator in drafting the script that the telemarketers used and allowed direct billing of the fees for the telemarketers’ products onto the mortgage bill of its customers, without obtaining pre-approval from customers.” Slip Opn., at 2. The “telemarketing class” consisted of 190,000 people who purchased financial products from the telemarketers; the “information-sharing class” consisted of 1.4 million Fleet borrowers whose information had been sent to telemarketers but who had not purchased any services from them. Id., at 2-3.

The class action settlement approved by the district court in Fleet I provided for payments to the telemarketing class, but the information-sharing class “was left out in the cold and received nothing.” Slip Opn., at 3. (The terms of the class action settlement are detailed in Fleet I and Fleet II; we focus here only on the monetary recovery for each class.) Fleet I reversed the district court’s approval of the class action settlement because “the district court failed to consider with adequate specificity the reasonableness of an entire class receiving a ‘big fat zero’ in the settlement.” Slip Opn., at 4 (citing Fleet I, at 785). “Specifically, the district court did not canvass all potential avenues of recovery to determine whether the information-sharing class’s claims were indeed essentially hopeless (and thus worthless) under the pertinent controlling law.” Slip Opn., at 4.

Continue reading "Mirfasihi v. Fleet Mortgage -- Defense of Class Action Cases" »

Posted In: Class Actions In The News, FCRA Class Actions, Multidistrict Litigation, Class Action Court Decisions, RESPA/TILA Class Actions

Part III Considerations Regarding Removal to Federal Court

A lender that must defend itself against a class action alleging violations of RESPA may benefit from removing the case to federal court. A defendant may remove a case to federal court if there is any “separate and independent” claim subject to federal question jurisdiction: “A federal court has removal jurisdiction if the plaintiff's claims are either exclusively federal or there is a separate and independent federal question. 28 U.S.C. § 1441. In order for a defendant to remove, the federal claims must appear on the face of plaintiff's well-pleaded complaint. Tingey v. Pixley-Richards West, Inc., 953 F.2d 1124, 1129 (9th Cir. 1992).” Lyons v. Alaska Teamsters Emplr. Serv. Corp., 188 F.3d 1170, 1171 (9th Cir. 1999). A separate article considers removal under CAFA (Class Action Fairness Act of 2005).

In federal court, Rule 23 of the Federal Rules of Civil Procedure governs class actions. Federal courts examine the numerosity, commonality, and typicality of the plaintiff’s claims. The courts also consider whether separate lawsuits would create a risk of inconsistent adjudications that would require the defendant comply with incompatible directions. In state court, however, California Code of Civil Procedure section 382 governs class actions. The “community of interest” requirement for class certification in state court consists of three factors: (1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class. While the standards may appear to be substantively identical, they are quite different in practice. In my opinion, the federal law governing class actions is much better developed than California state law. It is also my opinion that a corporate defendant is well served to remove a case to federal court whenever possible.

Once removed, the federal court may, in its discretion, adjudicate the entire case, including state claims that could not be adjudicated under the federal court’s original jurisdiction. 28 U.S.C. § 1441(c). Removal is proper even if the plaintiff’ federal claim is meritless, see Barraclough v. ADP Auto. Claims Services, 818 F. Supp. 1310, 1312 (N.D. Cal. 1993), and removal is proper even if the relief the plaintiff seeks is unavailable under the federal claim, see Caterpillar Inc. v. Williams, 482 U.S. 386, 391, n.4 (1987).

With respect to RESPA claims, RESPA requires a lender to provide a HUD-1 or HUD-1A settlement statement to “clearly itemize all charges imposed upon the Borrower,” and that this settlement statement is required by 12 U.S.C. § 2603(a). A lender is required also to provide borrowers with “a Good Faith Estimate” (the “GFE”) to include “estimates of the amounts or ranges of all settlement costs likely to be incurred at the closing,” and the GFE is required by 12 U.S.C. § 2604(c) and Regulation X, 24 C.F.R. section 3500.7(a). Thus, if the Complaint alleges that the lender surprised borrowers with additional closing costs, then the basis of the lawsuit is an alleged violation of federal law: if the lender had disclosed properly all closing costs as required by RESPA and Regulation X, then the plaintiff would not have been injured.

Continue reading "Considerations Regarding Removal to Federal Court: Defense Of Class Action Claims Alleging RESPA Violations Part III" »

Posted In: RESPA/TILA Class Actions

Defending Class Action Claims Alleging RESPA Violations

Part II Federal Court versus State Court Jurisdiction

Even though RESPA is a federal statute, many class action lawsuits against lenders alleging RESPA violations are filed in state court. Defending class action RESPA claims requires a careful analysis of the specific statute(s) at issue, as this will dictate whether the actioin may be removed to federal court. While RESPA grants concurrent jurisdiction to state courts as to certain matters, Congress expressly limited concurrent jurisdiction to those sections of RESPA governed only by sections 2605, 2607 and 2608. 12 U.S.C. § 2614. Otherwise, federal jurisdiction is exclusive.

That Congress afforded state courts concurrent jurisdiction only over certain portions of RESPA and retained exclusive federal court jurisdiction over the balance of RESPA is not unique. For example, as the Ninth Circuit has held, “Bankruptcy courts have exclusive jurisdiction over nondischargeability actions brought pursuant to 11 U.S.C. § 523(a)(2), (4), (6) and (15),” Rein v. Providian Fin. Corp., 270 F.3d 895, 904 (9th Cir. 2001) (citations omitted) (italics added), but “Bankruptcy courts and state courts have concurrent jurisdiction over all [other] nondischargeability actions,” id., at n.15 (italics added). “For example, there is concurrent state and federal jurisdiction over § 523(a)(5) nondischargeability actions,” id., at 904 n.15 (citations omitted) (italics added), but a creditor could not seek relief from stay and pursue in state court a nondischargeability claim “with regard to its § 523(a)(2) claims because state courts lack jurisdiction to adjudicate § 523(a)(2) actions,” id., at 904 (italics added).

Plaintiffs’ alleged violations of 12 U.S.C. sections 2603 and 2604 must be heard in federal court because state courts lack jurisdiction to consider them. To hold otherwise would be to conclude that Congress idly specified limitations in 12 U.S.C. § 2614 on the scope of concurrent jurisdiction when it intended that no such limitations exist.

Continue reading "Federal Court versus State Court Jurisdiction: Defense Of Class Action Claims Alleging RESPA Violations Part II" »

Posted In: RESPA/TILA Class Actions

Defending Class Action Claims Alleging RESPA Violations

Part I Overview of Statute and Summary of Jurisidction

Many lenders have had to defend themselves against class actions alleging violations of RESPA. In simplest terms, the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. sections 2601 et seq., and Regulation X (24 C.F.R. sections 3500 et seq.) governs disclosures to borrowers of the closing costs associated with residential loan transactions. RESPA is a “consumer protection” statute, enacted in 1974 to protect borrowers whose loans will be secured by a mortgage against one-to-four family residential property. It serves two main purposes. First, it serves to educate the consumer-borrower about the costs of settlement services (that is, the costs associated with borrowing money). Second, it serves to eliminate “unearned fees,” such as kickbacks or referral fees, as such fees increase the cost of the loan to the borrower.

RESPA requires that both mortgage brokers and lenders make certain disclosures to borrowers at the time the borrower applies for the loan. Specifically, RESPA requires a lender to provide a HUD-1 or HUD-1A settlement statement to “clearly itemize all charges imposed upon the borrower,” 12 U.S.C. § 2603(a). The HUD-1 Settlement Statement itemizes for the borrower the actual settlement costs of the loan transaction. A lender is required also to provide borrowers with “a Good Faith Estimate” (the “GFE”) to include “a good faith estimate of the amount or range of charges for specific settlement services the borrower is likely to incur” at the closing, 12 U.S.C. § 2604(c) and 24 C.F.R. § 3500.7(a). (Other RESPA requirements are discussed in a separate article.)

Federal courts have original jurisdiction in cases involving RESPA violations, see Dominguez v. Alliance Mtg. Co., 226 F. Supp. 2d 907, 914 (N.D. Ill. 2002), and RESPA claims are properly subject to removal, Sicinski v. Reliance Funding Corp., 461 F. Supp. 649, 650-51 (S.D. N.Y. 1978). Unfortunately, case law discussing state versus federal court jurisdiction over RESPA claims often glosses over critical statutory differences enacted by Congress. More specifically, while Congress provided for concurrent state and federal jurisdiction over certain portions of REPSA, federal courts have exclusive jurisdiction over other RESPA violations. 12 U.S.C. § 2614.

For example, the requirement that consumers be timely and accurately informed of the closing costs associated with residential loans is based on federal law. “The Congress finds that significant reforms in the real estate settlement process are needed to insure that consumers throughout the Nation are provided with greater and more timely information on the nature and costs of the settlement process and are protected from unnecessarily high settlement charges caused by certain abusive practices that have developed in some areas of the country.” 12 U.S.C. § 2601(a).

In order to redress these concerns, RESPA requires a lender to provide a HUD-1 or HUD-1A settlement statement to “clearly itemize all charges imposed upon the borrower,” 12 U.S.C. § 2603(a). Federal law further requires a lender to provide borrowers with “a Good Faith Estimate” (the “GFE”) that includes “a good faith estimate of the amount or range of charges for specific settlement services the borrower is likely to incur” at the closing, 12 U.S.C. § 2604(c) and 24 C.F.R. § 3500.7(a). The failure to timely or accurately disclose to a borrower the closing costs likely to be incurred in connection with a residential loan transaction violates RESPA.

RESPA requires a lender to provide a HUD-1 or HUD-1A settlement statement to “clearly itemize all charges imposed upon the Borrower,” and that this settlement statement is required by 12 U.S.C. § 2603(a). A lender is required also to provide borrowers with “a Good Faith Estimate” (the “GFE”) to include “estimates of the amounts or ranges of all settlement costs likely to be incurred at the closing,” and the GFE is required by 12 U.S.C. § 2604(c) and Regulation X, 24 C.F.R. section 3500.7(a).

Thus, if, for example, a plaintiff alleges that the lender surprised borrowers with unexpected closing costs, or otherwise failed to disclose certain closing costs not expressly referenced in a HUD-1 or HUD-1A, then the action is based exclusively on federal law. Put simply, under such circumstances, the bottom line is that if the lender had disclosed properly all closing costs as required by RESPA and Regulation X, then the plaintiff would not have been injured. Such a claim, then, is derived entirely from alleged violations of federal law viz., RESPA and Regulation X.

It is well settled that RESPA claims are subject to removal. Sicinski v. Reliance Funding Corp., 461 F. Supp. 649, 650-51 (S.D. N.Y. 1978). Indeed, federal courts have original jurisdiction in cases involving alleged RESPA violations. See Dominguez v. Alliance, 226 F.Supp. 2d at 914 (“Our jurisdiction . . . was predicated on the federal RESPA claims. . . . Having disposed of all claims over which we had original jurisdiction, we decline to exercise our supplemental jurisdiction over the remaining state law claim.” (Italics added.)). Accord Ploog v. Homeside Lending, Inc.¸ 209 F. Supp. 2d 863, 867 (N.D. Ill. 2002) (RESPA claim “only claim over which the Court has original jurisdiction”); DeLeon v. Beneficial Const. Co., 998 F. Supp. 859, 867 (N.D. Ill. 1998).

A lender must be careful to analyze whether the plaintiff’s right to relief depends on the resolution of a substantial, disputed federal question such as whether the lender allegedly violated RESPA and Regulation X. If the Complaint does not advance independent state law claims but, rather, posits theories that are wholly derivative of federal law, then removal may be proper. Moreover, lenders must remember that Congress did not grant concurrent jurisdiction to state courts for all alleged RESPA violations, and must analyze whether jurisdiction over the claims in a complaint is exclusively federal.

Posted In: RESPA/TILA Class Actions

District Court Properly Granted Defense Motion for Judgment on the Pleadings in Class Action Because no Private Right of Action Exists Under Federal Real Estate Settlement Practices Act (RESPA) Eleventh Circuit Holds

On May 26, 2006, the Court of Appeals for the Eleventh Circuit affirmed a judgment entered on a motion for judgment on the pleadings in a putative class action alleging RESPA (Real Estate Settlement Practices Act) violations on the ground that no private right of action exists under Section 10 of RESPA. Hardy v. Regions Mortgage, Inc., ___ F.3d ___, 2006 WL 1452666 (11^th Cir. 2006). Separate articles discuss various issues presented by claims under RESPA.

In Hardy, plaintiffs refinanced their home with Regions Mortgage in 1996 and later received from Cendant Corporation about a “Shoppers Advantage” program that, for $5 a month, entitled plaintiffs to discounts from certain retailers. Plaintiffs joined the program and authorized Regions to add the $5 monthly charge to their mortgage payment. Time passed, and plaintiffs forgot about the Shoppers Advantage program. In 2003, however, they noticed that the $5 monthly fee “had been paid out of their escrow account but was not listed on their mortgage statements.” Plaintiffs filed a putative class action alleging that Regions had violated RESPA by failing to include the $5 fee on their escrow account statement, and had conspired with Cendant to violate RESPA. The district court granted judgment on the pleadings because the complaint alleged a violation of Section 10 of RESPA, for which no private right of action exists, rather than Section 6 of RESPA, which provides for certain private rights of action.

The Eleventh Circuit affirmed. The Hardy court explained that Section6 of RESPA requires that federally related mortgage lenders disclose that “the loan may be assigned, sold or transferred” during its life, and provides for a private right of action for noncompliance. Section 10 of RESPA, however, requires lenders to “provide annual escrow account statements that clearly itemize ‘the amount of the borrower’s current monthly payment . . . the total amount paid out of the escrow account during the period for taxes, insurance premiums, and other charges . . ., and the balance in the escrow account at the conclusion of the period.’” However, Congress did not provide for private rights of action for noncompliance; rather, “the Secretary shall assess . . . a civil penalty” instead. Because plaintiffs alleged a violation of Section 10 of RESPA, and because there is no private right of action under Section 10, the Eleventh Circuit affirmed the judgment.

NOTE: Because it was unnecessary, the Eleventh Circuit did not discuss the fact that Congress did not afford private rights of action for every conceivable alleged violation of Section 6.

Posted In: Class Action Court Decisions, RESPA/TILA Class Actions