Class Action Defense Blog

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, Court Decisions, RESPA/TILA

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: Court Decisions, RESPA/TILA

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, Court Decisions, RESPA/TILA

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, Court Decisions, RESPA/TILA

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, Court Decisions, RESPA/TILA

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, ___ Cal.App.4th ___. 53 Cal.Rptr.3d 745, 746 (Cal.App. January 25, 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, Court Decisions, RESPA/TILA

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: Court Decisions, RESPA/TILA

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, Court Decisions, RESPA/TILA

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: Court Decisions, RESPA/TILA

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: Court Decisions, RESPA/TILA

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: Court Decisions, RESPA/TILA

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: Court Decisions, RESPA/TILA

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, Court Decisions, RESPA/TILA

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, Court Decisions, RESPA/TILA

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, Multidistrict Litigation, Court Decisions, RESPA/TILA

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.

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Posted In: RESPA/TILA

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.

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Posted In: RESPA/TILA

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

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: Court Decisions, RESPA/TILA