Lane et al v. Wells Fargo Bank NA

Filing 212

ORDER GRANTING 198 PRELIMINARY APPROVAL OF CLASS SETTLEMENT.(whalc2, COURT STAFF) (Filed on 4/7/2014).

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA
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For the Northern District of California

United States District Court

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MERCEDES GUERRERO, individually
and for other persons similarly situated,
No. C 12-04026 WHA
Plaintiff,

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v.
ORDER GRANTING
PRELIMINARY APPROVAL
OF CLASS SETTLEMENT

WELLS FARGO BANK, N.A.,
Defendant.
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INTRODUCTION
In this class action involving force-placed flood insurance on home mortgages, class

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representative moves for preliminary approval of a proposed class settlement. Reserving on final

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approval of the settlement and to the extent stated below, the motion is GRANTED.

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STATEMENT

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The background of this action is set forth in prior orders (Dkt. Nos. 157, 167, and 191).

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In brief, this action began in June 2012. An amended complaint was permitted to add plaintiff

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Mercedes Guerrero, a California resident, as a putative class representative (Dkt. No. 82). The

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other named plaintiffs in this action — Danny and Beverly Lane — have already stipulated to

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dismissal of their claims, and Wells Fargo Bank, N.A. is the only remaining defendant.

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According to the amended complaint, Guerrero obtained a mortgage loan based on a
Federal Housing Administration form mortgage. Wells Fargo then serviced that mortgage
beginning in 2010. Because Guerrero’s home was located in a flood-hazard area, she was

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required to maintain adequate flood insurance; otherwise, Wells Fargo was authorized to (and

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did) force-place flood insurance on her property. In doing so, however, Wells Fargo allegedly

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entered into exclusive purchasing agreements with two insurers — American Security Insurance

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Company and QBE Insurance Corporation — so that ASIC and QBE would pay “kickbacks” in

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unearned commissions to a Wells Fargo affiliate. The amended complaint further claims that

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Wells Fargo maximized these kickbacks via a “backdating” practice, i.e., by force-placing flood

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insurance polices with retroactive effective dates. Guerrero thus sought to represent a California

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class based on Wells Fargo’s alleged commissions and backdating, claiming breach of contract,

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unjust enrichment or restitution, conversion, and violation of California’s Unfair Competition

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For the Northern District of California

United States District Court

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Law.
On June 21, 2013, a California class was conditionally certified with Guerrero as class

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representative. That class was then certified under Rule 23 on August 16, 2013, upon

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appointment of new class counsel and counsel for Guerrero in her individual capacity. Since

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then, the parties have agreed to a proposed class settlement (Dkt. No. 203), for which Guerrero

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now moves for preliminary approval. At the hearing on April 7, 2014, counsel for Guerrero and

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the class systematically went through all of the factors set forth in the earlier-filed notice by the

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Court regarding factors to be evaluated for any proposed class settlement (Dkt. No. 39), and

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explained how each factor militates in favor of preliminary approval. Accordingly, the order

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decides as follows.

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ANALYSIS
“A settlement should be approved if it is fundamentally fair, adequate and reasonable.”

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Torrisi v. Tucson Elec. Power Co., 8 F.3d 1370, 1375 (9th Cir. 1993) (internal quotations

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omitted).

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1.

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The proposed class settlement would offer several benefits to the California class. First,

BENEFITS TO CLASS MEMBERS.

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Wells Fargo would pay a gross settlement amount of $625,000, to be distributed on a pro rata

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basis to class members. Guerrero flags, however, her request that the $625,000 amount be

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reduced by the following, subject to the undersigned judge’s approval: (1) attorney’s fees and
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costs, which will not exceed 23% of the $625,000 amount (i.e., $143,750); (2) the claims

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administrator’s fees and costs, which are both estimated and limited at $28,604 (see Loeser Exh.

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A at ¶ 35; Loeser Exh. D at 11); and (3) a $7,500 “service award” for Guerrero as compensation

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for her time and effort in prosecuting this action. The net settlement amount would thus be

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$445,146, if all of the foregoing deductions are made.

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This order need not decide whether to approve of these requested reductions at this stage,

any service award to [Guerrero]” (Br. 3) (emphasis added). While it is unlikely that the

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undersigned judge would approve of the full service award as requested for Guerrero, class

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counsel should instead move for any attorney’s fees and costs, administrative expenses, and

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For the Northern District of California

as “the settlement is not conditioned on the Court’s approval of attorney[’]s fees and costs, or

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United States District Court

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service award for Guerrero when they move for final approval of the class settlement, as detailed

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in the last paragraph of this order. It is worth noting, however, that even the net amount of

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$445,146 would be an adequate recovery for the class. In fact, the $445,146 amount would

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comprise a 121.8% recovery of the best-case amount for claim relief, which is calculated to be

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$365,179.08 by Guerrero’s damages expert (Loeser Exh. C at 2).

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Second, the settlement would enjoin Wells Fargo and any of its affiliates from receiving
the following (Loeser Exh. A at ¶ 15):
[C]ommissions in connection with the placement of lender[]placed flood insurance on any residential California real estate
that serves as collateral for an FHA Loan unless the receipt of such
commissions is specifically authorized by statute, regulation or a
federal or state regulatory body with appropriate jurisdiction.

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This injunction would last for three years from the date of final approval of the settlement. Of

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note, the settlement states that the monetary value of the injunction will be calculated and

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presented by Guerrero when she moves for final approval of the settlement (id. ¶ 16).

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Third, there would be no claim procedure. Wells Fargo’s records already identify the

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1,886 class members, while providing enough data for Guerrero’s damages expert to calculate

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class members’ pro rata portion of the net settlement amount (see id. ¶¶ 22–23; Loeser Exh. C at

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1). Upon final approval, settlement checks would be mailed to each eligible class member,

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based on mailing addresses given by Wells Fargo and updated as needed by the claims
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administrator (Loeser Exh. A at ¶¶ 25–26). Importantly, any remaining portion of the net

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settlement amount would not revert to Wells Fargo. The money instead would be redistributed

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to eligible class members (if more than ten percent of the settlement amount remained), or

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escheated to the state of California (if less than ten percent remained) (id. ¶¶ 28–29). At the

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April 7 hearing, counsel were advised to discuss the possibility of a cy pres distribution of any

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remaining net settlement amount, instead of an escheat to California.

reversion to Wells Fargo, the order finds that these benefits to the class support preliminary

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approval.

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2.

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For the Northern District of California

Give the monetary recovery, the injunctive relief, and the lack of claim procedure or

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United States District Court

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The settlement would limit the scope of release to “claims or causes of actions actually

SCOPE OF RELEASE.

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asserted on behalf of [Guerrero] and Class Members in the First Amended Complaint” (id. at ¶¶

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2(aa), 53). Among other allegations, this includes “claims that Wells Fargo’s business

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arrangements with lender-placed insurers were collusive, exploitative, or constituted self-

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dealing; that commission paid by lender-placed insurers to Wells Fargo or its affiliate Wells

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Fargo Insurance, Inc. for lender-placed flood insurance were wrongful or constituted

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‘kickbacks’; . . . [and] that Wells Fargo ‘backdated’ insurance” (id. at ¶ 2(aa)). In other words,

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the release would apply to claims relating to those certified for class treatment.

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The release would also be restricted to class members who actually receive the proposed

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notice of class settlement. Specifically, the settlement states: “[T]he Class Release will not

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apply to those Class Members whose Class Notices, after the parties take the steps set forth in

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this Settlement Agreement and Release, are ultimately returned as non-deliverable” (id. ¶ 55)

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(emphasis added).

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In a joint statement filed on April 2, 2014, the parties clarify the definition of the class

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certified in this action. Although prior orders had certified the California class as borrowers with

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FHA mortgages who were charged by Wells Fargo “or an affiliate of [Wells Fargo]” for force-

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placed flood insurance, the settlement’s class definition left out the aforementioned quote (see id.

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¶ 2(e)). The joint statement now explains that the phrase, “or an affiliate of [Wells Fargo],” was
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inadvertently omitted from the settlement, but that Wells Fargo’s class list still includes

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California FHA borrowers who may have been charged by a Wells Fargo affiliate, as opposed to

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Wells Fargo itself. Moreover, the parties have submitted an amended settlement to include the

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omitted phrase back in the class definition.

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The scope of release for the certified class would thus be sufficiently narrow to favor
preliminary approval.

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3.

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Guerrero also proposes a notice of class settlement, for which several edits were

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suggested at the April 7 hearing (see Loeser Exh. B).
The notice will be sent as follows. The claims administrator will use first-class mail to

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For the Northern District of California

United States District Court

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CLASS NOTICE.

send the notice to class members, within thirty days of receiving Wells Fargo’s list of class

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members’ names and last-known billing addresses (this, in turn, will be provided by Wells Fargo

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within ten business days of preliminary approval). In addition, the claims administrator will set-

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up a telephone call center facility and a website to provide more information about the

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settlement. The website, for instance, will post copies of the settlement, the notice of class

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settlement, and this order (see Loeser Exh. A at ¶¶ 37–42).

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This order therefore approves of the proposed notice of class settlement.

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CONCLUSION

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Subject to final approval of the settlement and to the extent stated, the motion for

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preliminary approval is GRANTED. The proposed notice of class settlement is also APPROVED.

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Please note that jurisdiction over all matters relating to the interpretation, administration,

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implementation, effectuation, and enforcement of the settlement would be retained for only three

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years from the date of final approval.

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The following dates are hereby set in this action. Within TEN BUSINESS DAYS of this

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order, Wells Fargo will transmit the list of class members’ names and last-known billing

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addresses, as described in Paragraph 21 of the settlement, to the claims administrator. This will

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be done pursuant to the parties’ “agreed protective order” under Paragraph 38 of the settlement.

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Within THIRTY CALENDAR DAYS of receiving that list, the claims administrator will send the
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notice of class settlement to class members, using first-class mail; the claims administrator will

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also arrange for a telephone call center facility as well as a website, to provide information about

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the settlement by that date that the notice of class settlement is mailed to the class.

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Class counsel shall then file a motion for (1) final approval of the settlement, (2) any

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attorney’s fees and costs, (3) any fees and costs by the claims administrator, and (4) any service

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award for Guerrero, by JULY 2, 2014. Class members must postmark and mail to the claims

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administrator any written objections to the settlement, by JULY 25, 2014. Class members must

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also postmark and mail any written requests to opt out of the class, by JULY 25, 2014. Class

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counsel will then file a reply brief in support of the final approval motion by AUGUST 4, 2014.
The final approval hearing will begin at 9 AM ON AUGUST 18, 2014.

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For the Northern District of California

United States District Court

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IT IS SO ORDERED.

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Dated: April 7, 2014.

WILLIAM ALSUP
UNITED STATES DISTRICT JUDGE

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