Haydon v. Fifth Third Bank, Inc.

Filing 49

MEMORANDUM OPINION AND ORDER finding as moot 34 Motion to Stay; finding as moot 38 Motion for Leave to; finding as moot 42 Motion for Leave to; finding as moot 43 Motion for Leave to; finding as moot 20 Motion to Certify Class; granting 26 Defendant's Motion for Summary Judgment. Plaintiffs claims are dismissed with prejudice. This is a final order. Signed by Judge John G. Heyburn, II on 3/13/14. cc:counsel (TG)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
AT LOUISVILLE
CIVIL ACTION NO. 3:12-CV-824-H

LORI HAYDEN

PLAINTIFF

V.
FIFTH THIRD BANK, INC.

DEFENDANT

MEMORANDUM OPINION AND ORDER
Plaintiff, Lori Hayden, a former Mortgage Loan Originator (“MLO”) for Defendant, Fifth
Third Bank (“Fifth Third”), makes two claims: (1) that Fifth Third breached her payment
contract by deducting uncollected residential mortgage loan application fees as “charge-backs”
from her commissions; and (2) that Fifth Third enforced an unlawful contractual provision by
withholding earned commissions upon cessation of her employment. Hayden seeks to certify a
class of current and former MLOs aggrieved by the same practices. Defendant has moved for
summary judgment. Both matters are fully briefed. Because the Court finds that Fifth Third is
entitled to summary judgment, Hayden’s motion for class certification is moot.
I.
Hayden worked for Fifth Third as an MLO in Louisville, Kentucky from March 14, 2011
until she voluntarily resigned on September 28, 2012. Fifth Third pays MLOs on a commission
basis. The terms controlling when and how commissions are calculated and paid are outlined in
an Incentive Compensation Plan (“ICP”), which Fifth Third updates yearly and sometimes more.
Hayden’s charge-back claim implicates both the 2011 and 2012 ICP as Fifth Third charged
uncollected fees to Hayden in each of those years. The 2012 ICP governs whether Hayden was
owed earned commissions upon the cessation of her employment in 2012. Both applicable ICPs

include a section requiring employment claims to be brought within six months after termination
or the precipitating event or occurrence. Both ICPs also include an Ohio choice of law provision
whose applicability Hayden does not dispute.
One of Hayden’s duties was to collect an application fee from prospective customers who
filled out a loan application.1 Multiple system checks ensure that such collection does not occur
prior to customers’ receipt of required Truth-in-Lending Act disclosures. The application fee2
pays for costs Fifth Third incurs no matter whether the customer is ultimately approved for a
loan or not, such as appraisal costs and costs of obtaining potential customers’ credit reports.
The prudent practice for an MLO is to collect the application fee early in the process. If not, the
MLO risks having the fee charged back to them in the event the customer withdraws their
application, Fifth Third ultimately declines the loan, or the loan is approved but not accepted by
the customer.3 If the MLO does not collect the required fee but Fifth Third ultimately approves
the loan (and the borrower accepts it), the fee becomes part of the total settlement costs and the
MLO is not assessed a charge-back.4
Hayden incurred nine separate charge-backs of $350.00 in 2011-2012.5 Four of these
occurred in 2011, five in 2012. Hayden does not specify the amount of commissions she alleges
Fifth Third withheld after she resigned.

1

The 2011 ICP reads, “It is the responsibility of the Employee to collect any fees required for that product
including, but not limited to, the Processing, Underwriting, and Application Fees. The Application Fee may not be
collected in pricing or yield.” DN 29, § III.H.
The 2012 ICP reads, “It is the responsibility of the Employee to collect any fees required for that product
[sic], but not limited to, the Processing, Underwriting, and Application Fees. The Application Fee may not be
collected in pricing or yield. Uncollected application fees will be charged back to the MLO for non-originated
applications (e.g., denied, withdrawn, etc.).” DN 29-1, § III.H.
2
This fee is also referred to as the “loan processing fee” in the Mortgage Loan Pricing Agreement and Prepayment
of Settlement Costs Policy (“MLPA”) that was in effect during Hayden’s employment. See DN 14-1, p. 2.
3
Even where a charge-back is assessed, the MLO has the ability to seek a waiver of the charge from their Affiliate
Sales Manager. See DN 25, p. 11-12.
4
See MLPA, DN 14-1, p. 2. Customers who do not prepay the fee risk losing a locked-in interest rate.
5
Two other charge-backs were deducted but later reimbursed and four others were waived at Hayden’s request.

2

Hayden filed a class action complaint in federal court on December 10, 2012. Along
with the contract claims described above, Hayden asserted claims under the Truth-in-Lending
Act, 15 U.S.C. § 1601 et seq. Upon Defendant’s motion, the Court dismissed Hayden’s TILA
claim for lack of standing on May 21, 2013. DN 17. The Court also considered whether
Hayden’s charge-back claim was contractually time-barred.6 Reserving the question of whether
Fifth Third’s sixth-month limitation on employment actions was reasonable under the
circumstances, the Court found the continuous violation doctrine seemingly fit the
circumstances, thus tolling any statute of limitations: “[T]hough Plaintiff’s claim is for breach of
contract, the crux of Plaintiff’s actual assertion here is that the contract contains an unlawful
provision. Therefore, Fifth Third is not accused of breaching a specific contractual provision,
but rather of enforcing an unlawful one.” Id. at 12.
The record has developed significantly since that date and the case is now ripe for review.
II.
Summary judgment is appropriate where “the pleadings, depositions, answers to
interrogatories, and admissions on file together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as a matter
of law.” FED. R. CIV. P. 56(c). The burden is on the moving party to conclusively show no
genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once
the moving party has met this burden, the nonmoving party must come forward with significant
probative evidence to support her claim—the nonmovant may not rest on the pleadings. Id. at
324. To survive summary judgment, the nonmoving party “must set forth specific facts showing
there is a genuine issue for trial.” FED. R. CIV. P. 56(e).

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Because Hayden filed suit within six months of her termination, the contract claim related to withheld
commissions is not time-barred.

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III.
The record makes clear that Hayden does not allege Fifth Third’s charge-back policy is
unlawful as a whole, only that the policy is unlawful when applied in a few factual
circumstances.

Indeed, Hayden does not cite, and the Court is unable to locate, any law

prohibiting the general practice of deducting from an employee’s commission fees that the
employee was required—but failed—to collect.

For this reason, the continuing violation

doctrine does not apply. Nevertheless, certain charge-backs were assessed against Hayden’s
commissions within six months of her complaint, so the Court will discuss the merits of this
claim.
The ICP language provides “[i]t is the responsibility of the Employee to collect any fees
required for that product. . . .” DN 29 (2011 ICP) and 29-1 (2012 ICP), at § III.H. Plaintiff
argues Fifth Third breached this provision because the charge-backs it assessed were not fees
“required for that product” in two senses: (1) a fee unlawfully accrued prior to providing the
potential borrower the required TILA disclosures cannot be considered a “required” fee; and (2)
Fifth Third’s standard policy was to process an application regardless of whether the customer
checked “No” indicating they did not agree to pay the non-refundable fee for pre-approval, and
in such cases, the application fee is not “required for that product.”
Plaintiff’s first theory fails for several reasons. First, to the extent Hayden’s claim seeks
to vindicate any unlawful accrual of the fee, employee MLOs have no standing to assert such a
claim. The Court addressed this issue at length in the Order dismissing Hayden’s TILA claim.
DN 17, p. 4-8. Second, the record reflects that Fifth Third never actually assessed a charge-back
to Hayden before issuing customers the required disclosures. See DN 25, p. 13-14. Plaintiffs
may only vindicate injuries in fact. Because Fifth Third never charged an uncollected fee to

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Hayden prior to issuing required disclosures to potential borrowers, and because Hayden could
not vindicate any unlawful accrual of the fee even if those were the facts, this theory of breach
fails.
Next, Plaintiff argues that a customer’s checking “No” next to the paragraph on the part
of the Mortgage Loan Pricing Agreement and Prepayment of Settlement Costs Policy (“MLPA”)
form where customers can apply for pre-approval means that an application fee is not “required
for that product.” This is factually inaccurate. That a fee is not ultimately required of certain
customers (in the event their loan does not close) does not mean a fee is not required for the loan
product, or, more specifically, for processing the loan application. MLOs go over the MLPA
with customers as part of every loan application. Customers are not required to apply for preapproval, but every customer has the option of checking “Yes” or “No” next to a pre-approval
paragraph:
I/We acknowledge that we are applying for a pre-approval and that a fee is due
upon upon [sic] borrower receipt of the initial Truth In Lending Disclosure (TIL).
This fee will be non-refundable if I do not close on a loan with Fifth Third []. If
I close on a loan then the fee will be credited towards my total costs due at
closing.
DN 14-1, p. 2. The very next paragraph makes customers aware that an application or loan
processing fee is due on every home mortgage loan application:
When applying for a Residential Mortgage Loan, or Pre-Approval for a
Residential Mortgage Loan, a loan processing fee is due. This loan processing fee
does not represent pre-payment of specific closing costs. It does, however,
represent a pre-payment of a portion of the total settlement costs. Assuming your
loan application is approved, this prepayment of settlement costs will be credited
towards your total costs due at closing your transaction. If your application is not
approved, is withdrawn, or is approved and does not close, you will not be
entitled to a refund of the application or pre-approval fee paid.

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Id.7 Thus, checking “No” next to the pre-approval paragraph does not mean that a customer does
not owe an application fee.8
The latter provision’s language focuses on prepayment, but does not suggest that costs
will not be incurred unless and until prepayment is received, or that Fifth Third will waive the
fee if prepayment is not received. Instead, the plain language contemplates that any unpaid,
required fees roll over into total settlement costs, and customers who choose not to prepay the
fee do so at the risk of losing a preferential interest rate. Customers acknowledge this when they
sign the required MLPA form.
MLOs are contractually required to ensure customers understand the MLPA and pay the
required fees. MLOs incur a charge-back only if they fail to collect the required fee prior to the
occurrence of one of the non-origination contingencies:

the applicant withdraws their

application, Fifth Third denies the loan, or the applicant rejects the approved loan.
While some might think this charge-back policy unfair, the assessment of charge-backs to
Hayden under these circumstances is not a breach of either applicable ICP or any general law.9
Fifth Third is entitled to summary judgment on Hayden’s charge-back claim.
IV.
Hayden has not substantiated her claim that she was not paid earned commissions upon
cessation of her employment. The Court noted this in its previous ruling and yet the factual basis

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Fifth Third appears to use the terms “application fee,” “loan processing fee,” and “pre-approval fee”
interchangeably in the MLPA.
8
Or, for that matter, that the customer even intends to indicate their refusal to pay the fee. The “No,” on a more
basic and less abstract level, simply signifies “I am not applying for pre-approval.”
9
Unlike the 2012 ICP (and the ICPs from 2003-2010), the 2011 ICP did not provide that uncollected fees would be
charged back. Plaintiff does not make the argument, but absent authorizing language in the compensation plan,
Fifth Third could be liable for the 2011 charge-backs under a conversion theory. However, any grievance related to
those individual charge-backs is time-barred by the contract. The Court finds six months reasonable under the
circumstances, as Ohio law requires, especially in light of the fact that Plaintiff knew of and admits to complaining
internally about the charge-backs, and apparently requested (successfully) that her Affiliate Sales Manager waive
one charge in 2011. See DN 25, p.13.

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for the claim remains unclear. See DN 17, n.2. Under the 2012 ICP, employees were not
entitled to incentive payments unless both (1) “[t]he loan is disbursed and in stage 51 or greater
in Unifi, excluding stages 59, 80 and 90” and (2) “[t]he employee is employed with Fifth Third
on the Loan’s Disbursement Date.”

Defendant’s records show that it paid Hayden all

commissions she was entitled under these terms. Hayden does not rebut this fact. Instead, she
merely argues for more time to depose Fifth Third’s representatives “regarding interpretation and
application of the compensation plan at issue.” DN 33, p.6. However, interpretation of a
contract is a question of law for the Court to decide. Schreck Mech. Corp. v. Borden, Inc., 186
F.Supp.2d 724, 729-30 (W.D. Ky. 2001). The contract’s provisions governing entitlement to
compensation are clear on their face and, more importantly, are lawful. Further, given that
Hayden chose her resignation date, her qualm with the ICP’s application is not well taken.
Ultimately, the dearth of evidence to support Hayden’s claim entitles Fifth Third to summary
judgment on this claim as well.
Being otherwise sufficiently advised,
IT IS HEREBY ORDERED that Defendant’s Motion for Summary Judgment (DN 26) is
SUSTAINED and Plaintiff’s claims are dismissed with prejudice.
IT IS FURTHER ORDERED that Plaintiff’s Motion to Certify Class (DN 20) is
DENIED as moot, as are all remaining pending motions (DN 34, DN 38, DN 42, DN 43).
This is a final order.

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March 13, 2014

cc:

Counsel of Record

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