Minter v. Wells Fargo Bank, N.A. et al

Filing 541

MEMORANDUM. Signed by Judge William M Nickerson on 4/26/13. (hmls, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
DENISE MINTER et al.

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* Civil Action WMN-07-3442
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v.
WELLS FARGO BANK, N.A. et al.
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MEMORANDUM
Pending before the Court are three motions filed by
Defendants: Defendants’ Conditional Motion Pursuant to 28 U.S.C
§ 1292(b) to Certify a Question of Law to the Fourth Circuit
Court of Appeals, ECF No. 481; Defendants’ Motion to Dismiss for
Lack of Subject Matter Jurisdiction, ECF No. 475; and,
Defendants’ Motion to Decertify Tolling and Timely Classes, ECF
No. 479.

The motions are all fully briefed and the Court heard

oral argument on April 24, 2013.

Upon consideration of the

papers, the parties’ arguments, and the applicable law, the
Court determines that (1) Defendants’ conditional motion to
certify a question of law and Defendants’ motion to dismiss will
be denied, and (2) Defendants’ motion to decertify will be
granted, in part, and denied, in part.
I.

FACTUAL AND PROCEDURAL HISTORY
The alleged facts of this case have now been laid out by

the parties and the Court on numerous occasions and will not be

repeated here.

See ECF Nos. 88, 253, 470.

A very brief comment

regarding the procedural posture is, however, necessary.
This case has been pending for over five years.

Since May,

2011, it has been proceeding as a class action and, presently,
there are more than 150,000 class members divided between the
certified Timely and Tolling Classes.

Over the years, the case

has been pared down by Plaintiffs, see e.g. ECF No. 396 (Letter
from Plaintiffs’ Counsel to Court), and the Court.

Most

recently, the Court granted, in part, and denied, in part,
motions for summary judgment filed by Defendants.
& 471.

ECF Nos. 470

Following that ruling, Plaintiffs’ only remaining claims

are for violations of certain provisions of the Real Estate
Settlement Procedures Act (RESPA), 12 U.S.C. §§ 2601 et. seq.,
specifically, 12 U.S.C. § 2607(a)1 and 2607(c).

A four-week jury

trial on liability issues is scheduled to start in less than two
weeks.2

1

Throughout this case, the parties and the Court have referred
to 12 U.S.C. § 2607 as § 8, which stems from its place in the
statute as enacted by Congress. See Real Estate Settlement
Procedures Act of 1974, Pub. L. No. 93-533, 88 Stat. 1724.
2

On April 23, 2013, the Court, by letter order, determined that
only the Plaintiffs’ class-certified claims under § 8(c) would
be tried. Plaintiffs’ individual claims under § 8(a) will be
tried at a later date.
2

II.

DISCUSSION
A. Defendants’ Conditional Motion to Certify a Question of
Law to the Fourth Circuit and Defendants’ Motion to
Dismiss for Lack of Jurisdiction
Defendants’ motion to certify a question of law and their

motion to dismiss offer little more than an additional
confirmation that Defendants dispute Plaintiffs’ theory of this
case, this Court’s prior holdings affirming that theory as
valid, and the case law relied upon by the Court to make those
determinations.

See, e.g., ECF No. 514 at 4 (“with due respect

to the Court, defendants continue to believe that this case is
proceeding on theories that do not present a legally cognizable
cause of action under RESPA.”).

As such, they can be quickly

dispatched.
Defendants have requested that the Court certify a question
to the Fourth Circuit regarding the viability of Plaintiffs’
claims under § 8(c).

ECF No. 481 at 2.

While it is true that

the question Defendants seek to have certified meets many of the
requirements of 28 U.S.C. § 1292(b), other aspects of their
motion give the Court pause.

First, any delay in seeking

certification must be reasonable.

See, e.g., Morris v. Flaig,

511 F. Supp. 2d 282, 314-15 (E.D.N.Y. 2007); Century Pacific,
Inc. v. Hilton Hotels Corp., 574 F. Supp. 2d 369, 371 (S.D.N.Y.
2008); see also Safety-Kleen, Inc. v. Wyche, 274 F.3d 846, 867
(4th Cir. 2001) (holding that weighing a delay in seeking

3

certification of a question of law is built into considerations
of excusable neglect and lack of prejudice).

Here, Plaintiffs’

legal theory was determined to be viable years ago, see ECF No.
253 at 48 (May 3, 2011, memorandum opinion holding “Plaintiffs’
reading of RESPA is sound.”), they made clear their intention to
abandon any claim for economic damages eight months ago, see ECF
No. 396, and the Court ruled on Defendants’ summary judgment
motions two months ago.3

Thus, the Court determines that

Defendants have unreasonably delayed in seeking certification.
Second, while the Court may not lean as far as Plaintiffs in
calling conditional nature of the motion “gimmicky,” it fails to
see the relevance of any connection to the motion for
certification of a question of law to the Maryland Court of
Appeals that is presently pending in Petry v. Prosperity
Mortgage Co., Civ. No. 08-1642.

That this case is related to

Petry is certainly clear to the Court, but it will not decide
Defendants’ motion under § 1292(b) based on a goose and gander

3

Defendants suggest that the Court’s opinion on summary judgment
provides a valid basis for this motion because the Court
dismissed their assertion that Defendants are allowed to invoke
§ 8(c)(2) as a defense to liability. The Court, however, did no
such thing. Rather, it simply restated the position taken by
Plaintiffs. Indeed, many legal questions surrounding the
calculation of damages have not yet been decided, if damages are
even warranted. Thus, the Court’s ruling on summary judgment
does not provide any basis for Defendants’ request to have their
proposed question certified.
4

argument.

Defendants’ motion for certification of a question of

law will therefore be denied.
In Defendants’ motion to dismiss they argue that Plaintiffs
have not been injured within the meaning of Article III and that
Plaintiffs cannot satisfy statutory standing requirements under
RESPA.

The Court sees no need to review, in any detail, its

understanding of Congress’ intent when it passed RESPA, which
Defendants acknowledge is the key in this inquiry.
1 at 10.

ECF No. 476-

It should suffice to say, once again, that the right

to be free from transaction-specific economic harm is not the
only right that RESPA created4 and that RESPA was intended to
prevent practices that have market-distorting effects, such as
those alleged by Plaintiffs here (i.e., Prosperity is a sham or
an undisclosed ABA).

ECF No. 253 at 25-26 (citing Robinson v.

Fountainhead Title Group Corp., 252 F.R.D. 275 (D. Md. 2008)
(“Congress amended RESPA to exempt [ABAs] from liability only in
certain circumstances because of the concern that the harm
4

Defendants argue that RESPA does not create a personal right.
The Court disagrees. Defendant’s argument runs counter to the
tenor, if not the explicit language, of the Court’s prior
opinions, as well as authority from other courts. See Alston v.
Countrywide Financial Corp., 585 F.3d 753, 759 n.5 (3rd Cir.
2009) (“It would be difficult to craft wording [in RESPA] that
more explicitly establishes a consumer’s ‘personal right’ to
bring suit for a section 8 violation” than the language
contained in 12 U.S.C. § 2607(d)(2) providing that violators of
§ 8 “shall be . . . liable to the person . . . charged for the
settlement service involved in the violation.”) (internal
quotations and citations omitted); Carter v. Welles-Bowen
Realty, Inc., 553 F.3d 979, 989 (6th Cir. 2009).
5

caused by ABAs was not limited to an increase in settlement
costs, but extended to a lack of impartiality in referrals and a
general decrease in competition in the settlement services
market.”) (internal quotations and citations omitted)).

Thus,

the harm resulting from a violation of RESPA “is not limited to
inflating transaction-specific costs,” but also includes a
distortion of competition in the market.

ECF No. 253 at 35.

Against this background, the Court has little difficulty
maintaining its conclusion that Plaintiffs have standing to
pursue their claims without proving that they were economically
damaged.

ECF No. 253 at 47-48 (“Plaintiffs . . . have standing

to pursue their theory of liability under Section 8.”) (citing
Edwards v. First American Corp., 610 F.3d 514, 518 (9th Cir.
2010); Carter, 553 F.3d at 989; Alston, 585 F.3d at 755).
B. Defendants’ Motion to Decertify Tolling and Timely
Classes
The Court’s letter order of April 23, 2013, ECF No. 534,
wherein it outlined the claims currently in play, and elements
of proof required to establish Defendants’ liability, should
bring some clarity to the analysis of Defendants’ motion to
decertify.

For the reasons that follow, the Court will grant

the motion as it relates to the Tolling Class, and deny the
motion as it relates to the Timely Class, but limit the Timely
Class so as to cure some of Defendants’ overbreadth concerns.

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1. Legal Standard
An order granting class certification is not an untouchable
determination.

As Fed. R. Civ. P. 23(c)(1)(C) provides, “an

order that grants or denies class certification may be altered
or amended before final judgment.”

Indeed, “an order certifying

a class must be reversed if it becomes apparent, at any time
during the pendency of the proceeding, that class treatment of
the action is inappropriate.”

Stott v. Haworth, 916 F.2d 134,

139 (4th Cir. 1990) (emphasis added).

The breadth of this

obligation, however, is tempered by commentary in the Advisory
Committee Notes which provide that altering certification is
appropriate “upon fuller development of the facts.”
Amendment Advisory Committee Notes.

1996

Other commentators have

cautioned that courts should be wary of motions to decertify
which simply reargue certification “[i]n the absence of
materially changed or clarified circumstances.”
Class Actions § 7:47 (4th ed. 2012).

3 Newberg on

If such circumstances are

present, however, a motion to decertify is reviewed against the
same standards as a motion to certify (i.e., the requirements of
Rule 23).

Chisolm v. TranSouth Fin. Corp., 194 F.R.D. 538, 544

(E.D. Va. 2000).
2. Tolling Class
Defendants have moved to decertify the Tolling Class.
January 5, 2012 the Court certified a class composed of:

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On

All consumers, excluding individuals whose
transactions involved property located in Washington,
D.C., who have obtained a federally related mortgage
loan originated by Prosperity Mortgage Company that
was funded by transfers from a line of credit at Wells
Fargo Bank, any of its subsidiaries or any of their
predecessors, before December 26, 2006.
ECF No. 307 at 28.

The claims of the members of this class fall

outside of RESPA’s one-year statute of limitations, which would
thus need to be tolled for their claims to be viable.
The elements of equitable tolling must be established by
the Tolling Class, in addition to the substantive elements of
the alleged RESPA violations.

And, as the Court has previously

explained, equitable tolling is only available when “(1) the
defendant fraudulently concealed facts that are the basis of the
plaintiff’s claim, and (2) the plaintiff failed to discover
those facts within the statutory period, despite (3) the
exercise of due diligence.”

ECF No. 307 at 7 (quoting

Supermarket of Marlington, Inc. v. Meadow Gold Dairies, Inc., 71
F.3d 119, 122 (4th Cir. 1995)).

“The circumstances under which

equitable tolling has been permitted are therefore quite
narrow.”

ECF No. 470 at 32-33 (quoting Chao v. Virginia Dept.

of Transp., 291 F.3d 276, 283 (4th Cir. 2002)) (internal
quotations omitted).
When the Court certified the Tolling Class it noted that it
was possible that proving equitable tolling might become
unmanageable and thus warrant the Court’s exercise of discretion

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to decertify the class.

ECF No. 307 at 27 n.11.

At summary

judgment, the Court again expressed concern that proving tolling
would be unmanageable.

ECF No. 470 at 37-38.

There, the Court

denied Defendants’ motion for summary judgment “as to [Named
Plaintiff Lizbeth] Binks’ claim” id. at 37, but stated that it
would consider the viability of the class claim in light of its
concerns about manageability after the trial in Petry where, by
happenstance, the statute of limitations was twelve years, the
same period covered by the Tolling Class.

Id.

The Court now

determines that “the likely difficulties in managing a class
action,” by the Tolling Class, under the circumstances of this
case, warrant decertification.

Fed. R. Civ. P. 23(b)(3)(D).

The Court’s concern about manageability revolves around the
concealment and due diligence elements of tolling.

When it

certified the Tolling Class, the Court acknowledged that some
level of individualized inquiry into due diligence would indeed
be necessary.

ECF No. 307 at 17-19.

It stated, however, that

[b]efore reaching this potentially individual issue,
the Court will need to determine the common issues of
whether Defendants’ course of conduct served to
conceal class members’ potential claims and whether
any information received during that common course of
conduct should have provoked class members to inquire
into Prosperity’s affiliations and operations.
ECF No. 307 at 18.

In its summary judgment opinion, the Court

determined that a RESPA violation was not a self-concealing
wrong which satisfies the fraudulent concealment element of

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tolling.

ECF No. 470 at 35-36.

That decision should have

eliminated one of Plaintiffs’ theories for satisfying the
elements of equitable tolling with obvious class-wide
application.

Nonetheless, Plaintiffs continue to indicate that

they intend to rely on the Defendants’ alleged violation of
RESPA to establish tolling.

See ECF No. 492 at 27 (“This active

concealment is best shown by Prosperity’s ABA disclosure.”).

To

be sure, Plaintiffs have produced other evidence that Prosperity
held itself out as a lender.

See ECF No. 492 at 26 (discussing

loan documents identifying Prosperity as lender).

But, that

conduct is fraudulent only if Prosperity was, in fact, not a
lender, which is the very violation of RESPA that Plaintiffs
have alleged.

In light of the Court’s holding that violations

of RESPA are not self-concealing, individual class members’
transactions are now more relevant to the concealment and due
diligence inquiries of tolling.
Plaintiffs respond by suggesting that evidence from the
class members’ individual transactions “creates, at worst, a
jury question whether Class members were on notice to inquire
about the true roles of Prosperity and Wells Fargo in their
transactions” and that “alone does not warrant decertification.”
ECF No. 492 at 26.

But, therein lies the manageability (or

unmanageability) issue.

The problem is not that the

circumstances of class members’ transactions may create a jury

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question; it is that it only creates that jury question as to
some class members and not others.5

Managing a class action

where some class members had a duty to inquire while others did
not, presents substantial logistical and mental challenges for
the Court and jury which warrant decertification in this already
complicated case.
Plaintiffs’ most direct argument on manageability is
likewise insufficient.

They suggest that any manageability

issues can and should be deferred until after the liability
phase of the case.

ECF No. 492 at 34.

This is unworkable,

however, because there are issues related to tolling such as
fraudulent concealment which, if presented to the jury, may
prejudice the Defendants on the Timely Class claims.

The Court

is unwilling to take that risk and will grant Defendants’ motion
to decertify the Tolling Class.
3. Timely Class
a. Decertification Is Not Appropriate
Defendants attack the Timely Class under both of
Plaintiffs’ theories of liability under § 8(c).

5

With regard to

The Court’s concern at summary judgment regarding Binks’
ability to show due diligence, ECF No. 470 at 36-37, illustrates
the variety of circumstances likely to be included among the
class members’ transactions. It also calls into question
whether Binks’ claim is typical of the claims of the Tolling
Class members, or even whether any individual’s claim could be
typical of such a class within the meaning of Fed. R. Civ. P.
23(a)(3).
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Plaintiffs’ claim under § 8(c)(4)(A) (the “broker theory”), they
argue that proving that Prosperity’s loans were table-funded by
Wells Fargo cannot be done on a class-wide basis.
at 32.

ECF no. 479-1

As noted throughout this case, a table-funded

transaction is one where “a loan is funded by a contemporaneous
advance of loan funds and an assignment to the person advancing
the funds.”

24 C.F.R. § 3500.2(b).

Defendants argue that

establishing whether a loan was contemporaneously assigned to
Wells Fargo cannot be done on a class-wide basis because
individual loans remained on Prosperity’s warehouse line of
credit for varying amounts of time.

ECF No. 479-1 at 33.

The

Court is unpersuaded by Defendants’ argument, however, because
Plaintiffs have produced evidence (1) suggesting that the amount
of time that loans sat on the warehouse line before being
credited by Wells Fargo is not the relevant measurement but, in
any event, was done in a consistent and uniform manner, (2)
containing admissions from Prosperity that its loans are tablefunded by Wells Fargo and (3) indicating that Wells Fargo
dominated the lending process to such a degree that Prosperity
bore no risk in connection with the loans it made.
Defendants also argue that decertification is required
because they are entitled to show that any compensation received
from Plaintiffs was for actual services rendered pursuant to 12
U.S.C. 2607(c)(2), and that this evidence is not amenable to

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class-wide proof.

ECF No 479-1 at 35.

That may be the case

but, as outlined in the Court’s April 23, 2013, letter, ECF No.
534, whether Defendants were compensated for actual services
rendered has no bearing on a finding that Defendants are liable
and thus Defendants’ argument does not provide a basis for
decertifying the class as it regards the alleged § 8(c)(4)(A)
violation.6
Defendants argue that the Timely Class should be
decertified as it relates to Plaintiffs’ sham theory primarily
because the HUD Ten Factor Test cannot be applied, or be
manageably applied, on a class-wide basis.
merit in Defendants’ contention.

The Court finds no

The Court has previously

explained that “[n]o single factor is determinative . . .
rather, the factors are weighed in light of specific facts to
determine whether a specific entity is a sham.”
37.

ECF No. 253 at

Thus, while consideration of the changes to the test

factors over the years is relevant to the jury’s analysis, those
changes do not suggest that application of the test to
Prosperity cannot be done on a class-wide basis.7

Moreover, the

6

If liability is established according to the elements set out
by the Court, the Court will consider issues such as this one,
which relate to the determination of damages, before the second
phase of trial.
7

One reasonable conclusion to be drawn from Defendants’ argument
is that they believe the test should be applied to Prosperity’s
operations at the time each loan is made. See ECF No. 479-1 at
13

Court understands that application of the test may result in a
complex and protracted trial (hence, the liability phase is
scheduled for four weeks), but does not foresee it
“degenerate[ing] into chaos as” Defendants seem to suggest.

ECF

No. 479-1 at 50 n. 41 (quoting Lloyd v. Gen. Motors Corp., 266
F.R.D. 98, 105 (D. Md. 2010)).
basis for decertification.

Complexity, by itself, is not a

See generally Lloyd, 266 F.R.D. at

105.
In sum, Defendants’ arguments are insufficient for the
Court to reverse its earlier conclusion that “the questions of
... fact common to class members predominate over any questions
affecting only individual members” and that “a class action is

46 (the jury “must consider Prosperity’s capitalization in each
of the twenty years that it has been operating”) at 39-40 (“it
is clear that there have been significant variations throughout
Prosperity’s twenty-year history.”). Under this method,
Prosperity may have been a sham at certain points of time,
related to certain loans, but not others. This is nonsensical
and flies in the face of the Court’s previous explanation that:
The gravamen of the sham-ABA claim is that Prosperity
is per se illegal under RESPA because it is not a bona
fide provider of settlement services. As the focus of
that claim is confined exclusively to the nature of
Prosperity, all borrowers who used Prosperity will
have the same claim and will have to overcome the same
defenses. Thus, as goes the sham-ABA allegation of the
Named Minter Plaintiffs, so goes the sham-ABA
allegation of the entire Timely Class.
ECF No. 253 at 57.

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superior to other available methods for fairly and efficiently
adjudicating [this] controversy.”

Fed. R. Civ. P. 23(b).

b. The Timely Class Is Overbroad
While the Court will not accept Defendants’ invitation to
decertify the Timely Class, it is sensitive to Defendants’
concern that the Timely Class is overbroad.

At oral argument,

Defendants clearly highlighted relevant distinctions between
Plaintiffs’ broker theory and sham theory which are not
reflected in the class definition.

As to Plaintiffs’ sham

theory, Defendants argue that the class is overbroad to the
extent that it includes individuals who were not referred to
Prosperity by Long & Foster.

They reason that because the basic

premise under that theory is that Prosperity was created as a
sham entity to funnel referral fees to Long & Foster, only
individuals who were referred to Prosperity by Long & Foster
would be able to recover under that theory.
30.

ECF No. 479-1 at

Plaintiffs’ response to that argument essentially confirms

its validity; they counter that Defendants’ argument fails
because “every one of Prosperity’s loans was the subject of a
(non-disclosed) ABA referral – from Prosperity as broker to
Wells Fargo as table-funded lender.”
(emphasis in original).

ECF No. 492 at 45

That referral, however, is relevant to

Plaintiffs’ broker theory, not to their sham theory.

15

It is true, as Plaintiffs observe, that when the Court
issued its initial certification decision in 2011, it opined
that the “gravamen” or “focus” of Plaintiffs’ sham claim was
whether Prosperity was a bona fide provider of settlement
services and that “‘all borrowers who used Prosperity will have
the same claim and will have to overcome the same defenses.
Thus, as goes the sham-ABA allegation of the Named Minter
Plaintiffs, so goes the sham-ABA allegation of the entire
[Timely] Class.’”
57).

ECF No. 492 at 39 (quoting ECF No. 253 at

That observation was not made, however, in response to any

argument regarding Long & Foster-referred borrowers, but simply
to note that the determination of Prosperity’s legitimacy vel
non under the HUD Ten Factor Test would be typical across the
class and across time.

See supra, n.7.

As Plaintiffs also

observe, later in that same opinion, “the Court declined to
certify a sub-class of Long & Foster customers, holding that
doing so ‘would unnecessarily complicate and obscure the larger
question regarding the legitimacy or illegitimacy of
Prosperity.’”

Id. (quoting ECF No. 253 at 59).

This quoted

language, however, related to the Court’s decision not to
certify a Class for a claim under § 8(a).
The Court agrees with Defendants that, unlike Plaintiffs’
broker theory, only those referred to Prosperity by Long &
Foster would be able to prevail under Plaintiffs’ sham theory.

16

While it is conceivable that a jury could evaluate the merits of
a sham theory applicable to a class composed only of those who
were referred by Long & Foster at the same time as it considers
a broker theory applicable to a different and much broader
class, the Court is deeply concerned about adding any more
complexity to the jury’s task than it already bears.

For this

reason, the Court will limit the class of Plaintiffs to those
who were referred to Prosperity by Long & Foster.
Under Plaintiffs’ broker theory, Defendants argue that the
class is overbroad because it includes individuals whose loans
were not transferred to Wells Fargo, but were sold to other
investors.

ECF No. 479-1 at 25-26.

Plaintiffs do not take on

Defendants’ argument directly, but suggest that Wells Fargo
decided which loans to keep and which to transfer to third-party
investors, which is an indication of Wells Fargo’s control over
Prosperity’s lending, funding, and assignment process.
492 at 37-38.

The Court agrees with Defendants.

ECF No.

Because table-

funding requires that the loan be assigned to the person
advancing the funds, 24 C.F.R. § 3500.2(b), those whose loans
were sold directly – not by way of a preliminary transfer to
Wells Fargo – to third-party investors, plainly cannot establish
that their loans were table-funded by Wells Fargo.

The Court

will therefore modify the Timely Class to exclude those
individuals.

17

The Court notes that, by limiting the Timely Class to those
individuals who were referred to Prosperity by Long & Foster and
who then had their loans passed from Prosperity to Wells Fargo,
this resulting class best mirrors the central core of
Plaintiffs’ theories and arguments, namely, that Long & Foster
and Wells Fargo created Prosperity simply as a scheme to direct
mortgage loans from Long & Foster clients to Wells Fargo.

Such

schemes are the obvious targets of RESPA, and thus the claims of
this more narrowly-tailored class are consistent with both
Plaintiffs’ central theory and RESPA’s purpose.
III.

CONCLUSION
For the foregoing reasons, Defendants’ Conditional Motion

Pursuant to 28 U.S.C § 1292(b) to Certify a Question of Law to
the Fourth Circuit Court of Appeals and Defendants’ Motion to
Dismiss for Lack of Subject Matter Jurisdiction, will be denied,
and Defendants’ Motion to Decertify Tolling and Timely Classes
will be granted, in part, and denied, in part.
A separate order will issue.

________________/s/ ________________
William M. Nickerson
Senior United States District Judge
DATED: April 26, 2013

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