Gilmor v. Preferred Credit Corporation et al
Filing
606
ORDER denying 513 motion to decertify class; denying 515 motion to decertify class; denying 517 motion to decertify class. Signed on 7/9/12 by District Judge Ortrie D. Smith. (Wolfe, Steve)
IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
MICHAEL P. and SHELLIE GILMOR,
et al.,
Plaintiffs,
vs.
PREFERRED CREDIT CORP., et al.,
Defendants.
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Case No. 10-0189-CV-W-ODS
ORDER AND OPINION DENYING MOTIONS TO DECERTIFY
Pending are three motions to decertify the class action filed by (1) JP Morgan
Chase Bank and Litton Loan Servicing LP, (2) BAC Home Loan Servicing, LP and
Countrywide Home Loans, Inc., and (3) Deutsche Bank National Trust Company, IMH
Assets Corp., Lasalle National Bank, Wells Fargo Bank N.A., Wingspan Portfolio
Advisors, LLC, and the IMPAC Defendants. The motions (Doc. # 513, Doc. # 515, and
Doc. # 517) are denied.
I. BACKGROUND
An abbreviated procedural background follows: On January 2, 2003, the state
court1 certified a plaintiff class consisting of all persons who obtained a second
mortgage loan from Preferred Credit Corporation (“PCC”) secured by Missouri
residential real estate and who may claim damage caused by the charging of certain
fees and closing costs allegedly in violation of the Missouri Second Mortgage Loan Act
(“MSMLA”).2 The class definition did not purport to identify the defendants, or those
1
The Honorable David W. Russell, Circuit Judge for Clay County, Missouri.
2
The full class definition is much more expansive. This summary provides a
workable basis for fully evaluating the certification issue.
who caused damage to the class members. However, in addition to PCC, the
defendants at that time included various purchasers of the loans. Amended pleadings
were filed that added additional defendants, many of whom are either subsequent
assignees of the loans or loan servicing entities.
The case was removed to federal court on February 26, 2010, based upon the
FDIC’s appointment as a receiver for one of the defendants. After reviewing relevant
portions of the voluminous state-court record and considering the parties’ input, the
Court endeavored to put the case on “a path that will lead to its eventual disposition” by
resolving certain outstanding issues. One of the issues between the parties – which
had never been presented to the state court – was whether the state court’s class
certification order applied to defendants brought into the suit after the order was issued.
This Court opined that it did. Doc. # 76 at 2. Defendants sought clarification, and the
Court reiterated its conclusion. Doc. # 114. Both Orders invited Defendants to file
Motions to Decertify if they deemed it appropriate to do so; some of them have now
done so.
II. DISCUSSION
“An order that grants or denies class certification may be altered or amended
before final judgment.” Fed. R. Civ. P. 23(c)(1)(C). The Court will thus consider the
issue anew by examining the class as originally defined by the state court, but
remaining mindful of the Record that has been developed over this case’s decade-plus
existence. Before embarking on the analysis required by Rule 23, it must be
remembered that “[w]hen appropriate, an action may be brought as a class action with
respect to particular issues.” Fed. R. Civ. P. 23(c)(4). Moreover, “[w]hen appropriate, a
class may be divided into subclasses that are each treated as a class under this rule.”
Fed. R. Civ. P. 23(c)(5). These points are important because the moving defendants
implicitly assume that the class as certified cannot stand unless the entire class of
borrowers from PCC has the same claims against every single defendant. As a preview
of its analysis, the Court disagrees.
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A. Rule 23's Mandatory Requirements
Rule 23(a) dictates that for a class to be certified the court must find:
1.
the class is so numerous that joinder of all members is impracticable;
2.
there are questions of law or fact common to the class;
3.
the claims or defenses of the representative parties are typical of the
claims or defenses of the class; and
4.
the representative parties will fairly and adequately protect the interests of
the class.
Each of these elements are satisfied for the class as defined. The class consists
of over 900 individuals who took out 516 residential loans. While some of the class
members have settled some or all of their claims, it is estimated that nearly 180 class
members will remain if all anticipated settlements are approved. It is impracticable to
join all of these individuals into a single suit.3
There are common questions of law and fact that apply to the class as a whole.
“To determine whether common questions predominate, a court must conduct a limited
preliminary inquiry, looking behind the pleadings.” Blades v. Monsanto Co., 400 F.3d
562, 566 (8th Cir. 2005). This inquiry requires an understanding (but not resolution) of
the merits and an understanding of the issues and evidence in the case. E.g., Wal-Mart
Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551-53 (2011); Genereal Tel. Co. of the
Southwest v. Falcon, 457 U.S. 147, 160 (1982). To be common, an issue “must be of
such a nature that it is capable of classwide resolution – which means that
3
Some Defendants suggest numerosity is not satisfied because the amount of
each claim is potentially (or allegedly) large. This argument misunderstands the issue.
A large claim may suggest a reason why individual control of a suit is to be preferred,
particularly if the damages claim includes categories that are difficult to calculate (such
as pain and suffering). The size of the claim is also often invoked by plaintiffs as a
reason why a class action is to be preferred (because exceedingly small claims would
not otherwise be adjudicated). All Rule 23(a)(1) asks is whether there are so many
class members that joinder of each one is impractical – and that threshold is satisfied.
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determination of its truth or falsity will resolve an issue that is central to the validity of
each one of the claims in one stroke.” Dukes, 131 S. Ct. at 2551.
One of the paramount common questions is: did the loans made by PCC violate
the MSMLA? It is true, as Defendants contend, that the specific terms of each loan are
different; however, they are sufficiently similar in the respects necessary to ascertain the
answer to this common question. Another common question involves the liability of
subsequent loan purchasers and others involved in the loans after they were made by
PCC, including the loan servicers who acted on behalf of the note-holders, trustees for
various trusts created in connection with the securitization of loans, and the various
trusts created as part of the securitization process. While there are several different
entities in these roles, the legal issues – and the underlying facts involving their roles –
are sufficiently similar that the answers to these questions will be common for all
members of the class regardless of which defendant they have claims against. For
instance, while Litton, Countrywide and BAC are separate entities, each of them
performed the same function and the factual differences between them appear to have
no effect on the legal analysis of their liability. The critical question involves the liability
of servicers: the fact that Litton is not liable to all class members does not destroy the
commonality inherent in this legal inquiry.
The typicality requirement tends to “merge” with commonality. E.g., Falcon, 457
U.S. at 157 n.13. In this circuit, Rule 23(a)(3)’s “independent meaning . . . requires a
demonstration that there are other members of the class who have the same or similar
grievances as the plaintiff.” Paxton v. Union Nat’l Bank, 688 F.2d 552, 562 (8th Cir.
1982), cert. denied, 460 U.S. 1083 (1983) (quotations omitted; emphasis supplied). The
Court is satisfied that the class members’ claims are sufficiently similar to permit the
class representatives to proceed. For instance, a class representative’s claim against
one servicer is typical of the all class members’ claims against any and all servicers.
This reasoning also persuades the Court that the class representatives are adequate,
as required by Rule 23(a)(4).4
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There is no suggestion that class counsel is not adequate.
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B. Rule 23(b)(3)
To be certified, a class must also satisfy one of the categories in Rule 23(b).
Here, the class satisfies Rule 23(b)(3), which requires “that the questions of law or fact
common to class members predominate over any questions affecting only individual
members, and that a class action is superior to other available methods for fairly and
efficiently adjudicating the controversy.”
1. Predominance
As to the first issue, Defendants posit a variety of individual issues to be weighed
against the previously identified common issues. Chief among these individual issues is
the amount of damages. While damages are an individual issue, this fact does not
automatically destroy predominance – particularly when there are significant common
issues concerning liability. E.g., Messner v. Northshore Univ. HealthSystem, 669 F.3d
802, 815-16 (7th Cir. 2012); Beattie v. CenturyTel, Inc., 511 F.3d 554, 564 (6th Cir.
2007), cert. denied, 555 U.S. 1032 (2008); Smilow v. Southwestern Bell Mobile Sys.,
Inc., 323 F.3d 32, 40 (1st Cir. 2003); Bertulli v. Independent Ass’n of Continental Pilots,
242 F.3d 290, 298 (5th Cir. 2001). Some courts find it significant that damages – though
individualized – are amenable to a mathematical computation. E.g., Ward v. Dixie Nat’l
Life Ins. Co., 595 F.3d 164, 180 (4th Cir. 2010); Steering Committee v. Exxon Mobil
Corp., 461 F.3d 598, 602 (5th Cir. 2006); Bell Atlantic Corp. v. AT&T Corp., 339 F.3d
294, 306-07 (5th Cir. 2003). The fact that some class members have filed bankruptcy
and may be barred from recovering anything in this suit does not alter the analysis.
Defendants’ assertion that punitive damages cannot be assessed on a classwide basis
seems to be contradicted by Missouri case law (which governs the substantive issues in
this case). See Mitchell v. Residential Funding Corp., 334 S.W.3d 477, 510-11 (Mo. Ct.
App. 2010).
Rule 23(b)(3) does not forbid the existence of individualized issues – to the
contrary, it specifically contemplates that they will exist. All Rule 23(b)(3) requires is
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that the common issues predominate over the individual issues that do exist, and the
Court is convinced that this is the case here.
2. Superiority
Rule 23(b)(3) sets forth a non-exhaustive list of factors to consider in deciding
whether a class action is superior to alternative methods of resolving the dispute. The
first factor requires evaluation of any interest in individual control over the action; the
Court discerns no such interest in this matter. While the damages are more than
minimal, they are not so high (as might be true in a case involving personal injury and
future medical costs) that interest in individual control likely exists. The subject matter is
also not the sort that suggests a high concern for individual control over the litigation.
The second factor requires examining “the extent and nature of any litigation
concerning the controversy already begun by or against class members.” The case has
progressed as a class against these Defendants for at least two years. The Court
invited Defendants to affirmatively seek decertification, and they waited until the
deadline to do so. The Court does not necessarily fault them for waiting until the
deadline; however, in waiting Defendants have permitted the case to nearly reach its
conclusion as a class action. Given that the case has successfully (and finally)
progressed to this point, it seems inefficient to “undo” it at the eleventh hour.
The third factor examines the desirability (or undesirability) of concentrating the
litigation in a single forum. The Court concludes significant judicial efficiencies will be
achieved if a single court provides the common answers to the common legal questions.
Moreover, given the lengthy history and the many travels of this case, as well as the fact
that this litigation is far closer to the end than it is to the beginning, the Court believes it
in everybody’s interest if those common answers derive from this case.
Finally, the Court considers “the likely difficulties in managing a class action.”
Most of the difficulties are derived from considerations that have already been
mentioned, including (1) not all Plaintiffs have claims against every Defendant, (2) the
precise amount of damages will vary for each class member, and (3) some class
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members may be subject to individual defenses. These difficulties are surmountable.
The Court starts from the previously-addressed premise that a certain degree of
individualized decisionmaking is inevitable. Damages will be readily calculable based
on documentary evidence and will not require evaluation of extensive testimony. The
process of ascertaining the necessary documents will automatically incorporate an
evaluation of which class members have claims against a particular Defendant, so this
issue does not add significantly to the burden. This same process will permit
Defendants to marshal any individual defenses they may have.
The Court is mindful of the obligation to afford each Defendant an opportunity to
present its defenses to each class member’s claim. Dukes, 131 S. Ct. at 2560-61.
Fulfilling this obligation and resolving the individual issues can be accomplished in a
variety of ways once the common issues are resolved. It may require the parties to file
dispositive or similar motions on a class-member by class-member basis. It may
require organizing multiple trials, one for each Defendant (particularly given that the
issue of liability is a largely legal issue or, at least, one that depends on largely
uncontroverted facts). The procedures may vary depending on the circumstances. For
instance, Litton contends that it serviced only four loans of class members.5 Litton’s
liability to borrowers is no different from the liability of any other loan servicer, and is
one of the common issues discussed earlier. If the Court concludes servicers such as
Litton have no liability, the matter is ended. If the Court concludes servicers such as
Litton are or can be liable, then those four individuals can proceed – and at that point,
the parties and the Court can undoubtedly fashion a method for litigating the claims
involving those four loans. For other Defendants, it may be appropriate to form a
subclass from the larger class. These are just examples, but regardless of how the
case is handled at that point the efforts will be informed and improved by the fact that
the case proceeded to that point as a class so that the common answers could be
generated.
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Plaintiffs contend the number is actually much higher, but the Court will accept
this number for discussion purposes.
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The precise contours of how this litigation will conclude are not presently clear.
However, the matter will become clearer as more and more common legal issues are
resolved. For the present, given the nature of the common and individual issues and
the history of this case, the Court believes that maintaining the class certification is
superior to decertifying the class.
III. CONCLUSION
The class certified by the state court satisfies the requirements of Rule 23. In
particular, the Court concludes there are issues of law and fact common to the class,
even though not all class members have claims against all defendants. The common
issues predominate over the individual issues, and maintaining the class is superior to
other methods of adjudication. Accordingly, the motions to decertify are denied.
IT IS SO ORDERED.
/s/ Ortrie D. Smith
ORTRIE D. SMITH, SENIOR JUDGE
UNITED STATES DISTRICT COURT
DATE: July 9, 2012
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