Monday, December 17, 2018

FYI: Ill Sup Ct Holds Mortgagee's 2nd Action on Note After Foreclosure Barred by "Single Refiling Rule"

The Supreme Court of Illinois recently held that a bank's suit for breach of a promissory note — a third attempt to collect from the same defendant borrowers based on the same default of the promissory note — was barred by Illinois' 'single refiling rule.' 

 

In so ruling, the Supreme Court concluded that, although the first lawsuit sought relief of foreclosure of the mortgage that secured the loan, and the second and third lawsuits were for breach of the underlying promissory note, that all three suits asserted the same cause of action under the mortgage and the note, importantly, because the first action also sought a deficiency judgment under the note.

 

A copy of the update is available at:  Link to Opinion

 

After two borrowers ("Borrowers") defaulted on their mortgage loan (the "Loan"), the mortgage lender filed a foreclosure complaint in Cook County, Illinois (the "First Lawsuit") seeking "judgment of foreclosure and sale" and "personal judgment for deficiency, if sought."

 

The Loan was acquired by a successor bank ("Bank") who voluntarily dismissed the foreclosure action on April 2, 2013, and filed a new suit against the Borrowers on April 16, 2013 (the "Second Lawsuit") for breach of the promissory note evidencing the Loan, and alleging the same date of default as the First Lawsuit.  After the Bank's motion to continue trial was denied two years later on April 3, 2015, the Bank voluntarily dismissed the Second Lawsuit on the same day.

 

On July 30, 2015, the Bank filed yet another action against the Borrowers (the "Third Lawsuit") for breach of the promissory note evidencing the Loan and unjust enrichment, again asserting the same date of default as the First and Second Lawsuits. 

 

The Borrowers moved to dismiss, arguing that the Third Lawsuit violated Illinois' "single refiling rule," section 13-217 of the Illinois Code of Civil Procedure.   The trial court denied the Borrowers' motion to dismiss, concluding that the pending Third Lawsuit was the first refiling of the breach of promissory note action—both distinct from the First Lawsuit seeking to foreclose the mortgage which secured the Loan.  The Borrowers reasserted their "single refiling rule" argument as an affirmative defense, but it was stricken by the trial court.  The Bank was eventually granted summary judgment and an award of $308,192.56 in damages for the Borrowers breach of the promissory note. 

 

The Borrowers appealed the entry of summary judgment.

 

On appeal, the Illinois Appellate Court vacated the trial court's order and dismissed the Complaint, concluding that although the mortgage and note are distinct contracts, all three lawsuits arose from the same operative facts and based on the same default of the note, and thus, constitute the same causes of action for the purposes of the single refiling rule.  See LSREF2 Nova Investments III, LLC v. Coleman, 2015 IL App (1st) 140184 (foreclosure complaint that seeks a deficiency judgment arises out of both the mortgage and the note). 

 

Although the Bank initially distinguished Coleman in the trial court by noting that in that case, the first lawsuit had reached a final adjudication on the merits, rather than a voluntary dismissal like the First Lawsuit here, the appellate court found that final adjudication was a component of res judicata, not the single refiling rule. 

 

The Supreme Court of Illinois granted the Bank's petition for leave to appeal.

 

The Supreme Court had previously interpreted the "single refiling rule," section 13-217 to allow "one, and only one, refiling of a claim" (Flesner v. Youngs Development Co., 145 Ill. 2d 252,254 (1991)), but it had not yet spoken on the issue as to whether two complaints state the same claim depends how the plaintiff labels the complaint. 

 

The Court adopted the analysis used in Illinois Appellate Courts to determine whether two suits assert the same cause of action for the purposes  of the single refiling rule as they use for res judicata.  This test, adopted by the Supreme Court in River Park, Inc. v. City of Highland Park, 184 Ill. 2d 290, 311 (1998) treats separate claims as the same cause of action "if they arise from a single group of operative facts."

 

Citing River Park, the Supreme Court rejected the Bank's initial argument that a foreclosure proceeding is quasi in rem, but breach of note is in personam, under the transactional test which treats two claims as identical "if they arise from a single group of operative facts, regardless of whether they assert different theories of relief." River Park, Inc., 184 Ill. 2d at 311.  The Supreme Court disagreed with the Bank's argument that the facts shared between the foreclosure and breach of note complaints derive from the Illinois Mortgage Foreclosure Law form complaint, because the Foreclosure Law does not require a plaintiff to seek a deficiency judgment, as the Bank did in the First Lawsuit Here.  735 ILCS 5/1504, et seq.  The Supreme Court further ruled that the Bank could not avoid the single refiling rule by claiming that the First Lawsuit only requested relief of personal judgment for a deficiency "if sought."

 

In rejecting the Bank's reliance upon LP XXVI, LLC v. Goldstein, 349 Ill. App. 3d 237 (2004) (res judicata did not bar plaintiff's suit because the mortgage, note and guaranty were separate transactions) and Turczak v. First American Bank, 2013 IL App (1st) 121964 (lender can proceed in separate suits to enforce mortgage and underlying promissory note), the Supreme Court concluded that Coleman distinguished its facts from those in Goldstein and Turczak. 

 

Unlike Coleman and the instant matter, Goldstein arose from the defendant's guaranty that specifically waived the argument raised by Borrowers here and did not address a situation in which the lender sought a remedy under the same instrument in three separate suit, and the first lawsuit in Turczak only sought default judgment—and thus, did not seek to adjudicate the parties' rights under the disputed instrument.

 

Though Goldstein and Turczak both rely on Farmer City State Bank v. Champaign National Bank, 138 Ill. App. 3d 847, 852 (1985) to demonstrate that a plaintiff may pursue remedies under a mortgage and a note either consecutively or concurrently, the Supreme Court held that it need not overturn Farmer City to rule in Borrowers' favor to reach its conclusion.  Here, the Bank's predecessor sought relief under the mortgage and note concurrently, which was not inappropriate at the time it was filed. 

 

The Supreme Court of Illinois stated that lenders may pursue a claim under the mortgage and note either consecutively or concurrently; however, a lender may not assert a claim under the mortgage and the note concurrently by seeking a foreclosure and a deficiency judgment, and then assert a claim under the note consecutively twice more, as the Bank did here. 

 

In response to the Bank's concerns that its ruling would limit all available remedies and require lenders to file one suit under all possible instruments, the Supreme Court stated that this is avoided by focusing on the remedy sought, and that although foreclosure complaints often share facts with other suits a lender may bring, the shared facts are not necessarily "operative facts" under the transactional test.  River Park, Inc., 184 Ill. 2d at 311. 

 

The Supreme Court further noted that because its opinion does not hold that the mortgage and note constitute the same transaction, claims under those instruments need not be litigated at the same time for the purposes of the single refiling rule, and that "this reasoning also applies to other instruments besides the note and the mortgage, such as a guaranty or a loan modification agreement."

 

Therefore, the Supreme Court of Illinois concluded that the Third Lawsuit constituted a third attempt by the Bank to collect from the Borrowers based upon the same default, and thus, was barred by the "single refiling rule."  Accordingly, the appellate court opinion's was affirmed, and the trial court's entry of summary judgment in the Bank's favor was vacated.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Sunday, December 16, 2018

FYI: Cal App Ct (4th DCA) Rules Servicer and Investor Did Not Violate HBOR

The Court of Appeals of California, Fourth District, recently affirmed summary judgment awarded in favor of the mortgage servicer and loan owner defendants on the borrowers' claims for alleged violations of the California Homeowner Bill of Rights (HBOR), finding that the defendants properly contacted the borrowers and provided them with the required foreclosure information before recording the notice of default. 

 

A copy of the opinion is available at:  Link to Opinion

 

The plaintiffs ("Borrowers") obtained a loan in 2007, secured by their residence.  In 2013, the Borrowers defaulted and entered into a loan modification agreement with the loan owner ("Owner").  The Borrowers then defaulted on the loan modification agreement.

 

On March 10, 2014, the then mortgage servicer ("Servicer") sent the Borrowers a letter that contained documents that outlined their eligibility and the protections contained in the federal Servicemembers Civil Relief Act.  Between March 18 and November 22, 2014, the Servicer spoke to the Borrowers multiple times regarding the status of their mortgage account, their financial situation, foreclosure avoidance options, and on at least three occasions provided them with a toll free number for the Department of Housing and Urban Development (HUD).

 

The Borrowers submitted a complete loan application to the Servicer in March 2014, but the Servicer denied the application.  The Borrowers did not appeal this denial.

 

The Servicer informed the Borrowers via letter on November 26, 2014 that they could request copies of their payment history and the note, the name of the entity that "holds the loan," and any "assignments of mortgage or deed of trust required to demonstrate" the right to foreclose.

 

On January 14, 2015, the Servicer recorded a notice of default for the loan stating the amount that the Borrowers had to pay to bring their account current.  The notice of default included a declaration averring that the Servicer had contacted the Borrowers.

 

On April 28, 2015, the Servicer recorded a notice of trustee's sale against the property.

 

The Borrowers last made a payment on the loan in October 2013. The trustee's sale had not occurred as of June 19, 2017. The borrowers filed suit against the Owner and Servicer.  The operative complaint sought to enjoin the sale and alleged that defendants violated the HBOR (Cal. Civ. Code,  §§ 2923.55, 2923.6) and California Business and Professions Code § 17200 by not contacting the Borrowers before recording the notice of default and properly informing them about their foreclosure alternatives.

 

The defendants moved for summary judgment supported by a declaration arguing that the undisputed facts demonstrated that they did not violate the HBOR or section 17200. The trial court granted the Defendants motion for summary judgment.  This appeal followed.

 

Initially, the Appellate Court observed that the HBOR, "effective January 1, 2013, was enacted 'to ensure that, as part of the nonjudicial foreclosure process, borrowers are considered for, and have a meaningful opportunity to obtain, available loss mitigation options, if any, offered by or through the borrower's mortgage servicer, such as loan modifications or other alternatives to foreclosure.'" Civ. Code, § 2923.4, subd. (a).

 

As you may recall, California has amended the HBOR since its passage, but when the Servicer recorded the notice of default, the HBOR required the Servicer to send a letter informing the Borrowers that they have the right to request certain loan documents before recording the notice of default.  See former Cal. Civ. Code, § 2923.55, subds. (a)-(b). A servicer or any other party also could not record the notice of default until 30 days after making initial contact with the borrower in person or by telephone to "assess" the borrower's financial situation and to "explore" foreclosure alternative options. Id. The servicer must inform the borrower during this initial contact that they may request an additional meeting to take place within 14 days and provide the borrower with HUD's toll-free phone number to find a HUD-certified housing counseling agency. Id.  A borrower may seek injunctive relief "to enjoin a material violation" of former section 2923.55, before anyone records a trustees deed upon sale. See former § 2924.12, subd. (a)(1).

 

The Borrowers argued on appeal that disputed material facts regarding whether Defendants complied with former section 2923.55 before recording the notice of default should have precluded summary judgment.  The Borrowers cited Mabry v. Superior Court (2010) 185 Cal.App.4th 208, 215, to argue that whether a defendant complied with section 2923.55's requirements is typically a "classic question of fact that" the trier of fact must resolve.

 

The Appellate Court noted that it construes the terms "assess" and "explore" narrowly "to avoid crossing the line from state foreclosure law into federally preempted loan servicing."  Mabry, 185 Cal.App.4th at 232.  Thus, it limits exploration "to merely telling the borrower the traditional ways that foreclosure can be avoided (e.g., deeds 'in lieu,' workouts, or short sales), as distinct from requiring the lender to engage in a process that would be functionally indistinguishable from taking a loan application in the first place." Id.

 

The Appellate Court found that the trial court correctly determined that the Defendants "satisfied the requirements of former section 2923.55" before recording the notice of default." 

 

Specifically, before recording the notice of default, the Servicer initiated at least 11 phone calls with the Borrowers, the husband borrower called and spoke to the Servicer eight more times, and the Servicer unsuccessfully tried to call the Borrowers an additional 35 times.  During the phone calls the Servicer discussed the following with the Borrowers: a loss mitigation review; their loan modification application; payment options; the HUD referral phone number; the possible sale of the property; and offered to conduct a loss mitigation meeting several times. This evidence "clearly establishes" that Defendants made a prima facie showing that they met "all of the contact and notice requirements of former section 2923."

 

The Appellate Court also found that Defendants made a prima facie showing that they "complied with the requirements of former section 2923.55, subdivision (b)(2) by fully reviewing and processing" the Borrowers' "loan modification application before recording the notice of default."

 

The burden then shifted to the Borrowers to come forward with evidence sufficient to give "rise to one or more triable issues of fact."  The husband borrower presented evidence that before the Servicer recorded the notice of default he did not recall any phone calls occurring or being offered a meeting to discuss foreclosure alternatives.  However, he did not actually deny the contacts or the contents or the discussions.  

 

The Appellate Court found this insufficient to create a triable issue of material fact "and entitled the defendants to summary judgment."

 

The Borrowers also argued that a material fact dispute remained because the Defendants did not initiate the contacts.  The Appellate Court rejected this argument because the evidence showed that the Servicer initiated multiple contacts and because former section 2923.55 did "not require that a lender initiate the contact; rather, the statute requires only that the lender make contact in some manner and provide the borrower with an opportunity to discuss the borrower's financial situation and possible options for avoiding foreclosure."  To hold otherwise would have elevated "form over substance." 

 

The Borrowers argument also failed because a violation of the statute's provisions must be "material" to support a claim for an injunction.  Thus, when "the purpose of the statute is met -- if the borrower has had an opportunity to have at least two substantive discussions with the lender regarding the borrower's financial situation and possible options for avoiding foreclosure -- then the fact that one or both of these discussions may have arisen as a result of the borrower initiating the telephone call with the lender or its agent cannot be considered to constitute a 'material' violation of the statute."

 

Finally, because the Borrowers' claims for violations of section 17200 are predicated on their failed HBOR claims the trial court correctly found that the defendants are also entitled to summary judgment of their alleged section 17200 claims.

 

Accordingly, the Appellate Court affirmed the trial court's judgment. 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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Tuesday, December 11, 2018

FYI: 3rd Cir Hold American Pipe Tolling Does Not Apply to Named Plaintiff in Failed Putative Class Action

The U.S. Court of Appeals for the Third Circuit recently held that the tolling doctrine set forth in American Pipe & Constr. Co. v. Utah does not apply where the named plaintiff in a failed class action commences a subsequent lawsuit outside the statute of limitations. 

 

In so ruling, the Court held that American Pipe only tolls the statute of limitations for unnamed members of the putative class.

 

A copy of the opinion is available at:  Link to Opinion

 

In April 2004 and March 2005, a doctor received two unsolicited faxes from a pharmaceutical company and a healthcare supplier (Defendants).  Shortly thereafter, the doctor filed a putative class action against the Defendants in state court (State Court Action), alleging that the Defendants transmitted thousands of similar faxes in violation of the federal Telephone Consumer Protection Act, 47 U.S.C. § 227 (TCPA). 

 

On June 27, 2008, the judge presiding over the State Court Action entered an order denying class certification.  Since that time, the State Court Action has proceeded on an individual basis, and has yet to result in a final judgment.

 

On June 26, 2011, the Doctor and his professional corporation (Corporation) filed a separate class action against the Defendants in federal court, alleging violations of the TCPA based on the same April 2004 and March 2005 faxes at issue in the State Court Action.

 

The Defendants subsequently moved for summary judgment, contending that the four-year federal "default" statute of limitations set forth in 28 U.S.C. § 1658 barred the complaint in its entirety.  The trial court agreed, rejecting the Plaintiffs' argument that the denial of certification in the State Court Action tolled the statute of limitations on their individual and class claims.

 

This appeal followed.

 

As you may recall, American Pipe provides that a timely-filed class action complaint tolls the applicable statute of limitations for unnamed putative class members until the court issues a ruling on class certification.  Under this doctrine, unnamed individual members of a failed class can either intervene in the existing case or file their own suits.

 

The Third Circuit began its analysis by noting that a recent Supreme Court of the United States ruling resolved any issues as to whether the State Court Action tolled the statute of limitations on the Plaintiffs' class claims.  During the pendency of the appeal, the Supreme Court issued its opinion in China Agritech v. Resh, which made clear American Pipe tolling does not allow putative class members to bring a "follow on" class action once the statute of limitation expires.  584 U.S. ___, 138 S. Ct. 1800, 1804 (2018). 

 

Next, the Third Circuit addressed whether American Pipe tolling applies where the named plaintiff in a failed class action, such as the Doctor, asserts new individual claims outside the statute of limitations.  Although the Supreme Court had not directly confronted the issue, the Third Circuit determined that the two policy rationales underlying American Pipe made clear that the doctrine only applied to unnamed class members.

 

First, American Pipe tolling reinforced the principles of judicial economy embodied in Rule 23, as it obviated the need for putative class members to intervene in the class case or file duplicative individual actions.  In the Third Circuit's eyes, this concern was inapplicable "to named plaintiffs, who have already filed their claims; neither efficiency nor economy would be advanced by allowing named plaintiffs to rely on their own filings."

 

Second, American Pipe protects the interests of putative class members who are unaware of the pending class case, and have no obligation to take any action with respect to the suit prior to the ruling on class certification.  The Third Circuit reasoned that this policy rationale was clearly inapplicable to named plaintiffs, who are "necessarily aware of any denial of class certification such that tolling is unnecessary to protect their interests." 

 

Drawing further support for its conclusion, the Third Circuit noted that the named plaintiff's claims always remain viable following the denial of class certification, as the failed class case simply transforms into an individual suit.  Given this, allowing the named plaintiff to file repetitive individual suits would undermine the purpose of American Pipe by squandering judicial resources.

 

Thus, the Third Circuit refused to extend American Pipe tolling to the Doctor's individual claims.

 

Finally, the Court explained that the same policy rationales weighed against extending American Pipe tolling to the Corporation's individual claims.

 

Although the Corporation was not a party to the State Court Action, the Third Circuit rejected the notion that it qualified as the "type of unaware, absent class member that American Pipe was designed to protect."  To the contrary, as the Doctor had at always been the sole shareholder of the Corporation, there was no real debate that the Corporation was fully aware of the State Court Action and the order denying class certification in that case. 

 

The Third Circuit also emphasized that any judgment in favor of the Corporation would only benefit the Doctor, its sole shareholder.  As a result, tolling the Corporation's claims would subvert the purpose of American Pipe by permitting the Doctor to pursue his individual claims "for a second time" outside the statute of limitations. 

 

Accordingly, the Third Circuit concluded that American Pipe tolling was inapplicable to all of the Plaintiffs' claims, and affirmed the trial court's order granting summary judgment in favor of the Defendants.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Monday, December 10, 2018

FYI: 3rd Cir Limits Title Insurer's Duty to Defend

The U.S. Court of Appeals for the Third Circuit held that a title insurer under Pennsylvania state law only had a duty to defend its insured lender for the covered claims alleged in the four corners of a borrower's complaint, not for all alleged claims under the "in for one, in for all" rule.

 

A copy of the opinion is available at:  Link to Opinion

 

A Pennsylvania borrower (Borrower) refinanced his home loan and mortgage with a lender.  The loan transferred several times finally ending up with the current holder (Holder).  A title insurer (Insurer) provided title insurance.

 

Relevant to this appeal, the Title Policy (Policy) covered "loss or damage" resulting from, among other things: "[a]]ny defect in or lien or encumbrances to the title" and "Forgery after Date of Policy of any assignment, release or reconveyance (partial or full) of the Insured Mortgage."

 

For a covered claim, the Policy paid the "costs, attorneys' fees and expenses incurred in defense of the title or the lien of the Insured Mortgage, as insured, but only to the extent provided in the Conditions and Stipulations."  The Policy only provided a defense for "those stated causes of action . . . insured against by this policy" and not "those causes of action which allege matters not insured against by this policy."

 

After defaulting the Borrower sued the Holder to void the loan.  The Borrower initially did not allege that the loan documents were forged in his Third Amended Complaint or any prior complaints, instead attacking the MERS transfer system.  The Borrower claimed the lender forged the loan documents in his discovery answers, but he did not allege this until his Fourth Amended Complaint which also still included the MERS transfer claims.  The court dismissed all the Borrowers' claims with prejudice and the Borrower did not appeal.

 

After the court dismissed the Borrower's complaint, the Holder sued the Insurer in the federal trial court seeking to recover its attorneys' fees and costs incurred to defend the Borrowers' complaint. 

 

The parties each moved for summary judgment.  The Holder argued that the Policy covered all the Borrower's claims, and the Insurer argued that it only had a duty to defend the covered claims alleged in the Fourth Amended Complaint.  The trial court applied the "four corners" rule and held that the Insurer had no duty to defend the claims in the Third Amended Complaint.  However, the trial court applied the "in for one, in for all" rule to the Fourth Amended Complaint finding that that, because the Insurer had a duty to defend against one claim, it had a duty under Pennsylvania law to defend all claims alleged in the Complaint.

 

Both parties timely appealed the trial court's ruling.

 

The Third Circuit first noted that the rule in Pennsylvania is that an insurer's duty to defend its insured is "determined solely by the allegations of the complaint in the action."  Wilson v. Md. Cas. Co., 105 A.2d 304, 307 (Pa. 1954).  Thus, the "question of whether a claim against an insured is potentially covered is answered by comparing the four corners of the insurance contract to the four corners of the complaint."  American & Foreign Ins. Co. v. Jerry's Sport Center, 2 A.3d 526, 541 Pa. 2010). 

 

The Third Circuit observed that Pennsylvania's approach is the minority rule contrary to thirty-one jurisdictions that have left the "four-corners" rule behind in cases where the insurer knows or should know that facts providing coverage conflict with the complaint's allegations. 

 

Nevertheless, in 2006 in Kvaerner Metals Div. of Kvaerner U.S., Inc. v. Commercial Union Ins. Co., 908 A.2d 888 (Pa. 2006), Pennsylvania declined to adopt this exception to the "four corners" rule.  In doing so the Pennsylvania Supreme Court reaffirmed that "the allegations of the complaint" alone determine an insurer's duty to defend.  Kvaerner, 908 A.2d at 896. 

 

The Third Circuit examined whether Kvaerner precluded using facts outside the pleadings that a third-party like the borrower here introduced into the litigation from triggering the duty to defend, but rejected this approach in favor of the "simple, bright-line rule" because "Kvaerner's unequivocal holding leaves no room for such a distinction." 

 

The Holder argued that the Policy covers the entire litigation given that the Borrower's interrogatory responses contained facts that trigger coverage because in Heffernan & Co. v. Hartford Insurance Co. of America 614 A.2d 295 (Pa. Super. Ct. 1992), the Superior Court held that the information disclosed in the interrogatories triggered the duty to defend even though the operative complaint had include this information.  The Third Circuit acknowledged that although it must give "due regard" to this Superior Court opinion, it conflicts with the Pennsylvania Supreme Court's ruling Kvaerner.  In this situation "Kvaerner controls, and we must follow it."  Thus, the Third Circuit held, "we may not look for a covered claim beyond the four corners of" the complaint.

 

Examining the Third Amended Complaint, the Third Circuit agreed with the trial court that the Policy did not cover the allegations challenging the MERS transfer system as the Policy "generally covers claims that the original mortgage is invalid or forged."  As such, the Insurer's "duty to defend arose when [the Borrower] filed the Fourth Amended Complaint, including there the forgery allegations he had referred to earlier in response to interrogatories." 

 

The Third Circuit then evaluated whether the "in for one, in for all" rule required the Insurer to provide the Holder with a defense to all the claims alleged in the Fourth Amended Complaint or whether the Insurer only owed the Holder a defense for the covered forgery claim.  The Third Circuit first looked to the nature of Title insurance finding that it is only designed to cover defects or clouds on title.  Title insurance looks backward whereas liability insurance looks forward to a future occurrence.  This allows a title insurer to search public records before issuing a policy, decreases the title insurer's risk, and keeps premiums low.

 

Here, the Policy "disclaims a duty . . . to defend non-covered claims."  The Policy only covers and agreed to defend against "stated causes of action . . . insured against by this policy."  The Policy's plain meaning controls unless it is against public policy.  The Holder argued that the "in for one, in for all" rule prevents insurers from covering only part of a claim and avoids the waste and difficulty of a bifurcated defense.  However, no opinion in Pennsylvania has applied this rule "when a title insurance policy is at issue."  Here, the Policy "expressly contemplates" only a "partial defense of a lawsuit."

 

Additionally, the Third Circuit noted, other jurisdictions have rejected applying the "in for one, in for all" rule to title insurance. Title insurance fundamentally differs "from general liability insurance because (1) the risk covered is limited, specific, and retrospective, (2) the premium is a relatively modest one-time charge, and (3) the duration of coverage is indefinite."  The Third-Circuit therefore predicted "that the Pennsylvania Supreme Court would also create a title-policy exception to the 'in for one, in for all' rule."

 

As the trial court applied the "in for one, in for all" rule to the Fourth Amended Complaint, it did not determine which claims in the Fourth Amended Complaint come within the scope of the Policy.  Although the Policy may only cover one alleged claim, the Third Circuit instructed the trial court to make this determination.

 

Accordingly, the Third Circuit affirmed in part and reversed in part, the trial court's judgment and remanded for further proceedings consistent with its opinion.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

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and

 

Webinars

 

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Saturday, December 8, 2018

FYI: 7th Cir Vacates $10MM FLSA Award Against Mortgage Company

The U.S. Court of Appeals for the Seventh Circuit recently joined Fourth, Sixth, Eighth, Ninth, and Eleventh Circuits, in ruling that class or collective arbitrability is a gateway question that is presumptively for the court to decide, rather than the arbitrator.

 

In so ruling, the Court vacated the trial court's order enforcing a $10 Million federal "wage and hour" Fair Labor Standards Act arbitration award against the defendant.

 

A copy of the opinion is available at:   Link to Opinion

 

The plaintiff filed a putative class and collective action against her former employer.  She alleged  wage and hour violations under the Fair Labor Standards Act, and breach of her employment contract. 

 

The plaintiff's employment agreement contained an arbitration cause and class action waiver:

 

In the event that the parties cannot resolve a dispute by the [alternative dispute resolution] provisions contained herein, any dispute between the parties concerning the wages, hours, working conditions, terms, rights, responsibilities or obligations between them or arising out of their employment relationship shall be resolved through binding arbitration in accordance with the rules of the American Arbitration Association applicable to employment claims.  Such arbitration may not be joined with or join or include any claims by any persons not party to this Agreement.

 

The trial court held that the arbitration clause was enforceable but struck the sentence waiving plaintiff's right to bring a class or collective proceeding in arbitration.  The court sent the parties to arbitration. 

 

The arbitrator certified a class for two reasons.  First, he determined that he was required to ignore the class action waiver because the trial court had invalidated it.  Second, he determined that the parties agreed to class arbitration because the agreement incorporated the Rules of the American Arbitration Association for employment claims.

 

The arbitrator awarded $10 million in damages and fees in favor of plaintiff and the class.  The trial court entered judgment enforcing the arbitration award. 

 

This appeal followed.

 

The first issue addressed on appeal was whether the class action waiver was enforceable. 

 

While this case was on appeal, the U.S. Supreme Court issued its ruling Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018), which upheld the validity of class action or collective action waiver provisions like the one in the plaintiff's employment agreement.  Consequently, Seventh Circuit held that trial court erred in striking the class action waiver. 

 

The second issue on appeal was whether it is for the court or an arbitrator to decide if an arbitration agreement permits class or collective arbitration.  The plaintiff argued that, notwithstanding the class action waiver, the arbitration agreement reflected the parties affirmative consent to class and collective arbitration. 

 

The Seventh Circuit began its analysis by observing that "every federal court of appeal to reach the question has held that the availability of class arbitration is a question of arbitrability." 

 

Joining the Fourth, Sixth, Eighth, Ninth, and Eleventh Circuits, the Seventh Circuit determined that whether the availability of class or collective arbitration is a gateway issue that is presumptively for the court, rather than the arbitrator. 

 

The Seventh Circuit reasoned that whether the agreement permits class or collective arbitration required the adjudicator to determine: (1) whether the employer agreed to arbitrate not only with the Plaintiff, but also with members of her proposed class; and (2) whether the agreement to arbitrate covered a particular controversy. 

 

In the Seventh Circuit's view, these issues are typically reserved for the court.

 

The Seventh Circuit also found that class and collective arbitration involve the threshold decision of whether to certify a class.  The arbitrator must investigate a variety of issues incidental to the actual dispute, including whether the putative class meets the requirements in Rule 23(a). 

 

Noting that class and collective arbitration require procedure rigor that bilateral arbitrations do not, and the stakes to the defendant due to the loss of appellate review, the Seventh Circuit concluded that "the district court should conduct the threshold inquiry regarding class or collective arbitrability."

 

Accordingly, the Seventh Circuit vacated the trial court's order enforcing the arbitration award, and remanded the for further proceedings consistent with its opinion.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

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Thursday, December 6, 2018

FYI: N.D. Illinois Joins Other Courts in Limiting Scope of "ATDS" Under TCPA

The U.S. District Court for the Northern District of Illinois recently held that the defendant company did not use an automatic telephone dialing system ("ATDS") because its phone system did not use a random or sequential number generator to store or produce phone numbers to be called.

 

In so ruling, the Court reversed a prior order and now entered summary judgment in favor of the defendant company on the plaintiff's alleged TCPA claim in light of ACA International v. FCC, 885 F.3d 687, 695 (D.C. Cir. 2018).

 

A copy of the opinion is attached.

 

The defendant company's (Company) phone system sent text messages to the plaintiff (Plaintiff) "by pulling her number from a database of stored numbers — an address book — and then automatically sending that number a text message."  The Plaintiff alleged that the Company sent her text messages without her prior express consent using an ATDS and sued the Company for allegedly violating the Telephone Consumer Protection Act. 47 U.S.C. § 227(b)(1)(A)(iii) ("TCPA"). 

 

As you may recall, the TCPA defines an ATDS to be equipment that has the capacity "to store or produce telephone numbers to be called, using a random or sequential number generator." 47 U.S.C. § 227(a)(1). 

 

In 2014, relying on the 2003, 2008, and 2012 FCC rulings that interpreted an ATDS to include systems that dialed numbers taken from a stored list without human intervention, the trial court denied the Company's motion for summary judgment finding that a dispute existed over whether the Company's phone system was an ATDS. 

 

In 2015 the FCC issued a ruling again interpreting the ATDS provision of the TCPA.  30 F.C.C. Rcd. 7961 (2015).  The 2015 FCC decision reaffirmed its prior interpretation that "dialing equipment generally has the capacity to store or produce, and dial random or sequential numbers (and thus meets the TCPA's definition of 'autodialer') even if it is not presently used for that purpose, including when the caller is calling a set list of consumers." 30 F.C.C. Rcd. 7961, 7971–74 (2015) (citing the 2003 and 2008 TCPA Orders).

 

However, the U.S Circuit Court of Appeals for the District of Columbia Circuit in ACA International examined the 2015 FCC decision and "set aside the Commission's explanation of which devices qualify as an ATDS."  The Court of Appeals found the FCC interpretation of an ATDS that included a device that "can call from a database of telephone numbers generated elsewhere" incompatible with the statutory definition that required an ATDS to generate the phone "numbers to be called, using a random or sequential number generator."

 

The Company moved to reconsider summary judgment in light of ACA International arguing that its phone system was not an ATDS because it did not use a random or sequential number generator to store or produce phone numbers to be called.  In response, the Plaintiff argued that there is nothing to reconsider because the District Court denied the summary judgment motion in 2014 based on the 2003, 2008, and 2012 FCC orders issued before the 2015 FCC decision that ACA International set aside.  The Plaintiff maintained that the 2003, 2008, and 2012 FCC orders survived ACA International.  Thus, according to the Plaintiff the 2003, 2008, and 2012 FCC orders remain in effect and still bind the District Court. 

 

The district court acknowledged that it "must apply the FCC's definition of ATDS."  The Court also agreed that the petitions in ACA International only sought review of the 2015 order. 

 

Nevertheless, the Court observed that ACA International set aside the FCC's "treatment of the qualifying functions of an ATDS" and "wiped the slate clean."

 

Further, the Court noted that the 2015 FCC order "reaffirmed" its earlier orders. This necessarily "brought the entire agency definition of ATDS up for review in ACA International."  The ACA International court plainly reviewed all "pertinent pronouncements" the FCC made concerning the ATDS definition of an ATDS. 

 

Thus, the Court concluded that "the FCC's prior orders are no longer binding."

 

Here the Company's phone system did not have the capacity to generate random or sequential numbers to be dialed.  Instead, it only dialed numbers from a stored list. The TCPA requires that a dialing system has the capacity to store or produce telephone numbers, using a random or sequential number generator to qualify as an ATDS. 47 U.S.C. § 227(a)(1).

 

The Court found that the statute "is not ambiguous."  Further, the phrase "using a random or sequential number generator" applies to the numbers to be called.  As such, phone lists created without random or sequential number generation capacity fall outside the statute's ATDS definition.

 

Thus, trial court granted the motion to reconsider in light of ACA International, and because the Company's phone system is not an ATDS, and entered judgment in favor of the defendant company.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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