The US. Court of Appeals for the Fourth Circuit recently affirmed a district court’s denial of the borrowers’ motion for a new trial.
In their appeal, the borrowers argued that 1) a statement made by defense counsel during closing argument was a judicial admission, thereby conclusively resolving whether a “referral” had occurred under Section 8 of the RESPA, 2) the jury’s verdict was against the clear weight of the evidence, 3) the district court erred in permitting evidence and testimony as to the borrowers' economic harm, or lack thereof, and 4) that defense counsel's improper statements during closing argument mandated a new trial.
However, the Fourth Circuit disagreed, pointing out that borrowers' counsel's failure to move the district court to determine whether defense counsel's statement was a judicial admission was an insurmountable hurdle to their appeal.
The Fourth Circuit also held that the borrowers' counsel's failure to move for judgment as a matter of law at the close of trial and the resultant standard of review required it to affirm the judgment below, even though the evidence would have supported a verdict the other way.
Finally, the Fourth Circuit held that the district court did not abuse its discretion when it allowed evidence and testimony as to the borrowers economic harm, or lack thereof, given the relevance of this evidence to the issues at bar, and further declined to remand for a new trial due to certain improper statements made by defense counsel during closing argument.
A copy of the opinion is available at: http://www.ca4.uscourts.gov/Opinions/Published/132131.P.pdf
In this class action lawsuit, the plaintiff borrowers originally brought suit on behalf of a group of consumers alleging that a real estate brokerage and mortgage lender violated Section 8 of the federal Real Estate Settlement Procedures Act (“RESPA”).
Specifically, the borrowers alleged that the defendants created another lender as a joint venture for the purpose of skirting the RESPA’s prohibition on kickbacks, that the real estate broker referred mortgage clients to the lender through the joint venture in exchange for kickbacks, and that the relationship between the two companies was never communicated to the borrowers. They further alleged that the joint venture performed all but no work on the subject mortgage transactions and that the lender was the actual lender.
As you may recall, Section 8 of the RESPA prohibits the provision or acceptance of referral fees or kickbacks in exchange for real estate settlement services in transactions that involve federally related mortgage loans, subject to certain enumerated exceptions. Section 8(a) of RESPA provides the anti-kickback prohibitions, and Section 8(c) enumerates certain exceptions as well as certain conditions to the exceptions. 12 U.S.C. § 2607.
The borrowers’ asserted three RESPA violations in their action:
1) a Section 8(a) claim alleging that the lender paid the real estate broker kickbacks in exchange for settlement services;
2) a Section 8(c) claim alleging that the lender and the real estate broker operated the joint venture as a so-called “sham” lender, funneling the real estate broker’s customers to the lender; and
3) a Section 8(c)(4) claim alleging that defendants were members of an “affiliated business arrangement” and failed to comply with their obligation under RESPA to provide the borrowers with required disclosures.
Originally, the borrowers moved the district court to certify a class for all three of their claims. Ultimately the Court certified a class as to the borrowers’ Section 8(c) and 8(c)(4) claims. However, the district court refused to certify the 8(a) claim given that its members were a further sub-set of the 8(c) and 8(c)(4) classes and could unnecessarily complicate its inquiry into the central issue in the case, namely whether the joint venture was a legitimate lender.
Prior to trial, the district court refined the certified classes by limiting them to class members who were referred to the joint venture by the real estate broker and further excluding any class members whose loans were not transferred to the lender and were otherwise sold on elsewhere. The Court also ruled that “following the upcoming trial, the Court will solicit proposals … related to scheduling a trial of [the borrowers] individual § 8(a) claims.”
In addition, and still prior to trial, the borrowers moved to exclude evidence as to whether they had suffered economic harm. The district court initially agreed, ruling that such evidence was minimally relevant and that its probative value “was substantially outweighed by a danger of unfair prejudice, confusion, misleading the jury, or delay.” However, the district court stated that should the borrowers open the door to such testimony in their case in chief, it would revisit its ruling. The district court ultimately did allow Defendants to ask about whether the borrowers “shopped around” and whether they chose to go with the joint venture due to “better rates, lower costs, or better service.”
During trial on the Section 8(c) and 8(c)(4) claims, certain matters arose which formed the basis of the borrowers’ motion for a new trial, as well as their subsequent appeal. First, the borrowers objected throughout trial to Defendants’ questioning as to whether the borrowers had suffered economic harm by choosing to use the joint venture. Second, during closing argument, the real estate broker’s counsel stated that “I think the only thing I agree [with] for sure is that [the real estate broker] did refer the named plaintiffs to [the joint venture]. There’s not dispute about that.” Third, that Defendants’ counsel stated that the borrowers received good deals on their loans. Finally, the lender’s counsel apparently implied during his closing argument that the borrowers’ counsel had a financial interest in the case and that the lawsuit was a “sham.”
In the end, the jury returned a verdict for the Defendants, finding that the borrowers failed to adequately establish that the joint venture was not a bona fide provider of settlement services. The jury also decided that the borrowers did not prove that the real estate broker referred or otherwise influenced the borrowers to use the lender for settlement services.
As a result of these verdicts, the district court entered judgment in favor of Defendants on all of the borrowers’ Section 8 claims, which notably included the borrowers Section 8(a) claim, as to which the trial court refused to certify a class prior to trial and, as a result, was left untried. The borrowers then moved for new trial pursuant to Federal Rule of Civil Procedure 59(a), arguing, inter alia, that 1) the statement made by counsel for the real estate broker during closing argument was a judicial admission, thereby conclusively resolving the referral issue, 2) the jury’s verdict was against the clear weight of the evidence, 3) that the district court erred in permitting evidence and testimony as to the borrowers' economic harm, or lack thereof, and 4) that defense counsel's improper statements during closing argument mandated a new trial. The borrowers’ motion was denied and the borrowers timely appealed.
In its opinion affirming the district court's denial of the borrowers' motion for new trial, the Fourth Circuit set forth four primary bases for its decision.
First, it disposed of the borrowers’ argument that the real estate broker’s counsel's statement was a judicial admission by reminding the borrowers that they had ample opportunity to raise the issue of the alleged admission prior to the close of trial, but had failed to do so.
Although an attorney's statements may in some instances constitute a “binding admission of a party”, such statements must be “deliberate, clear and unambiguous.” Fraternal Order of Police Lodge No. 89 v. Prince George's Cnty., Md., 608 F.3d 183, 190 (4th Cir. 2010). Here, although the real estate broker's counsel had undoubtedly made a statement that could have been construed as an admission that it referred clients to the joint venture (and thereby to the lender), the borrowers failed to raise any objection or move for any form of relief after the purported admission was made. As a result, the Fourth Circuit held that “the fact that it [did not occur to the borrowers] that this isolated remark constituted a binding admission undercuts the notion that the statement was sufficiently deliberate and clear as to have preclusive effect.” Given the borrowers' failure to take any affirmative steps to have the statement deemed an admission during trial, the Fourth Circuit concluded that it could not be said that “an error occurred in the conduct of the trial that was so grievous as to have rendered the trial unfair.” Bristol Steel & Iron Works v. Bethlehem Steel Corp., 41 F.3d 182, 186 (4th Cir. 1994) (“Bristol Steel”). As such, it held that “the district court did not abuse its discretion on this issue.”
Second, and as to the borrowers' contention that the jury's verdict at trial was against the clear weight of the evidence, the Fourth Circuit pointed out that the borrowers failed to move for judgment as a matter of law prior to moving for a new trial.
In so doing, the borrower’s counsel restricted the Fourth Circuit's standard of review, limiting it to the issue of whether “there was any evidence to support the jury's verdict.” Bristol Steel at 187. As such, the Court made clear that it was bound to affirm the district court's decision unless there was “an absolute absence of evidence supporting the jury's finding that [the borrowers] did not prove by a preponderance of the evidence that [the real estate broker] referred or influenced them to use [the joint venture].” However, the Fourth Circuit stated that while the evidence could certainly have supported a verdict going the other way, it could not conclude that there was an absolute absence of evidence supporting the jury's verdict, and that the “ensuing high bar” resulting from borrowers' failure to move for judgment as a matter of law at the close of trial mandated that the Court affirm the district court's denial of the borrowers' motion for new trial.
Third, the borrowers also challenged the district court's decision to ultimately admit testimony regarding the economic harm, or lack thereof, suffered due to using the joint venture.
As explained above, prior to trial, the district court had originally decided to exclude evidence as to economic harm pursuant to Federal Rule of Evidence 403. Notably, under this rule, “whether the probative value of evidence is substantially outweighed by the danger of unfair prejudice, misleading the jury, or confusion of the issues is within the district court's broad discretion.” United States v. Love, 134 F.3d 595, 603 (4th Cir. 1998). Accordingly, the Fourth Circuit would need to determine that the district court “plainly abused [its discretion].” Id.
In refusing to do so, the Fourth Circuit highlighted that questioning as to whether the borrowers “shopped around for their mortgages and whether they chose [the joint venture] because it offered “better rates, lower costs, or better service” was relevant to “determining whether [the joint venture] was a sham business and whether [the joint venture] independently priced its loans to be competitive in the marketplace.”
Moreover, the Fourth Circuit believed that any potential prejudicial impact was mitigated by the district court's instructions to the jury that the borrowers “are not required to prove they were overcharged by any of the defendants in connection with their loans, or that they incurred any financial detriment, or that they've suffered any poor service.” Rather, the borrowers were only required to prove that “[the joint venture] was a sham because it was not a bona fide provider of settlement services.” Having ruled that Defendants' questioning was relevant and that the district court's mitigating instructions were satisfactory, the Fourth Circuit affirmed the district court's evidentiary rulings on these points.
Finally, as to the borrowers contention that the district court improperly failed to strike or otherwise instruct the jury to disregard the lender's counsel's alleged improper statements during closing arguments, the Fourth Circuit ruled that while statements that the borrowers' lawsuit was a “sham” and that borrowers' counsel had an “interest in the outcome of the case” were inappropriate, the Court ultimately concluded that the district court did not abuse its discretion in refusing to strike or instruct the jury to disregard the statements.
The Fourth Circuit explained that even though the statements were not appropriate and mildly distasteful, they were made during closing argument only, and the district court had instructed the jury that the argument of counsel was not evidence. Because of this, the Fourth Circuit did not believe that these statements influenced the outcome of the case. As such, the Court refused to set aside the ruling of the district court on this issue.
Accordingly, the Fourth Circuit affirmed the judgment of the district court.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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