Friday, October 27, 2017

FYI: Fla App Ct (4th DCA) Holds PSA Insufficient to Prove Foreclosure Standing

In an appeal involving an amicus filed by a national mortgage lending trade association, the District Court of Appeal of the State of Florida, Fourth District, recently reversed a final judgment of foreclosure in favor of a mortgagee, holding that the mortgagee failed to prove that it had possession of the promissory note when the complaint was filed and thus lacked standing to sue because:

 

a) despite the admission of the Pooling and Servicing Agreement into evidence, the evidence was still insufficient to show that the loan was physically transferred; and

 

b) there were discrepancies between the copy of the note attached to the complaint and the original introduced in evidence at trial.

 

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

 

During the trial, the plaintiff mortgagee tried to prove that it possessed the note when the complaint was filed by offering the Pooling and Service Agreement ("PSA") into evidence over the borrowers' hearsay objection.

 

The trial judge admitted the PSA into evidence as a self-authenticating document pursuant to section 90.902 of the Florida Evidence Code because it had been filed with the Securities and Exchange Commission ("SEC"). The trial court then entered a final judgment of foreclosure in the mortgagee's favor, from which the borrowers appealed.

 

On appeal, the Fourth District explained that just because the PSA was self-authenticating didn't mean it was admissible, citing professor Ehrhardt's Florida Evidence hornbook: "Even after a document is authenticated, it will not be admitted if another exclusionary rule is applicable. For example, when a document is hearsay, it is inadmissible even if it has been properly authenticated."

 

The Court reasoned that while "the PSA purportedly establishes a trust of pooled mortgages, [the] particular mortgage [at issue] was not referenced in the documents filed with the SEC … [and] [t]he Bank did not present sufficient evidence through its witness to admit this unsigned document as its business record. While the witness testified that a mortgage loan schedule, which listed the subject mortgage, was part of the Bank's business records, the mortgage loan schedule itself does not purport to show that the actual loan was physically transferred."

 

Because the mortgagee's witness did not explain "the workings of the PSA or [loan schedule]", and no other document or other evidence showed how the note was transferred to the mortgagee pursuant to the PSA, the evidence was insufficient to prove that the note in question "was within the possession of the Bank as Trustee at the time suit was filed."

 

The mortgagee argued that the trial court's ruling should nevertheless be affirmed under the tipsy coachman doctrine, pursuant to which an appellate court may affirm a trial court's ruling, despite flawed reasoning by the trial judge, so long as the record supports the alternative ruling.  In other words, a trial court's incorrect reasoning may be corrected on appeal for any reason that appears in the record.

 

However, the Court here noted that, in order for the doctrine to apply, "the record must be sufficiently developed to support an alternative theory for affirmance". 

 

The Fourth District previously held that there is a "presumption of standing if the note attached to the complaint was the same as the note introduced at trial."  The Appellate Court rejected the mortgagee's argument because "the note attached to the complaint was not in the same condition as the original introduced at trial".

 

The Court reasoned that "[w]here the copy differs from the original, the copy could have been made at a significantly earlier time and does not carry the same inference of possession at the filing of the complaint."  Because the mortgagee did not "explain the discrepancies in the condition of the note attached to the complaint or the original introduced into evidence[,]" the tipsy coachman doctrine did not apply "based on the record made in this case."

 

Having concluded that the mortgagee failed to prove that it had standing to sue, the trial court's judgment was reversed and the case remanded with instructions to vacate the judgment and involuntarily dismiss the complaint.

 

 

 

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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Thursday, October 26, 2017

FYI: 9th Cir Holds No Remand When Only Portion of Putative Class Met CAFA's Home-State Controversy Exception

The U.S. Court of Appeals for the Ninth Circuit recent held that a plaintiff cannot force remand of a federal Class Action Fairness Act ("CAFA") removal under the home-state controversy exception when only a portion of the putative class met the two-third citizenship requirement.

 

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

 

A financial services company ("Defendant") allegedly recorded or monitored its telephone conversations with the plaintiff ("Plaintiff") without giving her notice.  Plaintiff brought this action in California state court alleging (1) invasion of privacy in violation of California and Washington state law, (2) unlawful recording of telephone calls under California law; and (3) violation of California Business and Professions Code § 17200, et seq. 

 

Plaintiff brought her first and third claims on behalf of a class of:

 

[a]ll persons who, while physically located or residing in California and Washington, made or received one or more telephone calls with [Defendant] during the four year period preceding the filing of this lawsuit (the "Class Period") and did not receive notice at the beginning of the telephone call that their telephone conversation may be recorded or monitored[.]

 

After Defendant removed this action to federal court, Plaintiff moved to remand the case back to California state court pursuant to CAFA's home-state controversy exception, 28 U.S.C. § 1332(d)(4)(B).

 

As you may recall, CAFA vests federal courts with original diversity jurisdiction over class actions where (1) the aggregate amount in controversy exceeds $5,000,000; (2) any class member is a citizen of a state different from any defendant; and (3) there are at least 100 class members.  28 U.S.C. § 1332(d)(2), (d)(5)(B).

 

However, CAFA also contains some exceptions which require the federal court to decline to exercise jurisdiction and remand the matter to state court.  28 U.S.C. § 1332(d)(4).

 

Under the home-state controversy exception, a federal trial court must decline to exercise jurisdiction where "two-thirds or more of the members of all proposed plaintiff classes in the aggregate, and the primary defendants, are citizens of the State in which the action was originally filed."  28 U.S.C. § 1332(d)(4)(B).

 

To meet this burden, the moving party must provide "some facts in evidence from which the district court may make findings regarding class members' citizenship."  Mondragon v. Capital One Auto Fin., 736 F.3d 880, 884 (9th Cir. 2013).

 

The magistrate judge ordered Defendant to produce a list of all putative California and Washington class members.  Purportedly complying with the order, Defendant produced a list of over 152,000 persons who had recorded calls with Defendant between October 15, 2009 and May 6, 2016, and had a California or Washington mailing address.

 

Plaintiff's expert analyzed the list produced by Defendant and segregated a random sample of individuals included in that list.  Defendant challenged the expert report because it did not limit the analysis to individuals who had telephone contact with Defendant before the class period ended on October 15, 2013.

 

The expert submitted a supplemental report purporting to be limited to individuals who made or received at least one call with Defendant during the defined class period.  However, the report contained no evidence of individuals who were physically located in, but were not residents of, California or Washington when they made or received a phone call with Defendant.

 

Based on the expert report, the federal trial court found that at least two-thirds of class members were California citizens, and granted Plaintiff's motion to remand.

 

On appeal, the Ninth Circuit had to determine whether two-thirds of class members are California citizens.

 

Initially, as the putative class was defined as all individuals who made or received a telephone call from Defendant "while physically located or residing in California and Washington," the Ninth Circuit determined that the class included individuals who were physically located in, but were not residents of, California or Washington when they made or received a call from Defendant (the "located in" subgroup).

 

During jurisdictional discovery, the trial court ordered Defendant to produce a list of putative California and Washington class members.  In response, Defendant produced a document "which contains a list of [Defendant's] accounts listing California and Washington street addresses with respect to which account telephone calls (to and/or from) were recorded between October 15, 2009 and May 6, 2016."  Plaintiff relied exclusively on its expert's analysis of this list to prove that two-third of all class members are California citizens. 

 

However, the Ninth Circuit found that this list addressed only a portion of the class – those who were "residing in California and Washington" when they made or received a call from Defendant. 

 

The Ninth Circuit noted that the list did not contain information about the size of the "located in" subgroup (i.e., individuals who were physically located in, but were not residents of, California or Washington when they made or received a call from Defendant), and Plaintiff never sought more information about the size of the class after she obtained this list, never appealed the magistrate judge's discovery order, and never argued that the list did not comply with the discovery order.

 

Because Plaintiff did not submit any evidence regarding the size of the "located in" subgroup, the Ninth Circuit could not determine the size of the entire class and whether two thirds class members are California citizens.  Therefore, the Ninth Circuit held that Plaintiff failed to meet her burden to show that the home-state controversy exception applied.

 

Plaintiff also argued that her class definition problem was a red herring because Defendant failed to identify a single non-California or Washington citizen whose telephone conversation it recorded.  However, the Ninth Circuit rejected this argument because Defendant did not have the burden to prove the inapplicability of a CAFA exception.  Instead, Plaintiff as the party seeking remand was required to prove the applicability of a CAFA exception. 

 

Accordingly, the Ninth Circuit vacated the trial court's order remanding the case to state court, and remanded the action to the trial court for further proceedings.

 

 

 

 

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   |   Indiana   |   Maryland   |   Massachusetts   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

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

 

and

 

The Consumer Financial Services Blog

 

and

 

Webinars

 

and

 

California Finance Law Developments