FYI: 6th Cir Says Two Year Delay Resulted in Waiver of Arbitration Right

The U.S. Court of Appeals for the Sixth Circuit recently held that a delay of over two years before attempting to compel arbitration resulted in waiver of the right to arbitrate.  A copy of the opinion is attached.

 

Plaintiffs filed an action in May of 2007 in federal court against certain mortgage lending defendants for alleged violations of the Servicemembers’ Civil Relief Act.  The matter was litigated in federal court for approximately 26 months before the defendants sought to compel arbitration under the terms of the mortgage documents executed by the Plaintiffs.  The district court denied the Defendants’ motion and the Defendants appealed.

 

Agreeing with the lower court the Sixth Circuit found that, the Defendants in this matter waived their agreement to arbitrate by both “(1) taking actions that are completely inconsistent with any reliance on an arbitration agreement; and (2) delaying its assertion to such an extent that the opposing party incurs actual prejudice.” 

 

Defendants acted inconsistently with their arbitration agreement by filing “multiple dispositive and non-dispositive motions,” including a motion to change venue under which, “Defendants proactively selected the forum in which the wished to defend against Plaintiffs’ claims.”  In addition to Defendants’ conduct, the Sixth Circuit indicated that the length of time alone likely would have been dispositive.  In addition, the Sixth Circuit found that the Defendants’ delay in asserting their right to arbitrate prejudiced the Plaintiffs by causing them to incur costs of over two years active litigation in two federal courts. 

 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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FYI: Cal App Says Loan Mod Claims Not Preempted Under HOLA

A California Appellate Court recently held that two Borrowers’ cause of action against their lender for unfair business practices was properly dismissed because its inclusion in the amended complaint was beyond the scope of the trial court’s order granting leave to amend the original complaint.  The Appellate Court also found that the Borrowers’ cause of action against the lender for breach of the implied covenant of good faith and fair dealing was properly dismissed because it was inadequately plead. 

 

However, the Appellate Court found that the Borrowers’ cause of action for breach of contract was not preempted by the Home Owners’ Loan Act (“HOLA”), and was therefore improperly dismissed by the trial court.  A copy of the opinion is attached.

 

Wachovia Mortgage, FSB and the Borrowers entered into a settlement agreement by which Wachovia agreed to bring the Borrowers account current, and to modify the Borrowers’ home loan in consideration for the Borrowers dismissing their pending action against Wachovia.  Wachovia allegedly failed to bring the Plaintiffs account current, and allegedly failed to modify the loan as agreed.  The Borrowers brought an amended complaint that alleged Wachovia was liable for unfair business practices, for breach of the implied covenant of good faith and fair dealing and for breach of contract.  The trial court determined the Borrowers' claims were preempted by HOLA, and dismissed the complaint without leave to amend.  The Borrowers appealed.

 

With respect to whether the Borrowers’ cause of action for unfair business practices was properly dismissed, the appellate court affirmed the trial court without examining the preemption issue.  The appellate court explained that the Borrowers could not “amend the complaint to add a new cause of action without having obtained permission to do so, unless the new cause of action is within the scope of the order granting leave to amend.”  In this case, “the new cause of action is not within the scope of the order granting leave to amend.” 

 

The appellate court also sustained the trial court’s dismissal of the borrowers’ second cause of action without analyzing the preemption issue.  The appellate court relied on a California Supreme Court decision, which held that, “the tort of breach of the covenant of good faith and fair dealing applies only in the context of insurance contracts…in the absence of violation of an independent duty arising from the principles of tort law.”  As the Borrowers did not sue under an insurance contract and did not allege an independent duty, the appellate court found “they have not stated a cause of action for breach of the covenant of good faith and fair dealing.”

 

Finally, the Court determined that the Borrowers’ cause of action for breach of contract was not preempted by HOLA and the Office of Thrift Supervision’s regulations thereto, specifically 12 C.F.R. 560.2.  There Appellate Court found that Section 560.2 “does not apply to contractual obligations voluntarily undertaken by a federal savings association.”  Dispositive was the fact that the Borrowers were not suing to enforce the lenders obligations to apply payments to their account properly, but were suing “based on the settlement agreement in which Wachovia specifically agreed to credit [Borrowers’] account with the disputed payments.” 

 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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FYI: 5th Cir Says BK Courts May Certify Classes of Debtor-Pls

The U.S. Court of Appeals for the Fifth Circuit recently held that a bankruptcy judge may certify a class of debtor-plaintiffs under certain circumstances, but that the proposed class must satisfy the requirements of Federal Rule of Civil Procedure 23 and Federal Rule of Bankruptcy Procedure 7023.  A copy of the opinion is attached. 

The individual named plaintiffs in this matter each had filed separate Chapter 13 bankruptcy petitions in the Southern District of Texas, and also had a home mortgage either owned or serviced by Wells Fargo.  Plaintiffs brought an adversary proceeding in the bankruptcy court against Wells Fargo, alleging that Wells Fargo charged and/or collected unreasonable and unapproved post-petition professional fees during the pendency of their bankruptcies in violation of 11 U.S.C § 506 and Federal Bankruptcy Rule of Procedure 2016.  Plaintiffs then moved for class certification, which the bankruptcy court granted.  Wells Fargo appealed the class certification on both jurisdictional and procedural grounds, and this opinion followed.

The Fifth Circuit vacated the class certification, but not because the bankruptcy court did not have jurisdiction to certify a class of debtors in this case.  In fact, as to the bankruptcy court's jurisdiction, the Court found that there was federal bankruptcy jurisdiction under 28 U.S.C. § 1334(b), on the grounds that the claims of the named plaintiffs arose during each plaintiff's individual bankruptcy case, and therefore arose under Title 11 for purposes of jurisdiction. The Court further noted that § 1334(b) and 28 U.S.C. §157(a) (which permits district courts to provide that any or all proceedings arising under Title 11 be referred to the district bankruptcy judges) restrict the placement of jurisdiction in the bankruptcy courts, rather than restricting the scope of bankruptcy court jurisdiction. 

Although there is a disagreement among the courts as to whether a bankruptcy judge may certify a class action of debtor plaintiffs, the Fifth Circuit reasoned that, if it ruled that the bankruptcy court had no jurisdiction to certify a class, Fed. R. Bankr. P. 7023, which provides that the requirements for class actions under Fed. R. Civ. P. 23 apply in adversary proceedings, would be "virtually read out of the rules." 

Ultimately, the Court found that, although a bankruptcy judge may certify a class of debtor-plaintiffs,  the adversary action in this case did not satisfy the predominance and superiority prerequisites for a class under Fed. R. Civ. P 23.

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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FYI: 9th Cir Says Allegation of "Overcharge" Not Required Under Section 8 of RESPA

The U.S. Court of Appeals for the Ninth Circuit recently held that RESPA provides a plaintiff with a statutory cause of action under its  anti-kickback provision, 12 U.S.C. § 2607, even if the plaintiff was not overcharged for settlement services.  Accordingly, the Court found that a plaintiff had standing to bring a claim against a title insurance company for violation of RESPA's anti-kickback provision, even though the plaintiff had not alleged an overcharge as a result of the alleged illegal kickback.  A copy of the opinion is attached.

Plaintiff filed a complaint against a title insurance company and its publicly traded holding company alleging that the defendants improperly entered into exclusive agency agreements with numerous title insurance agencies, pursuant to which such agencies agreed to sell defendant's title insurance policies in exchange for the purchase of a minority interest in such agencies.  Plaintiff alleged that these agency agreements were illegal under the anti-kickback provision of RESPA,  12 U.S.C. § 2607, which prohibits the payment of fees and/or kickbacks in connection with a referral related to a real estate settlement service.  Plaintiff further asserted that she was affected by such an exclusive agency agreement in connection with the purchase of her home. 

 

Defendants moved to dismiss the complaint on the grounds that plaintiff lacked both Article III standing and statutory standing.  The district court denied the motion to dismiss and this appeal followed.

The Ninth Circuit affirmed the district court's decision, noting that the only disagreement among the parties was the "injury" requirement for Article III standing.  The Court disagreed with the Defendants argument that plaintiff did not suffer a concrete injury because she did not allege that the charge for title insurance was higher than it would have been with the exclusivity agreement.  In ultimately holding that RESPA gives rise to a statutory cause of action whether or not an overcharge occurred, the Court first noted that the injury required by Article III can exist solely by virtue of statutes creating legal rights. 

 

The Court then went on to hold that the statutory provisions of RESPA are "clear" that a "person who is charged for a settlement service involved in a violation is entitled to three times the amount of any charge paid" (emphasis in original), and does not limit liability to instances in which a plaintiff is overcharged.  The Court also noted that the legislative history of RESPA supported its holding.

 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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 are available on the internet, in searchable format, at: http://updates.kw-llp.com