Tuesday, July 5, 2011

FYI: Fed Dist Ct Rules Largely in Favor of Borrowers in HELOC-Suspension MDL

Judge Pallmeyer in the U.S. District Court for the Northern District of
Illinois recently ruled in favor of the borrowers on a number of issues in
a multi-district litigation putative class action pending against JPMorgan
Chase Bank, N.A. ("Chase") relating to its suspensions and reductions of
HELOCs. The opinion also references rulings from other similar cases
against different lenders. A copy of the opinion is attached.

The putative class plaintiffs allege that Chase reduced or suspended their
HELOCs without a permissible reason for doing so, in alleged violation of
the federal Truth-in-Lending Act. The putative class plaintiffs also
allege that Chase's suspension or reduction of their HELOCs, and the
manner in which those reductions or suspensions were carried out,
constitute breach of contract, breach of the implied covenant of good
faith and fair dealing, unjust enrichment, and violations of California,
Illinois, and Minnesota consumer protection laws.

Chase moved to dismiss the complaint in its entirety, arguing that federal
law and relevant contractual provisions permit Chase to reduce or suspend
the subject HELOCs, and asserting other grounds.

The court concluded that the putative class plaintiffs adequately pleaded
a violation of TILA by alleging that Chase suspended or reduced HELOCs in
the absence of a significant decline in the value of the property securing
the HELOC. According to the court, although the alleged failure of Chase
to consider present available equity, the alleged use of "automated
valuation models," the alleged use of "unlawful triggering events," and
the alleged reduction or suspension absent a "sound factual basis" are not
independent bases for relief, the court held that those alleged practices
are, however, relevant in considering whether Chase reduced or suspended
HELOCs even though the properties securing them suffered no significant
decline in value.

The court denied Chase's motion to dismiss the claims for declaratory
relief, as according to the court such relief may be sought as an
alternative to the remedies provided for by TILA, and the statutory
damages available under TILA might not adequately compensate each putative
class member.

The court also held that the putative class plaintiffs' allegations that
Case reduced or suspended their HELOCs without adequate justification are
sufficient to state claims for breach of contract under Minnesota,
California, Texas and Delaware law.

In addition, the court held that the putative class plaintiffs properly
alleged unfair conduct claims under the California, Illinois and Minnesota
UDAP laws.

Ralph T. Wutscher
McGinnis Tessitore 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@mtwllp.com

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