Friday, November 25, 2011

FYI: 6th Cir Upholds Striking Class Claims Prior to Motion for Class Certification

The U.S. Court of Appeals for the Sixth Circuit recently upheld the lower
court's order granting a motion to strike the plaintiffs' class action
claims, as those claims would have required the court to analyze each
class member's claim under the law of his home state, a task potentially
involving 50 different states. The court also held that the district
court's ruling on class certification, made prior to the plaintiffs having
filed a motion for class certification, was not premature.

A copy of the opinion is available at:
http://www.ca6.uscourts.gov/opinions.pdf/11a0289p-06.pdf.

Defendants offered a healthcare program, which, in exchange for a
membership fee, provided healthcare at reduced rates to program members
through the program's network of healthcare providers. After joining the
program, Plaintiffs-Appellants found that certain healthcare providers
listed in the network's informational materials did not participate in the
program in their area.

Plaintiffs sued in federal court claiming in part that Defendants engaged
in deceptive advertising in violation of Ohio's consumer protection law,
because the program failed to deliver the advertised healthcare providers
and was promoted as "free," even though the program charged a
nonrefundable registration fee along with a monthly membership fee. The
Plaintiffs also sought to represent a nationwide class of all the people
who had joined the program. The district court exercised jurisdiction
pursuant to the Class Action Fairness Act of 2005, which grants
jurisdiction over class actions in which the amount in controversy exceeds
$5 million and the parties are minimally diverse. See 28 U.S.C. §
1332(d).

One of the defendants filed a motion to dismiss, which the court granted,
because that defendant was too far removed from the alleged transactions.
The second defendant, responsible for marketing the healthcare program
around the country, filed a motion to strike the class allegations before
the Plaintiffs had conducted extensive discovery and filed a motion to
certify the class.

The district court granted the motion to strike, because Ohio's
choice-of-law rules would have required the court to analyze each class
member's claim under the law of his home state, a task potentially
involving 50 different states. The court reasoned that such an analysis
would render a class action "unmanageable" and would "dwarf" the
commonality of fact required in class actions. The district court then
dismissed for lack of subject matter jurisdiction, because without the
class allegations, the amount in controversy of Plaintiffs' surviving
claims did not exceed the $75,000 jurisdictional threshold. Plaintiffs
appealed, and the Sixth Circuit affirmed.

Focusing on the motion to strike the class allegations, the Court of
Appeals examined the requirements for obtaining class certification under
Rule 23 of the Federal Rules of Civil Procedure (Rule 23). The Sixth
Circuit held that the district court properly concluded that Rule
23(b)(3)'s predominance requirement was not satisfied. The Court of
Appeals noted that "each class member's claim would be governed by the law
of the State in which he made the challenged purchase, and the differences
between the consumer-protection laws of the many affected States would
cast a long shadow over any common issues of fact plaintiffs might
establish."

Thus, the Sixth Circuit affirmed lower court's order striking the class
claim, as the claims of individual class members failed to satisfy the
requirement that common issues of law or fact predominate among the
proposed nationwide class.

The Court set forth three reasons in support of the district court's
conclusion. First, the various factors Ohio courts consider under its
choice-of-law rules indicated that the potential class members' individual
claims would be governed by the consumer-protection laws of each potential
class members' home State. Specifically, following the Ohio Supreme
Court's choice-of-law analysis in Morgan v. Biro Mfg. Co., 474 N.E.2d 286
(Ohio 1984), the appellate court noted that as the State with the
strongest interest in regulating deceptive or fraudulent conduct is the
State where the consumers are harmed by such conduct, "no common legal
issues favor a class-action approach" in this case.

Second, citing the United States Supreme Court's opinion in Wal-Mart
Stores, Inc. v. Dukes, 564 U.S. __, 131 S. Ct. 2541 (2011), the Court of
Appeals noted that the operation of the healthcare program varied from
state to state and thereby resulted in distinct individualized injuries to
the potential class members, and that program advertisements in different
states reflected the different requirements of each state's
consumer-protection laws. As the court remarked,"[w]here and when
featured providers offered discounts is a prototypical factual issue that
will vary from place to place and from region to region." Thus, the
differences in the nature of claims, injuries and defenses precluded the
existence of a predominant factual overlap sufficient to compensate for
the lack of a common legal standard.

Third, the court also noted that other circuit courts have similarly
concluded that a single nationwide class action is unmanageable and
impractical where claims would have to be adjudicated under the laws of
so many different jurisdictions.

In affirming the lower court's order striking the class claims, the
appellate court rejected the Plaintiffs' argument that had they been given
more time to conduct discovery, they would have been able to offer
persuasive arguments for class certification. Noting that Rule 23
requires class certification to be decided "[a]t an early practicable
time" in the litigation and that the motion to strike the class
allegations served as the catalyst for doing so, the Court concluded that
the timing of the district court's disposition of the class certification
issue -- before the Plaintiffs filed a motion for certification -- was not
premature.


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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Monday, November 21, 2011

FYI: Ill App Ct Holds Attempt to Rescind Under TILA w/in Three Years of Closing Was Too Vague

The Illinois Appellate Court for the First District recently confirmed
that an attempt to rescind a mortgage loan made more than three years
after the borrowers received the mortgage was untimely, and held that the
borrower's earlier alleged attempt at rescission within the three-year
period was inadequate, as it was not a written communication that clearly
stated that the borrower was rescinding the loan.

A copy of the opinion is available at:
http://www.state.il.us/court/Opinions/AppellateCourt/2011/1stDistrict/Nove
mber/1103115.pdf

The borrowers defaulted on their mortgage loan, and the investor
instituted a foreclosure action. In the course of settlement
negotiations, the borrowers frequently alleged TILA violations, and
threatened to rescind the subject Note and Mortgage. In one letter, the
borrowers included an unfiled counterclaim, which stated that "[t]he
borrowers, by the filing of this action, elect to rescind the subject
transaction." The borrowers provided the investor's counsel with this
unfiled counterclaim within three years of receiving their mortgage.

The borrowers filed their counterclaim "exactly three years and one day"
after they entered into the loan agreement. In addition to attempting to
rescind the loan, the borrowers' counterclaim sought damages under TILA.
The lower court dismissed the counterclaim on the basis that it was
untimely.
The borrowers appealed, contending among other things that (1) that their
election to rescind was timely; and (2) even if it was not, the election
should survive under a "right of rescission in recoupment under state
Law."

As you may recall, TILA provides that "[a]n obligor's right of rescission
shall expire three years after the date of the consummation of the
transaction." 15 U.S.C. Sec. 1635(f) (2006). TILA's implementing
regulation provides that "[t]o exercise the right to rescind, the consumer
shall notify the creditor of the rescission by mail, telegram, or other
means of written communications." 12 C.F.R. Sec. 226.23(a)(2) (2006).

The Court began its analysis by noting that the Supreme Court held that
TILA "completely extinguish[es] the right of rescission at the end of the
three year period." Beach v. Ocwen Federal Bank, 523 U.S. 410, 412-14
(1998).

Finding that holding unambiguous, the Court turned its attention to the
manner in which a borrower must provide notice to the creditor under TILA,
which it found to be an issue of first impression in Illinois. Based on
the plain language of TILA and its implementing regulation, the Court held
that TILA "requires that the written communication clearly state that the
borrower is rescinding the mortgage in the present; it nowhere speaks of
merely notifying the creditor of an intention to rescind at some
unspecified point in the future."

Under the facts at issue here, the Court observed that none of the
borrowers' communications contained an unqualified statement of the
borrowers' intention to rescind the loan. In particular, the borrowers'
counterclaim stated that the borrowers' intended to rescind the loan "by
the filing of this counterclaim."

However, the counterclaim was not timely filed. Therefore, the Court held
that the borrowers "failed to rescind their loan within the three-year
statute of repose" imposed by TILA.
The Court next examined the borrowers' contention that they should be
allowed to proceed under a "defense in recoupment" per Illinois law. The
Court found that a recent decision held that "Illinois law.does not
authorize an action in recoupment in defense of foreclosure actions
brought outside of the three-year requisite period." Wells Fargo Bank,
N.A. v. Terry, 401 Ill App 3d 18 (2010) ("Terry").

In Terry, the court held that under Illinois law, the right of rescission
would only survive the expiration of the three-year period if the relevant
portion of TILA were a statute of limitations. Id. at 21.

However, the U.S. Supreme Court in Beach v. Ocwen held that TILA is a
statute of repose. See Beach v. Ocwen, 523 U.S. at 417. Therefore, the
Court held that the borrowers' argument failed, and their rescission claim
was properly dismissed.


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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FYI: Mich Sup Ct Says MERS Has Statutory Authority to Foreclose

The Michigan Supreme Court recently held that MERS, as an "undisputed
record holder of a mortgage," has statutory authority to foreclose. (Our
prior update regarding the appellate court's opinion in this matter, which
the Michigan Supreme Court now reversed, is below.) A copy of the
Michigan Supreme Court's ruling is attached.

A borrower obtained a mortgage loan that provided for rights of
foreclosure by the designated Mortgagee, MERS. MERS foreclosed on the
property by advertisement, and quitclaimed it to successor lender
("Plaintiff"). The borrower challenged the foreclosure, on the grounds
that MERS did not have statutory authority to foreclose under Michigan
law.

As you may recall, Michigan law allows a party to foreclose a mortgage by
advertisement if, among other things, that party owns an interest in the
indebtedness secured by the mortgage. See MCL 600.3204(d)(1).

The lower court rejected the borrower's argument, and borrower appealed.
A Michigan Court of Appeals overruled the lower court's decision, holding
that MERS "only held an interest in the property as security for the note,
not an interest in the note itself." Accordingly, the Court of Appeals
held that MERS did not have authority to foreclose.

The Michigan Supreme Court reversed the Court of Appeals, holding that
MERS held an interest in the indebtedness, and therefore had the authority
to foreclose.

In so doing, the Court noted that the interest in the indebtedness held by
MERS "does not equate to an ownership in the interest in the Note."
Instead, the Court found that "MERS owned a security lien on the
properties, the continued existence of which was contingent upon the
satisfaction of the indebtedness." Because MERS had an interest in the
indebtedness, the Court held that MERS was authorized to foreclose under
Michigan law.

The Court further explained that it found no indication that the Michigan
Legislature intended to "establish a new legal framework in which an
undisputed record holder of a Mortgage, such as MERS, no longer possesses
the statutory authority to foreclose." Instead, the Court held that the
Legislature's use of the phrase "interest in the indebtedness" includes
mortgagees of record, as well as owners and servicers of the debt.

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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error, or if you wish to be removed from our update distribution list,
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__________________________________________________________________________
_________

Subject: FYI: Mich App Says MERS Not Allowed to Foreclose by
Advertisement Under Mich Law
Date: Mon, 25 Apr 2011 11:26:53 -0500
From: Ralph Wutscher <rwutscher@mtwllp.com>
To: rwutscher@mtwllp.com
CC: socaloffice@kw-llp.com, dcoffice@kw-llp.com,
chicagooffice@kw-llp.com


A Michigan Court of Appeals recently held that Mortgage Electronic
Registration Systems ("MERS"), the mortgagee under the security instrument
for a home mortgage loan, but not the holder of the note evidencing the
debt for that loan, could not exercise its contractual right to foreclose
by advertisement pursuant to the applicable Michigan law, MCL
600.3204(d)(1). A copy of the opinion is attached.

Defendant-borrower ("Borrower") obtained a home mortgage loan which
included a security instrument that provided for rights of foreclosure by
the designated mortgagee, MERS. However, MERS was not the owner of the
debt and did not hold or service the subject loan. After the Borrower
defaulted on his loan, MERS began non-judicial foreclosure by
advertisement, purchased the property and then quit-claimed the property
to successor lender ("Plaintiff"). When Plaintiff began an eviction
action, Borrower challenged the foreclosure, arguing that MERS did not
have authority to foreclose by advertisement because it did not qualify as
a mortgagee permitted to do so under MCL 600.3204(d)(1). The lower court
rejected Borrower's arguments and Borrower appealed.

As you may recall, Michigan law allows a party to foreclose a mortgage by
advertisement if, among other things, that party owns an interest in the
indebtedness secured by the mortgage. See MCL 600.3204(d)(1). The Court
first held that where, as here, the "indebtedness is solely based upon the
note," a party "must have a legal share, title, or right in the note" in
order for that "party to own an interest in the indebtedness" under MCL
600.3204(d)(1). Further, an "interest in the mortgage" is insufficient
because "the note and the mortgage are two different legal transactions
providing two different sets of rights, even though they are typically
employed together."

The Court next held that "MERS did not have the authority to foreclose by
advertisement on Borrower's property." The Court reasoned that "it was
the Plaintiff that lent the Borrower money pursuant to the terms of the
note," and not MERS as mortgagee, which "only held an interest in the
property as security for the note, not an interest in the note itself."
"Moreover, the mortgage specifically clarified that, although MERS was the
mortgagee, MERS held 'only legal title to the interest granted' by
Borrower in the mortgage." "Consequently, the interest in the mortgage
represented, at most, an interest in Borrower's property. MERS was not
referred to in any way in the note and only Plaintiff held the note."

The Court also rejected various arguments set forth by the plaintiff
mortgage loan investor. First, the Court denied that "MERS was a
contractual owner of an interest in the note based on the agreement
between MERS and the lenders" because "MERS had no right to possess the
debt, or the money paid on it." In addition, "the fact that the
originating lender gave MERS authority to take 'any action required of the
Lender' did not transform MERS into an owner of an interest in the note."
The "contract language expressly limits the interests MERS owns to those
granted in the mortgage instrument and limits MERS' right to take action
to those actions related to the mortgage instrument."

The Court also rejected the plaintiff mortgage loan investor's argument
"that MERS had the authority to foreclose by advertisement as the agent or
nominee for the originating lender, who held the note and an equitable
interest in the mortgage." The Court reasoned that the "statute
explicitly requires that, in order to foreclose by advertisement, the
foreclosing party must possess an interest in the indebtedness," and
"simply does not permit foreclosure in the name of an agent or a nominee."

The plaintiff mortgage loan investor also argued that the Michigan
legislature did not create three distinct categories of entity which could
foreclose by advertisement, but rather envisioned a continuum of entities:
those that actually own the loan, those that service the loan, and some
ill-defined category which might be called "everything in between."
However, the Court found no language in the statute providing for a
"continuum," no analysis from the plaintiff mortgage loan investor of what
the "continuum" constitutes, and therefore found no merit in that
position.


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
RWutscher@kw-llp.com
http://www.kw-llp.com

NOTICE: We do not send unsolicited emails. If you received this email in
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