Wednesday, March 28, 2012

FYI: 8th Cir Upholds Rejection of Putative Classwide Challenge of Certain Closing Fees as UPL

The U.S. Court of Appeals for the Eighth Circuit recently held that: (1) the named plaintiff in a putative class action that was removed to federal court lacked standing to bring a claim alleging that certain loan fees were improperly paid for legal services performed by non-lawyers, and (2) the district court should have dismissed for lack of jurisdiction, rather than grant summary judgment for defendants, where the plaintiff was unable to show that she had paid the disputed fees and thus suffered any injury.
A copy of the opinion in available at:
Plaintiff-Borrower filed a putative class action in Missouri state court, claiming that a lending bank and a mortgage broker (collectively "Defendants") violated Missouri law by charging certain loan fees for alleged legal services performed by non-lawyers at the closing of the loan, and that such services constituted the unauthorized practice of law.   Plaintiff-Borrower alleged that the administrative and processing fees associated with her mortgage refinancing loan were for the preparation of legal documents used in the refinancing, and were thus improper under the Missouri statute prohibiting the unlicensed practice of law.
The Defendants removed the case to federal court under the Class Action Fairness Act ("CAFA"), arguing that the Plaintiff-Borrower had not limited the potential class to Missouri consumers and that consideration of a nationwide class was appropriate in determining the amount in controversy.  The district court rejected the Plaintiff-Borrower's motion to remand.  The Plaintiff-Borrower then filed an amended complaint clarifying that the class consisted only of Missouri plaintiffs, and that the amount in controversy did not exceed the jurisdictional threshold for removal.  Ruling that the Plaintiff-Borrower lacked standing because she had not paid the disputed fees, the district court granted Defendants' motion for summary judgment.  Plaintiff-Borrower appealed.
As you may recall, CAFA confers jurisdiction on federal courts over class actions involving more than 100 class members and where the amount in controversy exceeds $5 million and there is minimal diversity among the parties. 28 U.S.C. § 1332(d). 
The Eighth Circuit began it analysis by noting that jurisdiction is determined at the time of removal, and that Plaintiff-Borrower's operative complaint did not limit the potential class to Missouri plaintiffs.  The Court of Appeals thus ruled that because a nationwide class was a possibility under the original complaint, the amount in controversy may have exceeded the jurisdictional threshold for removal under CAFA.  The Court further noted that the Plaintiff-Borrower failed to meet her burden to establish to a "legal certainty" that the amount in controversy at the time of removal was for less than $5 million.  Accordingly, the Court of Appeals ruled that the lower court properly denied Plaintiff-Borrower's motion to remand.
Turning to the issue of Plaintiff-Borrower's standing, the Court noted that the Plaintiff-Borrower was unable to substantiate her allegations of financial injury by affidavit or other evidence in order to withstand the Defendants' motion for summary judgment.  In so doing, the Court relied on the loan settlement statement and witness testimony to reject the Plaintiff-Borrower's assertion that she paid the disputed fees -- and thus that she paid for alleged unauthorized legal services -- either directly with the money she brought to the loan closing or indirectly through a higher interest rate on her loan.  The Court also rejected the Plaintiff-Borrower's arguments for additional discovery time and judicial notice of legislative materials related to yield spread premiums under TILA and RESPA.
The Eighth Circuit concluded that, because Plaintiff-Borrower was unable to show that she had paid the disputed fees, there was no need to address the question of whether those fees were for services performed by non-lawyers. Thus, the Court ruled that, as the Plaintiff-Borrower had not shown injury, she lacked standing to bring her claim, and that, rather than reaching the merits of Defendants' motion for summary judgment, the lower court should have dismissed for lack of jurisdiction.

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

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