FYI: Ill App Ct Rejects Borrower's Challenge to Foreclosure Based on Timing of Notice of Motion for Confirmation of Sale

The Illinois Appellate Court, Second District, recently upheld a post-foreclosure confirmation of a judicial sale, rejecting a borrower's claim that a bank's sending of a "Notice of Motion" prior to the scheduled judicial sale violated section 15-1508(b) of the Illinois Code of Civil Procedure.  In so doing, the Court ruled that the language in section 15-1508(b), "which motion shall not be made prior to sale," applied only to the motion to confirm the sale, which was made after the Sheriff's Sale, and not to the related notice of motion.

 

A copy of the opinion is available at:  http://www.state.il.us/court/Opinions/AppellateCourt/2013/2ndDistrict/2120593.pdf

 

Plaintiff bank ("Bank") filed a foreclosure action against defendant borrower ("Borrower"), among others.  Bank was ultimately granted summary judgment in its favor.   Almost a month before the scheduled sheriff's sale of the property, Bank mailed Borrower a "Notice of Motion" stating that after the sale date it would appear before the court and move for an order approving the sale and an order for possession.   The day after mailing out its notice of motion, Bank filed the actual notice, but did not include a written motion along with it. 

 

The sheriff's sale took place, and, on the date Bank moved for confirmation of the sale, the trial court approved the sale.  Borrower also filed "Objections to Notice of Confirmation of Sale," contending only that the confirmation of sale was fatally flawed under section 15-1508(b) of the Illinois Code of Civil Procedure ("Section 15-1508(b)") because Bank's notice of motion to confirm the sale was made prior to the sale date.  

 

Borrower appealed, arguing that Section 15-1508(b) prohibits the notice and motion from being made prior to the sheriff's sale.  The Appellate Court affirmed, concluding that Section 15-1508(b) prohibits only the motion from being made prior to the sale, but not the notice of motion.

 

As you may recall, Section 15-1508(b) provides:  "Upon motion and notice in accordance with court rules applicable to motions generally, which motion shall not be made prior to sale, the court shall conduct a hearing to confirm the sale."  735 ILCS 5/15-1508(b).

 

Parsing the language of Section 15-1508(b), the Appellate Court stressed that Borrower's assertion was "patently incorrect," pointing out that had the Illinois legislature intended to prohibit both the motion and notice from being made prior to sale, it would not have separated out as a stand-alone clause the phrase "which motion shall not be made prior to sale" from the rest of the provision.  As the Appellate Court explained, the more complicated phrasing clearly showed the legislature's intent that the "shall not be made prior to sale" clause apply only to the motion to confirm the sale and not to the notice. 

 

In so doing, the Appellate Court noted that: (1) Borrower's sole challenge to the sale confirmation was based on the claim that the notice of motion must postdate the sale; and (2) Bank actually moved for confirmation after the sale date when it filed its written motion.  

 

Accordingly, concluding that Borrower's claim failed, the Appellate Court affirmed the lower court's confirmation of the sheriff's sale.

 

 

 

Ralph T. Wutscher
McGinnis 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: US Sup Ct Holds Prevailing Debt Collector Entitled to Costs w/o Finding of Bad Faith or Harassment

The U.S. Supreme Court recently upheld an award of costs to a prevailing defendant debt collector in an action under the federal Fair Debt Collection Practices Act, even though there was no finding under section 1692k(a)(3) that the plaintiff consumer brought the case "in bad faith and for the purpose of harassment." 

 

A copy of the opinion is available at:  http://www.supremecourt.gov/opinions/12pdf/11-1175_4fc5.pdf

 

Plaintiff borrower ("Borrower") defaulted on her student loan debt.  Defendant debt collection agency ("Debt Collector") was hired to collect on the debt.  Borrower later filed an action under the federal Fair Debt Collection Practices Act ("FDCPA"), alleging that Debt Collector violated the FDCPA by harassing her with phone calls and making various false threats against her. 

 

Debt Collector made an offer of judgment under Fed. R. Civ. P. 68 to pay borrower a settlement amount, along with reasonable attorney's fees and costs.   Instead of responding to the settlement offer, Borrower amended her complaint to add another claim that Debt Collector improperly sent her workplace a fax seeking information about her employment status.

 

After a bench trial, the district court concluded that Borrower had failed to prove any violation of the FDCPA.  As the prevailing party, Debt Collector submitted a bill of costs and expenses.  Pursuant to Fed. R. Civ. P. 54(d)(1), the district court ordered Borrower to pay Debt Collector over $4,000.

 

Borrower moved to vacate the award of costs, arguing that the court lacked authority to award costs under Fed. R. Civ. P. 54(d)(1) and 68(d) because 15 U.S.C. 1692k(a)(3) was the exclusive basis for awarding costs in FDCPA cases.  The district court disagreed, and ruled in part that section 1692k(a)(3) did not override a court's discretion to award costs under Rule 54(d)(1).    Borrower appealed.  The Tenth Circuit affirmed.

 

The United States Supreme Court granted Borrower's petition for certiorari to determine whether section 1692k(a)(3) precluded an award of costs under Rule 54(d)(1). 

 

The Court affirmed the judgment of the Tenth Circuit, addressing the assertions of both Borrower and the United States, which filed an amicus brief in this case.

 

As you may recall, Rule 54(d)(1) provides in part:  "Unless a federal statute, these rules, or a court order provides otherwise, costs – other than attorney's fees – should be allowed to the prevailing party."  Fed. R. Civ. Pro. 54(d)(1).

 

In addition, the federal Fair Debt Collection Practices Act provides in pertinent part:  "Except as otherwise provided by this section, any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person in an amount equal to the sum of . . . (3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney's fee as determined by the court.  On a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney's fees reasonable in relation to the work expended and costs."  See 15 U.S.C. § 1692k(a).

 

First, defining the term "provides otherwise" in Rule 54(d)(1) as meaning "contrary" to Rule 54(d)(1), the Supreme Court reasoned that a statute is "contrary" to Rule 54(d)(1) if it limits a court's discretion to award costs, such as where a statute specifies that "plaintiffs shall not be liable for costs" or provides that plaintiffs may recover costs only under certain conditions.  

 

Noting, however, that a statute which provides, for example, that "the court may award costs to the prevailing party," is not contrary to Rule 54(d)(1) because it does not limit a court's discretion, the Supreme Court rejected Borrower's assertion that any statute that specifically provides for costs automatically displaces Rule 54(d)(1).   In so doing, the Court specified that in order to displace Rule 54(d)(1), statutes would have to set forth a standard for awarding costs that differed from, i.e., was contrary to, that articulated in Rule 54(d)(1). 

 

Applying this standard here, the Supreme Court next analyzed whether section 1692k(a)(3) was contrary to Rule 54(d)(1), ultimately concluding that it was not.  In so ruling, the Court noted that although section 1692k(a)(3) expressly authorizes the award of attorney's fees and costs where an FDCPA action is "brought in bad faith and for the purpose of harassment," such was not the circumstance in this case.  Rather, the Court stressed, the question here was whether section 1692k(a)(3) precluded an award of costs under Rule 54(d)(1), which independently authorizes courts to award costs to prevailing parties. 

 

In reaching its conclusion, the Court rejected Borrower's various assertions, including the arguments that: (1) by specifying that a court may award costs when an action is brought in bad faith and for the purpose of harassment, section 1692k(a)(3) creates a negative implication whereby the absence of bad faith and harassment precludes the award of costs; (2) section 1692k(a)(3) is the exclusive basis for awarding costs in FDCPA cases; and (3) the phrase "and costs" is superfluous under the Court's interpretation.  In so doing, the Court examined the context in which section 1692k(a)(3) was created, including the existence of Rule 54(d)(1) and its general grant of authority to allow a court to award costs to the prevailing party, and the fact that section 1692k(a)(3) was a codification of the generally accepted background presumptions for awarding attorney fees and costs.

 

Reading the second sentence in section 1692k(a)(3) in the context of the preceding sentence, the Court further reasoned in part that the use of explicit language in other statutes to limit a court's discretion under Rule 54(d)(1) cautioned against inferring a similar limitation under section 1692k(a)(3), noting that had Congress intended the second sentence of section 1692k(a)(3) to displace Rule 54(d)(1), it could easily have done so by adding the word "only" before the phrase "[o]n a finding by the court that an action . . . was brought in bad faith and for the purpose of harassment. . . ."

 

Concluding that section 1692k(a)(3)'s second sentence is not contrary to Rule 54(d)(1), the Court ruled that it did not displace the district court's discretion to award costs under that Rule in FDCPA cases, even without a finding that the plaintiff brought the case in bad faith and for the purpose of harassment.

 

Accordingly, the Supreme Court affirmed the award of costs to the prevailing Debt Collector in this case. 

 

 

 

 

Ralph T. Wutscher
McGinnis 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

 

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:
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FYI: 9th Cir Holds CAFA Removal Based on Amended Putative Class Complaint Was Timely

Reversing the lower court's ruling, the U.S. Court of Appeals for the Ninth Circuit recently held in a putative class action against an assignee finance company that, where the plaintiff's original complaint did not sufficiently state the amount in controversy to support removal on the basis of diversity jurisdiction pursuant to the federal Class Action Fairness Act, removal within thirty days after the filing of an amended complaint that did sufficiently state the amount in controversy was timely. 

 

In ruling that the thirty-day period for removal only began to run after the filing of the amended complaint, the Court: (1) noted that the amended complaint's addition of a new proposed class introduced the minimal diversity required under CAFA; and (2) stressed that the assignee finance company was under no obligation to supply information beyond what was stated in the original complaint in order to determine whether the initial complaint set forth an amount in controversy that exceeded CAFA's $5 million threshold.

 

A copy of the opinion is available at:  http://cdn.ca9.uscourts.gov/datastore/opinions/2013/02/25/12-57330.pdf

 

Plaintiff consumer ("Consumer") bought a German luxury car from a car dealer ("Dealer"), financing the purchase with a Retail Installment Sales Contract ("RISC").  In a section of the RISC titled "Itemization of the Amount Financed Section" was the notation "N/A" for "not applicable," referring to registration and titling fees.  The RISC also contained an arbitration provision of which Consumer was supposedly unaware. 

 

About a week after Consumer's purchase, Dealer informed her that the financing for her car did not go through and that she would need to either return the car she had purchased or make a down payment as part of a new financing deal.  As a result, Consumer rescinded the original RISC and executed a new one, which was back-dated to match the date of the original RISC.  The second RISC also contained an arbitration clause as well as the same "N/A" notation.  Financing was successful after the second attempt, and Consumer's promissory note was later sold and assigned to the defendant finance company ("Finance Company").

 

Over two years later, Consumer filed a putative class action law suit in California state court against Dealer and Financing Company, asserting various state-law causes of action, including alleged violations of the California Consumer Legal Remedies Act, Cal. Civ. Code § 1750 et seq., and the California Automobile Sales Finance Act, Cal. Civ. Code § 2981 et seq.   The initial complaint proposed two classes:  one composed of customers with backdated RISCs that included the arbitration clauses and the other consisting of customers whose RISCs' allegedly indicated falsely that registration and/or titling fees were not applicable to their car purchases.  Without specifying a total sum for class-wide damages, Consumer sought statutory damages as well as other relief.

 

In state court, Consumer stated in a Case Management Conference Statement ("CMC Statement") that she may amend her complaint to plead a separate class on behalf of consumers whose RISCs were transferred to Finance Company.  Shortly after filing the CMC Statement, Consumer was granted permission to file an amended complaint and, accordingly, filed an amended complaint adding a third proposed class.  The third class consisted of car purchasers whose RISCs had been transferred to Finance Company, which RISCs failed to disclose registration or titling fees.

 

Finance Company then removed the case to federal court pursuant to the federal Class Action Fairness Act of 2005 ("CAFA") within a month of Consumer's filing of the amended complaint.  Finance Company claimed in part that a post-amended complaint search of its business records revealed that the number of potential members in the third class exceeded 100 and that the dollar amount of RISCs in that class exceeded $10 million. 

 

Consumer moved to remand, arguing the Finance Company's removal was untimely because more than 30 days had passed since the filing of her original complaint.  The district granted Consumer's motion.  Finance Company appealed the remand order. 

 

The Ninth Circuit reversed, ruling in part that because the amount in controversy was not sufficiently stated in the initial complaint, all the facts necessary for diversity jurisdiction under CAFA had not been pled to allow defendant to ascertain whether the case was removable.

 

As you may recall, CAFA confers federal jurisdiction where:  (1) there is minimal diversity between the parties; (2) the proposed class has at least 100 people; and (3) the amount in controversy exceeds $5 million.  See 28 U.S.C. § 1332(d). 

 

In addition, a defendant faces either of two potentially applicable thirty-day periods for removal.  The first thirty-day period starts running if the case stated in the initial pleading is removable on its face.  28 U.S.C.  § 1446(b) ("Section 1446(b)"); Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 885 (9th Cir. 2010).  The second thirty-day removal period kicks in if the initial pleading does not indicate that the case is "removable," and the defendant receives "a copy of an amended pleading, motion, order or other paper" from which removability may be first ascertained.  Carvalho, 629 F.3d 876 at 885.

 

Noting that Section 1446 does not define "removable," the Ninth Circuit recognized that removability may not be readily apparent from the face of a complaint, stressing that the basis for removal must be "revealed affirmatively in the initial pleading" in order to trigger the first thirty-day period for removal.  See Harris v. Bankers Life & Cas. Co., 425 F.3d 689, 695 (9th Cir. 2005); Carvalho, 629 F.3d at 886.

 

Next, rejecting Finance Company's assertion that the number of class members was indeterminate, the Ninth Circuit reasoned that the initial complaint's reference to "hundreds of affected consumers" would satisfy CAFA's numerosity requirement.  However, as to CAFA's amount-in-controversy requirement, the Court ultimately concluded that Financing Company was not required to supply information not provided in Consumer's initial complaint in order to arrive at a valuation of class members' RISCs. 

 

In so ruling, the Ninth Circuit rejected Consumer's assertion that, although Finance Company could have consulted its business records after receipt of the initial complaint to identify a representative valuation, it had no obligation to do so even though it chose to consult its records once the amended complaint was filed, adding a third class.  

 

In observing that the lower court had roughly calculated on its own that the amount in controversy in the original complaint exceeded CAFA's $5 million threshold by estimating that the average contract value was likely at least  $25,000, the Ninth Circuit nevertheless emphasized that the time period for removal does not start running until defendants have "received a piece of paper that gives them enough information to remove."  See Durham v. Lockheed Martin Corp., 445 F.3d 1247, 1251 (9th Cir. 2006).   As the Ninth Circuit explained, because Consumer's initial complaint failed to indicate that "the amount demanded by each putative class member exceed[ed] $25,0000," the initial complaint did not trigger the initial thirty-day removal period under Section 1446(b). 

 

Having determined that the original complaint did not trigger Section 1446(b)'s initial thirty-day removal period, the Ninth Circuit also rejected Consumer's argument that Finance Company's removal was untimely partly because Finance Company did not remove within thirty days of its receipt of "an order or other paper" from which removability could be ascertained -- that is, Consumer's Statement that she would file an amended complaint.   In so doing, the Ninth Circuit recognized that removal prior to the actual filing of the amended complaint would have been improper.

 

Finally, the Ninth Circuit declined to decide whether to join other federal appellate courts in recognizing a "revival exception" that Finance Company argued would give it an additional thirty days to remove when Consumer added a potential third class of plaintiffs.

 

Accordingly, the Ninth Circuit reversed and remanded.

 

 

 

Ralph T. Wutscher
McGinnis 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

 

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:
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FYI: 9th Cir Holds CAFA Removal Based on Amended Putative Class Complaint Was Timely

Reversing the lower court's ruling, the U.S. Court of Appeals for the Ninth Circuit recently held in a putative class action against an assignee finance company that, where the plaintiff's original complaint did not sufficiently state the amount in controversy to support removal on the basis of diversity jurisdiction pursuant to the federal Class Action Fairness Act, removal within thirty days after the filing of an amended complaint that did sufficiently state the amount in controversy was timely. 

 

In ruling that the thirty-day period for removal only began to run after the filing of the amended complaint, the Court: (1) noted that the amended complaint's addition of a new proposed class introduced the minimal diversity required under CAFA; and (2) stressed that the assignee finance company was under no obligation to supply information beyond what was stated in the original complaint in order to determine whether the initial complaint set forth an amount in controversy that exceeded CAFA's $5 million threshold.

 

A copy of the opinion is available at:  http://cdn.ca9.uscourts.gov/datastore/opinions/2013/02/25/12-57330.pdf

 

Plaintiff consumer ("Consumer") bought a German luxury car from a car dealer ("Dealer"), financing the purchase with a Retail Installment Sales Contract ("RISC").  In a section of the RISC titled "Itemization of the Amount Financed Section" was the notation "N/A" for "not applicable," referring to registration and titling fees.  The RISC also contained an arbitration provision of which Consumer was supposedly unaware. 

 

About a week after Consumer's purchase, Dealer informed her that the financing for her car did not go through and that she would need to either return the car she had purchased or make a down payment as part of a new financing deal.  As a result, Consumer rescinded the original RISC and executed a new one, which was back-dated to match the date of the original RISC.  The second RISC also contained an arbitration clause as well as the same "N/A" notation.  Financing was successful after the second attempt, and Consumer's promissory note was later sold and assigned to the defendant finance company ("Finance Company").

 

Over two years later, Consumer filed a putative class action law suit in California state court against Dealer and Financing Company, asserting various state-law causes of action, including alleged violations of the California Consumer Legal Remedies Act, Cal. Civ. Code § 1750 et seq., and the California Automobile Sales Finance Act, Cal. Civ. Code § 2981 et seq.   The initial complaint proposed two classes:  one composed of customers with backdated RISCs that included the arbitration clauses and the other consisting of customers whose RISCs' allegedly indicated falsely that registration and/or titling fees were not applicable to their car purchases.  Without specifying a total sum for class-wide damages, Consumer sought statutory damages as well as other relief.

 

In state court, Consumer stated in a Case Management Conference Statement ("CMC Statement") that she may amend her complaint to plead a separate class on behalf of consumers whose RISCs were transferred to Finance Company.  Shortly after filing the CMC Statement, Consumer was granted permission to file an amended complaint and, accordingly, filed an amended complaint adding a third proposed class.  The third class consisted of car purchasers whose RISCs had been transferred to Finance Company, which RISCs failed to disclose registration or titling fees.

 

Finance Company then removed the case to federal court pursuant to the federal Class Action Fairness Act of 2005 ("CAFA") within a month of Consumer's filing of the amended complaint.  Finance Company claimed in part that a post-amended complaint search of its business records revealed that the number of potential members in the third class exceeded 100 and that the dollar amount of RISCs in that class exceeded $10 million. 

 

Consumer moved to remand, arguing the Finance Company's removal was untimely because more than 30 days had passed since the filing of her original complaint.  The district granted Consumer's motion.  Finance Company appealed the remand order. 

 

The Ninth Circuit reversed, ruling in part that because the amount in controversy was not sufficiently stated in the initial complaint, all the facts necessary for diversity jurisdiction under CAFA had not been pled to allow defendant to ascertain whether the case was removable.

 

As you may recall, CAFA confers federal jurisdiction where:  (1) there is minimal diversity between the parties; (2) the proposed class has at least 100 people; and (3) the amount in controversy exceeds $5 million.  See 28 U.S.C. § 1332(d). 

 

In addition, a defendant faces either of two potentially applicable thirty-day periods for removal.  The first thirty-day period starts running if the case stated in the initial pleading is removable on its face.  28 U.S.C.  § 1446(b) ("Section 1446(b)"); Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 885 (9th Cir. 2010).  The second thirty-day removal period kicks in if the initial pleading does not indicate that the case is "removable," and the defendant receives "a copy of an amended pleading, motion, order or other paper" from which removability may be first ascertained.  Carvalho, 629 F.3d 876 at 885.

 

Noting that Section 1446 does not define "removable," the Ninth Circuit recognized that removability may not be readily apparent from the face of a complaint, stressing that the basis for removal must be "revealed affirmatively in the initial pleading" in order to trigger the first thirty-day period for removal.  See Harris v. Bankers Life & Cas. Co., 425 F.3d 689, 695 (9th Cir. 2005); Carvalho, 629 F.3d at 886.

 

Next, rejecting Finance Company's assertion that the number of class members was indeterminate, the Ninth Circuit reasoned that the initial complaint's reference to "hundreds of affected consumers" would satisfy CAFA's numerosity requirement.  However, as to CAFA's amount-in-controversy requirement, the Court ultimately concluded that Financing Company was not required to supply information not provided in Consumer's initial complaint in order to arrive at a valuation of class members' RISCs. 

 

In so ruling, the Ninth Circuit rejected Consumer's assertion that, although Finance Company could have consulted its business records after receipt of the initial complaint to identify a representative valuation, it had no obligation to do so even though it chose to consult its records once the amended complaint was filed, adding a third class.  

 

In observing that the lower court had roughly calculated on its own that the amount in controversy in the original complaint exceeded CAFA's $5 million threshold by estimating that the average contract value was likely at least  $25,000, the Ninth Circuit nevertheless emphasized that the time period for removal does not start running until defendants have "received a piece of paper that gives them enough information to remove."  See Durham v. Lockheed Martin Corp., 445 F.3d 1247, 1251 (9th Cir. 2006).   As the Ninth Circuit explained, because Consumer's initial complaint failed to indicate that "the amount demanded by each putative class member exceed[ed] $25,0000," the initial complaint did not trigger the initial thirty-day removal period under Section 1446(b). 

 

Having determined that the original complaint did not trigger Section 1446(b)'s initial thirty-day removal period, the Ninth Circuit also rejected Consumer's argument that Finance Company's removal was untimely partly because Finance Company did not remove within thirty days of its receipt of "an order or other paper" from which removability could be ascertained -- that is, Consumer's Statement that she would file an amended complaint.   In so doing, the Ninth Circuit recognized that removal prior to the actual filing of the amended complaint would have been improper.

 

Finally, the Ninth Circuit declined to decide whether to join other federal appellate courts in recognizing a "revival exception" that Finance Company argued would give it an additional thirty days to remove when Consumer added a potential third class of plaintiffs.

 

Accordingly, the Ninth Circuit reversed and remanded.

 

 

 

Ralph T. Wutscher
McGinnis 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

 

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

 

 

 

 

FYI: 9th Cir Holds CAFA Removal Based on Amended Putative Class Complaint Was Timely

Reversing the lower court's ruling, the U.S. Court of Appeals for the Ninth Circuit recently held in a putative class action against an assignee finance company that, where the plaintiff's original complaint did not sufficiently state the amount in controversy to support removal on the basis of diversity jurisdiction pursuant to the federal Class Action Fairness Act, removal within thirty days after the filing of an amended complaint that did sufficiently state the amount in controversy was timely. 

 

In ruling that the thirty-day period for removal only began to run after the filing of the amended complaint, the Court: (1) noted that the amended complaint's addition of a new proposed class introduced the minimal diversity required under CAFA; and (2) stressed that the assignee finance company was under no obligation to supply information beyond what was stated in the original complaint in order to determine whether the initial complaint set forth an amount in controversy that exceeded CAFA's $5 million threshold.

 

A copy of the opinion is available at:  http://cdn.ca9.uscourts.gov/datastore/opinions/2013/02/25/12-57330.pdf

 

Plaintiff consumer ("Consumer") bought a German luxury car from a car dealer ("Dealer"), financing the purchase with a Retail Installment Sales Contract ("RISC").  In a section of the RISC titled "Itemization of the Amount Financed Section" was the notation "N/A" for "not applicable," referring to registration and titling fees.  The RISC also contained an arbitration provision of which Consumer was supposedly unaware. 

 

About a week after Consumer's purchase, Dealer informed her that the financing for her car did not go through and that she would need to either return the car she had purchased or make a down payment as part of a new financing deal.  As a result, Consumer rescinded the original RISC and executed a new one, which was back-dated to match the date of the original RISC.  The second RISC also contained an arbitration clause as well as the same "N/A" notation.  Financing was successful after the second attempt, and Consumer's promissory note was later sold and assigned to the defendant finance company ("Finance Company").

 

Over two years later, Consumer filed a putative class action law suit in California state court against Dealer and Financing Company, asserting various state-law causes of action, including alleged violations of the California Consumer Legal Remedies Act, Cal. Civ. Code § 1750 et seq., and the California Automobile Sales Finance Act, Cal. Civ. Code § 2981 et seq.   The initial complaint proposed two classes:  one composed of customers with backdated RISCs that included the arbitration clauses and the other consisting of customers whose RISCs' allegedly indicated falsely that registration and/or titling fees were not applicable to their car purchases.  Without specifying a total sum for class-wide damages, Consumer sought statutory damages as well as other relief.

 

In state court, Consumer stated in a Case Management Conference Statement ("CMC Statement") that she may amend her complaint to plead a separate class on behalf of consumers whose RISCs were transferred to Finance Company.  Shortly after filing the CMC Statement, Consumer was granted permission to file an amended complaint and, accordingly, filed an amended complaint adding a third proposed class.  The third class consisted of car purchasers whose RISCs had been transferred to Finance Company, which RISCs failed to disclose registration or titling fees.

 

Finance Company then removed the case to federal court pursuant to the federal Class Action Fairness Act of 2005 ("CAFA") within a month of Consumer's filing of the amended complaint.  Finance Company claimed in part that a post-amended complaint search of its business records revealed that the number of potential members in the third class exceeded 100 and that the dollar amount of RISCs in that class exceeded $10 million. 

 

Consumer moved to remand, arguing the Finance Company's removal was untimely because more than 30 days had passed since the filing of her original complaint.  The district granted Consumer's motion.  Finance Company appealed the remand order. 

 

The Ninth Circuit reversed, ruling in part that because the amount in controversy was not sufficiently stated in the initial complaint, all the facts necessary for diversity jurisdiction under CAFA had not been pled to allow defendant to ascertain whether the case was removable.

 

As you may recall, CAFA confers federal jurisdiction where:  (1) there is minimal diversity between the parties; (2) the proposed class has at least 100 people; and (3) the amount in controversy exceeds $5 million.  See 28 U.S.C. § 1332(d). 

 

In addition, a defendant faces either of two potentially applicable thirty-day periods for removal.  The first thirty-day period starts running if the case stated in the initial pleading is removable on its face.  28 U.S.C.  § 1446(b) ("Section 1446(b)"); Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 885 (9th Cir. 2010).  The second thirty-day removal period kicks in if the initial pleading does not indicate that the case is "removable," and the defendant receives "a copy of an amended pleading, motion, order or other paper" from which removability may be first ascertained.  Carvalho, 629 F.3d 876 at 885.

 

Noting that Section 1446 does not define "removable," the Ninth Circuit recognized that removability may not be readily apparent from the face of a complaint, stressing that the basis for removal must be "revealed affirmatively in the initial pleading" in order to trigger the first thirty-day period for removal.  See Harris v. Bankers Life & Cas. Co., 425 F.3d 689, 695 (9th Cir. 2005); Carvalho, 629 F.3d at 886.

 

Next, rejecting Finance Company's assertion that the number of class members was indeterminate, the Ninth Circuit reasoned that the initial complaint's reference to "hundreds of affected consumers" would satisfy CAFA's numerosity requirement.  However, as to CAFA's amount-in-controversy requirement, the Court ultimately concluded that Financing Company was not required to supply information not provided in Consumer's initial complaint in order to arrive at a valuation of class members' RISCs. 

 

In so ruling, the Ninth Circuit rejected Consumer's assertion that, although Finance Company could have consulted its business records after receipt of the initial complaint to identify a representative valuation, it had no obligation to do so even though it chose to consult its records once the amended complaint was filed, adding a third class.  

 

In observing that the lower court had roughly calculated on its own that the amount in controversy in the original complaint exceeded CAFA's $5 million threshold by estimating that the average contract value was likely at least  $25,000, the Ninth Circuit nevertheless emphasized that the time period for removal does not start running until defendants have "received a piece of paper that gives them enough information to remove."  See Durham v. Lockheed Martin Corp., 445 F.3d 1247, 1251 (9th Cir. 2006).   As the Ninth Circuit explained, because Consumer's initial complaint failed to indicate that "the amount demanded by each putative class member exceed[ed] $25,0000," the initial complaint did not trigger the initial thirty-day removal period under Section 1446(b). 

 

Having determined that the original complaint did not trigger Section 1446(b)'s initial thirty-day removal period, the Ninth Circuit also rejected Consumer's argument that Finance Company's removal was untimely partly because Finance Company did not remove within thirty days of its receipt of "an order or other paper" from which removability could be ascertained -- that is, Consumer's Statement that she would file an amended complaint.   In so doing, the Ninth Circuit recognized that removal prior to the actual filing of the amended complaint would have been improper.

 

Finally, the Ninth Circuit declined to decide whether to join other federal appellate courts in recognizing a "revival exception" that Finance Company argued would give it an additional thirty days to remove when Consumer added a potential third class of plaintiffs.

 

Accordingly, the Ninth Circuit reversed and remanded.

 

 

 

Ralph T. Wutscher
McGinnis 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: 1st Cir Holds Borrower May Challenge Assignment of Mortgage, But That MERS System Complied with MA Law

The U.S. Court of Appeals for the First Circuit recently ruled that, although a borrower had standing to challenge the validity of a mortgage assignment from MERS to a loan servicer, the assignment was valid under Massachusetts law and the foreclosure of borrower's property was thus proper. 

 

In so ruling, the Court concluded that the MERS system of holding and transferring mortgages is consistent with principles of Massachusetts mortgage law, whereby the legal interest in the mortgage and the beneficial interest in the promissory note may be held by separate entities prior to non-judicial foreclosure.

 

A copy of the opinion is available at:  http://www.ca1.uscourts.gov/pdf.opinions/12-1285P-01A.pdf.

 

Plaintiff-borrower ("Borrower") refinanced her residential mortgage loan through a mortgage lender ("Lender").  To secure the loan, Borrower executed a mortgage in favor of Mortgage Electronic Registration Systems, Inc. ("MERS") as "nominee for [Lender] and [Lender's] successors and assigns."   The mortgage was recorded in the county recorder's office.  Shortly after the loan transaction, Lender transferred Borrower's promissory note to another MERS member, a trust consisting of a pool of securitized mortgages, for which the defendant loan servicer ("Servicer") serviced the loan. 

 

Borrower eventually defaulted on her loan and MERS assigned the mortgage to Servicer, which initiated foreclosure proceedings against Borrower.   Shortly before the scheduled foreclosure, Borrower filed a complaint in state court to challenge the foreclosure, seeking both damages and injunctive relief.  

 

Servicer removed to federal court, moving for summary judgment.  The lower court granted summary judgment in favor of Servicer, ruling that Servicer had authority to foreclose.  Plaintiff appealed, challenging the validity of MERS's assignment of the mortgage to Servicer on grounds that MERS never held a valid and enforceable interest in the mortgage.  The First Circuit affirmed, ruling that MERS's assignment of the mortgage was valid and that the foreclosure was thus proper.

 

As you may recall, Massachusetts law permits non-judicial foreclosure if a mortgage contains a power of sale.  See Mass. Gen. Laws ch. 183, § 21.  In addition, a mortgagor is permitted to ensure that any attempted foreclosure on a home is conducted lawfully.  See Mass. Gen. Laws ch. 244, § 14.

 

Providing an overview of MERS, the Court explained that under the MERS system, MERS holds legal title to the mortgage as the mortgagee of record, but that it does not have any beneficial interest in the loan.  The First Circuit also reiterated that, according to recent precedent, a foreclosing mortgagee must both control the note and hold the mortgage in order for a foreclosure to be valid.  See Eaton v. Fed. Nat'l Mortg. Ass'n., 969 N.E.2d 1118, 1127 (Mass. 2012). 

 

Next, addressing Servicer's contention that Borrower lacked standing to challenge the validity of the assignment of mortgage, because she was neither a party nor a third-party beneficiary of the assignment, the First Circuit concluded that a nonparty mortgagor such as Borrower may challenge the assignment of her mortgage under certain circumstances.  In so doing, the Court noted that Borrower satisfied the test for standing in that: (1) she suffered a concrete and particularized injury in the form of foreclosure of her home; (2) there was a direct causal connection between the challenged action – the right to foreclose -- and the identified harm; and (3) the claimed injury would be redressed through the payment of damages if the court determined that Servicer lacked the authority to foreclose.  See Katz v. Pershing, LLC, 672 F.3d 64, 71 (1st Cir. 2012); Plains Commerce Bank v. Long Family Land & Cattle Co., 554 U.S. 316, 327 (2008).

 

The First Circuit also pointed out that, because Massachusetts permits non-judicial foreclosure where the mortgagee has power of sale under the terms of the mortgage, a determination that a mortgagor lacked standing to challenge a mortgage assignment in such circumstances would effectively deprive Borrower of legal protection.   The Court therefore stressed that under Massachusetts law, Borrower had standing to challenge MERS's assignment of the mortgage only to the extent such challenge was necessary to contest the foreclosing entity's authority to foreclose. 

 

Turning specifically to the question of the assignment's validity in this case, and thus by extension to the validity and legal effect of the foreclosure, the First Circuit noted that Borrower's challenge to the MERS assignment was premised on the assertion that MERS purportedly never properly held the mortgage and thus had no interest to assign, which, according to the Court, would render the foreclosure completely void.      

 

Highlighting the distinction between the legal interest in a mortgage and the beneficial interest in the underlying debt, and further recognizing the longstanding common-law principles governing mortgages, the First Circuit rejected Borrower's argument that MERS never owned the "'beneficial half' of the legal interest" in the mortgage.  In so doing, the Court concluded that there was "no reason to doubt the legitimacy of the common arrangement whereby MERS [held] bare legal title as mortgagee of record and the noteholder alone enjoy[ed] the beneficial interest in the loan."  See Eaton, 969 N.E.2d at 1124 (noting that in a title-theory state such as Massachusetts, legal title to the mortgaged property transfers to mortgagee until mortgagor repays the loan and that note and mortgage need not be held by the same entity prior to foreclosure).   This framework, the Court reasoned, established an equitable trust whereby MERS acted as trustee for the owner of the loan on whose behalf Servicer serviced the loan.  See U.S. Bank, N.A. v. Ibanez, 941 N.E.2d 40, 53-54 (Mass. 2011). 

 

In addition to MERS's status as equitable trustee, the First Circuit also found MERS's authority to assign the mortgage to Servicer in the language of the mortgage itself.   As the Court explained, given that the mortgage denominated MERS as "mortgagee 'solely as nominee for [Lender] and [Lender's] successors and assigns," MERS held title for the owner of the beneficial interest, that is, the owner of the loan. 

 

The First Circuit likewise dismissed as "wishful thinking" Borrower's contention that the assignment failed to comply with statutory requirements related to an assignor's execution and notarization of assignments.    See Mass. Gen. Laws ch. 183, § 54B .

 

Accordingly, the First Circuit affirmed the lower court's grant of summary judgment in favor of Servicer.

 

 

 

Ralph T. Wutscher
McGinnis 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

 

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:
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