FYI: 4th Cir Holds Named Defendants to be Aggregated for Purposes of CAFA's "Local Controversy" Exception

The U.S. Court of Appeals for the Fourth Circuit recently held that a district court properly aggregated various named defendants together for purposes of analyzing whether the "local controversy" exception to jurisdiction under the federal Class Action Fairness Act applied.

 

A copy of the opinion is available at:  http://www.ca4.uscourts.gov/Opinions/Published/12342.P.pdf.

 

Two borrowers sued a lender, two title companies, and a class of defendant appraisers, alleging a scheme whereby the bank would suggest an inflated value for a given property to an appraiser, who would then appraise the property at that value, resulting in a borrower obtaining a loan that was underwater from the time of origination.  The borrowers sued both individually and on behalf of a class of West Virginia citizens.  The borrowers specifically identified a handful of appraisers, and also added a class of unnamed appraisers.  

 

The lender removed the action to federal court, pursuant to the Class Action Fairness Act ("CAFA").  The borrowers moved to remand the matter to state court, under the local controversy exception to CAFA.  The district court granted the borrowers' motion, and the lender appealed. 

 

As you may recall, the local controversy exception to CAFA provides that district courts must decline to exercise jurisdiction over an action and remand it to state court where, among other factors, at least one defendant (a) is a defendant from whom members of the plaintiff class are seeking "significant relief," (b) is a defendant whose conduct "forms a significant basis for the proposed plaintiff class's claims, and (c) is a citizen of the state in which the action originally was filed.  28 U.S.C. Sec. 1332(d)(4)(A). 

 

Here, the lender argued that it was improper for the district court to aggregate the various defendant appraisers together for the purpose of satisfying the "at least one defendant" requirement described above.  The lender further argued that unidentified members of an uncertified class do not qualify as "defendants" for the purposes of CAFA. 

 

The Fourth Circuit was unconvinced by the lender's contention that the "at least one defendant" requirement must be satisfied by only one defendant -- pointing out that "the term 'at least' permits a reading that more than one defendant could satisfy the stated criteria." 

 

In addition, the Fourth Circuit examined the relevant legislative history and determined that CAFA's local controversy exception was designed to "permit actions with a truly local focus to remain in state court."  Accordingly, it rejected the lender's interpretation of CAFA as one that would produce "an outcome that is demonstrably at odds with clearly expressed congressional intent." 

 

Because all of the named defendant appraisers, all of the plaintiffs, and all of the alleged injuries supposedly occurred in the state where the action was filed, the Fourth Circuit held that the instant matter qualified as a local controversy, such that it appropriate for the lower court to aggregate the defendants together to determine whether the local controversy exception applied. 

 

However, the Fourth Circuit ruled in favor of the lender in finding that "[a]n unnamed member of a proposed but uncertified class is not a party to the litigation."  Accordingly, the Fourth Circuit indicated that the resolution of the appeal hinged on whether the defendant appraisers named by the borrowers satisfied the "at least one defendant" requirement of the local controversy exception.   

 

Finding that the record was not sufficient to permit it to make that determination, the Fourth Circuit vacated the decision of the lower court, and remanded the matter for a determination as to whether the named defendant appraisers satisfy the "at least one defendant" requirement of the local controversy exception.   

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

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FYI: Ill App Ct Holds Payment of Post-FC Sale Assessments Extinguishes HOA Liens From Before the FC Sale

The Illinois Court of Appeals for the Second District recently held that, under Section 9 of the Illinois Condominium Property Act, payment of post-foreclosure sale assessments extinguishes any liens that an association may have on the property that came due prior to the foreclosure sale.   

 

A copy of the Court's opinion is available at: http://www.illinoiscourts.gov/Opinions/AppellateCourt/2013/2ndDistrict/2130288.pdf

 

The defendant bank recorded in 2007 a first mortgage against a condominium unit by lending to the unit's owner.  On July 26, 2011, the bank filed a complaint to foreclose on the mortgage.  The next day, the plaintiff, a condominium association (CA), recorded a lien against the unit owner for unpaid association charges in the amount of $1,607.55.  On October 7, 2011 the bank received a judgment of foreclosure.  On April 13, 2012, the bank bought the unit at a sheriff's sale and the deed was recorded on April 17, 2012 conveying the property to the bank. 

 

The bank sent the plaintiff condominium association checks for the May, June, and July 2012 association charges but the plaintiff refused them.  From August 2012 on, the CA accepted the bank's payment of the charges.  On August 30, 2012, the plaintiff recorded another claim for a lien for $7,412.22 in association charges from March 2010 through July 2012. 

 

On November 27, 2012, the plaintiff condominium association filed its complaint seeking possession of the condominium unit.  The defendant bank moved to dismiss, arguing that the lien was extinguished by the plaintiff's acceptance of the association charges.  The trial court held that under the Condominium Property Act (765 ILCS 605/9) the plaintiff's lien was unenforceable.  The Illinois Court of Appeals affirmed.

 

On appeal, there were three issues raised: (1) whether there is any legal precedent to deny the plaintiff's ability to recover association charges that came due before the bank acquired the property; (2) whether, under the Illinois Condominium Property Act, the plaintiff condominium association's acceptance of association charges after the bank acquired the property bars plaintiff's recovery for its lien; and (3) whether the condominium declaration barred plaintiff's recovery.  The Court of Appeals answered the first two issues in the affirmative and, as a result, did not address the third issue. 

 

For the first issue, the Court addressed the ruling from Newport Condominium Ass'n v. Talman Home Federal Savings & Loan Ass'n of Chicago, 188 Ill. App. 3d 1054 (1988).  In that case, the bank had a first mortgage on the property and subsequently filed an action to foreclose on the mortgage.  At the time of the lawsuit, the association had a lien on the property and it was assumed that the lien was subordinate to the mortgage.  The bank successfully bid on the property at a sheriff's sale in January of 1983 and received the certificate of purchase at that time, but because of the unit owner's bankruptcy and abandonment of the property, the bank did not receive the deed to the property until May 1985. 

 

The association filed an action asserting that the bank was responsible for association charges from the time it received the certificate of purchase until when it received the deed.  Although the trial court in that case held that the bank was responsible for the association charges during that entire time, the appellate court disagreed and reversed, holding that the certificate of purchase did not convey title in the unit to the bank because, under long-standing Illinois law, title had remained with the unit's owner until the sheriff's deed conveyed it to the bank.  "For this reason, the association could not enforce its lien against the bank insofar as it sought to recover charges that had come due before the bank obtained title.  Because the obligation to pay condominium assessments is a covenant that runs with the land and is binding only upon title holders, we conclude that the bank is not liable for the assessments which accrued from the expiration of the redemption period to the date the bank exchanged the certificate for the deed." 

 

The Court of Appeals concluded that the Newport case disposed of the plaintiff's appeal.  Even if the plaintiff condominium association's lien survived the foreclosure judgment in favor of the bank, it could not be enforced against the bank to the extent that it was based on association charges that came due before the bank obtained title to the property. 

 

The Court next analyzed the issue raised under the Illinois Condominium Property Act.  Sections 9(g)(1) and 9(g)(3) of the Act read:

 

 

(1) If any unit owner shall fail or refuse to make any payment of the common expenses or the amount of any unpaid fine when due, the amount thereof together with any interest, late charges, reasonable attorney fees incurred in enforcing the covenants of the condominium instruments *** and costs of collections shall constitute a lien on the interest of the unit owner in the property prior to all other liens and encumbrances, recorded or unrecorded, except only *** (b) encumbrances on the interest of the unit owner recorded prior to the date of such failure or refusal which by law would be a lien thereon prior to subsequently recorded encumbrances. Any action brought to extinguish the lien of the association shall include the association as a party.

***

(3) The purchaser of a condominium unit at a judicial foreclosure sale *** shall have the duty to pay the unit's proportionate share of the common expenses for the unit assessed from and after the first day of the month after the date of the judicial foreclosure sale ***.  Such payment confirms the extinguishment of any lien created pursuant to paragraph (1) *** of this subsection (g) by virtue of the failure or refusal of a prior unit owner to make payment of common expenses, where the judicial foreclosure sale has been confirmed by order of the court ***. 

 

 

In analyzing these provisions, the Court of Appeals concluded that the bank's payment of the association charges defeated the plaintiff condominium association's attempt to enforce its lien during the period in question. 

 

Under the Illinois Condominium Property Act, the purchaser of a condominium unit at a judicial foreclosure sale must pay the charges that are assessed from and after the first day of the month after the date of the judicial foreclosure sale, and, if the trial court confirms the sale, the payment extinguishes any lien created by the failure of the previous unit owner to pay the assessments that came due earlier. 

 

The bank acquired the deed to the unit in April 2012.  The plaintiff attempted to argue that the bank did not make its first payment, however, until June, 2012.  The Court rejected the plaintiff's argument because the payment made in June contained both May and June's association charges. 

 

The Court held that the bank's payment of the post-foreclosure-sale assessments extinguished any lien that the plaintiff had based on the owner's failure to pay the assessment that came due before the foreclosure sale.  To hold that plaintiff's lien survived the payment, the Court explained, would contradict the plaint language and necessary implication of the Illinois Condominium Property Act.  If the payments extinguished the lien that had been created, then plaintiff cannot enforce the lien. 

 

The Illinois Appellate Court therefore affirmed the trial court's dismissal of the complaint. 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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FYI: 9th Cir Confirms Failure to Schedule Claim in Bankruptcy Results in Plaintiff Being Estopped from Bringing Claim

The U.S Court of Appeals for the Ninth Circuit recently affirmed the dismissal of an employment discrimination claim because the plaintiff failed to list the employment discrimination action in her Chapter 7 bankruptcy schedules.

 

In so ruling, the Ninth Circuit held that the plaintiff was estopped from bringing an employment discrimination case where the plaintiff failed to disclose the employment discrimination action as an asset in her Chapter 7 bankruptcy schedules and the omission was neither inadvertent nor mistaken.

 

A copy of the Court's opinion is available at: http://cdn.ca9.uscourts.gov/datastore/opinions/2013/12/11/11-16404.pdf

 

The case concerns whether a plaintiff's failure to list her claim in her Chapter 7 bankruptcy schedule and failure to provide any explanation for the omission estopped the plaintiff's employment discrimination action as a matter of law.

 

The plaintiff brought suit against her employer alleging discrimination. The plaintiff also filed for Chapter 7 bankruptcy protection. The plaintiff failed to list the employment discrimination action as an asset in her bankruptcy schedules. The defendant moved to dismiss the employment discrimination case on judicial estoppel grounds. Only after defendant moved to dismiss did the plaintiff amend her bankruptcy schedule to list the employment discrimination case as a potential asset.

 

The district court dismissed the plaintiff's employment discrimination case finding that no evidence suggested that plaintiff's original omission had been inadvertent or mistaken and, weighing the factors set forth in New Hampshire v. Maine, 532 U.S. 742, 750-51 (2001), judicial estoppel barred this action.

 

At issue in the appeal was whether the district court's dismissal was at odds with the Ninth Circuit's recent decision Ah Quin v. County of Kauai Department of Transportation, 733 F.3d 267 (9th Cir. 2013). The Ninth Circuit determined that the district court's dismissal was consistent with Ah Quin and affirmed the district court decision.

 

In Ah Quin, the Ninth Circuit reversed the district court's dismissal of a plaintiff's case on judicial estoppel grounds where the plaintiff failed to list the case as an asset in her bankruptcy schedule. The evidence in the case was disputed and supported a conclusion of either mistake and inadvertence or deceit.

 

The Ninth Circuit began by addressing the factual similarities and differences between Ah Quin and this case.  As in Ah Quin, the plaintiff here filed false bankruptcy schedules and failed to amend those schedules until defendant filed a motion to dismiss. The plaintiff's inaction suggested that the omission had not been inadvertent. However, unlike in Ah Quin, the plaintiff presented no evidence, by affidavit or otherwise, explaining the initial failure to include the employment discrimination action in the bankruptcy schedules. Even after the district court dismissed this case, the plaintiff did not seek reconsideration or attempt to supplement the record with a declaration or any other evidence to contradict the district court's finding that omitting the employment action from the bankruptcy schedules was not inadvertent.

 

Instead, plaintiff argued that Ah Quin mandates an evidentiary hearing every time a debtor omits a claim on her bankruptcy schedules and later amends those schedules. The Ninth Circuit disagreed. Instead, Ah Quin remanded for further factual development because, viewing the evidence in a light most favorable to the plaintiff, a reasonable fact finder could conclude that the debtor's omission of a potential claim on their bankrupt schedule was inadvertent. In this case, no reasonable fact finder could conclude that the plaintiff's omission was inadvertent or mistaken given the timing of the plaintiff's amendment and her decision not to file a declaration providing an explanation for her initial failure to list the potential claim. As such, the district court correctly dismissed the case and no evidentiary hearing was required.

 

The Plaintiff also argued that the district court abused its discretion in addressing the three main New Hampshire factors. See New Hampshire v. Maine, 532 U.S. 742, 149 L. Ed 2d 968, 121 S. Ct. 1808, 1815 (2001). As you may recall, the three primary New Hampshire factors are: (1) a party's later position must be clearly inconsistent with its earlier position; (2) whether the prior court accepted the party's earlier position; and (3) whether the party asserting the inconsistent opinion would derive an unfair advantage if not estopped.

 

Regarding the first factor, the district court in this case concluded that, by failing to list the claim while simultaneously pursuing the claim, Plaintiff clearly asserted inconsistent positions. Concerning the second factor, the district court found that the bankruptcy court was misled by Plaintiff's omission. As to the third factor, the district court determined that the Plaintiff received an unfair advantage in bankruptcy court by failing to list the claim. The Ninth Circuit found no error in the district court's New Hampshire analysis.

 

The Ninth Circuit held that the district court did not abuse its discretion in dismissing the plaintiff's employment discrimination claim because: (1) the plaintiff failed to list the claim as an asset in the plaintiff's Chapter 7 bankruptcy schedules; and (2) the plaintiff presented no evidence to demonstrate that this omission was inadvertent or mistaken.

 

Accordingly, the Ninth Circuit affirmed the district court's dismissal, based on judicial estoppel of the plaintiff's employment discrimination claim. 

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.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 Confirms Failure to Schedule Claim in Bankruptcy Results in Plaintiff Being Estopped from Bringing Claim

The U.S Court of Appeals for the Ninth Circuit recently affirmed the dismissal of an employment discrimination claim because the plaintiff failed to list the employment discrimination action in her Chapter 7 bankruptcy schedules.

 

In so ruling, the Ninth Circuit held that the plaintiff was estopped from bringing an employment discrimination case where the plaintiff failed to disclose the employment discrimination action as an asset in her Chapter 7 bankruptcy schedules and the omission was neither inadvertent nor mistaken.

 

A copy of the Court's opinion is available at: http://cdn.ca9.uscourts.gov/datastore/opinions/2013/12/11/11-16404.pdf

 

The case concerns whether a plaintiff's failure to list her claim in her Chapter 7 bankruptcy schedule and failure to provide any explanation for the omission estopped the plaintiff's employment discrimination action as a matter of law.

 

The plaintiff brought suit against her employer alleging discrimination. The plaintiff also filed for Chapter 7 bankruptcy protection. The plaintiff failed to list the employment discrimination action as an asset in her bankruptcy schedules. The defendant moved to dismiss the employment discrimination case on judicial estoppel grounds. Only after defendant moved to dismiss did the plaintiff amend her bankruptcy schedule to list the employment discrimination case as a potential asset.

 

The district court dismissed the plaintiff's employment discrimination case finding that no evidence suggested that plaintiff's original omission had been inadvertent or mistaken and, weighing the factors set forth in New Hampshire v. Maine, 532 U.S. 742, 750-51 (2001), judicial estoppel barred this action.

 

At issue in the appeal was whether the district court's dismissal was at odds with the Ninth Circuit's recent decision Ah Quin v. County of Kauai Department of Transportation, 733 F.3d 267 (9th Cir. 2013). The Ninth Circuit determined that the district court's dismissal was consistent with Ah Quin and affirmed the district court decision.

 

In Ah Quin, the Ninth Circuit reversed the district court's dismissal of a plaintiff's case on judicial estoppel grounds where the plaintiff failed to list the case as an asset in her bankruptcy schedule. The evidence in the case was disputed and supported a conclusion of either mistake and inadvertence or deceit.

 

The Ninth Circuit began by addressing the factual similarities and differences between Ah Quin and this case.  As in Ah Quin, the plaintiff here filed false bankruptcy schedules and failed to amend those schedules until defendant filed a motion to dismiss. The plaintiff's inaction suggested that the omission had not been inadvertent. However, unlike in Ah Quin, the plaintiff presented no evidence, by affidavit or otherwise, explaining the initial failure to include the employment discrimination action in the bankruptcy schedules. Even after the district court dismissed this case, the plaintiff did not seek reconsideration or attempt to supplement the record with a declaration or any other evidence to contradict the district court's finding that omitting the employment action from the bankruptcy schedules was not inadvertent.

 

Instead, plaintiff argued that Ah Quin mandates an evidentiary hearing every time a debtor omits a claim on her bankruptcy schedules and later amends those schedules. The Ninth Circuit disagreed. Instead, Ah Quin remanded for further factual development because, viewing the evidence in a light most favorable to the plaintiff, a reasonable fact finder could conclude that the debtor's omission of a potential claim on their bankrupt schedule was inadvertent. In this case, no reasonable fact finder could conclude that the plaintiff's omission was inadvertent or mistaken given the timing of the plaintiff's amendment and her decision not to file a declaration providing an explanation for her initial failure to list the potential claim. As such, the district court correctly dismissed the case and no evidentiary hearing was required.

 

The Plaintiff also argued that the district court abused its discretion in addressing the three main New Hampshire factors. See New Hampshire v. Maine, 532 U.S. 742, 149 L. Ed 2d 968, 121 S. Ct. 1808, 1815 (2001). As you may recall, the three primary New Hampshire factors are: (1) a party's later position must be clearly inconsistent with its earlier position; (2) whether the prior court accepted the party's earlier position; and (3) whether the party asserting the inconsistent opinion would derive an unfair advantage if not estopped.

 

Regarding the first factor, the district court in this case concluded that, by failing to list the claim while simultaneously pursuing the claim, Plaintiff clearly asserted inconsistent positions. Concerning the second factor, the district court found that the bankruptcy court was misled by Plaintiff's omission. As to the third factor, the district court determined that the Plaintiff received an unfair advantage in bankruptcy court by failing to list the claim. The Ninth Circuit found no error in the district court's New Hampshire analysis.

 

The Ninth Circuit held that the district court did not abuse its discretion in dismissing the plaintiff's employment discrimination claim because: (1) the plaintiff failed to list the claim as an asset in the plaintiff's Chapter 7 bankruptcy schedules; and (2) the plaintiff presented no evidence to demonstrate that this omission was inadvertent or mistaken.

 

Accordingly, the Ninth Circuit affirmed the district court's dismissal, based on judicial estoppel of the plaintiff's employment discrimination claim. 

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.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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