FYI: 1st Cir Confirms Rooker-Feldman Barred Borrower's State and Federal Law Claims

The U.S. Court of Appeals for the First Circuit ("First Circuit") recently affirmed dismissal of a borrower's state and federal law claims, concluding that the trial court lacked jurisdiction under the Rooker-Feldman Doctrine, because the borrower's federal suit sought to invalidate the state courts' judgments.

 

A copy of the opinion is available at:  Link to Opinion

 

After a borrower ("Borrower") defaulted on her mortgage loan, the assignee to the Borrower's mortgage ("Mortgagee") filed a petition in the Massachusetts Land Court ("land court") to foreclose the mortgaged property (the "foreclosure action").  Final judgment was entered in the Mortgagee's favor, and the property was sold to the Mortgagee at a foreclosure sale.

 

The Mortgagee then turned to the state's county Housing Court ("housing court") and filed a summary process action to evict the Borrower, who in turn filed a counterclaim.  After lengthy motion practice, and challenges to the validity of the mortgage assignment, the Mortgagee was eventually awarded possession of the property.  The Borrower's appeal of the final judgment in the eviction action was dismissed for failure to post bond.

 

Five months later, the Borrower field suit against the Mortgagee in the U.S. District for the District of Massachusetts, among other things alleging claims for wrongful foreclosure, violation of the Massachusetts consumer protection statute, Mass. Gen. Laws ch. 93A, § 9(1), breach of the covenant of good faith and fair dealing, and negligent infliction of emotional distress.

 

The Mortgagee filed a motion to dismiss, which was granted by the federal trial court, which held that it lacked subject-matter jurisdiction over Borrower's claims under the Rooker-Feldman Doctrine.  The instant appeal followed.

 

As you may recall, the Rooker-Feldman doctrine preserves the Supreme Court's exclusive jurisdiction over "appeals from final state court judgments," Lance v. Dennis, 546 U.S. 459, 463 (2006) (per curiam), by divesting lower federal courts of jurisdiction to hear certain cases brought by parties who have lost in state court, see Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 291- 93 (2005); Coggeshall v. Mass. Bd. of Regist. of Psychologists, 604 F.3d 658, 663 (1st Cir. 2010). Specifically, the doctrine - 6 - applies to "cases brought by state-court losers complaining of injuries caused by state-court judgments [that were] rendered before the district court proceedings commenced and invit[e] district court review and rejection of those judgments." Exxon Mobil, 544 U.S. at 284.

 

Here, the First Circuit noted that the Borrower's federal suit seeks to challenge the validity of both the foreclosure and mortgage assignment, which both fell within the compass of the state court judgments of foreclosure and rejecting Borrower's challenge to the mortgage assignment in the eviction action.

 

The Court concluded that Borrower's claims were all premised upon her claims that Mortgagee acquired the mortgage through a pattern of fraudulent activity—the very issue raised in her counterclaim to the eviction action, and denied by the housing court — and nothing more than artfully pleaded attempts to evade the reach of the Rooker-Feldman Doctrine.  See Davison v. Gov't of P.R. - P.R. Firefighters Corps., 471 F.3d 220, 223 (1st Cir. 2007) (applying Rooker-Feldman doctrine when "the only real injury to Plaintiffs is ultimately still caused by a state court judgment").

 

Similarly, her wrongful foreclosure claim was necessarily decided in the land court, and both the foreclosure and eviction actions were sufficiently final to trigger the Rooker-Feldman doctrine, as final judgment of foreclosure was entered five years prior to the initiation of the federal suit, and Borrower forfeited her opportunity to appeal the housing court's eviction judgment by failing to post bond.  See Davison v. Gov't of P.R. - P.R. Firefighters Corps., 471 F.3d 220, 223 (1st Cir. 2007) (applying Rooker-Feldman doctrine when "the only real injury to Plaintiffs is ultimately still caused by a state court judgment").

 

Lastly, First Circuit considered whether the plaintiff, in bringing her federal suit, impermissibly invited the federal trial court to review and reject one or more final state-court judgments. 

 

In order to grant the Borrower's requested relief to vacate the final judgment of foreclosure and enter an injunction prohibiting post-foreclosure proceedings, the district court would be compelled to review, reject and reverse the state courts' rulings — an invitation that could not be accepted under the Rooker-Feldman doctrine.  See Davison, 471 F.3d at 223. 

 

The Court also rejected the Borrower's fallback position that her federal claims were based on legal theories not presented in the state courts, and should be allowed to proceed.

 

In so ruling, the First Circuit held that even the federal claims still could not escape the Rooker-Feldman bar, which is not contingent upon identity of issues actually litigated in prior state-court proceedings, but whether those claims proffered in the subsequent federal suit are, in effect, an end-run around a final state-court judgment.  See Maymó-Meléndez v. Álvarez-Ramírez, 364 F.3d 27, 33 (1st Cir. 2004); Federación de Maestros de P.R., 410 F.3d at 24 (stating that "a federal suit seeking an opposite result [from a final state court judgment] is an impermissible attempt to appeal the state judgment to the lower federal courts").

 

Accordingly, because the Borrower's federal suit sought to invalidate the state courts' judgments, the First Circuit held that the federal trial court lacked jurisdiction to consider the Borrower's claims, and the federal trial court's dismissal order was affirmed.

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 11th Cir Upholds Approval of FACTA Class Settlement Despite Non-Lodestar Class Counsel Fees, Other Issues

The U.S. Court of Appeals for the Eleventh Circuit recently affirmed a class settlement where the defendant allegedly violated the federal Fair and Accurate Credit Transactions Act, 15 U.S.C. § 1601, et seq. (FACTA) by printing point-of-sale credit card receipts that included more than the last five digits of the card number. 

 

In so ruling, and over the objections of two class members, the Eleventh Circuit held that :

 

1.     Consistent with similar prior rulings from other federal appellate courts, the named plaintiff had Spokeo standing to pursue the claims, because the FACTA claims were similar to the common law tort of breach of confidence; and

 

2.    Class counsel's untimely attorney's fees motion -- filed two weeks after the deadline for class members to object had passed -- did not warrant reversal because four other class members objected after receiving notice of the preliminary approval of class settlement; and

 

3.    A lodestar analysis was not required for class counsel's fees, because the compensation secured by class counsel and risk of litigation justified an award of one-third of the settlement fund for attorneys' fees and a $10,000 incentive to the class representative.

 

A copy of the opinion is available at:  Link to Opinion

 

A consumer filed a class action alleging that a retail merchant violated the FACTA by printing a receipt that showed his credit card number's first six and last four digits.

 

As you may recall, FACTA prohibits merchants from printing "more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction."  15 U.S.C. § 1681c(g)(1).

 

The FACTA provides for a combination of actual and statutory damages.  15 U.S.C. § 1681n(a).  For statutory damages, FACTA provides for an award of $100 to $1,000 for each willful violation.  15 U.S.C. § 1681n(a)(1)(A). 

 

The parties agreed to settle on a class wide basis and proposed a settlement fund of $6.3 million from which all fees, costs, and class members would be paid. 

 

Class members who submitted a timely claim form would receive approximately $235 as their pro-rata share of the settlement fund.  None of the money would revert to the merchant.  Class counsel would receive an award of attorneys' fees of up to one-third of the settlement fund, which would be $2.1 million.  The consumer would receive an incentive award of $10,000.

 

The trial court granted the motion for preliminary approval, certified the class under Rule 23(b)(3), and approved the form of notice.  Under the preliminary approval order, class members who wanted to be excluded from the settlement were required to give written notice of exclusion to the claims administrator. 

 

Two class members objected to the settlement, arguing that class counsel's fee motion was inadequate under Rule 23(h), that the court should subject any attorney's fee award to a lodestar analysis, and a $10,000 incentive award was not warranted. 

 

After a fairness hearing, the trial court approved the settlement and awarded the incentive award and attorneys' fees to the consumer and class counsel respectively. 

 

The objectors appealed.

 

The Eleventh Circuit began its analysis by reviewing the consumer's standing to pursue a FACTA claim against the merchant.

 

The objectors argued that the named plaintiff did not allege a concrete injury to confer Article III standing under the Supreme Court's decision in Spokeo, Inc. v. Robins 136 S. Ct. 1540 (2016).  Instead, the consumer merely alleged that the merchant willfully violated its duty not to print more than five digits of its credit card number on a receipt. 

 

The Eleventh Circuit disagreed, noting that FACTA was "aimed at protecting consumers from identity theft" and imposed a duty on merchants not to "print more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction."  15 U.S.C. § 1681c(g)(1).

 

The Eleventh Circuit compared the merchant's disclosure of the consumers credit card number to the common law tort of breach of confidence.  Typical breach of confidence cases, as the Eleventh Circuit explained, involve a customer entrusting information or items to trusted persons, who would without permission disclose those items to other people for personal gain.  An important difference between the breach of confidence tort and privacy torts was the identification of harm.

 

The Eleventh Circuit explained that in privacy cases, the harm was usually construed in terms of exposure "with an emphasis on publication as the cause of the harm."  But in breach of confidence cases, the harm happens when the plaintiff's trust in the breaching party is violated.  Applying this view, the Eleventh Circuit found that when the consumer used his credit card, he entrusted the merchant with his credit card number and his trust was violated when that card number was not kept confidential.

 

The Eleventh Circuit observed that FACTA established a duty of care for merchants that print receipts and defined that duty as requiring printing no more than five digits of customers' credit card numbers.  The FACTA also made willful violations of that duty actionable. 

 

The Eleventh Circuit also observed that because the consumer received the receipt from the merchant, the consumer had to shoulder the cost of protecting or destroying the untruncated receipt.

 

Thus, the Eleventh Circuit concluded that the consumer suffered a concrete harm when the merchant provided an untruncated receipt. 

 

Moreover, the Eleventh Circuit reasoned that its holding was consistent with the decisions of the Second, Seventh, and Ninth Circuits "where customers alleged that they suffered a risk of identity theft because the receipts included their credit card expiration date, which was a violation of FACTA, 15 U.S.C. § 1681c(g).  See Bassett v. ABM Parking Servs., Inc. 883 F.3d 776 (9th Cir. 2018); Crupar-Weinmann v. Paris Baguette Am., Inc., 861 F.3d 76 (2d Cir. 2017); Meyers v. Nicolet Rest. of De Pere, LLC, 843 F.3d 724 (7th Cir. 2016). 

 

Next, the Eleventh Circuit examined the objectors' challenge to the sufficiency of the notice of the attorney's fees motion. 

 

As you may recall, Rule 23(h)(1) requires that notice of the motion for attorney's fees be served on all parties "in a reasonable manner."  Although the statute does not define "reasonable manner," courts interpreting Rule 23(h) have observed that the right to object to the fee motion under Rule 23(h)(2) necessarily means that courts must give notice of the attorney's fee motion itself.

 

The objectors argued that the untimely attorney's fees motion -- filed two weeks after the deadline for class members to object had passed -- deprived class members of the notice they needed to assess the fee request and violated Rule 23(h).

 

The Eleventh Circuit explained that the trial court erred by requiring class members to object before they could assess the attorney's fee motion, but held that the error did not warrant reversal because four class members objected after receiving notice of the preliminary approval of class settlement. 

 

Two class members made detailed arguments in opposition to the requested attorney's fee and incentive award, which the trial court considered.  In the Eleventh Circuit's view, there was no reason to think other unnamed class members would have made arguments besides those made by the objectors. 

 

Thus, the Eleventh Circuit determined that the trial court did not abuse its discretion by awarding attorney's fees, despite the Rule 23(h) violation.

 

The objectors also argued that the trial court applied the wrong legal test to evaluate class counsel's fee request. 

 

The objectors argued that the trial court should have applied a lodestar analysis as required by Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542 (2010).  In Perdue, the Supreme Court allowed the award of attorney's fees under a fee-shifting statute to be enhanced above the lodestar amount, but only in "rare" and "exceptional" cases.  Perdue, 559 U.S. at 554.

 

However, the Eleventh Circuit noted that class counsel sought attorney's fees from a common fund, rather than under a fee-shifting statute.  The Eleventh Circuit also noted that the common-fund doctrine applied to class settlements that result in a common fund even when class counsel could have pursued attorney's fees under a federal fee-shifting statute.

 

The Eleventh Circuit acknowledged that the award of attorney's fees was bigger than some award in other suits, and a prior panel observed that the "majority of common fund fee awards fall between 20% and 30% of the fund." 

 

In the Eleventh Circuit's view, the trial court justified the above-benchmark award attorneys' fees.  The trial court emphasized that the results obtained conferred substantial benefits on the class members who submitted claims, and discussed the significant legal hurdles class counsel faced with regard to establishing standing based on risk of identity theft.  The trial court also explained the difficulty of proving willfulness. 

 

Lastly, the Eleventh Circuit explained that the $10,000 incentive award to the class representative was not an abuse of discretion. 

 

To support its reasoning, the Eleventh Circuit noted that the trial court awarded the class representative the incentive award "for his efforts in this case" and found that the class settlement conferred "substantial benefits" on the class member. 

 

Accordingly, the Eleventh Circuit affirmed the order approving the settlement.

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: Missouri Sup Ct Denies Arbitration Where Chosen Arbitrator No Longer Available

The Supreme Court of Missouri recently affirmed the denial of a lender's motion to compel arbitration of a consumer's putative class claims because the arbitration provision at issue designated the use of a specific arbitrator which was no longer available to handle creditor claims. 

 

A copy of the opinion is available at:  Link to Opinion

 

Following the borrower's default under a small personal loan, the lender brought an action in Missouri state court for collection of the debt.  The borrower filed counterclaims against the lender for alleged violations of the Missouri consumer protection statute and requested class certification for her claim. 

 

The lender filed an application with the trial court to compel the borrowers counterclaim to arbitration. 

 

The loan agreement contained an arbitration provision which provided, in part, that any claim or dispute arising under the agreement "shall be resolved by binding arbitration by the National Arbitration Forum, under the Code of Procedure then in effect." 

 

However, several years prior to the commencement of the present litigation, the National Arbitration Forum (NAF) entered into a consent decree with the Minnesota State Attorney General which required it to immediately stop providing arbitration services for consumer claims, including the claims asserted by the borrower in the matter at hand.  Consequently, NAF was not available to act as an arbitrator.

 

Due to NAF's unavailability, the lender requested that the trial court designate a new arbitrator pursuant to Section 5 of the Federal Arbitration Act, 9 U.S.C. § 1, et seq.  ("FAA").

The trial court denied the lender's request and the lender sought an immediate appeal."

 

The Missouri Supreme Court granted the transfer of the appeal from the intermediate appellate court. 

 

In deciding the issue, the Missouri Supreme Court first noted that the sole question before it was whether or not under the FAA the court was compelled to appoint an arbitrator to replace NAF.  The lender had failed to adequately raise in the trial court any argument under Missouri's Uniform Arbitration Act.  The Court did not address whether or not the result may have been different under the Missouri statute. 

 

As explained by the Court, Section 5 of the FAA is merely a default provision which requires a court to appoint a substitute arbitrator unless it appears the parties did not intend to arbitrate before a substitute arbitrator in the event their chosen arbitrator became unavailable.  Further, the FAA in general "reflects the overarching principle that arbitration is a matter of contract."  Am. Express Co. v. Italian Colors Rest., 570 U.S. 228, 233 (2013). Thus, the question at hand was one primarily of contract interpretation.

 

The Court recited the standard rules of contract interpretation in Missouri, in that courts ascertain the "intent of the parties by looking at the words of the contract and giving those words their plain, ordinary, and usual meaning."  Ethridge v. TierOne Bank, 226 S.W.3d 127, 131 (Mo. banc 2007). And if those terms are "unequivocal, plain, and clear, the court is bound to enforce the contract as written."  Malan Realty Inv'rs, Inc. v. Harris, 953 S.W.2d 624, 626-27 (Mo. banc 1997). 

 

Applying these standards to the arbitration provision, the Court found that the terms at hand were unequivocal, plain and clear that the parties agreed to arbitrate only before NAF.  In addition to the language quoted above, the Court further found that the requirement that the claims be submitted to the NAF headquarters or one of its branches further evidenced the parties' intent to use NAF exclusively. 

 

The Court further held that "nothing in the FAA authorizes (let alone requires) a court to compel a party to arbitrate beyond the limits of the agreement it made."

 

The Court further commented somewhat critically that the contract was one of adhesion freely drafted by the lender, and "having made the choice to insist upon NAF " and only NAF "as the arbitration forum, [the lender] cannot now look to Section 5 of the FAA to expand the arbitration promise it extracted from [the borrower]." 

 

The Court clarified that its opinion was not that "merely identifying an arbitrator in an arbitration agreement" would support the refusal to appoint a substitute under Section 5 of the FAA, and instead, there must be "a basis to conclude the parties' arbitration agreement was limited to the specified arbitrator."

 

Indeed, the Court noted that a great deal of case law had arisen following the NAF consent decree.  Yet the ruling in those cases differed wildly depending upon the exact terms of the arbitration provisions at issue.

 

Accordingly, the Court affirmed the trial court's denial of the lender's motion to compel arbitration and remanded the case for further proceedings. 

 

 

 

Ralph T. Wutscher
Maurice 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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