TILA/Venue Class Action Defense Cases-Kay v. National Security: Ohio Federal Court Grants Defense Motion To Transfer Venue Of Truth-In-Lending-Act (TILA) Class Action To South Carolina

Nov 5, 2007 | By: Michael J. Hassen

Class Action Complaint Focused on Defense Conduct in South Carolina and Implicates South Carolina Residents and Substantive Law thus Supporting Defense Motion to Change Venue of Class Action Ohio Federal Court Holds

Plaintiff filed in Ohio federal court a class action lawsuit against his lender, National City Mortgage, alleging that it violated the federal Truth in Lending Act (TILA) because it “charged broker fees and/or points on his loans, as well as on those of other putative class members, without treating such fees as prepaid finance charges as required by the TILA.” Kay v. National City Mortgage Co., 494 F.Supp.2d 845, 848 (S.D. Ohio 2007). Plaintiff was a resident of South Carolina, and his loan was secured by real property in South Carolina, and focused on broker fees paid to The Kelly Mortgage Group, a mortgage broker based in South Carolina. Id. Defense attorneys counterclaimed against plaintiff for breach of contract (failure to pay his loan) and for judicial foreclosure, id., at 848-49. The defense moved to change venue to South Carolina not because venue was improper in Ohio, where defendant was headquartered, but because it “is not the most convenient forum for resolution of this matter,” id., at 849. The district court granted the defense motion and transferred the class action to South Carolina.

The federal court first noted that South Carolina had subject matter jurisdiction over the dispute, and that venue would be proper in South Carolina because “all of the loan contracts in the case sub judice were negotiated in South Carolina and are secured by South Carolina property.” Kay, at 849. Further, by bringing the motion to change venue the defendant “appears to concede that it would be subject to process issuing out of the court in South Carolina.” Id. The question, then, is whether transfer is warranted for “the convenience of parties and witnesses” and “in the interest of justice,” id., for which the defense bears the burden of proof, id., at 849-50.

The district court recognized that “plaintiff’s choice of forum is generally entitled to substantial weight,” but observed that this is “given less consideration” when the form is not the plaintiff’s residence. Kay, at 850. And in this case, the location of defendant’s headquarters is not a substantial factor because the class action complaint focuses on defendant’s dealings with Kelly Group in South Carolina, id., at 851. The bottom line is that plaintiff failed to demonstrate any connection between the gravamen of the class action complaint and the State of Ohio. Id., at 852. On the contrary, “the location of the operative facts in this litigation is decidedly one-sided in favor of South Carolina.” Id.

“‘Probably the most important factor… is the convenience of witnesses.’” Kay, at 852 (quoting 15 C.A. Wright, Miller & Cooper, Fed. Prac. & Proc., § 3851). In this regard, defense attorneys argued that “the borrower (Plaintiff), the mortgage broker, the loan officer and the closing agent all reside in South Carolina” and that “none of these individuals, except for Plaintiff, could be compelled by this Court to testify at a trial in this Court” and, even if they could be so compelled, it would be an inconvenience to require them to do so. Id. Plaintiff responded that the case did not require the testimony of these witnesses because liability could be determined solely from a review of defendant’s documents, id., at 852-53. The federal court rejected plaintiff’s claim. The case could not be resolved solely by reference to defendant’s documents because to recover damages under TILA the class members must show “detrimental reliance,” which in the Sixth Circuit requires a showing that “(1) he read the TILA disclosure statement; (2) he understood the charges being disclosed; (3) had the disclosure statement been accurate, he would have sought a lower price; and (4) he would have obtained a lower price.” Id., at 854-55 (citation omitted). These facts cannot be resolved by reference to defendant’s documents, id., at 855.

But the district court believed that the “strongest reason” for transferring the case to South Carolina “falls under the heading of ‘all other practical problems that make trial of a case easy, expeditious and inexpensive.’” Kay, at 853-54 (quoting Piper Aircraft, 454 U.S. at 241 n.6). One such “practical problem” is that the Ohio federal court lacked personal jurisdiction over “counterclaims against absent class members” and over “various potential third-party claims” (such as quiet title actions against current occupants of secured properties), id., at 854. The specter of a multiplicity of litigation directly impacts the “interest of justice” factor, id. The federal court rejected plaintiff’s observation that defendant’s counterclaims are “not compulsory,” agreeing with defense attorneys that “this argument misses the point”: Regardless of whether Defendant is required to bring said counterclaims, the fact that it is unable to bring them in this Court weighs in favor of transfer.” Id., at 855. Similarly misguided is plaintiff’s argument concerning convenience to the witnesses, because the problem is that Ohio did not have personal jurisdiction over the potential counter-defendants. Id. The district court also found value in holding the trial in the state where the borrowers reside and where the court is familiar with the controlling law. Id., at 857.

In the end, the federal court found that the relevant factors “overwhelmingly” supported transfer, Kay, at 857-58; accordingly, the federal court granted the defense motion and transferred the class action to South Carolina. Id., at 858.

NOTE: Oddly, plaintiff attempted to argue that docket congestion should be considered in ruling on the defense motion, but plaintiff conceded that the Ohio court’s docket was more than congested than that of the District of South Carolina. Kay, at 856-57. This, too, then, weighed in favor of change of venue, id., at 857. The district court also noted that “the possibility that Plaintiff’s complaint would be amended to include a claim under South Carolina’s Unfair Trade Practices Act” further supports the change of venue motion. Id., at 857 n.10.

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