Class Action Defense Cases–Proctor v. Metropolitan Money Store: Maryland Federal Court Denies Defense Motion To Dismiss Class Action Claims But Grants Plaintiffs’ Motion To Dismiss Counterclaims And Certifies Class Action

Sep 3, 2009 | By: Michael J. Hassen

Class Action Complaint Adequately Pleaded Claims Against Individual Defendants Arising out of Alleged “Mortgage Foreclosure Rescue Scam” but Defendants’ Counterclaims for Fraud were Barred by Doctrine of Res Judicata Maryland Federal Court Holds

Plaintiffs filed a putative class action against Metropolitan Money Store and others alleging that they were “involved in a mortgage foreclosure rescue scam”; specifically, the class action complaint alleged that plaintiffs were “homeowners with substantial equity in their homes, but who were nevertheless facing foreclosure” which “made them targets of Defendants’ promise of credit repair and foreclosure avoidance, which, in actuality, involved fraudulent representations and transactions designed to siphon off the equity in the homeowners’ homes, thus leaving them in a far worse position than before.” Proctor v. Metropolitan Money Store, 645 F.Supp.2d 464 (D.Md. 2009) [Slip Opn., at 1]. Eventually, plaintiffs filed a second amended class action complaint and renewed their motion for class action certification. Id., at 1-2. The class action complaint at issue alleged fraud, RICO, RESPA, Maryland’s PHIFA, and gross negligence. Id., at 2-3. Defendants opposed class action treatment, and defense attorneys for two of the individual defendants again moved to dismiss the class action complaint and filed counterclaims against plaintiffs for “fraud, fraudulent concealment, negligent misrepresentation, fraudulent misrepresentation, and civil conspiracy to commit mortgage fraud.” Id., at 2. Plaintiffs moved to dismiss the counterclaims against them. Id. The district court denied class action treatment and plaintiffs appealed. Id. The district court granted plaintiffs’ motion for class certification but did not discuss its reasoning in the order discussed by this article. See id., at 37. With respect to the motions to dismiss, the federal court denied defendants’ motion to dismiss the class action claims against them, but granted plaintiffs’ motion to strike defendants’ counterclaims.

We do not here focus on the district court’s analysis of the class action claims against the individual defendants. See Proctor, at 4-. For our purposes, it is sufficient to note that the federal court found the class action complaint pleaded fraud with the requisite particularity, see id., at 4-10, that it adequately pleaded causes of action for RICO violations, see id., at 11-23, that it adequately pleaded violations of RESPA, see id., at 24-28, and the PHIFA, see id., at 28-32, and that it adequately pleaded a claim for gross negligence, see id., at 32-34. We focus instead on defendants’ counterclaims against plaintiffs. It is important to note that the federal court dismissed the counterclaims on the ground that they were barred by the doctrine of res judicata. See id., at 35-37. Specifically, defendants had “filed a lawsuit against [plaintiffs’] attorneys arising from the transactions that form the basis of this litigation in the Circuit Court for Montgomery County on June 18, 2008 for the same or substantially similar claim[s] they now assert against the Plaintiffs.” Id., at 35. And while plaintiffs technically were not parties to that action, they were in privity with their attorneys and defendants “received a full and fair opportunity in state court to present their claims,” id., at 35-36. Defendants were now seeking to relitigate those claims, id., at 36-37, which resulted in a final judgment on the merits adverse to defendants, id., at 37. Accordingly, the district court granted plaintiffs’ motion to dismiss the counterclaims, finding them barred by the doctrine of res judicata. Id., at 37.

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