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Countrywide Class Action Defense Cases–In re Countrywide: California Federal Court Stays Class Action Claims Against Countrywide And Denies Plaintiffs’ Motion For Constructive Trust/Preliminary Injunction And Plaintiffs’ Request For Expedited Discovery

Mar 31, 2008 | By: Michael J. Hassen

Securities Class Action Claims Pending in California Paralleled Class Action Claims in Delaware and Colorado River Factors Supported Stay of California Class Action California Federal Court Holds

Several class action lawsuits were filed against Countrywide Financial Corp. and others alleging violations of various state and federal securities laws, including class action complaints that were filed in the United States District Court for the Central District of California. In re Countrywide Financial Corp. Derivative Litig., ___ F.Supp.2d ___ (C.D. Cal. March 28, 2008) [Slip Opn., at 2-3]. Last Friday, the California district court addressed three separate motions that “generally relate to the series of cases before [it] and other courts involving Countrywide…, Bank of America…, and several current and former Countrywide directors and officers.” _Id._, at 1. The district court summarized four separate categories of class action lawsuits that had been filed in state and federal courts against Countrywide prior to the announced merger with Bank of America, _see id._, at 3-6, as well as the various state and federal class action complaints filed immediately after the announced merger, _see id._, at 7-8. One of the pre-merger series of class action lawsuits “consolidated under _Arkansas Teachers_, No. CV-07-06923,” were filed in the California federal court “alleging that Countrywide directors engaged in an extensive pattern of misconduct in disregard of their fiduciary duties to the corporation,” _id._, at 6, and plaintiffs a 200-page amended consolidated class action complaint after the announcement of the merger to add class action claims against Bank of America, _id._, at 8-9.

The district court first addressed the defense motion to stay Arkansas Teachers in favor of litigation pending in Delaware. In re Countrywide, at 9. The court concluded that “the federal and state class action merger claims are substantially similar,” id., at 10-11; accordingly, “the ‘parallelism requirement for a [Colorado River Water Conservation Dist. V. United States, 424 U.S. 800 (1976)] stay is easily met due to the striking similarity of the class action claims in Arkansas Teachers and Freedman,” id., at 11. The federal court next held that partial stays are permissible under Colorado River, id., at 12-13, and that it would issue such a stay in this case because “while the class action claims are sufficiently parallel, the Delaware case does not contain the derivative claims present in this case,” id., at 11-12. The court’s Colorado River analysis may be found at pages 14 through 16 of the slip opinion.

Class Action Court Decisions RESPA/TILA Class Actions Uncategorized



Countrywide RESPA Class Action Defense Cases-Krupa v. Landsafe: Eleventh Circuit Affirms Summary Judgment In Favor Of Defense In RESPA Class Action Holding No Kickback Or Markup Violations Occurred

Mar 24, 2008 | By: Michael J. Hassen

Defense Judgment in Class Action for Kickback and Markup Violations of RESPA (Real Estate Settlement Procedures Act) Proper because Increased Credit Report Fee Requested by Lender was Passed through to Borrowers and no Additional Business was Given in Exchange for New Pricing Policy Requested by Lender Eleventh Circuit Holds

Plaintiffs filed a class action lawsuit against Countrywide Home Loans and Landsafe Credit (each subsidiaries of Countrywide Financial) alleging violations of the federal Real Estate Settlement Procedures Act (RESPA); the class action complaint alleged that Countrywide obtained virtually all of its credit reports from Landsafe, that prior to August 2002 Landsafe charged Countrywide $25 per credit report, and that Countrywide passed this fee on to borrowers who “locked in” or obtained a loan from Countrywide, but absorbed the fee if the loan did not go through. Krupa v. Landsafe, Inc., 514 F.3d 1153, 1154-55 (11th Cir. 2008). The class action alleged further that Countrywide asked Landsafe to modify its pricing policy in order to allow Countrywide to avoid absorbing credit report fees; specifically, “Countrywide asked Landsafe to change its pricing policy to charge more for the cost of credit reports on applicants who locked in loans and nothing for the reports on applicants who did not.” Id., at 1155. Landsafe modified its pricing schedule in August 2002, charging $35 for the credit report if a loan closed, and nothing if the loan did not; Countrywide passed the $35 fee on if a loan closed. Id. The class action alleged that this modification violated the anti-kickback and anti-markup provisions of RESPA; defense attorneys moved for and obtained summary judgment, with the district court agreeing that the challenged conduct was not improper. Id., at 1155. The Eleventh Circuit affirmed.

In discussing the pricing change, the Eleventh Circuit noted at page 1155, “The price point was set so that the new pricing policy would be ‘revenue-neutral,’ and it achieved that goal: Landsafe’s revenues from the credit reports it sold to Countrywide were the same after the new policy was implemented as they had been before.” Nonetheless, plaintiffs complained that Landsafe was giving Countrywide “free credit reports” in connection with loan transactions that did not close. Krupa, at 1155_._ The district court had held “that the revised pricing policy did not violate RESPA’s anti-kickback provision because it is undisputed that: (1) Landsafe made no more or less money as a result; and (2) Countywide purchased the same percentage (virtually all) of the credit reports it needed from Landsafe as it had before the change”; and the Circuit Court agreed. _Id._ RESPA prohibits paying a kickback in return for referral of business, but here Landsafe already received virtually all of Countrywide’s business: “In order for there to have been a forbidden kickback, there would have to have been an agreement between the two that Countrywide would give Landsafe more of its credit reporting business than it was giving Landsafe before the agreement, or at least an agreement that it would not give Landsafe any less of that business.” _id._, at 1156. Even if Countrywide received “value” by the changed pricing schedule, it could not constitute a forbidden kickback unless Countrywide promised Landsafe that it would receive business in return. _Id._ As plaintiffs conceded that this was not the case, the district court did not err in concluding that the class action kickback claim failed as a matter of law. _Id._

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E*Trade TILA Class Action Defense Cases-Silvas v. E*Trade: Ninth Circuit Affirms Dismissal Of UCL Class Action Premised On TILA Violations For Failure To Refund Loan Lock-In Fees Holding Federal Law Preempted Class Action Claims

Mar 19, 2008 | By: Michael J. Hassen

Class Action Alleging Unfair Competition Law (UCL) and False Advertising Preempted by Federal Law because Class Action Claims were Premised on Alleged Violations of Truth in Lending Act (TILA) for Conduct Governed by HOLA (Home Owners’ Loan Act) and Implementing OTS Regulations Ninth Circuit Holds

Plaintiffs filed a class action in California state court against E*Trade Mortgage alleging violations of the state’s Unfair Competition Law (UCL); the gravamen of the class action complaint was that E*Trade failed to refund loan rate lock-in fees following the exercise of a right of rescission under the federal Truth in Lending Act (TILA). Silvas v. E*Trade Mortgage Corp., 514 F.3d 1001, 1003 (9th Cir. 2008). Plaintiffs alleged that they paid a $400 fee to lock in an interest rate but subsequently exercised their 3-day right to rescind the loan transaction under TILA; E*Trade refused to reimburse the $400 fee, and the class action alleged that it was corporate policy not to refund lock-in fees following such rescissions. Id. Defense attorneys removed the class action to federal court, and then moved to dismiss the class action complaint on the ground that federal law preempted the UCL claims. Id. The agreed with the defense and dismissed the class action, id.; the Ninth Circuit affirmed.

Preliminarily, the Ninth Circuit held that the general presumption against federal preemption did not apply to this case because it involved a field long-regulated by the federal government. Silvas, at 1004. Congress enacted the Home Owners’ Loan Act (HOLA) for the purpose of restoring public confidence in federal savings and loan associations, and the Ninth Circuit previously has “described HOLA and its following agency regulations as a ‘radical and comprehensive response to the inadequacies of the existing state system,’ and ‘so pervasive as to leave no room for state regulatory control.’” Id., at 1004-05 (citation omitted). Congress provided the Office of Thrift Supervision (OTS) “broad authority to issue regulations governing thrifts,” and these, too, are afforded preemptive effect. Id., at 1005. Because E*Trade is subject to HOLA and the OTS regulations, see id., at 1006 n.2, and because the false advertising and other UCL claims are expressly preempted by federal law, see id., at 1006-07, the district court did not err in dismissing the class action.

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TILA Class Action Defense Cases-In re Long Beach Mortgage: Judicial Panel On Multidistrict Litigation (MDL) Grants Plaintiff Motion To Centralize Class Action Litigation In Northern District of Illinois

Dec 21, 2007 | By: Michael J. Hassen

Judicial Panel Grants Plaintiffs’ Request, Unopposed by Defense, for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 and Concurs with Request to Transfer Class Actions Alleging Violations of Federal Truth in Lending Act (TILA) to Northern District of Illinois Three class action lawsuits were filed against Long Beach Mortgage and other defendants alleging violations of the federal Truth in lending Act (TILA) or state law equivalent statutes.

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RESPA Class Action Defense Cases-Pierce v. NovaStar: Washington Federal Court Rejects Defense Claim In RESPA Class Action That NovaStar Purchased Loans On Secondary Market But Finds Triable Issues As To Whether Lender Violated RESPA

Aug 15, 2007 | By: Michael J. Hassen

District Court Grants Plaintiffs’ Motion for Partial Summary Judgment as to Whether in Connection with Plaintiffs’ Loans NovaStar Fell Within the Bona Fide Secondary Market Transaction Exemption Afforded by RESPA (Real Estate Settlement Procedures Act), but Triable Issues of Fact as to the Adequacy of NovaStar’s Disclosures of Yield Spread Premiums (YSPs) Precluded Summary Judgment on RESPA Claims

Plaintiffs filed a class action against NovaStar Mortgage alleging that it failed to adequately disclose yield spread premiums (YSPs) – payments made to mortgage brokers by lenders “as an incentive to induce borrowers to enter into mortgages with higher interest rates” – on its good faith estimates, in violation of Washington’s Consumer Protection Act (CPA). Pierce v. NovaStar Mortgage, Inc., 489 F.Supp.2d 1206, 1208 (W.D. Wash. 2007). The district court certified the litigation as a class action, id., at 1208-09. Plaintiffs’ lawyer filed a motion for partial summary judgment on the ground that NovaStar’s conduct was “per se unfair or deceptive under the CPA” and thus violated the Consumer Loan Act (CLA), id., at 1209; defense attorneys opposed the motion, arguing that it purchased the loans “in a bona fide secondary market transaction,” id., at 1210. The district court rejected the defense argument as to whether the disclosures were required, but agreed that triable issues of fact existed that precluded summary judgment.

The class action complaint alleged that in May 2004 plaintiff Larry Brown sought to refinance his home loan through NovaStar Home Mortgage, and Brown maintained that he was “not aware of any distinction between NovaStar Home and NovaStar Mortgage or that NovaStar Mortgage agreed to pay a fee to NovaStar Home” but that the payment of that fee “significantly increased interest rate on his loan.” Pierce, at 1209. NovaStar Mortgage’s “Loan Approval Summary” to NovaStar Home described the latter as a “customer,” stated the initial interest rate on Brown’s adjustable rate loan would be 8.2%, and discloses that NovaStar Mortgage would pay NovaStar Home a broker fee of 3% of the loan amount. Id. This summary also revealed that the interest rate on the loan in the absence of the YSP would have been 6.45%, id. The class action alleged that Brown never received a good faith estimate; an allegation NovaStar disputed. Id., at 1209-10. Brown signed the promissory note on May 28, 2004, and that same date NovaStar Home transferred the loan to NovaStar Mortgage through an allonge. Id., at 1209. The loan was funded through a “UBS warehouse loan,” and then transferred to a Wachovia Bank line of credit, id., at 1210. The loan documents provided to Brown “[did] not clearly distinguish between NovaStar Home and NovaStar Mortgage,” id.

Class Action Court Decisions RESPA/TILA Class Actions Uncategorized



TILA Class Action Defense Cases-Andrews v. Chevy Chase: Wisconsin Federal Court Certifies Lawsuit As Class Action And Holds Lender Violated TILA And That Class Action Complaint May Seek Rescission And Attorney Fees

Jun 25, 2007 | By: Michael J. Hassen

Class Action Requirements of FRCP Rule 23 Satisfied in Class Action Complaint Allegation Violations of federal Truth in Lending Act (TILA), Bank’s TILA-Mandated Disclosure Statements Failed Adequately to Inform Borrowers of Loan Payment Schedule and Interest Rate, and Class Action Plaintiffs may seek Rescission and Attorney Fees, but not Statutory Damages, Wisconsin Federal Court Holds

Plaintiffs filed a putative class action against Chevy Chase Bank for violations of the federal Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq., in that the Bank allegedly failed to make the requisite disclosures in connection with adjustable rate mortgage loans. Andrews v. Chevy Chase Bank, FSB, 240 F.R.D. 612, 614 (E.D. Wis. 2007). Defense and plaintiffs’ counsel filed cross-motions for summary judgment, and plaintiffs moved the court to certify the litigation as a class action; the district court granted in part and denied in part each of the summary judgment motions, and granted class action status to the TILA complaint.

Plaintiffs secured a loan from Chevy Chase bank in June 2004 to refinance their Wisconsin home. Andrews, at 614. The Bank’s initial disclosures included a handbook on adjustable rate mortgages (ARMs), an ARM disclosure and a preliminary disclosure statement as required by TILA, id., at 615. Additional disclosures were provided at closing, including an Adjustable Rate Note (ARN), a Truth in Lending Disclosure Statement (TILDS) and an Adjustable Rate Rider (ARR), id. The class action complaint alleged that plaintiffs’ believed the interest rate and payments “were fixed for five years and became variable thereafter”; in fact, the payment was fixed but the interest rate was not. Id. As the district court explained at page 615, “The loan carried a discounted or ‘teaser’ interest rate of 1.950 percent, but that rate applied only to the first monthly payment, after which the interest rate increased every month according to a formula. As the interest rate increased, an ever increasing portion of the minimum monthly payment of $701.21 was needed to cover interest, and the minimum payment itself soon became insufficient to cover accrued interest.” The class action complaint alleged that the Bank’s disclosures failed to comply with TILA.

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TILA Class Action Defense Cases-Andrews v. Chevy Chase: Wisconsin Court Grants Defense Request For Stay Of Class Action Pending Appellate Review Of Order Certifying Federal Truth-In-Lending Act (TILA) Lawsuit As A Class Action

May 9, 2007 | By: Michael J. Hassen

Uncertainty as to Whether Seventh Circuit will Hold that Class Action Under TILA (Truth-in-Lending Act) may seek Rescission Warrants Stay of Proceedings Pending Appeal Wisconsin Federal Court Holds Plaintiff filed a class action against Chevy Chase Bank alleging various violations of the federal Truth-in-Lending Act (TILA). Ultimately, the district court extended by three years the borrowers’ rescission period based on its finding that the bank materially violated TILA, and certified the litigation as a class action “leaving the decision as to whether to actually seek rescission to each individual class member.

Certification of Class Actions Class Action Court Decisions RESPA/TILA Class Actions Uncategorized



TILA Class Action Defense Cases-Carye v. Long Beach: Massachusetts Federal Court Dismisses Individual Rescission Claims In TILA Class Action But Denies Defense Request To Dismiss Class Action Claim And Motion To Sever

Apr 13, 2007 | By: Michael J. Hassen

As Matter of First Impression, Massachusetts Federal Court Holds that Rider Creates Security Interest in Property Required to be Disclosed under Federal Truth in Lending Act (TILA)

Plaintiff filed a putative class action against his mortgage lender, Long Beach Mortgage Company, for alleged violations of the federal Truth in Lending Act (TILA), later amending the class action complaint to add two additional party plaintiffs and two additional claims – a class action claim under TILA’s state law counterpart, the Massachusetts Consumer Cost Disclosure Act (MCCDA), and an individual claim for under TILA and MCCDA for rescission. Carye v. Long Beach Mortgage Co., 470 F.Supp.2d 3, 5 (D. Mass. 2007). Defense attorneys moved to dismiss the class action claim and plaintiff Carye’s individual claims for rescission pursuant Rule 12(b)(6), and moved also to sever the claims of the newly added plaintiffs. Id. The defense argued that the class action claim failed because TILA does not require the disclosure of the security interest created by Id.

As the district court explained, TILA requires that a creditor disclose to the borrower any security interest taken in property purchased as part of the loan transaction and in any property not purchased as part of the transaction but separately identified. Carye, at 6-7. In this case, plaintiffs borrowed money from Long Beach Mortgage secured by their residences, and each of them signed a 1-4 Family Rider/Assignment of Rents (Rider) as part of their loan documentation. Carye, at 5-6. The Riders created a security interest in property separately identified in detail (see Note, below). Plaintiffs urged that this constituted a violation of TILA; Long Beach argued that the interest was merely “incidental” and, accordingly, was not required to be disclosed under TILA. Id., at 7. Plaintiffs countered that the Rider “created a security interest in virtually all of the plaintiffs’ personal property” and had to be disclosed. Id., at 7-8.

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RESPA Class Action Defense Cases-Benway v. Resource Real Estate Services: Maryland Federal Court Rejects Defense Arguments And Certifies Class Action Under RESPA (Real Estate Settlement Procedures Act)

Apr 4, 2007 | By: Michael J. Hassen

Maryland Federal Court Redefines Class to Address Typicality Concerns In Federal Real Estate Settlement Procedures Act (RESPA) Class Action and then Certifies Class Action Alleging Illegal Kickbacks and Payment of Unearned Fees Under RESPA

Plaintiffs filed a class action in Maryland state court against various defendants alleging that they charged excessive fees in connection with mortgage brokerage, title or settlement services and would pay referral fees in violation of the federal Real Estate Settlement Procedures Act (RESPA); defense attorneys removed the class action to federal court. Benway v. Resource Real Estate Serv., LLC, 239 F.R.D. 419, 421 (D. Md. 2006). Plaintiffs moved to certify the lawsuit as a class action; defense attorneys objected that commonality, typicality and adequacy did not exist under Rule 23(a), and that the motion failed to establish that the requirements of Rule 23(b). Id., at 422. The district court granted the motion but limited the scope of the class action. Specifically, the court certified a class action on behalf of “All borrowers who entered into mortgage loan transactions using the services of Resource Real Estate where the HUD-1 Settlement Statement, or other documents in the loan file, included a charge for or payment to Clipper City Settlement Services, Inc.” Id., at 427.

The class action complaint alleged that Resource Real Estate Services provides real estate title and mortgage loan closing services and that Millard Rubenstein is its majority owner and its Managing Member, that Access One Mortgage Group provides mortgage broker services, and that Resource and Access One formed an affiliated business arrangement (ABA) called Clipper City Settlement Services “to appear on mortgage closing documents as an entity which had performed title work or settlement services.” Benway, at 421. The class action alleged “Resource and Access One conducted a scheme to extract referral fees from borrowers using ABAs like Clipper City”; specifically, Access One would refer borrowers to Resource for title work and Resource would perform the title work, but “the loan closing documents would attribute that work to Clipper City, and the fees charged for the work would exceed the customary fees charged by Resource.” Id. Plaintiffs also allege that Resource “would channel a portion of the fees collected by Clipper City to Access One as a referral reward, without notifying the borrower.” Id.

Certification of Class Actions Class Action Court Decisions RESPA/TILA Class Actions Uncategorized



TILA Class Action Defense Cases-McKenna v. First Horizon: First Circuit Holds As Matter Of First Impression That Rescission Relief Under Federal Truth In Lending Act (TILA) Not Appropriate For Class Action Treatment

Mar 12, 2007 | By: Michael J. Hassen

As Matter of First Impression, Class Action Treatment for Rescission Claims Under TILA (Truth in Lending Act) is not Proper First Circuit Holds Plaintiffs filed a putative class action in Massachusetts federal court against First Horizon Home Loan alleging that it violated the federal Truth in Lending Act (TILA) and its state law equivalent, the Massachusetts Consumer Credit Cost Disclosure Act (MCCCDA) by failing to accurately disclose to borrowers their statutory rescission rights.

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