## In the



# United States Court of Appeals

for the Fifth Circuit

_______________



### m 01-21028

_______________



### T HERESA 

### O’S ULLIVAN



### ,

FOR H ERSELF AND A LL O THERS S IMILARLY S ITUATED ; ET A L

.



### Plaintiffs,



### J ON 

### M AYNARD



### ,

FOR H IMSELF AND A LL O THERS S IMILARLY S ITUATED ;



### H EATHER 

### M AYNARD



### ,

Plaintiffs-Appellees,

VERSUS



### C OUNTRYWIDE 

### H OME 

### L OANS



### , I NC



### .,

Defendant-Appellant

****************************************************2 

### m 01-51190

_______________



### S ERGIO 

### R UIZ



### ,

Respondent-Appellee,

VERSUS



### C OUNTRYWIDE 

### H OME 

### L OANS



### , I NC 

### .;

P EIRSON 

### & P ATTERSON



### , L.L.P.,

Petitioners-Appellants.

_________________________

Appeals from the United States District Court

for the Southern District of Texas

and the Western District of Texas

February 7, 2003

Before J ONES , S MITH , and S ILER

, *

Circuit Judges.

JERRY E. SMITH, Circuit Judge:

In these consolidated appeals, each district

court cert ified a class of plaintiffs who paid

mortgage preparation fees to law firms selected by defendant Coun t rywide Home Loans,

Inc. (“Co u ntrywide”), a mortgage broker.

Plaint iffs allege that Country wide accepted

kickbacks from the law firms in violation of the Rea l Estate Settlement Procedures Act

(“RESPA”), 12 U.S.C. § 2607(a)-(b ), and

violat ed the Texas Unauthorized Practice of

Law (“UPL”) S tatute, T E X

. G OV ’ T C ODE

§§ 83.001-83.006. Because we conclude that

both district courts im

p roperly certified the

classes, we reverse and remand.

I.

Countrywide originates and services mortgage lo ans, offering approximately 250 loan

programs to potential homeowners. Consumers can obtain a loan either through one of

Cou nt rywide’s thousands of retail storefront

locations or through a mortgage broker.

* Judge of the United St ates Court of Appeals

for the Sixth Circuit, sitting by designation.3

Countrywide prepares a set of closing docum ent s for each loan. Consistent with state

law, Countrywide uses attorney s to prepare

these documents for its wholesal e and retai l

loan operations. 1 Federal law requires Countrywide to provide a HUD-1 Settlement Statement (“HUD-1") to borrowers and sel l ers to

disclose the various settlement costs, including

attorney’s fees, that are listed as a “Document

Preparation Fee” on the HUD-1.

Plaint iffs Jon Maynard (No. 01-21028) and

Sergio Ruiz (No. 01-51190) obtained home

mortgage loans from Countrywide. Maynard

obtained his loan from one of Countrywide’s

Texas retail locations; Ruiz transac ted wi th

Countrywide’s wholesale division through a

mortgage broker. At closing, both paid document preparation fees that appeared as a direct

payment to th e law firms on their HUD-1

statements. Maynard’s HUD-1 reflected a

paymen t of $225 to Gregg & Valby

, 2 a law

firm serving as the exclusive residential mortgage document preparer for Countrywide’s

T exas retail division. Ruiz’s HUD-1 showed

a payment of $2 00 to Pei rson & Patterson, a

preparer for Countr ywide’s who lesale divisio n.

Gregg & Valby and Peirson & Patterson

provide legal services to Countrywide through

a time-saving process that permits the processing of documents in bulk. Countrywide owns a computer software system, known as EDGE,

containing various legal and non-legal d o cuments nec essary for the completion of residential mortgage transactions. Once a potential homeowner is approved for a loan, a

Countrywide employee enters data concerning

the transaction into EDGE, including information on the borrower and the property, the

loan amount, and ap p licable interest rates.

This process takes between two and five

hours.

The E DGE system generates an initial set

of mortgage closing documents, the quantity

of which varies depending on the type of loan.

In the retail division, the documents are printed by Countrywide employees and faxed to

Gregg & Valby’s offices, where they are reviewed by attorney and non-attorney loan speci alists. Gregg & Valby prepares a response

sheet for Countrywide indicating any needed

corrections. Approximately half o f the loan

documents are sent back to Gregg & Valby for

a second review, and some are sent back additional times before final approval.

Peirson & Patterson’s employees, on the

other hand, are l ocated on-site at

Countrywide’s wholesale division. Al though

Countrywide employees still init ially enter data

into the EDGE system, P eirson & Patterson

employees select and print the mortgage

forms. Like the retail division, representatives

of the law firm review the forms for content

and accuracy. Nevertheless, Peirson &

Pat terson employees make any necessary

corrections, so there is no shuffling of papers

between separate offices.

A portion of the document preparation fee

paid to Gregg & Valby and Peirson & Patterson is reimbursed to Countrywide, whichcontends this porti on of the fee represent s its 1 Texas law prohibits non-lawyers from directly

or indirectly charging compensation for “all or any

part of” the preparation of loan documents

affecting the transfer of title to real estate. T EX

. G OV ’ T C ODE § 83.001(a).

2 In actuality, Maynard paid $175 of the total

$225 fee, while the seller paid the remaining $50.

R uiz paid the entire $200 document preparation

fee.4

s h are of the costs associated with the

prep arat ion of each set of loan closing

documents. For example, Countrywide lists

the use and maintenance of its EDGE system,

the time spent by its employ e es inputting and

gathering data, an d the costs of telephone

calls, faxes, paper, and photocopying.

The reimbursement amounts are set by

schedule and vary according to loan type. 3 For

the Maynard’s “Conventional Purchase with

Deed,” Countrywide was reimbursed $130 out

of the $225 paid to Gregg & Valby. Similarly,

$100 of Ruiz’s $200 document preparation fee

was reimbursed to Countrywide. The HUD-1

does not refle ct t he fee splitting, but rather

shows only a direct payment of th e entire

amount to the respective law firm.

Mayn ard and Ruiz allege that the fee

splitting constitutes a “kickback” or “re ferral

fee” in violation of RESPA § 8(a)-(b)

. 4 In

addition, plaintif

f s sued Countrywide under the

Texas UPL Statute, 5 argu i ng that its

participation in the pr eparation of loan

documents constituted the unauth o rized practice of law.

In Maynar

d , the district court certified a

class consisting of:

All persons in T exas who, as part of a

residential real estate loan transaction

with Countrywide, from January 10,

1996 to the present, wer e charged a

“Documen t Preparation Fee” (or portion

of a document preparation fee) on their

HUD-1 Settlement Statement, where

Countrywide received a

porti on of the

document preparation fee, and Gregg &

Valby is listed as the provider of

document preparation services.

Similarly, i n R uiz

, the district court certified

the following class:

All persons [since April 1993]: (1) who

obtained loans from Countrywide

secured by residential real property in

Texas; and (2) who paid for document

preparation fe es and/or attorney’s fees

charged by Peirson & Patterson as

reflected by the HUD-1 S et tlement

Statement.

Over objections that significant loan-to-l oan

variations in the amoun t and ty pe of work

p erformed require an individual analysis of

each transacti on to determine the

reasonableness of the reimbursed fee , the

district courts found “ t he practice itself” of

re imbursing Countrywide for its services

satisfied predominance. This court permitted

Countrywid e to appeal the class certification

orders pursuant to F ED

. R. C IV

. P. 23(f).

II.

W e review the certification of a class for

abuse of discretion. S tirman v. Exxon Corp

, 3 The Countrywide-Gregg & Valby fee schedule

is set forth in the appendix hereto.

4 RESPA Section 2607(d)( 2) requires

defendants to pay treble damages to plaintiffs

charged unearned fees. In total, Maynard seeks

approximately $9 0 million in damages for an

estimated class of 75,000 borrowers. Ruiz seeks

more than $58 million for a class of approximately

80,000 borrowers.

5 Ruiz also named Peirson & Patterson as a defendant. Because Peirson & Patterson raises essentially the same

arguments against certification

as does Countrywide, our reference t o Countrywide

includes Peirson & Patte r son unless otherwise

indicated.5

280 F.3d 554, 561 (5th Cir. 2002). Because,

however, a court abuses its discretion when it

makes an error of law, we a pply a d e novo

standard of review to such error s

. I d. T he

party seeking certification bears the burden of

demonstrating that the requirements of rule 23

have been met. A llison v. Citgo Pe t roleum

Corp. , 151 F.3d 402, 408 (5th Cir. 1998).

The district court must conduct a “rigorous

analysis of the Rule 2 3 prerequisites” before

certif ying a class. C

astano v. Am. Tobacco

Co.

, 84 F.3d 734, 740 (5t h Cir. 1996).

Among the four prerequisites of Rule 23(a) is

the requirement that “there are questions of

law or fact common t o t he class.” F E D

. R.

C IV

. P. 23(a)(2). 6 Before a class may be

maintained under rule 23(b)(3), a court m ust

also determine that “questions of law or fac t

common to the members of the class

predominate over any questions affecting only

individual members” and that “a class action is

superior to other available methods for the fair

and efficient adjudication of the controversy.”

F ED

. R. C IV

. P. 23(b)(3). The predominance

and superiority requirements are “far more demanding” than is rule 23(a)(2)’s commonality

requirement. A mchem Prods. v. Windsor

, 521

U.S. 591, 624 (1997).

Determining whether legal issues common

to the class predominate over individual issues requires that the court i nquire how the case

will be tried. C

astano

, 84 F.3d at 744. This

entails ident ifying the subst a ntive issues that

will control the outcom e, ass essing which iss ues will predominate, and then determini n g

whether the is sues are common to the class.

Although this inquiry does not resolve the case

on its merits, it requires that the court look

beyond the pleadings to “understand the

claims, defenses, relevant facts, and applicable

substantive law.” I

d. at 744. Such an

understanding p revents the class from

degenerating into a series of individual trials.

A.

RESPA seeks to ensure that real estate

c o nsumers “are provided with greater and

more t imely information on the natu re and

costs of the settlement proce ss and are

pr o tected from unnecessarily high settlement

charges caused by certain abusive practices.”

12 U.S.C. § 2601(a). Both classes were

certified under § 2607(a)-(b), which states:

(a) No person shall give and no perso n

shall accept any fee, kickback, or thi ng

of value pursuant to any agreement or

understanding

. . . that business incident

to or part of a real estate settlement service . . . shall be referred to any person.

(b) No person shall give and n o person

shall accept any portion, split, or

percentage of any charge made or

received for the re ndering of a real

estate settlement service

. . . other than

for services actually performed.

12 U.S.C. § 2607(a) -(b). Despite a

prohibition against kickbacks and referral fees,

RESPA § 8(c) perm

its “t he payment to any

person of a bona fide sa lary or compensation

or other paymen t for goods or facilities 6 The four rule 23(a) requirements ar e :

“(1) numerosity (a class so large that joinder of all

member s is impracticable); (2) commonality (questions of law or fact common to the class);

(3) typicality (na med parties’ claims or defenses

are typical of the class); and (4) adequacy of representation (representative s will fairly and

ad equately protect the interests of the class).”

Mulle n v. Treasure Chest Casino, L.L.C. , 186

F.3d 620, 623 (5th Cir. 1999).6

ac t ually furnished or for services actually

performed.” 12 U.S.C. § 2607(c)(2).

Both classes were certified after a

determina ti on that rule 23(a)(2)’s commonality

requirement is met by the issue of whether

Countrywide’s receipt of compensati on from

Gregg & Valby and Peirso n & Patterson

constitutes an illegal kickback or ref erral fee

arrangement. In assessing rule 23(b)(3)

predom i nance, both courts rejected

Countrywide’s contention that liabilit y should

hinge on determinations o f whether, in

individual cases, a reasonable relationship

exists between the value of the alleged services

provided and payment s received by

Countrywide. 7 Rather, both courts found that

plaint iffs could show “the practice itself” bears

no reasonable relationship to the value of

Countrywide’s services en toto

, while relying

on the fee splitting schedule for any postliability calculation of damages.

1.

Congress authorized the Secretary of HUD

to “prescr ibe such rules and regulations, to

make such interpretations , and to grant such

reasonab le exemptions for classes of

transactions, as may be necessary to achieve

the purposes” of R ESPA. 12 U.S.C. §

2617(a). HUD defines the § 8(c) exception in

terms of a reasonable relationship test, holding

that where “the payment of a thing of value

bears no reasonable relationship to the market

value of the goods or services provided, then the excess is not for goods or services actually

performed or provided.” 24 C.F.R. §

3500.14(g)(2). 8 This test was promulgated for

the purpose of assisting courts in ferreting out

kickbacks disguised as legitimate payments for

goods and services in co mplex real estate

settlement transactions.

In separate policy statements issued in 1999

and 2001, HUD clarified t he reasonable

relationship test in the context of lender-broker

payments known as yield spread premiums. In

its 1999 Policy Statement, HUD expressed the

reasonable relationship test from 24 C.F.R. §

350 0.14(g)(2) as a two-part inquiry : (1)

“whether goods or fa cilities were actually

furnished or services were actually performed

for the compensation paid”; and (2) “whether

the payments are reasonably r elated to the

valu e o f the goods or facilities that were

actually furnished or services that w e re

actually performed.” 9 HUD expressly limited

t he 1999 Policy Statement to payment s

between lenders and mortgage brokers. 10

7 Countrywide does not question numerosity or

typicality. Although Countrywide argues that Sergio Ruiz cannot adequately protect the interests of

his class pursuant to rule 23(a)(4), we need not

ad dr ess this argument in light of our conclusion

that ques t ions of law or fact do not predominate

over questions affecting individual class members. 8 Title 24 C.F .R. § 3500.14(g)(2) states that

where a payment does not bear a reasonable relationship to goods or services pr ovided, this fact

“may be used as evidence of a viola tion of section 8.”

9 Real Estate Settlement Procedures Act

Statement of Policy 19 9 9-1 Regarding Lender

Payments to Mortgage Brokers, 64 Fed. Reg.

10,080, 10,084 (March 1, 1999).

10 So far as we can tell , courts have applied

both the 1999 and 2001 P o licy Statements

exclusively in yield spread premium cas es. E .g.

, Heimmermann v. First Uni on Mortgage Corp.

, 305 F.3d 1257 (11th Cir. 2002); Glover v.

Standard Fed. Bank , 283 F.3d 953 (8th Cir.

2002); Schuetz v. Banc One Mortgage Corp.

, 292

(continued...)7

Yield spread premiums, analogous in some

ways to Countrywide’s reimbursement fee, enable borrowers to finance up-front closing

costs by paying a higher interest rate on their

home loan. HUD Policy Statement 1999, at

10,081. The yield spread premium is a

payment from the lender to the broker, the

amou nt of which reflects the loan’s interest

rate and consequently the lender’s profits. I d.

Although yield spread premiums are desirable

from a policy standpoint, because they permit

borrowers to finance up-front closing costs,

they are criticized by some as blatant referral

fees, varying o nly according to a higher

interest rate pushed on the borrower and not

by the broker’s actual services. 11

Following HUD’s 1999 Policy Statement,

a few courts certified class actions contesting

yield spread premiums. In C ulpepper v. Irwin

Mortgage Corp.

, 253 F.3d 13 24 (11th Cir.

2001), cert. denied

, 534 U.S. 1118 (2002), for

example, the court found that the broker’s

failure to tie the yield spread premium to specific goods or services was sufficient to create

a factu a l issue as to the overall intent of the payment. 12 From the 1999 Policy Statement’s

two-part test, Culpepper interpreted the term

“for the co mpensation paid” as requiring the

defendants to tie the disputed fee to specific

goods or services provided by the broker. I d.

at 1329. In doing so, the C ulpepper court determined that RESPA § 8 class act ions could

be certified by looking only to the first prong

of the HUD test 

### SS

whether go ods or services

were provided for the disputed fee paid.

HUD disclaimed the Culpepper holding in

its 2001 Policy Statement, 13 finding class certification in yield spread premium cases like

Cul pepper i nappropriate because “neither Section 8(a ) o f RESPA nor the 1999 [Policy

Statement] supports the conclusion that a yield

spread premi

um can be presumed to be a referral fee” simply because the lender does not

ha ve specific knowledge of what services the

broker has performed. HUD Policy Statement

2001, at 53 ,055. Instead, as the 2001 Policy

Statement clarifies, there is no requirement

that the lender and broker tie the disputed fee

to specific services provided. So long as the

total compensation paid to the broker is

reasonably related to the t otal value of the

goods or services actually provided, there is no

10 (...continued)

F.3d 1004 (9th Cir. 2002).

11 See Schuetz

, 292 F.3d at 1015 (“I s ee the

phrase ‘yi eld spread premium’ as an obfuscatory

way of a v oiding calling a kickback a kickback.”)

(Kleinfeld, J., dissenting); Glover

, 238 F.3d at 958

(“Some consumers . . . allege that this

compensatio n system is illegal under RESPA

because it foste

r s the payment of prohibited

referral fe es. Others view this practice as an

option that fo s ters home ownership because it

reduces the a mount of money required from

borrowers up-front and out-of-pocket.”). 12 Culpepper , 253 F.3d at 1332 (noting an absence of evidence showing “ t hat [the lender] negotiates yiel d spread premiums loan-by-loan, rather

than paying them according to terms and conditions

common to all loans. Nor does [the lender] contend

that it intends some yield spread premiums to pay

for services and others to pay for referrals.”).

13 Real Estate Settlement Procedures Ac t

Statement of Policy 2001-1: Clarification of Statement of Policy 1999-1 Regarding Lender Payments

to Mortgage Brokers, and Guidanc e Concerning

Unearned Fees Under Section 8(b), 66 Fe d. Reg.

53052 (October 18, 2001).8

§ 8 liabilit y. 14

We defer to 24 C.F.R. § 3500.14(g)(2), as

a broad agency

rule, insofar as it provides a

mechanism for detecting kickbacks where the

§ 8(c) exception is invoked. Where, as here,

agency regulations are promulgated under express congressional autho rit y, they are given

controlling weight unless they are arbi trary

, capricious, or manifest ly cont rary to the

statute. C

hevron U.S.A., Inc. v. Natural Res.

Defense Council, Inc.

, 467 U.S. 837, 844

(1984). 15 Given the failure of § 2607(a)-(b) to

provide a workable liability standard, we cannot say that the reasonable relationship test is

manifest ly contrary to the plain meaning of the

statute. If anyt

hing, RESPA’s stated goal of

eliminat ing “kickbacks or referral fees that

tend to increase unnecessarily the costs of certain set t lement services,” 12 U.S.C. § 2601-

(b) (2), is furthered by the reasonable

relationship test, so we are bound to apply it in

assessing certification.

In addition, we look to the 1999 and 2001

Policy St at ements insofar as they express the

reasonable relation ship test as a two-part inquiry, asking fir st whether Countrywide

provided goods or services in connection with

the particular transaction, and second, whether Countrywide’s compensation is reasonably related to t he value of those goods or services.

We do not decide whether the p o licy

statements are entitled to Chevron deference, 16

no r whether, for purposes of the reasonable

relationship t est , the proper reference is the

t ot al mortgage transaction or only the

reimbursement and services associated with

Countrywide’s preparati on of legal

documents. 17 Either way, both courts abused

their d iscretion in certifying the RESPA

claims.

2.

Plaintiffs concede Countrywide performed

some services in furtherance of document preparation, but argue that its reimbursements do

not represent the reasonable value of those

services. We apply HUD’s reasonable

relationship t est , which holds that any excess

may be used as evidence of a kickback or

referral fee.

Using a rationale similar to that of the Eleventh Circuit in certifying a yield spread

premium class in Culpepper

, both courts found

certification proper, because they beli e ve

predominance exists regarding whether “the

14 Id. at 53,055. Following HUD’s 2001 Policy

Statement, the Eleventh Circuit overruled Culpepper in Heimmermann , 305 F.3d at 1263.

15 See also Unit e d States v. Mead Corp.

, 533

U.S. 218, 226-27 (2001) (“[A]dministrative implementation of a particular statutory provision qualifies for Chevron deference when it appears that

Con gr ess delegated authority to the agency generally to make rules carrying the force of law, and

that the agency interpretation claim ing deference

was promulgated in the exer cise of that authority.”). 16 See Krzalic v. Republic Title Co.

, 2002 U.S.

App. LEXIS 26744, at * 20 (7th Cir. Dec. 26,

2002) (Ea sterbrook, J., concurring) (“I am

confident that Heimmermann and Schuetz erred in

thinking that the Real Estate Settlement

Proc edures Act Statement of Policy 2001-1 i s

itself conclusive under Chevron

, as opposed to

informative (and potentially persuasive).”).

17 In its discussion of the issue, however, Countrywide appears to argue that liability depends on

finding a reasonabl e relationship between its

r eimbursement and the value of its document

preparation se

r vices, not its total compensation,

goods, and services.9

overall practice” violates RESPA. Plaintiffs

indeed argue that they have evidence showing

the reimbursement payments were not tied to

the services provided by Countrywide, and

thus violate § 8. Count rywide argues the

HUD reasonable relationship test requires a

transaction-by-transaction inquiry to assess

whether Countrywide’s reimbursement is

reasonably related to the undisputed services it

provides in connection wit h document

preparation.

Both courts erred by failing to acknowledge

Countr ywide’s use of the § 8(c) exception as

a defense. C

astano

, 84 F.3d at 7 44.

Consistently with th e HUD reasonable

relationship test, individualized factfinding will

be required for each transaction on the issues

of what goods or services Gregg & Valby and

Peirson & Patterson provided to Countrywide,

and whether the flat fee ch arged was

reasonably related to their value. Plaintiffs do

not attempt to argue t hat Country wide

provided identical goods and services 

### SS in type

or quantity 

### SS

in each transaction.

The overall intent of the reimbursem e nt

practice, although perhaps sat isfying the rule

23(a)(2) commonality requirement as a factual

issue co mmo n to all or at least most class

members, 18 does not satisfy the more exacting

requirements of predominance. The only way

the overall pra ct ice may be proven to violate

RESPA, consistently with the HUD liability

st andard, is to examine the reasonableness o f

payments for goods and services. This inquiry must be performed on a tr a nsaction-bytransact i on basis, because a single finding of

liabilit y based on an unreasonable relationship

between goods and s ervices does not

necessitate the conclusion t hat such

unreasonableness exists on a classwide basis. 19

In both proposed class acti ons, there i s a

question whether an overall practice or policy

violates a statute. But rule 23(b)(3)

predominance requires a court to ask, in light

of how liabilit

y is establi shed under the

relevant statute, whether co m mon questions

pre do minate over individual ones. Because

RESPA § 8 liabilit

y is established by making

individual compar isons of compensation to

actual services, no t by presuming fire where

there is smoke, we find certification improper.

B.

Both courts also certified classes under the

UPL claim. Texas law forbids nonlawyers

such as Countrywi de from charging or

r eceiving, either directly or indirectly, “a n y

compensation for all or any part of the

preparation of a legal instrument affecting title

to real property .” T E X

. G OV ’ T C ODE § 83.001.

Plaint iffs contend that Countrywi d e’s role in

18 See Jenk ins v. Raymark Indus. , 782 F.2d

468, 472 (5th Cir. 1986) (stating that the threshold

for commonality is not “high,” requiring only that

“resolution of common questions affect all or a

substantial number of the class members”) (citation

omitted). 19 S ee LaCasse v. Washington Mutual, Inc.

, 198 F. Supp. 2d 1255, 1264 (W.D. Wash. 2002)

(“Given the

possibility that some or all of the defendants’ yield spr ea d premiums may have

constituted an exchan ge for goods or services, it

would be impossible to determine liability from

generalized proof.”); Taylor v. Flagstar Bank,

F.S.B. , 181 F.R.D. 509, 523 (M.D. Ala. 1998)

(“[N]o matte

r what Plaintiffs can easily prove

ab out the general contours of these transactions,

Plaintif fs still cannot prove (by a class method)

that none of the yield spread premiums at i ssue

were earned through the provision of services.”).10

preparing the loan closing documents violates

the UPL s t atute. As with RESPA, however,

the q uest io n o f class certification is

complicated by the fact that cha p ter 83 does

not prohibit “an attorney from p aying

secretarial, paralegal, or other ordinary and

reasonable expenses necessarily a nd actually

incurred by the attorney for the preparation of

legal instruments .” T E X

. G OV ’ T C ODE §

83.002. These services are not proscribed by

chapter 83, because they do not require the

use of “legal skill or knowledge.” 20

Countrywide init ially argues that neither

Maynard nor Ruiz has standing under the Texas UPL statute. As an “inherent prerequisite

to the class certification inquiry,” R ivera v.

Wyeth-Ayerst Labs. , 283 F.3d 315, 319 (5th

C ir. 2002) (citation omitted), we mus t

determine whether plaint iffs have a valid cause

of action under Texas law and whether they

have stated an injury-in-fact. Id. The statute

confers a cause of action on “any person who

pays a fee prohibited by [T E X

. G OV ’ T C ODE

§ 83.001].” T EX

. G OV ’ T C ODE § 83.005.

Countrywide argues that Maynard and Ruiz

cannot sue und er § 83.005, because the law firms, not plaint iffs, actually reimburse d the

fee. We disagree. Section 83.001 prohibit s

those fees paid either “directly or indirectly”

for the preparation of real estate legal

documents. Realizing that Maynard and Ruiz,

as borrowers , ultimately paid all transaction

fees, the fact that plaint iffs indirectly paid the

disp u ted fee by first paying a document

preparation fee to the law firms does not

defeat their r ight to sue. Countrywide’s

narrow interpretation of chapter 83 standin g

would eviscerate the term “indirectly” from §

83.001.

Insofar as Countrywide argues that

plaint iffs have not suffered a legally cognizable

injury-in-fact bec ause they do not complain

they were charged to o high a fee for the

mortgage documents or that the document s

we re deficient, they ignore the fact that §§

83.001 and 83.003 create a right to recoup

fees paid to nonlawyers who exercise l e gal

s kill or knowledge in preparing leg a l

documents. Because only those persons who

pay a fee can sue under § 83.005, the UPL

statute is distinguishable from those statut e s

violating A

rt icle III that permit “any person”

to bring suit. 21

Init ially, rather than pointing to specific acts

re q uiring the use of legal skill or knowledge

common to e ach and every transaction,

Maynard and Rui z allege that Countrywide’s

actions “across the board” violate t he Texas 20 The parties dispute whether liability under §

83.001 requires the exercise of legal skill or

knowledge. Given that subchapter G is entitled

“Unauthorized Practice of Law,” and § 81.101 defines “practice of law” as “any service requiring

the use of legal skill or knowledge,” it appears that

the Texas legislature sought to prohibit nonlawyers

from exercising legal skil l or knowledge in the

preparation of legal documents. This view is

supported by an interpretativ e opinion issued by

the Texas Attorney General. See O P

. T EX

. A TTY

. G EN

. JM-943, 1988 WL 406255, at *2 (1988)

(“What is meant in

[chapter 83] by the ‘preparation of lega l instruments’ must be decided with

reference to the practice of law.”). 21 S ee Lujan v. Defenders of Wildlife

, 504 U.S.

5 55, 572-74 (1992) (holding that provision i n

Endangere d Species Act allowing any person to

bring a lawsuit to enforce compliance with

procedural requirements could not vest standing in

plaintiff who had not suffered an injury).11

UPL statute. 22 As with the RESPA claims,

both courts found that individual issues did not

predominate, because it was Co untrywide’s

overall practice that violates the UPL statute.

The district courts’ reasoning fails to account

for Countrywide’s intent to use § 83.002 as a

defense, sp ecifically that its reimbursements

were ordinary and reasonable compen sati on

for secretarial or clerical assistance.

Ruiz takes issue with the overall

reimburse m ent scheme by arguing that it

conflicts with rule 5.0 4 of the Texas

Disciplinary Rules of Professional Con duct,

which prohibits lawyers from splitting fees

with nonlawyers. 23 Assuming a rguendo that

the reimbursement scheme violates rule 5.04, 24 Ruiz points to no au t ho rity suggesting that

chapter 83 should be construed in light of the

Texas Disciplinary Rules of Professional

Conduct. Whereas the disciplinary rules apply

only to lawyers, chapter 83 imposes liabilit y on

non-lawyers. 25 Given § 83.002's failure to

mention rule 5.04 or any authority suggesting

t hat its terms do not mean what they say, we

will construe the statute according only to its

plain language, which sets no limitation

regarding how a lawyer may pay for secretarial

or clerical assistance.

Mayn a rd, while similarly arguing that the

overall reimbur s ement scheme is inconsistent

with the Texas UPL statute, contends that

some of Countrywide’s individual practices violate chapter 83 . For instance, Countrywide

employees examine and constru e previous

mortgage documents in order to select which

o ne of the more than 250 forms will be used

for a particular transaction. Without deciding

whether this practice constitutes the

unauthorized practice of law, we note that

Countrywide does not deny that its employees

are responsible for selecting the proper form in

each and every transaction.

Similarly, it is undisputed that Countrywide

employees enter data into EDGE, generate an

init ial set of closing documents, fax the

documents to Gregg & Valby, and enter

suggested changes in each transaction. A

finding that any of these practices, standing

alone, requires the use of legal skill or 22 Maynard, for example, sta tes: “The

important point

. . . is that the foc us of the issue

truly is o n the overall ‘program,’ as the district

court correctly noted in its opinion.” Ruiz states

th a t “the very nature of the arrangement between

Peirson & Patterson and Countrywide is prohibited

by Texas law governing the conduct of lawyers.”

23 Rule 5.04 states that “a lawy er or law firm

shall not share or promise to share legal fees with

a non-lawyer.” T E X

. D ISC I PLINARY R. P ROF ’ L

C ONDUCT 5.04(a), re

printed in Tex. Gov’t Code

Ann., tit. 2, subtit. G app. A (Vernon 1998) (T EX

. S TATE B AR R. art. X, § 9).

24 Nevertheless, we note our inability to discern

a meaningful distinction between the CountrywidePeirson & Patterson fee arrangement characterized

by Ruiz as “systematic,” and the salary typically

paid to a secretary at a law firm, which Plai ntiffs

concede is permissible under § 83.002. Both fees

are pre-determined, scaled, and split from a

lawyer's profits. Given that § 83.002 presupposes

payments for secretarial or paralegal work, Rule

5.04 cannot be as constraining as Ruiz would have

us believe.

(continued...) 24 (...continued)

25 It is also worth noting that the T exas

Disciplinary Rules of Professional Conduct are

promulgated by the Texas Supreme Court, while

chapter 83 is a duly enacted statute by the state

legislature.12

knowledge is sufficient to confer liabilit y under

the Texas UPL. 26

E ven though a class is theoretic ally

certifiable on these issues, we find that an

apportioned calcul ation of damages 

### S S required

by the Texas UPL statute 

### SS mea ns that

individual issues predominate. Section 83.001

prohibits compensation for “all or any part” of

the preparation of mortgage documents, while

Section 83.005 gran t s “recovery of the fee

paid” to “[a] person who pays a fee prohibited

by [chapter 83].” In deciding whether the

t erm “fee” should be interpreted as (1) t he

amount charged to Plaint iffs on their HUD1’s, (2) the amount reimbursed to

Countrywide, or (3) the porti on o f the

reimbursement actually spent on unauthorized

services, we are guided by Section 83.005’s

requirement that a

recovered fee be

“prohibited by [chapter 83].” Only the last of

the three possibilities is a fee pro hibited in its

entirety. Therefore, a plaintiff suing under the

Texas UPL statute is ent it led to recover only

that porti on of his total fee used to a ctuall y

finance the unauthorized practice of law.

The extent (but not the nature) of

C ountrywide’s participation in the transact ions

varies, making ind ividualized calculations of

damages p redo minate. Where the plaintiffs’ damage claims “focus almost entirely on facts

and issu e s specific to individuals rather than

the class as a whole,” Allison

, 151 F.3d at 419,

the potential exists that the clas s action may

“ degenerate in practice into multiple lawsuits

separately tri ed,” C

astano

, 84 F.3d at 745

n.19 (citation omitted). In such cases, class

certification is inappropriate. 27

As we have noted, there are several

practices common to each transaction that may

or may not req uire t he use of legal skill or

knowledge. Although the propriety of each

practice can be determined on a classwide basis, the calculation of damages cannot. For example, at least one practice 

### SS data entry 

### S

S is

almost surely a secretarial or clerical function

within the mea ning of the § 83.002

exception. 28 Countrywide has demonstrated

26 Ruiz cannot make this argument, because

Peirson & Patterson employees (attorney and nona ttorney), not Countrywide employees, select and

generatethe mortgage forms in the wholesale division. The only practice performed by

Countrywide em

p loyees in every wholesale

transaction is data entry, a practice that even Ruiz

does not argue is non-secretarial. As for Peirson &

Patterson’s potential liability for permitting it s nonat tor ney employees to select and generate forms,

the analysis is the same as for Countrywide’s retail

division in Maynard. 27 Allison

, 151 F.3d at 413 (“[A]s claims for

individually based money damages b egin to predominate, the presumption of cohesiveness

decreases whil e the need for enhanced procedural

safeguards

. . . increases.”) (citation omitted);

Mont elongo v. Meese , 803 F.2d 1341, 1351 (5th

Cir. 1986) (stating that claims are unsuitable for

class treatment when individual questions, such as

reliance and damages

, pr edominate over class

questions”) (emphasis added). But see Bertulli v.

Indep. Ass’n of

Cont’l Pilots , 242 F.3d 290, 298

(5th Cir. 2001) (“Although calculating damages

will require some individualized determinations, it

appears that virtually every issue prior to damages

is a common issue.”). Importantly, in B ertulli

, the

court recognized the plaintiffs’ claims for

injunctive relief on top of money damages, noting

that “not all of the relief requires individualized

determination.” Id.

28 The 1988 Texas Attorney General Op inion

supports our view that data entry likely qualifies as

secretarial-type work under the § 83.002 exception:

(continued...)13

that the amount of data entry required in each

transaction varies depending on the type of

loan and the number of corrections required by

Gregg & Valby. Under the recovery provision

of the Texas UPL, Countrywide is entitled to

keep the reasonable value of its secretarial or

clerical se rvices even if the other practices

violate Chapter 83. In light of the individual

calculation of dama g es that is required, the

district court abused its discretion in certifying

the UPL claims.

The orders certifying the respective classes

are REVERSED, and these matters are

REMANDED for further proceedings.

28 (...continued)

“[T ]he mere act of recording a borrower’s

responses to the questions on a standard form probably does not require legal skill or knowledge and

would therefor e not be practicing law . . . .” O P

. T EX

. A TTY

. G EN

. JM-94 3, 1988 WL 406255, at

*2.14 Appendix

LOAN TYPE INVOICE PAYMENT TO AMOUNT RETAINED

AMOUNT COUNTRYWIDE BY GREGG & VALBY

Conventional Purchase $ 175 $ 100 $ 75

Conventional Purchase $ 225 $ 130 $ 95

with Deed

Conventional Refinance $ 175 $ 100 $ 75

FHA Purchase $ 175 $ -0- $ 175

FHA Purchase with Deed $ 225 $ 50 $ 175

FHA Refinance $ 150 $ -0- $ 150

VA Purchase $ 175 $ 100 $ 75

VA Purchase with Deed $ 225 $ 130 $ 95

VA Refinance $ 100 $ -0- $ 100

Second Lien $ 75 $ 45 $ 30

One Time Close $ 295 $ 170 $ 125

The Countrywide-Peirson & Patterson rate schedule is less complex: The law firm receives a flat rate

of $200 for most loans, of which $100 is reimbursed to Countrywide. For FHA and VA loans only,

Peirson & Patterson receives $150, of which Countrywide is reimbursed $50.