Opinion ID: 3015339
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Heading: any actual damage sustained by such person as a

Text: result of the failure; . . . . 15 U.S.C. § 1640(a)(1). Several courts have held that detrimental reliance is an element of establishing actual damages under TILA. See, e.g., Turner v. Beneficial Corp., 242 F.3d 1023, 1028 (11th Cir. 2001) (en banc); Perrone v. Gen. Motors Acceptance Corp., 232 F.3d 433, 436-40 (5th Cir. 2000). We have not had the opportunity to examine this issue. 21 TILA also provides for attorney’s fees and costs. 15 U.S.C. § 1640(a)(3). 22 Specifically, HOEPA protections apply if a loan meets one of two high-cost loan triggers: (1) the annual percentage rate (“APR”) exceeds by eight percent the yield on Treasury securities of comparable maturity for first-lien loans, or above ten percent for subordinate-lien loans; or (2) the total of all the loan’s points and 44 subject to the restriction on terms commonly used by predatory lenders to manipulate the cost of the loans, but are also subject to special disclosure requirements. See 15 U.S.C. § 1639. Within three business days prior to the consummation of a loan, a creditor is required to disclose to the borrower, inter alia, the APR of the loan and the amount of regular monthly payments. 15 U.S.C. §§ 1639 (a)(2), (b)(1). Failure to materially comply with such requirements entitles a borrower to “an amount equal to the sum of all finance charges and fees paid by the consumer. . . .” Id. at § 1640(a)(4). Voluntary assignees of a credit obligation are liable for TILA or HOEPA violations by the original creditor where the violation is apparent on the face of the disclosure statement. Id. at § 1641(a). An affirmative action under HOEPA must be brought within one year of the violation, id. at § 1640(e), and an action for rescission must be brought within three years, 12 C.F.R. § 226.23. However, these provisions are subject to equitable tolling. See Ramadan v. Chase Manhattan Corp., 156 F.3d 499, 504 (3d Cir. 1998); cf. Mullinax v. Radian Guar. Inc., 199 F. Supp. 2d 311, 328 (M.D.N.C. 2002). No statute of limitations applies to a borrower asserting a violation of TILA or HOEPA as a defense (by recoupment or set-off) in a foreclosure action. Id. at § 1640(e). Appellants contend that many class members have colorable HOEPA and TILA claims because defendants materially understated the APR in many of the class members’ TILA disclosures. More particularly, the Appellants note that the calculation of APR must incorporate “finance charges,” as defined in Regulation Z, 12 C.F.R. § 226.4. Although title fees are ordinarily excluded from the definition of “finance charges,” 12 C.F.R. § 226.4(c)(7), and therefore not incorporated into the APR, Appellants contend that the title fees in the present case are bogus because they were directly passed to the Shumway fees exceed eight percent of the loan total or $400 (adjusted for inflation), whichever is greater. 15 U.S.C. §§ 1602(aa)(1), (3); 12 C.F.R. §§ 226.32(a)(1)(i), (ii). 45 Organization. They contend that failure to incorporate these title fees into the APR calculation resulted in materially understated APR disclosures. Appellants thus urge that defendants’ potential TILA and HOEPA liability averages $20,108.76 per borrower for the nationwide class, an amount far greater than the $250 to $925 that each class member would receive pursuant to the settlement. Although class counsel do not challenge the substance of Appellants’ above arguments, they do assert that the decision not to pursue TILA and HOEPA claims was reasonable because (1) most members of the putative class had executed HOEPA disclosure forms; (2) many class members’ claims have lapsed due to HOEPA’s one-year statute of limitations on affirmative claims; (3) TILA or HOEPA claims could not be certified as a class action because prosecution would involve substantial individual inquiries; and (4) establishing actual damages would be difficult because several courts have held that detrimental reliance is an element in a TILA claim for actual damages. The District Court, on analysis, may find that these ex post rationales are not compelling. First, the TILA provisions make plain that regardless of whether a signed HOEPA acknowledgment is provided, strict liability is imposed on lenders and on their assignees if the APR of a loan is materially misstated in the TILA disclosure forms. 15 U.S.C. §§ 1639(a)(2)(A), 1641(d). Second, although it may be true that the one-year statute of limitations on affirmative TILA and HOEPA claims has lapsed for an appreciable number of class members, the relevant statutory period for claims of rescission is three years, and no limitations period applies for defensive claims for recoupment or setoff in a foreclosure action. Moreover, Appellees themselves submit that approximately 14,000 members of the class have loans that have closed “within one year of the date of filing of the relevant complaint,” see JA 1984. Thus, it appears that one-third of the class may have affirmative TILA and HOEPA claims that are not time barred. Third, class counsel provide no persuasive support for the proposition that TILA and HOEPA claims cannot be asserted as 46 part of a class action, or at the very least incorporated into the negotiations of a settlement. Indeed, 15 U.S.C. § 1640(a)(2)(B) explicitly contemplates the possibility of a class action suit. Id. Although the calculation of individual damages is necessarily an individual inquiry, the courts have consistently held that the necessity of this inquiry does not preclude class action treatment where class issues predominate. See, e.g., In re Visa Check / MasterMoney Antitrust Litig., 280 F.3d 124, 139 (2d Cir. 2001) (“Common issues may predominate when liability can be determined on a class-wide basis, even when there are some individualized damage issues.”); Bertulli v. Indep. Ass’n of Cont’l Pilots, 242 F.3d 290, 298 (5th Cir. 2001) (affirming district court’s determination that common issues predominated because “[a]lthough calculating damages will require some individualized determinations, it appears that virtually every issue prior to damages is a common issue”). This is especially true where “the fact of injury and damage break down in what may be characterized as virtually a mechanical task, capable of mathematical or formula calculation. . . .” Windham v. Am. Brands, Inc., 565 F.2d 59, 68 (4th Cir. 1977) (en banc) (internal citations and quotations omitted). Whether an individual borrower has a viable TILA or HOEPA claim may be determinable by conducting simple arithmetic computations on certain figures obtained from the face of each loan’s TILA Disclosure Statement. Finally, class counsel’s argument that assessing actual damages would be difficult in the class action context, because several courts have held that detrimental reliance is an element of establishing such damages under TILA, see, e.g., Turner v. Beneficial Corp., 242 F.3d 1023, 1028 (11th Cir. 2001) (en banc); Perrone v. Gen. Motors Acceptance Corp., 232 F.3d 433, 436-40 (5th Cir. 2000), is not persuasive. As stated above, it is undisputed that TILA subjects creditors to strict liability for claims of rescission. See, e.g., Schnall v. Amboy Nat’l Bank, 279 F.3d 205, 217 (3d Cir. 2002) (“This Court has squarely held that reliance is not an element of a cause of action [for reasons] under TILA.”); In re Porter, 961 F.2d 1066, 1078 (3d Cir. 1992) (“TILA achieves its remedial goals by a system of strict liability . . . .”). 47 Even if this court were to adopt the holdings of Turner and Perrone in actual damages cases (an issue we need not decide here), it does not necessarily follow that this “highly individualized inquiry . . . likely would have precluded . . . class certification” under Rule 23(b)(3). Appellees’ Br. at 31-32. The existence of an individual inquiry does not preclude class action treatment where all class members face the necessity of proving the same fraudulent scheme. See, e.g., Amchem, 521 U.S. at 625 (stating that even though mass accident cases are likely to present significant individual questions of liability and damages, such cases “may, depending upon the circumstances, satisfy the predominance requirement”). In re Sch. Asbestos Litig., 789 F.2d 996, 1010 (3d Cir. 1986). This is even more true in a settlement-only class action, where the court certifying the class need not examine issues of manageability. Amchem , 520 U.S. at 620. All of the above, of course, are issues to be considered by the District Court in its independent analysis. Because we do not have before us its analysis of the viability of the TILA and HOEPA claims, we will not pretermit its decision. We merely conclude that Appellants’ arguments merit more attention than they were given by the District Court as reflected in the record. If the Court determines that the TILA and HOEPA claims are viable, there may be serious questions whether the named plaintiffs’ interests are sufficiently aligned with those of absent class members as required by Rule 23(a). The age of the named plaintiffs’ loans when the relevant complaints were filed ranged from twenty-eight months (in the case of Mathis) to fifty-six months (in the case of Davis).23 JA at 497. Because the one-year statutory period for filing an affirmative TILA or HOEPA claim has lapsed for all named plaintiffs, the named plaintiffs appear to have no incentive to maximize such claims for the approximately 14,000 class members who may still retain this valuable cause of 23 The average age of the named parties’ loans at the time the relevant complaint was filed was forty-nine and one-half months. JA at 497. 48 action. Furthermore, we also note that of the named plaintiffs, only Mathis’ loan was made within the three-year period for TILA rescission claims. Our concern that the value of potential TILA and HOEPA rescission claims is not adequately represented by the named plaintiffs is heightened by the fact that the settlement only differentiates between class members who have loans that are less than one-year old and class members who have loans that are older than one year.24 See generally G.M. Trucks, 55 F.3d at 801 (providing that intra-class conflict can sometimes be discerned from “the very terms of the settlement”). Although we recognize that “adequate representation of a particular claim is determined by the alignment of interests of class members, not proof of vigorous pursuit of the claim,” WalMart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96, 113 (2d Cir. 2005), we are not convinced based on the present record that the named plaintiffs adequately represent the interests of the entire class. At the very least, consideration should have been given to the feasibility of dividing the class into sub-classes so that a court examining the proposed settlement could have judged the fairness of the settlement as it applied to similarly situated class members. See G.M. Trucks, 55 F.3d at 801. Our concern with class counsel’s representation extends to their negotiation of the settlement. “Courts examining settlement classes have emphasized the special need to assure that class counsel: (1) possessed adequate experience; (2) vigorously prosecuted the action; and (3) acted at arm’s length from the defendant.” G.M. Trucks, 55 F.3d at 801. We find no reason to doubt that class counsel are sufficiently experienced to represent the class, but we are stymied in analyzing the second and third prongs of the criteria. In G.M. Trucks, we stated that these “points require attention in view of the lack of significant discovery and the extremely expedited settlement of questionable value accompanied by an enormous legal fee.” Id. 24 Class members who have loans less than one-year old are given a higher settlement amount. 49 Class counsel admitted during oral argument that no formal discovery was conducted whatsoever—either in Kessler or in any of the five consolidated actions. While Appellees submit that formal discovery was not necessary because of the sufficiency of “informal discovery obtained by Class Counsel from witnesses and former employees,” Appellees’ Br. at 27, “we are loathe to place . . . dispositive weight on the parties’ self-serving remarks.” G.M. Trucks, 55 F.3d at 804. Without adequate exploration of the absent class members’ potential claims, it is questionable whether class counsel could have negotiated in their best interests. There is also some question whether the absent class members’ interests were sufficiently pursued by class counsel. We have already noted that class counsel never asserted colorable TILA and HOEPA claims. However, those claims were part of the settlement release. Failure to pursue such claims may suggest that class counsel subrogated their duty to the class in favor of the enormous class-action fee offered by defendants. Finally, we cannot avoid consideration of the issue of potential collusion. This court, as well as others, have commented extensively on the collusive dangers inherent in a settlement-only class action. See, e.g., G.M. Trucks, 594 F.2d at 1124; John C. Coffee, Jr., Class Wars: The Dilemma of the Mass Tort Class Action, 95 Colum. L. Rev. 1343, 1370-73 (1995); Samuel Issacharoff, Governance and Legitimacy in the Law of Class Action, 1999 Sup. Ct. Rev. 337, 388 (1999). The United States Court of Appeals for the Seventh Circuit has noted the possibility that the settlement agreement is the product of a “reverse auction,” the practice whereby the defendant in a series of class actions picks the most ineffectual class lawyers to negotiate a settlement within the hope that the district court will approve a weak settlement that will preclude other claims against the defendant. Reynolds v. Beneficial Nat’l Bank, 288 F.3d 277, 282-83 (7th 50 Cir. 2002); see also Blyden v. Mancusi, 186 F.3d 252, 270 n.9 (2d Cir. 1999). Yet another court of appeals has noted that in a settlement-only action, class counsel “might urge a class settlement at a low figure or on a less-than-optimal basis in exchange for red-carpet treatment on fees.” Weinberger v. Great N. Nekoosa Corp., 925 F.2d 518, 524 (1st Cir. 1991); see also Mars Steel Corp. v. Con’l Ill. Nat’l Bank and Trust Co., 834 F.2d 677, 680-81 (7th Cir. 1987). As we recognized in Prandini v. Nat’l Tea Co., 557 F.2d 1015, 1021 (3d Cir. 1977), there exists a special danger of collusiveness when the attorney fees, ostensibly stemming from a separate agreement, were negotiated simultaneously with the settlement. See also G.M. Trucks, 55 F.3d at 803; Court Awarded Attorney Fees, Report of the Third Circuit Task Force, 108 F.R.D. 238, 266 (1985). Aside from class counsels’ own assertions that fees were discussed after negotiations of the settlement had concluded, JA at 1383 (Declaration of Carlson), no other record evidence supports such an assertion. Furthermore, “even if counsel did not discuss fees until after they reached a settlement agreement, [such a fact] would not allay our concern since the Task Force recommended that fee negotiations be postponed until the settlement was judicially approved, not merely until the date the parties allege to have reached an agreement.” G.M. Trucks, 55 F.3d 804.25 We emphasize, as we stated above, that we do not preclude the possibility that the adequacy of class representation can be established on a more developed record. The District Court is instructed to examine carefully this matter on remand. 25 We recognize that Evans v. Jeff D., 475 U.S. 717, 734-38 (1986), overruled Prandini’s strict rule prohibiting simultaneous negotiations, but as stated in G.M. Trucks, “many of the concerns that motivated the Prandini rule remain, and we see no reason why Jeff D. or its underlying policy of avoiding rules that impede settlement preclude us from considering the timing of fee negotiations as a factor in our review of the adequacy of the class’s representation.” 55 F.3d at 804. 51