Opinion ID: 177521
Heading Depth: 2
Heading Rank: 2

Heading: The Separate Class Actions and the Initial Settlement

Text: The consolidated class actions before us began as six separate class actions. The first Davis v. CBNV, which named CBNV and RFC as defendantswas filed in Pennsylvania state court in May 2001 as a putative state-wide class action and was later removed to federal court (on federal preemption grounds). The first action to name GNBT and RFC as defendants was Ulrich v. GNBT, filed in the District Court for the Western District of Pennsylvania in September 2002 as a putative nationwide class action. The remaining four actions are: Sabo v. CBNV, filed in federal court in September 2002 as a putative nationwide class action; and Picard v. CBNV (October 2002), Mathis v. GNBT (November 2002), and Kessler v. RFC (February 2003), all filed in Pennsylvania state court as putative state-wide class actions and later removed to federal court in the Western District. R. Bruce Carlson of Carlson Lynch Ltd., located in Sewickley, Pennsylvania, was the lead plaintiffs' attorney in all six actions, and was subsequently appointed as class counsel by the District Court. [3] These actions asserted claims against CBNV, GNBT, and RFC under the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2601 et seq.; the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq.; and the usury, unfair trade practices, and consumer protection laws of Pennsylvania. Section 8(a) of RESPA prohibits the giving or accepting of any fee, kickback, or thing of value in exchange for referrals of federally related mortgage loans. 12 U.S.C. § 2607(a). Section 8(b) prohibits the giving or accepting of any portion, split, or percentage of unearned fees. Id. § 2607(b). Plaintiffs alleged that defendants violated RESPA in both ways: (1) by charging excessive origination fees (often as high as 10% of the loan principal) and paying them as kickbacks to Shumway in exchange for its mortgage-solicitation services; and (2) by charging title services fees for services that were never performed. Plaintiffs alleged that RFC, as the assignee of the closed loans, was derivatively liable for the banks' conduct. See 15 U.S.C. § 1641(d)(1). In July 2003, the named plaintiffs and the defendants (collectively, the Settling Parties) moved for preliminary approval of a proposed nationwide class action settlement (the Initial Settlement). The settlement class was defined to include all persons (1) who entered into a loan agreement with CBNV or GNBT, (2) whose loan was secured by a second mortgage or deed of trust on property located in the United States, and (3) whose loan was purchased by RFC. There was no time restriction on the class, which encompassed approximately 44,000 loans (dating back to as early as 1998). In reaching the Initial Settlement, the Settling Parties agreed that the realistic best-case scenario for RESPA damages on a per-loan basis was $4,765 ($3,675 for origination fees and $1,090 for title service fees). With a class of approximately 44,000 members, the Settling Parties concluded that the total best-case recovery for the class (after averaging the amount of individual fees charged) was approximately $200 million. [4] The Initial Settlement committed defendants to pay up to $33 million, with class members receiving between $250 and $925 each. The settlement fund would be allocated among class members based on two core factors: (1) when the class member's loan closed; and (2) the class member's state of residence when the loan closed. First, $23.2 million would be distributed automatically based on the date the loans closed. The approximately 14,000 class members whose loans closed within one year of the relevant complaints i.e., the earliest class action complaint filed against the bank that made the loan to the class member, the Davis Complaint (for CBNV borrowers) and the Ulrich Complaint (for GNBT borrowers)would receive $600 automatically. This structure reflected the hurdle posed by RESPA's one-year statute of limitations, which begins to run from the date of the occurrence of the violation, 12 U.S.C. § 2614, i.e., the date the loan closed, see, e.g., Snow v. First Am. Title Ins. Co., 332 F.3d 356, 359-61 (5th Cir. 2003). As the Settling Parties explain, [t]his was a negotiated compromise of a vigorously disputed issue: whether the named plaintiffs in the other four actions, as well as the absent class members, could rely on the filing dates of the Davis and Ulrich complaints to make their RESPA claims timely. (Settling Parties' Br. at 71.) Class members whose loans closed more than one year before the Davis or Ulrich complaints were filed would automatically receive $250 (less than half of the automatic payment to class members with timely claims). However, these class members were eligible to receive an additional $302 (for a total of $552) based on their answers to questions in a claims submission form designed to determine whether they could rely on equitable tolling as a defense to the expiration of the one-year limitations period. Finally, class members could receive an additional $325 if they resided in one of 21 Qualifying States where class counsel determined that class members could have pursued state law claims against CBNV, GNBT, and/or RFC. [5] The Initial Settlement provided for an extremely generous fee of $8.1 million to class counsel, Community Bank I, 418 F.3d at 315, and incentive fee payments to the named plaintiffs of $1,500 each. It also included a broad release of all claims that were (or could have been) asserted in the litigation. The release specifically included claims that could have been brought under TILA and HOEPA, including claims for actual damages, statutory damages, and rescission. Less than a week after the Settling Parties' filed their motion, the District Court entered an order (1) consolidating these six actions into the Kessler action; [6] (2) conditionally certifying a class for settlement purposes; and (3) preliminarily approving the Initial Settlement. The Court also directed that notice be sent to members of the class advising them of the settlement and of their right to opt out. Later that year (in November 2003), the Court approved the filing of an amended consolidated class action complaint action for all six actions (the Consolidated Amended Complaint) to cure what the Court viewed as a potential jurisdictional problem regarding the Kessler action (as noted, the action into which the six class actions had been consolidated). [7]