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)

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

PSLRA Class Action Defense Cases-In re EVCI Colleges: New York Federal Court Holds Safe Harbor Provision In Private Securities Litigation Reform Act (PSLRA) Inapplicable At Pleading Stage Of Securities Fraud Class Action

Federal Court Rejects Defense Motion to Dismiss Securities Fraud Class Action Holding that Class Action Complaint Satisfied Heightened Pleading Requirements Under PSLRA and that Applicability of PSLRA’s Safe Harbor Provision Required Factual Development Through Discovery

Plaintiffs filed a securities class action against EVCI and certain officers and directors for violations of Section 10(b) and Section 20(a) of the Securities Exchange Act of 1924 and Rule 10b-5 alleging that defendants misstated EVCI’s financial condition and failed to accurately disclose negative information that would bear directly on EVCI’s profitability. In re EVCI Colleges Holding Corp. Securities Litig., 469 F.Supp.2d 88 (S.D.N.Y. 2006). Defense attorneys argued that the 203-paragraph class action complaint failed to satisfy the heightened pleadings requirements of the federal Private Securities Litigation Reform Act (PSLRA) and had failed to adequately plead scienter. Id., at 91. The district court observed that “[i]f read too literally, the statute would appear to impose on a securities plaintiff the almost insuperable burden of having to file a complaint that is as comprehensive as his closing argument after trial.” Id. The court concluded that the allegations in the class action complaint clearly satisfied the pleadings requirements under the PSLRA and Rule 9(b), and criticized defense attorneys for filing the motion to dismiss, which it characterized as “utterly lacking in merit.”

EVCI is a holding company that provides “on-campus career two year college education” through three entities. Its principal subsidiary is Interboro; this asset “generates the bulk of EVCI’s revenue” which “has grown substantially, from $8.6 million in 2000 to $50.4 million in 2005.” EVCI, at 92. The class action complaint alleged “pervasive fraud in the admissions process at EVCI’s Interboro College – the institution that generated nearly all of EVCI’s revenue during the asserted class period. Id. In brief, Interboro is two-year college, conditionally accredited by the State of New York, that primarily served “minority students from economically disadvantaged backgrounds” who had neither a high school diploma nor a GED, id., at 93. These students were required to pass an “ability-to-benefit” exam (ATB), and required federal and state grants to pay for their education at Interboro, and Interboro limited its tuition to the amounts of the student grants, id. “In other words, Interboro’s revenues derive in substantial part – 94%, to be precise – from publicly funded education grants awarded to students who are both poor and poorly prepared for higher education. And EVCI, in turn, derives nearly all its revenue from Interboro.” Interboro was subject to strict state and federal regulation, and to maintain its conditional accreditation the college had to meet several goals, id.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

CAFA/Hurricane Katrina Class Action Defense Case-Caruso v. Allstate: Removal Of Class Action Proper Under Class Action Fairness Act (CAFA) And Plaintiffs Failed To Establish Local Controversy Exception To Removal

Louisiana Federal Court Holds that Local Controversy Exception to Class Action Removal Under CAFA (Class Action Fairness Act of 2005) was not Established Because Two Defendants had been Named in Class Actions Alleging Similar Claims Within the Three Years Preceding the Filing of the Instant Class Action Complaint

Six property owners filed a single class action complaint in Louisiana state court against six insurers alleging violations of the state’s Valued Policy Law, breach of contract and bad faith; Allstate’s defense attorneys removed the class action to federal court asserting jurisdiction under CAFA (Class Action Fairness Act of 2005). Caruso v. Allstate Ins. Co., 469 F.Supp.2d 364, 365-66 (E.D. La. 2007). Plaintiffs moved to remand the class action to state court based on CAFA’s “local controversy” exception to removal, id., at 366. The district court denied the motion, agreeing with defense arguments that plaintiffs had not met their burden of proving the applicability of that exception.

The class action plaintiffs alleged that Hurricane Katrina caused substantial damage to their homes and they sued their homeowner’s insurance carriers to recover policy benefits. Caruso, at 365. Each plaintiff was insured by a different insurer, so the class action complaint named as defendants Allstate Insurance Company, State Farm Insurance Company, Republic Fire & Casualty Insurance Company, Auto Club Family Insurance Company, Lafayette Insurance Company and Louisiana Citizens Property Insurance Company. Id. Allstate timely removed the lawsuit to federal court under CAFA, and plaintiffs’ sought remand alleging that the “local controversy” exception applied. Id., at 366. The district court found that “the proposed class action undoubtedly satisfies the CAFA’s criteria for removal,” id.; the relevant inquiry was whether the local controversy exception applied.

Class Action Court Decisions Class Action Fairness Act (CAFA) Removal & Remand Uncategorized

Class Action Defense Cases—In re MERSCORP: Judicial Panel On Multidistrict Litigation (MDL) Grants Plaintiff’s Motion Unopposed By Defense Attorneys To Centralize Class Action Litigation

Judicial Panel Grants Request, Unopposed by Defense, for Pretrial Coordination of Class Action Lawsuits Pursuant to 28 U.S.C. § 1407 but Selects Southern District of Texas as Appropriate Transferee Court for Class Actions Several class action lawsuits were filed against MERSCORP and Mortgage Electronic Registration Systems, Inc. challenging mortgage loan registration fees and alleging that the fees violate the federal Real Estate Settlement Procedures Act (RESPA) Racketeering Influenced Corrupt Organizations Act (RICO).

Class Action Court Decisions Multidistrict Litigation Uncategorized

PSLRA Class Action Defense Cases–In re Vivendi Universal: Federal Court Certifies Securities Class Action Against Vivendi

In a lengthy decision issued on March 26, 2007, the United States District Court for the Southern District of New York granted plaintiffs’ motion to certify a class action in In re Vivendi Universal, S.A. Securities Litig., Case No. No. 02 Civ. 5571 (S.D.N.Y. March 26, 2007). The securities class action was filed against the French company Vivendi and two of its former officers, Jean-Marie Messier (former CEO) and Guillaume Hannezo (former CFO) on behalf of securities purchasers.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

SLUSA Class Action Defense Cases-In re Lord Abbett: Federal Court Grants Defense Motion To Dismiss Class Action Complaint With Prejudice Holding SLUSA Preemption Of One Claim Requires Dismissal Of Entire Class Action

New Jersey Federal Court Holds as Matter of First Impression that Dismissal of One Claim for Relief under Federal Securities Litigation Uniform Standards Act (SLUSA) Requires Dismissal of Entire Complaint

Plaintiffs filed a putative securities class action against various Lord Abbett entities and numerous other defendants as “a federal class action complaint based upon the failure of defendant Lord Abbett … to disclose excessive fees and commissions they siphoned from Lord Abbett mutual fund investors in order to improperly pay and induce brokers to steer investors into Lord Abbett mutual funds.” In re Lord Abbett Mut. Funds Fee Litig., 463 F.Supp.2d 505, 506-07 (D. N.J. 2006). The class action complaint contained 10 claims for relief under both state and federal law, all premised on the allegation that Lord Abbett “compensated brokers excessively as an incentive to steer new investors into Lord Abbett mutual funds,” id., at 507. Defense attorneys moved to dismiss the class action under Rule 12(b)(6); the district court granted the motion, ruling in part that the state law claims were preempted by the federal Securities Litigation Uniform Standards Act (SLUSA), but granted leave to amend with respect to two of the federal claims in the class action complaint. Id. Relying on Rowinski v. Salomon Smith Barney Inc., 398 F.3d 294 (3d Cir.2005), defense attorneys sought reconsideration on the ground that because the court dismissed Counts 7-10 under SLUSA, the court was required to dismiss the entire class action. Id., at 507-08. Ultimately, the district court vacated its order granting leave to amend and dismissed the class action complaint with prejudice.

The class action complaint advanced claims for relief under the Investment Company Act of 1940 (ICA) (Counts 1-4), the Investment Adviser Act of 1940 (IAA) (Count 5), the New Jersey Consumer Fraud Act (Count 6) which plaintiff later dismissed, and for unjust enrichment and alleged breaches of fiduciary duties and duties of good faith, loyalty, fair dealing, due care, and/or candor (Counts 7-10). In re Lord Abbett, at 507 and n.1. The district court dismissed Counts 1-5 for failure to state a claim, and dismissed Counts 7-10 as preempted by SLUSA. Id., at 507. However, the court also concluded that Counts 3 and 4 under ICA §§ 36(b) and 48(a) failed “because no direct cause of action exists under those statutes,” and granted plaintiffs leave to amend the class action complaint so as to replead them derivatively. Id. The defense moved the district court to dismiss the class action complaint with prejudice on the ground that preemption of one class action claim under SLUSA required dismissal of the entire class action complaint. Id., at 508.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Amex Class Action Defense Case-Ross v. American Express: Federal Arbitration Act (FAA) Permits Appellate Review Where District Court Finds Signatory To Written Arbitration Agreement Equitably Estopped From Avoiding Arbitration With Nonsignatory

When District Court Finds Signatory to a Written Arbitration Agreement is Equitably Estopped from Avoiding Arbitration with a Nonsignatory, the Writing Requirement of Section 16 of the FAA (Federal Arbitration Act) is Satisfied Thereby Permitting Court of Appeals to Consider Interlocutory Appeal Second Circuit Holds

After more than twenty class action lawsuits were filed against VISA, MasterCard and their member banks alleging a conspiracy to fix fees for conversion of foreign currencies in violation of the Sherman Act, the Judicial Panel on Multidistrict Litigation consolidated the actions in the Southern District of New York for pretrial purposes (“the MDL Litigation”), see In re Currency Conversion Fee Antitrust Litig., 265 F.Supp.2d 385 (S.D.N.Y. 2003). Defense attorneys moved to compel arbitration; the district court granted the motion in part, holding (1) cardholders with cardholder agreements containing arbitration clauses were bound to arbitrate their disputes, and (2) the equitable estoppel doctrine also required those cardholders to arbitrate their disputes “against non-signatory banks”; the district court rejected a claim that the illegal conspiracy allegation rendered the arbitration clauses unenforceable, see In re Currency Conversion Fee Antitrust Litig., 361 F.Supp.2d 237 (S.D.N.Y. 2005). Thereafter, a class action was filed against American Express Company, American Express Travel Related Services Company and American Express Centurion Bank (collectively “Amex”) asserting the same claims as those raised in the MDL Litigation and alleging that Amex conspired with the defendants in the MDL Litigation “to ‘impose compulsory arbitration clauses on [their] cardholders and the cardholders of [their] co-conspirators’ in order ‘to suppress competition and deprive their cardholders of a meaningful choice concerning the arbitration of disputes.’” Ross v. American Express Co., 478 F.3d 96, 98 (2d Cir. 2007). Though not a signatory to an arbitration agreement, Amex defense attorneys moved to dismiss the class action and compel arbitration under the equitable estoppel doctrine, and to stay the class action: “[Amex] argued that the arbitration clauses contained in the cardholder agreements with the MDL Defendants bound [the class action plaintiffs] to arbitrate their dispute with [Amex].” Id. The district court agreed that the doctrine of equitable estoppel applied because the claims in the class action complaint against Amex were “inextricably intertwined” with the claims in the MDL Litigation, but it refused to compel arbitration or stay the class action against Amex pending the arbitration of the MDL Litigation; the court believed that the antitrust allegations necessitated a jury trial on the issue of enforceability of the arbitration clauses in the cardholder agreements. Id. American Express appealed, asserting appellate jurisdiction under section 16 of the Federal Arbitration Act (FAA). Plaintiffs moved to dismiss the appeal for lack of jurisdiction, and the Second Circuit denied the motion. Id., at 98-99.

Class Action Court Decisions Uncategorized

Class Action Defense Cases-Teachers’ Retirement v. Hunter: Fourth Circuit Affirms Dismissal of Securities Class Action Based On Heightened Pleadings Requirements Under Federal Private Securities Litigation Reform Act (PSLRA)

Securities Class Action Complaint Properly Dismissed for Failure to Meet Pleading Requirements Under Private Securities Litigation Reform Act (PSLRA) and for Failure to Adequately Allege Loss Causation Fourth Circuit Holds

Plaintiffs filed a putative securities class action against Cree, Inc., a high-technology business in Durham, North Carolina, for violations of Section 10(b) of the Securities Exchange Act of 1924 and Rule 10b-5 alleging it made misleading statements about its business transactions and that these misstatements were discovered when a former officer sued the company. Teachers’ Retirement Sys. of La. v. Hunter, 477 F.3d 162, 167 (4th Cir. February 20, 2007). Defense attorneys moved to dismiss the class action under Rule 12(b)(6) on the ground that the allegations in the class action complaint failed to satisfy the heightened pleadings requirements imposed by the Private Securities Litigation Reform Act of 1995 (PSLRA), id. The district court dismissed the class action, holding that “the complaint failed to allege facts sufficient to support the plaintiffs’ claims that Cree’s statements were misleading” and that “plaintiffs did not sufficiently allege that the statements were made with the requisite scienter or that plaintiffs’ losses were caused by the misrepresentations and omissions of which they complained.” Id. (italics in original). The Fourth Circuit affirmed, “concluding that plaintiffs are complaining only about market risks, not particularized securities fraud.” Id., at 168.

In June 2003, Cree’s co-founder Eric Hunter filed suit against Cree and various officers and directors, including his brother and co-founder F. Neal Hunter, for violations of state and federal securities laws, defamation and intentional infliction of emotional distress; the complaint additionally sought “a preliminary injunction against Cree and Neal Hunter to prevent alleged personal harassment that appeared to have attended an ongoing family fight.” Hunter, at 168. Eric had served as Cree’s CEO from 1987 to 1994, and news of his lawsuit caused Cree’s stock price to drop from $22.21 to $18.10 in a single day. Id. Eric’s lawsuit was resolved only two months later, but “the allegations in his complaint quickly spawned numerous class actions by purchasers of Cree stock who alleged securities fraud during a period beginning on August 12, 1999, when Cree filed an annual report on SEC Form 10-K, and ending on June 13, 2003, the day after Eric Hunter filed his suit, purportedly revealing the truth of Cree’s fraud during the previous years.” Id. Eventually the cases were consolidated in the Middle District of North Carolina, and the court named Teachers’ Retirement System of Louisiana as lead plaintiff. The first amended class action complaint alleged violations of § 10(b) and Rule 10b-5 (prohibiting false or misleading statements), § 20(a) (control person liability), § 18 (personal liability for making misleading statements), and Sarbanes-Oxley Act § 304 (reimbursement of accounting restatement costs due to misconduct). Id., at 168-69. The specific allegations of the complaint are set forth at page 169.

The Fourth Circuit summarized the district court order granting defendants’ Rule 12(b)(6) motion as follows: “The court concluded first that ‘plaintiffs adequately identif[ied] the statements [of Cree] they believe[d] to be false and the reasons why they believe[d] them to be false, but fail[ed] to state with particularity facts supporting a strong inference of fraud.’ Second, the district court concluded that plaintiffs did not adequately plead that the defendants acted with the requisite scienter because the complaint neither identified misleading statements or omissions nor alleged sufficient circumstantial evidence of scienter. Finally, the court found that ‘plaintiffs … failed to demonstrate a direct relationship between their losses and the alleged misrepresentations and have failed, therefore, to establish the required element of loss causation.’ [¶] Having dismissed the first count alleging a claim under § 10(b) and Rule 10b-5, the court also dismissed plaintiffs’ claims under §§ 20(a) and 20A . . . because these claims depended upon the liability alleged in the first count. Similarly, the court dismissed plaintiffs’ claim pursuant to § 18 . . . because plaintiffs failed to plead facts showing that Cree made false statements. Finally, the court dismissed plaintiffs’ claim under § 304 . . . because plaintiffs did not allege that Cree was required to issue any restatement of its financial reports.” Hunter, at 169-70.

Class Action Court Decisions PSLRA/SLUSA Class Actions Uncategorized

Vioxx Class Action Defense Case-Sinclair v. Merck: New Jersey Appellate Court Reinstates Vioxx Class Action Against Merck For Development Of Evidence Regarding Availability Of Medical Monitoring As Relief

Whether Medical Monitoring of Persons who Ingested Vioxx is Available cannot be Determined on “Bare Pleadings” but Requires Development of Evidence, as does Impact on Viability of Class Action due to Absence of Physical Injuries Caused by Vioxx, New Jersey State Court Holds

Plaintiffs filed a putative products liability class action against Merck in New Jersey state court purporting to represent individuals “who had taken the drug Vioxx in any dose for at least six consecutive weeks at any time between May 20, 1999 and September 30, 2004” and alleging damages arising from the use of Vioxx. Sinclair v. Merck & Co., Inc., 913 A.2d 832, 833-34 (N.J.App.Div. 2007). Though plaintiffs did not claim to have suffered any physical injuries from using Vioxx, the class action complaint prayed for the formation of “a court-administered medical screening program, funded by Merck, ‘to provide for and/or reimburse medical and diagnostic tests for each member of the Class to detect [UMIs] and other latent or unrecognized injuries and, if such injuries are detected and diagnosed, to educate Plaintiffs about available treatment strategies.’” Id., at 834. Plaintiffs argued that “the cost of diagnostic testing represented an ascertainable economic loss for which they were entitled to compensation.” Id. Defense attorneys moved to dismiss the class action on the ground that a cause of action for medical monitoring cannot stand; the trial court agreed and granted the motion. Id. The Superior Court of New Jersey, Appellate Division, reversed, holding that the dismissal of the class action complaint “prematurely terminated plaintiffs’ opportunity to establish the existence of a legally cognizable claim.” Id.

The sole issue on appeal concerned the viability of plaintiffs’ medical monitoring claim. Sinclair, at 834. The trial court had relied upon two opinions: Mauro v. Owens-Corning Fiberglas Corp., 542 A.2d 16 (N.J.App.Div. 1988), aff’d sub. nom., Mauro v. Raymark Indus., Inc., 561 A.2d 257 (N.J. 1989) and Theer v. Philip Carey Co., 611 A.2d 148 (N.J.App.Div. 1992), rev’d, 628 A.2d 724 (N.J. 1993). It concluded that “pure” products liability cases were different from toxic tort claims, and opined that the New Jersey Supreme Court would not extend the availability of medical monitoring as a remedy to the Vioxx class action claims; accordingly, it dismissed the class action complaint in its entirety. Id.

Class Action Court Decisions Uncategorized

State Farm/Hurricane Katrina Class Action Defense Cases—Guice v. State Farm: Mississippi Federal Court Rejects Effort To Certify “Slab Case” Class Action Against State Farm Due To Lack Of Typicality

Class Action Certification of Slab Case Insurance Claims Against Homeowners’ Insurer Inappropriate Because Individual Proof Issues Exist in Each Case so the Claims Fail to Satisfy the Typicality Requirement for Class Actions Under Rule 23 Mississippi Federal Court Holds

Plaintiff filed a class action against her homeowners insurance carrier, State Farm, alleging that after Hurricane Katrina totally destroyed her home, State Farm had improperly denied coverage “on the grounds that the destruction of the insured property was caused solely by water in the form of storm surge flooding, a peril excluded under the terms of the policy at issue.” Guice v. State Farm Fire & Cas. Co., Civil Action No.1:06CV001 LTS-RHW (S.D. Miss. March 22, 2007) [Slip Opn., at 1]. Plaintiff moved the court to certify a class action against State Farm on behalf of homeowners whose properties fall within the category of “slab cases” – viz., homes where Hurricane Katrina left only the foundation. Id. The district court denied plaintiff’s motion, id., at 2, and plaintiff requested reconsideration of the class action certification issue, id., at 1. The district court denied plaintiff’s motion, reaffirming that the slab cases against State Farm are not appropriate for class action treatment.

The federal court began its analysis by noting that the practical effect of granting plaintiff’s motion would be “entry of judgment as a matter of law for the liability limits application to the ‘slab cases’ under the State Farm homeowners policies that applied to those properties.” Slip Opn., at 1. However, while at the time of the first class action certification motion none of the individual “slab case” lawsuits against State Farm had been tried, the federal court now had the benefit of having presided over three such cases, explaining at page 2:

Certification of Class Actions Class Action Court Decisions Uncategorized