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From Banking and Finance Law Daily, September 5, 2013

Class certification denied in suit over Bank of America mortgage modification practices

By Richard A. Roth, J.D.

Consumers from 26 states who claimed that Bank of America violated agreements requiring it to offer them permanent mortgage loan modifications cannot maintain their consolidated suit as a class action, the U.S. District Court for the District of Massachusetts has decided. While the consumers were able to meet some of the requirements for class action status, they were unable to convince the court that class claims would predominate over individual claims or that a class action was the best way to resolve the liability issues presented by their claims (In Re Bank of America Home Affordable Modification Program (HAMP) Contract Litigation, Sept. 4, 2013, Zobel, District Judge).

The opinion expressed sympathy for the consumers’ plight. They had “plausibly alleged that Bank of America utterly failed” to carry out its duties properly, and that the bank lost documents, pretended not to have received them, or arbitrarily refused to modify loans. Nevertheless, the consumers had not met the strict class action requirements, the court said.

The consumers’ claims all had a great deal of similarity. All of the consumers claimed that they had asked Bank of America for mortgage loan modifications under the Home Affordable Modification Program (HAMP), a federal government program intended to help consumers avoid foreclosures. They all claimed they had done everything required of them but that, at the end of a trial period, the bank had failed to either offer them a permanent modification or tell them they did not qualify. As a result, they raised four state law causes of action: breach of contract, breach of the implied covenant of good faith and fair dealing, promissory estoppel, and unfair or deceptive acts or practices.

HAMP description. As described by the court, the HAMP modification process in effect when the consumers made their applications included several steps. A consumer contacted his mortgage loan servicer to request a modification. The servicer then performed a preliminary evaluation to determine whether the consumer was eligible. This evaluation could be performed based on the consumer’s unverified representations, the court noted.

If the evaluation showed that the consumer was eligible for a modification, the servicer would offer a Trial Plan Period (TPP), during which the consumer was obligated to make timely, reduced payments, provide any documents the servicer requested, and meet other requirements. If the consumer fulfilled all of the TPP obligations, the servicer was to offer a permanent modification that would take effect on the first day of the month following the end of the TPP.

The bank used essentially the same TPP documents in its dealings with all of the consumers, the court observed.

Class action requirements. The requirements that must be shown for a suit to proceed as a class action are set out in Federal Rule of Civil Procedure 23, and include two parts. For the most part, the court determined that the 26 proposed classes of consumers—one class for each state—met the requirements of Rule 23(a). Each proposed class had too many members to join as individuals, the question of the meaning of the TPP documents was common to the class members, the named representatives’ claims were typical of the class members’ claims, and the class would be fairly represented.

However, the consumers had to clear a second hurdle presented by Rule 23(b). Rule 23(b) offered three routes to approval of a class action, and the consumers sought approval based on a theory that questions of law or fact common to the class predominated over individual issues and that a class action was better than other available methods to resolve the issues.

The court rejected the consumers’ arguments on both points.

Predominance. The consumers were asking the court to certify classes to decide the issue of whether Bank of America was liable for its actions under the TPP, but not to determine remedies if there was liability. The judge noted that he had previously ruled that the TPPs were enforceable agreements. The common question asserted by the consumers was what obligations the bank had under the TPPs.

However, there were “numerous individual questions affecting liability” under the breach of contract claim, the court said, and those individual questions prevented a finding that the TPP interpretation issue predominated over the individual issues. Of particular concern to the court was the need for each individual consumer to establish that he had complied with all of his duties under the TPP because, without that compliance, the bank would have had no obligation to offer a permanent modification. Deciding this issue would require each consumer individually to answer a long series of questions that the court believed were not capable of being handled in a simple or routine manner.

Similar individual questions existed under the claim alleging a breach of the implied covenant of good faith and fair dealing, the court continued. The implied covenant could not create duties that extended beyond the contract that implied it, so the consumers’ performance under the TPPs still had to be determined. The promissory estoppel claim depended on a conditional promise by the bank, and the condition was that the consumers first had to comply with the TPPs.

The individual performance issues also were relevant to the unfair or deceptive acts or practices claim, the court said. There was another problem with this claim, as well—the consumers had not shown that all of them were harmed by the same allegedly unfair practices by the bank.

Superiority. The consumers also were unable to convince the court that a class action was the best way to adjudicate their claims. The court conceded that handling individual suits would be an inefficient use of judicial resources and that many class members would be unable to litigate on their own. However, these factors were “outweighed by the unmanageable difficulty that would attend plaintiffs’ twenty-six proposed class actions,” the court said.

The court also observed that the number of mortgage-related suits pending in the federal courts demonstrated that individuals were motivated and able to litigate on their own.

The case is M.D.L. NO. 10-2193-RWZ.

Attorneys: Leonard A. Bennett (Consumer Litigation Associates, P.C.) for the consolidated plaintiffs. Andrew M. Batchelor (Goodwin Procter LLP) for Bank of America, N.A. Brooks R. Brown (Goodwin Procter, LLP) for BAC Home Loans Servicing L.P.

Companies: BAC Home Loans Servicing L.P.; Bank of America, N.A.; Wilshire Credit Corporation

LitigationEnforcement: ConsumerCredit Loans Mortgages MassachusettsNews

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