Hofstetter v. Chase Home Finance LLC et al

RESPONSE

N.D. Cal.March 3, 2011

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 Case No. CV-IO-1313 WHA 2 GEORGE G. WEICKHARDT (SBN 58586) ROPERS, MAJESKI, KOHN & BENTLEY PC 201 Spear Street, Suite 1000 San Francisco California 94105 Telephone: (415) 972-6370 Facsimile: (415) 972-6301 Email: gweickhardt@rmkb.com 3 4 5 LEANN PEDERSEN POPE (admitted pro hac vice) lpope@burkelaw.com STEPHEN R. MEINERTZHAGEN (admitted pro hac vice) smeinertzhagen@burkelaw.com ANDREW D. LeMAR (admitted pro hac vice) alemar@burkelaw.com BURKE, WARREN, MACKAY & SERRITELLA, P.e. 330 North Wabash Avenue, 22nd Floor Chicago, Illinois 60611 Telephone: (312) 840-7000 Facsimile: (312) 840-7900 6 7 8 9 Attorneys for Defendants CHASE HOME FINANCE, LLC and JPMORGAN CHASE BANK,N.A. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION Sheila I. Hofstetter and Roger Modersbach individually, as representatives of the class, and on behalf of the general public, Case No. CV-lO-1313 WHA Plaintiffs, CHASE HOME FINANCE LLC AND JPMORGAN CHASE BANK, N.A.'S MEMORANDUM OF POINTS AND AUTHORITIES IN OPPOSITION TO PLAINTIFFS' MOTION FOR CLASS CERTIFICATION vs. Chase Home Finance, LLC, JPMorgan Chase Bank, N.A., and DOES 1 through 50, inclusive, Complaint Filed: March 29,2010 Trial Date: October 17, 2011Defendants. Hearing Date: March 24,2011 _______________ ---'Hearing Time: 8:00 a.m. DEFENDANTS' OPPOSITION TO PLAINTIFFS' MOTION FOR CLASS CERTIFICATION Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page1 of 30 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 A. TABLE OF CONTENTS 2 SUMMARY OF ARGUMENT 1 3 NATIONAL FLOOD INSURANCE ACT 3 4 SUMMARY OF RECORD EVIDENCE 5 5 CLASS CERTIFICATION STANDARD 9 6 ARGUMENT 10 7 I. CERTIFICATION OF ANY SECTION 17200 CLASS UNDER RULE 23(b)(3) SHOULD BE DENIED 10 A. The Massively Overbroad Class Improperly Includes Individuals Not Subject To The Same Flood Insurance Practices As Hofstetter Or Modersbach 10 8 9 II. Hofstetter Cannot Adequately Represent A More Limited Class Of Zero/Zero Lender-Placed Borrowers Because She Is Subject To A Senior Lien Defense 12 Modersbach Cannot Satisfy The Predominance Requirement Of Rule 23(b)(3) Or The Adequacy And Typicality Prerequisites Of Rule 23(a) 13 1. Individual Questions Are Required To Determine Whether Each Borrower's Coverage Was "Unfair." 13 2. Modersbach Is An Inadequate Class Representative Because He Has No Standing to Assert Any Claims For Restitution Against Defendants 17 CERTIFICATION OF ANY TILA CLASS UNDER RULE 23(b)(3) SHOULD ALSO BE DENIED 18 A. The Proposed Nationwide TILA Class Is Overbroad 18 B. Modersbach Cannot Satisfy Rule 23(b)(3) Because Individual Questions Will Overwhelm Any Common Questions On The TILA Claims 21 B. C. III. Hofstetter Is An Inadequate Representative For Any TILA Class Because She Is Not A Member Of The Purported Class And Her Claims Are Not Typical. 23 CERTIFICATION OF A RULE 23(b)(2) CLASS SHOULD BE DENIED ON ALL CLAIMS 24 C. There is no Injunctive Relief Under TILA, so a Rule 23(b )(2) Class Must be Denied 24 B. The Section 17200 Claims Also Should Not Be Certified Under Rule 23(b)(2) 24 CONCLUSION 25 Case No. CV-IO-1313 WHA DEFENDANTS' OPPOSITION TO PLAINTIFFS' MOTION FOR CLASS CERTIFICATION Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page2 of 30 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 O'Shea v. Littleton, 414 U.S. 488 (1974) 18 TABLE OF AUTHORITIES 2 3 Federal Cases 4 Betts v.Reliable Collection Agency, Ltd, 659 F.2d 1000 (9th Cir. 1981) 25 5 Bolin v. Sears, Roebuck & Co., 231 F.3d 970 (5th Cir. 2000) 24 6 Castaneda v. Burger King Corp., 264 F.RD. 557 (N.D. Cal. 2009) 10 7 Christ v. Beneficial Corp., 547 F.3d 1292 (lIth Cir. 2008) 24 8 CLN Props., Inc. v. Republic Servs., Inc., No. CV-09-1428-PHX-DGC, 2010 WL 4146734 (D. Ariz. Dec. 13, 2010) 22 9 County of Santa Clara v. Astra USA, Inc., 257 F.RD. 207 (N.D. Cal. 2009) 13 Deitz v. Comcast Corp., No. C 06-06352, 2007 WL 2015440 (N.D. Cal. Jul. 11,2007) 13 Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010) 9, 13 Gartin v. S&M NuTec LLC, 245 F.RD. 429 (C.D. Cal. 2007) 13 Gen. Tel. Co. ofSouthwestv. Falcon, 457 U.S. 147(1982) 9 Gutierrez v. Wells Fargo & Co., 622 F. Supp. 2d 946 (N.D. Calif 2009) 14 Hanlonv. Chrysler Corp., 150F.3d 1011 (9thCir. 1998) 13, 21 Harriss v. Pan Am. World Airways, Inc., 74 F.RD. 24 (N.D. Cal. 1977) 11, 13 In re Countrywide Fin. Corp. Mortg. Marketing & Sales Practices Litig., Nos. 08-md-1988, 09-cv-00664, 2010 WL 1691451 (S.D. Cal. Apr. 23, 2010) 17 In re Graphics Processing Units Antitrust Litig., 527 F. Supp. 2d 1011 (N.D. Cal. 2007) 18 In re Wireless Facilities, Inc. Securities Litigation, 253 F.RD. 630 (S.D. Cal. 2008) 17 Kay v. Wells Fargo & Co., 247 F.RD. 572 (N.D. Cal. 2007) 12 Lewallen v. Medtronic USA, Inc., No. C 01-20395 RMW, 2002 WL 31300899 (N.D. Cal. Aug. 28 2002) 25 Lierboe v. State Farm Mut. Auto. Ins. Co., 350 F.3d 1018 (9th Cir. 2003) 18 Lozano v. AT & T Wireless Servs., Inc., 504 F.3d 718 (9th Cir. 2007), recons. denied, 2007 WL 4163420 (N.D. Cal. Nov. 26, 2007) 14 11 Case No. CV-IO-1313 WHA DEFENDANTS' OPPOSITION TO PLAINTIFFS' MOTION FOR CLASS CERTIFICATION Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page3 of 30 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 Fed. R Civ. P. Rule 23(b) passim Perrone v. Gen. Motors Acceptance Corp., 232 F.3d 433 (5th Cir. 2000) 24 2 Rink v. Cheminova, Inc., 203 F .RD. 648 (M.D. Fla. 2001) 17 3 Ruiz v. Stewart Assoc., Inc., 167 F.RD. 402 (N.D. Ill. 1996) 11 4 Sacred Heart Health Sys., Inc. v. HumanaMilitary Healthcare Servs., Inc., 601 F.3d 1159 (11th Cir. 2010) 225 6 Schuetz v. Bane One Mortg. Corp., 292 F.3d 1004 (9th Cir. 2002) 17,22 7 Siemers v. Wells Fargo & Co., 243 F.RD. 369 (N.D. Cal. 2007) 11 8 Sprague v. General Motors Corp., 113 F. 3d 388 (6th Cir. 1998) 13 9 Sweet v. Pfizer, 232 F.RD. 360 (C.D. Cal. 2005) 25 Van Slyke v. Capital One Bank, No. C 07-00671 WHA, 2007 WL 3343943 (N.D. Cal. Nov. 7, 2007) 14 Watt v. Alaska, 451 US. 259 (1981) 20 Zinser v. Accufix Research Institute, Inc., 253 F.3d 1180 (9th Cir. 2001) 9 State Cases Cel-Tech Commc'n, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal. 4th 163 (1999) 14 Day v. AT&T, 63 Cal. App. 4th 325 (1998) 17 Drum v. San Fernando Valley Bar Ass'n, 182 Cal. App. 4th 247 (2010) 14 Madrid v. Perot Systems Corp., 130 Cal. App. 4th 440 (2005) 17 Federal Statutes 42 US.c. § 4001 et seq 3 42 US.c. § 4011(a) 3 42 U.S.C. § 4012a(b)(1) 3 Federal Rules Fed. R Civ. P. Rule 23(a) 9, 13 111 Case No. CV-IO-1313 WHA DEFENDANTS' OPPOSITION TO PLAINTIFFS' MOTION FOR CLASS CERTIFICATION Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page4 of 30 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 FEMA, "Mandatory Purchase of Flood Insurance Guidelines "(Sept. 2007) ("FEMA Guidelines ") 3, 4 Federal Regulations 2 12 CFR § 22.3(a) 3 12 CFR § 226.5b 19 12 CFR § 226.5b(f)(3) 18, 19,20,21 12 CFR § 226.9 19 3 4 5 6 74 Fed. Reg. 35,914 passim 7 8 Other Authorities 9 Alan Wright, eta!., 7AFed. Prac. & Proc. Civ. § 1760 (3d ed. 2010) 10 Office of the Comptroller of Currency, "Flood Disaster Protection" (May 1999) 3 IV Case No. CV-IO-1313 WHA DEFENDANTS' OPPOSITION TO PLAINTIFFS' MOTION FOR CLASS CERTIFICATION Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page5 of 30 1 SUMMARY OF ARGUMENT 2 Plaintiffs seek to represent massively overbroad classes of all JPMorgan Chase Bank, NA 3 ("JPMC") and Chase Home Finance, LLC ("CHF") borrowers who were required to purchase flood 4 insurance without making any attempt to tie the class definitions to the two different flood insurance 5 practices challenged by Hofstetter and Modersbach. While Hofstetter claims no flood insurance was 6 required because her credit line and principal balance were both zero (a "zero/zero" borrower), 7 Modersbach had a positive loan balance and available credit when he was required to obtain flood 8 insurance. Unlike Hofstetter, he does not challenge the practice of requiring him to maintain flood 9 insurance equal to his available credit line. Rather, Modersbach challenges the insurance practice 10 change in December 2009 for home equity borrowers that increased his insurance requirement to 11 more than the minimum required by the National Flood Insurance Act ("NFIA"). Rather than 12 propose two subclasses tied to each challenged practice, and attempt to provide some meaningful 13 analysis of whether those subclasses satisfy Rule 23, Plaintiffs vastly overreach with their proposed 14 classes by including thousands of borrowers who were not subject to either challenged practice. The 15 overbroad class definitions doom their motion. 16 However, even if the Court considers narrower classes consisting of HELOC borrowers whose 17 claims are more typical of Plaintiffs' claims, class certification still should be denied. 18 Hofstetter's claims are all subject to a unique defense, making her inadequate to represent even 19 the "zero/zero" HELOC borrowers. After this Court ruled Hofstetter was not required to purchase 20 any flood insurance, she disclosed she had a $700,000 first mortgage loan on her property with Bank 21 of America (and no other flood insurance) at the time Defendants lender-placed flood insurance. The 22 existence of that first mortgage loan is critical to her claim that no flood insurance was required. The 23 NFIA requires minimum insurance equal to the lesser of (1) the combined outstanding balance on all 24 loans on the property; (2) the replacement cost value ("RCV") of the home; or (3) $250,000, the NFIP 25 maximum. For Hofstetter, the minimum insurance required by the NFIA would be $250,000, which 26 is less than the $700,000 first mortgage balance and her RCV. While Defendants did not know the 27 Bank of America mortgage existed at the time $175,000 of flood insurance was lender-placed, a 28 defense to Hofstetter's individual claim includes the argument that the amount of the lender-placed 1 Case No. CV-IO-1313 WHA DEFENDANTS' OPPOSITION TO PLAINTIFFS' MOTION FOR CLASS CERTIFICATION Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page6 of 30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 insurance was actually less than the NFIA minimum. Since only zero/zero borrowers without any first lien could claim no insurance was required, Hofstetter cannot adequately represent those borrowers. Certification of Modersbach's claims should be denied because there is no method - and Plaintiffs offer none - for proving any of his claims on a class-wide basis. Modersbach alleges that the December 2009 change in business practice increasing his insurance requirement to more than the minimum insurance under the NFIA was an "unfair" business practice, and constituted an "adverse change" in credit terms in violation of TILA. His "unfair" argument is tethered to the regulatory agencies' directive that "lenders should avoid creating situations where a building is over-insured." 74 Fed. Reg. 35,914, 35,936 (July 21, 2009) ("Interagency Q&A").l Because flood insurance was required on his property; the NFIA allows a lender to require more than the NFIA minimum flood insurance; and FEMA's "best practice" for lenders is to insure a building to the full replacement cost value, several individual questions must be answered for each borrower in the proposed class to determine if the flood insurance requirement was "unfair." For example, for each borrower, it must be determined whether Defendants were contractually authorized by the borrower's mortgage or deed of trust to require more than the NFIA insurance minimum. Defendants produced mortgages and deeds of trust for over 75 putative class members in discovery, and those agreements significantly differ regarding flood insurance; indeed many actually require more than the NFIA minimum insurance, and expressly allow coverage to the RCV. Other individual questions include the RCV of the borrower's property, the amount of insurance Defendants required, whether the borrower had a first mortgage on the property, whether the required insurance exceeded the NFIA minimum by a few or several thousand dollars, or whether the borrower actually benefited from the insurance coverage through a flood loss. All these issues are relevant to determine whether the insurance requirement for each borrower was "unfair," and the evidence relevant to those issues will be vastly different for each borrower. Recognizing the inherent difficulties of resolving Modersbach's claims on a class basis, this Court stated: 1Ex. 57 to Declaration of Andrew D. LeMar ("LeMar Dec1."; attached hereto as Ex. 1). 2 Case No. CV-IO-1313 WHA DEFENDANTS' OPPOSITION TO PLAINTIFFS' MOTION FOR CLASS CERTIFICATION Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page7 of 30 10 motion for certification should be denied in its entirety. NATIONAL FLOOD INSURANCE ACT 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 This order will, however, comment briefly upon potential hurdles on the horizon with respect to Rule 23 and Modersbach's claim. While defendants' alleged adherence to 2 FEMA "best practices" and other agency guidelines in its flood insurance practices cannot bar plaintiffs "unfair" business practices claim, it appears highly relevant to 3 whether the flood insurance coverage they required for Mr. Modersbach's HELOC and property was "appropriate" and not "unfair." In this connection, the specific 4 circumstances surrounding Mr. Modersbach's HELOC - such as whether he had a first mortgage - may significantly impact whether his claims are "typical" of other 5 borrowers. This order should not be interpreted as taking a position on any Rule 23 issues at this time. That said, counsel should be mindful of these considerations as 6 class certification approaches. 7 (Dkt. No. 110 at 20.) 8 Plaintiffs ignore these considerations in their class brief, and have otherwise fallen far short of 9 satisfying their burden to show their claims can be established on a class-wide basis. Plaintiffs' The NFIA provides the minimum amount of flood insurance to be maintained on a building located in a flood zone, which is the lesser of: (1) the maximum amount of insurance available under the NFIP, which is $250,000 for a single family dwelling; (2) the full RCV of the home; or (3) the unpaid principal balance ("UPB ") or, for HELOCs, the amount of the line of credit at origination. 42 US.c. § 4012a(b)(I); 12 C.F.R. § 22.3(a); 74 Fed. Reg. at 35,924; FEMA, "Mandatory Purchase of Flood Insurance Guidelines," 27, 41 (Sept. 2007) ("FEMA Guidelines'Y; Office of the Comptroller of Currency, "Flood Disaster Protection" at 6 (May 1999).3,4 In 2009, the Office of Comptroller of Currency ("OCC") - which regulates national banks (such as JPMC) and their subsidiaries (such as CHF) - and several other federal agencies governing lending institutions issued interagency guidance regarding flood insurance requirements. See 74 Fed. Reg. 2 Ex. 55 to LeMar Dec1. The Federal Emergency Management Agency ("FEMA") issues guidelines regarding flood insurance, the most recent of which were issued in September 2007. FEMA is one of the federal agencies authorized to administer and implement the NFIA. 42 US.c. § 40 11(a). 3Ex. 56 to LeMar Decl. 4 The National Flood Insurance Act of 1968, along with the Flood Disaster Protection Act of 1973, as revised by the National Flood Insurance Reform Act of 1994, 42 US.c. § 4001 et seq., (collectively, the "NFIA"), requires borrowers and lenders to purchase and maintain flood insurance on properties within flood zones. The NFIA established the National Flood Insurance Program ("NFIP") in order to provide affordable flood insurance coverage in flood prone areas. See 42 US.c. 4001(b), 4011(a); 1968 US. Code Congo& Admin. News 2873,2966-67,2969. The Court provided a comprehensive discussion of the NFIA and NFIP, including their history and purpose, in two prior orders. (Dkt. Nos. 51 at 5-11 and 110 at 17-20.) 3 Case No. CV-IO-1313 WHA DEFENDANTS' OPPOSITION TO PLAINTIFFS' MOTION FOR CLASS CERTIFICATION Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page8 of 30 5 The reference to IIover-insured II in the Interagency Q&A refers to the situation where the 28 insurance coverage exceeds lithe insurable value of the building. II 74 Fed. Reg. at 35,918. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 1 35,914. The Interagency Q&A clarified, among other things, the amount of flood insurance coverage 2 a lender must require when it is a junior lien holder. The Agencies explained that a junior lienholder 3 cannot comply with requirements of the NFIA by requiring insurance in the amount of the 4 5 outstanding principal balance of the junior lien alone. Id. at 35,923-24. Instead, [t]he lender must ensure that adequate flood insurance is in place or require that additional flood insurance coverage be added to the flood insurance policy in the amount of the lesser of either the combined total outstanding principal balance of the first and second loan, the maximum amount available under the Act (currently $250,000 for a residential building ... ), or the insurable value of the building .... Id. at 35,940. (emphasis added.) 6 7 8 9 Notwithstanding the minimum requirement, lenders are expressly permitted to require more flood insurance than required by the NFIA. The Agencies note: [AJ lender can require more flood insurance than the minimum required by the Regulation. The Regulation requires a minimum amount offlood insurance; however, lenders may require more coverage, if appropriate. . . . [L]enders should avoid creating situations where a building is over-insured. Id. at 35,918.5 (See also Dkt. No. 56 at 3 ("Importantly, as explained in the prior order, nothing in the NFIA or its implementing regulations bars lenders from purchasing more than the minimum amount of flood insurance required under the Act. ").) Recognizing that lenders may require more than the NFIA mmimum Insurance, FEMA Guidelines emphasize that the best practice is to require flood insurance coverage up to the ReV, and that using the UPB alone may not be adequate. See FEMA Guidelines at 27 ("A sound flood insurance risk management approach follows the insurance industry practice of insuring buildings to full Rev. Such a risk management strategy meets or exceeds the minimal compliance requirements and is the easiest approach for lenders to implement. Security interests in [Special Flood Hazard Areas ("SFHAs")] should be protected with flood insurance to the full insurable value, to the extent possible under the NFIP. "); id. at 27-28 ("Ifthe lender opts to protect only its security in the loan, the amount of the policy may be insufficient to cover the cost of repairing the building. By insuring buildings to the full ReV, the lender and borrower are both better protected. "); id. at 41 ("If the lender 4 Case No. CV-IO-1313 WHA DEFENDANTS' OPPOSITION TO PLAINTIFFS' MOTION FOR CLASS CERTIFICATION Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page9 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page10 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page11 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page12 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page13 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page14 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page15 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page16 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page17 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page18 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page19 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page20 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page21 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page22 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page23 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page24 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page25 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page26 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page27 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page28 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page29 of 30 Case3:10-cv-01313-WHA Document141 Filed03/03/11 Page30 of 30