needless to say, the opposing party settled before the appellate court could make its ruling. talk about dead in the water! i am one of the sharks you see floating effortlessly in that incoming wave. atlantic ocean, needless to say. non-lawyers, black box warning: your eyes will glaze over & you may suffer permanent mental injury from attempting to read the following:
I. STATEMENT OF SUBJECT MATTER AND APPELLATE JURISDICTION
This case arises under Section 207(a) of the Real Estate Settlement Procedures Act (“RESPA”), 12 U.S.C. section 2601 et seq., which provides in pertinent part that:
No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding … [in order] that business incident to or part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.
Along with RESPA, federal antitrust laws, federal administrative, regulatory and common law claims are involved. In addition to these federal law claims, various state statutory and common law provisions are at issue, including state antitrust laws, insurance statutes and regulations, anti-rebate and anti-inducement statutes and regulations, and consumer protection laws. The district court had jurisdiction of this action under 12 U.S.C. section 2614 and 28 U.S.C. sections 1331 and 1367.
This appeal concerns the district court’s Order dated June 8, 2001, denying Appellants’ Ernest and Debra Kelley’s Motion to Intervene (Appendix, p. ??); its Orders dated June 22, 2001, granting final approval of the settlement and certification of the settlement classes (Appendix, p. ??), awarding attorney’s fees and expenses (Appendix, p. ??), and entering its injunction (Appendix, p. ??); its Order dated June 26, 2001, approving the settlement and dismissing the action (Appendix, p. ??); and its Order dated September 19, 2001, denying Objectors’ Motion for New Trial or to Amend Judgment (Appendix, p. ??).
Class Members, Proposed Intervenors, and Settlement Objectors Ernest and Debra Kelley filed a notice of appeal with this Court on October 18, 2001. This Court has jurisdiction pursuant to 28 U.S.C. section 1291.
II. STATEMENT OF ISSUES
A. Whether the district court breached its fiduciary duty to the members of the putative class by denying the Kelleys’ Motion to Intervene, despite their status as class claimants and settlement objectors, where their only means of receiving the benefit of appellate review of the terms of settlement was by such intervention.
B. Whether the district court forfeited its jurisdiction over the nationwide class of claimants for settlement purposes after granting summary judgment in favor of defendant against the named plaintiffs/putative class representatives solely on issues of Georgia law as being inversely preemptive of RESPA; or, alternatively,
Whether the district court breached its fiduciary duty to members of the putative class by defining the class for settlement purposes in such a way as to treat claimants with differing state legal and equitable claims as identical.
C. Whether the district court breached its fiduciary duty to the plaintiff class by finding the terms of the proposed class action settlement, which amounted to only approximately 10% of claimants’ potential damages, did not differentiate between class members with substantively distinguishable state law claims, and provided little meaningful equitable relief, to be fair.
D. Whether class certification was an abuse of discretion in this case, even for settlement purposes, in light of the February 5th, 2003 Order issued by the district court below in the companion cases, Barnes v. Republic Mortgage Insurance and Patton v. Triad Guaranty Insurance Co. (Appendix, p. ??)
III. STATEMENT OF THE CASE
This case was filed in federal District Court for the Southern District of Georgia as a national class action on December 17, 1999, by the named plaintiffs/putative class representatives, who are residents of the State of Georgia, against Defendant.
Named plaintiffs/putative class representatives filed a motion for class certification on May 31, 2000. Defendant filed a motion for summary judgment on June 9, 2000. Defendant was granted summary judgment on August 14, 2000, against the named plaintiffs/putative class representatives, by the district court based on Defendant’s argument that the McCarran-Ferguson Act, 15 U.S.C. sections 1011-1015, barred all claims brought under RESPA, in Georgia, because RESPA had the effect of indirectly regulating the business of insurance in that state.
Thereafter, the named plaintiffs/putative class representatives and the defendant entered into a settlement agreement. On December 15, 2000, named plaintiffs/putative class representatives filed a motion to preliminarily approve the settlement, and the district court granted that motion on December 20, 2000. Notice of the pending settlement was given in March, 2001, to class members, with a deadline to object or opt-out by April 24, 2001. Appellants filed their objections to the settlement on April 24. The fairness hearing was scheduled on June 15, 2001, and Appellants moved to intervene in the action on June 6, 2001. The district court held a hearing on that motion on June 7, and denied same.
The district court approved the settlement as binding on the entire class of claimants, after the fairness hearing, by Order dated June 22, 2001. Appellants, Ernest and Debra Kelley, are unnamed members of the class, attempted intervenors, and objectors to the overall fairness of the settlement.
This appeal challenges (1) the district court’s Order denying Objectors’ Motion to Intervene, dated June 8, 2001, (2) its Order granting Plaintiff’s Motion for Final Approval of Settlement and Certification of the Settlement Classes, dated June 22, 2001, (3) its Final Order Approving Settlements and Certifying Settlement Classes, dated June 22, 2001, (4) its Injunction entered June 22, 2001, (5) its Final Judgment Approving Settlement and Dismissing Action, dated June 26, 2001, (6) its Final Judgment Awarding Attorney’s Fees and Reimbursement of Expenses, dated June 26, 2001, and (7) its Order denying Objector’s Motion for New Trial Pursuant to F.R.C.P. 59(a) or to Amend Judgment Pursuant to F.R.C.P. 59(e), dated September 19, 2001.
IV. STATEMENT OF FACTS
A. Background
Defendant issues mortgage guaranty insurance covering loans made by various lenders, loans secured by the residences of the members of the class of borrowers. Mortgage insurance is typically required by lenders when the amount of down payment from the borrower is less than 20% of the purchase price of the real property. The mortgage insurance is designed to protect the lender in the event of the borrower’s default on the loan. Although the borrower pays the premiums, the contract of insurance is between the lender and the mortgage guaranty insurer.
The allegations in the complaint were to the effect that Defendant had provided kickbacks to numerous lenders involved in loan transactions with members of the class of mortgage borrowers, kickbacks prohibited under RESPA, in order to secure referrals to Defendant of the lenders’ mortgage guaranty insurance business. The kickbacks were alleged to have been provided by Defendant’s offering other insurance products to lenders, at below-market rates. Thus, mortgage guaranty insurance premiums, ultimately paid by the borrower on behalf of the lender, were inflated to the extent unearned kickbacks were transferred to the lender. This is exactly the type of harm RESPA was designed to prevent.
B. Settlement Negotiations
Both before and after the named plaintiffs/putative class representatives lost on summary judgment, they engaged in settlement negotiations with the defendant. See Declaration of James F. McCabe in Support of Motion for Approval of Settlement Involving PMI Mortgage Insurance Co. (Declaration, pp. 1-2, Appendix, p. ??) The first settlement discussions took place in March, 2000. In July 2000, settlement discussions took place again. In August, 2000, the summary judgment in favor of Defendant was entered. In November, 2000, the named plaintiffs/putative class representatives reached a settlement agreement with Defendant.
In its Order approving the settlement dated June 22, 2001, with respect to the summary judgment in favor of Defendant, the district court stated, “Defendants understood their victory would be short-lived because it only bound named Plaintiffs and the actions could be easily refiled using other named representatives in other jurisdictions. Accordingly, the court concludes when the settlement was reached is not dispositive of the fairness, adequacy and reasonableness of the settlement.” (Order, pp. 26-27, Appendix, p. ??)
However, the actions hypothesized by the district court never occurred. Other representatives were not substituted for the named plaintiffs, and the action was not refiled in another jurisdiction. The named plaintiffs, at the time of settlement, were without a meritable claim and were consequently without proper authority to negotiate a settlement on behalf of a nationwide class whose claims were still “alive.”
C. Proposed Settlement
The settlement provides for payment of $35.47 per class member. Average individual damages for each class member are estimated at $300. See Order of June 22, 2001, p. 10. (Appendix, p. ??) The total amount of the proposed payment to the class is $40 million, plus attorney’s fees and costs. Order, p. 8. (Appendix, p. ??) Attorney’s fees and costs of $10.8 million are awarded to named plaintiff’s counsel. Order, p. 17. (Appendix, p. ??)
D. Ernest and Debra Kelley’s Objections to the Settlement’s Fairness
The notice of pendency to the class members was inadequate to inform them as to the true nature and severity of the violations of federal and state law alleged.
The damage award is insufficient to the point of being violative of due process.
Requiring the members of subclass A to file claim forms is unfair to the point of being violative of due process.
Subclass A’s unclaimed funds do not revert to members of the other subclasses, but are distributed to charity.
The injunction is valueless and meaningless since it dissolves after approximately 2 years.
There was inadequate representation by counsel for named plaintiffs for the class as a whole.
The size of the award of attorney’s fees to counsel for named plaintiffs is excessive.
See Appendix, p. ??, for the complete brief in support of Appellant’s objections.
E. Final Approval
The district court held a hearing on June 15, 2001 and, over the objections of numerous class members, approved the terms of the proposed settlement by Order dated June 22, 2001. (Appendix, p. ??)
V. STATEMENT OF RELATED CASES & PROCEEDINGS
A. Appellate Proceedings, Current
Downey v. Mortgage Guaranty Insurance Corp., Michael B. and Robin H. Hopkins, Movants-Appellants, Appeal Nos. 01-13663-TT & 02-11064-TT (11th Cir.).
Pedraza v. United Guaranty Corporation, United Guaranty Residential Insurance Co., Ernest H. and Debra J. Kelley, Movants-Appellants, Appeal No. 01-13895-TT (11th Cir.).
Baynham v. PMI Mortgage Insurance Co., Elizabeth F. Savage, Movant-Appellant, Appeal No. 01-13897-TT (11th Cir.).
B. Appellate Decisions, Reported
Baynham v. PMI Mortgage Insurance Co., 313 F.3d 1337 (11th Cir. 2002).
C. Trial Proceedings, Current
Barnes v. Republic Mortgage Insurance Co., No. CV199-240 (S.D. Ga.).
Patton v. Triad Guaranty Insurance Co., No. CV100-132 (S.D. Ga.).
D. Trial Decisions, Reported
Pedraza v. United Guaranty Corp., 114 F.Supp.2d 1347 (S.D. Ga. 2000)
VI. STANDARD OR SCOPE OF REVIEW
The legal basis for the district court’s decision on intervention as of right is reviewed de novo. The factual basis for the district court’s determination regarding the timeliness of the motion for intervention is reviewed for an abuse of discretion. Meeks v. Metropolitan Dade County, 985 F.2d 1471-77 (11th Cir. 1993).
Whether the defeated named plaintiffs/putative class representatives had standing, on behalf of the national class of claimants, to negotiate and enter into a settlement with defendant and whether the district court had jurisdiction over that settlement is reviewed de novo. See Griffin v. Dugger, 823 F.2d 1476, 1482 (11th Cir. 1987) (“Only after the court determines the issues for which the named plaintiffs have standing should it address the question whether [they] have representative capacity, as defined by Rule 23(a)….”), cert. denied, 486 U.S. 1005 (1988).
The trial court’s grant of class certification and refusal to consider subclasses is reviewable for an abuse of discretion. Andrews v. American Telephone & Telegraph Co., 95 F.3d 1014 (11th Cir. 1998). The decision approving the settlement is reviewed for an abuse of discretion. Sterling v. Stewart, 158 F.3d 1199 (11th Cir. 1998).
The district court’s decisions concerning Rule 59 Motions are reviewed de novo with regard to legal determinations, such as standing, and for an abuse of discretion with regard to factual determinations. Lockard v. Equifax, Inc., 163 F.3d 1259 (11th Cir. 1998).
VII. SUMMARY OF ARGUMENT
Settlements of class actions are to be encouraged as a matter of sound public policy, but not at the sacrifice of due process considerations. The district court in this case has not served the interests of the absent class members. The trial judge is in a fiduciary capacity with regard to absent class members, and must properly exercise this duty. There is a difference between promoting the desirability of settlements as a general proposition, and promoting them above any and all other considerations, including the consideration of due process and fairness to absent class members.
Adequate representation must be demonstrated by more than self-serving, congratulatory representations by counsel for both sides. The named class representatives below should have been substituted after a summary judgment fatally unfavorable to them. A putative class representative having no remaining stake in the case due to missing elements of his/her claim cannot adequately represent the class. Settlements procured prior to the certification of a class require special scrutiny, and settlements procured under conditions of undue pressure as a result of rulings fatally adverse to all named plaintiffs/putative class representatives deserve even more intense scrutiny. At a minimum, state-law determined subclasses should have been certified. The trial judge is in a fiduciary capacity with respect to absent class members. The district court’s overall fairness evaluation was the result of incorrect application of law, and was also factually an abuse of discretion.
Judicial economy is not served by the senseless denial of motions to intervene for the limited purposes of appeal of a class action settlement approval. Nor is judicial economy served by Appellants/Objectors/Proposed Intervenors being required to bring collateral actions under the trial court’s heavily advocated opting-out route. The improper denial of intervention below has led to four long years of delay in Appellants receiving their due process rights, and this settlement receiving the benefit of appellate review.
VIII. ARGUMENT & CITATION OF AUTHORITY
A. The district court breached its fiduciary duty to the members of the putative class by denying the Hopkins’ and Kelleys’ Motion to Intervene, despite their status as class claimants and settlement objectors, where their only means of receiving the benefit of appellate review of the terms of settlement was by such intervention.
At the time this appeal was filed, there was a disagreement among Circuit Courts of Appeal as to whether a nonnamed class member who had not formally intervened could appeal the approval of a class action settlement. The Supreme Court had not yet decided Devlin v. Scardelletti, 122 S.Ct. 2005, (2002), which holds that nonnamed class members who object in a timely manner to the approval of a settlement at a fairness hearing may bring an appeal, without first intervening. The discussion ensuing below does not reflect the effect Devlin may have upon the instant appeal.
In the district court’s Order Granting Plaintiff’s Motion for Final Approval of the Proposed Settlement and Certification of Settlement Class, dated June 22, 2001, at pp. 8-9, the court explicitly found the following facts, thus determining the appropriateness of class action status for this case: “[T]he range of recovery available to the individual claimant is small and circumscribed. […] There is no dispute that damages, even for the larger mortgage insurance policies, would amount to hundreds of dollars at most. In fact, these cases were brought as class actions because the small amount of damages per violation meant that individual actions were economically impractical given the litigation costs.” (Appendix, p. ??) The court went on to state that potential damages for violations under RESPA consist of three times the amount of any proscribed kickback. (Order, p. 8, Appendix, p. ??)
With that ruling in place, how, then, could the district court later determine, in its Order of September 19, 2001, p. 8-9, the following: “Of great weight is the fact that all Objectors were given an opportunity to opt-out of the proposed class settlement, but did not. Objectors appeared at the fairness hearing where the Court reiterated the availability of opting-out if they were not satisfied with the terms of the proposed settlement, yet Objectors still chose not to opt-out.” (Appendix, p. ??) The district court gives “great weight,” in its repudiation of proposed intervenors’ Objections to settlement, to the “decision” by them not to bring individual opt-out actions, yet that “decision” was as a result of the acknowledged impracticability of the costs of such litigation. However, in the district court’s holding a scant three months earlier, that economic impracticability was the factual basis for the instant case’s class action status.
The district court below (1) denied objectors’ motions to intervene as untimely, even though they were filed before the hearing on the settlement’s fairness, and even though they were filed for the limited purpose of preserving objectors’ right to appellate review of the settlement’s fairness, (2) denied objectors’ standing to appeal its approval of the settlement, (3) denied all fairness objections to the settlement, and (4) denied objectors’ Rule 59 Motions for New Trial on the basis that, as unnamed class members who “had not intervened,” they had no standing to bring such motions, nor to appeal his fairness determination. The district court’s rulings are as nonsensical as those of Alice in Wonderland’s Red Queen, a clear violation of its fiduciary duty to the absent class members, and as such, constitute an abuse of discretion.
Grilli v. Metropolitan Life Insurance Co., 78 F.3d 1533 (11th Cir. 1996) is of little help in resolving the issue here. The specific issue this Court answered in that appeal is: “Whether […] the district court (a) erred in denying the Coulters’ motion for leave to intervene in the action as a matter of right for the purpose of representing their interests and those of the Pennsylvania members of the settlement class, or (b) abused its discretion in denying the Coulters permissive intervention.” (Emphasis added.) Id. at 1538. What is being sought here is not the type of general intervention as of right as was being sought in Grilli. The type of intervention being sought here is solely for the limited purpose of gaining the benefit of appellate review of the fairness of the settlement approved by the district court. Appellants in Grilli argued they should be allowed to intervene to represent the class of claimants residing in Pennsylvania, and had actually filed suit in Pennsylvania, but had not yet been appointed representatives of any class of purchasers of MetLife products. Id.
Nor does Purcell v. BankAtlantic Financial Corp., 85 F.3d 1508 (11th Cir. 1996) help resolve this issue. This Court held that “ABC’s [attempted intervenor] interest in the collateral estoppel effect of the jury’s verdict in this case is too collateral, indirect and insubstantial to support intervention as of right.” Id. at 1513. ABC’s interest in the litigation was not as a party. It had no direct stake in the outcome of the case below, and its only concern was issues it might later have to litigate in another action. This Court determined that ABC’s interests in any separate action would not be adversely affected nor barred by collateral estoppel by the result in the case before it. Id. That situation is clearly distinguishable from the facts here. The Kelleys are unnamed members of the plaintiff class. They will be forever bound by the settlement and will have no other opportunity to proceed with their claims.
B. The district court forfeited its jurisdiction over the nationwide class of claimants for settlement purposes after granting summary judgment in favor of defendant against the named plaintiffs/putative class representatives solely on issues of Georgia law as being inversely preemptive of RESPA; or, alternatively,
The district court breached its fiduciary duty to members of the putative class by defining the class for settlement purposes in such a way as to treat claimants with differing state legal and equitable claims as identical.
Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997), discusses, among other issues, the careful analysis trial courts must undertake when considering the fairness of class action settlements negotiated and entered into before a class has been officially certified: settlement-only class certifications. The Supreme Court stated, “proposed settlement classes sometimes warrant more, not less, caution on the question of certification.” Id. at 620, FN 16. The important issue for consideration is “whether a proposed class has sufficient unity so that absent members can fairly be bound by decisions of class representatives.” Id. at 621.
If, after the summary judgment in favor of Defendant, the named plaintiffs/putative class representatives had no meritable claim, then by what authority could they negotiate a settlement? Unity between the named plaintiffs and the remainder of the plaintiff class was nonexistent. This is far worse than simply a settlement entered into before class certification: this is a settlement entered into before any plaintiff with a then-sustainable claim had come to the table.
As the Supreme Court stated, “[c]lass counsel confined to settlement negotiations could not use the threat of litigation to press for a better offer […] and the court would face a bargain proffered for its approval without benefit of adversarial investigation.” Id. It is unfair under the facts of this case, and legally incorrect under the requirements of Amchem, to bind absent plaintiffs to a deal negotiated by someone who could no longer represent them, who had no remaining unity with their interests, due to having lost their own claim, on the merits.
For exactly whose interests, at the time this settlement was being discussed, was the “class counsel” negotiating? Issues of basic contract law arise – by what authority did the “class representative” purport to act? Adequacy of representation in class actions is a fundamental due process right. While the McCarran-Ferguson ruling adverse to the plaintiffs may not be jurisdictional as to the court’s essential power over the actual named parties before it, the fact is undisputed that the named plaintiffs had lost on the merits — therefore the rest of the class, who had not yet lost, was unrepresented. The named plaintiffs, having lost on the merits of their claims, at that point represented no one. The court’s summary judgement decision against the named plaintiffs must be looked at with respect to the basic class action issues of typicality and adequacy of representation, under Rule 24, as enunciated in Amchem.
Nor can the named plaintiffs/putative class representatives pending Rule 59 motion suffice to give them authority over a nationwide class of millions of persons who would be forever bound by their present inability to threaten further litigation. The position of named plaintiffs was no longer typical nor representative of the other class members, and the court’s certification of them as class representatives was an error of law and as such must be overturned. A conflict of interest existed between named plaintiffs/putative class representatives, and the rest of the national class. See Cox v. American Cast Iron Pipe Co., 784 F.2d 1546,1557 (11th Cir. 1986) (“The claims actually litigated in the suit must simply be those fairly represented by the named plaintiffs.”), cert. denied, 479 U.S. 883 (1986). The claims actually litigated in this suit were, at the time of the settlement negotiations and achievement, barred and thus nonexistent. Adequate representation under Rule 24 cannot be so achieved. At a minimum, subclasses should have been certified.
In the case of Ramirez v. DeCoster, 203 F.R.D. 30 (D.Maine, 2001), the named individual plaintiffs, as class representatives, had lost some, but not all of their claims, on partial summary judgment – as to those defeated claims, the district court stated they had no authority to proceed on behalf of the class. Id. at 33, FN 3. The named plaintiffs in DeCoster fortunately possessed other “live”claims, which had survived summary judgment, and as to those claims they could proceed, thus the settlement they entered into on behalf of the rest of the class was enforceable. Id. at 34. The named plaintiffs’ defeated claims were ruled to have been an insignificant part of the lawsuit, and the retention of the other, more important “live” claims would allow the settlement to go forward. Id. at 37.
By contrast, the named plaintiffs here had one claim, which was defeated at summary judgment. There was no “live” claim in existence when the settlement negotiations were concluded and the settlement entered into on behalf of the class. The district court in DeCoster relied heavily on the Supreme Court’s reasoning in Amchem. The judge stated, “Amchem’s concern was to protect absentees by blocking unwarranted or overbroad class definitions and to ensure that a settlement class has sufficient unity so that absent class members can fairly be bound.” Id. The specifications of Rule 23 “demand undiluted, even heightened, attention in the settlement context. Such attention is of vital importance, for a court asked to certify a settlement class will lack the opportunity, present when a case is litigated, to adjust the class, informed by the proceedings as they unfold.” Amchem at 620.
If class certification were permitted “despite the impossibility of litigation, both class counsel and court would be disarmed.” Id. at 621. The requirement that the court approve class action settlements “protects unnamed class members ‘from unjust or unfair settlements affecting their rights when the representatives become fainthearted before the action is adjudicated or are able to secure satisfaction of their individual claims by a compromise.’” Amchem at 623 (quoting 7B Wright, Miller & Kane section 1797, at 340-341).
By refusing to divide the larger class into subclasses based on applicable state law, the district court abused its discretion. In re General Motors Corporation Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768 (3rd Cir. 1995) addresses this very issue. “[T]he district court’s failure to distinguish between groups of plaintiffs that did and those that did not confront difficult state law defenses constitutes an abuse of discretion.” Id. at 816.
The district court, in its Order Granting Plaintiff’s Motion for Final Approval of the Proposed Settlement and Certification of Settlement Class, dated June 22, 2001, stated “the [c]ourt cannot accept the legal proposition that an independent evaluation of other possible applicable law – an evaluation that could mean examining the legal framework in the 50 states and foreign jurisdictions – is necessary prior to approval of any multi-jurisdiction class settlement. Such a legal proposition is not supported by any legal authority of which the Court is aware[….]” Order, p. 25 (Appendix, p. ??) Let the district court, then, be made aware of Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985).
In Phillips, the Supreme Court stated that “a particular set of facts giving rise to litigation could justify, constitutionally, the application of more than one jurisdiction’s laws.” Id. at 819. In Phillips, the Court decided that the law of jurisdictions other than Kansas, (the jurisdiction where the suit was brought) must be applied to claims by persons residing outside the State. “Given Kansas’ lack of ‘interest’ in claims unrelated to that State, and the substantive conflict with jurisdictions such as Texas, we conclude that application of Kansas law to every claim in this case is sufficiently arbitrary and unfair as to exceed constitutional limits.” Id. at 821. “We make no effort to determine for ourselves which law must apply to the various transactions involved in this lawsuit, and we reaffirm our observation in Allstate that in many situations a state court may be free to apply one of several choices of law. But the constitutional limitations laid down in cases such as Allstate and Home Ins. Co. v. Dick must be respected even in a nationwide class action.” Id. at 823. See Andrews v. AT&T, 95 F.3d 1014, 1024 (11th Cir. 1996) (“The appellants cite the need to interpret and apply the gaming laws of all fifty states to assess the legality of each 900-number program as foremost among the difficulties in trying the gambling claims on a class basis, and we agree.”)
In its ruling, the district court here below did not consider the application of the laws of any other jurisdictions, except perhaps fleetingly, that of Texas. Order, p. 25 (Appendix, p. ??) Thus, vacating the district court’s order “is demanded by the failure to assess the interests of the categories of plaintiffs and whether the settlement was fair, adequate and reasonable as to each.” (Emphasis in original) Piambino v. Bailey, 610 F.2d 1306, 1329 (5th Cir. 1980). See Heaven v. Trust Company Bank, 118 F.3d 735, 738 (11th Cir. 1997) (“Where the named plaintiff has no real opportunity to request certification of subclasses after his proposed class is rejected, an obligation arises for the district court to consider subclassification.”) (Citing United States Parole Comm’n v. Geraghty, 445 U.S. 388, 408 (1980)).
Recently, in the factually similar companion case, Patton v. Triad Guaranty Insurance Corp., 277 F.3d 1294, 1300 (11th Cir. 2002), this Court ruled that McCarran-Ferguson did not bar the type of RESPA claims as in the instant case, finding that RESPA “specifically relates” to the business of insurance, including mortgage insurance. This Court did not, however, “consider whether allowing Patton’s RESPA claim to proceed here would ‘invalidate, impair, or supercede’ the provisions of the Georgia Insurance Code.” Id.
C. The district court breached its fiduciary duty to the plaintiff class by finding the terms of the proposed class action settlement, which amounted to approximately 10% of claimants’ potential damages, did not differentiate between class members with substantively distinguishable state law claims, and provided little meaningful equitable relief, to be fair.
The trial court relied on the six factors enunciated in Bennet v. Behring Corp., 737 F.2d 982, 986 (11th Cir. 1984): “Specifically, the court made findings of fact that there was no fraud or collusion in arriving at the settlement and that the settlement was fair, adequate and reasonable, considering (1) the likelihood of success; (2) the range of possible recovery; (3) the point on or below the range of possible recovery at which a settlement is fair, adequate and reasonable; (4) the complexity, expense and duration of litigation; (5) the substance and amount of opposition to the settlement; and (6) the stage of proceedings at which the settlement was achieved.”
The important question unasked by the district court is, did putative class counsel adequately represent the interests of the class as a whole? This seems unlikely, especially in light of the fact that as far as class counsel knew, at the time of negotiation of the settlement, the members of the class residing in Georgia would take nothing in any action under RESPA. Panic may have set in as to how much time and effort counsel had devoted to the case already. This does not mean there was fraud or collusion, simply that counsel are, after all, human beings, subject to both the “joy of victory” and the “agony of defeat.” See In re General Motors, at 801 (“[E]ven honorable counsel – like class counsel here – may be compromised by the possibility of a large fee.”)
“[T]he district court over-emphasized the importance of defenses applicable to only some class members under certain state laws and incorrectly discounted a significant body of evidence pertinent to proving liability.” In re General Motors Corporation Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.2d 768, 816 (3rd Cir, 1995). “The settling parties, in sum, achieved a global compromise with no structural assurance of fair and adequate representation for the diverse groups and individuals affected.” Amchem at 627.
The district court based its fairness determination in large part on what it saw as the substantial barriers to the suit, including its own summary judgment in favor of defendant. This was not actually a barrier at all, since it was reversed on appeal. The district court’s holding was incorrect. Thus, its estimation of the probability of success of the suit was wrong. The suit was much more likely to succeed than the district court thought.
Settlement-only classes provide special concerns for trial courts, and those special concerns were enunciated clearly by the opinion rendered in In re General Motors at 799. There, the Third Circuit stated, “pre-certification settlement may raise the adequacy of representation standard. Since this inquiry must ascertain ‘whether there has been any collusion or undue pressure by the defendants on would be class representatives,’ […] it must carry greater weight in the settlement class context where there is an enhanced potential for those evils. […] Reliance, for the class requisites analysis, on the settlement’s terms and process also increases the importance of an independent conclusion of adequate representation (i.e., one not derived solely by reference to the nature of the negotiations).”) (Quoting First Comm. Corp. of Boston Consumer Accts. Litig., 119 F.R.D. 301, 308 (D. Mass. 1987))
Self-serving affidavits by class counsel and counsel for defendant which describe the settlement negotiations as “adversarial” and “arms’ length” mean little or nothing when named plaintiffs’ arms had already been broken – not simply fractured but well-nigh amputated – by the adverse summary judgment. (Appendix, p. ??)
D. Class certification is an abuse of discretion in this case, even for settlement purposes, in light of the February 5th, 2003 Order issued in the companion cases, Barnes v. Republic Mortgage Insurance and Patton v. Triad Guaranty Insurance Co.
The Supreme Court has outlined the requirements for settlement-only class certifications. “[A]lthough a class action may be certified for settlement purposes only, Rule 23(a)’s requirements must be satisfied as if the case were going to be litigated.” Amchem at 609. “In addition to satisfying Rule 23(a)’s prerequisites, parties seeking class certification must show that the action is maintainable under Rule 23(b)(1), (2), or (3).” Id. at 614.
The trial court below has recently issued an Order, dated February 5, 2003, Denying Motions to Certify a Class in two companion cases, factually related to the instant case: Barnes v. Republic Mortgage Insurance and Patton v. Triad Guaranty Insurance Co. (Appendix, p. ??) In that Order, the court states, “[t]he yield spread premium cases cited by Defendants involved transactions that were substantially different from the structured transactions at issue in this case, and Plaintiffs seek to distinguish them. However, the [c]ourt finds that the underlying rationale of those cases applies here with equal force.” (Order, p. 6, Appendix, p. ??)
The district court based its ruling on an unclear comparison it drew between mortgage guaranty insurance premiums and an unrelated HUD statement of policy regarding another subject entirely, that of yield spread premium payments to mortgage brokers. However, the clear text of the regulation reveals no such analogous intent on the part of HUD to generalize its policy from yield spread premium payments to any other types of payments within the ambit of RESPA. HUD published its Policy Statement II specifically to “eliminate any ambiguity concerning the Department’s position with respect to those lender payments to mortgage brokers characterized as yield spread premiums […] as a result of questions raised by two recent court decisions, Culpepper v. Irwin Mortgage Corp. and Echevarria v. Chicago Title and Trust Co., respectively.” HUD Policy Statement II, at 53052.
This Court has recently decided issues involving yield spread premiums, in the case of Heimmermann v. First Union Mortgage Corp., 305 F.3d 1257 (11th Cir. 2002). Upon close analysis, it is clear the district court overreached with regard to applying the HUD statement of policy — which explicitly and specifically referred only to yield spread premium cases — to the dissimilar situation of mortgage guaranty insurance premiums. The HUD statement was a definition of unlawful kickbacks with direct reference only to yield spread premium payments. The district court said the “underlying rationale” of that regulation applied here with equal force. But the fact is, the court is usurping the legislative role by applying a regulation which on its face applies only to yield spread premium situations to completely different transactions it was not meant to cover. The language of the statement of policy is unambiguous. Apparently, HUD feels yield spread premiums have reasonable utility to the borrower, however, in the instant set of facts there is no utility to the borrower, there are merely inflated costs which are shared between the parties who artificially inflated them, an ill-gotten bounty.
But, given the district court’s recent ruling in these companion cases, how then is it possible that court found class action treatment appropriate in the instant cases? This is, at best, inconsistent reasoning, legally flawed and an abuse of discretion.
IX. CONCLUSION
Appellants Ernest and Debra Kelley respectfully request this Court reverse the district court’s denial of intervention as of right. Appellants request this Court reverse the class certification, the approval of the class action settlement, the injunction, and all other orders and judgments entered below due to errors of law and abuses of discretion. Appellants request they be awarded their costs and that the case be remanded to the district court with appropriate instructions.
Kimberly Townsend Palmer 