Individual borrowers alleging that Bank of America mismanaged their loan modification requests under the federal Home Affordable Modification Program were not entitled to certification as a class, a U.S. District Court judge has found.
As a HAMP servicer, the bank was to offer eligible borrowers a three-month “Trial Period Plan,” or TPP, during which time the borrower had to meet certain conditions. If the conditions were met, the bank would then provide a permanent HAMP modification effective on the first day of the following month.
According to the plaintiff borrowers, the TPP created an implicit contract, which the bank breached in each individual case by failing to send either a permanent modification or a written denial by the effective date.
The bank argued, however, that liability in each instance was subject to a factual determination as to whether the individual plaintiff met his own obligations under the TPP. Since the individual inquiries predominated over questions common to the proposed class, the bank asserted, certification would be inappropriate.
Judge Rya W. Zobel agreed.
“Plaintiffs have plausibly alleged that Bank of America utterly failed to administer its HAMP modifications in a timely and efficient way; that in many cases it lost documents, or pretended it had not received them, or arbitrarily denied permanent modifications,” Zobel said.
But as meritorious as the plaintiffs’ claims might be, she continued, “they rest on so many individual factual questions that they cannot sensibly be adjudicated on a classwide basis.”
The 31-page decision is In re Bank of America Home Affordable Modification Program (HAMP).
Plaintiffs’ lead counsel Steve W. Berman of Hagens, Berman, Sobol, Shapiro in Seattle said the case illustrates a trend of banks defeating class certification in mortgage-related suits that implicate bank behavior by claiming the customers are the ones who did not meet their obligations.
“This is part of a disturbing pattern in which the words of corporate America are viewed as more trustworthy than the words of the average person, and that even when there is strong evidence of corporate wrongdoing, it is often disregarded,” Berman said.
Boston attorney Gary Klein, one of Berman’s co-counsel, called the decision “tragic” for struggling homeowners everywhere. The ruling strips hundreds of thousands of families who lack the resources to hire experienced counsel on their own of any meaningful recourse against Bank of America, he said.
“Banks created these problems and still need to be made responsible for the consequences of their failed practices,” the Klein, Kavanagh, Costello partner said, noting that the plaintiffs plan to appeal.
However, Brandon F. White of Foley Hoag in Boston, who defends banks against class actions, said Zobel properly recognized that the borrowers’ own performance under the TPPs was an essential part of their claims.
“In this case, determining whether each of the borrowers had complied with their obligations would require many separate and individual factual inquiries,” said White, who was not involved in the case.
John J. Aromando, a lawyer at Pierce Atwood who practices in Massachusetts and Portland, Maine, also represents lenders in class actions and agreed.
“You can’t just assume each [modification] was improperly denied,” Aromando said. “Bank of America, regardless of what you think about its practices based on the allegations, is entitled to put each of these claims to its day in court and raise legitimate defenses to individual claims. At some point, [by proceeding on a class basis] you reach due process issues for the defendant.”
But Boston plaintiffs’ counsel Thomas G. Shapiro had a different take.
Specifically, he said, there was a common issue that predominated: Bank of America’s allegedly centralized policy of doing things that were improper under HAMP.
“If you decide the overriding common issue of whether Bank of America deliberately or negligently engaged in improper conduct, you can proceed to the individual issues where a lot can be done on paper,” the Shapiro, Haber & Urmy partner said. “In just about every class action, you have individual issues that you need a process to determine or verify who’s in the class. This can take a year or two in really big cases … but it’s possible to set up a streamlined claim process to decide whether each potential class member qualifies for recovery.”
Meanwhile, Aromando suggested that the plaintiffs’ situation is not necessarily as dire as plaintiffs’ attorneys suggest, since they still have recourse under state consumer protection laws such as Chapter 93A, which should provide the financial incentives to proceed on an individual basis.
“Chapter 93A allows for the recovery of attorney fees, so if you’ve got a meritorious claim, a lawyer can take it,” he said. “That should level the playing field to a certain extent.”
While that may be true in theory, Shapiro said, it is not the reality.
“Not many lawyers are going to undertake the enormous financial cost and risk [of representing an individual borrower],” he said. “And let’s say you do recover $50,000 to $100,000 for a client. Then you run the risk that a court will say, ‘I can’t justify awarding $10 million or $15 million in legal fees for a $50,000 to $100,000 case.”
Meanwhile, a firm attempting to represent hundreds of thousands of plaintiffs on an individual basis would face an overwhelming burden just interfacing with them all, Shapiro said.
So as a practical matter, he said, “when you talk about superiority [as required for class treatment], the choice is really whether there’s going to be a class action or no relief at all for class members.”
James W. McGarry of Goodwin Procter in Boston was lead counsel for Bank of America. He declined to comment.
Defendant Bank of America participated in HAMP, a federal program to prevent mortgage foreclosures by encouraging lenders and servicers to provide home loan modifications to eligible borrowers.
Under the HAMP modification process, mortgage servicers undertook a preliminary evaluation of individual borrowers’ eligibility. From April 2009 through early 2012, the servicer could use a borrower’s unverified statements about his financial situation in order to conduct the evaluation.
The servicer would then offer a borrower deemed eligible a three-month “Trial Period Plan.” During that time, the borrower had to make reduced monthly payments in a timely manner, provide required financial documents to verify his eligibility, and meet a number of other state conditions.
If the borrower complied with the terms, the servicer would provide a permanent HAMP modification effective on the first day of the month after the last TPP payment was due.
The plaintiffs, a number of individual borrowers from around the country, allegedly made all the required trial payments but did not receive either a permanent loan modification or written denial by the modification effective date.
A number of federal suits were filed alleging breach of contract and bad faith on Bank of America’s part. After the litigation was consolidated in U.S. District Court, 43 named plaintiffs from 26 different states filed a motion under Rule 23 of the Rules of Civil Procedure to certify 26 different classes on the issue of liability.
Zobel found that the plaintiffs did not satisfy Rule 23’s requirement that common questions predominate over individual issues in a class action.
“In order to show that Bank of America is liable for a breach of contract, each plaintiff must show that a contract existed, that he performed as required by that contract, and that Bank of America breached the contract,” the judge said. “Deciding whether each plaintiff fulfilled his obligations under his TPP depends on a nearly endless series of individual questions … for each obligation of each member of each of the twenty-six classes.”
Zobel did concede that common questions can still predominate over numerous individual ones if those individual determinations can be accomplished without an evidentiary hearing on each claim.
“But the present record shows that individual questions presented in this case are not susceptible to simple, routine resolution. They will instead require separate factual inquiries that will overwhelm any common questions,” she said, pointing to highly individualized issues such as whether borrowers provided accurate documentation to verify their income; whether they lived in the affected property as a principal residence; whether they obtained credit counseling if required to do so; and whether they made trial payments in a timely manner.
Zobel also found that the plaintiffs failed to meet the required element of superiority for class certification by showing that a class action would be the most fair and efficient way to adjudicate the dispute.
While acknowledging the plaintiffs’ concerns that many in their ranks lacked the resources to seek individual legal redress for their injuries, she said a class action depending predominantly on individual factual questions would be far too unmanageable.
“A class action cannot sensibly adjudicate those individual questions,” Zobel concluded, denying the plaintiffs’ Rule 23 motion. “It would either ignore them; denying the parties a fair trial on the merits of each plaintiff’s claim; or it would attempt to resolve them all, and wind up hopelessly entangled in each plaintiff’s idiosyncratic facts. Neither option is acceptable.”