Fifth Circuit Affirms Class Certification Challenging Fee Collection Practices

Posted by NCBRC - September 18, 2012

The Fifth Circuit found that the bankruptcy court did not abuse its discretion when it certified a class of plaintiffs, under Rule 23(b)(2), who challenged certain fee-charging and collection practices of Countrywide Home Loans. Rodriguez v. Countrywide Home Loans, No. 11-40056 (5th Cir. Sept. 14, 2012).

The case arose out of a lawsuit filed by several post-bankruptcy debtors who claimed that, after they had successfully completed their chapter 13 plans, Countrywide instituted foreclosure proceedings against them based upon failure to pay fees and costs assessed during bankruptcy which were not approved by the bankruptcy court under Rule 2016(a). In the apparent belief that debtors were fair game once they were no longer under the protection of the bankruptcy court, Countrywide argued simply that Rule 2016(a) did not apply to its actions. In fact, Countrywide employees freely admitted to having collected or attempted to collect unauthorized fees incurred during the class members’ bankruptcy cases.

The bankruptcy court found that Countrywide’s “sharp” practices did, in fact, violate Rule 2016(a). The court certified a class of plaintiffs comprised of those plaintiffs indebted to Countrywide, who had treated their mortgages in their chapter 13 plans, and “as to whom Countrywide has assessed a fee or cost governed by Rule 2016(a), attributable to a time after the filing of a bankruptcy petition and before the date on which the individual received a chapter 13 discharge, unless such fee or cost was approved in a Bankruptcy Court order.” Although the named plaintiffs’ complaints included claims for damages as well as injunctive relief, the class certification was limited to the injunctive relief claims. The court found that the damages claims were not appropriate under the facts of the case because under those claims individual issues would predominate.

In affirming the certification of an injunctive class, the Fifth Circuit approved the bankruptcy court’s interpretation of Wilborn v. Wells Fargo Bank, N.A. (In re Wilborn), 609 F.3d 748 (5th Cir. 2010). Although in Wilborn the court found class certification was inappropriate because the court would have had to conduct an analysis of individual plaintiff circumstances to determine what fees would have to be disgorged, in Rodriguez, Countrywide’s liability did not depend upon any individual’s damages but upon “the alleged Countrywide practice of viewing Rule 2016(a) as inapplicable to any fee assessed post-petition but charged post-discharge.”

Additionally, the court rejected Countrywide’s call to prohibit so-called “fail safe” classes in which membership in the class is ultimately dependent upon the defendant’s liability. In that regard, the court said that the common link between the plaintiffs’ claims permitted the certification of the class even though some individual plaintiffs could ultimately be removed based upon whether Countrywide’s conduct affected them.

Rodriguez opinion


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