Class action settlements provide many issues separate and apart from the substance of the cases. There is no better example at hand than lender force-placed insurance (“LFPI”) cases.
In Keller v. Wells Fargo Bank, N.A., 2014 WL 6684895 (W.D. Wash. November 25, 2014), the issue was whether a class action settlement in Florida barred lender force-placed insurance claims in Washington State.
The claimants in Washington State are Scott and Marnie Keller, on behalf of themselves and others similarly situated, i.e., an alleged class in that case. The Kellers alleged “claims for breach of contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, and violation of the [Washington State] Consumer Protection Act.” Keller v. Wells Fargo Bank, N.A., 2014 WL 6684895 *2 (W.D. Wash. November 25, 2014). [Emphasis added.] These alleged claims were based on insurance that was placed by force by Wells Fargo. It appears from the brief opinion that the Kellers alleged that Wells controlled their mortgage escrow; in all likelihood, the two Wells Fargo defendants sued by the Kellers were the mortgage lender or mortgage servicer, or the agent of either of these [hereinafter collectively referred to as “Wells Fargo” or “Wells”].
The Kellers alleged that they continuously maintained “hazard insurance” on their home from the day they purchased it on October 27, 2004. The Kellers’ annual premium for this insurance was $1,331.00.
Wells Fargo paid the premiums for the Kellers’ insurance from the Kellers’ escrow account, for awhile. Apparently, on or about October 29, 2010, a policy of insurance force-placed by Wells Fargo took effect on the Kellers’ home. The Kellers alleged that there was a balance of $1,662.00 in their escrow account at the time which, they alleged, was more than sufficient to pay the annual premium of the insurance on their home.
Allegedly Wells Fargo notified the Kellers for the first time in January, 2011 of the insurance which was force-placed effective October 29, 2010. In January, 2011, Wells Fargo allegedly also notified the Kellers – for the first time – not only that Wells had force-placed insurance but that it had done so at a cost charged to the Kellers of $3,492.00.
The Kellers refused to pay the increase in their monthly mortgage payments. They continued to pay their monthly mortgage amount of $1,149.59 during this entire period, until Wells allegedly did not accept their mortgage payments any longer. “On May 1, 2013, Wells Fargo refused the Kellers’ mortgage payment” and on “August 5, 2013, the Kellers received a notice of default stating that they were” in arrears. “The Kellers have approximately $100,000 of equity in their home.” Keller v. Wells Fargo Bank, N.A., 2014 WL 6684895 *1 (W.D. Wash. November 25, 2014).
The Kellers filed a motion for a preliminary injunction enjoining the foreclosure sale of their home. Keller v. Wells Fargo Bank, N.A., 2014 WL 6684895 *1 (W.D. Wash. November 25, 2014). Wells defended against the motion by alleging in turn that the claims of the Kellers had been settled in an LFPI class action settlement in Florida.
Specifically, Wells alleged that the Kellers had not timely “opted out” of the LFPI class action settlement in Florida, and that as a result their claims were no longer valid.
The Federal Judge in Washington State included Wells’ arguments in granting the Kellers’ request for a preliminary injunction, applying four (4) tests enunciated by the U.S. Supreme Court for evaluating claims for preliminary injunctive relief:
- “Likelihood of Success on the Merits.” Under the allegations summarized above, the Court held that the Kellers satisfied this element – for the time being. “Accordingly, as set forth below, the court will grant limited injunctive relief to allow plaintiffs an opportunity to come forward with evidence or argument that demonstrates that they opted out of the [Florida] settlement or that their claims are somehow not covered by the settlement.”
- “Irreparable harm.” “The court finds that the loss of plaintiffs’ home, which has more than $100,000 in equity, would result in irreparable harm.”
- “Balance of the Equities.” Balancing the money damages which Wells might incur because of a delay in the foreclosure sale against the plaintiffs’ loss of their home, the Court concluded that this element, too, is satisfied in this LFPI case.
- “Public Interest.” The Court held that the public interest is satisfied by a preliminary injunction of the defendant’s foreclosure sale of the plaintiffs’ home in this case. “Plaintiffs have consistently made their mortgage payments on time and raised serious questions as to whether defendant caused the deficiency at issue here.”
Keller v. Wells Fargo Bank, N.A., 2014 WL 6684895 *2-*3 (W.D. Wash. November 25, 2014).
A check of the PACER files (Public Access to Court Electronic Records) on the day this article is written shows no significant activity since this decision was issued. It is interesting to note that in applying the four standard factors for any preliminary injunction in this lender force-placed insurance case:
- The Court did not hold that the bank would be irreparably harmed by temporarily enjoining a foreclosure sale based on refusal to pay – i.e., based on nonpayment – of lender force-placed insurance premiums.
- The Court similarly did not hold that the equities favored the lender in securing the collateral – the Kellers’ house -- for its mortgage loan.
- And the Court likewise did not hold that the public interest would somehow be served by allowing the foreclosure sale to proceed despite the claims alleged by the homeowners concerning the lender’s forced placement of insurance in this case.
Sometimes what a Court did not hold can be as illuminating as what a Court did hold.
This is a theme that also bears watching in our next post. In it, we will examine a decision by Judge Posner concerning Federal Court approval of settlements in class action cases. His opinion for a unanimous panel of the Seventh Circuit did not just break ground in reviewing class action settlements. Judge Posner’s opinion sets off rockets.
To be continued ….
The author is at work on a book on “Lender Force-Placed Insurance” which the American Bar Association is scheduling for publication in the Spring of 2015.
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