This article is an adaptation of a much longer article (Wall, 2015).
A possible defense of res judicata arises as a result of recent class action settlement agreements: Can a party obtain the right to raise res judicata in other cases because of a Court-approved class action settlement in one action, that the party could not have obtained unless the Court approved a settlement because the Court never otherwise certified a class in that action?
Based on the case law, the answer clearly appears to be “yes.”
Not only that, but the case law also features parties raising the settlement agreement who in the end did not have to do anything more than talk about it in order to convince a Federal Judge to bar other claims.
As a starting point, the focus of attention was a Federal case in Florida in which the Federal Court approved a nation-wide class action settlement of lender force-placed insurance (“LFPI”) claims. The settlement agreement in that Florida case included the LFPI claims, if any, which are or might be held by absent persons. The “Order Granting Final Approval to Class Action Settlement” in that case is reported at Fladell v. Wells Fargo Bank, N.A.1 The author’s research has turned up three cases in which the mere fact of a class action settlement in Florida in the Fladell case was raised as a bar to prosecuting the civil actions of other persons in other jurisdictions.
In one case, on the strength of a representation that two weeks earlier the parties in the Florida Fladell case had reached a settlement agreement, although no agreement was available to look at because it was an agreement only in principle at that point, a Federal Court in California stayed an alleged LFPI class action involving California homeowners. The Federal Court in California expressed concern that a settlement in Florida in Fladell might preclude the LFPI class action alleged in the complaint which was filed in California long before the settlement “in principle” in Florida.2
In another case, the Fladell class action settlement was raised as a bar even before the agreement was approved by the Fladell Court, with a similar result. In that case, too, a Federal Court this time in Oklahoma stayed an alleged LFPI class action because the Oklahoma Court was advised that the defendants in the Florida case were negotiating a settlement.3
In the remaining case, a Federal Court in the State of Washington bucked the trend by enjoining a foreclosure proceeding, on one condition, and denying a motion to dismiss an alleged LFPI class action, basically on the same condition.FN4 In both of these cases, the case in Oklahoma and the case in Washington State, the Federal Courts declared that the Fladell settlement would bar the claims in their Courts unless the plaintiffs in their Courts could show that they are not bound by the settlement agreement and, ultimately, by the Court Order in Florida approving the Fladell settlement.5
This turns the affirmative defense of res judicata or claim preclusion on its head in several ways. One way is that at least three District Judges were confronted with representations by lawyers that the claims alleged by people in a case at bar should be halted because they, the lawyers, knew about a settlement of allegedly similar claims in a class action in a different State. Further, the burden of proof on affirmative defenses lies with the party raising them, rather than on the parties opposing the defenses.
The efforts at barring claims of people in many jurisdictions through the use of Court-approved class action settlements in one jurisdiction, are being mimicked by at least one insurance company which provides force-placed insurance, American Security Insurance Company, or “ASIC.”6 Following in the footsteps of investment bank-lenders in this regard, ASIC has participated in a settlement and immunity order in one case pending in the United States District Court for the Southern District of Florida, Lee v. Ocwen Loan Servicing.7
In Lee as in Fladell, the Court entered orders proposed by the parties after the parties settled their alleged class action in an LFPI case. The Court Orders purportedly provide immunity, i.e., res judicata, to preclude every LFPI claim in every other lawsuit filed against the insurance company and the other settling defendants anywhere in the United States.8 The settlement class certified in Lee is for all intents and purposes a purported class of “all borrowers within the United States.”9
There seem on the face of it to be possible questions about the adequacy of representation of the named plaintiffs and questions about whether there are legally sufficient common questions of law or fact in Lee to permit any order in Lee to bar other claims by other people in other jurisdictions outside of Miami. For instance, as good as the Lee plaintiffs’ counsel of record must be as lawyers, they are only from 3 States: New Jersey, New York, and Florida. Their clients, the plaintiffs in the Lee lawsuit in Miami, are only from 7 States: Florida, Massachusetts, Illinois, New Jersey, New York, Texas, and Virginia, at least according to the First Amended Complaint that was filed in Lee.10
Among the claims alleged in Lee are claims for damages for Florida unjust enrichment and tortious interference, breach of fiduciary duty, violation of the implied covenant of good faith and fair dealing, and alleged violations as well of the Florida Deceptive and Unfair Trade Practices Act.
Claims alleged for unjust enrichment under Florida law and the law of other States, together with alleged violations of Florida’s implied covenant of good faith and fair dealing, were previously held in binding Southern District of Florida precedent to make a nationwide class of lender force-placed insurance plaintiffs, i.e., homeowners-mortgagors, uncertifiable as a matter of law.11
The same holding has been followed concerning claims alleged under the Florida Deceptive and Unfair Trade Practice Act in the Southern District in another earlier case, although that case did not involve lender force-placed insurance practices. 12
In determining the settlement class in Lee, the Magistrate Judge cited a precedent which held that the Court is not endorsing any evidence or arguments in that process. However in actuality the Magistrate Judge also purported to make determinations that the settlement class in Lee should be certified in part because “[t]here are questions of law or fact common to the members of the Settlement Class.” The Court in Lee made this determination without ever mentioning what those common questions are, let alone making any attempt to identify even one of them as “predominant”.
The Magistrate Judge also certified the settlement class in Lee in part because “Plaintiffs’ claims are typical of the claims of the other members of the Settlement Class.”13 The claims of the Lee plaintiffs do not at all seem typical of the claims of the other members of the settlement class, and neither the named plaintiffs nor their settlement class attorneys can possibly represent the claims of the other members of the class under the laws of the 40+ States if only because they cannot invoke those laws.14
In sum, the preliminary settlement order submitted by the parties and signed by the Magistrate Judge in Lee contemplates that objections to the settlement and to the Preliminary Order approving the settlement will be considered at the Final Approval Hearing. The final hearing, now rescheduled by Court Order,15 is due to be held as of this writing, in Miami on June 11, 2015. Objections presented in compliance with the Court’s preliminary Order are due to be entertained at that time.
FN1 Fladell v. Wells Fargo Bank, N.A., No. 0:13-cv-60721, 2014 WL 54881677 (S.D. Fla. October 29, 2014). Many notices of appeal were filed from this order. Their dates and dispositions are available on PACER. Several appeals are still pending as of this writing. See also Dennis J. Wall, “Class Action Settlements Have Consequences, From Florida to the State of Washington,” 69 NWLawyer 27 (April/May 2015).
2 Ursomano v. Wells Fargo Bank, N.A.,No. C-13-4381 EMC, 2014 WL 644340 *1-*2 (N.D. Cal. February 19, 2014). The Ursomano case was dismissed by the Court’s own Order on October 30, 2014 and again on November 13, 2014 by Court Order approving the parties’ stipulation of dismissal, which expressly stated that it did not affect claims of absent persons who would not fall within the class in Fladell.
3 Ali v. Wells Fargo Bank, N.A., No. CIV-13-876-D, 2014 WL 819385 *2 (W.D. Okla. March 3, 2014).
4 Keller v. Wells Fargo Bank, N.A., No. C14-422 RAJ, 2014 WL 6684895 *2-*3 (W.D. Wash. November 25, 2014). In this decision, the District Judge in the Keller case allowed Mr. and Mrs. Keller, the plaintiffs, “an opportunity to come forward with evidence or argument that demonstrates that they opted out of the [Fladell Florida] settlement or that their claims are somehow not covered by the settlement.” The District Judge dismissed the Kellers’ case with prejudice after the defendant notified the Court that it was informed that the Kellers would not contest dismissal, and incidentally, that the Kellers had twice filed for bankruptcy already.
5 In their settlement stipulation for dismissal which the Ursomano Court approved after the Court entered its sua sponte Order of dismissal, the parties pointed out to the Federal Court that their alleged classes were never certified in Ursomano. The plaintiffs were careful to obtain the defendants’ agreement that “the parties have reached a settlement of Plaintiffs’ individual claims against Defendants in which the Plaintiffs’ individual claims will be dismissed with prejudice and the members of any putative class will be dismissed without prejudice,” and, moreover, that while all individual claims of the individual claims were settled and should be dismissed with prejudice, under this stipulation “[a]ll claims and allegations of any putative class members are hereby dismissed without prejudice.” [Emphases added.]
The presiding District Judge in the Ursomano case approved this stipulation without issuing a written Order, according to PACER.
6 These efforts are also joined by unrelated third parties such as mortgage servicers and their related affiliates and subsidiaries and partners. Among mortgage servicers, one, Ocwen, is prominent.
7 Lee v. Ocwen Loan Servicing, No. 0:14-cv-60649, 2015 WL 178220 (S.D. Fla. Report and Recommendations of U.S. Magistrate Judge Goodman, January 13, 2015), report and recommendations adopted on appeal, 2015 WL 309441 (S.D. Fla. January 23, 2015 Order by USMJ Goodman sitting by consent of the parties after his report and recommendations were made 10 days earlier).
8 Lee v. Ocwen Loan Servicing, No. 0:14-cv-60649, 2015 WL 178220, *4 (S.D. Fla. Report and Recommendations of U.S. Magistrate Judge Jonathan Goodman, January 13, 2015), report and recommendations adopted, 2015 WL 309441 (S.D. Fla. January 23, 2015; USMJ Jonathan Goodman).
9 Lee v. Ocwen Loan Servicing, No. 0:14-cv-60649, 2015 WL 178220, *3 (S.D. Fla. January 13, 2015 Report and Recommendations of U.S. Magistrate Judge Jonathan Goodman), report and recommendations adopted, 2015 WL 309441 (S.D. Fla. January 23, 2015; USMJ Jonathan Goodman).
10 Lee v. Ocwen Loan Servicing, Docket No. 106 filed 12.01.14 (S.D. Fla. Case No. 0:14-cv-60649).
11 This holding was reached in an earlier lender force-placed insurance practices case in the same Southern District of Florida: Kunzelmann v. Wells Fargo Bank, N.A., No. 9:11-cv-81373-DMM, 2013 WL 139913, *7-*10 (S.D. Fla. January 10, 2013).
12 Karhu v. Vital Pharmaceuticals, Inc., No. 13-60768-CIV, 2014 WL 815253, *10 (S.D. Fla. March 3, 2014)(the Court in the Karhu case also held, for the same reasons, that the putative class action plaintiff did not meet his burden of establishing that common issues predominate “with regard to the unjust enrichment claims of the Proposed Classes”), dismissed without prejudice by Order filed on March 27, 2014 (unreported), notice of appeal filed on April 15, 2014 regarding denial of class certification and dismissal (assigned 11th Cir. Case No. 14-11648-E according to PACER, the Public Access to [Federal] Court Electronic Records). (As of this writing, the appeal in Karhu is still pending.)
13 Lee v. Ocwen Loan Servicing, No. 0:14-cv-60649, 2015 WL 178220, at p. *3, ¶ 5 (S.D. Fla. January 13, 2015 Report and Recommendations of Goodman, USMJ), adopted, 2015 WL 309441 (S.D. Fla. January 23, 2015; Goodman, USMJ).
14 See, e.g., Karhu v. Vital Pharmaceuticals, Inc., No. 13-60768-CIV, 2014 WL 815253, *10 (S.D. Fla. March 3, 2014), dismissed on March 27, 2014 and appeal filed on April 15, 2014 (both unreported); Kunzelmann v. Wells Fargo Bank, N.A., No. 9:11-cv-81373-DMM, 2013 WL 139913, *7-*10 (S.D. Fla. January 10, 2013).
15 Lee v. Ocwen Loan Servicing, Docket No. 127 (S.D. Fla. Case No. 0:14-cv-60649).
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