District of Massachusetts Denies Certification in Home Loan Modification Case

The home mortgage crisis of the last several years has spawned its share of new government regulation and litigation.  On September 4th, Judge Rya Zobel denied plaintiffs' motion for class certification in an MDL proceeding alleging that Bank of America was liable to members of classes in twenty-six states for alleged breach of contract, breach of the implied covenant of good faith and fair dealing, promissory estoppel, and unfair and deceptive practices.  In re Bank of America Home Affordable Modification Program (HAMP) Contract Litigation, M.D.L. No. 10-21930RWZ (D.Mass.).

The plaintiffs were individuals who had entered into Trial Period Plans with the bank, pursuant to a Department of the Treasury home loan modification program, under which eligible homeowners who made reduced monthly payments for a brief trial period, provided required financial documents, and met other stated conditions would become entitled to modifications of their loans.  Plaintiffs claimed that they made all of the required payments and met all of the conditions, but did not receive either a permanent loan modification or a written denial of eligibility by the Modification Effective Date.  They sought certification of classes of individuals who also had entered into TPP Agreements, met all of the requirements, but failed to receive either the loan modifications or written denials of eligibility prior to the specified dates.

Plaintiffs sought certification of a liability-only class pursuant to Rule 23(b)(3).  In a thorough and well-crafted opinion, Judge Zobel denied plaintiffs' motion for class certification for failure to satisfy the requirements of predominance and superiority.

The court's analysis began with the implied requirement of ascertainability.  Citing Wright & Miller, Judge Zobel explained that “the class must be defined by objective criteria that make it 'administratively feasible for the court to determine whether a particular individual is a member'” of the class.  Because there existed centralized databases from which class membership could readily be determined, the court held, the requirement of ascertainability was satisfied.

Next, the court reviewed the element of numerosity.  Relying on plaintiffs' expert's analysis of a sample of loans, and extrapolating from the sample, Judge Zobel concluded that each of the twenty-six classes was sufficiently numerous to satisfy Rule 23(a)(1).

With respect to Rule 23(a)(2) commonality, the court cited Justice Scalia's opinion in Wal-Mart Stores, Inc. v. Dukes, but held that commonality was satisfied despite the presence of individualized questions, because the question of interpretation of the TPPs was common to the putative classes. In a footnote, the court rejected plaintiffs' arguement that the bank's alleged unscrupulous practices was a common issue because plaintiffs failed to show that any of the alleged practices “affected each class member individually.”  

The court also found that the requirements of typicality and adequacy were satisfied, except with respect to certain named plaintiffs who had entered into TPPs with an affiliate of the bank that had serviced the loans prior to all of these plaintiffs' loan modification effective dates.  The court held that the unique issues of whether the affiliated entity followed the same practices as the defendant and that the defendant should be liable for the affiliate's practices “frustrate any confidence in the ability of these named plaintiffs to represent the proposed classes.”

Finally, the court reviewed predominance and superiority under Rule 23(b)(3).  Judge Zobel found that the common question about the bank's duties under the TPPs was “outweighed by the numerous individual questions affecting liability.”  In particular, the requirement that plaintiffs show that they performed their obligations under their contracts were too individualized to support a finding of predominance.  The court explained:

Deciding whether each plaintiff fulfilled his obligations under his TPP depends on a nearly endless series of individual questions:  “did Plaintiff A provide accurate documents permitting verification of all his income?  Did Plaintiff A live in the property as his principal residence?  Did Plaintiff A obtain credit counseling if required to do so?  Did Plaintiff A make his trial payments on a timely basis?  Did Plaintiff B provide accurate documents permitting verification of all his income?  Did Plaintiff B live in the property as his principal residence? . . .”  And so on, and so on, and so on, for each obligation of each member of each of the twenty-six classes.

Because these questions could not “be resolved just by 'computer records, clerical assistance, and objective criteria,'” but would instead “require separate evidentiary hearings for many if not all of the proposed class members,” the court found that individual questions predominated with respect to all of the plaintiffs' claims.

Finally, the court held that the presence of these individual questions precluded a finding of superiority:

As described above, plaintiffs' claims depend predominantly on individual factual questions.  A class action cannot sensibly adjudicate those individual questions.  It would either ignore them, denying the parties a fair trial on the merits of each plaintiffs' claim; or it would attempt to resolve them all, and wind up hopelessly entangled in each plaintiff's idiosyncratic facts.  Neither option is acceptable.

Additionally, because “individual plaintiffs are normally well-motivated to bring any claims they might have in order to save their homes,” the court held that this was not a case where class action treatment was required to vindicate small claims.