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Smith v. U.S. Bank, N.A.

United States District Court, S.D. Florida

February 22, 2017

JEREMY SMITH, Plaintiff,
v.
U.S. BANK, N.A., Defendant.

          OMNIBUS ORDER

          URSULA UNGARO UNITED STATES DISTRICT JUDGE.

         THIS CAUSE is before the Court upon Plaintiffs Motion for Class Certification, D.E. 121.

         THE COURT has considered the Motion, the pertinent portions of the record and is otherwise fully advised in the premises. For reasons set forth below, Plaintiffs Motion is DENIED.

         I. Background

         On March 31, 2016, Plaintiff, Jeremy Smith ("Plaintiff), filed the instant putative class action, alleging one claim for breach of contract. D.E. 1. Plaintiff alleges that Defendant, U.S. Bank, NA. ("Defendant" or "U.S. Bank"), wrongfully charged and collected from Plaintiff and the proposed class members "post-payment interest" (interest collected by a lender after the borrower has paid the full unpaid principal of the loan), without providing adequate disclosures under HUD and FHA regulations. Plaintiff alleges that under HUD and FHA regulations, all underlying FHA-insured loans must contain certain uniform provisions. Id. ¶¶ 1-7. Of particular relevance to this case, Plaintiff alleges 24 C.F.R. § 203.558 required U.S. Bank to provide a borrower with "a form approved by the [FHA]" before U.S. Bank was permitted to collect post- payment interest. Id. ¶¶ 4, 70-72. Plaintiff contends, both in his Complaint and the instant Motion, that U.S. Bank must have issued to borrowers document containing specific language approved and authorized by the FHA before collecting post-payment interests where, as here, Plaintiff and proposed class members paid the full unpaid principal of the loan, but that U.S. Bank failed to do so. See Id. ¶ 56. In other words, U.S. Bank should have sent to Plaintiff and other borrowers a form containing language "approved by the FHA" that pertained to post-payment interest in response to a borrower's inquiry about paying off his/her loan, request for payoff figures, or tender of prepayment; U.S. Bank's failure to do so, followed by its collection of post-payment interest, renders it liable for breach of the promissory note.

         In the instant Motion, Plaintiff moves to certify the following nationwide class under Fed.R.Civ.P. 23(a) and 23(b)(3):

Any person who had a FHA-insured loan for which (1) the Date of the Note is within a period beginning on June 1, 1996 and ending on January 20, 2015; (2) U.S. Bank, as of the date the total amount due on the loan was brought to zero, was the Lender, Mortgagee, or otherwise held legal title to the Note; (3) U.S. Bank collected interest for any period after the total amount due on the loan was brought to zero (i.e., U.S. Bank collected "post-payment interest"); and (d) U.S. Bank collected post-payment interest during the applicable statute of limitations period, as shown by Exhibit E.

D.E. 121 p. 6. Plaintiffs proposed class includes approximately 148, 204 borrowers that paid post-payment interest in the collective amount of $30, 486, 865.12. D.E. 121 p. 7, 121-1 p. 2.

         In addition to his briefing, Plaintiff submits the following exhibits in support of his Motion: (1) the expert report and declaration of a certified public account, Dr. Karen Fortune ("Dr. Fortune"), D.E. 121-1, 146-6; (2) the expert report and declaration of a computer science analyst, David Loshin ("Dr. Loshin"), D.E. 121-2, 146-7; (3) excerpts of testimony from the depositions of Plaintiff, D.E. 146-1, Renee Mueller, Defendant's Rule 30(b)(6) witness ("Ms. Mueller"), D.E. 121-3, and Patricia A. Ludka, Defendant's employee ("Ms. Ludka"), D.E. 121- 12; (4) Plaintiffs declaration submitted in support of his Motion, D.E. 146-2; (5) Plaintiffs promissory note and payoff statement, D.E. 121-4, 121-7; (6) a chart containing the statute of limitations for breach of contract claims in each state, D.E. 121-5; (7) a 50-state survey of the elements for a breach of contract claim, D.E. 121-13, 146-4; (8) a 50-state survey showing that a waiver defense based on the voluntary payment doctrine requires proof of knowledge, D.E. 146-5; (9) Defendant's responses to Plaintiffs discovery requests, D.E. 121-6; (10) Plaintiffs fee agreement between him and his counsel in this case, D.E. 146-2; and (11) declarations from Plaintiffs counsel regarding their qualifications, D.E. 121-8 through D.E. 121-11.

         Defendant opposes Plaintiffs Motion and submits the following exhibits in support: (1) excerpts of testimony from the depositions of: (a) Plaintiff, (b) Ms. Mueller, and (c) Brian Montgomery, former FHA Commissioner ("Mr. Montgomery"), D.E. 130-4, 130-5, 130-9; (2) correspondence sent in response to Defendant's Freedom of Information Act ("FOIA") request, which Defendant argues indicates that there is no standard HUD form to be provided before a lender can collect post-payment interest, D.E. 130-6; (3) the expert report of Mr. Montgomery, former FHA Commissioner, D.E. 130-1; (4) the expert report of a former director at HUD, Meg Burns ("Ms. Burns"), D.E. 130-2; (5) the expert report of a former deputy director at HUD, Karen Garner ("Ms. Garner'), D.E. 130-3[1]; (6) the Declaration of Amy Gregory, Statewide Manager of Hillsborough Title, Inc. ("Ms. Gregory"), D.E. 130-7; (7) the Declaration of Gary Kleinrichert, Senior Managing Director in the Forensic and Litigation practice of FTI Consulting, Inc. ("Mr. Kleinrichert"), containing a forensic analysis of the dates that borrowers submitted prepayments to Defendant, D.E. 130-8; and (8) the Declaration of Amanda Fischer, Manager of Audit and Issue Management at U.S. Bank, concerning HUD's audits of U.S. Bank's compliance with HUD regulations, D.E. 130-10.

         II. Discussion

         A. Legal Standard

         A class may only be certified if the court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23 have been satisfied. Gilchrist v. Bolger, 733 F.2d 1551, 1555 (11th Cir. 1984). A plaintiff seeking class certification carries the burden of proof and must "affirmatively demonstrate" that all of the requirements of Rule 23 are met. Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 351 (2011); Rustein v. Avis Rent-A-Car Sys., Inc., 211 F.3d 1228, 1233 (11th Cir. 2000).

         As an initial matter, Rule 23(a) contains an implicit, threshold requirement that the proposed class be "adequately defined and clearly ascertainable." See, e.g., Rink v. Cheminova, Inc., 203 F.RD. 648, 659 (M.D. Fla. 2001) (citing DeBremaecker v. Short, 433 F.2d 733, 734 (5th Cir. 1970) ("It is elementary that in order to maintain a class action, the class sought to be represented must be adequately defined and clearly ascertainable.")).[2] Rule 23(a) further contains four explicit prerequisites: "(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class." These four prerequisites are commonly referred to as "numerosity, commonality, typicality, and adequacy of representation." Valley Drug Co. v. Geneva Pharm., Inc., 350 F.3d 1181, 1188 (11th Cir. 2003).

         In addition to the requirements of Rule 23(a), a plaintiff must also demonstrate that at least one of the three alternative requirements of Rule 23(b) has been met. Pickett v. Iowa Beef Processors, 209 F.3d 1276, 1279 (11th Cir. 2000).

         Here, Plaintiff only argues for certification under Rule 23(b)(3) on grounds that "the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." See Fed. R. Civ. P. 23(b)(3). D.E. 165, 200. In other words, "there must be common questions of law or fact among the class relating to . . . substantive claims . . . [that] predominate such that they have a direct impact on every class member's effort to establish liability that is more substantial than the impact of individualized issues in resolving the claim or claims of each class member. Vega, 564 F.3d at 1270 (internal citations and quotations omitted). "Where, after adjudication of the classwide issues, plaintiffs must still introduce a great deal of individualized proof or argue a number of individualized legal points to establish most or all of the elements of their individual claims, such claims are not suitable for class certification under Rule 23(b)(3)." Klay v. Humana, Inc., 382 F.3d 1241, 1255 (11th Cir. 2004).

         A district court has broad discretion in determining whether to certify a class. Washington v. Brown & Williamson Tobacco Corp., 959 F.2d 1566, 1569 (11th Cir. 1992). "Although a court should not determine the merits of a case at the class certification stage, the court can and should consider the merits of the case to the degree necessary to determine whether the requirements of Rule 23 will be satisfied." Valley Drug Co., 350 F.3d at 1188 n. 15; see also Hudson v. Delta Airlines, 90 F.3d 451, 457 (11th Cir. 1996) (stating it is sometimes necessary to probe behind the pleadings before coming to rest on the certification question).

         B. Analysis

         i. Whether the putative class is adequately defined and clearly ascertainable

         Rule 23 includes an implied threshold requirement that the proposed class be "adequately defined and clearly ascertainable." See, e.g., Rink, 203 F.R.D. at 659. "The Court must be able to look to objective criteria to accurately delineate membership in the class and identifying class members must be a manageable process that requires little individual inquiry." Gregware v. Scotts Miracle-gro Co. & The Scotts Co., LLC, No. 1:13-CV-24581-UU, 2014 WL 12531536, at *3 (S.D. Fla. Oct. 20, 2014).

         As stated above, Plaintiff seeks to certify the following class:

Any person who had a FHA-insured loan for which (1) the Date of the Note is within a period beginning on June 1, 1996 and ending on January 20, 2015; (2) U.S. Bank, as of the date the total amount due on the loan was brought to zero, was the Lender, Mortgagee, or otherwise held legal title to the Note; (3) U.S. Bank collected interest for any period after the total amount due on the loan was brought to zero (i.e., U.S. Bank collected "post-payment interest"); and (d) U.S. Bank collected post-payment interest during the applicable statute of limitations period, as shown by Exhibit E.

D.E. 121 p. 6. Plaintiffs proposed class includes approximately 148, 204 borrowers that paid post-payment interest aggregating $30, 486, 865.12. D.E. 121 p. 7, 121-1 p. 2.

         Defendant does not contest that Plaintiffs proposed class is "adequately defined and clearly ascertainable." See D.E. 130; Rink, 203 F.R.D. at 659.

         The Court concludes that the proposed class is adequately defined and clearly ascertainable because based on evidence submitted to the Court and, in particular, the expert report of Plaintiff s expert, Dr. Fortune, which shows that the parties can readily determine: (1) which borrowers submitted an inquiry, request for payoff figures, or tender of prepayment; (2) whether Defendant provided any disclosures, including Defendant's allegedly inadequate form disclosure, in response to borrowers' inquiries, requests or tenders of prepayment; and (3) whether borrowers paid post-payment interest. D.E. 121-1, 146-6. This is enough to satisfy the ascertainability requirement of Rule 23. Bussey, 562 F.App'x at 787-88 (noting that an identifiable class exists if a court can, based on objective criteria, identify class members in a "manageable process that does not require much, if any, individual inquiry" (internal citations omitted)).

         The Court will now address the explicit requirements of Rule 23(a) and Rule 23(b)(3). While the Court concludes that Plaintiff fails to meet his burden of proving that common legal and factual issues predominate over individual ones under Rule 23(b)(3), it will nonetheless analyze whether Plaintiff has met his burden under both Rule 23(a) and Rule 23(b)(3).

         ii. Rule 23(a)

         a. Numerosity

         Under Rule 23(a), the Court first determines whether the proposed class "is so numerous that joinder of all members is impracticable." Fed.R.Civ.P. 23(a)(1). Numerosity is "generally a low hurdle." Vega v. T-Mobile USA, Inc., 564 F.3d 1256, 1267 (11th Cir. 2009). "[W]hile there is no fixed numerosity rule, generally less than twenty-one is inadequate, more than forty adequate, with numbers between varying according to other factors." Cox v. Am. Cost Iron Pipe Co., 784 F.2d 1546, 1553 (11th Cir. 1986) (internal quotations and citations omitted).

         Defendant does not dispute that Plaintiff has met his burden of proving numerosity under Rule 23(a). The numerosity requirement under Rule 23(a) is easily satisfied here, as the proposed class includes approximately 148, 000 borrowers. D.E. 121 p. 7, 121-1 p. 2; Cox, 784 F.2d at 1553.

         b. Commonality

         While commonality and typicality are often conflated, "traditionally, commonality refers to the group characteristics of the class as a whole, while typicality refers to the individual characteristics of the named plaintiff in relation to the class." Vega, 564 F.3d at 1275 (quoting Piazza v. Ebsco Indus., Inc., 273 F.3d 1341, 1346 (11th Cir. 2001)). "The commonality requirement demands only that there be 'questions of law or fact common to the class.'" Id. at 1268 (quoting Fed.R.Civ.P. 23(a)).

         Commonality also poses a "low hurdle." Williams v. Mohawk Indus., 568 F.3d 1350, 1356 (11th Cir. 2009). Accordingly, the commonality inquiry is entirely distinct from the issue of predominance under Fed.R.Civ.P. 23(b)(3). Id. at 1268 (internal citation and quotations omitted). In contrast to the more in-depth consideration of predominance under Rule 23(b)(3), the commonality inquiry under Rule 23(a) requires that a court determine whether a plaintiff satisfies the "relatively light burden" that the class action will "involve issues that are susceptible to class-wide proof." Id. at 1268, 1270 (quoting Murray v. Auslander, 244 F.3d 807, 811 (11th Cir. 2001)); see also Mohawk Indus., Inc., 568 F.3d at 1355 ("Commonality requires that there be at least one issue whose resolution will affect all or a significant number of the putative class members."); Jackson v. Motel 6Multipurpose, Inc., 130 F.3d 999, 1005 (11th Cir. 1997) ("The predominance inquiry focuses on the legal or factual questions that qualify each class member's case as a genuine controversy, and is far more demanding than Rule 23(a)'s commonality requirement." (internal quotations and citations omitted)). The commonality requirement is generally met where allegations involve a common course of conduct by the defendant. Physicians Healthsource, Inc. v. Doctor Diabetic Supply, LLC, No. 12-22330-CIV, 2014 WL 7366255, at *5 (S.D. Fla. Dec. 24, 2014).

         Plaintiff argues that he has satisfied the commonality requirement under Rule 23(a) because Plaintiff and each class member, in proving their claims, intend to rely on the same: (1) uniform promissory note; (2) uniform language contained in these uniform notes; and (3) regulation governing Defendant's collection of post-payment interest (i.e., 24 C.F.R. § 203.558). D.E. 121 p. 8. Defendant does not dispute that Plaintiff has met his burden of showing commonality under Rule 23(a). See D.E. 130.

         Plaintiff meets his low burden of proving commonality because Plaintiffs and proposed class members' allegations "involve a common course of conduct by the defendant"-namely whether Defendant breached the borrowers' promissory notes by providing an inadequate disclosure in violation of 24 C.F.R. § 203.558 before collecting post-payment interest. Gregware, 2014 WL 12531536, at *5 ("Even a single common question will satisfy the commonality requirement and as a result, not all questions of law ...


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