Yates v. NewRez LLCYates v. NewRez LLC
MEMORANDUM OPINION
Plaintiff Irene Yates, acting individually and on behalf of similarly situated individuals, has filed this class action against NewRez LLC d/b/a Shellpoint Mortgage Servicing (“Shellpoint“), in which she alleges that Shellpoint illegally charged inspection fees to Maryland homeowners in violation of Maryland law. Yates has filed a Motion for Class Certification, which is now fully briefed. ECF No. 58. Having reviewed the submitted materials, the Court finds that no hearing is necessary. See D. Md. Local R. 105.6. For the reasons set forth below, the Motion will be GRANTED.
BACKGROUND
Shellpoint is a mortgage servicing company that acts on behalf of the Federal National Mortgage Association (“Fannie Mae“) and other owners of mortgage loans. The business model of companies like Shellpoint revolves around acquiring mortgage servicing rights, which then permit those companies to service residential mortgage loans in exchange for a portion of the interest payments made on the underlying residential mortgage loans. When a borrower is delinquent by 90 days, Shellpoint may order a property inspection to evaluate the occupancy and condition of the property, and it continues to conduct inspections once a month after that initial property inspection. To conduct property inspections, Shellpoint engages vendors whose contracts may permit them to charge borrowers for inspections on Shellpoint‘s behalf.
Under the Maryland Usury Law, with certain exceptions not applicable here, “a lender may not impose a lender‘s inspection fee in connection with a loan secured
In 2004, Yates purchased a home in Lanham, Maryland. To purchase the property, Yates secured a mortgage loan from Chevy Chase Bank. In 2008, Yates refinanced her mortgage loan through Chevy Chase Bank, which obtained the approval of Fannie Mae, which intended to acquire the loan by assignment and to engage Chevy Chase Bank as its loan servicer. Under the terms and conditions of the mortgage loan, Fannie Mae, Chevy Chase Bank, and Yates agreed that the loan would be governed by Maryland law, including as to express prohibitions on charging certain fees.
In 2018, Shellpoint obtained the mortgage servicing rights to Yates’ mortgage loan. In a June 22, 2018 monthly statement, Shellpoint charged Yates $105.00 and $20.66 in property inspection fees. In a July 20, 2018 monthly statement, Shellpoint charged Yates a $13.00 property inspection fee relating to a visual inspection of the property on July 16, 2018. In a September 17, 2018 statement, Shellpoint charged Yates another $13.00 property inspection fee relating to an inspection on August 21, 2018.
On June 22, 2021, Yates filed a class action complaint in the Circuit Court for Prince George‘s County, Maryland against Shellpoint and Fannie Mae. After Yates amended the Complaint, Shellpoint and Fannie Mae removed the case to this Court. With its Notice of Removal, Shellpoint submitted a declaration specifically representing that based on a review of Shellpoint‘s electronic database, it had determined that prior to December 31, 2018, Shellpoint had charged inspection fees to over 1,500 borrowers whose loans were serviced by Shellpoint and were still active as of six months before the filing of the lawsuit. After Yates voluntarily dismissed the claims against Fannie Mae, Yates filed the presently operative Second Amended Complaint, in which she alleges in Count 1, on behalf of herself and a class of similarly situated persons, that Shellpoint‘s practice of charging property inspection fees violated the Maryland Usury Law, specifically, Section 12–121(b). In Count 2, she alleges that by imposing these illegal fees and then seeking to collect payments on the mortgage loan, Shellpoint violated the Maryland Consumer Debt Collection Act (“MCDCA“),
In the Second Amended Complaint, Yates seeks to represent a class, referred to as “the Usury Class,” consisting of the following persons who were also allegedly charged illegal property inspection fees by Shellpoint:
Any person in the State of Maryland for whom (i) Shellpoint has serviced a loan related to a secured, mortgage loan on behalf of Fannie Mae; (ii) where Shellpoint imposed or charged their mortgage loan accounts with property inspection fees; and (iii) the mortgage loan accounts were not satisfied on or before April 5, 2021.
Second Am. Compl. ¶ 44, ECF No. 15. The proposed class excludes any employees or independent contractors of Shellpoint or Fannie Mae, their relatives, employees of the Court, and class members in two other similar civil actions.
DISCUSSION
Yates has now filed a Motion for Class Certification. In her Motion, Yates seeks certification of the Usury Class and asserts that all of the requirements for a class action set forth in
I. Legal Standards
A class action allows representative parties to prosecute not only their own claims, but also the claims of other individuals which present similar issues. Thorn v. Jefferson-Pilot Life Ins. Co., 445 F.3d 311, 318 (4th Cir. 2006). The use of a class action is primarily justified on the grounds of efficiency because it advances judicial economy to resolve common issues affecting all class members in a single action. Id. Because of the need to protect the rights of absent plaintiffs to assert different claims and of defendants to assert facts and defenses specific to individual class members, courts must conduct a “rigorous analysis” of whether a proposed class action meets the requirements of
The first of these prerequisites is that the class must exist and be “readily identifiable” or “ascertainable” by the court through “objective criteria.” EQT Prod. Co. v. Adair, 764 F.3d 347, 358 (4th Cir. 2014). While it is not necessary to identify every class member at the time of certification for a class to be “ascertainable,” a class cannot be certified if its membership must be determined through “individualized fact-finding or mini-trials.” Id. For example, in EQT, the court concluded that a proposed class of all individuals who owned an interest in a gas estate was not ascertainable because the actual owners could be determined only through an individualized review of land records, which involved “numerous heirship, intestacy, and title-defect issues [that] plague[d] many of the potential class members’ claims to the gas estate.” Id. at 359–60.
If a class is ascertainable, it must then satisfy all four elements of
Commonality requires that a class have “questions of law or fact common to the class” which are capable of classwide resolution, such that the determination of the truth or falsity of the common issue “will resolve an issue that is central to the validity of each one of the claims in one stroke.”
As for typicality, the named plaintiff must be “typical” of the class, such that that the class representative‘s claims and defenses are “typical of the claims or defenses of the class” in that prosecution of the claim will “simultaneously tend to advance the interests of the absent class members.”
Finally, the named plaintiff must “fairly and adequately protect the interests of the class” without a conflict of interest with the absent class members.
If the named plaintiff satisfies each of these requirements under
Finally, the Court notes that a decision to certify a class is based on whether or not a putative class satisfies the Rule 23 factors, not on a preliminary assessment of the underlying merits of the claim. See Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 178 (1974) (“In determining the propriety of a class action, the question is not whether the plaintiff or plaintiffs have stated a cause of action or will prevail on the merits, but rather whether the requirements of Rule 23 are met.“).
II. Ascertainability
In the Motion, Yates asserts that the ascertainability requirement is satisfied because members of the class can be identified from Shellpoint‘s records that contain sufficient information to ascertain which homeowners whose loans are serviced by Shellpoint were charged an inspection fee, particularly in light of statutory and regulatory requirements relating to recordkeeping. See, e.g.,
As an initial matter, the Court notes that Shellpoint‘s argument contradicts the representations it made in its Notice of Removal, including in the accompanying sworn declaration, that it had determined that the class at issue has more than 100 members, as required for this Court to have subject matter jurisdiction under the Class Action Fairness Act,
Nevertheless, even on the merits, Shellpoint‘s arguments are unpersuasive. The record shows that, at a minimum, the electronic records can be used to come very close to identifying a complete list of those borrowers who not only had a property inspection fee charged to their account, but had the fee designated as one they were required to pay. First, Jonathan McCullough, a senior data analyst for Shellpoint, testified in his deposition that he wrote computer code that allowed him to identify within Shellpoint‘s electronic records the loans on which inspection fees were charged and the number of times those fees were charged. McCullough further stated that Shellpoint‘s database uses specific codes to identify property inspection fees and a separate code that identifies whether those or other charges are recoverable from the borrower, and that he could identify “all loans for the second half of 2018 in which an inspection fee was coded as borrower recoverable.” Plaintiff‘s Appendix (“App‘x“) 376, ECF Nos. 58-3, 58-4, 64-1, 78-1.
Second, to the extent that there were instances when such a fee was reclassified to be one payable by an investor rather than the borrower, the period of time during which the electronic records do not provide a ready basis to identify such loans is limited. Larry Glantz, a Senior Manager at Shellpoint, testified in his deposition that while there was a period starting in May 2018 during which there may have been a need to follow a manual process to identify loans for which a property inspection fee was reclassified as one payable by the investor, as of September 2018, “there was an automated process written to perform those reviews,” and as of December 2018, Shellpoint had a specific computer program from which it can be determined
Under these facts, the Court finds that the ascertainability requirement is satisfied. There is no requirement that a class can be deemed ascertainable only if it can be perfectly generated at the touch of a button. “[T]he need to review individual files to identify its members” is not a reason to deny class certification. Byrd v. Aaron‘s Inc., 784 F.3d 154, 171 (3d Cir. 2015); Young v. Nationwide Mut. Ins. Co., 693 F.3d 532, 539–40 (6th Cir. 2012) (collecting cases); In re Marriott Int‘l, Inc., Customer Data Sec. Breach Litig., 341 F.R.D. 128, 144 (D. Md. 2022). Indeed, the ascertainability requirement “does not suggest that no level of inquiry as to the identity of class members can ever be undertaken” because “[i]f that were the case, no
In EQT Production Company, the court denied class certification based on a lack of ascertainability, not because some manual review was needed to identify the full range of the class, but because there was not “even a rough estimate of the number of potential successors-in-interest” or “even a rough outline of the class[‘s] size and composition.” EQT Prod. Co., 764 F.3d at 359–60 (finding that identification of the full class would require examination of land records, which is a “complicated and individualized process” and could involve consideration of “numerous heirship, intestacy, and title-defect issues“). Rather, the court recognized that “[t]he plaintiffs need not be able to identify every class member at the time of certification,” and that a finding that ascertainability has not been satisfied is warranted when “class members are impossible to identify without extensive and individualized fact-finding or ‘mini-trials.‘” Id. at 358 (quoting Marcus v. BMW of N. Am., LLC, 687 F.3d 583, 593 (3d Cir. 2012)).
Here, the electronic records can be used to generate a presumptive list of class members—those borrowers not only charged a property inspection fee but also initially designated to pay it—that is far more precise than just a “rough estimate.” Id. at 359. The additional refinement needed to determine whether the fee was later reclassified relates to a limited time period and would be readily identifiable from specific records for certain accounts. Indeed, other courts have found that ascertainability is satisfied in similar situations where determining members of the class could be accomplished by a review of the defendant‘s records. See, e.g., J.O.P. v. U.S. Dep‘t of Homeland Security, 338 F.R.D. 33, 52–53 (D. Md. 2020) (rejecting the argument that individual review to determine if someone was a member of the class defeated ascertainability because the information was contained in the defendant‘s own records); Soutter v. Equifax Info. Servs., LLC, 307 F.R.D. 183, 196–97 (E.D. Va. 2015) (rejecting the argument that the fact that some manual review of files would be needed to identify class members defeats ascertainability). The Court therefore finds that the class is ascertainable.
III. Rule 23(a) Requirements
A. Numerosity
Yates argues that numerosity is satisfied because evidence from discovery shows there are hundreds of Maryland borrowers in the putative class. Shellpoint acknowledges that 1,232 borrowers had inspection fees identified on their loans between June and December 2018 but argues
B. Commonality
As to commonality, Yates asserts that this requirement is satisfied because there are several questions of law or fact common to the class, including: (1) whether Shellpoint is permitted to impose property inspection fees on the accounts of Maryland mortgage loan borrowers such as Yates and the putative members of the Usury Class; (2) whether Shellpoint is permitted to collect those property inspection fees from the mortgage loan borrowers; (3) whether such mortgage loan borrowers are entitled to the statutory penalty authorized by
C. Typicality
Yates argues that this requirement is met because Shellpoint‘s business practices relating to the imposition and collection of property inspection fees do not differ among Maryland mortgage loan borrowers, including Yates. Indeed, Yates‘s claims under the Maryland Usury Law, the MCDCA, and the MCPA are generally the same as those of the class members in that they all center on the claim that Shellpoint violated the law stating that “a lender may not impose a lender‘s inspection fee in connection with a
Shellpoint argues that typicality is not satisfied because even though a property inspection fee was imposed on Yates, she did not end up paying the fee; because she does not have an MCDCA claim under
Even if these distinctions can be established, the lack of perfect identity of claims does not prevent a finding of typicality. See Broussard, 155 F.3d at 344. Where it is the imposition of a property inspection fee that violates Section 12–121(b), whether Yates actually paid the fee is an issue of damages which does not sufficiently distinguish her claim as to prevent a finding of typicality, particularly where a plaintiff may recover a penalty of $500 without demonstrating damages in the form of payment of unauthorized charges. See
Ordinarily, denial of class certification based on a lack of typicality would stem from a variation in claims between the class representative and the putative class members that “strikes at the heart of the respective causes of action[].” Deiter, 436 F.3d at 467. In Deiter, an antitrust case, the court found that typicality was not established because the class representatives had purchased individual products online or by telephone and had paid fixed prices established in advance by Microsoft, while some members of the putative class, known as Microsoft‘s Enterprise customers, had purchased numerous software licenses for different products, did not purchase them online or by telephone, paid prices that were heavily discounted, and were able to negotiate their deals in a different competitive context. Id. at 467–68. Here, where Yates has alleged that Shellpoint engaged in a widespread policy of imposing property inspection fees on borrowers without the right to do so, and where advancing Yates‘s claims would thereby “simultaneously tend to advance
D. Adequacy
Finally, on the issue of adequacy of representation, Yates argues that this requirement is met because her attorneys are qualified to litigate this case and she is an adequate class representative.
Generally, under the adequacy requirement, a class representative must “fairly and adequately protect the interests of the class,” which is generally demonstrated if the class representative is part of the class and has the same interest and suffers the same injury as the other class members. Sharp Farms v. Speaks, 917 F.3d 276, 295 (4th Cir. 2019) (quoting Ward, 595 F.3d at 179). Primarily, the adequacy inquiry under
Here, Shellpoint does not contest the assertion that Yates‘s attorneys can adequately represent the class and does not claim that Yates has a conflict of interest with the other members of the class. Rather, Shellpoint argues only that Yates is an inadequate class representative because her deposition reflected that she was not sufficiently engaged in the case. Specifically, Shellpoint asserts that when questioned, Yates, who is 88 years old, did not remember what this case is about, could not identify her lawyers, could not describe what a class action is, did not recognize her answers to interrogatories, did not remember providing input into the drafting of amended complaints, and did not remember reading various versions of the complaint.
However, a class representative‘s lack of a full understanding of a case, by itself, does not defeat the adequacy requirement. See Gunnells, 348 F.3d at 430. In Gunnells, the defendant argued that the plaintiffs were inadequate class representatives “because they purportedly lack[ed] sufficient knowledge” about the case. Id. The Fourth Circuit rejected this argument as “particularly meritless” because “[i]t is hornbook law . . . that in a complex lawsuit, . . . the representative need not have extensive knowledge of the facts of the case in order to be an adequate representative.” Id. at 430; cf. Surowitz v. Hilton Hotels Corp., 383 U.S. 363, 366, 372–73 (1966) (rejecting an argument that a securities derivative action should be dismissed because the named plaintiff did not understand what the lawsuit was about, did not know any of the defendants by name, did not know the nature of the alleged misconduct, and could not explain statements she made in the complaint, because to so hold would mean that someone “who is uneducated generally and illiterate in economic matters[] could never under any circumstances be a plaintiff in a derivative suit brought in the federal courts to protect her stock interests“).
Here, where Yates is 88 years old and acknowledged that she had some memory issues, and she sat for nearly an entire day for her deposition, the fact that she did not provide ideal responses to certain questions does not disqualify her as a class representative. In fact, despite these challenges,
IV. Rule 23(b)(3)
To secure class certification, Yates must also establish 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.”
A. Predominance
Yates argues that predominance is established because the predominant issue in this case is whether Shellpoint “use[d] false or misleading means or otherwise act[ed] illegally, unfairly, or unconscionably by imposing or collecting property inspection fees from [Yates] and the Usury Class members in violation of Maryland law.” Mot. Class Cert. at 19, ECF No. 58-1. In contrast, Shellpoint argues that individual issues will predominate because a file-by-file review will be required to determine whether individual borrowers were actually charged a fee, whether a borrower actually paid the fee, and whether the charge was ultimately reversed. Shellpoint also argues that the MCDCA and MCPA claims require individualized determinations of whether particular class members relied on false or misleading statements, which would cause such individual issues to predominate over the common issues.
In Gunnells, the Fourth Circuit found that the predominance standard under
Here, Yates likewise requests certification of class claims primarily on a single theory: that Shellpoint imposed property inspection fees on mortgage loan borrowers in violation of Maryland law. As discussed above, there are multiple common questions that need to be answered under this theory, including whether Shellpoint is permitted to impose such property inspection fees, whether it may collect those fees, whether class members can collect the statutory penalty for each specific violation, whether the imposition of the unlawful property inspection fees also
Shellpoint‘s assertion that assessment of the MCDCA and MCPA claims will require individualized determinations on the issue of reliance does not alter this conclusion. First, Yates‘s MCDCA claim is primarily premised on
Likewise, Yates‘s MCPA claim does not require proof of reliance because an MCPA violation can be established simply by showing a violation of the MCDCA. See
For these reasons, the Court finds that Yates has sufficiently established predominance under
B. Superiority
Yates has also demonstrated that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy in this case. In considering whether or not a class action would be “superior to other available methods for fairly and efficiently adjudicating the controversy,”
As to the interest of class members in controlling their individual suits, the United States Supreme Court has stated:
The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights. A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone‘s (usually an attorney‘s) labor.
Amchem, 521 U.S. at 617 (quoting Mace v. Van Ru Credit Corp., 109 F.3d 338, 344 (7th Cir. 1997)). Here, the low dollar value of the property inspection fees charged by Shellpoint do not provide a realistic incentive for individual borrowers to bring their own civil actions and for attorneys to agree to take such cases. Thus, there likely would be little interest among class members in controlling their own individual cases. As to the extent and nature of any litigation already commenced concerning the controversy, Yates asserts, and Shellpoint does not dispute, that there is no other pending litigation involving the same defendant, issues, and time period as in this case, and the proposed class definition excludes any overlap with other cases.
As for the desirability of concentrating litigation in this forum, Yates argues, and Shellpoint does not dispute, that such concentration is desirable in that it would prevent hundreds of similar cases litigating the same core legal and factual issues. Finally, the potential difficulties likely to be encountered in the management of a class action do not favor an alternative to a class action. As discussed above, Shellpoint can narrow down the list of class members based on its electronic records which, at a minimum, can identify any borrowers who were charged a property inspection fee payable by the borrower. See supra part II. Any challenges in reviewing individual loan files on the specific questions of whether the fee was later reassigned and whether it was paid would be no worse than in individual cases and would likely be handled more efficiently in a class action because of the potential to develop a systematic, repeatable review process. Accordingly, the Court finds that Yates has demonstrated the superiority of a class action as required by
V. Statute of Limitations
Finally, Shellpoint asserts in the Opposition that Yates‘s class definition, which includes borrowers whose “mortgage loan accounts were not satisfied on or before April 5, 2021,” is overbroad because it does not account for Maryland‘s general three-year statute of limitations,
As a preliminary matter, the Court of Appeals of Maryland, now the Maryland Supreme Court, has held that property inspection fees are governed by the Maryland Usury Law,
CONCLUSION
For the foregoing reasons, Yates’ Motion for Class Certification, ECF No. 58, will be GRANTED. A separate Order shall issue.
Date: August 8, 2023
THEODORE D. CHUANG
United States District Judge