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Kruse v. Wells Fargo Home Mortgage

May 3, 2006


The opinion of the court was delivered by: Glasser, United States District Judge



This putative class action, filed by plaintiff Wayne A. Kruse, ("Kruse") Lisa M. McLeod, Robert Schill, and David and Barbara Legro (collectively, "original named plaintiffs"), alleges that defendants Wells Fargo Home Mortgage, Inc., WFC Holdings Corp., Wells Fargo & Co., and Wells Fargo Financial Services, Inc. (collectively, "defendants" or "Wells Fargo") charged "overcharges" and "mark ups" for settlement services, in violation of the Real Estate Settlement Procedures Act ("RESPA"), 12 U.S.C. § 2601 et seq. Currently before the Court are two motions. The first is defendants' motion for summary judgment against the original named plaintiffs. The second is a motion to intervene--filed in two stages--along with amended complaints pursuant to Fed. R. Civ. P. 24(b).

For the reasons stated herein, the motion for summary judgment against the original named plaintiffs is granted and the plaintiffs' motion to intervene is denied.


The original summons and complaint were filed May 24, 2002. The complaint alleged that certain billing practices of Wells Fargo violated the RESPA, in particular, § 8(b) (codified at 12 U.S.C. § 2607(b)), which provides:

No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.

In an initial conference before Magistrate Judge Mann on September 12, 2002, fact discovery as to all but the absent class members was ordered to be completed by March, 21 2003.*fn1 Plaintiffs' Rule 26 expert disclosure in connection with the class certification motion was due on February 28, 2003. However, the class certification process was cut short by the defendants' filing of a motion for judgment on the pleadings in mid-February. Pursuant to an agreement between the parties, this Court entered a Stipulation and Order, dated February 19, 2003, staying discovery until the Court reached a decision on the pending motion. In that Order, Magistrate Mann ordered that discovery recommence if the motion was denied. The motion was fully briefed in April and heard on May 16, 2003. This Court issued its opinion from the bench, dismissing both the "overcharge" and "mark-up" claims under RESPA, relying upon four circuit court opinions on precisely the same issue (see, Haug v. Bank of America, N.A., 317 F.3d 832 (8th Cir. 2003); Krzalic v. Republic Title Co., 314 F.3d 875; Boulware v. Crossland Mortgage Corp., 291 F.3d 261 (4th Cir. 2002); Echevarria v. Chicago Title & Trust Co., 256 F.3d 623 (7th Cir. 2001), and declining supplemental jurisdiction for the remaining state law claims.

From that Order, a timely appeal was taken. See Kruse v. Wells Fargo Home Mortgage, Inc., et al., 383 F.3d 49 (2d Cir. 2004). The Second Circuit decision, docketed November 29, 2004, affirmed in part and reversed in part. The Second Circuit treated the complaint as alleging two basic theories under the statute--an "overcharge"*fn2 theory and a "mark up"*fn3 theory. With respect to the overcharge claims, the Second Circuit affirmed, finding no basis in the statute for permitting federal courts to inquire into the "reasonableness" of overcharges, and thus, disclaimed HUD's Policy Statement, 66 Fed.Reg. at 53,059,*fn4 which urged liability on an overcharge theory under 12 U.S.C. § 2607 (codified as 24 C.F.R. § 3500.14 et seq.). (Kruse, supra, at 56).

In that opinion, Judge Sack treated the underwriting services as overcharges: "Overcharges" arise out of settlement services provided by lender...but charged to consumers...for substantially more....Specifically, the plaintiffs allege that the defendants performed underwriting services--which in this case consist of analyzing a borrower's ability to repay the loan in order to determine whether the Federal National Mortgage Association ("Fannie Mae") or the Federal Home Loan Mortgage Corporation ("Freddie Mac") will guarantee to purchase the loan on the secondary market, removing most of the lender's risk on the loan--using automated software obtained from Fannie Mae and Freddie Mac at a cost of $20 per loan underwritten. The defendants are said to have charged home mortgage borrowers as much as twenty-five times that amount for the service. 383 F.3d at 53.

The Second Circuit reversed this Court with respect to the "mark up" claims, categorizing the tax services, flood certification, and document preparation fees as mark ups. Guided by the Eleventh Circuit's analysis of the relevant statute in Sosa v. Chase Manhattan Mortgage Corp., 348 F.3d 979 (11th Cir. 2003),*fn5 the Court found that the statutory language did not unambiguously prohibit the plaintiff's mark-up theory. (Kruse, 383 F.3d, at 58). It also accorded the HUD Policy Statement Chevron deference. (Id., at 55) (citing Chevron U.S.A. Inc. v. Natural Res. Def. Council Inc., 467 U.S. 837, 844, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). The state law claims for unjust enrichment were also reinstated, since they had been dismissed for lack of supplemental jurisdiction only. (Kruse, 383 F.3d at 62).

The parties immediately returned to the discovery process, although only with respect to the originally named plaintiffs. In a Discovery Scheduling Order dated January 5, 2005, Magistrate Mann directed that discovery should proceed, "limited in scope to the 'mark-up' claims of the five individual plaintiffs and with no class action discovery at this time." (Discovery Scheduling Order, 01-05-2005) (emphasis added). The initial Order gave the defendants until May 25, 2005, to decide whether or not to move for summary judgment with respect to the original named plaintiffs. Magistrate Judge Mann continued to conduct conferences dealing with discovery scheduling as well as settlement, several of which resulted in extensions to the discovery schedule. By June 15, 2005, settlement talks had failed, and Magistrate Judge Mann therefore set out a motion schedule for those motions presently under consideration.*fn6

Pursuant to the motion schedule, defendants moved against the named plaintiffs for their only remaining federal claims--the mark up claims. This motion was unopposed by named plaintiffs. (See, Plaintiffs' Amended Memorandum of Law in Support of Their Cross Motion for Intervention, ("Plts. Amend. Cross Mot.") 2, n.1).

Plaintiffs' counsel now submits new plaintiff-intervenors who wish to establish themselves as lead plaintiffs of the still uncertified putative class action. On July 18, 2005, the named plaintiffs' attorneys submitted a Cross Motion to Intervene on behalf of Richard and Rhianna Carrillo and Armando Martinez (collectively, "First Intervenors") along with the "Proposed Amended Complaint" (hereinafter "First Amended Complaint"). These plaintiffs allege overcharges of unearned underwriting fees. Defendants filed opposition papers August 8, 2005. Shortly thereafter on the same day plaintiffs filed an "Amended Motion to Intervene" accompanied by a "Proposed Amended Class Action Complaint" (hereinafter "Second Amended Complaint"). That complaint sought to add five intervenors: Alinda Martinez (the wife of one of the initial proposed intervenors), David R. Jarvis and Suzanne L. Jarvis, Sharon Petrie and Patricia Coley (collectively, "Second Intervenors"). All of these proposed plaintiffs assert underwriting charges, and David and Suzanne Jarvis assert "appraisal and tax service" fees. Plaintiffs' response papers, addressing the defendants' August 8 opposition papers, were filed August 22, 2005. On that same day, and subsequent to plaintiffs' response, defendants filed their opposition to the "Amended Motion to Intervene."

Defendants make several arguments in opposition to the motion to intervene. First, they contend that the cross-motion for intervention is untimely, because plaintiffs' attorneys had been aware of the need to substitute plaintiffs for years. Second, they assert that venue is improper for all intervenors, since none of them reside in, or have any connection to, the Eastern District of New York. Third, they contend that the dismissal of the named plaintiffs has resulted in the lack of a case or controversy as required by Article III of the U.S. Constitution, since no class has yet been certified. Finally, they argue that even if the intervenors are permitted to pursue their claims, the Court should find that they do not toll the statute of limitations for the purported class.

In addition to extending their original arguments to the "Second Amended Complaint," defendants claim that the submission of that complaint after defendants' opposition was filed is untimely and prejudicial to them. Moreover, they contend that both of the amended complaints express only one claim on underwriting fees charged--a claim that the Second Circuit construed as an overcharge, which could not support a claim under RESPA.


I. Defendants' Motion for Summary Judgment

The original named plaintiffs Wayne A. Kruse, Lisa M. McLeod, Robert Schill, and David and Barbara Legro do not deny that their claims are meritless; they have not been charged mark up fees in connection with settlement services. When there is no genuine issue of material fact, the moving party is entitled to summary judgment as a matter of law. See generally, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 323-4 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986). Defendants' motion for summary judgment against the original named plaintiffs, which was not opposed, is therefore granted. Since they lack standing to pursue these ...

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