Hickey v. Great Western Mortgage Corp.

Citations: 158 F.R.D. 603; 1994 U.S. Dist. LEXIS 16231; 1994 WL 631142Docket: No. 94 C 3638

Court: District Court, N.D. Illinois; November 7, 1994; Federal District Court

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Lawrence J. Hickey, representing himself and similarly situated individuals, has filed a lawsuit against Great Western Mortgage Corporation for violating the Truth in Lending Act (TILA) and California’s unfair and deceptive trade practices laws. The basis of the claims involves improper financial disclosures during consumer credit transactions, particularly regarding the treatment of certain fees. Hickey alleges that Great Western failed to include a $42 Federal Express charge and a $25 discharge service fee in the 'finance charge,' misrepresenting both the 'finance charge' and 'amount financed.' He asserts that this practice was part of Great Western's standardized procedures, affecting a class of thousands who similarly received inaccurate disclosures.

Hickey seeks to certify a class defined as all individuals who engaged in consumer credit transactions with Great Western and were subjected to similar disclosure inaccuracies, with a class period extending one year prior for TILA claims and three years for state law claims. The court must evaluate Hickey’s motion for class certification based on Federal Rule of Civil Procedure 23(a) and (b), which includes requirements on numerosity, commonality, typicality, and adequacy of representation. Hickey aims to demonstrate that common legal or factual questions predominate and that a class action is the most effective means of resolving the dispute.

In evaluating the certification petition, the court accepts the allegations in the complaint as true without delving into the merits of the case. Certification of a class is contingent on meeting all requirements outlined in Rule 23. The standards for Rule 23 are interpreted in light of Congress's intent to elevate class actions in truth-in-lending lawsuits. The burden of proof for establishing proper certification lies with Hickey, who claims thousands of potential class members, a point unchallenged by Great Western, leading the court to conclude that numerosity has been established.

Great Western questions Hickey's adequacy as a class representative, a determination that involves assessing both the competency of Hickey's counsel and Hickey's ability to represent the class's interests adequately. Great Western argues that Hickey has relinquished control of the litigation to his attorneys and lacks sufficient knowledge of the case, citing his demanding work schedule and limited engagement with the filings. However, the court finds these claims unsubstantiated, noting that Hickey possesses relevant business experience and actively sought legal review of his mortgage transaction, which revealed potential overcharges. Hickey is familiar with the complaint's substance and the case's procedural status, indicating that he can adequately represent the class's interests.

Hickey actively engages with his attorneys, seeking clarity on legal documents and their implications, and denies being satisfied solely based on his attorneys' satisfaction. He has communicated extensively with them and has personally investigated the basis for his claim against Great Western, including scrutinizing closing documents and comparing charges. As a class representative, Hickey understands his responsibilities, which include ensuring his attorneys perform effectively, keeping informed about settlement offers, and prioritizing the class's interests over his own. He believes banks should transparently disclose fees to consumers, highlighting the potential confusion for individuals like his mother. Great Western's argument, referencing Rand v. Monsanto Co., criticizes Hickey for not advancing litigation costs. However, Rand supports that a class representative is not required to bear all costs to be deemed adequate, and it is permissible for attorneys to advance such costs. Hickey's lack of financial obligation does not undermine his adequacy as a representative. His deposition confirms his commitment to the case, understanding of the claims, and alignment with the principles of the Truth in Lending Act (TILA), assuring the court of his capability to represent the proposed class fairly and adequately.

Rule 23(a)(3) mandates that a class representative's claims must be typical of those of the class, sharing the same essential characteristics and arising from the same events or conduct. Claims can be considered typical even with factual differences, as long as they rest on the same legal theory. Unique defenses specific to the representative can challenge typicality or adequacy, particularly if they distract the representative from the class's interests. These defenses must be unique, arguable, and likely to consume significant time and energy. 

Great Western argues that two defenses are unique to representative Hickey, claiming that fees imposed by an attorney at closing were not known to them until after truth-in-lending disclosures were issued, suggesting a bona fide defense under 15 U.S.C. 1640(c). However, the court must accept the allegations in Hickey's complaint as true, which states that the fees were improperly included in the 'amount financed' and excluded from the 'finance charge' under standardized policies. The court finds Hickey's claim typical, as it shares essential characteristics with the class's claims regarding the improper disclosure of fees under the Truth in Lending Act (TILA). 

The court notes that TILA claims based on standardized creditor procedures are particularly suitable for class actions. Furthermore, the defense presented by Great Western does not appear compelling or unique at this stage, and class certification often intertwines with the substantive legal and factual issues of the case. The court also emphasizes the importance of avoiding merit considerations at the certification stage to prevent preemptive evaluations of plaintiffs' success likelihoods.

Great Western has introduced a defense in the certification process that necessitates the court to examine the merits of their claims rather than accepting them uncritically. The court must assess whether this defense is arguable, unique, and likely to detrimentally impact Hickey's involvement with the class. Great Western contends that it is not liable for attorney-imposed fees at closing, arguing that these charges were unknown to them and that the truth-in-lending estimate was prepared prior to the fees being imposed. Under the Truth in Lending Act (TILA), a bona fide defense must involve clerical errors; however, Great Western does not assert any such errors. TILA mandates disclosure of finance charges, which encompass any fees imposed by the creditor or their agents. Given that Massachusetts law necessitates an attorney's presence at closing, it appears that the attorney's fees may be classified as finance charges requiring disclosure by Great Western.

Furthermore, Great Western's defense lacks uniqueness as it does not demonstrate that the imposition of fees by the closing attorney is an isolated incident or that they typically do not engage attorneys in loan processes. Consequently, the defense does not suffice to obstruct class certification.

Regarding actual damages, Great Western argues that a plaintiff must show they would have received more favorable credit terms if not for the TILA violation. They assert that Hickey's financial sophistication complicates his ability to demonstrate such damages, potentially distracting him from the class's interests. However, this claim is unsubstantiated; precedent indicates that the existence of a unique defense against the class representative has not previously thwarted class certification under TILA. The absence of supporting authority underscores the weakness of Great Western’s position.

Several courts have determined that individual issues regarding reliance or actual damages do not undermine the predominance of common legal or factual issues necessary for class certification. Typicality can still be satisfied even with factual differences among class members. The court expresses skepticism that Hickey will focus excessively on his minor actual damages claim of approximately $67, which does not impede his pursuit of greater statutory damages available under the Truth in Lending Act (TILA). 

For class certification under Rule 23(a)(2), at least one common question of law or fact must exist. Hickey asserts that Great Western employed standardized practices in its loan operations, leading to common questions regarding the proper assessment and disclosure of fees under TILA and whether Great Western engaged in unfair practices. Great Western does not dispute the presence of commonality but claims that individual issues overshadow these common questions, citing four specific concerns. However, the court finds that the first three questions are more related to Hickey’s individual claim than to class-wide predominance. 

Moreover, Great Western has not proven that its knowledge of the fees is relevant to the TILA violations. Issues regarding the inclusion of fees in the 'amount financed' and the 'finance charge' are straightforward and manageable within class litigation. The existence of individual reliance among class members, necessary for recovering actual damages, does not negate commonality or predominance of liability issues.

Great Western argues that individual state consumer protection laws should apply to each class member's claim, complicating the common liability questions. A district court applies the law of its state, following the "most significant relationship" test to determine applicable law, which considers various contacts between the states and the parties involved, including the location of the injury and the parties' residences. Although Illinois courts typically favor the law of the injury's location, this presumption can be overridden if another state has a stronger interest. Great Western claims that the laws of each class member's state will govern, while Hickey contends that California's law should apply due to Great Western's location and policy formulation there. The court cannot resolve this issue during the class certification motion, as limited discovery has been conducted and the record lacks specific contacts analysis. The court notes that speculation about varying state laws should not impede class certification. Additionally, the choice-of-law issue affects only one count of the complaint; a future determination that multiple states’ laws apply could lead to class decertification. Lastly, Great Western challenges the appropriateness of a class action based on Hickey's request for rescission, referencing a case that suggests TILA class actions may not proceed if rescission is sought as a remedy.

Nelson does not establish a legal prohibition against TILA class actions for rescission. In that case, the district court allowed two individual plaintiffs to rescind their credit contracts but denied class certification, determining the plaintiffs lacked a shared interest with the prospective class since they had already received relief. The court also noted potential conflicts of interest due to the limited solvency of the creditor, suggesting class members might prioritize personal recovery over collective interests. 

In contrast, Hickey, unlike the plaintiffs in Nelson, has not rescinded his contract with Great Western and shares a common interest with the prospective class, as their outcomes are linked. The provision of attorney’s fees under TILA does not imply that rescission actions must be pursued individually, as TILA allows for fees in class actions for damages as well. 

Although Great Western raises concerns about potential conflicts between class members seeking rescission and those focused on the creditor's financial health, such conflicts are speculative at this stage. The court retains mechanisms to address any conflicts that may arise during litigation, including subclassing or decertifying the class if necessary. Generally, class actions are favored for adjudicating claims of insufficient disclosure under TILA.

The speculative nature of class conflict does not hinder the approval of Hickey's motion for class certification. Great Western contends that the alleged violation is merely technical; however, specific claims, including improper disclosure of the 'amount financed' and 'finance charge,' are permissible as class actions under federal law (15 U.S.C. § 1640(a)(3), § 1638(a)(2), (a)(3)). Regulation Z imposes a tolerance of $10 for inaccuracies in finance charges (12 C.F.R. § 226.18 n. 41), whereas Hickey challenges $67 in fees, indicating that the violation is significant enough to warrant class action treatment. The motion for certification under Federal Rule of Civil Procedure 23 is granted, with Great Western not disputing the proposed class definition.

Hickey cites legal precedent asserting that a plaintiff is not required to prove they would have received better credit terms to claim actual damages; however, Great Western argues that the cited cases do not support this claim or are distinguishable. Great Western also disputes whether the challenged fees were included in the 'amount financed' but does not contest their exclusion from the 'finance charge.' A violation of the Truth in Lending Act (TILA) occurs if fees are not properly disclosed as part of the finance charge.

Additionally, Great Western's argument against class action for rescission based on TILA's notice requirement is addressed, with some authority suggesting that a lawsuit complaint serves as adequate notice. Despite Great Western's reliance on prior case law, the court does not find this argument compelling for certification. The decision references a previous case (Simon) where a similar lease legality issue allowed for monetary relief with an opt-out procedure, protecting class members from limitations imposed by TILA's damages cap.