Antitrust Law Daily Wrap Up, ANTITRUST—D. Nev.: Borrowers’ claims of conspiracy to inflate property appraisals fail, (May 15, 2014)

By Linda O’Brien, J.D., LL.M.

A group of borrowers failed to state antitrust claims against several banks, mortgage servicing companies, and appraisal companies for allegedly engaging in a conspiracy to manipulate the market through inflated property appraisals, the federal district court in Las Vegas has ruled. Additionally, the plaintiffs’ claims were improperly joined in one action (Garner v. Bank of America Corp., May 13, 2014, Pro, P.).

Michael and Laura Garner obtained a loan from Bank of America, secured by a deed in trust on the property, to purchase residential real property. The property subsequently went into foreclosure. The Garners, along with 37 other borrowers, filed a putative class action suit against Bank of America, other lenders, mortgaging servicers, trustees, and appraisal companies, for violations of the Sherman Act, among other claims, relating to the origination, servicing, and foreclosure of their mortgages. The plaintiffs alleged that the defendants engaged in a scheme to artificially inflate property values by obtaining intentionally inaccurate property appraisals to increase the amount that borrowers would need to purchase the property. The defendants moved for dismissal.

Antitrust claim. The plaintiffs failed to adequately allege that there was collusion between the lenders, mortgage servicers, and appraisers to artificially inflate property values as opposed to independent parallel conduct, according to the court. The plaintiffs failed to plead sufficient facts to raise a reasonable expectation that discovery would reveal evidence of an illegal agreement. Further, the plaintiffs’ failure to respond to the defendants’ assertion that they did not allege that distinct business entities were involved in the alleged market fixing conspiracy constituted consent to the motion to dismiss.

Joinder. The plaintiffs were not properly joined in a single action because their claims did not arise out of the same transaction or series of transactions, the court also ruled. Under Federal Rule of Civil Procedure 20(a), plaintiffs may be joined in one action if they assert a right to relief arising out of the same transaction or series of transactions, and there are questions of law and fact common to all plaintiffs. In this case, the plaintiffs’ allegations involved different loans obtained from different lenders, based on different representations with different terms, and were for different properties. Although they allege an overarching conspiracy and coordinated conduct, the plaintiffs’ claims would entail individualized inquiry. Thus, all claims were dismissed, except the Garners, without prejudice to refile their claims individually, the court concluded.

The case is No. 2:12-CV-02076-PMP-GWF.

Attorneys: David J. Otto (David Otto & Affiliates, PC) for Michael Garner. Allison R. Schmidt (Akerman LLP) for Bank of America Corp.

Companies: Bank of America Corp.

Cases: Antitrust NevadaNews