Antitrust Law Daily Wrap Up, RICO—N.D. Cal.: Class certified in claims against Wells Fargo for non-disclosure of appraisal fee mark-ups, (Dec 18, 2015)

By Edward L. Puzzo, J.D.

Certification was appropriate for a class of home mortgage loan borrowers assessed non-disclosed marked-up appraisal fees by loan servicer Wells Fargo, the federal district court in Oakland, California has ruled (Bias v. Wells Fargo & Company, December 17, 2015, Gonzalez Rogers, Y.).

When borrowers defaulted on their home mortgage loans, it was the practice of loan servicer Wells Fargo to order informal appraisals, known as Broker's Price Opinions (BPOs), to establish the current market value of the mortgagors' property. During the period of 2002 through 2010, the cost of the BPOs, plus an additional markup of $25 to $40 per service, was assessed the borrowers in the form of a charge to be paid at the time of final payoff of the loan. The additional charges were not reflected on the borrowers' monthly mortgage statements.

Plaintiff borrowers brought a putative class action against Wells Fargo, alleging that its practice of assessing borrowers for BPO costs, without disclosing the mark-up to the costs, violated the civil RICO statute. Plaintiffs moved for class certification.

Rule 23(a). Federal Rule of Civil Procedure 23(a) sets out the following threshold requirements for certification of a class: (1) numerosity—the class is so numerous that joinder of all members is impracticable; (2) commonality—there are questions of law or fact common to the class; (3) typicality—the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) adequacy of representation—the representative parties will fairly and adequately protect the interests of the class. In addition, courts have implied an additional requirement that the members of the class are readily ascertainable.

Commonality. To satisfy this requirement, a common answer to a common question must be capable of class-wide resolution, the court stated. Plaintiffs proposed the common question of the lawfulness of charging borrowers a marked-up charge for BPOs without disclosing the mark-up to borrowers.

Wells Fargo argued that there was no common evidence that could be used to reach a common answer to this question, and therefore commonality was absent. They noted that some fees for the class members were not marked-up at all, and others had differing levels of mark-up. The court ruled that commonality was not defeated by occasions when the amount of mark-up varied, as it was the existence of the mark-up, not the amount, that would determine Wells Fargo's liability.

Wells Fargo also argued that there were variations in mortgage terms nationwide over time, and therefore plaintiffs could not show that the purported class members were governed by uniform contractual mortgage terms. However, Wells Fargo failed to identify any provision in any of its mortgage documents that would authorize it to charge borrowers an undisclosed mark-up on the BPO fee. In addition, plaintiffs' RICO claim sounding in fraud was independent of any particular mortgage contract language.

The court ruled that plaintiffs had satisfied the commonality requirement for a class consisting of borrowers who had their loans serviced by Wells Fargo and who paid BPO charges during the relevant period. The class would have to be narrowed, however, to exclude borrowers who paid a BPO fee that was not marked up, since that was outside the common practice at issue.

Class members ascertainable. Plaintiffs argued that a class, consisting of those that were assessed a BPO charge and paid it, was ascertainable. Wells Fargo produced a loan database with records on over 25 million loans and countered that a file-by-file loan account review would be required to ascertain borrowers who actually paid the assessed BPO charge. However, the court determined that, even if such a file-by-file review were necessary, the class would still be ascertainable.

Rule 23(b)(3). Having met the Fed.R.Civ.P. 23(a) requirements, the next hurdle was the Rule 23(b)(3) requirement that plaintiffs establish (1) predominance—that the questions of law or fact common to class members predominated over any questions affecting only individual members, and (2) superiority— that a class action was superior to other available methods for fairly and efficiently adjudicating the controversy.

Predominance. Wells Fargo argued that individual evidence would be required in order to establish whether a class member was exposed to or relied upon a misrepresentation. But the court stated that it was undisputed that Wells Fargo never disclosed that the BPO charge included a mark-up. Under plaintiffs' theory, that misrepresentation fraudulently deceived every class member, so the nature of individual representations to individual borrowers would not have to be established. The court ruled that, regarding the communications containing the allegedly fraudulent omission, questions of law or fact common to class members predominated over any questions affecting only individual members.

Superiority. As to whether a class action was superior to other available methods for adjudicating the controversy, the court noted that the amount of damages suffered by each class member here was not large, so individual members did not have a great interest in controlling the litigation. This was a factor weighing in favor of the superiority of a class action. As the class was only certified to proceed on the federal RICO claim, erasing the possibility of state-by-state variation in substantive law, this too weighed in favor of superiority of a class action to individual adjudication.

The case is Civil Action No. 4:12-cv-00664-YGR.

Attorneys: Daniel Alberstone (Baron Budd, PC) for Latara Bias. Mark Douglas Lonergan (Severson & Werson) for Wells Fargo & Co. and Wells Fargo Bank, NA.

Companies: Wells Fargo & Co.; Wells Fargo Bank, NA

Cases: RICO CaliforniaNews