In re Jpmorgan Chase Bank Home Equity Line of Credit Litig..

794 F.Supp.2d 859

In re JPMORGAN CHASE BANK HOME EQUITY LINE OF CREDIT LITIGATION.

No. 10 C 3647.

United States District Court, N.D. Illinois, Eastern Division.

June 30, 2011.

Jay Edelson, Irina Slavina, Edelson McGuire, LLC, Evan M. Meyers, Kamber Edelson LLC, Chicago, IL, for Shannon Hackett, Michael Malcolm, Irina Slavina, Evan M. Meyers Daryl Mayes, William Cavanagh, Michell Kimball. Robert Wilder.Gregory Linkh, Murray Frank & Sailer LLP, New York, NY, Pro Hac Vice.Grace E. Parasmo, Karin E. Fisch, Abbey Spanier Rodd & Abrams, LLP, New York, NY, for Maria Frank, Robert Frank.Azita Moradmand, David C. Parisi, Suzanne Havens Beckman, Parisi & Havens LLP, Sherman Oaks, CA, Michael Walsh.Jack Landskroner, Landskroner–Grieco–Madden, LLC, Cleveland, OH, Christopher Collins, Frank James Janecek, Jr., Robbins Geller Rudman & Dowd LLP, San Diego, CA, Marvin Alan Miller, Miller Law LLC, Chicago, IL, for Mary Jane Yakas.Victoria R. Collado, LeAnn Pedersen Pope, Michael G. Salemi, Tiffany Lin Sorge Smith, Burke, Warren, MacKay & Serritella, PC, Chicago, IL, for JPMorgan Chase Bank N.A., Chase Bank USA, N.A.Arthur G. Boylan, Leonard Street and Deinard, PA, Daniel E. Gustafson, David A. Goodwin, Jason S. Kilene, Gustafson Gluek PLLC, Todd A. Noteboom, Leonard Street and Deinard, PA, Minneapolis, MN, Avi Melech Kreitenberg, KamberLaw LLP, Los Angeles, CA, Azita Moradmand, Parisi & Havens LLP, Sherman Oaks, CA, Brian D. Brooks, Lee Albert, Murray, Frank & Sailer LLP, New York, NY, Danielle J. Szukala, Burke, Warren, MacKay & Serritella, P.C., Ilan Chorowsky, Progressive Law Group LLC, Chicago, IL, David Nathaniel Hise, Zielke Law Firm PLLC, Hal Daniel Friedman, Cooper & Friedman PLLC, John H. Dwyer, Jr., The Zielke Law Firm, Louisville, KY, Drew Legando, Landskroner–Grieco–Madden, LLC, Cleveland, OH, Frank James Janecek, Jr., Robbins Geller Rudman & Dowd LLP, San Diego, CA, George Geoffrey Weickhardt, Ropers Majeski Kohn & Bentley, San Francisco, CA, Gregory Linkh, Jacqueline Sailer, Murray Frank & Sailer LLP, Miriam E. Zakarin, Treuhaft & Zakarin, New York, NY, Grey Pierson, Pierson Behr, Arlington, TX, John M. Sorich, Adorno Yoss Alvarado and Smith APC, Santa Ana, CA, Lisa N. Neal, Michael T. Hornak, Rutan & Tucker, Costa Mesa, CA, Robert B. Kleinman, Kleinman Law Firm PLLC, Austin, TX, S. Christopher Yoo, Adorno Yoss Alvarado and Smith, Santa Ana, CA, Sean Patrick Reis, Edelson McGuire, LLP, Rancho Santa Margarita, CA, Stephen E. Zaino, Bonchonsky & Zaino, LLP, Garden City, NY, Wm Lance Lewis, Quilling Selander Cummiskey & Lownds PC, Dallas, TX, for Service List.

MEMORANDUM OPINION AND ORDER

REBECCA R. PALLMEYER, District Judge.

A home equity line of credit (“HELOC”) is a revolving line of credit secured by a holder's primary residence. In this class action, eight individuals to whom Defendant had extended HELOCs charge Defendant with having reduced or suspended those HELOCs without a permissible reason for doing so, thus violating the Federal Truth–in–Lending Act, 15 U.S.C. § 1601 et seq., and its implementing regulation, Regulation Z, 12 C.F.R. 226. Plaintiffs also allege that Defendant's suspension or reduction of their HELOCs, and the manner in which those reductions or suspensions were carried out, constitute breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and violations of California, Illinois, and Minnesota consumer protection laws. This action comes to the court after having been consolidated by the United States Judicial Panel on Multidistrict Litigation. Defendant moves to dismiss the Complaint in its entirety, arguing that federal law and relevant contractual provisions permit Defendant to reduce or suspend Plaintiffs' HELOCs. Defendant challenges Plaintiffs' claims on a host of other grounds as well.

For the reasons explained here, the court concludes that Plaintiffs have adequately pleaded a violation of TILA and Regulation Z by alleging that Defendant suspended or reduced HELOCs in the absence of a significant decline in the value of the property securing the HELOC. Defendant is correct that the failure to consider present available equity, the use of “automated valuation models,” the use of “unlawful triggering events,” and reduction or suspension absent a “sound factual basis” are not independent bases for relief. Those practices are, however, relevant in considering whether Defendant reduced or suspended HELOCs even though the properties securing them suffered no significant decline in value. The court is also satisfied that Plaintiffs have adequately pleaded that the HELOCs at issue were obtained primarily for personal, family, or household purposes, as required by TILA. The court declines to dismiss Plaintiffs' claims for declaratory relief, as such relief may be sought as an alternative to the remedies provided for by TILA and Regulation Z. The court concludes, further, that Plaintiffs' allegations that Defendant reduced or suspended their HELOCs without adequate justification are sufficient to state claims for breach of contract under Minnesota, California, Texas and Delaware law. Certain other state law claims survive, as well, including Plaintiffs' unfair conduct claims under the California and Illinois consumer protection laws, and their claim under the Minnesota Deceptive Practices Act.

BACKGROUND

Plaintiffs William Cavanagh, Robert M. Frank, Maria I. Frank, Shannon Hackett, Michael Malcolm, Daryl Mayes, Michael Walsh, and Robert Wilder, have brought a consolidated class action complaint against Defendant JPMorgan Chase, alleging that the bank reduced or suspended their home equity lines of credit (“HELOCs”) in violation of the Federal Truth–in–Lending Act, 15 U.S.C. § 1601 et seq., and its implementing regulation, Regulation Z, 12 C.F.R. 226. ¹ (Compl. ¶¶ 1, 2.) Plaintiffs also allege breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, and violations of California, Illinois, and Minnesota consumer protection laws. ( Id.)

HELOCs, as noted, are revolving lines of credit used by consumers for significant expenditures including education, home improvements, medical bills, and debt consolidation. ( Id. ¶ 3.) Because HELOCs are secured by the borrower's primary residence (meaning default can result in foreclosure), lenders base the amount of a HELOC, in part, on the level of equity in the home. ( Id. ¶ 4.) The HELOC agreements entered into between Plaintiffs and Defendant ² allow Plaintiffs to utilize a HELOC in exchange for an annual fee payable for each one-year “draw period.” ( Id. ¶ 5.) Under the terms of the agreement, Defendant is permitted to reduce or suspend the HELOC in the event that “[t]he value of the Property declines significantly below the value as determined by us at the time you applied for your” HELOC.³ ( Id. ¶ 6; Group Ex. A at 14.) See also 15 U.S.C. § 1647(c)(2)(B) (Truth in Lending Act provision allowing HELOC reduction when the value of the property “is significantly less than the original appraisal value of the dwelling”); 12 C.F.R. § 226.5b(f)(3)(vi)(A) (TILA implementing regulation, Regulation Z, explaining that a reduction is permitted when the value of the property “declines significantly below the dwelling's appraised value”). In order to determine whether a significant decline in value warranting HELOC reduction or suspension had occurred, Defendant used “automated valuation models” (“AVMs”), which, Plaintiffs allege, unreasonably undervalued homes and lacked validation mechanisms necessary to ensure accuracy. (Compl. ¶¶ 10, 11.)

At the time it suspended or reduced a HELOC, Defendant sent the borrower a two-page form letter explaining, first, that home values throughout the nation were falling ⁴ and, second, that Defendant's estimate of the individual Plaintiff's particular property value “no longer supports the full amount of [the] credit line.” ( Id. ¶ 15; see also Group Ex. B.) In several cases, the letters were sent the day after or the day before the account's reduction or suspension; in other cases, the letters are not dated, or the dates do not appear in the copies submitted to the court. ( See Group Ex. B at 4, 10.) In most cases, the letters did not contain any additional information, such as the estimated decrease in the value of the property, or an explanation of how that decrease was determined. ( Id. ¶ 16.) The letters explained that in order to request reinstatement of the HELOC, the customer must order and pay for an appraisal to be conducted by an appraiser chosen by Defendant. ( Id. ¶ 18.) Plaintiffs contend that these notices did not disclose Defendant's valuation of the property at the time of the HELOC origination, nor provide any other information that would assist the consumer in determining whether or not to appeal the action and request reinstatement. ( Id. ¶ 19.) Plaintiffs allege, further, that those borrowers whose HELOCs were suspended nevertheless continued to be charged an annual fee and did not receive a refund of their annual fee for any portion of the draw period during which the HELOC remained suspended. ( Id. ¶ 22.)

Individual Plaintiffs' Allegations

Although Plaintiffs' factual circumstances are not identical, all allege unwarranted reductions in their lines of credit, as follows:

• Plaintiff William Cavanagh entered into a HELOC agreement in February 2008 for a $400,000 line of credit secured by a mortgage on his primary residence in Edina, Minnesota. ( Id. ¶¶ 23, 36.) At the time of origination, Cavanagh's property was valued by Chase at $950,000, and he had $650,000 in available equity (the precise method by which Chase arrived at this original valuation is not specified). ( Id. ¶ 36.) In January 2009, Cavanagh received a letter from Defendant announcing that future draws on his HELOC would be suspended effective January 10, and that his home's value had been estimated using a “proven valuation method”...