Vought v. Bank of Am., N.A.

901 F.Supp.2d 1071

Jeanette VOUGHT, Mark Skutack, Daneen Skutack, and Roger E. Frock, on behalf of themselves and a class of all other persons similarly situated, Plaintiffs,

v.BANK OF AMERICA, N.A., and BAC Home Loans Servicing, LP, Defendants.

Case No. 10–CV–2052.

United States District Court,

C.D. Illinois,

Urbana Division.

Oct. 4, 2012.

Christopher M. Ellis, Jon D. Robinson, Shane Michael Mendenhall, Bolen Robinson & Ellis, Decatur, IL, Charles E. Schaffer, Levin Fishbein Sedran & Berman, Michael D. Donovan, Donovan Searles LLC, Philadelphia, PA, Eric D. Holland, Gerard B. Schneller, Holland Groves Schneller & Stolze, St. Louis, MO, Michael D. Braun, Braun Law Group PC, Los Angeles, CA, for Plaintiffs.

Derek S. Holland, Jena M. Valdetero, Steven R. Smith, Bryan Cave LLP, Chicago, IL, Jeffrey S. Russell, Bryan Cave LLP, St. Louis, MO, Brian Michael Smith, Heyl Royster Voelker & Allen, Urbana, IL, for Defendants.

OPINION

MICHAEL P. McCUSKEY, District Judge.

Judge Posner recently wrote for the Seventh Circuit:

It is a curiosity of class action litigation that often there is greater ferocity in combat among the class lawyers over the allocation of attorneys' fees than there is between the class lawyers and the defendants. The contest among the lawyers is a zero-sum game. But the contest between them and the defendants is a positive-sum game because the class lawyers are naturally very interestedin the fee component of any settlement, while the defendants care only about the size of the settlement, including fees. So the lawyers may be willing to settle for less for the class if the defendants will help them obtain a generous fee award, and the defendants will be happy to help them if the sum of the fee award and the relief granted to the class is smaller than it would be if the class lawyers pressed for more generous relief for the class.

In re Trans Union Corp. Privacy Litig., 629 F.3d 741, 742–43 (7th Cir.2011) (emphasis in original). In the present case, Defendant Bank of America NA (BANA) took over the servicing of mortgages for approximately 14,000 homeowners from Taylor, Bean & Whitaker (TBW), a company that (as it later came to light) had been engaging in all manner of financial shenanigans. In doing so, BANA and Ginnie Mae promised that if the homeowners made mortgage payments to TBW during the transition, BANA would credit their accounts. This seems generous, but it is also fair because BANA didn't give the homeowners any notice of the transition until well after the homeowners were supposed to stop paying TBW.

But then TBW filed for bankruptcy and BANA alleges that the FDIC seized the lockbox bank that held borrower's payments, so many of the mortgage payments were either frozen or disappeared into TBW.¹ BANA, being a large financial institution, did not seem to get a handle on this as quickly as it should have. Instead, the bank started sending threatening letters and charging late fees, accusing the homeowners of not paying their mortgages when they had in fact done so—although, regrettably and understandably, many of those payments had been sent to TBW. BANA says they blocked credit reporting, but one person said that after he got divorced, his ex-wife could not refinance their house because her credit score dropped as a result of the missing payment. (BANA says this is very unlikely.) Another person said that it took him daily calls and letters to various government officials over many months before BANA finally realized what was going on and fixed his account. Right now, there are still some accounts that have not been credited.

A number of the homeowners individually filed lawsuits against BANA, trying to hold them accountable for the missing payments. Those cases were combined into the class action here. Over the past two and a half years, this case has been litigated heavily. Several months ago, class counsel and defendant's counsel presented this court with a settlement agreement. In general terms, BANA promised to: credit all the homeowners' accounts for the full amount of their missing payments; waive or refund late fees; issue an IRS Form 1098 so the homeowners could take the extra interest deduction that they weren't able to earlier; and set up a telephone hotline to provide informational assistance. Of course, BANA has proclaimed mightily that it never had those payments to begin with, so it would be crediting those accounts about $7.5 to $15 million out of its own pocket. But it should have known or discovered a certain amount of risk when it performed their due diligence on TBW before they took over the servicing the mortgages, and after all, the mortgage business is still relatively decent money. And furthermore, who's to say that BANA won't eventually get paid, at least in part, from the bankruptcy estate? On top of crediting the accounts, BANA would also provide monetary relief in the form of: $25 if a class member provided their tax filings showing that they could have but were unable to deduct mortgage interest; $50, up to a total of $500,000 if their account had not been credited by December 1, 2011, and they made a written request to BANA about it; and $75 if they could prove that their credit was adversely affected. By the deadline, the claimants had submitted claims totaling only $38,600.

In return, the settlement releases BANA from all liability. Furthermore, BANA will pay class counsel's fees of $2 million. Now, far be it for this court to delve too deeply into the horse-trading that went on between the parties during the settlement negotiations, but the facts here sound a lot like a case in which the Seventh Circuit chastised the district court for having “sold the claimants down the river”. Certainly it is not as bad as what happened in a case where the class members had to pay class counsel's legal fees, Kamilewicz v. Bank of Boston Corp., 100 F.3d 1348 (7th Cir.1996). But for a settlement where BANA is required to do what it should have done two years ago (and which, incidentally, it has already started to do, whether out of the goodness of its heart or not)—and to compensate class members for two years' trouble just $38,000 and class counsel $2,000,000 is not something that would strike a jury in downstate Illinois as a particularly good bargain. This isn't to say that anyone thinks that BANA set out to hoodwink the homeowners. But as one class member said while opting out of the settlement: “If we thought for one split second that $150 would get noticed by the huge conglomerate known as Bank of America, it might be worth it, but you know about a snowball's chance in hell.”

This case is before the court for ruling on the Motion for Final Approval of Settlement (# 99) filed by the BANA and BAC Home Loans Servicing, LP, (BAC) ² and the Motion for Final Approval of Settlement (# 101) filed by Plaintiffs Jeanette Vought (“Vought”), Mark and Daneen Skutack (“Skutack”), and Roger E. Frock (“Frock”), on behalf of themselves and a class of all other persons similarly situated. On January 30, 2012, this court entered a Preliminary Approval Order (# 86) certifying classes and preliminarily approving the settlement agreements. On May 31, 2012, this court held a final fairness hearing. This court has carefully reviewed the arguments of the parties and the documents filed by the parties. Following this careful and thorough review, Plaintiffs' and Defendant's Motions for Final Approval of Settlement (# 99; # 101) are DENIED. Further, this case is referred to Judge David G. Bernthal for further mediation.

JURISDICTION

This court has jurisdiction pursuant to 28 U.S.C. § 1332(d), the Class Action Fairness Act (CAFA). The case was commenced on March 5, 2010, after CAFA's effective date of February 18, 2005. CAFA requires, with certain exceptions not relevant here, minimal diversity, an amount in controversy exceeding $5,000,000, and at least 100 proposed plaintiff class members. 28 U.S.C. §§ 1332(d)(2), (d)(5); Hart v. FedEx Ground Package Sys. Inc., 457 F.3d 675, 679 (7th Cir.2006). Plaintiff Jeanette Vought is a citizen of Illinois (Second Amended Complaint, # 63 ¶ 28). Plaintiff Frock is a citizen of Ohio (# 63 ¶ 29). Plaintiffs Mark and Daneen Skutack are citizens of Pennsylvania. (# 63 ¶¶ 30–31). Defendant BANA maintains its headquarters and principal place of business in North Carolina (# 63 ¶ 32). Plaintiffs have alleged that the amount in controversy exceeds $5,000,000 (# 63 ¶ 24). Plaintiffs have further alleged that thousands of individuals are similarly situated with regard to their putative cause of action (# 63 ¶¶ 10, 38–39). ³

FACTUAL AND PROCEDURAL HISTORY

I. Background facts

Plaintiffs Vought, Skutack, and Frock, as well as all members of the Class and Subclass, each had home mortgages that were serviced by TBW until approximately August 2009.⁴ In August 2009, as a result of TBW's default and impending bankruptcy, Ginnie Mae, the government guarantor for residential mortgage-backed securities, assigned the sub-servicing portions of the TBW portfolio to BANA. Ginnie Mae made this assignment pursuant to a servicing contract entered into with BANA in March 2009. This agreement, in general terms, required BANA to service Ginnie Mae loans on an as-needed basis. TBW was instructed to stop processing mortgage payments effective August 6, 2009. BANA (then BAC) sent a notice to Plaintiffs dated August 23, 2009, indicating that TBW's right to collect payments and service the mortgage was being transferred to BAC effective September 1, 2009. Further, this notice indicated that the date that TBW would stop accepting payments was August 5, 2009, and that BAC would begin accepting payments on August 6, 2009. However, TBW continued processing mortgage payments for approximately two weeks after the August 6, 2009 deadline.

On August 24, 2009, TBW filed for bankruptcy. When the FDIC seized the lockbox bank controlled by TBW (Colonial Bank), Plaintiffs' mortgage payments...