Potter v. Norwest Mortg., Inc.

• Decision Date: 23 May 2003
• Docket Number: No. 01-3485.,01-3485.
• Parties: Judith M. POTTER; Jeffrey Schedler, individually and on behalf of all others similarly situated, Appellants, v. NORWEST MORTGAGE, INC.; Valuation Information Technologies, L.L.C., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

329 F.3d 608

Judith M. POTTER; Jeffrey Schedler, individually and on behalf of all others similarly situated, Appellants, v. NORWEST MORTGAGE, INC.; Valuation Information Technologies, L.L.C., Appellees.

No. 01-3485.

United States Court of Appeals, Eighth Circuit.

Submitted: October 10, 2002.

Filed: May 23, 2003.

Hart L. Robinovitch, argued, Minneapolis, MN (Zimmerman Reed, Barry G Reed and J. Gordon Rudd, Jr., on the brief), for appellant.

Mark G. Schroeder, argued, Saint Paul, MN (Alan H. Maclin and Brent R. Lindahl, on the brief), for appellee.

Before RILEY, RICHARD S. ARNOLD, and SMITH, Circuit Judges.

RILEY, Circuit Judge.

Judith Potter and Jeffrey Schedler (collectively Potter), individually and on behalf of all others similar situated, brought an action against Norwest Mortgage, Inc. and Valuation Information Technologies, L.L.C. (collectively Norwest) alleging certain charges imposed by Norwest amounted to unearned fees or kickbacks in violation of the Real Estate Settlement Procedures Act of 1974 (RESPA), 12 U.S.C. § 2601, et seq. After initiating the litigation, Potter requested certification of a class of all persons who paid more for a residential appraisal than Norwest actually paid the appraiser. The district court¹ denied Potter's request. Potter and Norwest subsequently entered into a settlement agreement. Potter now appeals the district court's denial of class certification. Because Potter failed to establish a continuing personal stake in the litigation, we dismiss the appeal as moot.

I. BACKGROUND

Potter brought this suit alleging Norwest charged fees for closing two Minnesota real estate transactions in violation of RESPA, as well as various state laws, which prohibit kickbacks and unearned fees. Potter requested a class certification of "[a]ll persons who paid more for a residential appraisal than [Norwest] paid the third party, licensed fee appraiser who provided the appraisal report." The district court denied class certification, finding common questions of law and fact did not predominate over individual issues of law and fact. A year later, the district court granted summary judgment to Norwest on Potter's claims that fees charged by Norwest were kickbacks prohibited by RESPA and by related state laws.

Shortly before trial on the remaining issues, Potter and Norwest entered into a settlement agreement.² Since Potter's individual claims alleged overcharges of only $125 and $100, the parties wanted to present the certification order to the Court of Appeals without further expending their resources or the district court's. After researching the appealability of the certification order, and after communicating their plan to the district court, Potter and Norwest advised the district court they had reached a partial settlement. The settlement agreement, as represented, contains four provisions pertinent to this appeal. First, the agreement fully releases Norwest from Potter's individual RESPA and state law claims. Second, the agreement purports to reserve Potter's right to appeal the district court order denying class certification. Third, Norwest agreed not to contest this appeal as moot. Fourth, the parties agreed they did not waive their rights to recover attorney fees. After the settlement hearing, the district court dismissed Potter's claims with prejudice.

Potter appeals the district court's order denying class certification. At oral argument we inquired whether the parties' settlement agreement caused the appeal to become moot because a case or controversy no longer existed under Article III of the Constitution. U.S. Const. Art. III, § 2, cl. 1. As counsel were not prepared at oral argument to discuss fully the jurisdictional issue, we requested supplemental briefing.

II. DISCUSSION

A. Case or Controversy Requirements

Whether Potter, having settled the individual claims, presents a continuing Article III case or controversy to challenge a denial of class certification presents an issue of first impression for this court. The jurisdictional issue illustrates the tension between the restrictions imposed by Article III on the federal judiciary and the judicial efficiency sought by the class-action mechanism.

Article III of the Constitution only allows federal courts to adjudicate actual, ongoing cases or controversies. Deakins v. Monaghan, 484 U.S. 193, 199, 108 S.Ct. 523, 98 L.Ed.2d 529 (1988); Preiser v. Newkirk, 422 U.S. 395, 401, 95 S.Ct. 2330, 45 L.Ed.2d 272(1975). The case or controversy requirement ensures that "self-interested parties vigorously advocating opposing positions" present issues "in a concrete factual setting." United States Parole Comm'n v. Geraghty, 445 U.S. 388, 403, 100 S.Ct. 1202, 63 L.Ed.2d 479 (1980). "This case-or-controversy requirement subsists through all stages of federal judicial proceedings, trial and appellate." Lewis v. Cont'l Bank Corp., 494 U.S. 472, 477, 110 S.Ct. 1249, 108 L.Ed.2d 400 (1990). When an action no longer satisfies the case or controversy requirement, the action is moot and a federal court must dismiss the action. See Minn. Humane Soc'y v. Clark, 184 F.3d 795, 797 (8th Cir.1999).

Article III requires parties to have a continuing "personal stake in the outcome" of the lawsuit. Baker v. Carr, 369 U.S. 186, 204, 82 S.Ct. 691, 7 L.Ed.2d 663 (1962). This "personal stake" requirement "serves primarily the purpose of assuring that federal courts are presented with disputes they are capable of resolving." Geraghty, 445 U.S. at 397, 100 S.Ct. 1202. Parties cannot by agreement confer jurisdiction upon a federal court. Ins. Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982); In re Grand Jury Subpoenas Duces Tecum, 78 F.3d 1307, 1310 (8th Cir.1996). Thus, neither Norwest's promise not to challenge Potter's appeal as moot nor the settlement agreement's provision reserving Potter's right to appeal confer jurisdiction upon this court.

Applying the above principles to settlements and class actions yields two relevant rules, one general and one specific. First, a federal court should normally dismiss an action as moot when the named plaintiff settles its individual claim, and the district court has not certified a class. See Zeidman v. J. Ray McDermott & Co., 651 F.2d 1030, 1045 (5th Cir.1981) ("a suit brought as a class action must as a general rule be dismissed as moot when the personal claims for the named plaintiffs are satisfied, and no class has properly been certified"). Second, a named plaintiff can appeal a denial of class certification after its individual claim has been satisfied, if the named plaintiff has a continuing personal stake in the outcome. Deposit Guar. Nat'l Bank v. Roper, 445 U.S. 326, 332-40, 100 S.Ct. 1166, 63 L.Ed.2d 427 (1980). This opinion addresses the second rule.

B. Supreme Court Precedent

The Supreme Court has addressed a named plaintiff's personal stake in an appeal of a district court's denial of class certification in two cases. See Geraghty, 445 U.S. at 390-409, 100 S.Ct. 1202; Roper, 445 U.S. at 327-340, 100 S.Ct. 1166. Geraghty challenged the validity of the parole guidelines, but his individual claim became moot when he was subsequently released from prison before he could appeal the district court's denial of class certification. The Court held a prisoner could appeal the district court's denial to certify a class, notwithstanding the prisoner's individual claim had expired. Geraghty, 445 U.S. at 404, 100 S.Ct. 1202. The Supreme Court concluded the purpose of the personal stake requirement-the assurance of "sharply presented issues in a concrete factual setting and self-interested parties vigorously advocating opposing positions"-exists when a named plaintiff's claims expire after a denial of class certification. Id. at 403, 100 S.Ct. 1202. The Court specifically limited its opinion by reserving for future consideration whether a plaintiff had a personal stake in the appeal of a denial of class certification when a plaintiff settled its individual claims: "We intimate no view as to whether a named plaintiff who settles the individual claim after denial of class certification may, consistent with Art. III, appeal from the adverse ruling on class certification." Id. at 404 n. 10, 100 S.Ct. 1202.

In Roper, after the Fifth Circuit denied Roper's interlocutory appeal of a class certification, the bank tendered the full amount of the plaintiffs' claims in an offer to confess judgment. The plaintiffs rejected the offer. Based on the bank's offer, and over Roper's objections, the district court entered judgment against the bank and dismissed the action. Roper appealed the adverse certification ruling to the Fifth Circuit. On appeal, the bank argued the entry of judgment mooted the appeal. The Fifth Circuit rejected the bank's argument and reversed the class certification ruling. The Supreme Court granted a writ of certiorari to consider the question of mootness. Roper, 445 U.S. at 331, 100 S.Ct. 1166. The Court concluded "the District Court's entry of judgment in favor of named plaintiffs over their objections did not moot their private case or controversy, and that respondents' individual interest in the litigation-as distinguished from whatever may be their representative responsibilities to the putative class-is sufficient to permit their appeal of the adverse certification ruling." Id. at 340, 100 S.Ct. 1166 (footnote omitted). The Court feared "[r]equiring multiple plaintiffs to bring separate actions, which effectively could be `picked off' by a defendant's tender of judgment before an affirmative ruling on class certification could be obtained, obviously would frustrate the objectives of class actions" and "would invite waste of judicial resources." Id. at 339, 100 S.Ct. 1166. The Court also noted permitting an appeal may minimize forum shopping. Id. at 339-40, 100 S.Ct. 1166.

Roper and Geraghty are distinguishable from...