Mims v. Stewart Title Guar. Co.

• Decision Date: 09 December 2009
• Docket Number: No. 09-10127.,09-10127.
• Citation: 590 F.3d 298
• Parties: John MIMS, individually and on behalf of all others similarly situated; Lucy Mims, individually and on behalf of all others similarly situated; and Helen Cotton Ragland, individually and on behalf of all others similarly situated, Plaintiffs-Appellees, v. STEWART TITLE GUARANTY COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

590 F.3d 298

John MIMS, individually and on behalf of all others similarly situated; Lucy Mims, individually and on behalf of all others similarly situated; and Helen Cotton Ragland, individually and on behalf of all others similarly situated, Plaintiffs-Appellees, v. STEWART TITLE GUARANTY COMPANY, Defendant-Appellant.

No. 09-10127.

United States Court of Appeals, Fifth Circuit.

December 9, 2009.

Eric G. Calhoun (argued), Travis & Calhoun, P.C., Dallas, TX, Katherine B. Bornstein, Edward W. Ciolko, Peter A. Muhic, Barroway, Topaz, Kessler, Meltzer & Check, L.L.P., Radnor, PA, for Plaintiffs-Appellees.

John A. Koepke, Scott M. McElhaney, Jackson Walker, L.L.P., Dallas, TX, Jeffrey E. Crane, Kevin Michael Fee, Gerard D. Kelly (argued), Sidley Austin, L.L.P., Aaron Seth Mandel, Loevy & Loevy, Chicago, IL, for Defendant-Appellant.

Keith R. Verges, Figari & Davenport, L.L.P., Dallas, TX, for Lawyers Title Ins. Corp.

Robert J. Fogarty, Hahn, Loeser & Parks, Cleveland, OH, Karin Britt Torgerson, Locke, Lord, Bissell & Liddell, L.L.P., Dallas, TX, for Chicago Title Ins. Co.

Appeal from the United States District Court for the Northern District of Texas.

Before KING, DAVIS and BENAVIDES, Circuit Judges.

W. EUGENE DAVIS, Circuit Judge:

Defendant Stewart Title Guaranty ("Stewart") appeals the district court's order certifying a class in this case alleging violations of the Real Estate Settlement Procedure Act ("RESPA") and related state law claims. Based on our conclusion that individual factual issues predominate the RESPA claim, we reverse the district court's order certifying a class on that claim. Although we see no legal impediment to the certification of a class on the state law claims, given our reversal of the federal class certification, we remand to allow the district court to consider whether to exercise its discretion to retain pendent jurisdiction over those claims.

I.

Stewart is a title insurance underwriter that uses a network of agents to sell and issue title insurance policies. Plaintiffs allege that they are among numerous consumers who refinanced their home mortgages and failed to receive a mandatory discount on their premiums for new title insurance policies acquired from Stewart. Residential lenders in Texas generally require borrowers to purchase title insurance to protect the lender against defects in title to the property as well as the lender's first lien position. When a borrower refinances an existing mortgage, the new lender requires a new title policy for its benefit. Texas Department of Insurance's Rate Rule R-8 entitles the borrower to a discount on a policy issued after refinancing if the policy is issued within seven years of the closing of the prior mortgage. The discount starts at 40% on renewals occurring within 2 years of the time a prior policy was issued and decreases by 5% for each additional year after the prior policy up to seven years. In order to qualify for the discount, Rule R-8 requires that the pre-existing mortgage (a) be fully taken up, renewed, extended or satisfied, and (b) have been previously insured (with lender's title insurance). See BASIC MANUAL OF RULES, RATES AND FORMS FOR THE

WRITING OF TITLE INSURANCE IN THE STATE OF TEXAS § III RATE RULE R-8.

The plaintiffs allege that they refinanced their loans within the discount period and did not receive the R-8 reissue credit to which they claim they were entitled. They further allege, with sampling data to support that allegation, that Stewart, through its agents, consistently failed to provide the reissue insurance discount and that Stewart and the agents split the illegal, unearned charges on the policies.

On these facts, the plaintiffs allege, in addition to various state law claims, a violation of § 8(b) of the Real Estate Settlement Procedures Act ("RESPA"), which provides:

No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally-related mortgage loan other than for services actually performed.

12 U.S.C. § 2607(c).

Stewart filed a motion to dismiss arguing that the plaintiffs failed to state a violation of RESPA as a matter of law. The district court denied the motion. Mims v. Stewart Title Guar. Co., 521 F.Supp.2d 568 (N.D.Tex.2007). Plaintiffs then moved for class certification. The district court granted the motion for class certification for both the federal and state law claims, with modifications narrowing the proposed class. Mims v. Stewart Title Guar. Co., 254 F.R.D. 482 (N.D.Tex.2008). Stewart then filed a Petition for Permission to Appeal under Federal Rule of Civil Procedure 23(f). This court granted the petition.

II.

Stewart argues first that the district court erred in certifying the plaintiffs' proposed RESPA class when the named plaintiffs lack standing to assert a claim. Although Stewart references Article III standing and cites the appropriate factors from Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992), the substance of its argument is that the plaintiffs fail to state a claim under RESPA on the merits. If the defendants were actually challenging the plaintiffs' Article III standing, this court could clearly address that issue before deciding the propriety of class certification.¹ There is no serious question that the plaintiffs have standing to bring this claim. They have alleged an injury-in-fact (overpayment of premiums for title insurance issued upon refinancing their mortgage), causation (the defendants overbilled for the premiums) and redressability (if plaintiffs are successful, they will be refunded the overpayment).

Stewart's argument asks this court to address, not Article III standing however, but whether the plaintiffs' allegations state a claim under RESPA. We may not reach that issue because our review of an appeal under Rule 23(f) is limited and does not permit a general inquiry into the merits of the plaintiffs' claim. This court addressed the scope of its jurisdiction in a Rule 23(f) appeal in Regents of the University of California v. Credit Suisse First Boston.

Rule 23(f) states that "[a] court of appeals may in its discretion permit an appeal from an order of a district court granting or denying class action certification under this rule if application is made to it within ten days after entry of the order." FED. R. CIV. P. 23(f). The text of the rule makes plain that the sole order that may be appealed is the class certification; "no other issues may be raised." Bell, 422 F.3d at 314. The fact that an issue is relevant to both class certification and the merits, however, does not preclude review of that issue

. . . .

Although we may not conduct an independent inquiry into the legal or factual merit of this case as though we were reviewing a motion under Federal Rule of Civil Procedure 12(b)(6) or 56, we may address arguments that implicate the merits of plaintiffs' cause of action insofar as those arguments also implicate the merits of the class certification decision.

Regents of the Univ. of Cal. v. Credit Suisse First Boston, 482 F.3d 372, 380 (5th Cir.2007). In Regents, the plaintiffs filed suit against several banks alleging that the banks entered into partnerships and transactions with Enron Corporation that allowed Enron to misstate their financial statements. The district court certified a class of persons who purchased Enron securities during the certain time period during which these transactions were reported. The class certification decision rested on the district court's conclusion (1) that a deceptive act under rule 10b-5(c) includes participating in a transaction whose principal purpose and effect is to create the false appearance of revenues, (2) that rule 10b-5(a)'s prohibition against schemes to defraud gives rise to joint and several liability for defendants who commit individual acts of deception in furtherance of the scheme and (3) that plaintiffs were entitled to rely on the classwide presumption of reliance for omissions and fraud on the market. Id. at 378. This court reversed the order certifying the class because it found that the district court erred by including in its definition of "deceptive act" not only failure to satisfy a duty to disclose material information to the plaintiff, but also failure to satisfy that duty by means of a scheme or act. Id. at 384. An act cannot be deceptive under § 10(b) where the actor, like the banks, had no duty to disclose. Id. at 386. Without a "deceptive act" or straightforward failure to disclose, the plaintiffs were not entitled to the presumption of reliance on an omission under the fraud-on-the-market theory, which was critical to class certification. Without a classwide presumption of reliance, the plaintiffs would be left to prove individual reliance on the defendants' conduct precluding class certification. Id. at 383. Therefore class certification was improper and this court reversed. In doing so, this court by necessity considered the defendants' arguments against class certification that also implicated the merits of the plaintiffs' cause of action, but only to the extent the merits affected whether class issues would predominate the litigation.

Stewart relies on Washington v. CSC Credit Services Inc., 199 F.3d 263 (5th Cir.2000), to support its contention that this court can consider whether the plaintiffs have stated a claim in an appeal of class certification. That reliance is misplaced. In Washington, the plaintiffs brought a claim under the Fair Credit Reporting Act ("FCRA"). The district court certified a class based on its intermediate ruling that the "plaintiff can bring an action [under the FCRA] for failure to `maintain [the] reasonable procedures' required by § 1681e(a) without first showing that a report was disclosed in violation of § 1681b." Id. at 266. This...