622 F.3d 275 (3rd Cir. 2010), 08-3621, In re Community Bank of Northern Virginia

Docket Nº:08-3621, 08-3790, 08-3791, 08-3857, 09-2001.
Citation:622 F.3d 275
Opinion Judge:AMBRO, Circuit Judge.
Party Name:In re COMMUNITY BANK OF NORTHERN VIRGINIA and Guaranty National Bank of Tallahassee Second Mortgage Loan Litigation (MDL 1674) v. PNC Bank National Association; GMAC-Residential Funding Corporation, a Minnesota Corporation; Homecomings Financial Network Inc., a Delaware Corporation. Objecting Class Members, Appellants (08-3621) (Pursuant to Fed. R.
Attorney:Garrett M. Hodes, Esquire, David M. Skeens, Esquire, J. Michael Vaughan, Esquire, Roy Frederick Walters, Esquire (Argued), Walters, Bender, Strohbehn & Vaughan, Kansas City, MO, Michael J. Cartee, Esquire, John J. Lloyd, Esquire, Cartee & Lloyd, Tuscaloosa, AL, C. Knox McLaney, III, Esquire, McLa...
Judge Panel:Before: SCIRICA [*], Chief Judge, AMBRO, Circuit Judge and JONES [**], District Judge.
Case Date:September 22, 2010
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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Page 275

622 F.3d 275 (3rd Cir. 2010)

In re COMMUNITY BANK OF NORTHERN VIRGINIA and Guaranty National Bank of Tallahassee Second Mortgage Loan Litigation (MDL 1674)

Objecting Class Members, Appellants (08-3621)

(Pursuant to Fed. R.App. P. 12(a))

Alabama and Georgia Objecting Class Members, Appellants (08-3790)

(Pursuant to Fed. R.App. P. 12(a))

Richard H. Heady, Jr., Robert Rowley, Arline Rowley, Galen Hurt, Darrell Turner, Michael Rich, Edna Rich, Patrick Franklin, Michael Graham, Tracy Graham, Eric Lewis, Barbara Lewis, David Davidson, Michael Moore, Karla Moore, Anthony Dixon and Kathy Dixon, Appellants (08-3791).

(Pursuant to Fed. R.App. P. 12(a))

Troy Elliott, Lorraine Oswald and Ruth D. Mathis-Wisseh, Appellants (08-3857)

(Pursuant to Fed. R.App. P. 12(a))

John Drennen; Rowena Drennen; David Garner; Diane Garner; Shawn Starkey; Lorene Starkey, Appellants

v.

PNC Bank National Association; GMAC-Residential Funding Corporation, a Minnesota Corporation; Homecomings Financial Network Inc., a Delaware Corporation.

Nos. 08-3621, 08-3790, 08-3791, 08-3857, 09-2001.

United States Court of Appeals, Third Circuit.

September 22, 2010

Argued April 20, 2010.

As Amended Oct. 20, 2010.

Page 276

[Copyrighted Material Omitted]

Page 277

Garrett M. Hodes, Esquire, David M. Skeens, Esquire, J. Michael Vaughan, Esquire, Roy Frederick Walters, Esquire (Argued), Walters, Bender, Strohbehn & Vaughan, Kansas City, MO, Michael J. Cartee, Esquire, John J. Lloyd, Esquire, Cartee & Lloyd, Tuscaloosa, AL, C. Knox McLaney, III, Esquire, McLaney & Associates,

Page 278

Montgomery, AL, Franklin R. Nix, Esquire, Law Offices of Franklin R. Nix, Atlanta, GA, John W. Sharbrough, III, Esquire, The Sharbrough Law Firm, Mobile, AL, Scott C. Borison, Esquire, Legg Law Firm, Frederick, MD, J. Jerome Hartzell, Esquire (Argued), Hartzell & Whiteman, Raleigh, NC, Mallam J. Maynard, Esquire, Wilmington, NC, Robert B. Smith, Esquire, Smith, Cohen & Mork, Pittsburgh, PA, for Appellants.

Eric G. Calhoun, Esquire, Travis & Calhoun, Dallas, TX, R. Bruce Carlson, Esquire (Argued), Gary F. Lynch, Esquire, Carlson Lynch, New Castle, PA, Daniel O. Myers, Esquire, A. Hoyt Rowell, III, Esquire, Richardson, Patrick, Westbrook & Brickman, Mount Pleasant, SC, Kevin Oufnac, Esquire, Richardson, Patrick, Westbrook & Brickman, Charleston, SC, Thomas L. Allen, Esquire (Argued), Roy W. Arnold, Esquire, David J. Bird, Esquire, Donna M. Doblick, Esquire, Nina M. Faber, Esquire, Reed Smith, Darryl J. May, Esquire (Argued), Ballard Spahr, David G. Oberdick, Esquire, Meyer, Unkovic & Scott, Pittsburgh, PA, F. Douglas Ross, Esquire, Odin, Feldman & Pittleman, Fairfax, VA, J. Scott Watson, Esquire, Federal Deposit Insurance Corporation, Arlington, VA, for Appellees.

Before: SCIRICA [*], Chief Judge, AMBRO, Circuit Judge and JONES [**], District Judge.

OPINION

AMBRO, Circuit Judge.

Table of Contents
I. Factual and Procedural Background 279
A. The Alleged Predatory Lending Scheme 279
B. The Separate Class Actions and the Initial Settlement 280
C. The Objectors 282
D. The Prior Appeal 284
E. The Proceedings on Remand 285
1. The Hobson Action 285
2. The Objectors Withdraw Their Motion to Intervene 285
3. The District Court's Viability Briefing 285
4. The Modified Settlement 286
5. The District Court Determines the TILA/HOEPA Claims Are Not Viable 287
6. The District Court Appoints a " Friend of the Court" 288
7. The District Court Denies the Objectors' Renewed Motion to Intervene, Conditionally Re-Certifies the Class, and Preliminarily Approves the Modified Settlement 289
8. The District Court Certifies the Class and Approves the Modified Settlement 289
II. Jurisdiction and Standards of Review 290
III. Discussion 290
A. Class Certification 291
1. Legal Standards 291
2. Statute-of-Limitations Issues at the Class Certification Stage 292
3. The District Court's Analysis 295
a. The District Court's Relation-Back Analysis 295
b. The District Court's Equitable Tolling Analysis 301
4. Adequacy of Representation 303
a. The Class Representatives 303
b. Class Counsel 304
5. The North Carolina Objectors 308
B. The Fairness of the Settlement 311
C. The Objectors' Renewed Motion to Intervene 312
D. The Objectors' Renewed Petition for Mandamus to Recuse the District Judge 313
IV. Conclusion 315

Page 279 This is the second appeal from the certification of a consolidated " settlement only" nationwide class action that alleged an illegal home equity lending scheme involving two banks and a company that purchased second mortgage loans from them. Certain members of the class (the " Objectors" ) contest the District Court's decisions certifying that class and approving the class settlement. (This shorthand, however, does not include the objecting class members from North Carolina, whose arguments we address separately in Part III.A.5 below.) As it was in the prior appeal, the principal dispute remains the named plaintiffs' and class counsel's decision not to make claims against the defendants under the Truth in Lending Act, 15 U.S.C. § 1601 et seq. (" TILA" ), and the Home Ownership and Equity Protection Act (" HOEPA" ), id. § 1639. The Objectors contend that the failure to do so renders the named plaintiffs and class counsel inadequate class representatives. We conclude that the District Court-by approaching the adequacy-of-representation questions on remand as though it were ruling on a motion to amend pursuant to Federal Rule of Civil Procedure 15(c) or a motion to dismiss pursuant to Rule 12(b)(6)-applied the wrong legal standard in ruling on class certification under Rule 23. We thus reluctantly vacate again the Court's certification decision and its approval of the class settlement, and remand for further proceedings. In doing so, we continue to reject (i) the claim that the District Court abused its discretion in denying the Objectors' renewed motion to intervene, and (ii) their renewed petition for mandamus to recuse the District Judge in this case. I. Factual and Procedural Background A. The Alleged Predatory Lending Scheme The complex factual and procedural history of these matters is set out at length in our prior opinion, and we only summarize it here. See In re Community Bank of N. Va., 418 F.3d 277 (3d Cir.2005) (" Community Bank I " ). These class actions involve the alleged predatory lending scheme of the Shumway/Bapst Organization (" Shumway" ), a residential mortgage loan business involved in facilitating the making of high-interest, mortgage-backed loans to debt-laden homeowners. Because Shumway is not a depository lender-and thus subject to fee caps and interest ceilings under various state laws-it allegedly formed relationships with defendants Community Bank of Northern Virginia (" CBNV" ) and Guarantee National Bank of Tallahassee (" GNBT" ), both financially distressed banks,1 to circumvent those restrictions. This allegedly permitted Shumway to conceal the origin of the Page 280 loans, thus creating the appearance that fees were paid solely to a depository institution when " [i]n reality ... the overwhelming majority of fees and other charges associated with the loans were funneled to Shumway." Id. at 284. The class action complaint claimed defendant GMAC Residential Funding Corporation (" RFC" ) was a co-conspirator in this scheme, deriving a substantial portion of its business by purchasing " jumbo" and high " loan-to-value" loans from CBNV and GNBT in the secondary market. The named plaintiffs asserted that RFC acted with knowledge that CBNV and GNBT were mere " straw parties" used to funnel origination and title services fees to Shumway. Because these fees were incorporated into the principal on the loan, RFC purportedly benefitted from the practice through increased interest income. In 2001, the federal Comptroller of the Currency investigated and audited GNBT, and imposed tighter restrictions on the bank. Shortly thereafter, RFC announced that it would no longer purchase high interest mortgage loans like those originated by CBNV and GNBT. RFC's withdrawal, in turn, caused the Shumway organization to shut down in early 2003.2 B. The Separate Class Actions and the Initial Settlement The consolidated class actions before us began as six separate class actions. The first- Davis v. CBNV, which named CBNV and RFC as defendants-was filed in Pennsylvania state court in May 2001 as a putative state-wide class action and was later removed to federal court (on federal preemption grounds). The first action to name GNBT and RFC as defendants was Ulrich v. GNBT, filed in the District Court for the Western District of Pennsylvania in September 2002 as a putative nationwide class action. The remaining four actions are: Sabo v. CBNV, filed in federal court in September 2002 as a putative nationwide class action; and Picard v. CBNV (October 2002), Mathis v. GNBT (November 2002), and Kessler v. RFC (February 2003), all filed in Pennsylvania state court as putative state-wide class actions and later removed to federal court in the Western District. R. Bruce Carlson of Carlson Lynch Ltd., located in Sewickley, Pennsylvania, was the lead plaintiffs' attorney in all six actions, and was subsequently appointed as class counsel by the District Court.3 These actions asserted claims against CBNV, GNBT, and RFC under the Real Estate Settlement Procedures Act (" RESPA" ), 12 U.S.C. § 2601 et seq. ; the Racketeer Influenced and Corrupt Organizations Act ("...

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