795 F.3d 380 (3rd Cir. 2015), 13-4273, In re Community Bank of Northern Va. Mortg. Lending Practices Litig.

Docket Nº:13-4273
Citation:795 F.3d 380
Opinion Judge:JORDAN, Circuit Judge.
Party Name:IN RE: COMMUNITY BANK OF NORTHERN VIRGINIA MORTGAGE LENDING PRACTICES LITIGATION, PNC Bank NA, successor to CBNV, Appellant
Attorney:Martin C. Bryce, Jr., Esq. [ARGUED], Joel E. Tasca, Esq., Ballard Spahr, Philadelphia, PA, Counsel for Appellant. Scott C. Borison, Esq., Legg Law Firm, Frederick, MD; R. Bruce Carlson, Esq. [ARGUED], Gary F. Lynch, Esq., Carlson Lynch Sweet & Kipela, Pittsburgh, PA; Daniel O. Myers, Esq., Traver...
Judge Panel:Before: FISHER, JORDAN, and GREENAWAY, JR., Circuit Judges.
Case Date:July 29, 2015
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

Page 380

795 F.3d 380 (3rd Cir. 2015)

IN RE: COMMUNITY BANK OF NORTHERN VIRGINIA MORTGAGE LENDING PRACTICES LITIGATION, PNC Bank NA, successor to CBNV, Appellant

No. 13-4273

United States Court of Appeals, Third Circuit

July 29, 2015

Argued January 20, 2015

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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On Appeal from the United States District Court for the Western District of Pennsylvania. (D.C. No. 2-03-cv-00425). District Judge: Hon. Arthur J. Schwab.

Martin C. Bryce, Jr., Esq. [ARGUED], Joel E. Tasca, Esq., Ballard Spahr, Philadelphia, PA, Counsel for Appellant.

Scott C. Borison, Esq., Legg Law Firm, Frederick, MD; R. Bruce Carlson, Esq. [ARGUED], Gary F. Lynch, Esq., Carlson Lynch Sweet & Kipela, Pittsburgh, PA; Daniel O. Myers, Esq., Traverse City, MI; David M. Skeens, Esq., Roy F. Walters, Esq. [ARGUED], Walters, Bender, Strohbehn & Vaughan, Kansas City, MO; Robert S. Wood, Esq., Richardson, Patrick, Westbrook & Brickman, Mount Pleasant, SC, Counsel for Appellees.

Before: FISHER, JORDAN, and GREENAWAY, JR., Circuit Judges.

Page 384

OPINION OF THE COURT

TABLE OF CONTENTS
I. Background
A. The Alleged Illegal Lending Scheme
B. Community Bank I
C. Community Bank II
D. Post- Community Bank II Proceedings
II. Discussion
A. Adequacy of Representation
B. Conditional Certification
C. Other Rule 23 Requirements
1. Ascertainability
2. Commonality
3. Predominance
a. Standing
b. Equitable Tolling
i. Active Misleading
ii. Reasonable Due
Diligence
c. RESPA Claims
d. TILA/HOEPA Claims
e. RICO Claims
4. Superiority
5. Manageability
III. Conclusion
JORDAN, Circuit Judge. Page 385 PNC Bank, N.A. (" PNC" ) challenges an order of the United States District Court for the Western District of Pennsylvania certifying a nationwide litigation class of individuals who received residential mortgage loans from Community Bank of Northern Virginia (" CBNV" ), a financial institution whose interests were later acquired by PNC. The appeal presents several arguments against certification. First, PNC contends that there is a fundamental class conflict that undermines the adequacy of representation provided by class counsel. Second, PNC claims that the District Court conditionally certified the class and thus erred. Third, PNC says that the putative class does not meet the ascertainability, commonality, predominance, superiority, or manageability requirements of Rule 23 of the Federal Rules of Civil Procedure. We have considered each of those arguments and a number of subsidiary ones and find them unpersuasive. We will therefore affirm. I. Background This is the third appeal from the certification of a class based on allegations of an illegal home equity lending scheme involving two banks, specifically CBNV and Guaranty National Bank of Tallahassee (" Guaranty" ), and also involving GMAC-Residential Funding Corporation n/k/a Residential Funding Corporation, LLC (" Residential Funding" ), a company that purchased mortgage loans from those banks. See In re Cmty. Bank of N. Va. ( Community Bank I ), 418 F.3d 277 (3d Cir. 2005); In re Cmty. Bank of N. Va. ( Community Bank II ), 622 F.3d 275 (3d Cir. 2010). The two previous appeals involved certification of settlement classes, but this appeal involves certification of a litigation class. Much of the factual and procedural history of this case is set out in detail in our two prior opinions, but we reiterate the relevant portions here. A. The Alleged Illegal Lending Scheme The Plaintiffs describe a predatory lending scheme affecting numerous borrowers nationwide and allegedly masterminded by the Shumway Organization (" Shumway" ), a residential mortgage loan business operating in Chantilly, Virginia. Through a variety of entities, including EquityPlus Financial, Inc. (" Equity Plus" ), Equity Guaranty, LLC (" Equity Guaranty" ), and various title companies, Shumway offered high-interest mortgage-backed loans to financially strapped homeowners. As a non-depository lender, Shumway was subject to fee caps and interest ceilings imposed by various state mortgage lending laws. The Plaintiffs aver that, in an effort to circumvent those limitations, Shumway formed associations with several banks, including CBNV and Guaranty. Shumway allegedly arranged payments to CBNV and Guaranty to disguise the source of its loan origination services so that fees for those services would appear to be paid solely to the banks, which were depository institutions. The Plaintiffs allege that, in reality, the overwhelming majority of fees and other charges associated with the loans were funneled through the two banks to Shumway via Equity Plus (in the case of loans made by CBNV) and Equity Guaranty (in the case of loans made by Guaranty). After Virginia banking regulators expressed concern to CBNV regarding the legality of the arrangement, the deal between CBNV and Equity Plus was allegedly restructured in October 1998 so that Equity Plus became a " consultant" to CBNV that provided no settlement services yet still received the lion's share of fees paid in exchange for those services. Page 386 The Plaintiffs allege that CBNV and Guaranty uniformly misrepresented the apportionment and distribution of settlement and title fees on their HUD--1 Settlement Statement forms.1 The Plaintiffs further allege that the fees listed on the HUD--1s included illegal kickbacks to Shumway and did not reflect the value of any services actually performed. According to the Plaintiffs, Residential Funding derived a significant portion of its business from the securitization of " jumbo" mortgages2 and especially High-Loan-to-Value loans.3 The Plaintiffs allege that Residential Funding purchased a majority and perhaps all of the loans originated by CBNV and Guaranty, despite knowing that those entities passed most of the origination and title service fees to Shumway. Because Residential Funding derived substantial income from the settlement fees, the Plaintiffs allege that it ignored unlawful settlement practices and actively worked with CBNV and Guaranty to expand the loan volume generated by the scheme. In the early 2000s, a number of putative class actions arising out of the alleged Shumway scheme were filed by various plaintiffs (the " Original Plaintiffs" ) and were eventually consolidated in the United States District Court for the Western District of Pennsylvania.4 The Original Plaintiffs asserted claims arising under the Real Estate Settlement Procedures Act (" RESPA" ),5 the Racketeer Influenced and Corrupt Organizations Act (" RICO" ),6 and Pennsylvania law. The putative class consisted of approximately 44,000 borrowers. B. Community Bank I On July 14, 2003, the Original Plaintiffs and certain defendants, including CBNV, Guaranty, and Residential Funding, proposed a nationwide class action settlement, which was approved by the District Court. Under the terms of the settlement, the Page 387 maximum total payout to the approximately 44,000 member class was $33 million. The settlement payouts ranged from $250 to $925 per borrower depending on the borrower's residence and the date on which the loan was entered. In exchange, the borrowers were to release any and all state or federal claims that they might have relating to the mortgage loans at issue, including the right to use a violation of federal or state law as a defense to any foreclosure action. Because CBNV supported the settlement, it did not contest the requirements for class certification.7 The order approving the settlement was appealed by a group of plaintiffs (the " Objector Plaintiffs" ) who argued that claims under the Truth in Lending Act (" TILA" )8 and the Home Ownership and Equity Protection Act (" HOEPA" )[9] should also have been asserted on behalf of the putative class. We vacated the order approving the settlement and remanded the case because, among other things, the District Court had not adequately analyzed the propriety of class certification under Federal Rule of Civil Procedure 23. Community Bank I, Page 388 418 F.3d at 300-02. We stated that various class certification requirements, which had not been disputed, were likely met, id. at 303 (suggesting " that the numerosity, typicality, and commonality prongs are met" ), but we specifically directed the District Court to perform its own independent analysis, id. at 306 (" All of the above, of course, are issues to be considered by the District Court in its independent analysis." ). In particular, we questioned whether the putative class representatives -- whose claims were untimely under TILA/HOEPA without the benefit of equitable tolling -- could adequately represent putative class members who had timely TILA/HOEPA claims. Id. at 306-07. To resolve that problem with the adequacy of representation, we suggested that the District Court " divid[e] the class into sub-classes." Id. at 307. C. Community Bank II On remand, the District Court approached its analysis in two steps. First, it addressed the viability of potential TILA/HOEPA claims. Second, it addressed adequacy of representation and other Rule 23 requirements. While the parties were briefing the viability issue, the Original Plaintiffs entered into new settlement negotiations with the defendants, which resulted in a new settlement agreement (the " Modified Settlement Agreement" ). The Modified Settlement Agreement took the availability of TILA/HOEPA claims into account and increased the...

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