Cowles v. Bank West, Docket No. 127564. Calendar No. 4.
| Decision Date | 27 July 2006 |
| Docket Number | Docket No. 127564. Calendar No. 4. |
| Parties | Kristine COWLES, Plaintiff-Appellee, and Karen B. Paxson, Intervening Plaintiff-Appellee, v. BANK WEST, f/k/a Bank West FSB, Defendant-Appellant. |
| Court | Michigan Supreme Court |
Drew, Cooper & Anding (by John E. Anding and Christopher G. Hastings), Grand Rapids, for the plaintiffs.
Warner Norcross & Judd, L.L.P. (by William K. Holmes, Molly E. McManus, and John J. Bursch), Grand Rapids, for the defendant.
The trial court in this class action dismissed intervening plaintiff Karen Paxson's claim against defendant Bank West under the Truth in Lending Act (TILA), 15 USC 1601 et seq., on the basis that it was barred by the statute of limitations. The Court of Appeals reversed, holding, among other things, that the period of limitations applicable to Paxson's claim was tolled under MCR 3.501(F) and that the claim was subject to the rule of relation back of amendments under MCR 2.118(D). Having concluded that Paxson's claim was not time-barred, the Court of Appeals then held that summary disposition on the merits of Paxson's TILA claim was improper because a question of fact exists concerning whether defendant's document preparation fee was "bona fide" under applicable federal law.
In this matter of first impression, we must first decide whether the filing of a class-action complaint tolls the period of limitations under MCR 3.501(F) for a putative class member's claim when that claim was not pleaded in the initial class-action complaint but arose out of the same factual and legal nexus. We hold that the filing of such a complaint is sufficient to toll the period of limitations as long as the defendant has notice of both the claim being brought and the number and generic identities of the potential plaintiffs. Accordingly, we affirm the Court of Appeals decision that, in this particular case, the intervening plaintiff's claim was not time-barred and, therefore, was improperly dismissed on statute of limitations grounds.
Because the claim was not time-barred in this particular case, we need not decide whether the amendment to the class-action complaint adding this claim related back to the date of the initial filing. Thus, we vacate that portion of the opinion of the Court of Appeals.
Finally, in light of our conclusion that Paxson's claim was not time-barred, we must also address whether summary disposition was nonetheless warranted under MCR 2.116(C)(10) on the merits of Paxson's claim. We agree with the Court of Appeals that summary disposition would be improper because a question of fact exists over whether the document preparation fee was "bona fide." Therefore, we affirm in part, vacate in part, and remand for further proceedings in the trial court consistent with this opinion.
On February 7, 1997, plaintiff Kristine Cowles obtained a residential real estate mortgage loan from defendant Bank West. In connection with this loan, defendant charged Cowles a $250 document preparation fee. The fee was reported on line 1105 of Cowles's United States Department of Housing and Urban Development statement, also known as a HUD-1 settlement statement.
On February 9, 1998, intervening plaintiff Karen Paxson obtained a residential refinancing loan from defendant. Defendant similarly charged Paxson a $250 document preparation fee.
On July 1, 1998, Cowles filed a class-action complaint against defendant, alleging several claims concerning the document preparation fee. The class was defined to include all consumers who obtained real estate loans in Michigan from defendant and who were charged and paid or financed the document preparation fee in the six-year period before the filing of Cowles's class-action complaint. In the complaint, Cowles claimed that defendant's charging of a document preparation fee in connection with the services defendant provided constituted the unauthorized practice of law. Further, the complaint alleged that the document preparation fee violated certain provisions of the Michigan Consumer Protection Act (MCPA), MCL 445.901 et seq. Additionally, the class-action complaint asserted claims of replevin, unjust enrichment, innocent misrepresentation, and negligent misrepresentation.
On August 20, 1998, Cowles amended her complaint to add a claim that the document preparation fee also violated § 1638 of TILA, 15 USC 1638, because the fee was improperly identified on the TILA disclosure form. Cowles alleged that the document preparation fee was identified on the TILA disclosure form as a fee "paid to others on your behalf." But Cowles claimed that defendant retained the fee and did not actually pay it to others. Further, the amended complaint claimed that the document preparation fee exceeded the cost associated with the actual preparation of the final papers. The trial court granted defendant's motion for summary disposition on this TILA claim. Plaintiffs did not appeal that ruling in the Court of Appeals, and they have not appealed that ruling in this Court.
Subsequently, on February 16, 1999, Cowles filed a second amended complaint adding a claim that defendant's failure to disclose the document preparation fee resulted in a different TILA violation under 15 USC 1605(a)1 and Regulation Z, 12 CFR 226.4(c)(7).2 Cowles claimed that defendant violated § 1605 and Regulation Z because the document preparation fee, as a finance charge, was not included in the loan's annual percentage rate (APR). Further, Cowles alleged that the document preparation fee did not relate to document preparation. The trial court then certified the class as described in Cowles's second amended complaint, and Cowles acted as the class representative.3 Notice was subsequently sent to the class members, and a list of all class members who opted out of the class was then filed in the trial court. Notably, Paxson did not opt out of the class.
Defendant moved in the trial court for reconsideration of the court's decision to certify the class as described in Cowles's second amended complaint. Defendant asserted that Cowles's individual TILA claim under § 1605 was time-barred by the applicable statute of limitations, 15 USC 1640(e),4 because the § 1605 claim was pleaded more than one year after Cowles closed on her loan. Accordingly, defendant maintained that Cowles could not represent the class with respect to the § 1605 claim. Moreover, defendant moved for summary disposition of the § 1605 claim, as well as the other claims contained in the second amended complaint.
After defendant filed its motion for reconsideration, Paxson moved to intervene and serve as the class representative for the § 1605 claim. Paxson's motion to intervene was granted, and she filed a complaint as an intervening plaintiff. The trial court granted defendant's motion for summary disposition on Cowles's § 1605 claim, reasoning that Cowles's § 1605 claim was time-barred. Further, the trial court granted defendant summary disposition of all claims contained in the second amended complaint, except Paxson's § 1605 claim.
Paxson and defendant then filed cross-motions for summary disposition on the § 1605 TILA claim. The trial court opined that Paxson's § 1605 claim was meritorious. But the trial court ultimately ruled that the claim was time-barred under § 1640(e) because it was pleaded in the second amended complaint more than one year after Paxson's claim accrued — the date she closed on her loan. The trial court concluded that Paxson's claim was not tolled from the time Cowles filed the initial class-action complaint and that the second amended complaint did not relate back to the date of the initial complaint. Thus, the trial court revoked class certification with respect to the TILA claim brought under § 1605. Paxson appealed.
In a split, published decision, the Court of Appeals affirmed in part, reversed in part, and remanded the matter to the trial court. Cowles v. Bank West, 263 Mich. App. 213, 687 N.W2d 603 (2004). Relying on Newton v. Bank West, 262 Mich.App. 434, 686 N.W.2d 491 (2004), the Court of Appeals affirmed the trial court's grant of summary disposition on the MCPA claims because defendant's residential mortgage loan transactions were exempt from the MCPA by virtue of MCL 445.904(1)(a).5 But the Court of Appeals held that the trial court improperly dismissed Paxson's TILA claim under § 1605 on statute of limitations grounds. The Court of Appeals observed that whether the amendment of a class-action complaint to add new theories of liability relates back to the filing of the initial complaint for purposes of the period of limitations was an issue of first impression. Nonetheless, the Court of Appeals reasoned that under MCR 3.501(F), the period of limitations for Paxson's TILA claim was tolled by the filing of the initial complaint. The Court of Appeals concluded that tolling was proper because Paxson was a member of the class described in the original complaint, the class was ultimately certified, and none of the circumstances set forth in MCR 3.501(F)(2) occurred that could have caused the period of limitations to resume running against Paxson or any other class member.
Next, the Court of Appeals concluded that amendments to a class-action complaint adding claims arising out of the conduct, transaction, or occurrence alleged in the original complaint relate back to the date of the initial filing when the period of limitations was tolled. The Court of Appeals reasoned that nothing in the court rules dealing with representative actions suggests that those rules are comprehensive. Accordingly, the Court of Appeals turned to MCR 2.118(D), the general court rule that provides that an amendment adding a claim relates back to the date of the original pleading if the claim added in the amendment arose of the conduct, transaction, or occurrence set forth, or attempted to be set forth,...
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