In re FIRSTPLUS Financial, Inc.
| Decision Date | 26 April 2000 |
| Docket Number | Bankruptcy No. 99-318969-HCA-11. Adversary No. 99-3388. |
| Citation | 248 BR 60 |
| Parties | In re FIRSTPLUS FINANCIAL, INC., Debtor. Charles Kahler et al., Plaintiffs, v. FIRSTPLUS Financial, Inc., Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
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Lenard Parkins, Trey A. Monsour, Maxim B. Litvak, Verner, Liipfert, Bernhard, McPherson and Hand, Chartered, for Debtors.
Elizabeth J. Cabraser, William B. Hirsch, Barry R. Himmelstein, Lieff, Cabraser, Heimann & Bernstein, L.L.P., Howard Marc Spector, Marc Ian Agee, for Kahler Plaintiffs.
Judith Weaver Ross, Thompson & Knight, P.C., William L. Stern, Severson & Werson, for Bank One Corporation and Residential Funding Corporation.
Patrick J. Neligan, Pamela R. Dunlop, Neligan, Andrews, Bryson & Foley, for PSB Lending Corporation.
Lynnette R. Warman, Jenkens & Gilchrist, for Firstplus Financial Group, Inc.
Jeffrey W. Hurt, Leonard Hurt Frost & Lilly, Ira G. Rivin, Penelope Parmes, Rutan & Tucker, L.L.P., for Joiner Plaintiffs in Intervention.
Came before the Court for consideration the Motion for Order Denying Class Certification filed by FIRSTPLUS Financial, Inc. ("Debtor") and the Consolidated Memorandum of Law in Opposition to the Debtor's Motion for Order Denying Class Certification, Motion for Class Certification, and Memorandum of Law in Support filed by Charles Kahler, Robert Bright, Merry Wong, Michael Kluss, Martha Kluss, and Robin Hadley (collectively, "Plaintiffs"). Several parties who are either co-Defendants with the Debtor in this adversary or Intervenors in this adversary filed Joinders in the Debtor's Motion. One party filed a Joinder in the Plaintiffs' Motion. This memorandum opinion constitutes findings of fact and conclusions of law under Federal Rules of Bankruptcy Procedure 9014 and 7052. The Court has jurisdiction pursuant to 28 U.S.C. §§ 1334 and 151, and the standing order of reference in this district. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (O).
The Debtor's Motion seeks an order denying certification of a class of consumer borrowers proposed in the Plaintiffs' Class Action Complaint instituting this adversary proceeding. The Class Action Complaint was filed on or about August 12, 1999, by the Plaintiffs on behalf of themselves and, purportedly, all other similarly situated persons.
On or about April 8, 1999, counsel for the Plaintiffs filed a Notice of Appearance in this bankruptcy proceeding. On or about June 10, 1999, counsel for Plaintiffs sought relief from the automatic stay in order to pursue substantially similar litigation in California federal district court, which was denied by this Court on July 21, 1999. The Plaintiffs did not appeal the order denying relief from the stay. On or about the same date, Plaintiffs also filed a proof a claim on behalf of themselves and the proposed class.1 The proof of claim asserted a claim subject to or otherwise associated with this adversary proceeding. On December 24, 1999, the Debtor filed its objection to Plaintiffs' class proof of claim in its Omnibus Objection to Claims, as well as objections to individual proofs of claim subject to or otherwise associated with this adversary proceeding. On February 1, 2000, the Court consolidated the Debtor's objections to certain of these claims, totaling less than fifty, with this adversary. At no time during this process, did the Plaintiffs file a motion to certify the class or a motion under Federal Rule of Bankruptcy Procedure 9014 ("Bankruptcy Rule 9014" or "Rule 9014") to make Federal Rule of Bankruptcy Procedure 7023 ("Bankruptcy Rule 7023" or "Rule 7023") applicable to the contested matter involving their class proof of claim. Plaintiffs filed their Motion for Class Certification only in response to the Debtor's Motion to Deny Class Certification. Plaintiffs filed their Motion over seven months after they had filed this adversary and three months after the Debtors had filed their Omnibus Objection to Claims, which created a contested matter with regard to the Plaintiffs' proof of claim.
Plaintiffs seek to certify a class action that would include all persons or entities who applied for and/or obtained loans secured by real property from Capital Direct Funding Group, Inc. or FIRSTPLUS Direct, on or after August 4, 1994. To the extent the Debtor assumed the liabilities of Capital Direct Funding Group, Inc. and/or FIRSTPLUS Direct, the Debtor would be liable for any judgment against those entities. Plaintiffs generally allege that the Debtor charged excessive loan fees and interest; misrepresented that consumers were to receive competitive interest rates; improperly charged borrowers for third party related loan expenses (i.e., credit reports, appraisals, mortgage insurance, and flood certification); received kickbacks from some third party service providers; and manipulated and withheld loan disclosure documents to hide effective interest rates, loan costs, and fees.
The Plaintiffs' allegations are incorporated into nine separate causes of action arising under federal and California law: (1) violations of the Real Estate Settlement Procedures Act ("RESPA"); (2) violations of the Truth in Lending Act ("TILA"); (3) violations of the Racketeer Influenced Corrupted Organizations Act ("RICO Act"); (4) unlawful, unfair, and fraudulent business practices (California law); (5) false and misleading statements (California law); (6) violations of the Consumer Legal Remedies Act (California law); (7-8) two counts alleging fraud and deceit by uniform misrepresentation of material fact (California law); and (9) conversion (California law). Based upon these causes of action, the Plaintiffs seek (1) an award of restitution of all improper charges; (2) an order enjoining the Debtor from engaging in the alleged wrongful practices; (3) all damages, including treble damages and punitive damages, allowed under federal and/or state law; and, (4) costs, including attorneys' fees, incurred in the lawsuit.
The Class Action Complaint is based upon the same course of conduct underlying the case instituted in 1998 and pending in California federal district court styled, Kahler, et al. v. FirstPlus Financial Group, Inc., et al., case no. SACV 98-733 GLT (Eex). No class action has been certified in the California federal court, and the case has been stayed as to all defendants. All parties from the California lawsuit are now before this Court as parties to this adversary proceeding, by virtue of intervention or consolidation, and their claims and defenses are at issue in this case.
The California class action was disclosed to all potential class members prior to the bar date for proofs of claim ("Claims Bar Date") by way of actual notice mailed to those parties by the Debtor pursuant to the Court's Modified Order Authorizing Notice Procedures Under Fed.R.Bankr.P. 2002(1) and (m) and Extending Bar Date ("Order Authorizing Notice") entered on June 25, 1999. The notice informed potential class members that they must timely file a proof of claim in order to assert a claim against the Debtor. A blank proof of claim form was also enclosed with the notice. Plaintiffs' counsel was active in the process of negotiating the notice language contained in the Order Authorizing Notice. Specifically, Plaintiffs' counsel objected to the original notice procedures and Plaintiffs' counsel's comments on such, as set forth on the record at the hearing, were incorporated into the notice that was approved by the Court and sent to all potential class members. The notice included, among other things, disclosure of the Claims Bar Date; the pendency of the California class action; the members of the proposed class; Plaintiffs' counsel's name, telephone number, and address; and the Debtor's toll-free telephone helpline number. Plaintiffs never appealed the order approving the original notice procedures.
Pursuant to the Order Authorizing Notice, the Debtor also caused a notice of the pendency of its bankruptcy case and notice of the Claims Bar Date to be published in The Wall Street Journal for five consecutive business days during June of 1999 and in USA Today for five consecutive business days during July of 1999. Also pursuant to that order, the Debtor provided notice of the pendency of its bankruptcy case, notice of the Claims Bar Date, and a proof of claim form to 350,000 individual customer/borrowers by mail. All potential class members, therefore, received actual and constructive notice of the Claims Bar Date.
Based upon the facts presented here, this Court finds that the class proof of claim filed by the Plaintiffs was improper; that, having received actual and constructive notice of the proof of claim bar date, those claims of the potential class members who did not file proofs of claim are barred; and, that, pursuant to Federal Rule of Civil Procedure 23 ("Rule 23"), made applicable in this adversary by Bankruptcy Rule 7023, certification of the class in this adversary is not warranted.
Federal Rule of Bankruptcy Procedure 3001(b) ("Bankruptcy Rule 3001(b)" or "Rule 3001(b)") requires that a creditor or authorized agent of a creditor shall file a proof of claim. A putative class representative is not, nor can he be transformed by the court into, an authorized agent within the purview of Bankruptcy Rule 3001(b).2 This Court recognizes that it is in the minority with this view, as the trend seems to be to follow a procedure laid out by the Seventh Circuit, but the Court will address here why it finds it impossible to adopt the Seventh Circuit's model.
The Seventh Circuit has set forth a process, which several other courts have adopted, whereby a class proof of claim may be filed.3 The procedure begins with Bankruptcy ...
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