In re Wilborn, Bankruptcy No. 03-48263-H4-13.

• Decision Date: 24 March 2009
• Docket Number: Adversary No. 07-03481.,Bankruptcy No. 03-48263-H4-13.
• Citation: 404 B.R. 841
• Parties: In re Judy WILBORN, Debtor. Judy C. Wilborn, Karlton E. Flournoy, Monica E. Flournoy, and Judith A. Martin on behalf of themselves and those similarly situated, Plaintiffs, v. Wells Fargo Bank, N.A., f/k/a Wells Fargo Home Mortgage, Inc., Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Texas

404 B.R. 841

In re Judy WILBORN, Debtor.

Judy C. Wilborn, Karlton E. Flournoy, Monica E. Flournoy, and Judith A. Martin on behalf of themselves and those similarly situated, Plaintiffs, v. Wells Fargo Bank, N.A., f/k/a Wells Fargo Home Mortgage, Inc., Defendant.

Bankruptcy No. 03-48263-H4-13.

Adversary No. 07-03481.

United States Bankruptcy Court, S.D. Texas, Houston Division.

March 24, 2009.

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Johnie J. Patterson, Michael Glen Walker, Miriam Trubek Goott, Walker & Patterson, P.C., Houston, TX, for Plaintiffs.

Elizabeth Carol Freeman, W. Steven Bryant, Locke Lord Bissell & Liddell LLP, Houston, TX, Thomas A. Connop, Locke Lord Bissell & Liddell LLP, Dallas, TX, for Defendant.

MEMORANDUM OPINION ON PLAINTIFF'S MOTION FOR CLASS CERTIFICATION

JEFF BOHM, Bankruptcy Judge.

I. INTRODUCTION

The Plaintiffs' Complaint alleges that defendant, Wells Fargo, N.A., f/k/a Wells Fargo Home Mortgage, Inc. (Wells Fargo), accumulated or charged, and on occasion collected, attorneys' fees, costs, and other charges from Chapter 13 debtors without the appropriate disclosures or court approval as mandated by the United States Bankruptcy Code and Federal Bankruptcy Rules.¹ Specifically, the Plaintiffs allege that Wells Fargo purposefully avoided the requirements of 11 U.S.C. § 506(b) and Federal Rule of Bankruptcy Procedure 2016 (Bankruptcy Rule 2016) and charged unreasonable fees and costs to the Plaintiffs during the pendency of their respective bankruptcy cases without disclosure to the Court. [Adv. Docket No. 1, ¶ 82.] Through the Complaint, the Plaintiffs seek "to remedy Defendant's pattern and practice of ignoring post-petition requirements of the Bankruptcy Code and Rules as they govern professional fees and costs/expenses." [Adv. Docket No. 1, ¶ 1.]

The named Plaintiffs, Judy Wilborn, Karlton and Monica Flournoy, and Judith Martin, have requested the Court to certify a class in this adversary proceeding. There is no doubt that a bankruptcy court may adjudicate a class action lawsuit pursuant to Bankruptcy Rule 7023. Fed. R. Bankr.P. 7023; see In re Talbert, 347 B.R. 804 (Bankr.E.D.La.2005). The issue addressed in this Memorandum Opinion is whether this particular class of Plaintiffs may be certified as a class.

The decision whether to certify a class is within this Court's discretion. Castano v. Am. Tobacco Co., 84 F.3d 734, 740 (5th Cir.1996). In determining whether a class should be certified, the merits of the case are not to be examined and the substantive allegations of the complaint are to be taken as true. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). Federal Rule of Civil Procedure 23 (Rule 23), incorporated by Bankruptcy Rule 7023, governs in adversary proceedings filed in bankruptcy court. Class certification requires an inquiry into whether the requirements of Rule 23 are met rather than whether the plaintiffs have stated a cause of action or will prevail on the merits. Id. at 178, 94 S.Ct. 2140. The party seeking class certification has the burden of proving that each requirement of Rule 23 is satisfied. Stirman v. Exxon Corp., 280 F.3d 554, 562 (5th Cir.2002); Zeidman v. J. Ray McDermott Co., 651 F.2d 1030, 1038 (5th Cir. 1981) ("A plaintiff who seeks to certify his suit as a class action under Rule 23 must establish a number of specific prerequisites, and in each case the burden of proof is on the plaintiff who seeks to thus certify his suit.").

This Memorandum Opinion will address whether the Motion for Class Certification should be granted based on the facts set forth in the Complaint, the exhibits introduced at the hearings, and the arguments and stipulations made by counsel in open court. Set forth below are the Court's written findings of fact and conclusions of law. The Court reserves its right to make additional findings of fact and conclusions of law as it deems appropriate or as may be requested by any of the parties. As set forth below, the Plaintiffs have met the requirements of Rule 23; therefore, class certification is appropriate in this suit.

II. FINDINGS OF FACT

1. On November 16, 2007, Judy Wilborn (Wilborn), Karlton and Monica Flournoy (the Flournoys), and Judith Martin (Martin), on behalf of themselves and others similarly situated (collectively, the Plaintiffs), filed their complaint against Wells Fargo.

2. The four named Plaintiffs are debtors in the following Southern District of Texas Chapter 13 bankruptcy cases: In re Wilborn, Case No. 03-48263-H4-13; In re Flournoy, Case No. 03-38670-H3-13; and In re Martin, Case No. 05-81390-H3-13. All of these cases were filed in the United States Bankruptcy Court for the Southern District of Texas.

3. In the Plaintiffs' Complaint — Class Action (the Complaint), the Plaintiffs allege that Wells Fargo charged, or charged and collected, attorneys' fees and costs in the course of Plaintiffs' respective Chapter 13 bankruptcy cases without court approval and therefore disregarded the requirements of 11 U.S.C. § 506(b) and Bankruptcy Rule 2016. [Adv. Docket No. 1, 12.]

4. Plaintiffs seek to represent a similarly situated class defined as:

All individuals who filed for bankruptcy under chapter 13 in the Southern District Of Texas and owed Wells Fargo, as servicer or holder, on a mortgage debt secured by real property, and upon whom Wells Fargo charged or assessed professional fees and costs during the pendency of the bankruptcy proceeding which were never disclosed to the bankruptcy court, the debtor or other parties-in-interest nor approved by the court by written order entered in the particular bankruptcy case.

[Adv. Docket No. 1, ¶ 88.]

5. In the Complaint, Plaintiffs seek the following relief:

a. A declaration that undisclosed fees and costs are per se unreasonable, awarding Plaintiffs and class members incidental, equitable disgorgement of any unreasonable fees and costs actually collected;

b. Awarding Plaintiffs and class members a permanent injunction which enjoins [Wells Fargo] from charging and/or assessing individual mortgage accounts for professional fees and/or costs which are incurred or which accrue during the time a bankruptcy case is pending without first seeking approval from the Bankruptcy Court;

c. Awarding Plaintiffs and class members pre-judgment and post-judgment interest, as well as reasonable attorneys' fees, expert witness fees, disbursement and accounting fees, class costs and other costs of litigation;

d. Sanctions for [Wells Fargo's] intentional disregard of the Bankruptcy Code and Rules and for its pattern and practice of violating the Bankruptcy Code and Rules for self-gain; and

e. Such other relief, at law or in equity, to which the Plaintiffs and class members may show themselves justly entitled.

[Adv. Docket No. 1, pp. 15-16.]

6. On January 18, 2008, Wells Fargo filed its Answer to Plaintiffs' Class Action Complaint (the Answer). [Adv. Docket No. 7.]

7. On July 15, 2008, the Plaintiffs filed the Plaintiffs' Motion for Class Certification [Adv. Docket No. 51] as well as Plaintiffs' Brief in Support of Motion for Class Certification. [Adv. Docket No. 52.]

8. The Plaintiffs assert that they are similarly situated to the other putative class members who have been charged, and on occasion, paid, undisclosed fees and costs by Wells Fargo during their respective bankruptcy proceedings.

9. Indeed, through exhibits, Plaintiffs have introduced certain actions taken by Wells Fargo for which Wells Fargo has charged the Plaintiffs fees and costs without obtaining Court approval. For example, Plaintiffs' Exhibit Number 6 reflects that ten (10) inspections were performed by Wells Fargo and that Wilborn was charged for each inspection without approval from the Bankruptcy Court.² Additionally, Plaintiffs' Exhibit Numbers 11 and 17 reference inspections for which the Flournoys and Martin, respectively, were also charged without Wells Fargo obtaining approval from the Court.

10. On September 10, 2008, Wells Fargo filed its Response to Plaintiffs' Emergency Motion to Compel Production. [Adv. Docket No. 65.] This Response stated that on August 1, 2008, Wells Fargo provided the following information to Plaintiffs as required by this Court's July 23, 2008 Order Allowing Withdrawal of Motion for Order of Civil Contempt Against Wells Fargo Bank, N.A. (the July 23, 2008 Order) [Adv. Docket No. 54]:

a. The total number of Chapter 13 loans it has serviced in the Southern District of Texas bankruptcy courts for Chapter 13 proceedings filed between January 1, 2005 through March 31, 2008;³

b. Certain agreed upon reports for fifty (50) randomly selected, active loans, serviced from within the above indicated time period, with activity reported for the last two (2) years; and

c. Certain agreed upon reports for an additional eighteen (18) active loans for borrowers who were previously (or are currently) in a Chapter 13 case in the Southern District of Texas.

11. On September 5, 2008, Wells Fargo filed Wells Fargo Home Mortgage's Response in Opposition to Plaintiffs' Motion for Class Certification (the Response). [Adv. Docket No. 63.]

12. On October 6, 2008, the Plaintiffs filed their Reply in Support of Motion for Class Certification. [Adv. Docket No. 71.]

13. On November 19, 2008, the Court held a hearing, and counsel for the Plaintiffs represented to the Court the following information about the number of potential class members:

a. Of the sixty-eight (68) debtors about whom Wells Fargo provided information pursuant to the Court's July 23, 2008 Order, two (2) of the sixty-eight (68) had no recoverable bankruptcy fees and eighteen (18) of the remaining sixty-six (66) had fees which were approved by the Court, leaving forty-eight (48) debtors with recoverable bankruptcy fees which were not approved at all, or which were...