Luttenegger v. Conseco Financial Corp.

• Decision Date: 13 November 2003
• Docket Number: No. 02-0206.,02-0206.
• Citation: 671 N.W.2d 425
• Parties: Thomas E. LUTTENEGGER, Susan M. Luttenegger, and Jerome J. Carpenter, on Behalf of Themselves and All Persons Similarly Situated, Appellees, v. CONSECO FINANCIAL SERVICING CORPORATION, f/k/a Green Tree Financial Servicing Corporation, and Green Tree Mortgage Services, Appellants.
• Court: Iowa Supreme Court

671 N.W.2d 425

Thomas E. LUTTENEGGER, Susan M. Luttenegger, and Jerome J. Carpenter, on Behalf of Themselves and All Persons Similarly Situated, Appellees, v. CONSECO FINANCIAL SERVICING CORPORATION, f/k/a Green Tree Financial Servicing Corporation, and Green Tree Mortgage Services, Appellants.

No. 02-0206.

Supreme Court of Iowa.

November 13, 2003.

Richard K. Updegraff, John D. Hunter, and Miranda L. Hughes of Brown, Winick, Graves, Gross, Baskerville and Schoenebaum, P.L.C., Des Moines, for appellants.

Mitchell Taylor of Cray, Goddard, Miller & Taylor, L.L.P., Burlington, Wood R. Foster, Jr., Jordan M. Lewis, and Ryan M. Pacyga of Siegel, Brill, Greupner, Duffy & Foster, P.A., Minneapolis, Minnesota and Richard J. Bell of Bell Law Office, Mt. Pleasant, for appellees.

LAVORATO, Chief Justice.

The defendants appeal from a district court ruling certifying the plaintiffs' suit as a class action. After initially denying the defendants' applications for interlocutory appeal concerning the district court's denial of the defendants' two motions for partial summary judgment, we granted the applications while the appeal was pending. The defendants contend the district court erred in not granting their motions for partial summary judgment. They also contend the district court abused its discretion in certifying the suit as a class action. We reverse the rulings on the two partial summary judgment motions, we reverse in part and affirm in part the class certification ruling, and we remand the case for further proceedings consistent with this opinion.

I. Background Facts and Proceedings.

On July 10, 2000, Thomas E. Luttenegger and Susan M. Luttenegger filed a class action suit against Conseco Financial Servicing Corporation (f/k/a Green Tree Financial Servicing Corporation) and Green Tree Mortgage Services (hereinafter referred to collectively as "Conseco"). The suit sought monetary and injunctive relief based on Conseco's alleged violations of Iowa Code section 535.8 (1999). Following an order granting the plaintiffs' motion to amend, the plaintiffs filed an amended class action petition, adding several plaintiffs and alleging violations of Iowa Code sections 535.8 and 537.2501. In addition to the statutory damages claims, the plaintiffs alleged breach of contract and unjust enrichment claims.

On April 9, 2001, the district court entered a consent order, severing the plaintiffs' case into two separate cases: one involving plaintiffs whose claims were required to go to arbitration and one involving the case now before this court. The remaining plaintiffs—the Lutteneggers, Jerome J. Carpenter, Marvin G. Hulett and Sheila M. Hulett—were granted leave to file a second amended class action petition.

The second amended class action petition asserted the class consisted of two subclasses: a consumer loan subclass and a home acquisition loan subclass. The petition alleged that on November 25, 1997, the Lutteneggers as representatives of the consumer loan subclass entered into a consumer loan transaction with Conseco, secured by residential real estate owned by the Lutteneggers. The petition further alleged that Conseco charged the Lutteneggers the following settlement amounts not permitted by Iowa Code section 537.2501:

1. a loan origination fee of $766,

2. a loan processing fee of $200, and

3. a courier fee of $6.

In addition, the second amended class action petition alleged that Carpenter and the Huletts separately entered into home acquisition loans with Conseco in which they were required to pay charges not permitted by Iowa Code section 535.8. The alleged unlawful charges Carpenter was required to pay included:

1. a loan discount fee of $3,417 2. a processing fee of $200, which when combined with the one percent loan origination fee of $1,139, exceeded the maximum origination/processing fee allowed under Iowa Code section 535.8(2),

3. a closing fee of $300, and

4. a fee for title insurance to "Glen Allen" for $560.

The alleged unlawful charges the Huletts were required to pay included:

1. a processing fee of $200, which when combined with the two percent loan origination fee of $1236 exceeded the maximum origination/processing fee allowed under the terms of Iowa Code section 535.8(2),

2. a four percent loan discount fee in the amount of $2,472,

3. a closing fee in the amount of $100,

4. a fee for an abstract or title search in the amount of $250, and

5. a fee for title insurance in the amount of $195.

The second amended petition alleged that Conseco, in closing consumer loans with the Lutteneggers and consumer loan subclass members, collected loan charges limited or prohibited by Iowa Code section 537.2501. And that by the terms of Iowa Code section 537.5201, the Lutteneggers and consumer loan subclass members were entitled to recover the unlawful charges collected.

In addition, the second amended petition alleged that Conseco, in closing Iowa residential real estate loans with Carpenter, the Huletts, and home acquisition loan subclass members, collected loan charges limited or prohibited by Iowa Code section 535.8(2), (3). And that pursuant to this statute, the two plaintiffs and subclass members were entitled to recover the unlawful charges.

The second amended petition also alleged a breach of contract theory as to both subclasses based on the alleged unlawful charges.

On June 1 Conseco filed a motion for partial summary judgment, asserting that the disputed charges as to the Lutteneggers' consumer loan were allowable under Iowa Code chapter 537. Specifically, Conseco contended even though the loan origination fee, processing fee, and courier fee were not specifically listed in section 537.2501, the fees were permitted under section 537.2401 as part of the finance charge, as that term is defined in section 537.1301(19). The plaintiffs resisted the motion. The district court denied Conseco's partial summary judgment motion. Following the district court's denial of Conseco's Iowa Rule of Civil Procedure 1.904(2) (formerly rule 179(b)) motion, this court denied Conseco's application for interlocutory appeal.

On September 14 the plaintiffs filed a motion for class certification, seeking certification of the two subclasses. The plaintiffs alleged the proposed subclasses met the requirements of numerosity, commonality, and fair and efficient adjudication. See Iowa R. Civ. P. 1.262(2)(a), (b). The plaintiffs also asserted the representative parties would protect the interests of the class. See Iowa R. Civ. P. 1.262(2)(c). Conseco resisted the motion.

On December 3 Conseco filed a motion for partial summary judgment as to Carpenter and the Huletts. In the motion, Conseco asserted that (1) the Huletts' loan was not governed by Iowa Code section 535.8, (2) Carpenter was not charged excessive loan origination or processing fees, and (3) Carpenter was not charged an improper closing fee. Conseco's motion did not challenge Carpenter's claim that the loan discount fee and title insurance fee were unlawful. The plaintiffs conceded the dismissal of the Huletts' claim in its entirety and conceded the motion as to Carpenter's claim that Conseco charged an impermissible origination and processing fee, but resisted the motion as to the closing fee.

The district court heard arguments on the motion for partial summary judgment and the motion for class certification at the same time. On January 18, 2002, the court filed separate rulings on both motions. The court denied Conseco's motion for partial summary judgment concerning the closing fee that Conseco charged Carpenter. The court ruled that the HUD-1 form required at closing and containing the closing fee was not a written agreement between the parties. For that reason the court concluded the HUD-1 form could not serve as evidence that the parties had agreed to the payment of a closing fee, as required by Iowa Code section 535.8(2)(a) (lender may collect a closing fee that is agreed to in writing by the lender and the borrower). The court also ruled that because Conseco's motion did not address Carpenter's claims involving the loan discount fee of $3,417 and title insurance fee of $560, its ruling neither addressed nor affected those two claims.

The district court granted the plaintiffs' motion for class certification. The court concluded: (1) the numerosity requirement was met, (2) the common question of whether Conseco violated section 535.8 or 537.2501 in making charges to Iowa borrowers predominated over individual questions, (3) certification promoted fair and efficient adjudication of the controversy, and (4) the plaintiffs have or can acquire the financial resources necessary to assure the interests of the class will not be harmed, and the plaintiffs' attorneys would adequately represent the class.

In its ruling, the court defined the "consumer loan subclass" as:

All persons who entered into a "consumer loan" with defendants as the term is defined by Iowa Code section 537.1301(14) where:

a. The real property by which the loan was secured was in Iowa;

b. The majority of the funds borrowed was not used to acquire a home to be occupied by the borrower;

c. The defendants collected loan charges not enumerated in Iowa Code section 537.2501;

d. The loan's last installment has not yet been paid, or was paid after November 1, 1999; and

e. The promissory note related to the loan does not include an arbitration clause.

The court defined the "home acquisition loan subclass" as:

All persons who entered into a "home acquisition loan" transaction (as the term is defined by Iowa Code section 535.8(1)) in which:

a. The real property by which the loan is secured was in Iowa;

b. The defendants collected closing fees not enumerated in Iowa Code section 535.8(2)(a) and (b);

c. The charges (or interest on the charges) were collected by Conseco after July 1, 1990; and

d. The promissory note related to the loan does not include an arbitration clause.

The court approved the...