McLean v. First Horizon Home Loan Corp.

• Decision Date: 10 March 2009
• Docket Number: No. WD 69529.,No. WD 69505.,WD 69505.,WD 69529.
• Citation: 277 S.W.3d 872
• Parties: David C. McLEAN, et al., Appellant-Respondent, v. FIRST HORIZON HOME LOAN CORPORATION, Respondent-Appellant.
• Court: Missouri Court of Appeals

277 S.W.3d 872

David C. McLEAN, et al., Appellant-Respondent, v. FIRST HORIZON HOME LOAN CORPORATION, Respondent-Appellant.

No. WD 69505.

No. WD 69529.

Missouri Court of Appeals, Western District.

March 10, 2009.

Roy F. Walters, Kansas City, MO, for Appellant-Respondent.

Mark Alan Olthoff, Kansas City, MO, for Respondent-Appellant.

Before: VICTOR C. HOWARD, Presiding Judge, JOSEPH M. ELLIS, Judge and ALOK AHUJA, Judge.

JOSEPH M. ELLIS, Judge.

This appeal arises from the resolution of disputed claims relating to the settlement of a class action suit against First Horizon Loan Corporation, formerly known as McGuire Mortgage Company ("First Horizon"). David C. and Holly E. McLean initiated the underlying litigation by filing a petition in the Circuit Court of Jackson County in November 2000, alleging violations of Missouri's Second Mortgage Loans Act, §§ 408.231, RSMo 2000, et seq.¹ The circuit court certified the matter as a class action in December 2002. After years of contentious litigation, in February 2007, the parties agreed to a comprehensive class action settlement, the terms of which were set forth in a 33-page Settlement Agreement.

The circuit court preliminarily approved the settlement on March 15, 2007. The Settlement Administrator, chosen by First Horizon and approved by the court, sent notice to thousands of class members who had obtained loans from First Horizon between November 1994 and April 2005, informing them that they had until May 31, 2007, to submit claims. The parties then moved the court to grant final approval of the class action settlement and the terms of the Settlement Agreement. The court entered its Final Order and Judgment approving the settlement on June 7, 2007, incorporating by reference all terms of the Settlement Agreement. There were no objections to the judgment, and no authorized motions were filed within thirty days of its entry.

The Settlement Agreement provided, inter alia, that the Settlement Administrator was to analyze each claim within seven days of receipt to determine whether the claim was valid and notify class counsel within seven days of his determination that a claim form was deficient and invalid. The Settlement Administrator was also required to determine which claims involved "bankruptcy loans," meaning loans that were made to class members who subsequently filed for Chapter 7 or Chapter 13 bankruptcy, which were subject to certain restrictions on the settlement benefit amount. First Horizon was permitted to challenge submitted claims by notifying class counsel within 90 days after the court finally approved the settlement, or by September 5, 2007.

The Settlement Agreement specified that the "challenge process" was set forth in ¶¶ 3.09 to 3.16. First Horizon could challenge a claim based on the calculated benefit amount (¶ 3.09) and/or the validity of the claim, including, but not limited to, alleged deficiencies in the claim form and eligibility for benefits on a bankruptcy loan (¶ 3.10). Paragraph 3.11 provided that all challenges to the claims were to be made "in good faith" and include a "reasoned explanation." In the event the parties were unable to informally resolve the challenges, ¶ 3.13 provided that "[a]ll challenges that are contested shall be submitted to [a] Special Master ... for resolution."² Paragraph 3.16 then provided that "[o]nce a challenge is resolved, the validity and amount of the Claim shall be adjusted or approved accordingly, without right of further challenge or appeal."

Under ¶ 3.18, "[n]otwithstanding any other provision in this Agreement," if a party determined that "disputes, challenges, or other matters" concerning claims as to bankruptcy loans should be resolved by the bankruptcy court, that party was required to notify the other parties accordingly. The affected class members were then required to cooperate in seeking action by the bankruptcy court, and the claim would be treated as a disputed claim with respect to the timing of payment.

Paragraph 7.14 of the Settlement Agreement provided that "[a]lthough the Court shall enter a judgment, the Court shall retain jurisdiction over the interpretation, effectuation, enforcement, administration, and implementation of this Agreement." Similarly, the June 7, 2007 judgment stated that the court "retains exclusive jurisdiction of all matters relating to the interpretation, administration, implementation, effectuation and enforcement of the Settlement and of the Settlement Agreement."

On September 5, 2007, First Horizon submitted a form to class counsel challenging more than 1,700 of approximately 2,600 claims submitted by class members. The challenges were based on two grounds: (1) the claim forms were incomplete for various reasons and, therefore, were invalid; or (2) class members had bankruptcy loans and the bankruptcy trustee had not filed a separate claim form and, therefore, the class members were not entitled to the full settlement benefit. The parties were unable to informally resolve most of the challenges, so the contested challenges were submitted to the Special Masters for resolution. However, First Horizon asserted that, under ¶ 3.18 of the Settlement Agreement, it had the right to have the bankruptcy court decide all issues regarding challenges to claims concerning bankruptcy loans.

The Special Masters held hearings for 16 days, concluding on November 30, 2007, and they subsequently issued several orders denying the vast majority of First Horizon's challenges. As to the invalid claim forms, the Special Masters designated an additional time period to allow class members to submit amended forms because they found that the Settlement Administrator had failed to timely notify class counsel of the alleged deficiencies as provided by the Settlement Agreement and, therefore, precluded class members from curing any deficiencies as allowed by the Settlement Agreement. As to the bankruptcy loans, the Special Masters found that the Settlement Agreement required payment of the full settlement benefit amount, either individually to the class member or jointly to the bankruptcy trustee, even if the trustee did not submit a separate claim. The Special Masters further found that the Settlement Agreement provided that they were to be the final arbiters concerning the validity and amount of contested claims and that only issues relating to the distribution of any settlement benefit awarded to claimants with bankruptcy loans could be reserved for the bankruptcy court.

On December 4, 2007, First Horizon filed a Motion for Court Interpretation of Settlement Agreement and Enforcement of Judgment ("Motion to Interpret and Enforce") in the circuit court. First Horizon asserted that the court had jurisdiction under ¶ 7.14 of the Settlement Agreement, which provides that "[a]lthough the Court shall enter a judgment, the Court shall retain jurisdiction over the interpretation, effectuation, enforcement, administration, and implementation of this Agreement." First Horizon requested the court to determine:

(a) whether Class Members who did not submit a Valid Claim Form by the Claim submission deadline (of May 31, 2007) should be permitted to file amended Claim Forms now (over six months after that deadline), even though the Settlement Agreement does not provide for such a process;

(b) whether, despite the clear language of ¶ 3.04 of the Settlement Agreement—which stipulates that, in the case of Bankruptcy Loans, $250 is to be paid to the borrower and the remainder to the trustee if the trustee filed a Claim—the entire Settlement Benefit for a Bankruptcy Loan must be paid if either the borrower-debtor or the bankruptcy trustee filed a Claim; and

(c) whether, under the unambiguous language of ¶ 3.18, First Horizon's intention to have the disputes, challenges and other matters concerning Bankruptcy Loans resolved by the Bankruptcy Court must be observed.

First Horizon argued that the Special Masters' resolution of the numerous challenges to claims "create[d] additional obligations under the Settlement Agreement and Judgment and [was] in complete contravention of what the Agreement and Judgment say."

The McLeans, as individuals and as representatives of the class, opposed the Motion to Interpret and Enforce, asserting that the court lacked jurisdiction because First Horizon was seeking a second ruling regarding the resolution of disputed claims. They argued that the Special Masters' rulings are final and binding under ¶ 3.16 of the Settlement Agreement, which provides that the rulings on challenges to claims are not subject to "further challenge or appeal." They further argued that, under Rule 75.01, the court lost jurisdiction thirty days after it entered its Final Order and Judgment approving the class action settlement and incorporating the Settlement Agreement on June 7, 2007, because no post-judgment motions were filed. In the event the court found that it had jurisdiction, the McLeans asserted that the Special Masters' rulings were proper and consistent with the terms of the Settlement Agreement.

On March 30, 2008, the circuit court entered its "Order" granting the Motion to Interpret and Enforce and issuing its "interpretation" that the Special Masters' rulings (1) allowing class members to submit amended claim forms, and (2) requiring First Horizon to pay the entire settlement benefit for timely filed claims involving bankruptcy loans were "proper and consistent with the Settlement Agreement." The court entered its "Judgment" to the same effect on June 30, 2008. First Horizon filed a notice of appeal on March 31, 2008, and the McLeans cross-appealed. The McLeans are treated as the appellants in this Court because they were the plaintiffs below. Rule 84.04(j).

In their sole point of error, the McLeans assert that the circuit court lacked jurisdiction to grant First Horizon's Motion to Interpret and Enforce. They argue that the court had no jurisdiction to review the...