Rodriguez v. Countrywide Home Loans, Inc. (In re Rodriguez)

• Decision Date: 14 September 2012
• Docket Number: No. 11–40056.,11–40056.
• Parties: In the Matter of Ydalia RODRIGUEZ, Debtor. Ydalia Rodriguez; Maria Antonieta Herrera; David Herrera; Lucy Moreno; Alfonso Moreno, Plaintiffs–Appellees, v. Countrywide Home Loans, Incorporated, Defendant–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

695 F.3d 360

In the Matter of Ydalia RODRIGUEZ, Debtor.Ydalia Rodriguez; Maria Antonieta Herrera; David Herrera; Lucy Moreno; Alfonso Moreno, Plaintiffs–Appellees,

v.Countrywide Home Loans, Incorporated, Defendant–Appellant.

No. 11–40056.

United States Court of Appeals, Fifth Circuit.

Sept. 14, 2012.

Karen L. Kellett (argued), Armstrong, Kellett, Bartholow P.C., Dallas, TX, Shennan Kavanaugh, Gary Edward Klein, Klein, Kavanaugh, Costello, L.L.P., Boston, MA, Ellen c. Stone, Stone Law Firm, P.C., Brownsville, TX, for Plaintiffs–Appellees.

David L. Permut (argued), Thomas M. Hefferon, Goodwin Procter, L.L.P., Washington, DC, Thomas A. Connop, Locke Lord, L.L.P., Dallas, TX, Monique Marie LaFontaine, Locke, Lord, Bissell & Liddell, L.L.P., New Orleans, LA, for Defendant–Appellant.

Appeal from the United States District Court for the Southern District of Texas.

Before GARZA, DENNIS and HIGGINSON, Circuit Judges.

HIGGINSON, Circuit Judge:

Countrywide appeals a class certification order of the bankruptcy court. We AFFIRM. Named plaintiffs Ydalia Rodriguez, Maria Antonieta and David Herrera, and Lucy and Alfonso Moreno are former chapter 13 debtors with mortgages serviced by Countrywide Home Loans, Inc. (“Countrywide”). The Plaintiffs each cured their pre-petition mortgage arrearages, completed their chapter 13 plans, and received a discharge from their bankruptcy cases. They allege that after they emerged from bankruptcy, Countrywide threatened to foreclose on their homes if they did not pay fees that were charged while their bankruptcy cases were still pending. Plaintiffs claim that these fees were unreasonable, unapproved, and undisclosed under Federal Rule of Bankruptcy Procedure 2016(a).¹ Additionally, they claim that Countrywide misapplied mortgage payments to satisfy some of the unauthorized fees, instead of properly applying the payments as they were intended—to satisfy the amount due each month on their mortgages. Plaintiffs sought (1) a declaratory judgment that Countrywide's conduct violated the Bankruptcy Code, (2) an injunction preventing Countrywide from trying to collect undisclosed fees, (3) compensatory damages (including disgorgement and restitution), (4) punitive damages, and (5) sanctions from the bankruptcy court.

The bankruptcy court found that Countrywide “admits that it misapplied plan payments and charged fees without first receiving Court approval” but Countrywide contended that (1) the misapplications and charges were sporadic rather than part of a regular practice and (2) the fees did not violate Rule 2016(a). In response, the bankruptcy court held that, “ ‘[u]nder the plain language of Rule 2016, a mortgage lender must file a Rule 2016 application before collecting any reimbursable fees and costs while a chapter 13 case remains pending.’ ” Rodriguez v. Countrywide Home Loans, Inc. ( In re Rodriguez ), 421 B.R. 356, 372 (Bankr.S.D.Tex.2009). The bankruptcy court concluded that Rule 2016(a) applied to fees that were “assessed during bankruptcy but not collected until post-bankruptcy,” rejecting Countrywide's arguments.

Plaintiffs moved for class certification of both a Rule 23(b)(2) class and also a Rule 23(b)(3) class on December 2, 2009. SeeFed.R.Civ.P. 23. After a three-day hearing, the bankruptcy court denied Rule 23(b)(2) as well as Rule 23(b)(3) class certification for Plaintiffs' damages claims because they did not satisfy Rule 23(b) but granted narrow class certification for Plaintiffs' injunctive relief claim. In doing so, the bankruptcy court determined that the proposed injunction would state that, “Countrywide shall not collect or attempt to collect any fees that (1) were incurred during the pendency of a class member's bankruptcy case, (2) are governed by Rule 2016(a), and (3) have not yet been authorized pursuant to Rule 2016(a).” It also exercised its “great discretion in certifying and managing an action,” Vizena v. Union Pac. R.R. Co., 360 F.3d 496, 502 (5th Cir.2004) (citation and internal quotation marks omitted), and redefined the class, narrowing it to only include individuals:

(a) who owed funds on a Countrywide serviced note as of February 26, 2008;

(b) who have not fully paid the relevant mortgage note, fees, or costs owed to Countrywide, its successors and assigns;

(c) who filed a chapter 13 proceeding in the United States Bankruptcy Court for the Southern District of Texas on or before October 15, 2005 and have confirmed chapter 13 plans that treated mortgages serviced by Countrywide; and

(d) as to whom Countrywide has assessed a fee or cost governed by Rule 2016(a), attributable to a time after the filing of a bankruptcy petition and before the date on which the individual received a chapter 13 discharge, unless such fee or cost was approved in a Bankruptcy Court order.

The narrowed class definition excluded those who would not be able to benefit from redeeming time because they either had already paid their mortgages in full or no longer had a mortgage serviced by Countrywide. See In re Monumental Life Ins. Co., 365 F.3d 408, 416 (5th Cir.2004) (citing Bolin v. Sears, Roebuck & Co., 231 F.3d 970, 978 (5th Cir.2000)) (requiring that “most of the class” seeking injunctive relief be able to benefit from the injunction).

On appeal, Countrywide challenges the bankruptcy court's class certification order, arguing that (1) the grant of class certification is precluded by Rule 23(b) and our holding in Wilborn v. Wells Fargo Bank, N.A. ( In re Wilborn ) (“ Wilborn II ”),²609 F.3d 748 (5th Cir.2010); (2) the bankruptcy court did not define an ascertainable class; and (3) the bankruptcy court abused its discretion in failing to reconsider class certification after a consent judgment in the United States District Court for the Central District of California (“the consent judgment”) rendered injunctive relief in the instant case moot.

I. Class Certification

We review a denial of class certification for abuse of discretion and legal questions implicated by the denial de novo. Alaska Elec. Pension Fund v. Flowserve Corp., 572 F.3d 221, 227 (5th Cir.2009); Vizena, 360 F.3d at 502. “ ‘Implicit in this deferential standard is a recognition of the essentially factual basis of the certification inquiry and of the [trial] court's inherent power to manage and control pending litigation.’ ” Monumental Life, 365 F.3d at 414 (quoting Allison v. Citgo Petroleum Corp., 151 F.3d 402, 408 (5th Cir.1998)).

Parties seeking to certify a class must satisfy Fed.R.Civ.P. 23(a)'s four threshold requirements³ and the requirementsof Fed.R.Civ.P. 23(b)(1), (2), or (3). Maldonado v. Ochsner Clinic Found., 493 F.3d 521, 523 (5th Cir.2007). “The party seeking class certification bears the burden of demonstrating that the requirements of [R]ule 23 have been met.” O'Sullivan v. Countrywide Home Loans, Inc., 319 F.3d 732, 737–38 (5th Cir.2003) (citing Allison, 151 F.3d at 408).

Countrywide contests the bankruptcy court's holding that Plaintiffs met the requirements of Rule 23(b)(2).⁴ “[ Rule 23(b)(2)'s] focus on injunctive and declaratory relief presumes a class best described as a ‘homogenous and cohesive group with few conflicting interests among its members.’ Class certification centers on the defendants' alleged unlawful conduct, not on individual injury.” Monumental Life, 365 F.3d at 415 (quoting Allison, 151 F.3d at 413).Rule 23(b)(2)⁵ requires that (1) the defendant's actions or refusal to act are generally applicable to the class as a whole and (2) injunctive relief predominates over damages sought. Bolin, 231 F.3d at 975.

A. General Applicability to the Class

“Instead of requiring common issues, 23(b)(2) requires common behavior by the defendant towards the class.” Casa Orlando Apartments, Ltd. v. Fed. Nat'l Mortg. Ass'n, 624 F.3d 185, 198 (5th Cir.2010). “The court may certify a class under Rule 23(b)(2) if ‘the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole.’ ” Bolin, 231 F.3d at 975 (citing Fed. R. Civ. Proc. Rule 23(b)(2)).

The bankruptcy court did not abuse its discretion when it concluded that Countrywide's fee charging actions in alleged derogation of Rule 2016(a) were generally applicable to the narrowly certified “unapproved fees” class of approximately 125 individuals. Countrywide charged every class member purportedly unauthorized fees in contravention of Rule 2016(a). It is this alleged common behavior towards all members of the class—“systematically ignor [ing] Rule 2016(a) by charging unauthorized fees”—that led to the class members allegedly being harmed in the same way. See Bolin, 231 F.3d at 975 n. 22. As the bankruptcy court explained, “[t]he [class action] therefore eliminates piecemeal litigation concerning whether Countrywide must seek Court approval for fees that it imposes: once the class is certified and the injunction is granted or denied, that issue will be resolved as to all class members.”

Countrywide argues that our decision in Wilborn II, involving similar facts to the instant case, mandates that class certification be denied. Wilborn II, however, was exactingly adhered to by the bankruptcy court, which extensively applied Wilborn II 's reasoning to redefine and narrow the instant class and proposed injunction and to deny class certification as to any damages. The Wilborn II plaintiffs alleged that, “for each named plaintiff and each unnamed class member Wells Fargo impermissibly charged post-petition fees and costs without obtaining approval from the bankruptcy court, as purportedly required by Title 11 and [Federal Rule of Bankruptcy Procedure 2016].” 609 F.3d at 752. The bankruptcy court granted class certification for the plaintiffs' claims for declaratory judgment, disgorgement, injunctive relief, and sanctions. Id. at 751. On appeal, after rejecting class certification...