Schneider v. Citicorp Mortg., Inc.

• Decision Date: 13 July 2004
• Docket Number: No. 97CV837(NG)(CLP).,97CV837(NG)(CLP).
• Citation: 324 F.Supp.2d 372
• Parties: Allen and Sharon SCHNEIDER, on behalf of themselves and all others similarly situated, Plaintiffs, v. CITICORP MORTGAGE, INC. and Citicorp, Defendants.
• Court: U.S. District Court — Eastern District of New York

324 F.Supp.2d 372

Allen and Sharon SCHNEIDER, on behalf of themselves and all others similarly situated, Plaintiffs, v. CITICORP MORTGAGE, INC. and Citicorp, Defendants.

No. 97CV837(NG)(CLP).

United States District Court, E.D. New York.

July 13, 2004.

Daniel Hume, Roger W. Kirby, Kirby, McInerney & Squire, LLP, New York, NY, for Plaintiff.

Jonathan R. Donnellan, Thomas J. Kavaler, Cahill, Gordon & Reindel LLP, New York, NY, for Defendant.

MEMORANDUM AND ORDER

GERSHON, District Judge.

In February 1997, this proposed class action was filed against defendants Citicorp Mortgage, Inc. and Citicorp claiming violations of Section 8 of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq. ("RESPA"). Defendants moved to dismiss the complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), and the court denied the motion on November 26, 1997. Schneider v. Citicorp et al., 982 F.Supp. 897 (E.D.N.Y.1997). Plaintiffs then moved for class certification. While that motion was sub judice, the Second Circuit issued an order granting leave to appeal the denial of class certification in a similar case, captioned Potchin v. Prudential Home Mortgage Co. Inc., 1999 WL 1814612 (E.D.N.Y.1999). As counsel to the parties in Potchin were the same, and the controlling legal issues were identical to the case at bar, this court entered an order holding this case in abeyance pending the Court of Appeals' decision. When the parties agreed to a settlement of Potchin before the Court of Appeals rendered a decision, this court lifted the stay on the class certification motion. The parties then entered into negotiations which produced the settlement that is the subject of this order.

On July 23, 2003, the parties entered into a stipulation of settlement and moved pursuant to Federal Rule of Civil Procedure 23 for preliminary approval. On October 8, 2003 the court held a conference on the proposed settlement and engaged in a searching inquiry as to the fairness and reasonableness of the settlement. On November 14, 2003, the court issued an order preliminarily approving the settlement and approving the Form of Notice to the class. Defendants then issued the approved Notice Order which sets forth both the terms of the settlement and how a class member could opt out of, or object to, the settlement. By the March 16, 2004 cut-off date, eight class members had objected to, and twenty-three had opted out of, the settlement. Also on that day, the Federal Trade Commission ("FTC") was granted permission to submit a memorandum as amicus curiae evaluating the proposed settlement. On March 31, 2004, a hearing was held to determine whether the settlement should be approved.

The principal complaint articulated by the objectors is that the fee award is high, and the benefit to the class is slight. The FTC's position is that the settlement class should not be certified, and, alternatively, the settlement value to the class is too small to justify the settlement itself or the award of fees.

In deciding whether or not to approve the settlement, the court must first determine whether the proposed settlement class is proper. Amchem Products Inc. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). The use of a settlement class allows the parties to concede, for purposes of settlement negotiations, the propriety of a class action. The Supreme Court has expressly approved the use of this device. See Amchem, 521 U.S. at 619, 117 S.Ct. 2231. When considering the propriety of a settlement class, the fact of settlement is "relevant to class certification" and compels "heightened" attention to the requirements "designed to protect absentees by blocking unwarranted or overbroad class definitions." Id. Rule 23(a) specifies the following requirements for bringing a class action: (1) the class must be so numerous that joinder of all members is impractical, (2) there must be questions of law or fact common to the class, (3) the claims or defenses of the representative parties must be typical of the claims or defenses of the class, and (4) the representative parties must fairly and adequately protect the interests of the class. Fed.R.Civ.P. 23(a). For purposes of settlement, the court is satisfied that the class meets the four threshold requirements of Rule 23(a) and also the requirement of Rule 23(b)(3) that a class action be superior to other available methods for the fair and efficient adjudication of the controversy.

The problematic issue in this case is the other requirement of Rule 23(b)(3), that common questions "predominate over any questions affecting only individual members." The Rule 23(b)(3) predominance inquiry tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation. Amchem, 521 U.S. at 623, 117 S.Ct. 2231. It is a more demanding criterion than the commonality inquiry under Rule 23(a). Id. at 623-24, 117 S.Ct. 2231. Class-wide issues predominate if resolution of some of the legal or factual questions that qualify each class member's case as a genuine controversy can be achieved through generalized proof and if these issues are more substantial than the issues subject only to individualized proof. In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124, 136 (2d. Cir.2001).

The Class in this case is defined as follows: "all persons, for whom the computer system maintaining [defendants'] loan records indicates that (i) such person obtained a brokered mortgage loan from [defendants] during the period from February 20, 1996 through December 21, 2002 and (ii) [defendants] paid a fee to the mortgage broker who originated such loan." Settlement § A(iii). The court concludes that a settlement only class, so defined, is proper under Amchem. As all parties recognize, it is the questionable availability of class action relief, if the case were not settled, discussed in detail below, which is the prime reason behind the settlement. That is, the risk that plaintiffs will not be able to establish the predominance of law or fact common to the members of the class sufficient to maintain a class action to judgment is the very reason justifying settlement at this time. See City of Detroit v. Grinnell Corp., 495 F.2d 448 (2d Cir.1974)(noting that the risk of maintaining a class action is a factor in evaluating whether to approve a class settlement). Unlike in Amchem, the Class here is not split between groups of currently injured and potentially injured persons, and the problem of potential conflict between plaintiff subclasses is non-existent. The Class has one overarching goal, namely, maximizing the potential recovery for those persons who paid an allegedly improper yield spread premium during the specified time period. Moreover, in this case, all class members are readily identifiable from the defendants' records as are their notice addresses; this has allowed for individual, direct notice, rather than publication notice. Therefore, the concerns of Amchem are not present in this action.

The question then is whether or not the settlement is "fair, reasonable and adequate" as contemplated by Federal Rule of Civil Procedure 23(e). County of Suffolk v. Long Island Lighting Co., 907 F.2d 1295, 1323 (2d Cir.1990). Here, the proposed settlement provides that, in exchange for a dismissal of all claims against defendants, defendants will provide each class member a certificate in the amount of one hundred dollars that may be used to reduce the closing costs associated with the obtaining of a new loan from defendants. The costs of distributing the certificates, which are automatically valid as of the effective date, are to be borne by defendants, and there are no administration costs to the class members. The certificates cannot be combined, are not useable in connection with any other promotion, may not be sold or transferred through a public auction, and must be used during a two year redemption period. Defendants further agree that they will conform to the new rule proposed by HUD on July 29, 2002, at 67 Fed.Reg. 49134, and pay $659,000 in expenses and attorney's fees and $500 to each of the named plaintiffs.

As stated by the Court of Appeals in Grinnell Corp., 495 F.2d at 462, in making the fairness determination the court must:

[E]schew any rubber stamp approval in favor of an independent evaluation ... it is not necessary that the court try the case which is before it for settlement. The court is only called upon to consider and weigh the nature of the claim, possible defenses, the situation of the parties, and the exercise of business judgment in determining whether the proposed settlement is reasonable.

The factors to be considered by a district court in making a Rule 23(e) inquiry are:

(1) the complexity, expense and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action throughout trial; (7) the ability of the defendant to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; and (9) the range of reasonableness of the settlement fund to a possible recovery in light of all attendant risks of litigation.

Grinnell, 495 F.2d at 463. In this circuit, when considering whether to approve a proposed class action settlement, "the most important factor is the strength of the case for plaintiffs on the merits, balanced against the amount offered in settlement." Grinnell, 495 F.2d at 455.

Weighing the Grinnell factors, the settlement in this case is approved. The shift of legal precedent during the course of this action is the dominant factor supporting settlement. In 2001, the Department of Housing and Urban Development ("HUD") issued a policy statement, RESPA Statement of Policy 20001-1:...