Shroder v. Suburban Coastal Corp.

• Decision Date: 16 April 1984
• Docket Number: No. 82-6086,82-6086
• Citation: 729 F.2d 1371
• Parties: Michael SHRODER, et al., Plaintiffs-Appellants, v. SUBURBAN COASTAL CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1371

729 F.2d 1371

39 Fed.R.Serv.2d 139

Michael SHRODER, et al., Plaintiffs-Appellants, v. SUBURBAN COASTAL CORPORATION, Defendant-Appellee.

No. 82-6086.

United States Court of Appeals Eleventh Circuit.

April 16, 1984.

Spieler & Spieler, P.A., Gregg Spieler, Miami, Fla., for plaintiffs-appellants.

Carlton, Fields, Ward, Emmanuel, Smith & Culter, P.A., Davisson F. Dunlap, Robert L. Young, Orlando, Fla., for defendant-appellee.

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

Before HILL and HATCHETT, Circuit Judges, and ALLGOOD ^*, District Judge.

HATCHETT, Circuit Judge:

In this Truth-in-Lending Act case we examine the provisions of a Truth-in-Lending disclosure statement to determine whether it is deficient under the Act and regulations. We find it deficient and reverse and remand the case.

Background

On October 7, 1980, Michael Shroder, Susan Shroder, and Gregory Pillon, individually and as representatives of a class, brought this action alleging that Suburban Coastal Corporation (Suburban Coastal) had violated four provisions of the TILA and Regulation Z.

Suburban Coastal is a New Jersey corporation in the business of making purchase money mortgages to consumers and selling and assigning mortgages to third parties. Michael Shroder is a physician, and Susan Shroder, his wife, is a homemaker. In 1979, Michael and Susan Shroder (the Shroders) signed a contract to purchase a house in Dade County, Florida. Thereafter, they contacted Suburban Coastal in order to finance the purchase of the house. After finding that Suburban Coastal was charging the lowest interest rate for home mortgages, they applied to Suburban Coastal for a purchase money mortgage.

The parties selected Town and Country Title Guaranty and Escrow, Inc. (Town and Country) to conduct the closing. Suburban Coastal sent to Town and Country a closing package consisting of closing instructions, an uncompleted Real Estate Settlement Procedure Act statement, an uncompleted Truth-in-Lending statement, and other documents. At the closing, Gregg Spieler, a lawyer, represented the Shroders. Because he was performing an operation, Michael Shroder was not present at the closing. Although Suburban Coastal loaned the funds for the purchase of the house, it did not conduct the closing nor send a representative. Neither Susan Shroder nor her attorney asked any questions or made any complaints relating to the Truth-in-Lending disclosure statement at the time of closing.

Since January 31, 1977, Gregg Spieler's law firm has employed Gregory Pillon as a title examiner. In 1979, Pillon sought to purchase a house. Suburban Coastal loaned the funds for the purchase. At the closing, Pillon reviewed all the documents, including the Truth-in-Lending disclosure statement, and raised no questions concerning the documents.

Eight months after the Shroders' closing, Gregg Spieler, the attorney who represented the Shroders and who employed Pillon as a title examiner, brought this suit for the Shroders. The lawsuit contends that the Truth-in-Lending disclosure statement issued by Suburban Coastal is deficient. Suburban Coastal used the same note, mortgage, and Truth-in-Lending disclosure statement utilized in the Shroders' closing in 492 other purchase money mortgage transactions in Dade County, Florida, within one year of the bringing of this action. The allegation in this class action is that Suburban Coastal presented each of the 492 individuals with a deficient Truth-in-Lending disclosure statement. The action We must determine whether the district court properly denied class certification, properly entered summary and final judgment for Suburban Coastal, or improperly denied summary judgment to the Shroders.

                seeks to impose liability against Suburban Coastal for four violations of the Truth-in-Lending Act (TILA) (15 U.S.C.A. Secs. 1601-1667e) 1 and Regulation Z (12 C.F.R. Secs. 226.1-226.1503). 2   The United States District Court for the Southern District of Florida entered an order denying the Shroders' motion for class certification.  The district court subsequently entered an order granting Suburban Coastal's motion for summary judgment and denying the Shroders' motion for summary judgment.  The district court entered final judgment in favor of Suburban Coastal
                

Discussion

In reviewing a district court's denial of class certification, the sole issue on appeal is whether the district court abused its discretion in denying appellants the right to maintain a class action. Boggs v. Alto Trailer Sales, Inc., 511 F.2d 114 (5th Cir.1975). "The discretion of the district court in determining whether a class action may be maintained is to be exercised within the parameters of the criteria of rule 23 ... assuming discretion exercised within these parameters, the determination of the trial court should stand absent an abuse of discretion." Boggs, 511 F.2d at 117. The fact that the Court of Appeals might have granted class certification if the case were before it de novo is irrelevant. The only issue before a court of appeals is whether a district court abused its discretion when it granted or denied class certification. Watkins v. Simmons and Clark, Inc., 618 F.2d 398 (6th Cir.1980).

Federal Rule of Civil Procedure 23(a)(4) ³ specifically states that a prerequisite to a class action is that the representative parties will fairly and adequately protect the interests of the class. The district court, in denying the Shroders' motion for class certification, stated that it was not convinced, due to the relationship between the named plaintiffs and Spieler, that the class interests would be adequately represented and protected.

Pillon, at the time of the closing and since January 31, 1977, has been employed in Spieler's law office. Pillon is a named representative in this case. The question is whether this employment relationship between a named representative and the class attorney is such as to cause a court to properly conclude that this named representative will not fairly and adequately protect the interests of the other class members.

The courts have held that basic consideration of fairness requires that a court undertake a stringent and continuing examination of the adequacy of representation by the named class representatives at all stages of the litigation where absent members will be bound by the court's judgment. Susman v. Lincoln American Corp., 561 F.2d 86 (7th Cir.1977), appealed after remand, 587 F.2d 866 (7th Cir.1978). In Susman, the court held that the plaintiffs were inadequate to act as class representatives where one plaintiff and one of the plaintiffs' attorneys of record were members of the same law firm. The court, in addition, held that an individual was an Even though plaintiff does not expect to share in any attorney's fees recovered in this cause, there exists the possibility that one so situated will become more interested in maximizing the 'return' to his counsel than in aggressively presenting the proposed class' action.

inadequate representative of the class where his brother was serving as attorney for the class.

Susman, 561 F.2d at 95. The Susman quote stresses that even in cases where the named representative would not benefit financially from the award of attorney's fees, the representative may seek to maximize the return to his attorney. The representative is likely to do this where he has an interest in the representation and goodwill of his law firm which would be enhanced by a large attorney's fee award.

In this case, Pillon is not an attorney in Spieler's law firm, but continues to be an employee of the law firm. Although Pillon may not share in the award of attorney's fees to Spieler in the event the class is victorious, a clear possibility remains that Pillon is interested in maximizing the return to his employer. Pillon is concerned with his future employment. Consequently, a court could rationally conclude that Pillon would be more concerned with satisfying his employer than with representing the interests of the unnamed class members.

In Turoff v. May Co., 531 F.2d 1357 (6th Cir.1976), the court held that the named plaintiffs, three of whom were attorneys with the law firm for the class and the fourth of whom was the wife of one of the first three, did not have standing to represent the class.

Because the financial recovery for reasonable attorney's fees would dwarf the individual's recovery as a member of the class herein, the financial interests of the named plaintiffs and of the class are not coextensive. If the interests of a class are to be fairly and adequately protected, if the courts and the public are to be free of manufactured litigation, and if proceedings are to be without cloud, the roles of class representative and of class attorney cannot be played by the same person.

Turoff, 531 F.2d at 1360. Since possible recovery of the class representative is far exceeded by potential attorney's fees, courts fear that a class representative who is closely associated with the class attorney would allow settlement on terms less favorable to the interests of absent class members. Susman, 561 F.2d at 91.

In TILA cases, courts may award reasonable attorney's fees to the prevailing class. Since Pillon is not a partner of the firm, it is unlikely that he will receive a percentage of the attorney's fees awarded to Spieler's firm if the class is victorious. In analyzing whether Pillon would be an adequate representative of the class members, we must return to the statement in Susman that an individual is an improper representative where there is a possibility that he will be more interested in maximizing the "return" to his attorney than in aggressively presenting the proposed class action. In the present case, this possibility clearly exists. Pillon's employment relationship with the law firm is not minimal. In his deposition, Pillon stressed that even though he does some...