Smith v. Keycorp Mortg., Inc., 92 C 7321.

• Decision Date: 25 February 1993
• Docket Number: No. 92 C 7321.,92 C 7321.
• Parties: Vernell Collins SMITH, Plaintiff, v. KEYCORP MORTGAGE, INC., Defendant.
• Court: U.S. District Court — Northern District of Illinois

151 B.R. 870 (1993)

Vernell Collins SMITH, Plaintiff, v. KEYCORP MORTGAGE, INC., Defendant.

No. 92 C 7321.

United States District Court, N.D. Illinois, E.D.

February 25, 1993.

Daniel A. Edelman, Francine Schwartz, James Eric Vander Arend Edelman & Combs, Chicago, IL, for plaintiff.

Paul W. Schroeder, June K. Ghezzi, Jones, Day, Reavis & Pogue, Chicago, IL, for defendant.

MEMORANDUM OPINION AND ORDER

HART, District Judge.

Plaintiff, Smith, resides in the home she owns in Chicago, Illinois. Defendant, Keycorp Mortgage, Inc., is a Maryland corporation with its principal place of business in New York. Defendant is one of the twenty largest mortgage servicers in the United States and services plaintiff's mortgage.

Plaintiff's three-count complaint seeks class certification and claims violation of the Bankruptcy Code, 11 U.S.C. § 1322, and the terms of confirmed Chapter 13 plans. Count two claims unfair and deceptive practices under applicable state consumer fraud statutes. Count three of the complaint seeks restitution and equitable relief. Plaintiff has also filed a motion for preliminary injunction. Defendant has filed memoranda in opposition to class certification and the preliminary injunction motion. Defendant has also filed a motion to dismiss the complaint for failure to state a claim, Fed.R.Civ.P. 12(b)(6), and for lack of subject matter jurisdiction, Fed.R.Civ.P. 12(b)(1).

According to the complaint, plaintiff encountered financial difficulties in 1987, falling $3,000 behind in her mortgage payments. In April 1987, plaintiff filed a Chapter 13 proceeding in the United States Bankruptcy Court, Northern District of Illinois, 87 B 5518, proposing for the payment of both arrearages and current mortgage payments through a trustee. This plan was confirmed by the bankruptcy court on July 21, 1987. Each of the 58 post-petition payments contemplated by the plan were made by the trustee. Nonetheless, late charges of $15 to $20 were charged on each post-petition payment under a policy and practice of defendant.¹ Plaintiff was not notified of the charges until after she had successfully completed her Chapter 13 plan on July 14, 1992. On May 22, 1992, defendant received a standard form letter from the trustee informing it that the mortgage had been paid through May 1992 and that the mortgagor would resume making regular payments the following month. Immediately thereafter, defendant asserted that plaintiff's account was not current because of the late charges, declared her loan in default and refused to accept current mortgage payments which plaintiff tendered. Plaintiff's bankruptcy attorney then notified defendant that additional amounts due during the pendency of the plan should have been claimed in the Chapter 13 proceeding and that the declaration of default because of late charges accruing during the pendency of the plan was unlawful.

On November 3, 1992, after receiving plaintiff's bankruptcy counsel's letter, defendant's foreclosure attorney sent plaintiff a letter accelerating her mortgage and threatening foreclosure. Plaintiff filed this suit the following day. On November 24, 1992, defendant changed its posture and assured plaintiff by letter that she was not delinquent, owed no late charges and that foreclosure proceedings would be dropped. Defendant characterizes what occurred as an isolated and inadvertent mistake on the part of one of its bankruptcy processors. Plaintiff claims defendant has a policy and practice of assessing late charges while mortgagors are in Chapter 13 proceedings, even though such charges are not lawful under the Bankruptcy Code or the individual Chapter 13 plan, and of trying to collect the charges once the plan is complete and no longer under the supervision of the trustee.

CLASS CERTIFICATION

Plaintiff argues a class should be certified under either Fed.R.Civ.P. 23(b)(2) or (b)(3). In general, the class certification determination should be made "as soon as practicable after the commencement of such an action." Fed.R.Civ.P. 23(c). Whether the case should proceed as a representative action must be determined promptly and "without regard to the virtues of the plaintiffs' legal theory." Koch v. Standard, 962 F.2d 605, 607 (7th Cir. 1992).²

Defendant argues that dismissal of plaintiff's individual action for failure to state a claim warrants dismissal of the class claims. In support, defendant cites cases where the court determined that the representative party failed to allege injury and, lacking standing individually, could not bring a class action. See Mintz v. Mathers Fund, Inc., 463 F.2d 495, 498 (7th Cir.1972); Drury v. Horizon Savings Bank, F.S.B., 762 F.Supp. 235, 239 (N.D.Ill. 1991). These cases are inapposite. Defendant's argument that plaintiff has failed to state a federal or state claim is not the same as arguing that plaintiff lacks standing. The Supreme Court has noted that the concepts of jurisdiction, standing, and implications of a private cause "overlap . . . even more than they ordinarily would" in cases involving implied rights of action. National R.R. Passenger Corp. v. National Ass'n of R.R. Passengers, 414 U.S. 453, 456, 94 S.Ct. 690, 692, 38 L.Ed.2d 646 (1974). However, "the requirement of standing `focuses on the party seeking to get her complaint before a federal court and not on the issues she wishes to have adjudicated.'" Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 484, 102 S.Ct. 752, 765, 70 L.Ed.2d 700 (1982) (quoting Flast v. Cohen, 392 U.S. 83, 99, 88 S.Ct. 1942, 1952, 20 L.Ed.2d 947 (1968)). "The focus of cause of action inquiry must not be confused with standing—it does not go to the quality or extent of the plaintiff's injury, but to the nature of the right asserted." 13 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 3531.6 at 500 (1984) (citing Davis v. Passman, 442 U.S. 228, 239-40 n. 18, 99 S.Ct. 2264, 2273-74 n. 18, 60 L.Ed.2d 846 (1979)) hereinafter Federal Practice and Procedure; see also id. at 480-81 n. 38 (even if it were finally concluded damages were not available to plaintiff seeking damages on behalf of class, standing should not depend on ultimate determination of whether his personal claim was valid). The "core component" of standing is "derived directly from the Constitution. A plaintiff must allege personal injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief." Allen v. Wright, 468 U.S. 737, 751, 104 S.Ct. 3315, 3324, 82 L.Ed.2d 556 (1984). Plaintiff here alleges several injuries in fact, caused by defendant which might be remedied by the damages sought. Ogden v. United States, 758 F.2d 1168, 1177-78 (7th Cir.1985).

Defendant also argues that plaintiff's claims and those of the class are moot. Defendant bases this argument on its allegation that it acted promptly to retract its notice of intent to foreclose upon learning of its own bankruptcy processor's error.³See Jones v. Sullivan, 938 F.2d 801, 806-07 (7th Cir.1991). "Article III of the Constitution requires that an actual `case' or `controversy' . . . exist, `not only at the date the action is initiated, but at every stage of the trial and appellate proceedings.'" Id. at 805 (citing Foster v. Center Township of LaPorte County, 798 F.2d 237, 245 (7th Cir.1986)). The Seventh Circuit has distinguished cases in which voluntary cessation moots a controversy because there is no reasonable expectation that the putatively illegal conduct will be repeated, see Los Angeles County v. Davis, 440 U.S. 625, 631, 99 S.Ct. 1379, 1383, 59 L.Ed.2d 642 (1979); see also United States v. W.T. Grant Co., 345 U.S. 629, 632-33, 73 S.Ct. 894, 897, 97 L.Ed. 1303 (1953); Magnuson v. City of Hickory Hills, 933 F.2d 562, 565 (7th Cir.1991), from cases in which a defendant attempts to avoid review by voluntarily ceasing the challenged conduct without losing the ability to reinitiate the conduct once the mooted case is dismissed. Jones, 938 F.2d at 807. Because of this distinction, the Jones court rejected plaintiff's "capable of repetition, yet evading review" and "voluntary cessation" defenses to the mootness argument.⁴ In this case, defendant has written plaintiff acknowledging an error, waiving its right to collect the late charges, and has accepted plaintiff's tendered payments, making the mortgage current and the injunction and declaratory relief claims moot.⁵

Damages claims, however, usually defeat mootness as they present a live controversy that should be determined on the merits. City of Richmond v. J.A. Croson Co., 488 U.S. 469, 478 n. 1, 109 S.Ct. 706, 713 n. 1, 102 L.Ed.2d 854 (1989); Penny Saver Pubs., Inc. v. Village of Hazel Crest, 905 F.2d 150, 153 (7th Cir.1990); see generally 13A Federal Practice and Procedure § 3533.3 (1984). Plaintiff seeks punitive damages. At least two circuits have held that punitive damage claims defeat mootness. See Washington v. James, 782 F.2d 1134, 1137 & n. 2 (2d Cir.1986) (although injunctive relief mooted, punitive and nominal damages survived); Cochetti v. Desmond, 572 F.2d 102, 104-05 (3d Cir. 1978) (claim for punitive damages must be disposed of on the merits); see also Forys v. United Food & Commercial Wkr's Int'l Union, 829 F.2d 603, 604 n. 2 (7th Cir. 1987). Although a claim for only nominal damages "implies a ruling that the wrong is worthy of vindication by an essentially declaratory judgment . . . a valid claim for nominal damages should avoid mootness." 13A Federal Practice and Procedure § 3533.3 at 265-66. Therefore, plaintiff may have standing to seek damages, but not to seek injunctive relief. See City Los Angeles v. Lyons, 461 U.S. 95, 103 S.Ct. 1660, 75 L.Ed.2d 675 (1983) (although defendant had standing to seek damages, he lacked standing to seek an injunction prohibiting chokehold); 13 Practice and Procedure § 3531.6 at 483-86.

Plaintiff may maintain this action on...