The opinion of the court was delivered by: Hon. Dana M. Sabraw United States District Judge
ORDER DENYING PLAINTIFF'S MOTION FOR CLASS CERTIFICATION [Docket Nos. 190 and 213 (08md1988), 84 and 93 (09cv0064)]
This matter comes before the Court on Plaintiff's motion for class certification. Defendants Countrywide Home Loans, Inc. and Countrywide Financial Corporation filed an opposition to the motion, and Plaintiff submitted a reply. The motion came on for hearing on February 11, 2010. Ari Brown appeared and argued on behalf of Plaintiff, and Thomas Hefferon appeared and argued on behalf of Defendants. After hearing argument, the Court requested supplemental briefing, which the parties submitted on March 1, 2010. Thereafter, the Court requested additional argument from counsel. An additional telephonic hearing was held on April 1, 2010, at which Mr. Brown and Mr. Hefferon appeared and argued. Having carefully considered the pleadings and arguments of counsel, the Court now denies the motion.
This class action case is part of a multi-district litigation concerning individuals and several business entities involved in residential mortgage lending across the country. This particular case involves mortgage lending in the State of Washington. The remaining named Plaintiff is Randall D. Buckley.*fn1 Defendants are Countrywide Financial Corp. ("CFC") and Countrywide Home Loans, Inc. ("CHL"). In general, Plaintiff alleges Defendants have engaged in predatory lending and deceptive sales tactics related to residential mortgage loans, including failing to disclose required information in the required manner and actively concealing and misrepresenting the terms of their loans. (Consolidated Amended Complaint ("CAC") at 1.)
As to Plaintiff Buckley, the CAC alleges Buckley purchased his home in Newcastle, Washington in 1987. (Id. at 17.) In January 2006, he refinanced the mortgage through Encore Credit Corporation. (Id.) That loan was subsequently transferred to Countrywide. (Id.) Pursuant to that loan, Buckley's monthly payment of principal and interest was $3,125. (Id.)
In December 2006, a representative of CHL called Buckley to congratulate him on qualifying for another loan that would lower his monthly payments by $1,000. (Id.) A CHL representative completed Buckley's loan application over the telephone on December 4, 2006. (Id.) On December 6, 2006, CHL provided a truth-in-lending ("TIL") disclosure statement to Buckley, which set forth monthly payments of $2,243 for the first 24 months. (Id.) CHL also provided a good faith estimate ("GFE") to Buckley, which set forth the same monthly payment, and total monthly payments of $2,388.61, including payments for taxes and insurance. (Id.) The GFE also represented that the interest rate on the loan was 5.375%. Along with the GFE and the TIL disclosure statement, CHL sent Buckley an "Approved Home Buyer Certificate" ("Certificate"). (See Decl. of Ari Brown in Supp. of Mot. ("Brown Decl."), Ex. 5.)*fn2 The Certificate states in bold at the top: "The holder of this certificate is ready to seriously shop for a home and has not only been approved for a Countrywide Home Loan, but has a protected interest rate for up to 30 days." (Id. at 24.) Relying on these documents, Buckley decided to proceed with the loan. (CAC at 17-18.)
Buckley closed the loan on December 20, 2006. (Id. at 18.) Unbeknownst to him, the terms of his loan at the time of closing were not the same as those included in the initial documents he received. The monthly payment went up to $2,878.28, and instead of being fixed for 24 months, it was fixed for only six months. (Compare Brown Decl., Ex. 4 with Ex. 9.) Furthermore, despite the language on the Certificate, the interest rate on the loan increased to 5.625%. (Compare Brown Decl., Ex. 3 with Ex. 7.) Buckley discovered these changes after the loan closed. (Decl. of Randall Buckley in Supp. of Mot. at ¶ 10.) Although he was able to make some initial payments on the loan, the interest rate continued to adjust upwards, and he was unable to keep making payments. (Id. at ¶ 11.) He is currently facing foreclosure. (Id.)
On August 11, 2008, Plaintiff filed the present action on behalf of himself and all others similarly situated in the United States District Court for the Western District of Washington. His Complaint alleges one claim for violation of Washington's Consumer Protection Act, Wash. Rev. Code § 19.86.010 et seq. ("CPA"). On January 13, 2009, the case was transferred to this Court pursuant to an order from the Judicial Panel on Multidistrict Litigation.
Plaintiff moves to certify a class "consisting of thousands of Washington homeowners that Defendants misled as to the true terms of their mortgage loans." (Mem. of P. & A. in Supp. of Mot. at 1; CAC at ¶ 98.) Specifically, Plaintiff seeks to certify a class of borrowers that (1) "entered into a residential mortgage transaction or a refinance mortgage, secured by residential property located in Washington State from August 11, 2004, to the present, whose transaction was brokered and/or funded by defendants[;]" and in which defendants (2) "failed to provide the required Good Faith Estimate or Truth in Lending Disclosure statement in the time or manner provided by Washington law;" or (3) "provided the borrower with a Truth in Lending Disclosure statement and/or Good Faith Estimate that misrepresented material terms of the loan by understating the interest rate, understating or omitting fees to be paid to defendants or to a third party broker, misrepresenting a longer fixed payment period, or misrepresenting that monthly payments would be sufficient to pay down the principal of the loan." (Mem. of P. & A. in Supp. of Mot. at 14-15.)
The proposed class therefore comprises two groups. Section (2) of the proposed class includes borrowers whose final loans did not match the loan described in the initial GFEs and TIL Disclosures, and who did not receive notice of the final loan terms until closing. As to these borrowers, Plaintiff alleges that while the initial disclosures were accurate, Defendants changed the terms of the loan -- i.e., changed the loan product -- without providing updated disclosures to the borrower in advance of closing as required by Washington law. (See Mem. of P. & A. in Supp. of Mot. at 5 ("Countrywide regularly provided Good Faith Estimates and [Truth in Lending] Disclosures that materially understated the true costs and interest rates of the loans it later substituted and had borrowers sign at closing."))
Section (3) of the proposed class includes borrowers who received initial GFEs and TIL Disclosures that were misleading and inconsistent with subsequent disclosures provided at closing, but whose loan terms were unchanged. As to these borrowers, Plaintiff alleges "Countrywide's initial good faith estimate listed the monthly payment amount as covering 'principal and interest[,]'" (Pl.'s Supp. Br. at 15), when in fact the payment covered only interest and no principal, or only a portion of interest thus causing the loan to negatively amortize.*fn3 Despite the factual differences between the two groups in Sections (2) and (3), Plaintiff asserts the proposed class is based on a singular conceptual model that centers on inadequate disclosure of the terms of the loans borrowers actually received.
Plaintiff asserts the proposed class satisfies the requirements of Federal Rule of Civil Procedure 23(a) and 23(b)(3). Defendants dispute that this class satisfies the typicality and adequacy elements of Rule 23(a) and the requirements of Rule 23(b)(3).
Federal Rule of Civil Procedure 23(a) states:
One or more members of a class may sue or be sued as representative parties on behalf of all members only if:
(1) the class is so numerous that joinder of all members is impracticable;
(2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and
(4) the representative parties will fairly and adequately protect the interest of the class.
Fed. R. Civ. P. 23(a). A showing that these requirements are met, however, does not warrant class certification. Plaintiff must also show that one of the requirements of Rule 23(b) is met. Here, Plaintiff relies on Rule 23(b)(3), which requires the court to find: that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available ...