The opinion of the court was delivered by: Hon. Dana M. Sabraw United States District Judge
ORDER DENYING PLAINTIFF'S MOTION FOR CLASS CERTIFICATION
THIS DOCUMENT RELATES TO: [Docket Nos. 439, 127]
This matter comes before the Court on Plaintiff's motion for class certification. Defendants Countrywide Home Loans, Inc. and Countrywide Bank, FSB filed an opposition to the motion, and Plaintiff submitted a reply. David Arbogast, Chumahan Bowen, Steven Bronson and J. Mark Moore appeared and argued on behalf of Plaintiff, and Thomas Hefferon, Brooks Brown and Robert Bader appeared and argued on behalf of Defendants. After hearing oral argument, the Court allowed supplemental briefing on Plaintiff's motions to strike and objections to Defendants' evidence, which the parties have now submitted. Having carefully considered the pleadings and arguments of counsel, the Court denies the motion.
This case is part of a multi-district litigation regarding individuals and several business entities involved in mortgage lending across the country. This case, in particular, which involves California residents only, has a unique procedural history going back to May 25, 2007. On that date, Steven Bigverde, along with Carrie Shaw and Aaron K. Dunn, filed a Complaint against Countrywide Bank FSB, Countrywide Home Loans, Inc., Countrywide Financial Corporation and Treasury Bank, N.A. in the United States District Court for the Central District of California. On August 6, 2007, the defendants filed a motion to dismiss that Complaint. The plaintiffs responded by filing a First Amended Complaint on August 28, 2007, which the defendants moved to dismiss. On January 7, 2008, the court granted that motion and gave the plaintiffs leave to file a Second Amended Complaint, which they did. The Second Amended Complaint added Dorothy Peralta as a plaintiff, and dropped Ms. Shaw and Mr. Dunn as plaintiffs. The defendants moved to dismiss the Second Amended Complaint, which the court granted. The court also gave the plaintiffs leave to file a Third Amended Complaint, which they did. The defendants thereafter moved to dismiss the Third Amended Complaint, after which the plaintiffs voluntarily dismissed their case.
Twenty-nine days later, on June 2, 2009, the plaintiffs filed another case in Alameda Superior Court. They thereafter filed a First Amended Class Action Complaint ("FAC") on June 18, 2009. The FAC named Bigverde and Peralta as plaintiffs, and also named an additional plaintiff, James Moscoso. On July 17, 2009, the defendants removed the case to the United States District Court for the Northern District of California. The plaintiffs thereafter moved to remand the case, and the defendants moved for dismissal and to transfer the case to the Central District. The court denied the motion to remand, and granted the motion to transfer. The plaintiffs submitted a request to appeal the remand decision to the Ninth Circuit, which granted the request. While that request was pending, the case was transferred to this Court pursuant to an order from the Judicial Panel on Multidistrict Litigation.
After the transfer to this Court, the parties filed supplemental briefs in support of and in opposition to the motion to dismiss. This Court stayed its decision on the motion pending a ruling from the Ninth Circuit on the remand issue. The Ninth Circuit issued its ruling on April 15, 2010, in which it vacated the order granting the request to appeal and dismissed the appeal as improvidently granted. Thereafter, this Court issued an order granting in part and denying in part Defendants' motion to dismiss. Specifically, the Court granted the motion as to the claims of Plaintiffs Bigverde and Moscoso, but denied the motion as to certain claims of Plaintiff Peralta.
In the FAC, Plaintiff Peralta alleges she entered into an Option Adjustable Rate Mortgage ("ARM") loan with Defendants. Plaintiff alleges the Notes for these loans are based on a "teaser" interest rate, which ranges from 1% to 3%, and the payment schedule for the first two to five years of the loan listed in the Truth in Lending Disclosure Statements ("TILDS") is based upon the "teaser" interest rate, even though the "teaser" interest rate adjusts after only one month. (FAC ¶17.) Plaintiff alleges that after the interest rate adjustment, the monthly payment listed in the TILDS is no longer sufficient to pay the interest on the loan, resulting in negative amortization. (Id. ¶18.) Plaintiff alleges Defendants knew negative amortization was "certain" to occur, but they failed to disclose that fact to Plaintiff. (Id. ¶¶18-20.) Plaintiff alleges that by the time she learned her loans would negatively amortize, she was locked into the loan by a "draconian" prepayment penalty. (Id. ¶24.)
These allegations serve as the factual basis for Plaintiff's remaining legal claim, which alleges Defendants engaged in unlawful and unfair business practices in violation of California Business & Professions Code § 17200. In support of this claim, Plaintiff relies on the loan documents and the accompanying required disclosure statements. (Id. ¶¶1, 31.) Plaintiff asserts these documents were uniform, which makes her case "ideally suited for class-wide adjudication[.]" (Mem. of P. & A. in Supp. of Mot. at 1.) Accordingly, she seeks certification of the following class:
All California residents who, from May 25, 2003 through the date that notice is mailed to Class Members, entered into an Option Adjustable Rate Mortgage ("Option ARM") loan from Countrywide Home Loans, Inc., which loan had the following characteristics: (i) the yearly numerical interest rate listed on page one of the Note is 3.0% or less; (ii) in the section entitled "Interest," the Promissory Note states that this rate "may" instead of "will" or "shall" change (e.g., "The interest rate I will pay may change"); (iii) the yearly numerical interest rate listed on page one of the Note was only effective through the due date for the first monthly payment and then adjusted to a rate which is the sum of an "index" and "margin"; and (iv) the Note does not contain any statement that paying the amount listed as the "initial monthly payment(s)" will definitely result in negative amortization or deferred interest. Excluded from the Class are Defendants' employees, officers, directors, agents, representatives, and their family members, as well as the Court and its officers, employees, and relatives. (Id. at 2.)
Despite Plaintiff's attempt to confine this case to the loan documents, Defendants argue the Court will have to consider all of the disclosures made by the brokers and loan officers to the individual borrowers, including other written disclosures and oral discussions. Defendants submitted substantial evidence to support this position, including numerous declarations from independent mortgage brokers and Defendants' former or current loan officers about their practices in handling these transactions. (See Decl. of Fred Arnold in Supp. of Opp'n to Mot. ("Arnold Decl."); Decl. of Christopher John Bianchi in Supp. of Opp'n to Mot. ("Bianchi Decl."); Decl. of Al Hensling in Supp. of Opp'n to Mot. ("Hensling Decl."); Decl. of Fred Itzkovics in Supp. of Opp'n to Mot. ("Itzkovics Decl."); Decl. of Robert Nicholson in Supp. of Opp'n to Mot. ("Nicholson Decl."); Decl. of Carl Streicher in Supp. of Opp'n to Mot. ("Streicher Decl."); Decl. of George D. Tribble in Supp. of Opp'n to Mot. ("Tribble Decl."); Decl. of Thomas Walters in Supp. of Opp'n to Mot. ("Walters Decl."); Decl. of Leanna Wooten in Supp. of Opp'n to Mot. ("Wooten Decl."). Generally, these Declarations explain that these transactions involve more than just the exchange of written loan documents. Rather, these transactions involve the exchange of numerous other written documents, and more importantly, oral discussions about the features of the various loan products, interest rate options, negative amortization, and other issues of interest and specific to individual borrowers.*fn1
"The class action is 'an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.'" Wal-Mart Stores, Inc. v. Dukes, ___U.S.___, 131 S.Ct. 2541, 2550 (2011) (citing Califano v. Yamasaki, 442 U.S. 682, 700-01 (1979)). To qualify for the exception to individual litigation, the party seeking class certification must provide facts sufficient to satisfy the requirements of Federal Rules of Civil Procedure 23(a) and (b). Doninger v. Pacific Northwest Bell, Inc., 564 F.2d 1304, 1308-09 (9th Cir. 1977).
Federal Rule of Civil Procedure 23(a) sets out four requirements for class certification -- numerosity, commonality, typicality, and adequacy of representation.*fn2 A showing that these requirements are met, however, does not warrant class certification. Plaintiff also must show that one of the requirements of Rule 23(b) is met. Here, Plaintiff relies on Rule 23(b)(3), which requires "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 methods for fairly and efficiently adjudicating the controversy." Fed. R. Civ. P. 23(b)(3).
The district court must conduct a rigorous analysis to determine whether the prerequisites of Rule 23 have been met. Gen. Tel. Co. v. Falcon, 457 U.S. 147, 161 (1982). It is a well-recognized precept that "the class determination generally involves considerations that are 'enmeshed in the factual and legal issues comprising the plaintiff's cause of action."' Coopers & Lybrand v. Livesay, 437 U.S. 463, 469 (1978) (quoting Mercantile Nat'l Bank v. Langdeau, 371 U.S. 555, 558 (1963)). However, "[a]lthough some inquiry into the substance of a case may be necessary to ascertain satisfaction of the commonality and typicality requirements of Rule 23(a), it is improper to advance a decision on the merits at the class certification stage." Moore v. Hughes Helicopters, Inc., 708 F.2d 475, 480 (9th Cir. 1983) (citation omitted). Rather, the court's review of the merits should be limited to those aspects relevant to making the ...