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In Re: Wachovia Corp. "Pick-A- Payment" Mortgage Marketing and

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION


December 21, 2012

IN RE: WACHOVIA CORP. "PICK-A- PAYMENT" MORTGAGE MARKETING AND SALES PRACTICES LITIGATION.

The opinion of the court was delivered by: Jeremy Fogel United States District Judge

**E-Filed 12/21/2012**

ORDER DENYING APPLICATION FOR TEMPORARY RESTRAINING ORDER AND SETTING HEARING ON MOTION FOR PRELIMINARY INJUNCTION [re: dkt. entry 365]

Thirty-one class members ("Movants") assert that Defendants have failed to comply with the

20 settlement agreement in this case, which requires Defendants to follow certain procedures when a 21 class member seeks modification of a Pick-A-Payment home mortgage loan. Movants ultimately 22 seek a preliminary injunction precluding Defendants from foreclosing on or otherwise attempting to 23 sell Movants' properties without first allowing class counsel to evaluate all instances in which a 24 potential loan modification covered by the settlement has been denied. Pending a hearing on and 25 disposition of their motion for preliminary injunction, Movants seek a temporary restraining order 26

("TRO") precluding Defendants from foreclosing upon, selling,or attempting to sell the homes of 27 class members who have applied for but have not received a loan modification pursuant to the terms 28 of the settlement agreement. Having considered the briefing and the admissible evidence submitted by the parties,*fn1 the Court concludes that the application for TRO is appropriate for disposition 2 without oral argument. See Civ. L.R. 7-1(b). For the reasons discussed below, the application will 3 be denied, and the motion for preliminary injunction will be set for hearing on January 31, 2013. 4

On May 17, 2011, this Court granted final approval of a settlement agreement that resolved 6 multi-district litigation concerning Defendants' "Pick-a-Payment" mortgage loans. See Dkt. Entry 7

I. BACKGROUND

207 (Final Approval Order) at 2. Pursuant to the terms of such loans, the borrower selected a 8 monthly mortgage payment, choosing either: (1) a fully-amortizing 30-year interest and principal 9 payment, such that the loan would be satisfied in the traditional 30-year term; (2) a fully-amortizing 10 an "interest-only payment"; or (4) a lesser, "minimum payment." Id. When a borrower chose a minimum payment, which by definition was insufficient to pay the interest owed, unpaid interest 13 was added to the loan balance, and the outstanding loan balance increased. Id. The named plaintiffs 14 alleged that the loans violated the federal Truth-in-Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., 15 and various state laws. The named plaintiffs asserted that the relevant loan documents failed to 16 make adequate disclosures regarding, among other things, the certainty of negative amortization if 17 the minimum payment option was selected. Id. 18

The settlement agreement identified three categories of class members: Settlement Class A 19 consists of borrowers who no longer hold their "Pick-A-Payment" loans; Settlement Class B 20 consists of borrowers who still hold their loans and are not in default; and Settlement Class C 21 consists of borrowers who still hold their loans and are in default. Id. at 2-3. Under the terms of the 22 settlement, Defendants agreed to pay $50 million to the class and to implement a loan modification 23 program available to qualified Settlement Class C members and to qualified Settlement Class B 24 members who are in "imminent default." Id. at 3. Defendants agreed to consider an eligible class 25 member for the federal Home Affordable Modification Program ("HAMP") and for Defendants' 26 own loan modification program, Mortgage Assistance Program 2 ("MAP2R"). Id. The loan 27

15-year interest and principal payment, such that the loan would be satisfied in a 15-year term; (3) modification program is to remain in place through June 2013. Id. at

4. This Court expressly 2 retained "continuing jurisdiction to interpret and enforce the settlement agreement." Id. 3 4 requirements, particularly with respect to consideration of borrowers for modification under the 5

MAP2R program. Movants have filed a new action asserting claims for (1) breach of the settlement 6 agreement; (2) breach of the implied covenant of good faith and fair dealing; (3) violation of 7

California's Unfair Competition Law ("UCL"); and (4) enforcement of the settlement agreement 8 under the All Writs Act, 28 U.S.C. § 1651(a). That action, entitled Murphy, et al. v. Wells Fargo 9 Movants believe that Defendants have failed to comply with the settlement agreement's Home Mortgage, et al., Case No. 5:12-cv-06228-HRL, was filed on December 7, 2012 and has been 10 assigned to Magistrate Judge Howard R. Lloyd. Also on December 7, class counsel sent

Defendants' counsel a pre-filed copy of Movants' administrative motion to determine whether 367-1 (Berns Decl.) at ¶ 2. Defendants immediately (on the same date) filed a motion to enforce the 14 settlement agreement against Movants in this case. See id. ¶ 3; Dkt. Entry 364 (Motion to Enforce 15

Settlement). Movants then (also on December 7) filed the present application for TRO and their 16 administrative motion to determine whether Murphy should be related to the present action under 17 this Court's Civil Local Rules. See Dkt. Entries 365 and 367. 18

"The standard for issuing a temporary restraining order is identical to the standard for

20 issuing a preliminary injunction." Lockheed Missile & Space Co., Inc. v. Hughes Aircraft Co.,, 887 21

F. Supp. 1320, 1323 (N.D. Cal. 1995). "A plaintiff seeking a preliminary injunction must establish 22 that he is likely to succeed on the merits,that he is likely to suffer irreparable harm in the absence of 23 preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public 24 interest." Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). The Ninth Circuit has 25 interpreted this standard to mean that, "serious questions going to the merits and a balance of 26 hardships that tips sharply towards the plaintiff can support issuance of a preliminary injunction, so 27 long as the plaintiff also shows that there is a likelihood of irreparable injury and that the injunction 28 is in the public interest." Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir. Murphy should be related to the present action under this Court's Civil Local Rules. See Dkt. Entry 13

II. DISCUSSION

2011) (internal quotation marks omitted). Under any formulation of the test, "[a] preliminary 2 injunction is an extraordinary remedy never awarded as of right." Winter, 555 U.S. at 24. 3

As noted above, Movants have filed a separate lawsuit asserting claims for breach of 5 contract, breach of the implied covenant of good faith and fair dealing, violation of California's 6

A. Likelihood Of Success On The Merits 4

UCL, and enforcement of the settlement agreement under the All Writs Act. Because that lawsuit is 7 not before the undersigned judge at this time, consideration of Movants' likelihood of success on the 8 merits of that lawsuit is not presently at issue. However, this Court expressly retained "continuing 9 jurisdiction to interpret and enforce the settlement agreement." Dkt. Entry 207 (Final Approval 10

Movants have not filed a separate motion to enforce the settlement agreement against Defendants,

but Movants clearly assert that Defendants are in breach of the settlement agreement and seek a 13

Order) at 4. Defendants have moved to enforce the settlement agreement against Movants.

TRO to prevent injury that might occur as a result of such breach. Accordingly, to establish 14 entitlement to a TRO, Movants must demonstrate a likelihood of success on their claim that 15

Defendants are in breach of the settlement agreement (and thus that Movants are entitled to 16 enforcement of the settlement agreement). 17

18 quarterly reports, in the eighteen-month period from April 2011 to September 2012, Settlement 19

(Berns Decl.) ¶ 8. Defendants completed MAP2R modifications for 1,746 class members during 21 that time, and they completed HAMP modifications for 12,855 class members. Id. During the same 22 time period, Defendants classified more than 70% (37,079 of 52,252) of Settlement Class B 23 members and more than 25% (3,781 of 14,419) Settlement Class C members as "Fall-Outs," 24 meaning that Wells Fargo never evaluated the loan modification applications of those class 25 members because of the applicants' alleged failure to provide all necessary documentation. Id. ¶ 14. 26

Mr. Berns' law firm has spoken with more than 9,000 class members who believe that they 27 improperly were denied MAP2R loan modifications. Id. ¶ 5. 28

Movants' counsel, Jeffrey Berns, states in his declaration that based upon Wells Fargo's Class B and C members submitted 66,671 applications for loan modification. Dkt. Entry 365-2 20

These figures raise significant questions, as they suggest that class members may have been denied the primary benefit for which they released their claims against Defendants, that is, fair 2 consideration for loan modification under the procedures set forth in the settlement agreement. 3

However, the Court cannot infer from statistics alone that the settlement agreement actually has 4 been breached. 5

6 monthly payment of Principal, Interest, Taxes, Insurance and Association dues ("PITIA") that 7 exceeded 31% of gross monthly income, Defendants concluded that they did not face imminent 8 threat of default, which is the threshold for qualification for loan modification for Settlement Class 9

"imminent default" in relation to a PITIA in excess of 31%. Dkt. Entry 365-2 (Berns Decl.), Ex. A

(Settlement Agreement) § I.1.33. Movants assert that Defendants improperly used property

valuations derived from automated valuation instead of from independent appraisals. However, the 13

Movants assert that even though several of them had documented financial hardship and a

B members. Defendants correctly point out that the settlement agreement does not define 10

Settlement Agreement expressly allows valuations based upon automatic appraisals that are less 14 than ninety days old. Id. § I.1.40. Finally, Movants cite a number of alleged administrative errors, 15 for example, Defendants' failure to assign each loan modification applicant a single contact person. 16

But it is not clear from the record if these alleged administrative errors resulted in denial of any 17 specific loan modification. 18

Defendants' compliance with at least the spirit of the settlement agreement, the record evidence 20 does not tie the aggregate numbers to express contract provisions or show that Defendants have 21 breached any actual terms of the agreement. Nor have Movants presented evidence that a violation 22 of any particular contract provision proximately caused the denial of any loan modification.*fn2

In short, although the statistics that Movants present are sufficient to raise doubts as to

B. Irreparable Harm 2

Movants seek to impose a moratorium upon any foreclosures or sales with respect to homes 3 of class members who have sought loan modification. The basis for Movants' request is that class 4 members will be irreparably harmed if they lose their homes. While that is undoubtedly true, the 5 only identified class members whose home is subject to a foreclosure sale before a noticed motion 6 for preliminary injunction can be heard are John and Diana Burkett, the sale of whose property is 7 scheduled for January 9, 2013. Dolan Decl. ¶¶ 15-16.*fn3 The Burketts did not contest the underlying 8 foreclosure action or the state court judgment of foreclosure. Id. ¶ 16. Three other Movants, Sherri 9

Goldfinch and George and Cynthia Biggs, have agreed to short sales of their properties. Id. ¶¶ 13, 10

19. Thus, even if it were to conclude that Movants have demonstrated a likelihood of success on the merits, the Court would be reluctant to grant the broad classwide relief requested here based upon Movants' showing as to these five individuals. 13

C. Balance Of Equities 14

Movants argue that the equities tip sharply in their favor, because losing their homes would 15 be devastating. Movants also cite to other types of stress and financial hardship allegedly caused by 16 Defendants' failure to comply with the settlement agreement. While these considerations are 17 entitled to substantial weight, Defendants point out that shutting down their ability to schedule 18 foreclosures and short sales would have a significant financial effect on them. Dkt. Entry 371-3 19

(Kreitzer Decl.) ¶¶ 2-9. Indeed, Defendants argue that the harm to them would be more severe 20 because Movants admittedly do not have the financial resources to post a bond. Based on the record 21 presently before it, the Court concludes that the equities do not tip sharply in favor of either side. 22 23 necessary in aid of its jurisdiction, or to protect or effectuate its judgments." 28 U.S.C. § 2283. 24

Rooker-Feldman is not implicated, as Movants are not requesting this Court to review or reopen any state court proceeding. See District of Col. Ct. of App. v. Feldman, 460 U.S. 462, 482 (1983); 25

Rooker v. Fidelity Trust Co., 263 U.S. 413, 415-16 (1923). Finally, although Younger v. Harris, 401 U.S. 37 (1971) might be implicated by an injunction that interfered with pending judicial 26 foreclosure or eviction actions, the Court could draft any order it issued to exclude application to 27 judicial foreclosure and eviction actions, if necessary.

D. Public Interest 2

Both sides argue that their positions are consistent with the public interest. Movants perhaps 3 have the better part of this argument, as the public has a strong interest in the fair, lawful handling of 4 their mortgages by lenders. 5

E. Conclusion 6

For the reasons stated herein, the Court concludes that the current record does not justify 7 issuance of a TRO restraining Defendants immediately from pursuing foreclosure or sale 8 proceedings on a classwide basis. See Zepeda v. INS, 753 F.2d 719, 728 (9th Cir. 1984) ("injunctive 9 relief should be narrowly tailored to remedy the specific harms shown by plaintiffs."). This ruling 10 does not preclude the Burketts, the Briggs, and Ms. Goldfinch from seeking injunctive relief with respect to the specific proceedings affecting their homes.

Notwithstanding this conclusion, the Court is concerned by Movants' statistical evidence, 13 particularly the data with respect to the numbers of class members who have been denied 14 consideration for loan modification based upon failure to provide documentation. It may well be 15 that Movants will be able to show a basis for less drastic injunctive relief, such as the proposed 16 requirement that class counsel be afforded an opportunity to review denials of applications for loan 17 modification before the denials become final. Accordingly, the Court will set this matter for a 18 hearing on Movants' motion for preliminary injunction on January 31, 2013, at 3:00 p.m. The Court 19 will take up the question of whether Murphy should be related to the present case at that time. 20

III. ORDER

(1) Movants' application for TRO is DENIED; and

(2) A hearing on Movants' motion for preliminary injunction is set for January 31, 2013, 23 at 3 p.m. Movants shall file any supplemental brief on or before January 11, 2013. Defendants 24 shall file any supplemental response brief on or before January 23, 2013. Movants shall file any 25 supplemental reply brief on or before January 28, 2013. 26 27


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