McLaughlin v. Wells Fargo Bank, N.A.

          ORDER CERTIFYING TWO CLASSES

          WILLIAM ALSUP UNITED STATES DISTRICT JUDGE.

         INTRODUCTION

         In this TILA action, plaintiff borrower seeks certification of two classes. This order certifies a damages class and a declaratory class for TILA claims, appoints the named plaintiff as class representative, and appoints plaintiff's counsel of record as class counsel.

         STATEMENT

         1. Named Plaintiff Latasha McLaughlin.

         Our named plaintiff, Latasha McLaughlin, brings this Truth in Lending Act (TILA) action against defendant bank, the owner and servicer of her home mortgage. Plaintiff borrower alleges that the bank breached its TILA obligation to provide her with an accurate payoff statement regarding her home mortgage.

         In June 2014, plaintiff borrower returned home to find that her home's pipes had burst and her home had flooded (McLaughlin Tr. at 27:4-29:6). Plaintiff borrower submitted a claim to her insurance company, which issued a series of checks jointly payable to plaintiff borrower and the bank.^[1] Plaintiff borrower endorsed the checks and turned them over to the bank. In total, the bank held a balance of $16, 490.35 of insurance proceeds (McLaughlin Tr. at 27-29, 40).

         Plaintiff borrower retained a contractor to repair the damage to her home. A series of disagreements over the contractor's work ensued and plaintiff borrower fired the contractor in May 2014. A subsequent inspection by the bank concluded that only 20 percent of the repairs had been completed. Plaintiff borrower disputed the amount she owed the contractor and filed a lawsuit against the contractor.

         Plaintiff borrower then contacted the bank about how to proceed with the repairs to her home. A bank representative advised her to find another contractor. Using her own money, plaintiff borrower proceeded to make the repairs. The bank, however, refused to release any of the funds to pay for the additional repairs (McLaughlin Tr. 77, 81, 91).

         Starting in September 2014, plaintiff borrower fell behind on her mortgage payments, in part because she used her own money to pay for the repairs. As of April 2015, her past due balance totaled $11, 019.52. The bank informed plaintiff borrower that it had accelerated her debt and referred her mortgage for foreclosure (Compl. ¶ 35-36).

         In March 2015 and again in April 2015, plaintiff borrower submitted requests for a payoff statement from the bank in order to investigate the possibility of re-financing her loan or conducting a short sale (McLaughlin Tr. 112, 136). Neither payoff statement reflected the insurance proceeds. In response to the April request, the bank sent plaintiff borrower a payoff statement declaring her outstanding balance to be $188, 825.17, which included unpaid principal, interest, escrow overdraft, advance balances, late charges, and foreclosure costs. This statement did not address the $16, 490.35 in insurance payments, which the bank still held (Compl. ¶¶ 37-39).

         On June 23, 2015, plaintiff borrower filed this action. Three months later, in September of 2015, plaintiff borrower settled the dispute with the contractor and the bank issued the contractor a check for $4, 000 from the insurance proceeds. The additional insurance proceeds were then applied by the bank to the past due balance on the mortgage (McLaughlin Tr. at 113, 141-142).

         2. The Deed.

         In September 2005, plaintiff borrower obtained a mortgage in the amount of $156, 370.00 for her home in Tennessee. In 2012, the bank became the owner of that deed (see Dkt. No. 36). The deed of trust specifically addressed insurance proceeds:

All or any part of the insurance proceeds may be applied by Lender, at its option, either (a) to the reduction of the indebtedness under the Note and this Security Instrument . . ., or (b) to the restoration or repair of the damaged Property . . . . Any excess insurance proceeds over an amount required to pay all outstanding indebtedness under the Note and this Security Instrument shall be paid to the entity legally entitled thereto.

         3. The Truth in Lending Act and Regulation Z.

         The stated purpose of the Truth in Lending Act is "to assure a meaningful disclosure of credit terms" to consumers and authorizes the Consumer Financial Protection Bureau to implement regulations to promote this purpose. 15 U.S.C. 1601(a); 15 U.S.C. 1639(g). Under TILA's Regulation Z, a lender, assignee, or loan servicer must, in response to a borrower's request, provide an "accurate statement of the total outstanding balance that would be required to pay the consumer's obligation in full as of a specific date" based on the "best information available." 12 C.F.R. 1023.36(c)(3); 78 Fed. Reg. 10902, 10958 (Feb. 14, 2013).

         4. The Bank's Practices and Procedures.

         The bank maintains certain practices with respect to requests for a payoff statement. A borrower can request that a written payoff statement be sent to them either by going online, calling an automated telephone program, or talking with a customer service representative. A borrower can also access payoff information without receiving a written payoff statement by viewing the information online, prompting an automated telephone program, or by requesting it from a customer service representative over the phone (Leo Tr. 20-21).

         A payoff statement is typically generated automatically and, in the usual course, a payoff statement does not include insurance proceeds held in a restricted escrow account (id. at 32). In certain limited circumstances, a payoff statement is not generated automatically. For example, if a homeowner specifically requests that insurance proceeds be included on the statement, or if a loan is in foreclosure, the request is sent to the Payoff Quotes Group (id. at 21, 30). In that case, a determination is made as to whether "funds are owed to contractors for repairs made or initiated from the insurance proceeds." If any funds are owed, the insurance proceeds are not included on the payoff statement (Opp. at 5; Insley-Pruitt Decl. Ex. G).

         5. Procedural History.

         On June 23, 2015, plaintiff borrower filed a complaint in this action. The bank subsequently moved to dismiss, arguing that TILA does not require lenders to list insurance proceeds on payoff statements. An order denied the bank's motion, holding that "an accurate payoff statement should have deducted the insurance proceeds still held by the bank and at least should have added a note that the impounded funds potentially could be used for home repair in the event the loan was not paid off" (Dkt. No. 36 at 2-3). The bank then moved for leave to file a motion for reconsideration of that order. An order denied that motion, noting, in pertinent part, that the bank had already raised all of the same arguments on the motion to dismiss (Dkt. No. 46). Specifically, the order noted that plaintiff borrower had previously argued that "insurance proceeds may be owed to a contractor" but explained that the order on the motion to dismiss had rejected those arguments.

         In February 2016, the bank moved to stay all proceedings pending the Supreme Court's decision in Spokeo, Inc. v. Robins, arguing that the decision would impact whether or not plaintiff borrower had standing to assert her individual and class claims. An order denied the stay of all proceedings, noting that "plaintiff Latasha McLaughlin has alleged harm going well beyond the bare violation of a federal statute" (Dkt. No. 89 at 1). The order noted, however, that Spokeo could affect the construction of a potential class at the Rule 23 stage and postponed the hearing on the class certification motion until the decision came down in Spokeo. On May 16, 2016, the Supreme Court reached a decision in Spokeo. The parties have provided supplemental briefing on the impact of Spokeo, which is considered below.

         This order follows full briefing and oral argument.

         6. Claims for Relief and ...