Tuesday, April 12, 2011

Northern District Certifies TILA/UCL Class Action Against Chase: Hofstetter v. Chase Home Fin., LLC

On March 31, 2011, Northern District Judge, William Alsup, certified a TILA/UCL class action against Chase “involving lender-imposed flood-insurance requirements for property securing home-equity lines of credit.”  See Hofstetter v. Chase Home Fin., LLC, 2011 U.S. Dist. LEXIS 38124, 1-2 (N.D. Cal. Mar. 31, 2011).  The plaintiffs’ action is based on a 2009 unilateral change of policy which had the impact of increasing the minimum amounts of flood insurance required for customers having existing home-equity line of credit.  According to plaintiffs, this change in policy in many instances (1) imposed a level of coverage exceeding that required by law and (2) resulted in “forced” purchase of insurance at inflated rates.  The plaintiffs claim that this practice violated TILA and the UCL, in part, because the alteration in policy materially altered existing agreements without adequate disclosures. 

Of note, the Court’s opinion includes analysis rejecting the defendant's efforts to splinter the action by highlighting variations in the underlying loan documents.  This type of argument -- which is typical in actions involving adequacy of disclosure and/or misrepresentation -- is designed to overcome certification by proposing that a multitude of individual, independent actions are required.  According to the Court, any variations in such documents were capable of "grouping" -- rendering class adjudication manageable:
Defendants argue that individual questions would predominate over the common ones, but defendants' reasoning on this point is not persuasive. First, defendants emphasize that in order to determine whether the December 2009 policy change adversely altered the terms of a borrower's credit agreement, a trier of fact must consider the language of the agreement the borrower originally signed when opening his or her credit line (Opp. 21-22). Even assuming defendants will be allowed to rely on evidence of variation among the underlying deeds at trial, this issue would not frustrate class proof. Defendants have produced a relatively small random sample of these agreements, and they are not all identical forms. The variations among these agreements, however, are manageable, can be kept straight, and will not overwhelm the main themes of the case. After Chase produces all credit agreements for all class members, counsel could review the relevant language and divide the agreements into several corresponding categories, just as defendants did in their own brief (id. at 16). The jury then would be presented with representative language from each group of credit agreements, not the overwhelming volume of individual agreements themselves.
See Hofstetter, 2011 U.S. Dist. LEXIS 38124, at 29-30.

In certifying Plaintiff’s UCL claims, the Court also highlighted that the small value of the claims at stake rendered the claims substantively dependent on the class action mechanism.  In my opinion, this argument carries powerful "equitable" weight, especially in cases where the question of certification is otherwise a close call:
With respect to the members of the Section 17200 class seeking restitution, plaintiffs have carried their burden of showing that common questions would predominate the analysis, and that the class action mechanism is preferable for adjudicating their claims — most of which are of too little value to justify bringing individual suits. The alleged unfairness and unlawfulness of defendants' challenged practices stems from requiring borrowers to carry an amount of flood-insurance coverage larger than the maximum limits on their home-equity lines of credit. The comparison between a borrower's credit limit and the amount of flood-insurance coverage the borrower was required to carry is a matter of mathematical computation to be performed on defendants' records.
See Hofstetter, 2011 U.S. Dist. LEXIS 38124, at 41.

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