Rodriguez v. Countrywide Home Loans, Inc. (In Re Rodriguez) , 695 F.3d 360 ( 2012 )

Case: 11-40056 Document: 00511988853 Page: 1 Date Filed: 09/14/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
September 14, 2012
No. 11-40056 Lyle W. Cayce
Clerk
In the Matter of: YDALIA RODRIGUEZ,
Debtor
YDALIA RODRIGUEZ; MARIA ANTONIETA HERRERA; DAVID
HERRERA; LUCY MORENO; ALFONSO MORENO,
Plaintiffs - Appellees
v.
COUNTRYWIDE HOME LOANS, INCORPORATED,
Defendant - Appellant
Appeal from the United States District Court for
the Southern District of Texas
Before GARZA, DENNIS, and HIGGINSON, Circuit Judges.
HIGGINSON, Circuit Judge.
Countrywide appeals a class certification order of the bankruptcy court.
We AFFIRM. Named plaintiffs Ydalia Rodriguez, Maria Antonieta and David
Herrera, and Lucy and Alfonso Moreno are former chapter 13 debtors with
mortgages serviced by Countrywide Home Loans, Inc. (“Countrywide”). The
Plaintiffs each cured their pre-petition mortgage arrearages, completed their
chapter 13 plans, and received a discharge from their bankruptcy cases. They
allege that after they emerged from bankruptcy, Countrywide threatened to
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foreclose on their homes if they did not pay fees that were charged while their
bankruptcy cases were still pending. Plaintiffs claim that these fees were
unreasonable, unapproved, and undisclosed under Federal Rule of Bankruptcy
Procedure 2016(a).1 Additionally, they claim that Countrywide misapplied
mortgage payments to satisfy some of the unauthorized fees, instead of properly
applying the payments as they were intended—to satisfy the amount due each
month on their mortgages. Plaintiffs sought (1) a declaratory judgment that
Countrywide’s conduct violated the Bankruptcy Code, (2) an injunction
preventing Countrywide from trying to collect undisclosed fees, (3) compensatory
damages (including disgorgement and restitution), (4) punitive damages, and (5)
sanctions from the bankruptcy court.
The bankruptcy court found that Countrywide “admits that it misapplied
plan payments and charged fees without first receiving Court approval” but
Countrywide contended that (1) the misapplications and charges were sporadic
1
Fed. R. of Bankr. P. 2016(a) reads:
Application for Compensation or Reimbursement. An entity seeking interim or
final compensation for services, or reimbursement of necessary expenses, from
the estate shall file an application setting forth a detailed statement of (1) the
services rendered, time expended and expenses incurred, and (2) the amounts
requested. An application for compensation shall include a statement as to what
payments have theretofore been made or promised to the applicant for services
rendered or to be rendered in any capacity whatsoever in connection with the
case, the source of the compensation so paid or promised, whether any
compensation previously received has been shared and whether an agreement
or understanding exists between the applicant and any other entity for the
sharing of compensation received or to be received for services rendered in or
in connection with the case, and the particulars of any sharing of compensation
or agreement or understanding therefor, except that details of any agreement
by the applicant for the sharing of compensation as a member or regular
associate of a firm of lawyers or accountants shall not be required. The
requirements of this subdivision shall apply to an application for compensation
for services rendered by an attorney or accountant even though the application
is filed by a creditor or other entity. Unless the case is a chapter 9 municipality
case, the applicant shall transmit to the United States trustee a copy of the
application.
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rather than part of a regular practice and (2) the fees did not violate Rule
2016(a). In response, the bankruptcy court held that, “‘[u]nder the plain
language of Rule 2016, a mortgage lender must file a Rule 2016 application
before collecting any reimbursable fees and costs while a chapter 13 case
remains pending.’” Rodriguez v. Countrywide Homes Loans, Inc. (In re
Rodriguez), 421 B.R. 356, 372 (Bankr. S.D. Tex. 2009). The bankruptcy court
concluded that Rule 2016(a) applied to fees that were “assessed during
bankruptcy but not collected until post-bankruptcy,” rejecting Countrywide’s
arguments.
Plaintiffs moved for class certification of both a Rule 23(b)(2) class and also
a Rule 23(b)(3) class on December 2, 2009. See Fed. R. Civ. P. 23. After a three-
day hearing, the bankruptcy court denied Rule 23(b)(2) as well as Rule 23(b)(3)
class certification for Plaintiffs’ damages claims because they did not satisfy Rule
23(b) but granted narrow class certification for Plaintiffs’ injunctive relief claim.
In doing so, the bankruptcy court determined that the proposed injunction would
state that, “Countrywide shall not collect or attempt to collect any fees that (1)
were incurred during the pendency of a class member’s bankruptcy case, (2) are
governed by Rule 2016(a), and (3) have not yet been authorized pursuant to Rule
2016(a).” It also exercised its “great discretion in certifying and managing an
action,” Vizena v. Union Pac. R.R. Co., 360 F.3d 496, 502 (5th Cir. 2004) (citation
and internal quotation marks omitted), and redefined the class, narrowing it to
only include individuals:
(a) who owed funds on a Countrywide serviced note as of February
26, 2008;
(b) who have not fully paid the relevant mortgage note, fees, or costs
owed to Countrywide, its successors and assigns;
(c) who filed a chapter 13 proceeding in the United States
Bankruptcy Court for the Southern District of Texas on or before
October 15, 2005 and have confirmed chapter 13 plans that treated
mortgages serviced by Countrywide; and
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(d) as to whom Countrywide has assessed a fee or cost governed by
Rule 2016(a), attributable to a time after the filing of a bankruptcy
petition and before the date on which the individual received a
chapter 13 discharge, unless such fee or cost was approved in a
Bankruptcy Court order.
The narrowed class definition excluded those who would not be able to benefit
from redeeming time because they either had already paid their mortgages in
full or no longer had a mortgage serviced by Countrywide. See In re Monumental
Life Ins. Co., 365 F.3d 408, 416 (5th Cir. 2004) (citing Bolin v. Sears, Roebuck &
Co., 231 F.3d 970, 978 (5th Cir. 2000)) (requiring that “most of the class” seeking
injunctive relief be able to benefit from the injunction).
On appeal, Countrywide challenges the bankruptcy court’s class
certification order, arguing that (1) the grant of class certification is precluded
by Rule 23(b) and our holding in Wilborn v. Wells Fargo Bank, N.A. (In re
Wilborn) (“Wilborn II”),2 609 F.3d 748 (5th Cir. 2010)); (2) the bankruptcy court
did not define an ascertainable class; and (3) the bankruptcy court abused its
discretion in failing to reconsider class certification after a consent judgment in
the United States District Court for the Central District of California (“the
consent judgment”) rendered injunctive relief in the instant case moot.
I. Class Certification
We review a denial of class certification for abuse of discretion and legal
questions implicated by the denial de novo. Alaska Elec. Pension Fund v.
Flowserve Corp., 572 F.3d 221, 227 (5th Cir. 2009); Vizena, 360 F.3d at 502.
“‘Implicit in this deferential standard is a recognition of the essentially factual
basis of the certification inquiry and of the [trial] court’s inherent power to
2
When citing Wilborn v. Wells Fargo Bank, N.A. (In re Wilborn), we cite the bankruptcy
court’s decision, Wilborn v. Wells Fargo Bank, N.A. (In re Wilborn) (“Wilborn I”), 404 B.R. 841,
860 (Bankr. S.D. Tex. 2009), reversed on class certification grounds by Wilborn II, 609 F.3d 748
(quoting Genenbacher v. CenturyTel Fiber Co. II, 244 F.R.D. 485, 488 (C.D. Ill. 2007)), as
“Wilborn I,” and our reversal of that decision as “Wilborn II.”
4
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manage and control pending litigation.’” Monumental Life, 365 F.3d at 414
(quoting Allison v. Citgo Petroleum Corp., 151 F.3d 402, 408 (5th Cir. 1998)).
Parties seeking to certify a class must satisfy Fed. R. Civ. P. 23(a)’s four
threshold requirements3 and the requirements of Fed. R. Civ. P. 23(b)(1), (2), or
(3). Maldonado v. Ochsner Clinic Found., 493 F.3d 521, 523 (5th Cir. 2007).
“The party seeking class certification bears the burden of demonstrating that the
requirements of [R]ule 23 have been met.” O’Sullivan v. Countrywide Home
Loans, Inc., 319 F.3d 732, 737–38 (5th Cir. 2003) (citing Allison, 151 F.3d at
408).
Countrywide contests the bankruptcy court’s holding that Plaintiffs met
the requirements of Rule 23(b)(2).4 “[Rule 23(b)(2)’s] focus on injunctive and
declaratory relief presumes a class best described as a ‘homogenous and cohesive
group with few conflicting interests among its members.’ Class certification
centers on the defendants’ alleged unlawful conduct, not on individual injury.”
Monumental Life, 365 F.3d at 415 (quoting Allison, 151 F.3d at 413). Rule
23(b)(2)5 requires that (1) the defendant’s actions or refusal to act are generally
3
Fed. R. Civ. P. 23(a) states:
(a) Prerequisites. 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 interests of the
class.
4
Though Countrywide argues that the bankruptcy court did not properly conclude that
the class met the requirements of 23(a), Countrywide has waived this argument since it did
not raise this argument until its reply brief. “An appellant abandons all issues not raised and
argued in its initial brief on appeal.” Cinel v. Connick, 15 F.3d 1338, 1345 (5th Cir. 1994).
5
Fed. R. Civ. P. 23(b)(2) states that:
A class action may be maintained if Rule 23(a) is satisfied and if . . . the party
opposing the class has acted or refused to act on grounds that apply generally
to the class, so that final injunctive relief or corresponding declaratory relief is
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applicable to the class as a whole and (2) injunctive relief predominates over
damages sought. Bolin, 231 F.3d at 975.
A. General Applicability to the Class
“Instead of requiring common issues, 23(b)(2) requires common behavior
by the defendant towards the class.” Casa Orlando Apartments, Ltd. v. Fed. Nat’l
Mortg. Ass’n, 624 F.3d 185, 198 (5th Cir. 2010). “The court may certify a class
under Rule 23(b)(2) if ‘the party opposing the class has acted or refused to act on
grounds generally applicable to the class, thereby making appropriate final
injunctive relief or corresponding declaratory relief with respect to the class as
a whole.’” Bolin, 231 F.3d at 975 (citing Fed. R. Civ. Proc. Rule 23(b)(2)).
The bankruptcy court did not abuse its discretion when it concluded that
Countrywide’s fee charging actions in alleged derogation of Rule 2016(a) were
generally applicable to the narrowly certified “unapproved fees” class of
approximately 125 individuals. Countrywide charged every class member
purportedly unauthorized fees in contravention of Rule 2016(a). It is this alleged
common behavior towards all members of the class—“systematically ignor[ing]
Rule 2016(a) by charging unauthorized fees”—that led to the class members
allegedly being harmed in the same way. See Bolin, 231 F.3d at 975 n.22. As the
bankruptcy court explained, “[t]he [class action] therefore eliminates piecemeal
litigation concerning whether Countrywide must seek Court approval for fees
that it imposes: once the class is certified and the injunction is granted or
denied, that issue will be resolved as to all class members.”
Countrywide argues that our decision in Wilborn II, involving similar facts
to the instant case, mandates that class certification be denied. Wilborn II,
however, was exactingly adhered to by the bankruptcy court, which extensively
applied Wilborn II’s reasoning to redefine and narrow the instant class and
appropriate respecting the class as a whole.
6
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proposed injunction and to deny class certification as to any damages. The
Wilborn II plaintiffs alleged that, “for each named plaintiff and each unnamed
class member Wells Fargo impermissibly charged post-petition fees and costs
without obtaining approval from the bankruptcy court, as purportedly required
by Title 11 and [Federal Rule of Bankruptcy Procedure 2016].” 609 F.3d at 752.
The bankruptcy court granted class certification for the plaintiffs’ claims for
declaratory judgment, disgorgement, injunctive relief, and sanctions. Id. at 751.
On appeal, after rejecting class certification under Rule 23(b)(3), we determined
that class certification was also improperly granted under Rule 23(b)(2) because
“[a]gain, the circumstances and court orders differ between the judges and cases.
And the injunctive or declaratory relief sought by the plaintiffs must
predominate over claims for monetary relief.” Id. at 757 (citing Maldonado, 493
F.3d at 524). We concluded that to determine which fees should be disgorged,
the bankruptcy court would have to conduct an individual assessment of each
individual’s claims to figure out how and why certain fees were charged or paid.
Id. at 756–57.6 Such an assessment would include deciding whether debtors
agreed to the fees, whether the parties entered into an agreement to modify the
stay or agreed to a loan modification, whether the bankruptcy court approved of
the fees, and whether the defendant had a viable defense to each particular
plaintiff’s fees. Id.
In the instant case, the bankruptcy court conformed its ruling explicitly
to our Wilborn II decision, explaining how it would not include damages claims
in its class certification grant because, “when damages enter the fray,
individualized issues begin to predominate as the Court must consider the harm
6
Although these citations refer to the portion of Wilborn II that analyzes class
certification under Rule 23(b)(3), the Rule 23(b)(2) discussion incorporates by reference the
earlier Rule 23(b)(3) discussion. See Wilborn II, 609 F.3d at 757 (“For similar reasons, class
certification is improper under Rule 23(b)(2). . . . Again, the circumstances and court orders
differ between the judges and cases.”).
7
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suffered by each class member on a case-by-case basis.” Similarly, because
disgorgement and other damages claims were also excluded from this class
action, Countrywide will not be required to adjudicate and repay fees, again,
responding to our direction in Wilborn II that individualized disgorgements not
be resolved through class action procedure. “[Rule 23(b)(2)] is clear that claims
seeking injunctive or declaratory relief are appropriate for (b)(2) class
certification.” Allison, 151 F.3d at 411. The injunction being sought would target
only the alleged Countrywide practice of viewing Rule 2016(a) as inapplicable
to any fee assessed post-petition but charged post-discharge and, accordingly,
any practice of never seeking approval of such fees under Rule 2016(a). If
Plaintiffs prevail, Countrywide would no longer be able to collect or attempt to
collect fees within the scope of Rule 2016(a) that, according to its own readily
accessed and comprehensive AS-400 database, were incurred post-petition and
pre-discharge yet have not been authorized for collection pursuant to Rule
2016(a).7 “The focus is properly upon Countrywide’s fee assessment and
collection practice, not on the individualized manner in which each class member
may have been affected by the practices.”8 As a result, the injunctive claim on
7
In abundance of caution to avoid individualized litigation and a loss of class
homogeneity, the bankruptcy court made clear that even injunctive success for the class to
ensure Countrywide’s compliance with Rule 2016(a) might mean specific fees validly collected
by Countrywide will be retained.
8
The bankruptcy court’s single-issue injunctive class redefinition and application of
Wilburn II demonstrate that Countrywide’s alleged fee practice defenses will not be implicated
or compromised in this litigation. In fact, that concern, with careful inquiry into the named
Plaintiffs’ cases, was the basis for the bankruptcy court’s broad application of Wilborn II to
refuse certification even as to non-disgorgement damages claims. Regardless, our caselaw is
clear that courts are “free . . . as often as necessary before judgment” to reconsider whether
class certification continues to be appropriate. McNamara v. Felderhof, 410 F.3d 277, 280 (5th
Cir. 2005) (citations omitted); see also Richard v. Byrd, 709 F.2d 1016, 1019 (5th Cir. 1983)
(holding, before the 2003 amendments to Rule 23, that a district judge must decertify a class
as appropriate). As contemplated by the bankruptcy court, it can determine across individual
cases at trial whether authorization pursuant to Rule 2016(a) is unnecessary in circumstances
where Countrywide would invoke waiver, estoppel, voluntary payment, or res judicata as a
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its own does not involve “the myriad issues that may arise in each case as to
whether and how fees and costs were imposed.” Wilborn II, 609 F.3d at 757.9
The bankruptcy court made factual findings based on multiple days of
testimony and the fifty volume record and concluded therefrom that many of the
factors cited by Countrywide as requiring an individualized assessment of claims
are readily identifiable in Countrywide’s AS-400 database. For each mortgagor,
the AS-400 database tracks the type and amount of all fees; whether a fee was
classified as recoverable (collectable) or non-recoverable (not collectable); the
funds pre- and post-petition; all payments; the mortgagor’s bankruptcy filings;
the status, case number, and chapter of the mortgagor’s bankruptcy case; the
name of the trustee handling the mortgagor’s bankruptcy case; the date of the
chapter 13 plan confirmation; and all information relevant to the escrow and
principal balance of the mortgage. After a firsthand review of the evidence, the
bankruptcy court determined, based on testimony by one of Countrywide’s
witnesses, that Countrywide’s AS-400 database was searchable, making the
information easily ascertainable without court intervention.10 Since
defense. The injunction, the court clarified, would not impede the retention or recovery of
validly assessed fees.
9
Additionally, “there is no concern that ‘the legitimate interests of potential class
members who might wish to pursue their monetary [damages] claims individually’ would be
interfered with by this class certification.” James v. City of Dallas, Tex., 254 F.3d 551, 572–73
(5th Cir. 2001) (quoting Allison, 151 F.3d 415), abrogated on other grounds by M.D. ex rel.
Stukenberg v. Perry, 675 F.3d 832, 839–41 (5th Cir. 2012) (explaining that, contrary to prior
Fifth Circuit caselaw that “[t]he fact that some of the Plaintiffs may have different claims, or
claims that may require some individualized analysis, is not fatal to commonality,” the
Supreme Court held in Dukes v. Walmart, 131 S. Ct. 2541 (2011), that “[c]ommonality requires
the plaintiff to demonstrate that the class members have suffered the same injury.” (internal
quotation marks omitted)). The proposed injunction does not indicate that it would have any
preclusive effect on any of the individual plaintiffs’ damages claims.
10
The bankruptcy court pointed out that “[t]he only relevant data noticeably absent
from the AS-400 database is information concerning court authorization of fee awards”;
consequently, the bankruptcy court explained that any fees already agreed upon by the parties
would not be considered as a part of the class action.
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“Countrywide could [] query all the fees charged to every Countrywide account
in the Southern District of Texas, or even to every mortgage account
nationwide,” the bankruptcy court faced unique facts that allowed it to conclude
that it would not need to determine on a loan-by-loan basis whether fees were
improperly charged.
Next, Countrywide argues that its conduct cannot be generally applicable
to the class because Countrywide had no policy concerning Rule 2016(a)
compliance. However, the bankruptcy court did not abuse its discretion when
it determined that because “Countrywide assessed and charged fees to the class
according to its understanding that its conduct was not regulated by Rule
2016(a) . . . . Plaintiffs have sufficiently alleged behavior applicable to the class
as a whole under Rule 23(b)(2) and Bolin.” The bankruptcy court reasonably
determined, based on the extensive record, that Countrywide had a regular
practice for dealing with fees accrued post-petition but charged post-discharge
and Rule 2016(a). When it perceived that compliance with Rule 2016(a) was not
required, Countrywide had a practice of noncompliance. The bankruptcy court
summarized its findings from evidence submitted to it as follows:
Multiple employees of Countrywide, each of whom was intimately
familiar with Countrywide’s relevant bankruptcy and fee collection
policies, testified that Countrywide would regularly assess fees
without any concern for Rule 2016(a)’s requirements. The
employees also testified that Countrywide would regularly classify
unauthorized fees as recoverable from debtors in the AS-400
database.11
11
The instant case, therefore, is distinguishable factually from Dukes v. Walmart,
where the Supreme Court held that the plaintiffs had offered insufficient evidence to show
that the discriminatory treatment at issue was typical of Wal-Mart’s employment practices.
131 S. Ct. at 2554–55 (discussing and applying Bolin). The Supreme Court noted that Wal-
Mart had a specific policy forbidding sex discrimination, and individual Wal-Mart managers
were using their discretion over hiring matters to discriminate. Id. at 2553–54. In contrast,
the bankruptcy court found that Plaintiffs in the present case have identified a regular
practice within Countrywide of not following Rule 2016(a). See also id. at 2555. It is not the
case that Countrywide required its employees to follow Rule 2016(a) but individual employees
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In addition, Countrywide contends that the bankruptcy court was
mistaken when it concluded that Countrywide’s behavior was generally
applicable to the class because there was no legal consensus regarding whether
Rule 2016(a) applied to post-petition mortgage fees. However, this fact does not
impact the general applicability of Countrywide’s behavior because Countrywide
treated all class members the same, failing to seek approval in every case.
Irrespective of any legal uncertainty as to Rule 2016(a), Countrywide
consistently did not apply for authorization pursuant to Rule 2016(a); there was
no contradictory or sporadic treatment of Rule 2016(a) by Countrywide that
would militate against certification of this class.12
Finally, Countrywide argues, citing Meyer v. Brown & Root Construction
Co., 661 F.2d 369 (5th Cir. 1981), that the proposed injunction would be
improper because it merely orders Countrywide to obey the law. Countrywide’s
argument misinterprets Meyer. In Meyer, the district court enjoined the
defendant from “‘engaging in the stated unlawful employment practice.’” Id. at
373. The defendant argued that such language was too vague because it merely
ordered the defendant to obey the law generally rather than identifying what
conduct was specifically prohibited. Id. We rejected that argument, holding that
the injunction was sufficiently specific because the judgment made it clear that
the unlawful employment practice being prohibited was “constructively
discharging plaintiff when she was pregnant” in violation of Title VII. Id.
chose not to; in fact, no Countrywide employee filed a Rule 2016(a) application during the time
period identified in the class definition.
12
Countrywide argues that to the extent that it did have a Rule 2016(a) policy, that
policy was to defer decision-making to local counsel. However, local counsel was not charged
with determining whether a fee fell within the scope of Rule 2016(a) or deciding whether or
not bankruptcy court approval in compliance with Rule 2016(a) should be sought; instead,
Countrywide only asserts that local counsel determined whether to seek approval of fees in
ways other than complying with Rule 2016(a), including agreed orders and amended proofs
of claim.
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Injunctions are problematic when they order a defendant to obey the law but do
not simultaneously indicate what law the defendant needs to obey. Id. We did
not hold that injunctions that order a defendant to obey a specific law are
problematic. See id.
Therefore, we conclude that the bankruptcy court did not abuse its
discretion by determining that Countrywide’s failure to seek bankruptcy court
approval under Rule 2016(a) is generally applicable, under these facts probingly
ascertained by the bankruptcy court, to this narrow class.
B. Damages are “Incidental” to Injunctive Relief
Since no damages are part of this case’s class certification, the bankruptcy
court did not abuse its discretion when, after three days of hearings and
consideration of extensive supporting evidence, it concluded that the Rule
23(b)(2) requirement that damages must be sufficiently incidental to injunctive
relief was met. “[Trial] courts ‘are in the best position to assess whether a
monetary remedy is sufficiently incidental to a claim for injunctive or
declaratory relief.’” Casa Orlando Apartments, 624 F.3d at 201 (quoting Allison,
151 F.3d at 416). The bankruptcy court recognized that, “monetary relief, to be
viable in a [R]ule 23(b)(2) class, must ‘flow directly from liability to the class as
a whole on the claims forming the basis of the injunctive or declaratory relief,’”
and properly applied the relevant analysis from Wilborn II to Plaintiffs’ damages
claims, denying class certification for those issues. The bankruptcy court then
held that Rule 23(b)(2)’s predominance requirement was easily satisfied since
only injunctive relief was at issue.13 Since no monetary relief is sought,
13
The bankruptcy court’s limited grant of class certification is especially appropriate
because “a court should certify a class on a claim-by-claim basis, treating each claim
individually and certifying the class with respect to only those claims for which certification
is appropriate.” Bolin, 231 F.3d at 976. According to Bolin, “Rule 23(c)(4) explicitly recognizes
the flexibility that courts need in class certification by allowing certification ‘with respect to
particular issues’ and division of the class into subclasses.” Id.
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monetary relief cannot be more than incidental to injunctive relief. This
comports with our reasoning in James that since “much of the requested redress
is pure injunctive relief,” the pure injunctive relief “does not implicate a concern
about monetary damages.” 254 F.3d at 572; see also Allison, 151 F.3d at 411
(explaining that class certification would have been proper if the plaintiffs were
only seeking injunctive relief because the plain language of Rule 23(b)(2) would
have been satisfied).
Because the bankruptcy court’s decision was not an abuse of discretion, we
affirm its grant of class certification for Plaintiffs’ injunctive relief claim.
II. Class Definition
Countrywide argues that the bankruptcy court adopted an improper class
definition by certifying a so-called “fail-safe class.” A fail-safe class is a class
whose membership can only be ascertained by a determination of the merits of
the case because the class is defined in terms of the ultimate question of liability.
Cf. Intratex Gas Co. v. Beeson, 22 S.W.3d 398, 404 (Tex. 2000) (describing the
concept). “‘[T]he class definition precludes the possibility of an adverse judgment
against class members; the class members either win or are not in the class.’”
Wilborn I, 404 B.R. at 860 (citation omitted); see also Adashunas v. Negley, 626
F.2d 600, 603–04 (7th Cir.1980) (holding that a reasonably defined class of
“children entitled to a public education who have learning disabilities and ‘who
are not properly identified and/or who are not receiving’ special education” did
not exist because the class was “so highly diverse and so difficult to identify that
it is not adequately defined or nearly ascertainable” and the proposed class
definition would result in a “fail-safe” class); Beeson, 22 S.W.3d at 403–05.
Stated otherwise, the class definition is framed as a legal conclusion. Beeson, 22
S.W.3d at 404.
Countrywide does not cite any case where we have rejected a class
definition because it created a so-called fail-safe class. We rejected a rule
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against fail-safe classes in Mullen v. Treasure Chest Casino, 186 F.3d 620 (5th
Cir. 1999), and Forbush v. J.C. Penney Co., 994 F.2d 1101 (5th Cir. 1993),
abrogated on other grounds by Dukes, 131 S. Ct 2541. The plaintiff in Forbush
proposed that the court should define its class as, “employees ‘whose pension
benefits have been, or will be, reduced or eliminated as a result of the
overestimation of their Social Security benefits.’” 994 F.2d at 1105. The
defendant argued that the class was not defined with sufficient specificity and
was “hopelessly ‘circular,’ as the court must first determine whether an
employee’s pension benefits were improperly reduced before that person may be
said to be a member of the class.” Id. In response, we stated that, “[t]his
argument is meritless and, if accepted, would preclude certification of just about
any class of persons alleging injury from a particular action. These persons are
linked by this common complaint, and the possibility that some may fail to
prevail on their individual claims will not defeat class membership.” Id.
In Mullen, the class was defined as, “all members of the crew of the M/V
Treasure Chest Casino who have been stricken with occupational respiratory
illness caused by or exacerbated by the defective ventilation system in place
aboard the vessel.” 186 F.3d at 623. The defendant argued that, “any class must
be capable of objective identification before it can be certified” and because
membership in the class was contingent upon “ultimate issues of causation,” the
defendant was “prejudiced by being forced to defend against claimants who may
not end up being members of the class.” Id. at 624 n.1. Relying on Forbush, we
rejected this argument, holding that, “because the class is similarly linked by a
common complaint, the fact that the class is defined with reference to an
ultimate issue of causation does not prevent certification.” Id. Because our
precedent rejects the fail-safe class prohibition, we conclude that the bankruptcy
court did not abuse its discretion when it defined the class in the present case.
14
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No. 11-40056
III. Motion for Reconsideration
Countrywide filed a Rule 59(e) motion for reconsideration, arguing that
Plaintiffs’ claim for injunctive relief was mooted by a consent judgment agreed
to by the Federal Trade Commission (“FTC”) and Countrywide in the United
States District Court for the Central District of California (the “consent
judgment”).14 The bankruptcy court denied Countrywide’s Rule 59(e) motion for
reconsideration, holding that the nationwide injunction in section IX of the
consent judgment did not include all of the relief available to the class in the
proposed injunction. Specifically, the bankruptcy court determined that the
consent judgment did not moot the proposed injunction because (1) the consent
judgment allows Countrywide to collect fees without Rule 2016(a) bankruptcy
court authorization by following instead debtor notice procedures set forth in the
FTC consent judgement and (2) the consent judgment fails to provide relief to
Plaintiffs who had payments misapplied by Countrywide.15
14
The relevant portion for the consent judgment states:
IT IS FURTHER ORDERED that Defendants, their officers, employees, agents,
representatives, and all other Persons or entities in active concert or
participation with them who receive actual notice of this Order by personal
service or otherwise, directly or through any corporation, subsidiary, division,
or other device, are hereby permanently restrained and enjoined, in connection
with the Servicing of any Loan that incurred any Fee, Escrow Shortage, and/or
Escrow Deficiency during a Chapter 13 Bankruptcy, from collecting any such
Fee, Escrow Shortage, and/or Escrow Deficiency after Defendants obtain relief
from the bankruptcy stay or, if relief from stay is not sought or granted, after
the debtor is discharged or the bankruptcy case is dismissed, unless Defendants
(1) obtained specific court approval for the charges during the Chapter 13
Bankruptcy case, or (2) provided to the consumer the notices required under
Sections VIII and IX of this Order.
15
We also agree with the bankruptcy court’s analysis of the merits of Countrywide’s
motion. The bankruptcy court examined whether Countrywide met its burden to show that
there was a realistic prospect that the violations alleged by Plaintiffs would continue
notwithstanding the consent judgment. The text of the consent judgment does not delineate
the scope of Rule 2016(a) and could allow Countrywide to bypass bankruptcy court
authorization by giving mortgagors notice of the fees through the consent judgment’s notice
procedures. As the bankruptcy court correctly explained, “this case is primarily about
15
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No. 11-40056
We affirm the bankruptcy court’s denial of Countrywide’s motion for
reconsideration of the certification order. Rule 59(e) motions are “not the proper
vehicle for rehashing evidence, legal theories, or arguments that could have been
offered or raised before the entry of judgment.” Templet v. HydroChem Inc., 367
F.3d 473, 478–79 (5th Cir. 2004) (citing Simon v. United States, 891 F.2d 1154,
1159 (5th Cir. 1990)). They are used to “call[] into question the correctness of a
judgment”and are “properly invoked ‘to correct manifest errors of law or fact or
to present newly discovered evidence.’” In re Transtexas Gas Corp., 303 F.3d 571,
581 (5th Cir. 2002) (quoting Waltman v. Int’l Paper Co., 875 F.2d 468, 473 (5th
Cir. 1989)). “Reconsideration of a judgment after its entry is an extraordinary
remedy that should be used sparingly.” Templet, 367 F.3d at 479 (internal
citations omitted). We perceive no manifest error requiring the application of
this extraordinary remedy because of Countrywide’s consent judgment with the
FTC.
In Templet, we refused to reverse a district court’s rejection of a Rule 59(e)
motion when “the underlying facts were well within the [plaintiffs’] knowledge
prior to the district court’s entry of judgment.” Id. Here, the consent judgment
was entered by the Central District of California on June 15, 2010. The
Plaintiffs’ desire to force Countrywide to comply with Rule 2016(a) authorization before
collecting fees incurred during Plaintiffs’ bankruptcies.” The consent judgment would not
necessarily require this compliance.
Furthermore, Appellees argue that Countrywide could reclassify fees from recoverable
to non-recoverable back to recoverable so that it could use the consent judgment’s notice
provision to avoid seeking bankruptcy court authorization. This comports with the bankruptcy
court finding in its class certification decision, based on evidence considered by it, that
Countrywide’s employees “testified that Countrywide would regularly classify unauthorized
fees as recoverable from debtors in the AS-400 database,” and that there was a realistic
possibility that Countrywide could reclassify fees from non-recoverable to recoverable to
circumvent Rule 2016(a) by “collect[ing] unauthorized fees, which were deemed current during
this class action, after the conclusion of this case.”
Finally, the consent judgment explicitly does not include banks affiliated with
Countrywide because banks are outside the jurisdiction of the FTC. The proposed injunction
has no such limitation.
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No. 11-40056
bankruptcy court issued its order on July 21, 2010. The defendants first brought
the consent judgment to the bankruptcy court’s attention in its Rule 59(e)
motion, filed on August 4, 2010. As the bankruptcy court emphasized,
Countrywide could have filed a supplemental motion notifying the bankruptcy
court of the consent judgment just as Countrywide had done after Wilborn II was
decided. Because Countrywide had forty-one days to apprise the bankruptcy
court of the consent judgment before the bankruptcy court issued its certification
order, the consent judgment did not constitute newly discovered evidence
compelling Rule 59(e) relief as Countrywide alleges.
Countrywide argues that it could not have known that the bankruptcy
court would certify the class only for injunctive relief and therefore, that it could
not have known that the consent judgment would moot the class certification
grant. However, the consent judgment was relevant to the case no matter how
broadly the bankruptcy court granted class certification. Although the
bankruptcy court certified a narrower class than the one sought by Plaintiffs,
Countrywide knew that Plaintiffs were seeking injunctive relief before the
bankruptcy court issued its class certification order. The bankruptcy court could
have explored and accepted Countrywide’s argument and determined that
Plaintiffs’ claim for injunctive relief was moot even if the bankruptcy court had
certified both a damages and an injunctive class. Because we conclude that
Countrywide’s Rule 59(e) motion for reconsideration was not based on newly
discovered evidence, we do not revisit the bankruptcy court’s separate merits
denial of the motion.
VI. Conclusion
For the above reasons, we AFFIRM the certification of the injunctive class,
the bankruptcy court’s class definition, and the denial of Countrywide’s motion
for reconsideration.
17