Metropolitan News-Enterprise


Wednesday, April 1, 2009


Page 1


Claims Based on Bank’s Alleged Software Glitch Amenable to Class Treatment—C.A.


By SHERRI M. OKAMOTO, Staff Writer


The Fourth District Court of Appeal has revived a class action against Costa Mesa-based Pacific Mercantile Bank for alleged violations of the Truth in Lending Act.

Div. Three held in an unpublished opinion issued Monday that substantial evidence did not support a trial court’s decision denying class certification to a putative class of individuals who had borrowed money from the bank to refinance their homes.

James LaLiberte and Dennis and Jann O’Connor obtained home refinance loans in 2002 from the bank, but filed suit the following year asserting that the bank’s calculation of finance charges violated the TILA’s disclosure requirements.

The bank operates eight financial centers in Newport Beach, Costa Mesa, San Juan Capistrano, Beverly Hills, La Habra, Long Beach, Ontario and La Jolla.

During discovery, the bank agreed to produce a random sample of TILA disclosure statements and other documentation it had provided to borrowers on loans made between May 2001 and May 2002, but the plaintiffs did not to demand production of files on any subsequent loans.

Proposed Subclasses

The plaintiffs subsequently amended their class allegations to set forth two proposed subclasses—those whose claims fell within TILA’s one year statute of limitations for damage claims and those whose claims fell within TILA’s three-year limitations period for rescission—but the bank demurred, contending the rescission claims were inappropriate for class treatment because they involved issues of fact specific to each borrower.

However, Orange Superior Court Judge David C. Velasquez sustained without leave to amend, and also sustained the bank’s demurrer to the class claims seeking damages because the complaint had been amended to eliminate the named plaintiffs as members of the class they purported to represent.

Div. Three partially reversed the trial court’s order in a published opinion, holding that the dates on which the borrowers obtained their loans did not affect the community of interest between the named plaintiffs and the class members.

On remittitur, LaLiberte and the O’Connors again sought to certify a class of plaintiffs who had obtained closed-end refinance loans from the bank after Nov. 21, 2002 and were charged a closing fee in excess of $100.

They presented evidence the alleged TILA violations stemmed from a software programming error in calculating finance charges, including deposition testimony that the bank used a software program called DocMagic to generate disclosure statements and calculate the finance charges.

The deponents admitted that if the program omitted a particular charge as a finance charge, the discrepancy would appear virtually on every loan made by the bank.

The plaintiffs also introduced the disclosure statements they had received and those produced by the bank during discovery, which both omitted closing fees from the finance charge calculations.

Noting that the bank had generated the plaintiffs’ loan disclosure statements in April and May 2002, and that the statements produced in discovery were generated between May 2001 and May 2002, Velasquez found the plaintiffs did not establish the claimed TILA violations persisted after May 2002 into the class period beginning that November and denied certification.

But Justice Richard M. Aronson explained on appeal that the plaintiffs’ evidence, taken as a whole, established a common question of fact as to whether DocMagic, as set up and utilized by the bank, generated forms that omitted escrow closing fees from the finance calculation. If so, he said, a common question of law would arise whether that omission violated TILA.

Inference Supported

Aronson noted that although the plaintiffs did not establish the time frame in which the bank used DocMagic, the bank did not object to questions or evidence concerning the program, supporting an inference that the bank used the program during the time period pertinent to the putative class.

The justice also reasoned that sufficient evidence supported an inference that the problem continued into the class period, and concluded the trial court’s stated reason for denying certification was therefore error, because the nature of software programming errors is such that problems will not fix themselves, and because the plaintiffs’ evidence showed the bank had not rectified the alleged programming glitch in the year preceding the class date of Nov. 21, 2002.

Presiding Justice David G. Sills and Justice William F. Rylaarsdam joined Aronson in his opinion.

Mark A. Ozzello and Mike Arias of Arias, Ozzello & Gignac, joined by Shane E. Coons and Thomas F. Newmeyer of Newmeyer & Dillion, represented LaLiberte and the O’Connors.

Robert S. Beall II, Sean P. O’Connor, Brian B. Farrell and Karin Dougan Vogel of Sheppard Mullin Richter & Hampton represented the bank.

The case is LaLiberte v. Pacific Mercantile Bank, G040248.


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