Friday, December 12, 2014

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Divided Court of Appeal Panel Allows Hundreds of Countrywide Claims to Be Joined in Single Action

By a MetNews Staff Writer

Hundreds of claims by borrowers who claim they were defrauded into taking out risky home loans from Countrywide Financial may sue its successor, Bank of America, in a single action, the Fourth District Court of Appeal ruled yesterday.

In a 2-1 decision, the panel reversed Orange Superior Court Judge Gail Andler’s ruling that more than 900 plaintiffs were misjoined in the case. Emphasizing that the court was making no judgment as to the merits of the claims, Justice William Bedsworth said any problems brought about by the size of the “mass action” can be managed through the use of subclasses.

“Injustice, said Aristotle, can consist in treating unequals equally or of treating equals unequally,” the justice wrote. “So, just as there is a procedural solicitude for consolidation to assure access to justice that favors joinder and class actions, there is corresponding contrapuntal recognition in procedural law that trial courts sometimes need to categorize and subdivide claims and classes to treat them effectively. We find it in such procedures as the discretion of trial courts to sever arbitral claims from non-arbitral ones…the authority to order separate trials in order to avoid prejudice…and – important for our purpose here – the ability to organize class actions into appropriate subclasses.”

The third amended complaint runs to more than 3,000 pages, including a main body of more than 200 pages, an appendix containing more than 1,000 pages of specifications by individual plaintiffs of their experiences with Countrywide, and more than 1,000 pages of exhibits detailing interactions between the plaintiffs and the erstwhile lender.

The essential allegations of the complaint are similar to those raised in numerous other suits against Countrywide—that the company used dishonest appraisers in order to persuade borrowers to enter into loans for overpriced properties, and failed to explain or misrepresented various terms of the loans, which the lender then sold in tranches to investors.

“And finally,” Bedsworth summarized, “when the Great Recession hit and the local real estate bubble burst decreasing everybody’s home values, these plaintiffs discovered they couldn’t afford their loans, couldn’t afford to refinance, and sustained various kinds of ensuing financial damage.”

All of the plaintiffs pled causes of action for fraudulent and negligent misrepresentation and unfair competition, while 90 plaintiffs also brought wrongful foreclosure claims.

Bedsworth said the claims were properly joined under Code of Civil Procedure §378 and related case law, expressing California’s longstanding, liberal view of joinder.

“[I]t would be a major departure from California case law construing section 378 for us to uphold the trial court’s demurrer for misjoinder in this case,” he wrote. He described the litigation as “merely a quantitatively – not qualitatively – larger version of” cases in which the Court of Appeal had upheld joinder of plaintiffs, including one in which 200 persons who claimed exposure to toxics were allowed to bring a single lawsuit.

The issue of whether the suit can be effectively managed, the jurist went on to say, is a more difficult question. But there are ways of doing it, he said.

“On remand the trial court will have the power to require plaintiffs’ counsel to whip the third amended complaint’s desultory and scattered allegations against Countrywide into a tightly-structured set of manageable subclaims and subclasses,” he said. “Our decision does not require it to commence jury selection at Anaheim Stadium.”

Justice David A. Thompson concurred in the opinion, but Justice Richard Fybel dissented, arguing that the trial judge was correct.

“The result of the majority’s decision to reverse the trial court will be as breathtaking as it is legally unsupported,” he wrote, calling the size of the joinder “unprecedented under California and federal law.”

Fybel argued that joinder was inappropriate because the suit arises from distinct transactions, the liability claims are not subject to common proof, a number of federal decisions rejecting joinder in other Countrywide cases should be treated as persuasive, and the case is not a class action and should not be treated like one.

The case is Petersen v. Bank of America, G048387.