In A Putative Class Action, The Third Circuit Holds That A Plaintiff Must Show Detrimental Reliance On Improper Loan Disclosure Statements To Obtain Actual Damages Under The Truth In Lending Act (TILA)

Posted on February 1, 2010 by Sheppard Mullin
By Shannon Petersen

On December 31, 2009, the Third Circuit held that a borrower must prove detrimental reliance to obtain actual damages for a violation of the federal Truth in Lending Act (“TILA”). See Vallies v. Sky Bank, —F.3d—, 2009 WL 5154473 (3rd Cir. 2009).

Under TILA, the federal government requires that lenders make certain disclosures to borrowers about the terms of their loans before lending them money. TILA claims are at the epicenter of the mortgage litigation crises. Over the past two years, TILA claims, including class action claims, have flooded the state and federal courts. Most of these claims involve allegations that some technical TILA disclosure violation has occurred.

Though not a mortgage case, the allegations of the borrower in Vallies v. Sky Bank are typical. The plaintiff alleged that the finance charge statement made by the bank for an auto loan was misleading in that it did not include $395 representing the amount of the debt cancellation insurance, which the plaintiff alleged should have been included in the finance charge statement under TILA. The district court granted summary judgment in favor of the bank because the borrower had failed to show that (1) he had read the TILA disclosure statement pertaining to finance charges, (2) he had understood the finance charges being disclosed, (3) had the disclosure been accurate by including an additional $395, he would have sought better terms or foregone the loan, and (4) if he had sought better terms, he would have obtained them.

The Third Circuit declined to state the specific facts or circumstances that constitute detrimental reliance under TILA, but affirmed the decision of the district court that detrimental reliance must be shown and had not been shown here. In so holding, the Third Circuit relied on the language of TILA itself, which provides for both actual damages and statutory damages. According to the Third Circuit, to obtain actual damages, a plaintiff must show causation by showing that he or she relied on a misleading or improper loan disclosure statement to his or her detriment. In contrast, to obtain statutory damages, a plaintiff must only show that a violation of TILA has occurred. (For class action suits, statutory damages under TILA are capped at the lesser of $500,000 or 1% of the defendant’s net worth.).

In reaching its decision, the Third Circuit considered but rejected as irrelevant the concerns of some legal commentators, who have noted that under a detrimental reliance standard actual damages for TILA loan disclosure violations may be difficult to prove. The court also disregarded the fact that “detrimental reliance may create obstacles for class certification because of the individualized fact-specific nature of the reliance inquiry.” The court distinguished other case law, holding that detrimental reliance under TILA is not necessary, on the grounds that those cases involved claims for statutory damages, not actual damages, under TILA.

Finally, the Third Circuit noted that it joined the holding of every other circuit court that has addressed the issue, including the First, Fifth, Sixth, Eighth, and Ninth Circuits. Citing United States v. Petroff-5 Kline, 557 F.3d 285, 297 (6th Cir. 2009) (“[A]ctual damages require a showing of detrimental reliance.”); McDonald v. Checks-N-Advance, Inc. (In re Ferrell), 539 F.3d 1186, 1192 (9th Cir. 2008) (finding no valid basis to overturn the rule of In re Smith requiring a showing of detrimental reliance to establish actual damages); Gold Country Lenders v. Smith (In re Smith), 289 F.3d 1155, 1157 (9th Cir. 2002) (“Wejoin with other circuits and hold that in order to receive actual damages for a TILA violation . . . a borrower must establish detrimental reliance.”); Turner v. Beneficial Corp., 242 F.3d 1023, 1028 (11th Cir. 2001) (en banc) (“We hold that detrimental reliance is an element of a TILA claim for actual damages . . . .”); Perrone v. Gen. Motors Acceptance Corp., 232 F.3d 433, 434–40 (5th Cir. 2000) (holding that detrimental reliance is an element of a claim for actual damages); Peters v. Jim Lupient Oldsmobile Co., 220 F.3d 915, 917 (8th Cir. 2000)(requiring a showing of proximate causation and adopting a four-prong reliance test for establishing actual damages); Bizier v. Globe Fin. Servs., Inc., 654 F.2d 1, 4 (1st Cir. 1981) (noting in dicta the need to show causation for an award of actual damages “in addition to a threshold showing of a violation of a TILA requirement”).

Under this law, it is not enough, as plaintiffs in TILA cases often do, to allege that a TILA loan disclosure violation has occurred. Instead, a plaintiff must also allege and prove that he or she relied on the misleading or improper statement and as a result of this reliance suffered actual damage. This recent decision of the Third Circuit also emphasizes the difficulty of certifying a class action for actual damages under TILA. Even where the named plaintiff has detrimentally relied on an improper loan disclosure statement, such reliance can rarely be universally inferred for other, unnamed class members. Instead, to determining detrimental reliance usually requires an individual inquiry about whether the class member read the disclosure statement, understood it, and relied on it to his or her detriment. For this reason, such cases are very difficult to certify for class treatment. See, e.g., Stout v. J.D. Byrider, 228 F.3d 709, 718 (6th Cir. 2000) (affirming the denial of class certification based on the need for individualized assessment of whether “each putative class member relied upon false representations or failures to disclose” under TILA).

Class Action Certification Granted In Illinois for FDCPA Violations: Codilis & Associates

I have a feeling this is going to be the case in one fashion or another against the Foreclosure Mills all over the US! I am going to start a new post for each Class Action related to a Mill. Keep checking back!

April 7, 2010 by christine

A reader from Illinois sent me this information. If you’re being foreclosed upon in Illinois by Codilis & Associates, you might want to pay close attention. This is from Edelman, Combs, Latturner & Goodwin, P.C.’s website.

Shea v. Codilis

99 C 0057


2000 U.S. Dist. LEXIS 4131

March 27, 2000, Decided

DISPOSITION: [*1] Plaintiff’s motion for class certification GRANTED.

COUNSEL: For plaintiff: Daniel A. Edelman, Cathleen M Combs, James O. Latturner, Marianne J. Lee, EDELMAN, COMBS & LATTURNER, Chicago, Illinois.

For defendant: Thomas McGarry, John M. Foley, Matthew R. Henderson, HINSHAW & CULBERTSON, Chicago, Illinois.

JUDGES: David H. Coar.

OPINION BY: David H. Coar

OPINION: Plaintiffs, James and Nancy Shea, received a form letter from Defendants Codilis & Associates, P.C. notifying them that the accelerated balance of their note and mortgage was due. Plaintiffs allege that the letter violates the Fair Debt Collection Practices Act (”FDCPA”) because it does not state the “amount of the debt” as required by 15 U.S.C. @ 1692g. Plaintiffs move to certify a class of individuals who were mailed the same collection form letter from Codilis & Associates, P.C. (that is, providing a dollar figure for the principal balance, but omitting such figures for other types of charges owed) on or after January 7, 1998, in connection with attempts to collect a residential mortgage loan on property located at the same address to which the letter was sent, if the letter was not returned by the Postal Service. [*2]

Plaintiffs seek class certification under Federal Rule of Civil Procedure 23(a) and 23(b)(3). Defendants do not oppose certification. To establish a class action, rule 23(a) requires that (1) the class be so numerous so as to render joinder of all members impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative class are typical of those of the class; and (4) the representative parties will fairly and adequately protect the interest of the class. In addition, rule 23(b)(3) states that common issues of law or fact must predominate over individual issues, and the class action must be the superior method of adjudicating the controversy.

Rule 23 requirements have been satisfied in this case. Defendants are one of the largest mortgage foreclosure firms in the Chicago area, filing more than 1,000 cases annually. Considering Defendants’ use of a standardized form letter, it is reasonable to infer that there will be a large number of class members. The claims of the class center on Defendants’ alleged violation of 15 U.S.C. @ 1692g by use of these collection form letters. Moreover, Plaintiffs’ claims [*3] are based on the same factual issues and legal theories as those of applicable to the class members. The Court is also convinced that Plaintiffs, who retained counsel experienced in brining class action suits and collection abuse claims, will adequately protect the interest of the class.

Furthermore, each proposed class member received the same form letter from Defendants, and the predominant question in this case is whether the language of the form letter violates 15 U.S.C. @ 1692g. A class action is also the superior method of resolving this controversy. Because small claims are at stake, it is improbable that many of the class members would initiate litigation individually. In addition, potential class members may not be aware of the violation of their rights under the FDCPA.

Therefore, Plaintiff’s motion for class certification is GRANTED. The certified class includes:

a. All persons who were mailed a form collection letter from Codilis & Associates, P.C. in the form represented by Exhibit A of Plaintiffs’ complaint, i.e. with a statement that a principal balance is $ “x,” plus other items which are not given a dollar amount;

b. On or after January 7, 1998 (one [*4] year prior to the filing of this action);

c. In connection with attempts to collect a residential mortgage loan on property located at the same address to which the letter is sent; and

d. Which letters were not returned by the Postal Service.

Christine here: If you have questions about joining in this lawsuit, you should call the law firm, which should be available from the link to their site above.




Countrywide Class Action Suits: Chink In The Armor

Countrywide Class Action Suits

At one point in my life I was a small logging contractor.   Being a wordsmith,  I wrote our original boilerplate contract.  When we started out,  I was quite proud of the fact that I managed to fit it all onto one page … including room for signatures.  I do this for you,  two,  three,  four,  and you do this for me,  two,  three,  four.   Seven years and a couple of lawsuits later when I finally got out of the business,   our contract had been crafted by an attorney and totaled 8 pages.  I used to joke with my partners that if you ever wanted to see what has gone wrong in a man’s business,  read his standard contract.  So it was with that 8 page contract in mind that I did a little research recently into the class action lawsuits that have been filed against Countrywide. Continue reading