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Lender Liability Lawsuit Barred by Class Action Settlement

In November 2017 the Missouri Court of Appeals affirmed a Jackson County trial court’s summary judgment ruling that a borrower’s state court lender liability claims against the borrower’s loan servicers, the servicer’s attorney, and a trustee under the borrower’s deed of trust, were precluded by a federal judgment that implemented a class action settlement. In that case, styled Topchian v. JPMorgan Chase Bank, N.A. [Chase] Martin Leigh Laws & Fritzlen, PC [MLLF] and Select Portfolio Servicing, Inc. [SPS], Missouri Court of Appeals, Western District No. 80472, the borrower fell behind in making home loan payments and then entered into a Stated-Income Trial Period Plan (TPP) with Chase under the Home Affordable Modification Program (HAMP). The borrower made the required TPP payments but Chase stopped accepting the payments. Chase then initiated a non-judicial foreclosure against the borrower but never actually foreclosed. The borrower claimed that Chase’s actions (along with actions taken by the trustee, the servicer’s attorney, and a sub-servicer) constituted fraud, breach of the Missouri Merchandising Practices Act (MMPA), and breach of contract. The borrower argued that his claims should not be precluded by the federal class action because the federal court lacked personal jurisdiction over the borrower; the borrower’s interests were not adequately represented in the class action by the class’s representatives and the class’s counsel; the class action settlement was fraudulent; and the claims resolved by the class action were different from the borrower’s Missouri state court claims.

The federal class action settlement judgment that the Jackson County trial court relied on was entered in November 2013 in a case styled JPMorgan Chase Mortgage Modification Litigation, MDL No. 2290, Case No. 1:11-md-02290, US Dist. Court for the District of Massachusetts. That class action settlement related to Chase’s handling of mortgage borrowers’ requests for loan modifications and Chase’s alleged violations of TPPs under HAMP. That settlement resulted in the class members receiving the right to re-apply for loan modifications; free access to debt and credit counseling services; the waiver of fees; and to stay foreclosure proceedings. The borrower in Topchian was given notice of this class action settlement but the borrower failed to opt out of the settlement.

The Court of Appeals agreed that the federal class action settlement judgment precluded the borrower’s Missouri state court lawsuit because the borrower sought relief for essentially the same wrong alleged in the federal class action lawsuit. Under principles of res judicata (i.e. a matter that has been adjudicated), a claim is precluded if in another proceeding there has been a final judgment on the merits, there is a sufficient similarity between the causes of action asserted in the two cases, and there is a sufficient relationship between the parties in the two actions. The Court of Appeals found that a decision rendered in the federal class action settlement judgment was sufficient for purposes of res judicata. The Court of Appeals rejected the borrower’s personal jurisdiction argument (i.e. the federal court lacked personal jurisdiction over him and therefore the federal judgment did not have a preclusive effect on the borrower’s rights) because in class actions (unlike other cases) a forum state may exercise personal jurisdiction over a party even though the party may lack minimum contacts with the forum state.

The borrower also argued the other defendants in the case (MLLF and SPS) should not benefit from res judicata because they were not parties to the federal class action. The Court of Appeals disagreed with the borrower’s position because it found that MLLF (acting as successor trustee and an attorney for Chase) and SPS (acting as sub-servicer for Chase) were in privity with Chase and that the claims against them arose from the same operative facts underlying the federal class action and the Missouri state court action.

In short, Topchian stands for the proposition that borrowers asserting lender liability claims have an obligation to opt out of class action settlements or they run the risk of being bound by those settlements.

Through offices in Kansas City and St. Louis areas, Martin Leigh PC keeps current on recent legal developments in banking, lending, real estate and business law in Missouri, Kansas and Illinois. As a part of its smaller, faster and smarter law practice, Martin Leigh PC publishes updates like this one to keep industry leaders informed of the current legal environment.

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