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Baker v. America's Mortgage Servicing

June 23, 1995

JAMES E. BAKER, ON BEHALF OF HIMSELF AND ALL OTHER PERSONS SIMILARLY SITUATED,

PLAINTIFF-APPELLANT,

v.

AMERICA'S MORTGAGE SERVICING, INCORPORATED AND RESOLUTION TRUST CORPORATION, IN ITS CAPACITY AS RECEIVER FOR STANDARD FEDERAL SAVINGS BANK OF GAITHERSBURG, MARYLAND,

DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division.

No. 92-C-7218--James B. Zagel, District Judge.

Before BAUER and COFFEY, Circuit Judges, and CRABB, District Judge. *fn1

CRABB, District Judge.

ARGUED FEBRUARY 9, 1995

DECIDED JUNE 23, 1995

This appeal raises a question of the legal calculation of late charges imposed for delinquent installment payments under a mortgage contract. James E. Baker appeals the district court's grant of summary judgment for defendants on his state law breach of contract and consumer fraud claims, contending among other things that the district court did not have jurisdiction over the action. We conclude that there was jurisdiction and that summary judgment was proper because defendants established as a matter of law that the method by which Baker's late charges were calculated did not violate either the terms of his mortgage or the Illinois Consumer Fraud and Deceptive Business Practices Act ("Consumer Fraud Act"), 815 ILCS sec. 505/2 (West 1992).

I. FACTS

When Baker bought his home, he assumed a fixed-rate mortgage and note written on a standard form issued and guaranteed by the Department of Veterans Affairs and serviced by defendant America's Mortgage. The mortgage contract provides that if payments are delinquent, America's Mortgage may impose a late charge of up to 4 percent of Baker's monthly "installment." At some point, Baker fell behind in his monthly payments and was assessed late charges, calculated by America's Mortgage as 4 percent of Baker's aggregate monthly payment, which includes payments toward not only principal and interest, but also taxes and insurance. Baker filed a putative class action in Illinois circuit court, contending that under the terms of his mortgage contract, America's Mortgage was entitled to calculate late fees only on his monthly payments toward principal and interest. He named America's Mortgage and its parent company, Standard Federal Savings Bank, as defendants.

While the case was pending in state court, the Resolution Trust Company was appointed receiver of Standard Federal Savings Bank, filed a timely notice of substitution, and removed the case to the Northern District of Illinois federal court pursuant to 12 U.S.C. sec. 1441a(l)(3)(A), which authorizes the RTC to remove any action to federal court if it is brought "against the institution or against the [RTC] as . . . receiver of such institution." See also 12 U.S.C. sec. 1441a(l)(1) ("any civil action, suit, or proceeding to which the [RTC] is a party shall be deemed to arise under the laws of the United States, and the United States district courts shall have original jurisdiction over such action, suit, or proceeding"). The RTC becomes a party to a case when it is "deemed substituted . . . for a party upon the filing of a copy of the order appointing [the RTC] as . . . receiver for that party . . ." 12 U.S.C. sec. 1441a(l)(3)(B).

The removed case was assigned originally to Judge Norgle, but reassigned later to Judge Zagel as a case related to one pending before Judge Zagel. Baker filed a notice of voluntary dismissal of the RTC and a motion to remand, which Judge Zagel denied. Judge Zagel expressed doubt that Baker could dismiss the RTC voluntarily, given the fact that he held himself out as representative of a class. Unknown to the parties until Baker lodged his appeal in this court, a deputy clerk had entered a minute order under Judge Norgle's name several days after the case had been reassigned to Judge Zagel, purporting to dismiss the RTC from the case. Copies of the order were never sent to counsel and nothing in the record indicates that Judge Zagel was aware of the order.

Defendants filed a motion for summary judgment. Their proposed facts were undisputed because Baker failed to comply with the district court's local rules on procedures for opposing such motions. Judge Zagel granted the motion, but it was not final because the issue of Baker's status as a purported class representative was still unresolved. Glidden v. Chromalloy American Corp., 808 F.2d 621, 623 (7th Cir. 1986). Upon motion of defendants, Judge Zagel struck the class allegations in Baker's complaint and this appeal followed.

II. DISCUSSION

Baker's jurisdiction challenge rests on his argument that his notice of voluntary dismissal of the RTC was all that was required to take the RTC out of the suit; once this was accomplished, the district court was required to remand the action to state court, either because it lacked subject matter jurisdiction, see 28 U.S.C. sec. 1447(c), or because it should have declined to exercise supplemental jurisdiction over the case, see 28 U.S.C. sec. 1367(c).

The first question is whether the RTC was ever properly dismissed from this lawsuit; if not, sec. 1441a(l) clearly authorized the district court to hear this case. Fed. R. Civ. P. 41(a)(1) permits dismissal as of right but provides that all voluntary dismissals by plaintiffs are "subject to the provisions of Rule 23(e)," which proscribes the dismissal of a class action "without the approval of the court, and notice of the proposed dismissal or compromise shall be given to all members of the class in such manner as the court directs." Reading the two rules together makes clear that although an ordinary law suit requires only notice to the court to effect a voluntary dismissal of the suit, a class claim cannot be dismissed or settled without approval of the court. Donovan v. Robbins, 752 F.2d 1170, 1176 (7th Cir. 1984). See also Glidden v. Chromalloy American Corp., 808 F.2d at 625-26; Simer v. Rios, 661 F.2d 655, 665-66 (7th Cir. 1981), cert. denied, 456 U.S. 917 (1982); 9 Charles A. Wright and Arthur R. Miller, Federal Practice & Procedure sec. 2363, p. 256 (2d ed. 1995). Further, Rule 23(e) "presumptively applies to all complaints containing class allegations," including proposed class actions not yet certified by the district court. Glidden, 808 F.2d at 626. Although Glidden and Rios hold that notice to class members is ...


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