United States District Court, N.D. Illinois, Eastern Division
November 9, 2005.
IN RE OCWEN FEDERAL BANK FSB MORTGAGE SERVICING LITIGATION.
The opinion of the court was delivered by: CHARLES NORGLE SR., Judge
OPINION AND ORDER
Before the Court is Defendant Ocwen Loan Servicing, LLC's
Motion for a Preliminary Injunction.*fn1 For the following
reasons, the Motion is granted.
Plaintiffs in this Multi-District Litigation ("MDL") are
numerous individuals who hold home loans serviced by Defendant
Ocwen Loan Servicing, LLC ("Ocwen"). Defendants include Ocwen and
Moss, Codilis, Stawiarsky, Morris, Schneider & Prior, LLP
("Moss"). Moss is a partnership that acts as legal counsel and
debt collector for Ocwen. During the course of servicing
Plaintiffs' home loans, Ocwen determined that these loans were in
default. Ocwen then notified Moss. Moss then sent form letters to
Plaintiffs, advising Plaintiffs that (1) their loans were in
default, and (2) the loans would be accelerated and foreclosure
proceedings would be started, if Plaintiffs failed to cure the
defaults. Moss then charged Ocwen a "recoverable breach fee" of
$285 per homeowner for services related to, and the sending of,
these letters. Ocwen then charged the homeowners that same $285,
in addition to other fees and charges routinely assessed in the event of default and foreclosure proceedings.
Plaintiffs seek to hold Ocwen, Moss, and other Defendants
liable for these and other numerous alleged wrongdoings related
to Ocwen's servicing of Plaintiffs' home loans. For example.
Plaintiffs allege that Ocwen has failed to timely post
Plaintiffs' loan payments, causing Plaintiffs to erroneously
appear to be in default, and that Ocwen has forced Plaintiffs to
purchase insurance for properties that were already insured.
B. Procedural History
As of November 9, 2005, Plaintiffs have filed forty-eight
related Complaints in this matter. These cases have been
consolidated into the present MDL, and transferred to this court
for orderly and efficient disposition. See Transfer Order,
April 14, 2004 (establishing MDL No. 1604). Plaintiffs'
twenty-three count Consolidated Class Action Complaint alleges
generally that Defendants improperly initiated default and
foreclosure proceedings upon Plaintiffs, and engaged in various
unauthorized and unlawful mortgage servicing and debt collection
practices to the detriment of Plaintiffs (including, inter
alia, the imposition of the "recoverable breach fee").
Plaintiffs also allege violations of the Fair Debt Collection
Practices Act (15 U.S.C. § 1692 et seq.),*fn2 the Real
Estate Settlement Procedures Act (12 U.S.C. § 2601 et seq.),
and various state consumer protection statutes. In addition,
Plaintiffs bring several common law counts in their Consolidated
Complaint, such as unjust enrichment and breach of contract.
Plaintiffs ask that the court, inter alia, order that
Defendants pay damages and restitution to Plaintiffs, and also
order that Defendants be enjoined from any further similar
wrongful conduct. On April 25, 2005, the court granted Ocwen's Motion for Partial
Summary Judgment, holding that there was no genuine issue of
material fact as to whether the "recoverable breach fee" was
authorized by the loan contracts, but reserving judgment on the
merits of the remainder of Plaintiffs' claims. In re Ocwen
Federal Bank FSB Mortgage Servicing Litigation, MDL No. 1604,
Lead Case No. 04 C 2714, 2005 U.S. Dist. LEXIS 8274 (N.D. Ill.
Apr. 25, 2005).
Ocwen filed its Motion for a Preliminary Injunction on October
14, 2005. Ocwen initially asked the court to enjoin three law
firms, Pipkin, Oliver & Bradley; Hilliard and Munoz, LLP; and
Ellis, Castarphen, Dougherty, and Goldenthal, P.C. ("Texas
Counsel"), from litigating or participating in any pending or
future lawsuit in state or federal court that asserts mortgage
servicing allegations encompassed within the Consolidated
Complaint in MDL No. 1604, until pretrial proceedings in MDL No.
1604 are completed. Texas Counsel are presently attorneys of
record in MDL No. 1604, as the MDL Panel has transferred three of
their cases to this court. Texas Counsel filed their Response on
October 20, 2005, and Ocwen filed its Reply on October 24, 2005.
On November 7, 2005, however, Ocwen filed its Supplemental
Memorandum in Support of Preliminary Injunction. In that
Supplemental Memorandum, Ocwen asserts that Texas Counsel are
seeking to evade any injunction this court might issue by hiring
co-counsel to move ahead with state court action, in the event
that Texas Counsel are enjoined from doing so. By way of
affidavit, Ocwen represents that Robert Hilliard, of the Texas
Counsel firm Hilliard and Munoz, made the following statement on
Friday November 4, 2005, in open court in the 212th Judicial
District of Galveston County, Texas. "[I]f [Judge Norgle] rules
in favor of Ocwen . . . we will still go to trial, it will just
be different faces than us." Ocwen now asks the court to enjoin Texas Counsel, and their clients and co-counsel, from
litigating or otherwise participating in any pending or future
lawsuit in state or federal court that asserts mortgage servicing
allegations encompassed within the Consolidated Complaint in MDL
No. 1604, until pretrial proceedings in MDL No. 1604 are
completed. Texas Counsel filed their Reply to Supplemental
Memorandum on November 9, 2005. The matter is fully briefed and
before the court.
A. The Federal Courts' Power to Enjoin Parallel State Court
The power of a federal court to enjoin parallel state court
litigation flows from the interplay between two federal statutes,
the All Writs Act ("AWA") and the Anti-Injunction Act ("AIA").
The AWA, 28 U.S.C. § 1651(a), provides: "The Supreme Court and
all courts established by Act of Congress may issue all writs
necessary or appropriate in aid of their respective jurisdictions
and agreeable to the usages and principles of law." The AIA,
28 U.S.C. § 2283, provides: "A court of the United States may not
grant an injunction to stay proceedings in a State court except
as expressly authorized by Act of Congress, or where necessary in
aid of its jurisdiction, or to protect or effectuate its
judgments." The AWA thus gives federal courts broad authority to
issue whatever Writs may be necessary to preserve the courts'
jurisdictional powers. The AIA, however, acts as a counterbalance
to the sweeping powers granted to federal courts by the AWA. The
AIA "forbids any federal injunction or stay of state litigation"
unless such an injunction meets one of three exceptions: it is
expressly authorized by Congress, or is issued in order to aid
the jurisdiction of a federal court, or to protect or effecutate
the judgments of a federal court. In the Matter of:
Bridgestone/Firestone, Inc., 333 F.3d 763, 765 (7th Cir. 2003)
(enjoining members of putative classes and their attorneys, in a
federal MDL case involving defective tires, from attempting to have nationwide classes
certified in state courts).
The Seventh Circuit reads these two Acts together to provide
that while federal courts ordinarily may not enjoin state
actions, where a federal MDL court's jurisdictional power is
sufficiently threatened by a parallel state court action, such an
injunction may issue. In Winkler v. Eli Lilly & Co., a federal
MDL case involving injuries allegedly caused by the prescription
drug Prozac, the Seventh Circuit indicated that "an injunction
[of a parallel state court action] may be issued where `necessary
to prevent a state court from so interfering with a federal
court's consideration or disposition of a case as to seriously
impair the federal court's flexibility and authority to decide
that case.'" 101 F.3d 1196, 1201 (7th Cir. 1996) (quoting
Atlantic Coastline R.R. v. Brotherhood of Locomotive Engineers,
398 U.S. 281, 295 (1970)). In other words, in MDL cases like the
instant one, the jurisdictional exception within the AIA
"parallels the federal courts' power under the All Writs Act `to
issue such commands . . . as may be necessary or appropriate to
effectuate and prevent the frustration of orders it has
previously issued in its exercise of jurisdiction otherwise
obtained.'" Id. (quoting United States v. New York Telephone,
434 U.S. 159, 173 (1977)). Federal MDL courts are therefore
empowered, in the Seventh Circuit, "`to enjoin a concurrent state
proceeding that might render the exercise of the federal court's
jurisdiction nugatory.'" Id. at 1202 (quoting Martin H. Redish,
The Anti-Injunction Statute Reconsidered, 44 U. CHI. L. REV.
717, 754 (1977)).
Other Circuits have also recognized that district courts have
the power to issue these sorts of injunctions. See Newby v.
Enron Corp., 302 F.3d 295, 300 (5th Cir. 2002) (federal courts
possess the power to enjoin "vexatious litigants from filing
future [parallel] state court actions" in MDL cases); Battle v.
Liberty Nat'l Life Ins. Co., 877 F.2d 877, 880-82 (11th Cir.
1989); In re Baldwin-United Corp., 770 F.2d 328, 335 (2nd Cir. 1985) (a
district court handling a MDL case may enjoin parallel state
court actions to prevent the relitigation of matters already
decided by the district court); In re Corrugated Container
Antitrust Litigation, 659 F.2d 1332, 1334 (5th Cir. 1981); Blue
Cross of Cal. v. Smithkline Beecham Clinical Laboratories, Inc.,
108 F. Supp. 2d 130, 135 (D. Conn. 2000) (district courts may
issue these injunctions "to protect the court's judgment and to
prevent, in  multidistrict litigation, intolerable conditions
that could ensue from conflicting orders from different courts");
In re Columbia/HCA Healthcare Corp. Billing Practices
Litigation, 93 F. Supp. 2d 876, 880 (M.D. Tenn. 2000).
Enjoining a state court action, however, is not a step that a
federal court should undertake lightly. In enacting the AIA,
Congress recognized the extraordinary nature of such an
injunction, and intended to codify a "presumption against
injunctive relief." See Kara M. Moorcroft, The Path to
Preclusion: Federal Injunctive Relief against Nationwide Classes
in State Court, 54 DUKE L.J. 221, 232 (2004).
Because an injunction is a "highly intrusive remedy,"
traditional principles of comity, federalism, and
equity counsel that federal courts exercise
hesitation before so intruding upon state court
matters. The Anti-Injunction Act (AIA) codifies this
unwillingness to intrude into state matters by
forbidding a federal court from issuing an injunction
unless it falls within one of three exceptions.
Id. (quoting Parsons Steel, Inc. v. First Ala. Bank,
474 U.S. 518
, 525 (1985)); see also Alexander Moeser, Precluding the
Absent Claimant from Re-Arguing Class Certification: Pragmatism
and the "Day in Court" Ideal, 92 KY. L.J. 817, 826 (2003-04)
("this injunctive power is limited by the Anti-Injunction Act");
Richard W. Painter, Responding to a False Alarm: Federal
Preemption of State Securities Fraud Causes of Action, 84
CORNELL L. REV. 1, 63-64 n. 341 (1998-99) ("federal courts have
used this [injunctive] power sparingly, principally because of
the counterbalancing instruction of the Anti-Injunction Act that
federal courts may not (except in extraordinary cases) enjoin
state court proceedings").
B. Ocwen's Motion for a Preliminary Injunction
Ocwen has moved the court to preliminarily enjoin Texas
Counsel, and their clients and co-counsel, from litigating or
otherwise participating in any pending or future lawsuit in state
or federal court that asserts mortgage servicing allegations
encompassed within the Consolidated Complaint in MDL No. 1604,
until pretrial proceedings in MDL No. 1604 are completed. The
court first notes that there is no question as to its
jurisdiction in this matter. The court has personal jurisdiction
over Texas Counsel and co-counsel because they represent
individuals who make up a subset of the putative MDL class, and
because Texas Counsel are already of record in this MDL by virtue
of the MDL Panel's Order transferring three of their mortgage
servicing cases to this court. See Bridgestone/Firestone,
333 F.3d at 768 ("unnamed class members have the status of parties
for many purposes and are bound by [MDL court rulings] whether or
not the court otherwise would have had personal jurisdiction over
them"); In re Diet Drugs Prods. Liability Litigation,
282 F.3d 220, 231 (3rd Cir. 2002) ("the District Court had personal
jurisdiction over all unnamed members of the [MDL] class,
including those members of the [state court] class. Because the
District Court had personal jurisdiction over members of the
[state court class], it also had jurisdiction over attorneys
purporting to represent, and act on behalf of, that class a
subset of the [MDL] class").
Ordinarily, a court will engage in the following analysis to
determine whether a preliminary injunction should issue. First,
the court will ask whether the party seeking the injunction has
shown that (1) it has some likelihood of success on the merits,
(2) there is no adequate remedy at law, and (3) it will suffer irreparable harm
if no injunction issues. Ty, Inc. v. Jones Group, Inc.,
237 F.3d 891, 895 (7th Cir. 2001). If these conditions have been met,
the court then "must consider the irreparable harm that the
nonmoving party will suffer if preliminary relief is granted,
balancing such harm against the irreparable harm the moving party
will suffer if relief is denied." Id. The court must next
consider "the public interest (non-parties) in denying or
granting the injunction." Id. Finally, the court must weigh all
these factors together, and come to an equitable decision
regarding whether to issue the injunction. Id.
However, in a case such as this one, where the court is
presented with an extraordinary situation in which various
parallel state court actions threaten the court's ability to
effectively control Multi-District Litigation, it is the
Winkler standard that applies. Ocwen asserts that Texas counsel
have (1) recruited hundreds of potential claimants to file
actions challenging the very same mortgage servicing practices
which are at issue in this MDL, (2) required these potential
claimants to prospectively agree to opt out of the putative class
in this MDL, and (3) stated their intention to distribute
materials obtained in their parallel state suits to Plaintiffs'
counsel in this MDL, even though the court has issued a stay of
discovery. Such actions, if not enjoined, could seriously hinder
the court's ability to effectively carry out its responsibilities
under 28 U.S.C. § 1407.
The district court's power to control multidistrict
litigation is established by 28 U.S.C. § 1407, and . . .
with that power comes the duty to exercise it as
efficiently as possible. An important aspect of that
control is to prevent predatory discovery, especially
of sensitive documents, ensuring that litigants use
discovery properly as an evidence gathering tool, and
not as a weapon. Indeed, an express purpose of
consolidating multidistrict litigation for discovery
is to conserve judicial resources by avoiding
duplicative rulings. Where a litigant's success in a
parallel state court action would make a nullity of
the district court's ruling, and render ineffective
its efforts to effectively manage the complex
litigation at hand, injunctive relief is proper. Winkler, 101 F.3d at 1202 (internal citations omitted).
Under the Winkler standard, a district court handling a MDL
case may enjoin a state court action where this is necessary to
guard its jurisdiction, or to protect the integrity of its
pre-trial orders. Id. at 1203 ("the [AWA and the AIA] in
concert permit a district court, under certain circumstances, to
issue an injunction to safeguard a pre-trial ruling like the
discovery order at issue here"). The district court's authority
to issue such an injunction is not limitless, however. "[T]he
district court has authority . . . to enjoin only those persons
(and their counsel) whose cases are presently part of [the MDL],
or who were properly part of such [MDL] at the time the ruling in
question was made." Id.
The court determines that allowing Texas Counsel, or their
clients or co-counsel, to continue on their present course would
seriously jeopardize the court's ability to effectively manage
this MDL. The court was presented with this case by the MDL Panel
on April 14, 2004, and the court has a duty to manage this
litigation "as efficiently as possible." See id. at 1202
(citing 28 U.S.C. § 1407). To permit Texas Counsel, or their
clients or co-counsel, to pursue numerous parallel actions in
state court would subject this court's pre-trial Orders,
including its Order granting Ocwen's Motion for Partial Summary
Judgment, to numerous instances of second guessing by state
courts, and could well result in violations of the court's
pre-trial Order staying discovery. While federal district courts
are advised to tread lightly when considering whether to enjoin
state court actions, see Moorcroft, supra, at 232, this
situation falls squarely within the parameters set out by the
Winkler court for such an injunction. Winkler,
101 F.3d at 1205 ("district courts in charge of complex multidistrict
litigation have the authority to issue injunctions to protect the
integrity of their pre-trial rulings. . . ."). Texas Counsel, and their clients and co-counsel, are therefore
preliminarily enjoined from litigating or otherwise participating
in any pending or future lawsuit in a federal or state court that
asserts mortgage servicing allegations encompassed within the
Consolidated Complaint in MDL No. 1604, until such time as
pretrial proceedings in MDL No. 1604 are completed, or until
further Order of the court. To rule otherwise would plainly
frustrate and defeat the purposes of the MDL Panel, which has
consolidated forty-eight separate mortgage servicing cases into
MDL No. 1604, and has assigned to this court the responsibility
of adjudicating these cases in an orderly and efficient manner.
See id. at 1202.
The court also notes that Texas Counsel's attempt to circumvent
a possible injunction smacks of legal mischief. Although the
court certainly recognizes that attorneys have a duty to
zealously represent their clients, Texas Counsel will not be
permitted to avoid this injunction simply by hiring "different
faces" as co-counsel. The court clearly has personal jurisdiction
over absent, unnamed putative class members. See
Firestone/Bridgestone, 333 F.3d at 768. The court thus has
personal jurisdiction over any attorneys representing such
putative class members. See Diet Drugs, 282 F.3d at 231. This
preliminary injunction therefore applies to Texas Counsel, their
clients, and their co-counsel.
For the foregoing reasons, Ocwen's Motion for a Preliminary
Injunction is granted.
IT IS SO ORDERED.
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