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IN RE OCWEN FEDERAL BANK FSB MORTGAGE SERVICING LITIGATION

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.

I. INTRODUCTION

  A. Facts

  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.

  II. DISCUSSION

  A. The Federal Courts' Power to Enjoin Parallel State Court Litigation

  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 ...


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