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Vought v. Bank of America, N.A.

United States District Court, C.D. Illinois, Urbana Division

October 4, 2012

Jeanette VOUGHT, Mark Skutack, Daneen Skutack, and Roger E. Frock, on behalf of themselves and a class of all other persons similarly situated, Plaintiffs,
BANK OF AMERICA, N.A., and BAC Home Loans Servicing, LP, Defendants.

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[Copyrighted Material Omitted]

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Christopher M. Ellis, Jon D. Robinson, Shane Michael Mendenhall, Bolen Robinson & Ellis, Decatur, IL, Charles E. Schaffer, Levin Fishbein Sedran & Berman, Michael D. Donovan, Donovan Searles LLC, Philadelphia, PA, Eric D. Holland, Gerard B. Schneller, Holland Groves Schneller & Stolze, St. Louis, MO, Michael D. Braun, Braun Law Group PC, Los Angeles, CA, for Plaintiffs.

Derek S. Holland, Jena M. Valdetero, Steven R. Smith, Bryan Cave LLP, Chicago, IL, Jeffrey S. Russell, Bryan Cave LLP, St. Louis, MO, Brian Michael Smith, Heyl Royster Voelker & Allen, Urbana, IL, for Defendants.


MICHAEL P. McCUSKEY, District Judge.

Judge Posner recently wrote for the Seventh Circuit:

It is a curiosity of class action litigation that often there is greater ferocity in combat among the class lawyers over the allocation of attorneys' fees than there is between the class lawyers and the defendants. The contest among the lawyers is a zero-sum game. But the contest between them and the defendants is a positive-sum game because the class lawyers are naturally very interested

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in the fee component of any settlement, while the defendants care only about the size of the settlement, including fees. So the lawyers may be willing to settle for less for the class if the defendants will help them obtain a generous fee award, and the defendants will be happy to help them if the sum of the fee award and the relief granted to the class is smaller than it would be if the class lawyers pressed for more generous relief for the class.

In re Trans Union Corp. Privacy Litig., 629 F.3d 741, 742-43 (7th Cir.2011) (emphasis in original). In the present case, Defendant Bank of America NA (BANA) took over the servicing of mortgages for approximately 14,000 homeowners from Taylor, Bean & Whitaker (TBW), a company that (as it later came to light) had been engaging in all manner of financial shenanigans. In doing so, BANA and Ginnie Mae promised that if the homeowners made mortgage payments to TBW during the transition, BANA would credit their accounts. This seems generous, but it is also fair because BANA didn't give the homeowners any notice of the transition until well after the homeowners were supposed to stop paying TBW.

But then TBW filed for bankruptcy and BANA alleges that the FDIC seized the lockbox bank that held borrower's payments, so many of the mortgage payments were either frozen or disappeared into TBW.[1] BANA, being a large financial institution, did not seem to get a handle on this as quickly as it should have. Instead, the bank started sending threatening letters and charging late fees, accusing the homeowners of not paying their mortgages when they had in fact done so— although, regrettably and understandably, many of those payments had been sent to TBW. BANA says they blocked credit reporting, but one person said that after he got divorced, his ex-wife could not refinance their house because her credit score dropped as a result of the missing payment. (BANA says this is very unlikely.) Another person said that it took him daily calls and letters to various government officials over many months before BANA finally realized what was going on and fixed his account. Right now, there are still some accounts that have not been credited.

A number of the homeowners individually filed lawsuits against BANA, trying to hold them accountable for the missing payments. Those cases were combined into the class action here. Over the past two and a half years, this case has been litigated heavily. Several months ago, class counsel and defendant's counsel presented this court with a settlement agreement. In general terms, BANA promised to: credit all the homeowners' accounts for the full amount of their missing payments; waive or refund late fees; issue an IRS Form 1098 so the homeowners could take the extra interest deduction that they weren't able to earlier; and set up a telephone hotline to provide informational assistance. Of course, BANA has proclaimed mightily that it never had those payments to begin with, so it would be crediting those accounts about $7.5 to $15 million out of its own pocket. But it should have known or discovered a certain amount of risk when it performed their due diligence on TBW before they took over the servicing the mortgages, and after all, the mortgage business is still relatively decent money.

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And furthermore, who's to say that BANA won't eventually get paid, at least in part, from the bankruptcy estate? On top of crediting the accounts, BANA would also provide monetary relief in the form of: $25 if a class member provided their tax filings showing that they could have but were unable to deduct mortgage interest; $50, up to a total of $500,000 if their account had not been credited by December 1, 2011, and they made a written request to BANA about it; and $75 if they could prove that their credit was adversely affected. By the deadline, the claimants had submitted claims totaling only $38,600.

In return, the settlement releases BANA from all liability. Furthermore, BANA will pay class counsel's fees of $2 million. Now, far be it for this court to delve too deeply into the horse-trading that went on between the parties during the settlement negotiations, but the facts here sound a lot like a case in which the Seventh Circuit chastised the district court for having " sold the claimants down the river" . Certainly it is not as bad as what happened in a case where the class members had to pay class counsel's legal fees, Kamilewicz v. Bank of Boston Corp., 100 F.3d 1348 (7th Cir.1996). But for a settlement where BANA is required to do what it should have done two years ago (and which, incidentally, it has already started to do, whether out of the goodness of its heart or not)— and to compensate class members for two years' trouble just $38,000 and class counsel $2,000,000 is not something that would strike a jury in downstate Illinois as a particularly good bargain. This isn't to say that anyone thinks that BANA set out to hoodwink the homeowners. But as one class member said while opting out of the settlement: " If we thought for one split second that $150 would get noticed by the huge conglomerate known as Bank of America, it might be worth it, but you know about a snowball's chance in hell."

This case is before the court for ruling on the Motion for Final Approval of Settlement (# 99) filed by the BANA and BAC Home Loans Servicing, LP, (BAC) [2] and the Motion for Final Approval of Settlement (# 101) filed by Plaintiffs Jeanette Vought (" Vought" ), Mark and Daneen Skutack (" Skutack" ), and Roger E. Frock (" Frock" ), on behalf of themselves and a class of all other persons similarly situated. On January 30, 2012, this court entered a Preliminary Approval Order (# 86) certifying classes and preliminarily approving the settlement agreements. On May 31, 2012, this court held a final fairness hearing. This court has carefully reviewed the arguments of the parties and the documents filed by the parties. Following this careful and thorough review, Plaintiffs' and Defendant's Motions for Final Approval of Settlement (# 99; # 101) are DENIED. Further, this case is referred to Judge David G. Bernthal for further mediation.


This court has jurisdiction pursuant to 28 U.S.C. § 1332(d), the Class Action Fairness Act (CAFA). The case was commenced on March 5, 2010, after CAFA's effective date of February 18, 2005. CAFA requires, with certain exceptions not relevant here, minimal diversity, an amount in controversy exceeding $5,000,000, and at least 100 proposed plaintiff class members. 28 U.S.C. §§ 1332(d)(2), (d)(5); Hart v. FedEx Ground Package Sys. Inc., 457 F.3d 675, 679 (7th Cir.2006). Plaintiff Jeanette

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Vought is a citizen of Illinois (Second Amended Complaint, # 63 ¶ 28). Plaintiff Frock is a citizen of Ohio (# 63 ¶ 29). Plaintiffs Mark and Daneen Skutack are citizens of Pennsylvania. (# 63 ¶¶ 30-31). Defendant BANA maintains its headquarters and principal place of business in North Carolina (# 63 ¶ 32). Plaintiffs have alleged that the amount in controversy exceeds $5,000,000 (# 63 ¶ 24). Plaintiffs have further alleged that thousands of individuals are similarly situated with regard to their putative cause of action (# 63 ¶¶ 10, 38-39). [3]


I. Background facts

Plaintiffs Vought, Skutack, and Frock, as well as all members of the Class and Subclass, each had home mortgages that were serviced by TBW until approximately August 2009.[4] In August 2009, as a result of TBW's default and impending bankruptcy, Ginnie Mae, the government guarantor for residential mortgage-backed securities, assigned the sub-servicing portions of the TBW portfolio to BANA. Ginnie Mae made this assignment pursuant to a servicing contract entered into with BANA in March 2009. This agreement, in general terms, required BANA to service Ginnie Mae loans on an as-needed basis. TBW was instructed to stop processing mortgage payments effective August 6, 2009. BANA (then BAC) sent a notice to Plaintiffs dated August 23, 2009, indicating that TBW's right to collect payments and service the mortgage was being transferred to BAC effective September 1, 2009. Further, this notice indicated that the date that TBW would stop accepting payments was August 5, 2009, and that BAC would begin accepting payments on August 6, 2009. However, TBW continued processing mortgage payments for approximately two weeks after the August 6, 2009 deadline.

On August 24, 2009, TBW filed for bankruptcy. When the FDIC seized the lockbox bank controlled by TBW (Colonial Bank), Plaintiffs' mortgage payments were frozen. BANA's counsel explained that as of the time of the final fairness hearing, the reconciliation process had not yet been fully resolved despite the passage of over two years. Thus, while BANA had not received those funds, they still hoped to in the future.

During this period, BANA assured Plaintiffs that during the transition, if TBW received a payment in a timely fashion instead of BANA, no late fee or adverse credit reporting would be imposed. For instance, on BANA's website, a newswire was published on August 27, 2009, indicating, in pertinent part:

Bank of America assures homeowners that during this transition if TBW, rather than BAC Home Loans Servicing, receives a payment in a timely fashion, no late fee or derogatory credit reporting will be imposed with respect to that

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payment and the payment will not be treated as late for any other purpose. This protection will remain in place through the October payment period.[5]

This language was echoed by Ginnie Mae, which issued a statement indicating, in pertinent part:

My loan was transferred [from TBW]. I made a loan payment on time, but to the old servicer. Can I be charged a late fee? Will my credit be affected?
No. Bank of America will work with borrowers and will not charge late payment fees or report late payments to the credit bureaus through the October 2009 payment period.[6]

Despite both of these notices, BANA failed to properly credit Plaintiffs' home mortgage accounts for timely payments made to TBW (" uncredited payments", termed " missing payments" in the Settlement Agreement at § 1.21). The vast majority of these uncredited payments had in fact been made by Plaintiffs for their August 2009 mortgage payments.

The failure to properly credit Plaintiffs' home mortgage accounts resulted in many adverse effects. Plaintiffs were assessed late fees on their uncredited payments. Plaintiffs allegedly suffered adverse credit impact after BANA reported the uncredited payments to credit reporting agencies. Also, because Plaintiffs were not treated as having made the uncredited payments by BANA in 2009, all Plaintiffs received mortgage interest statements that underreported the amount of interest paid in 2009 by Plaintiffs. Finally, some Plaintiffs made written requests to BANA to properly credit their accounts for their uncredited payments, to little avail. BANA, in its Motion for Approval, indicated that it had attempted to block credit reporting for all delinquent accounts. However, due to certain oversights during processing, BANA also admits that this block was not applied equally to all accounts. Although this court is aware of the general nature of these issues, the parties have not provided an exact accounting of the number or percentage of Plaintiffs who were affected by each of these adverse effects, or the degree to which the credit block was not universally applied.

II. Initiation of suit and preliminary dispositive motions

On March 5, 2010, Plaintiffs Wayne Vought (now deceased) and Jeanette Vought filed a class action complaint in this court (# 1). On April 2, 2010, Plaintiff Roger E. Frock filed a class action complaint in the United States District Court in the Southern District of Ohio. On May 18, 2010, Plaintiffs Mark Skutack and Daneen Skutack filed a class action complaint in the United States District Court in the Eastern District of Pennsylvania. On July 8, 2010, these three separate actions were consolidated in the present case (# 28).

On May 10, 2010, Defendant filed a Motion to Dismiss, seeking to dismiss the complaint filed by Wayne and Jeanette Vought (# 11). On July 15, 2010, Magistrate Judge David G. Bernthal issued a Report and Recommendation recommending that Defendant's Motion to Dismiss be denied (# 29). On July 20, 2010, Wayne and Jeanette Vought, Mark and Daneen Skutack, and Roger E. Frock filed their First Amended Consolidated Complaint

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(# 30). As a result of the filing of the First Amended Consolidated Complaint, this court entered an order on August 5, 2010, finding that the Defendant's Motion to Dismiss (# 11) and the Report and Recommendation (# 29) were moot.

On August 19, 2010, Defendant filed a Motion to Dismiss (# 37) seeking to dismiss the First Amended Consolidated Complaint (# 30). On September 24, 2010, 2010 WL 4683599, Judge Bernthal issued a Report and Recommendation (# 50) recommending that Defendant's Motion to Dismiss (# 37) be denied. On October 27, 2010, 2010 WL 4683596, this court accepted the Report and Recommendation (# 50) and denied Defendant's Motion to Dismiss (# 37). On January 5, 2011, Plaintiffs filed their Second Amended Consolidated Complaint (# 63). This Second Amended Consolidated Complaint (# 63), which is the operative complaint here, contained the following five claims alleged by Plaintiffs: (1) breach of contract; (2) breach of contract, based on the theory that Plaintiffs were intended third-party beneficiaries; (3) unjust enrichment; (4) requests for injunctive relief; (5) violation of the Real Estate Settlement Procedures Act (RESPA). In addition, on behalf of class members who have homes in Illinois, Plaintiffs alleged a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act.

On January 24, 2011, Defendant filed a Motion to Dismiss (# 66), seeking to dismiss the third party beneficiary breach of contract claim contained in Plaintiffs' Second Amended Consolidated Complaint (# 63). On April 7, 2011, Judge Bernthal issued a Report and Recommendation (# 73) recommending that Defendant's Motion to Dismiss (# 66) be granted. On April 29, 2011, the parties filed a Joint Motion to Stay (# 81) in order to conduct settlement negotiations. On May 3, 2011, this court granted the parties' Motion to Stay (# 81).

III. Discovery

The parties have represented to this court that there was extensive discovery completed in this case. Specifically, Plaintiffs aver that they propounded discovery on Defendant in the form of Requests for Production of Documents and Interrogatories. Defendant also propounded similar discovery on the named Plaintiffs. The parties were unable to resolve certain discovery disputes without seeking the assistance of this court. Thus, on September 15, 2010, and April 13, 2011, Plaintiffs filed two Motions to Compel Discovery Responses (# 44; # 74). The parties were able to negotiate a Protective Order (# 49) that resolved the initial Motion to Compel Discovery Responses (# 44). The second Motion to Compel Discovery Responses (# 74) was withdrawn by Plaintiffs. Although this court has not viewed the discovery in this case, the parties represent to this court that " Defendant[ ] produced over 230,000 pages of documents which were indexed, reviewed, individually coded and data-based by Class Counsel." (# 103 p. 11).

IV. Terms of the proposed settlement agreement

Negotiations and mediation

Plaintiffs and Defendant participated in two separate day-long mediation sessions. The first session was held on July 19, 2011, before Richard P. Sher. The parties indicate that although progress was made during this initial mediation, the process was ultimately unsuccessful. After the parties remained in contact after the first failed mediation attempt, they agreed to participate in a second mediation on October 6, 2011, with Judge Donald P. O'Connell (Ret.).[7] Prior to this second mediation,

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both parties submitted written materials to Judge O'Connell, outlining the strengths and weaknesses of each party's positions in this case. During this second mediation, the parties reached the settlement that is currently before this court for approval (henceforth " Agreement" or " Settlement Agreement" ). Judge O'Connell, in a declaration submitted to this court on May 23, 2012, explained that: (1) the parties engaged in good faith negotiations over the merits of Plaintiffs' claims; (2) the negotiations were long and difficult; and (3) the matter of attorneys' fees was not discussed until the underlying disputes regarding the merits of the case had been fully agreed upon (# 104). There were scant details about how long the negotiations lasted and the compromise process.

Affected individuals

The agreed settlement consists of two classes, defined as follows:

1.36 Settlement Class (henceforth " Class" ): All individuals who have, or did have, a residential mortgage loan for real property situated in the United States of America whose mortgage account, previously serviced by Taylor, Bean and Whitaker, was assigned or transferred to BAC Home Loans Servicing, L.P., pursuant to a U.S. Department of Housing and Urban Development Government National Mortgage Association Single Family Master Subservicer agreement, in August 2009, where the mortgage payment(s) were: (a) paid to and received by Taylor, Bean and Whitaker; (b) on or about August 1, 2009; (c) in an amount equal to or greater than the minimum monthly contractual amount for the month; and (d) were not credited by Defendant in 2009.
1.39 Settlement Sub-Class (henceforth " Subclass" ): All individuals who have, or did have, a residential mortgage loan for real property situated in the United States of America whose mortgage account, previously serviced by Taylor, Bean and Whitaker, was assigned or transferred to BAC Home Loans Servicing, L.P., pursuant to a U.S. Department of Housing and Urban Development Government National Mortgage Association Single Family Master Subservicer agreement in August 2009, where the mortgage payment(s) were: (a) paid to and received by Taylor, Bean and Whitaker; (b) on or about August 1, 2009; (c) in an amount equal to or greater than the minimum monthly contractual amount for the month; and (d) were not credited by Defendant in 2009, but were subsequently credited with payments.

(# 85 exh. 1). The only qualitative distinction between the Class and Subclass is that members of the Subclass were " subsequently credited with payments" whereas members of the Class have not yet been credited.

Equitable relief

The settlement provides for equitable relief to all Class Members and, additionally,

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up to three types of monetary relief for each Class Member provided they individually comply with certain qualifying conditions and follow administrative filing procedures. Regarding the equitable relief, all Class Members who were not properly credited with missing payments will: (1) have those missing payments credited; (2) have any associated late fees reversed, or, if the late fees had already been paid, receive a refund for any paid late fees; (3) receive an IRS Form 1098 for the tax year 2011 issued by Defendant reflecting the interest portion of the missed payments; and (4) receive credit correction services provided by Defendant (# 85, Agreement § 3.01.) Regarding the credit correction services, Defendant is specifically required to: (1) issue an informational job aid to assist customer service staff in responding to inquiries regarding missed payment issues; (2) provide a letter to each class member describing in neutral terms the missing payment issue and the crediting of the account; (3) provide credit information regarding class member's accounts to credit reporting bureaus, subject to confirmation that the reporting will contain no negative information regarding the missing payments; and (4) identify one central toll-free number to be utilized in all notices and by class members for communications with regard to any missing payment issues (# 85, Agreement § 3.01(d).)

Monetary relief

In addition, up to three forms of monetary relief are available as part of this proposed settlement to Class Members who submit a claim form. Plaintiffs who qualify for all three types of relief and submit a verified claim form are entitled to recover up to $150.00 as follows:

(1) Fifty Dollars ($50.00) to class members who submit a claim form reflecting: (a) that the class member paid TBW a payment greater than or equal to a fully contractual monthly mortgage on or after August 1, 2009; (b) that their mortgage account was not credited by Defendants in 2009; (c) that they made a written request to Defendants to credit their accounts for the missing payment; and (d) that as of December 1, 2011, the missing payment had not been credited by Defendants. Claims made pursuant to this subsection of the settlement are limited to a total payment by Defendants of $500,000. If more than 10,000 class members claim relief under this subsection, the payment to each class member would be reduced proportionately. If less than $500,000 is claimed by class members, the surplus amount is retained by Defendants.
(2) Seventy-five Dollars ($75.00) to class members who submit a claim form identifying circumstances under which Defendants' credit reporting as to the missed payment resulted in an adverse effect on class members' ability to obtain, extend or continue credit. Class members must identify the lender and type of loan or credit vehicle involved.
(3) Twenty-five Dollars ($25.00) to class members who submit a claim form and attach a copy of their 2009 Schedule A to IRS Form 1040 reflecting that they itemized deductions in 2009.

(# 85, Agreement § 1.06). Both Plaintiffs and Defendant represent that the only difference in relief to which Class and Subclass Members are entitled is the payment of $50 available to Class Members who made a written request to BANA for crediting of the missing payment, and who, as of December 1, 2011, had not had their account credit (# 116, p. 4; # 117, p. 3).

Regarding the relief that Class Members who request exclusion from the settlement agreement shall receive, ...

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