Lenders who move to compel arbitration should always consider the complex interplay between the Federal Rules of Civil Procedure and the Federal Arbitration Act. In Ryan D. Burch v. P.J. Cheese, Inc., 861 F.3d 1338 (2017), the Eleventh Circuit held that a general jury demand in the plaintiff’s complaint was not enough to preserve his statutory right to a jury trial on questions of arbitrability. Specifically, the Court held that the FAA’s procedural requirements for demanding a jury trial on arbitrability trumped the normal requirements for a jury demand found in Federal Rule of Civil Procedure 38. While the case specifically concerns a jury demand, it also demonstrates that the FAA contains procedural requirements and that the Federal Rules only fill the gaps. Therefore, when arbitrability will be an issue, lenders should take care to consider the procedural requirements of the FAA in conjunction with those of the Federal Rules.
In a case of first impression for the Court, the Eleventh Circuit recently addressed whether federal district courts retain original subject matter jurisdiction over state law claims included in a class action filed pursuant to the Class Action Fairness Act (“CAFA”) even after all class claims have been dismissed. In Wright Transportation, Inc. v. Pilot Corporation, No. 15-15184, ___ F.3d ___ (Nov. 22, 2016), the Court sided with the other Circuits that have addressed this question, holding that CAFA confers original jurisdiction over state law claims that qualify as CAFA claims, and that this jurisdiction survives the dismissal of class claims.
Pilot Corporation contracts with long-haul trucking companies to sell diesel fuel at discounted rates. In 2013, Wright Transportation, Inc., an Alabama company and Pilot customer, filed a putative class action in the Southern District of Alabama, alleging that Pilot employees withheld discounts without their customers’ knowledge or approval. Wright asserted claims under the federal RICO statute, as well as various state law claims which, Wright alleged, qualified as CAFA claims, thereby vesting the district court with subject matter jurisdiction.
The district court eventually dismissed several of Wright’s claims, including the RICO claims and the class claims. Specifically, the district court dismissed the class claims because, while the case was pending, a rival class-action in the Eastern District of Arkansas reached a court-approved settlement. Both Wright and Pilot acknowledged that judicial approval of the settlement would divest Wright of standing to pursue the class claims. However, state law claims for breach of contract and unjust enrichment, both of which originally qualified as CAFA claims, survived for Wright individually.
The case was then consolidated with six similar lawsuits into one multidistrict-litigation proceeding in the Eastern District of Kentucky. However, soon thereafter, the MDL court discovered information showing that Pilot was an Alabama citizen, therefore depriving the court of diversity jurisdiction as to Wright’s claims. Without deciding the question of whether original jurisdiction still existed over those claims pursuant to CAFA, the MDL court remanded the case to the Southern District of Alabama.
On remand, Wright asked the district court to dismiss the remaining claims without prejudice so that it could re-file them in Alabama state court. Pilot opposed Wright’s motion, asserting that the district court retained CAFA jurisdiction over Wright’s state law claims notwithstanding the dismissal of all class claims. Ultimately, the district court granted Wright’s motion, holding that the dismissal of the class claims (and the RICO claims) had stripped it of original jurisdiction, and declining to exercise supplemental jurisdiction over the remaining state law claims.
Pilot appealed to the Eleventh Circuit, arguing that CAFA conferred original jurisdiction over all of Wright’s claims, including the state law claims, at the time that Wright actually filed them such that jurisdiction could not have divested when the class claims were dismissed. The Court agreed with Pilot, concluding that CAFA effectively serves as an extension of diversity jurisdiction, which is not destroyed by post-filing changes to a party’s citizenship. Thus, a post-filing change in circumstances does not remove subject matter jurisdiction under CAFA, even when the class claims are dismissed. In other words, original subject matter jurisdiction for claims brought under CAFA cannot be divested unless the trial court determines that it did not actually possess original subject matter jurisdiction at the time of the initial filing. Because there was no allegation that the district court lacked subject matter jurisdiction at the time Wright’s claims were originally filed, the Court concluded that CAFA continued to confer original federal jurisdiction over the remaining state law claims despite the dismissal of Wright’s class claims.
Although Wright provides support for class action defendants who wish to remain in federal court following the dismissal of CAFA claims, it is important to note that this ruling is relatively narrow. First, and most importantly, the Court suggests that, although a plaintiff who originally filed its class action in state court cannot amend its complaint after removal to federal court in order to divest the federal court of CAFA jurisdiction, a plaintiff who originally filed its lawsuit in federal court is free to amend its complaint in order to remove claims upon which the court’s original jurisdiction is based. Second, in Wright, all of the remaining state law claims qualified for CAFA jurisdiction; therefore, the Court did not have to analyze the issue of supplemental jurisdiction. Litigants who wish to remain in federal court following the dismissal of class claims will still have to establish the district court’s jurisdiction over any remaining non-CAFA claims.
In Turner v. Wells Fargo, N.A., No. 2150230, Wells Fargo foreclosed on a home after the homeowners tendered a bad check and attempted to send catch-up payments that did not include required penalty fees. Wells Fargo, which purchased the home in foreclosure, obtained summary judgment in the trial court after initiating an ejectment action against the former owners. On appeal, the Alabama Court of Civil Appeals affirmed the summary judgment, holding that Wells Fargo had substantially complied with the terms of the mortgage and was therefore entitled to initiate the foreclosure.
In 2006, Donna Turner and Trenton Turner, Jr. executed a promissory note and mortgage for the purchase of a home. The note was eventually sold to Wells Fargo, and Carrington Mortgage Services serviced the loan. In 2011, the Turners tendered checks to Carrington that were returned due to insufficient funds. The Turners ultimately satisfied the principal and interest payments, but Carrington assessed several penalty fees for the bad checks. The Turners repeatedly sent checks that were sufficient to pay the principal and interest, but Carrington returned these checks because they were not sufficient to pay the mounting penalty fees.
In late 2011, Carrington notified the Turners of its intent to foreclose, and in early 2012, Wells Fargo accelerated the mortgage and sent the Turners a notice of foreclosure. Wells Fargo ultimately purchased the home at a foreclosure sale. Because the Turners refused to vacate the home, Wells Fargo filed a complaint for ejectment. The trial court entered summary judgment in favor of Wells Fargo, and the Turners appealed to the Alabama Court of Civil Appeals.
Specifically, the Turners contended that Carrington caused the default by returning the checks that were tendered in 2011, that Wells Fargo failed to provide sufficient notice pursuant to the terms of the mortgage contract, and that Wells Fargo failed to show it was the holder of the note. The Court rejected all three arguments. First, the Turners admitted that they neglected to send Carrington checks that were sufficient to cover the penalty fees that accrued in 2011, and they did not dispute that the note allowed for such fees. Thus, the Court held that, under the terms of the note, Carrington was entitled to return the insufficient checks, and the Turners failed to cure their default. Second, the Turners asserted that, because the notice of foreclosure sent by Wells Fargo did not contain the precise notice language included in the mortgage contract, the foreclosure was void. The Court disagreed, holding that the notices substantially complied with the mortgage’s notice requirements. Therefore, the Court held that there was no genuine issue of fact supporting the Turner’s claim that they did not receive proper notice. Finally, the Turners contended that Wells Fargo did not produce substantial evidence that it was the holder of the note and mortgage. However, Wells Fargo presented to the trial court an executed assignment of the mortgage and note, which was recorded in the probate court prior to the foreclosure. Thus, the Court held that Wells Fargo did, in fact, present substantial evidence that it was the holder of the mortgage and was entitled to foreclose. Accordingly, the Court affirmed the trial court’s judgment.
Since 2011, a Subcommittee of the Federal Rules Advisory Committee has been mulling changes to Rule 23 of the Federal Rules of Civil Procedure. On April 14, 2016, the Advisory Committee forwarded proposed changes to the Standing Committee on Rules of Practice and Procedure, recommending that they be published for public comment. On August 12, the Standing Committee published a draft. Any approved changes will be made effective December 1, 2018.
The most significant changes involve measures to deter “bad faith” objectors. Under the new Rule 23(e)(5)(B), the Court must approve any side payment to an objector or objector’s counsel associated with withdrawing an objection or abandoning an appeal from a judgment approving a settlement.
The Eleventh Circuit recently reduced mortgage assignees’ potential exposure to liability for a servicer’s alleged violation of the Truth in Lending Act (“TILA”). In Evanto v. Federal National Mortgage Association, No. 15-11450, (11th Cir. Mar. 1, 2016), the Court held that TILA does not create a cause of action against an assignee for a mortgage servicer’s failure to timely provide a payoff balance to a mortgagor.
After Steve Evanto obtained a home mortgage, Amnet Mortgage, Inc., the original mortgagee, voluntarily assigned the mortgage to the Federal National Mortgage Association (“Fannie Mae”). The mortgage was serviced by Green Tree Servicing, LLC. (“Green Tree”). Evanto defaulted on the loan, and Fannie Mae commenced foreclosure proceedings. Evanto allegedly requested a payoff balance from Green Tree, but allegedly never received one. Subsequently, Evanto sued Fannie Mae for Green Tree’s alleged failure to provide the payoff balance within seven days as required by 15 U.S.C. § 1639g. Fannie Mae moved to dismiss the complaint, and the District Court granted the motion.
Evanto appealed to the Eleventh Circuit Court of Appeals, who affirmed the district court’s judgment. The Court noted that, although TILA provides certain remedies for violations, it limits the type of remedies available against an assignee. Specifically, the Court referenced the TILA provision stating that “any civil action against a creditor for a violation of [15 U.S.C. § 1639g, et seq.]. . . with respect to a consumer credit transaction secured by real property may be maintained against an assignee of such creditor only if . . . the violation for which such action or proceeding is brought is apparent on the face of the disclosure statement provided in connection with such transaction pursuant to this subchapter.” See 15 U.S.C. § 1641(e)(1).
The Court reasoned that Evanto had failed to state a claim against Fannie Mae because Green Tree’s failure to provide a payoff balance was not a “violation . . . apparent on the face of the disclosure statement.” Specifically, the Court held that the plain meaning of the term “disclosure statement,” the statutory usage of the term in other sections of TILA, the definition of the term on the Consumer Financial Protection Bureau’s website, and the use of the term by other Circuit Courts of Appeals, supported the conclusion that “the disclosure statement,” as used in section 1641(e)(1), referred to documents provided to consumers before the extension of credit. Because a payoff balance cannot be requested by a consumer until after credit is extended, the Court concluded that the Green Tree’s alleged failure to provide a payoff balance could not, as a matter of law, appear on the face of the disclosure statement. Evanto contended that absolving Fannie Mae of liability merely because it was an assignee would be contrary to the purposes of TILA. The Court disagreed, holding that the plain language of TILA dictated dismissal, notwithstanding the potential conflict with the “basic objective of the statute.”
The Eleventh Circuit recently dismissed an appeal from an order compelling arbitration because the appealing party failed to file a notice of appeal within thirty days of that order. For lenders, this opinion serves as a sharp reminder that a trial court order can be final and appealable even though a final judgment has not yet been entered. Instead, an order can be final and appealable if it effectively resolves the case on the merits. Thus, lenders should always examine whether an adverse order should be appealed immediately. If there is any doubt about the proper time to appeal, the lender should consider filing a notice of appeal so that it does not lose the right to appeal that decision.
In the case United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union AFL-CIO-CLC, USW Local 200 v. Wise Alloys, LLC, 807 F.3d 1258 (11th Cir. Dec. 8, 2015), a union and Wise Alloys LLC (“the Company”) entered a collective bargaining agreement (“CBA”) which, among other things, created a schedule of gradually increasing health care premiums over a five-year period. To offset these increases, the CBA included cost-of-living adjustments designed to offset the increasing premiums. The CBA also included an arbitration provision.
One year after the parties signed the CBA, a dispute arose between the union and the Company regarding the manner in which the cost-of-living adjustments and premium increases would work. The parties failed to resolve their differences and, in 2010, the union invoked the CBA’s arbitration provision. When the Company refused to arbitrate, the union sought an order compelling arbitration . Importantly, the only relief requested in the union’s Complaint was an order compelling arbitration. Following cross-motions for summary judgment, the trial court granted the union’s motion and compelled arbitration. However, in its order, the trial court expressed an opinion, sua sponte, that “the case should be stayed, rather than dismissed, pending a final resolution following arbitration.” The court determined that Section 3 of the Federal Arbitration Act, as well as Circuit precedent, required a stay. Consequently, the clerk administratively closed the case.
The case proceeded to arbitration where the union prevailed. The district court case was reopened and the court granted the union’s motion to enforce the arbitration award and entered a final judgment.
The Company appealed the decision to compel arbitration to the Eleventh Circuit, which dismissed the appeal for lack of jurisdiction. The Court concluded that the order compelling arbitration had effectively ended the case on the merits because it resolved the only claim for relief and left nothing for the trial court to do but enforce its decision. Thus, the order compelling arbitration became final and appealable on the date it was entered rather than the date of the judgment. Because the Company had not filed a notice of appeal within 30 days of the order compelling arbitration, the Court had no jurisdiction to consider that appeal. The Eleventh Circuit rejected the argument that the district court’s “stay” had extended the time to appeal. It noted that the only claim in the Complaint was for an order compelling arbitration. Because there were no substantive claims contained in the Complaint, there was nothing for the district court to stay. Thus, the purported stay was without force or effect.
United Steel is a reminder that a trial court order can be final and appealable even if a final judgment has not yet been entered. For that reason, lenders should review adverse and largely dispositive rulings from a trial court to determine whether the decision should be immediately appealed. If there is any doubt as to the appropriate time to appeal, the lender should consider filing a notice of appeal. Even if the appeal is ultimately dismissed as premature, that result may be preferable to losing the right to appeal entirely.