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Debt Management Law News

June 25, 2010

5th Circuit Finds Bankruptcy Judges Can Certify Class Actions but Nixes Wells Fargo Class

Although a Texas bankruptcy court had the authority to certify a class action against Wells Fargo Bank, it stumbled in doing so, a federal appeals court has ruled.

The 5th U.S. Circuit Court of Appeals ruled (PDF) on Friday that the bankruptcy court in Houston had jurisdiction to certify a class of about 1,236 individuals who had filed for Chapter 13 bankruptcy and had mortgages held or serviced by Wells Fargo Bank N.A. Noting a disagreement among courts as to whether bankruptcy judges can certify classes of debtors, the three-judge panel ruled that the bankruptcy court's interest in "efficiency and economy in litigation" that result from class actions is just as compelling as a district court's interest.

However, the appeals court found that the questions of law and facts raised by the putative class members were not similar enough to warrant certification.

The plaintiffs, who filed for bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas, claimed in an adversary proceeding that Wells Fargo had charged unreasonable professional fees and costs -- including attorney's fees, document fees and title search fees -- during their bankruptcy actions. They alleged that Wells Fargo did not disclose those fees, which ranged from $1,200 to $4,000, to the bankruptcy court. They also claimed that the undisclosed fees meant that the plaintiffs still had unresolved debt even after finalizing a restructuring plan.

After finding that Judge Jeffrey Bohm properly certified the class of plaintiff-debtors in an adversary proceeding, the appeals court then considered whether the similarities in the plaintiffs' claims were predominate over any of their claims as individuals.

"Plaintiffs' claims here fail under the predominance and superiority inquiries because individual issues for each class member, particularly with respect to damages, override class concerns when we consider how the case must be tried," wrote Judge Thomas Reavley. Also on the panel were Judge Edward Prado and Judge Priscilla Owen.

Specifically, the panel determined that the fees for each debtor varied too widely to enable certification.

Listed on court documents as representing the plaintiffs was Miriam Trubek of Walker & Patterson in Houston. Listed as representing Wells Fargo Bank is Thomas Connop, a partner in the Dallas office of Locke Lord Bissell & Biddell. Neither attorney was immediately available for comment.

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