A Boston federal judge has decertified a class of African-American mortgage borrowers, finding that evidence of their statistically higher payments isn’t enough to establish commonality in light of the Supreme Court’s ruling in Wal-Mart v. Dukes.
On September 18, Judge Rya Zobel of the District of Massachusetts granted the defendants’ motion to decertify the class in Barrett v. Option One Mortgage Corp.
Zobel had previously certified the plaintiff class of African-American borrowers who obtained a mortgage loan from one of the defendants, in March 2011.
Three months later, in June 2011, the Supreme Court ruled in Wal-Mart. In its 5-4 ruling, the high court held that the plaintiffs in a class action on behalf of more than 1 million female current and former workers failed to prove a companywide policy of discrimination. Justice Antonin Scalia, writing for the court, found that evidence of such a policy was necessary for the plaintiffs to show the commonality needed to certify a class under Federal Rule of Civil Procedure 23(a)(2).
The borrowers in Barrett sued H&R Block Mortgage Corp. and subsidiaries Option One, Ada Services Corp. and San Canyon Corp. They claimed the defendants’ policy, which gave brokers the discretion to add charges unrelated to a borrower’s creditworthiness, had a disparate impact on African-American borrowers. Brokers could set a higher interest rate than a borrower’s minimum based on creditworthiness and charge loan origination and processing fees.
The plaintiffs also claimed the policy violated the Equal Credit Opportunity Act and the Fair Housing Act.
The plaintiffs relied on an analysis by Professor Ian Ayres of Yale Law School. Looking at rates for Option One wholesale loans originated from 2001 to 2007, Ayres found that African-American borrowers spent an average of $134 more per year on their mortgages than similarly situated white borrowers.
In her March 2011 ruling, Zobel found that Ayres’ analysis demonstrated disparate impact on a classwide basis. She wrote that Option One could either demonstrate that its discretionary policy had a valid business justification or challenge the statistical basis for plaintiffs’ claim.
“In either case, the legal contention applies across the class. Thus, Plaintiffs have carried their burden of showing the predominance of common questions,” Zobel wrote at the time.
But in her recent ruling, Zobel wrote, “Under Wal-Mart, this showing is no longer sufficient to establish commonality.”
Zobel noted that under Wal-Mart, a nationwide policy of giving discretion to local parties could raise a common question only if those parties have a “common mode of exercising discretion.” She observed that “Wal-Mart disapproves the use of aggregate, nationwide statistics to prove a common method of exercising discretion at the local level.”
Zobel noted similar rulings that followed Wal-Mart. One was in October 2011 in In re Countrywide Financial Mortgage Lending Practices Litigation in a Western District of Kentucky multidistrict litigation. It’s now on appeal at the U.S. Court of Appeals for the Sixth Circuit.
Two district courts issued similar rulings last year: the Eastern District of Pennsylvania in Rodriguez v. National City Bank and the Northern District of California in In re Wells Fargo Residential Mortgage Lending Discrimination Litigation.
In an emailed statement, the plaintiffs’ lawyer, Gary Klein, a partner at Boston-based Klein Kavanagh Costello said, “The Wal-Mart decision has clearly made class action representation of civil rights plaintiffs more difficult. We are presently working with the plaintiffs to evaluate how to proceed.”
Klein Kavanagh is co-lead counsel with the National Consumer Law Center in Boston and Bonnett, Fairbourn, Friedman & Balint in Phoenix.
The defendant’s lawyers at O’Melveny & Myers referred questions to their clients. H&R Block Mortgage did not respond to requests for comment. Lawyers at Boston firms Campbell, Campbell, Edwards & Conroy and Pierce, Davis & Perritano, who also represented the defendants, did not respond to a request for comment.
Sheri Qualters can be contacted at firstname.lastname@example.org.