DEMETRIUS ROBINSON; TAMARA ROBINSON,
Plaintiffs – Appellees,
NATIONSTAR MORTGAGE LLC,
Defendant – Appellee.
Amici Supporting Appellant.
Appeal from the United States District Court for the District of Maryland, at Greenbelt.
Timothy J. Sullivan, Magistrate Judge. (8:14−cv−03667−TJS)
Argued: October 28, 2021 Decided: February 10, 2022
Amended: February 10, 2022
Before DIAZ and THACKER, Circuit Judges, and Thomas T. CULLEN, United States District Judge for the Western District of Virginia, sitting by designation.
Affirmed by published opinion. Judge Diaz wrote the opinion, in which Judge Thacker and Judge Cullen joined.
Michael T. Houchin, LAW OFFICES OF RONALD A. MARRON, APLC,
San Diego, California, for Appellant.
Jonathan K. Tycko, TYCKO & ZAVAREEI LLP, Washington, D.C.;
Erik Wayne Kemp, SEVERSON & WERSON, San Francisco, California, for Appellees.
Ronald A. Marron, LAW OFFICES OF RONALD A. MARRON, APLC, San Diego, California;
Thomas J. Minton, GOLDMAN & MINTON, P.C., Baltimore, Maryland, for Appellant.
Dia Rasinariu, TYCKO & ZAVAREEI LLP, Washington, D.C., for Appellee Tamara Robinson.
Jan T. Chilton, SEVERSON & WERSON, San Francisco, California, for Appellee Nationstar Mortgage LLC.
Scott C. Borison, BORISON FIRM LLC, Baltimore, Maryland;
Jennifer S. Wagner, MOUNTAIN STATE JUSTICE, Morgantown, West Virginia, for Amici Curiae.
FEB 11, 2022 | REPUBLISHED BY LIT: FEB 13, 2022
DIAZ, Circuit Judge:
This case arises from a class action alleging that Nationstar Mortgage LLC violated federal and state consumer-protection laws in servicing the class members’ mortgage loans.
Following protracted litigation, Nationstar, and the Robinsons negotiated a $3,000,000 settlement.
Pia McAdams, a class member, objected to the settlement, arguing that the class notice was insufficient; the settlement was unfair, unreasonable, and inadequate; the release was unconstitutionally overbroad; and the attorneys’ fee award was improper.
A magistrate judge (acting on a referral by the district court) overruled McAdams’s objections.
On appeal, McAdams raises those same challenges and questions the magistrate judge’s jurisdiction.
Demetrius and Tamara Robinson filed a class action against Nationstar in the District of Maryland in 2014.
The Robinsons claimed Nationstar violated federal and state law by, among other things, failing to timely acknowledge receipt of class members’ loss mitigation applications,1 respond to the applications, and diligently obtain documents to process them.
The parties litigated the case for nearly six years. In 2020, the Robinsons and Nationstar filed a notice of settlement and a joint motion to proceed before a magistrate
An Insult from Court of Appeals for the 4th Cir. Judge Albert Diaz, joined by Thacker and Cullen.
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The magistrate judge (who had mediated the settlement), granted a motion for preliminary approval of the settlement and scheduled a fairness hearing before final approval.
The negotiated settlement created a relief fund of $3,000,000.
In order of priority, the parties proposed that the fund pay for
(1) administrative expenses up to $300,000,
(2) attorneys’ fees,
(3) a service award to the class representative—Demetrius Robinson,
(4) class claims.
Any remainder would go to a nonprofit that advocates for consumers.
The administrative expenses included the cost of providing class members with notice of the settlement.
The settlement proposed three types of notice—Email, Postcard, and Longform.
Both the Email and Postcard Notice informed class members of the amount of the settlement fund, how to submit a claim, how to opt out of the class, and where to find the Longform Notice.
The Longform Notice notified class members of the attorneys’ fee arrangement.
The notices didn’t estimate the recovery for each class member.
As for attorneys’ fees, Nationstar agreed (in a so-called “clear sailing” provision) not to oppose class counsel’s fee request so long as it didn’t exceed $1,300,000.
Class counsel submitted records accounting for over 3,000 billable hours.
Using the District of Maryland’s presumptively reasonable rates, the records supported $1,261,547.50 in fees.
Class counsel also submitted proof of $217,657.26 in unreimbursed expenses, for a total of $1,479,204.76 in costs and fees.
But counsel requested only a $1,300,000 award.
The value of a class member’s claim is determined by a points system.
Class members receive points for answering two questions—the first about Nationstar’s treatment of their mortgage account and the second about expenses the class member incurred.
The settlement funds remaining, after deducting administrative expenses, attorneys’ fees, and the class representative’s service award, are divided by the number of points claimed.
That number is then multiplied by a class member’s points to arrive at the settlement share for each claimant.
The proposed settlement also includes a release of claims.
Upon entry of the Final Approval Order and Judgment, each Settlement Class Member . . . will be deemed to have completely released and forever discharged the Released Parties, and each of them, from all actions . . . that were or could have been asserted by the Class Representative or Class Members in connection with the submission of loss mitigation applications during the Class Period.
McAdams, an absent class member2 who had sued Nationstar in California state court,3 objected to the settlement. She argued that the class notice was insufficient; the
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settlement was unfair, unreasonable, and inadequate; the release was unconstitutionally overbroad; and the attorneys’ fee award was improper.
The magistrate judge overruled McAdams’s objections.
The judge found that the distribution of the notice was sufficient because over 97% of the nearly 350,000 class members received notice.
He also found that class members “had information to make the necessary decisions and . . . the ability to even get more information if they so desired.”
In support of that finding, the judge noted the low number of objectors (2), the low opt-out rate (.04%), and the high claims rate (13.8%).4
Turning to the settlement terms, the magistrate judge found them fair, reasonable, and adequate.
The judge considered the three relevant criteria under Federal Rule of Civil Procedure 23(e)(2)(C) and addressed the five adequacy factors from In re Jiffy Lube Securities Litigation, 927 F.2d 155, 159 (4th Cir. 1991).
The judge found: (1) “plaintiffs ha[d] viable claims”; (2) “Nationstar had very strong defenses”; (3) litigating the case to trial “would have likely been lengthy and it would certainly be quite, quite expensive”; (4) “Nationstar can pay the 3 million dollars”; and (5) “[o]nly 137 class members have opted
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out of the settlement, which is about 0.04 percent of the settlement class.”
See J.A. 810– 14.
The magistrate judge also addressed the breadth of the settlement’s release. He found the release was “not too broad” because a class settlement can release “claims based on the identical factual predicate[,] even if those claims” aren’t presented.
But he didn’t opine whether the release would bar class members’ pending claims in other jurisdictions, including McAdams’s California lawsuit.
Finally, the magistrate judge approved the proposed $1,300,000 attorneys’ fee request.
The fee, he said, was based on a presumptively reasonable rate, and using that rate, counsel had shown that their actual costs and fees exceeded their request.
The judge noted that concerns over Nationstar’s agreement not to object to the settlement were misplaced.
And he found “no collusion” between the parties because they negotiated the settlement “at arm’s length in the midst of contentious litigation.”
J.A. 812, 817.
This appeal followed.
McAdams first attacks the magistrate judge’s jurisdiction to approve the class action settlement, alleging that she didn’t consent to have a magistrate judge hear her case.
There’s no dispute that the magistrate judge could approve the class action and enter judgment only by consent of the parties.
28 U.S.C. § 636(c).
McAdams asserts that “parties” for purposes of § 636(c) include absent class members, like her.
This is a question of first impression in this circuit.
But every other circuit to address the issue has concluded that absent class members aren’t parties.
Koby v. ARS Nat’l Servs., Inc., 846 F.3d 1071, 1076 (9th Cir. 2017); Day v. Persels & Assocs., LLC, 729 F.3d 1309, 1316 (11th Cir. 2013); Dewey v. Volkswagen Aktiengesellschaft, 681 F.3d 170, 181 (3d Cir. 2012); Williams v. Gen. Elec. Cap. Auto Lease, Inc., 159 F.3d 266, 269 (7th Cir. 1998).
We now join them, holding that the magistrate judge had jurisdiction to approve the settlement.
We review questions of law de novo, including questions of statutory interpretation.
In re Lumber Liquidators Chinese-Manufactured Flooring Prods. Mktg., Sales Pracs. & Prods. Liab. Litig., 952 F.3d 471, 483 (4th Cir. 2020).
Similarly, “[w]e review . . . a lower court’s determination of its subject-matter jurisdiction de novo.”
Barlow v. Colgate Palmolive Co., 772 F.3d 1001, 1007 (4th Cir. 2014) (en banc).
“We begin, as always in deciding questions of statutory interpretation, with the text.”
Othi v. Holder, 734 F.3d 259, 265 (4th Cir. 2013).
28 U.S.C. § 636(c) authorizes magistrate judges to “conduct any or all proceedings in a jury or nonjury civil matter and order the entry of judgment in the case . . . . [u]pon the consent of the parties.”
Congress didn’t define “parties” in § 636.
Nor has the Supreme Court said whether absent class members are parties in this context.
See Devlin v. Scardelletti, 536 U.S. 1, 9–10 (2002)
(“Nonnamed class members, however, may be parties for some purposes and not for others. The label ‘party’ does not indicate an absolute characteristic, but rather a conclusion about the applicability of various procedural rules that may differ based on context.”).
“We give the words of a statute their ordinary, contemporary, common meaning, absent an indication Congress intended them to bear some different import.”
Williams v. Taylor, 529 U.S. 420, 431 (2000) (cleaned up).
When Congress adopted the relevant language in § 636, the ordinary meaning of “party” included those whose names are designated as a plaintiff or defendant and those who can control the proceedings.
See Day, 729 F.3d at 1317.
Absent class members aren’t named parties, and they can’t control proceedings.
See Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 810 (1985)
(“Unlike a defendant in a normal civil suit, an absent class-action plaintiff is not required to do anything. He may sit back and allow the litigation to run its course, content in knowing that there are safeguards provided for his protection.”).
So absent class members aren’t within the contemporary, common meaning of the term “parties” as used in § 636.
Nor do we believe Congress intended absent class members to be parties.
Interpreting “parties” to include absent class members would prevent magistrate judges from entering judgment against absent class members who haven’t given their explicit consent.
That reading “would virtually eliminate § 636(c) referrals to magistrate judges” by hindering the judgment’s preclusive effect.
Williams, 159 F.3d at 269.
Congress has limited the preclusive effect of judgments by restricting the definition of a party in other contexts.
See, e.g., 29 U.S.C. § 216(b)
(“No employee shall be a party plaintiff to any such action unless he gives his consent in writing to become such a party and such consent is filed in the court in which such action is brought.”).
But when it has done so, Congress has spoken clearly. Nothing in § 636 suggests Congress intended to limit the preclusive effect of judgments entered by magistrate judges.
McAdams doesn’t account for the adverse practical effects of administering class actions if her reading were to prevail.
The Ninth Circuit has observed that § 636 uses the term “parties” “multiple times in a way that cannot sensibly be read to include absent class members” because “[t]he identities of all absent class members will often not be known until later in the case.”
Koby, 846 F.3d at 1076; see, e.g., 28 U.S.C. § 636(c)(2)
(“[T]he clerk of court shall, at the time the action is filed, notify the parties of the availability of a magistrate judge to exercise such jurisdiction.”).
“Even if the identities of all absent class members are known,” it would be unduly burdensome on the clerk of court to compile all their contact information and prohibitively expensive “even for the most well-funded district courts.”
Koby, 846 F.3d at 1077.
This case exemplifies the need to have a practical system for administering class actions.
The class here consists of almost 350,000 members.
McAdams’s reading of “parties” for purposes of § 636 would require notifying each of them of the intent to proceed before a magistrate judge.
“We doubt Congress would have imposed these substantial budgetary and manpower burdens on clerks’ offices across the country without making that intent explicit.”
Id. at 1077.
And to what end? In this case, over 97% of class members received notice of the settlement. 13.8% submitted claims. Only .04% opted out. So over 80% of the class received notice but didn’t act on it.
Yet under McAdams’s reading of § 636, the magistrate judge would be powerless to act.
Because the contemporary, common meaning of “parties” excludes absent class members and the statute lacks signs showing any legislative intent to classify them as such, we conclude “parties” as used in § 636 doesn’t include absent class members.
Since Nationstar and the Robinsons consented to having the magistrate judge preside over the fairness hearing, McAdams’s jurisdictional claim fails.5
McAdams next asserts that the settlement notice was inadequate because it didn’t include the attorneys’ fees to be deducted from the settlement fund, estimate individual class members’ recovery, or explain the distribution method.
The parties dispute our standard of review.
We haven’t spoken on this question, and our sister circuits are split.
Two circuits review a district court’s finding on the adequacy of class action notice for abuse of discretion.
Pollard v. Remington Arms Co., 896 F.3d 900, 905–06 (8th Cir. 2018); Masters v. Wilhelmina Model Agency, Inc., 473 F.3d 423, 438 (2d Cir. 2007).
Three others review the issue de novo.
In re Online DVD-Rental
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Antitrust Litig., 779 F.3d 934, 946 (9th Cir. 2015); DeJulius v. New England Health Care Emp. Pension Fund, 429 F.3d 935, 942 (10th Cir. 2005); Fidel v. Farley, 534 F.3d 508, 513 (6th Cir. 2008).
But even assuming de novo review is proper, the class notice was adequate.
McAdams’s challenge to the adequacy of the notice has both a constitutional and a procedural component.
To bind an absent class member, notice to the class must provide “minimal procedural due process protection.”
Phillips Petroleum Co., 472 U.S. at 811–12.
“The [absent class member] must receive notice plus an opportunity to be heard and participate in the litigation.”
Id. at 812.
That notice must be “reasonably calculated, under all the circumstances, to apprise [absent class members] of the pendency of the action and afford them an opportunity to present their objections.”
Mullane v. Cent. Hanover Bank & Tr. Co., 339 U.S. 306, 314 (1950).
On the procedural front, Federal Rule of Civil Procedure 23(e) governs notice to absent class members. It requires “direct notice in a reasonable manner to all class members who would be bound by the proposal.”
Fed. R. Civ. P. 23(e)(1)(B).
But it doesn’t specify what the notice must say. Rather, the notice need only “fairly apprise the prospective members of the class of the terms of the proposed settlement and of the options that are open to them in connection with the proceedings.”
Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 114 (2d Cir. 2005) (cleaned up).
Put another way, “Rule 23(e) requires notice that describes the terms of the settlement in sufficient detail to alert those with adverse viewpoints to investigate and to come forward and be heard.”
In re Online DVD-Rental Antitrust Litig., 779 F.3d at 946 (cleaned up).
Here, the magistrate judge approved three types of notice—Email, Postcard, and Longform.6
The settlement administrator emailed notice to class members for whom it had an email address.
It also mailed notice to class members for whom it had a physical address.
And it searched the National Change of Address database to update the addresses for those whose Postcard Notice was returned as undeliverable.
Both the Email and Postcard Notice informed class members that there was a $3,000,000 settlement fund, explained how to file a claim, and presented the option to opt- out.
They also listed a website and telephone number where class members could get the Longform Notice.
The Longform Notice explained the settlement in greater detail.
Among other things, it stated that class counsel intended to request up to $1,300,000 in attorneys’ fees and costs, that this amount would be deducted before any payout to the class, and that class members submitting valid claims would receive proportionate shares of the settlement fund.7
In other words, the Longform Notice included two of the three pieces of
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information—the attorneys’ fees to be deducted from the settlement fund and the distribution method—which McAdams complains is missing.
Nor was the notice inadequate because it didn’t estimate the class members’ recovery.
In general, it would be difficult, if not impossible, for parties to reliably predict the number of valid claims when drafting notices.
Indeed, the Longform Notice acknowledges this difficulty:
“The amount of this payment will depend on how many Settlement Class Members file valid claims and how each Settlement Class Member answers questions in the Claim Form.”
And even if an estimated recovery is appropriate in some cases, McAdams makes no compelling argument for one here.
There’s nothing in the record suggesting the parties had a reliable method of estimating the percentage of class members who would file claims, let alone the average number of points they would claim.
Nor could the parties know that the magistrate judge would approve the proposed award of attorneys’ fees.
Without some evidence proving an average recovery calculation would be reliable, we think it inappropriate to impose such a requirement.
See, e.g, Does 1-2 v. Déjà Vu Servs., Inc., 925 F.3d 886, 901 (6th Cir. 2019)
(“Objectors cite no authority that requires a notice to state how much money each class member would receive, nor do they explain how the notice could have accurately stated the amount each [class member] was eligible to receive from the cash pool.”).
In sum, we find the methods of notice here fairly apprised class members of the proceedings as well as their options.
Class members had access to information about the total settlement, attorneys’ fees, and distribution method.
The notices also provided them with the means to find more information if they wanted it.
Thus, the notices were adequate.
McAdams next contests the magistrate judge’s finding that the settlement was fair, reasonable, and adequate. She asserts that the magistrate judge neglected to estimate the average recovery, and thus the settlement fund won’t adequately compensate the class members.
“We review a district court’s approval of a class-action settlement for an abuse of discretion.”
In re Lumber Liquidators, 952 F.3d at 483.
Rule 23 requires courts to find that class settlements are “fair, reasonable, and adequate” before approving them.
Fed. R Civ. P. 23(e)(2).
When reviewing the adequacy of a settlement, the court must consider
“(i) the costs, risks, and delay of trial and appeal;
(ii) the effectiveness of any proposed method of distributing relief to the class, including the method of processing class-member claims;
(iii) the terms of any proposed award of attorneys’ fees, including timing of payment;
(iv) any agreement required to be identified.”
Id. at 23(e)(2)(C).
We have identified five other factors for assessing a settlement’s adequacy:
“(1) the relative strength of the plaintiffs’ case on the merits;
(2) the existence of any difficulties of proof or strong defenses the plaintiffs are likely to encounter if the case goes to trial;
(3) the anticipated duration and expense of additional litigation;
(4) the solvency of the defendant and the likelihood of recovery on a litigated judgment;
(5) the degree of opposition to the settlement.”
In re Lumber Liquidators, 952 F.3d at 484 (citing In re Jiffy Lube, 927 F.2d at 159).
Here, the magistrate judge considered the three relevant Rule 23(e)(2) criteria.8
(i) “[t]here was a great risk [for the plaintiffs] to proceed to trial given the logistical difficulties and Nationstar’s defense”;
(ii) “[t]he point system alloc[a]tion in the settlement agreement ensure[d] that those with the greater loss will be compensated to a greater degree”;
(iii) “the proposed attorneys’ fees and costs in this case [were] fair and reasonable given the contentious nature of this case and the amount of time spent in litigation.”
The magistrate judge also weighed the five Jiffy Lube factors.
(1) “plaintiffs ha[d] viable claims”;
(2) “Nationstar had very strong defenses”;
(3) litigating the case to trial “would have likely been lengthy and it would certainly be quite, quite expensive”;
(4) “Nationstar can pay the 3 million dollars”;
(5) “[o]nly 137 class members have opted out of the settlement, which is about 0.04 percent of the settlement class.”
J.A. 810, 813–14.
McAdams doesn’t claim that the magistrate judge failed to address these factors; nor does she argue that he improperly weighed them.
Instead, she complains that the magistrate judge “failed to make a ‘rough estimate’ of what class members would have received had they prevailed at trial.”
Appellant’s Br. at 25.
But we have never required such an estimate.
Even the out-of-circuit cases McAdams cites don’t require an estimate in every case.
See Lusk v. Five Guys Enters. LLC, No. 17-cv-00762, 2019 WL 7048791,
at *7 (E.D. Cal. Dec. 23, 2019)
(explaining that a rough estimate of a plaintiff’s recovery is “meaningless” when one of its components lacks “factual and evidentiary foundation”).
And we’re not persuaded to impose this new requirement here.
In any event, while the magistrate judge didn’t estimate the potential recovery should the case proceed to trial, he found that most class members “probably only had nominal damages.”
That’s consistent with the resulting settlement.
At the fairness hearing, the judge said that 13.8% of the nearly 350,000 class members submitted claims.
He also noted that $1,300,000 in attorneys’ fees and costs would be deducted from the $3,000,000 fund.
Using only that information, one could roughly estimate that the average class member would recover $35, an amount that would adequately compensate a plaintiff with only nominal damages.
We’re satisfied that the magistrate judge correctly analyzed all the relevant Rule 23 criteria and thus didn’t abuse his discretion in finding the settlement agreement adequately compensated the plaintiffs.
McAdams also argues that the settlement release is “ambiguous, overbroad, and beyond the permissible scope of release for class action settlements.” Appellant’s Br. at 17.
A court can approve a release of claims that share an “identical factual predicate” with claims alleged in a case.
Berry v. Schulman, 807 F.3d 600, 616 (4th Cir. 2015).
Claims have an “identical factual predicate” when they “depend upon the very same set of facts.”
TBK Partners, Ltd. v. W. Union Corp., 675 F.2d 456, 460 (2d Cir. 1982) (quoting Nat’l Super Spuds, Inc. v. N.Y. Mercantile Exch., 660 F.2d 9, 18 n.7 (2d Cir. 1981)).
We have twice held that a class action settlement can dispose of unalleged claims relying on an identical factual predicate.
In re MI Windows & Doors, Inc., Prod. Liab. Litig., 860 F.3d 218, 225 (4th Cir. 2017); Berry, 807 F.3d at 616.
Here, the release provides that “each Settlement Class Member . . . will be deemed to have . . . discharged the Released Parties . . . from all actions . . . in connection with the submission of loss mitigation applications during the Class Period.”
As the magistrate judge recognized, this is “a broad release.”
It encompasses a large swath of claims that might have been brought.
But nothing on the face of the release purports to apply to cases with a different factual predicate. Rather, the release is tied to cases arising out of a set action and time frame.
Our inquiry ends there.
Neither we nor the magistrate judge can decide the outer limit of the release’s scope. To do so would be advisory.
See Pelt v. Utah, 539 F.3d 1271, 1285 (10th Cir. 2008)
(“It is well settled that a court adjudicating a class action cannot predetermine the res judicata effects of its own judgment; that can only be determined in a subsequent suit.”).
Whether the release covers claims not alleged in the class action complaint is for a court enforcing the release to decide.
In fact, that’s exactly what happened with McAdams’s California claims.
In that case, McAdams alleges that Nationstar violated California law by falsely telling her that it was processing her loan modification application while it continued to foreclose on her home.
McAdams, 2021 WL 4462909, at *1.
The California court considered the release’s scope and found that her claims weren’t barred. Id. at *4–6.
The magistrate judge didn’t abuse his discretion in approving the release.
Finally, McAdams contends that the magistrate judge abused his discretion by approving the $1,300,000 attorneys’ fee request.
She raises three challenges to this ruling:
(1) the magistrate judge didn’t comply with Rule 23(h)(3)’s requirement that he “find the facts and state [his] legal conclusions”;
(2) the attorneys’ fee award constitutes an unacceptably large portion of the overall award;
(3) the “clear sailing” provision is impermissible.
All three challenges fail.
“We  review an award of attorney’s fees for an abuse of discretion.”
In re Lumber Liquidators, 952 F.3d at 483. Thus, our “review is sharply circumscribed, and [the] fee award must not be overturned unless it is clearly wrong.”
Berry, 807 F.3d at 617 (cleaned up).
McAdams’s first argument is frivolous.
True, the magistrate judge had to “find the facts and state [his] legal conclusions.”
Fed R. Civ. P. 23(h)(3).
But he did so. He stated at the fairness hearing:
“Both sides are represented by skilled counsel[,] and I have concluded that the proposed attorneys’ fees and costs in this case are fair and reasonable given the contentious nature of this case and the amount of time spent in litigation.”
The judge elaborated:
I don’t accept and I reject Ms. McAdams’ suggestion that the settlement was somehow collusive with respect to plaintiffs’ attorney fees.
The parties negotiated the settlement at arm’s length in the midst of contentious litigation.
Ms. McAdams complained that because defendants do not object to the attorneys’ fees request, the Court is deprived of the necessary adversary process to determine a reasonable award, the whole clear sailing provision.
But Ms. McAdams herself only presents general arguments about the fee award. She doesn’t cite to any work that counsel performed that was unwarranted or unnecessary or duplicative or provide evidence that the rates charged by counsel are unreasonable.
An award of 1.3 million dollars for attorneys’ fees and expenses is reasonable in this case.
Class counsels’ fee award is based on the presumptively reasonable rate set forth in our court’s local rules.
Class counsel has supported their request of [sic] billing records and other competent evidence to support their request. Lawyers routinely complain that these rates are too low, especially the rates that pertain to more experienced attorneys.
Counsel seeks 86 percent of their reasonable fee under the lodestar method. This is a significant reduction.
The Court has reviewed class counsels’ motion for attorneys’ fees and finds that the fees claimed are reasonable.
Because the magistrate judge “referred to Plaintiffs attorneys’ substantially uncontradicted evidence and arguments that the requested fees are justified by their work on the case,” he complied with Rule 23(h)(3).
CLRB Hanson Indus., LLC v. Weiss & Assocs., PC, 465 F. App’x 617, 619 (9th Cir. 2012).
McAdams’s second argument, that the attorneys’ fees constitute an unacceptably large portion of the overall settlement, fares no better.
There are two main methods for calculating the reasonableness of attorneys’ fees—the lodestar method and the percentage- of-recovery method.
The lodestar method calculates reasonable fees “by multiplying the number of reasonable hours expended times a reasonable rate.”
McAfee v. Boczar, 738 F.3d 81, 88 (4th Cir. 2013) (cleaned up).
“[T]here is a ‘strong presumption’ that the lodestar figure is reasonable.”
Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542, 554 (2010).
The percentage-of-recovery method considers the portion of the total settlement fund that will go to attorneys’ fees. In re Lumber Liquidators, 952 F.3d at 481.
A district court may choose the method it deems appropriate based on its judgment and the facts of the case.
See Jones v. Dominion Res. Servs., Inc., 601 F. Supp. 2d 756, 760 (S.D. W. Va. 2009)
(“The Fourth Circuit has neither announced a preferred method for determining the reasonableness of attorneys’ fees in common fund class actions nor identified factors for district courts to apply when using the percentage method.”).
Here, the magistrate judge chose the lodestar method for assessing the fee request.
Using the presumptively reasonable rates set forth in the District of Maryland’s Local Rules, class counsel documented earned fees of $1,261,547.50. See D. Md. Local R. App. B(3).
They also proved $217,657.26 in unreimbursed expenses, for $1,479,204.76 in costs and fees.
But counsel requested only $1,300,000.
As the magistrate judge correctly recognized, we presume that figure is reasonable because it’s less than the lodestar figure.
McAdams doesn’t challenge counsel’s billing practices. Instead, she contends the fee award isn’t reasonable under the percentage-of-recovery method.
Counsel’s fees totaled $1,300,000, 43% of the common fund. We acknowledge that this percentage approaches the upper limit of a permissible recovery.
But it isn’t unheard of.
See In re SmithKline Beckman Corp. Sec. Litig., 751 F. Supp. 525, 533 (E.D. Pa. 1990)
(“Courts have allowed attorney compensation ranging from 19 to 45% of the settlement fund created.”).
Because the fee award isn’t so far afield of a standard recovery, we can’t, without more, find that the percentage-of-recovery calculation outweighs the strong presumption that the award is reasonable.
Nor does McAdams’s third argument, that the fee award is unreasonable due to the “clear sailing” provision, hold water.
“[Clear sailing] agreements are troubling because they demonstrate that class counsel negotiated some aspect of their fee arrangement with the defendant, when counsel’s ethical obligation is to the class.”
Newberg on Class Actions § 13:9 (5th ed.).
But they are “not per se unreasonable.”
Bezdek v. Vibram USA, Inc., 809 F.3d 78, 84 (1st Cir. 2015).
“Rather, courts are directed to give extra scrutiny to such agreements.”
Id.; accord In re Southwest Airlines Voucher Litig., 799 F.3d 701, 712–13 (7th Cir. 2015); In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 949 (9th Cir. 2011).
That’s precisely what the magistrate judge did here.
He rejected the “suggestion that the settlement was somehow collusive” and found that the parties negotiated the settlement “at arm’s length in the midst of contentious litigation” that spanned six years and included “a Motion to Dismiss, two Motions for Summary Judgment, a contested Motion for Class Certification, numerous discovery motions, [and] numerous depositions.”
J.A. 807, 817.
And he noted that class counsel “supported their request [with] billing records and other competent evidence.”
McAdams doesn’t challenge these findings.
Offering only generalized objections to clear sailing provisions, she doesn’t point to a single example in the over 150 pages of billing records indicating class counsel breached their ethical obligations.
We reject McAdams’s challenge to the fee award.
For the reasons given, the magistrate judge’s judgment is
BigLaw Corral the US Supreme Court for a Reversal of an Adverse Decision for the Banksters
4th Circuit agree that class certification is appropriate and that Plaintiffs are entitled to summary judgment on their statutory claim.
Alig v. Quicken Loans Inc., 990 F.3d 782 (4th Cir. 2021)
MAR 10, 2021 | REPUBLISHED BY LIT: DEC 14, 2021
Phillip ALIG; Sara J. Alig; Roxanne Shea; Daniel V. Shea, Individually and on Behalf of a Class of Persons, Plaintiffs – Appellees, v. QUICKEN LOANS INC.; Amrock Inc., f/k/a Title Source, Inc., d/b/a Title Source Inc. of West Virginia, Incorporated, Defendants – Appellants, and Dewey V. Guida; Appraisals Unlimited, Inc.; Richard Hyett, Defendants.
ARGUED: Theodore J. Boutrous, Jr., GIBSON, DUNN & CRUTCHER, LLP, Los Angeles, California, for Appellants. Deepak Gupta, GUPTA WESSLER PLLC, Washington, D.C., for Appellees. ON BRIEF: Helgi C. Walker, GIBSON, DUNN & CRUTCHER LLP, Washington, D.C.; William M. Jay, Thomas M. Hefferon, Brooks R. Brown, Keith Levenberg, Washington, D.C., Edwina B. Clarke, GOODWIN PROCTER LLP, Boston, Massachusetts, for Appellants. John W. Barrett, Jonathan R. Marshall, Charleston, West Virginia, Patricia M. Kipnis, BAILEY & GLASSER LLP, Cherry Hill, New Jersey; Gregory A. Beck, GUPTA WESSLER PLLC, Washington, D.C.; Jason E. Causey, James G. Bordas, Jr., BORDAS & BORDAS, PLLC, Wheeling, West Virginia, for Appellees.
Before NIEMEYER, WYNN, and FLOYD, Circuit Judges.
Affirmed in part and vacated and remanded in part by published opinion. Judge Wynn wrote the majority opinion, in which Judge Floyd joined. Judge Niemeyer wrote a dissenting opinion.
WYNN, Circuit Judge:
Plaintiffs are a class of “[a]ll West Virginia citizens who refinanced” a total of 2,769 mortgages with Defendant Quicken Loans Inc. from 2004 to 2009, “for whom Quicken [Loans] obtained appraisals” from Defendant Amrock Inc., an appraisal management company formerly known as Title Source, Inc. (“TSI”). J.A. 627.
For ease of reference, we continue to refer to this entity as TSI throughout this opinion.
Citations to “J.A. ––––” and “S.J.A. ––––” refer, respectively, to the Joint Appendix and Sealed Joint Appendix filed by the parties in this appeal.
Plaintiffs allege that pressure tactics used by Quicken Loans and TSI to influence home appraisers to raise appraisal values to obtain higher loan values on their homes constituted a breach of contract and unconscionable inducement under the West Virginia Consumer Credit and Protection Act. The district court agreed and granted summary judgment to Plaintiffs.
We agree with the district court that class certification is appropriate and that Plaintiffs are entitled to summary judgment on their statutory claim. However, we conclude that the district court erred in its analysis of the breach-of-contract claim. Accordingly, we affirm in part and vacate and remand in part.
Viewing the evidence in the light most favorable to Defendants, the record shows the following. In refinancing mortgages for thousands of West Virginia homes during the class period, Quicken Loans asked potential borrowers to complete an application; sign a uniform deposit agreement authorizing Quicken Loans to “advance out-of-pocket expenses on [the borrower’s] behalf” for an appraisal, a credit report, or both; and provide a deposit averaging $350. J.A. 381. Quicken Loans also collected information from potential borrowers, including an estimated value of their homes.
We consider only the evidence presented at the summary judgment stage. See Rohrbough v. Wyeth Laboratories, Inc. , 916 F.2d 970, 973 n.8 (4th Cir. 1990) (declining to consider “several documents that were not before the district court when it considered [the] motion for summary judgment”); see also Kaiser Aluminum & Chem. Corp. v. Westinghouse Elec. Corp. , 981 F.2d 136, 140 (4th Cir. 1992) (“It is well established that affidavits and exhibits not before the court in making its decision are not to be considered on appeal.”); cf. Bogart v. Chapell , 396 F.3d 548, 558 (4th Cir. 2005) (“Generally, we will not examine evidence … that was inexcusably proffered to the district court only after the court had entered its final judgment.”).
Quicken Loans relayed the borrower’s estimates of value to TSI, which passed those estimates on to contracted appraisers via appraisal engagement letters. If an appraisal came back lower than the estimated value, appraisers received phone calls from TSI drawing their attention to the estimated value and asking them to take another look. There is no evidence to suggest that borrowers were aware of these practices.
Plaintiffs’ and Defendants’ experts agreed that, during the class period, providing the borrower’s estimate of value to the appraiser was common in the industry. Additionally, although the 2008–2009 Uniform Standards of Professional Appraisal Practice (“Uniform Appraisal Standards”) indicated that appraisers could not ethically accept an appraisal assignment with a specific value listed as a condition , the chairman of the organization that issues the Uniform Appraisal Standards testified that an appraiser did not violate those standards merely by accepting an assignment that included an owner’s estimate of value. The record includes significant testimony from appraisers that borrowers’ estimates of value did not influence them. Finally, the record includes testimony that the estimated value served the legitimate purposes of helping appraisers determine whether to accept an assignment and, upon acceptance, assess an appropriate fee.
Nevertheless, authorities warned lenders before and during the class period that providing estimated values to appraisers was improper. For instance, a 1996 letter from the U.S. Department of Housing and Urban Development to mortgagees instructed that appraisers were required to certify “that the appraisal [was] not based on a requested minimum valuation, or a specific valuation or range of values.” S.J.A. 857. A 1999 letter from the Office of the Comptroller of the Currency to the Appraisal Standards Board voiced some concern with the practice of providing the owner’s estimate of value and warned “employees of financial institutions” against “pressuring appraisers to raise their value conclusions to target values.” S.J.A. 861. And in 2005, the Office of the Comptroller of the Currency noted that “the information provided by the regulated institution should not unduly influence the appraiser or in any way suggest the property’s value .” Off. of the Comptroller of the Currency et al., Frequently Asked Questions on the Appraisal Regulations and the Interagency Statement on Independent Appraisal and Evaluation Functions , Fed. Deposit Ins. Corp. (Mar. 22, 2005), https://www.fdic.gov/news/news/financial/2005/fil2005a.html (emphasis added) (saved as ECF opinion attachment). While the 2005 guidance was not binding on Defendants, it is relevant to understanding regulators’ thoughts on the issue at the time. Furthermore, during the class period, Defendants stopped providing appraisers with estimated home values in other states—such as neighboring Ohio—where lenders faced mounting legal pressure against the practice. And they ceased the practice altogether in 2009, “right around the time that the [Home] Valuation Code of Conduct was agreed to and defined for the marketplace.” J.A. 235. That Code of Conduct prohibits lenders or appraisal management companies from providing an estimated value to an appraiser in a refinancing transaction. By 2011, Quicken Loans itself recognized that “influenc[ing] the appraiser to set [the] home at any certain value …. is illegal and unethical.” J.A. 107.
“No employee, director, officer, or agent of the lender, or any other third party acting as … appraisal management … on behalf of the lender, shall influence or attempt to influence the development, reporting, result, or review of an appraisal through coercion, extortion, collusion, compensation, inducement, intimidation, bribery, or in any other manner including but not limited to … providing to an appraiser an anticipated, estimated, encouraged, or desired value for a subject property or a proposed or target amount to be loaned to the borrower, except that a copy of the sales contract for purchase transactions may be provided[.]” Home Valuation Code of Conduct , Freddie Mac 1 (Dec. 23, 2008), http://www.freddiemac.com/singlefamily/pdf/122308_valuationcodeofconduct.pdf (saved as ECF opinion attachment).
The record thus indicates that the acceptability of this practice shifted dramatically during the class period. What started out as a common (though questionable) practice became one that, in short order, was explicitly forbidden—and viewed as unethical by Quicken Loans itself.
Yet the record reveals no such qualms on the part of Defendants during the class period. In one internal email from 2007, which had the subject line “Asking for the max increase available,” an Operations Director for Quicken Loans wrote that TSI was “getting a lot of calls from appraisers stating that they can’t reach our requested value and asking what should they do.” District Ct. Docket No. 206-2 at 39 (emphasis added). He instructed employees to include in value-appeal requests “something along the lines of ‘any additional value would be appreciated.’ ” Id. A second email from a different Quicken Loans employee a few weeks later suggests that Quicken Loans’ usual process at the time involved ordering value appeals and second appraisals, as well as “arguing over value appeal orders and debating values with bankers and appraisers.” S.J.A. 711. The email continued:
The practice of “ordering, obtaining, using, or paying for a second or subsequent appraisal … in connection with a mortgage financing transaction” was later forbidden by the Home Valuation Code of Conduct, with certain limited exceptions. Home Valuation Code of Conduct , supra note 4, at 2.
[Fannie Mae] is being dragged into a law suit [sic] in the state of New York over lender pressure on appraisals. I don’t think the media or any other mortgage company … would like the fact we have a team who is responsible to push back on appraisers questioning their appraised values …. Ohio is very specific in regards to asking for appeals and they say it is illegal. Other[ ] states I am sure will jump on board.
Id. (emphasis added). One recipient of the latter email testified in 2009 that the purpose of providing the estimated value was to “give[ ] an appraiser an ability to see what they are going to potentially look at the property at [sic]” and to “give[ ] them a heads up as to what the client thinks the home is worth.” S.J.A. 709.
Dewey Guida, an appraiser routinely contracted by Quicken Loans and TSI, testified during a deposition that prior to 2009, TSI always included the borrower’s estimate of value, but he could not recall whether other companies did so. He agreed that these estimated values were a “tip-off.” S.J.A. 674. He testified that he largely ignored the estimated value “unless the value didn’t come in. Then we received some phone calls about it[.]” S.J.A. 669. If the appraisal “wasn’t at the estimated value,” he clarified, “I would get a call on it” from TSI “with the value.” Id. These calls were “
Class representatives Phillip and Sara Alig refinanced their mortgage through Quicken Loans in 2007. The Aligs estimated their home to be worth $129,000, and Quicken Loans passed this information along to TSI, who, in turn, passed it on to Guida. Guida appraised the home to be worth $122,500. He then received a request from Defendants to revisit the appraisal and raise it to $125,500 based on a modification to the data points for the closest comparison house. Guida testified that such requests from his clients for “straight value increase[s]” were not common, but he acknowledged that he complied and raised the appraised value to $125,500, though he could not recall doing so. S.J.A. 671. The Aligs obtained a loan from Quicken Loans for about $113,000. Plaintiffs’ two experts estimated that the actual 2007 value of the Aligs’ home was $99,500 or $105,000, respectively.
Plaintiffs brought actions against Quicken Loans, TSI, and three other defendants in West Virginia state court in 2011 which were removed to federal court in 2012. After a winnowing of the claims and defendants, three claims remain: (1) a civil conspiracy claim against both Quicken Loans and TSI; (2) a claim of unconscionable inducement to contract under the West Virginia Consumer Credit and Protection Act against Quicken Loans; and (3) a breach-of-contract claim against Quicken Loans.
In addition to Quicken Loans and TSI, Plaintiffs’ complaint named as defendants two appraisers, Guida and Richard Hyett, as well as Appraisals Unlimited, Inc., where Guida served as president. Moreover, the complaint proposed a defendant class, represented by Guida, Hyett, and Appraisals Unlimited, of appraisers “who receive appraisal assignments from Quicken [Loans] that improperly include the targeted appraisal figure Quicken [Loans] needs to issue the loans.” J.A. 61.
The complaint brought ten claims: (1) civil conspiracy, against all defendants; (2) unfair or deceptive acts or practices in violation of W. Va. Code § 46A-6-104, against all defendants; (3) excessive fees in violation of W. Va. Code § 31-17-8(c), (g), and (m)(1), against Quicken Loans; (4) unconscionable inducement to contract, against Quicken Loans; (5) accepting assignments listing target value numbers on appraisal request forms and accepting fees contingent upon the reporting of a predetermined appraisal value, in violation of W. Va. Code § 30-38-12(3) and -17, against Guida, Hyett, Appraisals Unlimited, and the proposed appraiser class; (6) charging illegal fees in violation of W. Va. Code § 46A-2-128(d), against Quicken Loans; (7) breach of contract, against Quicken Loans; (8) negligence and negligence per se, against all defendants; (9) fraudulent or intentional misrepresentation, against all defendants by the named plaintiffs only; and (10) making illegal loans in excess of the fair market value of the property in violation of W. Va. Code § 31-17-8(m)(8), against all defendants by the named plaintiffs only. Only counts 1, 4, and 7 are at issue in this appeal.
The district court conditionally certified Plaintiffs’ class and granted in part and denied in part each of the parties’ motions for summary judgment. The court then held an evidentiary hearing on damages, after which it imposed a statutory penalty of $3,500 as to unconscionability for each of the 2,769 violations, for a total of $9,691,500. The court also awarded Plaintiffs the appraisal fees they had paid as damages for breach of contract, for a total of $968,702.95. The court did not award separate damages for conspiracy.
On appeal, Defendants first challenge the district court’s decision to certify the class under Rule 23. Defendants argue that individual issues predominate over common ones, precluding class treatment. We disagree and affirm the district court’s decision to certify the class.
This Court reviews a class-certification decision for abuse of discretion. See Sharp Farms v. Speaks , 917 F.3d 276, 290 (4th Cir. 2019) (certification); Brown v. Nucor Corp. , 785 F.3d 895, 901 (4th Cir. 2015) (decertification); see also Krakauer v. Dish Network, L.L.C. , 925 F.3d 643, 654 (4th Cir.) (“Our review of class certification issues is deferential[.]”), cert. denied , ––– U.S. ––––, 140 S. Ct. 676, 205 L.Ed.2d 440 (2019). “A district court abuses its discretion when it materially misapplies the requirements of [Federal] Rule [of Civil Procedure] 23,” EQT Prod. Co. v. Adair , 764 F.3d 347, 357 (4th Cir. 2014), or “makes an error of law or clearly errs in its factual findings,” Thorn v. Jefferson-Pilot Life Ins. Co. , 445 F.3d 311, 317 (4th Cir. 2006).
We reject Defendants’ contention that we should instead apply an unspecified level of “heightened scrutiny” because much of the language of the district court’s opinions closely tracked that of Plaintiffs’ briefs. Opening Br. at 16. In arguing for “heightened scrutiny,” Defendants rely on this Court’s decision in Chicopee Manufacturing Corp. v. Kendall Co. , 288 F.2d 719 (4th Cir. 1961).
That reliance is misplaced. Chicopee belongs to a line of Fourth Circuit cases that the Supreme Court limited long ago. See Anderson v. City of Bessemer City , 717 F.2d 149 (4th Cir. 1983), rev’d , 470 U.S. 564, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985). In Anderson , we cited Chicopee and similar cases to support “[o]ur close scrutiny of the record” where the district court had directed the plaintiff’s counsel to submit proposed findings of fact and conclusions of law and then partially incorporated them into the court’s final order. Id. at 156 ; see id. at 152. The Supreme Court reversed, noting that the district court “d[id] not appear to have uncritically accepted findings prepared without judicial guidance by the prevailing party.” 470 U.S. at 572, 105 S.Ct. 1504. Instead, “the findings it ultimately issued … var[ied] considerably in organization and content from those submitted by petitioner’s counsel.” Id. at 572–73, 105 S.Ct. 1504. Thus, the Supreme Court concluded that “[t]here [wa]s no reason to subject those findings to a more stringent appellate review than is called for by the applicable rules.” Id. at 573, 105 S.Ct. 1504.
Following Anderson , we have taken a more lenient approach to district court opinions that closely mirror a party’s submissions. See, e.g. , Aiken Cnty. v. BSP Div. of Envirotech Corp. , 866 F.2d 661, 676–77 (4th Cir. 1989) (holding that a district court’s near-verbatim adoption of an ex parte proposed order was not improper where the opposing party had the opportunity to air its views fully and the court appeared to have exercised independent judgment).
The circumstances of this case pass muster under Anderson and Aiken County . The district court engaged extensively with the issues over several years. There is substantial evidence that the court exercised independent judgment. While the court’s opinion adopted significant language from Plaintiffs’ briefs, it also included substantial sections the court wrote itself—as well as language adopted from Defendants’ briefs. And, relevant to the class-certification question, the record shows that the court conducted its own Rule 23 analysis. The opinion “var[ies] considerably in organization and content from” Plaintiffs’ briefs, and “[t]here is no reason to subject” the court’s class-certification decision “to a more stringent appellate review than is called for by the applicable rules.” Anderson , 470 U.S. at 572–73, 105 S.Ct. 1504.
A plaintiff seeking class certification under Rule 23 has the burden of demonstrating that the class satisfies the requirements for class-wide adjudication. See Comcast Corp. v. Behrend , 569 U.S. 27, 33, 133 S.Ct. 1426, 185 L.Ed.2d 515 (2013). The plaintiff must establish several “threshold requirements applicable to all class actions, commonly referred to as ‘numerosity,’ ‘commonality,’ ‘typicality,’ and ‘adequacy.’ ” Krakauer , 925 F.3d at 654 (citing Fed. R. Civ. P. 23(a) ). Rule 23 also contains an implicit requirement of ascertainability. Id. at 654–55. To obtain certification under Rule 23(b)(3), the plaintiff must additionally show that “ questions of law and fact common to class members predominate over any questions affecting only individual class members, and  that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Id. at 655 (alterations in original) (emphases added) (citing Fed. R. Civ. P. 23(b)(3) ). Here, Defendants challenge the class certification only on the issue of predominance.
The district court concluded that the central question underlying the statutory unconscionable-inducement claim was whether Defendants’ practice of providing the borrowers’ estimates of value to appraisers was unconscionable conduct under the West Virginia Consumer Credit and Protection Act. Because that analysis focused on Defendants’ behavior, the district court concluded that it concerned questions of law and fact common to all class members. Additionally, the court determined that the statutory damages could be determined class-wide at a set amount.
As for breach of contract, the parties stipulated that the named plaintiffs’ interest-rate disclosures and deposit agreements were “representative of the standard deposit agreements used by Quicken Loans” throughout the class period. J.A. 185. Thus, the court concluded that questions of fact concerning the breach-of-contract claim could be resolved class-wide. And while individual evidence was required to determine the amount each class member paid for their appraisal—the cost the district court used to calculate the breach-of-contract damages award—Defendants have not suggested that evidence is difficult to obtain.
Nevertheless, on appeal, Defendants contend that individualized issues predominate. They argue that questions of standing, their statute-of-limitations defense, the unconscionable-inducement analysis, various breach-of-contract issues, and the calculation of damages all require individual determinations that should defeat class certification. We are not persuaded.
First, Defendants argue that a significant number of the class members are uninjured and therefore lack standing. The question of class members’ standing “can be seen as implicating either the jurisdiction of the court under Article III or the procedural issues embedded within Rule 23 ’s requirements for class certification.” Krakauer , 925 F.3d at 652. While we review class-certification questions for abuse of discretion, our review of our Article III jurisdiction is de novo. See Curtis v. Propel Prop. Tax Funding, LLC , 915 F.3d 234, 240 (4th Cir. 2019).
Defendants argue that there are class members who have not suffered any injury. Accordingly, in Defendants’ view, the district court lacked Article III power to award damages to those class members. And moreover, they argue, the district court should not have certified a class containing uninjured members. But whether framed through Article III or Rule 23, Defendants’ arguments lack merit.
Plaintiffs paid an average of $350 for independent appraisals that, as we conclude below, they never received. Instead, they received appraisals that were tainted when Defendants exposed the appraisers to the borrowers’ estimates of value and pressured them to reach those values. Of course, “financial harm is a classic and paradigmatic form of injury in fact,” Air Evac EMS, Inc., v. Cheatham , 910 F.3d 751, 760 (4th Cir. 2018) (quoting Cottrell v. Alcon Laboratories , 874 F.3d 154, 163 (3rd Cir. 2017) ), and “[f]or standing purposes, a loss of even a small amount of money is ordinarily an ‘injury,’ ” Czyzewski v. Jevic Holding Corp. , ––– U.S. ––––, 137 S. Ct. 973, 983, 197 L.Ed.2d 398 (2017) (citing McGowan v. Maryland , 366 U.S. 420, 430–431 (1961), in which the Court concluded that “appellants fined $5 plus costs had standing”).
Defendants argue that Plaintiffs were not injured because they benefitted from obtaining the loans. Even if that is true, “[o]nce injury is shown, no attempt is made to ask whether the injury is outweighed by benefits the plaintiff has enjoyed from the relationship with the defendant. Standing is recognized to complain that some particular aspect of the relationship is unlawful and has caused injury.” 13A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 3531.4 (3d ed. 2008 & Supp. 2020) (emphasis added); see, e.g. , Allco Fin. Ltd. v. Klee , 861 F.3d 82, 95 n.10 (2d Cir. 2017) (“[T]he fact that an injury may be outweighed by other benefits, while often sufficient to defeat a claim for damages, does not negate standing.” (quoting Ross v. Bank of Am., N.A. (USA) , 524 F.3d 217, 222 (2d Cir. 2008) )). In sum, “there is simply not a large number of uninjured persons included within the plaintiffs’ class.” Krakauer , 925 F.3d at 658.
This is not a case where facts related to the same transaction demonstrate there was never an injury in the first place. See Texas v. United States , 809 F.3d 134, 155–56 & n.59 (5th Cir. 2015) (collecting cases and distinguishing Henderson v. Stalder , 287 F.3d 374, 379 (5th Cir. 2002), in which the Fifth Circuit had declined to find taxpayer standing where it did not appear that the taxpayers actually had to pay for the program at issue, and noting that in Henderson , “the extra fees paid by drivers who purchased the [challenged license] plates could have covered the associated expenses”; since “[t]he costs and benefits arose out of the same transaction, … the plaintiffs had not demonstrated injury”), aff’d by an equally divided Court , ––– U.S. ––––, 136 S. Ct. 2271, 2272, 195 L.Ed.2d 638 (2016). Here, there is no doubt that Plaintiffs actually paid for the appraisal, and thus were injured. We decline to apply the “same transaction” test more broadly than our sister circuit did in Texas and contrary to the general rule that benefits conferred upon a plaintiff by a defendant cannot defeat standing.
Next, the statute-of-limitations question is straightforward and susceptible to class-wide determination. When Plaintiffs commenced this suit in 2011, the statute of limitations for the unconscionable-inducement claim was “one year after the due date of the last scheduled payment of the agreement.” W. Va. Code § 46A-5-101(1) (2011). Here, the district court pointed to several ways in which Defendants could perform the “ministerial exercise” of determining which loans fell outside the applicable limitations period. J.A. 433. Section 46A-5-101(1) ’s objective test for determining the limitations period distinguishes this case from those where the statute of limitations depended on, for example, determining when the cause of action accrued—a question that requires analyzing “the contents of the plaintiff’s mind.” Thorn , 445 F.3d at 320.
This defense relates only to the statutory and conspiracy claims, which have the same statute of limitations for purposes of this case. See Dunn v. Rockwell , 225 W.Va. 43, 689 S.E.2d 255, 269 (2009) (“[T]he statute of limitation for a civil conspiracy claim is determined by the nature of the underlying conduct on which the claim of conspiracy is based[.]”). Defendants have not suggested that Plaintiffs’ contract claims—which are subject to a ten-year limitations period—are time-barred. See W. Va. Code § 55-2-6.
After a 2015 amendment, the statute now provides a limitations period of “four years after the violations occurred.” 2015 W. Va. Acts ch. 63 (codified at W. Va. Code § 46A-5-101(1) ). Plaintiffs do not argue that the new limitations period applies retroactively. Cf. Cruz v. Maypa , 773 F.3d 138, 144 (4th Cir. 2014) (describing the analysis required for determining whether a statute lengthening the limitations period applies retroactively).
At the initial class-certification phase, Defendants provided no evidence of any loans falling outside the limitations period. Defendants later located evidence of only three such loans.
Notwithstanding this straightforward analysis, Defendants seek to attack the district court’s alternative conclusion that even if Defendants could demonstrate that some of Plaintiffs’ claims were untimely, equitable tolling would apply. Defendants argue that equitable tolling requires individual determinations that counsel against class certification. That may be correct. E.g. , EQT Prod. Co. , 764 F.3d at 370. But the district court’s class-certification order is not dependent on this alternative ground.
Defendants also argue that Plaintiffs’ unconscionable-inducement claims must be analyzed individually. They contend that Plaintiffs needed to prove that they were “actually induced to enter into a loan by the challenged practice,” which would require peering into each class member’s state of mind at the time of the loan signing. Opening Br. at 38. This argument implicates the merits of the unconscionable-inducement claim, which we discuss in detail below.
For present purposes, suffice it to say that we conclude Plaintiffs need only show misconduct on the part of Defendants, and concealment thereof, relating to a key aspect of the loan-formation process which necessarily contributed to the class members’ decisions to enter the loan agreements. This is a determination that can be made across the class, since (1) for every member of the class, Defendants engaged in the same allegedly unconscionable practice—sharing borrowers’ estimates of value with appraisers while failing to disclose that practice to Plaintiffs, and (2) unconscionable behavior affecting the appraised value of a property inherently impacts the borrower’s decision to obtain a loan based on that number.
Turning to the contract claim, Defendants first allege that Plaintiffs failed to perform their end of the contract. They base this assertion on the dubious ground that the record supports that some homeowners (not specifically any member of the class) sometimes seek to persuade appraisers to increase their appraisal values. Even if that evidence could be enough to suggest that the class members attempted to influence the appraisers, we conclude that Plaintiffs fully performed by paying the agreed-upon deposit.
Defendants also argue that the contractual element of damages should have been litigated on an individual basis. They contend that there are no damages, and thus there can be no breach of contract, if the appraiser would have reached the same result with or without the borrower’s estimate of value. For example, even assuming that the borrower’s estimate of value influenced the appraiser, one might expect the resulting appraisal to be the same with or without exposure to that value if the borrower’s estimate of value was accurate. But even if such evidence is necessary—a question we address below—it can be evaluated through the ministerial exercise of comparing actual home values to estimates of value.
Finally, Defendants contend that the district court could not order statutory penalties class-wide, arguing that the court was required to consider the level of harm suffered by each class member individually. But the Supreme Court of Appeals of West Virginia has clarified that “an award of civil penalties pursuant to” section 46A-5-101(1) is “conditioned only on a violation of a statute” and is permissible even for “those who have suffered no quantifiable harm” as long as they have been “subject to undesirable treatment described in [section 46A-2-121 or related provisions] of the [West Virginia Consumer Credit and Protection] Act.” Vanderbilt Mortg. & Fin., Inc. v. Cole , 230 W.Va. 505, 740 S.E.2d 562, 566, 568–69 (2013). Moreover, the amount of damages “is within the sole province of the trial judge.” Id. at 569. The district court acted within its discretion when it determined that the statutory damages could be assessed uniformly across the class.
We recognize that, in federal court, “a statutory violation alone does not create a concrete informational injury sufficient to support standing” for Article III purposes. Dreher v. Experian Info. Sols., Inc. , 856 F.3d 337, 345 (4th Cir. 2017) (emphasis in original). There is no need to wade into that complicated area of the law here, however, because the class members suffered financial injuries sufficient to confer standing.
Accordingly, we affirm the district court’s decision to certify Plaintiffs’ class.
Defendants have pointed to four loans for which the class member did not sign the stipulated document and therefore may not have paid a deposit. Of course, as federal courts, our Article III power limits us to providing relief for only those claimants who have been harmed, including in class actions. See Lewis v. Casey , 518 U.S. 343, 349, 116 S.Ct. 2174, 135 L.Ed.2d 606 (1996). On remand, therefore, we instruct the district court to determine whether the class members who signed those four loans must be denied damages as to the unconscionable-inducement claim, the breach-of-contract claim, or both.
Having determined that Plaintiffs may pursue their claims as a class, we turn to the question of whether Defendants breached their contracts with each of the class members. We review de novo the district court’s interpretation of state law, grant of summary judgment, and contract interpretation. See Schwartz v. J.J.F. Mgmt. Servs., Inc. , 922 F.3d 558, 563 (4th Cir. 2019) ; Seabulk Offshore, Ltd. v. Am. Home Assurance Co. , 377 F.3d 408, 418 (4th Cir. 2004). “Summary judgment is appropriate when there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Bostic v. Schaefer , 760 F.3d 352, 370 (4th Cir. 2014) (internal quotation marks omitted).
For the reasons that follow, we conclude that the district court prematurely awarded summary judgment to Plaintiffs on their breach-of-contract claim. Accordingly, we vacate and remand for further proceedings.
“Because this case involves solely state-law matters, ‘our role is to apply the governing state law, or, if necessary, predict how the state’s highest court would rule on an unsettled issue.’ ” Askew v. HRFC, LLC , 810 F.3d 263, 266 (4th Cir. 2016) (quoting Horace Mann Ins. Co. v. Gen. Star Nat’l Ins. Co. , 514 F.3d 327, 329 (4th Cir. 2008) ). Under West Virginia law, “[a] claim for breach of contract requires proof of the formation of a contract, a breach of the terms of that contract, and resulting damages.” Sneberger v. Morrison , 235 W.Va. 654, 776 S.E.2d 156, 171 (2015). We therefore begin our inquiry by considering whether the parties formed a contract at all.
Formation of a contract under West Virginia law requires “an offer and an acceptance supported by consideration.” Dan Ryan Builders, Inc. v. Nelson , 230 W.Va. 281, 737 S.E.2d 550, 556 (2012). The parties stipulated that the disclosures and agreements for the named plaintiffs’ loans “are representative of the standard deposit agreements used by Quicken Loans” during the class period. J.A. 185. The named plaintiffs include both the Aligs, who serve as the class representatives, and another couple, Roxanne and Daniel Shea.
Two sections of the representative forms are relevant here. The first section, labeled “DISCLOSURE” on the Sheas’ form and unlabeled on the Aligs’ form, provides:
Lender will begin processing your application (which may include ordering an appraisal … ) immediately upon the submission of your application and deposit. … Lender’s objective is to have your application fully processed … [before the] anticipated closing date. However, please note that some parts of this process aren’t under Lender’s control. For instance, Lender can’t be responsible for delays in loan approval or closing due to … the untimely receipt of an acceptable appraisal ….
J.A. 381–82. The second section, labeled “DEPOSIT AGREEMENT” on both the Sheas’ and Aligs’ forms, states:
With your deposit …, you authorize Lender to begin processing your loan application and advance out-of-pocket expenses on your behalf to obtain an appraisal and/or credit report. … If your application is approved, at the closing, Lender will credit the amount of your deposit on your closing statement toward the cost of your appraisal and credit report. Any additional money will be credited to other closing costs. If your application is denied or withdrawn for any reason, Lender will refund your deposit less the cost of an appraisal and/or credit report.
The above-quoted “Deposit Agreement” language comes from the Sheas’ form. The language used on the Aligs’ form is substantially and substantively the same, though not identical. See J.A. 382. The most significant difference is that the Aligs’ form lacks the phrase “to obtain an appraisal and/or credit report.” However, like the Sheas’ form, the Aligs’ form still specifies that the deposit is to be credited toward the cost of the appraisal and credit report.
The district court concluded that Quicken Loans was obligated to provide each class member with “an ‘acceptable’ appraisal, which, at a minimum, would require [it] to deal [reasonably and] honestly with its borrowers.” J.A. 409. The court appears to have based this conclusion on the forms’ reference to “the untimely receipt of an acceptable appraisal,” from which the court deduced a contractual duty on the part of Quicken Loans to provide an “acceptable” appraisal. J.A. 381–82.
In our view, however, the natural reading of the key language—that Quicken Loans “can’t be responsible for delays in loan approval or closing due to … the untimely receipt of an acceptable appraisal”—is to limit Quicken Loans’ liability for delays, not to make promises as to the quality of the appraisal. J.A. 381–82. We therefore conclude that the text of the “Disclosure” section of the form signed by the Sheas and the untitled, yet identical section of the form signed by the Aligs does not create a contractual obligation for Quicken Loans to provide an “acceptable” appraisal.
But that is not the end of the matter because we hold that, instead, the forms create a contract in the Deposit Agreement section. The section is labeled “agreement” and includes an offer, acceptance, and consideration: Plaintiffs pay a deposit in exchange for Quicken Loans beginning the loan application process, which could include an appraisal or credit report. Plaintiffs’ deposit is to be applied toward that cost regardless of whether the loan ultimately goes forward. Thus, Plaintiffs agreed to pay Quicken Loans for an appraisal or credit report. And because of how Plaintiffs’ class is defined, all class members have necessarily paid for an appraisal.
We therefore agree with the district court that the parties formed a contract, albeit a different one from that found by the district court. But we conclude that whether that contract was breached—and whether there were resulting damages—are questions that the district court must review in the first instance. See Fusaro v. Cogan , 930 F.3d 241, 263 (4th Cir. 2019) (“We adhere … to the principle that the district court should have the first opportunity to perform the applicable analysis.”). In particular, the district court will need to address Defendants’ contention that there were no damages suffered by those class members whose appraisals would have been the same whether or not the appraisers were aware of the borrowers’ estimates of value—which one might expect, for example, if a borrower’s estimate of value was accurate.
Plaintiffs urge us to uphold the district court’s conclusion that “it was a necessary corollary of obtaining an appraisal that the [D]efendant[s] would obtain a fair, valid and reasonable appraisal of the property.” J.A. 409. They contend that we may do so, even subtracting the word “acceptable” from the contract, by reference to the covenant of good faith and fair dealing. We agree that the covenant applies to the parties’ contract. While the covenant may therefore come into play on remand, we conclude that it cannot by itself sustain the district court’s decision at this stage.
In West Virginia, there is an implied “covenant of good faith and fair dealing in every contract for purposes of evaluating a party’s performance of that contract.” Evans v. United Bank, Inc. , 235 W.Va. 619, 775 S.E.2d 500, 509 (2015) (internal quotation marks omitted). The covenant requires “honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” Barn-Chestnut, Inc. v. CFM Dev. Corp. , 193 W.Va. 565, 457 S.E.2d 502, 508 (1995) (quoting Ashland Oil, Inc. v. Donahue , 159 W.Va. 463, 223 S.E.2d 433, 440 (1976) ) (discussing the covenant in the context of agreements governed by the Uniform Commercial Code).
Despite the Supreme Court of Appeals of West Virginia’s broad statement in Evans that the covenant applies to every contract, Defendants imply that it is inapplicable here, noting in passing that “West Virginia courts have yet to apply the duty of good faith and fair dealing to a lender/borrower relationship in West Virginia.” Opening Br. at 34 n.11 (citing Quicken Loans, Inc. v. Brown , 230 W.Va. 306, 737 S.E.2d 640, 652 n.26 (2012) ). Even assuming Defendants have preserved this issue, we find their argument unpersuasive. The case on which Defendants rely, Quicken Loans v. Brown , provides little guidance on the matter. In fact, in Brown , the Supreme Court of Appeals of West Virginia noted only that the “[p]laintiff also filed a claim for breach of the covenant of good faith and fair dealing, which the trial court found ‘has not been applied to a lender/borrower relationship in West Virginia’ and therefore was not addressed by the court.” Brown , 737 S.E.2d at 652 n.26. The Court provided no further analysis.
“A party waives an argument by failing to … develop its argument—even if its brief takes a passing shot at the issue.” Grayson O Co. v. Agadir Int’l LLC , 856 F.3d 307, 316 (4th Cir. 2017) (internal quotation marks and alterations omitted) (citing Brown , 785 F.3d at 923 ).
Nevertheless, in more recent lender/borrower cases, the state Supreme Court has affirmed dismissal on the grounds that the plaintiffs’ “failure to allege a breach of contract was fatal to their claim for a breach of the implied covenant of good faith and fair dealing.” Evans , 775 S.E.2d at 509 ; see also Brozik v. Parmer , No. 16-0238, 2017 WL 65475, at *17 (W. Va. Jan. 6, 2017) (same). If the implied covenant was simply inapplicable to lender/borrower relationships, there would have been no need for the Court to engage in such analysis.
To be sure, Evans and Brozik do not explicitly hold that the implied covenant of good faith and fair dealing does apply to lender/borrower contracts. But given the presumption under West Virginia law that an implied covenant of good faith and fair dealing applies to every contract, we will not exclude lender/borrower cases from the ambit of that covenant in the absence of some affirmative direction from West Virginia courts to do so—particularly in light of the implication in Evans and Brozik that the covenant could apply in such cases when properly pleaded.
Defendants are on stronger footing with their second argument. They contend that, even if the implied covenant can apply to lender/borrower contracts, West Virginia courts do not recognize a “freestanding claim of breach of the implied covenant of good faith and fair dealing where there is no breach of contract” and thus that Plaintiffs’ claim under the covenant fails for lack of any breach of contract. Opening Br. at 34.
Defendants are correct that West Virginia law does not allow an independent claim for breach of the implied covenant unrelated to any alleged breach of contract. Evans , 775 S.E.2d at 509. Thus, the Supreme Court of Appeals of West Virginia has repeatedly held that plaintiffs cannot pursue a claim for breach of the implied covenant where they failed to allege breach of contract. See id. ; Brozik , 2017 WL 65475, at *17 (same); see also Gaddy Eng’g Co. v. Bowles Rice McDavid Graff & Love, LLP , 231 W.Va. 577, 746 S.E.2d 568, 578 (2013) (affirming summary judgment on good faith and fair dealing claim where trial court had “proper[ly] grant[ed] … summary judgment to the contract-based claims”).
But here, Plaintiffs do not pursue a stand-alone claim of breach of the implied covenant of good faith and fair dealing. Rather, their complaint clearly alleges a claim of breach of contract and cites the implied covenant as relevant to that claim. That is proper under West Virginia law.
However, while Plaintiffs and the district court are correct that Quicken Loans was obligated to “obtain a fair, valid and reasonable appraisal of the property,” that is only relevant for determining whether there was a breach. J.A. 409; see Evans , 775 S.E.2d at 509 (courts may consider the implied covenant of good faith and fair dealing when “evaluating a party’s performance of th[e] contract” (quoting Stand Energy Corp. v. Columbia Gas Transmission Corp. , 373 F. Supp. 2d 631, 644 (S.D.W. Va. 2005) )). There must also have been resulting damages for Plaintiffs’ breach-of-contract claim to succeed. See Sneberger , 776 S.E.2d at 171. Accordingly, on remand, the district court may only grant summary judgment to Plaintiffs on the breach-of-contract claim if it concludes that (1) Quicken Loans breached its contracts with the class members, an analysis which may take into consideration how the covenant of good faith and fair dealing impacts the evaluation of Quicken Loans’ performance under the contracts; and (2) the class members suffered damages as a result.
In sum, we conclude that a contract was formed between each class member and Quicken Loans. On remand, the district court should consider whether Plaintiffs have demonstrated an absence of genuine issues of material fact as to the other elements of a breach-of-contract claim. In conducting this analysis, the district court may consider the implied covenant of good faith and fair dealing to the extent that it is relevant for evaluating Quicken Loans’ performance of the contracts. Evans , 775 S.E.2d at 509.
Because we vacate the district court’s decision to grant summary judgment on Plaintiffs’ contract claim, we also vacate the court’s award of damages for that claim. Accordingly, we do not reach Defendants’ arguments regarding the district court’s order of damages related to breach of contract.
We reach a different conclusion when it comes to Plaintiffs’ claim under the West Virginia Consumer Credit and Protection Act (the “Act”). Although the claim is similar to the contract claim—in that both are based on Defendants’ alleged misbehavior in the appraisal process—there is a key difference between the two: while breach of contract requires a demonstration of damages, the Act does not. Indeed, the Supreme Court of Appeals of West Virginia has made plain that the Act is to be construed broadly and that it is intended to fill gaps in consumer protection left by the common law, such as in breach-of-contract actions.
Prior to finalizing loan agreements with the class members, Defendants sought to pressure appraisers to inflate their appraisals of the class members’ homes. For all class members, Defendants provided appraisers with estimated home values, and they at least sometimes followed up on appraisals that fell short of these targets with phone calls designed to persuade appraisers to reconsider their valuations. The record makes clear that, regardless of any legitimate objective Defendants had in providing the borrowers’ estimates of value, they also provided those estimates to an unscrupulous end: inflating appraisals. The record demonstrates that this pressure tainted the appraisal process, and it is beyond dispute that the appraisal process was central to the formation of the loan agreements. Moreover, Defendants did not reveal this practice to Plaintiffs. Given the centrality of appraisals in loan formation, Defendants’ concealment of the scheme to inflate appraisals was unconscionable behavior that contributed to Plaintiffs’ decisions to enter the loan agreements. Thus, we affirm the district court’s holding that Plaintiffs are entitled to summary judgment on their unconscionable-inducement claim.
As noted, we review the district court’s interpretation of state law and grant of summary judgment de novo, see Schwartz , 922 F.3d at 563 ; Seabulk Offshore , 377 F.3d at 418, and summary judgment is only appropriate when there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law, Bostic , 760 F.3d at 370.
Additionally, “[b]ecause federal jurisdiction in this matter rests in diversity, our role is to apply the governing state law.” Stahle v. CTS Corp. , 817 F.3d 96, 99–100 (4th Cir. 2016) (footnote omitted). In deciding questions of state law, we first turn to the state’s highest court and “giv[e] appropriate effect to all [the] implications” of its decisions. Id. at 100 (quoting Assicurazioni Generali, S.p.A. v. Neil , 160 F.3d 997, 1002 (4th Cir. 1998) ). But “[i]f we are presented with an issue that [the state]’s highest court has not directly or indirectly addressed, we must anticipate how it would rule.” Liberty Univ., Inc. v. Citizens Ins. Co. of Am. , 792 F.3d 520, 528 (4th Cir. 2015). “In making that prediction, we may consider lower court opinions in [the state], the teachings of treatises, and ‘the practices of other states.’ ” Twin City Fire Ins. Co. v. Ben Arnold-Sunbelt Beverage Co. of S.C. , 433 F.3d 365, 369 (4th Cir. 2005) (quoting Wade v. Danek Med., Inc. , 182 F.3d 281, 286 (4th Cir. 1999) ).
The West Virginia Consumer Credit and Protection Act authorizes a court to act when a loan agreement was “unconscionable at the time it was made” or “induced by unconscionable conduct.” W. Va. Code § 46A-2-121(a)(1). The Act permits courts to “refuse to enforce the agreement” as well as to order actual damages and a penalty. Id. § 46A-2-121(a)(1) ; see id. § 46A-5-101(1). The statute “protect[s] consumers … by providing an avenue of relief for consumers who would otherwise have difficulty proving their case under a more traditional cause of action”—such as a common-law contract claim. Barr v. NCB Mgmt. Servs., Inc. , 227 W.Va. 507, 711 S.E.2d 577, 583 (2011) (quoting State ex rel. McGraw v. Scott Runyan Pontiac-Buick, Inc. , 194 W.Va. 770, 461 S.E.2d 516, 523 (1995) ). Because the “[A]ct is clearly remedial in nature,” the Supreme Court of Appeals of West Virginia has instructed that courts “must construe the statute liberally so as to furnish and accomplish all the purposes intended.” Id. (quoting McGraw , 461 S.E.2d at 523 ).
Unconscionable inducement under the Act is broader in scope than both substantive unconscionability and the “traditional cause of action” of common-law fraudulent inducement. Id. ; see McFarland v. Wells Fargo Bank, N.A. , 810 F.3d 273, 284 (4th Cir. 2016) ; Brown , 737 S.E.2d at 658. The Supreme Court of Appeals of West Virginia hinted at both conclusions in Quicken Loans v. Brown . In that case, a borrower complained that Quicken Loans unconscionably induced a loan by, among other things, including an estimated home value in its appraisal request form. See Brown , 737 S.E.2d at 648 & n.8. The estimated home value was $262,500, and the appraiser—Dewey Guida, who also performed the appraisal of the Aligs’ home in this case—valued it at $181,700. Id. The home’s actual value was $46,000. Id. That Guida’s appraisal was massively inflated should have been apparent to any observer, barring an extreme shift in the market, as the plaintiff had refinanced the mortgage on the property for between roughly $40,000 and $67,000 in the years immediately before obtaining the loan at issue. Id. at 647.
Nevertheless, Quicken Loans persuaded the plaintiff in a rushed closing process to refinance her home and assume a loan of $144,800—with a massive balloon payment to boot. Id. at 649–50. The trial court found that Quicken Loans engaged in common-law fraudulent inducement and unconscionable inducement under the Act by, among other things, negligently conducting the appraisal review. Id. at 652, 657. The Supreme Court of Appeals of West Virginia affirmed, though it did not specifically reach the issue of the appraisal because it concluded that the balloon payment and Quicken Loans’ false promises to the plaintiff were sufficient to support common-law fraudulent inducement. Id. at 652, 656, 658. Moreover, the Supreme Court concluded that that common-law violation alone was enough to find a statutory violation under the Act for unconscionable inducement. Id. at 658. Finally, the Supreme Court agreed with the lower court that the contract was substantively unconscionable, despite Quicken Loans’ contention that the plaintiff received “benefits” from the loan. Id. at 658 ; see id. at 659.
West Virginia’s state-court system has no intermediate appellate courts.
This Court extrapolated from Brown ’s reasoning in McFarland v. Wells Fargo Bank , predicting that the Act “is to be read as diverging from th[e] traditional understanding” of unconscionability. McFarland , 810 F.3d at 284. We noted that the Supreme Court of Appeals of West Virginia had “sustained findings of ‘unconscionability in the inducement’ based entirely on conduct predating acceptance of the contract and allegations going to the fairness of the process, without regard to substantive unconscionability.” Id. Accordingly, we concluded that the Act “authoriz[es] a claim for unconscionable inducement that does not require a showing of substantive unconscionability.” Id.
By contrast, the other cause of action under the Act—where the agreement was “unconscionable at the time it was made”—”requires a showing of both substantive unconscionability, or unfairness in the contract itself, and procedural unconscionability, or unfairness in the bargaining process.” McFarland , 810 F.3d at 277.
Further, it is clear from Brown that an unconscionable-inducement claim is not defeated by a showing that the plaintiff benefitted from the resulting loan. Brown , 737 S.E.2d at 651, 658–59 (holding the defendant liable for statutory unconscionable inducement despite the fact that “[w]ith the loan proceeds, [the p]laintiff paid off her previous mortgage and consolidated debt; received $40,768.78, with which she purchased a new vehicle (for $28,536.90); [and] retired other existing debt”).
Thus, unconscionable inducement is simply “unconscionable conduct that causes a party to enter into a loan.” McFarland , 810 F.3d. at 285. Courts are to analyze such claims “based solely on factors predating acceptance of the contract and relating to the bargaining process,” that is, “the process that led to contract formation.” Id. at 277–78. Procedural unfairness alone is insufficient—while procedural unconscionability can be shown by demonstrating severe discrepancies in the parties’ bargaining positions, “it appears that [the unconscionable-inducement analysis] will turn not on status considerations that are outside the control of the defendant , but instead on affirmative misrepresentations or active deceit .” Id. at 286 (emphases added). McFarland ’s analysis on this point was prescient: a few months after the decision was filed, the West Virginia legislature amended the statute to include “affirmative misrepresentations, active deceit[,] or concealment of a material fact” as examples of “unconscionable conduct.” 2016 W. Va. Acts. ch. 41 (codified at W. Va. Code § 46A-2-121 ). In other words, unconscionable inducement requires that the defendant have taken some unconscionable action within its control to forward the loan process.
Based on binding precedent from this Court and the state Supreme Court, then, some key principles guide our analysis. We are to construe the Act liberally. Its purpose is to protect consumers, especially where the common law cannot provide them with relief. Unconscionable inducement does not require substantive unconscionability in the loan itself, and any benefit the plaintiff received from that loan is irrelevant. Instead, unconscionable inducement relates only to contract formation. However, to prove unconscionable inducement, a plaintiff must show more than procedural unconscionability: he or she must demonstrate unconscionable behavior on the part of the defendant, such as an affirmative misrepresentation or active deceit.
This leaves us to “anticipate how [the Supreme Court of Appeals of West Virginia] would rule” regarding one key question. Liberty Univ. , 792 F.3d at 528. By definition, the word “inducement” implies that the affirmative misrepresentation or active deceit in some way caused the plaintiff to enter the loan. Black’s Law Dictionary defines “inducement” generally as “[t]he act or process of enticing or persuading another person to take a certain course of action,” and, specific to contracts, as “[t]he benefit or advantage that causes a promisor to enter into a contract.” Inducement , Black’s Law Dictionary (11th ed. 2019). To resolve this appeal, we must predict the level of causality that the Supreme Court of Appeals of West Virginia would require.
We predict that plaintiffs alleging unconscionable inducement in the form of active deceit or concealment may succeed on their claims by proving that the defendants omitted information that corrupted a key part of the process leading to loan formation. Additionally, we predict that plaintiffs alleging unconscionable inducement based on affirmative misrepresentations must demonstrate that they relied on the defendants’ affirmative misrepresentations in entering the loan. However, both predictions are based on West Virginia precedent that relates to other causes of action potentially calling for a higher level of causality than section 46A-2-121 requires. In other words, our predictions come with the caveat that we think it possible that the Supreme Court of Appeals of West Virginia would reduce the causality required even further for claims under section 46A-2-121. We need not press on into this uncharted territory of state law, however, because we may affirm the district court’s judgment even under these more cautious predictions.
Discussing common-law fraudulent concealment in Quicken Loans v. Brown , the Supreme Court of Appeals of West Virginia held that “it is not necessary that the fraudulent concealment should be the sole consideration or inducement moving the plaintiff. If the concealment contributed to the formation of the conclusion in the plaintiff’s mind , that is enough.” Brown , 737 S.E.2d at 654 (emphasis added) (internal quotation marks and alterations omitted). And Brown makes clear that an act that constitutes common-law fraudulent inducement also constitutes unconscionable inducement under the Act. See id. at 658. Accordingly, for claims based on concealment, it “is enough” for a plaintiff to show that the defendant’s concealment “contributed to the formation” of the plaintiff’s decision to enter the loan. Id. at 654.
It is possible that the Supreme Court of Appeals of West Virginia would hold that the necessary showing of causality is even further reduced under the Act. Notably, Brown was discussing common-law fraudulent concealment. But because the Act is intended to fill the gaps left by the common law, Barr , 711 S.E.2d at 583, unconscionable inducement under the Act ought to be easier for plaintiffs to prove than common-law fraudulent inducement. We decline to make a prediction as to exactly what standard the state Supreme Court would apply, however, because we conclude that it is appropriate to affirm summary judgment for Plaintiffs even under Brown ’s more exacting standard.
Moreover, in White v. Wyeth , the Supreme Court of Appeals of West Virginia evaluated a different section of the Act that protects consumers when they purchase or lease goods or services. The court reasoned that “when consumers allege that a purchase was made because of an express or affirmative misrepresentation , the causal connection between the deceptive conduct and the loss would necessarily include proof of reliance on those overt representations.” White v. Wyeth , 227 W.Va. 131, 705 S.E.2d 828, 837 (2010) (emphases added). However, “[w]here concealment, suppression or omission is alleged, and proving reliance is an impossibility , the causal connection between the deceptive act and the ascertainable loss is established by presentation of facts showing that the deceptive conduct was the proximate cause of the loss.” Id. (emphases added).
Importantly, the provision of the Act analyzed in White explicitly requires a showing of causation for a consumer to sue a merchant or service provider. W. Va. Code § 46A-6-106(a) (providing a private cause of action to a consumer who “purchases or leases goods or services and thereby suffers an ascertainable loss … as a result of the use or employment by another person of a method, act or practice prohibited” by the Act (emphasis added)). Here, by contrast, the relevant provision has no comparable language explicitly requiring causation for a plaintiff to sue a lender, except insofar as causation is implied by the concept of inducement. W. Va. Code § 46A-2-121(a)(1) (providing a cause of action where the court finds a consumer loan “to have been induced by unconscionable conduct”). Therefore, logic necessitates that, at most, the same standard regarding reliance articulated in White for section 46A-6-106(a) would apply to section 46A-2-121(a)(1) : proof of subjective reliance is necessary for actions based on affirmative representations, but not for actions based on concealment.
Indeed, we think it possible that the state Supreme Court would conclude that reliance would be unnecessary for either affirmative representations or concealment in actions under section 46A-2-121(a)(1). Crucially, the court’s reasoning in White was dependent on the specific language in section 46A-6-106(a). White , 705 S.E.2d at 833 (noting that the certified question before it was the proper interpretation of the “as a result of” language in section 46A-6-106(a) ). And the current version of the Act specifically recognizes that some lawsuits against creditors or debt collectors will be class actions—but there is no comparable provision in the part of the Act at issue in White . Compare W. Va. Code Ann. § 46A-5-101(1), with id. § 46A-6-106. As Defendants themselves argue, it becomes much more difficult to resolve as a class action a claim requiring individualized proof of the class members’ mindsets. See Opening Br. at 38; see also Gariety v. Grant Thornton, LLP , 368 F.3d 356, 362 (4th Cir. 2004). We do not mean to imply that a class could never be certified under other provisions of the Act; that question is not before us. But we think it significant that the legislature explicitly contemplated that actions against creditors or debt collectors could employ the class-action vehicle, which suggests that no individualized inquiry is required.
As a point of clarification, we recognize that White ’s language about deceptive conduct needing to be the “proximate cause of the loss”—or even the “but for” cause, White , 705 S.E.2d at 837 —appears to impose a more stringent requirement for the showing of causation than does Brown ’s language about the concealment merely needing to “contribute[ ] to the formation of the conclusion in the plaintiff’s mind,” Brown , 737 S.E.2d at 654. Here, between the two, Brown governs. Brown is more recent, and it dealt directly with inducement to enter a loan, whereas White related to a different statutory provision. Accordingly, we discuss White not for its causal language, but for its discussion of whether a plaintiff alleging concealment must prove reliance. In summary, to assess a claim of unconscionable inducement under the Act, we look to the defendant’s conduct, not the bargaining strength of the parties or the substantive terms of the agreement. For claims based on affirmative misrepresentations, plaintiffs must demonstrate that they subjectively relied on that conduct. For claims based on concealment, however, a plaintiff need only show that the defendant’s conduct was unconscionable and that this unconscionable conduct contributed to the formation of the plaintiff’s decision to enter the loan. In other words, we predict that the state Supreme Court would find that a plaintiff who proves unconscionable conduct in the form of concealment will recover unless the conduct was sufficiently attenuated from or irrelevant to the loan’s formation such that it did not contribute to the formation of the plaintiff’s decision to enter the loan.
Turning to Defendants’ conduct in this case, and viewing the evidence in the light most favorable to Defendants, we agree with the district court that Defendants sought to pressure appraisers to match targeted appraisal values and concealed this practice from Plaintiffs—a process that, in combination, contributed to Plaintiffs’ decisions to enter the loan agreements. Under the standard outlined above, this conduct rises to the level of unconscionable inducement under the Act.
The record clearly shows that Defendants sought to increase appraisal values by providing borrowers’ estimates of home value to its appraisers and pressuring appraisers to match those values. Defendants’ internal emails refer to receiving “a lot of calls from appraisers stating that they can’t reach our requested value .” District Ct. Docket No. 206-2 at 39 (emphasis added). One appraiser, Guida, testified that “if [the appraisal] wasn’t at the estimated value, [he] would get a call” from TSI asking him to reevaluate the appraisal. S.J.A. 669. In light of this testimony, the only reasonable inference is that the “requested value” in the email refers to the borrower’s estimate of value. Internal emails also reveal that Quicken Loans had a team dedicated to “push[ing] back on appraisers questioning their appraised values,” and that Quicken Loans’ usual process involved “arguing over value appeal orders and debating values with bankers and appraisers.” S.J.A. 711.
Moreover, Guida increased the appraised value of the Aligs’ home by $3,000 after receiving documents from Defendants asking him to revisit the appraisal. Guida’s revised appraisal of the Aligs’ home was between 19.5% and 26% higher than their actual home value. Of course, home valuation is to some degree an art, not a science; some variability is to be expected. But Defendants themselves have suggested that “a deviation of 10% between values is common and accepted in the industry.” J.A. 277 (emphasis added).
The record is devoid of evidence regarding the actual home values of other class members. Accordingly, we cannot evaluate whether the appraisals for most class members were inflated. As noted above, that may preclude Plaintiffs’ contract claim, which requires a showing of damages. But it does not preclude a statutory unconscionable-inducement claim, which does not require a showing of substantive unconscionability regarding the loan terms.
While the record contains testimony from several appraisers that they were not influenced by the estimated values, it is unclear how many of the appraisals at issue were conducted by those appraisers. And regardless of whether the appraisers who conducted the class members’ appraisals believed themselves to have been influenced, the record suggests that they were. Guida’s appraisal of the Aligs’ home provides a particularly stark example. But additionally, testimony from a Quicken Loans executive supports that the average difference between the estimated value and the appraisal value for all class loans was within five percent. In other words, the appraisals closely tracked the borrowers’ estimates of value. This uncontroverted fact can be reconciled with the appraisers’ testimony because it is a well-established psychological phenomenon that an initial value can have an anchoring effect, influencing later estimates without the estimator’s realization. Studies have shown this to be true even for experts like real estate agents (for home prices) and judges (for sentencing decisions).
E.g. , Jon D. Hanson & Douglas A. Kysar, Taking Behavioralism Seriously: Some Evidence of Market Manipulation , 112 Harv. L. Rev. 1420, 1440–41 & n.82 (1999) (describing the anchoring effect).
E.g. , Mark W. Bennett, Confronting Cognitive “Anchoring Effect” and “Blind Spot” Biases in Federal Sentencing: A Modest Solution for Reforming A Fundamental Flaw , 104 J. Crim. L. & Criminology 489, 498 (2014) (discussing a study showing how “anchoring works at the subconscious level” for real estate agents estimating home values); see also United States v. Parral-Dominguez , 794 F.3d 440, 448 & n.9 (4th Cir. 2015) (noting the anchoring effect of the Sentencing Guidelines in the context of criminal sentencing).
Viewed in the light most favorable to Defendants, the record contains evidence that Defendants may have provided the estimates of value in part for legitimate reasons: helping appraisers determine whether to accept an assignment and, if accepted, assess an appropriate fee for the assignment. There is some dispute about whether appraisers actually used the estimates in that way. But there is no genuine dispute that Defendants also provided the estimates as a target—or, in their word, “requested”—value. Nor is there any genuine dispute that, at least some of the time, their efforts worked.
It is also clear that during the class period, this practice was common, but discouraged. Though it was not expressly forbidden by West Virginia law at the time, federal authorities indicated as early as 1996 that providing a target value to appraisers was improper, warning “employees of financial institutions” against “pressuring appraisers to raise their value conclusions to target values.” S.J.A. 861. And the record suggests Defendants were aware that the practice of providing borrowers’ estimates of value was inappropriate. They ceased doing so in at least one state that began applying more legal pressure. Yet in West Virginia, Defendants continued to forge ahead. They only stopped the practice entirely in 2009, “around the time” the Home Valuation Code of Conduct forbid it. J.A. 235. It was unethical for Defendants to attempt to pressure or influence appraisers—yet the record establishes that this was Defendants’ goal. Indeed, Defendants appear to recognize that their conduct was improper. On appeal, they focus their energy on arguing that their attempts to influence appraisers were unsuccessful and, therefore, did not induce Plaintiffs to enter the loans. They note testimony from several appraisers that seeing borrowers’ estimates of value did not influence them.
At oral argument, Defendants relied heavily on a provision of the West Virginia Code that instructs that lenders “may rely upon a bona fide written appraisal of the property made by an independent third-party appraiser” which is “prepared in compliance” with the Uniform Appraisal Standards. W. Va. Code § 31-17-8(m)(8). Their theory was that, under the Uniform Appraisal Standards, it was not unethical for an appraiser to complete an appraisal after receiving an estimated value from the lender—and that this should absolve Defendants of any wrongdoing.
As an initial matter, Defendants waived this argument by raising it only in passing in their opening brief. Grayson , 856 F.3d at 316. In any event, it is without merit. Defendants are correct that, while the 2008–2009 Uniform Appraisal Standards indicated that appraisers could not ethically accept an appraisal assignment requiring a specific amount as a condition , the record supports that the mere receipt by an appraiser of the borrower’s estimate of value did not violate the Uniform Appraisal Standards. However, the Uniform Appraisal Standards also indicated that appraisers should respond to lenders who provided the borrower’s estimate of value with a clarifying statement that they could not accept the assignment if the estimate was provided as a condition. There is no evidence in the record that the appraisers made any such statements here.
Putting that issue aside, section 31-17-8(m)(8) cannot be used by lenders to justify unconscionable conduct. Section 31-17-8(m)(8) forbids lenders from “making any primary or subordinate mortgage loan” that is secured in a principal amount exceeding the fair market value of the property. In enacting that prohibition, however, the legislature gave lenders a safe harbor: they could rely on an appraiser’s valuation of the home to avoid violating this rule. Reading the statute to allow lenders to attempt to influence appraisers so long as they stick within the limits of the Uniform Appraisal Standards—to wield this safe harbor shield as a sword —would defeat the purpose of section 31-17-8(m)(8), not to mention section 46A-2-121(a)(1).
Moreover, the state legislature used significant limiting language in crafting section 31-17-8(m)(8), specifying that the appraisal must be “bona fide” and that the appraiser must be “an independent third-party.” And under section 31-17-8(m)(2), lenders are prohibited from “[c]ompensat[ing], … coerc[ing,] or intimidat[ing] an appraiser for the purpose of influencing the independent judgment of the appraiser with respect to the value of real estate” on which a mortgage loan is based. The language of section 31-17-8(m) thus makes clear that the legislature was concerned about the very sort of behavior at issue here—namely, lenders embarking on campaigns to sway appraisers.
Defendants set the causational bar too high. As discussed, for claims related to concealment, unconscionable inducement under the Act turns not on Plaintiffs’ subjective reliance on the concealed conduct but on Defendants’ conduct itself. Plaintiffs need demonstrate only that Defendants’ conduct was unconscionable and that it “contributed to the formation” of their decisions to enter the loan agreements. Brown , 737 S.E.2d at 654. We conclude that Plaintiffs have satisfied this standard. The appraisal process is closely related to loan formation for loans secured by the collateral of real property. In other words, any conduct impacting the appraisal process necessarily contributes to loan formation. An appraisal provides both the mortgagor and mortgagee with a baseline value from which the parties can negotiate the terms of the loan. The appraisal value helps determine the final loan amount and terms, and an impartial appraisal gives both parties confidence that the loan is tied to the home’s true contemporary market value.
Defendants argue that concealment is only actionable where there is a duty to disclose—and they appear to argue that the absence of a statutory duty is dispositive. As an initial matter, the absence of a statutory duty does not mean there is no duty. In the tort context, for example, “[t]he ultimate test of the existence of a duty to use care is found in the foreseeability that harm may result if it is not exercised.” Glascock v. City Nat’l Bank of W. Va. , 213 W.Va. 61, 576 S.E.2d 540, 544 (2002) (internal quotation marks omitted). And, where a lender “possesse[s] information of no interest to ‘society in general,’ but of great interest to the [borrowers],” and the lender “ha[s] reason to know of the ‘potential consequences of the wrongdoing,’ that is, withholding the information,” a special relationship exists and the lender has a duty to disclose the information. Id. at 545 ; see id. at 546 ; cf. McCauley v. Home Loan Inv. Bank, F.S.B. , 710 F.3d 551, 559 (4th Cir. 2013) (“A lender that informs a borrower about how much her property is worth, whether required to do so or not, is under an obligation not to misrepresent that value.”); Ranson v. Bank of Am., N.A. , No. CIV.A. 3:12-5616, 2013 WL 1077093, at *6 (S.D.W. Va. Mar. 14, 2013) (“[A] duty to provide accurate loan information is a normal service in a lender-borrower relationship.”).
Moreover, there is no evidence that a duty to disclose is an element of an action for unconscionable inducement by concealment under the Act. Defendants are correct that commonlaw fraudulent concealment requires the plaintiff to show the existence of a duty to disclose. Brown , 737 S.E.2d at 654. But, again, the Act is intended to provide consumers with a cause of action where the common law does not. Barr , 711 S.E.2d at 583. And research has not revealed a single West Virginia case interpreting the Act that has required a duty to disclose. Indeed, in Brown , the Supreme Court of Appeals of West Virginia referred to a duty to disclose only in discussing the plaintiff’s common-law claim for fraudulent concealment. Brown , 737 S.E.2d at 654. And the trial court in Brow n —the only other West Virginia court to review the case—made no mention of a duty to disclose in this context at all. Brown v. Quicken Loans , No. 08-C-36, 2010 WL 9597654, at *8 (W. Va. Cir. Ct. Mar. 2, 2010).
In light of the principle that the Act provides a cause of action where the common law runs dry, we conclude that, even assuming Plaintiffs must show that Quicken Loans had a duty to disclose, the duty arises from the Act itself. In other words, the Act provides an avenue for seeking relief when a lender conceals a fact despite having an ethical obligation to disclose it, such that the failure to disclose the fact was unconscionable.
Appraisal procedures are particularly important in refinancing agreements. In home purchases, the loan amount is tied directly to the purchase price, which is tempered by bargaining between adversarial parties represented by competing real estate agents. Here, though, both parties had some incentive to estimate a high home value: Plaintiffs may have wanted to receive more money they could use for other purposes, cf. McFarland , 810 F.3d at 280, and Quicken Loans may have desired to obtain higher loan values to improve its position when reselling those loans, see Brown , 737 S.E.2d at 652 n.25 ; cf. McCauley v. Home Loan Inv. Bank, F.S.B. , 710 F.3d 551, 559 n.5 (4th Cir. 2013). But an inflated home value posed risks to both parties, too. See McFarland , 810 F.3d at 280–81. Amidst these various dangers and incentives—and stepping into the middle of a transaction between parties with unequal bargaining power—the impartial appraiser was the only trained professional available to objectively evaluate the value of the home. Thus, conduct designed to influence the appraisal process is not causally attenuated from the class members’ decisions to enter the loans. Put another way, the appraisal process is sufficiently central to the refinancing agreement that any conduct designed to affect the appraisal process necessarily contributed to the Plaintiffs’ conclusions to enter the loans. And where, as here, that conduct was unconscionable, it is actionable under the Act.
The evidence shows that appraisers were made aware of target values and pressured to reevaluate their appraisals if they fell below those amounts. Appraisers, thus, had in mind the target value when they assessed or reassessed Plaintiffs’ home values and, at least sometimes, adjusted their appraisals in response—even if they did so only subconsciously. And as those appraisals were central components in determining the terms of each loan, there is no genuine dispute that they—and, more importantly, their guise of impartiality—contributed to Plaintiffs’ decisions to enter those loans. Moreover, because Defendants’ behavior was unethical, it was unconscionable under the Act. Therefore, Plaintiffs have established their claim for unconscionable inducement.
Defendants do not challenge on appeal the statutory-damages award for Plaintiffs’ unconscionable-inducement claim.
We close our discussion of unconscionable inducement by emphasizing the circumscribed nature of our holding—a limitation that is necessary when we are wading somewhat into uncharted waters of state law, albeit with significant guidance from West Virginia’s highest court. See id. at 284.
Defendants’ challenged actions were of a particularly questionable character and pertained to an aspect of the loan process that is particularly essential. The loans in question were secured by the collateral of the borrowers’ homes—by far the most significant investment, in terms of sheer value, that most Americans will make in their lifetimes, but also property that is necessary as shelter and, for many, carries great personal significance as a home. We think it plain that reasonable borrowers would not risk their significant investments, shelters, and homes without compelling reason. Again, we emphasize that there is no evidence in the record suggesting that, when the class members estimated their home values, they knew that those values would be passed on to appraisers or used to pressure appraisers to increase appraisal values. Indeed, it is reasonable to suppose that the borrowers each assumed that the appraisal provided an unbiased valuation of their homes on which they could rely as they planned their financial futures.
Yet Defendants did not respect this process. Instead, they flexed their power as the party arranging the appraisal in an attempt to influence the impartial third parties upon whose advice Plaintiffs appropriately relied. Plaintiffs thought they were playing a fair game of poker, albeit one where the Defendants were dealing the cards. Plaintiffs did not know that Defendants were also stacking the deck.
Our holding thus should not be interpreted to open the floodgates to a deluge of litigation challenging any possible means by which a lender could attempt to better position itself in a negotiation. Parties to agreements can, of course, take some measures to protect and further their interests without coming close to violating the Act. But where a lender induces a borrower to enter a loan through deceptive practices that relate to the heart of the loan-formation process, thereby compromising the integrity and fairness of that process, West Virginia law provides the borrower with a remedy. We decline to accept Defendants’ invitation to ignore that legislative cure for their misbehavior. After all, “[i]t would be dispiriting beyond belief if courts defeated [a legislature’s] obvious attempt to vindicate the public interest with interpretations that ignored the purpose, text, and structure of th[e] Act at the behest of those whose abusive practices the legislative branch had meant to curb.” Krakauer , 925 F.3d at 663.
Plaintiffs’ final claim, against both Quicken Loans and TSI, was for conspiracy. Defendants’ only argument on appeal related to that claim is that “[t]he district court’s summary-judgment decision on Plaintiffs’ civil-conspiracy claim … was derivative of its ruling on the [unconscionable-inducement] count.” Opening Br. at 31. And since Defendants believe reversal to be appropriate for the statutory claim, they argue the same for the conspiracy claim. Because we affirm the district court’s decision to grant summary judgment to Plaintiffs on their statutory claim, this argument fails. And by not making any other arguments regarding this claim, Defendants have waived any such arguments on appeal. See Grayson O Co. v. Agadir Int’l LLC , 856 F.3d 307, 316 (4th Cir. 2017). Accordingly, we also affirm the district court’s grant of summary judgment to Plaintiffs on the conspiracy claim. VI.
For the foregoing reasons, we affirm the district court’s decisions to grant class certification, grant summary judgment to Plaintiffs on their conspiracy and unconscionable-inducement claims, and award statutory damages. However, we vacate the district court’s grant of summary judgment to Plaintiffs on their breach-of-contract claim and the related damages award, and we remand that claim for further proceedings consistent with this opinion.
AFFIRMED IN PART, VACATED IN PART, AND REMANDED.
NIEMEYER, Circuit Judge, dissenting:
Phillip and Sara Alig and Daniel and Roxanne Shea refinanced the mortgages on their homes in 2007 and 2008, respectively, with loans from Quicken Loans Inc. to consolidate their debts and reduce their payments. In the standard application form that they signed to apply for the loans, they provided, among other things, an estimated value of their homes and the amount that they wished to borrow. To qualify the loans, Quicken Loans obtained appraisals from independent, professional appraisers, who were provided with the borrowers’ home-value estimates. This was, at the time, a customary and accepted industry practice. While the Aligs and the Sheas provided their estimates unconditionally, indicating that the estimates could be used by Quicken Loans, its agents, and its servicers, they were not informed in particular that their estimates would be provided to the appraisers.
At the closings, the Aligs and Sheas received the borrowed money and, as they had agreed, paid for the costs of the appraisals — $260 in the Aligs’ case and $430 in the Sheas’. As planned, the two couples then consolidated their debts to their financial benefit. There is no dispute that they received exactly what they had bargained for and that they were highly satisfied with the transactions.
After industry standards changed in 2009 so that lenders could no longer provide appraisers with borrowers’ home-value estimates and years after their loans closed, the Aligs and Sheas commenced this class action against Quicken Loans. They alleged that the practice that Quicken Loans followed in 2007 and 2008 of providing appraisers with borrowers’ home-value estimates without their knowledge was “unconscionable conduct” that “induced” their loan transactions, in violation of the West Virginia Consumer Credit and Protection Act, W. Va. Code § 46A-2-121(a)(1) (making unenforceable consumer loans that are “induced by unconscionable conduct”). They also claimed that the practice constituted a breach of contract. With their action, the Aligs and Sheas sought to represent a class of other West Virginia residents who had also refinanced their mortgages with Quicken Loans before 2009 — a class involving nearly 3,000 loans. The district court certified the class, agreed with the Aligs and Sheas on both claims, and entered summary judgment against Quicken Loans for over $10 million. And in a startling opinion, the majority now largely affirms the district court’s conclusion.
To impose liability on Quicken Loans for what was an industry-wide practice to provide relevant information to appraisers and that harmed the Aligs and Sheas not one iota is fundamentally unjust; it is, as we have previously observed, “not the borrower but the bank that typically is disadvantaged by an under-collateralized loan.” McFarland v. Wells Fargo Bank, N.A. , 810 F.3d 273, 280 (4th Cir. 2016). Imposing liability here thus lacks common sense. Moreover, it stands statutory liability on its head. West Virginia law creates lender liability for “unconscionable conduct” that “induces” the borrower to enter into a consumer loan transaction. Yet here, there is no factual or legal basis to call the challenged practice “unconscionable,” a term that West Virginia courts have equated with fraudulent conduct. Nor is there any evidence that the borrowers were “induced by” the practice to enter into the loan transactions. By their own allegations, the Aligs and Sheas were unaware of the practice, and there is simply no evidence that if they had been made aware of it, they would not have proceeded with the transactions on the same terms. They were interested in receiving a loan in the amount they had applied for and at the cost that was fully disclosed to them for the purpose of consolidating their debts.
In affirming a $10-million liability in these circumstances, the majority opinion stands totally out of step with the interests of both parties to the transactions. This is an unjust punishment indeed for a company that followed a practice that was both customary and legal and only later modified to avoid potentially influencing appraisers. And regardless of the change in 2009, there is no evidence that the appraisers on these loans were influenced by the borrowers’ estimates or that any kind of fraud was committed.
I conclude that the practice followed in 2007 and 2008 of providing appraisers with the borrowers’ estimates of home value without disclosing that practice to the borrowers was plainly not unconscionable conduct under virtually any understanding of the term and certainly not under the standard imposed by West Virginia Code § 46A-2-121. There was nothing unscrupulous or akin to fraud involved in the transactions. The practice that the Aligs and Sheas challenge was related only to lenders’ dealings with appraisers who were retained to protect the lenders from undercollateralized loans; the practice was accepted by the industry at the time; the practice did not affect — nor would it have affected if disclosed — the Aligs and Sheas’ conduct in pursuing the loans; and the practice caused the Aligs and Sheas no damage.
I also conclude that the Aligs and Sheas were not induced by the practice to enter into the loan transactions. They did not know of it, and there is simply no evidence that had the practice been disclosed to them, they would have proceeded any differently.
I would reverse and remand with instructions to enter judgment for Quicken Loans and its agent, Title Source, Inc.
The practices followed by borrowers and lenders in refinancing home mortgages were and are well understood, and they are governed by numerous regulations designed to serve both borrowers and lenders. The evidence in this case showed that Quicken Loans followed the accepted practices both before 2009 and after, and the Aligs and Sheas have pointed to no deviation from them, much less deceit.
A refinancing transaction typically begins with the prospective borrower filling out a Uniform Residential Loan Application (Fannie Mae Form 1003), which requires the lender to provide, among other things, information about their income and debts, their assets, and the amount and basic terms of the loan being sought. In one portion of the application, the borrowers are specifically requested to fill in a schedule of real estate owned, providing the real estate’s “present market value,” as well as the mortgages and liens on it. The form expressly authorizes use of the application’s information by the lender, its “agents,” and its “servicers,” providing that the borrower “agrees and acknowledges that … the Lender and its agents, … [and] servicers … may continuously rely on the information contained in the application.” Lenders use the application’s information to identify loan programs for which the borrowers would be eligible, to qualify the borrowers for loans with a demonstration of adequate income and collateral, to obtain credit information regarding the borrowers, and to retain appraisers to appraise the borrowers’ homes.
Before 2009, lenders commonly provided the borrowers’ home-value estimates to appraisers who were engaged to provide appraisals in connection with mortgage refinancings. The testimony in the record shows that this “was a common and acceptable practice for mortgage lenders.” The information helped appraisers determine whether they had the right licensure to complete the appraisal, decide whether to accept the assignment, and determine what fee to charge for the appraisal. And the practice was considered appropriate under the Uniform Standards of Professional Appraisal Practice (“USPAP”) issued by the Appraisal Standards Board. Indeed, under guidance published by the Board, appraisers were expressly allowed to receive borrowers’ estimates. The Board recognized that the mere receipt of such information was not inconsistent with the appraisers’ obligation to perform their appraisals with “impartiality, objectivity, and independence.” But an appraiser was not authorized to accept an engagement that was conditioned on reporting a predetermined opinion of value.
Appraisals were (and continue to be) generally reported on a Uniform Residential Appraisal Report (Fannie Mae Form 1004). When submitting appraisals on that form, the appraiser certifies that he or she performed the appraisal “in accordance with the requirements of the” USPAP.
Quicken Loans followed these customary procedures during the pre-2009 period, using the Fannie Mae forms. It would upload information about a prospective borrower, including the borrower’s estimate of home value, into a computer system that would then transmit the information to Title Source, Inc., an affiliated appraisal management company that obtained appraisals from independent appraisers and provided other loan settlement services both to Quicken Loans and other mortgage lenders. Title Source used the information it received from Quicken Loans to generate an appraisal request form, which included the “Applicant’s Estimated Value.” The form was sent through an automated system to professional appraisers and appraisal companies in the area where the property was located. The appraisers in this case then reported their appraisals on Fannie Mae Form 1004.
In 2009, with the issuance of the Home Valuation Code of Conduct, a new rule went into effect that, among other things, prohibited both lenders and appraisal management companies from providing any estimated home values to appraisers in connection with refinance transactions, including the borrowers’ own estimates. With the issuance of this new rule, Quicken Loans and Title Source stopped including borrowers’ estimated home values on appraisal request forms. But the refinancings by the Aligs and the Sheas were completed under the former practice, before the new rule went into effect.
Phillip and Sara Alig purchased their home in Wheeling, West Virginia, in 2003 for $105,000, financing their purchase with a mortgage. In December 2007, they sought to refinance their mortgage and consolidate their debts with a loan from Quicken Loans. On the Uniform Residential Loan Application form, they indicated that the “present market value” of their home was $129,000, and this estimate was thereafter included on the appraisal request form that Title Source sent to a local appraiser who was retained to determine what the fair market value of the Aligs’ home was. The appraiser at first determined that value to be $122,500. Title Source asked the appraiser, however, to “revisit [the] appraisal for [a] possible value increase to $125,500” based on an “adjusted sales price of comps.” The appraiser agreed that, in view of “the comps” (which included nearby home sales of $124,000 and $132,000), it was appropriate to increase the appraisal to $125,500. The appraiser submitted his report on the uniform form (Fannie Mae Form 1004), certifying that he had conducted the appraisal in accordance with the USPAP standards and that his compensation was not conditioned on his reporting “a predetermined specific value.” In addition, he testified that receiving homeowners’ estimated values did not influence his appraisals in any way. Quicken Loans thereafter agreed to lend the Aligs $112,950 at a fixed interest rate of 6.25%, and at closing, which took place in December 2007, the Aligs used the proceeds to pay off a car loan and credit card debt, saving them $480 per month for almost a year thereafter. Included in the closing costs that the Aligs paid with the refinancing was $260 for the cost of the appraisal.
Similarly, Daniel and Roxanne Shea purchased their home in Wheeling, West Virginia, in 2006 for $149,350, financing their purchase with two mortgage loans from Quicken Loans. In June 2008, they sought to refinance their mortgages with a loan from Quicken Loans to consolidate their debts. On the Uniform Residential Loan Application form, they indicated that the “present market value” of their home was $170,000, and this information was included on the appraisal request form that Title Source sent to a local appraiser. That appraiser appraised the Sheas’ property at $158,000, using Fannie Mae Form 1004. He testified later that the “Applicant’s Estimated Value” was nothing more than what the borrowers assumed their house was worth and so was “irrelevant” to his task of determining market value using “comparables.” He also stated that if a potential client had attempted to condition his payment on his assessing a house to be worth a certain minimum value, he would have refused to do the job. Quicken Loans agreed to lend the Sheas $155,548 at a fixed interest rate of 6.625%, which consolidated their previous mortgage loans. One of the consolidated loans had a balloon-interest provision and the other had an interest rate of 12.4%. As part of the closing costs, the Sheas paid $430 for the cost of the appraisal.
There is no evidence that either the Aligs or the Sheas were dissatisfied with their refinancing transactions with Quicken Loans. Indeed, they rated their experience at the highest level (“excellent” or 5 out of 5), and both couples improved their cash-flow circumstances. Nonetheless, after the 2009 rule change by which lenders were no longer permitted to provide the borrowers’ home-value estimates to appraisers, the Aligs and Sheas decided to sue Quicken Loans and Title Source for the practice followed in their pre-2009 refinancing transactions. In their complaint, they alleged that Quicken Loans had “sought to influence appraisers” by providing them with “suggested or estimated values on appraisal request forms.” They also stated that Quicken Loans had not informed them of this practice and claimed that, by so “compromising the integrity of the appraisal process,” the practice had “rendered [their] appraisals unreliable and worthless.” The Aligs and Sheas did not allege, however, that they would not have refinanced their home mortgages with Quicken Loans on the same terms had they known that their home-value estimates had been sent to the appraisers. But, using the statutory language, they alleged in their complaint that their loans were “induced by unconscionable conduct,” in violation of West Virginia Code § 46A-2-121(a)(1), which is part of the West Virginia Consumer Credit and Protection Act. They also alleged that by “providing value estimates to appraisers” without disclosing the practice to them, Quicken Loans breached its contractual obligation to obtain “a fair and unbiased appraisal.” Finally, they alleged that Quicken Loans and Title Source engaged in an unlawful civil conspiracy that rendered Title Source equally liable for the unconscionable inducement and breach of contract claims alleged.
Following discovery, the plaintiffs filed a motion to certify their action as a class action on behalf of “[a]ll West Virginia citizens who refinanced mortgage loans with Quicken, and for whom Quicken obtained appraisals through an appraisal request form that included an estimate of value of the subject property.” There were 2,769 such loans.
Shortly thereafter, the parties filed cross-motions for summary judgment, and the district court, by memorandum opinion and order dated June 2, 2016, both certified the proposed class and granted summary judgment to the plaintiffs on the three claims.
The court found as a matter of law “that the act of sending an estimated … value to an appraiser in connection with a real estate mortgage loan refinancing” without disclosing the practice to borrowers was “unconscionable conduct” within the meaning of § 46A-2-121. It reasoned that the “estimated values were used by Quicken as a means of communicating targets to its appraisers.” The court also concluded as a matter of law that the unconscionable conduct induced the plaintiffs’ loan agreements. Noting that “[a] violation exists when ‘the agreement or transaction … [has been] induced by unconscionable conduct,’ ” the court explained its view that the focus of the statute “is plainly on the lender or creditor’s conduct,” rather than “the consumer’s state of mind.”
On the contract claim, the district court explained that the plaintiffs and Quicken Loans had executed a contract at the beginning of the loan process, entitled “Interest Rate Disclosure and Deposit Agreement,” which provided that immediately upon receiving the borrowers’ loan application and deposit, Quicken Loans would begin processing the application by, among other things, obtaining an appraisal. That agreement also noted that while Quicken Loans aimed to have the borrowers’ application approved by the anticipated closing date, it could not be responsible for delays in loan approval due to, among other things, “the untimely receipt of an acceptable appraisal.” The court concluded that this agreement was intended to “facilitate the loan application process by having the lender, Quicken, obtain an ‘acceptable’ appraisal, which, at a minimum, would require Quicken to deal honestly with its borrowers and in keeping with the prevailing standards of reasonableness.” But because “providing a target figure to an appraiser is a practice that is universally condemned and serves no legitimate purpose,” the court concluded that Quicken Loans had breached its obligation to obtain an “acceptable” appraisal and had violated its “duty to deal honestly” by “withholding knowledge of the true nature of the appraisal.”
On the civil conspiracy claim, the court held that Quicken Loans and Title Source “consistently acted in concert to accomplish their unlawful purposes,” such that they were jointly liable for the “scheme.”
In a later order, the court awarded (1) statutory damages of $3,500 per loan for the unconscionable inducement claim, for a total of $9,691,500, and (2) approximately $969,000 for the breach of contract claim, which represented the aggregate amount of fees paid for appraisals that “were rendered worthless by Quicken’s breach.” The total judgment thus exceeded $10.6 million.
From the final judgment dated December 14, 2018, Quicken Loans and Title Source (hereafter collectively “Quicken Loans”) filed this appeal.
On the statutory claim, the district court held that Quicken Loans’ practice of obtaining appraisals through appraisal request forms that included the borrowers’ estimate of their properties’ value without specifically disclosing that practice to the borrowers constituted “unconscionable inducement under W. Va. Code § 46A-2-121.” Quicken Loans contends, however, that the court’s ruling was doubly flawed because (1) the plaintiffs “offered no evidence of inducement” and (2) Quicken Loans “did nothing unconscionable.”
Quicken Loans’ argument thus directs our focus to the meaning of two terms — “induce” and “unconscionable” — as they are used in imposing liability when a consumer loan transaction is “induced by unconscionable conduct.” W. Va. Code § 46A-2-121(a)(1) (emphasis added). I start with the term “induce.”
The relevant portion of the West Virginia Consumer Credit and Protection Act provides that “[w]ith respect to a transaction which is or gives rise to a … consumer loan, if the court as a matter of law finds … [t]he agreement or transaction … to have been induced by unconscionable conduct …, the court may refuse to enforce the agreement.” W. Va. Code § 46A-2-121(a)(1) (emphasis added).
Beginning with the text, it is clear that to have an agreement “induced by” unconscionable conduct requires that the conduct of one party have contributed to the agreement’s formation in the sense that it was material, or would have been material, to the other party’s decision to enter into the agreement. Thus, if one party engaged in “unconscionable conduct” at some point in the process of the agreement’s formation, but the other party would have agreed to the same transaction regardless, it cannot fairly be said that the unconscionable conduct induced the agreement. This much is clear from the text alone because “induce” and “inducement” have well recognized legal meanings, as even the majority acknowledges. See ante at 801. For instance, Black’s Law Dictionary’s primary definition of inducement is “[t]he act or process of enticing or persuading another person to take a certain course of action.” Black’s Law Dictionary 894 (10th ed. 2014) (emphasis added); cf. Mountain State College v. Holsinger , 230 W.Va. 678, 742 S.E.2d 94, 100 (2013) (relying on the definition of “consumer credit sale” in Black’s Law Dictionary when interpreting the Consumer Credit and Protection Act). In addition to this general definition, Black’s Law Dictionary also recognizes several specialized meanings of “inducement.” A contract’s “inducement,” for example, is the “benefit or advantage that causes a promisor to enter into a contract.” Black’s Law Dictionary , supra , at 894 (emphasis added). And even more telling, Black’s Law Dictionary defines “[f]raud in the inducement” as “[f]raud occurring when a misrepresentation leads another to enter into a transaction with a false impression of the risks, duties, or obligations involved.” Id. at 776 (emphasis added).
West Virginia courts have long given the word “induce” this same meaning when applying the State’s tort law. See, e.g. , Traders Bank v. Dils , 226 W.Va. 691, 704 S.E.2d 691, 696 (2010) (“The critical element of a fraudulent inducement claim is an oral promise that is used as an improper enticement to the consummation of another agreement. The fact that the agreement is reduced to writing … does not negate the occurrence of a precedent oral promise that was the motivating factor for the making of such agreement ” (emphasis added)). Although the fraudulent representation or concealment need not be “the sole consideration or inducement moving the plaintiff,” it must at least have “contributed to the formation of the conclusion in [the plaintiff’s] mind ” for an inducement to have occurred. Horton v. Tyree , 104 W.Va. 238, 139 S.E. 737, 739 (1927) (second emphasis added).
The West Virginia Supreme Court of Appeals’ decision in Quicken Loans, Inc. v. Brown , 230 W.Va. 306, 737 S.E.2d 640 (2012), serves as a telling example of how that court understands the meaning of “induce” — specifically, the centrality of the effect of the alleged misconduct on the individual plaintiff’s decisionmaking process . In Brown , the court held that the plaintiff had proved that the lender “fraudulently induced [her] to enter into [a] loan” to refinance her home mortgage by “failing to disclose [an] enormous balloon payment.” Id. at 652. It explained that “[i]t [was] undisputed that the reason [the plaintiff] sought to refinance was to consolidate her debt and to reduce her monthly payments — in short, to save money.” Id. at 654. Thus, “[c]oncealing such an enormous balloon payment from [the plaintiff] was designed to mislead her and to induce her into entering into the loan and, in fact, that is precisely what occurred.” Id. (emphasis added). Similarly, the court concluded that a fraudulent misrepresentation by the lender “that it would refinance the loan in three to four months was clearly material because, absent that promise , [the plaintiff] would not have otherwise entered into the loan.” Id. at 655 (emphasis added). On the flip side, however, the court held that the plaintiff had failed to prove that the lender’s misrepresentation of a $2,100 fee as being paid to secure a lower interest rate had induced her to enter into the refinancing, agreeing there was insufficient evidence “that if the loan discount had been accurately described on the closing documents, [the plaintiff] would not have consummated the loan.” Id. at 656.
There is no indication that the West Virginia Supreme Court of Appeals would understand “induced by” in § 46A-2-121 to have any meaning other than this settled one. See Napier v. Bd. of Educ. of Cnty. of Mingo , 214 W.Va. 548, 591 S.E.2d 106, 110 (2003) (“When presented with a matter of statutory interpretation, this Court typically first looks to the precise language employed by the Legislature in order to determine the meaning of the controverted statute. … If the text, given its plain meaning, answers the interpretive question, the language must prevail and further inquiry is foreclosed” (cleaned up)). To the contrary, in Brown itself, the court signaled the similarity between a statutory unconscionable inducement claim under § 46A-2-121 and a common law fraudulent inducement claim, reasoning that because the plaintiff had established the latter, she had also established the former. Brown , 737 S.E.2d at 658.
Moreover, in Brown , the court also explained that when interpreting § 46A-2-121, it “found the drafters’ comments to the [Uniform] Consumer Credit Code [“UCCC”] to be highly instructive,” as “the unconscionability provisions of [the UCCC] are identical to West Virginia Code § 46A-2-121(a) and (b).” 737 S.E.2d at 656–57. Significantly, an early version of the UCCC only provided for nonenforcement of an agreement respecting a consumer credit sale, consumer lease, or consumer loan if the agreement was “unconscionable at the time it was made.” Unif. Consumer Credit Code 1968 § 5.108(1). In the 1974 version, however, the provision was expanded to include unconscionable inducement. See Unif. Consumer Credit Code 1974 § 5.108(1). And in explaining this amendment, the UCCC’s accompanying comments stated:
Subsection[ ] (1) … [is] derived in significant part from UCC Section 2-302. Subsection (1), as does UCC Section 2-302, provides that a court can refuse to enforce or can adjust an agreement or part of an agreement that was unconscionable on its face at the time it was made. However, many agreements are not in and of themselves unconscionable according to their terms, but they would never have been entered into by a consumer if unconscionable means had not been employed to induce the consumer to agree to the contract . It would be a frustration of the policy against unconscionable contracts for a creditor to be able to utilize unconscionable acts or practices to obtain an agreement. Consequently subsection (1) also gives to the court the power to refuse to enforce an agreement if it finds as a matter of law that it was induced by unconscionable conduct. Unif. Consumer Credit Code 1974 § 5.108 cmt. 1 (emphasis added).
These comments — which, again, the West Virginia Supreme Court of Appeals has specifically recognized as being “highly instructive” in interpreting § 46A-2-121, see Brown , 737 S.E.2d at 657 — only further confirm that a contract is induced by unconscionable conduct when such conduct is used to help secure the consumer’s agreement to the contract. Indeed, relying on the UCCC comments quoted above, we recognized as much in McFarland , where we stated that § 46A-2-121 supports “two distinct causes of action when it comes to consumer loans: one for unconscionability in the loan terms themselves, and one for unconscionable conduct that causes a party to enter into a loan .” 810 F.3d at 285 (emphasis added).
Tellingly, the Aligs and Sheas have not even attempted to argue that they presented sufficient evidence to prove that the allegedly unconscionable conduct at issue here induced them to refinance their mortgages with Quicken Loans. Rather, they stake their position on the proposition that all that is required to establish a lender’s liability under § 46A-2-121 is simply that unconscionable conduct was part of the process leading to the agreement’s creation , regardless of whether it had any effect on “the formation of the conclusion in the plaintiff’s mind.” Brown , 737 S.E.2d at 654. Their posited interpretation, however, is at odds with not only the statute’s text and case law construing “induce,” but also the provision’s purpose of ensuring that consumers are protected when a lender has used “unconscionable acts or practices to obtain an agreement” from them, even if the terms of that agreement are not themselves unconscionable. Unif. Consumer Credit Code 1974 § 5.108 cmt. 1.
Here, the plaintiffs have simply failed to establish that their loan agreements were “induced by” Quicken Loans’ failure to disclose that the home-value estimates that they themselves had provided had been included on the appraisal request forms. In other words, they failed to prove that Quicken Loans’ lack of disclosure was a “motivating factor for [their] making of” the loan agreement, Traders Bank , 704 S.E.2d at 696 ; or that it “contributed to” their decision to enter into the loan, Brown , 737 S.E.2d at 654 ; or that it “cause[d] [them] to enter into [the] loan,” McFarland , 810 F.3d at 285. This failure should have entitled Quicken Loans to judgment as a matter of law on the statutory claim.
To avoid the plaintiffs’ obvious failure, the majority opinion manufactures an approach alien to West Virginia law. It reasons that even though ” ‘inducement’ implies that the affirmative misrepresentation or active deceit in some way caused the plaintiff to enter the loan,” ante at 801 (emphasis added), it can nonetheless find this element satisfied by “predict[ing] that the state Supreme Court would find that a plaintiff who proves unconscionable conduct in the form of concealment will recover unless the conduct was sufficiently attenuated from or irrelevant to the loan’s formation that it did not contribute to the formation of the plaintiff’s decision to enter the loan, ” id. at 802–03 (emphasis added). Such a prediction is unprecedented and has no rational foundation. It fundamentally fails to take into account that to establish that the lender’s concealment of something induced the plaintiff’s agreement requires proof that the disclosure of that information would have changed their decision. See Brown , 737 S.E.2d at 655–56 ; cf. White v. Wyeth , 227 W.Va. 131, 705 S.E.2d 828, 837 (2010).
Because the record contains no evidence that it would have made any difference to the Aligs or the Sheas to have learned that their estimates had been provided to the appraisers — the plaintiffs having indeed foresworn the need to make such a showing — I would vacate the district court’s summary judgment on the statutory claim and remand with instructions to grant summary judgment to the defendants.
To prove a claim under § 46A-2-121, the Aligs and Sheas would not only have to prove inducement but also establish that the inclusion of their home-value estimates on the appraisal request forms without disclosure to them amounted to “unconscionable conduct” as a matter of law. W. Va. Code § 46A-2-121(a)(1). In asserting that they established that element, they argue that providing appraisers with their estimates of home value “bias[ed] the result” of the appraisals, but that Quicken Loans had presented the appraisals to them as if they were “independent estimates.” They characterize these posited facts as the ” ‘equivalent to’ an affirmative misrepresentation.” Surprisingly, the majority opinion simply accepts the plaintiffs’ argument.
The plaintiffs’ elaboration of facts purporting to demonstrate unconscionable conduct, however, is sheer speculation. The record shows nothing malignant about the specific practice at issue here — a practice that was common in the lending industry and entirely consistent with the ethical standards for appraisers under the USPAP. Certainly, the record supports no claim that this conduct amounted to fraud. Yet, in interpreting § 46A-2-121(a)(1), the West Virginia Supreme Court of Appeals has expressly “equated” “conduct that is ‘unconscionable’ … with fraudulent conduct.” One Valley Bank of Oak Hill, Inc. v. Bolen , 188 W.Va. 687, 425 S.E.2d 829, 833 (1992) ; see also Mountain State College , 742 S.E.2d at 102 n.9 (same, quoting One Valley Bank of Oak Hill , 425 S.E.2d at 833 ).
The unvarnished facts of record show that the Aligs estimated the value of their home at $129,000 and that the appraiser, despite having knowledge of their estimate, gave an appraisal of $125,500, certifying that the appraisal represented his impartial, objective, and independent judgment based on comparable sales. Likewise, the Sheas estimated the value of their home at $170,000, and the appraiser, despite having knowledge of their estimate, gave an appraisal of $158,000, again certifying that the appraisal represented his impartial, objective, and independent judgment based on comparable sales. He testified affirmatively that his appraisal was not influenced by the Sheas’ estimate and that if he believed that he had been retained to satisfy their estimate, he would not have undertaken the engagement.
Testimony was also presented that the practice of providing the borrowers’ estimates to appraisers served the legitimate purposes of helping price the appraisal project and assigning it to an appraiser with the right qualifications. And virtually every appraiser who testified said that the inclusion of the borrowers’ home-value estimate on the order form engaging their services did not affect their appraisals. The Uniform Standards of Professional Appraisal Practice allowed the appraisers to receive a borrower’s estimate so long as it was recognized that such estimate was only informational and “not a condition for [the] placement of [the] assignment.”
It defies common sense to suppose that, had the Aligs and Sheas been told that the home-value estimates in their loan applications would be provided to the appraisers, they would have been outraged by the practice. Indeed, their loan applications suggest otherwise, as they agreed that Quicken Loans and its agents or servicers could rely on the information. It is quite telling that the Aligs and Sheas only challenged the practice several years later, after the adoption of the Home Valuation Code of Conduct, when regulators changed the rules in recognition of the practice’s potential for pernicious systemic effects. But it certainly does not follow that Quicken Loans’ adherence to the prior practice can — standing alone — be said to amount to conduct so “unconscionable” that it would permit a court to “refuse to enforce” the consumer’s refinance loan under § 46A-2-121(a)(1). Its conduct was neither unscrupulous nor fraudulent, and disclosure of it would not have changed a thing.
The district court at least should have recognized that it was engaging in unsupported findings of fact that were rebutted by the evidence presented by Quicken Loans, thus precluding summary judgment. But based on the record before the court, it is apparent that, as a matter of law, the Aligs and Sheas have not shown that the practice that Quicken Loans followed in 2007 and 2008 in processing their refinancing loans was “unconscionable.”
Finally, I would also vacate the district court’s summary judgment in favor of the plaintiffs on their contract claim and remand with instructions to grant summary judgment to Quicken Loans.
The Aligs and the Sheas’ breach of contract claim is based on the one-page Interest Rate Disclosure and Deposit Agreement that Quicken Loans entered into with prospective borrowers who were applying for loans. As relevant here, that document provided:
Lender will begin processing your application (which may include ordering an appraisal, credit report, title commitment and other necessary items) immediately upon the submission of your application and deposit. …
With your deposit … , you authorize Lender to begin processing your loan application and advance out-of-pocket expenses on your behalf. …
If your application is approved: At the closing, Lender will credit the amount of your deposit on your closing statement toward the cost of your appraisal and credit report. Any additional money will be credited to other closing costs. If your application is denied or withdrawn for any reason: Lender will refund your deposit less the cost of your appraisal and/or credit report.
The agreement thus contemplated that, in the course of processing the prospective borrowers’ mortgage loan applications, Quicken Loans would obtain an appraisal of the subject property and that the borrower would pay for that appraisal. And in this case, Quicken Loans did, as agreed, obtain appraisals in connection with the Aligs and Sheas’ refinancing transactions, and the Aligs and Sheas did, at closing, pay for those appraisals.
The Aligs and Sheas contend — as the district court ruled — that they did not get the benefit of this bargain. They maintain that, by operation of the implied covenant of good faith and fair dealing, Quicken Loans was obligated to obtain a fair, valid, and reasonable appraisal and that, because they were not told that their home-value estimates had been included on the appraisal order forms, they were “deprived of the reasonable, fair, and unbiased appraisals that they paid for.” The majority agrees as to Quicken Loans’ contractual obligation to the borrowers to obtain a fair, valid, and reasonable appraisal, although it remands the claim for further proceedings on whether that contract was breached and whether damages resulted.
Even accepting that the Interest Rate Disclosure and Deposit Agreement should be read as requiring Quicken Loans to obtain fair and unbiased appraisals, the mere provision of the borrower’s estimated value to the appraiser could not categorically render each appraisal unfair and biased, so as to give rise to a breach of contract claim. Indeed, the evidence in this case showed that when completing their appraisal reports, each appraiser certified that he “performed [the] appraisal in accordance with the requirements of the Uniform Standards of Professional Appraisal Practice,” and this certification was consistent with the USPAP even when the appraiser received the “owner’s estimate of value.” It is an erroneous exercise of judicial hindsight to now conclude from the simple fact that Quicken Loans, like others in the industry, included borrowers’ estimates on appraisal request forms that the resulting certified appraisals were categorically and necessarily biased and unfair in breach of contract.
* * *
The judgment entered against Quicken Loans in this case is manifestly inconsistent with West Virginia law. As important, it is palpably unjust. A thoughtful change in industry practice must not be taken as an invitation to file such opportunistic, and plainly wanting, litigation.
Howdy Tom @goodwinlaw
— LawsInTexas (@lawsintexasusa) December 14, 2021
ONE CORRUPT JUDGE DISSENTING ALLOWS BANKSTERS AN OPENING TO SCOTUS
Rocket Mortgage, LLC, fka Quicken Loans Inc., et al., Petitioners
Phillip Alig, et al. (US Supreme Court Petition)
SEP 21, 2021 | REPUBLISHED BY LIT: DEC 14, 2021
OFF TO THE US SUPREME COURT TO OVERTURN CLASS ACTION CERT AGAINST WALL ST BANKSTERS
Petition for Writ of Certiorari
Mortgage Fraud: SunTrust Bought Its Way Out Of Jail. The Staff Weren’t So Fortunate.
This Criminal Appeal re Mortgage Fraud by Staff at SunTrust Bank shows the selective nature of those chosen by the Judiciary to be convicted.
United States v. Raza, 876 F.3d 604 (4th Cir. 2017)
Compare the following appeal with the articles that follow immediately after, namely the SunTrust settlement and the distressed Homeowner pursuing justice and meaningful relief from our Judiciary.
NOV 20, 2017 | REPUBLISHED BY LIT: AUG 2, 2021
This Criminal Appeal re Mortgage Fraud by Staff in the Loan Department (Mortgages) at Suntrust Bank shows the selective nature of those chosen by the Judiciary to be convicted and sent to jail. The Executives, the responsible Bankers who oversee the staff and department and sign off on financial statements under the penalty of perjury were never brought before a jury for their crimes. Rather, a cash settlement was reached to drop the criminal charges.
That Executive Bankers are not criminally prosecuted is unacceptable. However, America sat back and said, “it’s par for course, we all know corruption, money and power can prevail over the rule of law.” LIT suggests that attitude has to change if you, the people, want change.
KING, Circuit Judge:
In February 2016, the defendants in these proceedings—Mohsin Raza, Humaira Iqbal, Farukh Iqbal, and Mohammad Ali Haider—were convicted by a jury in the Eastern District of Virginia of the offenses of wire fraud and conspiracy to commit wire fraud.
Those crimes were predicated on a fraudulent mortgage lending scheme centered at the Annandale branch of SunTrust Mortgage in Fairfax County, Virginia.
The defendants have appealed, maintaining that the trial court fatally undermined their convictions by giving erroneous instructions to the jury. As explained below, we reject the contentions of error and affirm.
The fraudulent mortgage lending scheme underlying this prosecution touched not only SunTrust Mortgage (the subsidiary entity), but also SunTrust Bank (the parent entity) as the fraud scheme’s primary victim. Because the distinctions between those banking entities are immaterial in these appeals, we refer to them jointly as “SunTrust.”
On April 23, 2015, a federal grand jury in Alexandria, Virginia, returned a seven-count indictment against the defendants—who were former employees of SunTrust’s Annandale branch.
The indictment’s first count charged them with conspiracy to commit wire fraud affecting a financial institution, in contravention of 18 U.S.C. § 1349.
Counts 2 through 7 made substantive allegations of wire fraud affecting a financial institution, in violation of 18 U.S.C. § 1343.
The substantive offenses were interposed against defendants Raza and Farukh Iqbal (Count 2); Raza and Humaira Iqbal (Counts 3 and 5); Raza alone (Counts 4 and 6); and Raza and Haider (Count 7).
The indictment against the defendants is found at J.A. 27-40. (Citations herein to “J.A. ––––” refer to the contents of the Joint Appendix filed by the parties in these appeals.)
The wire fraud conspiracy offense in Count 1 of the indictment was alleged as a violation of section 1349 of Title 18 of the United States Code, which provides, in pertinent part:
Any person who conspires to commit [an] offense under this chapter [including 18 U.S.C. § 1343 ] shall be subject to the same penalties as those prescribed for the offense [that is, § 1343 ], which was the object of the … conspiracy.
The substantive wire fraud offenses in Counts 2 through 7 of the indictment were alleged as violations of section 1343 of Title 18 of the United States Code, which provides, in pertinent part:
Whoever, having devised … [a] scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire … communication in interstate … commerce, any writings … for the purpose of executing such scheme or artifice, shall be [punished as provided by law]. If the violation … affects a financial institution [the permissible penalties are enhanced].
The fraud scheme underlying the indictment involved a total of twenty-five mortgage loans made by SunTrust from May 2006 through February 2007.
Pursuant thereto, the defendants prepared fraudulent mortgage loan applications for prospective SunTrust borrowers.
The false information contained in the loan applications underlying the indictment included, inter alia, false employment claims, inflated incomes, and overstated assets.
As a result, SunTrust made twenty-five mortgage loans on thirteen properties located in various cities and counties in eastern Virginia.
The general statute of limitations for federal criminal offenses is five years. See 18 U.S.C. § 3282(a).
No such defense was interposed in this prosecution, in that none was available. See id.§ 3293(2) (establishing ten-year limitations period for offense of wire fraud affecting a financial institution).
The “manner and means of the conspiracy” were described in paragraphs 11-15 of Count 1 of the indictment as follows:
• The defendants prepared false mortgage loan applications for prospective borrowers at SunTrust. They well knew that the loan applications contained false material information, such as inflated incomes, inflated assets, reduced liabilities, and statements indicating that prospective borrowers intended to use the subject properties as their primary residences.
• To support false information contained in the loan applications, the defendants obtained and prepared multiple false documents, such as counterfeit earning statements for prospective borrowers and sham letters from accountants.
• Raza, as a loan officer at SunTrust, submitted false loan applications prepared by him and Humaira Iqbal to SunTrust underwriters. Farukh Iqbal and Haider, as loan officers at SunTrust, submitted additional false loan applications to those underwriters.
• By submitting false loan applications and false documents to SunTrust, the defendants caused SunTrust to make mortgage loans to the borrowers. The defendants thereby caused SunTrust to fund fraudulent mortgage loans on at least thirteen properties in eastern Virginia.
The substantive wire fraud offenses in Counts 2 through 7 realleged and incorporated the foregoing as the “scheme to defraud” underlying those six charges.
The trial of the defendants was conducted in Alexandria in late January and early February of 2016. To understand those proceedings, a brief explanation of the relationships between the defendants and their responsibilities at SunTrust is appropriate.
During the relevant time frame, defendant Raza managed SunTrust’s Annandale office. Raza’s wife, defendant Humaira Iqbal, worked as Raza’s personal assistant.
Humaira’s brothers, defendants Farukh Iqbal and Haider, worked for Raza as loan officers.
Each of the defendants performed loan officer duties during the fraud scheme.
The SunTrust loan officers assisted prospective borrowers in obtaining residential mortgages and refinancing existing mortgages. During a consultation with such a loan officer, a prospective borrower would provide information relating to, inter alia, the borrower’s income, employment, and assets.
The loan officer utilized that information to prepare the prospective borrower’s mortgage loan application.
In preparing an application, the loan officer would select the type of loan that SunTrust should consider for approval. The different types of SunTrust loans had distinct interest rates and separate requirements with respect to supporting evidence.
For example, pursuant to SunTrust guidelines, a “full document” loan required supporting documents corroborating the loan applicant’s income, employment, and assets.
On the other hand, a “stated income, stated asset” loan required only those documents necessary to verify the applicant’s employment for the prior two years.
After completing a loan application, the loan officer forwarded it to a SunTrust underwriter in Richmond for review and possible approval.
The underwriter would sometimes conditionally approve a loan application, subject to the bank’s receipt of additional supporting documents. If the loan officer and the applicant thereafter fulfilled the specified conditions—for example, by providing the underwriter with the applicant’s pay stubs or bank statements—the loan application would be approved for closing.
SunTrust would then fund the loan by wiring money from Georgia to a bank account in Virginia. Following the loan closing, SunTrust paid a commission to the loan officer.
The prosecution’s case-in-chief, which encompassed five trial days, consisted of four categories of evidence. First, the prosecutors called two coconspirators who explained the wire fraud conspiracy and the fraud scheme.
Next, the prosecution presented testimony from the SunTrust borrowers involved in the mortgage loans underlying the wire fraud offenses.
Third, other SunTrust borrowers were called to buttress the conspiracy evidence and to provide evidentiary support for the fraudulent practices underlying the wire fraud scheme.
Finally, a SunTrust official explained the significance to SunTrust of the misrepresentations on the pertinent loan applications and the risks those misrepresentations posed to the bank.
Rina Delgado worked as a loan officer at SunTrust’s Annandale branch during Raza’s tenure as the branch manager.
She described a fraud scheme that was largely overseen by Raza and his wife Humaira Iqbal. As explained by Delgado, either Raza or Humaira reviewed each loan application originated at Annandale before it was submitted to the SunTrust underwriters. Raza and Humaira would check the prospective borrower’s income, assets, and liabilities, seeking to ascertain whether the applicant was qualified for SunTrust mortgage loans.
If an applicant’s income was insufficient, Raza and Humaira would sometimes have Delgado inflate the applicant’s income on the loan application.
Delgado described in detail how the defendants used a series of false representations and fraudulent documents to circumvent SunTrust’s loan requirements. She identified an incident when Humaira Iqbal needed a landlord to verify that a loan applicant was paying rent.
Humaira had Delgado impersonate the applicant’s landlord over the phone and falsely confirm to a SunTrust underwriter that the applicant was current on his rental payments. In a similar vein, Farukh Iqbal and Haider asked Delgado to secure fraudulent accounting records to verify the assets shown on pending loan applications.
Delgado responded by providing Farukh with false bank statements that were used to further the scheme.
Delgado pleaded guilty in federal court in 2013 to an information that charged a wire fraud conspiracy offense. Pursuant to her plea agreement with the United States Attorney, she cooperated with the prosecutors. Delgado was sentenced to prison for her involvement in the fraud conspiracy.
Another key prosecution witness concerning the conspiracy offense was Ranjit Singh—a tax preparer in northern Virginia.
In 2015, Singh confessed to the FBI that he had manufactured and delivered false tax and payroll documents to the defendants.
Singh cooperated with the FBI and the prosecutors and was given immunity.
In 2006 and 2007, Singh sold false pay stubs and false W-2 forms to Farukh Iqbal and Haider. Singh knew that those defendants were SunTrust loan officers and that the false documents would be used to help loan applicants qualify for SunTrust mortgage loans.
In carrying out the fraud scheme, Farukh and Haider provided Singh with the identities of loan applicants, the names of purported employers, employment dates, and salaries. Singh used that information in his tax and payroll programs to generate false documents that he provided to loan officers.
Singh produced a spreadsheet at trial—introduced as Government’s Exhibit 50B—that identified the false documents he had prepared in connection with the fraud scheme. See J.A. 2153-61. Several spreadsheet entries corresponded with false documents that supported phony loan applications prepared by the defendants and used in furtherance of the fraud scheme.
In May 2006, Silvana Rosero obtained $437,000 in mortgage loans from SunTrust to purchase residential real estate in Occoquan, Virginia. A wire transfer of those loan proceeds from a SunTrust account in Atlanta to a BB&T account in Richmond formed the basis for the wire fraud charge in Count 2 against Raza and Farukh Iqbal. Rosero’s loan application—prepared by Farukh—reflected that Rosero earned $14,000 per month as an operations manager at Horizon Mortgage.
Her SunTrust loan file contained a W-2 form showing that Rosero had made $155,000 the previous year, and the file contained salary payment statements supporting those earnings.
Those false documents bore the name of Ranjit Singh, who confirmed that the phony documents had been prepared by him.
Rosero testified that her SunTrust loan application—and its supporting documents—misrepresented her employment and vastly overstated her income.
Rosero also confirmed that she had not provided Farukh with the false information and fraudulent documents and had never met Singh.
In June 2006, a borrower named Leslie Lamas obtained $365,000 in mortgage loans from SunTrust to purchase a residential property in Annandale. A wire transfer of those loan proceeds from a SunTrust account in Atlanta to a bank in Fairfax, Virginia, formed the basis for the wire fraud charge in Count 3 against Raza and Humaira Iqbal.
Lamas obtained her loans from SunTrust with the assistance of Humaira, although Raza was the SunTrust loan officer identified on the Lamas loan application. The application reflected that Lamas earned $9,540 per month, and her SunTrust loan file contained a false earnings statement—prepared by Ranjit Singh—that corroborated her income.
Lamas testified, however, that her income was not nearly that high when she obtained her SunTrust loans. Furthermore, she had not provided Humaira with any supporting documents to that effect.
In June 2006, Reynaldo Valdez obtained $414,000 in SunTrust mortgage loans to purchase a home in Fairfax. A wire transfer of those loan proceeds from a SunTrust account in Atlanta to a bank in Fairfax formed the basis of the wire fraud charge in Count 4 against Raza.
Valdez’s loan application at SunTrust—prepared and submitted with Raza’s assistance—reflected that Valdez was a practicing dentist, that he earned $11,580 per month, and that he had $68,000 in the bank.
His SunTrust loan file contained a bank statement and an earnings statement supporting those false assertions. Valdez confirmed at trial that he was not a dentist. He actually worked in his sister’s medical office doing clerical and maintenance work.
Valdez admitted that his SunTrust loan application vastly overstated his income and assets, and that he had not provided the false documents found in his SunTrust loan file . Those documents—a false earnings statement and a false W-2 form—had been prepared by Ranjit Singh.
In July 2006, a borrower named Harwinder Singh obtained $470,000 in SunTrust mortgage loans—in his wife’s name—to purchase a residence in Ashburn, Virginia. A wire transfer of those loan proceeds from a SunTrust account in Atlanta to a bank in Fairfax formed the basis for the wire fraud charge in Count 5 against Raza and Humaira Iqbal.
Humaira—working with Raza—had assisted Harwinder Singh in completing the SunTrust loan application.
Harwinder overstated his wife’s income at the urging of Humaira and his realtor. The loan application reflected that Mrs. Singh worked as a systems engineer at Orberthur Systems, earned $14,825 per month, and had $45,000 in a Wachovia Bank. Her loan file contained earnings and bank statements corroborating those false numbers. Mrs. Singh was actually a quality technician at Orberthur Systems and earned only $25,000 per year.
Harwinder Singh and his spouse had never banked with Wachovia, and neither of them gave Humaira any false documents.
In July 2006, Santos Valdez-Mejia obtained $405,000 in SunTrust mortgage loans on a residential property in Alexandria. A wire transfer of those loan proceeds from SunTrust in Atlanta to a bank in Fairfax formed the basis for the wire fraud charge in Count 6 against Raza.
The Valdez-Mejia loan application, prepared for him by Raza, reflected that Valdez-Mejia earned $9,875 per month and that he worked as an area manager for a restaurant chain. His SunTrust loan file contained false earnings statements prepared by Ranjit Singh. When Valdez-Mejia applied for his SunTrust mortgage loans, he was actually working hourly wage jobs—as a cook and as a manual laborer.
Valdez-Mejia confirmed at trial that his income was substantially less than $9,875 per month. He had never advised Raza that he worked as an area manager for a restaurant or that he earned such a monthly income.
In February 2007, Zahoor Hashmi obtained $387,000 in SunTrust loans to refinance a mortgage on an Alexandria residential property. A wire transfer of those loan proceeds from a SunTrust account in Atlanta to a bank in Fairfax formed the basis for the wire fraud charge in Count 7 against Raza and Haider. Hashmi had secured his initial mortgage loan in 2005 from another lender. He thereafter sought to refinance with SunTrust because he was behind on his bills.
Hashmi’s refinancing application—prepared by Haider—falsely indicated that Hashmi was vice-president of a business called AA Motors. Hashmi had never worked at AA Motors, and he had not told Haider otherwise. His SunTrust loan file contained a false pay stub prepared by Ranjit Singh.
The prosecution presented additional conspiracy and fraud scheme evidence by calling several other former SunTrust borrowers.
Francy Castillo had obtained mortgage loans from SunTrust in 2006. Her loan application—prepared by Raza—falsely reflected that Castillo was president of a company called NGDC, earned a monthly salary of $17,000, and had $100,000 in a Wachovia bank.
Castillo confirmed at trial that, when she obtained her SunTrust loans, she was actually working two hourly jobs—as a waitress and as a caretaker.
Castillo had never worked for NGDC, she earned substantially less than $17,000 per month, and she never had $100,000 in any bank.
Khalid Yousaf obtained a mortgage loan from SunTrust in 2005 and refinanced just a year later. Raza handled both of Yousaf’s SunTrust loans. When he refinanced, Yousaf was working two jobs—driving a cab and operating a Dollar Store—and made about $3,000 per month. His refinancing application with SunTrust, however, reflected that he was vice-president of a business called DPP Services and earned $13,000 per month.
Yousaf had never heard of DPP Services, had never earned $13,000 per month, and had not told Raza otherwise.
Oscar Carrion testified that his wife made approximately $15,000 per year in 2006.
Her SunTrust loan application—prepared by Raza—reflected that she earned nearly that much monthly.
The loan application of Juan Pablo Yanez—prepared by Humaira—reflected that he was president of a construction company and earned more than $11,000 per month.
Yanez was actually a laborer earning hourly wages.
Jagtar Dhanoa’s SunTrust loan application—prepared by Humaira—falsely indicated he was a senior analyst at Ikon Solutions.
He was actually working as a Pizza Hut cook and as a cab driver.
Barbara Daloia, a vice-president of SunTrust’s national underwriting team in North Carolina, explained the potential consequences to SunTrust of loan applicants failing to submit accurate information on mortgage loan applications.
As Daloia explained, SunTrust sometimes contracted with investment banks to sell its originated mortgage loans by way of secondary sales agreements. Pursuant thereto, SunTrust agreed to repurchase any such loans that failed to comply with its underwriting guidelines.
Thus, if such a secondary market purchaser discovered that a SunTrust loan it had purchased had been procured by fraud, SunTrust was obliged to repurchase the fraudulent loan.
Furthermore, according to Daloia, if SunTrust sold a fraudulently procured loan and was not compelled to repurchase it, SunTrust was nevertheless exposed to the risk of default.
Daloia had reviewed all the loan files used by the prosecution at trial. She explained that, on twelve of the properties, SunTrust had made two loans simultaneously—one for eighty percent of the property’s value and the other for the remaining twenty percent. SunTrust would thus retain two separate liens on each of those properties, with a first lien being retained on the larger eighty percent loan. The second lien would be retained on the smaller loan.
Daloia explained that SunTrust would sell only the larger loan—with the first lien—and would always hold for itself the smaller loan and the second lien. Thus, in the event of a sale, SunTrust would nevertheless be exposed to the risk of the smaller loan’s default.
In sum, Daloia emphasized the significance to SunTrust of the information required on its loan applications. As she related to the jury, anything on the loan application is of importance, the loan amount, the borrower’s name, their current address, the property type, whether it was a purchase or a refinance, if they owned any other properties. All of that is important on the application.
See J.A. 657.
Daloia stressed that supporting documents were similarly important to SunTrust’s loan process—such as those required for full document loans and stated income, stated asset loans—because those documents authenticate the information on the loan application.
After the prosecution rested, the defense called three witnesses, seeking to show that the misrepresentations made on the SunTrust mortgage loan applications were not important to the bank’s loan process. The defendants also sought to prove that the fraud scheme did not present any substantial risk of injury to SunTrust. None of the defendants testified.
Terri Dougherty, a former SunTrust underwriter, described what the defense called SunTrust’s “originate-to-sell” mortgage business.
Such a business model focused on new mortgage loans and de-emphasized the collection of interest.
According to Dougherty, SunTrust aggressively sought to originate mortgage loans in order to sell them on the secondary mortgage market. SunTrust attempted to sell loans immediately after origination, before the SunTrust borrowers could default and undermine the loans’ marketability.
Dougherty believed this business model encouraged SunTrust employees to prioritize economic metrics that attracted secondary loan purchasers—such as good credit scores of borrowers—and to disregard other information on the SunTrust loan applications.
For example, Dougherty asserted that SunTrust discouraged its mortgage loan underwriters from raising red flags when loan applications contained questionable information concerning income, employment, and assets, so long as the borrowers’ credit scores were adequate.
Dougherty also maintained that SunTrust supervisors would sometimes override her decisions to defer action on loan applications and to request additional supporting documents.
The defense relied on an expert witness concerning the secondary mortgage market in an effort to bolster Dougherty’s testimony.
Robert MacLaverty opined that SunTrust’s mid-Atlantic region had engaged in reckless lending practices and approved more than ninety-eight percent of its residential mortgage loan applications during the period of the fraud scheme.
In contrast, SunTrust’s competitors approved about eighty percent of similar loan applications during that period.
MacLaverty believed that secondary market purchasers deemed credit scores of borrowers to be one of the most important economic metrics in their evaluations of loan acquisitions.
MacLaverty further opined that SunTrust’s pattern of expeditiously selling originated loans to secondary market purchasers minimized SunTrust’s exposure to the risk of borrowers defaulting on SunTrust loans.
After the parties rested and made their closing arguments, the district court instructed the jury. Several of the instructions were contested.
The jury was required to find that—as part of the scheme to defraud—the defendants had made and caused to be made materially false statements and representations to SunTrust. The defendants sought to have the court define material false statements in a subjective manner.
They argued unsuccessfully for an instruction that a materially false statement was one that “would have a natural tendency to influence or be capable of influencing a decision of the particular decisionmaker to whom it is addressed—here, the decision of SunTrust to approve and fund mortgages for the properties named in the indictment.”
See J.A. 191.
The prosecution’s proposed materiality instruction, on the other hand, was drawn in an objective context, explaining that a “statement or representation is ‘material’ if it has a natural tendency to influence or is capable of influencing a decision or action.” See id. at 153.
The court rejected the defendants’ materiality instruction and defined materiality in a manner similar to that proposed by the prosecution.
On February 3, 2016—after three days of deliberations—the jury returned its verdict. The jury convicted each of the defendants on Count 1, which charged conspiracy to commit wire fraud.
As for the wire fraud offenses, the jury convicted Raza on three of six charges. That is, Raza was convicted on Counts 3, 4, and 6.
Humaira was convicted on Count 3.
Both Farukh and Haider were convicted of a single wire fraud offense—Farukh on Count 2 and Haider on Count 7.
The court sentenced Raza to twenty-four months in prison, Humaira Iqbal to fifteen months, and both Farukh Iqbal and Haider to a year and a day.
The defendants thereafter noted these appeals. We possess jurisdiction pursuant to 28 U.S.C. § 1291. The defendants have been granted bond pending appeal.
In their appeals, the defendants jointly present three issues concerning the jury instructions. They first maintain that the court committed reversible error on two aspects of the wire fraud offense, that is, materiality and intent to defraud.
The defendants also contend that the court abused its discretion by failing to instruct the jury prior to deliberations that it had to individually assess the guilt of each defendant as to each count. No other issues concerning the conduct of the trial or the propriety of the sentences are presented.
We review de novo an appellate contention “that a jury instruction failed to correctly state the applicable law.”
See United States v. Jefferson , 674 F.3d 332, 351 (4th Cir. 2012).
In assessing the propriety of instructions, however, “we do not view a single instruction in isolation.”
See United States v. Rahman , 83 F.3d 89, 92 (4th Cir. 1996).
We are obligated to “consider whether taken as a whole and in the context of the entire charge, the instructions accurately and fairly state the controlling law.” Id. If an instruction on an offense element is improper, and if an objection was preserved, we review for harmless error.
See Neder v. United States , 527 U.S. 1, 9, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999).
A trial court’s decision not to give a proposed instruction is reviewed for abuse of discretion and is reversible error only if it
“(1) was correct, (2) was not substantially covered by the charge that the district court actually gave to the jury, and (3) involved some point so important that the failure to give the instruction seriously impaired the defendant’s defense.”
See United States v. Bartko , 728 F.3d 327, 343 (4th Cir. 2013).
We have emphasized that a party challenging “instructions faces a heavy burden, for we accord the district court much discretion to fashion the charge.”
See Noel v. Artson , 641 F.3d 580, 586 (4th Cir. 2011).
Prior to its deliberations in this trial, the district court instructed the jury that, in order to convict a defendant on a wire fraud offense, it was obliged to find five elements beyond a reasonable doubt. That is, the prosecution had to establish the following:
(1) the scheme to defraud;
(2) the use of a wire communication in furtherance of the scheme;
(3) a material statement or omission in furtherance of the scheme;
(4) an intent to defraud;
(5) that the fraud scheme affected a financial institution.
By way of background, the federal courts have historically identified two statutory elements of a wire fraud offense. That is, such an offense can be proved if a defendant (1) devised or intended to devise a scheme to defraud, and (2) used a wire communication in furtherance of the scheme. See 18 U.S.C. § 1343.
In 1999, the Supreme Court identified a common law element of materiality as applicable to mail, wire, and bank fraud offenses.
See Neder v. United States , 527 U.S. 1, 25, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999).
Additionally, an intent to defraud has consistently been treated as an element of such fraud offenses.
See United States v. Wynn , 684 F.3d 473, 478 (4th Cir. 2012) (explaining that scheme to defraud necessarily requires proof of intent to defraud).
Finally, a fifth element of the substantive wire fraud offenses in this case—that the fraud scheme affected a financial institution—is required under § 1343 of Title 18 and must be proved if a financial institution is the alleged victim. Pursuant to § 1343, proof that the wire fraud scheme affected a financial institution justifies enhanced punishments for the person convicted. Notably, the defendants proposed an instruction that the wire fraud offenses required proof of the five elements specified above, and the court tracked that instruction in its jury charge.
We review de novo the defendants’ first contention of error, which is that the instructions failed to properly advise the jury that it had to find—on the third element of the wire fraud offense—that the defendants’ misrepresentations and false statements were subjectively material to the fraud’s victim, i.e., SunTrust.
The defendants thus maintain that the court erroneously gave the jury an objective—or “reasonable lender”—standard of materiality. The court instructed the jury on the materiality element in the following terms:
• The government was obliged to prove that “the scheme or artifice to defraud, or the pretenses, representations, or promises, were material; that is, they would reasonably influence a person to part with money or property.” See J.A. 1313.
• A particular fact is material if it “may be of importance to a reasonable person in making a decision about a particular matter or transaction.” Id. at 1315.
• “A statement or representation is material if it has a natural tendency to influence or is capable of influencing a decision or action.” Id. at 1318.
Based on those instructions, the defendants argue that the jury could have convicted them on the basis of false statements that an objective, reasonable lender might have considered material, but that SunTrust itself did not deem to be material in the circumstances.
The defendants support their contention of error with several court decisions that assess materiality in the fraud context. For example, in Neder , the Supreme Court concluded—in the context of a tax fraud prosecution—that to be material a false statement must be “capable of influencing[ ] the decision of the decisionmaking body to which it is addressed.” See 527 U.S. at 16, 119 S.Ct. 1827.
In a similar vein, we have determined, in the context of fraud against a county government, that “[t]he test for materiality of a false statement is whether the statement has a natural tendency to influence, or is capable of influencing its target.” See Wynn , 684 F.3d at 479.
The defendants contend on appeal—and argued at trial—that those decisions required that the jury be instructed on a subjective standard of materiality.
Although the federal courts have generally applied an objective test to the materiality element in fraud schemes targeting private lenders, the defendants argue that a recent Supreme Court decision—post-dating this trial—clarified the applicable standard in their favor.
More specifically, they contend that the Court, in Universal Health Services v. United States ex rel. Escobar , confirmed that the applicable test is subjective for materiality in a fraud prosecution such as theirs.
See ––– U.S. ––––, 136 S.Ct. 1989, 195 L.Ed.2d 348 (2016).
As the Court stated therein, “[u]nder any understanding of the concept, materiality looks to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.”
See id. at 2002 (quoting 26 Richard A. Lord, Williston on Contracts § 69:12, at 549 (4th ed. 2003) ).
Finally, the defendants contend that the trial court’s instructional error on the materiality element was prejudicial and that they were thereby denied a fair trial. They argue that materiality was the “core issue at trial,” and that the prosecution failed to prove that the misrepresentations made in the SunTrust loan applications had actually influenced SunTrust.
They point in particular to the evidence of witnesses Dougherty and MacLaverty, who opined that SunTrust had engaged in reckless lending practices and disregarded false information in loan applications.
As a consequence, according to the defendants, they would not have been convicted of wire fraud if the jury had been properly instructed on the materiality element.
The government counters that the trial court did not err in its materiality instructions and that the jury was advised of the applicable legal principles. The prosecutors contend that the Supreme Court and the courts of appeals—consistent with the instructions here—have endorsed an objective test of materiality for lender fraud such as that underlying this prosecution.
In Neder , for example, the Supreme Court endorsed an objective, reasonable person standard for materiality in the context of wire fraud against private lending institutions. See 527 U.S. at 22 n.5, 119 S.Ct. 1827.
Furthermore, we recently decided, in United States v. Wolf , that an objective test for materiality applies in the context of a bank fraud prosecution. See 860 F.3d 175, 193 (4th Cir. 2017).
The government contends that we are bound by Wolf , which constitutes circuit precedent and which was was decided well after the Universal Health decision. The prosecutors therefore see Wolf as binding on the materiality issue.
The government also argues that Universal Health did not establish a subjective test for the materiality element in a wire fraud prosecution where a private lender is the victim. Although the government depends primarily on Wolf , it also relies on Neder and a recent Ninth Circuit decision that is consistent with Wolf .
See United States v. Lindsey , 850 F.3d 1009 (9th Cir. 2017).
The Lindsey decision—which also post-dates Universal Health —ruled that an objective test for materiality applies to a wire fraud scheme targeting a private lender. Id. at 1014-17. Finally, the government contends that, if the district court somehow erred on the materiality element, the error was harmless.
We begin our discussion of the materiality element with the Supreme Court’s 1999 decision in Neder . There, the defendant had been convicted of offenses that included tax, mail, wire, and bank fraud. See Neder , 527 U.S. at 1, 119 S.Ct. 1827. The Court therefore had to address materiality-related questions concerning several types of fraud, but separated its analysis into two primary parts. Id. at 7-26, 119 S.Ct. 1827. First, it discussed the tax fraud scheme in that prosecution, which had targeted the federal government. Id. at 7-20, 119 S.Ct. 1827. Second, the Court addressed the mail, wire, and bank fraud schemes, which had victimized private lenders. Id . at 20-26, 119 S.Ct. 1827. The Court then identified different standards of materiality for those two categories of fraud. Id. at 16, 22 n.5, 119 S.Ct. 1827. Pursuant to Neder , the test for materiality in a fraud scheme targeting the federal government verges toward the subjective. Id. at 16, 119 S.Ct. 1827. A fraud scheme targeting a private lender, on the other hand, is measured by an objective standard. Id. at 22 n.5, 119 S.Ct. 1827.
The Neder Court first assessed whether it could sustain the tax fraud convictions where the prosecution had proven that the defendant falsely stated his income on his federal returns. See 527 U.S. at 7-20, 119 S.Ct. 1827. That aspect of the case concerned, inter alia, whether the trial court’s error in failing to submit the materiality issue to the jury was harmless. Id. at 15-20, 119 S.Ct. 1827. In conducting that analysis, the Court made its formulation of materiality when the federal government is a target, explaining that “a false statement is material if it has a natural tendency to influence, or [is] capable of influencing, the decision of the decisionmaking body to which it is addressed.” Id. at 16, 119 S.Ct. 1827 (internal quotation marks omitted).
The Neder materiality standard—emphasizing that the false statement must be capable of influencing the decisionmaking body to which it is addressed—is derived from earlier decisions assessing materiality issues in fraud schemes that targeted the federal government. The most notable was Kungys v. United States , where the Court addressed a materiality element in a denaturalization proceeding. See 485 U.S. 759, 769-70, 108 S.Ct. 1537, 99 L.Ed.2d 839 (1988). The applicable statute provided that the citizenship of a naturalized citizen could be revoked if naturalization had been procured by, inter alia, the “concealment of a material fact.” See 8 U.S.C. § 1451(a). The Kungys Court recognized that the federal courts had reached a “uniform understanding of the ‘materiality’ concept” in the context of “federal statutes criminalizing false statements to public officials .” See 485 U.S. at 770, 108 S.Ct. 1537 (emphasis added). The uniform understanding was that “a concealment or misrepresentation is material if it has a natural tendency to influence, or was capable of influencing, the decision of the decisionmaking body to which it was addressed.” Id . Kungys ruled that “the test of whether [the defendant’s] concealments or misrepresentations were material is whether they had a natural tendency to influence the decisions of the Immigration and Naturalization Service .” Id. at 772, 108 S.Ct. 1537 (emphasis added).
The applications of Kungys in subsequent decisions plainly show that a more focused materiality test applies to fraud schemes that target the federal government and public officials. Cf. Shaw v. United States , –––U.S. ––––, 137 S.Ct. 462, 468, 196 L.Ed.2d 373 (2016) (emphasizing that “crimes of fraud targeting the Government” constitute “an area of the law with its own special rules and protections”). More precisely, when the victim is the government, the prosecution must prove materiality by reference to the particular government agency or public officials that were targeted. See, e.g. , United States v. Camick , 796 F.3d 1206, 1217-19 (10th Cir. 2015) (reversing fraud convictions because false statements were immaterial to public decisionmaking bodies); United States v. Litvak , 808 F.3d 160, 174 (2d Cir. 2015) (vacating false statement conviction because prosecution failed to prove that misstatement was capable of influencing Treasury decision). Thus, even if the false representation might influence a reasonable person, a fraud conviction was not warranted unless the governmental decisionmaking body considered the false representation to be material. See United States v. Ismail , 97 F.3d 50 (4th Cir. 1996).
In our Ismail decision, for example, we were called upon to assess the validity of a conviction under 18 U.S.C. § 1001, involving false statements made to the FDIC as part of a scheme to defraud the government. See 97 F.3d at 52-55. The defendant argued that his statements—use of a false name and a fictitious social security number—were immaterial to the FDIC. Id. at 60-61. In vacating his conviction, we acknowledged that “[p]roviding a false name or social security number certainly could, in a given situation, be material.” Id. at 60. We explained, however, that the prosecution had failed to present any evidence bearing on the materiality of the false statements made to the FDIC. Id. As a result, Ismail was entitled to a judgment of acquittal. Id. at 62.
Although the materiality test identified by the Supreme Court in Kungys is arguably subjective, it does not apply to a fraud scheme that targets a private lender such as SunTrust. In assessing the second type of fraud discussed in Neder —fraud schemes that target private banks and lenders—the crucial issue was whether the prosecution must prove materiality as an element of the offenses of mail, wire, or bank fraud. See 527 U.S. at 20, 119 S.Ct. 1827.
In determining that Congress intended to incorporate common law materiality principles into those offenses, the Neder Court relied on the objective materiality test spelled out in the Second Restatement of Torts. Id. at 22, 119 S.Ct. 1827 n.5.
As explained therein, a fact is material if a “reasonable man would attach importance to its existence or nonexistence in determining his choice of action in the transaction in question.” Id. (quoting Restatement (Second) of Torts § 538 (1977) ).
Notably, the Neder Court declined to incorporate the common law elements of reliance and damages into the mail, wire, and bank fraud offenses. See 527 U.S. at 24-25, 119 S.Ct. 1827.
Requiring proof of those elements would have required proof of more than objective materiality, that is, proof that the misrepresentations actually influenced and harmed the target.
Consistent with Neder , our Wolf decision adhered to an objective standard of materiality for a criminal fraud offense that targeted a private lender. See Wolf , 860 F.3d at 193-96.
Wolf was convicted, inter alia, of bank fraud in violation of 18 U.S.C. § 1344. Id. at 179. He challenged evidence sufficiency, arguing that the prosecution had failed to prove that his false statements and representations were material to the lenders. Id. at 194.
Judge Traxler’s carefully crafted opinion rejected that proposition, explaining that the applicable “test for whether a false statement to a bank is material is an objective one; it does not change from bank to bank.” Id. at 193.
For that formulation, Wolf relied on a Tenth Circuit case, where the court had explained that “materiality in the bank fraud context [is] an objective quality, unconcerned with the subjective effect that a defendant’s representations actually had upon the bank’s decision.”
See United States v. Irvin , 682 F.3d 1254, 1267 (10th Cir. 2012).
The Wolf decision thus applied an objective test to the materiality element, asking whether “Wolf’s statements or representations would have been important to a reasonable lender.” See 860 F.3d at 195. In ruling that the prosecution had presented sufficient evidence to prove materiality, Wolf explained that “the kinds of misrepresentations [the defendant] made during all of these transactions would have mattered greatly to any mortgage lender.” Id. at 196.
More than fifteen years prior to Wolf —and post- Neder —our Court explained that frauds perpetrated on private lending institutions are judged according to an objective, “reasonable financial institution” standard.
See United States v. Colton , 231 F.3d 890, 903 n.5 (4th Cir. 2000).
In Colton , a jury had convicted the defendant on several counts of bank fraud after finding that he fraudulently obtained loans used to finance commercial real estate projects. Id. at 894. The prosecution presented evidence that Colton failed to disclose material information to the victimized financial institutions prior to the fraudulent transactions. Id.
Colton challenged the prosecution’s theory, maintaining, inter alia, that he had no independent duty to disclose the material information to the victimized lenders. Id. He also asserted that one of the lenders failed to perform an adequate due diligence investigation prior to entering into a financing agreement. Id. at 903.
We rejected Colton’s argument and affirmed his convictions, explaining that “the susceptibility of the victim of the fraud, in this case a financial institution, is irrelevant to the analysis.” See Colton , 231 F.3d at 903 ;
see also United States v. Brien , 617 F.2d 299, 311 (1st Cir. 1980)
(“If a scheme to defraud has been or is intended to be devised, it makes no difference whether the persons the schemers intended to defraud are gullible or skeptical, dull or bright. These are criminal statutes, not tort concepts.”).
As our Colton decision explained, Neder had declined to incorporate common law elements of fraud that would require proof of the impact of a fraud scheme on its intended victims, namely “reliance” and “damages.”
See Colton , 231 F.3d at 903 (citing Neder , 527 U.S. at 24-25, 119 S.Ct. 1827 ).
Instead, the relevant elements of wire fraud are an intent to defraud and materiality, which Colton defined as “what a reasonable financial institution would want to know in negotiating a particular transaction.” Id. at 903 n.5 (emphasis added).
Finally, in the Lindsey prosecution that was strikingly similar to this one, the Ninth Circuit reached the same conclusion we reached in Wolf and Colton . In Lindsey , the court of appeals assessed whether to affirm a bank loan officer’s convictions of wire fraud after the jury found that the officer had fraudulently procured loans from private lenders. See 850 F.3d at 1012-19.
The Lindsey prosecutors proved—as here—that the defendant used false income figures on mortgage loan applications. Id. at 1010. Lindsey argued that those false numbers were immaterial to the victim lenders, because those lenders were routinely engaged in negligent lending practices and regularly disregarded materially false information on loan applications. Id. at 1012-14.
The Ninth Circuit rejected Lindsey’s assertion that the behavior of the victimized lenders could be a defense for the defendants. See Lindsey , 850 F.3d at 1015.
As the court explained, “[a] false statement is material if it objectively had a tendency to influence, or was capable of influencing, a lender to approve a loan.”
Id. (emphasis in original).
This result was necessary because the materiality standard “is not concerned with a statement’s subjective effect on the victim, but only the intrinsic capabilities of the false statement itself.” Id. (internal quotation marks omitted).
The Lindsey court also acknowledged the broader context of lender misconduct in which that prosecution had occurred, and the court understood “the desire to see lenders shoulder responsibility for their role in the mortgage crisis of the last decade.” See 850 F.3d at 1014.
The opinion recognized, however, that adopting a subjective test of materiality would essentially grant blanket absolution to low-level fraudsters because of the widespread sins of the mortgage industry. Id. The court of appeals rejected that outcome, emphasizing that “[t]wo wrongs do not make a right, and lenders’ negligence, or even intentional disregard, cannot excuse another’s criminal fraud.” Id.
Notwithstanding the controlling import of our Wolf decision—and asking us to discount Lindsey —the defendants argue that Wolf was erroneously decided because it conflicts with Universal Health. There, the Supreme Court was tasked with assessing materiality in the context of a qui tam proceeding against a healthcare facility. See Universal Health , 136 S.Ct. at 2001-03.
The plaintiffs argued that, under the False Claims Act (the “FCA”), the healthcare facility had defrauded the government by falsely claiming that it was in compliance with state licensing requirements when it billed Medicaid. Id. at 1993.
The FCA penalizes anyone who “knowingly presents … a false or fraudulent claim for payment or approval” to the federal government. See 31 U.S.C. § 3729(a)(1)(A). Furthermore, a qui tam plaintiff may state an actionable FCA claim if she alleges that “a misrepresentation about compliance with a statutory, regulatory, or contractual requirement” is “material to the Government’s payment decision.” See Universal Health , 136 S.Ct. at 2002.
It bears noting that Wolf was decided by our Court a full year after the Universal Health decision was handed down by the Supreme Court. For whatever reason, the defendants’ contention in these appeals—that Universal Health altered our materiality analysis in the context of fraud schemes targeting lenders—was not presented in the Wolf appeal.
In evaluating materiality in the FCA context, Universal Health explained that the federal statute itself defines materiality as having “a natural tendency to influence, or be[ing] capable of influencing, the payment or receipt of money or property.” See 31 U.S.C. § 3729(b)(4).
Universal Health acknowledged some similarities between the FCA’s statutory definition of materiality and the definitions adopted by the Court in Neder and Kungys . See Universal Health , 136 S.Ct. at 2002. Explaining that the materiality requirement in Kungys “descends from common-law antecedents,” the Court resolved that it “need not decide whether [the FCA’s] materiality requirement is governed by [statute] or derived directly from the common law.” Id.
Instead, the Court explained, “Under any understanding of the concept, materiality ‘looks to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.’ ” Id. (internal quotation marks omitted).
The defendants’ contention of error on the materiality element apparently comes to this: They want us to utilize Universal Health to rule that the Supreme Court has clarified its earlier cases to say that materiality—in any criminal fraud context—requires proof that the false statements and misrepresentations were subjectively material.
For multiple reasons, we reject that invitation.
First, to the extent Universal Health altered the concept of materiality in fraud proceedings, it is not likely that its impact extends beyond the context of qui tam actions. And a qui tam action is a civil proceeding that protects the federal government.
The Court implicitly acknowledged that proposition in Universal Health , explaining that “[t]he [FCA’s] materiality standard is demanding. The [FCA] is not an all-purpose antifraud statute.” See 136 S.Ct. at 2003 (internal quotation marks omitted).
We reached a similar conclusion recently in United States v. Palin.
In the Palin fraud prosecution, several defendants had been convicted of health care fraud and conspiracy to commit health care fraud, in violation of 18 U.S.C. §§ 1347 and 1349. See 874 F.3d 418, 420 (4th Cir. 2017). They appealed, arguing that ” Universal Health established a new materiality standard that applies to all criminal fraud statutes, including § 1347.” Id. at 422.
Judge Motz’s opinion expressed skepticism with that assertion, recognizing that the defendants sought to “stretch Universal Health too far.” Id. at 423. Although Palin only had to decide whether Universal Health impacted the materiality element in the context of health care fraud, it specified that “we do not believe the Supreme Court intended to broadly ‘overrule’ materiality standards that had previously applied in the context of criminal fraud.” Id.
We readily agree.
Second, if Universal Health controlled our decision on materiality in these appeals, it is unclear what the impact might be.
After explaining for the unanimous Court in Universal Health that “[u]nder any understanding of the concept, materiality looks to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation,”
Justice Thomas emphasized that “[i]n tort law, for instance, a matter is material … if a reasonable man would attach importance to [it] in determining his choice of action in the transaction in question.”
See 136 S.Ct. at 2002-03 (internal quotation marks omitted).
The Court’s juxtaposition of those two standards suggests that they are not in tension. Put another way, an objective test of materiality does in fact “look to the effect on the likely or actual behavior of the recipient.” See id. at 2002. In those circumstances, however, the recipient is a “reasonable man … determining his choice of action in the transaction in question.” Id. at 2002-03.
Thus, in this prosecution, the recipient whose behavior the jury should assess in its materiality inquiry is a reasonable lender in SunTrust’s position—not necessarily SunTrust itself.
Third, and perhaps most important, Universal Health involved a civil fraud scheme that had targeted the federal government. In such a circumstance, the applicable materiality test verges toward a subjective standard. In Universal Health , for example, the Court suggested that evidence of a government entity’s past disregard of particular types of false statements might undermine the materiality element. See 136 S.Ct. at 2003
(“[I]f the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.”).
The Lindsey court recently explained why that principle does not apply when the fraud victim is a private lender:
A single lender represents only some small part of the market for issuing mortgages . The Federal Government, by contrast, represents the entire market for issuing federal government contracts.
The weight the Government gives to a particular statutory, regulatory, or contractual requirement is analogous not to the weight an individual lender gives to a statement on its loan application, but rather the weight the entire mortgage industry gives to that type of statement. See 850 F.3d at 1017.
The Ninth Circuit appears to have barred the evidentiary use of a lender’s past lending practices on the materiality issue. In explaining that step, it related that “lending standards applied by an individual lender are poor evidence of a false statement’s intrinsic ability to affect decision making.” Id. at 1018.
Although we need not go so far, we understand the rationale for the Lindsey court’s wholesale rejection of such evidence.
In view of the foregoing, the district court did not err in failing to require the misrepresentations in the SunTrust loan applications to be material to SunTrust as the fraud victim.
In fact, the correct test for materiality—as the district court recognized—is an objective one, which measures a misrepresentation’s capacity to influence an objective “reasonable lender,” not a renegade lender with a demonstrated habit of disregarding materially false information.
In light thereof, the challenged instructions on the materiality element were not erroneous.
If the trial court somehow misstated the applicable principles concerning materiality, that error would be entirely harmless.
The evidence established that certain types of loans required supporting documents verifying the various loan applicants’ income, employment, and assets. The defendants went to great lengths to obtain those documents, seeking out and purchasing fraudulent W-2s and pay stubs from a reprobate tax preparer.
The defendants then repeatedly mischaracterized the loan applicants’ qualifications.
By way of example, Reynaldo Valdez walked into SunTrust’s Annandale branch a custodian in a medical office, but left as a licensed medical professional.
Jagtar Dhanoa understood that he cooked pizzas for Pizza Hut. He was identified on SunTrust loan documents as a “senior analyst” at Ikon Solutions.
The defendants ask us to believe that those ludicrous misrepresentations are meaningless, i.e., that SunTrust would have funded Valdez’s and Dhanoa’s loans in any event.
If that were the case, why make such misrepresentations? Why surreptitiously purchase and submit fraudulent documents?
Barbara Daloia, who stressed the importance of accurate information being reflected on all loan applications, confirmed the obvious. SunTrust would not have funded the loans had the defendants painted an accurate picture of the applicants’ qualifications.
By way of their second contention of error, the defendants maintain that they are entitled to appellate relief because the district court erroneously instructed the jury on the element of intent to defraud. The court told the jury, inter alia, that it had to find that the defendants acted “knowingly and with the intention … to deceive or to cheat.”
See J.A. 1317.
The defendants contend that the court’s use of the disjunctive “or” in that instruction “erroneously allowed conviction for wire fraud based just on intent to deceive without an intent to deprive SunTrust of anything of value.”
See Br. of Appellants 19.
The defendants argue that this error was also prejudicial, in that a properly instructed jury would have found them not guilty, because there was little or no risk to SunTrust if the loans went into default.
The government counters that the intent to defraud instructions—viewed in context—adequately advised the jury that it had to find that the defendants intended to deprive SunTrust of something of value. They point to aspects of the court’s charge that indicated the scheme had to entail losses to SunTrust.
For example, the jury was advised that it had to find that the defendants’ false statements “would reasonably influence a person to part with money or property.”
See J.A. 1313.
The prosecution was required to prove that the fraud scheme was a “deliberate plan of action or course of conduct by which someone intends to deceive or to cheat another or by which someone intends to deprive another of something of value.” Id. at 1314.
And the jury had to find that the defendants acted with the “specific intent” to defraud, i.e., “with the bad purpose either to disobey or disregard the law.” Id. at 1318.
If the trial court somehow erred in its intent instructions, however, the government again asserts that the error was harmless.
As the prosecution emphasizes, the “entire case was about the defendants submitting false loan applications and supporting documents on behalf of clients to obtain mortgage loans. There was no evidence of an intent to deceive [SunTrust] for any other purpose.” See Br. of Appellee 45-46.
Because the defendants maintain that the applicable law was erroneously set forth in the intent instructions, our review is de novo. We addressed a similar contention in Wynn, the case on which the defendants primarily rely.
The trial court in Wynn had instructed that the intent element required a “specific intent to deceive or cheat someone, usually for personal financial gain or to cause financial loss to someone.”See 684 F.3d at 477.
The defendant took umbrage on appeal with the word “usually,” arguing that its use allowed the jury to convict based solely on an intent to deceive the victim. Id. He maintained that the intent instruction was fatally erroneous because the prosecutors had to show more than “mere deception.” Id. The government had to prove, Wynn argued on appeal, both intent to deceive and intent to harm. Id.
We agreed that the government had to prove more than mere deception.
As Judge Niemeyer’s opinion explained, “[t]o be convicted of … wire fraud, a defendant must specifically intend to lie or cheat or misrepresent with the design of depriving the victim of something of value.”
See Wynn , 684 F.3d at 478. The Wynn decision carefully evaluated the pertinent instructions, which had explicitly advised that the jury had to find the defendant “acted with the intent to defraud.” Id.
The trial court had also instructed that
a “scheme to defraud includes any plans or course of action intended to deceive or cheat someone out of money or property,”
and that intent to defraud means
“the specific intent to deceive or cheat someone, usually for personal financial gain or to cause financial loss to someone else.” Id.
On those instructions, viewed in the proper light, our Wynn decision explained that the court’s charge was correct, i.e., it did not permit the jury to find intent proved solely by an intent to deceive. See 684 F.3d at 478-79. The term “usually” explained motivation. Id. at 478.
It “did not withdraw the instruction to the jury that the scheme to defraud must ‘include a plan or course of action intended to deceive or cheat someone out of money or property.’ ” Id. That instruction, we explained, obviously conveyed “an intent to harm in some sense.” Id.
As in Wynn, the intent instructions used by the trial court—viewed as a whole and in context—plainly conveyed to the jury that it had to find more than a mere intent to deceive SunTrust
. See United States v. Rahman , 83 F.3d 89, 92 (4th Cir. 1996) (explaining that specific instructions should not be viewed in isolation). To commit wire fraud, the defendants had to engage in a scheme to defraud, which is “a deliberate plan … by which someone intends to deceive or to cheat another or by which someone intends to deprive another of something of value.” See J.A. 1314. Notably, the instructions on intent to defraud substantially tracked those that we had approved four years earlier in Wynn . See 684 F.3d at 478. And, in any event, “a trial court has considerable discretion in choosing the specific wording of its instructions.”
See United States v. Hager , 721 F.3d 167, 185 (4th Cir. 2013). In these circumstances, we are content to reject the contention that the court erred with respect to the intent to defraud instructions.
We also agree with the prosecution that, if the trial court’s intent instructions could somehow be deemed erroneous, the error was harmless.
On this evidence, the defendants had repeatedly engaged in underhanded tactics to hoodwink SunTrust underwriters into approving falsified loan applications. The defendants were thereafter rewarded for their deception by the commissions that SunTrust paid.
The defendants ask us to ignore their efforts to deceive SunTrust and to instead focus on SunTrust’s business model. If we were inclined to indulge the defendants’ misdirection—and we are not—the witness Daloia refuted the allegation that SunTrust was insulated from harm if the fraudulent loans went into default. Because of the guilty verdicts, that explanation was necessarily accepted by the jury.
Finally, the defendants contend that the trial court abused its discretion by failing to instruct the jury prior to the deliberations that it was obliged to “give separate and individual consideration to each charge against each defendant.”
See J.A. 210.
As proposed by the defendants, that instruction would have explained that “[t]he fact that you find one defendant guilty or not guilty of one of the offenses charged should not control your verdict as to any other offense charged against that defendant or against any other defendant.” Id. The defendants argue that, in failing to so instruct, the court permitted the jury to find guilt by association.
In response, the government does not say that the proposed instruction was erroneous.
It maintains that the substance of the proposal was covered by the trial court’s charge, both prior to and during the deliberations. Notably, the court instructed the jury in the charge—in words that refute the defendants’ contention of error—that the “verdict must be unanimous on each count as to each defendant.”
See J.A. 1330.
The court further explained that the jury would receive “a verdict form for each defendant,” and pursuant thereto had to reach and return a “not guilty or guilty” verdict on each charge as to each defendant. Id.
During the deliberations, the jury sent the court a note that said: “According to the judge’s instructions, if we find the Defendants guilty of [conspiracy to commit wire fraud], is guilt assumed for all other counts?”
See J.A. 1364.
The court responded—with the prior approval of the lawyers—as follows:
As to your question, the answer is no. That if you find the Defendants guilty [of conspiracy to commit wire fraud], guilt is not assumed for all counts. You have to look at each and every count for each and every defendant in accordance with the instructions that I gave you and reach an individual verdict on each and every one of the counts.
Id. at 1351.
The defendants argue that the supplemental instruction was not sufficient because it was given after the deliberations had begun and the jury had already agreed on its verdicts.
The government rejects that assertion, emphasizing that the jury had certainly not agreed on verdicts when the note was sent—as evidenced by the fact that the jury had thereafter sought even more guidance from the court. See id. at 1365.
We agree with the government that the instructions adequately covered the defendants’ proposed instruction concerning the jury’s duty to give individual consideration to each offense alleged.
See United States v. Bartko , 728 F.3d 327, 343 (4th Cir. 2013)(explaining there is no abuse of discretion where jury charge “substantially covered” rejected instruction).
More specifically, the jury was told that the verdict had to be “unanimous on each count as to each defendant.”
See J.A. 1330. That directive was supported by the verdict forms themselves, along with the supplemental instruction given during the deliberations.
Notably, a separate verdict form was provided to the jury for each defendant, with the separate counts against each defendant listed thereon, thus requiring a separate verdict on each count. And as the completed verdict forms clearly demonstrate, the jurors acted precisely as the trial court directed. Id. at 1366-69.
For example, Raza was acquitted on three of the seven counts reflected on his verdict form, and his wife Humaira Iqbal was acquitted on one of the three charges lodged against her. The jurors were unquestionably careful and conscientious in the performance of their exceedingly important duties.
Finally, the jurors confirmed the accuracy of each of the verdicts—unanimously—in open court. Id. at 1358.
In these circumstances, we are satisfied that the trial court did not err in failing to give the defendants’ proposed instruction.
Pursuant to the foregoing, we are obliged to sustain the convictions of each defendant and affirm the judgments of the district court.
New billboard accuses mortgage company of fraud
Mar. 7, 2018 | Republished Aug. 2, 2021
WILMINGTON, NC – A Wilmington resident and businessman has taken out a billboard on Eastwood Road accusing SunTrust Mortgage of dishonest business practices.
The billboard has a picture of a home on it, and says “bogus loans” and “#SunTrustScandal,” directing people to a website which details allegations against the mortgage company.
Scott Griffin had three loans with SunTrust Mortgage when the real estate market crashed in 2007. At that point, SunTrust non-renewed the loan on one of his properties, and attempted to foreclose. Griffin began digging into the particulars of his mortgage, and says he later realized SunTrust had never held clear title or the note to his loan. It appears SunTrust sold it to a third party.
According to Griffin’s understanding of the law, that meant SunTrust has no legal standing to foreclose on the property. He says it also has no legal standing to collect payment on the property, so he stopped paying. SunTrust has attempted to take Griffin to court several times since then to take back the property. Those attempts have been unsuccessful, and Griffin still owns it.
“Mr. Griffin’s current relationship with SunTrust is involved in ongoing foreclosure litigation currently before a judge in New Hanover County court,”
SunTrust Spokesman Mike McCoy told WECT in a written statement.
“We believe that is the appropriate forum for concerns, and will refrain from publicly discussing client matter or ongoing litigation.”
During his research, Griffin also discovered that SunTrust had its certificate of authorization to do business in NC suspended on July 21, 2011, by the Secretary of State.
During the time that certificate was suspended and reinstated, SunTrust Mortgage authorized dozens of new mortgages in New Hanover County alone, which appears to be a direct violation of the Secretary of State’s orders.
Further, Griffin alleges that SunTrust “slip sheeted” paperwork on file with the New Hanover County Clerk of Courts and others. He found six examples in New Hanover County alone of the same expired document being used to open or authorize dozens of official proceedings between the bank and customers here.
Slip sheeting means using a Post-it note or something similar to cover up the information on a document that shows it is expired or not relevant to the business transaction at hand.
Griffin says the documents included in the Clerk of Court’s file involving the SunTrust transactions were photocopied to make it less obvious the documents are fraudulent.
Without access to the original document that was slip sheeted, you can’t see everything that’s written.
This is not the first time SunTrust has been accused of criminal wrongdoing involving customers and their mortgages. In 2014, SunTrust Mortgage agreed to pay a $320 million settlement to the US Government following a criminal investigation of SunTrust’s administration of the Home Affordable Modification Program.
“SunTrust misled numerous mortgage servicing customers who sought mortgage relief through HAMP,”
the US Department of Justice said in a news release about that settlement.
“Specifically, SunTrust made material misrepresentations and omissions to borrowers in HAMP solicitations, and failed to process HAMP applications in a timely fashion. As a result of SunTrust’s mismanagement of HAMP, thousands of homeowners who applied for a HAMP modification with SunTrust suffered serious financial harms.”
SunTrust Mortgage Agrees to $320 Million Settlement
JUL 3, 2014 | Republished Aug. 2, 2021
The Department of Justice today announced an agreement with SunTrust Mortgage Inc. that resolves a criminal investigation of SunTrust’s administration of the Home Affordable Modification Program (HAMP).
As detailed in documents filed today, SunTrust misled numerous mortgage servicing customers who sought mortgage relief through HAMP. Specifically, SunTrust made material misrepresentations and omissions to borrowers in HAMP solicitations, and failed to process HAMP applications in a timely fashion. As a result of SunTrust’s mismanagement of HAMP, thousands of homeowners who applied for a HAMP modification with SunTrust suffered serious financial harms.
SunTrust has agreed to pay $320 million to resolve the criminal investigation into SunTrust’s HAMP Program.
The money is divided as follows:
Restitution – SunTrust will pay $179 million in restitution to compensate borrowers for damage caused by its mismanagement of HAMP. That money will be distributed to borrowers in eight pre-determined categories of harm. If more than $179 million is needed, the bank will also guarantee an additional $95 million for additional restitution. SunTrust will also pay $10 million in restitution directly to Fannie Mae and Freddie Mac.
Forfeiture – SunTrust will pay $16 million in forfeiture. This money will be available to law enforcement agencies working on mortgage fraud and other matters related to the misuse of TARP funds.
Prevention – SunTrust will pay $20 million to establish a fund for distribution to organizations providing counseling and other services to distressed homeowners. Specifically, SunTrust will pay this amount to a grant administrator selected by the government, which funds will in turn be awarded to housing counseling agencies and other non-profits devoted to consumer counseling and advocacy.
In addition to the significant payment, SunTrust has agreed to implement certain remedial measures aimed at preventing future problems like those that led to this investigation. Specifically, it will increase loss mitigation staff, monitor their mortgage modification process, and provide semi-annual reports regarding compliance with the agreement.
This settlement makes clear the Department’s commitment to supplementing its enforcement work with support for prevention programs. The grant fund established by this settlement will help distressed homeowners avoid the harms that befell SunTrust customers. This is real relief for housing agencies, which will compete for grants to increase their counseling and other services to homeowners across the country.
“Instead of helping distressed homeowners, SunTrust’s mismanagement drove up foreclosures, decimated individual credit and increased costs for hardworking men and women across our nation,”
said Attorney General Eric Holder.
“This resolution will provide much-needed restitution for victims. It will make available substantial funds to help other homeowners avoid foreclosure. And it will result in the kinds of systemic changes needed to ensure that this will not happen again. This outcome demonstrates yet again that the Justice Department will never waver in its ongoing pursuit of those whose reckless and willful actions harm the American people and undermine our financial markets.”
“The $320 million resolution of this long-running investigation requires SunTrust Mortgage to compensate its customers for the harm caused by the company’s false promises in administration of the Home Affordable Modification Program in 2009 and 2010 – conduct thoroughly described in the Statement of Facts that accompanies the settlement documents,”
U.S. Attorney Timothy J. Heaphy said today.
“Up to $284 million will be paid in restitution directly to the victims of SunTrust’s conduct. SunTrust will also establish a $20 million grant fund which will be distributed to agencies working with distressed homeowners and provide $16 million in asset forfeiture funds that will be used by law enforcement for future mortgage fraud investigations. The company has also agreed to make specific changes in its operations designed to prevent similar problems in the future.
“SunTrust has done the right thing by agreeing to this novel package of restitution, remediation, and prevention, which represents a significant victory not only for SunTrust customers, but also for Americans who will receive counseling and other assistance when faced with financial challenges,”
U.S. Attorney Heaphy said.
“This settlement demonstrates the commitment of the Department of Justice and the Special Inspector General for the Troubled Asset Relief Program to hold financial institutions accountable and provide restitution to those harmed by their conduct.”
“Today’s agreement with SunTrust underlines the importance of holding accountable those individuals and companies who pledge to ensure that homeowners are protected at all times; especially during times when the homeowner is seeking to save their home through a loan modification.
SunTrust has conceded that their HAMP program had numerous deficiencies and has harmed a significant amount of homeowners. This behavior will not be tolerated. We are proud to have worked with our law enforcement partners on this case,”
said Michael P. Stephens, Acting Inspector General of the Federal Housing Finance Agency Office of Inspector General.
“HAMP was designed to be a beacon of hope and opportunity for homeowners in dire straits, but TARP recipient SunTrust, rather than assist homeowners in need, financially ruined many through an utter dereliction of its HAMP program,” said Christy Romero, Special Inspector General for TARP (SIGTARP).
“This criminal investigation uncovered that SunTrust so bungled its administration of the program, that many homeowners would have been exponentially better off having never applied through the bank in the first place.
Unwilling to put resources into HAMP despite holding billions in TARP funds, SunTrust put piles of unopened homeowners’ HAMP applications in a room. SunTrust’s floor actually buckled under the sheer weight of unopened document packages.
Documents and paperwork were lost.
Homeowners were improperly foreclosed upon.
Treasury was lied to.
The negligence with which SunTrust administered its HAMP program is appalling, miserable, inexcusable, and repulsive.
Real people lost their homes, and many others faced financial ruin.
Ending this behavior and, where necessary, forcing institutions to change their culture through law enforcement by SIGTARP and our partners will help begin the process of restoring faith in financial institutions and healing public trust.”
The investigation of the case was conducted by the United States Attorney’s Office for the Western District of Virginia, the Office of the Special Inspector General for the Troubled Asset Relief Program, and the Office of the Inspector General for the Federal Housing Finance Agency (FHFA) and the United States Postal Inspection Service.
Office of the Attorney General
Press Release Number:
The Virginia State Bar is Interested in Threesomes but Not Criminal Perjury
Virginia lawyer Scott Lehman is facing state bar complaint he tried to get a jailed client to have a threesome with him and another client.
The Virginia State Bar pushing for sexual misconduct case against Virginia attorney Lehman, but rejects citizens complaints against 2 biglaw Goodwin Procter lawyers who committed perjury repeatedly. It’s selective justice and the people are tired of the corruption within the state bars nationwide. #DefundTheBar
Va. Bar: Lawyer tried to get jailed client to have sex with him
Originally Published; Sept 5, 2020
VIRGINIA BEACH, Va. (AP) — An attorney in Virginia is facing state bar accusations that he tried to get a jailed client to have a three-way sexual relationship with him and another female client.
A Virginia State Bar subcommittee certified the allegations against Virginia Beach attorney Scott A. Lehman last month, the Virginian-Pilot reported Friday.
Lehman, who has been a member of the bar since 2009, was given 21 days to respond and provide available dates for a hearing. He didn’t reply to a request for comment from the newspaper.
The jailed woman told sheriff’s officers that she met Lehman on the website Seeking Arrangement, which bills itself as a way for wealthy “sugar daddies” to meet women known as “sugar babies.” When she was jailed for a probation violation in 2019, she asked him for help, according to the 13-page certification document.
Two months later, she told sheriff’s officers Lehman was representing her for free with the understanding that she would have a sexual relationship with him after she was released from jail. She also told them they had had sexual conversations using the facility’s video visitation system.
The officers reviewed footage of the video conversations and said they saw Lehman’s attempts to establish the three-way relationship. The newspaper reported the other woman was also his client and was out on bond while awaiting trial.
The jailed woman denied to a Virginia State Bar investigator that she had said Lehman offered his services for free in exchange for sex. Lehman told the investigator he only agreed to represent the woman for free during a bond hearing.
The bar suspended Lehman’s law license in December after he did not fully comply with an order to turn over case records of the two women.
The evidence also included a video of Judge Jones exchanging the cash and disk on the steps of the Wayne County Courthouse in his judicial robe. Multiple recorded conversations established JONES’s desire to conceal the FBI Task Force Officer’s involvement in obtaining the texts. pic.twitter.com/bR6PLpeCds
— LawsInTexas (@lawsintexasusa) September 6, 2020
Virginia Judge Behavin’ Like an Outlaw On the Bench, Pulls a Pistol On Counsel During Trial
Upset Paralegal With Sketchy Past Criminally Charged for Allegedly Republishing Unredacted Court Documents
Virginia Supreme Court Confirms the Need for Independent Judicial Oversight
Meanwhile In N. Virginia the (Now Dead) Sheriff and Several EDA Staff were Stealing Upwards of $17M
The Virginia State Bar’s Delayed Response is Underwhelming, Erroneous and Transparent.
The Virginia State Bar is Interested in Threesomes but Not Criminal Perjury
Editors Choice2 years ago
Meanwhile In N. Virginia the (Now Dead) Sheriff and Several EDA Staff were Stealing Upwards of $17M
Acceleration2 years ago
The Virginia State Bar’s Delayed Response is Underwhelming, Erroneous and Transparent.
Appellate Circuit2 years ago
The Virginia State Bar is Interested in Threesomes but Not Criminal Perjury