New Jersey Home Lending Class Action: Remand Denied, Case Dismissed

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The United States District Court for the District of New Jersey has declined a remand request and dismissed a putative class action filed by homeowners against HSBC Mortgage Services Inc. and Mortgage Electronic Registration Systems, Inc. In Napoli v. HSBC Mortgage Servs., Inc., Case No. 12-CV-222 (D. N.J. 2012), the plaintiffs alleged that HSBC and MERS fraudulently overcharged them and similarly situated foreclosed-upon borrowers by overstating the payoff amounts due on their home loans, and asserted claims for breach of contract and violations of the New Jersey Consumer Fraud Act, the Truth-In-Consumer Contract, the Warranty and Notice Act, and the Uniform Commercial Code.

The case was originally filed in New Jersey Superior Court and was removed by the defendants pursuant to the Class Action Fairness Act (“CAFA”). The plaintiffs had been foreclosed upon and were facing the sale of their properties following judgment, when they refinanced their properties immediately prior to sale. Plaintiffs alleged in their complaint that the loan payoff amounts that were ultimately refinanced had been overstated by the defendants by more than $6,000. They sought to recover their damages, trebled under the state statutes forming the basis for their claims.

The district court first rejected the plaintiffs’ request for a remand, which was based exclusively on the argument that the amount in controversy did not rise to the statutorily required level. Under CAFA, the amount in controversy must exceed $5,000,000 in the aggregate in order for federal court jurisdiction to obtain. 28 U.S.C. 1332(d)(2). The court followed the Third Circuit’s “legal certainty test,” which provides that “[t]he case will be dismissed only if…to a legal certainty . . . . the plaintiff cannot recover the amount claimed.” Frederico v. Home Depot, 507 F. 3d 188, 193 (3d Cir. 2007).

Because the plaintiffs had alleged that their claims were typical of the putative class, the district court held that “it is reasonable for this Court to simply multiply their purported damages amount by the number of foreclosures alleged in the Complaint.” With the plaintiffs’ alleged damages just over $18,000, the court observed that it would have only required “278 foreclosures with the same damages to satisfy the amount in controversy of $5,000,000, [which was] far less than the number of claimed foreclosures.” The district court concluded that, as a result, it could not say, “to a legal certainty,” that the amount in controversy under CAFA would not be met.

After denying plaintiffs’ motion for remand, the district court went on to dismiss the complaint with prejudice on the grounds that New Jersey’s “entire controversy doctrine,” which requires parties to “bring all claims relevant to the underlying controversy in one legal action,” barred their action. Coleman v. Chase Home Finance LLC, 446 F. App’x 469, 471 (3d Cir. 2011). In New Jersey foreclosure proceedings, the “entire controversy doctrine is a bit more limited, and requires the filing only of any ‘“germane counterclaims’” that ‘“arise out of the mortgage . . . ’,” which includes “claims relating to payment and discharge, [and] incorrect computation of the amounts due.” Id. The district court held that the plaintiffs’ claims were germane to the prior foreclosure and that the plaintiffs clearly knew about the payoff discrepancy upon which their claims rested, even though the allegedly fraudulent payoff quotes were not received until after judgment. The court reasoned that because the foreclosure courts in New Jersey retain jurisdiction over a matter until at least ten days after the sheriff’s sale, “plaintiffs therefore had a full opportunity to assert their claims during the prior foreclosure action.”