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Law360, New York (June 14, 2013, 7:24 PM ET) — A federal judge in California on Thursday rejected JPMorgan Chase & Co.’s argument that a since-amended 2011 federal settlement over problematic mortgage servicing practices barred a class action lawsuit alleging the bank fraudulently charged them unnecessary fees.
Judge Yvonne Gonzalez Rogers ruled that the Office of the Comptroller of the Currency allowed for private, third-party lawsuits who entered into the April 2011 Independent Foreclosure Review settlement when it was amended in January. Because of that, the plaintiffs have the right to bring claims related to inflated mortgage fees.
“From this express reservation, the court must conclude that third-party actions were not intended to be barred by the Consent Order,” Judge Gonzalez Rogers wrote.
JPMorgan also failed to get fraud and unjust enrichment claims dismissed. Judge Rogers did dismiss several racketeering claims in the case, but gave the plaintiffs the right to file an amended complaint.
“We think the court’s decision is the first step in holding the bank responsible for the conduct alleged in the complaint,” said Mark Pifko of Baron & Budd PC, an attorney for the plaintiffs.
Pifko added that he and his clients had not yet decided whether they will refile the dismissed claims.
Representatives for JPMorgan, the nation’s largest bank, could not immediately be reached for comment.
In their July complaint, named plaintiffs Diana Ellis, James Schillinger and Ronald Lazar said JPMorgan services its home loans in a manner to maximize fees on borrowers’ accounts when they are behind on payments. The plaintiffs filed on behalf of all homeowners with mortgage loans serviced by JPMorgan entities JPMorgan Chase Bank N.A. and Chase Home Finance LLC.
The plaintiffs accused the JPMorgan companies of violating California business standards law and also accused them of violating the Racketeer Influenced and Corrupt Organizations Act, claiming the defense’s use of mail and wire communications subjects them to RICO prosecution.
“The Chase Enterprise is an ongoing, continuing group or unit of persons and entities associated together for the common purpose of limiting costs and maximizing profits by fraudulently concealing assessments for unlawfully marked-up and/or unnecessary fees for default-related services on borrowers’ accounts,” the homeowners said.
The plaintiffs originally filed suit in February 2012 against the JPMorgan companies, Wells Fargo & Co. and Citibank N.A. Affiliates named in the suit included Wells Fargo Bank N.A. and CitiMortgage Inc.
The homeowners were ordered to refile their claims against the Citi defendants and the JPMorgan defendants as separate suits, which are still pending.
According to the complaint, JPMorgan perpetuated a practice of unlawfully marking up charges to homeowners for services provided by third-party contractors known as preservation vendors, as well as JPMorgan affiliates. The lender purportedly hired the contractors to protect its security interest in distressed home loans, but used them to disguise hidden, marked-up or unnecessary fees so it could earn additional undisclosed profits, the plaintiffs said.
In some cases, JPMorgan marked up fees by 100 percent or more, the homeowners alleged.
The defendants automated their mortgage loan servicing businesses by utilizing a mortgage service program provided by Fidelity National Information Services Inc. Using that system, the lender advanced its markup scheme by charging unnecessary default-related fees to homeowners, the plaintiffs said.
According to the complaint, JPMorgan ordered default-related services through its subsidiaries, which in turn obtained those services those the so-called preservation vendors.
The plaintiffs are represented by Mark P. Pifko, Daniel Alberstone and Roland K. Tellis of Baron & Budd PC.
JPMorgan is represented by Peter Obstler, Zachary J. Alinder and John A. Polito of Bingham McCutchen LLP.
The case is Ellis et al. v. JPMorgan Chase & Co. et al., case number 4:12-cv-03897, in the U.S. District Court for the Northern District of California.