Opinion
Civil No. 97-2068 (DWF/SRN)
November 9, 2001
Barry Reed, Esq., and Hart Robinovitch, Esq., Zimmerman Reed, Minneapolis, MN; Teresa P. Tomlinson, Esq., Pope, McGlamry, Kilpatrick Morrison, L.L.P., Columbus, Georgia; and Richard Gill, Esq., Copeland Franco Screws Gill, Montgomery, AL, appeared on behalf of Plaintiffs.
Margaret Savage, Esq., Briggs Morgan, Minneapolis, MN; Alan Maclin, Esq., and Neal Thomas Buethe, Esq., Briggs Morgan, St. Paul, MN, appeared on behalf of Defendant Standard Federal Bank.
Eldon Spencer, Jr., Esq., Leonard O'Brien Wilford Spencer Gale, Saint Paul, MN, appeared on behalf of Defendant Heartland Mortgage. Amy Freestone, Esq., Faegre Benson, Minneapolis, MN; and Diane Kehl, Esq., and Gregory Wrobel, Esq., Vedder Price Kaufman Kammholz, Chicago, IL, appeared on behalf of Defendant ABN AMRO Mortgage Group, Inc.
MEMORANDUM OPINION AND ORDER
Introduction
The above-entitled matter came before the Court on October 29, 2001, pursuant to the cross motions of Defendant ABN AMRO Mortgage Group, Inc., and Plaintiffs for summary judgment on the issue of corporate alter ego and veil piercing; the cross motions of Defendant Standard Federal Bank and Plaintiffs for summary judgment on the issue of RESPA liability; and Plaintiffs' motion for the application of judicial estoppel. For the reasons set forth below, these motions are denied.
Background
In this litigation, the Plaintiff Class alleges various violations of the Real Estate Settlement Procedures Act (RESPA), 27 U.S.C. § 2601, et seq. The suit was originally brought by the Glovers, on behalf of a purported class (which has since been certified), against Standard Federal Bank and Heartland Mortgage Corp., the lender and broker, respectively, of the Glovers' mortgage. The class, as originally certified, encompassed all mortgage holders for whom Standard Federal was the lender and Heartland Mortgage Corp. was the broker. The Court later expanded the class to encompass all mortgage holders for whom Standard Federal was the lender, regardless of who brokered the loan. The order expanding the class is currently on review by the Eight Circuit Court of Appeals, but it is the Court's understanding that the parties have presented arguments to the Court of Appeals on the more fundamental issue of the certification of any class.
Currently, Standard Federal and the Plaintiffs have brought cross motions for summary judgment on the issue of RESPA liability. In addition, Standard Federal has requested that the Court decertify the class. The legal landscape has, admittedly, changed since the Court decided to certify the Plaintiff Class. First, the Eleventh Circuit Court of Appeals adopted the test for RESPA liability which this Court had concluded was appropriate and which served as the basis for certifying the class. See Culpepper v. Irwin Mortgage Corp., 253 F.3d 1324 (11th Cir. 2001). Second, however, the Department of Housing and Urban Development ("HUD") issued a policy statement which would appear to eschew the Culpepper analysis in favor of the RESPA liability test urged by the Defendants; under the Defendants' "totality of compensation" test, class certification is problematic. See RESPA Statement of Policy 2001-1: Clarification of Statement of Policy 1999-1 Regarding Lender Payments to Mortgage Brokers, and Guidance Concerning Unearned Fees Under Section 8(b); Final Rule, 66 Fed. Reg. 53052 (October 18, 2001) ("2001 Policy Statement"). The parties argued the 2001 Policy Statement to the Eighth Circuit Court of Appeals, but the Court does not know whether that Policy Statement was briefed to the Court of Appeals.
On January 29, 2001, the Court granted Plaintiffs leave to amend the Complaint to add Defendant ABN AMRO Mortgage Group, Inc. The First Amended Complaint was filed on January 30, 2001, and Defendant ABN AMRO was served on February 1, 2001. Plaintiffs have alleged that ABN AMRO is the corporate alter ego of Standard Federal Bank. Specifically, on or about December 31, 1998, ABN AMRO was formed as a wholly owned subsidiary of Standard Federal Bank; Standard Federal Bank transferred all of its residential mortgage business to ABN AMRO. Noting the overlap of personnel, physical facilities, and capital between the two corporations, Plaintiffs have alleged that ABN AMRO is merely a corporate facade, obscuring Standard Federal's ongoing mortgage lending business.
Currently, ABN AMRO and Plaintiffs have brought cross motions for summary judgment on Plaintiffs' claim that ABN AMRO is merely the corporate alter ego of Standard Federal. In the alternative, Plaintiffs have brought a separate motion to apply the doctrine of judicial estoppel to prevent Standard Federal from disclaiming liability for any loans funded through ABN AMRO. Specifically, Plaintiffs note that, at the onset of this litigation, Standard Federal made several representations to the effect that it was in the on-going business of funding mortgages; that Standard Federal now claims that it had transferred all of its lending business to ABN AMRO; and that Plaintiffs (or their attorneys) relied upon Standard Federal's representations to the detriment of potential class members.
To clarify, Plaintiffs' counsel alleges that, had it known that Standard Federal had transferred its business to ABN AMRO, it would have coordinated and filed a similar class action against ABN AMRO in a more timely fashion. As it is, Plaintiffs' counsel now represents a plaintiff in a purported class action against ABN AMRO which is before another judge of this district. If Plaintiffs prevail on the veil piercing issue in the instant litigation, the separate litigation against ABN AMRO becomes duplicative because all potential class members in that litigation will be class members in this litigation. If, however, Plaintiffs do not prevail on the veil piercing issue, the potential class in the other litigation will be limited somewhat by the appropriate statutes of limitations. Thus, there will be a "gap class" of individuals who borrowed money from ABN AMRO shortly after the corporate transfer who are not members of this class (because they borrowed from ABN AMRO) and who are not members of the other potential class (because their claims will be time-barred). It is the rights of this potential gap class which are, according to Plaintiffs, prejudiced by Standard Federal's alleged misrepresentations. The irony is that, to the extent that the gap class is prejudiced, it is because they are not parties to this or any other litigation.
Discussion
1. Effect of the Appeal
Generally, "[w]hen one aspect of a case is before the Appellate Court on interlocutory review, the District Court is divested of jurisdiction over that aspect of the case." Dayton Independent School Dist. v. U.S. Mineral Products Co., 906 F.2d 1059, 1063 (5th Cir. 1990) (citations omitted). As a result, the Court has no jurisdiction to grant Standard Federal's motion to decertify the class. Other aspects of the case — such as discovery and other dispositive motion practice — may, however, proceed absent a stay issued by either the trial court or the appellate court; there is no stay in this matter. However, to the extent that Defendants' motion for summary judgment relies upon the 2001 Policy Statement, the Court should refrain from issuing any ruling on the issue because that issue is, indirectly, being reviewed by the Court of Appeals. To illustrate the potential problem, consider the following scenario: the Court of Appeals determines that the 2001 Policy Statement requires decertification of the class, but, in the interim, this Court determines that the 2001 Policy Statement should be disregarded as an arbitrary and capricious interpretation of a federal statute. Or, in the alternative, the Court of Appeals determines that the 2001 Policy Statement is arbitrary and capricious, rejects its application, and upholds the class certification while, in the interim, this Court determines that the 2001 Policy Statement justifies summary judgment in favor of the Defendants.
The heart of the problem is that the 2001 Policy Statement, to the extent that it effects the summary judgment issue, does so by way of effecting the class certification issue. With respect to the 2001 Policy Statement, Standard Federal's motion for summary judgment is too entangled with the matter pending before the Eighth Circuit Court of Appeals for this Court to render a decision. So long as that matter is pending before the Eighth Circuit, this Court will not consider the 2001 Policy Statement in any fashion. Accordingly, to the extent that Standard Federal's motion for summary judgment now rests upon interpretation and application of the 2001 Policy Statement, the Court will deny that motion with the understanding that Standard Federal may, depending upon the Eighth Circuit's ruling, raise it again in another motion for summary judgment.
2. Motions for Summary Judgment on RESPA Liability
To reiterate, the Court is considering only those arguments raised by Standard Federal in its brief (which was filed long before the 2001 Policy Statement was issued). Standard Federal's argument that the 2001 Policy Statement requires class certification and summary judgment is "on hold" until the Eighth Circuit issues it ruling in the pending appeal.
The Court has reviewed the extensive record in this case, including the voluminous supporting documents submitted with the instant motions, and the Court finds that genuine issues of material fact abound. The Court concludes that summary judgment on the issue of RESPA liability is inappropriate for either party.
3. Motion for Application of Judicial Estoppel
The doctrine of judicial estoppel may be invoked to prevent a party to a legal proceeding from asserting a position which is inconsistent with that party's position in the same or another legal proceeding. See New Hampshire v. Maine, 532 U.S. 742, 121 S.Ct. 1808, 1814 (2001). The purpose behind the doctrine is, generally, to protect the integrity of the judicial process, and, more specifically, to reduce the risk of inconsistent court determinations. See id. at 1814-15.
This purpose distinguishes the doctrine of judicial estoppel from the doctrine of equitable estoppel which is invoked to protect other litigants rather than the integrity of the process. See Total Petroleum, Inc., v. Davis, 822 F.2d 734, 737 n. 6 (8th Cir. 1987). Thus, the doctrine of equitable estoppel will only be invoked against a litigant if another party has acted in reliance upon the representations of the litigant. See id. at 737. The doctrine of equitable estoppel is unavailable here because, to the extent that anyone has been prejudiced by reliance upon Standard Federal's original representations, it is members of the "gap class" who are only prejudiced if they are ultimately determined not to be parties at all and thus not even the clients of the Plaintiffs' counsel. Because it is employed to protect the courts and not the parties, the doctrine of judicial estoppel does not require a showing of detrimental reliance.
The doctrine of judicial estoppel is an equitable doctrine, and its application is a matter of discretion for the Court. See id. at 1815. Courts will generally consider three factors in determining whether to apply the doctrine of judicial estoppel: (1) whether the later representation of the party to be estopped is clearly inconsistent with the party's earlier position; (2) whether a court has accepted the party's earlier position or relied upon it in any way; and (3) whether the party to be estopped derives any unfair benefit from its new statement or whether another party will be prejudiced. Applying these factors to the case at bar, the Court concludes that application of judicial estoppel would be inappropriate.
The Eighth Circuit has noted that the majority of circuits which have recognized judicial estoppel actually require that a court accept the earlier representation, and only a minority of courts have applied judicial estoppel have done so without any showing of judicial reliance. See Hossaini v. Western Missouri Medical Center, 140 F.3d 1140, 1142-43 (8th Cir. 1998). The Eighth Circuit does not appear to have taken a position in this intercircuit split. However, the U.S. Supreme Court has indicated that, at a minimum, judicial reliance is a factor in the calculus.
Assuming, arguendo, that Standard Federal's prior statements about its lending activities and its current position that ABN AMRO is a distinct entity are clearly inconsistent statements, neither of the other two factors weighs in favor of judicial estoppel. First, the Court has not relied upon Standard Federal's characterization of its lending activities as "on-going" when making any rulings or determinations in this case. Second, the only group potentially prejudiced by Standard Federal's change in position is the so-called "gap class." As noted before, the gap class is only prejudiced if they are ultimately determined not to be parties. Moreover, there is no indication that Plaintiffs' counsel represent any member of the gap class except to the extent that the gap class are parties to the instant litigation — in which case there is no prejudice to them.
Although the Court is disturbed by Standard Federal's apparent misrepresentation to the Plaintiffs in the context of this litigation, and the fact of the earlier representation of on-going lending activity may be relevant to Plaintiffs' attempt to pierce the corporate veil, the Court declines to invoke judicial estoppel to prevent either Standard Federal or ABN AMRO from asserting that ABN AMRO is a separate corporate entity from Standard Federal.
4. Motions for Summary Judgment on Corporate Alter Ego
The parties disagree about whether Delaware law of "federal common law" should apply to the issue of piercing the corporate veil. The Court is not convinced that there is a meaningful distinction between the two. Under Delaware law, there is a presumption of corporate separateness which can only be overcome upon a showing that: (1) the parent exercises exclusive control over the subsidiary to the point that the subsidiary has no independent significance and (2) that the corporate structure causes fraud or similar injustice. See Outokumpu Engineering Enterprises, Inc. v. Kvaerner Enviropower, Inc., 685 A.2d 724, 729 (Del.Super. 1996). By comparison, the "federal common law" approach advocated by the Plaintiffs "provides that the legal fiction of the separate corporate entity may be rejected in the case of a corporation that (1) is controlled by another to the extent that it has independent existence in form only and (2) is used as a subterfuge to defeat public convenience, to justify wrong, or to perpetuate a fraud." Greater Kansas City Laborers Pension Fund v. Superior General Contractors, Inc., 104 F.3d 1050, 1055 (8th Cir. 1997). The tests would appear to be essentially the same; to the extent there are differences, they may be relevant in the context of jury instruction wording, but they are not relevant here.
There is ample evidence in the record to support the conclusion that ABN AMRO is a corporate shell, without any existence independent of Standard Federal and wholly within Standard Federal's control. However, the record does not support a finding, as a matter of law, of such control. Moreover, under both tests — even the "federal common law" test — Plaintiffs must prove that the corporate structure is used as a subterfuge, a deceptive device, to accomplish an inequity. While there is certainly evidence from which a reasonable fact-finder could conclude that the corporate structure of Standard Federal and ABN AMRO is a deceptive device employed to allow Standard Federal to evade the snowballing liability associated with a potential class action, this is, again, a question of fact for a jury to determine.
Based upon the record before the Court, neither party is entitled to summary judgment on the issue of corporate alter ego.
For the reasons stated, IT IS HEREBY ORDERED:
1. Plaintiffs' motion for the application of judicial estoppel (Doc. No. 442) is DENIED;
2. Plaintiffs' motion for summary judgment on the issue of corporate alter ego (Doc. No. 587) is DENIED;
3. Defendant ABN AMRO Mortgage's motion for summary judgment on the issue of corporate alter ego (Doc. No. 598) is DENIED;
4. Plaintiffs' motion for summary judgment (Doc. No. 617) is DENIED; and
5. Defendant Standard Federal Bank's motion for summary judgment (Doc. No. 610) is DENIED.