Skip to main content
Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • District Court dismisses suit alleging improper inspection fees

    Courts

    On June 6, the U.S. District Court for the District of New Jersey granted a defendant bank’s motion to dismiss, ruling that the plaintiff’s inspection fee allegations are barred on collateral estoppel grounds. The plaintiff filed a class action suit claiming the defendant’s computer software orders property inspections after borrowers’ loans are in default and then charges borrowers for the improper inspection fees. According to the opinion, the defendant initiated foreclosure proceedings in 2012 against the plaintiff in state court after she missed payments. The parties litigated the matter for several years in state court, and in 2018, the plaintiff filed a motion for leave to add class action claims related to the defendant’s inspection fee collection system. The state court denied plaintiff’s motion, finding the proposed claims to be without merit and futile. Final judgment of foreclosure was granted to the bank. Similar proceedings involving the same class action counterclaims occurred after the defendant requested that the judgment be vacated to add an additional lien holder as a defendant. The defendant again applied for entry of final judgment, but withdrew this application allegedly in response to the Covid-19 pandemic. Ultimately the state court dismissed the foreclosure action without prejudice for lack of prosecution. The plaintiff filed an instant complaint in federal court.

    The defendant argued that the plaintiff “should be collaterally estopped from bringing these claims because the New Jersey Superior Court ruled on the exact issues [plaintiff] raises here in the prior foreclosure action brought by [defendant] against [plaintiff] in state court, ultimately dismissing them with prejudice.” The plaintiff countered “that because the foreclosure action was dismissed without entry of judgment, collateral estoppel does not apply.” In agreeing with the defendant, the court stated that “the doctrine of collateral estoppel applies whenever an action is ‘sufficiently firm to be accorded conclusive effect,” adding that the state court’s orders in the foreclosure action are “sufficiently firm as to warrant conclusive effect.” According to the court, “[t]hese decisions—particularly the second dismissal with prejudice—were clearly intended to be the final adjudication of the precise issues that [plaintiff] is now attempting to relitigate in the instant action.”

    Courts State Issues Foreclosure Collateral Estoppel Fees Class Action Consumer Finance

  • 3rd Circuit reverses district court’s collateral estoppel ruling preventing plaintiff from pursuing debt collection claims

    Courts

    On November 29, the U.S. Court of Appeals for the 3rd Circuit reversed a district court’s decision to grant summary judgment to a university and its debt collection firm (appellees) on the grounds that the issue had already been decided in state court, ordering the district court to reconsider the plaintiff/appellant’s discovery motions and whether it can “exercise supplemental jurisdiction” over the appellees’ alleged violation of Pennsylvania law.

    The plaintiff/appellant, a former university student, provided the appellees with a new address in Philadelphia after being contacted about unpaid tuition. When the debt remained unpaid, the appellees filed suit against him in Philadelphia municipal court but sent notices to a New Jersey address on file in the university’s system. The plaintiff/appellant did not appear in court and a default judgment was entered against him. The plaintiff/appellant petitioned to reopen the default judgment, arguing that the appellees had intentionally served his old address to avoid the personal service requirement in Philadelphia County. The municipal court dismissed the default judgment, despite finding that the appellees had not engaged in any intentional misconduct. Following a trial on the merits, the Philadelphia municipal court judge again ruled against the plaintiff/appellant for the full amount. Subsequently, the plaintiff/appellant filed a lawsuit in federal court alleging violations of the FDCPA and Pennsylvania’s Unfair Trade Practices and Consumer Protection Law; however, the federal court barred the deceptive service of process claim, finding that the municipal court had already ruled that the debt collectors’ actions were unintentional.

    On appeal, the 3rd Circuit found that the district court had erred in ruling that collateral estoppel prevented the plaintiff/appellant from pursuing claims against the appellees simply because the municipal court judge said that he did not think the notices were intentionally served to the old address so a default judgment could be obtained. “Although the [m]unicipal [c]ourt’s finding may meet the first four elements of collateral estoppel, its determination that [a]ppellees did not intentionally serve [the plaintiff/appellant] at the wrong address was not essential to its judgment at that hearing, i.e., vacating the default judgment. In fact, its finding was contrary to this ultimate judgment,” the appellate court concluded. The appellate court also reversed the grant of summary judgment to the appellees on the plaintiff/appellant’s remaining FDCPA claims and remanded them to the district court to determine whether there had been “false and deceptive service of process; misconduct in opposing the opening of default judgment; and misstatements of the case caption, case number and court in the [c]ollection [l]etter.”

    Courts Third Circuit Appellate Debt Collection FDCPA Collateral Estoppel

Upcoming Events