Judith M. Potter v. Norwest Mortgage

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 01-3485
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Judith M. Potter; Jeffrey Schedler, *
individually and on behalf of all *
others similarly situated, *
*
Appellants, *
* Appeal from the United States
v. * District Court for the
* District of Minnesota.
Norwest Mortgage, Inc.; Valuation *
Information Technologies, L.L.C., *
*
Appellees. *
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Submitted: October 10, 2002
Filed: May 23, 2003
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Before RILEY, RICHARD S. ARNOLD, and SMITH, Circuit Judges.
___________
RILEY, Circuit Judge.
Judith Potter and Jeffrey Schedler (collectively Potter), individually and on
behalf of all others similar situated, brought an action against Norwest Mortgage, Inc.
and Valuation Information Technologies, L.L.C. (collectively Norwest) alleging
certain charges imposed by Norwest amounted to unearned fees or kickbacks in
violation of the Real Estate Settlement Procedures Act of 1974 (RESPA), 12 U.S.C.
§ 2601, et seq. After initiating the litigation, Potter requested certification of a class
of all persons who paid more for a residential appraisal than Norwest actually paid
the appraiser. The district court1 denied Potter’s request. Potter and Norwest
subsequently entered into a settlement agreement. Potter now appeals the district
court’s denial of class certification. Because Potter failed to establish a continuing
personal stake in the litigation, we dismiss the appeal as moot.
I. BACKGROUND
Potter brought this suit alleging Norwest charged fees for closing two
Minnesota real estate transactions in violation of RESPA, as well as various state
laws, which prohibit kickbacks and unearned fees. Potter requested a class
certification of “[a]ll persons who paid more for a residential appraisal than [Norwest]
paid the third party, licensed fee appraiser who provided the appraisal report.” The
district court denied class certification, finding common questions of law and fact did
not predominate over individual issues of law and fact. A year later, the district court
granted summary judgment to Norwest on Potter’s claims that fees charged by
Norwest were kickbacks prohibited by RESPA and by related state laws.
Shortly before trial on the remaining issues, Potter and Norwest entered into
a settlement agreement.2 Since Potter’s individual claims alleged overcharges of only
$125 and $100, the parties wanted to present the certification order to the Court of
Appeals without further expending their resources or the district court’s. After
researching the appealability of the certification order, and after communicating their
plan to the district court, Potter and Norwest advised the district court they had
reached a partial settlement. The settlement agreement, as represented, contains four
1
The Honorable Richard H. Kyle, United States District Judge for the District
of Minnesota.
2
The parties did not provide the court with a copy of the settlement agreement.
The provisions of the settlement agreement discussed hereafter are based on oral
representations made by Potter and Norwest at the settlement hearing.
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provisions pertinent to this appeal. First, the agreement fully releases Norwest from
Potter’s individual RESPA and state law claims. Second, the agreement purports to
reserve Potter’s right to appeal the district court order denying class certification.
Third, Norwest agreed not to contest this appeal as moot. Fourth, the parties agreed
they did not waive their rights to recover attorney fees. After the settlement hearing,
the district court dismissed Potter’s claims with prejudice.
Potter appeals the district court’s order denying class certification. At oral
argument, we inquired whether the parties’ settlement agreement caused the appeal
to become moot because a case or controversy no longer existed under Article III of
the Constitution. U.S. Const. Art. III, § 2, cl. 1. As counsel were not prepared at oral
argument to discuss fully the jurisdictional issue, we requested supplemental briefing.
II. DISCUSSION
A. Case or Controversy Requirements
Whether Potter, having settled the individual claims, presents a continuing
Article III case or controversy to challenge a denial of class certification presents an
issue of first impression for this court. The jurisdictional issue illustrates the tension
between the restrictions imposed by Article III on the federal judiciary and the
judicial efficiency sought by the class-action mechanism.
Article III of the Constitution only allows federal courts to adjudicate actual,
ongoing cases or controversies. Deakins v. Monaghan, 484 U.S. 193, 199 (1988);
Preiser v. Newkirk, 422 U.S. 395, 401(1975). The case or controversy requirement
ensures that "self-interested parties vigorously advocating opposing positions"
present issues "in a concrete factual setting." United States Parole Comm’n v.
Geraghty, 445 U.S. 388, 403 (1980). "This case-or-controversy requirement subsists
through all stages of federal judicial proceedings, trial and appellate." Lewis v.
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Cont’l Bank Corp., 494 U.S. 472, 477 (1990). When an action no longer satisfies the
case or controversy requirement, the action is moot and a federal court must dismiss
the action. See Minn. Humane Soc’y v. Clark, 184 F.3d 795, 797 (8th Cir. 1999).
Article III requires parties to have a continuing "personal stake in the
outcome" of the lawsuit. Baker v.Carr, 369 U.S. 186, 204 (1962). This "personal
stake" requirement "serves primarily the purpose of assuring that federal courts are
presented with disputes they are capable of resolving." Geraghty, 445 U.S. at 397.
Parties cannot by agreement confer jurisdiction upon a federal court. Ins. Corp. of
Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982); In re Grand
Jury Subpoenas Duces Tecum, 78 F.3d 1307, 1310 (8th Cir. 1996). Thus, neither
Norwest’s promise not to challenge Potter’s appeal as moot nor the settlement
agreement’s provision reserving Potter’s right to appeal confer jurisdiction upon this
court.
Applying the above principles to settlements and class actions yields two
relevant rules, one general and one specific. First, a federal court should normally
dismiss an action as moot when the named plaintiff settles its individual claim, and
the district court has not certified a class. See Zeidman v. J. Ray McDermott & Co.,
651 F.2d 1030, 1045 (5th Cir. 1981) (“a suit brought as a class action must as a
general rule be dismissed as moot when the personal claims for the named plaintiffs
are satisfied, and no class has properly been certified”). Second, a named plaintiff
can appeal a denial of class certification after its individual claim has been satisfied,
if the named plaintiff has a continuing personal stake in the outcome. Deposit Guar.
Nat’l Bank v. Roper, 445 U.S. 326, 332-40 (1980). This opinion addresses the
second rule.
B. Supreme Court Precedent
The Supreme Court has addressed a named plaintiff’s personal stake in an
appeal of a district court’s denial of class certification in two cases. See Geraghty,
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445 U.S. at 390-409; Roper, 445 U.S. at 327-340. Geraghty challenged the validity
of the parole guidelines, but his individual claim became moot when he was
subsequently released from prison before he could appeal the district court’s denial
of class certification. The Court held a prisoner could appeal the district court’s
denial to certify a class, notwithstanding the prisoner’s individual claim had expired.
Geraghty, 445 U.S. at 404. The Supreme Court concluded the purpose of the personal
stake requirement–the assurance of “sharply presented issues in a concrete factual
setting and self-interested parties vigorously advocating opposing positions”–exists
when a named plaintiff’s claims expire after a denial of class certification. Id. at 403.
The Court specifically limited its opinion by reserving for future consideration
whether a plaintiff had a personal stake in the appeal of a denial of class certification
when a plaintiff settled its individual claims: “We intimate no view as to whether a
named plaintiff who settles the individual claim after denial of class certification may,
consistent with Art. III, appeal from the adverse ruling on class certification.” Id. at
404 n.10.
In Roper, after the Fifth Circuit denied Roper’s interlocutory appeal of a class
certification, the bank tendered the full amount of the plaintiffs’ claims in an offer to
confess judgment. The plaintiffs rejected the offer. Based on the bank’s offer, and
over Roper’s objections, the district court entered judgment against the bank and
dismissed the action. Roper appealed the adverse certification ruling to the Fifth
Circuit. On appeal, the bank argued the entry of judgment mooted the appeal. The
Fifth Circuit rejected the bank’s argument and reversed the class certification ruling.
The Supreme Court granted a writ of certiorari to consider the question of mootness.
Roper, 445 U.S. at 331. The Court concluded “the District Court’s entry of judgment
in favor of named plaintiffs over their objections did not moot their private case or
controversy, and that respondents’ individual interest in the litigation–as
distinguished from whatever may be their representative responsibilities to the
putative class–is sufficient to permit their appeal of the adverse certification ruling.”
Id. at 340 (footnote omitted). The Court feared “[r]equiring multiple plaintiffs to
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bring separate actions, which effectively could be ‘picked off’ by a defendant’s tender
of judgment before an affirmative ruling on class certification could be obtained,
obviously would frustrate the objectives of class actions” and “would invite waste of
judicial resources.” Id. at 339. The Court also noted permitting an appeal may
minimize forum shopping. Id. at 339-40.
Roper and Geraghty are distinguishable from this appeal. In Roper, as well as
in Geraghty, the named plaintiffs’ substantive claims became moot involuntarily.
Roper’s claim became moot after the district court entered judgment in Roper’s favor
when the defendant tendered the full amount of Roper’s claim. Roper, 445 U.S. at
329-30. Geraghty’s claim became moot after he was released from prison. Geraghty,
445 U.S. at 394. Conversely, Potter’s claims were voluntarily relinquished upon
entering into a settlement agreement with Norwest.
Roper is also distinguishable from this appeal because a policy consideration
underlying the Court’s decision–preventing defendants from “picking off” named
plaintiffs to avoid appellate review of a denial of class certification–does not apply
here. Potter entered into the settlement agreement voluntarily and without coercion.
Additionally, Norwest agreed Potter reserved the right to appeal the class certification
denial and further agreed not to contest the appeal as moot. Norwest clearly did not
intend to “pick off” Potter’s claims to escape appellate review.
C. Circuit Court Precedent
Several sister circuits have addressed the issue of whether named plaintiffs who
reach a settlement after a district court denies class certification may appeal an
adverse certification ruling. The Eleventh Circuit has permitted a plaintiff to appeal
denial of class certification when the action was still “live” and the party retained a
legally cognizable interest in the litigation. See Love v. Turlington, 733 F.2d 1562,
1565 (11th Cir. 1984). In Love, after the district court denied class certification, the
plaintiff settled her individual claim. The defendants agreed not to contest the
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appealability of the certification order. “Finding no meaningful distinction between
the settlement of the claim here at issue and the expiration of the claim in Geraghty,”
the Eleventh Circuit held the class certification issue presented a “dispute capable of
judicial resolution.” Id. at 1565.
The District of Columbia Circuit has concluded that a settling plaintiff who
releases a defendant from “any and all” claims, without expressly reserving the right
to appeal a denial of class certification, does not possess a personal stake in the
litigation to provide Article III standing. Walsh v. Ford Motor Co., 945 F.2d 1188,
1189 (D.C. Cir. 1991). In Walsh, a named plaintiff negotiated a settlement agreement
with Ford Motor Company in which he “released ‘any and all . . . claims . . .
whatsoever . . . against Ford.’” Id. After Walsh entered the settlement agreement, the
district court denied the motion for class certification. Finding “the settlement
agreement relinquished ‘any and all’ of Walsh’s claims against Ford–including the
claim to represent the class,” the court concluded Walsh could not appeal the district
court’s denial of class certification. Id. at 1192.
More recently, the Fourth Circuit has ruled that a named plaintiff’s ability to
appeal an adverse certification ruling after settlement turns on whether the plaintiff
retains an interest in the litigation. Toms v. Allied Bond & Collection Agency, Inc.,
179 F.3d 103, 106 (4th Cir. 1999). The court explained “[a] plaintiff seeking class
certification may assert an interest in his individual substantive claim or in shifting
the costs of litigation to the remainder of the class.” Id. at 105 (citing Roper, 445
U.S. at 336-37). A plaintiff can contract away these interests through a settlement
agreement with the opposing party. Id. In Toms, the plaintiff’s settlement agreement
“expressly relinquished ‘any and all’ claims ‘of any kind or nature whatsoever he may
have individually’ [and] ‘any and all’ monetary claims . . . he may have as a
member/representative of the putative class.” Id. at 105-06. The Fourth Circuit
determined a settlement agreement that specifically releases both individual and
class-based interests extinguishes a party’s interest in the litigation notwithstanding
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an express reservation of a right to appeal the adverse certification ruling. Id. at 106.
The court concluded Toms’s reservation of rights was without legal effect absent a
continuing interest in the litigation. Id.
After reviewing these cases, we adopt the Fourth Circuit’s reasoning and
conclude a party must retain a continuing interest in the litigation in order to appeal
a denial of class certification. The Fourth Circuit’s analysis conforms closely to
Article III’s case or controversy requirement by ensuring the plaintiff has a personal
stake in the appeal to provide “sharply presented issues in a concrete factual setting.”
See Geraghty, 445 U.S. at 403. Additionally, the Fourth Circuit’s analysis protects
a fundamental Article III principle–parties may not by agreement confer jurisdiction
upon the federal judiciary.3
D. Potter’s Interest
Because the settlement agreement released Norwest from all of Potter’s claims,
Potter has no surviving individual claims. Thus, we need only address whether Potter
retains an interest in shifting costs and attorney fees to the putative class members.
During the settlement hearing, Potter and Norwest orally outlined, with little
elaboration, the provisions of the settlement agreement. Potter and Norwest both
claimed they were not waiving their right to petition the district court for attorney
fees. However, the record on appeal is not clear on the extent to which Potter
reserved the right to recover attorney fees.
3
This principle would not be protected if the parties could preserve appellate
review of the district court’s denial of class certification by including a clause in their
settlement agreement stating “plaintiff reserves the right to appeal the district court’s
denial of class certification to the Eighth Circuit Court of Appeals.” By allowing
such a clause to preserve appellate review, the parties would confer jurisdiction upon
this court without the named plaintiff establishing a personal stake in the appeal.
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The parties never submitted the settlement agreement to the district court, as
promised. In the order dismissing Potter’s claims with prejudice, the district court
reported:
Counsel further stated that they would draft and execute formal
settlement documents to memorialize the agreement and would present
a stipulation of dismissal with prejudice to the Court for signature.
Counsel represented that the documents would be prepared within “a
few days.” Although the Court has made inquiries over the last three
weeks regarding the status of the settlement documents and stipulation,
it has received nothing from the parties.
Norwest and Potter also did not include a copy of their settlement agreement in the
record on appeal. Potter and Norwest only submitted the settlement hearing transcript
as evidence of the terms of the settlement agreement. In the settlement hearing
transcript, Potter’s counsel mentioned Potter could seek attorney fees under RESPA
or Rule 23, but Norwest’s attorney mentioned attorney fees only under RESPA.
Without the benefit of examining the settlement agreement, or at least a
detailed stipulation on the terms of the attorney fees provision, we decline to
speculate on the extent to which Potter reserved the right to recover attorney fees.
Because Potter failed to establish a clear interest in attorney fees, we cannot conclude
Potter possesses a continuing personal stake in the litigation. Absent a continuing
personal stake in the litigation, Potter fails to satisfy the case or controversy
requirement of Article III.
III. CONCLUSION
For the forgoing reasons, Potter’s appeal of the district court’s denial of class
certification is moot. This appeal is dismissed.
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A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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