TLPJ Challenges Proposed Class Action Settlement Against Financial Giant Accused of Predatory Lending and Home Mortgage Fraud

Objections Charge that Forced Settlement of Class Members’ Punitive Damages Claims Violates Their Constitutional Right to Opt Out

Trial Lawyers for Public Justice (TLPJ) is challenging a proposed class action settlement of predatory lending claims against Washington Mutual Finance Group, LLC (Washington Mutual) and other affiliated financial institutions as an abuse of both the class action device and class members’ rights. In objections recently filed on behalf of class members, TLPJ contends that the proposed settlement in Baker v. Washington Mutual Finance Group, currently pending in the United States District Court for the Southern District of Mississippi (Gulfport Division), unconstitutionally attempts to cap the defendants’ liability by preventing class members from opting their claims for punitive damages out of the class action settlement.

"This is a clear-cut example of class action abuse," said TLPJ Goldberg-Deitzler Fellow Richard H. Frankel, lead counsel for the objecting class members. "Class members have a constitutional right to opt out of class action settlements. By preventing them from opting their punitive damages claims out of the settlement, the defendants are seeking to limit their own liability at the expense of the class members’ rights to have their own day in court. The law simply does not permit this result."

Seattle-based Washington Mutual currently operates more than 2,400 consumer banking, mortgage lending, commercial banking, consumer finance, and financial services offices in 41 states. The class action lawsuit, pending before the Honorable Walter J. Gex, charges that Washington Mutual committed home mortgage fraud and other predatory lending practices against Mississippi homeowners. The suit alleges that Washington Mutual took advantage of individuals seeking the benefits of home ownership by misleading them about the value of their homes, imposing excessive and unnecessary expenses upon them, requiring them to purchase insurance they did not need as a condition of buying their homes, and charging illegally high interest rates. The complaint in the case, filed on March 23, 2004 on behalf of thousands of Mississippi homeowners, seeks both compensatory and punitive damages.

If approved, the proposed settlement will establish a $7 million damages fund to be distributed among class members who file claims forms. Attorneys’ fees, which will be paid out of the class’s damages fund, would be between $1.7 and $2.1 million. Class members will have the right to opt their claims for compensatory damages out of the settlement and pursue them in individual cases against the defendant. The settlement provides, however, that the class is "mandatory" with respect to claims for punitive damages, and that class members who opt their compensatory claims out of the class will not be permitted to seek any punitive damages against the defendants. TLPJ’s objections, filed September 16, 2004, contend that the no-opt-out portion of the settlement violates both the U.S. Constitution and the federal class action rule by depriving the class members of the right to opt out.

"This settlement perverts the central purpose of the class action device," said co-counsel for objectors Charles R. Mullins of Coxwell & Associates in Jackson, Mississippi. "Class actions are supposed to protect the rights of those who want to participate in a settlement, as well as those who want to exclude themselves from it."

"These Mississippi homeowners should not have been forced by the defendants to take out loans and buy insurance that they did not need. Now they should not be forced into a settlement that they may not want," said TLPJ Staff Attorney Leslie A. Brueckner, who assisted with the objections.

TLPJ’s objections also challenge the validity of several other aspects of the proposed settlement, including a broadly worded release of liability that forces class members to give up all present and future claims against Washington Mutual and to give up the right to defend against foreclosure on their homes. The objections also challenge the fact that the settlement requires class members to submit complicated claims forms before obtaining any relief from the settlement, arguing that Washington Mutual should be required to distribute its ill-gotten gains directly to the class. The objections explain that, because available statistics from other class action settlements indicate that very few class members submit claims forms, this hurdle threatens to leave a high percentage of the class with no relief at all.

TLPJ’s objections to the settlement in Baker were filed as part of its Class Action Abuse Prevention Project, a nationwide campaign dedicated to monitoring, exposing, and fighting class action abuse nationwide. In addition to Frankel, Mullins, and Brueckner, TLPJ’s legal team includes TLPJ Staff Attorney Michael J. Quirk. TLPJ’s objections in Baker are posted online at www.tlpj.org.

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Trial Lawyers for Public Justice is the only national public interest law firm dedicated to using trial lawyers’ skills and resources to advance the public good. Founded in 1982, TLPJ utilizes a nationwide network of more than 3,000 outstanding trial lawyers to pursue precedent-setting and socially significant litigation. It has a wide-ranging litigation docket in the areas of consumer rights, environmental protection, toxic torts, worker safety, civil rights and liberties, and access to the courts. TLPJ is the principal project of The TLPJ Foundation, a not-for-profit membership organization. It has offices in Washington, DC, and Oakland, CA.