Banneck v. Federal National Mortgage Association, No. 3:2017cv04657 - Document 94 (N.D. Cal. 2018)

Court Description: ORDER DENYING MOTION TO CERTIFY MAY 18, 2018 ORDER FOR INTERLOCUTORY REVIEW by Judge William H. Orrick denying 76 Motion. (jmdS, COURT STAFF) (Filed on 10/29/2018)
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Banneck v. Federal National Mortgage Association Doc. 94 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 JAMES BANNECK, Plaintiff, 8 United States District Court Northern District of California 9 Case No. 17-cv-04657-WHO v. 10 FEDERAL NATIONAL MORTGAGE ASSOCIATION, 11 Defendant. ORDER DENYING MOTION TO CERTIFY MAY 18, 2018 ORDER FOR INTERLOCUTORY REVIEW Re: Dkt. No. 76 12 13 14 INTRODUCTION Intervenor, the Federal Housing Finance Agency (“FHFA”), requests an amendment to the 15 May 18, 2018 Order adding language that “the court is of the opinion that this order involves a 16 controlling question of law as to which there is substantial ground for difference of opinion and 17 that an immediate appeal from the order may materially advance the ultimate termination of the 18 litigation.” This would certify an interlocutory review of the Order and resolve two controlling 19 questions of law: (i) whether 12 U.S.C. § 4617(f) (the “Equitable Relief Bar”) prohibits injunctive 20 relief against defendant Federal National Mortgage Association (“Fannie Mae”) while in an FHFA 21 conservatorship; and (ii) whether 12 U.S.C. § 4617(j)(4) (the “Penalty Bar”) prohibits statutory 22 damages against Fannie Mae while in an FHFA conservatorship. These are not controlling 23 questions of law and an interlocutory appeal would protract this litigation. For the reasons 24 discussed below, the motion to certify the May 18, 2018 Order for interlocutory review under 28 25 U.S.C. § 1292(b) is DENIED. 26 27 28 Dockets.Justia.com 1 BACKGROUND1 2 Banneck filed his consumer class action against Fannie Mae on August 12, 2017, asserting 3 two California Consumer Credit Reporting Agencies Act (“CCRAA”) claims and one claim under 4 the federal Fair Credit Reporting Act (“FCRA”). See Compl. (Dkt. No. 1). He alleged that Fannie 5 Mae’s Desktop Underwriter (“DU”) system, used by lenders to determine loan eligibility, 6 generated DU Findings Reports that inaccurately identified sales as foreclosures and prevented 7 consumers from getting loan applications approved. He also claimed that Fannie Mae prohibited 8 mortgage originators from giving consumers a copy of their DU Findings Reports. After an initial motion to dismiss, Banneck amended his complaint on March 21, 2018. United States District Court Northern District of California 9 10 See Amended Compl. (Dkt. No. 45). Fannie Mae filed a second motion to dismiss asserting that it 11 was not subject to the CCRAA and FCRA. According to Fannie Mae, under the Housing and 12 Economic Recovery Act of 2008 (“HERA”) it could not be liable for statutory damages due to the 13 Penalty Bar, or injunctive relief due to the Equitable Relief Bar. See Mot. to Dismiss Amended 14 Compl. (Dkt. No. 49). On May 18, 2018, I denied Fannie Mae’s second motion to dismiss, finding the statutory 15 16 damages claim for alleged FCRA violations against Fannie Mae did not implicate HERA’s 17 Penalty Bar. I also found HERA’s Equitable Relief Bar did not preclude Banneck from seeking 18 injunctive relief under CCRAA. In response to the May 18, 2018 Order, FHFA moved to 19 intervene as conservator for Fannie Mae, seeking interlocutory review of the prior Order. See 20 Mot. to Intervene (Dkt. No. 61). 21 DISCUSSION 22 For the court to certify the two questions FHFA seeks to resolve by interlocutory review, 23 there must be: (i) a controlling question of law; (ii) substantial grounds for difference of opinion; 24 and (iii) a likelihood that an immediate appeal may materially advance the ultimate termination of 25 the litigation. 28 U.S.C. § 1292(b). Generally, interlocutory review is applied “only in 26 exceptional cases where decision of an interlocutory appeal might avoid protracted and expensive 27 28 1 The facts in this case were summarized at length in the May 18, 2018 Order on Motion to Dismiss Amended Complaint. See Order (Dkt. No. 58). 2 1 litigation. It was not intended merely to provide review of difficult rulings in hard cases.” U.S. 2 Rubber Co. v. Wright, 359 F.2d 784, 785 (9th Cir. 1966). Certification is at the discretion of the 3 district court. Swint v. Chambers Cnty. Comm’n, 514 U.S. 35, 47 (1995). I find FHFA has not 4 met its burden of satisfying all three requirements to justify the extraordinary remedy it seeks. 5 I. United States District Court Northern District of California 6 CONTROLLING QUESTION OF LAW The first requirement that FHFA raise a controlling question of law is satisfied if 7 “resolution of the issue on appeal could materially affect the outcome of the litigation.” In re 8 Cement Litig., 673 F.2d 1020, 1026 (9th Cir. 1982). The challenged issues need not be 9 dispositive of the entire lawsuit to be controlling. See Kuehner v. Dickinson & Co., 84 F.3d 316, 10 319 (9th Cir. 1996). Even though there is no definition of a controlling question of law, examples 11 include fundamental inquiries like “who are necessary and proper parties, whether a court to 12 which a cause has been transferred has jurisdiction, or whether state or federal law should be 13 applied.” Cement Litig., 673 F.2d at 1026 (citing United States v. Woodbury, 263 F.2d 784, 787 14 (9th Cir. 1959)). Relevant to the issues in this case, where an outcome “would not result in the 15 wrong party prevailing, but rather the calculation of any potential final judgment,” it does not rise 16 to the level of a controlling question of law materially affecting the outcome of the litigation. 17 Zulewski v. Hershey Co., Case No. 11-cv-05117-KAW, 2013 WL 1334159, at *1 (N.D. Cal. Mar. 18 29, 2013). 19 FHFA argues that its appeal would “materially affect the outcome of the litigation” 20 because a reversal would require the dismissal of Banneck’s claims for statutory damages and 21 injunctive relief. See Mot. at 5. Banneck responds that the claims will proceed on actual damages 22 regardless of such an appeal, and that the questions for which FHFA seeks review are not 23 substantially the same as exemplary controlling questions of law previously identified by the 24 Ninth Circuit. See Reply at 3–4. 25 Some courts have adopted the view that a question is controlling if a resolution “may 26 appreciably shorten the time, effort, or expense of conducting a lawsuit,” as FHFA argues, but the 27 Ninth Circuit has rejected this approach in analyzing the first requirement of a controlling question 28 of law. Cement Litig., 673 F.2d at 1027 (finding that the focus on time, effort, or expense is 3 1 “essentially reading the controlling question of law” requirement out of section 1292(b).”). 2 Regardless of the result on appeal, Banneck’s claims under the CCRAA and FCRA would remain. 3 Certifying an interlocutory appeal would not necessarily avoid the protracted litigation of this case 4 to determine other remedies like actual damages. Additionally, before I would even reach the question of an appropriate remedy, Banneck United States District Court Northern District of California 5 6 still must establish defendant’s liability. See Order at 14–15 (finding “if Fannie Mae has acted 7 beyond, or contrary to, its statutorily prescribed, constitutionally permitted, powers or function[,] 8 it would not be protected by HERA.” (internal quotations omitted)). FHFA is correct that an 9 immediate appeal would, if successful, preclude statutory damages due to the Penalty Bar and 10 injunctive relief due to the Equitable Relief Bar, but “in the name of avoiding costly litigation [ ] it 11 ignores the chance that this Court might resolve the matter at the liability phase. F.T.C. v. Swish 12 Mktg., Case No. 09-cv-03814-RS, 2010 WL 1526483, at *2 (N.D. Cal. Apr. 14, 2010). 13 Accordingly, FHFA has not persuasively demonstrated to me that the issues for which it seeks an 14 interlocutory review are controlling questions of law. 15 II. SUBSTANTIAL GROUNDS FOR DIFFERENCE OF OPINION A substantial ground for difference of opinion exists where “novel and difficult questions 16 17 of first impression are presented” on which “fair-minded jurists might reach contradictory 18 conclusions.” Reese v. BP Exploration (Ak.) Inc., 643 F.3d 681, 688 (9th Cir. 2001). Some 19 examples of substantial ground for difference of opinion include cases in direct conflict with the 20 holding in the Order sought for interlocutory review, or a split in authority on the questions posed. 21 See Bennett v. SimplexGrinnell LP, No. 11-cv-01854-JST, 2014 WL 4244045, at *2 (N.D. Cal. 22 Aug. 25, 2014). “A party’s strong disagreement with the Court’s ruling is not sufficient for there 23 to be a substantial ground for difference.” Couch v. Telescope Inc., 611 F.3d 629, 633 (9th Cir. 24 2010). 25 FHFA argues there are reasonable alternatives to the questions it seeks for certification, 26 because courts have not definitively ruled on these points of law. On the first question, whether 27 the Equitable Relief Bar prohibits injunctive relief against Fannie Mae while in an FHFA 28 conservatorship, the May 18 Order found that the Ninth Circuit’s analysis of a similar provision, 4 United States District Court Northern District of California 1 §1821(j), did not extend a bar to injunctive relief in situations where the receiver asserts authority 2 beyond what was granted to it as a receiver. See Order at 14 (citing Sharpe v. F.D.I.C., 126 F.3d 3 1147, 1155 (9th Cir. 1997). By its reference to analysis of § 1821(j), the Ninth Circuit made it 4 clear that the Equitable Relief Bar turned on an agency acting within, or beyond, “its statutorily 5 prescribed, constitutionally permitted, powers or functions.” Sharpe, 126 F.3d at 1155; see also 6 Sahni v. Am. Diversified Partners, 83 F.3d 1054, 1058 (9th Cir. 1996) (holding Section 1821(j) 7 barred a request for rescission because “the FDIC was acting well within its broad statutory 8 powers as receiver when it sold the HUD partnerships.”). I do agree with FHFA that there are 9 grounds for difference of opinion on injunctive relief. I applied § 1821(j) by analogy to the 10 question of HERA’s Equitable Relief Bar due to an absence of direct authority, and there is a split 11 in the circuits analyzing that statute. As for the second question of law, whether the Penalty Bar prohibits statutory damages 12 13 against Fannie Mae while in an FHFA conservatorship, there is not the same degree of uncertainty 14 in the Ninth Circuit. FHFA does not provide case law demonstrating a recognized circuit split. 15 The May 18 Order discussed how the Ninth Circuit’s decision in Bateman v. Am. Multi-Cinema, 16 Inc., 623 F.3d 708, 718 (9th Cir. 2010), demonstrated that the provisions are not punitive and 17 therefore, the Penalty Bar was inapplicable. The Order also cited several cases from other circuits 18 consistent with the analysis in Bateman. See Order at 7–8. FHFA’s desire to certify the second 19 question for interlocutory review is merely a disagreement with my prior ruling, not a substantial 20 ground for difference of opinion. 21 III. 22 MATERIAL ADVANCEMENT The final requirement that an appeal must be “likely to materially speed the termination of 23 the litigation” is related to the first requirement that there be a controlling question of law. 24 Ambrosio v. Cogent Commc’ns, Inc., No. 14-cv-02182-RS, 2016 WL 777775, at *3 (N.D. Cal. 25 Feb. 29, 2016) (quoting Villarreal v. Caremark LLC, 85 F. Supp. 3d 1063, 1071 (D. Ariz. 2015)). 26 Considering the effect of a reversal on the case, an interlocutory appeal materially advances the 27 termination of the litigation where it “promises to advance the time for trial or to shorten the time 28 required for trial.” Dukes v. Wal-Mart Stores, Inc., 01-cv-02252-CRB, 2012 WL 6115536, at *5 5 1 2 FHFA contends that resolving the questions of Banneck’s entitlement to statutory damages 3 and injunctive relief in its favor would advance the termination of this litigation because only 4 claims of actual and compensatory damages would remain. See Mot. at 12-13. It also suggests 5 that without an immediate appeal these issues would languish through summary judgment and 6 class certification and evade review until a final judgment, long after substantial time and 7 resources are poured into the litigation. In response, Banneck argues that regardless of the 8 outcome on appeal, his claims will continue either as is or with limited remedies that will still 9 need to be resolved through litigation. 10 United States District Court Northern District of California (N.D. Cal. Dec. 10, 2012) (quoting 16 Federal Practice & Procedure § 3930 at n. 39 (2d ed.)). Particularly relevant to the Penalty Bar issue, “most courts have found that damages do not 11 constitute ‘material advancement.’” Zulewski, 2013 WL 1334159, at *2 (finding any reversal 12 would only reduce damages but not resolve entire causes of action or the litigation of the 13 substantive claim); see also Sonoda v. Amerisave Mortg. Corp., 11-cv-1803-EMC, 2011 WL 14 3957436, at *3 (N.D. Cal. Sept.7, 2011) (finding unspecified damages are insufficient to create 15 exceptional circumstances); Swish Mktg., 2010 WL 1526483, at *4 (finding the issue of an 16 appropriate remedy is not exceptional when liability has not yet been established). 17 The Ninth Circuit’s decision on the proposed interlocutory appeal would not resolve 18 liability and the remaining damages issues at trial, no matter the outcome reached on the 19 possibility of recovering statutory damages or injunctive relief. See Swish Mktg., 2010 WL 20 1526483, at *4 (finding the issue is not exceptional when liability has not yet been established); 21 see also Realtek Semiconductor Corp. v. LSI Corp., No. C-12-03451-RMW, 2013 WL 3568314, at 22 *3 (N.D. Cal. July 12, 2013) (“The possibility of avoiding some liability does not comport with 23 the purpose of § 1292(b) certification, which is to be used only in ‘exceptional circumstances’ not 24 present here.”). An interlocutory appeal would not satisfy the “material advancement” factor. 25 26 27 28 6 1 2 3 4 5 CONCLUSION For the reasons stated, the motion to certify the May 18 Order for interlocutory review is DENIED. IT IS SO ORDERED. Dated: October 29, 2018 6 7 William H. Orrick United States District Judge 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7