KRISTINE COWLES V BANK WEST
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STATE OF MICHIGAN
COURT OF APPEALS
KRISTINE COWLES,
FOR PUBLICATION
August 5, 2004
9:05 a.m.
Plaintiff-Appellant,
and
KAREN B. PAXSON,
Intervening Plaintiff-Appellant,
v
No. 229516
Kent Circuit Court
LC No. 98-006859-CP
BANK WEST, f/k/a BANK WEST FSB,
Defendant-Appellee.
Official Reported Version
Before: Gage, P.J., and O'Connell and Zahra, JJ.
GAGE, P.J.
Plaintiffs appeal by leave granted from the trial court's March 24, 2000, order summarily
dismissing intervening plaintiff Karen B. Paxson's claim under the Truth in Lending Act (TILA),
15 USC 1601 et seq., as barred by the applicable statute of limitations. Summary disposition
was previously granted to defendant on plaintiffs' other pleaded claims. We affirm in part,
reverse in part, and remand for further proceedings consistent with this opinion.
Plaintiff Kristine Cowles received a residential real estate mortgage loan from defendant,
which loan closed on February 7, 1997. Cowles was charged a $250 document preparation fee,
and the fee was disclosed on Line 1105 of her United States Department of Housing and Urban
Development settlement statement (HUD-1), a standardized form used in residential real estate
loan closings.
On July 1, 1998, Cowles filed a complaint alleging several claims related to the document
preparation fee. The complaint was filed on her own behalf and that of a class of consumers
similarly wronged by the payment of the document preparation fee. The class was defined to
include all consumers who obtained real estate loans in Michigan from defendant and who were
charged with, and paid or financed, the document preparation fee in the six-year period before
the date of the filing of the complaint. Cowles specifically alleged that defendant's conduct in
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preparing documents and charging a fee for the service constituted the unauthorized practice of
law. She also alleged violations of the Michigan Consumer Protection Act (MCPA), MCL
445.901 et seq., and claims for replevin, unjust enrichment, innocent misrepresentation, and
negligent misrepresentation.
On August 20, 1998, Cowles amended her complaint to add an allegation that the charged
document preparation fee violated TILA, 15 USC 1638, because the document preparation fee
was improperly identified on the TILA disclosure form as a fee "paid to others on your behalf."
The fee was actually retained by the bank and not paid to others. Cowles also alleged that the
document preparation fee exceeded the cost of actual preparation of the "final legal papers."
Defendant's motion for summary disposition on the TILA claim was granted. Plaintiffs have not
appealed that ruling.
On February 16, 1999, Cowles filed a second amended complaint, alleging another TILA
violation, specifically that defendant's failure to disclose the document preparation fee violated
15 USC 1605(a), and Regulation Z, 12 CFR 226.4(c)(7).
The trial court subsequently certified the class as described in Cowles's, second amended
complaint with Cowles acting as the class representative for all the claims. Defendant moved for
reconsideration, arguing that Cowles's individual TILA claim was time-barred by the statute of
limitations and thus she could not represent the class with respect to that claim. Defendant also
moved for summary disposition on the merits of the TILA claim.
Paxson thereafter moved to intervene in the action and serve as the class representative
for the TILA claim. Paxson obtained a residential refinancing loan from defendant on February
9, 1998, and was charged the $250 document preparation fee. Paxson's motion to intervene was
granted, and she filed a complaint in intervention. The trial court later granted summary
disposition to defendant on Cowles's TILA claim, finding that the statute of limitations barred
her claim. The statute of limitations for a TILA claim is one year from the date of the alleged
violation. 15 USC 1640(e). Cowles filed her initial complaint on July 1, 1998, more than one
year after the closing on her loan. Her TILA claim was time-barred before she filed her initial
complaint.
On January 10, 2000, the trial court granted summary disposition to defendant on all of
plaintiffs' remaining claims with the exception of Paxson's TILA claim. Thereafter, both
defendant and Paxson separately moved for summary disposition on the TILA claim. The trial
court eventually ruled that Paxson's TILA claim was meritorious but was barred by the
applicable statute of limitations. It determined that the claim accrued more than one year before
the TILA claim was pleaded in Cowles's second amended complaint. Thus, the claim was
untimely. The trial court did not relate the second amendment of the complaint back to the filing
of the initial complaint.
This Court granted plaintiffs' application for leave to appeal and then held the appeal in
abeyance pending the Supreme Court's resolution of Dressel v Ameribank, 468 Mich 557; 664
NW2d 151 (2003). In Dressel, the Court held that a bank does not engage in the unauthorized
practice of law when it completes standard mortgage forms and charges a fee for that service. Id.
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at 569. This ruling resolved plaintiffs' unauthorized practice of law issue, which was then
dismissed by order of this Court. We now address plaintiffs' remaining allegations of error.
I
Plaintiffs first argue that the trial court erred in granting summary disposition on the
MCPA claims. We disagree. In Newton v Bank West, 262 Mich App 434; ___ NW2d ___
(2004), we recently held that the defendant's residential mortgage loan transactions were exempt
from the MCPA by virtue of MCL 445.904(1)(a). Because the transactions are exempt from the
provisions of the MCPA, summary disposition on those claims was appropriate.
II
Plaintiff Paxson next challenges the trial court's grant of summary disposition to
defendant on her TILA claim. Neither the Michigan Court of Appeals nor the Michigan
Supreme Court has decided whether the amendment of a class action complaint to add new
theories of liability relates back to the filing of the initial complaint for purposes of computing
the expiration of the period of limitations. Thus, whether Paxson's TILA cause of action was
barred by the period of limitations involves an issue of first impression and an issue of law,
which is reviewed de novo. Collins v Comerica Bank, 468 Mich 628, 631; 664 NW2d 713
(2003).
The TILA claim was formally pleaded in Cowles's second amended complaint, which
was filed on February 16, 1999. Defendant argues that the statute of limitations for Paxson and
all other class members was not tolled with respect to that claim on that date. When the second
amended complaint was filed, more than one year had passed since Paxson's TILA claim accrued
on February 9, 1998. Therefore, defendant argues that Paxson's claim is barred by the statute of
limitations. We disagree.
MCR 3.501(F)(1) provides that the statute of limitations is tolled with respect to all
persons within the class described in the complaint on the commencement of an action asserting
a class action. MCR 3.501(F)(2) delineates several circumstances in which the statute of
limitations resumes running against class members, specifically, on the filing of a notice of the
plaintiff 's failure to move for class certification; twenty-eight days after notice of the entry,
amendment, or revocation of an order of certification eliminating the person as a member of the
class; entry of an order denying certification of the action as a class action; submission of an
election to be excluded from the class; or final disposition of the action.
Paxson was a member of the original class described in the complaint on the
commencement of Cowles's original class action. The class was ultimately certified and none of
the circumstances of MCR 3.501(F)(2) occurred that could have caused the period of limitations
to resume running against Paxson or any other class members. Thus, we find that the statute of
limitations was tolled with respect to Paxson. The question then arises whether amendments to
the complaint, adding claims arising out of the conduct, transaction, or occurrence alleged in the
original complaint, relate back to the date of the initial filing when the statute of limitations was
tolled.
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We initially observe that the court rules governing representative actions, as set forth in
subchapter 3.500 of the Michigan Court Rules, are not comprehensive. Thus, the general, civil
procedure court rules must necessarily be applied to supplement the specific rules pertaining to
representative actions.
There is no particular court rule or authority governing the relation back of amendments
in class action lawsuits. MCR 2.118(D), however, provides the general rule that an amendment
adding a claim relates back to the date of the original pleading if the claim asserted in the
amended pleadings arose out of the conduct, transaction, or occurrence set forth, or attempted to
be set forth in the original pleading. An amended pleading may introduce new facts, new
theories, or even a different cause of action as long as the amendment arises from the same
transaction set forth in the original pleading. Doyle v Hutzel Hosp, 241 Mich App 206, 212-213;
615 NW2d 759 (2000), citing LaBar v Cooper, 376 Mich 401, 406; 137 NW2d 136 (1965).
More than thirty years ago, the Supreme Court departed from the strictures of its old rulings and
determined that amendments arising "out of the conduct, transaction, or occurrence set forth or
attempted to be set forth in the original pleading" were permitted. LaBar, supra at 407-408.
"The test [] is no longer whether an amendment states a new cause of action, but is whether it
arises out of the conduct, transaction, or occurrence alleged in the original pleading sought to be
amended." Id. Michigan courts have consistently adhered to the aforementioned rule of law.
Amendments setting forth new legal theories are not barred by the applicable statutes of
limitation if derived from the same transactional setting. Doyle, supra at 219-220.
The federal rules of civil procedure and prior United States Supreme Court decisions also
provide that amendments relate back to the initial filing for purposes of the statute of limitations.
Tiller v Atlantic C L R Co, 323 US 574, 581; 65 S Ct 421; 89 L Ed 465 (1945). In Tiller, the
plaintiff originally sued under one federal act and later amended to add a new theory of liability
under another federal act. Id. at 575. The amendment was made after the period of limitations
had expired on the newly asserted claim. Id. at 580. The Supreme Court held that both theories
of liability related to the same general conduct, transaction, or occurrence. Id. at 581. "The
cause of action now, as it was in the beginning, is the sameāit is a suit to recover damages for
the alleged wrongful death of the deceased." Id.
There is no reason to apply a statute of limitations when, as here, the
respondent has had notice from the beginning that petitioner was trying to enforce
a claim against it because of the events leading up to the death of the deceased in
respondent's [railroad] yard. [Id.]
In this case, the cause of action was always to recover damages related to the document
preparation fee charged in connection with the residential mortgage loans. The additional theory
under the TILA, which was added through the second amended complaint, related to the same
conduct or transaction as pleaded in the original complaint.
We disagree that the ruling in American Pipe & Constr Co v Utah, 414 US 538; 94 S Ct
756; 38 L Ed 2d 713 (1974), compels us to disregard the general rule of the relation-back
doctrine when the action is a representative one and not an individual one. The Court in
American Pipe did not address an amendment in a class action lawsuit and did not address the
relation back of amendments. In that case, several individuals and companies were sued by the
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United States government to restrain them from violating the Sherman Act and for violations of
the Clayton Act, and False Claims Act. Id. at 540. The Clayton Act, 15 USC 16(b), provided
that, when a proceeding is instituted by the United States to enforce antitrust laws, the running of
the statute of limitations "in respect of every private right of action arising under said laws," and
based on any matter complained of in the proceeding, is suspended during the pendency of the
proceeding and for one year after. Id. at 541-542. Within one year after judgment was entered
in the litigation between the United States and the several entities, the state of Utah commenced
a class action for damages against American Pipe and other companies based on a Sherman Act
violation. Id. at 541. The defendants moved for an order declaring that the suit could not be
maintained as a class action. Id. at 542-543. The motion was granted, and class certification was
denied. Eight days later, more than sixty parties, who were described as members of the original
class, moved to intervene as plaintiffs in Utah's action. Id. at 543-544. Their motions were
denied by the district court because the period of limitations on the individual claims, as tolled
by 15 USC 16(b), had run. Id. at 544. The filing of Utah's class action did not toll the statute of
limitations. Id. The Ninth Circuit Court of Appeals reversed, and the Supreme Court later
granted certiorari to consider the tolling issue. Id. at 541-545.
The Supreme Court, noting that a federal class action is truly a representative suit
designed to avoid repetitious filings, determined that the commencement of the action by the
state of Utah satisfied the purpose of the limitation provision with respect to all those who might
subsequently participate in the suit, as well as the named plaintiffs. American Pipe, supra at
550-551. Until the issue of class certification was decided, the statute of limitations was tolled:
Rule 23 is not designed to afford class action representation only to those
who are active participants in or even aware of the proceedings in the suit prior to
the order that the suit shall or shall not proceed as a class action. During the
pendency of the District Court's determination in this regard, which is to be made
"as soon as practicable after the commencement of an action," potential class
members are mere passive beneficiaries of the action brought in their behalf. Not
until the existence and limits of the class have been established and notice of
membership has been sent does a class member have any duty to take note of the
suit or to exercise any responsibility with respect to it in order to profit from the
eventual outcome of the case. It follows that even as to asserted class members
who were unaware of the proceedings brought in their interest or who
demonstrably did not rely on the institution of those proceedings, the later running
of the applicable statute of limitations does not bar participation in the class action
and its ultimate judgment. [Id. at 552.]
The Supreme Court unequivocally held that "the commencement of a class action suspends the
applicable statute of limitations with respect to all asserted members of the class who would have
been parties had the suit been permitted to continue as a class action." Id. at 554. The Court
additionally discussed that its ruling was not inconsistent with the functional operation of a
statute of limitations. Id.
[S]tatutory limitation periods are "designed to promote justice by
preventing surprises through the revival of claims that have been allowed to
slumber until evidence has been lost, memories have faded, and witnesses have
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disappeared. The theory is that even if one has a just claim it is unjust not to put
the adversary on notice to defend within the period of limitation and that the right
to be free of stale claims in time comes to prevail over the right to prosecute
them." The policies of ensuring essential fairness to defendants and of barring a
plaintiff who "has slept on his rights," are satisfied when, as here, a named
plaintiff who is found to be representative of a class commences a suit and
thereby notifies the defendants not only of the substantive claims being brought
against them, but also of the number and generic identities of the potential
plaintiffs who may participate in the judgment. Within the period set by the
statute of limitations, the defendants have the essential information necessary to
determine both the subject matter and size of the prospective litigation, whether
the actual trial is conducted in the form of a class action, as a joint suit, or as a
principal suit with additional interveners. [Id. at 554-555 (citations omitted;
emphasis added).]
Both defendant and the trial court interpret the ruling in American Pipe to require
notification of specific causes of action before the period of limitations on those claims expires.
Given that the American Pipe Court was not addressing the relation back of amendments, we
decline to interpret the language in that manner. Unlike the class in American Pipe, the class in
the instant case was certified, and the statute of limitations continued to be tolled "as to all
persons within the class described in the complaint." MCR 3.501(F). By way of the initial
pleading, defendant was put on notice of the subject matter of the suit, specifically the document
preparation fee and the manner in which it was disclosed and handled. Defendant was also put
on notice of the size of the prospective class as outlined in the initial complaint.
In Crown, Cork & Seal Co v Parker, 462 US 345; 103 S Ct 2392; 76 L Ed 2d 628 (1983),
the Court revisited its ruling in American Pipe. Again, however, the Court was not called on to
address the relation back of amendments in class action litigation. In Crown, class certification
was denied in an employment discrimination action. Id. at 347-348. Within ninety days of the
denial of class certification, the respondent filed a separate action alleging his claim for
employment discrimination. Id. at 348. The trial court dismissed the action on the ground that it
was not timely filed. Id. The Fourth Circuit Court of Appeals reversed, and the Supreme Court
granted certiorari. Id. at 348-349. The Supreme Court ruled that the filing of a class action tolls
the statute of limitations for all asserted class members and not just those who subsequently
intervene in the named plaintiffs' action. Id. at 350. If the filing of the class action did not toll
the statute of limitations, class members would not be able to rely on the existence of the suit to
protect their rights. Id. "Only by intervening or taking other action prior to the running of the
statute of limitations would they be able to ensure their rights would not be lost in the event that
class certification was denied." Id. The Court noted that there would be a needless multiplicity
of actions if every class member, who was fearful that class certification might be denied, took
steps to file their own action. Id. at 350-351.
In this case, Paxson and other members of the potential class were entitled to rely on the
existence of the class action and attendant tolling provisions to protect their rights with respect to
claims arising from the charging of the document preparation fee. Cowles moved to file her
second amended complaint, adding the TILA claim, before the period of limitations expired on
Paxson's individual claim. If Paxson were not permitted to rely on the tolling provisions to
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protect her TILA claim, every member of the class would be compelled to intervene and assert
their separate claims without waiting to determine how the class action litigation would develop.
More importantly, class members for whom the period of limitations may expire while a motion
to amend to add the new claim is pending, could only protect their rights by intervening or filing
separate actions to maintain those claims in the event that amendment is denied or is ordered
after the period of limitations expires on their individual claims. The resulting multiplicity of
actions would negate the efficiency for which class action litigation is designed.
Our ruling does not unfairly disadvantage class action defendants. Applicable court rules
govern the amendment of pleadings. Thus, plaintiffs would not be able to add new theories or
causes of action without stricture.1 The dissent states that this "approach allows a massive suit,
brimming with countless phantom plaintiffs, to rise repeatedly from its own ashes like a litigious
Phoenix until a vexed and exhausted defendant finally pays it enough money to haunt someone
else." Post at ___. This case is not, however, about resurrecting or manufacturing a new claim
with a new class of plaintiffs, but is about protecting the claims of class members who relied on
the class action.
Moreover, defendant herein is not disadvantaged any more than if each plaintiff in the
class had filed separate suits at the outset or filed separate TILA claims before the period of
limitations expired on their individual claims. If Paxson had filed an individual lawsuit on July
1, 1998, alleging the unauthorized practice of law, and later moved to amend to add the TILA
claim, there is no question that the claim would relate back to the date of her original pleading
regardless of whether the period of limitations on the TILA claim had expired. MCR 2.118(D).
If the class action is truly a representative suit, then Paxson should not be treated differently
because she was merely a member of a class in a representative action and not a named plaintiff
in an independent action. We find no reason, nor do we find any controlling authority, that
requires departure from the general rule of the relation-back doctrine when the action is a
representative one and not an individual one.
In the conclusion of his dissent, Judge O'Connell indicates that he "would also hold that
certification of a class only tolls the statute of limitations for claims that originally and properly
received certification." Post at ___. This proposition is not supported by citation to authority or
by analogy to any authority, and it ignores the purpose of class litigation. If class members
cannot rely on the named plaintiff to toll the period of limitations on their claims, each class
member will be required to separately bring all claims in his own name on the chance that the
representative plaintiff will later be found to have an invalid claim and that the benefit of tolling
will not apply. As is noted before, if Paxson had filed an individual lawsuit and later moved to
1
The dissent raises an unfounded concern that, without ruling in the manner suggested, the
plaintiffs will continue to conjure legal issues and amend their complaint. This assertion
completely disregards that trial courts have discretion with respect to the amending of
complaints. MCR 2.118(A)(2). Plaintiffs in class action lawsuits will not have unfettered
discretion to keep amending the complaint until they find a cause of action on which they can
prevail.
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amend to add the TILA claim, there is no question that the claim would relate back to the date of
her original pleading under MCR 2.118(D). The dissent does not address why this result should
change where the situation involves a class action suit and Paxson was initially an unnamed
plaintiff. It bears repeating that no new class members will be added or will benefit from the
relation-back doctrine.
Further, our ruling does not unfairly disadvantage defendant with respect to the number
of class members. The relation-back doctrine does not apply to the addition of new parties. Hurt
v Michael's Food Ctr, Inc, 220 Mich App 169, 179; 559 NW2d 660 (1996); Yudashkin v Holden
(On Remand), 247 Mich App 642, 649; 637 NW2d 257 (2001). In Arneil v Ramsey, 550 F2d
774, 782-783 (CA 2, 1977), the court ruled that, because the plaintiffs were not members of the
originally asserted class, they could not rely on tolling to save their claims. The filing of the
initial complaint in Arneil did not put the defendant on notice of the existence and number of
plaintiffs outside of the definition of the class found within the initial pleading. Id. Defendant
herein argues that the second amended complaint expanded the class in this case. Any class
members added by way of the second amended complaint, however, are new parties, not a "fresh
class" of plaintiffs as the dissent claims. They may not avail themselves of the relation-back
doctrine to save claims that may be time-barred. The initial complaint advised defendant of the
size of the class with which it was dealing.
This is not a situation where Paxson tried to "piggyback" class actions. The rule against
"piggybacking" operates to preclude plaintiffs the opportunity to argue and reargue the question
of class certification by filing new but repetitive class actions. Andrews v Orr, 851 F2d 146, 149
(CA 6, 1988), citing Korwek v Hunt, 827 F2d 874, 879 (CA 2, 1987). The "pendency of a
previously filed class action does not toll the statute of limitations period for additional class
actions by putative members of the original asserted class." Id. In this case, there was only one
class action. There were no new, repetitive actions filed by any of the plaintiffs in the class.
Within the statutory period, defendant was put on notice that Cowles and members of the
class were seeking monetary damages related to the payment of the document preparation fee.
Because the legal theories asserted in the initial complaint and the second amended complaint
were derived from the same transactional setting of which defendant had notice, the amendments
relate back to the initial filing, and Paxson's TILA claim is not barred by the statute of
limitations. Doyle, supra at 219-220.
In reaching our conclusion, we reject the argument that the statute of limitations never
tolled on the TILA claims because the period of limitations expired before Cowles's complaint
was filed; and, thus, she was never a valid class representative for that claim. It is well-settled
that a plaintiff who cannot maintain the cause of action as an individual is not qualified to
represent the proposed class. A & M Supply Co v Microsoft Corp, 252 Mich App 580, 598; 654
NW2d 572 (2002). However, when the class was certified in this case, there were plaintiffs like
Paxson in the class who had valid TILA claims and could have served as the class representative
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for those claims.2 The court could have allowed any appropriate class member to substitute as
the class representative. In Haas v Pittsburgh Nat'l Bank, 526 F2d 1083, 1095 (CA 3, 1975), the
class should never have been certified with Haas as the representative for claims against a
particular defendant. Haas's standing to remain as the class representative for the particular
claims was challenged after the class was certified. Id. The court ordered that a nominal
plaintiff be added to represent the class for the particular claims. Id. at 1095-1096. The only
change in the class action effectuated by the order was the addition of a nominal plaintiff with
standing. Id. at 1097. The newly named plaintiff was in existence and described in the class at
the time the complaint was initially filed by Haas. Id. Class members have a right to rely on
their representatives until the court rules otherwise. Brink v DaLesio, 667 F2d 420, 428 (CA 4,
1981). Paxson and other class members had a right to rely on Cowles as the class representative.
Allowing Paxson to intervene as a named plaintiff affected the class action only by adding a
named plaintiff to prosecute the properly added TILA claim.3
In sum, we conclude that the relation-back doctrine applies to Paxson's TILA claim and
the claim was improperly dismissed on motion for summary disposition.
III
Given our decision that Paxson's TILA claim was improperly dismissed on statute of
limitations grounds, we need to address defendant's alternative argument that summary
disposition was nevertheless warranted as a matter of law. MCR 2.116(C)(10). A motion under
MCR 2.116(C)(10) tests the factual support for a plaintiff 's claim. Murad v Professional &
Admin Union Local 1979, 239 Mich App 538, 541; 609 NW2d 588 (2000). The pleadings,
affidavits, depositions, admissions, and other documentary evidence is considered in the light
most favorable to the nonmoving party to determine whether there exists a genuine issue of
material fact for trial. Id.
2
We find it interesting that the dissent incorrectly refers to Paxson as a "new party" to the action.
Paxson was a member of the original class of plaintiffs. She was an unnamed plaintiff until she
moved to intervene, and the class of plaintiffs was defined at the outset. Our courts have
recognized that nonrepresentative members of a class are parties to the litigation. Warren
Consolidated Schools v W R Grace & Co, 205 Mich App 580, 585; 518 NW2d 508 (1994);
Pressley v Wayne Co Sheriff, 30 Mich App 300, 318; 186 NW2d 412 (1971). More importantly,
the United States Supreme Court recently ruled that unnamed or nonrepresentative members of a
class action are parties to the action for various procedural purposes; for example, the tolling of
the statute of limitations and appealing settlements or judgments. Devlin v Scardelletti, 536 US
1, 9-11; 122 S Ct 2005; 153 L Ed 2d 27 (2002).
3
The trial court ruled that the relation-back doctrine did not apply, and that decision had nothing
to do with the class certification order. The dissent inexplicably focuses on the decision allowing
Paxson to intervene and file her complaint in intervention, and no appeal was taken from this
decision.
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Paxson pleaded a violation of the TILA based on defendant's failure to include the
document preparation fee as part of the annual percentage on the Truth in Lending disclosure
statement. 15 USC 1605(a) provides:
Except as otherwise provided in this section, the amount of the finance
charge in connection with any consumer credit transaction shall be determined as
the sum of all charges, payable directly or indirectly by the person to whom the
credit is extended, and imposed directly or indirectly by the creditor as an incident
to the extension of credit. The finance charge does not include charges of a type
payable in a comparable cash transaction. The finance charge shall not include
fees and amounts imposed by third party closing agents (including settlement
agents, attorneys, and escrow and title companies) if the creditor does not require
the imposition of the charges or the services provided and does not retain the
charges.
Subsections 1 through 6 of 15 USC 1605(a) set forth a list of examples of charges that are
included in the finance charge. Additionally, 15 USC 1605(e) provides a list of items that shall
not be included in the computation of the finance charge. One of those items is "fees for
preparation of loan-related documents." 15 USC 1605(e)(2). Paxson additionally pleaded that
defendant's failure to disclose the document preparation fee as part of the finance charge on the
itemization of the amount financed violated Regulation Z, 12 CFR 226.4(c)(7), which instructs
that fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or
settlement documents, are excluded from the finance charge if they are bona fide and reasonable
in amount.
A resolution of the issue involves interpretation of federal law. When construing federal
statutes and regulations, we are governed by authoritative decisions of the federal courts.
Bement v Grand Rapids & I R Co, 194 Mich 64, 65-66; 160 NW 424 (1916). Where no decision
on a particular issue has been rendered by the United States Supreme Court, we are free to adopt
decisions of the lower federal courts if we find their analysis and conclusions persuasive and
appropriate for our jurisprudence. Abela v Gen Motors Corp, 469 Mich 603, 606-607; 677
NW2d 325 (2004).
In Brannam v Huntington Mortgage Co, 287 F3d 601 (CA 6, 2002), the plaintiffs argued
that the $250 document preparation fee was not bona fide and reasonable such that it could be
excluded from the finance charge. The court acknowledged that the TILA exempts fees for
preparation of loan-related documents from the computation of the finance charge. Id. at 603.
The Sixth Circuit Court of Appeals considered whether the $250 fee was bona fide and
reasonable. Id. at 603-604. The evidence did not support that the fee covered anything more
than document preparation costs. Thus, there was no evidence to support that the fee was not
"bona fide" under Regulation Z. Id. at 606. With respect to the reasonableness of the $250
charge, the court determined that a fee is reasonable if it is for a service actually performed and
reasonable in comparison to prevailing practices of the industry in the relevant market. Id. The
evidence supported that $250 was a reasonable document preparation fee for western Michigan.
Id.
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In this case, unlike in Brannam, there is a question of material fact with respect to
whether the fee was "bona fide." The term "bona fide," as used in Regulation Z, is not defined.
12 CFR 226.2(b)(3) provides that, unless a term is specifically defined in Regulation Z, "the
words used have the meanings given to them by state law or contract." We construe undefined
words used in statutes according to their plain and ordinary meanings. Cox v Flint Bd of Hosp
Mgrs, 467 Mich 1, 18; 651 NW2d 356 (2002). Resort to dictionary definitions is acceptable and
useful in determining ordinary meaning. Id. The term "bona fide" means made or done in good
faith, without deception or fraud, authentic, genuine, real. Random House Webster's College
Dictionary (1997). The purpose of TILA is to assure a meaningful disclosure of credit terms so
consumers may compare various credit terms to allow them to avoid uninformed uses of credit.
15 USC 1601(a); Inge v Rock Financial Corp, 281 F3d 613, 619 (CA 6, 2002). With that
purpose in mind, and using the ordinary definition of "bona fide," a document preparation fee is
not bona fide, authentic, or genuine, if it includes charges for items other than document
preparation.
There was evidence in this case to support that the document preparation charge was not
"bona fide." Paul Sydloski, defendant's president, testified that he believed that the document
preparation fee was charged to cover or defray defendant's expenses, specifically the costs
associated "with taking a loan through the entire sequence from the application through the
closing" and subsequently selling it to the secondary market or keeping it. Sydloski believed that
defendant's senior management employees held the same view. He was unsure whether there
was any difference between a document preparation fee and a loan processing fee. James
Koessel, the bank's chief lending officer, testified that the document preparation fee was initially
instituted at $100 to "defray some of the costs" incurred in preparing documents. Koessel
admitted, however, that the document preparation fee was eventually replaced by a "loanprocessing fee," which is properly disclosed as part of the finance charge. We believe the
evidence presents a question of material fact with respect to whether the fee was for a variety of
services necessary to take the loan from application through closing and beyond. Because a
genuine issue of material fact exists with respect to whether the fee was bona fide, summary
disposition on the merits of the TILA claim is inappropriate.
We note, however, that there is no question of material fact with respect to
reasonableness. We agree with the Brannam Court that reasonableness is measured by looking
at the marketplace, and we note that the market comparison approach is compatible with
ordinary dictionary definitions of the term "reasonable," which include logical, not exceeding the
limit prescribed by reason, not excessive, moderate. Random House Webster's College
Dictionary (1997). The Brannam Court determined that $250 was a reasonable document
preparation fee in west Michigan. Id. Paxson has failed to offer evidence to dispute that $250 is
reasonable in west Michigan for document preparation.
IV
Paxson also argues on appeal that, if this Court finds that her TILA claim was barred by
the statute of limitations, it should hold that the trial court abused its discretion in refusing to
allow Sandra and Robert Glasser to intervene and act as class representatives for that claim. We
need not address this issue in light of our ruling on Paxson's claim. Nevertheless, we find that
the trial court did not abuse its discretion in denying the Glassers' motion to intervene. Class
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members have a right to intervene, "subject to the authority of the court to regulate the orderly
course of action." MCR 3.501(A)(4). In general, permissive motions to intervene are considered
in light of whether intervention will result in undue delay or prejudice to the rights of the original
parties. MCR 2.209(B). The trial court's determination that intervention would interfere with
the orderly course of action, and would delay the action, is supported by the record before us.
Affirmed in part, reversed in part, and remanded for further proceedings consistent with
this opinion. We do not retain jurisdiction.
Zahra, J., concurred.
/s/ Hilda R. Gage
/s/ Brian K. Zahra
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