BANK OF AMERICA v. LP (2024)

¶1 The predominant issue before this court is whether it was error for the trial court to certify a class action that included non-resident class members contrary to 12 O.S. § 2023(D)(3). We hold it was and reverse.

¶2 Bank of America, N.A. commenced this action to foreclose its mortgage against Linsey Still (Plaintiff).¹ In her Third-Party Petition, Plaintiff sued her loan servicer, Selene Finance, LP, (Defendant) alleging it improperly charged inspection fees while she was in default even after it determined she was occupying her home. She moved the court to appoint her as representative of a class of borrowers in thirteen states who were charged the same type of fees by Defendant. The trial court certified the class and Defendant urges this was error because 12 O.S. § 2023(D)(3) requires that class membership be limited to Oklahoma residents. Plaintiff contends Defendant waived operation of the statute or is estopped from relying on it.

The Certified Class is Contrary to § 2023(D)(3)

¶3 Title 12 O.S. § 2023(D)(3) provides:

For actions filed after November 1, 2011, class membership shall be limited, unless otherwise agreed to by the defendant, only to individuals or entities who are:

a. residents of this state, or

b. nonresidents of this state who:

(1) own an interest in property located in this state where the property is relevant to the class action, or

(2) have a significant portion of the nonresident's cause of action arising from conduct occurring within the state;

Stated generally, § 2023(D)(3) limits class actions to Oklahoma residents, or nonresidents whose cause of action is sufficiently related to property or conduct within Oklahoma. In this case, the certified class is:

All citizens of the States of California, Texas, Florida, Missouri, Virginia, Connecticut, Georgia, Massachusetts, Iowa, New Jersey, Rhode Island, West Virginia, or Oklahoma who since March 14, 2016, had a United States Federal Housing Administration (FHA) loan with or serviced by Selene Finance, LP; who occupied the property; and who were charged an inspection fee(s) while still occupying the property.

It is undisputed that the appealed order does not comply with § 2023(D)(3) because the class is not limited to Oklahoma residents, or non-residents who were (1) charged inspection fees on property they owned in Oklahoma, or (2) affected by other significant conduct occurring within Oklahoma. Nevertheless, Plaintiff maintains there was no error because applying the statute is discretionary under the facts, and Defendant failed to properly raise the question of the statute's applicability.

Defendant Preserved its Claim of Error

¶4 Appellate courts do not make first-instance determinations, and Plaintiff contends the question of whether § 2023(D)(3) is applicable was not properly raised or determined by the trial court.²

¶5 The jurisdiction of the appellate courts is addressed to reversing the district court for errors appearing on the record.³ There can be no reversal for error if an issue is not first called to the attention of the trial court and the judge is given an opportunity to consider it. Gaines v. Sun Refinery & Marketing, 1990 OK 33, ¶20, 790 P.2d 1073, 1080 (reversed on other grounds); Jernigan v. Jernigan, 2006 OK 22, ¶26, 138 P.3d 539, 548. The appellate court will review the record on appeal to determine whether the issue was presented to the trial court. Stonecipher v. District Court of Pittsburg County, 1998 OK 122, ¶11, 970 P.2d 182, 186. Defendant must show that it presented the question of the applicability of § 2023(D)(3) in a manner sufficient to give the district court an opportunity to consider it.

¶6 Defendant filed with the court clerk a supplement to its proposed findings of fact and conclusions of law.⁴ In it, Defendant set-out the provisions of § 2023(D)(3) and argued the statute mandates that any certified class must be limited to Oklahoma residents. Plaintiff filed a motion asking the court to strike Defendant's supplement based on the court's inherent authority.⁵ At a docket call, the issue was discussed and the court scheduled a hearing. Defendant then filed a response to Plaintiff's motion to strike. Several months later, the district court heard argument of counsel which was transcribed and made part of the record. The court granted Plaintiff's motion to strike Defendant's supplement to its proposed findings of fact and conclusions of law. Later in the same hearing, Defendant orally moved the court to apply § 2023(D)(3) and modify the class by limiting it to Oklahoma residents. The court denied the request. We hold that Defendant presented the question of the applicability of § 2023(D)(3). Although the court granted Plaintiff's motion to strike, Defendant's written supplement is in the record and the court entertained oral argument. There is no doubt that the district court had the opportunity to, and did, consider the issue. Appellant has properly tendered the applicability of 12 O.S. § 2023(D)(3) as a subject of review for possible error, and not as a matter for first-instance determination.

Section 2023(D)(3) is Mandatory but it can be Waived

¶7 The more difficult question is whether and how the Oklahoma-resident limitation of § 2023(D)(3) must be applied. There is no Oklahoma precedent interpreting it and no counterpart in the Federal Rules of Civil Procedure. We give no deference to the trial court's decision and review the order de novo.⁶

¶8 Plaintiff contends the statute is discretionary, and the court correctly declined to enforce it because Defendant strategically delayed raising it to gain a perceived advantage. Defendant proposes the statute is not a defense but a mandatory and essential element for a viable cause of action. According to Defendant, Plaintiff carries the burden of meeting the requirements of the statute and it cannot be waived.

¶9 A plaintiff seeking certification has the burden of proving the prerequisite elements of § 2023(A): numerosity, commonality, typicality, and adequacy of representation. Masquat v. DaimlerChrysler Corp., 2008 OK 67, ¶9, 195 P.3d 48, 52. In addition, the plaintiff must show the factual allegations demonstrate a plausible claim for relief and that the requirements of one of the three types of class actions under § 2023(B)(3) have been met. Id. Unlike the elements in Paragraphs A and B, a defendant can agree that the residency provision of § 2023(D)(3) should not be required. We interpret this to mean the residency limitation of § 2023(D)(3) is mandatory unless it is waived.⁷

¶10 Waiver is the voluntary or intentional relinquishment of a known right, and can be accomplished expressly or implicitly. Faulkenberry v. Kansas City Southern Railway Company, 1979 OK 142, ¶6, 602 P.2d 203, 206--07; Barringer v. Baptist Healthcare of Oklahoma, 2001 OK 29, ¶23, 22 P.3d 695, 701. Implied waiver of a legal right requires a clear, unequivocal, and decisive manifestation of the party's relinquishment. Id. The record does not show Defendant clearly manifested a relinquishment of § 2023(D)(3). It did nothing expressly or implicitly to show it agreed to a class including nonresidents. We hold there was no waiver.

Equitable Estoppel does not Preclude Defendant from Asserting Section 2023(D)(3)

¶11 Equitable estoppel prevents injustice by barring a party from relying on certain rights which might otherwise have existed but for the party's voluntary conduct. National American Insurance Company v. New Dominion, LLC, 2021 OK 62, ¶44, 499 P.3d 9, 20, 21. Estoppel may not be applied to unduly benefit a party. Id. There are five essential elements which must be proved by the party asserting equitable estoppel: (1) there must be a false representation or concealment of facts; (2) it must have been made with actual or constructive knowledge of the real facts; (3) the party to whom it was made must have been without knowledge, or the means of discovering the real facts; (4) it must have been made with the intention that it should be acted upon; and (5) the party to whom it was made relied on, or acted upon it to his or her detriment. Id. at ¶44.

¶12 Plaintiff argues Defendant should be estopped from asserting § 2023(D)(3) late in the litigation because it had already adopted a different defense. According to Plaintiff: “[Defendant] chose this strategic path and must abide by the consequences.” Plaintiff is correct that Defendant objected to certification on other grounds. One of its objections was that the laws of the thirteen states are different to the point that the individual issues will predominate over the common questions of law or fact, and thus a class action would be inefficient, thereby failing the requirement of § 2023(B)(3).

¶13 A second theme of Plaintiff's estoppel argument is delay. Defendant could have, but didn't, raise § 2023(D)(3) in many of its filings: in its motion to dismiss, filed in early 2019; its answer and affirmative defenses, filed in late 2019; its objection to certification, filed in 2021; its motion for summary judgment, filed in March 2022; and its initial proposed findings of fact and conclusions of law, filed in June 2022. Plaintiff argued to the trial court that Defendant is represented by experienced counsel, and switching defenses without permission of the court indicates gamesmanship and is prejudicial.

¶14 The record supports Plaintiff's statement that Defendant did not raise § 2023(D)(3) until October 2022. But Defendant contends that it has at all times objected to a multi-state class, objecting on grounds of lack of personal jurisdiction, and lack of commonality under § 2023(A)(2) and § 2023(B)(3).

¶15 Turning to the five essential elements of equitable estoppel, we observe Plaintiff must demonstrate Defendant perpetrated falsity or concealment of facts which it relied upon to its detriment. Plaintiff's accusation is not about concealment of facts. It argues Defendant improperly delayed raising § 2023(D)(3), switching legal theories after it appeared its motion for summary judgment would be denied. Defendant's act of omitting a legal argument until later stages of the litigation is not the same as making a false representation or concealing facts, and therefore Plaintiff has failed to demonstrate the elements of equitable estoppel.

Judicial Estoppel does not Apply

¶16 The doctrine of judicial estoppel protects the integrity of the judicial process. Bank of Wichitas v. Ledford, 2006 OK 73, ¶23, 151 P.3d 103, 112. It is invoked to prohibit a party from knowingly assuming a position and obtaining relief, and then deliberately changing positions and challenging the factual matter which the court previously made at its request. Id. Judicial estoppel does not preclude a party from pleading alternative legal theories of recovery, even if they are inconsistent. Panama Processes, S.A. v. Cities Serv. Co., 1990 OK 66, ¶22, 796 P.2d 276, 286. The doctrine applies when one party's inconsistent position results in detriment to the other. Bank of Wichitas, ¶23.

¶17 Defendant did not obtain relief from the district court and then deliberately change positions to obtain a contradictory result. Defendant presented alternative legal grounds for the same relief and judicial estoppel does not apply.

The Elements of Class Certification

¶18 Defendant argues the certification order is erroneous because Plaintiff did not meet the requirements of § 2023(A) and (B). It urges that the district court misinterpreted the contract concerning which lender fees are authorized by the Secretary of the U.S. Department of Housing and Urban Development. Plaintiff counters that this is a merits question and is not ripe for determination at this stage where the sole issue is the propriety of class certification.

¶19 Although the merits of the claims are not considered on a motion to certify a class, it may be necessary to examine issues that have a bearing on whether the statutory elements of a class action have been established. See, Masquat v. DaimlerChrysler Corporation, 2008 OK 67, ¶10, 195 P.3d 48, 52.

¶20 We express no opinion on the merits of Plaintiff's cause of action or whether she has established the requirements of § 2023(A) and (B) because we hold the district court erroneously certified a class including nonresidents contrary to the mandatory limitation of 12 O.S. § 2023(D)(3). The Findings of Fact and Conclusions of Law Regarding Plaintiff's Motion for Class Certification, filed February 7, 2023, is reversed and the cause is remanded for further proceedings.

FOOTNOTES

1.   The status of the foreclosure is not at issue and neither Bank of America, N.A. nor the other defendants are parties to this appeal.

2.   An appellate court will not make first-instance determinations of disputed law or fact issues. Bivins v. State ex rel. Oklahoma Memorial Hospital, 1996 OK 5, ¶19, 917 P.2d 456, 464.

3.   “The Supreme Court may reverse, vacate or modify judgments of the district court for errors appearing on the record ․” 12 O.S. § 952(a).

4.   Third Party Defendant Selene Finance LP's Supplement to Proposed Findings of Fact and Conclusions of Law Denying Third Party Plaintiff's Motion for Class Certification, filed October 21, 2022.

5.   Hambright v. City of Cleveland, 1960 OK 184, 360 P.2d 493.

6.   Title 12 O.S. § 2023(C)(1) describes an order that determines whether a class action may be maintained, certifies a class, defines the class, identifies the issues and defenses, and appoints class counsel. This precisely describes the appealed order. Section 2023(C)(2) provides: “The order described in paragraph 1 of this subsection shall be subject to a de novo standard of review by any appellate court reviewing the order.” De novo review means the appellate court makes an independent determination without any degree of deference to the trial court's decision. Bailey v. State ex rel. Board of Tests for Alcohol & Drug Influence, 2022 OK 50, ¶21, 510 P.3d 845, 852.

7.   Plaintiff proposes § 2023(D)(3) is discretionary and not mandatory because the introductory language of Paragraph D suggests discretion: “In the conduct of actions to which this section applies, the court may make appropriate orders ․” But the sentence structure of subparagraph 3 differs from all the others in Paragraph D; it plainly indicates class membership “shall be limited, unless otherwise agreed to by the defendant ․” for actions filed after November 1, 2011.

BY B.J. GOREE, JUDGE:

MITCHELL, P.J., and DOWNING, J., concur.