Glover v. Standard Federal Bank: the Eighth Circuit Gives Proper Deference to Regulatory Interpretation and Upholds the Principles of Rule 23 in Denying Class Certification of a Respa Claim

• Publication year: 2022

37 Creighton L. Rev. 343. GLOVER V. STANDARD FEDERAL BANK: THE EIGHTH CIRCUIT GIVES PROPER DEFERENCE TO REGULATORY INTERPRETATION AND UPHOLDS THE PRINCIPLES OF RULE 23 IN DENYING CLASS CERTIFICATION OF A RESPA CLAIM

Creighton Law Review

Vol. 37

INTRODUCTION

In 1974, Congress passed the Real Estate Settlement Procedures Act ("RESPA").(fn1) Specifically, RESPA disallows certain types of fees in mortgage loan transactions; in particular what the statute refers to as kickbacks.(fn2) Due to a flood of litigation caused by what was perceived as a "legal uncertainty" within the statute, Congress directed the Department of Housing and Urban Development ("HUD") to issue a policy statement indicating its position on lender payments to mortgage brokers in relation to RESPA.(fn3) In 1999, HUD issued HUD Policy Statement I.(fn4) In Policy Statement I, HUD outlined a test for evaluating whether a given payment from a lender to a broker violated RESPA.(fn5) In 2001, HUD issued another policy statement, HUD Policy Statement II, to clear up any ambiguities in its first policy statement regarding the payment of yield spread premiums from lenders to brokers.(fn6) The statement indicated each yield spread premium payment must be analyzed individually to determine whether it was legal under RESPA.(fn7)

In Glover v. Standard Federal Bank,(fn8) the Eighth Circuit determined class action certification was improper when analyzing whether the payment of a yield spread premium violated RESPA.(fn9) The Eighth Circuit chose to give deference to the HUD policy statements, which interpreted HUD's own regulations regarding RESPA.(fn10) The policy statements promulgated a two-part test for determining whether a payment from a broker to a lender violated RESPA.(fn11) The Eighth Circuit determined the HUD policy statements set forth a loan-specific test for determining liability under RESPA.(fn12) The Eighth Circuit concluded the determination of such liability under RESPA must be made on a loan-by-loan basis.(fn13) As such, the Eighth Circuit decided class certification was unfeasible.(fn14)

This Note will demonstrate the Eighth Circuit in Glover properly reversed the decision of the district court, which had granted class certification.(fn15) First, this Note will review the facts and holding of Glover.(fn16) Next, this Note will review the RESPA statute itself, the HUD policy statements, Federal Rule of Civil Procedure 23, as well as relevant case law addressing the issue of class certification of claims involving an alleged violation of RESPA through a payment from a mortgage lender to a mortgage broker.(fn17) Finally, this Note will discuss the Eighth Circuit's decision in Glover and illustrate three reasons the Eighth Circuit properly reversed the district court and effectively denied class certification.(fn18)

First, this Note will demonstrate the Eighth Circuit, adhering to the precedent set by the United States Supreme Court, gave proper deference to the HUD-issued policy statements, which declared the proper method for analyzing whether a payment from lender to broker violated RESPA.(fn19) Next, this Note will illustrate the HUD policy statements require an individual or loan-specific analysis, which examines the individual circumstances of each loan, to determine whether any given payment from lender to broker violates RESPA.(fn20) Finally, this Note will demonstrate the loan-specific analysis, required to analyze alleged RESPA violations, necessarily precludes a grant of class certification under the Federal Rules of Civil Procedure because the individual issues in such an analysis dominate over issues com-mon to the class.(fn21) Thus, this Note will conclude class certification was not possible under the circumstances in Glover and accordingly, the Eighth Circuit properly reversed the district court's grant of class certification.(fn22)

FACTS AND HOLDING

In Glover v. Standard Federal Bank,(fn23) Lonnie and Dawn Glover ("the Glovers") procured a mortgage in order to purchase a home.(fn24) The Glovers refinanced their original mortgage in 1996 in order to obtain a fixed-rate mortgage.(fn25) In the refinancing transaction, Standard Federal Bank ("Standard Federal") supplied the funding for the mortgage loan and Heartland Mortgage ("Heartland") acted as the mortgage broker.(fn26) The Glovers received a mortgage loan for $124,000 on September 19, 1996.(fn27) The Glovers refinanced to consolidate their existing debt and obtain a lower interest rate.(fn28)

In the transaction, Heartland provided a number of services to the Glovers.(fn29) Heartland informed the Glovers as to the mortgage loan process, including the various types of available loans and the loan closing costs.(fn30) Additionally, Heartland aided the Glovers in completing the loan application, consulted with the Glovers about their financial situation, provided an analysis of the Glovers' current income and debt, and answered the Glovers' questions regarding their loan.(fn31)

For the services it provided in the Glovers' loan transaction, Heartland received $3,125.(fn32) The amount included a $1,240 origination fee and a $335 processing fee, both of which the Glovers paid.(fn33) Standard Federal paid the remaining $1,550 of Heartland's fee in the form of a yield spread premium.(fn34) This payment summary was re-ported to the Glovers on their HUD-1 Settlement Statement.(fn35) The HUD-1 Settlement Statement is required by federal law, and was delivered to the Glovers at closing.(fn36)

The Glovers filed an action in the United States District Court for the District of Minnesota, claiming the payment of the yield spread premium to Heartland by Standard Federal was a referral fee disallowed under the Real Estate Settlement Procedures Act ("RESPA").(fn37) The court analyzed two policy statements the Department of Housing and Urban Development ("HUD") had issued, which set forth a twopart test for determining the legality of a payment from a lender to a broker.(fn38) The Glovers contended the HUD policy statements were inconsistent with RESPA and that, under the language of the statute itself, the first question must be whether a yield spread premium payment was for a referral prohibited by RESPA, not whether the yield spread payment was for particular facilities, goods, or services.(fn39) The Glovers argued if the payment could be categorized as a referral fee, then it violated RESPA regardless of whether the mortgage broker performed the services.(fn40)

In December 1998, the Glovers filed a motion for class certification in the district court.(fn41) In August 1999, the district court denied this motion, based upon an analysis of class certification precedent in the district as well as the district court's reading of the 1999 HUD Policy Statement.(fn42) In the decision denying class certification, the district court noted it did so with hesitation, but felt obligated to comply with the long line of Minnesota district court decisions, which denied class certification in these types of claims.(fn43) Later in December 1999, the Glovers renewed their motion for class certification.(fn44) In their bid for class certification, the Glovers contended individual inquiries into whether a yield spread premium payment violated RESPA were not necessary given the fact the amount of a yield spread premium paid to a broker depended solely on the interest rate brokered for the borrower.(fn45) The Glovers further claimed Standard Federal violated RESPA through the use of bonuses paid to mortgage brokers for the frequency and value of referrals independent of an evaluation of the actual services each individual broker provided.(fn46)

In March 2000, the district court granted class certification, defining the class as anyone who had used Heartland as a mortgage broker and Standard Federal as a lender in the same transaction.(fn47) In granting this certification, the district court reasoned RESPA itself dictated a yield spread premium payment violated RESPA if it was not paid in exchange for broker-provided goods or services.(fn48) The district court further reasoned it was possible for the plaintiffs to prove, on a classwide basis, that Standard Federal had not paid yield spread premiums in exchange for goods or services, thus making class certification appropriate.(fn49) Following the district court's decision, Standard Federal petitioned the United States Court of Appeals for the Eighth Circuit to review the district court's grant of class certification pursuant to Federal Rule of Civil Procedure 23(f).(fn50) The Eighth Circuit denied both of Standard Federal's petitions.(fn51)

On September 26, 2000, the district court modified its March 22, 2000 class certification order to include anyone who had obtained a mortgage loan with Standard Federal as the lender, regardless of who the mortgage broker had been.(fn52) Standard Federal then filed a petition requesting review by the Eighth Circuit of the September 26 order modifying the class.(fn53) Standard Federal argued the alleged RESPA violations were filled with necessary individual inquiries, making such a case unsuitable for class certification.(fn54) Further, Standard Federal contended the district court based its certification upon an incorrect application of RESPA.(fn55) Standard Federal maintained the district court improperly applied the standard set out in Culpepper v. Inland Mortgage Corp....