Court Rules Against Lender in Mo. Doc Prep Case

$1.2 million class action judgment against Midwest Bankcentre

August 25, 2005

By WILLIAM C. LHOTKA
The St. Louis Post-Dispatch

That is the prediction of Joseph Jacobson, a partner in a law firm that won a judgment of nearly $1.2 million in St. Louis County Circuit Court last week over document preparation fees. Separately, the firm, Green Schaaf and Jacobson, got legal fees, plus costs, of $407,880.

In the class-action case, Judge Mark D. Seigel found against Midwest Bankcentre and in favor of 2,852 borrowers who had generally paid $125 each for document preparation fees or processing fees.

By charging such a fee to its customers in the completion of documents such as deeds of trust and promissory notes, Midwest engaged in the unlawful practice of law, the plaintiffs’ lawyers argued. Seigel agreed.

James E. Barry Jr., Midwest’s attorney, said he would challenge Seigel’s ruling in the Missouri Court of Appeals. In recent years, courts in Michigan and Illinois have ruled in favor of lenders in similar cases.

Barry said that the actions by Midwest employees were ministerial rather than legal and that the Missouri statute on practicing law does not apply.

Midwest was the first of 30 banks or lenders to go to trial in 2 1/2 years of litigation in Missouri, and one of the smaller defendants in terms of customers. A few smaller lenders have settled, and a couple of the minor players in the case have gone out business, Jacobson said.

Among the biggest defendants in terms of mortgage loans, according to Jonathan Andres, a plaintiff attorney, are: Countrywide Home Loans with up to 24,000 customers; U.S. Bank with 20,000; American Equity Mortgage with 11,000; and Chase Manhattan Mortgage Corp. with 8,000.

Midwest, those defendants and other, smaller lenders have sought dismissal of the suits in several venues on several issues.

“In different types of appeals, we have been up and down to the Court of Appeals or the Missouri Supreme Court 19 times,” Andres said. “We are 19 and 0.”

An unusual aspect of these class-action cases is that all of those who win stand to recover every penny they paid — maybe even three times that much. Seigel awarded triple damages in the Midwest case and set attorneys’ fees separate from the amount paid to the class.

In some class-action cases, plaintiffs get a tiny piece of the award while their attorneys reap large fees.

Jacobson said his firm decided from the start that it would settle for nothing less than 100 percent on the dollar, and would seek that much or more in any trial. He said his firm seldom takes class-action cases and often represents defendants in civil litigation.

If Midwest loses its appeal, people who paid document preparation fees or processing fees to Midwest from March 2000 to the present will be entitled to triple damages, minus some costs of the suit, Jacobson said.

He added that most of the other cases have a five-year statute of limitations, unlike Midwest’s two years, so borrowers from March 1997 to the present would be affected. Single damages would apply from March 1997 to March 2000, and triple reimbursement would apply on fees paid after March 2002, he added.

The affected customers’ names and addresses are in bank computers, and they need not take any action on their own, he said.

On Nov. 24 and Nov. 29, 2001, Clark and Patricia Eisel — the poster people for the class-action cases — got mortgages from Midwest and paid $125 each for preparing or completing two mortgage documents.

In their suit, they claimed that Midwest charged a fee for preparing legal documents for the loans without being licensed to practice law in Missouri.

Barry, the defense attorney, counters that the Eisels admit they neither sought legal advice from Midwest nor thought the bank was acting as their attorney.

He said that when a mortgage was approved, Midwest clerical employees merely filled in blanks on preprinted forms; the employees had no formal training, legal education or expertise because none was needed.

“All they do is put in the name, the address and the amount of the loan,” Barry said. He argued also that Midwest met an exception to the unlawful-practice-of-law statute that allows a person to represent himself. Midwest was doing the paperwork for its own protection, Barry argued before Seigel, and therefore should be exempt.

David Butsch, of the Green Schaaf firm, said the violation is not in who does the work but in charging for it. “We don’t oppose banks and lenders preparing documents the way they are now, but they shouldn’t be charging a fee for them,” he said “We are not saying a lawyer has to review every file. We are saying they cannot charge a legal fee if they don’t use a lawyer.”

Butsch said a number of states — at least 15 — have a prohibition in their laws like Missouri’s. “And lenders don’t charge fees in those states,” Butsch alleged. “In Missouri, they have been trying to get away with it.”

In Texas, Jacobson noted, lenders have lawyers on staff to review such documents and meet the requirements of the law in that state.

The Illinois Supreme Court has decided in favor of mortgage lenders in a similar case, but Butsch said Illinois’ statute is different from Missouri’s.

In Michigan, a trial judge sided with the mortgage lenders, an appellate panel ruled in favor of the borrowers, and the state’s Supreme Court went back with the lenders.

Barry said he used arguments before Seigel that were similar to the winning strategy in Michigan: that Ameribank employees did not draft the documents themselves and did not use any legal knowledge or expertise to fill out forms.

Cases such as the ones in St. Louis County, Michigan and Illinois are also pending in California and New York.

The average fee that a lender charges runs about $125, Jacobson said. But research has found fees as low as $50 and as high as $225.

Court records show that two St. Louis County judges made major rulings before the trial in front of Seigel in July.

Judge Melvyn W. Wiesman refused to dismiss the cases but removed federally insured savings and loans as defendants, ruling they are governed by federal laws that preempt the Missouri statute. Jacobson said his firm planned to appeal that portion.

Last year, Judge Colleen Dolan allowed the cases to go forward as class actions.

The next big case is scheduled for Dolan’s court on Oct. 24 and involves Chase Manhattan. The biggest area lender being sued, Countrywide Home, is due to go to trial in her division March 22.