Hernandez v. Wells Fargo Bank, N.A.

Background

Plaintiffs brought a class action against Wells Fargo Bank, N.A., alleging that an algorithmic error caused certain fees to be misstated during mortgage-modification and repayment-plan decisions. According to the opinion, the error led Wells Fargo to deny trial loan modifications to approximately 870 homeowners between 2010 and 2018, even though they should have qualified. More than 500 of those homeowners later lost their homes in foreclosure.

The amended complaint asserted claims for breach of contract, negligence, wrongful foreclosure, intentional infliction of emotional distress, violations of California’s Homeowners Bill of Rights, California’s unfair competition law, and state consumer-protection laws. In January 2020, the court certified a nationwide class under Federal Rule of Civil Procedure 23(b)(3), but only for the breach-of-contract claim. The class covered people who qualified for certain loan modifications or repayment plans, were denied them because excessive attorney’s fees were included in the decision process, and whose homes Wells Fargo sold in foreclosure.

The parties reached a proposed settlement after mediation supervised by Magistrate Judge Donna M. Ryu. The settlement established a non-revisionary gross fund of $18.5 million, in addition to $15 million Wells Fargo had already paid through remediation efforts. Plaintiffs estimated total potential damages of $65 million, but because of the prior payments, estimated their maximum recoverable damages at trial at $50 million. The court described the settlement as approximately 37% of that maximum.

Notice and Settlement Terms

After deducting notice, administration, attorney’s fees, and expenses, the settlement proceeds would be divided between an economic-damages fund and a severe-emotional-distress fund. One million dollars was allocated to the emotional-distress fund. Class members seeking money from that fund had to submit claim forms. The remaining funds were allocated to economic damages, and class members did not need to submit claim forms to receive those payments.

The claims administrator mailed notice to all 510 class members. After additional searches and re-mailing efforts, the court found that 98.82% of the settlement class had been sent notice. Five class members opted out, and no class member objected. The court found the notice adequate.

The court considered the settlement’s release of claims. Although the class had been certified only for breach of contract, the release covered claims arising from the loan-modification denials and the resulting loss of homes. The court found that the release was tied to the conduct and harm involved in the action. It also approved the parties’ proposal that the emotional-distress claims of the 16 class members who remained unfound or received late notice would not be released. All class members’ economic-damages claims would be released, while the emotional-distress claims of those 16 members would not be barred.

The economic-damages fund would provide each class member with an automatic check of at least $14,000 and as much as $119,934, based on the allocation formula. The emotional-distress fund was allocated among 121 claimants, who would receive either $6,700 or $13,400. Any residual funds exceeding $25,000 would be distributed among class members; smaller residual amounts would go to NeighborWorks America for affordable-housing purposes.

Court’s Rulings

Under Rule 23(e), the court had to determine whether the settlement was fair, reasonable, and adequate after providing reasonable notice and holding a hearing. The court considered the settlement amount, the risks and costs of continued litigation, the risks to class certification and summary judgment, the discovery completed, the views and work of counsel, and the class members’ response.

The court found the settlement fair, reasonable, and adequate. It approved the settlement and plan of allocation and found that the agreement resulted from good-faith, arm’s-length negotiations. Class members who did not timely exclude themselves are bound by the settlement order, except that the emotional-distress claims of the 16 unfound or late-noticed members are not barred.

The court granted the request for $335,000 in reimbursement for litigation expenses, finding the expenses reasonable and necessary. Judge William Alsup also awarded class counsel $4,525,000 in attorney’s fees. The award was 25% of the net settlement fund after specified deductions and represented a 1.2 multiplier of counsel’s claimed lodestar. Half was to be paid after the settlement’s effective date, and the remainder after counsel certified that the funds had been properly distributed and the file could be closed.

Finally, the court denied the motions to file the class list under seal. The names and cities of residence were to remain public, although contact information and addresses could be redacted.