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Nakamura v. Wells Fargo Bank, National Association

United States District Court, D. Kansas

February 21, 2018

JIN NAKAMURA, Plaintiff,



         This matter is before the Court on Plaintiff's Motion and Memorandum in Support of Order for Corrective Notice to be Issued to Putative Class Members (ECF No. 67). The Court has considered Plaintiff's motion and memorandum, Defendant Wells Fargo Bank, N.A., d/b/a/ Wells Fargo Dealer Services, Inc.'s (“Wells Fargo”) opposition brief (ECF No. 83), the Affidavits (ECF Nos. 93-94), and oral arguments from the February 2, 2018 hearing. For the reasons set forth below, Plaintiff's motion is DENIED.[1]

         I. Background

         This putative class action stems from allegations surrounding Wells Fargo's repossession of 1, 150 servicemembers' vehicles without court orders in violation of Section 3952(a) of the Servicemembers Civil Relief Act between the time period of January 2006 through October 4, 2016 (“SCRA”). (ECF No. 20, ¶¶ 76-86; ECF No. 83-8, Ex. A).[2]In the fall of 2016, Wells Fargo entered two consent orders with two governmental agencies pledging to remedy this SCRA violation. Part of this remedy includes sending settlement offers to affected servicemembers in exchange for the return of signed releases, approved by the Department of Justice (“DOJ”), absolving Wells Fargo of future SCRA liability. Between August 31, 2017 and November 10, 2017, Wells Fargo sent settlement offers to servicemembers without any mention of the existence of this lawsuit as a potential class action. Having discovered its omission, in mid-November of 2017, Wells Fargo revised its letters to include details on the class action allegations, and allowed servicemembers who signed releases the option to rescind the release, keep the settlement money, and be a part of the class action, if certified. Plaintiff asks this Court, pursuant to its power under Fed.R.Civ.P. 23(d), to invalidate all releases obtained during the period of August 31, 2017 to November 15, 2017 and to order Wells Fargo to issue corrective notices.

         A. Consent Orders and Remediation Obligations

         On September 29, 2016, Wells Fargo entered into a consent order with the Comptroller of the Currency of the United States of America (“OCC Consent Order”), relating not only to the SCRA repossession violations, but also to Wells Fargo's failure to comply with other SCRA laws. (ECF No. 83-5, Article I, ¶¶ 1-3).[3] The OCC Consent Order covered a period from 2006 to 2016. (Id.). On October 4, 2016, a different consent order, one entered between Wells Fargo and the DOJ (“DOJ Consent Order”), became effective, and so remains until April 4, 2019. (ECF No. 83-4, p. 23). The DOJ Consent Order concerned Wells Fargo's repossession of SCRA-protected servicemembers' vehicles without court orders from January 1, 2008 through July 1, 2015. (Id. at ¶ 1).[4]

         Both Consent Orders require Wells Fargo to remedy the SCRA violations. (ECF No. 83-4, ¶¶ 8-36; ECF No. 83-5, Articles III-V). As relevant here, Wells Fargo is required to remediate all SCRA-protected customers whose vehicles were repossessed without a court order from January 1, 2006 (look-back period for the OCC Consent Order) through October 4, 2016, the effective date of the DOJ Consent Order. (ECF No. 83-3, ¶ 5; ECF No. 83-5, Article V(1) and (2)(a), (d); ECF No. 83-4, ¶¶ 19-21). Also, while the DOJ Consent Order is effective, Wells Fargo is to remedy any additional non-compliant SCRA repossession accounts it finds. (ECF No. 83-4, ¶¶ 19, 45).

         Of interest here, the Consent Orders require Wells Fargo to: (1) offer affected servicemembers $10, 000 in compensation, plus lost equity in the repossessed vehicle and interest accrued on that lost equity, and develop a “Remediation Plan” to administer this compensation (ECF No. 83-4, ¶¶ 22, 24; ECF No. 83-5, Article V); (2) delete the tradelines for the affected accounts (ECF No. 83-4, ¶ 32; ECF No. 83-5, Article V(4)(d)(i)); (3) provide a “cost-free means for affected servicemembers to contact it, including . . . a toll-free telephone number” (ECF No. 83-4, ¶ 25); and (4) internally audit and validate its compliance with the Consent Orders. (ECF No. 83-2, 103:4-9; ECF No. 83-3, ¶ 12; ECF No. 83-5, Article II(2)).

         In addition, the DOJ Consent Order sets forth several requirements governing the content, timing, and manner of Wells Fargo's communications with affected servicemembers regarding the compensation offers. (ECF No. 83-4, Article V). Specifically, the communications are required to be in letter form, provided to the DOJ for review and approval, and accompanied by the approved release. (Id. at ¶ 26). Wells Fargo is then required to mail up to a total of four letters to each affected servicemember, referred to by Wells Fargo as the Initial Letter, Second Notice, Third Notice, and Final Notice. (ECF No. 83-3, ¶ 9). Finally, within 21 calendar days of receiving a signed release, Wells Fargo is to mail out the remediation check. (ECF No. 83-4, ¶ 27).

         The DOJ identified 413 repossessions between January 1, 2008 and July 1, 2015 not in compliance with the SCRA. (ECF No. 83-4, ¶ 20). Wells Fargo later identified another 150 violations between January 1, 2006 (the OCC Consent Order's lookback period) and October 4, 2016 (DOJ Consent Order's effective date), for an initial total of 563 repossessions (“Initial Population”). (ECF No. 83-3, ¶ 8; ECF No. 83-8, Ex. A).

         Then, sometime between June and August 31, 2017, after this lawsuit was filed, and the class action allegations made, Wells Fargo identified another 587 non-compliant repossession accounts (“Additional Population”). Wells Fargo began sending out settlement letters to these servicemembers pursuant to its obligations under the Consent Orders, but without any mention of the possible class action. (ECF No. 83-3, ¶¶ 13-18, 21; ECF No. 83-4, ¶ 19). Wells Fargo's communications to this Additional Population is the subject of concern.

         A discussion of how Wells Fargo discovered these 587 additional accounts is therefore relevant. The Consent Orders require Wells Fargo, on a continuing basis, to internally audit and validate compliance with its remediation obligations, including identifying all repossessions potentially subject to remediation. (ECF No. 83-3, ¶ 12; ECF No. 83-2, 103:4-16). In June of 2017, while complying with the DOJ audit requirements, Wells Fargo identified additional auto finance loans, which predated its acquisition of Wachovia in 2008. (ECF No. 83-3, ¶ 13; ECF No. 83, pp. 6-7, n.2). These additional loans were not part of the Initial Population review described above because they had not been converted following the merger. (Id.). Wells Fargo, sometime between June of 2017 and August 31, 2017, reviewed these additional repossession accounts and discovered that 587 were subject to remediation under the Consent Orders. (Id. at ¶¶ 13-16). This brings the total repossessions to 1, 150. (ECF No. 83-8, Ex. A).

         B. Procedural History

         On April 10, 2017, Plaintiff filed his initial Complaint against Wells Fargo alleging (1) violations of the SCRA; (2) violations of the Utah Consumer Sales Practices Act; and (3) conversion. (ECF No. 1, ¶¶ 50-71). On June 20, 2017, Wells Fargo filed an Amended Answer generally denying the allegations. (ECF No. 10). On July 9, 2017, Plaintiff moved for leave to amend to add class action allegations. (ECF No. 14). The Court held a Scheduling Conference on July 12, 2017 where it ordered the parties to exchange initial disclosures, but delayed entering a Scheduling Order until Plaintiff's motion for leave to amend was ruled on. (ECF No. 15).

         On July 20, 2017, Wells Fargo opposed the motion for leave to amend arguing the class size was shrinking due to settlements being obtained under the DOJ Consent Order. (ECF No. 16, p. 1). However, on August 31, 2017, Wells Fargo withdrew its objection after having identified the Additional Population discussed above, and because these servicemembers would be potential class members. (ECF No. 18, p. 1). Wells Fargo, unknown to the Court or Plaintiff, began sending out settlement letters to the Additional Population (i.e., putative class members) on this date as well. (ECF No. 83-3, ¶ 17).

         This Court granted Plaintiff's motion for leave to amend on September 1, 2017 (ECF No. 19), and Plaintiff filed his First Amended Class Action Complaint (“Class Action Complaint”) on September 15, 2017 (ECF No. 20). The Court held a Scheduling Conference and entered a Scheduling Order on October 6, 2017. (ECF No. 28). Wells Fargo answered the Class Action Complaint on October 13, 2017. (ECF No. 30).

         After several court conferences with the parties regarding the varied intervals of the issuance of the letters and releases, and the content, or lack thereof, of the communications to the putative class, Plaintiff motioned the court to invalidate the releases. (ECF Nos. 33, 43, 57, 67, 69).

         C. Wells Fargo's Letter Campaign

         Between August 31, 2017 and November 10, 2017, Wells Fargo mailed out hundreds of letters and releases (consisting of Initial Letters, Second Notices, Third Notices, and Final Notices) to the Additional Population without any mention of the class action allegations. (ECF No. 83-3, ¶¶ 17-20).

         In mid-November, however, Wells Fargo revised these letters to include details about the alleged class action, including, among other things, Plaintiff's counsel's contact information and a Wells Fargo-controlled toll-free number to call in case of questions. (ECF No. 83-3, ¶¶ 22, 24; ECF No. 67-8; ECF No. 67-9; ECF No. 67-11).

         Additionally, for servicemembers who already accepted payments and signed releases in response to letters without the alleged class action details, Wells Fargo prepared a Supplemental Letter. (ECF No. 83-3, ¶ 23). In addition to the above details, the Supplemental Letters provide options on proceeding if the servicemember (i) had not signed a release and wished to be a part of the proposed class action; (ii) had already accepted the settlement but wished to be a part of the proposed class action; (iii) had already accepted the settlement and did not want to be a part of the proposed class action; or (v) wanted to proceed with the settlement offer. (ECF No. 67-10).

         If the servicemember accepted the settlement offer, but wished to be a part of the proposed class action, Wells Fargo directed them to sign, date and return an attached form rescinding the release. (Id.; ECF No. 83-3, ¶ 23). Wells Fargo also directed those servicemembers to keep the settlement money, but advised this may affect any recovery received if the class action is certified and damages awarded. (ECF No. 67-10).

         Between November 13, 2017 and December 28, 2017, hundreds of revised Initial Letters, Second Notices, Third Notices, Final Notices, and Supplemental Letters were sent to the Additional Population. (ECF No. 83-3, ¶ 24). To date, Wells Fargo has received 368 releases from this population, 53 of which have been rescinded. (Id. at ¶¶ 25-26; ECF No. 83-8, Ex. A; ECF No. 83-9, Ex. B).

         Plaintiff argues the letters sent from August 31, 2017 to November 15, 2017, are secretive, confusing and misleading, and asks this Court per Rule 23(d) to invalidate all releases obtained during this period and order Wells Fargo to issue corrective notices. (ECF No. 67, p. 27).

         III. Legal Standard

         It is well settled Defendants have a right to communicate settlement offers directly to putative class members.[5] However, pursuant to Gulf Oil Co. v. Bernard, [6] if those communications are found to be abusive, district courts have “both the duty and broad authority” to regulate such communications under Rule 23(d).[7] Such regulation can include invalidating releases and issuing corrective notices.[8]

         Nevertheless, any order regulating communications should be “based on a clear record and specific findings that reflect a weighing of the need for a limitation and the potential interference with the rights of the parties.”[9] This is because only “such a determination can ensure that the court is furthering, rather than hindering, the policies embodied in the Federal Rules Civil Procedure, especially Rule 23.”[10] The moving party, therefore, must demonstrate the communication at issue is “abusive in that ‘it threatens the proper functioning of the litigation.'”[11] Examples of abusive communications are those that are false, misleading or confusing, contain material omissions, or are coercive or intimidating.[12]

         But even if there is clear evidence of abusive communications with potential class members, a court may only impose “the narrowest possible relief which would protect the respective parties.”[13] Overly broad relief can violate the First Amendment.[14]

         IV. Analysis

         Plaintiff argues the releases obtained between August 31, 2017 and November 15, 2017 should be invalidated and corrective notices sent because of Wells Fargo's secretive, misleading and confusing communications. Wells Fargo denies its letters are secretive, misleading or confusing. It states it has a right to directly communicate settlement offers to putative class members and is obligated to do so under the Consent Orders. Wells Fargo further argues it has already taken the necessary corrective action by revising its letters to include details about the Class Action Complaint and by offering servicemembers the chance to rescind releases and keep the settlement payments.

         A. Wells Fargo's Alleged ...

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