Chase & Citi Duck Home Inspection Fee Lawsuits

OAKLAND, Calif. (CN) - A federal judge has cleared JPMorgan Chase and Citibank of claims they defrauded homeowners who couldn't pay their mortgages during the Great Recession, bringing a contentious four-year battle to a close.

U.S. District Judge Yvonne Gonzalez Rogers ruled in two orders issued late Wednesday that the plaintiffs in both cases had failed to assert claims of fraud and unjust enrichment against Chase and Citibank over what the homeowners said were unjustified fees to inspect their homes after they went into foreclosure.

According to Citibank, loan servicers are required to periodically inspect delinquent properties to ensure they're being maintained and to protect their value.

The July 2012 suits brought by eight plaintiffs in Alabama, California, Oregon, Maryland, New York and Tennessee claimed that neither bank was authorized to charge the inspection fees, and that the banks misled them into believing the fees were valid.

Both sets of plaintiffs also accused the banks of hiding the charges on their mortgage statements under vague titles like "miscellaneous fees" and "corporate advances."

Gonzalez Rogers refused to certify state and nationwide classes in the cases last year, leaving intact only the plaintiffs' individual fraud and unjust enrichment claims, among others. Those claims arose out of a combined $287.15 in inspection fees charged to the Chase plaintiffs and $310.50 charged to the Citi plaintiffs.

In granting both banks' motions for summary judgment on the fraud claims, Gonzalez Rogers found that the plaintiffs' assertions that Chase and Citibank misrepresented the fees were lacking as a matter of law.

"This is an opinion of law not subject to a fraud claim," Gonzalez Rogers said in both rulings.

Chase and Citibank had argued that the plaintiffs failed to state a claim for fraud. They said the plaintiffs' claim that they misrepresented their contractual authority to charge the fees is an issue of law and not of fact, and a fraud claim can't be based on a misrepresentation of law.

Gonzalez Rogers agreed, noting that the plaintiffs merely challenged the banks' legal opinions that they had the right to charge the inspection fees under the terms of the mortgages.

"These allegedly fraudulent statements are not actionable," she said in the Citibank ruling. "They are nothing more than Citi's legal opinion of the effect of the terms of the mortgage agreement. No fraud claim may be based thereon."

Gonzalez Rogers made an identical finding in her ruling for Chase.

In attempting to persuade Gonzalez Rogers, the Chase plaintiffs argued that their fraud claims were actionable because Chase's misstatements implicated fact. The judge wasn't convinced.

"The core legal proposition at the center of Chase's statements was that it had a contractual right to assess plaintiffs for the property inspection fees," she said. "Any factual assumptions underlying the legal opinion do not transform the statement from one of law to fact."

And in the case of Citibank, the question was whether it violated the terms of the mortgage agreements, not whether it misrepresented its contractual authority, Gonzalez Rogers said, noting that fraud claims are barred under the laws of the Citibank plaintiffs' home states of Alabama and New York if a breach of contract claim can be made instead.

"This is a classic breach of contract claim inappropriately repackaged as fraud," Gonzalez Rogers said.

Gonzalez Rogers similarly demolished the plaintiffs' unjust enrichment claims based on state laws.

Chase had argued that the unjust enrichment claims failed because the mortgage agreements defined when the plaintiffs could be charged for property inspections. In other words, Chase didn't violate the terms of the mortgages by charging the fees, the bank said.

And while Chase conceded that the plaintiffs could have levied a claim for breach of contract, it said the homeowners couldn't prevail on an unjust enrichment claim under California, Oregon or Tennessee law.

Gonzalez Rogers concurred, saying the laws of those states all hold that unjust enrichment claims fail when a contract outlines the rights of the signatories.

"There is no dispute that the mortgage agreements provide that Chase can charge plaintiffs for property inspection fees in certain circumstances," she said. "Allowing the unjust enrichment claim to proceed between plaintiffs and Chase would effectively alter the terms of the mortgage agreement."

In Citibank's case, Gonzalez Rogers noted that an unjust enrichment claim can't be brought under New York and Alabama law if the underlying fraud claim fails. Such claims, she said, can only be asserted in "unusual situations" when there hasn't been a contract violation.

"Plaintiffs do not allege some 'unusual situation' warranting recovery under unjust enrichment here," Gonzalez Rogers said.

Chase inspected plaintiff Diana Ellis' home 26 times during the nearly six years she was delinquent on her mortgage. It charged her for eight inspections, two of which were later waived, for a total of $63.15.

Citibank charged plaintiffs Gloria and Ronald Stitt for six inspections totaling $81 while they were in default.

The Chase and Citibank plaintiffs were represented by Mark Pifko and Daniel Alberstone of Baron & Budd in Encino, California.

Chase was represented by Robert Wick of Covington & Burling in Washington.

Citibank was represented by Stephen Kane of Mayer Brown in Chicago.

None of the attorneys for plaintiffs could be reached for comment on Thursday.

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