Chapter 2 Lenders Pay $125 Million for Their Own PL94Ch02

8/4/2019 Chapter 2 Lenders Pay $125 Million for Their Own PL94Ch02

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Chapter 2 Lenders Pay $125 Million For Their OwnOverreaching Conduct

2.1 Complaint

IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIAIN AND FOR THE COUNTY OF SAN FRANCISCO

SUZANNE M. REED AND DONALD D. REED, suing individually, on behalf of the general publicand on behalf of all others similarly situated,

Plaintiffs,

[vs.]

BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION; Defendants.

CASE NO.

FIRST AMENDED COMPLAINT FOR PRELIMINARY AND PERMANENT INJUNCTIVE,RESTITUTION, DAMAGES AND DECLARATORY RELIEF FOR VIOLATIONS OF BUSINESS& PROFESSIONS CODE 17200, et seq., AND 17500, et seq.; BREACH OF CONTRACT;VIOLATION OF CIVIL CODE 1770; AND UNJUST ENRICHMENTCLASS ACTION

Plaintiffs, Suzanne M. Reed and Donald D. Reed (hereafter jointly referred to as "plaintiffs

REED"), on behalf of themselves and those they represent, hereby complain against the

above-named defendants as follows:

PRELIMINARY STATEMENT

1. This class and private attorney general action is intended to halt certain lucrative but unfair

practices in by defendant Bank of America National Trust & Savings Association (hereafter referred

to as "BANK OF AMERICA"), and to recover sums improperly collected by BANK OF AMERICA.

The practices at issue arise out of BANK OF AMERICA's vehicle financing activities and its "force

placed" charges to borrowers for insurance purchased by BANK OF AMERICA. Improperly, and

without its customers' knowledge, BANK OF AMERICA has collected large sums of money from

its customers which were not due.

2. BANK OF AMERICA provides financing for customers who purchase new and used

vehicles from car dealers. The form contract signed by the customers to obtain vehicle financing


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permits BANK OF AMERICA to purchase comprehensive and collision insurance to protect its

security interest, if the customer does not purchase or maintain such insurance. However, BANK OF

AMERICA charges customers amounts in excess of their contractual obligations. BANK OF

AMERICA misrepresents what the customer is being billed for, the customer's obligation to pay for

those coverages, the premium charges associated therewith and its entitlement to finance charges.

In order to maximize its returns, BANK OF AMERICA "force places" its insurance charges and

finance charges for excessive periods of time and with pre-payment penalties, with the result that

customers who subsequently obtain other insurance receive refunds that are far less than a pro-rated

amount.

3. Absent judicial intervention, BANK OF AMERICA will continue its unlawful practices

and will refuse to remedy its past violations. On behalf of themselves, all others similarly

situated and the general public, plaintiffs REED seek an order requiring BANK OF

AMERICA to make full and complete restitution to all customers victimized by these practices, a

preliminary and permanent injunction to prevent BANK OF AMERICA from continuing to engage

in these unlawful practices, a declaration of rights, and damages.

PARTIES

4. Plaintiffs REED are individuals over 18 years of age residing in the City of Richmond, in

Contra Costa County.

5. Defendant BANK OF AMERICA is a bank engaged in the business, among other things,

of financing vehicles bought by the public throughout the State of California, including in the County

of Alameda.

6. Defendants Does 1 through 20 are persons or entities whose true names and identities are

presently unknown to plaintiffs and who, therefore, are sued by such fictitious names. Each of these

fictitiously named defendants is responsible in some manner for the matters alleged herein and are

jointly and severally liable to plaintiffs. Plaintiffs will seek leave of this Court to amend the

Complaint to state the true names and capacities of Does 1 through 20 when the same have been

ascertained.


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CLASS ACTION AND PRIVATEATTORNEY GENERAL ALLEGATIONS

7. Plaintiffs REED are suing in their individual capacity, on behalf of all persons similarly

situated, and on behalf of the general public as defined in the Business and Professions Code

17204. Such a representative action is necessary to prevent and remedy the unlawful and unfair

practices alleged herein.

8. Pursuant to California Code of Civil Procedure 382, the class of all other persons

similarly situated is composed of all California persons from whom BANK OF AMERICA collected

or sought to collect force placed charges (including related service or finance charges) for insurance

during the four years prior to the filing of this action.

9. Members of the class referred to above who are similarly situated are readily ascertainable

but are so numerous that joinder is impractical. There is a well-defined community of interest in the

questions of law and fact involved, affecting the parties to be represented in that each such party has

been injured by, and has an interest in litigating the legality of, the practices of BANK OF

AMERICA alleged herein. Proof of a common or single stated fact or set of facts will establish the

right of each member of the class to recover.

10. Plaintiffs REED's claims are typical of those of the class they represent, and they will

fairly and adequately represent the interests of the class.

11. There is no plain, speedy, or adequate remedy other than by maintenance of this

representative action because damage to each member of the class is relatively small, making it

economically infeasible for class members to pursue remedies individually. The prosecution of

separate actions by the individual class members, even if possible, would create a risk o f

inconsistent or varying adjudications with respect to individual class members against the defendant,

and which would establish incompatible standards of conduct for the defendant.

GENERAL ALLEGATIONS

12. On or about April 9, 1988, plaintiffs REED purchased a vehicle on credit from an

automobile dealership and executed a standard form financing contract (this contract and all similar

contracts are referred to herein collectively as the "Form Agreement"). Shortly thereafter, the


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automobile dealership assigned its interest in the REED's Form Agreement to BANK OF AMERICA

which thereby succeeded to all rights and obligations arising under it. A true and correct copy of the

Form Agreement is attached hereto as Exhibit A.

13. The Form Agreement contains a provision requiring maintenance of comprehensive and

collision insurance coverage. BANK OF AMERICA may procure such insurance in the event a

customer fails to do so.

14. On information and belief, in August 1989, BANK OF AMERICA purchased insurance

coverage for the vehicle owned by plaintiffs REED, from Progressive Specialty Insurance Company

("Progressive"), backdating the effective date of the coverage to January 1989.

15. In August 1989, BANK OF AMERICA informed plaintiff Suzanne Reed that it had

purchased "insurance coverage", and that it was charging plaintiff Suzanne Reed $4,256.00,

purportedly under authority of the Form Agreement. BANK OF I AMERICA demanded that plaintiff

Suzanne Reed pay this sum ($4,256.00) within fifteen days, or BANK OF AMERICA would add

that charge, plus an additional $1,801.58 in finance charges, for a total of $6,057.58, to her account

balance. BANK OF AMERICA subsequently imposed this entire amount as a charge on plaintiffs

REED's account. The addition of this charge increased the monthly payment charged by BANK OF

AMERICA to plaintiffs REED to 150% of its prior level.

16. On information and belief, a substantial portion of the charges imposed by BANK OF

AMERICA on plaintiffs REED's account as described above were improper, unfair and illegal. On

information and belief, the amount set forth by BANK OF AMERICA as due from plaintiffs REED

pursuant to the Form Agreement was far in excess of the actual amount attributable to

comprehensive and collision insurance. Instead, on information and belief, the amount assessed to

plaintiffs REED's account by BANK OF AMERICA included numerous components and charges

which it was not entitled to collect from plaintiffs REED. BANK OF AMERICA misrepresented to

plaintiff Suzanne Reed that she was contractually obligated to pay all such amounts under the Form

Agreement, and failed to disclose to her or to plaintiff Donald Reed the true state of affairs.

17. On information and belief, the practices described above vis a vis plaintiffs REED are


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part of a past and ongoing course of conduct by BANK OF AMERICA, and are consistent with its

business practices related to all customers similarly situated to plaintiffs REED, as more particularly

alleged below.

18. Over the past four years, BANK OF AMERICA has negotiated with and entered into

master collateral protection insurance ("CPI") policies with insurers, naming itself as insured,

including a master policy with Progressive. Under these policies, the insurers agreed to provide CPI,

including comprehensive and collision coverage, to BANK OF AMERICA for any vehicles on which

BANK OF AMERICA wished to "force place" insurance. On information and belief, these policies

offered additional or optional insurance coverages and benefits to BANK OF AMERICA, beyond

collision and comprehensive insurance, some or all of which BANK OF AMERICA elected to take

for its own benefit. The policies and other arrangements with the insurers also provide for payments

to BANK OF AMERICA -- payments which are never disclosed to customers.

19. Beginning at a date and time unknown to plaintiffs, but at least since May 1988, BANK

OF AMERICA has billed the entire cost for all of the coverages and benefits purchased by BANK

OF AMERICA, to its customers. In doing so, it has not advised such customers of the coverages

benefiting BANK OF AMERICA or the premium charges associated therewith. BANK OF

AMERICA has also charged customers for the cost of insurance for the entire remaining term of the

financing contract, rather than on a monthly, bi-annual or annual basis, and included a pre-payment

penalty. BANK OF AMERICA has not provided customers subjected to forced placements with

copies of the CPI master policies. on information and belief, BANK OF AMERICA has received

benefits under the terms of its arrangements with the insurers which it never disclosed or passed on

to customers. As a result of these actions, BANK OF AMERICA has received payments to which

it was not entitled and which it should not be permitted to retain.

20. On information and belief, since at least May 1988, BANK OF AMERICA has engaged

in and will continue to engage in some or all of the following unfair, unlawful and/or fraudulent

activities and practices when customers fail to purchase or maintain collision and comprehensive

insurance coverage:


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(a) BANK OF AMERICA charges and attempts to collect from customers amounts in

excess of the true cost of the insurance coverages for which the customer is

contractually obligated to pay;

(b) BANK OF AMERICA collects commissions, rebates, and/or "expense

reimbursements" but charges the customers as if no such monies were received;

(c) BANK OF AMERICA charges customers for BANK OF AMERICA's insurance

coverage extending over the entire duration of the vehicle loan period (up to five

years) instead of premiums for periods of time similar to standard automobile

insurance on a monthly, semi-annual, or even an annual basis. Many customers are

not in a position to pay the entire amount assessed in a lump sum, and hence BANK

OF AMERICA succeeds in force placing a new loan and assesses finance charges

thereon. Moreover, BANK OF AMERICA includes a pre-payment penalty in such

loans, so as to render cancellation by customers who subsequently obtain other

insurance more advantageous to it;

(d) BANK OF AMERICA places finance charges on customers' accounts which it is not

entitled to assess;

(e) BANK OF AMERICA misrepresents the nature of the charges which the customer

is being billed for, the customer's obligation to pay those charges, and the premium

charges associated therewith;

(f) BANK OF AMERICA obtains payments and other benefits from insurance

transactions which it does not disclose or provide to its customers;

(g) BANK OF AMERICA fails to provide its customers with copies of the insurance

policies it buys for itself and does not fully inform customers of the terms of such

policies; and

(h) For those customers who protest or fail to pay those charges including finance

charges thereon, BANK OF AMERICA assesses them late charges, reports them to

credit reporting agencies and threatens to and does in fact repossess their vehicles.


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21. Plaintiffs REED have incurred and will continue to incur attorneys' fees and costs in

prosecuting this action and are entitled to an award of such amounts against BANK OF AMERICA

for the following reasons:

(a) A successful outcome in this action will result in the enforcement of important rights

affecting the public interest by maintaining the integrity of institutions that finance

the purchase of vehicles in this state;

(b) This action will result in a significant benefit by causing the return of monies paid by

class members to BANK OF AMERICA for its charges and finance charges which

monies should not have been charged or collected by BANK OF AMERICA,

together with interest on those monies;

(c) Unless this action is prosecuted, class members will not recover those monies, and

many class members would not be aware that they were damaged by BANK OF

AMERICA's wrongful practices; and

(d) Unless the attorneys' fees and costs which have been and which will continue to be

incurred are awarded against BANK OF AMERICA, the class will not recover the

full measure of its damages.

FIRST CAUSE OF ACTION(Business And Professions Code 17200, et seq.)

22. Plaintiffs incorporate by reference paragraphs 1 through 21, as though set forth in full

herein and further allege as follows.

23. Beginning at an exact date unknown to plaintiffs, but since at least May 1988, BANK OF

AMERICA and Does 1 through 20 have committed acts of unfair competition, proscribed by

Business and Professions Code 17200, et seq., including the practices referred to above.

24. The unlawful, unfair and fraudulent business practices of BANK OF AMERICA

described herein present a continuing threat to members of the public in that BANK OF AMERICA

and the Does persist and continue to engage in these practices, and on information and belief will

not cease doing so unless and until an injunction is issued by this Court.

25. As a direct result of the aforementioned acts, plaintiffs are informed and believe that


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BANK OF AMERICA received and continues to collect and to hold (a) excess revenues from

charges to its customers purportedly for reimbursement of its cost of comprehensive and collision

insurance, (b) revenues derived from finance charges and improper finance charges, and from

pre-payment penalties, (c) other revenues received as a result of its unfair practices, and (d) revenues

from repossessing cars based wholly or in part on failures to pay insurance-related charges. BANK

OF AMERICA has failed to refund any of these revenues to its customers. These revenues properly

belong to the members of the public who have made the payments referred to and they are entitled

to and should receive restitution of all such amounts.

WHEREFORE, plaintiffs pray for relief as set forth hereinafter.

SECOND CAUSE OF ACTION

(Business And Professions Code 17500, et seq.)

26. Plaintiffs incorporate by reference paragraphs 1 through 21 as though set forth in full


27. Beginning at an exact date unknown to plaintiffs, but since at least May 1988, BANK OF

AMERICA and Does 1 through 20 have committed acts of untrue and misleading advertising, as

defined by Business and Professions Code 17500, et seq., by engaging in the acts and practices

referred to above with intent to induce members of the public to enter into revenue-producing

transactions with it.

28. The acts of untrue and misleading advertising by BANK OF AMERICA and Does 1

through 20 described above present a continuing threat to members of the public in that BANK OF

AMERICA and the Does are continuing to engage in these practices, and on information and belief

will not cease doing so unless and until an injunction is issued by this Court.

29. As a direct result of the aforementioned acts, plaintiff are informed and believe that

BANK OF AMERICA received and continues to collect and to hold (a) excess revenues from

charges to its customers purportedly for reimbursement of its cost of comprehensive and collision

insurance, (b) revenues derived from finance charges and improper finance charges, and from

pre-payment penalties, (c) other revenues received as a result of its unfair practices, and (d) revenues

from repossessing cars based wholly or in part on failures to pay insurance-related charges. BANK


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OF AMERICA has failed to refund any of these revenues to its customers. These revenues properly

belong to the members of the public who have made the payments referred to and they are entitled

to and should receive restitution of all such amounts.


THIRD CAUSE OF ACTION(Breach Of Contract)



31. The Form Agreement attached hereto as Exhibit A, and all similar Form Agreements,

contain an express provision relating to insurance, granting BANK OF AMERICA limited authority

to charge customers for comprehensive and collision insurance. Beginning at an exact date unknown

to plaintiffs, but since at least May 1988, BANK OF AMERICA has breached this provision through

the acts alleged herein.

32. The Form Agreement attached hereto as Exhibit A, and all similar Form Agreements,

contain an implied covenant that BANK OF AMERICA will act in good faith and deal fairly with

its customers in the performance of rights and obligations under the contract. This covenant requires

BANK OF AMERICA to act reasonably and in good faith in purchasing insurance covering the

vehicles of its customers and in charging its customers for that insurance. BANK OF AMERICA has

breached the implied covenant through the acts alleged herein.

33. As a consequence of BANK OF AMERICA's breach of the implied and express terms

of the Form Agreement, plaintiffs and the members of the class they represent have sustained

damages in an amount to be proven at trial.


FOURTH CAUSE OF ACTION(Civil Code 1770)

34. Plaintiffs incorporate by reference paragraphs 1 through 21 hereof as though set forth in

full herein and further allege as follows.

35. At all relevant times, plaintiffs REED were consumers, as that term is defined in Civil


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code 1761(d), and entered into the above-mentioned transactions with BANK OF AMERICA

while acting in that capacity.

36. Since at least May, 1989, BANK OF AMERICA, acting in concert with Does 1 through

20, has violated Civil Code 1770(i), 1770(n), 1770(p), and 1770(s) through the acts alleged herein,

thereby entitling plaintiffs REED and each member of the class, to relief under Civil Code 1780.

37. More than 30 days prior to filing this Complaint, plaintiffs REED served on BANK OF

AMERICA their written notice of BANK OF AMERICA's violations of Civil Code 1770(i),

1770(n), 1770(p), and 1770(s) and their demand that such violations be corrected. The notice and

demand was made in accordance with the requirements of Civil Code 1782. BANK OF

AMERICA failed to correct, or to arrange for the correction of, those violations within 30 days of

its receipt of that notice and that demand.

38. As a direct and proximate result of BANK OF AMERICA's violations of Civil Code

1770, plaintiffs REED and each member of the class they represents have suffered damages in an

amount subject to proof at trial, and are entitled to recover those damages pursuant to Civil Code

1780.

39. On information and belief, in committing the above-mentioned violations of Civil Code

1770(i), 1770(n), 1770(p), and 1770(s), BANK OF AMERICA acted with fraud, malice, and

oppression as those terms are defined in Civil Code 3294. plaintiffs REED and the class are

therefore entitled to recover punitive damages from BANK OF AMERICA in an amount sufficient

to make an example of BANK OF AMERICA and to deter such conduct in the future.

40. Plaintiffs REED and the class are entitled to an award of attorneys' fees and costs against

BANK OF AMERICA and Does 1 through 20 pursuant to the provisions of Civil Code 1780(d).


FIFTH CAUSE OF ACTION(Unjust Enrichment)



42. BANK OF AMERICA has been unjustly enriched at the expense of and to the detriment


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of plaintiffs REED, and each member of the class they represent, by collecting monies to which it

is not entitled. Plaintiffs REED and each member of the class are therefore entitled to recover from

BANK OF AMERICA, as unjust enrichment damages, all monies he or she paid for "insurance

premiums," service and finance charges, any benefits received by BANK OF AMERICA as a result

of "insurance" procured for customers, and related late payment charges, plus interest thereon from

the time of payment.


SIXTH CAUSE OF ACTION(Declaratory Relief)


herein and further alleges as follows.

44. An actual controversy has arisen between plaintiffs REED and the members of the class

they represent, on the one hand, and BANK OF AMERICA and Does 1 through 20, on the other

hand, as to their respective rights and obligations under the Form Agreements entered into by

plaintiffs REED and the class members, and to which BANK OF AMERICA subsequently became

bound, and as to their rights and duties under the Rees-Levering Motor Vehicle Sales and Finance

Act, Civil Code 2981, et seq. Specifically, plaintiffs REED and the class they represent contend

that the activities of BANK OF AMERICA and Does 1 through 20 alleged above are not authorized

by the contract between the parties and/or are precluded by statute, and, on information and belief,

BANK OF AMERICA and Does 1 through 20 contend to the contrary.

45. Plaintiffs seek a declaration as to the respective rights and obligations of the parties under

the Form Agreement and Civil Code 2981, et seq.


RELIEF DEMANDED

Plaintiffs pray for relief as follows:

(a) For a preliminary and permanent injunction enjoining BANK OF AMERICA from

engaging in the acts of unfair competition and untrue and misleading advertising alleged above, and

compelling BANK OF AMERICA to disgorge and restore to the public all funds acquired by the


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means of any act or practice found by this Court to be unlawful, or fraudulent, or to constitute unfair

competition;

(b) For restitution to plaintiffs REED, and to each member of the general public, of all

monies collected by BANK OF AMERICA from its Customers for insurance premiums for finance

charges on such premiums, together With all undisclosed benefits received by BANK OF

AMERICA, PlUS interest thereon from the date of the payment;

(c) For compensatory damages for plaintiffs REED and each member of the class they

represent in an amount to be proven at trial;

(d) For unjust enrichment damages in the amount of all monies paid by plaintiffs REED and

each member of the class they represent, for monies paid to BANK OF AMERICA for any excess

charges relating to insurance premiums BANK OF AMERICA bought for itself, related finance

charges and late charges, and all undisclosed benefits received by BANK OF AMERICA, together

with interest thereon from the date of payment;

(e) For exemplary damages in an amount to be proven at trial;

(f) For a declaration of the respective rights and obligations of the parties;

(g) For attorneys' fees;

(h) For costs of suit; and

(i) For such other and further relief as the Court deems just and proper.

Respectfully submitted,

Attorneys for Plaintiffs

Dated:

2.2 Memorandum In Support of Class CertificationIN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA

IN AND FOR THE COUNTY OF SAN FRANCISCO

SUZANNE M. REED AND DONALD D. REED, suing individually, on behalf of the general public

and on behalf of all others similarly situated,


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1 Some borrowers obtain the financing directly from the Bank. Others initially obtain thefinancing through auto dealerships, who then assign the loans to the Bank. The insurancerequirement is identical under either method.

Plaintiffs,

[vs.]


CASE NO.

PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION

FOR CLASS CERTIFICATION

I. INTRODUCTION

This case involves an effort to recover millions of dollars in unlawful charges which

defendant Bank of America NT&SA ("Bank") has imposed on thousands of its borrowers in this

state. Plaintiffs also seek an injunction permanently halting the Bank's unlawful activity and

preventing it from collecting and retaining these charges.

Plaintiffs and the class members they represent entered into standard form finance and

security agreements ("Form Agreements") for the purchase of vehicles financed by the Bank.1 The

Form Agreements require maintenance of comprehensive and collision insurance on financed

vehicles. In the event a borrower does not maintain his or her own insurance, the Form Agreements

allow the Bank to purchase collision and comprehensive coverage for the vehicle, and charge the

borrower for the actual cost of that coverage.

Under California law, the Bank has an obligation to strictly comply with the terms of the

Form Agreements and adhere to the highest standards of good faith and fair dealing in exercising its

powers over class members. It completely failed to do so in force placing its charges for insurance

on class members' accounts. Unlawfully, unfairly and in violation of the Form Agreements, the

Bank (1) charged class members for coverages in excess of the required comprehensive and collision


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2 Although the merits of plaintiffs' claims are not in issue at this stage (Eisen v. Carlyle andJacquelin (1974) 417 U.S. 156, 177), the Court must be presented with sufficient articulation ofthe class allegations to rule on the certifiability of those claims. Therefore, we present asummary of the relevant facts.

3 The Bank defined acceptable coverage as collision and comprehensive coverage with a$500 deductible, and with the Bank named as a lienholder or loss payee. Pls. Exhs. 21 atRD002855; 23 at RD001124.

insurance; (2) charged class members amounts as "insurance premiums" which had actually been

funnelled back to the Bank by its insurance carrier; and (3) imposed unlawful finance charges on

class members attributable to the excess charges and premium kickbacks. To date, the Bank

has succeeded in concealing from class members the practices challenged in this action. Unless the

class is certified and notice provided, most class members will remain unaware of how the Bank has

taken advantage of them and consequently unable to seek individual redress. Class certification will

permit class members to seek recovery of the millions of dollars of ill-gotten gains and an injunction

to prevent the unlawful practices from recurring.2

II. STATEMENT OF THE CASE

A. The Statutory And Contractual Framework

The Form Agreements signed by class members contain boilerplate insurance provisions.

See, e.g., Pls. Exhs. 5; 10; and 11 [not reprinted infra]. Throughout the relevant period, the Bank

consistently and uniformly applied the language of these insurance provisions to require

comprehensive and collision (i.e., physical damage) coverage on financed vehicles. Pls. Exhs. 23

at RD001124; 26 at 900539-541; 51 at 906207 and 906212; 52 at 906236A and 906237A; 53 at

906256. Collision and comprehensive coverage is the only insurance the Bank ever claimed or

represented that borrowers were obligated to maintain under the insurance clauses of the Form

Agreements.3

The Rees-Levering Act permits automobile finance companies to enforce such provisions

by procuring "the insurance" which borrowers are "obligated" to maintain under their financing

agreements, charging borrowers for the amounts actually "advanced" for that insurance and assessing

borrowers finance charges on the amounts "advanced." Civil Code 2982.8(a), 2982.8(b),


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4 The Bank's actions constitute violations of Business and Professions Code 17200, et seq.and 17500, et seq., and the Consumers Legal Remedies Act, Civil Code 1750, et seq., as wellas the express terms of the Form Agreements. In addition, the Bank breached the covenant ofgood faith and fair dealing implied in the contracts. It is well-settled that "where a contractconfers on one party a discretionary power affecting the rights of the other, a duty is imposed toexercise that discretion in good faith and in accordance with fair dealing." Kendall v. ErnestPestana, Inc. (1985) 40 Cal.3d 488, 500, quoting Cal. Lettuce Growers v. Union Sugar Co.(1955) 45 Cal.2d 474, 484; Lazar v. Hertz (1983) 143 Cal.App.3d 128, 141.

5 Both subsidiaries, Progressive Specialty Insurance and Progressive Northwestern Insurance,use a single set of personnel and offices. Pls. Exh. 63 at 11:3-12:2. All the Progressive entitiesare referred to as "Progressive".

6 This insurance is also sometimes referred to as Lender's Collateral Protection ("LCP")insurance.

2982.8(e). The statute does not, however, give the Bank or any other finance company unfettered

discretion to procure any insurance it chooses or to charge customers any amount it deems

appropriate. Instead, the Act narrowly circumscribes the range of lawful activity by restricting it to

the purchase of and assessment of charges for only the insurance which the customer is contractually

"obligated" to "maintain." Ibid. Furthermore, lenders may lawfully charge customers premiums and

finance charges only for the amounts actually paid to an insurance carrier for the contractually

required insurance. Ibid.

Thus, under the terms of the Form Agreements and the statute, the Bank was only entitled

to procure the comprehensive and collision insurance coverages which it contemporaneously

recognized that the Form Agreements required. The Bank consistently and systematically engaged

in a pattern of practices which far exceeded the scope of its authority in numerous respects.4

B. The Bank Secretly Charged Class Members InsurancePremiums And Finance Charges Which They Were

Not Obligated To Pay

The Bank contracted with subsidiaries of Progressive Casualty5 to provide "collateral

protection insurance" ("CPI")6 for the Bank pursuant to the terms of "Participation Agreements".

Pls. Exhs. 12, 13, 14, 16, 17, 34. When the Bank concluded that a borrower did not have acceptable

private collision and comprehensive coverage, a CPI policy was issued at the Bank's direction

covering that borrower's vehicle and naming the Bank as the insured. Pls. Exhs. 12 at RD001906

(at IV, A); 34 at 901664; 48 at 906137; 50 at 906172. The borrower was then charged for the


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7 For example, class representatives Pauline and Jeffery Reed were billed $4,256.00 inpremiums for the collateral protection insurance forced placed on them, with finance charges ofanother $1,801.58. Pls. Exh. 9. (Part of this total ($765.24) was later credited back to the Reed'saccount by Progressive as a Proposition 103 rollback. Pls. Exh. 65.) A total of over $100million in net premiums have been written since the inception of the Bank's collateral protection

insurance program in January 1987. Pls. Exhs. 27; 28; 29 at 901798. Approximately 93% ofthese premiums were charged to borrowers with auto loans. Pls. Exh. 54 at 905762.

One of the reasons the insurance premiums were so high is that, through most of therelevant period, the Bank force placed insurance for the term of the borrower's loan. Pls. Exhs.63 at 281:6-23; 43 at 905233. Thus, instead of being asked to pay premiums for insurance on anannual or semi-annual basis, the borrower was confronted with an assessment of premiums forup to five years of insurance coverage. For example, the CPI force placed on the classrepresentatives had a policy period of 52 months. Pls. Exh. 8 at 000009. Although placinginsurance for the term of the loan allowed the Bank to earn additional finance charges, it made itimpossible for economically pressed class members to pay the insurance premiums in a lumpsum. Pls. Exhs. 18 at RD000551; 32 at 900744; 19 at RD000277 ($658,000 annual interest onpremiums).

8 The Bank had the option of choosing which of the various coverages and endorsements itwanted Progressive to provide under the Participation Agreements. None were required. Pls.Exhs. 63 at 22:17-25; 64 at 109:10-110:17.

9 For example, the "Excess Charges" endorsement covering liens and charges in the event ofrepossession added a 10% surcharge to the base premium rate; the worldwide coverageendorsement added a surcharge of at least an additional 10%; the uncollected premium refundendorsement resulted in another 10% surcharge; and the special settlement endorsement addedyet another 10%. Pls. Exhs. 15 at RD000622-24; 20; 30; 32 at 900805-06; 45 at 500231-32; 46

amounts purportedly paid as premiums by the Bank for the collision and comprehensive coverage

and given the option of paying the entire charge at once or accepting a force-placed "insurance loan"

together with additional finance charges. Pls. Exh. 8. In view of the magnitude of these charges,

virtually all class members were forced to "accept" the insurance loans.7

Unbeknownst to class members, the Bank did not obtain only the contractually-envisioned

collision and comprehensive insurance. Instead, it also purchased, and charged class members for,

numerous other insurance coverages provided by Progressive pursuant to the Participation

Agreements.8 These coverages included various forms of credit insurance for things such as

mechanics liens, repossession expenses, storage and towing expenses; a "worldwide coverage"

endorsement; an endorsement for waiver of actual cash value; an uncollected premium refund

endorsement; and a "zero deductible" provision applicable only to the Bank's claims, not to

customers' claims. Although these excess coverages directly benefited the Bank and significantly

increased the premium charges,9 the Bank nonetheless passed all of the costs onto class members.


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at 500179-180; 47 at 500079-80. The Bank's special zero deductible arrangement also increasedthe premium cost. Pls. Exhs. 25 at 902242; 63 at 55:23-56:6; 56:16-57:6; 45 at 500231; 46 at500181; 47 at 500081.

Pls. Exh. 64 at 111:22-112:15.

Furthermore, through much of the relevant period the charges to class members were also

artificially inflated as a result of various kickbacks paid to the Bank by Progressive under certain

contracts entered into between them. Pls. Exhs. 14 at RD001937; 17 at RD002822-23. These

agreements provided for payments of part of the "premiums" back to the Bank. Since the Bank

charged class members the total nominal premium amount, rather than the actual net premium cost

to the Bank, class members were paying for the kickback arrangements. Over $2 million in premium

charges were funnelled back to the Bank as so-called "expense reimbursements" or "cost of funds

reimbursements" from 1987 to 1990. Id.; see also, Pls. Exhs. 63 at 355:23-356:26, 357:11-358:22;

Exhs. 35-40. The Bank fully understood that these "reimbursements" increased the cost of the

premiums to class members. Pls. Exhs. 64. at 72:5-10.

The charges to the class members were also increased due to the fact that for many years the

premiums were increased to a level sufficient to cover the cost to the Bank of the computerized

tracking system used to monitor its loan portfolio. Pls. Exhs. 63 at 40:17-26; 64 at 72:11-24,

123:16-26, 167:2-8; 24 at 900027-28. When the Bank, aware of the legal problems with charging

such costs to borrowers, eventually started paying for them in December 1991, the charges amounted

to almost $2 million per year. Pls. Exhs. 44; 64 at 73:3-6.

At all times, the Bank imposed finance charges on class members calculated as if all the

premium charges had been paid to an insurance carrier for the contractually required comprehensive

and collision insurance. In fact, the premiums billed to class members included charges for the

additional insurance coverages and the amounts of the premium kickbacks received by the Bank.

Pls. Exh. 63 at 100:6-100:12; 64 at 111:22-112:15. As a result, the finance charges were in excess

of and at a rate different from the lawful finance charges.

C. The Bank Concealed The Unlawful Premium


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10 While some of the notices and correspondence sent out to class members letters weredrafted by the Bank and some by Progressive, the contents of all were reviewed and ultimatelyauthorized by the Bank. Pls. Exh. 63 at 139:25-140:7; 415:16-17, 417:20-418:20.

And Finance Charges From Class Members

In order to accomplish its profit-making objective, the Bank repeatedly and systematically

misrepresented and concealed the material facts relating to the excess coverages, the premium

kickbacks, and the unlawful finance charges throughout the class period.

The Bank sent correspondence10 to customers facing force placements, representing that

insurance would be purchased by the Bank unless the borrower provided the private insurance

required by their security agreements, and included with each letter a "Notice of Insurance

Requirements" describing the required insurance as "comprehensive and collision" coverage. Pls.

Exhs. 51 at 906209-212; 52 at 906237A-238; 53 at 906256-259; 63 at 413:18-414:6, 436:5-437:9.

There was nothing in the letters indicating that anything other than the required comprehensive and

collision insurance would be purchased by the Bank. At the time of the forced placement, the Bank

represented that it had purchased insurance because the customers had not provided "physical

damage insurance," and provided customers with a copy of a "policy" or "notice" showing only such

coverages. Pls. Exhs. 8 at 000009; 9 at 000013 and 000161; 49 at 906167; 50 at 906177.

At no time did the Bank provide class members with copies of the endorsements describing

the excess coverages or the provisions of the agreements between the Bank and Progressive. Nor

did it ever inform class members of the terms of these documents. In fact, if a borrower called the

insurance company and asked for a copy of his or her "policy", all he or she was sent was a copy of

the "Borrower's Notice of Insurance"--a document that does not mention any of the endorsements

or provisions included in the CPI policy beyond physical damage coverage. Indeed, as far as

Progressive's corporate representative (the individual in charge of the Bank of America LCP program

since its inception and designated by Progressive to speak for it at deposition) is aware, the company

had never sent out a copy of the entire policy to a customer. Pls. Exhs. 63 at 339:2-5, 98:19-100:12,

286:10-287:4, 337:3-21, 427:15-25, 429:17-24; 26 at 900601-603; 49 at 906167-170; 50 at

906177-180.


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III. THIS CASE SATISFIES ALL OF THE REQUIREMENTS

FOR CLASS CERTIFICATION

In order to maintain a class action under Code of Civil Procedure 382, a plaintiff must

establish the existence of an ascertainable class and a well-defined community of interest. Richmond

v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 470. The community of interest requirement, in turn,

encompasses three factors "(1) predominant common questions of law or fact; (2) class

representatives with claims or defenses typical of the class; and (3) class representatives who can

adequately represent the class." Ibid. The class must also be so numerous that joinder of the

individual members is impracticable. Finally, a class action must be the superior means for

adjudicating the claims. Collins v. Rocha (1972) 7 Cal.3d 232, 238.

In applying these requirements, the California courts have consistently recognized that the

class action procedure serves important public policy purposes and should be invoked where

necessary to protect the rights of consumers. The class action device was "adopted to prevent a

failure of justice." Daar v. Yellow Cab (1967) 67 Cal.2d 695, 703-04. Accordingly, trial courts

should define classes in such a manner as to "permit utilization of the class action procedure."

Richmond v. Dart Industries, Inc., supra, 29 Cal.3d at 474.

As our Supreme Court explained in Keating v. Superior Court (1982) 31 Cal.3d 584, 609

(partially revs'd on other grounds (1983) 465 U.S. 1):

This court has repeatedly emphasized the importance of the class action device forvindicating rights asserted by large groups of persons. We have observed that theclass suit "both eliminates the possibility of repetitious litigation and provides smallclaimants with a method of obtaining redress for claims which would otherwise betoo small to warrant individual litigation." Denial of a class action in cases where itis appropriate may have the effect of allowing an unscrupulous wrongdoer to "retainthe benefits of its wrongful conduct."

Consumer actions against institutional lenders based on a common course of conduct and involving

standardized, form agreements present "ideal cases for class adjudication." See, La Sala v. American

Savings & Loan (1971) 5 Cal.3d 864, 877 (class of California borrowers who were attacking the

validity of "due on sale" clauses in American Savings' preprinted deed of trust forms); McGhee v.

Bank of America (1976) 60 Cal.App.3d 442 (class action by secured borrowers to require payment


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of interest on impound accounts); Bell v. American Title Insurance Co. (1991) 226 Cal.App.3d 1589

(class action against title companies to recover improper charges for trustee sale guaranties imposed

on defaulting borrowers).

A. The Class Is Ascertainable And So Numerous

That Joinder Would Be Impracticable

The ascertainability requirement is easily satisfied in this case. A class is ascertainable if the

complaint alleges a defined group of persons with a community of interest. Lazar v. Hertz Corp,

supra, 143 Cal.App.3d at 138 (class consisting of "persons who rented automobiles from Hertz in

California during the class period and returned them without refilling the tank and consequently

suffered the refueling charge" found to be ascertainable). The individual class members need not

be identifiable prior to judgment. Daar v. Yellow Cab, supra, 67 Cal.2d at 706 (permitting class

action on behalf of unidentified customers of a taxicab company to recover fare overcharges).

The class of individuals represented by plaintiffs is well-defined and ascertainable. Pls. Exh.

63 at 215:21-24, 216:4-217:5, 219:20-9. The class is also so numerous that joinder of the thousands

of class members would be impracticable without the use of the class action device. See, Richmond

v. Dart Industries, Inc., supra, 29 Cal.3d at 478 (joinder of 2,600 absent class members would be

impracticable). While the actual number of class numbers has not been discovered yet, documents

have been obtained through discovery in which it is reported that 187,562 CPI policies were issued

by Progressive between January 1988 and July 1992. Pls. Exhs. 27; 28. Even if half of these

policies were cancelled completely after issuance, that means over 93,000 effective policies were

issued to Bank borrowers.

B. Common Questions Of Law And Fact Predominate

The standard for finding commonality of interest among putative class members is that

common questions of law or fact be "sufficiently pervasive" to warrant class treatment. Richmond

v. Dart Industries, Inc., supra, 29 Cal.3d at 477-78. In this case, common questions of both law and

fact predominate. All class members were victimized by the Bank in the same manner through a

pattern of practices which were unlawful, unfair and in violation of the Form Agreements. The Bank


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11 The Bank cannot avoid class certification by claiming that individualized determinations ofdamages might be necessary. MacManus v. A.E. Realty Partners (1987) 195 Cal.App.3d 1106,1117.

charged all class members for insurance coverages in excess of the contractually required

comprehensive and collision insurance. It also consistently billed class members the amounts of

premium kickbacks which it received from Progressive. Finally, the Bank assessed all class

members finance charges on the excess insurance coverages and the premium kickbacks.

The fact that each class member was involved in a separate transaction does not mean that

individual questions predominate over questions common to all class members. See, Vasquez v.

Superior Court (1971) 4 Cal.3d 800, 809. As contracts of adhesion, the Form Agreements at issue

here are particularly appropriate for class-wide adjudication. As the California Supreme Court has

observed:

Controversies involving widely used contracts of adhesion present ideal cases for

class adjudication; the contracts are uniform, the same principles of interpretationapply to each contract, and all members of the class will share a common interest inthe interpretation of an agreement to which each is a party.

La Sala v. American Sav. & Loan Assn., supra, 5 Cal.3d at 877; McGhee v. Bank of America, supra,

60 Cal.App.3d at 449.11

Common issues also predominate with respect to the Bank's concealment of the additional

coverages and premium kickbacks from class members. The contents of the individual notices,

letters and policies sent to borrowers do not raise any individual issues which must be decided in this

case.

C. The Claims Of The Representative Plaintiffs

Are Typical Of Those Of The Class

The class representatives' claims must be typical, although not necessarily identical, to the

claims of class members. This means that they should be "similarly situated" to members of the

class with respect to the defendant and the claims made. Classen v. Weller (1983) 145 Cal.App.3d

27, 46. In this case the class representatives entered into Form Agreements, were subsequently

subjected to forced placements of insurance, and were charged for excess coverages, premium


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kickbacks and improper finance charges. The claims of the representative plaintiffs are exactly the

same as those of all the class members. Lazar v. Hertz, supra, 143 Cal.App.3d at 142 [plaintiff who

signed the rental agreement, returned an unfilled car and paid a refueling charge raised claims typical

of class challenging refueling service charge]; see also, Daar v. Yellow Cab, supra, 67 Cal.2d at 712.

D. The Representative Plaintiffs Adequately Represent The Class

The standard for adequacy of representation is met when the interests of the class

representatives are not antagonistic to nor in conflict with those of the class as a whole and it appears

that the representative plaintiffs and their counsel will vigorously prosecute the action. Richmond

v. Dart Industries, supra, 29 Cal.3d at 470, 478; Lazar v. Hertz, supra, 143 Cal.App.3d at 142. Both

of these requirements are satisfied in this case.

There exists no actual or potential conflicts of interest or antagonism between the

representative plaintiffs and the class members. They share a mutual interest in obtaining liability

and damages rulings against the Bank. See, Richmond v. Dart Industries, supra, 29 Cal.3d 471-76.

Moreover, plaintiffs are represented by experienced class counsel who have competently and

vigorously prosecuted this suit. Chavez Decl., 1-7. There is no question that plaintiffs are able

and willing to continue to fairly and adequately represent the interests of the entire class. Decls. of

Suzanne M. Reed and Donald D. Reed.

E. The Class Action Device Is Superior In This Case

Utilization of the class action device is the superior means for adjudicating plaintiffs' claims

in this case. The cost of litigating individual claims would be far greater than the potential recovery

of any of the individual class members. In such circumstances, the courts have recognized the

benefit of aggregating claims into a single lawsuit to save time, reduce waste and limit duplication

of effort. Lazar v. Hertz, supra, 143 Cal.App.3d at 143. The alternative of multiple litigation would

not sufficiently protect consumers' rights because it "pre-suppose[s] a group of economically

powerful parties who are obviously able and willing to take care of their own interests individually

through individual suits or individual decisions about joinder or intervention." Vasquez v. Superior

Court, supra, 4 Cal.3d at 808 (quoting Dolgow v. Anderson, (E.D.N.Y. 1968) 43 F.R.D. 472, 484).


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Where, as here, the defendant has concealed the true nature of its activities from class members it

is not realistic to consider the unlikely prospect of individual suits as a meaningful alternative to

class certification.

IV. CONCLUSION

For the foregoing reasons, plaintiffs' motion for class certification should be granted.


Attorneys for Plaintiff

Dated:

2.3 Motion for Order Approving Notice to Class and Allocating Cost of Noticeto Defendants




Plaintiffs,

[vs.]


CASE NO.

MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFFS' MOTION

FOR ORDER APPROVING NOTICE TO THE CLASS AND ALLOCATING COST OF NOTICE

TO BANK OF AMERICA

CLASS ACTION


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12 More specifically, plaintiffs propose Exhibit A should be published once in the front pagesections of the major California newspapers (The Los Angeles Times, The San Jose MercuryNews, The Oakland Tribune, The San Francisco Chronicle, The San Diego Union, TheSacramento Bee, The Fresno Bee, and The San Bernardino Sun) and for four weeks innewspapers of general circulation in every county in California in which the Bank does business.

FILED UNDER SEAL PURSUANT TO PROTECTIVE ORDER

ENTERED OCTOBER 16, 1992

I. INTRODUCTION

This is a class action to recover millions of dollars in overcharges imposed by defendant

Bank of America NT&SA ("Bank") on its customers. The motion for class certification is currently

set to be heard August 2, 1993. In order to assure sufficient time for notice to class members prior

to trial, which is scheduled for November 1, 1993, and in light of the 60 days notice required under

the local rules, plaintiffs make this motion for an order approving notice to the class and initially

allocating the cost of notice to the Bank.

As explained below, mail notice would be unlikely to reach all of the class and would be

inadequate in this case. Consequently, plaintiffs propose that class notice be provided by: (1)

mailing notice in the form of Exhibit A to those individuals whose addresses can be ascertained from

the Bank's records; (2) publishing Exhibit A once in the major California newspapers, and in

newspapers of general circulation across the state pursuant to Government Code 6064;12 and (3)

requiring the Bank to display the Exhibit B notice in a prominent place at all branch offices in

California and to distribute copies of Exhibit A to requesting customers. Under the circumstances

of this case, the costs of class notice should be allocated to the Bank.

In order to complete the class notice and opt out procedures sufficiently in advance of trial,

plaintiffs propose that the class notice be provided during September and early October and that the

class members be given until October 20, 1993 to postmark requests for exclusion from the class.

First class mailing of the notice should be completed by September 14, 1993, with publication in the

major newspapers taking place on that date also. Display of Exhibit B and distribution of Exhibit

A should take place from September 10, 1993 through October 10, 1993, as should publication in


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13 A more detailed description of the facts is set forth in Plaintiffs' Memorandum of Pointsand Authorities In Support of Motion For Class Certification, 2-10 (filed June 3, 1993). Theevidence supporting these facts is set forth in Exhibits 1-65, filed in support of that motion. [notreprinted infra]

14 Both subsidiaries, Progressive Specialty Insurance and Progressive NorthwesternInsurance, use a single set of personnel and offices. All the Progressive entities are referred to as"Progressive".

the newspapers of general circulation.

II. STATEMENT OF FACTS

This class action is brought on behalf of certain customers of the Bank who purchased

vehicles throughout California and financed the purchase price through the Bank.13

Class members

entered into standard form finance and security agreements ("Form Agreements") for the purchase

of vehicles financed by the Bank. As the Bank uniformly and consistently recognized, these Form

Agreements require maintenance of comprehensive and collision insurance on financed vehicles.

In the event a borrower fails to maintain this insurance, the Form Agreements allow the Bank to

purchase and "force place" such insurance on the customer's vehicle.

The Bank has always acknowledged that the language of these insurance provisions requires

comprehensive and collision (i.e., physical damage) insurance on financed vehicles. The

Rees-Levering Act permits automobile finance companies to enforce such provisions by procuring

"the insurance" which borrowers are "obligated" to "maintain" under their Form Agreements. Civil

Code 2982.8(a), (b), and (e). Thus, under the terms of the Form Agreements, and under the terms

of the Rees-Levering Act, the Bank was only entitled to procure the comprehensive and collision

insurance coverages which it contemporaneously recognized that the Form Agreements required.

The Bank consistently and systematically engaged in a pattern of practices which far

exceeded its rights in numerous respects. The Bank utilized its superior position to take advantage

of class members by force placing and imposing thousands of dollars in charges on them for what

is known as collateral protection insurance ("CPI").

The Bank contracted with subsidiaries of Progressive Casualty14 to provide CPI for the Bank

pursuant to the terms of "Participation Agreements". When the Bank concluded that a borrower did


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15 One of the reasons the insurance premiums were so high is that, through most of therelevant period, the Bank force placed insurance for the term of the borrower's loan. Thus,instead of being asked to pay premiums for insurance on an annual or semi-annual basis, theborrower was confronted with an assessment of premiums for up to five years of insurancecoverage. A total ofover $100 million in net premiums have been written since the inception ofthe Bank's collateral protection insurance program in January 1987, 93% of which premiumswere charged to borrowers with auto loans. Placing insurance for the term of the loan allowedthe Bank to earn additional finance charges. The Bank earned as much as $658,000 per year ininterest on the CPI premiums.

not have acceptable private collision and comprehensive coverage, a CPI policy was issued at the

Bank's direction covering that borrower's vehicle and naming the Bank as the insured. The borrower

was then charged for the amounts purportedly paid as premiums by the Bank for the collision and

comprehensive coverage and given the option of paying the entire charge at once or accepting a

force-placed "insurance loan" together with additional finance charges. In view of the magnitude

of these charges, virtually all class members were forced to "accept" the insurance loans.15

Unbeknownst to class members, the Bank did not obtain only the contractually-envisioned

collision and comprehensive insurance, but instead, purchased and charged class members for,

numerous other insurance coverages provided by Progressive pursuant to the Participation

Agreements. Although these excess coverages directly benefited the Bank and significantly

increased the premium charges, the Bank nonetheless passed all of the costs onto class members.

Furthermore, through much of the relevant period the charges to class members were also

artificially inflated as a result of various kickbacks paid to the Bank by Progressive under certain

contracts entered into between them, which provided for payments of part of the "premiums" back

to the Bank. Since the Bank charged class members the total nominal premium amount, rather than

the actual net premium cost to the Bank, class members were paying for the kickback arrangements.

The Bank fully understood that these payments increased the cost of the premiums to class members.

The charges to the class members were also increased due to the fact that for many years the

premiums were increased to a level sufficient to cover the cost to the Bank of the computerized

tracking system used to monitor its loan portfolio. When the Bank, aware of the legal problems with


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16 See, La Sala v. American Savings & Loan Ass'n (1971) 5 Cal.3d 864, 872 [Californiacourts look to federal class action procedures set forth in Federal Rule 23 to the extent state rulesnot otherwise discernable]. Copies of federal cases cited herein are provided for the convenienceof the Court in the Appendix of Federal Cases. [not reprinted infra]

charging such costs to borrowers, eventually started paying for them in December 1991, the charges

amounted to almost $2 million per year.

At all times, the Bank imposed finance charges on class members calculated as if all the

premium charges had been paid to an insurance carrier for the contractually required comprehensive

and collision insurance. In fact, the premiums billed to class members included charges for the

additional insurance coverages and the amounts of the premium kickbacks received by the Bank.

As a result, the finance charges were in excess of and at a rate different from the lawful finance

charges.

In order to accomplish its profit-making objective, the Bank repeatedly and systematically

misrepresented and concealed the material facts relating to the excess coverages, the premium

kickbacks, and the unlawful finance charges throughout the class period.

III. ARGUMENT

A. Notice To The Class Should Be Provided In This Case

It is appropriate to provide class notice in this case in order to assure that any judgment in

the Bank's favor at trial will be res judicata as to all class members and that the requirements of due

process are satisfied. Cartt v. Superior Court (1975) 50 Cal.App.3d 960, 968-969.

B. Class Notice Should Include Mailing And PublicationOf Exhibit A, As Well As Display Of Exhibit B

And Distribution Of Exhibit A In Branch Offices

Mailing notice to class members at their last known addresses is appropriate. The United

States Supreme Court has held that, where the names and addresses of individual class members are

identifiable through reasonable effort, notice by individual mailing is required by Rule 23 of the

Federal Rules of Civil Procedure. Eisen v. Carlisle & Jacquelin (1974) 417 U.S. 156, 175.16 See

also, Cartt v. Superior Court (1975) 50 Cal.App.3d 960, 972-73. Here, the names and addresses of

individual class members can be obtained from the Bank's own records, or those of its agent,


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17 See, Plaintiff's Separate Statement Required Under Local Rule 427, ("Separate Statement")at 1-2. [not reprinted infra] It is estimated that the cost of providing notice to the class membersvia First Class mail would be approximately $.3925 per notice. Id. at 2.

18 The cost of the publication as proposed by plaintiff would be approximately $77,000.Separate Statement at 3.

Progressive.17

However, here, as in Cartt, supra, the mere mailing of notice, without more, would be

insufficient because some substantial portion of the class (possibly as high as 30%) would not be

reached. Cartt, at 964-65. "The principle purpose of notice to the class is the protection of the

integrity of the class action process, one of the functions of which is to prevent burdening the courts

with multiple claims . . . . [] However, the notice ordered must be consistent with the broad

California concept of consumer class actions" recognized in Vasquez v. Superior Court (1971) 4

Cal.3d 800, 808. Cartt, at 970.

The problem will be particularly acute for members of the class who paid off their loans years

ago. Such customers have not had an on-going relationship with the Bank for some time, and they

have had no reason to inform the Bank of changes in address. Because the class includes individuals

who finished making payments as long as five years ago, the problem of ascertaining current

addresses is a substantial one. Separate Statement at 2.

Under the circumstances, additional steps should be taken to ensure that adequate notice is

provided to the class. Notice by publication is authorized by Civil Code 1781; see also, Cartt v.

Superior Court, supra. The Cartt court stressed that the publication must be "meaningful" and have

a reasonable chance of reaching all class members, not merely readers of legal notices. 50

Cal.App.3d at 974. Plaintiffs' proposed publication fits these standards, and should improve the

effectiveness of notice to the class.18

In addition to publication, the display of Exhibit B and distribution of Exhibit A in Bank

branch offices affords a very reasonable, affordable and appropriate means of enhancing the

effectiveness of class notice. Customers will take note of Exhibit B and, if interested in further

details, request a copy of Exhibit A. This will ensure that the class notice receives distribution to


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19 The cost of the posting would be fairly minimal, ranging from $150 to $200 per branch.Separate Statement at 4.

interested parties and will further the purposes of providing notice to the class.

The posting of notice in the Bank's branches is reasonably targeted to reach class members.

A common characteristic of all class members is that they had an account with the Bank. It is

reasonable to expect that additional class members are likely to be reached through the proposed

posting in Bank branches. All of the large banks rely on and attempt to foster repeat business, and

to cross-sell their various services and accounts. Factors such as the Bank's reputation, the large

number of different services it provides, and the heavily promoted nature of its business suggest that

the Bank does a high volume of repeat business.

The distribution of the notice at the Bank's branches will not hamper the Bank's business.

The language contained in Exhibits A and B is neutral and non-accusatory. Exhibit A summarizes

the claims asserted on behalf of the class, but specifically notes that the Bank denies all

wrongdoing.19

The courts have repeatedly held that a class action defendant may be required to display a

class notice in its place of business or at other locations under its influence or control in order to

reach class members, frequently in addition to mailing notices and/or publishing them. See, e.g., In

re Domestic Air Transportation Antitrust Litigation (N.D.Ga. 1992) 1991-2 Trade Cases (CCH)

69,679 at 67,077, 67,089-91 [court ordered class notice which included posting notice in

defendants' ticket offices, publication in each defendant's in-flight magazine, and sending notice to

36,000 travel agencies for posting, finding that such notice does not offend defendants' First

Amendment rights]; Hartman v. Wick (D.D.C. 1988) 678 F.Supp. 312, 330-31 [court ordered

posting of notice in defendant's personnel offices, and circulation among employees and job

applicants, as well as publication in a wide variety of print media sources]; Reed v. Health and

Human Services (1985) 774 F.2d 1270, 1276-77 [where defendants' computer records would not

reveal substantial number of class members, court approved notice by mail to those who could be

reached, publication for four weeks in major newspapers in state, plus posting in all of defendants'


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20 California law and federal law differ on this point. Id. Therefore, federal case law is notrelevant.

local offices], rev'd on other grounds (1987) 481 U.S. 368; Luevano v. Campbell (D.D.C. 1981) 93

F.R.D. 68, 76-77, 85 [court found method of providing class notice of proposed consent decree,

which included posting notice at regional personnel offices and local job information centers, met

due process standards]; Guthrie v. Evans (S.D.Ga. 1981) 93 F.R.D. 390, 394 [court ordered notice

of settlement posted in all Georgia prison system housing units]; In re Arizona Dairy Products

Litigation (D.Az. 1975) 1975-2 Trade Cases (CCH) 60,555 at 60,441-42 [court approved printing

of abbreviated form of class notice on defendant's milk cartons].

Hartman v. Wick, supra, was an employment discrimination class action brought against a

United States agency. In ruling that notice should be posted at government employment offices, the

District Court noted that "the evidence suggests that applicants for the jobs at issue in this suit may

continue to apply for government employment . . . ." 678 F.Supp. at 330. Similarly, an individual

who has one account with a bank, e.g., a car loan, may continue to use that bank, for another loan

or a savings or checking account. This "goodwill" should be used to effectuate the goal of providing

notice to as many class members as reasonably possible by utilizing the type of posting suggested

herein.

C. The Bank Should Be Ordered To Initially Pay

For The Cost Of Providing Notice To Class Members

Under California law, it is well-settled that the defendant in a class action suit may be

required to initially bear the expense of class notice. Civil Service Employees Ins. Co. v. Superior

Court (1978) 22 Cal.3d 362, 376.20 In the Consumers Legal Remedies Act, the California

Legislature explicitly authorized trial courts to allocate the cost of class notice to class action

defendants. Civil Code 1781(d). Our Supreme Court has held that the provisions of the Consumers

Legal Remedies Act, including those relating to notice cost allocation, should be utilized in all class

actions in this state. Vasquez v. Superior Court, 4 Cal.3d at 820. As the Supreme Court explained

in upholding the imposition of notice costs on a class action defendant:


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In California, in contrast to the federal realm, the Legislature has specificallyauthorized trial courts in class actions to impose the cost of notice upon either theplaintiff or the defendant.

* * *[W]e expressly held in Vasquez v. Superior Court, supra, 4 Cal.3d 800, 820, that theclass action procedures prescribed by the Consumer Legal Remedies Act could and

should appropriately be utilized by trial courts in all class actions. Numerousdecisions since Vasquez have confirmed the applicability of the act's procedures inclass actions which do not strictly fall within the aegis of the act. Moreover, inenumerating the various provisions of the Consumer Legal Remedies Act by whichtrial courts should be guided, we specifically identified in Vasquez section 1781,subdivision (d), and its authorization of the imposition of notice costs on either partyin a class action. (4 Cal.3d at p. 820). Thus, under Vasquez, California trial courtsclearly possess general authority to impose notice costs on either party, plaintiff ordefendant, in a class action.

Civil Service Employees Ins. Co., 22 Cal.3d at 376 (footnotes and citations omitted).

The Civil Service court emphasized that the statutory authorization to allocate notice costs

to defendants serves the important public policy purposes of class actions. It allows the court to

protect and preserve the integrity of the class action procedure:

Protection of unwary customers from being duped by unscrupulous sellers is anexigency of the utmost priority in contemporary society . . . . A class action byconsumers produces several salutary byproducts, including a therapeutic effect uponthose sellers who indulge in fraudulent practices, aid to legitimate businessenterprises by curtailing illegitimate competition, and avoidance to the judicialprocess of the burden of multiple litigation involving identical claims.

A class action procedure authorizing a trial court to impose notice costs upon a

defendant in a particular case serves the same general public policies. In the absenceof such a cost-shifting procedure . . . a defendant who may have improperly inflicteda small financial loss upon a great number of people could succeed in defeating aclass action suit without regard to the strength of the plaintiff's claim.

Id. at 377-378 (citations omitted).

Similarly, in Cartt, 50 Cal.App.3d at 971-72, Justice Kaus, after pointing out the extremely

favorable treatment the Supreme Court has given to consumer class actions, explained:

More specifically, our cases have indicated that class actions should be permitted toproceed, where the economic realities involved in giving "adequate" notice,compared to the small individual losses of class members, would effectively negateany class action.

In view of the important public policies furthered by class actions and the judicial recognition

that notice costs should be allocated in the manner required to allow legitimate consumer class

actions to proceed, the Bank should be required to initially bear the cost of class notice in this case.


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21 See, Declaration of Anne M. Ronan In Support Of Plaintiffs' Motion For ClassCertification, and Plaintiffs' Exhibits In Support Of Motion For Class Certification (both filedJune 3, 1993). [not reprinted infra]

The evidence before the Court demonstrates that the Bank overcharged tens of thousands of its

customers for insurance without any contractual or statutory right to do so, and without disclosure

of the true facts to its customers.21 In addition, the Bank received kickbacks in the form of

"reimbursements" paid by Progressive. Id.

As a result of its unlawful activities, the Bank overcharged class members by many millions

of dollars. The annual interest earned by the Bank on these overcharges vastly exceeds the costs of

class notice. In fact, it is likely that the Bank's ill-gotten gains for a single month would be greater

than the cost of the proposed class notice.

The primary purpose and effect of providing class notice at this stage of the proceedings is

to assure the Bank that any judgment in its favor will be res judicata as to all class members. Cartt,

50 Cal.App.3d at 968-969; Cooper v. American Savings and Loan Association (1976) 55 Cal.App.3d

274. Although class notice also serves the interests of class members and the Court, the principal

beneficiary of any class notice is the defendant. This is because adequate notice ensures that the

judgment is binding on those class members who do not opt out and eliminates the possibility that

the defendant will be subjected to "one-way intervention." As the court succinctly stated in Home

Savings and Loan Association v. Superior Court (1974) 42 Cal.App.3d 1006, 1011:

The critical reason for notification of members of the class on whose behalfa class action has been brought is that notification makes possible a bindingadjudication and an enforceable judgment with respect to the rights of the membersof the class. Absent such notification no member of the class need be bound by theresult of the litigation.

The mailing and publication, along with the display and distribution requested by plaintiffs,

will best ensure that the Bank receives the benefit of res judicata. Cartt, 50 Cal.App.3d at 974. The

Bank should be required to initially bear the expense of obtaining this benefit.

[I]n the absence of such a cost shifting procedure, the class action mechanism mightfrequently be completely frustrated since the representative plaintiff, whoseindividual claim will ordinarily be relatively small, may often be unable to afford theinitial cost of notifying all absent members of the pendency of the action.


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Civil Service Employees Ins. Co., 22 Cal.3d at 377.

Nor is there any merit to the contention that allocating the costs of notice to a class action

defendant forces it to finance a lawsuit against itself. The California Supreme Court has explicitly

rejected this notion:

Indeed, class action costs are quite analogous to discovery costs, for much of theexpense typically identified with the cost of notice relates to the identification ofclass members from defendants' records, and defendants have frequently beenrequired to provide such identification under traditional discovery procedures.

Id. at 378, fn.9. In short, there is nothing unusual or unfair in requiring the Bank to bear this cost of

litigation.

IV. CONCLUSION

For the foregoing reasons, the Court should grant plaintiffs' motion.


Attorneys for Plaintiff

Dated:

2.4 Memorandum in Support of Certifying Class, Approving Settlement,Providing Notice to Class




Plaintiffs,

[vs.]


CASE NO.


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MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR AN

ORDER CERTIFYING A CLASS, PRELIMINARILY APPROVING SETTLEMENT

AGREEMENT, PROVIDING NOTICE TO THE CLASS AND SCHEDULING THE

FINAL APPROVAL HEARING

CLASS ACTION

I. INTRODUCTION

After extensive discovery and negotiations, the parties to this consumer class action have

reached a settlement of the case providing for the establishment of a $9.05 million common fund and

the entry of a permanent injunction. As in any class action, the settlement agreement is subject

initially to preliminary approval and then to final approval by the Court after notice to the class and

a hearing. As explained below, the settlement negotiated by the parties is fair, reasonable, provides

substantial benefits to the class and should be preliminarily approved by the Court in all respects.

The parties also request that the Court certify a class pursuant to the Settlement Agreement, order

notice to the class and schedule a further hearing to decide whether the settlement should be finally

approved.

II. STATEMENT OF THE CASE

This case involves a challenge to the practices of the Bank of America National Trust &

Savings Association ("the Bank") in "force placing" and charging customers for collateral protection

insurance ("CPI"). The complaint in this action was filed on May 28, 1992. It states causes of action

for violations of Business and Professions Code 17200 and 17500, for breach of contract, for

violations of the Consumers Legal Remedies Act, for declaratory relief and for unjust enrichment

damages.

The class described in the complaint and stipulated to by the Bank consists of certain

automobile loan customers of the Bank. The terms of the loan agreements signed by these customers

allowed the Bank to purchase and charge customers for comprehensive and collision insurance in

the event the customers failed to purchase or maintain such insurance. The complaint alleges that


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the Bank acted unfairly, unlawfully, and in violation of the loan agreements in force placing and

charging customers premiums for what is known as collateral protection insurance ("CPI"). More

specifically, plaintiffs contend that the Bank charged class members for insurance coverages which

they were not obligated to pay for, charged them amounts as insurance premiums which were

actually paid to the Bank by insurance carriers, and improperly assessed class members finance

charges on the additional insurance coverages and payments to the Bank.

Throughout the case, the Bank has vigorously resisted all the plaintiffs' claims and has denied

any wrongdoing or liability. The Bank contends that it lawfully purchased and charged class

members for CPI, that any payments made to the Bank were lawfully and appropriately paid, that

the Bank properly assessed class members finance charges on CPI premiums and that class members

are legally obligated to pay all amounts assessed. As the files and records in this case demonstrate,

this case has been diligently and aggressively litigated since its inception. The factual record has

been developed through extensive discovery and investigation. Plaintiffs have obtained, reviewed

and analyzed thousands of pages of documents, conducted depositions of the Bank and its insurance

carrier, and initiated and participated in substantial written discovery. Depositions were also taken

of the individually named plaintiffs. As a result, the parties entered settlement negotiations with

sufficient information to evaluate the merits of the case, the relative strengths and weaknesses of

their positions, and the risks of continued litigation.

The parties' efforts to negotiate settlement began in June 1993 and were finalized in

September. They included the exchange of additional information beyond that provided through

formal discovery. A settlement in the case was eventually achieved as a result of settlement

conferences conducted by the Honorable Thomas M. Jenkins (a retired judge of the Santa Clara

Superior Court) and direct negotiations between the parties. These negotiations have resulted in a

settlement agreement which plaintiffs believe is fair, reasonable and in the best interests of the class.

It is the product of hard bargaining and compromises by both sides. The magnitude of the $9.05

million common fund and the scope of the permanent injunction alone demonstrate that the

settlement will produce substantial benefits and that it constitutes a significant accomplishment for


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the class.

III. THE TERMS OF THE SETTLEMENT

In order to resolve the claims of the class to the extent provided in the settlement agreement,

the Bank has agreed to the certification of a class for purpose of settlement. The class is defined as

all California persons who purchased vehicles financed by the Bank and who paid orwere charged any amount of insurance premiums or finance charges as a result of CPIplaced between May 28, 1987 and June 30, 1993 under Participation Agreementsbetween the Bank and Progressive, and whose policies have not been fully cancelledand who do not make a timely request for exclusion, but excluding theRepresentative Plaintiffs.

See Settlement Agreement, attached as Exhibit A to the Declaration of Mark A. Chavez filed

herewith, at 1.15 [not reprinted infra].

As set forth in detail in the papers filed with this Court on June 3, 1993 in support of

Plaintiffs' Motion For Class Certification, the class described above has a well-defined community

of interests in that there are common questions of law and fact among its members, class

representatives with claims typical of the class, and class representatives who adequately represent

the class.

A proposed order certifying a settlement class and appointing the law firm of Farrow,

Bramson, Chavez & Baskin as class counsel is attached to the settlement agreement as Exhibit A and

also filed separately herewith [not reprinted infra]. The parties request that this order be entered at

the hearing on this motion.

Under the settlement agreement, the Bank will establish a common fund for the class in the

amount of $9.05 million. The common fund will consist of $3.313 million in cash and $5.737

million in credits against payments owed by class members. Interest will accrue at the rate of 2.57%

on the cash portion of the common fund. The Bank has also agreed to reimburse the two

Representative Plaintiffs in the total amount of $5,300 of the sums they paid to the Bank.

The payments to class members will be credited and distributed in accordance with the

formulas set forth in section 3 of the settlement agreement. After attorneys' fees and costs, in an

amount to be approved by the Court, are awarded, the remainder of the cash portion of the common

fund will be distributed to class members who have fully paid the amounts assessed for CPI as of


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22 This term of the injunction is conditioned upon the Bank's CPI insurance carrier receivingthe requested approval from the California Department of Insurance.

the end of October 1993. If a check is returned, the Bank will take steps to locate a new address for

the class member and re-send the check. The credit payments to class members who still owe

amounts for CPI as of the end of October will be applied to their outstanding loan balances as if they

were payments made in cash by class members on the distribution date. If, due to payments received

by the Bank after October 1993, the balance on the class member's account is too low to absorb the

entire credit allocable to such account, a check in the amount of the remaining amoun

Chapter 2 Lenders Pay $125 Million for Their Own PL94Ch02

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