Judge Orders Stay of 94M Proposed Class Settlement in COVID-Related Mortgage Forbearance Suit

Recently, the District Court for the Southern District of Ohio ordered a stay regarding the approval of a $94 million settlement agreement in an ongoing mortgage forbearance suit against a large national bank pending the result of a motion to dismiss in a related matter in California.  The plaintiff sued the bank for allegedly placing borrowers into forbearance under the Coronavirus Aid, Relief, and Economic Security Act without asking, which negatively affected their credit.

In granting the stay, the court applied the “first-file-rule.”  The first-to-file rule provides that when actions “involving nearly identical parties and issues have been filed in two different district courts, the court in which the first suit was filed should generally proceed to judgment.”  The court considered four factors in deciding to apply the rule: (i) the chronology of the actions, (ii) the similarity of the parties involved, (iii) the similarity of the issues or claims at stake, and (iv) whether any equitable considerations (e.g., bad faith) would prevent the rule from applying.

The court held that all factors supported a stay.  First, the court found that, because the California action was filed before the Ohio action, the chronology of the actions supported applying the first-to-file rule.  Second, the court found that the similarity of the parties supported applying the rule—the court found the class definitions to be substantially similar because the California class definition was broader, making it “difficult[] to imagin[e] a person who would fit the narrower [Ohio] proposed class definition without meeting the broader [California] proposed class definition.”  Next, the court found that, while both actions involved different state law claims, the claims were substantially similar as they centered on whether the forbearance program in question was lawful.  Finally, the court determined that there were no equitable considerations that would justify not applying the first-to file rule.

Accordingly, the Southern District of Ohio stayed approval of the parties’ settlement agreement pending the result of the motion to dismiss in the California action.