The U.S. Court of Appeals for the Seventh Circuit Court has issued an important decision about the Home Affordable Mortgage Program (or "HAMP"), finding that a putative class action stated claims under various Illinois common-law and statutory theories. Wigod v. Wells Fargo Bank, N.A., No. 11-1423, 2012 WL 727646 (7th Cir. Mar. 7, 2012). One of the important aspects of the case is that it appears to be the first federal appellate court to address consumer claims involving HAMP. Indeed, the opinion itself says the court has identified more than 80 federal cases in which mortgagors brought HAMP-related claims. It is also important in that the court decided in favor of the plaintiffs, reversing the dismissal of a number of their claims. So it is a significant case because of its implications for a national program affecting a sector that has played a major role in the current economic situation facing our country.
However, it is also an important decision beyond the substantive area of law involved because it puts to rest (at least in the Seventh Circuit) the concept of denying claims because they are an "end-run around the absence of a private right of action." To be sure, the concept has some surface appeal -- it is easy to imagine that when Congress enacted a new legislative scheme to right some sort of wrong, but did not expressly create a right for private parties to enforce that scheme in court, it meant that people shouldn't be able to sue at all for 'violation' of the statute. Therefore, the theory goes, a plaintiff who uses state common law or statutory causes of action to sue regarding conduct that would be a violation of the federal scheme is actually trying to achieve an impermissible "end-run" around Congressional intent. The Seventh Circuit has now firmly rejected that theory.
In Wigod, Wells Fargo Bank was sued by a mortgagor for failure to provide a permanent loan modification after a four-month 'trial period' modification was successfully implemented. The mortgagor alleged, on behalf of a putative class, that this went against what she had been promised, and she filed a complaint alleging breach of contract, promissory estoppel, fraudulent misrepresentation, violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, and several other theories. The district court granted Wells Fargo's motion to dismiss, based primarily on their argument that plaintiff's allegations were an "impermissible end-run around the lack of a private action" in HAMP. On appeal, Wells Fargo continued to pursue that theory, arguing that "If Congress had intended courts to be adjudicating whether a borrower qualified for a loan modification under ... HAMP, it would have provided a private right of action -- but it chose not to do so."
The Seventh Circuit held that "[t]he end-run theory is built on the novel assumption that where Congress does not create a private right of action for violation of a federal law, no right of action may exist under state law, either." However, that assumption has no support in the law. The court thought the concept probably arose from conflating two distinct lines of cases: (1) the law of implied private rights of action; and (2) federal preemption of state law. It distinguished the first line, observing that the issue was not about whether to imply a private right of action in HAMP because the plaintiff had not sued for violation of HAMP. The Supreme Court's trend for some time has been to avoid implying private rights of action, so it is not surprising that the Seventh Circuit observed that if this case involved whether to recognize a federal right of action under HAMP the caselaw "would certainly weigh in favor of judicial caution."
As to the second line, the court thought that "the end-run theory lies in a doctrinal no-man's land, and its adoption would upset a century or two of preemption and arising-under jurisdicational precedents." It firmly held:
"The absence of a private right of action from a federal
statute provides no reason to dismiss a claim under a state
law just because it refers to or incorporates some element
of the federal law. ... To find otherwise would require
adopting the novel presumption that where Congress provides
no remedy under federal law, state law may not afford one
in its stead."
The court also observed that the Second Circuit had decided a case in favor of the "end-run theory," Grochowski v. Phoenix Construction, 318 F.3d 80 (2d Cir. 2003), but the Seventh Circuit praised the dissenting opinion that had rejected that theory. It agreed with the dissent that if a state provides a right or remedy, any plaintiff has an absolute right to invoke it, unless that law is contrary to or is preempted by federal law. Here, Wells Fargo had not been able to demonstrate from the mere absence of an express cause of action that Congress intended to preclude states from enacting one. "It seems to us that the Grochowski end-run theory is really just an 'end-run' around well-established preemption doctrine, and we decline to adopt it."
The Wigod case promises to have a lasting impact on future cases involving statutes not incorporating express private rights of action.
UPDATE (3/9/2012): I am quoted in a Chicago Tribune story about the Wigod opinion. Go to http://trib.in/wWLeWS for the story.