Mary Glover, a Pittsburgh-area homeowner living on Social Security disability income, is taking on Goldman Sachs and Wells Fargo, charging that they've violated federal and state consumer protection laws and breached contracts.
Yet, because of a decision by one judge, she and thousands of homeowners like her could be priced out of their ability to fight back in court against shady dealings by the nation's biggest banks. And while the decision in this case may seem exceptional, as Dahlia Lithwick and others have pointed out, it's part of a disturbing pattern of the courts shutting their doors to everyday litigants and class-action suits—and in some cases, literally handing corporations a playbook on how to get away with screwing over the little guy.
As she and her attorneys attempt to get Wells Fargo and Goldman to hand over documents relevant to her case, the banks' repeated stalling caused the judge to appoint a “special master” over the case—and required Glover to split the fees for this outside attorney equally with the defendants, banks with billions to spare (and, of course, billions in bailouts from the federal government as well).
“It's a David and Goliath situation. When you escalate the costs, there's simply no way that a low-income litigant can keep up,” attorney Scott Michelman, with Public Citizen's Litigation Group, told AlterNet. Michelman and Public Citizen are representing Ms. Glover in a new federal lawsuit filed in the Third District Court of Appeals on May 24, charging that the appointment of the special master in this case will effectively stifle Ms. Glover's ability to go forward with her claims.
Much of the discussion of the mortgage crisis over the last four years has been focused on the refusal of banks to modify borrowers' mortgages so they can stay in their homes, or on illegal foreclosure proceedings. But Ms. Glover's case shows that achieving a mortgage modification is sometimes only the beginning of a homeowner's struggle with the big banks.
A Mess of a System
Glover's original mortgage was taken out through Washington Mutual in 2002, and then sold to Goldman Sachs Mortgage, who retained WaMu to service the loan. In 2005, she was injured in an automobile accident and reached out to WaMu to modify her mortgage so she could remain in her home. According to Michelman, Glover's only income is her Social Security disability payments, which add up to around $10,000 a year.
Her original lawsuit states that WaMu's response was to threaten to evict her if she didn't immediately pay them $559. And thus began a struggle that is unfortunately familiar to thousands of homeowners who've applied for mortgage modifications since the the housing bubble burst. From WaMu to a debt collector to Wells Fargo, multiple parties attempted to collect payments and late fees from Glover; in 2006, when WaMu finally agreed to modify her mortgage, they wound up increasing her monthly payments, adding over $2000 to her principal and $806 in what they claimed was delinquent interest. She agreed to the modification to save her home from foreclosure.
But it wasn't. As of December 1, 2006, Wells Fargo took over as the servicer on her loan, but their practices were no better WaMu's. Though her mortgage was supposed to be unchanged – aside from sending payments to a different bank -- Wells Fargo sent her bills which, according to the lawsuit, proved that her loan modification agreement had not been honored. Her struggles with Wells Fargo culminated in another mortgage modification, which increased her principal and monthly payments again—and increased her repayment period by six years, which would have her paying past her 81st birthday.
But despite the transfer of her mortgage to Wells Fargo, WaMu and the debt collector didn't withdraw their claim against her until March of 2009.
In a class action lawsuit, Glover alleges that the banks collected unlawful charges, double-billed, overcharged, failed to apply her payments to her interest, principal, or escrow account, and that they did the same to up to 25,000 other homeowners in the class—in Pennsylvania alone. Filing a class action suit allows individual homeowners who may not be able to afford attorney's fees and other costs to receive some form of redress from the bank. The lawsuit noted that the banks used standardized electronic programs to collect and allocate payments, so that the type of charges collected from other homeowners would be similar to those collected from Ms. Glover.
But of course, the filing of a lawsuit (in June of 2008) was far from the end of the story.
Priced Out of the Courts
As part of a civil lawsuit like Ms. Glover's, defendants are required to produce documents relevant to the case—it's routine, and part of the process known as discovery. But right away, Michelman told AlterNet, “The defendants were stonewalling, filing crazy objections. They claimed that the financial terms 'mortgage,' 'note,' 'debit' and 'credit' were all too vague and ambiguous for them to respond to discovery requests.”
In response to the growing battle over discovery, the magistrate judge appointed a “special master”, a private attorney to oversee the process, whose fees would be split evenly between Ms. Glover and the defendants—Wells Fargo and Goldman Sachs, with around $1.2 trillion and $900 billion in assets, respectively.
“On top of her normal court filing fee of a couple hundred bucks, she's now responsible for a huge and open-ended amount of special master's fees,” Michelman said. Those fees will increase the more discovery disputes there are, so the deep-pocketed banks have every incentive to keep stonewalling, hoping to simply run out Ms. Glover's funds.
There's simply no way that dividing the fees equally in a civil suit between a low-income plaintiff and multibillionaire corporate defendants is equitable. Thousands of dollars are a drop in the bucket to the defendants, who on the other hand could be held responsible for significant damages if the class action suit is successful.
Special masters are usually only used in a case that requires technical assistance, Michelman said, pointing out that the Supreme Court has held they should only be appointed in exceptional circumstances. Public Citizen's involvement in this case came about because, he said, “We're concerned with consumers' access to the courts and that low-income consumers not be priced out of the courts.”
“Whether it was done to punish Ms. Glover or to punish all of the parties for not working out their discovery issues among themselves, it's clear that the magistrate was not using the special master as it should be used, for technical assistance, but rather as essentially a coercive tactic,” Michelman continued. “Which is not a purpose authorized by the federal rules of civil procedure.”
Those rules, the lawsuit notes, require that the allocation of costs reflect “fairness and the parties’ respective capacities to pay, and that the allocation protect the parties from unnecessary expense.”
If the federal suit is unsuccessful and Ms. Glover has to drop her lawsuit, it will not only leave her (and the 25,000 possible members of the class) at the mercy of more bad behavior from Wells Fargo and Goldman Sachs. It will send a message that the courts are not a place where low-income people can find justice when their opponent is a well-heeled financial institution, that the deck remains stacked against the 99%.
“The purpose of civil litigation isn't solely to redress past wrongs. It's also to encourage better future conduct, particularly in situations where the parties have vastly unequal power,“ Lithwick noted. In this case, the court is already treating both parties as though they have equal power, and if the big banks can get the case dropped by stalling and running up costs, they will in fact have taught corporations a new strategy to use. As Lithwick wrote, “[W]hen you teach big business precisely how to screw over the little guy, and how to do it faster, cheaper, and without detection … well, that's not even an illusion of justice anymore. It's enabling.”