Martin & Jones Wins Two Important Victories For North Carolina Consumers

Martin & Jones won two important cases on behalf of North Carolina consumers at the North Carolina Supreme Court in recent weeks. Both cases involved the sale of a costly credit insurance product to subprime borrowers. The cases, Tillman v. Commercial Credit Loans, Inc., et al. (02 CVS 593, Vance County) and Richardson v. Bank of America, et al. (02 CVS 2398, Durham County) will help protect the rights of North Carolina consumers for years to come.

In Richardson v. Bank of America, Martin & Jones filed a class action lawsuit seeking to recover money on behalf of subprime borrowers who were unlawfully sold an exorbitantly expensive, abusive credit insurance product. A subsidiary of Bank of America, NationsCredit Financial Services Corporation, had sold credit insurance to borrowers with loans having a term of greater than 15 years' duration even though North Carolina law prohibited its sale with loans over 15 years. The lawsuit seeks to recover the premiums that were wrongfully collected and all loan costs that were increased as a result of the credit insurance having been included in the borrowers' loans. The trial court agreed with the plaintiffs that NationsCredit had committed an unfair trade practice and violated the duty of good faith and fair dealing in making the unlawful credit insurance sales. The defendants appealed that ruling and the North Carolina Court of Appeals affirmed the rulings in favor of class members.

Defendants then sought to have the North Carolina Supreme Court reverse the rulings in favor of class members. In an opinion issued March 7, 2008, the North Carolina Supreme Court rejected the defendants' appeal. As a result, nearly 800 North Carolina borrowers will receive substantial refunds of money wrongfully taken from them by NationsCredit. Roughly 150 class members also have a punitive damages claim because the unlawful insurance sales to them were made within the three-year statute of limitations for the good faith and fair dealing claim.

In Tillman v. Commercial Credit Loans, Inc., et al., Martin & Jones represents a group of borrowers who were sold the same type of now-outlawed credit insurance product, by a different lender, Commercial Credit Loans, Inc. Commercial Credit had included in their loan agreements a clause which made it extremely difficult for any borrower to pursue any legal claims against the lender. The clause, known as an arbitration provision, stated that borrowers could not join their claims together. This meant that no matter how similar their claims and how much time and expense could be saved by borrowers pooling their resources and pursuing relief against the lender in a class action lawsuit, the Commercial Credit arbitration clause would not allow it. Martin & Jones challenged the enforceability of the arbitration clause, contending that it was essentially a liability shield. That is, the lender created a costly, time-consuming grievance procedure to deter borrowers from bringing claims. For instance, the process the lender created meant that a borrower might have to risk several thousand dollars to get back half of that amount. As a result, not a single North Carolina borrower had been able to pursue any legal claim against Commercial Credit even though the lender was able to sue its borrowers in court more than 3,700 times during the same time period.

Martin & Jones lawyers won a ruling from the trial court in Vance County that the Commercial Credit arbitration clause was unenforceable because it did not allow borrowers any meaningful opportunity to challenge Commercial Credit's lending practices. The case went up on appeal and in an opinion issued on January 25, 2008, the North Carolina Supreme Court affirmed the trial court's ruling in favor of the borrowers. As a result, Martin & Jones will be able to pursue a class action lawsuit on behalf of Commercial Credit borrowers who were sold the now-outlawed credit insurance product which had resulted in a tremendous loss of home equity among Commercial Credit borrowers.

The Richardson and Tillman decisions represent incredibly significant victories for class members who stand to benefit from those lawsuits. However, the Supreme Court rulings are also very important for ALL North Carolina consumers. In the Richardson case, Martin & Jones helped establish as the law in North Carolina that a consumer who suffers damages as a result of an unfair trade practice is entitled to recover full damages of three times the amount of the injured person's out-of-pocket damages. The case also established that, as a matter of law, a mortgage lender owes its customers the duty of good faith and fair dealing at all stages of a mortgage loan transaction. If the lender violates that obligation, a borrower may be entitled to recover punitive damages. The Tillman case is important for North Carolina consumers because it helps ensure that individuals will have means to seek redress of grievances against stronger parties with whom they do business. As a result of the Tillman decision, large commercial corporations cannot impose on their customers unreasonable arbitration clauses which essentially shield the business from any legal challenge to its business practices.