Home Inspection Report Photo: Shutterstock

Addressing a question the U.S. Supreme Court left open in its high-profile jurisdictional ruling in Bristol-Myers Squibb v. Superior Court of California, a Pennsylvania federal judge has declined to apply the landmark 2017 decision to class actions.

U.S. District Judge John E. Jones III of the Middle District of Pennsylvania ruled Wednesday in Gress v. Freedom Mortgage that the named plaintiff in the proposed class action, who is a Pennsylvania resident, could continue to pursue claims on behalf of class members, even if they are not residents of the Keystone State. The ruling denied the defendant's argument that Pennsylvania lacked jurisdiction over claims from non-Pennsylvania residents, since the mortgage company's headquarters are in New Jersey and none of their claims would arise from activities that happened in Pennsylvania.

According to Jones, in arguing that the claims of non-Pennsylvania residents needed to be dismissed, the defendants had cited Bristol-Myers Squibb. That ruling, which arose from a mass tort in California, made clear that out-of-state plaintiffs can't sue companies where the defendants aren't considered to be “at home,” or haven't conducted business directly linked to the claimed injury. The ruling was hailed by the defense bar as “game-changing” and led to an immediate wave of venue challenges across the country.

Jones, however, said the Supreme Court's goal in that case seemed to focus on reinforcing jurisdictional guidelines in the mass tort context.

“The court's holding appears to have been somewhat targeted to a certain factual scenario, which is not present before us,” Jones said. “This may explain why the court chose not to clarify the applicability of the ruling to federal cases or to class actions, even if such clarifications would have been dictum.”

The suit arises from claims by Michael and Brandy Gress, who argued Freedom Mortgage Corp. violated several state consumer protection statutes. According to the plaintiffs, the company performed inspections of properties whenever a homeowner got behind on their mortgage payments. The plaintiffs contended that the inspections were automatic, even if the homeowners notified the company they were still occupying the property. The company would also charge the homeowners $15 per inspection, the plaintiffs contended.

The Gresses filed a proposed nationwide class action in March in the Middle District of Pennsylvania, alleging that thousands of other borrowers were also being charged for the allegedly unnecessary inspections.

Along with challenging the court's jurisdiction over the out-of-state claims, Freedom Mortgage also contended that the Gresses did not have standing to bring claims on behalf of out-of-state claimants who are pursuing claims under consumer protection laws of other states.

Like the Bristol-Myers Squibb jurisdictional question, Jones noted that federal courts have conflicted on the standing issue. On the Bristol-Myers Squibb issue, Jones cited rulings from district courts in California, Georgia and Illinois, but on the standing issue, he noted that several of the conflicting rules come from district courts within the U.S. Court of Appeals for the Third Circuit.

Noting that the standing issue waded into a “murky area of law lacking Third Circuit precedent,” Jones cited a Second Circuit case that said issues about the laws of other states is more a question of predominance under Rule 23, which governs class actions.

“We find that plaintiffs' capacity to state claims under the laws of other states on behalf of putative class members, who themselves likely would have standing to raise those claims, is a matter to be decided under the rubric of Rule 23, not constitutional standing under Article III,” Jones said.

Ultimately, Jones denied both the defendant's standing and jurisdictional challenges.

Neither Gary F. Lynch of Carlson Lynch in Pittsburgh, who is representing the plaintiffs, nor Brian Serafin of Weiner Brodsky Kider, who is representing Freedom Mortgage, returned a call seeking comment.

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