Vought v. Bank of America, N.A. (901 F. Supp. 2d 1071, 2012)

OPINION

MICHAEL P. McCUSKEY, District Judge.

Judge Posner recently wrote for the Seventh Circuit:

It is a curiosity of class action litigation that often there is greater ferocity in combat among the class lawyers over the allocation of attorneys’ fees than there is between the class lawyers and the defendants. The contest among the lawyers is a zero-sum game. But the contest between them and the defendants is a positive-sum game because the class lawyers are naturally very interested in the fee component of any settlement, while the defendants care only about the size of the settlement, including fees. So the lawyers may be willing to settle for less for the class if the defendants will help them obtain a generous fee award, and the defendants will be happy to help them if the sum of the fee award and the relief granted to the class is smaller than it would be if the class lawyers pressed for more generous relief for the class.

In re Trans Union Corp. Privacy Litig., 629 F.3d 741, 742-43 (7th Cir.2011) (emphasis in original). In the present case, Defendant Bank of America NA (BANA) took over the servicing of mortgages for approximately 14,000 homeowners from Taylor, Bean & Whitaker (TBW), a company that (as it later came to light) had been engaging in all manner of financial shenanigans. In doing so, BANA and Ginnie Mae promised that if the homeowners made mortgage payments to TBW during the transition, BANA would credit their accounts. This seems generous, but it is also fair because BANA didn’t give the homeowners any notice of the transition until well after the homeowners were supposed to stop paying TBW.

But then TBW filed for bankruptcy and BANA alleges that the FDIC seized the lockbox bank that held borrower’s payments, so many of the mortgage payments were either frozen or disappeared into TBW. BANA, being a large financial institution, did not seem to get a handle on this as quickly as it should have. Instead, the bank started sending threatening letters and charging late fees, accusing the homeowners of not paying their mortgages when they had in fact done so — although, regrettably and understandably, many of those payments had been sent to TBW. BANA says they blocked credit reporting, but one person said that after he got divorced, his ex-wife could not refinance their house because her credit score dropped as a result of the missing payment. (BANA says this is very unlikely.) Another person said that it took him daily calls and letters to various government officials over many months before BANA finally realized what was going on and fixed his account. Right now, there are still some accounts that have not been credited.

A number of the homeowners individually filed lawsuits against BANA, trying to hold them accountable for the missing payments. Those cases were combined into the class action here. Over the past two and a half years, this case has been litigated heavily. Several months ago, class counsel and defendant’s counsel presented this court with a settlement agreement. In general terms, BANA promised to: credit all the homeowners’ accounts for the full amount of their missing payments; waive or refund late fees; issue an IRS Form 1098 so the homeowners could take the extra interest deduction that they weren’t able to earlier; and set up a telephone hotline to provide informational assistance. Of course, BANA has proclaimed mightily that it never had those payments to begin with, so it would be crediting those accounts about $7.5 to $15 million out of its own pocket. But it should have known or discovered a certain amount of risk when it performed their due diligence on TBW before they took over the servicing the mortgages, and after all, the mortgage business is still relatively decent money. And furthermore, who’s to say that BANA won’t eventually get paid, at least in part, from the bankruptcy estate? On top of crediting the accounts, BANA would also provide monetary relief in the form of: $25 if a class member provided their tax filings showing that they could have but were unable to deduct mortgage interest; $50, up to a total of $500,000 if their account had not been credited by December 1, 2011, and they made a written request to BANA about it; and $75 if they could prove that their credit was adversely affected. By the deadline, the claimants had submitted claims totaling only $38,600.

In return, the settlement releases BANA from all liability. Furthermore, BANA will pay class counsel’s fees of $2 million. Now, far be it for this court to delve too deeply into the horse-trading that went on between the parties during the settlement negotiations, but the facts here sound a lot like a case in which the Seventh Circuit chastised the district court for having “sold the claimants down the river”. Certainly it is not as bad as what happened in a case where the class members had to pay class counsel’s legal fees, Kamilewicz v. Bank of Boston Corp., 100 F.3d 1348 (7th Cir.1996). But for a settlement where BANA is required to do what it should have done two years ago (and which, incidentally, it has already started to do, whether out of the goodness of its heart or not) — and to compensate class members for two years’ trouble just $38,000 and class counsel $2,000,000 is not something that would strike a jury in downstate Illinois as a particularly good bargain. This isn’t to say that anyone thinks that BANA set out to hoodwink the homeowners. But as one class member said while opting out of the settlement: “If we thought for one split second that $150 would get noticed by the huge conglomerate known as Bank of America, it might be worth it, but you know about a snowball’s chance in hell.”

This case is before the court for ruling on the Motion for Final Approval of Settlement (# 99) filed by the BANA and BAC Home Loans Servicing, LP, (BAC) and the Motion for Final Approval of Settlement (# 101) filed by Plaintiffs Jeanette Vought (“Vought”), Mark and Daneen Skutack (“Skutack”), and Roger E. Frock (“Frock”), on behalf of themselves and a class of all other persons similarly situated. On January 30, 2012, this court entered a Preliminary Approval Order (# 86) certifying classes and preliminarily approving the settlement agreements. On May 31, 2012, this court held a final fairness hearing. This court has carefully reviewed the arguments of the parties and the documents filed by the parties. Following this careful and thorough review, Plaintiffs’ and Defendant’s Motions for Final Approval of Settlement (# 99; # 101) are DENIED. Further, this case is referred to Judge David G. Bernthal for further mediation.

JURISDICTION

This court has jurisdiction pursuant to 28 U.S.C. § 1332(d), the Class Action Fairness Act (CAFA). The case was commenced on March 5, 2010, after CAFA’s effective date of February 18, 2005. CAFA requires, with certain exceptions not relevant here, minimal diversity, an amount in controversy exceeding $5,000,000, and at least 100 proposed plaintiff class members. 28 U.S.C. §§ 1332(d)(2), (d)(5); Hart v. FedEx Ground Package Sys. Inc., 457 F.3d 675, 679 (7th Cir.2006). Plaintiff Jeanette Vought is a citizen of Illinois (Second Amended Complaint, #63 ¶ 28). Plaintiff Frock is a citizen of Ohio (# 63 ¶ 29). Plaintiffs Mark and Daneen Skutack are citizens of Pennsylvania. (# 63 ¶¶ 30-31). Defendant BANA maintains its headquarters and principal place of business in North Carolina (# 63 ¶ 32). Plaintiffs have alleged that the amount in controversy exceeds $5,000,000 (# 63 ¶ 24). Plaintiffs have further alleged that thousands of individuals are similarly situated with regard to their putative cause of action (# 63 ¶¶ 10, 38-39).

FACTUAL AND PROCEDURAL HISTORY

I. Background facts

Plaintiffs Vought, Skutack, and Frock, as well as all members of the Class and Subclass, each had home mortgages that were serviced by TBW until approximately August 2009. In August 2009, as a result of TBW’s default and impending bankruptcy, Ginnie Mae, the government guarantor for residential mortgage-backed securities, assigned the sub-servicing portions of the TBW portfolio to BANA. Ginnie Mae made this assignment pursuant to a servicing contract entered into with BANA in March 2009. This agreement, in general terms, required BANA to service Ginnie Mae loans on an as-needed basis. TBW was instructed to stop processing mortgage payments effective August 6, 2009. BANA (then BAC) sent a notice to Plaintiffs dated August 23, 2009, indicating that TBW’s right to collect payments and service the mortgage was being transferred to BAC effective September 1, 2009. Further, this notice indicated that the date that TBW would stop accepting payments was August 5, 2009, and that BAC would begin accepting payments on August 6, 2009. However, TBW continued processing mortgage payments for approximately two weeks after the August 6, 2009 deadline.

On August 24, 2009, TBW filed for bankruptcy. When the FDIC seized the lock-box bank controlled by TBW (Colonial Bank), Plaintiffs’ mortgage payments were frozen. BANA’s counsel explained that as of the time of the final fairness hearing, the reconciliation process had not yet been fully resolved despite the passage of over two years. Thus, while BANA had not received those funds, they still hoped to in the future.

During this period, BANA assured Plaintiffs that during the transition, if TBW received a payment in a timely fashion instead of BANA, no late fee or adverse credit reporting would be imposed. For instance, on BANA’s website, a newswire was published on August 27, 2009, indicating, in pertinent part:

Bank of America assures homeowners that during this transition if TBW, rather than BAC Home Loans Servicing, receives a payment in a timely fashion, no late fee or derogatory credit reporting will be imposed with respect to that payment and the payment will not be treated as late for any other purpose. This protection will remain in place through the October payment period.

This language was echoed by Ginnie Mae, which issued a statement indicating, in pertinent part:

My loan was transferred [from TBW]. I made a loan payment on time, but to the old servicer. Can I be charged a late fee? Will my credit be affected? No. Bank of America will work with borrowers and will not charge late payment fees or report late payments to the credit bureaus through the October 2009 payment period.

Despite both of these notices, BANA failed to properly credit Plaintiffs’ home mortgage accounts for timely payments made to TBW (“uncredited payments”, termed “missing payments” in the Settlement Agreement at § 1.21). The vast majority of these uneredited payments had in fact been made by Plaintiffs for then* August 2009 mortgage payments.

The failure to properly credit Plaintiffs’ home mortgage accounts resulted in many adverse effects. Plaintiffs were assessed late fees on their uncredited payments. Plaintiffs allegedly suffered adverse credit impact after BANA reported the uncredited payments to credit reporting agencies. Also, because Plaintiffs were not treated as having made the uncredited payments by BANA in 2009, all Plaintiffs received mortgage interest statements that underreported the amount of interest paid in 2009 by Plaintiffs. Finally, some Plaintiffs made written requests to BANA to properly credit their accounts for their uncredited payments, to little avail. BANA, in its Motion for Approval, indicated that it had attempted to block credit reporting for all delinquent accounts. However, due to certain oversights during processing, BANA also admits that this block was not applied equally to all accounts. Although this court is aware of the general nature of these issues, the parties have not provided an exact accounting of the number or percentage of Plaintiffs who were affected by each of these adverse effects, or the degree to which the credit block was not universally applied.

II. Initiation of suit and preliminary dispositive motions

On March 5, 2010, Plaintiffs Wayne Vought (now deceased) and Jeanette Vought filed a class action complaint in this court (# 1). On April 2, 2010, Plaintiff Roger E. Frock filed a class action complaint in the United States District Court in the Southern District of Ohio. On May 18, 2010, Plaintiffs Mark Skutack and Daneen Skutack filed a class action complaint in the United States District Court in the Eastern District of Pennsylvania. On July 8, 2010, these three separate actions were consolidated in the present case (#28).

On May 10, 2010, Defendant filed a Motion to Dismiss, seeking to dismiss the complaint filed by Wayne and Jeanette Vought (# 11). On July 15, 2010, Magistrate Judge David G. Bernthal issued a Report and Recommendation recommending that Defendant’s Motion to Dismiss be denied (#29). On July 20, 2010, Wayne and Jeanette Vought, Mark and D aneen Skutack, and Roger E. Frock filed their First Amended Consolidated Complaint (#30). As a result of the filing of the First Amended Consolidated Complaint, this court entered an order on August 5, 2010, finding that the Defendant’s Motion to Dismiss (# 11) and the Report and Recommendation (# 29) were moot.

On August 19, 2010, Defendant filed a Motion to Dismiss (# 37) seeking to dismiss the First Amended Consolidated Complaint (# 30). On September 24, 2010, 2010 WL 4683599, Judge Bernthal issued a Report and Recommendation (# 50) recommending that Defendant’s Motion to Dismiss (# 37) be denied. On October 27, 2010, 2010 WL 4683596, this court accepted the Report and Recommendation (# 50) and denied Defendant’s Motion to Dismiss (# 37). On January 5, 2011, Plaintiffs filed their Second Amended Consolidated Complaint (# 63). This Second Amended Consolidated Complaint (# 63), which is the operative complaint here, contained the following five claims alleged by Plaintiffs: (1) breach of contract; (2) breach of contract, based on the theory that Plaintiffs were intended third-party beneficiaries; (3) unjust enrichment; (4) requests for injunctive relief; (5) violation of the Real Estate Settlement Procedures Act (RES-PA). In addition, on behalf of class members who have homes in Illinois, Plaintiffs alleged a violation of the Illinois Consumer Fraud and Deceptive Business Practices Act.

On January 24, 2011, Defendant filed a Motion to Dismiss (# 66), seeking to dismiss the third party beneficiary breach of contract claim contained in Plaintiffs’ Second Amended Consolidated Complaint (# 63). On April 7, 2011, Judge Bernthal issued a Report and Recommendation (# 73) recommending that Defendant’s Motion to Dismiss (# 66) be granted. On April 29, 2011, the parties filed a Joint Motion to Stay (# 81) in order to conduct settlement negotiations. On May 3, 2011, this court granted the parties’ Motion to Stay (# 81).

III. Discovery

The parties have represented to this court that there was extensive discovery completed in this case. Specifically, Plaintiffs aver that they propounded discovery on Defendant in the form of Requests for Production of Documents and Interrogatories. Defendant also propounded similar discovery on the named Plaintiffs. The parties were unable to resolve certain discovery disputes without seeking the assistance of this court. Thus, on September 15, 2010, and April 13, 2011, Plaintiffs filed two Motions to Compel Discovery Responses (#44; #74). The parties were able to negotiate a Protective Order (# 49) that resolved the initial Motion to Compel Discovery Responses (#44). The second Motion to Compel Discovery Responses (# 74) was withdrawn by Plaintiffs. Although this court has not viewed the discovery in this case, the parties represent to this court that “Defendant] produced over 230,000 pages of documents which were indexed, reviewed, individually coded and data-based by Class Counsel.” (# 103 p. 11).

IV. Terms of the proposed settlement agreement

Negotiations and mediation

Plaintiffs and Defendant participated in two separate day-long mediation sessions. The first session was held on July 19, 2011, before Richard P. Sher. The parties indicate that although progress was made during this initial mediation, the process was ultimately unsuccessful. After the parties remained in contact after the first failed mediation attempt, they agreed to participate in a second mediation on October 6, 2011, with Judge Donald P. O’Connell (Ret.). Prior to this second mediation, both parties submitted written materials to Judge O’Connell, outlining the strengths and weaknesses of each party’s positions in this case. During this second mediation, the parties reached the settlement that is currently before this court for approval (henceforth “Agreement” or “Settlement Agreement”). Judge O’Connell, in a declaration submitted to this court on May 23, 2012, explained that: (1) the parties engaged in good faith negotiations over the merits of Plaintiffs’ claims; (2) the negotiations were long and difficult; and (3) the matter of attorneys’ fees was not discussed until the underlying disputes regarding the merits of the case had been fully agreed upon (# 104). There were scant details about how long the negotiations lasted and the compromise process.

Affected individuals

The agreed settlement consists of two classes, defined as follows:

1.36 Settlement Class (henceforth “Class”): All individuals who have, or did have, a residential mortgage loan for real property situated in the United States of America whose mortgage account, previously serviced by Taylor, Bean and Whitaker, was assigned or transferred to BAC Home Loans Servicing, L.P., pursuant to a U.S. Department of Housing and Urban Development Government National Mortgage Association Single Family Master Subservicer agreement, in August 2009, where the mortgage payment(s) were: (a) paid to and received by Taylor, Bean and Whitaker; (b) on or about August 1, 2009; (c) in an amount equal to or greater than the minimum monthly contractual amount for the month; and (d) were not credited by Defendant in 2009.

1.39 Settlement Sub-Class (henceforth “Subclass”): All individuals who have, or did have, a residential mortgage loan for real property situated in the United States of America whose mortgage account, previously serviced by Taylor, Bean and Whitaker, was assigned or transferred to BAC Home Loans Servicing, L.P., pursuant to a U.S. Department of Housing and Urban Development Government National Mortgage Association Single Family Master Subservicer agreement in August 2009, where the mortgage payment(s) were: (a) paid to and received by Taylor, Bean and Whitaker; (b) on or about August 1, 2009; (c) in an amount equal to or greater than the minimum monthly contractual amount for the month; and (d) were not credited by Defendant in 2009, but were subsequently credited with payments.

(# 85 exh. 1). The only qualitative distinction between the Class and Subclass is that members of the Subclass were “subsequently credited with payments” whereas members of the Class have not yet been credited.

Equitable relief

The settlement provides for equitable relief to all Class Members and, additionally, up to three types of monetary relief for each Class Member provided they individually comply with certain qualifying conditions and follow administrative filing procedures. Regarding the equitable relief, all Class Members who were not properly credited with missing payments will: (1) have those missing payments credited; (2) have any associated late fees reversed, or, if the late fees had already been paid, receive a refund for any paid late fees; (3) receive an IRS Form 1098 for the tax year 2011 issued by Defendant reflecting the interest portion of the missed payments; and (4) receive credit correction services provided by Defendant (#85, Agreement § 3.01.) Regarding the credit correction services, Defendant is specifically required to: (1) issue an informational job aid to assist customer service staff in responding to inquiries regarding missed payment issues; (2) provide a letter to each class member describing in neutral terms the missing payment issue and the crediting of the account; (3) provide credit information regarding class member’s accounts to credit reporting bureaus, subject to confirmation that the reporting will contain no negative information regarding the missing payments; and (4) identify one central toll-free number to be utilized in all notices and by class members for communications with regard to any missing payment issues (# 85, Agreement § 3.01(d).)

Monetary relief

In addition, up to three forms of monetary relief are available as part of this proposed settlement to Class Members who submit a claim form. Plaintiffs who qualify for all three types of relief and submit a verified claim form are entitled to recover up to $150.00 as follows:

(1) Fifty Dollars ($50.00) to class members who submit a claim form reflecting: (a) that the class member paid TBW a payment greater than or equal to a fully contractual monthly mortgage on or after August 1, 2009; (b) that their mortgage account was not credited by Defendants in 2009; (c) that they made a written request to Defendants to credit their accounts for the missing payment; and (d) that as of December 1, 2011, the missing payment had not been credited by Defendants. Claims made pursuant to this subsection of the settlement are limited to a total payment by Defendants of $500,000. If more than 10,000 class members claim relief under this subsection, the payment to each class member would be reduced proportionately. If less than $500,000 is claimed by class members, the surplus amount is retained by Defendants.

(2) Seventy-five Dollars ($75.00) to class members who submit a claim form identifying circumstances under which Defendants’ credit reporting as to the missed payment resulted in an adverse effect on class members’ ability to obtain, extend or continue credit. Class members must identify the lender and type of loan or credit vehicle involved.

(3) Twenty-five Dollars ($25.00) to class members who submit a claim form and attach a copy of their 2009 Schedule A to IRS Form 1040 reflecting that they itemized deductions in 2009.

(# 85, Agreement § 1.06). Both Plaintiffs and Defendant represent that the only difference in relief to which Class and Subclass Members are entitled is the payment of $50 available to Class Members who made a written request to BANA for crediting of the missing payment, and who, as of December 1, 2011, had not had their account credit (# 116, p. 4; # 117, p. 3).

Regarding the relief that Class Members who request exclusion from the settlement agreement shall receive, Defendants have assured this court that

Class Members who opt out are not entitled (1) to make claims for payment and (2) to receive the letter describing the missing payment issue and the crediting of accounts. Class Members who opt out have or will have (1) their accounts credited with any missing payment and late fees charged and be issued an Internal Revenue Service Form 1098 for the tax year in which the missing payment was credited, and (2) updated credit information reported by BANA.

(# 116, p. 1) This statement was repeated in substantially similar form by Plaintiffs (# 117, p. 2).

Attorneys’fees

The proposed settlement provides that Class Counsel will receive $2,000,000.00 in attorneys’ fees and expenses if approved (Settlement, § 3.07). This agreed amount of attorneys’ fees and expenses does not diminish the amount received by class members, as it is independent from the equitable and monetary relief. Section 2.26 of the Agreement also includes a clear sailing clause, wherein

Defendant agrees not to oppose such application or to take any position adverse to such application and further agrees to pay the amount awarded by the Court up to the agreed-upon amount contained in this Paragraph [of $2,000,-000],

V. Preliminary approval of proposed settlement agreement

On January 5, 2012, Plaintiffs filed a Motion for Preliminary Approval of Class Action Settlement Agreement and Notice to Class (# 85). On January 30, 2012, this court held a preliminary approval hearing and heard arguments by the parties in support of their requests to: (1) grant preliminary approval of the Class Action Settlement Agreement; (2) approve the form of Class Notice agreed upon; (3) designate counsel to represent the Class and Subclass; and (4) set dates for opt-outs, objections and return of claim forms, and for a final fairness hearing. Based on the filings and oral arguments made by the parties, this court concluded that the proposed class met the requirements of Rule 23 of the Federal Rules of Civil Procedure and that the proposed settlement was within the range of possible approval. The court, therefore, granted the Motion for Preliminary Approval of Class Action Settlement Agreement and Notice to Class (# 85).

On January 30, 2012, this court entered a Preliminary Approval Order (# 86). In the Order, the court: (1) granted preliminary approval for the proposed settlement after finding that it was within the applicable range of fairness and reasonableness; (2) conditionally certified a Class and Subclass for settlement purposes; (3) appointed class counsel for the Class and Subclass; (4) approved the proposed form of mailed notice to the Class and Subclass, to be directed to the last known address of each Class and Subclass member as shown in Defendant’s records, by March 15, 2012; (5) set a July 17, 2012, deadline for claim forms to be postmarked; and (6) set a May 11, 2012 deadline for objections or requests for exclusions from the proposed settlement. Additionally, this court scheduled the final fairness hearing on May 31, 2012.

VI. Notice, requests to opt out, and objections

On May 24, 2012, L. Stephens Tilghman signed an affidavit that was filed as Exhibit B to Plaintiffs’ Memorandum in Support of the Motion for Final Approval (# 103 exh. 2). As of the date of the affidavit, notices were sent, via First Class Mail, to 14,868 class members at their last known addresses. Out of the total 14,868 mailings, 2,815 recipients were construed to be members of the Class and 12,049 recipients were considered to be members of the Subclass. Thus, as of May 24, 2012, Plaintiff had voluntarily credited about 81 % of the affected accounts. The disparity of four recipients has not been clarified by the parties. Out of the total 14,868 mailings, 135 mailings were returned as undeliverable by the post office. Tilghman was able to identify new addresses for 94 of the 137 mailings that were returned. Again, the affidavit does not explain the disparity between the attested — to 135 vs. 137 returned mailings. Thus, notice of the proposed settlement was received by 14,798 out of 14,868 total class members, which is 99.56% of the class. The deadline for submission of claim forms was July 17, 2012. As of May 24, 2012, 833 completed claim forms were received by Tilghman, totaling 5.6% of the class. Additionally, as of May 24, 2012, 19 members of the settlement class had submitted opt-out notices to Tilghman. One more opt-out notice was received by this court on May 8, 2012, for a total of 20 exclusions, totaling 0.13% of the class.

VII. Final fairness hearing

On May 31, 2012, the court held a final fairness hearing. Eric Holland argued for the class members, and Jeffrey Russell argued for BANA. The court also allowed argument on the record from Gregg Rene-gar for objectors Chris Risener and LaCrista Bagley, who have filed a separate individual suit in the U.S. District Court for the Western District of Oklahoma and Emil Lippe for amicus Paula Randall, who opted out and was pursuing an individual action. Due to the risk of potential collusion between the two parties with standing, this court decided that hearing the arguments of objectors and excluded parties would provide an alternative perspective.

VIII. Subsequent questions regarding quantitative and legal positions

Following the final fairness hearing, the court issued an order directing the parties to answer certain questions (# 114). Among other things, these questions sought both empirical data regarding the Class’s recovery under the settlement agreement as well as a clarification of each party’s legal position pursuant to the framework approved in Isby v. Bayh, 75 F.3d 1191 (7th Cir.1996). Defendant, Plaintiffs, and amicus provided their responses on July 25, 2012 (# 116, # 117, and # 118). Amicus filed a supplemental response on September 7, 2012 (# 119).

As of July 23, 2012, five days after the court-mandated deadline of July 17, 2012, the settlement claims administrator had received 1,279 claim forms. Of the Class Members, 266 claims were received for the $50 written request payment, 81 claims for the $75 credit reporting payment, and 25 claims for the $25 tax payment. For Subclass Members, 217 claims were received for the $75 credit reporting payment and 93 claims for the $25 tax payment. (# 116 p.2; # 117 p. 2).

BANA represents that as of their July 25, 2012 filing, it has already credited “the majority of Class Members” and that there are “a small number of Class Members whose loan accounts require additional investigation for whom BANA is in the process[ ] of crediting payments. BANA estimates this figure to be approximately 300 accounts.” (# 116 p. 11). As discussed above, about 81% of the accounts had been credited by the end of May, 2012. It is unclear whether BANA is still in the process of crediting the accounts that have not yet been credited, excluding those 300 accounts requiring additional information, or whether it has stopped crediting accounts pending the resolution of this motion. Also, it is unclear whether BANA meant that all the Class Members have had their accounts credited already excluding those 300 accounts.

ANALYSIS

Under Rule 23(e)(2) of the Federal Rules of Civil Procedure, a court may approve a settlement in class action litigation only if it finds, after a hearing, that the settlement is “fair, reasonable, and adequate.” In evaluating the fairness of a settlement, a court must consider: (1) the strength of plaintiffs’ ease compared to the amount of defendants’ settlement offer; (2) an assessment of the likely complexity, length and expense of the litigation; (3) an evaluation of the amount of opposition to settlement among affected parties; (4) the opinion of competent counsel; and (5) the stage of the proceedings and the amount of discovery completed at the time of settlement. Synfuel Tech., Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 653 (7th Cir.2006), citing Isby v. Bayh, 75 F.3d 1191, 1199 (7th Cir.1996). Although Plaintiffs have exhorted that it is “well-established” that “compromises of disputed claims are favored by the courts,” Williams v. First Nat. Bank, 216 U.S. 582, 595, 30 S.Ct. 441, 54 L.Ed. 625 (1910) and that the Seventh Circuit has held that “[fjederal courts naturally favor the settlement of class action litigation,” Isby v. Bayh, 75 F.3d 1191, 1196 (7th Cir.1996), this is only half the story. It is also true that “district judges must therefore exercise the highest degree of vigilance in scrutinizing proposed settlements of class actions to consider whether the settlement is fair, adequate, and reasonable, and not a product of collusion.” Mirfasihi v. Fleet Mortg. Corp., 450 F.3d 745, 748 (7th Cir.2006) (internal quotation marks omitted). This is because “the district judge in the settlement phase of a class action suit [is] a fiduciary of the class, who is subject therefore to the high duty of care that the law requires of fiduciaries.” Reynolds v. Beneficial Nat. Bank, 288 F.3d 277, 280 (7th Cir.2002). Thus, the court has taken the greatest care to analyze each factor carefully and to explain its reasoning in detail.

A. Strength of plaintiffs’ case compared to the amount of settlement offer

The Seventh Circuit has said that the “most important factor relevant to the fairness of a class action settlement is ... the strength of plaintiffs case on the merits balanced against the amount offered in the settlement.” Synfuel, 463 F.3d at 653 (editing marks omitted). In making this comparison, the Seventh Circuit recommends that district courts “quantify the net expected value of continued litigation to the class” by “estimating the range of possible outcomes and ascribing a probability to each point on the range.” Reynolds v. Beneficial Nat’l Bank, 288 F.3d 277, 284-85 (7th Cir.2002). Although a precise valuation is not expected in all cases, this court must make a “ballpark valuation”. Id. at 285. As will soon become evident, the value estimates and estimation structure provided by the parties are not entirely clear. In some places, they are, as best as can be reconciled, self-contradictory. Thus, the opinion has attempted to make sense of the filings and has given parties the benefit of the doubt whenever possible.

During the final fairness hearing, this court asked both parties to provide estimates of the value of continued litigation to the class. In regards to the likelihood of success on the merits of their claims, Plaintiffs’ counsel responded that their case “is by no means risk-free” (# 103 p. 19). In order to discuss the likelihood of success on the merits, each claim must be separately addressed. Plaintiffs have taken the position that at some point before trial, they would need to elect their remedies and opt to pursue their strongest claims, which they have indicated are the breach of contract and RE SPA allegations (# 117, p. 3). They have therefore conducted a Synfuel analysis only for those two claims. Accordingly, this opinion addresses only those two claims.

Class certification

As a preliminary matter, the hurdle of class certification poses a significant risk because if class certification were denied, the value of each individual plaintiffs case would be reduced to a point such that litigation would be infeasible. In their motion filed before the proposed settlement agreement, Plaintiffs sought to certify the Class and Subclass pursuant to Rules 23(a), (b)(2), and (b)(3) (# 77, p. 1). As a prerequisite, a proposed class must be 1) so numerous that joinder of all members is impracticable; 2) there are questions of law or fact common to the class; 3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and 4) the representative parties will fairly and adequately protect the interests of the class. Rule (b)(2) class actions may be maintained if the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole. Rule (b)(3) class actions may be maintained if the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.

BANA notes that it would aggressively contest class certification on the grounds that 1) there were large factual variations surrounding individual borrowers’ circumstances; 2) that the plaintiffs would have difficulty demonstrating actual damages as BANA had already begun to voluntarily credit the missing payments, supplying its own funds to make those payments; and 3) BANA had initiated other voluntary steps, including suspending credit reporting and the cessation of late fees and defaults (# 100, p. 9). Further, BANA notes that

The unique circumstances of each of the three Plaintiffs demonstrate that this is not a ‘one size fits all’ class. For example, Mrs. Vought paid by check, while Mr. Frock and the Skutacks paid via automatic bank deduction. The Skutacks sent in proof of payment and had their accounts credited (rendering them part of the Subclass). Mr. Frock stopped paying his mortgage and abandoned the property. Mrs. Vought’s account was credited later.

(# 116, p. 7). These objections are, to a limited degree, valid, but in this court’s opinion, not so strong that they cannot be overcome. Regardless, as class certification has not yet been fully litigated, this opinion, which analyzes the sufficiency of the settlement agreement, will proceed assuming that the class is certified.

Strength and value of breach of contract and unjust enrichment claims

Regarding the breach of contract and unjust enrichment claims, class counsel noted that they could prevail on only one of those two causes of action because the legal underpinnings of these two were mutually exclusive. After lengthy questioning from the bench, class counsel grudgingly estimated the likelihood of prevailing on the breach of contract or unjust enrichment claim to be around 50% (Transcript of Final Fairness Hearing, 61:13-62:5 (hereinafter “Tr.”)). At the hearing, BANA concurred with Plaintiffs’ estimate of success (Tr. 76:16-18; 82:19-21). Later, in its response to this court’s post-hearing questions, BANA estimated that Plaintiffs’ probability of prevailing on the breach of contract claim to be 25% and on the unjust enrichment claim to be 30% (# 116, p. 8), but does not fully describe whether this includes an estimate for the probability of certification. To support their lower estimate, BANA noted that it had fairly solid legal defenses for this claim. Regarding breach of contract, BANA noted that it was in fact TBW’s duty to forward the payments to BANA (# 100, p. 9), that no actual contract existed between BANA and the borrower-plaintiffs, and thus, they had no legal duty to compensate them for any payments made (Tr. 83:24-84:1; # 116, p. 8). Similarly, in regard to the unjust enrichment claim, BANA would argue that it never received the misdirected payments; rather, since the FDIC seized the lockbox bank, the funds were either misappropriated by TBW, or were in the possession of the FDIC. (Tr. 77:1-13; # 116 p. 8).

In contrast, Plaintiffs uprated their estimate of prevailing on the breach of contract claim to 75%, assuming that class certification will be approved (# 117, p. 5). Similarly, counsel for excluded party Randall emphasized BANA’s promises to Plaintiffs and Class Members when he argued the following:

“[LJet’s say we’re trying this case and we present to them the fact that here’s Joe and Susie Plaintiff that made their payments timely and that weren’t given credit and now Bank of America is sitting there saying, “No, we don’t have any proof that you made the payments,” and they say, “Well, here’s my canceled check,” and they still say, “Sorry.” And then you tell that jury in the box that these people had been told publicly by Bank of America, “Don’t worry. Everything’s going to be fine. We’re going to give you credit.”

Now, I do not purport to be familiar with the average juror in this district. But I would suspect that the average juror in this district who’s confronted with the issue of, “Here’s somebody that actually made a payment on a debt that they owed and they’ve got proof that they made that payment. Is it okay to treat them as if they hadn’t paid?” — I don’t think there are going to be very many people around in this district that would say, “Oh, it’s not important whether you made a mortgage payment or not.”

(Tr. 127:7-128:1).

In commenting for the record, the court also noted that jurors in this court are “extremely conservative jurors”, averse to awarding large verdicts (Tr. 66:23-69:14) (“[YJour comment about likelihood of success also ties into the success of getting a jury here to award 7.5, 15, 30 million — you would be talking about the largest verdict ever given in this Federal Courthouse in Urbana, Illinois.”) But by the same token, it is not inconceivable that conservative jurors would not only be very protective of the homes in which they live and for which many are likely paying mortgages, but would also be more likely to be sympathetic to plaintiffs who undisputedly paid their mortgages in a timely fashion and yet were wrongfully penalized due to an administrative or bureaucratic oversight on the part of a large corporate bank. Furthermore, such a jury would likely look differently on injunctive relief with high monetary consequences as compared to a verdict giving pure monetary damages.

Thus, after carefully considering the arguments from counsel and this court’s pri- or experience, this opinion adopts an estimate of the chance of Plaintiffs prevailing to be 75%.

Value of equitable relief

The probability of success must be gauged against the value of each outcome to create an expected value or range of expected values. Regarding the equitable relief of crediting the mortgage accounts, Plaintiffs have estimated that the value of crediting the mortgage accounts to be between $7.5 and $15 million (Tr. 19:5-9). Defendant did not dispute this range (# 115, p. 5). As the court could not find on the record a mathematical rationale for this number, this court has conducted its own rough estimate. Presuming that the facts claimed by the named plaintiffs are in fact representative of the class, which they should be, the value of each class member’s monthly mortgage payment would range approximately between $500 (plaintiff Frock, #63 ¶ 6) and $1,200 (plaintiffs Vought, # 63 ¶ 5). There are 14,868 class members in this case. Thus, the estimated range of benefit for crediting each Class Member’s account is between $7.5 million and $18 million, thereby comporting with the estimate provided by Plaintiffs. Therefore, this opinion will proceed by accepting Plaintiffs’ estimated values of $7.5 to $15 million.

The value of crediting or refunding late fees similarly requires an estimate by the court. BANA attested at the final fairness hearing that the amount of late fees that would be either waived or refunded to approximately $3 million, without providing any mathematical reasoning (Tr. 79:15-17). Defendant’s counsel also explained that this was the first time that Plaintiffs were informed of this number, and Plaintiffs did not contest this number. However, BANA also attested that 1) they “did not assess any late fees on the accounts during the 60-day period beginning on the effective date of transfer of the servicing. Any late fees were assessed after the 60-day period and only because BANA had not received confirmation concerning which borrowers’ payments had been received by TBW,” (# 116, p. 9); that 2) that BANA did not receive the late fee funds in “most instances” (# 116, p. 8); and that 3) “approximately 58% of Class Member accounts have” received the relief of waiving or refunding unpaid late charges as of BANA’s filing on July 25, 2012” (# 116, p. 12). Either late fees were predominantly not assessed and accordingly were not waived or refunded, or late fees were predominantly assessed and thus were waived or refunded. Unlike with the mortgage payments, no one has proposed that class members erroneously paid their late fees to TBW. Also unlike with the uncredited payments, late fees were either received by BANA or should never have been assessed in the first place. This conundrum aside, assuming that every single class member was assessed a late fee would result in a nominal late fee of $201. This number comports with the assumption provided by amicus and excluded class member Randall, who estimated that each class member was assessed two late fees at $100 each (# 118, p. 6). This value therefore has some superficial accuracy. However, regarding BANA’s statements, it is unlikely that all the class members were assessed late fees, and other than Randall’s assertion, this court could not find any party arguing that each class member was assessed two late fees. Accordingly, a better estimate of the late fees would be that half the class was assessed a $200 fee or that the entire class was assessed a late fee of $100. Thus, this court adopts an estimate of the value of remedying the late fees to be $1.5 million.

The value of issuing IRS Form 1098 to class members similarly requires an estimate by the court as no estimate was provided by the parties. Based on counsel’s representations, it appears that the 1098s were issued to settlement class members in the tax year 2011. The methodology to derive an estimate is of greater difficulty and uncertainty than the previous two forms of relief as there are numerous assumptions that do not apply equally to all class members. First, an IRS Form 1098 will only have any value to those settlement class members who itemized their deductions for tax year 2011. For those individuals who do itemize, they will have varying impacts on their final tax liability. For instance, an individual who is in the 35% marginal tax bracket will benefit more significantly than an individual who is in the 15% marginal tax bracket. However, setting aside the inherent guesswork in estimating the value to the class, this court will assume, based on an aggregate analysis of 2005 tax year returns, that 35% of the settlement class itemized their deductions in 2011. Additionally, this court will estimate that the average tax bracket is 15%. This court will also assume that based on an average missed mortgage payment of $1,009, $750 was mortgage interest. As a result, the estimated value to the settlement class is $585,427.

Finally, based on this court’s understanding of the party’s arguments, neither party has suggested that a legally supportable judgment awarding partial liability on these missed payments is viable. Based on Defendant’s affirmative defenses, the class members would be entitled to either full recovery or no recovery. Therefore, the range of expected values to credit class member’s uncredited payments is between $5,625 million (75% chance at $7.5 million) and $11.25 million (75% chance at $15 million), given a 25% chance that the jury will find for BANA, with zero recovery. For late fees, the expected value is $1,125 million (75% of $1.5 million). Last, for the IRS Form 1098, $439,000. The total expected value to the class for the equitable relief provided after a trial is therefore between $7.2 million to $12.8 million, the variance arising solely from the uncertainty over the mean value of the class’s mortgage payment.

Value of monetary relief

As for monetary damages, BANA’s position is that if Plaintiffs were to prevail, the total of any and all damages, including the breach of contract and unjust enrichment claims, would be limited to the statutory penalties available under RE SPA, which provides for a cap at $500,000 (# 116 p. 5). Because of the low likelihood that any qualified borrower correctly submitted a qualified written request pursuant to the requirements in RE SPA, BANA opined that the probability of a full recovery of $500,000 was 5% (# 116, p. 5). Similarly, their medium estimate of damages, based on the 266 class members who submitted a claim form alleging they submitted a written request each receiving the $1,000 statutory penalty, is a 20% chance of receiving $266,000. Finally, BANA’s low estimate was $100,000, based on a “speculative estimate of the number of Class Members who could substantiate their RESPA claims,” with a 25% probability. These numbers only sum to 50%. In reference to these estimates, BANA assumed the other 50% chance was of a complete defense verdict as suggested at the final fairness hearing (# 116, p. 6). Thus, BANA’s expected value for any monetary relief comes to $103,200.

Plaintiffs have taken the position that regarding the breach of contract claim, the dollar range of recovery on the contract-based claim, excluding the value of the remedial relief, is $3,717,000, $1,486,800, and $0 (high, medium, and low.) The estimated likelihood of these recoveries is 20%, 20%, and 60%, respectively (# 117, p. 4). Plaintiffs did not provide any rationale for these valuations in their Response on July 25, 2012. Further, as they do not account for the probability of prevailing, but rather are estimates only of the award assuming that they prevail, the analysis for these numbers must also take into account a 50% chance of prevailing in order to be consistent both with counsel’s testimony at the final fairness hearing as well as with BANA’s estimate. Plaintiffs’ expected value for the monetary relief therefore comes to $520,380.

Strength and value of RE SPA claim

As discussed above, BANA’s estimates of recovery under RESPA, provided that Plaintiffs prevail, are 10% at $500,000; 40% at $266,000; and 50% at $100,000. Both Plaintiffs and Defendant agree that the primary defense to the RESPA claim would be that many of class members’ letters did not qualify as statutory RESPA Qualified Written Requests, and therefore would not have triggered any statutory obligations on BANA’s part (# 116, p. 9; # 117, p. 4). As discussed above in footnote 14, this court cannot make heads or tails of BANA’s estimates of probability. Defendant estimated the probability of Plaintiffs prevailing on the RESPA claim to be 35%, “defenses notwithstanding,” (# 116, p. 9), but in the same filing also estimated that the total probability that “any damages suffered by the class, if certified, [which] would be limited to the statutory penalties available under RES-PA,” to be 50% (# 116, p. 5-6). In the interest of consistency, this court will therefore adopt the same expected value for BANA’s estimate as discussed above: $103,200.

Plaintiffs’ position is that the probability of success on this claim is 75%, with a probability of a full recovery of $500,000 to be 25%; 20% at $148,680, and 55% at $0 (# 117, pp. 4, 5) for an expected value of $116,052.

Accordingly, the net expected value of continued litigation, estimated by counsel, ranges between $7.3 million (lower bound for the equitable relief, $7.2 million plus BANA’s estimate of damages, limited to $103,200 as per their argument) and $13.4 million (upper bound for equitable relief plus Plaintiffs’ estimate of damages from the breach of contract, $520,380, plus Plaintiffs estimate of damages from the RESPA, $116,052).

Value of settlement

With a settlement, the outcomes are guaranteed; the probabilities of both injunctive and monetary relief are pegged at 100%. The expected value of the injunctive relief is therefore the full value of the agreed-upon concessions as estimated by counsel and discussed above, $7.5 to $15 million.

As for the monetary relief, a theoretical calculation of “potential value” may be made. However, given that such a prescriptive analysis falls far from the observed number of claims actually filed, and given that there is no ey pres residual in the settlement agreement, it is more practical to examine the monetary amount that would actually be paid rather than a hypothetical value that represents no actual value to the class.

The first type of monetary relief is a $50 payment for class members who paid TBW a mortgage payment but did not receive credit for it as of December 1, 2011. The agreement caps this form of relief at $500,000. However, as of July 23, 2012, which is after the court-mandated deadline, the administrator only received 266 claims for this type of relief. The second type is $75 for class members who reported an adverse effect on their ability to obtain, extend, or continue credit. Of this type, 81 claims were received from class members and 217 claims for subclass members. Finally, the last type is $25 for members who itemized deductions in 2009. Of this type, 25 claims were received from class members and 93 from subclass members. Accordingly, out of the $500,000 maximum liability (for the first type only), under the terms of the settlement agreement, BANA would be obligated to provide $38,600 in monetary relief to the class.

Therefore, the total actual value of the settlement to the class is approximately $7.5 to $15 million. This range is not substantially different from the net expected value of continued litigation, with an estimated 75% chance of plaintiffs prevailing, as discussed above. Discounting the future value of continued litigation to the present value is mostly irrelevant since the vast bulk of the calculated value is in injunctive relief, and as of May 2012, BANA claimed that they had credited at least 81 % of class members. As for calculating the future value of the monetary relief, “even a person with a high discount rate may not care much whether he receives $15 to $30 now or in the future, since it is such a trivial amount of money even to a person who is usually strapped for funds.” Reynolds v. Beneficial Nat. Bank, 288 F.3d 277, 285 (7th Cir.2002). Given the similarly low amounts offered in the settlement agreement and the even lower claim rate, the future value is negligible in comparison.

Voluntary remediation as impacting evaluation of strength of case

Beyond the straightforward balancing calculation, there are other circumstances that raise concern regarding the strength of Plaintiffs’ case. First, it appears that all injunctive relief will be provided to all individuals who made payments that were not credited by BANA. Even individuals who exclude themselves from the proposed settlement will receive all injunctive benefits, including crediting of the uncredited payments, reversal of late fees, the issuance of a new form 1098 in tax year 2011, and credit reporting corrections (Agreement § 3.01; # 116 p. 1). In other words, the only difference between an individual who opts out of the proposed settlement and an individual who does not opt out is that class members who stay with the default have the potential to recover up to $150.00 in monetary relief and will receive the letter describing the missing payment issue and subsequent crediting of accounts (# 116 p. 1). This seems like an odd result if BANA believed that they have no obligation to take these steps independent of this proposed settlement. Why unilaterally provide a remedy that, on its face, appears to admit liability, if not obligated to do so? The parties assert that processing all the class members in a block and not selectively crediting those who have not opted out is simply more efficient, and that the time cost required to not credit those who exclude themselves outweighs the cost of applying the credit. This may be true. But even though the proposed settlement is not final, BANA has also declared that it has already provided the injunctive relief to a majority of the potential class members (again, 81% as of late May, 2012). This also seems strange considering that the proposed settlement agreement is neither final nor binding on the parties.

Our sister court, in considering whether AT & T, as a defendant in a class action, would have stopped charging certain contested taxes but for a settlement agreement in that case, wrote:

The Settlement’s value to consumers in requiring Defendant to cease collecting the Internet taxes, however, depends on the probability that AT & T would have voluntarily ceased those collections independent of the Agreement. If AT & T would have stopped charging those taxes regardless of whether it entered into the Agreement, for example, then the marginal value to the Class of the Agreement with respect to stopping the impugned conduct would be zero. Conversely, if ... Defendant would have kept charging the relevant taxes but for the Settlement, then the benefits that the Class Members would realize from the Agreement’s provision requiring AT & T to cease collecting Internet Taxes would indeed be $1.98 billion.

In re AT & T Mobility Wireless Data Services Sales Tax Litigation, 789 F.Supp.2d 935, 960 (N.D.Ill.2011). Certainly, if BANA were to have credited the accounts regardless of the settlement (or for that matter, the suit), that remedy should not be considered part of the benefit for forfeiting the right to sue. Analogously, but less on all fours, the Supreme Court recently held that attorney fees may not be awarded to the prevailing party under the catalyst theory if that party “failed to secure a judgment on the merits or a court-ordered consent decree, but has nonetheless achieved the desired result because the lawsuit brought about a voluntary change in the defendant’s conduct.” Buckhannon Bd. & Care Home, Inc. v. W. Virginia Dept. of Health & Human Res., 532 U.S. 598, 600, 121 S.Ct. 1835, 149 L.Ed.2d 855 (2001). Although that decision turned on the definition of “prevailing party”, a similar rationale applies. When voluntary behavior by the alleged wrongdoer results in the desired outcome but bereft of a full adversarial process, there is an increased burden to show that the exceptional treatment asked for — there, attorney fees despite the “American Rule”; here, approval of the settlement in spite of “the highest degree of vigilance in scrutinizing proposed settlements of class actions” — is indeed warranted and should be granted. This scrutiny must be maintained despite a court’s natural tendency to favor the settlement of class action litigation, thereby clearing an onerous and lengthy case off the docket as well as saving both parties extensive transactional costs. See, e.g., Isby v. Bayh, 75 F.3d 1191, 1196 (7th Cir.1996).

However, this perspective should also be tempered. For example, under the Federal Rules of Evidence, evidence of remedial measures is not admissible to prove negligence or culpable conduct. Fed.R.Evid. 407. The primary reason is to “not discourage[e] them from taking[] steps in furtherance of added safety.” Id., advisory committee’s note. Similarly, to disineentivize BANA from taking actions for non-litigation-related reasons, such as to improve customer relations or to take advantage of beneficial tax timing, would be unfair. Regardless, the fact that BANA not only voluntarily and unilaterally credited mortgagees before it was required to, but also credited those individuals who opted out, suggests that it tacitly recognizes, even if it will not admit as much, that its position is not as strong as it lets on.

No residual distribution of unclaimed funds

This court is also concerned that the settlement agreement has no terms directing that unclaimed funds be distributed in some fashion. Termed, variously, a “cy pres remedy” or “fluid recovery”, “the reason for appealing to cy pres is to prevent the defendant from walking away from the litigation scot-free because of the infeasibility of distributing the proceeds of the settlement.” Mirfasihi v. Fleet Mortg. Corp., 356 F.3d 781, 784 (7th Cir.2004). In Mirfasihi, the Seventh Circuit reversed an approval of a settlement agreement because the agreement included, among other questionable features, “the reversion of unclaimed refunds to the putative wrongdoer.” Id. at 785. Indeed, “[a] reversion provision might encourage a more generous settlement offer.” Id. Recovery of $25, $50, or $75 for months of trouble, conditioned on having a written letter and tax forms from three years ago hardly seems generous. Here, the bench went so far as to specifically question Defendant’s counsel on this issue. In response to the suggestion that the unclaimed residual be distributed to a nationwide pro bono legal aid group assisting in mortgages, Mr. Russell stated that “it’s hard to see how that is really something that the class members themselves would be asking for” (Tr. 146:5-7). And in response to the court’s follow-up question about distributing the residual among the class members who actually filed claims, Mr. Russell intimated that “[n]ot to be cynical about this; but often that’s done in order to, you know, raise the number so that you can pay attorneys’ fees. And we didn’t do that in this case.” (Tr. 146:12-15). There is also the concern that were the full capped value to be split among all the claimants, that each would receive a windfall (although $733 per claimant does not strike the court as grossly unjust.)

While the $500,000 cap spl