Appendix D Sample Complaints CA02_D

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Appendix D Sample Complaints

This appendix provides ten sample class action complaints.

Additional examples of class action complaints are included on the

companion CD-Rom to this volume. That CD contains the com-

plaints found in this appendix and additional examples of class

action complaints relating to debt collection, overcharges for ex-

tended warranties, forced-placed insurance, odometer fraud, re-

volving repossession scams, failure to provide repossession no-

tices, other auto dealer practices, auto pawns, auto leases, mortgage

refinancing, mortgage servicer practices, loan brokers, mobile

home park conditions, land installment sales, real estate broker

fraud, campground membership fraud, nursing home quality, in-

fertility clinics, rent-to-own, home improvement financing, tele-

phone overcharges, student loans, trade school fraud, merchants

illegal reaffirmation of debts discharged in bankruptcy, and tax

agency filing baseless proof of claims in chapter 13 bankruptcies.

Even more sample complaints in individual actions are found in

NCLCs Consumer Law Pleadings on CD-Rom With Index Guide

(cumulatively updated on an annual basis).

D.1 Predatory Lending by a Non-BankHome Equity Lender (Samuel)

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF PENNSYLVANIA

)

)Mildred E. Samuel,

)on behalf of herself

)and all others similarly situated,

)Plaintiffs

)

v. )

)

)EquiCredit Corporation,

)U.S. Bank National Association,

)Trustee,

)Defendants

)

CIVIL ACTION NO.

00-6196

CLASS ACTION

SECOND AMENDED COMPLAINTCLASS ACTION

I. NATURE OF THE ACTION

1. This is a class action by a low-income homeowner seeking

relief from the predatory mortgage lending practices of a non-bank

home equity lender, EquiCredit Corporation (EquiCredit), a

wholly-owned subsidiary of Bank of America. These practices

violate numerous federal and state consumer protection laws. The

specific predatory practices challenged include the following:

a. EquiCredit relies almost exclusively on brokers to obtain

loan applications from homeowners. The broker fees paid by

EquiCredit from its customers loans are in reality compensation

from EquiCredit to the brokers for the referral of business, and are

not based on valid enforceable broker contracts between brokers

and consumers. EquiCredits policies permit and encourage bro-

kers to violate state law and to collect excessive and unreasonable

fees without establishing a valid broker contract.

b. A bait and switch lending scheme whereby homeowners

are induced to apply for home improvement financing, but

EquiCredit arranges and offers only a first mortgage refinancing

loan, dictating the amounts to be included in the mortgage loans

without regard to the amount sought by the borrower, so that

EquiCredit and its brokers can make a more expensive loan and

obtain a first position lien on borrowers homes.

c. EquiCredits high-cost loans are frequently made to borrow-

ers who lack the reasonable ability to repay the loans, and therefore

put the borrowers at high risk of losing their homes.

d. EquiCredit engages in reverse redlining, in that its loans are

disproportionately made to African-American and Hispanic home-

owners, and homeowners in predominantly African-American and

Hispanic neighborhoods, on unfair and onerous terms, and its

foreclosures are also disproportionately concentrated in minority

neighborhoods.

2. Plaintiffs bring this case under the following federal and state

consumer protection laws: the Truth in Lending Act, 15 U.S.C.

1601 et seq. (TILA), the Home Ownership and Equity Protec-

tion Act of 1994, 15 U.S.C. 1602 et seq. (HOEPA), the Real

Estate Settlement Procedures Act, 12 U.S.C. 2601 et seq.

(RESPA), the Equal Credit Opportunity Act, 15 U.S.C. 1691

et seq. (ECOA), the Fair Housing Act, 42 U.S.C. 3601-3631

(FHA), the Pennsylvania Unfair Trade Practices and Consumer

Protection Law, 73 P.S. 201-1 et seq. (CPL or UDAP), the

Pennsylvania Credit Services Act, 73 P.S. 2181-2192 (CSA),

the Pennsylvania Home Improvement Finance Act, 73 P.S.

500-101 et seq. (HIFA), the Pennsylvania Loan Interest and

Protection Law, known as Act No. 6 of 1974, 41 P.S. 101 et seq.

(Act 6) and under other Pennsylvania statutory and common

law.

II. JURISDICTION AND VENUE

3. Jurisdiction over this matter is conferred upon this Court by

28 U.S.C. 1331, 1337. Supplemental jurisdiction over Plaintiffs

state law claims is granted by 28 U.S.C. 1367.

4. Venue lies in this judicial district in that the events which

gave rise to this claim occurred here and the property which is the

subject of the action is situated within this district.

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III. PARTIES

5. Plaintiff Mildred E. Samuel is a natural person residing at

[Address].

6. Defendant EquiCredit Corporation (EquiCredit) is a cor-

poration engaged in the business of consumer lending in Pennsyl-

vania and elsewhere with places of business located at One Ne-

shaminy Interplex, Suite 206, Trevose, Pennsylvania, 19053-6933

and 525 Plymouth Road, Plymouth Meeting, Pennsylvania 19462.

EquiCredits headquarters is located at 10401 Deerwood ParkBoulevard, Jacksonville, Florida 32256. At all times relevant

hereto, EquiCredit, in the ordinary course of its business, acted on

more than 150 consumer credit applications annually and was a

creditor within the meaning of ECOA, 15 U.S.C. 1691a(e), and

TILA, 15 U.S.C. 1602.

7. Defendant U.S. Bank National Association, f/k/a First Bank

National Association Trustee under various pooling and servicing

agreements (US Bank), is trustee for several pools of mortgage

backed securities that are the assignee of Plaintiffs loans. It has its

principal place of business at U.S. Bank Place,601 Second Avenue,

South Minneapolis, Minnesota, 55402. US Bank, in its capacity as

trustee for various trusts, is the current holder of the Plaintiffs and

class members loans.

IV. FACTUAL ALLEGATIONS

A. EquiCredit

8. EquiCredit markets itself as a pioneer in the so-called

subprime lending industry, with more than forty years of tradi-

tion. See www.EquiCredit.com.

9. As a subprime lender, EquiCredit specializes in making loans

to consumers with below average credit histories. As an industry,

subprime lending has experienced tremendous growth in recent

years. From 1993 to 1998, subprime refinancing lending increased

890 percent, while refinancing by prime lenders grew by only 2.5

percent.1

10. EquiCredit and its parent company, Bank of America

(BOA) are a major participant in the subprime lending industry.At the end of 1999, BOA was the largest servicer of subprime

mortgage loans in the United States, with a portfolio of over $22

billion. In 1998 EquiCredit originated or underwrote approxi-

mately $3.7 billion in mortgage loans. Through the first three

months of 1999, the total was approximately $1.6 billion.2

11. EquiCredit packages its loans to consumers and issues

mortgage-backed securities to raise additional capital for its op-

erations. For example, the Prospectus Supplement shows a pooling

by EquiCredit of 12,781 mortgage loans from 48 states,including

1,343 from Pennsylvania. The total principal balance of the loans

was $825,683,542.96.3

12. The annual interest rates on the pooled mortgages with fixed

rates ranged from 5.75% to 19.45%, with a weighted average of

approximately 10.28%. Approximately 90.87% of the loans weresecured by first mortgage liens on the consumers home. 4

13. To originate mortgage loans, EquiCredit markets it loan

products very heavily to mortgage brokers. EquiCredit uses adver-

tising, presentations at conventions and meetings, and other pro-

motional activities, to contact persons licensed or unlicensed as

loan brokers, and to encourage the brokers to offer loans to low

income persons with little or no credit standing for the purpose of

assisting them in arranging for the loans from EquiCredit. By way

of example, in Philadelphia, Pennsylvania EquiCredit has utilized

Express Equity, James Holleran, Arrow Building Systems, Inc. andArcher Funding, Inc. as persons to assist or work with EquiCredit

in originating loans. These entities or persons are referred to

hereinafter as brokers.

14. These brokers act as sales agents for EquiCredit in that they

perform numerous functions on behalf of EquiCredit including but

not limited to taking and preparing a loan application, arranging an

appraisal, gathering credit information, and structuring mortgage

loans to meet EquiCredits underwriting requirements.

15. EquiCredit establishes various policies and procedures in

order to make it more attractive for brokers to arrange loans with

EquiCredit rather than other lenders, including

(a) not requiring written broker contracts until loan closing,

(b) having class members sign an EquiCredit form document

acknowledging the validity of the broker fee at closing,(c) setting unreasonably high ceilings for the amount of broker

fees, and

(d) the other policies and practices challenged in this action.

B. The Role of the Brokers

16. The brokers solicit and offer services in the form of providing

advice and assistance to consumer homeowners in seeking exten-

sions of credit. The brokers also undertake to obtain credit for

homeowners by arranging appraisals, obtaining credit information,

preparing loan applications and documents and other similar activi-

ties. These services are performed for payment to be paid from the

proceeds of the EquiCredit loans eventually obtained by the brokers.

17. The brokers services are sold as a result of, or in connec-

tion with, a contact with class members at their homes or bytelephone.

18. The services are offered to consumers for personal, family

and household matters. Extensions of credit obtained by the bro-

kers are subject to the Federal Trade Commission Preservation of

Claims Trade Regulation, 16 C.F.R. 433.1 (1976) (the Holder

Rule). The Holder Rule requires that any installment loan contract

entered into as a result of a transaction with a seller of services

must contain the following contractual provision:

NOTICE

ANY HOLDER OF THIS CONSUMER CREDIT

CONTRACT IS SUBJECT TO ALL CLAIMS AND

DEFENSES WHICH THE DEBTOR COULD AS-SERT AGAINST THE SELLER OF GOODS OR

SERVICE OBTAINED WITH THE PROCEEDS

HEREOF, RECOVERY HEREUNDER BY THE

DEBTOR SHALL NOT EXCEED AMOUNTS PAID

BY THE DEBTOR HEREUNDER.

19. The Holder Rule requires that any holder of the installment

contract will be subject to any claims the buyer has against the

seller of services.

1 R. Scheessele, 1998 HMDA Highlights, U.S. Department of

Housing and Urban Development (September 1999).

2 Prospectus Supplement to Prospectus dated June 9, 1999 relat-

ing to Registration No. 333-71489, EquiCredit Home Equity

Loan Trust 1999-2 (hereafter, Prospectus Supplement).

3 Prospectus Supplement at S-21, 22.

4 Prospectus Supplement at S-18, 19.

Appx. D.1 Consumer Class Actions: A Practical Litigation Guide

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C. The Pennsylvania Consumer Protection Law and Credit

Services Act

20. Pennsylvanias Consumer Protection Law (CPL) re-

quires that all contracts for services resulting from a contact with

the consumer at the consumers home, or by telephone, must be in

writing and provided at the point or sale or contracting. 73 P.S.

201-7(b). Such written contract must contain notices about rights

of cancellation within three days from the date of contracting. 73

P.S. 201-7.21. The Pennsylvania Credit Services Act (CSA) regulates

all persons who, for money or valuable consideration, obtain

extensions of credit for persons seeking an extension of credit or

who advise or assist such persons in obtaining credit. 73 P.S.

2182. Persons or entities performing these services are called

credit service organizations. This definition covers the activities

of mortgage brokers.

22. The CSA imposes comprehensive duties of written disclo-

sure on credit services organizations. Credit services organizations

must enter into written contracts with persons seeking the credit

and, before entering such contracts, must provide a written infor-

mation sheet. 73 P.S. 2184, 2185 and 2186. The Information

Sheet must provide a complete and detailed description of the

services to be performed . . . and the total amount the buyer willbecome obligated to pay for the services . . . 73 P.S. 2186.

23. A credit services organization must obtain a dated, written

contract with the consumer that contains the following:

(a) a statement in conspicuous, 10-point bold type which pro-

vides a right of cancellation within five days;

(b) the terms and conditions of payment, including the total

amounts of all payments to be made by the person seeking credit

whether to the credit services organization or to some other person;

(c) a full and detailed description of the service to be per-

formed by the credit services organization for the person seeking

credit including the estimated time for performing such services;

and

(d) the business address of the credit services organization or its

agents.24. The brokers utilized by EquiCredit are governed by both the

CPL and the CSA. The brokers are therefore required by Pennsyl-

vania law to provide consumers a written contract as soon as a

broker contract is formed, and to provide written disclosures and

cancellation rights. 73 P.S. 201-7, 2185, 2186.

25. These required written disclosures are material to consum-

ers because they provide notice and understanding about (a) the

amount they will pay the broker and the lender in fees; (2) the type

of loan contemplated; and (b) the type of security to be provided.

Such disclosures protect consumers against bait and switch

schemes whereby brokers may promise one type or amount of a

loan orally, but then obtain substantially different loan terms, which

are not disclosed to consumers until loan closing, when it is

psychologically and practically difficult for the consumer to seekother loan alternatives. They also prevent consumers from misun-

derstanding the role of the broker, and the fact that the broker will

receive a fee separate from lender fees and charges.

26. EquiCredit has adopted a policy or practice pursuant to

which brokers do not provide and/or are not required by EquiCredit

to provide any written contract, or disclosures required by Penn-

sylvania law at the time the broker submits a loan application or

first makes inquiries about a loan with EquiCredit. EquiCredits

policy or practice is merely to require the broker to provide a

signed broker agreement with the loan documents after the loan

closing.

27. EquiCredit does require the broker to send EquiCredit a

written statement of the amount the broker expects to be paid from

the loan by EquiCredit with the loan application, but this written

fee expectation is not provided to the consumer.

28. As standard practice, brokers utilized by EquiCredit do not

provide the required written contractual disclosures, or the right to

cancel the broker contract, prior to closing EquiCredit mortgageloans.

29. EquiCredit also has a policy or practice of setting unrea-

sonably high limits on the amount of the brokers fees, and of not

requiring that the brokers fees bear any reasonable relationship to

services provided to the consumer.

D. The Real Estate Settlement Procedures Act Ban on Unearned

Fees

30. The Real Estate Settlement Procedures Act (RESPA)

prohibits payment of fees in connection with a residential mortgage

loan for a referral, when the fee is not based on services actually

provided to the consumer.

31. In 1998, the United States Department of Housing and

Urban Development (HUD) issued a policy statement regardingRESPA and its application to mortgage broker fees. The HUD

policy statement made it clear that lenders like EquiCredit had a

duty to insure that broker fees were not paid from loan proceeds

unless the fees were reasonably related to actual services con-

tracted for by, and provided to, the consumer.

E. Facts Regarding Plaintiff Mildred E. Samuel

32. In 1982, Plaintiff Mildred Samuel and her husband pur-

chased their home at [Address] in a modest section of North

Philadelphia. Mrs. Samuels husband passed away in June 1989

and she now lives alone in the home. She is a 67-year-old

African-American retired postal worker.

33. Mrs. Samuel paid off the original mortgage on her home in

March 1997.34. In December 1999, Mrs. Samuel contracted with James M.

Holleran (Holleran) and Arrow Building Systems, Inc. (Arrow

Building), for various improvements and repairs to her home to

be made by Arrow Building, as a result of a contact with her at her

residence and/or by telephone.

35. Holleran promised to arrange financing for the home im-

provements on Mrs. Samuels behalf.

36. Unbeknownst to Mrs. Samuel, Holleran used his corpora-

tion, Archer Funding Corp. to act as a broker, and to present a

mortgage loan application to Defendant EquiCredit.

37. Holleran and Archer Funding regularly referred consumers

to EquiCredit for loans in 1998 and 1999.

38. EquiCredit decided not to extend Mrs. Samuel a loan in the

amount or on the terms that she requested. Rather, EquiCreditdecided to offer Mrs. Samuel a substantially larger consolidation

mortgage loan, including refinancing her utility and tax bills.

39. EquiCredit never notified Mrs. Samuel of its denial of Mrs.

Samuels credit application nor did it ever notify Mrs. Samuel of

its counteroffer, pursuant to section 1691(d)(1) of ECOA.

40. EquiCredit created a written loan application in Mrs. Sam-

uels name. This application was seen by Mrs. Samuel for the first

time at the closing of the loan.

41. The application overstated Mrs. Samuels income and did

Sample Complaints Appx. D.1

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not reflect her monthly or annual payments for real estate taxes,

homeowners insurance, or other debts paid monthly by Mrs.

Samuel. The loan application stated that Mrs. Samuels income was

$1,161.09 a month. However, her actual income was $873 each

month in Social Security benefits, net of the Medicare deduction.

Mrs. Samuel did not indicate that she had any other source of

income, and in fact had none.

42. As a result of the EquiCredit loan, Mrs. Samuel went from

having no mortgage payment to undertaking to pay $357.39 out ofher $870.00 net monthly income for fifteen (15) years. The $357.39

payment did not include real estate taxes and homeowners insur-

ance, or any of her other fixed obligations, and therefore left her

with an unreasonably small residual income.

43. The loan closing took place on or about December 10, 1999

at Plaintiffs home, about one week after Holleran inspected Mrs.

Samuels home for the first time, and only a short time after Mrs.

Samuel was first contacted by Holleran and Arrow Building.

44. Present at the closing in Mrs. Samuels home were Holle-

ran, Walter Ackah, a legal assistant for the law firm of Kotsopoulos

& Bennett P.C., and Mrs. Samuel.

45. Mrs. Samuel did not have a meaningful opportunity to read

the loan documents at the closing because Holleran and Ackah kept

presenting her with the papers and instructing her to sign.46. As part of the loan closing, Mrs. Samuel was required to

sign a document purporting to confirm that three days had elapsed

after the loan closing, and she did not intend to exercise her right

under TILA to rescind the loan. This notice had the purpose and

effect of undermining the borrowers right to reconsider the loan

and rescind it for three days after closing.

47. While Plaintiff had initially requested a home improvement

loan, instead, she was required to sign a note in the amount of

$30,100, secured by a mortgage on her home. The note amount

included, in addition to the $18,000 in home improvements, the

sums of $1,656.33 to the City of Philadelphia for real estate taxes,

$2,932.75 for water/sewer bills, $825.32 to Philadelphia Gas

Works and $835 for electric service. At no time did Mrs. Samuel

request or apply for a refinancing loan to pay off her tax, water andutility bills. In fact, EquiCredit made an overpayment on her gas

bill, leaving Mrs. Samuel with a credit. In addition, Mrs. Samuel

was charged a broker fee of $1709.63, a $250 appraisal fee, a

$270 processing fee and other various charges and fees. Mrs.

Samuel also unknowingly purchased credit life insurance with a

$300.00 premium.

48. As a result, instead of borrowing $18,000 for home im-

provements, Plaintiff ended up borrowing over $30,000 at an

annual percentage rate of 13.26% for taxes, water, utility bills and

life insurance she did not request.

49. Mrs. Samuel also was required to pay $898.25 in miscel-

laneous fees for items including recording the deed, transfer of

taxes, title insurance, a credit report check, and closing fees, plus

$2,689.63 in finance charges, including a $1,709.63 broker fee, asa condition of getting a loan she did not want.

50. Mrs. Samuel was never told the amount of the broker fee,

given a written disclosure of the fee or a written agreement, or any

notice of her right to cancel the broker contract, and never agreed

to pay the broker fee, at any time prior to the loan closing.

51. The $1,709.63 broker fee did not bear any reasonable

relationship to the services performed by Archer Funding.

52. At all relevant times Holleran, Arrow Builders and Archer

Funding acted as agents for Defendant EquiCredit, in that they

performed numerous lender functions, including taking a loan

application, gathering supporting information, arranging an ap-

praisal, structuring a loan to meet EquiCredits underwriting re-

quirements, and in numerous other respects.

53. EquiCredit, Holleran, Archer Funding and Arrow Builders

all engaged in fraudulent or deceptive conduct in their dealings

with Mrs. Samuel, including, but not limited to:

a. failing to clearly explain the role of the broker and the amount

and basis of compensation prior to becoming involved and per-forming services; failing to clearly explain the Defendants motives

in requiring Mrs. Samuel to borrow additional sums to pay her tax

and water bills and other debts, so that EquiCredit could have a first

mortgage loan and therefore evade Pennsylvania usury laws;

b. failing to clearly explain the advantages and disadvantages of

a consolidation loan; and

c. failing to explain to Mrs. Samuel her right of rescission.

54. On April 20, 2000, Mrs. Samuels counsel sent a notice of

rescission to EquiCredit at both its Jacksonville, Florida and

Trevose, Pennsylvania addresses, exercising Mrs. Samuels right

under TILA to rescind the loan, based on TILA and HOEPA

violations.

55. EquiCredit did not comply with Mrs. Samuels demand for

rescission within the time allowed by TILA.

V. CLASS ACTION ALLEGATIONS

56. Plaintiff brings this action on behalf of herself and on behalf

of the following class (the Class):

all homeowners in the Commonwealth of Pennsylvania who,

during the six year period preceding the filing of this action (the

Class Period), entered into loan transactions with Defendant

EquiCredit which resulted in a mortgage on their homes, and which

included one or both of the following features:

A) some portion of the loan proceeds was used to pay a broker

fee,

B) some portion of the loan proceeds were used to fund home

improvements, Excluded from the Class are the Defendants and all

officers and directors of the Defendants.57. The members of the Class are so numerous that joinder of

all members is impracticable. There are approximately 12,000

class members in Pennsylvania.

58. Plaintiffs claims are typical of the claims of the members

of the Class. The losses to the Plaintiff were caused by the same

course of conduct that gave rise to the claims of other members of

the Class.

59. Plaintiff will fairly and adequately protect the interest of the

Class. Plaintiff has no conflict of interest with other members of the

Class. Plaintiff has retained experienced counsel qualified in class

action litigation who are competent to assert the interests of the

Class.

60. Defendants have acted on grounds generally applicable to

the plaintiff Class, such that final declaratory and injunctive reliefis appropriate with respect to the Class as a whole. In particular,

Plaintiff seeks injunctive relief preventing foreclosure of class

members homes and restitution of the illegal broker fees, as well

as declaratory relief regarding the illegality of Defendants prac-

tices.

61. Common questions of law and fact predominate over ques-

tions which may affect only individual members of the Class

because Defendants have acted or refused to act on grounds

generally applicable to the Class.


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62. Among the questions of law and fact common to the

members of the Class are:

(a) Whether paying broker a fee based on a purported contract

document first provided at loan closing violates the CSA or the

CPL, and whether failing to insure broker compliance with door-

to-door sales written contract and 3-day cancellation notice rule is

a CPL violation by EquiCredit.

(b) Whether excessive, percentage-based broker fees violate

RESPAs prohibition on fee splitting or kickbacks, and/or are CPLviolations.

(c) Whether EquiCredit was required to provide a notice of

counteroffer under ECOA, where class members applied for home

improvement financing, and EquiCredit implicitly denied the re-

quested financing and offered mortgage refinancing and consoli-

dation loans instead.

(d) Whether EquiCredit violated the CPL or other laws by

failing to include the FTC Preservation of Claims Notice in class

members notes when the notes were purchase money loans as

defined by the FTC Rule.

(e) Whether the loans from EquiCredit were home improve-

ment installment contracts within the meaning of HIFA, and

whether Defendants violated HIFAs restrictions on loan fees and

costs, including the ban on broker fees.(f) Whether EquiCredits imposition of charges prohibited by

HIFA, including broker fees, constitutes an unfair and deceptive

trade practice under UDAP.

(g) Whether EquiCredits imposition of charges prohibited by

HIFA subjects it to liability under Pennsylvania usury law.

(h) Whether the promise to finance home improvements, when

in reality a first mortgage refinancing is contemplated, is a CPL

violation.

(i) Whether EquiCredits lending practices discriminate against

African-American and Hispanic borrowers, or borrowers living in

predominantly African-American or Hispanic neighborhoods, in

violation of the Fair Housing Act and ECOA.

(j) Whether Plaintiff and members of the Class have sustained

damages by reason of EquiCredits wrongful conduct and, if so, theproper measure of damages; and

(k) Whether Plaintiff and members of the Class are entitled to

injunctive or declaratory relief.

63. A class action is superior to all other available methods for

the fair and efficient adjudication of this controversy because such

treatment will permit a large number of similarly situated persons

to prosecute their common claims in a single forum simultaneously

efficiently and without the unnecessary duplication of evidence,

effort and expense that numerous individual actions would engen-

der. Class treatment also will permit the adjudication of relatively

small claims by certain members of the Class who could not afford

to litigate individually such claims against sizable corporate de-

fendants.

64. Plaintiffs know of no difficulty to be encountered in themanagement of this action that would preclude maintenance as a

class action.

VI. CLAIMS

Count IRESPA

65. EquiCredit makes or invests in residential real estate loans

aggregating more than $1 million per year. The transactions at

issue in this case were, therefore, federally related mortgage

loans within the meaning of sections 2602 and 2607 of RESPA.

66. In the course of the transaction with Plaintiff Samuel, and

the transactions with members of the Class, Defendant EquiCredit

gave, and the brokers received, a fee, kickback or thing of value

pursuant to an understanding between the broker and EquiCredit

that the broker would refer business to EquiCredit, in violation of

12 U.S.C. 2607(a).

67. In the course of the transaction with Plaintiff Samuel, andthe transactions with members of the Class, EquiCredit gave the

brokers a portion, split or percentage of the settlement charges

collected from the borrowers, other than for services actually

performed by the brokers, in violation of 12 U.S.C. 2607(b).

68. As the result of these violations of RESPA, Defendant

EquiCredit is liable to Plaintiff Samuel and the Class, pursuant to

12 U.S.C. 2607(d) for statutory damages in the amount of three

times the broker fees imposed, plus reasonable attorneys fees and

costs.

Count II: CSA and CPL Claims Regarding

Broker Fee Agreements

69. EquiCredit aids and abets the violation of PennsylvaniasCSA and CPL laws by brokers, and/or is engaged in a civil

conspiracy with brokers to violate Pennsylvania law. EquiCredit

fails to require brokers to submit a signed broker agreement with

any loan application, and instead only requires that the agreement

be provided and signed at closing.

70. EquiCredit also uniformly fails to insure that any broker

contract entered into as a result of a door-to-door sale or telephone

solicitation contains the three-day cancellation notice required by

Pennsylvania Law, 73 Pa. Stat. 201-7, and fail to include the

FTCs Preservation of Claims and Defenses notice in contracts

when its inclusion is required.

71. EquiCredit and its closing agents represent to class mem-

bers at loan closings that broker fees must be paid and are due and

owing on the basis of a valid broker fee agreement when they arenot.

72. Defendants conduct constitutes unfair and deceptive acts

and practices prohibited by Pennsylvanias CPL. Plaintiff class

members suffered damages including, but not limited to, the illegal

broker fees, as a result. Class members are entitled to rescission

and treble damages.

Count III: ECOA

73. EquiCredits refusal to provide small loans and/or second

mortgages for home improvements or other purposes as requested

by borrowers, its failure to notify applicants of the fact that it is

denying their initial credit request and making a counteroffer, and

its insistence on refinancing the homeowners prior mortgage, has

a discriminatory impact on African-American homeowners and onneighborhoods with substantial percentages of African-American

homeowners.

74. EquiCredits failure to provide proper notice of its counter-

offers to class members also violates the notice requirements of

ECOA and regulations thereunder.

75. EquiCredit makes loans disproportionately to homeowners

in predominantly African-American and Hispanic neighborhoods,

compared to other lenders and even other subprime mortgage

lenders.


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76. Equicredits loans are made on terms and conditions that are

unfair and onerous and unduly create a risk of foreclosure.

77. Among other unfair terms, EquiCredit allows brokers to

charge excessive and unreasonable fees that bear no relation to the

cost or value of any services provided, and itself charges fees

and rates that are excessive in light of the borrowers credit and

collateral and consequent risk.

78. EquiCredits pricing policies have a disparate impact on

minority borrowers, especially African-American borrowers. Forexample and without limitation, EquiCredits policy of allowing

brokers to charge up to 12% of the loan prior to 1999, and then up

to 8%, and its interest rate add-ons for row homes and small loan

amounts, have a discriminatory effect on African-American and

Hispanic borrowers, and borrowers in predominantly African-

American and Hispanic neighborhoods.

79. As a result of EquiCredits violation of ECOA, Plaintiff

Samuel is entitled to actual and punitive damages and attorneys

fees, pursuant to 15 U.S.C. 1691e.

80. As a result of EquiCredits violation of ECOA, EquiCredit

is liable to the Class pursuant to 15 U.S.C. 1691e(b) for actual and

punitive damages and attorneys fees.

Count IV: Fair Housing Act (FHA)

81. EquiCredit discriminates against African-American and

Hispanic borrowers and borrowers in predominantly African-

American and Hispanic neighborhoods by targeting them for loans

on unfair terms, and making unaffordable loans that create an

undue risk of foreclosure, and by foreclosing disproportionately on

homes in such neighborhoods.

82. EquiCredit also discriminates against protected groups in

the manner set forth in Count III, above.

83. As a result of EquiCredits violation of the Fair Housing

Act, plaintiff and the Class are entitled to injunctive relief against

Defendants discriminatory lending and foreclosure practices, ac-

tual and punitive damages.

Count V: Pennsylvania Usury Law (HIFA)

84. The credit transactions between Plaintiffs and certain class

members and EquiCredit were home improvement installment

contracts within the meaning of HIFA.

85. The transactions were structured in violation of an express

prohibition in HIFA, section 500-407, against charging consumers

fees, costs, commissions or other charges not authorized by the act.

The transactions also included consolidation of other cash loans, in

violation of section 500-408 of HIFA.

86. HIFA specifically prohibits the charging of broker fees, a

prohibition that is systematically violated by Defendants.

87. Under Pennsylvanias Loan Interest and Protection Law

(Act 6 of 1974, 41 P.S. 101-503) and the CPL, Plaintiffs and

members of the Class are entitled to recover damages of three timesthe amount of the excess charges paid, plus reasonable attorneys

fees and costs. 41 P. S. 502, 503; 73 P. S. 201-9.2.

Count VI: CPL ViolationsForeclosures

88. EquiCredit has adopted underwriting standards that do not

adequately measure ability to repay, allows exceptions to its guide-

lines, and does not have sufficient verification procedures to ensure

that borrower income is adequately determined and considered.

89. In particular and without limitation, EquiCredit systemati-

cally fails to take into account monthly payments required for

borrowers to pay real estate taxes, homeowners insurance, and

other fixed obligations apart from the mortgage payment, in cal-

culating debt ratios and residual incomes, and has an unreasonably

low residual income standard and/or disregards that standard.

90. As a result of EquiCredits practices its mortgages often

exceed the ability of borrowers to repay and result in foreclosure

of class members homes.91. Through its conduct and the conduct of its closing agents,

EquiCredit represents to borrowers that the mortgage loans it offers

are affordable and reasonably expected to be repaid given the

borrowers income and household composition.

92. The requests for income information, the written applica-

tion and approval process and the closing all convey to the

borrower the message that EquiCredit is a responsible lender

making a loan it reasonably expects the borrower can afford to

repay, when in truth and in fact, EquiCredit does not have a

reasonable basis to expect successful repayment by its borrowers,

and experiences default rates in excess of 20% on some loan pools.

93. The making of loans to borrowers with insufficient income

to repay them, and that are therefore likely to lead to foreclosure,

is an unfair and deceptive practice in violation of the ConsumerProtection Law, 73 Pa. Stat. 201-2(v),(xv), (xxi) and 201-3.

94. Members of the class whose homes have been or are

threatened with foreclosure have suffered or will suffer an eco-

nomic loss as a result of EquiCredits unfair trade practices.

95. Class members are therefore entitled to injunctive relief,

treble damages and attorneys fees and any other appropriate relief,

pursuant to 73, Pa. Stat. 201-9.2.

Count VII: HOEPAPlaintiff Samuel Only

96. Ms. Samuels loan was a high cost loan covered by HOEPA

because the points and fees charged to her exceeded 8% of the net

loan amount, as those terms are defined in TILA and Regulation Z,

15 U.S.C. 1602(aa), 1639.97. EquiCredit failed to provide Ms. Samuel with the special

3-day advance disclosures required by HOEPA, 15 U.S.C.

1639(a), (b).

98. EquiCredit has adopted underwriting standards that do not

adequately measure ability to repay, allows exceptions to its guide-

lines, and does not have sufficient verification procedures to ensure

that borrower income is adequately determined and considered.

99. In particular and without limitation, EquiCredit systemati-

cally fails to take into account monthly payments required for

borrowers to pay real estate taxes, homeowners insurance, and

other fixed obligations apart from the mortgage payment, in cal-

culating debt ratios and residual incomes, and has an unreasonably

low residual income standard and/or disregards that standard.

100. EquiCredit has engaged in a pattern or practice of makingloans to borrowers with high cost mortgage loans without regard to

their ability to pay, in violation of HOEPA, 15 U.S.C. 1639(f),

including the loan made to Plaintiff Samuel.

101. Plaintiff Samuel is therefore entitled to rescission of her

mortgage loan, together with appropriate declaratory and injunc-

tive relief and actual and statutory damages.

Count VIIITILA-Plaintiff Samuel Only

102. As a result of the violations of TILA and Regulation Z,


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pursuant to sections 1635(a) and 1640(a) of TILA, Defendants

EquiCredit and US Bank, Trustee are liable to Plaintiff Samuel for

(a) Rescission of the transactions between Plaintiff and

EquiCredit, including a declaration that Plaintiff is not liable for

any finance charges or other charges imposed by EquiCredit.

(b) Termination of any security interest in Plaintiffs property

created under the transactions.

(c) Return of any money or property given by the Plaintiff to

anyone, including EquiCredit, in connection with the transactions.(d) Actual and statutory damages pursuant to section 1640(a)(1),

(3) and (4) of TILA.

(e) Reasonable attorneys fees and costs.

Count IX: Fraud, CPL and Breach of Fiduciary Duty,

Plaintiff Samuel Only

103. At all relevant times, Archer Funding and James Holleran

acted as agents for EquiCredit in soliciting Plaintiff Mildred Sam-

uel to enter into a home improvement financing arrangement

funded by EquiCredit, in preparing and structuring her mortgage

application, and in controlling the disbursement of loan proceeds.

Moreover, EquiCredit aided and abetted the fraudulent conduct of

Archer Funding and James Holleran, and benefitted from the fruitsof their fraud.

104. At the loan closing at Mrs. Samuels home, the settlement

agent, Mr. Ackah, whispered to Mrs. Samuel that the $1,709.63 fee

to Archer Funding listed on the settlement sheet was to be paid to

Holleran. This was the first time that Archer Funding was identified

to Mrs. Samuel.

105. Mrs. Samuel did not knowingly agree to engage a third-

party broker and pay him additional compensation.

106. If Holleran or Archer Funding were in fact acting as a

mortgage broker for Mrs. Samuel, the conduct in steering her to a

high-priced home equity loan refinancing transaction with points

and fees in excess of 8% of the loan and refinancing her tax and

utility debt, was a gross violation of their fiduciary duty toward

Mrs. Samuel.107. Holleran converted an $18,000 check from the loan pro-

ceeds to his own use, and the home repairs to Ms. Samuels home

were never completed pursuant to the home improvement contract.

The repairs that were done were shoddily done and are defective,

are presently falling apart and were never completed to a reason-

able standard of workmanship. No work whatsoever has been done

on Mrs. Samuels kitchen.

108. Prior to and at the loan closing, EquiCredit, its closing

agent, Holleran and Archer Funding made material misrepresen-

tations and omitted material information in order to induce Mrs.

Samuel to consummate the home equity loan, including, but not

limited to:

(a) the failure to disclose to her that a broker was being engaged

who would be paid separately from the lender and that the brokeragreement was a separate agreement that she had three days to

cancel if she so chose;

(b) the failure to disclose to her that her request for a loan for

home improvements was being rejected, and the reasons it was

being rejected;

(c) the representations made to her at the loan closing that the

home equity loan was beneficial and necessary for her to get the

loan;

(d) failing to clearly explain the EquiCredits motives in requir-

ing Mrs. Samuel to borrow additional sums to pay taxes and utility

bills, so that EquiCredit could have a first mortgage loan and

thereby evade Pennsylvania usury laws;

(e) representing that Holleran and his companies would perform

home improvements on Mrs. Samuels home when he had no such

intent.

109. The conduct of EquiCredit, Holleran and Archer Funding

constituted unfair or deceptive acts or practices within the meaning

of the CPL in that, among other reasons,(a) EquiCredit and the broker arranged a transaction for Plaintiff

which imposed credit costs and charges expressly prohibited by

federal and Pennsylvania law, which is a per se unfair or deceptive

practice;

(b) EquiCredit and the broker represented to Plaintiff that the

consolidation and refinancing of pre-existing debt would be ben-

eficial to her when in fact it was not, 73 P.S. 201-2(v);

(c) EquiCredit and the broker did not provide Mrs. Samuel with

notice of her right to cancel the alleged broker contract, which was

sold as a result of a contact with Mrs. Samuel at her residence,

in violation of 73 P.S. 201;

(d) EquiCredit and the broker violated federal and state statutes

in connection with the transaction, which is per se unfair and

deceptive conduct in violation of the CPL; and(e) EquiCredit and the broker engaged in deceptive conduct

which created a likelihood of confusion or of misunderstanding, 73

P.S. 201-2(4)(xxi), including, without limitation, the specific

representations and omissions described above.

110. The above misrepresentations and omissions were made

with knowledge of their falsity and with the intent to induce Mrs.

Samuel to enter into the contracts, and Plaintiff reasonably relied

on them and suffered damages as a result.

111. Defendant EquiCredit is liable to Plaintiff Samuel for

treble damages, attorneys fees and other appropriate relief, pursu-

ant to 73 P.S. 201-9.2 and common law.

VII. PRAYER FOR RELIEF

WHEREFORE, Plaintiff, individually and on behalf of the

Class, requests the following relief:

A. An Order certifying the proposed Class under Rule 23 of the

Federal Rules of Civil Procedure and appointing Plaintiff and her

counsel to represent the Class;

B. An Order declaring that EquiCredits actions as described

above are in violation of the statutes and regulations set forth

above;

C. An Order declaring that EquiCredit has engaged in a pattern

or practice of extending credit to consumers based on the consum-

ers collateral without regard to the consumers repayment ability;

D. An Order enjoining Defendants from continuing to engage in

the illegal, unfair and deceptive practices described above;

E. An Order enjoining Defendants EquiCredit and US Bankfrom initiating or continuing foreclosure proceedings with respect

to the homes of members of the Class;

F.An Order requiring EquiCredit and/or US Bank to notify class

members of their right to cancel their broker agreements and

receive restitution of broker fees,

G. All relief set forth above following each individual Count

asserted by the individual named Plaintiff and the Class;

H. Treble damages;

I. Statutory damages;


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J. Attorneys fees and costs; and

K. Such other relief at law or equity as the Court may deem just

and proper.

[Attorney for Plaintiff]

[Date]

D.2 Class Complaint under 23(b)(2)Seeking Injunctive andDeclaratory Relief (Kalima)

IN THE CIRCUIT COURT OF THE FIRST CIRCUIT

STATE OF HAWAII

)

)LEONA KALIMA, DIANNE

)BONER AND JOSEPH CHING,

)on behalf of themselves and

)all others similarly situated,

)Plaintiffs,

)

v. )

)

)STATE OF HAWAII,

)STATE OF HAWAII

)DEPARTMENT OF HAWAIIAN

)HOME LANDS; STATE OF

)HAWAII HAWAIIAN HOME

)LANDS TRUST INDIVIDUAL

)CLAIMS REVIEW PANEL,

)BENJAMIN CAYETANO, in

)his official capacity as Governor

)of

)the State of Hawaii,

)JOHN DOES 1-10, JANE DOES

)1-10, DOE CORPORATIONS

)1-10, DOE PARTNERSHIPS

)1-10 AND DOE GOVERN-

)MENTAL ENTITIES 1-10,

)Defendants.

)

CIVIL NO.

(Class Action)

COMPLAINT;

EXHIBITS 1 AND 2;

DEMAND FOR JURY

TRIAL; AND

SUMMONS TO

ANSWER CIVIL

COMPLAINT

COMPLAINT

Representative Plaintiffs Leona Kalima, Diane Boner and Jo-

seph Ching (Representative Plaintiffs) above-named, through

their attorneys, Davis Levin Livingston Grande and the Law

Offices of Carl M. Varady, file this Complaint against Defendants

and allege as follows:

INTRODUCTION

1. This class action is for declaratory and injunctive relief and

for monetary damages by 2,721 Native Hawaiian beneficiaries of

the Hawaiian Home Lands Trust for breaches of that trust by

Defendants.

2. Representative Plaintiffs Leona Kalima, Dianne Boner and

Joseph Ching seek declaratory and injunctive relief pursuant to

Hawaii Rules of Civil Procedure 23(b)(1) and 23(b)(2) on behalf

of themselves and all other individuals similarly situated as fol-

lows:

a. A declaration that Plaintiffs and others similarly situated have

the right to sue Defendants in Circuit Court under HRS Chapter

674 for breach of Defendants trust obligations under the Hawaiian

Homes Commission Act of 1920.

b. A declaration that Plaintiffs and others similarly situated have

the right to sue Defendants in Circuit Court under HRS Chapters673 and/or 661 for Defendants breach of trust obligations to

Plaintiffs and all others similarly situated by delaying and failing to

complete the claims resolution process established under HRS

Chapter 674, and

c. A declaration that Plaintiffs have claims which allow them to

recover individual compensation for waiting an unreasonably long

period of time to be awarded land (waiting list claims) under the

Hawaiian Homes Commission Act of 1920 and for other types of

compensable claims for relief.

d. A declaration which determines the nature and elements of

compensation allowed under HRS Chapters 674, 673 and/or 661

for Plaintiffs claims.

3. In addition to the above claims for declaratory and injunctive

relief Representative Plaintiffs seek monetary relief and damagespursuant to Hawaii Rules of Civil Procedure 23(b)(3) on behalf of

themselves and all other individuals similarly situated under HRS

Chapter 674, HRS Chapter 673 and/or HRS Chapter 661 for

Defendants breach of their trust obligations to Plaintiffs under the

Hawaiian Homes Commission Act of 1920.

BACKGROUND

4. Under HRS Chapter 674, the State of Hawaii established the

Hawaiian Home Lands Trust Individual Claims Review Panel

(Panel) and a claims review process under which individual

beneficiaries of the Hawaiian home lands trust may resolve claims

for actual damages arising out of or resulting from a breach of trust,

which occurred between August 21, 1959, and June 30, 1988, andwas caused by an act or omission of an employee of the State in the

management and disposition of trust resources. HRS 674-1. The

Panel was empowered to hear and render Advisory Opinions to the

Legislature on claims filed with it by Native Hawaiian beneficia-

ries. The Legislature was then empowered to take action upon the

claims presented to it by the Panel.

5. Under the Chapter 674 claims review process, individual

beneficiaries were given a right to sue in circuit court upon their

filing a notice with the panel by October 1, 1999 that they did not

accept legislative action taken upon their claim. HRS 674-17.

Such suits are required to be filed in Circuit Court by December 31,

1999. HRS 674-19.

6. Because the Legislature took no action on 2,721 of the claims

filed with the Panel (the claims of Representative Plaintiffs and theproposed class), Defendant State of Hawaii has taken the position

that these 2,721 claimants will lose their right to file suit under

HRS Chapter 674 as of January 1, 2000.

7. If Defendants are correct and Plaintiffs have no right to sue

under HRS Chapter 674, the States failure to complete the Chapter

674 process and/or its failure to complete the process in a timely

manner constitutes a breach of trust violation under HRS Chapter

673 or alternatively constitutes a breach of contract under HRS

Chapter 661.


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8. Irrespective whether their claims arise under HRS Chapter

674, 673 and/or 661, Representative Plaintiffs seek monetary

damages on behalf of themselves and all others similarly situated

for Defendants breach of trust obligations to individual beneficia-

ries.

JURISDICTION AND VENUE

9. This Court has subject matter jurisdiction to hear the claims

in this Complaint pursuant to Hawaii Revised Statutes 603-21.5

(general jurisdiction), Hawaii Revised Statutes 603-21.5 and

632-1 (declaratory relief), Hawaii Revised Statutes 674-17

(breach of trust claims arising between 1959 and 1988) , Hawaii

Revised Statutes 673-1 (breach of trust claims arising after 1988),

and Hawaii Revised Statutes 661-1 et seq. (breach of contract).

10. Under HRS Chapters 674, 673 and 661, the State of Hawaii

has waived its sovereign immunity to be sued subject to certain

prefiling requirements.

11. This Court has personal jurisdiction over Defendants pur-

suant to Hawaii Revised Statutes 674-16, Hawaii Revised

Statutes 673-1 and Hawaii Revised Statutes 661-1.

12. This Court has venue over the claims in this Complaint

pursuant to Hawaii Revised Statutes 603-36 and Hawaii Re-vised Statutes 674-17, Hawaii Revised Statutes 673-1 Hawaii

Revised Statutes 661-1.

PREFILING REQUIREMENTS

13. Under Hawaii Revised Statutes Chapter 674, a claimant

must timely file a claim with the Panel by August 31, 1995. After

Panel consideration of the claim, the Panel was empowered to

render Advisory Opinions on the claims presented to it and make

a recommendation to the Legislature for action on the claims. After

legislative action on the Panel recommendation, individual or

classes of claimants have the right to sue in Circuit Court upon 1)

the filing of a notice of intent to sue by October 1, 1999 HRS

674-17 and 2) filing of a lawsuit by December 31, 1999. HRS

674-19.14. On September 30, 1999, Plaintiffs through the Native Ha-

waiian Legal Corporation filed a written notice of intent to sue on

behalf of the proposed classes of plaintiffs, a true and correct copy

of which is attached as Exhibit 1. This letter satisfies the require-

ment of HRS 674-17.

15. Under Hawaii Revised Statutes 673-3, Plaintiffs must

exhaust all administrative remedies available, and shall have

given not less than sixty days written notice prior to filing of the

suit that unless appropriate remedial action is taken suit shall be

filed.

16. On December 29, 1999, Plaintiffs through Davis Levin

Livingston Grande and the Law Offices of Carl Varady, filed a

written notice and request for remedial action to be taken. Plaintiffs

have attached as Exhibit 2 a true and correct copy of the requiredprefiling written notice. This letter satisfies the requirement of HRS

673-3.

17. Under Hawaii Revised Statutes 673-3 All executive

branch departments shall adopt in accordance with chapter 91, such

rules as may be necessary to specify the procedures for exhausting

any remedies available. The executive branch departments of the

State of Hawaii have not adopted any rules pursuant to HRS

chapter 91 so there are no administrative remedies to be exhausted

by Plaintiffs.

PARTIES

18. Plaintiff Joseph Ching is a resident of the State of Hawaii

and who is a Native Hawaiian beneficiary as that term is defined in

HRS Chapter 674. Plaintiff Joseph Ching timely filed a breach of

trust claim with the Panel. That breach of trust claim:

a. Was adjudicated in Plaintiffs favor by the Panel;

b. Was the basis of an advisory opinion by the Panel;

c. Was presented to the Legislature for action; and

d. The Legislature took no action on the Panels recommended

remedial action regarding Plaintiff Joseph Chings breach of trust

claim.

19. There are 418 claimants (putative plaintiffs of Subclass 1)

similarly situated to Plaintiff Joseph Ching since they all had

breach of trust claims which a) were adjudicated in their favor by

the Panel, b) each of which was the basis of an advisory opinion

by the Panel, c) were presented to the Legislature for action, and

d) the Legislature took no action on the Panels recommended

remedial action regarding these claimants breach of trust claims.

20. Plaintiff Dianne Boner is a resident of the State of Hawaii

who is a Native Hawaiian beneficiary as that term is defined in

HRS Chapter 674. Plaintiff Dianne Boner timely filed a breach of

trust claim with the Panel. That breach of trust claim:a. Was adjudicated by the Panel;

b. Was the basis of an advisory opinion by the Panel;

c. Was not presented to the Legislature for action; and

d. Because it was not presented to the Legislature for action, the

Legislature took no action on the Panels recommended remedial

action regarding Plaintiff Dianne Boners breach of trust claim.

21. There are 53 claimants (putative plaintiffs of Subclass 2)

similarly situated to Plaintiff Diane Boner since they all had breach

of trust claims which a) were adjudicated in their favor by the

Panel, b) each of which was the basis of an advisory opinion by the

Panel, c) which were not presented to the Legislature for action,

and d) because the claims were not presented to the Legislature for

action, the Legislature took no action on the Panels recommended

remedial action regarding these claimants breach of trust claims.22. Plaintiff Leona Kalima is a resident of the State of Hawaii

who is a Native Hawaiian beneficiary as that term is defined in

HRS Chapter 674. Plaintiff Leona Kalima timely filed a breach of

trust claim with the Panel. That breach of trust claim:

a. Was timely filed with the Panel for adjudication;

b. Was not presented by the Panel to the Legislature for action;

and

c. The Legislature took no action on Plaintiff Leona Kalimas

breach of trust claim.

23. There are 2,250 claimants (putative plaintiffs of Subclass 3)

similarly situated to Plaintiff Leona Kalima since they all timely

filed breach of trust claims which a) were presented to the Panel for

adjudication, b) were presented by the Panel to the Legislature for

action, and c) the Legislature took no action on these claimantsbreach of trust claims.

24. Defendant State of Hawaii is a sovereign entity which

assumed trust and fiduciary responsibilities for Native Hawaiian

beneficiaries of the Hawaiian Homes Commission Act of 1920 in

its state constitution upon Hawaiis admission as a state in 1959.

Defendant State of Hawaii has waived its sovereign immunity to

be sued herein under

25. Defendant State of Hawaii Department of Hawaiian Home

Lands (DHHL) is a department within Defendant State of


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Hawaii and which was charged by the State of Hawaii to

discharge the State of Hawaiis duty to act as trustee on behalf of

all Native Hawaiian beneficiaries pursuant to the Hawaiian Homes

Commission Act of 1920.

26. Defendant Hawaiian Home Lands Trust Individual Claims

Review Panel (Panel) is an administrative agency set up to

administer the individual claims for breach of trust by Native

Hawaiian beneficiaries.

27. Defendant Benjamin Cayetano is sued in his official capac-ity as Governor of the State of Hawaii and the chief administrative

officer responsible for administration of the Hawaiian Home Lands

Trust Individual Claims Review Panel, which is an executive

agency within the Department of Commerce and Consumer Affairs

under the supervision and control of the Office of Governor.

28. Pursuant to Hawaii Revised Statutes 674-16, Defendant

State of Hawaii and Defendant State of Hawaii Department of

Hawaiian Home Lands have waived their immunity from liability

for actual damages suffered by an individual beneficiary arising out

of or resulting from a breach of trust or fiduciary duty, which

occurred between August 21, 1959 to June 30, 1988 and was

caused by an act or omission of an employee of the State in the

management and disposition of trust resources.

29. Pursuant to Hawaii Revised Statutes 673-1, DefendantState of Hawaii and Defendant State of Hawaii Department of

Hawaiian Home Lands have waived their immunity from liability

for actual damages suffered by an individual beneficiary arising out

of or resulting from a breach of trust or fiduciary duty, which

occurred after June 30, 1988 and was caused by an act or omission

of an employee of the State in the management and disposition of

trust resources.

30. Pursuant to Hawaii Revised Statutes 661-1, the State of

Hawaii and Defendant State of Hawaii Department of Hawaiian

Home Lands have waived their immunity for damages as a result

of breaches of contract explicitly or impliedly entered into with

individuals. The settlement of individual beneficiary claims,

through legislation and administrative rules, establish a contract

that was breached by the State.31. Defendants State of Hawaii, State of Hawaii Department

of Hawaiian Homes Lands, Defendant Hawaiian Home Lands

Trust Individual Claims Review Panel and Benjamin Cayetano are

collectively referred to as Defendants.

32. The Defendants designated as JOHN DOES 1-10, JANE

DOES 1-10, DOE CORPORATIONS 1-10, DOE PARTNER-

SHIPS 1-10 and DOE GOVERNMENTAL ENTITIES 1-10 (here-

inafter collectively referred to as Doe Defendants) are sued

herein under fictitious names for the reason that their true names

and identities are presently unknown to Plaintiff, despite Plaintiffs

diligent and good faith efforts to obtain this information, except

that said Doe Defendants were connected in some manner with the

named Defendant and were individuals, corporations, parent cor-

porations, divisions, subsidiaries, entities, agents, representatives,associations, affiliates, associates, co-venturers, business entities,

employers, employees, servants, vendors, suppliers, manufactur-

ers, subcontractors and contractors, or governmental entities, agen-

cies or bodies, responsible in some manner presently unknown to

Plaintiffs for the injuries and damages to Plaintiffs. Plaintiffs

hereby pray for leave to certify the true names and capacities,

activities and/or responsibilities of said Doe Defendants when the

same are ascertained.

FACTUAL ALLEGATIONS

33. Plaintiffs are individual beneficiaries of the Hawaiian

Homes Commission Act of 1920 who were eligible to receive the

benefits of homesteading and related programs from the Hawaiian

Home Lands Trust (Trust).

THE HAWAIIAN HOME LANDS TRUST

34. In 1920, the Congress of the United States of Americapassed the Hawaiian Homes Commission Act of 1920, as amended

(42 Stat. 108 (July 9, 1921), establishing a land trust to be

administered by the Territory of Hawaii, and later the State of

Hawaii, to rehabilitate the Native Hawaiian people by, inter alia,

making them eligible to receive the benefits of homesteading and

related programs from the Hawaiian Home Lands Trust. The State

of Hawaii accepted responsibilities as trustee of the Hawaiian

Home Lands Trust on behalf of eligible Native Hawaiians as a

condition of its admission to the Union under 4 and 5 of the

Hawaii Admission Act, Pub. L. 86-3, 73 Stat. 4 (March 18, 1959)

as well as pursuant to Article XII, 2 and 3 of the Hawaii

Constitution.

35. Under the Hawaiian Homes Commission Act of 1920, as

amended, the State of Hawaii was charged as trustee to oversee theoperations carried out under the authority of the Hawaiian Homes

Commission Act and to fulfill and discharge all obligations con-

sistent with its position as trustee. The duties included: adminis-

tration of a land trust for the sole benefit of Native Hawaiians and

rehabilitation of Native Hawaiians through resettlement of them on

Trust lands.

HAWAIIAN HOMES INDIVIDUAL CLAIMS REVIEW PANEL

36. In 1988, the Hawaii State Legislature passed Act 395, The

Native Hawaiian Judicial Trusts Relief Act, which was signed by

the Governor and codified as HRS Chapter 673.

37. Chapter 673 gave Native Hawaiian beneficiaries the right to

sue the State of Hawaii in Circuit Court for breaches of trustoccurring after June 30, 1988 by the State of Hawaii of the

Hawaiian Home Lands Trust under Article XII, Sections 1, 2 and

3 of the Hawaii Constitution and the Hawaiian Homes Commis-

sion Act of 1920.

38. Chapter 673 also provided procedural requirements for

instituting suit, including 1) prefiling notice to the State of Hawaii,

2) sixty day period for State to take requested remedial action and

3) two-year statute of limitation for instituting a breach of trust

claim.

39. Act 395, codified as Chapter 673 also directed the Governor

to present a proposal to the 1991 Legislature to resolve controver-

sies relating to trust breaches that occurred during the period

between the Statehood and June 30, 1988, and were not included

within Chapter 673.40. As required by Act 395, in 1991, the Governor submitted to

the Legislature An Action Plan to Address Controversies Under

the Hawaiian Home Lands Trust and the Public Land Trust

(Action Plan). Under the Action Plan, the Governor proposed

creating a Board of Individual Claims Resolution to hear claims of

actual economic losses suffered by individual beneficiaries of the

Hawaiian Home Lands Trust for 1959 through 1988 claims.

41. In response to the Action Plan, in 1991 the Hawaii State

Legislature passed Act 323, codified as HRS Chapter 674, which


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established the Hawaiian Home Lands Trust Individual Claims

Review Panel (Panel) and a claims review process under

which individual beneficiaries of the Hawaiian home lands trust

may resolve claims for actual damages arising out of or resulting

from a breach of trust, which occurred between August 21, 1959,

and June 30, 1988, and was caused by an act or omission of an

employee of the State in the management and disposition of trust

resources. HRS 674-1.

42. Chapter 674 authorized the Panel to review and evaluate themerits of claims brought by individual beneficiaries, to render

findings, and to recommend monetary damages and other relief in

an advisory opinion to the Legislature regarding the merits of each

claim. HRS 674-1. Chapter 674 was enacted to grant individu-

als affected by the Hawaii Home Lands Trust . . .the right to settle

their individually affected controversies (as opposed to controver-

sies that affect the beneficiaries as whole) by suing directly in

Circuit Court. 1991 Hawaii State Legislature Conference Com-

mittee Report No. 64 at 1.

43. Under Act 323 as originally passed, the filing deadline to

submit claims to the Panel was August 31, 1993. HRS 674-7

(1991). The deadline to file a written notice that the claimant does

not accept legislative action on his or her claim was October 1,

1994, HRS 674-17(b) (1991) and the statute of limitations forfiling an action in circuit court was September 30, 1996 HRS

674-19 (1991), two years after the written notice was required to

be filed with the panel.

44. Under Chapter 674, the Panel was to submit its final report

to the 1994 legislature in regular session, including a summary of

each claim brought, the panels findings and advisory opinion

regarding the merits of each claim and an estimate of the probable

compensation or recommended corrective action. HRS 674-14

(1991).

45. The Panel members were appointed in April 1992, promul-

gated rules to govern operations and, in February 1993, began

accepting claims filed by individual beneficiaries of the Hawaiian

Home Lands Trust.

46. Because of delays in forming the Panel, the 1993 HawaiiState Legislature revised the various deadlines it established in

1991. The deadline to file claims with the panel was extended from

August 31, 1993 to August 31, 1995. HRS 674-7 (1993) (Act

351). The deadline to file a written notice that the claimant does not

accept legislative action on his or her claim was extended from

October 1, 1994 to October 1, 1997. HRS 674-17(b) (1993) (Act

351). The statute of limitations for filing an action in circuit court

was extended from September 30, 1996 to September 30, 1999,

HRS 674-19 (1993) (Act 351), two years after the written notice

was required to be filed with the panel. The deadline to submit the

final report to the legislature was extended from the 1994 legisla-

ture to the 1997 legislature. HRS 674-14 (1993) (Act 351).

47. In 1994, the Hawaii State Legislature considered and

approved the Panels decisions in two cases. 1994 Hawaii StateLegislature, Act 129. By approving the Panels actions with regard

to these two claimants, the enactment of Act 129 authorized these

claimants to bring suit in Circuit Court pursuant to HRS 674-17

in the event they did not accept the action of the Legislature on

their claims, subject only to their compliance with the requirement

under HRS 674-17(b) that timely notice of their rejection of the

Legislatures action be filed with the Panel.

48. In 1995, during Special Session, the Legislature adopted

Act 14, which is based expressly on the Action Plan and Act 395.

Act 14 overrode prior precedent and stated its intent to settle all

Hawaii Home Lands breach of trust claims allowed by Act 395 for

claims arising during the period August 21, 1959, through July 1,

1988, except those permitted by Chapter 674, HRS. Act 14 pro-

vided further for the payment of $600 million dollars in settlement

for Hawaiian land trust claims, exclusive of those under Chapter

674, HRS. Act 14 states that its effect is res judicata as to all other

Hawaiian land trust claims for the period of August 21, 1959, and

July 1, 1988.49. Although Act 14 was intended to resolve controversies

arising out of management, administration, supervision of the

trust, or disposition . . .of any lands or interests in land which are

or were or are alleged to have been Hawaiian home lands,Act 14

specifically exempted the individual claims resolution process

established by Chapter 674:

Nothing in this section shall replace or affect the

claims of beneficiaries with regard to . . .(c) Hawai-

ian home lands trust individual claims brought

pursuant to chapter 674, Hawaii Revised Statutes,

except as otherwise provided in sections 14, 15 and

16 of this Act.

1995 Hawaii State Legislature, Act 14, 4.

50. Section 14, 15 and 16 of Act 14 (1995) revised portions of

Chapter 674 by amending the definition of actual damages in HRS

674-2; shortening the statute of limitations time period in HRS

674-19 from September 30, 1999, HRS 674-19 (Act 351), to

September 30, 1998, and adding a provision to Chapter 674

precluding title-related claims from the claims process.

51. In 1997, the Panel prepared and submitted its Report to the

Governor and the 1997 Hawaii Legislature. In its Report, the

Panel determined that several categories of claims were compens-

able under Chapter 674, including claims based on an unreasonably

long wait for a homestead (waiting list claims), construction

claims, lost application claims and others. Report to the Governor

and the 1997 Hawaii Legislature, submitted by The HawaiianHome Lands Trust Individual Claims Review Panel (1997 Re-

port), Table II.

52. In its 1997 Report, the Panel reported that it received 4,327

claims from 2,752 claimants by August 31, 1995, the deadline

established by the 1993 Legislature. 1997 Report at i. By the end

of 1996, the Panel had rendered advisory opinions on 172 claims

affecting 147 claimants. Through the 1997 Report, the Panel

recommended legislative action on 162 claims for damages ap-

proximating $6.7 million. 1997 Report at i and Table III6.

53. However, because the Panel was unable to complete its

review of all claims in 1997, it requested a two-year extension to

review all claims and file its final report with the Legislature.

54. The 1997 Legislature agreed to extend the Panels existence

and passed Act 382. Act 382 retained the deadline to file claimswith the Panel as August 31, 1995. HRS 674-7 (1993) (Act 351).

The deadline to file a written notice that the claimant does not

accept legislative action on his or her claim was extended from

October 1, 1997 to October 1, 1999. HRS 674-17(b) (1997) (Act

382). The statute of limitations for filing an action in circuit court

was extended from September 30, 1998 to December 31, 1999,

HRS 674-19 (1997) (Act 382), three months after the written

notice was required to be filed with the panel. The deadline to

submit the final report to the legislature was extended from the


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1997 legislature to the 1999 legislature. HRS 674-14 (1997) (Act

382).

55. In considering the Panels advisory decisions on claims,

including claims for damages, the 1997 Legislature took no action

on the claims that had been presented and instead created a separate

process to determine the types of compensable claims and the

amounts to be paid by passage of Act 382.

56. The separate process created by Act 382 was a working

group consisting of the Attorney General, Director of Budget andFinance, Chair of the Hawaiian Homes Commission and the Panel

Chair to prescribe a formula and any criteria necessary to qualify

and resolve claims filed under HRS Chapter 674. The working

group planned to eliminate large numbers of claims. The working

group was declared to be unconstitutional in Apa v. Cayetano, Civil

No. 97-4641-11, First Circuit Court, State of Hawaii (Order

Granting in Part and Denying in Part Plaintiffs Motion for Sum-

mary Judgment and for Permanent Injunction filed on April 17,

1998, entered December 30, 1998; Order Granting in Part and

Denying in Part Executive Defendants Motion for Summary

Judgment filed on April 24, 1998, entered December 30, 1998) and

the Panel therefore did not apply the working groups formula and

criteria for compensation.

57. In 1999, the Panel submitted its second report to theHawaii State Legislature. As of December 31, 1998, the Panel had

closed or issued recommendations on 2,050 claims, representing

47% of the total number of claims filed. Report to the Governor

and the 1999 Hawaii Legislature, submitted by The Hawaiian

Home Lands Trust Individual Claims Review Panel at 17 (1999

Report). In the 1999 Report, which covered claims reviewed by

the Panel in 1997 and 1998, the Panel recommended a total of $9.7

million in damages for 346 claims involving 246 claimants.

58. By 1999, the total number of claims submitted by the Panel

to the Legislature was 509: 163 claims submitted to the 1997

Legislature and 346 claims submitted to the 1999 Legislature. The

total amount of damages recommended by the Panel was approxi-

mately $16.4 million ($6.7 million in 1997 and $9.7 million in

1999). The 1999 Legislature took no action on either the 163claims submitted to it in 1997 or the 346 claims submitted to it in

1999.

59. Because more than 53% (2,277 claims) of the 4,327 claims

filed with the Panel were still unresolved at the time of its 1999

Report, the Panel requested the Legislature to further extend the

time necessary to complete review of the remainder of the claims.

The 1999 Legislature passed H.B. 1675, House Draft 1, Senate

Draft 1, Conference Draft 1 (H.B. 1675) which among other

things proposed to extend the deadline to submit a written notice

that the claimant does not accept legislative action on his or her

claim from October 1, 1999 to October 1, 2000 (H.B. 1675, 4).

It also proposed to extend the statute of limitations for filing an

action in circuit court from to December 31, 1999 to December 31,

2000 (H.B. 1675, 5). Finally, it proposed to extend the Panelsexistence and the deadline to submit the final report to the legis-

lature from the 1999 legislature to the 2000 legislature. (H.B. 1675,

2-3).

60. Governor Benjamin Cayetano vetoed H.B. 1675 in April

1999. Because H.B. 1675 was vetoed, the deadline for a claimant

to file written notice rejecting legislative action on the claim is

currently October 1, 1999. The deadline to file a claim in Circuit

Court is December 31, 1999. These deadlines remain in effect even

though no legislative action has been taken on 509 claims on which

the Panel rendered an advisory opinion and even though 2,277

claims have had no advisory opinion rendered by the Panel at all.

61. As of September 30, 1999, the disposition of the 2,752

claimants who timely filed claims with the Panel is as follows:

Number of claimants who settled their claims 31

Number of claimants who timely filed

claims with the Panel for whom the Panel

did not issue Advisory Opinions recom-mending relief and whose claims were not

submitted to the Legislature by the Panel

(including (Plaintiff Kalima) 2,250

Number of claimants who had Advisory

Opinions issued by the Panel recommend-

ing relief which were not reported to the

Legislature for which the Legislature pro-

vided no relief (including Plaintiff Boner) 53

Number of claimants who had Advisory

Opinions issued by the Panel which were

reported to the Legislature for which the

Legislature provided no relief (including

Plaintiff Ching) 418

62. As of September 30, 1999, there are 2,721 claimants who

had no legislative action taken on their claims. The State of

Hawaii has taken the position that these claimants are precluded

from exercising their Chapter 674 right to sue for breaches of trust

because the Legislature failed to act on their claims.

CLASS ALLEGATIONS

63. The Representative Plaintiffs bring this action as a class

action under Hawaii Rules of Civil Procedure 23(a), 23(b)(1),

23(b)(2) and 23(b)(3) on behalf of themselves and all others

similarly situated in Hawaii as members of a proposed plaintiff

class (the Class) which would have three subclasses defined as

follows:a. Subclass 1:

All Hawaii home land trust beneficiaries who timely filed a

claim with the Hawaii Home Lands Trust Individual Claims

Review Panel (Panel) for whom the Panel issued an Advisory

Opinion which was submitted to the Legislature, excluding any

beneficiaries whose claims were either approved by the Legis-

lature or settled.

Subclass 1 consists of at least 418 individuals.

b. Subclass 2:



Review Panel (Panel) for whom the Panel issued an Advisory

Opinion which was not submitted to the Legislature, excludingany beneficiaries whose claims were either approved by the

Legislature or settled.

Subclass 2 consists of at least 53 individuals.

c. Subclass 3:



Review Panel (Panel) for whom the panel did not render an

advisory opinion recommending damages or other relief and for

whom there was no legislative action taken, excluding any


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beneficiaries whose claims were either approved by the Legis-

lature or settled.

Subclass 3 consists of at least 2,250 individuals.

64. Class requirements under HRCP 23(a) are met in that:

a. The class is so numerous that joinder of all members is

impractical. There are 1845 members of the Class consisting of

418 members of Subclass 1, 53 members of Subclass 2 and

2,250 members of Subclass 3.

b. There are questions of law and fact common to the class

as follows:

1. All Class Members timely filed claims with the Panel;

2. All Class Members claims were not dismissed or settled

during Panel consideration;

3. All Class Members have common Chapter 674 procedures

applied to the Panel, Legislative and Judicial consideration

of their claims;

4. The State has contended that none of the class members is

entitled to sue under Chapter 674 for breach of trust

violations;

5. The State has contended that certain claims of the class

members are not compensable, including waiting list

claims; and6. All class members have suffered damage as a result of

Defendants breach of their trust obligations.

c. The claims of the Representative Plaintiffs are typical of

the claims of the Class, because Representative Plaintiffs and all

Class Members were damaged by the same wrongful conduct

committed by Defendants as alleged herein.

d. The Representative Plaintiffs will fairly and adequately

represent the interests of the Class. The interests of Represen-

tative Plaintiffs are coincident with, and not antagonistic to,

those of the Class. In addition, Representative Plaintiffs are

represented by counsel who are experienced and competent in

the prosecution of complex class action litigation.

65. Class requirements under HRCP 23(b)(1) are met for Plain-

tiffs declaratory and injunctive relief (Counts I and II below)because the prosecution of separate actions by individual members

of the class would create the risk of inconsistent or varying

adjudications with respect to individual members of the class

which would establish incompatible standards of conduct on behalf

of the state or adjudications with respect to individuals which

would as a practical matter be dispositive of the interests of the

other members not parties to the adjudications or substantially

impair or impede their ability to protect their interest.

66. Class requirements under HRCP 23(b)(2) are met for Plain-

tiffs declaratory and injunctive relief (Counts I and II below)

because the party opposing the class (Defendants herein) have

acted or refused to act on grounds generally applicable to the class,

thereby making appropriate final injunctive relief or corresponding

declaratory relief with respect to the class as a whole.67. Class requirements under HRCP 23(b)(3) are met for Plain-

tiffs damages claims (Counts III and IV below) because

a. The questions of law and fact common to the members of

the class are important and predominate over any questions

affecting only individual members because Defendants have

acted on grounds generally applicable to the Class:

1. The legal obligations of Defendants;

2. The knowledge and conduct of the Defendants;

3. Damages to Plaintiffs.

Class action treatment is superior to the alternatives, if any, for

the fair and efficient adjudication of the controversy alleged herein.

Such treatment will permit a large number of similarly situated

persons to prosecute their common claims in a single forum

simultaneously, efficiently and without the duplication of effort and

expense that numerous individual actions would engender. There

are no difficulties likely to be encountered in the management of

this class action that would preclude its maintenance as a class

action, and no superior alternative exists for the fair and efficientadjudication of the controversy. Separate cases could produce

varying adjudications with respect to individual members, result-

ing in conflicting and incompatible standards of conduct.

COUNT IDECLARATION AND INJUNCTION FOR

RIGHT TO SUE UNDER HRS CHAPTER 674,

OR ALTERNATIVELY UNDER HRS CHAPTER 673

AND/OR HRS CHAPTER 661

68. Representative Plaintiffs incorporate by reference the alle-

gations of all the paragraphs above.

69. Plaintiffs request declaratory and injunctive relief as fol-

lows:

a. A declaration that Plaintiffs have a right to sue for damagesunder HRS Chapter 674, irrespective of any pre-filing require-

ments therein, because of breaches of trust by Defendants.

b. A declaration that Plaintiffs and others similarly situated

have the right to sue Defendants in Circuit Court under HRS

Chapters 673 and/or 661 for Defendants breach of trust obli-

gations to Plaintiffs and all others similarly situated by delaying

and failing to complete the claims resolution process established

under HRS Chapter 674.

COUNT IIDECLARATION THAT WAITING LIST AND

OTHER CLAIMS ARE COMPENSABLE AND WHICH

DETERMINES THE NATURE AND ELEMENTS

OF COMPENSATION UNDER HRS CHAPTER 674,

HRS CHAPTER 673 AND/OR HRS CHAPTER 66170. Representative Plaintiffs incorporate by reference the alle-

gations of all the paragraphs above.

71. Representative Plaintiffs request a declaration that claims

for Native Hawaiian beneficiaries who had to wait an unreasonable

amount of time are compensable under HRS Chapter 674, HRS

Chapter 673 and/or HRS Chapter 661 as well as other claims to be

determined by the Court.

72. Representative Plaintiffs request a declaration which deter-

mines the nature and elements of compensation allowed under

HRS Chapters 674, 673 and/or 661 for Plaintiffs claims.

COUNT IIIBREACH OF TRUST

73. Representative Plai

Documents

Appendix D Sample Complaints CA02_D