                       In the
United States Court of Appeals
           for the Fifth Circuit

                   _______________

                     m 01-21028
                   _______________

               THERESA O’SULLIVAN,
 FOR HERSELF AND ALL OTHERS SIMILARLY SITUATED; ET AL.


                                     Plaintiffs,

                   JON MAYNARD,
    FOR HIMSELF AND ALL OTHERS SIMILARLY SITUATED;


                HEATHER MAYNARD,

                                     Plaintiffs-Appellees,

                       VERSUS

         COUNTRYWIDE HOME LOANS, INC.,

                                     Defendant-Appellant


****************************************************
                                            m 01-51190
                                          _______________

                                           SERGIO RUIZ,

                                                              Respondent-Appellee,

                                              VERSUS

                              COUNTRYWIDE HOME LOANS, INC.;
                               PEIRSON & PATTERSON, L.L.P.,

                                                              Petitioners-Appellants.



                                   _________________________

                           Appeals from the United States District Court
                                for the Southern District of Texas
                                and the Western District of Texas


                                          February 7, 2003

Before JONES, SMITH, and SILER,*                       the Real Estate Settlement Procedures Act
  Circuit Judges.                                      (“RESPA”), 12 U.S.C. § 2607(a)-(b), and
                                                       violated the Texas Unauthorized Practice of
JERRY E. SMITH, Circuit Judge:                         Law (“UPL”) Statute, TEX. GOV’T CODE
                                                       §§ 83.001-83.006. Because we conclude that
   In these consolidated appeals, each district        both district courts improperly certified the
court certified a class of plaintiffs who paid         classes, we reverse and remand.
mortgage preparation fees to law firms select-
ed by defendant Countrywide Home Loans,                                      I.
Inc. (“Countrywide”), a mortgage broker.                  Countrywide originates and services mort-
Plaintiffs allege that Countrywide accepted            gage loans, offering approximately 250 loan
kickbacks from the law firms in violation of           programs to potential homeowners. Consum-
                                                       ers can obtain a loan either through one of
                                                       Countrywide’s thousands of retail storefront
   *                                                   locations or through a mortgage broker.
     Judge of the United States Court of Appeals
for the Sixth Circuit, sitting by designation.

                                                   2
   Countrywide prepares a set of closing doc-              a computer software system, known as EDGE,
uments for each loan. Consistent with state                containing various legal and non-legal docu-
law, Countrywide uses attorneys to prepare                 ments necessary for the completion of resi-
these documents for its wholesale and retail               dential mortgage transactions. Once a poten-
loan operations.1 Federal law requires Coun-               tial homeowner is approved for a loan, a
trywide to provide a HUD-1 Settlement State-               Countrywide employee enters data concerning
ment (“HUD-1") to borrowers and sellers to                 the transaction into EDGE, including infor-
disclose the various settlement costs, including           mation on the borrower and the property, the
attorney’s fees, that are listed as a “Document            loan amount, and applicable interest rates.
Preparation Fee” on the HUD-1.                             This process takes between two and five
                                                           hours.
   Plaintiffs Jon Maynard (No. 01-21028) and
Sergio Ruiz (No. 01-51190) obtained home                       The EDGE system generates an initial set
mortgage loans from Countrywide. Maynard                   of mortgage closing documents, the quantity
obtained his loan from one of Countrywide’s                of which varies depending on the type of loan.
Texas retail locations; Ruiz transacted with               In the retail division, the documents are print-
Countrywide’s wholesale division through a                 ed by Countrywide employees and faxed to
mortgage broker. At closing, both paid docu-               Gregg & Valby’s offices, where they are re-
ment preparation fees that appeared as a direct            viewed by attorney and non-attorney loan spe-
payment to the law firms on their HUD-1                    cialists. Gregg & Valby prepares a response
statements. Maynard’s HUD-1 reflected a                    sheet for Countrywide indicating any needed
payment of $225 to Gregg & Valby,2 a law                   corrections. Approximately half of the loan
firm serving as the exclusive residential mort-            documents are sent back to Gregg & Valby for
gage document preparer for Countrywide’s                   a second review, and some are sent back ad-
Texas retail division. Ruiz’s HUD-1 showed                 ditional times before final approval.
a payment of $200 to Peirson & Patterson, a
preparer for Countrywide’s wholesale division.                Peirson & Patterson’s employees, on the
                                                           other hand, are located on-site at
                                                           Countrywide’s wholesale division. Although
    Gregg & Valby and Peirson & Patterson                  Countrywide employees still initially enter data
provide legal services to Countrywide through              into the EDGE system, Peirson & Patterson
a time-saving process that permits the process-            employees select and print the mortgage
ing of documents in bulk. Countrywide owns                 forms. Like the retail division, representatives
                                                           of the law firm review the forms for content
   1
                                                           and accuracy. Nevertheless, Peirson &
     Texas law prohibits non-lawyers from directly         Patterson employees make any necessary
or indirectly charging compensation for “all or any        corrections, so there is no shuffling of papers
part of” the preparation of loan documents
                                                           between separate offices.
affecting the transfer of title to real estate. TEX.
GOV’T CODE § 83.001(a).
                                                              A portion of the document preparation fee
   2
     In actuality, Maynard paid $175 of the total          paid to Gregg & Valby and Peirson & Patter-
$225 fee, while the seller paid the remaining $50.         son is reimbursed to Countrywide, which con-
Ruiz paid the entire $200 document preparation             tends this portion of the fee represents its
fee.

                                                       3
share of the costs associated with the                   practice of law.
preparat ion of each set of loan closing
documents. For example, Countrywide lists                   In Maynard, the district court certified a
the use and maintenance of its EDGE system,              class consisting of:
the time spent by its employees inputting and
gathering data, and the costs of telephone                  All persons in Texas who, as part of a
calls, faxes, paper, and photocopying.                      residential real estate loan transaction
                                                            with Countrywide, from January 10,
    The reimbursement amounts are set by                    1996 to the present, were charged a
schedule and vary according to loan type.3 For              “Document Preparation Fee” (or portion
the Maynard’s “Conventional Purchase with                   of a document preparation fee) on their
Deed,” Countrywide was reimbursed $130 out                  HUD-1 Settlement Statement, where
of the $225 paid to Gregg & Valby. Similarly,               Countrywide received a portion of the
$100 of Ruiz’s $200 document preparation fee                document preparation fee, and Gregg &
was reimbursed to Countrywide. The HUD-1                    Valby is listed as the provider of
does not reflect the fee splitting, but rather              document preparation services.
shows only a direct payment of the entire
amount to the respective law firm.                       Similarly, in Ruiz, the district court certified
                                                         the following class:
   Maynard and Ruiz allege that the fee
splitting constitutes a “kickback” or “referral             All persons [since April 1993]: (1) who
fee” in violation of RESPA § 8(a)-(b). 4 In                 obtained loans from Countrywide
addition, plaintiffs sued Countrywide under the             secured by residential real property in
Texas UPL Statute,5 arguing that its                        Texas; and (2) who paid for document
participation in the preparation of loan                    preparation fees and/or attorney’s fees
documents constituted the unauthorized                      charged by Peirson & Patterson as
                                                            reflected by the HUD-1 Settlement
                                                            Statement.
   3
     The Countrywide-Gregg & Valby fee schedule
is set forth in the appendix hereto.                     Over objections that significant loan-to-loan
                                                         variations in the amount and type of work
   4
       RESPA Section 2607(d)(2) requires                 performed require an individual analysis of
defendants to pay treble damages to plaintiffs           each transaction to determine the
charged unearned fees. In total, Maynard seeks           reasonableness of the reimbursed fee, the
approximately $90 million in damages for an              district courts found “the practice itself” of
estimated class of 75,000 borrowers. Ruiz seeks          reimbursing Countrywide for its services
more than $58 million for a class of approximately       satisfied predominance. This court permitted
80,000 borrowers.
                                                         Countrywide to appeal the class certification
   5
     Ruiz also named Peirson & Patterson as a de-        orders pursuant to FED. R. CIV. P. 23(f).
fendant. Because Peirson & Patterson raises es-
sentially the same arguments against certification                            II.
as does Countrywide, our reference to Countrywide           We review the certification of a class for
includes Peirson & Patterson unless otherwise            abuse of discretion. Stirman v. Exxon Corp,
indicated.

                                                     4
280 F.3d 554, 561 (5th Cir. 2002). Because,                 requires that the court inquire how the case
however, a court abuses its discretion when it              will be tried. Castano, 84 F.3d at 744. This
makes an error of law, we apply a de novo                   entails identifying the substantive issues that
standard of review to such errors. Id. The                  will control the outcome, assessing which is-
party seeking certification bears the burden of             sues will predominate, and then determining
demonstrating that the requirements of rule 23              whether the issues are common to the class.
have been met. Allison v. Citgo Petroleum                   Although this inquiry does not resolve the case
Corp., 151 F.3d 402, 408 (5th Cir. 1998).                   on its merits, it requires that the court look
                                                            beyond the pleadings to “understand the
   The district court must conduct a “rigorous              claims, defenses, relevant facts, and applicable
analysis of the Rule 23 prerequisites” before               substantive law.” Id. at 744. Such an
certifying a class. Castano v. Am. Tobacco                  understanding prevents the class from
Co., 84 F.3d 734, 740 (5th Cir. 1996).                      degenerating into a series of individual trials.
Among the four prerequisites of Rule 23(a) is
the requirement that “there are questions of                                     A.
law or fact common to the class.” FED. R.                      RESPA seeks to ensure that real estate
CIV. P. 23(a)(2).6 Before a class may be                    consumers “are provided with greater and
maintained under rule 23(b)(3), a court must                more timely information on the nature and
also determine that “questions of law or fact               costs of the settlement process and are
common to the members of the class                          protected from unnecessarily high settlement
predominate over any questions affecting only               charges caused by certain abusive practices.”
individual members” and that “a class action is             12 U.S.C. § 2601(a). Both classes were
superior to other available methods for the fair            certified under § 2607(a)-(b), which states:
and efficient adjudication of the controversy.”
FED. R. CIV. P. 23(b)(3). The predominance                     (a) No person shall give and no person
and superiority requirements are “far more de-                 shall accept any fee, kickback, or thing
manding” than is rule 23(a)(2)’s commonality                   of value pursuant to any agreement or
requirement. Amchem Prods. v. Windsor, 521                     understanding . . . that business incident
U.S. 591, 624 (1997).                                          to or part of a real estate settlement ser-
                                                               vice . . . shall be referred to any person.
    Determining whether legal issues common
to the class predominate over individual issues                (b) No person shall give and no person
                                                               shall accept any portion, split, or
                                                               percentage of any charge made or
   6
                                                               received for the rendering of a real
      The four rule 23(a) requirements are:                    estate settlement service . . . other than
“(1) numerosity (a class so large that joinder of all
                                                               for services actually performed.
members is impracticable); (2) commonality (ques-
tions of law or fact common to the class);
(3) typicality (named parties’ claims or defenses           12 U.S.C. § 2607(a)-(b).           Despite a
are typical of the class); and (4) adequacy of rep-         prohibition against kickbacks and referral fees,
resentation (representatives will fairly and                RESPA § 8(c) permits “the payment to any
adequately protect the interests of the class).”            person of a bona fide salary or compensation
Mullen v. Treasure Chest Casino, L.L.C., 186                or other payment for goods or facilities
F.3d 620, 623 (5th Cir. 1999).

                                                        5
actually furnished or for services actually               the excess is not for goods or services actually
performed.” 12 U.S.C. § 2607(c)(2).                       performed or provided.”          24 C.F.R. §
                                                          3500.14(g)(2).8 This test was promulgated for
   Both classes were certified after a                    the purpose of assisting courts in ferreting out
determination that rule 23(a)(2)’s commonality            kickbacks disguised as legitimate payments for
requirement is met by the issue of whether                goods and services in complex real estate
Countrywide’s receipt of compensation from                settlement transactions.
Gregg & Valby and Peirson & Patterson
constitutes an illegal kickback or referral fee               In separate policy statements issued in 1999
arrangement. In assessing rule 23(b)(3)                   and 2001, HUD clarified the reasonable
predominance, both courts rejected                        relationship test in the context of lender-broker
Countrywide’s contention that liability should            payments known as yield spread premiums. In
hinge on determinations of whether, in                    its 1999 Policy Statement, HUD expressed the
individual cases, a reasonable relationship               reasonable relationship test from 24 C.F.R. §
exists between the value of the alleged services          3500.14(g)(2) as a two-part inquiry: (1)
provided and payments received by                         “whether goods or facilities were actually
Countrywide.7 Rather, both courts found that              furnished or services were actually performed
plaintiffs could show “the practice itself” bears         for the compensation paid”; and (2) “whether
no reasonable relationship to the value of                the payments are reasonably related to the
Countrywide’s services en toto, while relying             value of the goods or facilities that were
on the fee splitting schedule for any post-               actually furnished or services that were
liability calculation of damages.                         actually performed.”9 HUD expressly limited
                                                          the 1999 Policy Statement to payments
                       1.                                 between lenders and mortgage brokers.10
   Congress authorized the Secretary of HUD
to “prescribe such rules and regulations, to
make such interpretations, and to grant such                 8
                                                               Title 24 C.F.R. § 3500.14(g)(2) states that
reasonable exemptions for classes of                      where a payment does not bear a reasonable rela-
transactions, as may be necessary to achieve              tionship to goods or services provided, this fact
the purposes” of RESPA. 12 U.S.C. §                       “may be used as evidence of a violation of sec-
2617(a). HUD defines the § 8(c) exception in              tion 8.”
terms of a reasonable relationship test, holding
                                                             9
that where “the payment of a thing of value                     Real Estate Settlement Procedures Act
bears no reasonable relationship to the market            Statement of Policy 1999-1 Regarding Lender
value of the goods or services provided, then             Payments to Mortgage Brokers, 64 Fed. Reg.
                                                          10,080, 10,084 (March 1, 1999).
                                                             10
                                                                So far as we can tell, courts have applied
   7
     Countrywide does not question numerosity or          both the 1999 and 2001 Policy Statements
typicality. Although Countrywide argues that Ser-         exclusively in yield spread premium cases. E.g.,
gio Ruiz cannot adequately protect the interests of       Heimmermann v. First Union Mortgage Corp.,
his class pursuant to rule 23(a)(4), we need not          305 F.3d 1257 (11th Cir. 2002); Glover v.
address this argument in light of our conclusion          Standard Fed. Bank, 283 F.3d 953 (8th Cir.
that questions of law or fact do not predominate          2002); Schuetz v. Banc One Mortgage Corp., 292
over questions affecting individual class members.                                            (continued...)

                                                      6
   Yield spread premiums, analogous in some                payment.12 From the 1999 Policy Statement’s
ways to Countrywide’s reimbursement fee, en-               two-part test, Culpepper interpreted the term
able borrowers to finance up-front closing                 “for the compensation paid” as requiring the
costs by paying a higher interest rate on their            defendants to tie the disputed fee to specific
home loan. HUD Policy Statement 1999, at                   goods or services provided by the broker. Id.
10,081. The yield spread premium is a                      at 1329. In doing so, the Culpepper court de-
payment from the lender to the broker, the                 termined that RESPA § 8 class actions could
amount of which reflects the loan’s interest               be certified by looking only to the first prong
rate and consequently the lender’s profits. Id.            of the HUD testSSwhether goods or services
Although yield spread premiums are desirable               were provided for the disputed fee paid.
from a policy standpoint, because they permit
borrowers to finance up-front closing costs,                   HUD disclaimed the Culpepper holding in
they are criticized by some as blatant referral            its 2001 Policy Statement,13 finding class cer-
fees, varying only according to a higher                   tification in yield spread premium cases like
interest rate pushed on the borrower and not               Culpepper inappropriate because “neither Sec-
by the broker’s actual services.11                         tion 8(a) of RESPA nor the 1999 [Policy
                                                           Statement] supports the conclusion that a yield
    Following HUD’s 1999 Policy Statement,                 spread premium can be presumed to be a re-
a few courts certified class actions contesting            ferral fee” simply because the lender does not
yield spread premiums. In Culpepper v. Irwin               have specific knowledge of what services the
Mortgage Corp., 253 F.3d 1324 (11th Cir.                   broker has performed. HUD Policy Statement
2001), cert. denied, 534 U.S. 1118 (2002), for             2001, at 53,055. Instead, as the 2001 Policy
example, the court found that the broker’s                 Statement clarifies, there is no requirement
failure to tie the yield spread premium to spe-            that the lender and broker tie the disputed fee
cific goods or services was sufficient to create           to specific services provided. So long as the
a factual issue as to the overall intent of the            total compensation paid to the broker is
                                                           reasonably related to the total value of the
                                                           goods or services actually provided, there is no



   10                                                         12
    (...continued)                                               Culpepper, 253 F.3d at 1332 (noting an ab-
F.3d 1004 (9th Cir. 2002).                                 sence of evidence showing “that [the lender] ne-
                                                           gotiates yield spread premiums loan-by-loan, rather
   11
      See Schuetz, 292 F.3d at 1015 (“I see the            than paying them according to terms and conditions
phrase ‘yield spread premium’ as an obfuscatory            common to all loans. Nor does [the lender] contend
way of avoiding calling a kickback a kickback.”)           that it intends some yield spread premiums to pay
(Kleinfeld, J., dissenting); Glover, 238 F.3d at 958       for services and others to pay for referrals.”).
(“Some consumers . . . allege that this
                                                              13
compensation system is illegal under RESPA                       Real Estate Settlement Procedures Act
because it fosters the payment of prohibited               Statement of Policy 2001-1: Clarification of State-
referral fees. Others view this practice as an             ment of Policy 1999-1 Regarding Lender Payments
option that fosters home ownership because it              to Mortgage Brokers, and Guidance Concerning
reduces the amount of money required from                  Unearned Fees Under Section 8(b), 66 Fed. Reg.
borrowers up-front and out-of-pocket.”).                   53052 (October 18, 2001).

                                                       7
§ 8 liability.14                                          Countrywide’s compensation is reasonably re-
                                                          lated to the value of those goods or services.
   We defer to 24 C.F.R. § 3500.14(g)(2), as              We do not decide whether the policy
a broad agency rule, insofar as it provides a             statements are entitled to Chevron deference,16
mechanism for detecting kickbacks where the               nor whether, for purposes of the reasonable
§ 8(c) exception is invoked. Where, as here,              relationship test, the proper reference is the
agency regulations are promulgated under ex-              total mortgage transaction or only the
press congressional authority, they are given             reimbursement and services associated with
controlling weight unless they are arbitrary,             Countrywide’s preparation of legal
capricious, or manifestly contrary to the                 documents.17 Either way, both courts abused
statute. Chevron U.S.A., Inc. v. Natural Res.             their discretion in certifying the RESPA
Defense Council, Inc., 467 U.S. 837, 844                  claims.
(1984).15 Given the failure of § 2607(a)-(b) to
provide a workable liability standard, we can-                                  2.
not say that the reasonable relationship test is             Plaintiffs concede Countrywide performed
manifestly contrary to the plain meaning of the           some services in furtherance of document pre-
statute. If anything, RESPA’s stated goal of              paration, but argue that its reimbursements do
eliminating “kickbacks or referral fees that              not represent the reasonable value of those
tend to increase unnecessarily the costs of cer-          services.     We apply HUD’s reasonable
tain settlement services,” 12 U.S.C. § 2601-              relationship test, which holds that any excess
(b)(2), is furthered by the reasonable                    may be used as evidence of a kickback or
relationship test, so we are bound to apply it in         referral fee.
assessing certification.
                                                             Using a rationale similar to that of the Elev-
   In addition, we look to the 1999 and 2001              enth Circuit in certifying a yield spread
Policy Statements insofar as they express the             premium class in Culpepper, both courts found
reasonable relationship test as a two-part in-            certification proper, because they believe
quiry, asking first whether Countrywide                   predominance exists regarding whether “the
provided goods or services in connection with
the particular transaction, and second, whether
                                                             16
                                                                See Krzalic v. Republic Title Co., 2002 U.S.
                                                          App. LEXIS 26744, at *20 (7th Cir. Dec. 26,
   14
      Id. at 53,055. Following HUD’s 2001 Policy          2002) (Easterbrook, J., concurring) (“I am
Statement, the Eleventh Circuit overruled Culpep-         confident that Heimmermann and Schuetz erred in
per in Heimmermann, 305 F.3d at 1263.                     thinking that the Real Estate Settlement
                                                          Procedures Act Statement of Policy 2001-1 is
   15
       See also United States v. Mead Corp., 533          itself conclusive under Chevron, as opposed to
U.S. 218, 226-27 (2001) (“[A]dministrative imple-         informative (and potentially persuasive).”).
mentation of a particular statutory provision qual-
                                                             17
ifies for Chevron deference when it appears that                In its discussion of the issue, however, Coun-
Congress delegated authority to the agency gen-           trywide appears to argue that liability depends on
erally to make rules carrying the force of law, and       finding a reasonable relationship between its
that the agency interpretation claiming deference         reimbursement and the value of its document
was promulgated in the exercise of that author-           preparation services, not its total compensation,
ity.”).                                                   goods, and services.

                                                      8
overall practice” violates RESPA. Plaintiffs               must be performed on a transaction-by-
indeed argue that they have evidence showing               transaction basis, because a single finding of
the reimbursement payments were not tied to                liability based on an unreasonable relationship
the services provided by Countrywide, and                  between goods and services does not
thus violate § 8. Countrywide argues the                   necessitate the conclusion that such
HUD reasonable relationship test requires a                unreasonableness exists on a classwide basis.19
transaction-by-transaction inquiry to assess
whether Countrywide’s reimbursement is
reasonably related to the undisputed services it              In both proposed class actions, there is a
provides in connection with document                       question whether an overall practice or policy
preparation.                                               violates a statute.       But rule 23(b)(3)
                                                           predominance requires a court to ask, in light
   Both courts erred by failing to acknowledge             of how liability is established under the
Countrywide’s use of the § 8(c) exception as               relevant statute, whether common questions
a defense.       Castano, 84 F.3d at 744.                  predominate over individual ones. Because
Consistently with the HUD reasonable                       RESPA § 8 liability is established by making
relationship test, individualized factfinding will         individual comparisons of compensation to
be required for each transaction on the issues             actual services, not by presuming fire where
of what goods or services Gregg & Valby and                there is smoke, we find certification improper.
Peirson & Patterson provided to Countrywide,
and whether the flat fee charged was
reasonably related to their value. Plaintiffs do                                  B.
not attempt to argue that Countrywide                          Both courts also certified classes under the
provided identical goods and servicesSSin type             UPL claim. Texas law forbids nonlawyers
or quantitySSin each transaction.                          such as Countrywide from charging or
                                                           receiving, either directly or indirectly, “any
   The overall intent of the reimbursement                 compensation for all or any part of the
practice, although perhaps satisfying the rule             preparation of a legal instrument affecting title
23(a)(2) commonality requirement as a factual              to real property.” TEX. GOV’T CODE § 83.001.
issue common to all or at least most class                 Plaintiffs contend that Countrywide’s role in
members,18 does not satisfy the more exacting
requirements of predominance. The only way
                                                              19
the overall practice may be proven to violate                    See LaCasse v. Washington Mutual, Inc.,
RESPA, consistently with the HUD liability                 198 F. Supp. 2d 1255, 1264 (W.D. Wash. 2002)
standard, is to examine the reasonableness of              (“Given the possibility that some or all of the de-
payments for goods and services. This inquiry              fendants’ yield spread premiums may have
                                                           constituted an exchange for goods or services, it
                                                           would be impossible to determine liability from
                                                           generalized proof.”); Taylor v. Flagstar Bank,
   18
      See Jenkins v. Raymark Indus., 782 F.2d              F.S.B., 181 F.R.D. 509, 523 (M.D. Ala. 1998)
468, 472 (5th Cir. 1986) (stating that the threshold       (“[N]o matter what Plaintiffs can easily prove
for commonality is not “high,” requiring only that         about the general contours of these transactions,
“resolution of common questions affect all or a            Plaintiffs still cannot prove (by a class method)
substantial number of the class members”) (citation        that none of the yield spread premiums at issue
omitted).                                                  were earned through the provision of services.”).

                                                       9
preparing the loan closing documents violates                firms, not plaintiffs, actually reimbursed the
the UPL statute. As with RESPA, however,                     fee. We disagree. Section 83.001 prohibits
the question of class certification is                       those fees paid either “directly or indirectly”
complicated by the fact that chapter 83 does                 for the preparation of real estate legal
not prohibit “an attorney from paying                        documents. Realizing that Maynard and Ruiz,
secretarial, paralegal, or other ordinary and                as borrowers, ultimately paid all transaction
reasonable expenses necessarily and actually                 fees, the fact that plaintiffs indirectly paid the
incurred by the attorney for the preparation of              disputed fee by first paying a document
legal instruments.” TEX. GOV’T CODE §                        preparation fee to the law firms does not
83.002. These services are not proscribed by                 defeat their right to sue. Countrywide’s
chapter 83, because they do not require the                  narrow interpretation of chapter 83 standing
use of “legal skill or knowledge.”20                         would eviscerate the term “indirectly” from §
                                                             83.001.
   Countrywide initially argues that neither
Maynard nor Ruiz has standing under the Tex-                    Insofar as Countrywide argues that
as UPL statute. As an “inherent prerequisite                 plaintiffs have not suffered a legally cognizable
to the class certification inquiry,” Rivera v.               injury-in-fact because they do not complain
Wyeth-Ayerst Labs., 283 F.3d 315, 319 (5th                   they were charged too high a fee for the
Cir. 2002) (citation omitted), we must                       mortgage documents or that the documents
determine whether plaintiffs have a valid cause              were deficient, they ignore the fact that §§
of action under Texas law and whether they                   83.001 and 83.003 create a right to recoup
have stated an injury-in-fact. Id. The statute               fees paid to nonlawyers who exercise legal
confers a cause of action on “any person who                 skill or knowledge in preparing legal
pays a fee prohibited by [TEX. GOV’T CODE                    documents. Because only those persons who
§ 83.001].” TEX. GOV’T CODE § 83.005.                        pay a fee can sue under § 83.005, the UPL
                                                             statute is distinguishable from those statutes
   Countrywide argues that Maynard and Ruiz                  violating Article III that permit “any person”
cannot sue under § 83.005, because the law                   to bring suit.21

                                                                Initially, rather than pointing to specific acts
   20
      The parties dispute whether liability under §          requiring the use of legal skill or knowledge
83.001 requires the exercise of legal skill or               common to each and every transaction,
knowledge. Given that subchapter G is entitled               Maynard and Ruiz allege that Countrywide’s
“Unauthorized Practice of Law,” and § 81.101 de-             actions “across the board” violate the Texas
fines “practice of law” as “any service requiring
the use of legal skill or knowledge,” it appears that
the Texas legislature sought to prohibit nonlawyers
from exercising legal skill or knowledge in the
                                                                21
preparation of legal documents. This view is                       See Lujan v. Defenders of Wildlife, 504 U.S.
supported by an interpretative opinion issued by             555, 572-74 (1992) (holding that provision in
the Texas Attorney General. See OP. TEX. ATTY.               Endangered Species Act allowing any person to
GEN. JM-943, 1988 WL 406255, at *2 (1988)                    bring a lawsuit to enforce compliance with
(“What is meant in [chapter 83] by the ‘prepar-              procedural requirements could not vest standing in
ation of legal instruments’ must be decided with             plaintiff who had not suffered an injury).
reference to the practice of law.”).

                                                        10
UPL statute.22 As with the RESPA claims,                    Ruiz points to no authority suggesting that
both courts found that individual issues did not            chapter 83 should be construed in light of the
predominate, because it was Countrywide’s                   Texas Disciplinary Rules of Professional
overall practice that violates the UPL statute.             Conduct. Whereas the disciplinary rules apply
The district courts’ reasoning fails to account             only to lawyers, chapter 83 imposes liability on
for Countrywide’s intent to use § 83.002 as a               non-lawyers.25 Given § 83.002's failure to
defense, specifically that its reimbursements               mention rule 5.04 or any authority suggesting
were ordinary and reasonable compensation                   that its terms do not mean what they say, we
for secretarial or clerical assistance.                     will construe the statute according only to its
                                                            plain language, which sets no limitation
   Ruiz takes issue with the overall                        regarding how a lawyer may pay for secretarial
reimbursement scheme by arguing that it                     or clerical assistance.
conflicts with rule 5.04 of the Texas
Disciplinary Rules of Professional Conduct,                    Maynard, while similarly arguing that the
which prohibits lawyers from splitting fees                 overall reimbursement scheme is inconsistent
with nonlawyers.23 Assuming arguendo that                   with the Texas UPL statute, contends that
the reimbursement scheme violates rule 5.04,24              some of Countrywide’s individual practices vi-
                                                            olate chapter 83. For instance, Countrywide
   22
                                                            employees examine and construe previous
        Maynard, for example, states: “The                  mortgage documents in order to select which
important point . . . is that the focus of the issue        one of the more than 250 forms will be used
truly is on the overall ‘program,’ as the district
                                                            for a particular transaction. Without deciding
court correctly noted in its opinion.” Ruiz states
                                                            whether this practice constitutes the
that “the very nature of the arrangement between
Peirson & Patterson and Countrywide is prohibited           unauthorized practice of law, we note that
by Texas law governing the conduct of lawyers.”             Countrywide does not deny that its employees
                                                            are responsible for selecting the proper form in
   23
      Rule 5.04 states that “a lawyer or law firm           each and every transaction.
shall not share or promise to share legal fees with
a non-lawyer.” TEX. DISCIPLINARY R. PROF’L                      Similarly, it is undisputed that Countrywide
CONDUCT 5.04(a), reprinted in Tex. Gov’t Code               employees enter data into EDGE, generate an
Ann., tit. 2, subtit. G app. A (Vernon 1998) (TEX.          initial set of closing documents, fax the
STATE BAR R. art. X, § 9).                                  documents to Gregg & Valby, and enter
                                                            suggested changes in each transaction. A
   24
      Nevertheless, we note our inability to discern        finding that any of these practices, standing
a meaningful distinction between the Countrywide-           alone, requires the use of legal skill or
Peirson & Patterson fee arrangement characterized
by Ruiz as “systematic,” and the salary typically
paid to a secretary at a law firm, which Plaintiffs
                                                               24
concede is permissible under § 83.002. Both fees                 (...continued)
are pre-determined, scaled, and split from a
                                                               25
lawyer's profits. Given that § 83.002 presupposes                  It is also worth noting that the Texas
payments for secretarial or paralegal work, Rule            Disciplinary Rules of Professional Conduct are
5.04 cannot be as constraining as Ruiz would have           promulgated by the Texas Supreme Court, while
us believe.                                                 chapter 83 is a duly enacted statute by the state
                                     (continued...)         legislature.

                                                       11
knowledge is sufficient to confer liability under              damage claims “focus almost entirely on facts
the Texas UPL.26                                               and issues specific to individuals rather than
                                                               the class as a whole,” Allison, 151 F.3d at 419,
   Even though a class is theoretically                        the potential exists that the class action may
certifiable on these issues, we find that an                   “degenerate in practice into multiple lawsuits
apportioned calculation of damagesSSrequired                   separately tried,” Castano, 84 F.3d at 745
by the Texas UPL statuteSSmeans that                           n.19 (citation omitted). In such cases, class
individual issues predominate. Section 83.001                  certification is inappropriate.27
prohibits compensation for “all or any part” of
the preparation of mortgage documents, while                       As we have noted, there are several
Section 83.005 grants “recovery of the fee                     practices common to each transaction that may
paid” to “[a] person who pays a fee prohibited                 or may not require t he use of legal skill or
by [chapter 83].” In deciding whether the                      knowledge. Although the propriety of each
term “fee” should be interpreted as (1) the                    practice can be determined on a classwide ba-
amount charged to Plaintiffs on their HUD-                     sis, the calculation of damages cannot. For ex-
1’s, (2) the amount reimbursed to                              ample, at least one practiceSSdata entrySSis
Countrywide, or (3) the portion of the                         almost surely a secretarial or clerical function
reimbursement actually spent on unauthorized                   within the meaning of the § 83.002
services, we are guided by Section 83.005’s                    exception.28 Countrywide has demonstrated
requirement that a recovered fee be
“prohibited by [chapter 83].” Only the last of
the three possibilities is a fee prohibited in its                27
                                                                      Allison, 151 F.3d at 413 (“[A]s claims for
entirety. Therefore, a plaintiff suing under the
                                                               individually based money damages begin to pre-
Texas UPL statute is entitled to recover only                  dominate, the presumption of cohesiveness
that portion of his total fee used to actually                 decreases while the need for enhanced procedural
finance the unauthorized practice of law.                      safeguards . . . increases.”) (citation omitted);
                                                               Montelongo v. Meese, 803 F.2d 1341, 1351 (5th
   The extent (but not the nature) of                          Cir. 1986) (stating that claims are unsuitable for
Countrywide’s participation in the transactions                class treatment when individual questions, such as
varies, making individualized calculations of                  reliance and damages, predominate over class
damages predo minate. Where the plaintiffs’                    questions”) (emphasis added). But see Bertulli v.
                                                               Indep. Ass’n of Cont’l Pilots, 242 F.3d 290, 298
                                                               (5th Cir. 2001) (“Although calculating damages
   26
      Ruiz cannot make this argument, because                  will require some individualized determinations, it
Peirson & Patterson employees (attorney and non-               appears that virtually every issue prior to damages
attorney), not Countrywide employees, select and               is a common issue.”). Importantly, in Bertulli, the
generate the mortgage forms in the wholesale di-               court recognized the plaintiffs’ claims for
vision.     The only practice performed by                     injunctive relief on top of money damages, noting
Countrywide employees in every wholesale                       that “not all of the relief requires individualized
transaction is data entry, a practice that even Ruiz           determination.” Id.
does not argue is non-secretarial. As for Peirson &
                                                                  28
Patterson’s potential liability for permitting its non-              The 1988 Texas Attorney General Opinion
attorney employees to select and generate forms,               supports our view that data entry likely qualifies as
the analysis is the same as for Countrywide’s retail           secretarial-type work under the § 83.002 exception:
division in Maynard.                                                                                 (continued...)

                                                          12
that the amount of data entry required in each
transaction varies depending on the type of
loan and the number of corrections required by
Gregg & Valby. Under the recovery provision
of the Texas UPL, Countrywide is entitled to
keep the reasonable value of its secretarial or
clerical services even if the other practices
violate Chapter 83. In light of the individual
calculation of damages that is required, the
district court abused its discretion in certifying
the UPL claims.

   The orders certifying the respective classes
are REVERSED, and these matters are
REMANDED for further proceedings.




   28
     (...continued)
“[T ]he mere act of recording a borrower’s
responses to the questions on a standard form prob-
ably does not require legal skill or knowledge and
would therefore not be practicing law . . . .” OP.
TEX. ATTY. GEN. JM-943, 1988 WL 406255, at
*2.

                                                      13
                                             Appendix

LOAN TYPE                     INVOICE                PAYMENT TO             AMOUNT RETAINED
                              AMOUNT                 COUNTRYWIDE            BY GREGG & VALBY

Conventional Purchase           $ 175                     $ 100                     $ 75
Conventional Purchase           $ 225                     $ 130                     $ 95
   with Deed
Conventional Refinance          $ 175                     $ 100                     $ 75
FHA Purchase                    $ 175                     $ -0-                     $ 175
FHA Purchase with Deed          $ 225                     $ 50                      $ 175
FHA Refinance                   $ 150                     $ -0-                     $ 150
VA Purchase                     $ 175                     $ 100                     $ 75
VA Purchase with Deed           $ 225                     $ 130                     $ 95
VA Refinance                    $ 100                     $ -0-                     $ 100
Second Lien                     $ 75                      $ 45                      $ 30
One Time Close                  $ 295                     $ 170                     $ 125

The Countrywide-Peirson & Patterson rate schedule is less complex: The law firm receives a flat rate
of $200 for most loans, of which $100 is reimbursed to Countrywide. For FHA and VA loans only,
Peirson & Patterson receives $150, of which Countrywide is reimbursed $50.




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