Chapter 2

2.1 Complaint

Lenders Pay $125 Million For Their Own Overreaching Conduct

IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SAN FRANCISCO

SUZANNE M. REED AND DONALD D. REED, suing individually, on behalf of the general public and on behalf of all others similarly situated, Plaintiffs, [vs.] BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION; CASE NO. FIRST AMENDED COMPLAINT FOR PRELIMINARY AND PERMANENT INJUNCTIVE, RESTITUTION, DAMAGES AND DECLARATORY RELIEF FOR VIOLATIONS OF BUSINESS & PROFESSIONS CODE 17200, et seq., AND 17500, et seq.; BREACH OF CONTRACT; VIOLATION OF CIVIL CODE 1770; AND UNJUST ENRICHMENT CLASS ACTION Defendants.

Plaintiffs, Suzanne M. Reed and Donald D. Reed (hereafter jointly referred to as "plaintiffs REED"), on behalf of themselves and those they represent, hereby complain against the above-named defendants as follows: PRELIMINARY STATEMENT 1. This class and private attorney general action is intended to halt certain lucrative but unfair practices in by defendant Bank of America National Trust & Savings Association (hereafter referred to as "BANK OF AMERICA"), and to recover sums improperly collected by BANK OF AMERICA. The practices at issue arise out of BANK OF AMERICA's vehicle financing activities and its "force placed" charges to borrowers for insurance purchased by BANK OF AMERICA. Improperly, and without its customers' knowledge, BANK OF AMERICA has collected large sums of money from its customers which were not due. 2. BANK OF AMERICA provides financing for customers who purchase new and used vehicles from car dealers. The form contract signed by the customers to obtain vehicle financing

permits BANK OF AMERICA to purchase comprehensive and collision insurance to protect its security interest, if the customer does not purchase or maintain such insurance. However, BANK OF AMERICA charges customers amounts in excess of their contractual obligations. BANK OF AMERICA misrepresents what the customer is being billed for, the customer's obligation to pay for those coverages, the premium charges associated therewith and its entitlement to finance charges. In order to maximize its returns, BANK OF AMERICA "force places" its insurance charges and finance charges for excessive periods of time and with pre-payment penalties, with the result that customers who subsequently obtain other insurance receive refunds that are far less than a pro-rated amount. 3. Absent judicial intervention, BANK OF AMERICA will continue its unlawful practices and will refuse to remedy its past violations. On behalf of themselves, all others similarly situated and the general public, plaintiffs REED seek an order requiring BANK OF AMERICA to make full and complete restitution to all customers victimized by these practices, a preliminary and permanent injunction to prevent BANK OF AMERICA from continuing to engage in these unlawful practices, a declaration of rights, and damages. PARTIES 4. Plaintiffs REED are individuals over 18 years of age residing in the City of Richmond, in Contra Costa County. 5. Defendant BANK OF AMERICA is a bank engaged in the business, among other things, of financing vehicles bought by the public throughout the State of California, including in the County of Alameda. 6. Defendants Does 1 through 20 are persons or entities whose true names and identities are presently unknown to plaintiffs and who, therefore, are sued by such fictitious names. Each of these fictitiously named defendants is responsible in some manner for the matters alleged herein and are jointly and severally liable to plaintiffs. Plaintiffs will seek leave of this Court to amend the Complaint to state the true names and capacities of Does 1 through 20 when the same have been ascertained.

CLASS ACTION AND PRIVATE ATTORNEY GENERAL ALLEGATIONS 7. Plaintiffs REED are suing in their individual capacity, on behalf of all persons similarly situated, and on behalf of the general public as defined in the Business and Professions Code 17204. Such a representative action is necessary to prevent and remedy the unlawful and unfair practices alleged herein. 8. Pursuant to California Code of Civil Procedure 382, the class of all other persons similarly situated is composed of all California persons from whom BANK OF AMERICA collected or sought to collect force placed charges (including related service or finance charges) for insurance during the four years prior to the filing of this action. 9. Members of the class referred to above who are similarly situated are readily ascertainable but are so numerous that joinder is impractical. There is a well-defined community of interest in the questions of law and fact involved, affecting the parties to be represented in that each such party has been injured by, and has an interest in litigating the legality of, the practices of BANK OF AMERICA alleged herein. Proof of a common or single stated fact or set of facts will establish the right of each member of the class to recover. 10. Plaintiffs REED's claims are typical of those of the class they represent, and they will fairly and adequately represent the interests of the class. 11. There is no plain, speedy, or adequate remedy other than by maintenance of this representative action because damage to each member of the class is relatively small, making it economically infeasible for class members to pursue remedies individually. The prosecution of separate actions by the individual class members, even if possible, would create a risk o f

inconsistent or varying adjudications with respect to individual class members against the defendant, and which would establish incompatible standards of conduct for the defendant. GENERAL ALLEGATIONS 12. On or about April 9, 1988, plaintiffs REED purchased a vehicle on credit from an automobile dealership and executed a standard form financing contract (this contract and all similar contracts are referred to herein collectively as the "Form Agreement"). Shortly thereafter, the

automobile dealership assigned its interest in the REED's Form Agreement to BANK OF AMERICA which thereby succeeded to all rights and obligations arising under it. A true and correct copy of the Form Agreement is attached hereto as Exhibit A. 13. The Form Agreement contains a provision requiring maintenance of comprehensive and collision insurance coverage. BANK OF AMERICA may procure such insurance in the event a customer fails to do so. 14. On information and belief, in August 1989, BANK OF AMERICA purchased insurance coverage for the vehicle owned by plaintiffs REED, from Progressive Specialty Insurance Company ("Progressive"), backdating the effective date of the coverage to January 1989. 15. In August 1989, BANK OF AMERICA informed plaintiff Suzanne Reed that it had purchased "insurance coverage", and that it was charging plaintiff Suzanne Reed $4,256.00, purportedly under authority of the Form Agreement. BANK OF I AMERICA demanded that plaintiff Suzanne Reed pay this sum ($4,256.00) within fifteen days, or BANK OF AMERICA would add that charge, plus an additional $1,801.58 in finance charges, for a total of $6,057.58, to her account balance. BANK OF AMERICA subsequently imposed this entire amount as a charge on plaintiffs REED's account. The addition of this charge increased the monthly payment charged by BANK OF AMERICA to plaintiffs REED to 150% of its prior level. 16. On information and belief, a substantial portion of the charges imposed by BANK OF AMERICA on plaintiffs REED's account as described above were improper, unfair and illegal. On information and belief, the amount set forth by BANK OF AMERICA as due from plaintiffs REED pursuant to the Form Agreement was far in excess of the actual amount attributable to comprehensive and collision insurance. Instead, on information and belief, the amount assessed to plaintiffs REED's account by BANK OF AMERICA included numerous components and charges which it was not entitled to collect from plaintiffs REED. BANK OF AMERICA misrepresented to plaintiff Suzanne Reed that she was contractually obligated to pay all such amounts under the Form Agreement, and failed to disclose to her or to plaintiff Donald Reed the true state of affairs. 17. On information and belief, the practices described above vis a vis plaintiffs REED are

part of a past and ongoing course of conduct by BANK OF AMERICA, and are consistent with its business practices related to all customers similarly situated to plaintiffs REED, as more particularly alleged below. 18. Over the past four years, BANK OF AMERICA has negotiated with and entered into master collateral protection insurance ("CPI") policies with insurers, naming itself as insured, including a master policy with Progressive. Under these policies, the insurers agreed to provide CPI, including comprehensive and collision coverage, to BANK OF AMERICA for any vehicles on which BANK OF AMERICA wished to "force place" insurance. On information and belief, these policies offered additional or optional insurance coverages and benefits to BANK OF AMERICA, beyond collision and comprehensive insurance, some or all of which BANK OF AMERICA elected to take for its own benefit. The policies and other arrangements with the insurers also provide for payments to BANK OF AMERICA -- payments which are never disclosed to customers. 19. Beginning at a date and time unknown to plaintiffs, but at least since May 1988, BANK OF AMERICA has billed the entire cost for all of the coverages and benefits purchased by BANK OF AMERICA, to its customers. In doing so, it has not advised such customers of the coverages benefiting BANK OF AMERICA or the premium charges associated therewith. BANK OF AMERICA has also charged customers for the cost of insurance for the entire remaining term of the financing contract, rather than on a monthly, bi-annual or annual basis, and included a pre-payment penalty. BANK OF AMERICA has not provided customers subjected to forced placements with copies of the CPI master policies. on information and belief, BANK OF AMERICA has received benefits under the terms of its arrangements with the insurers which it never disclosed or passed on to customers. As a result of these actions, BANK OF AMERICA has received payments to which it was not entitled and which it should not be permitted to retain. 20. On information and belief, since at least May 1988, BANK OF AMERICA has engaged in and will continue to engage in some or all of the following unfair, unlawful and/or fraudulent activities and practices when customers fail to purchase or maintain collision and comprehensive insurance coverage:

(a)

BANK OF AMERICA charges and attempts to collect from customers amounts in excess of the true cost of the insurance coverages for which the customer is contractually obligated to pay;

(b)

BANK OF AMERICA collects commissions, rebates, and/or "expense reimbursements" but charges the customers as if no such monies were received;

(c)

BANK OF AMERICA charges customers for BANK OF AMERICA's insurance coverage extending over the entire duration of the vehicle loan period (up to five years) instead of premiums for periods of time similar to standard automobile insurance on a monthly, semi-annual, or even an annual basis. Many customers are not in a position to pay the entire amount assessed in a lump sum, and hence BANK OF AMERICA succeeds in force placing a new loan and assesses finance charges thereon. Moreover, BANK OF AMERICA includes a pre-payment penalty in such loans, so as to render cancellation by customers who subsequently obtain other insurance more advantageous to it;

(d)

BANK OF AMERICA places finance charges on customers' accounts which it is not entitled to assess;

(e)

BANK OF AMERICA misrepresents the nature of the charges which the customer is being billed for, the customer's obligation to pay those charges, and the premium charges associated therewith;

(f)

BANK OF AMERICA obtains payments and other benefits from insurance transactions which it does not disclose or provide to its customers;

(g)

BANK OF AMERICA fails to provide its customers with copies of the insurance policies it buys for itself and does not fully inform customers of the terms of such policies; and

(h)

For those customers who protest or fail to pay those charges including finance charges thereon, BANK OF AMERICA assesses them late charges, reports them to credit reporting agencies and threatens to and does in fact repossess their vehicles.

21. Plaintiffs REED have incurred and will continue to incur attorneys' fees and costs in prosecuting this action and are entitled to an award of such amounts against BANK OF AMERICA for the following reasons: (a) A successful outcome in this action will result in the enforcement of important rights affecting the public interest by maintaining the integrity of institutions that finance the purchase of vehicles in this state; (b) This action will result in a significant benefit by causing the return of monies paid by class members to BANK OF AMERICA for its charges and finance charges which monies should not have been charged or collected by BANK OF AMERICA, together with interest on those monies; (c) Unless this action is prosecuted, class members will not recover those monies, and many class members would not be aware that they were damaged by BANK OF AMERICA's wrongful practices; and (d) Unless the attorneys' fees and costs which have been and which will continue to be incurred are awarded against BANK OF AMERICA, the class will not recover the full measure of its damages. FIRST CAUSE OF ACTION (Business And Professions Code 17200, et seq.) 22. Plaintiffs incorporate by reference paragraphs 1 through 21, as though set forth in full herein and further allege as follows. 23. Beginning at an exact date unknown to plaintiffs, but since at least May 1988, BANK OF AMERICA and Does 1 through 20 have committed acts of unfair competition, proscribed by Business and Professions Code 17200, et seq., including the practices referred to above. 24. The unlawful, unfair and fraudulent business practices of BANK OF AMERICA described herein present a continuing threat to members of the public in that BANK OF AMERICA and the Does persist and continue to engage in these practices, and on information and belief will not cease doing so unless and until an injunction is issued by this Court. 25. As a direct result of the aforementioned acts, plaintiffs are informed and believe that

BANK OF AMERICA received and continues to collect and to hold (a) excess revenues from charges to its customers purportedly for reimbursement of its cost of comprehensive and collision insurance, (b) revenues derived from finance charges and improper finance charges, and from pre-payment penalties, (c) other revenues received as a result of its unfair practices, and (d) revenues from repossessing cars based wholly or in part on failures to pay insurance-related charges. BANK OF AMERICA has failed to refund any of these revenues to its customers. These revenues properly belong to the members of the public who have made the payments referred to and they are entitled to and should receive restitution of all such amounts. WHEREFORE, plaintiffs pray for relief as set forth hereinafter. SECOND CAUSE OF ACTION (Business And Professions Code 17500, et seq.) 26. Plaintiffs incorporate by reference paragraphs 1 through 21 as though set forth in full herein and further allege as follows. 27. Beginning at an exact date unknown to plaintiffs, but since at least May 1988, BANK OF AMERICA and Does 1 through 20 have committed acts of untrue and misleading advertising, as defined by Business and Professions Code 17500, et seq., by engaging in the acts and practices referred to above with intent to induce members of the public to enter into revenue-producing transactions with it. 28. The acts of untrue and misleading advertising by BANK OF AMERICA and Does 1 through 20 described above present a continuing threat to members of the public in that BANK OF AMERICA and the Does are continuing to engage in these practices, and on information and belief will not cease doing so unless and until an injunction is issued by this Court. 29. As a direct result of the aforementioned acts, plaintiff are informed and believe that BANK OF AMERICA received and continues to collect and to hold (a) excess revenues from charges to its customers purportedly for reimbursement of its cost of comprehensive and collision insurance, (b) revenues derived from finance charges and improper finance charges, and from pre-payment penalties, (c) other revenues received as a result of its unfair practices, and (d) revenues from repossessing cars based wholly or in part on failures to pay insurance-related charges. BANK

OF AMERICA has failed to refund any of these revenues to its customers. These revenues properly belong to the members of the public who have made the payments referred to and they are entitled to and should receive restitution of all such amounts. WHEREFORE, plaintiffs pray for relief as set forth hereinafter. THIRD CAUSE OF ACTION (Breach Of Contract) 30. Plaintiffs incorporate by reference paragraphs 1 through 21 as though set forth in full herein and further allege as follows. 31. The Form Agreement attached hereto as Exhibit A, and all similar Form Agreements, contain an express provision relating to insurance, granting BANK OF AMERICA limited authority to charge customers for comprehensive and collision insurance. Beginning at an exact date unknown to plaintiffs, but since at least May 1988, BANK OF AMERICA has breached this provision through the acts alleged herein. 32. The Form Agreement attached hereto as Exhibit A, and all similar Form Agreements, contain an implied covenant that BANK OF AMERICA will act in good faith and deal fairly with its customers in the performance of rights and obligations under the contract. This covenant requires BANK OF AMERICA to act reasonably and in good faith in purchasing insurance covering the vehicles of its customers and in charging its customers for that insurance. BANK OF AMERICA has breached the implied covenant through the acts alleged herein. 33. As a consequence of BANK OF AMERICA's breach of the implied and express terms of the Form Agreement, plaintiffs and the members of the class they represent have sustained damages in an amount to be proven at trial. WHEREFORE, plaintiffs pray for relief as set forth hereinafter. FOURTH CAUSE OF ACTION (Civil Code 1770) 34. Plaintiffs incorporate by reference paragraphs 1 through 21 hereof as though set forth in full herein and further allege as follows. 35. At all relevant times, plaintiffs REED were consumers, as that term is defined in Civil

code 1761(d), and entered into the above-mentioned transactions with BANK OF AMERICA while acting in that capacity. 36. Since at least May, 1989, BANK OF AMERICA, acting in concert with Does 1 through 20, has violated Civil Code 1770(i), 1770(n), 1770(p), and 1770(s) through the acts alleged herein, thereby entitling plaintiffs REED and each member of the class, to relief under Civil Code 1780. 37. More than 30 days prior to filing this Complaint, plaintiffs REED served on BANK OF AMERICA their written notice of BANK OF AMERICA's violations of Civil Code 1770(i), 1770(n), 1770(p), and 1770(s) and their demand that such violations be corrected. The notice and demand was made in accordance with the requirements of Civil Code 1782. BANK OF AMERICA failed to correct, or to arrange for the correction of, those violations within 30 days of its receipt of that notice and that demand. 38. As a direct and proximate result of BANK OF AMERICA's violations of Civil Code 1770, plaintiffs REED and each member of the class they represents have suffered damages in an amount subject to proof at trial, and are entitled to recover those damages pursuant to Civil Code 1780. 39. On information and belief, in committing the above-mentioned violations of Civil Code 1770(i), 1770(n), 1770(p), and 1770(s), BANK OF AMERICA acted with fraud, malice, and oppression as those terms are defined in Civil Code 3294. plaintiffs REED and the class are therefore entitled to recover punitive damages from BANK OF AMERICA in an amount sufficient to make an example of BANK OF AMERICA and to deter such conduct in the future. 40. Plaintiffs REED and the class are entitled to an award of attorneys' fees and costs against BANK OF AMERICA and Does 1 through 20 pursuant to the provisions of Civil Code 1780(d). WHEREFORE, plaintiffs pray for relief as set forth hereinafter. FIFTH CAUSE OF ACTION (Unjust Enrichment) 41. Plaintiffs incorporate by reference paragraphs 1 through 21 as though set forth in full herein and further allege as follows. 42. BANK OF AMERICA has been unjustly enriched at the expense of and to the detriment

of plaintiffs REED, and each member of the class they represent, by collecting monies to which it is not entitled. Plaintiffs REED and each member of the class are therefore entitled to recover from BANK OF AMERICA, as unjust enrichment damages, all monies he or she paid for "insurance premiums," service and finance charges, any benefits received by BANK OF AMERICA as a result of "insurance" procured for customers, and related late payment charges, plus interest thereon from the time of payment. WHEREFORE, plaintiffs pray for relief as set forth hereinafter. SIXTH CAUSE OF ACTION (Declaratory Relief) 43. Plaintiffs incorporate by reference paragraphs 1 through 21 as though set forth in full herein and further alleges as follows. 44. An actual controversy has arisen between plaintiffs REED and the members of the class they represent, on the one hand, and BANK OF AMERICA and Does 1 through 20, on the other hand, as to their respective rights and obligations under the Form Agreements entered into by plaintiffs REED and the class members, and to which BANK OF AMERICA subsequently became bound, and as to their rights and duties under the Rees-Levering Motor Vehicle Sales and Finance Act, Civil Code 2981, et seq. Specifically, plaintiffs REED and the class they represent contend that the activities of BANK OF AMERICA and Does 1 through 20 alleged above are not authorized by the contract between the parties and/or are precluded by statute, and, on information and belief, BANK OF AMERICA and Does 1 through 20 contend to the contrary. 45. Plaintiffs seek a declaration as to the respective rights and obligations of the parties under the Form Agreement and Civil Code 2981, et seq. WHEREFORE, plaintiffs pray for relief as set forth hereinafter. RELIEF DEMANDED Plaintiffs pray for relief as follows: (a) For a preliminary and permanent injunction enjoining BANK OF AMERICA from engaging in the acts of unfair competition and untrue and misleading advertising alleged above, and compelling BANK OF AMERICA to disgorge and restore to the public all funds acquired by the

means of any act or practice found by this Court to be unlawful, or fraudulent, or to constitute unfair competition; (b) For restitution to plaintiffs REED, and to each member of the general public, of all monies collected by BANK OF AMERICA from its Customers for insurance premiums for finance charges on such premiums, together With all undisclosed benefits received by BANK OF AMERICA, PlUS interest thereon from the date of the payment; (c) For compensatory damages for plaintiffs REED and each member of the class they represent in an amount to be proven at trial; (d) For unjust enrichment damages in the amount of all monies paid by plaintiffs REED and each member of the class they represent, for monies paid to BANK OF AMERICA for any excess charges relating to insurance premiums BANK OF AMERICA bought for itself, related finance charges and late charges, and all undisclosed benefits received by BANK OF AMERICA, together with interest thereon from the date of payment; (e) For exemplary damages in an amount to be proven at trial; (f) For a declaration of the respective rights and (g) For attorneys' fees; (h) For costs of suit; and (i) For such other and further relief as the Court deems just and proper. Respectfully submitted, Attorneys for Plaintiffs Dated: obligations of the parties;

2.2

Memorandum In Support of Class Certification

IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SAN FRANCISCO

SUZANNE M. REED AND DONALD D. REED, suing individually, on behalf of the general public and on behalf of all others similarly situated,

Plaintiffs, [vs.] BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION; CASE NO. PLAINTIFFS' MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR CLASS CERTIFICATION Defendants.

I. INTRODUCTION This case involves an effort to recover millions of dollars in unlawful charges which defendant Bank of America NT&SA ("Bank") has imposed on thousands of its borrowers in this state. Plaintiffs also seek an injunction permanently halting the Bank's unlawful activity and preventing it from collecting and retaining these charges. Plaintiffs and the class members they represent entered into standard form finance and security agreements ("Form Agreements") for the purchase of vehicles financed by the Bank.1 The Form Agreements require maintenance of comprehensive and collision insurance on financed vehicles. In the event a borrower does not maintain his or her own insurance, the Form Agreements allow the Bank to purchase collision and comprehensive coverage for the vehicle, and charge the borrower for the actual cost of that coverage. Under California law, the Bank has an obligation to strictly comply with the terms of the Form Agreements and adhere to the highest standards of good faith and fair dealing in exercising its powers over class members. It completely failed to do so in force placing its charges for insurance on class members' accounts. Unlawfully, unfairly and in violation of the Form Agreements, the Bank (1) charged class members for coverages in excess of the required comprehensive and collision Some borrowers obtain the financing directly from the Bank. Others initially obtain the financing through auto dealerships, who then assign the loans to the Bank. The insurance requirement is identical under either method.
1

insurance; (2) charged class members amounts as "insurance premiums" which had actually been funnelled back to the Bank by its insurance carrier; and (3) imposed unlawful finance charges on class members attributable to the excess charges and premium kickbacks. To date, the Bank

has succeeded in concealing from class members the practices challenged in this action. Unless the class is certified and notice provided, most class members will remain unaware of how the Bank has taken advantage of them and consequently unable to seek individual redress. Class certification will permit class members to seek recovery of the millions of dollars of ill-gotten gains and an injunction to prevent the unlawful practices from recurring.2 II. STATEMENT OF THE CASE A. The Statutory And Contractual Framework The Form Agreements signed by class members contain boilerplate insurance provisions. See, e.g., Pls. Exhs. 5; 10; and 11 [not reprinted infra]. Throughout the relevant period, the Bank consistently and uniformly applied the language of these insurance provisions to require comprehensive and collision (i.e., physical damage) coverage on financed vehicles. Pls. Exhs. 23 at RD001124; 26 at 900539-541; 51 at 906207 and 906212; 52 at 906236A and 906237A; 53 at 906256. Collision and comprehensive coverage is the only insurance the Bank ever claimed or represented that borrowers were obligated to maintain under the insurance clauses of the Form Agreements.3 The Rees-Levering Act permits automobile finance companies to enforce such provisions by procuring "the insurance" which borrowers are "obligated" to maintain under their financing agreements, charging borrowers for the amounts actually "advanced" for that insurance and assessing borrowers finance charges on the amounts "advanced." Civil Code 2982.8(a), 2982.8(b),

Although the merits of plaintiffs' claims are not in issue at this stage (Eisen v. Carlyle and Jacquelin (1974) 417 U.S. 156, 177), the Court must be presented with sufficient articulation of the class allegations to rule on the certifiability of those claims. Therefore, we present a summary of the relevant facts. The Bank defined acceptable coverage as collision and comprehensive coverage with a $500 deductible, and with the Bank named as a lienholder or loss payee. Pls. Exhs. 21 at RD002855; 23 at RD001124.
3

2982.8(e). The statute does not, however, give the Bank or any other finance company unfettered discretion to procure any insurance it chooses or to charge customers any amount it deems appropriate. Instead, the Act narrowly circumscribes the range of lawful activity by restricting it to the purchase of and assessment of charges for only the insurance which the customer is contractually "obligated" to "maintain." Ibid. Furthermore, lenders may lawfully charge customers premiums and finance charges only for the amounts actually paid to an insurance carrier for the contractually required insurance. Ibid. Thus, under the terms of the Form Agreements and the statute, the Bank was only entitled to procure the comprehensive and collision insurance coverages which it contemporaneously recognized that the Form Agreements required. The Bank consistently and systematically engaged in a pattern of practices which far exceeded the scope of its authority in numerous respects.4 B. The Bank Secretly Charged Class Members Insurance Premiums And Finance Charges Which They Were Not Obligated To Pay The Bank contracted with subsidiaries of Progressive Casualty5 to provide "collateral protection insurance" ("CPI")6 for the Bank pursuant to the terms of "Participation Agreements". Pls. Exhs. 12, 13, 14, 16, 17, 34. When the Bank concluded that a borrower did not have acceptable private collision and comprehensive coverage, a CPI policy was issued at the Bank's direction covering that borrower's vehicle and naming the Bank as the insured. Pls. Exhs. 12 at RD001906 (at IV, A); 34 at 901664; 48 at 906137; 50 at 906172. The borrower was then charged for the The Bank's actions constitute violations of Business and Professions Code 17200, et seq. and 17500, et seq., and the Consumers Legal Remedies Act, Civil Code 1750, et seq., as well as the express terms of the Form Agreements. In addition, the Bank breached the covenant of good faith and fair dealing implied in the contracts. It is well-settled that "where a contract confers on one party a discretionary power affecting the rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing." Kendall v. Ernest Pestana, Inc. (1985) 40 Cal.3d 488, 500, quoting Cal. Lettuce Growers v. Union Sugar Co. (1955) 45 Cal.2d 474, 484; Lazar v. Hertz (1983) 143 Cal.App.3d 128, 141. Both subsidiaries, Progressive Specialty Insurance and Progressive Northwestern Insurance, use a single set of personnel and offices. Pls. Exh. 63 at 11:3-12:2. All the Progressive entities are referred to as "Progressive". This insurance is also sometimes referred to as Lender's Collateral Protection ("LCP") insurance.
6 5 4

amounts purportedly paid as premiums by the Bank for the collision and comprehensive coverage and given the option of paying the entire charge at once or accepting a force-placed "insurance loan" together with additional finance charges. Pls. Exh. 8. In view of the magnitude of these charges, virtually all class members were forced to "accept" the insurance loans.7 Unbeknownst to class members, the Bank did not obtain only the contractually-envisioned collision and comprehensive insurance. Instead, it also purchased, and charged class members for, numerous other insurance coverages provided by Progressive pursuant to the Participation Agreements.8 These coverages included various forms of credit insurance for things such as mechanics liens, repossession expenses, storage and towing expenses; a "worldwide coverage" endorsement; an endorsement for waiver of actual cash value; an uncollected premium refund endorsement; and a "zero deductible" provision applicable only to the Bank's claims, not to customers' claims. Although these excess coverages directly benefited the Bank and significantly increased the premium charges,9 the Bank nonetheless passed all of the costs onto class members. For example, class representatives Pauline and Jeffery Reed were billed $4,256.00 in premiums for the collateral protection insurance forced placed on them, with finance charges of another $1,801.58. Pls. Exh. 9. (Part of this total ($765.24) was later credited back to the Reed's account by Progressive as a Proposition 103 rollback. Pls. Exh. 65.) A total of over $100 million in net premiums have been written since the inception of the Bank's collateral protection insurance program in January 1987. Pls. Exhs. 27; 28; 29 at 901798. Approximately 93% of these premiums were charged to borrowers with auto loans. Pls. Exh. 54 at 905762. One of the reasons the insurance premiums were so high is that, through most of the relevant period, the Bank force placed insurance for the term of the borrower's loan. Pls. Exhs. 63 at 281:6-23; 43 at 905233. Thus, instead of being asked to pay premiums for insurance on an annual or semi-annual basis, the borrower was confronted with an assessment of premiums for up to five years of insurance coverage. For example, the CPI force placed on the class representatives had a policy period of 52 months. Pls. Exh. 8 at 000009. Although placing insurance for the term of the loan allowed the Bank to earn additional finance charges, it made it impossible for economically pressed class members to pay the insurance premiums in a lump sum. Pls. Exhs. 18 at RD000551; 32 at 900744; 19 at RD000277 ($658,000 annual interest on premiums). The Bank had the option of choosing which of the various coverages and endorsements it wanted Progressive to provide under the Participation Agreements. None were required. Pls. Exhs. 63 at 22:17-25; 64 at 109:10-110:17. For example, the "Excess Charges" endorsement covering liens and charges in the event of repossession added a 10% surcharge to the base premium rate; the worldwide coverage endorsement added a surcharge of at least an additional 10%; the uncollected premium refund endorsement resulted in another 10% surcharge; and the special settlement endorsement added yet another 10%. Pls. Exhs. 15 at RD000622-24; 20; 30; 32 at 900805-06; 45 at 500231-32; 46
9 8 7

Pls. Exh. 64 at 111:22-112:15. Furthermore, through much of the relevant period the charges to class members were also artificially inflated as a result of various kickbacks paid to the Bank by Progressive under certain contracts entered into between them. Pls. Exhs. 14 at RD001937; 17 at RD002822-23. These agreements provided for payments of part of the "premiums" back to the Bank. Since the Bank charged class members the total nominal premium amount, rather than the actual net premium cost to the Bank, class members were paying for the kickback arrangements. Over $2 million in premium charges were funnelled back to the Bank as so-called "expense reimbursements" or "cost of funds reimbursements" from 1987 to 1990. Id.; see also, Pls. Exhs. 63 at 355:23-356:26, 357:11-358:22; Exhs. 35-40. The Bank fully understood that these "reimbursements" increased the cost of the premiums to class members. Pls. Exhs. 64. at 72:5-10. The charges to the class members were also increased due to the fact that for many years the premiums were increased to a level sufficient to cover the cost to the Bank of the computerized tracking system used to monitor its loan portfolio. Pls. Exhs. 63 at 40:17-26; 64 at 72:11-24, 123:16-26, 167:2-8; 24 at 900027-28. When the Bank, aware of the legal problems with charging such costs to borrowers, eventually started paying for them in December 1991, the charges amounted to almost $2 million per year. Pls. Exhs. 44; 64 at 73:3-6. At all times, the Bank imposed finance charges on class members calculated as if all the premium charges had been paid to an insurance carrier for the contractually required comprehensive and collision insurance. In fact, the premiums billed to class members included charges for the additional insurance coverages and the amounts of the premium kickbacks received by the Bank. Pls. Exh. 63 at 100:6-100:12; 64 at 111:22-112:15. As a result, the finance charges were in excess of and at a rate different from the lawful finance charges. C. The Bank Concealed The Unlawful Premium at 500179-180; 47 at 500079-80. The Bank's special zero deductible arrangement also increased the premium cost. Pls. Exhs. 25 at 902242; 63 at 55:23-56:6; 56:16-57:6; 45 at 500231; 46 at 500181; 47 at 500081.

And Finance Charges From Class Members In order to accomplish its profit-making objective, the Bank repeatedly and systematically misrepresented and concealed the material facts relating to the excess coverages, the premium kickbacks, and the unlawful finance charges throughout the class period. The Bank sent correspondence10 to customers facing force placements, representing that insurance would be purchased by the Bank unless the borrower provided the private insurance required by their security agreements, and included with each letter a "Notice of Insurance Requirements" describing the required insurance as "comprehensive and collision" coverage. Pls. Exhs. 51 at 906209-212; 52 at 906237A-238; 53 at 906256-259; 63 at 413:18-414:6, 436:5-437:9. There was nothing in the letters indicating that anything other than the required comprehensive and collision insurance would be purchased by the Bank. At the time of the forced placement, the Bank represented that it had purchased insurance because the customers had not provided "physical damage insurance," and provided customers with a copy of a "policy" or "notice" showing only such coverages. Pls. Exhs. 8 at 000009; 9 at 000013 and 000161; 49 at 906167; 50 at 906177. At no time did the Bank provide class members with copies of the endorsements describing the excess coverages or the provisions of the agreements between the Bank and Progressive. Nor did it ever inform class members of the terms of these documents. In fact, if a borrower called the insurance company and asked for a copy of his or her "policy", all he or she was sent was a copy of the "Borrower's Notice of Insurance"--a document that does not mention any of the endorsements or provisions included in the CPI policy beyond physical damage coverage. Indeed, as far as Progressive's corporate representative (the individual in charge of the Bank of America LCP program since its inception and designated by Progressive to speak for it at deposition) is aware, the company had never sent out a copy of the entire policy to a customer. Pls. Exhs. 63 at 339:2-5, 98:19-100:12, 286:10-287:4, 337:3-21, 427:15-25, 429:17-24; 26 at 900601-603; 49 at 906167-170; 50 at 906177-180. While some of the notices and correspondence sent out to class members letters were drafted by the Bank and some by Progressive, the contents of all were reviewed and ultimately authorized by the Bank. Pls. Exh. 63 at 139:25-140:7; 415:16-17, 417:20-418:20.
10

III. THIS CASE SATISFIES ALL OF THE REQUIREMENTS FOR CLASS CERTIFICATION In order to maintain a class action under Code of Civil Procedure 382, a plaintiff must establish the existence of an ascertainable class and a well-defined community of interest. Richmond v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 470. The community of interest requirement, in turn, encompasses three factors "(1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class." Ibid. The class must also be so numerous that joinder of the individual members is impracticable. Finally, a class action must be the superior means for adjudicating the claims. Collins v. Rocha (1972) 7 Cal.3d 232, 238. In applying these requirements, the California courts have consistently recognized that the class action procedure serves important public policy purposes and should be invoked where necessary to protect the rights of consumers. The class action device was "adopted to prevent a failure of justice." Daar v. Yellow Cab (1967) 67 Cal.2d 695, 703-04. Accordingly, trial courts should define classes in such a manner as to "permit utilization of the class action procedure." Richmond v. Dart Industries, Inc., supra, 29 Cal.3d at 474. As our Supreme Court explained in Keating v. Superior Court (1982) 31 Cal.3d 584, 609 (partially revs'd on other grounds (1983) 465 U.S. 1): This court has repeatedly emphasized the importance of the class action device for vindicating rights asserted by large groups of persons. We have observed that the class suit "both eliminates the possibility of repetitious litigation and provides small claimants with a method of obtaining redress for claims which would otherwise be too small to warrant individual litigation." Denial of a class action in cases where it is appropriate may have the effect of allowing an unscrupulous wrongdoer to "retain the benefits of its wrongful conduct." Consumer actions against institutional lenders based on a common course of conduct and involving standardized, form agreements present "ideal cases for class adjudication." See, La Sala v. American Savings & Loan (1971) 5 Cal.3d 864, 877 (class of California borrowers who were attacking the validity of "due on sale" clauses in American Savings' preprinted deed of trust forms); McGhee v. Bank of America (1976) 60 Cal.App.3d 442 (class action by secured borrowers to require payment

of interest on impound accounts); Bell v. American Title Insurance Co. (1991) 226 Cal.App.3d 1589 (class action against title companies to recover improper charges for trustee sale guaranties imposed on defaulting borrowers). A. The Class Is Ascertainable And So Numerous That Joinder Would Be Impracticable The ascertainability requirement is easily satisfied in this case. A class is ascertainable if the complaint alleges a defined group of persons with a community of interest. Lazar v. Hertz Corp, supra, 143 Cal.App.3d at 138 (class consisting of "persons who rented automobiles from Hertz in California during the class period and returned them without refilling the tank and consequently suffered the refueling charge" found to be ascertainable). The individual class members need not be identifiable prior to judgment. Daar v. Yellow Cab, supra, 67 Cal.2d at 706 (permitting class action on behalf of unidentified customers of a taxicab company to recover fare overcharges). The class of individuals represented by plaintiffs is well-defined and ascertainable. Pls. Exh. 63 at 215:21-24, 216:4-217:5, 219:20-9. The class is also so numerous that joinder of the thousands of class members would be impracticable without the use of the class action device. See, Richmond v. Dart Industries, Inc., supra, 29 Cal.3d at 478 (joinder of 2,600 absent class members would be impracticable). While the actual number of class numbers has not been discovered yet, documents have been obtained through discovery in which it is reported that 187,562 CPI policies were issued by Progressive between January 1988 and July 1992. Pls. Exhs. 27; 28. Even if half of these policies were cancelled completely after issuance, that means over 93,000 effective policies were issued to Bank borrowers. B. Common Questions Of Law And Fact Predominate The standard for finding commonality of interest among putative class members is that common questions of law or fact be "sufficiently pervasive" to warrant class treatment. Richmond v. Dart Industries, Inc., supra, 29 Cal.3d at 477-78. In this case, common questions of both law and fact predominate. All class members were victimized by the Bank in the same manner through a pattern of practices which were unlawful, unfair and in violation of the Form Agreements. The Bank

charged all class members for insurance coverages in excess of the contractually required comprehensive and collision insurance. It also consistently billed class members the amounts of premium kickbacks which it received from Progressive. Finally, the Bank assessed all class members finance charges on the excess insurance coverages and the premium kickbacks. The fact that each class member was involved in a separate transaction does not mean that individual questions predominate over questions common to all class members. See, Vasquez v. Superior Court (1971) 4 Cal.3d 800, 809. As contracts of adhesion, the Form Agreements at issue here are particularly appropriate for class-wide adjudication. As the California Supreme Court has observed: Controversies involving widely used contracts of adhesion present ideal cases for class adjudication; the contracts are uniform, the same principles of interpretation apply to each contract, and all members of the class will share a common interest in the interpretation of an agreement to which each is a party. La Sala v. American Sav. & Loan Assn., supra, 5 Cal.3d at 877; McGhee v. Bank of America, supra, 60 Cal.App.3d at 449.11 Common issues also predominate with respect to the Bank's concealment of the additional coverages and premium kickbacks from class members. The contents of the individual notices, letters and policies sent to borrowers do not raise any individual issues which must be decided in this case. C. The Claims Of The Representative Plaintiffs Are Typical Of Those Of The Class The class representatives' claims must be typical, although not necessarily identical, to the claims of class members. This means that they should be "similarly situated" to members of the class with respect to the defendant and the claims made. Classen v. Weller (1983) 145 Cal.App.3d 27, 46. In this case the class representatives entered into Form Agreements, were subsequently subjected to forced placements of insurance, and were charged for excess coverages, premium The Bank cannot avoid class certification by claiming that individualized determinations of damages might be necessary. MacManus v. A.E. Realty Partners (1987) 195 Cal.App.3d 1106, 1117.
11

kickbacks and improper finance charges. The claims of the representative plaintiffs are exactly the same as those of all the class members. Lazar v. Hertz, supra, 143 Cal.App.3d at 142 [plaintiff who signed the rental agreement, returned an unfilled car and paid a refueling charge raised claims typical of class challenging refueling service charge]; see also, Daar v. Yellow Cab, supra, 67 Cal.2d at 712. D. The Representative Plaintiffs Adequately Represent The Class The standard for adequacy of representation is met when the interests of the class representatives are not antagonistic to nor in conflict with those of the class as a whole and it appears that the representative plaintiffs and their counsel will vigorously prosecute the action. Richmond v. Dart Industries, supra, 29 Cal.3d at 470, 478; Lazar v. Hertz, supra, 143 Cal.App.3d at 142. Both of these requirements are satisfied in this case. There exists no actual or potential conflicts of interest or antagonism between the representative plaintiffs and the class members. They share a mutual interest in obtaining liability and damages rulings against the Bank. See, Richmond v. Dart Industries, supra, 29 Cal.3d 471-76. Moreover, plaintiffs are represented by experienced class counsel who have competently and vigorously prosecuted this suit. Chavez Decl., 1-7. There is no question that plaintiffs are able and willing to continue to fairly and adequately represent the interests of the entire class. Decls. of Suzanne M. Reed and Donald D. Reed. E. The Class Action Device Is Superior In This Case Utilization of the class action device is the superior means for adjudicating plaintiffs' claims in this case. The cost of litigating individual claims would be far greater than the potential recovery of any of the individual class members. In such circumstances, the courts have recognized the benefit of aggregating claims into a single lawsuit to save time, reduce waste and limit duplication of effort. Lazar v. Hertz, supra, 143 Cal.App.3d at 143. The alternative of multiple litigation would not sufficiently protect consumers' rights because it "pre-suppose[s] a group of economically powerful parties who are obviously able and willing to take care of their own interests individually through individual suits or individual decisions about joinder or intervention." Vasquez v. Superior Court, supra, 4 Cal.3d at 808 (quoting Dolgow v. Anderson, (E.D.N.Y. 1968) 43 F.R.D. 472, 484).

Where, as here, the defendant has concealed the true nature of its activities from class members it is not realistic to consider the unlikely prospect of individual suits as a meaningful alternative to class certification. IV. CONCLUSION For the foregoing reasons, plaintiffs' motion for class certification should be granted.

Respectfully submitted, Attorneys for Plaintiff Dated:

2.3

Motion for Order Approving Notice to Class and Allocating Cost of Notice to Defendants
IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SAN FRANCISCO

SUZANNE M. REED AND DONALD D. REED, suing individually, on behalf of the general public and on behalf of all others similarly situated, Plaintiffs, [vs.]

BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION; CASE NO.

Defendants.

MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFFS' MOTION FOR ORDER APPROVING NOTICE TO THE CLASS AND ALLOCATING COST OF NOTICE TO BANK OF AMERICA CLASS ACTION

FILED UNDER SEAL PURSUANT TO PROTECTIVE ORDER ENTERED OCTOBER 16, 1992

I. INTRODUCTION This is a class action to recover millions of dollars in overcharges imposed by defendant Bank of America NT&SA ("Bank") on its customers. The motion for class certification is currently set to be heard August 2, 1993. In order to assure sufficient time for notice to class members prior to trial, which is scheduled for November 1, 1993, and in light of the 60 days notice required under the local rules, plaintiffs make this motion for an order approving notice to the class and initially allocating the cost of notice to the Bank. As explained below, mail notice would be unlikely to reach all of the class and would be inadequate in this case. Consequently, plaintiffs propose that class notice be provided by: (1) mailing notice in the form of Exhibit A to those individuals whose addresses can be ascertained from the Bank's records; (2) publishing Exhibit A once in the major California newspapers, and in newspapers of general circulation across the state pursuant to Government Code 6064;12 and (3) requiring the Bank to display the Exhibit B notice in a prominent place at all branch offices in California and to distribute copies of Exhibit A to requesting customers. Under the circumstances of this case, the costs of class notice should be allocated to the Bank. In order to complete the class notice and opt out procedures sufficiently in advance of trial, plaintiffs propose that the class notice be provided during September and early October and that the class members be given until October 20, 1993 to postmark requests for exclusion from the class. First class mailing of the notice should be completed by September 14, 1993, with publication in the major newspapers taking place on that date also. Display of Exhibit B and distribution of Exhibit A should take place from September 10, 1993 through October 10, 1993, as should publication in More specifically, plaintiffs propose Exhibit A should be published once in the front page sections of the major California newspapers (The Los Angeles Times, The San Jose Mercury News, The Oakland Tribune, The San Francisco Chronicle, The San Diego Union, The Sacramento Bee, The Fresno Bee, and The San Bernardino Sun) and for four weeks in newspapers of general circulation in every county in California in which the Bank does business.
12

the newspapers of general circulation. II. STATEMENT OF FACTS This class action is brought on behalf of certain customers of the Bank who purchased vehicles throughout California and financed the purchase price through the Bank.13 Class members entered into standard form finance and security agreements ("Form Agreements") for the purchase of vehicles financed by the Bank. As the Bank uniformly and consistently recognized, these Form Agreements require maintenance of comprehensive and collision insurance on financed vehicles. In the event a borrower fails to maintain this insurance, the Form Agreements allow the Bank to purchase and "force place" such insurance on the customer's vehicle. The Bank has always acknowledged that the language of these insurance provisions requires comprehensive and collision (i.e., physical damage) insurance on financed vehicles. The

Rees-Levering Act permits automobile finance companies to enforce such provisions by procuring "the insurance" which borrowers are "obligated" to "maintain" under their Form Agreements. Civil Code 2982.8(a), (b), and (e). Thus, under the terms of the Form Agreements, and under the terms of the Rees-Levering Act, the Bank was only entitled to procure the comprehensive and collision insurance coverages which it contemporaneously recognized that the Form Agreements required. The Bank consistently and systematically engaged in a pattern of practices which far exceeded its rights in numerous respects. The Bank utilized its superior position to take advantage of class members by force placing and imposing thousands of dollars in charges on them for what is known as collateral protection insurance ("CPI"). The Bank contracted with subsidiaries of Progressive Casualty14 to provide CPI for the Bank pursuant to the terms of "Participation Agreements". When the Bank concluded that a borrower did A more detailed description of the facts is set forth in Plaintiffs' Memorandum of Points and Authorities In Support of Motion For Class Certification, 2-10 (filed June 3, 1993). The evidence supporting these facts is set forth in Exhibits 1-65, filed in support of that motion. [not reprinted infra] Both subsidiaries, Progressive Specialty Insurance and Progressive Northwestern Insurance, use a single set of personnel and offices. All the Progressive entities are referred to as "Progressive".
14 13

not have acceptable private collision and comprehensive coverage, a CPI policy was issued at the Bank's direction covering that borrower's vehicle and naming the Bank as the insured. The borrower was then charged for the amounts purportedly paid as premiums by the Bank for the collision and comprehensive coverage and given the option of paying the entire charge at once or accepting a force-placed "insurance loan" together with additional finance charges. In view of the magnitude of these charges, virtually all class members were forced to "accept" the insurance loans.15 Unbeknownst to class members, the Bank did not obtain only the contractually-envisioned collision and comprehensive insurance, but instead, purchased and charged class members for, numerous other insurance coverages provided by Progressive pursuant to the Participation Agreements. Although these excess coverages directly benefited the Bank and significantly increased the premium charges, the Bank nonetheless passed all of the costs onto class members. Furthermore, through much of the relevant period the charges to class members were also artificially inflated as a result of various kickbacks paid to the Bank by Progressive under certain contracts entered into between them, which provided for payments of part of the "premiums" back to the Bank. Since the Bank charged class members the total nominal premium amount, rather than the actual net premium cost to the Bank, class members were paying for the kickback arrangements. The Bank fully understood that these payments increased the cost of the premiums to class members.

The charges to the class members were also increased due to the fact that for many years the premiums were increased to a level sufficient to cover the cost to the Bank of the computerized tracking system used to monitor its loan portfolio. When the Bank, aware of the legal problems with

One of the reasons the insurance premiums were so high is that, through most of the relevant period, the Bank force placed insurance for the term of the borrower's loan. Thus, instead of being asked to pay premiums for insurance on an annual or semi-annual basis, the borrower was confronted with an assessment of premiums for up to five years of insurance coverage. A total of over $100 million in net premiums have been written since the inception of the Bank's collateral protection insurance program in January 1987, 93% of which premiums were charged to borrowers with auto loans. Placing insurance for the term of the loan allowed the Bank to earn additional finance charges. The Bank earned as much as $658,000 per year in interest on the CPI premiums.

15

charging such costs to borrowers, eventually started paying for them in December 1991, the charges amounted to almost $2 million per year. At all times, the Bank imposed finance charges on class members calculated as if all the premium charges had been paid to an insurance carrier for the contractually required comprehensive and collision insurance. In fact, the premiums billed to class members included charges for the additional insurance coverages and the amounts of the premium kickbacks received by the Bank. As a result, the finance charges were in excess of and at a rate different from the lawful finance charges. In order to accomplish its profit-making objective, the Bank repeatedly and systematically misrepresented and concealed the material facts relating to the excess coverages, the premium kickbacks, and the unlawful finance charges throughout the class period. III. ARGUMENT A. Notice To The Class Should Be Provided In This Case It is appropriate to provide class notice in this case in order to assure that any judgment in the Bank's favor at trial will be res judicata as to all class members and that the requirements of due process are satisfied. Cartt v. Superior Court (1975) 50 Cal.App.3d 960, 968-969. B. Class Notice Should Include Mailing And Publication Of Exhibit A, As Well As Display Of Exhibit B And Distribution Of Exhibit A In Branch Offices Mailing notice to class members at their last known addresses is appropriate. The United States Supreme Court has held that, where the names and addresses of individual class members are identifiable through reasonable effort, notice by individual mailing is required by Rule 23 of the Federal Rules of Civil Procedure. Eisen v. Carlisle & Jacquelin (1974) 417 U.S. 156, 175.16 See also, Cartt v. Superior Court (1975) 50 Cal.App.3d 960, 972-73. Here, the names and addresses of individual class members can be obtained from the Bank's own records, or those of its agent,

See, La Sala v. American Savings & Loan Ass'n (1971) 5 Cal.3d 864, 872 [California courts look to federal class action procedures set forth in Federal Rule 23 to the extent state rules not otherwise discernable]. Copies of federal cases cited herein are provided for the convenience of the Court in the Appendix of Federal Cases. [not reprinted infra]

16

Progressive.17 However, here, as in Cartt, supra, the mere mailing of notice, without more, would be insufficient because some substantial portion of the class (possibly as high as 30%) would not be reached. Cartt, at 964-65. "The principle purpose of notice to the class is the protection of the integrity of the class action process, one of the functions of which is to prevent burdening the courts with multiple claims . . . . [] However, the notice ordered must be consistent with the broad California concept of consumer class actions" recognized in Vasquez v. Superior Court (1971) 4 Cal.3d 800, 808. Cartt, at 970. The problem will be particularly acute for members of the class who paid off their loans years ago. Such customers have not had an on-going relationship with the Bank for some time, and they have had no reason to inform the Bank of changes in address. Because the class includes individuals who finished making payments as long as five years ago, the problem of ascertaining current addresses is a substantial one. Separate Statement at 2. Under the circumstances, additional steps should be taken to ensure that adequate notice is provided to the class. Notice by publication is authorized by Civil Code 1781; see also, Cartt v. Superior Court, supra. The Cartt court stressed that the publication must be "meaningful" and have a reasonable chance of reaching all class members, not merely readers of legal notices. 50 Cal.App.3d at 974. Plaintiffs' proposed publication fits these standards, and should improve the effectiveness of notice to the class.18 In addition to publication, the display of Exhibit B and distribution of Exhibit A in Bank branch offices affords a very reasonable, affordable and appropriate means of enhancing the effectiveness of class notice. Customers will take note of Exhibit B and, if interested in further details, request a copy of Exhibit A. This will ensure that the class notice receives distribution to

See, Plaintiff's Separate Statement Required Under Local Rule 427, ("Separate Statement") at 1-2. [not reprinted infra] It is estimated that the cost of providing notice to the class members via First Class mail would be approximately $.3925 per notice. Id. at 2. The cost of the publication as proposed by plaintiff would be approximately $77,000. Separate Statement at 3.
18

17

interested parties and will further the purposes of providing notice to the class. The posting of notice in the Bank's branches is reasonably targeted to reach class members. A common characteristic of all class members is that they had an account with the Bank. It is reasonable to expect that additional class members are likely to be reached through the proposed posting in Bank branches. All of the large banks rely on and attempt to foster repeat business, and to cross-sell their various services and accounts. Factors such as the Bank's reputation, the large number of different services it provides, and the heavily promoted nature of its business suggest that the Bank does a high volume of repeat business. The distribution of the notice at the Bank's branches will not hamper the Bank's business. The language contained in Exhibits A and B is neutral and non-accusatory. Exhibit A summarizes the claims asserted on behalf of the class, but specifically notes that the Bank denies all wrongdoing.19 The courts have repeatedly held that a class action defendant may be required to display a class notice in its place of business or at other locations under its influence or control in order to reach class members, frequently in addition to mailing notices and/or publishing them. See, e.g., In re Domestic Air Transportation Antitrust Litigation (N.D.Ga. 1992) 1991-2 Trade Cases (CCH) 69,679 at 67,077, 67,089-91 [court ordered class notice which included posting notice in defendants' ticket offices, publication in each defendant's in-flight magazine, and sending notice to 36,000 travel agencies for posting, finding that such notice does not offend defendants' First Amendment rights]; Hartman v. Wick (D.D.C. 1988) 678 F.Supp. 312, 330-31 [court ordered posting of notice in defendant's personnel offices, and circulation among employees and job applicants, as well as publication in a wide variety of print media sources]; Reed v. Health and Human Services (1985) 774 F.2d 1270, 1276-77 [where defendants' computer records would not reveal substantial number of class members, court approved notice by mail to those who could be reached, publication for four weeks in major newspapers in state, plus posting in all of defendants'

The cost of the posting would be fairly minimal, ranging from $150 to $200 per branch. Separate Statement at 4.

19

local offices], rev'd on other grounds (1987) 481 U.S. 368; Luevano v. Campbell (D.D.C. 1981) 93 F.R.D. 68, 76-77, 85 [court found method of providing class notice of proposed consent decree, which included posting notice at regional personnel offices and local job information centers, met due process standards]; Guthrie v. Evans (S.D.Ga. 1981) 93 F.R.D. 390, 394 [court ordered notice of settlement posted in all Georgia prison system housing units]; In re Arizona Dairy Products Litigation (D.Az. 1975) 1975-2 Trade Cases (CCH) 60,555 at 60,441-42 [court approved printing of abbreviated form of class notice on defendant's milk cartons]. Hartman v. Wick, supra, was an employment discrimination class action brought against a United States agency. In ruling that notice should be posted at government employment offices, the District Court noted that "the evidence suggests that applicants for the jobs at issue in this suit may continue to apply for government employment . . . ." 678 F.Supp. at 330. Similarly, an individual who has one account with a bank, e.g., a car loan, may continue to use that bank, for another loan or a savings or checking account. This "goodwill" should be used to effectuate the goal of providing notice to as many class members as reasonably possible by utilizing the type of posting suggested herein. C. The Bank Should Be Ordered To Initially Pay For The Cost Of Providing Notice To Class Members Under California law, it is well-settled that the defendant in a class action suit may be required to initially bear the expense of class notice. Civil Service Employees Ins. Co. v. Superior Court (1978) 22 Cal.3d 362, 376.20 In the Consumers Legal Remedies Act, the California Legislature explicitly authorized trial courts to allocate the cost of class notice to class action defendants. Civil Code 1781(d). Our Supreme Court has held that the provisions of the Consumers Legal Remedies Act, including those relating to notice cost allocation, should be utilized in all class actions in this state. Vasquez v. Superior Court, 4 Cal.3d at 820. As the Supreme Court explained in upholding the imposition of notice costs on a class action defendant:

California law and federal law differ on this point. Id. Therefore, federal case law is not relevant.

20

In California, in contrast to the federal realm, the Legislature has specifically authorized trial courts in class actions to impose the cost of notice upon either the plaintiff or the defendant. *** [W]e expressly held in Vasquez v. Superior Court, supra, 4 Cal.3d 800, 820, that the class action procedures prescribed by the Consumer Legal Remedies Act could and should appropriately be utilized by trial courts in all class actions. Numerous decisions since Vasquez have confirmed the applicability of the act's procedures in class actions which do not strictly fall within the aegis of the act. Moreover, in enumerating the various provisions of the Consumer Legal Remedies Act by which trial courts should be guided, we specifically identified in Vasquez section 1781, subdivision (d), and its authorization of the imposition of notice costs on either party in a class action. (4 Cal.3d at p. 820). Thus, under Vasquez, California trial courts clearly possess general authority to impose notice costs on either party, plaintiff or defendant, in a class action. Civil Service Employees Ins. Co., 22 Cal.3d at 376 (footnotes and citations omitted). The Civil Service court emphasized that the statutory authorization to allocate notice costs to defendants serves the important public policy purposes of class actions. It allows the court to protect and preserve the integrity of the class action procedure: Protection of unwary customers from being duped by unscrupulous sellers is an exigency of the utmost priority in contemporary society . . . . A class action by consumers produces several salutary byproducts, including a therapeutic effect upon those sellers who indulge in fraudulent practices, aid to legitimate business enterprises by curtailing illegitimate competition, and avoidance to the judicial process of the burden of multiple litigation involving identical claims. A class action procedure authorizing a trial court to impose notice costs upon a defendant in a particular case serves the same general public policies. In the absence of such a cost-shifting procedure . . . a defendant who may have improperly inflicted a small financial loss upon a great number of people could succeed in defeating a class action suit without regard to the strength of the plaintiff's claim. Id. at 377-378 (citations omitted). Similarly, in Cartt, 50 Cal.App.3d at 971-72, Justice Kaus, after pointing out the extremely favorable treatment the Supreme Court has given to consumer class actions, explained: More specifically, our cases have indicated that class actions should be permitted to proceed, where the economic realities involved in giving "adequate" notice, compared to the small individual losses of class members, would effectively negate any class action. In view of the important public policies furthered by class actions and the judicial recognition that notice costs should be allocated in the manner required to allow legitimate consumer class actions to proceed, the Bank should be required to initially bear the cost of class notice in this case.

The evidence before the Court demonstrates that the Bank overcharged tens of thousands of its customers for insurance without any contractual or statutory right to do so, and without disclosure of the true facts to its customers.21 In addition, the Bank received kickbacks in the form of "reimbursements" paid by Progressive. Id. As a result of its unlawful activities, the Bank overcharged class members by many millions of dollars. The annual interest earned by the Bank on these overcharges vastly exceeds the costs of class notice. In fact, it is likely that the Bank's ill-gotten gains for a single month would be greater than the cost of the proposed class notice. The primary purpose and effect of providing class notice at this stage of the proceedings is to assure the Bank that any judgment in its favor will be res judicata as to all class members. Cartt, 50 Cal.App.3d at 968-969; Cooper v. American Savings and Loan Association (1976) 55 Cal.App.3d 274. Although class notice also serves the interests of class members and the Court, the principal beneficiary of any class notice is the defendant. This is because adequate notice ensures that the judgment is binding on those class members who do not opt out and eliminates the possibility that the defendant will be subjected to "one-way intervention." As the court succinctly stated in Home Savings and Loan Association v. Superior Court (1974) 42 Cal.App.3d 1006, 1011: The critical reason for notification of members of the class on whose behalf a class action has been brought is that notification makes possible a binding adjudication and an enforceable judgment with respect to the rights of the members of the class. Absent such notification no member of the class need be bound by the result of the litigation. The mailing and publication, along with the display and distribution requested by plaintiffs, will best ensure that the Bank receives the benefit of res judicata. Cartt, 50 Cal.App.3d at 974. The Bank should be required to initially bear the expense of obtaining this benefit. [I]n the absence of such a cost shifting procedure, the class action mechanism might frequently be completely frustrated since the representative plaintiff, whose individual claim will ordinarily be relatively small, may often be unable to afford the initial cost of notifying all absent members of the pendency of the action. See, Declaration of Anne M. Ronan In Support Of Plaintiffs' Motion For Class Certification, and Plaintiffs' Exhibits In Support Of Motion For Class Certification (both filed June 3, 1993). [not reprinted infra]
21

Civil Service Employees Ins. Co., 22 Cal.3d at 377. Nor is there any merit to the contention that allocating the costs of notice to a class action defendant forces it to finance a lawsuit against itself. The California Supreme Court has explicitly rejected this notion: Indeed, class action costs are quite analogous to discovery costs, for much of the expense typically identified with the cost of notice relates to the identification of class members from defendants' records, and defendants have frequently been required to provide such identification under traditional discovery procedures. Id. at 378, fn.9. In short, there is nothing unusual or unfair in requiring the Bank to bear this cost of litigation. IV. CONCLUSION For the foregoing reasons, the Court should grant plaintiffs' motion. Respectfully submitted, Attorneys for Plaintiff

Dated:

2.4

Memorandum in Support of Certifying Class, Approving Settlement, Providing Notice to Class

IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SAN FRANCISCO

SUZANNE M. REED AND DONALD D. REED, suing individually, on behalf of the general public and on behalf of all others similarly situated, Plaintiffs, [vs.]

BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION; CASE NO.

Defendants.

MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION FOR AN ORDER CERTIFYING A CLASS, PRELIMINARILY APPROVING SETTLEMENT AGREEMENT, PROVIDING NOTICE TO THE CLASS AND SCHEDULING THE FINAL APPROVAL HEARING CLASS ACTION

I. INTRODUCTION After extensive discovery and negotiations, the parties to this consumer class action have reached a settlement of the case providing for the establishment of a $9.05 million common fund and the entry of a permanent injunction. As in any class action, the settlement agreement is subject initially to preliminary approval and then to final approval by the Court after notice to the class and a hearing. As explained below, the settlement negotiated by the parties is fair, reasonable, provides substantial benefits to the class and should be preliminarily approved by the Court in all respects. The parties also request that the Court certify a class pursuant to the Settlement Agreement, order notice to the class and schedule a further hearing to decide whether the settlement should be finally approved. II. STATEMENT OF THE CASE This case involves a challenge to the practices of the Bank of America National Trust & Savings Association ("the Bank") in "force placing" and charging customers for collateral protection insurance ("CPI"). The complaint in this action was filed on May 28, 1992. It states causes of action for violations of Business and Professions Code 17200 and 17500, for breach of contract, for violations of the Consumers Legal Remedies Act, for declaratory relief and for unjust enrichment damages. The class described in the complaint and stipulated to by the Bank consists of certain automobile loan customers of the Bank. The terms of the loan agreements signed by these customers allowed the Bank to purchase and charge customers for comprehensive and collision insurance in the event the customers failed to purchase or maintain such insurance. The complaint alleges that

the Bank acted unfairly, unlawfully, and in violation of the loan agreements in force placing and charging customers premiums for what is known as collateral protection insurance ("CPI"). More specifically, plaintiffs contend that the Bank charged class members for insurance coverages which they were not obligated to pay for, charged them amounts as insurance premiums which were actually paid to the Bank by insurance carriers, and improperly assessed class members finance charges on the additional insurance coverages and payments to the Bank. Throughout the case, the Bank has vigorously resisted all the plaintiffs' claims and has denied any wrongdoing or liability. The Bank contends that it lawfully purchased and charged class members for CPI, that any payments made to the Bank were lawfully and appropriately paid, that the Bank properly assessed class members finance charges on CPI premiums and that class members are legally obligated to pay all amounts assessed. As the files and records in this case demonstrate,

this case has been diligently and aggressively litigated since its inception. The factual record has been developed through extensive discovery and investigation. Plaintiffs have obtained, reviewed and analyzed thousands of pages of documents, conducted depositions of the Bank and its insurance carrier, and initiated and participated in substantial written discovery. Depositions were also taken of the individually named plaintiffs. As a result, the parties entered settlement negotiations with sufficient information to evaluate the merits of the case, the relative strengths and weaknesses of their positions, and the risks of continued litigation. The parties' efforts to negotiate settlement began in June 1993 and were finalized in September. They included the exchange of additional information beyond that provided through formal discovery. A settlement in the case was eventually achieved as a result of settlement conferences conducted by the Honorable Thomas M. Jenkins (a retired judge of the Santa Clara Superior Court) and direct negotiations between the parties. These negotiations have resulted in a settlement agreement which plaintiffs believe is fair, reasonable and in the best interests of the class. It is the product of hard bargaining and compromises by both sides. The magnitude of the $9.05 million common fund and the scope of the permanent injunction alone demonstrate that the settlement will produce substantial benefits and that it constitutes a significant accomplishment for

the class. III. THE TERMS OF THE SETTLEMENT In order to resolve the claims of the class to the extent provided in the settlement agreement, the Bank has agreed to the certification of a class for purpose of settlement. The class is defined as all California persons who purchased vehicles financed by the Bank and who paid or were charged any amount of insurance premiums or finance charges as a result of CPI placed between May 28, 1987 and June 30, 1993 under Participation Agreements between the Bank and Progressive, and whose policies have not been fully cancelled and who do not make a timely request for exclusion, but excluding the Representative Plaintiffs. See Settlement Agreement, attached as Exhibit A to the Declaration of Mark A. Chavez filed herewith, at 1.15 [not reprinted infra]. As set forth in detail in the papers filed with this Court on June 3, 1993 in support of Plaintiffs' Motion For Class Certification, the class described above has a well-defined community of interests in that there are common questions of law and fact among its members, class representatives with claims typical of the class, and class representatives who adequately represent the class. A proposed order certifying a settlement class and appointing the law firm of Farrow, Bramson, Chavez & Baskin as class counsel is attached to the settlement agreement as Exhibit A and also filed separately herewith [not reprinted infra]. The parties request that this order be entered at the hearing on this motion. Under the settlement agreement, the Bank will establish a common fund for the class in the amount of $9.05 million. The common fund will consist of $3.313 million in cash and $5.737 million in credits against payments owed by class members. Interest will accrue at the rate of 2.57% on the cash portion of the common fund. The Bank has also agreed to reimburse the two Representative Plaintiffs in the total amount of $5,300 of the sums they paid to the Bank. The payments to class members will be credited and distributed in accordance with the formulas set forth in section 3 of the settlement agreement. After attorneys' fees and costs, in an amount to be approved by the Court, are awarded, the remainder of the cash portion of the common fund will be distributed to class members who have fully paid the amounts assessed for CPI as of

the end of October 1993. If a check is returned, the Bank will take steps to locate a new address for the class member and re-send the check. The credit payments to class members who still owe amounts for CPI as of the end of October will be applied to their outstanding loan balances as if they were payments made in cash by class members on the distribution date. If, due to payments received by the Bank after October 1993, the balance on the class member's account is too low to absorb the entire credit allocable to such account, a check in the amount of the remaining amount of credit will be mailed to the last known address for such account. The Bank has also agreed that, after applying the credits to class members accounts, it will inform credit reporting agencies of the lowered balance on outstanding accounts. Both cash and credit payments will be made automatically, without the need for any claims forms to be submitted by class members. As a further benefit to the class, the Bank will pay all costs of class notice separate and apart from the common fund. These amounts and the costs of settlement administration will be paid directly by the Bank. Any cash left from shares of class members who cannot be located will be used first to reimburse the Bank for efforts to locate class members whose checks have been returned (up to $1.50 per address search) and for corrections of credit reports (up to $1.50 per correction), with the residue to be donated to the San Francisco Legal Services Foundation. In addition to the monetary benefits to the class, the Bank has agreed to the entry of a permanent injunction, to be in effect for two years following final approval of the settlement. A copy of the injunction agreed to is attached as Exhibit B to the Settlement Agreement [not reprinted infra]. The injunction to be entered will enjoin and refrain the Bank from: (a) charging its customers for any CPI on automobiles with any repossession expense, repossession storage, mechanics liens, towing expense, repossessed collateral, conversion, waiver of actual cash value, worldwide, or zero deductible coverages; (b) force placing and charging its customers for any CPI on automobiles with a method of calculating earned premiums upon cancellation other than pro rata;22 (c) accepting any

This term of the injunction is conditioned upon the Bank's CPI insurance carrier receiving the requested approval from the California Department of Insurance.

22

form of insurance tracking service paid for through amounts billed to borrowers as "insurance premiums"; (d) accepting any form of commission, contingent commission, expense reimbursement, retro transfer, fee, credit or any other form of payment from an insurance company for the placement of CPI on automobiles; (e) charging customers interest calculated based upon an amount or date different from the amount or the date premium charges for the required insurance are actually paid to an insurance carrier; and (f) failing to report to credit reporting agencies reductions in outstanding loan balances due to any credits provided by the Bank pursuant to the Settlement Agreement. A proposed form of order preliminarily approving the terms of the settlement is attached as Exhibit C to the Settlement Agreement and also filed separately herewith [not reprinted infra]. The parties request that this order be entered at the hearing on this motion. The settlement agreement provides for notice to the class through first class mailing of the notices attached as Exhibit D to the settlement agreement ("Class Notice"), and publication of the summary notice attached as Exhibit F to the Settlement Agreement ("Summary Notice") [not reprinted infra]. The language of the Class Notice and the Summary Notice have been negotiated and agreed to by the parties. The notices will inform class members of the terms of the settlement and advise them of their rights to be excluded from the class and to object to the terms of the settlement at the final approval hearing. The parties request that the Court approve the proposed forms of notice. IV. THE SETTLEMENT AGREEMENT SHOULD BE PRELIMINARILY APPROVED AS FAIR, REASONABLE AND ADEQUATE Judicial approval of class action settlements requires a two-step process. In the first step, the court makes a preliminary determination as to whether the settlement falls "within the range of possible approval". Alaniz v. California Processors, Inc. (N.D.Cal. 1976) 73 F.R.D. 269, 273; H. Newberg, Newberg on Class Actions (3d.ed. 1993) 11.25. As one court has observed, "[t]his determination is similar to a determination that there is 'probable cause' to think the settlement is fair and reasonable." Alaniz, 73 F.R.D. at 273. Once the settlement is found to be "within the range of possible approval," (ibid.) a final approval hearing is scheduled and notice is provided to the class.

The second step involves a final determination, following a hearing at which pertinent evidence and any objections by class members may be considered, that the settlement is fair, reasonable and adequate from the standpoint of the class. Newberg on Class Actions, 11.41. The courts generally favor settlements of class actions. "There is usually an initial presumption of fairness when a proposed class settlement, which was negotiated at arm's length by counsel for the class, is presented for court approval." Id. at 11.41 at p.11-88. In determining whether class action settlements should be approved Courts judge the fairness of a proposed compromise by weighing the plaintiff's likelihood of success on the merits against the amount and form of the relief offered in the settlement. [citation omitted] . . . They do not decide the merits of the case or resolve unsettled legal questions. Carson v. American Brands, Inc. (1981) 450 U.S. 79, 88 n.14. In order to begin the approval process, plaintiffs move for orders certifying the class, and preliminarily approving the settlement agreement, providing notice to the class, and scheduling the final approval hearing. In view of the record before the Court, plaintiffs respectfully submit that this motion should be granted. The settlement is well-within "the range of possible approval" and should be preliminarily approved in all respects. The settlement was negotiated at arm's length by knowledgeable class counsel with the assistance of Judge Jenkins, an independent mediator. The settlement will produce substantial benefits for the class. The value of these benefits is enhanced by the fact that they will be provided to class members now, without the delay, burden and risks of further litigation. The settlement agreement is fully supported and recommended by Judge Jenkins (Declaration of Thomas M. Jenkins, filed herewith) and by plaintiffs' counsel. At the final approval hearing, plaintiffs will apply for any award of attorneys' fees and costs in the amount of 15% of the common fund. In recent years, the courts have widely-recognized that in common fund settlements of class actions, the award of attorneys' fees and costs should be a percentage of the common fund. See, e.g., Blum v. Stenson (1984) 465 U.S. 886, 900 n.16; Camden I Condominium Ass'n v. Dunkle (11th Cir. 1991) 946 F.2d 768; Paul, Johnson, Alston & Hunt v. Graulty (9th Cir. 1989) 886 F.2d 268; In Re Activision

Securities Litigation (N.D. Cal. 1989) 723 F.Supp. 1373. The percentage of the fund awarded generally ranges between 20% and 30%. In Re Activision Securities Litigation, supra, 723 F.Supp. at 1377. The Ninth Circuit has established 25% of the fund as the "bench mark" award that should be given in common fund cases. Paul, Johnson, Alston & Hunt, supra, 886 F.2d at 272. Similarly, the Eleventh Circuit has adopted the 25% bench mark. Camden I Condominium Ass'n, supra, 946 F.2d at 377. The 15% award requested by plaintiffs is significantly below the range generally awarded. It also amounts to less than half of the fees plaintiffs' counsel would recover under a standard contingency fee arrangement. In view of the result achieved in this case and the substantial risks assumed by plaintiffs' counsel, the 15% award is reasonable and appropriate. V. CONCLUSION For the foregoing reasons, the Court should grant plaintiffs' motion for orders certifying a class for settlement, and preliminarily approving the settlement agreement, providing notice to the class and scheduling the final approval hearing.

Respectfully submitted, Attorneys for Plaintiff Dated:

2.5

Order Certifying Settlement Class

IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SAN FRANCISCO

SUZANNE M. REED AND DONALD D. REED, suing individually, on behalf of the general public and on behalf of all others similarly situated, Plaintiffs, [vs.]

BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION; CASE NO. ORDER CERTIFYING SETTLEMENT CLASS CLASS ACTION

Defendants.

The parties to this action have entered into a Settlement Agreement ("Settlement Agreement"). This Court has thoroughly reviewed the Settlement Agreement, and GOOD CAUSE APPEARING, THIS COURT FINDS AND ORDERS AS FOLLOWS: 1. Solely for the purpose of settlement in accordance with the Settlement Agreement, this Court hereby certifies a Settlement Class of all California persons who purchased vehicles financed by the Bank and paid or were charged any amount for insurance premiums or finance charges as a result of insurance placed between May 28, 1987 and June 30, 1993, under Participation Agreements with Progressive Specialty Insurance Company and Progressive Northwestern Insurance Company (jointly "Progressive"), and whose certificates of insurance have not been fully cancelled. 2. For the purposes of this Order, the term "Class Representatives" means Suzanne M. Reed and Donald D. Reed, the named plaintiffs in this action, and the term "Class Counsel" means counsel of record for the Class Representatives, Farrow, Bramson, Chavez & Baskin. 3. The above-described Settlement Class is so numerous that joinder of all members is

impracticable. 4. There are questions of law or fact common to the above-described Settlement Class. 5. The claims of the Class Representatives are typical of the claims of the above-described Settlement Class. 6. The Class Representatives will fairly and adequately protect the interests of the above-described Settlement Class. 7. The questions of law or fact common to the members of the above-described Settlement Class predominate over the questions affecting only individual members. 8. Certification of the above-described Settlement Class is superior to other available methods for the fair and efficient adjudication of the controversy. 9. The Class Representatives shall be the representatives of the Settlement Class for the purposes of implementing the settlement in accordance with the Settlement Agreement, and their counsel of record, Farrow, Bramson, Chavez & Basin, are appointed as counsel for the Settlement Class ("Class Counsel"). 10. Any Settlement Class members who elect, in accordance with procedures approved by the Court, to be excluded from the Class shall be excluded. 11. In the event the Settlement Agreement terminates pursuant to its terms for any reason, the certification of the Settlement Class pursuant to this Order shall be vacated automatically, the Class Representatives shall cease to function as representatives of the Settlement Class, and this action shall revert to its status immediately prior to the execution of the Settlement Agreement. Nothing contained in this Order is, or may be construed as, an admission or concession by or against the Bank on any point of fact or law.

DATED:

JUDGE OF THE SUPERIOR COURT

2.6

Preliminary Approval Order

IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SAN FRANCISCO

SUZANNE M. REED AND DONALD D. REED, suing individually, on behalf of the general public and on behalf of all others similarly situated, Plaintiffs, [vs.]

BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION; CASE NO. PRELIMINARY APPROVAL ORDER CLASS ACTION

Defendants.

WHEREAS, the Court has been advised that the parties to this action, through their counsel, have agreed, subject to Court approval following notice to the Settlement Class and a hearing, to settle this action upon the terms and conditions set forth in the Settlement Agreement ("Settlement Agreement"), which has been lodged with the Court; NOW, THEREFORE, based upon the Settlement Agreement and all of the files, records, and proceedings herein, and it appearing to the Court that upon preliminary examination the Settlement Agreement and settlement appears fair, reasonable, and adequate, and that a hearing should be held after notice to the Settlement Class of the proposed settlement to determine if the Settlement Agreement and settlement are fair, reasonable, and adequate and if a Settlement Approval Order and Final Judgment should be entered in this action based upon the Settlement Agreement; IT IS HEREBY ORDERED THAT: 1. The Settlement Agreement and the settlement contained therein are preliminarily approved as fair, reasonable, and adequate.

2. Bank of America NT&SA ("the Bank") shall, as soon as practicable, but no later than November 22, 1993, cause to be mailed by first class mail to all known members of the Class certified by this Court in this action at the most recent address that the Bank has for each potential Class member, a Notice of Pendency of Class Action and Proposed Settlement (the "Class Notice") in the form of Exhibit D attached to the Settlement Agreement [not reprinted infra]. The Bank is directed to file with the Court, and serve upon Class Counsel, prior to the Final Hearing, a declaration of such mailings. In addition, the Bank shall cause the Summary Notice in the form of Exhibit F to the Settlement Agreement to be published once each week in the front section of each of the following newspapers of general circulation, during the weeks beginning December 6, 1993 and December 13, 1993: The Los Angeles Times, The San Jose Mercury News, The Orange County Register, The San Bernadino Sun, The San Francisco Chronicle, The San Diego Union, The Sacramento Bee, and The Fresno Bee. 3. The costs and expenses of printing, preparing, mailing, and publishing the Class Notice and Summary Notice shall be paid by the Bank. 4. A hearing (the "Final Hearing") shall be held on February 10, 1994, at 9:00 a.m., as set forth in the Class Notice and Summary Notice, to determine whether the proposed settlement of this action is fair, reasonable, and adequate and should be approved. Plaintiffs' briefs and supporting papers in support of the proposed settlement, and application for an award of fees and expenses to Class Counsel, shall be filed with the Court on or before January 24, 1994. The Final Hearing described in this paragraph may be postponed, adjourned, or continued by order of the Court without further notice to the Settlement Class. After the Final Hearing, the Court may enter a Settlement Approval Order and Final Judgment in accordance with the Settlement Agreement that will adjudicate the rights of all Class members. 5. Any member of the Settlement Class who does not elect to be excluded from the Settlement Class and who objects to approval of the proposed settlement may appear at the Final Hearing in person or through counsel to show cause why the proposed settlement should not be

approved as fair, reasonable, and adequate. 6. Objections to the settlement shall be heard, and any papers or briefs submitted in support of said objections shall be considered by the Court only if, on or before January 13, 1994, said objector(s) shall file with the Clerk of the Superior Court written notice of their intention to object, together with supporting papers stating specifically the factual basis and legal grounds of the objection, and shall serve copies thereof together with proof of service on or before said date upon each of the following counsel: CLASS COUNSEL: [name and address] BANK OF AMERICA COUNSEL: [name and address] The objections must state the name and number of this action. No Settlement Class member shall be entitled to be heard and no objection shall be considered unless these requirements are satisfied. 7. Any Settlement Class member who does not make his objection to the settlement in the manner provided herein shall be deemed to have waived any such objection by appeal, collateral attack, or otherwise. 8. The mailing of the Class Notice and publication of the Summary Notice, as directed in this Order, constitute the best notice practicable under the circumstances and sufficient notice to all potential members of the Settlement Class. 9. Any potential member of the Settlement Class who desires to be excluded from the Settlement Class must mail by January 13, 1994, a written request for exclusion addressed to the Clerk of the Superior Court at the post office box set forth in the Notice. All persons who properly mail requests for exclusion from the Settlement Class shall not be Settlement Class members and shall have no rights with respect to the settlement and no interest in the settlement common fund. The names and addresses of all such individuals shall be attached as an exhibit to the Settlement Approval Order and Final Judgment [not reprinted infra]. 10. All discovery and other pretrial proceedings in this action are stayed and suspended until

further order of this Court, except such actions as may be necessary to implement the Settlement Agreement and this Order. The trial date and all discovery and filing deadlines relating thereto are hereby vacated. 11. In the event that the proposed settlement as provided in the Settlement Agreement is not approved by the Court, or for any reason the parties fail to obtain a Settlement Approval Order and Final Judgment as contemplated in the Settlement Agreement, or the Settlement Agreement is terminated pursuant to its terms, then the Settlement Agreement and all orders entered in connection therewith shall become null and void and of no further force and effect, and shall not be used or referred to for any purposes whatsoever. In such event, the Settlement Agreement and all negotiations and proceedings relating thereto shall be withdrawn without prejudice as to the rights of any and all parties thereto, who shall be restored to their respective positions as of the date of the execution of the Settlement Agreement. 12. Dates for performance: (a) All known Settlement Class members to be notified by first class mail by November 22, 1993 and by publication during the weeks of December 6 and December 13, 1993. (b) (c) Objections to settlement to be filed by January 13, 1994. Plaintiffs' Class Counsel to file and serve their papers in support of settlement and request for attorneys' fees by January 24, 1994. (d) (e) (f) The Bank to file its papers in support of settlement by January 31, 1994. Response to objections to be filed by January 31, 1994. All Settlement Class members who desire to be excluded to mail requests for exclusion postmarked by January 13, 1994. (g) Final Approval Hearing to be held on February 10, 1994, 9:30 a.m.

DATED:

JUDGE OF THE SUPERIOR COURT

2.7

Summary Notice of Pendency of Class Action and Proposed Settlement

NOTICE OF PENDENCY OF CLASS ACTION AND PROPOSED SETTLEMENT

TO: ALL PERSONS WHO HAVE BEEN CHARGED BY BANK OF AMERICA FOR AUTOMOBILE INSURANCE. THIS NOTICE CONTAINS IMPORTANT INFORMATION WHICH MAY AFFECT YOU. PLEASE READ IT CAREFULLY.

A proposed settlement has been reached in connection with litigation concerning Bank of America's purchasing of insurance ("collateral protection insurance") on the vehicles of borrowers who failed to purchase or maintain their own insurance. The settlement provides for the payment of $9.05 million in cash and credits, less attorneys' fees and costs, to a class of borrowers who had such insurance placed on their behalf during the period May 28, 1987 through June 30, 1993.

If the proposed settlement is approved by the Court, persons who have had such insurance placed on their vehicles may become entitled to either a refund of some of the money they have paid for this insurance or a credit for money due for such insurance.

A settlement hearing will be held on February 10, 1994, at 9:30 a.m., in Department 9 of the San Francisco County Superior Court, at 400 Van Ness Avenue in San Francisco, California, to determine whether the proposed settlement is fair, reasonable, and adequate.

If you are an individual whose vehicle was financed by the Bank and from whom the Bank collected or attempted to collect payments for automobile insurance, you will automatically be considered a member of the class unless you request to be excluded. YOU NEED NOT DO ANYTHING IF YOU WISH TO BE INCLUDED IN THE LAWSUIT AND PARTICIPATE IN THE SETTLEMENT. THERE IS NO NEED TO WRITE OR SEND ANYTHING AT THIS TIME.

The Court will exclude you from the class if your written request for exclusion is mailed to the Clerk of the Superior Court, P.O. Box [ ], San Francisco, California 94102 and is postmarked on or before January 13, 1994. The request should state: "I do not want to be part of the plaintiff class in Reed v. Bank of America, No. 944209." The request should be signed with your name and address printed below your signature.

If you exclude yourself, you will not be entitled to share in any benefits that the class may obtain. All members of the class who have not requested exclusion from the class will be bound by any judgment entered in this action pursuant to the settlement agreement.

Any member of the class who has not requested exclusion from this suit may submit a written statement and appear at the hearing, in person or through an attorney retained at the class member's own expense, to support the proposed settlement, to object to it, or ask questions about it, as provided for in the detailed Class Notice.

If you are a member of the class and have not yet received a detailed printed Class Notice, or if you need further information, please call or write to Plaintiffs' counsel: [name and address and telephone number]

DO NOT CONTACT THE COURT CONCERNING THIS CASE. DATED: JUDGE OF THE SUPERIOR COURT

2.8

Notice of Pendency of Class Action and Proposed Settlement

NOTICE OF PENDENCY OF CLASS ACTION AND PROPOSED SETTLEMENT

TO: ALL PERSONS WHO HAVE BEEN CHARGED BY BANK OF AMERICA NT&SA ("BANK") FOR AUTOMOBILE INSURANCE. THIS NOTICE CONTAINS IMPORTANT INFORMATION WHICH MAY AFFECT YOU. PLEASE READ IT CAREFULLY.

1. A proposed settlement has been reached of claims in connection with the Bank's purchasing of insurance ("collateral protection insurance") on the vehicles of borrowers who failed to purchase or maintain their own insurance. If the proposed settlement is approved by the Court, persons who have had such insurance placed on their vehicles may become entitled to either a refund of some of the money they have paid for this insurance or a credit for money due for such insurance

2. This notice briefly summarizes the claims and the terms of the proposed settlement. This notice also describes what you can do to object to the proposed settlement or to request exclusion from the plaintiff class. No action is required if you wish to remain in the class and receive a portion of the settlement funds.

THIS ACTION

3. There is now pending in the Superior Court of the State of California for the County of San Francisco an action entitled Reed v. Bank of America NT&SA, Case No. 944209 (hereinafter "the Action"). The complaint in the Action alleges that the Bank has engaged in allegedly improper practices relating to the placement of insurance on the motor vehicle loan accounts of some customers who failed to purchase or maintain comprehensive and collision insurance. Among other things, the complaint alleges that the Bank purchased and charged those customers for insurance

coverages which they were not legally obligated to pay for, that the Bank charged customers for certain payments made by insurance carriers to the Bank, and that the Bank billed these customers for excess finance charges.

4. The Bank denies the allegations of the complaint and contends that its purchase of collateral protection insurance for customers who fail to purchase or maintain comprehensive and collision insurance was lawful and proper, that any payments made to the Bank by insurance carriers were lawfully and appropriately paid, that the Bank properly assessed customers finance charges on insurance premiums, and that customers must pay for the premiums and finance charges.

DEFINITION OF THE CLASS

5. Under the terms of the proposed Settlement Agreement, the Class on whose behalf this Action is brought will be defined as follows: All California persons who purchased vehicles financed by the Bank and paid or were charged any amount for insurance premiums or finance charges as a result of insurance placed between May 28, 1987 and June 30, 1993, under Participation Agreements with Progressive Specialty Insurance Company and Progressive Northwestern Insurance Company (jointly "Progressive"), and whose certificates of insurance have not been fully cancelled. If you are a member of this Class, the proposed Settlement Agreement will affect your rights and obligations.

THE SETTLEMENT AGREEMENT

6. Under the terms of the proposed Settlement Agreement, the Bank has agreed to establish a fund of $9,050,000, consisting of $3,313,000 in cash and $5,737,000 in credits. Plaintiffs propose to use this fund, after deducting any attorneys' fees and costs to be awarded by the Court, to refund or credit monies to Class members as follows:

(a)

99.74% of the cash portion of the fund will be distributed among those Class members who had insurance issued under a Participation Agreement with Progressive in effect prior to November 12, 1991 and who have already paid all amounts they owed the Bank. This amount will be distributed in proportion to the amounts individual Class members were assessed for insurance.

(b)

The remaining .26% of the cash portion of the fund will be distributed among those class members who had insurance issued under a Participation Agreement with Progressive in effect on and after November 12, 1991, and who have already paid all amounts they owed the Bank. This amount will be distributed in proportion to the amounts individual Class members were assessed for insurance.

(c)

The cash portion, including accrued interest, will be distributed by checks issued in the name of individual Class members and sent to his or her last known address or to such forwarding address as may be obtained.

(d)

Any Class members who are entitled to a check but who cannot be located or fail to deposit their checks within six months from the distribution date shall become ineligible to share in the cash portion of the fund. Their shares will be used to pay for certain of the costs of settlement administration, with the remainder to go to the San Francisco Legal Foundation.

(e)

99.21% of the credit portion of the fund will be credited to the accounts of those Class members who had insurance issued under a Participation Agreement with Progressive in effect prior to November 12, 1991, and who owe money to the Bank. This amount will be distributed in proportion to the amounts individual Class members were assessed for insurance.

(f)

The remaining .79% of the credit portion will be credited to the accounts of those Class members who had insurance issued under a Participation Agreement with Progressive in effect on or after November 12, 1991, and who owe money to the Bank. This amount will be distributed in proportion to the amounts individual Class members were assessed for insurance.

(g)

The credit portion of the fund will be distributed by the Bank crediting the appropriate amount to the insurance account of each Class member entitled to share in the credits.

(h)

Refunds or credits to members of the Class will be made automatically without the need for any Class member to file a proof of claim or other form.

(i)

Counsel for the Class will receive attorneys fees and costs in an amount approved by the Court at the hearing referred to below but not to exceed 15% of the fund, including accrued interest.

7. Also under the terms of the proposed Settlement Agreement, the Bank has agreed to cease and desist from activities challenged in this Action for a period of two years.

RELEASE OF CLAIMS

8. Under the proposed Settlement, all members of the Class will be bound by any judgment entered by the Court. All claims of the Class against the Bank relating to the insurance placed on their vehicles will be released, as provided for in the Settlement Agreement, and Class members will be forever barred from seeking further relief on any of these claims.

9. Upon Court approval of the Settlement, a judgment shall be entered dismissing with prejudice and fully and finally settling this suit as to all Class members, except those who properly and timely request exclusion from this suit in the manner described in the following section.

REQUESTS FOR EXCLUSION

10. If you are an individual whose vehicle was financed by the Bank and from whom the Bank collected or attempted to collect payments for collateral protection insurance under the circumstances set forth above under "Definition of the Class," you will automatically be considered a member of the Class unless you request to be excluded. YOU NEED NOT DO ANYTHING IF YOU WISH TO BE INCLUDED. THERE IS NO NEED FOR YOU TO CALL, WRITE OR SEND ANYTHING AT THIS TIME IN ORDER FOR YOU TO REMAIN A MEMBER OF THE CLASS. However, as a Class member, you should retain all of your records pertaining to either your financing of a vehicle with the Bank and/or insurance charges for that vehicle assessed by the Bank.

11. If you remain in the Class and the Settlement proposed in this Notice is approved by the Court, you will receive the refund or credit according to the settlement distribution procedures described above.

12. The Court will exclude you from the class if your written request for exclusion is mailed to the Clerk of the Superior Court, P.O. Box [ ], San Francisco, California 94102 and is

postmarked on or before January 13, 1994. The request should state: "I DO NOT WANT TO BE PART OF THE PLAINTIFF CLASS IN REED v. BANK OF AMERICA, CASE NO. 944209." The request should be signed, with your name and address printed below your signature.

13. If you exclude yourself, you will not be entitled to share in any benefits that the

Class may obtain. If you do not exclude yourself, you will not be able to file a separate claim against the Bank based on the events and circumstances alleged in plaintiffs' complaint.

14. Judgment in this lawsuit, whether favorable or unfavorable to the Class, will apply to all class members who do not exclude themselves.

15. If you do not request exclusion, you may, if you desire and at your own expense, enter an appearance through an attorney of your choosing.

16. If you do not request exclusion and you do not enter an appearance through your attorney, your interests will be represented by the plaintiffs as class representatives through the law firm of Farrow, Bramson, Chavez & Baskin, at no out-of-pocket cost to you.

THE COURT HEARING

17. The proposed Settlement agreement must be finally approved by the Court. On February 10, 1994, at 9:30 o'clock a.m., in Department 9 of the San Francisco County Superior Court, at 400 Van Ness Avenue in San Francisco, California, a hearing will be held on whether the proposed Settlement should be approved as fair, reasonable and adequate.

18. Any member of the Class who has not requested exclusion from this suit may submit a written statement and appear at the hearing, in person or through an attorney retained at the Class member's own expense, to support the proposed settlement, to object to it, or ask questions about it. If you wish to appear at the hearing to make a statement, you must notify the Court and counsel in writing of your intention to do so. DO NOT CALL OR CONTACT THE COURT.

19. Your written objections to the Settlement and notice of your intent to appear at the

hearing must be filed with the Clerk of the Court by no later than January 13, 1993. The Clerk's address is: Clerk, San Francisco Superior Court, 400 Van Ness Avenue, San Francisco, California 94102. All documents you file with the Court must identify the case name and number of the suit, both of which appear above.

20. Copies of any papers that you file with the Court must also be mailed or delivered at the same time to the following attorneys at the addresses shown:

Attorneys for the Class: [names, address, and phone number] Attorneys for the Bank: [names, address, and phone number]

You must also file a Proof of Service with the Court stating that you mailed or delivered copies of these papers to the attorneys for the parties.

21. If the Court approves this Settlement, the distribution date of the fund will be approximately 71 days after the entry of final judgment in this suit and dismissal of all claims, and the court's Judgment approving this Settlement, awarding the attorneys' fees, costs and refunds, and dismissing all claims, unless an appeal is taken. If the Settlement is not approved, this suit will proceed.

ADDITIONAL INFORMATION

22. DO NOT CONTACT THE COURT CONCERNING THIS CASE. If you have any questions, contact either your own attorney, or the above-named attorneys. However, you do not need to contact the above-named attorneys to remain a member of the class.

23. The Court has not formed any opinions concerning the merits of the case. The Court has not ruled in favor of or against plaintiffs on the merits of any of their claims.

EXAMINATION OF PAPERS

24. This notice does not fully describe the lawsuit. You may inspect the court files (excluding any documents filed under seal) at the Office of the Court Clerk, 400 Van Ness Avenue, San Francisco, California 94102 during the hours 8:00 a.m. to 4:00 p.m., Monday through Friday.

Dated: JUDGE OF THE SUPERIOR COURT

2.9

Permanent Injunction

IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SAN FRANCISCO SUZANNE M. REED AND DONALD D. REED, suing individually, on behalf of the general public and on behalf of all others similarly situated, Plaintiffs, [vs.]

BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION; CASE NO. PERMANENT INJUNCTION CLASS ACTION

Defendants.

The Settlement Agreement entered into by the parties to this action having been considered by this Court, and good cause appearing therefor, IT IS ORDERED, ADJUDGED, AND DECREED THAT: Bank of America NT&SA ("the Bank") shall be and is hereby enjoined and restrained from the following acts, with respect to the Bank's collateral protection program in California: 1. Force placing and charging its customers for any collateral protection insurance ("CPI") on automobiles with any premium deficiency, repossession expense, repossession storage, mechanics liens, towing expense, repossessed collateral, conversion, waiver of actual cash value settlement option, worldwide coverage, or zero deductible coverages; 2. Force placing and charging its customers for any CPI on automobiles with a method of calculating earned premiums upon cancellation other than pro rata, provided that the Bank will not be so enjoined if, notwithstanding good faith negotiations between the Bank and its CPI carrier, the California Department of Insurance does not grant approval to the CPI carrier's amended insurance filing allowing pro rata cancellation; 3. Accepting any form of insurance tracking service paid for through amounts billed to borrowers as "insurance premiums"; 4. Accepting any form of commission, contingent commission, expense reimbursement, cost of funds reimbursement, retro transfer, fee, credit or any other form of payment from an insurance company for the placement of CPI on automobiles; 5. Charging customers interest calculated based upon an amount or date different from the amount or the date premium charges for the required insurance are actually paid to an insurance carrier; and 6. Failing to report to credit reporting agencies reductions in outstanding loan balances due to any credits provided by the Bank pursuant to the Settlement Agreement, within a reasonable time after such credits have been made by the Bank to individual accounts. With the exception of Paragraph 6, the terms of this Injunction are meant to govern the future placement of CPI. This Injunction shall be in effect for two years from the date of entry, with the

exception of Paragraph 2 above, which shall take effect upon final approval by the California Department of Insurance of such a provision in the insurance filing of the Bank's CPI carrier, and shall be in effect for two years from the date of such approval. If the order granting Final Approval of the settlement is reversed on appeal, this Injunction shall terminate and be deemed null and void.

DATED:

JUDGE OF THE SUPERIOR COURT

2.10 Memorandum In Support of Final Approval of Settlement and Application for Award of Attorney's Fees
IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SAN FRANCISCO SUZANNE M. REED AND DONALD D. REED, suing individually, on behalf of the general public and on behalf of all others similarly situated, Plaintiffs, [vs.]

BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION; CASE NO.

Defendants.

CORRECTED MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF PLAINTIFFS' MOTION FOR FINAL APPROVAL OF SETTLEMENT AND APPLICATION FOR AWARD OF ATTORNEYS' FEES

CLASS ACTION

I. INTRODUCTION The parties have negotiated and the Court has preliminarily approved a settlement in this consumer class action under which defendant Bank of America (hereafter "Bank") will establish a common fund of $9.05 million. As part of the settlement, the Bank has stipulated to the entry of an injunction for a term of two years which will prevent the practices challenged by plaintiffs from recurring. In accordance with the Court's preliminary approval order, notice has been provided to the 82,666 class members through publication and by first class mail. Despite this extensive notice, not a single objection to the settlement has been received.23 Accordingly, plaintiffs now move the Court for final approval of the settlement and an award of attorneys' fees and costs. As demonstrated below, the settlement should be approved as fair, reasonable and adequate and plaintiffs' attorneys should be awarded 15% of the common fund created for the class for attorneys' fees and costs. II. THE SETTLEMENT SHOULD BE FINALLY APPROVED AS FAIR, REASONABLE AND ADEQUATE A. Statement Of The Case This case involves a challenge to the practices of the Bank in "force placing" and charging class members for collateral protection insurance ("CPI"). The settlement class certified by the Court on October 26, 1993 consists of certain automobile loan customers of the Bank. The terms of the loan agreements signed by these customers allowed the Bank to purchase and charge customers for comprehensive and collision insurance on the financed vehicles if the customers themselves failed to maintain such insurance. Plaintiffs contend that the Bank has acted unfairly, unlawfully and in violation of the loan agreements in force placing and charging customers premiums for CPI. Specifically, plaintiffs allege that the Bank charged class members for insurance coverages which they were not obligated to pay for, charged them amounts as insurance premiums which were actually paid to the Bank by insurance

Sixteen class members have written to request exclusion from the lawsuit. See, Declaration of Mark A. Chavez at 29, and Exhibit 2 thereto. [not reprinted infra]

23

carriers and improperly assessed class members finance charges on the additional insurance coverages and payments to the Bank. The Bank has vigorously resisted all of plaintiffs' claims and has denied any wrongdoing or liability. B. The Negotiation Of The Settlement As the files and records in this case demonstrate, the parties have diligently and aggressively litigated this action since its inception. The factual record has been developed through extensive discovery and investigation. The parties have obtained, reviewed and analyzed thousands of pages of documents, conducted depositions of the Bank and its insurance company, and initiated and participated in substantial written discovery. The depositions of the individually named plaintiffs were also taken. As a result, the parties entered into settlement negotiations with sufficient information to evaluate the merits of the case, the relative strengths and weaknesses of their positions, and the risks of continued litigation. The parties' efforts to negotiate a settlement in this case began in June 1993 and were finalized in September, 1993. They included the exchange of additional information beyond that provided through formal discovery. The settlement was eventually achieved as a result of the settlement conferences conducted by the Honorable Thomas M. Jenkins (a retired Judge of the San Mateo Superior Court), as well as direct negotiations between the parties and their counsel. These negotiations have resulted in a settlement agreement which the parties believe is fair, reasonable, adequate and in the best interests of the class. It is the product of hard bargaining and compromises by both sides. The magnitude of the $9.05 million common fund and the scope of the permanent injunction alone demonstrate that the settlement will produce substantial benefits to and constitute a significant accomplishment for the class. The settlement terms have been recommended to the parties and the Court by Judge Jenkins (Ret.). See, Declaration of the Honorable Thomas M. Jenkins 7 (filed with this Court October 8, 1993, and attached as Exhibit 1 to Chavez Decl.) [not reprinted infra]. C. The Terms Of The Settlement In order to resolve the claims of the settlement class to the extent provided in the settlement

agreement, the Bank has established a common fund for the benefit of the class in the amount of $9.05 million. The common fund consists of $3.313 million in cash and $5.737 million in credit payments, with interest accruing at the rate of 2.57% on the cash portion of the fund. It will be distributed to class members in accordance with the formulae set forth in Section III of the Settlement Agreement. The cash payments to class members who have fully paid the amounts assessed for CPI will be distributed by checks to the last known addresses. The credit payments to class members who still owe for CPI will be applied to their loan balances as if they were payments in cash on the distribution date.24 As part of the settlement, the Bank has also agreed to the entry of a broad permanent injunction which will regulate and restrict the Bank's CPI activities for two years following final approval. This injunction will prevent the practices challenged by plaintiffs from recurring. Notices of the class certification and the settlement have been sent to the last known addresses of all class members. A Summary Notice of the settlement has also been published twice in the front section of the nine major newspapers throughout California. Under the settlement, the Bank is to pay all the costs of class notice and settlement administration separate from and in addition to the common fund, subject to reimbursement of certain specific costs from any residue thereof. Any residue remaining thereafter shall be paid to the San Francisco Neighborhood Legal Assistance Foundation. D. The Settlement Is Fair, Reasonable And Adequate Judicial approval of class action settlements requires a two-step process. Where, as here, preliminary approval has been granted and notice provided to the class, the second step involves a final determination, following a hearing at which pertinent evidence and any objections of class members may be considered, that the settlement is fair, reasonable and adequate from the standpoint of the class. 2 H. Newberg, Newberg on Class Actions (3d ed. 1993) 11.41. The courts generally favor settlements of class actions. "There is usually an initial presumption of fairness when a

The terms of the settlement are summarized in greater detail in the Declaration of Mark A. Chavez filed herewith. Chavez Decl. 16-23. [not reprinted infra]

24

proposed class settlement, which was negotiated at arm's length by counsel for the class, is presented for court approval." Id. at 11.41 at p.11-88. In determining whether class settlements should be approved, "courts judge the fairness of a proposed compromise by weighing the plaintiff's likelihood of success on the merits against the amount and form of the relief offered in the settlement. . . . They do not decide the merits of the case or resolve unsettled legal questions." Carson v. American Brands, Inc. (1981) 450 U.S. 79, 88 n.14 (citation omitted). The settlement in this matter was reached after extensive negotiations. Jenkins Decl. 3-6; Chavez Decl. 14. It was negotiated at arm's length by knowledgeable class counsel with the assistance of Judge Jenkins, an independent mediator. Jenkins Decl. 5-6; Chavez Decl. 15. Plaintiffs' claims are novel, complex and untested and may have been unsuccessful at trial. Nevertheless, they have achieved a settlement which will produce substantial benefits and relief for the class. Chavez Decl. 16-24; Declaration of Ronald Lovitt, 10-11; Declaration of Michael W. Bien, 5. The value of these benefits is enhanced by the fact that they will be provided to the class now, without the delay, risks and burdens of further litigation. The settlement is recommended and fully supported by experienced class counsel (Chavez Decl. 24-25), as well as Judge Jenkins (Jenkins Decl. 7). III. PLAINTIFFS' ATTORNEYS SHOULD BE AWARDED 15% OF THE COMMON FUND FOR ATTORNEYS' FEES AND COSTS A. Reasonable Attorneys' Fees Are Based On A Percentage Of The Common Fund Bestowed On The Class The right of an attorney who is responsible for creating a fund for the benefit of a class of persons other than the client who has directly contracted for his services to receive attorneys' fees from the common fund created has been judicially recognized for more than 100 years. Central R.R. & Banking Co. v. Pettus (1885) 113 U.S. 116. Historically, the method of calculating fees in common fund cases has been different from that used in statutory fee cases. As the United States Supreme Court noted in a decision dealing with fee awards in class actions, in calculating attorneys' fees under the common fund doctrine "a reasonable fee is based upon a percentage of the fund

bestowed on the class . . . ." Blum v. Stenson (1984) 465 U.S. 886, 903 n.16 (emphasis added). In the 1970s a number of courts began to shift away from the historical method to instead utilize the so-called "lodestar/multiplier" method to determine attorneys' fees in common fund cases. However, the Supreme Court's decision in Blum v. Stenson, supra, has led the overwhelming majority of courts to return to the traditional percentage of the fund approach for awarding fees in such cases. This return to the historical method of computing common fund fee awards has been encouraged by the comprehensive report on fee awards issued by a special Task Force appointed by the Third Circuit. Court Awarded Attorney Fees, Report of the Third Circuit Task Force (Prof. Arthur R. Miller, Reporter) (1985) 108 F.R.D. 237. The Task Force, which was formed because of "a number of difficulties" encountered when applying the lodestar method (see, Task Force Report, supra, 108 F.R.D. at 238), undertook an extensive analysis of the utility of this method in various contexts. After enumerating nine major deficiencies in the lodestar process (id. at 246-249), the Task Force concluded that, in common fund cases, the courts should not use the lodestar approach which is utilized in statutory fee cases, but rather should award fees on a simplified, percentage basis. Id. at 237, 255. The Supreme Court subsequently cited the Task Force Report favorably in Evans v. Jeff D. (1986) 475 U.S. 717, 736 n.28. As part of the growing judicial trend returning to the historical method for awarding fees in common fund cases, the Ninth Circuit has adopted the approach approved by the Supreme Court and recommended by the Third Circuit Task Force. Torrisi v. Tucson Elec. Power Co. (9th Cir., 1993) 8 F.3d 1370, 1376-77; Paul, Johnson, Alston & Hunt v. Graulty (9th Cir. 1989) 886 F.2d 268, 272. It has explicitly approved the award of attorneys' fees in common fund cases based upon a percentage of the common fund. Moreover, the Ninth Circuit has "established 25 percent of the fund as the 'benchmark' award that should be given in common fund cases." Six Mexican Workers v. Arizona Citrus Growers (9th Cir. 1990) 904 F.2d 1301, 1311; see, Torrisi v. Tucson Elec. Power Co., supra (affirming award of 25% of $30 million fund). At least three other United States Circuit Courts of Appeals -- the District of Columbia Circuit, the Tenth Circuit, and the Eleventh Circuit -- have also expressly approved the award of

attorneys' fees based on a percentage of the fund recovered for the class in common fund cases. In Swedish Hospital Corp. v. Shalala (D.C. Cir. 1993) 1 F.3d 1261, the D.C. Circuit strongly affirmed the use of a percentage method to award fees in a common fund case, specifically citing the Supreme Court's decision in Blum v. Stenson, supra. Swedish Hospital Corp., 1 F.3d at 1268, 1271 (" . . . [W]e join . . . in concluding that a percentage-of-the fund method is the appropriate mechanism for determining the attorney fees award in common fund cases."). See also, Bebchick v. Washington Metropolitan Area Transit Commission (D.C. Cir. 1986) 805 F.2d 396, 406 ("Where the fees, as here, will come out of a 'common fund,' 'a reasonable fee is based on a percentage of the fund bestowed on the class.' Blum, 465 U.S. at 900, n.16"); Brown v. Phillips Petroleum Co. (10th Cir. 1988) 838 F.2d 451, 454, cert. denied, (1988) 488 U.S. 822 (citing Blum, supra, the Tenth Circuit held that a fee award based on a percentage of the common fund is proper and acceptable); Camden I Condominium Association, Inc. v. Dunkle (11th Cir. 1991) 946 F.2d 768, 774 ("We believe that the percentage of the fund approach is the better reasoned in a common fund case. Henceforth in th[e] [Eleventh] [C]ircuit, attorneys' fees awarded from a common fund shall be based upon a reasonable percentage of the fund established for the benefit of the class"). The leading commentator on class actions, Herbert B. Newberg, has similarly endorsed the return to the percentage of the recovery approach in his definitive treatise on class actions: In contrast to a statutory fee determination, payable by the defendant depending on the extent of success achieved, a common fund is itself the measure of success. While the common fund recovered may be more or less than demanded or expected, the common fund represents the benchmark from which a reasonable fee will be awarded. Accordingly, in Blum v. Stenson, another statutory fee case, the Supreme Court recognized this major distinction governing the determination of fee awards under a statute in contrast to the common fund doctrines. Newberg, supra, 14.03 at 186.

In the wake of the Supreme Court's decision in Blum v. Stenson, supra, the Third Circuit's

Task Force Report, and the string of federal appellate decisions endorsing the concept, the lower courts have widely adopted and are currently utilizing the percentage approach to calculate reasonable attorneys' fees in common fund cases. See, e.g., In re Activision Securities Litigation (N.D. Cal. 1989) 723 F.Supp. 1373, 1375, and cases compiled therein. This return to the percentage-of-the-fund approach reflects a growing judicial recognition that use of the lodestar approach in common fund cases inappropriately encourages and rewards inefficiency in the litigation process because "attorneys are given incentive to spend as many hours as possible, billable to a firm's most expensive attorneys" and "there is a strong incentive against early settlement since attorneys will earn more the longer the litigation lasts." Swedish Hospital Corp. v. Shalala, supra, 1 F.3d at 1268. In contrast, "if a percentage-of-the-fund calculation controls, inefficiently expended hours only serve to reduce the per hour compensation of the attorney expending them" (id. at 1269) and plaintiffs' counsel have an incentive to prosecute common fund cases efficiently (In Re Activision Securities Litigation, supra, at 1378). Furthermore, the use of the lodestar method can consume a tremendous amount of the courts' time, energy and expense and, after all is said and done, the lodestar/multiplier analysis generally results in the courts awarding a fee approaching 30% in common fund cases. Id. at 1377. Moreover, using the lodestar/multiplier method almost always delays the date when the class members receive their share of the recovery, and can (because of the not insubstantial cost of using special masters, which cost is always paid from the common fund) result in a diminution of the class members' recovery. Id. at 1375. Finally, "a percentage-of-the-fund approach more accurately reflects the economies of litigation." Swedish Hosp. Corp. v. Shalala, supra, at 1269. As one court has noted, "[p]laintiffs' litigation practice, given the uncertainties and hazards of litigation, must necessarily be result oriented. It matters little to the class how much the attorney spends in time or money to reach a successful result." Howes v. Atkins (E.D. Ky. 1987) 668 F.Supp. 1021, 1025. California law also fully supports use of the percentage- of-the-fund approach. The courts in this state have recognized the common fund theory and distinguished it from the "private attorney general" and other theories that shift attorneys' fees to the defendant. Mandel v. Hodges (1976) 54

Cal.App.3d 596, 620-621. In contrast to other awards, attorneys' fees in common fund cases are frequently awarded based on a percentage of the fund. Glendale City Employees' Ass'n, Inc. v. City of Glendale (1975) 15 Cal.3d 328, 341 fn.19, cert. denied, (1975) 424 U.S. 943 (attorneys' fee award amounting to 25% of the amount recovered could be upheld "under the rule that a litigant who creates a fund in which others enjoy beneficial rights may require those beneficiaries to pay their fair share of the expense of litigation"); Steinberg v. Allstate Insurance Co. (1990) 226 Cal.App.3d 216, 220 (approving a trial court order granting 30% to one firm and 20% to another, for a total of 50% of a $98 million fund); Melendres v. City of Los Angeles (1975) 45 Cal.App.3d 267, 278 (in approving a percentage of the common fund fee award in a class action the court observed "it is not unusual to award a percentage of the fund involved as a total fee . . ."); Knoff v. City of San Francisco (1969) 1 Cal.App.3d 184, 205-206 (affirming percentage attorneys' fee award in a class action); Woodard v. PC World Communications, San Francisco County Superior Court No. 940988 (12/1/93 Order [copy filed herewith at Bien Decl., Exhibit 2]; awarding 30% of funds to be distributed as attorneys fees). B. The Court Should Award Plaintiffs' Counsel 15% Of The Common Fund For Attorneys' Fees And Costs The percentage of the fund to be awarded as attorneys' fees is left to the discretion of the trial court, but it is generally 20% to 30% of the fund, with some awards significantly exceeding this range. The Ninth Circuit has established 25% of the fund as the "benchmark" award. Six Mexican Workers v. Arizona Citrus Growers, supra, 904 F.2d at 1311. Judge Patel has noted that the accepted level for an award is "around 30%." In Re Activision Securities Litigation, supra at 1377. Other courts have recognized that fee awards in common fund cases frequently amount to between 20% and 30% of the common fund. See, e.g., Mashburn v. Nat'l Healthcare, Inc. (M.D. Ala. 1988) 684 F.Supp. 679, 692. In Steinberg v. Allstate Insurance Co., supra, the California Court of Appeal approved two separate fee awards of 20% and 30% from a $98 million settlement fund. The 15% of the common fund award requested by plaintiffs' counsel in this action is below the currently accepted range of awards and significantly less than the 25% benchmark. Bien Decl. 12-14. Ample judicial authority fully supports a percentage award substantially higher than this

amount. The percentage requested by plaintiffs' counsel is conservative under the circumstances of this case. Bien Decl. 8-12; see, Lovitt Decl. 12. Plaintiffs' counsel undertook a considerable risk in filing and pursuing this case as a class action against one of the country's largest financial institutions. Chavez Decl. 10-11; Lovitt Decl. 8-9; Bien Decl. 8-9 . They agreed to represent the named plaintiffs on a full contingency basis. Plaintiffs' counsel have not received any compensation for their services to date and have aggressively litigated the case from inception without any assurance of compensation for their work. Chavez Decl. 10-13, 26. The case involved the prosecution of unsettled, complex and difficult issues. Chavez Decl. 10; Lovitt Decl. 9; Bien Decl. 8. Plaintiffs' counsel premised their case on claims which were completely unresolved at the time the lawsuit was filed and which remain undecided. In doing so, they assumed a substantial risk of total failure (Chavez Decl. 10-12; Lovitt Decl. 9) and essentially "bet the firm on success". Bien Decl. 9. As a result of their vigorous representation, plaintiffs' counsel have achieved a noteworthy level of success in this case. Lovitt Decl. 10-11. The success of the litigation is of great importance where, as here, attorneys' fees "are measured in a material part by the benefits recovered." Beyerbach v. Juno Oil Company (1954) 42 Cal.2d 11, 20. In awarding attorneys' fees in common fund cases, the "weight assigned to the monetary results achieved, of necessity, must predominate over all other criteria . . . ." Newberg, supra, 14.03 at 188. Under the settlement agreement, the Bank will establish a common fund of $9.05 million, pay all costs of class notice and settlement administration, and be bound by an injunction for a term of two years prohibiting the recurrence of the practices which led to this lawsuit. In sum, plaintiffs' counsel have achieved a result which is fair and reasonable, and which will provide substantial benefits for the class. See, Jenkins Decl. 7; Lovitt Decl. 10-11; Bien Decl. 7; Chavez Decl. 16-24 [not reprinted infra]. It is significant that plaintiffs' counsel obtained these benefits for the class without the burdens and uncertainties of what could have been years of litigation. As a result of the settlement, the class will avoid the delays and risks of a lengthy trial and appellate process. Class members will

receive benefits which are both immediate and certain. Plaintiffs' counsel, without any guarantee of success, invested thousands of hours in this case and advanced expert fees and all other litigation costs so that the case could proceed. They put their professional and personal assets at stake in doing so. Chavez Decl. 10-12; Bien Decl. 8-9. Plaintiffs' counsel are also committed to expending whatever time is required to oversee, together with the Bank, the administration and distribution of the settlement over the next year. The effort required to do so can be quite considerable in a large scale class action involving tens of thousands of class members. Chavez Decl. 28. IV. CONCLUSION For the foregoing reasons, the Court should grant plaintiffs' motion and enter a final judgment approving the settlement as fair, reasonable, and adequate and award plaintiffs' counsel 15% of the common fund for attorneys' fees and costs. Respectfully submitted, Attorneys for Plaintiff Dated:

2.11 Settlement Approval Order & Final Judgment

IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA IN AND FOR THE COUNTY OF SAN FRANCISCO SUZANNE M. REED AND DONALD D. REED, suing individually, on behalf of the general public and on behalf of all others similarly situated, Plaintiffs, [vs.]

BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION; CASE NO.

Defendants.

SETTLEMENT APPROVAL ORDER AND FINAL JUDGMENT CLASS ACTION Plaintiffs Suzanne M. Reed and Donald Reed, and the Settlement Class they represent, and defendant Bank of America NT&SA ("the Bank"), through their respective counsel, have submitted to the Court a Motion for Approval of the Settlement Agreement ("Settlement Agreement"). This Court preliminarily approved the Settlement Agreement by the Preliminary Approval Order dated __, 1993. Notice was given to all potential members of the Settlement Class pursuant to the terms of the Preliminary Approval Order. This Court has reviewed the papers filed in support of the Motion, including the Settlement Agreement and the exhibits thereto, memoranda and briefs submitted on behalf of the Settlement Class and the Bank, and supporting declarations. The Court has also considered any written comments submitted to the Clerk of the Court by absent Class members. The Court held a hearing on __, 1994, at which time the parties and all other interested persons were heard in support of and in opposition to the proposed settlement. Based on the papers filed with the Court and the presentations made to the Court by the parties and by other interested persons at the hearing, it appears to the Court that the Settlement Agreement, dated __, 1993, is fair, adequate, and reasonable. Accordingly,

IT IS HEREBY ORDERED, ADJUDGED, AND DECREED: 1. The Court has jurisdiction over the subject matter of this litigation and over all parties to this litigation, including all Plaintiff Settlement Class members, as such term is defined in the Settlement Agreement. 2. The Court has determined that the Class Representatives Suzanne M. Reed and Donald D. Reed, adequately represent the Settlement Class. 3. The Court has determined that the Notice given to potential members of the Settlement Class fully and accurately informed potential members of the Settlement Class of all material elements of the proposed settlement and constituted valid, due, and sufficient notice to all potential

members of the Settlement Class. 4. The persons who made timely and valid requests for exclusion from the Settlement Class pursuant to the Class Notice and who are not deemed to be Settlement Class members and who are not bound by this Settlement Approval Order and Final Judgment are set forth in Exhibit A attached hereto [not reprinted infra]. 5. The Court finally approves the settlement of this action in accordance with the terms of the Settlement Agreement and finds that the settlement is fair, reasonable and adequate in all respects. 6. The Court orders the parties to the Settlement Agreement to perform their obligations thereunder pursuant to the terms of the Settlement Agreement. 7. The Court dismisses the amended complaint, and all claims and causes of action asserted therein, on the merits and with prejudice, as to the Class Representatives and all Settlement Class members. These dismissals are without cost to any party, except as specifically provided in the Settlement Agreement. 8. The Court adjudges that the Class Representatives and all Settlement Class members, who were mailed Notice at the most recent address that the Bank had for each potential Settlement Class member, and who did not request exclusion (collectively referred to as "Settlement Class members"), shall, to the extent permitted by law, conclusively be deemed to have released and discharged the Bank and all persons and entities from any and all Settled Claims, which any Settlement Class member had, has, or may have in the future to the extent provided in the Settlement Agreement. 9. The Court bars and permanently enjoins the Settlement Class members from asserting, instituting, or prosecuting, either directly or indirectly, any Settled Claims, as set forth in the Settlement Agreement, which any Settlement Class member had, has, or may have in the future to the extent provided in the Settlement Agreement. 10. Without affecting the finality of this Settlement Approval Order and Final Judgment in any way, the Court retains jurisdiction over: (1) implementation and enforcement of the Settlement Agreement pursuant to further orders of the Superior Court until the final judgment contemplated

hereby has become effective and each and every act agreed to be performed by the parties hereto shall have been performed pursuant to the Settlement Agreement, including disposition of the Settlement Fund; (2) any other action necessary to conclude this settlement and to implement the Settlement Agreement; and, (3) the enforcement, construction, and interpretation of the Settlement Agreement. 11. Neither this Settlement Approval Order and Final Judgment nor the Settlement Agreement are an admission or concession by the defendant of any fault, omission, liability, or wrongdoing. This Settlement Approval Order and Final Judgment is not a finding of the validity or invalidity of any claims in this action or a determination of any wrongdoing by the defendant. The final approval of the Settlement Agreement does not constitute any opinion, position, or determination of this Court, one way or the other, as to the merits of the claims and defenses of the Bank or the Settlement Class members. Neither this Settlement Approval Order and Final Judgment, nor the Settlement Agreement, nor the fact of settlement, nor the settlement proceedings, nor the settlement negotiations, nor any related document, shall be used as an admission of any fault or omission by the Bank or be offered or received in evidence as an admission, concession, presumption, or inference of any wrongdoing by the Bank in any proceeding other than such proceedings as may be necessary to consummate or enforce the Settlement Agreement. 12. The Court finds that no just reason exists for delay in entering this Settlement Approval Order and Final Judgment. Accordingly, the Clerk is hereby directed forthwith to enter this Settlement Approval Order and Final Judgment pursuant to Code of Civil Procedure section 664.6. 13. Counsel for plaintiffs are awarded costs, expenses, and attorneys' fees in the amount of __% of and from the Common Fund.

DATED:

JUDGE OF THE SUPERIOR COURT