CIVIL PROCEDURE FINAL EXAM

L6101 Section 2
Final Examination December 2010
Professor Theodore M. Shaw
Time Allowed Four Hours
This examination consists of 8 pages. Check now to see that your examination
has all the pages.
ANSWERS MUST BE WRITTEN IN INK OR TYPEWRITTEN.
Instructions:
This is an issue spotting exam consisting of 8 pages, excluding instructions. The exam is
scheduled to last for four hours. There is one fact pattern, from which there are six groupings of
questions. They are weighted as follows:
Question 1: 15%
Question 2: 15%
Question 3: 15%
Question 4: 10%
Question 5: 30%
Question 6: 15%
Read the instructions carefully for each question. Answer all questions. if you can. The fact
pattern, while loosely based on real life events, is largely fictional. If you make any assumptions
beyond the facts provided, state what assumptions you are making. You are being tested on civil
procedure, not on substantive law. Some of the law referenced n the fact pattern is fabricated for
the exam. Take the law as it is given.
You are allowed to bring into the exam for your use your casebook, a copy if the Federal Rules
of Civil Procedure, the course syllabus, notes that you have made or taken, and any outline that
you have made. You are not allowed to bring in commercial outlines of any kind or to use the
internet during the exam. You may type or handwrite your exam, as long as it is legible. If you
handwrite your exam skip every other line. You can then add any inserted or additional points
Fall 2010 Civil Procedure L6101 2 Prof. Shaw
Page 1 of 8

your wish to make and the exam will be more legible. If you type I will not subtract for typos
unless they are so numerous as to make the exam difficult to read and grade, but I expect the
exam to be reasonably proofed. Neatness can count.
You have sufficient time to think through your answers. Organize your thoughts. Be expansive
within the boundaries of relevance. Good luck.
Prof. Shaw

Fall 2010 Civil Procedure L6101 2 Prof. Shaw

Page 2 of 8

Exam
In the spring of 2008 the U.S. banking system stood on the brink of a major collapse,
largely driven by the mortgage industrys practices over the preceding years during which subprime loans were extended to borrowers who were, at best, marginally qualified. In their zeal to
find new borrowers to extend the housing markets biggest bubble in decades, traditional lenders
abandoned their longstanding principles. Banks made loans available not only to traditionally
qualified borrowers, but also to home buyers who had bad credit, and to individuals who were
not required to verify income or employment. The vast majority of these loans featured
adjustable rate mortgages or balloon payments, which many borrowers found themselves unable
to manage. The loans were securitized and sold to investors, including hedge funds and major
investment banks, as collateralized mortgage obligations (cmos). The value of these mortgage
backed securities, which included subprime mortgages, plummeted. Major Banks and investment
houses, which had profited handsomely as the housing market had peaked in 2006, found
themselves holding devalued securities, as did foreign investors who had cashed in on the U.S.
housing bubble. The effects of the mortgage crisis spread to other areas of the economy.
Financial institutions stopped lending; a liquidity crisis ensued.
During the height of the housing bubble, a New York based, Delaware incorporated
mortgage lending company called Doughlenders advertised on WSOL, a New York area radio
station broadcasting to the Tri-state area (New York, New Jersey, and Connecticut) from
Newark, New Jersey and targeted to a largely urban listening audience. Doughlenders radio ad
went as follows:
Tired of paying rent? Is your hard earned money all going to
your landlord while you have nothing to show for it? At Doughlenders
we believe that every American deserves a home. Bad credit? No
credit? IRS problems? No Problem. We can put you in your own home
for no money down and no more than you pay for your monthly rent.
You can afford the American Dream! And we can help you to do it.
Doughlenders. Because every American deserves a home. Call 1 800
OWN HOME. Thats 1 800 OWN HOME.
Vanessa Smith, a fifty-five year old African American nursing home attendant, heard the
ad while listening to the Sunday morning broadcast of The Gospel Hour. Ms. Smith called the
800 number and made an appointment to meet with a Doughlenders representative at her
Queens, New York one bedroom apartment, for which she paid $1800.00 per month rent. On
Tuesday, April 4, 2006, Mr. Anthony Duper met with Ms. Smith on behalf of Doughlenders. Mr.
Duper introduced himself as a lawyer and a real estate agent who could provide consolidated
services for Ms. Smith, who would not have to incur the cost of hiring a lawyer or paying for her
own real estate agent. Duper showed Ms. Smith a list of houses on the Doughlender website
which might meet her needs, and took her on a virtual tour of five houses located in Queens or
Brooklyn. (The website was maintained by CJ Scan, Inc., a Dallas based company which posted
photograph of homes submitted by real estate companies and maintained the site for a user fee
charged to those who registered. CJ Scan did not alter or select the photos that were submitted
for posting; it only added a feature called walkabout, which gave one the feeling of actually
Fall 2010 Civil Procedure L6101 2 Prof. Shaw
Page 3 of 8

moving through the house). One house, a three bedroom on Livonia Avenue, stood out; Ms.
Smith said she loved it, but never thought that she could live in a house like that, much less own
one. Mr. Duper responded, I can make this happen, but you have to work with me and we have
to move quickly. When Ms. Smith told Mr. Duper that she wanted to see the house in person,
Mr. Duper told her that he knew that someone was about to make an offer and that the virtual
tour was as good as being there. If we dont move quickly, he said, it will be gone.
Duper told Ms. Smith that he could act as her attorney and that he was sure that
Doughlenders could qualify her for a mortgage loan. Ms. Smith, acting out of a desire to nail
down a deal on the house and having never bought one before, agreed to have Mr. Duper act on
her behalf. The fact that Duper was an attorney and a real estate broker employed by a mortgage
lender seemed too good to be true. Duper set up a meeting at Ms. Smiths apartment scheduled
for the next week, on April 18th, at which a loan officer would be present and they could move
quickly to enter into a contract so that the other interested party would not get the house. On
April 18th, Mr. Duper, joined by Mr. Mark Sharkey, a Doughlenders loan officer, met with Ms.
Smith. They presented her with dozens of documents to sign, including contracts, loan papers,
and closing documents. Although surprised about the rapidity of events, Ms. Smith signed where
she was told, and Mr. Duper notarized the documents. In response to her question about her
monthly payments, Ms. Smith was told that she would have a thirty year mortgage with an
interest only loan obligation of $3000 per month for ten years, at a rate of 7.89%. After ten years
her monthly payments would jump to almost to eight thousand dollars. Conventional thirty year
mortgage rates for borrowers with good credit were at 4.7%. Although Ms. Smith did not know
it, the closing costs were unusually high. Ms. Smith expressed surprise and panic about the
amount of her monthly obligation and asked to cancel the whole deal. Duper told Smith that she
need not worry; the house had a ground floor apartment that could be rented out for at least
eighteen hundred dollars per month and they (Doughlenders) could refer Ms. Smith to a real
estate agent who could find a tenant for her. Also, she was told, she could refinance within the
next ten years before payment on principle kicked in. Feeling reassured, Ms. Smith went forward
with the deal and received the keys a few days later.
On her first visit to the Livonia Street house, Ms. Smith was shocked by its condition.
The roof was leaking, there was extensive water and termite damage, the floors were buckling,
and there were infestations of mice and insects. Because Ms. Smith was obligated to make
mortgage payments, she was left with no choice but to move in and to make repairs as best she
could. The condition of the house prevented her from renting the ground floor for $1800; Ms.
Smith got what she could.
In July of 2006 Doughlenders sold Ms. Smiths mortgage to Bluepoint Bank, a regional
bank based in Charlotte, North Carolina. Bluepoint had no branches or offices in NewYork, and
other than the fact that it acquired a few hundred mortgages from banks that had served
homebuyer customers in New York it had no other contacts with the state. The deals to purchase
mortgages were consummated by telephonic and email communications, and the one face-to-face meeting
between Doughlenders and Bluepoint that took place was in Charlotte. Within one year after buying

her house Ms. Smith had fallen behind in her payments and was being threatened with
foreclosure. On March 15th, 2007, she wrote to Bluepoints customer service department to
Fall 2010 Civil Procedure L6101 2 Prof. Shaw
Page 4 of 8

explain the circumstances under which she bought the Livonia Street property, to ask the bank to
release her from the onerous conditions of her original mortgage, and to allow her to refinance
her loan on more affordable terms. Bluepoint did not make any adjustments other than to give
Ms. Smith a three month grace period during which her payments were suspended and an
extension of three months to the end of the thirty year loan period. In a telephone conversation
with a Bluepoint representative Smith said that she had been suckered into the mortgage and
that the terms were unfair. The representative expressed some sympathy, but said that
Bluepoint only bought the loan, we didnt make it.
In June of 2007 Ms. Smith filed a complaint with the Grievance Committee of the Second
Department of the Appellate Division of New York, alleging numerous ethical violations on the
part of Mr. Duper arising out of the purchase of her home. The complaint led to a year- long
investigation culminating in findings, issued on July 7, 2008, that Duper had fraudulently
induced Smith into a loan that she could not afford, and that he violated conflict of interest and
other ethical rules governing attorney conduct. The penalty was disbarment. Dupers debarment,
however, was only the beginnings of his troubles. He was subsequently indicted on various
federal charges, including fraud, tax evasion, and solicitation and inducement of false statements
in connection with federally backed mortgages. His former associate, Mr. Sharkey, testified
against him and avoided prosecution. On June 15, 2009, Duper entered a guilty plea to two
counts of fraud and one of tax evasion.
On September 15, 2008, Ms. Smith, represented by Paula Solo, a small practitioner with
an office on Court Street in Brooklyn, filed an action in state Supreme Court (in New York state
the Supreme Court is the trial court) in Brooklyn seeking a TRO against Bluepoint Bank, which
had notified her of its intent to foreclose on her mortgage within ninety days. Smith alleged that
Bluepoint knowingly and illegally profited from its acquisition of loans which it bought on a
mass scale from lenders that engaged in fraudulent and deceptive practices in New York State as
well as in other jurisdictions throughout the nation. Doughlenders, which had teetered on the
brink of collapse in 2008, had been acquired by World Bank, and no longer existed as an
independent entity. The TRO sought against Bluepoint was aimed at enjoining foreclosure on,
and eviction of, Ms. Smith. At a TRO hearing on the same day, State Supreme Court Justice
Malcolm Boswell denied the motion, directed Ms. Smith to immediately effectuate serviceof a
summons and complaint on Bluepoint, and set a hearing date on a preliminary injunction for
October 22, 2008. Bluepoint, which was served with a summons and complaint in conformity
with the state long arm statute on September 18, 2008, filed a motion on September 19th to
remove the action to federal court on diversity grounds. The case was removed to the U.S.
Federal Court for the Eastern District of New York, docketed on October 1, and assigned to
Judge Carl Owen.
On October 2, 2008, Bluepoint filed a motion to specially appear, and a motion to dismiss
based on Fed.R.Civ. P. 12(b)(2),(6) , and (7). Bluepoint also moved under Rule 12 (e) for a
more definite statement. In its memorandum in support of motions filed under Rule 12,
Bluepoint argued that Doughlenders (or now its parent, World Bank) and Duper were necessary
parties. (Duper, by this time, had become an involuntary guest of the federal government). The
judge reserved ruling on these motions.
Fall 2010 Civil Procedure L6101 2 Prof. Shaw
Page 5 of 8

Meanwhile, in 2008, Ms. Smith had consulted with various community leaders on what
she believed to be deceptive banking practices that were destabilizing minority and poor
communities by preying on financially illiterate individuals by inducing them to enter into
subprime loan agreements. Ms. Smiths story came to the attention of Harold Suem, a well
known class action lawyer who convinced Ms. Smith that she would be a perfect named plaintiff
in a class action suit against banks that issued subprime mortgages. Suem told Smith that there
were tens of thousands of victims of deceptive subprime lending practices across the nation,
mostly but not exclusively in minority communities, who has been induced to enter loan
agreements that committed them to mortgages that they could not carry and drove them into
default. Smiths story was a powerful example because she was represented by a particularly
unscrupulous lawyer whose fall from grace would be a useful and tactically important element of
the story they wanted to tell. The class action, styled Smith v. Bluepoint Bank, et. al., was filed
on April 25, 2009 in the U.S. District Court for the Southern District of New York. It alleged
violations of the federal Fair Housing Act, the federal Equal Credit Opportunity Act and its
implementing regulations, federal RICO violations, as well as state and federal claims invoking
statutes barring fraudulent lending practices. The named defendants in addition to Bluepoint
were Doughlenders, now doing business as World Bank, Anthony Duper, Mark Sharkey, CJ
Scan, Inc., and Big Time Entertainment, owner of WSOL Radio (alleged to have violated state
false advertising laws). The essence of the Fair Housing Act claim, as well as the Equal Credit
Opportunity Act, was that the mortgage lending defendants targeted minority communities for
subprime loans and set terms that were more onerous than similarly situated white homebuyers.
Plaintiffs sought injunctive relief prohibiting the mortgage lenders from engaging in
discriminatory, fraudulent, and unfair lending practices; an injunction barring foreclosures on
and evictions of homeowners who were the victims of discriminatory and unfair subprime
lending practices and policies, and unspecified damages and attorneys fees.
When the suit was filed in the clerks office, on the intake form asking, among other
things, whether there was a related case pending involving the same or substantially the same
claims or parties, the paralegal who filed the papers checked the box and wrote in the name and
civil action number of the Smith v. Bluepoint action pending in the Eastern District.
Subsequently the clerks office, sua sponte, transferred the action filed in the Southern District of
New York to the Eastern District, where pursuant to the internal operating district court rule on
related cases it was assigned to Judge Owen.
Defendants Bluepoint, Doughlenders d/b/a/ World Bank, Duper, and Sharkey, each filed
Rule 12(b)(6)motions in the class action suit. They argued that plaintiffs complaint alleged that
defendants discriminated against them under civil rights laws without stating any facts that
would support a finding of intentional racial discrimination, or any race conscious awareness on
defendants part. Defendants further argued in support of their motion to dismiss that the theory
of plaintiffs case, i.e., that Doughlenders and Bluepoint targeted poor minorities for subprime
loans knowing that they would be at high risk of default, did not make logical sense. Citing Bell
Atlantic v. Twombley, the defendants argued that they had no economic interest in driving
mortgagors to default because no bank wants to be a landlord holding delinquent properties. CJ
Scan filed a 12(b)(2) and (6) motion. Finally, defendant Big Time Entertainment, owner of
WSOL filed its own Rule 12 (b)(2) and (6) motions, arguing in support that it is a New Jersey
corporation and that the complaint, beyond a bare accusation of false advertising, did not allege
Fall 2010 Civil Procedure L6101 2 Prof. Shaw
Page 6 of 8

any facts in support of plaintiffs claim against Big Time. Judge Owen again deferred ruling on
these motions.
Judge Owen then issued an order to show cause why the cases should not be consolidated for
trial.

1. You are a lawyer for the plaintiffs in the putative class action case.
What position do you take in response to the courts order to show
cause? What concerns do you have about the judges proposal? What
motions, if any, do you contemplate to protect your clients interests?
2. You are working with Ms. Solo, the lawyer for Ms. Smith in Smith v.
Bluepoint, pending in the Eastern District of New York. What position
do you take in response to the courts order to show cause? What
concerns do you have about the judges proposal? What motions, if any,
do you contemplate to protect you clients interests?
3. You represent Bluepoint, the primary defendant in both cases. What
position do you take on the order to show cause? Do you care if the
cases are consolidated? What motions, if any, do you contemplate to
protect your clients interests?
On June 4, 2009, Judge Owen ordered the two actions to be consolidated for trial. In his
opinion accompanying the order Judge Owen recognized that the two actions differ in that the
case originally filed in state court by Attorney Solo, made broad allegations but sought narrow
relief. The Court, however, finds that the claims and the parties, as well as the relief sought in
these two actions overlap, and in some instances are the same. The court finds that pursuing
these actions separately would be wasteful and inefficient, and would expose the parties to the
risk of inconsistent obligations. Nor can it be said that the interests of the proposed representative
of the putative class are in conflict with the members of the class were it to be certified.

4. Do you see any insurmountable problem(s) to proceeding as Judge

Owen has ruled? Is this an appealable order? If so, explain why it is
appealable and the standard to be applied by the reviewing court. If not,
state why not.

Fall 2010 Civil Procedure L6101 2 Prof. Shaw

Page 7 of 8

5. Assume that Judge Owenss consolidation order stands. You are a law
clerk for the judge, who asks you do provide him with a short bullet
point memorandum suggesting how he should rule on all pending
motions. Identify those motions and suggest how he should rule.
On December 6, 2009, after a hearing on class certification, Judge Owen certified a class of
all mortgage borrowers with subprime loans who were subjected to defendants allegedly
unfair and discriminatory lending practices and who face, have faced, or may face foreclosure
and eviction. On December 22, 2009, plaintiffs moved to preclude defendants from contesting
that the mortgages held by Ms. Smith and others were not the consequence of fraudulent
inducements and discriminatory targeting on the part of Doughlender. Plaintiffs relied on
findings of the disciplinary hearing committee that heard her complaint against now disbarred
attorney Duper. They further relied on his guilty plea in the federal prosecution, for which he is
now serving time. Defendant Bluepoint contended that it could not be precluded, and in any
event that it is not in privity with Doughlender. Plaintiffs point to a New York state law that
provides that a financial institution that is the successor in interest by merger, acquisition,
takeover, or other transaction that transfers the assets of another financial institution to said
institution, is liable at law and in equity for the obligations of the predecessor institution.
Defendants argue that this provision does not apply because Doughlender was not acquired by
Bluepoint; rather it merely sold mortgages to Bluepoint. Plaintiffs, on the other hand, point to a
ruling by the New York Court of Appeals (the highest state court) Megaworld, Inc. v. Little
Guys, Inc., which held that under New York State Civil Practice Law and Rules, the courts
have jurisdiction over disputes concerning consumer fraud, and such jurisdiction can be
extends to corporate successors in interest in consumer loan disputes.

6. You are the law clerk to Judge Owen. Do you have lingering
concerns about his class certification order? How should he rule
on the estoppel argument? How should he rule on the question of
whether the Bluepoint stands in privity with Doughlenders? Does
the Court have to reach the latter question to adjudicate the case[s[
] before it?

END OF EXAMINATION
GOOD LUCK. ENJOY YOUR HOLIDAYS. ALL THE BEST IN THE NEW
YEAR AND IN YOUR LAW SCHOOL CAREER.

Fall 2010 Civil Procedure L6101 2 Prof. Shaw

Page 8 of 8