The United States Supreme Court on Wednesday resolved the long-standing circuit split on whether an offer to satisfy the named plaintiff’s individual claims is sufficient to render a case moot when the complaint seeks relief on behalf of the plaintiff and a class of similarly situated individuals. In a 6-3 decision authored by Justice Ginsburg, the Supreme Court held that an unaccepted settlement or Rule 68 offer cannot moot a class action. However, the Court refused to address and explicitly left open the question of whether its ruling would be different if a defendant deposited the full amount of the plaintiff’s individual claim in an account payable to the plaintiff, and the court then entered judgment for the plaintiff in that amount. By leaving this question open, defendants in a position to unilaterally provide complete relief may still be able to “pick off” putative class representatives and avoid class action suits. Read more…
On January 28, the U.S. District Court for the Western Division of Washington, having determined that a mortgage loan servicer violated the Real Estate Settlement Procedures Act (RESPA) and committed the tort of outrage, ordered the servicer to pay more than $200,000 in economic and emotional distress damages to a borrower. Lucero v. Cenlar FSB, No. 13-0602 (W.D. Wash. Jan. 28, 2016). The borrower and servicer had agreed to a loan modification in early 2013. However, the borrower believed that the servicer was misreporting her loan as delinquent, in spite of the modification. In April 2013, the borrower filed a lawsuit against the mortgage servicer alleging “that [it] violated its credit reporting obligations” and “seeking damages related to the way in which [the mortgage servicer] (and others) had sought to foreclose on her mortgage.” The servicer then began charging the plaintiff for attorney’s fees and costs that it was incurring in defending the ongoing litigation. The plaintiff requested additional information regarding the charges on numerous occasions, but it was not until June 2014 that the servicer’s counsel said “that the fees that were charged to her account had incurred in this litigation, that they are recoverable under the Deed of Trust, and that the notifications were required by a federal regulation.” The court found that the servicer “failed to timely and fully respond to [the plaintiff’s] March 25, 2014 requests for information regarding the nature of and jurisdiction for the fees that were appearing on her monthly statements,” a violation RESPA, which requires “servicers to respond to a qualified written request…for information within specified time frames.” It also held that the charging of attorney’s fees to the borrower was not permitted under the Deed of Trust under the circumstances. In awarding emotional distress damages, the court stated that the servicer’s message to the plaintiff – “continue this litigation and we will take your home” – was “beyond the bounds of decency and  utterly intolerable.”
District Court Denies Motion to Dismiss, Rules Compliance Officers Responsible for AML Program Failures
On January 8, the U.S. District Court of Minnesota ruled that individual officers of financial institutions may be held responsible for ensuring compliance with anti-money laundering laws under the Bank Secrecy Act (BSA). U.S. Dep’t of Treasury v. Haider, No. 15-cv-01518, WL 107940 (Dist. Ct. Minn. Jan. 8, 2016). In May 2015, defendant Thomas Haider filed a motion to dismiss the U.S. Department of the Treasury’s December 2014 complaint against him. The Treasury’s complaint alleged that Haider failed in his responsibility as the Chief Compliance Officer for an international money transfer company to ensure that “the Company implemented and maintained an effective AML program and complied with its SAR-filing obligations.” The complaint sought a $1 million judgment against Haider and enjoined him from working for, either directly or indirectly, any “financial institution” as defined in the BSA. In his motion to dismiss, Haider contended that the Treasury’s complaint should be dismissed because, among other reasons, 31 U.S.C. § 5318(a) permits the imposition of a penalty for AML program failures against an entity, not an individual. However, the District Court of Minnesota dismissed Haider’s motion, ruling that the BSA’s more general civil penalty provision, § 5321(a)(1), could subject a partner, director, officer, or employee of a domestic financial institution to civil penalties for violations “of any provision of the BSA or its regulations, excluding the specifically excepted provisions.” Read more…
Oil and Gas Company Files Lawsuit Against Drilling Partners Challenging Post-FCPA Settlement Reticence
On January 11, a Houston-based oil and gas company filed suit in the U.S. District Court for the Southern District of Texas against its drilling partners in the company’s Guinean operations. The company claims that the drilling partners have unjustly delayed performing the work called for by their operating agreement because of uncertainty over whether the government of Guinea would terminate its drilling agreement with the company in light of the FCPA investigation into the company. That investigation was resolved by a declination letter issued by DOJ in May 2015 and a settlement with the SEC in October 2015. (See previous InfoBytes coverage of that investigation here and here.) The company is seeking a ruling that the drilling partners are in violation of the operating agreement and an order forcing them to fulfill their obligations.
In a November 2015 SEC filing, the company reported a complete lack of operating revenue and warned that further delays in fulfilling requirements imposed by the government of Guinea could result in a loss of the company’s concession to drill in the country. This case illustrates the potential business risks posed by an FCPA investigation—even if it is resolved on relatively favorable terms.
On January 6, the Court of Appeals for the Second Circuit affirmed the Southern District of New York’s decision to dismiss a derivative action alleging that the Chief Executive Officer, Chairman of the Board of Directors, ten other Board members, and two former corporate officers and advisers of the nominal defendant financial institution ignored “glaring ‘red flags’ of suspicious and illicit misconduct associated with” Bernard Madoff’s Ponzi scheme and Madoff’s investment advisory unit’s account with the institution. Cent. Laborers’ Pension Fund v. Dimon, No. 14-4516, (2nd Cir. Jan. 6, 2015). In July 2014, “the District Court dismissed plaintiffs’ complaint on the ground that they ‘failed to allege with particularity facts sufficient to excuse [their] failure to make demand upon the Board prior to filing’ their action.” The District Court found that the plaintiffs had not alleged that the defendants (i) “‘utterly failed to implement any reporting or information system or controls’”; or (ii) “‘having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention.’” (quoting Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006)). The District Court further found that because the plaintiffs only claimed that the financial institution’s controls were “inadequate,” as opposed to nonexistent, they were unable to maintain a Caremark action, i.e., an action for failure to monitor. See Caremark Int’l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996). Read more…
On December 14, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s ruling that a 2009 amendment to TILA, which requires creditors to provide borrowers with written notice of the sale or transfer of mortgages, does not apply retroactively. Talaie v. Wells Fargo Bank, No. 13-56314 (9th Cir. Dec. 14, 2015). In the putative class action case, plaintiffs alleged that one of the defendants transferred the deed of trust to the other defendant without providing notice to the borrowers, three years prior to the passage of the TILA amendment. Citing to Supreme Court precedent, the court reasoned that the presumption against retroactive legislation is “deeply rooted in our jurisprudence,” which can only be overcome by a clear and unambiguous Congressional intent. Id (citing Landgraf v. USI Film Prods., 511 U.S. 244, 265 (1994)). Applying Landgraf, the Ninth Circuit held that retroactive application here would (i) impair defendants’ rights at the time when they acted because they could do so without providing notice to the borrowers; (ii) increase the defendants’ “liability for past conduct”; and (iii) impose “new duties” on transactions already completed. The Ninth Circuit further concluded that Congress did not demonstrate a clear or unambiguous intention for the 2009 amendment to be given retroactive effect.
On December 2, a Florida court of appeals issued a decision reinforcing and clarifying the state’s lien priority law. U.S. Bank Nat’l Ass’n v. Grant, No. 4D14-979 (Fla. Dist. Ct. App., Dec. 2). At issue in the case was whether a homeowner’s association (HOA) lien on real property took priority over a mortgagee’s lien on the same property, where the mortgage was recorded prior to the association’s delinquency lien against the homeowners, but after the recording of the Declaration of Covenants and Restrictions for the HOA. The court held that the HOA lien did not take priority over the mortgage lien because, under Florida common law applicable to liens filed prior to July 1, 2007, the HOA lien could only relate back to the filing of the earlier declaration if the declaration “contain[s] specific language indicating that the lien relates back to the date of the filing of the declaration or that it otherwise takes priority over intervening mortgages.” In this case, the declaration did not contain the required language to put parties on notice of ongoing, automatic liens until the payment of periodic HOA fees. Therefore, the HOA lien did not relate back to the filing of the declaration to give the HOA lien priority over the mortgagee’s lien.
The lawsuit is one of a number filed in 2015 – including a November 6 complaint against the NBA – under the ADA against companies operating websites with alleged digital barriers preventing blind individuals from accessing the electronic marketplace. According to a DOJ statement regarding its regulatory plans, rulemaking initiatives regarding the accessibility of web information and services provided by public accommodations are not scheduled to be included in the agency’s long-term actions until fiscal years 2017 and 2018.
On November 19, the Court of Appeals for the Second Circuit affirmed the Southern District of New York’s decision to dismiss a case alleging that two leading credit card issuing banks schemed to require that disputes be settled in arbitration, as opposed to class action lawsuits. The plaintiffs challenged the District Court’s decision on the grounds that language in United States v. General Motors Corp. should be used “to adopt a rule that the existence of conspiracy is a legal conclusion subject to review de novo.” Ross v. Citigroup, Inc., No. 14-1610 (2nd Cir. Nov. 19, 2015). Plaintiffs further argued that the District Court’s conclusion that the defendants’ actions did not constitute as conspiracy in violation of the Sherman Act should not be shielded by the “clearly erroneous” test. The District Court analyzed various “plus factors,” including motive, the quantity and nature of inter-firm communications, and whether the arbitration clauses were “artificially standardized” because of an illegal agreement, to determine whether or not conspiracy existed among the credit card issuing banks. The District Court concluded that the credit card issuing banks’ final decision to implement class-action-barring clauses was reached “individually and internally.” Stating that General Motors has never been applied as generously as the plaintiffs argued for it to be, the Second Circuit’s review of the record found the District Court’s conclusion plausible and not “clearly erroneous.”
Second Circuit Upholds District Court Decision, Applies New York’s Six-Year Limitations Period on Contractual Claims
On November 16, the Court of Appeals for the Second Circuit affirmed the Southern District of New York’s decision to dismiss a leading global bank’s complaint against a nonbank mortgage lender alleging breach of contractual obligations to repurchase mortgage loans that violated representations and warranties. Deutsche Bank Nat’l Trust Co. v. Quicken Loans Inc., No. 14-3373 (2nd Cir. Nov. 16, 2015). The bank, under its right as Trustee of the loans, alleged that the lender breached aspects of representations and warranties contained in a 2006 Purchase Agreement, including those related to (i) borrower income; (ii) debt-to-income ratios; (iii) loan-to-value and combined loan-to-value ratios; and (iv) owner occupancy. The bank’s complaint also alleged that it sent the lender a series of notification letters between August 2013 and October 2013 demanding cure or repurchase of the loans, which the lender allegedly failed to do without justification. The bank challenged the District Court’s decision by arguing that New York’s six-year statute of limitations on contractual claims did not apply because the terms of the representations and warranties contained an “Accrual Clause” placing future obligations on the lender. Read more…
On November 6, a legally blind individual filed a complaint against the NBA, alleging a violation of the Americans with Disabilities Act and seeking a permanent injunction requiring the NBA to (i) implement corporate policies that ensure website accessibility for the blind; and (ii) format its website so that it is compatible with screen reading or text-to-audio software, upon which the visually impaired rely to use the internet. Jahoda v. National Basketball Association No. 2:15-cv-01462 (W.D. Pa. Nov. 6, 2015). The complaint asserts that merely formatting the website so that it is compatible with a screen reader will not solve the larger issue: “Web-based technologies have features and content that are modified on a daily, and in some instances an hourly, basis, and a one time ‘fix’ to an inaccessible website will not cause the website to remain accessible without a corresponding change in corporate policies related to those web-based technologies.” According to the complaint, the defendant’s website denies blind individuals equal access to the site because (i) information provided by scripting language is not identified with functional text that can be read by assistive technology; and (ii) people using assistive technology do not have access to the information, field elements, and functionality required to complete and submit an electronic form.
Recently, the District Court for the District of Columbia issued an opinion recognizing a company’s right to maintain privacy when challenging a CFPB Civil Investigative Demand (CID). John Doe Company No. 1 v. CFPB, No. 1:15-cv-1177 (D.D.C. Oct. 16, 2015). After receiving a CID from the Bureau, the Plaintiffs requested that the CFPB allow counsel to be present at a voluntary investigative hearing; the Plaintiffs’ request and subsequent petition to the CFPB were denied. On July 22, 2015, Plaintiffs filed a complaint against the CFPB seeking a temporary restraining order (TRO) and a motion to seal the case, arguing that sealing was appropriate because (i) CFPB investigations are normally nonpublic; and (ii) sealing the case would protect Plaintiffs from the harm that an ongoing investigation would cause if it were disclosed to the public. The court applied a six-factor test established by the D.C. Circuit in United States v. Hubbard to determine whether the court records should be released, considering the need for public access to the documents, the strength of the property and privacy interests involved, the possibility of prejudice against the Plaintiffs, and other factors. In a “compromise [to maximize] the amount of information available to the public while still protecting the privacy interest Plaintiffs assert,” the court ruled to unseal the case but ordered Plaintiffs to file redacted versions of all files pertaining to the case, omitting the names of Plaintiffs and “any other information reasonably likely to lead to the disclosure of Plaintiffs’ identities.”
Maryland Court of Special Appeals Holds MCSBA Applies to Loan Broker Working with Federally Insured Out-of-State Banks
On October 27, the Maryland Court of Special Appeals held that a loan broker who originates loans in Maryland for a federally insured out-of-state bank and then repurchases those loans days later qualifies as a “credit service business” under the Maryland Credit Services Business Act (MCSBA) and must be licensed accordingly. Md. Comm’r of Financial Reg. v. CashCall, No. 1477, 2015 WL 6472270 (Md. Ct. Spec. App. Oct. 27, 2015). The loan broker argued, citing Gomez v. Jackson Hewitt, Inc., 427 MD. 128 (2012), that it was not a “credit service business” within the meaning of the MCSBA because the MCSBA did not apply to the out-of-state federally insured bank that made the loans and because the loan broker did not receive a direct payment from the consumer. The Commissioner and the court disagreed. In affirming the Commissioner’s decision and in overturning the decision of the Circuit Court for Baltimore, the Court of Special Appeals reasoned that the MCSBA applied because (i) the loan broker was engaged in the very business the MCSBA was intended to apply to (i.e. it was exclusively engaged in assisting Maryland consumers to obtain small loans); and (ii) after repurchasing the loan, the loan broker had the right to receive direct payment from consumers. The Court of Special Appeals remanded the case to the Circuit Court for Baltimore.
On October 28, the U.S. District Court for the Northern District of Illinois filed a default judgment and order against a for-profit college company to resolve litigation with the CFPB. In a September 2014 lawsuit, the CFPB alleged that the company engaged in unfair and deceptive practices by making false and misleading representations to students to encourage them to take out private student loans. The CFPB also alleged that the company violated the FDCPA by taking aggressive and unfair action to collect on the loan payments when they became past due. The court order requires the company to pay approximately $531 million in redress to student borrowers, which the company is unable to pay because it has dissolved and its assets have been distributed in its bankruptcy case. The CFPB indicated that it will continue to seek additional relief for students affected by the company’s practices despite the company’s inability to pay the judgment.
On October 13, the Northern District of Alabama entered an order compelling an employer and employee to arbitration where the employer demonstrated the existence of an electronic arbitration agreement. Yearwood v. Dolgencorp, No. 6:15-cv-00898-LSC, 2015 U.S. Dist. LEXIS 138993 (N.D. Ala. Oct. 13, 2015). The employee provided an affidavit denying ever having seen or signed such a form electronically. The court held that under the Alabama version of the Uniform Electronic Transactions Act, the burden of proving attribution of the signature to the employee falls on the employer. In support of its motion to compel arbitration, the employer offered evidence demonstrating its practice of requiring employees to complete a series of electronic forms upon hiring, which included the arbitration agreement. The employer also produced evidence demonstrating that the arbitration agreement was executed by someone using the employee’s unique access credentials (user ID and password) on the employer’s online hiring system, and that the employee’s password had to be re-entered at the time of signing. The employer also produced evidence that the employee agreed to use the electronic signature system and agreed to keep her password confidential. Weighed against the employer’s proof of its process and records demonstrating execution, the court held that employee’s blanket denial by affidavit was insufficient to rebut the proof of attribution. The court found that the signature on the arbitration agreement was attributable to the employee and ordered the parties to arbitrate.