On January 15, an Army Reserve sergeant filed a class action suit against a large national bank for allegedly violating the SCRA limitation on a lender’s ability to foreclose on an active duty service member’s property. According to the complaint, the bank violated the law by foreclosing on the plaintiff’s home and seizing personal property while the sergeant was on active duty. Wensel et al v. The Bank of New York, No 2:15-cv-00068, (W.D. Penn. Jan. 15, 2015)
On January 21, the U.S. Supreme Court heard oral arguments in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, in which Texas challenged the disparate impact theory of discrimination under the Fair Housing Act (FHA). In their questions to counsel, the Justices focused on (i) whether the phrase “making unavailable” in the FHA provides a textual basis for disparate impact, (ii) whether three provisions of the 1988 amendments to the FHA demonstrate congressional acknowledgement that the FHA permits disparate impact claims, and (iii) whether the Court should defer to HUD’s disparate impact rule. The Court is expected to issue its ruling by the end of June. For more information on the oral argument, please refer to our previously issued Special Alert.
Supreme Court Holds That Notice of Rescission Is Sufficient For Borrowers to Exercise TILA’s Extended Right to Rescind
As previously reported in our January 15 Special Alert, the Supreme Court held in Jesinoski v. Countrywide Home Loans, Inc. that a borrower seeking to rescind a loan pursuant to the Truth In Lending Act’s (“TILA’s”) extended right of rescission need only submit notice to the creditor within three years to comply with the three-year limitation on the rescission right. TILA gives certain borrowers a right to rescind their mortgage loans. Although that right typically lasts only for three days from the time the loan is made, 15 U.S.C. § 1635(a), it can extend to three years if the creditor fails to make certain disclosures required by TILA, 15 U.S.C. § 1635(f). Petitioners in the case had mailed a notice of rescission to Respondents exactly three years after the loan was made and Respondents responded shortly thereafter by denying that Petitioners’ had a right to rescind. A year after submitting their notice of rescission—four years after the loan was made—Petitioners filed a lawsuit seeking a declaration of rescission and damages. In his opinion for the unanimous Court, Justice Scalia stated that the statutory language “leaves no doubt that rescission is effected when the borrower notifies the creditor of his intention to rescind. It follows that, so long as the borrower notifies within three years after the transaction is consummated, his rescission is timely.” BuckleySandler submitted an amicus curiae brief in the case on behalf of industry groups, arguing that notice alone is insufficient to effectuate rescission under Section 1635(f).
On January 6, a large national bank filed a motion to dismiss a suit alleging it charged improper overdraft fees. Filed last year in the Central District of California, the suit claims the bank violated federal and state laws – the EFTA and California’s unfair competition law – by posting customers’ larger debit transactions first, causing customer accounts to deplete faster resulting in more overdraft fees. In its motion, the bank claims it voluntarily stopped charging overdraft fees for one-time debit card transactions and most ATM withdrawals prior to the effective date of the amended regulations. The bank also argues that state law claims regarding good faith practices are preempted by the federal National Banking Act (NBA). The matter is scheduled to be heard on March 3. Stanionis et al v. Bank of America, No. 14-cv-2222
On December 29, the U.S. District Court for the District of Delaware dismissed a class action accusing a payday lender of consumer fraud. Zieger v. Advance America, No. 13-cv-1614 (D. Del. Dec. 29, 2014). Filed in 2013, the suit sought damages on behalf of borrowers who obtained loans from the lender on allegedly “unconscionable and incomprehensible” terms. Among these terms, from which the plaintiff had opted out, was a dispute resolution provision that effectively prohibits a borrower’s right to a jury trial. In its order, the Court ruled that the plaintiffs’ claims of the lender’s misrepresentations lacked specificity and that general attacks on payday lending were not sufficient to support fraud claims. The Court granted the lender’s motion to strike the class allegations and also granted the plaintiff leave to amend the complaint with class allegations pertaining to those similarly situated borrowers who may have also opted out of the dispute resolution clause.
District Court Denies Motion to Dismiss Class Action Against Debt Collection Firm Over “Misleading” Collection Letters
On December 15, the U.S. District Court for the District of New Jersey denied a motion to dismiss a class action suit against a fund and law firm specializing in debt collection. Marucci et al v. Cawley & Bergmann, LLP et al, No. 13-cv-4884 (D.N.J. Dec. 15, 2014). The suit claims that the firm violated the FDCPA by not informing consumers that interest was accruing on the amount specified in their collection letters. According to the complaint, the debt collection letters used by the firm “would lead the least sophisticated consumer to believe that payment of the amount stated in the letter would satisfy the Debt, when in fact interest is accruing and the consumer may still owe additional accrued interest.” The court found that the plaintiff’s interpretation of the letter was sufficiently reasonable to state a claim.
Recently, the U.S. District Court for the District of Florida denied a major bank’s motions to vacate and modify a judgment that awarded a Florida couple a total of $1,051,000 – approximately $1,500 per unauthorized call. Coniglio v. Bank of America, N.A., No. 8:14-CV-01628-EAK-MAP (M.D. Fla. December 4, 2014). In a complaint filed in July, the couple claimed the bank violated the Telephone Consumer Protection Act after they received over 700 calls in four years, including calls from an automated telephone dialing system, without their consent. The calls began as a result of the couple falling behind on their mortgage payments in 2009. In October, the Court agreed with the couple’s claims and ordered the bank to pay the awarded amount.
On December 10, the U.S. Court of Appeals for the Second Circuit overturned, and further, dismissed two of the DOJ’s insider trading convictions. United States of America v. Newman and Chiasson, Nos. 13-1837-cr(L), 13-1917-cr(con) (2nd Cir. Dec. 10, 2014). In a 28-page decision, the Court noted “erroneous” jury instruction, the Government’s lack of evidence that personal benefit was received by the alleged insiders, and the inability to prove the alleged insiders actually knew that they were trading on inside information. The ruling now narrows the scope of what constitutes insider trading and will likely impact other pending insider-trading cases. It is anticipated that the Government will appeal the Court’s decision.
On December 8, the U.S. Court of Appeals for the Third Circuit held that application of Dodd-Frank’s Anti-Arbitration provision did not apply to causes of action asserted under the Anti-Retaliation Dodd Frank Provision due to the limiting language of the arbitration law. Khazin v. TD Ameritrade Holding Corp, No. 14-1689 (3rd Cir. Dec.8, 2014). In 2013, the plaintiff filed suit in the District of New Jersey alleging that he had been fired in the preceding year for whistleblowing. According to the complaint, the retaliation occurred after the plaintiff questioned a supervisor about the pricing of a financial product that did not comply with relevant securities regulations. The District Court ruled that Dodd Frank’s Anti-Arbitration Provision did not prohibit the enforcement of arbitration agreements that were signed before the enactment of Dodd-Frank. Rather than deciding on the timing issue, however, the Court of Appeals upheld the decision on statutory construction grounds based on the limiting language of the Anti-Arbitration provision indicating that it only applied to causes of action contained within the same section, and not all allegations under Dodd-Frank.
On November 25, 2014, the U.S. District Court for the Eastern District of Michigan applied the state’s three-year statute of limitations for conversion in granting a motion to dismiss a servicemember’s claims of wrongful foreclosure and eviction under the SCRA. Johnson v. MERS, Inc., No. 14-CV-10921, 2014 WL 6678951 (E.D. Mich. Nov. 25, 2014). The plaintiffs argued that, because the SCRA does not explicitly provide its own limitations period within which a suit must be brought, there was no limit for SCRA-based claims; however, the court rejected this argument. Following Supreme Court precedent, the court looked to the most analogous state law and applied its limitations period to the plaintiffs’ SCRA claim. The court considered, and ultimately rejected, plaintiffs’ argument to apply Michigan’s unlimited limitations period for egregious acts under the state’s criminal law. Similarly, the court held that both the ten-year limitations period for breach of contract and the six-year catch-all limitations period did not apply. Ultimately the court concluded that Michigan’s three-year statute of limitations for civil conversion claims was the most analogous to plaintiffs’ SCRA claims. As a result, plaintiffs’ claims were dismissed as time-barred.
On December 2, District Judge Paul Magnuson denied Target’s motion to dismiss the class action suit brought by banks in response to its 2013 data breach. In re: Target Corporation Customer Data Security Breach Litigation, MDL No. 14-2522 (D. Minn., Dec. 2, 2014). The banks have alleged four claims against Target: (i) a general negligence claim that Target breached its duty to provide security and prevent the data breach; (ii) that Target violated Minnesota’s Plastic Security Card Act (PSCA) by retaining customer data which was subsequently stolen; (iii) that a violation of the PSCA is negligence per se; and (iv) a negligent misrepresentation by omission claim that Target made public statements regarding the strength of their data security system when they knew or should have known it was deficient. The first three were allowed to proceed and the last was dismissed with leave to amend the complaint for a failure to allege the requisite reliance upon Target’s assertion of its secure system. Notably, Judge Magnuson found that the PSCA applies to all transactions completed by a company operating in Minnesota, not just transactions occurring within the state.
Tenth Circuit Reverses District Court Ruling, Allows Credit Union To Pursue Lawsuit Against Mortgage Lender For Misappropriating Loan Funds
Recently, the United States Court of Appeals for the Tenth Circuit reversed a district ruling allowing a Texas-based credit union to sue against a mortgage lender. In 2003, the credit union’s predecessor in interest entered into a funding service agreement with the mortgage lender which originated 26 mortgage loans to individual borrowers. The credit union alleged that the mortgage lender and its closing agents wrongfully induced the predecessor to fund loans to “straw borrowers” as a vehicle to misappropriate $14 million in loan proceeds. In 2007, the credit union and its predecessor in interest entered into a purchase and assumption agreement (PAA). According to the Court, when two parties to a contract agree to its terms, as pursuant to the PAA, a third party cannot object. Further, the Court noted that, because of the PAA, the credit union had all rights to pursue claims on behalf of the predecessor in interest. A district court had previously ruled that the credit union was not a proper plaintiff and dismissed the case. The dismissal was reversed. Security Service FCU v. First American Mortgage Funding, LLC, No. 13-1133 (10th Cir. Nov. 4, 2014).
Second Circuit Court of Appeals Prohibits Courts from Granting Garnishment Orders Against Foreign Bank Branches
On November 14, the Second Circuit Court of Appeals upheld the District Court for the Southern District of New York’s October 23 ruling that prohibited courts from granting garnishment orders against certain banks for assets maintained at bank branches. The Second Circuit noted that it had previously certified to the New York Court of Appeals the following question: “whether the separate entity rule precludes a judgment credit from ordering a garnishee bank operating branches in New York to restrain a debtor’s assets held in foreign branches of the bank.” The New York Court of Appeals held that according to New York’s separate entity rule, a creditor does not have the authority to freeze assets held at a foreign branch. The New York Court of Appeals rejected the plaintiffs’ argument that in Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009), New York abandoned the requirements of the separate entity rule, observing that “abolition of the separate entity rule would result in serious consequences in the realm of international banking to the detriment of New Yorkʹs preeminence in global financial affairs.ʺ Upholding the District Court’s October 23 ruling, the Second Circuit Court of Appeals ordered that the District Court annul the restraining order on the defendants’ assets. Motorola Credit Corp. v. Nokia Corp., No. 13-2535-cv (2d Cir. Nov. 14, 2014).
Recently, a federal district court held that a homeowners association (HOA) foreclosure sale is not valid against HUD-insured loans. The District Court noted that the Ninth Circuit has held that federal rather than state law applies in cases involving FHA-insured mortgages to assure the protection of the federal program against loss, state law notwithstanding. The court reasoned, therefore, that in situations where a mortgage is insured by a federal agency under the FHA insurance program, state laws cannot operate to undermine the federal agency’s ability to obtain title after foreclosure and resell the property. Because an HOA foreclosure on property insured under the FHA insurance program would have the effect of limiting the effectiveness of the remedies available to the United States, the District Court held that the Supremacy Clause of the U.S. Constitution bars such foreclosure sales and renders them invalid. Washington & Sandhill Homeowners Association v. Bank of America and HUD, U.S. Dist. Ct., District of Nevada, No. 2:13-cv-01845-GMN-GWF (Sept. 25, 2014).