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On February 1, the FTC announced that the U.S. Bankruptcy Court for the Southern District of Florida ruled that the operator of a computer-financing scheme cannot use his bankruptcy to discharge a $13.4 million judgment entered in 2016 for violating a 2008 FTC order. The FTC alleged that the defendant and his affiliated companies collected more than $14 million from consumers based on promises that they would finance the purchase of new computers but failed to actually deliver the computers. The court determined that the contempt judgment issued in 2016 could not be discharged because it resulted from the defendant’s fraudulent conduct “based on both misrepresentation and concealment.” In a press release describing the ruling, the FTC stated that the defendant’s attempt to shield himself from complying with the order by filing for bankruptcy was an attempt to “avoid justice.”
On November 8, a federal jury for the U.S. District Court for the District of Minnesota awarded the ResCap Liquidating Trust, the post-bankruptcy successor-in-interest to Residential Funding Company, LLC (RFC), a $27.8 million verdict in an indemnity case against a correspondent lender. Shortly after RFC’s bankruptcy plan was confirmed in 2013, the ResCap Liquidating Trust filed indemnity and breach of contract lawsuits against more than 80 correspondent lenders, alleging that the loans RFC purchased from the lenders did not comply with applicable representations and warranties, thereby causing RFC to incur liabilities in the form of bankruptcy-allowed claims.
Before trial, the court excluded certain of the lender’s expert witnesses and concluded that under the relevant contracts, the ResCap Liquidating Trust had sole discretion to determine whether a loan was in breach. Thus, the issues for the jury largely were limited to determining the applicability of certain contracts to the loans and assessing damages for the alleged breaches.
Court orders judgement in favor of defendants in FCRA action based on limitations of Wisconsin “alternative-to-bankruptcy” statute
On October 26, the U.S. District Court for the Eastern District of Wisconsin denied a plaintiff’s motion for summary judgment and instead entered judgement in favor of two creditors and two consumer reporting agencies (collectively, “defendants”), holding that the debtor failed to show a factual inaccuracy in the credit reporting of a debt. According to the opinion, the debtor successfully completed an amortization plan under Section 128.21 of the Wisconsin Statues, an “alternative to bankruptcy” law that allows debtors to file an action that establishes “a personal receivership wherein, much like in a federal Chapter 13 ‘wage earners’ bankruptcy, a person may amortize problem debts through a deliberate and scheduled repayment plan.” Subsequently, the debtor submitted disputes to two consumer reporting agencies that still showed balances due on the credit lines for both creditors. In response, the creditors argued that the debtor understated the balances owed to them during the Section 128.21 proceeding and as a result, a balance still existed. The debtor filed suit against the defendants alleging multiple violations of the FCRA. In response, the defendants argued that the state court order dismissing the debtor’s Section 128.21 action only covers the amount of the debt submitted by the debtor in the Section 128.21 proceeding and does not cover the interest and late charges the debtor failed to include in the claim. The district court agreed and dismissed the action, determining that the Wisconsin statute applies only to claims included in the plan and does not dismiss debts in their entirety. The court concluded, “as a result, unless and until a proper tribunal concludes the [Section 128.21] proceeding eliminated the debts in their entirety or that the plan precludes the accrual of post-filing interest and other penalties, [debtor] cannot establish the reported information is factually inaccurate,” and therefore, the debtor’s FCRA claims failed as a matter of law.
It has been reported that during a hearing on October 29, a judge for the U.S. Bankruptcy Court for the Southern District of New York approved Lehman Brothers Holdings, Inc.’s motion to amend and extend indemnification claims brought against mortgage sellers, allowing Lehman to include an additional $2.45 billion in residential mortgage-backed securities (RMBS) allowed claims from settlements reached earlier this year. As previously reported by InfoBytes, these claims had not yet accrued when the original order was entered pursuant to Federal Rule of Bankruptcy Procedure 9024. Lehman’s prior claims addressed indemnification claims held against roughly 3,000 counterparties involving more than 11,000 mortgage loans related to litigation settlements reached with Fannie Mae and Freddie Mac.
According to the report, the judge stated her decision to allow the amendments will not delay litigation, nor abridge defendants’ rights, as discovery has not yet commenced. The judge’s decision further requires the parties to reach an agreement concerning an alternative dispute resolution regarding the claims.
On October 1, Lehman Brothers Holdings Inc., the firm’s plan administrator, and certain subsidiaries moved to increase the indemnification claims brought against mortgage sellers, seeking to include obligations resulting from more than $2.45 billion in residential mortgage-backed securities (RMBS) trust claims. Lehman’s prior claims addressed indemnification claims held against roughly 3,000 counterparties involving more than 11,000 mortgage loans related to litigation settlements reached with Fannie Mae and Freddie Mac. Lehman now seeks to increase the indemnification claims to include claims from additional settlements reached earlier this year for an additional $2.45 billion in RMBS allowed claims. The proposed amended order does not seek to materially change existing procedures, but only seeks to add claims which had not accrued when the original order was entered pursuant to Federal Rule of Bankruptcy Procedure 9024. Lehman asserts the amendment is appropriate under Bankruptcy Rule 7015 and would benefit the creditors by “expediting the resolution and recovery on account of such claims and by increasing distributions to creditors.”
On August 16, the U.S. District Court for the Northern District of California approved a $1.8 million class action settlement resolving allegations that a national bank’s soft credit report inquiries were not permitted under the Fair Credit Reporting Act (FCRA). In 2015, a consumer filed the class action complaint alleging that the bank pulled his credit information without consent following a bankruptcy. The consumer alleged that because his debts to the bank had been discharged, the bank did not have a “permissible purpose” to pull the credit information. The approved settlement covers 114,512 claimants, who state their credit reports were accessed without permission by the bank, and grants each claimant $4.06. The settlement also requires the bank to pay attorneys’ fees and litigation costs for the plaintiff.
On July 27, the U.S. Court of Appeals for the 5th Circuit affirmed a district court’s decision following a bench trial to dismiss plaintiffs’ allegations that a bank violated an automatic stay imposed during one of the plaintiff’s (debtor) bankruptcy schedules when it took foreclosure action, holding that the plaintiffs were barred by judicial estoppel from pursuing claims because the debtor failed to amend his bankruptcy schedules to disclose a quitclaim deed for his mortgage or note a change in his financial status. In this case, the debtor filed a Chapter 13 bankruptcy, but failed to list the address or creditor information for a property in which he had entered into an equity sharing agreement with his son. When the son signed a quitclaim deed conveying the property to the debtor, the deed was recorded but not listed on the bankruptcy schedules.
According to the appellate court, the debtor failed to “disclose an asset to a bankruptcy court, but then pursue[d] a claim in a separate tribunal based on that undisclosed asset” when it filed a lawsuit against the bank for wrongful foreclosure. The doctrine of judicial estoppel requires that three elements be met: (i) “the party against whom estoppel is sought has asserted a position plainly inconsistent with a prior position”; (ii) “a court accepted the prior position”; and (iii) "the party did not act inadvertently.” The court held the first two elements were met by the plaintiff’s failure to amend his bankruptcy schedules to disclose the quitclaim deed or his legal action against the bank. The court noted, however, the debtor’s actions were not inadvertent because he was aware of the inconsistency and had a motive to conceal the asset. The appellate court specifically noted the motive to conceal was “self-evident” because the debtor’s failure to disclose his changed financial status had the potential to provide a financial benefit to the debtor. The appellate court further held that the district court did not abuse its discretion in denying plaintiffs' motion for a new trial, and that, moreover, the plaintiffs failed to show that the district court abused its discretion when it chose to exclude several of their exhibits.
On May 17, the Colorado Court of Appeals held that an attorney fees award imposed under the Colorado Consumer Protection Act (CCPA) is a civil penalty and is not dischargeable under the Bankruptcy Code. According to the opinion, the State of Colorado sued a law firm, its owners, and affiliated companies for allegedly violating the CCPA and the Colorado Federal Debt Collection Practices Act (CFDCPA) by fraudulently billing mortgage servicers for full costs associated with title insurance premium charges even though not all the costs were incurred. The district court agreed with the State and awarded attorney fees and costs for the violations. In the appeal, one of the defendants argued, among other things, that the district court was precluded from awarding attorney fees because his debts had previously been discharged in bankruptcy. In affirming the district court’s decision, the appeals court concluded that attorney fees awards made under the CCPA and the CFDCPA are not dischargeable because the award “made under the CCPA’s mandatory provision was sufficiently penal to constitute a ‘fine, penalty or forfeiture’ under § 523(a)(7) [of the Bankruptcy Code] and was not dischargeable.”
Supreme Court of Appeals for West Virginia upholds summary judgment for consumer against check cashing company
On May 11, the Supreme Court of Appeals of West Virginia affirmed summary judgment for a consumer who alleged a check cashing company and its debt collector violated the West Virginia Consumer Credit and Protection Act (WVCCPA) by contacting her multiple times after being notified of her Chapter 7 bankruptcy filing. According to the opinion, the consumer filed a Chapter 7 petition for bankruptcy in February 2012 and the cash checking company was notified on or about March 6, 2012 of the filing. On March 9, the company, in response to the bankruptcy notice, sent a letter to the consumer notifying her collection efforts would be stayed but the company would be pursuing a criminal complaint against her. Additionally, a debt collection agency under contract with the company contacted the consumer five additional times in attempt to collect the debt. The trial court first granted the consumer’s motion for summary judgment in part, finding that the company violated the WVCCPA by not contacting the consumer’s attorney and by threatening criminal prosecution even though the company was aware of the bankruptcy filing. The court awarded the consumer over $19,000 in statutory damages. Subsequently, the trial court granted the consumer’s second motion for summary judgment, holding, among other things, that the company instructed the debt collector to contact the consumer despite having “actual knowledge” that an attorney represented the consumer. The court granted additional statutory damages in the amount of $18,000 and awarded attorney’s fees and costs.
Upon appeal, the Supreme Court of Appeals concluded that the check cashing company’s violations of the WVCCPA were deliberate and intentional, and therefore, the trial court did not abuse its discretion by awarding the consumer over $37,000 in damages and attorney’s fees.
On April 3, the U.S. District Court for the Eastern District of Pennsylvania denied a motion to move an action, filed by a group of online payday lenders (defendants), from Pennsylvania to Texas. The defendants—who filed for bankruptcy in Texas last year—sought to centralize lawsuits referred to by the court as ”rent-a-bank” and “rent-a-tribe” schemes. (See previous InfoBytes coverage on the allegations here.) The defendants argued that the presumption of trying cases related to a bankruptcy proceeding in the court where the proceeding is pending, which is commonly recognized under 28 U.S.C. Section 1412, should apply. The court, however, found that Section 1412’s presumption of transfer does not apply to police and regulatory actions. In support, the district court cited to a Montana federal judge’s decision this past January, which denied a transfer request in a similar suit brought by the CFPB against one of the defendants. In the summary of its findings, the court noted “[s]imply put, Congress has favored the interest of permitting states’ regulatory and police actions to independently proceed over the interest in centering the administration of the defendant’s related bankruptcy proceedings.”
- Michelle L. Rogers to discuss "Preparing for servicing exams in the current regulatory environment" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jon David D. Langlois to discuss "Regulatory risks of convenience fees" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- APPROVED Webcast: NMLS Annual Conference & Ombudsman Meeting: Review and recap
- Brandy A. Hood to discuss "Keeping your head above water in flood insurance compliance" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Melissa Klimkiewicz to discuss "Servicing super session" at the Mortgage Bankers Association National Mortgage Servicing Conference & Expo
- Jessica L. Pollet to discuss "Law & compliance speedsmarts" at the American Financial Services Association Law & Compliance Symposium
- Daniel P. Stipano to discuss "Lessons learned from recent high profile enforcement actions" at the Florida International Bankers Association AML Compliance Conference
- Moorari K. Shah to provide "Regulatory update – California and beyond" at the National Equipment Finance Association Summit
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Aaron C. Mahler to discuss "Regulation B/fair lending" at the National Association of Federally-Insured Credit Unions Spring Regulatory Compliance School
- Heidi M. Bauer to discuss "'So you want to form a joint venture' — Licensing strategies for successful JVs" at RESPRO26
- Jonice Gray Tucker to discuss "Small business & regulation: How fair lending has evolved & where are we heading?" at CBA Live
- Jonice Gray Tucker to to discuss "DC policy: Everything but the kitchen sink" at CBA Live
- Daniel P. Stipano to discuss "Lessons learned from ABLV and other major cases involving inadequate compliance oversight" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "A year in the life of the CDD final rule: A first anniversary assessment" at the ACAMS International AML & Financial Crime Conference
- Moorari K. Shah to discuss "State regulatory and disclosures" at the Equipment Leasing and Finance Association Legal Forum
- Hank Asbill to discuss "Creative character evidence in criminal and civil trials" at the Litigation Counsel of America Spring Conference & Celebration of Fellows
- Hank Asbill to discuss "Pay no attention to the man behind the curtain: Addressing prosecutions driven by hidden actors" at the National Association of Criminal Defense Lawyers West Coast White Collar Conference
- Daniel P. Stipano to discuss "Keep off the grass: Mitigating the risks of banking marijuana-related businesses" at the ACAMS AML Risk Management Conference
- Daniel P. Stipano to discuss "Mid-year policy update" at the ACAMS AML Risk Management Conference
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program