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7th Circuit affirms summary judgment for mortgage servicer in ECOA lawsuit
On October 18, the U.S. Court of Appeals for the 7th Circuit affirmed summary judgment for a mortgage servicer, holding that the plaintiff homeowners failed to show racial discrimination in violation of the Equal Credit Opportunity Act (ECOA) when the servicer required the homeowners to bring the prior loan current before assuming it. According to the opinion, the homeowners purchased a home from the previous homeowner with an existing mortgage. Soon after the purchase, the homeowners learned that the previous owner had stopped making his mortgage payments and that the bank had begun to foreclose on the home. After receiving notice of foreclosure, the homeowners tried repeatedly to assume the previous owner’s mortgage which the mortgage servicer conditioned on the homeowners bringing the loan current. Unable to do so, the homeowners sued, bringing various state and federal law claims, including under ECOA, after an employee of the servicer allegedly made a remark that implied that the homeowners were not being allowed to assume the loan because of their race. The district court rejected the claims and entered summary judgment for the mortgage servicer.
On appeal, the 7th Circuit affirmed, concluding that the homeowners failed to counter the servicer’s representation that they never produced a complete application. Moreover, the court held that the alleged statement, which attributed the servicer’s decision to a race, was vague and “require[d] too much speculation to conclude that their race” was a determining factor in the requirement to satisfy the outstanding loan payments, a requirement that was otherwise consistent with the loan agreement.
Colorado Supreme Court affirms that tort claims are not “debts” under Colorado’s Fair Debt Collection Practices Act
On October 15, the Colorado Supreme Court issued an opinion affirming the judgment of the appeals court dismissing a Colorado Fair Debt Collection Practices Act (CFDCPA) action involving a tort claim. According to the opinion, the consumer alleged that a law firm representing a subrogee auto-insurance company violated the CFDCPA when the firm obtained a judgment against her for damages in tort. In affirming the appeals court, the supreme court held that that damages arising from the tort does not qualify as a debt under the CFDCPA. The court reasoned that because a tort does not obligate the tortfeasor to pay for damages, it cannot be a transaction giving rise to an obligation to pay money and is therefore not a “debt” within the meaning of the CFDCPA.
In its decision, the Court reasoned that both the federal and state FDCPA “clearly exclude from the definition of debt any obligation to pay money for many, if not all, non-consumer related purpose.” The Court concluded that “because an insurance contract providing for the subrogation of the rights of a damaged insured is not a transaction giving rise to an obligation of the tortfeasor to pay money, but merely changes the person to whom the tortfeasor’s obligation to pay is owed,” it is not a transaction that creates debt under the CFDCPA.
New York Court of Appeals holds that accrual clause does not delay commencement of six-year statute of limitations for RMBS repurchase claims
On October 16, the New York Court of Appeals affirmed a trial court’s dismissal of trustee RMBS repurchase claims against a mortgage originator on statute of limitations grounds, concluding that New York’s six-year statute of limitations for breaches of representations and warranties governed despite the inclusion of an accrual clause within the governing agreements.
In the underlying lawsuit, the plaintiff trustee claimed that the mortgage originator breached representations and warranties in loan purchase agreements relating to the characteristics and quality of the loans ultimately securitized into RMBS. However, because the originator sold the final set of loans conveyed into the RMBS in May 2007, and the trustee did not file suit until August 2013, the trial court held that the claims were time-barred under New York’s six-year statute of limitations for breach of contract suits. The trial court cited precedent set by the appeals court in ACE Securities Corp. v. DB Structured Products, which found that “a cause of action for breach of representations and warranties contained within a [RMBS] contract accrued when the contract was executed” because the representations and warranties were breached on that date.
On appeal, the trustee argued that the contractual language at issue was different from the language in ACE. Specifically, the trustee argued that the inclusion of an accrual clause stating that claims “shall accrue” upon an originator’s failure to repurchase a defective loan created a condition precedent to suit and operated to delay the commencement of the statute of limitations. The appeals court disagreed, concluding that “no substantive condition precedent was created, and that to the extent the parties otherwise intended to delay the commencement of the limitations period, their attempt to do so was inconsistent with New York law and public policy.” In reaching this conclusion, the appeals court explained that New York’s public policy “represented by the statute of limitations” and specific New York laws governing extensions thereof would effectively be abolished if contracting parties could circumvent it by mutually agreeing to postpone the date on which the period of limitation commences.
District Court denies preliminary injunction; Department of Education’s Borrower Defense Regulations take effect
On October 17, the U.S. District Court for the District of Columbia denied plaintiff California Association of Private Postsecondary Schools’ request for preliminary injunction to enjoin the implementation and enforcement of several provisions of the Department of Education’s Final Regulations (81 FR 75926) (also known as the “Borrower Defense Regulations” or “regulations”). The Borrower Defense Regulations—finalized in 2016 and originally set to take effect July 1, 2017—are designed to protect student borrowers against misleading and predatory practices by postsecondary institutions and clarify a process for loan forgiveness in cases of institutional misconduct. (See previous InfoBytes coverage here.) Under the regulations, the Department is required to create a “clear, fair, and transparent” process for handling borrowers’ loan discharge requests and to automatically forgive the loans of some students at schools that closed, without requiring borrowers to apply for that relief. However, according to the court, because the Department stayed the effective date of the majority of the regulations pending resolution of the case, the plaintiff’s motion was never fully briefed or decided. After hearing oral arguments, the court concluded that the plaintiff “failed to carry its burden of demonstrating that any one of its members is likely to suffer an irreparable injury in the absence of an injunction.” Moreover, the court stated that it was “not convinced that the [plaintiff] has shown a ‘substantial likelihood’ that it has standing to sue.”
Per the court’s decision, the Borrower Defense Regulations became effective immediately. As previously covered by InfoBytes, the court sided with a coalition of state Attorneys General last month, ruling that the Department’s decision to delay the regulations was procedurally invalid, but delayed implementation of the regulations pending a decision in the plaintiff’s lawsuit.
Utah Supreme Court reverses foreclosure ruling, states OCC interpretation of “located” is reasonable
On October 5, the Utah Supreme Court revisited a 2013 decision in which it held that federal law does not preempt Utah state law that limits the ability of national banks to foreclose on real property in the state. In a unanimous opinion, the court wrote that it was overruling its “clearly erroneous” decision in a case stemming from a borrower’s challenge to the validity of a nonjudicial foreclosure sale of her Utah home by a Texas-based national bank. According to the opinion, the borrower argued that the sale of her home at auction was invalid because Utah state law “does not permit a bank to act as a trustee on a trust need.” Fannie Mae, which won the auction, secured an eviction order and argued that under the National Bank Act (NBA), the bank had the authority to conduct the sale. The court, however, reversed the eviction order after deciding that the bank did not have the authority under Utah law to act as a trustee under a deed of trust.
In overruling its 2013 decision, the court held that whether a national bank has the authority to act as a trustee to foreclose on property in Utah depends on the OCC’s regulation implementing the NBA, not on Utah state law. According to the OCC’s interpretation of Section 92a of the NBA, a bank is located in the state where it “accepts the fiduciary appointment, executes the documents that create the fiduciary relationship, and makes discretionary decisions regarding the investment or distribution of fiduciary assets.” Previously, the court had found this interpretation to be unreasonable and not entitled to Chevron deference. However, when reconsidering the issue, the court determined that the OCC had the authority to implement the NBA and that the agency’s interpretation of the word “located” was reasonable. “Whatever located means, Congress has instructed that a state has to permit a national bank to act as a fiduciary if institutions that compete with the national bank in the state where it is located can act as a fiduciary,” the court wrote. “This expresses a federal intent to clomp into an area of traditional state concern.” The question, however, remained whether the bank performed its actions in a fiduciary capacity in Texas—a point on which the two parties to the litigation disagreed. “Because the district court has not had the opportunity to address this issue and because of the potential need for factual findings, we remand for the district court to consider this argument,” the opinion stated.
New Jersey appeals court says choice-of-law exception may apply in interest rate class action suit
On October 9, the Superior Court of New Jersey Appellate Division reversed a trial court’s decision to revive a proposed class action that challenged, among other things, interest rates of over 30 percent on car title loans. According to the appellate court, the trial court dismissed the case because Delaware, not New Jersey, had a more substantial relationship with the parties’ dispute. While the plaintiff’s contract with the Delaware-based title loan company stipulated that Delaware law applied even though she resided in New Jersey, the appellate court said that under the second exception of the test established by Instructional Systems Inc. v. Computer Curriculum Corp., New Jersey courts will uphold the contractual choice unless the “application of the law of the chosen state would be contrary to the fundamental policy of the state which has a materially greater interest than the chosen state in the determination of the particular issue and which . . . would be the state of the applicable law in the absence of an effective choice of law by the parties.”
“In her certification, plaintiff asserted that she applied for the title loan from her home in New Jersey and that defendant advised her that the loan had been approved by calling and advising her that all she had to do to pick up the money was to come to Delaware and sign the contract.” The appellate court stated that these additional facts may be sufficient to satisfy the second exception’s prerequisites, and that from a procedural standpoint, the trial court should have either converted the title loan company’s motion to dismiss to a motion for summary judgment in order to consider the new information or granted the plaintiff’s motion to file a second amended complaint.
District Court allows certain check authorization recommendation claims against consumer reporting agency to proceed
On October 2, the U.S. District Court for the Western District of Texas granted in part and denied in part a request for judgment on the pleadings brought by a nationwide specialty consumer reporting agency (defendant) that provides check authorization recommendations used by merchants when determining whether to honor a consumer’s check. According to the order, the plaintiff’s attempts to cash checks were denied based upon guidelines for authorization established by the defendant. The plaintiff subsequently (i) complained to the defendant that consumers did not have access to the recommendation guidelines; (ii) disputed the accuracy of the recommendations; and (iii) requested that denied transactions be reinvestigated. In its second amended complaint, the plaintiff claimed the defendant violated the Fair Credit Reporting Act (FCRA), the Texas Consumer Credit Reporting Act (TCCRA), and the Texas Deceptive Trade Practices Act, asserting that the consumer file prepared by the defendant contained two inaccuracies and that the defendant failed to conduct a reasonable reinvestigation of his consumer file or did not have procedures in place to correct inaccurate information. While the court dismissed the FCRA and TCCRA §20.07 claims to the extent they were based on allegations that the defendant did not have reasonable procedures in place to correct inaccurate information, it held that the allegations regarding the defendant’s failure properly to reinvestigate the consumer’s file did state a plausible claim for relief.
California state appeals court partially reverses proposed class action suit addressing arbitration terms
On October 2, a California state appeals court partially reversed a trial court’s denial of class certification in a putative class action alleging that a written cardmember agreement issued by a credit card company contained unconscionable and unenforceable arbitration terms. According to the opinion, after the cardmember and his company failed to make timely and sufficient payments on their accounts, the credit card company closed the accounts and filed a collection action. The cardmember subsequently filed a putative class action cross-complaint against the credit card company and two other card issuers, alleging the arbitration terms in the cardmember agreements he signed are unlawful under California’s Unfair Competition Law, and asserting, among other things, that the legally unenforceable contract terms prevented negotiations, prohibited injunctive relief, and failed to communicate to cardholders what the rules would be at the time of arbitration. The cardmember further alleged that cardholders were overcharged annual credit card fees or purchase fees “as consideration for the promises contained in the cardmember agreement.” During the course of the litigation, the credit card companies sent certain cardmembers modified contract terms, which allowed cardmembers the option to reject arbitration altogether if a written rejection notice was provided within a specific time period.
The trial court denied class certification, finding, among other things, that the cardmember was not an adequate class representative and did not have claims typical of the putative class because there was no evidence he paid annual fees and that individual issues would predominate with respect to procedural unconscionability and each individual class member’s entitlement to declaratory relief. On appeal, the court held that the trial court “used improper criteria and erroneous assumptions” when reaching its decision that “procedural unconscionability would involve predominantly individualized issues.” Moreover, the appellants and absent class members were linked by common questions, including whether it was unreasonable for the respondent to modify its arbitration terms during pending litigation, since this denied cardholders who opted out of arbitration the right to join the class.
Lehman seeks to add indemnity claims against mortgage sellers
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.”
11th Circuit holds deaf plaintiff not required to file complaint with FCC before filing lawsuit under other federal disability rights laws
On September 28, the U.S. Court of Appeals for the 11th Circuit vacated a district court’s decision to grant a Florida city’s (City) motion to dismiss for lack of subject matter jurisdiction, holding that (i) the Twenty-First Century Communications and Video Accessibility Act of 2010 (CVAA) did not require the appellant to exhaust his remedies before the FCC prior to commencing a lawsuit under other federal disability statutes; and (ii) the primary-jurisdiction doctrine does not apply to this case.
According to the opinion, the appellant, a deaf individual, alleged that none of the video content stored on the City’s four webpages provided closed captioning, in violation of the Rehabilitation Act and the Americans with Disabilities Act. The district court dismissed the action without prejudice, holding the CVAA requires exhaustion of remedies by the FCC as a prerequisite to the filing of a lawsuit.
On appeal, the 11th Circuit rejected as “an overbroad reading of the statute” the City’s argument that the CVAA contains an exhaustion requirement for claims brought under other disability rights statutes. In support of its position that the FCC only has exclusive jurisdiction over closed captioning complaints brought under the relevant section of the CVAA, the Court cited a 9th Circuit decision, which concluded “the FCC’s exclusive jurisdiction over complaints under the CVAA does nothing to extinguish [the plaintiff’s] right to pursue broader relief for online captioning under [California state law].” In rejecting the City’s primary-jurisdiction argument, the 11th Circuit first cited instances where the FCC—in a report to Congress and in a communication to this plaintiff in an unrelated action—took the position that the CVAA does not require plaintiffs to exhaust administrative remedies as a prerequisite to bringing lawsuits under other federal statutes. The Court also applied the two-factor primary jurisdiction doctrine test, concluding that (i) the FCC has no expertise with respect to the claims under the other federal disability rights statutes before the lower court; and (ii) “this case presents no special need for uniformity.”