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District court applies Supreme Court standard to dismiss Dodd-Frank whistleblower claims
On April 19, the U.S. District Court for the District of New Jersey dismissed a fired executive’s suit against a global financial services firm alleging whistleblowing retaliation claims under Dodd-Frank under the standard set by the U.S. Supreme Court ruling in Digital Realty Trust Inc. v. Somers. (See Buckley Special Alert on Supreme Court Decision here.) Specifically, the U.S. District court lifted a stay, which the court had imposed pending a decision in Digital Realty Trust, and granted the defendant’s motion to dismiss with prejudice. Noting that the purpose of Dodd-Frank’s anti-retaliation provisions is “to incentivize individuals … to come forward and provide information of securities law violations to the SEC,” the court determined that the plaintiff “had ample time between when he first learned of the violations and his termination to report the misconduct to the SEC,” but he chose not to lodge claims “until well after the fact of the alleged securities violations, his testimony to FINRA and his own termination.” The court also rejected the argument that testimony given to FINRA is sufficient to invoke Dodd-Frank’s whistleblower protections, noting that the plaintiff’s testimony to FINRA “plainly” did not meet statutory requirements.
9th Circuit denies online retailer’s petition for full panel review of decision on standing in data breach case
On April 20, the U.S. Court of Appeals for the 9th Circuit denied an online retailer’s request to have the full bench reconsider the court’s March 8 ruling, which ruling held that the increased risk of fraud or identity theft from a data breach gave consumers Article III standing to sue. As previously covered by InfoBytes, the underlying action results from a 2012 data breach affecting over 24 million shoppers. Previously, the three-judge panel held that the district court erred in dismissing claims brought by consumers who did not allege financial losses as a result of the data breach because, among other things, the stolen information provided hackers the “means to commit fraud or identity theft.” The online retailer appealed the decision, asking the full panel to review. The panel disagreed, upholding the previous decision that the plaintiffs sufficiently alleged the risk of future harm.
Supreme Court rules state courts may hear certain securities class actions brought under federal law
On March 20, the U.S. Supreme Court unanimously affirmed a California state appeals court decision in 2011, which ruled that state courts are permitted to hear certain securities class actions brought under federal law. Justice Kagan delivered the opinion. The decision resolves a question concerning whether the Securities Litigation Uniform Standards Act of 1998 (SLUSA), which made amendments to the Securities Act of 1933 (1933 Act), gave federal courts exclusive jurisdiction over covered class actions alleging only 1933 Act violations. SLUSA “does nothing to deprive state courts of their jurisdiction to decide class actions brought under the 1933 Act,” the Court stated when ruling that SLUSA allowed state courts concurrent jurisdiction over securities claims involving 50 or more plaintiffs. Rather, Section 77p of SLUSA “bars certain securities class actions based on state law,” but it “says nothing, and so does nothing, to deprive state courts of jurisdiction over class actions based on federal law.” And, the Court further opined, “Neither did SLUSA authorize removing such suits from state to federal court.”
9th Circuit holds California's interest on escrow requirements is not preempted by federal law
On March 2, the U.S. Court of Appeals for the Ninth Circuit held that a national bank must comply with a California law that requires mortgage lenders to pay interest on the funds held in a consumer’s escrow account because the law does not “prevent or significantly interfere” with the national bank’s exercise of its power. The case results from a 2014 lawsuit in which a consumer sued the national bank for refusing to pay interest on the funds in his mortgage escrow account as required by a California state law. The district court dismissed the action, holding that the California state law interfered with the bank’s ability to perform its business making mortgage loans and therefore, was preempted by the National Bank Act (NBA).
In reversing the district court’s decision, the 9th Circuit held that the Dodd-Frank Act of 2011 (Dodd-Frank) essentially codified the existing NBA preemption standard from the 1996 Supreme Court decision in Barnett Bank of Marion County v. Nelson. The panel cited to Section 1639d(g)(3) of Dodd-Frank (“if prescribed by applicable State or Federal law, each creditor shall pay interest to the consumer on the amount held in any . . . escrow account that is subject to this section in the manner as prescribed by that applicable State or Federal law”), which, according to the opinion, expresses Congress’ view that the type of law at issue does not “prevent or significantly interfere with a national bank’s operations.” Moreover, the panel disagreed with the national bank’s reliance on the OCC’s 2004 preemption regulation, which interpreted the standard more broadly, by concluding that the regulation had no effect on the preemption standard. This decision could have significant implications for the rise of preemption by federally chartered banks.
8th Circuit holds lender properly delivered TILA disclosures
On February 28, the U.S. Court of Appeals for the 8th Circuit affirmed a district court’s decision to grant summary judgment in favor of a national mortgage lender concluding that a borrower’s signed acknowledgment of receipt of TILA’s material disclosures and rescission notice created a rebuttable presumption that the borrowers had received the required number of notices under the law. According to the opinion, the borrowers sought to rescind their mortgage loan on a date close to three-years after settlement, arguing that the lender did not provide the requisite number of copies of required disclosures under TILA. TILA allows for rescission within three days of settlement unless the lender fails to deliver the required notice or material disclosures, which extends the rescission period to three years. After the lender denied the borrower’s request for rescission, a district court dismissed the action as untimely, asserting that the suit must be filed within the same three-year window. Ultimately, in 2015, the Supreme Court held that the three-year period applied to the borrower’s notice of rescission, and not the filing of the lawsuit.
On remand, the district court granted summary judgment in favor of the lender. In affirming the district court’s decision, the 8th Circuit disagreed with the borrower’s position that while they signed an acknowledgment of receipt of the required disclosures, the acknowledgment did not state that each “acknowledge receipt of two copies each.” The circuit court concluded that the signed acknowledgment is “unambiguous and gives rise to the presumption” of proper delivery and each signature by the borrower indicates personal receipt of two copies each.
Buckley Special Alert: Supreme Court limits definition of “whistleblower” in potentially hollow victory for public companies
On February 21, the U.S. Supreme Court issued its opinion in Digital Realty Trust, Inc. v. Somers, a long-anticipated case that clarifies who is protected as a “whistleblower” under the Dodd-Frank Act’s anti-retaliation provisions. In a unanimous decision penned by Justice Ginsburg, the Court held that the Dodd-Frank Act protects an individual only if he or she has reported a securities law violation to the U.S. Securities & Exchange Commission (SEC)—internal reports are not sufficient.
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Click here to read the full special alert.If you have questions about the decision or other related issues, please visit our Whistleblower practice page, or contact a Buckley attorney with whom you have worked in the past.
Supreme Court denies writ challenging data breach standing
On February 20, the U.S. Supreme Court denied without comment a medical insurance company’s petition for writ of certiorari to challenge an August 2017 D.C. Circuit Court of Appeals decision, which reversed the dismissal of a data breach suit filed by the company’s policyholders in 2015. According to the D.C. Circuit opinion, the policyholders sued the medical insurance company after the company announced that an unauthorized party had accessed personal information for 1.1 million members. The lower court dismissed the policyholder’s case, holding that they did not have standing because they could not show an actual injury based on the data breach. In reversing the lower court’s decision, the D.C. Circuit, citing the Supreme Court ruling in Spokeo, Inc. v. Robins, held that it was plausible that the unauthorized party “has both the intent and the ability to use [the] data for ill.” This was sufficient to show that the policyholders had standing to bring the claims because they alleged a plausible risk of future injury.
Supreme Court denies cert petition in Spokeo
On January 22, the U.S. Supreme Court denied a second petition for writ of certiorari in Spokeo v. Robins, thereby declining to reconsider its position on Article III’s standing to sue requirements or to provide further clarification on what constitutes injury in fact. Citing “widespread confusion” over how to determine whether intangible injuries qualify as injury in fact, and therefore meet the standing threshold, Spokeo argued in its petition that review is “warranted to ensure that the jurisdiction asserted by the federal courts remains within constitutional limits.” The second petition was filed by Spokeo last December to request a review of the U.S. Court of Appeals for the Ninth Circuit’s August 2017 decision—on remand from the Supreme Court (see Buckley Sandler Special Alert here)—which ruled that Robins had established standing to sue for alleged violations of the Fair Credit Reporting Act (FCRA) by claiming an intangible statutory injury without any additional harm. The 9th Circuit opined that information contained in a consumer report about age, marital status, educational background, and employment history is important for employment and loan applications, home purchases, and more, and that it “does not take much imagination to understand how inaccurate reports on such a broad range of material facts about Robins’s life could be deemed a real harm.” Further, guaranteeing the accuracy of such information “seems directly and substantially related to FCRA’s goals.” The 9th Circuit reversed and remanded the case to the Central District of California after finding that Robins had adequately alleged the essential elements of standing (see previous InfoBytes coverage here).
Servicemember and bank settle SCRA issue, dismiss Supreme Court request
On January 5, the Supreme Court dismissed a servicemember’s petition for a writ of certiorari after receiving a Stipulation of Dismissal from both parties who agreed to settle the dispute. As previously covered by InfoBytes, the servicemember filed the petition after the U.S. Court of Appeals for the Fourth Circuit affirmed the lower court’s decision that the servicemember was not entitled to the protections against non-judicial foreclosures under the Servicemembers Civil Relief Act (SCRA). The lower court concluded that because the servicemember “incurred his mortgage obligation during his service in the Navy, the obligation was not subject to SCRA protection” even through the servicemember, after a discharge period, later re-enlisted with the Army.
City of Philadelphia’s discriminatory lending lawsuit moves forward
On January 16, a federal judge in the U.S. District Court for the Eastern District of Pennsylvania denied a national bank’s motion to dismiss the City of Philadelphia’s (City) claims that the bank engaged in alleged discriminatory lending practices in violation of the Fair Housing Act (FHA). As previously covered in InfoBytes, the City filed a complaint in May of last year against the bank alleging discrimination under both the disparate treatment and disparate impact theories. The City asserted that the bank’s practice of offering better terms to similarly-situated, non-minority borrowers or refusing to make loans in minority neighborhoods has led to foreclosures and vacant homes, which in turn, has resulted in a suppression of property tax revenue and increased cost of providing services such as police, fire fighting, and other municipal services. In support of its motion to dismiss, the bank argued, among other things, that the City’s claim (i) is time barred; (ii) improperly alleges the disparate impact theory; and (iii) fails to allege proximate cause as required by a recent U.S. Supreme Court ruling (see previous Special Alert here).
While the court expressed “serious concerns about the viability of the economic injury aspect of the City’s claim with regard to proximate cause,” the court found that the bank “has not met its burden to show why the City’s entire FHA claim should be dismissed.” Consequently, the court held that the case may proceed to discovery beyond the two-year statute of limitations period for FHA violations in order to provide the City an opportunity to prove whether the bank’s policy caused a racial disparity that constituted a violation continuing into the limitations period.