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Supreme Court Holds Class Plaintiff Cannot Avoid Removal by Stipulating Damages Under CAFA's Jurisdictional Threshold
On March 19, the Supreme Court held that a class action plaintiff’s pre-class certification stipulation that the class would not seek damages exceeding the Class Action Fairness Act’s (CAFA) $5 million amount-in-controversy requirement could not be binding on the class, and therefore, the stipulation would not affect federal jurisdiction under CAFA. Standard Fire Ins. Co. v. Knowles, No. 11-1450, 2013 WL 1104735 (2013). The district court determined that the value of the putative class members’ claims would have exceeded $5 million, but for the named plaintiff’s stipulation limiting damages to less than that amount, and based on that stipulation, remanded the case to state court. On appeal, the Supreme Court explained that while a plaintiff may disclaim his or her own damages, such damages stipulations or any pre-certification stipulation “cannot legally bind members of the proposed class before the class is certified.” The Court thus held that because the class representative “lacked the authority to concede the amount-in-controversy issue for the absent class members,” the district court wrongly concluded that the “precertification stipulation could overcome its finding that the CAFA jurisdictional threshold had been met.” The Court vacated the District Court’s order remanding the case to state court, and remanded the class action for further proceedings in the federal district court.
Supreme Court Declines Review of Second Circuit Decision Reinstating MBS Class Action
On March 18, the U.S. Supreme Court denied a petition seeking review of a Second Circuit decision that reinstated a class action against an underwriter and an issuer of mortgage-backed securities. Goldman Sachs & Co. v. NECA-IBEW, No. 12-528, 2013 WL 1091772 (2013). An institutional purchaser of certain MBS filed suit on behalf of a putative class alleging that the offering documents contained material misstatements regarding the mortgage loan originators’ underwriting guidelines, the property appraisals of the loans, and the risks associated with the certificates. After the district court dismissed the case, the Second Circuit reinstated and held that the plaintiff had standing to assert the claims of the class, even when the securities were purchased from different trusts, because the named plaintiff raised a “sufficiently similar set of concerns” to allow it to seek to represent proposed class members who purchased securities backed by loans made by common originators. With regard to the plaintiff’s ability to plead a cognizable injury, the court reasoned that while it may be difficult to value illiquid assets, “the value of a security is not unascertainable simply because it trades in an illiquid market.”
U.S. Supreme Court Rejects SEC's Bid for More Time to Bring Civil Fraud Enforcement Action
On February 27, the U.S. Supreme Court held that the clock on the five-year statute of limitations for the SEC to pursue civil fraud claims under the Investment Advisers Act begins to run when the fraud occurs, and not when it is discovered, because the “discovery rule” does not apply to government enforcement actions for civil penalties. Gabelli v. SEC, No. 11-1274, 2013 WL 691002 (Feb. 27, 2013). The Court’s holding followed an investment adviser’s appeal from a Second Circuit decision that, under the discovery rule, the statute of limitations had not accrued until the fraud was discovered or could have been discovered with reasonable diligence because the claims sounded in fraud. The Court reversed the Second Circuit’s decision and remanded for further proceedings on the basis that extending the fraud discovery rule to government civil penalty enforcement actions would improperly leave defendants exposed to government action for an uncertain period beyond the five years after their alleged misdeeds. The Court explained that the discovery rule is meant to preserve the claims of parties who have no reason to suspect fraud, but that the government, here the SEC, is different insofar as it is specifically tasked with rooting out fraud and possesses several legal tools to that end. The Court also observed that, unlike a standard victim of fraud seeking only recompense, the government also seeks remedies intended to punish.
U.S. Supreme Court Upholds Discretion to Award Costs to Prevailing FDCPA Defendant Creditors
On February 26, the U.S. Supreme Court held that the FDCPA does not limit a court’s discretion under federal rules to award costs to a prevailing defendant creditor alleged to have violated the Act. Marx v. Gen. Revenue Corp., No. 11-1175, 2013 WL 673254 (Feb. 26, 2013). The Tenth Circuit had earlier held that the defendant creditor did not violate the FDCPA, and that the creditor could be awarded costs under Federal Rule of Civil Procedure 54(d)(1). On appeal, the debtor, supported by the United States as amicus, argued that any statute specifically providing for costs displaces Rule 54(d)(1), regardless of whether it is contrary to the Rule. The relevant FDCPA provision, §1692k(a)(3), provides that “[o]n a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney’s fees reasonable in relation to the work expended and costs.” The Court affirmed the Tenth Circuit and held that the language and context of §1692k(a)(3) indicate that Congress did not intend it to prohibit courts from awarding costs. The Court explained that (i) the statute is best read as codifying a court’s pre-existing authority to award both attorney’s fees and costs, (ii) by including “and costs” in the second sentence of the statute, Congress foreclosed the argument that defendants can only recover attorney’s fees when plaintiffs bring an action in bad faith and removed any doubt that defendants may also recover costs in such cases, and (iii) the statutory language sharply contrasts with that of other statutes in which Congress has placed conditions on awarding costs to prevailing defendants.
U.S. Supreme Court Passes on Two Banking Cases
This week the Supreme Court denied petitions for a writ of certiorari in two banking-related appeals. In Cummings v. Doughty, No. 12-351, the petitioners, a bank and its CEO, asked the Supreme Court to determine whether the safe harbor established by the Annunzio-Wylie Anti-Money Laundering Act provides absolute (versus qualified) immunity from claims that arise from the submission of a suspicious activity report (SAR). The petitioners were appealing a Louisiana state court holding, which the state appellate courts declined to review, that denied petitioners immunity under the Act after the CEO reported a bank president for possible suspicious activity. The bank president claimed that the petitioners lacked a good faith basis to report him and, therefore, could not receive absolute immunity. The petitioners argued that the First Circuit and the Second Circuit have held, based on the plain language of the Act, that financial institutions have absolute immunity from any cause of action relating to the submission of a SAR, while the Eleventh Circuit has held that the Act only grants qualified immunity. The Supreme Court declined to remedy the apparent circuit split.
In Parks v. MBNA America Bank, N.A., No 12-359, the Supreme Court denied review of a California Supreme Court decision that held that the National Bank Act preempts state requirements that certain disclosures accompany preprinted or “convenience checks” provided by a credit card issuer to its cardholders. The plaintiff filed suit on behalf of a putative class after he used such checks and was assessed finance charges that were greater than those that he would have been assessed had he used his credit card instead. He alleged that California law requires certain disclosures to be provided with the checks, including those related to convenience checks. In June, the California Supreme Court held the specific disclosure obligations imposed by the state law at issue, including precise language and placement of the disclosures, exceeded any federal law requirements and is preempted as an obstacle to the broad grant of power given to national banks by the NBA to conduct the business of banking.
Supreme Court Passes on Appeals of Overdraft Litigation Decisions
On October 9, the U.S. Supreme Court denied the petitions for writ of certiorari filed by plaintiffs in two cases challenging the overdraft billing practices of certain banks. Hough v. Regions Financial Corp., No. 12-1139, 2012 WL 3097294 (Oct. 9, 2012); Buffington v. SunTrust Banks, Inc., No. 12-146, 2012 WL 3134482 (Oct. 9, 2012). In March, the U.S. Court of Appeals for the Eleventh Circuit issued two separate, but substantively similar, opinions regarding arbitration agreements at issue in the overdraft litigation. Hough v. Regions Financial Corp., No. 11-14317, 2012 WL 686311 (11th Cir. Mar. 5, 2012); Buffington v. SunTrust Banks, Inc., No. 11-14316, 2012 WL 660974 (11th Cir. Mar. 1, 2012). In both cases, based on the Supreme Court’s holding in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), the Eleventh Circuit vacated district court rulings that the banks’ arbitration clauses were substantively unconscionable under Georgia law because they contained a class action waiver. After further proceedings on remand yielded a second appeal, the Eleventh Circuit held that, under Georgia law, an agreement is not unconscionable because it lacks mutuality of remedy. It also rejected the district court’s holding that the clauses were procedurally unconscionable because the contract did not meet the Georgia standard that an agreement must be so one-sided that “’no sane man not acting under a delusion would make [it] and … no honest man would’ participate in the transaction.” The U.S. Supreme Court’s decision not to review the Eleventh Circuit decisions will now require the plaintiffs to arbitrate their claims against the banks.
Supreme Court Dismisses Writ of Certiorari in RESPA Case
On June 28, the U.S. Supreme Court dismissed a writ of certiorari and permitted a plaintiffs putative suit against a title insurance company under the Real Estate Settlement Procedures Acts (RESPA) anti-kickback provisions to proceed. First Am. Fin. Corp. v. Edwards, No. 10-708, 2012 WL 2427807 (U.S. June 28, 2012). After purchasing title insurance at a rate approved by the Ohio Title Insurance Rating Bureau, plaintiff alleged that her title insurance company paid a kickback to receive referrals for title insurance. The plaintiff sued her title insurance company under RESPAs anti-kickback provisions. The district court denied the defendants motion to dismiss, and the Ninth Circuit affirmed. The Supreme Court granted the writ of certiorari and heard oral arguments on November 28, 2011 but declined to issue an opinion, stating that the writ was improvidently granted.
Supreme Court Asked to Hear New Case Involving Disparate Impact Claims Under the Fair Housing Act
On June 11, the New Jersey Township of Mount Holly petitioned the U.S. Supreme Court to hear a case involving the use of disparate impact claims under the Fair Housing Act. Specifically, Mount Holly asks the Court to determine whether disparate impact claims are cognizable under the Fair Housing Act, and, if so, how such claims should be analyzed. The issues presented in this case are substantially similar to those the Supreme Court agreed to hear in Magner v. Gallagher, but was unable to hear because the petitioner in Magner withdrew its petition prior to oral argument. As detailed in a recent BuckleySandler article about Magner and the history of the Fair Housing Act, the Supreme Court has never decided whether the FHA permits plaintiffs to bring claims under a disparate impact theory. The U.S. Department of Justice and HUD, relying on lower court rulings permitting disparate impact claims, have increasingly employed the theory to further their policy goals. More recently, the CFPB repeatedly has stated its intention to apply disparate impact in enforcing ECOA. The instant petition could present an opportunity for the Court to alter the landscape within which federal authorities enforce the Fair Housing Act and other antidiscrimination laws.
U.S. Supreme Court Unanimously Rules That RESPA Does Not Prohibit Unearned, Unsplit Fees
On May 24, the U.S. Supreme Court unanimously held that section 8(b) of the Real Estate Settlement Procedures Act (RESPA) is violated only if a charge for settlement services is divided between two or more persons and that the section does not cover the collection of an unearned, unsplit fee by a single settlement service provider. Freeman v. Quicken Loans, Inc., No. 10-1042, 2012 WL 1868063 (U.S. May 24, 2012). Plaintiffs had alleged that their lender charged them loan discount fees but did not provide a lower interest rate in return. Plaintiffs claimed that charging these fees violated section 8(b) of RESPA, arguing that RESPA may be violated even when only one party receives an unearned fee and not only where a fee is split between two parties. Plaintiffs cited a 2001 HUD Policy Statement declaring that a settlement service provider may violate section 8(b) when it receives an unearned fee. The defendant lender countered that HUD’s interpretation should be afforded no deference. The Supreme Court, in an opinion written by Justice Antonin Scalia, held that section 8(b) “unambiguously covers only a settlement-service provider’s splitting of a fee with one or more other persons; it cannot be understood to reach a single provider’s retention of an unearned fee.” The Court struck down HUD’s interpretation, finding that HUD’s position “is manifestly inconsistent with the statute HUD purported to construe,” and that, because HUD’s Policy Statement “goes beyond the meaning that the statute can bear,” it was not necessary to determine whether HUD’s position was due Chevron deference. The Court’s opinion affirmed the underlying decision from the Court of Appeals for the Fifth Circuit and resolved a split among the judicial circuits. The Second, Third and Eleventh Circuits previously had held that section 8(b) did apply to unearned fees retained by a single person.
Federal Circuit Courts Issue More Rulings Enforcing Arbitration Agreements
On March 7, the U.S. Court of Appeals for the Ninth Circuit held that a national bank could compel arbitration of a dispute involving student loans. Kilgore v. KeyBank, Natl Assn, No. 09-16703, 2012 WL 718344 (9th Cir. Mar. 7, 2012). A group of students filed a class action in state court alleging that KeyBank violated state law in its offering of loans to students of a helicopter pilot school, which subsequently misappropriated the student loan funds. KeyBank removed the action to federal court and moved to compel arbitration. The district court denied the motion and KeyBank appealed. While the case was on appeal, the Supreme Court in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), set a new standard for assessing the enforceability of arbitration clauses. That new standard required the Ninth Circuit to hold in KeyBank that the Federal Arbitration Act preempts Californias rule prohibiting arbitration of claims for broad, public injunctive relief. The court also held that the arbitration clause was not procedurally unconscionable because it clearly provided a sixty-day opt-out provision and a conspicuous and comprehensive explanation of the arbitration agreement. The court did not address the issue of whether the arbitration agreement was substantively unconscionable. The U.S. Court of Appeals for the Eleventh Circuit recently issued two separate, but substantively similar, opinions regarding arbitration agreements, both in cases consolidated in the multidistrict overdraft fee litigation pending in the U.S. District Court for the Southern District of Florida. Hough v. Regions Financial Corp., No. 11-14317, 2012 WL 686311 (11th Cir. Mar. 5, 2012); Buffington v. SunTrust Banks, Inc., No. 11-14316, 2012 WL 660974 (11th Cir. Mar. 1, 2012). In both cases, based on Concepcion, the court previously vacated district court rulings that the banks arbitration clauses were substantively unconscionable under Georgia law because they contained a class action waiver. On remand, the banks renewed their motions to compel arbitration. The district court denied the motions again, this time on the ground that the arbitration clauses were substantively unconscionable under Georgia law because a provision granting the banks the unilateral right to recover their expenses for arbitration allocated disproportionately to the plaintiffs the risks of error and loss inherent in dispute resolution. The Eleventh Circuit held that, under Georgia law, an agreement is not unconscionable because it lacks mutuality of remedy. It also rejected the district courts holding that the clauses were procedurally unconscionable because the contract did not meet the Georgia standard that for an agreement to be procedurally unconscionable it must be so one-sided that no sane man not acting under a delusion would make [it] and no honest man would participate in the transaction. The Eleventh Circuit vacated the district courts orders and remanded both cases with specific instructions to compel arbitration.