Sunday, May 19, 2019

FYI: 9th Cir Rejects Challenges to CFPB Structure and CID

The U.S. Court of Appeals for the Ninth Circuit ("Ninth Circuit") recently affirmed a trial court's Order requiring a law firm to respond to interrogatories and requests for production of documents pursuant to a Civil Investigative Demand promulgated by the Consumer Financial Protection Bureau's ("CFPB" or "Bureau").

 

In so ruling, the Ninth Circuit cited prior Supreme Court separation-of-power opinions which indicate that the Bureau's restriction permitting removal of its Director only by the president "for cause" did not violate the Constitution's separation of powers doctrine to conclude that its structure was constitutionally permissible.  

 

The Ninth Circuit also held that the Civil Investigative Demand was proper because the Bureau was permitted to investigate the law firm for potential Telemarketing Sales Rule violations pursuant to an exception to the practice-of-law exclusion, and because the Bureau complied with the demand requirements under section 5562(c)(2).

 

A copy of the opinion is available at:  Link to Opinion

 

The CFPB opened an investigation to determine whether a law firm ("Law Firm") violated the Telemarketing Sales Rule, 16 C.F.R. pt. 310 in the course of providing debt-relief services to its consumer clients. 

 

After the Law Firm refused to comply with the CFPB's Civil Investigative Demand requiring it to respond to seven interrogatories and four requests to produce documents (the "CID"), the CFPB filed a petition in the United States District Court for the Central District of California to enforce compliance.  The trial court granted the CFPB's petition and ordered the Law Firm to respond to the CID.  The instant appeal ensued.

 

On appeal, the Law Firm argued that the CFPB's structure violates the U.S. Constitution's separation of powers doctrine, and that the CFPB lacked statutory authority to issue the CID. 

 

In considering the Law Firm's first argument, the Ninth Circuit analyzed the history of the formation and purpose of establishing the CFPB, the powers bestowed upon it to implement and enforce federal consumer financial laws, and the role of its single Director appointed by the President with the advice and consent of the Senate.  12 U.S.C. § 5491(b). 

 

As you may recall, the Bureau's Director serves for a term of five years that may be extended until a successor has been appointed and confirmed, and may be removed by the President only for "inefficiency, neglect of duty, or malfeasance in office." § 5491(c)(1)-(3).  It is this "only for cause" provision that the Law Firm challenges and contends that an agency with the CFPB's broad law-enforcement powers may not be headed by a single Director removable by the President only for cause. 

 

The Ninth Circuit reviewed prior Supreme Court separation-of-powers decisions to determine whether the CFPB's structure is constitutionally permissible.  In Humphrey's Executor v. United States, 295 U.S. 602 (1935), the petitioner similarly challenged the structure of the Federal Trade Commission ("FTC"), which similarly allowed for removal of the agency's five Commissioners only by the President for cause.  There, the Supreme Court held that the for-cause removal restriction was a permissible means of ensuring that the FTC's Commissioners would "maintain an attitude of independence" from the President's control. Id. at 629.

 

The Ninth Circuit remarked that like the FTC, the CFPB exercises quasi-legislative and quasi-judicial powers, and Congress could therefore seek to ensure that the agency discharges those responsibilities independently of the President's will.  See PHH Corp. v. CFPB, 881 F.3d 75, 91-92 (D.C. Cir. 2018) (en banc) (noting that the CFPB acts in part as a financial regulator, a role that has historically been viewed as calling for a measure of independence from the Executive Branch). 

 

As such, the Ninth Circuit opined, the Supreme Court's reasoning in its decisions in Humphrey's Executor and Morrison v. Olson, 487 U.S. 654 (1988) applied equally to the CFPB, and the for-cause removal restriction protecting the CFPB's Director does not "impede the President's ability to perform his constitutional duty" to ensure that the laws are faithfully executed. Morrison, 487 U.S. at 691.

 

Accordingly, the Ninth Circuit viewed the Supreme Court's separation-of-powers decisions in those cases as controlling, and the CFPB's structure as constitutionally permissible.

 

Next, the Ninth Circuit considered the Law Firm's argument that the CFPB lacked statutory authority to issue the CID.  First, the Law Firm argued that the CID's investigation into its advertising of legal services violated the Consumer Financial Protection Act's practice-of-law exclusion, 12 U.S.C. § 5517(e)(1), which provides that  the Bureau "may not exercise any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law under the laws of a State in which the attorney is licensed to practice law." 

 

The Ninth Circuit rejected this argument, and concluded that the trial court correctly applied one of the exceptions to the practice-of-law exclusion.  Under Section 5517(e)(3), the CFPB's authority is not limited with respect to any attorney, "to the extent they are otherwise subject to enumerated consumer laws or authorities under subtitle F or H" – including enforcement of the Telemarketing Sales Rule, which does not exempt attorneys from its coverage even when they are engaged in providing legal services.   15 U.S.C. § 1602; Telemarketing Sales Rule ,75 Fed. Reg. 48,458-01, 48-467-69 (Aug. 10, 2010).

 

The Law Firm's second argument that the CID failed to "state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation" as required under § 5562(c)(2) was also rejected, as the Ninth Circuit concluded that the CID properly identified the allegedly illegal conduct under investigation and provision of applicable law to put the Law Firm on notice of the conduct being investigated. 

 

Accordingly, the trial court's order requiring the Law Firm to comply with the CFPB's Civil Investigative Demand was affirmed.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Friday, May 17, 2019

FYI: 5th Cir Rules in Lender's Favor in Agricultural Lien Priority Dispute

In an agricultural lien contest between three creditors of a bankrupt commercial farm, the U.S. Court of Appeals for the Fifth Circuit recently affirmed the trial court's award of summary judgment in favor of a bank that provided debtor-in-possession financing, holding that the locale of the farm products determined the applicable lien law and that bank's lien was superior to the liens of two nurseries' that supplied trees and shrubs because the latter were either unperfected or unenforceable.

 

A copy of the opinion is available at:  Link to Opinion

 

The debtor, "a wholesale grower of trees, shrubs, and other plants, with headquarters in Texas and offices in Michigan, Oregon and Tennessee[,]" filed bankruptcy in June of 2016.

 

Two creditors were commercial nurseries located in Oregon that supplied trees and shrubs to the debtor in return for security interests in the goods sold. Another creditor, a bank headquartered in Pennsylvania, loaned the debtor money in return for a security interest in most of debtor's assets. The bank also provided post-petition debtor-in-possession financing so the debtor could stay in business.

 

The bankruptcy court ordered that the debtor-in-possession financing included the pre-petition loan and that the bank's lien was subordinate only to valid, perfected pre-petition liens.

 

The nurseries sued the bank in federal court, seeking a declaratory judgment that their liens were superior to the bank's lien. The bank filed a counterclaim seeking a declaratory judgment that the nurseries' liens were unenforceable.

 

The parties filed cross-motions for summary judgment and the trial court granted the bank's motion. The nurseries appealed.

 

On appeal, the Fifth Circuit first approved the trial court's ruling as to "which choice-of-law analysis should determine the law governing the lien dispute[,]" reasoning that the trial court correctly declined to choose whether bankruptcy courts "should  apply forum or federal choice-of-law rules" because "both would give the same answer[;]" namely, Texas.

 

Under Texas law, "agricultural lien perfection and priority are governed by the law of the jurisdiction where 'farm products are located[,]" which meant Michigan, Tennessee and Oregon, where the products were delivered to the debtor's farms.

 

Turning to the merits, the Fifth Circuit agreed with the trial court that the nurseries' liens were not perfected and were thus inferior to the bank's lien "due to defective financing statements." The defect was that the debtor's legal name was not exactly reproduced on the financing statements, as required under Michigan and Tennessee law.

 

Addressing the Oregon products, the Fifth Circuit agreed with the trial court's conclusion that one nursery "failed to extend its lien under Oregon law."  Because the nursery's lien was unenforceable, it could not be senior to the bank's lien.

 

The Fifth Circuit therefore affirmed the trial court's summary judgment ruling in the bank's favor.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Wednesday, May 15, 2019

FYI: 11th Cir Splits from Other Circuits on Spokeo Standing

The U.S. Court of Appeals for the Eleventh Circuit ("Eleventh Circuit") sua sponte issued a new opinion to vacate and replace its prior opinion affirming approval of a class action settlement against a retailer for alleged violation of the Fair and Accurate Credit Transactions Act, 15 U.S.C. 1681, et seq. ("FACTA") for printing more digits of his credit card number on a receipt than permitted under the Act.

 

Departing from contrary opinions by other federal appellate courts, the Eleventh Circuit's new opinion offers an updated analysis of the plaintiff-appellee consumer's standing to bring the action under Spokeo, holding that the risk of identity theft the consumer suffered was sufficiently concrete to confer Article III standing, and also bears a close enough relationship to the common law tort of breach of confidence to make the consumer's injury concrete.

 

A copy of the opinion is available at:  Link to Opinion

 

A consumer ("Consumer") filed suit in the U.S. District Court for the Southern District of Florida against a prominent chocolate retailer ("Merchant") alleging that the store issued him a receipt that showed his credit card number's first six and last four digits after he made a purchase at one of the Merchant's stores.  The Consumer's Complaint sought relief on behalf of himself, and a class of customers under the Fair and Accurate Credit Transactions Act, 15 U.S.C. 1681, et seq. ("FACTA") as a result of the Merchant's allegedly willful violation, which purportedly exposed him and the proposed class "to an elevated risk of identity theft."

 

As you may recall, FACTA prohibits merchants from printing "more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction" (15 U.S.C. § 1681c(g)(1)), and allows for recovery of statutory damages even if the customer received and kept the defective receipt and submits no evidence of identity theft or negative impact to their credit. 15 U.S.C. § 1681n(a); Engel v. Scully & Scully, Inc., 279 F.R.D. 117, 125–26 (S.D.N.Y. 2011).

 

After the Merchant's motion to dismiss was denied, a preliminary class-wide settlement was reached, which included a $6.3 million settlement fund (providing each class member an estimated $235 as its pro-rata share), a one-third contingency fee of $2.1 million to class counsel, and a $10,000 incentive award to the Consumer as class representative.  The Consumer's motion for preliminary approval addressed potential risks favoring pre-trial settlement, including potential challenges to the class members' Article III standing to pursue their FACTA claims dependent upon the outcome of Spokeo, Inc. v. Robins, 578 U.S. ___, 136 S. Ct. 1540 (2016), then-pending before the Supreme Court. 

 

The motion for preliminary approval and proposed form notice were granted, and a scheduling order for the class members to file claims, objections or opt-outs was set approximately two-and-a-half weeks prior to the Consumer's deadline to move for final settlement approval, including the requested attorney's fees and incentive award.

 

Of the 318,000 class members who received notice of the settlement, over 47,000 submitted claim forms.  Only fifteen members opted out, including five who objected to the settlement.  Two class members (the "Objecting Class Members") objected to the proposed class-wide settlement, arguing that (i) the Consumer's $10,000 incentive award was not warranted, (ii) the proposed attorney's fee award should be subject to a lodestar analysis, and (iii) notice of the fee motion was inadequate under Rule 23(h).  See Fed. R. Civ. P. 23(h)(1) ("[n]otice of the motion [for attorney's fees and nontaxable costs] must be served on all parties and, for motions by class counsel, directed to class members in a reasonable manner."). 

 

The Consumer subsequently filed the motion for final approval of settlement along with a separate motion for attorneys' fees at the court's direction, and four days later—before the Objecting Class Members field their opposition briefs—the magistrate issued a report and recommendation ("R&R") to approve the class settlement and full attorneys' fees  and incentive awards as proposed.  The Objecting Class Members proceeded with filing their opposition briefs and objections to the magistrate's R&R, which were considered at a fairness hearing before the court, wherein counsel for one of the Objecting Class Members raised a new objection concerning the Consumer's standing under Article III. 

 

Over the Objecting Class Members' objections, the trial court approved the settlement, including the requested attorneys' fees and incentive award, rejecting the Objecting Class Members' argument that notice of the fee motion was not adequate because it had "permitted objections to be filed both before and after" it was filed, and also considered the R&R objections in reaching its conclusion that the fee and incentive awards were reasonable.

 

The Objecting Class Members appealed the final approval of settlement and one of the two appellants further challenged the Consumer's Article III standing to pursue a claim against the Merchant under FACTA on appeal. 

 

The Eleventh Circuit first addressed the Consumer's standing to bring the action under Article III.  This discussion is the court's self-declared "major change" from its previous opinion. 

 

As you may recall, Article III standing to invoke federal subject matter jurisdiction requires plaintiffs to show they suffered an injury in fact traceable to the defendant's conduct and redressable by a favorable judicial decision. Spokeo, Inc. v. Robins, 578 U.S. __, 136 S. Ct. 1540, 1547.  "To establish injury in fact, a plaintiff must show that he or she suffered 'an invasion of a legally protected interest' that is 'concrete and particularized' and 'actual or imminent, not conjectural or hypothetical.'"  Id. at 1548 (internal quotation omitted). 

 

Whether the Consumer's alleged injury was "particularized" was not at dispute because the heightened risk of identity theft affected him "in a personal and individual way"— it was his credit card number that appeared on the receipt. 

 

Instead, the Objecting Class Member's argument relied upon Spokeo's holding which reaffirmed a "'concrete' injury must be 'de facto'; that is, it must actually exist," (Id. at 1548) to argue that the Consumer lacked standing because the injury was not sufficiently "concrete" to confer standing.  The Consumer argued that his injury was also concrete because he suffered a heightened risk of identity theft when the Merchant printed more digits of his credit card number than allowed under FACTA. 

 

As the Eleventh Circuit pointed out, in cases like this, a plaintiff may show injury in fact by alleging "the violation of a procedural right granted by statute" poses a "risk of real harm" to a concrete interest. Id. at 1549. 

 

Here, the Consumer alleged that he suffered a heightened risk of identity theft as a result of the Merchant's FACTA violation—the very interest that Congress sought to protect with FACTA.  A consumer undoubtedly has a concrete interest in preventing his identity from actually being stolen.  See Attias v. Carefirst, Inc., 865 F.3d 620, 627 (D.C. Cir. 2017) ("Nobody doubts that identity theft, should it befall one of these plaintiffs, would constitute a concrete and particularized injury.").  Accepting these allegations as true, the Eleventh Circuit concluded that the Consumer established a risk of real harm to a concrete interest sufficient to establish standing under Spokeo.

 

The re-issued opinion acknowledges that its declines to follow the Third Circuit's recent ruling in Kamal v. J. Crew Grp., Inc., 918 F.3d 102, 114 (3d Cir. 2019), which rejected a consumer's FACTA claims for the same purported violations as the case at bar for not alleging a concrete article for Article III standing. 

 

However, the Eleventh Circuit contended that its holding here is not inconsistent with other circuits which found no standing in similar claims under FACTA pertaining to inclusion of a credit card expiration date on receipts, and is distinguishable because those opinions rely on Congress's finding in The Credit and Debit Card Receipt Clarification Act of 2007 (the "Clarification Act"), that "a receipt with a credit card expiration date does not raise a material risk of identity theft."  See Bassett v. ABM Parking Servs., Inc., 883 F.3d 776 (9th Cir. 2018); CruparWeinmann v. Paris Baguette Am., Inc., 861 F.3d 76 (2d Cir. 2017); Meyers v. Nicolet Rest. of De Pere, LLC, 843 F.3d 724 (7th Cir. 2016). 

 

The Eleventh Circuit reasoned that the legislative history of the Clarification Act reflects Congress's view that printing more than the last five digits of a credit card number contributes to the problem of identity theft because the Act left only limited liability for printing expiration dates in drafting the Clarification Act, and specifically found that FACTA's truncation requirement "prevents a potential fraudster from perpetrating identity theft or credit card fraud."  For these reasons, the Eleventh Circuit held that Congress judged the risk of identity theft suffered by the Consumer to be sufficiently concrete to confer standing to raise his FACTA claims.

 

Separately, the Court held, the Consumer could show standing based on the similarity between the alleged harm and the common law tort of breach of confidence.  Spokeo at 1549 (describing it as "instructive to consider whether an alleged intangible harm has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American courts"). 

 

A common law breach of confidence involves the offer a person's private information to a third party in confidence who reveals that information, and occurs when the plaintiff's trust in the breaching party is violated, whether or not the breach has other consequences (citations omitted). 

 

Here, because the Merchant printed more numbers of the Consumer's credit card than allowed under statute, it created a heightened risk that information the Consumer entrusted to it would become disclosed to the public — a risk the Eleventh Circuit concluded bears a close enough relationship to the disclosure of confidential information actionable at common law for breach of confidence to satisfy Article III under Spokeo. 

 

Although the Third Circuit's opinion in Kamal 918 F.3d at 114 rejected this case's original opinion that breach of confidence is sufficiently analogous to give rise to standing, the Eleventh Circuit noted that it has consistently read Spokeo to mean that, where the common law allowed a cause of action to remedy an injury, Congress can create a statutory cause of action to remedy the risk of such an injury.  Accordingly, it concluded that the Consumer suffered a concrete injury, and has standing to bring this action.

 

Lastly, in addressing the Objecting Class Members' remaining arguments concerning approval of the class settlement, the Eleventh Circuit held that although the trial court erred by setting an objection deadline before a filed motion for attorney's fees, the Objecting Class Members were not prejudiced because their arguments were adequately considered by the magistrate and the court.  

 

Moreover, the Eleventh Circuit held that the trial court did not abuse its discretion in its attorney's fees and incentive awards because (i) a lodestar analysis was not appropriate because the attorneys' fees were sought from a common fund, rather than a fee-shifting statute, and the above-benchmark award properly assessed risks faced by the class and its counsel, and; (ii) the incentive award was supported by the district court's record, which stated that the Consumer subjected himself to inconvenience and delays that did not materialize, but were a possibility when he was appointed to represent the class.

 

Accordingly, the trial court's approval of the class-action settlement was affirmed.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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Monday, May 13, 2019

FYI: 6th Cir BAP Holds Ohio Law Did Not Invalidate Lien When Non-Borrower Spouse Signed Mtg But Not Note

The Bankruptcy Appellate Panel for the U.S. Court of Appeals for the Sixth Circuit ("Sixth Circuit BAP") recently affirmed a lower bankruptcy court's ruling that a refinanced mortgage was enforceable as to the interests of both husband and wife, where the wife did not execute the note and was not defined as a "borrower" in the body of the mortgage, but nonetheless initialed and signed the mortgage document as a "borrower" in the signature block.

 

In so ruling, the Sixth Circuit BAP considered the Ohio Supreme Court's answers to two certified questions stating that failing to identify a signatory by name in the body of the mortgage did not render the agreement invalid or unenforceable against the signatory's in rem rights as a matter of law, along with the language of the mortgage itself, to conclude that the lower bankruptcy court properly admitted parole evidence of the parties' intent in executing the mortgage, and the lower bankruptcy court did not err in entering judgment determining that the mortgage encumbered both the husband and wife's interests in the property.

 

A copy of the opinion is available at:  Link to Opinion

 

A husband and wife executed a purchase money mortgage agreement secured by real property (the "Property") and identifying both the husband and wife as "Borrowers."

 

In February 2007, the original purchase money mortgage was refinanced, but only the husband executed and delivered the promissory note to the lender, and the wife was not listed as a "borrower" on the document.  On the same date, both husband and wife executed a mortgage in connection with the refinancing (the "Mortgage").  Although the wife initialed each page of the Mortgage and signed as "Borrower" on the signature page, the husband was the only defined "Borrower" in the body of the Mortgage.  The mortgage was later assigned to a different company ("Mortgagee").

 

In September 2014, husband and wife filed a joint chapter 7 bankruptcy petition in the U.S. Bankruptcy Court for the Southern District of Ohio, which identified them as joint tenants with rights of survivorship to the Property. 

 

The chapter 7 trustee subsequently ("Trustee") filed an adversary complaint for declaratory judgment seeking a declaration that the wife's interest in the Property was not encumbered the Mortgage because only her husband was named as a "Borrower" in the body of the Mortgage. 

 

Due to the ambiguous nature of the Mortgage, the bankruptcy court considered parole evidence to determine the parties' intent in executing the Mortgage, and following a trial, a Judgment Order was entered holding that the Mortgage fully encumbered both the husband and wife's interests in the Property.  The Trustee appealed.

 

Given conflicting opinions among federal and Ohio state courts, the Sixth Circuit BAP certified two questions to the Ohio Supreme Court to answer two unsettled questions of state law:

 

(1) whether an individual who is not identified in the body of a mortgage, but who signs and initials the mortgage is a mortgagor of his or her interest, and;

 

(2) is a mortgage signed and initialed by an individual whose name is not identified in the body of the mortgage, but whose signature is properly acknowledged pursuant to Ohio Rev. Code 5301, invalid as a matter of law such that parole evidence is not admissible to determine the intent of the individual in signing the mortgage?

 

The Ohio Supreme Court answered the certified questions by ruling: (1) that failure to identify a signatory by name within the body of the mortgage did not render the agreement unenforceable against the signatory's in rem rights, and; (2) that when signed, initialed and acknowledged by a signatory not named within the document itself, the mortgage is not invalid as a matter of law; thus, parole evidence is admissible to determine intent when ambiguities are present.  Bank of New York Mellon v. Rhierl, No. 2018-Ohio-5081, 2018 WL 6778145 at *1, *45-5 (Dec. 20, 2018); Ohio Rev. Code Ann. 1335.03 (signature of a party itself makes a contract enforceable, rather than other methods of identification within the contract itself) (case law citations omitted).

 

While emphasizing the signature requirement of a contract, the Ohio Supreme Court's opinion also discussed the importance of consideration, and that a party's intent cannot be found by a signature alone—language within the document could limit a party's capacity and willingness to encumber certain property. 

 

Thus, in considering the contractual terms as whole to determine a party's intent to be bound by contract, even if a signatory is not described within the body of the document, he or she is acting as a mortgagor absent any language within the mortgage that negates this presumption.  Rhiel at *4 (internal citations omitted).

 

In supplemental briefing before the Sixth Circuit BAP, the appellant Trustee argued that the Ohio Supreme Court's ruling only held that it is possible for a person who signs, but is not named in a mortgage to pledge their property interest to the mortgagee only if the mortgage as a whole evinces that persons' intent to be bound, and as noted in a dissenting opinion from the Ohio Supreme Court's ruling, there was no such conveyance language pertaining to her within the Mortgage. 

 

In addition, and notwithstanding the Ohio Supreme Court's holdings, the Trustee further argued that the bankruptcy court erred in permitting parole evidence and submitted case law from other states, including Massachusetts and Kentucky, along with prior decisions applying Ohio law to show that other bankruptcy courts have held that a person who signs a mortgage has not encumbered their share of the property if not defined as a "Borrower" within the body of the mortgage itself (case law citations omitted).

 

The appellee Mortgagee argued that the Supreme Court's answers to the certified questions are binding precedent, and Trustee could not use the dissenting opinion as a basis for reversal.

 

With the benefit of the Ohio Supreme Court's opinion answering the certified questions and independent review of the Mortgage, the Sixth Circuit BAP concurred with the bankruptcy court's findings that the Mortgage was ambiguous, as the text of the document suggests that the husband alone was the "Borrower," but the wife's signature and initial suggest that she also pledged her interest in the Property as "Borrower." 

 

This term was susceptible to two competing, reasonable interpretations with respect to the identity of the mortgagor(s) and extent of property liable for the Note.  Thus, the bankruptcy court's decision to consider parole evidence was correct.

 

At trial the bankruptcy court considered depositions, affidavits, other income-property transactions and testimony, along with consideration that the husband and wife both mortgaged their interests in the Property when obtaining the original purchase money mortgage to concluded that the Mortgage encumbered both of their interests in their joint tenancy.  It also considered the fact that the lender's agent who prepared the closing documents prepared explicit instructions for the closing agent to require both husband and wife to sign the Mortgage, and the wife did so as instructed. 

 

In addition, the Court noted, the Mortgage itself appeared to recognize that "any Borrower who co-signs this Security Instrument but does not execute the Note (a 'co-signer'): (a) is co-signing this Security instrument only to mortgage, grant and covey the co-signer's interest in the Property under the terms of this Security Instrument…"  and contained no language that the refinancing lender intended to take a first mortgage in only half the Property.  Lastly, the bankruptcy court found no evidence to suggest that the wife signed the Mortgage only to release her dower rights as she claimed, and the Property's description in the Mortgage.

 

Accordingly, the Sixth Circuit BAP found no clear error in the bankruptcy court's factual finding that the husband and wife intended to encumber their entire interest in the Property by signing the Mortgage to secure refinancing of their loan, and affirmed the bankruptcy court's ruling in favor of the Mortgagee.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


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Saturday, May 11, 2019

FYI: Cal App Ct (5th Dist) Holds Borrower Entitled to Atty Fees for Successful TRO

The Court of Appeal for the Fifth District of California recently held that a court may award attorneys' fees pursuant to Civil Code § 2924.12(h) when a borrower obtains a temporary restraining order to stop a non-judicial foreclosure sale. 

 

A copy of the opinion is available at:  Link to Opinion

 

The borrowers filed an ex parte application for a temporary restraining order ("TRO") to enjoin the trustee's sale of their home.  The application contained a request for attorneys' fees and costs.

 

The trial court granted the TRO and set a hearing to show cause for a preliminary injunction.  The order required the defendants to pay $3,500 in attorneys' fees pursuant to Civil Code § 2924.12.

 

The loan servicer brought this appeal of the attorneys' fees award.

 

As you may recall, section 2924.12(h) provides that:  "[a] court may award a prevailing borrower reasonable attorney's fees and costs in an action brought pursuant to this section.  A borrower shall be deemed to have prevailed for purposes of this subdivision if the borrower obtained injunctive relief or was awarded damages pursuant to this section."

 

The loan servicer argued that the borrowers did not prevail for purposes of section 2924.12(h) because they merely obtained a TRO.

 

The Appellate Court considered Monterossa v. Superior Court (2015) 237 Cal. App. 4th 747, where the Third District held that section 2924.12(h) permitted an award of attorneys' fees to a borrower who had obtained preliminary injunction, as opposed to permanent, injunctive relief. 

 

The Monterossa court concluded that such fees were permitted by the plain language of the statute because "injunctive relief" incorporates "both preliminary and permanent injunctive relief."  Monterossa, 237 Cal. App. 4th at 753.

 

The Monterossa court explained that the purpose of the statutory scheme is to provide borrowers with a meaningful opportunity to obtain available loss mitigation options, and a borrower who successfully forces the lender to comply with the statutory process by obtaining a preliminary injunction has prevailed.  Monterossa, 237 Cal. App. 4th at 755.

 

The Appellate Court found this reasoning persuasive, holding that "the plain statutory language is dispositive of this appeal."  The borrowers prevailed in obtaining a TRO, which was a form of injunctive relief, and therefore the Court held that attorneys' fees were authorized under the statute. 

 

The loan servicer also argued that the fee request was procedurally defective.

 

As you may recall, a party may seek statutory attorneys' fees as costs through any of four methods: (1) on noticed motion, (2) at the time a statement of decision is rendered, (3) on application supported by affidavit made concurrently with a claim for other costs, or (4) on entry of a default judgment.  Code Civ. Proc. § 1033.5(a)(10)(B), (c)(5).

 

Rule 3.1702 of the California Rules of Court proscribes a noticed motion procedure whenever the court is required to determine whether the requested fee is reasonable or whether the requestor is a prevailing party. 

 

Civil Code § 2924.12(h) requires a determination that the plaintiff is a prevailing party and that the requested fees are reasonable, but the borrowers did not file a notice motion for the fee request.  Thus, the Appellate Court held that the grant of fees based on an ex parte application was improper.

 

Accordingly, the Appellate Court reversed the award of attorneys' fees and remanded for further proceeding. 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

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Thursday, May 9, 2019

FYI: Ill App Ct (5th Dist) Upholds Dismissal of FDCPA and State Law Claims That 4-yr UCC SOL Applied to Credit Card Purchases

The Appellate Court of Illinois Fifth District affirmed the dismissal of a borrower's alleged putative class action alleging that the successor to a credit card Issuer ("Issuer") violated various state and federal laws when it filed suit to collect the debt past the four-year statute of limitations for the sale of goods under the Illinois version of the UCC (810 ILCS 5/2-725).

 

In so ruling, the Appellate Court held that the Issuer properly filed suit within the five-year statute of limitations that applies to credit card agreements under 735 ILCS 5/13-205.  In addition, the Appellate Court ruled that advancing money to pay for merchandise constituted a loan governed by the five-year statute of limitations for credit cards.

 

A copy of the opinion is available at:  Link to Opinion

 

In 2012, a borrower defaulted on a credit card usable only to purchase goods at one retailer. In 2017, more than four years but less than five years after the default, the Issuer filed sued against the borrower to collect the debt.

 

In response, the borrower filed a three-count class action counterclaim against the Issuer alleging that the debt was time-barred because the four-year statute governing contracts for the sale of goods under section 2-725 of the UCC applied. Based on this claim the borrower alleged the Issuer violated the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1 et seq., and the Illinois Collection Agency Act, 225 ILCS 425/1 et seq.

 

The Issuer moved to dismiss arguing that it timely filed the complaint because the five-year statute of limitations contained in 735 ILCS 5/13-205 that governs credit card agreements controlled.

 

The trial court granted the motion to dismiss and this appeal followed.

 

The Appellate Court began its analysis by observing that Harris Trust & Savings Bank v. McCray, 21 Ill. App. 3d 605 (1974), addressed "whether a credit card issuer may commence an action based upon the holder's failure to pay for the purchase of goods more than 4 years after the issuer's cause of action accrued." 

 

The Harris Trust court determined that "money advanced to a merchant in payment for merchandise received by the defendant constitutes a loan" where the borrower "promised to repay the bank for money it paid to the merchant for her benefit." The Appellate Court characterized this three-party transaction as a "tripartite relationship," followed Harris Trust, and held that the five-year statute of limitation applied here.

 

The borrower urged the Appellate Court to follow a persuasive New Jersey case, Midland Funding LLC v. Thiel, 144 A.3d 72, 75 (N.J. Super. Ct. App. Div. 2016), which held the four-year statute of limitation governing the sale of goods applied to "claims arising from a retail customer's use of a store-issued credit cardor one issued by a financial institution on a store's behalfwhen the use of which is restricted to making purchases from the issuing retailer."  The Appellate Court declined this invitation because "on point" Illinois case law settled this issue.

 

The Appellate Court next examined the borrower's argument that Citizen's National Bank of Decatur v. Farmer, 77 Ill. App. 3d 56 (1979) demonstrates that the four-year statute of limitations applied.  The Appellate Court distinguished Citizen's because, unlike this case, the plaintiff did not loan any money to a borrower. 

 

The borrower also argued that the Appellate Court should follow Johnson v. Sears Roebuck & Co., 14 Ill. App. 3d 838 (1973) where "the court held that a store credit card was not subject to usury laws because the sale of goods on credit and allowing payments over time do not constitute a loan."  The Appellate Court distinguished this case because it did not involve a fact pattern where a bank paid a merchant for goods that a borrower purchased and the borrower agreed to repay the bank for this loan.  Instead, it only concerned the relationship between a retail merchant and a purchaser. 

 

Finally, the Appellate Court emphasized that the "type of credit card is immaterial." It does not matter whether the credit card was issued for a general purpose or may only be used at one retailer.  Instead, the "determining factor" is the "tripartite relationship and a loan of money."

 

Thus, the Appellate Court affirmed the trial court's dismissal order.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

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and

 

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and

 

California Finance Law Developments