Wednesday, December 7, 2016

FYI: Fla App Ct (3rd DCA) Affirms Award of Atty Fees in Favor of Borrowers, Despite No Request for Atty Fees in Answer

The Third District Court of Appeal of the State of Florida recently affirmed a final judgment awarding attorney's fees to the borrowers in a mortgage foreclosure action, even though the borrowers failed to raise any request for attorney's fees in their answer and affirmative defenses to the foreclosure complaint.

 

In so ruling, the Court held that the mortgagee was on notice that the borrowers were seeking to recover their attorney's fees and failed to timely object to the borrowers' failure to plead entitlement.

 

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

 

The mortgagee filed a mortgage foreclosure complaint that sought recovery of attorney's fees pursuant to the promissory note. The borrowers answered and raised affirmative defenses, but did not plead entitlement to attorney's fees.

 

A month later, the borrowers retained counsel, who filed a motion for judgment on the pleadings, which requested attorney's fees and costs in the prayer for relief.  Two days later, the borrowers, through counsel, filed a motion for summary judgment, which alleged the mortgagee wrongfully force-placed insurance on their property, thereby creating the "default," and also sought attorney's fees and costs.

 

The mortgagee responded in opposition to the motion for summary judgment, but did not object for the request for attorney's fees.

 

After a hearing, the trial court granted the borrowers' motion for summary judgment. The mortgagee moved for rehearing, which the borrowers opposed, again asking for attorney's fees and costs in the "wherefore clause."

 

While the mortgagee's motion for rehearing was still pending, the borrowers filed a motion for attorney's fees and costs, to which the mortgagee did not respond. The borrowers subsequently filed an amended motion or entitlement to attorney's fees and costs, to which the mortgagee also did not respond.

 

Following a hearing, the trial court granted the borrowers' amended motion for entitlement to attorney's fees and costs, reserving as to amount.

 

The borrowers filed their motion to determine the amount of attorney's fees, which the mortgagee opposed, but not on the basis that borrowers were not entitled to fees because they did not plead entitlement in their answers.

 

The mortgagee objected to entitlement for the first time at the hearing on the motion to determine the amount of attorney's fees, which took place over three years after the trial court entered its order granting the borrowers' entitlement motion.

 

The trial court reduced the hours and the hourly rate requested by borrowers' counsel, but entered an order awarding $38,730 plus prejudgment interest from the date of the order granting entitlement and denied the bank's motion for rehearing. The mortgagee appealed.

 

On appeal, the mortgagee argued that the borrowers were not entitled to attorney's fees because they did not plead entitlement in their answer, citing the Florida Supreme Court's 1991 decision in Stockman v. Downs, which held that "a claim for attorney's fees, where based on statute or contract, must be pled, [and] [f]ailure to do so constitutes a waiver of the claim."

 

The Third District Court of Appeal explained that in Stockman, the Florida Supreme Court's main focus was notice, and set forth two exceptions to the plead or waive rule of entitlement, one of which applied to the case at bar: "Where a party has notice that an opponent claims entitlement to attorney's fees, and by its conduct recognizes or acquiesces to that claim or otherwise fails to object to the failure to plead entitlement, that party waives any objection to the failure to plead a claim for attorney's fees."

 

The Appellate Court reasoned that although the borrowers did not plead entitlement in their answer, they put the mortgagee on notice "early on in the litigation that they were requesting attorney's fees" beginning with the motion for judgment on the pleadings filed by borrowers' counsel. The Court also noted that this request was repeated in subsequent motions. In addition, the Court noted that mortgagee failed to object to the failure to plead entitlement in response to the mortgagee's motion for summary judgment or respond to the borrowers' two motions for entitlement.

 

Given the mortgagee's "prolonged silence regarding the defendants' entitled to attorney's fees," the Third District concluded that the mortgagee's objection to entitlement, raised for the first time at the hearing on borrowers' motion to determine amount, was "untimely, and thus [the bank] waived any objection to the defendant's failure to plead entitlement."

 

Accordingly, the trial court's final judgment awarding attorney's fees to the borrowers 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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Monday, December 5, 2016

FYI: 7th Cir Rejects Defrauded Bank's Effort to Recover Counterfeit Check Proceeds from Payee's Bank, Payee, and Federal Reserve

The U.S. Court of Appeals for the Seventh Circuit recently held that a bank that honored a counterfeit check was not entitled to reimbursement from the party who deposited the check, nor from the depositing party's bank or the Federal Reserve.

 

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

 

In 2013 an attorney received an email from a person who claim she wanted to hire him to help her recover money that she said she was owed in a divorce proceeding. The purported ex-wife subsequently told the attorney that after retaining him, her ex-husband settled, and that the attorney should expect a substantial check in the mail to cover his fee plus the amount of the settlement, which he was to pass on to her.

 

The check that the attorney received was drawn on the account of an Illinois corporation. The check looked like a real check but was counterfeit.

 

The scammers wrote the counterfeit check on the corporation's bank account for $486,750.33 to the attorney, which he deposited in his bank. The purported ex-wife told the attorney that she needed the money and the attorney directed his bank to transfer the money to the purported ex-wife.

 

The corporation lost the entire $486,750.33, which was transferred out of its account by the fraudulent check.

 

The corporation's bank reimbursed its defrauded customer -- the corporation -- and then demanded reimbursement from the attorney and his bank, as well as the Federal Reserve Bank of Atlanta. The attorney's bank refused, and the corporation's bank sued the attorney and his bank as well as the Federal Reserve Bank of Atlanta, which was peripherally involved in the transaction.

 

The trial court granted judgment for all three defendants, and the corporation's bank appealed.

 

The corporation's bank first argued that it was entitled to reimbursement on the basis of breach of warranty.

 

When the attorney's bank deposited the $486,750.33 in the attorney's account, it did so by an electronic rather than paper check, and the electronic check passed through the Federal Reserve Bank of Atlanta en route to the corporation's bank.

 

The Federal Reserve Board's Regulation J, 12 C.F.R. § 210.6(b)(3)(A), provides that when a Federal Reserve Bank presents an electronic check for payment, the electronic image must accurately represent all of the information on the front and back of the original check as of the time that the electronic image was substituted for the original paper check.

 

Some information that was on the original counterfeit check was missing from the electronic version, but consisted of characteristics of the check, such as watermarks, microprinting, and other physical security features that could not survive the imaging process.  Their absence from the electronic image was not actionable.  See Regulation CC, 12 C.F.R. § 229.51(A)(3).

 

Among the missing information was a warning box on the back of the check, often designed to resist scanning and so considered by the industry to be a security feature as well.  This missing information, the corporation's bank argued, was crucial.

 

The Seventh Circuit disagreed.  Had the corporation's bank been suspicious of the electronic image that it received from the Federal Reserve Bank of Atlanta, the Court explained that the corporation's bank could have demanded a substitute check, which is a paper printout that is deemed the legal equivalent of the original paper check.

 

The Seventh Circuit noted that a demand for substitute check would have protected the corporation's bank, because a "bank that transfers, presents, or returns a substitute check or a paper or electronic representation of a substitute check for which it receives consideration shall indemnify the recipient … for any loss incurred by any recipient of a substitute check if that loss occurred due to the receipt of a substitute check instead of the original check."  See 12 C.F.R. § 229.53(a).  The Court also noted that the corporation's bank could also have refused to honor the electronic check.

 

The Seventh Circuit thus rejected the corporation's bank's argument, because it did not seek indemnity, and because it did not show that the information on the original check that was omitted from the electronic image would, had it appeared on the electronic image, have aroused suspicions in the corporation's bank that would have caused it to refuse to send the $486,750.33 to the attorney's bank.

 

The corporation's bank also argued that it was entitled to restitution by mistake, pursuant to the Illinois Uniform Commercial Code, 810 ILCS 5/3-418.

The Seventh Circuit disagreed, noting that although the corporation's bank was the victim of a mistake, Illinois law provides no remedy for such a victim against a person who took the instrument in good faith and for value.  See 810 ILCS 5/3-418(c).

 

The Court noted that the lawyer, his bank, and the Federal Reserve Bank of Atlanta reasonably believed that they were engaged in the innocent, commonplace banking activity of forwarding a check to its intended final recipient on behalf of their client and customers. There was no claim or evidence that they knew they were participating in a fraud, or that their conduct fell below reasonable commercial standards of fair dealing, as required by 810 ILCS 5/3-103(a)(4).

 

The corporation's bank also argued the attorney's bank committed negligent spoliation of evidence in alleged violation of Illinois common law, because the attorney's bank destroyed the original paper check after making the electronic copy that it transmitted to the Federal Reserve Bank of Atlanta.

 

Again the Seventh Circuit disagreed, holding that a bank has no duty to retain paper checks after an electronic substitute has been made.  The Court noted that otherwise, banks would drown in paper, provided there's a record of the contents of the paper check.

 

Lastly, the corporation's bank argued that the attorney was liable for professional negligence.

 

Once more, the Seventh Circuit disagreed. Relying on Pelham v. Griesheimer, 92 Ill. 2d 13, 440 N.E.2d 96, 99, 64 Ill. Dec. 544 (Ill. 1982), the Seventh Circuit held that the attorney was liable only to his client, and not to the corporation's bank which was not his client.

 

The Seventh Circuit affirmed the district court's judgment in favor of the defendant attorney, his bank, and the Federal Reserve Bank of Atlanta.

 

 

 

 

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   |   Indiana   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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Sunday, December 4, 2016

FYI: Jury Finds Mortgage Lender and Its CEO Liable for Almost $93 Million in FHA Fraud Case in Texas

A federal jury in the U.S. District Court for the Southern District of Texas found a mortgage lender and its president and CEO liable for almost $93 Million in connection with alleged violations of the False Claims Act (FCA) and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), before application of the trebling and per violation penalties afforded under the statutes.

 

The alleged violations occurred in connection with the lender's participation in the Federal Housing Administration (FHA) mortgage insurance program.

 

A copy of the U.S. Department of Justice's (DOJ) press release is available at:  Link to Press Release

 

The jury award in favor of the United States totaled $92,982,775 in damages, including $7,370,132 against the mortgage lender's president and CEO specifically.

 

In addition, the FCA subjects the damages to trebling, and to mandatory penalties of $5,500 to $11,000 for each violation, whereas FIRREA also allows penalties for each statutory violation.  The federal judge who presided over the trial will determine the total penalties and damages at a later date.

 

The mortgage lender was a participant in HUD's Direct Endorsement Lender program, and underwrote FHA-insured mortgage loans.  As you may recall, for FHA-insured mortgage loans, the lender must "certify to HUD that the loan was underwritten according to HUD's guidelines."  Mortgage lenders must obtain HUD approval for each branch office from which they originate HUD-insured mortgage loans.  In addition, "HUD requires lenders participating in its programs to timely perform quality control audits of their FHA loans to identify and correct systemic problems, including underwriting problems."

 

The DOJ claimed that the mortgage lender "recklessly underwrote and certified at least 1,192 loans for FHA insurance under HUD's guidelines" and that "[t]his fraudulent misconduct resulted in losses to HUD of $85,612,643 when those loans defaulted."

 

The DOJ's press release states that the mortgage lender failed to obtain HUD approval for each branch office from which it originated FHA loans.  Instead, the DOJ claimed, the mortgage lender "operated more than 100 'shadow' branch offices that originated FHA loans without HUD authorization," and "submitted loans originated by those branches to HUD using the ID numbers of approved branches." 

 

The Government claimed that the mortgage lender's "undisclosed shadow branches were not subject to HUD oversight and their default rates were disguised by the default rates of branches whose IDs they were using. This fraudulent misconduct resulted in $7,370,132 in losses to HUD when some of those loans defaulted."

 

In addition, the DOJ claimed that the mortgage lender "operated a dysfunctional quality control program and lied to HUD about it,"  instead employing only "a handful of quality control employees to review loans from as many as 600 branch offices."  According to the DOJ, "many of those employees were unqualified to audit FHA-insured loans."

 

In addition, the DOJ claimed that the president and CEO "personally directed his employees to falsify quality control reports to give the impression that required reviews had been performed, when in fact they had not. When HUD auditors later asked for those quality control reports, [the mortgage lender] provided the falsified reports," and "also falsely certified to HUD on an annual basis that [the mortgage lender] was in compliance with HUD's quality control requirements."

 

The lawsuit was originally filed as a qui tam whistleblower lawsuit in the U.S. District Court for the Southern District of New York into which the United States intervened.  The action was later transferred to the U.S. District Court for the Southern District of Texas, where it went to trial. 

 

 

 

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   |   Indiana   |   Maryland   |   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

 

Webinars

 

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Thursday, December 1, 2016

FYI: 11th Cir Holds CAFA Jurisdiction Remains Even When Class Claims Are Dismissed Before Certification

The U.S. Court of Appeals for the Eleventh Circuit recently held that federal courts that have original subject matter jurisdiction over state law claims under the federal Class Action Fairness Act ("CAFA") retain that jurisdiction even when the class claims are dismissed before the class is certified.

  

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

 

An FBI investigation found evidence that some employees of a fuel supplier that operates the largest chain of truck stops in the United States engaged in a conspiracy to defraud the supplier's purchasers. One purchaser filed a putative class action on behalf of itself and others similarly situated in federal court against the fuel supplier. 

 

The purchaser brought the following state and federal law claims: (1) violations of 18 U.S.C. § 1962(c) for racketeering; (2) violation of 18 U.S.C. § 1962(d) for conspiracy to commit racketeering; (3) breach of contract under state law; (4) deceptive trade practices in violation of state law; (5) unjust enrichment under state law; (6) fraudulent misrepresentation under state law; (7) negligent misrepresentation under state law; and (8) suppression of the proper discounts owed to the class members under state law. 

 

The purchaser based federal subject matter jurisdiction over all eight claims under CAFA, 28 U.S.C. § 1332(d).  The purchaser also claimed federal question jurisdiction under 28 U.S.C. § 1331 for the federal racketeering claims, diversity jurisdiction under 28 U.S.C. § 1332(a), and supplemental jurisdiction under 28 U.S.C. § 1367.

 

The district court dismissed both of the purchaser's federal racketeering claims and its state law claims for fraudulent misrepresentation, negligent misrepresentation, suppression of discounts, and deceptive practices claim.  This left the breach of contract and unjust enrichment claims, asserted both individually and on behalf of a putative class.

 

While this case was pending, a rival class-action suit reached a court approved settlement in the U.S. District Court for the Eastern District of Arkansas.  The parties in this matter acknowledged that the Arkansas settlement would deprive the purchaser of standing to pursue its class claims.  Consequently, the district court dismissed all class claims in the complaint.  At this point, solely the individual breach of contract and unjust enrichment claims survived.

 

Meanwhile, six other separate suits were pending against the fuel supplier in five other federal judicial districts brought by parties who had opted out of the nationwide Arkansas class settlement and who were making similar claims as the corporation.  The six suits were consolidated with the purchaser's suit into one multidistrict-litigation ("MDL") proceeding in the U.S. District Court for the Eastern District of Kentucky.  Subsequently, the MDL court became aware of information that deprived it of diversity jurisdiction.  Without deciding jurisdiction under CAFA, the MDL court remanded this case to the Alabama district court.

 

On remand, the purchaser moved to dismiss its remaining claims without prejudice in order that it could refile in Alabama state court.  The district court dismissed the claims without prejudice.  The fuel supplier appealed. 

 

As you may recall, under CAFA, a federal trial court has original jurisdiction over a putative class action if the amount in controversy exceeds $5 million, as aggregated from the claims of the individual class members, the suit is brought as a class action for a proposed class with at least one hundred members, and any member of the class is a citizen of a state different than any defendant.

 

The Eleventh Circuit examined its ruling in Vega v. T-Mobile USA, Inc., 564 F.3d 1256 (11th Cir. 2009), a case removed from state to federal court.  There, the Court found that a failure to certify a class does not divest the federal courts of subject matter jurisdiction under CAFA.  The Court reasoned that jurisdictional facts are assessed at the time of removal and post removal events, including non-certification, decertification, and severance, do not deprive federal courts of subject matter jurisdiction. 

 

The Eleventh Circuit noted that every circuit court since Vega to consider the question has held that post-removal events do not oust CAFA jurisdiction.  In fact, the reasoning in Vega was explicitly adopted by the U.S. Court of Appeals for the Seventh Circuit in Cunningham Carter Corp. v. Learjet, Inc., 592 F.3d 80 (7th Cir. 2010).

 

The Eleventh Circuit clarified that a case under CAFA can be dismissed for lack of jurisdiction if those claims contain frivolous attempts to invoke CAFA jurisdiction.  However, the Eleventh Circuit noted, in these cases, the federal court did not lose CAFA jurisdiction, but rather the court never had jurisdiction in the first place.

 

Next, the Eleventh Circuit addressed whether there is a different result in this matter because the purchaser filed directly in federal court under CAFA but wished to refile in state court. 

 

The Court explained that there was a policy distinction between removal cases and cases initially filed in federal court.  The Court cautioned that in removal cases there were concerns about forum manipulation that dictate against a plaintiff's post-removal amendments to affect jurisdiction.  As a result, the Eleventh Circuit noted, a court should guard against a plaintiff whose case was removed to federal court and who then amends its pleadings to manipulate its way back into state court. 

 

On the other hand, the Eleventh Circuit explained that there were no forum manipulation concerns when the plaintiff chooses a federal forum and then pleads away jurisdiction through amendment.  In the situation where a plaintiff files a complaint in federal court and then voluntarily amends the complaint, courts should look to the amended complaint to determine jurisdiction. 

 

However, the Eleventh Circuit distinguished this case from those where a plaintiff files in federal court and amends out of CAFA.  The parties in this action did not suggest any action by the purchaser that divested the federal courts of CAFA jurisdiction.  Rather, the purchaser argued that the district court's dismissal of the class claims after the settlement in the Arkansas case destroyed CAFA jurisdiction. 

 

However, the Eleventh Circuit noted that the Arkansas settlement occurred after the corporation filed its complaint.  Moreover, the Court noted, there was no evidence that the complaint was frivolous or deficient under CAFA at the time it was filed. 

 

The Eleventh Circuit found no basis for distinguishing cases originally filed in federal court under CAFA from those removed to federal court when the post-filing action that did away with the class claims is not an amendment to the complaint.   Accordingly, the Court held that CAFA continued to confer original federal jurisdiction over the purchaser's remaining state law claims in the suit. 

 

Last, the Eleventh Circuit did not agree with the trial court's decision to analyze supplemental jurisdiction because supplemental jurisdiction has a role in CAFA cases only in those that have state-law claims that were never subject to CAFA jurisdiction.  Here, there is no dispute that all eight federal and state claims were properly plead as CAFA claims.  Consequently, the trial court had original jurisdiction over all eight claims. 

 

Accordingly, the Eleventh Circuit reversed the trial court's dismissal and remanded for further proceedings. 

 

 

 

 

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   |   Indiana   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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Tuesday, November 29, 2016

FYI: 2nd Cir Rules Successful Offer of Judgment Mooted Putative Class Action

The U.S. Court of Appeals for the Second Circuit recently held in a non-precedential opinion that a consumer, in the circumstances of this case, did not have standing to bring putative class action claims after entry of judgment in his favor on his individual claims pursuant to the defendants' offer of judgment under Fed. R. Civ. Pro. 68.

 

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

 

A consumer filed an individual and putative class action alleging that several companies violated the federal Telephone Consumer Protection Act (TCPA"), 47 U.S.C. § 227, and New York's General Business Law ("NYGBL") § 399-p.

 

The district court dismissed the consumer's putative class action claims for a lack of subject matter jurisdiction after the entry of judgment in his favor pursuant to an offer of judgment under Rule 68 of the Federal Rules of Civil Procedure.  The consumer appealed.  

 

The Second Circuit began its analysis by addressing its prior ruling in Tanasi v. New Alliance Bank, 786 F.3d 195 (2d Cir. 2015).  There, the Second Circuit, contrary to the opinion of other circuits, held that that an unaccepted offer of settlement or judgment, on its own, will not moot a plaintiff's claims.  However, any individual claims are rendered moot where a judgment has been entered and plaintiff's claims have been satisfied.  Subsequently, the Supreme Court of the United States in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016) came to the same conclusion as the Second Circuit. 

 

The Second Circuit noted that it had not addressed the issue of whether, in all cases, the rendering moot of a plaintiff's individual claims undermines that plaintiff's standing to pursue claims on behalf of a putative class.  In Tanasi, the Second Circuit explicitly left open the question whether unresolved class action claims can ever provide an independent basis for justiciability.  Ultimately, the Court decided not to reach this question here because the consumer did not have any connection to a "live claim of his own" or any cognizable interest in pursuing the class claims. 

 

The Second Circuit cited Campbell-Ewald for the rule that Article III limits federal court jurisdiction to cases and controversies at all stages of review, not merely at the time the complaint is filed.  The Court then distinguished the effect of a putative and a certified class. 

 

The Second Circuit determined that although a certified class may obtain independent status for purposes of standing, where the individual claims of the putative class representative are rendered moot prior to certification, in general, the entire action becomes moot.  Consequently, the Court held that because the consumer was the sole individual representative for the putative class, once his claim was no longer live, no plaintiff remained in a position to pursue the class claims. 

 

The Court acknowledged that in certain circumstances the rendering of a named plaintiff's individual claim as moot will not remove the basis for the associated class action.  However, the Court determined that none of those circumstances applied to the consumer.  For example, the Second Circuit examined the relation back doctrine, which occasionally allows a court to review a class certification decision even after a plaintiff's individual claims have been rendered moot.  But that line of cases was inapplicable here because there was no class certification decision or any other reason to link the consumer's once-live claim to the now-independent class claims.

 

The Second Circuit then rejected the consumer's argument that his expectation of an incentive reward as representative of the putative class gave him a personal stake in the class litigation. 

 

The Court noted that standing requires that plaintiff allege a concrete injury that creates a legally protected interest in pursuing the litigation.  The Court determined that the consumer's interest a potential incentive award was merely a purely hypothetical possibility of recovery that did not meet the standing requirements, because an incentive reward is not guaranteed but rather solely within the discretion of the district court after a class is certified and recovery occurs. 

 

Moreover, in this matter there was never a determination as to whether there might be a cognizable class in this case, as he never moved for class certification.  Consequently, the Court held that the consumer did not meet the requirements for standing.

 

Accordingly, the Second Circuit affirmed the judgment of the trial court.

 

 

 

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   |   Indiana   |   Maryland   |   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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Sunday, November 27, 2016

FYI: Fla App Ct (4th DCA) Rules Mortgagee Did Not Violate Mortgage By Accepting Partial Payments

The District Court of Appeal of the State of Florida, Fourth District, recently reversed a trial court's ruling in favor of mortgage loan borrowers based on the mortgagee's failure to satisfy a condition precedent in paragraph 22 of the mortgage in accepting partial payments after default, holding that the mortgagee substantially complied with the requirements of the mortgage.

 

In so ruling, the Court held that the mortgagee was not obligated to send new acceleration notices after each partial payment received, as the borrowers never cured the default by paying the total amount needed to cure the default and reinstate the mortgage loan.

 

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

 

The borrowers defaulted on their mortgage loan, and the mortgagee sent them a letter accelerating the loan pursuant to paragraph 22 of the mortgage.  The borrowers made several partial payments, after each of which the mortgagee sent them a letter acknowledging the payment and setting out the amount still needed to cure the default.

 

The mortgagee eventually sued to foreclose, and the case went to trial.  At the conclusion of trial, the court entered judgment in the borrowers' favor, holding that because the mortgagee accepted partial payments after acceleration, it failed to comply with paragraph 22 of the mortgage.

 

The mortgagee moved for rehearing or alternatively for a new trial, which was denied. The mortgagee appealed.

 

The Fourth District began by examining the text of paragraph 22 of the mortgage, which provided in relevant part that if the default was not cured on or before the date specified, the lender could at its option accelerate the loan "without further demand" and sue to foreclose.

 

The Appellate Court then pointed out that each partial payment notice contained language in which the mortgagee reserved the right to accept or reject a partial payment "without waiving any of its rights."

 

The Fourth District noted that such language was consistent with paragraph 1 of the mortgage, which allowed the mortgagee to accept any partial payment without waiving any of its rights.

 

The Appellate Court disagreed with the trial court's ruling that the mortgagee failed to comply with paragraph 22 because the partial payment notices were confusing and "did not adequately inform Borrowers of the necessary steps to cure."  Instead, the Fourth District noted, the main purpose of a default letter was to let the borrowers know what they must do to bring the loan current, and such notices "need only substantially comply with a mortgage's condition precedent."

 

Relying on its recent ruling in Sill v. JPMorgan Chase Bank, which held that "depending on the mortgage's language, a bank can comply with paragraph 22 without having to issue a new acceleration notice if it had previously sent such a notice," the Appellate Court also rejected the trial court's "assumption that the Bank was required to send a new acceleration notice every time it accepted a partial payment even if the principal amount due was never made current."

 

Because the borrowers did not dispute they were in default, nor did they argue that they had brought the loan current since they received the acceleration letter, the Fourth District held that the partial payment notices did not in any way render the acceleration notice insufficient.

 

In addition, the Court held, the mortgagee "was also not obligated to send new Paragraph 22 notices after each partial payment received since Borrowers never cured the total amount due."

 

Even though the trial court refrained from deciding if the mortgagee proved it had standing to foreclose, "in the interest of judicial economy, [the Court found that the mortgagee] produced sufficient evidence at trial to establish standing."

 

Because the mortgagee substantially complied with paragraph 22 of the mortgage, the Fourth District reversed the trial court's final judgment in the borrowers' favor and remanded the case with instructions for the trial court to enter final judgment in the mortgagee's favor.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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