FYI: 9th Cir Says FDCPA Def Must Show Bad Faith by Pl/Debtor in Order to Recover Costs

The U.S. Court of Appeals for the Ninth Circuit recently held that a prevailing defendant cannot be awarded costs under the FDCPA without a finding that the plaintiff brought the action in bad faith and for the purpose of harassment.  A copy of the opinion is attached. 

 

Plaintiff, a consumer, filed this action alleging unfair debt collection practices against defendants and asserting claims under, among other things, the FDCPA.  A trial on the merits was held solely as to plaintiff's FDCPA claim and a jury found in favor of defendants.  The court then awarded defendants costs under Fed.R.Civ.P. 54(d), which, with few exceptions, allows a court to award costs to a prevailing party.  Plaintiff sought to re-tax costs, arguing that the FDCPA requires a finding of bad faith and harassment on plaintiff's part before costs can be awarded.  The district court denied plaintiff's motion to re-tax costs, holding that the FDCPA requires a bad faith finding only before awarding attorneys fees, but not before awarding costs.  This appeal followed. 

 

In reversing the district court's decision, the central inquiry for the Ninth Circuit was how to interpret the mention of costs in the FDCPA's provision on damages, 15 U.S.C. § 1692(k)(a)(3), which states in part: "[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 appellate court disagreed with the district court's explanation that this provision is "primarily concerned with the recovery of attorney's fees," noting that this interpretation "would require courts to consider costs in determining the reasonableness of attorneys' fees," but that "costs are not part of the traditional methodology of determining the reasonableness of attorney's fees" and to use costs to determine attorneys fees would be a "logical fallacy."  The appellate court also found that the FDCPA's legislative history did not support the district court's decision, and the FDCPA's remedial purpose is best served if the damages provision is interpreted to allow costs only when there is a finding of bad faith and harassment. 

 

Accordingly, the Ninth Circuit held that the FDCPA's damages provision superseded Fed.R.Civ.P. 54 which generally allows for a court to award costs "unless a federal statute … provides otherwise."

 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

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FYI: 4th Cir Says CAFA Jurisdiction Over Amended Complaint Cured Supposed Improper Prior Removal

The U.S. Court of Appeals for the Fourth Circuit recently held that, even if a class action case does not satisfy the Class Action Fairness Act (“CAFA”) at the time it is removed to federal court by a defendant, a plaintiff can independently confer jurisdiction on the federal court if after removal the complaint is amended to include facts that clearly give rise to federal jurisdiction.  A copy of the opinion is attached. 

Plaintiffs in this case each filed individual complaints in a Maryland state court, alleging violations of the Maryland Secondary Mortgage Loan Law against various financial entities.  After the cases were filed, plaintiffs’ counsel sent to defendants’ counsel drafts of three amended class action complaints and a letter that stated that plaintiffs intended to amend their complaints into class actions.  Upon receiving these documents, and before the complaints were actually filed, defendants removed the cases to federal court.  Plaintiffs subsequently filed final versions of their amended complaints in federal court and then sought to remand the cases to state court, arguing that federal subject matter jurisdiction did not exist at the time of removal.  The district court denied plaintiffs’ motion for remand and this appeal followed.

In affirming the district court’s decision, the appellate court first reviewed a line of precedent in both the Eleventh Circuit and other circuits which holds that, while a case should be “fit for adjudication at the time the removal petition is filed,” “this timing requirement is not fatal to federal-court adjudication where jurisdictional defects are subsequently cured.”  Accordingly, if a plaintiff voluntarily amends his or her complaint to allege a basis for federal jurisdiction, a federal court may exercise jurisdiction even if the case was improperly removed.   

The Court found that, based on this precedent and, in the interest of judicial economy, the district court did not err in retaining jurisdiction, given that plaintiffs’ final amended complaints alleged facts that clearly gave rise to federal jurisdiction under CAFA. 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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FYI: US Sup Ct Says Rule 23 Allows Class Action, Despite State Law Prohibition On Class Actions for Remedy Sought

The U.S. Supreme Court ruled recently that a state law precluding class actions to recover "penalties" such as statutory interest did not prevent a federal district court sitting in diversity from hearing the same issue in a class action under Federal Rule of Civil Procedure 23.  A copy of the opinion is attached.

Under New York law, Allstate Insurance Co. ("Allstate") had 30 days within which to either pay Shady Grove Orthopedic Associate's ("Shady Grove") insurance claim, or deny it.  Allstate paid the claim, but did so late and refused to pay statutory interest that accrued on the overdue benefits.  Alleging that Allstate routinely refused to pay interest on overdue benefits, Shady Grove filed a diversity suit in the U.S. District Court for the Eastern District of New York to recover the unpaid statutory interest and also sought relief on behalf of itself and a class of all others to whom Allstate owed interest.

The District Court dismissed the case for lack of jurisdiction.  The court held that N. Y. Civ. Prac. Law Ann. §901(b) ("§901(b)")--which precludes a class action to recover a penalty--applies in diversity suits in federal court despite Federal Rule of Civil Procedure 23.  Because statutory interest is a "penalty" under New York law, the court reasoned, §901(b) prohibited the proposed class action.  The Second Circuit concluded that Rule 23 and §901(b) were not in conflict and affirmed.  The Supreme Court reversed and remanded, but divided its ruling into five parts, with several concurrences in each part.

In the judgment of the court (Parts I and II-A of the opinion), Justices Scalia, Roberts, Stevens, Thomas and Sotomeyer first noted that Federal Rule 23 would control if it conflicted with §901(b), and that Rule 23 specifically states that "[a] class action may be maintained" where certain conditions are met.  The court then rejected the Second Circuit's holding, ruling that since §901(b) establishes specific conditions under which a suit "may not be maintained as a class action," it could not apply in diversity suits.  The court further expanded on this, explaining that Rule 23 explicitly empowers a federal court to certify a class in each and every case where the Rule's criteria are met.

The majority also discounted the dissent's claim that §901(b) could coexist with Rule 23.  The dissent had characterized §901(b) as applying only to the remedy that might be available in a class action, as opposed to the question of whether a suit could be maintained as a class action.  However, the majority disagreed, again noting that "Rule 23 permits all class actions that meet its requirements."  Allowing the imposition of additional requirements--such as those presented by §901(b)--would render Rule 23 partially invalid, the majority ruled.

Justices Scalia, Thomas, Sotomeyer and the Chief Justice further concurred in Parts II–B and II–D of the decision, holding that the Rules Enabling Act (28 U.S.C. §2072), rather than the Erie Doctrine, controls the validity of a given rule.  Citing Sibback v. Wilson & Co. (312 U.S. 1, 14 (1941)), the court interpreted Section 2072(b)'s requirement that a rule "not abridge, enlarge or modify any substantive right" to mean that a rule will remain valid only as long as it governs "the manner and the means" by which the litigants' rights are enforced.  A rule may not alter "the rules of decision by which [the] court will adjudicate [those] rights," or the available remedies.

Finally, in Part II-C, Justice Stevens distinguished the judgment of the court.  First noting that under §2072(b), a federal rule cannot govern when the application of that rule would "abridge, enlarge or modify any substantive right," Justice Stevens argued that there could be rare cases of state law so "bound up" or "intertwined" with substantive rights and remedies that the state law could effectively define the scope of the state-created right and that application of a federal rule in such a case could violate the Rules Enabling Act.  The plurality disagreed, concluding that the correct analysis was established in Sibback's single test of "whether a Federal Rule regulates substance or procedure" and that Justice Stevens' approach would be unworkable, as it "would allow States to force a wide array of parochial procedures on federal courts so long as they are 'sufficiently intertwined' with a state right or remedy."

 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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FYI: NCRC Study Finds Racial Disparity in Foreclosure Crisis, Recommends Stronger Federal Action

The National Community Reinvestment Coalition recently issued the attached study of HMDA data, loan performance data purchased from Lender Processing Services Inc., and 2000 Census data for the Washington, DC area, concluding that minorities are disproportionally affected by the foreclosure crisis, supposedly beyond levels that can be explained by criteria other than race. 

 

The following summary is compiled from excerpts taken directly from the study:

 

"This study takes a statistical sample of loans with 2004-2007 vintages, examining the borrower, loan and neighborhood characteristics that drove subprime lending and foreclosure.

 

"The study confirms that disparities in lending have a clear racial component that has not been adequately addressed through enforcement of the nation’s fair lending laws.

 

"Findings include:

 

"(a) Individual African-American and Hispanic borrowers obtained subprime loans more often than white borrowers with similar credit scores, incomes, loan-to-value ratios, and neighborhood characteristics.

 

"(b) Even controlling for other factors, Latinos were 70 percent more likely and African Americans 80 percent more likely than their white counterparts to receive a subprime loan. This finding suggests that race, in and of itself, alters the likelihood of receiving a subprime loan.

 

"(c)  Minority borrowers are facing foreclosure more often than white borrowers, even after controlling for borrower, loan, and neighborhood characteristics. The study finds that minorities are disproportionately affected by the foreclosure crisis, beyond levels that can be explained by objective criteria.

 

"(d)  African Americans were almost 20 percent more likely and Latinos were 90 percent more likely than their similarly situated white counterparts to go into foreclosure. This suggests that race, in and of itself, alters the likelihood a borrower will go into foreclosure.

 

"(e)  A recent survey by the National Community Reinvestment Coalition of borrowers in the loan modification process found that loans held by African Americans went to foreclosure more often than loans held by whites.

 

"(f)  Loans purchased by the Government Sponsored Enterprises (GSEs) are going into foreclosure at roughly half the rate of both portfolio loans and privately securitized loans. This suggests that the standards imposed by the GSEs have encouraged the origination of safe and sustainable loans.

 

"(g)  Loan characteristics, especially payment-to-income ratios, adjustable rates, high-costs (subprime) and balloon payments were found to have a significant effect on loan performance.

 

 

"The findings are particularly significant because the study controls for the most important factors used to determine risk during the origination process, including credit score. The study uses regression analysis, which separates out and controls likely causal factors, achieving a greater determination of causation than otherwise possible.

 

"The study controls for a number of influential factors, including:

 

"(a)  Loan characteristics: Loan-to-value ratio, loan type (purchase or refinance) adjustable rate mortgage, refinance, high-cost (subprime), extent of documentation, interest-only, pre-payment penalty, balloon term, payment-to-income ratio.

 

"(b)  Neighborhood characteristics: percent owner occupied, median year built, House Price Index, income level of zip code, moderate-income vs. upper-income zip code, middle-income vs. upper-income zip code, minority zip code.

 

"(c)  Investor identifiers: portfolio vs. government sponsored enterprises (GSE), private securitized vs. GSEs, year 2005 vs. 2004, year 2006 vs. 2004, year 2007 vs. 2004.

 

"The findings of the study clearly indicate risky and unfair lending practices that were not addressed by the banking regulators.  We recommend the creation of a strong and independent Consumer Financial Protection Agency, dedicated to ensuring responsible access to capital and credit.

 

"Ongoing race disparities, which are unexplained by objective criteria, support the expansion and strengthening of the Community Reinvestment Act. The law should be expanded to non-covered financial institutions, which have been associated with higher levels of risky lending and foreclosure.

 

"The abusive and risky loan characteristics studied are not subject to rigorous oversight under the law, despite their problematic nature. We recommend the creation of a strong, national anti-predatory lending law.

 

"Reform of the Government Sponsored Enterprises (GSEs) should take into account that they may have a beneficial influence on loan quality and sustainability, as supported by this study.

 

"Studies conducted by other academics and Federal Reserve economists have found similar patterns lending in other geographic areas. Making the data presented here available publicly would have allowed for examination of subprime trends earlier in the foreclosure crisis. Problematic practices could have been identified earlier and perhaps stopped by stakeholders before spreading and creating a crisis. The financial reform bills being considered in Congress currently contain some data enhancements, but do not go far enough.

 

 

 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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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FYI: 11th Cir Says FIRREA Does Not Provide Jurisdiction for Preliminary Injunction Against FDIC

The U.S. Court of Appeals for the Eleventh Circuit recently held that, under the anti-injunction provision of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (""FIRREA"), 12 U.SC. §1821(j), a district court did not have jurisdiction to enter a preliminary injunction against the FDIC because the preliminary injunction unlawfully restrained the FDIC's exercise of its receivership powers and functions.  A copy of the opinion is attached.

This action arose from the collapse of Colonial Bank ("Colonial").  Pursuant to an agreement between Bank of America and Colonial, Colonial was to hold certain loans in trust and facilitate the sale of such loans to a third party, remitting sale proceeds or returning unsold loans to Bank of America within fifteen days of receipt of the loans.  Colonial collected over $1 billion in loan proceeds from the sale of the loans. 

When Colonial refused to return the loans and loan proceeds, Bank of America filed this lawsuit in federal court and a temporary restraining order ("TRO") was issued, enjoining Colonial from making any transactions in relation to the loans and loan proceeds.  The next day, the FDIC was appointed as receiver for Colonial.  The FDIC subsequently moved to be substituted in this lawsuit and filed an emergency motion to dissolve the TRO.  The district court denied the FDIC's motion and converted the TRO into a preliminary injunction.  This appeal followed.

In reversing the district court's decision and vacating the district court's preliminary injunction order, the Eleventh Circuit looked to the language of Section 1821(j) of FIRREA which provides in relevant part that "no court may take any action … to restrain or affect the exercise of powers or functions of the [FDIC] as a conservator or a receiver."  In evaluating whether the challenged action constituted the exercise of a receivership power, the court held that the FDIC would not exceed its statutory powers and functions as receiver by controlling and disposing of the loans and loan proceeds at issue, given that the steps the FDIC would need to take to identify and dispose of the loans and loan proceeds held in trust fell "squarely within the FDIC's statutory powers contained in FIRREA."   

The court held that ultimately the administrative claims process was the appropriate mechanism to evaluate Bank of America's claim, and that Bank of America must exhaust FIRREA's administrative claims process before filing an action in federal court. 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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 are available on the internet, in searchable format, at: http://updates.kw-llp.com

 

 

 

FYI: Cal App Affirms Closing Agents Must Disburse in Accordanace with HUD-1

A California appellate court recently  reversed a lower court's holding that there was no breach of the closing instructions contract between a wholesale lender and a settlement agent where the lender alleged that the settlement agent had made a kickback payment that was not authorized or disclosed.  A copy of the opinion is attached.

Plaintiff, a wholesale lender, made a loan to the purchaser of a residential property and defendant acted as the escrow holder and settlement agent for the loan.  Defendant prepared and delivered to plaintiff a Good Faith Estimate that set forth the terms, estimated costs and disbursements at closing for the loans.  After the existing liens were paid off, defendant distributed the balance of the proceeds, representing that there were no additional payoffs or fees that were not disclosed in the Good Faith Estimate.  At some point after funding and the close of escrow but before the balance was disbursed, however, and pursuant to a request from the seller of the property, defendant paid the buyer’s attorney-in-fact close to $55,000.00.  Plaintiff was unaware of this disbursement until it saw the final HUD-1 statement.  Plaintiff, unable to sell the loan on the secondary market, was forced to take back the property and sell it after the borrower defaulted.  The plaintiff then sued the settlement agent for breach of contract, negligence and equitable indemnity.  The trial court granted defendant’s motion for judgment, holding that the action by defendant occurred after funding concluded, so it was not inconsistent with the closing instructions.

In reversing and remanding the trial court’s ruling, the appellate court found that under the plain language of an addendum to the closing instructions provided by plaintiff, defendant was “contractually bound to disclose to [plaintiff] any ‘additional payoffs’ that were not disclosed in the estimated HUD-1 or verbally by [defendant].”  The court rejected defendant’s argument that the buyer held equitable title to the money and could distribute it as she saw fit at the time defendant received the instruction to pay the seller’s attorney-in-fact and held that the duty to disclose continued until the loans closed and at least through preparation of the final HUD-1 and not when esc row closed. 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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 are available on the internet, in searchable format, at: http://updates.kw-llp.com

 

 

 

FYI: NC Issues FAQs re: New Loss Mitigation/Foreclosure Prevention Rules

The North Carolina Office of the Commissioner of Banks issued tthe attached FAQs to accompany the new rules to reduce and delay foreclosures by licensed mortgage services (below), that go into effect on June 1, 2010.

Among other things, the FAQs clarify that the Communication Rule applies any time a borrower communicates a request sufficient to establish the borrower is seeking loss mitigation assistance

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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 are available on the internet, in searchable format, at: http://updates.kw-llp.com

 

 

---

From: Ralph T. Wutscher [mailto:rwutscher@krw-llp.com]
Sent: Tuesday, April 27, 2010 9:17 AM
To: rwutscher@kw-llp.com
Cc: socaloffice@kahrlwutscherllp.com; dcoffice@kahrlwutscherllp.com; Chicago Office
Subject: FYI: NC Promulgates New Loss Mitigation/Foreclosure Prevention Rules

The North Carolina Office of the Commissioner of Banks announced new rules to reduce and delay foreclosures by licensed mortgage services that will go into effect on June 1, 2010.  Copies of the new rules and related press release are attached.

 

The new rules require a state licensed non-bank mortgage servicer to stop foreclosure efforts pending the consideration of a request by the homeowner for assistance, with some specific exceptions. The new rules also require mortgage servicers to acknowledge a borrower's loss mitigation request within 10 days, respond to a borrower's loss mitigation request within 30 days of a completed application, and specific information in denial letters.

 

The regulator states that the new rules do not apply to bank servicers, but the state regulator “hopes that bank servicers with large numbers of delinquent mortgage loans will consider adopting similar procedures to reduce the potential of unnecessary foreclosures.” 

 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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 are available on the internet, in searchable format, at: http://updates.kw-llp.com

 

 

 

FYI: FFIEC Updates BSA/AML Examination Manual

The Federal Financial Institutions Examination Council released the attached 2010 version of its Bank Secrecy Act/Anti-Money Laundering Examination Manual.

 

The revised manual  clarifies supervisory expectations and incorporates regulatory changes since the manual's 2007 release. The revisions also reflect feedback from the banking industry and examination staff. 

 

Areas that received significant updates include:

- enterprise-wide compliance program structures;

- core examination procedures for assessing compliance;

- guidance on determining when a violation is systemic or recurring;

- SARs identification, research and reporting issues;

- exemptions for currency transaction reporting;

- bulk currency shipments; and

- compliance for prepaid cards and trade finance activities.

 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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 are available on the internet, in searchable format, at: http://updates.kw-llp.com