FYI: Idaho Sup Ct Rejects Borrower's "Standing" Challenge in Non-Judicial Foreclosure, Rejects Related MERS Challenge

The Idaho Supreme Court recently held that parties initiating nonjudicial foreclosure proceedings are not required to demonstrate that they have standing to do so, rejecting the borrower's related MERS challenge.

 

A copy of the opinion is available at:

http://www.isc.idaho.gov/opinions/Trotter%2038022.pdf.

 

A borrower fell defaulted on his home loan.  The trustee notified the borrower of his default, and initiated nonjudicial foreclosure proceedings.  Prior to those proceedings, MERS executed a Corporation Assignment of Deed of Trust, which named Bank of New York Mellon (the "Bank") the beneficiary. 

 

The borrower sued, alleging that the trustee, the Bank and MERS all lacked statutory authority to foreclose.  The Bank filed a motion to dismiss for failure to state a claim, which the lower court granted.  The borrower appealed. 

 

On appeal, the borrower argued that in order to initiate judicial foreclosure proceedings, a party must demonstrate that it has standing to foreclose.  In addition, the borrower alleged that MERS did not have authority to execute the Corporation Assignment of Deed of Trust, and that the subject loan might have been satisfied by an insurance policy. 

 

The Court began its analysis by noting that the borrower did not take issue with whether Idaho's procedural requirements related to nonjudicial foreclosures were satisfied; rather, the borrower argued that the trustee had not demonstrated that it had standing to make use of those procedures. 

 

Having thus framed the issue before it, the Court had little difficulty in affirming the decision of the lower court.  Although the Court acknowledged that parties must have standing before invoking the jurisdiction of a court, it noted that the foreclosure proceedings at issue here were nonjudicial.  Therefore, the Court held that the Idaho Code Sec. 45-1505 "sets forth all of the requirements to foreclose on a Deed of Trust." 

 

Because Sec. 45-1505 does not contain a standing requirement, the Court held that "a trustee may institute nonjudicial foreclosure proceedings on a deed of trust without first proving ownership of the underlying note or demonstrating that the deed of trust beneficiary has requested or authorized the trustee to initiate those proceedings." 

 

The Court declined to review the remainder of the borrower's claims, finding them to be insufficiently supported by authority and/or argument and therefore waived. 

 

Accordingly, and because there were no allegations that the requirements of Sec. 45-1505 had not been complied with, the Court affirmed the lower court's order dismissing the borrower's claims. 

 

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
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FYI: 2nd Cir Refuses to Enforce Class Action Waiver in Commercial Antitrust Case

The U.S. Court of Appeals for the Second Circuit recently reaffirmed its prior holding that a class-action waiver provision in commercial agreements was unenforceable under the Federal Arbitration Act, because enforcement of the provision would effectively strip plaintiffs of their rights under federal antitrust laws.  A copy of the opinion is attached.

 

This appeal arose from long-running litigation involving a group of retail merchants that had entered into agreements with defendants American Express Company and American Express Travel Related Services Company (collectively, "Amex") to accept Amex charge cards.  Plaintiffs-merchants had filed a class-action lawsuit against Amex, claiming that Amex used tying arrangements in violation of federal antitrust statutes to force the merchants into accepting Amex's new line of credit and debit cards, thereby grossly inflating the fees the merchants paid Amex in connection with any customer purchases made with an Amex card.
 
Amex sought to compel arbitration, arguing that the arbitration clause in the merchant agreements prohibited class actions and required each merchant to resolve its dispute individually through binding arbitration.  The District Court had twice previously upheld the arbitration clause. 

 

Considering the case for the third time, the most recent in light of the Supreme Court's holding in AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), that the Federal Arbitration Act ("FAA") preempted state law barring enforcement of class action waivers, the Second Circuit reaffirmed its prior holding that the arbitration clause in this particular case was unenforceable.

 

Previously in this litigation, the Second Circuit held that the mandatory arbitration clause prohibiting class actions was unenforceable because the high costs associated with antitrust cases precluded, as a practical matter, individual antitrust actions against Amex.  See In re American Express Merchants' Litigation, 554 F.3d 300 (2d Cir. 2009)("Amex I").  In so holding, the Second Circuit court noted that the FAA provides that an arbitration agreement is valid and enforceable "save upon such grounds as exist at law or in equity for the revocation of any contract."  See 9 U.S.C. § 2.  Relying on Green Tree Financial Corp.-Alabama v. Randolph, 531 U.S. 79 (2000), in which the Supreme Court observed that arbitration could potentially be so cost-prohibitive as to preclude vindication of federal statutory rights, the Second Circuit court examined the cost-benefit evidence presented by the merchant plaintiffs' expert economist.  The court concluded that, in view of the economic evidence in this particular case, the "fiscal impracticability" of individual actions against Amex would effectively preclude the merchants from vindicating their federal antitrust rights. 

 

Amex petitioned for a writ of certiorari, and, after granting Amex's petition, the Supreme Court vacated Amex I and remanded in light of its decision in Stolt-Nielsen, S.A. v. AnimalFeeds Int'l Corp., 130 S. Ct. 1758 (2010).  In that opinion, the Supreme Court held that "a party may not be compelled under the FAA to submit claims to class arbitration unless there is a contractual basis for concluding that the party agreed to do so."  Finding that the Stolt-Nielsen decision did not alter its analysis of the matter before it, the Second Circuit subsequently held again in In re American Express Merchants' Litigation, 634 F.3d 187 (2d Cir. 2011) ("Amex II"), that, in light of plaintiffs' evidence of the prohibitively high costs of individually arbitrating the disputes with Amex, the class-action waiver arbitration clause was unenforceable, as the clause operated to preclude the merchants from bringing federal antitrust claims against Amex, thus effectively shielding Amex from antitrust liability.

 

In this appeal, the Second Circuit stressed that neither Stolt-Neilsen nor Concepcion required that class-action waivers be deemed per se enforceable and further emphasized that each case must be assessed on its own merits.  In rejecting Amex's argument that Concepcion required reversal of its Amex II decision, the court observed that, while the Supreme Court's decision in Concepcion upheld the enforceability of arbitration agreements generally, Concepcion did not address the specific issue presented in this case and therefore was not controlling.  The court noted that the issue in Concepcion was "whether the FAA prohibits States from conditioning the enforceability of certain arbitration agreements on the availability of classwide arbitration procedures" and that the Supreme Court did not specifically address the enforceability of an arbitration clause where plaintiffs can show "that the practical effect of enforcement would be to preclude their ability to vindicate their federal statutory rights." 

 

Referring to Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), which held that an arbitration agreement was enforceable "only 'so long as the prospective litigant may effectively vindicate its statutory cause of action in the arbitral forum,'" the Second Circuit noted the dicta in that case suggesting contractual provisions which operate as a prospective waiver of statutory rights for antitrust violations would likely be held to be unenforceable as against public policy.
 
The Court concluded that the plaintiffs demonstrated that enforcement of the arbitration clause would force them to incur exorbitant costs in pursuing their antitrust claims individually against Amex and, thus, effectively precluded them from bringing any antitrust actions against Amex. 

 

Accordingly, the court ruled that such an obstacle constituted an unenforceable bar to the plaintiffs' rights to bring federal antitrust claims.   The Court remanded the case with instructions to deny Amex's motion to compel arbitration.

Ralph T. Wutscher
McGinnis Tessitore 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@mtwllp.com
 

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FYI: Cal App Ct Reverses Trial Court's Application of "Judicial Abstention" Doctrine, Under Which Trial Court Declined to Adjudicate Regulatory Issue

The California Court of Appeal, Second Appellate District, recently held that application of the judicial doctrine of abstention, under which courts may abstain from adjudicating lawsuits that seek equitable remedies where doing so would require a trial court to assume the functions of an administrative agency or require a court to determine complex economic policy, was improper where there was no alternative mechanism to resolve the issues raised by the plaintiffs. 

 

A copy of the opinion is available at:

http://www.courtinfo.ca.gov/opinions/documents/B219113.PDF.

 

Plaintiffs-consumers filed a class-action lawsuit against Chevron USA, Inc. ("Chevron") alleging various statutory and common-law violations in connection with Chevron's practice of purchasing wholesale fuel at a standardized temperature and then reselling it to California consumers at a higher average temperature.  The lawsuit alleged that because motor fuel expands as it is heating, Chevron's practice harmed consumers in the following ways: (1) consumers received less fuel than they would if Chevron adjusted for temperature increases; (2) consumers were led to believe, incorrectly, that a gallon of fuel contains a standardized amount of fuel;(3) consumers could not determine the actual price of fuel or compare prices between retailers; and (4) Chevron was able to collect more taxes from consumers than it was required to pay the government. 

 

As the lawsuit was ongoing, the California Energy Commission ("CEC") released a report, mandated by statute, evaluating the benefits of using "Automatic Temperature Compensation" ("ATC") technology at fuel pumps.  This technology would compensate for variances in temperature where motor fuel was sold.  The report concluded that consumers would not realize any economic benefit were retailers required to use ATC technology. 

 

Chevron filed a motion for judgment on the pleadings, arguing among other things that the trial court should dismiss the plaintiffs' claims under the judicial abstention doctrine.  The trial court agreed, holding that the CEC report indicated that the Legislature intended to address the issues in plaintiffs' complaint, and that adjudicating those issues would improperly involve the court in complex areas of economic policy.  The plaintiffs appealed. 

 

As you may recall, the judicial abstention doctrine provides that courts may abstain from adjudicating lawsuits that seek equitable remedies where doing so would "require a trial court to assume the functions of an administrative agency" or require a court to determine "complex economic policy."  Arce v. Kaiser Foundation Health Plan, Inc. (2010) 181 Cal. App. 4th 471, 496.

 

The Appellate Court began with a detailed examination of the effect of temperature on motor fuel.  It noted that in California, motor fuel consumers pay "hundreds of millions of dollars" more in taxes than the retailers are required to pay to the government.  It further noted that the petroleum industry has supported the use of ATC technology in cold climates, while opposing its use in warm climates. 

 

Next, the Appellate Court noted that the remedies sought by the plaintiffs in connection with their numerous causes of action included, among others, requiring Chevron to install ATC technology at its fuel pumps; adjusting the price of fuel based on the temperature; and/or informing consumers of the effect of temperature on motor fuel. 

 

On appeal, Chevron again argued that in light of the CEC's report, the court should dismiss the plaintiffs' claims under the judicial abstention doctrine.  The plaintiffs contended that the court should not decline to adjudicate their claims based on a report that did not establish law or create a regulatory scheme.  In addition, the plaintiffs pointed out that requiring Chevron to implement ATC technology was one, but not the only, remedy they sought.  Therefore, the plaintiffs argued, a report on ATC technology should not foreclose the Court's consideration of those other remedies. 

 

The Appellate Court agreed with the plaintiffs.  It examined California case law concerning judicial abstention in detail, finding that two factors typically support invoking judicial abstention:  "[f]irst, the plaintiffs had asserted claims that would necessarily require the trial court to resolve complex policy issues.  Second, there was an alternative mechanism for resolving the issues plaintiffs had raised in their complaints." 

 

Based on that framework, the Appellate Court held that the lower court abused its discretion in employing the judicial abstention doctrine.  It noted that Chevron's arguments for judicial abstention were predicated on the assumption that an order mandating the use of ATC technology was the only possible relief plaintiffs sought.  However, the plaintiffs sought other relief as well, including an order requiring Chevron to make various disclosures to consumers. 

 

Further, the Appellate Court noted that the Legislature had not taken any action to remedy the issues raised in the plaintiffs' complaint, nor had it "provided any certainty that it would address those claims in the future."  Because "[judicial] abstention is generally appropriate only if there is an alternative means of resolving the issues raised in the plaintiff's complaint," the Appellate Court reversed the lower court's order granting Chevron's motion for judgment on the pleadings.

 

Ralph T. Wutscher
McGinnis Tessitore 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@mtwllp.com
 

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FYI: FTC Reaches $2.5MM Settlement w/ National Debt Buyer On Credit Reporting, "Time-Barred" Debts, and Other Collection Issues

The Federal Trade Commission announced that it reached a $2.5MM settlement with one of the nation's largest consumer debt buyers, relating to various allegations of misrepresentation and supposed deceptive conduct especially as to old or "time-barred" debts, as well as alleged failures to conduct reasonable investigations following notice of disputes received from credit reporting agencies. 

 

In addition, the company agreed to notify debtors as to "time-barred" debts that the company will not sue to collect on the debt, and agreed not to sue on those debts even if the debtor makes a partial payment that otherwise would make the debt no longer time-barred.

The company also agreed that, when consumers dispute the accuracy of a debt, it will investigate the dispute, ensuring that it has a reasonable basis for its claims the consumer owes the debt, before continuing its collection efforts.  The settlement would also bar the company from reporting the debt to credit reporting agencies without notifying the consumer about the negative report.

 

Copies of the proposed consent decree, complaint and related materials are available at:

http://www.ftc.gov/os/caselist/0523133/index.shtm

 

The FTC's action alleges violations of the FTC Act, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act.The U.S. Department of Justice filed the proposed consent order this week at the FTC's request. 

 

Specifically, the FTC's nine-count complaint charged the company with:

-  Allegedly misrepresenting that consumers owed a debt when it could not substantiate its representations; 

-  Allegedly failing to disclose that debts are too old to be legally enforceable or that a partial payment would extend the time a debt could be legally enforceable; 

-  Allegedly providing information to credit reporting agencies, while knowing or having reasonable cause to believe that the information was inaccurate; 

-  Allegedly failing to notify consumers in writing that it provided negative information to a credit reporting agency; 

-  Allegedly failing to conduct a reasonable investigation when it received a notice of dispute from a credit reporting agency; 
-  Allegedly repeatedly calling third parties who do not owe a debt; 

-  Allegedly improperly informing third parties about a debt; 

-  Allegedly misrepresenting the character, amount, or legal status of a debt; providing inaccurate information to credit reporting agencies; and making false representations to collect a debt;

-  Allegedly failing to provide verification of the debt; and

-  Allegedly continuing to attempt to collect a debt after it is disputed by the consumer.

The FTC also issued a new publication for consumers, "Time-Barred Debts: Understanding Your Rights When It Comes to Old Debts," which is available at:

http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt144.shtm

Ralph T. Wutscher
McGinnis Tessitore 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@mtwllp.com
 

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