FYI: Indiana Sup Ct Explains 3 Options Available to Mortgagees as to Statutes of Limitations

The Indiana Supreme Court recently held that there are important legal differences between closed-end installment contracts (such as ordinary mortgage loans) and open-end accounts (such as HELOCs) when considering statute of limitations, and there is no need to impose a rule of reasonableness when a lender sues for payment on a closed-end installment contract.

 

In so ruling, the Court explained the three options that a closed-end mortgagee has under Indiana law in relation to the Indiana statutes of limitations, and held that the mortgagee's foreclosure action at issue as not time-barred.

 

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

 

Mortgagors executed a 15 year note and mortgage beginning in 1993.  The note allowed the lender to accelerate and demand immediate payment in full upon default.

 

Mortgagors defaulted on the note in June 1995, the original lender filed for bankruptcy, and the note and mortgage were eventually transferred and assigned to another entity ("Bank") in July 2000. The Bank chose not to sue the Mortgagors until July 3, 2012, four and a half years after the note matured.

 

The trial court issued an order foreclosing the mortgage but limited the Bank's recovery to the payments and interest which accrued after July 3, 2006 -- six years prior to the date when Mortgagor pursued its claim -- based on Indiana's six-year statute of limitations.

 

The Mortgagors appealed. The Bank in its appellate brief stated that, although it did "not agree with the trial court's conclusions regarding the impact of the [Mortgagors] statute of limitations defense," it did "not appeal the same."

 

The Court of Appeals reversed, finding that "a party is not at liberty to stave off operation of the statute [of limitations] inordinately by failing to make demand", citing Smither v. Asset Acceptance, LLC, 919 N.E.2d 1153, 1161 (Ind. Ct. App. 2010).  Here, because the original lender did not accelerate the note within six years of the Mortgagors initial default, the Court of Appeals held that the Bank waited "an unreasonable amount of time" and could not recover.

 

The Indiana Supreme Court granted transfer, vacating the Court of Appeals opinion.

 

The Mortgagors argued that failing to exercise the acceleration clause within 6 years of default was unreasonable, and thus the Bank's claim should be time-barred. The Mortgagors contended, that when a mortgagee "has the option to accelerate payments but is not required to do so, some reasonableness limitation is necessary to ensure that 'the creditor is not at liberty to stave off operation of the limitations period inordinately by failing to make demand.'"

 

The Bank countered there are "three possible points in time when the statute of limitations could have been triggered: (1) as each installment payment became due; (2) upon an exercise of the optional acceleration clause, had it chosen to accelerate; or (3) upon loan maturity."

 

The Bank argued its claim was timely because it was asserted within six years of many of the Mortgagors missed installment payments and within six years of the note's maturity date.

 

The Indiana Supreme Court found that "for purposes of the statute of limitations, closed installment contracts should be treated differently than open accounts" and two statutes of limitations would apply.

 

The first, the Court noted, Indiana Code section 34-11-2-9 is the general statute of limitations for "action[s] upon promissory notes." This statute states that such an action, when pertaining to a note executed after August 31, 1982, "must be commenced within six (6) years after the cause of action accrues." I.C. § 34-11-2-9.

 

The second, the Court noted that Indiana "adopted the relevant Uniform Commercial Code (UCC) statute of limitations as Indiana Code section 26-1-3.1-118" which specifically governs "an action to enforce the obligation of a party to pay a note payable at a definite time." I.C. § 26-1-3.1-118(a). It gives two alternative deadlines for asserting a cause of action upon such a note: either "within six (6) years after the due date or dates stated in the note or, if a due date is accelerated, within six (6) years after the accelerated due date."

 

The Indiana Supreme Court further noted that "[t]hese statutes' plain language shows that they are not mutually exclusive when applied to an action on a promissory note."

 

The Court concluded "that Indiana's two applicable statutes of limitations recognize three events triggering the accrual of a cause of action for payment upon a promissory note containing an optional acceleration clause."

 

First, "a lender can sue for a missed payment within six years of a borrower's default."

 

Second, "a lender can exercise its option to accelerate and fast-forward to the note's maturity date, rendering the full balance immediately due. The lender must then bring a cause of action within six years of that acceleration date."

 

Third, "a lender can opt not to accelerate and sue for the entire amount owed within six years of the note's date of maturity."

 

The Indiana Supreme Court affirmed the trial court's order limiting the Bank's recovery to the payments and interest which accrued after July 3, 2006 further explaining that "ordinarily, lenders may recover the entire amount owed on a promissory note by filing suit within six years of the note's maturity date, if they choose not to exercise the note's optional acceleration clause". 

 

However, here, the Bank refrained from asking for full relief and the Court declined to grant relief beyond what the Bank sought.

 

 

 

 

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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FYI: COVID-19: Several States Toll Statutes of Limitations on Legal Actions

A number of states have tolled the statutes of limitations on legal actions in response to COVID-19. 

 

We include a short summary of the various developments below.  We are continuing to review orders, legislation, and proclamations and expect this list to grow.

 

 

Orders Tolling the Statutes of Limitations:

 

The Iowa Supreme Court announced a toll on statutes of limitations in a March 17 order regarding court procedures. According to a March 23 operations summary from the Iowa Judicial Branch: "The March 17th order is intended to toll the statute of limitations or similar deadline for commencing an action in district court by 48 days. Tolling means you add that amount of time to the statute of limitations. So, for example, if the statute would otherwise run on April 8, 2020, it now runs on May 26, 2020 (48 days later)." The Judicial Branch Operations Summary is available here.

 

In Louisiana, Proclamation Number JBE 2020-30 tolled the statutes of limitations "at least until Monday, April 13, 2020." All other deadlines in all courts were also "suspended" to April 13.

 

On March 13, the U.S. District Court for the Middle District of Louisiana entered Administrative Order 2020-1 under which "[p]rescriptive, preemptive and statute of limitation deadlines are hereby interrupted until April 13, 2020."

 

On March 13, the Supreme Judicial Court of Massachusetts issued Standing Order 2-20 which tolled all statutes of limitations from March 17 through April 21, 2020. "Unless otherwise ordered by a judge in a specific case, all deadlines set forth in statutes or court rules, standing orders, or guidelines that would otherwise expire before April 21, 2020, are extended to that date." In addition, orders after an adversarial hearing before March 17, which are set to expire before April 21, 2020, "shall remain in effect until the matter is rescheduled and heard." The standing order is available here.

 

On March 20, New York Gov. Andrew Cuomo tolled the statute of limitations for "any legal action, notice, motion or other process" from March 20, 2020 to April 19, 2020. Executive Order 202.8 is available here.

 

On March 16, the Oklahoma Supreme Court entered Order SCAD No. 2020-24 which "extended" the statute of limitations in "any civil case" for 30 days from the date of the order. In addition, the order also suspended "all deadlines and procedures whether prescribed by statute, rule or order in any civil, juvenile or criminal case," subject to constitutional restrictions, for 30 days from the date of the order and "applies to appellate rules and procedures for the Supreme Court, the Court of Criminal Appeals, and the Court of Civil Appeals."

 

The U.S. District Court for the Northern District of Texas entered Special Order No. 13-5 on March 13, under which "[a]ll deadlines are suspended and tolled for all purposes, including the statute of limitations, from today through May 1, 2020."

 

On March 16, the Chief Justice of the Supreme Court of Virginia entered an order declaring a judicial emergency in the district and circuit courts, stating "all deadlines" are "hereby tolled and extended, pursuant to Va. Code § 17.1-330(D)," for a period of 21 days. "This order tolls and extends the time limit for filings related to appeals under Part 5 of the Rules of Court, including but not limited to the deadline for filing the notice of appeal under Rule 5:9 and all filing deadlines pertaining to transcripts and written statements of fact as set forth in Rule 5:11, and for filing the petition for appeal under Rule 5:17. The order is available here.

 

The tolling and extension referenced in Virginia's March 16 order applies to all filings related to appeals to the Court of Appeals that are filed in a circuit court. All deadlines in the Court of Appeals that run from the filing of the record in that court remain unaffected; however, parties remain free to seek extensions of time in the Court of Appeals."

 

 

 

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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FYI: 9th Cir Rejects Spokeo "Standing" Objection to Nationwide Privacy Class Settlement

The U.S. Court of Appeals for the Ninth Circuit recently held that the trial court had Article III jurisdiction and did not abuse its discretion in approving a settlement between a social media company and a nationwide class of its users who alleged that the social media company routinely scanned and collected their private information without their consent.

 

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

 

Two individual Plaintiffs filed a class action suit against the social media company alleging that it scanned and collected information in their private messages to use it in a variety of ways without the user's consent. Plaintiffs alleges that the social media company's actions amounted to interception and use of electronic communications in violation of Title I of the Electronic Communications Privacy Act ("ECPA"), 18 U.S.C. § 2510 et seq.,2 and the California Invasion of Privacy Act ("CIPA"), Cal. Penal Code § 630 et seq.

 

The parties engaged in extensive discovery, lasting over two years, and included production of tens of thousands of pages of documents, eighteen fact and expert witness depositions, hundreds of hours of analysis of Facebook's source code, and significant briefing of discovery disputes.

 

The trial court denied certification of a damages class, but granted certification of an injunctive and declaratory relief class.  After four mediation sessions the parties submitted a written settlement agreement to the trial court for approval, and the trial court granted preliminary approval of the settlement.

 

An objecting class member ("Objector"), filed an objection to the settlement.  The trial court approved the settlement following a final fairness hearing reasoning that "[t]he settlement offers immediate, tangible benefits directed to the three uses of URLs challenged by Plaintiffs, without requiring class members to release any claims for monetary damages that they may have against Facebook." 

 

Objector timely appealed the trial court's approval of the settlement.

 

On appeal, the Ninth Circuit first turned to whether the plaintiff had Article III standing.  As you may recall, to establish Article III standing, a plaintiff must show it: (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) is likely to be redressed by a favorable judicial decision.

 

The Ninth Circuit determined the ECPA and CIPA are "targeted at the substantive intrusion that occurs when private communications are intercepted by someone who does not have the right to access them, rather than merely setting out a procedure for handling data."

 

The Court noted that every violation of the provisions of ECPA and CIPA at issue in this case "'present[s] the precise harm and infringe[s] the same privacy interests Congress [and the California legislature] sought to protect' by enacting" ECPA and CIPA, and thus concluded "that Plaintiffs identified a concrete injury by claiming that Facebook violated ECPA and CIPA when it intercepted, catalogued, and used without consent URLs they had shared in private messages."

 

The social media company did not initially contest standing, but now argued on appeal that the settlement should be vacated and the case dismissed because Plaintiffs suffered no harm from the "use of anonymized and aggregated data from website links" and thus lacked standing.

 

The Ninth Circuit disagreed, holding that regardless of how the collected data was used, it was done without consent which is a claimed violation of the that ECPA and CIPA.

 

Next, Plaintiffs were required to show "either 'continuing, present adverse effects' due to [their] exposure to [the social media company's] past illegal conduct or 'a sufficient likelihood that [they] will again be wronged in a similar way." This aspect must "focus on whether the party invoking jurisdiction had the requisite stake in the outcome when the suit was filed."

 

The Ninth Circuit reason that even though the social media company ended some of the alleged conduct prior to suit, it never claimed to have ceased all the alleged conduct. "This combination of continuing harm plus likelihood of future harm was sufficient for Plaintiffs to have standing to seek injunctive relief" and the Ninth Circuit concluded that the trial court "had jurisdiction to approve the settlement, and that we therefore have jurisdiction to review the merits of that decision."

 

As you may recall, under Federal Rule of Civil Procedure 23(e)(2), a trial court may approve a class action settlement only after finding that the settlement is "fair, reasonable, and adequate."

The Ninth Circuit listed eight factors to consider whether a settlement is fair, reasonable, and adequate: "[1] the strength of the plaintiffs' case; [2] the risk, expense, complexity, and likely duration of further litigation; [3] the risk of maintaining class action status throughout the trial; [4] the amount offered in settlement; [5] the extent of discovery completed and the stage of the proceedings; [6] the experience and views of counsel; [7] the presence of a governmental participant; and [8] the reaction of the class members to the proposed settlement."

 

The Ninth Circuit noted its review of a trial court's decision to approve a class action settlement is "extremely limited" and "parties seeking to overturn the settlement approval must make a 'strong showing' that the district court clearly abused its discretion."

 

The Ninth Circuit disagreed with Objector's argument that the settlement was invalid because the class received only "worthless injunctive relief." Several factors weighed in favor of approving this settlement, most notably the extensive discovery completed prior to settling, with the Court further noting "the class did not need to receive much for the settlement to be fair because the class gave up very little."

 

Finally, the Court examined whether the settlement was invalid under its prior ruling in In re Bluetooth Headset Products Liability Litigation, 654 F.3d 935 (9th Cir. 2010), based on Objectors contention that the settlement prioritizes class counsel's interests over those of their clients.

 

The Ninth Circuit identified three warning signs developed in Bluetooth to determine whether a settlement is "fair, reasonable, and adequate" under Rule 23(e)(2): "(1) when counsel receive a disproportionate distribution of the settlement, or the class gets no monetary distribution but class counsel are well compensated; (2) when the parties negotiate "clear sailing" arrangements for the payment of attorney's fees wherein the defendant agrees not to object to the fee application presented to the court; and (3) when the agreement includes a "reversion" or "kicker" provision under which any reduction in attorney's fees reverts to the defendant rather than being added to the class fund."

 

The trial court looked for each of these warning signs and concluded that none weighed against approval of the settlement.

 

First, the trial court declined to certify a damages class.

 

"Second, damages were also not part of the class release, so to the extent further litigation might yield damages, absent class members were not prohibited from trying again to obtain such damages—further reducing the likelihood that class counsel bargained away any potentially valuable relief."

 

Third, the Ninth Circuit noted, the trial court was "well-positioned to recognize… the value of the injunctive relief that was made available to the class through the settlement."

 

The Ninth Circuit concluded "that the evidence is insufficient to prove that the class would have gotten meaningfully more injunctive or declaratory relief if [the social media company] had merely been permitted to oppose class counsel's fee application". 

 

Therefore, the trial court's approval of the 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

 

 

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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and

 

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