“No Injury” Consumer Class Actions Weakened, but Not Killed, by Supreme Court

judge and gavel2The U.S. Supreme Court held Monday that the Ninth Circuit erred when it ruled consumers can sue companies without alleging actual injury. The Supreme Court ruled that a consumer could not sue Spokeo Inc. for mere technical violations of the Fair Credit Reporting Act. Its holding left the door open for plaintiffs in other cases to use statutory violations to establish standing, however.

In a 6-2 decision, the high court vacated and remanded the Ninth Circuit’s February 2014 ruling that plaintiffs do not need to allege actual injury to maintain statutory class action claims like the ones asserted in this case by Thomas Robins. Mr. Robins had alleged that Spokeo, a “people search engine,” violated the FCRA by falsely reporting that Robins was wealthy, married and had a graduate degree. Robins asserted that he was in fact struggling to find work. Continue Reading

A Day of Reckoning for the CFPB?

CFPB for Blog

Virtually ever since its inception on July 21, 2011, the Consumer Financial Protection Bureau (CFPB) has inspired wariness and skepticism `in the financial institutions and financial services providers subject to this new agency’s rather ill-defined “jurisdiction” and enforcement authority. As the CFPB embarked on an unmistakably aggressive campaign to exert authority over various sectors of the consumer finance world, industry professionals’ concerns rapidly escalated. They grew into impassioned pleas that someone, somewhere do whatever could be done to bring about elimination of the CFPB entirely, or to greatly curtail the scope of its powers. A recent oral argument in the United States Court of Appeals for the District of Columbia Circuit may offer those most disturbed by the CFPB’s practices their greatest basis to date for hope that the agency will be reined in going forward. The dispute that led up to the appellate court oral argument may serve as an “Exhibit A” for anyone wishing to claim that the CFPB exceeds its mandate in various ways, and can be, at times, recklessly punitive towards the companies it oversees. On January 29, 2014, the CFPB issued a notice of charges alleging that PHH Corp. was involved in a kickback scheme. The CFPB alleged that PHH referred mortgage insurance business to mortgage insurers in exchange for mortgage reinsurance contracts which those insurers entered into with PHH’s wholly-owned subsidiary, Atrium Insurance Corporation.

A trial on these charges took place, adjudicated not in court, but rather by a CFPB (yes, CFPB) administrative law judge. That judge found that when a mortgage insurer entered into a reinsurance contract with Atrium, it typically would then receive substantial mortgage insurance business from PHH. Moreover, on the occasions when those reinsurance contracts were terminated, referrals from PHH to the mortgage insurer would decrease substantially. The CFPB administrative law judge found that this relationship constituted a prohibited kickback under Section 8(a) of the Real Estate Settlement Procedures Act (RESPA). The result: a $6.4 million disgorgement penalty and injunctive relief against PHH. Continue Reading

Proposed IRS and Treasury Regulations Have Broad Implications for Intercompany Debt Structures

Money Bag 2On April 4, 2016, the U.S. Treasury Department and the Internal Revenue Service (“IRS”) issued proposed regulations ostensibly aimed at curbing inversions and earnings stripping, by companies located in the U.S. with overseas ties. If finalized, these regulations would become retroactive to April 4, 2016, and would fundamentally shift the way debt and equity are characterized by a broad range of companies doing business in the United States. Far from simply making it more difficult for U.S. companies to relocate their headquarters overseas, the proposed regulations would dramatically alter the tax landscape for most companies’ capital structures, internal financings and cash management.

The inversion regulations will be addressed in a separate post on our Taxes Without Borders blog shortly. Our blog post focuses solely on the intercompany debt regulations, which likely would result in a substantial portion of intercompany debt transactions being recharacterized as equity contributions and distributions thereon. Continue Reading

Wells Fargo Pays $1.2 Billion Settlement, Admits Deception in Certifications

Mortgage Settlement 2Calling the settlement a reproach for “years of reckless underwriting” at Wells Fargo, U.S. Attorney Preet Bharara in Manhattan announced on April 8th that Wells Fargo & Co. formally reached a record $1.2 billion settlement of a U.S. Department of Justice lawsuit. A notable feature of the settlement is Wells Fargo’s specific admission that it deceived the U.S. government into insuring thousands of risky mortgages. The settlement with Wells Fargo, the largest U.S. mortgage lender and third-largest U.S. bank by assets, was filed on Friday in Manhattan federal court. According to the settlement, Wells Fargo “admits, acknowledges, and accepts responsibility” for having from 2001 to 2008 falsely certified that many of its home loans qualified for Federal Housing Administration insurance.

The lender also admitted that from 2002 to 2010, it failed to file timely reports on several thousand loans that had material defects or were badly underwritten, a process that one of its executives, who was also sued in this litigation, was responsible for supervising. Continue Reading

Lenders & FinTech Companies Now Have an Opportunity to Shape Federal Regulation of FinTech

FinTech 2On March 31, 2016, the Office of the Comptroller of the Currency (“OCC”) issued its much anticipated white paper on the role of financial technology (“FinTech”) in the financial services industry. The paper, titled Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective, opens a two-month window in which banks, FinTech companies and lenders may engage in discourse with the OCC regarding the role of federal agencies in regulating FinTech. Comments on the paper are due by May 31, 2016; the OCC has scheduled a FinTech forum for July 23, 2016, at which industry commentary on the paper presumably will be discussed.

The importance of FinTech has steadily increased over the last five years to the point that it is mentioned almost daily in trade journals, newspapers and other media outlets. It is a hot topic at conferences and foremost on the mind of lenders and financial services providers. As is evident from the white paper’s publication, FinTech has become so interwoven in the financial services tapestry that it now has the dubious honor of being subject to federal government scrutiny. Continue Reading

Caveat Emptor: Non-compliance with a Non-Binding Term Sheet Results in $195 Million Judgment

On December 23, 2015, the Delaware Supreme Court affirmed the Delaware Chancery Court’s award of $195 million to PharmAthene, Inc. (“PharmAthene”) as compensation for lost profits (a/k/a expectation damages) on account of the failure by its counter-party to a term sheet to negotiate a license agreement in good faith.  The judgment was affirmed notwithstanding the fact that the obligation to negotiate in good faith was set forth in a non-binding term sheet.

Term sheets and letters of intent (“LOIs”) are an integral part of our legal practice and an expected component of any sophisticated financing or other corporate transaction. This court decision underscores the importance of clarity in these preliminary documents, even on something as boilerplate as agreeing to negotiate binding deal documentation in good faith.  Moreover, it increases the risk of using non-binding preliminary agreements governed by Delaware law to set forth the terms of prospective transactions. Continue Reading

Fannie and Freddie Adopt IDR Policy for Repurchases

Mortgage RepurchaseAfter years of litigation costing tens of millions of dollars, the Federal Housing Finance Agency has hit upon a way to expedite resolution of breach of representation and warranty claims that, if successful, could minimize costs.

The FHFA announced that Fannie Mae and Freddie Mac will, from now on, purchase loans that provide for independent dispute resolution (IDR) for any alleged breach of representations or warranties. This would be a substantial change from the current process, in which breach claims could spur repurchase demands and rescission requests that can lead to years of argument and sometimes costly resolutions.

Representations and warranties (R/W) are an important component of any lender’s effort to sell its loans to government sponsored entities like Fannie Mae or Freddie Mac. Indeed, GSEs rely on lender’s explicit guarantees that loans purchased are underwritten to Fannie’s or Freddie’s underwriting guidelines – that itself is perhaps the most important representation and warranty. Under the present framework, if a GSE concludes that a R/W was breached, it may pursue repurchase, a “make-whole” agreement, or any number of alternative remedies. But those remedies can lead to months of correspondence and demands for documentation and proof, and may lead to litigation. Continue Reading

Citibank Breaks the Ice with a $23 Million Settlement in LIBOR Class Action

Lawsuit 1Citibank, N.A. has asked a federal district court to bless its $23 million settlement in a class action lawsuit alleging a wide-ranging conspiracy among banks to fix yen-denominated London Interbank Offered Rates (LIBOR) interest rates between 2006 and 2010. The settlement is the first of its kind in the case. The lead plaintiff in the litigation, Jeffrey Laydon, urged the court to approve the settlement, with his counsel describing it as an “ice breaker” that could serve as a “potential catalyst” for other banks to settle.

In 2012, Mr. Laydon sued more than twenty financial institutions, alleging violations of the Commodity Exchange Act and Sherman Act, among others. In a 300 page complaint, he detailed an alleged conspiracy among banks that sit on LIBOR and Tokyo Interbank Offered Rate (TIBOR) panels of conspiring to fix these rates by submitting agreed-upon estimates. As a result of the defendants’ actions, Laydon claims that he suffered thousands of dollars of damages in connection with his shorting derivatives of Euroyen TIBOR futures contracts. Continue Reading

Big Win for Loan Originators/Sellers in Federal Appeals Court

Gavel 1Six victories that clients of ours had won over Lehman and Aurora in the U.S. District Court for the District of Colorado got affirmed on January 27 by the Tenth Circuit Court of Appeals in Denver after hotly-contested rounds of appellate briefing and oral argument.  In a 37-page written opinion, the appellate panel unanimously affirmed the loan originators/sellers’ victories on statute of limitations grounds.

In so doing, the federal appeals court rejected, among other arguments, Lehman and Aurora’s contentions that their claims were really “indemnification” claims that did not accrue until they paid Fannie Mae or Freddie Mac with respect to the loans at issue.  The court agreed with our argument that the claims in fact accrued as soon as the loans were sold (in 2006 and 2007).

This has potentially significant implications for loan originators and sellers across the country facing buyback or “indemnification” claims from their investors.  Though case precedents vary from jurisdiction to jurisdiction, we have always strongly believed that claims of damage related to a loan seller’s alleged misrepresentations when they sold a loan must, as a matter of logic and common sense, accrue at the time the alleged misrepresentation was made: on the date of the sale.  It is nice to see this assessment further vindicated by the Tenth Circuit Court of Appeals in its detailed and well-considered opinion.

Happy Holidays To Our Readers!

As we reflect on 2015, we are especially thankful for all of the connections that we have made this year. We are thankful for our clients, our colleagues, our friends, and all of our readers. Thus, for our holiday video we wanted to focus on the power of relationships because our relationships are the foundation for who we are as a firm. When we come together with our partners we have seen incredible things happen, and it is because of all of you that we are proud to be judged by the company we keep.

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