Justia Banking Opinion Summaries

Central Mortgage and Morgan Stanley entered into a contract concerning the purchase of servicing rights for loans that Morgan Stanley planned to sell to Fannie Mae and Freddie Mac (the agencies) and private investors. Subsequently, many of the loans for which Morgan Stanley sold the servicing rights began to fall delinquent. The agencies exercised their contract right to put delinquent agency loans back to Central Mortgage. Central Mortgage then filed a complaint against Morgan Stanley for breach of contract. The Chancery Court granted Morgan Stanley's motion to dismiss. The Supreme Court reversed and remanded, holding that the claims were legally sufficient to withstand the motion. Central Mortgage then filed an amended complaint to add new claims for additional agency loans (new loans) that had been put back by the agencies and to challenge the private loans. Morgan Stanley moved to dismiss the amended complaint. The Chancery Court (1) denied the motion to dismiss to the extent that it rehashed theories that the Court and Supreme Court already considered in the context of its original motion to dismiss; but (2) granted the motion to dismiss the claims related to the new loans because those claims were barred by Delaware's statute of limitations. View "Central Mortgage Co. v. Morgan Stanley Mortgage Capital Holdings LLC" on Justia Law

In 2008, the General Assembly enacted a statute to require that a foreclosing lender provide advance written notice to the borrower of its intention to foreclosure. Among the information to be provided in that notice is the identity of the "secured party," although the statute does not specifically define that phrase. In this case, there was more than one entity that qualified as a "secured party" under the commonly understood meaning of the phrase. At issue before the Court of Appeals was whether, in such a situation, a foreclosing party was obligated to identify all secured parties in the advance written notice to the borrower. The Court held (1) a foreclosing party should ordinarily identify, in the notice of intent to foreclose, each entity that is a "secured party" with respect to the deed of trust in question; (2) however, a failure to disclose every secured party is not a basis for dismissing a foreclosure action when certain conditions are met; and (3) under the circumstances of the instant case, because many of the enumerated conditions were met even though the notice failed to disclose every secured party, the dismissal of the foreclosure action was not required. View "Shepherd v. Burson" on Justia Law

Defendant was indicted for bank fraud, mail fraud, and wire fraud. The government alleged that Defendant's sale of collateral pledged as security for a loan from a bank and his failure to carry out his disclosure duties under the security agreement amounted to a scheme to defraud for purposes of the bank, mail, and wire fraud statutes. The district court dismissed the indictment, finding (1) a false representation is a required element of a federal fraud offense and the indictment failed to allege any express misrepresentation by Defendant; and (2) absent a statutory, fiduciary, or independent disclosure duty, nondisclosure was insufficient to state a fraud claim under any of the charged offenses. The Eighth Circuit Court of Appeals affirmed, holding that the district court correctly dismissed the indictment for failure to state an offense, as the indictment failed to sufficiently allege a scheme to defraud under the mail, wire, and bank fraud statutes. View "United States v. Steffen" on Justia Law

The collapse of investment manager Sentinel in 2007 left its customers in a lurch. Instead of maintaining customer assets in segregated accounts as required by the Commodity Exchange Act, 7 U.S.C. 1, Sentinel pledged customer assets to secure an overnight loan at the Bank of New York, giving the bank in a secured position on Sentinel’s $312 million loan. After filing for bankruptcy, Sentinel’s liquidation trustee brought attempted to dislodge the bank’s secured position. After extensive proceedings, the district court rejected the claims. Acknowledging concerns about the bank’s knowledge of Sentinel’s business practices, the Seventh Circuit affirmed. The essential issues were whether Sentinel had actual intent to hinder, delay, or defraud and whether the bank’s conduct was sufficiently egregious to justify equitable subordination, and the district court made the necessary credibility determinations. Even if the contract with the bank enabled illegal activity, the provisions did not themselves cause the segregation violations. View "Grede v. Bank of NY Mellon Corp." on Justia Law

Aladdin’s purportedly gross mismanagement allegedly caused plaintiffs to lose their entire $60 million investment in a collateralized debt obligation. A CDO pays investors based on performance of an underlying asset. The CDO at issue was “synthetic” in that its asset was not a traditional asset like a stock or bond, but was a derivative instrument, whose value was determined in reference to still other assets. The derivative instrument was a “credit default swap” between Aladdin CDO and Goldman Sachs based on the debt of approximately 100 corporate entities and sovereign states. The district court held that, because of a contract provision limiting intended third-party beneficiaries to those “specifically provided herein,” plaintiffs could not bring a third-party beneficiary breach of contract claim and could not “recast” their claim in tort. The Second Circuit reversed. Plaintiffs plausibly alleged that the parties intended the contract to benefit investors in the CDO directly and create obligations running from Aladdin to the investors; that the relationship between Aladdin and plaintiffs was sufficiently close to create a duty in tort; and that Aladdin acted with gross negligence in managing the investment portfolio, leading to the failure of the investment vehicle and plaintiffs’ losses. View "Bayerische Landesbank, NY v. Aladdin Capital Mgmt., LLC" on Justia Law

Plaintiff co-established Company. Plaintiff later sold his majority interest pursuant to an agreement calling for payments to Plaintiff and giving Plaintiff a security interest in Company's assets. Company subsequently applied for credit with Bank, which transaction made Plaintiff's security interest in Company's assets subordinate to Bank's. Thereafter, Company went out of business, leaving loans unpaid. Plaintiff brought claims against Bank for negligence, constructive fraud, actual fraud, and tortious interference with a contract. The trial court granted Bank's motion for judgment on the evidence on all claims, including finding that Bank owed no duty to Purcell. The court of appeals affirmed the trial court's ruling as to the issues of duty but reversed the trial court's judgment on the evidence as to Purcell's remaining claims. The Supreme Court granted transfer and affirmed the trial court, holding (1) there was not sufficient evidence presented in this case to withstand a motion for judgment on the evidence on Purcell's claims of fraud, deception, and tortious interference with a contract; and (2) Purcell's relationship with Bank as a subordinate creditor did not give rise to a duty of care required to prove Purcell's claims of negligence and constructive fraud. View "Purcell v. Old Nat'l Bank" on Justia Law

The issue before the Eleventh Circuit concerned a private securities fraud class action suit brought against a bank holding company and its management. State-Boston Retirement System, a shareholder and lead plaintiff, sought to prove that the holding company had misrepresented the level of risk associated with commercial real estate loans held by its subsidiary. After the trial, the District Court submitted the case to the jury on a verdict form seeking general verdicts and answers to special interrogatories. When the jury returned a verdict partially in favor of State-Boston, the holding company moved for judgment as a matter of law. Perceiving an inconsistency between two of the jury's interrogatory answers, the District Court discarded one of them and granted the motion on the basis of the remaining findings. The Eleventh Circuit concluded that was error: "[w]hen a court considers a motion for judgment as a matter of law -even after the jury has rendered a verdict- only the sufficiency of the evidence matters. . . .The jury’s findings are irrelevant." Despite the District Court’s error, the Eleventh Circuit concluded that the evidence was insufficient to support a finding of loss causation, an element required to make out a securities fraud claim. The Court therefore affirmed. View "State-Boston Retirement System v. BankAtlantic Bancorp, Inc." on Justia Law

Griffin, a futures commission merchant, went bankrupt in 1998 after one of its customers, Park, sustained trading losses of several million dollars and neither Park nor Griffin had enough capital to cover the obligations. The Bankruptcy Court first relied on admissions by the controlling Griffin partners that they failed to block a wire transfer, allowing segregated customer funds to be used to help cover Park’s (and thus Griffin’s) losses. On remand, the court reversed itself and held that the trustee failed to establish that the partners actually caused the loss of customer funds and failed to establish damages. The district court affirmed, applying the Illinois version of the Uniform Commercial Code to a series of transactions that was initiated by the margin call that caused Griffin’s downfall. The Seventh Circuit affirmed, stating that there is no reason why the transactions at issue (which involved banks in England, Canada, France, and Germany, but not Illinois) would be governed by Illinois law. The Bankruptcy Court’s first decision appropriately relied on the partners’ admission that they failed in their obligation to protect customer funds, which was enough to hold them liable for the entire value of the wire transfer. View "Inskeep v. Griffin" on Justia Law

This case presented a battle between banks over the proceeds of the sale of cattle by a financially strapped borrower who had financial dealings with both banks. When Security Savings Bank (Security) obtained the proceeds of the sale, Peoples Trust and Savings Bank (Peoples) claimed a security interest in the proceeds and sued for conversion. The district court granted summary judgment in favor of Peoples. After Security appealed, Peoples commenced garnishment proceedings against Security to enforce its judgment, and Security paid the underlying judgment. The court of appeals then determined that Security had waived its right to appeal and dismissed the case. The Supreme Court affirmed, holding (1) a defendant faced with post-judgment garnishment does not waive a pending appeal by paying the judgment in order to avoid further enforcement proceedings; and (2) the district court correctly determined that Peoples had a security interest in the proceeds superior to Security's interest and that Peoples did not waive its superior position through its course of conduct. View "Peoples Trust & Savings Bank v. Sec. Savings Bank" on Justia Law

Republic bought more than $50 million worth of residential-mortgage-backed securities from Bear Stearns. It did not read the relevant offering documents before investing. As the national economy crumbled in 2007 and 2008, so did the value of the investments. Republic brought suit in 2009, alleging that Bear Stearns and one of its employees fraudulently induced it to buy, and then to retain, the securities. It claimed that a series of misrepresentations and omissions, both oral and in the written offering documents, were actionable under common-law theories of fraud and negligent misrepresentation, and under the Blue Sky Law, Kentucky’s securities statute. The district court dismissed. The Sixth Circuit affirmed. Republic cannot maintain any of its common-law fraud, negligent-misrepresentation, or Kentucky Blue Sky Law claims. It failed to adequately plead actionable misrepresentations or omissions of fact, complained of risks disclosed in offering documents that it failed to read before investing tens of millions of dollars in risky securities, and attempted to maintain claims that are time-barred. View "Republic Bank & Tr. Co. v. Bear Stearns & Co., Inc." on Justia Law