Justia Banking Opinion Summaries

The debtor's property was subject to first and second mortgages with complex histories of assignment involving the defendants. The district court dismissed the chapter 7 trustee's action for declaratory judgment to determine the validity, extent, and priority of defendants' liens and vacated a default judgment entered against one defendant, Wilmington. The Sixth Circuit vacated and remanded in part and affirmed in part. Under 11 U.S.C. 544 and Ky. Rev. Stat. 355.9-102(1)(az)(3), operating together, the trustee's interest as a hypothetical judicial lien creditor is superior to those security interests which are unperfected as of the filing of the petition, so the trustee stated a claim against GMAC. The bankruptcy court must make further factual findings regarding Litton and Bank of New York as to the first mortgage, to determine which was the secured party on the date of the filing of the petition. The record established that Wilmington was not a proper party, having assigned its interest years earlier, and the bankruptcy court acted within its discretion in setting aside the default judgment.

Plaintiff purchased auction-rate securities from defendant, a securities broker-dealer. ARS are long-term bonds whose interest rates periodically reset through auctions and typically offer higher returns than treasuries or other money market instruments. Investors can liquidate at each auction, if demand exceeds supply. If sellers outnumber buyers, the auction fails. ARS underwriters may place proprietary bids, to prevent auctions from failing. If an auction fails, there is a penalty interest rate to compensate for temporary illiquidity and entice new buyers. When plaintiff wanted to sell in 2008, neither defendant nor underwriters would place proprietary bids, leaving plaintiff with $194 million in illiquid securities. Plaintiff discounted the price by millions of dollars. The district court dismissed a suit claiming: violation of the Securities and Exchange Act of 1934 (15 U.S.C. 78j(b)), violation of Kentucky Blue Sky Laws, common-law fraud, promissory estoppel, and negligent misrepresentation. The Sixth Circuit affirmed. Many of defendant's purported misstatements and omissions are not actionable, either because they lacked materiality or because defendant had no duty to disclose them. Facts alleged in the complaint fall short of establishing scienter, as required to establish securities fraud.

The credit union provides indirect lending, which allows applicants to apply for loans at automobile dealerships. A third-party administrator compiles the applications and automatically approves low-risk loans. Higher-risk applications are forwarded to the credit union for further review using an eight-factor policy. After an audit disclosed hundreds of high-risk loans issued in violation of the policy, the credit union filed a claim under a fidelity bond that provided coverage for losses caused by an employeeâs "failure to faithfully perform his/her trust." The district court awarded $5,050,000 plus $2,730,415 in interest to be offset by prejudgment interest. The Sixth Circuit affirmed; there was sufficient evidence to support the juryâs finding that the lending policy was "established," "enforced," and "consciously disregarded" as described in the bond language. There was no evidence that the credit union board acquiesced in the violations. Although the court allowed an improper "golden rule" argument, the error does not require reversal; references to the insurer's ability to check the policies and to checklists were not errors.