Justia Banking Opinion Summaries

Articles Posted in US Court of Appeals for the Second Circuit
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Plaintiffs in two putative class actions took out home mortgage loans from Bank of America, N.A. (“BOA”), one before and the other after the effective date of certain provisions of the DoddFrank Wall Street Reform and Consumer Protection Act (“DoddFrank”). The loan agreements, which were governed by the laws of New York, required Plaintiffs to deposit money in escrow accounts for property taxes and insurance payments for each mortgaged property. When BOA paid no interest on the escrowed amounts, Plaintiffs sued for breach of contract, claiming that they were entitled to interest under New York General Obligations Law Section 5-601, which sets a minimum 2% interest rate on mortgage escrow accounts. BOA moved to dismiss on the ground that GOL Section 5-601 does not apply to mortgage loans made by federally chartered banks because, as applied to such banks, it is preempted by the National Bank Act of 1864 (“NBA”). The district court disagreed and denied the motion.   The Second Circuit reversed and remanded. The court held that (1) New York’s interest-on-escrow law is preempted by the NBA under the “ordinary legal principles of pre-emption,” Barnett Bank of Marion Cnty., N.A. v. Nelson, 517 U.S. 25, 37 (1996), and (2) the Dodd-Frank Act does not change this analysis. GOL Section 5-601 thus did not require BOA to pay a minimum rate of interest, and Plaintiffs have alleged no facts supporting a claim that interest is due. View "Cantero v. Bank of Am., N.A." on Justia Law

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Plaintiff Citibank, N.A, the Administrative Agent for the lenders on a $1.8 billion seven-year syndicated loan to Revlon Inc., appeals from the judgment of the district court in favor of Defendants, the Loan Managers for certain lenders, who received and refused to return  Citibank’s accidental, unintended early repayment of the loan. The district court, after a bench trial, relying on Banque Worms v. BankAmerica International, 570 N.E.2d 189 (N.Y. 1991), ruled that the rule of discharge for value provided a defense against Citibank’s suit for restitution.   The Second Circuit vacated the district court’s ruling. The court held because the Defendants had notice of the mistake and because the lenders were not entitled to repayment at the time, the rule of Banque Worms does not protect the Defendants. The court explained that the Court of Appeals’ specified requirement of entitlement to the money, combined with the cases it cited as precedents for the rule, and its continued espousal of New York’s general rule that mistaken payments should be returned, lead the court to conclude that, in New York, a creditor may not invoke the discharge-for-value rule unless the debt at issue is presently payable. Here, the debt on which Citibank mistakenly made a payment was not due for another three years. As a result, Defendants may not invoke the discharge-for-value rule as a shield against Citibank’s claims for restitution. View "In re: Citibank August 11, 2020" on Justia Law

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Plaintiffs appealed a district court judgment dismissing their action against Defendants-Appellees BLC Bank, S.A.L. (“BLC”), Credit Libanais, S.A.L. (“CL”), AlMawarid Bank, S.A.L. (“AM”), and Banque du Liban (“BDL”) for want of subject-matter jurisdiction, for want of personal jurisdiction, and for forum non conveniens based on binding forum selection clauses in agreements Plaintiffs entered into with AM and BLC. Plaintiffs alleged that Defendants- (together, “the Banks”) engaged in a scheme to cheat them out of millions of U.S. dollars (“USD”) by inducing them to deposit those dollars in Lebanese bank accounts with the promise that they would be able to withdraw that money in the United States, only to renege on that promise and keep the money trapped in Lebanon. The district court dismissed the claims against AM and BLC because the Daous’ agreements with those banks included valid, enforceable forum selection clauses specifying Beirut as the proper forum; those against CL because it lacked personal jurisdiction over that bank, and those against BDL because that bank is an agency or instrumentality of the Lebanese state and no exception applied under the Foreign Sovereign Immunities Act (“FSIA”).   The Second Circuit held that the district court lacked personal jurisdiction over AM, BLC, and CL (together, “the Commercial Banks”) under the relevant provision of New York’s long-arm statute, N.Y. C.P.L.R. Section 302(a)(1), because there was insufficient connection between Plaintiffs’ claims against the Commercial Banks and those banks’ business transactions in New York. The court further held that BDL, an agency or instrumentality of a foreign sovereign is entitled to sovereign immunity. View "Daou v. BLC Bank, S.A.L." on Justia Law

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Plaintiffs brought a suit under the Commodity Exchange Act (CEA), alleging that the Defendants engaged in fraudulent trading tactics – to Plaintiffs’ detriment – in markets for precious metals. The district court granted Defendants’ motion to dismiss under Rule 12(b)(6) for failure to state a claim, concluding that Plaintiffs’ claims are time-barred and that Plaintiffs did not adequately plead that they were injured by Defendants’ fraudulent trading activity. On appeal, Plaintiffs contend that their claims took years to accrue, and were therefore timely because they were not on notice of their injury. They separately argued that they have adequately pleaded that Defendants’ fraud injured them.   The Second Circuit affirmed the dismissal for failure to plead an injury. The court concluded that neither of Plaintiffs’ theories, alone or in combination, adequately alleges that Defendants’ trading activities injured them. The court explained that the CEA does not deputize traders to rove the commodities markets hunting for bad behavior. Rather, it makes fraudsters liable for actual damages.   Here, Plaintiff has not plausibly alleged that it was damaged. Instead, it theorizes that its regular participation in the relevant commodities markets supports an inference that it was injured by Defendants’ spoofing at least once. But this argument is so broad that endorsing it would permit any regular market participant to proceed to discovery any time a significant market player has repeatedly committed fraud – contravening both the statute and case law. Further, Plaintiffs’ allegations do not support an inference of damages. View "Gamma Traders - I LLC v. Merrill Lynch Commodities, Inc." on Justia Law

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Plaintiff Bainbridge Fund Ltd. is the beneficial owner of bonds issued by the Republic of Argentina. Argentina defaulted on these bonds back in 2001, but Bainbridge didn’t sue to recover them until 2016. The district court dismissed Bainbridge’s claims as untimely under New York’s six-year statute of limitations for contract actions and the Second Circuit’s nonprecedential decisions. Bainbridge appealed, asking the Second Circuit to reconsider those decisions. Specifically, Bainbridge argues that (1) the twenty-year statute of limitations for recovery on certain bonds under N.Y. C.P.L.R. 34 Section 211(a) applies to its claims against Argentina; and (2) even if the six-year limitations period for contract actions applies, it was tolled under N.Y. Gen. Oblig Law Section 17-101 because Argentina “acknowledged” this debt when it publicly listed the bonds in its quarterly financial statements (the “Quarterly Reports”).   The Second Circuit rejected Plaintiff’s arguments. First, the twenty-year statute of limitations does not apply to claims on Argentine bonds because a foreign sovereign is not a “person” under N.Y. C.P.L.R. Section 211(a). Second, tolling under N.Y. Gen. Oblig. Law Section 17-101 is inapplicable because the Quarterly Reports did not “acknowledge” the debt at issue in a way that reflected an intention to pay or seek to influence the bondholders’ behavior. To the contrary, Argentina repeatedly stated that the bonds “may remain in default indefinitely.” Bainbridge’s claims are thus time-barred. View "Bainbridge Fund Ltd. v. The Republic of Argentina" on Justia Law

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Objectors challenged the district court's judgment approving a class action settlement that includes Freddie Mac, with FHFA as its conservator, as a member of the plaintiff settlement class and enjoins FHFA from further pursuing Freddie Mac claims that were at issue in the action. The Second Circuit rejected FHFA's contention that the Housing and Economic Recovery Act of 2008 (HERA) deprived the district court of subject matter jurisdiction to treat FHFA or Freddie Mac as a member of the settlement class or to rule that conservatorship assets were within the scope of the settlement.However, the court concluded for other reasons that the district court's March 8, 2019 prejudgment ruling that FHFA is a member of the settlement class was erroneous. The court explained that the Settlement Class, as certified by the district court, consists of persons and entities who purchased or otherwise acquired interests in the NovaStar bonds "prior to May 21, 2008." However, because FHFA did not succeed to the interests of Freddie Mac until September 6, 2008, it acquired no interest in Freddie Mac's NovaStar bonds until that date. Therefore, FHFA is not a member of the Settlement Class and the court modified the judgment to reflect the court's ruling. View "N.J. Carpenters Health Fund v. NovaStar Mortgage, Inc." on Justia Law

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The Second Circuit reversed the district court's dismissal of plaintiff's claims under the Real Estate Settlement Procedures Act (RESPA), alleging that Ocwen's failure to record her mortgage instruments and its actions in losing key mortgage documents constituted covered errors under the catch-all provision of Regulation X (RESPA's implementing regulation). In this case, plaintiff alleged that the errors committed by Ocwen in handling her loan modification documents were errors relating to servicing of a mortgage loan, and, consequently, were subject to the provisions of RESPA and Regulation X. The court concluded that plaintiffs' asserted errors are covered by the catch-all provision of Regulation X, which includes the terms "any other errors" and "relating to." Accordingly, the court remanded for further proceedings. View "Naimoli v. Ocwen Loan Servicing, LLC" on Justia Law

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This case stemmed from a multidistrict litigation alleging that some of the world's largest banks and affiliated entities conspired to suppress the London Interbank Offered Rate (LIBOR). Plaintiffs appeal the district court's grant of defendants' motions to dismiss antitrust claims in 23 cases based on plaintiffs' lack of antitrust standing and/or based on lack of personal jurisdiction over defendants.The Second Circuit affirmed in part, reversed in part, and remanded for further proceedings. The court agreed with the district court that plaintiffs who purchased LIBOR‐indexed bonds from third parties lack antitrust standing. The court explained that, to have antitrust standing, plaintiff must be an "efficient enforcer" of the antitrust laws whose alleged injury was proximately caused by a defendant. In this case, the third parties' independent decisions to reference that benchmark severed the causal chain linking plaintiffs' injuries to defendants' misconduct, thereby rendering plaintiffs unsuitable as efficient enforcers.However, the court disagreed with the district court's personal jurisdiction analysis and held that jurisdiction is appropriate under the conspiracy‐based theory first articulated by the court in Charles Schwab Corp. v. Bank of Am. Corp., 883 F.3d 68 (2d Cir. 2018), which post‐dated the district court's ruling. The court concluded that the facts alleged by plaintiffs – specifically, that executives and managers for several banks were directing the suppression of LIBOR from within the United States – were sufficient to establish personal jurisdiction over the banks under a conspiracy‐based theory of jurisdiction. View "In re LIBOR-based Financial Instruments Antitrust Litigation" on Justia Law

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Halkbank, a commercial bank that is majority-owned by the Government of Turkey, was charged with crimes related to its participation in a multi-year scheme to launder billions of dollars' worth of Iranian oil and natural gas proceeds in violation of U.S. sanctions against the Government of Iran and Iranian entities and persons. Halkbank moved to dismiss the indictment but the district court denied the motionThe Second Circuit held that it has jurisdiction over the instant appeal under the collateral order doctrine. The court also held that, even assuming the Foreign Sovereign Immunities Act (FSIA) applies in criminal cases—an issue that the court need not, and did not, decide today—the commercial activity exception to FSIA would nevertheless apply to Halkbank's charged offense conduct. Therefore, the district court did not err in denying Halkbank’s motion to dismiss the Indictment. The court further concluded that Halkbank, an instrumentality of a foreign sovereign, is not entitled to immunity from criminal prosecution at common law. View "United States v. Bankasi" on Justia Law

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In 2013, Nike and its subsidiary, Converse, brought a trademark infringement action under the Lanham Act against hundreds of participants in Chinese counterfeiting networks. The district court entered five prejudgment orders, a default judgment, and one postjudgment order against defendants, who never appeared in court. Each order enjoined defendants and all persons acting in concert or in participation with any of them from transferring, withdrawing or disposing of any money or other assets into or out of defendants' accounts regardless of whether such money or assets are held in the U.S. or abroad. In 2019, Nike's successor-in-interest, Next, moved to hold appellees—six nonparty Chinese banks—in contempt for failure to implement the asset restraints and for failure to produce certain documents sought in discovery.The Second Circuit affirmed the district court's judgment, holding that the district court did not abuse its discretion in denying Next's motion for contempt sanctions against the Banks because (1) until the contempt motion, Nike and Next never sought to enforce the asset restraints against the Banks; (2) there is a fair ground of doubt as to whether, in light of New York's separate entity rule and principles of international comity, the orders could reach assets held at foreign bank branches; (3) there is a fair ground of doubt as to whether the Banks' activities amounted to "active concert or participation" in defendants' violation of the asset restraints that could be enjoined under Federal Rule of Civil Procedure 65(d); and (4) Next failed to provide clear and convincing proof of a discovery violation. View "Next Investments, LLC v. Bank of China" on Justia Law