Justia Banking Opinion SummariesArticles Posted in US Court of Appeals for the Seventh Circuit
Dennis v. Niagara Credit Solutions, Inc.
Dennis fell behind on his debt to Washington Mutual Bank. LVNV bought the debt and Niagara Credit sent a form collection letter on LVNV’s behalf, stating: “Your account was placed with our collection agency” and that Niagara’s “client” had authorized it to offer a payment plan or a settlement of the debt in full. The letter identifies Washington Mutual as the “original creditor” and LVNV as the “current creditor.” It lists the principal and interest balances of the debt and the last four digits of the account number. Dennis filed a putative class action complaint, claiming violation of the Fair Debt Collection Practices Act by “fail[ing] to identify clearly and effectively the name of the creditor to whom the debt was owed,” 15 U.S.C. 1692g(a)(2). The Seventh Circuit affirmed the rejection of the suit on the pleadings, rejecting an argument that listing two entities as “creditor” then stating that Niagara was authorized to make settlement offers on behalf of an unknown client could likely confuse consumers. The defendants’ letter expressly identifies LVNV as the current creditor and meets the Act’s requirement of a written notice containing “the name of the creditor to whom the debt is owed.” An unsophisticated consumer will understand that his debt has been purchased by the current creditor; the letter is not abusive or unfair. Section 1692(g)(a)(2) does not require a detailed explanation of the transactions leading to the debt collector’s notice. View "Dennis v. Niagara Credit Solutions, Inc." on Justia Law
Saccameno v. U.S. Bank National Association
Around 2009, Saccameno defaulted on her mortgage. U.S. Bank began foreclosure proceedings. She began a Chapter 13 bankruptcy plan under which she was to cure her default over 42 months while maintaining her monthly mortgage payments, 11 U.S.C. 1322(b)(5). In 2011, Ocwen acquired her previous servicer. Ocwen, inexplicably, informed her that she owed $16,000 immediately. Saccameno continued making payments based on her plan. Her statements continued to fluctuate. In 2013, the bankruptcy court issued a notice that Saccameno had completed her payments. Ocwen never responded; the court entered a discharge order. Within days an Ocwen employee mistakenly treated the discharge as a dismissal and reactivated the foreclosure. For about twp years, Saccameno and her attorney faxed her documents many times and spoke to many Ocwen employees. The foreclosure protocol remained open. Ocewen eventually began rejecting her payments. Saccameno sued, citing breach of contract; the Fair Debt Collection Practices Act; the Real Estate Settlement Procedures Act; and the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFDBPA), citing consent decrees that Ocwen previously had entered with regulatory bodies, concerning inadequate recordkeeping, misapplication of payments, and poor customer service. The jury awarded $500,000 for the breach of contract, FDCPA, and RESPA claims, plus, under ICFDBPA, $12,000 in economic, $70,000 in non-economic, and $3,000,000 in punitive damages. The Seventh Circuit remanded. While the jury was within its rights to punish Ocwen, the amount of the award is excessive. View "Saccameno v. U.S. Bank National Association" on Justia Law
Heredia v. Capital Management Services, L.P.
Heredia received four collection letters from CMS, a collections firm, and claims that the language in this correspondence violated the Fair Debt Collections Practices Act (FDCPA), 15 U.S.C. 1692(e). The Seventh Circuit reversed the dismissal of the case, finding that Heredia has plausibly alleged that the dunning letter violated the FDCPA. The letters, which proposed a payment plan, stated: “Discover may file a 1099C form” and that “[s]ettling a debt for less than the balance owed may have tax consequences.” Language in a dunning letter violates section 1692e if the creditor used false, deceptive, or misleading representation or means in connection with the collection of debt. Under section 1692f, a debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Although it is not technically illegal or impossible for Discover to file a 1099C form with the IRS if the amount is under $600, “a collection letter can be literally true” and still misleading. The defendants do not dispute that Discover would never file a 1099C form unless required to do so by law (forgiving $600 or more of principal). In the case of the Heredia letter, Discover would never file a 1099C form because in no circumstances would Discover be forgiving at least $600 in principal. View "Heredia v. Capital Management Services, L.P." on Justia Law
First Midwest Bank v. Reinbold
The debtor obtained a commercial loan from Bank. The agreement dated March 9, 2015, granted Bank a security interest in substantially all of the debtor’s assets, described in 26 categories of collateral, such as accounts, cash, equipment, instruments, goods, inventory, and all proceeds of any assets. Bank filed a financing statement with the Illinois Secretary of State, to cover “[a]ll Collateral described in First Amended and Restated Security Agreement dated March 9, 2015.” Two years later, the debtor defaulted and filed a voluntary Chapter 7 bankruptcy petition. Bank sought to recover $7.6 million on the loan and filed a declaration that its security interest was properly perfected and senior to the interests of all other claimants. The trustee countered that the security interest was not properly perfected because its financing statement did not independently describe the underlying collateral, but instead incorporated the list of assets by reference, and cited 11 U.S.C. 544(a), which empowers a trustee to avoid interests in the debtor’s property that are unperfected as of the petition date. The bankruptcy court ruled that ”[a] financing statement that fails to contain any description of collateral fails to give the particularized kind of notice” required by UCC Article 9. The trustee sold the assets for $1.9 million and holds the proceeds pending resolution of this dispute. The Seventh Circuit reversed, citing the plain and ordinary meaning of the Illinois UCC statute, and how courts typically treat financing statements. View "First Midwest Bank v. Reinbold" on Justia Law
Fifth Third Mortgage Company v. Kaufman
Ahmed co‐owned an LLC that owned a condominium building. Ahmed recruited individuals to pose as buyers for the building's units and to submit fraudulent loan applications to lenders, including Fifth Third. The participants split the loan proceeds; no payments were made on the loans. Kaufman was the seller's attorney for every closing. The closings were conducted by Traditional Title at Kaufman’s law office. Traditional received closing instructions from Fifth Third to notify it immediately of any misrepresentations and to suspend the transaction if “the closing agent has knowledge that the borrower does not intend to occupy the property.” Kaufman concealed the buyers’ misrepresentations and instructed closing agents to complete closings even when buyers were purchasing multiple properties. Ahmed and Kaufman extended the scheme to other buildings. Although Kaufman testified that he was not aware of the fraud, Ahmed testified that Kaufman knew the buyers were part of the scheme. Two closing agents testified that they informed Kaufman about misrepresentations in loan applications. The Seventh Circuit affirmed a fraud judgment for Fifth Third. Kaufman participated individually in each closing as counsel and personally directed Traditional’s employees to conceal the fraud from Fifth Third, for his personal gain. The judgment against Kaufman was not derived solely from Traditional’s liability, based on his membership in the LLC, so the Illinois LLC Act does not bar his liability. Kaufman is not shielded by being the attorney for the seller in the fraudulent transactions. View "Fifth Third Mortgage Company v. Kaufman" on Justia Law
Burton v. Kohn Law Firm, S.C.
Attorney Kohn, on behalf of Unifund, filed suit against Burton in Brown County, Wisconsin for failure to make payments on a Citibank credit agreement. In his answer, Burton stated, “I have never had any association with Unifund ... and do not know who you are or what you are talking about, so I strongly dispute this debt.” He asserted counterclaims, alleging that his personal information had been compromised; that Unifund had failed to provide him notice of his right to cure the default before filing suit; and that there was a “Lack of Privity” because he “ha[d] never entered into any contractual or debtor/creditor arrangements” with Unifund. While that action was pending, Burton sued in federal district court, citing the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692–1692p, and the Wisconsin Consumer Act (WCA). The state court dismissed Kohn’s action against Burton on the basis of Burton’s denial that he was the individual who had incurred the underlying debt. The Seventh Circuit affirmed a judgment in favor of Kohn and Unifund, finding that the FDCPA or WCA claims could not proceed because Burton failed to present sufficient evidence that the debt incurred on the Citibank account was for personal, family, or household purposes and therefore a “consumer debt.” View "Burton v. Kohn Law Firm, S.C." on Justia Law
Doherty v. Federal Deposit Insurance Corporation
Doherty and Farano formed Worth. The bank loaned Worth $400,000, with their personal guaranties. The bank extended the loan’s maturity date multiple times. Worth defaulted. The bank sued Worth, Farano, and Doherty. Doherty, an attorney, filed an appearance on behalf of himself and Worth and raised affirmative defenses, including that the bank extended the loan without authorization and charged fees and an interest rate not agreed upon. The court entered a default judgment for the loan balance against Farano. Doherty later received a report from a forensic document examiner, opining that his signature had been forged on loan extension paperwork. The bank dismissed its claims against Worth and Doherty without prejudice. Over a year later, Doherty sued the bank and individuals, alleging breach of contract, forgery, excessive fees, fraud, legal malpractice, and malicious prosecution. The trial court dismissed, holding that most of Doherty’s claims were barred by res judicata because he should have brought them in the guaranty action. Before Doherty’s appeal was heard, the bank went into the FDIC receivership. The FDIC removed this action to federal district court, which adopted the Illinois court’s decision. The Seventh Circuit vacated. Res judicata does not bar Doherty’s claims. None of the cited Illinois cases address this situation; similar cases suggest that applying the doctrine would be inappropriate. Applying res judicata here neither advances the purposes of res judicata nor meaningfully serves the interests of judicial economy. View "Doherty v. Federal Deposit Insurance Corporation" on Justia Law
Bernal v. NRA Group, LLC
Bernal bought a monthly pass to Six Flags amusement parks. The contract said that if he fell behind on his payments, he would “be billed for any amounts that are due and owing plus any costs (including reasonable attorney’s fees) incurred by [Six Flags] in attempting to collect amounts due.” After Bernal missed several monthly payments, Six Flags hired AR, a debt collector. Under their contract, AR could charge Six Flags a 5% management fee plus an additional amount based on the number of days the debt was delinquent (in this case, an additional 20%), as is common in the market. AR hired NRA, a subcontractor, which sent Bernal a collection letter asking for the $267.31 he owed, plus $43.28 in costs. Reasoning that it could not have cost $43.28 to mail a single collection letter, Bernal filed a class-action lawsuit under the Fair Debt Collection Practices Act, alleging that NRA charged a fee not “expressly authorized by the agreement creating the debt,” 15 U.S.C. 1692f(1). The Seventh Circuit affirmed a judgment for NRA. A debt collector’s fee counts as a collection cost under that language. The contract unambiguously permits Six Flags to recover any cost it incurs in collecting past-due payments, and that includes a standard collection fee. View "Bernal v. NRA Group, LLC" on Justia Law
Carello v. Aurora Policeman Credit Union
Carello is blind. To access online visual content, he uses a “screen reader,” which reads text aloud to him from websites that are designed to support its software. Carello claims that the Credit Union website fails to offer such support. The Illinois Credit Union Act requires that credit union membership be open only to groups of people who share a “common bond,” including “[p]ersons belonging to a specific association, group or organization,” “[p]ersons who reside in a reasonably compact and well-defined neighborhood or community,” and “[p]ersons who have a common employer.” The Credit Union limits its membership to specified local government employees. Membership is required before an individual may use any Credit Union services. Carello is not eligible for, nor has he expressed any interest in, Credit Union membership. He is a tester: he visits websites solely to test Americans with Disabilities Act (ADA) compliance, which prohibits places of public accommodation from discriminating “on the basis of disability in the full and equal enjoyment of [their] goods, services, facilities, privileges, advantages, or accommodations,” and requires them to make “reasonable modifications” to achieve that standard, 42 U.S.C. 12812(a), (b). The Seventh Circuit affirmed the dismissal of Carello’s claim. Carello lacked standing to sue because he failed to allege an injury in fact. View "Carello v. Aurora Policeman Credit Union" on Justia Law
Builders Bank, LLC v. Federal Deposit Insurance Corp.
After a 2015 examination, the FDIC assigned Builders Bank a CAMELS (capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk) rating of 4, which exposed the bank to extra oversight. After the Seventh Circuit concluded that some components of a CAMELS rating are open to judicial review, Builders merged into a non-bank enterprise and left the banking business. The district court dismissed the remanded suit as moot. The Seventh Circuit affirmed, rejecting a claim for damages based on paying too much for deposit insurance. The Administrative Procedures Act, 5 U.S.C. 702, waives the government’s sovereign immunity but establishes a right of review only when “there is no other adequate remedy in a court.” There is a potential remedy under 12 U.S.C. 1817(e)(1), which says: In the case of any payment of an assessment by an insured depository institution in excess of the amount due, the Corporation may refund the amount of the excess payment to the insured institution or credit such excess amount toward the payment of subsequent assessments. The Tucker Act, 28 U.S.C. 1491, waives immunity for such a suit but limits venue to the Claims Court. Builders did not cite the FDIC’s sue-and-be-sued clause, 12 U.S.C. 1819(a), as an alternative waiver. Apart from those that affect subject-matter jurisdiction, legal contentions must be presented in the district court. This suit was litigated on remand under the APA, so it fails. View "Builders Bank, LLC v. Federal Deposit Insurance Corp." on Justia Law