Justia Banking Opinion Summaries

Following the 2007-2009 “Great Recession,” the Federal Deposit Insurance Corporation (FDIC) brought an enforcement action against Calcutt, the former CEO of a Michigan-based community bank, for mismanaging one of the bank’s loan relationships. The FDIC ultimately ordered Calcutt removed from office, prohibited him from further banking activities, and assessed $125,000 in civil penalties.The Sixth Circuit agreed that Calcutt had proximately caused the $30,000 charge-off on one loan because he had “participated extensively in negotiating and approving” the transaction. The court concluded that $6.4 million in losses on other loans were a different matter and that none of the investigative, auditing, and legal expenses could qualify as harm to the bank, because those expenses occurred as part of its “normal business.” Despite identifying these legal errors in the FDIC analysis, the Sixth Circuit affirmed the FDIC decision, finding that substantial evidence supported the sanctions determination, even though the FDIC never applied the proximate cause standard itself or considered whether the sanctions against Calcutt were warranted on the narrower set of harms that it identified.The Supreme Court reversed. It is a fundamental rule of administrative law that reviewing courts must judge the propriety of agency action solely by the grounds invoked by the agency. An agency’s discretionary order may be upheld only on the same basis articulated in the order by the agency itself. By affirming the FDIC’s sanctions against Calcutt based on a legal rationale different from that adopted by the FDIC, the Sixth Circuit violated these commands. View "Calcutt v. Federal Deposit Insurance Corporation" on Justia Law

The Disputed Instruments, prepaid financial instruments used to transfer funds to a named payee, are sold by banks on behalf of MoneyGram and others. When these instruments are not presented for payment within a certain period of time, they are deemed abandoned. MoneyGram applies the common-law escheatment practices outlined in 1965 by the Supreme Court: The proceeds of abandoned financial products should escheat to the state of the creditor’s last known address, or where such records are not kept, to the state in which the company holding the funds is incorporated. MoneyGram does not keep records of creditor addresses but transmits the abandoned proceeds to its state of incorporation. States invoked the Supreme Court’s original jurisdiction to determine whether the abandoned proceeds of the Disputed Instruments are governed by the Disposition of Abandoned Money Orders and Traveler’s Checks Act (FDA), which provides that a money order or “similar written instrument (other than a third-party bank check)” should generally escheat to the state in which the instrument was purchased, 12 U.S.C. 2503.The Court held that the Disputed Instruments are sufficiently similar to money orders to fall within the FDA’s “similar written instrument” category. Being prepaid makes them likely to escheat. The FDA was passed to abrogate common law because, for instruments like money orders, the entities selling such products often did not keep records of creditor addresses, resulting in a “windfall” to the state of incorporation. Bank liability is not a trigger for exclusion, given that banks can be liable on money orders, which are expressly covered. Whatever the intended meaning of “third-party bank check,” it cannot be read broadly to exclude prepaid instruments that escheat inequitably due to the business practices of the company holding the funds. View "Delaware v. Pennsylvania" on Justia Law

The Bank Secrecy Act requires U.S. persons with financial interests in foreign accounts to file an “FBAR” annual Report of Foreign Bank and Financial Accounts; 31 U.S.C. 5314 delineates legal duties while section 5321 outlines the penalties, with a maximum $10,000 penalty for non-willful violations. Bittner—a dual citizen of Romania and the U.S.—learned of his reporting obligations in 2011 and subsequently submitted reports covering 2007-2011. The government deemed Bittner’s late reports deficient because they did not address all accounts as to which Bittner had either signatory authority or a qualifying interest. Bittner filed corrected FBARs providing information for 61 accounts in 2007, 51 in 2008, 53 in 2009 and 2010, and 54 in 2011. The government asserted that non-willful penalties apply to each account not accurately or timely reported. Bittner’s reports collectively involved 272 accounts; the government calculated a $2.72 million penalty. The Fifth Circuit affirmed.The Supreme Court reversed. The $10,000 maximum penalty for non-willful failure to file a compliant report accrues on a per-report, not a per-account, basis. Section 5314 does not address accounts or their number. An individual files a compliant report or does not. For cases involving willful violations, the statute tailors penalties to accounts. When one section of a statute includes language omitted from a neighboring section, the difference normally conveys a different meaning. The Act's implementing regulations require individuals with fewer than 25 accounts to provide details about each account while individuals with 25 or more accounts do not need to list each account or provide account-specific details unless requested by the Secretary. View "Bittner v. United States" on Justia Law

The McCarthy law firm was hired to carry out a nonjudicial foreclosure on Obduskey’s Colorado home. Obduskey invoked the Fair Debt Collection Practices Act (FDCPA) provision, 15 U.S.C. 1692g(b), providing that if a consumer disputes the amount of a debt, a “debt collector” must “cease collection” until it “obtains verification of the debt” and mails a copy to the debtor. Instead, McCarthy initiated a nonjudicial foreclosure action.The Tenth Circuit and Supreme Court affirmed the dismissal of Obduskey’s suit, holding that McCarthy was not a “debt collector.” A business engaged in only nonjudicial foreclosure proceedings is not a “debt collector” under the FDCPA, except for the limited purpose of section 1692f(6). The FDCPA defines “debt collector” an “any person . . . in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts.” The limited-purpose definition states that “[f]or the purpose of section 1692f(6) . . . [the] term [debt collector] also includes any person . . . in any business the principal purpose of which is the enforcement of security interests.” McCarthy, in enforcing security interests, is subject to the specific prohibitions contained in 1692f(6) but is not subject to the FDCPA’s main coverage. Congress may have chosen to treat security-interest enforcement differently from ordinary debt collection to avoid conflicts with state nonjudicial foreclosure schemes; this reading is supported by legislative history, which suggests that the present language was a compromise between totally excluding security-interest enforcement and treating it like ordinary debt collection. View "Obduskey v. McCarthy & Holthus LLP" on Justia Law