Justia Banking Opinion Summaries

In Chapter 11 liquidation of KB Toys Inc. and affiliated entities, the Residual Trustee of the KBTI Trust sought to disallow certain trade claims that ASM (a company in the business of purchasing bankruptcy claims) obtained from creditors. Under 11 U.S.C. 502(d) a claim can be disallowed if a claimant receives property that is avoidable or recoverable by the bankruptcy estate. The Bankruptcy Court disallowed the claims, concluding that a claims purchaser holding a trade claim is subject to the same 502(d) challenge as the original claimant. ASM was on “constructive notice” of potential preference actions, could have discovered the potential for disallowance with “very little due diligence,” and was not entitled to protection as a “good faith” purchaser. The district court and Third Circuit affirmed, holding that a trade claim that is subject to disallowance under502(d) in the hands of the original claimant is similarly disallowable in the hands of a subsequent transferee. View "In re: KB Toys Inc." on Justia Law

MERSCORP operates an online membership organization that records, trades, and forecloses loans on behalf of many lenders. Banks can register their mortgages on the system and assign the mortgages to MERSCORP, which then records them in the counties in which the mortgaged properties are located. MERSCORP has no financial interest in the mortgages. The underlying debts can be repeatedly assigned without transfers being recorded in a public‐records office, facilitating successive interbank sales of mortgages, often to create mortgage‐backed securities. Union County, Illinois filed a class action suit on behalf of all Illinois counties against MERSCORP and banks that do business with MERSCORP, claiming that MERSCORP is violating a statute that requires every Illinois mortgage be recorded; 765 ILCS 5/28 provides that deeds, mortgages, powers of attorney, and other instruments relating to or affecting the title to real estate “shall be recorded in the county in which such real estate is situated.” The district court dismissed, holding that Illinois law does not require that mortgages be recorded, without deciding whether to certify it as a class action. The Seventh Circuit affirmed, declining to certify the issue to the Illinois Supreme Court. View "Union Countyv. Merscorp, Inc." on Justia Law

Plaintiffs appealed from the district court's grant of defendants' motion for summary judgment on plaintiffs' Truth in Lending Act (TILA), 15 U.S.C. 1601 et seq., claims and denial of plaintiffs' motion for reconsideration of an earlier dismissal of their Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692 et seq., claims against The Money Store. The court held that the district court erred in concluding that The Money Store was not a "debt collector" under the false name exception to FDCPA liability. Where a creditor, in the process of collecting its own debts, hires a third party for the express purpose of representing to its debtors that the third party is collecting the creditor's debts, and the third party engages in no bona fide efforts to collect those debts, the false name exception exposes the creditor to FDCPA liability. In regards to the TILA claims, the court concluded that the district court correctly determined that, because plaintiffs' mortgage documents did not name The Money Store as the person to whom the debt was initially payable, The Money Store was not a "creditor" under TILA and was therefore not subject to liability. Accordingly, the court affirmed in part, vacated in part, and remanded for further proceedings. View "Vincent v. The Money Store" on Justia Law

Cadlerocks Centennial Drive, LLC entered into a loan secured by a mortgage on its property. Daniel Cadle executed a personal guaranty on the loan. The original lender subsequently assigned the mortgage and related documents to Wells Fargo Bank as trustee for registered holders ("Trust"). ORIX Capital Markets, LLC was the special servicer of the Trust and began servicing the loan. Cadlerocks later defaulted on its loan, after which the Trust commenced foreclosure proceedings. ORIX then filed this lawsuit against Cadlerocks and Cadle, alleging breaches of the various agreements related to the loan. Among those documents was an indemnity agreement, under which Cadle and Cadlerocks agreed to indemnify the original lender and its assignees for liabilities "sought from or asserted against" the indemnitees connected with the presence of hazardous material on or around the property. ORIX conducted environmental tests on the property, and the district court held that ORIX was entitled to recover the majority of the costs associated with the environmental testing under the indemnity agreement. The First Circuit Court of Appeals reversed the part of the district court's order awarding costs associated with environmental testing, holding that the cost of the tests that ORIX conducted fell outside the scope of the indemnity agreement. Remanded. View "ORIX Capital Markets, LLC v. Cadlerocks Centennial Drive, LLC" on Justia Law

Beginning in 2004, 1st Source Bank entered into secured transactions with the debtors for the sale or lease of tractors and trailers. The agreements granted 1st Source a security interest in the tractors and/or trailers, accounts, and in proceeds from that collateral. 1st Source filed financing statements that identified the collateral as including the specified tractors/and or trailers, and “all proceeds thereof, including rental and/or lease receipts.” The financing statements did not refer to “accounts,” “accounts receivable,” or any similar language. Later, defendant banks also entered into secured transactions with the debtors and filed financing statements that specifically referred to a security interest in “all accounts receivable now outstanding or hereafter arising.” In 2009, the debtors defaulted. 1st Source undertook repossession of the collateral securing the agreements and attempted to claim a perfected security interest and first priority in debtors’ accounts, arguing that the term “and all proceeds thereof” included accounts receivable. The district court granted defendants summary judgment, finding that 1st Source’s financing statements were not sufficient to put defendants on notice that 1st Source claimed a security interest in accounts receivable, and holding, as a matter of Tennessee law, that “proceeds,” as used in a company’s financing statement, does not include its accounts receivable. The Sixth Circuit affirmed. View "1st Source Bank v. Wilson Bank & Trust" on Justia Law

In a proposed class action, Schilke alleged that Wachovia, her lender and holder of a mortgage on her home, fraudulently placed insurance on her property when her homeowner’s policy lapsed. Wachovia secured the replacement coverage from ASI and charged her for it, as specifically permitted by her loan agreement. The premium was more than twice what she had paid for her own policy and included a commission to Wachovia’s insurance-agency affiliate, also as permitted under the loan agreement. Schilke calls the commission a “kickback” and asserted statutory and common-law claims, most sounding in fraud or contract. The district court dismissed based on federal preemption and the filed-rate doctrine. The Seventh Circuit affirmed. The loan agreement and related disclosures and notices conclusively show that there was no deception at work. Wachovia fully disclosed that lender-placed insurance could be significantly more expensive than her own policy and could include a fee or other compensation to the bank and its insurance-agency affiliate. Maintaining property insurance was Schilke’s contractual obligation and she failed to fulfill it. . View "Schilke v. Am. Sec. Ins. Co." on Justia Law

Anobah was an Illinois-licensed loan officer, employed by AFFC, and acted as a loan officer for at least two fraudulent schemes. Developers Brown and Adams recruited Mason to act as a nominee buyer of a property and referred Mason to Anobah for preparation of a fraudulent loan application. The application contained numerous material falsehoods concerning Mason’s employment, assets, and income, and intent to occupy the property. Anobah, Brown, and others created fraudulent supporting documents. AFFC issued two loans in the amount of $760,000 for the property and ultimately lost about $290,000 on those loans. In the course of the scheme, AFFC wired funds from an account in Alabama to a bank in Chicago, providing the basis for a wire fraud charge. Anobah played a similar role in other loan applications for other properties and ultimately pled guilty to one count of wire fraud, 18 U.S.C. 1343. The district court sentenced him to 36 months of imprisonment, five months below the low end of the calculated guidelines range. The Seventh Circuit affirmed, upholding application of guidelines enhancements for abuse of a position of trust and for use of sophisticated means in committing the fraud. View "United States v. Anobah" on Justia Law

Plaintiff challenged the constitutionality of the Indiana Unclaimed Property Act, Ind. Code 32‐34‐1‐1, as authorizing confiscation of private property without compensation. The Act states that property is presumed abandoned if the apparent owner has not communicated in writing with the holder or otherwise indicated interest in the property within a specified period. When the presumption applied, the holder (here, a bank) is required to try to notify the owner and to submit, within 60-120 days after that, a report including the owner’s last known address to the state attorney general, and to simultaneously transfer the property to the attorney general. The following year, the attorney general must attempt notice by publication. Notice is also posted on an official website. The owner can reclaim the property from the state for 25 years after its delivery before it escheats to the state. An owner who files a valid claim is entitled only to principal, and not to any interest earned on it. Plaintiff’s ward had an interest‐bearing account. The presumption of abandonment applied in 2006, three years after the last communication. Because the statute does not require individualized notice if the value of the account is less than $50, plaintiff (guardian) did not learn about the account until 2011. The district court dismissed her challenge to the “taking” of interest on the account. The Seventh Circuit reversed. View "Cerajeski v. Zoeller" on Justia Law

Med‐1 buys delinquent debts and purchased Suesz’s debt from Community Hospital. In 2012 it filed a collection suit in small claims court and received a judgment against Suesz for $1,280. Suesz lives one county over from Marion. Though he incurred the debt in Marion County, he did so in Lawrence Township, where Community is located, and not in Pike Township, the location of the small claims court. Suesz says that it is Med‐1’s practice to file claims in Pike Township regardless of the origins of the dispute and filed a purported class action under the Fair Debt Collection Practices Act venue provision requiring debt collectors to bring suit in the “judicial district” where the contract was signed or where the consumer resides, 15 U.S.C. 1692i(a)(2). The district court dismissed after finding Marion County Small Claims Courts were not judicial districts for the purposes of the FDCPA. The Seventh Circuit affirmed.View "Suesz v. Med-1 Solutions, LLC" on Justia Law

Appellant was a bondholder who acquired German Agra Bonds issued in 1928. Under a 1953 treaty, the courts of the United States could be used for enforcement of Agra Bonds only under certain conditions, requiring prior use of enumerated validation procedures pursuant to several post-World War II international treaties. Appellant filed suit in federal court against several German banks seeking payment on the bonds. However, the bonds were not validated. The federal court dismissed the suit for failure to meet the conditions. The First Circuit Court of Appeals affirmed, holding (1) under the 1953 treaty, the Agra Bonds are enforceable in U.S. courts only if they have been validated; and (2) because Appellant's bonds were not validated, they were unenforceable in U.S. courts. View "Fulwood v. Fed. Republic of Germany" on Justia Law