Alabama law permits the creation of public corporations known as “improvement districts,” which can then issue bonds that are similar to bonds issued by a municipal corporation. These bonds can be used to finance improvements within the district. In Aliant Bank v. Four Star Investments, Inc., the Alabama Supreme Court allowed claims against the directors of one of these improvement districts to go forward despite claims of immunity. The Court also allowed certain fraud claims to go forward against the directors as well as other related individuals and entities. In addition to authorizing lenders to bring suit, the opinion also serves as a strong reminder that lenders should monitor their collateral and promptly investigate any signs of misconduct.
This week, the United States Supreme Court issued a key decision under the Fair Debt Collection Practices Act in a case litigated by Balch & Bingham lawyers, Jason Tompkins and Chase Espy. In Midland Funding, LLC v. Johnson, the Supreme Court resolved a circuit split over the issue of whether debt collectors who file bankruptcy proofs of claim for stale debts are subject to suit under the Fair Debt Collection Practices Act. Siding with Midland, one of the nation’s largest buyers of unpaid debt, the Supreme Court held that “filing a proof of claim that on its face indicates that the limitations period has run” is not actionable under the FDCPA, thereby avoiding a potential conflict between the FDCPA and the Bankruptcy Code. Although ostensibly limited to the bankruptcy context, the Johnson decision could potentially ripple into other FDCPA cases. In the meantime, though, Johnson will undoubtedly turn off the faucet for would-be FDCPA plaintiffs who had hoped to capitalize on what the Eleventh Circuit complained is a “deluge” of out-of-statute proofs of claim.
The Eleventh Circuit recently clarified that sending periodic mortgage statements following a debtor’s bankruptcy discharge is not misleading to the “least sophisticated consumer.” In Helman v. Bank of America, 15-13672, 2017 WL 1350728 (11th Cir. April 12, 2017) Gayle Helman filed suit, alleging that Bank of America violated the Fair Debt Collections Practices Act (FDCPA), Florida Consumer Collection Practices Act (FCCPA), and other state laws when it sent Ms. Helman periodic mortgage statements after her mortgage loan was discharged in bankruptcy. She claimed that the statements unlawfully attempted to collect a discharged debt and that such communications would be misleading to the least sophisticated consumer because it suggested she remained liable for the debt.
In a victory for defendants, the Eleventh Circuit recently agreed that a mere procedural violation—the kind of injury that has become the favorite of the plaintiffs’ bar—is insufficient to confer Article III standing. More specifically, the Eleventh Circuit concluded that a certified return receipt will satisfy a lender’s obligation under Regulation X to provide written acknowledgment of a request for information within five days. Though this decision is unpublished, it is persuasive authority that may guide the district courts within the Eleventh Circuit.
In Meeks v. Ocwen Loan Servicing, LLC, No. 16-15536, Charles Meeks sent a Request for Information to his mortgage servicer via certified mail. The servicer’s agent signed the return receipt the same day the request was received. The receipt was then returned to the Meeks’ counsel. Several months later, Meeks sued the servicer and attached the certified receipt to his complaint.
Meeks asserted two claims against the servicer: (1) the servicer violated Regulation X by not sending him written acknowledgment of the Request for Information within 5 days and (2) that the servicer had shown a reckless disregard for the requirements of Regulation X. After the case was removed, the district court dismissed the first count for failure to state a claim and the second count for lack of standing. On appeal, the Eleventh Circuit affirmed.
The Court pointed out that no other circuit court has considered whether a certified receipt satisfies the written response obligation under Regulation X. Rather than engage in a lengthy legal analysis, the Court focused on the undisputed facts. Because there was no serious dispute that Meeks had received the certified receipt, Meeks had failed to state a claim under Regulation X. Put another way, a failure to send a notice of acknowledgment is unnecessary when the undisputed evidence shows that the borrower knew the request had been received.
More important, the Court concluded that Meeks lacked standing to bring a pattern or practice claim. Pointing to the Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1548-49 (2016), the Court noted that an injury must be both concrete and particularized in order to confer Article III standing. Meeks had not suffered an injury because it was undisputed that he had received the return receipt. Even though Meeks argued that this receipt was deficient under Regulation X, the Eleventh Circuit held that this deficiency was nothing more than “a bare procedural violation” that was insufficient to create a “real, concrete injury.”
Meeks is important for two reasons. First, it holds that a procedural deficiency alone—here, the failure to send a written acknowledgment within five days—is insufficient to confer standing when the undisputed evidence shows that the deficiency caused no injury to the plaintiff. On this point, Meeks is in tension with another unpublished Eleventh Circuit decision, Church v. Accretive Health, Inc., 654 F. App’x 990 (11th Cir. 2016), which held that the FDCPA creates a statutory right to receive certain information and that a failure to include this information in the debtor’s letter to the plaintiff was a sufficient injury to confer standing. Because neither opinion is published, neither will be binding on a subsequent Eleventh Circuit panel. Moreover, it may be possible to reconcile the holdings in Meeks and Church. In Meeks, it was undisputed that the plaintiff had received the benefit established by the procedural right while in Church it was not clear that the plaintiff had actually received the information that the statute required. It is also worth pointing out that many post-Spokeo courts have declined to extend Spokeo to its logical conclusions. At the very least, this apparent contradiction signals that the law on this issue is evolving. The Eleventh Circuit is likely to address this issue in a published opinion in the future.
Second and for purposes of Regulation X specifically, Meeks holds that a certified return receipt can satisfy a lender’s obligations under Regulation X when there is no dispute that the borrower received the return receipt. This holding may be somewhat limited however because plaintiffs’ counsel may not attach the receipts to their complaints or will deny receiving them. Meeks also leaves open the question of what happens if the receipt is received by the borrower more than five days after the lender signs it. Still, lenders should look for ways to bring their case within Meeks as doing so will create a strong argument for dismissal in district courts within the Eleventh Circuit.
Last month, the Eleventh Circuit rejected a plaintiff’s bid to keep her class action in state court even though CAFA’s local controversy exception would have required a remand. In Blevins v. Aksut, No. 16-11585, — F.3d —, (11th Cir. Mar. 1, 2017), the Court held that the “local controversy” exception to CAFA jurisdiction does not apply when the federal court has an independent basis for subject matter jurisdiction.
Elizabeth Blevins, on behalf of herself and a putative class, sued Seydi Aksut, M.D. and several affiliated persons and entities, alleging that they operated an unlawful scheme to defraud them. Dr. Aksut would allegedly falsely tell patients that they required heart surgery and would perform these unnecessary surgeries. The defendants would then bill patients for the procedures. After learning about the practice, Blevins filed suit in an Alabama state court, asserting that Dr. Aksut and his co-defendants violated the Racketeer Influenced and Corrupt Organizations Act. The defendants removed the case to federal court and moved to dismiss.
Blevins filed a motion to remand, contending that CAFA’s local-controversy provision prohibited the trial court from exercising jurisdiction. The local controversy exception directs federal courts to decline to exercise CAFA jurisdiction when certain criteria are met, including when two-thirds or more of the proposed class members are citizens of the state where the action was filed, the defendant is a citizen of the same state, and the principal injuries occurred in the same state.
The trial court denied Blevins’s motion to remand, and she appealed to the Eleventh Circuit, which affirmed. The Court explained that CAFA was one way to get class actions into federal court, not the exclusive way to do so. As such, the “local controversy” exception does not apply when a federal court has an independent basis for jurisdiction. In this case, the plaintiff asserted claims under a federal statute—RICO—which gave the district court federal question jurisdiction. The removal was proper on that basis. Interestingly, after affirming the denial of the motion to remand, the Eleventh Circuit reversed the district court’s dismissal of the lawsuit, holding that payments made to a medical provider are compensable injuries under RICO.
Blevins is a reminder that CAFA is not the only basis for removing a class action to federal court. Class actions could also be removed when they assert a claim under federal law, independently meet the requirements for diversity jurisdiction, the case relates to a bankruptcy proceeding, or there is some other independent basis for federal jurisdiction. Accordingly, when considering whether to remove, Defendants should remember to consider all possible bases for federal subject matter jurisdiction.
On March 16, 2017, the Florida Supreme Court solidified the position of its November 3, 2016 opinion in Bartram v. U.S. Bank, N.A., SC14-1266, 2016 WL 6538647 by denying the motions for rehearing filed in response to the Court’s holding that an involuntary dismissal unwinds acceleration, returning lender and borrower to their previous positions and allowing lender to pursue foreclosure on future defaults. The finality of the Bartram opinion brings relief and some clarity to many residential lenders, especially with standard form residential mortgages with reinstatement provisions, that a failed attempt at foreclosure will not bar subsequent attempts to foreclose for missed installment payments.
While Bartram provides relief for Florida lenders, the battleground over the statute of limitations on Florida mortgage debt continues to shift. Even before the Court denied rehearing, the foreclosure defense bar was already crafting new defenses based on the gaps in the law left unfilled by the Bartram opinion. For instance, in new foreclosures filed after an involuntary dismissal, some borrowers are challenging the use of default dates that predate the dismissal date for the earlier foreclosure suits. Lenders should expect borrowers with continuing defaults and prior foreclosure lawsuits to challenge subsequent foreclosures on the collectability of time barred installment payments, Collazo v. HSBC Bank USA, N.A., No. 3D14-2208 (Fla. 3d DCA Apr. 2016)(withdrawn on rehear’g) and time barred default dates. Bollettieri Resort Villas Condo. Ass’n, Inc. v. Bank of New York Mellon, 198 So. 3d 1140 (Fla. 2d DCA 2016), review granted, SC16-1680 (Fla. Nov. 2, 2016).
Late December, the Fourth Circuit Court of Appeals (Fourth Circuit), in Lovegrove v. Ocwen Home Loans Srvs., upheld summary judgment in favor of a mortgage servicer against allegations under the Fair Debt Collection Practices Act (FDCPA), under which courts generally apply a “least sophisticated consumer” standard. The plaintiff in Lovegrove alleged that monthly mortgage statements he received from the servicer violated the FDCPA because they attempted to collect a debt which had been discharged in a recent bankruptcy. The notices, however, contained the familiar and—here, exposure limiting—disclosures that “if the debt is in active bankruptcy or has been discharged through bankruptcy, this communication is not intended as and does not constitute an attempt to collect a debt.” In following its own recent case law, the Fourth Circuit applied a “commonsense inquiry” into whether these notices, in light of the quoted disclaimer, attempted to collect debt, ultimately deciding that they did not. Of further note is the passing comment by the Fourth Circuit that “there is an argument that sophisticated and high-dollar loan arrangements should not be analyzed under the least sophisticated consumer standard. Perhaps, sophisticated consumers should not get the benefit of the lenient standard when they are part of a complex relationship or situation that may be confusing to less sophisticated individuals.”
The clear take away is that disclaimers that can be easily disregarded as boilerplate still have significant meaning, and, as in this case, may form the basis for escaping liability altogether. Further, while debt collectors still have to strictly comply with all requirements under the FDCPA, the wildly lenient “least sophisticated consumer standard” may give way under certain circumstances.
The Alabama Court of Civil Appeals recently held in Pittman v. Regions Bank that questions about the propriety of a foreclosure may be raised more than one year after the foreclosure as an affirmative defense to an ejectment action, even if that party did not challenge the original foreclosure.
In 2008, Windham and Rhonda Pittman—along with their company Land Ventures for 2, LLC—obtained a $650,000 loan from Access Mortgage Corporation to purchase several parcels of property in Daleville, Alabama, including a parcel where the Pittmans’ house was located. The Pittmans signed a loan modification agreement with Access in 2009, and the loan was transferred to Regions Bank in 2010. The Pittmans ultimately fell behind on their monthly payments and Regions eventually foreclosed on the property.
After ignoring several requests from the Pittmans asking that the properties be sold off individually rather than together, Regions sold the property to itself en masse for $367,500 in 2013. The Pittmans refused to vacate the property on which their house was located, however, and Regions filed an ejectment action in 2014. The Pittmans contested the action, contending that they had not received proper notice of their default on the loan, of Regions’ intent to accelerate the loan, or of Regions’ intent to foreclose. They also argued that Regions had improperly denied their requests to sell the property off by lot rather than en masse. The trial court granted summary judgment to Regions.
On appeal, however, the Alabama Court of Civil Appeals reversed, holding that in order to prevail on its ejectment claim, Regions must show that it held proper title to the property and that the Pittmans unlawfully remained on the property. The Court held that while there was no dispute that the Pittmans remained on at least one of the properties, the Pittmans were entitled to raise the issue of improper foreclosure as an affirmative defense to Regions’ ejectment. As such, the Court disagreed with Regions’ assertion that all contentions of an improper foreclosure must be raised within one year of the foreclosure because the ejectment action required Regions to prove that it held legal title.
Further, the Court held that Regions’ refusal to sell non-contiguous parcels of property could indicate that Regions violated its duty of fairness and good faith, thereby voiding the foreclosure sale. According to the Court, the Pittmans had presented substantial evidence that they had asked Regions to sell the properties separately and that they had been prejudiced when Regions refused to do so. Specifically, the Court held that the Pittmans had presented evidence that they could have redeemed the lot containing their home without redeeming the other properties if Regions had sold the lots separately, and that the properties might have sold at a higher price if Regions had sold them separately. Therefore, the Court held that the trial court should not have granted Regions’ motion for summary judgment.
This ruling should serve as a reminder to loan servicers and investors that all foreclosures must be handled in good faith, seeking not to prejudice a homeowner any more than necessary. In Pittman, Regions’ refusal to consider selling the Pittmans’ property in individual lots may have kept the Pittmans from receiving the full value of their property, and made it more difficult for the Pittmans to redeem the property—issues that the Pittmans raised prior to foreclosure. Further, counsel for loan servicers should bear in mind that the one-year bar to challenging a foreclosure on its face does not necessarily extend to a party’s ejectment defenses. Therefore, counsel should take care not to oversell the importance of the one-year bar when evaluating a client’s claims for ejectment or a similar action.
The text of the opinion is available here.
In a case of first impression for the Court, the Eleventh Circuit recently addressed whether federal district courts retain original subject matter jurisdiction over state law claims included in a class action filed pursuant to the Class Action Fairness Act (“CAFA”) even after all class claims have been dismissed. In Wright Transportation, Inc. v. Pilot Corporation, No. 15-15184, ___ F.3d ___ (Nov. 22, 2016), the Court sided with the other Circuits that have addressed this question, holding that CAFA confers original jurisdiction over state law claims that qualify as CAFA claims, and that this jurisdiction survives the dismissal of class claims.
Pilot Corporation contracts with long-haul trucking companies to sell diesel fuel at discounted rates. In 2013, Wright Transportation, Inc., an Alabama company and Pilot customer, filed a putative class action in the Southern District of Alabama, alleging that Pilot employees withheld discounts without their customers’ knowledge or approval. Wright asserted claims under the federal RICO statute, as well as various state law claims which, Wright alleged, qualified as CAFA claims, thereby vesting the district court with subject matter jurisdiction.
The district court eventually dismissed several of Wright’s claims, including the RICO claims and the class claims. Specifically, the district court dismissed the class claims because, while the case was pending, a rival class-action in the Eastern District of Arkansas reached a court-approved settlement. Both Wright and Pilot acknowledged that judicial approval of the settlement would divest Wright of standing to pursue the class claims. However, state law claims for breach of contract and unjust enrichment, both of which originally qualified as CAFA claims, survived for Wright individually.
The case was then consolidated with six similar lawsuits into one multidistrict-litigation proceeding in the Eastern District of Kentucky. However, soon thereafter, the MDL court discovered information showing that Pilot was an Alabama citizen, therefore depriving the court of diversity jurisdiction as to Wright’s claims. Without deciding the question of whether original jurisdiction still existed over those claims pursuant to CAFA, the MDL court remanded the case to the Southern District of Alabama.
On remand, Wright asked the district court to dismiss the remaining claims without prejudice so that it could re-file them in Alabama state court. Pilot opposed Wright’s motion, asserting that the district court retained CAFA jurisdiction over Wright’s state law claims notwithstanding the dismissal of all class claims. Ultimately, the district court granted Wright’s motion, holding that the dismissal of the class claims (and the RICO claims) had stripped it of original jurisdiction, and declining to exercise supplemental jurisdiction over the remaining state law claims.
Pilot appealed to the Eleventh Circuit, arguing that CAFA conferred original jurisdiction over all of Wright’s claims, including the state law claims, at the time that Wright actually filed them such that jurisdiction could not have divested when the class claims were dismissed. The Court agreed with Pilot, concluding that CAFA effectively serves as an extension of diversity jurisdiction, which is not destroyed by post-filing changes to a party’s citizenship. Thus, a post-filing change in circumstances does not remove subject matter jurisdiction under CAFA, even when the class claims are dismissed. In other words, original subject matter jurisdiction for claims brought under CAFA cannot be divested unless the trial court determines that it did not actually possess original subject matter jurisdiction at the time of the initial filing. Because there was no allegation that the district court lacked subject matter jurisdiction at the time Wright’s claims were originally filed, the Court concluded that CAFA continued to confer original federal jurisdiction over the remaining state law claims despite the dismissal of Wright’s class claims.
Although Wright provides support for class action defendants who wish to remain in federal court following the dismissal of CAFA claims, it is important to note that this ruling is relatively narrow. First, and most importantly, the Court suggests that, although a plaintiff who originally filed its class action in state court cannot amend its complaint after removal to federal court in order to divest the federal court of CAFA jurisdiction, a plaintiff who originally filed its lawsuit in federal court is free to amend its complaint in order to remove claims upon which the court’s original jurisdiction is based. Second, in Wright, all of the remaining state law claims qualified for CAFA jurisdiction; therefore, the Court did not have to analyze the issue of supplemental jurisdiction. Litigants who wish to remain in federal court following the dismissal of class claims will still have to establish the district court’s jurisdiction over any remaining non-CAFA claims.
On December 2, 2016, Florida’s Fifth District Court of Appeal filed an opinion overturning a foreclosure sale on grounds that the foreclosing bank failed to meet with the borrower in person prior to filing suit, as required by HUD regulations. See Palma v. JPMorgan Chase Bank, N.A., et. al., Case No. 5D15-3358 (Fla. 5th DCA Dec. 2, 2016). The promissory note at issue in Palma contained a clause expressly incorporating HUD regulations into the terms of the loan, including 24 C.F.R. § 203.604(b) which requires, among other things, that “the mortgagee must have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting, before three monthly installments due on the mortgage are unpaid. . . .” While the bank alleged generally that it complied with all conditions precedent to foreclosure, as the bank was permitted to do under Fla. R. Civ. P. 1.120(c), the borrower answered the complaint by specifically denying that the bank complied with the face-to-face interview requirement. At trial, the bank did not present evidence of its compliance with 24 C.F.R. § 203.604(b), or any of the enumerated exceptions thereto. The borrower moved to dismiss at the end of the bank’s case in chief, but the trial court ruled that the borrower’s specific denial was an affirmative defense requiring proof from the borrower. The borrower promptly recalled the bank’s representative who testified that she did not have information on whether the required interview was offered or refused. The borrower then testified that she would have participated in the face-to-face interview, but that the bank never offered her that opportunity. Although the borrower renewed her motion for involuntary dismissal, the trial court found in favor of the bank and entered a foreclosure judgment.
The borrower appealed to the Fifth District Court of Appeal, which had recently held that a borrower bears the burden of demonstrating that HUD regulations apply to a loan before a 24 C.F.R. § 203.604(b) argument can be considered. See Diaz v. Wells Fargo Bank, N.A., 189 So. 3d 279, 284 (Fla. 5th DCA Apr. 8, 2016). In the instant case, however, the appellate court had no difficulty finding the HUD regulations applied, as they were specifically incorporated into the loan documents by reference. The appellate court held that a specific denial of a condition precedent is not an affirmative defense and that the bank, as plaintiff, bears the burden of proving that a specifically denied condition was satisfied or excused. The appellate court reversed the judgment and remanded the case finding that the bank had not provided any evidence that it engaged in a face-to-face interview before filing the complaint or that any of the enumerated exceptions to 24 C.F.R. § 203.604(b) applied.
There are multiple lessons to take from Palma at different stages of the mortgage servicing process. To name a few, it is good practice for banks, servicers and foreclosure counsel, alike, to: (i) carefully review the note and mortgage to identify any regulations that might modify the obligations of the parties at the time of boarding and the time of default; (ii) determine whether all applicable regulations and contractual conditions are satisfied or otherwise excused before notices are sent to the borrower and especially before a complaint is filed; and (iii) to inform the bank or servicer’s litigation specialists and witness of any contested conditions precedent well before trial so that the servicer can assess whether to escalate the matter or proceed to trial.