Earlier this month, the United States Court of Appeals for the Eleventh Circuit issued a decision that could make it easier for manufacturers to force consumers into arbitration via “shrinkwrap” agreements—packaged contracts which bind consumers by merely opening and keeping a product. In Dye v. Tamko Building Products, Inc., Case No. 17-14052 (11th Cir. Nov. 2, 2018), the Eleventh Circuit considered an appeal of a district court’s order compelling arbitration and dismissing a lawsuit by Florida homeowners against the manufacturer of allegedly defective roofing shingles. The packaging of the shingles displayed the manufacturer’s entire product-purchase agreement, including a mandatory arbitration provision. In taking up the case, the Eleventh Circuit considered not only whether this shrinkwrap agreement was enforceable under Florida law, but also whether the homeowners were bound to arbitration because their hired roofers ordered, opened, and installed the shingles.
Georgia regulates the small loan industry with usury laws like the Payday Lending Act and Industrial Loan Act. But, as the Georgia Supreme Court recently held, these Acts can reach only as far as their texts allow.
In Ruth v. Cherokee Funding, LLC, the Georgia Supreme Court held money advanced by a litigation finance company is not a “loan” under either the PLA or the ILA where the litigant’s obligation to repay depends on the success of her lawsuit. The opinion comes in a state class action suit against litigation finance companies that advanced money to the plaintiffs while their personal injury lawsuits were pending. Under the financing agreements their attorney executed, the plaintiffs were required to repay the funds (plus various fees and interest at an annualized rate of 59.88%) only if they recovered proceeds from their lawsuits. When the litigation finance companies sought to recover the amounts owed under the agreements, the plaintiffs sued alleging, among other things, the agreements violated the PLA and ILA.
The Alabama Civil Court of Appeals recently issued a decision, International Management Group, Inc. v. Bryant Bank, No. 2170744, which, among other things, limits the potential for summary judgment in fraudulent transfer cases, especially where actual fraud must be proven.
In this case, Bryant Bank sued International Management Group (“IMG”) following its alleged insolvency, seeking to void a series of insider transfers of mortgages securing promissory notes to Bryant Bank. IMG’s principal, Michael Carter had personally guaranteed the promissory notes prior to filing personal bankruptcy. Ultimately, IMG and Mr. Carter defaulted on the promissory notes, and Bryant Bank obtained a default judgment against both IMG and Mr. Carter. Prior to the default judgment, however, Mr. Carter, through a series of insider transactions, transferred the mortgages to his parents, who subsequently passed away. Mr. Carter, as executor of his mother’s estate, then transferred the mortgages to himself following his bankruptcy. Bryant Bank claimed that IMG’s first transfer to another Carter-controlled company in 2010 was without any consideration and rendered IMG insolvent, thus rendering the transfers constructively fraudulent and void under the Alabama Uniform Fraudulent Transfer Act (“AUFTA”). If Bryant Bank could not void the transfers, its judgments against IMG and Mr. Carter were likely worthless, as neither party had sufficient assets to satisfy the judgments. Following discovery, the trial court granted Bryant Bank’s motion for summary judgment and voided the transactions, which had the effect of voiding the transfers without the need for trial and made IMG no longer judgment-proof.
On October 19, 2018, the Alabama Court of Civil Appeals issued an opinion in Chandler v. Branch Banking & Trust Company (No. 2160999), holding that a joint owner of property at issue in an ejectment action is a necessary and indispensable party, even where the non-party property owner’s interests are closely aligned with a named party.
Practically, this ruling emphasizes the importance of joining all necessary parties to an ejectment action when it is filed. Mortgage servicers should examine all mortgage documents as well as the property’s deed to ensure that all potential parties with rights in the property subject to the mortgage are added to the action prior to filing. This case in particular shows that even though the named defendant was the only party reflected on the mortgage, the deed would have revealed that his wife was a joint owner with rights in the property.
In Patel, et al v. Specialized Loan Servicing LLC, et al, No. 16-12100 (11th Cir. 2018), the Eleventh Circuit held that claims against a loan servicer for “artificially inflated” force-placed insurance premiums were barred by the filed rate doctrine. In Patel, the plaintiff alleged that loan servicers and insurance companies breached implied covenants of good faith and fair dealing, as well as various deceptive and unfair trade practice statutes, by purchasing force-placed insurance for the plaintiffs’ mortgaged properties. Plaintiffs alleged that the premiums were “artificially inflated”, “unreasonably high”, and that they reflected the “costs of kickbacks” to the loan servicers. The Court affirmed the Southern District of Florida’s dismissal of the plaintiff’s complaint for failure to state a claim, finding that the allegations in the complaint were “textbook examples of the sort of claims” barred by the filed-rate doctrine.
Earlier this month, Florida’s Supreme Court clarified that the 60-day period to claim surplus funds from judicial foreclosure sales begins from the county clerk’s issuance of the certificate of disbursements, not from when the property is actually sold at auction. In Bank of New York Mellon v. Glenville, Docket No. SC17-954, 2018 WL 4327881 (Fla. Sept. 6, 2018), the Court considered whether a bank had timely filed its claim for surplus funds when it filed the claim 62 days after the public auction, but only 35 days after the clerk issued the certificate of disbursements. In taking up the case, the Court set out to resolve a conflict between Florida’s Second and Fourth District Courts of Appeal over whether the 60-day period began to run upon the public auction of the property, the clerk’s issuance of the certificate of title, or another event.
In a win for defendants, the Eleventh Circuit recently held that a party does not waive its right to compel arbitration for the claims of unnamed class members even if it has waived that right as to the named class representatives. In Gutierrez v. Wells Fargo Bank, NA, the plaintiffs filed a putative class action against Wells Fargo alleging it had committed certain unlawful practices related to the charging of overdraft fees. The plaintiffs were all former Wells Fargo customers who had accounts governed by customer agreements containing arbitration provisions with class action waivers. After the trial court consolidated similar cases in late 2009, it ordered the defendant banks to file all “merits and non-merits motions directed to the operative complaints,” including motions to compel arbitration, by December 2009. Wells Fargo replied to the trial court’s order stating it would not seek to compel arbitration as to the named plaintiffs but reserved its right to compel arbitration against any plaintiffs “who [might] later join, individually or as putative class members, in this litigation.” Wells Fargo then filed its answer and proceeded with discovery.
Alabama has joined approximately 17 other states in adopting the Uniform Voidable Transactions Act (the “VTA”) to replace the Uniform Fraudulent Transfer Act (the “FTA”). The VTA will govern transactions occurring on or after January 1, 2019. The VTA clarifies issues that had become points of contention in avoidance actions under the FTA. For example, the new law makes clear that a finding of fraud (as that term is used in common law) is not a prerequisite to avoiding a transfer. The VTA also includes a choice of law provision to help minimize the confusion over which state’s avoidance laws govern a transaction that crossed multiple state lines. The VTA also seeks to modernize avoidance law in part by addressing series limited liability companies.
For a more information regarding the VTA, click here.
Dollar General reported its employee Rebecca Keyes to the police for embezzlement, causing her to be arrested. Keyes later sued Dollar General under a number of legal theories, including malicious prosecution, false imprisonment, and intentional infliction of emotional distress. The trial court ordered arbitration for all of her claims, but the Mississippi Supreme Court reversed for all but one claim. The Court found that disputes over the alleged embezzlement and the fraudulent conversion of property from one’s employer, were not covered under an arbitration provision which defined “covered claims” as those “arising out of your employment with Dollar General.” This decision is but the latest by the Mississippi Supreme Court, one of which we previously wrote about here, refusing to enforce broadly worded arbitration clauses for certain types of claims. These cases are troubling for the financial services industry in that plaintiffs may be able to avoid even very broadly worded arbitration clauses through inflammatory allegations or in cases where there is alleged criminal conduct. The case was styled Rebecca Keyes v. Dollar General Corporation, No. 2017-IA-00010-SCT. Click here to read the opinion in full.
In Dasher v. RBC Bank, the Eleventh Circuit held that a bank could not retroactively apply a newly-inserted arbitration provision in its customer account agreement to a dispute that was already in litigation unless the existence of the arbitration provision was communicated to counsel. Michael Dasher filed suit against RBC Bank arising out of certain practices implemented by RBC Bank related to overdraft fees. In 2012, PNC Bank acquired RBC Bank and issued a newer version of customer account agreements than those issued by RBC Bank in 2008. The PNC Bank agreement did not contain an arbitration provision, but PNC Bank moved to compel arbitration based on an arbitration provision in the 2008 RBC Bank agreement. The trial court denied this motion and the ruling was upheld on appeal.