Photo of Adam Israel

Adam is an attorney in Balch & Bingham’s Birmingham office.  Adam’s practice primarily centers on financial services litigation, general commercial litigation, and appellate litigation in both federal and state court.  Adam has represented lenders in a variety of contexts, including suits regarding real estate title disputes, card processing disputes, promissory note disputes, and securities-related disputes.

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.

Continue Reading Eleventh Circuit Declines to Expand Reach of “Least Sophisticated Consumer” Standard In the Context of Sending Periodic Mortgage Statements Following Bankruptcy Discharge

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 Though this decision is unpublished, it is persuasive authority that may guide the district courts within the Eleventh Circuit.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.

The Eleventh Circuit recently held in Nicklaw v. CitiMortgage, Inc.(No. 15-14216) that a plaintiff lacks standing to sue a creditor where the plaintiff merely alleges that the creditor failed to timely record a mortgage satisfaction, as it is statutorily required to do, but does not allege any additional concrete injury.

Continue Reading Citing Spokeo, Eleventh Circuit Rejects Class Action Over Late Mortgage Satisfaction Recordation, Holding Plaintiff Had Not Alleged Concrete Injury-In-Fact Due to Statutory Violation

In a recent decision, the Eleventh Circuit (Lage v. Ocwen Loan Servicing, LLC, No. 15-15558 (11th Cir. Oct. 7, 2016)) held that a loan servicer is not required to evaluate a completed loan modification application if that application is submitted less than 37 days before a foreclosure sale is originally scheduled to occur. The Court held that this applies even when the foreclosure sale on the property is rescheduled to a later date, making the loan modification application fall outside the 37-day window.

Continue Reading Eleventh Circuit Holds That Reg. X Does Not Require Mortgage Servicers to Evaluate Untimely Loan Modification Plans Even If the Foreclosure Is Rescheduled So That the Sale Actually Occurs Beyond Reg. X’s 37-day Window

In an unpublished opinion, the Eleventh Circuit applied the Supreme Court’s recent opinion in Spokeo, Inc. v. Robins, 578 U.S. ___, 136 S. Ct. 1540 (2016) and held that a debtor who allegedly did not receive certain disclosures required by the Fair Debt Collections Practices Act (FDCPA) suffered an injury-in-fact to her statutorily created right to receive such information, and therefore had standing to pursue an FDCPA claim against the entity attempting to collect the debt.

Continue Reading Eleventh Circuit: Failure to provide debtor with FDCPA-required disclosures constitutes injury-in-fact to confer standing

The Eleventh Circuit recently affirmed the dismissal of a putative class action relating to the settlement charges a mortgage service provider is allowed to collect under the Real Estate Settlement Procedures Act (“RESPA”).  In Clements v. LSI Title Agency, Inc., No. 14-11636, the Court held: (1) that a mortgage service provider does not perform only “nominal” services when it procures a closing attorney; and (2) that a mortgage service provider does not violate RESPA by marking up the price of a third-party service.

When Patricia Clements refinanced her mortgage, the bank hired LSI Title Agency to provide refinancing services.  Because Georgia law requires all closing services to be performed by a licensed attorney, LSI contracted with the Law Offices of William E. Fair III, LLC.  The law office arranged for an independent closing attorney to provide the requested services.

Clements later filed a putative class action in state court against LSI, the Law Offices of William E. Fair III, LLC, and Fair, individually.  The defendants removed to federal court, where Clements filed an amended complaint.  Clements alleged two violations of RESPA.  First, she claimed that the defendants and the closing attorney split a $300 settlement fee in violation of RESPA because the defendants provided no actual services related to the closing of the loan.  Second, Clements argued that LSI violated RESPA by charging an $85 markup for “government recording charges.”  The defendants moved to dismiss, arguing that Clements lacked standing, and, in the alternative, that Clements had failed to state a claim upon which relief could be granted.  The trial court agreed, finding that Clements lacked standing because she received a credit for the exact amount of her closing costs, which included the $300 settlement fee and the marked-up recording charges.  The trial court dismissed the amended complaint, and Clements appealed.

The Eleventh Circuit affirmed in part and reversed in part.  At the outset, the Court determined that the trial court erred when it dismissed Clements’s complaint for lack of standing.  Clements alleged that had she not been charged the $300 settlement fee and the $85 government recording markup, she would have received an additional $385 at closing.  The Court found that even though Clements had received a credit for an amount equal to that $385, that fact did not necessarily refute her claim that she would have otherwise received that amount in addition to the credit she received. Accordingly, the Court found that Clements had alleged an actual injury sufficient to give her standing to pursue her claims.

Nevertheless, the Court held that Clements did not state a viable claim under RESPA.  According to RESPA, “[n]o person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service . . . other than for services actually performed.”  12 U.S.C. § 2607(b).  The Court held that § 2607(b) required Clements to plead that “no services were rendered in exchange for a settlement fee.”  According to the Eleventh Circuit, each of Clements’s attempts fell short.

First, Clements alleged that the defendants violated RESPA when they split the $300 settlement fee, because they provided only “nominal” services.  According to Clements, the services were nominal because LSI provided services that only licensed attorneys can provide, and Fair and his law office only provided the service of finding a closing attorney to perform closing services.  The Court held that the fact that Georgia law made it illegal for LSI to provide settlement services did not mean that the settlement services it actually provided were nominal, i.e., “existing in name only.”  The Court further held that Fair and his law office earned their portion of the settlement fee because “arranging for a third party contractor to perform a service is itself a service.”  Therefore, LSI, Fair, and his law office “actually performed” “services” for their “portion[s], split[s], or percentage[s]” of the settlement fee.  See 12 U.S.C. § 2607(b).

Second, Clements claimed that LSI violated RESPA by imposing an $85 markup on “government recording charges,” because, Clements argued, a markup of a charge to a consumer violates RESPA when the mortgage service provider “accepts” an unearned portion of that charge.  See 12 U.S.C. § 2607(b).  Joining the majority of courts of appeals to have addressed the issue, the Court decided that markups are not a violation of RESPA.  The Court looked to the U.S. Supreme Court’s recent decision in Freeman v. Quicken Loans, Inc., 132 S. Ct. 2034 (2012), where the Court analyzed the language of § 2607(b) and determined that the terms “give” and “accept” in § 2607(b) refer to the exchange between a service provider and a third party, not the exchange between the consumer and the service provider.  In other words, the Court held, when a service provider marks up a fee, the provider “give[s]” a “portion, split, or percentage” to a third party, and the third party “accept[s]” that “portion, split, or percentage,” and that exchange does not violate RESPA when the third party has “actually performed” a service.  See § 2607(b).   Accordingly, the Court determined that LSI had neither “give[n] . . . [nor] accept[ed] any portion, split, or percentage of any charge . . . other than for services actually performed.”

In Collins v. Experian Information Solutions, Inc., No. 14-11111 (11th Cir. January 5, 2015), the plaintiff sought to recover damages for emotional distress resulting from a credit reporting agency’s failure to reasonably investigate disputed information in his credit file.  Prior to the lawsuit before the court, Equable Ascent Financial, LLC sued Curtis Collins in small claims court in Jefferson County, Alabama.  After a trial, the small claims court entered judgment for Collins.  He immediately wrote to Experian and requested that it remove the Equable debt from his credit file.  Experian’s investigation of this dispute involved requesting additional information from Collins, which he provided, and asking Equable if the debt remained valid.  After Equable erroneously told Experian that the debt was valid, Experian made no further investigation and did not remove the debt from Collins’ credit file. 

After learning that Experian was still reporting the Equable debt as valid, Collins sued Experian for violating the Fair Credit Reporting Act.  He alleged, among other things, that Experian had negligently or willfully failed to conduct a reasonable investigation of the accuracy of the Equable debt as required by 15 U.S.C. § 1681i(a)(1) and claimed emotional distress as actual damages.  Although it held that there was a genuine dispute of material fact regarding the reasonableness of Experian’s investigation, the district court nevertheless entered judgment for Experian, explaining that a party cannot recover actual damages unless a credit reporting agency has published erroneous information to a third party.  

Collins appealed. The Eleventh Circuit reversed, explaining that, while third party publication may be required to show actual harm under other provisions of the FCRA, such a showing is not required by the plain language of § 1681i(a)(1).  That subsection directs that, when the “accuracy of any item of information in a consumer’s credit file at a consumer reporting agency is disputed by the consumer and the consumer notifies the agency directly,” then “the agency shall, free of charge, conduct a reasonable investigation to determine whether the disputed information is inaccurate.”  As defined by the FCRA, a consumer’s file includes all information retained by the credit reporting agency, not just information which has been reported to third parties.  Thus, a credit reporting agency can violate § 1681i(a)(1) by merely failing to reasonably investigate the accuracy of information in a consumer’s file; communicating erroneous information to a third party is not required.  Accordingly, the Court held that a plaintiff can recover emotional distress as actual damages for a violation of § 1681i(a)(1) regardless of whether that information has been published to a third party.  The Court remanded so that the district court could consider in the first instance whether Collins had sufficient evidence of emotional distress to survive summary judgment.    

The Alabama Supreme Court recently held in Tender Care Veterinary Hospital, Inc. v. First Tuskegee Bank, No. 1131078 (Nov. 26, 2014), that standard breach-of-fiduciary duty and fraud claims asserted against a bank are subject to a two-year statute of limitations, which begins to run when the aggrieved party is injured and discovers or should have discovered its injury.

Tender Care Veterinary Hospital, Inc. (“TCVH”) received a loan from First Tuskegee Bank to construct a veterinary clinic and animal hospital. TCVH asserted that First Tuskegee conditioned the loan on TCVH’s agreement to employ PJ Construction and Service, Inc. as the general contractor on the project. TCVH’s president testified that First Tuskegee’s president had assured her that PJ Construction would “do a good job.” First Tuskegee denied that TCVH was required to use PJ Construction as its general contractor in order to receive the loan, and emphasized that the loan agreement made no mention of PJ Construction.

Shortly after construction began, TCVH became concerned about the quality and timeliness of PJ Construction’s performance on the project, which was to be completed in approximately April 2005. Unhappy with the construction, TCVH refused to authorize First Tuskegee to disburse full amounts requested by PJ Construction for work completed, leading to PJ Construction’s cessation of work and eventual abandonment of the project in July 2005. TCVH received approval from First Tuskegee to act as its own general contractor, and thereafter supervised construction and managed subcontractors until the veterinary clinic and animal hospital was completed. However, the business was unprofitable, and TCVH filed a petition for bankruptcy protection in 2007—approximately one year after opening.

In January 2008, First Tuskegee sued TCVH’s owners seeking a judgment based on the personal guaranty agreements they executed in connection with the TCVH loans.  Later that year, First Tuskegee obtained a judgment in the amount of $1,623,285. In April 2009, TCVH moved for and was granted an injunction prohibiting First Tuskegee from selling the TCVH property at a foreclosure sale to allow TCVH 30 additional days to pay off its loans. But the court later permitted First Tuskegee to foreclose on the property after TCVH ultimately failed to pay.

Two years later TCVH obtained leave to amend its complaint to add breach-of-fiduciary-duty and fraud claims against First Tuskegee. TCVH alleged that it was injured by First Tuskegee’s insistence that TCVH use PJ Construction as the general contractor on the project although PJ Construction was not licensed as a general contractor in Alabama and its work product was below what one would expect from a properly licensed general contractor.

After the trial court reinstated the case to its active docket, First Tuskegee moved for summary judgment, arguing that both of TCVH’s claims were time-barred. Specifically, First Tuskegee argued that TCVH’s claims were subject to a two-year statute of limitations and noted that TCVH’s president stated in her deposition that she first learned that PJ Construction was not a licensed general contractor in July 2005 when she took steps to collect on its surety bond; however, TCVH did not initiate action against First Tuskegee until April 2009. The trial court granted First Tuskegee’s motion for summary judgment, finding that TCVH’s claims were time-barred.

On appeal, TCVH argued that its breach-of-fiduciary-duty claim did not accrue until their relationship turned adversarial in early 2009, when First Tuskegee initiated foreclosure proceedings, and that its fraud claim did not accrue until November 2008, which TCVH asserted was when it actually learned that PJ Construction was not a licensed general contractor. The Alabama Supreme Court affirmed, distinguishing TCVH’s breach-of fiduciary-duty claim from fiduciary duty claims involving a trust, where the statute of limitations does not begin running until termination of the trust relationship. In cases alleging a breach-of-fiduciary-duty claim not involving a trust, the statute of limitations begins running when the aggrieved party is damaged and when the party becomes aware of the relevant facts. Here, TCVH’s president acknowledged in her deposition that TCVH was aware of PJ Construction’s allegedly poor quality of work and lack of licensing as a general contractor in July 2005. Because TCVH did not initiate its action against First Tuskegee until April 2009, it claims were barred by the two-year statute of limitations.

In Harris v. Schonbrun, No. 13-15505 (11th Cir. Dec. 10, 2014), the Eleventh Circuit recently held that a waiver of the buyer’s right to rescind that is executed at the same time as a borrower’s loan documents can be a violation of the Truth in Lending Act (“TILA”).  Additionally, the Court explained that, once a court orders rescission under TILA, it must award statutory damages, attorney’s fees, and costs.

Section 1635 of TILA gives home buyers the right to rescind a home mortgage within three business days of the consummation of the transaction.  If the lender does not provide “clear and conspicuous” notice of this right, the borrower has the right to rescind the loan within three years of the transaction.  A borrower can waive her right to rescind, however, but only after the three day period has expired.  In 2009, Darcel D. Fisher Harris took out a loan from Harvey Schonbrun, the trustee of a mortgage investment trust.  At the loan closing, Schonbrun was supposed to provide Harris with two copies of a “clear and conspicuous” notice of her right to rescind.  The parties dispute whether Schonbrun actually provided the required notice.  The parties also dispute whether Harris signed a waiver of her right to rescind at the loan closing.  It is undisputed, however, that Harris signed a waiver with a printed date of October 21, 2009.  But Harris clearly wrote October 16, 2009 next to her signature. 

Two years later, Harris defaulted on her loan and Schonbrun sought to foreclose.  Harris then notified Schonbrun that she was exercising her right to rescind under § 1635.  She contended that Schonbrun had failed to provide her with any notice of her right to rescind and, accordingly, the time to rescind had been extended until October 16, 2012.  When Schonbrun refused to rescind the transaction, Harris sued, seeking rescission, statutory damages, attorney’s fees, and costs.  The parties consented to a bench trial before a federal magistrate judge.  At the trial, the parties presented conflicting testimony.  The trial court found that Schonbrun had not provided the required notice and that Harris had signed the waiver at the same time as her loan documents.  The court ordered rescission of the loan, but refused to award Harris statutory damages, attorney’s fees, and costs, holding that Schonbrun’s violation of TILA was “immaterial” and that rescission was a “sufficient” remedy.      

The parties cross-appealed.  Schonbrun argued that the magistrate judge’s findings of fact were clearly erroneous and that Harris had waived her right to rescind.  Harris argued that the trial court should have awarded statutory damages, attorney’s fees, and costs.  The Eleventh Circuit rejected Schonbrun’s arguments but agreed with Harris.  The Court explained that an appellate court reviews findings of fact only for clear error.  Viewing the record as a whole, the Court said that it was not left with a definite and firm conviction that a mistake had been made.  Turning to Harris’s waiver, the Court held that the post-dated waiver “preclude[d] the possibility of a ‘clear’ disclosure” as required by TILA.  The Court pointed out that a borrower cannot waive her right to rescind a loan transaction until the three-day period has expired.  Because Harris had signed the waiver at the same time as her loan documents, she could have reasonably assumed (as could any reasonable consumer) that she had waived her right to rescind.  Finally, the Court held that the plain language of TILA requires a court to award statutory damages, attorney’s fees and costs after it has found a TILA violation.  The Court remanded the case with instructions for the trial court to determine the amount of statutory damages, attorney’s fees, and costs to award Harris. 

After Harris, Lenders can still provide borrowers with a waiver of their right to rescind at the same time that they sign their loan documents.  However, the waiver must clearly state that the borrower should not sign it until after the three day period has elapsed.  In Harris, the Court noted that such waivers are permissible under Smith v. Highland Bank.  Harris was distinguishable from Smith because the borrower had been instructed to sign (and actually did sign) the waiver at the same time as her loan documents.