Nothing contained in this report is to be considered as the rendering of legal advice for specific cases, and readers

are responsible for obtaining such advice from their own legal counsel. This report is intended for educational and

informational purposes only.

© 2008, 2009, 2010, 2011, 2012 American Bankers Association. Not-for-profit reproduction is authorized

without prior permission provided that the source is credited.

OFFICE OF THE GENERAL COUNSEL

STATUS OF IMPORTANT BANKING CASES

April 2013

NEW THIS MONTH

Page 21 CONSUMER PROTECTION: The Supreme Court holds prevailing debt

collectors suing under the Fair Debt Collection Practices Act do not have to

prove bad faith or harassment by the plaintiff to recover certain costs, Marx

v. General Revenue Corp.

Page 22 CONSUMER PROTECTION: A California appellate court fines Liberty

Tax for unlawfully marketing refund anticipation loans, The People v. JTH

Tax, Inc.

Page 23 CONSUMER PROTECTION: A Nevada state court dismisses 300+ count

indictments against two California title officers in “robo-signing” case,

State of Nevada v. Trafford, Sheppard.

Page 24 CONSUMER PROTECTION: The sixth circuit overturns a nationwide

settlement of three “robo-signing” class actions because the settlement

terms were unfair to the unnamed class members, Vassalle v. Midland

Funding LLC.

Page 25 CONSUMER PROTECTION: U.S. Department of Justice settles its fair

lending lawsuit involving Hispanic borrowers with Texas Champion Bank,

United States of America v. Texas Champion Bank.

Page 52 MORTGAGE/SUBPRIME LENDING: The ABA files an amicus brief

warning about the problems of regulating residential mortgage-backed

securities, Retirement Board of the Policemen’s Annuity and Benefit Fund

of the City of Chicago v. the Bank of New York Mellon.

Page 68 FDIC RECEIVERSHIP: A federal district in D.C. holds that bank

regulators properly closed and seized United Western Bank, , United

Western Bank v. Office of the Comptroller of the Currency.

2

ANTITRUST

1. NACS v. Board of Governors of the Federal Reserve System, (Case

No. 11-cv-02075; United States District Court for the District of Columbia)

Issues and Potential Significance: The retail industry is challenging components of

a final rule adopted by the Board of Governors of the Federal Reserve System

(“Federal Reserve”) in 2011. The final rule established “interchange transaction fees

by implementing Section 920 of the Electronic Fund Transfer Act, Section 1075 of

the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Durbin

Amendment).

The litigation seeks to set aside the Federal Reserve’s debit card interchange rules on

the grounds that they are “arbitrary and capricious” under the Administrative

Procedure Act. The complaint alleges that the interchange rates for debit cards set

by the Federal Reserve were too generous, and that in drafting the final rule the

Federal Reserve ignored the statutory injunction that any debit interchange fee must

be “reasonable and proportional to the cost incurred by the issuer with respect to the

transaction.” The plaintiffs point to the first iteration of the debit card rules –

presented in the Federal Reserve’s Notice of Proposed Rulemaking that was issued

December 28, 2010 – where the Federal Reserve capped the debit card interchange

rate at 12 cents per transaction. The final rule (issued June 28, 2011, and effective

October 1, 2011) increased the maximum permissible interchange fee from the

proposed 12 cents per transaction to 21 cents per transaction (plus 5 basis points

multiplied by the value of the transaction). The plaintiffs argue that the Federal

Reserve’s initial proposal was a more appropriate result because it “largely followed

the letter of the Durbin Amendment.” The plaintiffs contend that the Federal

Reserve was pressured by the banking industry to ignore the limitations of the

Durbin Amendment and increase the amount of the cap by illegally expanding the

categories of transactional costs that could be recovered by an issuer.

This is an important case for the banking industry. While recognizing that the ABA

does not support price controls and that the interchange rules adopted by the Federal

Reserve reduced interchange fee income within the industry by 45 percent from pre-

Dodd Frank levels, it is in the best interests of the banking industry for the ABA to

support the Federal Reserve’s efforts to defend its rulemaking. The intent of this

litigation is to invalidate the price cap based upon an interpretation of the Durbin

Amendment that, if successful, would ultimately force the Federal Reserve to issue

new rules that would push the interchange fee cap back down closer to the 12 cents

per transaction.

Proceedings/Rulings: The complaint was filed on November 22, 2011. On January

24, 2012, the court granted a Motion for Extension of Time to File Answer. The

Federal Reserve Board has been granted a deadline to file an answer by March 2,

2012.

3

On March 2, 2012, Plaintiffs filed an Amended Complaint seeking for declaratory

relief from the Federal Reserve. According to the Amended Complaint, the Federal

Reserve revised its prior determination not to include network switch fees in its

allowable costs by expanding the categories of recoverable costs to a point that far

exceeds its statutory authority under the Durbin Amendment. The complaint alleges

that the Federal Reserve’s interpretation of the statute is unreasonable and, therefore,

invalid under the Administrative Procedure Act. The Plaintiffs are alleging that

portions of the Final Rule are arbitrary, capricious, and an abuse of discretion.

Plaintiffs have also filed a motion for Summary Judgment with the Court that is

based on the same legal theory as the Amended Complaint.

On March 15, 2012, the American Bankers Association joined seven other amici to

file an unopposed motion for leave to file an amicus brief in the case.

On May 11, 2007, Senator Durbin filed an amicus on behalf of the Plaintiffs arguing

that the Board exceeded its statutory authority under the Durbin Amendment.

Oral arguments were heard on October 2, 2012.

2. Brennan v. Concord EFS Inc., et al. (Northern District of California,

Case No. 04-2676) (Ninth Circuit Case No. 10-17354):

Issues and Potential Significance: This case, which has appeared in more issues of

the Banking Docket than any other dispute, involves an antitrust challenge to

“foreign” ATM fees. After seven years, several intermediate rulings, and an

abortive foray to the Ninth Circuit, on September 16, 2010, the trial court dismissed

the case on the merits. The case is now on appeal to the United States Court of

Appeals for the Ninth Circuit.

This is one of a series of putative class-action suits brought in the United States

District Court for the Northern District of California by individuals who paid

“foreign ATM fees.” A “foreign” ATM Transaction” is a cash withdrawal in which

an ATM cardholder uses an ATM owned by an entity other than his or her own

bank.

“Foreign ATM transactions” involve four parties: (1) the “cardholder,” i.e. the

customer who retrieves money from the ATM machine; (2) the “card-issuer

bank,” i.e. the bank at which the customer holds an account and from which the

customer has received an ATM card; (3) the “ATM owner,” i.e. the entity that

owns the ATM machine from which the customer withdraws money on his

account; and (4) the “ATM network,” i.e. the entity that administers the

agreements between various card-issuer banks and ATM owners and thereby

ensures that customers can withdraw money from one network member’s ATM as

readily as from another’s.

4

A single foreign ATM transaction generates up to four different fees. Generally, a

customer must pay two fees – one to the ATM owner for use of that entity’s ATM

machine (known as a “surcharge”) and one to the bank at which he has an account

(known as a “foreign ATM fee”). The card-issuer bank also pays two fees. It pays

one of these fees, known as a “switch fee,” to the ATM Network that routed the

transaction. It pays a second fee, known as an “interchange fee,” to the owner of

the foreign ATM.

Only two of the four fees are involved in this case: the “interchange fee” that the

card issuing bank pays to the ATM owner and the “foreign ATM fee” that the

customer pays to his or her bank for using a foreign ATM. Plaintiffs, a putative

class of bank customers, allege that Defendants, the Star ATM Network and

several large banks, have conspired to illegally fix the interchange fee that the

card-issuer bank pays to the ATM owner. Critically, Plaintiffs do not allege that

Defendants have conspired to illegally fix the foreign ATM fee that customers

pay to their bank when they use a foreign ATM. Instead, Plaintiffs assert that

their banks pay an unlawfully inflated interchange fee and then pass the cost of

the artificially high interchange fee along to their customers through inflated

foreign ATM fees.

The district court dismissed the case on the grounds that the Plaintiffs lack

standing to bring an antitrust claim for damages under the rule set forth in Illinois

Brick Co. v. Illinois, 431 U.S. 720 (1977). In Illinois Brick, the Supreme Court

held that only “direct purchasers,” i.e., those entities that directly pay the

allegedly fixed price, may recover antitrust damages. Id. at 736. The Court

reasoned that allowing “indirect purchasers,” i.e. those entities to whom the direct

purchaser passes on all or part of the cost of the allegedly fixed price, to recover

damages would introduce into antitrust litigation substantial “evidentiary

complexities and uncertainties” over the apportionment of overcharges between

direct and indirect purchasers. Id. at 732; see also Delaware Valley Surgical

Supply Inc. v. Johnson & Johnson, 523 F.3d 1116, 1120-21 (9th Cir. 2008).

Plaintiffs did not dispute that they paid the purportedly unlawful interchange fee

only indirectly. Under their theory, ATM card-issuing banks pay the artificially

inflated interchange fee directly and then, at least according to Plaintiffs, pass

some portion of it on to their customers as part of the foreign ATM fee. The court

concluded that Plaintiffs were “indirect purchasers” and that their claims did not

fall under one of the three accepted exceptions to the direct purchaser rule.

Plaintiffs appealed the dismissal to the Ninth Circuit. The case was argued

December 6, 2011.

Proceedings/Rulings: The plaintiffs allege violations of federal antitrust laws

against several large financial institutions (including VISA and MasterCard, and

Concord EFS, the entity that manages the interchange system among various banks

and ATMs). Those cases are:

5

Pamela Brennan, et al. v. Concord EFS, Inc., et al., 04-2676-SBA

Peter Sanchez v. Concord EFS, Inc., et al., 04-4574-VRW

Deborah Fennern v. Concord EFS, Inc., et al., 04-4575-VRW

Miller v. Concord EFS Inc., et al., 04-4892-VRW

Melissa Griffin, et al. v. Concord EFS, Inc., et al., 05-00220-VRW

Cecilia Salvador, et al. v. Concord EFS, Inc., et al., 05-00382-VRW

Spohnholz v. Concord EFS, Inc., et al., 05-03725 CRB

The Court has consolidated the cases with Brennan as the lead case. By order

dated January 26, 2005, the court stayed the proceedings in the Sanchez, Fennern,

Miller, and Griffin cases.

Given its significance, and the fact that it has been pending for nearly six years,

this case has a long and somewhat tortured procedural history. In 2005, the

District Court ruled that the Plaintiffs’ allegations, if true, would establish that the

Defendants had engaged in illegal price-fixing. See Brennan v. Concord EFS,

Inc., 369 F. Supp. 2d 1127 (N.D. Cal. 2005) (Walker, J.). In its ruling, the

district court first noted that the Plaintiffs’ objection is not to the existence of an

interchange fee, but rather to its fixed nature. The district court also noted that

the Complaint had described a “naked” attempt to fix prices, as opposed to an

attempt to fix price that the Star network members determined was “ancillary” to

a legitimate, procompetitive venture: “In other words, Plaintiffs alleged that

Defendants fixed the interchange fee because they could, not because a fixed fee

was necessary to sustain the ATM network.” Because the Defendants could not

defend against such allegations of “naked price fixing” without invoking evidence

that was beyond the scope of the Complaint, the Court denied the motion to

dismiss.

Shortly after the ruling on the motion to dismiss, Defendants filed a motion for

partial summary judgment. The Court issued a Memorandum and Order on

November 30, 2006 directing the parties to address the fundamental question of

whether a “per se” antitrust analysis applies to this case. The district court

observed that “if Defendants can set forth evidence to support plausible,

procompetitive justifications for their agreement to fix the interchange fee,” then

the “per se” rule would not apply.

Defendants moved for summary judgment on August 3, 2007, having adduced

evidence bearing on the applicability of the per se rule. In an order issued on

March 24, 2008, the Court granted Defendants’ motion and held that the “rule of

reason” analysis applies to this case, thereby determining that the price-fixing

challenged by Plaintiffs is not the kind of “naked” horizontal restraint that lacks

any redeeming virtue. In re ATM Fee Antitrust Litig., 554 F. Supp. 2d 1003,

1016-17 (N.D. Cal. 2008). The district court concluded that Plaintiffs’ challenge

to Defendants’ setting of a fixed interchange fee must be analyzed under the “rule

of reason” because it challenged a “core activity” of the defendants’ joint venture,

6

citing the Supreme Court decision in Texaco Inc. v. Dagher. Moreover, the

District Court found that the interchange fee is reasonably ancillary to the

legitimate cooperative aspects of a joint venture that requires horizontal restraints

if the venture’s product is to be available at all.

Given substantial uncertainty in the law regarding which mode of analysis to

apply, the trial court certified for appeal the threshold issue of whether the per se

or “rule of reason” should be employed in this case. The Ninth Circuit, however,

declined to hear the case.

Plaintiffs subsequently filed a Second Amended Complaint. The Defendants, in

turn, moved to dismiss it on a number of grounds, including that Plaintiffs had

failed to properly allege a relevant market, as required by antitrust law. In their

Second Amended Complaint, Plaintiffs had defined the relevant market as the

“provision of Foreign ATM Transactions routed over Star,” which they identified

as “wholly derivative from and dependent on the market for deposit accounts.”

The Defendants maintained that this single-brand, derivative aftermarket failed as

a matter of law because the Second Amended Complaint lacked any allegations

that consumers were locked into their deposit account relationship. Such lock-in

was, in Defendants’ view, a prerequisite to a finding that a derivative aftermarket

exists.

In an order issued September 2009, the district court granted Defendants’ motion

to dismiss the Second Amended Complaint. The Court agreed with Defendants

that the existence of customer “lock-in” was a crucial component of a derivative

aftermarket theory and that Plaintiffs had failed “to plead a viable theory

suggesting that once a customer signs up for a bank account, he is ‘locked in’ to

that bank’s services.” Because Plaintiffs informed the Court at oral argument that

they could add such allegations to a subsequent complaint, the district court

granted the Defendants’ motion with leave to amend.

On October 16, 2009, Plaintiffs filed their Third Amended Complaint. The

Defendants alleged the existence of a second, broader relevant market, composed

of all “ATM Networks,” rather than just the Star Network. Second, in an attempt

to bolster their argument in support of a derivative aftermarket composed of only

those transactions routed over the Star Network, the Defendants attempted to

identify a number of alleged “monetary and non-monetary” switching costs that

“economically lock in [bank customers to] their deposit accounts.”

On May 14, 2010, the court held oral argument on the Defendants’ motion to

dismiss the Third Amended Complaint. These motions argued that neither of

Plaintiffs’ two alleged relevant markets is legally cognizable under antitrust law.

On June 21, 2010, the Court issued an order denying in part and granting in part

Defendants’ joint motion to dismiss. The Court agreed with Defendants that

Plaintiffs’ single-brand, derivative aftermarket theory fails as a matter of law.

7

However, the district court also found that Plaintiffs’ “all ATM Networks” market

was both plausible and sufficiently pled. In particular, the district court found that

Plaintiffs “have sufficiently alleged that the Defendants and Star possess market

power in this broader market.” The district court found that the “Plaintiffs allege,

in detail, that Defendants have set interchange fees at a level that is well above

their costs and have maintained these supracompetitive prices (and the resulting

profits) for many years.” The District Court concluded that “[i]f true, this

prolonged period of substantially-above-cost pricing provides a strong indication

that the Defendants and Star possess market power in the ATM Networks

market.”

By separate order dated June 21, 2010, the district court indicated that it “wishes

to proceed to summary judgment on the limited issue of whether Plaintiffs lack

standing to bring an antitrust claim for damages under the rule set forth in Illinois

Brick Co. v. Illinois, 431 U.S. 720 (1977).” At oral argument on the Motion to

Dismiss, the Defendants stated that there are members of the Star Network that

consistently pay out more in Interchange Fees than they receive. The Court asked

for briefs on this issue, and specifically asked the Defendants to “identify

evidence supporting this assertion and explain why these direct purchasers do not

fall within the recognized exceptions to the Illinois Brick rule.”

On September 16, 2010, the court granted Defendants’ motion for summary

judgment. As discussed above, the court ruled that the Plaintiffs lack standing to

bring a claim for damages under the Illinois Brick rule.

The case was argued on December 6, 2011.

On July 12, 2012, the Ninth Circuit upheld the district court’s dismissal on the

grounds that Plaintiffs lacked standing to bring the antitrust claim. The Ninth

Circuit determined that the Plaintiffs were indirect purchasers and therefore

prohibited from asserting an antitrust claim.

On July 26, 2012, Plaintiffs filed a petition for rehearing and a petition for

rehearing en banc.

On March 13, 2013, the ninth circuit denied the petition for rehearing and

the petition for rehearing en banc. The court issued its mandate on March

25, 2013.

3. Robert Ross v. Bank of America, et al., (Case No. 05-cv-7116,

United States District Court for the Southern District of New York).

Issues and Potential Significance: This case presents a class action brought by

holders of credit cards containing mandatory arbitration clauses. The complaint,

which was filed in the United States District Court for the Southern District of

New York, alleges that the defendant banks illegally colluded to force cardholders

8

to accept mandatory arbitration clauses and class action waivers in their

cardholder agreements in violation of the Sherman Act.

The Plaintiffs set forth two antitrust claims. The first claim alleges a conspiracy

to impose mandatory arbitration clauses in violation of Section 1 of the Sherman

Act, 15 U.S.C. § 1. The second claim alleges that the banks participated in a

group boycott by refusing to issue cards to individuals who did not agree to

arbitration, also in violation of Section 1.

If successful, this litigation would invalidate the arbitration clauses contained in

the credit card agreements at issue in this case. The Complaint seeks the entry of

an order enjoining the banks from continuing their alleged “collusion” relating to

arbitration clauses, invalidating the existing mandatory arbitration clauses, and

forcing the Appellants to withdraw all pending motions to compel arbitration. See

15 U.S.C. § 26. It would also provide a troubling precedent – attacking the

industry-wide use of arbitration provisions using via the antitrust statutes.

Proceedings/Rulings: On September 20, 2006, the district court dismissed the

Complaint on the grounds that the cardholders had failed to establish standing

under Article III of the Constitution. In re Currency Conversion Fee Antitrust

Litig., No. 05 Civ. 7116 (WHP), 2006 U.S. Dist. LEXIS 66986 (S.D.N.Y. Sept.

20, 2006). The district court’s decision acknowledged certain of the antitrust

injuries asserted by the cardholders, but ultimately agreed with the banks that

these injuries were entirely speculative and, therefore, insufficient to establish

Article III standing. Specifically, the district court found that the cardholders’

injuries are “contingent on their speculation that someday (1) Defendants may

engage in misconduct; (2) the parties will be unable to resolve their differences;

(3) Plaintiffs may commence a lawsuit; (4) the dispute will remain unresolved;

and (5) Defendants will seek to invoke arbitration provisions.” Id. at *14-15.

Further, the district court found that any “alleged anticompetitive effects are

inchoate.”

The Second Circuit took up the case to consider whether the presence of

mandatory arbitration clauses found in credit card contracts issued by the

Appellees, if one assumes that they are the product of illegal collusion among

credit providers, can give rise to a cognizable “injury in fact.”

In a decision issued April 25, 2008, the Second Circuit reversed the district court,

finding that the complaint adequately alleged a harm that satisfied Article III of

the Constitution. The Court found that -

[t]he harms claimed by the cardholders, which lie at the heart of

their Complaint, are injuries to the market from the banks’ alleged

collusion to impose a mandatory term in cardholder agreements,

not injuries to any individual cardholder from the possible

invocation of an arbitration clause. The antitrust harms set forth in

9

the Complaint – for example, the reduction in choice for

consumers, many of whom might well prefer a credit card that

allowed for more methods of dispute resolution – constitute

present market effects that stem directly from the alleged collusion

and are distinct from the issue of whether any cardholder’s

mandatory arbitration clause is ever invoked. The reduction in

choice and diminished quality of credit services to which the

cardholders claim they have been subjected are present anti-

competitive effects that constitute Article III injury in fact.

Significantly, the Court did not address the merits of the cardholder’s claims or

whether the cardholders’ alleged injuries would survive a heightened antitrust

standing analysis. The Court noted, however, that “there is no heightened

standard for pleading an injury in fact sufficient to satisfy Article III standing

simply because the alleged injury is caused by an antitrust violation.” While it

recognized that Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007), requires a

heightened pleading standard “in those contexts where [factual] amplification is

needed to render [a] claim plausible,” plausibility is not at issue in the case

because the Court was only considering the adequacy of the cardholder’s Article

III standing.

The case was remanded back to the district court for further proceedings.

On January 21, 2009, the district court denied Discover’s motion to dismiss for

lack of Article III standing and antitrust standing, finding that the plaintiffs had

successfully tied Discover’s conduct to their alleged harm. The district court

found that the plaintiffs had adequately plead sufficient facts to support their

claims –the occurrence of alleged meetings between the defendants (including

times and purpose of those meetings), the specific product of the alleged

conspiracy, and the claimed anti-competitive effect. With respect to “anti-trust”

standing, the court concluded that the complaint alleged sufficient anti-trust injury

(reduced choice and diminished quality of credit card services) and that the class

is an “efficient enforcer.”

On October 6, 2009, the Court granted a class certification pursuant to Rule

23(b)(2) that was reached via a stipulation between the parties. The class

includes:

“A class consisting of all persons holding during the period in suit

a credit or charge card under a United States cardholder agreement

with any of the Bank Defendants (including, among other cards,

cards originally issued under the MBNA, Bank One, First USA

and Providian brands), but not including members of the proposed

Subclass, subject to an arbitration provision relating to their cards.

A subclass consisting of all persons holding during the period in

suit a credit card under a United States cardholder agreement with

Discover Bank, which cardholders have not previously

10

successfully exercised their right to opt-out of the Arbitration of

Disputes.”

On October 22, 2009, the Court granted final approval of a proposed settlement

between the parties. The settlement embodied terms of a previous Stipulation and

Settlement Agreement that was reached between the parties as the result of

mediation in 2005 - 2006. The terms of the settlement include the creation of a

fund ($336 million) with which to pay class members and counsel, and an

agreement by the bank defendants to enhance their disclosures concerning foreign

transaction fees.

On December 18, 2009, the Court received and docketed the settlement

agreements between the class and defendants J.P. Morgan Chase, Bank of

America, and Capital One. A conference with the settling parties was scheduled

for January 8, 2010.

On January 15, 2010, the Court issued a scheduling order governing the approval

of settlements with a number of the defendants (including Bank of America,

Capital One, Chase, and HSBC).

On January 18, 2010, the Court dismissed the motion to dismiss the first amended

class action complaint filed by the National Arbitration Forum.

On February 9, 2010, the court issued a scheduling order directing The National

Arbitration Forum’s opposition to the class certification to be filed on or before

May 28, 2010. Class Plaintiffs were required to respond to the opposition on or

before July 2, 2010.

Defendants Bank of America, N.A., JP Morgan Chase & Co., Chase Bank USA,

N.A., Capital One Bank (USA), N.A., HSBC Finance Corporation and HSBC

Bank Nevada, N.A., were all granted a preliminary order approving a class action

settlement on March 18, 2010.

On March 22, 2010, the court ordered non-settling parties to appear for a status

conference on May 14, 2010. The status conference was later changed to May 21,

2010.

On June 1, 2010, class plaintiffs filed their motion final approval of the

settlements with Bank of America, Capital One, Chase and HSBC.

On June 21, 2010, the Court issued an order closing fact discovery in the case on

June 30, 2010.

On July 22, 2010, the court issued a final judgment and order dismissing the

claims against Bank of America, N.A., JP Morgan Chase & Co., Chase Bank

USA, N.A., Capital One Bank (USA), Capital One Bank, N.A., HSBC Finance

11

Corporation, and HSBC Bank Nevada, N.A., on the merits and with prejudice,

according to the terms of the settlement agreement among Plaintiffs and the

above-named Defendants.

On August 19, the Court issued a revised scheduling order to see the case through

the remainder of fact discovery and discovery related to expert witnesses for the

remaining parties.

On May 10, 2011, the parties filed cross motions for summary judgment with

respect to the Citi and Discover defendants. Opposition to these motions was

filed on July 12, 2011. Oral argument was heard on November 7, 2011.

On December 13, 2011, class plaintiffs finally reached a settlement agreement

with the National Arbitration Forum. The court has scheduled a hearing on entry

of a Final Judgment and Order of Dismissal for April 27, 2012, where the court

will consider whether the settlement, on the terms and conditions of the

Settlement Agreement, is “fair, reasonable and adequate.” Based on that hearing,

the court will issue a final approval.

On February 8, 2012, the Court granted Plaintiffs motion for summary judgment

as to Citigroup’s sixth affirmative defense and denied the motion for summary

judgment of Defendants Citigroup and Discover – the two remaining defendants

in the case.

On March 6, 2012, the Court issued a revised order scheduling oral arguments for

pending motions on June 4, 2012, and the trial on January 7, 2013.

On March 16, 2012, a number of settlements were proposed. The proposed

stipulation and agreement of settlements are between JPMorgan Chase, Capital

One Bank, Bank of America, and HSBC Bank.

On March 22, 2012, Class Plaintiffs filed a motion for final approval of class

action settlement with the National Arbitration Forum.

On April 30, 2012, a final judgment and order of dismissal was issued with

respect to Defendant National Arbitration Forum.

On August 3, 2012, the court ordered that all filings not subject to a claim of

privilege, as well as discovery documents in the case, be made available to

American Express, Citi and Discover, in accordance with the April 21, 2009

stipulated confidentiality order.

On September 11, 2012, the court denied the plaintiffs’ motion to empanel an

advisory jury. Courts typically empanel an advisory jury only if 1) at least one of

the claims to be tried has facts in common with another claim that will be tried to

a jury as a matter of right; and, 2) when certain “special factors” suggest that a

12

jury composed of members of the community would provide the court with

valuable guidance in making its own findings and conclusions. Plaintiffs did not

meet either of the requirements to empanel an advisory jury.

On February 7, 2013, the court held a trial in this matter after which it issued a

schedule as follows: The parties were ordered to submit proposed findings of fact

and conclusions of law, and any other post-trial memoranda by March 19, 2013;

and all parties must submit any responsive findings of fact and conclusions of

law, and any opposing memoranda by April 16, 2013. Closing and oral arguments

are scheduled for May 3, 2013.

4. National ATM Council, Inc. et al., v. VISA Inc. et al., Cases No. 11-

01803, 11-01831, 11-01882 (United States District Court for the District of

Columbia).

Issues and Potential Significance: On February 13, 2013, U.S. District Court

Judge Amy Jackson dismissed the lawsuits alleging that Visa Inc., MasterCard

Inc., JPMorgan Chase, Bank of America, and Wells Fargo violated the Sherman

Act by conspiring to set ATM fees. The plaintiffs consisted of several consumers

and 13 owners of independent non-bank ATMs. The plaintiffs alleged that Visa

and MasterCard contracts prevented ATM operators from offering lower prices on

other networks.

Proceedings/Rulings: In a 37-page opinion, the court found that the plaintiffs

failed to adequately show that they were harmed by Visa and MasterCard’s ATM

fee policies or demonstrate that there was a conspiracy to unlawfully set fees.

Section 1 of the Sherman Act makes “every contract, combination in the form of

trust or otherwise, or conspiracy, in restraint of trade or commerce,” illegal. To

prove a violation of Section 1, a party must be able to show that not only does

such an agreement exist, but that the agreement exists with the intent to restrain

trade.

The plaintiffs are expected to file an amended complaint.

5. In re: Payment Card Interchange Fee and Merchant Discount

Antitrust Litigation, (Case No. 1:05-md-01720-JG-JO)(Eastern District New

York).

Issues and Potential Significance: This is a consolidation of many individual

lawsuits brought by a number of retail merchants against Visa USA, MasterCard,

Inc., and dozens of major banks. Each of these lawsuits alleges that the defendant

banks and credit card issuers colluded to set excessive credit card fees in violation

of applicable federal antitrust laws. These cases were consolidated into this

multi-district proceeding after a ruling from the Multidistrict Litigation Panel on

October 19, 2005.

13

The litigation challenges the process by which the credit card industry sets

interchange fees paid by retail merchants to issuing banks in order to receive

payments for transactions on the banks’ cards. The complaints allege that the

“contracts, combinations, conspiracies, and understandings” allegedly entered into

by the numerous defendants “harm competition” and cause retail merchants to

“pay supra-competitive, exorbitant, and fixed prices for General Purpose Network

Services, and raise prices paid by all of their retail customers.” The suit seeks

damages, as well as declaratory and injunctive relief.

This litigation presents a significant challenge to the fundamental pricing structure

of the credit card system. The Plaintiffs allege that the Bank Defendants, by

virtue of their control over the boards of directors of MasterCard and Visa, dictate

the amount charged as interchange fees for each network. Further, because so

many banks are members of both boards, they “ensure that the Interchange Fees

of Visa and MasterCard increase in parallel and stair-step fashion, rather than

decreasing in response to competition from each other.” The plaintiffs also

challenged the networks’ “Anti-Steering Restraints,” a group of rules promulgated

by both Visa and MasterCard which they claim prevents merchants from

encouraging customers to use less expensive forms of payment. The complaint

also alleges that that Visa has engaged in monopolization in violation of Section 2

of the Sherman Act and that both MasterCard and Visa have engaged in

prohibited tying and exclusive dealing arrangements.

Proceedings/Rulings: Due to their size and complexity, the progress of this

litigation through the district court system has been relatively slow. Matters were

further complicated when, in May 2006, defendant MasterCard announced an

IPO, in which it proposed to sell approximately 60 million shares of MasterCard

Class A common stock to the public. To effectuate this offering, MasterCard first

redeemed and reclassified all of its outstanding common stock, approximately 100

million shares, then held by its member banks.

On May 22, 2006, Plaintiffs filed a supplemental complaint based on the IPO.

The Supplemental Complaint contends that the MasterCard IPO was a pretext

designed to insulate the company from the prohibitions of Section 1 of the

Sherman Act. Specifically, the Supplemental Complaint alleges that the

agreements leading to the IPO constitute a conspiracy in restraint of trade in

violation of Section 1 of the Sherman Act, and that the stock transfers by which

the IPO is effected violate Section 7 of the Clayton Act. The Plaintiffs also argue

the transaction constitutes a fraudulent conveyance under New York law.

On November 25, 2008, Judge Gleeson issued a memorandum opinion granting

the Defendants’ motions to dismiss Plaintiffs claims based on the IPO in their

entirety, rejecting (for now) plaintiffs’ claims that the initial public offering of

MasterCard stock violated both federal antitrust law and state fraudulent

14

conveyance law. The Court, however, granted plaintiffs leave to amend their

complaint to address a number of issues identified in the Court’s opinion.

Plaintiffs filed a Second Supplemental Class Action Complaint on February 20,

2009, supplementing its claims to encompass the restructuring of VISA via an

IPO in March of 2008.

At a hearing held April 16, 2009, Judge Orenstein reserved his decision on (1)

whether to grant defendants’ request for a hearing on the class Plaintiffs’ motion

for class certification, and (2) plaintiffs’ motion to consolidate the pending Rule

12(b)(6) and Rule 56 motions.

As reported by the parties in their joint status report filed on July 2, 2009, the

following dispositive motions are still pending before the court:

1. Motion to Dismiss the Second Consolidated Amended Class Action

Complaint;

2. Motion to Dismiss the First Amended Supplemental Class Action

Complaint; and

3. Motion to Dismiss the Second Supplemental Class Action Complaint.

Oral arguments on Defendants’ motion to dismiss were rescheduled for

November 18, 2009. The court also heard arguments on the Class Plaintiffs

motion for class certification, and defendants’ motion to strike expert testimony

on November 19, 2009.

Judge Orenstein heard oral arguments on November 23, 2009, and is reserving a

ruling on the pending motions.

Discovery in this case took an interesting path: the European Union (EU) filed an

amicus brief with the court urging confidential treatment for two documents

prepared in connection with its own investigation of Visa and MasterCard. In an

order dated August 27, 2010, the court denied the motion to compel the

production of the EU documents. According to the court, the law of international

comity mandates “an exception to usual rule that all relevant information is

discoverable.”

On October 21, 2010, the Court issued a minute order requesting that the parties

confer on (1) the potential impact of the enactment of the Dodd-Frank Wall Street

Reform and Consumer Protection Act, and (2) the proposed settlement of the

government's claims against the Network Defendants in United States v.

American Express Company, et al., 10-CV-4496 (NGG) (CLP) (see below).

15

On July 7, 2011, the bank defendants filed a comprehensive motion for summary

judgment (546 pages) to dismiss the Second Consolidated Amended Class Action

Complaint.

Judge Gleeson heard oral arguments regarding the parties' summary judgment

motions on November 2, 2011. The parties are still awaiting a decision.

On February 12, 2012, a status report order was issued by the judge.

On September 11, 2012, the court held a status hearing to hear objections to the

preliminary approval of the approved settlement. A second conference is

scheduled for September 27, 2012.

On October 19, 2012, Plaintiffs filed a second amended complaint against

MasterCard Incorporated.

6. United States v. American Express Company, (Case No. 10-CV-

4496) (United States District Court for the Eastern District of New York).

Issues and Potential Significance: The United States and a number of state

Attorney Generals allege that American Express, MasterCard and Visa have each

adopted rules that restrain merchants from encouraging consumers to use

preferred payment forms, which they argue is a violation of Section 1 of the

Sherman Act. The case is a “related matter” to the class action that is pending in

the Eastern District of New York, In re: Payment Card Interchange Fee and

Merchant Discount Antitrust Litigation (see above).

The Department of Justice filed a civil antitrust lawsuit in U.S. District Court for

the Eastern District of New York challenging rules that American Express,

MasterCard and Visa have in place that, in its view, prevent merchants from

steering customers to other less-expensive credit/debit products. The complaint

alleges that Amex/Visa/MasterCard rules prohibit merchants from offering

discounts or other incentives to consumers in order to encourage them to pay with

credit cards that cost the merchant less to accept. DOJ’s suit alleges that because

rules prevent merchants from offering consumers discounts, rewards and

information about card costs, the merchants’ cost of business increased and that

increase was then passed along to the consumer. Joining DOJ in its lawsuit are

the states of Connecticut, Iowa, Maryland, Michigan, Missouri, Ohio and Texas.

Simultaneously with the filing, DOJ announced that it reached a settlement with

Visa and MasterCard. As approved by the Court, the settlement requires

MasterCard and Visa to allow their merchants to:

Offer consumers an immediate discount or rebate or a free or discounted

product or service for using a particular credit card network, low-cost card

within that network or other form of payment;

16

Express a preference for the use of a particular credit card network, low-

cost card within that network or other form of payment;

Promote a particular credit card network, low-cost card within that

network or other form of payment through posted information or other

communications to consumers; and

Communicate to consumers the cost incurred by the merchant when a

consumer uses a particular credit card network, type of card within that

network, or other form of payment.

The settlement allows any merchant that only accepts Visa and MasterCard to

take advantage of the relief immediately.

Proceedings/Rulings: The Department of Justice filed its complaint on October

4, 2010. On the same day, it filed a proposed stipulation of settlement with Visa

and MasterCard.

The case is likely to have a number of other similar litigations involving

American Express join the current action via the Multi-District Panel.

On December 20, 2010, plaintiffs filed an amended complaint against American

Express Company, American Express Travel Related Services, MasterCard

International and Visa, Inc. The complaint adds a number of additional states as

plaintiffs. States participating in the litigation are: Arizona, Connecticut, Hawaii,

Idaho, Illinois, Iowa, Maryland, Michigan, Missouri, Montana, Nebraska, New

Hampshire, Ohio, Rhode Island, Tennessee, Texas, Utah, and Vermont.

On July 20, 2011, the court entered final judgment approving the settlement

between the Department of Justice and Visa and MasterCard.

Also of interest, American Express and the United States have crafted a stipulated

order governing the “Preservation and Production of Documents and

Electronically Stored Information.” This order provides practitioners with an

example of how the United States approaches e-discovery issues in complex

cases.

On March 23, 2012, a status conference was held. Another status conference was

held on June 5, 2012.

7. Pinon, et al. v. Bank of America, (Case No. 08-15218, United States

Court of Appeals for the Ninth Circuit).

Issues and Potential Significance: On January 31, 2007, plaintiffs filed a class

action complaint against a number of national banks doing business in California.

Plaintiffs in this case, credit card customers located in California, contend that a

number of banks/ credit card issuers have conspired to impose penalty fees on credit

card customers that are (1) improbably uniform, and (2) legally excessive. The suit

17

alleges that the penalty fees violate the National Bank Act, the Sherman Act

(antitrust), and various provisions of the California Code.

One of the foundational legal theories in this litigation is that excessive fees

allegedly charged by the National Bank defendants brush up against the

constitutional limits of punitive damages under the Due Process clause. Plaintiffs

also allege that the defendant banks have conspired to "fix prices and maintain a

price floor for late fees" in violation of the Sherman Act.

The suit also identifies various other “firms, corporations, organizations, and other

business entities, some unknown and others known, not joined as defendants” as

“co-conspirators.” These “co-conspirators” include “financial institutions that issue

credit cards, payment industry media, third-party processors such as First Data

Resources(“FDR”) and Total Systems Services, Inc. (“TSYS”) that process payment

card transactions, credit card industry consultants, trade associations such as the

American Bankers Association, and the two major credit card networks, Visa U.S.A.

(“Visa”) and MasterCard International, Inc. (MasterCard.).”

The district court’s dismissal of the case in late 2007 indicates that the Plaintiffs’

very aggressive legal theories are not viable as a matter of law. The case is

currently on appeal to the Ninth Circuit, where proceedings remain stayed as a

result of the bankruptcy of Washington Mutual’s parent holding company.

Proceedings/Rulings: Three additional class actions were filed in the District

against the same defendants alleging substantially the same facts and causes of

action. (Case No. C-07-0772-SBA; Case No. C-07-1113-SBA; and Case No. C-

07-1310-MMC). The parties stipulated to a consolidation of these four cases, and

an amended/consolidated complaint was filed on May 8, 2007.

On November 16, 2007, the district court dismissed the complaint without

prejudice. The Court rejected plaintiff’s theory that defendants’ penalty fees

constitute punitive damages subject to limitation under the Due Process Clause

because they significantly exceed any actual damages that the defendants incur.

Plaintiffs argued that the court must interpret federal banking statutes, principally

the National Bank Act to incorporate Due Process limits on credit card late and

overlimit fees. They also asserted that the remedial provisions of the banking

statutes, such as 12 U.S.C. § 86, provided a cause of action for such allegedly

excessive fees. The Court disagreed, finding that the Due Process Clause was not

implicated because the fees are not imposed by a court nor are they penalties

“advanc[ing] governmental objectives” to protect against behavior that harms the

“general public.” Rather, they are paid by one party to another pursuant to private

contract. The Due Process Clause constrains government action; it does not

restrain or protect against private conduct.

The court also concluded that plaintiffs failed to allege sufficient facts to support

their claims of price-fixing under the Sherman Act or California’s Cartwright Act.

18

Finally, the Court also dismissed plaintiffs state law claims alleging violations of

the California Unfair Competition Law (UCL) (CAL. BUS. & PROF. CODE §§

17200 et seq.); the Consumers Legal Remedies Act (CLRA) (CAL. CIV. CODE

§§ 1750 et seq.); breach of the covenant of good faith and fair dealing; and unjust

enrichment.

The complaint was dismissed without prejudice. Plaintiffs were granted leave to

submit an amended complaint that would be viable under the law as stated in the

court’s order, if they can do so in good faith. Plaintiffs, however, notified the

court that they did not intend to file an amended complaint. On January 4, 2008,

the Court dismissed the case with prejudice.

On January 30, 2008, Plaintiffs appealed to the Ninth Circuit. On November 4,

2008, Appellee Washington Mutual moved the court to substitute JP Morgan

Chase Bank, N.A. in its place. JP Morgan Chase purchased the assets and

liabilities of Washington Mutual after a receiver was appointed for the latter

institution in September, 2008.

On August 2, 2012, the parties filed a joint motion to dismiss Washington Mutual

from the case. Washington Mutual has filed for Chapter 11 bankruptcy protection.

The Ninth Circuit has stayed all proceedings as a result.

ARBITRATION

8. American Express Company, et al., v. Italian Colors Restaurant, et

al., Case No. 12-133 (U.S. Supreme Court).

Issues and Potential Significance: This class action arbitration suit is back on the

ABA docket after the Supreme Court vacated and remanded the case back to the

Second Circuit “for further consideration” given Court’s decision in Stolt-Nielsen

S. A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010). Stolt-Nielsen held that

the Federal Arbitration Act prohibits compelling a party to submit to arbitration

absent contractual evidence that the party agreed to do so.

Proceedings/Rulings: This case was originally brought in the United States

District Court for the Southern District of New York, contending that Amex’s

merchant contracts contained illegal “tying” arrangements, in violation of Section

1 of the Sherman and Clayton Acts. The merchant agreements which contain

mandatory arbitration provisions prohibit arbitration on a class-wide basis. Amex

moved to compel plaintiffs to arbitrate their claims, and sought to dismiss

plaintiffs’ complaints or stay the proceedings pending arbitration.

In 2006, the district court granted Amex’s motion to compel arbitration. The

plaintiffs appealed the decision to the Second Circuit.

19

On January 30, 2009, the Second Circuit ruled that the class action waiver

provision in the merchant agreement was unenforceable because to make it

enforceable would grant Amex de facto immunity from antitrust liability by

removing the plaintiffs’ only reasonably feasible means of recovery.

On May 29, 2009, Amex filed a Petition for a Writ of Certiorari to the United

States Supreme Court. The ABA filed an amicus brief in support of the petition

on June 26, 2009.

On May 3, 2010, the Court granted the petition for a writ of certiorari and

summarily vacated the Second Circuit’s judgment and remanded the case back to

the Second Circuit for further consideration in light of the Supreme Court’s

decision in Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010).

On February 1, 2012, the Second Circuit refused to enforce American Express’

(Amex) class arbitration waiver for a third time in Amex III. The Second Circuit

concluded that the recent Supreme Court decision AT&T Mobility v. Concepcion

did not alter its ruling. The plaintiffs in Concepcion were consumers challenging

the class arbitration waivers in their cellular phone contracts. The plaintiffs

claimed that a California common law rule held that arbitration clauses containing

class waivers in certain consumer contracts were unenforceable when individual

damages are small. However, the Supreme Court held that the class arbitration

waivers were valid because the Federal Arbitration Act preempted the California

common law rule. Despite the Concepcion holding, the Second Circuit still held

that Amex’s class arbitration waiver violated antitrust laws, and was therefore

unenforceable.

On May 29, 2012, the Second Circuit denied AMEX’s petition for rehearing en

banc with five judges dissenting.

On July 30, 2012, Amex filed a Petition for a Writ of Certiorari to the United

States Supreme Court. The ABA filed an amicus brief in support of the petition

on August 22, 2012.

On November 9, 2012, the Court granted the Petition for a Writ of Certiorari.

On December 28, 2012, the American Bankers Association filed an amicus brief

in support of American Express.

Oral arguments were held on February 27, 2013.

ATM DISCLOSURES

9. The Electronic Fund Transfer Act (EFTA) and its implementing

regulations have spawned a new sub-genre of class action litigation that targets

20

community banks: lawsuits over whether a bank’s ATM has properly disclosed

the operator’s fee structure.

The past 12 months has seen a small explosion in the number of suits that have

been filed. For example, one particular law firm in Texas has filed approximately

60 individual actions in federal courts across Texas, Alabama, and Tennessee.

One especially efficient attorney in Pennsylvania is cutting out the middleman,

filing several suits on her own behalf. And in 2012, eleven suits have been filed

between September and October by a single plaintiff in New York against

community banks in Tennessee.

The EFTA caps class action damages at the lesser of $500,000 or 1% of the net

worth of a defendant (plus attorney fees and costs). The statute also provides a

defendant with excellent grounds to respond should they choose to contest the suit

rather than settle. For example, ATM operators are not liable for damages if –

The required notice was removed as a result of vandalism or other acts by

third parties;

The alleged violation was not intentional and resulted from a bona fide

error; or

The bank can demonstrates a good faith attempt at compliance with any

rule, regulation, or interpretation by the Board of Governors of the Federal

Reserve Board.

These last two points are of particular importance to state chartered non-Member

institutions. At least one institution has successfully raised the FDIC’pre-2009

interpretation of the EFTA’s disclosure requirements as a defense to an alleged

failure to provide “on machine” notice. See Dover v. Union Building and Loan

Savings Bank.

In a May 2011 case, Riviello v. Pennsylvania State Employees Credit Union, the

Plaintiff sued the Pennsylvania State Employees Credit Union (“PSECU”) for

operating an ATM that violated the EFTA. The case was filed in the Middle

District of Pennsylvania. The Court granted PSECU’s motion for summary

judgment because the Plaintiff failed to present any evidence that disputed

PSECU’s version of the facts that the ATM notice had been removed by a third

party. Rendering its opinion, on March 28, 2012, the Court ruled that while the

defendants presented a complete defense to liability by submitting affidavits and

photographs, Plaintiff did not. The Court noted that PSECU successfully

established that the Plaintiff failed to substantiate his claim with evidence.

On June 19, 2012, the ABA and nine other trade associations submitted a letter to

the House Committee on Financial Services seeking the passage of legislation that

would eliminate the “unnecessary and duplicative” ATM fee disclosure. The

panel considered the bill on Wednesday, June 26, 2012. The bill, H.R. 4367

passed the legislation on July 9, 2012.

21

On Friday, December 21, 2012, the president signed into law the bill that will

repeal the outdated, and duplicative requirement that a placard must be attached to

ATMs announcing that a fee may be charged. The bill (H.R. 4367) was cleared

for enactment by the Senate on Tuesday, December 11, 2012.

10. The Americans with Disabilities Act (ADA) has set new standards

for ATM operators across the country. On March 15, 2012, all ATMs were

required to comply with the 2012 ADA Accessibility Standards. The revised law

requires that all ATMs be equipped with speech-enabled technology, headset

jacks, and other items so visually-impaired customers can use the machines

without assistance. Due primarily to vendor delays, several ATMs have not yet

been upgraded to comply with the new law. Consequently, several banks,

primarily in Ohio and Pennsylvania, have been sued by private litigants for non-

compliance. Plaintiffs may seek injunctive relief (a court order requiring that the

ATM be made compliant) and attorneys’ fees. However, under the ADA private

litigants are only entitled to attorneys’ fees if they are deemed a “prevailing” party

by the court.

On June 15, 2012, a Pennsylvania federal judge dismissed a suit brought by the

same Plaintiff in Riviello v. Pennsylvania State Employees Credit Union. The suit

alleged that the Philadelphia Federal Credit Union violated the fee disclosures

requirements of the Electronic Funds Transfer Act and the handicapped

provisions of the Americans with Disabilities Act because Philadelphia FCU

failed to post a fee placard that was adequately suitable to its sight-impaired,

legally blind customers. The suit alleged that the notices were “too small.”

Riviello v. Philadelphia Federal Credit Union. The court dismissed the case

ruling that the disclosure notice posted by Philadelphia Federal Credit Union was

sufficient to meet the provisions of the EFTA because Plaintiff had no problem

completing his transaction due to his alleged disability. A plaintiff is limited to

claims regarding violations relating to his/her particular disability and as such,

plaintiff could not prevail on his claims on the grounds that some blind consumers

would not be able to read the notice.

CONSUMER PROTECTION

* 11. Marx v. General Revenue Corp., (United States Supreme Court;

Case No. 11-1175)

Issues and Potential Significance: On February 26, 2013, the Supreme Court

held that prevailing debt collectors who have been sued under the Fair Debt

Collection Practices Act (“FDCPA”) may seek costs under Rule 54 of the

Federal Rules of Civil Procedure.

22

Plaintiff filed a suit in district court against General Revenue Corporation

(“GRC”) alleging that GRC violated the Fair Debt Collection Practices Act

when it harassed and falsely threatened her with wage garnishment of up to

50% of her wage earnings, in an attempt to collect on a student loan debt.

Shortly after the plaintiff filed the suit, GRC made her an offer of judgment

under Federal Rule of Civil Procedure 68 to pay plaintiff $1,500, plus

reasonable attorney’s fees and costs to settle the suit. Plaintiff did not

respond to the offer, and subsequently amended her complaint adding a

claim that GRC unlawfully sent a fax to her workplace that requested

information about her employment status.

Proceedings/Rulings: The district court found that the plaintiff failed to

prove that GRC violated the FDCPA. As part of the court’s judgment,

pursuant to Federal Rule of Civil Procedure 54(d)(1), the plaintiff was

ordered to pay GRC $4,543.03 in costs. Plaintiff then filed a motion to vacate

the award , arguing that the court lacked the authority to award costs under

Rule 54(d)(1) because 15 U.S.C. § 1692k(a)(3) only permits such an award if

the underlying action was brought in bad faith and for the purpose of

harassment.

The Tenth Circuit affirmed the district court’s award of costs, agreeing in

part that costs were allowed under Rule 54(d)(1), which grants the district

courts discretion to award costs to prevailing parties “unless a federal statute

… provides otherwise.”

The Supreme Court sided with the Tenth Circuit and held that the awards

were proper. The Court’s decision overturned a contrary ruling in the Ninth

Circuit.

A copy of the opinion is attached.

* 12. The People v. JTH Tax, Inc., (Case No. A125474; Court of Appeal

for the State of California, First Appellate District)

Issues and Potential Significance: On March 9, 2013, the Court of Appeal for

the State of California, First Appellate District affirmed a lower court’s

monetary judgment against Liberty Tax for violations of state and federal

lending, unfair competition, consumer protection, and false advertising laws.

Proceedings/Rulings: In February 2007, the California Attorney General

filed a complaint alleging that Liberty Tax violated several state laws,

including California’s unfair competition laws and false advertising law, by

broadcasting and printing “misleading and deceptive” statements in

advertisements regarding Liberty’s refund anticipation loans and electronic

refund checks. The complaint alleged that Liberty Tax’s refund anticipation

loans and electronic refund check applications contained inadequate

23

disclosures regarding debt collection, specific costs and interests on the

extension of credit, and the time it takes to receive money under refund

options offered.

A lower court found that Liberty’s handling fee, between $24 and $30, for

processing refund anticipation loans violated the Truth in Lending Act

(“TILA”), because the checks were considered a form of credit which allows

customers to delay payment for tax preparation services. Liberty should

have disclosed this finance charge to its customers. The court also found that

Liberty’s practice of selling refund anticipation loans and electronic refund

checks to third party lenders who then collected refund loan debts from prior

transactions was “deceptive and unfair,” and violated California’s Unfair

and Deceptive Acts and Practices statutes.

Liberty appealed the lower court’s decision on January 17, 2013.

On March 7, 2013, the court of appeal affirmed the lower court’s ruling and

ordered Liberty Tax to pay $1.169 million, in civil penalties and $135,000 in

restitution. Liberty Tax filed a petition for review with the California

Supreme Court.

A copy of the Court of Appeal decision is attached.

13. State of Nevada v. Trafford, District Court, Clark County (Case

No. 11-C-277573)

On February 25, 2013, Clark County, Nevada District Judge Carolyn

Ellsworth dismissed the criminal indictment against Gerri Sheppard and

Gary Trafford, two Southern California title officers charged with several

violations including “robo-signing” and mortgage fraud.

The 440 paged indictment filed on November 16, 2011, alleges the defendants

directed a Nevada notary public to forge signatures on a Notice of Default

and Election to Sell under Deed of Trust document. The forged signatory

documents were then filed with the county recorder. The indictment alleged

that the defendants filed over ten thousand forged signatory foreclosure

documents between 2005 and 2008.

The judge dismissed the case amid allegations of prosecutorial misconduct.

The defendants accused the prosecutors of providing misleading information

to the grand jury, improperly intimidating a witness to plead guilty (the

witness committed suicide), and failing to disclose that the defendant’s

company was foreclosing on the home of one of the prosecutors. The judge

did not address most of the defendants’ allegations but did rule that the

inaccurate grand jury presentation tainted the indictment.

24

The judge did not issue a written ruling and the charges were dismissed

without prejudice and may be re-filed.

14. Vassalle v. Midland Funding LLC et al., (The United States Court

of Appeals for the Sixth Circuit; Case Nos. 11-3814, 11-3961, 11-4016, 11-

4019, 11-4021)

The Sixth Circuit Court of Appeals has rejected a nationwide settlement of

three class-action suits alleging that a creditor’s practice of using “robo-

signed” affidavits in debt collection actions violates the Fair Debt Collection

Practices Act (“FDCPA”).

Issues and Potential Significance: The case involved a nationwide settlement

of three class-action suits arising from similar facts: Midland Funding v.

Brent; Franklin v. Midland Funding; and Vassalle v. Midland Funding.

In April 2008, Midland Funding LLC filed a debt-collection action against

defendant Andrea Brent in an Ohio municipal court. Attached to the

complaint in this case was an affidavit signed by an employee of Midland

Credit Management (“MCM”) claiming personal knowledge of the amount

of money owed by the defendant. The defendant Andrea Brent filed a class-

action counterclaim against Midland Funding and Midland Credit

Management alleging violations of the FDCPA. The counterclaim alleged

that MCM employees routinely signed affidavits such as the one attached to

the initial complaint without having adequate knowledge of the facts

presented. The other two related suits were filed while Midland Funding v.

Brent was still pending litigation. All three suits were filed in municipal

courts before being transferred to the Northern District of Ohio.

On August 11, 2009, the Northern District of Ohio ruled that “robo-signed”

affidavits presented in debt collection actions violate the FDCPA because

such affidavits are “false and misleading” and influenced by “false

attestation” of personal knowledge. The Midland funding case, Midland

Funding v. Brent was the first of the three cases to be brought in the state of

Ohio. Vassalle v. Midland Funding was the last.

In January 2011, plaintiff Martha Vassalle alleged common-law claims of

fraudulent misrepresentation, negligence, and unjust enrichment in her suit

against Midland Funding and entered into settlement talks with the plaintiffs

in the other two cases. The parties reached an agreement on March 9, 2011,

and on August 12, 2011, the court approved the class settlement and ordered

defendants to pay $5.2 million and to put into place procedures to prevent

the use of robo-signing under monitoring for a year. The distribution of the

settlement funds allotted $8,000 collectively to the three named class

plaintiffs, and $17.38 to each of the unnamed plaintiffs.

25

Eight of the 133,000 unnamed plaintiffs appealed the to the Sixth Circuit

arguing that the settlement was unfair, unreasonable and inadequate.

On February 26, 2013, the Sixth Circuit found that the settlement should

never have been approved because it did not satisfy the adequacy of

representation and superiority of a class action requirements needed for

proper class certification. Adequacy of representation was lacking because

the settlement’s forgiveness of the debts owed by the class representatives

gave them an unfair advantage over that of the unnamed class members.

While the settlement forgave the named plaintiffs of their debts, the

settlement would prevent the unnamed class members from using the alleged

robo-signed affidavits against the defendant in any other lawsuit. This, the

court said, would “virtually assure that [the defendant] will be able to collect

on these debts.” The superiority factor was not satisfied because the

unnamed class members now had an interest in individually challenging the

affidavits in lawsuits seeking to vacate the defendant's state court judgments

against them, raising the likelihood that many of the unnamed class members

would bring individual lawsuits.

A copy of the Vassalle decision is attached.

* 15. United States of America v. Texas Champion Bank, (United States

District Court for the Southern District of Texas, Corpus Christi Division;

Case No. 13-cv-00044)

On March 5, 2013, the U.S. Department of Justice (“DOJ”) reached a

settlement with Texas Champion Bank (“Bank”), to resolve allegations that

the Bank’s lending practices discriminated against Hispanic borrowers.

Issues and Significance: The complaint filed on February 19, 2013, alleged a

“statistically significant” disparity between the interest rates Texas

Champion Bank charged to Hispanic and non-Hispanic borrowers on

unsecured consumer loans between 2006 and 2010. According to DOJ, the

interest rate discrepancy stemmed from the bank’s policy of giving its loan

officers “broad subjective discretion” to set rates and the fact that the loan

officers knew the national origin of the loan applicants. The FDIC referred

the case to DOJ in 2010.

If it is approved by the court, the agreement requires the Bank to do the

following: pay $700,000 to approximately 2,000 Hispanic borrowers; revise

its pricing policies to include a uniform pricing matrix setting forth objective,

non-discriminatory standards for setting interest rates; implement a

monitoring program; post non-discrimination notices; and implement ECOA

training.

A copy of the complaint and the consent order are attached.

26

16. RiverIsland Cold Storage, Inc., et al v. Fresno-Madera Production

Credit Association, (Case No. S190581; California Supreme Court)

On January 14, 2013, the California Supreme Court issued a unanimous decision

redefining the fraud exception of the parol evidence rule. The court held the parol

evidence rule does not exclude evidence of fraud that contradicts the terms of a

written contract. In doing so, the court overruled its own 78-year old decision in

Bank of America v. Pendergrass (1935).

Issues and Potential Significance: Plaintiffs fell behind on their loan payments

to Fresno-Madera Production Credit Association (“Fresno-Madera”) but were

able to restructure their debt into a new agreement on March 26, 2007. The new

agreement stated that Fresno-Madera would take no enforcement action until July

1, 2007, as long as the plaintiffs made specific payments towards their loan. The

plaintiffs also guaranteed eight separate parcels of real property by initialing

pages that bore the legal descriptions of these parcels.

On March 21, 2008, Fresno-Madera recorded a notice of default after plaintiffs

neglected to make the required payments. Fresno-Madera eventually dismissed its

foreclosure proceedings against the plaintiffs after they paid off the loan.

Plaintiffs later filed suit against Fresno-Madera seeking damages for fraud and

negligent misrepresentation, and other causes of action for the rescission and

reformation of the restructuring agreement.

According to plaintiffs, the vice president of Fresno-Madera met with them two

weeks prior to the signing of the restructured agreement and promised them a two

year payment extension in exchange for addition collateral consisting of two

ranches.

Proceedings/Rulings: Fresno-Madera moved for summary judgment citing the

parol evidence rule – codified in California Code of Civil Procedure Section 1856

and Civil Code section 1625 – which bars evidence of any representations

contradicting the terms of a written agreement, except to establish fraud. The trial

court relied on Pendergrass in its ruling and granted summary judgment. In

Pendergrass, the fraud exception does not allow parol evidence of promises at

odds with the terms of the written agreement.

The Court of Appeal reversed the trial court’s decision reasoning that

Pendergrass is limited to cases of promissory fraud and considered false

statements about the contents of an agreement itself to be factual

misrepresentations beyond the scope of the Pendergrass rule. Fresno-Madera

petitioned the California Supreme Court’s to review the appeal court decision.

On January 14, 2013, the California Supreme Court revisited the Pendergrass rule

and found that its limitations conflicts with established doctrine. While the rule

27

established in Pendergrass was intended to prevent fraud, it may “actually

provide a shield for fraudulent conduct.” Pendergrass had no support in the

language of the statute codifying the parol evidence rule and the exception for

evidence of fraud, was ill-considered, and should be overturned.

On March 7, 2013, the court issued its mandate.

17. Meyer v. Portfolio Recovery Associates LLC, (U.S. Court of Appeals

for the Ninth Circuit; Case No. 11-56600)

Issues and Potential Significance: On October 12, 2012, the Ninth Circuit affirmed

the district court’s decision to grant a motion for a preliminary injunction and

provisional class certification to Plaintiff in a case which alleges that Portfolio

Recovery Associates LLC’s (“PRA”) debt collection efforts violated the Telephone

Consumer Protection Act of 1991 (“TCPA”) because PRA did not receive express

prior consent to contact consumers. The injunction restrains PRA from using its

Avaya Proactive Contact Dialer to place calls to cellular telephone numbers with

California area codes.

Proceedings/Rulings: Plaintiff Jesse Meyer initially brought suit against PRA on

January 3, 2011 in the Superior Court of California, but the case was removed to the

District Court for the Southern District of California on May 9, 2011.

In his complaint, Plaintiff alleged that PRA’s practice of calling individuals on their

cell phones, using an automatic telephone dialing system, without prior consent

violated the Telecommunications Privacy Act or Telephone Consumer Protection

Act.

The calls to Plaintiff began in September 2010 by PRA to collect an alleged account

balance which PRA purchased from Computer Learning Center, and persisted

through December 2010 even after Plaintiff repeatedly asked PRA representatives

not to call his cell phone number again.

Plaintiff sought class certification to bring a class action against PRA for violations

of TCPA in district court. The district court granted the motion for a preliminary

injunction and provisional class certification on September 14, 2011. PRA appealed

the district court ruling to the Ninth Circuit, claiming that the district court lacked

jurisdiction and authority to issue the September 14, 2011 ruling and abused its

discretion by certifying a provisional class – which was limited to all persons using a

cellular phone number that 1) PRA did not obtain either from a creditor or from the

injunctive class members; and 2) has a California area-code; or 3) where PRA’s

records identify the Injunctive Class member as residing in California - for purposes

of the preliminary injunction.

On October 12, 2012, the Ninth Circuit held that the district court acted within its

discretion when it ruled that Meyer “met the commonality, typicality, and adequacy

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requirements of the Federal Rules of Civil Procedure (“FRCP”). Wal-Mart Stores,

Inc. V. Dukes, 131 S. Ct. 2541 (2011). The Ninth Circuit concluded that PRA

violated the TCPA because PRA failed to obtain consent to call the customers at the

time of the transaction that resulted in the debt. The court ruled that consumers who

provided their cellular telephone numbers to PRA after the original transaction are

not deemed to have conveyed prior express consent to be contacted under the TCPA.

The Ninth Circuit also affirmed the district court’s preliminary injunction because

the Plaintiff demonstrated that he and other class members would suffer irreparable

harm from PRA’s continued violations of TCPA, which violates class members’

rights to privacy

On November 2, 2012 the ABA filed an amicus brief in support of an en banc

rehearing. The ABA argued that the Ninth Circuit Panel incorrectly concluded that

providing a cell phone number after the time of the original transaction does not

establish prior express consent under the TCPA.

On December 28, 2012, the court denied the petition for an en banc rehearing, but

amended the final two sentences of the third paragraph on page 12258 of its October

12, 2012 slip opinion to read as follows:

Pursuant to the FCC ruling, prior express consent is consent to call a

particular telephone number in connection with a particular debt that is given

before the call in question is placed. Id. at 564–65. PRA did not show a

single instance where express consent was given before the call was placed.

Id. at 565.

An amended opinion is filed concurrently with this order.

The judges recommended the Appellant’s petition for an en banc rehearing be

denied and reaffirmed the district court’s order granting plaintiffs’ motion for a

preliminary injunction and provisional class certification. The court issued its

mandate on January 8, 2013.

18. Rose v. Bank of America, N.A., (Supreme Court of the State of

California; Case No. S199074)

Issues and Potential Significance: Examines if a cause of action under the

California’s Unfair Competition Law (“UCL”) may not be based on an alleged

violation of the Truth in Savings Act (“TISA”) given Congress’ repeal of the TISA

provision permitting private rights of action.

Proceedings/Rulings: Plaintiffs brought a putative class action lawsuit against Bank

of America, alleging that the bank violated TISA by failing to properly notify them

about price increases of certain deposit account fees. However, in 2001, Congress

amended TISA to prohibit all private rights of action. Nevertheless, the plaintiffs

29

argued that they were permitted to allege TISA violations under the UCL. Both the

trial and appellate courts ruled against the plaintiffs.

On November 21, 2011, the Court of Appeal of the State of California, Second

Appellate District affirmed the lower court decision and held that Congress’ repeal

of the TISA provision was explicit and does not permit UCL claims brought by

private parties.

The plaintiffs appealed to the California Supreme Court.

On September 20, 2012, The American Bankers Association and California Bankers

Association filed a joint amicus brief with the California Supreme Court supporting

the lower court’s holding that a cause of action under California’s Unfair

Competition Law (“UCL”) may not be based on alleged violations of the Truth in

Savings Act (“TISA”) because Congress repealed all TISA private rights of action.

19. State National Bank of Big Spring v. The Consumer Financial

Protection Bureau, (United States District Court for the District of Columbia; Case

No. 12-cv-01032)

The State National Bank of Big Spring, Texas and two advocacy groups have

sued the Consumer Financial Protection Bureau (CFPB), the Financial Stability

Oversight Council (FSOC), and various government officials, alleging that

portions of the Dodd-Frank Act that empower the CFPB and FSOC are

unconstitutional. The thirty-two page complaint was filed in the U.S. District

Court for the District of Columbia on June 21, 2012, by lead attorney and former

White House Counsel, C. Boyden Gray.

The lawsuit’s significant claims allege that Title 1 and Title 10 of Dodd-Frank

violate the separations of powers and are therefore unconstitutional. Title 1

delineates FSOC’s responsibilities, and Title 10 creates the CFPB. According to

the complaint, Dodd-Frank gives the CFPB, “unrestrained power” that ignores the

concept of separation of powers. For example, the suit alleges that Congress does

not control CFPB’s budget because its funding comes directly from the Federal

Reserve. The suit also argues that even the President is prevented from

significantly regulating the agency because the CFPB Director is appointed for a

five year term and can only be removed “for cause.” The suit alleges that judicial

review is also limited, because Dodd-Frank mandates that the courts give

deference to CFPB’s legal interpretations. The suit also claims that FSOC’s

“unbridled discretion” to select which banks are “too big to fail” is also

unconstitutional and will unjustifiably raise borrowing costs for smaller banks.

The State National Bank claims that the risks caused by CFPB’s “unlimited

powers” forced the $275 million institution to cease all consumer mortgage

lending in October 2010. The bank also alleges that CFPB’s recent rule on

remittances made compliance so expensive that the bank stopped offering

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international wire services to its customers on May 23, 2012. The plaintiffs are

petitioning the court to stop the CFPB and the FSOC from exercising any powers

delegated to them by Title 1 and Title 10 of Dodd-Frank.

On November 20, 2012, Defendants filed a motion to dismiss for lack of

jurisdiction.

On February 13, 2013, eight more states (Alabama, Georgia, Kansas, Montana,

Nebraska, Ohio, Texas and West Virginia) joined the suit against CFPB.

20. Rosenfield v. HSBC Bank, USA (United States Court of Appeals for

the Tenth Circuit; Case No. 10-1442).

Issues and Potential Significance: The question presented is whether a lawsuit

seeking rescission pursuant to the Truth in Lending Act (“TILA”) is timely where

the consumer provided notice of rescission to the lender within three years of closing

but did not file suit until after the three-year deadline had passed.

On March 26, 2012, the Consumer Financial Protection Bureau (“CFPB”) received

permission from the Tenth Circuit to file an amicus brief after the filing deadline had

lapsed. The CFPB’s brief argued that a borrower need only send a notice of

rescission and not file a lawsuit, within the three-year period to validly exercise a

right to rescind.

Borrowers who do not receive the mandated disclosures required by TILA have the

right to notify the lender of their intent to rescind the transaction within three years

of consummation. The majority of courts have held that a borrower must notify the

lender and file suit within three years.

In March 2012, the CFPB announced plans to file three additional briefs making

identical arguments about TILA rescission rights in the following federal circuits:

Third (Sherzer v. Homestar Mortg. Servs., Case No. 11-4254); Fourth (Wolf v. Fed.

Nat’l Mortg. Ass’n, Case No. 11-2419); and the Eighth Circuits (Sobieniak v. BAC

Home Loans Servicing LP, Case No. 122-1053.)

The ABA, the Consumer Bankers Association, and the Consumer Mortgage

Coalition filed a joint amicus brief in the Tenth Circuit on May 3, 2012, and in the

Eighth Circuit on May 24, 2012, challenging CFPB’s interpretation of TILA.

However, on May 2, 2012, in Gilbert v. Residential Funding LLC, Case No. 10-

2295, another case in the Fourth Circuit considering the same issue, the court

adopted the CFPB’s position. The Fourth Circuit is the first federal appellate court

to hold that a timely rescission notice temporarily suspends TILA’s statute of

limitations. No amicus briefs were filed in Gilbert.

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On June 11, 2012, the Tenth Circuit rejected the CFPB’s position, and sided with the

banking industry. In a decision which largely agreed with the analysis in ABA’s

amicus brief, the court ruled that allowing TILA challenges to extend beyond three

years would undercut the commercial certainty intended by Congress. On July 3,

2012 the Tenth Circuit issued its mandate.

On July 16, 2012, the ABA, the Consumer Bankers Association, and the Consumer

Mortgage Coalition filed a joint amicus brief in Wolf, the Fourth Circuit TILA

recession case. Given the negative ruling in Gilbert, the ABA is ultimately striving

to have its amicus brief considered by an en banc court. However, the only way to

get an amicus brief before an en banc court for review in the Fourth Circuit is to file

it with the initial appeal. Meaning, if the defendants in Wolf ultimately request an en

banc rehearing of a negative ruling in their case, the ABA’s amicus brief would be

submitted to the en banc court.

On February 28, 2013, the fourth circuit issued an unpublished opinion

affirming the district court’s ruling in Wolf.

On December 5, 2012, oral arguments were held in Wolf. The Fourth Circuit advised

the parties that Gilbert is precedent, and any argument on the statute of repose

“should be saved for en banc review.” There has been no request for en banc

rehearing yet.

In the meantime, in another case, Miranda v. Wells Fargo, the Fourth Circuit

affirmed that while Gilbert overturns the district court’s dismissal of the complaint

as time-barred, it does not overturn the dismissal on the basis that Plaintiff failed to

state a claim for rescission by failing to plead tender of the net loan proceedings.

21. Sherzer v. Homestar Mortgage Services, (United States Court of

Appeals for the Third Circuit; Case No. 11-4254).

In a published opinion issued on February 5, 2013, the Third Circuit ruled that a

lawsuit seeking rescission pursuant to the Truth in Lending Act (“TILA”) is timely if

a borrower provides notice of rescission to the lender within three years of closing

but did not file suit until after the three-year deadline had passed. The court

determined that rescission is exercised upon notice. Section 1635(f) does not

mention requirements for filing suit, or the issue of filing suit for that matter, raising

the question of what that silence means. The court interpreted it to mean a suit was

not time-barred by the three-year rescission requirement.

In this case, Daniel and Geraldine Sherzer obtained two secured mortgage loans

from Homestar Mortgage Services for $705,000 and $171,000 respectively. The

couple closed on the loans on August 26, 2004, after which the loans were later

assigned to HSBC Bank. On May 11, 2007, less than three years after the closing

date, the Sherzers sought to exercise their right to rescind the loan agreements for

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what they asserted was a failure on the part of Homestar to provide all the

disclosures required by TILA.

HSBC agreed to rescind the lesser of the two loans but refused to rescind the loan

for $705,000 because Homestar was not in violation of TILA. The Sherzers sued

Homestar and HSBC in the United States District Court for the Eastern District of

Pennsylvania asking that the court rescind the loan and reward damages and

remedies.

The district court sided with HSBC and Homestar, determining that the rescission

request was time-barred under Section 1635(f) of TILA even if the borrowers mailed

a rescission notice within the three-year period, but did not file suit within that three-

year period.

The Third Circuit issued an opinion on February 5, 2013 reversing the district

court’s ruling and remanded the case. The court issued its mandate on March 20,

2013.

22. Rodriguez v. National City Bank, Case No. 08-2059 (E.D. Penn.).

The United States District Court for the Eastern District of Pennsylvania has

issued a potentially significant ruling regarding the viability of pursuing large Fair

Lending Act/Equal Credit Opportunity Act cases on a class action basis. Taking

its cue from the recent United States Supreme Court decision concerning class

action cases involving massive numbers of plaintiffs, Wal-Mart Stores Inc. v.

Dukes, the court declined to approve a settlement of a large class action lawsuit

due to the potential lack of “commonality” and “typicality” of the claims.

Filed in 2008, class plaintiffs alleged that National City Bank demonstrated an

established pattern and practice of racial discrimination in the financing of

residential home purchases, in violation of the Fair Housing Act, 42 U.S.C. §

3601 and the Equal Credit Opportunity Act, 15 U.S.C. § 1691. Specifically,

Plaintiffs allege that the bank’s “Discretionary Pricing Policy” authorized a

subjective surcharge of additional points, fees, and credit costs to an otherwise

objective risk-based financing rate. The result, it was argued, was a disparate

impact on minority applicants for home mortgage loans.

The parties reached a settlement of the claims, and a motion to approve that

settlement was filed with the court. In an order issued on September 9, 2011, the

Court declined to approve the settlement on the grounds that the Supreme Court’s

opinion in Wal-Mart Stores Inc. v. Dukes precluded the court from certifying the

case as a class action, thereby rendering the settlement unfair. Like the District

Court in In re: Wells Fargo Residential Mortgage Lending Discrimination Litigation,

the court found that the potential factual differences among the claims held by class

members – differences that were generated by the discretion accorded to the bank’s

loan officers - made it impossible for the plaintiffs to establish that the claims across

33

the class were sufficiently typical so as to justify litigating them in a class action

setting:

Plaintiffs do not satisfy the commonality requirement simply

because the dispositive legal issue of whether Defendants’

discretionary pricing policy constituted a common practice that

affected class members in a discriminatory manner is the same for

each member of the class. In Dukes, the Supreme Court did not

find the common question of whether Wal-Mart’s policy of giving

discretion to managers in pay and promotion decisions that

resulted in a disparate impact to be enough, but instead found that

the common question required would have to be narrowed to each

supervisor. In this case, there were many loan officers that were

involved in using discretion that created the alleged discrimination.

Applying Dukes, Plaintiffs would likely have to show the disparate

impact and analysis for each loan officer or at a minimum each

group of loan officers working for a specific supervisor. Indeed,

the Supreme Court found the fact that it was entirely possible that

some supervisors engaged in discrimination while others did not to

show that plaintiffs were “unable to show” that each plaintiff’s

claims “will in fact depend on the answers to common questions.”

Dukes, 131 S. Ct. at 2554.

There have been no further updates in this case. Parties are still awaiting

the judge’s final order denying the settlement.

23. Jordan v. Paul Financial, LLC, (Case No. 07-04496, Northern

District of California).

Issues and Potential Significance: This is a putative class action suit involving

payment-option “Option ARM” mortgages issued by Paul Financial in order to

finance a purchaser’s primary residence. Plaintiff alleges that the loans in

question were a “deceptively devised” financial product.

Specifically, it is alleged that Paul Financial promised that the loans would have a

low, fixed interest rate, and that the lender breached an agreement to apply

plaintiff’s monthly payments to both the principal and interest owed on the loan.

It is also alleged that Paul Financial disguised from plaintiff that his option ARM

loan was designed to cause negative amortization. Plaintiff brought claims under

the Truth in Lending Act (“TILA”), 15 U.S.C. §§ 1601, et seq. and California’s

Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200 et seq.; as

well as common law claims for fraud, breach of contract, and breach of the

covenant of good faith and fair dealing.

In July of 2009, the trial court dismissed a significant portion of plaintiffs’ case.

The court dismissed plaintiff’s TILA claim for damages as being outside the one-

34

year statute of limitations. The court partially granted the Defendants’ motion for

summary judgment with respect to the rescission claims. The court concluded

that because the variable rate feature of the product was disclosed by the bank, an

alleged failure to disclose the risk of negative amortization would not be a

“material” non-disclosure that would trigger the three-year statute of limitation for

rescission.

The court reached a different conclusion with respect to the alleged failure to

disclose the annual percentage rate. Unlike the risk of negative amortization,

disclosure of the APR is a “material” disclosure; if it is not made, a borrower is

entitled to the extended three-year period for rescission of the loan transaction.

The court also allowed claims to go forward (to the extent they are not time

barred) under California’s Unfair Competition Law (“UCL”) because the UCL

claim is predicated on TILA violations. The court declined to dismiss claims that

defendants fraudulently failed to disclose material information about plaintiff’s

loan. The court found that there are factual disputes on each of the elements of

plaintiff’s fraud claim that precluded summary judgment.

The court further clarified which causes of action would be allowed to go forward

in an order issued on September 30, 2010. The Court granted a motion by RBS

(the entity that provided financing to Paul Financial and is the current owner of

the loan) to dismiss the Plaintiffs’ TILA claims as untimely. The court, however,

declined to grant dismissal of a number of state law claims against RBS:

Failure To Disclose Material Facts. The plaintiffs cite provisions in the

loan agreement which they allege are misleading, such as the portion of

the loan which states that “my monthly payment could be less than the

amount of the interest portion of the monthly payment that would be

sufficient to repay the unpaid principal.” Plaintiffs allege that under the

terms of the loan it was not a possibility but a certainty that the monthly

payment would be insufficient to repay the unpaid principal and interest

because of the teaser rate. Moreover, plaintiffs allege that in basing the

payment schedule on the low teaser rate while simultaneously disclosing a

higher APR, defendants “failed to disclose the actual interest costs that

borrowers were going to incur on their loans.” The court concluded that

this cause of action was not preempted by TILA or Regulation Z based on

the Federal Reserve Commentary that “[s]tate law requirements that call

for the disclosure of items of information not covered by the Federal law,

or that require more detailed disclosures, do not contradict the Federal

requirements.” 12 C.F.R. Pt. 226, Supp. I, 28(a)(3).

Fraudulent Omissions: The court found that the plaintiffs had adequately

pleaded their case against co-defendant Paul Financial. The court also

found that the plaintiffs are entitled to pursue a recovery against RBS

under the theory that RBS aided and abetted Paul Financial, or that the

35

fraudulent activity was part of a joint venture between RBS and Paul

Financial.

California Unfair Competition Law: A business practice which is

unlawful, fraudulent, or unfair may be actionable under the California

Unfair Competition Law (UCL). As a threshold issue, the court ruled that

to the extent that plaintiffs’ cause of action is based on violations of TILA,

they are now time-barred. Scrambling, the plaintiffs now aver that they

have satisfied the “unlawful” prong of the UCL because the disclosures

violated the FTC Act, 15 U.S.C. § 45(a)(1), which proscribes “[u]nfair

methods of competition in or affecting commerce, and unfair or deceptive

practices in or affecting commerce.” The court concluded that plaintiffs

had not met their burden to plead this cause of action, and dismissed it,

while granting them permission to amend their complaint so they can

attempt to meet the required pleading standards. The court also concluded

that the plaintiffs had adequately pled their case under the “fraud” and

“unfair” prongs of the UCL, and that these causes of action could go

forward.

Proceedings/Rulings: Plaintiffs sought to certify two classes of plaintiffs; a

national class consisting of all individuals who received an Option ARM loan

through Paul Financial on their primary residence in the United States from

August 30, 2003, to the present, and a California class consisting of similar

borrowers located in the state of California. In filing their motion for class

certification, plaintiffs also moved to enjoin Paul Financial from resetting of their

interest rates.

On January 27, 2009, the court denied plaintiff’s motion for class certification and

for a preliminary injunction.

The court concluded that the named plaintiff lacked standing to represent the

national class with respect to TILA claims because they were time barred under

the statute. The plaintiffs also lacked standing to represent the California class

because they were unable to establish “traceability” – that the defendants held or

serviced the loans at issue. Plaintiff’s proposal to conduct class discovery to

identify all possible defendants, and to then join them in the litigation, was

rejected by the court. The court also concluded that plaintiff could not establish

that their loans were “typical” of those held by other class members.

Defendants moved for summary judgment with respect to all claims on December

30, 2008. On July 1, 2009, the court granted in part and denied in part the

Defendants’ motions for Summary Judgment. The court granted Defendant’s

Summary Judgment on Plaintiff’s TILA claim for damages. TILA contains a one

year statute of limitations for damages claims. Since Plaintiff’s loan was

consummated in January 2006 and the action was not filed until August 2007, the

Court agreed that the one-year statute of limitations had passed.

36

The court partially denied Defendants’ motion for summary judgment with

respect to the rescission claims. Generally, TILA provides that borrowers have

until midnight of the third business day following the consummation of a loan

transaction to rescind the transaction. 15 U.S.C. § 1635(a). A borrower’s right of

rescission is extended from three days to three years if the lender (1) fails to

provide notice of the borrower’s right of rescission or (2) fails to make a material

disclosure. 12 C.F.R. § 226.23(a)(3). Here, plaintiff did not contend that Paul

Financial failed to provide notice of his right of rescission. Rather it focused on

whether defendants’ alleged failure to disclose either (1) the risk of negative

amortization, or (2) the APR was “material.”

With respect to the risk of negative amortization, Regulation Z provides that

“[t]he term ‘material disclosures’ means the required disclosures of the annual

percentage rate, the finance charge, the amount financed, the total payments, the

payment schedule, and the disclosures and limitations referred to in § 226.32(c)

and (d).” 12 C.F.R. § 226.23(a)(3) n.48. The Commentary on this regulation

states that only one of the required disclosures regarding variable-rate loans – that

the transaction contains a variable-rate feature – is considered “material” such that

it triggers the extended rescission period. The court concluded that because the

variable rate feature was disclosed, an alleged failure to disclose the negative

amortization feature would not be a “material” non-disclosure that would trigger

an extended right of rescission.

The court reached a different conclusion with respect to the alleged failure to

disclose the annual percentage rate. Unlike the risk of negative amortization,

disclosure of the APR is a “material” disclosure; if it is not made, a borrower is

entitled to the extended three-year period for rescission of the loan transaction.

The loans in question stated that the APR was 6.99% and explains that the APR is

“[t]he cost of your credit as a yearly rate.” At the same time, the Note states that

“I will pay interest at a yearly rate of 1%. The interest rate I will pay may

change.” In plaintiff’s view, the reference to two “yearly” rates of interest is

confusing and therefore fails to comply with TILA’s requirement that the

disclosure of the APR be clear and conspicuous. The court denied summary

judgment in favor of the defendants because it concluded that a factual dispute

exists as to whether an ordinary consumer would be confused by a reference to

both an APR and a different “finance charge” as “yearly” rates of interest.

The court also allowed claims under California’s Unfair Competition Law to go

forward (to the extent they are not time barred) because the UCL claim is

predicated on the TILA violations. The court declined to dismiss claims that

defendants fraudulently failed to disclose material information about plaintiff’s

loan. The court found that there are factual disputes on each of the elements of

plaintiff’s fraud claim that precluded summary judgment.

37

Plaintiffs were granted leave to file an amended complaint, which added two

additional plaintiffs. A fourth amended complaint has also been filed against

HSBC. HSBC has filed an answer, while RBS has moved to dismiss the amended

complaint.

On September 30, 2010, the court granted in part and denied in part RBS’s motion

to dismiss. RBS has filed an answer to Plaintiff’s Fourth Amended Complaint.

On April 7, 2011, RBS filed a motion for summary judgment. They argue:

Plaintiffs lost standing to bring this claim when they filed for bankruptcy

and such standing passed to the bankruptcy trustee.

The subject loan documents were not misleading, as Plaintiffs admitted

that they understood the terms in the Note and the effect of negative

amortization, the terms “Interest Rate” and APR are different as a matter

of law and, in any event, that Plaintiffs’ complete Truth in Lending

Disclosure Statement compares and distinguishes the two.

Plaintiffs’ claims fail because RBS did not aid or abet a material omission

in the loan documents, and RBS did not have a joint venture with Paul

Financial.

Plaintiffs’ fraudulent omissions claim fails because there was no

concealed material fact in the loan documents and because Plaintiffs

cannot show actual reliance on the loan documents.

Plaintiffs’ claim under California’s Unfair Competition Law fails because

they cannot satisfy standing under the UCL, RBS cannot be held

vicariously liable, the alleged material omission was not unfair or

fraudulent, and Plaintiffs’ requested relief is unavailable under the UCL.

On May 11, 2011, the Plaintiffs and HSBC announced that they had reached a

settlement in principle. It appears that the case against Paul Financial and RBS

Financial Products will continue.

In July, HSBC and plaintiff Gregory Jordan voluntarily dismissed the litigation.

The hearings on plaintiffs’ motion for class certification and RBS’s motion for

summary judgment were continued and not dismissed.

The status of the litigation with respect to RBS took an interesting (and

infuriating) series of turns. RBS filed a Motion for Summary Judgment, seeking

dismissal of Plaintiffs’ claims. In that motion, RBS argued, inter alia, that

plaintiffs Eli and Josephina Goldhaber lacked standing because they failed to list

the court action in their schedule of assets in a Chapter 7 bankruptcy proceeding,

and that their bankruptcy estate is the real party in interest. The district court

continued the hearings on the pending motions pending a resolution of this

threshold issue. The Goldhabers reopened their bankruptcy case and claimed to

have entered into a stipulation with the Bankruptcy Trustee giving the Goldhabers

standing to prosecute this class action on behalf of the bankruptcy estate without

38

further advice or consent by the Trustee. RBS made an offer of settlement of the

Goldhabers’ claims to the Bankruptcy Trustee, which was accepted over the

objection of the Goldhabers. In August of 2011, the Trustee filed a motion in the

bankruptcy court seeking approval of a settlement between the Trustee and RBS.

The Bankruptcy Court heard argument of the Settlement Approval Motion on

September 7, 2011. After argument, the Bankruptcy Court denied the motion.

The settlement having fallen through, the district court once again took up the

motions for class certification and for summary judgment.

A hearing on the motion regarding class certification was heard by the court on

December 5, 2011. The parties have been submitting supplemental briefing on the

issue of whether the class claims share sufficient “commonality”, citing Wal-Mart

Stores v. Dukes and the recent string of cases in the mortgage lending area

denying class certification.

On August 23, 2012, the Court denied RBS Financial, Inc.’s motion for summary

judgment, and granted Plaintiffs’ motion for class certification.

On November 5, 2012, the parties opted for, and the court approved, mediation

which is now scheduled for January 31, 2013.

24. In Re: Checking Account Overdraft Litigation, Case No. 09-MD-

02036 (S.D. Fla.), Cases No. 10-12957, 10-12373, 10-15040 (11th

Cir.).

Issues and Potential Significance: This is a large multi-district case that

challenges the common practice of processing withdrawals from a customer’s

account via a debit card in “largest to smallest” order. The case consolidates over

thirty different cases, with more being added on a regular basis.

The significance of this case stems from its sheer size (in terms of number of

defendants and the institutions that are involved) and its potential to generate a

huge liability for the industry if the plaintiffs are successful. While the industry

has been successful in defeating this type of claim, in district court has denied a

well-crafted motion to dismiss. In short, this is clearly a case that bears watching.

This case also tees up the availability of mandatory arbitration as the sole method

of resolving issues relating to overdraft. The trial court issued a number of

rulings with seemingly conflicting outcomes. That issue is now before the

Eleventh Circuit.

In February of 2011, plaintiffs and Bank of America announced that they had

reached a tentative settlement of all claims. Bank of America agreed to pay $410

million exchange for a full and complete release. This settlement is subject to the

parties crafting a final agreement, and is subject to court approval.

39

Proceedings/Rulings: The initial complaints in this case were filed in late 2009.

Plaintiffs are current or former checking account/debit card customers. The

Defendants are several federally chartered banks. The core allegation is that these

institutions are charging excessive overdraft fees on debit card accounts because

the Defendants process daily charges to the account using a “largest to smallest”

sorting. It is claimed that this method allows the Defendants to unfairly maximize

the amount of overdraft fees that they may charge. The suits rely upon a number

of legal theories, including breach of contract, breach of a covenant of good faith

and fair dealing, unconscionability, conversion, unjust enrichment, and violation

of the consumer protection statutes of the various states where the plaintiffs are

located.

In December of 2009, several of the Bank defendants moved to dismiss the case.

This omnibus motion argued that: (1) the doctrine of federal preemption under

the National Bank Act barred state regulation of the activities of the national bank

defendants; (2) the customer contracts with the banks explicitly authorized

Defendants to post debits from "high to low"; (3) the common law doctrine of

unconscionability may be used only as a defense, not as an affirmative cause of

action; (4) that conversion will not lie since the depositor does not have title to the

money deposited; (5) that an adequate remedy at law exists for the claimed injury,

negating the application of the equitable doctrine of unjust enrichment; and (6)

that state consumer protection laws are inapplicable.

On March 11, 2010, the Court denied the Plaintiffs’ “omnibus” motion to dismiss.

In a wide-ranging order the court declined to preempt state contract or tort actions

in this instance because they only “incidentally” affect the banks’ exercise of their

federally granted deposit-taking powers under the National Bank Act and OCC

regulation. The court also concluded that the contractual language of the

depositor agreements did not bar a claim for a breach of the covenant of good

faith and fair dealing because the plaintiffs do not seek to vary the language of the

contract, but “rather to have the express contractual terms carried out in good

faith.” The court also agreed that while “Defendants appear to be correct in their

assertion that, ordinarily, unconscionability is properly asserted as a defense to a

contract rather than an affirmative cause of action,” the court concluded that “this

is not the ordinary case.”

On April 20, 2010, a number of defendants petitioned the Court under Section 4

of the Federal Arbitration Act (“FAA”) seeking to compel Plaintiffs to arbitration

in accordance with the parties agreements which contained mandatory arbitration

provisions. Plaintiffs in response argued that the agreements contained

deficiencies that rendered the agreements unenforceable.

The Court’s handling of the arbitration issue has been inconsistent. Taking up

Plaintiffs’ arguments that the arbitration agreements were unconscionable under

applicable state law, the court found that the arbitration provisions were

40

unenforceable because they had the “practical effect of precluding consumers

from bringing an action against a bank.” This issue is now on appeal to the

Eleventh Circuit.

Not all efforts to enforce agreements to arbitrate were unsuccessful. On May 25,

2010, granted Huntington National Bank’s motion to compel arbitration, Gulley v.

Huntington Bancshares Incorporated, et al. S.D. Fla. Case No. 10-cv-23514. The

court concluded that the arbitration provision in question was not unconscionable

under Ohio law. Thus, it was a surprise to many when, on June 16, 2010, the

Court denied Cleveland Ohio-based Keybank’s motion to compel arbitration. The

district court declined to apply Ohio law, ruling instead that its choice of law

analysis led the court to conclude that the state of Washington had a greater

interest in the transactions at issue. Applying Washington law, the district court

concluded that the arbitration clause was substantively unconscionable.

On August 23, 2010, the court also denied a motion to compel arbitration in the

Dasher v. RBC Bank (USA). The court ruled that the arbitration provision was

unconscionable and therefore invalid and unenforceable. This decision was

appealed to the Eleventh Circuit. On October 14, 2010, the district court stayed

proceedings in Dasher pending the outcome of the appeal. On June 17, 2011, the

joint motion to vacate and remand the Dasher litigation to the district court was

granted.

On October 26, 2010, the Court denied motions to compel arbitration in two other

cases: Speers v. U.S. Bank. (Case No. 09-cv-23126), and Waters v. U.S. Bank,

N.A. (Case No. 09-cv-23034). The Court ruled that Defendant waived its

opportunity to file the motion to compel arbitration when the bank failed to file its

motion by the court ordered deadline. The bank filed a notice of appeal to the

Eleventh Circuit the next day. The Eleventh Circuit has stayed the district court

action with respect to Speers and Waters pending an expedited appeal. On March

25, 2013, the court lifted the stay in Speers.

On November 3, 2010, the Court set out a scheduling order for the “First

Tranche” of cases, targeting a trial date in March of 2012.

On December 2, 2010, the Court issued a scheduling order for the “Third

Tranche” of cases. A trial date has been scheduled for November 19, 2012.

On February 4, 2011, plaintiffs and Bank of America announced that they had

reached a tentative settlement of all claims against the bank. Bank of America

has agreed to pay $410 million exchange for a full and complete release. This

settlement is subject to the parties crafting a final agreement, and is subject to

court approval.

On March 21, 2011, the Court denied motions to dismiss in 6 cases, Shane Swift

v. BancorpSouth, Inc., (10-cv-23872), Casayuran et al. v. PNC Bank, N.A., (10-

41

cv-21869), Cowen et al. v. PNC Bank, N.A., (10-cv-21869), Hernandez et al. v.

PNC Bank, N.A., (10-cv-21868), Matos v. National City Bank (10-cv-21771), and

Harris v. Associated Bank, N.A., (10-cv-22948). These rulings were based on the

court’s earlier Omnibus Order.

On April 13, 2011, the Court issued a scheduling order for the “Fourth Tranche”

of cases. It is based on a January 2013 trial date.

The Supreme Court’s recent decision in Concepcion (see above) – holding that

class action waivers do not render an arbitration agreement “unconscionable” –

has sparked an interesting spate of motions in the case. JP Morgan Chase has

filed motions based on Concepcion seeking to enforce the arbitration clauses in

the customer agreements in several (but not all) of the cases that have been filed

against the bank. This, in turn, has sparked a discovery dispute with Plaintiffs

over the appropriateness of deposing the class representatives, and whether doing

so constitutes an abandonment of Chase’s right to arbitrate.

On May 17, 2011, Defendant JPMorgan filed a motion requesting that the Court

revisit its prior ruling regarding the preemptive effect of the National Bank Act in

light of the Eleventh Circuit’s recent decision in Baptista v. JPMorgan Chase

Bank, N.A., — F.3d —, 2011 WL 1772657 (11th Cir. May 11, 2011). The Court

held oral argument on this issue on July 12, 2011. The next day, the Court issued

an order finding that Baptista does not demand reversal of this Court's Omnibus

Order. Referring to the preemption provisions of the Dodd Frank Act and that

statute’s adoption of the preemption analysis espoused by the United States

Supreme Court in Barnett Bank, the Court read Baptista “as holding that a state

statute is preempted by the [National Bank Act] where it is directed at limiting a

right expressly granted to federally chartered banks by the NBA.” The court

found that the claims brought by the plaintiffs are -

[D]istinguishable from Baptista because it is not predicated upon a

bank's authority to charge fees. As this Court previously noted in its

Omnibus Order, In re Checking Account Overdraft Litig., 694 F. Supp.

2d at 1310-1311, none of the MDL Plaintiffs have claimed that banks are

unable to charge fees to their customers. Indeed such a claim would fail

in light of the OCC's interpretation of the NBA, which permits banks to

"charge fees and to allow banks latitude to decide how to charge them."

See also 12 C.F.R. § 7.4002(b)(2). Instead, Plaintiffs only seek recovery

for the manner in which banks manipulated their debit and checking

charges, rather than the manner in which those fees were computed. Cf

In re Checking Account Overdraft Litig., 694 F.Supp. 2d at 1313-14.

The Court also noted that it has previously identified this same distinction in its Omnibus

Order, but that it “bears further discussion:”

A desire to limit a bank's authority to charge a fee is not synonymous

with a desire to hold a bank liable for the bad-faith manner in which an

account is reorganized to justify a larger number of overdraft charges.

42

Baptista holds that the former cannot be permitted in light of the

NBA's preemptive reach. But neither this Court nor the Eleventh

Circuit can prevent a lawsuit by an individual under the latter, since

the NBA has not foreclosed such claims. Instead, very much to the

contrary, 12 C.F.R. § 7.4007(c) states as follows:

State laws are not preempted. State laws on the

following subjects are not inconsistent with the

deposit-taking powers of national banks and apply to

national banks to the extent that they only incidentally

affect the exercise of national banks' deposit-taking

powers: (1) Contracts; (2) Torts; [and] (3) Criminal

Law...

Id. (emphasis added). Inherently, therefore, the NBA rests upon a

foundation of state contract law that it does not - it cannot - preempt.

The Court concluded that the claims raised by Plaintiffs (and the state laws upon

which they are founded) only "incidentally affect the exercise of national banks'

deposit-taking powers" and the other powers granted to them by the NBA. Instead,

the Court construed plaintiffs’ claims as only seeking to “ensure that the banks'

actions are not taken in bad faith and in breach of the banks' duty to act in good faith

towards their depositors” and that “the oft-presumed duty of good faith and fair

dealing is certainly subordinate to a bank's ability to "charge fees and to allow banks

latitude to decide how to charge them.”

On July 25, 2011, the court granted plaintiff’s motion to certify the first tranche of

cases as a class action. The court certified as a class:

All Union Bank customers in the United States who had one or

more consumer accounts and who, from applicable statutes of

limitation through August 13,2010 (the "Class Period"), incurred

an overdraft fee as a result of Union Bank's practice of sequencing

debit card transactions from highest to lowest.

It also approved the creation of four subclasses consisting of (1) two state-good

faith and fair dealing subclass (encompassing California and

Oregon), (2) a California unjust enrichment subclass, (3) three state

unconscionability subclasses (encompassing California, Oregon and Washington),

and (4) a California unfair competition subclass.

On September 1, 2011, the court took up (on remand from the United States Court

of Appeals for the Eleventh Circuit) the issue of whether it properly denied

motions submitted by five defendants seeking to compel arbitration. The

Eleventh Circuit specifically directed the Court to consider whether the Supreme

Court’s decision in Concepcion affected the analysis. In its order, the Court

concluded that while Concepcion represented a major sea-change in the

43

jurisprudence regarding the ability to enforce arbitration provisions that contain

class-action waivers, any determination as to whether a particular clause was

unconscionable had to be undertaken on a case-by-case basis. The Court then

determined that each of the arbitration clauses in question were unenforceable.

This order has been appealed to the Eleventh Circuit.

On November 22, 2011, the court issued its final approval of the settlement of

claims against Bank of America. The order contains an interesting assessment of

the merits of the claims and defenses, including preemption.

On December 29, 2011, the court issued a final order of dismissal in the case

against City National Bank of West Virginia and City Holding Company.

On January 23, 2012, the court accepted U.S. National Association’s motion to

compel arbitration and stayed briefing and other proceedings temporarily for

ninety days. Should mediation not be successful, the parties’ proceedings will re-

commence on or before April 23, 2012.

On February 6, 2012, the Court docketed an order suspending a revised

scheduling order pending the filing of an anticipated settlement agreement

between JPMorgan and Plaintiffs. The anticipated settlement is for an amount of

$110 million and comes on the heels of Bank of America’s $410 million

settlement last year.

In a separate but related case in the multi-district litigation, the Court denied

Wells Fargo’s Motion for Stay Pending Appeal which was filed with the Court on

December 16, 2011. The motion for stay was in response to the Court’s order

denying Wells Fargo’s Motion to Dismiss for Lack of Jurisdiction. Ruling on the

Motion to Stay, the Court stated that the appeal was “frivolous” since it was filed

after the Court issued a denial of an untimely filed motion to compel arbitration.

On March 1, 2012, IBERIABANK filed a motion seeking final approval of a $2.5

million settlement with the Plaintiffs. The agreement requires IBERIABANK to

begin posting debit card transactions to IBERIABANK accounts in the order in

which they are authorized or settled by the bank. IBERIABANK began correcting

this process in November of 2011. If approved, the Plaintiffs will receive a pro

rata share of the settlement. On April 16, 2012, the Court approved the settlement.

A final proposed order approving settlement is currently being drafted.

On April 26, 2012, the Court approved the proposed IBERIABANK settlement;

Plaintiffs will receive $2.5 million and other injunctive relief.

On April 20, 2012, Bank of Oklahoma and Citizens Financial (a unit of Royal

Bank of Scotland) began settlement discussions. Citizens Financial has offered

Plaintiffs $137.5 million to resolve the dispute.

44

On May 4, 2012, the Court certified a class action in Shane Swift v. BancorpSouth

Bank (10-cv-23872). The lawsuit alleges that BancorpSouth Bank engaged in a

systematic scheme to extract the greatest possible number of overdraft fees from

Plaintiff by manipulating and re-ordering debit card transactions. Plaintiff alleges

that BancorpSouth did not properly disclose or explain its overdraft rules to

customers.

On May 24, 2012, the parties in Lopez v. JPMorgan Chase Bank, N.A. agreed to a

settlement. Under the terms of the agreement JPMorgan will pay a total of $110

million to the plaintiffs, including attorneys’ fees.

On August 1, 2012, the Court granted Citibank’s motion to dismiss the fourth

amended complaint of Plaintiff Mike Amrhein for lack of subject matter

jurisdiction after the plaintiff filed for Chapter 7 bankruptcy and failed to list his

claims against Citibank as an exempt asset from his bankruptcy claim.

The Court also denied Defendant, Susquehanna Bank’s motion to dismiss on

August 1, 2012.

On August 16, 2012, the court granted class certification in Simmons et al. v.

Comerica Bank (10-cv-326-0) and approved a class settlement in Wolfgeher v.

Commerce Bank, N.A. (10-cv-22017). Plaintiffs in Simmons v. Comerica allege

that Comerica employed software programs specifically designed as part of a

systemic scheme, to extract the greatest possible number of overdraft fees from its

customers. In Wolfgeher v. Commerce Bank, N.A., Commerce Bank agreed to pay

the settlement class $18,300,000 including attorney’s fees and costs.

On August 27, 2012, the Eleventh Circuit reversed the district court, and ruled the

arbitration clause in Barras v. Branch Banking and Trust Company is enforceable.

The defendants challenged whether the district court had properly denied motions

submitted by the defendants seeking to compel arbitration. The Eleventh Circuit

remanded the case to the district court to determine if Concepcion affected the

analysis. The district court concluded that Concepcion significantly changed the

ability to enforce arbitration provisions that contain class-action waivers, but any

determination as to whether a particular clause was unconscionable had to be

undertaken on a case-by-case basis. The Court then determined that each of the

arbitration clauses in question were unenforceable. The order was appealed to the

Eleventh Circuit.

The Eleventh Circuit remanded the case to the district court with instructions to

compel arbitration.

On October 4, 2012, the court issued orders of final approval of settlement in

Larsen v. Union Bank and Eno v. M&I Marshall & Ilsley Bank. The parties in Eno

45

settled for $4,000,000 including attorney’s fees and costs. The parties in Larsen

settled for $35,000,000 or 63% of the likely value of their claims.

A number of cases settled in December, including the following: Buffington, et al.

v. SunTrust Banks, Inc., (09-cv-23632), Lopez v. JPMorgan Chase Bank, N.A.

(09-cv-23127), Luquetta v. JPMorgan Chase Bank, N.A. (09-cv-23432), Michelle

Keyes v. Fifth Third Bank (10-cv-60505), Melvin L. Thomas III and Billy D.

Lawson, Jr. v. BancorpSouth Bank and BancorpSouth, Inc. (12-cv-22180).

On March 12, 2013, the court granted a motion to compel arbitration in the

case Gordon v. Branch Banking & Trust Co., citing Hough v Regions

Financial Corp. et al., another case in this multidistrict litigation on appeal to

the Eleventh Circuit. The Hough appeal involved the application of Georgia

state law to questions of unconscionability in a bank customer agreement.

The Eleventh Circuit held provision of a contract similar to the contract in

Gordon, containing reimbursement provisions, “substantively and

procedurally” unconscionable under Georgia law.

The court also granted a motion to compel in Rider et al. v. Regions Financial

Corp. et al. on March 12, 2013.

On March 18, 2013, the court approved settlement in the amount of $62

million in three cases against TD Bank, N.A., Mosser v. TD Bank, N.A.,

Mazzadra et al. v. TD Bank, N.A., Hughes et al. v. TD Bank, N.A., effectively

dismissing the cases with prejudice.

25. In re: Bank of America Home Affordable Modification Program

(HAMP) Contract Litigation, 1:10-md-02193-RWZ (D. Mass.).

Issues and Potential Significance: This litigation arises out of the United States

Treasury’s highly-publicized Home Affordable Modification Program (HAMP).

Several suits have popped up in various jurisdictions.

The National Consumer Law Center has filed four separate actions – each

targeting a different lender/loan servicer doing business in Massachusetts

– alleging that the targeted defendants have failed to comply with their

obligation under the program to provide Plaintiffs (borrowers with home

mortgages that are in default) with a permanent loan modification.

A number of individual and class action suits brought against Bank of

America (In re: Bank of America Home Affordable Modification Program

(HAMP) Contract Litigation, MDL No. 2193). This litigation consists of

(1) eight putative class actions pending in seven districts (Western District

of Washington, the District of Arizona, Central District of California,

Northern District of California, the District of Massachusetts, the District

of New Jersey, and the Eastern District of Pennsylvania) and (2) six

46

individual actions pending in five districts (Southern District of West

Virginia, Eastern District of Louisiana, District of Massachusetts, the

Western District of Washington, and the Eastern District of Wisconsin).

The complaints allege that, as recipients of TARP funds and participants in the

HAMP program, the defendant banks are obligated to evaluate all loans that are

60 or more days delinquent for HAMP modifications. They also allege that if a

borrower contacts a “Participating Servicer” regarding a HAMP modification, the

Participating Servicer must collect income and hardship information to determine

if HAMP is appropriate for the borrower.

In general terms, borrowers seeking to obtain a HAMP modification must provide

the Servicer with updated financial information. If they comply and qualify for

the program, the homeowner may be offered a Trial Period Plan (“TPP”). The

TPP consists of a three-month period in which the homeowner makes mortgage

payments based on a formula that uses the updated financial information

provided. If the homeowner complies with all documentation requirements and

makes all three TPP monthly payments, the homeowner may be offered a

permanent modification of their loan.

The lawsuits allege that the banks and servicers are not offering HAMP relief to

all of the loans on their books that qualify for the program, and that they routinely

fail to offer permanent modifications to qualifying homeowners who apply under

the program.

Some of the cases – including a number of class actions involving Bank of

America– have been consolidated in a multidistrict proceeding that was originally

filed by the National Consumer Law Center, Johnson v. Bank of America Home

Loans, (D. Mass., Case No. 10-cv-10316-RWZ). The non-class action suits have

not been consolidated; the Multidistrict Panel noted that “[w]hile these actions

may share some questions of fact with the putative class actions, they will focus

to a large extent on individual issues of fact that are unique to each plaintiff’s

interactions with Bank of America. Indeed, several individual complaints do not

mention HAMP at all.”

Bottom line: the cases arising out of the industry’s implementation of the HAMP

program are likely to maintain a high profile. The consolidation of the class

action cases into a single proceeding should help move these proceedings along.

Proceedings/Rulings: The Multidistrict Panel identified a number of other

HAMP-related suits brought against Bank of America or BAC Home Loan

Servicing that are pending in other jurisdictions outside of Massachusetts. Cases

are being identified and transferred to the multi-district proceeding.

47

An amended consolidated complaint was filed on January 21, 2011. On February

22, 2011, Defendants BAC Home Loans Servicing, L.P. and Bank of America,

N.A. filed a motion to dismiss.

On April 5, 2011, a subset of the consolidated plaintiffs asked the court to issue a

preliminary injunction to block Bank of America from initiating foreclosure

proceedings.

On April 7, 2011, the court heard argument in connection with the defendants’

motion to dismiss, taking that motion under advisement.

On May 27, 2011, the Defendants filed a motion seeking to consolidate the BAC

Home Loans Servicing, L.P. and the Joseph v. Bank of America, N.A. cases with

the MDL case. Defendants’ request consolidation on basis that both actions are

based on the same facts and involve the same subject matter.

On July 6, 2011, the court partially granted the motion to dismiss. The decision

generally splits along the lines of the two proposed classes: a class of

homeowners whose mortgage loans have been serviced by one or both

defendants, but who were never offered a TPP, and a set of 15 statewide classes

of homeowners who entered into the TPP but were not given a permanent HAMP

modification.

With respect to homeowners who were not offered a TPP, the court dismissed

plaintiffs’ theories that Bank of America had breached the terms of the Servicer

Participation Agreement between the U.S. Department of the Treasury and the

bank, and associated arguments based on (1) a breach of the duty of good faith

and (2) promissory estoppels. The court found that these plaintiffs lacked

standing to sue based on an alleged breach of the agreement between the bank and

the Treasury Department for the fundamental reason that they were neither parties

to that agreement nor were they third party beneficiaries.

With respect to the second class of plaintiffs – those who entered into a TPP but

were not granted a permanent HAMP modification – the court denied the motion

to dismiss on the grounds that the complaint had plead adequate facts to survive

dismissal. The court, however, denied plaintiffs’ request for a preliminary

injunction to halt foreclosures. The plaintiffs were already beneficiaries of a

“voluntary foreclosure hold.” Second, the court found that entering an injunction

before class certification and a determination of the scope of such class or classes

would be both improper and unmanageable.

On November 4, 2011, the consolidated plaintiffs filed a Third Amended

Complaint. On December 12, 2011, BAC Home Loans filed a response to the

Third Amended Complaint.

48

On January 26, 2012, Plaintiffs of the unconsolidated non-class action filed a

second amended complaint.

A number of plaintiffs have since filed stipulations of dismissal. The first

stipulation of dismissal was filed on December 10, 2012, followed by a second on

January 24, 2013.

26. First Premier Bank and Premier Bankcard, LLC V. Board of

Governors of the Federal Reserve, U.S. District Court for the District of South

Dakota (Case No. 11-4103).

Issues and Potential Significance: This case challenges the amendments to

Regulation Z that went into effect in October 2011. The plaintiffs, Premier Bank and

Premier Bankcard, operate a credit card program aimed at consumers who would not

otherwise qualify for a traditional credit card product. The bank charges applicants a

fee prior to account opening.

The suit takes issue with amendments to 12 C.F.R. §226.52 that regulates credit card

fees paid prior to account opening. Premier Bank argues that this regulation exceeds

the statutory authority of the Federal Reserve and the Consumer Financial Protection

Bureau because the rulemaking authority granted under the Credit Card

Accountability and Responsibility and Disclosure Act of 2009 extends only to fees

paid in the first year during which the account is opened. 15 U.S.C. §1637(n). First

Premier argues that, if the revised regulation is enforced, the bank would be

unable to charge the fee and, as a result, forced to close its credit card program.

Proceedings/Ruling: First Premier Bank filed a complaint on July 20, 2011,

seeking a preliminary injunction to stay the pending October 2011 effective date

of the revised regulation. The Court heard argument on the motion for an

injunction on September 1, 2011.

On September 23, 2011, the Court granted First Premier’s motion for a

preliminary injunction. In its opinion, the court found that the bank had

demonstrated a likelihood of success on the merits and had otherwise met the

other requirements for the issuance of an injunction.

Regarding the merits of its case, the court concluded that the plain language of

section 1637(n) “indicates that this statute is only meant to prevent creditors from

charging fees to the credit balance itself, which would deceptively reduce the

available credit the consumer has available to him or her when first opening the

account.” Because of this, the court ruled that “[n]othing in the plain language of

this statute implies that it is meant to prohibit creditors from charging pre-account

fees or any other fees as long as they are not charged to the account.” The court

rejected the Federal Reserve’s/CFPB’s arguments that “broad purposes” of the

legislation necessitates a rule that precludes fees paid prior to opening the account

because the “statute is clear and unambiguous” and that “plain language of the

statute itself, the legislative history surrounding its enactment, and the Board’s

49

initial interpretation of the statute’s intent” lead to the conclusion that the statute

only gives the Board the authority to promulgate regulations that operate within

the boundaries of Congress’s clearly expressed delegation.

This case has been pending further proceedings since May 2012.

27. JNT Properties v. KeyBank, Case No. 2011-1392 (Ohio Supreme

Court).

This case presents a discretionary appeal to the Ohio Supreme Court seeking the

review of a decision involving the “365/360” method of computing interest on

commercial loans.

KeyBank was sued in the Cuyahoga County Court of Common Pleas for breach

of contract. Plaintiff, a commercial borrower, alleged that the rate being charged

by KeyBank exceeded the rate that is stated in the loan documents. The

documents, which are a “standard” form used by many banks in Ohio, state that

(1) interest is charged at “8.95 percent per annum,” and (2) that the interest is to

be calculated using the “365/360” method. The trial court, however, found the

actual language used in the loan documentation to be “unintelligible” and

reformed the agreement to comport with KeyBank’s interpretation of the contract.

The Ohio Appellate Court reversed, ruling that there are open issues of fact

regarding the intention of the parties which preclude the lower court from

reforming the contract at this stage of the case.

This case is now before the Ohio Supreme Court.

The Court accepted the case for appeal on November 30, 2011.

On January 23, 2012, the American Bankers Association and the Ohio Bankers

League filed a joint amicus brief in support of KeyBank.

Oral arguments were heard on May 22, 2012.

On June 25, 2012, JNT Properties filed a motion with the trial court to voluntary

dismiss its case against KeyBank. KeyBank objected alleging that JNT Properties

was trying to improperly dismiss their complaint with the trial court to prevent the

Ohio Supreme Court from ruling on the case.

On July 13, 2012, the Ohio Supreme Court denied Plaintiffs’ motion to dismiss its

complaint.

On November 21, 2012, the Ohio Supreme Court issued a slip opinion finding

that the promissory note’s interest computation clause that permits the use of the

365/360 method is not ambiguous. The court conceded the clause could have

50

been more clearly drafted, but still found there was no doubt that the purpose of

the clause was to “define the method to be used to calculate interest payments.”

Meanwhile, two similar cases are still pending in Ohio’s Cuyahoga County Court.

Ely Enterprises, Inc. v. FirstMerit Bank, N.A., (Case No. 08-cv-667641) and DK

& D Properties, LTD v. National City Bank, Case No. 08-cv-680078).

As was expected, Plaintiffs filed a voluntary notice of dismissal without prejudice

on November 28, 2012, in DK&D Properties v. National City Bank.

FEDERAL PREEMPTION

28. Kilgore, et al., v. KeyBank National Association, (Ninth Circuit,

No. 09-16703).

Issues and Potential Significance: At issue in this case is an attempt by

Plaintiffs to use a state consumer protection statute – the ubiquitous California

Unfair Competition Law, § 17200 – to manufacture an obligation to insert certain

contractual terms into a loan document based on a federal regulation that is

facially inapplicable.

In a very favorable ruling, the United States District Court for the Northern

District of California held that the National Bank Act preempts any state law –

even state laws of “general application” that do not directly attempt to regulate the

operations of National Banks – if they are deployed in a manner that more than

incidentally affects a national bank's ability to exercise its federally granted

lending powers under the National Bank Act.

Given the significance of the principle at stake, the ABA (along with the Clearing

House Association and the Consumer Bankers Association) filed an amici brief

supporting affirmance of the district court’s opinion.

Proceedings/Rulings: At issue in this case were student loans made by KeyBank

to students enrolled at a private helicopter flight academy located in California.

The students paid the academy approximately $60,000 in tuition for flight

training. Unfortunately for the students, the academy shut down and declared

bankruptcy before the students completed their training. The students filed suit to

enjoin KeyBank from collecting on the loans or reporting the outstanding loan

balances to credit reporting agencies.

The students brought six causes of action under California’s Unfair Competition

Law, Cal. Bus. & Prof. Code § 17200. The claims were premised on the

argument that KeyBank was required by Federal Trade Commission regulations

to insert a “holder” clause in the loan agreements. A “holder” clause, which is

required for purchase money loan agreements, preserves a borrower’s ability to

51

raise claims and defenses against the lender that arise from the seller’s

misconduct. This clause, the plaintiffs argue, would have preserved their ability

to contest their obligation to repay the student loans with KeyBank on the grounds

that the flight school had failed to provide them with the contracted-for training.

The court, the United States District Court for the Northern District of California,

dismissed the case. In a very favorable opinion, the Court found that (1) the

Federal Trade Commission’s regulations do not apply to this transaction, and (2)

the use of the California UCL to impose a particular term or condition in a loan

transaction involving a national bank is preempted by the National Bank Act. The

Court concluded that OCC regulations and Ninth Circuit precedent wholly

supports the conclusion that the relief sought by Plaintiffs’ “would deploy state

law to alter those terms of credit and bar KeyBank from collecting on Plaintiffs’

debts” and that their claims were properly dismissed “in light of its clear

interference with powers conferred on KeyBank by federal law.”

Plaintiffs appealed the case to the Ninth Circuit. On November 1, 2010, the

American Bankers Association filed an amicus brief supporting KeyBank.

On March 7, 2012, the Court issued an opinion which sought to answer whether

the recent decision in AT&T Mobility, Inc. v. Conception, U.S. , 131 S. Ct.

1740 (2011), and the Federal Arbitration Act, preempts the California law

prohibiting the arbitration of claims for broad, public injunctive relief, and

whether such arbitration clauses are unconscionable.

The Count found in favor of Keybank on the motion to compel arbitration, ruling

that the arbitration clause was not unconscionable and that federal law does

indeed supersede California’s Broughton Cruz law. Shortly after the ruling in

Conception, the Northern District of California determined that the California

state law prohibiting the arbitration of claims for broad, public injunctive relief

did not survive the Supreme Court ruling in Conception. Other cases pending in

the Northern California Court, and having similar questions of law, have since

been determined to not survive Conception either. The Supremacy Clause states

that federal law – in this case, the Federal Arbitration Act – “is the supreme law

of the land.”

The court reversed the district court’s ruling, vacated the judgment, and remanded

the case back to the district court with instructions to compel arbitration.

On March 21, 2012, Appellee filed a petition for rehearing and a petition for

rehearing en banc.

On September 21, 2012, the court, by a majority vote, ordered that the case be

reheard en banc. In the meantime, the opinion of the court will not be cited as

precedent by or to any court of the Ninth Circuit.

52

On December 11, 2012, the court heard oral arguments for rehearing en banc.

MORTGAGE/SUBPRIME LENDING

29. Policemen’s Annuity and Benefit Fund of the City of Chicago v.

Bank of America, NA, et al., (Case No. 12-cv-2865; United States District Court

for the Southern District of New York)

A federal district court in New York will decide whether the Trust Indenture Act

(“TIA”) applies to pass-through mortgage-backed securities certificates.

Issues and Potential Significance: On April 11, 2012, the Policemen’s Annuity

and Benefit Fund of the City of Chicago brought a putative class action against

Bank of America, N.A and U.S. Bank National Association in their capacities as

trustees of residential mortgage-backed securities alleging that both banks

breached their contractual duties under the trust’s Pooling and Servicing

Agreements (“PSA”) and violated the Trustee Indenture Act of 1939 when the

banks failed to take certain actions required by the PSAs. Under the TIA, a trustee

is obligated to “give to the indenture security holders…notice of all defaults

known to the trustee, within ninety days after the occurrence thereof… .” And by

failing to take those actions, plaintiffs claim that defendants caused a decline in

the value of plaintiffs’ mortgage-backed securities.

Proceedings/Rulings: On December 7, 2012, the district court held that plaintiffs

have standing to pursue claims: (a) relating to the five Trusts in which it

purchased certificates; and (b) on behalf of purchasers of certificates (i) whose

certificates are backed by the loan group that back plaintiffs certificates, or (ii)

whose certificates are cross-collateralized by loan groups that back plaintiffs

certificates.

Plaintiffs filed a second amended class action complaint on January 15, 2013.

* 30. Retirement Board of the Policemen’s Annuity and Benefit Fund of

the City of Chicago v. The Bank of New York Mellon, (Case No. 13-664;

United States Court of Appeals for the Second Circuit, Case No. 11-cv-5459;

United States District Court for the Southern District of New York).

This is a case with similar facts to the case above (Policemen’s Annuity and

Benefit Fund of the City of Chicago v. Bank of America, NA, et al.) brought by

the same plaintiff against The Bank of New York Mellon in the Southern

District of New York challenging whether the Trust Indenture Act (“TIA”)

applies to pass-through mortgage-backed securities certificates.

Issues and Potential Significance: On August 5, 2011, the Retirement Board

of the Policemen’s Annuity and Benefit Fund of the City of Chicago

53

(“Retirement Board”) brought legal action against The Bank of New York

Mellon (“BNYM”) in its capacity as trustee of residential mortgage-backed

securities. According to the Retirement Board, BNYM breached its

obligations under the trust’s Pooling and Servicing Agreements (“PSA”) and

violated the Trustee Indenture Act of 1939 when it failed to take certain

actions required by the PSAs to protect its investors.

Proceedings/Rulings: On April 3, 2012, the district court partially dismissed

the complaint for the Retirement Board’s lack of standing to pursue claims

regarding trusts in which they had never invested. BNYM filed a motion to

reconsider the court’s refusal to dismiss the complaint in its entirety, and on

February 14, 2013, the district court denied the motion but certified the April

3, 2012 order for interlocutory appeal.

On March 4, 2013, the American Bankers Association and the New York

Bankers Association filed an amicus brief in support of the permission to file

interlocutory appeal, expressing concern over the potential effects of

regulating Residential Mortgage-Backed Securities (“RMBS”) under TIA

regulations which are designed for the oversight of debt instruments. Doing

so, the brief argues, could cause confusion and create disruptions for market

participants that could prove costly in the long run.

A copy of the ABA brief is attached.

31. Township of Mount Holly, New Jersey v. Mount Holly Gardens

Citizens in Action, Inc., Case No. 11-1507 (United States Supreme Court).

Disparate impact claims alleged under Fair Housing Act (“FHA”) are before the

Supreme Court once again. The plaintiffs petitioned for a writ of certiorari before

the Supreme Court and, if accepted, the decision could transform enforcement

standards under the FHA.

Issues and Potential Significance: The case would require the Supreme Court to

decide whether a disparate impact claim may be alleged under the Fair Housing

Act. The Plaintiffs’ claim that plans to redevelop their community will have a

disproportionally negative effect on its minority residents.

Proceedings/Rulings: The case was initially dismissed on a summary judgment

motion in district court and made its way to the Third Circuit where the dismissal

was reversed. The Third Circuit found that the district court misapplied the

standard for deciding whether the residents could establish a prima facie case

under Title VIII and did not draw all reasonable inferences in favor of the

residents of Mount Holly.

The homes in Mount Holly are comprised mostly of African-American and

Hispanic residents who are described as poor – almost all of its residents earn less

54

than 80% of the area’s median income – and crime ridden. About 28% of the

crimes in the area occur in the Gardens.

In 2003, the township implemented the Gardens Area Redevelopment Plan which

called for the demolition of all homes in the neighborhood and the

permanent/temporary relocation of its residents. The redevelopment plan

suggested the construction of new housing units. Garden residents objected to the

proposals and to the process of relocation. Despite their objections, the

development proceeded and a developer began to redevelop the neighborhood.

Residents were offered $15,000 and a $20,000 no-interest loan to assist with the

purchase of replacement homes. The township offered purchasing prices of

between $32,000 and $49,000 to buy the homes in the Gardens. The new homes

being built ran between $200,000 and $275,000.

In October 2003, Citizens in Action filed a suit in state court alleging that the

Mount Holly Township had violated New Jersey’s redevelopment laws and

various anti-discrimination laws.

The New Jersey Superior Court dismissed the case on a motion for summary

judgment in favor of the township on the basis that the area was destroyed and

anti-discrimination claims were premature because the redevelopment project had

not yet began. The Appellate Court affirmed the lower court decision, and the

case was ultimately dismissed by the New Jersey Supreme Court.

In May 2008, Plaintiffs filed suit in federal district court alleging violations of the

Fair Housing Act, Title VIII of the Civil Rights Act, and Equal Protection Clause

of the Fourteenth Amendment. The district court ruled that there was no prima

facie case of discrimination under the Fair Housing Act and that Plaintiffs has

failed to show an alternative solution would have had a lesser impact.

The Third Circuit granted a motion to stay the redevelopment pending an appeal

and later found that the district court misapplied the standard for deciding whether

the residents could establish a prima facie case under Title VIII and did not draw

all reasonable inferences in favor of the residents of Mount Holly.

On June 11, 2012, the township filed a petition for a writ of certiorari at the US

Supreme Court. Responses to the petition were filed on July 13, 2012.

On October 29, 2012, the Court invited the solicitor general to file a brief

expressing the views of the United States. Briefing is still ongoing.

32. The People of the State of New York v. JPMorgan Chase Bank,

(Supreme Court of the State of New York, Kings County, Index number

002768/2012).

55

Issues and Potential Significance: This case arises out of several states claims

against banks for their creation and use of Mortgage Electronic Registration

Systems, Inc. (“MERS”) and what the states are calling fraudulent foreclosure

practices. The suit names JPMorgan Chase Bank, Chase Home Finance, LLC,

EMC Mortgage Corporation, Bank of America, N. A., BAC Home Loans

Servicing, LP, Wells Fargo Bank, N.A., Wells Fargo Home Mortgage, Inc.,

MERSCORP, Mortgage Electronic Registration Systems, Inc. and was filed only

days before forty-nine states and the federal government reached a historic

settlement agreement against the country’s five major loan service banks –

Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo.

Proceedings/Rulings: The complaint which was filed on February 3, 2012,

alleges that the creation and use of MERS resulted in a number of fraudulent

practices and illegal acts, including the filing of over 13,000 foreclosure actions

against New York homeowners – many of which were “faulty and deceptive.”

New York State joined the recent settlement with Ally, Bank of America and

others, so it will be interesting to see if this suit goes away or stays. According to

the terms of the settlement, details of which are sparsely publicly available, banks

are still accountable for other claims not covered by the settlement. Claims

against MERS or MERSCORP are not part of the settlement.

On June 25, 2012, JPMorgan Chase filed a motion to dismiss. The case is still

pending.

A hearing for the motion to dismiss was heard on February 28, 2013.

33. Hudson Valley Federal Credit Union v. New York State

Department of Taxation and Finance, (Case No. 25032/99, New York Supreme

Court, Appellate Division).

Issues and Potential Significance: Are mortgages made to federal credit unions

to secure loans made to its members exempt from the mortgage recording tax?

New York Supreme Court’s Appellate Division says “no.” The case is currently

before New York’s highest court, the Court of Appeals.

Proceedings/Rulings: In a decision issued on June 2, 2011, the Appellate Court

held that since the mortgage tax is a tax on the privilege of recording a mortgage

and not a tax on property, the exemption from taxation for the property of a

federal credit union does not apply.

On May 12, 2009 Hudson Valley Federal Credit Union filed a complaint against

the New York State Department of Taxation and Finance challenging the

imposition of a New York state mortgage recording tax on mortgages given to

secure loans made by federal credit unions to their members. The challenge was

on the grounds that federal credit unions are exempt from such taxation under the

56

Federal Credit Union Act of 1934 and the Supremacy Clause of the United States

Constitution.

On July 21, 2011, the Supreme Court, New York County dismissed the complaint,

rejecting Hudson Valley’s contention that the Federal Credit Union Act should be

interpreted in such a way that it exempts federal credit unions’ mortgage loans,

and the right to record them, from the mortgage recording tax simply because “the

imposition of the tax undermines the statute’s main policy of making low-cost

credit available to average Americans by increasing the cost of mortgage loans.”

A number of parties have filed amicus curiae briefs in the case which is now

before the New York Court of Appeals.

The ABA and the New York Bankers Association filed a joint amicus brief in

support of the New York State Department of Taxation and Finance on May 17,

2012.

On July 9, 2012, Hudson Valley Federal Credit Union filed a reply brief in

response to the joint amicus filed by the ABA and the New York Bankers

Association.

Oral argument was heard on September 4, 2012. See a copy of the Oral Argument

Transcript.

On October 18, 2012, the Court of Appeals for the State of New York held that

federal credit unions must pay the New York’s mortgage recording tax. The court

reasoned that if federal credit unions were exempt from the tax it would have been

expressly stated in the Federal Credit Union Act (FCUA) The court observed,

“the FCUA contains an extensive list of exemptions relevant to federal credit

unions, it makes no mention of mortgages or loans of any kind … This omission

weighs against Hudson Valley’s argument.”

34. Federal Housing Finance Agency v. Chicago, (Case No. 11-cv-

08795 (U.S. Dist. Ct. N.D. Illinois).

Issues and Potential Significance: On September 6, 2008, the Director of the

Federal Housing Finance Agency (“FHFA”), acting under the authority of the

Housing and Economic Recovery Act of 2008 (“HERA,” codified at 12 U.S.C.

4617 et seq.), placed Fannie Mae and Freddie Mac under conservatorship and

appointed FHFA as Conservator. The City of Chicago passed an ordinance on

July 28, 2011, that broadly defines “mortgagee’ to include holders of mortgages,

their successors in interest, and servicers and that requires mortgagees to maintain

and register vacant buildings, including those in foreclosure.

As Conservator for Fannie Mae and Freddie Mac, FHFA sued the City of Chicago

on December 12, 2011, seeking declaratory judgments and injunctions against the

ordinance. FHFA claims that its duties as Conservator are exempt from

57

supervision by the City or the State of Illinois and that the ordinance is preempted

as to Fannie Mae and Freddie Mac because it would subject them to supervision

by state entities in addition to supervision by FHFA. FHFA also claims that the

ordinance attempts to create an obstacle to accomplishment of “the full and

explicit purposes of Congress” in assigning supervision of Fannie Mae and

Freddie Mac to FHFA and thus is preempted. FHFA claims that the ordinance

impermissibly attempts to subject Fannie Mae and Freddie Mac to local taxes and

fees (other than property taxes) and to local penalties and fines despite a

conservator’s statutory immunity from those penalties and fines. The suit seeks

orders from the court declaring that FHFA, Fannie Mae and Freddie Mac are

statutorily immune from the ordinance as it applies to mortgagees or obligees,

enjoining its enforcement against them in their capacities as mortgagees or

obligees, and ordering refunds of fees and costs paid by FHFA, Fannie Mae and

Freddie Mac under the ordinance.

On January 17, 2012, the City of Chicago responded to the FHFA’s motion for

summary judgment, opposing what the City called the FHFA’s attempt to

suppress the City’s right to respond to the complaint and the FHFA’s “attempt to

confuse and cloud issues concerning the legal sufficiency of its complaint.”

On March 2, 2012, the City filed a motion to dismiss the complaint on the

grounds that Plaintiff lacked subject matter jurisdiction to attack the application of

a City ordinance approved by the city council. The motion argues that the only

party authorized to bring suit is the Director of the FHFA. And since there has

been no party appointed to fill this position, an Acting Director can only stand-in

for a Director.

35. Board of County Commissioners of the County of Cleveland v.

MERSCORP, Inc, (Case No. 11-1727; District Court of Cleveland County for

the State of Oklahoma).

This is a class action brought by Cleveland County on behalf of the Board of

County Commissioners alleging that Defendants breached Oklahoma law when

they failed to record each and every mortgage assignment in the proper county

recording offices and failed to pay the assigned fees associated with such

assignments.

Under Oklahoma law, the requirement for assigning mortgages requires that each

and every mortgage is recorded with the county clerk of the recording office in

each county. This process is associated with a fee that county clerks are

responsible for collecting. Defendants operate as mortgage securitization firms –

working together with other banking institutions by dealing in the transfer of

mortgages under a system called MERS. MERS has been in operation since 1997

and includes a number of registered members (mostly banks and mortgage

institutions) in a private computer system that allows its users to register and track

changes in ownership interests in mortgages.

58

Plaintiffs allege that the MERS system is a scheme because it allows its members

to find faster and cheaper ways of securitizing mortgages and fails to record their

mortgages with county offices. Defendants have repeatedly failed to record

mortgages in the county recording offices by recording the land instruments in the

names of private corporate entities that act as placeholders in county public

records. This, plaintiffs allege, has resulted in far-reaching devastating

consequences for the counties in Oklahoma and their public land records, as well

as damage to public records.

The class action is seeking the court to enter an injunction compelling Defendants

to record prior and future mortgage and mortgage assignments on all real property

located in Oklahoma counties. Plaintiffs are also seeking restitution from

Defendants of all profits, benefits and other compensation that Defendants might

have obtained through what Plaintiffs call wrongful and improper conduct and

unjust enrichment.

On May 17, 2012, Defendant GMAC Residential Funding Corporation filed for

Chapter 11 bankruptcy automatically staying the case. A notice of removal of

state court action was filed on May 18, 2012.

On August 10, 2012, the Court granted the plaintiff’s motion to remand the case

to the District Court of Cleveland County, State of Oklahoma after several other

defendants, including MERSCORP Holdings, Inc., opposed the remand. The

Board of County Commissioners of the County of Cleveland sought to remand the

case to the district court in response to defendants’ notice of removal of the state

court action filed on May 18, 2012.

On September 10, 2012, defendant SpiritBank filed a motion to dismiss the

complaint citing a lack of authority to bring the suit against SpiritBank.

SpiritBank argued that the Board of County Commissioners could not bring the

suit against the defendant because the statute under which the Commission filed

its suit is meant to protect mortgage assignees, and not the counties in which the

assigned properties are located. As such, only assignees can bring a claim for an

alleged failure to properly record a mortgage.

On November 19, 2012, Plaintiffs filed an amended class action petition.

MISCELLANEOUS

36. Mortgage Bankers Association v. The United States Department of

Labor, (United States Court of Appeals for the District of Columbia Circuit, Case

No. 12-5246)

59

Issues and Potential Significance: The Mortgage Bankers Association (“MBA”)

challenged the Department of Labor’s (“DOL”) reclassification of mortgage loan

officers as eligible for overtime pay under the Fair Labor Standards Act

(“FLSA”).

Proceedings/Rulings: The Mortgage Bankers Association, a national trade

association representing the real estate finance industry, alleges that the DOL

violated the Administrative Procedures Act (“APA”), by changing its prior

Administrative Interpretation without a notice and comment process.

In August 2004, the DOL amended its regulations interpreting the wage and hour

requirements as set forth in the FLSA, which made it clear that “many financial

services employees qualify as exempt administrative employees, even if they are

involved in some selling to customers.” In a 2006 opinion letter in response to an

enquiry by the MBA seeking clarification from the DOL on the exempt status of

its mortgage loan officers who “spent less than fifty percent of their working time

on customer-specific persuasive sales activity,” the DOL concluded that the

Association’s mortgage loan officers classified as exempt employees. On March

24, 2010, the DOL issued an Administrative Interpretation withdrawing the 2006

opinion letter. The Administrative Interpretation concluded that in order for

mortgage loan officers to properly classify as exempt employees, their primary

duties must be administrative in nature. The DOL did not utilize the APA’s

procedure of sending out a notice seeking comments from interested parties when

it issued the 2010 interpretation.

The final ruling/interpretation triggered a wave of putative class action suits

accusing mortgage lenders of improperly denying loan officers overtime pay.

On January 12, 2011, the MBA filed suit against the DOL asserting that the

agency violated the APA when it issued the 2010 administrative interpretation.

The U.S. District Court for the District of Columbia rejected the MBA’s

Paralyzed Veterans of America v. D.C. Arena LP argument finding that it did not

apply in this case. The 1997 ruling in Paralyzed Veterans of America held that

once an agency interprets a regulation, it can only change that interpretation

through the “notice and comment” process.

The MBA appealed to the D.C. Circuit Court. In a reply brief filed on February

15, 2013, the DOL argued that Paralyzed Veterans of America v. D.C. Arena LP

should be overturned and the agency reclassification should be affirmed.

Oral arguments were held on March 22, 2013.

37. McCutcheon v. Federal Election Commission, (United States

Supreme Court; Case No. 12-536).

60

The Supreme Court will decide if aggregate contribution limits imposed by the

Federal Election Commission (“FEC”) on contributions by individuals are

constitutional.

On September 28, 2012, the U.S. District Court for the District of Columbia

dismissed a lawsuit brought by Shaun McCutcheon and the Republican National

Committee (“RNC”) alleging the Federal Election Campaign Act’s (“FECA”)

biennial limit on contributions made by individuals is an infringement on an

individual’s First Amendment rights and not supported by a sufficient government

interest.

FECA imposes limits on the amounts that individuals may contribute to federal

candidates and other political committees, the amounts of which are currently

capped as follows: $2,500 per election to a federal candidate, $30,800 per year to

a national party committee, and up to $5,000 per year to a non-party political

committee.

On September 28, 2012, a special three judge federal court in Washington, DC

rejected the plaintiffs’ claims holding that the aggregate contribution limits only

affect what an individual can contribute directly to committees. Individuals are

still free to volunteer, join political associations, and engage in independent

expenditures.

On February 19, 2013 the Supreme Court agreed to hear the case. The Court is

expected to hear argument during its next term starting in October.

38. Frontier State Bank Oklahoma City, Oklahoma v. Federal Deposit

Insurance Corporation, (United States Court of Appeals for the Tenth Circuit;

Case No. 11-9529).

Issues and Potential Significance: On December 26, 2012, the Tenth Circuit

found that a bank’s primary federal regulator has discretionary power to set a

bank’s capital minimum requirements at any level it chooses.

Proceedings/Rulings: In 2002, Frontier State Bank used a “leverage strategy” to

fund long-term investments with short-term borrowing hoping to profit from the

difference between long-term and short-term interest rates. In 2004, the Federal

Deposit Insurance Corporation (“FDIC”) determined that the bank’s leverage

strategy was too risky and negotiated a memorandum of understanding with the

bank which required, among other things, that the bank maintain a 7% leverage

capital ratio. In 2008, the FDIC alleged that Frontier Bank’s leverage strategy was

“unsafe or unsound” and sought a cease-and-desist order to stop the bank from

executing its leverage strategy. The administrative law judge sided with the FDIC

and increased Frontier’s minimum capital requirement to a 10% tier 1 capital

ratio.

61

Frontier appealed the final decision of the FDIC’s Board to the Tenth Circuit.

On December 26, 2012, the Tenth Circuit held that as Frontier’s primary

regulator, the FDIC has the authority to establish the bank’s minimum capital

requirements and the court did not have jurisdiction to review the FDIC’s

determination. The court issued its mandate on February 19, 2013.

39. NML Capital Ltd. v. Republic of Argentina, (Case No. 12-105;

United States Court of Appeals for the Second Circuit)

This case examines whether the federal district court may enter an injunction that

punishes non-parties with contempt when the non-party can neither cure nor

prevent the violation from occurring.

Bank of New York Mellon (BNY Mellon) was an indenture trustee for Exchange

bonds issued to holders by Argentina in 2005 and 2010. In 2001, the Republic of

Argentina defaulted on its bond debt and plaintiffs alleged that BNY Mellon, in

its capacity as an indenture trustee was a “third party” subject to a Southern

District of New York injunction which ordered the Republic of Argentina to “pay

any amounts due under the bonds or obligations issued pursuant to the Republic’s

2005 or 2010 Exchange offers….” In addition, the court permanently prohibited

Argentina from taking any action that will be deemed an evasion of the court’s

order. The injunction was issued based on a covenant in the 1994 Fiscal Agency

Agreement governing the defaulted bonds, which allows the court to enjoin any

payments to holders of the bonds unless Argentina makes pari passu payments to

the plaintiffs on their bonds.

On October 12, 2012, the case was appealed to the Second Circuit and on October

26, 2012, the Second Circuit affirmed the district court’s issuance of the

injunction but remanded the case for clarification on the issues of 1) the formula

used for paying plaintiffs, and 2) how the parties are bound by the injunction.

On November 21, 2012, the district court went a step further and expressly named

BNY Mellon as a party subject to the injunction. This rendered BNY Mellon

subject to the terms of the injunction which hold an indenture trustee in contempt

should Argentina remit funds to the trustee and the trustee pays the Exchange

holders and if Argentina fails to make the required payments to the plaintiffs.

BNY Mellon argues that its role in remitting payments to holders in no way “aids

and abets” the Republic of Argentina in its failure to pay plaintiffs on their

separate bonds.

On January 4, 2013, the ABA filed an amicus brief in support of BNY Mellon

arguing that the Indenture Trustee is not within the scope of Rule 65 of the

Federal Rules of Civil procedure and thus, not subject to the injunction issued by

the district court.

62

On March 26, 2013, the Second Circuit denied Argentina's request for an en

banc rehearing after the panel found that it owes $1.4 billion to bondholders

after a 2001 default on its sovereign debt.

40. Noel Canning v. NLRB, (United States Court of Appeals for the D.C.

Circuit; Case Nos. 12-1115, 12-1153).

Proceedings/Rulings: On January 25, 2013, a panel of the D.C. Circuit Court of

Appeals ruled, in Noel Canning v. NLRB that President Obama’s recess

appointment of three members to the National Labor Relations Board (NLRB)

was unconstitutional. The court invalidated the appointments on two grounds. In

the first the court unanimously concluded that under the Recess Appointments

Clause a President may only make appointments during an intercession break and

not an intracession break. The second, joined by two of the three judges held that

the President may only make recess appointments to fill vacancies that arise

during the recess not vacancies that happen to exist during the recess. The

appointments in question were made on January 4, 2012, when the Senate was in

session but operating under a unanimous consent agreement that provided the

Senate would meet “pro forma” twice a week for a few minutes, but the Senate

was not otherwise conducting business.

The unanimous court carefully examined the recess appointments clause of the

Constitution that states "[t]he President shall have Power to fill up all Vacancies

that may happen during the Recess of the Senate, by granting Commissions which

shall expire at the End of their next Session." The court determined that the

definition of “the Recess” is limited to the period which occurs between sessions

of Congress. The court held that recess appointments must be limited to these

intercession recesses and Congress had begun a new session at the time the

president made the NLRB appointments. Therefore, the court concluded,

“Considering the text, history and structure of the Constitution, these

appointments were invalid from their inception.”

Two of the judges ruled that the Recess Appointments clause only allows the

President to fill vacancies that occurred during the intercession recess. The

judges stated the clause permits filling vacancies that “may happen” during the

recess of the Senate. The judges concluded that the phrase “may happen” means

that the vacancy must occur during an intercession recess. Meaning, if a position

is vacant before the end of the session, it cannot be appointed by the President

during the recess. The dissenting judge argued that the issue was superfluous and

should not have been addressed by the court.

Issues and Potential Significance: The court did not rule on the validity of

Richard Cordray’s appointment to the Consumer Financial Protection Bureau, but

his appointment is presumably invalid because Mr. Cordray was installed on the

same day as the NRLB members. Mr. Cordray’s appointment is being challenged

63

in State National Bank of Big Spring, Texas v. Geithner a case that was filed in

the same Circuit and is pending in federal district court.

The Department of Justice has not decided whether the government will seek an

en banc rehearing before the D.C Circuit or simply appeal to the Supreme Court.

However, the White House said the administration strongly disagrees with the

court’s novel and unprecedented decision.

On March 12, 2013, the NLRB announced that it will petition the Supreme

Court for review and will not seek an en banc rehearing before the D.C.

Circuit. The NLRB petition must be filed by April 25 2013.

41. Louis A. DeNaples v. Office of the Comptroller of the Currency,

(United States Court of Appeals for the District of Columbia; Case Nos. 12-1162,

12-1198)

Issues and Potential Significance: The D.C. Court of Appeals vacated an order

banning Louis A. DeNaples from banking for life in a case challenging the

interpretation and enforcement of Section 19 of the Federal Deposit Insurance Act

(“FDIA”). Section 19 restricts who may participate in the affairs of insured

depository institutions and bank and savings loan holding companies, barring

specifically individuals convicted of certain criminal offenses or those who have

entered into “a pretrial diversion or similar program in connection with consent

from the appropriate regulatory agency.”

Proceedings/Rulings: Louis A. DeNaples was the former chairman and majority

shareholder of First National Community Bank (FNB) and previously owned the

Mount Airy Casino in Pennsylvania. In 2008, a state prosecutor charged

DeNaples with perjury alleging he lied to the Pennsylvania Gaming Control

Board about his relationships with suspected members of the Italian Mafia. The

Gaming Board ultimately suspended his gaming license and forbid him from

managing the casino. The Office of the Comptroller of the Currency (“OCC”)

consequently issued a cease-and-desist order (“C&D”) barring DeNaples from

banking until the pending charges were resolved.

In 2009, DeNaples entered into an “agreement” with the district attorney to

withdraw all pending criminal charges if DeNaples satisfied certain prerequisites

including divesting his financial and operational interests in the casino. After the

district attorney’s office told the OCC about the agreement, the OCC issued a

C&D banning Mr. DeNaples from banking for life, alleging the agreement

constituted a pretrial diversion under Section 19.

DeNaples appealed to the D.C. Circuit Court of Appeals after the Board of

Governors of the Federal Reserve System (“Board”) denied his claim that the

OCC did not have the authority to issue the C&D because his agreement with the

64

state prosecutor did not constitute a “pretrial diversion or similar program”

required by Section 19.

While Congress was well-intentioned when it sought to give the agencies “more

effective regulatory powers to deal with crisis in financial institutions,” the court

expressed that it was not surprised that such regulatory powers have succeeded in

creating an overlap among the various enforcement provisions. The court

classified bank regulators enforcement of Section 19 as “bizarre,” “untenable,”

and “scatter-shot,” and accused the OCC of inconsistently interpreting Section

19’s definition of “pretrial diversion or similar program.”

The court remanded the case to the administrative law judge for further

consideration, mandating that the judge consider Pennsylvania state law’s

definition of “pretrial diversion.”

The court stayed the order pending a probable en banc rehearing request from the

government.

The court issued its mandate on March 26, 2013.

42. Gabelli v. Securities and Exchange Commission, (United States

Supreme Court; Case No. 11-1274), (U.S. Court of Appeals for the Second

Circuit; Case No. 10-3581).

The Supreme Court will decide if Section 2462 of Title 28, the general federal

statute of limitations that governs all civil penalties, begins to accrue at the time

of the offense or when the government knew or should have known of the

violation.

In April, 2008, the Securities and Exchange Commission (“SEC”) alleged that

Gabelli Funds, an investment advising company, violated several anti-fraud

provisions of the Securities Exchange Act by failing to disclose its preferential

treatment of an investor regarding short-term trading practices. In its complaint,

the SEC sought an injunction against future violations and civil monetary

penalties. The defendants moved to dismiss the SEC’s claims arguing that the

SEC’s civil penalties claims were barred by the statute of limitations because they

were filed more than 5 years after the alleged violation and that for more than two

years, all alleged fraudulent activity had ceased making an injunction

unnecessary. The district court agreed and on March 17, 2007, dismissed SEC’s

prayer for civil penalties holding that penalties were time barred.

The Second Circuit reversed and held that when a claim is brought under a

statute that “sounds in fraud”, the statute of limitations provisions under Section

2462 of Title 28 does not begin to run until the Government knew or should have

known of the violation.

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On April 24, 2012, the defendants petitioned the U.S. Supreme Court for a Writ of

Certiorari. The Court granted certiorari on September 25, 2012.

The ABA filed an amicus brief on November 16, 2012, arguing that the Second

Circuit incorrectly interpreted Section 2462 of Title 28. Oral arguments were held

on January 8, 2013.

On February 27, 2013, the Supreme Court held that Section 2462 of Title 28

begins to accrue when the fraud occurred, not when the fraud is discovered. The

Court explained that the fraud discovery rule was intended for private party

plaintiffs, not government enforcement actions. The Court reasoned that the rule

is appropriate for private plaintiffs because “[m]ost of us do not live in a state of

constant investigation,” looking for evidence that we were defrauded. However,

the Court said that the SEC’s “very purpose …is to root out fraud,” and therefore

is not entitled to the same deference.

43. FDIC, as Receiver of Integrity Bank of Alpharetta, Georgia, v.

Steven Skow, (United States Court of Appeals for the Eleventh Circuit; Case No.

12-90033) (United States District Court for the Northern District of Georgia; Case

No. 11-cv-0111)

As receiver for a failed bank attempting to recover losses, the FDIC may sue

former officers and directors whose gross negligence contributed to the failure of

the institution. However, under Georgia law, the FDIC as receiver may not pursue

claims of ordinary negligence against former bank employees.

On January 14, 2011, the FDIC as receiver of Integrity Bank of Alpharetta,

Georgia, sued eight former bank directors and officers seeking to recover over

$70 million in losses the bank suffered between February 4, 2005 and May 2,

2007. The complaint alleged that the Defendants caused the bank to pursue an

‘unsustainable growth strategy designed to exploit the then-expanding ‘bubble’ in

the residential and commercial real estate market.” The complaint also alleged

that Defendants targeted privileged loans to a small number of preferred

individual borrowers to an extent that exceeded Loan Policy and Georgia

statutory lending limits.

The Court granted the Defendants’ motion to dismiss the allegations based on

ordinary negligence. The Court reasoned that under Georgia law the business

judgment rule protected the defendants against claims arising from ordinary

negligence. However, the Court permitted the allegation based on gross

negligence to stand.

On March 26, 2012, Plaintiffs filed a motion for reconsideration. On April 23,

2012, the Court granted the motion for reconsideration and gave Defendants until

May 18, 2012 to respond to the motion.

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Defendants filed a response to Plaintiffs’ motion for reconsideration on May 18,

2012 seeking the Court to deny reconsideration based on the premise that (i) the

FDIC is attempting to resurrect an ordinary negligence claim that this particular

Court has already determined is not viable under the state’s judgment rule, (ii) the

FDIC is seeking an early ruling that cannot be used as a defense to the FDIC’s

claims, and (iii) the FDIC having anticipated that it will lose both its motion to

dismiss and motion for reconsideration is seeking the Court to certify the future

denial of its first two motions for interlocutory review.

On August 14, 2012, the Court denied Plaintiffs’ motion for reconsideration and

its motion for partial summary judgment. Parties have until December 28, 2012,

to complete discovery.

While discovery was still ongoing in the district court, the FDIC sought, and was

granted, permission to appeal the case to the Eleventh Circuit.

44. National Association of Manufacturers v. National Labor

Relations Board, (Case No. 12-5068; United States Court of Appeals for the

District of Columbia; Case No. 11-cv-01629; United States District Court for the

District of Columbia).

The National Association of Manufacturers (“NAM”) and its co-plaintiff the

Coalition for a Democratic Workplace (“CDW”) is challenging the authority of

the National Labor Relations Board (“NLRB”) to implement or enforce a “Notice

Rule” scheduled to take effect on April 30, 2012, because NAM claims the board

now lacks authority to effectively make any rulings without the required number

of board members to constitute a quorum of the Board.

The NLRB board consists of five members. With retirements and the term

expiration of members, there were positions that needed to be filled. On January

4, 2012, the President appointed two new members to the board without the

consent of the Senate. The appointments were made as “recess” appointments

even though NAM alleges that the Senate was not in “recess” at the time the

President made those appointments making them “unconstitutional, null and

void.”

In 2010, the Supreme Court held that the Board lacks authority to act with only

two members, New Process Steel, L.P. v. NLRB, 130 S. Ct. 2635 (2010). Plaintiffs

NAM and CDW are requesting that the challenged Notice Rule be enjoined

because the Board no longer has authority to implement or enforce the rule “in the

absence of a statutorily mandated quorum.”

In a memorandum opinion issued on January 6, 2012, the Department of Justice

(“DOJ”) held that the appointment of the Director of the Consumer Financial

Protection Bureau, during a senate recess was legal. Writing for the Department

of Justice, Virginia A. Seitz, assistant attorney general for the Office of Legal

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Counsel wrote that even though the Senate held pro-forma sessions from January

3 to January 23, “in our judgment, the text of the Constitution and precedent and

practice thereunder support the conclusion that the convening of periodic pro

forma sessions in which no business is to be conducted does not have the legal

effect of interrupting an intersession recess otherwise long enough to qualify as a

‘Recess of the Senate’ under the Recess Appointments Clause. In this context, the

President therefore has discretion to conclude that the Senate is unavailable to

perform its advise-and-consent function and to exercise his power to make recess

appointments.”

The DOJ decision could weaken the potential legal challenges to the Director’s

appointment by outside groups opposed to the appointment, but according to press

accounts, the Chamber, the group representing non-bank lenders and most of the

banking lawyers (except for Citi) have suggested that others would be better to

bring the challenge.

On October 4, 2011, the Court consolidated National Association of Manufactures

v. National Labor Relations Board with the National Right to Work Legal

Defense and Education Foundation, Inc. v. National Labor Relations Board, and

the motion for preliminary injunction that originally accompanied the complaints

became moot because the Board extended the effective date for the new Rule.

In a Memorandum Opinion issued on March 2, 2012, the Court granted in part

and denied in part the Plaintiffs’ motion for summary judgment filed against the

National Labor Relations Board.

The Court held that NLRB did not exceed its statutory authority when it granted

the Board broad rulemaking authority to implement the provisions of Subpart A

of the Final Rule. This is the part of the Rule which required employers to post a

notice of employee rights “in a conspicuous place informing them of their NLRA

rights. On the issue of the two provisions under Subpart B, however, the Court

found that the NLRB exceeded its authority. Subpart B permits the Board to deem

failure to post an unfair labor practice notice, and to toll the statute of limitations

for claims brought by employees against employers who failed to post the notice.

Taking apart the language of the statute, the Court concluded that the Board had

prohibited more than just a mere failure to facilitate the exercise of an employee’s

rights, but had also allowed the Board to deem the failure to post to be unfair

labor practice in every situation based on its use of the word “interfere” in the

language of the Rule. Subpart B, Section 104.210 reads:

“Failure to post the employee notice may be found to interfere with,

restrain, or coerce employees in the exercise of the rights guaranteed

by NLRA Section 7, U.S.C. 157, in violation of NLRA Section …”

On March 5, 2012, Plaintiffs filed an appeal with the United States Court of

Appeals for the District of Columbia and motioned the district court to stay

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the injunction pending the appeal. The district court exercised its judicial

discretion by denying the motion to stay. In its ruling denying the motion,

the court stated that Plaintiffs had failed to demonstrate the likelihood of

success based on the merits of the case, and irreparable harm should the

injunction not be granted. The case is pending in the Court of Appeals.

Oral arguments were heard on September 11, 2012.

45. United Western Bank v. Office of Thrift Supervision and Federal

Deposit Insurance Corporation, Case No. 11-cv-00408 (United States District

Court for the District of Columbia).

On March 6, 2013, the court upheld OTS’s decision to appoint the FDIC as

receiver for the bank because the bank failed to demonstrate that the Acting

Director’s decision to reject the bank’s capital restoration plan was

“arbitrary and capricious.” According to the court, administrative records

submitted to the court during trial supported the OTS’s conclusion that the

bank failed to submit an acceptable capital restoration plan when it had

ample time to do so. The court found that the OTS reasonably determined

that the bank was facing a liquidity crisis and was reasonable to conclude

that there was an unacceptable risk that institution depositors would begin

withdrawing their deposits. Meaning, the court held that the regulators

properly closed and seized the bank.

United Western Bank was closed by the OTS on January, 21 2011. The directors

of the bank filed suit in the United States District Court for the District of

Columbia seeking the removal of the FDIC as receiver and a return of the bank.

The complaint alleged that the OTS’s decision to reject the bank’s recapitalization

plan and to close the bank was the result of the agency’s institutional bias against

the bank’s business plan and a preference for a “traditional” community banking

model.

The OTS filed a motion with the court seeking to dismiss the complaint on March

4, 2011. The agency argued that the suit must be dismissed because the

individual directors and shareholders/holding company lack standing to bring a

suit to remove the FDIC, and that United Western’s board failed to authorize the

suit within the 30 day period provided by the statute.

This latter point presents a bit of a Catch-22 for OTS; can the agency reasonably

expect that the FDIC (which succeeded United Western’s board after the bank

was closed) would ever authorize a suit to remove itself as receiver even if it were

manifestly clear that there were grounds to do so? Or does its position require

that a board must authorize litigation to contest the appointment of a receiver

prior to the institution being closed?

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On April 19, 2011, the FDIC filed a joint motion to dismiss the complaint for lack

of subject matter jurisdiction, or for failure to state a claim upon which relief may

be granted.

On June 8, 2011, the district court ordered the OTS to produce the administrative

record supporting the decision to appoint a receiver for United Western. The

Court “preliminarily determined for purposes of this motion that there are likely

to be at least one proper plaintiff and one proper defendant in this action, and

therefore, discovery may proceed pending the issuance of the Court's

memorandum opinion and order on the motions to dismiss.”

On June 24, 2011, the Defendants’ motion to dismiss was granted in part and

denied in part. Defendant FDIC’s motion to dismiss was granted. This dismissed

the FDIC, United Western Bank, Inc, and other parties as parties in this litigation,

leaving the Savings Association and the Director of OTS as the only two parties

in the case.

Denying the OTS’s motion to dismiss, the court ruled that failure on the part of

the bank’s directors to formally authorize a challenge did not divest the

jurisdiction of the court. It wrote:

In the Court’s view, the directors’ failure to dot their “i’s” and

cross their “t’s” should not divest this Court of jurisdiction over

the precise type of claim that Congress authorized it to hear….

While the statute fully authorizes OTS to decapitate the bank, it

also grants the severed head one final request – to ask to be

reattached. It is no defense to complain that the head did not put it

in writing.

On August 11, 2011, the court ordered the Comptroller of the Currency (the new

defendant after the transfer of the OTS’s functions pursuant to the Dodd Frank

Act) to either (1) certify by August 31, 2011, that the administrative record

produced to the plaintiff (or the record as supplemented by any additional

materials produced on or before the date of the certification) is the accurate and

complete record of all of the information which the then Acting Director of the

Office of Thrift Supervision considered, directly or indirectly, or upon which he

relied, in making the January 21, 2011 decision to appoint a receiver for United

Western Bank pursuant to 12 USC 1464 (d)(2)(A). The court also ordered the

plaintiff to “submit to the Court a proposal detailing the scope of the limited

discovery it seeks to conduct to enable it to uncover evidence relevant to the

Court's determination of whether grounds exist for an order that the record be

supplemented in this case, i.e., whether documents that are properly part of the

administrative record have been withheld.” With respect to this latter issue, the

court ruled that “any proposed discovery [by plaintiff] must be limited to requests

for production of documents and interrogatories and should be narrowly tailored

70

to serve the rare and limited circumstances under which discovery may be granted

in an Administrative Procedure Act case in this Circuit.”

On September 1, 2011, the OCC submitted its declarations on behalf of 1) the

Acting Director of the Office of Thrift Supervision and 2) the Acting Comptroller

of the Currency establishing that administrative records provided to plaintiff and

to the Court were the true and complete administrative record of the receivership

of United Western Bank. The declarations also certified that all records contained

information that was either, directly or indirectly, and relied upon when the

Acting Director made the decision to put the bank in receivership.

On November 3, 2011, the court granted in part and denied in part Plaintiffs

motion to compel the production of the complete administrative record of

documents relating to defendants’ seizure of United Western Bank.

On February 16, 2012, Plaintiff responded to the FDIC’s Notice of In Camera

Production, asking the Court to reject the FDIC’s attempt to relitigate the Court’s

order to the FDIC to produce the complete administrative record of documents

relating to its seizure of United Western Bank.

The FDIC filed a motion to intervene the Court’s order to produce the documents

on February 10, 2012, insisting that all the relevant documents being held are

privileged. The FDIC has since changed course to admit that many of the

documents are not privileged. Plaintiff is seeking the Court to ignore the

intervention and stand by its February 9, 2012 ruling and to permit the case to

proceed.

On March 14, 2012, the Court issued an amended scheduling order. Plaintiff’s

motion for summary judgment is due April 20, 2012, and Defendants’ opposition

and cross motion for summary judgment is due on May 18, 2012. The amended

schedule was issued after the Court released a Memorandum Opinion and Order

on February 24, 2012, ordering the production of certain FDIC documents;

including an email circulated among FDIC Board members on November 5, 2010

(with one name redacted), and an agenda for the FDIC board closed meeting

which took place on November 9, 2010 (with privileged portions redacted).

On April 20, 2012, United Western Bank filed a motion for summary judgment

requesting that the court set aside its decision and order Defendants to remove the

FDIC as receiver of the bank. The motion also requests that the Court order the

FDIC to return the bank to its rightful owner.

On November 20, 2012, the court heard oral arguments on the motion for

summary judgment filed by United Western Bank, and the motion for summary

judgment and memorandum of points and authorities in opposition to plaintiff’s

motion for summary judgment filed by the OCC. Both motions have been taken

under advisement.

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A copy of the decision is attached.

PATENTS/ PATENTABLE SUBJECT MATTER

46. CLS Bank v. Alice, Case No. 2011-1301 (United States Court of

Appeals for the Federal Circuit).

There are several disputes in the Federal Circuit involving patentable subject

matter, one of the most common complaints being from inventors claiming

ownership of what are considered basic, widely understood concepts. The court

agreed to revisit the issue of patent-eligibility under Section 101 of the Patent Act

in CLS Bank v. Alice in an en banc rehearing scheduled for February 8, 2013.

Section 101 of the Patent Act provides for the issuance of a patent to a person

who invents or discovers any new and useful “manufacture,” “process,” or

“compromise of matter,” and the United States Supreme Court has created

exceptions for abstract ideas, natural phenomenons or laws of nature.

In July 2012, the panel of federal circuit judges reached a split 2-1 decision in the

case, finding Alice’s claim that a computer system assisting with closing financial

transactions without settlement risk was patentable. The court will address the

following issues:

I. What test should the court adopt to determine whether a computer

implemented invention is a patent ineligible “abstract idea”; and

when, if ever, does the presence of a computer in a claim lend

patent eligibility to an otherwise patent-ineligible idea?

II. In assessing patent eligibility under 35 U.S.C. § 101 of a computer

implemented invention, should it matter whether the invention is

claimed as a method, system, or storage medium; and should such

claims at times be considered equivalent for § 101 purposes?

The Federal Circuit’s divided decision reversed the district court’s ruling on

summary judgment that the claim was invalid and lacked patent-eligibility under

Section 101. CLS Bank filed its brief on November 30, 2012 and Alice was

scheduled to file in January 2013.

Oral arguments were heard on February 8, 2013.