On Monday, a federal district court judge in the District of Columbia issued an order dismissing a lawsuit brought by the Conference of State Bank Supervisors (CSBS) regarding a proposal of the Office of the Comptroller of the Currency (OCC) to issue federal charters to certain Fintech firms. In dismissing the case, US District Court Judge Dabney L. Friedrich held the CSBS did not have standing to sue because the OCC had not yet officially decided to issue charters to Fintech companies. Judge Friedrich explained that the CSBS lacks standing to bring the suit because the harms it alleges are “contingent on whether the OCC charters” a Fintech company, and “[s]everal contingent and speculative events must occur before the OCC” issues such a charter. Continue Reading Federal Court Dismisses “Speculative” and “Attenuated” Lawsuit By the Conference of State Bank Supervisors Over Proposed OCC Fintech Charter
On Tuesday, a federal district court in the Southern District of New York issued an order dismissing a lawsuit brought by the New York Department of Financial Services (NYDFS) regarding a proposal of the Office of the Comptroller of the Currency (OCC) to issue federal charters to certain fintech firms. In dismissing the case, U.S. District Court Judge Naomi Reice Buchwald held the NYDFS did not have standing to sue because the OCC had not yet officially decided to issue charters to fintech companies. Judge Buchwald explained that because the OCC had not made “a final determination” that it will issue such charters, the injuries alleged by the NYDFS are “too future-oriented and speculative” to support the lawsuit.
By way of background, in December 2016, the OCC announced plans to study whether it could issue special purpose charters to fintech firms. In March 2017, OCC Comptroller Thomas J. Curry announced the OCC would be issuing charters to fintech companies. In the same month, the OCC released a document describing how fintech companies could apply for a charter. In May 2017, Mr. Curry stepped down from his position, and President Trump named Keith Noreika Acting OCC Comptroller.
The NYDFS then sued the OCC regarding the proposal to grant charters to fintech companies. According to the NYDFS, the OCC did not have authority to issue a charter to fintech companies and should not allow such companies to operate in New York without complying with the state’s usury law and other consumer financial regulations. In the following months, Acting Comptroller Noreika stated several times that the OCC had not reached a final decision about whether to issue charters to fintech companies. Joseph Otting was then nominated by President Trump as permanent Comptroller of the Currency and was confirmed in November 2017. In Judge Buchwald’s decision, she noted that she was not aware of any statement by Mr. Otting indicating his position on fintech charters.
The Conference of State Bank Supervisors filed a similar lawsuit against the OCC in the U.S. District Court for the District of Columbia. The OCC filed a motion to dismiss that lawsuit as premature, which motion is currently pending before the court.
The U.S. House of Representatives on Thursday passed two bills that would reform the standards for bringing federal class actions and raise the bar for keeping lawsuits in state courts.
The first bill, the Fairness in Class Action Litigation Act of 2017 (HR 985), would impose several new requirements on class action and multidistrict litigation proceedings in federal courts. Among other things, the new requirements would include:
- Class action plaintiffs seeking to recover monetary relief for personal injury or economic loss would be required to demonstrate that each class member suffered the “same type and scope of injury” as the named class representatives;
- An attorney would be prohibited from representing a class in which any of the attorney’s relatives is a member;
- Class counsel would be prohibited from recovering fees until after any monetary recovery to class members has been distributed;
- “[A]ll discovery and other proceedings” in class actions would be automatically stayed during the pendency of any motion to transfer, motion to dismiss, motion to strike class allegations, or other motion to dispose of the class allegations, except to the extent the court finds it necessary that the parties take “particularized discovery” to preserve evidence or prevent undue prejudice;
- Class counsel would be required to disclose any third-party funding agreement; and
- Courts of appeal would be required to permit appeals from orders granting or denying class certification.
The second bill, the Innocent Party Protection Act (HR 725), would amend the standards for courts to find that a defendant that shares citizenship with one of the plaintiffs has been fraudulently joined to the case to prevent removal to federal court on the basis of diversity jurisdiction. Under the bill, the joinder of such a defendant would be found to be fraudulent if, among other things, the claims against the defendant are clearly barred by state or federal law or “objective evidence clearly demonstrates that there is no good faith intention to prosecute the action against that defendant.”
The House is likely to vote on a number of other proposed tort reform measures in the coming weeks. Notably, on Friday, March 10, 2017, the House is due to vote on the Lawsuit Abuse Reduction Act of 2017 (HR 720), which would require judges to impose monetary sanctions against attorneys who file frivolous cases in federal courts.
The Federal National Mortgage Association (Fannie Mae) operates under a corporate charter, which authorizes Fannie Mae “to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal.” 12 U.S.C. § 1723a(a). On January 18, the U.S. Supreme Court held that this “sue-and-be-sued” clause does not independently grant federal courts subject-matter jurisdiction over all cases involving Fannie Mae. Instead, the Court (in Lightfoot v. Cendant Mortgage Corporation) held that the clause merely permits Fannie Mae to participate in a suit in any state or federal court that is already endowed with subject-matter jurisdiction over the suit.
The case arose when a mortgage borrower sued Fannie Mae in state court alleging deficiencies in the refinancing, foreclosure, and sale of her home. Fannie Mae removed the case to federal court, citing the sue-and-be-sued clause as the basis for federal jurisdiction. The district court denied a motion to remand the case back to state court, and the U.S. Court of Appeals for the Ninth Circuit affirmed that decision. The Supreme Court agreed to hear the case to resolve a split between the circuits.
On appeal, Justice Sotomayor, writing for a unanimous Supreme Court, explained that the Court had previously addressed the jurisdictional reach of sue-and-be-sued clauses in five other federal charters. In those cases, the Court had stated that a clause gives rise to federal court jurisdiction if, but only if, it specifically mentions the federal courts. Fannie Mae’s sue-and-be-sued clause specifically mentions federal courts, but also includes the phrase “any court of competent jurisdiction.” The Court found that this qualification limited the jurisdictional reach of the clause to any court with an existing source of subject-matter jurisdiction. Accordingly, the Court held that Fannie Mae’s sue-and-be-sued clause does not grant federal jurisdiction over any case involving Fannie Mae, but instead permits suit in any state or federal court that already has subject-matter jurisdiction.
Accordingly, under Lightfoot, Fannie Mae will no longer be able to remove a case to federal court citing only its charter’s sue-and-be-sued clause. Instead, in order for a case involving Fannie Mae to be brought in federal court or removed to federal court, there must be an independent source of diversity or federal-question jurisdiction.
On November 3, in a case that was closely watched by industry participants, the Florida Supreme Court held that a mortgagor’s default that occurs after the dismissal of a prior foreclosure action in which the loan payments were accelerated resets the five-year statute of limitations for filing a subsequent foreclosure suit. In Bartram v. U.S. Bank, N.A., the court explained that dismissal of the initial foreclosure action has the effect of returning the parties to their pre-foreclosure complaint status, where the mortgage remains an installment loan and the mortgagor has the right to continue to make installment payments without being obligated to pay the entire amount due under the note and mortgage. Continue Reading Florida Supreme Court Holds that Each Default Resets the Statute of Limitations for Filing a Foreclosure Complaint