Source: http://updates.mwbllp.com/2017_03_26_archive.html
Timestamp: 2018-11-20 07:52:43
Document Index: 752514527

Matched Legal Cases: ['§ 24', '§ 24', '§ 24', '§ 24', '§ 24', '§ 24', '§ 24', '§ 24', '§ 24', '§ 24', '§ 24', '§ 24', '§ 1601', '§ 17200', '§ 1640', '§ 1639', '§ 17208']

Financial Services Law Developments: 3/26/17 - 4/2/17
FYI: IN Sup Ct Holds Out-of-State Consumer Attorneys Not Exempt from Indiana Consumer Protection Statutes
A foreclosure defense law firm incorporated in Florida ("law firm") and its owner-officer (collectively, "defendants") subcontracted with at least five Indiana attorneys to provide local services through "of Counsel," "associate," and/or "Partnership" agreements with the law firm — prior to the law firm's registration as a foreign entity authorized to conduct business within the state.
Upon receipt of complaints from Indiana consumers, the Office of the Indiana Attorney General investigated the law firm, and found that: (i) the Indiana consumers maintained no contact with their local Indiana-based attorneys following retention; (ii) no borrowers obtained a successful loan modification, and; (iii) all of the conduct occurred prior to the law firm's registration with the Indiana Secretary of State.
The Appellate Court affirmed in part, reversed in part, and remanded, finding that the law firm was exempt from liability under everything but a portion of the DCSA claim, while its owner-officer was not exempt under any of the four statutes. Consumer Attorney Servs., P.A. v. State, 53 N.E.3d 599, 612 (Ind. Ct. App. 2016), reh'g denied. The State petitioned to transfer and vacate the appellate court's ruling, and the Indiana Supreme Court granted cert.
The Indiana Supreme Court first addressed the defendants' argument that they were exempt front the CSOA, which mandates that "credit services organizations" provide potential customers with certain written disclosures, obtain appropriate surety bonding, and refrain from engaging in "deceptive acts," including imposition of charges before services are rendered. Ind. Code §§ 24-5-15-2 through -8.
Citing precedent under a similar Kansas consumer protection statute, the law firm defendants argued that they were both exempt from the CSOA because the statute expressly excludes liability for any "person admitted to the practice of law in Indiana if the person is acting within the course and scope of the person's practice as an attorney," Ind. Code § 24-5-15-2(b)(6), and defines "person" as "an individual, a corporation, a partnership, a joint venture, or any other entity." Ind. Code § 24-5-15-4.
Conceding that the statutes are ambiguous read together, and that the exemption should reach exempted Indiana attorneys' firms in general, the State argued that a genuine issue of material fact remained as to whether the law firm defendant was the "bona fide law firm of the Indiana attorneys," and as to whether it was registered to conduct business in Indiana during the pertinent facts of this case. State's Br. at 22.
In a matter of first impression, the Indiana Supreme Court agreed that the CSOA's language is facially ambiguous, and tuned to its canons of statutory construction, concluding that the statute should be constructed liberally in favor of those invoking its protections—i.e., "protecting [its] vulnerable [citizens] from further financial depletion by predators."
Under the CSOA, the term "person" is part of the definition of a "credit services organization," Ind. Code § 24-5-15-2(a), applies to those who violate the CSOA, Ind. Code § 24-5-15-11, but also to those damaged by a credit services organization, Ind. Code § 24-5-15-9.
Reading the statute as a whole, the Indiana Supreme Court concluded that the General Assembly's expansive definition of "person" in Indiana Code section 24-5-15-4 was not intended to apply to every usage of that word in the CSOA, but rather read in context for each usage, with only the practicable definitions applying. As such, it concluded that the that only individual Indiana lawyers were intended to be exempted under Indiana Code section 24-5-15-2(b) of the CSOA.
Next, the Supreme Court interpreted a similar exemption contained in the MRPFA which serves to prevent a "foreclosure consultant" from engaging in the acts prohibited under the CSOA, and also, among other things, from gaining any personal interest in real property that is the subject of the client's foreclosure, or from gaining power of attorney over the homeowner. Ind. Code § 24-5.5-5-2.
The relevant exemption under the MPRFA is more limited in scope, applying to "[a]n attorney licensed to practice law in Indiana who is representing a mortgagor." Ind. Code § 24-5.5-1-1(6). Because "attorney" is not defined under the statute, the Supreme Court read the term under its plan, ordinary and usual meaning, to read that it unambiguously exempts attorneys as individuals, but not the law firms which they are affiliated, because only an individual can be "licensed to practice law in Indiana." See Ind. Admis. Disc. R. 17 Sec. 1.
The Indiana Supreme Court rejected the defendants' argument that supporting a CSOA law firm exemption would "uphold[] the authority of the Indiana Supreme Court to discipline attorneys [and] regulate the practice of law," reasoning that the State's General Assembly would choose to exempt attorneys specifically (who are subject to far more extensive disciplinary action by this Court), while not exempting their firms under the State Admission and Disciplinary Rules.
Accordingly, the Indiana Supreme Court held that under the CSOA exemption in Indiana Code section 24-5-15-2(b)(6) a "person" must be both "admitted to the practice of law in Indiana" and "acting within the course and scope of the person's practice as an attorney." Therefore, "although a law firm may qualify as a 'person' with respect to other provisions of the CSOA, it does not qualify for an exemption under Indiana Code section 24-5-15-2(b)(6)."
Finally, the Court examined the defendant law firm's argument that it is exempt from liability under: (i) the HLPA, which prohibits "deceptive act[s] in connection with a mortgage transaction or a real estate transaction," Ind. Code § 24-9-3-7(c)(3), and further defines "deceptive act" to include MRPFA violations, Ind. Code § 24-9-2-7(a)(2), and; (ii) the DCSA which bars an "unfair, abusive, or deceptive act, omission, or practice in connection with a consumer transaction," Ind. Code § 24-5-0.5-3(a), but expands the definition of "deceptive act" to specifically include CSOA and MRPFA violations, Ind. Code §§ 24-5-0.5-3(b)(28), (35).
Neither the HLPA or DCSA contain express attorney exemptions. However, the defendant law firm argued that the underlying violation of the HLPA and DCSA falls within the scope of the MRPFA and CSOA, thus triggering exemption under those statutes.
However, because the Indiana Supreme Court failed to find any law firm exemption under either of those statutes, it held that no exemption extends to these ancillary claims. Further, because the law firm's owner-officer was never licensed as an attorney in the State of Indiana, the Court held the individual lawyer could not claim exemptions contained in the CSOA or MRPFA, nor extend them to the HLPA and DCSA.
Posted by Ralph T. Wutscher at 4:44 PM
FYI: Cal App Ct (2nd Dist) Holds Res Judicata Did Not Bar TILA Action Based on Prior Contract Action
The Court of Appeals of California, Second District, recently held the dismissal of a borrower's breach of contract claim in a prior lawsuit did not bar a claim in subsequent lawsuit for violation of the federal Truth in Lending Act, 15 U.S.C. § 1601, et seq. ("TILA"), even if the breach of contract and TILA claims were based on the same set of underlying facts, because the right to full disclosures under TILA was a distinct primary right from the common law rights in contract.
However, although the Appellate Court determined that the dismissal based on the doctrines of res judicata and issues preclusion was reversible error, the dismissal was affirmed because the borrower's claims, including the TILA cause of action, were barred by the statute of limitations or otherwise failed to state a valid cause of action.
In the first lawsuit, the borrower's complaint asserted causes of action for breach of contract, temporary restraining order and preliminary injunction, violation of the California's unfair competition law in Bus. & Prof. Code § 17200, et seq. ("UCL"), specific performance, and equitable rescission. The borrower alleged that the lender failed to disclose fees when she refinanced the loan, and it added additional sums for "escrow option insurance" when her loan was subsequently modified. The borrower claimed that these undisclosed sums made the loan unaffordable.
The trial court sustained the defendants' demurrer based on several deficiencies in the complaint. The borrower filed an amended complaint that was virtually identical to the original complaint which, once again, did not attach any of the alleged agreements or describe their terms in any greater detail. The court sustained the defendants' demurrer to the amended complaint without leave to amend. The Appellate Court affirmed. The California Supreme Court denied the borrower's request for review.
The borrower alleged that the lender violated TILA by failing to make required disclosures with respect to the "escrow option insurance," which was supposedly surreptitiously added to her monthly loan payment obligation. She also alleged that the lender's violation of TILA was an unlawful business practice in violation of the UCL, and the lender's alleged failure to disclose the "escrow option insurance" in the loan modification agreement constituted fraudulent concealment. According to the borrower, had she known the true facts, she would have considered other financing options, and thus requested injunctive relief preventing the sale of the property.
The lender demurred, contending that the borrower's new complaint was barred as a matter of law by the doctrines of claim preclusion and issue preclusion.
The lender argued that the borrower was asserting the same primary right in both actions (claim preclusion), and the issues alleged had been actually litigated and decided against the borrower on the merits (issue preclusion). The lender also argued that the TILA and fraud causes of action were untimely; the borrower lacked standing to assert a UCL claim because she failed to allege she had lost money or property as a result of the lender's actions; and the claim for injunction was improper because injunctive relief is a remedy and not a cause of action.
The trial court sustained the defendants' demurrer without leave to amend. In so ruling, it found that "[t]he 'primary right' of Plaintiff in both actions—the right to be free from increased loan payments that were not agreed to—is the same, which means the present proceeding is on the same 'cause of action' as the prior proceeding." The trial court also ruled the claims were barred by collateral estoppel because her claims "all involve the same underlying issue—the validity of the increased loan payments that Plaintiff allegedly did not agree to," and that issue had been litigated and decided. Moreover, the trial court held that the TILA and fraud claims were time barred; the borrower lacked standing to bring a UCL claim; and the cause of action for injunctive relief was not a valid cause of action. The borrower appealed.
First, the Appellate Court had to determine if the borrower's TILA cause of action was subject to claim preclusion or issue preclusion.
As you may recall, the doctrine of res judicata has two aspects — claim preclusion and issue preclusion. DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813, 824; Boeken v. Philip Morris USA, Inc. (2010) 48 Cal.4th 788, 797.
Claim preclusion prevents relitigation of the same cause of action in a second suit between the same parties or parties in privity with them. Claim preclusion arises if a second suit involves (1) the same cause of action (2) between the same parties [or those in privity with them] (3) after a final judgment on the merits in the first case. DKN Holdings, 61 Cal.4th at 824. The bar applies if the cause of action could have been brought, whether or not it was actually asserted or decided in the first lawsuit. Busick v. Workermen's Comp. Appeals Bd. (1972) 7 Cal.3d 967, 974.
Issue preclusion prohibits the relitigation of issues argued and decided in a previous case even if the second suit raises a different cause of action. The doctrine applies "(1) after final adjudication (2) of an identical issue (3) actually litigated and necessarily decided in the first suit and (4) asserted against one who was a party in the first suit or one in privity with that party." DKN Holdings, 61 Cal.4th at 825. The doctrine differs from claim preclusion in that it operates as a conclusive determination of issues; it does not bar a cause of action. Id.
The Appellate Court held that the trial court erred in its ruling because different primary rights may be violated by the same wrongful conduct. As support, the Appellate Court relied on Agarwal v. Johnson (1979) 25 Cal.3d 932, 954-955, which held that an employer's racially discriminatory conduct may violate distinct primary rights under federal civil rights law and state tort law regarding defamation and intentional infliction of emotional distress.
In this case, although the borrower's contract and TILA claims were largely based on the same set of underlying facts, the Appellate Court determined that the two actions do not involve the same primary rights
The Appellate Court held that the primary right at issue in the borrower's TILA cause of action was the right to full disclosure of the material terms of the loan and the subsequent loan modification. This was, according to the Appellate Court, a federal statutory right distinct from the common law right to have enforced only those contractual terms which the borrower had agreed to (the claim presented by her initial lawsuit). Thus, the Appellate Court concluded that the doctrine of claim preclusion did not bar the TILA cause of action.
Turning next to issue preclusion, the Appellate Court held that the prior ruling on the merits of the borrower's contract claim did not preclude the TILA cause of action. This is because the adequacy of the disclosures at closing and in the loan modification agreement were neither actually litigated nor determined in the prior lawsuit. Instead, the trial court sustained the demurrer because the borrower failed to allege sufficient facts to state a valid cause of action. Thus, the Appellate Court concluded that the trial court erred by applying the doctrine of issue preclusion to dismiss the TILA claim.
As you may recall, most TILA actions must be filed "within one year from the date of the occurrence of the violation." 15 U.S.C. § 1640(e). A violation of TILA based on specific disclosures, however, may be brought within three-years. Id.; 15 U.S.C. § 1639. The violations here allegedly occurred in 2007 and 2010. The borrower's current lawsuit was not filed until August of 2015. Under either the one year or three-year statute of limitations, the borrower's claim was untimely. Therefore, the Appellate Court concluded the untimely TILA cause of action was properly dismissed.
In a previous decision, the Appellate Court had held that "the existence of an enforceable obligation, without more, ordinarily constitutes actual injury or injury in fact." Sarun v. Dignity Health (2014) 232 Cal.App.4th 1159, 1167. Here, the borrower had alleged that she paid money to the bank in excess of what she should have owed. According to the Appellate Court, these allegations were sufficient to allege injury in fact to confer standing to assert a UCL cause of action.
However, an action to enforce the UCL must be commenced within four years after the cause of action accrued. Bus. & Prof. Code § 17208. Because both the refinancing and the loan modification occurred more than four years before the new lawsuit was filed in August 2015, the Appellate Court concluded that the borrower's UCL claim was time-barred.
Relatedly, the borrower's fraudulent concealment claim, like her TILA and UCL claims, was based on the alleged nondisclosure of material terms of the loan refinancing and loan modification. A cause of action for fraud is governed by a three-year statute of limitations. Code of Civ. P. 338(d). Because the borrower alleged that she discovered the alleged fraud when her loan was supposedly forensically examined in May 2011, the cause of action filed in August of 2015 was barred by the three-year statute of limitation.
Finally, the Appellate Court ruled that the borrower's request for injunctive relief was properly dismissed because she failed to allege any valid cause of action.
Posted by Ralph T. Wutscher at 11:40 AM
FYI: Maryland High Court Holds Defendant Waived Arbitration by Filing Collection Action, No Prejudice Required for Waiver
The Court of Appeals of Maryland, the state's highest court, recently held that a debt collector waived its contractual right to arbitrate the claims against it when it chose to litigate the collection action outside of arbitration.
In 2007 the consumer stopped making payments on the account and the creditor sold the account to a debt buyer. The debt buyer filed suit in small claims court to collect the outstanding balance. The small claims court entered a default judgment against the consumer for $4,520.54.
At the time of the default judgment the debt buyer was not licensed to collect debts in Maryland. In 2013 the Maryland Court of Special Appeals issued an opinion allowing debtors to collaterally attack a judgment obtained by unlicensed collection agencies and holding that a judgment entered in favor of an unlicensed debt collector is void as a matter of law.
The debt buyer moved to compel arbitration pursuant to the arbitration provision in the account agreement and under Maryland's state arbitration laws. The trial court held an evidentiary hearing on the existence of an arbitration agreement between the parties.
The trial rejected the consumer's argument and granted the motion to compel arbitration. The consumer appealed to the Court of Special Appeals, which is an intermediate appellate court in Maryland, and it affirmed.
The Maryland Court of Appeals granted certiorari to answer the question of whether the debt buyer waived its contractual right to arbitrate, which depended on two questions of law: (i) whether the debt buyer had the option to arbitrate the collection action under the account agreement, and, if so, (2) whether, under Maryland law, the collection lawsuit was "related" to the class action lawsuit.
As you may recall, under Maryland state law, implied waiver occurs when a party takes an "action inconsistent with an intention to insist upon enforcing the arbitration clause."
The Court of Appeals rejected the argument that the arbitration provision excluded claims filed in small claims court, reasoning that "claims filed in small claims court are not subject to arbitration" meant that the collection action was subject to arbitration up until it was filed as a lawsuit in small claims court. After the collection action was filed, the Court held, the account agreement restricted arbitration of that claim. Thus, the Court held that by choosing to litigate the collection claim, the debt buyer implicitly waived its right to arbitrate that claim and any other claim "related" to it.
Whether the collection claim was "related" to the class action claim depended on whether "all parts of the dispute [are] deemed to be interrelated" under Charles J. Frank, Inc. v. Associated Jewish Charities of Baltimore, Inc., 294 Md. 443 (1982).
The Court of Appeals found that the existence of the consumer's class action claims depended entirely on the debt buyer having filed the collection lawsuit. Thus, the Court held, the claims were related because they were all part of "one basic issue." The Court noted similar rulings in Nevada and Utah state courts.
Thus, the Court held that the debt buyer implicitly waived its right to arbitrate the consumer class action that was based on the debt buyer's collection lawsuit when it chose to litigate the collection claim instead of arbitrate.