Source: http://updates.mwbllp.com/2017/
Timestamp: 2020-01-23 00:38:12
Document Index: 375484724

Matched Legal Cases: ['§ 500', '§ 500', '§ 500', '§ 1692', '§ 1692', '§ 1692', '§ 1635', '§ 1640', '§ 1635', '§1640', '§ 1635', '§ 226']

Financial Services Law Developments: 2017
FYI: 6th Cir Holds Michigan's 6-Yr Statute of Limitations Applies to Penalty for Untimely Insurance Claims Payments
In a case involving a claim on a fire insurance policy relating to damaged real estate, the U.S. Court of Appeals for the Sixth Circuit recently held that the insurance policy's two-year limitations provision did not apply to a claim brought under section 500.2006(4) of Michigan Complied Laws because it was not a claim "under the policy," and instead Michigan's "catch-all" six-year period of limitations applied.
In addition, and contrary to two previous unpublished rulings, the Sixth Circuit determined that a private cause of action exists under section 500.2006(4)
Accordingly, the Sixth Circuit determined that the insured's claim was timely, and reversed the trial court's ruling granting summary judgment in favor of the insurance company.
The plaintiff property owner ("Owner") owned a vacant apartment complex ("Property"), which was covered by a commercial fire insurance policy ("Policy") issued by the insurance carrier ("Insurer").
The Property was burglarized and vandalized in February 2012, which losses were within the coverage of the Policy. The Owner reported the loss to the Insurer over a year and a half later, on October 22, 2013.
On November 27, 2013, the Owner sent the Insurer an itemized proof of loss, which the Insurer did not object to as inadequate.
On June 16, 2014, the Insurer submitted a payment of $150,000 to the Owner, which was far less than the amount claimed. Additionally, the payment was made well outside of the period permitted for a "timely" payment under section 500.2836(2) of Michigan Compiled Laws, which provides that "losses under any fire insurance policy shall be paid within 30 days after receipt of proof of the amount of loss."
The Owner requested and received an appraisal, which concluded that its actual-cash-value loss was $1,642,796.76. Because the limit under the Policy was $1 million, the Insurer tendered two checks over a period of several months that paid the balance up to the Policy limit.
The Owner then requested penalty interest for late payment under section 500.2006(4) of Michigan Compiled Laws, which provides that "[i]f benefits are not paid on a timely basis, the benefits paid bear simple interest from a date 60 days after satisfactory proof of loss was received by the insurer at a rate of 12% per annum, if the claimant is the insured or a person directly entitled to benefits under the insured's insurance contract," which penalty interest "must be paid in addition to and at the time of payment of the loss."
The Insurer rejected this request, because "all payments were timely made once the amounts owed were determined."
On March 24, 2016, the Owner filed a lawsuit seeking penalty interest under section 500.2006(4). The Insurer moved for summary judgment, arguing that the Owner's claim was time-barred under the Policy, which provided that "[n]o one may bring a legal action against [the Insurer] under this Coverage Part unless . . . [t]he action is brought within 2 years after the date on which the direct physical loss or damage occurred."
The trial court agreed and granted summary judgment in favor of the Insurer. The Owner appealed.
On appeal, the Insurer argued that the Owner's claim was one arising "under the Policy," and thus the Policy's two-year limitations provision applied. The Owner argued that because the claim was based on a Michigan statute, it did not arise "under the Policy," meaning that the Policy's contractual limitations provision did not apply. The Sixth Circuit noted that it was an issue of first impression, and therefore it was required to predict how the Michigan Supreme Court would decide the issue.
In determining that the Owner's claim did not arise "under the Policy," the Sixth Circuit concluded that "[the Owner's] penalty-interest claim does not arise from any legal duty created by the Policy. Rather, it arises from an obligation created by § 500.2006(4)."
The Insurer argued that the language of section 500.2006(4) links the penalty-interest claim to the Policy, because it references payment to a claimant who is an insured and entitled to benefits "under the insured's insurance contract." However, the Sixth Circuit determined that "this language simply identifies who may recover penalty-interest; it does not identify the penalty-interest claim as one arising under the Policy."
The Insurer next argued that claims for penalty interest under section 500.2006(4) do not need to be pleaded in order for penalty interest to be recovered, and as a result such a claim cannot be an independent cause of action and must be a claim under the Policy. In support, the Insurer relied on an unpublished and non-precedential Michigan appellate court case, and a trial court case relying on that unpublished case, both of which determined that there is no private cause of action under section 500.2006(4).
The Sixth Circuit disagreed, noting that "the clear weight of Michigan authority allows an insured to collect penalty interest under § 500.2006(4)," contrary to the holding of the unpublished decision relied on by the Insurer. Thus, the Court determined that a private cause of action exists under section 500.2006(4).
Having determined that the two-year limitation period in the Policy did not apply, the Sixth Circuit next turned to the question of what limitations period applied. The parties agreed that there was no statutory provision that specifically provides a limitations period for bringing a claim for penalty interest under section 500.2006(4).
The Owner therefore argued that Michigan's catch-all, six-year period of limitations set forth in section 600.5813 of Michigan Compiled Laws should apply. Section 600.5813 provides: "All other personal actions shall be commenced within the period of 6 years after the claims accrue and not afterwards unless a different period is stated in the statutes."
The Insurer argued that the trial court properly concluded that section 600.5813 could not apply because a claim for penalty interest under section 500.2006(4) is not a "personal action." The Sixth Circuit noted that the trial court did not provide a definition for the term "personal action," but instead simply reasoned that because "[t]here is no implied private cause of action in tort for violation of M.C.L. § 500.2006," no "personal action" exists under that section.
The Sixth Circuit disagreed with the Insurer and the trial court, determining that the language of section 600.5813 "is broad, covering '[a]ll other personal actions.' And the Michigan legislature meant it to be a catch-all provision that applies regardless of the type of relief sought."
Because the Owner's claim was brought within the six-year limitations period, the Sixth Circuit held that the Owner's claim was timely.
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Posted by Ralph T. Wutscher at 10:23 AM
FYI: ND Ill Holds Disclosure Approved by FTC and CFPB Might Violate FDCPA
A recent ruling from the U.S. District Court for the Northern District of Illinois calls into question whether debt collectors may rely on a widely used FDCPA disclosure approved by both the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) for collecting debt that may be subject to an expired limitations period.
As you may recall, the FTC used to have enforcement authority over the federal Fair Debt Collection Practices Act (FDCPA). In 2012 the Federal Trade Commission and Asset Acceptance, LLC entered into a consent decree to resolve an enforcement action that included allegations that Asset's debt collection activities violated the FDCPA.
The consent decree provided that when collecting "time-barred" debt not subject to credit reporting, Asset would provide the consumer with the following disclosure:
The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it, and we will not report it to any credit reporting agency.
In 2015, the FTC adopted the same language in a consent decree against Encore Capital Group.
Moreover, in July of 2016, the CFPB opined that a debt collector should "inform[] the consumer that, because of the age of the debt, the debt collector cannot sue to recover it," but did not require anything more. In fact, the CFPB expressly declined to require any additional warning that partial payment might revive a time-barred debt.
In this action, a debt collection letter contained the same disclosure. The plaintiff's complaint alleged that the disclosure itself is misleading because it gives the impression that the debt collector chose not to sue him instead of stating that it was barred from filing a lawsuit.
The defendant debt collector filed a motion to dismiss, which the Court denied.
The Court noted that debt collectors do not violate the FDCPA simply by seeking repayment of time-barred debts. McMahon v. LVNV Funding, LLC, 744 F.3d 1010, 1020 (7th Cir. 2014). However, debt collectors still might violate the FDCPA if they use any "false, deceptive, or misleading representation or means" to collect on a time-barred debt. 15 U.S.C § 1692e.
The Court explained that "[t]his includes making false representations about the character or legal status of the debt, such as its enforceability, 15 U.S.C. § 1692e(2); McMahon, 744 F.3d at 1020-22 (finding letters offering to "settle" time-barred debts could violate section 1692e(2) by leading consumers to believe debts were legally enforceable), or using false representations or deceptive means generally to collect or attempt to collect the debt, 15 U.S.C. § 1692e(10)."
Here, despite that fact that the disclosure at issue was created and agreed to by the FTC, the Court held that a debt collector's use of the disclosure has "the potential to mislead the unsophisticated consumer" into believing that the debt was "legally enforceable."
According to the Court, "[b]ecause the language is taken from consent decrees that the FTC and CFPB have entered into with other debt collectors and is not the product of the formal rule making process, it does not warrant Chevron-style deference." Rather, the Court held that "agency approval serves only as evidence that the fact finder may consider—at a later time—to determine whether the defendants' letter is misleading to the unsophisticated consumer."
The plaintiff is permitted to move forward with his case and it remains to be seen whether the use of the disclosure is ultimately decided to be an FDCPA violation. But for most debt collectors, just the possibility that such a suit may be maintained at all is an unacceptable result.
Posted by Ralph T. Wutscher at 4:29 AM
FYI: 7th Cir Holds TILA Claim for Failing to Rescind After Notice Was Time-Barred by 1Year SOL
The U.S. Court of Appeals for the Seventh Circuit recently held that, following the confirmation of a foreclosure sale in Illinois, the only remedy available to a borrower under 15 U.S.C. § 1635 was damages, and therefore the one year limitation period under 15 U.S.C. § 1640(e) applied and his claims were barred despite the fact that he provided rescission notices within three years of the loan closing, and despite the fact that the parties engaged in back-and-forth communications after the demands were first sent.
Accordingly, the Seventh Circuit affirmed the dismissal of the borrower's claims by the trial court.
In 2007, the defendant ("Mortgagee") extended a loan to the plaintiff ("Borrower"), which loan was secured by a mortgage on his home. On August 15, 2008; April 16, 2009; and June 17, 2010, the Borrower alleges he notified the Bank that he was rescinding the loan under the federal Truth in Lending Act ("TILA"), 15 U.S.C. § 1635.
As you may recall, section 1635 provides borrowers with the right to rescind certain consumer credit transactions secured by a borrower's principal dwelling. Where applicable, the borrower may rescind such a transaction for any reason within three days of the loan closing, and for some reasons within three years of the loan closing.
The Borrower subsequently filed a lawsuit in federal court seeking to declare that the state court's ruling the foreclosure was erroneous. After the trial court dismissed the Borrower's complaint as barred by the statute of limitations, he appealed to the Seventh Circuit.
On appeal, the Seventh Circuit first noted that under the Rooker-Feldman doctrine, federal trial courts generally lack the authority to revise the judgments of state courts. The Court noted that the Borrower asked "the district court to declare that the state court's decision was erroneous, but that would have been an advisory opinion – a legal declaration that could not affect anyone's rights."
The Court further noted that "there remains the possibility of relief that takes as a given the judgment in the state litigation that would not be problematic under the Rooker-Feldman doctrine," but "might be problematic as a matter of issue or claim preclusion." However, the Mortgagee did not assert issue or claim preclusion, and therefore the issue was not relevant to the appeal.
Instead, the Mortgagee relied on the statute of limitations defense. Specifically, the Mortgagee argued that the Borrower's claims were barred under section 1640(e), which sets a one-year period of limitations for any claim under section 1640 as a whole. As you may recall, section 1640(a)(1) authorizes an award for damages for violations of TILA, including section 1635.
The Borrower argued that no statutory time limit applied to his claims for rescission. Specifically, the Borrower argued that section 1635(f) gives a borrower three years to notify a creditor of an election to rescind when the creditor failed to provide information required by TILA. The Borrower's notices all came within the three year period, and section 1635 does not provide a time limit to file a lawsuit if the creditor fails to acknowledge or implement a proper rescission.
The Seventh Circuit rejected the Borrower's argument, noting that section 1640(e) sets a one-year period of limitations for suits under section 1640(a). Further, the Court determined that by the time the Borrower filed his lawsuit in 2016, "the only possible relief was damages" due to the "state court's conclusive judgment of foreclosure." Moreover, "by 2016, it was far too late to seek damages, given §1640(e)."
When the Borrower sent his first notice of rescission on August 15, 2008, the Mortgagee "had 20 days to act on [the] notice. 15 U.S.C. § 1635(b); 12 C.F.R. § 226.23(d)." Thus, by "September 4, 2008, after the [Mortgagee] ignored the notice, [the Borrower] had suffered a legal wrong (if he was indeed entitled to rescind) and could have sued." The Court held that the Borrower's claim therefore accrued at that time.
The Borrower argued that the later notices and sporadic communications with the Mortgagee extended the time to file suit. The Court disagreed, ruling that "negotiations, requests for reconsideration, and new demands for action do not affect the time to sue on a claim that has already accrued."
Accordingly, the Borrower's "claim for damages had expired more than six years before he filed this suit, which was properly dismissed."
Posted by Ralph T. Wutscher at 8:20 AM
FYI: 7th Cir Upholds Class Settlement Despite Atty Fee Award in Excess of Award to Class
The U.S. Court of Appeals for the Seventh Circuit recently held, over extensive objections by intervenors, that the trial court did not abuse its discretion in approving a class action settlement, despite alleged problems with the class notice and the fact that the attorneys' fees award exceeded the total award to the class.
In so ruling, the Court rejected the intervenors' argument that the proponents of a class settlement must file briefs in support of settlement before the deadline to object.
In 2007, a consumer ("consumer") filed a putative class action lawsuit against a financial services corporation best known for its consumer credit cards ("card issuer"), challenging various aspects of a gift card product of the card issuer.
Despite supposed representations that the card issuer's prepaid gift cards were "good all over the place," the consumer alleged that merchants were unable to process "split-tender" transactions where a cardholder attempted to purchase an item that cost more than the value remaining on his card, thereby leaving small amounts remaining on the cards.
In addition, the plaintiff alleged, cardholders were charged a $2 "monthly service fee" after twelve months of their issuance. The plaintiff alleged that, although a cardholder could request a check to recover the remaining balance, the card issuer charged a $10 check-issuance fee.
The putative class action complaint asserted claims against the card issuer for breach of contract, unjust enrichment, and statutory fraud, for allegedly designing its gift cards to make it purposefully difficult for cardholders to exhaust their balances.
The card issuer moved to compel arbitration pursuant to the provision within the cardholder agreement included in the gift cards. After the trial court denied the card issuer's motion, the card issuer appealed to the Seventh Circuit.
On appeal, the parties engaged in settlement negotiations through the appellate court's mediation program, and requested a limited remand of the appeal for the purpose of presenting their settlement to the trial court for approval. The Seventh Circuit granted the parties' request for limited remand in February 2009.
On remand, two intervenors ("intervenors") sought entry into the action, based, respectively, upon (i) similar complaints against the card issuer as lead plaintiff in the U.S. District Court for the Eastern District of New York and, (ii) claims that alleged purchase of a $100 gift card had no value when she attempted to use it. The trial court granted the motion to intervene on July 15, 2009.
Two days earlier, the consumer, joined by a new co-plaintiff, individually and on behalf of all others similarly situated ("plaintiffs") filed an amended class action complaint and motion for preliminary settlement approval. Before the motion was decided, it was amended by plaintiffs.
The amended motion sought approval of a settlement for a $3M fund, which settlement class members could receive either (i) up to $20 in reimbursement for monthly fees actually paid due to refused split-tender transactions; (ii) up to $8 for monthly fees paid; (iii) up to $5 in reimbursement of any check-issuance fee paid; and (iv) up to $5 in reimbursement for monthly fees paid by attesting that such fees were paid. Up to $200,000 of any such remaining funds would go to a charitable organization as cy pres, and up to $650,000 of any funds remaining thereafter would go to the card issuer as reimbursement for costs of notice and administration.
The proposed settlement also allowed settlement class members to take part in either: (i) the "balance refund program" for a refund of any balance of less than $25 on the gift cards without paying the check-issuance fee, or; (ii) the "purchase fee and shipping/handling fee waiver," to purchase a new $100 gift card without payment of purchase or shipping and handling fee (approximately $10 savings).
On December 22, 2009, the trial court certified the class for settlement purposes to "all purchasers, recipients, holders and uses of any and all of the gift cards issued by [card issuer] from January 1, 2002 through the date of preliminary approval of the settlement…" However, the trial court denied preliminary approval of the settlement over concerns of the adequacy of the proposed notice, both in form and substance.
On August 19, 2010, the trial court entered an order noting that, although the parties' proposed notice had been improved, it was too complicated and required a concise summary. The order further declined to excused individual notice upon the card issuer's disclosure that it did have some personal-identifying information for gift card holders.
Thereafter, the plaintiffs filed a second amended motion for preliminary approval of the settlement, which increased the settlement fund to $6,753,269.50, leaving the class member benefits substantially the same, but removing the proposed reimbursement for the card issuer. To satisfy the notice requirements, the second amended motion proposed notice by publication and direct mail to every class member for which the card issuer had information. The trial court granted preliminary approval of the settlement on September 21, 2011 and appointed the named plaintiffs' counsel as lead class counsel, and the intervenors' counsel as additional class counsel.
However, response to the notice was "abysmal" - of the approximately 70 million gift cards sold, only 3,456 benefits had been requested, amounting to $41,510.35. Citing a woefully imbalanced fee-to-claims ratio (class counsel requested $1.525M), on February 16, 2012, the trial court rejected the parties' motion for final approval of the settlement, and appointed a notice expert, and agreed to appoint the intervenors' recommended expert following their objection to the court's expert due to conflict.
After the parties and notice expert implemented a supplemental notice program, the parties again moved for approval of the settlement on May 28, 2014, citing over 32,500 claims and notice reaching approximately 70% of the class. Nonetheless, the trial court denied final approval, objecting to the reimbursement to the card issuer for the costs of providing the first, unsuccessful notice, and citing the Seventh Circuit's decision in Redman v. RadioShack Corp.768 F.3d 622, 637-38 (7th Cir. 2014), to command another round of notice concerning motions for attorneys' fees.
Finally, after the third round of notice, the final approval of the settlement was granted on March 2, 2016, with the trial court finding that the settlement was fair, reasonable and adequate. Based upon an affidavit of the card issuer, the trial court determined that the $1.8M benefit to the class was reasonable given the class's likelihood of not recovering the full $9.6M, while noting the small rate of opt-outs and objectors and that the settlement was seven years in the making.
Still, the trial court referred to final approval as the "least bad option."
As to fees, the trial court awarded: (i) $1M to plaintiffs' counsel ($235,000 less than requested), plus $40,000 in expenses; (ii) $250,000 to additional class counsel as requested, and; (iii) $700,000 to counsel for the Intervenors—an $800,000 reduction from the $1.5M requested.
The intervenors appealed approval of the settlement to the Seventh Circuit, arguing that the trial court erred by: (i) not requiring the filing of briefs in support of the settlement prior to the deadline to object to the settlement; (ii) determining that the card issuer's arbitration appeal posed a risk to the class's success; (iii) approving the settlement given the breadth of the release; and (iv) not awarding most, if not all, of the attorneys' fees to the Intervenors' counsel.
First, as to the filing of briefs, the intervenors argued that while there is no express requirement under federal rules requiring proponents of a class action settlement to file briefs in support of the settlement prior to expiration of the time to object, that such is compelled as a matter of due process, and a natural extension of the Seventh Circuit's opinion in Redman, and the Ninth Circuit's decision in In re Mercury Interactive Corp. Securities Litigation, 618 F. 3d 988 (9th Cir. 2010), upon which Redman relied.
In Mercury Interactive Corp., the Ninth Circuit held that a trial court must "set the deadline for objections to counsel's fee request on a date after the motion and documents supporting it have been filed," based on "[t]he plain text of [Rule 23(h)]," which provides that requests for attorneys' fees must be made by motion and that class members "may object to the motion." Id at 993-994. In Redman, the Seventh Circuit adopted this reasoning to reverse approval of a class action settlement in part be-cause the trial court had provided for the filing of motions seeking attorneys' fees after the deadline for class members to object to the settlement. See 768 F.3d at 637–38.
Here, the Seventh Circuit rejected the intervenors' argument that Redman's reach should apply to the filing of briefs in support of settlement before the deadline to object, noting that Rule 23(h) deals exclusively with attorneys' fees and that the federal rules do not provide any such requirement for the filing of briefs in support of a settlement agreement. On the contrary, Rule 23(e) only requires that class members be given an opportunity to object to the proposed settlement—the Rule has no provision that would require parties to file briefs in support of the settlement prior to the deadline to file objections.
Accordingly, the Appellate Court held that the trial court did not abuse its discretion in approving the class settlement by not requiring briefs supporting approval of the settlement to be filed prior to the deadline to object to it.
Next, the intervenors argued that the trial court improperly gave too much weight to the card issuer's potential arbitration defense in concluding that the $1.8M class recovery was reasonable in light of the risk that the class plaintiffs would receive nothing in arbitration in the event that the appellate court reversed the trial court's denial of the card issuer's motion to compel arbitration.
The Seventh Circuit noted that in denying the cardholder's motion to compel arbitration, it relied upon its opinions in ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996), and Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997), which held that contract terms contained on the inside of a product's packaging (and thus only discoverable after purchase) become part of the contract between the purchaser and the seller so long as the purchaser had "an opportunity to read the terms and to reject them by returning the product." Gateway at 1148. Applying this precedent to the Cardholder Agreement at issue, the trial court concluded that there was not "a sufficient opportunity to reject the terms of the agreement by returning the card, so the terms contained inside the packaging were not terms of the contract between [the consumer] and [the card issuer]," while declining to address its enforceability.
While acknowledging that the trial court's reasoning in approving settlement "puts the enforceability cart before the contractual horse," as the order denying the card issuer's motion to compel arbitration remains pending, the Seventh Circuit held that the trial court did not abuse its discretion in concluding that the class settlement was fair, as the pending appeal concerning the arbitration remained a significant potential bar to the class's success.
The Seventh Circuit next examined the intervenors' claim that the release was overbroad, highlighting the claim of one of its intervenors who alleges that a $100 gift card she purchased was literally unusable because it had no value, despite paying the purchase fee. As the class settlement only proposed compensation for the $2 monthly maintenance and check issuance fees, the intervenors argued that her case was one of many, constituting "hundreds of millions of dollars of unjustified 'up-front' fees."
However, the Appellate Court concluded that trial court did not abuse its discretion because no party — not even the intervenor — provided any admissible evidence that such purported claims existed. While acknowledging that "it is not an objector's duty to show that the settlement is inadequate," the Seventh Circuit noted that "the burden on the proponents to support the settlement should not extend to an affirmative to rebut every allegation an objector makes," in rejecting the intervenors' argument. See Gautreaux v. Pierce, 690 F.2d 616, 630 (7th Cir. 1982).
Lastly, the intervenors argued that the trial court erred in failing to award them most, if not all, of the attorneys' fees, despite their contention that they worked to further the interests of the class, while the named plaintiffs' counsel purportedly colluded with the card issuer.
The trial court had acknowledged that the intervenors' counsel was instrumental in getting the card issuer to divulge information on class members and in suggesting the notice expert ultimately appointed by the court. However, the Seventh Circuit also noted that the trial court observed that the intervenors filed "a number of repetitive and meritless objections," and that it was unclear to what extent they could claim responsibility for the supplemental notice programs.
Having dealt with the parties and their counsel for nearly seven years, the Appellate Court concluded that the trial court was in the best position to determine which parties and attorneys contributed to the settlement in which proportions, and that there was no abuse of discretion in its award of attorneys' fees.
As the Seventh Circuit concluded that the trial court did not abuse its discretion as to any parts of its approval of the class settlement despite its "issues," the approval of the class settlement and attorneys' fees awards was affirmed.
Posted by Ralph T. Wutscher at 9:25 AM
FYI: Fla App Ct (3rd DCA) Reverses Dismissal of Foreclosure on "Prior Servicer's Records" Issue
Following rulings from other appellate courts in other appellate districts, Florida's Third District Court of Appeal ("Third DCA") recently reversed a trial court's order involuntarily dismissing a mortgagee's foreclosure against a borrower holding that the mortgagee's witness from its current mortgage servicer laid a sufficient foundation at trial to admit business records from a prior mortgage servicer necessary to prove a default under Florida's business records exception to hearsay.
In 2006, a mortgagee provided the borrower with an adjustable rate note and mortgage that contained a negative amortization provision. The Note gave the mortgagee the option to change the interest rate and to add any deficiency to the principal.
The borrower subsequently defaulted, and in 2011 the mortgagee filed a foreclosure complaint. The borrower answered the complaint and raised affirmative defenses, but the borrower did not assert as an affirmative defense that the mortgagee had failed to provide her evidence of a change in interest rate or the payment amount.
The trial court conducted a bench trial. The mortgagee presented a witness from its mortgage servicer at trial to prove its case. The witness testified in detail about the servicer's loan "boarding process, verifications, the payment history, the notice of default and acceleration." The trial court admitted the Note and demand letter into evidence. The trial court also admitted the payment history into evidence by stipulation.
At the conclusion of the trial the mortgagee moved for final judgment and the borrower moved for involuntary dismissal. The trial court subsequently granted borrower's motion for involuntarily dismissal.
Although the trial court had already admitted the mortgagee's documents into evidence during the trial, it concluded that the mortgagee's testimony regarding the prior servicer's records was hearsay. Further, despite noting that the Note did not require the mortgagee to prove that borrower received a notice of payment or interest change before it could trigger a default, the trial court found that the mortgagee had failed to prove this.
Initially, the Third DCA noted that Florida's business record exception to the hearsay rule. As you may recall, a party may introduce evidence that courts would ordinarily exclude as inadmissible hearsay if:
(1) the record was made at or near the time of the event; (2) was made by or from information transmitted by a person with knowledge; (3) was kept in the ordinary course of a regularly conducted business
activity; and (4) that it was a regular practice of that business to make such a record.
Section 90.803(6), Florida Statutes (2016); Yisrael v. State, 993 So. 2d 952, 956 (Fla. 2008).
The Third DCA observed that a party may establish foundation to admit a business record through a records custodian or other qualified witness. The witness that authenticates the records does not have be the person that created the business records. See Deutsche Bank Trust Co. Ams. v. Frias, 178 So. 3d 505 (Fla. 4th DCA 2015). Instead, the witness only has to be sufficiently acquainted with the activity to testify that the successor business relies on those records, and that the circumstances indicate the records are trustworthy." Bank of New York v. Calloway, 157 So. 3d 1064 (Fla. 4th DCA 2015).
Moreover, in the mortgage servicing context after a loan service transferred, the foreclosing mortgagee does not have to present a witness "employed by the prior servicer or who participated in the boarding process." Ocwen Loan Servicing, LLC v. Gundersen, 204 So. 3d 530 (Fla. 4th DCA 2016). This is because when "a business takes custody of another business's records and integrates them within its own records, the acquired records are treated as having been 'made' by the successor business, such that both records constitute the successor business's singular 'business record.'" Calloway, 157 So. 3d 1064, 1071 (Fla. 4th DCA 2015).
Here, the Third DCA found that the witness demonstrated sufficient knowledge of the business record's history to testify about the loan boarding process, the servicing platform, and the process for creating the default notice and demand letter.
Specifically, the witness testified that the mortgage servicer absorbed the prior servicer and that the servicer verified the accuracy of all the prior servicer's records before incorporating those records into its own records. The Appellate Court held that the trial court therefore should have admitted the testimony concerning the third party default letter and the loan payment history printout as an exception to the hearsay rule.
Thus, the Third DCA concluded that the witness authenticating the mortgagee's records provided sufficient testimony to meet the requirements to admit the records under the business record exception to hearsay.
The Third DCA next addressed the trial court's conclusion that it properly declined to admit the testimony and demand letter into evidence because the mortgagee's witness was not sufficiently familiar with the practices and procedures of one of the servicer s third-party vendors. However, the Third DCA reject this rationale "because the business records exception does not contain such a requirement." Cayea v. CitiMortgage, Inc., 138 So. 3d 1214, 1217 (Fla. 4th DCA 2014).
Instead, the witness only had to show that he was sufficiently familiar with the creation of the demand letter to authenticate it. Calloway, 157 So. 3d 1064. Here, the witness met this requirement because he testified about the loan boarding process "and properly laid the foundation for the admissibility of the loan payment history and the demand letter." As such, the Appellate Court held, the trial court erred when it excluded the demand letter from evidence after the mortgagee had laid the proper foundation to meet the business record exception.
The Third DCA next held that the trial court also should have admitted the payoff printout as a business records exception to the hearsay rule. A party may use the business records exception to hearsay to admit printouts of data prepared for trial even if the party does not keep the printout in the ordinary course of business "so long as a qualified witness testifies as to the manner of preparation, reliability, and trustworthiness." Cayea, 138 So. 3d at 1217. Thus, the Appellate Court held, the mortgagee proved via the printout that borrower did not make the June 2008 payment and all subsequent payments, and the trial court erred when it ruled that the mortgagee did not prove a default.
Finally, the Third DCA also concluded that borrower waived any affirmative defense that the mortgagee had to prove that it provided notice of the interest rate and payment change to borrower because borrower never pled this affirmative defense. Moreover, the Appellate Court noted, the Note contains no such requirement to notify the borrower of any change in interest rate or payment amount.
Thus, the Third DCA therefore reversed the involuntary dismissal and remanded to enter a final judgment of foreclosure in favor of the mortgagee.
Posted by Ralph T. Wutscher at 6:50 PM
FYI: 6th Cir Holds Michigan's 6-Yr Statute of Limi...
FYI: ND Ill Holds Disclosure Approved by FTC and C...
FYI: 7th Cir Holds TILA Claim for Failing to Resci...
FYI: 7th Cir Upholds Class Settlement Despite Atty...
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