Source: http://californiafinance.mwbllp.com/2014_10_01_archive.html
Timestamp: 2017-05-01 06:07:37
Document Index: 748172296

Matched Legal Cases: ['§1723', '§ 362', '§ 362', '§ 362', '§ 362', '§ 362', '§ 362']

California Finance Litigation Blog: October 2014
FYI: 9th Cir Holds "Sue or Be Sued" Clause in Fannie Mae's Charter Provides Federal Question Jurisdiction Over Claim By or Against Fannie Mae
The U.S. Court of Appeals for the Ninth Circuit recently held that Federal National Mortgage Association’s (“Fannie Mae”) federal corporate charter confers federal question jurisdiction over claims brought by or against Fannie Mae.
A copy of the opinion is available at:http://cdn.ca9.uscourts.gov/datastore/opinions/2014/10/02/10-56068.pdf
The plaintiffs brought two lawsuits in federal district court raising state and federal law claims against Fannie Mae following the initiation of foreclosure proceedings. The district court dismissed both cases. Thereafter, plaintiffs filed a lawsuit in California state court, alleging state law claims. Fannie Mae removed to federal court, arguing that the sue-and-be-sued clause in its federal corporate charter conferred federal question subject matter jurisdiction. The plaintiffs filed a motion to remand, which the district court denied. The district court later dismissed all of plaintiffs’ claims as barred by res judicata and collateral estoppel.
On appeal, the plaintiffs argued that the district court lacked subject matter jurisdiction. The Ninth Circuit disagreed, and held that under the rule announced in American National Red Cross v. S.G., 505 U.S. 247 (1992), Fannie Mae’s federal charter confers federal question jurisdiction over claims brought by or against Fannie Mae. The sue-and-be-sued clause in Fannie Mae’s charter authorizes Fannie Mae “to sue and be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal.” 12 U.S.C. §1723a(a).
The Ninth Circuit, held that this language confers federal question jurisdiction over claims brought by or against Fannie Mae. In so ruling, the Ninth Circuit relied on Red Cross. In Red Cross, the United States Supreme Court gave a clear rule for construing sue-and-be-sued clauses for federally chartered corporations. The Court held that “a congressional charter’s ‘sue and be sued’ provision may be read to confer federal court jurisdiction if, but only if, it specifically mentions the federal courts.” 505 U.S. at 255.
The question in Red Cross was whether the American National Red Cross’s federal charter conferred federal question jurisdiction over suits brought by or against the Red Cross. The sue-and-be-sued clause in the Red Cross’s charter authorized the Red Cross “to sue and be sued in courts of law and equity, State or Federal, within the jurisdiction of the United States.” Id. at 248. The Court held that the clause conferred federal question jurisdiction. Id. at 257.
As the Fannie Mae sue-and-be-sued clause contains a specific reference to federal court, it too confers federal question jurisdiction
Accordingly, the Ninth Circuit affirmed the District Court’s ruling in favor of Fannie Mae.
FYI: 9th Cir Allows Atty Fees for Violation of Automatic Stay to Establish and Remedy the Violation, Affirms Emotional Distress and Punitive Damages Awards
The U.S. Court of Appeals for the Ninth Circuit recently held that a debtor seeking damages for violation of the automatic stay is entitled to attorneys’ fees under 11 U.S.C. § 362(k), but may recover fees only up to the time the stay violation ended and the fees must be related to remedying the stay violation itself. The Court held that “[t]he bankruptcy laws do not permit a stay violator to undermine the remedies available under § 362(k) by forcing a bankruptcy petitioner to accept a conditional offer in lieu of pursuing fair compensation and attorneys’ fees.”
A copy of the opinion is available at: http://cdn.ca9.uscourts.gov/datastore/opinions/2014/09/12/13-35291.pdf
The borrower (“Debtor”) obtained a $575 payday loan from a lender (“Creditor”) secured by a post-dated check. Debtor filed chapter 7 bankruptcy without directly advising Creditor, and listed the Creditor’s unsecured claim in her petition. After a number of supposedly harassing phone calls to Debtor’s place of employment, the Creditor allegedly used an electronic funds transfer to debit Debtor’s bank account for the amount due, overdrawing her account by $816.88, including bank charges.
Debtor filed a motion for sanctions in the bankruptcy court, alleging that Creditor willfully violated the automatic stay provision of the bankruptcy code, 11 U.S.C. § 362, and sought a return of the funds and overdraft fees, emotional distress and punitive damages, and attorney’s fees.
Prior to trial, the Creditor denied any liability and offered to repay the loan amount, bank fees, and three hours of attorneys’ fees, for a total of $1,445. Debtor rejected the settlement offer.
The bankruptcy court found that the Creditor willfully violated the automatic stay, and awarded emotional distress damages of $12,000 as well as the $575 loan amount, $370 in bank fees, $12,000 in punitive damages, and $2,538.55 in attorneys’ fees, for a total of $27,483.55. The bankruptcy court determined that Debtor was entitled to attorneys’ fees incurred up to the date of the Creditor’s settlement offer only, because the offer effectively terminated the stay violation.
Creditor appealed the bankruptcy court’s emotional distress, punitive damages, and fee awards. After two rounds of appeals, the district court upheld the award for emotional distress and punitive damages, but denied Debtor’s attorneys’ fees incurred as a result of the appeal. In so ruling, the district court held that those fees were not incurred in an effort to enforce the stay, but in pursuit of a damages award for a stay violation.
On subsequent appeal to the Ninth Circuit, the Court began by analyzing the award for emotional distress and punitive damages.
As you may recall, 11 U.S.C § 362(k) permits an award of emotional distress damages if the bankruptcy petitioner “(1) suffer[s] significant harm, (2) clearly establish[es] the significant harm, and (3) demonstrate[s] a causal connection between that significant harm and the violation of the automatic stay.” In re Dawson, 390 F.3d 1139, 1149 (9th Cir. 2004).
In addition, Section 362(k)(1) provides for punitive damages upon “showing of reckless or callous disregard for the law or rights of others.” In re Bloom, 875 F.2d 224, 228 (9th Cir. 1989). The Ninth Circuit held that the district court did not err in confirming the emotional distress award, because the record sufficiently established that the Debtor suffered emotional harm from the collection calls to her place of employment. Similarly, the Ninth Circuit held that the bankruptcy court applied the correct legal standard in awarding punitive damages, and supported its award with findings that Creditor failed to provide policies and procedures or employee training regarding debt collection following a bankruptcy filing.
Next, the Court turned to the issue of attorneys’ fees. In Sternberg v. Johnston, the Ninth Circuit established a brightline rule that attorneys’ fees incurred in an attempt to collect damages are not recoverable once the stay violation ended. Sternberg v. Johnston, 595 F.3d 937, 948 (9th Cir. 2010). The issue before the Court is whether the Creditor’s settlement offer had terminated the stay violation. In a recent decision, the Ninth Circuit permitted recovery of attorneys’ fees incurred in defending an appeal from a bankruptcy court decision finding a violation of the automatic stay. See In re Schwartz-Tallard, No. 12-60052, 2014 WL 4251571 (9th Cir. August 29, 2014). The debtor in Schwartz-Tallard was entitled to fees because she was forced to defend the appeal to validate the bankruptcy court’s ruling that a violation of the stay had occurred, and to preserve her right to collect the pre-remedy damages awarded by the bankruptcy court. Id. at *3. Similarly, here, the Ninth Circuit found that the bankruptcy court abused its discretion when it determined that the Creditor’s settlement offer marked the end of the stay violation. Relying on In re Abrams, 127 B.R. 239 (B.A.P. 9th Cir. 1994), the Court explained that the Creditor had an affirmative obligation to return any property it had wrongfully seized from the bankruptcy estate. Instead of returning that property with no strings attached, the Creditor denied that it violated the stay and issued a settlement offer with implied conditions.
Put in another way, the Court explained that the Debtor had to proceed with the litigation in order to establish a violation of the automatic stay. The fees the Debtor incurred after the settlement offer were incurred to put an end to the violation of the automatic stay. In the Court’s own words, “[p]ermitting the violator to short-circuit the remedies available under § 362(k)(1) by making a conditional offer to return the property wrongfully seized in violation of the automatic stay would undermine the remedial scheme of § 362(k).”
Relying on In re Campion, 294 B.R. 313, 315, 318 (B.A.P. 9th Cir. 2003), where the Ninth Circuit declined to find that an automatic stay violation is remedied by a Rule 68 offer of judgment, the Court determined that the district court had erred in finding the Creditor’s settlement offer was an actual “tender.” The Creditor did not return the property it had wrongfully seized at the time of its offer. Thus, the Ninth Circuit concluded that the stay violation actually terminated on the date when the bankruptcy court found a violation of the automatic stay, and the Debtor was entitled to her fees up to that date.
Lastly, the Ninth Circuit upheld the bankruptcy refusal to issue a sanctions award because the record supported its finding that the Creditor’s approach to the bankruptcy litigation was not in bad faith.
Accordingly, the Ninth Circuit affirmed the order on emotional distress, punitive damages, and sanctions. The Court reversed the order affirming the award of attorneys’ fees, and remanded for a recalculation of the fees.
The California Court of Appeal, Fourth District, recently reversed the dismissal of borrowers’ allegations that a loan servicer breached a contract to modify the borrowers’ loan, as the borrowers were making plan payments under a HAMP trial period plan agreement when the servicer foreclosed. In so ruling, the Fourth District held that the borrowers stated claims for breach of contract and fraud, including against the servicer’s employees who made the alleged misrepresentations.
The Fourth District reversed the dismissal with respect to Servicer and its employees who allegedly made the supposed misrepresentations. The Appellate Court held that Borrowers had sufficiently pled fraudulent misrepresentation by alleging that representatives of Servicer had supposedly assured them that the payments submitted per the TPP agreement had been received and credited and that the foreclosure proceedings had supposedly been suspended.
FYI: 9th Cir Holds "Sue or Be Sued" Clause in Fann...