Source: https://www.jdsupra.com/legalnews/fifth-circuit-rejects-arguments-to-77664/
Timestamp: 2020-01-21 20:37:18
Document Index: 435075356

Matched Legal Cases: ['§ 158', '§ 158', '§ 1691', '§ 1691', '§ 1691', '§ 202', '§ 1691']

Fifth Circuit Rejects Arguments to Expand Scope of Liability under the Equal Credit Opportunity Act | Locke Lord LLP - JDSupra
Thomas Loose, Robert Mowrey
The U.S. Court of Appeals for the Fifth Circuit rejected arguments that would have expanded the scope of liability under the Equal Credit Opportunity Act for lenders, or other participants, in the secondary mortgage market. The authors of this article explain the court’s ruling.
In a published opinion, the U.S. Court of Appeals for the Fifth Circuit rejected arguments that would have expanded the scope of liability under the Equal Credit Opportunity Act (“ECOA”),1 for lenders, or other participants, in the secondary mortgage market. The case is Alexander v. AmeriPro Funding, Inc.2 The appeal was from the dismissal of all of the plaintiffs’ claims under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim.
Originally published in the The Banking Law Journal.
TH E B A N K IN G LAW JO U R N A L V O LU M E 134 N U M B E R 6 JU N E 2017 An A.S. Pratt® PUBLICATION JUNE 2017 EDITOR’S NOTE: WHAT SHOULD CONGRESS DO? Steven A. Meyerowitz “HEY AGENCIES: IF YOU ARE LOOKING FOR RECOMMENDATIONS TO CONGRESS, HERE’S ONE FOR YOU – HOW ABOUT GIVING GSIB SECURITIES FIRMS ACCESS TO DEPOSIT FUNDING?” Douglas Landy and James Kong LATIN AMERICAN AND CARIBBEAN FINANCIAL INSTITUTIONS: POTENTIAL IMPACT OF THE U.S. ELECTIONS Lawton M. Camp, Gregory Harrington, Raul R. Herrera, Edward Vergara, and Andrew Joseph Shipe EXECUTIVE ORDER OUTLINES “CORE PRINCIPLES” FOR EVALUATING U.S. FINANCIAL REGULATIONS Thomas J. Delaney, Jeffrey P. Taft, and Alicia K. Kinsey OPPORTUNITIES FOR STRATEGIC DEBT REPURCHASES Eric Sibbitt and Adam Ajlouni FIFTH CIRCUIT REJECTS ARGUMENTS TO EXPAND SCOPE OF LIABILITY UNDER THE EQUAL CREDIT OPPORTUNITY ACT Thomas F. Loose, Robert T. Mowrey, and Alexandra LoCasto ELEVENTH CIRCUIT AGREES WITH SEVENTH CIRCUIT THAT AN UNAUTHORIZED BANKRUPTCY COURT ORDER IS NOT A “JUDGMENT, ORDER, OR DECREE” FOR PURPOSES OF 28 U.S.C. § 158(d)(2)(A) Amy Michelle Oden U.S. DISTRICT COURT UPHOLDS CLO RISK RETENTION RULE Todd R. Kornfeld and John P. Falco TRIBUNE DECISION CREATES SPLIT OVER STANDARD FOR IMPUTING OFFICER AND DIRECTOR INTENT TO A CORPORATION Alexander Condon ALL CLAIMS DISMISSED IN THE FIRST MAJOR JUDGMENT INVOLVING THE ALLEGED MANIPULATION OF LIBOR Charles Evans, William Charles, and Rebecca Norris GERMAN INSOLVENCY AVOIDANCE ACTION REFORM AND ITS IMPACT ON FINANCIAL AND TRADE CREDITORS Bernd Meyer-Löwy and Carl Pickerill THE BANKING LAW JOURNAL VOLUME 134 NUMBER 6 June 2017 Editor’s Note: What Should Congress Do? Steven A. Meyerowitz 307 “Hey Agencies: If You are Looking for Recommendations to Congress, Here’s One for You—How about Giving GSIB Securities Firms Access to Deposit Funding?” Douglas Landy and James Kong 310 Latin American and Caribbean Financial Institutions: Potential Impact of the U.S. Elections Lawton M. Camp, Gregory Harrington, Raul R. Herrera, Edward Vergara, and Andrew Joseph Shipe 318 Executive Order Outlines “Core Principles” for Evaluating U.S. Financial Regulations Thomas J. Delaney, Jeffrey P. Taft, and Alicia K. Kinsey 326 Opportunities for Strategic Debt Repurchases Eric Sibbitt and Adam Ajlouni 331 Fifth Circuit Rejects Arguments to Expand Scope of Liability under the Equal Credit Opportunity Act Thomas F. Loose, Robert T. Mowrey, and Alexandra LoCasto 335 Eleventh Circuit Agrees with Seventh Circuit that an Unauthorized Bankruptcy Court Order Is Not a “Judgment, Order, or Decree” for Purposes of 28 U.S.C. § 158(d)(2)(A) Amy Michelle Oden 339 U.S. District Court Upholds CLO Risk Retention Rule Todd R. Kornfeld and John P. Falco 342 Tribune Decision Creates Split over Standard for Imputing Officer and Director Intent to a Corporation Alexander Condon 347 All Claims Dismissed in the First Major Judgment Involving the Alleged Manipulation of LIBOR Charles Evans, William Charles, and Rebecca Norris 351 German Insolvency Avoidance Action Reform and Its Impact on Financial and Trade Creditors Bernd Meyer-Löwy and Carl Pickerill 359 QUESTIONS ABOUT THIS PUBLICATION? For questions about the Editorial Content appearing in these volumes or reprint permission, please call: Matthew T. Burke at ................................................................................... (800) 252-9257 Email: .................................................................................... matthew.t.burke@lexisnexis.com Outside the United States and Canada, please call . . . . . . . . . . . . . . . (973) 820-2000 For assistance with replacement pages, shipments, billing or other customer service matters, please call: Customer Services Department at . . . . . . . . . . . . . . . . . . . . . . . . . . (800) 833-9844 Outside the United States and Canada, please call . . . . . . . . . . . . . . . (518) 487-3385 Fax Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (800) 828-8341 Customer Service Website . . . . . . . . . . . . . . . . . . . http://www.lexisnexis.com/custserv/ For information on other Matthew Bender publications, please call Your account manager or . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (800) 223-1940 Outside the United States and Canada, please call . . . . . . . . . . . . . . . . (937) 247-0293 ISBN: 978-0-7698-7878-2 (print) ISBN: 978-0-7698-8020-4 (eBook) ISSN: 0005-5506 (Print) ISSN: 2381-3512 (Online) Cite this publication as: The Banking Law Journal (LexisNexis A.S. Pratt) Because the section you are citing may be revised in a later release, you may wish to photocopy or print out the section for convenient future reference. This publication is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. LexisNexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc., used under license. Sheshunoff is a registered trademark of Reed Elsevier Properties SA, used under license. Copyright © 2017 Reed Elsevier Properties SA, used under license by Matthew Bender & Company, Inc. All Rights Reserved. No copyright is claimed by LexisNexis, Matthew Bender & Company, Inc., or Reed Elsevier Properties SA, in the text of statutes, regulations, and excerpts from court opinions quoted within this work. Permission to copy material may be licensed for a fee from the Copyright Clearance Center, 222 Rosewood Drive, Danvers, Mass. 01923, telephone (978) 750-8400. An A.S. Pratt® Publication Editorial Office 230 Park Ave., 7th Floor, New York, NY 10169 (800) 543-6862 www.lexisnexis.com (2017–Pub.4815) Editor-in-Chief, Editor & Board of Editors EDITOR-IN-CHIEF Steven A. Meyerowitz President, Meyerowitz Communications Inc. EDITOR Victoria Prussen Spears Senior Vice President, Meyerowitz Communications Inc. Barkley Clark Partner, Stinson Leonard Street LLP Paul L. Lee Of Counsel, Debevoise & Plimpton LLP Heath P. Tarbert Partner, Allen & Overy LLP John F. Dolan Professor of Law Wayne State Univ. Law School Givonna St. Clair Long Partner, Kelley Drye & Warren LLP Stephen B. Weissman Partner, Rivkin Radler LLP David F. Freeman, Jr. Partner, Arnold & Porter LLP Jonathan R. Macey Professor of Law Yale Law School Elizabeth C. Yen Partner, Hudson Cook, LLP Satish M. Kini Partner, Debevoise & Plimpton LLP Stephen J. Newman Partner, Stroock & Stroock & Lavan LLP Regional Banking Outlook James F. Bauerle Keevican Weiss Bauerle & Hirsch LLC Douglas Landy Partner, Milbank, Tweed, Hadley & McCloy LLP Bimal Patel Partner, O’Melveny & Myers LLP Intellectual Property Stephen T. Schreiner Partner, Goodwin Procter LLP David Richardson Partner, Dorsey & Whitney THE BANKING LAW JOURNAL (ISBN 978-0-76987-878-2) (USPS 003-160) is published ten times a year by Matthew Bender & Company, Inc. Periodicals Postage Paid at Washington, D.C., and at additional mailing offices. Copyright 2017 Reed Elsevier Properties SA., used under license by Matthew Bender & Company, Inc. No part of this journal may be reproduced in any form— by microfilm, xerography, or otherwise— or incorporated into any information retrieval system without the written permission of the copyright owner. For customer support, please contact LexisNexis Matthew Bender, 1275 Broadway, Albany, NY 12204 or e-mail Customer. Support@lexisnexis.com. Direct any editorial inquires and send any material for publication to Steven A. Meyerowitz, Editor-in-Chief, Meyerowitz Communications Inc., 26910 Grand Central Parkway, #18R, Floral Park, NY 11005, smeyerowitz@meyerowitzcommunications.com, 718.224.2258 (phone). Material for publication is welcomed— articles, decisions, or other items of interest to bankers, officers of financial institutions, and their attorneys. This publication is designed to be accurate and authoritative, but neither the publisher nor the authors are rendering legal, accounting, or other professional services in this publication. If legal or other expert advice is desired, retain the services of an appropriate professional. The articles and columns reflect only iii the present considerations and views of the authors and do not necessarily reflect those of the firms or organizations with which they are affiliated, any of the former or present clients of the authors or their firms or organizations, or the editors or publisher. POSTMASTER: Send address changes to THE BANKING LAW JOURNAL LexisNexis Matthew Bender, 230 Park Ave, 7th Floor, New York, NY 10169. POSTMASTER: Send address changes to THE BANKING LAW JOURNAL, A.S. Pratt & Sons, 805 Fifteenth Street, NW., Third Floor, Washington, DC 20005-2207. iv Fifth Circuit Rejects Arguments to Expand Scope of Liability under the Equal Credit Opportunity Act Thomas F. Loose, Robert T. Mowrey, and Alexandra LoCasto* The U.S. Court of Appeals for the Fifth Circuit rejected arguments that would have expanded the scope of liability under the Equal Credit Opportunity Act for lenders, or other participants, in the secondary mortgage market. The authors of this article explain the court’s ruling. In a published opinion, the U.S. Court of Appeals for the Fifth Circuit rejected arguments that would have expanded the scope of liability under the Equal Credit Opportunity Act (“ECOA”),1 for lenders, or other participants, in the secondary mortgage market. The case is Alexander v. AmeriPro Funding, Inc.2 The appeal was from the dismissal of all of the plaintiffs’ claims under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. As relevant here, the ECOA makes it unlawful “for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction . . . because all or part of the applicant’s income derives from any public assistance program.”3 The court held that to state a claim under the ECOA, the plaintiffs must plausibly allege that: (1) each plaintiff was an “applicant”; (2) the defendant was a “creditor”; and (3) the defendant discriminated against the plaintiff with respect to any aspect of a credit transaction on the basis of the plaintiff ’s member- ship in a protected class. BACKGROUND Twelve individual plaintiffs alleged Wells Fargo was engaged in the business of investing in or buying mortgages originated by other financial institutions, including AmeriPro. AmeriPro, as an originator, interacted with borrowers and * Thomas F. Loose is a partner at Locke Lord LLP practicing in the appellate and commercial litigation areas. Robert T. Mowrey is a partner at the firm handling complex business related and financial services litigation. Alexandra LoCasto is an associate at the firm representing clients in litigation and arbitration. Resident in the firm’s Dallas office, the authors may be reached at tloose@lockelord.com, rmowrey@lockelord.com, and alocasto@lockelord.com, respectively. 1 15 U.S.C. § 1691 et seq. 2 ___ F.3d ___, No 15-20710 (5th Cir. Feb. 16, 2017). 3 15 U.S.C. § 1691(a)(2). FIFTH CIRCUIT REJECTS ARGUMENTS TO EXPAND SCOPE OF LIABILITY 335 made credit decisions on loan applications. Plaintiffs alleged Wells Fargo, as a purchaser and investor in mortgages, promulgated guidelines for its secondary- market mortgage purchases, stating that it would only buy mortgages that are not based on Section 8 income (which is a public assistance program). The plaintiffs sued both AmeriPro and Wells Fargo claiming that each discriminated against them in violation of the ECOA on the basis of their receipt of public assistance income. The court’s treatment of the allegations of one group of plaintiffs—called the “AmeriPro Applicants” in the opinion—is significant. The AmeriPro Applicants alleged: (1) they applied for loans with AmeriPro; (2) AmeriPro processed their applications with the intention of selling their loans to Wells Fargo; (3) AmeriPro processed their applications using Wells Fargo’s lending guidelines under which their Section 8 income allegedly was not included for consideration; and (4) as a result of their Section 8 income not being considered, they received loans on less favorable terms or in a lesser amount. THE FIFTH CIRCUIT DECISION The court held the AmeriPro Applicants stated a sufficient claim under the ECOA against AmeriPro—that they alleged facts, taken together, which were sufficient plausibly to show that they applied for a mortgage with AmeriPro, that AmeriPro refused to consider their Section 8 income in assessing their creditworthiness, and that, as a result, they received mortgage loans on less favorable terms and in lesser amounts than they would have received had their Section 8 income been considered. Regarding Wells Fargo, the court reached a different conclusion. The court summarized the AmeriPro Applicants’ argument: since Wells Fargo’s secondary-market policy of refusing to purchase mortgages that rely on Section 8 income determined AmeriPro’s primary-market policy of discriminating against applicants with Section 8 income, Wells Fargo should also be liable for violating the ECOA.4 The court determined the principal issue for this claim was whether Wells Fargo was a “creditor” as to the AmeriPro Applicants. “Creditor” is defined in 4 Emphasis in original. THE BANKING LAW JOURNAL 336 the statute as “any person who regularly extends, renews, or continues credit; any person who regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit.”5 Because the AmeriPro Applicants did not apply for credit directly or indirectly from Wells Fargo, the court determined that Wells Fargo could be liable as a creditor as to the AmeriPro Applicants only if it was an “assignee of an original creditor who participates in the decision to extend, renew, or continue credit” under 15 U.S.C. § 1691a(e). The court concluded the AmeriPro Applicants failed to plausibly allege Wells Fargo “participate[d]” in the decision to extend credit and, therefore, failed to state a claim. Significantly, the court rejected the argument that Wells Fargo could be liable because it “had a policy in the secondary market of not purchasing mortgages that were originated by someone else in the primary market based on Section 8 income.” The Consumer Financial Protection Bureau (“CFPB”) supported plaintiffs as amicus and argued the ECOA’s and Regulation B’s definitions of “creditor” were broad enough to encompass Wells Fargo’s conduct. The CFPB relied on two regulatory provisions defining the term—12 C.F.R. § 202.2(l) (“Creditor means a person who, in the ordinary course of business, regularly participates in a credit decision, including setting the terms of the credit. The term creditor includes a creditor’s assignee, transferee, or subrogee who so participates.”); and 12 C.F.R. Pt. 1002, Supp. I ¶ 1002.2(l)(1), 76 Fed. Reg. 79,442, 79,473 (2011) (“The term creditor includes all persons participating in the credit decision. This may include an assignee or a potential purchaser of the obligation who influences the credit decision by indicating whether or not it will purchase the obligation if the transaction is consummated.”). The court rejected inclusion within the definition of “creditor” “those who have no direct involvement whatsoever in an individual credit decision.” Thus, the court rejected “the broad expansion of ECOA liability urged by the AmeriPro Applicants and the amicus CFPB to include the conduct of Wells Fargo in the secondary market.” CONCLUSION In summary, the court’s opinion explicitly limits liability for financial institutions purchasing mortgages in the secondary market unless those institutions participated in the originating lender’s decision with respect to the 5 15 U.S.C. § 1691a(e). FIFTH CIRCUIT REJECTS ARGUMENTS TO EXPAND SCOPE OF LIABILITY 337 loan application at issue. Based on the court’s opinion, merely promulgating lending guidelines regarding what mortgages a financial institution will purchase in the secondary market, alone, does not rise to the level of participation to permit a borrower to state a plausible claim for violation of the ECOA against the institution in the secondary market. THE BANKING LAW JOURNAL 338