Source: http://updates.mwbllp.com/2018_05_20_archive.html
Timestamp: 2019-01-18 13:59:55
Document Index: 593772766

Matched Legal Cases: ['§ 1681', '§ 1331', '§ 1441', '§ 1331', '§ 1447', '§ 1447']

Financial Services Law Developments: 5/20/18 - 5/27/18
FYI: 5th Cir Holds Mortgagee Needed to Issue New Acceleration Notice Before Foreclosing
The U.S. Court of Appeals for the Fifth Circuit held that where a mortgagee rescinded prior a notice of intent to accelerate and then filed a foreclosure action without first issuing a new notice of intent to accelerate, it failed to meet its burden to show clear and unequivocal notice of intent to accelerate prior to filing suit, and therefore was not entitled to foreclosure judgment.
Accordingly, the Fifth Circuit reversed the ruling of the trial court granting summary judgment in favor of the bank, and dismissed the foreclosure action.
The defendant borrowers ("Borrowers") obtained a loan from the lender, which loan was secured by a Texas Home Equity Security Instrument on the Borrowers' home. The Borrowers' loan was subsequently assigned to the plaintiff bank ("Bank") in 2014.
On April 15, 2011, one of the Bank's predecessors mailed the Borrowers a notice of default and intent to accelerate. On June 22, 2011, the Borrowers were sent a notice of acceleration. On March 6, 2012, the predecessor sent a notice of default and intent to accelerate, followed by another notice of acceleration on May 22, 2013.
On November 3, 2014, the Bank sent the Borrowers a "Notice of Rescission of Acceleration," which stated that the lender "hereby rescinds Acceleration of the debt and maturity of the Note," and that the "Note and Security Instrument are now in effect in accordance with their original terms and conditions, as though no acceleration took place."
On June 25, 2015, the Bank sued the Borrowers seeking a judgment of foreclosure or, alternatively, a judgment of equitable subrogation. In August 2015, the Bank filed an amended complaint stating that the Bank "accelerates the maturity of the debt and provides notice of this acceleration through the service of this Amended Complaint."
On August 26, 2016, the Bank moved for summary judgment, which the trial court granted. The Borrowers appealed.
At issue on appeal was whether the Bank properly accelerated the note.
In addressing the issue, the Fifth Circuit noted that the Bank's "lien includes an optional acceleration clause, under which the 'Lender at its option may require immediate payment in full of all sums secured by this Security Instrument.'"
Under Texas law, "[e]ffective acceleration requires two acts: (1) notice of intent to accelerate, and (2) notice of acceleration." Also, "[b]oth notices must be clear an unequivocal."
The Fifth Circuit determined that the Bank's "complaint could serve as adequate notice of acceleration, but only if it was preceded by a valid notice of intent to accelerate."
In determining whether there was a valid notice of intent to accelerate, the Fifth Circuit first noted that "Texas courts have not squarely confronted whether a borrower is entitled to a new round of notice when a borrower [sic] re-accelerates following an earlier rescission."
Thus, "[f]orced to make an Erie guess, we hold that the Texas Supreme Court would require such notice, and that [the Bank] has therefore failed to meet its summary judgment burden."
Further, "[t]he Texas Supreme Court would likely conclude that [the Bank] acted 'inconsistently' by rescinding acceleration and then re-accelerating without notice."
The Fifth Circuit determined that once the Bank rescinded the notice of acceleration, the Borrowers did not have "clear and unequivocal notice that [the Bank] would exercise the option."
"Because [the Bank] failed to meet its burden to show clear and unequivocal notice of intent to accelerate prior to filing suit, it is not entitled to a foreclosure judgment."
Accordingly, the Fifth Circuit reversed the trial court's grant of summary judgment, and entered a judgment of dismissal.
FYI: 7th Cir Remands Putative Class Action to State Court for Lack of Spokeo Standing
The U.S. Court of Appeals for the Seventh Circuit recently held that a putative class action alleging violations of the federal Fair and Accurate Credit Transactions Act ("FACTA") could not be removed to federal court because the plaintiffs lacked Article III standing, which deprived the federal trial court of subject matter jurisdiction.
The lead plaintiffs filed a class-action complaint in Illinois state court alleging that the defendant, which operates public parking lots at the Dayton International Airport, allegedly violated 15 U.S.C. § 1681c(g)(1) (FACTA) by printing the expiration date of plaintiffs' credit cards on their parking receipts. The complaint did not allege that plaintiffs had suffered any credit card fraud or identity theft.
The defendant removed the case to federal court. The defendant then moved to dismiss, arguing that because the plaintiff's had not alleged any concrete injury in fact, they lacked Article III standing to sue and the court lacked subject matter jurisdiction.
The federal trial court denied the motion to remand the case to state court, reasoning that it had federal question jurisdiction because the case arose under FACTA , and therefore that it had subject matter jurisdiction under 18 U.S.C. § 1331, which gives federal courts "original jurisdiction" over claims "arising under" a federal statute.
On appeal, the Seventh Circuit note that as the party invoking federal jurisdiction, the defendant had the burden of establishing "that all elements of jurisdiction—including Article II standing—existed at the time or removal. … Removal is proper only when a case could originally have been filed in federal court."
The Appellate Court rejected the defendant's reasoning that removal to federal court was proper "because § 1441(a) allows removal of cases over which federal courts would have had 'original jurisdiction' and 28 U.S.C. § 1331 grants federal courts 'original jurisdiction' over claims 'arising under' a federal statute." It reasoned that "reliance on the phrase 'original jurisdiction' is not enough, because federal courts have subject-matter jurisdiction only if constitutional standing requirements also are satisfied."
In other words, the Seventh Circuit reasoned, under the Supreme Court's holding in Spokeo, Inc. v. Robins, in order to establish federal subject-matter jurisdiction, the removing defendant must also show that plaintiffs suffered a "concrete and particularized" injury that is "actual or imminent" and not just a technical statutory violation.
The Seventh Circuit noted that the plaintiffs "did not sufficiently alleged an actual injury" because merely alleging "'actual damages' in the complaint's prayer for relief does not establish Article III standing."
The Appellate Court concluded that because Article III standing was lacking, 28 U.S.C. § 1447(c) required that a federal trial court remand the case to state court if "at any time before final judgment it appears that the district court lacks subject matter jurisdiction."
In addition, the Seventh Circuit concluded that the case should not have been dismissed with prejudice because "[a] suit dismissed for lack of jurisdiction cannot also be dismissed 'with prejudice'; that's a disposition on the merits, which only a court with jurisdiction may render." Dismissal with prejudice was also not appropriate as a sanction under Federal Rule of Civil Procedure Rule 41(b) because while the plaintiffs failed to amend their complaint and "[a] willful failure to prosecute can fit the bill, … no finding of willfulness in this case justified a punitive dismissal on the merits."
The Appellate Court declined to award plaintiffs their attorney's fees under § 1447(c) because their "brief does not adequately develop a basis to do so." However, the Seventh Circuit pointed out the defendant's "dubious strategy has resulted in a significant waste of federal judicial resources, much of which was avoidable."
Accordingly, the trial court's judgment was vacated with instructions to remand the case to state court.
Posted by Ralph T. Wutscher at 10:35 PM