Justia U.S. 7th Circuit Court of Appeals Opinion SummariesArticles Posted in Banking
Doherty v. Federal Deposit Insurance Corporation
Doherty and Farano formed Worth. The bank loaned Worth $400,000, with their personal guaranties. The bank extended the loan’s maturity date multiple times. Worth defaulted. The bank sued Worth, Farano, and Doherty. Doherty, an attorney, filed an appearance on behalf of himself and Worth and raised affirmative defenses, including that the bank extended the loan without authorization and charged fees and an interest rate not agreed upon. The court entered a default judgment for the loan balance against Farano. Doherty later received a report from a forensic document examiner, opining that his signature had been forged on loan extension paperwork. The bank dismissed its claims against Worth and Doherty without prejudice. Over a year later, Doherty sued the bank and individuals, alleging breach of contract, forgery, excessive fees, fraud, legal malpractice, and malicious prosecution. The trial court dismissed, holding that most of Doherty’s claims were barred by res judicata because he should have brought them in the guaranty action. Before Doherty’s appeal was heard, the bank went into the FDIC receivership. The FDIC removed this action to federal district court, which adopted the Illinois court’s decision. The Seventh Circuit vacated. Res judicata does not bar Doherty’s claims. None of the cited Illinois cases address this situation; similar cases suggest that applying the doctrine would be inappropriate. Applying res judicata here neither advances the purposes of res judicata nor meaningfully serves the interests of judicial economy. View "Doherty v. Federal Deposit Insurance Corporation" on Justia Law
Bernal v. NRA Group, LLC
Bernal bought a monthly pass to Six Flags amusement parks. The contract said that if he fell behind on his payments, he would “be billed for any amounts that are due and owing plus any costs (including reasonable attorney’s fees) incurred by [Six Flags] in attempting to collect amounts due.” After Bernal missed several monthly payments, Six Flags hired AR, a debt collector. Under their contract, AR could charge Six Flags a 5% management fee plus an additional amount based on the number of days the debt was delinquent (in this case, an additional 20%), as is common in the market. AR hired NRA, a subcontractor, which sent Bernal a collection letter asking for the $267.31 he owed, plus $43.28 in costs. Reasoning that it could not have cost $43.28 to mail a single collection letter, Bernal filed a class-action lawsuit under the Fair Debt Collection Practices Act, alleging that NRA charged a fee not “expressly authorized by the agreement creating the debt,” 15 U.S.C. 1692f(1). The Seventh Circuit affirmed a judgment for NRA. A debt collector’s fee counts as a collection cost under that language. The contract unambiguously permits Six Flags to recover any cost it incurs in collecting past-due payments, and that includes a standard collection fee. View "Bernal v. NRA Group, LLC" on Justia Law
Carello v. Aurora Policeman Credit Union
Carello is blind. To access online visual content, he uses a “screen reader,” which reads text aloud to him from websites that are designed to support its software. Carello claims that the Credit Union website fails to offer such support. The Illinois Credit Union Act requires that credit union membership be open only to groups of people who share a “common bond,” including “[p]ersons belonging to a specific association, group or organization,” “[p]ersons who reside in a reasonably compact and well-defined neighborhood or community,” and “[p]ersons who have a common employer.” The Credit Union limits its membership to specified local government employees. Membership is required before an individual may use any Credit Union services. Carello is not eligible for, nor has he expressed any interest in, Credit Union membership. He is a tester: he visits websites solely to test Americans with Disabilities Act (ADA) compliance, which prohibits places of public accommodation from discriminating “on the basis of disability in the full and equal enjoyment of [their] goods, services, facilities, privileges, advantages, or accommodations,” and requires them to make “reasonable modifications” to achieve that standard, 42 U.S.C. 12812(a), (b). The Seventh Circuit affirmed the dismissal of Carello’s claim. Carello lacked standing to sue because he failed to allege an injury in fact. View "Carello v. Aurora Policeman Credit Union" on Justia Law
Builders Bank, LLC v. Federal Deposit Insurance Corp.
After a 2015 examination, the FDIC assigned Builders Bank a CAMELS (capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk) rating of 4, which exposed the bank to extra oversight. After the Seventh Circuit concluded that some components of a CAMELS rating are open to judicial review, Builders merged into a non-bank enterprise and left the banking business. The district court dismissed the remanded suit as moot. The Seventh Circuit affirmed, rejecting a claim for damages based on paying too much for deposit insurance. The Administrative Procedures Act, 5 U.S.C. 702, waives the government’s sovereign immunity but establishes a right of review only when “there is no other adequate remedy in a court.” There is a potential remedy under 12 U.S.C. 1817(e)(1), which says: In the case of any payment of an assessment by an insured depository institution in excess of the amount due, the Corporation may refund the amount of the excess payment to the insured institution or credit such excess amount toward the payment of subsequent assessments. The Tucker Act, 28 U.S.C. 1491, waives immunity for such a suit but limits venue to the Claims Court. Builders did not cite the FDIC’s sue-and-be-sued clause, 12 U.S.C. 1819(a), as an alternative waiver. Apart from those that affect subject-matter jurisdiction, legal contentions must be presented in the district court. This suit was litigated on remand under the APA, so it fails. View "Builders Bank, LLC v. Federal Deposit Insurance Corp." on Justia Law
Trinity 83 Development LLC v. Colfin Midwest Funding LLC
In 2006 Trinity borrowed about $2 million from a bank, secured by a mortgage. The bank sold the note and mortgage to ColFin, which relied on Midland to collect the payments. In 2013, Midland recorded a “satisfaction,” stating that the loan had been paid and the mortgage released. The loan was actually still outstanding. Trinity continued paying. In 2015, ColFin realized Midland’s mistake and recorded a document canceling the satisfaction. Trinity stopped paying. ColFin filed a state court foreclosure action. Trinity commenced a bankruptcy proceeding, which stayed the foreclosure, then filed an adversary action against ColFin, contending that the release extinguished the debt and security interest. The bankruptcy court, district court, and Seventh Circuit rejected that argument and an argument that the matter was moot because the property had been sold under the bankruptcy court’s auspices. There is a live controversy about who should get the sale proceeds; 11 U.S.C. 363(m), which protects the validity of the sale, does not address the disposition of the proceeds. Under Illinois law, Trinity did not obtain rights from the 2013 filing, which was unilateral and without consideration; no one (including Trinity) detrimentally relied on the release, so ColFin could rescind it. ColFin caught the problem before Trinity filed its bankruptcy petition, so a hypothetical lien perfected on the date of the bankruptcy would have been junior to ColFin’s interest. View "Trinity 83 Development LLC v. Colfin Midwest Funding LLC" on Justia Law
Bunn v. Federal Deposit Insurance Corp.
After its appointment as receiver for Valley Bank Illinois, the Federal Deposit Insurance Corporation (FDIC) disaffirmed a benefits agreement between Valley Bank and Bunn, a bank executive. Bunn sued the FDIC to recover a “change of control termination benefit” he claims he is entitled to receive pursuant to that agreement. The district court granted the FDIC summary judgment, finding the benefit Bunn sought was a “golden parachute payment” prohibited by federal law, 12 U.S.C. 1828(k)(4)(A)(i). The Seventh Circuit affirmed. The benefit is a contingent payment that Bunn could only receive upon his termination of employment with Valley Bank; any payment of the benefit would be after a receiver was appointed for Valley Bank. Bunn presented no evidence sufficient to establish the benefit qualifies for the bona fide deferred compensation plan exception to such a golden parachute payment. View "Bunn v. Federal Deposit Insurance Corp." on Justia Law
Moore v. Wells Fargo Bank, N.A.
The Real Estate Settlement Procedures Act, 12 U.S.C. 2605 (RESPA), requires that a loan servicer, no later than 30 days after receiving a borrower's “qualified written request” for information, take one of three specific actions and provides a private right of action for actual damages resulting from violations. Wis. Stat. 224.77 prohibits mortgage brokers from violating "any federal or state statute.” Terrence purchased his house in 2006 with a Deutsche Bank mortgage, serviced by Wells Fargo. His wife, Dixie, used an inheritance to help buy the house but was never named on the title, mortgage, or promissory note. Despite a forbearance plan and two loan modifications, Terrance defaulted. Deutsche Bank filed a second foreclosure action. In 2012, the Wisconsin court entered a foreclosure judgment. Terrance filed for Chapter 13 bankruptcy, resulting in an automatic stay. In 2015, the parties entered into a third modification. Terrance again failed to make payments and converted to a Chapter 7 bankruptcy, triggering another stay. In 2016 the bankruptcy court entered a discharge. The sheriff’s sale was rescheduled. In August 2016, Terrance sent Wells Fargo a letter, asking 22 wide-ranging questions about his account. Wells Fargo confirmed receipt immediately, indicating that it would respond on September 30. Two days before the RESPA deadline for response, the owners moved to reopen the foreclosure case and obtained another stay. They also filed a federal suit under RESPA and state law. The Seventh Circuit affirmed dismissal. Dixie lacked standing. Terrance failed to show that he suffered out-of-pocket expenses as a result of any alleged RESPA violation. View "Moore v. Wells Fargo Bank, N.A." on Justia Law
Levin v. Miller
Irwin is a holding company for two banks. When the 2007–2008 financial crisis began, regulators and Irwin’s outside legal counsel advised the company to buoy up its sinking subsidiaries. Irwin’s Board of Directors instructed the officers to save the banks. Private investors showed little interest and federal regulators indicated that a bailout was unlikely. In 2009, Irwin received a $76 million tax refund. The Board authorized Irwin’s officers to transfer the refund to the banks, believing that the refund legally belonged to the banks. The banks ultimately failed. Irwin filed for bankruptcy. Levin, the Chapter 7 trustee, sued Irwin’s former officers, alleging that they breached their fiduciary duty to provide the Board with material information concerning the tax refund. Levin claimed the officers should have known the banks were going to fail and should have investigated alternatives to transferring the tax refund; had the officers done so, they would have discovered that Irwin might be able to claim the $76 million as an asset in bankruptcy, so that the Board would have declared bankruptcy earlier, maximizing Irwin's value for creditors. The Seventh Circuit rejected the argument. Corporate officers have a duty to furnish the Board of Directors with material information, subject to the Board’s contrary directives. On the advice of government regulators and expert outside legal counsel, the Board had prioritized saving the banks. The officers had no authority to second-guess the Board’s judgment with their own independent investigation. View "Levin v. Miller" on Justia Law
McMahan v. Deutsche Bank AG
In 2001, McMahan and his wholly owned corporation participated in a tax shelter called “Son of BOSS” that “is a variation of a slightly older alleged tax shelter,” BOSS, an acronym for ‘bond and options sales strategy.’” BOSS “was aggressively marketed by law and accounting firms in the late 1990s and early 2000s” and involves engaging in a series of transactions to create an “artificial loss [that] may offset actual—and otherwise taxable— gains, thereby sheltering them from Uncle Sam.” The Internal Revenue Service considers the use of this shelter abusive and initiated an audit of McMahan’s 2001 tax return in 2005. In 2010, the IRS notified McMahan it was increasing his taxable income for 2001 by approximately $2 million. In 2012, McMahan filed suit against his accountant, American Express, which prepared his tax return, and Deutsche Bank, which facilitated the transactions necessary to implement the shelter. McMahan claimed these defendants harmed him by convincing him to participate in the shelter. The Seventh Circuit affirmed the rejection of all the claims by dismissal or summary judgment. McMahan’s failure to prosecute prejudiced the accountant and Amex defendants and the Deutsch Bank claim was untimely. View "McMahan v. Deutsche Bank AG" on Justia Law
Roberts v. Federal Housing Finance Agency
During the 2008 financial crisis, Congress created the Federal Housing Finance Agency and authorized it to place into conservatorship the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation (Fannie Mae and Freddie Mac), 12 U.S.C. 4617(a) and empowered the U.S. Treasury to purchase their “obligations and other securities” through 2009. In exchange for a cash infusion and fixed funding commitment for each enterprise, Treasury received senior preferred shares and extraordinary governance and economic rights, including the right to receive dividends tied to the amount of Treasury’s payments. As Fannie and Freddie’s capital needs grew, Treasury agreed to modify the original agreements. The First and Second Amendments primarily increased Treasury’s funding commitment. The third modification, made after Treasury’s purchasing authority expired, set Treasury’s dividend rights equal to the companies’ outstanding net worth. Plaintiffs, private shareholders of Fannie and Freddie, sued, claiming that the Agency violated its duties by agreeing to the net‐worth dividend and by unlawfully succumbing to the direction of Treasury and that Treasury exceeded its statutory authority and failed to follow proper procedures. The Seventh Circuit affirmed dismissal. Section 4617(f) bars “any” judicial interference with the “exercise of powers or functions of the Agency as a conservator.” The purpose of the conservatorship is the “reorganizing, rehabilitation, or winding up” of the companies’ affairs, not just the preservation of assets. Wiping out Treasury’s acceptance of the original agreements or the Third Amendment would undermine the conservatorships. View "Roberts v. Federal Housing Finance Agency" on Justia Law