Federal Issues

Senate Begins Debate on Financial Services Reform Bill. This past week, the U.S. Senate began consideration of comprehensive legislation to reform the financial services industry and voted to begin debate on S. 3217, the Restoring American Financial Stability Act of 2010. Although the bill as introduced generally tracks the discussion draft reported out of the Senate Banking Committee on March 22 (reported in Regulatory Restructuring Report Issue 17, Mar. 25, 2010), numerous amendments have already been filed and additional amendments continue to be negotiated. The Senate plans to resume debate on the bill on May 11, 2010. A comprehensive Regulatory Restructuring Report will be issued shortly after final action is taken by the Senate. The most recent version of S. 3217 can be found here.

FinCEN, FDIC Assess Civil Money Penalties Against Bank for Alleged BSA Violations. On May 4, the Financial Crimes Enforcement Network (FinCEN) and the Federal Deposit insurance Corporation (FDIC) announced concurrent civil money penalties of $25,000 against Eurobank, San Juan, Puerto Rico for alleged violations of the Bank Secrecy Act (BSA). The bank consented to the payment without admitting to or denying the allegations. FinCEN and the FDIC alleged that the bank failed to establish and implement an adequate anti-money laundering program, as required by the BSA, during a period between April 2005 and December 2008 by failing to (i) provide for a system of internal controls to assure ongoing compliance, (ii) provide for independent testing for compliance conducted by bank personnel or by an outside party, (iii) designate an individual or individuals responsible for coordinating and monitoring day-to-day compliance, and (iv) provide training for appropriate personnel. FinCEN and the FDIC also alleged that the bank violated the BSA’s suspicious transaction reporting requirements and corresponding federal regulations, which require banks to report transactions that involve or aggregate to at least $5,000, are conducted by, at, or through the bank, and that the bank “knows, suspects, or has reason to suspect” are suspicious. The $25,000 civil penalty was based on FinCEN’s and the FDIC’s interpretation of the severity of the alleged offenses, as well the limited resources of the bank. The FDIC previously issued a cease and desist order, which included allegations of BSA violations, against the bank on March 15, 2007. On April 30, the bank was closed by the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico. For a copy of the assessment and order, please see here and here.

FinCEN Releases Guidance on Filing SARs Related to HECM Fraud. On April 27, the Financial Crimes Enforcement Network (FinCEN) released guidance instructing financial institutions on how to identify and properly file Suspicious Activity Reports (SARs) for fraudulent schemes that may arise under the Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) program. The guidance provides examples of common fraud schemes and potential “red flags” for fraudulent activity related to HECMs and recommends key word or phrases for financial institutions to use when completing SARs involving HECM program fraud to assist law enforcement authorities. For a copy of the guidance, please see 
http://www.fincen.gov/statutes_regs/guidance/html/fin-2010-a005.html.

State Issues

California DOC Approved to Certify Pre-License Education Compliance for Mortgage Loan Originators. On May 4, the California Department of Corporations (DOC) announced that it has been approved to certify compliance with pre-license education requirements for certain mortgage loan originators (MLOs), as authorized by the federal Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act). The SAFE Act requires all MLO license applicants to complete 20 hours of pre-license education, which may be completed through a Nationwide Mortgage Licensing System (NMLS) approved provider. Individuals who apply only to the DOC for an MLO license, or are Department of Real Estate (DRE) licensees, or who have held a DRE license in the past, are able to obtain certification through the DOC. The DOC will evaluate compliance for applicants who apply only to the DOC by June 15, 2010. Applicants who have applied for, or intend to apply for, licensure with the DRE should only request endorsement from the DRE. For a copy of the announcement, please see here.

Courts

Ninth Circuit Holds Bad Faith and Harassment Necessary to Award Costs Under FDCPA. On May 3, the U.S. Court of Appeals for the Ninth Circuit held that an award of costs under Federal Rule of Civil Procedure (Fed.R.Civ.P.) 54(d) implicates the Fair Debt Collection Practices Act (FDCPA) provision on damages, which provides for an award of attorney’s fees upon a finding that an action was brought in bad faith and for the purpose of harassment. Rouse v. Law Offices of Rory Clark, No. 09-55146, 2010 WL 1740910 (9th Cir. May 3, 2010). In this case, the plaintiff alleged unfair debt collection practices against a collector and its legal representatives. A jury returned a verdict for the defendants on the FDCPA claim, and awarded costs of approximately $6,500 under Fed.R.Civ.P. 54(d). The plaintiff moved to re-tax costs, arguing that the FDCPA required a finding of bad faith and harassment, which the jury did not provide. The district court denied the motion, holding that such a finding is required only before awarding attorney’s fees and that the statute’s provision on damages had no effect on any entitlement to costs under Fed.R.Civ.P. Rule 54. The Ninth Circuit reversed and vacated the award, concluding after an analysis of the FDCPA statutory language and legislative history that costs as well as attorney’s fees are conditioned upon a finding of the plaintiff’s bad faith and harassment. For a copy of the opinion, please click here.

Shareholder Derivative Suits Against Goldman Sachs Follow SEC Enforcement Action. On May 3, the Goldman Sachs Group, Inc. (Goldman) filed an 8-K with the U.S. Securities and Exchange Commission (SEC) discussing several shareholder securities class action lawsuits in the Southern District of New York and the New York Supreme Court against Goldman, its Board of Directors and certain officers, employees and affiliates. The shareholders’ derivative suits allege claims for breach of fiduciary duty, corporate waste, abuse of control, mismanagement and unjust enrichment in connection with collateralized debt obligation offerings made between 2004-2007. A key issue in one lawsuit will be Goldman’s alleged failure to disclose the existence of a Wells Notice, a letter that the SEC sends when it is planning to bring an enforcement action, and which gives the person or firm an opportunity to respond why the action should not be brought. Further, plaintiffs in an existing shareholder derivative action for declaratory relief in the Delaware Court of Chancery regarding compensation levels in 2009 have filed an amended complaint to incorporate allegations similar to those in the recently filed derivative complaints. For a copy of the Form 8-K, which attaches several of the complaints, please see http://1.usa.gov/mVT8TJ.

California State Court Finds Settlement Agent Had Duty to Disclose “Additional Payoffs or Fees” at Least Until Preparation of Final HUD-1. On April 27, the California Court of Appeals held that a defendant title company had a duty to disclose “additional payoffs or fees” pursuant to a contract with a borrower after escrow closed and until, at earliest, the preparation of a final HUD-1. Plaza Home Mortgage, Inc. v. North American Title Co., Inc., No. D054685, 2010 WL 1664979 (Cal. Ct. App. Apr. 27, 2010). In this case, the plaintiff made a loan to the purchaser of a residential property and the defendant acted as the escrow holder and settlement agent for the loan, which included preparing and delivering the Good Faith Estimate (GFE). After paying off the existing liens, the defendant distributed the balance of the proceeds, representing to the plaintiff that there were no “additional payoffs or fees” that were not disclosed in the GFE. However, at some point after funding and the close of escrow, but before disbursement of the balance, the seller of the property requested that the defendant pay the buyer’s attorney-in-fact nearly $55,000. The plaintiff was unaware of this disbursement until it received the final HUD-1 settlement statement. The trial court found that there was no breach of the closing instructions contract because the defendant’s actions occurred after escrow had closed. However, the appellate court explained that, under the plain language of the closing instructions contract, the defendant was “contractually bound to disclose to [the plaintiff] any ‘additional payoffs’ that were not disclosed in the estimated HUD-1 or verbally by [the defendant],” and the duty to disclose continued until the loans closed and at least through preparation of the final HUD-1— not only until escrow closed. The appellate court reversed the trial court’s decision and remanded with instructions for the trier of fact to determine whether the defendant breached the closing instructions contract, and if so, whether the breach proximately caused damage to the plaintiff. For a copy of the opinion, please click here.

Florida Federal Court Holds Online Services Agreement Unenforceable Where Person Accepting Agreement Lacked Authority. In a recent ruling, the U.S. District Court for the Southern District of Florida held that a defendant could not enforce a venue and arbitration clause in an online agreement where the persons accepting the agreement lacked actual or apparent authority. National Auto Lenders, Inc. v. SysLOCATE, Inc., No. 09-21765, 2010 WL 527866 (S.D. Fla. Feb. 10, 2010). In this case, the plaintiff contracted with the defendants to buy GPS systems that could be tracked via the defendant’s secure website. A website for one of the defendants required its users to agree to a “click-to-accept” end user license agreement that limited a potential plaintiff’s recovery against the company; the website later instituted an online agreement that contained venue and arbitration clauses and also limited liability for defective units. A user could not access the website to track its GPS systems unless it agreed to the online agreement. The plaintiff expressly informed the defendants that only three executives had the authority to accept the online agreements and that all communications on the issue should be presented through counsel. Nevertheless, two employees of the plaintiff, in an attempt to log onto the tracking website, accepted the online agreement that included the venue and arbitration clauses. The plaintiff instituted a lawsuit after discovering that the GPS systems were defective and the parties began negotiating a settlement. The defendants moved to dismiss the complaint and to enforce the venue and arbitration provisions in the online agreement, arguing that that the employees had apparent authority. The court disagreed, finding that the elements of apparent authority were lacking, and that defendants knew that only certain individuals were authorized to accept the online agreement. The court also rejected the argument that the plaintiff ratified the agreement once it was accepted because the individuals authorized to accept the agreement had no knowledge that the agreement was accepted until the motion to dismiss was filed. Consequently, the court denied the motion to dismiss and/or transfer venue and to compel mediation and arbitration. For a copy of the opinion, please click here.

Maryland Federal Court Holds Defendant May Have Willfully Violated FACTA Truncation Requirement. On April 22, the U.S. District Court for the District of Maryland held that a defendant restaurant and bar owner may have willfully violated the Fair and Accurate Credit Transactions Act (FACTA) by providing the plaintiff with a credit card receipt that disclosed the expiration date of the plaintiff’s credit card. Buechler v. Keyco, Inc., Civil No. WDQ-09-2948, 2010 WL 1664226 (D. Md. Apr. 22, 2010). InBuechler, the plaintiff filed a class action complaint against the defendant and sought statutory damages for the defendant’s alleged FACTA violation. The defendant responded by filing a motion to dismiss, arguing that an award of statutory damages to the plaintiff was unwarranted because the plaintiff’s complaint failed to allege facts to support that the defendant had acted willfully. In denying the defendant’s motion to dismiss, the court determined that the plaintiff’s complaint sufficiently alleged a willful violation of FACTA by the defendant. According to the court, the publicity surrounding the enactment of the applicable FACTA provision in 2003, relevant guidance issued by the Federal Trade Commission in 2007, and FACTA compliance by the defendant’s peers and competitors, among other things, all support that the defendant may have willfully violated FACTA. For a copy of the opinion, please click here.

Federal Class Action Alleges eBay’s Identity Verification Policy Violates the ADA. On March 16, a consumer filed a class action lawsuit against eBay in the U.S. District Court for the Western District of Missouri alleging that the online auction site is violating the Americans with Disabilities Act (ADA) by requiring potential sellers to verify their identities via telephone before receiving access to the seller portion of its website. Earll v. eBay, Inc., No. 10-03089 (W.D. Mo. Mar. 16, 2010). The lead plaintiff in the case, who suffers from a severe type of deafness, cannot speak and is incapable of completing eBay’s telephone registration process. In her complaint, the plaintiff alleges that on numerous occasions she has asked the company to provide her with an alternative method of registration only to have the company refuse each request. Her lawsuit seeks monetary damages, a declaratory judgment that the company violated the ADA, and an injunction requiring the site to make its registration procedure accessible to the deaf. The case is substantially similar to a prior lawsuit, Nat’l Fed’n of the Blind v. Target Corp. (as reported in InfoBytes, Sept. 12, 2008), where the National Federation of the Blind sued Target, alleging that the retailer’s website was not accessible to the blind. In that case, the U.S. Federal District Court for the Northern District of California denied Target’s motion for summary judgment, which prompted Target to immediately settle. A major factor in the court’s ruling in that case was the substantial connection between Target’s website and its brick and mortar stores. However, eBay’s lack of physical brick and mortar stores may change how the court views the ADA claim made in Earll. For a copy of the complaint, please click here.

Firm News

BuckleySandler LLP hosted its Annual Fair Lending Today Conference on Compliance, Regulatory & Litigation Issues in Today’s Changing Enforcement Environment in Washington, DC on April 19.

David Baris will present a 90-minute, one CPE credit audio conference entitled “Failed Bank Litigation: The Stakes and the Stakeholders” on May 17 at 1PM ET. The audio conference is sponsored by Sheshunoff, A.S. Pratt and ASMI. For more information, click here.

Margo Tank will be speaking on a panel titled "Preventing and Managing Litigation Associated with the Complex Array of State Breach Notification Laws" at the ACI Data Privacy & Information Security Conference, June 3-4 in Dallas, TX.

Andrew Sandler will speak on June 6-7 at CBA Live, the Consumer Banker Association Conference being held in Hollywood, Florida. Andrew will be presenting a Fair Lending Industry Overview on Fair Lending on June 6 and will be speaking on Auto Fair Lending on June 7.

Andrew Sandler was recently quoted in the Wall Street Journal regarding the SEC’s recent securities fraud charges against Goldman Sachs.

Jonathan Cannon was quoted in a RESPA News article “Court Certifies Class in Section 8 Overcharge Suit” on April 9.

David Baris spoke regarding bank director liability at the NACD/AABD Bank Director Workshop on April 14.

Lori Sommerfield co-hosted the Minnesota Banking Law Institute, a one-day symposium of banking law topics, and moderated a panel on "Hot Topics in Mortgage Servicing” on April 19.

Christopher Witeck presented the topic “What’s up with Ginnie Mae?” on April 21 at the NRMLA Road Show in Atlanta, GA.

Andrew Sandler moderated and spoke on a panel on April 22 at the American Bar Association Banking Law Committee Spring Meeting in Denver, Colorado on the topic “Retail Banking and Consumer Law; Topic: Fair and Responsible Lending - Regulatory and Enforcement Update.”

Lori Sommerfield spoke on a panel on April 22 at the American Bar Association Banking Law Committee Spring Meeting in Denver, Colorado on the topic “Retail Banking and Consumer Law; Topic: Fair and Responsible Lending - Regulatory and Enforcement Update.”

Joe Kolar and David Baris presented a webinar on April 23 to the Community Mortgage Lenders of America on “Banking Opportunities for Mortgage Lenders.”

Ben Klubes spoke at the Sterling National’s Executive Round Table, providing a legal and regulatory update, in Ponte Vedra Beach, FL on April 23.

Jeff Naimon presented on a panel discussing TILA on April 23 at the American Bar Association Section of Business Law Spring Meeting in Denver, CO.

John Kromer moderated a panel entitled "RESPA Update" at the American Bar Association Business Law Section’s Spring Meeting in Denver, Colorado on April 24.

Kirk Jensen spoke on a panel addressing the Servicemembers Civil Relief Act at the American Bar Association Business Law Section’s Spring Meeting in Denver, Colorado on April 24.

Andrew Sandler and Jerry Buckley spoke at the recent National CRA, HMDA & Fair Lending Forum held in Dallas, Texas. Andrew also hosted a welcome reception and presented a Fair Lending Risk Update on April 27. Jerry spoke on the topic "The Changing Regulatory Environment" on April 28.

Margo Tank was the featured speaker in a webinar on May 4 entitled “New Disclosure Regulations: How Consumer Lenders can Reduce Risk and Cost with E-Disclosures.”

Andrew Sandler, Jeff Naimon and Margo Tank participated in the Mortgage Bankers Association Legal and Regulatory Compliance Conference on May 4-5 in Coronado, California. Andrew spoke on a panel and roundtable session on the topic “Fair Lending” on May 4; Jeff discussed servicing issues on May 4; Margo spoke on the topic "Update on Legal Issues in Mortgage Technology and eMortgages" on May 5.

Mortgages

California DOC Approved to Certify Pre-License Education Compliance for Mortgage Loan Originators. On May 4, the California Department of Corporations (DOC) announced that it has been approved to certify compliance with pre-license education requirements for certain mortgage loan originators (MLOs), as authorized by the federal Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act). The SAFE Act requires all MLO license applicants to complete 20 hours of pre-license education, which may be completed through a Nationwide Mortgage Licensing System (NMLS) approved provider. Individuals who apply only to the DOC for an MLO license, or are Department of Real Estate (DRE) licensees, or who have held a DRE license in the past, are able to obtain certification through the DOC. The DOC will evaluate compliance for applicants who apply only to the DOC by June 15, 2010. Applicants who have applied for, or intend to apply for, licensure with the DRE should only request endorsement from the DRE. For a copy of the announcement, please see here.

California State Court Finds Settlement Agent Had Duty to Disclose “Additional Payoffs or Fees” at Least Until Preparation of Final HUD-1. On April 27, the California Court of Appeals held that a defendant title company had a duty to disclose “additional payoffs or fees” pursuant to a contract with a borrower after escrow closed and until, at earliest, the preparation of a final HUD-1. Plaza Home Mortgage, Inc. v. North American Title Co., Inc., No. D054685, 2010 WL 1664979 (Cal. Ct. App. Apr. 27, 2010). In this case, the plaintiff made a loan to the purchaser of a residential property and the defendant acted as the escrow holder and settlement agent for the loan, which included preparing and delivering the Good Faith Estimate (GFE). After paying off the existing liens, the defendant distributed the balance of the proceeds, representing to the plaintiff that there were no “additional payoffs or fees” that were not disclosed in the GFE. However, at some point after funding and the close of escrow, but before disbursement of the balance, the seller of the property requested that the defendant pay the buyer’s attorney-in-fact nearly $55,000. The plaintiff was unaware of this disbursement until it received the final HUD-1 settlement statement. The trial court found that there was no breach of the closing instructions contract because the defendant’s actions occurred after escrow had closed. However, the appellate court explained that, under the plain language of the closing instructions contract, the defendant was “contractually bound to disclose to [the plaintiff] any ‘additional payoffs’ that were not disclosed in the estimated HUD-1 or verbally by [the defendant],” and the duty to disclose continued until the loans closed and at least through preparation of the final HUD-1— not only until escrow closed. The appellate court reversed the trial court’s decision and remanded with instructions for the trier of fact to determine whether the defendant breached the closing instructions contract, and if so, whether the breach proximately caused damage to the plaintiff. For a copy of the opinion, please click here.

Banking

Senate Begins Debate on Financial Services Reform Bill. This past week, the U.S. Senate began consideration of comprehensive legislation to reform the financial services industry and voted to begin debate on S. 3217, the Restoring American Financial Stability Act of 2010. Although the bill as introduced generally tracks the discussion draft reported out of the Senate Banking Committee on March 22 (reported in Regulatory Restructuring Report Issue 17, Mar. 25, 2010), numerous amendments have already been filed and additional amendments continue to be negotiated. The Senate plans to resume debate on the bill on May 11, 2010. A comprehensive Regulatory Restructuring Report will be issued shortly after final action is taken by the Senate.  The most recent version of S. 3217 can be found here.

FinCEN, FDIC Assess Civil Money Penalties Against Bank for Alleged BSA Violations. On May 4, the Financial Crimes Enforcement Network (FinCEN) and the Federal Deposit insurance Corporation (FDIC) announced concurrent civil money penalties of $25,000 against Eurobank, San Juan, Puerto Rico for alleged violations of the Bank Secrecy Act (BSA). The bank consented to the payment without admitting to or denying the allegations. FinCEN and the FDIC alleged that the bank failed to establish and implement an adequate anti-money laundering program, as required by the BSA, during a period between April 2005 and December 2008 by failing to (i) provide for a system of internal controls to assure ongoing compliance, (ii) provide for independent testing for compliance conducted by bank personnel or by an outside party, (iii) designate an individual or individuals responsible for coordinating and monitoring day-to-day compliance, and (iv) provide training for appropriate personnel. FinCEN and the FDIC also alleged that the bank violated the BSA’s suspicious transaction reporting requirements and corresponding federal regulations, which require banks to report transactions that involve or aggregate to at least $5,000, are conducted by, at, or through the bank, and that the bank “knows, suspects, or has reason to suspect” are suspicious. The $25,000 civil penalty was based on FinCEN’s and the FDIC’s interpretation of the severity of the alleged offenses, as well the limited resources of the bank. The FDIC previously issued a cease and desist order, which included allegations of BSA violations, against the bank on March 15, 2007. On April 30, the bank was closed by the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico. For a copy of the assessment and order, please see here and here.

FinCEN Releases Guidance on Filing SARs Related to HECM Fraud. On April 27, the Financial Crimes Enforcement Network (FinCEN) released guidance instructing financial institutions on how to identify and properly file Suspicious Activity Reports (SARs) for fraudulent schemes that may arise under the Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) program. The guidance provides examples of common fraud schemes and potential “red flags” for fraudulent activity related to HECMs and recommends key word or phrases for financial institutions to use when completing SARs involving HECM program fraud to assist law enforcement authorities. For a copy of the guidance, please see http://www.fincen.gov/statutes_regs/guidance/html/fin-2010-a005.html.

Consumer Finance

Senate Begins Debate on Financial Services Reform Bill. This past week, the U.S. Senate began consideration of comprehensive legislation to reform the financial services industry and voted to begin debate on S. 3217, the Restoring American Financial Stability Act of 2010. Although the bill as introduced generally tracks the discussion draft reported out of the Senate Banking Committee on March 22 (reported in Regulatory Restructuring Report Issue 17, Mar. 25, 2010), numerous amendments have already been filed and additional amendments continue to be negotiated. The Senate plans to resume debate on the bill on May 11, 2010. A comprehensive Regulatory Restructuring Report will be issued shortly after final action is taken by the Senate. The most recent version of S. 3217 can be found here.

Ninth Circuit Holds Bad Faith and Harassment Necessary to Award Costs Under FDCPA. On May 3, the U.S. Court of Appeals for the Ninth Circuit held that an award of costs under Federal Rule of Civil Procedure (Fed.R.Civ.P.) 54(d) implicates the Fair Debt Collection Practices Act (FDCPA) provision on damages, which provides for an award of attorney’s fees upon a finding that an action was brought in bad faith and for the purpose of harassment. Rouse v. Law Offices of Rory Clark, No. 09-55146, 2010 WL 1740910 (9th Cir. May 3, 2010). In this case, the plaintiff alleged unfair debt collection practices against a collector and its legal representatives. A jury returned a verdict for the defendants on the FDCPA claim, and awarded costs of approximately $6,500 under Fed.R.Civ.P. 54(d). The plaintiff moved to re-tax costs, arguing that the FDCPA required a finding of bad faith and harassment, which the jury did not provide. The district court denied the motion, holding that such a finding is required only before awarding attorney’s fees and that the statute’s provision on damages had no effect on any entitlement to costs under Fed.R.Civ.P. Rule 54. The Ninth Circuit reversed and vacated the award, concluding after an analysis of the FDCPA statutory language and legislative history that costs as well as attorney’s fees are conditioned upon a finding of the plaintiff’s bad faith and harassment. For a copy of the opinion, please click here.

Securities

Senate Begins Debate on Financial Services Reform Bill. This past week, the U.S. Senate began consideration of comprehensive legislation to reform the financial services industry and voted to begin debate on S. 3217, the Restoring American Financial Stability Act of 2010. Although the bill as introduced generally tracks the discussion draft reported out of the Senate Banking Committee on March 22 (reported in Regulatory Restructuring Report Issue 17, Mar. 25, 2010), numerous amendments have already been filed and additional amendments continue to be negotiated. The Senate plans to resume debate on the bill on May 11, 2010. A comprehensive Regulatory Restructuring Report will be issued shortly after final action is taken by the Senate. The most recent version of S. 3217 can be found here.

Shareholder Derivative Suits Against Goldman Sachs Follow SEC Enforcement Action. On May 3, the Goldman Sachs Group, Inc. (Goldman) filed an 8-K with the U.S. Securities and Exchange Commission (SEC) discussing several shareholder securities class action lawsuits in the Southern District of New York and the New York Supreme Court against Goldman, its Board of Directors and certain officers, employees and affiliates. The shareholders’ derivative suits allege claims for breach of fiduciary duty, corporate waste, abuse of control, mismanagement and unjust enrichment in connection with collateralized debt obligation offerings made between 2004-2007. A key issue in one lawsuit will be Goldman’s alleged failure to disclose the existence of a Wells Notice, a letter that the SEC sends when it is planning to bring an enforcement action, and which gives the person or firm an opportunity to respond why the action should not be brought. Further, plaintiffs in an existing shareholder derivative action for declaratory relief in the Delaware Court of Chancery regarding compensation levels in 2009 have filed an amended complaint to incorporate allegations similar to those in the recently filed derivative complaints. For a copy of the Form 8-K, which attaches several of the complaints, please see http://1.usa.gov/mVT8TJ.

Insurance

Senate Begins Debate on Financial Services Reform Bill. This past week, the U.S. Senate began consideration of comprehensive legislation to reform the financial services industry and voted to begin debate on S. 3217, the Restoring American Financial Stability Act of 2010. Although the bill as introduced generally tracks the discussion draft reported out of the Senate Banking Committee on March 22 (reported in Regulatory Restructuring Report Issue 17, Mar. 25, 2010), numerous amendments have already been filed and additional amendments continue to be negotiated. The Senate plans to resume debate on the bill on May 11, 2010. A comprehensive Regulatory Restructuring Report will be issued shortly after final action is taken by the Senate. The most recent version of S. 3217 can be found here.

Litigation

Ninth Circuit Holds Bad Faith and Harassment Necessary to Award Costs Under FDCPA. On May 3, the U.S. Court of Appeals for the Ninth Circuit held that an award of costs under Federal Rule of Civil Procedure (Fed.R.Civ.P.) 54(d) implicates the Fair Debt Collection Practices Act (FDCPA) provision on damages, which provides for an award of attorney’s fees upon a finding that an action was brought in bad faith and for the purpose of harassment. Rouse v. Law Offices of Rory Clark, No. 09-55146, 2010 WL 1740910 (9th Cir. May 3, 2010). In this case, the plaintiff alleged unfair debt collection practices against a collector and its legal representatives. A jury returned a verdict for the defendants on the FDCPA claim, and awarded costs of approximately $6,500 under Fed.R.Civ.P. 54(d). The plaintiff moved to re-tax costs, arguing that the FDCPA required a finding of bad faith and harassment, which the jury did not provide. The district court denied the motion, holding that such a finding is required only before awarding attorney’s fees and that the statute’s provision on damages had no effect on any entitlement to costs under Fed.R.Civ.P. Rule 54. The Ninth Circuit reversed and vacated the award, concluding after an analysis of the FDCPA statutory language and legislative history that costs as well as attorney’s fees are conditioned upon a finding of the plaintiff’s bad faith and harassment. For a copy of the opinion, please click here.

Shareholder Derivative Suits Against Goldman Sachs Follow SEC Enforcement Action. On May 3, the Goldman Sachs Group, Inc. (Goldman) filed an 8-K with the U.S. Securities and Exchange Commission (SEC) discussing several shareholder securities class action lawsuits in the Southern District of New York and the New York Supreme Court against Goldman, its Board of Directors and certain officers, employees and affiliates. The shareholders’ derivative suits allege claims for breach of fiduciary duty, corporate waste, abuse of control, mismanagement and unjust enrichment in connection with collateralized debt obligation offerings made between 2004-2007. A key issue in one lawsuit will be Goldman’s alleged failure to disclose the existence of a Wells Notice, a letter that the SEC sends when it is planning to bring an enforcement action, and which gives the person or firm an opportunity to respond why the action should not be brought. Further, plaintiffs in an existing shareholder derivative action for declaratory relief in the Delaware Court of Chancery regarding compensation levels in 2009 have filed an amended complaint to incorporate allegations similar to those in the recently filed derivative complaints. For a copy of the Form 8-K, which attaches several of the complaints, please see http://1.usa.gov/mVT8TJ.

California State Court Finds Settlement Agent Had Duty to Disclose “Additional Payoffs or Fees” at Least Until Preparation of Final HUD-1. On April 27, the California Court of Appeals held that a defendant title company had a duty to disclose “additional payoffs or fees” pursuant to a contract with a borrower after escrow closed and until, at earliest, the preparation of a final HUD-1. Plaza Home Mortgage, Inc. v. North American Title Co., Inc., No. D054685, 2010 WL 1664979 (Cal. Ct. App. Apr. 27, 2010). In this case, the plaintiff made a loan to the purchaser of a residential property and the defendant acted as the escrow holder and settlement agent for the loan, which included preparing and delivering the Good Faith Estimate (GFE). After paying off the existing liens, the defendant distributed the balance of the proceeds, representing to the plaintiff that there were no “additional payoffs or fees” that were not disclosed in the GFE. However, at some point after funding and the close of escrow, but before disbursement of the balance, the seller of the property requested that the defendant pay the buyer’s attorney-in-fact nearly $55,000. The plaintiff was unaware of this disbursement until it received the final HUD-1 settlement statement. The trial court found that there was no breach of the closing instructions contract because the defendant’s actions occurred after escrow had closed. However, the appellate court explained that, under the plain language of the closing instructions contract, the defendant was “contractually bound to disclose to [the plaintiff] any ‘additional payoffs’ that were not disclosed in the estimated HUD-1 or verbally by [the defendant],” and the duty to disclose continued until the loans closed and at least through preparation of the final HUD-1— not only until escrow closed. The appellate court reversed the trial court’s decision and remanded with instructions for the trier of fact to determine whether the defendant breached the closing instructions contract, and if so, whether the breach proximately caused damage to the plaintiff. For a copy of the opinion, please click here.

Florida Federal Court Holds Online Services Agreement Unenforceable Where Person Accepting Agreement Lacked Authority. In a recent ruling, the U.S. District Court for the Southern District of Florida held that a defendant could not enforce a venue and arbitration clause in an online agreement where the persons accepting the agreement lacked actual or apparent authority.National Auto Lenders, Inc. v. SysLOCATE, Inc., No. 09-21765, 2010 WL 527866 (S.D. Fla. Feb. 10, 2010). In this case, the plaintiff contracted with the defendants to buy GPS systems that could be tracked via the defendant’s secure website. A website for one of the defendants required its users to agree to a “click-to-accept” end user license agreement that limited a potential plaintiff’s recovery against the company; the website later instituted an online agreement that contained venue and arbitration clauses and also limited liability for defective units. A user could not access the website to track its GPS systems unless it agreed to the online agreement. The plaintiff expressly informed the defendants that only three executives had the authority to accept the online agreements and that all communications on the issue should be presented through counsel. Nevertheless, two employees of the plaintiff, in an attempt to log onto the tracking website, accepted the online agreement that included the venue and arbitration clauses. The plaintiff instituted a lawsuit after discovering that the GPS systems were defective and the parties began negotiating a settlement. The defendants moved to dismiss the complaint and to enforce the venue and arbitration provisions in the online agreement, arguing that that the employees had apparent authority. The court disagreed, finding that the elements of apparent authority were lacking, and that defendants knew that only certain individuals were authorized to accept the online agreement. The court also rejected the argument that the plaintiff ratified the agreement once it was accepted because the individuals authorized to accept the agreement had no knowledge that the agreement was accepted until the motion to dismiss was filed. Consequently, the court denied the motion to dismiss and/or transfer venue and to compel mediation and arbitration. For a copy of the opinion, please click here.

Maryland Federal Court Holds Defendant May Have Willfully Violated FACTA Truncation Requirement. On April 22, the U.S. District Court for the District of Maryland held that a defendant restaurant and bar owner may have willfully violated the Fair and Accurate Credit Transactions Act (FACTA) by providing the plaintiff with a credit card receipt that disclosed the expiration date of the plaintiff’s credit card. Buechler v. Keyco, Inc., Civil No. WDQ-09-2948, 2010 WL 1664226 (D. Md. Apr. 22, 2010). InBuechler, the plaintiff filed a class action complaint against the defendant and sought statutory damages for the defendant’s alleged FACTA violation. The defendant responded by filing a motion to dismiss, arguing that an award of statutory damages to the plaintiff was unwarranted because the plaintiff’s complaint failed to allege facts to support that the defendant had acted willfully. In denying the defendant’s motion to dismiss, the court determined that the plaintiff’s complaint sufficiently alleged a willful violation of FACTA by the defendant. According to the court, the publicity surrounding the enactment of the applicable FACTA provision in 2003, relevant guidance issued by the Federal Trade Commission in 2007, and FACTA compliance by the defendant’s peers and competitors, among other things, all support that the defendant may have willfully violated FACTA. For a copy of the opinion, please click here.

Federal Class Action Alleges eBay’s Identity Verification Policy Violates the ADA. On March 16, a consumer filed a class action lawsuit against eBay in the U.S. District Court for the Western District of Missouri alleging that the online auction site is violating the Americans with Disabilities Act (ADA) by requiring potential sellers to verify their identities via telephone before receiving access to the seller portion of its website. Earll v. eBay, Inc., No. 10-03089 (W.D. Mo. Mar. 16, 2010). The lead plaintiff in the case, who suffers from a severe type of deafness, cannot speak and is incapable of completing eBay’s telephone registration process. In her complaint, the plaintiff alleges that on numerous occasions she has asked the company to provide her with an alternative method of registration only to have the company refuse each request. Her lawsuit seeks monetary damages, a declaratory judgment that the company violated the ADA, and an injunction requiring the site to make its registration procedure accessible to the deaf. The case is substantially similar to a prior lawsuit, Nat’l Fed’n of the Blind v. Target Corp. (as reported in InfoBytes, Sept. 12, 2008), where the National Federation of the Blind sued Target, alleging that the retailer’s website was not accessible to the blind. In that case, the U.S. Federal District Court for the Northern District of California denied Target’s motion for summary judgment, which prompted Target to immediately settle. A major factor in the court’s ruling in that case was the substantial connection between Target’s website and its brick and mortar stores. However, eBay’s lack of physical brick and mortar stores may change how the court views the ADA claim made in EarllFor a copy of the complaint, please click here.

E-Financial Services

Florida Federal Court Holds Online Services Agreement Unenforceable Where Person Accepting Agreement Lacked Authority. In a recent ruling, the U.S. District Court for the Southern District of Florida held that a defendant could not enforce a venue and arbitration clause in an online agreement where the persons accepting the agreement lacked actual or apparent authority.National Auto Lenders, Inc. v. SysLOCATE, Inc., No. 09-21765, 2010 WL 527866 (S.D. Fla. Feb. 10, 2010). In this case, the plaintiff contracted with the defendants to buy GPS systems that could be tracked via the defendant’s secure website. A website for one of the defendants required its users to agree to a “click-to-accept” end user license agreement that limited a potential plaintiff’s recovery against the company; the website later instituted an online agreement that contained venue and arbitration clauses and also limited liability for defective units. A user could not access the website to track its GPS systems unless it agreed to the online agreement. The plaintiff expressly informed the defendants that only three executives had the authority to accept the online agreements and that all communications on the issue should be presented through counsel. Nevertheless, two employees of the plaintiff, in an attempt to log onto the tracking website, accepted the online agreement that included the venue and arbitration clauses. The plaintiff instituted a lawsuit after discovering that the GPS systems were defective and the parties began negotiating a settlement. The defendants moved to dismiss the complaint and to enforce the venue and arbitration provisions in the online agreement, arguing that that the employees had apparent authority. The court disagreed, finding that the elements of apparent authority were lacking, and that defendants knew that only certain individuals were authorized to accept the online agreement. The court also rejected the argument that the plaintiff ratified the agreement once it was accepted because the individuals authorized to accept the agreement had no knowledge that the agreement was accepted until the motion to dismiss was filed. Consequently, the court denied the motion to dismiss and/or transfer venue and to compel mediation and arbitration. For a copy of the opinion, please click here.

Federal Class Action Alleges eBay’s Identity Verification Policy Violates the ADA. On March 16, a consumer filed a class action lawsuit against eBay in the U.S. District Court for the Western District of Missouri alleging that the online auction site is violating the Americans with Disabilities Act (ADA) by requiring potential sellers to verify their identities via telephone before receiving access to the seller portion of its website. Earll v. eBay, Inc., No. 10-03089 (W.D. Mo. Mar. 16, 2010). The lead plaintiff in the case, who suffers from a severe type of deafness, cannot speak and is incapable of completing eBay’s telephone registration process. In her complaint, the plaintiff alleges that on numerous occasions she has asked the company to provide her with an alternative method of registration only to have the company refuse each request. Her lawsuit seeks monetary damages, a declaratory judgment that the company violated the ADA, and an injunction requiring the site to make its registration procedure accessible to the deaf. The case is substantially similar to a prior lawsuit, Nat’l Fed’n of the Blind v. Target Corp. (as reported in InfoBytes, Sept. 12, 2008), where the National Federation of the Blind sued Target, alleging that the retailer’s website was not accessible to the blind. In that case, the U.S. Federal District Court for the Northern District of California denied Target’s motion for summary judgment, which prompted Target to immediately settle. A major factor in the court’s ruling in that case was the substantial connection between Target’s website and its brick and mortar stores. However, eBay’s lack of physical brick and mortar stores may change how the court views the ADA claim made in EarllFor a copy of the complaint, please click here.

Privacy/Data Security

Maryland Federal Court Holds Defendant May Have Willfully Violated FACTA Truncation Requirement. On April 22, the U.S. District Court for the District of Maryland held that a defendant restaurant and bar owner may have willfully violated the Fair and Accurate Credit Transactions Act (FACTA) by providing the plaintiff with a credit card receipt that disclosed the expiration date of the plaintiff’s credit card. Buechler v. Keyco, Inc., Civil No. WDQ-09-2948, 2010 WL 1664226 (D. Md. Apr. 22, 2010). InBuechler, the plaintiff filed a class action complaint against the defendant and sought statutory damages for the defendant’s alleged FACTA violation. The defendant responded by filing a motion to dismiss, arguing that an award of statutory damages to the plaintiff was unwarranted because the plaintiff’s complaint failed to allege facts to support that the defendant had acted willfully. In denying the defendant’s motion to dismiss, the court determined that the plaintiff’s complaint sufficiently alleged a willful violation of FACTA by the defendant. According to the court, the publicity surrounding the enactment of the applicable FACTA provision in 2003, relevant guidance issued by the Federal Trade Commission in 2007, and FACTA compliance by the defendant’s peers and competitors, among other things, all support that the defendant may have willfully violated FACTA. For a copy of the opinion, please click here.

Credit Cards

Maryland Federal Court Holds Defendant May Have Willfully Violated FACTA Truncation Requirement. On April 22, the U.S. District Court for the District of Maryland held that a defendant restaurant and bar owner may have willfully violated the Fair and Accurate Credit Transactions Act (FACTA) by providing the plaintiff with a credit card receipt that disclosed the expiration date of the plaintiff’s credit card. Buechler v. Keyco, Inc., Civil No. WDQ-09-2948, 2010 WL 1664226 (D. Md. Apr. 22, 2010). InBuechler, the plaintiff filed a class action complaint against the defendant and sought statutory damages for the defendant’s alleged FACTA violation. The defendant responded by filing a motion to dismiss, arguing that an award of statutory damages to the plaintiff was unwarranted because the plaintiff’s complaint failed to allege facts to support that the defendant had acted willfully. In denying the defendant’s motion to dismiss, the court determined that the plaintiff’s complaint sufficiently alleged a willful violation of FACTA by the defendant. According to the court, the publicity surrounding the enactment of the applicable FACTA provision in 2003, relevant guidance issued by the Federal Trade Commission in 2007, and FACTA compliance by the defendant’s peers and competitors, among other things, all support that the defendant may have willfully violated FACTA. For a copy of the opinion, please click here.