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InfoBytes, March 6, 2009

Home » InfoBytes » InfoBytes Issues » InfoBytes 3/6/09

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Topics in this issue:

• Federal Issues
• State Issues
• Courts
• Firm News
• Mortgages
• Banking
• Consumer Finance
• Securities
• Litigation
• Privacy/Data Security
• Credit Cards

Federal Issues

Treasury Releases New Guidelines for Administration’s Making Homes Affordable Plan. On March 4, the U.S. Department of the Treasury released new guidelines for the Administration’s $75 billion “Making Homes Affordable” plan. The guidelines are substantively similar to initial guidelines announced on February 18 (reported in InfoBytes, Feb. 20, 2009). Under the "Home Affordable Refinance" plan, “responsible borrowers” with loans held or guaranteed by Freddie Mac or Fannie Mae, and who owe more than 80% of the value of their home, will be able to refinance at lower rates. Under the "Home Affordable Modification" plan, the federal government will match a lender’s mortgage interest rate reductions dollar-for-dollar, down to 31% of the borrower’s income, provided that the lender first reduces the interest rate to a specified affordability level (i.e., 38% of the borrower’s income). The plan applies to first-lien loans on owner-occupied properties with an unpaid principal balance of up to $729,750, with higher limits for owner-occupied properties with 2-4 units. The loans must have been originated on or before January 1, 2009. The plan incentivizes lenders, servicers, and borrowers to enter into mortgage modifications by (i) providing $1,000 for servicers for each qualifying loan modification, (ii) providing an additional $1,000 for servicers per year (for up to three years) if the borrower stays current on the loan, and (iii) providing $1,000 each year for up to five years for borrowers who stay current on their payments. Finally, the plan would allow bankruptcy judges, in the “appropriate circumstances,” to reduce the outstanding principal balance of primary residence mortgages to the current fair market value. For a copy of the fact sheet, please see http://www.ustreas.gov/press/releases/reports/housing_fact_sheet.pdf. For a copy of the plan guidelines, please see http://www.ustreas.gov/press/releases/reports/guidelines_summary.pdf.

FTC Reaches Proposed Settlement with Consumer Reporting Agency. On March 5, the Federal Trade Commission (FTC) reached a proposed settlement with a consumer reporting agency and its principal regarding alleged violations of the Fair Credit Reporting Act (FCRA) and the FTC Act. The defendants used sensitive financial data from other consumer reporting agencies to create reports containing personal consumer information – including social security numbers, dates of birth, bank and credit card account numbers, and credit histories – that landlords could use to assess prospective renters. The defendants allegedly failed to properly screen its customers and, consequently, sold at least 318 credit reports to identity thieves. The FTC charged the defendants with violating FCRA by furnishing credit reports to individuals who did not have a “permissible purpose” to obtain them. Further, the FTC charged the defendants with violating FCRA for failing to maintain “reasonable” policies and procedures to (i) prevent such impermissible disclosures, (ii) verify customer identities, and (iii) verify how its customers would use the provided information. Under the settlement, the defendants must (i) ensure that they provide credit reports only for lawful purposes to legitimate businesses, (ii) implement a comprehensive information security program designed to protect personal consumer information, (iii) for every other year for 20 years, obtain audits from a qualified, independent, third-party professional to monitor compliance with the order, (iv) implement record-keeping and reporting provisions to allow the FTC to monitor compliance with the order, and (v) pay a $500,000 penalty. (The penalty, however, is suspended, due to the defendants’ inability to pay.) For a copy of the press release, please see http://www.ftc.gov/opa/2009/03/rrs.shtm.  

FinCEN Proposes Guidance Regarding SARs. On March 3, the Financial Crimes Enforcement Network (FinCEN) issued proposed guidance that would allow certain affiliates of depository institutions to share suspicious activity reports (SARs) among affiliates within a corporate organizational structure if the affiliate is subject to SAR regulations issued by FinCEN or the federal banking agencies. Comments are due within 90 days of publication in the Federal Register, which is forthcoming. Separately, FinCEN proposed similar guidance applicable to securities broker-dealers, mutual funds, futures commission merchants, and introducing brokers in commodities. For a copy of the press release, please see http://www.fincen.gov/news_room/nr/pdf/20090303.pdf. For a copy of the proposed guidance for depository institutions, please see http://www.fincen.gov/statutes_regs/frn/pdf/frnDI_SAR_Sharing.pdf.

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State Issues

Colorado Division of Real Estate Adopts New Rules Regarding Mortgage Brokers. The Colorado Division of Real Estate recently adopted two new rules for mortgage brokers regarding (i) mortgage broker licensing education requirements (Rule 1-4-1), and (ii) dual status disclosure requirements (Rule 7-1-1). Rule 1-4-1 clarifies the education requirements for individual mortgage broker applicants and licensees. Rule 7-1-1 finds that an individual’s dual status (i.e., acting as a mortgage broker and real estate broker in a single transaction) is a material fact that must be disclosed to the borrower. A dual status mortgage broker must complete and submit a disclosure form to the borrower within three business days after receipt of a loan application or any moneys from a borrower. The final text of Rules 1-4-1 and 7-1-1 was published in the February 10, 2009 Colorado Register and both rules became effective March 2, 2009. For a copy of the rules, please see http://www.buckleykolar.com/2009_CO_Rule_1_4_1.pdf and http://www.buckleykolar.com/2009_CO_Rule_7_1_1.pdf. For a sample disclosure form for dual status mortgage brokers, please see http://www.dora.state.co.us/real-estate/mortgage/documents/forms/Dual_Status_Disclosure.doc.

South Dakota Governor Signs Bill Regarding Real Estate Appraisal. On February 20, South Dakota Governor M. Michael Rounds signed H.B. 1124, a bill that prohibits real estate appraisers and licensed mortgage lenders, mortgage brokers, and mortgage loan originators from “improperly influencing” a real estate appraisal involving a property in which the appraiser or licensee has an interest with regard to (i) a real estate transaction or (ii) the financing of a loan secured by the real estate. The bill defines “improper influence” as (i) the use of coercion, extortion, bribery, (ii) withholding or threatening to withhold an appraisal fee, (iii) conditioning payment of an appraisal fee on the conclusion or valuation to be reached, (iv) requesting that the appraiser provide a predetermined conclusion or valuation, or (v) otherwise impairing the appraiser’s independence and objectivity in creating the appraisal. The bill provides that a real estate appraiser is not improperly influenced by, among other provisions, asking the appraiser to consider additional information in evaluating the conclusion on the appraisal or in requesting additional information about the conclusion reached on an appraisal. The bill becomes effective May 19, 2009. For a copy of the bill, please see http://www.buckleykolar.com/2009_SD_HB1124.pdf.

Virginia Governor Signs Bill Amending State Consumer Real Estate Settlement Protection Act. On February 26, Virginia Governor Timothy M. Kaine signed HB 2568, a bill that amends provisions of the state’s code relating to disclosures under the Virginia Consumer Real Estate Settlement Protection Act (the Act). The amendments make explicit that the provisions of the Act cannot be varied by agreement, and that the rights provided by the Act cannot be contractually waived. Further, sellers may not condition the sale of property by requiring the use of a particular settlement agent. The bill becomes effective July 1, 2009. For a copy of the bill, please see http://www.buckleykolar.com/2009_VA_HB_2568.pdf.

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Courts

Third Circuit Holds Federal Arbitration Act Does Not Preempt Challenge to Class-Arbitration Waiver. On February 24, the U.S. Court of Appeals for the Third Circuit held that the Federal Arbitration Act (FAA) does not preclude a court from applying state law unconscionability principles to void a class-arbitration waiver in a credit card agreement. Homa v. American Express Co., No. 07-2921, 2009 WL 440912 (3d Cir. Feb. 24, 2009). In Homa, the plaintiff brought a class action lawsuit alleging that the defendant misrepresented the terms of a credit card rewards program and did not award him the promised amount of cash back, violating the New Jersey Consumer Fraud Act. The district court dismissed the complaint with prejudice in favor of arbitration on an individual basis pursuant to the credit card agreement, and the plaintiff appealed. On appeal, the defendant argued that (i) the FAA precluded the court from applying New Jersey law to a class-arbitration waiver, and (ii) the credit card agreement’s choice of Utah law (which expressly allows class action waivers) governed the dispute. Following the New Jersey Supreme Court’s decision in Muhammad v. County Bank of Rehoboth Beach, 912 A.2d 88 (N.J. 2006), the court determined that a general contract defense – i.e. one that applied to all waivers of class-wide actions, and not simply those that also compelled arbitration – does not result in FAA preemption of New Jersey law. Regarding the choice of law argument, the court concluded that, assuming this was a “small-sum” case, the New Jersey Supreme Court would apply New Jersey law to the class arbitration waiver, as (i) in light of Muhammad, the class-arbitration waiver likely violated New Jersey’s fundamental public policy, (ii) New Jersey likely had a materially greater interest than Utah in the enforceability of the class-arbitration waiver, and (iii) New Jersey law would apply in the absence of the parties’ choice of law provision. Thus, the court held that if the claims at issue were of such a low value as to effectively preclude relief if decided individually, then, under Muhammad, application of Utah law would be invalid, and the class-arbitration waiver would be unconscionable. In a concurring opinion, Judge Weis noted that the question of unconscionability under New Jersey law remained open for consideration on remand. For a copy of the opinion, please see http://www.buckleykolar.com/Homa_v_Am_Ex.pdf.  

Eighth Circuit Rejects Refusal to Lend Claims. On February 23, the U.S. Court of Appeals for the Eighth Circuit rejected refusal to lend claims based on a nonbinding commitment letter and an alleged oral promise. Fortress Systems, LLC v. Bank of the West, No. 08-1802/1874, 2009 WL 42607 (8th Cir. Feb. 23, 2009). In Fortress Systems, the plaintiff brought claims of breach of contract, promissory estoppel and breach of duty of good faith and fair dealings for the defendant’s alleged failure to extend a loan. According to the finding of the trial court, the defendant issued a commitment letter with proposed terms for a commercial loan and line of credit. The defendant then learned of a lawsuit involving plaintiff, and one of the defendant’s loan officers orally promised to make the loan if the lawsuit was settled. The plaintiff settled the lawsuit, and defendant refused to make the loan. The trial court granted summary judgment to the defendant for the plaintiff’s claims of breach of contract and breach of duty of good faith and fair dealings, but allowed the promissory estoppel claim to go to trial, where the court found for the plaintiff. On appeal, the court of appeals affirmed summary judgment in favor of the defendant, and reversed the judgment in favor of the plaintiff on the promissory estoppel claim. According to the court, the commitment letter was insufficient to support a breach of contract claim because it was “unambiguously nonbinding.” The oral promise also could not support a breach of contract claim because Nebraska’s “specialized statute of frauds applicable to credit agreements” requires that any contract for the extension of credit be set forth in writing and signed by both parties. Having failed to establish the existence of a contract, the plaintiff also was unable to maintain its breach of duty of good faith and fair dealing claim. With respect to plaintiff’s promissory estoppel claims, the court held that the plaintiff could not have reasonably relied on the commitment letter, as it was expressly nonbinding. Furthermore, allowing the plaintiff to base a promissory estoppel claim on the oral promise to fund would “circumvent the statute [of frauds], rendering it meaningless and nugatory.” For a copy of the opinion, please see http://www.buckleykolar.com/Fortress_v_Bank_West.pdf.

Seventh Circuit Rules No FDCPA Violation To Include Interest Charged by Original Creditor as “Principal Balance.” On February 23, the U.S. Court of Appeals for the Seventh Circuit held that a debt collector did not violate the Fair Debt Collection Practices Act (FDCPA) by sending collection notices which included interest charged by the original creditor as part of the "principal balance.” Wahl v. Midland Credit Management, Inc., No. 08-1517, 2009 WL 426055 (7th Cir. Feb. 23, 2009). In Wahl, the defendant debt collector purchased the plaintiff’s credit card debt totaling, with interest and late fees, $1,149.09. Thereafter, the defendant sent several demand letters to the plaintiff, each of which identified the past due amount (i.e., $1,149.09) as "principal balance," and the amount of interest that had accumulated since the defendant purchased the debt as "accrued interest.” According to the plaintiff, the collection notices were false – and therefore in violation of the FDCPA – because the “principal balance” cannot include any amount of interest. In affirming the decision of the district court, the court held that a false statement does not necessarily violate the FDCPA, provided that it would not mislead the unsophisticated consumer. According to the court, "[t]he unsophisticated consumer, with a reasonable knowledge of her account’s history, would have little trouble concluding that the ‘principal balance’ included interest charged by [the credit card company].” Additionally, the court determined that the defendant did not violate the FDCPA because debt collectors are only required to disclose the “amount sought,” and, to the defendant, the amount sought was the entire credit card debt, including interest. For a copy of the opinion, please see http://www.buckleykolar.com/Wahl_v_Midland.pdf.

North Carolina Federal Court Holds Federal Private Right of Action for Defamation Available Under FCRA. On February 25, the U.S. District Court for the Western District of North Carolina construed the federal Fair Credit Reporting Act’s (FCRA) preemption provision to provide a separate federal private right of action for defamation. Earhart v. Countrywide Bank, FSB, No. 3:08-cv-238, 2009 WL 500838 (W.D.N.C. Feb. 25, 2009). In Earhart, the plaintiff obtained a mortgage loan from American Mortgage, Inc. with an initial interest rate of 1.25%. About two weeks after making the loan, American Mortgage sent the plaintiff a letter stating that the interest rate on the adjustable rate rider was incorrect and that the correct rate was 1.75%. American Mortgage subsequently sold the loan to the defendant, which sent the plaintiff a billing statement showing a 1.75% rate and a higher required payment amount. The plaintiff, however, continued making his loan payments as originally scheduled and unsuccessfully attempted to resolve the discrepancy with the defendant. After the defendant sent the plaintiff a notice of default and acceleration, the plaintiff sued, alleging, among other claims, that the defendant falsely reported to credit bureaus that the loan was in default, violating FCRA. The court found that the plaintiff could not proceed under FCRA § 1681s-2(a), which does not provide a private right of action. The plaintiff, however, claimed that he had brought the “action for defamation under Section 1681h(e) of the FCRA,” which provides a qualified preemption of state law defamation and other claims against furnishers of consumer credit information “except as to false information furnished with malice or willful intent to injure [the] consumer.” Although courts have generally viewed § 1681h(e) as determining the impact of the federal statute on state law, the court in this case viewed that provision as providing a separate federal private right of action. The court’s holding thus implies, in a novel interpretation, that a federal private right of action for defamation exists under § 1681h(e). Finding that there were genuine issues of material fact as to whether the defendant acted with malice and the reported information was false, the court denied the defendant’s motion for summary judgment on this claim. For a copy of the opinion, please see http://www.buckleykolar.com/Earhart_v_Countrywide.pdf.

Illinois Federal Court Holds FACTA Does Not Violate Due Process Clause. On February 26, the U.S. District Court for the Northern District of Illinois held that the Fair and Accurate Credit Transactions Act (FACTA) does not violate the Due Process Clause of the U.S. Constitution. Soprych v. T.D. Dairy Queen, Inc., No. 08 C 2694, 2009 WL 498535 (N.D. Ill. Feb. 26, 2009). In Soprych, the defendants allegedly printed more than the last five digits of credit and debit card numbers, and/or the card’s expiration date on cardholder receipts in violation of FACTA. The plaintiff filed suit, seeking statutory damages on behalf of a putative class. The defendant moved to dismiss, arguing that FACTA’s damages provisions violate the Due Process Clause. Following its holding in Irvine v. 233 Skydeck, LLC, No. 08 C 4939, 2009 WL 347395 (N.D. Ill. Feb. 12, 2009) (reported in InfoBytes, Feb. 20, 2009), the court rejected all three of the defendant’s arguments. First, the court found that the lack of guidance regarding the amount of damages within the $100-$1,000 range was not ambiguous because it, nonetheless, puts businesses on notice that violations may result in “up to” $1,000 in statutory damages. Second, the court found that the potential sanction of two forms of “punitive” damages under FACTA did not violate double jeopardy principles, which apply in criminal – not civil – actions. Third, the court found that, in the event of a constitutionally excessive damages award, a court could reduce the amount. As a result, the court denied the defendant’s motion to dismiss. For a copy of the opinion, please see http://www.buckleykolar.com/Soprych_v_DQ.pdf.

Alabama Federal Court Rejects Removal of Case Containing Potential FCRA Issues. On February 27, the U.S. District Court for the Middle District of Alabama rejected the defendants’ attempt to remove to federal court a case raising state law claims relating to credit reporting issues, holding that the Fair Credit Reporting Act (FCRA) did not confer subject matter jurisdiction over the claims. Bishop v. Holloway Credit Solutions, LLC, No. 3:08-cv-995, 2009 WL 499390 (M.D. Ala. Feb. 27, 2009). The plaintiffs filed suit in state court raising state law claims for negligence, breach of contract, wantonness, and slander. These claims were based, at least in part, on allegations relating to the defendants’ inaction regarding the plaintiffs’ credit worthiness, including an allegation regarding a failure to notify the lender and the credit reporting agencies “of the erroneous information being reported to all inquiries as to the credit worthiness” of plaintiffs. The defendants attempted to remove the case to federal court, arguing that the plaintiffs’ state law claims were preempted by FCRA and will require resolution of one or more substantial questions of federal law. Although the court acknowledged that FCRA may preempt some state law claims, it held that FCRA does not "completely" preempt state law. The court then considered whether removal could be based on the “substantial federal question jurisdiction” test from Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, 545 U.S. 308 (U.S. 2005). The court found the defendants could not satisfy the Grable test because the dispute implicated only the actions of private parties with a central breach of duty claim that can be decided without reference to FCRA. As a result, the court remanded the case to state court. For a copy of the opinion, please see http://www.buckleykolar.com/Bishop_v_Holloway.pdf.

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Firm News

Joe Kolar will give a speech on RESPA at the Old Republic National Title Insurance Company 2009 Annual Seminar in Columbus, Ohio on March 10.

Heidi Bauer presented during a panel discussion at the Nationwide Mortgage Licensing System User Conference in New Orleans, Louisiana on February 10.

Jonathan Cannon spoke on RESPA litigation at the National Compliance Summit for Title Companies in Las Vegas, NV on February 19-20.

Colgate Selden presented in a webcast sponsored by the National Association of Federal Credit Unions regarding the RESPA Reform Rule on March 4. Mr. Selden’s presentation was entitled “Real Estate Settlement Overhaul: Complying with RESPA Reform.”

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Mortgages

Treasury Releases New Guidelines for Administration’s Making Homes Affordable Plan. On March 4, the U.S. Department of the Treasury released new guidelines for the Administration’s $75 billion “Making Homes Affordable” plan. The guidelines are substantively similar to initial guidelines announced on February 18 (reported in InfoBytes, Feb. 20, 2009). Under the "Home Affordable Refinance" plan, “responsible borrowers” with loans held or guaranteed by Freddie Mac or Fannie Mae, and who owe more than 80% of the value of their home, will be able to refinance at lower rates. Under the "Home Affordable Modification" plan, the federal government will match a lender’s mortgage interest rate reductions dollar-for-dollar, down to 31% of the borrower’s income, provided that the lender first reduces the interest rate to a specified affordability level (i.e., 38% of the borrower’s income). The plan applies to first-lien loans on owner-occupied properties with an unpaid principal balance of up to $729,750, with higher limits for owner-occupied properties with 2-4 units. The loans must have been originated on or before January 1, 2009. The plan incentivizes lenders, servicers, and borrowers to enter into mortgage modifications by (i) providing $1,000 for servicers for each qualifying loan modification, (ii) providing an additional $1,000 for servicers per year (for up to three years) if the borrower stays current on the loan, and (iii) providing $1,000 each year for up to five years for borrowers who stay current on their payments. Finally, the plan would allow bankruptcy judges, in the “appropriate circumstances,” to reduce the outstanding principal balance of primary residence mortgages to the current fair market value. For a copy of the fact sheet, please see http://www.ustreas.gov/press/releases/reports/housing_fact_sheet.pdf. For a copy of the plan guidelines, please see http://www.ustreas.gov/press/releases/reports/guidelines_summary.pdf.

Colorado Division of Real Estate Adopts New Rules Regarding Mortgage Brokers. The Colorado Division of Real Estate recently adopted two new rules for mortgage brokers regarding (i) mortgage broker licensing education requirements (Rule 1-4-1), and (ii) dual status disclosure requirements (Rule 7-1-1). Rule 1-4-1 clarifies the education requirements for individual mortgage broker applicants and licensees. Rule 7-1-1 finds that an individual’s dual status (i.e., acting as a mortgage broker and real estate broker in a single transaction) is a material fact that must be disclosed to the borrower. A dual status mortgage broker must complete and submit a disclosure form to the borrower within three business days after receipt of a loan application or any moneys from a borrower. The final text of Rules 1-4-1 and 7-1-1 was published in the February 10, 2009 Colorado Register and both rules became effective March 2, 2009. For a copy of the rules, please see http://www.buckleykolar.com/2009_CO_Rule_1_4_1.pdf and http://www.buckleykolar.com/2009_CO_Rule_7_1_1.pdf. For a sample disclosure form for dual status mortgage brokers, please see http://www.dora.state.co.us/real-estate/mortgage/documents/forms/Dual_Status_Disclosure.doc.

South Dakota Governor Signs Bill Regarding Real Estate Appraisal. On February 20, South Dakota Governor M. Michael Rounds signed H.B. 1124, a bill that prohibits real estate appraisers and licensed mortgage lenders, mortgage brokers, and mortgage loan originators from “improperly influencing” a real estate appraisal involving a property in which the appraiser or licensee has an interest with regard to (i) a real estate transaction or (ii) the financing of a loan secured by the real estate. The bill defines “improper influence” as (i) the use of coercion, extortion, bribery, (ii) withholding or threatening to withhold an appraisal fee, (iii) conditioning payment of an appraisal fee on the conclusion or valuation to be reached, (iv) requesting that the appraiser provide a predetermined conclusion or valuation, or (v) otherwise impairing the appraiser’s independence and objectivity in creating the appraisal. The bill provides that a real estate appraiser is not improperly influenced by, among other provisions, asking the appraiser to consider additional information in evaluating the conclusion on the appraisal or in requesting additional information about the conclusion reached on an appraisal. The bill becomes effective May 19, 2009. For a copy of the bill, please see http://www.buckleykolar.com/2009_SD_HB1124.pdf.

Virginia Governor Signs Bill Amending State Consumer Real Estate Settlement Protection Act. On February 26, Virginia Governor Timothy M. Kaine signed HB 2568, a bill that amends provisions of the state’s code relating to disclosures under the Virginia Consumer Real Estate Settlement Protection Act (the Act). The amendments make explicit that the provisions of the Act cannot be varied by agreement, and that the rights provided by the Act cannot be contractually waived. Further, sellers may not condition the sale of property by requiring the use of a particular settlement agent. The bill becomes effective July 1, 2009. For a copy of the bill, please see http://www.buckleykolar.com/2009_VA_HB_2568.pdf.

Eighth Circuit Rejects Refusal to Lend Claims. On February 23, the U.S. Court of Appeals for the Eighth Circuit rejected refusal to lend claims based on a nonbinding commitment letter and an alleged oral promise. Fortress Systems, LLC v. Bank of the West, No. 08-1802/1874, 2009 WL 42607 (8th Cir. Feb. 23, 2009). In Fortress Systems, the plaintiff brought claims of breach of contract, promissory estoppel and breach of duty of good faith and fair dealings for the defendant’s alleged failure to extend a loan. According to the finding of the trial court, the defendant issued a commitment letter with proposed terms for a commercial loan and line of credit. The defendant then learned of a lawsuit involving plaintiff, and one of the defendant’s loan officers orally promised to make the loan if the lawsuit was settled. The plaintiff settled the lawsuit, and defendant refused to make the loan. The trial court granted summary judgment to the defendant for the plaintiff’s claims of breach of contract and breach of duty of good faith and fair dealings, but allowed the promissory estoppel claim to go to trial, where the court found for the plaintiff. On appeal, the court of appeals affirmed summary judgment in favor of the defendant, and reversed the judgment in favor of the plaintiff on the promissory estoppel claim. According to the court, the commitment letter was insufficient to support a breach of contract claim because it was “unambiguously nonbinding.” The oral promise also could not support a breach of contract claim because Nebraska’s “specialized statute of frauds applicable to credit agreements” requires that any contract for the extension of credit be set forth in writing and signed by both parties. Having failed to establish the existence of a contract, the plaintiff also was unable to maintain its breach of duty of good faith and fair dealing claim. With respect to plaintiff’s promissory estoppel claims, the court held that the plaintiff could not have reasonably relied on the commitment letter, as it was expressly nonbinding. Furthermore, allowing the plaintiff to base a promissory estoppel claim on the oral promise to fund would “circumvent the statute [of frauds], rendering it meaningless and nugatory.” For a copy of the opinion, please see http://www.buckleykolar.com/Fortress_v_Bank_West.pdf.

Return to Topics

Banking

FinCEN Proposes Guidance Regarding SARs. On March 3, the Financial Crimes Enforcement Network (FinCEN) issued proposed guidance that would allow certain affiliates of depository institutions to share suspicious activity reports (SARs) among affiliates within a corporate organizational structure if the affiliate is subject to SAR regulations issued by FinCEN or the federal banking agencies. Comments are due within 90 days of publication in the Federal Register, which is forthcoming. Separately, FinCEN proposed similar guidance applicable to securities broker-dealers, mutual funds, futures commission merchants, and introducing brokers in commodities. For a copy of the press release, please see http://www.fincen.gov/news_room/nr/pdf/20090303.pdf. For a copy of the proposed guidance for depository institutions, please see http://www.fincen.gov/statutes_regs/frn/pdf/frnDI_SAR_Sharing.pdf.

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Consumer Finance

FTC Reaches Proposed Settlement with Consumer Reporting Agency. On March 5, the Federal Trade Commission (FTC) reached a proposed settlement with a consumer reporting agency and its principal regarding alleged violations of the Fair Credit Reporting Act (FCRA) and the FTC Act. The defendants used sensitive financial data from other consumer reporting agencies to create reports containing personal consumer information – including social security numbers, dates of birth, bank and credit card account numbers, and credit histories – that landlords could use to assess prospective renters. The defendants allegedly failed to properly screen its customers and, consequently, sold at least 318 credit reports to identity thieves. The FTC charged the defendants with violating FCRA by furnishing credit reports to individuals who did not have a “permissible purpose” to obtain them. Further, the FTC charged the defendants with violating FCRA for failing to maintain “reasonable” policies and procedures to (i) prevent such impermissible disclosures, (ii) verify customer identities, and (iii) verify how its customers would use the provided information. Under the settlement, the defendants must (i) ensure that they provide credit reports only for lawful purposes to legitimate businesses, (ii) implement a comprehensive information security program designed to protect personal consumer information, (iii) for every other year for 20 years, obtain audits from a qualified, independent, third-party professional to monitor compliance with the order, (iv) implement record-keeping and reporting provisions to allow the FTC to monitor compliance with the order, and (v) pay a $500,000 penalty. (The penalty, however, is suspended, due to the defendants’ inability to pay.) For a copy of the press release, please see http://www.ftc.gov/opa/2009/03/rrs.shtm.  

Seventh Circuit Rules No FDCPA Violation To Include Interest Charged by Original Creditor as “Principal Balance.” On February 23, the U.S. Court of Appeals for the Seventh Circuit held that a debt collector did not violate the Fair Debt Collection Practices Act (FDCPA) by sending collection notices which included interest charged by the original creditor as part of the "principal balance.” Wahl v. Midland Credit Management, Inc., No. 08-1517, 2009 WL 426055 (7th Cir. Feb. 23, 2009). In Wahl, the defendant debt collector purchased the plaintiff’s credit card debt totaling, with interest and late fees, $1,149.09. Thereafter, the defendant sent several demand letters to the plaintiff, each of which identified the past due amount (i.e., $1,149.09) as "principal balance," and the amount of interest that had accumulated since the defendant purchased the debt as "accrued interest.” According to the plaintiff, the collection notices were false – and therefore in violation of the FDCPA – because the “principal balance” cannot include any amount of interest. In affirming the decision of the district court, the court held that a false statement does not necessarily violate the FDCPA, provided that it would not mislead the unsophisticated consumer. According to the court, "[t]he unsophisticated consumer, with a reasonable knowledge of her account’s history, would have little trouble concluding that the ‘principal balance’ included interest charged by [the credit card company].” Additionally, the court determined that the defendant did not violate the FDCPA because debt collectors are only required to disclose the “amount sought,” and, to the defendant, the amount sought was the entire credit card debt, including interest. For a copy of the opinion, please see http://www.buckleykolar.com/Wahl_v_Midland.pdf.

North Carolina Federal Court Holds Federal Private Right of Action for Defamation Available Under FCRA. On February 25, the U.S. District Court for the Western District of North Carolina construed the federal Fair Credit Reporting Act’s (FCRA) preemption provision to provide a separate federal private right of action for defamation. Earhart v. Countrywide Bank, FSB, No. 3:08-cv-238, 2009 WL 500838 (W.D.N.C. Feb. 25, 2009). In Earhart, the plaintiff obtained a mortgage loan from American Mortgage, Inc. with an initial interest rate of 1.25%. About two weeks after making the loan, American Mortgage sent the plaintiff a letter stating that the interest rate on the adjustable rate rider was incorrect and that the correct rate was 1.75%. American Mortgage subsequently sold the loan to the defendant, which sent the plaintiff a billing statement showing a 1.75% rate and a higher required payment amount. The plaintiff, however, continued making his loan payments as originally scheduled and unsuccessfully attempted to resolve the discrepancy with the defendant. After the defendant sent the plaintiff a notice of default and acceleration, the plaintiff sued, alleging, among other claims, that the defendant falsely reported to credit bureaus that the loan was in default, violating FCRA. The court found that the plaintiff could not proceed under FCRA § 1681s-2(a), which does not provide a private right of action. The plaintiff, however, claimed that he had brought the “action for defamation under Section 1681h(e) of the FCRA,” which provides a qualified preemption of state law defamation and other claims against furnishers of consumer credit information “except as to false information furnished with malice or willful intent to injure [the] consumer.” Although courts have generally viewed § 1681h(e) as determining the impact of the federal statute on state law, the court in this case viewed that provision as providing a separate federal private right of action. The court’s holding thus implies, in a novel interpretation, that a federal private right of action for defamation exists under § 1681h(e). Finding that there were genuine issues of material fact as to whether the defendant acted with malice and the reported information was false, the court denied the defendant’s motion for summary judgment on this claim. For a copy of the opinion, please see http://www.buckleykolar.com/Earhart_v_Countrywide.pdf.

Illinois Federal Court Holds FACTA Does Not Violate Due Process Clause. On February 26, the U.S. District Court for the Northern District of Illinois held that the Fair and Accurate Credit Transactions Act (FACTA) does not violate the Due Process Clause of the U.S. Constitution. Soprych v. T.D. Dairy Queen, Inc., No. 08 C 2694, 2009 WL 498535 (N.D. Ill. Feb. 26, 2009). In Soprych, the defendants allegedly printed more than the last five digits of credit and debit card numbers, and/or the card’s expiration date on cardholder receipts in violation of FACTA. The plaintiff filed suit, seeking statutory damages on behalf of a putative class. The defendant moved to dismiss, arguing that FACTA’s damages provisions violate the Due Process Clause. Following its holding in Irvine v. 233 Skydeck, LLC, No. 08 C 4939, 2009 WL 347395 (N.D. Ill. Feb. 12, 2009) (reported in InfoBytes, Feb. 20, 2009), the court rejected all three of the defendant’s arguments. First, the court found that the lack of guidance regarding the amount of damages within the $100-$1,000 range was not ambiguous because it, nonetheless, puts businesses on notice that violations may result in “up to” $1,000 in statutory damages. Second, the court found that the potential sanction of two forms of “punitive” damages under FACTA did not violate double jeopardy principles, which apply in criminal – not civil – actions. Third, the court found that, in the event of a constitutionally excessive damages award, a court could reduce the amount. As a result, the court denied the defendant’s motion to dismiss. For a copy of the opinion, please see http://www.buckleykolar.com/Soprych_v_DQ.pdf.

Alabama Federal Court Rejects Removal of Case Containing Potential FCRA Issues. On February 27, the U.S. District Court for the Middle District of Alabama rejected the defendants’ attempt to remove to federal court a case raising state law claims relating to credit reporting issues, holding that the Fair Credit Reporting Act (FCRA) did not confer subject matter jurisdiction over the claims. Bishop v. Holloway Credit Solutions, LLC, No. 3:08-cv-995, 2009 WL 499390 (M.D. Ala. Feb. 27, 2009). The plaintiffs filed suit in state court raising state law claims for negligence, breach of contract, wantonness, and slander. These claims were based, at least in part, on allegations relating to the defendants’ inaction regarding the plaintiffs’ credit worthiness, including an allegation regarding a failure to notify the lender and the credit reporting agencies “of the erroneous information being reported to all inquiries as to the credit worthiness” of plaintiffs. The defendants attempted to remove the case to federal court, arguing that the plaintiffs’ state law claims were preempted by FCRA and will require resolution of one or more substantial questions of federal law. Although the court acknowledged that FCRA may preempt some state law claims, it held that FCRA does not "completely" preempt state law. The court then considered whether removal could be based on the “substantial federal question jurisdiction” test from Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, 545 U.S. 308 (U.S. 2005). The court found the defendants could not satisfy the Grable test because the dispute implicated only the actions of private parties with a central breach of duty claim that can be decided without reference to FCRA. As a result, the court remanded the case to state court. For a copy of the opinion, please see http://www.buckleykolar.com/Bishop_v_Holloway.pdf.

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Securities

FinCEN Proposes Rule Regarding SARs. On March 3, the Financial Crimes Enforcement Network (FinCEN) issued a proposed rule that would allow certain affiliates of depository institutions to share suspicious activity reports (SARs) among affiliates within a corporate organizational structure if the affiliate is subject to SAR regulations issued by FinCEN or the federal banking agencies. Comments are due within 90 days of publication in the Federal Register, which is forthcoming. Separately, FinCEN proposed a similar rule applicable to securities broker-dealers, mutual funds, futures commission merchants, and introducing brokers in commodities. For a copy of the press release, please see http://www.fincen.gov/news_room/nr/pdf/20090303.pdf. For a copy of the pending rulemaking for depository institutions, please see http://www.fincen.gov/statutes_regs/frn/pdf/frnDI_SAR_Sharing.pdf.

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Litigation

Third Circuit Holds Federal Arbitration Act Does Not Preempt Challenge to Class-Arbitration Waiver. On February 24, the U.S. Court of Appeals for the Third Circuit held that the Federal Arbitration Act (FAA) does not preclude a court from applying state law unconscionability principles to void a class-arbitration waiver in a credit card agreement. Homa v. American Express Co., No. 07-2921, 2009 WL 440912 (3d Cir. Feb. 24, 2009). In Homa, the plaintiff brought a class action lawsuit alleging that the defendant misrepresented the terms of a credit card rewards program and did not award him the promised amount of cash back, violating the New Jersey Consumer Fraud Act. The district court dismissed the complaint with prejudice in favor of arbitration on an individual basis pursuant to the credit card agreement, and the plaintiff appealed. On appeal, the defendant argued that (i) the FAA precluded the court from applying New Jersey law to a class-arbitration waiver, and (ii) the credit card agreement’s choice of Utah law (which expressly allows class action waivers) governed the dispute. Following the New Jersey Supreme Court’s decision in Muhammad v. County Bank of Rehoboth Beach, 912 A.2d 88 (N.J. 2006), the court determined that a general contract defense – i.e. one that applied to all waivers of class-wide actions, and not simply those that also compelled arbitration – does not result in FAA preemption of New Jersey law. Regarding the choice of law argument, the court concluded that, assuming this was a “small-sum” case, the New Jersey Supreme Court would apply New Jersey law to the class arbitration waiver, as (i) in light of Muhammad, the class-arbitration waiver likely violated New Jersey’s fundamental public policy, (ii) New Jersey likely had a materially greater interest than Utah in the enforceability of the class-arbitration waiver, and (iii) New Jersey law would apply in the absence of the parties’ choice of law provision. Thus, the court held that if the claims at issue were of such a low value as to effectively preclude relief if decided individually, then, under Muhammad, application of Utah law would be invalid, and the class-arbitration waiver would be unconscionable. In a concurring opinion, Judge Weis noted that the question of unconscionability under New Jersey law remained open for consideration on remand. For a copy of the opinion, please see http://www.buckleykolar.com/Homa_v_Am_Ex.pdf.  

Eighth Circuit Rejects Refusal to Lend Claims. On February 23, the U.S. Court of Appeals for the Eighth Circuit rejected refusal to lend claims based on a nonbinding commitment letter and an alleged oral promise. Fortress Systems, LLC v. Bank of the West, No. 08-1802/1874, 2009 WL 42607 (8th Cir. Feb. 23, 2009). In Fortress Systems, the plaintiff brought claims of breach of contract, promissory estoppel and breach of duty of good faith and fair dealings for the defendant’s alleged failure to extend a loan. According to the finding of the trial court, the defendant issued a commitment letter with proposed terms for a commercial loan and line of credit. The defendant then learned of a lawsuit involving plaintiff, and one of the defendant’s loan officers orally promised to make the loan if the lawsuit was settled. The plaintiff settled the lawsuit, and defendant refused to make the loan. The trial court granted summary judgment to the defendant for the plaintiff’s claims of breach of contract and breach of duty of good faith and fair dealings, but allowed the promissory estoppel claim to go to trial, where the court found for the plaintiff. On appeal, the court of appeals affirmed summary judgment in favor of the defendant, and reversed the judgment in favor of the plaintiff on the promissory estoppel claim. According to the court, the commitment letter was insufficient to support a breach of contract claim because it was “unambiguously nonbinding.” The oral promise also could not support a breach of contract claim because Nebraska’s “specialized statute of frauds applicable to credit agreements” requires that any contract for the extension of credit be set forth in writing and signed by both parties. Having failed to establish the existence of a contract, the plaintiff also was unable to maintain its breach of duty of good faith and fair dealing claim. With respect to plaintiff’s promissory estoppel claims, the court held that the plaintiff could not have reasonably relied on the commitment letter, as it was expressly nonbinding. Furthermore, allowing the plaintiff to base a promissory estoppel claim on the oral promise to fund would “circumvent the statute [of frauds], rendering it meaningless and nugatory.” For a copy of the opinion, please see http://www.buckleykolar.com/Fortress_v_Bank_West.pdf.

Seventh Circuit Rules No FDCPA Violation To Include Interest Charged by Original Creditor as “Principal Balance.” On February 23, the U.S. Court of Appeals for the Seventh Circuit held that a debt collector did not violate the Fair Debt Collection Practices Act (FDCPA) by sending collection notices which included interest charged by the original creditor as part of the "principal balance.” Wahl v. Midland Credit Management, Inc., No. 08-1517, 2009 WL 426055 (7th Cir. Feb. 23, 2009). In Wahl, the defendant debt collector purchased the plaintiff’s credit card debt totaling, with interest and late fees, $1,149.09. Thereafter, the defendant sent several demand letters to the plaintiff, each of which identified the past due amount (i.e., $1,149.09) as "principal balance," and the amount of interest that had accumulated since the defendant purchased the debt as "accrued interest.” According to the plaintiff, the collection notices were false – and therefore in violation of the FDCPA – because the “principal balance” cannot include any amount of interest. In affirming the decision of the district court, the court held that a false statement does not necessarily violate the FDCPA, provided that it would not mislead the unsophisticated consumer. According to the court, "[t]he unsophisticated consumer, with a reasonable knowledge of her account’s history, would have little trouble concluding that the ‘principal balance’ included interest charged by [the credit card company].” Additionally, the court determined that the defendant did not violate the FDCPA because debt collectors are only required to disclose the “amount sought,” and, to the defendant, the amount sought was the entire credit card debt, including interest. For a copy of the opinion, please see http://www.buckleykolar.com/Wahl_v_Midland.pdf.

North Carolina Federal Court Holds Federal Private Right of Action for Defamation Available Under FCRA. On February 25, the U.S. District Court for the Western District of North Carolina construed the federal Fair Credit Reporting Act’s (FCRA) preemption provision to provide a separate federal private right of action for defamation. Earhart v. Countrywide Bank, FSB, No. 3:08-cv-238, 2009 WL 500838 (W.D.N.C. Feb. 25, 2009). In Earhart, the plaintiff obtained a mortgage loan from American Mortgage, Inc. with an initial interest rate of 1.25%. About two weeks after making the loan, American Mortgage sent the plaintiff a letter stating that the interest rate on the adjustable rate rider was incorrect and that the correct rate was 1.75%. American Mortgage subsequently sold the loan to the defendant, which sent the plaintiff a billing statement showing a 1.75% rate and a higher required payment amount. The plaintiff, however, continued making his loan payments as originally scheduled and unsuccessfully attempted to resolve the discrepancy with the defendant. After the defendant sent the plaintiff a notice of default and acceleration, the plaintiff sued, alleging, among other claims, that the defendant falsely reported to credit bureaus that the loan was in default, violating FCRA. The court found that the plaintiff could not proceed under FCRA § 1681s-2(a), which does not provide a private right of action. The plaintiff, however, claimed that he had brought the “action for defamation under Section 1681h(e) of the FCRA,” which provides a qualified preemption of state law defamation and other claims against furnishers of consumer credit information “except as to false information furnished with malice or willful intent to injure [the] consumer.” Although courts have generally viewed § 1681h(e) as determining the impact of the federal statute on state law, the court in this case viewed that provision as providing a separate federal private right of action. The court’s holding thus implies, in a novel interpretation, that a federal private right of action for defamation exists under § 1681h(e). Finding that there were genuine issues of material fact as to whether the defendant acted with malice and the reported information was false, the court denied the defendant’s motion for summary judgment on this claim. For a copy of the opinion, please see http://www.buckleykolar.com/Earhart_v_Countrywide.pdf.

Illinois Federal Court Holds FACTA Does Not Violate Due Process Clause. On February 26, the U.S. District Court for the Northern District of Illinois held that the Fair and Accurate Credit Transactions Act (FACTA) does not violate the Due Process Clause of the U.S. Constitution. Soprych v. T.D. Dairy Queen, Inc., No. 08 C 2694, 2009 WL 498535 (N.D. Ill. Feb. 26, 2009). In Soprych, the defendants allegedly printed more than the last five digits of credit and debit card numbers, and/or the card’s expiration date on cardholder receipts in violation of FACTA. The plaintiff filed suit, seeking statutory damages on behalf of a putative class. The defendant moved to dismiss, arguing that FACTA’s damages provisions violate the Due Process Clause. Following its holding in Irvine v. 233 Skydeck, LLC, No. 08 C 4939, 2009 WL 347395 (N.D. Ill. Feb. 12, 2009) (reported in InfoBytes, Feb. 20, 2009), the court rejected all three of the defendant’s arguments. First, the court found that the lack of guidance regarding the amount of damages within the $100-$1,000 range was not ambiguous because it, nonetheless, puts businesses on notice that violations may result in “up to” $1,000 in statutory damages. Second, the court found that the potential sanction of two forms of “punitive” damages under FACTA did not violate double jeopardy principles, which apply in criminal – not civil – actions. Third, the court found that, in the event of a constitutionally excessive damages award, a court could reduce the amount. As a result, the court denied the defendant’s motion to dismiss. For a copy of the opinion, please see http://www.buckleykolar.com/Soprych_v_DQ.pdf.

Alabama Federal Court Rejects Removal of Case Containing Potential FCRA Issues. On February 27, the U.S. District Court for the Middle District of Alabama rejected the defendants’ attempt to remove to federal court a case raising state law claims relating to credit reporting issues, holding that the Fair Credit Reporting Act (FCRA) did not confer subject matter jurisdiction over the claims. Bishop v. Holloway Credit Solutions, LLC, No. 3:08-cv-995, 2009 WL 499390 (M.D. Ala. Feb. 27, 2009). The plaintiffs filed suit in state court raising state law claims for negligence, breach of contract, wantonness, and slander. These claims were based, at least in part, on allegations relating to the defendants’ inaction regarding the plaintiffs’ credit worthiness, including an allegation regarding a failure to notify the lender and the credit reporting agencies “of the erroneous information being reported to all inquiries as to the credit worthiness” of plaintiffs. The defendants attempted to remove the case to federal court, arguing that the plaintiffs’ state law claims were preempted by FCRA and will require resolution of one or more substantial questions of federal law. Although the court acknowledged that FCRA may preempt some state law claims, it held that FCRA does not "completely" preempt state law. The court then considered whether removal could be based on the “substantial federal question jurisdiction” test from Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, 545 U.S. 308 (U.S. 2005). The court found the defendants could not satisfy the Grable test because the dispute implicated only the actions of private parties with a central breach of duty claim that can be decided without reference to FCRA. As a result, the court remanded the case to state court. For a copy of the opinion, please see http://www.buckleykolar.com/Bishop_v_Holloway.pdf.

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Privacy/Data Security

FTC Reaches Proposed Settlement with Consumer Reporting Agency. On March 5, the Federal Trade Commission (FTC) reached a proposed settlement with a consumer reporting agency and its principal regarding alleged violations of the Fair Credit Reporting Act (FCRA) and the FTC Act. The defendants used sensitive financial data from other consumer reporting agencies to create reports containing personal consumer information – including social security numbers, dates of birth, bank and credit card account numbers, and credit histories – that landlords could use to assess prospective renters. The defendants allegedly failed to properly screen its customers and, consequently, sold at least 318 credit reports to identity thieves. The FTC charged the defendants with violating FCRA by furnishing credit reports to individuals who did not have a “permissible purpose” to obtain them. Further, the FTC charged the defendants with violating FCRA for failing to maintain “reasonable” policies and procedures to (i) prevent such impermissible disclosures, (ii) verify customer identities, and (iii) verify how its customers would use the provided information. Under the settlement, the defendants must (i) ensure that they provide credit reports only for lawful purposes to legitimate businesses, (ii) implement a comprehensive information security program designed to protect personal consumer information, (iii) for every other year for 20 years, obtain audits from a qualified, independent, third-party professional to monitor compliance with the order, (iv) implement record-keeping and reporting provisions to allow the FTC to monitor compliance with the order, and (v) pay a $500,000 penalty. (The penalty, however, is suspended, due to the defendants’ inability to pay.) For a copy of the press release, please see http://www.ftc.gov/opa/2009/03/rrs.shtm.  

Illinois Federal Court Holds FACTA Does Not Violate Due Process Clause. On February 26, the U.S. District Court for the Northern District of Illinois held that the Fair and Accurate Credit Transactions Act (FACTA) does not violate the Due Process Clause of the U.S. Constitution. Soprych v. T.D. Dairy Queen, Inc., No. 08 C 2694, 2009 WL 498535 (N.D. Ill. Feb. 26, 2009). In Soprych, the defendants allegedly printed more than the last five digits of credit and debit card numbers, and/or the card’s expiration date on cardholder receipts in violation of FACTA. The plaintiff filed suit, seeking statutory damages on behalf of a putative class. The defendant moved to dismiss, arguing that FACTA’s damages provisions violate the Due Process Clause. Following its holding in Irvine v. 233 Skydeck, LLC, No. 08 C 4939, 2009 WL 347395 (N.D. Ill. Feb. 12, 2009) (reported in InfoBytes, Feb. 20, 2009), the court rejected all three of the defendant’s arguments. First, the court found that the lack of guidance regarding the amount of damages within the $100-$1,000 range was not ambiguous because it, nonetheless, puts businesses on notice that violations may result in “up to” $1,000 in statutory damages. Second, the court found that the potential sanction of two forms of “punitive” damages under FACTA did not violate double jeopardy principles, which apply in criminal – not civil – actions. Third, the court found that, in the event of a constitutionally excessive damages award, a court could reduce the amount. As a result, the court denied the defendant’s motion to dismiss. For a copy of the opinion, please see http://www.buckleykolar.com/Soprych_v_DQ.pdf.

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Credit Cards

Third Circuit Holds Federal Arbitration Act Does Not Preempt Challenge to Class-Arbitration Waiver. On February 24, the U.S. Court of Appeals for the Third Circuit held that the Federal Arbitration Act (FAA) does not preclude a court from applying state law unconscionability principles to void a class-arbitration waiver in a credit card agreement. Homa v. American Express Co., No. 07-2921, 2009 WL 440912 (3d Cir. Feb. 24, 2009). In Homa, the plaintiff brought a class action lawsuit alleging that the defendant misrepresented the terms of a credit card rewards program and did not award him the promised amount of cash back, violating the New Jersey Consumer Fraud Act. The district court dismissed the complaint with prejudice in favor of arbitration on an individual basis pursuant to the credit card agreement, and the plaintiff appealed. On appeal, the defendant argued that (i) the FAA precluded the court from applying New Jersey law to a class-arbitration waiver, and (ii) the credit card agreement’s choice of Utah law (which expressly allows class action waivers) governed the dispute. Following the New Jersey Supreme Court’s decision in Muhammad v. County Bank of Rehoboth Beach, 912 A.2d 88 (N.J. 2006), the court determined that a general contract defense – i.e. one that applied to all waivers of class-wide actions, and not simply those that also compelled arbitration – does not result in FAA preemption of New Jersey law. Regarding the choice of law argument, the court concluded that, assuming this was a “small-sum” case, the New Jersey Supreme Court would apply New Jersey law to the class arbitration waiver, as (i) in light of Muhammad, the class-arbitration waiver likely violated New Jersey’s fundamental public policy, (ii) New Jersey likely had a materially greater interest than Utah in the enforceability of the class-arbitration waiver, and (iii) New Jersey law would apply in the absence of the parties’ choice of law provision. Thus, the court held that if the claims at issue were of such a low value as to effectively preclude relief if decided individually, then, under Muhammad, application of Utah law would be invalid, and the class-arbitration waiver would be unconscionable. In a concurring opinion, Judge Weis noted that the question of unconscionability under New Jersey law remained open for consideration on remand. For a copy of the opinion, please see http://www.buckleykolar.com/Homa_v_Am_Ex.pdf.  

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