financial services litigation report

LexisNexis�

Financial ServicesLitigation Report

June 2012 Volume 4, Issue #4

Convicted Ponzi Schemer Stanford Sentenced To 110 Years In Federal PrisonHOUSTON — The federal judge in Texas overseeing the criminal case of convicted Ponzi scheme mastermind R. AllenStanford on June 14 sentenced Stanford to 110 years in federal prison. SEE PAGE 5.

Bear Stearns, Former Executives Agree To $275M Settlement Of Securities ClaimsNEW YORK — The Bear Stearns Cos. Inc. and certain of its former officers and directors have agreed to pay $275million to settle claims that they misrepresented the investment quality and risk profile of mortgage-backed securitiesthey issued to investors in violation of federal securities laws, according to documents filed June 6 in New York federalcourt. SEE PAGE 6.

Former Bear Stearns Auditor To Pay Nearly $20M To Settle Securities Law ClaimsNEW YORK — The former independent outside auditor for The Bear Stearns Cos. Inc. agreed June 11 to pay nearly $20million to settle shareholder claims that it failed to accurately monitor the financial giant’s internal controls with regard toBear Stearns’ issuance of risky subprime mortgage-backed securities in violation of federal securities law. SEE PAGE 6.

Judge Approves $90M Settlement With Lehman Officers, DirectorsNEW YORK — A federal judge in New York on May 24 approved a $90 million settlement between former LehmanBrothers Holdings Inc. directors and officers and a proposed class of Lehman investors, settling claims that the executivesmisled the investors about Lehman’s true exposure to subprime mortgages before its 2008 collapse. SEE PAGE 9.

Greenberg Traurig Agrees To Pay $61M To Settle Ponzi ClaimsPHOENIX — The law firm Greenberg Traurig LLP agreed June 20 to pay $61 million to settle a suit in the U.S.District Court for the District of Arizona alleging that it aided an alleged Ponzi scheme that bankrupted two companiesand led to $900 million in losses. SEE PAGE 10.

Freddie Mac, Wells Fargo Settle Telephone Consumer Protection Act SuitsSAN DIEGO — The Federal Home Loan Mortgage Corp. (Freddie Mac) and Wells Fargo Auto Finance Inc. haveagreed to pay $17 million to settle two putative class actions alleging that they illegally contacted customers on their cellphones in violation of the Telephone Consumer Protection Act (TCPA), according to a June 18 filing in a Californiafederal court. SEE PAGE 16.

Supreme Court Will Hear Appeal Of Dismissal Of Debt Collection SuitWASHINGTON, D.C. — The U.S. Supreme Court on May 29 agreed to hear an appeal of a ruling that a collectionagency did not violate the Fair Debt Collection Practices Act (FDCPA) when it contacted a debtor’s employer to verifyher employment status. SEE PAGE 20.

Divided 2nd Circuit: No En Banc Rehearing Of Validity Of AmEx Arbitration ClauseNEW YORK — The Second Circuit U.S. Court of Appeals on May 29 in a divided ruling denied rehearing en banc ofits Feb. 1 opinion affirming its prior holding that a mandatory class action waiver clause in American Express Co.’s(AmEx) standardized service contract violated the Federal Arbitration Act (FAA). SEE PAGE 32.

Timothy J. Raubeditor

Maureen H. McGuireeditorial director

Joan Grossmanmanaging editor

Jennifer Haycopy desk manager

Amy Bauermarketing brand manager

Toria Dettraproduction associate

To contact the editor:Timothy J. Raub (215) 988-7740email: [email protected]

The Reportis produced monthly byLexisNexis� Mealey’s�

1600 John F. Kennedy Blvd., Suite 1655

Philadelphia, PA. 19103(215) 564-1788

Customer Service:1-800-MEALEYS (1-800-632-5397)

Email: [email protected] site: www.lexisnexis.com/mealeys

Print: $940* for a full year* Plus sales tax, shipping and handling where applicable.

An online version of this report with

email delivery is also available throughLexisNexis on www.lexis.com. Contact

your LexisNexis representative or call1-800-223-1940 for details.

PRINT ISSN 1947-4520ONLINE ISSN 2159-1636EBOOK ISBN 9780327167303

LexisNexis and the Knowledge Burst logo are

registered trademarks of Reed Elsevier Prop-

erties Inc., used under license. Mealey’s is a

trademark of LexisNexis, a division of Reed

Elsevier Inc. ª 2012, LexisNexis, a division of

Reed Elsevier Inc. All rights reserved.

LexisNexis�

Financial ServicesLitigation Report

June 2012 Volume 4, Issue #4

Cases in this Issue Page

United States of America v. Robert Allen Stanford, No. 09-342, S.D. Texas ...... 5In re Bear Stearns Companies Inc. Securities, Derivative, and ERISA Litigation,

MDL No. 08-md-1963, No. 08-2793, S.D. N.Y. ............................................. 6In re Bear Stearns Companies Inc. Securities, Derivative, and ERISA Litigation,

MDL No. 08-md-1963, No. 08-2793, S.D. N.Y. ............................................. 6American International Group, Inc., et al. v. Countrywide Financial

Corporation, Inc., et al., No. 11-10549, C.D. Calif........................................... 7Landesbank Baden-Wurttemberg v. Barclays Bank PLC, et al., No.

652030/2012, N.Y. Sup., New York Co. ........................................................... 8Landesbank Baden-Wurttemberg v. Capital One Financial Corp., et al.,

No. 652029/2012, N.Y. Sup., New York Co..................................................... 8In re: Lehman Brothers Securities and ERISA Litigation, MDL No.

09-2017, (In re: Lehman Brothers Equity/Debt Securities Litigation,No. 08-5523), S.D. N.Y. .................................................................................... 9

Robert Facciola, et al., v. Greenberg Traurig LLP, et al., No. 10-1025,D. Ariz. ........................................................................................................... 10

Robert G. Wing v. Bruce J. Dockstader, et al., No. 11-4006, 10th Cir.................... 11Securities and Exchange Commission v. Medical Capital Holdings Inc.,

et al., No. 09-00818, C.D. Calif......................................................................... 12Ralph S. Janvey, in his capacity as court-appointed receiver for The Stanford

International Bank, Ltd., et al. v. Libyan Investment Authority andLibyan Foreign Investment Co., No. 12-10240, 5th Cir. .................................. 13

Roger J. McConkie v. Rice Properties, et al., No. 09-00275, D. Utah ..................... 14Alberto Malta v. The Federal Home Loan Mortgage Corp., et al., No.

10-1290, S.D. Calif., Danny Allen Jr. v. Wells Fargo Auto Finance Inc.,No. 10-2657, S.D. Calif...................................................................................... 16

In re: Portfolio Recovery Associates, LLC, Telephone Consumer ProtectionAct Litigation, No. 11-md-02295, S.D. Calif..................................................... 16

Ashley Gager v. Dell Financial Services, LLC, No. 11-02115, M.D. Pa. .................. 18Timothy P. Harris v. American General Financial Services LLC,

No. 10-1662, D. Nev.......................................................................................... 19Olivea Marx v. General Revenue Corporation and Kevin Cobb, No.

11-1175, U.S. Sup............................................................................................... 20Norman Morse, administrator of the estate of Nancy Morse, v. Paula

G. Kaplan, et al., No. 11-2562, 3rd Cir. ............................................................ 21Christopher Ceresko v. LVNV Funding, LLC, et al., No. 11-15456,

9th Cir. ................................................................................................................ 22Joann Riggs v. Prober & Raphael, A Law Corp., et al., No. 10-17220,

9th Cir. ................................................................................................................ 23Kara A. Tzanetis v. Weinstein & Riley, P.S., No. 11-3169, 2nd Cir. ....................... 25Belinda Parker v. Midland Credit Management Inc., No. 12-110, M.D. Fla. .......... 25Anna Pawelczak v. Nations Recovery Center Inc., No. 11-3700, N.D. Ill................ 26Donald R. Williams v. Midland Funding LLC, et al., No. 11-2539,

S.D. Calif. ............................................................................................................ 28David Webb, et al. v. Premiere Credit of North America LLC, No. 12-2001,

D. Kan................................................................................................................. 29Malka Andes v. G. Moss and Associates, LLP, No. 11-14295, S.D. Fla. .................. 30

Cases in this Issue Page

Craig A. Whitney and Aubree S. Whitney v. CTX Mortgage Co. LLC, et al., No. 11-00037, D. Nev................................ 31In re: American Express Merchants’ Litigation (Italian Colors Restaurant, et al. v. American Express Travel

Related Services Company, et al.), No.06-1871-cv, 2nd Cir. ........................................................................................... 32Galen Traylor v. I.C. System Inc., et al., No. 11-02968, D. Minn......................................................................................... 34Taylor Russell v. United States of America, No. 09-03239, N.D. Calif. ................................................................................. 35Fabricia de Muebles J.J. Alvarez, Inc. v. Inversiones Mendoza, Inc., et al., No. 11-1985, 1st Cir.......................................... 37Bruce C. McDonald v. OneWest Bank, No. 11-1071, 10th Cir. ........................................................................................... 39Beal Bank USA v. The Business Bank of St. Louis, No. 11-0561, E.D. Mo.......................................................................... 40Buttonwood Tree Value Partners LP, et al. v. Jack A. Sweeney, et al., No. 10-00537, C.D. Calif. ....................................... 41Sonya Rose Lopez v. Federal Deposit Insurance Corporation, No. 10-00158, N.D. Ga. ....................................................... 42Elliott D. Levin v. William I. Miller, et al., No. 11-01264, S.D. Ind. .................................................................................... 43Justus A. Oketch v. JPMorgan Chase & Co. Inc., No. 12-0102, W.D. N.C......................................................................... 45John P. McGough v. Wells Fargo Bank NA, et al., No. 12-0050, N.D. Calif. ...................................................................... 46Harry T. Constas v. JPMorgan Chase Bank NA, No. 11-0032, D. Conn.............................................................................. 47United States of America v. Huntington National Bank, No. 10-2071, 6th Cir. ................................................................... 48Daniel Ford v. Citibank NA, No. 11-3578, D. Md. ............................................................................................................... 50United States of America ex rel. Jon H. Oberg v. Kentucky Higher Education Student Loan Corp., et al., No.

10-2320, 4th Cir. .............................................................................................................................................................. 51Higher Education Loan Authority of the State of Missouri v. Wells Fargo Bank NA, No. 10-1230, E.D. Mo. ................... 53United States of America v. David P. Schafer, No. 11-00802, W.D. Texas............................................................................ 54Edward G. Shlikas v. United States Department of Education, No. 09-02806, D. Md. ........................................................ 55United States of America v. Cynthia Allen-Williams, No. 11-1001, D. Md........................................................................... 57Harold Lasserre Jr. v. Educational Credit Management Corp., No. 12-0091, M.D. La. ........................................................ 58Kamlesh Banga v. Experian Information Solutions, et al., No. 10-15913, 9th Cir. ................................................................ 58Flagship Credit Corp. v. Indian Harbor Insurance Co., No. 11-20408, 5th Cir. ................................................................... 59Peoples State Bank v. Progressive Casualty Insurance Company, No. 11-30731, 5th Cir. ..................................................... 61John C. McLemore, et al. v. Regions Bank, Nos. 10-5480, 10-5491, 6th Cir. ...................................................................... 61Automotive Industries Pension Trust Fund v. Textron Inc., et al., No. 11-2106, 1st Cir. ..................................................... 64Jarek Charvat v. First National Bank of Wahoo, No. 12-00097, D. Neb............................................................................... 65Daniel E. Ballard v. Branch Banking and Trust Co., No. 11-1327, D. D.C.......................................................................... 67Local 703, I.B. of T. Grocery and Food Employees Welfare Fund v. Regions Financial Corp., et al., No.

10-2847, N.D. Ala. ........................................................................................................................................................... 68Ohio Public Employees Retirement System v. Federal Home Loan Mortgage Corp., et al., No.

08-00160, N.D. Ohio....................................................................................................................................................... 69Isaiah Nichols v. Navy Federal Credit Union, No. 12-790, D. Md. ....................................................................................... 70Theresa M. Passmore v. Discover Bank, et al., No. 11-1347, N.D. Ohio .............................................................................. 71In re Municipal Derivatives Antitrust Litigation, No. 08 MDL No. 1950, Master No. 08-02516, S.D. N.Y....................... 72In re Optimal U.S. Litigation, No 10-4095, S.D. N.Y............................................................................................................ 74Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, (In re Bernard

L. Madoff), No. 08-1789, S.D. N.Y. Bkcy....................................................................................................................... 75In re Merrill Lynch Auction-Rate Securities Litigation, No. 09-md-2030, (Iconix Brand Group Inc. v.

Merrill Lynch, Pierce, Fenner & Smith Inc., No. 10-0124), S.D. N.Y. .......................................................................... 76Michael J. Hummel v. David W. Hall, t/a Country Motor Sales, No. 11-0012, W.D. Va. .................................................. 79

Published document is available at the end of the report. For other available documents from cases reported on in this issue,visit www.mealeysonline.com or call 1-800-MEALEYS.

LexisNexis� Financial Services Litigation Report Vol. 4, #4 June 2012

Cite as LexisNexis� Financial Services Litigation Report, Vol. 4, Iss. 4 (6/12) at p.___, sec.___. 3

In this Issue

Stanford Ponzi SchemeConvicted Ponzi Schemer Stanford SentencedTo 110 Years In Federal Prison........................................ page 5

Mortgage-Backed SecuritiesBear Stearns, Former Executives Agree To $275MSettlement Of Securities Claims ....................................... page 6Former Bear Stearns Auditor To Pay Nearly $20MTo Settle Securities Law Claims ....................................... page 6Judge Dismisses AIG’s Claims TargetingCountrywide Mortgage-Backed Securities ........................ page 7Barclays Bank Sued By Bank OverMortgage-Backed Securities Losses ................................... page 8German Bank Hits Capital One, Others WithLawsuit Over Securities Losses ......................................... page 8

Lehman Brothers BankruptcyJudge Approves $90M Settlement With LehmanOfficers, Directors ............................................................ page 9

Ponzi SchemeGreenberg Traurig Agrees To Pay $61M To SettlePonzi Claims .................................................................. page 1010th Circuit Affirms Ruling In Favor Of ReceiverIn Ponzi-Related Action ................................................. page 11Wells Fargo, BNY Mellon To Pay $106M InMedCap Ponzi Settlement ............................................. page 125th Circuit Affirms Denial Of Stanford Receiver’sInjunction Request......................................................... page 13Judge: Receiver Can’t Void Commissions OnProperties Sold To Ponzi Operator ................................ page 14

Telephone Consumer Protection ActFreddie Mac, Wells Fargo Settle TelephoneConsumer Protection Act Suits ...................................... page 16Federal Judge Refuses To Remand ConsumerProtect Act Suit From MDL.......................................... page 16Federal Judge: Act Doesn’t Let Consumers RevokeConsent to Contact........................................................ page 18Federal Judge: Telephone Consumer ProtectionAct Claim Falls Short ..................................................... page 19

FDCPASupreme Court Will Hear Appeal Of DismissalOf Debt Collection Suit................................................. page 203rd Circuit: Consumer Failed To ShowDebt Collection Letter Was Misleading ......................... page 219th Circuit Upholds Attorney Fees Award InDebt Collection Suit ...................................................... page 22Notice Did Not Violate Debt Collection Act,9th Circuit Affirms......................................................... page 23Panel: Consumer Failed To Provide EvidenceOf Debt Collection Law Violation................................. page 25Letter Not A Debt Collection Demand Letter,Federal Judge Rules........................................................ page 25

Debt Collector Failed To Provide RequiredDisclosures, Federal Judge Rules .................................... page 26Judge: Attorney Fees Sought In Debt CollectionCase Are Reasonable ...................................................... page 28Judge: Consumers Met Specificity RequirementsIn Debt Collection Suit ................................................. page 29Settlement Earns Partial Approval In DebtCollection Suit ............................................................... page 30Nonjudicial Foreclosures Are Not Debt Collection,Federal Judge Rules........................................................ page 31

Credit Card IssuesDivided 2nd Circuit: No En Banc Rehearing OfValidity Of AmEx Arbitration Clause ............................ page 32Judge Says Bank Did Not Show That CardholderAgreed To Arbitration Agreement .................................. page 34Class Certified In Military Credit CardOvercharge Action ......................................................... page 35

Failed Banks1st Circuit Affirms Dismissal Of Corruption SuitAgainst Puerto Rico Bank .............................................. page 3710th Circuit Affirms Dismissal Of Suit AllegingWrongful Foreclosure..................................................... page 39Bank Earns Partial Summary Judgment In LoanParticipation Dispute ..................................................... page 40Judge: Investor Failed To Plead Subjective FalsityIn Failed Bank Suit ........................................................ page 41Federal Judge Bars Suit Against Bank Due ToPlaintiff’s Intent To Mislead .......................................... page 42FDIC Can Intervene In Suit Against FailedBanks’ Former Officers .................................................. page 43Chase Did Not Assume Liability From WaMu,Federal Judge Rules........................................................ page 45Federal Judge Dismisses Most Of Suit ArisingFrom Home Foreclosure ................................................ page 46Federal Judge Dismisses Complaint Arising FromWaMu’s Pre-Failure Conduct ........................................ page 47

Line Of CreditIn Reversal, 6th Circuit Orders Return OfForfeited Funds To Bank ............................................... page 48Citibank Escapes Suit Arising From RejectionOf Loan Application ...................................................... page 50

Student Loan Issues4th Circuit Remands Student Loan Suit For‘State Agency’ Analysis ................................................... page 51Wells Fargo’s Counterclaim Survives In StudentLoan Bond Remarketing Suit ......................................... page 53Federal Judge Vacates Summary Judgment InStudent Loan Suit .......................................................... page 54Student Loan Due Process Suit AgainstGovernment Survives ..................................................... page 55

Vol. 4, #4 June 2012 LexisNexis� Financial Services Litigation Report

4

News

Convicted Ponzi SchemerStanford Sentenced To110 Years In Federal PrisonHOUSTON — The federal judge in Texas overseeingthe criminal case of convicted Ponzi scheme master-mind R. Allen Stanford on June 14 sentenced Stanfordto 110 years in federal prison (United States ofAmerica v. Robert Allen Stanford, No. 09-342, S.D.Texas; See March 2012, ).

(Judgment in Section A. Document #88-120625-021X.)

U.S. Judge David Hittner of the Southern District ofTexas’ judgment of 1,320 months, or 110 years, cameafter a jury on March 6 found Stanford guilty of 13 of14 counts of wire fraud, mail fraud, conspiracy to com-mit wire fraud and mail fraud, conspiracy to obstruct aSecurities and Exchange Commission proceeding andobstruction of an SEC proceeding. He was found notguilty on one charge of wire fraud.

Stanford received 240 months, or 20 years, in prison forhis convictions on the wire fraud and conspiracy tocommit wire fraud and mail fraud counts; 60 monthseach on the conspiracy to obstruct an SEC investigationand obstruction of an SEC investigation counts, to beserved consecutively; and another 240 months each forfive counts of mail fraud and a count of conspiracy tocommit money laundering, to be served concurrentlywith each other and with the previous counts.

Judge Hittner recommended to the Bureau of Prisons(BOP) that Stanford be ‘‘imprisoned in the most securefacility that the BOP finds is commensurate with hissecurity needs up to and including a U.S. Penitentiary’’and remanded Stanford to the custody of U.S. marshals.

Criminal Proceeding

The verdict brought to an end a criminal proceedingthat took nearly three years to bring to trial due to anumber of issues.

After a federal grand jury in the District Court issued a21-count indictment charging Stanford with conspir-ing to commit securities fraud and money launderingand conspiring to obstruct and obstructing an investi-gation of the SEC in connection with his alleged opera-tion of the Ponzi scheme, the court granted thegovernment’s motion for revocation of release and com-mitted Stanford to pretrial detention on June 30, 2009,concluding that he was a flight risk.

On Jan. 26, 2011, Judge Hittner granted in part anddenied in part Stanford’s motion for relief and medi-cal treatment after Stanford suffered a head injury dur-ing an altercation with another inmate and had surgeryto repair facial fractures. Stanford was committed tothe custody of the U.S. attorney general after JudgeHittner heard testimony from three psychiatrists whocited a number of contributing factors that couldhave led to Stanford’s mental condition as a result ofthe injuries.

Expert Testimony

Then, on June 21, 2011, Judge Hittner issued an orderdelaying the start of Stanford’s criminal trial, which wasslated to begin Sept. 12, until January 2012. Stanfordmoved for a continuance on Dec. 28, which JudgeHittner denied as ‘‘unwarranted,’’ and in a Jan. 5order, the judge refused to strike certain expert testi-mony finding Stanford competent to stand trial andordered Stanford’s defense team to prepare for trial.

On March 8, the jury returned a special verdict requir-ing Stanford to forfeit $330 million held in 29 financialinstitutions abroad, and on March 20, Stanford movedfor a new trial, claiming that he was deprived of hisSixth Amendment right to a fair trial. Judge Hittnerdenied the motion on March 22.

Stanford appealed his conviction to the Fifth CircuitU.S. Court of Appeals on June 14.


5

Counsel

Stanford is represented by Robert A. Scardino Jr. andAli R. Fazel of Scardino Fazel in Houston and Lee H.Shidlofsky of Visser Shidlofsky in Austin, Texas.

The U.S. government is represented by U.S. AttorneyKenneth Magidson in Houston, Assistant U.S. Attor-ney Gregg Costa in Houston and William Stellmachand Andrew H. Warran of the U.S. Department ofJustice in Washington, D.C.

(Additional documents available: Verdict. Document#88-120326-074V. Jury instructions. Document#88-120326-075X.) n

Bear Stearns, Former ExecutivesAgree To $275M SettlementOf Securities ClaimsNEW YORK — The Bear Stearns Cos. Inc. and certainof its former officers and directors have agreed to pay$275 million to settle claims that they misrepresentedthe investment quality and risk profile of mortgage-backed securities they issued to investors in violationof federal securities laws, according to documents filedJune 6 in New York federal court (In re Bear StearnsCompanies Inc. Securities, Derivative, and ERISA Liti-gation, MDL No. 08-md-1963, No. 08-2793, S.D.N.Y.; See February 2011, Page 11).

(Motion for preliminary approval of settlement.Document #57-120611-080B. Stipulation of settle-ment. Document #57-120611-079X.)

Lead plaintiff State of Michigan Retirement Systemfiled both a motion for preliminary approval of settle-ment and stipulation of settlement in the U.S. DistrictCourt for the Southern District of New York.

Under the terms of the settlement, which are subject tocourt approval and benefit plaintiffs in five securitiesclass actions that were transferred to the District Courtby the Judicial Panel on Multidistrict Litigation in2008, in exchange for the $275 million payment,claims for violation of Sections 10(b), 20(a) and 20Aof the Securities Exchange Act of 1934 and Securitiesand Exchange Commission Rule 10b-5 will be droppedagainst The Bear Stearns Cos. and former officers anddirectors James E. Cayne, Alan D. Schwartz, Warren J.

Spector, Alan C. Greenberg, Samuel L. Molinaro Jr.,Michael Alix and Jeffrey M. Farber.

JPMDL Transfer Order

After the JPMDL issued its Aug. 18, 2008, order trans-ferring a number of securities class action, shareholderderivative and Employee Retirement Income Security Act(ERISA) lawsuits to the District Court, the retirementsystem was named lead plaintiff and filed a consolidatedamended class action complaint on behalf of all pur-chasers of Bearn Stearns common stock purchasersfrom Dec. 14, 2006, to March 14, 2008.

On Jan. 19, 2011, Judge Robert W. Sweet denied thedefendants’ motion to dismiss the amended complaint;soon after, the parties began settlement discussions.

The retirement system is represented by Jeffrey C.Block, Patrick T. Egan and Justin Saif of BermanDeValerio in Boston, Joseph J. Tabacco Jr. and JulieJ. Bai of Berman DeValerio in San Francisco and Tho-mas A. Dubbs, James W. Johnson and Michael W.Stocker of Labaton Sucharow in New York.

The defendants are represented by Eric S. Goldstein,Brad S. Karp, Lewis R. Clayton and Douglas M. Pravdaof Paul, Weiss, Rifkind, Wharton & Garrison in NewYork and Paul J. Ondrasik and F. Michael Kail ofSteptoe & Johnson in Washington, D.C.

(Additional document available. Amended complaint.Document #57-120611-081C.) n

Former Bear Stearns AuditorTo Pay Nearly $20M ToSettle Securities Law ClaimsNEW YORK — The former independent outside audi-tor for The Bear Stearns Cos. Inc. agreed June 11 to paynearly $20 million to settle shareholder claims that itfailed to accurately monitor the financial giant’s internalcontrols with regard to Bear Stearns’ issuance of riskysubprime mortgage-backed securities in violation of fed-eral securities law (In re Bear Stearns Companies Inc.Securities, Derivative, and ERISA Litigation, MDL No.08-md-1963, No. 08-2793, S.D. N.Y.; See February2011, Page 11, and related story in this issue).


6

(Motion for preliminary approval of settlementavailable. Document #88-120625-007B.)

Lead plaintiff State of Michigan Retirement Systemfiled the motion for preliminary approval of settlementin the U.S. District Court for the Southern District ofNew York.

The proposed settlement comes less than a week afterthe other defendants in the multidistrict litigation, BearStearns and certain of its former executive officers anddirectors, agreed to pay $275 million to settle all claimsagainst them.

Both proposed settlements are subject to courtapproval.

Actions Transferred

After the JPMDL issued its Aug. 18, 2008, order trans-ferring a number of securities class action, shareholderderivative and Employee Retirement Income SecurityAct lawsuits to the District Court, the retirement sys-tem was named lead plaintiff and filed a consolidatedamended class action complaint on behalf of all pur-chasers of Bearn Stearns common stock from Dec. 14,2006, to March 14, 2008.

The retirement system alleges that the defendants vio-lated Sections 10(b), 20(a) and 20A of the SecuritiesExchange Act of 1934 and Securities and ExchangeCommission Rule 10b-5 by misrepresenting the invest-ment quality and risk profile of mortgage-backed secu-rities Bear Stearns issued to investors.

On Jan. 19, 2011, Judge Robert W. Sweet denied thedefendants’ motion to dismiss the amended complaint,and, soon after, the parties began settlement discussions.

Counsel

The retirement system is represented by Jeffrey C.Block, Patrick T. Egan and Justin Saif of BermanDeValerio in Boston, Joseph J. Tabacco Jr. and JulieJ. Bai of Berman DeValerio in San Francisco and Tho-mas A. Dubbs, James W. Johnson and Michael W.Stocker of Labaton Sucharow in New York.

The defendants are represented by Eric S. Goldstein,Brad S. Karp, Lewis R. Clayton and Douglas M. Pravdaof Paul, Weiss, Rifkind, Wharton & Garrison in New

York and Paul J. Ondrasik and F. Michael Kail ofSteptoe & Johnson in Washington, D.C.

Deloitte & Touche is represented by Antony L. Ryan,Max R. Shulman, Rachel G. Skaistis and Thomas G.Rafferty of Cravath, Swaine & Moore in New York.

(Additional document available. Amended complaint.Document #57-120611-081C.) n

Judge Dismisses AIG’s ClaimsTargeting CountrywideMortgage-Backed SecuritiesLOS ANGELES — A federal judge in California onMay 23 dismissed American International Group Inc.’s(AIG) federal claims in its suit targeting the underwrit-ing practices at Bank of America Corp. unit Country-wide Financial Corp. Inc., agreeing with Countrywidethat AIG filed the claims too late (American Interna-tional Group, Inc., et al. v. Countrywide FinancialCorporation, Inc., et al., No. 11-10549, C.D. Calif.).

(Order available. Document #88-120625-206R.)

U.S. Judge Mariana R. Pfaelzer of the Central Districtof California partially granted Countrywide’s motion todismiss the suit AIG filed against it and several otherfinancial institutions.

AIG and other plaintiffs initially brought the suit onAug. 8, 2011, in the New York County Supreme Courtin connection with its purchase of residential mortgage-backed securities (RBMS) originated and/or issued byCountrywide. Between 2005 and 2007, AIG allegedlypurchased $28 billion worth of RMBS certificates. AIGsays Countrywide is liable because the certificates’ offer-ing documents contain various misrepresentations.Countrywide removed the suit to the District Courton Sept. 6, 2011, and filed its motion to dismiss onFeb. 27, 2012.

Time-Barred

In dismissing with prejudice AIG’s federal claims,Judge Pfaelzer found that the claims for violations ofthe Securities Act of 1933 are barred by a three-yearstatute of repose that began to toll when the securitywas offered to the public. According to the judge, AIGfiled its August 2011 complaint more than three years


7

after Countrywide issued the certificates to the publicand AIG purchased them.

The judge also agreed with Countrywide that AIG’scommon law claims are barred under New York’s bor-rowing statute. Eight of the 22 plaintiffs in the suit havetheir primary places of business in Arizona, California,Tennessee and Texas. Judge Pfaelzer noted that Arizonaand California have a three-year statute of limitationsfor fraud and a two-year statute of limitations for neg-ligent misrepresentation.

Judge Pfaelzer allowed the claims that were part of anagreement to toll claims between Jan. 13, 2011, andAug. 5, 2011, to remain.

‘‘Plaintiffs concede that the Arizona plaintiff’s negligentmisrepresentation claim and all of the Arizona, Califor-nia and Tennessee plaintiffs’ common law claims thatare not subject to the tolling agreement are time-barred,’’ Judge Pfaelzer said. ‘‘The California plaintiff’snegligent misrepresentation claim is subject to a two-year statute of limitations and is time-barred also, apply-ing the two-year statute of limitations to Californianegligent misrepresentation claim.’’

Attorneys

AIG is represented by James R. Asperger of Quinn,Emanuel, Urquhart & Sullivan in Los Angeles andMichael B. Carlinsky and Maria Ginzburg of QuinnEmanuel in New York.

Countrywide is represented by James L. Sanders andDavid M. Halbreich of Reed Smith in Los Angeles andAmy J. Greer and Jennifer L. Achilles of Reed Smithin New York.

(Additional documents available. Motion to dismiss.Document #88-120625-207M. Opposition tomotion to dismiss. Document #88-120625-208B.Reply in support of motion to dismiss. Document#88-120625-209B.) n

Barclays Bank Sued ByBank Over Mortgage-BackedSecurities LossesNEW YORK — A German bank on June 11 suedBarclays Bank PLC and certain of its subsidiaries in

New York state court, alleging that the defendants mis-represented the investment quality of mortgage-backedsecurities (MBS) they sold to the bank (LandesbankBaden-Wurttemberg v. Barclays Bank PLC, et al.,No. 652030/2012, N.Y. Sup., New York Co.).

(Summons available. Document #88-120625-065X.)

German bank Landesbank Baden-Wurttemberg filedthe summons in the New York County SupremeCourt, alleging that Barclays Bank, Barclays CapitalInc., Sutton Funding LLC and BCAP LLC issued aseries of false and misleading statements in the offeringdocuments for the $55,273,000 in MBS ‘‘regarding thelegal validity of assignments of the mortgage loans totrusts formed to hold the pooled loans and to collectinterest and principal payments due on the loans, andthe legal validity of the trusts and their legal entitlementto receive interest and principal payments on the loans.’’

‘‘Each of the Defendants knew, or at a minimum wasnegligent in not knowing, that its representations andomissions were false and/or misleading at the time theywere made. Each Defendant made the false and/or mis-leading statements with the intent for Plaintiff to relyupon those statements,’’ Landesbank says.

Claims Made

Landesbank states claims against the defendants forcommon-law fraud, fraudulent inducement, negligentmisrepresentation, aiding and abetting fraud anddeclaratory judgment, as well as contract claims forrescission, restitution and mutual mistake.

Landesbank is represented by Joel H. Bernstein ofLabaton Sucharow in New York. n

German Bank HitsCapital One, Others WithLawsuit Over Securities LossesNEW YORK — An investor sued Capital One Finan-cial Corp. and others in New York state court onJune 11, alleging that the defendants issued a series offalse and misleading statements regarding the invest-ment quality of nearly $32 million in mortgage-backed


8

securities they sold to the investor (Landesbank Baden-Wurttemberg v. Capital One Financial Corp., et al.,No. 652029/2012, N.Y. Sup., New York Co.).

(Summons available. Document #88-120625-066X.)

Investor Landesbank Baden-Wurttemberg filed a sum-mons in the New York County Supreme Court, alle-ging that Capital One Financial; Capital One N.A., assuccessor-in-interest to Chevy Chase Bank F.S.B.;Chevy Chase Funding LLC and Credit Suisse Securi-ties (USA) LLC issued a series of misrepresentations inthe offering documents for the securities ‘‘regarding thelegal validity of assignments of the mortgage loans totrusts formed to hold the pooled loans and to collectinterest and principal payments due on the loans, andthe legal validity of the trusts and their legal entitlementto receive interest and principal payments on the loans.’’

‘‘Each of the Defendants knew, or at a minimum wasnegligent in not knowing, that its representations andomissions were false and/or misleading at the time theywere made. Each Defendant made the false and/or mis-leading statements with the intent for Plaintiff to relyupon those statements,’’ Landesbank says.

Claims Made

Landesbank states claims against the defendants forcommon-law fraud, fraudulent inducement, negligentmisrepresentation, aiding and abetting fraud anddeclaratory judgment, as well as contract claims forrescission, restitution and mutual mistake.

Landesbank is represented by Joel H. Bernstein ofLabaton Sucharow in New York. n

Judge Approves $90MSettlement With LehmanOfficers, DirectorsNEW YORK — A federal judge in New York onMay 24 approved a $90 million settlement betweenformer Lehman Brothers Holdings Inc. directors andofficers and a proposed class of Lehman investors, set-tling claims that the executives misled the investorsabout Lehman’s true exposure to subprime mortgagesbefore its 2008 collapse (In re: Lehman Brothers Secu-rities and ERISA Litigation, MDL No. 09-2017, [In re:

Lehman Brothers Equity/Debt Securities Litigation,No. 08-5523], S.D. N.Y.; See December 2011, Page 5).


U.S. Judge Lewis A. Kaplan of the Southern District ofNew York approved the settlement.

The settling defendants are former Lehman BrothersCEO Richard S. Fuld Jr., former Chief Financial Offi-cers Christopher M. O’Meara, Erin Callan and IanLowitt and former Chief Operating Officer JosephM. Gregory, as well as nine former members of theLehman Brothers board of directors: Michael Ainslie,John F. Akers, Roger S. Berlind, Thomas H. Cruik-shank, Marsha Johnson Evans, Sir Christopher Gent,Roland A. Hernandez, Henry Kaufman and JohnD. Macomber.

The lead plaintiffs represent a class of pension funds,companies and individual investors who purchasedLehman securities pursuant to offering materials thatthey allege contained misleading statements and omis-sions. They sued former Lehman directors and officers,as well as certain underwriters and auditors of Lehmansecurities, alleging that they issued a series of false andmisleading statements in the offering documents con-cealing Lehman Brothers’ true business and financialcondition in violation of Sections 10(b), 20(a) and 20Aof the Securities Exchange Act of 1934, Securities andExchange Commission Rule 10b-5 and Sections 11,12(a)(2) and 15 of the Securities Act of 1933.

Fair, Reasonable

Judge Kaplan noted that the lead plaintiffs said thatthey could recover a judgment of ‘‘many billions ofdollars’’ from the former directors and officers at trialbut nevertheless proposed to settle the claims for $90million to be paid by Lehman’s insurance policies with-out contribution from any of the former directors andofficers. At an April 12 settlement hearing, JudgeKaplan expressed concern about the proposed settle-ment and requested information concerning lead coun-sel’s ability to accurately assess the settlement offerwithout knowledge of the former directors and officers’personal assets and the adequacy and reasonableness ofthe settlement in light of the former directors and offi-cers’ allegedly enormous possible exposure and theirpersonal assets, both liquid and nonliquid.


9

After receiving submissions from the officer defendantsin compliance with his request, Judge Kaplan approvedthe settlement, finding that it is substantively fair, rea-sonable and adequate.

‘Bird In The Hand’

‘‘Additionally, the parties and the Court are in agree-ment that proceeding to trial in this case would involvegreat expenditures of time and money,’’ Judge Kaplansaid. ‘‘Lead Counsel correctly argue that the class wouldface considerable ‘risks in establishing liability anddamages against the [Director and Officer] defendants,’all of whom already have succeeded in having certain ofthe claims brought against them dismissed.

‘‘Furthermore, if the Court did not approve the D&OSettlement, the $90 million in Lehman insurancemoney currently on offer quickly would be depletedor consumed entirely. This would leave only the formerdirectors and officers’ own resources in the event theclass were successful at trial.’’

Judge Kaplan went on to address potential concernsregarding the fact that the director and officer defen-dants will not be contributing to the settlement.

‘‘While some may be concerned at the lack of any con-tribution by the former director and officer defendantsto the settlement, Lead Counsel’s judgment that the$90 million bird in the hand is worth at least as muchas whatever is in the bush, discounted for the risk of anunsuccessful outcome of the case, is reasonable.’’

Attorneys

The lead plaintiffs are represented by Max W. Bergerand Steven B. Singer of Bernstein Litowitz Berger &Grossmann in New York, David R. Stickney, BrettMiddleton and Jon F. Worm of Bernstein Litowitz inSan Diego and David Kessler, John A. Kehoe and Jen-nifer L. Enck of Barroway Topaz Kessler Meltzer &Check in Radnor, Pa.

Fuld is represented by Patricia M. Hynes, Andrew RhysDavies and Todd Steven Fishman of Allen & Overy inNew York. O’Meara is represented by Guy Petrillo andJoshua Klein of Petrillo Klein. Callan is represented byDietrich L. Snell, Mark Edward Davidson and Seth D.Fier of Proskauer Rose. Lowitt is represented by MartinJoel Auerbach. Gregory is represented by AudreyStrauss and Israel David of Fried, Frank, Harris, Shri-ver & Jacobson. All are in New York.

The director defendants are represented by Adam J.Wasserman, Andrew J. Levander and Kathleen N.Massey of Dechert in New York.

(Additional documents available. Motion to approvesettlement. Document #57-120611-021M. Brief insupport of motion to approve settlement. Document#57-120611-022B.) n

Greenberg Traurig AgreesTo Pay $61MTo Settle Ponzi ClaimsPHOENIX — The law firm Greenberg Traurig LLPagreed June 20 to pay $61 million to settle a suit in theU.S. District Court for the District of Arizona allegingthat it aided an alleged Ponzi scheme that bankruptedtwo companies and led to $900 million in losses (RobertFacciola, et al., v. Greenberg Traurig LLP, et al., No.10-1025, D. Ariz.).

(Motion for preliminary approval of settlement inSection B. Document #88-120625-336M.)

The firm moved for preliminary approval of settlementin the U.S. District Court for the District of Arizona.Also yesterday, U.S. Judge Frederick J. Martone of theDistrict of Arizona granted preliminary approval ofQuarles & Brady LLP’s $26.5 million settlement ofsimilar claims in the same suit.

According to lead plaintiff Robert Facciola, MortgagesLtd. created a Ponzi scheme to conceal its insolvencyand stay in business. The plaintiff claims that thescheme entailed finding investors to buy into RadicalBunny LLC, which provided funds to conceal Mort-gages’ debt. Mortgages and Radical Bunny subse-quently filed for bankruptcy.

‘Facade Of Legitimacy’

Mortgages was represented by Greenberg Traurig, andRadical Bunny was represented by Quarles & Brady.

The plaintiffs allege that the law firms helped ‘‘create afacade of legitimacy’’ through their representation of thecompanies that enabled the Ponzi scheme and illegalsecurities sales to continue.


10

The Greenberg Traurig settlement consists of twoclasses: the Mortgages class, which includes 975 inves-tors who invested $600 million, and the Radical Bunnyclass, which includes 770 individuals who invested$197 million.

The Quarles settlement was proposed May 18 and alsoincludes a Mortgages class and a Radical Bunny class.

Attorneys

Facciola is represented by Andrew S. Friedman of Bon-nett Fairbourn Friedman & Balint and Jeremy JamesChristian and Richard Glenn Himelrick of Tiffany &Bosco, all in Phoenix.

Greenberg Traurig is represented by Kenneth C. Smur-zynski, Colette Tyrell Connor, Ellen E. Oberwetter,Grace O. Aduroja, Kevin M. Downey and PatrickJoseph Houlihan of Williams & Connolly in Washing-ton, D.C., and Martin Richard Galbut and MichaileJanae Berg of Galbut & Galbut in Phoenix.

Quarles & Brady is represented by Floyd P. Bienstockand Michella Kras of Steptoe & Johnson in Phoenixand Heather Condon, Jared S. Kirkwood, Robert E.Gooding Jr., Scott Garner and Shawn M. Kennedy ofMorgan Lewis & Bockius in Irvine, Calif.

(Additional documents available: Order approvingQuarles settlement. Document #88-120625-337R.Notice of Quarles settlement. Document #88-120625-338X.) n

10th Circuit AffirmsRuling In Favor Of ReceiverIn Ponzi-Related ActionDENVER — The 10th Circuit U.S. Court of Appealson June 6 affirmed a district court’s grant of summaryjudgment in favor of a corporation’s receiver, whobrought a suit seeking to void allegedly fraudulenttransfers the defendants received from the corporation,which was used to operate a Ponzi scheme (Robert G.Wing v. Bruce J. Dockstader, et al., No. 11-4006, 10thCir.; 2012 U.S. App. LEXIS 11390).

(Unpublished opinion available. Document #88-120625-262Z.)

In an unpublished opinion, the 10th Circuit panel ofCircuit Judges Michael R. Murphy, William J. Hollo-way Jr. and Neil Gorsuch affirmed the ruling of theU.S. District Court for the District of Utah in the suitRobert G. Wing, as court-appointed receiver for VescorInc., filed against Bruce J. Dockstader, Marilyn Dock-stader, Dockstader Family Trust dtd 4/24/91 andDockstader Family Truet dtd 5/8/91 (collectively, theDockstaders).

Wing’s suit, which he brought under Utah’s UniformFraudulent Transfer Act (UFTA), sought to void cer-tain transfers the Dockstaders received from Vescor,a now-defunct company controlled by Val Southwick,in the course of the Dockstaders’ dealing with thecompany.

In 2008, Southwick pleaded guilty to nine felony countsof securities fraud in connection with a Ponzi scheme heran through a complex network of corporations andlimited liability companies. The Securities and Ex-change Commission sued Southwick and Vescor, theprincipal entity through which Southwick orchestratedhis scheme, on Feb. 6, 2008, and on May 5, 2007, theDistrict Court appointed Wing as receiver for Vescor. Inthe suit brought by Wing, the District Court grantedsummary judgment in his favor on Dec. 3, 2010. Thejudgment against the Dockstaders totaled $671,702.66.They appealed to the 10th Circuit.

Statute Of Limitations

The Dockstaders argued that the UFTA does not createany remedies for receivers and that the receivership didnot empower Wing to bring claims on behalf of thecreditors or investors of Vescor. The panel disagreed,agreeing with the District Court, which cited Scholes v.Lehmann (56 F.3d 750, 753-55 [7th Cir. 1995]),which held that a receiver of an entity that was usedto perpetrate a Ponzi scheme has standing to recoverfraudulent transfers as though the receiver was a cred-itor of the scheme.

The Dockstaders also argued that the statute of limita-tions has run on any of Wing’s claims regarding trans-actions that occurred before Oct. 6, 2004, four yearsprior to the date he filed the suit. The UFTA provides:‘‘A claim for relief or cause of action regarding a frau-dulent transfer or obligation under this chapter is extin-guished unless action is brought: (1) under Subsection25-6-5(1)(a), within four years after the transfer was


11

made or the obligation was incurred or, if later, withinone year after the transfer or obligation was or couldreasonably have been discovered by the claimant.’’The Dockstaders further argued that Section 25-6-10is a statute of repose, which is not subject to equitabletolling. Thus, they argued that the receiver’s rightto enforce fraudulent transfer claims runs from thetime each transfer took place, not the date of hisappointment.

The panel said that the one-year tolling period in Sec-tion 25-6-10 refers to when a transfer could reasonablyhave been discovered ‘‘by the claimant.’’ The DistrictCourt concluded that Wing’s action was timely filedbecause he could not reasonably have discovered anyfraudulent transfer prior to his appointment. BecauseWing was appointed May 5, 2008, and filed the actionjust more than five months later, the District Courtconcluded that his claims were timely brought. TheDistrict Court also concluded that Utah would likelyadopt the ‘‘adverse domination’’ theory for purposes ofcomputing the statute of limitations.

The panel agreed, saying that a contrary rule wouldperversely foreclose from recovery of early transfers ina Ponzi scheme that is successfully run for a long periodof time. Applying the adverse domination theory to thiscase, all available evidence established that Southwickused Vescor in a coordinated scheme to defraud inves-tors, the panel said. Vescor could not reasonably havebeen expected to bring claims against itself, and theDistrict Court appropriately concluded that Wing’sclaims were brought within the applicable statute oflimitations, the panel determined.

Tax Offsets

The Dockstaders further contended that they should beentitled to offset from the judgment any taxes they paidon the money they received from Vescor, citing noauthority to support the argument. The panel agreedwith the District Court, which concluded that allowingoffsets would frustrate the purposes of the UFTAbecause there is no principle by which they could belimited, it would introduce difficult problems of proofand tracing into each case and any amount offset wouldnecessarily come at the expense of other investors.

The District Court’s judgment against the Dockstadersincluded amounts Bruce Dockstader received inexchange for referring new investors to Vescor. The

Dockstaders argued that these payments, which totaled$146,140, are not voidable under the UFTA becausethey were made in good faith in exchange for reasonablyequivalent value. They argued that their good faith wasestablished because there has been no allegation thatthey were aware that Vescor was operating as a Ponzischeme. They further argued that by providing inves-tors to Vescor, Bruce Dockstader provided the com-pany with an economic benefit for which he is entitledto retain his 5 percent referral fee.

The Dockstaders relied on several bankruptcy cases forthe proposition that the determination of whether rea-sonably equivalent value was given should not take intoaccount the impact the services had on perpetuatingthe fraudulent scheme.

The panel noted that the Dockstaders did not give anyreason why to apply the bankruptcy cases in the contextof a receivership action under the UFTA. The panelexplained that outside the bankruptcy context, othercircuits have rejected the Dockstaders’ position, includ-ing the Fifth Circuit, which in Warfield v. Byron (436F.3d 551, 560 [5th Cir. 2006]), said: ‘‘It takes cheek tocontend that in exchange for the payments he received,the . . . Ponzi scheme benefited from his efforts toextend the fraud by securing new investments.’’

Wing is represented by M. David Eckersley, Jennifer R.Korb, Sally B. McMinimee and Jared N. Parrish ofPrince, Yeates & Geldzahler in Salt Lake City. TheDockstaders are represented by Shawn Terry Farris ofFarris & Utley in Saint George, Utah.

(Additional documents available: Appellant brief.Document #88-120625-263B. Appellee brief. Docu-ment #88-120625-264B. Appellant reply brief.Document #88-120625-265B.) n

Wells Fargo, BNY MellonTo Pay $106M InMedCap Ponzi SettlementSANTA ANA, Calif. — The receiver for Medical Capi-tal Holdings Inc. (MedCap) said June 11 that he hadreached a $106 million settlement with Wells FargoBank NA and Bank of New York Mellon (BNY Mel-lon), resolving allegations that the banks were complicit


12

in MedCap’s alleged Ponzi scheme (Securities andExchange Commission v. Medical Capital HoldingsInc., et al., No. 09-00818, C.D. Calif.).

(Settlement available. Document #88-120625-274M. Trustee’s declaration in support of motionfor approval of settlement available. Document #88-120625-275X.)

In a declaration in support of his motion for approval ofthe settlement filed in the U.S. District Court for theCentral District of California, MedCap trustee ThomasA. Seaman said Wells Fargo agreed to pay $49 millionand BNY Mellon agreed to pay $57 million.

Litigation Costs, Risks

MedCap raised money by setting up special purposecorporations, known as medical provider funding cor-porations (MPFCs), which sold notes to investors. InJuly 2008, the U.S. Securities and Exchange Commis-sion sued MedCap, its entities and principals SydneyField and Joseph Lampariello, alleging that Field andLampariello engaged in a Ponzi scheme to defraudinvestors in the MPFCs.

The banks served as indenture trustees for the MPFCs.The banks were alleged to have breached the note-holder issuance and security agreements, which out-lined their control and disbursement of funds. OnOct. 12, 2010, the District Court issued an orderauthorizing Seaman to file claims against the banks ifSeaman deemed proper. He then entered settlementdiscussions with the banks. Seaman said he opted fora settlement because he was concerned about the costsand risks of litigation against the banks.

‘‘In [the] worst case scenario, if the Trustees prevailed(or if this Settlement is not consummated and theTrustees prevail in the future), the Receivership Estatewould recover nothing, and would face indemnityclaims that could well exceed $50 million, wiping outhalf of the Receivership Estate,’’ Seaman said.

Related Actions

Seaman also said the settlement is the best option inlight of related class and mass actions against the banks.

‘‘The net benefit of the Settlement is significantlygreater than $104 million, as it eliminates the risk tothe Receivership Estate of having to pay the Trustees’

legal fees should the Class Action or Mass Actions ulti-mately fail — an indemnity claim that I estimate cur-rently exceeds $25 million, and would likely exceed $50million if those cases are tried,’’ he said.

Seaman is represented by Ronald Hayes Malone andFrank A. Cialone of Shartsis Friese in San Francisco.Wells Fargo is represented by Edward T. Wahl, Ste-phen M. Mertz and Theresa H. Dykoschak of Faegre &Benson in Minneapolis, Jesse S. Finlayson of FinlaysonWilliams Toffer Roosevelt & Lilly in Irvine, Calif., andTimothy William Loose of Gibson Dunn & Crutcherin Los Angeles. Counsel information for BNY Mellonwas not available. n

5th Circuit Affirms DenialOf Stanford Receiver’sInjunction RequestNEW ORLEANS — The Fifth Circuit U.S. Court ofAppeals on June 13 upheld the denial of a request madeby the receiver for The Stanford International BankLtd. (SIB) to preliminarily enjoin Libyan investmentfunds from dissipating more than $54 million in fundsthat he says they received via fraudulent transfers as partof their alleged role in the R. Allen Stanford Ponzischeme, agreeing with the defendants that the ForeignSovereign Immunities Act (FSIA) prohibits suchinjunctions (Ralph S. Janvey, in his capacity as court-appointed receiver for The Stanford InternationalBank, Ltd., et al. v. Libyan Investment Authority andLibyan Foreign Investment Co., No. 12-10240, 5thCir.; 2012 U.S. App. LEXIS 11961).


In an unpublished opinion, the Fifth Circuit panel ofCircuit Judges E. Grady Jolly, Harold R. DeMoss Jr.and Carl E. Stewart affirmed the U.S. District Court forthe Northern District of Texas’ ruling in the suit filedby Ralph S. Janvey, the receiver, against the LibyanInvestment Authority (LIA) and the Libyan ForeignInvestment Co. (LFICO) (collectively, the Libyaninvestment funds).

Janvey sued the Libyan investment funds on June 3,2011. Along with his complaint, Janvey moved for


13

preliminary injunction enjoining the defendants fromdissipating $54,823,740.83 in funds that Janvey saysthe defendants received via fraudulent transfers. Janveyalleges that the Libyan investment funds received morethan $54.8 million in fraudulently transferred certifi-cates of deposit (CD) proceeds as part of their role inthe $7 billion Stanford Ponzi scheme. Janvey seeks aruling that the CD proceeds received by the defendantswere fraudulent transfers under the Texas UniformFraudulent Transfer Act (UFTA) or that the proceedsunjustly enriched the defendants. Janvey also seeks dis-gorgement of the proceeds and a temporary restrainingorder and preliminary injunction against the defen-dants and their accounts.

Immunity

On Feb. 29, the District Court denied Janvey’s motionfor preliminary injunction, and Janvey filed an inter-locutory appeal of the denial with the Fifth Circuiton March 2.

The Fifth Circuit panel affirmed, agreeing with thedefendants that the FSIA prevents the entry of suchan injunction. According to the FSIA (28 U.S. CodeSection 1609), ‘‘[s]ubject to existing internationalagreements to which the United States is a party atthe time of enactment of this Act the property in theUnited States of a foreign state shall be immune fromattachment arrest and execution except was providedin sections 1610 and 1611 of this chapter.’’

Janvey did not dispute that the LIA, an agency of theLibyan government, has not explicitly waived its immu-nity from attachment before a judgment on the meritsin this case. Instead, he contended that Section 1610(d)is inapplicable to the circumstances because the preli-minary injunction he seeks is not functionally equiva-lent to an attachment and the LIA does not hold legalor equitable title to any funds fraudulently transferredfrom SIB to LFICO for the ‘‘benefit’’ of the LIA.

Attachment

The panel rejected both arguments. The panel saidthe preliminary injunction sought would effectivelyfreeze the funds belonging to the LIA pending the Dis-trict Court’s resolution of the case. Accordingly, a pre-liminary injunction would serve the same purpose asan attachment, the panel said, citing Atwood TurnkeyDrilling Inc. v. Petroleo Brasileiro S.A. (875 F.2d 1174,1177 [5th Cir. 1989]). For this reason, the FSIA’s

prohibition on ‘‘attachments’’ of property belonging toa foreign sovereign prevented the District Court fromentering a preliminary injunction in Janvey’s favor, thepanel said.

With respect to Janvey’s second argument, the panelconcluded that no evidence has been presented that inthese specific circumstances the LIA received any ‘‘ben-efit’’ that would make the funds belonging to the LIAsubject to relief under the Texas UFTA. Therefore, thereceiver failed to demonstrate that the LIA does nothold legal or equitable title to the funds he seeks, thepanel said. In other words, the panel explained, Janvey’sargument that the funds are not ‘‘property of a foreignstate’’ for purposes of Section 1610(d) has no meritbecause there is no evidence that the funds at issuehave ever been the subject of a fraudulent transferby the SIB.

Janvey is represented by Kevin M. Sadler, Scott D.Powers and David T. Arlington of Baker Botts in Aus-tin, Texas. The defendants are represented by JosephM. Cox of Patton Boggs in Dallas, Henry Weisburgand Brian H. Polovoy of Shearman & Sterling in NewYork and Stephen James Marzen of Shearman & Ster-ling in Washington, D.C.

(Additional documents available. Appellant brief.Document #57-120514-507B. Appellee brief. Docu-ment #57-120514-508B. Appellant reply brief.Document #57-120514-509B.) n

Judge: Receiver Can’t VoidCommissions On PropertiesSold To Ponzi OperatorSALT LAKE CITY — In a suit in which the receiver fora company that was operated as an alleged Ponzi schemesued to recover commissions on real estate transactionsrelated to the alleged scheme, a federal judge in Utah onJune 11 granted summary judgment in favor of thedefendants, ruling that the Texas Uniform FraudulentTransfers Act (TUFTA) does not give the receiver theright to seek a judgment that would result in retentionof value above what was initially contemplated by thetransactions (Roger J. McConkie v. Rice Properties,et al., No. 09-00275, D. Utah; 2012 U.S. Dist.LEXIS 80902).


14

(Opinion available. Document #88-120625-276Z.)

Ponzi, SEC Action

U.S. Judge Clark Waddoups of the District of Utahmade the ruling in the suit Roger J. McConkie, asreceiver for Madison Real Estate Group LLC and itsrelated entities (collectively, Madison), filed against realestate brokerage firm Rice Properties.

According to the parties, from 2005 to 2007, Madisonwas operated as part of a Ponzi scheme. On March 28,2008, the Securities and Exchange Commission filed acomplaint against Madison and its principals to shutdown the operation of Madison and stop the Ponzischeme. On the same date, the District Courtappointed McConkie as receiver for Madison.

The instant action arose regarding two transactions inwhich Madison was the buyer: the sale of an apartmentcomplex near Lubbock, Texas, called Aspen Village andthe sale of another apartment complex near Lubbockcalled The Preserve at Prairie Point. Rice Propertiesrepresented the sellers in each transaction and earneda commission. McConkie filed his complaint to recoverthe commission received by Rice Properties after it wason inquiry notice of Madison’s scheme pursuant toTUFTA. McConkie and the defendants each movedfor summary judgment.

Section 24.009(a)

Because Madison was operating as a Ponzi scheme, anytransfer made by Madison would be a fraudulent trans-fer under TUFTA, and when a transfer is fraudulentunder TUFTA, creditors who are harmed by the trans-fer are entitled to obtain, among other remedies, anavoidance of the transfer in the absence of certaindefenses specified by the statute, Judge Waddoupssaid. Therefore, McConkie is entitled to obtain anavoidance of the transfer of funds for the purchase ofthe properties in question in the absence of a legitimatedefense from Rice Properties.

Rice Properties argued that Texas Business and Com-mercial Code Annotated Section 24.009(a) must beread to create two separate defenses: first, that a frau-dulent transfer is not voidable if it is made to ‘‘a personwho took in good faith and for a reasonably equivalentvalue,’’ and second, that a fraudulent transfer is notvoidable if it is made to ‘‘any subsequent transferee oroblige.’’ Rice Properties claims to be a subsequent trans-feree that is entitled to an absolute defense against this

action. Jude Waddoups said that Rice Properties iscorrect that Section 24.009(a) creates two separatedefenses but that it incorrectly identifies the scope ofthe subsequent transferee defense. The judge said thatfor Rice Properties to take advantage of Section24.009(a)’s subsequent transferee defense, it mustprove that it is a subsequent transferee and that ittook from an initial transferee ‘‘in good faith and for areasonably equivalent value.’’

Subsequent Transferee

Judge Waddoups agreed with Rice Properties that it is asubsequent transferee of the sellers, saying he finds bothHooker Atlanta Corp. v. Hocker (In re Hooker Inv.Inc.) (155 B.R. 332 [Bankr. S.D. N.Y. 1993]) andMcCarty v. Richard James Enter. Inc. (In re Presiden-tial Corp.) (180 B.R. 233, 239 [B.A.P. 9th Cir. 1995])persuasive.

Once all the conditions of transfer of the propertieswere accomplished, the funds that had been placed inescrow to purchase the properties immediately cameunder the dominion and control of the sellers, hesaid. At that point, the escrow agent, who had physicalpossession of the funds, became the sole agent of thesellers, and it was only at the direction of the sellers thatfunds were then transferred to Rice Properties by theescrow agent, he said. The fact that the sellers’ direc-tions to the escrow agent were memorialized in a con-tract made irrevocable without the consent of RiceProperties does not negate the status of the sellers asinitial transferees, and therefore, Rice Properties is asubsequent transferee of the sellers, Judge Waddoupsdetermined.

Judge Waddoups further determined that the sellers ofthe properties took the sale proceeds from Madison ingood faith and for value. There is no evidence in therecord that the Alpine Village and The Preserve trans-actions were executed pursuant to a secret agreementwith Madison, he said. The transactions appear to bethe result of arms-length negotiations between the par-ties, and there is no indication that the properties weresold above or below the market price.

As a subsequent transferee of the sellers, Rice Propertiesis entitled to an absolute defense to the plaintiff’s avoid-ance action pursuant to Section 24.009(a) regardless ofwhether they should have known of Madison’s fraud,Judge Waddoups ruled, denying McConkie’s motion


15

for summary judgment and granting Rice Properties’motion for summary judgment.

Attorneys

McConkie is represented by himself, James W.McConkie III and James C. Bergstedt of PrinceYeates & Geldzahler in Salt Lake City.

Rice Properties is represented by Ronnie L. Agnew ofThe Agnew Law Firm in Lubbock and Isaac D. Pax-man of Stepan Lewis & Paxman in Sandy, Utah.

(Additional documents available: Plaintiff’s motionfor summary judgment. Document #88-120625-277M. Brief in support of plaintiff’s motion forsummary judgment. Document #88-120625-278B.Defendant’s motion for summary judgment. Docu-ment #88-120625-279M. Brief in support of defen-dant’s motion for summary judgment. Document#88-120625-280B. Opposition to defendant’smotion for summary judgment. Document #88-120625-281B.) n

Freddie Mac, Wells FargoSettle Telephone ConsumerProtection Act SuitsSAN DIEGO — The Federal Home Loan MortgageCorp. (Freddie Mac) and Wells Fargo Auto Finance Inc.have agreed to pay $17 million to settle two putative classactions alleging that they illegally contacted customerson their cell phones in violation of the Telephone Con-sumer Protection Act (TCPA), according to a June 18filing in a California federal court (Alberto Malta v. TheFederal Home Loan Mortgage Corp., et al., No. 10-1290, S.D. Calif.; Danny Allen Jr. v. Wells FargoAuto Finance Inc., No. 10-2657, S.D. Calif.).

(Motion for settlement. Document #88-120625-312M.)

The settlement would resolve the suit Albert Malta,individually and on behalf of all others similarly situ-ated, filed against Freddie Mac, and the suit DannyAllen Jr., individually and on behalf of all others simi-larly situated, filed against Wells Fargo. The motion forsettlement was filed by Malta and Allen and unopposedby the defendants. Both actions are in the U.S. DistrictCourt for the Southern District of California.

According to the complaints, both filed in 2010, WellsFargo violated the TCPA by contacting account holderson their cell phones without prior express consent,using an automatic telephone-dialing system andusing a prerecorded voice. Wells Fargo made the allegedphone calls to provide account services for its ownhome mortgages, auto loans and Freddie Mac homemortgages, according to the plaintiffs. According tothe complaints, the calls caused potential class membersto incur cell phone charges or reduced their prepaidcell phone time.

‘Fair And Reasonable’

The settlement includes two subclasses. One includesthe residential mortgage customers, and the otherincludes the auto finance customers.

As part of the settlement, the defendants do not admitany wrongdoing.

‘‘Because of the costs, risks to both sides, and delays ofcontinued litigation, the settlement presents a fair andreasonable alternative to continuing to pursue the liti-gation as a class action for alleged violations of theTCPA,’’ the plaintiffs say in their motion.

While the ‘‘Plaintiffs are confident of a favorable deter-mination on the merits,’’ the settlement ‘‘provides sig-nificant benefits to the Class Members and is in the bestinterests of the Settlement Class,’’ they say.

The plaintiffs are represented by Joshua B. Swigart andRobert L. Hyde of Hyde & Swigart and Douglas J.Campion of the Law Offices of Douglas J. Campion,all in San Diego, and Abbas Kazerounian of the Kazer-ounian Law Group in Santa Ana, Calif. The defendantsare represented by Eric J. Troutman in Irvine, Calif.,and Mark D. Lonergan in San Francisco, both of Sever-son and Werson. n

Federal Judge RefusesTo Remand ConsumerProtect Act Suit From MDLSAN DIEGO — In a multidistrict litigation in which adebt recovery firm is alleged to have violated the Tele-phone Consumer Protection Act (TCPA) by makingunauthorized phone calls to collect credit card debt, a


16

federal judge in California on May 24 denied one set ofplaintiffs’ request to remand, disagreeing with theircontention that their case does not benefit from inclu-sion in the MDL and the only issues remaining to bedecided in their case are case-specific (In re: PortfolioRecovery Associates, LLC, Telephone Consumer Pro-tection Act Litigation, No. 11-md-02295, S.D. Calif.;2012 U.S. Dist. LEXIS 72833).


U.S. Judge John A. Houston of the Southern Districtof California made the ruling in the MDL against Port-folio Recovery Associates LLC (PRA), denying themotion filed by Christine and Carlos Suarez.

The MDL consists of five consolidated putative classactions and one ‘‘tag-along’’ action, each seeking relieffrom the defendant based on allegations that the defen-dant violated the TCPA by calling cell phone numberswith an automatic telephone dialing system (ATDS)without prior express consent. On April 12, the Suarezplaintiffs filed their motion to remand their case to theSouthern District of Florida, where they originally filedtheir complaint, and on May 11, PRA filed its opposi-tion brief.

‘Overarching Questions’

The Suarez plaintiffs say that ‘‘[d]efendant’s own calllogs indicate calls made with an [ATDS] . . . [and] that[defendant] obtained [p]laintiff’s cellular numberthrough contacts [d]efendants initiated with [p]laintiff’smother.’’ This, according to the Suarez plaintiffs, noissues of material fact regarding the defendant’s liabilityremain to be resolved in this cause such that it is nowripe for a case-specific summary judgment motion.

PRA responds that there are overarching questions thatmust be answered in all of the member actions, such aswhether the defendant used an ATDS to call the plain-tiffs; whether any such calls were made to a cell phonenumber without prior consent; whether any purportedviolations of the TCPA were willful and knowing; andwhether recovery for the plaintiffs under the TCPAwould violate PRA’s constitutional rights. The defen-dant disputes the Suarez plaintiffs’ suggestion thatfurther discovery and trial in their case would be limitedto case-specific issues, noting that the plaintiffs admitthat the corporate deposition has not yet taken place.

PRA claims that the Suarez plaintiffs’ argument thatPRA’s call logs are sufficient evidence to prove the useof an ATDS is ‘‘nonsensical,’’ pointing out that theSuarez plaintiffs’ ‘‘referenced, but unattached, pur-ported discovery does not establish or even addressthe technology used by PRA to make telephone calls,let alone establish or address the questions of whetherPRA ever used a dialer with the requisite capacity asdefined in the TCPA.’’ PRA adds that the Suarez plain-tiffs will benefit from further coordinated proceedingsas part of the MDL, including the avoidance of dupli-cative discovery, conservation of judicial and partyresources and prevention of inconsistent rulings.

PRA further points out that the Suarez plaintiffs had theopportunity to oppose the MDL panel’s conditionaltransfer order but did not do so, essentially acquiescingto the MDL panel’s determination that the Suarez caseshares common facts with the transfer faces. The defen-dant says there is no reason to abandon the MDLpanel’s determination regarding common facts, notingthat such requests are generally denied.

Remand Not Proper

The Suarez plaintiffs reply that they have demonstratedgood cause to remand because there is no evidence inthe record to contradict the fact that the telephonenumber at issue was a number assigned to a cellphone owned by the Suarez plaintiffs and that PRAplaced calls to that number using an ATDS or prere-corded voice. ]They say the issue of whether the defen-dant placed such calls without prior consent is stillunproven and wholly dependent on facts commononly to their case. They say PRA is incorrect in statingthat their claim is dependent on proving an ATDS wasimplemented. Even if the case were dependent on theuse of an ATDS, the Suarez plaintiffs contend that theevidence in the record answers the question affirma-tively, pointing to PRA’s registration of its ATDSwith the State of Texas Public Utility Commission.

Judge Houston said he is unconvinced that the evi-dence presented by the Suarez plaintiffs conclusivelydemonstrates that PRA used an ATDS, as defined bythe TCPA, when it called them. He agreed with PRAthat all of the cases transferred to the District Court bythe MDL panel have common questions of fact thathave yet to be answered and find there is more to beresolved in the Suarez case than only case-specific issues.He said the Suarez plaintiffs’ case will benefit from


17

further coordinated proceedings, including the corpo-rate deposition, and he said he ‘‘sees no reason to dis-turb the MDL Panel’s initial determination that thiscase is appropriate for transfer to these coordinatedproceedings.’’

The Suarezes are represented by Scott David Owens ofHallandale, Fla. PRA is represented by Edward D. Lod-gen and Julia V. Lee of Robins, Kaplan, Miller & Ciresiin Los Angeles and Christopher W. Madel and JenniferM. Robbins of Robins, Kaplan in Minneapolis.

(Additional documents available: Motion to remand.Document #88-120625-220M. Response to motionto remand. Document #88-120625-221B. Reply insupport of motion to remand. Document #88-120625-222B.) n

Federal Judge: Act Doesn’tLet Consumers RevokeConsent to ContactSCRANTON, Pa. — A federal judge in Pennsylvaniaon May 29 dismissed a Telephone Consumer Protec-tion Act (TCPA) complaint alleging that a creditorcontacted a plaintiff via her mobile telephone aftershe sent a letter asking the creditor to stop calling,explaining that the TCPA does not authorize consu-mers to revoke consent to contact after they initiallygrant consent (Ashley Gager v. Dell Financial Services,LLC, No. 11-02115, M.D. Pa.; 2012 U.S. Dist.LEXIS 73752).


U.S. Judge Robert D. Mariani of the Middle Districtof Pennsylvania granted Dell Financial Services LLC’s(DFS) motion to dismiss the suit Ashley Gager filedagainst it.

Gager secured a line of credit with the DFS in December2007 to purchase computer equipment. When she pre-pared her credit application with DFS, she completed anInternet form that asked applicants to provide a ‘‘housephone’’ number. Gager did not have a land-line tele-phone, so she provided her mobile phone numberinstead. She became delinquent in her payments tothe defendant, and the defendant began calling her

mobile phone with prerecorded messages regardingthe debt. In December 2010, Gager sent DFS a letterasking it to stop calling her. A copy of the letterattached to Gager’s complaint does not inform DFSthat the number it was using to contact her was con-nected to a mobile device. Gager asserts that the letter‘‘revoked her consent that she had previously given tothe Defendant to place calls to her cellular telephonenumber.’’ She says DFS nonetheless continued toplace an additional 40 calls to her cell phone in lessthan three weeks.

Starkey

Judge Mariani noted that Gager admits that she pro-vided consent for DFS to call her cell phone when shelisted that number of a credit application. Thus, thequestion of consent to contact is undisputed, leavingGager’s claim to turn on whether, as a matter of law,she was able to revoke consent with her letter to DFS,the judge said.

Gager provides several out-of-circuit district court casesfor the proposition that withdrawal of consent to con-tact after the consummation of a credit contract is per-missible under the TCPA, but the cases discuss only themethods of revocation (written notice versus sufficiencyof oral revocation) and do not address the propriety ofrevocation itself or when such revocation may be per-mitted, the judge said. The cases Gager cites all con-cerned circumstances requiring the application of theTCPA in conjunction with the Fair Debt CollectionPractices Act (FDCPA) or assume, without support,that a revocation of consent to contact under theTCPA is authorized by the statute and its implement-ing regulations, Judge Mariani said. These casesinitiated under both the TCPA and FDCA, wherethe defendants were debt collectors under theFDCPA, have no application here, the judge explained,because DFS is a creditor and not a debt collector.

In one of these cases, Starkey v. Firstsource Advantage,LLC (W.D. N.Y. [2010]), the Western District of NewYork ‘‘essentially infused the written withdrawalrequirement of the FDCPA into the TCPA becausethe debt collector in that case was subject to bothstatutes,’’ Judge Mariani explained.

Adamcik, Gutierrez

In Adamcik v. Credit Control Services, Inc. (W.D.Texas [2011]), the Western District of Texas criticized


18

the Starkey line of cases and held that the TCPA andthe FDCPA are two independent statutes whose provi-sions should not be read into one another, Judge Mar-iani explained. While Adamcik repudiated the Starkeycourt’s writing of FDCPA requirements into theTCPA, ‘‘it still found, without any statutory or FCCsupport, that revocation of consent was possible,and need only be given orally, after such consent wasgiven during the formation of a debt contract,’’ JudgeMariani said.

Judge Mariani went on to note that in Gutierrez v.Barclays Group (S.D. Calif. [2011]), the Southern Dis-trict of California also broke with Starkey and held thatoral revocation of consent to contact under the TCPAwas sufficient. The Gutierrez court recognized thatrevocation of consent was still possible after the con-summation of a credit contract, Judge Mariani said.

‘‘We do not find the statutory construction and reason-ing in Starkey, Adamcik, or Gutierrez, to be persuasive,and expressly decline to hold that the TCPA, or anyFCC regulation or advisory opinion construing the sta-tute, contains any provision permitting this Court tofind post-formation revocation of consent authorizedunder the provisions of the TCPA,’’ Judge Marianisaid. ‘‘While the Starkey line might have applicabilityif Defendant were subject to the FDCPA, under theprevailing law of the Third Circuit, Defendant is nota ‘debt collector’ as defined by that statute; thus, theright to withdraw consent provisions enacted underthe FDCPA do not apply to Defendant and we donot find any TCPA provision allowing revocation,so that Plaintiff’s claims that her rights were violatedunder the TCPA, assuming all of the facts in herAmended Complaint as true, do not state a cause ofaction.’’

Gager is represented by Brett M. Freeman of the Saba-tini Law Firm in Dunmore, Pa. DFS is represented byAnthony L. Gallia of Duane Morris in Philadelphia.

(Additional documents available: Motion to dismiss.Document #88-120625-231M. Brief in support ofmotion to dismiss. Document #88-120625-232B.Opposition to motion to dismiss. Document #88-120625-233B. Reply brief in support of motion todismiss. Document #88-120625-234B. Plaintiff’ssur-reply brief. Document #88-120625-235B.) n

Federal Judge: TelephoneConsumer Protection ActClaim Falls ShortLAS VEGAS — A federal judge in Nevada on June 14dismissed a Telephone Consumer Protection Act(TCPA) complaint, ruling that the plaintiff failed toallege that the defendant used an automatic telephonedialing system or an artificial or prerecorded voice incalling his cell phone (Timothy P. Harris v. AmericanGeneral Financial Services LLC, No. 10-1662, D.Nev.; 2012 U.S. Dist. LEXIS 83192).


U.S. Judge Gloria M. Navarro of the District of Nevadagranted American General Financial Services LLC’smotion to dismiss the suit Timothy P. Harris filedagainst it. Judge Navarro dismissed the complaintwith prejudice, closing the case.

Harris filed the suit based on American General’sreports of his delinquent accounts to national creditbureaus. On Sept. 28, 2011, Judge Navarro grantedAmerican General’s motion to dismiss, permittinghim to amend his claim under Count III, which allegedTCPA violations. Harris filed an amended complaint,alleging five claims against American General for viola-tion of the Fair Credit Reporting Act (FCRA) and oneclaim under the TCPA. He explains that ‘‘upon appealthe courts will side with the Plaintiff [regarding Plain-tiff’s FCRA claims] and this case will be sent back tothis court for further proceedings.’’

Section 227(b)

Because Judge Navarro gave Harris leave to amend hisclaim only under the TCPA, she limited her analysis tothe TCPA claim. She acknowledged that Harris mayappeal the dismissal of the FCRA claims.

Judge Navarro said that Harris appears to invoke 47U.S. Code Section 227(b), which prohibits the use of‘‘any automatic telephone dialing system or an artificialor prerecorded voice’’ to make a call to emergency tele-phone lines, hospital and health care facility guestrooms or to any telephone number for which the calledparty is charged for the call, other than for emerge-ncy purposes or with the prior express consent of thecalled party. Section 227(b) also prohibits the initia-tion of ‘‘any telephone call to any residential telephone


19

line using an artificial or prerecorded voice to delivera message without the prior express consent of thecalled party.’’

The judge found that the Harris failed to allege thatAmerican General used an automatic telephone dialingsystem or an artificial or prerecorded voice in calling hiscell phone. In fact, Judge Navarro said, the plaintiffappears to allege specific people who called his phoneby listing the first names of people alleged to havemade each call. Harris’ allegation that American Gen-eral had no permissible purpose or permission to makethese calls therefore fails to state a under Section 227(b)Section 227(d), she said.

Harris, of North Las Vegas, Nev., appears pro se. Amer-ican General is represented by Laurel E. Davis ofFennemore Craig in Las Vegas.

(Additional documents available: Motion to dismiss.Document #88-120625-309M. Response to motionto dismiss. Document #88-120625-310B. Reply insupport of motion to dismiss. Document #88-120625-311B.) n

Supreme Court Will HearAppeal Of DismissalOf Debt Collection SuitWASHINGTON, D.C. — The U.S. Supreme Courton May 29 agreed to hear an appeal of a ruling that acollection agency did not violate the Fair Debt Collec-tion Practices Act (FDCPA) when it contacted a debt-or’s employer to verify her employment status (OliveaMarx v. General Revenue Corporation and KevinCobb, No. 11-1175, U.S. Sup.; See January 2012,Page 28).

On Dec. 21, the 10th Circuit U.S. Court of Appealsaffirmed the U.S. District Court for the District ofColorado’s dismissal of the suit filed by Olivea Marxagainst General Revenue Corp. (GRC) and KevinCobb. Marx filed her petition for writ of certiorari onMarch 23.

The question presented is: ‘‘Whether a prevailingdefendant in a Fair Debt Collection Practices Act(FDCPA) case may be awarded costs for a lawsuit

that was not ‘brought in bad faith and for the purposeof harassment,’ when the FDCPA provides that ‘[o]n afinding by the court that an action under this sectionwas brought in bad faith and for the purpose of harass-ment, the court may award to the defendant attorney’sfees reasonable in relation to the work expendedand costs’ and Federal Rule of Civil Procedure 54(d)provides that ‘[u]nless a federal statute, these rules, ora court order provides otherwise, costs — otherthan attorney’s fees — should be allowed to theprevailing party.’ ’’

Fax Not ‘Communication’

After Marx defaulted on her student loan, her guaran-tor, EdFund, a division of the California Student AidCommission, hired GRC to collect on the account. In2008, she sued GRC in the District Court, allegingabusive and threatening phone calls in violation ofthe FDCPA. She amended her complaint to add aclaim that GRC violated the FDCPA by sending afax to her workplace that requested information abouther employment status. The District Court foundthat the challenged debt collection practices were notabusive and threatening.

On appeal to the 10th Circuit, Marx contested theDistrict Court’s finding that GRC did not violate theFDCPA’s provision against debt-collector communica-tions with their parties. She argued that the DistrictCourt erred in finding that a fax sent by GRC didnot constitute a ‘‘communication’’ under the FDCPA,awarding GRC costs pursuant to Federal Rule of CivilProcedure 54(d) and permitting, in the alternative, anaward of costs following GRC’s offer of judgment pur-suant to Federal Rule of Civil Procedure 68.

The 10th Circuit agreed with the District Court thatthe fax in question is not a ‘‘communication’’ under theFDCPA. A ‘‘communication’’ under the FDCPA mustindicate to the recipient that the message relates to thecollection of debt. The panel said the fax cannot beconstrued as ‘‘conveying’’ information ‘‘regarding adebt’’ because the fax does not reference debt and speaksonly of verifying employment.

The 10th Circuit also found that the District Courtproperly awarded costs to GRC.

Attorneys

Marx is represented by Allison M. Zieve of the PublicCitizen Litigation Group in Washington.


20

GRC is represented by Adam Loyd Plotkin ofDenver. n

3rd Circuit: Consumer FailedTo Show Debt CollectionLetter Was MisleadingPHILADELPHIA — A consumer has failed to showthat a debt collector’s letters seeking payment on a debtwas either false or misleading, a Third Circuit U.S.Court of Appeals panel ruled June 11 in affirming dis-missal of the consumer’s Fair Debt Collection PracticesAct (FDCPA) claim (Norman Morse, administrator ofthe estate of Nancy Morse, v. Paula G. Kaplan, et al.,No. 11-2562, 3rd Cir.; 2012 U.S. App. LEXIS 11749).


Norman Morse, as administrator of the estate of NancyMorse, sued debt collector Paula G. Kaplan and Sara A.Younger in the U.S. District Court for the District ofNew Jersey.

Morse alleges that two debt collection letters sent byKaplan to Morse’s wife were misleading and, thus, vio-lated the FDCPA.

Summary Judgment

The District Court granted Kaplan’s motion for sum-mary judgment, and Morse appealed to the Third Cir-cuit, which affirmed.

The panel held that, applying the least sophisticateddebtor standard to the instant action, Kaplan’s debtcollection letters provided key information to Morseabout the debt in a nonconfusing manner.

‘‘Section 1692(a)(3) [of the FDCPA] mandates thatcollectors provide notice that the debtor has ‘thirtydays after receipt of the notice’ to ‘dispute the validityof the debt.’ In this case, the letter clearly trackedthe requirements of the FDCPA — informing Morsethat within 30 days of her receipt of the notice, ifMorse disputed the debt in writing, Kaplan wouldprovide evidence, and if Morse did not respond with-in 30 days, the debt would be assumed valid,’’ thepanel said.

Least Sophisticated Debtor

The panel also rejected Morse’s contentions that theleast sophisticated debtor would not understandwhether the dispute of validity would be acceptable30 days within the date of the letter or 30 days withinthe receipt of the letter, and that it is unclear who wouldassume that the debt is valid after 30 days, calling thearguments ‘‘meritless.’’

Moreover, the panel disagreed with Morse’s assertionthat Kaplan violated Section 1692g(a)(5) of theFDCPA, which requires that the letter inform thedebtor with the name and address of the original cred-itor, if different from the current creditor.

‘‘Kaplan’s letter does not have this language. However,Kaplan was collecting the debt for JFK [Johnson Reha-bilitation Institute], the original creditor, so inclusion ofsuch language would be confusing. It would make littlesense to differentiate between the original and currentcreditor in this case as they are the same entity. BecauseKaplan was collecting on behalf of the original creditor,Morse’s argument that Kaplan violated § 1692(a)(5) ismeritless,’’ the panel said.

Section 1692e(10)

‘‘Lastly, Morse alleges that due to the above allegedviolations, Kaplan’s letter was false and misleading,in violation of § 1692e(10). However, as we haveexplained above, there are no violations and no partof the letter was misleading, so this argument mustalso fail.’’

Senior Circuit Judge Richard D. Cudahy of theSeventh Circuit U.S. Court of Appeals, who was sittingby designation, wrote the panel’s opinion and wasjoined by Circuit Judges Thomas I. Vanaskie and Mar-yanne Trump Barry.

Morse is represented by Joseph K. Jones of Fairfield,N.J.

Kaplan and Younger are represented by Dante C. Rohrand John L. Slimm of Marshall, Dennehey, Warner,Coleman & Goggin in Cherry Hill, N.J.

(Additional documents available: Appellant brief.Document #88-120625-014B. Appellee brief. Docu-ment #88-120625-015B. Reply brief. Document#88-120625-016B.) n


21

9th Circuit UpholdsAttorney Fees AwardIn Debt Collection SuitSAN FRANCISCO — The Ninth Circuit U.S. Courtof Appeals on May 30 affirmed a district court’s awardof attorney fees to the defendants in a Fair Debt Collec-tion Practices Act (FDCPA) suit, ruling that the districtcourt did not err in finding that the plaintiff’s FDCPAaction was brought in bad faith and for the purpose ofharassment (Christopher Ceresko v. LVNV Funding,LLC, et al., No. 11-15456, 9th Cir.; 2012 U.S. App.LEXIS 10859).


The Ninth Circuit panel majority of Circuit JudgesRichard B. Clifton and N. Randy Smith upheld theU.S. District Court for the District of Arizona’saward of attorney fees to LVNV Funding LLC, Gur-stel, Staloch & Chargo PA and Ruth A. Fischetti in thesuit Christopher Ceresko filed against them. CircuitJudge Stephen Reinhardt dissented.

Bad Faith Finding

Ceresko filed his complaint in the District Court onMarch 10, 2009, alleging that the defendants violatedthe FDCPA by asserting in their collection actionagainst him in the Estrella Mountain Justice Court inMaricopa County, Ariz., that court costs as incurredare chargeable to him. He contended that the defen-dants’ allegation is a false representation in connectionwith the collection of a debt. The District Court foundthat the allegation is not a false representation inconnection with the collection of a debt and, thus,not a violation of the FDCPA. On July 30, 2010, theDistrict Court granted the defendants’ motion forsummary judgment.

On Jan. 19, 2011, the District Court ordered Cereskoto pay the defendants $10,467 in attorney fees.The FDCPA at 15 U.S. Code Section 1692k(a)(3)provides that ‘‘[o]n a finding by the court that an actionunder this section was brought under bad faith and forthe purpose of harassment, the court may award to thedefendant attorney’s fees reasonable in relation to thework expended and costs.’’

The District Court found that Ceresko’s FDCPAaction was brought in bad faith and for the purpose

of harassment for three reasons: The District Court hadpreviously concluded that Ceresko’s allegations failed toestablish a violation of the FDCPA in the state courtaction; Ceresko’s counsel ‘‘suffered the same result inthree previous lawsuits . . . involving different plaintiffsmaking the same claim: that an allegation or prayer forrelief for costs and fees in a state court collection actionis a false statement in violation of the FDCPA’’; andCeresko ‘‘failed to provide a single citation to a caseanywhere in the country where this particular claimhad been successful.’’

No Clear Error

Ceresko moved for reconsideration, which the DistrictCourt denied, and he appealed the ruling to the NinthCircuit. The panel majority said the District Court didnot clearly err in finding that Ceresko’s FDCPA actionwas brought in bad faith and for the purpose of harass-ment. The District Court had previously concludedthat Ceresko had failed to establish a violation of theFDCPA, and he did not appeal or otherwise dispute theDistrict Court’s conclusion that the action was merit-less, the panel majority said. The panel majoritypointed out that the District Court decided in therelated cases filed by Ceresko’s counsel that an allega-tion or prayer for relief for costs and attorney fees in astate court collection complaint did not violate theFDCPA. Ceresko’s claim centered on essentially thesame argument his counsel unsuccessfully made inthose cases, the majority said.

The majority also agreed with the District Court thatCeresko did not identify any favorable legal authoritiesapplicable to his claim. Ceresko’s precedent insteadinvolved cases where attorney fees and costs demandswere sent to plaintiffs before the start of judicial pro-ceedings, it said.

The majority said that even if it were to disagree withthe District Court, it cannot conclude that the DistrictCourt’s findings were ‘‘illogical, implausible, or withoutsupport in the record,’’ quoting United States v. Span-gle (626 F.3d 488, 497 [9th Cir. 2010]). Additionally,the District Court did not abuse its discretion in award-ing attorney fees, the majority determined. The DistrictCourt identified and applied the correct legal rule fromSection 1692k(a)(3), and the District Court’s decisiondid not result ‘‘from a factual finding that was illogical,implausible, or without support in inferences that maybe drawn from the facts in the record,’’ the majority


22

said, quoting United States v. Hinkson (585 F.3d1247, 1263 [9th Cir. 2009]).

Dissent

Dissenting, Circuit Judge Reinhardt said the ‘‘leastsophisticated debtor,’’ which is the standard for estab-lishing a violation of the FDCPA, likely would havebeen misled by the inclusion of two separate paragraphsin the state court collection complaint, one stating that‘‘the prevailing party will be entitled to an award of allcosts’’ and another stating that ‘‘Court costs as actuallyincurred are chargeable to [the debtor].’’ The complaintprovided no information that the second paragraph wastrue only if the creditor was the ‘‘prevailing party,’’Circuit Judge Reinhardt said. Ceresko therefore pre-sented a ‘‘minimally colorable’’ claim, and the DistrictCourt clearly erred in finding that his FDCPA actionwas brought in bad faith and for the purpose ofharassment.

The District Court also clearly erred in finding thatCeresko’s counsel ‘‘suffered the same result in three pre-vious lawsuits involving different plaintiffs making thesame claim,’’ Circuit Judge Reinhardt said. Two of thecases cited by the District Court to support this holding,Cisneros v. Neuheisel Law Firm (D. Ariz. [Jan. 3,2008]) and Winn v. Unified CCR Partners (D. Ariz.[March 30, 2007]), involved claims that a request for aspecific sum of attorney fees in the prayer for relief was arequest for liquidated attorney fees, which plaintiffsalleged violated the FDCPA because only reasonablyattorney fees, not liquidated fees, were recoverableunder the agreements, he said. Ceresko, however,claimed the statement in the body of the state courtcomplaint regarding court costs being allocated to thedebtor was misleading because it was represented asa fact although there had been no determination thatthe creditor was the prevailing party, Circuit JudgeReinhardt said.

Cisneros and Winn, therefore, presented entirely differ-ent claims than Ceresko’s, Circuit Judge Reinhardt said.The third case the District Court cited, Thompson v.Crown Asset Management, LLC (D. Ariz. [Sept. 23,2009]), presented the same claim as Ceresko’s, but itwas not decided until six months after Ceresko filed hiscomplaint, so neither Ceresko nor his counsel couldhave known that the claim would be rejected at thetime he brought his claim, Circuit Judge Reinhardt said.

Further, the District Court ignored the cases Cereskocited in support of his FDCPA claim, Circuit JudgeReinhardt said. ‘‘Although those cases involved demandletters rather than a complaint in a collection case, theunderlying claims are similar to the one here: that ademand for fees or costs by a creditor when there hasbeen no determination that the creditor is the prevailingparty, is misleading,’’ he said. Because the DistrictCourt’s findings were based on clear errors and its ana-lysis of the controlling cases consisted of repeated errorsof law, its award of attorney fees and costs against Cer-esko was clearly erroneous and constituted an abuseof discretion, Circuit Judge Reinhardt said.

Attorneys

Ceresko is represented by Richard Nel Groves of theLaw Offices of Richard N. Groves in Phoenix.

The defendants are represented by Tomio Buck Naritaof Simmonds & Narita in San Francisco and MichaelRichard Sneberger in Tempe, Ariz., Bridget Ann Sulli-van in Garden Valley, Minn., and Jennifer Wiedle inScottsdale, Ariz., all of Gurstel Staloch & Chargo.

(Additional documents available. Appellant brief.Document #88-120625-237B. Appellee brief. Docu-ment #88-120625-238B.) n

Notice Did Not ViolateDebt Collection Act,9th Circuit AffirmsSAN FRANCISCO — A letter sent by a debt-collect-ing law firm does not violate the Fair Debt CollectionPractices Act (FDCPA) because it does not expresslyrequire a debtor to contest her debt in writing, theNinth Circuit U.S. Court of Appeals ruled June 8,affirming a district court’s granting of summary judg-ment in favor of the firm (Joann Riggs v. Prober &Raphael, A Law Corp., et al., No. 10-17220, 9thCir.; 2012 U.S. App. LEXIS 11631).


The panel of Circuit Judges J. Clifford Wallace, Con-suelo M. Callahan and Carlos T. Bea affirmed the U.S.


23

District Court for the Northern District of Californiaruling in the suit Joann Josephine Riggs filed against thelaw firm Prober & Raphael and attorney Dean Prober(collectively, Prober).

Riggs filed the action in the District Court after Probersought to collect a debt Riggs owed to Prober’s client,Fireside Bank. She alleged that Prober’s debt-collectionletter did not comply with the FDCPA or its Californiaequivalent, the Rosenthal Fair Debt Collection PracticesAct, because it impermissibly required her to dispute herdebt in writing and, as a result, misrepresented her rightsto dispute her debt. The District Court granted Probersummary judgment, holding that Prober’s validationnotice did not impermissibly require Riggs to disputeher debt in writing and did not falsely misrepresenther rights to dispute the debt. Riggs appealed.

Expressly Vs. Implicitly

The panel noted that the Ninth Circuit previously heldthat a collection letter violates Section 1692g(a)(3) ofthe FDCPA ‘‘insofar as it state[s] that [the debtor’s]disputes must be made in writing,’’ quoting Cama-cho v. Bridgeport Fin., Inc. (430 F.3d 1078, 1082[9th Cir. 2005]). The primary issue in the instant caseis whether Prober’s validation notice runs afoul of thisrule, the panel said.

Here, in contrast to the validation notice in Camacho,Prober’s validation notice did not expressly requireRiggs to dispute her debt in writing, the panel noted.Instead, Riggs argues that the notice implicitly requiredher to do so.

‘‘We assume, without deciding, that the least sophisti-cated consumer could understand Prober’s validationnotice to imply that any dispute of her debt must be inwriting,’’ the panel said. ‘‘Nevertheless, we concludethat the notice does not violate the FDCPA. As wehave explained, Camacho held only that debt collectorsmay not expressly require that disputes be in writing;Camacho did not decide whether the FDCPA also pro-hibits debt collectors from implicitly requiring that dis-putes be in writing.

‘‘We do not believe the FDCPA can support such aprohibition. Subsections (a)(4) and (a)(5) of § 1692gprominently require a consumer to do certain thingsin writing, including ‘notif[y] the debt collector in

writing . . . that the debt, or any portion thereof, isdisputed’ in order to obtain verification, while subsec-tion (a)(3) is silent as to what form a general dispute ofan alleged debt must take. When these subsections areread together, they could be read to imply that a debtormust dispute her debt in writing. Court decisionsapplying these provisions do nothing to dispel thisimplication.’’

Not Unlawful

If the FDCPA itself can be read to imply that consumermust dispute an alleged debt in writing, a validationnotice like Prober’s, which more or less simply reversesthe order of the Section 1692g(a)(3)-(5) advisories, can-not be unlawful merely because it allows for the sameimplication, the panel said. Any confusion over what aconsumer must do in writing, versus what she may do inwriting, ‘‘stems at least in part from the FDCPA itself,’’the panel said, adding that ‘‘it would be untenable toread the FDCPA to prohibit validation notices thatsimply mimic the statute’s own shortcomings.’’

On appeal, Riggs argued for the first time that Prober’svalidation notice does not comply with other purportedrequirements of Section 1692g(a)(3): that she beinformed that she could dispute the validity of herdebt, that she could dispute only a portion of herdebt, and that she could make a dispute within 30days of receiving the notice. The panel found thatthese arguments are barred because Riggs did notraise them in her complaint, which alleges as the onlyviolation of Section 1692g that Prober ‘‘required thatdisputes be in writing to prevent [Prober] from con-sidering the debt valid, in violation of § 1692g(a)(3).’’ Aplaintiff may not try to amend her complaint throughher arguments on appeal, the panel said, citingVincent v. Trend W. Technical Corp. (828 F.2d563, 570 [9th Cir. 1987]).

Riggs is represented by Fred W. Schwinn of the Con-sumer Law Center in San Jose, Calif. Prober is repre-sented by Jonathan Matthew Blute and TimothyHalloran of Murphy, Pearson, Bradley & Feeney inSan Francisco.



24

Panel: Consumer FailedTo Provide Evidence Of DebtCollection Law ViolationNEW YORK — A federal district court did not err ingranting a law firm’s motion for summary judgment ina Fair Debt Collection Practices lawsuit because theconsumer who filed the suit failed to provide any evi-dence of a violation of the statute, a Second CircuitU.S. Court of Appeals panel ruled June 18 (Kara A.Tzanetis v. Weinstein & Riley, P.S., No. 11-3169, 2ndCir.; 2012 U.S. App. LEXIS 12262).

(Summary order available. Document #88-120625-056R.)

Consumer Kara A. Tzanetis sued the law firm of Wein-stein & Riley in the U.S. District Court for the Districtof Connecticut, alleging that a demand letter the lawfirm sent her violated provisions of the Fair Debt Col-lection Practices Act (FDCPA) and various Connecti-cut debt collection statutes.

On Nov. 1, 2010, the District Court granted the lawfirm’s motion for summary judgment and denied Tza-netis’ motion for summary judgment.

Reconsideration

Tzanetis then moved for reconsideration, and onJuly 26, 2011, the District Court denied her motion.She then appealed to the Second Circuit, whichaffirmed.

In holding that the District Court properly granted thelaw firm’s motion for summary judgment, the panelexplained that ‘‘[t]he factual evidence before the DistrictCourt consisted of two demand letters. Tzanetisdeclined to submit additional evidence.’’

‘‘The letters contained passages that merely indicatedthe possibility that other lawful charges might accrue ata later date, and do not establish a violation of theFDCPA,’’ the panel said.

Without Merit

‘‘We have considered all of Tzanetis’s arguments onappeal and find them to be without merit.’’

Circuit Judges Guido Calabresi, Jose A. Cabranes andRaymond J. Lohier Jr. joined in the opinion.

Tzanetis is represented by Joanne S. Faulkner of NewHaven, Conn. The law firm is represented by KennethS. Jannette of Weinstein & Riley in New York.

(Additional documents available: Appellant brief.Document #88-120625-057B. Appellee brief. Docu-ment #88-120625-058B. July 26, 2011 order. Docu-ment #88-120625-059R. Nov. 1, 2010 order.Document #88-120625-060R.) n

Letter Not A DebtCollection Demand Letter,Federal Judge RulesTAMPA, Fla. — A debt owner’s letter to a consumerletting her know that it was the current owner of hercredit card debt did not violate the Fair Debt CollectionPractices Act (FDCPA) because the letter was not ademand letter seeking payment, a federal judge in Flor-ida ruled June 15 (Belinda Parker v. Midland CreditManagement Inc., No. 12-110, M.D. Fla.; 2012 U.S.Dist. LEXIS 83296).


Consumer Belinda Parker filed an amended class actioncomplaint in the U.S. District Court for the MiddleDistrict of Florida. She alleges that Midland CreditManagement Inc. (MCM) violated Sections 1692e(11) and 1692g(a) of the FDCPA by sending her a letteracknowledging that it was the current owner of Parker’sCapital One credit card debt but failing to provideher with her ‘‘mini-Miranda’’ rights under Section1692e(11).

Parker also avers that MCM violated Section 1692g(a)by failing to notify her of her complete validation rightsin the letter or in a subsequent written communicationsent to her within five days of the letter.

FCCPAMCM moved to dismiss, arguing that it did not violatethe FDCPA because it was required to send the letterpursuant to the Florida Consumer Collection PracticesAct (FCCPA), and Judge James S. Moody Jr. grantedthe motion.

In particular, Judge Moody held that dismissal is properbecause the letter ‘‘is not a communication in connec-tion with debt collection.’’


25

‘‘The letter did not demand payment or discuss specificsof the underlying debt. And the purpose of the letterwas to inform Plaintiff of the assignment of the accountto Defendant. Indeed, the letter even states that ‘this isnot an attempt to collect a debt.’ And, although thebalance of the debt is stated, the letter does not includeterms of payment or deadlines. On its face, it is clearlyinformational; it informs Plaintiff that her account hasbeen assigned to Defendant and includes the newaccount number and Defendant’s contact informa-tion,’’ Judge Moody said.

No Debt Collection

‘‘In sum, these facts, taken from the amended com-plaint and the letter itself, demonstrate, as a matter oflaw, that the letter was not sent in connection withcollection of a debt. Any other conclusion would defylogic and place debt collectors in an untenable position,where they are subjected to lawsuits, despite theirbest efforts.’’

Judge Moody further stated that ‘‘[t]he Court wouldlike to see a bright-line rule adopted by the Circuits onthis issue, so that cases like the instant case are pre-vented in the future.’’

‘‘A letter, such as the one at issue here, that merelyinforms a debtor of the assignment of her debt, providesthe debtor with the new information, and clearly statesthat the letter is not an attempt to collect a debt shouldstand as an example of a letter that does not constitute acommunication in connection with the collection ofa debt in violation of the FDCPA,’’ Judge Moodyexplained.

Counsel

Parker is represented by Christopher C. Casper andNicole C. Mayer of James, Hoyer, Newcomer & Smil-janich in Tampa, Christopher C. Nash and Ian R.Leavengood of Leavengood Nash Dauval & Boyle inSt. Petersburg, Fla., and Heather M. Fleming of Mar-one Law Group in St. Petersburg.

MCM is represented by James Beckett Thompson Jr.of Thompson, Goodis, Thompson, Groseclose &Richardson in St. Petersburg and John A. Love ofKing & Spalding in Atlanta.

(Additional documents available: Motion to dismiss.Document #88-120625-052B. Opposition brief.

Document #88-120625-053B. Reply brief. Docu-ment #88-120625-054B. Amended complaint.Document #88-120625-055C.) n

Debt Collector Failed ToProvide Required Disclosures,Federal Judge RulesCHICAGO — A consumer has properly shown thatnumerous voice mail messages left for her by a debtcollector violated provisions of the Fair Debt CollectionPractices Act (FDCPA) because the debt collector failedto provide the required disclosures, a federal judge inIllinois ruled June 14 (Anna Pawelczak v. NationsRecovery Center Inc., No. 11-3700, N.D. Ill.; 2012U.S. Dist. LEXIS 82916).


Consumer Anna Pawelczak sued debt collector NationsRecovery Center Inc. (NRC) in the U.S. District Courtfor the Northern District of Illinois. Pawelczak allegesthat NRC violated Sections 1692d(6) and 1692e(11)of the FDCPA by leaving several live and recordedmessages for her on her voice mail system without pro-viding the necessary disclosures.

Both Pawelczak and NRC moved for summary judg-ment, and Judge Charles P. Kocoras granted Pawelc-zak’s motion and denied NRC’s motion.

Transcripts

In particular, Judge Kocoras held that Pawelczak’sadmission of transcripts of the voice mail messagesinto evidence is proper because it is not hearsay andbecause ‘‘Pawelczak is competent to testify as to thecontent of the voice mail messages.’’

The testimony of NRC CEO Paul Bataillon is notadmissible, though, Judge Kocoras found, because hisstatement regarding the effectiveness of a dialing con-nection system that is supposed to hang up if a liveperson does not answer the phone ‘‘is based on uniden-tified statistics that he had obtained from an unknownsource at some unidentified time in the past.’’

‘‘Bataillon’s assertion is based on speculation, and doesnot provide the necessary factual support for NRC’s


26

claim that the Dial Connect system is as successful as itclaims it to be. We therefore accord Bataillon’s state-ment, and the conclusion that the Dial Connect systemis 98-99% successful at distinguishing between a liveand automated voice, no weight,’’ Judge Kocoras said.

Section 1692e(11) Claim

Moreover, Judge Kocoras ruled that Pawelczak isentitled to summary judgment on her Section1692e(11) claim because ‘‘Pawelczak has offered uncon-tested testimony that in NRC’s initial December 11th,2010 voice mail message, its employee did not disclosethat he or she was calling to collect a debt, nor that heor she would use any information to collect that debt.’’

‘‘There is no disagreement that NRC, through itsemployees, failed to identify itself as a debt collectorin each of its subsequent voice mail messages to Pawelc-zak. NRC only argues that a voice mail message is not a‘communication’ under the FDCPA,’’ Judge Kocorasstated.

‘‘Here, each of the live and recorded voice messages lefta callback number, several of the live voice messagesrequested that Pawelczak call back to discuss the ‘mat-ter,’ and that it was ‘important’ that Pawelczak call back‘soon,’ or ‘today.’ These messages at least indirectlyconvey information regarding a debt — namely, callingPawelczak’s attention to a matter of importance, andleaving a phone number that Pawelczak should call tofurther discuss the matter. There is no dispute thatPawelczak is ‘any person’ under the Act, or that con-tacting her by telephone constitutes ‘through any med-ium.’ We therefore hold that the voice mail messagesare ‘communications’ under the § 1692a(2). Othercourts in this district have reached the same conclusionon this issue.’’

Necessary Disclosures

Judge Kocoras further rejected NRC’s argument thatmaking the necessary disclosures under Section1692e(11) on a voice mail message exposes itself toliability under 15 U.S. Code Section 1692c(b), findingit to be ‘‘unavailing for two reasons.’’

‘‘First, NRC presents no argument that a debtor’s voicemail service should be construed as a ‘third party’ underthe Act. Furthermore, NRC’s argument that theyshould not be penalized for seeking to protect Pawelc-zak’s privacy is severely undermined by its own internal

memorandum dated January 28, 2011, which indi-cated that NRC had some procedures in place foremployees to leave FDCPA-compliant voice mail mes-sages. In any event, if NRC was actually uncertain as towhat constituted an FDCPA-compliant voice mail,refraining from leaving a message at all would ensurecompliance with the Act. As NRC has failed to provideany evidence to the contrary, we find that NRC’s voicemail messages did not comply with Section 1692e(11)as a matter of law,’’ Judge Kocoras explained.

Pawelczak is also entitled to summary judgment on herSection 1692d(6) claim, Judge Kocoras held, because‘‘[t]here is no genuine dispute that in three of the livevoice messages and all of the recorded messages left forPawelczak, NRC employees failed to disclose NRC’sidentity.’’

‘‘Furthermore, none of NRC’s live or recorded voicemail messages stated that the purpose of the phone callwas to collect a debt. These facts sufficiently establishthat NRC failed to provide Pawelczak ‘meaningful dis-closure’ of its identity, and that it therefore violated§ 1692d(6) as a matter of law,’’ Judge Kocoras stated.

Bona Fide Error Defense

Judge Kocoras also found that NRC is not entitled to a‘‘bona fide error’’ defense because ‘‘[w]hen weighing thisevidence, we cannot conclude that as a matter of lawNRC’s procedures were reasonably adapted to preventthe FDCPA violations of which Pawelczak now com-plains. Nor do we find that a triable issue of fact exists,as any claim that NRC’s procedures were reasonablyadapted to prevent its employees from leaving non-FDCPA compliant voice mail messages is foreclosedby the fact that Pawelczak received eight illegal callsfrom four different NRC employees in little overtwo months.’’

‘‘We also find that NRC’s procedures with respect tothe Dial Connect system were not reasonably adaptedto avoid FDCPA violations. NRC’s contention is basedon the premise that the Dial Connect system is 98-99%effective at distinguishing live from automatedresponses. For the reasons discussed above, NRC hasprovided no admissible evidence to substantiate itsdefense. In any event, Pawelczak received thirteenrecorded voice messages in just over three months, sug-gesting that the Dial Connect system is not nearly aseffective as NRC claims. While we are aware that the


27

maintenance of reasonably adapted procedures ‘doesnot require debt collectors to take every conceivableprecaution to avoid errors . . . it only requires reasonableprecaution,’ NRC presents no evidence for this Courtto conclude that the Dial Connect system meets thatthreshold. As NRC has failed to provide sufficient evi-dence to create a triable issue of material fact, Pawelc-zak’s motion for summary judgment is granted.Accordingly, NRC’s motion for summary judgmentis denied,’’ Judge Kocoras explained.

Pawelczak is represented by William F. Horn of FreshMeadows, N.Y., and Cathleen M. Combs, Daniel A.Edelman, Francis R. Greene and James O. Latturner ofEdelman, Combs, Latturner & Goodwin in Chicago.

NRC is represented by David M. Schultz, CorinneCantwell Heggie and Nicholas D. O’Conner of Hin-shaw & Culbertson in Chicago.

(Additional documents available: NRC motion forsummary judgment. Document #88-120625-040B.Opposition to NRC motion for summary judgment.Document #88-120625-041B. Pawelczak motion forsummary judgment. Document #88-120625-042B.Opposition to Pawelczak motion for summary judg-ment. Document #88-120625-043B. Complaint.Document #88-120625-044C.) n

Judge: Attorney FeesSought In Debt CollectionCase Are ReasonableSAN DIEGO — A federal judge in California onJune 15 granted a consumer’s motion for attorneyfees in a Fair Debt Collection Practices Act (FDCPA)lawsuit against a debt collector and others, ruling thatcounsel for the consumer has requested fees that arereasonable and in line with what has been approvedin other cases similar to the instant action (Donald R.Williams v. Midland Funding LLC, et al., No. 11-2539, S.D. Calif.; 2012 U.S. Dist. LEXIS 83490).


Consumer Donald R. Williams sued Midland FundingLLC, Midland Credit Management Inc. and EncoreCapital Group Inc. in the U.S. District Court for theSouthern District of California. He alleges that

Midland violated the FDCPA and California’sRosenthal Fair Debt Collection Practices Act by con-tacting him several times in an attempt to collect on adebt for an individual unknown to Williams, eventhough Williams stated numerous times that the Mid-land representative had the wrong number.

After an early neutral evaluation conference, the defen-dants made an offer of judgment pursuant to FederalRule of Civil Procedure 68 of $1,001, plus ‘‘reasonableattorneys’ fees incurred and costs accrued’’ to the dateof the offer. Williams accepted the offer, but the par-ties failed to agree on the appropriate amount ofattorney fees.

No Unnecessary Work

In granting Williams’ motion for attorney fees, JudgeJeffrey T. Miller rejected the defendants’ argument thatWilliams’ counsel performed unnecessary work becausethey failed to inform him in the middle of January ofa settlement offer that was made.

‘‘Defendants’ argument asks the court to assume thatPlaintiff’s counsel completely failed to perform theirduty to inform Plaintiff of the settlement offer. Whileit is true that Plaintiff’s counsel’s billing does not spe-cifically reflect a conversation concerning the settlementoffer, the court declines to accept Defendants’ assump-tion that the offer was never conveyed, causing unne-cessary litigation. Defendants’ further argument — thatrelaying the settlement offer to Plaintiff would havehastened settlement because it would have alertedDefendants to their statutory violations — must failas well as it is predicated upon speculation,’’ JudgeMiller said.

Judge Miller also disagreed with the defendants’ asser-tion that Williams’ counsel overbilled for the workdone because multiple attorneys and/or paralegals billedfor work on the same documents or for speaking to eachother, finding that ‘‘[w]hile Defendants are clearly cor-rect that unnecessary work should not be billed, Defen-dants provide little or no legal support for theirarguments concerning specific instances of billing.’’

Trivial Amounts Of Time

‘‘Many of Defendants’ arguments arise from disputesover trivial amounts of time, sometimes as little as one-tenth of one hour. It is virtually impossible to reason-ably determine whether each tenth of an hour billed byPlaintiff’s counsel is accurate; however, each entry


28

appears to be reasonable, and the overall amount oftime spent on the case certainly falls well within therange of reasonableness. Moreover, Defendants havenot provided any reasoning behind their implicit theorythat multiple attorneys should not be allowed to bill forwork on the same document. Similarly, they do notsupport their argument that two attorneys are notallowed to each bill time for speaking with one anotherabout the case. Without legal support, the courtdeclines to reduce the time billed in the amountrequested by Defendants,’’ Judge Miller stated.

Moreover, Judge Miller ruled that the rate chargedby attorney Amy Bennecoff of $278 an hour is reason-able and in line with what other courts have foundto be reasonable.

Williams is represented by Bennecoff of Kimmel &Silverman in Ambler, Pa.

The defendants are represented by Thomas F. Landersand Leah S. Strickland of Solomon Ward Seiden-wurm & Smith in San Diego.

(Additional documents available: Motion for attorneyfees. Document #88-120625-046B. Oppositionbrief. Document #88-120625-047B. Reply brief.Document #88-120625-048B. Complaint. Docu-ment #88-120625-049C. Offer of judgment. Docu-ment #88-120625-050B.) n

Judge: Consumers MetSpecificity RequirementsIn Debt Collection SuitKANSAS CITY, Kan. — Dismissal of consumers’ FairDebt Collection Practices Act (FDCPA) claim against adebt collector is not proper because the consumers haveproperly met the ‘‘factual specificity required by’’ twoU.S. Supreme Court rulings, a federal judge in Kansasruled June 20 (David Webb, et al. v. Premiere Credit ofNorth America LLC, No. 12-2001, D. Kan.; 2012U.S. Dist. LEXIS 85075).


Consumers David and Melissa Webb sued debt collec-tor Premiere Credit of North America LLC in the U.S.

District Court for the District of Kansas. The Webbsallege that Premiere violated the FDCPA by callingthem on ‘‘continuous days’’ and on multiple occasionssix times per day.

They seek statutory and actual damages, includingemotional distress.

Leave To Amend

In granting the Webbs’ motion for leave to amend theircomplaint and denying Premiere’s motion to dismiss,Judge Julie A. Robinson held that leave to amend isproper because ‘‘Plaintiffs included a request for leave tofile an amended complaint in their Response to Defen-dant’s Motion to Dismiss, as well as the title and prayerof the same document.’’

‘‘And although Plaintiffs did not separately file a mem-orandum in support of their motion to amend, theCourt may relieve Plaintiffs of complying with thatrequirement. Plaintiffs are advised to review [Districtof Kansas Local] Rules 7.1 and 7.6; however, this Courtmust construe rules of procedure liberally to facilitatedecisions on the merits rather than procedural techni-calities. Because Plaintiffs substantially compliedwith [District of Kansas Local] Rule 15.1 by attachingtheir proposed Amended Complaint, Plaintiffs’ Motionto File Amended Complaint is granted. The Courtwill thus evaluate the Amended Complaint under [Fed-eral Rule of Civil Procedure] Rule 12(b)(6),’’ JudgeRobinson said.

Judge Robinson also found that dismissal of theFDCPA claim is not proper because the amended com-plaint ‘‘meets the factual specificity required’’ by BellAtlantic Corp. v. Twombly (550 U.S. 544 [2007];2007 U.S. LEXIS 5901) and Ashcroft v. Iqbal (556U.S. 662 [2009]; 2009 U.S. LEXIS 3472).

Collection Calls

‘‘First, Plaintiffs’ factual allegations concerning the fre-quency of Defendant’s collection calls are entitled to anassumption of truth. While the original Complaint’s‘near[ly] verbatim recitation of the statutory language’consists entirely of conclusory allegations, the AmendedComplaint asserts specific facts: that Defendant placeddaily or near daily collection calls to Plaintiffs, at a rateof up to six calls per day, demanding payment on aspecific account number. Such allegations distinguishthis claim from a ‘cookie-cutter filin[g],’ and provide


29

sufficient factual content to give Defendant fair noticeof what Plaintiffs are claiming. Because these allegationssurpass mere legal conclusions, the Court assumes themto be true,’’ Judge Robinson stated.

‘‘Assuming the truth of Plaintiffs’ factual allegations, theCourt finds the claim to be facially plausible.’’

Moreover, Judge Robinson ruled that the Webbs areentitled to emotional distress damages, agreeing withthe findings of three other district courts within the10th Circuit U.S. Court of Appeals, which determinedthat ‘‘the FDCPA does not require a plaintiff to satisfystate tort law standards to prove emotional distressdamages.’’

‘‘Yet, even if Plaintiffs were required to satisfy state tortlaw standards, it is not unreasonable to infer that sixcalls per day, depending on the circumstances, mightcause extreme emotional distress. Accordingly, theCourt finds Plaintiffs’ claim for emotional distressdamages under [15 U.S. Code] § 1692d(5) to be suffi-ciently stated,’’ Judge Robinson explained.

Counsel

The Webbs are represented by J. Mark Meinhardt ofLeawood, Kan.

Premiere is represented by Louis J. Wade and Mikki L.Copeland of McDowell, Rice, Smith & Buchanan inKansas City, Mo.

(Additional documents available: Motion to dismiss.Document #88-120625-068B. Opposition to motionto dismiss and motion for leave to amend. Document#88-120625-069B. Opposition to motion for leaveto amend. Document #88-120625-070B. Amendedcomplaint. Document #88-120625-071C.) n

Settlement EarnsPartial ApprovalIn Debt Collection SuitFORT PIERCE, Fla. — A federal judge in Florida onMay 23 certified a class and preliminarily granted par-tial approval of a settlement in a suit in which a defen-dant was alleged to have violated the Fair DebtCollection Practices Act (FDCPA) in its attempt to

collect a debt purportedly owed to a third-party mort-gage receiver, but he rejected the proposed settlement’srequirement for class members to submit claim forms(Malka Andes v. G. Moss and Associates, LLP, No. 11-14295, S.D. Fla.; 2012 U.S. Dist. LEXIS 71661).


U.S. Judge K. Michael Moore of the Southern Districtof Florida made the rulings in the suit Malka Andesfiled, individually and behalf of all others similarly situ-ated, against debt collector G. Moss and Associates LLP.

Andes alleges that on Aug. 17, 2010, the defendant senther two letters in an attempt to collect the purporteddebt. Andes says the letters violated the FDCPA by‘‘failing to properly inform the consumer as to the con-sumer’s rights for debt verification in a manner whichwas not reasonably calculated to confuse or frustrate theleast sophisticated consumer’’ in violation of 15 U.S.Code Section 1692g. Andes alleges that the defendantsent similar letters to thousands of Florida residents.

Class Meets Requirements

The parties negotiated the claims and finalized a classaction settlement. On May 10, 2012, the parties filedthe joint motion to certify class and approve settlement.The proposed settlement calls for the defendant toestablish a $30,000 fund and would require the defen-dant to pay a pro rata share of the fund to each classmember who timely returns a claim form and does notopt out of the settlement. It also requires the defendantto pay $1,000 to Andes as class representative for herrole in the litigation.

In certifying the class, Judge Moore found that theFederal Rule of Civil Procedure 23(a) requirements ofnumerosity, commonality, typicality, adequacy, predo-minance and superiority have been satisfied.

In preliminarily approving the settlement in part, JudgeMoore determined that the settlement is fair, reason-able and adequate to the parties. He found that basedon the defendant’s representations of net worth, settle-ment for $30,000 constitutes an amount in excess ofmaximum available statutory damages recoverable by aclass under the FDCPA and is therefore fair and reason-able. He also determined that a $1,000 payment toAndes for damages and her role in the litigation is fairand reasonable, as is a separate payment to settlement


30

class counsel for reasonable fees and costs to be deter-mined at the time of final approval of the settlement.The payment to settlement class counsel is not to betaken from any recovery to the settlement class, JudgeMoore noted.

No Claim Forms

However, Judge Moore said he does not approve of thesettlement’s provision requiring class members totimely submit claim forms to receive their share ofthe settlement funds.

‘‘A pro-rata share of the Settlement Fund shall be dis-tributed to each Class Member who does not timelyopt-out of the Class,’’ Judge Moore concluded.

Andes is represented by Robert William Murphy inFort Lauderdale, Fla. The defendant is represented byDavid Palmer Hartnett of Hinshaw & Culbertson inMiami.

(Additional documents available. Motion to certifyclass, approve settlement. Document #88-120625-217M. Brief in support of motion to certify class,approve settlement. Document #88-120625-218B.) n

Nonjudicial ForeclosuresAre Not Debt Collection,Federal Judge RulesRENO, Nev. — A federal judge in Nevada on May 31dismissed a debt collection action because, in part, non-judicial foreclosures are not an attempt to collect a debtunder the Fair Debt Collection Practices Act (FDCPA)(Craig A. Whitney and Aubree S. Whitney v. CTXMortgage Co. LLC, et al., No. 11-00037, D. Nev.;2012 U.S. Dist. LEXIS 75221).


U.S. Judge Larry R. Hicks of the District of Nevadagranted the motion for judgment on the pleadings filedby JPMorgan Chase Bank N.A., as successor by mergerto defendant Chase Home Finance LLC, in the suitbrought by Craig A. Whitney and Aubree S. Whitney.

In 2006, the Whitneys refinanced real propertythrough a mortgage note and deed of trust originated

by CTX Mortgage Co. LLC. In 2009, beneficial inter-est under the deed of trust was assigned to Chase. TheWhitneys defaulted on the mortgage note and JPMor-gan initiated nonjudicial foreclosure proceedings. TheWhitneys’ amended complaint alleges causes of actionfor debt collection violations, violations of the NevadaUnfair and Deceptive Trade Practices Act (NevadaRevised Statute 598.0923) and NRS 107.080, quiettitle, slander of title and abuse of process.

No FDCPA Violation

Judge Hicks noted that pursuant to NRS 649, it is aviolation of state law to violate any provision of theFDCPA. Here, the Whitneys alleged that JPMorganviolated the FDCPA by initiating a nonjudicial foreclo-sure without following the proper procedures forattempting to collect a debt. Judge Hicks said it iswell-established that nonjudicial foreclosures are notan attempt to collect a debt under the FDCPA andsimilar state statutes, pointing to Hulse v. OcwenFed. Bank FSB (195 F. Supp. 2d 1188 [D. Ore.2002]) and Charov v. Perry (D. Nev. 2010), whichheld that recording a notice of default is not an attemptto collect a debt because the borrower already consentedto allow the foreclosure trustee to record the noticeupon default. Judge Hicks found that the Whitneysfailed to state a claim for violation of the FDCPA andthereby failed to state a claim under Section 649.

The Whitneys allege that JPMorgan violated theNevada Unfair and Deceptive Trade Practices Act byrecording the notice of default without having a statebusiness license. However, it is undisputed that JPMor-gan took no action in recording the notice of default.Because the bank took no action in causing the noticeof default to be recorded, it cannot have violated theNevada Unfair and Deceptive Trade Practices Act asa matter of law, the judge said.

The Whitneys allege that the defendants improperlyforeclosed on their property because the promissorynote was served from the deed of trust and none ofthe defendants hold the original mortgage note, in vio-lation of NRS 107.080. At the time of the foreclosure,Nevada law did not require the production of the ori-ginal note before one of the statutorily enumeratedparties initiates a nonjudicial foreclosure; therefore,the Whitneys fail to allege a claim upon which reliefcan be granted, Judge Hicks said.


31

Remaining Claims

Judge Hicks noted that under NRS 40.010, a quiet titleaction may be brought by someone who claims anadverse interest in property. Here, JPMorgan doesnot claim any interest in the property adverse to theWhitneys’ interest in the property; therefore, they haveno grounds to quiet title against JPMorgan, he found.

The judge said that a claim for slander of title ‘‘involvesfalse and malicious communications, disparaging toone’s title in land, and causing special damages,’’ pur-suant to Executive Mgmt. Ltd. v. Ticor Title Co. (963P.2d 465, 478 [Nev. 1998]). Here, the recorded noticeof default and notice of trustee’s sale are not false andmalicious communications disparaging the Whitneys’title, Judge Hicks said. First, the Whitneys concede thatthey were in default of their loan; thus, the notice ofdefault does not make a false statement about the titleto property, Judge Hicks said. Second, it is not false thatthe property was to be sold at a trustee’s sale, he said.Therefore, he found that the Whitneys have failed tostate a claim for slander of title.

To establish a claim for abuse of process, a party mustshow that an opposing party had an ulterior purpose forbringing a legal action other than resolving a legal dis-pute and that the opposing party used the legal processin a way that is not proper in the regular conduct of theproceeding, Judge Hicks said, citing Las Vegas Fetishand Fantasy Halloween Ball Inc. v. Ahern Rentals (182P.3d 764, 767 [Nev. 2008]) and Georgiou StudioInc. v. Boulevard Interest LLC (663 F. Supp. 2d 973,982 [D. Nev. 2009]). Judge Hicks found that theWhitneys have failed to allege any facts demonstratingthat JPMorgan had an ulterior motive in initiating non-judicial foreclosure proceedings other than the resolu-tion on the default on the mortgage note. Further, theprocess at issue is a nonjudicial foreclosure, which isnot the characteristic legal action contemplated by anabuse of process claim, he said, citing Smith v. Wacho-via Mortgage Corp. (N.D. Calif. 2009). Therefore, hefound that the Whitneys have failed to state a claimfor abuse of process.

The Whitneys are represented by Rick Lawton of theLaw Office of Rick Lawton in Fernley, N.V. JPMorganis represented by Kent F. Larsen and Joseph T. Prete ofSmith Larsen & Wixom in Las Vegas.

(Additional documents available: Motion for judg-ment on the pleadings. Document #88-120625-

240M. Response to motion for judgment on thepleadings. Document #88-120625-241B.) n

Divided 2nd Circuit: NoEn Banc Rehearing Of ValidityOf AmEx Arbitration ClauseNEW YORK — The Second Circuit U.S. Court ofAppeals on May 29 in a divided ruling denied rehearingen banc of its Feb. 1 opinion affirming its prior holdingthat a mandatory class action waiver clause in AmericanExpress Co.’s (AmEx) standardized service contract vio-lated the Federal Arbitration Act (FAA) (In re: Amer-ican Express Merchants’ Litigation [Italian ColorsRestaurant, et al. v. American Express Travel RelatedServices Company, et al.], No. 06-1871-cv, 2nd Cir.;2012 U.S. App. LEXIS 10815).


In its Feb. 1 opinion, the Second Circuit panel said thatits original analysis was unaffected by AT&T MobilityLLC v. Concepcion (131 S.Ct. 1740 [2011]), in whichthe Supreme Court held that the FAA preempted aCalifornia law barring the enforcement of class actionwaivers in consumer contracts.

Circuit Judge Rosemary S. Pooler, who was a memberof the panels issuing the two previous decisions, con-curred by opinion in the denial of rehearing en banc.Chief Judge Dennis Jacobs and Judges Jose A. Cab-ranes, Debra Ann Livingston, Reena Raggi and RichardC. Wesley dissented by opinion.

Judge Jacobs, with whom Judges Cabranes and Living-ston joined, argued that the panel opinion relied ondicta that was ‘‘pulled out of context and distorted’’and ‘‘is a broad ruling that, in the hands of class actionlawyers, can be used to challenge virtually every con-sumer arbitration agreement that contains a class-actionwaiver—and other arbitration agreements with such aclause.’’ Judge Cabranes also commented that ‘‘the issueat hand is indisputably important, creates a circuit split,and surely deserves further appellate review.’’

Judge Raggi, with whom Judge Wesley joined, said thatbecause the panel’s decision to hold a class-actionwaiver unenforceable results in a circuit split, he


32

‘‘think[s] it would be useful to have the issues exploredfurther by the full court in the adversarial context of anen banc argument.’’

Merchant Fees

Italian Colors Restaurant and other merchants suedAmEx over AmEx’s service contract, which allegedlycontained an ‘‘honor all cards agreement’’ whereby mer-chants were forced to pay supracompetitive fees onAmEx’s mass-marketed products or lose a significantportion of sales from businesses, travelers and affluentcustomers who are traditional users of AmEx cards. Theagreement precluded merchants from accepting someAmEx cards and denying others in violation of theSherman Act, the merchants said.

The merchants further alleged that as a condition ofaccepting AmEx’s cards, they were required to sign a‘‘card acceptance agreement’’ that contained a manda-tory arbitration clause and prohibited the merchantsfrom bringing a class action lawsuit in court and fromhaving any claim arbitrated on anything other than anindividual basis. The merchants contended that theagreement violated the FAA.

The U.S. District Court for the Southern District ofNew York granted AmEx’s motion to compel arbitra-tion of the merchants’ antitrust claims and the questionof whether the class action waivers were enforceable,and the District Court dismissed their cases.

On Jan. 30, 2009, the Second Circuit reversed, findingthat the merchants had adequately demonstrated thatthe class action waiver provision was not enforceablebecause enforcement of the waiver would effectivelypreclude any action seeking to vindicate the statutoryrights asserted by the plaintiffs and ‘‘would grantAMEX de facto immunity from antitrust liability.’’According to the appeals panel, the merchants demon-strated that ‘‘the size of the recovery received by anyindividual plaintiff will be too small to justify the expen-diture of bringing an individual action.’’

The panel found that Section 2 of the FAA providesthat an agreement to arbitrate ‘‘shall be valid, irrevoc-able, and enforceable, save upon such grounds as existat law or in equity for the revocation of any contract.’’The panel held that because a valid ground exists for therevocation of the class action waiver, it cannot beenforced under the FAA.

Stolt-Nielsen And Concepcion

On May 3, 2010, the Supreme Court granted AmEx’spetition for a writ of certiorari, vacated the SecondCircuit’s decision and remanded in light of Stolt-Niel-sen S.A., et al. v. AnimalFeeds Int’l Corp (130 S.Ct.1758 [2010]), in which the Supreme Court, in a 5-3decision on April 27, 2010, held that an arbitrationpanel exceeded its authority under the FAA by constru-ing an arbitration clause to permit class arbitration ofantitrust claims when the clause was silent on that issue.

On remand, the Second Circuit on March 8, 2011, saidthat ‘‘Stolt-Nielsen states that parties cannot be forced toengage in a class arbitration absent a contractual agree-ment to do so. It does not follow, as Amex urges, that acontractual clause barring class arbitration is per seenforceable. Indeed, our prior holding focused not onwhether the plaintiffs’ contract provides for class arbi-tration, but on whether the class action waiver isenforceable when it would effectively strip plaintiffsof their ability to prosecute alleged antitrust violations.’’

The appeals panel found that the affidavit of an econ-omist ‘‘establishes, as a matter of law, that the cost ofplaintiffs’ individually arbitrating their dispute withAmex would be prohibitive, effectively depriving plain-tiffs of the statutory protections of the antitrust laws.’’

The Supreme Court subsequently issued its decision inConcepcion.

Open Question

In its Feb. 1 opinion, the Second Circuit said thatneither Stolt-Nielsen nor Concepcion ‘‘addresses theissue presented here: whether a class-action arbitrationwaiver clause is enforceable even if the plaintiffs are ableto demonstrate that the practical effect of enforcementwould be to preclude their ability to vindicate theirfederal statutory rights.’’

The specific preemption question addressed by theSupreme Court in Concepcion was ‘‘whether the FAAprohibits States from conditioning the enforceabilityof certain arbitration agreements on the availabi-lity of classwide arbitration procedures,’’ the appealspanel said.

‘‘Concepcion and Stolt-Nielsen, taken together, standsquarely for the principle that parties cannot be forcedto arbitrate disputes in a class-action arbitration unless


33

the parties agree to class action arbitration,’’ the SecondCircuit said, adding that ‘‘[w]hat Stolt-Nielsen and Con-cepcion do not do is require that all class-action waiversbe deemed per se enforceable. That leaves open thequestion presented on this appeal: whether a manda-tory class action waiver clause is enforceable even if theplaintiffs are able to demonstrate that the practical effectof enforcement would be to preclude their abilityto bring federal antitrust claims.’’

Fact-Specific Inquiry

The Second Circuit reiterated that ‘‘[t]he evidence pre-sented by plaintiffs here establishes, as a matter of law,that the cost of plaintiffs’ individually arbitrating theirdispute with Amex would be prohibitive, effectivelydepriving plaintiffs of the statutory protections of theantitrust laws.’’

Therefore, the Second Circuit remanded to the DistrictCourt with the instruction to deny AmEx’s motion tocompel arbitration.

The panel commented that ‘‘each waiver must be con-sidered on its own merits, based on its own record, andgoverned with a healthy regard for the fact that the FAA‘is a congressional declaration of a liberal federal policyfavoring arbitration agreements.’ ’’

The merchants are represented by Gary B. Friedman,Tracey Kitzman, Aaron Patton and Warren Parrino ofFriedman Law Group in New York.

AmEx is represented by Bruce H. Schneider ofStrook & Strook & Lavan in New York, Julia B. Strick-land and Stephen J. Newman of Stroock & Stroock &Lavan in Los Angeles and Michael K. Kellogg andDerek T. Ho of Kellogg, Huber, Hansen, Todd,Evans & Figel in Washington, D.C. n

Judge Says Bank Did Not ShowThat Cardholder AgreedTo Arbitration AgreementST. PAUL, Minn. — In a suit in which a plaintiff saysCredit One Bank NA and a collection agency violatedthe Fair Debt Collection Practices Act in their attemptsto collect his credit card debt, a federal judge in Min-nesota on May 22 denied the bank and agency’s motion

to dismiss and compel arbitration, explaining that therecord at this point is insufficient to make a showingthat the plaintiff entered into a valid agreement to arbi-trate with Credit One (Galen Traylor v. I.C. SystemInc., et al., No. 11-02968, D. Minn.; 2012 U.S. Dist.LEXIS 70850).


U.S. Judge Donovan W. Frank of the District of Min-nesota made the ruling in the suit filed by Galen Tray-lor, individually and on behalf of all others similarlysituated, against the bank and I.C. System Inc.

The unpaid balance on Traylor’s Credit One creditcard account is $905.48, and she has not made pay-ments on the account since May 5, 2010. Traylor saysthe debt she owed on her Credit One credit card wastransferred to I.C. System for collection. She alleges thatthe defendants called her numerous times on her homeand cell phones to collect the debt. Traylor furthercontends that her caller identification identified thecaller as I.C. System, but when she called the identifiednumbers back, the persons answering identified them-selves as being from Credit One. She says Credit Oneused the false name of I.C. System to deceive customersinto believing that someone other than Credit Onewas calling.

‘Very Limited Discovery’

Traylor’s complaint asserts a single count for a violationof the FDCPA against both defendants. The defen-dants moved to compel arbitration and dismiss andsubmitted a copy of Traylor’s cardholder agreement,which includes an arbitration agreement they claimgoverns the account and relationship between Traylorand Credit One. The arbitration agreement providesthat ‘‘[a]ny questions about what Claims are subject toarbitration shall be resolved by interpreting this arbitra-tion provision in the broadest way the law will allow itto be enforced.’’

The defendants assert that when Traylor opened heraccount with Credit One, she executed the agreementand thereby agreed to submit all disputes arising underthe agreement to arbitrate. Traylor argues that CreditOne provides no facts in support of mutual assent to thealleged arbitration agreement. In particular, she saysthe defendants have not alleged facts showing whenthe agreement was written; when, how or even if the


34

terms of the agreement were communicated to her; orwhen, how or even if Traylor assented to the terms. Thedefendants, in a reply brief and the supplemental affi-davit of Credit One Vice President of Collections-Operations David Guy, respond that because Traylorapplied for credit online, she could not have completedthe application and obtained credit without firstexpressly accepting the terms of the agreement.

‘‘While it appears likely that Defendants will be able todemonstrate, upon a more complete factual record, thatPlaintiff entered into a valid agreement to arbitrate withCredit One, the record at this point is insufficient tomake such a showing,’’ Judge Frank said. ‘‘Plaintiff doesnot deny that she entered into a contractual relationshipwith Credit One, accepted and benefitted from theextension of credit under the Account, and failed torepay amounts due and owing. However, as pointedout by Plaintiff, the Guy Affidavit does not describe orset forth the process by which Plaintiff would berequired to ‘expressly accept’ the terms of the Arbitra-tion Agreement (such as how the terms of the arbitra-tion agreement would be displayed or made known toPlaintiff), or otherwise detail the foundational elementsof the online application process.’’

Judge Frank found that the parties should engage in‘‘very limited discovery’’ to gather information necessaryfor the District Court to determine whether Trayloragreed to the arbitration provision via the online appli-cation. He said he will then entertain a revised motionto compel arbitration after the discovery is concluded‘‘and Defendants are able to provide sufficient factualsupport of the contention that Plaintiff is bound by theterms of the Agreement.’’

Within Scope Of Agreement

Judge Frank also found that Traylor’s FDCPA claimagainst Credit One is within the scope of the agree-ment, explaining that the claim implicates the opera-tion and handling of the account and involves bothcommunications and collection matters that relate tothe account. Traylor argues that even if the agreementcovers her claims against Credit One, it does not governher claims against I.C. System because there is no asser-tion that I.C. System was a party to the agreement.Traylor says I.C. System has not offered a theory asto how an agreement to arbitrate between Traylorand Credit One would apply to it as a third party.

Judge Frank disagreed with Traylor, first noting thatthe agreement provides that claims subject to arbitra-tion include ‘‘[c]laims for which [Credit One] may bedirectly or indirectly liable.’’

‘‘Here, I.C. System became involved in the servicing ofPlaintiff’s Account when it engaged in collectionefforts,’’ Judge Frank explained. ‘‘Plaintiff’s FDCPAclaim against I.C. System directly relates to CreditOne, as Plaintiff alleges that her calls to telephone num-bers owned by I.C. System were answered by indivi-duals who identified themselves as Credit Onerepresentatives. Because Plaintiff has pled a singlecause of action against both Defendants, based on analleged scheme devised between the two, it appears thatthis claim is one for which Credit One may be directlyor indirectly liable. As such, the claim against I.C.System will also be subject to arbitration if Defen-dants can establish that Plaintiff accepted the termsof the Arbitration Agreement at the time she openedher Account.’’

Traylor is represented by Mark L. Vavreck of Marti-neau, Gonko & Vavreck in Minneapolis and ThomasJ. Lyons of the Lyons Law Firm in Vadnais Heights,Minn. The defendants are represented by MichelleKreidler Dove of Bassford Remele in Minneapolis.

(Additional documents available. Motion to dismissand compel arbitration. Document #88-120625-202M. Brief in support of motion to dismiss andcompel arbitration. Document #88-120625-203B.Opposition to motion to dismiss and compel arbi-tration. Document #88-120625-204B. Reply in sup-port of motion to dismiss and compel arbitration.Document #88-120625-205B.) n

Class CertifiedIn Military Credit CardOvercharge ActionSAN FRANCISCO — A federal judge in California onJune 20 granted a motion for class certification in a suitin which a plaintiff alleges overcharges on militarycredit cards (Taylor Russell v. United States of America,No. 09-03239, N.D. Calif.; 2012 U.S. Dist. LEXIS85614; See April 2012, Page 30).


35

(Order available. Document #88-120625-343Z.)

Taylor Russell, who served in the U.S. Army on activeduty from April 1997 until July 2000, opened his Armyand Air Force Exchange Service (AAFES) credit cardaccount in 1998 and made required payments until thetime of his separation from service in 2000. Theaccount became delinquent shortly after he left serviceand remained delinquent until the outstanding balancewas paid through offsets in his federal tax refunds. Heclaims that the interest charged was in excess of thatallowed in the credit agreement. The agreement pro-vided that the interest would not exceed bank primerate plus 4.75 percent, with a minimum of 12 percentper year. When his debt was transferred to AAFEScollections, his balance was $940. This balance wasassessed at 14.25 percent, which exceeds the amountin the agreement.

Remand

In February 2010, the AAFES adjusted 46,851accounts with the same contractual terms as Russell’sby reducing the interest rate to the 12 percent mini-mum allowed under the agreements. A week later, theAAFES sent Russell a refund of $150 for all interestabove 12 percent paid on his balance. An AAFE volun-tary audit continued after the U.S. District Court forthe Northern District of California dismissed Russell’sindividual claim as moot. In May 2010, a second auditidentified the interest overcharges on additionalaccounts and resulted in adjustments of an additional103,320 accounts, of which 69,198 received refunds.In total, the AAFES has adjusted 149,781 accounts andissued 101,432 refunds.

Russell filed his complaint in 2009. By March 2010, hisfinal claim of interest overcharges was dismissed asmoot because he had been issued the $150 refundcheck. In the dismissal order, the District Court heldthat his class claim was also moot because he received afull refund on his individual claim before moving forclass certification. The court found that his refund cameas part of a voluntary audit of thousands of accounts‘‘outside the aegis of this lawsuit [and that] this scenariodoes not invoke the policy concerns of a defendanttargeting only the named plaintiffs to prevent a suitand frustrate the objective of a class action.’’ The Dis-trict Court allowed Russell’s counsel an opportunity tofind a substitute named plaintiff with a live claim torepresent the proposed class. On June 22, 2010, theDistrict Court entered final judgment after possible

intervenors were considered and rejected. Russellappealed the dismissal of the interest-overcharge claimto the Federal Circuit U.S. Court of Appeals.

The Federal Circuit affirmed that Russell’s individualclaim had been fully satisfied by the refund despitepurported claims for attorney fees and costs. However,based on its interpretation of an intervening NinthCircuit decision in Pitts v. Terrible Herbst (653 F.3d1081, 1091-92 [9th Cir. 2011]), the Federal Circuitdisagreed that mooting Russell’s individual claim war-ranted dismissing the class claim as moot. The FederalCircuit remanded the case to the District Court,instructing the District Court to determine whether,upon further factual development, the class claim hasbeen mooted by the AAFES’s voluntary account adjust-ment and refunds.

Rule 23(a) Satisfied

In a renewed motion for class certification, Russellasked the District Court to certify only a class ofapproximately 15,000 people who would not havereceived refund checks (15 percent of the 101,432accounts sent refunds). On March 22, Judge WilliamAlsup declined to rule on the renewed motion. He saidRussell’s estimate of 15,000 class members is ‘‘largelyspeculative.’’ The judge said no discovery has beentaken on the issue and the AAFES has not providedsufficient information to determine what percent ofrefunds were not received. ‘‘More precision is neededbefore adjudicating the . . . renewed motion for classcertification herein,’’ the judge said.

On May 17, Russell filed an amended renewed motionfor class certification. He proposed a class including:‘‘All natural persons (1) from whom AAFES has col-lected, after July 16, 2003 and through the present date,debt incurred pursuant to an AAFES Credit Agree-ment; (2) from whom the amount collected exceededthe principal amount of account purchases in all cate-gories plus finance charges permitted by the applicableAAFES Credit Agreement and allowable penaltiesand administrative fees and; (3) were not sent or havenot cashed refund check(s) for the full amount of theinterest overcharge(s).’’ ‘‘The class does not include per-sons with claims that exceed $10,000 unless suchpersons waive their claim above $10,000,’’ accordingto the motion.

In granting the amended motion, Judge Alsup foundthat the proposed class satisfies Federal Rule of Civil


36

Procedure 23(a)’s requirements regarding numerosityof class, common questions of law or fact, typicality andthe ability of the represented parties to fairly and ade-quately protect the interest of the class.

‘‘As stated, Russell’s proposed class definition foregoesan independent recalculation to determine appropriaterefunds, if any, of all 149,781 delinquent accounts, andinstead adopts the AAFES’s finding of 60,557 accountsthat are owed refunds but where refund checks are stilluncashed or were returned as undeliverable,’’ JudgeAlsup said. ‘‘Russell admits that persons who havealready had their accounts adjusted by AAFES andcashed refund checks are not part of his class definition.This order agrees and finds that the AAFES’s metho-dology of account adjustment and determination ofrefunds appears correct.’’

Attorneys

Russell is represented by Deepak Gupta of Public Citi-zen Litigation Group in Washington, D.C., MarieNoel Appel of Consumer Law Office of Marie NoelAppel in San Francisco and S. Chandler Visher of LawOffices of S. Chandler Visher in San Francisco.

The United States is represented by Alicia M. Hunt andMichael J. Quinn of the U.S. Department of Justice inWashington.

(Additional documents available: Motion for classcertification. Document #88-120625-344M. Res-ponse to motion for class certification. Document#88-120625-345B. Reply in support of motion forclass certification. Document #88-120625-346B.) n

1st Circuit Affirms DismissalOf Corruption SuitAgainst Puerto Rico BankBOSTON — The First Circuit U.S. Court of Appealson June 4 affirmed dismissal of a suit in which a plain-tiff alleges that a bank in Puerto Rico that has sincefailed kept funds from an escrow account held in theplaintiff’s interest in violation of the Racketeer Influ-enced and Corrupt Organizations Act and Puerto Ricolaws (Fabricia de Muebles J.J. Alvarez, Inc. v. Inver-siones Mendoza, Inc., et al., No. 11-1985, 1st Cir.;2012 U.S. App. LEXIS 11240).


The First Circuit panel of Chief Judge Sandra L. Lynchand Circuit Judges Michael Boudin and Kermit V.Lipez affirmed the ruling of the U.S. District Courtfor the District of Puerto Rico in the suit Fabricia deMuebles J.J. Alvarez Inc. (Alvarez) filed against Wester-nbank de Puerto Rico, whose successor in interest isBanco Popular de Puerto Rico (BPPR). The First Cir-cuit also affirmed the District Court’s denial of Alvarez’stwo motions for reconsideration of its dismissal ruling.

The suit arose from Alvarez’s agreement to sell a furni-ture business to Inversiones Mendoza Inc. (Mendoza).Westernbank agreed to finance the transaction. OnAug. 29, 2004, the parties opened what Alvarez sayswas an escrow account at Westernbank. Alvarez saysWesternbank daily swept and kept money from theescrow account in partial satisfaction of the debtsowed to it by Mendoza. Mendoza eventually filed forChapter 11 bankruptcy protection.

No Stipulation Filed

On June 19, 2009, Alvarez filed its complaint in theDistrict Court against Westernbank and various JohnDoe employees and insurance companies. The com-plaint included five causes of action: civil law fraud,breach of fiduciary duty and lender’s liability; violationof RICO; civil fraud under commonwealth law; recov-ery of funds or property; and foreclosure of mortgage.As to the RICO claims, Alvarez pleaded violationsunder subsections (a), (c) and (d) of 18 U.S. CodeSection 1692. On Sept. 28, 2009, Westernbankmoved to dismiss for failure to state a claim, and theDistrict Court partially granted the motion, allowingonly the Section 1692 RICO claim and the remainingstate law claims to survive.

On April 30, 2010, the commissioner of financialinstitutions of Puerto Rico closed Westernbank andappointed the Federal Deposit Insurance Corp. as itsreceiver to liquidate the bank. On the same date, theFDIC sold most of the bank’s assets to BPPR. OnMay 12, 2010, BPPR replaced Westernbank in theinstant case.

At a March 18, 2011, settlement conference, Alvarezagreed to dismiss three of the five causes of action: thecivil law fraud and breach of fiduciary duty claim, theremaining RICO claim and the claim of civil fraud


37

under Puerto Rico law. The District Court ordered theparties to file, pursuant to the settlement agreement, astipulation dismissing the three causes of action. Mean-while, Alvarez also said it recently identified insurancecompanies that had issued policies that would cover thedamages in the case. The District Court granted theplaintiff’s motion to amend its complaint by substitut-ing those insurance companies for the fictitious insurersit had named in the initial complaint.

On March 28, 2011, after the stipulation deadline hadpassed, BPPR moved to dismiss the causes of actionthat Alvarez had agreed to dismiss, stating that Alvarezhad failed to cooperate or comply with any of BPPR’srequests to help prepare the stipulation. The DistrictCourt granted the motion. On June 28, the DistrictCourt ordered Alvarez to show cause as to why theremaining claims, which the District Court character-ized as state laws claims, should not be dismissed forlack of subject matter jurisdiction. Alvarez did notrespond to the show-cause order within the time direc-ted by the District Court. On July 5, the District Courtdetermined that only state claims for mortgage foreclo-sure and recovery of funds remained at issue anddeclined to exercise supplemental jurisdiction overthose claims.

Reconsideration Denied

On the same date, Alvarez moved for reconsideration,contending that the case involved questions of bank-ruptcy law that the District Court was more competentto handle than state courts. On July 6, the DistrictCourt denied the motion, and on July 21, the plaintifffiled another motion for reconsideration, asserting forthe first time that the District Court should retain jur-isdiction because the plaintiff had RICO claims againstWesternbank employees that had never been dismissed.The District Court denied the motion on Aug. 3.

Alvarez appealed to the First Circuit on Aug. 4. Thedefendant appellees are Mendoza, former Westernbankofficers and directors Frank C. Stipes Garcia, WilliamM. Vidal-Carvajal and Miguel A. Vazquez Seijo, formerWesternbank in-house counsel Rosa Vicens Diaz, XLSpecialty Insurance Co., Liberty Mutual Insurance Co.,ACE Insurance Co. and Chartis Insurance Corp. ofPuerto Rico.

Alvarez argued that the District Court abused its dis-cretion in denying the second motion for reconsidera-tion because although Alvarez agreed to the dismissal

of the RICO claims against BPPR, it never agreed to thedismissal of its RICO claims against the Westernbankemployees.

‘Reasonable’ View

‘‘The short answer is that it was reasonable for the dis-trict court, after settlement, to have viewed the dismissalorder as encompassing all the RICO claims,’’ the panelreasoned. ‘‘And plaintiff, when given the opportunity topresent a different view, utterly failed to do so.’’

As to the Westernbank employees, the complaintpleads only the ‘‘control of influence’’ element of aRICO claim, the panel said. The remainder of theRICO claim discusses only the actions of Westernbankand makes no mention of its employees, and it is basiclaw that RICO claims against employees must be sepa-rate and distinct from those against the employer, thepanel said, citing Bessette v. Avco Fin. Servs., Inc. (230F.3d 439, 449 [1st Cir. 200]).

The panel added that no individuals had been named orserved as defendants when the claims were reportedsettled; although the parties were ordered to file a sti-pulation of settlement, the plaintiff failed to cooperate;and the plaintiff did not assert that it had RICO claimsremaining.

No Abuse Of Discretion

Further, the District Court did not abuse its discretionin denying Alvarez’s first motion for reconsideration,the panel said. The District Court correctly held thatthe mere fact that the settlement agreements arose in thecontext of a bankruptcy proceeding is not a standalonebasis for federal jurisdiction, the panel said.

Alvarez also argues that the District Court erred indismissing the case after the show-cause order becausethe complaint should have been read as asserting federalclaims beyond the RICO claims. On its face, the com-plaint supported several federal causes of action besidesthose under RICO, including causes under Sarbanes-Oxley, the Transportation of Stolen Property Act, sta-tutes regulating the relationship between the FDIC andthe bank and various federal securities laws, the plaintiffargues. The panel disagreed, saying the complaint’sreference to these statutes ‘‘does not come close to meet-ing the pleading requirements’’ of Ashcroft v. Iqbal(556 U.S. 662 [2009]).


38

Attorneys

Alvarez is represented by Rafael Gonzalez-Velez of SanJuan, Puerto Rico.

Mendoza is represented by Nelly Mendoza of Mendozain Cayey, Puerto Rico.

Stipes Garcia and Vidal-Carvajal are represented byGary H. Montilla-Brogan in San Juan. Vazquez Seijois represented by Roberto Buso-Aboy in San Juan.Vicens Diaz is represented by Berenice B. Bellotti andRoberto Santana-Aparicio of Del Toro & Santana inSan Juan.

XL is represented by Benjamin Cairns Eggert of WileyRein in Washington, D.C., and Manuel Antonio Pie-trantoni of Casellas Alcover & Burgos in San Juan.Liberty Mutual is represented by Eric Perez-Ochoa ofAdsuar Muniz Goyco Seda & Perez-Ochoa in SanJuan. ACE is represented by Francisco E. Colon-Ramirez of Colon, Colon & Martinez in San Juan.Chartis is represented by Jeannette Lopez de Victoriaof Pinto-Lugo, Oliveras & Ortiz in San Juan.

(Additional documents available. Appellant brief.Document #88-120625-249B. Vazquez Seijo’s appel-lee brief. Document #88-120625-250B. XL’s appel-lee brief. Document #88-120625-251B. Appellantreply brief. Document #88-120625-252B.) n

10th Circuit AffirmsDismissal Of Suit AllegingWrongful ForeclosureDENVER — The 10th Circuit U.S. Court of Appealson June 11 affirmed the dismissal of a suit in which aplaintiff accused OneWest Bank, which had acquiredhis loan after the failure of IndyMac Bank, of wrong-fully foreclosing on his home, ruling that OneWest was‘‘a holder of an evidence of debt’’ under Colorado law(Bruce C. McDonald v. OneWest Bank, No. 11-1071,10th Cir.; 2012 U.S. App. LEXIS 11801).


The 10th Circuit panel of Senior Circuit Judge WadeBrorby and Circuit Judges Paul J. Kelly Jr. and

Terrence L. O’Brien affirmed the U.S. District Courtfor the District of Colorado’s ruling in the suit BruceC. McDonald filed against OneWest.

McDonald in 2003 took out a $198,000 loan securedby a deed of trust on Colorado real property in favor ofthe lender, IndyMac. He made payments on the loanuntil April 2008, including while IndyMac was oper-ated in receivership by the Federal Deposit InsuranceCorp. When the FDIC sold IndyMac to OneWest,McDonald says he stopped making payments becauseOneWest ‘‘did not provide [him] with the instrumentor reasonable evidence of authority to make such apresentment’’ in accordance with his demands for theoriginal note. OneWest then provided him with a copyof the note and deed of trust.

‘Meritless’ Argument

OneWest foreclosed on the property and obtained anorder under Colorado Rule of Civil Procedure 120authorizing the sale of the property. McDonald twicesought reconsideration of the sale order, which wasdenied. On March 24, 2010, the property was soldand OneWest purchased it, later assigning its interestin the property to the Federal Home Loan MortgageCorp. (Freddie Mac). On the day before the sale,McDonald filed a suit in the state court claiming thatOneWest was not entitled to payment on the note andthe order of sale was void. Freddie Mac filed a forcibleentry and detainer action against McDonald seeking toevict him. McDonald obtained a stay pending resolu-tion of the state court action. He amended his statecourt complaint to join Freddie Mac and include aquiet title action. Neither defendant answered, andthe state court granted a default judgment quietingtitle. The case is on appeal.

On July 22, 2010, McDonald filed the District Courtaction against One West, alleging a violation of theRacketeer Influenced and Corrupt Organizations Act,a pattern of racketeering activities, violation of the FairDebt Collection Practices Act, fraud and violation ofthe Colorado Consumer Protection Act. He soughtdamages for the loss of his home, mental anguish,pain and suffering and attorney fees and costs. TheDistrict Court dismissed the suit on the basis of McDo-nald’s failure to state a claim. The District Court deniedMcDonald’s motion for reconsideration, and heappealed to the 10th Circuit.


39

On appeal, McDonald asserts that OneWest was notentitled to foreclose because it was not ‘‘a holder in duecourse’’ and did not own the underling note. The panelsaid the attempt to graft ‘‘holder in course’’ require-ments onto this process, ‘‘though obvious in its pur-pose, is meritless and clearly distorts the law.’’

‘Holder In Due Course’

The panel said that in Colorado, nonjudicial foreclosurebased upon a violation of a deed of trust provision can beaccomplished by ‘‘a holder of an evidence of debt,’’ quot-ing Colorado Revised Statute Section 38-38-101(1).The ‘‘holder of an evidence of debt’’ includes a ‘‘personentitled to enforce an evidence of debt’’ and presump-tively includes ‘‘the person in possession of a negotiableinstrument evidencing a debt, which has been dulynegotiated to such person or to bearer or indorsed inblank,’’ according to the statute.

‘‘As the commercial code makes clear, a person entitledto enforce an instrument may be a holder, and need notbe an owner, of the instrument,’’ the panel said. ‘‘Con-trary to Mr. McDonald’s position, nothing in the lawstates that ‘holder in due course’ status is required.’’

The panel noted that at oral argument, McDonald’scounsel said the note presented to the state court wasnot the original note and, therefore, it was not valid.McDonald’s counsel said the argument was raised in amotion he filed under Federal Rule of Civil Procedure60 with the District Court, although that is not appar-ent, the panel said. His counsel also admitted that theissue was not covered by the notice of appeal, whichonly specifies the order of dismissal and denial of recon-sideration, the panel said. The Rule 60 motion was notfiled until nearly six months after the notice of appealwas filed, and no new notice of appeal has been enteredon the issue, the panel said. Therefore, the panel said, itis unable to consider these claims on appeal.

McDonald is represented by Gary D. Fielder of the LawOffice of Gary Fielder in Arvada, Colo. OneWest isrepresented by Victoria Edwards of Akerman Senterfittin Denver.


Bank Earns PartialSummary Judgment In LoanParticipation DisputeST. LOUIS — A federal magistrate judge in Missourion June 13 ruled that Beal Bank USA is entitled to adeclaratory judgment that it is a ‘‘participating bank’’under a loan participation agreement with a failed bankbut that that Beal is not entitled to summary judgmenton future payments or prejudgment interest (Beal BankUSA v. The Business Bank of St. Louis, No. 11-0561,E.D. Mo.; 2012 U.S. Dist. LEXIS 81801).


U.S. Magistrate Judge David D. Noce of the EasternDistrict of Missouri made the ruling in the suit in whichBeal alleges that The Business Bank of St. Louis (BBSL)has not paid to Beal proceeds due to it under the parti-cipation agreement with failed Champion Bank.

Beal alleges that the Federal Deposit Insurance Corp.,as the receiver of Champion, transferred to Beal aninterest in certain loan proceeds and that BBSL, thecontractual promissory, has not paid to Beal all theproceeds due to it under the participating agreementto which Champion had been a party. BBSL previouslytried, and failed, to buy Champion from the FDIC.

Participation Agreement

Effective Sept. 6, 2007, BBSL entered into the partici-pation agreement with Champion, whereby BBSL soldto Champion an undivided 82 percent interest in a$4.9 million loan BBSL made to Matthew J. Rattereeand Toni Ratteree. On April 30, 2010, the MissouriDivision of Finance closed Champion and appointedthe FDIC as receiver of Champion’s assets, includingChampion’s participation in the Ratteree loan repay-ments. BBSL offered to repurchase the Champion par-ticipation, but the FDIC rejected the offer. The FDICthen attempted to sell the participation via a biddingprocess, and on Dec. 3, 2010, the FDIC agreed to sellthe participation to Beal.

On Jan. 11, 2011, the FDIC sent a letter advising it ofthe transfer of the Champion participation to Beal, andBeal instructed BBSL to send all payments due to itunder the participation agreement to CLMG Corp.,Beal’s servicer. BBSL responded Jan. 17, 2011, sendinga letter to CLMG arguing that the FDIC’s repudiation


40

of its right of first refusal requires the payment ofdamages for tortious interference with BBSL’s statelaw contractual rights under the participation agree-ment. BBSL also made these complaints to theFDIC, which responded that BBSL has the right tofile an administrative claim against it as receiver, butBBSL has not filed any such claim.

Beal sought a declaratory judgment that it is the ‘‘parti-cipating bank’’ under the participation agreement, aswell as payment of all past, unpaid payments; prejudg-ment interest on those payments; and an order direct-ing BBSL to make all future payments owed under theparticipation agreement. BBSL argued that the issuesare moot because in an attempt to resolve the litigation,it has paid what it owes to Beal under the participationagreement.

‘Participating Bank’

Magistrate Judge Noce concluded that BBSL has con-ceded that Beal is the ‘‘participating bank’’ under theparticipation agreement. Moreover, he said, any chal-lenges to Beal being the ‘‘participating bank’’ are effec-tually challenges to the FDIC assignment, an issue notbefore the District Court.

The magistrate judge also found that Beal is the identi-fiable third-party creditor beneficiary because of theFDIC assignment and that BBSL cannot currentlychallenge the FDIC assignment. Therefore, he said,Beal may be entitled to judgment for unpaid proceedsat the Champion participation.

‘‘As previously noted, the parties dispute whether BBSLhas paid to Beal Bank all the monies that it would beentitled to under the Participation Agreement,’’ Magis-trate Judge Noce said. ‘‘Therefore, the factual issue offull payment remains to be tried. Affected by this fac-tual issue are Beal Bank’s claims to prejudgment interestand other relief.’’

Attorney Fees

Beal also argues that is entitled to attorney fees, costsand post-judgment interest under the participationagreement. On Beal’s claim for payment of loan pro-ceeds under the participation agreement, Beal is the‘‘prevailing party’’ and BBSL is the ‘‘unsuccessfulparty’’ under Section 14 of the participation agreementbecause BBSL has impliedly agreed that Beal is entitledto the proceeds from the Champion participation in

the Ratteree loan payments, Magistrate Judge Nocefound. Beal also previously prevailed on its motion todismiss BBSL’s counterclaims. Therefore, Beal isentitled to court costs and ‘‘reasonable attorneys’ fees’’under Section 14, he said. Because further litigation isneeded to decide what amount, if any, Beal is entitled tounder the participation, a final determination of reason-able attorney fees for Beal as the prevailing party ispremature, the magistrate judge said.

Beal is represented by Nicholas J. Zluticky and Mark A.Shaiken of Stinson and Morrison in Kansas City, Mo.BBSL is represented by Jayme Major, John M. Hesseland Larry E. Parres of Lewis Rice in St. Louis.

(Additional documents available: Motion for sum-mary judgment. Document #88-120625-297M.Brief in support of motion for summary judgment.Document #88-120625-298B. Response to motionfor summary judgment. Document #88-120625-299B. Reply in support of motion for summaryjudgment. Document #88-120625-300B.) n

Judge: Investor FailedTo Plead Subjective FalsityIn Failed Bank SuitSANTA ANA, Calif. — Dismissal of federal securitieslaw claims against the former outside auditor of a failedbank is proper because a shareholder failed to properlyplead subjective falsity, a federal judge in Californiaruled June 7 (Buttonwood Tree Value Partners LP,et al. v. Jack A. Sweeney, et al., No. 10-00537, C.D.Calif.; 2012 U.S. Dist. LEXIS 80118).


Shareholder Buttonwood Tree Value Partners LP fileda second amended class action complaint in the U.S.District Court for the Central District of California onbehalf of all purchasers of First Regional Bank (FRB)common stock from Jan. 1, 2007, to Jan. 29, 2010.

Buttonwood alleges that several former FRB executiveofficers and directors violated Sections 10(b) and 20(a)of the Securities Exchange Act of 1934 and Securitiesand Exchange Commission Rule 10b-5 by issuing aseries of false and misleading statements regarding


41

FRB’s capitalization, the quality of its underwriting, theamounts reserved for loan losses, the quality of its loanportfolio and the mental competency of FRB CEOJack Sweeney.

Audit Reports

Buttonwood also contends that FRB’s outside auditor,Deloitte & Touche LLP, violated Section 10(b) andRule 10b-5 by fraudulently stating in its audit reportsthat FRB was in compliance with generally acceptedaccounting principles (GAAP) in preparing its financialstatements and that Deloitte was compliant with gen-erally accepted auditing standards (GAAS).

In granting Deloitte’s motion to dismiss, Judge CormacJ. Carney held that ‘‘[w]ith respect to the misrepresen-tation element of Plaintiffs’ claim, Plaintiffs have failedto allege subjective falsity with respect to the allegedmisrepresentations made in Deloitte’s audit reports.’’

‘‘Where a plaintiff challenges an opinion statementunder the securities law, the plaintiff must allege withparticularity that the defendant believes his or her opi-nion was false. An auditor’s report is a statement ofprofessional opinion, not fact. This Court concludesthat, unlike the Tenth Circuit [U.S. Court of Appeals],both the GAAS assertion and GAAP assertions are mat-ters of opinion, because both GAAS and GAAP area collection of broad standards that are ‘couched inrather general and in some cases inherently subjectiveterms . . . requir[ing] for example, that the auditor planthe audit engagement properly, use ‘‘due professionalcare,’’ exercise ‘‘professional skepticism,’’ and ‘‘assessthe risk of material misstatement due to fraud all mattersas to which reasonable professionals planning or con-ducting an audit reasonably and frequently coulddisagree,’ ’’ ’’ Judge Carney said, citing In re LehmanBros. Securities & ERISA Litigation (799 F. Supp. 2d258, 300-03 [S.D.N.Y. 2011]).

GAAS

‘‘Determining whether Deloitte complied with GAASwould not be easily answerable as true or false, butwould likely instead require reference to the opinionsof other auditors familiar with GAAS. Because they arestatements of opinion, Plaintiffs must allege subjectivefalsity, that Deloitte did not believe, or had no reason-able basis to believe, that it complied with GAAS andthat FRB complied with GAAP. The SAC [second

amended complaint] does not sufficiently allege suchbeliefs and thus fails to adequately plead the first ele-ment of a claim for securities fraud,’’ Judge Carneyexplained.

Buttonwood is represented by Jon Tostrud of CuneoGilbert & LaDuca in Los Angeles.

Deloitte is represented by James J. Farrell of Latham &Watkins in Los Angeles and Peter A. Wald of Latham &Watkins in San Francisco. n

Federal Judge Bars SuitAgainst Bank Due ToPlaintiff’s Intent To MisleadGAINESVILLE, Ga. — In a suit in which a plaintiffasserted negligence and breach of contract claimsagainst a bank regarding a loan, a federal judge in Geor-gia on May 23 granted the motion to dismiss filed bythe Federal Deposit Insurance Corp., as receiver of thefailed bank, ruling that the claims are barred by judicialestoppel because the plaintiff intended to mislead abankruptcy court by not listing the potential value ofthe instant litigation (Sonya Rose Lopez v. FederalDeposit Insurance Corporation, No. 10-00158, N.D.Ga.; 2012 U.S. Dist. LEXIS 71743).


U.S. Judge Richard W. Story of the Northern Districtof Georgia granted the FDIC’s motion in the suit filedby Sonya Rose Lopez.

Lopez initially sued the Bank of Hiawassee on July 15,2009, in the Towns County, Ga., Superior Court,asserting claims of negligence and breach of contractarising from a loan she obtained from the bank toconstruct a hotel. On March 19, 2010, the GeorgiaDepartment of Banking and Finance closed the bankand appointed the FDIC as receiver. The state courtgranted the bank’s motion to substitute the FDIC asdefendant, and the FDIC removed the suit to the Dis-trict Court on Aug. 19, 2010.

Judicial Estoppel

On Sept. 21, 2011, Lopez filed for Chapter 7 bank-ruptcy in the U.S. Bankruptcy Court for the Northern


42

District of Georgia. In her initial statement of financialaffairs and amended schedules, Lopez did not discloseher participation the instant case or list her claim as apotential asset. On Feb. 3, 2012, the FDIC moved todismiss the instant suit on the grounds that the DistrictCourt lacks subject matter jurisdiction under FederalRule of Civil Procedure 12(b)(1) because of Lopez’sfailure to timely file a proof of claim or comply withthe procedures for judicial review of a disallowed claimand her lack of standing to prosecute an unscheduledcause of action after filing for Chapter 7 bankruptcy.Alternatively, the FDIC moved that the case should bedismissed because of Lopez’s failure to list the litigation‘‘as having any value on her bankruptcy schedules.’’

Judge Story noted that the doctrine of judicial estoppelprecludes a plaintiff from asserting a claim in a judicialproceeding that contradicts the position taken underoath in a prior proceeding, pursuant to Parker v. Wen-dy’s Int’l Inc. (365 F.3d 1268, 1271 [11th Cir. 2004]).He said the 11th Circuit U.S. Court of Appeals inBurnes v. Pemco Aeroplex (291 F.3d [11th Cir.2002]) adopted a two-prong test for determiningwhether judicial estoppel should bar a given claim.First, the prior inconsistent position must be assertedunder oath, and second, the court decides whether theinconsistent statements amount to a manipulation ofthe judicial system.

The judge said there is no debate that Lopez’s financialdisclosure forms were submitted under oath to theBankruptcy Court. He went on to find that the recordsupports an inference that Lopez intentionally manipu-lated the judicial system. Specifically, she did not dis-close her claim or her status as a party to this case in herinitial schedules and asset filings with the BankruptcyCourt, and she again failed to disclose her claim and theinstant litigation in a set of amended schedules filedmore than a month later, Judge Story said. Addition-ally, there are no facts in the record from which tosurmise that Lopez was unaware that her claim waspending in the District Court when she filed for bank-ruptcy, he said.

‘Intent To Mislead’

Assuming that a claim value Lopez filed with the FDICis reasonably accurate, the value of the present litigationwas double the value of her listed assets and would triplethe available asset pool from which creditors couldsatisfy their claims, Judge Story said.

‘‘Given these undisputed facts, the Court finds thatPlaintiff had the requisite intent to mislead the bank-ruptcy court,’’ Judge Story said.

Judge Story dismissed Lopez’s claims with prejudiceand declined to further consider whether the DistrictCourt lacks subject matter jurisdiction over Lopez’sclaims.

Lopez is represented by Neil Louis Wilcove of Free-man, Mathis & Gary in Atlanta. The FDIC is repre-sented by Irene B. Vander Els, Kristen A. Yadlosky andSamuel Robinson Arden of Hartman, Simons & Woodin Atlanta.

(Additional document available. Motion to dismiss.Document #88-120625-211M.) n

FDIC Can Intervene In SuitAgainst Failed Banks’Former OfficersINDIANAPOLIS — A federal magistrate judge inIndiana on June 1 granted the Federal Deposit Insur-ance Corp.’s motion to intervene in a suit in which theChapter 7 trustee of a failed bank alleges that the bank’sformer senior officers breached their fiduciary duties(Elliott D. Levin v. William I. Miller, et al., No. 11-01264, S.D. Ind.; 2012 U.S. Dist. LEXIS 76231).


U.S. Magistrate Judge Tim A. Baker of the SouthernDistrict of Indiana granted the FDIC’s motion to inter-vene in the suit Eliott D. Levin, the Chapter 7 trusteefor failed bank Irwin Financial Corp. (IFC), filedagainst the bank’s former CEO William I. Miller, for-mer Chief Financial Officer and Senior Vice PresidentGregory F. Ehlinger and former CFO, Senior VicePresident and Executive Vice President Thomas D.Washburn.

IFC filed for bankruptcy protection on Sept. 18, 2009,after regulators closed its banks and appointed theFDIC as receiver. The trustee filed the suit onSept. 16, 2011, bringing counts for breach of duty ofcare and breach of duty of loyalty. On Dec. 7, the


43

defendants moved to dismiss, arguing that the trusteelacks standing because his claims belong exclusivelyto the FDIC pursuant to 12 U.S. Code Section1821. On March 28, the FDIC moved to interveneas a party, asserting that it has exclusive ownership ofthe trustee’s claims.

Motion Was Timely

Pursuant to Federal Rule of Civil Procedure 24(a)(2),the party seeking intervention of right must show thatthe motion was timely, that the party possesses an inter-est related to the subject matter of the action, thatdisposition of the action threatens to impair that inter-est and that existing parties to the action fail to representthat interest adequately, the magistrate judge said, cit-ing United States v. BDO Seidman (337 F.3d 802, 808[7th Cir. 2003]).

The trustee argued that the motion was not promptbecause the FDIC’s counsel was present at the bank-ruptcy proceedings that were conducted prior to thetrustee filing the complaint and thus ‘‘was well awarethat this action was in prospect.’’ However, an action‘‘in prospect,’’ is not the same as a lawsuit in progress,the magistrate judge said. The defendants’ motion todismiss first placed the FDIC’s interest at issue, and theFDIC moved to intervene only 15 days after the trusteefiled a sur-reply to the motion to dismiss, the magistratejudge said. The motion is timely because the FDICpromptly moved to intervene, intervention presentsminimal prejudice to the existing parties and denyingthe motion could result in substantial prejudice to theintervener, the magistrate judge determined.

The magistrate judge also found that the FDIC has alegitimate interest in the subject matter of the litigation,agreeing with the FDIC’s argument that under theFinancial Institution Reform, Recovery and Enforce-ment Act of 1989 (FIRREA), the trustee’s claims arederivative and belong exclusively to the FDIC.

‘Not Adequately Represented’

The magistrate judge further found that the FDIC’sability to protect its interest may be impaired if it isnot permitted to intervene. Impairment depends on‘‘whether the decision of a legal question involved inthe action would as a practical matter foreclose rightsof the proposed intervenors in a subsequent proceeding,’’he said, quoting City of L.A. v. United Air Lines

(No. 06-1084, N.D. Ill. [July 7, 2006]). Because theFIRREA allocates exclusive rights to the FDIC, a rulingregarding the FIRREA’s impact on the trustee’s claimspotentially could impact the FDIC’s ability to bring aclaim and may otherwise adversely affect the FDIC, themagistrate judge said.

The FDIC’s rights are not adequately represented by anexisting party, the magistrate judge also found.

‘‘A party seeking intervention as of right must onlymake a showing that the representation may be inade-quate and the burden of making that showing shouldbe treated as minimal,’’ he said, quoting Ligas ex rel.Foster v. Maram (478 F.3d 771, 774 [7th Cir. 2007]).The FDIC argued that if permitted to intervene, it willfile a motion to dismiss based on the reasons articulatedin the defendants’ motion to dismiss. The trusteeargued that because the FDIC bases its proposedmotion to dismiss on arguments already advanced inthe defendants’ motion to dismiss, the defendants ade-quately represent the FDIC’s interests.

‘‘However, the FDIC seeks dismissal of Plaintiff’sclaims precisely so that it may bring the same claimsagainst Defendants,’’ the magistrate judge said. ‘‘TheFDIC is thus adverse to Plaintiff and Defendants. Con-sequently, the FDIC’s interest in this litigation is notadequately represented by the existing parties.’’

Attorneys

Levin, Elizabeth M. Lally and John C. Hoard ofRubin & Levin in Indianapolis and Alfred S. Lurey,Angela N. Frazier, Susan A. Cahoon and Todd C.Meyers of Kilpatrick Townsend & Stockton in Atlantarepresent Levin.

The defendants are represented by David E. Wright,James A. Knauer, Kevin Dale Koons and Steven E.Runyan of Kroger Gardis & Regas in Indianapolis.

The FDIC is represented by Byron E. Leet and JohnW. Woodard Jr. in Louisville, Ky., and Douglas A.Black and Robert Edgar Craddock Jr. in Memphis,Tenn., all of Wyatt Tarrant & Combs.

(Additional documents available. Motion to intervene.Document #88-120625-243M. Opposition to motionto intervene. Document #88-120625-244B.) n


44

Chase Did Not AssumeLiability From WaMu,Federal Judge RulesCHARLOTTE, N.C. — A federal judge in NorthCarolina on June 13 granted JPMorgan Chase & Co.Inc.’s (Chase) motion to dismiss a suit arising from aloan Chase acquired from Washington Mutual Inc.(WaMu), ruling that Chase did not assume any ofWaMu’s liability when it purchased certain WaMuassets from the Federal Deposit Insurance Corp. (JustusA. Oketch v. JPMorgan Chase & Co. Inc., No. 12-0102, W.D. N.C.; 2012 U.S. Dist. LEXIS 81606).


U.S. Judge Graham C. Mullen of the Western Districtof North Carolina made the ruling in the suit Justus A.Oketch filed against Chase, dismissing the suit withprejudice.

Oketch says he bought real estate in 1981 with a$38,050 loan from the North Carolina Federal Savingsand Loan Association (North Carolina Federal),extending a promissory note and a deed of trust infavor of North Carolina Federal. He says Fleet Mort-gage Corp. ‘‘took over the loan,’’ then WaMu becamesuccessor in interest as a result of its merger with Fleet.His loan was referred to a foreclosure as a result ofan arrearage.

Allegations Lacking

WaMu obtained a default judgment against Oketch in2005, in which the Mecklenburg County SuperiorCourt found that he defaulted on the note. The plain-tiff says WaMu bought his property at a Dec. 29, 2005,foreclosure sale, obtained an order of writ of possessionagainst him on Feb. 16, 2006, and conveyed the prop-erty to the U.S. Department of Housing and UrbanDevelopment, which had partially subsidized Oketch’sloan payments through the National Housing Act.HUD then sold the property to Terry Albert Smithon Oct. 6, 2006, Oketch says.

On Jan. 11, Oketch filed suit in the state court, allegingclaims against Chase for breach of contract, fraud,breach of common law and statutory duties of goodfaith and violations of North Carolina’s Unfair andDeceptive Trade Practices Act (UDTPA). Chase

removed the suit to the District Court and moved todismiss.

Judge Mullen found that Oketch’s complaint lacks fac-tual allegations demonstrating any conduct attributableto Chase, noting that a single sentence in the complaintconnects Chase to the action (‘‘For the purposes of thisComplaint, all acts and omissions against Defendant’sPredecessors in Interest are imputed against Defendant,and any reference to Defendant’s acts or omissions isintended to include the acts and omissions of Defen-dant’s Predecessors in Interest.’’). There are no allega-tions in the complaint that Chase engaged in any of theactions and omissions, and there are no factual allega-tions that would allow the District Court to find thatChase should be held liable for the actions and omis-sions of its predecessors, the judge said.

Res Judicata

The purchase and assumption agreement throughwhich Chase purchased certain assets of WaMu‘‘makes it clear that Defendant did not assume anyliability that would support the instant lawsuit,’’Judge Mullen explained. He said courts have reliedon Section 2.5 of the agreement to dismiss claimsagainst Chase that were based on the pre-sale actionsand omissions of WaMu and that he finds the relianceof other courts on Section 2.5 to be instructive.

Even if Chase was the successor in interest to NorthCarolina Federal, Fleet and WaMu regarding Oketch’snote and deed of trust, his claims would still be barredbecause of the entry of judgment against him in thestate court because of the doctrine of res judicata, JudgeMullen concluded.

Regarding the claims for breach of the covenant of goodfaith and violation of the UDTPA, Judge Mullen said theplaintiff alleges no additional facts to support the claims;therefore, the District Court must rely on the factualallegations to support the claims. Because the factssupporting the claims were resolved by the state courtjudgment and cannot be relitigated in the DistrictCourt, the claims are barred by res judicata.

Oketch is represented by John Francis Hanzel of Cor-nelius, N.C. Chase is represented by Julia Bright Hart-ley and Thomas G. Hooper of Nelson, Mullins,Riley & Scarborough in Charlotte.


45

(Additional documents available. Motion to dismiss.Document #88-120625-292M. Brief in support ofmotion to dismiss. Document #88-120625-293B.Opposition to motion to dismiss. Document #88-120625-294B. Reply in support of motion to dis-miss. Document #88-120625-295B.) n

Federal Judge DismissesMost Of Suit ArisingFrom Home ForeclosureSAN FRANCISCO — A federal judge in California onJune 18 dismissed several counts from a suit againstseveral banks and other defendants arising from ahome foreclosure because the complaint lacks sufficientspecificity, among other reasons (John P. McGough v.Wells Fargo Bank NA, et al., No. 12-0050, N.D.Calif.; 2012 U.S. Dist. LEXIS 84327).


U.S. Judge Thelton E. Henderson of the NorthernDistrict of California partially granted the motions todismiss filed by Wells Fargo Bank NA, OneWest Bank,U.S. Bank and Meridian Foreclosure Service in the suitbrought by John P. McGough.

McGough borrowed $960,000 from First FederalBank of California in 2006, and the loan was securedby a deed of trust on McGough’s property in Danville,Calif. Originally, the beneficiary under the deed of trustwas First Federal, and the trustee was Seaside FinancialCorp. McGough alleges that at some point, his loan wassecuritized, with the note not being properly transferredto U.S. Bank, whom McGough alleges was the trusteefor the securitized trust. In 2009, the Office of ThriftSupervision closed First Federal, and the FederalDeposit Insurance Corp. was named receiver. TheFDIC then assigned its interest in the note and deedof trust to OneWest.

Debtor Files Suit

A notice of default was recorded Oct. 20, 2010, byMeridian, and Meridian was substituted for Seaside astrustee on Jan. 24, 2011, the same day a notice oftrustee’s sale was received by the Contra Costa CountyRecorder’s Office. The property was sold Feb. 14,2011, at a trustee’s sale.

On Feb. 23, 2011, Miah Callahan and J. Rost Realtyapproached McGough with a ‘‘cash for keys’’ agree-ment, in which McGough would vacate the apartmentby March 4, 2011, in exchange for an $8,000 payment.When McGough arrived to sign the contract and moveout, he says, he was presented with a contract thatreplaced the last term before the signature line with arelease of liability. McGough signed the contract andreceived an $8,000 check.

In his complaint, McGough brought 12 claims, six ofwhich are at issue in the instant motions to dismiss:lack of standing, breach of contract, violation of theTruth in Lending Act (TILA), violation of California’sunfair competition law (California Business and Profes-sions Code Section 17200) and penal code Sections115 and 532(f)(a)(4), intentional infliction of emo-tional distress and equitable estoppel.

Wells Fargo, U.S. Bank

In dismissing without prejudice all of McGough’sclaims against Wells Fargo, Judge Henderson notedthat Wells Fargo argues that it is referenced individuallyonly once in the 40-page complaint, where McGoughasserts that Wells Fargo is the purported servicer of themortgage. In making that contention, McGough refer-ences documents that do not make reference to WellsFargo, Judge Henderson said, and Wells Fargo deniespresently being, or ever having been, the servicer ofthe mortgage. Therefore, the judge said, the complaintas to Wells Fargo lacks sufficient specificity.

Similarly, Judge Henderson dismissed without preju-dice the claims against U.S. Bank because of a lack ofsufficient specificity. The complaint does not clearlyallege how U.S. Bank specifically, and not as a memberof a group of defendants but as an individual entity, wasinvolved in the conduct underlying McGough’s claimsor even what the wrongful conduct of U.S. Bank mighthave been, the judge explained.

Against all the defendants, McGough alleges impropersecuritization, arguing that the pooling and serviceagreement (PSA) governing the securitized trust wasviolated. Therefore, the note was never properly secur-itized, and the defendants are not properly the benefi-ciaries of the securitized trust and have no enforceablerights as to the property, he argues. Judge Henderson


46

agreed with the defendants, who responded thatMcGough lacks standing to challenge any violationsof the PSA. When a plaintiff is not an investor in thePSA, courts have held that the plaintiff has no standingto challenge violations of the PSA’s terms, Judge Hen-derson said, dismissing the claims with prejudice.

Breach Of Contract

The judge went on to dismiss without prejudice theplaintiff’s breach of contract claims. McGough seeks toallege breach of contract by claiming that securitizationconstituted an improper transfer of the note separatefrom its security instrument, but Judge Hendersonagreed with OneWest, which pointed out that thenote itself provides that it may be transferred, andfurthermore, securitization is not a valid basis for bring-ing this cause of action.

In dismissing without prejudice McGough’s cause ofaction for violation of the TILA, the judge agreed withthe defendants’ argument that McGough exceeded theapplicable one-year statute of limitations to file theclaim. Judge Henderson also dismissed without preju-dice the plaintiff’s Section 17200 claim. Because theclaim sounds in fraud, it is held to the higher pleadingstandard of Federal Rule of Civil Procedure 9(b), thejudge said. The complaint makes many specific allega-tions about the mortgage industry generally and makesspecific allegations regarding some individuals, thejudge said. ‘‘However, without linking these specificsto the conduct of OneWest and Meridian (and evenWells Fargo or U.S. Bank, if such a link can be made)the complaint fails to meet the requirements of Rule9(b),’’ he said.

Judge Henderson declined dismissal of McGough’sclaims for intentional infliction of emotional distress,explaining that the complaint ‘‘clearly alleges conduct inbad faith, with reckless disregard for Plaintiff’s potentialemotional distress, as well as alleging a causative con-nection between the conduct involved and the effects ofthe distress, including lack of sleep, anxiety, depression,lack of appetite, and loss of productivity at work.’’

Finally, Judge Henderson denied as moot Meridian’smotion to dismiss the claims specific to it.

Attorneys

McGough is represented by Patricia Renee Rodriguez ofthe Law Offices of Patricia Rodriguez in Pasadena, Calif.

Wells Fargo is represented by Robert Arthur Bailey ofAnglin, Flewelling, Rasmussen, Campbell & Trytten inPasadena.

OneWest and U.S. Bank are represented by AntonLeBlanc Hasenkampf and Nicholas Bennett Waranoffof Allen Matkins Leck Gamble Mallory & Natsis inSan Francisco.

Meridian is represented by Michael W. Burnett of Bur-nett in Newport Beach, Calif.

(Additional documents available: Meridian’s motionto dismiss. Document #88-120625-318M. Responseto Meridian’s motion to dismiss. Document #88-120625-319B. Reply in support of Meridian’smotion to dismiss. Document #88-120625-320B.OneWest and U.S. Bank’s motion to dismiss. Docu-ment #88-120625-321M. Response to OneWest andU.S. Bank’s motion to dismiss. Document #88-120625-322B. Reply in support or OneWest andU.S. Bank’s motion to dismiss. Document #88-120625-323B. Wells Fargo’s motion to dismiss.Document #88-120625-324M. Response to WellsFargo’s motion to dismiss. Document #88-120625-325B. Reply in support of Wells Fargo’s motion todismiss. Document #88-120625-326B.) n

Federal Judge DismissesComplaint Arising FromWaMu’s Pre-Failure ConductNEW HAVEN, Conn. — A federal judge in Con-necticut on June 20 granted JPMorgan Chase BankNA’s motion to dismiss a suit in connection with anote and mortgage originally issued by WashingtonMutual Bank (WaMu) because the plaintiff’s claimsarise from WaMu’s pre-failure conduct (Harry T. Con-stas v. JPMorgan Chase Bank NA, No. 11-0032, D.Conn.; 2012 U.S. Dist. LEXIS 85339).


U.S. Judge Vanessa L. Bryant of the District of Con-necticut granted Chase’s motion to dismiss the suitHarry T. Constas filed against it.

Constas claims breach of the implied covenant of goodfaith and fair dealing, negligent infliction of emotional


47

distress, unfair trade practices, tortious interferencewith contractual relations and a violation of the Con-necticut Unfair Trade Practices Act (CUPTA) in con-nection with a note and mortgage originally issued byWaMu and later sold to Chase.

Pre-Failure Conduct

Constas initially sued WaMu in the State SuperiorCourt for the Judicial District of Stamford/Norwalkin Connecticut, and the Federal Deposit InsuranceCorp., as receiver for WaMu, removed it to the DistrictCourt. On Sept. 25, 2008, the FDIC was appointed asreceiver for WaMu and most of WaMu’s assets andcertain liabilities were transferred to Chase, includingConstas’ mortgage loan. The liabilities transferred toChase expressly did not include any monetary claimsarising from WaMu’s pre-failure lending.

The FDIC moved to dismiss, and the District Courtgranted the FDIC’s motion without prejudice. Constasfiled an amended complaint, adding Chase as an addi-tional defendant, and the FDIC again moved to dismissbased on lack of jurisdiction as a result of Constas’failure to properly exhaust the claims process underthe Financial Institutions Reform Recovery and Enfor-cement Act of 1989 (FIRREA). The District Courtterminated the FDIC as a defendant and allowed theplaintiff to file another amended complaint. He filedhis second amended complaint, and Chase movedto dismiss.

Chase argued that because all of Constas’ claims stemfrom WaMu’s pre-failure conduct, the claims should beasserted against the FDIC as receiver, not Chase. Chasecontended that because Constas has failed to timelyexhaust the administrative claims process, the DistrictCourt lacks subject matter jurisdiction.

No ‘End-Around’ Allowed

Judge Bryant said it is ‘‘abundantly clear’’ that Constas’claims arise from WaMu’s pre-failure conduct of pur-portedly forging his mortgage and are therefore prop-erly asserted against the FDIC, not Chase, and subjectto the FIRREA’s mandatory administrative claimsprocess.

‘‘Constas may not try to evade FIRREA’s requirementsby alleging that Chase should be liable for WAMU’sprefailure conduct based on a conclusory allegation thatChase was made aware of WAMU’s pre-failure conduct

allegedly discovered after it acquired the subjectloan. . . . To allow a plaintiff to do so would create anend-run around the very purpose of FIRREA’s admin-istrative claims exhaustion requirement,’’ Judge Bryantexplained.

In the alternative, Chase argued that the complaintshould be dismissed under Federal Rule of Civil Proce-dure 9(b) for failure to plead fraud with particularity.Assuming arguendo that Constas’ claims were notbarred by the FIRREA, he has also failed to pleadwith particularity the circumstances constituting thealleged fraud that forms the basis of his claims, thejudge said.

Constas of Greenwich, Conn., appears pro se. Chase isrepresented by Mary Elizabeth Holland and Nicole L.Barber of Hunt Leibert Jacobson in Hartford, Conn.

(Additional documents available: Motion to dismiss.Document #88-120625-334M. Opposition tomotion to dismiss. Document #88-120625-335B.) n

In Reversal, 6th CircuitOrders Return OfForfeited Funds To BankCINCINNATI — Reversing a district court decision,the Sixth Circuit U.S. Court of Appeals on June 14ruled that a bank is entitled to the proceeds of a depositaccount that were seized by the government as part of acriminal forfeiture proceeding (United States ofAmerica v. Huntington National Bank, No. 10-2071, 6th Cir.; 2012 U.S. App. LEXIS 12040).


The Sixth Circuit panel of Circuit Judges Eric L. Clayand Julia Smith Gibbons and U.S. Judge EdwardR. Korman of the Eastern District of New York, sitt-ing by designation, reversed the U.S. District Courtfor the Western District of Michigan’s ruling in thesuit the U.S. government filed against HuntingtonNational Bank.

The proceeding arises out of the activities of a business,known variously as Cybernet Engineering, CybercoHoldings and CyberNET (collectively, Cyberco),


48

whose principals engaged in a complex scheme todefraud dozens of lending institutions out of morethan $100 million in loans and lines of credit. In2002, Huntington granted Cyberco a multimillion dol-lar line of credit, and in exchange, Cyberco grantedHuntington ‘‘a continuing security interest and lien’’in all of Cyberco’s tangible and intangible personalproperty and rights, including ‘‘deposit accounts.’’ InNovember 2004, after discovering the fraud, the gov-ernment seized approximately $4 million in Cybercoassets, including $705,168.60 from its account withHuntington (the Cyberco account).

Bank’s Appeals

Several Cyberco principals were indicted on bank fraud,mail fraud and money-laundering charges. In their pleaagreements, Cyberco principals Krista L. Kotlarz Wat-son and Paul Nathan Wright agreed to forfeit to theUnited States any interest identified in Count 10 of theindictment. The District Court entered a preliminaryorder of forfeiture on Sept. 24, 2007, with regard to theassets, including the Cyberco account.

Huntington filed a verified petition of claim, assertingthat it had a right to, and a direct ownership interest in,the funds in the Cyberco account. It claimed that at thetime it filed the petition, Cyberco was indebted to thebank for $926,162.57, that Cyberco had defaulted onits obligations by providing Huntington with fraudu-lent financial statements and by failing to makerequired payments and that Huntington was entitledto the funds in the account pursuant to the securityagreement between the parties. The District Courtfound that Huntington did not have a legal right,title or interest that rendered the order of forfeitureinvalid in whole or partially under 21 U.S. CodeSection 852(n)(6)(A).

The bank filed a motion to alter or amend the judg-ment, arguing that it was entitled to relief under Section853(n)(6)(B) because it was a bona fide purchaser forvalue (BFP) of its security interest in the funds in theCyberco account. The District Court denied themotion, finding that Huntington waived its BFP argu-ment by failing to raise it earlier. Huntington appealedto the Sixth Circuit, which found that Huntington hadnot waived his argument and remanded the issue to theDistrict Court so it could consider the merits of Hun-tington’s claim. The District Court again deniedthe bank’s claim, finding that the term ‘‘bona fide

purchasers’’ was a legal term of art that should not begiven an unnatural meaning for the purpose of Section853(n)(6)(B). It held that Huntington was not a BFPof the Cyberco account and reaffirmed the final orderof forfeiture.

Huntington then filed the instant appeal with the SixthCircuit, arguing that because it purchased a valid secur-ity interest in all of Cyberco’s assets by extending a lineof credit and loans to Cyberco and because it was una-ware of Cyberco’s fraud until the funds in the accountwere seized, Huntington is a BFP of the security interestin the account under Section 853(n)(6)(B). The bankasserts that is therefore entitled to the return of theforfeited proceeds from the account.

Bona Fide Purchaser

The panel noted that the criminal forfeiture statute,Section 853(c), provides that all right, title and interestin property subject to forfeiture ‘‘vests in the UnitedStates upon the commission of the act giving rise toforfeiture under the section.’’ At issue in this case is thesecond exception to Section 853(c), which in Section853(n)(6)(b) provides that property cannot be forfeitedif ‘‘the petitioner is a bona fide purchaser for value of theright, title, or interest in the property and was at thetime of purchase reasonably without cause to believethat the property was subject to forfeiture under thissection.’’

The panel said that Huntington is correct that it is wellestablished that one who takes a security interest inproperty in exchange for antecedent debt, as the bankdid, can be a BFP of that property interest. The panelsaid that the government’s position that creditors can-not be BFPs under the BFP exception is without merit.Because Huntington through its security agreementwith Cyberco had a secured interest in the forfeitedproperty and not simply a common-law or statutoryright of setoff, Huntington is eligible to claim protec-tion under the BFP exception, the panel said.

After finding that Huntington is able to claim protec-tion under the BFP exception, the panel turned to thequestion of whether Huntington actually qualifies as aBFP for value under Section 853(n)(6)(B). Huntingtonasserts that it purchased its security interest in theCyberco account and was ignorant of the potentialforfeiture of the account. Therefore, Huntington con-tends that it is a BFP of its security interest in the


49

account, and because Cyberco owed Huntington morethan the value of the account, Huntington’s interestattached to the entire proceeds of the account. Thepanel agreed.

The panel directed the District Court to amend theorder of forfeiture in accordance with the panel’sanalysis.

Attorneys

The United States is represented by Assistant U.S.Attorneys Matthew G. Borgula and Joel S. Fauson ofthe U.S. Attorney’s Office in Grand Rapids, Mich.

Huntington is represented by Jeffrey O. Birkhold andGaetan E. Gerville-Reache of Warner, Norcross &Judd in Grand Rapids, Mich.


Citibank Escapes SuitArising From RejectionOf Loan ApplicationGREENBELT, Md. — A federal judge in Maryland onJune 21 dismissed a suit in which a plaintiff asks for $7million in damages from Citibank NA for alleged viola-tions related to the bank’s rejection of his loan applica-tion, finding that the plaintiff’s allegations for fraud andnegligence do not meet the relevant pleading standards(Daniel Ford v. Citibank NA, No. 11-3578, D. Md.;2012 U.S. Dist. LEXIS 86199).


U.S. Judge Roger W. Titus of the District of Marylandgranted Citibank’s motion to dismiss the suit DanielFord filed against the bank.

Ford alleges that he is a personal, business and merchantservices customer of Citibank. He says that in July2011, he applied for a $100,000 line of credit withCitibank. He says Citibank banker Juan Valdez madenumerous false statements concerning the status of the

loan before denying the loan. Ford alleges that Citibankbranch manager Michael Freeman informed him onAug. 29, 2011, that Freeman ‘‘threw the applicationin the basket to be shredded.’’ The plaintiff also sayshe filed a second application that day, to which he hasnot received a response.

Deficient Fraud Pleading

Ford filed a pro se complaint, contending that he isentitled to damages because Citibank acted fraudu-lently and negligently during the loan application pro-cess. He also claims that the bank violated unspecifiedfederal laws. He says he is owed $7 million in damages.Citibank moved to dismiss for failure to state a claimupon which relief can be granted, contending thatFord’s one-paragraph complaint fails to supply therequisite supporting detail needed to satisfy the heigh-tened pleading standard for fraud under Federal Rule ofCivil Procedure 9(b). The bank also argued that Fordoffered no detail to support the elements of a negligenceclaim and failed to reference the federal law Citibankallegedly violated. Ford filed a response, offering newfactual details, exhibits and legal arguments. The bankfiled a reply, saying the new allegations are outside thepleadings and can’t cure the defects of the complaint.

Judge Titus noted that Ford alleges that Valdez made‘‘numerous false statements regarding the status of [the]loan’’ and told Ford that the loan was denied when itwas actually discarded. Beyond these allegations, Fordfails to offer any factual allegations relating to his reli-ance on Valdez’s statements, nor has Ford alleged thatValdez’s statements were made with the purpose ofdefrauding Ford, Judge Titus determined. Addition-ally, Ford does not allege any details to suggest thatValdez knew that the statements were false or that Val-dez was recklessly indifferent to the truth, the judgesaid. Further, Ford offered no allegations relating tohow the statements resulted in damages beyond claim-ing that the bank’s acts ‘‘cost me years of damages aswell as damages to many of my business partners.’’Thus, the plaintiff has failed to meet the Rule 9(b)pleading standard for fraud.

No Fiduciary Duty

The judge went on to dismiss Ford’s negligence claimpursuant to Rule 12(b)(6). Under Maryland law, a bankdoes not owe a fiduciary duty to a customer, absent an


50

agreement to the contrary, Judge Titus said, citingKuechler v. Peoples Bank (602 F. Supp. 2d 625, 633-34 [D. Md. 2009]).

Ford failed to plead that the bank breached or evenowed a duty to him, the judge said. The parties werenot in a contractual relationship; Ford was only apply-ing for a line of credit, Judge Titus noted. Citibank wasunder no duty to give Ford a loan, and thus the negli-gence claim cannot be cured by amendment, the judgesaid, adding that Ford also failed to allege any detailsregarding how the bank’s conduct proximately causedhis losses.

Judge Titus also dismissed the federal law claim, sayingthat ‘‘[b]eyond [the] bald assertion’’ that the bank’sdisposal of his loan application was a violation of federallaw, the complaint does not identify what law Citibankhas violated, nor has Ford alleged how he has beendamaged by Citibank’s supposed violation. Such allega-tions, ‘‘wholly lacking in factual or legal support,’’ fail tomeet the pleading standard under Rule 12(b)(6).

Leave To Amend

Judge Titus said he recognizes that pro se plaintiffsshould be afforded greater leeway in pleading matters,but because it is clear that Ford cannot cure his claimsof fraud and negligence by amending the complaint, hegranted Citibank’s motion to dismiss for failure to statea claim with prejudice. However, he said Ford’s federallaw claim ‘‘is not so facially inapplicable that anamended complaint would futile’’ and granted themotion to dismiss this claim without prejudice.

The judge also denied Ford’s motion to appoint coun-sel, saying Ford ‘‘has demonstrated the wherewithal toeither articulate the legal facts and factual basis of hisclaims himself or secure meaningful assistance in doingso,’’ noting that the pending issues ‘‘are not undulycomplicated and no hearing is necessary to the disposi-tion of this case.’’

Ford of Riverdale, Md., appears pro se. Citibank isrepresented by Virginia Wood Barnhart of TreanorPope and Hughes in Towson, Md.

(Additional documents available: Motion to dismiss.Document #88-120625-340M. Response to motionto dismiss. Document #88-120625-341B. Reply insupport of motion to dismiss. Document #88-120625-342B.) n

4th Circuit RemandsStudent Loan Suit For‘State Agency’ AnalysisRICHMOND, Va. — The Fourth Circuit U.S. Courtof Appeals on June 18 vacated and remanded the dis-missal of a complaint alleging that state-created studentloan corporations defrauded the U.S. Department ofEducation, explaining that a district court did notemploy the proper analysis to determine whether eachof the defendants is a state agency subject to suit underthe False Claims Act (FCA) (United States of Americaex rel. Jon H. Oberg v. Kentucky Higher EducationStudent Loan Corp., et al., No. 10-2320, 4th Cir.;2012 U.S. App. LEXIS 12290).


The Fourth Circuit panel of Chief Judge William B.Traxler Jr. and Circuit Judges Diana Gribbon Motzand Barbara Milano Keenan reversed and remandedthe U.S. District Court for the Eastern District of Vir-ginia in the suit filed by Dr. Jon H. Oberg.

On behalf of the United States, Oberg sued the Ken-tucky Higher Education Student Loan Corp., Pennsyl-vania Higher Education Assistance Agency, VermontStudent Assistance Corp. and Arkansas Student LoanAuthority (the appellees), as well as other defendantsnot parties to the appeal, under the FCA. Each appelleewas created by its respective state and operates withvarying degrees of control by and support from itsrespective state.

‘Persons’ Under FCA

Oberg asserts that the appellees knowingly made frau-dulent claims to the Department of Education by enga-ging in various noneconomic transactions to inflatetheir loan portfolios eligible for special allowance pay-ments (SAP), a federal student loan interest subsidy. Asa result, the Department of Education overpaid mil-lions of dollars of SAP to the appellees, according toOberg. Each appellee moved to dismiss the complaintcontending that it was a ‘‘state agency,’’ and thus, underVermont Agency of Natural Resources v. United Statesex rel. Stevens (529 U.S., 787-88 [2000]), was not a‘‘person’’ that could be sued under the FCA. The Dis-trict Court agreed, dismissing the complaint. The Dis-trict Court did not apply any stated legal test andinstead primarily looked to state statutory provisions,


51

which, in the District Court’s view, demonstrated eachentity’s status as a ‘‘state agency,’’ the panel said. Obergappealed to the Fourth Circuit.

The panel said the appeal presents the questions ofwhether each of the appellees constitutes a ‘‘person’’subject to liability under the FCA. The FCA providesa cause of action against ‘‘any person’’ who undertakescertain fraudulent behavior, including ‘‘knowingly pre-sent[ing], or caus[ing] to be presented, a false or frau-dulent claim for payment or approval’’ to an officer,employee or agent of the United States.

The relevant provisions of the FCA do not define theterm ‘‘person,’’ but the U.S. Supreme Court ‘‘has pro-vided helpful guidance on this question,’’ the panel said.In Stevens, the Supreme Court concluded that theVermont Agency of Natural Resources, a state agency,could not be sued under the FCA, holding that ‘‘theFalse Claims Act does not subject a State (or stateagency) to liability.’’ In Stevens, the Supreme Courtnoted that ‘‘the presumption with regard to corpora-tions is just the opposite of the one governing here’’ andexplained that corporations ‘‘are presumptively coveredby the term ‘person.’ ’’ Three years later, in CookCounty v. United States ex rel. Chandler (538 U.S.119 [2003]), the Supreme Court held that unlike statesand state agencies, municipal corporations are ‘‘persons’’subject to qui tam suits under the FCA.

Arguments On Appeal

On appeal, Oberg, relying on Chandler, argued thatany corporation, regardless of its association with astate, is ‘‘a legal personality independent of ‘theState’ ’’ and, therefore, a ‘‘person’’ for purposes of theFCA. Because each appellee is a corporation, Obergargued that each is a proper FCA defendant. ‘‘Such abroad rule—rendering every corporation, no matterhow close its relationship to a state, a ‘person’ forFCA purposes—appears inconsistent with Stevens’express holding that the term ‘person’ in the FCAdoes not include any state or state agency,’’ the panelreasoned.

The appellees argued that under Stevens, they are notFCA defendants because they are state agencies. Theysaid Chandler ‘‘concluded only that local governments,unlike States and State agencies, are persons underthe FCA,’’ and because they are not local governmententities, Chandler does not apply to them.

‘‘But nothing in Stevens suggests that the fact that a statelegislature or a state court labels a corporation a stateagency immunizes that corporation from suit underthe FCA,’’ the panel said. ‘‘Nor is Chandler as narrow asappellees suggest. Although a municipal corporationwas sued there, the Court’s discussion of the person-hood of corporations makes clear the historical signif-icance of corporate status.’’

Proper Analysis

To determine if the appellees are subject to suit underthe FCA, the critical inquiry is neither whether they arecorporations with ‘‘independent legal personalities,’’ asOberg contends, nor whether they have been denomi-nated ‘‘state agencies’’ by legislatures or courts, as theappellees appear to contend, the panel said. Rather, thecritical inquiry is whether the appellees are truly subjectto sufficient state control to render them a part of thestate, and not a ‘‘person,’’ for FCA purposes.

The panel said that several of its sister courts haverecognized that the arm-of-the-state analysis used inthe 11th Amendment context provides the appropriatelegal framework for this inquiry. This is the casebecause, although the question of whether an entity isa proper FCA defendant is one of statutory rather thanconstitutional interpretation, there is a ‘‘virtual coinci-dence of scope’’ between the statutory inquiry under theFCA and the 11th Amendment sovereign immunityinquiry, the panel said. Therefore, a court shouldemploy the 11th Amendment arm-of-the-state analysisin determining if an entity is properly regarded as thestate or an agency of the state and, as a result, notsubject to suit under the FCA, the panel said.

Attorneys

Oberg is represented by Christopher Michael Millsin McLean, Va., and Brendan John Morrissey, BertWalter Rein and Michael Lee Sturm in Washington,D.C., all of Wiley Rein.

The Kentucky Higher Education Student Loan Corp.is represented by Thomas Leo Appler and RocklanWilliam King III of Wilson, Elser, Moskowitz, Edel-man & Dicker in McLean.

The Pennsylvania Higher Education Assistance Agencyis represented by Jason Lee Swartley of the Pennsylva-nia Higher Education Assistance Agency in Harrisburg,Pa., Joseph Paul Esposito in Washington and Jill Marie


52

deGraffenreid in McLean, both of Hunton and Wil-liams, and Daniel B. Huyett in Reading, Pa., and NeilColeman Schur in Philadelphia, both of Stevens & Lee.

The Vermont Student Assistance Corp. is representedby Megan Conway Rahman and John Stone West ofTroutman Sanders in Richmond.

The Arkansas Student Loan Authority is represented byN. Thomas Connally III and Thomas Michael Truck-sess of Hogan Lovells in McLean and Dennis R. Han-sen, Dustin McDaniel and Mark Nicholas Ohrenbergerof the Arkansas Office of the Attorney General in LittleRock, Ark.


Wells Fargo’s CounterclaimSurvives In Student LoanBond Remarketing SuitST. LOUIS — A federal judge in Missouri on June 19denied dismissal of Wells Fargo Bank NA’s counter-claim in a suit in which a student loan servicer says thebank, as the trustee of bonds the loan servicer issued tofinance student loans, caused it to pay excessive intereston the remarketed bonds (Higher Education LoanAuthority of the State of Missouri v. Wells FargoBank NA, No. 10-1230, E.D. Mo.; 2012 U.S. Dist.LEXIS 84578).


U.S. Judge John A. Ross of the Eastern District ofMissouri denied the bank’s counterclaim in the suitHigher Education Loan Authority of the State of Mis-souri (MOHELA) filed against it.

In 2005 and 2006, MOHELA issued $383 million ofvariable rate demand bonds to finance and purchasestudent loans, and the bonds and related assets wereplaced in a trust (the 2005 trust), with Wells Fargobeing named trustee. The bonds were secured by abond insurance policy issued by the MBIA InsuranceCorp. and a ‘‘liquidity facility’’ provided by Depfa

Bank, and bonds tendered by investors would thenbe held by Depfa as ‘‘liquidity provider bonds’’ andresold by designated remarketing agents.

Sale Of Remarketed Bonds

When the financial and credit crisis began in late 2007,investors began to tender their bonds for repurchase,and by July 2008, Depfa had purchased all of the bondsand held them as liquidity provider bonds. On Feb. 18,2009, MBIA’s rating was downgraded, which, accord-ing to Depfa, was an event of default and an automatictermination of its liquidity facility. MOHELA says thatas a trustee, Wells Fargo knew or should have knownabout the downgrading of MBIA. In April 2009,MOHELA learned that a Wachovia remarketingagent was remarketing $40 million of the bonds at8.08 percent, while other remarketing agents set theirinterest rate for MOHELA bonds considerably lower.MOHELA alleges that neither Wells Fargo nor theWachovia remarketing agent sought to verify whetherthe liquidity facility was in place at this time.

Over MOHELA’s objection, the sale of the remarketedbonds closed April 13, 2009, and Wells Fargo releasedthe liquidity provider bonds it held in the 2005 trust toan unnamed purchaser. MOHELA claims that as aresult of Wells Fargo’s actions, it was damaged by hav-ing to pay excessive interest on the remarketed bonds aswell as delays in efforts to refinance the 2005 trust.Wells Fargo counterclaimed based on certain indemni-fication provisions of the 2005 trust, alleging that if it isfound liable for any loss, liability or expense in connec-tion with this lawsuit incurred within negligence, will-ful misconduct or bad faith, it is entitled to paymentand/or reimbursement.

In its motion to dismiss Wells Fargo’s counterclaim,MOHELA argues that the counterclaim must be dis-missed because the 2005 trust does not expresslyrequire MOHELA to indemnify Wells Fargo for itswrongful conduct as alleged in the amended complaintand because Wells Fargo has failed to allege compliancewith the notice requirements of the indemnificationprovisions.

Plausible Claim

Judge Ross found that Wells Fargo has stated a plau-sible claim for indemnification given the plain langu-age of the indemnification provisions. Contrary toMOHELA’s argument, Wells Fargo is not seekingindemnification for its own negligence, the judge said.


53

‘‘At this stage of the litigation, without more develop-ment of the facts, the Court cannot find Wells Fargo’scontractual indemnification claim is precluded as amatter of law,’’ Judge Ross said. ‘‘The issue of proof isnot before the Court at this time and the Court’s reviewis limited to the sufficiency of the allegations. WellsFargo’s pleadings, viewed in a light most favorable toWells Fargo, show it has pled a plausible contractualindemnification claim.’’

MOHELA is represented by Kevin Anthony Sullivanand John Gianoulakis of Kohn and Shands in St. Louis.Wells Fargo is represented by Adam S. Hochschild andJeffrey J. Kalinowski of Bryan Cave in St. Louis andMili Joseph of Tabet Divito & Rothstein in Chicago.

(Additional documents available: Counterclaim.Document #88-120625-328C. Motion to dismisscounterclaim. Document #88-120625-329M. Briefin support of motion to dismiss counterclaim. Docu-ment #88-120625-330B. Opposition to motion todismiss counterclaim. Document #88-120625-331B. Reply in support of motion to dismiss coun-terclaim. Document #88-120625-332B.) n

Federal Judge VacatesSummary JudgmentIn Student Loan SuitSAN ANTONIO — In a suit in which the UnitedStates sued a defendant to recover a student loan debt,a federal judge in Texas on June 1 granted the defen-dant’s motion to vacate a summary judgment that wasgranted in favor of the government, ruling that thedefendant’s failure to respond to the motion was excu-sable neglect (United States of America v. David P.Schafer, No. 11-00802, W.D. Texas; 2012 U.S. Dist.LEXIS 76334).


U.S. Judge Xavier Rodriguez of the Western District ofTexas granted David P. Schafer’s motion in the suit thegovernment filed against him.

The United States sued Schafer on Sept. 27 to recovermoney he owed under federally guaranteed studentloans. On Jan. 10, with Schafer’s written consent, the

government filed an amended complaint; Schafer didnot file an answer. The government filed a motion forsummary judgment on April 2; Schafer’s response wasdue April 16. Schafer did not file a response, and JudgeRodriguez granted the motion for summary judgmenton April 19.

Motion To Vacate

On April 18, Schafer filed the motion to set aside thejudgment. His counsel states that he knew about thedue date but that a miscommunication with his assis-tant led to the date being improperly calendared forApril 20, causing Schafer to fail to file a timely response.Additionally, Judge Rodriguez said the docket clerkinadvertently originally docketed the order as denyingthe motion but later corrected it. Schafer says he did notlearn that the motion had been granted until April 25.

To be entitled to an order vacating summary judgmentand permitting the defendant to respond to the plain-tiff’s motion for summary judgment, the defendantmust offer evidence that would create a question ofmaterial fact, Judge Rodriguez said. Because the Dis-trict Court, in granting the motion for summary judg-ment, previously found that the government met itsburden in establishing that there was no genuine issueof material fact, Schafer must ‘‘go beyond the pleadings’’and designate ‘‘specific facts’’ in the record ‘‘showingthat there is a genuine issue for trial,’’ the judge said,quoting Adams v. Travelers Indem. Co. (465 F.3d 156,164 [5th Cir. 2006]).

Schafer argued that he has several meritorious defensesto liability for the student loans and that not granting therelief requested would deprive him of justice because hecould be saddled with significant debt he says he doesnot owe. He said he has continuously maintained thathe does not owe all or part of the debt claimed by theUnited States, arguing that $4,000 in payments that hemade were not properly credited and that he was pre-viously involved in a separate suit where the accountsclaimed by the government were already paid.

Minimal Danger Of Prejudice

Because Schafer appears to have some summary judg-ment evidence that could raise an issue of material fact,Judge Rodriguez addressed whether the neglect in nottimely responding was otherwise excusable as to justifyrelief under Federal Rule of Civil Procedure 60(b)(1).He turned to the excusable neglect test articulated in


54

Pioneer Inv. Servs. Company v. Brunswick Assoc. Ltd.P’ship (507 U.S. 380, 395 [1993]).

Regarding the danger of prejudice to the opposing partyfactor of the Pioneer test, Schafer argued that therewould be no prejudice to the government from vacatingthe order because the judgment is only about a monthold. Schafer further argued that the parties have sub-stantially completed discovery and could be ready fortrial quickly or the government could refile its motionfor summary judgment. He further noted that a suitfiled by the United States is exempt from schedulingorders and that no trial has been set, so no deadlineswould have to be changed. The government respondedthat it would have to incur expense to file a release of itsabstract of judgment and also that the current assistantU.S. attorney will soon be retiring and her replacementwill have little time to get up to speed on the case.

Judge Rodriguez found that the danger of prejudice tothe government from allowing Schafer to respond tothe motion for summary judgment is ‘‘minimal.’’ Thejudge said the District Court already found that thegovernment met its burden in proving there was nogenuine issue of material fact, and allowing Schaferan opportunity to present contradictory evidence willnot cause prejudice. Also, the defendant can be orderedto pay the government’s cost to release the abstract ofjudgment.

Good Faith

Regarding the second factor of the Pioneer test, JudgeRodriguez found that there was no undue delay in thecase because Schafer filed the motion for relief from thejudgment shortly after the government filed its abstractof judgment.

With respect to the third Pioneer factor, Schafer arguedthat he is not responsible for the delay because hisattorney and assistant are responsible. The governmentresponded that the assistant’s error in calendaring thedue date was a mistake but said Schafer’s attorney alsoerred because he knew that the deadline should havebeen 14 days, regardless of the date entered on thecalendar. The government said the case is analogousto United States v. Little (116 F.R.D., 152, 153-154[W.D. N.C. 1987]), where the court did not find excu-sable neglect when a defendant failed to file a responsedue to being involved in a jury trial and having beencalled for jury duty. However, because the trial court isgranted wide discretion in granting or denying Rule

60(b) motions and because the decision should bebased on equitable considerations, Judge Rodriguezsaid, the reason for the delay here can constitute excu-sable neglect.

Regarding the final Pioneer factor, both parties agreedthat the movant acted in good faith. ‘‘The Court agreesthat Defendant appears to have acted in good faith,’’Judge Rodriguez said. ‘‘Defendant has been activelyinvolved in the case, other than not responding to theAmended Complaint, and the failure to respond to themotion for summary judgment appears to be a simplehuman error.’’

Judge Rodriguez reinstated the government’s motionfor summary judgment as a pending motion and gaveSchafer until June 13 to file a response.

Attorneys

The government is represented by Assistant U.S. Attor-ney Susan B. Biggs in San Antonio.

Schafer is represented by Brian T. Trenz of the LawOffices of David Schafer in San Antonio.

(Additional documents available. Motion to set asidejudgment. Document #88-120625-246M. Responseto motion to set aside judgment. Document #88-120625-247B.) n

Student LoanDue Process Suit AgainstGovernment SurvivesBALTIMORE — A federal judge in Maryland onJune 1 allowed a suit to continue in which a pro seplaintiff says the U.S. Department of Education(DOE) violated his due process rights when it appliedhis federal income tax refunds to his student loan debt(Edward G. Shlikas v. United States Department ofEducation, No. 09-02806, D. Md.; Dist. LEXIS76557).


U.S. Judge William D. Quarles Jr. of the District ofMaryland denied the DOE’s motion for summaryjudgment in the suit Edward G. Shlikas filed against it.


55

Between January 1989 and December 1996, Shlikasobtained five student loans for a total of $29,125,which he has failed to pay. Sallie Mae Inc. (SLM) isthe service agent for all of the loans. Three of the loanswere guaranteed by United States Aid Funds (USAF),and the other two were granted by Great Lakes HigherEducation Guarantee Corp. The DOE reinsured all ofthe loans. After Shlikas defaulted on the loans, USAFand Great Lakes sent him letters notifying him that theDOE would request that the Department of Treasury(DOT) offset his loan debt against any federal pay-ments, including income tax refunds, that he wasentitled to receive in the future. Both letters explainedhow to avoid offset by making payment arrangementsand explained his rights to review documents about hisloans, object to the amount or existence of the loan andhave the guarantor review his objections. The lettersalso notified Shlikas about his right to request a hearing.

DOE Hearing

On April 10, 2008, Shlikas mailed Great Lakes andUSAF an objection to any offset demands for an ‘‘in-person hearing and trial by jury’’ in ‘‘an Article IIIcourt,’’ ‘‘a Maryland State Court’’ and ‘‘the CircuitCourt for Baltimore County’’; and a request to reviewdocuments about his loans and the guarantors’ hearingprocedures. Neither Great Lakes nor USAF responded.On May 8, 2008, the DOT notified Shlikas that it hadapplied his $600 2007 tax refund to his debt, and onApril 24, 2009, the DOT notified him that the samehad been done with his 2008 tax refund of $1,541.

Shlikas filed a complaint against SLM and the DOE inthe Baltimore County District Court, alleging that theoffsets violated his due process rights under the U.S.Constitution and the Maryland Declaration of Rights.The defendants removed the suit to the federal court.On Dec. 2, 2009, Great Lakes assigned Shlikas’accounts to the DOE. On Aug. 25, 2010, the federalcourt quashed service on SLM and denied the DOE’smotion for summary judgment because Shlikas hadattempted to serve it by delivering the summons andcomplaint to Sallie Mae’s attorney and mailing them toa Sallie Mae office in Virginia. The federal court heldthat summary judgment was not appropriate becausethere was no evidence ‘‘that Shlikas’s objections andrequests for documents were considered or that hewas advised of a decision on those matters.’’

In 2011, the DOE garnished 15 percent of Shlikas’wages to cover some of the debt. On Aug. 2, 2011,

USAF assigned his loans to the DOE, and later thatmonth, the DOE stopped garnishing Shlikas’ wages,granted him a hearing and allowed him to file objec-tions to the tax refund offsets. On Nov. 28, 2011, theDOE concluded that Shlikas’ ‘‘evidence did not sup-port [his] objection [to the tax refund offsets, and] thisdebt is enforceable by garnishment.’’ However, becauseShlikas was suing the DOE, the DOE did not resumegarnishing his wages.

Right To Be Heard

On Dec. 13, 2011, the DOE moved for summaryjudgment, arguing that the Nov. 28 DOE decisionsatisfied the Administrative Procedure Act standardfor setting aside unlawful agency actions. Shlikasopposed, arguing that there were disputes of materialfact and that the Nov. 28 DOE decision did not addresshis due process claim and violated his right to proce-dural due process.

The DOE contended that, as a matter of law, it did notdeprive Shlikas of property in 2007 because the guar-antors, not the DOE, held the debt and instituted theTreasury Offset Program (TOP) referral. However,even if the DOE did not own the loans in 2007, itwould not be entitled to summary judgment on thatground, Judge Quarles said. Only the DOE could referShlikas’ debt to TOP, and the DOE was responsible forensuring that Shlikas received the opportunity to beheard on the referral and for protecting his right toprocedural due process as required by the regulations,the judge said. That the DOE acquired the debt after itwas referred to TOP does not absolve it for complyingwith due process, he said.

The DOE further contended that the Nov. 28 DOEdecision, as well as its March 2012 denial of reconsi-deration, afforded Shlikas all the procedural rights towhich he was entitled and made up for any lost protec-tions in 2007. Judge Quarles disagreed, noting that anafter-the-fact hearing does not correct a deprivation ofthe right to be heard before property is taken.

Shlikas of Baltimore appears pro se. The DOE is repre-sented by Larry D. Adams and Rod J. Rosenstein of theOffice of the U.S. Attorney in Baltimore.

(Additional documents available. Motion for sum-mary judgment. Document #88-120625-254M.Response to motion for summary judgment.


56

Document #88-120625-255B. Reply in support ofmotion for summary judgment. Document #88-120625-256B.) n

Student Loan Debtor’sThird-Party ComplaintAgainst State Agency FailsGREENBELT, Md. — A federal judge in Marylandon June 11 granted summary judgment in favor of thePennsylvania Higher Education Assistance Agency(PHEAA) on a third-party complaint filed by a defen-dant student loan debtor who alleges that her loans arein default as a result of PHEAA’s fraud and breach ofcontract (United States of America v. Cynthia Allen-Williams, No. 11-1001, D. Md.; 2012 U.S. Dist.LEXIS 80338).


In addition to granting PHEAA’s motion on CynthiaAllen-Williams’ third-party complaint, U.S. Judge J.Frederick Motz of the District of Maryland also grantedthe federal government’s motion for summary judg-ment in the suit it filed against her.

The government sued Allen-Williams on behalf of theU.S. Department of Health and Human Services(HHS) seeking repayment of federal Health EducationAssistance Loans (HEAL) allegedly in default. She thenfiled a third-party claim against PHEAA.

Time-Barred Claims

HHS seeks $81,005.82 plus interest and filing fees.Allen-Williams seeks $708,000 in compensatorydamages, plus interest and punitive damages, averringthat damages arose in 2005 with the sale of her HEALloans but that she was not made aware of the sale untilmeeting with HHS attorneys in 2010. She contendsthat PHEAA’s sale of her loans was fraudulent becauseshe had been granted forbearance and was therefore notin default. The sale of her loans constituted a breach ofthe forbearance agreement, she contends.

Ruling on PHEAA’s motion for summary judgment,Judge Motz said that if Allen-Williams knew in 2005that HHS held her loans because of alleged default, or ifshe was aware that transfer to HHS is a consequence of

default, she would have been on notice of the defaultstatus of her loans, and her claims against PHEAAwould now be time-barred. The judge said it is dispo-sitive that Allen-Williams had actual or constructivenotice of PHEAA’s alleged fraud and breach of contractby 2006 at the latest, and she did not assert her claimuntil 2011. Her claims against PHEAA are thereforetime-barred, he determined.

Regarding the United States’ complaint, Allen-Wil-liams argued that the United States should have torecover against PHEAA because PHEAA fraudulentlysold her debt in violation of the alleged forbearanceagreement. Judge Motz said that Allen-Williams hadnot proven that her affirmative defenses are legally suf-ficient to survive summary judgment, pursuant to Uni-ted States v. Ogawa (No. 93-20375, N.D. Calif.[March 23, 1994]). It is undisputed that Allen-Wil-liams signed the promissory notes and received theHEAL loans, and it is also clear that HHS held herloans as of January 2005 and that she has not repaidthe debt, he said.

‘‘Williams asserts that these loans were in forbearanceand should therefore never have been transferred to thefederal government, but the record reflects no evidencethat Williams received a forbearance on her HEALloans in 2004 or 2005,’’ Judge Motz said. ‘‘Havingfailed to pay on loans for which she did not receive aforbearance, Williams’ loans entered default status and,per the terms of the promissory notes she admits shesigned, were transferred to the federal government forcollections. Accordingly, Williams must repay HHS.The United States’ motion for summary judgment istherefore granted.’’

Attorneys

The United States is represented by Thomas F. Cor-coran and Rod J. Rosenstein of the Office of the U.S.Attorney in Baltimore. Allen-Williams of Upper Marl-boro, Md., appears pro se.

PHEAA is represented by James John Jarecki ofPHEAA in Harrisburg, Pa., and Thomas J. Sippeland William David Day of Gill Sippel and Gallagherin Rockville, Md.

(Additional documents available: United States’motion for summary judgment. Document #88-120625-283M. Opposition to United States’ motion


57

for summary judgment. Document #88-120625-284B. Reply brief in support of United States’motion for summary judgment. Document #88-120625-289B. PHEAA’s motion for summaryjudgment. Document #88-120625-285M. Brief insupport of PHEAA’s motion for summary judg-ment. Document #88-120625-286B. Opposition toPHEAA’s motion for summary judgment. Docu-ment #88-120625-287B. Reply brief in support ofPHEAA’s motion for summary judgment. Docu-ment #88-120625-288B.) n

Guaranty Agency NotSubject To Debt CollectionStatute, Federal Judge RulesBATON ROUGE, La. — A federal judge in Louisianaon June 14 dismissed a suit seeking damages from theEducational Credit Management Corp. (ECM) arisingfrom its actions in attempting to collect student loandebt because the ECM is not a ‘‘debt collector’’ asdefined by the Fair Debt Collection Practices Act(FDCPA) (Harold Lasserre Jr. v. Educational CreditManagement Corp., No. 12-0091, M.D. La.; 2012U.S. Dist. LEXIS 83043).


U.S. Judge James T. Trimble Jr. of the Middle Districtof Louisiana granted the ECM’s motion to dismiss thesuit Harold Lasserre Jr. filed against it, dismissing thecase with prejudice.

Lasserre asserts a claim for damages for ECM’s allegedviolations of the FDCPA, which prohibits debt collec-tors from engaging in abusive, deceptive and unfairpractices. ECM is a fiduciary of the U.S. Departmentof Education which collects on defaulted student loans.Lasserre says that after defaulting on his loans, he agreedto pay $10 per month out of his bank account as part ofa rehabilitation program, and in return ECM agreedthat it would not seize his federal income tax refund. Hesays the ECM failed to make the second $10 withdra-wal from his bank account, which resulted in a seizureof his tax refund. He asserts that ECM violated numer-ous FDCPA provisions and seeks damages for stress,humiliation, anxiety, extreme mental anguish and suf-fering and emotional distress.

Fiduciary Exception

ECM argued that it is not a debt collector as defined bythe FDCPA and/or that it is specifically exempt fromthe FDCPA.

Judge Trimble agreed. He noted that the ECM is anonprofit organization that has an agreement withthe secretary of Education and helps to administer theFederal Family Education Loan Program (FFELP),under which student loans are guaranteed by either astate agency or nonprofit organization, such as guarantyorganizations like the ECM. Additionally, the 11th andNinth Circuits have recognized that the ECM is aguaranty agency, Judge Trimble said. Guaranty agen-cies acting in their fiduciary capacity to the Departmentof Education fall within the ‘‘fiduciary’’ exception of theFDCPA, the judge said.

‘‘The principle purpose of a guaranty agency is to pro-vide a guarantee to the lender and to assist in the admin-istration of the FFELP,’’ Judge Trimble explained.‘‘[ECM] is a guaranty agency which operates pursuantto the regulations of the FFELP and is excepted formthe FDCPA’s definition of ‘debt collector’ because it isan entity attempting to collect on the debt of anotherunder a bona fide fiduciary obligation.’’

Lasserre is represented by Garth Jonathan Ridge inBaton Rouge. ECM is represented by Paul N. DeBail-lon of DeBaillon & Miley in Lafayette, La.

(Additional documents available: Motion to dismiss.Document #88-120625-306M. Brief in support ofmotion to dismiss. Document #88-120625-307B.) n

9th Circuit Affirms DismissalOf Suit Arising FromAccessing Credit ReportSAN FRANCISCO — The Ninth Circuit U.S. Courtof Appeals on May 24 affirmed the dismissal of a plain-tiff’s Fair Credit Reporting Act (FCRA) claims regard-ing her closed Kohl’s Department Stores Inc. creditcard account, finding that the defendants were not‘‘objectively unreasonable’’ in accessing her credit report(Kamlesh Banga v. Experian Information Solutions,et al., No. 10-15913, 9th Cir.; 2012 U.S. App.LEXIS 10516).


58


In an unpublished opinion, Circuit Judges William C.Canby Jr., Susan P. Graber and Milan D. Smithaffirmed the U.S. District Court for the Northern Dis-trict of California’s granting of summary judgment infavor of Kohl’s and Experian Information SolutionsInc. in the suit Kamlesh Banga filed against them.

Banga filed the suit in 2008. She said that on Jan. 28,2007, she requested that Kohl’s close her credit cardaccount, and a few days later she received conformationfrom Kohl’s that it had been closed. She alleged thatExperian violated the FCRA when it sold her creditreport to former creditors with whom she longer hadan account for ‘‘account review.’’ Experian further vio-lated the FCRA when it repeatedly sold Banga’s creditreport for promotional purposes because her consumerfile was permanently excluded from all preapprovedcredit offer mailing lists, she alleged. She also claimedthat Kohl’s violated the FCRA when it impermissiblyaccessed her credit report for account review purposesbecause no such account existed.

Proper Summary Judgment

On March 18, 2010, the District Court grantedExperian’s motion for summary judgment and closedthe case. Banga appealed to the Ninth Circuit onApril 20, 2010.

The panel said that the District Court properly grantedsummary judgment on Banga’s claims for willful viola-tions under Section 1681n of the FCRA because, as sheconceded to the District Court, the defendants werenot objectively unreasonable in accessing her creditreport for account review purposes while she closedher Kohl’s account. The panel noted that there is nowillful violation of a defendant’s interpretation if ‘‘less-than-pellucid’’ statutory text is ‘‘not objectively reason-able’’ and there is no guidance from courts or relevantagencies, quoting Safeco Ins. Co. of Am. v. Burr (551U.S. 47, 69-70 & n. 20 [2007]).

The panel also ruled that the District Court properlygranted summary judgment on the plaintiff’s claims fornegligent violations under Section 1681o of the FCRAbecause she failed to raise a triable dispute as to whetherthe defendants’ conduct resulted in actual damages.The underlying court also properly granted summary

judgment on issue preclusion grounds as to Banga’sclaim that Experian violated Section 1681r of theFCRA because she unsuccessfully litigated the issuein a prior lawsuit.

Award Of Costs

Additionally, the District Court did not abuse its dis-cretion by awarding the defendants costs in connectionwith Banga’s deposition, the panel held, pointing toCherry v. Champion Int’l Corp. (186 F.3d 442, 448-449 [9th Cir. 1999]), which determined that costs oftranscribing and videotaping deposition are recoverableif they are necessarily obtained for use in the case.

The panel also said that Banga’s remaining contentionsare unpersuasive and denied as moot her motion forappointment of counsel for purposes of oral argumenton appeal.

Banga of Vallejo, Calif., appears pro se. Experian isrepresented by Meir Feder in New York and EricJohn Hardeman and Angela M. Taylor in Irvine,Calif., all of Jones Day. Kohl’s is represented byGregory P. Dresser of Morrison & Foerster in SanFrancisco.

(Additional documents available. Appellant brief.Document #88-120625-213B. Experian’s appelleebrief. Document #88-120625-214B. Kohl’s appelleebrief. Document #88-120625-215B.) n

Panel Reverses Ruling InInsurer’s Favor In CoverageSuit Over $2.5M SettlementNEW ORLEANS — The Fifth Circuit U.S. Court ofAppeals on June 15 reversed and remanded a lowerfederal court’s ruling in favor of a professional liabilityinsurer in a finance company insured’s lawsuit seekingindemnification for an underlying $2.5 million classaction settlement (Flagship Credit Corp. v. Indian Har-bor Insurance Co., No. 11-20408, 5th Cir.; 2012 U.S.App. LEXIS 12201).

(Per curiam opinion available. Document #13-120621-017Z.)

Glynn Hartt filed a class action lawsuit against FlagshipCredit Corp. after Flagship notified him that his


59

automobile was going to be repossessed because Harttwas delinquent on his automobile loan payments. Harttalleged in a Pennsylvania state court that Flagship’snotice did not conform to certain technical require-ments of the Texas Business and Commerce Code,Sections 9.610-11, 9.613 and 9.614.

$2.5M Settlement

Flagship removed the action to the U.S. District Courtfor the Eastern District of Pennsylvania. The partieseventually reached a settlement that obligated Flagshipto pay $2.5 million into a settlement fund.

Flagship requested coverage from its insurer, IndianHarbor Insurance Co., under a professional liabilitypolicy. Indian Harbor refused on the grounds thatthe statutory minimum damages sought in that actionconstitute ‘‘penalties,’’ which the policy did not cover.

Flagship sued Indian Harbor for breach of contract andsought a declaration as to coverage. The parties cross-moved for summary judgment in the U.S. DistrictCourt for the Southern District of Texas.

The insured alleged that the statutory minimumdamages paid in settling the underlying suit were cov-ered losses. The insurer countered that the underly-ing suit’s statutory minimum damages were a penaltythat fell outside the scope of the professional liabilityinsurance policy.

Judge Gray H. Miller sided with Indian Harbor, find-ing that the damages are ‘‘penalties’’ under the policy.Flagship appealed to the Fifth Circuit.

Canon Of Construction

The panel found that the District Court’s analysis wasnot unreasonable.

‘‘Where we disagree, though, is that by rejecting thecanon of construction, the court allowed all the possiblemeanings of ‘penalties’ to apply. Noscitur a sociis is atraditional means of limiting statutory or contractwords from being given every conceivable meaning.Instead, when a list of words contains some whosegenerally accepted meanings have a commonality,then those associate words should limit a single wordthat has more varied meanings. The canon is theequivalent, likely not invariably correct but a serviceable

approach, of asking drafters which of the varied mean-ings of the doubtful word they intended,’’ the panelsaid.

The panel reversed and remanded the District Court’sruling in favor of the insurer.

‘‘Aided by the canon of construction, we conclude thatthe term ‘penalties’ within the phrase, ‘fines, penaltiesor taxes’ is limited to payments made to the govern-ment. Accordingly, the statutory-minimum-damagesportion of the Hartt settlement is not a ‘penalty,’ ’’the panel explained.

Remaining Issues

Flagship further argued that the attorney fees are not‘‘penalties’’ and, as a result, that the insurer has a duty topay them.

Citing Benefit Recovery, Inc. v. Donelon (521 F.3d326, 329 [5th Cir. 2008]), the panel determined thatthis argument is not properly before it on appeal.

‘‘While Flagship made a passing reference to this argu-ment before the district court, this is the first time Flag-ship has pressed the issue. Flagship’s comments to thedistrict court were not enough to afford the court anopportunity to rule on the issue,’’ the panel said.

The panel also rejected Indian Harbor’s assertion thatFlagship abandoned its breach of contract claim by fail-ing to present it to the lower court.

‘‘Our review of the record shows that Flagship ade-quately identified its claim. Moreover, the districtcourt dismissed the claim; so it clearly had the oppor-tunity to rule on it,’’ the panel said.

Chief Judge Edith H. Jones wrote the opinion, whichwas joined by Judges Edward C. Prado and Leslie H.Southwick.

Counsel

Flagship is represented by R. Ted Cruz, William S.W.Chang and Denise U. Scofield of Morgan Lewis &Bockius of Houston and Howard M. Radzely of thefirm’s Washington, D.C., office.

Indian Harbor is represented by David H. Topol andCharles C. Lemley of Wiley Rein in Washington and


60

Joseph Gilbert Thompson III of Watt BeckworthThompson Henneman & Sullivan in Houston. n

Insured Bank Can RecoverLosses Arising From FraudulentCollateral, Panel AffirmsNEW ORLEANS — The Fifth Circuit U.S. Court ofAppeals on June 15 found that an insured bank canrecover its losses arising from fraudulent collateral,affirming a lower court’s ruling in favor of the insured(Peoples State Bank v. Progressive Casualty InsuranceCompany, No. 11-30731, 5th Cir.; 2012 U.S. App.LEXIS 12173).

(Per curiam opinion available. Document #13-120621-018Z.)

Fraudulent Collateral

Peoples State Bank sought recovery for losses caused bythree fraudulent loan packages presented as collateralfor residential loans.

Progressive Casualty Insurance Co. denied coverageunder a financial institution bond, arguing that Peoplesdid not review the submitted documents before issuingthe loans.

Peoples sued Progressive in the 11th Judicial DistrictCourt, Parish of Sabine, La. The insurer removed thecase to the U.S. District Court for the Western Districtof Louisiana, which granted summary judgment infavor of Peoples.

Progressive appealed to the Fifth Circuit. Peoples cross-appealed, contending that the District Court erred indenying its motion to alter or amend the judgment toallow it to claim statutory bad faith penalties.

Affirmed

The panel affirmed the District Court’s ruling.

‘‘The district court found that ‘on its face the Bondrequires only reliance and physical possession.’ Thedistrict court also found that Peoples satisfied the ‘onthe faith of’ reliance requirement because ‘it is undis-puted that Peoples extended credit . . . in exchange for asecurity interest in the loans and mortgages, thereby

relying on the documents as collateral. . . . Peopleswould not have extended credit . . . had it known theloan packages were counterfeit or forged.’ It found noindication that either the Bond’s ‘reliance’ or ‘posses-sion’ requirements required review or verification of thedocuments, and it declined to ‘read this heightenedburden into the Bond where it is not stated.’ Weagree with the district court’s interpretation of the dis-puted clause in the Bond,’’ the panel explained.

The panel also rejected the insured’s cross-appeal.

‘‘Peoples had not requested penalties in its summaryjudgment motion. The district court denied Peoples’post-judgment motion requesting leave to present theissue for the first time. We find no abuse of discretion inthis denial,’’ the panel said.

Judges W. Eugene Davis, Jerry E. Smith and James L.Dennis comprised the panel.

Counsel

Lottie L. Bash of Gold, Weems, Bruser, Sues & Run-dell in Alexandria, La., and Christopher M. Sylvia, in-house counsel for Peoples State Bank in Many, La.,represent Peoples State Bank.

John Tucker Kalmbach, Elizabeth Mendell Carmodyand Herschel E. Richard Jr. of Cook, Yancey, King &Galloway in Shreveport, La., and Archibald T. ReevesIV of McDowell Knight Roedder & Sledge in Mobile,Ala., represent Progressive. n

6th Circuit: ERISA BarsClaims Against Bank RelatedTo TPA’s EmbezzlementCINCINNATI — A depository bank that allegedlyfacilitated a third-party administrator’s (TPA’s) embez-zlement from plans governed by the Employee Retire-ment Income Security Act is not an ERISA fiduciary,and state-law claims against the bank are preempted byERISA, the Sixth Circuit U.S. Court of Appeals ruledJune 8 in a divided opinion (John C. McLemore,et al. v. Regions Bank, Nos. 10-5480, 10-5491, 6thCir.; 2012 U.S. App. LEXIS 11600).



61

Circuit Judge Gilbert S. Merritt dissented on the pre-emption ruling, saying that ‘‘[t]o foreclose unjustenrichment would leave those whom Congressintended to protect worse off than before ERISA wasenacted.’’

Plan Assets Stolen

Barry Stokes, an investment adviser, was the sole ownerand operator of 1Point Solutions LLC, which actedas a TPA of several employee-benefits plans, 401(k)retirement plans and cafeteria plans that are governedby ERISA.

1Point opened more than 58 fiduciary accounts withRegions Bank. In order to circumvent ‘‘know your cus-tomer’’ rules, which require banks to verify the identi-ties of their customers, Regions insisted that 1Pointopen the accounts in its own name and provide themtitles referencing the account’s corresponding clients,rather than establish the accounts for each clientunder the client’s tax identification numbers.

Because the accounts bore 1Point’s name, Stokes wasable to transfer money among and out of the accounts.Between 2002 and 2006, Stokes stole large sums fromthese accounts by transferring money from clientaccounts to his account at Regions, withdrawingmoney from the 1Point 401(k) account in the formof cashier’s checks, using client accounts to fund1Point’s operating expenses and transferring transferredmoney between customer accounts to pay overdraftfees and conceal his theft.

In 2004, the U.S. Financial Crimes Enforcement Net-work assessed a $10 million fine against Regions forfailing to comply with provisions of the Bank SecrecyAct, which required Regions to report large currencytransactions, file suspicious-activity reports, verify theidentities of those opening accounts and maintainautomated computer monitoring of accounts.

ERISA, State-Law Claims

The embezzlement was discovered when Stokes and1Point filed for bankruptcy protection in 2006.

John McLemore, Stokes’s bankruptcy trustee, and EFSInc. and other former clients of 1Point (collectively,EFS) claimed that Regions negligently and knowinglyallowed Stokes to steal from the fiduciary accounts heldat Regions. McLemore sued Regions under ERISA, and

both McLemore and EFS sued Regions under state law,alleging recklessness, unjust enrichment, violation ofthe Tennessee Consumer Protection Act and aidingand abetting.

The U.S. District Court for the Middle District ofTennessee dismissed the ERISA breach of fiduciaryduty claims under Federal Rule of Civil Procedure12(b)(6), concluding that although the trustee hadstanding to sue on behalf of the defrauded plans,Regions was not an ERISA fiduciary. The DistrictCourt also dismissed the ERISA nonfiduciary claimsand dismissed the state-law claims under Rule 12(c),finding that ERISA preempted the state-law claims.

Trustee’s Standing

In addressing the trustee’s ERISA claims, the SixthCircuit agreed that the trustee had standing. Althougha bankruptcy trustee lacks standing to bring a cause ofaction that does not belong to the debtor’s estate, in theinstant case, the trustee ‘‘brings this suit in his role as anERISA fiduciary.’’

Acting as an ERISA fiduciary with control over ERISA-plan funds, the trustee is required ‘‘to remedy theknown wrongs of a cofiduciary,’’ and, therefore, hadstatutory authority to pursue claims that benefittedthe trust beneficiaries, the court said.

Moreover, the fact that the trustee no longer controlledthe assets stolen from the ERISA plans did not defeatthe trustee’s status as an ERISA fiduciary because ‘‘hehas sufficiently pleaded his authority to manage or dis-pose of all assets belonging to the plans, notwithstand-ing his lack of control over the particular funds thatStokes stole from plan accounts,’’ the court said.

The panel also rejected Regions’ argument that theequitable doctrines of in pari delicto and uncleanhands barred the trustee’s claims because he steppedinto the shoes of Stokes and 1Point and the equitabledoctrines would have barred their claims.

‘‘Any funds that the Trustee recovers as an ERISAfiduciary inure to the ERISA plans’ benefit, ratherthan to the benefit of the estate’s creditors. For thepurposes of the Trustee’s ERISA claim, therefore, he‘steps into the shoes’ of the plans, rather than those ofthe criminal debtors,’’ the court said.


62

Fiduciary Status

However, the Sixth Circuit ruled that Regions did notqualify as an ERISA fiduciary based on the bank’s exer-tion of ‘‘authority or control respecting management of[plan] assets.’’

‘‘In general, the complaint alleges that Regions main-tained accounts for 1Point, received deposits to thoseaccounts, and permitted Stokes and 1Point to transferand withdraw money from these accounts. Stokes and1Point maintained the accounts and directed all accountactivity. Regions merely held the funds on deposit.Custody of plan assets alone cannot establish controlsufficient to confer fiduciary status,’’ the court said.

Similarly, Regions’ advising 1Point and Stokes as tohow it ought to structure the accounts did not renderRegions a fiduciary because ‘‘[a]ll control of theaccounts remained with 1Point and Stokes.’’

Moreover, Regions’ withdrawal of about a half milliondollars in fees from 1Point plan accounts did notdemonstrate control over plan assets, the court said.

Because only ‘‘appropriate equitable relief’’ is availableagainst nonfiduciaries and the trustee sought onlydamages, the trustee’s ERISA claims were properlydismissed.

Preemption

Turning to the state-law claims, the Sixth Circuitmajority explained that Tennessee’s Uniform Fiduci-aries Act (UFA) barred claims that alleged mere negli-gence. Therefore, the trustee and EFS were limited toclaims of knowing or bad faith conduct.

‘‘What remains of plaintiffs’ claims are allegations thatRegions (1) acted with knowledge of Stokes’s and1Point’s breach of fiduciary duty or (2) acted in badfaith because it knew facts obviously suggestive of theirbreach. Proving these allegations depends on a showingthat Stokes and 1Point breached their fiduciary dutyand requires an examination of Regions’ knowledge ofthe breach. . . . [T]hese claims do not arise from anindependent legal duty; rather, they derive from theERISA violations committed by Stokes and 1Point.By seeking to impose liability on Regions for knowinglypermitting Stokes and 1Point to breach their fiduciaryduties, plaintiffs’ state-law claims seek an ‘alternativeenforcement mechanism’ for the legal duties imposed

under ERISA,’’ and therefore are preempted, themajority said.

The majority commented that it may have reached adifference conclusion if Tennessee’s UFA did not barclaims that alleged mere negligence and the plaintiffsdid not seek damages.

Circuit Judge Deborah L. Cook wrote the majorityopinion and was joined by U.S. Judge Sean F. Cox ofthe Eastern District of Michigan, sitting by designation.

Dissent

Judge Merritt commented that ‘‘[t]he law on ERISApreemption is in a state of disarray, to say the least’’ butthat he found ‘‘no similar cases preempting bankinglaws protecting from loss the deposits of customers,including ERISA customers, or regulating bank feescharged to such customers.’’

In dissenting, Judge Merritt said that ‘‘[t]he primarypurpose of ERISA is to protect the individual whohas a pension or health plan from certain kinds oflosses. . . . It is not to protect a depository bank fromgeneral state laws concerning malfeasance in connec-tion with the bank’s handling of the bank accounts ofparticipants. In this case, we have no idea whether thebank is liable for misfeasance under state law. The caseagainst the bank has not been tried or the facts provedor the state law analyzed and applied.’’

The dissent also commented that ‘‘[o]ur court’s ideathat state law remedies fail because they add or provideonly ‘an alternative enforcement mechanism’ is strange,indeed, when the federal ERISA law provides no ‘enfor-cement mechanism’ whatever for damages against themisfeasance of a depository bank that is not a fiduciary.There is nothing, no ERISA cause of action for damagesfor the state claims to be ‘alternative’ to. There is noERISA purpose or policy served by withdrawing theprotection of state laws of general application.’’

Counsel

McLemore is represented by Robert M. Garfinkle andPhillip G. Young Jr. of Garfinkle, McLemore & Young.EFS is represented by H. Naill Falls Jr. and John B.Veach III of Falls & Veach. All are in Nashville, Tenn.

Amicus curiae Secretary of Labor Hilda L. Solis support-ing appellants is represented by Solicitor of Labor M.


63

Patricia Smith, Associate Solicitor for Plan BenefitsSecurity Division Timothy D. Hauser, Counsel forAppellate and Special Litigation Nathaniel I. Spillerand Trial Attorney Leonard H. Gerson of the U.S.Department of Labor in Washington, D.C.

Regions is represented by John R. Wingo of FrostBrown in Nashville.

(Additional documents available: McLemore’s appel-lant brief. Document #54-120613-077B. Regionsappellee brief. Document #54-120613-078B. McLe-more’s reply brief. Document #54-120613-079B.DOL’s amicus brief. Document #54-120613-080B.EFS appellant brief. Document #54-120613-081B.Regions appellee brief. Document #54-120613-082B. EFS reply brief. Document #54-120613-083B.) n

Panel: Investors Failed ToPlead Scienter In SecuritiesClass Action LawsuitBOSTON — Dismissal of a shareholder class actionlawsuit against Textron Inc. and certain of its executiveofficers was proper because the shareholders failed toplead a material misrepresentation or scienter in claim-ing that the defendants violated federal securities law, aFirst Circuit U.S. Court of Appeals panel ruled June 7(Automotive Industries Pension Trust Fund v. TextronInc., et al., No. 11-2106, 1st Cir.).


Shareholders filed a second amended complaint in theU.S. District Court for the District of Rhode Island onbehalf of all purchasers of Textron Inc. common stockfrom July 19, 2007, to Jan. 29, 2009.

The shareholders alleged that Textron and executiveofficers Lewis B. Campbell, Ted R. French, Buell J.Carter, Thomas F. Cullen, Douglas Wilburne andAngelo Butera issued a series of false and misleadingstatements concerning Textron’s financial conditionthroughout the financial crisis in violation of Sections11 and 15 of the Securities Act of 1933, Sections 10(b)and 20(a) of the Securities Exchange Act of 1934 andSecurities and Exchange Commission Rule 10b-5.

3rd Amended Complaint

The shareholders filed a third amended complaint afterthe Securities Act claims were dismissed by agreement,and the defendants moved to dismiss the remainingclaims.

U.S. Judge Paul Barbadoro of the District of NewHampshire, who was sitting by designation, grantedthe motion, ruling that the shareholders failed to prop-erly plead a material misrepresentation.

Shareholder Automotive Industries Pension TrustFund then appealed to the First Circuit, whichaffirmed.

Close Call

The panel held that although the District Court did noterr in dismissing the action for failure to plead a materialmisrepresentation, the materiality issue is a ‘‘close call.’’

‘‘[A]s to materiality, this complaint may not be ‘thekind of vague prelude to a fishing expedition that Con-gress sought to bar by imposing the clarity-and-basisrequirement of the [Private Securities LitigationReform Act of 1995] PSLRA.’ Summary judgment isusually a more appropriate occasion to decide whethersuch details are of marginal interest or so important thatTextron’s statements were misleading without them,’’the panel said, citing the First Circuit’s ruling in In reStone & Webster Inc. Securities Litigation (414 F.3d187, 198 [2005]).

The panel also found that dismissal is proper becausethe shareholders failed to properly plead scienter.

Not Recklessly Unaware

In particular, the panel ruled that ‘‘[n]othing in thecomplaint suggests that any of the named officersbelieved, or was recklessly unaware, that the backlog’ssignificance had been undermined by weakened under-writing standards, sales to intermediates, or any of theother flaws on which the plaintiffs rely. And the ques-tionable materiality of the practices, depending impor-tantly on matters of degree and detail, deprives anyinference of scienter of forward momentum thatwould be helpful to plaintiffs.’’

‘‘Textron’s top managers may have been negligent ifthey were not aware; surely French was extravagant insaying of the backlog that Textron had ‘torn it apart.’


64

But negligence or puffing are not enough for scienter,and warnings by subordinates or expressions of concernby executives are notably absent, as is an unusuallycompelling case on materiality,’’ the panel said, addingthat ‘‘[t]he few counters offered by the Fund underscorethe absence of such evidence.’’

‘‘This leaves a plaintiff’s counsel with a greater thanusual burden of investigation before filing a securitiesfraud complaint. Yet where district judges face promis-ing complaints that fall into an intermediate gray area,they have in practice some latitude to refuse to dismisssome or all counts and allow discovery, whether nar-rowly focused or in full. This complaint’s scienter alle-gations were weaker than its materiality allegations anddid not even arguably fall into a gray area encouragingfurther proceedings.’’

Circuit Judge Michael Boudin wrote the panel’s opi-nion and was joined by Circuit Judge O. RogerieeThompson and retired U.S. Supreme Court JusticeDavid H. Souter, who was sitting by designation.

Counsel

The shareholders are represented by Samuel R. Rud-man of Robbins Geller Rudman & Dowd in Melville,N.Y., and David J. George of Robbins Geller in BocaRaton, Fla.

The defendants are represented by John A. Tarantino,Patricia K. Rocha and Nicole J. Dulude of Adler Pol-lock & Sheehan in Providence and Mitchell A. Karlanand Brian M. Lutz of Gibson, Dunn & Crutcher inNew York.

(Additional documents available: Appellant brief.Document #88-120625-004B. Appellee brief. Docu-ment #88-120625-005B. Reply brief. Document#88-120625-006B. District Court opinion. Docu-ment #57-110912-016Z.) n

ATM Fees Class ActionStayed Pending OutcomeOf Supreme Court CaseOMAHA, Neb. — Pending the outcome of a U.S.Supreme Court case dealing with a similar standingissue, a federal judge in Nebraska on June 4 stayed aclass action accusing a bank of violating the Electronic

Fund Transfer Act by not posting a fee notice on anATM (Jarek Charvat v. First National Bank of Wahoo,No. 12-00097, D. Neb.; 2012 U.S. Dist. LEXIS77616).


Chief U.S. Judge Laurie Smith Camp of the District ofNebraska made the determination while ruling on amotion to dismiss filed by First National Bank ofWahoo (FNBW) in a suit brought by Jarek Charvat,individually and on behalf of all others similarlysituated.

‘‘The issue before the Supreme Court in First Am. Fin.Corp. v. Edwards, 610 F.3d 514 (9th Cir. June 21,2010), cert. granted, 131 S. Ct. 3022 (U.S. June 20,2011) (No. 10-708) is similar to the standing issuepresented here, and the Supreme Court’s decision willbe relevant to this motion,’’ Judge Camp said. ‘‘It ispossible that the pending decision of the SupremeCourt in First American may alter this Court’s under-standing of the constitutional minimum requirement ofstanding. Therefore, it is in the best interest of Charvatthat all further proceedings in this matter to be stayedpending the Supreme Court’s decision.’’

Motion To Dismiss, Stay

Charvat made two electronic fund transfers (ETFs)from an FNBW ATM in Wahoo, Neb., on or aboutJan. 22 and March 4. FNBW charged him a $2 fee witheach transaction. At the time of the transactions, therewas no notice posted ‘‘on or at’’ the ATM telling cus-tomers that a fee would be charged for the use of theATM, Charvat says. He does not allege that he did notreceive an on-screen notice that a fee would be charged.He filed his complaint on March 8, alleging EFTAviolations and seeking statutory damages for himselfand the members of the class as well as an award ofcosts and attorney fees. Judge Camp noted that theEFTA requires any ATM operator that imposes feeson customers in connection with EFTs to provide

E M A I L T H E E D I T O R

email editor timothy j. raub [email protected]


65

notice of the fact that a fee is being imposed and theamount of the fee, and the notice must be posted in twoplaces: both ‘‘on or at’’ the ATM and on the screen ofthe ATM or, alternatively, on a paper notice issuedbefore the transaction is completed.

On March 30, FNBW moved to dismiss for lack ofsubject matter jurisdiction, asserting that the DistrictCourt has no subject matter jurisdiction over Charvatbecause he has suffered no injury in fact and, therefore,does not have standing to bring the claim. Alternately,FNBW requested that the case be stayed pending theoutcome in First American.

Three requirements constitute the ‘‘irreducible consti-tutional minimum’’ of standing, the first of which is‘‘an injury in fact — an invasion of a legally protec-ted interest which is (a) concrete and particularized and(b) actual or imminent, not conjectural or hypotheti-cal,’’ Judge Camp said, quoting Lujan v. Defenders ofWildlife (504 U.S. 555, 560-561 [1992]). The require-ment of injury in fact is a ‘‘hard floor of Article IIIjurisdiction that cannot be removed by statute,’’ shesaid, quoting Summers v. Earth Island Inst. (555U.S. 488, 497 [2009]).

‘‘The issue then is whether FNBW’s failure to give anotice to which Charvat was statutorily entitled in itselfconstitutes an injury in fact to Charvat,’’ Judge Campsaid. ‘‘This Court concludes it does not.’’

Injury In Fact

The judge noted that three district courts have held thatwhen an ATM operator fails to provide a fee notice onthe exterior of the ATM as required by the EFTA, thestatutory violation is in itself an injury, regardless ofwhether the plaintiff had actual knowledge of the feethrough the on-screen notice and affirmatively acceptedit. However, she pointed out that these courts did notaddress the ‘‘hard floor’’ constitutional requirement ofinjury in fact.

‘‘The Constitution requires more than mere injury inlaw,’’ Judge Camp said. ‘‘A plaintiff must allege aninjury in fact that was caused by the lack of an exteriorfee notice on the ATM. This Court agrees that theEFTA should be construed broadly in favor of theconsumer, but the provision for actual and statutorydamages in the EFTA does not automatically meanthat a litigant is entitled to damages when he has alleged

no injury in fact. The authorization of statutorydamages is unrelated to injury.’’

Charvat argued that if the District Court determinesthat a statutory violation of the notice requirements ofthe EFTA is not in itself an injury, the District Courtwould be stripping the statute of a requirement purpo-sefully imposed by Congress. He noted that Congressmay have discerned that one notification was notenough or that unscrupulous ATM operators shouldbe prevented from luring customers under the falsepresumption that no transaction fee would be incurred.Judge Camp said she does not question Congress’ pur-pose for imposing the notice requirements. Instead, shesaid, the District Court is respectful of the constitu-tional minimum requirement of standing that a plain-tiff must have to proceed in an action before the court.

First American Has Bearing

In First American, the plaintiff sued title insuranceunderwriter First American Financial Corp. for failingto disclose a ‘‘kickback’’ to a title agency in which FirstAmerican had an ownership interest. The plaintiff’sclaim is that she was injured because First American’sownership interest violated the mandatory disclosurerequirements of the Real Estate Settlement ProceduresAct (RESPA). She had no complaint about the price orquality of the title insurance and alleged no harm otherthan a statutory violation of RESPA. First Americanraised the question of ‘‘whether a plaintiff can establishstanding to sue under RESPA merely by alleging astatutory violation, without any claim that the violationaffected the settlement services rendered.’’

Charvat contended that First American has no bearingon the standing issue in the instant case because there isnot a competitive market in Ohio for title insurance feesand the disclosure of the ownership interest in the titleagency would not have affected the fee. He said thepresence of a competitive market distinguishes thestanding question in his case because the EFTA man-dates the fee notice requirements so that consumers canmake an informed choice of whether to make an EFTA.

Judge Camp disagreed.

‘‘The presence of a competitive market does not changethe relevance of the question presented in First Amer-ican and its applicability to the standing issue here,’’ shesaid. ‘‘In both First American and here, the questionremains whether a violation of a statute, without an


66

alleged injury in fact, is in itself sufficient to createstanding under Article III.’’

Attorneys

Charvat is represented by Michael Lewis of The LewisLaw Firm in Washington, D.C., and Tracy Hightower-Henne of Hightower Reff Law in Omaha.

FNBW is represented by Kenneth W. Hartman ofBaird Holm in Omaha.

(Additional documents available: Motion to dismiss.Document #88-120625-258M. Brief in support ofmotion to dismiss. Document #88-120625-259B.Response to motion to dismiss. Document #88-120625-260B. Reply in support of motion to dis-miss. Document #88-120625-261B.) n

Federal Judge DeniesClass CertificationIn ATM Fees LawsuitWASHINGTON, D.C. — A consumer has failed tomeet the statutorily required findings of commonality,typicality or predominance in attempting to certify aclass of consumers in an ATM fee lawsuit because hehas failed to show that a class action is superior to otherforms of adjudication, a federal judge in Washingtonruled June 11 (Daniel E. Ballard v. Branch Banking andTrust Co., No. 11-1327, D. D.C.; 2012 U.S. Dist.LEXIS 80109).


Consumer Daniel E. Ballard filed an amended classaction complaint in the U.S. District Court for theDistrict of Columbia. He alleges that Branch Bankingand Trust Co. (BBT), which operates an ATM inWashington, violated the Electronic Funds TransferAct (EFTA) because its ATM did not have an on-machine fee notice.

Ballard moved to certify a class of all consumers whowere charged a late fee for withdrawing money from theATM from March 1, 2011, to July 21, 2011.

Putative Class Members

In denying Ballard’s motion, Judge Ellen Segal Huvelleheld that the motion for class certification fails even

although Ballard has agreed to limit the class to ‘‘con-sumers’’ who are covered by the EFTA. Judge Huvellealso rejected BBT’s argument that because putativeclass members used the ATM on different dates, thecourt will need to conduct ‘‘a case-by-case inquiry intowhether the fee notice was on the machine,’’ findingthat the argument does not preclude a finding of com-monality, typicality or predominance, as required byFederal Rule of Civil Procedure 23(a), but found thatBBT’s contention ‘‘poses a more serious challenge tothe predominance inquiry.’’

‘‘Initially, Ballard sought to certify a class of ‘all personswho, in the twelve (12) months prior to the filing ofPlaintiff’s complaint, made an EFT [electronic fundstransfer] at one of Defendant’s ATMs located at 614 HStreet, N.W., Washington, DC 20001, and werecharged a ‘‘terminal owner fee’’ in connection withthe transaction.’ Plaintiff has since narrowed this defi-nition to include only those who used the ATMbetween March 1, 2011 and July 21, 2011, since heconcedes that he cannot controvert defendant’s evidencethat the bank was compliant during the February/March 2011 time period and that he has no evidencethat defendant was out of compliance prior to February2011. However, given this concession, the use of theMarch 1, 2011, start date also appears to have no factualbasis,’’ Judge Huvelle said, adding that ‘‘[m]oreover, theunclear timeline for the alleged EFTA violation distin-guishes this suit from other fee-notices cases (themajority of which certify a class for settlement pur-poses only), since common proof may not resolve thefactual issues on a classwide basis here.’’

Judge Huvelle also found that class treatment in theinstant action is not superior to other methods of adju-dication because ‘‘[t]o adjudicate this case, it is abso-lutely essential to communicate with the individualswho used the ATM. In order to determine if anATM-user is a ‘consumer’ and therefore within theputative class, the Court must make certain limitedindividualized inquiries of each class member. If thiscannot be done, the Court will not know if theATM-user was a ‘consumer’ and therefore cannot ascer-tain the size of the class. In addition, without this infor-mation, it cannot determine statutory damages.’’

Not Feasible

‘‘Clearly, it is not feasible to individually identify classmembers,’’ Judge Huvelle explained.


67

Moreover, Judge Huvelle ruled that ‘‘[w]hile the manycourts that have grappled with the EFTA cases havearrived at different conclusions about whether a classaction is superior, they did not confront the myriaddifficulties presented here. The majority of certifica-tions were for settlement purposes only and involveda definite time period for the violation. As the court inPfeffer [v. HSA Retail, Inc. (No. 11-cv-959, W.D.Texas; 2012 U.S. Dist. LEXIS 73083 [May 24,2012])] pointed out in denying class certification, thefew courts that have certified classes prior to settlementhave yet to resolve the practical problems presented ina case such as this.’’

‘‘Ballard’s response is that all ATMs are used for bothtypes of accounts and so the inability to identify ‘con-sumers’ within ATM-users cannot be a bar to certifica-tion because it would conflict with the statute’sprovision for class actions. However, he offers noauthority for the suggestion that Congress intendedthe EFTA to authorize class actions that do not satisfythe superiority requirement of Rule 23(b)(3).

‘‘Given plaintiff’s concession that notice by publicationis the only practical means for finding class membersand since he recognizes that class members will need tobe quizzed as to whether they engaged in a consumertransaction at a time when there was no notice on themachine (as opposed to the screen), it is highly likely

that the class could, at best, consist of a handful ofconsumers, or at worst, be a class of one — plaintiff.Moreover, it is undisputed that each of the prospectiveclass members proceeded with the transaction despitehaving received the required notice on the screen andthat the potential class recovery will be de minimus,especially in comparison to the petition for fees andcosts that will ultimately be filed after lengthy and costlylitigation. Given these substantial difficulties, the Courtconcludes that plaintiff has failed to satisfy Rule 23(b)and class certification is denied,’’ Judge Huvelle said.

Counsel

Ballard is represented by Trey Mayfield and MichaelLewis of the Lewis Law Firm in Washington.

BBT is represented by James P. Head of WilliamsMullen in McLean, Va.

(Additional documents available: Motion for classcertification. Document #88-120625-010B. Replybrief. Document #88-120625-011B. Amended com-plaint. Document #88-120625-012C.) n

Judge Certifies Class InRegions Financial SecuritiesClass Action LawsuitBIRMINGHAM, Ala. — A federal judge in Alabamaon June 14 certified a class of investors in a class actionlawsuit against Regions Financial Corp. and certaincurrent and former executive officers for alleged viola-tions of federal securities law, ruling that the investorshave met the statutory requirements for certification(Local 703, I.B. of T. Grocery and Food EmployeesWelfare Fund v. Regions Financial Corp., et al., No.10-2847, N.D. Ala.; 2012 U.S. Dist. LEXIS 82135;See September 2011, Page 29).


Lead plaintiffs District No. 9 I.A. of M. & A.W. Pen-sion Trust and the Employees Retirement System ofthe Government of the Virgin Islands filed an amendedcomplaint in the U.S. District Court for the NorthernDistrict of Alabama on behalf of all purchasers ofRegions common stock from Feb. 27, 2008, toJan. 19, 2009.

Our Copyright PolicySubscribers are encouraged to copy sections of this report for use in court submissions. You also are welcome to copy a single article to send to a client or colleague, and to copy and route our table of contents.

However; it is a violation of our copyright to copy substantial portions of this report for any other reasons without permission. Illegal copying can seriously undermine subscription-based publications like ours; moreover, the Copyright Act of 1976 provides for damages for illegal copying.

If you wish to copy and distribute sections of the report, simply contact the Editorial Director at (610) 205-1000 or 1-800-MEALEYS (1-800-632-5397).


68

The lead plaintiffs contend that Regions, CEO C.Dowd Ritter, Chief Financial Officer (CFO) IreneM. Esteves and former CFO Alton D. Yother violatedSections 10(b) and 20(a) of the Securities ExchangeAct of 1934 and Securities and Exchange CommissionRule 10b-5 by issuing a series of false and misleadingstatements concerning AmSouth Bancorporation’sunderwriting of, among other things, adjustable-rate mortgages (ARMs) before Regions’ purchase ofAmSouth in November 2006.

Interlocutory Appeal

Judge Inge Prytz Johnson denied the defendants’motion to dismiss, and the defendants moved forreconsideration and/or for interlocutory appeal pur-suant to the U.S. Supreme Court’s ruling in JanusCapital Group, Inc. v. First Derivative Traders (131S. Ct. 2296 [2011; 2011 U.S. LEXIS 4380]).

In denying the motion, Judge Johnson held that rever-sal of her June 7 ruling is not proper because the defen-dants ‘‘are in ultimate authority over their statements.’’

The lead plaintiffs then moved for class certification,which Judge Johnson granted.

Rule 23(a) Requirements

Judge Johnson held that the lead plaintiffs properly metthe Federal Rule of Civil Procedure 23(a) requirementsfor numerosity, commonality, typicality and adequacyof representation.

Judge Johnson also found that the lead plaintiffs prop-erly met the Rule 23(b) requirement for predominance,rejecting the defendants’ claims that the lead plaintiffscannot establish the predominance requirementbecause they have not successfully invoked the fraud-on-the-market presumption for classwide proof of reli-ance and that even if they have done so, Regions hassuccessfully rebutted it.

Moreover, Judge Johnson ruled that the lead plaintiffshave properly met the Rule 23(b) requirement forsuperiority, stating that ‘‘a class action for the pursuitof these claims is superior to potentially thousands ofindividual claims against Regions, each of which willrequire extensive expert testimony and discovery con-cerning the effects of the alleged misrepresentations onthe value of the stock at different points in time.’’

‘‘In fact, should any plaintiff prove the impact of thealleged misrepresentations on the value of a share inRegions, then calculating damages for every singlestockholder becomes a mere mathematical exercise, inneed of no further evidence. The court agrees withplaintiffs that the sheer number of potential plaintiffsnumbers in at least the thousands,’’ Judge Johnson said.

Counsel

The lead plaintiffs are represented by Andrew J. Brownof Robbins Geller Rudman & Dowd in San Diego.

Regions is represented by John N. Bolus and MaibethJ. Porter of Maynard Cooper & Gale in Birmingham.

The individual defendants are represented by Betsy P.Collins, Kim Nesmith and Victor L. Hayslip of Burr &Forman in Atlanta.

(Additional documents available: Motion to certifyclass. Document #88-120625-029B. Reply in sup-port of motion to certify class. Document #88-120625-030B. Defendants’ sur-reply brief. Docu-ment #88-120625-031B. Lead plaintiffs sur-replybrief. Document #88-120625-032B. Defendants’motion for class certification hearing. Document#88-120625-033B.) n

Federal Judge AllowsSubprime Action AgainstFreddie Mac To ContinueYOUNGSTOWN, Ohio — A federal judge in Ohioon May 25 declined to dismiss a putative securities classaction complaint alleging that the Federal Home LoanMortgage Corp. (Freddie Mac) failed to disclose its truesubprime exposure, ruling that the plaintiff properlystate its claim (Ohio Public Employees RetirementSystem v. Federal Home Loan Mortgage Corp., et al.,No. 08-00160, N.D. Ohio).


U.S. Judge John R. Adams of the Northern District ofOhio made the ruling in the suit filed by the OhioPublic Employees Retirement System (OPERS) againstFreddie Mac, its former president and Chief OperatingOfficer Eugene M. McQuade and former executive


69

vice president and Chief Financial Officer AnthonyS. Piszel.

The proposed class consists of investors who boughtFreddie Mac stock from Aug. 1, 2006, to Nov. 20,2007. OPERS alleges that during the class period, thedefendants made a series of materially false and mis-leading public statements relating to its exposure to orrisk of loss from subprime mortgage loans and othernontraditional, high-risk mortgages. OPERS alsoalleges that the defendants made false or misleadingpublic statements about Freddie Mac’s underwritingpolices and adherence to those policies, its loan analysisand fraud detection systems, its risk management andcapital position. According to OPERS, as a result, therewas a multibillion dollar loss for hundreds of thousandsof OPERS members. Freddie Mac, McQuade and Pis-zel each moved to dismiss.

Motions To Dismiss

Freddie Mac argued that the losses about whichOPERS complains were not the result of fraud by any-one at Freddie Mac. McQuade said he has never beentargeted by the U.S. Securities and Exchange Commis-sion or been named in any other private lawsuits regard-ing Freddie Mac’s actions with relation to the housingcrisis. He said he ‘‘had no responsibility, nor even argu-ably culpably participated in, the subprime issues at thecore of any of these cases, including this one.’’

‘‘Mr. McQuade did not sign or certify any public finan-cial disclosures during the class period at issue in thislawsuit, nor was he a member of any of the boardcommittees that allegedly addressed Freddie Mac’s sub-prime exposure,’’ McQuade’s counsel wrote in themotion to dismiss.

Piszel argued that the Securities Exchange Act of 1934does not apply to OPERS’s claims because Freddie Macis a type of entity excluded by the act. Even if theDistrict Court found that the act applied to FreddieMac, the claim against Piszel would fail becauseOPERS did not plead that he acted with the intentor knowledge of wrongdoing.

‘‘The court remains convinced that discovery needs totake place in this matter, and that discovery requestswould necessarily be propounded upon each of themoving defendants regardless of whether each remains

a party,’’ Judge Adams said. He did not elaborate on hisreasons for denying the motions to dismiss.

Attorneys

OPERS is represented by Jean M. Geoppinger, StanleyM. Chesley, Christopher D. Stock, James R. Cum-mins, Joseph T. Deters, Melanie S. Corwin, Renee A.Infante, Terrence L. Goodman and Wilbert B. Marko-vits in Cincinnati, Darren T. Kaplan, Gregory E. Kellerand John F. Harnes of Chitwood Harley Harnes inNew York, James M. Wilson, Krissi T. Gore and Mar-tin D. Chitwood of Chitwood Harley Harnes inAtlanta and Michael J. Hall and Richard MichaelDeWine of the Office of the Attorney General inColumbus, Ohio.

Freddie Mac is represented by Jason D. Frank andJordan D. Hershman of Bingham McCutchen in Bos-ton and Hugh E. McKay and Paul R. Matia of Porter,Wright, Morris & Arthur in Cleveland.

McQuade is represented by Andrew J. Levander ofDechert in New York and Cheryl A. Krause andDavid T. Jones of Dechert in Philadelphia.

Piszel is represented by Joseph P. Rodgers and Saber W.VanDetta of Squire Sanders in Cleveland, William E.Donnelly and Jerry A. Isenberg of Murphy & McGo-nigle in Washington, D.C., and James K. Goldfarband Jonathan S. Bashi of Murphy & McGonigle inNew York.

(Additional documents available: McQuade’s motionto dismiss. Document #88-120625-224M. Brief insupport of McQuade’s motion to dismiss. Docu-ment #88-120625-225B. Freddie Mac’s motion todismiss. Document #88-120625-226M. Brief in sup-port of Freddie Mac’s motion to dismiss. Document#88-120625-227B. Piszel’s motion to dismiss. Docu-ment #88-120625-228M. Brief in support of Piszel’smotion to dismiss. Document #88-120625-229B.) n

Judge: Consumer Fails ToState Debt Collection ClaimsAgainst Credit UnionGREENBELT, Md. — A consumer has failed to pleadhis federal debt collection law claims, as well as a


70

number of other claims made against a credit union,because he has failed to show that the credit union is adebt collector as required under the Fair Debt Collec-tion Practices Act, a federal judge in Maryland ruledJune 14 (Isaiah Nichols v. Navy Federal Credit Union,No. 12-790, D. Md.; 2012 U.S. Dist. LEXIS 82724).


Consumer Isaiah Nichols sued Navy Federal CreditUnion in the Prince George’s County, Md., CircuitCourt, alleging that Navy Federal violated six provi-sions of the Fair Debt Collection Practices Act, aswell as 12 other federal laws in attempting to collectionon a debt Nichols incurred with the credit union.

In particular, Nichols disputes the debt and claims thathe is a victim of identity theft.

Navy Federal removed the action to the U.S. DistrictCourt for the District of Maryland and moved to dis-miss, contending that Nichols’ pro se complaint failedto state a claim for relief, and U.S. Judge J. FrederickMotz granted the motion.

DeSantis v. Computer Credit

Citing the Second Circuit U.S. Court of Appeals’ rulingin DeSantis v. Computer Credit, Inc. (269 F.3d 159,161 [2001]), Judge Motz held that dismissal is properbecause ‘‘[t]o the extent that plaintiff is asserting a claimunder the Fair Debt Collection Practices Act, it is notcognizable against defendant because there are no factsalleged to suggest that defendant acted as a ‘professionaldebt collector,’ as is required under the Federal DebtCollection Practices Act.’’

Judge Motz also found that dismissal is proper because‘‘[t]o the extent that plaintiff is asserting a claim basedupon an alleged contract with defendant, there are nofacts alleged that give rise to the inference that any suchagreement existed.’’

‘‘Plaintiff’s assertions are based entirely upon the factthat he unilaterally submitted to defendant a series ofdocuments upon which he now bases a contract claim,’’Judge Motz said.

Moreover, Judge Motz ruled that dismissal is properbecause ‘‘to the extent that plaintiff alleges that defen-dant ‘attempted to fraud’ him, he has not made any

allegations setting forth with any particularity, asrequired by Fed. R. Civ. P. 9 [Federal Rule of CivilProcedure 9], that any fraud was committed.’’

Counsel

Nichols of Fort Washington, Md., appeared pro se.

Navy Federal is represented by Amy S. Owen and Kris-tin Anne Martin Zach of Cochran and Owen inVienna, Va.

(Additional documents available: Motion to dismiss.Document #88-120625-035B. Opposition brief.Document #88-120625-036B. Reply brief. Docu-ment #88-120625-037B. Complaint. Document#88-120625-038C.) n

Judge: Court HasSubject Matter JurisdictionOver Debt Collection SuitCLEVELAND — Remand of a credit card holder’slawsuit against a debt collector and credit card issueris not proper, a federal judge in Ohio ruled June 14,because the court has subject matter jurisdiction overthe claims (Theresa M. Passmore v. Discover Bank,et al., No. 11-1347, N.D. Ohio; 2012 U.S. Dist.LEXIS 82331; See November 2011, Page 8).


Discover Bank sued credit card holder Theresa M.Passmore in the Lake County, Ohio, Court of Com-mon Pleas, seeking to collect on a debt Passmoreincurred on a credit card she had received from Dis-cover Bank. Discover Bank brought claims of breach ofcontract and unjust enrichment.

Passmore answered and counterclaimed against Dis-cover Bank and joined as counterclaim defendantsYale Levy and debt collector Levy & Associates (collec-tively, Levy defendants). Passmore sought to representa class of similarly situated individuals and broughtclaims for violation of the Fair Debt Collection Prac-tices Act (FDCPA) and the Ohio Consumer ProtectionAct, fraud, abuse of process, defamation and civilconspiracy.


71

Realignment

Discover Bank dismissed its claims, and the Levy defen-dants moved to realign the parties. The state court thenrealigned Passmore to make her the plaintiff in theaction.

Discover Bank moved to compel arbitration of Pass-more’s claims pursuant to Discover Bank’s cardholderagreement and moved to stay the litigation pending aruling on the motion to compel arbitration, and Pass-more moved to strike a declaration submitted to sup-port the motion to compel arbitration.

The state court denied the defendants’ motions to com-pel arbitration, refused to consider the declaration ofdirector of Discover Bank’s credit card servicing affili-ate, Jeff Naami, because it was not notarized, and foundthat the attached copies of Discover Bank’s credit cardagreement were therefore unauthenticated and failedto establish a binding arbitration agreement betweenDiscover Bank and Passmore.

Arbitration

The defendants removed the action to the U.S. DistrictCourt for the Northern District of Ohio. The Levydefendants moved to compel arbitration and to staythe proceedings, and Passmore moved to strike.

Judge James S. Gwin granted the Levy defendants’motion, and Passmore moved to remand and to vacateJudge Gwin’s order.

In denying her motions, Judge Gwin held that Pass-more’s argument that the District Court lacks subjectmatter jurisdiction over the instant action because shenever filed an amended complaint in state court beforethe case was removed, leaving the District Court with-out a complaint upon which to test its jurisdiction, fails.

‘‘When a state court realigns parties, the realigneddefendant can properly remove an action to federalcourt. The Court explained as much in its earlierOrder. Passmore all but ignored Hrivnak [the NorthernDistrict of Ohio’s ruling in Hrivnak v. NCO PortfolioManagement (723 F. Supp. 2d 1020, 1028 [2010])] inher earlier motion papers. Now she makes Hrivnak thecenterpiece of her motion, saying that the case carriesno weight because she, unlike the removal plaintiff inHrivnak, never actually filed a redesignated complaintin state court. But Passmore’s failure to refile her

counterclaims on a recaptioned document hardly ren-ders her claims suddenly unknowable, and certainlydoes not render the action unremovable,’’ JudgeGwin said.

FDCPA Claims

Judge Gwin also rejected Passmore’s argument thateven if removal of the FDCPA claims was proper, herstate law claims should be severed, finding that ‘‘all ofher claims arise from the same set of facts and the Courtproperly exercises supplemental jurisdiction here.’’

Passmore is represented by Anand N. Misra of Beach-wood, Ohio, and Robert S. Belovich of Parma, Ohio.

Discover Bank is represented by Burt M. Rublin andNathan W. Catchpole of Ballard Spahr Andrews &Ingersoll in Philadelphia and Saber W. VanDetta andSteven A. Friedman of Squire, Sanders & Dempsey inCleveland.

Levy and Levy Associates are represented by I. JamesHackenberg of Baker, Hackenberg & Hennig in Pai-nesville, Ohio, and Boyd W. Gentry of Surdyk,Dowd & Truner in Miamisburg, Ohio.

(Additional documents available: Motion to remand.Document #88-120625-024B. Opposition to motionto remand. Document #88-120625-025B. Reply insupport of motion to remand. Document #88-120625-026B. Motion to vacate. Document #88-120625-027B. Opposition to motion to vacate.Document #88-120625-028B. Oct. 26 order. Docu-ment #88-111128-012R.) n

Preliminary Approval GrantedTo Settlement In MunicipalDerivatives Antitrust ActionNEW YORK — The federal judge in New York over-seeing the multidistrict litigation involving allegationsby purchasers of municipal derivatives that finan-cial services companies engaged in price fixing, bid rig-ging and market manipulation in violation of Section 1of the Sherman Act on June 4 granted preliminaryapproval to a $45 million settlement between JP Mor-gan Chase & Co. and a class of purchasers (In re Muni-cipal Derivatives Antitrust Litigation, No. 08 MDL No.1950, Master No. 08-02516, S.D. N.Y.).


72

(Order available. Document #81-120628-014R.Motion for preliminary approval available. Docu-ment #81-120628-015B.)

Pursuant to the settlement agreement, JPMorganChase & Co., J.P. Morgan Securities and BearStearns & Co. (collectively, JPMC) agreed to pay$44.57 million or, with a potential opt-out reduction,$42.57 million and to provide reasonable cooperation,including discovery cooperation, to class plaintiffs’counsel. The proposed settlement is in addition toout-of-court opt-in settlements negotiated by statesattorneys general — $62.5 million with Bank of Amer-ica N.A. (BOA), $63.3 million with UBS AG and$65.5 million with JPMC.

The instant settlement follows a $4.5 million settle-ment with Morgan Stanley and a settlement withWachovia Bank N.A., now known as Wells FargoBank, N.A., and Wells Fargo & Co. (collectively,Wachovia), pursuant to which Wachovia agreed topay the greater of $37 million or 65 percent of thetotal amount that Wachovia agreed to pay as restitutionas part of the settlement agreement with the statesattorneys general.

Multiple Lawsuits

Multiple civil antitrust actions against various financialservices companies were filed by municipalities andother purchasers of municipal derivatives across thecountry alleging violations of Section 1 arising frombidding on municipal derivatives offerings. The JudicialPanel on Multidistrict Litigation transferred all theactions to the U.S. District Court for the SouthernDistrict of New York.

A consolidated class action complaint was filed Aug. 22,2008, against more than 40 defendants, and a secondconsolidated amended complaint (SCAC) was filedJune 18, 2009, against 16 defendants — Morgan Stan-ley; Wachovia; JPMC; BOA; National WestminsterBank PLC; Piper Jaffray & Co.; Societe Generale SA;UBS; Wachovia; Natixis Funding Corp.; InvestmentManagement Advisory Group Inc.; CDR FinancialProducts; Winters & Co. Advisors LLC; George K.Baum & Co; and Sound Capital Management Corp.

In addition, four California municipalities, includingthe City of Oakland, brought a separate class actioncomplaint (referred to as the JSAC) on Dec. 15,

2009, alleging that the 16 SCAC defendants violatedCalifornia’s Cartwright Act, and 11 municipalities,including the City of Los Angeles, asserted Section 1and Cartwright Act claims similar to those in the SCACand JSAC against the SCAC defendants and 31 addi-tional defendants not named in the SCAC or JSACaction.

Settlement Class

Judge Victor Marrero conditionally certified the classfor purposes of the settlement. The class is defined as‘‘[a]ll state, local and municipal government entities,independent government agencies, quasi-government,non-profit and private entities that (i) purchased bynegotiation, competitive bidding or auction MunicipalDerivative Transactions with Defendant or any AllegedProvider Defendant or Alleged Provider Co-Conspira-tor, or (ii) purchased by negotiation, competitive bid-ding or auction Municipal Derivative Transactionsbrokered by any Alleged Broker Defendant or AllegedBroker Co-Conspirator, at any time from January 1,1992 through August 18, 2011, in the United States.’’The class excludes ‘‘any entity that provides Defendantwith a release of claims it may have against Defendantas a result of opting into the State AG Settlement.’’

The City of Baltimore, the University of MississippiMedical Center, the University of Southern Missis-sippi, the Mississippi Department of Transportation,the University of Mississippi, the Central Bucks SchoolDistrict in Pennsylvania and the Bucks CountyWater & Sewer Authority in Pennsylvania werenamed class representatives for purposes of thesettlement.

The settlement provides that the settlement amountmay be funded by any amount remaining in the statesattorneys general escrow fund after all payments pur-suant to that settlement are made.

In addition, the settlement agreement permits JPMC torescind the agreement if the number of class memberswho elect to opt out of the settlement class exceeds anagreed-upon number.

The plaintiffs’ co-lead interim class counsel are MichaelD. Hausfeld and Megan E. Jones of Hausfeld inWashington, D.C.; Arun S. Subrahmanian, WilliamChristopher Carmody and Seth D. Ard of SusmanGodfrey in New York; Marc M. Seltzer of Susman


73

Godfrey in Los Angeles; and William A. Isaacson,Tanya Chutkan and Jonathan Shaw of Boies, Schiller &Flexner in Washington. JPMC is represented byThomas C. Rice of Simpson Thacher & Bartlett inNew York. n

Judge Dismisses FederalSecurities Law Claims AgainstMadoff Feeder FundNEW YORK — Shareholders in a securities classaction lawsuit against a feeder fund of Bernard L. Mad-off Investment Securities LLC (BLMIS) have failed toshow that their federal securities law claims satisfy thestandard set forth in Absolute Activist Value MasterFund, Ltd. v. Ficeto, a federal judge in New Yorkruled June 4 (In re Optimal U.S. Litigation, No 10-4095, S.D. N.Y.; 2012 U.S. Dist. LEXIS 77311; SeeOctober 2011, Page 15).


Shareholders, 56 non-U.S. people or entities thatinvested in Optimal Strategic U.S. Equity Fund (Pio-neer), a BLMIS feeder fund (collectively, the Pioneerplaintiffs), as well as the three non-U.S. citizen investorswho held their Pioneer investments with SBT (theSantander plaintiffs) filed a fourth amended complaintin the U.S. District Court for the Southern Districtof New York on behalf of a class of those similarlysituated.

The shareholders allege that Banco Santander S.A.,Optimal Investment Management Services S.A.(OIS), Banco Santander International (SantanderU.S.) and OIS and Santander Investment SecuritiesInc. employee Jonathan Clark failed to conduct ade-quate diligence regarding BLMIS, ignored ‘‘red flags’’that should have alerted them to Bernard L. Madoff’sfraud and issued a series of false and misleading state-ments in connection with the sale of Pioneer shares inviolation of Sections 10(b) and 20(a) of the SecuritiesExchange Act of 1934 and Securities and ExchangeCommission Rule 10b-5.

Additional Claims

Additional claims for common-law fraud, negligentmisrepresentation, gross negligence, breach of fiduciary

duty, aiding and abetting breach of fiduciary duty, aid-ing and abetting fraud, third-party beneficiary breach ofcontract and unjust enrichment also were made.

The defendants moved to dismiss the federal securitiesfraud claims in light of the U.S. Supreme Court’s rulingin Janus Capital Group, Inc. v. First Derivative Traders(131 S. Ct. 2296 [2011; 2011 U.S. LEXIS 4380]), andJudge Shira A. Scheindlin granted the motion in partand denied it in part.

Judge Scheindlin then issued an order to show causewhy the federal securities law claims should not bedismissed in light of the Second Circuit U.S. Courtof Appeals’ decision in Absolute Activist Value MasterFund, Ltd. v. Ficeto (677 F.3d 60 [2012]).

In Connection With

In a May 17 letter, the shareholders withdrew their‘‘allegations that the purchases or sales of OptimalU.S. shares took place in the United States.’’ Instead,they claim that the Exchange Act reaches their claimsfor two reasons: plaintiffs’ purchase of U.S. Optimalshares was ‘‘in connection with’’ Madoff’s purportedtrades in the United States, and the ‘‘economic reality’’of plaintiffs’ Optimal U.S. investments consisted ofMadoff’s purported transactions in the United States.

In dismissing the shareholders’ claims, Judge Schein-dlin rejected their assertion that under a textual readingof the U.S. Supreme Court’s ruling in Morrison v.National Australia Bank, Ltd. (130 S. Ct. 2869[2010]), the purchase of Optimal U.S. shares was ‘‘inconnection with’’ Madoff’s purported purchases andsales of New York Stock Exchange-listed stocks.

‘‘In short, this argument fails because plaintiffs rely onopinions construing ‘in connection with’ outside of theMorrison context, which thereby ignores the presump-tion against applying securities laws extraterritorially,’’Judge Scheindlin said.

Economic Reality

Judge Scheindlin also disagreed with the shareholders’argument that the ‘‘economic reality’’ of their purchaseof Optimal U.S. shares was essentially an investment inthe NYSE, finding that ‘‘Without determining the via-bility of the ‘economic reality’ test, which the SecondCircuit will consider in due course, I conclude that such


74

a test would not sustain plaintiffs’ federal securities lawclaims here for two reasons.

‘‘First, the economic reality test was applied in Elliot[the District Court’s ruling in Elliott Associates v.Porsche Automobile Holding (759 F. Supp. 2d 469[2010])] based on Morrison’s presumption againstextraterritorial application of the Exchange Act,’’Judge Scheindlin stated.

‘‘Second, Valentini [v. Citigroup, Inc. ( No. 11 Civ.1355, [S.D.N.Y. Dec. 27, 2011])] and Elliot are dis-tinguishable on the grounds that they involve securitiesthat had a direct, one-to-one relationship with the U.S.security referenced, and the security at issue in thosecases fluctuated in value in direct correlation with thevalue of the U.S. security.

‘‘The issue of the extent to which the Exchange Act mayreach foreign instruments referencing U.S. stock is anissue that many district courts have grappled with andwhich requires further guidance from appellate courts.However, given that plaintiffs’ federal securities lawclaims fail to satisfy the standard in Absolute Activistand their extremely tenuous and speculative connectionto securities listed on a U.S. stock exchange, plaintiffshave failed to overcome the presumption against theextraterritorial reach of the Exchange Act,’’ JudgeScheindlin explained.

Counsel

The shareholders are represented by Edward W. Millerof New York and Alan I. Ellman, Javier Bleichmar andJoel H. Bernstein of Labaton Sucharow in New York.

The defendants are represented by Gustavo J. Mem-beila and Samuel A. Danon of Hunton & Williams inMiami and Paulo R. Lima and Shawn P. Regan ofHunton & Williams in New York. n

Madoff Customers’Claims Barred By Injunction,Automatic Stay, Judge RulesNEW YORK — Customers of Bernard L. MadoffInvestment Securities LLC (BLMIS) are not entitledto bring a securities class action lawsuit against theestate of a former BLMIS investor that is subject to a$7.2 billion settlement agreement with BLMIS’s

liquidation trustee because class action claims are pro-hibited by a permanent injunction and an automaticstay on customer claims, a federal bankruptcy judge inNew York ruled June 20 (Securities Investor ProtectionCorp. v. Bernard L. Madoff Investment Securities LLC,[In re Bernard L. Madoff], No. 08-1789, S.D. N.Y.Bkcy.; See December 2010, Page 4).


Irving H. Picard, the liquidation trustee for Bernard L.Madoff Investment Securities LLC (BLMIS), sued theestate of former BLMIS investor Jeffrey M. Picower inthe U.S. Bankruptcy Court for the Southern District ofNew York. He sought to recover more than $7.2 billionthat Picower received as part of his role in Madoff’sPonzi scheme.

In February 2010, BLMIS investor Adele Fox suedPicower’s estate in the U.S. District Court for theSouthern District of Florida, seeking to recover lossessustained as part of Picower’s role in the Ponzi scheme,but the Bankruptcy Court enjoined Fox’s action (Fox I).Fox appealed to the Southern District of New York,which upheld the District Court’s order in aMarch 26, 2012, ruling.

Settlement Agreement

In the meantime, on Dec. 17, 2010, Picard enteredinto a settlement agreement with Picower’s estate,which required the estate to forfeit and repay approxi-mately $7.2 billion, of which $5 billion was to be paidto Picard as BLMIS trustee.

Fox appealed the settlement order to the Southern Dis-trict of New York, but the District Court upheld thesettlement agreement on March 26, 2012.

On Dec. 13, BLMIS investors A&G Goldman Partner-ship and Pamela Goldman (collectively, class actionplaintiffs) moved for a determination that neither theBankruptcy Court’s Jan. 13, 2011, injunction nor theautomatic stay provision of Section 362 of Title 11 ofthe U.S. Code bar, prohibit, restrict or prevent themfrom commencing and prosecuting a securities law classaction against Picower’s estate and related defendantsin the Southern District of Florida.

Standing

In denying that motion, Judge Burton R. Liflandrejected the class action plaintiffs’ assertions that the


75

Bankruptcy Court ‘‘should not enjoin their ‘federalsecurities law claims’ because they belong to the share-holders and not the estate’’ and that Picard lacks stand-ing to bring those claims and the Bankruptcy Courtlacks jurisdiction to adjudicate them in light of theSecond Circuit U.S. Court of Appeals’ ruling in Tra-velers Casualty and Surety Co. v. Chubb IndemnityCo. [In re Johns-Manville Corp.] (517 F.3d 52[2008]).

‘‘The Class Action Plaintiffs . . . have simply repeated,repackaged, and relabeled the wrongs alleged by theTrustee in an attempt to create independent claimswhere none exist. In fact, they re-iterate allegationsalmost verbatim of not only the Trustee’s Complaint,but also of the complaints their same counsel set forthin Fox I. As such, the Court rejects the Plaintiffs’ argu-ments and denies the Motion,’’ Judge Lifland said.

The class action plaintiffs are represented by Joshua J.Angel and Frederick E. Schmidt Jr. of Herrick Feinsteinin New York.

Picard is represented by David J. Sheehan, Deborah H.Renner, Tracy L. Cole, Keith R. Murphy, Marc Ska-pof, Amy E. Vanderwal, Matthew J. Moody andGeorge Klidonas of Baker & Hostetler in New York. n

Judge Dismisses InvestorSuit Against Merrill Lynch,Pierce, Fenner & SmithNEW YORK — A shareholder has failed to plead anyof its state or federal law claims against Merrill Lynch,Pierce, Fenner & Smith Inc. for alleged securities lawviolations in connection with the sale of auction-ratesecurities, a federal judge in New York ruled June 4 indismissing the complaint (In re Merrill Lynch Auction-Rate Securities Litigation, No. 09-md-2030, [IconixBrand Group Inc. v. Merrill Lynch, Pierce, Fenner &Smith Inc., No. 10-0124], S.D. N.Y.; 2012 U.S. Dist.LEXIS 77331).


Investor Iconix Brand Group Inc. sued Merrill in theU.S. District Court for the Southern District of NewYork. Iconix alleges that Merrill fraudulently induced it

into purchasing more than $100 million in auction-ratesecurities — the Anchorage Finance Sub-Trusts I-IVARS — in violation of Section 10(b) of the SecuritiesExchange Act of 1934, Securities and Exchange Com-mission Rule 10b-5 and Section 12(a)(1) of the Secu-rities Act of 1933.

Additional claims for common-law fraud and negligentmisrepresentation were also made.

Section 10(b)

In granting Merrill’s motion to dismiss, Judge LorettaA. Preska held that dismissal of the Section 10(b) andRule 10b-5 claims is proper because Iconix made itspurchase after Merrill produced its website disclosureand the SEC issued a 2006 order.

‘‘This Court has held squarely in this Multidistrict Liti-gation that these same disclosures ‘relieve [Merrill’s]liability on Plaintiff’s misstatement and market manip-ulation claims based on purchases made after the Web-site Disclosure.’ The claims in Merrill IV [In re MerrillLynch Auction-Rate Securities Litigation (No. 09-md-2030; 09-9887, S.D. N.Y. [Feb. 15, 2012])] that Mer-rill (and, to a lesser extent, Money Market One Institu-tional Investment Dealer) made material misstatementsor omissions are, in substance, analogous in all materiallegal respects to the same aims advanced here. Plaintiffmakes no new argument about the sufficiency of thosedisclosures. Nor does Plaintiff make new argumentswith respect to scienter, reliance, or loss causation,’’Judge Preska said.

Judge Preska also found that because Iconix’s claims‘‘were not harassing or frivolous, and Merrill did notaffirmatively allege any improper conduct or move forsanctions,’’ neither Iconix nor its counsel violated Rule11 of the Private Securities Litigation Reform Act.

Common-Law Fraud

Moreover, Judge Preska ruled that dismissal of Iconix’scommon-law fraud claim is proper because ‘‘the ele-ments of common law fraud essentially mirror thoseinvolved in the section 10(b) claims.’’

Judge Preska further dismissed Iconix’s Section12(a)(1) claim, holding that in addition to Iconix’sclaim being time-barred, it also has failed to state aclaim for relief.


76

Dismissal of the negligent misrepresentation claim isalso proper, Judge Preska found, because the claim ispreempted by New York’s Martin Act.

Counsel

Iconix is represented by Marc E. Kasowitz and CharlesM. Miller of Kasowitz, Benson, Torres & Friedman inNew York.

Merrill is represented by Timothy P. Burke of BinghamMcCutchen in Boston and Mary G. Gearns of Bing-ham McCutchen in New York.

(Additional documents available: Motion to dismiss.Document #57-120611-058B. Opposition brief.Document #57-120611-059B. Reply brief. Docu-ment #57-120611-060B. Complaint. Document#57-120611-061C.) n

Facebook, Underwriters,Stock Exchange Hit WithClass Actions After IPOTwo putative class action complaints were filed May 22in response to Facebook’s initial public offering: a suitin a California state court against the company, itsofficers and underwriters, including Morgan Stanley,alleging that underwriters tipped off clients that theycut earnings projections ahead of the IPO, and a suit inNew York federal court against Nasdaq, accusing thestock exchange of mishandling orders for Facebookshares and causing investor loss.

Facebook shareholder Darryl Lazar brought the suitagainst the company in the San Mateo County SuperiorCourt, individually and on behalf of all others similarlysituated (Darryl Lazar v. Facebook Inc., et al., Calif.Sup., San Mateo Co.).

(Complaint available. Document #57-120611-501C.)

According to Lazar, Morgan Stanley, J.P. MorganSecurities LLC and Goldman Sachs & Co. cut theirearnings forecasts before the IPO but failed to tell thepublic. Lazar says this caused investors to buy Face-book stock based on misleading statements and omit-ted material information in the social networking

company’s registration statement and prospectus inviolation of Sections 11 and 15 of the Securities Actof 1933.

Misleading Statements Alleged

Lazar says that under applicable Securities andExchange Commission rules and regulations, the regis-tration statement was required to disclose knowntrends, events or uncertainties that were having, andwere reasonably likely to have, an impact on Facebook’scontinuing operations.

‘‘However, the Registration Statement failed to disclosethat during the IPO roadshow, the lead underwriters,including, Defendants Morgan Stanley, J.P. Morgan,and Goldman Sachs, all cut their earnings forecasts andthat news of the estimate cut was passed on only to ahandful of large investor clients, not to the public,’’according to the complaint. ‘‘Therefore, the Registra-tion Statement was negligently prepared and, as a result,contained untrue statements of material facts oromitted to state other facts necessary to make the state-ments made not misleading, and was not prepared inaccordance with the rules and regulations governingtheir preparation.’’

In the Southern District of New York action, investorPhillip Goldberg sued Nasdaq OMX Group Inc. andthe Nasdaq Stock Market LLC (collectively, Nasdaq),individually and behalf of all others similarly situated(Phillip Goldberg v. Nasdaq OMX Group Inc., et al.,No. 12-4054, S.D. N.Y.).

(Complaint available. Document #57-120611-502C.)

Goldberg says Facebook’s IPO was ‘‘hotly anticipated’’and many investors, both retail and institutional,sought to purchase shares in the IPO. However,because of Nasdaq’s negligence, that IPO was ‘‘badlymishandled,’’ according to the complaint.

Promptly, Efficiently

‘‘Because NASDAQ failed to process Facebook tradespromptly and efficiently, parties attempting to purchaseFacebook shares were unable to determine if they hadproperly done so,’’ Goldberg says. ‘‘Indeed, NASDAQfailed to process some trade orders for hours on end,and failed to cancel other orders despite customerrequests to do so.’’


77

Bender on Privacy and Data Protection is the

one resource I would recommend to every professional concerned

about understanding the plethora of privacy and data protection

laws and issues. David Bender’s meticulous and thorough coverage of topics critical to both public and

private sector organizations will be an important addition to the privacy and data protection professional’s library.

—Dr. Larry Ponemon, Chairman and Founder, Ponemon Institute

Bender on Privacy and Data Protection is a reference book that can meet the needs of everyone—those just

beginning in or who have a curiosity to learn more about the field, as well as experienced practitioners needing examples

and guidance on how to approach or solve a particular challenge. It is part encyclopedia, part history book and part a collection of case law and interpretations showcasing the

wealth of knowledge and experience of the author. … P[p]erhaps the best feature—it is written for lawyers and

non-lawyers alike! —Sandra R. Hughes, Past Chairman International Association

of Privacy Professionals (IAPP)

David Bender’s new book … is a well-organized and detailed treatise spanning the world

of privacy and data protection. Starting with a discussion of the key U.S. federal and state privacy

laws, the book turns its attention to the EU and APEC, and then closes

with several chapters on particular topics such

as cloud computing and behavioral advertising. … I found it particularly

compelling in its chapters that apply the privacy laws

to particular contexts. … For those of us who deal with EU data transfers on a regular basis, the book is a great resource

and will definitely be sitting on my desk.—Orrie Dinstein, privacy practitioner

at a Fortune 100™ company

Here’s what attorneys and professionals are saying about Bender on Privacy and Data Protection.

This book provides an immense amount of timely and important material on an area

that has become increasingly complex and important in practice. Bender has done

an incredible job. Among other things, the coverage of state Data Breach Notification and other privacy-related laws is excellent and invaluable for practitioners, including

in-house counsel.—Raymond T. Nimmer, Dean & Leonard H. Childs

Professor of Law, University of Houston Law Center

LexisNexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc., used under license. Other products or services may be trademarks or registered trademarks of their respective companies.© 2012 LexisNexis. All rights reserved. OFF02314-0 0412

Call 800.223.1940 for more information or to order

1 volume, softbound, updated annually, Pub. #01573, ISBN 9781422475232


78

According to the complaint, this damaged the plaintiffand class members in a variety of ways. Some classmembers placed buy orders and then placed timelycancellations of those orders when the market pricedeclined, according to the complaint. These class mem-bers were damaged when the cancellations were notpromptly and correctly executed by Nasdaq, andinstead the buy orders were executed after Facebookprices had declined in value, meaning those class mem-bers overpaid for their shares, according the comp-laint. Other class members were unable to determineif their buy orders had been executed and did not knowwhether they owned Facebook shares, or at what price,and were accordingly unable to timely sell those shares,suffering losses, according to the complaint.

Lazar is represented by Lionel Z. Glancy, MichaelGoldberg, Robert V. Prongay and Casey E. Sadler ofGlancy Binkow & Goldberg in Los Angeles.

Goldberg is represented by Douglas G. Thompson Jr.,Michael G. McLellan and Robert O. Wilson of Finkel-stein Thompson in Washington, D.C., and Christo-pher Lovell, Victor E. Stewart and Fred T. Isquith Jr. ofLovell, Stewart, Halebain, Jacobson in New York. n

Judge: Consumer EntitledTo More Than $2,000 InDamages In Lending Law SuitLYNCHBURG, Va. — A consumer is entitled to morethan $2,000 in statutory damages under state and fed-eral law for an automobile dealer’s failure to properlydisclose requisite disclosures regarding the interest rateon an automobile loan, a federal judge in Virginia ruledJune 19 (Michael J. Hummel v. David W. Hall, t/aCountry Motor Sales, No. 11-0012, W.D. Va.; 2012U.S. Dist. LEXIS 84305).


Consumer Michael J. Hummel sued David W. Hall inthe U.S. District Court for the Western District ofVirginia, alleging that Hall violated the Truth in Lend-ing Act (TILA) with regard to his sale of an automobileto Hummel.

In particular, Hummel contends that Hall failed toprovide requisite disclosures in violation of TILAwith regard to the interest rate charged on Hummel’spurchase of a used car from a dealership Hall owned,Country Motor Sales, and violated Virginia law bycharging Hummel a usurious interest rate.

Default Judgment

Hall failed to respond to the complaint’s allegations,and Hummel moved for default judgment.

Judge Norman K. Moon granted the motion and heldthat Hummel is not entitled to the $2,000 in statutorydamages under TILA that he is claiming, but is entitledto $1,000, because Title XIV of the Dodd-Frank WallStreet Reform and Consumer Protection Act, whichincreased the ceiling in TILA’s civil liability provisionfrom $1,000 to $2,000, did not take effect before theapplied effective date of Section 1400(c)(3) of theDodd-Frank Act.

Judge Moon also found that ‘‘ultimately, in light of theconsistency with which previous iterations of theDodd-Frank Act addressed the effective date of provi-sions under what eventually came to be Title XIV of theAct, and because of the explicit statement of the con-ferees’ intent as related in the Congressional Record, Iconclude that, contrary to Plaintiff’s contention, anddespite the ambiguity of section 1400(c)’s plain lan-guage, the increase in TILA’s civil liability cap did notbecome effective on July 22, 2010.’’

‘‘Accordingly, Plaintiff is entitled to $1,000, as opposedto $2,000, in statutory damages under TILA,’’ JudgeMoon stated.

Usury Damages

Moreover, Judge Moon ruled that under Virginia’susury law, Hummel is entitled to ‘‘a subtotal usurydamages amount of $2,876.45.’’

‘‘However, I will subtract from this amount the remain-ing principal balance that Plaintiff owes on the car,which is $1,693.78, as well as the interest that hasaccrued since September 2011, which is calculated tobe $76.23. Thus, the total usury damages to whichPlaintiff is entitled is $1,106.44,’’ Judge Moonexplained.


79

In today’s technology-driven society, you can easily access trusted LexisNexis® content anytime, anywhere!

LexisNexis® offers a growing selection of titles covering state jurisdictions and practice areas in the eBook format. You can:

® content

anywhere, anytime

Be assured that the LexisNexis collection of eBooks is compatible with dedicated e-reader devices and personal computers, tablet devices and smartphones using e-reader software or applications.*

eBooks are a versatile tool for busy professionals with a wealth of legal resources at your fingertips. Take your content to court, depositions, association meetings or on a plane!

For more information or to download a sample LexisNexis ebook, go to

To purchase an eBook, your

LexisNexis® representative

800.223.1940 or

the LexisNexis® Store: www.lexisnexis.com/store

*LexisNexis eBooks are available in epub format for use on devices like the Apple® iPad® and mobi format for use on devices like the Amazon® Kindle™.

LexisNexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc., used under license. Matthew Bender is a registered trademark of Matthew Bender Properties Inc. Other products or services may be trademarks or registered trademarks of their respective companies. © 2012 LexisNexis. All rights reserved. OFF01776-0 2012

LexisNexis®


80

Judge Moon further agreed with Hummel’s assertionthat because he never signed a security agreement forthe purchase of the automobile, Hall has ‘‘no enforce-able security interest in the car.’’

‘‘[W]ithout such a security interest, it was improper forDefendant to place a lien on the title to the car. Accord-ingly, I will enter an order declaring Defendant’s secur-ity interest in the car void and unenforceable. Further,that order will direct Defendant to release the lien, to

give the car’s title back to Plaintiff, and to return toPlaintiff any keys to the vehicle that he is holding,’’Judge Moon said.

Hummel is represented by Jeremy P. White of theVirginia Legal Aid Society in Lynchburg.

(Additional documents available: Motion for defaultjudgment. Document #88-120625-062B. Com-plaint. Document #88-120625-063C.) n


81

Docum

ents

Case

4:09

-cr-00

342

Doc

umen

t 878

Fil

ed in

TXSD

on 06

/14/12

Pag

e 1 of

7Ca

se 4:

09-cr

-003

42 D

ocum

ent 8

78

Filed

in T

XSD

on 06

/14/12

Pag

e 2 of

7Ca

se 4:

09-cr

-003

42 D

ocum

ent 8

78

Filed

in T

XSD

on 06

/14/12

Pag

e 3 of

7

US

Av.

ST

AN

FO

RD

:JU

DG

ME

NT

A-1

Lexis Nexis� Financial Services Litigation Report Vol. 4, #4 June 2012

Case

4:09

-cr-00

342

Doc

umen

t 878

Fil

ed in

TXSD

on 06

/14/12

Pag

e 4 of

7Ca

se 4:

09-cr

-0034

2 Do

cume

nt 87

8 F

iled in

TXSD

on 06

/14/12

Pag

e 5 of

7Ca

se 4:

09-cr

-0034

2 D

ocum

ent 8

78

Filed

in TX

SD on

06/14

/12 P

age 6

of 7

A-2


Case

4:09

-cr-00

342

Doc

umen

t 878

Fil

ed in

TXSD

on 06

/14/12

Pag

e 7 of

7

A-3


1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Richar

d G. H

imelric

k (004

738)

J. Jam

es Ch

ristian

(0236

14)

Tiffan

y & Bo

sco, P.

A. Th

ird Fl

oor Ca

melba

ck Esp

lanade

II 252

5 East

Came

lback

Road

Phoeni

x, Arizo

na 850

16-423

7 Tel

ephone

: (602)

255-6

000

Facsim

ile: (

602) 2

55-010

3 rgh

@tbla

w.com

; jjc@

tblaw.c

om

Attorn

eys for

Plain

tiffs R

obert F

acciola

; The

Rober

t Maur

ice

Facci

ola Tr

ust Da

ted De

cember

2, 199

4; Ho

neylou

C. Re

znik;

The M

orris R

eznik a

nd Ho

neylou

C. Re

znik T

rust; J

ewel B

oxLoa

n Com

pany, I

nc.; Je

wel B

ox, In

c.; H-M

Inves

tments

, LLC

Andre

w S. Fr

iedma

n (005

425)

Bonne

tt, Fairb

ourn, F

riedma

n & Ba

lint, P.

C. 290

1 N. C

entral

Avenu

e. Suite

1000

Phoeni

x, Arizo

na 850

12 Tel

ephone

: (602)

274-1

100

Facsim

ile: (6

02) 27

4-1199

afr

iedma

n@bff

b.com

Att

orneys

for Pl

aintiff

s Fred

C. Ha

gel an

d Jacq

ueline

M. H

agel

Revoca

ble Li

ving T

rust D

ated M

arch 1

5, 1995

; Judith

A. Ba

ker

UNITE

D STA

TES D

ISTRIC

T COU

RT

DISTR

ICT OF

ARIZO

NA

ROBE

RT FA

CCIOL

A, et a

l.,

Plainti

ffs,

vs.

GREE

NBER

G TRA

URIG,

LLP, a

New

York

limited

liabili

ty partn

ership

, et al.

,

Defen

dants.

Case

No. 2:

10-cv-

01025-

FJM

LEAD

PLAI

NTIFF

S’ MO

TION F

OR

(1) PR

ELIM

INAR

Y APP

ROVA

L OF

CLAS

S ACT

ION S

ETTL

EMEN

T WITH

DE

FEND

ANT G

REEN

BERG

TR

AURI

G LLP

, AND

(2) PR

ELIM

INAR

YCER

TIFIC

ATIO

N OF

SETT

LEME

NT CL

ASSE

S

Case

2:10

-cv-01

025-F

JM D

ocum

ent 4

17 F

iled 0

6/20/1

2 Pa

ge 1

of 13

1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

I.IN

TROD

UCTI

ONML

Lead

Plain

tiffs-C

lass

Repre

sentati

ves a

nd RB

Lead

Plain

tiffs-C

lass

Repre

sentati

ves (c

ollect

ively

“Clas

s Plain

tiffs”)

have

reache

d a pr

oposed

class

settlem

ent

with D

efenda

nt Gree

nberg

Trauri

g LLP

(“Gree

nberg”

) whic

h, if ap

proved

, will

resolv

e all

claim

s alle

ged a

gainst

Gree

nberg

in thi

s act

ion. G

reenbe

rg has

agre

ed to

pay

$61,01

7,740.

00 in s

ettlem

ent of

all cla

ims th

at were

asser

ted, or

could

have

been a

sserte

d,

by the

ML S

ettlem

ent Cl

ass an

d the

RB Se

ttleme

nt Cla

ss aga

inst G

reenbe

rg ari

sing f

rom

the co

llapse

of Mo

rtgage

s Ltd.

(“ML”

) and R

adical

Bunny

LLC (

“RB”

). Th

e term

s of th

e

propos

ed cla

ss set

tlement

with

Gree

nberg

(“the

GT S

ettlem

ent”)

are se

t fort

h in t

he

Stipul

ation o

f Settl

ement

filed

concur

rently

with

this m

otion.

1 Class

Plain

tiffs re

spectf

ully

reques

t that t

he Co

urt gr

ant pr

elimina

ry app

roval o

f the G

T Settl

ement

becau

se it p

rovide

s

substa

ntial

and im

media

te eco

nomic

benefi

ts to

more

than 1

,700 i

nvesto

rs acr

oss th

e

countr

y who

suffer

ed los

ses in

the a

lleged

securi

ties sc

heme th

at ende

d with

the c

ollaps

e

of bot

h ML a

nd RB

in 200

8.

The

GT S

ettlem

ent w

as rea

ched

throug

h a

separa

te me

diatio

n and

separ

ate

negoti

ations

conduc

ted in

depend

ently

from

the n

egotiat

ions u

nderly

ing th

e rece

ntly

submi

tted p

ropose

d set

tlement

with

Defe

ndant

Quarl

es &

Brady

LLP

(“the

QB

Settlem

ent”).

See “L

ead Pl

aintiff

s’ Moti

on for

(1) P

relimi

nary A

pprova

l of C

lass A

ction

Settlem

ents w

ith D

efenda

nts Q

uarles

& Br

ady, et

c.” (D

oc. #

407) (“

QB M

otion”

). Lik

e

the QB

Settle

ment,

howeve

r, the

GT Se

ttleme

nt is p

art of

a glo

bal re

soluti

on of

not on

ly

the Cl

ass Pl

aintiff

s’ claim

s agai

nst Gr

eenber

g, but

also,

pursua

nt to

separa

te agre

ement

s,

claim

s asse

rted b

y othe

r inves

tor gr

oups.

The r

esult i

s a se

cond g

lobal s

ettlem

ent am

ong

the in

vestor

group

s that

preser

ves th

e fund

ament

al pri

nciple

that

all vic

timize

d inve

stors

share i

n the re

covery

on an

essen

tially p

ro rat

a basi

s.

The G

T Set

tlement

accom

plishe

s this

throu

gh cer

tificat

ion o

f the

same t

wo

settlem

ent cla

sses p

ropose

d in c

onnect

ion wi

th the

QB Se

ttleme

nt: (1

) the M

L Settl

ement

1 Capit

alized

terms

gener

ally ha

ve the

same

defin

itions

as set

forth

in the

concu

rrentl

y file

d Stip

ulatio

n of S

ettlem

ent (D

oc. # 4

15).

Case

2:10

-cv-01

025-F

JM D

ocum

ent 4

17 F

iled 0

6/20/1

2 Pa

ge 2

of 13

2

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Class

and (2

) the

RB Se

ttleme

nt Cla

ss (co

llectiv

ely, “

the Se

ttleme

nt Cla

sses”)

. Th

e

propos

ed Set

tlement

Class

es rea

dily s

atisfy

all of

the re

quirem

ents fo

r cert

ificatio

n unde

r

Fed. R

. Civ.

P. Ru

le 23.

See Do

c. # 40

7, at 11

:20-15

:3.

At the

prelim

inary

approv

al sta

ge, th

e Cour

t revie

ws th

e prop

osed s

ettlem

ent to

determ

ine tha

t it is

not co

llusiv

e and,

“taken

as a w

hole, i

s fair,

reason

able a

nd ade

quate t

o

all con

cerned

.”Off

icers

for Ju

stice v

. Civil

Serv.

Com

m’n of

City

and C

ounty

of San

Franci

sco, 6

88 F.2

d 615,

625 (

9th Ci

r. 1982

). Do

c. # 40

7, at 2

:2-11.

The

propos

ed GT

Settlem

ent m

eets t

his st

andard

. Th

e $61

millio

n com

mon f

und es

tablish

ed by

the G

T

Settlem

ent re

presen

ts a ve

ry fav

orable

outco

me fo

r the in

vestor

class

memb

ers in

light

of

the ris

ks and

costs

atten

dant to

conti

nued l

itigatio

n, the

insur

ance c

overag

e avai

lable

to

pay in

vestor

claim

s agai

nst G

reenbe

rg (w

hich c

ontinu

ed liti

gation

woul

d furt

her er

ode)

and the

diffic

ulties

inhere

nt in s

uccess

fully p

rosecu

ting a

nd col

lectin

g clas

s claim

s agai

nst

a law

firm

defe

ndant.

The

GT S

ettlem

ent re

sults

from

indisp

utably

arm’

s leng

th

negoti

ations

before

one

of the

most

respe

cted

and so

ught a

fter m

ediato

rs, Da

vid

Geron

emus

of JA

MS, fo

llowin

g more

than

two ye

ars of

hard-

fought

litiga

tion b

efore

this

Court

. Class

Plaint

iffs th

erefor

e resp

ectful

ly req

uest th

at the

Cour

t ente

r the [

Propos

ed]

Prelim

inary

Appro

val O

rder, w

hich:

(1) pr

elimina

rily ap

proves

the G

T Settl

ement

; (2)

certifi

es the

ML

Settlem

ent C

lass a

nd the

RB

Settlem

ent C

lass;

(3) es

tablish

es a

coordi

nated

notice

progr

am fo

r the p

ropose

d GT a

nd QB

Settle

ments

; and (

4) sch

edules

a

hearin

g date

(the

“Final

Appr

oval H

earing

”) to

consid

er the

final

appro

val of

the G

T

Settlem

ent, t

he pro

posed

Plan

of All

ocation

, and

Class

Couns

el’s a

pplica

tion

for

attorne

ys’ fe

es and

expe

nses.

The

schedu

le pro

posed

by Cla

ss Pla

intiffs

, whic

h

Green

berg s

upport

s, will

allow t

he set

tlement

appro

val pr

ocess

to be

coordi

nated

with t

he

approv

al pro

cess f

or the

propo

sed cl

ass se

ttleme

nt wit

h QB

on a t

imeta

ble th

at stri

ctly

compli

es wit

h the C

ourt’s

recent

order

(Doc.

# 413)

.

Case

2:10

-cv-01

025-F

JM D

ocum

ent 4

17 F

iled 0

6/20/1

2 Pa

ge 3

of 13

FA

CC

IOLA

v.G

RE

EN

BE

RG

TR

AU

RIG

MO

TIO

N

B-1


3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

II.SU

MMAR

Y OF T

HE CL

AIMS

AND D

EFEN

SES R

ELAT

ING T

O GR

EENB

ERG

A.Cla

ss Plain

tiffs’ C

onten

tions

ML

Lead

Plain

tiffs c

ontend

that

Green

berg i

s eith

er pri

marily

or se

condar

ily

liable u

nder th

e Ariz

ona Se

curitie

s Act (

“ASA

”) in

connec

tion w

ith se

curitie

s viol

ations

commi

tted by

RB

and M

L. Th

e RB

Lead

Plaint

iffs as

sert s

econda

ry liab

ility c

laims

agains

t Gree

nberg

for th

e sam

e alleg

ed sec

urities

viola

tions.

As th

e prin

cipal

form

of

relief

for th

eir cla

ims a

gainst

Green

berg,

Class

Plaint

iffs se

ek sta

tutory

resci

ssion

under

A.R.S.

§ 44-2

001(A

).

Th

e fact

ual an

d lega

l base

s for C

lass P

laintiff

s’ claim

s agai

nst Gr

eenber

g and

the

law fir

m’s d

efense

s are

compre

hensiv

ely de

tailed

in a s

eries

of mo

tions

filed o

ver th

e

course

of the

litiga

tion, i

ncludi

ng:

Green

berg’s

First

Motio

n to D

ismiss

Com

plaint

. See

Briefi

ng at

Docs.

#104,

105, 1

35.

Lead

Plaint

iffs’ M

otion

to Am

end Co

mplain

t. See

Brief

ing at

Docs.

#216, 2

31, 24

5.

Lead

Plaint

iffs’ M

otion

to Ce

rtify I

nvesto

r Clas

ses. S

ee Bri

efing

at

Docs.

#256,

261, 2

69.

Green

berg’

Second

Moti

on to

Dismi

ss Co

mplain

t. See

Brie

fing a

t

Docs.

#299,

302, 3

07.

Green

berg’

Motio

n for

Summ

ary Ju

dgment

. See

Doc. #

381.

Lead

Plaint

iffs’ M

otion

for Su

mmary

Judgm

ent.S

ee Do

c. #378

.

Cla

ss Pla

intiffs

conte

nd tha

t Gree

nberg

cannot

genui

nely d

ispute

its kn

owled

ge of

the pr

imary

secur

ities v

iolatio

ns; Gr

eenber

g itsel

f conte

nds tha

t it told M

L that

the ma

nner

in wh

ich RB

was ra

ising f

unds fr

om in

vestor

s for u

se by

ML wa

s unla

wful.

Despi

te this

knowle

dge of

RB’s

misc

onduct

, Gree

nberg

contin

ued to

repre

sent M

L as

securi

ties

counse

l and t

o gene

rate n

ew M

L POM

’s used

to ra

ise m

oney f

rom M

L inve

stors w

ithout

disclo

sing t

he pas

t illeg

ality w

hile R

B con

tinued

to ra

ise te

ns of

millio

ns of

dollar

s

Case

2:10

-cv-01

025-F

JM D

ocum

ent 4

17 F

iled 0

6/20/1

2 Pa

ge 4

of 13

4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

illegal

ly fro

m the

RB

invest

ors.

Class

Plaint

iffs al

so alle

ge tha

t Gree

nberg’

s actio

ns

substa

ntially

assis

ted RB

’s ongo

ing fra

udulen

t secur

ities s

ales to

the R

B Settl

ement

Class

by fac

ilitatin

g the fl

ow of

tainte

d fund

s nece

ssary

to keep

ML a

float.

Th

e ASA

is re

media

l in

nature

and,

as thi

s Cour

t has

recogn

ized,

provid

es

invest

ors w

ith pr

otectio

ns and

reme

dies b

roader

than

those

availab

le und

er fed

eral la

w.

See D

oc. #

407, a

t 4:12

-19 (a

nd cita

tions

therei

n). T

he ana

lysis

and re

port o

f Clas

s

Plaint

iffs’ d

amage

s expe

rt, Dr

. Gord

on Ra

usser,

establ

ished

Green

berg’s

expos

ure to

a

rescis

sion a

ward

as hig

h as $

499 mi

llion if

found

liable

. Id.

B. Gr

eenber

g’ Pri

mary

Conte

ntion

s

Gr

eenber

g deni

es tha

t it en

gaged

in, or

aided

or abe

tted, a

ny sec

urities

fraud

or

fraudu

lent sc

heme.

Among

other t

hings,

Green

berg f

iled a m

otion

for su

mmary

judgm

ent

assert

ing th

at, bas

ed on

what i

t conte

nds to

be th

e undi

sputed

mate

rial fa

cts, it

is ent

itled

to jud

gment

in its

favor

(Doc.

# 381

). Gr

eenber

g cont

ends th

at ther

e is no

evide

nce th

at

Green

berg “

partici

pated

in or

induce

d” sal

es ma

de by

Mortg

ages L

td. and

Radic

al Bunn

y

to the

ir inv

estors

, know

ingly

engage

d in o

r assi

sted t

he alle

ged fr

audule

nt act

ivity

or

provid

ed sub

stanti

al ass

istance

to th

e alleg

ed fra

udulen

t activ

ity. G

reenbe

rg als

o asse

rts

that s

tatutor

y resc

ission

is no

t avai

lable

to the

Lead

Plaint

iffs, a

nd tha

t inves

tor lo

sses

were

caused

by

an eco

nomic

downtu

rn unr

elated

to

the a

lleged

misco

nduct.

Funda

menta

lly, G

reenbe

rg con

tends

that it

s know

ledge

of sec

urities

regis

tratio

n issu

es at

Radic

al Bu

nny, w

hich G

reenbe

rg end

eavore

d to c

ause i

ts clie

nt and

Radi

cal B

unny t

o

remedy

, cann

ot for

m the

basis

of a

securi

ties fra

ud cla

im ag

ainst i

t. Gr

eenber

g furt

her

disput

es tha

t Ariz

ona co

ntinues

to re

cogniz

e a ca

use of

actio

n for

aiding

and a

bettin

g

securi

ties fra

ud. F

inally

, whil

e for

purpos

es of

the St

ipulati

on of

Settlem

ent, G

reenbe

rg

consen

ts to t

he cer

tificat

ion of

the S

ettlem

ent Cl

asses,

it con

tends

that n

o litig

ation c

lass

could b

e prop

erly c

ertifie

d here

.

C. Pro

cedura

l Post

ure of

the C

ase as

of th

e GT S

ettlem

ent

This

action

is in

a pri

me pr

ocedur

al pos

ition f

or set

tlement

of th

e clas

s claim

s

Case

2:10

-cv-01

025-F

JM D

ocum

ent 4

17 F

iled 0

6/20/1

2 Pa

ge 5

of 13

5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

agains

t Gree

nberg.

Tang

ential

claim

s have

been

dismi

ssed b

y the

Court

or by

Clas

s

Plaint

iffs’ v

olunta

ry win

nowing

. Disc

overy

has be

en exh

austiv

e and

is com

plete.

Exper

t

initial

and r

ebuttal

repor

ts have

been

prepar

ed and

excha

nged a

nd the

partie

s’ res

pectiv

e

expert

s have

been

depose

d. Li

tigatio

n clas

ses ha

ve bee

n cert

ified.

Cros

s-moti

ons fo

r

summa

ry jud

gment

have

been f

iled an

d, in

the ca

se of

Class

Plaint

iffs’ c

laims a

gainst

Green

berg,

fully

briefe

d. In

short

, the c

laims a

gainst

Gree

nberg

have b

een th

orough

ly

presen

ted an

d vette

d, allo

wing a

ll side

s to co

nduct

a clea

r-eyed

and i

nform

ed eva

luatio

n

of the

respec

tive s

trengt

hs and

weakn

esses

of the

ir claim

s and

defens

es.

D. Me

diatio

n and

Negot

iation

of th

e GT S

ettlem

ent

In add

ition t

o its e

xposur

e as a

defen

dant in

this a

ction, G

reenbe

rg fac

es add

itional

lawsui

ts by

three

other

camps

of inv

estors

who

have f

iled in

dividu

al “gr

oup” a

ctions

agains

t Gree

nberg.

Giv

en the

stru

cture

of the

avai

lable

insura

nce c

overag

e and

Green

berg’

unders

tandab

le des

ire fo

r a co

mpreh

ensive

resol

ution,

all o

f the

intere

sted

parties

partic

ipated

in a g

lobal m

ediatio

n in N

ew Yo

rk bef

ore m

ediato

r Gero

nemus.

As a

prelud

e to

the g

lobal

Green

berg

media

tion,

weeks

of n

egotiat

ions a

nd pre

limina

ry

media

tion s

ession

s were

condu

cted t

o reso

lve al

locatio

n issu

es as

among

the m

ultipl

e

plaint

iff gro

ups.

The

propos

ed Set

tlement

ultim

ately

was

forged

throu

gh thi

s ext

ensive

and

prolon

ged pr

ocess

of arm

’s leng

th neg

otiatio

n and

media

tion.

All p

arties

recog

nized

that

time w

as of

the es

sence

in rea

ching

settlem

ent in

light

of the

impen

ding d

eadlin

es in

this

litigat

ion an

d the s

elf-co

nsumi

ng nat

ure of

the av

ailable

insura

nce co

verage

.

III.

SUMM

ARY O

F THE

GT SE

TTLE

MENT

A.Th

e Prop

osed S

ettlem

ent Cl

asses

The p

ropose

d Settl

ement

Clas

ses ar

e the

same M

L Set

tlement

Clas

s and

RB

Settlem

ent C

lass p

ropose

d in t

he QB

Settle

ment

(Doc.

# 407

, at 6

:15-28

). Ex

clusio

ns

from t

he Set

tlement

Class

es are

set ou

t in the

Stipu

lation.

Case

2:10

-cv-01

025-F

JM D

ocum

ent 4

17 F

iled 0

6/20/1

2 Pa

ge 6

of 13

B-2


6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

B. Ec

onomi

c Valu

e of th

e Sett

lement

to Cl

ass M

ember

s

Under

the S

ettlem

ent, G

reenbe

rg wil

l pay

$61,01

7,740

for th

e bene

fit of

the RB

Settlem

ent C

lass a

nd the

ML

Settlem

ent C

lass.

The

costs

of set

tlement

notice

and

admini

stratio

n and

court-a

pprove

d atto

rneys’

fees a

nd cos

ts paya

ble to

Class

Couns

el will

be pai

d from

the S

ettlem

ent Fu

nd. T

he rem

aining

amoun

t, the

“Net

Settlem

ent Fu

nd,”

will b

e distr

ibuted

to m

ember

s of th

e ML S

ettlem

ent Cl

ass an

d the

RB Se

ttleme

nt Cla

ss

under t

he pro

posed

Plan o

f Allo

cation

(Doc.

# 416-

1).

The a

nalysi

s cond

ucted

by Cla

ss Pla

intiffs

’ dam

ages e

xpert d

eterm

ined t

hat th

e

ML Se

ttleme

nt Cla

ss inc

urred

65% of

the t

otal n

et pri

ncipal

amoun

t inves

tor lo

sses a

nd

the R

B Set

tlement

Clas

s incu

rred 3

5% of

those

losse

s. In

recog

nition

of th

e rela

tive

strengt

h of th

e claim

s agai

nst G

reenbe

rg hel

d by t

he ML

Settle

ment

Class

and th

e RB

Settlem

ent C

lass, t

he Cla

ss Pla

intiffs

propo

se to

allocat

e an e

nhance

d shar

e of th

e Net

Settlem

ent Fu

nd to

the M

L Settl

ement

Clas

s (Do

c. # 4

16-1).

The

amoun

t of th

e Net

Settlem

ent Fu

nd allo

cated

to the

ML S

ettlem

ent Cl

ass an

d the

amoun

t alloc

ated t

o the

RB

Settlem

ent C

lass w

ill the

n be d

istribu

ted to

mem

bers o

f each

of th

e settl

ement

class

es

based

on the

ir rela

tive p

ro rat

a shar

es of

the ag

gregat

e inves

tor los

ses as

of the

close

of the

Class P

eriod

on Jun

e 3, 20

08. Id

.

C. Re

lease

In ret

urn fo

r the

benefi

ts of

the Se

ttleme

nt, of

the Se

ttleme

nt Cla

sses a

gree t

o

releas

e all c

laims a

gainst

Green

berg a

rising

out of

Green

berg’

repres

entatio

n of M

L. D.

Appo

intme

nt of

the Cl

ass Re

presen

tative

and C

lass C

ounse

l and

Paym

ent of

Attor

neys’ F

ees an

d Cost

s

As w

ith th

e QB

Settl

ement

(Doc.

# 4

07 at

7:23-8

:4), t

he GT

Settl

ement

contem

plates

that t

he Co

urt de

signat

e the C

lass P

laintiff

s as C

lass R

eprese

ntativ

es of

the

respec

tive S

ettlem

ent Cl

asses

and th

at: (1)

Tiffa

ny &

Bosco

LLP b

e appo

inted

as cla

ss

counse

l for th

e ML S

ettlem

ent Cl

ass; (2

) Bonn

ett, Fa

irbour

n, Frie

dman

& Ba

lint, P

.C. be

appoin

ted a

s Clas

s Coun

sel fo

r the

RB S

ettlem

ent C

lass;

and (3

) thes

e pro

posed

appoin

tment

s be e

xpress

ly dete

rmine

d to sa

tisfy R

ule 23

(g).

Case

2:10

-cv-01

025-F

JM D

ocum

ent 4

17 F

iled 0

6/20/1

2 Pa

ge 7

of 13

7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

IV.

THE P

ROPO

SED S

ETTL

EMEN

T WAR

RANT

S PRE

LIMI

NARY

AP

PROV

ALA.

The S

ettlem

ent Is

Fair,

Reaso

nable

and A

dequa

te, an

d Well-

Withi

n the

Rang

e of P

ossibl

e App

roval.

Strong

judic

ial pol

icy fa

vors s

ettlem

ent of

class

action

s. Cla

ss Pla

intiffs

v. City

of

Seattle

, 955

F.2d 1

268, 1

276 (9

th Cir

. 1992

); In

re NV

IDIA

Corp.

Deri

vative

Litig

.,

No. C

-06-06

110-SB

A (JC

S), 2

008 W

L 538

2544,

at *2

(N.D.

Cal.

Dec.

22, 2

008).

Settlem

ents a

re par

ticular

ly fav

ored “

in cla

ss act

ions a

nd oth

er com

plex c

ases w

here

substa

ntial

judicia

l resou

rces c

an be

conser

ved by

avoid

ing fo

rmal

litigat

ion.”

NVIDI

A,

2008 W

L 538

2544,

at *2

(quota

tion o

mitted

)); acc

ord R

odrigu

ez v.

West

Publis

hing

Corp.

, 563 F

.3d 94

8, 966

(9th C

ir. 200

9).

At

this s

tage,

the C

ourt’s

review

of th

e GT S

ettlem

ent is

“lim

ited to

the e

xtent

necess

ary to

reach

a rea

soned

judgm

ent th

at the

agreem

ent is

not th

e prod

uct of

fraud

or

overre

aching

by, o

r coll

usion

betwe

en, th

e nego

tiating

partie

s, and

that

the se

ttleme

nt,

taken

as a w

hole, i

s fair,

reason

able a

nd ade

quate t

o all c

oncern

ed.”

Office

rs for

Justic

e,

688 F.

2d at

625; a

ccord

Hanlo

n v Ch

rysler

Corp.

, 150

F.3d 1

011, 1

027 (9

th Cir

. 1998

).

This

is a l

ow th

reshol

d. Yo

ung v.

Polo

Retai

l, LLC

, No.

C-02-4

546 (V

RW), 2

006 W

L

305086

1, at

*5 (N

.D. C

al. Oc

t. 25,

2006)

(citat

ions a

nd quo

tations

omitte

d).

The

propos

ed GT

Settle

ment r

eadily

satisf

ies the

se req

uirem

ents fo

r prel

imina

ry app

roval.

1.Th

e GT S

ettlem

ent Is

the Pr

oduct

of Se

rious,

Infor

med

and N

on-Co

llusiv

e Nego

tiatio

ns.

This

Court

is fa

miliar

with

the l

ong, in

tensel

y adve

rsaria

l histo

ry of

this c

ase.

Throu

gh ext

ensive

disco

very e

ach si

de has

unque

stionab

ly am

assed

substa

ntial

factua

l

and ex

pert te

stimony

in su

pport o

f their

positi

ons an

d the

Court

has a

lready

addre

ssed

severa

l key

issues

in its

mult

iple r

ulings

on su

ccessi

ve mo

tions

to dis

miss

and fo

r clas

s

certifi

cation

(Doc.

# 407

, at 9

:14-23

). Cla

ss Pla

intiffs

have

had am

ple op

portun

ity to

evalua

te the

respe

ctive s

trengt

hs and

weak

nesses

in th

eir ca

se as

well a

s the

extent

of

availab

le ins

urance

cover

age an

d defe

nses t

o cove

rage.

Arm

ed wit

h this

infor

matio

n,

Class

Plaint

iffs en

tered

media

tion w

ith th

e assi

stance

of ab

le and

exper

ienced

Medi

ator

Geron

emus.

Case

2:10

-cv-01

025-F

JM D

ocum

ent 4

17 F

iled 0

6/20/1

2 Pa

ge 8

of 13

8

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

2.Th

e Prop

osed G

T Sett

lement

Has “

No Ob

vious

Defici

encies

.”

The

propos

ed Set

tlement

“has

no

obviou

s def

icienci

es.”

Youn

g, 200

6

WL 30

50861,

at *5.

To t

he con

trary,

the G

T Settl

ement

provi

des a

straigh

tforw

ard ca

sh

commo

n Settl

ement

Fund

for th

e bene

fit of

all Set

tlement

Class

es me

mbers

, desi

gned t

o

maxim

ize an

imme

diate

recove

ry fro

m Gr

eenber

g in

the fa

ce of

“self-c

onsum

ing”

insura

nce co

verage

that

would

have

rapidl

y dim

inishe

d the

availab

le ass

ets ou

t of w

hich

even a

favora

ble jud

gment

after t

rial co

uld be

satisf

ied.

3.Th

e Prop

osed R

elief D

oes No

t “Gr

ant Pr

eferen

tial T

reatm

entto

Class R

eprese

ntativ

es.”

The L

ead P

laintiff

s are

treate

d the

same u

nder t

he Set

tlement

as ev

ery ot

her

memb

er of

the Se

ttleme

nt Cla

sses a

nd do

not as

k for

incent

ive or

servi

ce aw

ards, w

hich

are co

mmonl

y awa

rded i

n clas

s litig

ation.

Rodri

guez,

563 F.

3d at

958-59

(“Inc

entive

award

s are

fairly

typic

al in

class

action

cases

”) (em

phasis

in or

iginal

). An

d agai

n Clas

s

Couns

el con

templa

te a f

ee app

licatio

n of

only

15% b

ased

upon

their

pre-lit

igatio

n

agreem

ent w

ith th

e Lead

Plain

tiffs, f

ar bel

ow th

e Nint

h Circ

uit’s

25% sta

rting p

oint (o

r

“bench

mark”

) for d

eterm

ining

class a

ction f

ees (D

oc. # 4

07, at

10:14-

22).

4.Th

e Prop

osed R

elief Is

With

in the

“Ran

ge of

Possib

le Ap

proval

.”

The p

ropose

d GT S

ettlem

ent fa

lls we

ll with

in the

“rang

e of p

ossibl

e appr

oval,”

as

it prov

ides su

bstant

ial eco

nomic b

enefit

to the

invest

or cla

ss mem

bers w

ithout

the ris

k and

delays

of co

ntinue

d litig

ation,

trial a

nd app

eal, a

nd wit

hout th

e exha

ustion

of in

suranc

e

procee

ds thr

ough f

urther

defen

se of

this a

ction a

nd of

the pa

rallel

action

s brou

ght by

other

invest

or gro

ups (D

oc. #

407, a

t 10:2

4-11:1

9). B

ecause

Gree

nberg

is a la

w firm

havin

g

few ta

ngible

asset

s othe

r than

its cur

rent a

nd pro

spectiv

e clien

t billi

ngs, C

lass C

ounsel

necess

arily

took i

nto ac

count

the re

al pros

pect th

at a ju

ry ver

dict o

f the m

agnitu

de sou

ght

by Cla

ss Pla

intiffs

(or th

e mere

threa

t of th

is exis

tential

expos

ure) w

ould t

rigger

a ma

ss

exodus

of pa

rtners

leavin

g the c

lass m

ember

s with

a larg

ely un

collec

table p

aper ju

dgment

.

Id.Case

2:10

-cv-01

025-F

JM D

ocum

ent 4

17 F

iled 0

6/20/1

2 Pa

ge 9

of 13

B-3


9

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

B.Th

e Cou

rt Sho

uld Ce

rtify t

he Set

tlement

Class

es.

The M

L Settl

ement

Class

and t

he RB

Settle

ment

Class

should

be ce

rtified

for th

e

same r

easons

set fo

rth in

conne

ction w

ith th

e QB S

ettlem

ent (D

oc. #

407, at

11:20

-14:23

)

(incor

porate

d here

in by

refere

nce), a

nd in

connec

tion w

ith th

e Cour

t’s cer

tificat

ion of

the

litigat

ion cla

sses (

Doc. #

346).

C.Th

e Cour

t Shou

ld Ag

ain Ap

point

Lead

Coun

sel as

Coun

sel fo

r the

Settle

ment

Classe

s

Rule 2

3(g)(1

) requi

res th

e Cour

t to ap

point

counse

l to re

presen

t the in

terest

s of th

e

class.

This t

he Co

urt ha

s alre

ady do

ne for

the li

tigatio

n clas

ses. D

oc. #

346, at

14. F

or

the sa

me re

asons,

the l

aw fi

rms o

f Tiffa

ny &

Bosco

P.A.

and B

onnett,

Fair

bourn,

Friedm

an &

Balin

t, P.C

. and

are “w

ell equ

ipped”

to v

igorou

sly, c

ompet

ently

and

efficie

ntly r

eprese

nt the

respec

tive S

ettlem

ent Cl

asses.

V.PR

OPOS

ED CL

ASS N

OTIC

E

Lead

Plaint

iffs p

ropose

to g

ive in

terest

ed par

ties n

otice

by firs

t-clas

s mail,

addres

sed to

each

memb

er of

the Se

ttleme

nt Cla

sses u

sing t

he hig

hly re

liable M

L and

RB

bankru

ptcy p

roceed

ing re

cords

(Doc.

# 407

, at 1

5:5-16

) (and

autho

rities

cited t

herein

).

Notice

to th

e Settl

ement

Class

es in

the fo

rm pr

oposed

(Exhi

bit B

to the

Stipu

lation,

Doc.

# 415-

2, atta

ched a

s Exhi

bit 1

to the

propo

sed Pr

elimina

ry Ap

proval

Orde

r) ful

fills a

ll

Due P

rocess

requi

rement

s, com

plies

with t

he Fed

eral R

ules o

f Civi

l Proc

edure,

and

satisfi

es the

requi

rement

s of A

.R.S.

§ 44-2

081. Id

., at 1

5:17-1

6:5. T

he Cla

ss No

tice an

d

Cover

Page

will, w

hen m

ailed a

s sugg

ested,

fairly

appri

se me

mbers

of th

e Settl

ement

Classe

s of th

e GT S

ettlem

ent an

d their

optio

ns wit

h resp

ect the

reto.

VI.

PROP

OSED

SCHE

DULE

To av

oid an

y inco

nvenie

nce to

the C

ourt o

r conf

usion

among

the S

ettlem

ent

Classe

s Mem

bers,

the pa

rties r

espect

fully

reques

t the

Court

to ad

opt a

schedu

le for

consid

eratio

n of th

e prop

osed G

reenbe

rg set

tlement

that tr

acks th

e sche

dule e

stabli

shed b

y

the Co

urt in

conne

ction w

ith th

e Quar

les se

ttleme

nt. Ac

cordin

gly, th

e part

ies re

quest t

hat

the fi

nal ap

proval

heari

ng reg

arding

the G

reenbe

rg set

tlement

also

be sch

eduled

for

Case

2:10

-cv-01

025-F

JM D

ocum

ent 4

17 F

iled 0

6/20/1

2 Pa

ge 10

of 13

10

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Septem

ber 14

, 2012

, the s

ame d

ay as

the Q

uarles

final

approv

al hea

ring.

This p

ropose

d

schedu

le com

plies

with t

he Cla

ss Ac

tion F

airnes

s Act

(“CAF

A”), w

hich p

rovide

s that

“[a]n

order

giving

final a

pprova

l of a

propo

sed se

ttleme

nt ma

y not

be iss

ued ea

rlier th

an

90 day

s afte

r the

later o

f the

dates

on wh

ich th

e appr

opriate

Feder

al off

icial a

nd the

approp

riate

State

officia

l are

served

with

the n

otice

requir

ed und

er sub

sectio

n (b).

” 28

U.S.C.

§ 171

5(d).

Consi

stent

with t

he pla

in lan

guage

of thi

s prov

ision, t

he fin

al appr

oval

hearin

g may

be hel

d prio

r to the

expir

ation o

f the n

inety-

day pe

riod, s

o long

as the

order

is

not en

tered

until t

he exp

iratio

n of th

e nine

ty-day

perio

d. Se

e, e.g.,

Beaty v

. Cont

’l Auto

.

Sys. U

.S., In

c., No

. CV-

11-S-8

90-NE

, 2012

WL 1

886134

, at *

5, 9 (

N.D. A

la. Ma

y 21,

2012);

In re

Air C

argo S

hippin

g Serv

s. An

titrust

Litig.

, No.

06-MD

-1775

(JG)(V

VP),

2011 W

L 2909

162, at

*1 n.

8 (E.D

.N.Y.

July 1

5, 201

1). T

he CA

FA no

tice in

this m

atter

will b

e serv

ed on

June 2

0, 201

2, and

thus

an ord

er giv

ing fin

al app

roval

that c

ompli

es

with C

AFA m

ay be

entere

d on o

r after

Septe

mber 1

8, 2012

.

Consi

stent

with t

he for

egoing

, the p

arties

respe

ctfull

y requ

est th

e Cour

t to ad

opt

the fo

llowin

g sche

dule fo

r consi

deratio

n of th

e Gree

nberg

propos

ed set

tlement

:

Entry

of the

Prelim

inary

Appro

val Or

der—

on or

before

June

29, 20

12.

Deadl

ine fo

r maili

ng of

Class

Notice

— wit

hin 5

days a

fter e

ntry o

f the

Order

appro

ving th

e Clas

s Noti

ce.

Deadl

ine fo

r servi

ce of

CAFA

Notice

—June

20, 20

12.

Deadl

ine fo

r Excl

usion

Reque

sts—

Augus

t 13, 20

12.

Deadl

ine fo

r Obje

ctions

to Settl

ement

– Augu

st 24, 2

012.

Final A

pprova

l Hear

ing—

Septem

ber 14

, 2012

VII.

CONC

LUSIO

N

For th

e reas

ons se

t forth

above

, Clas

s Plain

tiffs re

spectf

ully r

equest

that t

he Co

urt

certify

the M

L Settl

ement

Clas

s and

the R

B Set

tlement

Clas

s, app

oint c

ounsel

for th

e

Settlem

ent Cl

asses

and en

ter the

propo

sed Pr

elimina

ry Ap

proval

Order

.

Case

2:10

-cv-01

025-F

JM D

ocum

ent 4

17 F

iled 0

6/20/1

2 Pa

ge 11

of 13

11

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

DATE

D: Ju

ne 20,

2012.

BO

NNET

T, FA

IRBOU

RN, F

RIEDM

AN

& BA

LINT,

P.C.

/s/ An

drew S

. Frie

dman

Andre

w S. F

riedm

an 290

1 N. C

entral

Avenu

e, Suit

e 1000

Ph

oenix,

AZ 85

012

Attorn

eys for

Plain

tiffs F

red C.

Hagel

and

Jacque

line M

. Hage

l Revo

cable L

iving T

rust

Dated

Marc

h 15, 1

995; Ju

dith A.

Baker

Richar

d G. H

imelr

ick

J. Jam

es Ch

ristian

TIF

FANY

& BO

SCO,

P.A.

Third

Floor

Came

lback

Esplan

ade II

2525 E

. Cam

elback

Road

Phoen

ix, AZ

85016

-4237

Attorn

eys for

Plain

tiffs R

obert F

acciola

; The

Rober

t Maur

ice Fa

cciola

Trust

Dated

De

cember

2, 199

4; Ho

neylou

C. Re

znik; T

he Mo

rris R

eznik a

nd Ho

neylou

C. Re

znik T

rust;

Jewel B

ox Loa

n Com

pany, I

nc.; Je

wel B

ox,

Inc.; H

-M In

vestme

nts, LL

C

Case

2:10

-cv-01

025-F

JM D

ocum

ent 4

17 F

iled 0

6/20/1

2 Pa

ge 12

of 13

B-4


12

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Certif

icate o

f Serv

ice

I here

by cer

tify th

at on J

une 20

, 2012

, I ele

ctroni

cally

filed t

he for

egoing

with

the

Clerk

of the

Court

using

the CM

/ECF s

ystem

which

will s

end no

tificat

ion of

such

filing

to

the em

ail add

resses

denot

ed on

the El

ectron

ic Mail

notice

list, a

nd I h

ereby

certify

that I

have m

ailed t

he for

egoing

docum

ent or

paper

via t

he Un

ited St

ates P

ostal

Servic

e to t

he

non-CM

/ECF p

articip

ants in

dicate

d on th

e Manu

al Noti

ce list

.

I cert

ify un

der pe

nalty

of per

jury u

nder th

e law

s of th

e Unit

ed Sta

tes of

Ame

rica

that th

e foreg

oing is

true a

nd cor

rect.

/s/ Na

ncy Va

rner

Legal

Secre

tary

Case

2:10

-cv-01

025-F

JM D

ocum

ent 4

17 F

iled 0

6/20/1

2 Pa

ge 13

of 13

B-5


Have you won a case?Written an article?Filed a brief? If you have news to report, simply contact the editor of this report.

LexisNexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc., used under license.© 2012, LexisNexis. All rights reserved. OFF02209-0 2012

LexisNexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc., used under license. Mealey’s is a trademark of LexisNexis, a division of Reed Elsevier Inc. © 2012 LexisNexis. All rights reserved. BMH00236-0 0412

You can also visit us on Facebook Follow us on Twitter @lexislegalnews

Get uninterrupted access to highly relevant news within hours of when it happens— breaking cases, rulings and more—from Mealey’s™ Daily News Service. With targeted content from Mealey’s, you no longer have to wade through irrelevant news items that don’t concern your practice. Easily keep up to date on relevant cases and receive information when and where you want it through our convenient delivery channels.Mealey’s Daily News Service can help you:

—Agilely develop legal strategy by staying on top of new developments.

—Gain insight into the latest legal theories and trends.

—Rely on Mealey’s for selected, compiled and summarized information for your area of practice. Get the story as it breaks!

® ™

Gain valuable insights with noteworthy legal news— whenever, wherever you need it.

Learn more at www.lexisnexis.com/mealeysdailynews.

financial services litigation report

Documents