HOUSTON, November 15, 2013 – Today, 21 institutional investors represented by Gibbs & Bruns LLP (“Institutional Investors”) announced they have reached an agreement with JPMorgan under which JPMorgan will make a binding offer (“Offer”) to the Trustees of 330 RMBS Trusts issued by JPMorgan, Bear Stearns and Chase to settle mortgage repurchase and servicing claims. The Institutional Investors support the agreement and have asked the Trustees to accept it. The Trusts included in the Offer are listed on Exhibit “A.”
The Trustees will have until January 15, 2014 to accept the Offer, which may be extended pursuant to the terms of the Offer for an additional sixty days. The Offer includes the following key terms:
1. Payment by JPMorgan of $4.5 billion in cash to the Trusts to settle mortgage repurchase and servicing claims; 2. Implementation of certain servicing changes to mortgage loans in the Trusts, described in greater detail below; 3. Reimbursement to the Trustees of expenses associated with their evaluation of the Offer; 4. A release of all repurchase and servicing claims that have been or could have been asserted by the 330 Trusts; and, 5. Continuation of a previously agreed tolling and forbearance agreement among JPMorgan and the Trustees to permit the Trustees to evaluate the proposed settlement.
The Institutional Investors who are parties to the agreement are:
• AEGON USA Investment Management, LLC • Bayerische Landesbank • BlackRock Financial Management Inc. • Cascade Investment, L.L.C. • Federal Home Loan Bank of Atlanta • Federal Home Loan Mortgage Corporation • Federal National Mortgage Association • Goldman Sachs Asset Management, L.P. • ING Investment Management Co. LLC • ING Investment Management LLC • Invesco Advisers, Inc. • Kore Advisors, L.P. • Landesbank Baden-Wuerttemberg • Metropolitan Life Insurance Company • Pacific Investment Management Company LLC • Sealink Funding Limited • Teachers Insurance and Annuity Association of America • The Prudential Insurance Company of America • The TCW Group, Inc. • Thrivent Financial for Lutherans • Western Asset Management Company
Pursuant to the agreement, the Institutional Investors have requested that the Trustees accept the Settlement. They have also agreed to use their reasonable best efforts to obtain court approval of the settlement, if the Trustees elect to accept the Settlement and seek a judicial instruction concerning their decision to do so. Attorneys’ fees for the Institutional Investors counsel, Gibbs & Bruns, will be paid in addition to—and not out of—the Settlement Payment upon the latter of the Trustees’ Acceptance or Final Court Approval, if a judicial instruction is sought.
It’s 5PM Friday – Like all other settlements announced …
HW-
Mega bank JPMorgan Chase (JPM) reached a $4.5 billion agreement with 21 major institutional investors Friday to resolve legacy mortgage-backed securities issues.
The institution made a binding offer to the trustees of 330 RMBS trusts issued by Chase and Bear Stearns — a firm taken over by JPM in the wake of the financial crisis.
The settlement represents another critical step in the bank’s efforts to resolve mortgage-related legacy matters, the bank said.
The settlement does not include trusts issued by Washington Mutual, which JPMorgan also acquired.
The deal is separate from the preliminary $13 billion settlement JPMorgan has reached with the U.S. government that would resolve a raft of actions over mortgage-backed securities.
“This settlement is another important step in J.P. Morgan’s efforts to resolve legacy related RMBS matters,” the bank said in a statement.
The Riddler And The Penguin Charged With Conspiracy And Kidnapping; Duo Faces Long Prison Terms Thanks To Batkid
FOR IMMEDIATE RELEASE
November 15, 2013
SAN FRANCISCO/GOTHAM – Edward “E.” Nigma, aka, “The Riddler,” and Oswald Chesterfield Cobblepot, aka, “The Penguin” were formally arrested today and charged with multiple counts of conspiracy and kidnapping for their all too familiar villainous ways in Gotham City, according to Melinda Haag, U.S. Attorney for the Northern District of California and FBI Special Agent in Charge David J. Johnson.
The unique and somewhat unprecedented indictment not only outlines the charges against “The Riddler” and “The Penguin” but it also includes a special thanks to a certain caped crusader who was pivotal in making this day a reality.
“We’ve been chasing Nigma and Cobblepot for years and just when I was about to give up hope that we would ever bring them to justice, wouldn’t you know it – Batkid shows up and saves the day,” said United States Attorney Melinda Haag. “I’ve been involved in some unbelievable cases and I’ve worked with some pretty remarkable law enforcement officers, but the bravery displayed by Batkid is off the charts. I’m absolutely certain that there is no villain this remarkable super-hero can’t defeat.”
According to the indictment, “The Penguin” and “The Riddler” thought it was a good idea to put an unnamed female in the path of a cable car, rob a bank, and kidnap San Francisco Giants mascot Lou Seal. Somehow they thought these latest stunts would go undetected by Batkid. However, at approximately 9 p.m. last night, the bat signal went up and predictably the crime rate began to go down in Gotham and San Francisco.
“I’ve talked a lot about cooperation in the past with other outstanding law enforcement partners, but I can honestly say we broke some new ground today,” said FBI Special Agent in Charge David J. Johnson. “The FBI and the San Francisco Police Department are good, but if it wasn’t for Batkid, I guarantee you that these two villains would still be at-large on the streets of Gotham today. Citizens of this great city are not only safer tonight because of Batkid, but they will undoubtedly be humbled by the courage he has displayed in battles he has taken on and won.”
The Assistant U.S. Attorneys all want to prosecute this case, and are currently drawing straws to see who will have the honor. This will presumably be the easiest case in U.S. Attorney history thanks to Batkid, who pretty much was able to not only capture the humanity of this great city, but was also able to capture all of the Riddler’s and Penguin’s crimes on video. The prosecution is the result of a multi-agency investigation led from a cave in a location we cannot disclose.
Please note, an indictment contains only allegations against a person and, as with all defendants, Edward “E.” Nigma, aka, “The Riddler,” and Oswald Chesterfield Cobblepot, aka, “The Penguin” must be presumed innocent unless and until proven guilty.
The Federal Reserve Bank of New York has asked a judge to throw out a lawsuit by a former bank examiner who says she was dismissed after finding fault with Goldman Sachs’ conflict-of-interest policies.
ProPublica reported the allegations last month by Carmen Segarra, who the New York Fed had assigned to examine aspects of Goldman Sachs in November 2011. She was fired seven months later.
In its motion to dismiss Segarra’s lawsuit, the Fed disputed that she is a whistleblower and characterized what transpired as “a non-actionable disagreement between a supervised employee and more senior colleagues over how to interpret a Federal Reserve policy.”
Segarra had been hired as part of an effort by the New York Federal Reserve to comply with new authority it received from Congress to monitor so-called Too-Big-to-Fail financial institutions. The Fed recruited experts to act as “risk specialists” to examine different aspects of these complex firms.
Segarra, who previously had worked in some of the nation’s largest banks, was tasked with examining legal and compliance functions at Goldman. Her supervisors told her specifically to look at whether Goldman was compliant with Fed guidance that the bank had a firm-wide conflict of interest policy, according to her Oct. 10 complaint.
At the time, Goldman had been buffeted by allegations in media reports and lawsuits over how it handled conflicts of interest. Segarra determined that Goldman did not have such a firm-wide policy. Although her fellow legal and compliance specialists working at the other banks agreed with her findings, however, the Fed’s senior official onsite at Goldman, Michael Silva, ultimately did not, according to her complaint.
Silva and his deputy, Michael Koh, tried to convince Segarra to change her findings, the lawsuit says. Three business days after sending an email to them explaining that the evidence she had gathered made it impossible for her to change her conclusions, Silva fired her. Before being escorted from the building, Silva told her he had lost confidence in her ability to follow directions and not to jump to conclusions, Segarra says.
Segarra’s suit in U.S. District Court names as defendants the New York Fed, Silva, Koh and her direct supervisor, Johnathan Kim. She alleged wrongful termination, breach of employment contract and that the defendants interfered with protected conduct she was exercising as a bank examiner.
Segarra’s lawsuit cites a federal law that allows bank examiners to sue for wrongful termination if they are fired for providing information regarding “any possible violation of any law or regulation, gross mismanagement, a gross waste of funds, an abuse of authority, or a substantial and specific danger to public health or safety.”
In its motion to dismiss, the New York Fed said that Segarra worked “at will” and so there could be no “breach of contract.” It also said that she was fired for cause and that the guidance she was told to use to examine Goldman was advisory and not a regulation, so the bank could therefore not be in violation. It further argued that since some of the information Segarra used to make her determination came from Goldman, she technically did not “provide” it to the Fed.
In its filing, the Fed cited a Code of Conduct policy and a 2011 Business Standards Committee Report as evidence that Goldman had a firm-wide policy governing conflicts of interest policy. Goldman, which is not a defendant in Segarra’s lawsuit, has said that it has such a policy.
“She rushed to judgments that even her own evidence refuted,” the New York Fed’s motion said.
The 2011 Business Standards Committee Report the Fed cited mentions plans to update and provide to all employees a conflict2013of-interest policy but does not detail policies or procedures. As for it its code of conduct, Segarra told ProPublica that Goldman itself did not believe it constituted a conflict of interest policy since it did not provide it to regulators as such.
“My direct management and some of my peers did not think Goldman’s Code of Conduct was a conflicts-of-interest policy,” she told ProPublica in an interview. “Policies in banks are actually pretty standardized documents, with clear titles and content directly related to the title/purpose of the document, written in a language meant to be understood by every employee at every level.”
Segarra’s attorney, Linda Stengel, disputed the Fed’s contention that her client is not a whistleblower. “Obviously, Carmen is a whistleblower, and obviously, her work as a bank examiner is protected conduct,” said Stengle. “Those conclusions are simple common sense to most everyone, except FRBNY, apparently.”
Segarra’s complaint asked for reinstatement, back pay, compensation for lost benefits and damages. The Fed’s motion rejected reinstatement or damages, contending that Segarra “misappropriated and published confidential supervisory information” as exhibits in her lawsuit.
Discrimination and civil rights can be a pretty murky topic and not as cut and dry or “black and white” as one might think
It’s easy enough to think of these topics in terms of blatant acts, such as requiring someone to sit at the back of the bus, drink from a separate water fountain, not being allowed to sit at food counter, or being denied access to services based on the color of their skin, gender, or sexual orientation. Actions like these, for the most part and hopefully, are a thing of the past.
Most recently we’ve been watching as the Supreme Court took a swipe at the Voting Rights Act of 1962. A move that Justice Ruth Bader Ginsburg wrote in her dissent, is like “throwing away your umbrella in a rainstorm because you are not getting wet.”
An expert witness testified on Thursday that Bank of America Corp’s (BAC.N) proposed $8.5 billion settlement with mortgage bond investors is “not reasonable” and rife with conflicts of interest, as opponents made a final push to derail the deal.
Adam Levitin, a law professor at Georgetown University in Washington, is the last scheduled witness in a long-running case over whether the deal should be approved.
“My opinion is the settlement was not entered into in good faith,” Levitin said in state court in New York.
In the United States Court of Appeals For the Seventh Circuit ____________________ Nos. 13–1443, 13-1794
UNION COUNTY, ILLINOIS, et al., Plaintiffs-Appellants,
v.
MERSCORP, INC., et al., Defendants-Appellees. ____________________ Appeals from the United States District Court for the Southern District of Illinois. No. 3:12-cv?00665-GPM-SCW — G. Patrick Murphy, Judge. ____________________ ARGUED SEPTEMBER 18, 2013 — DECIDED NOVEMBER 14, 2013 ____________________ Before BAUER, POSNER, and TINDER, Circuit Judges.
POSNER, Circuit Judge. The plaintiffs, an Illinois county and several of its officials, filed a class action suit in an Illinois state court on behalf of all the counties in the state against the mortgage services company MERSCORP Holdings, Inc., and a number of banks that do business with it.
The suit alleges that MERSCORP is violating an Illinois statute that, the counties (as we’ll call the plaintiffs) contend, requires every mortgage on real property in Illinois to be rec orded. The statute specifies that, if it is recorded, it must be recorded in the public?records office of the county in which the property is located. The question is whether, as the counties contend, it must be recorded.
The defendants removed the case to federal district court (basing federal subject?matter jurisdiction on diversity of citizenship) under the Class Action Fairness Act. The district judge ruled that Illinois law does not require that mortgages be recorded, and dismissed the suit with prejudice without deciding whether to certify it as a class action. MERSCORP (we won’t need to discuss the bank defendants) operates an online system called MERS (an acronym for “Mortgage Electronic Registration System”) for tracking mortgage assignments. If a homeowner obtains a mortgage from bank B, B can register the mortgage on MERS and also assign the mortgage to MERSCORP,
(WRONG it ISMERS “Mortgage Electronic Registration System” – MERSCORP is NOT listed anywhere in the contract) Here is the wording on the security instrument [LINK] – “MERS” is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns.)
which then records it inthe county in which the mortgaged property is located, in order to provide notice to subsequent purchasers and creditors of the property.
Although MERSCORP is the mortgagee of record, the assignment of a mortgage to it is not substantive. MERSCORP is not the lender; and as it does not pay the assignor for the assignment it does not become the lender—in fact it has zero financial interest in the mortgage. In a previous decision we described MERSCORP as “a membership organization that records, trades, and forecloses loans on behalf of many lenders, acting for their accounts rather than its own.” Mortgage Electronic Registration Systems, Inc. v. Estrella, 390 F.3d 522, 524–25 (7th Cir. 2004). The purpose of assigning a mortgage to MERSCORP is merely to enable repeated de facto assignments of the mortgage by successive mortgagees. We call those assignments “de facto” because MERSCORP remains the official assignee (it prefers to be called the “nominee” of the lender and of the lender’s successors and assigns). These “assignments” are not recorded, and so B in our example can transfer the mortgagor’s promissory note—the homeowner’s debt to the bank—to another financial institution without the transfer being recorded in a public?records office. The MERS process thus facilitates, by streamlining, successive interbank sales of mortgages. Often the purpose is to create mortgage?backed securities, which are tradable interests in packages of mortgages and were among the culprits responsible for the financial crisis of 2008.
The counties make many criticisms of MERS. One, which is related to the role it played in the market for mortgagebacked securities, is that by facilitating mortgage transfers that are effectively assignments but are not recorded, MERS makes it difficult for a mortgagor to discover who is servicing his mortgage (collecting the monthly interest on it, for example)—a serious problem when the mortgage has been securitized—and whom therefore he should deal with if he wants to renegotiate the mortgage or challenge its validity. He can ask MERSCORP for the information, but the counties contend that MERSCORP won’t tell him—or can’t because it often loses loan records. One court has called MERSCORP a “straw man,” hiding the identity of the actual mortgage
(WRONG AGAIN – In Landmark, the KS Sup Ct did not say MERSCORP was a straw man. It said MERS “Mortgage Electronic Registration System” was a straw man – Here are the exact words [link] – “The relationship that MERS has to Sovereign is more akin to that of a straw man than to a party possessing all the rights given a buyer“)
holder by not recording resales of the mortgage. Landmark National Bank v. Kesler, 216 P.3d 158, 166–68 (Kan. 2009). But the counties are not mortgagors complaining that MERSCORP is concealing from them the identity of the holders of the mortgages on their property. The complaint is of an entirely different character. The complainers are coun- ty governments and county officials claiming that their counties are entitled to recording fees because Illinois law requires that mortgage transfers by MERSCORP be recorded. They contend that these transfers are really assignments and that all assignments of mortgages on property in Illinois must be recorded.
MERSCORP does not take issue (at least in this case) with the recharacterization of these transfers as assignments. It argues, rather, and the district court agreed, that Illinois law does not require that mortgages (whether original or assigned) be recorded. The land recording system exists to provide notice of ownership of real property, or of possession of a lien, such as a mortgage, on such property; recording is not intended to be a source of government income—in effect a tax on assignments or other transfers of mortgages. Recording is optional.
The counties base their claim on section 28 of the Illinois Conveyances Act, which assumed essentially its present form in 1873 (portions of it date back to the 1820s) and is codified as 765 ILCS 5/28 and provides, so far as relates to this case, that deeds, mortgages, powers of attorney, and other instruments relating to or affecting the title to real estate in this state, shall be recorded in the county in which such real estate is situated … . No deed, mortgage, assignment of mortgage, or other instrument relating to or affecting the title to real estate in this State may include a provision prohibiting the recording of that instrument … .
The counties argue that the statute can mean only that all mortgages and mortgage assignments must be recorded. They harp on what they insist is the “plain meaning” of the language that we’ve quoted. But a moment’s reflection will reveal the shallowness of their recourse to “plain meaning,” a tired, overused legal phrase. For suppose a department store posts the following notice: “All defective products must be returned to the fifth floor counter for refund.” Obviously this is not a command that defective products be returned; the purchaser is free to keep a defective product, throw it out, or give it as a present to his worst friend. There’s an implicit “if” in the command: If you want to return a product and get a refund, here’s where you have to return it. Similarly, section 28 of the Conveyances Act may just mean that if you want to record your property interest you must do so in the county in which the property is located. That is not the statute’s “plain meaning” in the sense of an unarguable meaning (though MERSCORP calls it the “plain language” of the statute—and thus we have the unedifying though common spectacle of opposing parties each arguing that its interpretation of statutory or contractual language is unarguable), but in context it’s the better meaning.
Notice the second sentence in section 28, prohibiting the parties to a mortgage or other land instrument from including a “no recordation” condition in the instrument. This sentence (added in to the Conveyances Act in 1995) would be superfluous if the law required recordation, for that requirement would automatically make the inclusion of such a prohibition in the instrument unlawful. More important (because superfluity in statutes, as in legal discourse generally, is common), section 30 of the Conveyances Act, 765 ILCS 5/30, provides that “all deeds, mortgages and other instruments of writing which are authorized to be recorded, shall take effect and be in force from and after the time of filing the same for record, and not before, as to all creditors and subsequent purchasers, without notice … .” The phrase “authorized to be recorded” implies that some land instruments can be recorded but don’t have to be.
Most important, the purpose of recordation has never been understood to be to supplement property taxes by making every landowner, mortgagee, etc. pay a fee for a service he doesn’t want. The purpose is to protect the property owner or mortgage holder against claims to the property interest asserted in the deed, mortgage, or other instrument. Recording is a valuable service, provided usually for a modest fee—but provided only to those who think the service worth the fee.
So even as an original matter, and without regard to authoritative interpretations of the Illinois statute by Illinois courts, MERSCORP has the better of the interpretive dispute. But in addition, in cases decided more than a century ago the Supreme Court of Illinois made clear that recording is not mandatory. “We are aware of no principle, outside of self?interest and prudence in business, that requires the holder of a mortgage to put it on record at any particular time. By not doing so promptly he runs the risk of having it postponed to prior liens, and even of losing the benefit of it altogether.” Field v. Ridgeley, 6 N.E. 156, 159 (Ill. 1886), followed in Haas v. Sternbach, 41 N.E. 51, 54 (Ill. 1894). The supreme court has not revisited the issue. A number of decisions by the Illinois Appellate Court, however, assume or repeat the interpretation adopted in those early supreme court decisions. See, e.g., Federal National Mortgage Ass’n v. Kuipers, 732 N.E.2d 723, 726 (Ill. App. 2000); Lindley v. English, 89 Ill. App. 538, 539 (1899), affirmed, 62 N.E. 522 (Ill. 1901); W.O. Tyler Paper Co. v. Orcutt?Killick Lithographing Co., 35 Ill. App. 500, 502 (1890); Hegeler v. First National Bank, 28 Ill. App. 112, 118–19 (1888), affirmed, 21 N.E. 812 (Ill. 1889); see also Macon County v. MERSCORP, Inc., No. 12?CV?2214, 2013 WL 4838850, at *6–7 (C.D. Ill. Sept. 10, 2013). Consistent with Field and Haas, and contrary to the counties’ position in this case, Illinois courts also uphold the validity of unrecorded mortgage assignments, deeds, or related instruments. See, e.g., Federal National Mortgage Ass’n v. Kuipers, supra, 732 N.E.2d at 725, 730; Schaumburg State Bank v. Bank of Wheaton, 555 N.E.2d 48, 51–52 (Ill. App. 1990); Dana Point Condominium Ass’n v. Keystone Service Co., 491 N.E.2d 63, 67 (Ill. App. 1986). Obviously they wouldn’t do this if failure to record violated Illinois law.
It is also significant that, to our knowledge, until this case (and a case filed contemporaneously with it and discussed at the end of this opinion), no Illinois county official had taken the position that recording is mandatory. We are left to speculate that it is the parlous financial condition of Illinois state and local government that has impelled these officials in desperation to seek to overturn a long?established understanding of Illinois law.
The counties invite our attention to the statement in Farmers State Bank v. Neese, 665 N.E.2d 534, 539 (Ill. App. 1996), that “section 28 of the Conveyances Act requires all ‘instruments relating to or affecting the title to real estate in this state’ to be recorded.” But on the same page the court explains that “parties which receive interests through such instruments must record to be protected against third parties” (emphasis added). So this is another example of the need to understand the context of a flat statement (the law “requires ‘all instruments’ … to be recorded”) in order to understand the statement’s meaning.
Haas had left open the possibility that failure to disclose a debt could operate as a fraud, 41 N.E. at 54–55, but our counties do not claim that MERSCORP’s failure to record transfers of mortgage indebtedness is fraudulent. They are critical of MERS because the system makes life hard for the mortgagor. But their appeal claims only that MERSCORP is violating section 28 of the Conveyances Act by failing to record its transfer of mortgage debts, thus depriving the county governments of recording fees. That claim—the only one before us—has no merit.
Doubtless fearing that we would so rule—that we would deem the state supreme court’s interpretation valid despite its antiquity—the counties ask us if not disposed to agree with their interpretation to certify the question to that court. We can’t do that. Rule 20(a) of the Supreme Court of Illinois authorizes that court to answer a question certified to it by this court only if “there are no controlling precedents in the decisions of” the Illinois supreme court; and there are two— Field and Haas. Anyway we don’t see the point of bothering the state supreme court with the question. For one thing the court’s answer wouldn’t end this lawsuit, because the district court, having satisfied itself that the case has no merit, didn’t rule on several other defenses. For another thing, in May of last year St. Clair County, another Illinois county (and hence a member of the class in this suit), filed a materially identical suit in an Illinois state court against MERSCORP—and since it was not removed to federal court, whoever loses that case will be able to appeal to the Illinois Appellate Court, and the loser in that court can ask the Supreme Court of Illinois to accept a further appeal.
In July of this year the trial court in the St. Clair County case denied the defendants’ motion to dismiss, ruling that section 28 indeed requires recordation of all mortgages. St. Clair County v. Mortgage Electronic Registration Systems, Inc., No. 12?L?267 (St. Clair County Circuit Court, July 12, 2013). The court’s opinion, which adopted the County’s proposed opinion verbatim, typos and all, is not persuasive. But it sets the stage for an eventual appeal that would give the state supreme court a shot at the issue. The counties argue that our case will get to the top of the Illinois court system faster than St. Clair County’s case, if we certify. But that’s speculation. Both cases were filed within months of each other last year. And it’s quite likely that the Supreme Court of Illinois would hold off on answering our certified question until the St. Clair County case reached it. Moreover, the supreme court is not required to answer, and does not always agree to answer, a certified question that we put to it. Should the supreme court decide in the St. Clair County case that registration of mortgages in Illinois is mandatory, its decision will supersede ours. But the court may find our decision helpful, whichever way it decides, and this is another reason for our offering an answer to the question rather than certifying it.
If they are doing these kickbacks in China, I can only imagine what goes on here in the U.S.. I just don’t think the children of the government are involved.
NYTIMES-
To promote its standing in China, JPMorgan Chase turned to a seemingly obscure consulting firm run by a 32-year-old executive named Lily Chang.
Ms. Chang’s firm, which received a $75,000-a-month contract from JPMorgan, appeared to have only two employees. And on the surface, Ms. Chang lacked the influence and public name recognition needed to unlock business for the bank.
But what was known to JPMorgan executives in Hong Kong, and some executives at other major companies, was that “Lily Chang” was not her real name. It was an alias for Wen Ruchun, the only daughter of Wen Jiabao, who at the time was China’s prime minister, with oversight of the economy and its financial institutions.
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND
ELOISA COSAJAY,
Plaintiff,
v.
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. ET AL.
Defendants. ______________________________ MEMORANDUM & ORDER JOHN J. MCCONNELL, JR., United States District Judge. C. A. No. 1 0-442-M
This matter is before the Court on Plaintiff Eloisa Cosajay’s objection to a Report and Recommendation (R&R) issued by Magistrate Judge Martin on June 23, 2011, in which he recommended that her mortgage foreclosure case be dismissed for lack of standing because she was not a party to the assignment documents that her lawsuit challenged. Since that R&R was issued, the First Circuit has ruled in two cases, Culhane v. Aurora Loan Services of Nebraska, 708 F.3d 282, 289-90 (1st Cir. 2013) and Woods v. Wells Fargo Bank, NA., No. 12-1942, 2013 WL 5543637, at* 3 (1st Cir. Oct. 9, 2013), that a homeowner’s standing to sue is not foreclosed by virtue of their lack of privity to the assignment documents. Those decisions dictate that this Court REJECT the R&R recommending dismissal based on lack of privity. The Court DENIES Defendants’ Motion to Dismiss (ECF No. 5) and finds that Ms. Cosajay has standing to bring this lawsuit against Defendants.
I. FACTS On April 24, 2007, Ms. Cosajay obtained a loan from Lime Financial Services, Ltd. (“Lime”), for $220,000 in exchange for a promissory note. (ECF No. 1-1 at~ 9.) The note was secured by a mortgage that Ms. Cosajay executed in favor of Lime, as lender, and MERS, as Lime’s nominee, successor and assign, and as the mortgagee under the mortgage agreement. (!d.) The mortgage’s security consisted of property owned by Ms. Cosajay located at 220 Sterling Avenue, Providence, Rhode Island (the “Property”). (!d. at ~ 8.) Ms. Cosajay’s promissory note and mortgage were the subject of three assignments. (!d. at ~ 11.) On March 12,2008, MERS, as nominee for Lime, assigned the mortgage to Deutsche Bank Trust Company Americas, as Trustee and Custodian for IXIS Real Estate Capital, Inc. (“Deutsche Bank”) (the “First Assignment”). (!d.) On September 4, 2008, Deutsche Bank assigned the mortgage to Saxon Mortgage Services, Inc. (the “Second Assignment”). (!d.) On March 5, 2009, Saxon assigned the mortgage to CM REO Trust (the “Third Assignment”). (!d.) Saxon, on behalf of CM REO, initiated foreclosure proceedings in October 2010. (!d. at~ 10.)
Ms. Cosajay filed this action to enjoin the foreclosure proceedings by alleging that the assignments of her mortgage are invalid. (!d. at~~ 8-15.) She challenges the validity of the assignments on multiple grounds. She alleges that the documents executing the assignments were “fraudulent and manufactured …. ” (!d. ~ 13.) In support of this allegation, Ms. Cosajay avers that the persons executing the assignments were not employees, officers, or properly authorized agents of the entities for whom they purported to act and that the signatures on the assignments are fraudulent and/or not authentic. (!d.) Ms. Cosajay also alleges that MERS, as Lime’s nominee, did not have the authority to assign her mortgage on March 12, 2008, the date of the First Assignment. (See id. ~ 11.) As support for this contention, Ms. Cosajay posits that:
“If this loan was included in a loan pool ultimately transferred to a securitized trust, the mortgage had already been allegedly sold to a Sponsor/Seller and thus any assignment was invalid.” (!d.) Ms. Cosajay asserts that “[a]ny assignment which would have been made on or [after] March 12, 2008[,] was outside the time specified by any securitized trust which Saxon refers to as Deutsche Bank Trust Company Americas as Trustee and Custodian for IXIS Real Estate Capital Inc.” (!d.) Ms. Cosajay further asserts that the Deutsche Bank trust does not exist but that the last IXIS Trust, Natixis Real Estate Capital Trust 2007-HE2, closed on April 30, 2007, and that, therefore, no assignment to the Natixis trust was possible on March 12, 2008. (!d.) As a result, according to Ms. Cosajay, the First Assignment was to a non-existent entity and any subsequent assignments were also void. (!d.)
Ms. Cosajay seeks a declaration that the mortgage assignment was invalid, that Defendants did not hold her mortgage and promissory note, and that Defendants lacked standing to foreclose on the mortgage or enforce the note. Defendants moved to dismiss the complaint, alleging that Ms. Cosajay lacked standing to challenge any of the above. After review of the memorandum and hearing argument, Magistrate Judge Martin recommended that the case be dismissed on that ground, finding that Ms. Cosajay lacked standing because she was not a party to the assignments that she challenges in her suit. Ms. Cosajay appeals that R&R to this Court and Defendants object, contending that the Court should accept the R&R.1 In considering this appeal, the Court reviewed the record, heard argument, received additional briefing, heard supplemental arguments (see Misc. No. 11-88-M, ECF No. 2224 at 49-76), and had the benefit of recent precedent from the First Circuit Court of Appeals, post-dating the Magistrate Judge’s R&R.
II. ANALYSIS
The Court must conduct a de novo review of a magistrate judge’s decision on a dispositive motion. See Fed. R. Civ. Pro. 72(b). During this review, the Court “may accept, reject, or modify the recommended disposition; receive further evidence’ or recommit the matter to the magistrate judge with instructions.” !d.
The question before the Court in this case is a singular one – does Ms. Cosajay have standing to bring her complaint against these Defendants? The Magistrate Judge answered this question in the negative, finding that because Ms. Cosajay was not a party to the assignment agreement, she “does not have standing to assert legal rights based on [those] documents.” (ECF No. 21 at 25 (citing Brough v. Foley, 525 A.2d 919, 921-22 (R.I. 1987)).) Essentially, the Magistrate Judge found that Ms. Cosajay lacked privity to the assignment, where privity to a contract was deemed indispensable to a standing determination. The Court reviews this aspect of his decision in this appeal.
A. STANDING
A standing “inquiry involves both constitutional limitations on federal-court jurisdiction and prudential limitations on its exercise. In both dimensions it is founded in concern about the proper-and properly limited-role of the courts in a democratic society.” Warth v. Seldin, 422 U.S. 490, 498 (1975) (internal citations omitted.); see Osediacz v. Cranston, 414 F.3d 136, 139 (1st Cir. 2005) (“[S]tanding to sue is an indispensable component of federal court jurisdiction.”). “The constitutional core of standing requires that a plaintiff make a tripartite showing: she must demonstrate that she has suffered an injury in fact, that her injury is fairly traceable to the disputed conduct, and that the relief sought promises to redress the injury sustained.” Osediacz, 414 F.3d at 139 (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)). In addition, prudential standing “ordinarily require[ s] a plaintiff to show that his claim is premised on his own legal rights (as opposed to those of a third party)[.]” Pagan v. Calderon, 448 F.3d 16, 27 (1st Cir. 2006).
In the context of mortgage foreclosure cases, there are two recent cases that focus on the legality and effect of MERS and a homeowner’s standing to challenge a foreclosure. In February 2013, as a matter of first impression, the First Circuit decided Culhane v. Aurora Loan Services of Nebraska and, even more recently and as a complimentary follow-up decision, Woods v. Wells Fargo Bank, NA. Both of these cases considered the constitutional and prudential dimensions of standing in a mortgage foreclosure case, are binding precedent on this Court, and support its decision to reject the recommendation of dismissal based purely on lack of privity.
The plaintiff in Culhane, much like Ms. Cosajay, focused her lawsuit on the validity of the assignment of her mortgage. When the First Circuit considered the “tripartite” showing of constitutional standing in that fact pattern, it handily found that “the foreclosure of the plaintiffs house is unquestionably a concrete and particularized injury to her[,]” “there is a direct causal connection between the challenged action [the assignment] and the identified harm[,]” and “a determination that [defendant] lacked the authority to foreclose would set the stage for redressing plaintiffs claimed injury.” Culhane, 708 F.3d at 289-90. The same can be said for
Ms. Cosajay’s case- Defendants initiated foreclosure proceedings on her home (ECF No. 1-1 at ~~ 12, F), there is the same connection between the assignment she challenges in her lawsuit and the foreclosure (id. at ~~ 11, 17), and if the Court determines that Defendants did not have the authority to foreclose, Ms. Cosajay’s injuries can be redressed through the equitable relief and compensatory damages she seeks. (ECF No. 1-1 at~ Q.) Therefore, the Court finds that she has met the constitutional dimension of standing.
However, in the R&R currently before the Court, the Magistrate Judge focused mainly on the prudential aspect of standing, “which overlays its constitutional dimensions.” Culhane, 708 F.3d at 290. In considering whether a plaintiff premises her claims on her own legal rights justifying her standing to sue, Culhane considered whether she had to be a party or a third party beneficiary of the assignment as the Magistrate Judge in Ms. Cosajay’s case opined. The First Circuit rejected that concept, holding that “a nonparty mortgagor … has standing to raise certain challenges to the assignment of her mortgage.” Id. at 289. While noting that its holding was “narrow,” the First Circuit decided that privity of contract is not required in order to have standing to bring a lawsuit on a mortgage assignment action. Id. at 291.
Just this month, the First Circuit had another opportunity to consider standing in Woods v. Wells Fargo Bank, NA., a mortgage foreclosure case where the district court below found that the plaintiff did not have standing based on a lack of privity. Discussing its previous holding in Culhane, the First Circuit rejected the district court’s reasoning and reiterated that “standing may be appropriate even where a mortgagor is not party to, nor beneficiary of, the challenged assignments.” Id., No. 12-1942,2013 WL 5543637, at* 3 (citing Culhane, 708 F.3d at 289). Defendants rely on Brough v. Foley to argue that a party does not have standing to assert rights under a contract to which it is not a party. 525 A.2d at 922 (“The plaintiffs were, in substance, strangers to those transactions and were given no rights under the contract to challenge the transactions.”) The First Circuit in Culhane recognized that “a nonparty who does not benefit from a contract generally lacks standing to assert rights under that contract.” Culhane, 708 F .3d at 290 (citing Almond v. Capital Props., Inc., 212 F .3d 20, 24 & n. 4 (1st Cir. 2000)). Yet, ultimately, the First Circuit stepped away from the generality in mortgage foreclosure cases because of the “unusual position” in which a mortgagor finds him or herself. Culhane, 708 F.3d at 290. The basis for diverging from the general legal concept that a nonparty lacks standing to assert rights under a contract was twofold – under Massachusetts law, a “mortgagor has a legally cognizable right under state law to ensure that any attempted foreclosure on her home is conducted lawfully” and “where (as here) a mortgage contains a power of sale, Massachusetts law permits foreclosure without prior judicial authorization.” !d.
Now, this narrow holding was made under Massachusetts law, not the Rhode Island statutory and common law that governs the Court’s decision here.2 While Culhane and Woods did not specifically address a plaintiffs standing under Rhode Island law,3 the Court finds that Rhode Island law provides that same dual basis for deviating from the general contract rule.
First, the First Circuit cited to Mass. Gen. Laws ch. 183, § 21, which is the “Statutory Power of Sale in Mortgage” section. That section is of the same vein 4 as Rhode Island Gen. Laws § 34- 11-22, also called “Statutory power of sale in mortgage,” which provides a Rhode Island mortgagor with the right to ensure that any foreclosure is done appropriately. Bucci v. Lehman Bros. Bank, FSB, 68 A.3d 1069, 1085 (R.I. 2013) (finding that§ 34-11-22 “was enacted for the purpose of establishing a uniform power of sale provision that could be referred to with ease, if the parties so desired”). In line with the second basis the Culhane court lists, Rhode Island law also allows foreclosures to take place without prior judicial authorization where a power of sale clause exists in a mortgage. Id. Therefore, the Court finds that Rhode Island law provides that same protection to mortgagors in the same situations in which the First Circuit found the Culhane and Woods plaintiffs under Massachusetts law.5
The First Circuit in Culhane “further circumscribed” its holding, finding standing when a plaintiffs challenge was limited to only “invalid, ineffective, or void” assignments, such as situations where “the assignor had nothing to assign or had no authority to make an assignment to a particular assignee.” Culhane, 708 F.3d at 291. Conversely, the First Circuit held that “a mortgagor does not have standing to challenge shortcomings in an assignment that render it merely voidable at the election of one party but otherwise effective to pass legal title.” !d. The First Circuit in Woods provided further examples of this “void” versus “voidable” distinction:
[C]laims that merely assert procedural infirmities in the assignment of a mortgage, such as a failure to abide by the terms of a governing trust agreement, are barred for lack of standing. In contrast, standing exists for challenges that contend that the assigning party never possessed legal title and, as a result, no valid transferable interest ever exchanged hands. In this latter case, the challenge is to the “foreclosing entity’s status qua mortgagee.” Woods, No. 12-1942,2013 WL 5543637, at *3 (internal citations omitted).
Now that the constitutional standing issue has been resolved and the prudential standing parameters have been laid out, the Court must consider those parameters in the light of the facts Ms. Cosajay has pled, and thus turns to the factual allegations in her complaint to determine whether her claims are based on a “void” assignment or on a “voidable” assignment.
Ms. Cosajay contends in her complaint that MERS as nominee for Lime could not have made the First Assignment to Deutsche Bank as Trustee on March 12, 2008 because MERS no longer held the mortgage at that time. (ECF No. 1-1 at~ 11.) Because Ms. Cosajay challenges her foreclosure on the ground that it was void due to an invalid assignment to a non-existent entity, and the First Circuit in Culhane concluded that homeowners have a “legally cognizable right” to protection against illegal foreclosures, the Court finds that she has demonstrated “a concrete and particularized injury in fact, a causal connection that permits tracing the claimed injury to the defendant’s actions, and a likelihood that prevailing in the action will afford some redress for the injury.” Antilles Cement Corp. v. Fortuna, 670 F.3d 310, 317 (1st Cir. 2012) (quoting Weaver’s Cove Energy, LLC v. R.I Coastal Res. Mgmt. Council, 589 F.3d 458,467 (1st Cir. 2009)). Ms. Cosajay has standing to pursue her claims.6
This Court’s decision finding standing is buttressed by Defendants’ extreme and incongruous argument that would allow Ms. Cosajay no relief because she is not a party to the assignment. The First Circuit rejected Defendants’ argument, finding that a bar on standing based solely on whether plaintiff is a party to the assignment “paint[s] with too broad a brush.” Culhane, 708 F.3d at 290. Those very broad brushstrokes were evident at oral argument where, when asked whether a plaintiff would have standing to challenge a foreclosure exacted by a “fraudulent holder of a fraudulent note,” Defendants’ counsel said that a plaintiff would not have standing. (Misc. No. 11-88-M, ECF No. 2224 at 51-52.) That position cannot be squared with the fact that the First Circuit recognized that a mortgagor has a “legally cognizable right” to ensure that a threatened foreclosure is legally conducted. Culhane, 708 F.3d at 290. Furthermore, when Defendants argued this absurd position again in Woods, the Circuit shed a brighter spotlight on the absurd effect of Defendants’ position:
Culhane reasoned that barring standing in all cases would unduly insulate assignments; mortgagors could not challenge the validity of assignments either as the defendant in a suit for judicial authorization or as the petitioner in a suit like the present one.
Woods, No. 12-1942, 2013 WL 5543637, at *3. The First Circuit has determined that, due to the particularities of mortgage foreclosure cases, requiring privity to an assignment “unduly insulate[s]” those assignments to the detriment of mortgagors asserting their legal rights. “There is no principled basis for employing standing doctrine as a sword to deprive mortgagors of legal protection conferred upon them under state law.” Culhane, 708 F .3d at 291.
Because the Magistrate Judge in his R&R held that a lack of privity alone barred Ms. Cosajay’s standing to bring her suit and that conclusion is now in contravention to the First Circuit’s holdings in both Culhane and Woods, which based its decision not on the privity or status of the parties, but on status of the challenged assignment and whether it was invalid or void versus voidable, the R&R cannot stand and is rejected in its entirety. The Court finds that Ms. Cosajay has standing to bring her lawsuit against these Defendants.
III. CONCLUSION
The Court REJECTS the Magistrate Judge’s Report and Recommendation (ECF No. 21) in its entirety and DENIES Defendants’ Motion to Dismiss (ECF No. 5) based on a lack of standing.
John 1. McConnell, Jr. United States District Judge November 5, 2013
—————————————– 1 The Magistrate Judge issued R&Rs rejecting standing in two cases- Ms. Cosajay’s case as well as in Mr. and Mrs. Fryzel’s case. See Fryzel v. Mort. Elec. Reg. Sys., Inc. C.A. No. 10-352. Ms. Cosajay and the Fryzels appealed those R&Rs to this Court, who stayed all of the mortgage foreclosure cases on its docket and imposed a mediation program under the direction of a Special Master. Certain Defendants appealed to the First Circuit and in the context of its decision reviewing that interlocutory appeal of this Court’s “stay in the nature of a preliminary injunction” and mediation program in Fryzel, the First Circuit directed this Court to act on the R&R. Fryzel v. Mort. Elec. Reg. Sys., Inc., 719 F.3d 40, 46 (1st Cir. 2013). This Memorandum and Order addresses Ms. Cosajay’s appeal because the Fryzel case was ultimately dismissed for reasons unrelated to the First Circuit decision.
2 Because the Court sits in diversity on this case, Rhode Island substantive law applies. See Barton v. Clancy, 632 F.3d 9, 17 (1st Cir. 2011). When asked at the hearing on this appeal to name a relevant difference between Massachusetts and Rhode Island mortgage foreclosure laws, Defendants were not able to identify any. (Mise No. 11-88-M, ECF No. 2224 at 54-55.)
3 Defendants argued that the existence and applicability of the Rhode Island power of sale statute, the very type of statute the First Circuit interpreted in Culhane as providing a legal right to a lawfully conducted foreclosure, should not change the Court’s analysis, arguing instead for the absolute applicability of Rhode Island common law, which stands for the basic principle that one must be a party to a contract in order to challenge any of its terms. Brough, 525 A.2d 919. Defendants conceded that the First Circuit relied on Massachusetts’ statutory scheme in considering a plaintiffs standing, but suggested that the reason the First Circuit did not analyze Massachusetts Supreme Judicial Court case law was because “it doesn’t exist[.]” (Misc. No. 11- 88-M, ECF No. 2224 at 57.) The more likely situation is that the First Circuit recognized that these twenty-first century mortgage foreclosure cases are not round pegs that fit into the round holes of basic contract law. The First Circuit noted the “unusual position” a mortgagor finds herself in partially because of the statutory power of sale statute and went on to find, however narrowly, that certain mortgagors do have standing to bring their claims.
4 Defendants conceded at oral argument that Rhode Island’s power of sale statute was “similar” to that of Massachusetts. (Misc. No. 11-88-M, ECF No. 2224 at 55.)
5 The Rhode Island Supreme Court’s decision in Bucci v. Lehman Brothers Bank, did however analyze the First Circuit’s Culhane decision holding that the MERS structure was appropriate under Massachusetts mortgage law and found that that holding “reside[ d] comfortably within the law of our state as well.” Id., 68 A.3d 1069, 1088 (R.I. 2013). While not an exact fit, the Court is comfortable with the Rhode Island Supreme Court’s acceptance ofthe Culhane decision vis-avis MERS, along with its own comparison of Massachusetts and Rhode Island power of sale statutes, to determine that the Culhane analysis and outcome would be the same under Rhode Island law.
6 The Court will not parse Ms. Cosajay’s complaint at this time to determine which claims relate to “void” as opposed to “voidable” conditions of the assignment. These arguments can be addressed at the summary judgment stage or trial.
J.P. Morgan, the investment and services portion of financial giant J.P. Morgan Chase, canceled a planned question-and-answer session on Twitter with the bank’s vice chairman James Lee, Jr. after receiving “insulting” questions, the financial news organization Reuters reported.
The company had been promoting the Twitter Q&A with the investment banker since at least November 6, encouraging people to ask questions about the bank’s operations with the hashtag #AskJPM.
The bank received a flood of questions when it sent a tweet promoting the event on Tuesday. Questions like…
Like a lot of people, Mary Wolkomir wanted to save some money, so she started the process to lower her mortgage payment.
Bank of America approved her for a trial loan modification, which reduced the payment on her Raleigh home from $1030 to $823 – a monthly savings of nearly $200.
After being approved for a permanent modification in April, she got a foreclosure notice in July. Bank of America said she hadn’t been paying her entire mortgage.
I suspect that the American public doesn’t have much sympathy to spare for the big-time lawyers whose firms have reaped untold millions of dollars defending Too Big to Fail institutions against accusations that they caused the Great Recession. But those lawyers sure cast themselves and their clients in a pitiable light at a securities conference at the New York Bar Association on Tuesday. Brad Karp of Paul, Weiss, Rifkind, Wharton & Garrison, best known for representing Citigroup, said he was “relentlessly pessimistic” about the near-term litigation prospects for banks, given the de facto impossibility of standing up to threats from government enforcers. Scott Musoff of Skadden, Arps, Slate, Meagher & Flom, who defended UBS (and is still defending Societe Generale) against securities fraud claims by the Federal Housing Finance Agency, noted that FHFA’s wards, Fannie Mae and Freddie Mac, were quasi-private concerns when they took on risk from securitized subprime mortgages, yet claims by FHFA are treated as though they’re asserted by a government regulator. And Julie North of Cravath, Swaine & Moore questioned whether it’s fair to preclude banks from attributing investor losses in mortgage-backed securities to the broad economic downturn and not to bank misrepresentations.
Perhaps diving into the private emails, phones and bank accounts of those not prosecuting to see what devils are in their closets.
Just saying we know what’s up!
Reuters-
The federal judge who oversaw the recent civil fraud trial against Bank of America Corp criticized the U.S. Department of Justice on Tuesday for failing to prosecute high-level executives over the financial crisis.
U.S. District Judge Jed Rakoff of Manhattan said while companies have been prosecuted for causing the 2007-2009 financial meltdown, Wall Street executives have escaped justice.
“The failure of the government to bring to justice those responsible for such a massive fraud speaks greatly to weaknesses in our prosecutorial system that need to be addressed,” Rakoff said.
“It could be structured by cows and we would rate it”
“[Our] model def[initely] does not capture half of the ris[k]”
“we sold our soul to the devil for revenue”
“[d]on’t kill the golden goose”
“[l]et’s hope we are all wealthy and retired by the time this house of cards falters”
“Lord help our fucking scam”
FILED: NEW YORK COUNTY CLERK 11/11/2013 NYSCEF DOC. NO. 24
INDEX NO. 652410/2013 RECEIVED NYSCEF: 11/11/2013
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK ——————————————————————-x GEOFFREY VARGA and MARK LONGBOTTOM, as Joint Official Liquidators of Bear Stearns HighGrade Structured Credit Strategies (Overseas) Ltd. and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) Ltd.,
Plaintiffs, against
McGRAW HILL FINANCIAL, INC. (f/k/a THE McGRAW-HILL COMPANIES, INC. and d/b/a STANDARD & POOR’S RATING SERVICES), STANDARD & POOR’S FINANCIAL SERVICES LLC, MOODY”S CORPORATION, MOODY”S INVESTORS SERVICE, INC., MOODY”S INVESTORS SERVICE LIMITED, FITCH GROUP, INC., FITCH RATINGS, INC. (f/k/a FITCH, INC.) and FITCH RATINGS LIMITED, Defendants, BEAR STEARNS HIGH-GRADE STRUCTURED CREDIT STRATEGIES MASTER FUND, LTD., and BEAR STEARNS HIGH-GRADE STRUCTURED CREDIT STRATEGIES ENHANCED LEVERAGE MASTER FUND, LTD., Nominal Defendants. ——————————————————————-x
COMPLAINT
Excerpt:
Plaintiffs, Geoffrey Varga and Mark Longbottom, as Joint Official Liquidators (the “Liquidators”) of Bear Stearns High-Grade Structured Credit Strategies (Overseas) Ltd. (In Liquidation) (the “High-Grade Overseas Fund”) and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) Ltd. (In Liquidation) (the “High-Grade Enhanced Overseas Fund,” and together with the High-Grade Overseas Fund, the “Overseas Funds”), by their attorneys, Reed Smith LLP, as and for their Complaint against the above-named Defendants, respectfully allege as follows:
I. PRELIMINARY STATEMENT
1. “It could be structured by cows and we would rate it,” crowed an S&P employee to a co-worker in a text message. “[Our] model def[initely] does not capture half of the ris[k],” he conceded. Quite matter-of-factly, a Moody’s employee admitted in an internal document that “we sold our soul to the devil for revenue.” Nonetheless, the Defendants’ mission, as stated in an article and an e-mail, was clear — “[d]on’t kill the golden goose,” and “[l]et’s hope we are all wealthy and retired by the time this house of cards falters.” Indeed, recognizing the full breadth and the implications of their wrongdoing, an S&P employee pleaded in an e-mail: “Lord help our f***ing scam” (expletive partially redacted).
2. These quotes are not the punch line to a bad joke; rather, they are statements made by representatives of Defendants — each a nationally recognized statistical rating organization (together, the “Rating Agencies”) — that are the razor-sharp tip of an iceberg of evidence that, at the same time these Rating Agencies were issuing their top, virtually risk-free ratings on numerous complex securities, each of these very same Rating Agencies (but not the investing public) knew the ratings were false, and that the collapse of the “house of cards” created by their fraudulent ratings was imminent.
3. This action is brought by victims of this admitted scam perpetrated by each of the Rating Agencies, and seeks to recover damages in connection with more than $1 billion of losses sustained by the Overseas Funds and the Master Funds (defined below, and referred to collectively as “the “Funds”) they “fed” into, as a direct and proximate result of the serial fraudulent misconduct of the Rating Agencies in assigning ratings which led the Funds to believe the securities at issue were far less risky than the Rating Agencies knew them to be.
4. Indeed, as their very names suggest, the Funds were intended to be “high-grade” funds that were structured to invest primarily in the highest quality securities. Specifically, the Funds’ stated strategy was to be invested in a portfolio of securities of which at least 90% had the highest rating available, namely “AAA,” “AA,” or “AA-,” or equivalent ratings — meaning that each security was of the highest credit quality, and the risk of its default was extremely low.
MIDLAND FUNDING, LLC, as an Assignee of Columbus Bank and Trust as Issuer of Aspire Visa, Appellee-Plaintiff.
APPEAL FROM THE MADISON CIRCUIT COURT The Honorable Dennis D. Carroll, Judge Cause No. 48C06-1110-CC-1462
NAJAM, Judge
STATEMENT OF THE CASE
Hitesh Seth appeals the trial court’s entry of summary judgment in favor of Midland Funding, LLC (“Midland”) on Midland’s complaint against Seth for nonpayment of credit card debt. Seth presents a single dispositive issue for our review, namely, whether the trial court erred when it concluded that Midland had satisfied its burden of proof under Trial Rule 56(C).
We reverse and remand.
FACTS AND PROCEDURAL HISTORY
On October 26, 2011, Midland filed a complaint against Seth alleging breach of a credit card contract and seeking damages in the amount of $3,410.87, plus interest and costs. Midland filed an amended complaint on December 5. Midland then moved for summary judgment, which the trial court granted following a hearing. This appeal ensued.
DISCUSSION AND DECISION
Our standard of review for summary judgment appeals is well established:
When reviewing a grant [or denial] of summary judgment, our standard of review is the same as that of the trial court. Considering only those facts that the parties designated to the trial court, we must determine whether there is a “genuine issue as to any material fact” and whether “the moving party is entitled to a judgment as a matter of law.” In answering these questions, the reviewing court construes all factual inferences in the non-moving party’s favor and resolves all doubts as to the existence of a material issue against the moving party. The moving party bears the burden of making a prima facie showing that there are no genuine issues of material fact and that the movant is entitled to judgment as a matter of law; and once the movant satisfies the burden, the burden then shifts to the non-moving party to designate and produce evidence of facts showing the existence of a genuine issue of material fact.
Dreaded, Inc. v. St. Paul Guardian Ins. Co., 904 N.E.2d 1267, 1269-70 (Ind. 2009) (citations omitted). The party appealing a summary judgment decision has the burden of persuading this court that the grant or denial of summary judgment was erroneous. Knoebel v. Clark County Superior Court No. 1, 901 N.E.2d 529, 531-32 (Ind. Ct. App. 2009).
Seth contends that Midland did not satisfy its burden of making a prima facie showing that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law. In particular, Seth maintains that much of Midland’s designated evidence is inadmissible hearsay or otherwise insufficient to support summary judgment. We must agree.
In order to make its prima facie case in support of summary judgment, Midland was required to show that Seth had opened a Visa account with Columbus Bank and Trust, that Midland was the assignee of that debt, and that Seth owed Columbus Bank and Trust the amount alleged in the complaint. Midland’s designated evidence consisted of the following: a document entitled “Assignment of Accounts” (“the Assignment”) executed by Andrew Carlson of Jefferson Capital Systems, LLC (“Jefferson”) and J. Brandon Black of Midland dated September 10, 2007; an affidavit executed by Carlson and dated October 20091, which includes an attachment identified as “Schedule 1”; an “Affidavit of Debt” executed by Erin Degel; an uncertified and unsworn nine-page document entitled “Transaction History”; an uncertified and unsworn copy of a credit card statement; an uncertified, unsworn, and largely illegible2 copy of the terms of the credit card agreement; and an unidentified, uncertified, and unsworn document with no title, but with the words “Field” and “Field Data” typed at the top of the page.
In ruling on a motion for summary judgment, the trial court will consider only properly designated evidence which would be admissible at trial. Kronmiller v. Wangberg, 665 N.E.2d 624, 627 (Ind. Ct. App. 1996), trans. denied. Unsworn statements and unverified exhibits do not qualify as proper Rule 56 evidence. Auto-Owners Ins. Co. v. Bill Gaddis Chrysler Dodge, Inc., 973 N.E.2d 1179, 1182 (Ind. Ct. App. 2012), trans. denied. Thus, here, the two affidavits from Carlson and Degel are the only potentially proper Rule 56 evidence designated by Midland. We agree with Seth that the affidavits are insufficient to support summary judgment.3
First, the Carlson affidavit is too vague to support Midland’s contentions in support of summary judgment. Carlson’s affidavit provides as follows:
1. I am the Manager of Portfolio Sales for Jefferson Capital Systems, LLC. I have personal knowledge of the information contained herein and am authorized to make the following statements and representations.
2. CompuCredit Corporation is the parent corporation to Jefferson Capital Systems, LLC (“Jefferson”).
3. CompuCredit Corporation acquired certain Aspire Visa, Emerge Mastercard and Freedomcard Mastercard credit card accounts issued by Columbus Bank and Trust Company.
4. Once the accounts owned by CompuCredit Corporation are charged-off, the accounts are subsequently transferred and assigned to Jefferson Capital Systems, LLC (“Jefferson”).
5. Jefferson subsequently sold many of the accounts to Midland Funding, LLC. The sale was consummated with an Assignment of Accounts. Individual accounts sold would not be specifically itemized in the Assignment document.
6. The initial sale of accounts took place and accounts were transferred on June 7, 2005 from Jefferson to Midland Funding, LLC. Jefferson also sells accounts to Midland Funding, LLC each month.
7. The associated bin (456419) associated [sic] with the Columbus Bank and Trust Company accounts are attached hereto as Schedule 1.
8. All information regarding the credit card accounts is transmitted electronically to the purchasers and is not transmitted in a paper file format. The electronic transmission contains all the accounts that were part of the sale to the purchasers.
Appellant’s App. at 20 (emphases added). “Schedule 1,” attached to Carlson’s affidavit, merely confirms the “BIN” number of the “Aspire VISA Gold” accounts that originated with Columbus Bank. Id. at 21. Nothing in either Carlson’s affidavit or in the Schedule 1 document contains Seth’s name or account number. In other words, this designated evidence does not show that Midland owns Seth’s credit card account, only that it acquired “certain” accounts issued by Columbus Bank. See id. at 20.
Next, Seth maintains that, in her affidavit, Degel purports to testify to acts and events that allegedly occurred between Seth and Columbus between September 2002 and August 2007. . . . Midland did not attach any evidence that the affiant was ever employed with Columbus or Jefferson, and therefore cannot possibly have personal knowledge of how Columbus’ or Jefferson’s records were prepared and maintained, and is unqualified to testify as to the truth of the information contained in the Affidavit.
Brief of Appellant at 27-28. In short, Seth contends that Degel’s affidavit is not based upon personal knowledge, as required by Trial Rule 56(E). But Midland maintains that Degel established an “adequate foundation” for her affidavit when she stated that she is “familiar with the record keeping practices of Midland, . . . has reviewed records kept in the normal course of business, and . . . makes the statements in her affidavit based upon personal knowledge of those account records.” Brief of Appellee at 13. We agree with Seth.
Degel’s affidavit reads in relevant part as follows:
I, Erin Degel, am an employee of Midland Credit Management, Inc. (“MCM”), servicing agent for plaintiff. I am familiar with the recordkeeping practices of MCM. I have reviewed records kept in the normal course of MCM’s business, and make the statements herein based upon personal knowledge of those account records maintained on plaintiff’s behalf.
SETH/HITESH, Defendant, has an account balance of $3410.87, which is owed to the Plaintiff on account XXXXXXXXXXXX4841.
The account was opened on 2002-09-23. The last payment posted to the account on 2006-12-22 and the amount is unknown.
The type of account is: Credit card account (i.e. Visa, MasterCard, Department Store, etc.)
The Plaintiff: Has obtained this debt from JEFFERSON CAPITAL SYSTEMS, LLC and the original creditor of this debt was COLUMBUS BANK AND TRUST.
The account balance includes:
MCM’s records indicate that there are no late fees after 2007-09-10.
Interest at a rate of 0.00% beginning on 2010-07-06.
The Plaintiff: May be seeking attorney’s fees and additional evidence will be presented to the court prior to entry of judgment on attorney’s fees, if requested in the Complaint or Notice of Claim.
Appellant’s App. at 23 (emphasis added).
Trial Rule 56(E) provides in part that supporting and opposing affidavits on summary judgment shall be made on personal knowledge and shall set forth such facts as would be admissible in evidence. We agree with Seth that Degel’s employment with Midland’s servicing agent, MCM, does not establish her personal knowledge of any of the facts pertaining to Midland’s complaint against Seth. Indeed, Degel states that she based her affidavit on her “personal knowledge of those account records maintained” by MCM on Midland’s behalf. Id. Because her knowledge of the facts is limited to what she has gleaned from her review of unspecified business records, her affidavit is based entirely upon hearsay, in violation of Trial Rule 56(E). See Breining v. Harkness, 872 N.E.2d 155, 158 (Ind. Ct. App. 2007) (holding inadmissible hearsay contained in an affidavit may not be considered in ruling on a summary judgment motion), trans. denied. And, contrary to Midland’s contention on appeal, the business records exception, Evidence Rule 803(6), does not apply here because Degel’s affidavit does not purport to authenticate any business records, which is the sole function of that exception.
Moreover, Trial Rule 56(E) also requires that a party submitting an affidavit on summary judgment attach “sworn or certified copies not previously self-authenticated of all papers or parts thereof referred to in an affidavit[.]” Because Degel explicitly states that her affidavit is based upon her personal knowledge of facts obtained from business records maintained by Midland, she was required to attach to her affidavit sworn, certified, or self-authenticated copies of any of the business records she relied upon. The requirements of T.R. 56(E) are mandatory; hence, a court considering a motion for summary judgment should disregard inadmissible information contained in supporting or opposing affidavits. City of Gary v. McCrady, 851 N.E.2d 359, 363 (Ind. Ct. App. 2006). But, critically, Degel did not attach to her affidavit any of the records upon which she purported to rely. Because Degel’s affidavit does not comply with Trial Rule 56(E), we must disregard it.
We hold that Midland has failed as a matter of law to designate evidence to make a prima facie case that it is entitled to summary judgment on its complaint. Accordingly, the burden of proof did not shift to Seth to show that there exist questions of material fact precluding summary judgment. We reverse the trial court’s entry of summary judgment and remand for further proceedings.
Reversed and remanded.
MATHIAS, J., and BROWN, J., concur.
____________
1 Seth’s contention that Carlson’s affidavit is dated 2004 is simply without merit.
2 The font is so small as to make it nearly impossible to read the terms of the agreement.
3 We reject Seth’s contention that Midland is required to prove that he signed an agreement to open a credit card account. See Meyer v. National City Bank, 903 N.E.2d 974, 976 (Ind. Ct. App. 2009) (holding credit card agreements are contracts, and the issuance and use of a credit card creates a legally binding agreement).
By, Michael T. Pines – (michaelt.attyconsultant@gmail.com)
Glaski and the “New York Trust” theory held the securitization trust was void. However, I have been wondering if this means the foreclosure itself was void and wanted to fill the gap.
In California, I did, and have prepared a rough draft for allegations to be put into a complaint which should explain that the foreclosure is void under California law, and probably in most non-judicial foreclosure states.
Here it is:
……CAUSE OF ACTION
(Violation of California Civil Code section 2924 – in addition to the Securitization Trust being void, the foreclosure is also void under California Law)
1.There are two trusts formed in connection with securitizations: (1) the securitization trust (“Securitization Trust”); and, (2) the trust created by the deed of trust (“Trust Deed Trust”).
2.All RMBS were created using form documents and are structured the same throughout the United States.[1]
3.Under the securitization documents, the trust deed or mortgage were required to be assigned to the Trust as set forth above and as admitted in writing (below).
4.Certificates were sold to the investors (“Investors”). Representations were made to the Investors by the banks that processed the securitization process.
5.According to the parties that formed the Securitize Trusts, the Trustee has no power to foreclose and instead it is the “Servicer” according to the securitization documents.[2]
6.The Defendants have admitted this in writing.
7.For example, in the description of the securitization process some of the representations made to the Investors by U.S. Bank, a party involved in thousands of securitizations stated:
“Parties involved in a MBS transaction include the borrower, the originator, the servicer and the trustee, each with their own distinct roles, responsibilities and limitations.
As Trustee, (Securitization Trustee) Services performs the following responsibilities:
Holds an interest in the mortgage loans for the benefit of investors (which should have been done by a proper assignment as set forth above and under New York law, if not the Trust is void.) . . .
Does not initiate, nor have any discretion or authority in the foreclosure process.
Trustees on MBS transactions, while named on the mortgage and on legal foreclosure documents, are not involved in the foreclosure process.
The trustee does not have an economic or beneficial interest in the loans and has no authority to manage or otherwise take action on the loans which is reserved for the servicer. (Exhibit “…..”.)
8.A trust deed has three parties including the Trust Deed Trustee. The Trust Deed Trustee, is the only one that has the right to foreclose. Most states use deeds of trust to secure residential real estate loans. (A chart is attached hereto as Exhibit “…”.)
9.In California, the rights and restrictions of the trust deed trustee are strictly controlled by statute.[3]
10.The procedure for foreclosing on security by a trustee’s sale pursuant to a deed of trust is set forth in California Civil Code section 2924, et seq. The statutory requirements must be strictly complied with, and a trustee’s sale based on a statutorily deficient notice of default is void.[4]
11.The securitization Servicers were routinely not named as the Trust Deed Trustee and no Substitution for the proper Servicer was recorded prior to the recording of a Notice of Default, the first step in foreclosure in California.
12.In this case the Securitization Servicer was ………….. and the Deed of Trust, Trustee shown on the deed of trust was ………. at the time the Notice of Default was recorded.
13.ii) 2934a(1)(A) says “all beneficiaries” must execute the Substitution of Trustee (the applicable California law when a lender seeks to substitute the trustee on a deed of trust and pursue a foreclosure sale), and the substitution of trustee document must be RECORDED to be effective, if not, the resulting sale is VOID.
14.Therefore, Defendants further violated Cal. Civ. Code §2924 et. seq. and the foreclosure is void.
[2] There was a “Master Servicer” described in the PSA which often delegated it’s responsibilities to a “sub-servicer”.
[3] For example, under California Law; [Insert case law]
[4]System Inv. Corp. v. Union Bank (1971) 21 Cal.App.3d 137, 152-153, 98 Cal.Rptr. 735; see California Mortgage and Deed of Trust Practice (Cont.Ed. Bar 1979) s 6.40, p. 295; see also Bisno v. Sax (1959) 175 Cal.App.2d 714, 720, 346 P.2d.
This article is for informational purposes only. It is not legal advice. You should seek counsel from a licensed attorney if you have legal questions.
Sen. Elizabeth Warren (D-MA) delivers the keynote address at the Roosevelt Institute’s launch of new report on the future of financial reform. Sen. Warren, a former TARP overseer, helped form the Consumer Financial Protection Bureau in 2010.
An Unfinished Mission: Making Wall Street Work for Us
Americans for Financial Reform and the Roosevelt Institute launch a new report on the future of financial reform on Nov. 12 in D.C.
Join Americans for Financial Reform and the Roosevelt Institute for a special event in Washington, D.C. as we launch a new report, An Unfinished Mission: Making Wall Street Work for Us, which will examine the key outstanding issues for financial reform and set the agenda going forward.
An Unfinished Mission: Making Wall Street Work for Us
Tuesday, November 12, 10 a.m.-1:30 p.m. Location: Russell Senate Office Building, Room 325, Washington, D.C. 94710
“We have been provided with a copy of U.S. Bank Global Corporate Trust Services’ “Role of the Corporate Trustee” brochure which makes certain incredible admissions, several of which squarely disprove and nullify the holdings of various courts around the country which have taken the position that the borrower “is not a party to” the securitization and is thus not entitled to discovery or challenges to the mortgage loan transfer process.” The second page sets forth that U.S. Bank, as Trustee, “does not have any discretion or authority in the foreclosure process.” If this is true, how can U.S. Bank as Trustee be the Plaintiff in judicial foreclosures or the foreclosing party in non-judicial foreclosures if it has “no authority in the foreclosure process”?
A federal judge on Monday recommended that a large firm that reviewed mortgages for Wall Street banks turn over e-mails and other data that may help the government decide which banks to sue for packaging shoddy mortgages into securities that fueled the financial crisis.
U.S. Magistrate Judge Donna Martinez in Hartford, Connecticut, said Clayton Holdings LLC should turn over due diligence reviews it prepared for its clients from 2005 through 2007, e-mails between employees and clients during that time, and a database that was used in providing services.
Investigators had subpoenaed the materials on July 1 on behalf of the Residential Mortgage-Backed Securities Working Group, which includes the U.S. Department of Justice and other federal and state regulators.
So I wonder what exactly constitutes criminal behavior for the Department of inJustice?
This only send one clear message and that is Fraud has a price as long as you’re able to pay the fine.
Make $1 Billion and pay $1 Million fine!! Nice message to send wall street eh?
Reuters-
The U.S. government urged that Bank of America Corp pay $863.6 million in damages after a federal jury found it liable for fraud over defective mortgages sold by its Countrywide unit.
In a filing late Friday in the U.S. District Court in Manhattan, the government also asked for penalties against Rebecca Mairone, a former midlevel executive at the bank’s Countrywide unit who the jury also found liable, “commensurate with her ability to pay.”
The government said the penalties were necessary to punish the bank and Mairone “and to send a clear and unambiguous message that mortgage fraud for profit will not be tolerated.”
Bank of America asked a federal court on Friday to throw out two U.S. government lawsuits accusing the nation’s second-largest bank of defrauding investors during the financial crisis.
The Department Of Justice and the Securities and Exchange Commission had accused the bank in lawsuits filed in August in its Charlotte, North Carolina hometown of fraud in its sale of $850 million of residential mortgage-backed securities.
Such securities fraud cases are usually brought under the securities laws, under which authorities must prove that a defendant intended to break the law.
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