New York’s First Department Appellate Division recently reversed a lower court’s granting of a motion to dismiss and held that the beneficiaries of a real estate mortgage investment conduit (“REMIC”) trust may bring a breach of contract claim against the trustee when the trustee purchased the assets for a below-market price and then resold them to a third party for profit. SeeCece & Co. v. U.S. Bank Nat. Ass’n, 2017 WL 3253370 (1st Dept. Aug. 1, 2017). There, plaintiffs are the holders of residual interests in the REMIC trusts at issue. Under the Trust Agreements, the trustee had the right to terminate the trusts once the principal balance of the trust declined to less than 1% the original principal balance. At this point, the trustee had the right to purchase all of the remaining trust assets or sell them to a third party, at which point it had to use the proceeds to pay off any expenses and make required payments to regular security holders.
According to plaintiffs’ allegations, the trustee purchased the assets for itself, “fully aware that the market price greatly exceeded” the price it paid, and then “flipped” the assets to a third party for an alleged profit of over $10 million. The trustee did not deny purchasing the assets for a below-market price, but argued that it was authorized to do so by the Trust Agreements as long as it paid at least the “termination price” for the assets. The termination price is an amount sufficient to satisfy any required payments to the trust’s regular security holders—i.e., not the plaintiff residual security holders, who would have been entitled to excess proceeds. The trial court agreed with the trustee that it was authorized to do this and dismissed the complaint.
On appeal, the First Department reversed the dismissal with regard to the breach of contract claim. Under New York law, an indenture trustee—such as a REMIC trustee—does not have a fiduciary relationship with the beneficiaries, but nonetheless owes a duty of care to not “profit at the possible expense of [the] beneficiary.” Moreover, according to the Trust Agreements, the trustee was required to “hold all trust assets for the exclusive use and benefit of all present and future holders.” The Court further held that the Trust Agreements’ requirement that the assets must be purchased “at a price equal to the Termination Price” only reflects a threshold price, not a cap. To purchase the assets for a below-market termination price, as the trustee allegedly did here, would prohibit any residual security holders from ever seeing a return on their investment, and “[s]uch interpretation of the Trust Agreements is untenable and inconsistent with the trustee's general contractual duties to act on behalf of all security holders.” Accordingly, plaintiffs were allowed to proceed with their breach of contract claims.
The United States Court of Appeals for the Eleventh Circuit recently affirmed a lower court’s decision granting defendant loan servicer’s motion to dismiss plaintiff’s complaint alleging violations of the Real Estate Settlement Procedures Act, 12 U.S.C. 2601 et seq. (“RESPA”), on the ground that defendant’s alleged misconduct did not violate RESPA. SeeMejia v. Ocwen Loan Servicing, LLC, 2017 WL 3396563 (11th Cir. Aug. 8, 2017). In the case, plaintiff alleged that defendant violated RESPA and its implementing regulation, 12 C.F.R. 1024 et seq. (“Regulation X”), because defendant failed to properly respond to plaintiff’s written Request for Information (“RFI”). Specifically, defendant failed to include a phone number for the owner of the subject loan. Plaintiff alleged that this violated 12 CFR 1024.36(d) which requires that the servicer must respond to the RFI with “the identity of, and address or other relevant contact information for, the owner or assignee of a mortgage loan[.]” Plaintiff sought actual damages, statutory damages and attorneys’ fees under RESPA. Defendant moved to dismiss the action, arguing that it was not required to provide a phone number under Regulation X, and the lower court granted the motion.
On appeal, the Eleventh Circuit affirmed. First, it found that RESPA does not specify what “relevant contact information” means, but noted that another provision of Regulation X requires that that servicer must provide its own “contact information, including a telephone number”. The Court held that the fact that this language is absent from the provision regarding the contact information of the owner of the loan indicated that it was not required. Second, the Court held that, because plaintiff had not suffered any concrete injury under RESPA, it also had no standing to pursue statutory damages or attorneys’ fees under 12 USC 2605. Accordingly, the complaint was dismissed with prejudice.
In a case stemming from defendant debt collector’s pursuit of $25 in unpaid medical bills, where plaintiff debtor won summary judgment on his Telephone Consumer Protection Act (“TCPA”) claim but lost at trial on his Fair Debt Collection Practices Act (“FDCPA”) claim, the United States Court of Appeals for the Third Circuit recently issued a precedential decision affirming the TCPA claim but reversing and remanding the FDCPA claim. Daubert v. NRA Group, LLC, 861 F.3d 382 (3d Cir. 2017). In the case, defendant attempted to collect the $25 debt from plaintiff in two ways: first, defendant sent a letter through an independent vendor. Plaintiff alleged that visible through the glassine windows on the envelope were the plaintiff’s account number with defendant as well as a barcode that, when scanned, revealed that account number. Second, defendant called plaintiff sixty-nine times in ten months, each call made using a Mercury Predictive Dialer. Plaintiff sued defendant, alleging a violation of the FDCPA, 15 U.S.C. 1692 et seq., on grounds that the bare account number and barcode on the collection letter envelope could have revealed his private information. Plaintiff later amended his complaint to allege a violation of the TCPA, 47 U.S.C. 227. The court granted summary judgment in favor of plaintiff on the TCPA claim. At trial on the FDCPA claim, the court granted defendant’s motion for judgment as a matter of law, holding no reasonable jury could find that either alleged FDCPA violation resulted from anything other than an unintentional, bona fide error. Both parties appealed.
On appeal, defendant argued that the court was wrong to grant summary judgment on the TCPA claim because a reasonable jury could find that plaintiff gave his “prior express consent” to receive calls about his bill. The Third Circuit disagreed, relying on the principles that the “appropriate analysis turns on whether the called party granted permission or authorization to be called, not on whether the creditor received the [cell] number directly”; that the TCPA’s purpose is remedial in nature and “should be construed to benefit consumers”; and the basic premise of consent is that it is “given voluntarily.” Therefore, no reasonable jury could find that plaintiff expressly consented to receive calls from defendant about his $25 debt. With respect to the FDCPA claim, the Third Circuit agreed with plaintiff’s argument that the district court’s decision to grant defendant judgment as a matter of law on his FDCPA claim was erroneous because defendant’s bona fide error defense is premised on a mistake of law. The Third Circuit noted that the bona fide error defense allows a debt collector to escape liability by proving that its statutory violation was “not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” However, a mistake of law is not a bona fide error, and the defense does not apply to FDCPA violations “resulting from a debt collector’s mistaken interpretation of the legal requirements of the FDCPA.” The fact that defendant had relied on two other district court decisions did not justify its actions either, because such decisions were persuasive and “debt collectors can't escape a district court’s finding of FDCPA liability under the bona fide error defense by pointing to the persuasive authority they relied on at the time to justify their conduct.” Therefore, defendant’s assumedly mistaken interpretation of the law is inexcusable.
The California Court of Appeals recently affirmed a lower court’s decision granting summary judgment to a title insurance company after the insured voluntarily conveyed the property to a third party. SeeFid. Nat’l Title Ins. Co. v. Butler, 2017 WL 2774337 (Cal. Ct. App. June 27, 2017), reh’g denied (July 21, 2017). In the case, plaintiffs purchased a parcel of property in 1980 and obtained a title insurance policy from defendant title insurance company. Among other conditions, the policy stated that “[t]he coverage of this policy shall continue in force as of Date of Policy, in favor of an insured so long as such insured retains an estate or interest in the land.” In 2009, plaintiffs’ neighbor brought a quiet title action against them regarding a strip of property. Plaintiffs notified defendant of the lawsuit and, after initially denying coverage, defendant offered to defend under a reservation of rights. Defendant then filed this action, seeking a declaratory judgment that it had no duty to defend or indemnify in the quiet title action because plaintiffs had conveyed the property to a third party in 2003. After the parties filed cross-motions for summary judgment, the trial court granted defendant’s motion.
On appeal, plaintiffs argued that the transfer of the property did not terminate coverage because it was “pursuant to a confidential agreement for financing purposes only.” Specifically, plaintiffs had transferred the property to a third party and, after obtaining refinancing, he had immediately executed a deed transferring it back. The third party execute a declaration confirming that he never believed he had an interest in the property and that the conveyance was solely for refinancing purposes. Nonetheless, the Court affirmed the trial court’s judgment and confirmed that “the policy specifically states that coverage continues so long as the insured retains an estate or interest in the land. Thus, if [plaintiffs] conveyed the property to a third party, i.e. someone such as Smith who is not named as an insured in the policy, without retaining any interest therein, coverage terminated as to the property conveyed.” The Court further dismissed plaintiffs’ argument that they always held an easement over the insured property that constituted an interest in the property sufficient to retain coverage under the policy. It held that the maps and letters submitted by plaintiffs as evidence of this easement were not sufficient to raise a triable issue of fact as to whether they retained an easement or the legal consequences if they did. Finally, the Court confirmed that defendant’s reservation of rights letter properly reserved defendant’s right to deny coverage.
Divorcing a lawyer? A recent decision by a New Jersey appellate court explains the process by which a person’s interest in a law firm is valued for purposes of equitable distribution. In Slutsky v. Slutsky, years of matrimonial litigation and post-judgment motions culminated in a consolidated appeal which addresses, in part, the valuation of the husband’s interest as equity partner in a large, New Jersey law firm. Specifically, this decision examines the intricacies of valuing such an interest, including how courts can (and should) address the goodwill component of the divorcing lawyer’s interest.
In Slutsky, the parties were married for thirty years when the wife filed an action for divorce. At the time, the husband was an equity partner, employed in the tax department of a prominent New Jersey law firm. The husband joined the firm in 1978, following his graduation from Harvard Law School, and became an equity partner in 1984, owning one share of stock. In 2013, the firm changed its corporate structure, and the husband was required to provide a $300,000 capital contribution, financed through a four-year note. To determine the fair value of the husband’s interest as of May 20, 2008, the date of complaint, both parties submitted expert testimony from their respective forensic accounting experts. The husband’s relationship with the firm was governed by a shareholder agreement, which outlines the firm’s obligation to purchase stock when a shareholder stops being employed by the firm, and contains a formula fixing the amount of payment. During employment with the firm, an equity partner’s interest is calculated by the termination credit account (TCA). This calculation does not factor in seniority, but is based on billable hours, bills collected and origination of new business. The husband admittedly did not bring in substantial original business, but instead serviced many of the firm’s existing clients’ tax needs and received significant business referrals from his partners.
Pursuant to the shareholder agreement, at age 65, the law firm’s board of directors determines whether the equity partner should move to a salaried, senior status position or continue to participate in the allocation TCA system. If moved to senior status, that partner’s TCA would be paid out over time. Moreover, after 30 years of partnership, under the agreement, a shareholder becomes eligible for a longevity bonus of 25% of his or her average salary of the five highest-paid years over the last ten years. In this case, the husband’s 30-year bonus vested after the date of complaint, but prior to trial.
The wife’s valuation expert initially valued the husband’s TCA at $350,830. Following cross-examination, agreeing with some of the husband’s expert’s challenges, he revised his TCA value to $292,908. This calculation was based on the assumption that the husband would retire at the age of 70. However, the wife’s expert also added a value for the firm’s goodwill. Her expert calculated a differential between reasonable compensation and the distributions made to the husband. The wife’s expert valued the husband’s individual interest in the firm’s overall business goodwill at $1,198,077, and following cross-examination, adjusted his valuation of the goodwill to $1,185,304.
The defendant’s valuation expert took a similar approach to value the husband’s TCA, but did not include a separate goodwill interest in his firm ownership. He opined that the husband’s allocation from the TCA was consistent with reported reasonable compensation data, and therefore, there was no additional goodwill component. Ultimately, he valued the husband’s interest in the firm at $285,000.00. He disagreed with the wife’s expert in several respects, most importantly, his valuation of goodwill which was separate and apart from the TCA.
The trial judge found it “incredible” that the firm had no goodwill value and rejected the husband’s expert’s opinion. Although the trial court’s opinion identified the flaws in the wife’s expert’s testimony, which were ultimately corrected with downward adjustments following cross-examination, the trial court accepted the wife’s expert’s original figures, $350,083 and $1,198,077. The trial court reduced the husband’s interest by his $300,000 capital contribution and awarded the wife 50% of the remainder as equitable distribution.
In vacating this specific portion of the trial court decision, the appellate court found that the trial court improperly accepted the wife’s expert’s original numbers, though he agreed that his reasoning was flawed and a downward adjustment was warranted following cross-examination. The court found that intangible goodwill may attach to an attorney’s interest in a professional practice, though the trial court here failed to make factual findings to support the value of goodwill ultimately accepted by the trial court. The court held that goodwill must be valued, representing the likelihood of repeat patronage and a certain degree of immunity from competition. The method of valuation will depend on the nature of the business. For example, the method for valuing a solo law practice will differ from valuing the goodwill in a large law firm. Where there is a shareholder agreement, the court found, reference must be made to its terms in calculating the value of goodwill. Here, for example, the court found that the trial court misunderstood and therefore improperly discredited the husband’s expert’s explanation that the goodwill of the firm was rolled into each equity partner’s TCA. Here, you have to look at the shareholder agreement to determine whether it provides a measure of valuing the firm which includes goodwill. If so, goodwill need not be valued separately, as it is already accounted for in each equity partner’s allocation. In this case, where the husband had little original business of his own and instead relied on in-firm referrals for a bulk of his business, a lower valuation for individual goodwill may make sense. Reluctant to delve into these intricacies on appeal, the appellate court remanded to determine the husband’s individual interest in the firm’s goodwill.
On remand, the appellate court instructed the trial court to take a closer look at the husband’s projected term of employment. The wife’s expert assumed retirement at age 70. However, the shareholder agreement provided a key event at age 65, which could trigger a substantial change in earnings. Ignoring this key fact called into question the wife’s expert’s overall valuation.
Moreover, the appellate court admonished the trial court for failing to make specific findings as to why the court awarded the wife 50% of his business interest. The court noted that the inquiry is not complete once the husband’s business interest (goodwill included) is determined. Next, the court must identify the wife’s interest therein. It is not automatically 50%, as the trial court found without explanation. The appellate court instructed the trial court to utilize the equitable distribution factors in the alimony statute on remand to determine to what percentage of the husband’s interest the wife had a claim for equitable distribution.
Though this decision is instructive to a narrow class of divorcing parties (one of you needs to be a lawyer for this portion of the decision to have real relevance), it is instructive in identifying the complexities of this one facet of business valuation in an industry-specific context. Unsurprisingly, the court did not fashion a formula or bright-line test for making such valuations. The process of business valuation, specifically, identifying a goodwill component, are too fact-specific to permit a cookie-cutter approach. Such reasoning can also be applied to business valuations in other settings and industries. In valuing a law firm, for example, the starting point is the shareholder agreement, if there is one. From there, Slutsky makes clear that various, well-reasoned valuation approaches can be entertained by the court. This decision in reality paves the way for more creative ways to approach such valuations.
The New Jersey Legislature recently amended New Jersey’s Fair Foreclosure Act to require loan servicers on residential mortgages to engage in consultations on short sales with prospective buyers, and to respond to short sale offers from buyers within certain periods. See A2060. Under the bill, which will take effect on September 19, 2017, a mortgage loan servicer is required to respond to a good faith offer from a seller, seller’s agent, or authorized third party to purchase the property through a short sale within 60 days of the date of the offer. A response would include an approval, a denial, or a request for further information. If the servicer does not approve a short sale or does not respond to the offer within 60 days, any deposit made by the potential buyer in connection with the purchase of the property will be refunded and the buyer will have no further obligation with respect to the property. The bill further amends the Fair Foreclosure Act to define “short sale” as “the sale of real property in which the lender or servicer agrees to release the lien that is secured by a residential mortgage on the property upon receipt of a lesser amount than is owed on the mortgage.” This amendment will not affect the servicer or debtor’s ability to participate in mediation or settlement regarding the mortgage at issue.
In Town of Islip v. Datre, --- F. Supp. 3d ----, 2017 WL 1157188 (E.D.N.Y. Mar. 28, 2017), the Eastern District of New York held that a defendant alleged to have “arranged for disposal or treatment … of a hazardous substance” must have had actual or constructive knowledge that the substance was hazardous in order to be liable under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). 42 U.S.C. § 9607(a)(3). While the Supreme Court’s seminal case on arranger liability, Burlington Northern & Santa Fe Railway v. U.S., carved out an exception to liability based on the defendant’s intent in entering the transaction (i.e., to sell a useful product vs. to dispose of a waste), Datre expands the exception to CERCLA liability based on the defendant’s knowledge of the nature of the waste. Datre holds that there can be no intent to dispose under Burlington Northern unless the alleged arranger knew, or should have known, that the substance was hazardous. Critics of this decision have noted that Datre’s inquiry into the defendant’s knowledge sits uneasily with CERCLA’s strict liability structure and could be vulnerable if appealed. Nevertheless, Datre and a few similar cases may offer relief to defendants who can plausibly claim that they did not know that the waste was hazardous.
Datre arose from a project to improve a park in the Long Island town of Islip. The Town of Islip alleged that during site development, various unauthorized actors disposed of construction and demolition debris containing hazardous substances in the park, which Islip then had to remove at a cost of $4 million. The arranger defendants are the waste brokers who procured the debris for the trucking firms that dumped it in the park.
The arranger defendants argued that they lacked Burlington Northern’s requisite intent, contending that they could not be held liable because Islip did not allege that they (1) knew that the material would be deposited in the park, or (2) knew that the material was hazardous. Islip countered that the arranger defendants intended that the material be disposed as waste, rather than sold as a useful product, and that this intent to dispose was sufficient for arranger liability.
The Court disagreed with the arranger defendants’ first argument, holding that whether the arranger defendants knew that the waste would be disposed in Islip’s park is irrelevant. The Court, however, agreed with the arranger defendants’ second argument and dismissed the complaint because Islip failed to allege that the arranger defendants knew, or should have known, that the construction and demolition debris contained hazardous substances.
The Court found support for its conclusion from a Wisconsin case, Appleton Papers Inc. v. George A. Whiting Paper Co., 2012 WL 270490 (E.D. Wis. July 3, 2012), aff’d sub nom., NCR Corp. v. George A. Whiting Paper Co., 768 F.3d 682 (7th Cir. 2014). The Wisconsin District Court wrote that “it seems doubtful that a defendant can ever be found to be an arranger if he did not know the substance in question is hazardous.” Notably, Appleton Papers’ discussion of knowledge was not essential to that court’s decision and, therefore, can be considered non-binding dicta. Nonetheless, the Court in Datre was persuaded and found that knowledge that a substance was hazardous is a required element of the intent to dispose under Burlington Northern.
As noted above, initial commentary has been critical of Datre. Courts long have interpreted CERCLA to impose strict liability; that is, a party that disposed of a hazardous substance must pay to clean it up regardless of fault. Datre, however, seems to engraft principles of fault onto the determination of arranger liability, particularly with its invitation to inquire whether a defendant should have known that a substance was hazardous. Datre also focuses on culpability. The Court notes that a defendant that did not know it was disposing of a hazardous substance is less culpable than a defendant selling a useful but hazardous product with knowledge that it would be spilled. Burlington Northern holds that the defendant in the latter scenario would not be liable, so the Court reasoned that the less culpable defendant that did not even know it was dealing with a hazardous substance should not be liable either. Typically, courts address these questions of fault and relative culpability when allocating CERCLA cleanup costs among multiple liable parties, not, as in Datre, when deciding whether a party is liable at all. In the typical case, a party that did not know the substance was hazardous might be required to pay less than another party that knew of the hazards, but the ignorant party still would have to pay something.
Although Datre contradicts the usual interpretations of CERCLA, a few other courts have been similarly lenient toward alleged arrangers that disposed of substances that an ordinary person might not expect to be hazardous. In Appleton Papers, the Wisconsin case relied on in Datre, Appleton Papers sold its unwanted PCB-containing paper scraps to other nearby paper mills before 1970. These recycling mills turned the scraps into marketable paper and in the process discharged PCB-laden effluent into the Fox River, which was subject to a multi-million dollar environmental cleanup of PCBs decades later. Although the Appleton Papers Court did not require that the defendant must have known of the exact hazard that eventually arises for liability to attach, selling apparently innocuous bales of paper containing PCBs before PCBs were known to be dangerous is quite different from the typical CERCLA case involving drums of flammable waste chemicals that self-evidently are hazardous. Appleton Papers Inc., 2012 WL 270490, at *11. In a New Jersey case, a developer that spread soils contaminated by pesticides from the land’s prior use as an orchard throughout its new residential development did not intend to dispose of a hazardous substance because the developer “was unaware of the contamination of the soils at the time it developed the Residential Lots.” Bonnieview Homeowners Ass’n v. Woodmont Builders, LLC, 655 F. Supp. 2d 473, 493 (D.N.J. 2009).
Although drawing a distinction between typical CERCLA waste—drums of discarded chemicals—and other unexpectedly hazardous waste generally is helpful to defendants, a narrow interpretation of Datre could provide cold comfort. For example, arguably both the arranger defendants in Datre and the developer in Bonnieview should have known that the substances disposed of could be hazardous, as urban construction and demolition debris often is contaminated and certain pesticides historically applied at farms and orchards now are regulated as hazardous substances. Nonetheless, Datre and other cases discussed herein indicate that some courts are inclined to relieve “unknowing” arrangers from liability, at least in cases where the hazardousness of the waste is not readily apparent.
In a growing mobile society, the issue of post-divorce relocation has gained momentum with New Jersey families. While certainly not a new legal issue, it is one that has become more prevalent as companies and employees become more transient due to evolutions of technology and politics. With these changes there has been growth in the disputes over whether a parent can relocate out of state with a child(ren) post-divorce.
Until the New Jersey Supreme Court revisited this issue in Bisbing v. Bisbing, (a-2-2016) 077533, decided August 8, 2017, the standard to be applied to an out-of-state disputed relocation case was set forth in Baures v. Lewis, a 2001 New Jersey Supreme Court case, and N.J.S.A. 9:2-2. The Baures standard was two-pronged. It first required the court to determine the true physical custodial arrangement or which parent exercises the majority of the custodial responsibilities (i.e. de facto joint custody, or a parent of primary residence (“PPR”) and a parent of alternate residence (“PAR”), or some other variation). In the case where there was joint custody, the court was to review the request under a best interest of the child analysis. Otherwise, the court was to review the request and determine whether it was being made in good faith and whether it would be inimical to the child’s interest. In this latter analysis, the burden was not stringent on a parent requesting relocation.
In the Bisbing opinion, written by Justice Patterson, the Supreme Court explained that it rarely changes its own rulings as our jurisprudence thrives on “stability and certainty to the law.” However, after a thorough explanation on how the Court used social science in support of the Baures decision, and how that social science may or may not be correct, a departure from precedent was justified. At the time of the Baures decision, the Court relied on social science research which, at the time, tied the best interests of the child to the custodial parent’s well-being. The Court also relied on what it characterized as a trend in the law “significantly easing the burden on custodial parents in removal cases.” Fast forward 16 years later and the Court has come to learn that “social scientists who have studied the impact of relocation on children following divorce have not reached a consensus. Instead, the vigorous scholarly debate reveals that relocation may affect children in many different ways.” The Court also found that “the progression in the law toward recognition of a parent of primary residence’s presumptive right to relocate with children…has not materialized.” Looking to other states for guidance, the Court noted that the majority of states utilized a best interests test for relocation applications. The Court further opined that by eliminating the two-prong test set forth in Baures, parties would have less impetus to fight over the parent of primary residence designation in bad faith. “By tethering the relocation standard to one party’s status as the parent of primary residence, the Baures standard may generate unnecessary disputes regarding the designation.” By requiring that the best interests of the child standard be applied regardless of joint physical custody or de facto joint custody, or a PPR v. PAR situation, where parents share legal custody, all requests are treated the same and the burden of proof remains the same for the parties.
N.J.S.A. 9:2-2 requires the showing of “cause” before a court that will authorize the permanent removal of a child to another state without consent of both parents. Bisbing now tells us that in all contested relocation disputes in which the parents share joint legal custody, courts should conduct a best interests analysis to determine “cause” under the statute.
In essence, the Supreme Court has raised the burden of proof to a higher standard for a parent seeking to relocate with a child(ren), out-of-state, post-divorce, without consent from the other parent. The Court provided for uniformity in its decision as this standard is to be applied regardless of custodial designation so long as there is shared (joint) legal custody.
Will this change in the law reduce or increase the number of disputes between parents regarding post-divorce, out of state relocations? Only time will truly tell. In the interim, we shall see how it impacts practitioners and litigants when drafting their settlement agreements.
The Court of Appeals of Texas recently affirmed a lower court’s decision granting summary judgment to a title insurance company, among others, holding that the insured lender’s deed of trust had been equitably subrogated to a first lien position and, accordingly, the insured had not suffered any damages as a result of an intervening lien. SeeFirst Bank Texas, SSB v. W. D. Welch, P.C., 2017 WL 2443132 (Tex. App. June 5, 2017). In the case, the lender issued a loan in connection with the purchase of a property, however, the deed of trust securing the loan was not recorded for six months. In the interim—before the insured lender’s deed of trust was recorded and before the existing deed of trust on the property was discharged—the State of Texas recorded a tax lien. Nonetheless, the insured lender’s deed of trust expressly stated that the lender was to be “subrogated to all of the rights, liens, and remedies of the holders of the indebtedness so paid” if its proceeds paid off any prior liens, which they did. The title insurance company then issued a policy that listed the tax lien as an exception to coverage. The insured lender filed an action against the title insurance company, among others, for fraud, negligence, breach of contract, and other causes of action, arguing that it was harmed because it did not hold the first lien on the property. While that lawsuit was pending, the property’s purchaser filed for bankruptcy, and the lender paid $100,000 to the State of Texas to subordinate the tax lien to the lender’s deed of trust.
The title insurance company and other defendants moved for summary judgment, and the trial court granted their motion. On appeal, the appellate court affirmed. First, it held that the lender could not prove any injury or damages because it “actually enjoyed first lien status under the doctrine of subrogation” because the proceeds from its loan had paid off the prior loan on the property. The Court dismissed the lender’s claim that it had suffered at least $100,000 in damages in the bankruptcy action because the State never argued it had a first lien position ahead of the lender. Second, the Court held that the title insurance company was not estopped from arguing subrogation based on the fact that the title insurance policy listed the tax lien as an exception. “[T]he issuance of a title policy generally does not create a representation regarding the status of the property’s title. . . . [and the defendants’] other actions merely acknowledged the tax lien was recorded before [the lender’s] deed of trust and not necessarily the status or priority between the various liens.” Accordingly, the title insurance company not estopped from making the subrogation argument and was entitled to prevail.
The United States District Court for the District of New Jersey recently granted defendant debt collector’s motion to dismiss a class action complaint alleging a violation of the Fair Debt Collection Practices Act (the “FDCPA”), 15 U.S.C. §1692 et seq.Judah v. Total Card, Inc., 2017 WL 2345636 (D.N.J. 2017). At issue in the case was a certain letter sent by defendant to plaintiff attempting to collect a debt (the “Collection Letter”). The Collection Letter offered to settle plaintiff’s debt through a single payment or through six monthly payments but also stated, “[t]he law limits how long you can be sued on a debt. Because of the age of your debt, [the owner of the debt] will not sue you for it, and [the owner of the debt] will not report it to any credit agency.” Plaintiff alleged that defendant’s Collection Letter was misleading because it failed to advise plaintiff that selecting either of the two options allegedly could create a new debt or contract and revive the statute of limitations. Plaintiff also argued that defendant’s offers would cause the least sophisticated consumer to be confused about whether the debt was still legally enforceable and the legal consequences of entering into such a payment plan. Specifically, although the Collection Letter stated that the owner of the debt would not sue plaintiff, defendant was not the owner of the debt, and the least sophisticated consumer might believe that defendant could still file a lawsuit. Defendant filed the motion to dismiss in lieu of an answer.
In granting defendant’s motion to dismiss, the Court noted that when a debt collector seeks to collect an amount owed, there is nothing improper about making a settlement offer and there is no indication from the language of the Collection Letter that defendant intended to create a new contract if plaintiff agreed to any payment plan. The Court considered the decision in Huertas v. Galaxy Asset Management, 641 F.3d 28 (3d Cir. 2011), where the Third Circuit Court of Appeals held that even if the statute of limitations expired, the FDCPA permits a debt collector to seek voluntary repayment of the time-barred debt so long as the debt collector does not initiate or threaten legal action in connection with its debt collection efforts. The Court rejected plaintiff’s arguments that Huertas is inapplicable and noted that that case as not been overturned and as such, “this Court is bound to follow the holding in that case.” The Court also held that a payment plan would not revive the time-barred debt because “[i]n New Jersey, . . . ‘the statute of limitations on a time-barred debt can only be revived if the debtor makes a written, unconditional promise to pay the full debt.’” Finally, the Court then held that the Collection Letter is not potentially misleading to the unsophisticated consumer because, among other things, the Collection Letter does not threaten to initiate legal action, does not make any false representations about the character, amount, or legal status of the debt, and uses very similar disclosure language to previously approved language. Therefore, there is no violation of Section 1692e. The Court, however, allowed plaintiff an opportunity to file an amended complaint.
