In a case of first impression with Constitutional implications, the Second Circuit found that a mortgagor had standing to sue under Article III of the Constitution in Federal Court for a lender’s violation of a state mortgage satisfaction statute. Maddox v. Bank of New York Mellon Tr. Co., N.A., 2021 WL 1846308 (2d Cir. May 10, 2021). In October 2000, the Maddox sisters entered into a mortgage loan on their property in Buffalo, which was later assigned to BNY Mellon. In September 2014, the property was sold, and in connection with that sale, the loan was paid off and the debt discharged on October 5, 2014. However, BNY Mellon failed to file a satisfaction of mortgage with the Erie County Clerk’s Office until nearly one year later, on September 22, 2015. This violated New York State's mortgage satisfaction statute, R.P.L. § 275(1), which requires the mortgage lender to file a certificate of discharge within 30 days of the full repayment of the debt. Despite the fact that R.P.L. § 275 is a State statute, the Maddoxes brought a putative class action against BNY Mellon in the United States District Court for the Western District of New York, seeking damages under R.P.L. § 275. BNY Mellon moved for judgment on the pleadings, arguing, among other things, that the Maddoxes lacked standing under Article III of the US Constitution, as the Maddoxes “suffered no actual damages in relation to the alleged failure to record the satisfaction” and thus “failed to plead a concrete harm.” The Maddoxes argued, in turn, that the Bank’s period of noncompliance impaired access to accurate financial information about them and created a false impression about their credit status during this period, and that it created a “sufficiently real risk of other concrete and particularized harms,” for example, a potential failure to obtain financing for other properties or damages to personal credit. They also argued that because the New York legislature recognized a right to be free of these harms by creating a state statute, and because these harms were similar to those which can be pleaded at common law, Article III standing could be found. The District Court agreed with the Maddoxes and denied BNY Mellon’s motion for judgment, but also certified the question for interlocutory appeal with the Second Circuit Court of Appeals.
On appeal, the Second Circuit in a split decision upheld the denial of the motion for judgment on the pleadings and agreed that the Maddoxes had Article III standing to bring their claim in federal court. The Court held that the New York statute at issue created a “legally protected interest” in a mortgagor’s right to a timely discharge as well as a “substantive right” to protect against the failure to receive a timely discharge, “permit[ting] individuals to seek judicial redress.” The Court additionally found that the Maddoxes’ allegations of potential “reputational harm” arising from the false impression that their debt was still due, and the potential “reduced creditworthiness” arising from the same showed a “concrete and particularized” harm sufficient to confer standing. Circuit Judge Dennis Jacobs filed a dissenting opinion in this matter, stating that “[b]y statute, New York creates a private right to collect an escalating cash penalty . . . up to $1500 . . . that’s it,” and that this penalty could easily be recovered in New York small claims court. Judge Jacobs also noted that the statute at issue did not provide for enforcement by class action, and that by allowing the Maddoxes to proceed in federal court, the Court facilitated “a spinning of wheels that advances no interest but that of counsel.” The majority attempted to counter this dissent in its opinion, stating that despite the relatively low penalty amount, the statute still “sought in part to protect mortgagors when it required timely recording” and that, as to the dissent’s class action concerns, “questions about potential aggregation of claims generally should have no bearing of the Article III standing inquiry[.]” Therefore, the Court found that the Maddoxes had standing and affirmed the District Court’s order denying BNY Mellon’s motion for judgment on the pleadings.
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