Commercial Banking, Collections, and Bankruptcy

In instant Chapter 11 bankruptcy proceeding, Dist. Ct. did not err in finding that creditor’s second mortgage that was secured by lien on debtor’s shopping center was valid claim, even though said mortgage was non-recourse loan, and there was no equity in shopping center available to creditor at time of bankruptcy filing. While debtor argued that said mortgage should have been disallowed as claim against estate under these circumstances, 11 USC section 1111(b)(1)(A) provides that instant second mortgage should be treated as if creditor had recourse against debtor since only precondition to statute’s application was that creditor have claim secured by lien on property of estate. Thus, creditor’s second mortgage should be treated as unsecured deficiency claim against estate.

Dist. Ct. did not err in dismissing plaintiff’s lawsuit seeking damages under Fair Debt Collection Practices Act (FDCPA), where plaintiff alleged that defendant-collector violated venue provisions of FDCPA by bringing collection action in different township than where either plaintiff was located or debt arose. Under Indiana court system, township/small claims court within Marion County, where instant collection action was filed, has countywide jurisdiction, such that there was no violation of venue provision of FDCPA, even though defendant filed collection action in different township within Marion County than where contract was signed, since: (1) debt arose in and instant township court was located within Marion County; and (2) township courts within Marion County are not separate, freestanding FDCPA judicial districts. (Dissent filed.)

Dist. Ct. erred in granting plaintiff-lender’s motion for summary judgment in action alleging that defendant breached loan subordination agreement calling for plaintiff to be paid by third-party corporation on plaintiff’s loan with corporation before corporation could pay defendant on his loan with corporation, where record showed that defendant had attempted to loan money to corporation and where corporation returned said funds to defendant, but only after said funds had appeared on corporation’s financial records. Record contained triable issue as to whether corporation had accepted any “loan” from defendant so as to constitute violation of subordination agreement when corporation returned defendant’s funds, where individual at corporation who accepted defendant’s funds lacked authority to do so. Ct. noted though that issue remained as to whether corporation actually accepted defendant’s loan through its actions, where said funds appeared on its daily collateral report that was sent to plaintiff, and where there was some evidence that, prior to returning funds to defendant, corporation used defendant’s funds to pay down line of credit and to take subsequent money advances.

In action alleging that defendant breached master contract that gave plaintiff first right of refusal to provide lease financing for defendant’s customers arising out of clause in contract that expressly warranted that “all lease transactions presented to [plaintiff] are valid,” Ct. of Appeals certified question to Minnesota Supreme Court where: (1) record showed that 6-year lease presented to plaintiff from defendant’s Illinois municipal customer was invalid under Illinois law; and (2) defendant argued that there could be no breach of contract since subject matter of warranty was representation of law as opposed to fact. While Dist. Ct. granted defendant’s motion to dismiss based on defendant’s argument, Ct. of Appeals certified question where it was uncertain as to Minnesota Supreme Court’s resolution as to whether representations of law are ever enforceable under contract or warranty law.

Dist. Ct. did not err in dismissing for failure to state viable claim for relief plaintiff’s action under sections 1692b(2) and 1692f of FDCPA, where plaintiff alleged that defendant telephoned him about alleged debt of his mother, under circumstances where defendant’s representative discussed said debt without asking plaintiff how to reach his mother. Plaintiff lacked standing to sue for violation of section 1692b(2), which prohibits debt collectors from disclosing consumer’s debt to third parties, since said section protects only person whose debt was disclosed. Moreover, while plaintiff could sue defendant under section 1692f, which prohibits debt collectors from using unfair or unconscionable collection practices, instant allegations were insufficient to state viable claim where allegations were too tepid to constitute unfair collection practice, especially where defendant did not request that plaintiff pay instant debt or otherwise threaten plaintiff.

Dist. Ct. erred in decertifying class action alleging violation of Electronics Funds Transfer Act, where defendant-owner of two ATMs allegedly failed to post sticker on machine to alert user of existence of $3 fee to use ATM. While damages in instant class action would total only $10,000, such that class members would only receive $3.57 per ATM transaction if class action were successful, instant small remedy was not sufficient reason to decertify class, even though individual class members could receive at least $100 statutory damages per transaction if allowed to proceed against defendant individually. Moreover, class representative’s service of potential class members via publication in local newspaper and website was sufficient to satisfy notice provisions set forth in Rule 23(c)(2)(B).

Bankruptcy Judge did not err in granting motion for summary judgment by defendants-investors of debtor, even though plaintiff-Trustee asserted that debtor’s payments to defendants, who redeemed shares in Fund operated by debtor, constituted either preferential payment under 11 USC section 547 or fraudulent conveyance under 11 USC section 544. Under section 546(e) of Bankruptcy Code, trustee may not avoid settlement payment or transfer made to financial participant in connection with securities contract, and plaintiff conceded that defendants qualified as “financial participants” when redeeming shares of instant Fund. Ct. further noted that trustee did not invoke exception to prohibition contained in section 546(e), i.e., payments made with actual intent to defraud any entity to which debtor became indebted, even though record suggested that instant Fund eventually played role in Ponzi scheme.

Dist. Ct. erred in rejecting Bankruptcy Trustee’s claims against creditor in Chapter 11 adversary proceeding that essentially sought to set aside creditor’s lien with respect to $312 million in loans made by creditor to debtor, where debtor improperly pledged its customer’s segregated accounts as collateral for said loans in effort to cover debtor’s in-house trading activities, and where Trustee argued that creditor was aware of debtor’s fraudulent activities, and yet loaned money to debtor anyway. While Dist. Ct. believed that debtor’s pledge of segregated funds did not constitute fraudulent transfer since debtor did not “intend” to deprive customers of their funds at time of pledge, Ct. of Appeals found that such pledge demonstrated actual intent to hinder, delay or defraud debtor’s customers sufficient to set aside instant lien since said pledge exposed customers to substantial risk of loss of which they were unaware, and since debtor was aware that said pledge of segregated funds violated Commodity Exchange Act. Moreover, Dist. Ct. improperly dismissed Trustee’s equitable subordination claim regarding creditor’s lien where record contained some evidence that creditor was aware that debtor was engaging in wrongful conduct prior to making instant loans. Thus, remand was required for hearing as to extent of creditor’s knowledge of debtor’s wrongful conduct.