What Do You Get for the Plaintiff Who Has Everything? Maybe a Class Action, Ruled The Seventh Circuit

Perturbed by two allegedly unwanted faxes, Arnold Chapman brought a putative class action under the Telephone Consumer Protection Act (“TCPA”). For himself, he sought the most the statute could provide – $3,000, an injunction, and costs. ($3,000 represents $500 in statutory damages for each of the two faxes, trebled for an allegedly knowing or wilful violation.) The defendant offered Chapman $3,002, and the entry of an injunction, and costs. Chapman let the offer expire without accepting it. The District Court dismissed the case as moot.

Chapman appealed, and late last week, the Seventh Circuit reversed the lower court ruling. In Arnold Chapman v. First Index, Inc., the Seventh Circuit held that an expired offer of judgment does not moot an individual plaintiff’s claims. In so ruling, the panel reversed circuit precedent and aligned itself with the Second, Ninth, and Eleventh Circuits on the issue.

Per the court, “A case becomes moot only when it is impossible for a court to grant any effectual relief whatever to the prevailing party,” citing to Knox v. Service Employees International Union, 132 S. Ct. 2277, 2287 (2012). “Many other decisions say the same thing. By that standard, Chapman’s case is not moot. The district court could award damages and enter an injunction. Chapman began this suit seeking those remedies; he does not have them yet; the court could provide them.”

The court acknowledged that in other circumstances, an unaccepted offer of judgment would moot the case. Indeed, “If there is only one plaintiff, however, why should a court supply a subsidized dispute-resolution service when the defendant’s offer means that there’s no need for judicial assistance, and when other litigants, who do need the court’s aid, are waiting in a queue?” But in a class setting, “Settlement proposals designed to decapitate the class upset the incentive structure of the litigation by separating the representative’s interests from those of other class members.”

The Seventh Circuit sought to clarify the law in that circuit ahead of the same issues that will be presented for the Supreme Court in Campbell-Ewald Co. v. Gomez. Oral arguments in Campbell-Ewald v. Gomez are scheduled for October 14, 2015.

Meet Chris Christie’s Choice for Commissioner of Banking & Insurance for New Jersey

As part of a restructuring in his administration, New Jersey Governor and GOP Presidential Candidate Chris Christie has nominated Richard J. Badolato, formerly a private practice insurance litigator in Roseland, NJ, as the new Commissioner of the New Jersey Department of Banking and Insurance. Mr. Badolato has been serving as Acting Commissioner since August 1, 2015.

The New Jersey State Bar Association’s Banking Law Section, in conjunction with the New Jersey Bankers Association and the New Jersey Mortgage Bankers Association, will be hosting an Evening with the Commissioner on Thursday, September 17, 2015, at 6pm, in New Brunswick, NJ. This event will be a great opportunity for banking, insurance, and real estate professionals from throughout the region to meet the state’s new chief regulator for these key industries. In order to register for this unique and exciting event, please click here.

Mr. Badolato previously served as president of the New Jersey State Bar Association, president of the New Jersey State Bar Foundation, and Chairman for the Supreme Court Advisory Committee on Professional Ethics. Mr. Badolato graduated from Rutgers School of Law and Fairfield University.

The Banking Law Section is composed of several of New Jersey’s top banking and financial services practitioners, including current Section Vice Chair, Travis Nelson, and former Chair Robert Jaworski, both of Reed Smith’s Princeton Office.

Travis P. Nelson is a member of Reed Smith’s Financial Services Regulatory Group, and Co-Chair of the Anti-Money Laundering & Trade Sanctions Group, resident in the New York and Princeton offices. Travis is formerly an Enforcement Counsel with the Office of the Comptroller of the Currency, U.S. Treasury Department, and regularly represents clients in regulatory compliance, corporate governance, transactions, and examinations and enforcement actions. Travis is also adjunct faculty at Villanova Law School, where he teaches Financial Institutions Regulation, editor-in-chief of the ABA’s Banking Law Committee Journal, and Vice-Chair of the Banking Law Section of the New Jersey State Bar.

The European Securities and Markets Authority (ESMA) published advice on the extension of the Alternative Investment Fund Managers Directive (AIFMD) passport on 30 July 2015 (the Advice).

For Jersey and Guernsey, the ESMA Advice was positive: no obstacles exist to the extension of the AIFMD passport to these jurisdictions.  AIFMD Article 67 envisages that a delegated act will follow within three months to implement this advice.  However, the time-frame for this now appears to be uncertain.

The Advice notes that the Commission are obliged to adopt a delegated act extending the EU passport to non-EU AIFs and non-EU AIFMs within three months of receipt of positive advice from ESMA (although the date on which the rules will become applicable in all Member States will be specified within in the delegated legislation.  This date will be determined according to a number of listed criteria e.g. internal market, investor protection, risk monitoring). There are further provisions in AIFMD Article 58 that allow the European Parliament and Counsel to object to the delegated act within 3 months (increasing to 6 months if the European Parliament or Counsel request).

However, the press release issued by ESMA on publication of the Advice states that “the institutions may wish to consider waiting until ESMA has delivered positive advice on a sufficient number of non-EU countries before introducing the passport in order to avoid any adverse market impact that a decision to extend the passport to only a few non-EU countries may have”.

A total of 22 non-EU jurisdictions were identified for detailed assessment by ESMA on a country-by-country basis.  The Advice issued on 30 July 2015 relates to only 6 of these 22.  Only Jersey and Guernsey were the subject of ‘positive’ advice from ESMA, although pending national legislation will remove remaining obstacles in Switzerland shortly.  ESMA did not reach a definitive view on Hong Kong (more time required for assessment), Singapore and USA (ESMA recommended the EU delay a decision on these 2 jurisdictions).

In its view, ESMA does not have sufficient information in relation to the remaining 16 identified non-EU jurisdictions in order to perform the substantive assessment necessary to underpin any advice it issues pursuant to AIFMD Article 67(1)(b).

ESMA aims to finalise the assessments of Hong Kong, Singapore and the USA as soon as practicable and to assess further groups of non-EU countries – until it has provided advice on all the non-EU countries that it considers should be included in the extension of the passport.

Robert Jaworski Writes on National Credit Reporting Agencies Amending Practices

Reed Smith’s Robert Jaworski recently wrote an article on New York Attorney General Eric Schneiderman’s settlement agreement (Agreement) with the three national consumer reporting agencies (CRAs). In the article, he provides a summary of the Agreement and the impact of the settlement on CRAs, users of the credit reports, those that furnish the CRAs with information contained in the reports and consumers.

Robert Jaworski writes:  “Two recent studies – a 2012 study by the Federal Trade Commission and a 2014 study by the Consumer Financial Protection Bureau – concluded that a large percentage of credit reports provided by CRAs contain inaccuracies. These studies identified various causes for these inaccuracies, the most important being incomplete or inaccurate information provided by Furnishers or by consumers, fraud and identity theft, the processes used by the CRAs to match information requested by Furnishers to the correct consumer files, and the difficulties consumers experience when trying to rectify errors through the CRAs’ dispute processes.”

To read the full article from the June 2015 edition of E-Finance & Payments Law & Policy Journal, click here.

FCC Issues Omnibus Ruling on Host of Issues Affecting TCPA Litigation and Compliance

On July 10, 2015, the Federal Communications Commission (FCC) finally released its long awaited TCPA Omnibus Declaratory Ruling and Order, which resolved 21 petitions involving a wide variety of issues regarding the enforcement and interpretation of the Telephone Consumer Protection Act (TCPA). The FCC had voted in favor of the Ruling June 18 at an Open Meeting of the Agency’s five Commissioners, but the details of the Ruling were only summarized at the time. See June 19, 2015 Reed Smith Client Alert: FCC Finally Acts to Clarify Ambiguities in the TCPA. Now, we have the full 166 page document – which includes more than 550 footnotes – so we can report more definitively about the scope of the FCC’s Ruling.

To read the full client alert, please click here.

Supreme Court upholds ‘disparate impact’ under the FHA but emphasizes that claims cannot rely on statistics alone

In a much-anticipated decision, the U.S. Supreme Court held in Texas Department of Housing and Community Affairs v. Inclusive Communities Project (“Inclusive Communities”) that claims of disparate impact discrimination are cognizable under the Fair Housing Act (“FHA”). In the case, the Inclusive Communities Project (“ICP”) accused the Texas state housing agency of violating the FHA by causing continued segregated housing patterns through disproportionately allocating low-income housing tax credits. ICP alleged that Texas granting too many tax credits for developments in predominantly African American inner-city neighborhoods and too few in predominantly Caucasian suburban neighborhoods in the Dallas area resulted in a disparate impact based on race in violation of the FHA.

To read the full client alert, please click here.

FinCEN Speech Outlines “Core Principles” on Enforcement

A recent Reed Smith Client Alert discusses a June 2015 speech by Stephanie Brooker, Associate Director for Enforcement at the Financial Crimes Enforcement Network (“FinCEN”). Although Ms. Brooker’s comments were specifically directed at the casino and card club industries, she discussed six “core principles” that have and will continue to guide FinCEN’s BSA/AML enforcement activities against all financial institutions, including banks and mortgage lenders. In particular, the alert discusses FinCEN’s focus on transparency, supervisory goodwill, recidivism, targeting individual directors, officers, and other employees of regulated entities, developing a remedial framework to correct prior deficiencies, and accountability. As to this last point, the alert discusses the extent to which FinCEN – and other regulators (e.g., the OCC) – have required respondents to actually admit liability for the charged violations, rather than merely “neither admit nor deny” as has been the historical practice. Additionally, the alert discusses FinCEN’s expectations that regulated entities develop and exhibit a “culture of compliance.” While insured depository institutions will likely be familiar with this mantra, which has been sounded by federal bank regulators for decades, other regulated entities, such as mortgage lenders, money services businesses, and casinos, might not be accustomed to FinCEN’s expectations. To read the alert in full, click here.

Travis P. Nelson is a member of Reed Smith’s Financial Services Regulatory Group, and Co-Chair of the Anti-Money Laundering & Trade Sanctions Group, resident in the New York and Princeton offices. Travis is formerly an Enforcement Counsel with the Office of the Comptroller of the Currency, U.S. Treasury Department, and regularly represents clients in regulatory compliance, corporate governance, transactions, and examinations and enforcement actions. Travis is also adjunct faculty at Villanova Law School, where he teaches Financial Institutions Regulation, editor-in-chief of the ABA’s Banking Law Committee Journal, and Vice-Chair of the Banking Law Section of the New Jersey State Bar.

 

Travis Nelson Elected to Leadership Role in New Jersey Banking Bar

On May 15, 2015, the Banking Law Section of the New Jersey State Bar Association (“NJSBA”) held its annual meeting in Atlantic City, N.J., in conjunction with the NJSBA’s Annual Meeting. In addition to other informational and educational programs, the Banking Law Section conducted its biannual election of officers, electing Reed Smith’s Travis Nelson as vice chair. Travis, resident in Reed Smith’s Princeton and New York offices, is a member of the firm’s Financial Services Regulatory Group, and co-chair of the firm’s new Anti-Money Laundering and Trade Sanctions team. Travis is formerly an Enforcement Counsel with the Office of the Comptroller of the Currency, U.S. Treasury Department; editor-in-chief of the ABA’s Banking Law Committee Journal; and adjunct faculty at Villanova Law School, where he teaches Regulation of Financial Institutions. Travis regularly advises institutions and individuals on all aspects of financial services regulatory compliance, enforcement, and transactional issues.

Travis joins several other Reed Smith attorneys who have also served in leadership positions within the Banking Law Section. Specifically, Len Bernstein, chair of the firm’s Financial Services Regulatory Group, previously served as chair. Additionally, Princeton partner Robert Jaworski previously served as section chair.

The Banking Law Section includes practitioners from throughout New Jersey and beyond, who come from law firms, in-house positions, and other organizations. The section provides educational programs, as well as professional and social networking opportunities for its members and for the general public. In addition to the section’s board of directors, there are several committees with which non-board members can get involved. These committees are: Bank Regulatory, Financial Services Litigation, Financial Transactions, and Legislative. Contract Travis Nelson for more information on how to get involved in the Banking Law Section.

CFPB’s Federal Court Action Against PayPal Sheds Further Light on the Meaning of ‘Abusive’ Acts or Practices

On May 19, 2015, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) filed a complaint and proposed consent order against PayPal, Inc. and its subsidiary Bill Me Later, Inc. (collectively, “PayPal”) in the U.S. District Court for the District of Maryland. If approved by the court, the settlement will require PayPal to pay $15 million in redress to consumers and a $10 million civil money penalty. Although the case is not the largest settlement in CFPB history, it is interesting for at least two reasons: (1) it sheds important new light on the meaning of “abusive” acts and practices, which is slowly being defined through the CFPB’s enforcement actions; and (2) it continues a recent trend of filings in federal court instead of in an administrative proceeding.

To read the full client alert, please click here.

Nicholas F. B. Smyth is a member of Reed Smith’s Financial Industry Group, in the Pittsburgh and Washington, D.C., offices. Nick advises clients on examinations and investigations by the CFPB and other bank regulators. He can also advise clients on investigations and can represent them in litigation with the FTC, DOJ, and state attorneys general. Prior to joining Reed Smith, Nick spent four years as an Enforcement Attorney at the CFPB and a year at the U.S. Treasury Department, where he helped draft the statute that created the CFPB.

OCC Issues Final Rule on Integration of Federal Savings Association – National Bank Licensing Rules

Title III of the Dodd-Frank Act transferred to the OCC all functions of the former Office of Thrift Supervision (“OTS”) and the Director of the OTS relating to federal savings associations.  12 U.S.C. § 5412(b)(2)(C).  This effectively dissolved the OTS and brought the chartering and primary supervisory responsibilities as to federally chartered banks and savings associations under one agency.  As part of its efforts to streamline the supervisory process, reduce regulatory duplication, promote fairness in supervision, eliminate unnecessary burden consistent with safety and soundness, and create efficiencies for both national banks and federal savings associations, the OCC initiated a review of the existing separate regulations for the two types of institutions.  As part of this review, the OCC issued a notice of proposed rulemaking designed to integrate its rules relating to corporate activities and transactions involving national banks and federal savings associations.  See 79 Fed. Reg. 33260 (June 10, 2014).

On May 18, 2015, the OCC published in the Federal Register its final rule on integration of licensing-related regulations.  80 Fed. Reg. 28346 (May 18, 2015).  When the OCC speaks in terms of “licensing,” it is not referring to a license in the sense of receiving a license to engage in a certain activity.  Rather, it is referring to activities that are subject to review by the District Licensing Division of one of the OCC’s four regional districts.  The revised regulations will consolidate most licensing provisions for federal savings associations into the existing national bank rule in 12 C.F.R. Part 5, and eliminate several of the existing rules applicable only to federal savings associations.  For example, some of the consolidated rules are: (a) organizing an institution (§ 5.20); (b) charter conversion (§ 5.25); (c) fiduciary powers (§ 5.26); (d) business combinations (§ 5.33); (e) investments in bank service companies (§ 5.35); (f) investment in bank premises (§ 5.37); (g) change in location of main office (§ 5.40); (h) corporate title (§ 5.42); (i) voluntary liquidation (§ 5.48); (j) change in control (§ 5.50); (k) changes in directors and senior executive officers (§ 5.51); (l) change of address (§ 5.52); and (m) substantial asset change (§ 5.53).

While several of the regulations respecting licensing and other corporate activities will change, others will not.  Examples of regulations that will not change for federal savings associations include: (a) federal mutual savings association charter and bylaws (§ 5.21); (b) federal stock savings association charter and bylaws (§ 5.22); (c) conversion to become a federal savings association (§ 5.23); (d) establishment, acquisition, and relocation of a branch, or establishment of an agency office of a federal savings association (§ 5.31); (e) operating subsidiaries of a federal savings association (§ 5.38); (f) increases in permanent capital of a federal stock savings association (§ 5.45); (g) capital distributions by a federal savings association (§ 5.55); (h) inclusion of subordinated debt securities and mandatorily redeemable preferred stock as supplementary (tier 2) capital (§ 5.56); (i) pass-through investments by a federal savings association (§ 5.58); and (j) service corporations of federal savings associations (§ 5.59).  80 Fed. Reg. at 28347.

In addition to the integration of many of the regulations relating to licensing and corporate activities, the OCC is in the latter stages of developing an electronic applications filing system capable of handling applications and other filings from both national banks and federal savings association.  80 Fed. Reg. at 28346.  This is similar to the electronic filing system already in place for regulatory applications filed with the Federal Reserve System – “E-Apps.”  The transition from hard copy to an electric filing system will have substantial benefits akin to the transition among court systems from paper filing to electronic filing.  With respect to OCC filings and communications, the transition to electronic filing, combined with the OCC’s BankNet portal, will vastly simplify the way that banks and their advisors communicate with the OCC.

Travis P. Nelson is a member of Reed Smith’s Financial Services Regulatory Group, resident in the New York and Princeton offices. Travis is formerly an Enforcement Counsel with the Office of the Comptroller of the Currency, U.S. Treasury Department, and regularly represents clients in regulatory compliance, corporate governance, transactions, and examinations and enforcement actions. Travis is also adjunct faculty at Villanova Law School, where he teaches Financial Institutions Regulation, editor-in-chief of the ABA’s Banking Law Committee Journal, Vice-Chair of the Banking Law Section of the New Jersey State Bar, and president of the OCC Alumni Association.

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