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  • The Law of Electronic Signatures and Records, 2016 Edition
    May 18, 2016
    Margo H.K. Tank, David Whitaker, John P. Kromer, Jeremiah S. Buckley

    The Law of Electronic Signatures and Records is an essential guide to electronic signatures and records laws, including the context in which the laws were adopted and the ways in which the authors believe the drafters intended them to be interpreted. BuckleySandler attorneys Margo Tank, David Whitaker, John Kromer, and David Whitaker have more than 30 years combined experience that includes involvement with the drafting and passage of Electronic Signatures in Global and National Commerce Act (ESIGN), the preparation of the Uniform Electronic Transactions Act (UETA), the creation of SPeRS™ (the Standards and Procedures for electronic Records and Signatures), and serving as counsel to the Electronic Signatures and Records Association. Their insights are indispensable to anyone seeking to understand the impact of, and the liability associated with, using electronic signatures and electronic records.

    Click here to purchase the book from Thomson Reuters. 

  • The Butterfly Effect: eDiscovery in Government Investigations and Why Small Tweaks May Have Great Impacts
    May 12, 2016
    Caitlin M. Kasmar

    In the context of civil litigation, the rules governing eDiscovery may not be crystal clear (especially in light of the recent amendments to the Federal Rules), but at least there is ample guidance available.

    Counsel can perform simple research and identify troves of articles addressing how to leverage the Rules—and other actual law—to position themselves in the best way possible to either obtain all the information they seek or prevent the other side from imposing massive burdens on their clients.

    The world of government investigations is different. In this world, clients are motivated by one primary concern: to avoid being sued. In this world, the rules are not always clear.

    Ostensibly, the Federal Rules apply (see F.R.C.P. 81(a)(5)), but neither party wants to go to court over a pre-suit discovery issue.

    And often in this world of government investigations you are still engaging in a bend-over-backward effort to cooperate with what may be very burdensome requests, while at the same time strategizing how to limit the scope of the investigation.

    In government investigations, the need to understand the universe of relevant information is even more pressing and urgent than in civil litigation; you may quickly find yourself backed into a corner, making representations about systems you do not fully understand.

    Fortunately, a few tweaks to the process of responding to a subpoena can smooth the road ahead.

    Negotiate, Negotiate, Negotiate

    When a subpoena or civil investigative demand is issued by a government agency, chances are the issuing attorney is expecting the scope of the requests to be negotiated by company counsel.

    In fact, we hear regularly from government attorneys that the requests were ‘‘drafted broadly’’ with full knowledge that the two sides will come to a reasonable agreement as to what should actually be produced in the course of meet-and-confer discussions.

    This may seem an obvious point, but too many times we’ve been brought into active investigations where counsel handling the matter took the requests at facevalue and simply set about the work of collecting documents without engaging in a deep and substantive negotiation with the other side.

    It cannot be stressed enough—do not assume that you need to produce everything the subpoena requests on its face.

    Think hard about what the government might be looking for. Question your client carefully about what types of documents and information exist and whethe there is a sensible way to be responsive to the request without turning over the earth.

    Originally published in Bloomberg BNA; reprinted with permission.

  • A False Claims Act Win for the Banks
    May 11, 2016
    Andrew W. Schilling

    In the years following the financial crisis, the U.S. Department of Justice and the relators bar have aggressively used the False Claims Act to target banks and nonbank mortgage lenders and servicers, using increasingly creative theories of liability to hold these companies responsible for failing to adequately protect against financial loss to the government. Most recently, the Justice Department announced a settlement of $1.2 billion against Wells Fargo, which had been accused, among other things, of making false certifications to the U.S. Department of Housing & Urban Development in connection with its Federal Housing Administration lending program. In other cases involving FHA lending, the government has alleged that lenders lied not only about the quality of particular loans, but also when they made their annual compliance certifications to HUD, which broadly attest to compliance with FHA program requirements. This broad certification theory has met with fierce resistance by the mortgage industry, which insists that FCA liability cannot be premised on so broad a certification.

    Last week, the Second Circuit decided a case outside of mortgage lending that may give the banks some additional ammunition against such an aggressive use of compliance certifications in FCA cases.

    Background: The False Certification Theory and Mortgage Lending

    In the recent series of FCA cases involving government lending, the government has not alleged a discrete, intentional fraud on the government, but rather has alleged a programwide, “reckless” failure on the part of the defendants to adequately protect the government from financial loss. In other words, the companies find themselves in the crosshairs of DOJ enforcement not because someone lined their pockets from some targeted fraudulent scheme, but because the government found evidence of some broader regulatory noncompliance that, it asserted, led the government to pay money it should not have paid, such as insuring loans that it would not otherwise have insured or (in the conventional lending context) buying loans it would not otherwise have bought.

    But because mere regulatory noncompliance does not violate the FCA, the government has needed a hook to bring these cases under the rubric of the FCA. To that end, it has argued (successfully in several cases) that companies can be liable under the FCA for regulatory noncompliance if they make false certifications to the government that they were operating in compliance with the law or other federal program requirements when in fact they were not. This “false certification” theory of liability has posed a particular threat in the area of government-insured lending and servicing, where government agencies routinely require participating mortgagees to make broad certifications of regulatory compliance as a condition of participation in government programs.

    In defense to these cases, defendants typically argue that most routine compliance certifications are simply too broad to support liability for any particular instance of noncompliance, and that a particular instance of regulatory noncompliance (even if it occurred) does not render such a broad certification false, let alone materially false. They have also argued that the false certification theory requires not only a showing of noncompliance, but also that compliance was a “condition of payment” of the government’s claim.

    These two defenses have met with mixed success in the courts, with some courts willing to sustain complaints even when based on broad certifications of compliance, and some courts not requiring that the compliance be an explicit “condition of payment” of the claim. Faced with the prospect of treble damages, this level of uncertainty in the case law has surely contributed to the decision by some companies to settle these cases, often for hundreds of millions of dollars or more.

    Originally published on www.law360.com. Reprinted with permission.

  • Regulation Crowdfunding and Small Businesses: A Match Made in SEC-Regulated Heaven?
    May 2, 2016
    Tom Sporkin, Stephen M. LeBlanc, & Loyal T. Horsley

    The Dawn of a New Era in Capital Formation

    The need for crowdfunding regulation became apparent after the Securities and Exchange Commission issued a cease and desist order to stop a crowdfunding effort by two men seeking funds to purchase the Pabst Brewing Company in 2011. Two men set up a website, BuyaBeerCompany.com, and raised more than $200 million in an unregistered offering between November 2009 and February 2010 from more than five million people. [In the Matter of Michael Migliozzi II and Brian Williams Flatow, Securities Act of 1933 Release No. 33-9216, (June 8, 2011), https://www.sec.gov/litigation/admin/2011/33-9216.pdf]. Each individual received a ‘‘crowdsourced certificate of ownership’’ and were promised beer in an amount commensurate with their investment. However, BuyaBeerCompany.com never registered the transaction with the SEC and did not limit its solicitation to accredited investors. Nor did the offering fit within any exemption from the SEC’s registration rules.

    On May 16, 2016, the microcap financing landscape is set to change when the SEC’s new rules governing equity crowdfunding take effect. Equity crowdfunding is a form of financing by which companies can raise capital through relatively small contributions from large pools of individuals with the expectation that the investor will receive a financial reward if the company is profitable. This approach should not be confused with websites such as Kickstarter or DonorsChoose,which provide a tangible product, service, or other type of benefit to those who pledge money in support of the venture.

    Originally published in Bloomberg BNA; reprinted with permission.

  • What's Driving Regulation of Auto Ancillary Products
    May 2, 2016
    Jonice Gray Tucker, Kristopher Knabe, & Eric Chang

    Federal and state regulatory scrutiny of the automobile finance industry has accelerated over the last several months. The Consumer Financial Protection Bureau (CFPB or the Bureau) and the Department of Justice (DOJ) recently announced the fourth public resolution with an indirect auto finance company in a series of joint efforts to address perceived fair lending risks from discretionary pricing and compensation policies.

    Similarly, other federal and state regulators have increased their attention on the auto industry, taking a broad look at various practices. This heightened, industry-wide scrutiny is carrying over to another area that has been targeted by regulators—ancillary products sold in connection with automobiles. 

    Sales and marketing of ancillary or add-on products have been a top priority for regulators for more than five years—with regulators initially focusing on the offering of such products in connection with credit cards. Most enforcement actions relating to ancillary products have been predicated on allegations of unfair, deceptive, and/or abusive acts and practices (UDAAP or UDAP) — a broadly applied, subjective, and contextspecific theory of liability.

    Originally published in Bloomberg BNA; reprinted with permission.

Knowledge + Insights

  • Special Alert: Second Circuit Rules Fraud Claim Based on Contractual Promise Cannot Support FIRREA Violation Without Proof of Fraudulent Intent at Time of Contract Execution
    May 24, 2016

    On May 23, in an opinion delivered by Circuit Judge Richard Wesley, the Second Circuit Court of Appeals reversed the District Court for the Southern District of New York’s (SDNY) July 30, 2014 judgment ordering a bank and its lender subsidiary to pay penalties in excess of $1.2 billion for alleged violations of section 951 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), 12 U.S.C. § 1833a. U.S. v. Countrywide Home Loans, Inc., Nos. 15-469, 15-499 (2d Cir. May 23, 2016). In relevant part, FIRREA imposes civil penalties for violations of the federal mail and wire fraud statutes that affect a federally insured financial institution. The Government had alleged in the case that the lender subsidiary had defrauded Fannie Mae and Freddie Mac (collectively, the GSEs), by originating mortgage loans through its High Speed Swim Lane (HSSL) loan origination process that it allegedly knew to be of poor quality, and subsequently selling those loans to the GSEs despite representations in the contracts between the GSEs and lender subsidiary that the loans were of investment quality. At trial, the Government presented evidence that high-level employees of the lender subsidiary “knew of the pre-existing contractual representations, knew that the loans originated through HSSL were not consistent with those representations, and nonetheless sold HSSL Loans to the GSEs pursuant to those contracts.” The defendants argued on appeal that, under common-law principles of fraud the Government’s trial evidence proved, at most, a series of intentional breaches of contract which did not suffice as a matter of law to establish fraud.

    The Second Circuit agreed with defendants and reversed the judgment of the district court. The court held that:

    a contractual promise can only support a claim for fraud upon proof of fraudulent intent not to perform the promise at the time of contract execution. Absent such proof, a subsequent breach of that promise—even where willful and intentional—cannot in itself transform the promise into a fraud.

    Thus, the Second Circuit concluded that under common law principles, which were incorporated into the mail and wire fraud statutes, “the proper time for identifying fraudulent intent is contemporaneous with the making of the promise, not when a victim relies on the promise or is injured by it.” The Second Circuit further held that “where allegedly fraudulent misrepresentations are promises made in a contract, a party claiming fraud must prove fraudulent intent at the time of contract execution; evidence of a subsequent, willful breach cannot sustain the claim.”

    Click here to view the full Special Alert.

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Special Alert: SCOTUS Vacates Ninth Circuit Decision in Case Alleging Procedural FCRA Violations
    May 16, 2016

    On May 16, the United States Supreme Court issued an opinion vacating the Ninth Circuit’s 2014 ruling that a plaintiff had standing under Article III of the Constitution to sue an alleged consumer reporting agency as defined by the Fair Credit Reporting Act (FCRA), for alleged procedural violations of the FCRA, 15 U.S.C § 1681 et seq. Spokeo v. Robins, No. 13-1339 (U.S. May 16, 2016). According to plaintiff Thomas Robins, the reporting agency violated his individualized (rather than collective) statutory rights by reporting inaccurate credit information regarding Robins’s wealth, job status, graduate degree, and marital status in willful noncompliance with certain FCRA requirements. In a 6-2 opinion delivered by Justice Alito, the Court ruled that Robins could not establish standing by alleging a bare procedural violation because Article III requires a concrete injury even in the context of statutory violation. Here, the Ninth Circuit erred in failing to consider separately both the “concrete and particularized” aspects of the injury-in-fact component of standing. The Court opined that the Ninth Circuit’s analysis was incomplete:

    [T]he injury-in-fact requirement requires a plaintiff to allege an injury that is both “concrete and particularized.” Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., 528 U.S. 167, 180-181 (2000) (emphasis added). The Ninth Circuit’s analysis focused on the second characteristic (particularity), but it overlooked the first (concreteness). We therefore…remand for the Ninth Circuit to consider both aspects of the injury-in-fact requirement.

    Relying on case law, the Court emphasized that the “irreducible constitutional minimum” of Article III’s standing to sue relies on the plaintiff demonstrating (i) an injury-in-fact; (ii) that the injury is fairly traceable to the challenged conduct of the defendant; and (iii) that the injury is likely to be redressed by a favorable judicial decision. Lujan v. Defenders of Wildlife, 504 U.S., 560-561 (U.S. June 12, 1992); Friends of the Earth, Inc., 528 U.S., at 180-181. Spokeo primarily revolves around the first element, establishing an injury-in-fact. Again relying on Lujan, the Court reasoned that to establish injury-in-fact, the plaintiff must “show that he or she suffered ‘an invasion of a legally protected interest’ that is ‘concrete and particularized’ and ‘actual or imminent, not conjectural or hypothetical.’” Lujan, at 560. According to the Court, the Ninth Circuit’s discussion of Robins’s standing to sue, and in particular its discussion of whether Robins had articulated an individualized statutory right rather than a collective right, concerned only the particularization element of establishing an injury-in-fact. The Court stated that the Ninth Circuit’s standing analysis was incomplete because it had failed to consider whether the “concreteness” requirement for an injury-in-fact—whether Robins had a “real” and “not abstract” injury—also had been satisfied. While the Court did make clear that a concrete injury could be intangible and that Congress may identify intangible harms that meet minimum Article III requirements, it noted that “Congress’ role in identifying and elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.”

    The Court noted that because the Ninth Circuit had not fully distinguished concreteness from particularization, it had failed to consider whether the reporting agency’s procedural violations of the FCRA constituted a sufficient degree of risk to Robins to meet the concreteness standard. The Court observed that while a procedural violation of the FCRA may, in some cases, be sufficient to establish a concrete injury-in-fact, not all inaccuracies in consumer information, i.e. an incorrect zip code, cause harm or a material risk of harm. Further, because “Article III standing requires a concrete injury even in the context of a statutory violation” the Court explained that “Robins cannot satisfy the demands of Article III by alleging a bare procedural violation.”

    The Court vacated the Ninth Circuit’s judgment, and remanded the case for the Ninth Circuit to consider both aspects of the injury-in-fact requirement.

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

    Amanda Raines Lawrence, (202) 349-8089

    Fredrick Levin, (310) 424-3984

    Andrew Louis, (202) 349-8061

    Matthew Previn, (212) 600-2310

    Robyn Quattrone, (202) 349-8035

    Katherine Halliday, (202) 461-2996

  • Special Alert: CFPB Plans to Propose TRID Amendments in July
    April 29, 2016

    Director Cordray announced yesterday in a letter to industry trade groups that the CFPB has "begun drafting a Notice of Proposed Rulemaking (NPRM) on the Know Before You Owe Rule.” However, contrary to some reports, the proposal is not imminent. Instead, Director Cordray stated that the Bureau “hope[s] to issue the NPRM in late July,” which means that final amendments will likely come late in the year.

    In addition, it does not appear that the CFPB is contemplating extensive changes to the rule. Instead, the letter states that the Bureau plans to “incorporat[e] some of the bureau’s existing informal guidance, whether provided through webinar, compliance guide, or otherwise, into the regulation text and commentary” and to address “places in the regulation text and commentary where adjustments would be useful for greater certainty and clarity.”

    These amendments may be helpful insofar as they resolve ambiguities in the regulation and convert informal guidance into official interpretations that are binding on the CFPB and subject to a higher level of deference by the courts. It is not clear which issues the CFPB will address in the proposal or whether the Bureau will take up industry concerns about the limited ability of lenders to cure technical errors and the liability of purchasers of loans with such errors. However, Director Cordray did state that the Bureau “will arrange one or two meetings in late May or early June, but before the NPRM is issued, to discuss further with [the trade groups] the Know Before You Owe rule.”

    For additional information and resources on the TRID rule, please visit our TRID Resource Center.

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    Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.


    Benjamin K. Olson, (202) 349-7924

    Clinton R. Rockwell, (310) 424-3901

    Jeffrey P. Naimon, (202) 349-8030

    John P. Kromer, (202) 349-8040

    Joseph M. Kolar, (202) 349-8020

    Jeremiah S. Buckley, (202) 349-8010

    Joseph J. Reilly, (202) 349-7965

    Amanda Raines Lawrence, (202) 349-8089

    Melissa Klimkiewicz, (202) 349-8098

    Jonathan W. Cannon, (310) 424-3903

    Brandy A. Hood, (202) 461-2911

    Steven vonBerg, (202) 524-7893

  • Special Alert: CFPB Enters into First Consent Order with Online Payment Platform for Misrepresenting Data Security Practices
    March 3, 2016

    On March 2, the CFPB took action against an Iowa-based online payment platform and entered into a Consent Order for deceptive acts and practices relating to false representations regarding the company’s data security practices in violation of 1031(a) and 1036 (a)(1) of the Consumer Financial Protection Act of 2010. The CFPB ordered the company to pay a $100,000 fine and to take certain remedial steps to improve their cybersecurity practices. Notably, this action is the result of the company’s failure to have adequate controls in place; it is not the result of a breach incident. Similar to other regulators, the CFPB will likely pay increasing attention to cybersecurity and data privacy issues as the understanding of its significance grows.

    The Consent Order states that, despite representations to the contrary, the company (i) misrepresented the quality and efficacy of its cybersecurity and data privacy practices by stating that all personal data on its site was “safe” and “secure” and that its practices “exceeded” industry standards; (ii) did not properly encrypt consumer data; and (iii) failed to provide employees with sufficient cyber training.

    Click here to view the full Special Alert.

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    Questions regarding the matters discussed in this Alert may be directed to any of the persons listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.

  • Spotlight Article: California Supreme Court Holds that Borrowers Have Standing to Challenge an Allegedly Void Assignment of the Note and Deed of Trust in an Action for Wrongful Foreclosure
    February 19, 2016
    Fredrick S. Levin & Daniel Paluch

    Yesterday, the California Supreme Court held in Yvanova v. New Century Mortgage Corp, Case No. S218973 (Cal. Sup. Ct. February 18, 2016) that borrowers have standing to challenge an allegedly void assignment of a note and deed of trust in an action for wrongful foreclosure. In reaching this decision, the Court reversed the rule followed by the overwhelming majority of California courts that borrowers lacked such standing. The Court’s decision may have broad ramifications for lenders, investors, and servicers of California loans.

    The Court’s Holding

    In Yvanova, the borrower challenged the validity of her foreclosure on the ground that her loan was assigned into a securitized trust after the trust closing date set forth in the applicable pooling and servicing agreement, allegedly rendering the assignment void. To date, California courts have rejected hundreds of similar claims. In Yvanova, the Court held that “a borrower who has suffered a nonjudicial foreclosure does not lack standing to sue for wrongful foreclosure based on an allegedly void assignment merely because he or she was in default on the loan and was not a party to the challenged assignment.” Slip. Op. at 2. The Court’s ruling thus breathes new life into this favorite theory of the foreclosure defense bar.

    The Court’s Reasoning

    The Court acknowledged that the majority of California courts have held that borrowers do not have standing to challenge an allegedly void assignment because they are neither parties to, nor intended beneficiaries of, the assignment. Rather than adopt the majority approach, the Court based much of its decision on Glaski v. Bank of America, 218 Cal.App.4th 1079 (2013), in which the Fifth District Court of Appeal, on substantially similar facts, held that the question of standing turned on whether the alleged defect in the assignment, if proven, would render the assignment void altogether or merely voidable. Slip. Op. at 12. The parties to a voidable assignment have the power to ratify the defective assignment; parties to a void assignment have no such power. Id., at 10. In the former case, the Court would deny standing because the borrower would be asserting interests belonging solely to the parties to the assignment: only they have the power to ratify the assignment. Id. In the latter case, involving an allegedly void assignment, there would be no power of ratification, and thus the borrower would not be “asserting the interests of parties to the assignment; she [would be] asserting her own interest in limiting foreclosure on her property to those with legal authority to order a foreclosure sale.” Id., at 21.

    Potential Impact of the Court’s Decision

    Although a borrower’s standing to challenge an allegedly void assignment now appears settled under California law, the full impact of the decision will likely take some time to discern. By recognizing standing to challenge allegedly void assignments, the Court has clearly invited a substantial amount of wrongful foreclosure litigation. The statute of limitations for wrongful foreclosure is at least three years and, possibly longer, if a borrower can invoke the discovery rule or equitable tolling. See Cal. Code of Civ. Proc. § 338(d). Given the large number of securitized loans that have been foreclosed upon in California within the last several years, the number of possible claimants is potentially very large.

    Click here to read the full article on the BuckleySandler InfoBytes blog.