Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations
Section Content

Upcoming Events

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • Trump issues Executive Order removing ALJs from competitive service

    Federal Issues

    On July 10, President Trump issued an Executive Order (EO) excepting Administrative Law Judges (ALJs) from the federal government’s competitive hiring service. The EO is in response to the recent Supreme Court decision in Lucia v. SEC, which held that ALJs are “inferior officers” subject to the Appointments Clause of the Constitution. (Previously covered by InfoBytes here.) The EO allows federal agencies to hire ALJs without going through the Office of Personnel Management (OPM) competitive selection process, which will give agencies the ability to select candidates who meet the agency’s specific needs— providing greater “flexibility and responsibility for ALJ appointments,” according to the White House announcement. The announcement emphasizes that the EO “reduces the legal uncertainty” over new ALJ appointments under the Appointments Clause in order to safeguard agencies’ enforcement of federal laws.

    Federal Issues ALJ U.S. Supreme Court SEC Trump Executive Order

    Share page with AddThis
  • International bank must maintain $500 million bond securing $806 million RMBS judgment

    Courts

    On July 5, the U.S. District Court for the Southern District of New York issued a memorandum opinion and order stating that an international bank must maintain the $500 million bond it had filed in 2015 to secure $806 million in damages owed to the Federal Housing Finance Agency for selling allegedly faulty residential mortgage-backed securities to Fannie Mae and Freddie Mac. The court had stayed execution of the judgment pending appeal, and the stay expired on July 5, following the Supreme Court’s denial without comment of the bank’s petition for writ of certiorari. (See previous InfoBytes coverage here.) According to the district court opinion and order, the bank maintained that the stay order required the bond to remain in effect only through July 5, even though the bank was not required to pay the final judgment until July 20. The court disagreed, explaining that a “more natural reading of the [s]tay [o]rder and the [b]ond together is that the [b]ond must remain in place until two conditions are met: (1) the stay of execution ends and (2) the [f]inal [j]udgment is satisfied. Condition 1 has now been met, but not condition 2.” The court added that the bank is free to satisfy the final judgment prior to its July 20 due date, at which point the bond could be dissolved prematurely.

    Courts FHFA RMBS Bond U.S. Supreme Court Fannie Mae Freddie Mac

    Share page with AddThis
  • Supreme Court upholds credit card company’s anti-steering provisions

    Courts

    On June 25, the U.S. Supreme Court in a 5-4 vote held that a credit card company did not unreasonably restrain trade in violation of the Sherman Act by preventing merchants from steering customers to other credit cards. As previously covered by InfoBytes, in September 2016, the U.S. Court of Appeals for the 2nd Circuit considered the non-steering protections included in the credit card company’s agreements with merchants and concluded that such provisions protect the card company’s rewards program and prestige and preserve the company’s market share based on cardholder satisfaction. Accordingly, the 2nd Circuit concluded that “there is no reason to intervene and disturb the present functioning of the payment‐card industry.” In June 2017, a coalition of states, led by Ohio, petitioned the Supreme Court to review the 2nd Circuit decision, arguing the credit card industry’s services to merchants and cardholders are not interchangeable and therefore, the credit card market should be viewed as a two-sided market, not a single market. The Supreme Court disagreed with the petitioners’ arguments, finding that the credit card industry is best viewed as one market. The court reasoned that while there are two sides to the credit card transaction, credit card platforms “cannot make a sale unless both sides of the platform simultaneously agree to use their services,” resulting in “more pronounced indirect network effects and interconnected pricing and demand.” Accordingly, the two-sided transaction should be viewed as a whole for purposes of assessing competition. The court further concluded that the higher merchant fees the credit card company charges result in a “robust rewards program” for cardholders, causing the company’s anti-steering provisions to not be inherently anticompetitive, but in fact to have “spurred robust interbrand competition and has increased the quality and quantity of credit-card transactions.”

    Courts U.S. Supreme Court Credit Cards Antitrust Appellate Second Circuit

    Share page with AddThis
  • Supreme Court rejects review of $806 million RMBS judgment

    Courts

    On June 25, the Supreme Court denied without comment an international bank’s petition for writ of certiorari to challenge the $806 million in damages awarded by the Federal Housing Finance Agency (FHFA) for selling allegedly faulty mortgage-backed securities to Fannie Mae and Freddie Mac. As previously covered by InfoBytes, in September 2017, the U.S. Court of Appeals for the 2nd Circuit affirmed the New York District Court’s ruling requiring the $806 million payment. Both lower courts concluded that the marketing prospectus used to sell the mortgage securities to Fannie and Freddie between 2005 and 2007 contained “untrue statements of material fact,” including false statements regarding the underlying loans’ compliance with underwriting standards related to the creditworthiness of borrowers and appraisal value of the properties.  

    Courts U.S. Supreme Court Writ of Certiorari RMBS FHFA Appellate Second Circuit Fannie Mae Freddie Mac

    Share page with AddThis
  • HUD publishes ANPR on Disparate Impact Regulation

    Agency Rule-Making & Guidance

    On June 20, HUD published an advance notice of proposed rulemaking (ANPR) in the Federal Register seeking comment on potential amendments to its the 2013 Disparate Impact Regulation, which implements the Fair Housing Act’s disparate impact standard, as well as the 2016 Application of the Fair Housing Act’s Discriminatory Effects Standard to Insurance (supplement). The notice requests comments on whether the 2013 regulation and the 2016 supplement are consistent with the 2015 Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.  (Covered by a Buckley Sandler Special Alert.) While HUD is seeking feedback on any potential changes to the regulation, the agency is particularly interested in, among other things, (i) whether the burden-shifting framework appropriately assigns burdens of production and persuasion; and (ii) whether the regulation should provide defenses or safe harbors to claims of liability. Comments on the notice are due by August 20. 

    Agency Rule-Making & Guidance Federal Issues HUD FHA Disparate Impact Fair Lending U.S. Supreme Court

    Share page with AddThis
  • Supreme Court holds SEC ALJs are subject to the Appointments Clause of the Constitution

    Courts

    On June 21, the U.S. Supreme Court held, in Lucia v. SEC, that SEC administrative law judges (ALJs) are “inferior officers” subject to the Appointments Clause (Clause) of the Constitution. The case began when the SEC instituted an administrative proceeding against the petitioner resulting in a decision by the ALJ imposing sanctions against the petitioner, including civil penalties of $300,000 and a lifetime bar from the investment industry. On appeal, the D.C. Circuit Court of Appeals upheld the ALJ’s sanctions and rejected the petitioner’s argument that ALJs are officers of the United States and therefore subject to provisions of the Clause, including the requirement that officers be appointed by the president, the head of a department, or a court of law. The D.C. Circuit decision conflicts with subsequent decisions by the U.S. Court of Appeals for the 10th and 5th Circuits (available here and here).

    In a 6-3 decision, the Supreme Court reversed the D.C. Circuit decision, holding that ALJs are “Officers of the United States” subject to the Clause under the framework the Court used in Freytag v. Commissioner (concluding that U.S. Tax Court “special trial judges” are officers subject to the Clause). In support of this holding, the majority noted that ALJs receive a career appointment, exercise “significant discretion,” and if the SEC decides against reviewing a decision, their decisions become final and are “deemed the action of the Commission.”

    Notably, the ALJ that presided over the petitioner’s case is the same ALJ that presided over the CFPB’s claims against PHH, which ultimately lead to the D.C. Circuit’s en banc decision in PHH v. CFPB and the CFPB’s subsequent dismissal of the action (covered by Buckley Sandler here and here).

    Courts U.S. Supreme Court ALJ SEC PHH v. CFPB

    Share page with AddThis
  • Supreme Court says states can legalize sports gambling

    Courts

    On May 14, the U.S. Supreme Court held that the 1992 Professional and Amateur Sports Protection Act (PASPA), which, among other things, bans most states from authorizing sports gambling, violates the 10th Amendment “anticommandeering” principle. The decision results from a lawsuit filed by the National Collegiate Athletic Association (NCAA) and four major professional sports leagues alleging that a 2012 New Jersey state law legalizing sports betting violated PASPA. The district court and the U.S. Court of Appeals for the 3rd Circuit agreed with the NCAA and New Jersey revised the law in 2014. The new law removed existing bans on sports gambling at horseracing tracks, casinos, and gambling houses in Atlantic City as long as the wagers did not involve New Jersey college teams or a collegiate event in the state. The NCAA filed suit again and the district court, with the 3rd Circuit affirming, held that the revised law violated PASPA. New Jersey appealed to the Supreme Court, arguing that PASPA violates the “anticommandeering” principle of the Constitution.

    In a 7-2 vote, the Supreme Court reversed the lower court’s decision, holding that the PASPA provision, which prohibits state authorization of sports gambling, “unequivocally dictates what a state legislature may and may not do.” The Court rejected the NCAA’s argument that PASPA preempts, not commandeers, state laws that conflict with its provisions, concluding that preemption applies to private actors and the prohibition cannot be understood “as anything other than a direct command to the States.” The Court went on to hold that no provision of PASPA is severable from the anti-authorization provision and, therefore, the entire law should be struck down. The majority acknowledged that the legalization of sports gambling is an important, yet controversial, policy choice but not a choice for the Court to make. “Congress can regulate sports gambling directly, but if it elects not to do so, each State is free to act on its own.”

    Courts U.S. Supreme Court State Issues

    Share page with AddThis
  • HUD announces plan to seek public comment on Disparate Impact Regulation

    Federal Issues

    On May 10, the Department of Housing and Urban Development announced its intention to seek public comment on whether the 2013 Disparate Impact Regulation (Regulation), which provides a framework for establishing legal liability for facially neutral practices that have a discriminatory effect under the Fair Housing Act (FHA), is consistent with the 2015 Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.  (Covered by a Buckley Sandler Special Alert.) The Supreme Court upheld the use of a disparate impact theory to establish liability under the Fair Housing Act, but according to HUD’s announcement, the Court only referenced the Regulation in its ruling but did not directly rule upon it.

    As previously covered by InfoBytes, in October 2017, the Treasury Department called on HUD to reconsider the Regulation as it relates to the insurance industry – specifically, to homeowner’s insurance.

     

    Federal Issues HUD FHA Disparate Impact Fair Lending U.S. Supreme Court Mortgages Mortgage Insurance

    Share page with AddThis
  • District court applies Supreme Court standard to dismiss Dodd-Frank whistleblower claims

    Courts

    On April 19, the U.S. District Court for the District of New Jersey dismissed a fired executive’s suit against a global financial services firm alleging whistleblowing retaliation claims under Dodd-Frank under the standard set by the U.S. Supreme Court ruling in Digital Realty Trust Inc. v. Somers. (See Buckley Sandler Special Alert on Supreme Court Decision here.) Specifically, the U.S. District court lifted a stay, which the court had imposed pending a decision in Digital Realty Trust, and granted the defendant’s motion to dismiss with prejudice. Noting that the purpose of Dodd-Frank’s anti-retaliation provisions is “to incentivize individuals … to come forward and provide information of securities law violations to the SEC,” the court determined that the plaintiff “had ample time between when he first learned of the violations and his termination to report the misconduct to the SEC,” but he chose not to lodge claims “until well after the fact of the alleged securities violations, his testimony to FINRA and his own termination.” The court also rejected the argument that testimony given to FINRA is sufficient to invoke Dodd-Frank’s whistleblower protections, noting that the plaintiff’s testimony to FINRA “plainly” did not meet statutory requirements.

    Courts Whistleblower U.S. Supreme Court Dodd-Frank Anti-Retaliation SEC

    Share page with AddThis
  • 9th Circuit denies online retailer’s petition for full panel review of decision on standing in data breach case

    Courts

    On April 20, the U.S. Court of Appeals for the 9th Circuit denied an online retailer’s request to have the full bench reconsider the court’s March 8 ruling, which ruling held that the increased risk of fraud or identity theft from a data breach gave consumers Article III standing to sue. As previously covered by InfoBytes, the underlying action results from a 2012 data breach affecting over 24 million shoppers. Previously, the three-judge panel held that the district court erred in dismissing claims brought by consumers who did not allege financial losses as a result of the data breach because, among other things, the stolen information provided hackers the “means to commit fraud or identity theft.” The online retailer appealed the decision, asking the full panel to review. The panel disagreed, upholding the previous decision that the plaintiffs sufficiently alleged the risk of future harm.

    Courts Ninth Circuit Appellate Privacy/Cyber Risk & Data Security Data Breach Class Action U.S. Supreme Court

    Share page with AddThis

Pages