Justia U.S. Supreme Court Opinion Summaries

Articles Posted in Banking
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Following the 2007-2009 “Great Recession,” the Federal Deposit Insurance Corporation (FDIC) brought an enforcement action against Calcutt, the former CEO of a Michigan-based community bank, for mismanaging one of the bank’s loan relationships. The FDIC ultimately ordered Calcutt removed from office, prohibited him from further banking activities, and assessed $125,000 in civil penalties.The Sixth Circuit agreed that Calcutt had proximately caused the $30,000 charge-off on one loan because he had “participated extensively in negotiating and approving” the transaction. The court concluded that $6.4 million in losses on other loans were a different matter and that none of the investigative, auditing, and legal expenses could qualify as harm to the bank, because those expenses occurred as part of its “normal business.” Despite identifying these legal errors in the FDIC analysis, the Sixth Circuit affirmed the FDIC decision, finding that substantial evidence supported the sanctions determination, even though the FDIC never applied the proximate cause standard itself or considered whether the sanctions against Calcutt were warranted on the narrower set of harms that it identified.The Supreme Court reversed. It is a fundamental rule of administrative law that reviewing courts must judge the propriety of agency action solely by the grounds invoked by the agency. An agency’s discretionary order may be upheld only on the same basis articulated in the order by the agency itself. By affirming the FDIC’s sanctions against Calcutt based on a legal rationale different from that adopted by the FDIC, the Sixth Circuit violated these commands. View "Calcutt v. Federal Deposit Insurance Corporation" on Justia Law

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The Disputed Instruments, prepaid financial instruments used to transfer funds to a named payee, are sold by banks on behalf of MoneyGram and others. When these instruments are not presented for payment within a certain period of time, they are deemed abandoned. MoneyGram applies the common-law escheatment practices outlined in 1965 by the Supreme Court: The proceeds of abandoned financial products should escheat to the state of the creditor’s last known address, or where such records are not kept, to the state in which the company holding the funds is incorporated. MoneyGram does not keep records of creditor addresses but transmits the abandoned proceeds to its state of incorporation. States invoked the Supreme Court’s original jurisdiction to determine whether the abandoned proceeds of the Disputed Instruments are governed by the Disposition of Abandoned Money Orders and Traveler’s Checks Act (FDA), which provides that a money order or “similar written instrument (other than a third-party bank check)” should generally escheat to the state in which the instrument was purchased, 12 U.S.C. 2503.The Court held that the Disputed Instruments are sufficiently similar to money orders to fall within the FDA’s “similar written instrument” category. Being prepaid makes them likely to escheat. The FDA was passed to abrogate common law because, for instruments like money orders, the entities selling such products often did not keep records of creditor addresses, resulting in a “windfall” to the state of incorporation. Bank liability is not a trigger for exclusion, given that banks can be liable on money orders, which are expressly covered. Whatever the intended meaning of “third-party bank check,” it cannot be read broadly to exclude prepaid instruments that escheat inequitably due to the business practices of the company holding the funds. View "Delaware v. Pennsylvania" on Justia Law

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The Bank Secrecy Act requires U.S. persons with financial interests in foreign accounts to file an “FBAR” annual Report of Foreign Bank and Financial Accounts; 31 U.S.C. 5314 delineates legal duties while section 5321 outlines the penalties, with a maximum $10,000 penalty for non-willful violations. Bittner—a dual citizen of Romania and the U.S.—learned of his reporting obligations in 2011 and subsequently submitted reports covering 2007-2011. The government deemed Bittner’s late reports deficient because they did not address all accounts as to which Bittner had either signatory authority or a qualifying interest. Bittner filed corrected FBARs providing information for 61 accounts in 2007, 51 in 2008, 53 in 2009 and 2010, and 54 in 2011. The government asserted that non-willful penalties apply to each account not accurately or timely reported. Bittner’s reports collectively involved 272 accounts; the government calculated a $2.72 million penalty. The Fifth Circuit affirmed.The Supreme Court reversed. The $10,000 maximum penalty for non-willful failure to file a compliant report accrues on a per-report, not a per-account, basis. Section 5314 does not address accounts or their number. An individual files a compliant report or does not. For cases involving willful violations, the statute tailors penalties to accounts. When one section of a statute includes language omitted from a neighboring section, the difference normally conveys a different meaning. The Act's implementing regulations require individuals with fewer than 25 accounts to provide details about each account while individuals with 25 or more accounts do not need to list each account or provide account-specific details unless requested by the Secretary. View "Bittner v. United States" on Justia Law

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The McCarthy law firm was hired to carry out a nonjudicial foreclosure on Obduskey’s Colorado home. Obduskey invoked the Fair Debt Collection Practices Act (FDCPA) provision, 15 U.S.C. 1692g(b), providing that if a consumer disputes the amount of a debt, a “debt collector” must “cease collection” until it “obtains verification of the debt” and mails a copy to the debtor. Instead, McCarthy initiated a nonjudicial foreclosure action.The Tenth Circuit and Supreme Court affirmed the dismissal of Obduskey’s suit, holding that McCarthy was not a “debt collector.” A business engaged in only nonjudicial foreclosure proceedings is not a “debt collector” under the FDCPA, except for the limited purpose of section 1692f(6). The FDCPA defines “debt collector” an “any person . . . in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts.” The limited-purpose definition states that “[f]or the purpose of section 1692f(6) . . . [the] term [debt collector] also includes any person . . . in any business the principal purpose of which is the enforcement of security interests.” McCarthy, in enforcing security interests, is subject to the specific prohibitions contained in 1692f(6) but is not subject to the FDCPA’s main coverage. Congress may have chosen to treat security-interest enforcement differently from ordinary debt collection to avoid conflicts with state nonjudicial foreclosure schemes; this reading is supported by legislative history, which suggests that the present language was a compromise between totally excluding security-interest enforcement and treating it like ordinary debt collection. View "Obduskey v. McCarthy & Holthus LLP" on Justia Law

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Shaw used identifying numbers of Hsu's bank account in a scheme to transfer funds from that account to accounts at other institutions from which Shaw was able to obtain Hsu’s funds. Shaw was convicted under 18 U.S.C. 1344(1), which makes it a crime to “knowingly execut[e] a scheme . . . to defraud a financial institution.” The Ninth Circuit affirmed. A unanimous Supreme Court vacated and remanded for consideration of whether the district court improperly instructed the jury that a scheme to defraud a bank must be one to deceive the bank or deprive it of something of value, instead of one to deceive and deprive. The Court rejected Shaw’s other arguments. Subsection (1) of the statute covers schemes to deprive a bank of money in a customer’s account. The bank had property rights in Hsu’s deposits as a source of loans from which to earn profits or as a bailee. The statute requires neither a showing that the bank suffered ultimate financial loss nor a showing that the defendant intended to cause such loss. Shaw knew that the bank possessed Hsu’s account, Shaw made false statements to the bank, Shaw believed that those false statements would lead the bank to release from that account funds that ultimately, wrongfully ended up with Shaw. Shaw knew that he was entering into a scheme to defraud the bank even if he was not familiar with bank-related property law. Subsection (2), which criminalizes the use of “false or fraudulent pretenses” to obtain “property . . . under the custody or control of” a bank, does not exclude Shaw’s conduct from subsection (1). View "Shaw v. United States" on Justia Law

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Hana Financial and Hana Bank both provide financial services to individuals in the U.S. When Hana Financial sued Hana Bank for trademark infringement, Hana Bank invoked the tacking doctrine, under which lower courts have provided that a trademark user may make certain modifications to its mark over time while, in limited circumstances, retaining its priority position. The district court adopted in substantial part the jury instruction on tacking proposed by Hana Bank. The jury returned a verdict in Hana Bank’s favor. Affirming, the Ninth Circuit explained that the tacking inquiry was an exceptionally limited and highly fact-sensitive matter reserved for juries, not judges. A unanimous Supreme Court affirmed. Whether two trademarks may be tacked for purposes of determining priority is a jury question. Lower courts have held that two marks may be tacked when they are considered to be “legal equivalents,” i.e., they “create the same, continuing commercial impression,” which “must be viewed through the eyes of a consumer.” When the relevant question is how an ordinary person or community would make an assessment, the jury is generally the decision-maker that ought to provide the fact-intensive answer. The “legal equivalents” test may involve a legal standard, but such mixed questions of law and fact have typically been resolved by juries. Any concern that a jury may improperly apply the relevant legal standard can be remedied by crafting careful jury instructions. View "Hana Financial, Inc. v. Hana Bank" on Justia Law

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The London InterBank Offered Rate (LIBOR) is a reference point in determining interest rates for financial instruments in the U.S. and globally. The Judicial Panel on Multidistrict Litigation (JPML) established a multidistrict litigation for cases alleging that banks understated their borrowing costs, depressing LIBOR and enabling the banks to pay lower interest rates on financial instruments sold to investors. Over 60 actions were consolidated, including the Gelboim class action, which raised a single claim that banks, acting in concert, had violated federal antitrust law. The district court dismissed all antitrust claims and granted certifications under Rule 54(b), which authorizes parties with multiple-claim complaints to immediately appeal dismissal of discrete claims. The Second Circuit dismissed the Gelboim appeal because the order appealed from did not dispose of all of the claims in the consolidated action. A unanimous Supreme Court reversed. The order dismissing their case in its entirety removed Gelboim from the consolidated proceeding, triggering their right to appeal under 28 U.S.C. 1291, which gives the courts of appeals jurisdiction over appeals from “all final decisions of the district courts.” Because cases consolidated for MDL pretrial proceedings ordinarily retain their separate identities, an order disposing of one of the discrete cases in its entirety qualifies under section 1291 as an appealable final decision. The JPML’s authority to transfer civil actions for consolidated pretrial proceedings, 28 U.S.C. 1407, refers to individual “actions,” not to a monolithic multidistrict “action” and indicates Congress’ anticipation that, during pretrial proceedings, final decisions might be rendered in one or more of the consolidated actions. The Gelboim plaintiffs are no longer participants in the consolidated proceedings. View "Gelboim v. Bank of Am. Corp." on Justia Law

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Exactly three years after borrowing money to refinance their home mortgage, the Jesinoskis sent the lender a letter purporting to rescind the transaction. The lender replied, refusing to acknowledge the rescission’s validity. One year and one day later, the Jesinoskis filed suit, seeking a declaration of rescission and damages. The district court entered judgment on the pleadings, concluding that a borrower can exercise the Truth in Lending Act’s right to rescind, 15 U. S. C.1635(a), (f), only by filing a lawsuit within three years of the date the loan was consummated. The Eighth Circuit affirmed. The unanimous Supreme Court reversed. A borrower exercising his right to rescind under the Act need only provide written notice to his lender within the 3-year period, not file suit within that period. Section 1635(a)’s language: a borrower “shall have the right to rescind . . . by notifying the creditor . . . of his intention to do so,” indicates that rescission is effected when the borrower notifies the creditor of his intention. The statute says nothing about how that right is exercised and does not state that rescission is necessarily a consequence of judicial action. View "Jesinoski v. Countrywide Home Loans, Inc." on Justia Law

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The bank fraud statute, 18 U.S.C. 1344(2), makes it a crime to “knowingly execut[e] a scheme ... to obtain” property owned by, or under the custody of, a bank “by means of false or fraudulent pretenses.” Loughrin was charged with bank fraud after he was caught forging stolen checks, using them to buy goods at a Target store, and then returning the goods for cash. The district court declined to give Loughrin’s proposed jury instruction that section 1344(2) required proof of “intent to defraud a financial institution.” A jury convicted Loughrin. The Tenth Circuit and Supreme Court affirmed. Section 1344(2) does not require proof that a defendant intended to defraud a financial institution, but requires only that a defendant intended to obtain bank property and that this was accomplished “by means of” a false statement. Imposing Loughrin’s proposed requirement would prevent the law from applying to cases falling within the statute’s clear terms, such as frauds directed against a third-party custodian of bank-owned property. The Court rejected Loughrin’s argument that without an element of intent to defraud a bank, section 1344(2) would apply to every minor fraud in which the victim happens to pay by check, stating that the statutory language limits application to cases in which the misrepresentation has some real connection to a federally insured bank, and thus to the pertinent federal interest. View "Loughrin v. United States" on Justia Law

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After the Republic of Argentina defaulted on its external debt, NML, one of its bondholders, prevailed in 11 debt-collection actions filed against Argentina in New York. To execute its judgments, NML sought discovery of Argentina’s property, serving subpoenas on nonparty banks for records relating to global financial transactions. The district court granted motions to compel compliance. The Second Circuit affirmed, rejecting Argentina’s argument that the order transgressed the Foreign Sovereign Immunities Act of 1976 (FSIA), 28 U.S.C. 1330, 1602. The Supreme Court affirmed; the FSIA does not immunize a foreign-sovereign judgment debtor from post-judgment discovery of information concerning its extraterritorial assets. The FSIA replaced factor-intensive loosely-common-law-based immunity with “a comprehensive framework for resolving any claim of sovereign immunity” so that any sort of immunity defense made by a foreign sovereign in a U.S. court must stand or fall on its text. The FSIA established jurisdictional immunity, section 1604, which was waived here. FSIA execution immunity under sections 1609, 1610, 1611, generally shields “property in the United States of a foreign state” from attachment, arrest, and execution. Nothing forbids or limits discovery in aid of execution of a foreign-sovereign judgment debtor’s assets. Even if Argentina is correct that section 1609 execution immunity implies coextensive discovery-¬in-aid-of-execution immunity, there would be no protection from discovery a foreign sovereign’s extraterritorial assets. Section 1609 immunizes only foreign-state property “in the United States.” The prospect that NML’s general request for information about Argentina’s worldwide assets may turn up information about property that Argentina regards as immune does not mean that NML cannot pursue its discovery. View "Republic of Argentina v. NML Capital, Ltd." on Justia Law