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Posts published in “Banking”

8th Cir. Rules on Bankruptcy Trustee’s Ability to Recover Overdraft Covering Deposits

In a bankruptcy preferential transfer dispute, the U.S. Court of Appeals for the Eighth Circuit recently held that the bankruptcy trustee could recover true overdraft covering deposits, while deposits covering intra-day overdrafts were not recoverable. A copy of the opinion in Joseph Sarachek v. Luana Savings Bank is available at:  Link to Opinion. A company filed for bankruptcy and, 90 days before filing, wired funds to its bank to cover overdrafts.  The bankruptcy trustee argued that those funds were avoidable transfers that could be recovered from the bank. The bankruptcy court agreed as to some of the deposits but not others.  The…

2nd Cir. Upholds Dismissal of Supposed ‘LIBOR Fraud’ Claims

The U.S. Court of Appeals for the Second Circuit recently affirmed the dismissal of LIBOR-manipulation fraud claims brought by a group of hotel-related entities and their investor against a bank and two of its subsidiaries. In so ruling, the Second Circuit held that: (a) the borrower and related entities lacked standing to sue because they failed to list their potential claims in their bankruptcy case and the claims were barred by the doctrine of judicial estoppel; and (b) the claims of the investor and guarantors were untimely and barred by the law of the case. A copy of the opinion…

Fla. Court Holds Alleged ‘No Lawful Basis to Debit’ Enough to State Claim Under Reg J and UCC Art 4A

The Circuit Court of the Eleventh Judicial Circuit in Miami-Dade County, Florida recently dismissed equitable and tort claims for restitution, “money had and received,” negligence, indemnification, tortious interference and conversion brought by a company against its bank for reversing a wire transfer due to fraud.  However, the Court refused to dismiss the account holder’s claim for breach of the deposit agreement. The Court held that Regulation J (12 CFR § 210.25-210.32) and Article 4A of the Uniform Commercial Code (UCC) were incorporated into the deposit agreement at issue, and these provisions only allowed the bank to reverse the payment under…

4th Cir. Holds Entire Arbitration Agreement Unenforceable Due to Faulty Choice of Law Provisions

The U.S. Court of Appeals for the Fourth Circuit held that a creditor’s arbitration agreement contained unenforceable choice of law provisions rendering the entire agreement unenforceable. Accordingly, the Fourth Circuit affirmed the trial court’s order denying the creditor’s motion to compel arbitration. A copy of the opinion in James Dillon v. BMO Harris Bank, N.A. is available at:  Link to Opinion. The borrower applied for and received a “payday loan” through the lender’s website.  The lender was wholly owned by a Native American tribe. To complete the loan transaction, the borrower was required to sign an agreement containing a choice…

4th Cir. Rejects Bankruptcy Trustee’s Effort to Hold Bank Liable for Fraudulent Transfers

The U.S. Court of Appeals for the Fourth Circuit recently held that certain deposits and wire transfers into a bankrupt debtor’s personal, unrestricted checking account in the ordinary course of business were not “transfers” under § 101(54) of the Bankruptcy Code, affirming the district court’s and bankruptcy court’s entry of summary judgment in favor of the bank in an adversary proceeding brought by the bankruptcy trustee. A copy of the opinion in Charles Ivey, III v. First Citizens Bank & Trust Company is available at:  Link to Opinion. The debtor orchestrated a Ponzi scheme that unraveled in 2009, in which…

6th Cir. Holds Bank Not ‘Transferee’ as to Ordinary Bank Deposits in Fraudulent Transfer Action

The U.S. Court of Appeals for the Sixth Circuit recently held that a bankruptcy trustee seeking to recover fraudulent transfers could recover direct and indirect loan repayments made after the bank had knowledge of the debtor’s Ponzi scheme, but could not recover deposits not applied to pay back the bank’s debt because the bank was not a “transferee” under the Bankruptcy Code as to ordinary bank deposits. A copy of the opinion in Meoli v. The Huntington National Bank is available at:  Link to Opinion. The principal of two bankrupt companies orchestrated a Ponzi scheme in which he fabricated invoices…

7th Cir. Rejects ‘Anti-Tying’ Challenge to Software Company’s Required Use of Bank

The U.S. Court of Appeals for the Seventh Circuit recently held that a bank’s relationship with a software services company, under which the software services company required its customers to use the bank for the depositary services ancillary to the software, did not violate anti-tying provisions of the federal Bank Holding Company Act, at 12 U.S.C. § 1972. A copy of the opinion McGarry & McGarry, LLC v. Rabobank, N.A. is available at:  Link to Opinion. A bankruptcy trustee hired an administrative services company to provide a variety of services in a bankruptcy proceeding.  Among other things, the administrative services…

7th Cir. Opens Door to Possible CAMELS Rating Litigation Challenges

The U.S. Court of Appeals for the Seventh Circuit recently held that the presence of capital as one of six components in the FDIC’s CAMELS rating does not mean that the rating as a whole is committed to agency discretion for the purpose of 5 U.S.C. §701(a)(2) and therefore unreviewable. A copy of the opinion in Builders Bank v. FDIC is available at:  Link to Opinion. As you may recall, the FDIC is charged with conducting a full-scope on site examination every 12-18 months of the banks whose deposits it insures. In June 2015, the FDIC examined a bank and…

SCOTUS to Decide Whether Entity is FDCPA ‘Debt Collector’ Merely Because It Purchases Defaulted Debt

The Supreme Court of the United States recently decided that it will review the decision of the U.S. Court of Appeals for the Fourth Circuit in Henson v. Santander Consumer USA, Inc. As you may recall from our prior update, the U.S. Court of Appeals for the Fourth Circuit held that the fact that a debt is in default at the time it is purchased by an entity does not necessarily make that entity a “debt collector” subject to the federal Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq. A link to the docket is available…

2nd Cir. Attempts to Clarify Spokeo as to Alleged Violations of Statutorily Required Procedures

The U.S. Court of Appeals for the Second Circuit recently rejected an interpretation of Spokeo that would preclude all violations of statutorily mandated procedures from qualifying as concrete injuries supporting standing. In so ruling, the Court held that some violations of statutorily mandated procedures might entail the concrete injury necessary for standing where Congress conferred the procedural right to protect a plaintiff’s concrete interests, and where the procedural violation presents a material “risk of real harm” to that underlying concrete interest. A copy of the opinion in Strubel v. Comenity Bank is available at:  Link to Opinion. As you may…

7th Cir. Holds Judgment Against Bankruptcy Debtor’s Husband Did Not Violate Co-Debtor Stay

The U.S. Court of Appeals for the Seventh Circuit recently held that a bank’s lawsuit against the husband of a debtor who had filed for bankruptcy did not violate the co-debtor stay because the husband’s credit card debts were not a consumer debt for which the debtor was personally liable. A copy of the opinion in Smith v. Capital One Bank (USA), NA is available at:  Link to Opinion. A debtor filed for bankruptcy in 2011. During the course of the bankruptcy proceedings, a bank filed suit and obtained a judgment against the debtor’s husband on a credit card debt…

7th Cir. Rejects Defrauded Bank’s Effort to Recover Counterfeit Check Proceeds from Payee’s Bank, Payee, Federal Reserve

The U.S. Court of Appeals for the Seventh Circuit recently held that a bank that honored a counterfeit check was not entitled to reimbursement from the party who deposited the check, nor from the depositing party’s bank or the Federal Reserve. A copy of the opinion is available at:  Link to Opinion. In 2013, an attorney received an email from a person who claimed she wanted to hire him to help her recover money that she said she was owed in a divorce proceeding. The purported ex-wife subsequently told the attorney that after retaining him, her ex-husband settled, and that…