Claims and Bad Faith Law Blog

UPDATE on the Whole Financial Catastrophe, JPMorgan Also.

 More on the Good Faith of JPMorgan.  (This post updates the article by the same name, posted here on Tuesday, March 19, 2013.)

It seems that for a brief moment, at least, the immense power of the United States Senate Permanent Subcommittee on Investigations focused public attention on the possible misdeeds and definite mistakes of JPMorgan executives and its chief.  See, e.g., Ben Protess and Jessica Silver-Greenberg, "Trading Hearings Put Focus Back on JPMorgan's Chief" p. B1, col. 5 (New York Times Nat'l ed., "Business Day" Section, Monday, March 18, 2013); Jessica Silver-Greenberg, "JPMorgan Executives Face Withering Questions at Senate Hearing" p. B1, col. 1 (New York Times Nat'l ed., "Business Day" Section, Saturday, March 16, 2013).

It bears repetition to make the following observation once more, as was published here on March 19, 2013:

    One ironic feature of interest in JPMorgan's suspect trading activities, apparently totally unmentioned in the newspaper reports, is that JPMorgan was trading in  Credit Default Swaps (CDS's), otherwise known as unregulated Credit Insurance.  See "JPMorgan Chase Whale Trades:  A Case of History of Derivatives Risks and Abuses," Report of the Permanent Subcommittee on Investigations, Committee on Homeland Security, United States Senate, in particular pages 29-30 and search the document for "credit default swaps" (307 pages; stated "Released in Conjunction With The Permanent Subcommittee on Investigations March 15, 2013 Hearing"):  Download REPORT - JPMorgan Chase Whale Trades (3-15-13)2[1].    

 

Force-Placed Insurance?  One person's "commissions."  Other people call them "kickbacks."

The New York State Department of Financial Services reportedly has noted publicly "that JPMorgan Chase has made about $600 million since 2006 by taking 75 percent of the profit from the force-placed business it gave" to insurance giant Assurant, the country's largest force-placed insurer at this time.  Karen Freifeld and Ashutosh Pandey, "UPDATE 4--Assurant Settles With New York Over 'Force-Placed' Insurance" (Reuters Online, posted Thursday, March 21, 2013).

 

Assumption of the Risk?  But this isn't a lawsuit and there is no "Assumption of the Risk" Affirmative Defense to a Bad Faith Claim.  You're right.  This isn't a lawsuit.

So, after some 5 years, the question has changed:  If someone keeps on keeping on, making money at my expense, not changing their ways of doing it, and if I do nothing about it, have I learned my lesson?  See Jesse Eisinger, "Lesson Learned After Financial Crisis:  Nothing Much Has Changed" (Dealbook, New York Times, March 19, 2013).  See, in addition, Moyers & Company, airdate Friday, March 22, 2013, Bill Moyers interview with Sheila Bair, head of the Systemic Risk Council and most recently, Chair of the Federal Deposit Insurance Corporation.

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Related articles

Tuesday in Tampa: JPMorgan Shareholders Deserve More Than Apologies.

Regulators, Like People, Matter.

When RISK MANAGERS Took Risks, Made Profits, Who Knew From Losses?

The Good Faith of JP Morgan.

    "While we have repeatedly acknowledged significant mistakes, our senior management acted in good faith and never had any intent to mislead anyone."  Unidentified JPMorgan spokesperson, quoted by Jessica Silver-Greenberg and Ben Protess, "Senate Inquiry Faults JPMorgan on Trading Loss / Rebuke for the C.E.O. / Bank Seen as Ignoring Big Risks -- Hearing is Set on Issues" p. A1, col. 6 (New York Times Nat'l ed., Friday, March 15, 2013).

"Let me be clear, JPMorgan completely disregarded risk limits and stonewalled federal regulators.  This bank appears to have entertained, indeed embraced, the fact that it was too big to fail."  Senator John McCain (R-Ariz.), quoted by Jim Puzzanghera, "Former 'London Whale' Boss at JPMorgan Admits Mistakes" (Los Angeles Times Online, posted Friday, March 15, 2013), in a newspaper report about the Senate investigation and report on "$6.2 billion" worth of JPMorgan "mistakes".

     JPMorgan Chase is far and away "the bank that enjoys the best reputation among its peers."  JPMorgan is also the largest trader in derivatives on the face of the earth.  Gretchen Morgenson, "Fair Game / JPMorgan's Follies, For All To See" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, March 17, 2013).      

     Reportedly when its London traders increasingly provoked JPMorgan's own internal measure of risk to sound the alarm that something  destructive might be happening or about to happen, JPMorgan changed the metric it used to measure risk.  The change was made in January, 2012 and enabled the London traders "to continue building the big bets, the [U.S. Senate] subcommittee found."  Jessica Silver-Greenberg and Ben Protess, New York Times, supra.  See, in addition, Jim Puzzanghera, Los Angeles Times, supra.

     The change was "personally authorized" by JPMorgan CEO Jamie Dimon.  Jessica Silver-Greenberg and Ben Protess, New York Times, supra.

     "No, that is not acceptable practice."  Testimony of Douglas L. Browstein, Vice Chair, JPMorgan, quoted  by Gretchen Morgenson, New York Times, supra.  Here is a link to the Witness Testimony and the senators' statements at the Hearing of the Senate Permanent Subcommittee on Investigations of the Committee on Homeland Security held on Friday, March 15, 2013. 

      "[F]ive former and current JPMorgan executives [were called] to testify about the trades at a six-hour hearing -- and they all sought to pass the buck."  Jim Puzzanghera, Los Angeles Times, supra.

     In the utmost Good Faith and with no intent to mislead anyone about the risk disclosed only to JPMorgan by JPMorgan by its original metric.  Absolutely.

    One ironic feature of interest in JPMorgan's suspect trading activities, apparently totally unmentioned in the newspaper reports, is that JPMorgan was trading in  Credit Default Swaps (CDS's), otherwise known as unregulated Credit Insurance.  See "JPMorgan Chase Whale Trades:  A Case of History of Derivatives Risks and Abuses," Report of the Permanent Subcommittee on Investigations, Committee on Homeland Security, United States Senate, in particular pages 29-30 and search the document for "credit default swaps" (307 pages; stated "Released in Conjunction With The Permanent Subcommittee on Investigations March 15, 2013 Hearing"):  Download REPORT - JPMorgan Chase Whale Trades (3-15-13)2[1].    

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WHAT'S "PRODUCTIVITY" GOT TO DO WITH IT?

With Apologies for fair use to Tina Turner.

    Newspapers have gone goofy, I think.  Reporters write as though they are truly puzzled because they attribute increased profits to gains in "productivity," yet there are increasingly fewer jobs.  It seems they just cannot figure this out.  See, e.g., Nelson Schwartz, "Recovery in U.S. Lifting Profits, Not Adding Jobs / Wall Street is Buoyant / A Gulf is Widening as Federal Budget Cuts Take Effect" p. A1, col. 6 (New York Times Nat'l ed., Monday, March 4, 2013).  It would help to understand, I submit, not to think in terms of "productivity" at all. 

    At least newspapers report the phenomenon of higher profits and fewer workers.  However, productivity in the sense of workers producing more things in less time while working the same number of hours, does not explain it.  "Productivity" has nothing to do with it.

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SECRET SETTLEMENTS: THE BAD FAITH ISSUES.

          Apparently the New York Fed is making secret settlements again.  AIG found out about one of them recently after it filed a lawsuit against Bank of America.  AIG sought to recover on some of its losses on Residential Backed Mortgage Securities allegedly caused by BofA.  It learned that the New York Fed previously "released" BofA from liability for those losses, or tried to.  See Gretchen Morgenson, "Fair Game / Don't Blink, or You'll Miss Another Bailout" p.1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, February 17, 2013).  This certainly brings back memories of secret settlements that the Treasury Department and the New York Fed made with investment banks allegedly responsible for causing the Great Recession. See, for example, "Residential Mortgage-Backed Securities Group:  The Final Installment" article posted here on February 2, 2012.

        There may be an issue under Florida law, whether a settlement of Bad Faith Claims can be made confidential by the parties in their settlement agreement, even with a Court's approval. A Florida Statute provides: 

 

Any portion of an agreement or contract which has the purpose or effect of concealing a public hazard, any information concerning a public hazard, or any information which may be useful to members of the public in protecting themselves from injury which may result from the public hazard, is void, contrary to public policy, and may not be enforced.

Fla. Stat. § 69.081(4).  The statutory definition of a “public hazard” includes any “person” or “procedure” “that has caused and is likely to cause injury.”  Fla. Stat. § 69.081(2).  That is a pretty broad definition, which can apply to a wide array of conduct.  It was probably meant to.

        No Court shall enter an order or judgment in a case subject to this Florida Statute, “[e]xcept pursuant to this section,” which has, among other things, “the purpose or effect of concealing a public hazard” or “of concealing any information which may be useful to members of the public in protecting themselves from injury which may result from the public hazard.” Fla. Stat. § 69.081(3).

        Similarly there may be issues of Bad Faith in secret settlements under the laws of other jurisdictions besides Florida..  Cf. Kreuger Int'l, Inc. v. Federal Ins. Co., 2008 WL 5264021 (E.D. Wis. Dec. 16, 2008).

        As many attorneys do in many kinds of cases, the attorneys for the parties in a recent Federal Declaratory Relief action stipulated that certain Insurance Coverage information would be produced under seal.  In fact, the attorneys apparently stipulated to a Protective Order saying so.  Thereafter, they filed some of those materials in the Federal Court File.

        The Federal Judge said that although the secrecy stipulation arguably facilitated discovery, the parties could not stipulate that everything they filed in the Court records was confidential and so they could not keep those materials by that expedient forever from the public eye. 

To be continued .....

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"Say it Ain't a Scam, Pam!"*

*A small child confronted one of the ballplayers who threw the World Series.  The player had pretended to do his best.  That is what he told people before he was brought up on charges of throwing the World Series.  The little kid said, "Say it Ain't So, Joe!"  The young child's comment has inspired the title of this post article.  Thank you.

                 This is really a follow up on the Mortgage Fraud Settlement in which four large Mortgage Servicers settled national claims against them for fraud.  The claims were apparently  never written in a Complaint filed in any Federal Court, nor filed in any State Court, nor filed with any Agency, State or Federal.  However, the national settlement was produced in writing after several weeks following the announcement of the settlement in which its provisions were not known to the public.

                Florida Attorney General Pamela Bondi firmly announced that she alone negotiated $300 Million on behalf of Florida residents who were defrauded by the Mortgage Servicers.  See "Mortgage Servicers, Mortgage Settlement:  Dealing Fairly in Financial Good Faith," published here on October 25, 2012.  The monies were to include mortgage loan reductions, financial counseling, and many other good things, Ms. Bondi's office announced to us.

                It is now reported that Ms. Bondi has negotiated another deal for the $300 Million and Ms. Bondi's office again tells us that this is a good thing for us.   With her agreement, the Florida Legislature has taken a cut of about 25% of that $300 Million which Ms. Bondi, alone, previously negotiated.  See Toluse Olorunnipa, "Pam Bondi Reaches Deal on Florida's $300 Million Foreclosure Settlement" (Tampa Bay Times Online, Friday, November 2, 2012).  She negotiated this deal also.  25% to the Florida Legislature.

                And counting.

                Say it ain't so, Pam.

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MORTGAGE AND TITLE INSURANCE OVERBURDENED BY MORTGAGE SERVICER FRAUD.

TELLING  THE TRUTH, DROPPED LIKE A HOT POTATO.

             These are the opening words they don't want you to read:  "Investment banks caused the Great Recession."  And this is the article they don't want you to read:  "Regulators, Like People, Matter.  Banks Choose Anyone Except Insurance Regulators," posted on Insurance Claims and Bad Faith Law Blog on Tuesday, October 23, 2012.

            On its own website, Executive Counsel Magazine describes its readers as "decision-makers who embrace the challenges of succeeding in an increasingly complicated regulatory environment."  The magazine provides Executive Counsel Daily Digest, an EMail aggregation of blog entries related to their readers.  For many months, my Insurance Claims and Bad Faith Law Blog and my Insurance Claims and Issues Weblog were aggregated.

            Both of my blogs were dropped from the Executive Counsel Daily Digest aggregator the day after the article was published, "Regulators, Like People, Matter.  Banks Choose Anyone Except Insurance Regulators," and these words in it:  "Investment banks caused the Great Recession."

            Not depositary bankers, where individuals and small businesses, like me and mine, make deposits.  And not people from Main Street or small businesses.

            You would have thought this was a radical new thought.  It wasn't and isn't.  It is simply, plainly the known truth.  I am proud to be one of many people to tell you about it.

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Mortgage Servicers, Mortgage Settlement: Dealing Fairly in Financial Good Faith.

     It appears that Mortgage Servicers may have had the tools all along to modify Mortgages including to forgive principal.  See Statement of Hon. Sheila C. Bair, Chair of the Federal Deposit Insurance Corporation, reported by Martin Crustinger in an Associated Press copyrighted story, "Fed Urges Loan Companies to Help Prevent Mortgage Defaults," p. A5, col. 3 (Times-News, Twin Falls, Idaho, Wed., September 5, 2007) available on page 5 of this pdf posted online through twinfallspubliclibrary.org). 

    If that is so, then there was never any need for the Mortgage Servicing Fraud Settlement earlier this year -- except that the investment banks who were also the Mortgage Servicers, or who acquired the Mortgage Servicers, wanted immunity.

UPDATE ON JULY 27, 2012 ARTICLE HERE, "SHAME ON YOU, SHAUN. THAT'LL BE TEN HAIL MARYS, ... One Our Father, and One Glory Be.  Now say a Good Act of Contrition."

    In the article, I wrote:

One further note of, frankly, what is either fantasy or more stuff for Mr. Donovan to confess the next time he unburdens himself in the Confessional.  He says that the settlement agreement "also provides an additional $334 million in state aid" that Pamela Bondi, Florida Attorney General, will use "to help homeowners through proven tools like housing counseling."...  And if you believe that, Mr. Donovan and Ms. Bondi have some swamp land to sell you in South Florida as they say.

It is only now being widely reported that the Florida Legislature has other plans for that money, regardless of what Ms. Bondi says.

 Please Read The Disclaimer.

REGULATORS, LIKE PEOPLE, MATTER.

Banks Choose Anyone Except Insurance Regulators.

 "Financial institutions cannot be relied upon to do the right thing, when doing the wrong thing will line their pockets.  Regulators, not banks, need to set the rules and they must be clear, straightforward, and readily enforceable....  It's time to stop timidly working around the edges and get the job done."

   Sheila C. Bair, former Chair of the Federal Deposit Insurance Commission and current Chair of  the Systemic Risk Council, in an op-ed column entitled, "Two Years After Dodd-Frank, Why Isn't Anything Fixed?"  published online by Yahoo! Finance, The Exchange, Friday, July 20, 2012.

 

            Investment banks caused the Great Recession.  That is a fact.

            It is also unquestionable that for four years, since October, 2008, investment banks and their regulators have tried to divert everyone's attention away from investment banks and their regulators.  "[T]axpayers and the many smaller banks that pay into the F.D.I.C. fund that insures bank deposits were those most likely to be assigned responsibility for the bailout costs, Ms. Bair writes.  Needless to say, these people had no seats at the rescue tables."  Gretchen Morgenson, "Fair Game / Big Questions From a Bailout Eyewitness" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, October 14, 2012), citing Sheila Bair's recently published Book, "Bull By The Horns:  Fighting to Save Main Street From Wall Street and Wall Street From Itself".

            Ms. Bair's observations about Citigroup's former CEO, Vikram Pandit, provide a past example -- and a present insight.  She writes that Mr. Pandit and Citigroup's regulator in October, 2008, Mr. Timothy Geithner of the New York Federal Reserve Bank, held her responsible for Wells Fargo rather than Citigroup acquiring Wachovia and its subprime mortgage loan department.

            Her description of Mr. Pandit is insightful, as she explained why she thought that Mr. Pandit was a poor choice to become the CEO at Citi:

He was a hedge fund manager by occupation and one with a mixed record at that.  He had no experience as a commercial banker, yet now he was heading one of the biggest banks in the country.

Sheila C. Bair, "Bull by the Horns:  Fighting to Save Main Street From Wall Street and Wall Street From Itself" (Free Press , a division of Simon & Schuster, Inc., 2012),  excerpted online in CNN Money (September 20, 2012) and Fortune Magazine (October 8, 2012).

            Those who have ears to hear, let them hear.  

            The price of the Great Recession Bailouts includes enormous unaccounted costs for "the subsidies banks received in cheap capital, low-interest-rate loans and debt guarantees."  ."  Interview with Sheila C. Bair reported by Gretchen Morgenson in "Fair Game / Big Questions From a Bailout Eyewitness" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, October 14, 2012).  The costs of the Great Recession also include those falling upon Mortgage Insurance Companies and Title Insurance Companies for the Mortgage defaults engineered by the investment banks.  See the Categories on this Blog, "Mortgage Insurance" and "Title Insurance," and the corresponding Categories on Insurance Claims and Issues Web Log.

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"Lies, Lies, And Da*n Lies": RMBS Born From "Systemic Fraud".

    A new complaint was filed on Monday, October 1, 2012 arising out of residential mortgage-backed securities ("RMBS"), an investment vehicle at the bottom (with other vehicles) of the current Great Recession.  The complaint is by the State of New York against JPMorgan Securities, JPMorgan Chase, and EMC Mortgage.

      Basically the complaint is based on two sets of alleged manifestations of fraud, deception, and misrepresentation:  First, in promoting and selling RMBS, and second, "systemic fraud" in failing and refusing to correct "defects" after due diligence and quality control procedures revealed that RMBS presented serious problems to the finances of investors and Homeowners.  Here is a copy of the complaint:  Download Complaint.New York v. JP Morgan Securities LLC etc. et al (Filed in N.Y. Supreme Court on Monday, Octo ber 1, 2012). 

    This is reportedly the first time that the claim of systemic fraud has been collectively alleged against the promoters and servicers of residential mortgage-backed securities as a class, as it were.  Gretchen Morgenson, "JPMorgan Unit is Sued Over Mortgage Securities Pools" (New York Times Online, posted October 1, 2012).  The reason is a New York law, General Business Law  352, et seq., known as the Martin Act, which allows for broad claims of fraud against groups of financial actors allegedly committing fraud.  See Michael J. de la Merced, "In JPMorgan Case, the Martin Act Rides Again" (Dealbook Blog on New York Times Online, posted October 2, 2012).  More about New York's Martin Act later.

    Another commentator who reads the complaint like it is a newspaper, finds that the complaint does not contain any news and is not newsworthy.  Peter J. Henning, "In JPMorgan Suit, a Lack of New News" (Dealblook Blog on New York Times Online, posted October 2, 2012).

    Perhaps the new complaint presents issues of Good Faith and Fair Dealing that are worth a little more attention.  Those issues will be explored here.

    More to come.

    Please Read The Disclaimer. 

QUESTIONS OF GOOD FAITH AND FAIR DEALING BY BANKS AS MORTGAGEES.

            Some important questions implicating Good Faith and Fair Dealing by Banks as Mortgagees are asked by Gretchen Morgenson, "Fair Game / How to Erase a Debt That Isn't There" p. 1, col. 2 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday September 30, 2012).

            It is reported that Mortgagee-Banks including Bank of America and JP Morgan Chase have sent letters to Homeowners forgiving Mortgages that were discharged in Bankruptcy years ago.

           The letters also reportedly advise the Homeowners that the Banks' forgiveness of these debts which do not exist, will be reported to the IRS.  Id.

            Some questions arise, the answers to which do not appear to be entirely clear.  See id.   Will the Mortgagees-Banks claim that they are entitled to a credit for forgiving debts that do not exist, against their $25 Billion worth of obligations which include forgiveness of Mortgage debts?  They voluntarily assumed those obligations earlier this year when they agreed to their Mortgage Fraud Settlement with some States and the Federal Government.    See, for example, the post and links in it here on July 26, 2012, "BAD FAITH SETTLEMENT AGREEMENT: MORTGAGE SERVICERS, ATTORNEYS GENERAL, AND OBAMA ADMINISTRATION."

             If the Banks report their forgiveness of debts to the Internal Revenue Service, the burden will shift to the Homeowners to explain to the IRS why the Banks made a mistake in reporting this forgiveness of nonexistent debts.  Will the Banks seriously report forgiveness of these debts which do not exist, to the IRS?

            Readers of this blog are invited to EMail and write these questions to the Mortgagees-Banks.  Please take a moment to look up their addresses online and send them these simple questions.  They should have the answers. 

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HHS SECRETARY NOT LIABLE TO SUIT AS RESULT OF HEALTHCARE LAW, ...

... MASSACHUSETTS SUPREME JUDICIAL COURT HOLDS.

             In an eerie echo of the litigiousness of opponents of the Federal Affordable Care Act, seven Massachusetts hospitals and one managed healthcare organization joined their litigation forces in two cases in which they sued the Massachusetts Secretary of the Executive Office of Health and Human Services.  They claimed that they were not paid enough money under the Massachusetts Healthcare Law known as MassHealth.

         These Plaintiffs, which "disproportionately provide medical care to the poor" in Massachusetts, claimed that the Secretary "has violated her obligation to reimburse them for the reasonable costs incurred in providing medical services to MassHealth enrollees."  Boston Medical Center Corp. v. Secretary of Executive Office of Health & Human Services, 463 Mass. 437, 2012 WL 4010338 *1 (Mass. September 14, 2012).  MassHealth is "the Massachusetts Medicaid program that is jointly funded by State and Federal legislative appropriations and serves the needs of" the poor, in basis and simple terms.  Boston Medical Center Corp. v. Secretary of Executive Office of Health & Human Services, 2012 WL 4010338 *1 (Mass. September 14, 2012).

            The Supreme Judicial Court affirmed the Orders of the Trial Court which entered Judgment on the Pleadings for the Secretary in one case, and which dismissed the complaint against her in the other case.

            The Plaintiffs pursued a dizzying array of legal theories, including alleged breach of the implied covenant of Good Faith and Fair Dealing.  The Supreme Judicial Court rejected all of the Plaintiffs' legal theories.  With respect to Good Faith, the Court ruled that the claim must fail because the claimants agreed in their written contract to accept payment at certain rates, and "the Secretary cannot be found to have acted in bad faith or to have dealt unfairly by failing to provide reimbursement at higher rates."   Boston Medical Center Corp. v. Secretary of Executive Office of Health & Human Services, 2012 WL 4010338 *1 (Mass. September 14, 2012).  [Emphasis added.]

            Similarly, the Plaintiffs' collective claims failed in which they attempted to allege "a regulatory taking" without lawful compensation, implied rights of action under various statutes, quantum meruit, economic duress as a cause of action, certiorari, mandamus, and declaratory judgment.  Boston Medical Center Corp. v. Secretary of Executive Office of Health & Human Services, 2012 WL 4010338 *8-*13 (Mass. September 14, 2012).

            In sum, the Secretary could not be sued for carrying out her obligations under the Act.  And the Plaintiffs could not recover over and above amounts that they voluntarily contracted to receive.  The implications ought to be of interest to Medicare and Medicaid providers who may in the future become unhappy with the rates of payments that they receive under similar provisions of the Federal Affordable Care Act.

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ARE ANNUITIES IN THE MARKET FOR BAD FAITH?

            Insurance companies which sold annuities with guaranteed returns at 7% two years ago have stopped selling the same annuities now.  They have also stopped allowing contributions to the existing annuities that they guaranteed would have that return of return when they sold those annuities two years ago.    They are reportedly sending form-letter notices that they are no longer accepting contributions to those accounts.  See Paul Sullivan, "Wealth Matters / A Guaranteed Return On an Annuity Has Limits After All" p. B5, col. 1 (New York Times Nat'l ed., "Personal Business" Section, Saturday, September 15, 2012).

            Putting aside all questions surrounding whether these insurance companies can do this, and the substantive methods they are pursuing to do it, there is a separate question of the kind of 'notice' they are providing to the annuity-holders.  Anecdotal evidence is provided in the linked newspaper report, and it is the only evidence we have at the moment.  Whether it is representative or not, time will tell.

            One annuity holder quoted only as "Steve" in the article received a "form letter" in August of this year.  The nondescript envelope looked like junk mail.  It was taped shut and bore the word, "Presorted".   Inside, "Steve" found "a piece of paper folded in threes".  He only read it, he says, because his broker forewarned him to read it because the insurance company that issued Steve's annuity previously announced that it was not going to allow people like Steve to contribute any more money to their annuities.  (It was one of several insurance companies that announced this position.)

            The quality of this 'notice' left something to be desired in Steve's judgment.   He is an advertising copywriter.  "This is not the way you talk to your audience unless you want to make sure that they completely don't understand it, and you don't want them to open it.  I know because I'm in advertising, and I create inclusions like this for companies like Prudential."  "Steve" last name not provided, quoted by Paul Sullivan, "Wealth Matters / A Guaranteed Return On an Annuity Has Limits After All" p. B5, col. 1 (New York Times Nat'l ed., "Personal Business" Section, Saturday, September 15, 2012).  Is this in Good Faith?  If it is not Good Faith conduct, and if the conduct is actionable, is it defensible?  You have got to wonder.  See generally 1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 3:3 "Informing the insured:  In general" (3d Edition 2011; 2012 Supplement West Publishing Company).

 

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FAIR DEALING: THE LAW ALREADY GOT THERE. Update: MORE IS NEEDED.

Not From the Law.  From the Lawyers.  This is an update to the post here on Tuesday, August 14, 2012.

         As was noted in the previous post, much has been written about Municipal Bond Insurance and related matters including issues involved in bond issuance.  See in addition posts here and especially under the category of Bond Insurance addressing the roles of duties of Good Faith and Fair Dealing in this arena.  The previous post in particular addressed duties of Fair Dealing in agency rules and regulations. 

          It turns out that there is a higher authority in place.  By Act of Congress, municipal advisers are "fiduciaries".    The statute's effect is that municipal advisers owe an undivided loyalty not simply to investors but to issuers of municipal securities, really, to so-called "munis" (municipalities, school boards, water management districts, and so on) in their issuance of bonds to finance things like municipal wastewater projects, sewers, schools, and other local community projects.

          The statute, to say again, has been passed.  The Act of Congress in question is known as the Dodd-Frank Act.  As it is wont to do, Congress left it to regulatory bodies to define key words and phrases in rules and regulations.  One of those key words is "fiduciaries".

          The Municipal Securities Rulemaking Board was given jurisdiction by Congress to propose the necessary rules.  The Board duly proposed that its preexisting "fair dealing" rule be expanded to require securities underwriters "to make sure local officials understand the risks of complex  bond deals, and to disclose any incentives they may have for supporting certain transactions."  Mary Williams Walsh, "Municipal Bond Rule Mired in Legislative Limbo" p. B1, col. 4 (New York Times Nat'l ed., "Business Day" Section, Tuesday, August 14, 2012).   The Securities and Exchange Commission is required to approve rules promulgated by the Municipal Securities Rulemaking Board, and the SEC approved this proposed rule change by a vote of 3-to-2.

          The two dissenters in the SEC were the only two Republicans who sit on the SEC.  Although their dissent is reported in the linked newspaper article, the fact that they are the only Republicans on the SEC is not reported there.  That fact is reported here. 

          So far so good.

          Then the proposed rule change, and the provision of the Dodd-Frank Act which authorizes the change in the first place, was attacked by a bill filed by a Republican Congressman which was finally reported out of a House Subcommittee just as Congress recessed.  The bill would eliminate the provision of the Dodd-Frank Act that municipal advisers should be treated as fiduciaries in the issuance of securities by munis.

          When the House of Representatives (finally) returns to work in September, more argument, er, debate is expected.  One of the debates left hanging is a proposal by banks that they should be excluded from the rule definition of "fiduciaries," even though in reality "bankers often do advise municipalities."  Mary Williams Walsh, "Municipal Bond Rule Mired in Legislative Limbo" p. B1, col. 4 (New York Times Nat'l ed., "Business Day" Section, Tuesday, August 14, 2012).

          Apropos of the observation in Tuesday's article that "the Securities and Exchange Commission seems to be overloaded with George W. Bush-era political appointees who still see their mission as doing nothing so that others can accuse the Federal Government of not acting":  The SEC reportedly settled another subprime mortgage investigation for pennies on the dollar, rather than trying the case.  This settlement was with Wells Fargo for less than the cost of doing business:  4/100 or 1/25 of one percent of its earnings last year.  Just a few days ago, the SEC announced for the first time in recorded history, or just about, that it, the SEC, was not going to pursue criminal charges against Goldman Sachs.  See Ben Protess, "Wells Fargo Settles a Securities Case" p. B7, col. 1 (New York Times Nat'l ed., "Business Day" Section, Wednesday, August 15, 2012).  The SEC is not the place to go for Fair Dealing, it seems.

          Note to Mary Schapiro, the current Chair of the SEC:  You get good press.  Why?  It is because of who you are -- or who you are not, and not what because of what you do.  You are not your predecessor.  All in all, that is not much but it is something. 

Please Read The Disclaimer.

Fair Dealing: The Law Already Got There. More is Needed.

    Much has been written about Municipal Bond Insurance.  That includes posts here and especially under the category of Bond Insurance which address the need for enforcement of duties of Good Faith and Fair Dealing in this arena.

    Now comes news that "fair-dealing rules" have been in place "for decades" in the municipal bond market.  "Rules requiring fairness in this market state that participants must not be deceptive, dishonest or unfair in their practices.  The regulations apply to the sale of municipal bonds to investors and to underwriters' interactions with issuers; fraud need not be alleged in a fair-dealing case."  Gretchen Morgenson, "Fair Game / Police Protection, Please, for Municipal Bonds" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, August 5, 2012).

    From recent news coverage it is clear that at least certain firms and individuals who make their money from Wall Street, have taken advantage of relatively less financially sophisticated school board members or water management district board members, for example.  Even so, the Securities and Exchange Commission seems to be overloaded with George W. Bush-era political appointees who still see their mission as doing nothing so that others can accuse the Federal Government of not acting.  The SEC has recently asked for more power to enforce regulations in the municipal bond market while ignoring the regulations that have existed for almost as long as the SEC itself.  This is perhaps an exaggeration, but only a slight one.

    This is an area deserving of research.  "So far, the commission's reticence to act on behalf of municipal issuers has left those issuers to take on Wall Street alone.  Few have done so."  Gretchen Morgenson, "Fair Game / Police Protection, Please, for Municipal Bonds" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, August 5, 2012).

    There does not seem to be a similar impediment to lawsuits involving allegedly failed advice to munis when they are investors rather than issuers.  The City of St. Petersburg is one example.  The City successfully sued for over $10 Million in a case involving alleged failure or unfair dealing in financial advice to the City on an investment.  See "Bad Faith Financial Services:  No Comparative Negligence in Lawsuit," posted on April 5, 2012.

    This area is worth taking time to research the law so that the law may be applied.

    It is worth your time, too.

 Please Read The Disclaimer.

    

    

BAD FAITH SETTLEMENT AGREEMENT: MORTGAGE SERVICERS, ATTORNEYS GENERAL, AND OBAMA ADMINISTRATION.

     Newspaper columnists are pointing out the failures of the Obama Administration since 2007-2008 to provide relief to Homeowners in Foreclosure.  Rightfully so.  E.g., Beth Kassab, "Like Many Homeowners, Hope Adrift" p. A3, col. 1 (Orlando Sentinel Tuesday, July 24, 2012); Gretchen Morgenson, "Fair Game / Into the Bailout Buzz Saw" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, July 22, 2012).

     However, it is easy to point a finger at Government miscues and inaction.  Perhaps too easy.  Let's take a look at a contract, a settlement agreement, made by the Banks in exchange for immunity from Government criminal and civil prosecution over their Mortgage lending practices.

The Banks made a deal to pay $2.5 Billion to the States which would include loan modifications.  (Their deal included other money and other provisions as well.  They announced the deal weeks before they posted their agreement online.  See the posts here and links in them on January 31, 2012 and on February 2, 2012.)  The deal was supposed to include debt forgiveness to be included in that amount.  There is no deal, it appears, and there is no $2.5 Billion for loan modifications.

     By way of background, in January of 2012 a global settlement agreement was announced.  The agreement involved 5 major Mortgage Servicers but, since all 5 happened to also be Banks which lent money to Homeowners, the deal was expanded to include their practices as Banks and not just as Mortgage Servicers.  Of course, once the deal was expanded to address the questionable practices of Banks lending Mortgage money to Homeowners, the Bank practices were arguably expanded to the Mortgage practices of all Banks.

     On the other side of the deal were the State and District of Columbia Attorneys General.  They were reportedly holding out for far more money and concessions if they were going to expand their deal to confer immunity on Banks for anything more than the so-called "robo-signing" practices which triggered their joint investigation in the first place.  Under pressure from the Obama Administration through Sean Donovan, Secretary of Housing and Urban Development, they caved and took a deal that included the fictional 'loan modifications' and '$2.5 Billion' in question.  Furthermore, they gave credit to the Banks for all the money spent by the Banks toward that $2.5 Billion figure that not even the Banks' lawyers probably thought they would get in 2.5 billion years.  Pretty soon, there was little or nothing left of the $2.5 Billion and the loan modifications that were supposedly part of the deal.

     If there ever were any enforceable provisions with respect to loan modifications included in that deal -- and that is a big "if" -- then they were not only negotiated in Bad Faith but they are seemingly being performed in Bad Faith.  It does not help that many observers have been aware since the deal was announced in January, 2012 that this was coming.  Homeowners asking for loan modifications under the deal are finding that out now, in July, 2012.

Please Read The Disclaimer. 

 

Experts Prevent Precluding Witness Testimony in MBIA New York Lawsuit.

    In MBIA Insurance Corp. v. Patriarch Ptrs. VIII, LLC, 2012 WL 1129914 (S.D.N.Y. April 4, 2012), Download MBIA Insurance Corp. v. Patriarch Ptrs. VIII, LLC (SDNY No. 09.Civ.3255, Opinion Filed April 4, 2012) PUBLIC ACCESS, a Federal Court denied a motion for reconsideration.  In doing so, the Court highlighted the importance of Expert Testimony in that case.

    MBIA sued for alleged Breach of the Implied Covenant of Good Faith and Fair Dealing, among other things, in that case.  The Defendants, Patriarch Partners VIII and LD Investments, raised Affirmative Defenses of unclean hands and equitable estoppel.  The Good Faith and Fair Dealing claim survived the Defendants' Motion for Summary Judgment.  The Affirmative Defenses in question did not survive MBIA's Motion for Partial Summary Judgment.  In addition, all parties apparently filed motions to preclude certain evidence from being introduced at Trial.

    The Federal Court adhered to its previous ruling in this case, that the testimony of Experts presented factual issues which were not appropriately resolved by motions to preclude the introduction of evidence:

The parties' motions to preclude evidence were both denied, with the Court holding that “[f]actual issues are presented by the experts' testimony, and their resolution is not appropriate in the context of the present motions.”

Id., 2012 WL 1129914 at *2.

    Parenthetically, the online docket available for this case on PACER shows the filing of many "sealed" documents which someone apparently placed in a "vault".  It is a wonder that this is a public proceeding.

Please Read The Disclaimer.

When RISK MANAGERS Took Risks, Made Profits, Who Knew From Losses?

This post follows previous posts on similar subjects on Insurance Claims and Issues Web Log on May 14, 2012 and on May 15, 2012, and on Insurance Claims and Bad Faith Law Blog on May 15, 2012.

    When the Great Recession started, Wall Streeters said that they had no idea that loss could follow risk.  They attempted to make us believe flimsy excuses along the lines of "Who knew?"  Or, "It was a perfect storm," or "a black swan," something that is so far out of the realm of human experience that they just could not anticipate it.

    They were wrong.  We know now that not only did they anticipate it, they did not care so long as they made money for themselves.

    Now we read recent newspaper reports that JPMorgan Chase has lost Billions of Dollars trading in credit derivatives, particularly Credit Default Swaps, the same instruments that nearly brought down the house or, more accurately, definitely brought on the Great Recession.

    At first JPMorgan announced that its losses were $2 Billion.  Now JPMorgan is announcing that the losses are $3 Billion, with more to come.  And JPMorgan representatives are eerily echoing the false excuses of the first days of the Great Recession.  'Who knew?' 'No-one could have anticipated this loss,' and so on.

    These things were not true in late 2007.  They are not true in the Spring of 2012, either.

    The office of JPMorgan from which the announced losses are originating is a huge clue.  JPMorgan Chase turned its Risk Management office into a profit center.  Anyone who looked at the fact that profits were being generated by Risk Managers should have known, in fact almost certainly did know, that something was glaringly, terribly wrong at Diamond Jamie's place.  See Jessica Silver-Greenberg and Ben Protess, "Bank Regulators Under Scrutiny in JPMorgan Loss / Risk Was Played Down / No Overseers Assigned to Investment Unit That Lost Billions" p. A1, col. 6 (New York Times Nat'l ed., Saturday, May 26, 2012):  "But JPMorgan's office, with a portfolio of nearly $400 billion, had become a profit center that made large bets and recorded $5 billion in profit over the three years through 2011."

    Those who have eyes to see with, let them see, and ears to hear with, let them hear.  It is not truthful to claim that you could not see something that was so unusual it had to have been seen, or that you could not hear what everyone else could hear including that there was a whole lot of shakin' goin' on at JPMorgan even before Billions of Dollars in losses arrived at the door.

P.S. on so-called regulation by the Wall Street-controlled OFFICE OF THE COMPTROLLER OF THE CURRENCY, which has jurisdiction over the activities in question at JPMorgan:

"The Office of the Comptroller of the Currency has also faced scrutiny about whether it is too cozy with the banks it oversees."  Id.

Duh.  What was your first clue?

Please Read The Disclaimer.

Foreclosers in Florida Follow Foreclosure "Mistakes Are Made" Business Model.

    The problems dumped on Florida's Judicial system by Foreclosure Fraud -- and on the Courts in other jurisdictions as well -- have been the subject of many posts here.  See, for example, the series on "Immunizing Foreclosure Frauds is Not an Option," posted on 09.29.11, 10.06.11, and 10.13.11.

    Solutions have been proposed to these problems.  For example, a  set of several solutions was posted here almost a year ago, on June 8, 2011, "Foreclosure Lawsuits Problems Attmept Overcoming Court:  No. 1, With Solutions."  The State of Missouri has followed one of its own solutions:  Missouri is criminally prosecuting Forgery initiated by Florida Foreclosure Facilitators, and the Missouri prosecution was posted here on February 9, 2012.

    Now another issue has arisen and is pending right now in front of the Florida Supreme Court:

    The issue is whether Florida banks should be able to escape punishment if they drop a foreclosure case because they realize they have fraudulent documents.  They are allowed to do so and then refile the case with proper documentation.

Kathleen Haughney, "Florida Justices Weigh 'Robo-Signing' Sanctions" p.A3, col. 1 (Orlando Sentinel, Wednesday, May 9, 2012).

    The Florida Supreme Court has scheduled Oral Arguments on the issue for today, Thursday, May 10, 2012.

    Reportedly, groups of bankers have filed briefs in which they take the position that they should be allowed to continue their foreclosure 'mistakes are made' business model.  See id.

    If mistakes were the only issue, then perhaps.

    But mistakes are not the only issue.  See all the posts and links, above.  No, the business model is the issue.  It is not compatible with the Justice system in Florida -- or anywhere else.

Please Read The Disclaimer.

Fiduciary Settlement?

    Lawyers retained by two Plaintiffs have reportedly settled claims for alleged Breaches of Fiduciary Duties by "the directors of Bank of America over its purchase of Merrill Lynch".  The settlement requires Court approval in a Federal class action lawsuit pending in the United States District Court for the Southern District of New York (Manhattan).  Gretchen Morgenson, "Bank of America Accord in Lawsuit is Challenged" p. B1, col. 5 (New York Times Nat'l ed., "Business Day" Section, Saturday, April 21, 2012).

    The tentative settlement has been challenged in the Federal Court by other Plaintiffs who filed their lawsuit in Delaware apparently against the same Bank of America Defendants, and also on account of BOA's purchase of Merrill Lynch.  The Delaware Plaintiffs' claims would arguably be terminated if the New York settlement is approved by the Federal Court.  Id.

    The New York Plaintiffs are reportedly willing to settle their $5 Billion Breach of Fiduciary Duties claims for $20 Million.  Id.

    The Delaware Plaintiffs' challenge to the tentative New York settlement is based on grounds that "the settlement [is] grossly inadequate and the result of collusion".  Id.

    To put it another way, the Delaware Plaintiffs apparently contend that the New York Plaintiffs are acting in Bad Faith with the New York Defendants.

    Time -- and a Federal Judge in New York -- will tell.

Please Read The Disclaimer.

British Insurers Question High Pay for Low Results.

   The Association of British Insurers (access home page here) are in the news for something extraordinary, at least extraordinary in my experience in the United States.

   The British Insurers question whether a bank CEO has earned high pay when his bank lost 16 percent of its profits last year, as reported by Mark Scott on Dealbook Blog on New York Times Online, posted April 11, 2012.

   Hear, hear.

Please Read The Disclaimer.

Bad Faith Financial Services: No Comparative Negligence in Lawsuit.

    The Verdict is in:  Federal Jury awards every penny St. Petersburg put on the board in Closing.

    Many cities claim that they lost money by relying on bad advice or, in some cases, allegedly relying on no advice, from the cities' financial advisers before the Great Collapse.  One of those cities among many is the City of St. Petersburg, Florida.

    The City sued because it allegedly lost money buying Lehman Brothers bonds after Lehman's financial condition began a death march.  The Defendants in the City's Federal lawsuit is the City's financial adviser:  Wachovia Global Securities, now owned by Wells Fargo.  According to the City's claims, the Defendant did not tell St. Petersburg that Lehman's financial condition  had begun rapidly deteriorating.  

    The Defendant defended on a reported contention that the City of St. Petersburg knew or should have known that Lehman bonds were a bad investment at the time.

    Regardless of what the Defendant told the City, or did not tell the City, their client.

    All of these contentions were previously posted here on March 27, 2012, "City Sues For Alleged Bad Faith Financial Services, $16 Million Damages".  (The amount of money reflected in the title of that post comes from a newspaper article which is linked in the post.  That amount is apparently the amount lost by the City as of the time the City filed ts lawsuit.)

    Now, the Verdict is in.  A Federal Jury awarded the City of St. Petersburg every penny it asked for: $10,387,500.00.  This represents the difference between what the City paid for the Lehman bonds, and what the Lehman bonds are worth now.  See Michael Van Slicker, "City of St. Petersburg Wins $10.4 Million Verdict Against Big Bank" (Tampa Bay Times Online, Tuesday, April 3, 2012).

    Two of the Jurors who were interviewed for the linked newspaper report, revealed that they were not happy with the conduct of the City's chief financial-investment official, who reportedly went ahead with the investments despite apparent knowledge at least that Lehman was in bad straits financially.  However, according to the Jurors, the Jury in this case concentrated on the conduct of the Defendants, which reportedly impressed them even more.

    As the Jurors saw it, the City's financial advisers breached their duties to advise the City about these and other risky financial investments.  "'But the evidence showed that Wachovia didn't do its fiduciary duty.'" Id., quoting the man whom the Jury elected as its Foreman.

    The City sued its financial advisers for alleged breach of contract, breach of alleged Fiduciary Duties, and negligence.  As a matter of law, a matter perhaps unknown to financial advisers at least before this Verdict, 'comparative negligence' is not a defense to claims other than negligence when, as the Jury found in this case, financial advisers breach the duties they assume when their offer to be paid in exchange for their financial advice are accepted.  When that happens, they owe duties to their new-found clients.  In this case, a Federal Jury found one more thing:  These Defendants breached their duties to the tune of every penny their client lost as a result, which the Jury awarded.

Please Read The Disclaimer.

FANNIE MAE AND FREDDIE MAC REFUSE TO WRITE DOWN PRINCIPAL ...

... AND WHY THEIR REFUSAL MAY BE IN GOOD FAITH.

 

Sometimes it takes a little learning.

          The Federal Housing Finance Agency is the current, and hand-picked, regulator for both Fannie Mae and Freddie Mac.  The acting director of FHFA says that he takes his duties seriously.  His duties are above all to safeguard the risks imposed on the Taxpayer and the money the Taxpayer will have to pay.

 

          Fannie Mae and Freddie Mac were both put into conservatorship as a result of the Mortgage Fiasco, of course.   Neither had the money to pay the bills, i.e., the Mortgages they assumed, once the bills came due.

 

          There have been calls for Fannie and Freddie to write down the principal amount of the first Mortgages which they assumed.  The publicly stated theory behind such calls is that Homeowners-Mortgagors will find it easier to pay reduced first Mortgages.

 

          This ignores a fact that the FHFA acting director cannot ignore, however.  Writing down the principal on first Mortgages held by Fannie and Freddie without a corresponding write-down of the principal on second Mortgages would increase the likelihood that the second Mortgages would remain completely in effect and would be paid, or the Homeowners would suffer the consequences of Foreclosure once the first Mortgages, now held by Fannie and Freddie, no longer exist once a reduced write-down amount is paid.

 

          There is a victim, if you will, if Fannie or Freddie write down the principal amount due on first Mortgages even as the Homeowners would be given apparent relief on the face of it:  Federal Taxpayers are the people due the principal amount which is being written down.  If the principal is in fact written down, the Taxpayers recover less whenever any Mortgage now held by Fannie or Freddie is reduced.

 

          Further, the second Mortgagors are investment Banks.  They already got their bailout, as we all know.

 

          Reducing the amount owed on first Mortgages held by Fannie Mae and Freddie Mac, without a corresponding write-down of the principal on second Mortgages held by the Banks, would mean nothing less than a second bailout of the Banks.

 

          Much of this is laid out in an easy-to-understand article by Gretchen Morgenson, "Fair Game / A Bailout by Another Name" p.1 col. 6 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, March 25, 2012).  As Ms. Morgenson wrote at the conclusion of her article:

 

So the next time you hear someone advocating vast principal reductions on Fannie and Freddie loans, remind them that it would be another stealth bank bailout, courtesy of taxpayers.  Banks' unwillingness to share the pain has been a central feature of this crisis.  It's time to put an end to this dysfunctional dynamic.

 

Please Read The Disclaimer. 

City Sues for Alleged Bad Faith Financial Services, $16 Million Damages

    The Trial began on Monday in a Florida municipality's Federal lawsuit against its financial services "bank"/financial adviser.  The City of St. Petersburg has sued Wachovia Global Securities for failing to disclose the condition of Lehman Brothers to the City even as Wachovia allegedly advised St. Petersburg to invest in Lehman bonds and Lehman was going bankrupt.

    The bank reportedly counters that the City of St. Petersburg was fully aware of Lehman's condition, which Wachovia itself of course knew.  Wachovia Financial Services has since been acquired by Wells Fargo.

    As the result of a pretrial ruling in the case, the City of St. Petersburg will be allowed to put on evidence of similar circumstances resulting in losses to other cities.  For example, the City of Sarasota reportedly lost $40 Million in a similar investment in Lehman bonds apparently at or about the same time.

    The common thread in cities' litigation against their former financial advisers is known as "securities lending".  In essence, the cities leased bonds they held, or the right to receive income from them in the future, in exchange for cash payments now.  "The risk comes when the city makes an investment that loses money, which would then have to be repaid."  Michael Van Slicker, "St. Petersburg Seeks to Recover $15.8 Million in Lost Investments in Trial Monday" (Tampa Bay Times Online, Saturday, March 24, 2012).

    Who bears the risk of nondisclosure, on the one hand, or of the equivalent of assumption of the risk, on the other hand, is at issue in such lawsuits.

Please Read The Disclaimer.

AFTER THE SETTLEMENT ...

   ... They Wrote the Complaint.

    Settlement between five Mortgage Servicers/Banks, on the one hand, and the United States, and all but one of the Attorneys General of the States and the District of Columbia on the other hand, was announced in early February, 2012.  They settled unalleged differences over unknown things.

    Their Settlement Agreement was not made available until it was posted this past week online, at www.nationalmortgagesettlement.com.  

    The only people who could look at it in the meantime, are the ones who wrote it.  See February 26, 2012 post here:  "Is There a Mortgage Foreclosure Fraud Settlement? 

    In an unusual development, the Complaint was not written until after the settlement was announced.  Also this past week, a Complaint was posted for the first time.

    It is not dated.  A date would, well, date it.

    It does not show a Case Number, nor does it bear any Clerk's "Filed" stamp.  Presumably, it looks the same as the original filed in Court.

    Without a case number, the parties listed in the style are too generic to yield any PACER search results.  PACER is of course the online electronic docket of the Federal Courts.  I have tried PACER searches for the lawsuit, without success, yet.  I plan to continue.  If you want to try a search yourself, on PACER or otherwise, the parties' names on the Complaint are United States of America, et al. v. Bank of America Corporation, et al. 

    Here is a copy of the only Complaint made available in the interim from the www.nationalmortgagesettlement.com website:  Download Undated, Unfiled Complaint.  It is 99 pages long.  I have not finished reading it, at this time.  I plan to comment further regarding it, in a later post.

    There are as many Settlement Agreements posted on the website as there are Mortgage Servicers:  Five.  A look at the Settlement Agreement reached with the first-named "Defendant" in the Complaint, Bank of America Corporation, shows that it is a potentially intimidating 317  pages long.

    To summarize where we are to this point:  There was a settlement, after which a 99-page complaint was written, and thousands of pages of settlement documents were also written, and all of which reading material was released for public review a month after the press notices were released announcing a settlement of unknown, unidentified allegations.

    And now, a Federal Judge is going to be asked to approve it all.  Judge, correct me if I am wrong, but this smells.  Perhaps it is just the way it was cooked.

    The prevailing applicable rule of law followed by Federal Judges in reviewing actions of administrative agencies, is one of "deference".  In the 21st Century, this standard of review rule or at least the way it is being argued in recent similar cases, has frankly outlived any basis in reality it once had.  The Governments' argument is essentially that Federal Judges are duty-bound to rubber stamp whatever settlements the Governments make.

    That is the binding rule of law at this time, at least according to one Second Circuit panel.  See Edward Wyatt, "Ruling Gives Edge to U.S. in its Appeal of Citi Case" p. B1, col. 6 (New York Times Nat'l Ed., "Business Day" Section, Friday, March 16, 2012).

    Perhaps there will be one United States District Judge honest enough to say that the evidence submitted in support of the bare allegations in the "Complaint" is not enough, but prevailing law requires approval of this settlement anyway simply because an administrative agency of the Federal Government made it.

Please Read The Disclaimer. 

    

 

    

Is There a Mortgage Foreclosure Fraud Settlement?

And if there Is a Mortgage Foreclosure Fraud Settlement Agreement, why can't we see it?  If it displays Good Faith, Would It not be displayed?  You would think.

   There is no Settlement Agreement on the website set up for the Foreclosure Fraud Settlement.

    The reports of an Agreement may be premature.

    There is an Executive Summary, and something called a fact sheet.  There are no dates in them. 

    The Mortgage Foreclosure Fraud Settlement was announced 3 weeks ago, as this post is written.

    I am interested in how the reported 'settlement' affects Banks' and Mortgage Servicers' liability for past practices that allegedly committed fraud upon the Courts.  Things like submitting Affidavits as proof without personal knowledge despite the signers' oath that they had personal knowledge of what was in the Affidavits they executed.  Things like at least some Foreclosure Plaintiffs' allegations that Notes and Mortgages were lost and could not be found, although allegedly the Notes and Mortgages are in the files of the Foreclosure Plaintiffs who made such allegations.  I have been looking for any information and in researching the entire Internet on this subject, I have found one source of information.

    We owe it to one source among the many weighing in on this reported 'settlement,' who describes what if any provisions are made in it concerning the liability of Banks and Mortgage Servicers for past practices which allegedly perpetrated fraud upon the Courts.  An Assistant Attorney General in Wisconsin writes on the website of the Wisconsin Bar that in the settlement, the participating Banks/Servicers are completely released from all such claims which might be pursued by the Federal Government and the participating State Attorneys General, based on alleged fraud upon the Courts of the States and of the United States.  See Holly Pomraning, Esquire, Assistant Attorney General, Wisconsin Department of Justice, "Wisconsin Joins $25 Billion Mortgage Settlement" posted on February 13, 2012 on State Bar of Wisconsin website.

    If Attorneys General will not ensure that fraud is not committed upon the Courts, who will?

   We would likely be better off if the reported settlement was never born, as they say.  See "Mortgage Foreclosure Fraud Settlement:  This Settlement is a Fraud," posted on February 16, 2012 on Insurance Claims and Bad Faith Law Blog.

Please Read The Disclaimer.   

Mortgage Foreclosure Fraud Settlement: This Settlement is a Fraud.

   This is getting to be a bit much.

   Last week, the Obama Administration announced a settlement of all claims by any agency of the Federal Government or by any State Attorney General, of Mortgage Fraud committed by or on behalf of five huge Mortgage Servicers which are also Banks and which issued Mortgages as well.  Many features of the settlement have been written up in Press Releases and published in many newspapers.

   However, the actual Settlement Agreement is not posted online yet as of this writing.

   As noted, this is getting to be too much.  It seems pretty clear that the participants are not posting their Settlement Agreement because they just do not want other people to look at it.  They would rather have their Press Releases published instead.

   An "executive summary" without the actual provisions has just been released.  Download Philip A Lehman Asst A G N C Executive Summary of Multistate Federal Settlement of Foreclosure Misconduct Claims (undated c 02 15 12)  It is four pages long.

   Three paragraphs address the Release given by the Federal Government and by the State Attorneys General. 

   The "executive summary" of their Release is that they have released all claims that they might file on account of the Foreclosure Frauds allegedly committed upon Homeowners who are losing their homes in these Foreclosures.  The alleged Fraudulent activities are not mentioned, but past allegations of their Fraud include the submission of Affidavits which are not based on personal knowledge, or which are allegedly false and misleading, and including also the filing of Foreclosure lawsuits and the pursuit of nonjudicial Foreclosures where permitted, which are allegedly brought by persons or corporations which do not hold the Note behind the Mortgage in question, and who swear or affirm that they cannot account for its whereabouts, even as they pursue their Foreclosure claims based upon those same Notes and Mortgages.

   Individuals and their lawyers are not bound by this settlement, and they can still pursue claims and defenses based upon these Frauds, the executive summary helpfully summarizes for us.

   What the executive summary leaves out, however, is that most of these Foreclosure Defendants do not have a lawyer.

   There is often no-one involved in their Foreclosures who knows enough to look for evidence of  the Foreclosure Plaintiffs' Mortgage Fraud if any.  That leaves the United States Department of Justice, all the Federal agencies involved, and the 50 State Attorneys General to raise the issues -- only they have just settled out.

   Mortgage Fraud Settlement:  This Settlement is itself a Fraud.  Just in time for the upcoming 2012 elections.

Please Read The Disclaimer. 

ARE COUNTRYWIDE'S ALLEGED SINS VISITED UPON NEW PARENT, BANK OF AMERICA?

... One Federal Court Answers "no," Not in That Case.  Court Dismisses Amended Complaint at Issue, With Prejudice.

    In Allstate Insurance Co. v. Countrywide Financial Corp., 2012 WL 335730 (C.D. Cal. February 2, 2012), Download Allstate Insurance Co. v. Countrywide Fin. Corp. (C.D. Cal. Case No. 2.11CV05236, Order Filed February 2, 2012) PUBLIC ACCESS, a Federal Judge dismissed Fraud claims against Bank of America ("BOA") with prejudice.  The Fraud claims were based on BOA's Merger and Acquisition activity and alleged vicarious liability for the Residential Mortgage-Backed Securities sales of Countrywide Financial Corporation.

   Allstate filed this "securities action [over] residential mortgage-backed securities ('RMBS')" it purchased "in multiple offerings structured and sold by several of the defendants."  The Defendants in that case included Bank of America, and they include Officers and Directors of Countrywide.  More specifically, Allstate alleged misrepresentations by or on behalf of the Defendants "regarding the quality of Countrywide-issued [RMBS] that Allstate purchased between 2005 and 2007."  Id. at *1.

   Allstate alleged that when Bank of America bought Countrywide, BOA also bought liability in the event that Allstate recovers Damages in this lawsuit.  Allstate alleged Causes of Action Nine, Ten and Eleven against BOA for "Successor and Vicarious Liability," "Intentional Fraudulent Conveyance," and "Constructive Fraudulent Conveyance," respectively.  Id.

   For reasons primarily related to Illinois law, the Federal Judge dismissed with prejudice Allstate's alleged claims of Fraudulent Transfer, whether "constructive fraudulent transfer" (id. at *5 - *7) or "actual fraudulent transfer" (id. at *8 - *10).

   Next, citing a Third Circuit Court of Appeals decision, the Federal Judge in California dismissed with prejudice Allstate's alleged claim of "assumption of liabilities" by BOA of Countrywide's liabilities.  Id. at *11.

   The Federal Court then dismissed with prejudice any alleged claim by Allstate against BOA for "successor liability" as to Countrywide's alleged fraudulent activities.  In reaching this decision, the Federal Court relied on Federal decisions from Illinois, California, and Delaware, and on Delaware State Court decisions, all applying Delaware law in this regard.  Id. at *11 - * 13.  Although the California Federal Court observed in this case that "Delaware law is clear that directors owe a fiduciary duty only to the corporation and its shareholders," and not to "a creditor such as Allstate at all,"  id. at *12 n.11,  "[t]he Court need not address this issue" in this case, the Court ruled.  Id.

   Parties allegedly defrauded during the Great Financial Fiasco, including parties who allege that they were defrauded during the sale and origination of Residential Mortgage-Backed Securities, and their legal counsel, are provided by this opinion with a roadmap for alleging sustainable Fraud claims.  Specifically, the Court's opinion in this case provides such a roadmap for parties and their counsel alleging claims against successor entities which may be held vicariously liable for those allegedly fraudulent RMBS activities, dependent upon the facts of each case.

 

Please Read The Disclaimer.

HEALTH INSURANCE: MORE ON "FORCE PLACED INSURANCE" ...

... Herein of its profitable performance as a financial planning tool for lenders, its lack of deductibles, and its effects on Fiduciary Relations.  This updates the post here on January 15, 2012.

    In addition to the many features of "force placed" or "forced place" Insurance that were addressed in a post here last week, force placed Insurance also has these prominent features as well:

1. At this time, it generates $6 Billion annually, or $6,000,000,000.00 a year.  It has grown 6 times in recent years, largely at the expense of Homeowners.
2. "[L]ender-placed insurance" is strictly for the benefit of Lenders.  Homeowners are not protected by it and there is ordinarily no Deductible.
3. Lenders of course are the ones who require Borrowers-Homeowners to agree that Lenders can force the placement of Insurance to protect the Lenders' interests.  A Lender's Mortgage Servicer may be, and often is, connected or affiliated with the Insurance Company which issues the force placed Policy.  The Mortgage Servicer may not disclose the conflict of interest in that situation and, if there is a loss, the Mortgage Servicer may be reluctant to submit a Claim to its affiliate, the Insurance Carrier which issued the force placed Insurance.  In the meantime, the Homeowner of course is charged for the high Premium and, if the Homeowner cannot pay that Premium, the Lender frequently forecloses -- paying the Lender's Mortgage Servicer to bring the Foreclosure proceedings.

See  Gretchen Morgenson, "Fair Game / Hazard Insurance With Its Own Perils" p. 1, col. 1 (New York Times Nat'l ed., "SundayBusiness" Section, Sunday, January 22, 2012).   "Mind you, force-placed policies do not protect homeowners from loss.  Only lenders are covered.  But homeowners must pray the freight."  Id.

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Suffer to be Called "Litigious": Lawsuits Cross the Pond ...

... At Least When Lots of Money is Involved.

   Following a tradition, American shareholders of Lloyds Banking Group of Britain (NOT Lloyd's the insurance syndicates) has filed a class action because they claim a lot of damages.

   They have filed suit in New York against Lloyds Bank itself, its former Chair of the Board, and its former CEO.  (At this time, it is unknown whether the action has been filed in New York State Court or in Federal Court but that information will be provided when it becomes available here.)

   The allegations apparently center on a reported "'reckless disregard for the truth'," based on the following allegations of failure to inform.  Lloyds Bank bought HBOS, plc.  HBOS was the holding company behind the Bank of Scotland.  See Wikipedia, "HBOS".  Lloyds Bank was high on the acquisition, until they were not.

   Things turned sour for the Lloyds Bank shareholders allegedly when shortly after the acquisition of HBOS, Lloyds Bank had to give up a 43% stake to the government in return for an infusion of $26,400,000,000.00 or $26.4 Billion in Taxpayer Funds.

   The suing shareholders of Lloyds Bank allegedly were not told of HBOS' decline in fortunes, so to speak, until they read about it in the newspapers, i.e., when a loss in the Billions was posted by the bank.  Reuters Report, "U.S. Shareholders Sue Lloyds" (New York Times Online, January 2, 2012).

   More to come, no doubt.

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FDIC's Bad Faith Claims Dismissed, Claims Handling Evidence Permitted Anyway.

   A Motion in Limine was granted to ALLOW evidence at Trial of Claim Handling on the FDIC's Fiduciary Claims against Safeco Insurance Company of America, even though the FDIC's Bad Faith Claims were all previously dismissed, in FDIC as Receiver for Netbank, FSB v. Safeco Insurance Co. of America, 2011 5865867 *1 (D. Nev. November 18, 2011), Download FDIC as Reciever for Netbank, FSB v. Safeco Ins. Co. of Am. (D. Nev. ENTERED ON PACER AS Case No. 2.02cv10151, Order November 18, 2011) PUBLIC ACCESS.

   Fiduciary Breach is often so closely related to alleged Bad Faith Claims Handling that the same evidence can prove even the different elements of one or the other.  The lesson?  Objectively verifiable Good Faith Claims Handling defeats a host of troubles.  What is objectively verifiable?  It is Good Faith Claims Handling which can be proven, sometimes so clearly, that no further evidence of it is required to defeat any Claim based on that set of facts.

   Even objectively verifiable Good Faith Claims Handling does not come with absolute guarantees, however.  Sometimes it will take a finder of fact to decide whether Claims Handling was a Fiduciary Breach, as it will take a finder of fact to decide that issue at Trial under the ruling in this case.

PACER, the Online Electronic Docket of the Federal Courts, reveals that the Jury returned a Verdict in this case for the Plaintiff FDIC on December 8, 2011, in the amount of $60,475,293.90.

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