Below is an update on the lawsuits we have been following that state attorneys general and a state regulator have brought using their Dodd-Frank enforcement authority. Under Dodd-Frank Section 1042, a state AG or regulator is authorized to bring a civil action to enforce provisions of Dodd-Frank Title 10 or regulations issued under Title 10, including the Dodd-Frank prohibition of unfair, deceptive or abusive acts or practices (UDAAP).
Illinois. The Illinois AG has filed two lawsuits using her Section 1042 authority. In March 2014, the Illinois AG filed a state court lawsuit against a small loan lender alleging violations of the Dodd-Frank UDAAP prohibition as well as state law violations. In April 2014, the defendant removed the case to an Illinois federal court. In May 2014, the defendant filed a motion to dismiss and the AG responded to the motion on July 21, 2014. Since our prior update, the defendant filed a reply memorandum in support of its motion to dismiss on September 18.
The Illinois AG’s second use of Section 1042 was in a lawsuit initially filed in state court against a for-profit college and its owners. In March 2014, the state court granted the AG’s motion to further amend her complaint to add new counts alleging that the defendants’ practices were unfair and abusive under Dodd-Frank and in May 2014, the defendants removed the case to a federal district court in Illinois.
On June 16, 2014, the defendants filed a motion with the federal district court to dismiss the amended complaint and on June 18, the AG filed a motion asking the court to sever and remand Counts I and II of the amended complaint. Both parties’ motions were denied.
Since our prior update, the AG filed a substantially similar second amended complaint on September 30 to which the defendants filed an answer on October 3. The court has set a summary judgment motion filing deadline of December 12, 2014 and scheduled a bench trial for June 15, 2015.
New York. In April 2014, Benjamin Lawsky, the Superintendent of the New York Department of Financial Service, using his Section 1042 authority, brought a civil action in a New York federal court for a violation of the Dodd-Frank UDAAP prohibition against a large subprime auto lender and its CEO and president. In May 2014, the court entered a preliminary injunction freezing the defendants’ assets and enjoining them from engaging in new loan business and an order appointing a receiver. On June 10, the court denied the defendants’ motion to modify the preliminary injunction.
On August 1, the court denied a renewed motion by the defendants to modify the preliminary injunction. As we reported, the defendants have filed an appeal from that order with the U.S. Court of Appeals for the Second Circuit and must file their brief by December 8.
Since our last update, the district court issued a ruling on October 28 that by appealing the August 1 order, the defendants divested the court of jurisdiction to modify that order and denied a request by the defendants to modify the order while the appeal is pending. On November 6, the court entered an order formally reaffirming that the receiver had absolute discretion to enter into a sale of the lender’s customer loan portfolio and use the proceeds to satisfy amounts owed to the lender’s secured creditors. On the same day, the lender and its CEO submitted a letter to the court seeking permission to participate in the marketing and sale of the lender’s remaining assets.
Florida/Connecticut. On July 29, 2014, another Section 1042 lawsuit was filed jointly by the Attorneys General of Florida and Connecticut in a Florida federal court. The lawsuit alleges that four individuals and their four businesses formulated and participated in a mortgage rescue scam that deceived consumers into paying upfront fees to be included as plaintiffs in so-called “mass-joinder” lawsuits against their mortgage lenders or servicers.
In addition to asserting claims under their states’ unfair trade practices acts, the AGs allege in their amended complaint that the defendants’ conduct violated the federal Mortgage Assistance Relief Services Rule (MARS Rule). The AGs assert their MARS Rule claim pursuant to Section 1097 of Dodd-Frank (12 USC Section 5538), which authorizes a state AG to bring civil actions on behalf of his or her state’s residents to enforce the MARS Rule.
The AGs also assert a UDAAP claim under Section 1042 of Dodd-Frank. Dodd-Frank Section 1097 further provides that a violation of the MARS Rule “shall be treated as a violation of a rule prohibiting unfair, deceptive, or abusive acts or practices under the Consumer Financial Protection Act of 2010.” The defendants assert that pursuant to Section 1097, a violation of the MARS Rule is a UDAAP under Dodd-Frank.
Contemporaneously with the filing of the original complaint, the court entered a temporary restraining order freezing certain of the defendants’ assets and appointing a receiver and on August 22, 2014, the court entered a preliminary injunction continuing such relief.
Since our initial report, one of the individual defendants filed an answer to the amended complaint on October 7 and the remaining defendants have received extensions to file answers until December 2 and 8.
Mississippi. In May 2014, the Mississippi AG filed a lawsuit against Experian in Mississippi state court alleging widespread federal and state law violations. (While the AG’s complaint did not expressly allege that his claim of alleged UDAAP violations by Experian was brought under Section 1042, his complaint seeks various remedies under Dodd-Frank Section 1055 (12 U.S.C. 5565).) In June 2014, Experian removed the case to a federal district court in Mississippi. There have been no significant developments since our prior update.