Hard Cases

JOSEPH MARGULIES

Cornell law professor Joseph Margulies uses the killing of Rayshard Brooks in Atlanta by police to explain some lessons for reform we might learn. Margulies calls upon us to use this case to reexamine the circumstances that should result in a custodial arrest and to shrink the function of police so as to use them only in the very few situations that truly require them.

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Seaway Bank & Trust Co. v. J&A Series I, LLC, Series C

Court: US Court of Appeals for the Seventh Circuit

Docket: 19-2425

Opinion Date: June 18, 2020

Judge: ROVNER

Areas of Law: Banking, Civil Procedure, Government & Administrative Law

In 2012, Seaway Bank sued J&A to collect on loans secured by a mortgage on Chicago property. In 2013, the court entered a judgment of foreclosure. The court approved the sale of the mortgaged property and entered a $116,381 deficiency judgment against the guarantor. In 2017, Illinois regulators closed Seaway. The FDIC was appointed as receiver, set a claims bar date, and published notice. J&A filed no timely claims. Months later, J&A filed a Petition to Quash Service in the 2012 state-court lawsuit. J&A argued that once relief was granted, it was entitled to the property. The FDIC removed the proceeding to federal court and moved to stay the proceedings to allow J&A to exhaust the mandatory claims process under the Financial Institutions Reform, Recovery, and Enforcement Act, 12 U.S.C. 1821(d). The court granted the stay; J&A did not submit any claims by the submission deadline. The FDIC moved to dismiss for failure to exhaust the Act's claims process. J&A asserted that the jurisdiction-stripping provision applied only to claims seeking payment from a failed bank and that J&A did not seek payment but only to quash service and vacate void orders; only if the court granted that non-monetary relief could they pursue “possessory relief,” so that the FDIC’s motion was not ripe because they were not yet seeking the return of the property or monetary relief. The Seventh Circuit affirmed dismissal. The district court lacked jurisdiction over the Petition because J&A failed to exhaust administrative remedies.

First Mortgage Corp. v. United States

Court: US Court of Appeals for the Federal Circuit

Docket: 19-1798

Opinion Date: June 12, 2020

Judge: Wallach

Areas of Law: Banking, Civil Procedure, Government Contracts, Securities Law

Ginnie Mae (GM), established by 12 U.S.C. 1717(a)(2)(A) to provide stability in the secondary residential mortgage market and promote access to mortgage credit, guarantees mortgage-backed securities (MBS). FMC, a private corporation, was an originator and servicer of government-guaranteed home mortgages and an issuer of MBS in GM’s program. GM learned of FMC actions that constituted the immediate default of the Guaranty Agreements. FMC undertook an investigation and provided the results to GM, while also complying with SEC requests. GM later terminated FMC from its program. The SEC initiated a civil enforcement action, which terminated in a consent agreement, without FMC admitting or denying the allegations but paying disgorgement and penalties. The Consent Agreement provided that it did not affect FMC’s right to take positions in proceedings in which the SEC is not a party but FMC agreed to not take any action or permit any public statement denying any allegation in the SEC complaint FMC later sued, alleging that GM had breached Guaranty Agreements when it terminated FMC from its program and denied violating those Agreements. The Federal Circuit affirmed the Claims Court’s dismissal. FMC’s breach of contract claims are precluded under the doctrine of res judicata. FMC’s action is essentially a collateral attack on the judgment entered in the SEC action. The SEC and GM are in privity for the purposes of precluding FMC’s claims and “successful prosecution of the second action would nullify the initial judgment or would impair rights established in the initial action.”

Bank of New York Mellon v. King

Court: Massachusetts Supreme Judicial Court

Docket: SJC-12859

Opinion Date: June 17, 2020

Judge: Kafker

Areas of Law: Banking, Real Estate & Property Law

The Supreme Judicial Court affirmed the decision of the Housing Court ordering Defendant to pay $4,000 in use and occupancy to the Bank during the course of his appeal from a judgment in favor of the Bank in a summary process action, holding that the postforeclosure defendant whose appeal bond is waived may be ordered to pay use and occupancy to the plaintiff. After foreclosing on Defendant's property, the Bank obtained judgment in a summary process action against Defendant. Defendant appealed and moved to waive the appeal bond. The judge waived the bond but ordered Defendant to pay monthly use and occupancy to the Bank while the appeal was pending. The Appeals Court vacated the portion of the order requiring use and occupancy payments. The Supreme Judicial Court held (1) the bond for a defendant appealing from an adverse judgment in a postforeclosure summary process action may be waived if he is indigent and pursuing nonfrivolous arguments on appeal; (2) the postforeclosure defendant whose bond is waived may be ordered to pay use and occupancy to the plaintiff; and (3) the amount Defendant was ordered to pay as use and occupancy in this case reflected a fair balancing of interests.