On November 17, 2021, on its review en banc of its prior decision, the United States Court of Appeals for the Second Circuit changed its course in Maddox v. The Bank Of New York Trust Company, N.A., docket number 19-1774, and held that the plaintiffs’ allegations “fail to support their Article III standing, and that they may not pursue their claims for statutory penalties imposed by the New York Legislature in federal court.” Notably, the rehearing decision was issued by Judge Dennis Jacobs, who issued the sharp dissent of the panel’s May 10, 2021 decision.

The changed ruling is credited to the Supreme Court of the United States’ recent decision in TransUnion LLC v. Ramirez, __ U.S. __ 141 S. Ct. 2190 (2021), which widely curtailed standing in federal courts for legislatively-memorialized injuries and claims for statutory damages; the punchlines of Ramirez are “no concrete harm; no standing,” and “injury in law is not an injury in fact.”

Based on Ramirez, the en banc panel held that the Maddoxes did not suffer a concrete harm, and thus lacked standing in federal court. The Second Circuit held there was no need to determine whether distinctions exist between rights created by state or federal legislative bodies, or whether the statutes at issue (New York Real Property Law (“RPL”) § 275 and Real Property Actions and Proceedings Law (“RPAPL”) § 1921) are “substantive” or “procedural,” because Ramirez “eliminated the significance of such classifications.” The Second Circuit noted that its May 10, 2021 decision relied significantly on the analysis of “substantive” and “procedural” laws, but Ramirez reduced the Second Circuit’s contemplation to a mere “preoccupation.”

So, instead of focusing on generalized injuries contemplated by the statutes, the panel shifted its analysis to injuries suffered specifically by the Maddoxes themselves. First, Judge Jacobs noted that the Maddoxes did not allege that they suffered any injury for duplicative filing fees or having a cloud on title, and held they could not because their property was sold before their mortgage was satisfied.

Second, Judge Jacobs noted that the Maddoxes did not allege they suffered any reputational harm, and held that the public record “so far as is known, . . . was read by no one,” hence it was “not analogous to the dissemination of the credit reports” in Ramirez. Describing the distinction as “critical,” the en banc panel held that without the publication of a defamatory writing, “the Maddoxes may have suffered a nebulous risk of future harm during the period of delayed recordation—i.e., a risk that someone (a creditor, in all likelihood) might access the record and act upon it—but that risk, which was not alleged to have materialized, cannot [] form the basis of Article III standing.”

Third, in a similar vein to the lack of materialized defamation, Judge Jacobs rejected the Maddoxes’ contention that “the Bank’s delay adversely affected their credit . . . making it difficult to obtain financing had they needed it in an emergency or for a new home,” as an unmaterialized purported risk that is incapable of conferring standing.

Fourth, with respect to one of the plaintiff’s claims that she suffered emotional and psychological distress, the en banc panel held that they “were not the subject of allegations in the complaint and, in any event, are implausible,” because “she offers no reason why the delayed recordation would cause ‘great stress, mental anguish, anxiety, and distress.’” “A perfunctory allegation of emotional distress, especially one wholly incommensurate with the stimulant, is insufficient to plausibly allege constitutional standing,” and “[e]ven if it were sufficient, ‘it is extremely unlikely that such an allegation would be typical of the class.’” And with respect to claims for opportunity costs, Judge Jacobs noted that the satisfaction was recorded three months before the Maddoxes filed the complaint claiming it was unrecorded.

In closing, Judge Jacobs echoed a sentiment from his sharp dissent in the May 10, 2021 decision—that the Maddoxes should follow through on their individual claim in state court. “This is a small claim, in a fixed amount, amenable to a recovery without dispute—and probably without counsel or fees. It is hard to imagine that a bank would press the issue to litigation.”

For the plaintiffs’ bar, Judge Jacobs offered guidance: “[t]o the extent that [absent class members] (or their lawyers) prefer to form a class and bring their claims in federal court, they must come prepared to prove that they suffered concrete harm due to the Bank’s violation of the relevant statutes.”