Preemption Ascher v. Grand Bank for Savings, FSB, No. 13 C 7712, 2014 WL 1018628 (N.D. Ill. Mar. 14, 2014). Plaintiffs filed suit against Grand Bank for Savings, FSB (“Grand Bank”) alleging violations of the Home Ownership Equity Protection Act (“HOEPA”) and state law. Grand Bank removed the case to federal court, and plaintiffs sought to amend their complaint to dismiss the HOEPA claim and remand the case back to state court. The court easily determined that plaintiffs should be granted leave to amend their complaint, as it was plaintiffs’ first attempt to amend and there had not been any undue delay. The court then addressed whether there was another basis for it to retain jurisdiction over plaintiffs’ remaining claims. In support of its opposition to plaintiffs’ motion to remand, Grand Bank argued that HOEPA and the Home Owners’ Loan Act (“HOLA”) preempted plaintiffs’ state law claims and provided a basis for jurisdiction. Addressing Grand Bank’s preemption argument, the court first noted that field preemption applies to state law “if federal law so thoroughly occupies a legislative field ‘as to make reasonable the inference that Congress left no room for the States to supplement it.’” 2014 WL 1018628, at * 2 (citation omitted). The court also found that when preemption is raised as a defense, it does not appear on the face of the complaint and cannot authorize removal. However, the court noted that field preemption permits characterization of state law claims to federal claims so that the court has federal question jurisdiction over those claims. The court then determined whether field preemption applied to plaintiffs’ state law claims. At the outset, the court noted that the Dodd-Frank Act “reduce[d] the federal government’s preemptive authority under HOLA, HOEPA, and other federal lending and banking laws.” Id. at * 3 (citation omitted). The court further said that the Dodd-Frank Act provisions do not apply retroactively, and HOLA preemption applies to mortgages originated before July 21, 2010 or July 21 2011. Thus, the court applied the preemption analysis that was in effect before Dodd-Frank’s enactment. The court looked to 12 C.F.R. § 560.2(b), which lists areas of law that are preempted. The court found that the state laws at issue dealt with amortization of loans, prepayment penalties, disclosures, usury, and interest rate ceilings, all of which are expressly preempted in § 560.2(b). Accordingly, the court retained jurisdiction over plaintiffs’ state law claims and denied their motion to remand. CFPB Involvement in Litigation Buchanan v. Northland Group, Inc., No. 13-2523, Doc. 006111982077 (6th Cir. Mar. 5, 2014). The CFPB and FTC recently filed an amici curiae brief in a case pending in the Court of Appeals for the Sixth Circuit. The CFPB and FTC’s brief expands the interpretation § 1692(e) of the Fair Debt Collection Practices Act (“FDCPA”). In the underlying lawsuit, Plaintiff Esther Buchanan received a dunning letter from a debt collector related to a debt upon which the statute of limitations expired. Buchanan filed a class action alleging that the letter violated 15 U.S.C. 1692(e), which prohibits the false, deceptive, or misleading representation in connection with the collection of a debt. The district court dismissed Buchanan’s complaint for failure to state a claim upon which relief could be granted. In their brief, the CFPB and FTC agreed that threatening to sue or suing on a time-barred debt violates the FDCPA. However, the CFPB and FTC took the position that a debt collector violates the FDCPA when any of its communications mislead the least sophisticated consumer. Thus, a debt collector can violate the FDCPA even if the communication does not threaten litigation. Specifically, the CFPB and FTC asserted that the letter at issue, which contained an offer to settle and failed to disclose that the debt was time-barred, was misleading and, thus, violated the FDCPA because it led plaintiff to believe that the debt could be enforced in court. According to the CFPB, “actual or threated litigation is not a necessary predicate for an FDCPA violation” when a debt collector seeks to collect a debt after statute of limitations has expired. CFTC Regulation of Retail Commodity Transactions CFTC v. Hunter Wise Commodities, --- F.3d ---, 2014 WL 1424435 (11th Cir. April 15, 2014). In a matter of first impression, the Eleventh Circuit held that amendments to the Dodd-Frank Act gave the Commodity Futures Trading Commission (“CFTC”) broader authority to regulate off-exchange and fraudulent retail commodity transactions. The amendment in question authorized the CFTC to regulate retail commodity transactions offered “on a leveraged or margined basis, or financed by the offeror, the counterparty, or a person acting in concert with the offeror or counterparty on a similar basis.” 7 U.S.C. § 2(c) (2)(D). The CFTC brought the original action against a group of defendants for conducting off-exchange and fraudulent retail commodity transactions in violation of 7 U.S.C. §§ 6(a)-(b). The CFTC alleged that the defendants brokerage firm, Hunter Wise, traded precious metals without actually storing or transferring any metals. The CFTC also claimed that Hunter Wise “managed its risk exposure . . . by trading derivatives in its own margin trading accounts with precious metals trading companies.” After the district court entered a preliminary injunction against the defendants, two officers of the brokerage firm (“Martin and Jager”) appealed, arguing that the CFTC lacked statutory authority to bring the enforcement action. Martin and Jager first argued that a “leveraged” transaction under the amendment has the same meaning as a “leveraged contract” under 7 U.S.C. § 23−a contract that is for a term of ten years or longer. Because transactions made through Hunter Wise matured in only four years, Martin and Jager argued that the transactions in question were not “leveraged” and thus were not subject to the CFTC’s enforcement authority. The court held that the transactions did fall under the CFTC’s purview, reasoning that a plain language reading of the statute does not give “leveraged” such a limited definition. The court reasoned that “leveraging” refers “generally to the ability to control high-value amounts of a commodity or a security with a comparatively small value of capital, known as the margin.” Using this definition of “leverage,” the court affirmed the district court’s finding that the transactions in question were leveraged and were thus subject to the CFTC’s enforcement authority. The court reasoned that Hunter Wise itself characterized its transactions as “leveraged sales in precious commodities” and that dealers could initiate margin calls when customers’ trading positions fell below a minimum margin requirement. Martin and Jager next argued that their commodity transactions were not subject to the CFTC’s authority because they fell under the statute’s exceptions for “contracts of sale resulting in actual delivery or which create an enforceable obligation to deliver between parties with the ability to deliver.” The court held that the transactions were not excluded by the actual delivery exception because the contracts of sale merely resulted in constructive possession of the precious metals. There was no physical delivery of the commodities purchased because Hunter Wise had nothing physical to deliver− it did not possess a physical inventory of metals, but instead traded on the margin trading accounts it had with its suppliers. The court also affirmed the district court’s finding that the contracts lacked an enforceable obligation to deliver and thus did not meet the second exception to 7 U.S.C. § 2(c)(2)(D). Because Hunter Wise did not own enough precious metals to cover its liabilities for the retail transactions at issue, the court reasoned that it did not have the ability to deliver the commodities. Durbin Amendment NACS v. Board of Governors of the Federal Reserve System, 746 F.3d 474 (D.C. Cir. 2014). The D.C. Circuit recently upheld regulations passed by the Board of Governors of the Federal Reserve System (“the Board”) pursuant to the Durbin Amendment of the Dodd-Frank Act. The amendment modified the Electronic Funds Transfer Act (“EFTA”) and instructed the Board to create regulations addressing excessive debit card transaction fees by setting a cap on the per-transaction fees that banks charge and by increasing competition among payment card networks. NACS, formerly known as the National Association of Convenience Stores, argued that the regulations promulgated by the Board violated the plain language of the Dodd-Frank reforms by failing to set adequate caps on transaction fees and by failing to sufficiently increase network competition. The district court granted summary judgment to NACS, and the Board appealed. The court first upheld the Board’s regulations concerning interchange fees, reasoning that the interchange fee rule “generally rests on a reasonable interpretation of the statute.” Further, the court noted that vacating the current regulation would be disruptive as it would result in an unregulated market, allowing banks to charge merchants even higher interchange fees. The court next held that the Board’s anti-exclusivity rule aimed at increasing competition among payment card networks was a reasonable interpretation of the Durbin Amendment’s mandate. The court rejected NACS’s argument that many merchant are only able to process transactions via signature debit networks, reasoning that merchants’ options are thus limited because they first make the choice to refuse to accept PIN debit transactions. The court reasoned that NACS’s argument failed because it “selectively view[ed] transactions only from [its] own perspective and only after the point at which the merchant itself or the consumer may have elected to restrict certain routing options.” Instead, the Durbin Amendment to the EFTA merely instructs the Board to loosen “issuer and payment card network restrictions imposed prior to ignition of any particular debit card transaction.” Consequently, the court reversed the district court’s grant of summary judgment and remanded the case for further proceedings. Appraiser Disclosure Requirements Under Dodd-Frank Southwest Non-Profit Housing Corp. v. Nowak, --- P.3d ---, 2014 WL 1357338 (Ariz. Ct. App. Mar. 31, 2014). The Arizona court of appeals recently held that § 1639e(c) of the Dodd-Frank Act does not require appraisers to disclose appraisals to third-parties or impose additional duties owed to third parties. Southwest Non-Profit Housing Corp. filed separate lawsuits against three appraisers alleging negligence in connection with appraisals that were below the contract price. The lower court granted the appraiser defendants’ respective motion to dismiss and motions for summary judgment on the grounds that Southwest was not the intended user of the appraisals and did not rely on them. Southwest appealed, and the court addressed the consolidated cases. The court first addressed the appraisal defendant’s motion to dismiss. As a threshold matter, the court said that to state a claim for relief for negligent misrepresentation, Southwest had to show that it was owed a duty of care. The court relied on Restatement § 552 which provides that an appraiser is liable for losses if he or she “intends to supply the information or knows that the recipient intends to supply it” and if he or she intends to influence the recipient. 2014 WL 1357338, at * 3 (citation omitted). However, appraisers are liable to foreseeable recipients only. The court noted that Southwest entered into the sales contract, which made lending contingent upon an appraisal that was greater than or equal to the sales price, before the appraisal was furnished. Accordingly, the court held that the appraiser did not intend to influence Southwest, because it had already committed to the sales price. Turning to the appraiser defendants’ motion for summary judgment, the court rejected Southwest’s arguments on appeal. First, Southwest asserted that because a provision of the appraiser’s certification omitted the word “seller” in the list of those intended to receive the appraisal, a genuine issue of material fact existed regarding whether Southwest waived its tort liability against the appraisers. Dismissing this argument, the court found that the appraisal agreement was with only the lender, the appraisers’ client. Because Southwest was the seller and was not a party to the agreement, it was not an intended user of the appraisal and, therefore, could not waive any rights arising from the agreement. Second, Southwest argued that § 1639e of the Dodd- Frank Act prohibits “’a person with an interest in the underlying transaction’ from attempting to influence the appraised value assigned.” Id. at *6 (citing 15 U.S.C. § 1639e). However, the court noted that this provision exempts “’any other person with an interest in a real estate transaction’ who requests that an appraiser (1) consider appropriate property information; (2) provide further detail for the appraiser’s value conclusion; and (3) correct errors in the appraisal report.” Id. (citing 15 U.S.C. § 1639e(c)). Based on the language of the Dodd- Frank Act, Southwest argued that an appraiser knows that a seller will receive the appraisal in connection with a sale. The court, however, rejected this argument and held that the Dodd-Frank Act did not impose obligations on an appraiser’s duties to third parties. Finally, the court found that the record lacked evidence that Southwest relied on the appraisal. Accordingly, the court affirmed the lower court’s decision. Whistleblower Protection Safarian v. American DG Energy, Inc., No. 10-6082, 2014 WL 1744989 (D.N.J. Apr. 29, 2014) Plaintiff Mikael Safarian filed suit against the defendant utility business alleging violations of the Fair Labor Standards Act (“FLSA”), the Conscientious Employee Protection Act (“CEPA”), the Dodd-Frank Act, and state law for violations related to his termination. Both parties filed cross motions for summary judgment. At the outset, the court determined that Safarian was an independent contractor rather than an employee and, thus, the court found that his FLSA and CEPA claims failed as a matter of law. His independent contractor status, however, did not prevent him from bringing a Dodd-Frank claim. Turning to Safarian’s Dodd-Frank Act claim, the court addressed the defendant’s argument that a whistleblower must (1) disclose the violation to the SEC and (2) bring claims related to a disclosure required by Section 78u-6(h)(A)(iii). The court noted the split on the issue of whether an individual must report to the SEC to bring a whistleblower claim. See Asadi v. GE Energy, 720 F.3d 620(5th Cir. 2013) (holding individual must report to the SEC); Banko v. Apple Inc., No. CV 13- 02977 RS, 2013 WL 7394596 (N.D. Cal. Sept. 27, 2013) (same); Khazin v. TD Ameritrade Holding Corp., No. 13-4149 (SDW) (MCA), 2014 WL 940703 (D.N.J. Mar. 11, 2014) (holding that a plaintiff need not report to the SEC if disclosures fell under the four categories listed in 78u-6(h)(1)(A)(iii); Murray v. UBS Sec., LLC, No. 12 Civ. 5914 (JMF), 2013 WL 2190084 (S.D.N.Y. May 21, 2013) (same). However, the court declined to decide whether Safarian was required to report to the SEC because his disclosure did not fall under any of the categories listed in 78u-6(h)(A)(iii). Turning to the second requirement, the court found that Sarafian’s disclosures related to overbilling, improper construction, and the failure to obtain proper permits. The court found that protected disclosures contemplate protecting investors “by improving the accuracy and reliability of corporate disclosures made pursuant to the securities law. . . .” 2014 WL 1744989, at *4 (citing Sarbanes-Oxley Act of 2002, PL 107-204, July 30, 2002). Further, Sarbanes-Oxley targeted the conduct of accountants and lawyers, not engineers, such as Sarafian. The court found that overbilling may eventually result in incorrect accounting records or tax submissions, such disclosure did not fall under one of the protected categories, and the court declined to expand the interpretation of Sarbanes-Oxley. Accordingly, the court granted summary judgment in favor of defendants. Arbitration of Whistleblower Claims Santoro v. Accenture Federal Services, LLC, --- F.3d ---, 2014 WL 1759072 (4th Cir. 2014). The Fourth Circuit Court of Appeals recently held that the Dodd-Frank Act did not prohibit an employee’s nonwhistleblower claims when such claims were not carved out of an arbitration agreement. The court also held that the Dodd-Frank Act does not supersede the Federal Arbitration Act’s (“FAA”) mandate that arbitration agreements are enforceable. Santoro filed suit against his former employer alleging claims for age discrimination, and the defendant moved to compel arbitration. Santoro opposed the defendant’s motion to compel arbitration on the grounds the Dodd- Frank Act voided the arbitration clause. The lower court, however, held the Dodd-Frank Act applied only to whistleblower claims. Because Santoro did not bring whistleblower claims, the Dodd-Frank Act did not void the arbitration provision. Santoro appealed. On appeal, Santoro argued the Dodd-Frank Act voided all arbitration agreements with publicly-traded companies that do not carve-out whistleblower claims. At the outset, the court noted the apparent conflict between the Dodd- Frank Act and the FAA, and stated that the two statutes must be interpreted based on their plain language. The court acknowledged the FAA’s mandate that arbitration agreement are enforceable, but also noted that this mandate may be “overridden by a contrary congressional command.” According to Santoro, the Dodd-Frank Act was a contrary congressional command that voided the arbitration clause. Turning to the language of the Dodd-Frank Act, the court noted that the Dodd-Frank amendment to the Commodities Exchange Act, 7 U.S.C. § 26 sought to strengthen whistleblower protection. Consistent with this objective, § 26(h)(1)(B)(i) creates a cause of action for whistleblowers and § 26n invalidates predispute arbitration agreements if the agreement requires the arbitration of claims arising under the provision. The court agreed with the Supreme Court in CompuCredit Corp. v. Greenwood, --- U.S. ---, 132 S. Ct. 665, 672 (2012) and said the Dodd-Frank Act invalidates agreements to arbitrate whistleblower claims. However, the court declined to extend this interpretation and find the Dodd-Frank Act prohibits non-whistleblower claims on the grounds that agreement fails to carve-out Dodd-Frank whistleblower claims. The court determined that Santoro failed to show that, based on its plain language, the Dodd-Frank Act was a contrary congressional command that overrode the FAA. Accordingly, the court affirmed the lower court’s order compelling Santoro’s claims to arbitration.