Invoking the recent U.S. Supreme Court decision in Spokeo v. Robins, a federal court in New York held that a bank remained on the hook for a $6.2 million class action settlement.

What happened

Plaintiffs were borrowers who accused the bank of systematically failing to file timely mortgage satisfaction notice for recording in violation of Section 275 of the New York Real Property Law as well as Section 1921 of the New York Real Property Actions and Proceedings Law. The statutes require that a lender present within 30 days of payoff a certificate of discharge or satisfaction of mortgage to the recording officer of the county. In March, U.S. District Judge Vincent L. Briccetti preliminarily approved a class action settlement of the consolidated litigation and preliminarily certified a class for settlement purposes.

But in June, the Supreme Court of the United States issued its decision in Spokeo v. Robins, addressing the injury-in-fact requirement for Article III standing and how it is affected by claims for purely statutory damages.

Recognizing its "ongoing obligation to scrutinize its own subject matter jurisdiction," the court then reevaluated plaintiffs' standing in light of Spokeo.

Under the statutes, "a mortgagee shall be liable to a mortgagor for statutory damages in an amount that increases depending on how much time elapsed between the mortgagor fully paying off the mortgage and the mortgagee filing the mortgage satisfaction notice," the court explained, $500 if between 31 and 60 days, $1,000 if between 61 and 90 days, and $1,500 if 91 days or more.

The requirement that mortgagees file timely mortgage satisfaction notices is "no mere procedural peccadillo," the plaintiffs told the court, as the failure to do so can frustrate landowners who need a marketable title to complete a property sale. They alleged they were entitled to statutory damages based solely on the bank's alleged violation of the statutes and that they did not need to allege they suffered any additional harm based on the defendant's failure to timely file the proper documentation. (Notice how this argument evokes the rejected Ninth Circuit position in Spokeo?) Plaintiffs likewise argued that the failure timely to file mortgage satisfaction notices with the county constituted sufficient concrete injury because the statutes establish a mortgagor's legal right to the mortgagee's timely filing of such a notice. As one would expect after Spokeo, the bank countered that a mere violation of the statutes was a "bare procedural violation, divorced from any concrete harm."

Judge Briccetti then looked to the language of Spokeo. "To establish injury in fact, a plaintiff must show that he or she suffered an invasion of a legally protected interest that is concrete and particularized and actual or imminent, not conjectural or hypothetical," Justice Samuel Alito wrote, clarifying that "concreteness" and "particularization" are two separate inquiries.

"One factor in determining whether an intangible injury is nevertheless concrete is whether Congress, via statute, has 'define[d the] injur[y] and articulate[d] chains of causation that [] give rise to a case or controversy where none existed before,' " the court said. "That is, a statute may grant an individual a statutory right he or she would not otherwise have, the violation of which constitutes an injury in fact. In such a case, a plaintiff 'need not allege any additional harm' beyond the violation of the right."

The court held that the New York statutes create a procedural right; that is, the right to a timely filed mortgage satisfaction notice, the violation of which is a concrete injury. While Judge Briccetti acknowledged it remains an open question in the Second Circuit whether a state statute can define a concrete injury for the purposes of Article III standing, he said both the Seventh and Ninth Circuits have held that state statutes can do so.

Finding the reasoning of those circuits persuasive, he held that "a state statute, like a federal statute, may create a legal right, the invasion of which may constitute a concrete injury for Article III purposes. Moreover, the Court holds the state statutes at issue here create a legal right, the invasion of which constitutes a concrete injury."

Doubling down on an argument that the Supreme Court seemingly rejected, the court continued: When the defendant failed timely to file a mortgage satisfaction notice, "it created a 'real risk of harm' by clouding the titles to their respective properties," the court explained. In other words, a plaintiff need not have suffered any harm at all, but merely be at risk of harm to invoke sufficient Article III standing.

"The types of harm the statutes protect against are real. Because to the public, these mortgages appeared not to have been satisfied, plaintiffs could have realized that harm if they had, for example, tried to sell or encumber the subject property, or tried to finance another property and been subjected to a credit check. Through no fault of their own, plaintiffs would have faced unnecessary obstacles to their goals. Whether such harm actually was realized is of no moment, because a plaintiff 'need not allege any additional harm' beyond the violation of the statutory right."

The injury recognized by the New York statutes was no less concrete than the examples of intangible concrete injuries given by the Supreme Court in Spokeo, the court argued. This, it ruled, includes the common-law tort of slander per se and a group of voters' inability to obtain information that Congress has decided to make public. " 'Timely, clear title' is a right just as recognizable as one's good name or one's ability to be an informed voter," Judge Briccetti said.

Turning to the question of particularity, the court was "untroubled" by this component as applied to these facts. "Each plaintiff claims his or her individual right to a timely filed mortgage satisfaction notice was violated, because defendant failed to timely file such a document for each property after each individual had fully paid off his or her mortgage," the court wrote. "Therefore, the injury is particular to each plaintiff."

To read the opinion and order in Jaffe v. Bank of America, click here.

Why it matters

While many in the defense bar hoped that Spokeo would operate to reduce class actions based on the standing requirement, the New York federal court opinion indicates that plaintiffs may still be able to demonstrate injury in fact even for the most intangible of injuries, including mere risk of injury. A statute may grant an individual a right he or she would not otherwise have, a violation of which constitutes an injury in fact, Judge Briccetti wrote, without the plaintiff having to allege any additional harm beyond the violation of that right, a proposition seemingly rejected in Spokeo. For one bank defendant, the decision equates to a $6.2 million settlement, paying between $180 and $780 each for an estimated 17,000 class members.