Is there a cause of action for predatory lending?

 
CAN YOU SUE A CREDITOR FOR PREDATORY LENDING?

  

Federal judge in Texas says ‘No’ in suit against JPMorgan Chase Bank, N.A. involving a loan made on stated-income, and declines Plaintiff’s invitation to create such a cause of action. Chase, as successor servicer to EMC Mortgage LLC f/k/a EMC Mortgage Corporation ("EMC"), removed the borrower’s action from state court and secures dismissal for failure to state a claim.  

  

Predatory Lending Claim: no such thing, at least not yet    

  

EXCERPT FROM OPINION BY HON. JOHN McBRIDE, DISTRICT JUDGE  

  

The main thrust of plaintiff's predatory lending claim is that" [d]efendants engaged in predatory lending practices by, among other things, failing to make necessary disclosures to Plaintiff regarding their loan." Compl. at 7. Specifically, plaintiff alleges that defendants failed to provide certain disclosures allegedly required by TILA and RESPA three days after some initial meeting or submission of his loan application. Id. at 3, 7. Plaintiff, however, then alleges that he did receive disclosures at the loan's closing. Id. at 3, 7, 9. Plaintiff alleges that he "received some of these disclosures," without specifying which disclosures he received and which he did not. Id.

  

Plaintiff has not cited any state or applicable federal law, precedential or statutory, that creates a cause of action for "predatory lending." See, e.g., Brown v. Aurora Loan Servs., LLC, No. 4:11-CV-111, 2011 WL 2783992, at *4 (E.D. Tex. June 7, 2011), report and recommendation adopted at 2011 WL 2728384. Plaintiff even acknowledges that "predatory lending is not a recognized cause of action at this time." Compl. at 6.

 

Plaintiff argues that "predatory lending should be a recognized cause of action and this, a case of first impression subject to review by the Texas Supreme Court, is necessary, in order to lay the groundwork for future predatory lending claims." Id. The court is not persuaded by plaintiff's argument, as the court has found no case law in support of a cause of action for predatory lending. The court is not inclined to create a cause of action not previously recognized in Texas or federal law.

Moreover, plaintiff's conclusory allegations fail to allege sufficient facts to support his claim for "predatory lending." Plaintiff has not even stated what disclosures were not allegedly provided to him. Id. at 7. Accordingly, plaintiff's predatory lending claim must be dismissed.

SOURCE: United States District Court, N.D. Texas, Fort Worth Division. Civil Action No. 4:11-CV-812-A. DONALD BITTICK, Plaintiff, v. JPMORGAN CHASE BANK, NA, ET AL., Defendants. MEMORANDUM OPINION and ORDER of JOHN McBRYDE, District Judge. April 18, 2012. 

TRCP 91 - Failure to state viable cause of action is properly raised with special exceptions under Rule 91

Special exceptions under TRCP 91 are the procedural vehicle to challenge deficiencies in the opponent's pleadings, but may also be used to assert that the Plaintiff has not pleaded a valid cause of action at all. Trial court must generally provide an opportunity to amend upon sustaining special exceptions, at least when it would not be obviously futile. 
   
SPECIAL EXCEPTIONS PROCEDURE UNDER THE TEXAS RULES OF PROCEDURE
　
A party is generally required to file a special exception to challenge a defective pleading. Connolly v. Gasmire, 257 S.W.3d 831, 839 (Tex. App.—Dallas 2008, no pet.); see also TEX. R. CIV. P. 90 (providing that "[g]eneral demurrers shall not be used" and that any "defect, omission or fault in a pleading" is waived if not presented in writing to trial court prior to instruction or charge to the jury or, in non-jury case, prior to trial court signing the judgment). Texas Rule of Civil Procedure 91 provides:


A special exception shall not only point out the particular pleading excepted to, but it shall also point out intelligibly and with particularity the defect, omission, obscurity, duplicity, generality, or other insufficiency in the allegations in the pleading excepted to.TEX. R. CIV. P. 91. 

The purpose of special exceptions is to furnish a party with a medium to force clarification of an adverse party’s pleadings when they are not clear or sufficiently specific. Connolly, 257 S.W.3d at 839.

Special exceptions may also be used to determine whether the plaintiff has stated a cause of action permitted by law. Mowbray v. Avery, 76 S.W.3d 663, 677 (Tex. App.—Corpus Christi 2002, pet. denied) (citing TEX. R. CIV. P. 91).

Standard of review of ruling on special exceptions

When reviewing a trial court’s dismissal of a cause of action following the sustaining of special exceptions, we review the propriety of both the trial court’s decision to sustain the special exceptions and the trial court’s order of dismissal. Perry v. Cohen, 285 S.W.3d 137, 142 (Tex. App.—Austin 2009, pet. denied) (citing Cole v. Hall, 864 S.W.2d 563, 566 (Tex. App.—Dallas 1993, writ dism’d w.o.j.) (en banc)).

We review the pleadings to determine whether the trial court abused its discretion in granting special exceptions. Id. (citing Cole, 864 S.W.2d at 566 and Muecke v. Hallstead, 25 S.W.3d 221, 224 (Tex. App.—San Antonio 2000, no pet.)). The trial court has broad discretion in granting special exceptions to order more definite pleadings as a particular case may require. Id. (citing Burgess v. El Paso Cancer Treatment Ctr., 881 S.W.2d 552, 554 (Tex. App.—El Paso 1994, writ denied)). A trial court abuses its discretion when it acts without reference to any guiding rules or principles. Id. (citing Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241–42 (Tex. 1985)). When reviewing the trial court’s decision on special exceptions, we accept as true all the material factual allegations and statements reasonably inferred from the allegations set forth in the pleadings. Id. (citing Sorokolit v. Rhodes, 889 S.W.2d 239, 240 (Tex. 1994)).

If we determine that the trial court’s decision to grant the special exceptions was proper, we then review whether the decision to dismiss was appropriate. Connolly, 257 S.W.3d at 838 (citing Cole, 864 S.W.2d at 566).

Special exceptions must be specific 

Rule 91 requires that special exceptions "point out intelligibly and with particularity" the alleged defect or omission in the pleadings. TEX. R. CIV. P. 91. If special exceptions lack specificity in pointing out how the plaintiff’s allegations are faulty, they constitute a general demurrer, and general demurrers are prohibited by the Rules of Civil Procedure. See TEX. R. CIV. P. 90; see also Castano v. San Felipe Ag. Mfg. & Irrigation Co., 147 S.W.3d 444, 453 (Tex. App.—San Antonio 2004, no pet.) (holding that special exceptions failed "to state with specificity the elements lacking in [plaintiff’s] petition" and thus was general demurrer prohibited under rules and that grant of those special exceptions "would . . . permit the [defendants] to circumvent the protective features of the special exception procedure").

SOURCE: Houston Court of Appeals - 01-10-00412-CV - 7/28/11

Is there a private cause of action for violations of NYSE, NASD rules?

Chief Justice Woodfin Jones

  
Addressing an issue on which there is little Texas state appellate case law, the Third Court of Appeals, in an opinion written by its chief justice, says there is no private cause of action for violations of NYSE and NASD rules.

Fernea v. Merrill Lynch Pierce Fenner & Smith, Inc. 
(Tex.App.- Austin, July 12, 2011)(Opinion by Chief Jones) 

Violation of NASD and NYSE Rules  

In his first two issues, Fernea asserts that the trial court erred in granting summary judgment on his claim that Merrill Lynch violated three securities-industry rules--two promulgated by the NASD and one by the NYSE. He argues that he is entitled to bring a private cause of action against Merrill Lynch for its alleged violations and that a fact question exists as to whether Merrill Lynch violated the rules in question. [Fn3] In its motion for summary judgment, Merrill Lynch argued that Congress did not intend to create a private cause of action for a violation of NASD and NYSE rules or, in the alternative, that its evidence conclusively proved that no violation took place.

Private Cause of Action

The San Antonio Court of Appeals is the only Texas appellate court that has addressed whether there is a private cause of action for violation of securities-industry rules. Relying on a federal district court opinion from the Southern District of Texas, and without further discussion, the court of appeals held that "there is no independent cause of action for NASD violations." Milan v. Dean Witter Reynolds, Inc., 90 S.W.3d 760, 767 (Tex. App.--San Antonio 2002, pet. denied) (citing Porter v. Shearson Lehman Bros., Inc., 802 F. Supp. 41, 63 (S.D. Tex. 1992)). The Fifth Circuit has not addressed the issue, see Lang v. French, 154 F.3d 217, 222 n.26 (5th Cir. 1998), and federal district courts in Texas are split, compare Cook v. Goldman, Sachs & Co., 726 F. Supp. 151, 156 (S.D. Tex. 1989) (implied private cause of action exists), with Porter, 802 F. Supp. at 63 (implied private cause of action does not exist), and Lange v. H. Hentz & Co., 418 F. Supp. 1376, 1383 (N.D. Tex. 1976) (same).

Fernea relies on two cases to support his assertion that Congress intended to create a private cause of action: Buttery v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 410 F.2d 135, 142 (7th Cir. 1969), and Cook, 726 F. Supp. at 156. The great weight of authority, however, holds against inferring a private cause of action for violations of NASD and NYSE rules. We find the cases Fernea cites for the opposite view unpersuasive.Buttery, a Seventh Circuit case, was decided prior to three key Supreme Court decisions setting forth the test for implying statutorily based private causes of action. See Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 15 (1979) ("The question whether a statute creates a cause of action, either expressly or by implication, is basically a matter of statutory construction."); Touche Ross & Co. v. Redington, 442 U.S. 560, 568 (1979) ("As we recently have emphasized, the fact that a federal statute has been violated and some person harmed does not automatically give rise to a private cause of action in favor of that person. Instead, our task is limited solely to determining whether Congress intended to create the private right of action." (internal quotation marks omitted)); Cort v. Ash, 422 U.S. 66, 78 (1975) (establishing four-factor test later compressed and refined by Touche Ross and Transamerica). Despite being handed down a decade after Transamerica, Cook, a Texas federal district court opinion, relied heavily on Buttery, its progeny, and other cases that pre-date Cort. The Cook court did not discuss whether Buttery was still good authority considering that Transamerica largely rejected the test that the Buttery court had employed. See Transamerica, 444 U.S. at 15-16 ("While some opinions of the Court have placed considerable emphasis upon the desirability of implying private rights of action in order to provide remedies thought to effectuate the purposes of a given statute, what must ultimately be determined is whether Congress intended to create the private remedy asserted, as our recent decisions have made clear."). Thus, like Buttery, Cook's authority is questionable.

Post-Transamerica decisions employing that case's reasoning consistently hold that Congress did not intend to create a private cause of action for violations of self-regulating organizations' rules. See, e.g., In re Verifone Sec. Litig., 11 F.3d 865, 870 (9th Cir. 1993) (dismissing claims for violations of NASD and NYSE rules because "[i]t is well established that violations of an exchange rule will not support a private claim"); Hosworth v. Blinder, Robinson & Co., 903 F.2d 186, 200 (3rd Cir. 1990) (no private right of action for violation of NASD rules); Craighead v. E.F. Hutton & Co., 899 F.2d 485, 493 (6th Cir. 1990) (same); Thompson v. Smith Barney, Harris Upham & Co., 709 F.2d 1413, 1419 (11th Cir. 1983) (same); Jablon v. Dean Witter & Co., 614 F.2d 677, 681 (9th Cir. 1980) ("Based upon the standards in Touche Ross and Transamerica, we conclude there is no implied right of action for an NASD rule violation."); Porter, 802 F. Supp. at 63; Emmons v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 532F. Supp. 480 (S.D. Ohio 1982) (under Cort, no implied right of action under NYSE or NASD rules); Klitzman v. Bache Halsey, 499 F. Supp. 255 (S.D.N.Y. 1980) (no private right of action under NASD rules). Even the NASD's own arbitration panel has recognized that no private cause of action exists for violating its rules. See Penzer v. Advest, Inc., No. 92-00400, 1993 WL 603507, at *5 (NASD Nov. 5, 1993) ("[C]ase law supports the conclusion that no private right of action exists for breach of NASD rules." (citing SSH Co. v. Shearson Lehman Bros., Inc., 678 F. Supp. 1055, 1058 (S.D.N.Y. 1987))).

We agree. Although we need not revisit here the detailed analyses performed in the cases cited above, we will briefly summarize them. The relevant inquiry is to determine whether Congress intended to create a private cause of action for a violation of NASD and NYSE rules in the Securities and Exchange Act of 1934 by employing the usual rules of statutory construction. See Transamerica, 444 U.S. at 15; Jablon, 614 F.2d at 681; see also Touche Ross, 442 U.S. at 568 (describing inquiry in determining Congressional intent). As the Jablon court and others have noted, Congress specifically provided for private causes of action for violations of some securities rules, yet did not provide a cause of action for violations of NASD and NYSE rules. See Jablon, 614 F.2d at 681. Accordingly, we conclude that Congress did not intend to create a private right of action here.Id. at 680-81; see also Touche Ross, 442 U.S. at 568 ("The source of plaintiffs' [private right of action] must be found, if at all, in the substantive provisions of the 1934 Act which they seek to enforce . . . .").

Because there is no private cause of action for violation of NYSE and NASD rules, the trial court did not err in granting summary judgment in favor of Merrill Lynch as to that claim. We overrule Fernea's first and second issues.

Fn 2. The NASD is a "a self-regulatory organization overseeing securities transactions." In re Next Fin. Group, Inc., 271 S.W.3d 263, 265 (Tex. 2008) (per curiam). Although the NASD "absorbed the enforcement arm of the New York Stock Exchange and became the Financial Industry Regulation Authority (FINRA) on July 30, 2007," see McArdle v. Jack Nelson IRA, No. 03-08-00057-CV, 2010 WL 1253571, at *1 n.1 (Tex. App.--Austin Mar. 31, 2010, no pet.) (mem. op.), we will still refer to the NASD and the NYSE for convenience. Pursuant to SEC regulations, licensed securities brokers must register with and abide by the organization's guidelines. Id.; see also 17 C.F.R. § 240.15b7-1 (2009).

Fn 3. Although Fernea does not state whether his private cause of action arises under federal securities law or Texas law, self-regulating securities organizations are entities created and governed by federal statute and regulation. Accordingly, we assume that any private cause of action would arise from federal securities law. 


SOURCE: Austin Court of Appeals -  03-09-00566-CV  - 7/12/11
CASE STYLE: David Fernea v. Merrill Lynch Pierce Fenner & Smith, Inc.
Appeal from 200th District Court of Travis County