Boston Business Litigation Blog

Massachusetts Appeals Court Rejects Plaintiff-Borrowers' Claim that Obsolete Mortgage Statute Limits Mortgagee's Ability to Foreclose on Properties in Default

Recently, in NuVasive, Inc. v. Day, the United States Court of Appeals for the First Circuit upheld the decision of the United States District Court for the District of Massachusetts to apply Delaware law and grant an employer a preliminary injunction against a former employee related to a nonsolicitation clause.

In his open letter dated March 24, 2020, Chief Justice Casey indicated that it is important, during the current Covid-19 crisis and corresponding Stay-at-Home Advisory, for children to spend time with both of their parents. While this provided welcome clarity for upcoming parenting exchanges, it also created an opportunity - especially for parties operating under a parenting schedule by way of a temporary order and in the midst of contested litigation concerning custody issues - to put contested litigation issues aside and create a parenting arrangement (perhaps even a temporary, equal parenting) that more effectively deals with the reality of school/child-care closures and the requirements of working remotely (for both parents and students).

The Hague Conference on Private International Law (the "HCCH") has just published its Guide to Good Practice on the use of video-conferencing technology in the taking of evidence (the "Guide") pursuant to the Convention on the Taking of Evidence Abroad in Civil or Commercial Matters (the "Convention"). Though the HCCH undertook to investigate such best practices long before the advent of COVID-19, its publication is particularly timely in light of the pandemic.

It is no exaggeration to state that the coronavirus (COVID-19) pandemic has been the largest disruptor to businesses this year. Productivity has slowed as co-workers self-quarantine to prevent the risk of exposure to the virus, and offices across the nation are closed as a way of slowing the spread of the disease. Naturally, one question that arises out of these events is whether businesses are expected to perform under their contracts or whether they are excused from performance in light of the current crisis. The answer to that question may rely on the heretofore rarely used force majeure clauses contained in their contracts.

The United States District Court for the District of Massachusetts, in a matter of first impression in the First Circuit, has joined the majority of courts to find that a junior lienholder's issuance of a 1099-C to a mortgagor following foreclosure does not extinguish the junior lienholder's claim to excess proceeds from a senior lienholder's foreclosure. Wells Fargo Bank, N.A and Orlans PC, Plaintiffs, v. Thomas Fraze et al., Defendants.

In Kaur v. World Bus. Lenders, LLC, Judge Willian Young of the United States District Court for the District of Massachusetts has partially denied a motion brought by World Business Lenders, LLC and Axos Bank to dismiss claims that the defendant lenders violated the Massachusetts usury statute and the Massachusetts Consumer Protection Act, General Law Chapter 93A.

Usury laws limit the interest rate that lenders can charge on a line of credit or a loan. The Massachusetts law against usury, Massachusetts General Law Ch. 271, §49(d), creates an annual interest rate cap of 20 percent. However, the Massachusetts usury statute allows lending institutions to avoid the 20% state usury cap if they register the loan with the State Attorney General's Office within two years of making it. Further, the National Bank Act exempts nationally chartered banks from such state usury caps. Moreover, there is a controversial practice of non-bank lenders marketing, funding, and collecting on a loan that a nationally charted bank has formally underwritten and originated on paper before assigning the loan to the non-bank lender. This essentially allows the non-bank lender to borrow a nationally charted bank's federal preemption. Proponents of these so-called "rent-a-bank" operations argue that such high-interest loans provide a legitimate service by granting credit to under-served, high-risk borrowers. Opponents argue that these loans trap borrowers in a cycle of debt where they either default or pay far more in interest than the original principal. This is one of the issues discussed in Kaur v. World Bus. Lenders, LLC.

In March 2018, borrowers Ramanjeet Kaur and Kulwinder Singh Uppal took out a $175,000 loan for their small business from World Business and Axos's predecessor with annual percentage rate interest in excess of 92 percent. The borrowers, a married couple, used their home as collateral for the loan. Less than seven months later, World Business began foreclosure proceedings against the borrowers' home after their loan fell into arrears. The borrowers filed suit alleging World Business had violated the state's usury law, because it identified the Axos, as opposed to World Business, as the lender when it registered with loan with the Attorney General pursuant to Gen. Law Ch. 271 §49(a). They also alleged that World Bank had engaged in two forms of unfair and deceptive business practices in violation of Gen. Law Chapter 93A: (1) issuing a loan that was doomed to fail and (2) deceptively identifying World Business as the loan "servicer" in the loan documents when it was actually the "true lender." The lenders move to dismiss the borrowers' claims.

The Court found that the borrowers' claims that the loan violated state usury laws could not survive and must be dismissed, because World Business had registered the loan with the Massachusetts Attorney General's Office within two years of making the loan, as required by section 49(d) of Gen. Law Ch. 271, which did not require the registration to identify the actual lender (and required only information concerning the borrower and the loan itself).

However, the Court found that the borrowers had alleged sufficient facts to proceed with their claims that the defendant lenders were in violation of Chapter 93A. In Massachusetts, the Supreme Judicial Court has held that a "high cost home mortgage loan" violates Chapter 93A if the lender should have recognized the borrower was unlikely to be able to repay the loan. Although the loan in this case was not a home mortgage loan, Judge Young concluded that the law from home mortgage cases "serves as a 'recognized or established common law or statutory concept of unfairness' relevant to this case." Citing the fact that the borrowers' loan was roughly the same amount that they had paid for their house (which was the collateral for the loan), the loan application was missing important information about the business itself that could have been used to evaluate the likelihood that the loan could be repaid, and World Business marketed its loans to applicants with low credit scores who could not otherwise obtain a loan as factors potentially relevant to whether the issuance of the loan was an unfair and deceptive practice, the Court denied so much of the defendants' motion as sought dismissal of the claims that the defendants had violated General Law Ch. 93A.

The legal issues surrounding these lending practices are very much unsettled areas of law within Massachusetts, and it is highly likely these issues will arise again.

The Massachusetts Wage Act allows an employee to recover "wages" that have been "unreasonably retained" by an employer.  A salary is within the scope of the statute.  What else is considered "wages"?  It's not clear because the term "wages" is not defined.  The statute simply provides that the term "wages" includes holiday and vacation time but such enumeration is not exhaustive.  Courts have interpreted the term "wages" to mean wages that have been "earned," as opposed to wages that are contingent on some other fact or are discretionary.  For example, accumulated sick days are not "wages" because they are contingent on a specific fact, i.e. the employee being sick.  The same is true for bonuses since they are paid at the discretion of the employer.  Commissions, however, are generally considered "wages" if they are not discretionary and are the result of the employee's work, provided that the amount of the commission is definitely determined and due and payable. 

Different states have different rules regarding when a parent's child support obligation ends. In some states, a parent's child support obligation ends when a child turns 18 years old. In Massachusetts, a parent's child support obligation generally lasts at least until the child reaches age 18, but could continue until when the child turns 21 if the child is living with a parent and dependent upon that parent, or up until the child turns 23 if the child principally lives with a parent and is dependent upon that parent due to the child's enrollment in an educational program (excluding educational costs beyond an undergraduate degree). See M.G.L. ch. 208, §28. 

In the recent case of Capron v. Office of Attorney Gen. of Mass., the federal First Circuit Court of Appeals issued an interesting ruling regarding the intersection of federal and state law, affirming a U.S. District Court order of dismissal providing that state wage and hour laws fully applied to foreign nationals employed as "au pairs" in Massachusetts on special visa programs promulgated by the U.S. State Department. 

The United States Supreme Court has agreed with the United States Court of Appeals for the Third Circuit, and resolved a circuit split with the Fourth and Ninth Circuits, holding that the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692, et seq. ("FDCPA") does not incorporate the discovery rule into its statute of limitations. Rotkiske v. Klemm, et al. 

The Massachusetts Appeals Court recently issued an opinion in Ferguson v. Maxim, finding that the parties' offer agreement to purchase a property was enforceable even though the parties failed to timely execute the purchase and sale agreement (which, Defendants had argued, was a term of the offer), and the deadline to execute the purchase and sale agreement could be waived by the parties.

In Ferguson, the Plaintiff alleged that he and the Defendants had a binding agreement for the sale of the Defendants' property in Leominster. The parties executed a "Contract to Purchase Real Estate," which self-identified as a "Binding Contract" and identified the property, the purchase price and deposit terms, and the time and place of closing, and set a deadline by which the parties were to execute a purchase and sale agreement (P&S).

Through counsel, the parties began to negotiate the terms of the P&S but the first draft of the P&S was not circulated until after the deadline to execute the P&S had passed, and negotiations continued thereafter. At different times, counsel for both parties suggested extending the P&S deadline, but the record did not indicate that any extensions were ever granted or denied. At one point, counsel for the Defendants' attempted to cease negotiations on the grounds that the P&S deadline had passed, before later reviving negotiations for another week, and then once again terminating negotiations. Shortly thereafter, the Defendants sold the property to a third party.

Recently in Malachi M. v. Quintina Q., the SJC held that:

[P]ursuant to G.L. c. 208, § 31A, the judge at a modification proceeding must consider evidence of both past and present abuse, including evidence of domestic abuse that occurred prior to the entry of the divorce judgment, and must address the applicability of the rebuttable presumption, even in the absence of evidence of abuse occurring after the divorce judgment.

The U.S. Court of Appeals for the Second Circuit's decision in U.S. v. Blaszczak may have just changed the landscape for insider trading prosecutions. In order to prove an insider trading charge under the Securities Exchange Act of 1934 (the "Exchange Act"), the government has to prove that an insider received some "personal benefit" from exchanging material, non-public information. This requirement comes from the 1983 U.S Supreme Court ruling in Dirks v. SEC. 

Divorce litigants in Massachusetts may not clearly understand the distinction between those provisions in a Separation Agreement regarding child support and those provisions regarding the payment of the child(ren)'s expenses. Both types of provisions are merged into the Judgment of Divorce, meaning that the court can modify them in appropriate cases. Generally speaking, the standard for modifying a child support order is that there must be "an inconsistency between the amount of the existing order and the amount that would result from the application of the Massachusetts child support guidelines." M. G. L. c. 208, § 28. In contrast, the standard for modifying any provisions about payment of a child's expenses is that there must have been a "material change in circumstances" since the entry of the judgment that is being modified. 

In the recent case of Suzuki v. Abiomed, Inc., the First Circuit Court of Appeals affirmed a U.S. District Court order granting summary judgment to the defendant employer, holding that the company's termination of an employee approximately fifteen months prior to the achievement of an important milestone, which would have entitled the employee to a large equity grant, did not violate the implied covenant of good faith and fair dealing in his employment contract. 

When foreign companies do business with Chinese companies, international arbitration can be a key tool for dispute resolution, as it avoids either having a foreign court judgment that is unenforceable in China or having to deal with Chinese courts and home-court advantage for the Chinese company. Chinese courts have a good track record of enforcing international arbitral awards under the New York Convention. 

Earlier this year, the Massachusetts Appeals Court issued an important decision in Chamberlain v. Badaoui reversing a Superior Court judgment and holding that a condominium's master deed did not create an express easement granting to Plaintiffs' unit access through the neighboring Defendant's unit to the fire escape stairs. The Court further held that the Plaintiffs had failed to establish an easement by necessity.

In Motsis v. Ming's Supermarket, Inc., (Mass. App. Ct. Nov. 5, 2019), the Appeals Court affirms a judgment awarding a commercial tenant both monetary relief and specific performance.

A few short months ago, I wrote a blog post about the Consumer Financial Protection Bureau surviving an attack on its constitutionality in the United States Court of Appeals for the Ninth Circuit. In that case, the plaintiff alleged that the CFPB's structure was unconstitutional because it had a single director who did not serve at the pleasure of the President. The CFPB argued that its structure was, in fact, constitutional, and it won the argument. The plaintiff sought to have the case heard by the U.S. Supreme Court. 

Your U.S. company and a commercial partner from a foreign nation had the foresight to designate international arbitration as the dispute resolution mechanism in your joint venture agreement. A dispute arose and you both diligently presented your claims to the arbitral panel. The arbitral panel has issued its award. What now?

One of the most contentious issues arising in divorce proceedings will often be the division of the parties' assets. In Massachusetts, the courts follow an equitable system of division, meaning they seek to divide property "fairly," not necessarily "equally." There are cases in which the marital estate seems to have been reduced by the irresponsible or intentional conduct of one party (party A), which ostensibly has the result of diminishing the eventual share of the marital estate that each party will retain.

A recent Massachusetts Superior Court case, Germinara v. Bakis, et al. (decided May 13, 2019), involved a plaintiff borrower who obtained a commercial loan in order to fund the purchase and operation of a gas station/convenience store, which was owned by an LLC formed by the plaintiff. The loan was secured by both the gas station property and contents and a second property that was owned by the borrower in trust. Further, the lender and the funder of the loan were granted mortgages and deeds-in-lieu of foreclosure to secure the interest on both properties owned by the borrower. When the plaintiff defaulted on the loan, the lender and the funder took title to the two properties by exercising the deeds-in-lieu of foreclosure. They sold both properties and, additionally, seized some items of the borrower's personal property that had been located at the properties, such as trucks and vehicles. Some of these items were owned by the plaintiff in his individual capacity, and not by the LLC that held title to the gas station; however, the lender held other security obligations which included the vehicles.

International arbitration has many benefits for banking and finance disputes, and parties to those disputes are increasingly recognizing those advantages. While banks and financial institutions have traditionally used courts and other judicial forums to resolve disputes, including international disputes, increasing numbers of cases are being litigated and resolved through international arbitration.

In a recent case, Macri v. Macri, the Massachusetts Appeals Court recently cemented a trial court decision to, among other things, attribute income to Husband, who was unemployed at the time of trial. Attribution of income is often a contested topic in the Probate and Family Courts of Massachusetts, and this case provides further guidance on the issue.

In a recent summary decision, Casey v. Sweeney, a panel of the Massachusetts Appeals Court reaffirmed that a payor's alimony obligation determined prior to the enactment of the Alimony Reform Act in March 2012 cannot be modified without a showing of a material change in circumstances (i.e., a material change affecting either the recipient's need or the payor's ability to pay.

In most commercial lending transactions, it is a common practice for lenders to secure the loan with a mortgage on the business property, which would permit the lender to foreclose on the mortgage securing the property if the borrower were to default on the. For closely held businesses, many lenders also require the business owners to secure the loan with a personal guaranty. A guaranty is an agreement made by a third party to secure the debt of a borrower to a lender in the event that the borrower defaults on the loan.

In Foisie v. Worcester Polytechnic, Institute (September 30, 2019), the United States District Court for the District of Massachusetts allowed a Motion to Dismiss where a former wife brought claims of fraudulent transfer and/or constructive fraudulent transfer against Worcester Polytechnic Institute ("WPI") located in Massachusetts under Connecticut law. The former wife alleged that the assets donated to WPI by her former husband were hidden from her during their divorce, and that the donation was intended to defraud her.