Madden Case Timeline

Note:  These are the outcomes we think are most likely based on our experience and study of this matter.  The Supreme Court can, of course, resolve cases in a number of other ways (including summary disposition, vacating and remanding in light of another decision, etc.) that we do not anticipate here, but remain possible.  Finally, the Court can always act in accord with its own preferred timeline.  

If you have any questions about or wish to discuss further the Madden v. Midland Funding  case, please contact Robert Loeb (+1 202-339-8475) or Howard Altarescu (+1 212-506-5315) or feel free to reach out to any of your other Orrick contacts.

Federal Reserve Board Approves Final Rule Specifying Procedures for Emergency Lending

On November 30, the Federal Reserve Board approved a final rule specifying its procedures for emergency lending under Section 13(3) of the Federal Reserve Act. The final rule provides greater clarity regarding, among other things, the Board's authority to engage in emergency lending to programs and facilities with "broad-based eligibility." The final rule will take effect January 1, 2016. Press Release. Final Rule.

Update on Puerto Rico

Supreme Court to Determine Constitutionality of DERA

By order dated December 4, 2015, the US Supreme Court has agreed to consider the appeal by the Commonwealth and the Government Development Bank regarding the constitutionality of the Commonwealth's Debt Enforcement & Recovery Act (DERA). In requesting the Supreme Court to consider its appeal, the Commonwealth stated that this case "presents a question of extraordinary importance and urgency and that the lack of a bankruptcy framework is hindering negotiations to reach a restructuring agreement.

On December 2, Fitch updated its criteria for rating prepaid energy transactions. Report.

On December 1, Fitch released updated criteria for grant anticipation revenue vehicles (GARVEE) bonds. Report.

On December 1, Fitch released updated U.S. and Canadian Fixed-Rate Multiborrower CMBS criteria. Report.

Advisory on Effective Risk Management Practices for Purchased Loans and Purchased Loan Participations

On November 6, 2015, the Federal Deposit Insurance Corporation issued an Advisory (the "Updated Advisory") (FIL-49-2-15) to update information contained in the FDIC Advisory on Effective Credit Risk Management Practices for Purchased Loan Participations (FIL-38-2012). The Updated Advisory addresses purchased loans and loan participations and reminds FDIC-supervised institutions of the importance of underwriting and administering these purchased credits as if the loans were originated by the purchasing institution. The Updated Advisory also reminds institutions that third-party arrangements to facilitate loan and loan participation purchases should be managed by an effective third-party risk management process. This Financial Institution Letter applies to all FDIC-supervised banks and savings associations, including community institutions.

Of particular relevance to the marketplace lending industry, is that the Updated Advisory is applicable to banks that rely on to perform risk management functions when purchasing: loans and loan participations, including out-of-territory loans; loans to industries or loan types unfamiliar to the bank; leveraged loans; unsecured loans; or loans underwritten using proprietary models. Letter.

New York Appellate Court Allows Repurchase Action Against J.P. Morgan To Proceed

On December 1, 2015, the First Department of the Appellate Division of the Supreme Court for the State of New York affirmed the denial of a motion to dismiss an action brought by Bank of New York Mellon Corporation against J.P. Morgan Mortgage Acquisition Corporation ("JPMMAC") and WMC Mortgage LLC. The case is based on claims that JPMMAC breached its obligation to repurchase mortgage loans originated by WMC that violated certain representations and warranties. At issue in JPMMAC's appeal was a representation and warranty that stated that "[w]ith respect to the period from [the] Whole Loan Sale Date to and including the Closing Date" the information in the Mortgage Loan Schedule ("MLS") and the loan tape "is true, correct, and complete in all material respects." JPMMAC argued that this representation and warranty was a "bring-down" provision that only provided against defects that arose after JPMMAC purchased the loans from WMC, and did not apply to alleged defects that existed at the time WMC sold the loans to JPMMAC. The Appellate Division rejected JPMMAC's arguments, holding that the contractual language was not so limited. Decision.

Investors File Putative Class Action Against Citibank for Allegedly Failing to Comply with RMBS Trustee Duties

On November 24, 2015, a group of investors, led by Pacific Investment Management Co. ("PIMCO"), filed suit in the Supreme Court of the State of New York against Citibank, N.A., as trustee of 25 private-label RMBS Trusts. This state court complaint follows the Southern District of New York's dismissal of a similar action for lack of jurisdiction over claims relating to the majority of trusts, as discussed here. The investors allege that Citibank knew the trusts contained loans that breached seller representations and warranties, and that Citibank failed to perform its contractual obligations to require the sellers to cure or repurchase the defective loans. Plaintiffs further allege that Citibank breached its duties to enforce the obligations of loan servicers by failing to redress alleged servicer misconduct. The complaint also alleges breaches of Citibank's fiduciary duties and a violation of New York's Streit Act. Complaint.

European Court of Justice Ruling on Scope of MiFID

The European Court of Justice (ECJ) has held in the case of Banif Plus Bank Zrt. V. Marton Lantos and Martonne Lantos (Case C-312/14) (3 December 2015) that foreign exchange transactions which are part of foreign currency denominated loans do not constitute investments services and so are not subject to the provisions of the Markets in Financial Instruments Directive (2004/39/EC) (MiFID).

ESMA Announces European Swap Clearing to Start in June 2016

In a press release dated December 2, 2015 the European Securities and Markets Authority (ESMA) announced that firms will have to clear certain classes of interest rate swaps starting from June 21, 2016. This marks an important milestone in implementing the EU's post-financial crisis derivatives regulation – the European Market Infrastructure Regulation (EMIR) and follows the G20 commitment to clear all standardized OTC derivative contracts, where appropriate, through central counterparties.

The incoming obligation will cover the following classes of OTC interest rate derivatives denominated in the G4 countries:

• Fixed-to-float interest rate swaps (also known as plain vanilla);
• Float-to-float swaps (also known as basic swaps);
• Forward rate agreements; and
• Overnight index swaps.

MiFID II Legislation Set For Further 1 Year Delay

The European Parliament has agreed not to block requests from policy makers and regulators to postpone implementation of the Markets in Financial Instruments Directive. This delay pushes back the intended date of the new legislation to January 2018.

The legislation is still being drafted and market participants have pushed for a longer implementation period to allow for internal updating and training. The press release published on November 27, 2015 states that the "Commission and ESMA need to come up with a clear roadmap on the implementation work and especially for setting up the IT-systems".

ESMA Q& A on Application of the AIFMD

On December 2, 2015 the European Securities and Markets Authority (ESMA) published an updated Question and Answer document in relation to the Alternative Investment Fund Managers Directive (AIFMD) which puts in place a comprehensive framework for the regulation of alternative investment fund managers within Europe.

The document provides responses to questions asked by the general public and is updated on a rolling basis in the place of a formal consultation process. The Q&A was last updated in July 2015 and the new additions to the document are highlighted in yellow; these primarily concern reporting to national competent authorities.