The U.S. Court of Appeals for the Second Circuit held last month that state legislatures may create legally protected interests whose violation support Article III standing, subject to certain federal limitations, on interlocutory appeal from a motion for judgment on the pleadings in a case involving a putative class action suit against a bank for alleged violations of New York’s mortgage-satisfaction-recording statutes. The court held that the New York law violations alleged constitute a concrete harm to plaintiffs in the form of reputational injury and limitations on borrowing capacity.
New York’s mortgage-satisfaction-recording statutes require mortgage lenders to record satisfactions of mortgage within thirty days of the borrower’s repayment. A failure to do so renders the lender “liable to the mortgagor” for increasing statutory damages in amounts depending on the lateness of the filing.
In this case, the bank allegedly did not record the satisfaction of the plaintiffs’ mortgage, in an amount of over $50,000, until almost eleven months after full payment was received.
On review of the question certified for interlocutory appeal of whether the plaintiffs have Article III standing to sue the bank, the court of appeals held that state legislatures can create “legally protected interests” whose violations satisfy the Article III injury-in-fact requirement and that the plaintiffs in this case have alleged injury-in-fact sufficient to satisfy Article III. In its analysis, the court reasoned based on Supreme Court precedent that a state legislature, like Congress, may recognize legal interests whose violations resemble wrongs traditionally recognized at common law. The court noted the New York mortgage-satisfaction-recording statutes create a “legally protected interest” and that the violation of these statutes produces a “concrete” injury regardless of whether those statutes create “substantive” or “procedural” rights.
The court further held that the plaintiffs’ complaint supports a plausible inference that the bank’s violation harmed their financial reputation during the nearly ten-month period of noncompliance and created a material risk of particularized harm to the plaintiffs during this time by impairing their credit and limiting their borrowing capacity. The dissenting judge noted that the panel’s conclusion regarding financial reputation appears to be inconsistent with how mortgage loans are reported to credit bureaus.