On January 16, 2012, attorneys filed a class action against Amazon.com relating to an online hacking attack that compromised the personal information of up to 24 million customers of its online shoe retailer, Zappos.com.  Data Breach Legal Watch reported that less than 24 hours after the breach occurred, the plaintiffs’ bar had already filed a Complaint claiming that the attack resulted in the exposure of the following:

Names;
Addresses;
Telephone Numbers;
Email Addresses;
Passwords (cryptographically scrambled); and
The Last 4 Digits of Credit Card Numbers

The attack did not expose the social security numbers or complete credit card numbers of customers.  Nonetheless, the Complaint claims that customers will be exposed to “phishing” attacks that are tailored to the compromised information, as well as anxiety, emotional distress and loss of privacy.  Further, similar to the Sony data breach case, the Complaint seeks compensation for the costs of identity theft insurance and credit monitoring.  
Data Breach Legal Watch notes that, aside from the Hannaford decision that the 1st Circuit recently published, courts have generally rejected fear of identity theft claims, requiring a showing of some actual harm to the individuals affected by the breach.  This breach, however, did not expose complete credit card numbers like in Hannaford or several of the hacking attacks directed at Sony.  It would seem that Zappos is unlikely to be on the hook for anything beyond being forced into providing identity protection and/or monitoring for its customers.  However, the cumulative effect of these data breaches and the class actions that inevitably follow will likely be greater data security within internet industries.
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The BankAtlantic subprime-related securities lawsuit by its shareholders and against its officers and directors is going to trial with jury selection starting this week in Miami. It is very rare that trials in securities class action cases proceed to trial.

Interestingly, the case is proceeding to trial after a partial granting of the shareholders’ summary judgment motion, finding that the statements of the bank executives regarding certain loans were false. Plaintiffs allege that the bank executives made misleading statements about the credit quality of certain land loans in the bank’s portfolio and failed to follow conservative lending practices, exposing it to higher level of risk than represented to investors, while telling investors that loss reserves were adequate. When the falsity of the statements was revealed between April and October 2007, the bank’s stock price fell.

The plaintiffs will still have to prove that these false statements were materially misleading, were made with scienter, and that they caused damages.

As typical of similar claims, the D&O cases only go so far. After that, the bank executives (including the FDIC who has taken over many of the failing banks ad made similar claims) begin blaming the loan brokers (most of whom are out of business) for not following the bank’s underwriting procedures, as well as the appraisers for over-valuing the secured properties. Yet, blaming the lenders is always a good defense for the loan brokers and appraisers, so it will be interesting to see how the jury penalizes the bank executives for not following their own practices and procedures.

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Categories: Banking | Mortgage Litigation

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On Friday, March 13, 2009, the NAACP sued HSBC and Wells Fargo alleging that these lenders forced African Americans into subprime mortgages while whites with identical qualifications got loans on more favorable terms (the “NAACP Lawsuits”). The original complaints in the NAACP Lawsuits are available at http://www.naacp.org.
Such claims are commonly referred to as “reverse redlining.” Redlining is the practice of denying credit to specific geographic areas based on the income, race, or ethnicity of its residents. Reverse-redlining, on the other hand, occurs where a lender unlawfully discriminates by extending credit to a neighborhood or class of people on terms less favorable than would have been extended to people outside the particular class at issue.

The NAACP Lawsuits allege that HSBC and Wells Fargo violated the Fair Housing Act, 42 USC § 3601, the Equal Credit Opportunity Act, 15 USC § 1691, and the Civil Rights Act, 42 USC §§ 1981, 1982. Specifically, the NAACP Lawsuits allege that HSBC and Wells Fargo “engaged in institutionalized, systematic racism” in connection with the sale of residential mortgage loans to members of the NAACP. The NAACP Lawsuits further allege that the “pervasiveness of this discrimination has been documented in numerous empirical studies that all confirm that African Americans are substantially more likely to receive higher-rate residential mortgage loans than Caucasian borrowers with the same qualifications.” The NAACP Lawsuits do not seek an award of damages. Instead, the complaints seek various injunctive and declaratory relief barring HSBC and Wells Fargo from continuing their alleged “predatory behavior.”

Counsel for lenders should be aware of claims based on discriminatory lending practices under federal law and, frequently, parallel state law equivalents. At the outset of any litigation, counsel for lenders should analyze the lender’s sales policies and procedures manuals and the lenders’ HMDA data. HMDA, or the Home Mortgage Disclosure Act of 1975, requires financial institutions to maintain and annually disclose data about home purchases, home purchase pre-approvals, home improvement, and refinance applications involving 1 to 4 unit and multifamily dwellings. HMDA was passed to identify discriminatory lending practices by, among other things, requiring lenders to keep records concerning the race of their customers and applicants and the lending decisions they make.

John E. Matter Jr.
Moye White
jake.matter@moyewhite.com

 

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Categories: Civil Rights | Banking | Discrimination

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