OFFICE OF THE GENERAL COUNSEL STATUS OF IMPORTANT BANKING CASES

October 15, 2007

NEW THIS MONTH:

Page 9 Federal district court declines to preempt an Ohio law requiring independent mortgage brokers to obtain licenses from the state before they may market first and second mortgages, State Farm Bank v. Reardon.

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Page 28 Ruling on motion to dismiss TJX security

breach litigation, In Re TJX Companies Retail Security Breach Litigation.

Page 30 Seventh Circuit rules that the cost of monitoring

for future identity theft as the result of a security breach is not compensable under Indiana’s security breach notification statute, Pisciotta v. Old Nat’l Bancorp.

Page 30 Tennessee Supreme Court clarifies the UCC

regarding a creditor’s duty to provide proper notification prior to the sale of a repossessed auto, Auto Credit v. Wimmer.

Page 35 Federal court dismisses class action alleging

conversion of trust assets, Brooks v. Wachovia Bank, N.A., et al.

Nothing contained in this report is to be considered as the rendering of legal advice for specific cases, and readers are responsible for obtaining such advice from their own legal counsel. This report is intended for educational and informational purposes only. ©2005, 2006, 2007 American Bankers Association. Not-for-profit reproduction is authorized without prior permission provided

Page 38 ABA files amicus, Supreme Court takes up the issue of liability under Section 10(b) of the 1934 Securities Exchange Act for “aiding and abetting” deceptive or manipulative securities trading practices, Stoneridge Investment v. Scientific-Atlanta, Inc.

that the source is credited.

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For Your Convenience…

• Updates to the case entries appear in bold print, and • New cases that are added to the list are in bold print and marked with a

star in the margin.

ANTITRUST

1. Brennan v. Concord EFS Inc., et al.: This is one of a series of putative class-action suits brought in the United States District Court for the Northern District of California by individuals who have paid “foreign ATM fees” for the use of an ATM. A “foreign” ATM Transaction” is a cash withdrawal in which an ATM cardholder uses an ATM owned by an entity other than his or her own bank. The plaintiffs allege violations of federal antitrust laws against several large financial institutions (including VISA and MasterCard, and Concord EFS, the entity that manages the interchange system among various banks and ATMs). Those cases are:

Pamela Brennan, et al. v. Concord EFS, Inc., et al., 04-2676-SBA Peter Sanchez v. Concord EFS, Inc., et al., 04-4574-VRW Deborah Fennern v. Concord EFS, Inc., et al., 04-4575-VRW Miller v. Concord EFS Inc., et al., 04-4892-VRW Melissa Griffin, et al. v. Concord EFS, Inc., et al., 05-00220-VRW Cecilia Salvador, et al. v. Concord EFS, Inc., et al., 05-00382-VRW Spohnholz v. Concord EFS, Inc., et al., 05-03725 CRB

The Court has consolidated the cases with Brennan as the lead case. By order dated January 26, 2005, the court stayed the proceedings in the Sanchez, Fennern, Miller, and Griffin cases. Plaintiffs’ First Amended Complaint alleges that, prior to Concord’s acquisition of the Star Network, the bank co-defendants “collectively owned and/or operated” the Star network and thereby “fixed” the interchange fee charged for foreign ATM withdrawals over that network. See Brennan v. Concord EFS, Inc., 369 F. Supp. 2d 1127, 1128-29 (N.D. Cal. 2005). According to the complaint, this alleged control over Star’s interchange fee constitutes horizontal price fixing by competitors, constituting a per se violation of the Sherman Act.

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Defendants filed a motion to dismiss the case, which was denied. The Court ruled that Plaintiffs had stated a viable claim for price-fixing. See Brennan v. Concord EFS, Inc., 369 F. Supp. 2d 1127 (N.D. Cal. 2005) (Walker, C.J.). Specifically, the Court held that Plaintiffs had stated a claim of “naked” price-fixing subject to analysis under the per se rule. The Court acknowledged Defendants’ “theoretical” arguments that the fixed interchange fee was necessary to the very existence of the ATM network and that the fixing of the fee was ancillary to the procompetitive joint venture. But those arguments, the Court ruled, were not germane to a motion to dismiss. Instead, the Court found that they were “intrinsically factual, contrary to plaintiffs’ pleading and inappropriate for resolution at the motion to dismiss stage.” It was enough that Plaintiffs had alleged in their complaint that no procompetitive justification existed for the price-fixing. Because the Court was required to accept that allegation as true, it denied the motion to dismiss. The Defendants subsequently filed a motion for partial summary judgment. In this motion, they argued that Defendants could not be held liable for any alleged price-fixing that occurred after February of 2001 because the members of the Star network had transferred control over the interchange fee to another company at that time, and that subsequent decisions regarding the interchange fee were therefore merely “independent action,” which is not proscribed by Section 1 of the Sherman Act. Subsequent to oral argument, the parties submitted additional rounds of briefing. The first round of briefing addressed whether the Supreme Court’s recent decision in Texaco, Inc. v. Dagher had an impact on the case. The second round of briefing requested permission to file a motion for reconsideration of the Court’s previous ruling on the motion to dismiss. On November 30, 2006, the Court terminated its consideration of these dispositive motions and ordered that the parties undertake limited discovery “necessary to elucidate the plausible procompetitive justifications that might be advanced in support of the fixed interchange fee.” The Court’s order is an attempt to refocus the parties on what it believes to be the critical legal question presented in this case: whether the fixed interchange fee in the Star ATM network is an impermissible agreement to fix prices. Explaining its decision, the Court believed that after its denial of the Defendant’s motion to dismiss, the parties had become too focused on applying a per se antitrust analysis to the case. While it was appropriate to analyze the motion to dismiss under the per se rule because the Court was compelled to accept as true Plaintiffs’ allegations that there was no procompetitive justification for the fixed interchange fee, it does not necessarily follow that a per se analysis will ultimately govern the result. The Court made it very plain that “it is not in accord with what seems to be the parties’ shared assumption that this case must hereafter be analyzed under the per se rule.” Instead, it put the parties on notice that “if Defendants can set forth evidence to support plausible, procompetitive justifications for their agreement to fix

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the interchange fee, then the Court would have to examine their agreement under the rule of reason” antitrust analysis, citing Dagher. In terminating the motions, the found that “at least some discovery is necessary to determine whether there procompetitive justifications really do exist for the fixed interchange fee, including inquiry into the manner in which the banks made their collective decision to set a fixed interchange fee; the structure of the fee agreement employed by the Star ATM network, which has evolved over time; and the characteristics of the relevant market.” After such discovery is conducted the Court will be in a position to weigh the putative pro-competitive justifications for the banks’ agreement, and the subsequent briefing will “address the plausible procompetitive justifications for the fixed interchange fee in the context of evidence about the actual character of the agreement.” At a status conference held on December 15, 2006, the Court ordered that discovery is to be redrafted and that Defendants’ “economic justification” for the fixed interchange fee was to be tendered by March 1, 2007. On August 3, 2007, defendants Bank of America Corporation, Bank One, N.A., J.P. Morgan Chase & Co., Citibank (West), F.S.B., Suntrust Banks, Inc., Wachovia Corporation, Wachovia Bank NA, Wells Fargo & Co., Wells Fargo Bank, N.A., Servus Financial Corporation, Concord EFS, Inc., and First Data Corporation filed motions for summary judgment. An order setting forth the briefing and discovery schedule in connection with this motion has been issued. The hearing has been reset for February 29, 2008. 2. In re: Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, (Case No. 1:05-md-01720-JG-JO)(Eastern District New York). This is a consolidation of 23 separate suits (eight actions in the Southern District of New York, three actions in the District of Connecticut, two actions in the Northern District of California, one action in the Northern District of Georgia, and nine actions in the Eastern District of New York) into a multi-district class action lawsuit against Visa USA, MasterCard, Inc., and dozens of major banks alleging that they colluded in setting excessive credit card fees, in violation of applicable federal antitrust laws. The cases were consolidated after a ruling from the Multidistrict Litigation Panel on October 19, 2005. The litigation focuses upon interchange fees, which retail merchants pay to issuing banks to receive payments for transactions on the banks’ cards. The complaints allege that the “contracts, combinations, conspiracies, and understandings” allegedly entered into by the numerous defendants “harm competition” and cause the members of the class to “pay supra-competitive, exorbitant, and fixed prices for General Purpose Network Services, and raise prices paid by all of their retail customers.” The suit seeks damages, as well as declaratory and injunctive relief.

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The Class Plaintiff’s First Supplemental Class Action Complaint was filed on July 5, 2006. Mastercard filed a motion to dismiss the First Supplemental Class Action Complaint on September 15, 2006. Oral argument on Defendants’ motion to dismiss Class Plaintiffs’ First Supplemental Class Action Complaint was heard February 2, 2007. The Court has allowed supplemental briefing on the issues of (1) analogous transactions to the MasterCard public offering and Agreements that were not analyzed under the antitrust laws, and (2) why the pre-public offering shares in MasterCard previously held by MasterCard’s Member Banks should not be treated as “assets” within the meaning of Section 7 of the Clayton Act. On June 9, 2006, the defendants moved to dismiss the Class Plaintiffs' claims for damages to the extent such damages were incurred before January 1, 2004. The motion to dismiss argued that the claims at issue were raised and settled in a previous case, In re Visa Check/MasterMoney Antitrust Litigation, Case No. CV 96-5238 (E.D.N.Y.). The matter was referred to Magistrate Judge Orenstein who heard oral argument on the motion on November 21, 2006. On September 7, 2007, Magistrate Judge Orenstein issued his Report and Recommendation, recommending to the Court that it grant the pending motions to dismiss plaintiffs’ claims for damages incurred prior to January 1, 2004. The Magistrate Judge concluded that the settlement agreement in the VisaCheck litigation was enforceable and served to release all claims for damages arising before January 1, 2004. 3. In re: Currency Conversion Fee Antitrust Litigation, (Case No. 1:01-md-01409-WHP, Southern District of New York.; Second Circuit Case Number 06-5327). Plaintiffs allege violations of the Sherman Act, 15 U.S.C. § 1 et seq., the Truth in Lending Act ("TILA"), 15 U.S.C. § 1601 et seq., and the South Dakota Deceptive Trade Practices Act ("DTPA"), arising from an alleged price-fixing conspiracy among VISA and MasterCard and their member banks concerning foreign currency conversion fees. The factual background underlying these actions is set forth in the Court’s prior opinions. See In re Currency Conversion Fee Antitrust Litig., 229 F.R.D. 57, 2005 WL 1405993 (S.D.N.Y. June 16, 2005) ("Currency Conversion IV"); In re Currency Conversion Fee Antitrust Litig., 361 F. Supp. 2d 237 (S.D.N.Y. 2005) ("Currency Conversion III"); In re Currency Conversion Fee Antitrust Litig., 224 F.R.D. 555 (S.D.N.Y. 2004) ("Currency Conversion II"); In re Currency Conversion Fee Antitrust Litig., 265 F. Supp. 2d 385 (S.D.N.Y. 2003) ("Currency Conversion I"). On July 26, 2006, a tentative settlement was reached. Under the terms of the settlement, defendants will pay $336 million to create a settlement fund to pay monetary claims by eligible cardholders, the costs of administering the settlement and notice to cardholders, and any court-approved fees and expenses to attorneys for the class and awards to the class representatives. The settlement also includes provisions relating to disclosures on billing statements and other documents. Implementation of the claims process will involve a third party administrator. Defendants in the case include Visa, MasterCard, Bank of America, Bank

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One/First USA, Chase, Citibank, Diners Club, HSBC/Household, MBNA and Washington Mutual/Providian. Card accounts covered by the settlement include brands such as Visa, Interlink, Plus, MasterCard, Cirrus, and Maestro. None of the defendants admit to any wrongdoing. The settlement also includes an agreement to settle certain related lawsuits, including Schwartz v. Visa (see case directly below). If this settlement is approved, claims in those and other related lawsuits will be extinguished. On November 8, 2006, the Court granted preliminary approval of the settlement. The Settlement provides for the payment of $336 million and injunctive relief that runs for a five-year period beginning on July 25, 2006. Eleven state court actions are being settled along with this case under separate settlement agreements. A plaintiff has objected, and has appealed the approval to the Second Circuit. In the interim, the district court has retained Duke University School of Law Professor Francis E. McGovern as Special Master to work with the parties to review and amend, as appropriate, the plan for distribution of the Net Settlement Fund. 4. Pinon, et al. v. Bank of America, et al., (Case No. C07-634, United States District Court for the Northern District of California). On January 31, 2007, class action was filed against a number of national banks doing business in California alleging violations of the National Bank Act, Sherman Act (Antitrust) and various provisions of the California Code. The suit argues that each of the major credit card issuers have imposed excessive penalty fees. The penalty fees allegedly violate the National Bank Act's prohibition against overcharging customers, an argument that is crafted from an aggressive reading of recent Supreme Court cases construing the constitutional limits of punitive damages based on the Due Process clause. It is also alleged that the defendant banks have conspired to "fix prices and maintain a price floor for late fees" in violation of the Sherman Act. The suit also identifies various other “firms, corporations, organizations, and other business entities, some unknown and others known, not joined as defendants” as “co-conspirators.” These “co-conspirators” include “financial institutions that issue credit cards, payment industry media, third-party processors such as First Data Resources(“FDR”) and Total Systems Services, Inc. (“TSYS”) that process payment card transactions, credit card industry consultants, trade associations such as the American Bankers Association, and the two major credit card networks, Visa U.S.A. (“Visa”) and MasterCard International, Inc. (MasterCard.).” Three additional class actions were filed in the District against the same defendants alleging substantially the same facts and causes of action. )Case No. C-07-0772-SBA; Case No. C-07-1113-SBA; and Case No. C-07-1310-MMC). The parties stipulated to a consolidation of these four cases, and an amended/consolidated complaint was filed on May 8, 2007. On June 12, 2007, defendant Washington Mutual Bank filed a motion with the Court to stay discovery pending the resolution of the defendant’s motion to dismiss. On July 23, 2007, the Court granted the motion to stay all discovery until

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September 18, 2007, or such time as a ruling on the motion to dismiss is issued. The hearing on the Motion to Dismiss is set for October 23, 2007.

ARBITRATION 5. Discover Bank v. Vaden, No. 06-1221 (4th Cir. June 13, 2007). On June 13, 2006, the United States Court of Appeals for the Fourth Circuit affirmed a decision of the U.S. District Court for the District of Maryland compelling arbitration of several class action counterclaims brought in state court against Discover Financial Services, the servicing arm of Discover Bank. At issue in the case was the preemptive effect of the Federal Deposit Insurance Act (“FDIA”) with respect to state law counterclaims that were aimed at Discover during the course of collection action filed by the bank in state court. In response to a debt collection action, Vaden filed class action counterclaims against Discover alleging that certain fees and interest rates she was charged on her Discover Card were in violation of Maryland law. In response, Discover Bank brought a petition under section 4 of the Federal Arbitration Act (“FAA) in federal court seeking to compel arbitration of the class action counterclaims. Jurisdiction for this action was founded upon the existence of a federal question, i.e. whether Vaden's state court counterclaims were completely preempted by the FDIA. The District Court granted Discover's petition to compel arbitration, and in January 2005 Vaden appealed this ruling to the Fourth Circuit. The Fourth Circuit concluded that the presence of a federal question in the underlying dispute would be sufficient to support subject matter jurisdiction, and remanded the case for consideration of whether (1) Discover Bank was the real party in interest so that the FDIA could be invoked, (2) whether the FDIA completely preempted state law, and (3) whether Vaden had received the arbitration agreement and thereby agreed to the same by using her credit card. On remand, the District Court found in favor of Discover and Vaden again appealed to the Fourth Circuit. The Fourth Circuit once again ruled in Discover’s favor. The Fourth Circuit reaffirmed its prior holding that jurisdiction to hear a petition to compel arbitration under the FAA could be predicated upon the presence of a federal question in the underlying dispute. The Fourth Circuit concluded that such a federal question existed because Vaden’s state law counterclaims were completely preempted by the FDIA. Relying upon decisions interpreting the National Bank Act, including the Supreme Court's recent decision in Watters v. Wachovia and an amicus brief filed by the FDIC, the Fourth Circuit concluded that Vaden’s state law usury claims were preempted by federal law. The Fourth Circuit also concluded that Vaden had failed to rebut the presumption that she had in fact received the arbitration agreement and agreed to its terms by using her Discover card.

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On July 10, 2007, the Court denied Vaden’s motion for rehearing and rehearing en banc. The mandate was issued July 18, 2007. Costs of the appeal ($296) were assessed against Vaden. On September 24, 2007, the United States Supreme Court granted Vaden’s application to extend the time to file a petition for a writ of certiorari from October 8, 2007 to December 7, 2007.

BANKRUPTCY

6. Ad Hoc Committee of Kenton County Bondholders v. Kenton County Bondholders Committee and Delta Air Lines, Case No. 07-3968 (Southern District of New York). This case arises out of the bankruptcy of Delta Airlines. At issue is a settlement that was negotiated with Delta by an indenture trustee for a bond issuance by the Kenton County Airport Board. The indenture trustee obtained approval for the settlement from a majority of the bondholders. A minority interest is challenging the trustee’s ability to settle claims without 100 percent bondholder consent. The Kenton County Airport Board issued a series of revenue bonds to fund improvements to the Cincinnati/Northern Kentucky International Airport. The bonds were to be repaid by rental payments from Delta Airlines for its use of the facilities. Delta Airlines subsequently went into bankruptcy. UMB Bank, the indenture trustee, working with a majority of the bondholders, eventually reached a settlement with Delta Airlines. The trust indenture permitted UMB Bank to settle claims provided a sufficient number of bondholders consent to the agreement. UMB obtained the requisite level of consent for the settlement as specified in the indenture, and the bankruptcy court approved the agreement. Five bondholders (four of whom purchased their positions post-bankruptcy) objected to the settlement, arguing that their right to receive 100 percent of what was due to them under the bonds could not be impaired. After a hearing, the bankruptcy court approved the settlement despite the objections of the five bondholders. The bankruptcy’s court approval has been appealed to the U.S. District Court for the Southern District of New York. On June 22, 2007, the ABA filed an amicus brief with the Court in support of the settlement. It is industry practice for indenture agreements to contain a provision that authorizes the indenture trustee to settle claims with an appropriate level of bondholder approval. These provisions usually do not require 100 percent approval from bondholders. Rather, they specify a minimum percentage of bondholder votes required to consent to a settlement. If the district court were to overturn the settlement with Delta, the result would threaten similar provisions in

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thousands of existing indenture agreements and potentially place otherwise advantageous settlements at the mercy of minority bondholder interests. On August 27, 2007, the District Court affirmed the approval of the settlement. The court found that the Indenture authorized the Bond Trustee to settle for less than the full value of the bonds over the objection of a minority of bondholders. The “non-impairment” provision of the Trust Indenture did not prevent a settlement because any impairment of the bondholder’s ability to collect was due to Delta’s default and protection under the bankruptcy laws not due to any action by the Issuer or Trustee. The court cited the ABA’s amicus brief as “convincingly” driving this point home with its discussion of the relevant provisions of the Trust Indenture Act of 1939. The bondholders filed a notice of appeal with the United States Court of Appeals for the Second Circuit on September 14, 2007.

CONSUMER PROTECTION * 7. State Farm Bank v. Reardon, Case No. , C2-05-268 (S.D. Ohio). A federal district court declined to preempt an Ohio law requiring independent mortgage brokers to obtain licenses from the state before they may market first and second mortgages. The case, State Farm Bank v. Reardon, involves a federal savings association’s challenge to the Ohio law. At issue is an opinion letter from the chief counsel of the Office of Thrift Supervision that concluded that the laws of twelve states requiring the licensing of mortgage brokers – including the law in Ohio – were in conflict with federal regulations governing federal savings associations. The court disagreed, finding that “while the OTS may have the authority to extend federal preemption to agents of federal depository institutions, it has failed to comply with the Administrative Procedure Act in its efforts to do so.” The court ruled on September 28, 2007, that while current regulations adopted by the OTS may expressly preempt any state law governing brokers employed by a federal savings association or its subsidiaries, the regulations do not reach the issue of whether federal law preempts the application of state law to independent agents or contractors. Similarly, the court found that the regulatory scheme created by Congress does not compel the conclusion that Ohio’s licensing requirements conflict with federal regulations; while the state law regulates independent contractors, it does not limit a federal savings association’s power to lend, extend credit, or perform any function under federal law. The court distinguished the case from the Supreme Court's recent decision in Watters v. Wachovia Bank on the grounds that, although Watters extended the preemptive effect of federal law to a wholly owned subsidiary of a national bank, that policy should not be

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extended automatically to “state laws impacting wholly independent third-party contractors in which a federal financial institution has no ownership interest or direct operational control.” Finally, the court declined to defer to the opinion letter issued by the OTS’ chief counsel because it was not promulgated pursuant to formal notice-and-comment rulemaking under the Administrative Procedure Act. State Farm has appealed this decision to the United States Court of Appeals for the Sixth Circuit. A copy of the opinion is attached as a PDF file. 8. Pacific Capital Bank v. Burke (Second Circuit, Case No. 06-4149-CV). The plaintiff in this case, Pacific Capital Bank is a national bank headquartered in California. The bank has challenged a Connecticut statute that places conditions and limitations on the origination of “refund anticipation loans” or “RALs” within Connecticut. Three substantive provisions are at issue in the case:

- The Connecticut statute requires that a “facilitator” of a RAL (generally a tax preparer) must provide certain specified disclosures to a consumer at the time they apply for the loan;

- The Connecticut statute prohibits the “making” of a RAL at a location other than “a location in which the principal business is tax preparation;” and

-The Connecticut statute sets a maximum permissible interest rate for a RAL.

The district court found that each of these provisions could not be applied to RALs made by national banks because the state statute would conflict with the National Bank Act and, therefore, be preempted. The court reached that conclusion not only with respect to the statute's limits on interest rates to be charged on RALs, but also with respect to the use of tax preparers (or other "facilitators") to market these loans. The decision was appealed to the Second Circuit. The ABA (along with America’s Community Bankers, Consumer Bankers Association, and The Financial Services Roundtable) filed an amici brief supporting Pacific Capital Bank. The brief argues that (1) preemption under the National Bank Act does not raise a constitutional issue and is not governed by a presumption against preemption, (2) the National Bank Act preempts state law that obstructs the exercise of National Bank Act banking powers, and (3) the district court opinion does not harm consumer protection. The case has been set for argument on December 4, 2007.

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9. Sola v. Washington Mutual Bank, F.A., (CV 03-2566, Central District of California). On April 26, 2004, the U.S. District Court for the Central District of California dismissed a complaint filed by a consumer class alleging a variety of Truth in Lending, Home Owners Loan Act, and Washington State law claims based on WAMU’s promotional materials dealing with its overdraft protection options. Notwithstanding the promotional statements, “Don’t worry, we’ll cover you” and “Automatic Protection,” the deposit account agreement and the monthly customer account statements preserved the ability of WAMU to exercise discretion in its payment of overdrafts. The district court granted WAMU’s motion to dismiss after ruling that the overdraft charges were not “interest” under the HOLA and not “finance charges” under TILA. Plaintiffs appealed the dismissal to the Ninth Circuit on May 17, and a coalition of consumer groups filed as amici on September 23, 2004. OTS filed an amicus brief on November 19; ABA and California Bankers Association filed an amici brief on November 29. The case was argued in Pasadena on February 9, 2006. On April 28, 2006, the Court directed the parties to file briefs addressing the question of what deference, if any, this court owes to statements issued by the Federal Reserve (and cited in the parties' initial briefs) regarding Truth in Lending. Additionally, the Federal Reserve was invited to file an amicus brief discussing Trust in Lending Act coverage, and the question of what deference, if any, the court owes to the Federal Reserve statements regarding Truth in Lending. The Federal Reserve filed its brief on June 5, 2006. The Court granted the parties permission to file a short reply brief in response to the amici submission by the Federal Reserve. In an unpublished summary decision, on September 7, 2006, the Ninth Circuit affirmed in part and reversed in part the district court’s decision.

• The Court found that the district court properly dismissed the plaintiffs’ claims under TILA for allegedly failing to disclose the terms of credit and for failing to disclose the annual percentage rate applicable to credit cards. The Court ruled that the charges in question do not satisfy the definition of “finance charges” because they are not incident to extensions of credit. Rather, they are incident to overdrawn accounts.

• The court, however, reversed the district court’s dismissal of plaintiffs’

other claims under TILA and 12 C.F.R. § 226.12, for unsolicited issuance of credit cards and off-setting without an agreement to do so. The Court found that the complaint filed in the case by the Plaintiffs does not necessarily imply the existence of a formal, written deposit agreement. Rather it alleges that a credit agreement governing the ATM cards exists based on the promotional materials and the parties’ courses of conduct. Because the cards may fall within the definition of “credit cards” court remanded the case to provide plaintiffs with an opportunity to prove the

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• The Court affirmed the district court’s dismissal of the plaintiffs’ claim

under HOLA on the ground that the plaintiffs conceded that they could not state a claim because California, not Washington, law applied.

The case has been remanded back to the District Court for further proceedings. No costs were assessed. At a status conference held on November 9, 2006, Judge Audrey B. Collins set a briefing schedule for a motion to amend the complaint. The proposed revised complaint was lodged with the Court on November 27, 2006. Washington Mutual has moved to dismiss the amended complaint for failure to state a claim. Discovery has been reopened for 90 days so that plaintiffs may conduct discovery concerning the parties’ written agreement. At the conclusion of the ninety-day period, Defendant may file a new motion. Plaintiff has filed a motion for “limited” discovery. A hearing on the motion is set for November 5, 2007.

10. Putkowski v. Irwin Home Equity Corporation (Case No. 06-15809, United States Court of Appeals for the Ninth Circuit). This matter involves a very significant issue under the Fair Credit Reporting Act (“FCRA”): how to determine whether a solicitation qualifies as a “firm offer of credit” under section 603 and 604 of the FCRA. The case is a proposed class action alleging that Irwin violated the FCRA when it sent solicitations in the mail to the class members for a home equity line of credit. Relying upon the Seventh Circuit’s decision in Cole v. U.S. Capital, Plaintiffs claim that Irwin lacked a “permissible purpose” when it gained access to access Mr. Putkowski’s credit information. Plaintiffs argue that the solicitation sent to Mr. Putkowski was a “sales pitch” inviting him to apply for a loan, as opposed to a “firm offer of credit” which is a “permissible purpose” under the FCRA. Plaintiffs contend that Irwin’s solicitation lacked the essential terms necessary to qualify as an offer of credit. Rather than state a precise amount on offer, Irwin’s solicitation gave a range for the amount of credit to be extended ($15,000 to $300,000) and the possible interests rates (5.56 per cent to 24 per cent), all conditioned upon the creditworthiness of the applicant. Plaintiffs argue that the absence of the exact amount of credit to be extended and the precise rate of interest to be charged prevented the solicitation from being considered a “firm offer of credit.” The United States District Court in San Francisco disagreed, and dismissed the case. The court found that “[t]he text of the FCRA does not support plaintiffs’ suggestion that a firm offer of credit cannot contain a range of credit or interest rates,” and instead used the common-sense approach that Irwin’s solicitation should be

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interpreted as offering a $15,000 loan at 24 percent, with better terms available based upon the creditworthiness of the applicant. The court concluded that “[t]here is also nothing in the FCRA that would prohibit a potential lender from indicating that a responding recipient may later obtain more favorable terms than the minimum terms presented in the mailer.” While a loan based upon the minimum terms was hardly attractive, the court rejected the notion that “the loan it must provide sufficient ‘value’ to the consumer when judged by a later arbiter” as required by the Seventh Circuit in Cole. On September 20, 2006, the ABA along with a number of other trade groups filed an amici brief with the Ninth Circuit, supporting dismissal of the case. 11. Andrews v. Chevy Chase Bank, (Case No. 07-1326, Seventh Circuit). On January 16, 2007, a federal district judge in the Eastern District of Wisconsin ruled that (1) a plaintiff may bring a class action to rescind loans that allegedly violate TILA, and (2) the disclosures made by Chevy Chase Bank in connection with the making of an option adjustable-rate mortgage (known as an “Option ARM”) violated TILA. Option ARMs typically carry a low introductory interest rate and give borrowers multiple payment options. In reaching its decision, the court found that TILA does not bar class action suits seeking rescission, rejecting the Fifth Circuit’s analysis in James v. Home Constr. Co. of Mobile, Inc., 621 F.2d 727, 731 (5th Cir. 1980). Turning to the merits of the case, the Court found that certain tracking language used by the bank rendered the correct TILA disclosures capable of misinterpretation and therefore created three separate TILA violations. On January 25, 2007, the bank filed a Petition for Leave to Appeal Pursuant to Rule 23(f) in the U.S. Court of Appeals for the Seventh Circuit. The bank’s Petition argues that district courts are sharply divided over whether a TILA rescission class may be certified. The two appellate courts that have taken up the issue (the Fifth Circuit in Jones and the First Circuit in McKenna) have held that such a class may not be certified. On April 4, 2006, the ABA (together with several other amici) filed a brief with the court supporting Chevy Chase. Argument was heard on September 26, 2007. The parties are awaiting a decision. 12. Office of the Comptroller of the Currency v. Eliot Spitzer, The Clearing House Association, L.L.C. v. Eliot Spitzer, Attorney General of the State of New York, (05-5996 -cv (L) & 05-6001-cv(CON))(Second Circuit). These are two related cases originally filed in the United States District Court for the Southern District of New York. At issue is the exclusive nature of the OCC’s “visitorial powers” over national banks and their operating subsidiaries pursuant to 12 U.S.C. § 484. The New York Attorney General, Eliot Spitzer, sent document requests to a number of national banks (including Citibank, JP Morgan Chase, HSBC USA Bank, and Wells Fargo Bank) seeking HMDA information. In connection with at least one request, the Attorney General threatened the issuance

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of a formal subpoena or the initiation of enforcement proceedings if information was not forthcoming. The OCC and a coalition of national banks – The Clearinghouse Association – filed separate suits to enjoin the Attorney General from, in essence, examining the banks/operating subsidiaries in question. The suits allege that the Attorney General lacks the authority to enforce the provisions of the Equal Credit Opportunity Act or other laws that concern the banking activities of national banks or their operating subsidiaries, except as specifically authorized by federal law. On August 5, 2005, the Attorney General filed an answer in both cases, and filed a counterclaim against the OCC. The counterclaim sought to invalidate the OCC’s preemption regulations, 12 C.F.R. § 7.4000, as being “contrary to plain statutory language, congressional intent, and judicial precedent.” He sought a declaration that the National Bank Act does not divest the Attorney General of his statutory and common law authority to enforce non-preempted state laws against national banks and their operating subsidiaries. The ABA, the Consumer Bankers Association, and The Financial Services Roundtable filed an amicus brief on behalf of The Clearinghouse Association. A consolidated oral argument/trial was conducted in both cases on September 7, 2005, before the Honorable Sidney H. Stein. On October 12, 2005, the court ruled in favor of the OCC and The Clearing House Association. District Court Judge Sidney Stein granted a permanent injunction for The Clearing House and OCC, ruling that the “Attorney General’s investigation into national banks’ residential mortgage lending activities is prohibited by” the National Bank Act. The court found that the OCC's regulations implementing section 484 (12 C.F.R. 7.4000) were valid, ruling that “[t]he OCC has read…the limitation on visitorial powers in light of the basic objectives of the National Bank Act: to create a uniform system of national banks, comprehensively and exclusively regulated by federal law. The available legislative history does not contravene the OCC’s conclusion that even as states are free to enact legislation substantively governing national banks’ banking activity, the enforcement of those laws is properly vested in the OCC, not in state officials.” The New York Attorney General appealed the decisions in both cases to the United States Court of Appeals for the Second Circuit on November 7, 2005. The ABA filed an amici brief with the Court on June 9, 2006. The case was argued on December 4, 2006. 13. Miller v. Bank of America, (California Supreme Court, No. S149178). On December 30, 2004, the California Superior Court for the County of San Francisco issued a “Statement of Decision” in litigation that challenges the ability

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of banks to take and enforce setoffs for overdrafts or account fees in connection with accounts containing Social Security payments under California law. Most observers thought that this issue was fairly settled in 2002 with the Ninth Circuit’s decision in Lopez v. Washington Mutual Bank. Lopez holds that the federal statutes protecting Social Security and Supplemental Security Income benefits from “execution, levy, attachment, garnishment, or other legal process” do not prevent a bank from using these types of funds to satisfy account overdraft charges. Lopez also concluded that claims seeking to invalidate the setoffs based upon State consumer-protection statutes were preempted by federal law. The California court system, however, has breathed new life into the issue by relying upon State law to take a stance that is directly contrary to the conclusion reached by the Ninth Circuit. Like Lopez, the issue in Miller centers upon the legal right of a bank – here, Bank of America – to automatically debit accounts containing Social Security payments and other governmental benefits for overdrafts and insufficient funds (NSF) fees. Unlike Lopez, the court’s decision found against Bank of America, ruling that the bank’s practices violated the rule set forth in a 1974 California Supreme Court decision, Kruger v. Wells Fargo Bank. The court in Kruger held that banks could not exercise their right of setoff against deposits containing unemployment and disability benefits that were protected from creditor claims. The trial court in Miller used this venerable State precedent as a springboard for finding that Bank of America’s practices had violated provisions of the California Consumer Legal Remedies Act, the California Unfair Competition Law, and the California False Advertising Act. The trial court’s decision has, for now, awarded the class plaintiffs (1.1 million account holders) in excess of a billion dollars in restitution and damages. Final judgment in favor of Plaintiff was entered by the trial court on March 4, 2005. An appeal was filed on May 16, 2005, with the California Court of Appeals, First Appellate District. Bank of America has petitioned the court for a stay of the lower court’s decision. The California Bankers Association, the American Bankers Association, and the United States of America submitted amici briefs in support of this petition. On May 24, 2005, the court temporarily stayed the lower court’s judgment “subject to further order” of the court. Oral argument before the California Court of Appeals was heard on October 25, 2006. The Court ruled in favor of Bank of America on November 20, 2006. The ABA appeared as an amicii. In its opinion, the Court ruled that Bank of America could legally apply credits for Social Security benefits and other public benefit payments that are directly deposited into its customers’ checking accounts to cover debits for overdrafts and overdraft fees. The Court found that the lower court’s application of Kruger was “unwarranted in light of significant differences between the banker’s setoff addressed in Kruger and the facts of this case.” The court held that allowing a bank

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to balance overdrafts, to collect NSF fees, and to correct bank errors against deposits to the account in which they were incurred is factually and legally distinguishable from the setoff addressed in Kruger, which involved the setoff of a customer’s account to pay a separate credit card debt with the same bank. The court’s decision leaves in place the basic rule enunciated in Kruger while clarifying the limits of its applicability. The court did not reach arguments that California law was preempted by federal regulation in this area. Plaintiffs filed a request for rehearing on December 5, 2006. That request was denied by the Court on December 14, 2006. Plaintiffs filed a petition for review with the California Supreme Court on December 29, 2006. On March 21, 2007, the Supreme Court of California agreed to review the case. Briefing in the case is ongoing. 14. Rhonda J. Closson and Ariana Nash v. Bank of America, et al., (Case No. CGC 04-436877, Superior Court of the State of California, County of San Francisco). This is a putative class action suit against Bank of America that challenges the method by which overdraft fees for debit cards are processed and calculated. The plaintiffs allege that Bank of America has programmed its computer system to post a day’s transactions to a customer’s account in descending dollar amount order rather than chronologically. In other words, plaintiffs allege that the highest dollar value transactions are debited first, a process that they contend is designed to generate more overdrafts and intentionally increase the amount of overdraft fees charged to customers. The complaint alleges that Bank of America has violated the Consumers Legal Remedies Act, and the California Business and Professions Code. Bank of America filed an answer on November 18, 2005, denying that the plaintiffs are entitled to any relief. Among the affirmative defenses raised by Bank of America is the argument that the prosecution of the suit against Bank of America constitutes an “impermissible and unlawful attempt” to exercise visitorial powers over national banks, and that the causes of action are preempted by federal law. Discovery in the case is proceeding. On July 11, 2007, the Court entered a stipulated order dismissing without prejudice Bank of America California and Bank of America Corporation from the suit. 15. Simon Gift Card Litigation. These are a series of actions seeking enforcement/clarification of state laws affecting the sale of gift cards by Simon Property Group.

SPGGC, Inc., v. Kelly A. Ayotte, Attorney General, Case No. 06-2326 (First

Circuit) ; New Hampshire Attorney General v. Simon Property Group, Inc., Case No. 1:04-cv-00426-JD (D. New Hampshire). The New Hampshire Attorney General filed an action in state court to enforce state consumer laws that would limit Simon Property Group’s Gift Card program. Simon Property Group filed a declaratory judgment action in federal court,

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challenging the constitutionality of the state statutes and arguing that the New Hampshire Consumer Protection Act is preempted by the National Bank Act. Simon Gift Card also removed the Attorney General’s enforcement action into federal court. The federal district court remanded the Attorney General’s suit against Simon Properties back to the state court. On October 17, 2005, the Merrimack County Superior Court ruled that the cards sold by Simon Property Group in the Mall of New Hampshire, Pheasant Lane Mall, and the Mall at Rockingham Park violate state law because they have expiration dates and charge fees that cause them to lose value over time. However, the court stayed enforcement of the state law pending the outcome of Simon’s suit in federal court. On August 15, 2005, SPGGC filed a Third Amended Complaint, updating the allegations in the suit to address a number of substantive issues raised in the litigation. SPGGC alleges that Bank of America, N.A. is the national bank that had issued the Simon Visa Giftcard under its original terms and conditions from the inception of the program in August 2001 until February 1, 2005. The Amended Complaint alleges that, during this time period, there was no direct contract between Simon and Bank of America relating to the Simon Visa Giftcard program. Instead, Simon and Bank of America had separate agreements with an electronic card processor, WildCard Systems, through which the program operated. Essentially, Bank of America owned and issued the Giftcards; Wildcard created, processed and administered the Giftcards; and Simon marketed and sold the Giftcards. The Amended Complaint also alleges that on January 1, 2005, Simon and Bank of America executed an interim Prepaid Card Marketing Agreement, and that the Agreement states that the Giftcard is a product of, and issued by, Bank of America. The Amended Complaint also reflects that Simon has entered into additional agreements with other financial institutions, such as U.S. Bank and MetaBank, d/b/a Meta Payment Systems, a federally chartered savings bank. The addition of an arrangement with MetaBank means that the court will be required to take up the preemptive authority of the OTS in this area under the Home Owners’ Loan Act, 12 U.S.C. § 1461, et seq.. SPCG filed a motion for summary judgment on August 30, 2005. SPGC moved for summary judgment on the grounds that the state’s Consumer Protection Act does not apply to the Simon Gift Card based upon the doctrines of federal preemption, and the Commerce Clause of the U.S. Constitution. Two other plaintiffs, U.S. Bank, N.A., a national bank, and MetaBank, a federal savings bank, were permitted to intervene in the case and submit briefs with respect to the pending summary judgment motion.

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On June 9, 2006, the OTS issued an Opinion Letter entitled, “Preemption of State Gift Card Restrictions.” OTS Opinion Letter, P-2006-3 (June 9, 2006). The OTS is MetaBank's primary federal regulator. In the Opinion Letter, the OTS ruled that federal law preempts state law restrictions on gift cards issued by federal savings banks, including restrictions on fees and expiration dates. The OTS specifically referenced the New Hampshire statute at issue in the litigation, RSA 358-A:2, XIII. The issuance of the OTS letter was brought to the attention of the Court. On August 1, 2006, the District Court ruled in favor of Simon Gift Card. On August 31, 2006, the Attorney General filed a notice of appeal with the First Circuit. On appeal, the New Hampshire Attorney General argued that the state’s regulatory scheme avoids any conflict with federal law by targeting U.S. Bank’s agent – SPGGC – rather than the bank itself. According to the Attorney General, this tactic results in no conflict because U.S. Bank can change its conduct to use SPGGC as its agent in selling giftcards that do not have the features prohibited by New Hampshire law, or U.S. Bank can sell the giftcards directly to New Hampshire customers without relying on the services of a third party. The OCC filed an amicus brief on January 18, 2007. The Comptroller’s brief argues that New Hampshire’s statute is preempted by the National Bank Act. OCC recognizes that the National Bank Act granted national banks express and incidental powers to engage in the business of banking, and that those powers include the power to offer stored-value cards and the power to sell them to consumers using third-party agents. The OCC contends that the New Hampshire statute would prevent national banks from exercising these powers by prohibiting SPGGC—the third-party agent that U.S. Bank has engaged to promote, market, and perform ministerial acts necessary to deliver the bank’s gift cards to the bank’s customers—from carrying out these sales-related tasks. The First Circuit heard argument in the case on April 6, 2007. During oral argument, Judge Torruella asked counsel for Simon to file a sample gift card for the panel's viewing. On May 31, 2007, the First Circuit issued its opinion, affirming the District Court’s decision. The Court affirmed that “the National Bank Act gives [U.S. Bank] the power to issue the giftcards at issue in this case and sell them through a third party agent such as Simon. “ The Court concluded that because New Hampshire's Consumer Protection Act prohibits Simon from selling the U.S. Bank-issued giftcards, it "significantly interferes" with U.S. Bank’s exercise of its statutory power, is thus preempted by the National Bank Act. On June 13, 2007, the New Hampshire Attorney General requested a rehearing by the First Circuit.

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On September 13, 2007, the Court denied the Attorney General’s motion for rehearing and rehearing en banc. The Court has issued the mandate. Connecticut v. Simon Property Group, (No. 04-cv-01919-SRU, D. Conn.); SPGGC, Inc. v. Richard Blumenthal, Attorney General, (No. 05-4711-CV, Second Circuit). This is the third case involving Simon Property Group and its gift card program. The Attorney General of Connecticut filed suit against Simon Property Group in state court in November, 2004. This suit was removed to federal court by Simon, where it was consolidated with Simon’s counter-suit against the Attorney General. By order dated February 24, 2005, the case against Simon was remanded back to state court. With respect to the suit filed by Simon Property Group against the Attorney General, the court orally granted the Attorney General’s motion to dismiss Simon Property Group’s complaint on July 28, 2005. The court concluded that as a matter of law that Simon had failed to state a claim that the Connecticut Gift Card Statute is preempted by the National Bank Act or violates the Commerce Clause of the Constitution. Simon moved the court to reconsider that order and also sought an appeal of the dismissal with the United States Court of Appeals for the Second Circuit. The parties subsequently entered into a Stipulation to withdraw the appeal from the Appellate Court’s consideration without prejudice, with leave to reactivate the case upon written notification to the Court by Simon’s counsel. This request was granted on November 21, 2005. On January 5, 2006, the District Court granted Simon Property Group’s motion for reconsideration. Turning to the merits, the District Court found that Simon had “failed to state a claim that the CGCL has an extraterritorial reach, such that it has a disparate impact on interstate commerce as compared to commerce within Connecticut.” Simon had also argued that the National Bank Act preempted the Connecticut statute. The district court did not address the latter argument on its merits because Simon Property Group is not a national bank. SPGGC filed a notice of appeal with the Second Circuit on February 3, 2006. The Court heard oral argument on May 10, 2007. On May 17, 2007, the court “invited” the OCC to file a letter brief as amicus curiae. In particular, the OCC was asked to “express its views regarding the district court's decision to dismiss SPGGC's second amended complaint for failure to state a claim on the grounds that SPGGC, which is neither a national bank nor an operating subsidiary of a national bank” and therefore could not claim conflict preemption under the National Bank Act. The Comptroller of the Currency filed an amicus brief on June 11, 2007.

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16. Silvas v. E*Trade Mortgage Corporation, (Case No. 06-55556, United States Court of Appeals for the Ninth Circuit). This is a putative class action seeking a declaration that E*Trade Mortgage Corporation violated California’s Unfair Competition Law (UCL). Plaintiffs alleged that E*Trade Mortgage declined to refund fees paid to lock-in a mortgage interest rate after the Plaintiffs cancelled the transaction after receiving notice of their right to do so under the Truth in Lending Act (TILA). Plaintiffs alleged two causes of action under the UCL. First, Plaintiffs alleged that E*Trades representations to mortgage customers that the lock-in fees are non-refundable violated California Business and Professions Code § 17500, which prohibits false advertising. Plaintiffs’ second cause of action alleged that E*Trade’s alleged practice of misrepresenting the legal rights of consumers in advertisements and disclosures and the policy of not returning lock-in fees violated California Business and Professions Code § 172000. In each case, an alleged violation of TILA served as the predicate act that supported both of Plaintiff’s claims under the UCL. E*Trade moved to dismiss the case, arguing that the Home Owners Loan Act (HOLA) and the implementing regulations adopted by the Office of Thrift Supervision expressly occupy the entire field of thrift regulation. The Court agreed. In an opinion issued March 16, 2006, the Court found that because Plaintiffs were asserting state causes of action related to E*Trade’s lending activities – even if the predicate acts under the state law are violations of TILA – the state statutes were preempted by HOLA. Specifically, the Court ruled that “Plaintiffs may not use California’s UCL against federal thrifts to enforce TILA or remedy TILA violations” because to do so would impermissibly regulate a federal thrift in violation of HOLA. Plaintiff appealed the matter to the United States Court of Appeals for the Ninth Circuit on April 7, 2006. The ABA and the California Bankers Association filed an amicii brief with the court on November 22, 2006. 17. Kenneth R. Christ v. Beneficial Corporation, (Case No. No. 06-14828-II, No. 07-10246-II, United States Court of Appeals for the Eleventh Circuit). This case takes up the issue of whether the remedies under the Truth in Lending Act (“TILA”) are exclusive, or whether a court may award “equitable restitution” to a plaintiff under the Declaratory Judgment Act, 28 U.S.C. §2201 et seq. The Christ litigation is part of a larger multi-district class action that has been pending since 1998. After granting summary judgment to plaintiffs on the underlying TILA issue, the court granted the plaintiff class a recovery of over $22 million in “equitable restitution” under the Declaratory Judgment Act, 28 U.S.C. §2201 et seq. This award appears to violate the exclusive remedy provisions contained in TILA. The ABA (along with several other amici) filed a brief in the

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case arguing that the equitable relief is unprecedented and violates TILA. On April 19, 2007, the Court denied the amici’s motion for leave to file a brief. Oral argument in the case is scheduled for October 30, 2007. 18. Andrew Bednar et al. v. Provident Bank of Maryland (Case No. 142, Court of Appeals of Maryland). This case involves the issue of whether a closed-end home equity loan product violates Maryland law that prohibits a bank from charging pre-payment fees. Provident offers a closed-end home equity loan on which closing costs are not charged at the time of closing. The borrower is asked to sign a closing cost waiver certificate which provides that the closing costs will be forgiven entirely if the loan stays open (in any amount) until the third anniversary of the loan origination. However, if the loan is paid off earlier than that, closing cost will be billed as part of the final payoff figure. These closing costs are actual fees incurred by Provident and paid to a third-party vendor. Subtitle 10 of Title 12 of the Commercial Law Article of the Annotated Code of Maryland is very specific about fees that may be charged to a borrower. The statute authorizes a bank to charge closing costs, while specifically prohibiting pre-payment charges. The plaintiff in this case received a home equity loan from Provident. At the time the loan was originated the closing costs were waived pending the third anniversary of the loan. The plaintiff paid off the loan prior to the third anniversary, triggering the obligation to pay the deferred closing costs, which totaled $610. The plaintiff sued, alleging that the deferred closing costs constituted an "illegal pre-payment charge" prohibited by the Maryland statute. The bank argued that that closing costs are specifically authorized by the statue, and that the law does not specify the timing as to when closing costs must be billed to the borrower. Significantly, the bank obtained a written opinion from the Maryland Bank Commissioner regarding the legality of the product being offered. That opinion agreed with the bank’s interpretation of the statute. The bank prevailed in the trial court. Because the matter is one of first impression, the Maryland Court of Appeals (the state's highest court) took the case. The oral argument was held on Monday, June 4, 2007. A decision is expected in November. The oral argument before the Maryland Court of Appeals may be viewed at the court’s website at http://www.courts.state.md.us/coappeals/webcastarchive.html.

CREDIT UNIONS

19. American Bankers Association, et al. v. National Credit Union Administration, (Case No. 1:05-CV-2247, United States District Court for the Middle District of Pennsylvania). The plaintiffs in this action – the American Bankers Association, the Credit Union Strategies Task Force (an alliance of the Pennsylvania Bankers Association and the Pennsylvania Community Bankers

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Association) – have filed suit against the National Credit Union Administration (NCUA) in the United States District Court for the Middle District of Pennsylvania to set aside the agency’s approval of three community charter applications that involves a seven-county membership area that includes both York and Harrisburg. These applications were approved on the basis that the expanded field of membership constitutes “well-defined local community, neighborhood, or rural district,” despite the fact that it:

• has a population of more than 1.1 million (2000 census), spans more than 3,400 square miles that encompasses six diverse counties and a portion of a seventh county;

• includes 3 separate MSAs, 3 cities, 90 boroughs, 140 townships, 115 municipal authorities, 38 water and sewer authorities, 21 school authorities, 8 solid waste authorities, 9 economic development authorities, 5 parking authorities, 4 hospital authorities, 2 airport authorities and 7 authorities organized for special purposes;

• includes five separate councils of government created by intergovernmental cooperation agreements operating within five distinct geographic regions; and

• contains portions of geographic areas that the NCUA had previously found to constitute separate and distinct local communities.

The plaintiffs contend that the NCUA’s approval of this massive expansion is the product of a deeply flawed process, and that the agency willfully ignored many readily-available facts that compel the conclusion that an area comprising both York and Harrisburg Pennsylvania is not a “well-defined local community” as that term is used in the Federal Credit Union Act. On February 8, 2006, the Court granted motions by Members 1st Federal Credit Union, New Cumberland Federal Credit Union, AmeriChoice Federal Credit Union, Credit Union National Association (CUNA), National Association of Federal Credit Unions (NAFCU), and the Pennsylvania Credit Union Association to intervene as defendants. Answers have been filed in the case, and a redacted administrative record has been filed with the Court by the NCUA.

In April of 2006, the ABA and its co-plaintiffs filed preliminary motions with the Court seeking guidance on two issues: (1) the type of review that the Court will undertake, and (2) whether the ABA may ask the NCUA to provide more information to the parties and the Court regarding its actions. ABA argued that the NCUA’s procedures were fundamentally flawed and hopelessly biased, meaning that the approval of the charter expansions was not subject to serious scrutiny. The ABA asked the court to review the decisions de novo, i.e. to reject the conclusions and factual record compiled by the NCUA and to review the approvals based on a factual record that would be developed by the Court. The ABA also asked for discovery from the NCUA.

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The Court issued an order on September 14, 2007, denying the ABA’s motion. Without ruling on the merits of the case, the Court determined that it would review the challenged actions on the merits under the “arbitrary and capricious” standard of the Administrative Procedure Act based on the factual record compiled by the NCUA. Significantly, the Court agreed with the ABA that the issue of whether the NCUA "fulfilled its procedural obligations is a proper subject of searching judicial review, and any agency actions that run afoul of procedural obligations found in statute or established rules are subject to invalidation." The Court also acknowledged that "the Banks raise serious public-policy questions regarding the wisdom of a statutory scheme that forecloses debate and permits only one view to be presented to the adjudicating agency." The Court’s ruling clears the way for the parties to reach the merits of the case.

20. Missouri Bankers Association et. al. v. Director of Missouri Division of Credit Union Supervision et. al. (Case No. WD67203, WD67196 Western District Court of Appeals, Kansas City). Cole County Circuit Judge Richard G. Callahan ruled that Missouri regulators may not define credit union fields of membership based upon telephone area codes and ZIP codes. The Missouri Bankers Association challenged the state’s credit union regulation, 4 CSR 105-3.010, arguing that the definition of “well defined local neighborhood, community, or rural district” was so broad that it exceeded the statutory law. The court agreed, declaring the regulation null and void as illegal. The judge ruled that merely having a “geographic area with clearly defined boundaries” without including persons with common interest was inadequate. Judge Callahan determined that using an area code or ZIP code doesn't satisfy state law, which requires that members of a state-chartered credit union live or work in a "well-defined local neighborhood, community or rural district" or share a common occupation, association or employer.

Judge Callahan’s ruling was appealed to the Western District Court of Appeals for the State of Missouri on July 14, 2006. The case was voluntarily dismissed on September 25, 2007.

PATENT/INTELLECTUAL PROPERTY 21. DataTreasury Corporation v. Wells Fargo & Company et al., (Case No. 2:06-cv-00072-DF, Eastern District of Texas). On Feb. 24, 2006, DataTreasury Corporation filed suit in the U.S. District Court for the Eastern District of Texas alleging that 57 banks, bank holding companies, providers of check image-exchange services, and other technology vendors are infringing on several patents that they have acquired. The patents cover technologies for the electronic transmission of payments information from banks to clearing houses. This includes digital check imaging systems and automated clearing house

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transactions, such as the accounts-receivable process used to convert paper checks into ACH files. The court has extended the time within which the defendants must answer to June 1, 2006. Notwithstanding this order, defendant MagTek, Inc. has filed an answer and counterclaim against DataTreasury seeking a declaration that the patents in question are unenforceable, and that DataTreasury should be enjoined from engaging in unfair competition by illegally seeking to enforce these patents. A number of the defendants have filed motions to sever and stay the portion of the case that relates to a group of claims involving what are know as the “Ballard” patents. In January of this year, the United States Patent and Trademark Office (“PTO”) granted request to reexamine the Ballard patents. A stay of proceedings regarding these two patents would remove 16 of the 58 defendants and eliminate 93 of the 224 total potential patent claims from this case. After a hearing, the Court granted the motion on October 25, 2006. The Court found “a high likelihood that results of the PTO’s reexamination will have a dramatic effect on the issues before the Court, and the Court will benefit from the PTO’s expertise and determination on reexamination.” The granting the stay was dependant upon the defendants signing a stipulation to agree to the stay. On December 15, 2006, the Court stayed all motions practice, disclosure obligations, and discovery deadlines with respect to the defendants that had executed the required stipulations regarding a stay of proceedings concerning the Ballard patents. A number of defendants are agreeing to the required stipulation. On June 1, 2006, a number of the banking defendants moved to dismiss the case on the grounds that Data Treasury failed to comply with the minimum standards of pleading a case under the Federal Rules of Civil Procedure because it was impossible to determine the nature of the claims that are being asserted against them. Alternatively, they requested that the Court require Data Treasury make a more definite statement of its claims. On December 27, 2006, the Court denied these motions. On January 8, 2007, Wells Fargo filed a motion under seal to dismiss or, in the alternative, motion to stay pending arbitration. The court has agreed to stay proceedings between Wells Fargo and Data Treasury pending the outcome of this motion. Some defendants have filed answers/counterclaims to DataTreasury’s Amended Complaint regarding contentions not related to the Ballard patents.

On April 24, 2007, the Court denied Wells Fargo’s Motion to Dismiss or, in the Alternative, to Stay Pending Arbitration for Expedited Consideration. The court ruled that the defendants could not compel the arbitration of the dispute because the Patent License Agreement – which contained the arbitration clause at issue – did not cover the patents being litigated. Wells Fargo has appealed this ruling to the Federal Circuit. In connection with this appeal, Wells Fargo filed an

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unopposed motion to stay the proceedings between the bank and Data Treasury. That motion was granted by the Court on June 11, 2007. This stay was expanded to include other defendants on September 17, 2007. Other defendants have filed dispositive motions, which are being briefed. Most notable are motions for summary judgment filed by a number of the bank defendants arguing that the “759” patent fails to meet the definiteness requirement of 35 U.S.C. § 112, mandating the dismissal of a number of claims. 22. In re Seagate Technologies, (2006-M830, United States Court of Appeals for the Federal Circuit). The United States Court of Appeals for the Federal Circuit has agreed to provide en banc review regarding the scope of the waiver of the attorney-client privilege that occurs when a defendant raises an opinion of counsel defense against allegations that they have willfully infringed on a patent. Seagate Technologies is a defendant in a civil action pending in the United States District Court for the Southern District of New York (Convolve, Inc. v. Compaq Computer Corp., No. 1:00-cv-05141-GBD-JCF). Seagate obtained and relied upon an opinion of counsel that its activities did not infringe certain patents, or that the patents were invalid. Litigation ensued, and Seagate retained other counsel to represent them in the suit. Seagate asserted the opinion it obtained from counsel as a defense to the contention that the alleged infringement was willful. Plaintiffs propounded discovery aimed at piercing Seagate’s attorney-client privilege with respect to communications involving its trial counsel concerning the opinion of counsel defense. The district court issued an order imposing a subject-matter waiver for all attorney-client communications between Seagate and its outside attorneys (including trial counsel) concerning the general subject matter of the opinion of counsel. On January 26, 2007, the Federal Circuit agreed to hear Seagate’s request for a writ of mandamus. The Federal Circuit has asked the court to address the following questions:

(1) Should a party's assertion of the advice of counsel defense to willful infringement extend the waiver of the attorney-client privilege to communications with that party's trial counsel? See In re EchoStar Commc'n Corp., 448 F.3d 1294 (Fed. Cir. 2006). (2) What is the effect of any such waiver on work-product immunity? (3) Given the impact of the statutory duty of care standard announced in Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F.2d 1380 (Fed. Cir. 1983), on the issue of waiver of attorney-client privilege, should the court reconsider the decision in Underwater Devices and the duty of care standard itself?

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Significantly, the court agreed sua sponte that the case was appropriate for en banc review. The Court issued its opinion on August 20, 2007, overruling its prior decision in Underwater Devices and clarifying the scope of the waiver of attorney-client privilege and work product protection that results when an accused patent infringer asserts an advice of counsel defense to a charge of willful infringement. Relying in part upon the recent Supreme Court decision in Safeco/GEICO involving the Fair Credit Reporting Act, the court found that that the “standard civil usage” of “willful” includes reckless behavior. In contrast, the duty of care announced in Underwater Devices set a lower threshold for willful infringement that is more akin to negligence, which fails to comport with the general understanding of willfulness in the civil context. Accordingly, the Court overruled the standard set out in Underwater Devices and held that proof of willful infringement permitting enhanced damages requires at least a showing of objective recklessness. The court also emphasized that there is no affirmative obligation to obtain an opinion of counsel. Turning to the scope of the waiver of the attorney client privilege in an advice of counsel defense, the court recognized the “significantly different functions of trial counsel and opinion counsel” advised against extending the waiver to trial counsel. Opinion counsel “serves to provide an objective assessment for making informed business decisions” while trial counsel “focuses on litigation strategy and evaluates the most successful manner of presenting a case to a judicial decision maker.” A similar result was reached with respect to the extent to which a party must waive the attorney work product privilege: relying on opinion counsel’s work product in an advice of counsel defense does not waive work product immunity with respect to trial counsel. The court, however, left open the possibility that situations may arise in which the waiver may be extended to trial counsel, such as if a patentee or his counsel engages in chicanery.

PRIVACY

23. American Bankers Association v. Lockyer, (9th Cir. No. 05-17206). A California statute, colloquially known as “SB 1,” which was scheduled to go into full effect on July 1, 2004, regulates the sharing of customer information among affiliates in ways that are inconsistent with federal requirements. Subsequent to passage of SB 1, the United States Congress enacted the FACT Act amendments to the Fair Credit Reporting Act (FCRA), making permanent the earlier temporary preemption of state laws governing the subject matter. Nevertheless, the state law remained on the books. On April 19, 2004, ABA and other parties filed suit in United States District Court for a declaratory judgment and an injunction against enforcement of the state law on the grounds of preemption by FCRA. On June 30, the court granted summary judgment to the defendants. The district court found that the FCRA is limited to the regulation of "consumer reports," allowing states to enact

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"privacy" statutes governing other things, as SB 1 does here. Despite the plain language of the statute, the court concluded that the FCRA does not preempt the state affiliate sharing law. A notice of appeal was filed July 2, and a motion for expedited consideration of the appeal filed with the state's support. The Court of Appeals for the 9th Circuit granted the motion for expedition. Plaintiffs filed their brief on August 2; amici filings in support of plaintiffs were filed on August 9. Among the amici filings in support of the plaintiffs were the federal banking regulators, the NCUA, and the FTC. On June 20, 2005, the United States Court of Appeals for the Ninth Circuit reversed the trial court’s decision, and remanded the matter for further proceedings. The Court ruled that the affiliate-sharing provision of the California Financial Information Privacy Act (“SB1”) is preempted insofar as SB1 regulates sharing among affiliates of “information” as used in the Fair Credit Reporting Act (FCRA). The decision turns on the basic proposition that the FCRA regulates “information,” as the term is used in § 1681a(d)(1) of the FCRA (definition of “consumer report”). Accordingly, the court held that the FCRA affiliate-sharing preemption set forth in § 1681t(b)(2) should be read to preempt state laws that purport to regulate affiliate sharing of this kind of information only, that is, consumer credit information. On remand, the federal district court is to apply “this restricted meaning of ‘information’” and determine whether “any portion of the affiliate-sharing provisions of SB1 survives preemption and, if so, whether it is severable from the portion that does not.” The decision vindicates the industry’s position about the preemptive effect of the FCRA. The other provisions of SB1, including those covering information sharing with nonaffiliated third parties, were not challenged and are not affected by the decision. On October 4, 2005, the trial court issued its opinion on remand. The district court found that "SB1's affiliate sharing provision does not survive preemption and, even if some limited applications could be saved, they cannot be severed from the remainder of the statute." The court permanently enjoined the enforcement of SB1's affiliate sharing provisions as codified in California Financial Code section 4053(b)(1) "to the extent they are preempted by 15 U.S.C. section 1681t(b)(2)." The State of California has appealed this ruling to the United States Court of Appeals for the Ninth Circuit. The ABA filed a cross-appeal, and has filed a motion with the court for expedited briefing. On December 19, 2005, the Court granted this motion in part. Briefing is now complete, and the court has indicated that it will rule “as soon as possible.” 24. Consumer Data Industry Association v. Lori Swanson, Case No. 07-cv-3376 (D. Minnesota). On July 31, 2007, the United States District Court for the District of Minnesota granted a motion for a preliminary injunction requested by the Consumer Data Industry Association (CDIA), a trade association

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representing the “consumer information reporting services industry.” The injunction enjoined the defendant, the Attorney General for the State of Minnesota, from enforcing a state statute that prohibited the sale of “mortgage-trigger” lists by credit bureaus– a list of consumers whose credit report reflects a recent inquiry to the credit bureau from a mortgage lender. The inquiry indicates that the consumer is actively shopping for a mortgage, and thus “triggers” the placement of the consumer’s name on the list. This list is then sold to competing mortgage lenders. In May 2007, the Minnesota legislature passed a bill to amend Minnesota Statutes § 13C.01 by adding subdivision 3, which forbids the sale of mortgage-trigger lists. CDIA filed suit and moved for a temporary restraining order forbidding the Minnesota Attorney General from enforcing the ban. CDIA argues that the Minnesota law is preempted by the Fair Credit Reporting Act (FCRA) and that the statute is unconstitutional because it violates the rights of CDIA members to free speech under the First Amendment. In a decision dated July 30, 2007, the court granted the motion, entering both a TRO and a preliminary injunction. The court found that section 1681t(b) of the FCRA (15 U.S.C. § 1681t(b)) expressly preempted the Minnesota statute. Section 1681t(b) provides that “[n]o requirement or prohibition may be imposed under the laws of any State…with respect to any subject matter regulated under” section 1681b(c) of the FCRA, relating to the prescreening of consumer reports. In turn, section 1681b(c) governs “[f]urnishing reports in connection with credit or insurance transactions that are not initiated by [a] consumer.” While the parties could not agree whether “mortgage-trigger” lists were permitted by this section explicitly authorized by § 1681b(c)(1) (as CDIA argued) or explicitly forbidden by § 1681b(c)(3) (as Swanson argued), the court concluded that the answer to that question did not matter because the “subject matter” of “mortgage-trigger” lists is unquestionably regulated by § 1681b(c), and thus, under § 1681t(b)(1)(A), neither Minnesota nor any other state could prohibit or regulate their sale. On August 13, 2007, the Minnesota Attorney General entered into a stipulation with CDIA acquiescing to the court’s ruling that the state statute was preempted, agreeing not to appeal the decision. * 25. In Re TJX Companies Retail Security Breach Litigation, Civil Action No. 07-10162-WGY (D. Mass). In what has been described as the largest retail security breach ever, criminals breached the computer systems of the TJX companies and compromised the security of an estimated 45,700,000 customer credit and debit accounts. Numerous cases were filed after TJX disclosed that its data security had been breached. The cases filed in federal court were consolidated in the United States District Court for the District of Massachusetts.

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Once consolidated, the case has proceeded on two separate tracks. The first, the “Consumer Track”, is a putative class action brought by consumers affected by the breach. The second, the “Financial Institutions Track”, is a putative class action brought by banks issuing credit and debit cards compromised by the breach. The issuing banks asserted claims against TJX as well as Fifth Third Bancorp for (1) breach of contract; (2) negligence; (3) negligent misrepresentation;, and (4) violation of the Massachusetts consumer protection statute (Mass. General Laws Chapter 93A). TJX and Fifth Third have moved to dismiss both the “Consumer Track” and the “Financial Institution” track. A tentative settlement of the “Consumer Track” claims against TJX and Fifth Third was announced on September 21, 2007. On October 12, 2007, the court ruled on TJX’s and Fifth Third’s motion to dismiss the “Financial Institution’s Track.” The court partially granted the motion:

• The court dismissed the issuing bank’s claim that they are third-party beneficiaries of contracts between TJX/Fifth Third and credit card associations such as Visa and MasterCard. It is alleged that these contracts required TJX and Fifth Third to safeguard consumer data. The court found that while issuing banks may have been the intended beneficiaries of the security provisions contained in the contracts between TJX/Fifth Thirds and the credit card association, the Operating Regulations make it clear that only the credit card association itself may enforce the terms, denying third parties the right to bring suit under the agreement.

• The court found that the negligence claim fails under

Massachusetts law because “purely economic losses are unrecoverable in tort and strict liability actions in the absence of personal injury or property damage.”

• The court declined to dismiss the negligent misrepresentation

claim. This claim is based upon alleged existence of implied statements by TJX and Fifth Third that they took the security measures required by industry practice to safeguard personal and financial information. The court found that the plaintiff banks need not establish the existence of a fiduciary relationship to assert this claim, apparently departing from its ruling in Berenson v. National Financial Services, LLC., 403 F. Supp. 2d 133 (D. Mass. 205).

• Finally, the court declined to dismiss the claim under

Massachusetts General Law Chapter 93A, finding that the

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plaintiffs had pled an adequate case. Interestingly, the court did dismiss plaintiffs’ attempt to base their claim on two consent orders issued by the Federal Trade Commission that state that the failure of merchants to take reasonable steps on behalf of consumers to protect personal information constitutes a violation of the Federal Trade Commission Act. Violations of the Federal Trade Commission Act may also constitute a violation of Chapter 93A. The court also rejected plaintiffs attempt to ground their Chapter 93A claim on an alleged violation of the Gramm-Leach-Bliley Act.

A copy of the opinion is attached as a PDF file.

* 26. Pisciotta v. Old Nat’l Bancorp., No. 06-3817 (Seventh Circuit.). On August 23, 2007, the United States Court of Appeals for the Seventh Circuit ruled that present and future identity theft-monitoring costs are not compensable damages under Indiana’s security breach notification statute. The decision affirmed the dismissal of a class action suit against a bank that was alleged to have failed to protect personal information collected on website. Plaintiffs alleged that Old National Bancorp had solicited personal information from applicants for banking services, but had failed to secure it adequately. As a result, a third-party computer “hacker” was able to obtain access to the confidential information. The plaintiffs sought damages for the harm that they claim to have suffered because of the security breach. Specifically, they requested compensation for past and future credit monitoring services that they have obtained in response to the compromise of their personal data. The Seventh Circuit concluded that, while there were no cases directly construing the Indiana security breach notification statute, the court concluded that it did not provide a private right of action. The provisions of the statute applicable to private entities storing personal information require only that a database owner disclose a security breach to potentially affected consumers; they do not require the database owner to take any other affirmative act in the wake of a breach. If the database owner fails to comply with the only affirmative duty imposed by the statute—the duty to disclose—the statute provides for enforcement only by the Attorney General of Indiana. It creates no private right of action against the database owner by an affected customer, and it imposes no duty to compensate affected individuals for inconvenience or potential harm to credit that may follow. A copy of the opinion is attached hereto as a PDF file.

SECURED TRANSACTIONS

* 27. Auto Credit v. Wimmer, Case No. M2005-00978-SC-R11-CV (Supreme Court of Tennessee). This case arises out of the financing and

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subsequent repossession of an automobile. After retaking possession of the collateral, the creditor sent written notification to the debtor that the automobile would be sold but that she could redeem the vehicle by paying the full amount owed. Although the debtor never received this notification, the creditor was unaware of that fact until after the sale of the vehicle. Because the sale price did not cover the amount owed on the vehicle, the creditor sought a deficiency judgment against the debtor. The debtor filed a counterclaim for statutory damages under the Uniform Commercial Code, claiming that she had not received proper notification. The trial court awarded a deficiency judgment against the debtor and dismissed the debtor’s counterclaim. The Court of Appeals, only addressing the dismissal of the counterclaim, reversed the trial court and held that the creditor failed to furnish reasonable notification of the sale to the debtor, in that the creditor failed to take reasonable steps to determine whether the notification had been delivered to the debtor before proceeding with the sale. The Tennessee Supreme Court reversed the decision of the Court of Appeals, finding that “the notification requirement in Tennessee Code Annotated, Section 47-9-611, only requires the creditor to send proper notification and does not require the creditor to verify receipt.” A copy of the decision is attached as a PDF file.

TRUST POWERS

28. Knight v. Commissioner of Internal Revenue (Rudkin), (United States Supreme Court, 06-1286). The issue in the case is whether investment advisory fees paid by a trustee are fully deductible under the exception for trusts provided in 26 U.S.C. § 67(e)(1) of the Tax Code. Generally, trust expenses are deductible only to the extent that they exceed two-percent of the trust’s adjusted gross income. The text of section 67(e)(1) creates an exception to this rule by allowing for deduction of trust expenditures without regard to the two-percent floor where two requirements are satisfied: (1) the costs are paid or incurred in connection with administration of the trust, and (2) the costs would not have been incurred if the property were not held in trust. Otherwise, deductibility of expenses is subject to the two-percent floor imposed upon individual taxpayers. The trustee/appellant in this case maintains that investment advisory fees expended in the administration of the trust estate are properly deducted in full because (1) they are paid in connection with administration of a trust and (2) would not have been incurred if the property were not held in trust. The trustee argues that while an individual may make a voluntary choice whether to seek investment advice, a trustee has a fiduciary duty to seek professional investment advice. Given that the duty to seek professional investment advice adheres to a trustee but not an individual investor, the trustee argues that the fees represent costs that would not have been incurred if the property were not held in trust. The IRS takes a contrary position, arguing that investment advisory fees are commonly incurred by

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individual investors outside the context of trust administration, and therefore fail to satisfy the requirement that they would not have been incurred if the assets were not held in trust. The United States Tax Court agreed with the IRS, and ruled that the fees were subject to the two-percent rule. This appeal followed. Interestingly, there is currently a split in authority on this issue -- the United States Court of Appeals for the 6th Circuit has ruled that the investment advisor expenses are fully deductible, while the appellate courts in the Federal Circuit and the 4th Circuit have sided with the IRS. The ABA and the New York Bankers Association filed an amici brief at the Second Circuit in support of the trustee on January 6, 2006. On October 18, 2006, the court affirmed the ruling from the tax court, holding that investment-advice fees incurred by a trust are not fully deductible in calculating adjusted gross income for purposes of the Internal Revenue Code under 26 U.S.C. § 67(e)(1). Instead, they are deductible only to the extent that they exceed two percent of the trust’s adjusted gross income pursuant to § 67(a). Appellants filed a motion for reconsideration on November 28, 2006. This motion was denied on January 19, 2007. Rudkin filed a petition seeking certiorari from the Supreme Court on March 23, 2007. The ABA and the New York Bankers Association filed an amici brief on behalf of the estate on May 25, 2007. The Supreme Court accepted the case and granted the writ on June 25, 2007. On July 26, 2007, the Internal Revenue Service issued proposed regulations under section 67(e). The regulations would adopt the Second Circuit’s interpretation of the statute, as well as require that trustees must “unbundle” their trust fees in order to determine deductibility on a service-by-service basis. On August 23, 2007, the ABA and consortium of 11 state bankers associations filed an amicus brief at the United States Supreme Court urging a less restrictive interpretation of the tax code regarding the deductibility of investment advisory fees. 29. Wells Fargo Bank, N.A. v. Superior Court of the State of California, San Francisco (Richtenberg) (California Supreme Court, Case No. S150512). This litigation involves a class action brought in San Francisco Superior Court by the beneficiaries of two personal trusts administered by Wells Fargo Bank, N.A., as trustee. The plaintiffs alleged that the bank failed to avoid conflicts of interest and engaged in self-dealing in connection of the administration of certain trusts, including a failure to adequately disclose fees that it charged and payments that it received in connection with the investment of trust assets in mutual funds. The complaint asserts causes of action under California state law, including breach of fiduciary duty, concealment, conversion, and violation of California's Business and Professions Code.

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The bank asked the trial court to dismiss the case on the grounds that the state law causes of action are preempted under the Securities Litigation Uniform Standards Act (SLUSA). SLUSA bars class actions by private parties based on state law that allege a “misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security.” The trial court declined to dismiss the case, narrowly reading the “in connection with” language of SLUSA to mean that not all claims against trustees are preempted merely because a security is involved. Wells Fargo is seeking review of this decision at the California Court of Appeals. On December 19, 2006, the ABA and the California Bankers Association filed an amici brief in support of Wells Fargo’s appeal. The amici argue that in enacting SLUSA, Congress clearly preempted this type of class action lawsuit, and the Superior Court’s interpretation of the statute would increase the exposure of bank trustees and other fiduciaries, contrary to the intent of the statute. On February 15, 2007, the Court of Appeals summarily denied the request for review of the trial court’s decision not to dismiss the case. A petition for review has been filed with the California Supreme Court. The ABA has filed a letter with the Court supporting Wells Fargo’s petition. On May 9, 2007, the California Supreme Court granted review and remanded the case back to the First Appellate District with directions to issue an order to show cause why the case should not be dismissed. On May 11, 2007, the appellate court issued an order requiring the Superior Court of San Francisco County, to show cause why the trial court should not required to sustain the demurrer with leave to amend. The order is returnable June 12, 2007, with oral argument to be heard when the matter is ordered on calendar. The ABA and the California Bankers Association have filed an amicus brief in support of Wells Fargo. 30. Siepel v. Bank of America, N.A., Case No. 07-1899, 07-1906 (United States Court of Appeals for the Eighth Circuit). Plaintiffs in this case asserted claims against Bank of America and its affiliates for breach of fiduciary duty and unjust enrichment and for alleged violations of federal securities laws, including Sections 11, 12 and 15 of the Securities Act of 1933, Section 20 of the Exchange Act, Section 10b(5) of the Securities and Exchange Act of 1934 and SEC Rule 10b-5, and the Investment Advisors Act. On May 19, 2006, the defendants moved to dismiss all of the plaintiffs’ claims on multiple grounds and the Court granted that motion on December 27, 2006. While the Court held that there was ample evidence in the record that plaintiffs were forum shopping and the Court could dismiss on that basis alone, the Court opted to dismiss based upon preemption grounds. In its decision, the Court found that the plaintiffs’ claims were preempted by the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) mandating dismissal of the entire complaint. The Court rejected the argument that SLUSA did not preempt the plaintiffs’ claims because they were not purchasers or holders of the security at issue. Relying on the United States Supreme Court’s decision in

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Merrill Lynch, Pierce, Fenner & Smith v. Dabit, 126 S. Ct. 1503 (2006) and other authority, the Court found that SLUSA focuses “on the conduct of the defendants and not the identity of the plaintiffs” and that “SLUSA may preempt the state law claims, despite the fact that Plaintiffs are beneficiaries, and not purchasers, sellers, or holders, of the financial accounts at issue.” Because of the SLUSA preemption, the Court held that dismissal of the entire class action was proper. The Court also dismissed the plaintiffs’ federal securities claims with prejudice. Rather than oppose dismissal of their federal securities claims, the plaintiffs moved the Court to amend the complaint. The Court denied leave to amend and dismissed the federal securities law claims because the motion to dismiss was not opposed. The Court noted, however, that there were several grounds to dismiss the securities claims anyway, including the plaintiffs’ failure to file within the applicable statute of limitations. The Court also held that the Bank was entitled to recover its fees and costs against certain plaintiffs in the amount of $1 million pursuant to Rule 41(d). On March 1, 2007, the Court confirmed its decision dismissing Siepel, but vacated the award of $1 million. It held that although the bank is entitled to recover its fees and costs, the amount of any award should be decided in a related action filed (and subsequently dismissed) in Palm Beach County, Florida (Williams v. Bank of America (Circuit Court of the 15th Judicial Circuit in and for Palm Beach County, Florida, Case No. CA 02-15454)). Both parties have filed appeals with the Eighth Circuit. 31. Luleff v. Bank of America, N.A. (United States District Court for the Southern District of New York, Case No. 06-1435). On February 22, 2006, the plaintiff filed suit on behalf of herself and her minor child. The plaintiff asserted claims against Bank of America and its affiliates for breach of fiduciary duty, tortious interference with a fiduciary duty, unjust enrichment, breach of contract, and tortious interference with a contract. On October 6, 2006, Bank of America and the other defendants filed a motion to dismiss the claims on numerous grounds, including, among other things, that the plaintiff’s claims were preempted by SLUSA, that the plaintiff had ratified and consented to the transactions at issue, and that the transactions were permitted under state law and the trust at issue. The motion to dismiss is fully briefed. An amended complaint was filed on September 21, 2007, and October 2, 2007 Bank of America renewed its motion to dismiss. 32. Kutten v. Bank of America, N.A. (United States District Court for the Eastern District of Missouri, Case No. 06-937). In this action filed on June 16, 2006, the plaintiffs assert claims against Bank of America and its parent corporation for breach of fiduciary duty, unjust enrichment, breach of contract, aiding and abetting, and alleged violations of California and Missouri state laws. On September 14, 2006, Bank of America and its parent company moved to dismiss the complaint on numerous grounds, including arguments that the Securities Litigation Uniform Standards Act of 1998 (SLUSA) preempts the state-

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law class claims in the Amended Complaint, the claims are barred by the statute of limitations, and because the transactions were permitted under state law and the trusts at issue. The plaintiffs amended their complaint to withdraw the federal securities claims. Defendants have moved to dismiss based upon SLUSA preemption and the apparent attempt by plaintiff to forum shop. On August 29, 2007, the court granted Bank of America’s motion to dismiss the class claims (counts 1 – 12), finding that they were preempted by SLUSA. However, the court ruled that the plaintiff’s individual claims could proceed because she had established that the court had jurisdiction based upon the diversity of the parties. The Court entered final judgment with respect to the dismissed claims pursuant to Federal Rule 54(b) on October 1, 2007. 33. Brooks v. Wachovia Bank, N.A., et al. (United States District Court for the Eastern District of Pennsylvania, Case No. 06-955). On March 2, 2006, the plaintiff filed a putative class action lawsuit against Wachovia Bank, N.A. and its affiliates that challenged, among other things, Wachovia’s conversion of certain trust assets invested in common trust funds to investments in affiliated mutual funds. The complaint also raised allegations concerning sweep fees. The amended complaint asserted claims against Wachovia and the other defendants for alleged violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), Sections 11, 12 and 15 of the Securities Act of 1933, Section 10b(5) of the Securities and Exchange Act of 1934 and SEC Rule 10b-5, and common law claims for breach of fiduciary duty, breach of contract and unjust enrichment. On July 14, 2006, the defendants filed a motion to dismiss all of the counts of the amended complaint. The defendants’ primary dismissal argument is that the claims were settled and released in a prior settlement. The defendants also moved to dismiss the plaintiff’s state law claims on the grounds that investments in affiliated mutual funds are proper under Pennsylvania law and because the state law claims were preempted by SLUSA. Finally, the defendants moved to dismiss the plaintiff’s securities law claims and RICO claim for numerous reasons, including that the plaintiff had failed to properly plead those claims and that the claims were time-barred. The Court held oral argument on October 27, 2006. On September 13, 2007, the Court granted Wachovia’s motion to dismiss. The Court found that plaintiffs claims had been settled in a prior class action that had been filed with the Philadelphia County Court of Common Pleas, Robert Parsky and Ann Roantree, on behalf of themselves and all others similarly situated v. Wachovia Bank N.A. f/k/a First Union National Bank, Feb. 2000 Term, No. 000771 (Phila. Cty. Ct. Comm. Pl.). The Court concluded that Plaintiffs could not collaterally attack the earlier settlement, and that the settlement had released the claims at issue in the litigation. Plaintiffs have appealed the decision to the Third Circuit.

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A copy of the opinion is attached as a PDF file.

SARBANES-OXLEY 34. Welch v. Cardinal Bankshares, 2003-SOX-15 (Department of Labor, ARB Case No. 05-064). This case arises under the “whistleblower” provision of the Sarbanes-Oxley Act of 2002. The complainant/plaintiff, David Welch, is the former CFO of Cardinal Bankshares Corporation. Welch contends that he was terminated from his position at Cardinal in retaliation for making allegations regarding the institution’s accounting practices. Welch filed a complaint with the Occupational Safety and Health Administration (OSHA). OSHA denied the claim. Welch filed an appeal, and a hearing was conducted before an Administrative Law Judge. On January 28, 2004, the ALJ issued a recommended decision, finding that Cardinal violated the whistleblower provisions of Sarbanes-Oxley when it terminated Welch. The ALJ recommended that Welch be reinstated with back pay. Cardinal appealed this decision to the Administrative Review Board of the Department of Labor. On May 12, 2005, the American Bankers Association filed an amicus brief in support of Cardinal’s objection to the ALJ’s recommended decision.

On May 31, 2007, the Administrative Review Board rejected the ALJ’s ruling, and found that Welch had not engaged in activity that is protected by Sarbanes-Oxley the whistleblower provisions. Sarbanes Oxley protects employees who report conduct which the employee “reasonably believes constitutes a violation of the specified federal securities laws.” This “reasonable belief” standard requires a plaintiff to prove both that they “actually believed that the SEC report overstated income and that a person with his expertise and knowledge would have reasonably believed that as well.” The “reasonable belief” analysis “is an objective one; the issue may be resolved as a matter of law.”

Turning to the merits, the Administrative Review Board found that Welch could not have reasonably concluded that the Bank’s allegedly “improper” accounting for several loan recoveries constituted securities fraud. The ALJ had concluded that because the errors in the general ledger were reflected in its 2001 third-quarter 10-QSB report to the SEC, Cardinal publicly overstated its year-to-date income by $195,000. The Administrative Review Board rejected this conclusion, finding that

whether or not Cardinal misclassified the loan recoveries as income rather than crediting the loan reserve account, and whether or not stock prices increased 21% between September 2001 and October 2001, and whether or not Larrowe & Co. properly classified the loan recoveries for Cardinal’s year-end 2001 SEC report, Cardinal had in fact recovered $195,000 that it previously did not have. Therefore, an experienced CPA/CFO like Welch could not have reasonably believed that the third quarter SEC report presented potential investors with a misleading picture of Cardinal’s financial condition.

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The Administrative Review Board also rejected arguments that statements by Welch regarding Cardinal’s allegedly insufficient internal accounting controls and his alleged lack of access to external auditors constituted “protected activity” under Sarbanes-Oxley. Welch has appealed this decision to the Fourth Circuit. While the parties were awaiting the decision on the merits by the Administrative Review Board, Welch filed suit in the United States District Court for the Western District of Virginia (Welch v. Cardinal Bankshares Corporation, Case No. 06-cv-00407 (W.D. Va.)) to enforce an interim order of reinstatement issued by the Department of Labor. The United States Department of Labor intervened as a plaintiff in the case. Cardinal moved to dismiss the matter for lack of jurisdiction, arguing that section 806 of Sarbanes Oxley, 18 U.S.C. § 1514A, does not authorize judicial enforcement of intermediate administrative rulings and that the statute only grants jurisdiction with respect to final orders of the Secretary of Labor. The Court declined to enforce Labor Department regulations (29 CFR § 1980.113) providing for the enforcement of interim orders as contrary to the statute. Finally, the Court noted that (in its opinion) the delay by the Department of Labor in issuing a final decision is the true cause of the problem, and that Welch’s remedy lies in a suit against the Secretary of Labor pursuant to 18 U.S.C. § 1514A(b)(1) (cause of action against Secretary of Labor if final decision is not issued in 180 days, absent good cause). The Secretary of Labor and Welch have appealed this decision to the United States Court of Appeals for the Fourth Circuit (Case No. 06-2295). The ABA filed a brief with the Court supporting Cardinal Bankshares, arguing that the proposed interim reinstatement of a senior bank official (such as the CFO) who is actively litigating with bank management pending a final decision by the Department of Labor could create a dysfunctional situation within the management team and create safety and soundness issues. 35. Free Enterprise Fund v. Public Company Accounting Oversight Board, (D.C. Circuit, Case No. 07-5127). This is an action challenging the constitutionality of the Public Company Accounting Oversight Board (PCAOB). The PCAOB was created by the Sarbanes-Oxley Act to “oversee the audit of public companies that are subject to the securities laws.” In carrying out this mandate, the PCAOB is authorized to exercise broad governmental power, including the power to “enforce compliance” with the Act and the securities laws, to regulate the conduct of auditors through rulemaking and adjudication, and to set its own budget and to fund its own operations by fixing and levying a tax on the nation’s public companies. Plaintiffs argue that, notwithstanding the Act’s effort to characterize the Board as a private corporation, the PCAOB is a government entity subject to the limits of the United States Constitution, including the Constitution’s separation of powers principles and the requirements of the Appointments Clause. They contend that the PCAOB’s structure and operation, including its freedom from Presidential oversight and control and the method by which its members are appointed,

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contravene these principles and requirements. As a result, they contend that the PCAOB violates the Constitution. The United States has intervened in the case. Cross motions for summary judgment have been filed, and the Court heard oral argument on December 21, 2006. On March 21, 2007, the Court granted the government’s motion for summary judgment. With respect to the challenge to the statute under the Appointments Clause of the Constitution, the Court concluded that PCAOB members are “inferior officers” and that the Constitution permits Congress to vest the appointment of such officials in the President, Courts of Law, or “Heads of Departments.” The Court also rejected plaintiff’s arguments that (1) the SEC is not a “Department” and (2) if the SEC is deemed to be a Department, PCAOB members may only be appointed by the SEC Chairman – the “Head of the Department” – and not the entire Commission. The Court found that the SEC is a “Department” for purposes of the Constitution, but declined to rule regarding whether the Constitution requires that the SEC Chairman appoint PCAOB members, finding that plaintiffs lacked standing to raise this claim because their injury is not traceable to this Constitutional infirmity since the Chairman voted for each of the current PCAOB members. The Court quickly disposed of arguments that the statute violated the separation of powers between Congress and the Executive by stripping the President of the ability to remove PCAOB members. SEC Commissioners may be removed by the President “for cause,” and PCAOB members can be removed by the SEC “for good cause shown.” The Court found that a facial challenge to the constitutionality of the statute fails unless the SEC interprets its removal authority regarding PCAOB members in a way that is unduly severe in all circumstances. The Court also rejected arguments that Congress unconstitutionally delegated the authority to set auditing, quality control, and ethics standards. The Free Enterprise Fund has appealed this decision to the D.C. Circuit.

SECURITIES

* 36. Stoneridge Investment v. Scientific-Atlanta, Inc. Case No. 06-43 (United States Supreme Court). The case takes up the important issue of liability under Section 10(b) of the 1934 Securities Exchange Act for companies (including banks and other financial service providers) that are deemed to have “aided and abetted” deceptive or manipulative securities trading practices.

The central issue before the Supreme Court is whether an earlier decision by the Court concerning the liability of “secondary actors” in a Rule 10b-5(b) securities violation also applies to violations alleged under Rule 10b-5(a) and

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(c). In Central Bank v. First Interstate Bank, the Supreme Court held that Rule 10b-5(b) does not create liability for “secondary actors” who, by providing services to the principals in the deceptive scheme, aid and abet a securities fraud. The Court explained that “secondary actors,” such as “a lawyer, accountant, or bank…may be liable as a primary violator under 10b-5” only if all of the requirements for liability under Rule 10b-5 are met. The Supreme Court granted certiorari in the Stoneridge case in order to determine whether the Central Bank limitations on liability also bar claims under Rule 10b-5(a) and (c) where a party, without itself making any misstatement, has participated in a transaction that was used by a public corporation to manipulate its earnings.

The plaintiffs in Stoneridge alleged that Charter Communications and a pair of “secondary actors,” Scientific-Atlanta and Motorola, participated in a “scheme to defraud” Charter's shareholders by engaging in a series of transactions that had the effect of misrepresenting Charter's financial statements. Plaintiffs alleged that the secondary actors entered into “sham transactions” with Charter knowing that Charter intended to account for them improperly. There were no allegations, however, that either Scientific-Atlanta or Motorola prepared or disseminated fraudulent financial statements or press releases relied upon by the shareholders. The district court, relying on Central Bank, granted the secondary actors’ motions to dismiss. The Eighth Circuit affirmed the district court, finding that “any defendant who does not make or affirmatively cause to be made a fraudulent misstatement or omission, or who does not directly engage in manipulative securities trading practices, is at most guilty of aiding and abetting and cannot be held liable under Section 10(b) or any subpart of Rule 10b-5.”

The Supreme Court granted certiorari on March 26, 2007. The ABA and the ABA Securities Association (along with the Clearing House Association and the Financial Services Roundtable) filed an amicus brief on behalf of the banking industry. The Court heard oral argument on October 9, 2007.

A copy of the ABA’s brief and the transcript of the argument are attached as a PDF files. 37. Stilwell Value Partners v. Prudential Mutual Holding Company, et al., Case No. 2:06-cv-04432-WY (Eastern District of Pennsylvania). Stilwell Value Partners, a minority shareholder of Prudential Bancorp of Pennsylvania, filed suit in the United States District Court for the Eastern District of Pennsylvania seeking to enjoin Prudential’s Bancorp’s majority shareholder, Prudential Mutual Holding Company from voting on a stock plan for Prudential Bancorp’s management and directors. Filed in October of 2006, the Complaint alleges that Prudential Mutual’s decision to vote on Prudential Bancorp’s stock plan would violate representations that were made to public investors in Prudential Mutual’s stock

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prospectus as well as constituting a breach of its fiduciary duty. Prudential Mutual’s directors also serve as Prudential Bancorp’s directors and control both entities; Stilwell argues that it is improper for Prudential Mutual’s directors to cast a vote to approve their own personal compensation. Stilwell alleges that the prospectus issued in connection with Prudential Bancorp’s March 2005 public offering repeatedly promised public investors that the management and director stock plans that would be offered to Prudential Bancorp’s management would be subject to shareholder approval, with only the minority shareholders being allowed to participate. The prospectus does not expressly make such a statement. Rather, Stilwell reaches its conclusion regarding whether majority shareholder Prudential Mutual would be allowed to vote based upon the indirect implications of several statements in the prospectus. Interestingly, Stilwell argues that its construction of the prospectus is consistent with federal banking regulations in effect at the time of the initial public offering. Specifically, Stilwell contends that rules issued by the Office of Thrift Supervision governing the reorganization of a mutual savings bank into a stock company, as interpreted by the OTS’s General Counsel, prohibited a publicly-held thrift (or thrift holding company) from voting on a stock benefit plan unless it was approved by a “majority of the minority” shares; i.e., a majority that excludes the votes of the majority shareholder. They argue that the current regulations issued by the Federal Deposit Insurance Corporation, Prudential’s Savings Bank’s primary regulator, mirror the OTS’s rules. Stilwell also contends that, faced with opposition to the stock plan from Stilwell, Prudential Mutual Holding Company surreptitiously obtained an opinion letter from the Federal Deposit Insurance Corporation that gave them a green light to allow Prudential Mutual to participate in the vote. The Complaint alleges that the letter from the Federal Deposit Insurance Corporation would allow Prudential Mutual to participate in the vote if the vote occurred more than one year after the Bank reorganization was completed. Stilwell contends that Prudential Mutual never disclosed the existence of this letter and actively took steps to delay the vote on the stock plan so that it would take place more than a year after the reorganization was complete, thus ensuring its ability to participate in the vote. The defendants, Prudential Bancorp, Prudential Mutual, and the individual directors, filed a motion to dismiss Stilwell’s Complaint on November 20, 2006. They contend that Stilwell’s suit is meritless because the prospectus does not contain a clear and unambiguous statement that Prudential Mutual would not be permitted to vote on the stock plan. The court heard oral argument in connection with this motion on July 20, 2007. On August 15, 2007, the court granted the motion to dismiss in part. The court ruled that Plaintiff’s promissory estoppel claim failed as a matter of law because the statements in the prospectus did not constitute an “express promise” that is “certain and explicit enough” or “clear and reasonably certain” so as to ascertain the intention of the parties. Defendants’ motion to dismiss the breach of fiduciary duty claim was granted in part because

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Stilwell does not have standing to bring a claim of breach of fiduciary duty against the director defendants. However, the remainder of the fiduciary duty claim against Prudential Mutual was allowed to proceed. The court also dismissed Stilwell’s claims that the stock plan unfairly enriched Prudential Mutual and the directors, or that it unfairly diluted the shareholder’s ownership of the company. Perpetual filed its answer on September 6, 2007. The Court has issued a scheduling order mandating that discovery be completed by January 10, 2008. Motions are due by February 10, 2008, and a trial date of April 14, 2008 has been set.

MISCELLANEOUS 38. Commonwealth of Massachusetts, et al., v. E*Trade Access, Inc. , (D. Mass, No. 03-CV-11206-MEL). This is an action brought by the Commonwealth of Massachusetts and co-plaintiffs the National Federation of the Blind, the National Federation of the Blind of Massachusetts, and a number of blind Massachusetts residents, against E*Trade Access and E*Trade Bank. The suit alleged that E*Trade discriminated against the blind by refusing to retrofit its ATM’s with voice-guidance technology (i.e., to equip the ATMs with headphone jacks) in order to comply with the Americans with Disabilities Act (“ADA”). After four years of litigation, the parties announced to the Court on June 28, 2007, that a class-wide settlement had been reached. The Settlement Agreement contemplates that Defendants will ensure that approximately half of their ATMs -- those owned by Cardtronics -- are voice-guided by the end of 2007, and will implement a marketing plan designed to provide incentives for merchants who own covered ATMs that are not voice-guided either to upgrade or to replace them. Defendants have committed to ensuring that, by July 1, 2010, at least ninety percent of all transactions on the ATMs covered by the settlement occur on voice-guided ATMs. In summary, the technical aspects of the settlement require that --

• All Cardtronics-Owned ATMs -- currently approximately 11,200 of the 23,300 machines covered by the settlement -- will be voice-guided by the end of this year, with two exceptions: a set of approximately 1,600 machines will be voice-guided but will lack the audible verification feature; and a set of no more than 177 machines will be voice-guided by the end of 2008.

• As of April 9, 2007 and going forward, Cardtronics will only sell or make available to merchants ATMs that are voice-guided.

• Cardtronics will identify the smallest subset of Merchant-Owned ATMs

without voice guidance that collectively account for 80% of transactions at

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Merchant-Owned ATMs (“High Volume Merchants”) and will, within 90 days of approval, offer those merchants that have Upgradeable ATMs the opportunity to upgrade to add voice guidance at no cost, and will offer those merchants whose machines are not upgradeable the opportunity to purchase a voice-guided machine at Cardtronics’s wholesale cost.

• Regardless of the outcome of the marketing plan, Cardtronics will ensure

that, by July 1, 2010, at least ninety percent of all transactions on the ATMs covered by the settlement occur on voice-guided ATMs.

• Any additional functions that are added to ATMs covered by the

settlement will be accessible to blind patrons within ninety days unless Cardtronics believes doing so would not be technically feasible without causing undue burden or delay, in which case the parties are to meet and confer to attempt to eliminate the obstructions to adding such new functions.

• ATMs acquired by Cardtronics after the settlement agreement that are

owned by Cardtronics shall be voice-guided within two years; those that are Merchant-Owned by High Volume Merchants will receive the upgrade or replacement offers described above.

• Cardtronics will provide web-based information and signage to assist

blind patrons in identifying which of its ATMs are voice-guided.

Although E*Trade is not a party to the Settlement Agreement, the agreement concludes this litigation and calls for the dismissal with prejudice of all claims in this case against all Defendants. On July 26, 2007, the court granted preliminary approval of the settlement. 39. Spencer Bank, S.L.A. v. Seidman, (Case No. 2: 07-cv-01337 -WHW-RJH, D. New Jersey). On March 22, 2007, Spencer Savings Bank (a state chartered mutual savings institution) filed suit against Lawrence B. Seidman and related parties alleging that the defendants have engaged in an illegal scheme to seize control of the bank. Spencer alleges that the defendants have unlawfully attempted to influence the board of directors of a mutual association and to secure a position on Spencer’s board of directors in violation of the Savings and Loan Holding Company Act (“SLHCA”), 12 U.S.C. §1467a(h)(1). The Complaint alleges that defendants and their confederates are attempting to “effectuate fundamental corporate change at Spencer” by soliciting the nomination of Seidman and others for election to the Spencer Board of Directors. It is understood that Seidman seeks board representation in order to influence the Spencer Board to undergo a mutual to stock conversion, and subsequent sale or merger. In October, 2004, Seidman commenced a lawsuit in New Jersey state court against Spencer and its entire Board of Directors. That suit alleges breaches

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of fiduciary duty, and attacks the bank and its Board for attempting to fend off Seidman’s campaign to gain control of Spencer. On April 11, 2007, Seidman moved to dismiss the complaint. The motion argues that SLHCA does not establish a private right of action, and that the prohibitions of the statute apply only to savings and loan holding companies. 40. Eisel v. Midwest BankCenter, Case No. SC88167 (Missouri Supreme Court). On August 21, 2007, the Supreme Court of Missouri ruled that a document preparation fee charged to borrowers by the bank violated state statute and the Court’s rules regarding the unauthorized practice of law. At issue was the ability of the bank to charge a fee for the preparation of pre-printed loan forms, including a deed of trust and promissory note. Relevant Missouri statute prohibits the unauthorized practice of law or the “law business” without a law license. Missouri statues define the “law business” to include assisting in the drawing, for valuable consideration, of any paper, document, or instrument, which would include the loan documents in question. Interestingly, the court took care to note that it is the judiciary – and not the legislature – that has the final say in defining and controlling the practice of law. The court found that statutes may aid, but not supersede or detract from, the power of the court to be the final arbiter of what constitutes the practice of law. The court’s rules prohibit a non-lawyer from preparing or assisting in the preparation of certain documents for valuable consideration, for Missouri residents, without the direct supervision of an independent licensed attorney selected by and representing those customers. 41. Martinez v. Wells Fargo Bank, N.A. Case No. C-06-03327 RMW (N.D. Cal.). In a decision issued July 31, 2007, the United States District Court for the Northern District of California partially dismissed a class action against Wells Fargo Bank alleging that the bank improperly charged and collected fees for settlement services in connection with residential mortgage loans. According to the complaint, the bank allegedly charged the borrower marked-up fees underwriting fees and tax service fees, as well as other fees charged for other services. The complaint also alleged that the bank failed to disclose the actual cost of the underwriting and tax services and related costs of the mortgage contract. Wells Fargo moved to dismiss the state law claims (based upon the California Business and Professional Code § 17200). The court had previously dismissed the Plaintiffs’ claims alleging unfair and deceptive business acts under California law on the grounds that those claims were preempted by the National Bank Act and OCC regulations. The court’s latest order reaffirmed its prior dismissal of the unfair and deceptive practices claims as being preempted by the National Bank Act, citing the Watters decision. The court found that “the [National Bank Act] explicitly confers upon national banks such as Wells the authority to engaged in real estate lending,

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and the determination of interest and non-interest charges and fees associated with the business of real estate lending are incidental powers of that authority.” The court also dismissed the unlawful business practices or acts claim under section 17200. Plaintiffs alleged that the bank had a duty under state and federal law to disclose the actual cost of the services charged in connection with the mortgage. The court rejected the notion that state law could impose a duty not to “suppress that which is true” or to disclose material facts in its sole possession which it knows are not known to or are reasonably discoverable by the other party. The court concluded that the requirements of state law were preempted; under the federal scheme the bank is required to disclose its settlement charges in the HUD-1 form, but is not required to additionally disclose its actual costs. The court also concluded that the disclosure requirements of applicable federal regulation or the HUD-1 form did not serve as a predicate unlawful act under section 17200. The court found that federal regulations and the HUD-1 form do not require the bank to disclose its actual costs of settlement services or the components that make up the actual charges that are imposed. In order to facilitate an immediate appeal of the decision, on September 19, 2007, the parties stipulated to the dismissal of Count One (Violation of RESPA – Markups) of the Second Amended Class Action with prejudice. 42. Cohen v. JP Morgan Chase, Case No. 06-0409 (Second Circuit). On August 6, 2007, the United States Court of Appeals for the Second Circuit handed down an opinion that construes the restrictions that are placed on fees that are charged in connection with the refinancing of a home mortgage violated Section 8(b) of the Real Estate Settlement Procedures Act of 1974, 12 U.S.C. § 2607(b) (RESPA). Plaintiffs alleged that the bank charged a $225 “post-closing fee” for which no services were provided, which they claim violated the statute. Section 8(b) of RESPA provides that:

No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.

12 U.S.C. § 2607(b). In a formal policy statement, HUD has construed this statutory section to proscribe unearned fees in three contexts: where (1) two or more persons split a fee for settlement services, any portion of which is unearned; (2) one settlement service provider marks-up the cost of services performed or goods provided by another settlement service provider without providing additional actual, necessary, and distinct services, goods, or facilities to justify the additional charge; or (3) one service provider charges the consumer a fee where no, nominal, or duplicative work is done, or the fee is in excess of the reasonable value of

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goods or facilities provided or the services actually performed. Statement of Policy 2001-1, 66 Fed. Reg. 53,052, 53,059 (Oct. 18, 2001) (codified at 24 C.F.R. § 3500.14(c)). The lower court dismissed the complaint on the ground that it failed to state a claim under section 8(b) of RESPA because the fee at issue was analogous to an “overcharge” for services under the third prong of the HUD Statement of Policy. The trial court’s ruling relied on the Second Circuit’s decision in Kruse v. Wells Fargo Home Mortgage, Inc., 383 F.3d 49, 55-57 (2d Cir. 2004), which found that the third prong of HUD’s Statement of Policy that identified “overcharges” for fees and services was not enforceable. The Second Circuit reversed the trial court, finding that Kruse did not control the result in the case because while fees that are in excess of the reasonable value of the goods, services, or facilities that are provided do not violate RESPA, charging fees were no work of value is performed does constitute a violation. The court deferred to HUD’s interpretation of the statute under Chevron, and finding it to be a reasonable interpretation of an ambiguous provision of RESPA.