Saturday, June 1, 2013

More Market State In Action: Consumers Treated Differently Under ...

You thought corporate personhood was a bad thing? Think twice. You should be so lucky as to be a corporate person. They don?t just get treated like you and me, they are increasingly being treated better than you and me.

Bear with this very specific and for non-laywers, legally dense illustration, that I received earlier in the week:

I am Michael Morgan, the pro se plaintiff in Morgan v. Ocwen Loan Servicing, LLC, et al., 795 F.Supp.2d 1370 (N.D.Ga. 2011). This is one of two extremely well-written decisions in which Judge Amy Totenberg ruled that, in Georgia, a non-judicial foreclosure must be brought by the secured creditor and that the identity of the secured creditor must be revealed. The other case is Stubbs v. Bank of America, 844 F.Supp.2d 1267 (N.D.Ga. 2012).

I was wondering if you have seen You et al. v. JP Morgan Chase Bank, N.A., et al., Case No. S13Q0040, Georgia Supreme Court. http://www.gasupreme.us/sc-op/pdf/s13q0040.pdf

In the You et al. case, the Georgia Supreme Court held that, in Georgia, (a) the holder of a security deed could be considered a secured creditor and could initiate a non-judicial foreclosure, despite the fact that it did not hold the note or otherwise have any beneficial interest in the debt underlying the security deed, and (b) the identity of the secured creditor did not need to be revealed in the foreclosure notice. In so holding, the Georgia Supreme Court was interpreting O.C.G.A. Section 44-14-162.2(a), which requires that the foreclosure notice be sent by the secured creditor. See also O.C.G.A. Section 44-14-162, which requires that the security instrument or an assignment thereof vesting title in the secured creditor be filed in the real estate records of the appropriate county prior to the foreclosure sale.

While not expressing it in precisely this manner, the Georgia Supreme Court held, in effect, that the relevant provisions of the Georgia Uniform Commercial Code, O.C.G.A. Section 11-1-101, et seq., yield to and are superseded by O.C.G.A. 44-14-64(b). This code section provides that the transfer of a security deed is sufficient to transfer the indebtedness, even when the indebtedness is evidenced by a note.

N.B. O.C.G.A. 11-10-103 requires precisely the opposite result; i.e., this code section specifically provides that provisions included in Article 3 of Chapter 14 of Title 44 (which includes O.C.G.A. Section 44-14-64(b)) yield to and are superseded by the Georgia UCC. (Appellants? counsel did not refer to O.C.G.A. Section 11-10-103 in either of the two briefs which he submitted to the Court. I have not yet confirmed that there is no reference to this code section in any of the six other briefs submitted in the case, but I do not expect to find such a reference.)

If it makes any difference, pursuant to O.C.G.A. Section 1-1-9, the effective date of both the current version of the Georgia UCC and O.C.G.A. Section 44-14-64(b) was November 1, 1982. Appellees apparently argued that O.C.G.A. Section 44-14-64(b) prevailed over the Georgia UCC, because the corresponding provision in the 1933 Georgia Code (Section 67-1305.1) was adopted after Georgia first adopted its version of the UCC. (With limited exceptions, the 1933 Georgia Code has been repealed in its entirety.)

I believe that it is readily apparent that the effect of the ruling in You et al. could wreak havoc in commercial markets, if the decision is taken seriously in contexts other than non-judicial foreclosures. Warehousing lenders, e.g., have relied upon possession of the original note as security, and the security deed is never assigned to them. However, under the rationale of You et al., an assignment of a Georgia security deed to a third party, while the warehousing lender held the corresponding note, would transfer the indebtedness to that third party. Many other scenarios can be envisioned in which this rationale would have devastating effects upon commerce.

I here am only trying to inform you about this decision, in the event that you are not aware of it. It does not yet seem to be receiving the attention that it deserves.

I ran this message by Georgetown law professor Adam Levitin, who is arguably the top US expert on mortgage securitizations. He gave the ruling a quick read and said it did appear that there appeared to be an inconsistency, that the Georgia court found that the note follows the mortgage, rather than the mortgage follows the note. They failed to reconcile the statute that says note follows the mortgage with the UCC Article 9 provision that says the opposite. Oops.

But this is where it gets interesting, and ugly. It?s clear that the conclusion the court reached in the consumer case would be untenable if you had two banks dealing with each other. Levitin speculated that what would happen in Georgia was not that some later court would come down one way or the other on this rather basic question. Instead, he anticipated that the law would be applied one way for consumers when banks want to foreclose and the opposite way for warehouse lending.

The implications of this are very serious. The basic premise of the law has for a very long time been that justice is blind, that judges will rule without reference to who is making the argument, unless the party gives reason for that to be made an issue (for instance, one of the parties has a history of bad faith behavior). Of course, any black person will tell you that?s nonsense, that blacks are found guilty and get far more severe punishments in similar fact sets than whites. But that?s seen by most commentators as symptomatic of how deep seated prejudice is in American society as much as a serious shortcoming of our legal system (studies continue to find ample evidence of discrimination in hiring, promotion, treatment by salesmen, etc). Similarly, small fry who go up against people with better, meaner lawyers usually fare badly in court, but again, the outcome is a result of their access to resources, not to their demographics.

By contrast, this sort of outcome that Levitin anticipates in Georgia illustrates a serious erosion in the role of the judiciary, that the law has become pliable and will be twisted in knots if that?s what it takes to serve commerce. Contract law has for some time been moving in a direction that gives businesses the upper hand. IN consumer cases, take it or leave it contracts (?adhesion contracts?) are treated in litigation as if the consumer had bargained over terms, while in a business to business case, the court would typically look to see if the parties really had negotiated terms in making a ruling. Another example is binding mandatory arbitration. That gets forced on consumers all the time as a way to prevent class action litigation and to stack the deck overwhelmingly in their favor when disputes arise. What good is having a contract when it is certain to be interpreted in a one-sided manner?

I?ve used the term ?market state? for this practice, but as Lambert flagged in his earlier discussions, it?s not clear if this expression is adequate. One of the problems is that we are struggling for terminology to describe our new social/political order. The old frames don?t fit well. Even ?neofeudalism? is too generous, since peasants weren?t subject to a surveillance state and the nobles actually were expected to fight. By contrast, one of the salient characteristics of our emerging social order is covert coercion. There are all sorts of things you can?t do if you refuse to have a credit card, or a broadband account (and the surveillance that goes with it) or a cell phone (ditto). You mark yourself a weirdo and hurt your employability. Most people don?t think about what they submit to in participating in modern life, and that?s because, for many, they can?t function and earn an income otherwise.

I?d very much welcome reader input on both more examples of this phenomenon and better ways to describe it.

Source: http://www.nakedcapitalism.com/2013/05/more-market-state-in-action-consumers-treated-differently-under-the-law-than-businesses.html

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