It’s pretty hard to succeed at getting a Business Court Judge to reconsider a prior ruling and reverse himself. But the Plaintiff in RREF BB Acquisitions, LLC v. MAS Properties, LLC, 2015 NCBC 105, accomplished exactly that last week.
I wrote about this case when the earlier ruling in the case was made, about six months ago. But I didn’t mention the aspect of the ruling on which the Court has now reversed itself.
Why would have I overlooked something that was significant enough for Judge McGuire to reverse himself upon? Well, it involved ECOA, Writing about an ECOA issue is about as interesting to me as tackling something involving ERISA or RESPA.
If you are lost in that alphabet soup of acronyms, ECOA is the Equal Credit Opportunity Act. It was enacted by Congress in 1974, and it prohibits any creditor from discriminating against any applicant, with respect to any aspect of a credit transaction, on the basis of race, color, religion, national origin, sex, marital status, or age.
RESPA? The Real Estate Settlement Procedures Act. ERISA? The Employee Retirement Income Security Act.
The regulations controlling ECOA provide that a waiver of the protections of the Act cannot be waived in any transaction constituting an "extension of credit." The Defendants in RREF had signed off on a waiver of their defenses to the collection of a promissory note. They had signed that waiver in a loan modification agreement which said that they:
waive any objection thereto, affirm any and all obligations to [the lender] and certify that there are no defenses or offsets against said obligations or [the lender].
Op. ¶1 (emphasis added).
In its June ruling (2015 NCBC 58), the Business Court found this language to be ambiguous as to whether it was intended to cover the ECOA defense to collection of the promissory note raised by the wife of the borrower.
So what changed in the intervening six months warranting a reconsideration of the June ruling? It was one of those rare North Carolina Supreme Court rulings in a civil case delivered at a most opportune time, in Ussery v. Branch Banking and Trust Co. decided on September 25, 2015.
In Ussery, a factually similar case, the NC Supreme Court reversed the denial of a motion for summary judgment by the NCCOA. The Supreme Court held that the plaintiff had waived all of its defenses to the validity of a loan by the Defendant. The waiver language was contained in a loan modification agreement (like RREF’s was) and was nearly identical to the waiver signed by Mrs. Saunders and procured by the same Bank involved in the RREF case (BB&T). The Supreme Court called this language "clear and unambiguous." Ussery at 21.
The Supreme Court did not specifically address the argument made by RREF in the Business Court: that the waiver was unenforceable as a matter of law because the loan modification agreement was an "extension of credit."
Judge McGuire, no longer hobbled by his previous ruling that the language of the waiver was ambiguous, went on to deal with that issue, and ruled that:
Sybil Saunders was not required to prospectively waive her rights under the ECOA when she entered into the original loan agreements, but did so in exchange for avoiding a soon due large payment and obtaining a modification of the terms o[f] the existing loan. The Court cannot conclude that there is any basis . . . for permitting a borrower to waive their ECOA claims in a forbearance or settlement agreement but not in a loan modification or restructuring agreement.
This decision is good news for banks working out troubled loans. They can erect a strong defense to an ECOA claim when securing a waiver in a loan modification agreement.
Previous Motions for Reconsideration made in the Business Court have generally not met with success. That”s been particularly true of Motions aimed at trying to get a new Business Court Judge to fix the claimed errors of a predecessor Judge.
The Business Court observed many years ago that "[t]he North Carolina Rules of Civil Procedure do not include a provision for ”reconsideration.’" GR&S Atlantic Beach, LLC v. Hull, 2013 NCBC 39 n.1.
The Plaintiff in RREF was lucky to be handed an NC Supreme Court decision supporting its Motion for Reconsideration. There”s probably not much chance of that happening.