Posts filed under ‘Legal Watch’

Here’s An Important Order You May Have Missed

Good morning folks. I am going to assume that there is more than enough information available to you about the federal stimulus package that is scheduled to pass the House later today. Instead, I want to highlight one of extraordinary orders you may have missed this week amidst the onslaught of guidances, emergency regulations, etc.

On March 22, 2020, New York’s Court System was shut down for all but essential services. This means that anyone wanting to file papers to start a legal action, such as a foreclosure action, is out of luck. The good news is that the order does not prevent clerks from accepting mortgage recordings. This order is in addition to New York’s decision to freeze statutes of limitation. This is important for those of you involved in potential legal disputes.

Have you identified your essential employees?

The timing of this guidance from NCUA and the Treasury Department is a real head scratcher. Yesterday, NCUA issued this guidance informing those of us in critical industries, which includes credit unions and banks, of the importance of identifying the employees who are critical to the maintenance of your operations. I’m getting annoyed by guidance that imposes additional burdens on all businesses precisely at the moment when people are already working 24/7 to keep their operations going.

On that note, enjoy your weekend. Social scientist tell us that in the aggregate, human beings are intrinsically optimistic, the rest of us become lawyers. So when all this stuff is over, you will not remember it being as bad as it seems right now and you will actually remember parts of it fondly.

 

March 27, 2020 at 9:08 am Leave a comment

Can Your Employee Use Medical Marijuana At The Credit Union?

Since 2014 when New York legalized the use of marijuana for medical purposes, lawyers, HR professionals and employers have grappled with how best to reconcile two provisions of New York’s law which seem to be in conflict with one another. On the one hand, § 3369(2) of New York’s Public Health Law stipulates that a certified patient authorized to use marijuana shall be deemed a disability under New York’s Human Rights Law which bans discrimination against the disabled and mandates that employers provide employees reasonable accommodations to do their jobs.

Conversely, this same subdivision goes on to explain that it does “not bar the enforcement of a policy prohibiting an employee from performing his or her duties while impaired by a controlled substance” or put the employer in the position of violating Federal Law.

New Jersey also authorizes the medical use of marijuana with provisions similar to New York’s. A recent decision by its Supreme Court, while not binding in New York, could be used as persuasive authority by future employees claiming to have been discriminated against by their employers. I would certainly take a look at this case and consider whether the type of activities performed by your credit union employees justify policies that you may have regarding the use of marijuana in the workplace.

In Wild v. Carriage Funeral Holdings, Inc., a funeral director came down with cancer in 2015 and was prescribed marijuana under New Jersey’s Medical Use Law. One day he got into an accident while driving a company vehicle. He went to the emergency room and explained that he had marijuana in his system because of his cancer treatment but the doctor was unconcerned because he was clearly not impaired. Nevertheless, he was fired for violating the corporate policy against using drugs during work hours, a policy with which NCUA’s employees are all too familiar these days.

He sued claiming that he was lawfully using marijuana and he was being discriminated against because of his medical disability in violation of NJ law. The lower court disagreed because of a provision of the New Jersey Compassionate Use Act that “nothing” requires an employer to accommodate a medical user of marijuana. The case eventually found its way up to the New Jersey Supreme Court. In a brief decision, it held that it was obligated to interpret New Jersey law in a way that reconciled the two provisions. It ruled that “The Compassionate Use Act does not have an impact on the plaintiff’s existing employment rights. In a case such as this, in which plaintiff alleges that the Compassionate Use Act authorized his use of marijuana outside the workplace, the Act’s provisions may be harmonized” with New Jersey’s anti-discrimination laws.

Think about the impact that this decision has for those of you who have branches in New Jersey. Most importantly, you should make sure that your policies don’t discipline an employee simply because he or she is lawfully using marijuana. The case also raises an interesting issue that employees also need to consider. In this case, there was documented evidence that the employee was not impaired. Would the outcome have been different if the employee was impaired? And if so, how are employers going to make the distinction between an employee with marijuana in his system and an employee with marijuana in his system who is impaired? These are interesting questions that we won’t know the answer to for several years. But in the meantime, your policies have to be drafted in consideration for these questions in any state which authorizes medical marijuana use.

March 12, 2020 at 11:27 am Leave a comment

A Tale Of Two Budgets: Why It Matters To Your Credit Union

Nothing underscores the sharp differences between Congress and the New York State legislative processes more than the differences between how legislators in New York and Congressmen in Washington decide how to spend money.

Senate Budget Chairman, Republican Mike Enzi, greeted President Trump’s proposed $4.8 trillion dollar budget by announcing that he would not bother holding a hearing on the proposal. According to the Wyoming Senator, “nobody has listened to the President in the 23 years that I’ve been here.”

Meanwhile, New Yorkers and legislators anxiously awaited the Governor’s budget proposal with an increasing number of legislators grousing that he has too much power.

Why am I talking about this now? Because the Governor has proposed legislation in his budget, such as one addressing financial abuse of the elderly and disabled, that would have a direct operational impact on credit unions. In addition, the distinctions are important to understand as the lobbying season goes into high gear. Besides, I really enjoy the subject, so humor me a little.

Article I, section 9 of the U.S. Constitution provides that “no money shall be drawn from the Treasury, but in consequence of appropriations made by law”. In other words, the power of the purse belongs to Congress, not the President which is why the senator can be so dismissive of the President’s proposal and the President can devise a budget plan catering to his political supporters secure in the knowledge that it has not practical consequences. Given the give and take of the political process, for much of the last century, the President and Congress would ultimately engage in negotiations that resulted in a functioning spending plan. On paper the Federal fiscal year begins on October 1st and there are twelve subcommittees with jurisdiction over virtually all discretionary spending on the Federal level each of which crafts a bill for Congress to pass and the President to sign or veto.

But the system has largely broken down—a trend which pre-dates the Trump Administration. Appropriation bills are cobbled together in a last second omnibus appropriations bill, assuming one can be agreed to. Today the Federal Government is run by a series of continuing resolutions which are short term spending plans intended to keep government functioning until the President and Congress reach a final agreement.

Meanwhile on the state level the Legislature has no choice but to consider the Governor’s spending plans. As early as 1915, Henry Stimson proposed amending the state’s constitution to give the Governor the responsibility of implementing a unified executive budget. At the time, appropriations were made with little regard for the overall impact on state spending.

Stimson’s initial efforts failed but in 1927 Article 7 section 4 of the State Constitution was enacted.

In contrast to the Federal Constitution, this provision provides that the Governor must propose a budget for the upcoming fiscal year and that the “…legislature may not alter an appropriation bill submitted by the governor except to strike out or reduce items therein, but it may add thereto items of appropriation provided that such additions are stated separately and distinctly from the original items of the bill and refer each to a single object or purpose.”

This is incredibly powerful language. It means that the Governor’s executive budget has the force of law unless it is acted on by the Legislature which only has the ability to reduce or increase suggested appropriations. In addition, a series of important cases in the early 2000’s further strengthened the Governor’s hand by holding that the Governor’s budget powers applied not only to the actual amount appropriated but to the language accompanying an appropriation. That is why you have seen every Governor since George Pataki put more and more of his legislative priorities in his proposed budget.

The Governor has the right to amend his proposals and that is what will be taking place up until April as staff persons and legislative leaders haggle over the state’s spending priorities. But the legal structure means that the Governor starts these negotiations from a position of strength. The legislature could simply refuse to enact a budget by April 1st, but unlike the Federal Government the political consensus in New York has been that the public has little appetite for a government shutdown.

February 13, 2020 at 9:46 am Leave a comment

Key Case on Mortgage Foreclosures Before New York’s Highest Court

Greetings People.

Our good friends at the New York Mortgage Bankers Association gave me a heads-up the other day that an extremely important case dealing with New York’s six year statute of limitations is going before New York’s Court of Appeals, which is New York’s highest court. Regardless of what the court ultimately rules, for those of you who deal with delinquent mortgage loans it underscores how clearly and unequivocally you should be entering into agreements which freeze foreclosure actions so that you can continue to negotiate with the delinquent homeowner. This is one area of the law where the lender should beware.

The facts of this case show just how convoluted foreclosure actions have become in New York State. I read both briefs- which are excellent by the way- and no one challenges the fact that the homeowner has been repeatedly delinquent on his mortgage loan payments. Nevertheless, in our efforts to provide greater protections to homeowners, delinquency is increasingly immaterial to foreclosure litigation.

Freedom Mtge. Corp. v Engel has its roots in a $225,000 mortgage that Herbert Engel entered into in 2005. The defendant did not make a payment due on March 1st 2008, and in July of that year a foreclosure action was commenced. The action hit a glitch in January 2013 when the defendant homeowner contended that he was never properly served the papers triggering this action because the summons and complaint were not sent to the proper address. Freedom Mortgage disagreed but entered into a stipulation in which the homeowner accepted service of the foreclosure papers and the foreclosure action would be discontinued “without prejudice” as both parties worked to “amicably resolve the dispute and the issues raised in it without further delay, expense or uncertainty”.

Well, things didn’t exactly work out as planned. Two years later on February 19th, 2015 Freedom Mortgage once again moved to foreclose on the property. The defendant argued that the action was time-barred; after all, the initial foreclosure was commenced in 2008. In contrast, Freedom Mortgage pointed out that it had agreed to dismiss the initial foreclosure without prejudice. But the appellate division concluded that the stipulation the parties entered into in 2013 did not constitute “an affirmative act” to deaccelerate the mortgage note i.e. insist that the entire outstanding amount of the mortgage loan be paid immediately.

Now that the case is going to the court of appeals, the court will be able to provide much needed guidance on precisely when and how lenders can enter into stipulations discontinuing foreclosure actions without putting themselves in jeopardy of losing the right to foreclose on property. This is good news not only for lenders but for borrowers as well. If Mr. Engal successfully avoids paying off his mortgage loan, his victory will actually make it more difficult for consumers facing difficulty paying off their loans to enter into modification agreements.

On that happy note, enjoy your weekend. Yours truly is headed down to God’s Country- Long Island- to celebrate my Mom’s 85 years, a good chunk of which has been spent putting up with me. Peace out!

February 7, 2020 at 9:11 am 1 comment

Are you ready to comply with federal securities law?

There is much more in NCUA’s proposal to update the use of secondary capital by credit unions than meets the eye. If the regulation is finally promulgated as is, it will aid complex credit unions which will be able to use subordinated debt to satisfy their very unique risk-based capital requirements. The problem is that the regulation will make it much more difficult and cumbersome for low income credit unions to utilize this option to comply with their own net worth requirements, and to use secondary capital as part of their strategic development plans. In the blog, I continue to refer to secondary capital, but if this regulation is finalized, it will be referred to as subordinated debt.

Why are these new changes going to have such an impact? Because NCUA unequivocally has determined that what we currently refer to as secondary capital is, for legal purposes, a security instrument under state and federal law. As a result, in the preamble the Board “emphasizes that any issuance of a Subordinated Debt Note by an Issuing Credit Union must be done in accordance with applicable federal and state securities laws. Given the complexity of the securities law framework, any credit union contemplating an offer and sale of Subordinated Debt Notes needs to engage qualified legal counsel to ensure its compliance with securities laws before, during, and after any such offer and sale.”

If this sounds complicated, it is. There are about 15 blogs I could do on the topic, but as a preview of what this means, going forward, when you issue subordinated debt, NCUA expects your credit union to “prepare and deliver an Offering Document to potential investors even though there are no SEC-mandated disclosure requirements for offerings of securities pursuant to the Section 3(a)(5) exemption, and there generally are no SEC-mandated disclosure requirements for offerings of securities pursuant to the Rule 506 private placement exemption as long as all purchasers in the offering are ‘accredited investors.’” Needless to say, you’re going to have to retain the services of a lawyer who specializes in securities law, and probably an accountant who does as well. In addition, this goes well beyond the scope of knowledge of even our most savvy compliance people.

The good news is that none of this applies to credit unions that currently hold secondary capital. The bad news is that it does apply to any credit union that seeks out secondary capital in the future. For larger credit unions which have to comply with the risk based capital requirements, which take effect in 2022, the expense may be worth it, but my concern is that for the vast majority of low income credit unions which have traditionally used secondary capital to satisfy net worth requirements, the cost will be too great. Cynics will say that this outcome will be just fine with NCUA, which has grown increasingly skittish about the way some credit unions are using secondary capital. At the very least, this represents a big change for credit unions, and the industry should start thinking about creative ways it can cost-effectively address some of the issues raised by NCUA in a way that allows low income credit unions cost-effective access to this resource. After all, for almost 25 years, NCUA has apparently allowed credit unions to access secondary capital in violation of federal securities law.

 

February 6, 2020 at 9:11 am Leave a comment

Taxi Task Force to NCUA: It’s Time To Get Involved

Hello folks.

On the train back to Albany yesterday during the unofficial National Football Hangover Day, I read this much anticipated report released by the New York City formed task force which recommends solutions to the NYC Taxi Medallion crisis.

The issues surrounding medallion loans have been analyzed so much now that it’s hard to come up with any radical new proposals. To me, the most important impact of the report is that it underscores that NCUA has to get actively involved in working with both NYC and the State Legislature if there is going to be any viable plan created to help drivers holding unaffordable medallion loans. After all, according to the Task Force, NCUA holds approximately $1 billion in Medallion Loans and, if it decides to offload this portfolio en masse, policy makers will lose any ability to play a role in the loan modification process.

As a result the Task Force believes

“… it is imperative that stakeholders work quickly to develop a practical option for medallion owner debt relief. Such relief may involve collaborating with the NCUA with respect to the portfolio of medallion loans it currently owns.”

 

Escrow Litigation Heats Up

I don’t want anyone to tell me that I did not warn them that the days of federally chartered credit unions not having to pay mortgage escrow interest may very well be coming to an end.

As I mentioned in this blog, there is currently litigation, modeled after similar lawsuits in California, alleging that Federally Chartered Banks are no longer exempt from New York’s law requiring mortgage escrow holders to pay interest. Although this litigation does not involve credit unions, the legal logic underpinning the exemption for federally chartered credit unions is virtually identical to that of banks.

On January 30th, lawyers for Bank of America urged a federal court in New York to fast track the appeal of similar litigation in New York. In a letter to the court, the bank noted that a proliferation of cases challenging the escrow exemption “underscore the need” for an expedited appeal.

What does all this mean for you federally charted credit unions that provide mortgages in New York?   While the issue is still being litigated, you should certainly be taking the time to plan for the likelihood of having to pay interest on those mortgage escrows.

February 4, 2020 at 9:56 am 1 comment

Why California’s Privacy Law doesn’t apply to your Credit Union

I’m more than a little surprised by how many credit unions outside of the great state of California are concerned that they have to comply with the California Consumer Privacy Act (CCPA). As states such as New York and California move to more aggressively assert their jurisdiction, and even international actors such as the European Union seek to expand the applicability of their laws, it’s important that credit unions look beyond the specific statute they are dealing with and understand the total legal framework in which they operate.

The CCPA is landmark legislation, which aims to give consumers control of their on-line information by, among other things, giving them the ability to make sure information is deleted and giving them greater control over which third parties have access to their data. It’s modeled after Europe’s GDPR. It’s a big deal for those businesses that have to comply with its mandates. But the reality is that the vast majority of credit unions outside of the great state of California are not subject to its requirements. This is not a question governed by California Law but by Article 14 of the U.S. Constitution.

For some background, §1798.140 of the CCPA provides that the law applies to entities that are “doing business” in California provided they meet certain thresholds. There is also an exemption for not-for-profit businesses but the way that term is defined it’s possible that these exemptions will not apply to credit unions when the regulations are finalized by the California Attorney General. Both CUNA and NAFCU have understandably asked for clarification as to how exactly California is going to define these terms.

But keep in mind that no matter how California seeks to interpret its own regulations, it is constrained in its ability to impose these far reaching requirements on out-of-state entities. As none other than RBG explained for the Supreme Court

A state court’s assertion of jurisdiction exposes defendants to the State’s coercive power, and is therefore subject to review for compatibility with the Fourteenth Amendment’s Due Process Clause. *919 International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945) (assertion of jurisdiction over out-of-state corporation must comply with **2851 “ ‘traditional notions of fair play and substantial justice’ Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 918–19, 131 S. Ct. 2846, 2850–51, 180 L. Ed. 2d 796 (2011)

This is not controversial. It is a bedrock legal principal embraced across the legal spectrum. This is why California Law stipulates that its state courts may exercise jurisdiction “on any basis not inconsistent with the constitution”. (Cal. Civ. Proc. Code § 410.10)

So how will you know if your credit union is doing business in California? This is a term of art, which means it will ultimately depend on the unique circumstances of each credit union’s operations. But as the Supreme Court has made clear, to establish that a company is doing business more has to be proven than the occasional, incidental and isolated contact with the state. This means that for your average credit union with specific fields of membership and concentrated almost exclusively within New York and maybe some neighboring states, California law will not apply. This will be true even if some of your members end up doing banking on the West Coast. The situation changes of course if your credit union actively engages in California. For example, if you have a field of membership that includes television actors, there is a good chance that your credit union engages in the type of continuous conduct from which a court could reasonably conclude that your credit union is doing business in the state.

Here is my suggestion; before your credit union starts complying with the CCPA, ask an attorney to do an analysis as to whether or not it actually does business in the state. Chances are this will be money well spent.

January 31, 2020 at 10:31 am Leave a comment

Older Posts


Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 653 other followers

Archives