WASHINGTON (Legal Newsline) – The U.S. Supreme Court has decided not to review the U.S. Court of Appeals for the Second Circuit's decision in the controversial Madden v. Midland Funding case back to New York federal court.
Because the district court will not be able to provide a
judgment for the better part of a year, the standing law in that jurisdiction
will follow the Second Circuit’s ruling, which was in favor of the plaintiff, Saliha Madden.
When the plaintiff defaulted on a loan provided by Bank of
America at 27 percent interest, it was sold to Midland Funding in New York, which applied the same rate, despite the fact that New York law dictates the rate cannot be more than 16 percent.
Bank of America was able to charge such a high interest rate even though Madden resides in New York because of the National
Bank Act, which allows a national bank to charge the interest rate of the state
where it is based, regardless of the location of the individual obtaining
But Madden argued Midland Funding isn’t a national bank and, therefore, cannot operate under the same statute.
The district court decided in favor of the defendant, saying the loan was valid when made, and that Midland Funding stepped into the
shoes of Bank of America and can charge the same rate. But the Second Circuit ruled the opposite, stating that Midland Funding should be subject to New York state law, which dictates the maximum rate can be 16 percent.
Steve Levitan, a partner at the New York City firm Morgan
Lewis who has been watching this situation with great interest, told Legal Newsline there
are many people under the circuit’s jurisdiction who are keeping a close eye on
“At the moment, everyone is very concerned, because in the Second Circuit - which is the states of New York, Connecticut and Vermont - there is a
decision that says transferees cannot avail themselves of the rights of the
transferor,” he said.
The case was sent to the solicitor general with the argument
that the Second Circuit got the case wrong because it ignored valid points.
However, the solicitor general recommended to the Supreme Court that it deny the writ of certiorari on the basis that there are no conflicting rulings in lower courts and it wouldn’t be worth the Supreme Court’s time.
Until that happens, at least for a while, people who
live under the Second Circuit’s jurisdiction will be able to obtain lower interest
rates on defaulted loans, but it also could become tougher for consumers in those
states to obtain lines of credit.
“It is the law in the Second Circuit,” Levitan said. “And
until something comes along to change that, we’re stuck with what we have. Meanwhile, it’ll be another year until the district court rules on this
particular case, and it very well may be that this judge in the district court
determines that Delaware law applies and everything goes back to normal again.”
Levitan says there is still a chance the case could end
up back at the Supreme Court, which would then establish a precedent for all
circuits to follow.
“They’ll have to bring it up if another case comes along
that is in direct contradiction to Madden, so that there is an on-the-record
split between the circuits,” he said. “When that happens, the Supreme Curt is
supposed to agree to decide the case. They don’t want different laws applying
in different circuits around the country.”