2013 Commercial Law Developments -- V. Lender and Borrower Liability
V. Lender and Borrower Liability

March 24, 2014

A. Regulatory and Tort Claims -- Good Faith, Fiduciary Duties, Interference With Prospective Economic Advantage, Libel, Invasion of Privacy

  • Meyer v. U.S. Bank National Association, 715 F.3d 703 (8th Cir. 2013) -- An allegation that a lender forged a document relating to a loan agreement was precluded by a subsequently executed series of forbearance agreements releasing all claims against the lender.
  • Iqbal v. Zafar, 2013 U.S. Dist. LEXIS 146393 (N. Dist. Ill. 2013) -- A lender did not have a fiduciary duty towards the borrower nor did it have a specific duty to hire reasonable management and properly supervise management's operation of plaintiff's business. Express language in a forbearance agreement limiting the lender's duties and liabilities was helpful to the court's analysis.
  • AIG v. Bank of America, 712 F.3d 775 (2d Cir. 2013) -- The Edge Act does not apply to underwriting or sponsoring mortgage backed securities, and therefore that jurisdiction is proper in state courts for such suits.
  • Harris N.A. v. Hershey, 711 F.3d 794 (7th Cir. 2013) -- Court rejects defenses and lender liability claims by guarantor arising out of forbearance negotiations. Guarantor claimed fraud in the inducement, duress, and violation of the duty of good faith and fair dealing by the lender in arguing that it did not have to make good on its guarantee. The Court cites lack of evidence and the Illinois Credit Agreement Act in support of its conclusion.

B. Obligations Under Corporate and Securities Laws

  • Cheatham v. RCA Rubber Co. of Am., 2013 U.S. Dist. LEXIS 103012 (M.D. Tenn. 2013) -- The court pierced the corporate veil between two separate entities in order to use joint assets to satisfy ERISA obligations. In doing so, the court noted that a federal veil-piercing standard applies to ERISA cases, and suggested that "deference to the corporate identity may be particularly inappropriate in relation to ERISA because Congress enacted ERISA in part to protect employees who were being deprived of anticipatory benefits because of a corporate sham," citing earlier Sixth Circuit precedent. This case is an important reminder that creating wholly separate affiliates, including in securitization transactions, can be a challenge. There are, however, key distinctions between this case and a typical securitization structure. For example, the court ultimately held a parent responsible for liabilities of its subsidiary, where the parent had previously paid retirement costs of the subsidiary.

VI. U.C.C -- Sales and Personal Property Leasing / Table of Contents