Rogers Towers, PA welcomes readers to its new Florida Banking Law Blog! A product of the firm’s Banking and Financial Services Practice Group, the blog will serve as a convenient way for us to share our expertise in banking-related legal issues. We represent banks and other providers of financial services in a broad range of matters throughout the state of Florida. As a result of our significant experience, we will have much to share in the upcoming blog posts and we hope that you will find these posts to be informative and beneficial to you in your respective positions in the industry. We appreciate your interest in the field and in Rogers Towers, PA and we look forward to your comments in response to our blog. Again, welcome to the Florida Banking Law Blog!
As we mentioned in our previous posts regarding document preservation, establishing a written document retention and destruction policy is essential to any company, large or small. As with the Pradaxa case out of the Southern District of Illinois, a recent case out of the Northern District of New York, Research Foundation of SUNY v. Nektar Therapeutics, exemplifies the pivotal role such a policy has in the event of litigation. RF SUNY brought complex breach of contract and breach of the implied duty of good faith and fair dealing actions against Nektar, but it was the defendant, Nektar which filed the instant spoliation motion.
Nektar alleged that the RF SUNY was grossly negligent for failing to preserve documents which “may have been relevant to future litigation” as well as being grossly negligent “in its efforts to preserve documents.” Nektar also alleged that RF SUNY failed to “to timely issue written litigation-hold notices,” “preserve all relevant backup-tape data,” and “suspend its auto-delete practices.”
In a brief memorandum opinion, the court disagreed with Nektar, instead finding that “RF SUNY had in place, since 2001, a comprehensive standard document preservation policy, issued both verbal and written litigation hold notices, preserved backup tapes of emails from before commencement and confirmed that no custodian had deleted any documents related to this matter.” The court went on to note that even though RF SUNY’s document retention protocol had “some shortcomings,” RF SUNY was “at most, negligent in its effort to preserve evidence related to [the] litigation.”
The opinion also briefly addresses a subject that we have not yet touched on in this series of posts – the requirement of definiteness placed upon the party alleging spoliation. As stated above, Nektar sought discovery of documents which “may have been relevant to future litigation.” Indeed, Nektar admitted that it would be impossible for it to prove whether the documents were even relevant to the case at hand. Nektar attempted to persuade the court to rely upon circumstantial evidence which it claimed was “likely to lead to a significant number of relevant conversations,” but the court was unpersuaded.
Much like the federal pleading standards after Twombly and Iqbal, spoliation motions are not vehicles for fishing expeditions. When drafting such a motion, attorneys must be mindful of this “definiteness” requirement, or the motion risks being denied because it does not sufficiently allege that the destroyed documents were related to the pending litigation.
RF SUNY offers three lessons: (1) If your company does not have a document retention and destruction policy, get one. Fast. If your company does have a policy, ensure that it is being followed as closely as possible. (2) When filing a spoliation motion, ensure that the description of the documents, which you are claiming were destroyed is as definite as you can make it. (3) Lastly, it is important to understand that spoliation is a two way street – both the plaintiff and defendant must preserve documents through respective litigation holds. For plaintiffs, this third point causes a bit of consternation when establishing the “trigger date,” as it is not always clear when litigation is “imminent” or “reasonably ascertainable” to the party that intends to file the lawsuit.
In addition to ensuring compliance with the federal Fair Debt Collection Practices Act (FDCPA), lenders should take precautions to limit its exposure to claims under the Florida Consumer Collection Practices Act (FCCPA). For example, lenders should:
- Ensure that loan accounting systems accurately track the terms of loan modifications, forbearance agreements, and other loan documents at the time those documents are executed.
- Establish written policies and procedures to reduce errors and to verify the accuracy of accounting systems. Loan officers should ensure that the policies and procedures are routinely followed by all employees at all levels of a lender’s operations.
- Periodically review the terms of loan documents to ensure that they are fully reflected in accounting systems.
- Ensure that correspondence with debtors accounts for all loan modifications. Be aware that automatically generated notices have greatest risk of not being accurate or up to date.
- Avoid direct communication with borrowers whose loans are in default and who are also represented by counsel regarding the debt.
If a lender follows these guidelines, then it should be able to claim the protection of a “good faith” defense contained within the statutory text of the FCCPA. To successfully raise this defense in court, a lender must establish (by a preponderance of the evidence) both (1) that the alleged violation of the FCCPA was not intentional, and (2) that the lender maintained procedures reasonably calculated to avoid errors. For this reason, lenders should review their policies and procedures to ensure that their loan accounting systems consistently track the terms of loan documents.
In the last 2 years, three judges of the Middle District of Florida (Judges Funk, Delano and Williamson) have each issued opinions finding 11 U.S.C. § 707(b)(2) inapplicable in cases converted from a Chapter 13 to a Chapter 7. These Courts have based their findings on the “plain language” of the provision.
11 U.S.C. § 707(b)(1) generally provides that a Court may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts if the Court finds that granting relief would constitute an abuse of the Bankruptcy Code. 11 U.S.C. § 707(b)(2) generally provides that a Court shall presume that a Chapter 7 case is abusive if the debtor’s current monthly income, when reduced by expenses or payments determined under the provision, is greater than a specified threshold amount set forth therein. The above-referenced judges all held § 707(b) is inapplicable to converted cases because the cases are converted to a Chapter 7 from another chapter, and thus, are not originally filed under Chapter 7.
However, in a recent decision from the Middle District Bankruptcy Court, Judge Glenn has created an intra-district split on the issue. In Summerville, a Chapter 13 debtor whose case had recently been dismissed for failure to make payments filed a notice converting her Chapter 13 case to a Chapter 7. The United States Trustee filed a motion seeking dismissal of the debtor’s case pursuant to § 707(b)(1).
In concluding that 11 U.S.C. 707(b)(2) applies to converted cases, Judge Glenn found that (i) the conversion of a Chapter 13 case operates as an order for relief under Chapter 7, (ii) even after conversion of a case from a Chapter 13 to a Chapter 7, the Debtor is required to complete Official Form 22A, which incorporates 11 U.S.C. § 707(b)(2), and (iii) a review of the Bankruptcy Code indicates a clear intent to apply the abuse analysis post-conversion. Therefore, it is important that we continue to monitor the case law related to this issue in order to determine which view will win the day.
 In re Summerville, 3:11-BK-4689-PMG, 2014 WL 4723588 (Bankr. M.D. Fla. 2014).