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Florida Banking Law Blog

Legal developments impacting banking, finance and loan enforcement in Florida

Welcome to the Florida Banking Law Blog!

Posted in Uncategorized

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!

Spouse-Guarantor Rule: A Split Between Federal Circuit Courts

Posted in Commercial Lending, Commercial Real Estate Lending

When a closely-held entity applies for a loan, the financial institution usually requires the entity’s owner(s) to guaranty the loan.  If the owner is married, the financial institution may also require the owner(s) spouse(s) to guaranty to improve the likelihood that loan will be repaid if the borrower defaults.  This seems like a logical credit request when structuring a loan since spouses often hold jointly owned assets.

The Equal Credit Opportunity Act (the “ECOA”) makes it “unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction…on the basis of…marital status.”  The ECOA defines “applicant” in part as “any person who applies to a creditor directly for an extension, renewal, or continuation of credit”.  Under the ECOA’s implementing Regulation B, the Federal Reserve Board (now under the Consumer Financial Protection Bureau) the term “applicant” is defined to include guarantors.  Regulation B contains a provision that is sometimes referred to as the “spouse-guarantor rule,” which prohibits a creditor from requiring an applicant’s spouse to guarantee a credit instrument.

Is a spouse-guarantor an “applicant” for credit for purposes of asserting protections under the ECOA?  This issue was recently addressed by two federal appeals courts, resulting in two different conclusions.

Sixth Circuit

In June 2014, the Sixth Circuit Court of Appeals said that a spouse-guarantor was an applicant and therefore was protected under the ECOA. In RL BB Acquisition LLC v. Bridgemill Commons Development Group, LLC, a real estate development company and its owner sought to refinance certain loans.  When the bank informed the real estate development and its owner that it would not approve the refinancing, the owner sought additional collateral.  The owner then agreed to pledge certain other assets to secure the loan and the owner’s spouse agreed to pledge certain of her assets that she individually owned.  Under the bank’s underwriting policies, the bank then determined that it could issue the loan and the owner’s spouse executed a guaranty.  The borrower defaulted at maturity and the lender sued, including a count against the spouse-guarantor.  The spouse-guarantor answered, claiming that her guaranty that she was required to sign was unenforceable since it violated the ECOA and Regulation B – specifically, Regulation B’s prohibition on requiring spouses to guarantee loans.  The district court held that the spouse-guarantor could not raise violations of ECOA and Regulation B as an affirmative defense.  The spouse-guarantor appealed and the Sixth Circuit reversed the district court.

The Sixth Circuit concluded that “the statutory definition is ambiguous” and that “Regulation B’s definition of ‘applicant’ constitutes valid construction of the statutory definition of that term.”  The court reached this conclusion based on two broad terms in the definition of applicant – “applies” and “credit.”  The court stated that “a guarantor is a third party to the larger application process” and that “a guarantor’s offer [of her own personal liability] is not gratuitous; she makes it in consideration for credit that she hopes the borrower will receive.”  In so concluding, the court held that a guarantor may seek relief for violations of the spouse-guarantor rule.

Eighth Circuit

In August 2014, however, the Eighth Circuit Court of Appeals reached a different result, saying that a spouse-guarantor was not an applicant and therefore was not protected under the ECOA.  In Hawkins v. Community Bank of Raymore, two real estate developers’ wives claimed that the bank required them to sign a guaranty of their husbands’ real estate development company.  When the loan defaulted, the bank accelerated the loan and demanded payment from the borrower and the guarantors – including both wives.  The spouse-guarantors, in turn, sued the bank, seeking damages and an order declaring their guarantees void and unenforceable, alleging that the bank required them to execute the guaranties solely because they were married to their respective husbands.  They claimed that this requirement constituted discrimination against them on the basis of their marital status, in violation of the ECOA.  The district court ruled in favor of the bank, finding that as credit guarantors, the wives were not “applicants” within the meaning of the ECOA.  The wives appealed, and the Eight Circuit affirmed the district court.

The Eight Circuit concluded that “the plain language of the ECOA unmistakably provides that a person is an applicant only if she requests credit” and that “a person does not, by executing a guaranty, request credit.”  In so concluding, the court rejected the Regulation B interpretation that the term “applicant” includes guarantors.


The Eight Circuit Court’s ruling creates a split with the Sixth Circuit Court’s ruling.  Lenders should watch to see if this split forms the basis of an appeal to the Supreme Court.  But in the meantime, lenders should be aware of the spousal-guarantor rule as it may still apply.  Lenders should exercise caution when requiring a spousal guaranty by properly documenting the underwriting basis for the requirement.

Discovery and Social Media

Posted in Debt and Judgment Collection

The advent of social media has brought about many changes in the world of litigation, not the least of which is the availability of information that previously would have been impossible to discover.  It is hardly an exaggeration that between Facebook, Instagram, Twitter and other social media platforms, millions of people post their every move online.  In fact, there are “apps,” such as Foursquare, that update a user’s location in real time.  With this potentially unlimited record of a litigant’s daily behavior, practitioners are chomping at the bit to acquire such information.

Because the discovery of social media in litigation is so new, there is limited case law on the subject.  As the case law emerges, however, one of the leading questions revolves around what information can be considered “public” and what information is “private”.  Is a Facebook post public if the user has selected privacy settings which allow only a limited group of friends to read the post or see his or her pictures?

When faced with this question, Florida courts have noted that generally social media content is neither privileged nor protected by any rights of privacy.  Nevertheless, one party does not have a generalized right to rummage through information that another party has limited from public view.  Examined in the light of ordinary discovery rules, this limitation makes sense.

According to Florida’s Rules of Civil Procedure, litigants are required to produce only those items that appear reasonably calculated to lead to the discovery of admissible evidence.  Thus, in the social media context, Florida courts have held that parties attempting to discover admissible evidence may not engage in a “proverbial fishing expedition” in the hope that there might be something of relevance in the other party’s social media accounts.  In the context of personal injury cases, discovery of social media accounts are generally limited to posts subsequent to the injury, especially when the plaintiff’s physical condition is at controversy.

Although social media has revolutionized the amount of information potentially available for discovery, Florida courts have been cognizant of historic standards and limitations of discovery.  Simply believing that there may be incriminating evidence in the other party’s social media history will not carry the burden.  If there is an objection to such a discovery request, the non-objecting party must show that the disclosure of social media posts, pictures, or messages will lead to the discovery of admissible evidence.  As courts become more comfortable with the social media landscape, more concrete rules are inevitable.  For now, litigants should be guided by the ordinary principles of “pre-Facebook” discovery.

Written Document Retention and Destruction Policy Saves the Day (Again)

Posted in Debt and Judgment Collection

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.