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Marketplace Lending Update #5: The Very Long Arm of Colorado Law

Recently a state court in Colorado ruled that securitization trusts that acquire marketplace lender loans originated to Colorado consumers are subject to Colorado jurisdiction.  The court’s ruling derailed the attempt by the securitization trusts to escape the ongoing battle between the State of Colorado and marketplace lenders over rates and fees that can be charged to Colorado residents.

As discussed in our earlier Clients & Friends Memos “Another Rocky Mountain Remand” (Mar. 29, 2018) and “Litigation Mounts to New Highs in Colorado—Securitizations under Attack” (Jan. 2, 2019), in 2017 the Administrator of the Colorado Uniform Consumer Credit Code (the “UCCC”)1 sued Avant and Marlette in separate actions, alleging that they made loans to Colorado consumers and charged interest rates above the maximum rate allowed by the UCCC.  The Administrator later amended the complaints to name the securitization trusts holding the Avant and Marlette Colorado loans (the “Trusts”), as well as the two trustees of the trusts, Wilmington Trust, N.A. and Wilmington Savings Fund Society, FSB, as co-defendants.  The Administrator contends that the Trusts violated the UCCC by collecting impermissible finance charges and late fees.  The Administrator argues that the loans were in fact originated by Avant or Marlette (rather than by their partner banks, Cross River Bank and WebBank) and imposed rates and fees not permissible for nonbank lenders, and that even if the loans had been originated by their partner banks, the Trusts would still be unable to collect the same rate of interest and fees as the originating partner banks under a Second Circuit decision in Madden v. Midland Funding, LLC.2  The Trusts moved to dismiss for lack of personal jurisdiction.

Although the Colorado UCCC purports to subject any “creditor” to the enforcement jurisdiction of the Administrator—and for these purposes, a “creditor” includes an assignee of a loan originated under the UCCC—the Trusts argued that they never purposefully availed themselves of the benefits and protections of Colorado and that their only link to the forum was a small amount of income based on Colorado loans.  Such a limited connection, the Trusts argued, could not support jurisdiction, especially when the Trusts received income from similar loans in almost every state in the country.  The Trusts offered an array of case law from around the country in support of their stance.

On April 10, 2019, Judge David H. Goldberg of the Denver District Court denied the Trusts’ motions to dismiss for lack of personal jurisdiction.  The court ruled that by acquiring Colorado consumer loans, the Trusts qualify as a “creditor” under Colorado’s UCCC because they “receive payments collected by others from Colorado consumer credit transactions.”  While the court could not find a Colorado case allowing for personal jurisdiction over non-resident creditors, the court noted that Colorado courts had found personal jurisdiction under state statutes with long-arm provisions like those of the UCCC.  And the court ruled that by acquiring the loans at issue and collecting payments under those loans, the Trusts had “purposefully established ‘minimum contacts’” with Colorado sufficient to satisfy due process.

Thus, under the court’s ruling, secondary market purchasers who acquire even a small amount of Colorado consumer loans can be dragged into Colorado courts and face actions that seek disgorgement of charges and fees and other civil penalties over any loan that allegedly does not comply with the UCCC.3  Secondary market purchasers should continue to approach with caution marketplace loans involving consumers residing in Colorado and other states where the bank origination model is under attack. 

1   The Administrator of the UCCC is an employee within the Colorado Office of the Attorney General.

2   Madden v. Midland Funding, LLC, 786 F.3d 246 (2d Cir. 2015), cert. denied, 136 S. Ct. 2505 (2016).

3   What is more, while the opinion was issued in the context of a denial of a motion to dismiss on personal jurisdiction grounds, language in the opinion suggests that the court believed that because the underlying loans do not comply with the UCCC, the Trusts’ collection and retention of fees and charges on the loans “violat[es] Colorado law.”

© Copyright 2019 Cadwalader, Wickersham & Taft LLP

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About this Author

Scott Cammarn Financial Law Attorney Cadwalader Law Firm
Partner

Scott Cammarn has 28 years of experience in the banking industry and his legal career has spanned all areas of banking compliance and finance law. His practice focuses on regulatory matters, mergers & acquisitions, legislation, transactions, and training. He represents a number of national and international financial institutions and has practiced before the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, and numerous state banking departments.

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704-348-5363
Jonathan Watkins, Charlotte, North Carolina, Cadwalader, partner, antitrust litigation, class action, white collar, global, merger, acquisition, New York
Partner

Jonathan Watkins represents public and private businesses and financial institutions in complex litigation and white-collar investigations. His practice covers securities, derivative, and other shareholder actions, M&A-related litigation, suits alleging breaches of fiduciary duties by corporate directors, disputes involving complex financial benchmarks and instruments, litigation arising out of commercial contracts and transactions, antitrust and other competition-related litigation, and government and internal investigations. Jonathan has represented clients at trial in federal and state courts across the country and before several federal and state appellate courts.

Jonathan’s white-collar practice focuses on representing financial institutions and other corporate clients in investigations by regulators, prosecutors, and enforcement agencies, including the Department of Justice and United States Attorneys’ offices, the Commodity Futures Trading Commission, the Office of the Comptroller of the Currency, and the Federal Reserve. He recently represented a financial institution in government inquiries into the alleged manipulation of an interest-rate benchmark.

Jonathan graduated magna cum laude from Fordham University School of Law, where he earned the Fordham Law School Prize, served as a Member of the Fordham Law Review, and was elected to the Order of the Coif. He received his undergraduate degree in Chemical Engineering from Lehigh University. Jonathan began his career with Cravath, Swaine & Moore LLP.

Jonathan’s securities, shareholder, and M&A-related litigation experience includes:

  • Defending Credit Suisse from Section 10(b) claims arising from the collapse of Enron, including the $40 billion lead securities class action, Newby v. Enron Corp., Cons. Action No. H-01-3624, MDL No. 1446 (S.D. Tex.), and the several coordinated and consolidated cases.

  • Representing Credit Suisse and Deutsche Bank in Texas and New York in litigation over the failed Hexion-Huntsman merger, including in Hexion Specialty Chemicals, Inc. v. Credit Suisse, Cayman Islands Branch, Index No.114552/08 (N.Y. Sup. Ct.), where Hexion sought specific performance of $15.4 billion of financing commitments, and at jury trial in Huntsman Corp. v. Credit Suisse Securities (USA) LLC, No. 08-09-09258 (9th Dist. Tex.), where Huntsman sought $4.65 billion in compensatory tort damages.

  • Representing The Fresh Market and its directors in several shareholder class actions targeting Apollo Global Management’s $1.36 billion acquisition of The Fresh Market.

  • Representing certain independent directors of Reynolds American before the North Carolina Business Court and the North Carolina Court of Appeals in shareholder class actions challenging Reynolds American’s $27.4 billion acquisition of Lorillard.

  • Representing Merrill Lynch’s independent directors in the Southern District of New York, New York Supreme Court, and Delaware Chancery Court in shareholder litigation over the Bank of America-Merrill Lynch merger.

 

704-348-5129
Marshall Jones White Collar Defense Attorney
Associate

Marshall Jones is an associate in Cadwalader’s Global Litigation and White Collar Defense and Investigations groups. Prior to joining the firm, Marshall clerked for The Honorable Max O. Cogburn, Jr. of the U.S. District Court for the Western District of North Carolina.

Marshall received his J.D. from the University of Virginia School of Law, where he was a production editor for the Virginia Environmental Law Journal. Prior to law school, he graduated with a B.A. from the University of North Carolina at Chapel Hill.

704 348 5119