Ballard Spahr Among Law Firms With Best Client Relationships

Ballard Spahr has been recognized for the strength of its client relationships, its understanding of clients and their businesses, and its industry-focused approach, according to a leading survey of general counsel and top legal decision-makers at the largest U.S. companies.

The firm was recognized in several key areas in the BTI Industry Power Rankings 2017: The Law Firms with the Best Client Relationships in 18 Industries. The independent report was issued by BTI Consulting, a leading provider of strategic research to law firms and general counsel. Results are based on 960 in-depth interviews with general counsel and top legal officers at companies and organizations with at least $1 billion in annual revenue.

Ballard Spahr was named a "Core Law Firm"—meaning that it was identified by general counsel as a go-to firm—for financial services, where it was listed in the Standout category and placed among the top 3 percent of all law firms. As a "Core" firm, Ballard Spahr also earned Honor Roll status for its retail trade and health care practices. Ballard Spahr was also named among the "Most Recommended Law Firms," earning Honor Roll recognition—among the top 15 percent of all recommended law firms—for financial services.

Legal decision-makers at the companies surveyed typically rely on 37 different law firms to meet their legal needs, according to the survey. Only 15 were considered "Core."

Clients told BTI researchers that they are increasingly looking for firms—like Ballard Spahr—that take an industry-focused approach to providing services. Only about 27 percent of law firms have adopted an industry-centric approach, according to the survey.

Ballard Spahr's decision to focus on industries was born from the firm's desire to be a strategic partner to clients. The approach helps attorneys develop a holistic understanding of clients and their industry-specific business needs—and then apply that knowledge to help clients manage risk, identify opportunity, and succeed in a competitive marketplace. Industry team members include attorneys and professionals from across practice areas and offices, all lending their skill and experience toward ongoing and in-depth analysis of business, competitive, and regulatory challenges.


CFPB Loses Another RESPA Case

A federal district court in Kentucky recently ruled against the Consumer Financial Protection Bureau (CFPB) in a long-standing case under the Real Estate Settlement Procedures Act (RESPA) involving Louisville, Kentucky, law firm Borders & Borders, PLC (Borders). In the case, CFPB v. Borders & Borders, PLC, the court granted the summary judgment motion of Borders, finding that joint ventures related to Borders satisfied the statutory conditions of the RESPA section 8(c)(4) affiliated business arrangement exemption. The court referred to the exemption as a "safe harbor." The CFPB had alleged that the joint ventures did not qualify for the safe harbor because they were not bona fide providers of settlement services.

Borders is a law firm that performs residential real estate closings, and also is an agent authorized to issue title insurance policies for a number of title insurers. In 2006, the principals of Borders established nine joint-venture title agencies with the principals of real estate and mortgage brokerage companies. In February 2011, the Department of Housing and Urban Development (HUD) notified Borders that it was investigating the firm for potential violations of the RESPA referral fee prohibitions based on the joint ventures. (HUD was the federal agency responsible for interpreting and enforcing RESPA before such authority was transferred to the CFPB.) Upon receipt of the notice, Borders ceased operating all of the joint ventures.

In October 2013, the CFPB filed a complaint against Borders asserting that the firm violated the RESPA referral-fee prohibition through the establishment and operation of the joint ventures. The CFPB asserted that Borders paid kickbacks to the principals of the real estate and mortgage brokerage companies that were disguised as profit distributions from the joint ventures, and that the kickbacks were for the referral of customers to Borders by the principals.

The CFPB claimed that the joint ventures were not subject to the affiliated business arrangement safe harbor under RESPA section 8(c)(4), which permits referrals and payments of ownership distributions among affiliated parties if the conditions of the safe harbor are met. The conditions are that: when a person is referred to a settlement servicer provider that is a party to an affiliated business arrangement, a disclosure is made to the person being referred of the existence of the affiliated business arrangement, along with a written estimate of the charge or range of charges generally made by the provider to which the person is being referred; the person is not required to use any particular provider of settlement services (subject to certain exceptions); and the only thing of value that is received from the arrangement, other than payments otherwise permitted under RESPA section 8(c), is a return on the ownership interest or franchise relationship.

As noted above, the CFPB argued that the joint ventures did not qualify for the safe harbor because they were not bona fide providers of settlement services within the meaning of RESPA. The statutory safe harbor for affiliated business arrangements contains no such condition. The position that a joint venture must be a bona fide provider of settlement services to qualify for the safe harbor previously was asserted by HUD in statement of policy 1996-2 (the Statement of Policy). HUD set forth factors that it would examine in assessing whether a particular joint venture is a bona fide provider of settlement services.

Although the CFPB did not expressly reference the Statement of Policy in its complaint against Borders, it addressed many of the same factors that HUD identified in the Statement of Policy. The CFPB asserted that:

  • In most instances Borders provided the initial capitalization for the joint ventures, and the capital was comprised of only enough funds to cover a joint venture’s errors and omissions insurance.
  • Each joint venture had a single staff member, who was an independent contractor shared by all of the joint ventures and concurrently employed by Borders.
  • Borders' principals, employees and agents managed the affairs of the joint ventures.
  • The joint ventures did not have their own office spaces, email addresses or phone numbers, and could not operate independent of Borders.
  • The joint ventures did not advertise themselves to the public.
  • All of the business of the joint ventures was referred by Borders.
  • The joint ventures did not perform substantive title work—such work was performed by Borders.

With regard to the disclosure condition of the affiliated business arrangement safe harbor, the CFPB asserted that when Borders referred a customer to a joint venture, Borders "sometimes used a disclosure form intended to notify customers of a business affiliation between the owners of the law firm and [the joint venture]." The CFPB also asserted that the notice did not contain the ownership interest percentages in the joint venture or include a customer acknowledgment section, which are elements of the form of notice in Appendix D to Regulation X—the regulation under RESPA.

About a month after the CFPB filed its complaint, the U.S. Court of Appeals for the Sixth Circuit issued a decision in Carter v. Wells Bowen Realty, Inc., 736 F.3d 722 (6th 2013). It appears the opinion of the court presented a hurdle that the CFPB could not clear in its case against Borders. In the Carter case, private plaintiffs asserted that certain joint ventures did not qualify for the affiliated business arrangement safe harbor based on the bona fide settlement service provider requirement that HUD set forth in the Statement of Policy. The court determined that the defendants satisfied the three statutory conditions of the affiliated business arrangement safe harbor, and based on this determination the court ruled in favor of the defendants. The court refused to apply what it considered a fourth condition to the safe harbor asserted by HUD—that the entity receiving referrals must be a bona fide provider of settlement services. The court stated that "a statutory safe harbor is not very safe if a federal agency may add a new requirement to it through a policy statement."

The court in the Borders case stated that the joint ventures each had an operating agreement, were authorized to conduct business in Kentucky, were approved by a title insurer to issue title insurance policies, were subject to audit, had a separate operating bank account, had a separate escrow bank account, maintained an errors and omission insurance policy, issued lender's and owner's title insurance policies, had operating expenses, generated revenue, made profit distributions, filed tax returns, issued IRS K-1 forms and were solvent. The court also stated that each of the joint ventures were staffed by the same individual, who worked from her home office and was categorized as an independent contractor.

Citing the Carter case, the court set forth the three statutory conditions of the affiliated business arrangement safe harbor. The court determined that the joint ventures satisfied the three conditions. With regard to the disclosure condition, the court determined that the provision of the disclosure by Borders to its customers at the closing of a real estate transaction was sufficient, because it was the first contact that Borders had with the customers, and that the customer then decided at the closing whether to accept the referral of title insurance to one of the joint ventures. (The court had earlier noted in its opinion that customers had 30 days from the date of closing to decide whether to purchase owner's title insurance from the joint venture.) With regard to the deviation of the notice from the form notice in Regulation X, the court found the content of the Borders' notice to be sufficient to meet the statutory notice condition.

The decision of the court that the delivery of the notice at closing was sufficient is raising more than a few eyebrows in the industry. In any event, based on the determination that the three statutory conditions of the affiliated business arrangement were satisfied, the court granted Borders' motion for summary judgment. The court did not impose the fourth condition asserted by the CFPB that the joint ventures had to be bona fide settlement service providers. It is interesting that the court nonetheless decided to note various aspects of the joint ventures in an apparent attempt to demonstrate their legitimacy.

The CFPB can appeal the decision to the Sixth Circuit, but if it does so the CFPB will have to face the hurdle of the Carter decision. So the CFPB would need to assert one or more theories supporting why the Carter decision does not preclude a finding of a RESPA violation in the Borders case.

- Richard J. Andreano, Jr.


Lucia Appeals D.C. Circuit Ruling to Supreme Court

On July 21, 2017, an investment adviser sought review by the Supreme Court of the D.C. Circuit's recent ruling in Lucia that allowed to stand a district court decision holding that SEC administrative law judges (ALJs) are not officers subject to the appointments clause of the U.S. Constitution. We've blogged about Lucia extensively because the issue in that case has the potential to impact the outcome of the PHH case.

The initial PHH decision was decided by an SEC ALJ who was on loan to the CFPB. If the Supreme Court decides to hear Lucia and decides that SEC ALJs are subject to the appointments clause, then the initial ALJ decision in PHH may be invalidated. If that happens, the D.C. Circuit could remand PHH back to the CFPB for decision by a properly-appointed ALJ. That would provide the D.C. Circuit with another basis to decide the PHH case without addressing the constitutionality of the CFPB's structure. Given how the PHH oral arguments went, that seems unlikely, but we will continue to follow Lucia just in case.

- Theodore R. Flo


CFPB Provides Additional HMDA Reporting Guidance

The CFPB issued HMDA Loan Scenarios on July 19, 2017, to provide additional guidance to the industry on reporting transactions under the revised HMDA rule, which has a January 1, 2018, effective date for most provisions.

The guidance includes loan scenarios for a single-family mortgage loan, multifamily mortgage loan, and home equity line of credit. For each scenario, the guidance reflects how the information about the transaction would be mapped to the required data fields, and then how the transaction would appear on the Loan Application Register in the pipe-delimited format.

- Richard J. Andreano Jr.


Did You Know?

Connecticut Revises Several Secured and Unsecured Lending Provisions

Connecticut has revised several provisions involving secured and unsecured lending laws, including, but not limited to, the following:

  • The commissioner may now require the use of electronic bonds when using system-based licensure.
  • Prelicensing education requirements have been added for individuals who: have not obtained a mortgage-loan originator license in any state or an active federal registration by the date that is three years from the date such individual completed 20 hours of prelicensing education; previously held but no longer holds an approved mortgage loan originator license in any state or an active federal registration; have not obtained a mortgage loan-originator license or a loan processor or underwriter license in Connecticut by the date that is three years from the date such individual completed one hour of Connecticut specific prelicensing education; and (4) previously held but no longer holds an approved mortgage loan-originator license or loan processor or underwriter license in Connecticut.
  • Mortgage lenders, qualifying individuals, branch managers, and mortgage services must establish, enforce, and maintain policies and procedures reasonably designed to achieve compliance with the respective sections on prohibited acts.
  • Small-loan lenders and consumer collection agencies must establish, enforce, and maintain policies and procedures for supervising employees, agents, and office operations that are reasonably designed to achieve compliance with relevant laws and regulations.
  • Under the consumer collection agencies, debt adjuster and debt negotiation, and sales finance company law, "control person" has been defined as an individual that directly or indirectly exercises control over another person.
  • Under the sales finance company and debt adjusters and debt negotiation laws, definitions for "advertise" and "advertising" have been added. "Advertise" and "advertising" means the use of any announcement, statement, assertion or representation that is placed before the public in a newspaper, magazine, or other publication, or in the form of a notice, circular, pamphlet, letter, or poster or over any radio or television station, by means of the Internet, or by other electronic means of distributing information, by personal contact, or in any other way.
  • Under the debt adjusters and debt negotiation law, definitions for "foreclosure rescue services," "residential property," and "short sale" have been added and/or modified.
  • A prohibited list of activities has been added for sales finance companies. For instance, sales finance companies may not employ any scheme, device or artifice to defraud or mislead any person in connection with a retail installment contract or a retail installment loan.
  • Student loan servicers must establish, enforce and maintain policies and procedures for supervising employees, agents and office operations that are reasonably designed to achieve compliance with applicable student loan-servicing laws and regulations.

These provisions are effective on October 1, 2017.

- Wendy T. Novotne


Maryland Adds Consumer Finance, Debt-Related, and Money Services Business Licenses to NMLS

On August 1, 2017, the Maryland Commissioner of Financial Regulation started accepting new applications and transition fillings for the following licenses on NMLS:

  • Check Cashing Services License;
  • Collection Agency License;
  • Consumer Loan License;
  • Credit Services Business License;
  • Debt Management License;
  • Installment Loan License; and
  • Sales Finance Company License.

By September 30, 2017, current licensees must submit a license transition request through NMLS by filing a Company Form (MU1) and an Individual Form (MU2) for each of their control persons. More information can be found here.


Tennessee Adds Title Pledge Lender License to NMLS

On August 1, 2017, the Tennessee Department of Financial Institutions started accepting new applications and transition fillings for the Title Pledge Lender License and Title Pledge Lender Branch License on NMLS.

By September 29, 2017, current licensees must submit a license transition request through NMLS by filing a Company Form (MU1) and an Individual Form (MU2) for each of their control persons. More information can be found here.


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