Banking & Finance Law Report

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Sixth Circuit Re-Affirms There Is No Constitutional Right to Financial Privacy

In a decision issued May 21, 2015, the Sixth Circuit stayed its course in refusing to extend constitutional protection to encompass a right of privacy in financial records and, in doing so, retained its position as the most conservative of the federal circuits to have addressed this issue.

The case, Moore v. WesBanco Bank, Inc., Case No. 13-4477, 2015 U.S. App. LEXIS 8589, arose from allegations that a bank and an assistant county prosecutor violated plaintiff Moore’s Fourteenth Amendment right to substantive due process when the bank provided copies of two canceled checks drawn on his account to the prosecutor without insisting upon a subpoena or seeking his consent.  Both defendants denied that the bank provided Moore’s checks to the prosecutor.  The district court found no need to resolve the factual dispute because it concluded Moore had no constitutional claim based on prior Sixth Circuit precedent.  On appeal, the Sixth Circuit agreed and declined to revisit the issue of whether it should extend the right to informational privacy to financial records.…

In re McKenzie, 737 f.3d 1034 (6th cir. 2013) Extending the Deadline for Trustees to Attack Preferences: The Sixth Circuit’s Life Jacket for Tardy Trustees

It is often said that the acid test of a security interest or lien on property is the bankruptcy of the property owner. If that person or entity files a bankruptcy petition, the bankruptcy trustee has a number of options to challenge or even avoid certain liens. A lien that is not properly perfected is subject to attack by a trustee under both the “strong-arm clause” (Bankruptcy Code § 544) and the preference provisions (Bankruptcy Code § 547). If the lien is avoided, the property can then be sold and the proceeds distributed to the unsecured creditors. The trustee must act timely, however, if he or she is to be successful in avoiding the lien. The Sixth Circuit Court of Appeals recently addressed the timeliness of a trustee’s actions against the holder of an allegedly unperfected lien on a debtor’s property. Its conclusion raises several important questions regarding the timeliness of trustees’ actions to challenge the propriety of a secured creditor’s claim.

In In re McKenzie, 737 F.3d 1034 (6th Cir. 2013), the debtor granted a security interest in certain of his property to secure his obligation to pay fees to his attorneys. Among the assets pledged as security …

What Happens When You Lose: The Downside of Binding Arbitration

A recent decision by the United States Court of Appeals for the Sixth Circuit demonstrates binding arbitration may not be the best way to limit rising litigation costs. It also serves as a warning – if you needed one — that “binding” arbitration awards are not subject to appeal for legal error.

Here are the facts, in a brief form: Two individuals (Schafer and Block) founded a company. As part of a series of corporate transactions, two employee stock ownership plans (“ESOPs”) were formed. Schafer and Block were appointed as trustees of the ESOPs, and entered into indemnification agreements with mandatory arbitration clauses. While the Department of Labor (“DOL”) was investigating its suspicion that the ESOPs had purchased stock at inflated prices, and with knowledge of this investigation, Multiband entered into a purchase agreement to buy the holding company. As part of the transaction, Multiband entered into indemnification agreements that contained essentially the same provisions as the prior indemnification agreements. Subsequently, the DOL informed Schafer and Block that it believed they had breached their fiduciary duties by allowing the ESOPs to purchase stock at inflated prices and offered to settle. Schafer and Block asked Multiband to indemnify them in accordance …