In Maddox v. Bank of N.Y. Mellon Tr. Co., No. 19-1774 (2d Cir. May 10, 2021), a split panel holds that statutory damages under New York’s mortgage-satisfaction-recording statutes support Article III standing.
New York’s mortgage-satisfaction-recording statutes, N.Y. Real P. Law (“R.P.L.”) § 275, N.Y. Real P. Actions & Proc. L. (“R.P.A.P.L.”) § 1921, provides an up-to-$1,500 statutory penalty for a lender that fails to record a repayment within 30 days. In 2014, plaintiffs paid off their loan and their debt was discharged. “However, [defendant] BNY Mellon failed to file a satisfaction of mortgage with the Erie County Clerk’s Office until nearly one year later on September 22, 2015.”
Defendant argued under Spokeo Inc. v. Robins, 136 S. Ct 1540 (2016), plaintiffs “suffered no actual damages in relation to the alleged failure to record the satisfaction” and therefore “failed to plead a concrete harm.” The district court denied defendant’s motion to dismiss, “reason[ing] that failure to timely record a mortgage satisfaction could cloud title to real property, inhibit sale of the property, and affect the mortgagor’s credit.” It also certified the order for interlocutory appeal.
The Second Circuit affirms. The majority and dissent agree that state legislatures can create “legally protected interests” whose violation satisfies Article III’s injury-in-fact requirement. “We reach this decision due to two general considerations embedded in Article III standing jurisprudence and highlighted by the Supreme Court in Spokeo: first, the long history of the adjudication in federal courts of state-created rights, under the courts’ diversity jurisdiction, and second, the significant absence of the separation of powers concerns that arise when federal courts are called on to adjudicate congressionally created rights.”
The majority and dissent over whether the New York law at issue created a sufficiently concrete interest to support Article III standing. The majority hold that it does. It determines that the state Assembly would have been “interested in forestalling widespread practice in the state of untimely recording by providing incentives against untimely recording. Its interest might have had manifold sources—for example, ensuring the reliability of the state land recording system—but the record supports the view that state representatives enacting this legislation were concerned with traditionally actionable harms to mortgagors that arise from late recordings of discharge.” The majority cites analogies to common-law actions to clear a clouded title and defamation.
The plaintiffs also alleged “a real risk of material harm to the Maddoxes of the type that the legislation would be expected to protect against. In particular, the inference is reasonable that the delay adversely affected the Maddoxes’ credit during that time, making it difficult to obtain financing had they needed it in an emergency, and even if they did not attempt to borrow, leaving a false public record of indebtedness.” Finally plaintiffs alleged a particularized harm. “The shadow that BNY Mellon’s failure to record cast on the Maddoxes’ credit record created a real risk of financial harm that affected the Maddoxes ‘in a personal and individual way.’”
The dissent, by Judge Jacobs, holds that no concrete harm was manifested here. “I do not doubt that a late filed satisfaction might cause real harm, or that the statutes would be useful in a suit against a bank for such harm as might actually arise. But failure to comply does not in itself amount to a concrete harm. The statutes operate to penalize a lending institution for delaying recordation of a mortgage satisfaction—not to compensate a mortgagor for such a delay.”
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