Accountability for civil misconduct has been becoming increasingly illusory over the past decade, especially with big business. In fact, the bigger the business, the greater the obstacle-course one must clear to enforce accountability. This is a serious systemic problem that we face, and Judge Seybert’s decision in Pandit v. Saxon Mortgage is perhaps the latest illustration of the lack of accountability of mammoth financial institutions which were bailed out with taxpayer dollars.
The Pandits, plaintiffs in that case, were homeowners in distress, who applied for a loan modification under the federal bailout program, HAMP, which everyone has heard about. The Pandit’s bank, a beneficiary of the bailout that you and I paid for, gave them the runaround for close to two years; anyone who’s dealt with a HAMP modification application is familiar with that. “We haven’t received your application”, “we’re looking into it”, “somebody will call you back,” “send us these documents immediately,” “you didn’t send documents in time,” “you may apply again,” and on and on – and, after interminable reiteration of these responses which alternated with each other in no particular order – “your application is rejected.” The Pandits sued, claiming that the bank had breached its bailout contract with the federal government, since the Pandits were indisputably among intended third party beneficiaries of that contract.
The Court held that they could not assert claims for breach of contract, because the contract had no such provision. However, the Court held, the Pandits did have a claim for deceptive practices under New York law. In other words, the bank could be held liable for deception, but it could not be held liable for breaching the contract with the federal government even though that contract was meant to benefit the Pandits. While the legal reasoning underlying the Court’s decision may be of questionable merit, what is not questionable is the clear failure of our Washington politicians to ensure accountability.
While doling out the money to the banks, the federal government could have insisted on a provision permitting lawsuits such as the Pandits. That would have given teeth to the high falutin intentions proclaimed from rooftops while the public treasury was raided. But the federal government didn’t. That is the major problem. Lobbyists try very hard – and succeed, with rare exceptions – in preventing such private rights of action. The absence of such private rights precludes the possibility – heaven forbid! – of the beneficiaries of government largesse from being held accountable before a jury or a court. So the only entity that can insist on accountability is the government. And with the government, the fat cats always win. Is anyone surprised – seriously – that four years after the bailout, the head honchos of the banks are rolling in eight and nine figure compensation once again while millions of homeowners are still struggling? The percentage of the money that actually went to the homeowners is abysmal?
Sheila Bair, the former head of the FDIC, explains this well in her just published “Bull by the Horns”, a breathtaking book about the manner in which Wall Street insiders Tim Geithner and Henry Paulson went about requiring the FDIC to ” back “everybody against everything in the $13 trillion banking system.” Ms. Bair was able, on a few instances, to push back, but the fundamental problem remains. “The balance of power has shifted too far in favor of large financial interests in Washington,” she said in the interview. “The bailouts, and the quantitative easing that continues, have overwhelmingly benefited the upper classes. Workers, homeowners, small businesses have by and large been left to fend for themselves.” See Gretchen Morgenson, Questions from a Bailout Eyewitness, N.Y. Times, Oct. 13, 2012, http://www.nytimes.com/2012/
The Pandits have been lucky in one sense. The Court was able to uphold at least their claim for deceptive practices under State law. That is a generic statute, which prohibits “deceptive and unfair trade practices”. Commonly called “UDAPS” (Unfair and Deceptive Acts and Practices Statute), most states have some version of such a statute. Some strong, some weak. States often also have other consumer protection statutes which permits the layperson to enforce accountability for business misconduct in Court.
However, that has been another target of the all-powerful business lobby which controls both political parties today (and most governments and government entities). Democrats and Republicans alike are bought and sold like commodities (vary the epithet, but you get the point). Most often, these lobbies succeed in getting these UDAPS and all other State statutes “preempted” by federal law, so that you cannot even enforce the State Statute. And of course, as big business has been telling us constantly, the federal government is already too big and must cut down and lay off employees. So less government oversight, less enforcement, less accountability. Remember Bernie Madoff?
So who enforces accountability? Fair play in the marketplace? Protects the consumers? The government of fat cats will not do it, and the courts are disabled from doing it. Welcome to . . Azerbejian? Iraq? Zambia? No, United States!
Krishnan Chittur, Esq.
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