[governance] tangential - US - More Market State In Action: Consumers Treated Differently Under the Law Than Businesses

Riaz K Tayob riaz.tayob at gmail.com
Fri May 31 08:40:38 EDT 2013


Pursuant to previous discussions:

- At one level this is normal, on another it implies somewhat a lack  of 
equality in the law, pointing to intimate association of Firms and State 
in the US, relevant on contracting (particularly shrink wrap for eg) and 
consumer liberty, vs corporate liberty as raised by Gurstein on this 
list with the related Ralph Nader article. This is the ecology in which 
Multistakeholderism will operate and consideration of how to balance 
public interest with corporate ones is important.
- this points to the credibility/legitimacy/plausibility of the 
internationalisation positions of Mueller as well McTim; raising the 
question of why should anyone outside the US be happy with US control 
over key elements of the CIR.
- Legitimacy of both libertarian and market friendly views - if the 
terrain is unequal and there is differential treatment what is to 
preclude the marginalisation of foreign interests in similar cases if 
ICANN were to mess up for instance on its Intellectual Property 
decisions regarding new domains?
- this raises the serious question of third world countries that seek to 
promote their large firms, which start from a bigger disadvantage, may 
be more ruthless and opportunistic than more established rich country 
firms... I guess no predictive value here, as it also all depends...

Riaz


    Friday, May 31, 2013


      More Market State In Action: Consumers Treated Differently Under
      the Law Than Businesses
      <http://www.nakedcapitalism.com/2013/05/more-market-state-in-action-consumers-treated-differently-under-the-law-than-businesses.html>


You thought corporate personhood was a bad thing? Think twice. You 
should be so lucky as to be a corporate person. They don't just get 
treated like you and me, they are increasingly being treated better than 
you and me.

Bear with this very specific and for non-laywers, legally dense 
illustration, that I received earlier in the week:

    I am Michael Morgan, the pro se plaintiff in Morgan v. Ocwen Loan
    Servicing, LLC, et al., 795 F.Supp.2d 1370 (N.D.Ga. 2011). This is
    one of two extremely well-written decisions in which Judge Amy
    Totenberg ruled that, in Georgia, a non-judicial foreclosure must be
    brought by the secured creditor and that the identity of the secured
    creditor must be revealed. The other case is Stubbs v. Bank of
    America, 844 F.Supp.2d 1267 (N.D.Ga. 2012).

    I was wondering if you have seen You et al. v. JP Morgan Chase Bank,
    N.A., et al., Case No. S13Q0040, Georgia Supreme Court.
    http://www.gasupreme.us/sc-op/pdf/s13q0040.pdf

    In the You et al. case, the Georgia Supreme Court held that, in
    Georgia, (a) the holder of a security deed could be considered a
    secured creditor and could initiate a non-judicial foreclosure,
    despite the fact that it did not hold the note or otherwise have any
    beneficial interest in the debt underlying the security deed, and
    (b) the identity of the secured creditor did not need to be revealed
    in the foreclosure notice. In so holding, the Georgia Supreme Court
    was interpreting O.C.G.A. Section 44-14-162.2(a), which requires
    that the foreclosure notice be sent by the secured creditor. See
    also O.C.G.A. Section 44-14-162, which requires that the security
    instrument or an assignment thereof vesting title in the secured
    creditor be filed in the real estate records of the appropriate
    county prior to the foreclosure sale.

    While not expressing it in precisely this manner, the Georgia
    Supreme Court held, in effect, that the relevant provisions of the
    Georgia Uniform Commercial Code, O.C.G.A. Section 11-1-101, et seq.,
    yield to and are superseded by O.C.G.A. 44-14-64(b). This code
    section provides that the transfer of a security deed is sufficient
    to transfer the indebtedness, even when the indebtedness is
    evidenced by a note.

    N.B. O.C.G.A. 11-10-103 requires precisely the opposite result;
    i.e., this code section specifically provides that provisions
    included in Article 3 of Chapter 14 of Title 44 (which includes
    O.C.G.A. Section 44-14-64(b)) yield to and are superseded by the
    Georgia UCC. (Appellants' counsel did not refer to O.C.G.A. Section
    11-10-103 in either of the two briefs which he submitted to the
    Court. I have not yet confirmed that there is no reference to this
    code section in any of the six other briefs submitted in the case,
    but I do not expect to find such a reference.)

    If it makes any difference, pursuant to O.C.G.A. Section 1-1-9, the
    effective date of both the current version of the Georgia UCC and
    O.C.G.A. Section 44-14-64(b) was November 1, 1982. Appellees
    apparently argued that O.C.G.A. Section 44-14-64(b) prevailed over
    the Georgia UCC, because the corresponding provision in the 1933
    Georgia Code (Section 67-1305.1) was adopted after Georgia first
    adopted its version of the UCC. (With limited exceptions, the 1933
    Georgia Code has been repealed in its entirety.)

    I believe that it is readily apparent that the effect of the ruling
    in You et al. could wreak havoc in commercial markets, if the
    decision is taken seriously in contexts other than non-judicial
    foreclosures. Warehousing lenders, e.g., have relied upon possession
    of the original note as security, and the security deed is never
    assigned to them. However, under the rationale of You et al., an
    assignment of a Georgia security deed to a third party, while the
    warehousing lender held the corresponding note, would transfer the
    indebtedness to that third party. Many other scenarios can be
    envisioned in which this rationale would have devastating effects
    upon commerce.

    I here am only trying to inform you about this decision, in the
    event that you are not aware of it. It does not yet seem to be
    receiving the attention that it deserves.

I ran this message by Georgetown law professor Adam Levitin, who is 
arguably the top US expert on mortgage securitizations. He gave the 
ruling a quick read and said it did appear that there appeared to be an 
inconsistency, that the Georgia court found that the note follows the 
mortgage, rather than the mortgage follows the note. They failed to 
reconcile the statute that says note follows the mortgage with the UCC 
Article 9 provision that says the opposite. Oops.

But this is where it gets interesting, and ugly. It's clear that the 
conclusion the court reached in the consumer case would be untenable if 
you had two banks dealing with each other. Levitin speculated that what 
would happen in Georgia was not that some later court would come down 
one way or the other on this rather basic question. Instead, he 
anticipated that the law would be applied one way for consumers when 
banks want to foreclose and the opposite way for warehouse lending.

The implications of this are very serious. The basic premise of the law 
has for a very long time been that justice is blind, that judges will 
rule without reference to who is making the argument, unless the party 
gives reason for that to be made an issue (for instance, one of the 
parties has a history of bad faith behavior). Of course, any black 
person will tell you that's nonsense, that blacks are found guilty and 
get far more severe punishments in similar fact sets than whites. But 
that's seen by most commentators as symptomatic of how deep seated 
prejudice is in American society as much as a serious shortcoming of our 
legal system (studies continue to find ample evidence of discrimination 
in hiring, promotion, treatment by salesmen, etc). Similarly, small fry 
who go up against people with better, meaner lawyers usually fare badly 
in court, but again, the outcome is a result of their access to 
resources, not to their demographics.

By contrast, this sort of outcome that Levitin anticipates in Georgia 
illustrates a serious erosion in the role of the judiciary, that the law 
has become pliable and will be twisted in knots if that's what it takes 
to serve commerce. Contract law has for some time been moving in a 
direction that gives businesses the upper hand. IN consumer cases, take 
it or leave it contracts ("adhesion contracts") are treated in 
litigation as if the consumer had bargained over terms, while in a 
business to business case, the court would typically look to see if the 
parties really had negotiated terms in making a ruling. Another example 
is binding mandatory arbitration. That gets forced on consumers all the 
time as a way to prevent class action litigation and to stack the deck 
overwhelmingly in their favor when disputes arise 
<http://www.afj.org/assets/resources/connect-with-the-issues/mandatory_binding_arbitration.pdf>. 
What good is having a contract when it is certain to be interpreted in a 
one-sided manner?

I've used the term "market state" for this practice, but as Lambert 
flagged in his earlier discussions, it's not clear if this expression is 
adequate. One of the problems is that we are struggling for terminology 
to describe our new social/political order. The old frames don't fit 
well. Even "neofeudalism" is too generous, since peasants weren't 
subject to a surveillance state and the nobles actually were expected to 
fight. By contrast, one of the salient characteristics of our emerging 
social order is covert coercion. There are all sorts of things you can't 
do if you refuse to have a credit card, or a broadband account (and the 
surveillance that goes with it) or a cell phone (ditto). You mark 
yourself a weirdo and hurt your employability. Most people don't think 
about what they submit to in participating in modern life, and that's 
because, for many, they can't function and earn an income otherwise.

I'd very much welcome reader input on both more examples of this 
phenomenon and better ways to describe it.

Topics: Legal <http://www.nakedcapitalism.com/category/legal>, Politics 
<http://www.nakedcapitalism.com/category/politics>, Real estate 
<http://www.nakedcapitalism.com/category/real-estate>, Social policy 
<http://www.nakedcapitalism.com/category/social-policy>, Social values 
<http://www.nakedcapitalism.com/category/social-values>, The destruction 
of the middle class 
<http://www.nakedcapitalism.com/category/the-destruction-of-the-middle-class> 


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