People For the American Way

Trump Judge Scudder Sides with Big Bank in Case Challenging Mortgage Handling Failure: Confirmed Judges, Confirmed Fears

News and Analysis
Trump Judge Scudder Sides with Big Bank in Case Challenging Mortgage Handling Failure: Confirmed Judges, Confirmed Fears

Confirmed Judges, Confirmed Fears” is a blog series documenting the harmful impact of President Trump’s judges on Americans’ rights and liberties. Cases in the series can be found by issue and by judge at this link.

Trump Seventh Circuit judge Michael Scudder wrote a 2-1 opinion siding with JP Morgan Chase (Chase) against an individual trying to restructure his mortgage and avoid foreclosure during the 2008 nationwide financial crisis. The April 2020 case is Taylor v. JP Morgan.

Anthony Taylor was one of the millions of Americans who fell behind on their mortgage payments as a result of the 2008 financial crisis. Taylor sought to participate in a relief program in which the federal government gave big banks like Chase, which held Taylor’s mortgage, a financial incentive so that homeowners like Taylor could modify their mortgages and avoid foreclosure and loss of their homes.

The first step of the process mandated that eligible homeowners enter a Trial Period Plan (TPP) and make specified reduced payments. Taylor dealt extensively with Chase personnel, undertook significant paperwork and signed a copy of a TPP agreement. Chase never signed the agreement and as a result, did not modify Taylor’s loan. Chase then launched foreclosure proceedings, and sheriff sales of his home were scheduled twice, causing Taylor significant “stress for years,” although Taylor “eventually managed” to stay in his home.

Taylor sued Chase, claiming that Chase breached a contract and, even if no formal contract had been entered, Taylor had relied to his detriment on a clear promise by Chase. The lower court dismissed the case against Chase without even allowing any discovery. Trump judge Scudder affirmed the decision on appeal, claiming that because Chase never signed the TPP agreement, a condition precedent to forming a contract never happened, and that Taylor did not sufficiently allege that the bank made a definite promise that it would modify his loan on which Taylor could rely.

Judge David Hamilton vehemently disagreed in an 18-page dissent, stating that Taylor should have been granted the opportunity to proceed on both his breach of contract and promissory estoppel claims. Hamilton explained that the majority opinion incorrectly accepted Chase’s focus on one sentence in the fine print of the government document, which the bank alleged nullified any responsibility it had to Taylor.

Hamilton noted that the majority’s opinion failed to consider other relevant documents that Taylor provided, and failed to give Taylor the benefit of reasonable inferences from his allegations, including that Chase did not treat its obligations seriously. The relevant case law requires that a defendant like Chase must affirmatively prove a “condition precedent” defense, Hamilton went on, and there were factual issues on that and on promissory estoppel that needed to be evaluated, such as whether the language Chase relied upon gave it complete discretion to deny a modification or whether it should have, but failed to, evaluate Taylor according to objective criteria.

In short, Hamilton pointed out, the case should have been resolved “on the basis of evidence,” instead of “allegations and dueling inferences” as well as “favorable inferences” improperly granted to Chase. Scudder’s failure to do so, Hamilton concluded, improperly “endorses the banks’ actions that left too many homeowners behind” during the devastating 2008 mortgage crisis.

Note: The initial draft of this blog entry was prepared by PFAW legal intern Oliver Telusma.