October 19, 2017

MONTH-IN-BRIEF: Business Regulation & Regulated Industries

Lynette I. Hotchkiss

Intellectual Property Law                                 

Federal Circuit Provides Guideposts for Analyzing Venue for Patent Cases in a Judicial District

By Joseph F. Marinelli, Fitch, Even, Tabin & Flannery LLP                                                              

In In re Cray Inc., the U.S. Court of Appeals for the Federal Circuit provided some clarity regarding venue in patent cases in the wake of the U.S. Supreme Court’s May 2017 decision in TC Heartland LLC v. Kraft Foods Group Brands LLC, 113 S. Ct. 1514 (2017), which narrowed possible venues for filing patent infringement suits to a corporation’s state of incorporation or a judicial district where the defendant has a regular and established place of business. The Federal Circuit provided three general requirements for determining whether a corporation has a regular and established place of business in a district: (1) there must be a physical place in the district; (2) it must be a regular and established place of business; and (3) it must be the place of the defendant. Applying these factors, the court found that the presence of a sales representative who worked from his home within the district did not meet the requirements for venue because the employee’s home was not a place of business of the defendant, since the defendant did not own, lease, or rent any portion of the home. Also, the defendant did not maintain an inventory of products, marketing materials, or any other staff at the employee’s home, and the defendant did not advertise an office in the district. How the Federal Circuit’s three-requirement test will play out remains to be seen. Nevertheless, this is an important decision in the rapidly evolving law of venue in patent cases.

Banking Law; Insurance Law

OCC Revises Flood Disaster Protection Act Handbook; President Extends NFIP

By Lynette I. Hotchkiss, Rabobank, NA

On September 7, 2017, the Office of the Comptroller of the Currency (OCC) issued a bulletin announcing revisions to the Flood Disaster Protection Act booklet of the Comptroller’s Handbook. The revised booklet covers changes to flood insurance requirements and regulations resulting from amendments to the Flood Disaster Protection Act, including an exemption for certain detached structures from mandatory flood insurance purchase requirements, escrow requirements for flood insurance premiums, and fees for any loan secured by residential real estate or a mobile home that is made, increased, extended, or renewed on or after January 1, 2016, and amendments related to force-placed flood insurance. The revised booklet contains examination procedures for determining compliance with the detached structure, escrow, and force-placement requirements.

On a related note, on September 8, 2017, President Trump signed H.R. 601, which extended the National Flood Insurance Program (NFIP) through December 8, 2017. The NFIP was set to expire on September 30, 2017.

Banking Law

Federal Agencies Propose Amending CRA Regulations to Conform to HMDA Changes

By Lynette I. Hotchkiss, Rabobank, NA

The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (Agencies) have issued a joint notice of proposed rulemaking to amend the Community Reinvestment Act (CRA) regulations to conform to changes the Consumer Financial Protection Bureau made to Regulation C, which implements the Home Mortgage Disclosure Act. The Agencies propose to update the existing definitions of “home mortgage loan” and “consumer loan” to update the public file content requirement and to remove obsolete references to the Neighborhood Stabilization Program. The proposed rule was published in the Federal Register on September 20, 2017, and comments must be received by the Agencies on or before October 20, 2017.

Consumer Finance

Department of Education Ends Student Loan MOUs with CFPB

By Lynette I. Hotchkiss, Rabobank, NA

 On August 31, 2017, the U.S. Department of Education (DoE) sent a letter to the Consumer Financial Protection Bureau (CFPB) notifying the CFPB that the DoE is terminating two Memoranda of Understanding (MOUs) between the two agencies, effective 30 days from the date of the letter. The DoE’s letter notes that the purpose of the MOUs was to allow the agencies to “cooperate in connection with their respective student financial services oversight and supervisory activities,” but instead the “CFPB’s actions have undermined” the DoE’s mission to serve students and borrowers, violating the intent of the MOUs. Specifically, in the MOUs the CFPB had agreed to direct all complaints related to Title IV federal loans to the DoE within 10 days of the CFPB’s receipt of such complaints, but instead the CFPB handled those complaints itself rather than directing them to the DoE. The DoE sees this as adding confusion to borrowers and servicers who hear conflicting guidance related to Title IV student loan services and as a way for the CFPB to expand its jurisdiction “into areas that Congress never envisioned.” Finally, the letter states that the DoE “takes exception to the CFPB unilaterally expanding its oversight role to include the [DoE’s] contracted federal loan servicers.”

CFPB Amends Regulation B Ethnicity and Race Information Collection

By Lynette I. Hotchkiss, Rabobank, NA

The Consumer Financial Protection Bureau (CFPB) has issued a final rule amending Regulation B, which implements the Equal Credit Opportunity Act. According to the CFPB, the final rule permits creditors additional flexibility in complying with Regulation B in order to facilitate compliance with Regulation C, which implements the Home Mortgage Disclosure Act. The CFPB expresses its intent that the final rule “will provide greater clarity for mortgage lenders regarding their obligations under the law, while promoting compliance with rules intended to ensure consumers are treated fairly.” The final rule adds new model forms and removes other model forms from Regulation B, and amends Regulation B and its commentary to facilitate the collection and retention of information about ethnicity, sex, and race for certain mortgage applicants. The rule is effective January 1, 2018, except that the amendment to Appendix B removing the existing Uniform Residential Loan Application form is effective January 1, 2022.

Tax Law; Employee Benefits

IRS Extends Relief to Hurricane Victims

By Lynette I. Hotchkiss, Rabobank, NA

The Internal Revenue Service (IRS) has provided several forms of disaster relief to victims of Hurricanes Harvey, Irma, and Maria over the past few weeks. Various tax deadlines have been postponed until Jan. 31, 2018, for individuals and businesses in Florida, Georgia, Puerto Rico, the Virgin Islands, and parts of Texas. The IRS also has offered other special assistance to disaster-area taxpayers, including special employer-sponsored, leave-based donation programs (under which employees may exchange their vacation, sick leave, or personal leave for cash payments the employer makes to charities providing relief) and loans and hardship distributions from employer-sponsored retirement to hurricane victims and members of their families. A recap of the hurricane-related tax relief is available on the IRS disaster relief page on IRS.gov.

Tax Law

Drought-Stricken Farmers and Ranchers Have More Time to Replace Livestock

By Lynette I. Hotchkiss, Rabobank, NA

On September 27, 2017, the Internal Revenue Service (IRS) announced a one-year extension on the time period in which drought-stricken farmers and ranchers may defer tax on gains from livestock they have been forced to sell due to drought. In general, this relief applies to capital gains realized on sales of livestock held for draft, dairy, or breeding purposes, but not to livestock raised for slaughter or held for sporting purposes. Poultry is not eligible. To qualify, the sales must be solely due to drought, flooding, or other severe weather causing the region to be designated as eligible for federal assistance. This extension applies to farmers and ranchers located in regions that qualified for a four-year replacement period if any county, parish, city, or district included in the applicable region is listed by the National Drought Mitigation Center as suffering exceptional, extreme, or severe drought conditions during any weekly period between Sept. 1, 2016, and Aug. 31, 2017. All or part of 42 states, plus the District of Columbia, are listed. The one-year extension gives eligible farmers and ranchers until the end of the tax year after the first drought-free year to replace the sold livestock. Details can be found in Notice 2017-53, available on IRS.gov.

Lynette Hotchkiss

EVP/General Counsel & Corporate Secretary; Rabobank, N.A

Lynette Hotchkiss is EVP/General Counsel & Corporate Secretary for Rabobank, N.A., where she also previously served as Associate General Counsel. Prior to joining Rabobank, Lynette was with OneWest Bank, N.A, where her responsibilities included monitoring and reporting on regulatory developments impacting the bank’s operations and providing legal support for regulatory compliance matters. Before that, Lynette was an attorney in the Financial Practices Division of the Federal Trade Commission, where she focused on mortgage servicing issues. For much of her career, Lynette used her knowledge and experience in consumer finance laws and regulations to build compliance tools to help financial institutions comply with the complex array of federal and state requirements, first acting as the lead compliance attorney at CFI ProServices Inc. (now Finastra) to develop the Laser Pro® loan documentation system and later leading the legal team at Mavent Inc. (now part of Ellie Mae) to develop the Mavent Expert System, an automated compliance system for mortgage origination.