Case Update: Midland Funding v. Madden


​The U.S. Supreme Court on Monday issued an order inviting the Solicitor General to provide the views of the United States on whether the Court should grant Midland Funding’s petition seeking review. As discussed in greater detail in our prior alerts (here and here), Midland is seeking Supreme Court review of the Second Circuit’s decision that the federal preemption provision of the National Bank Act, 12 U.S.C. § 85, cannot be invoked by a non-national bank assignee. The order asking the Solicitor General to file a brief signals that the issue has piqued the interest of at least some of the Justices. And as a procedural matter, of course, it pushes back the Court’s decision on whether to hear the case, and any eventual decision should it ultimately decide to do so.

Such calls for the views of the Solicitor General—known as CVSGs for short—require the votes of at least four Justices, and are relatively rare. The Court issues only about a dozen each term, a tiny fraction of the 7,000-8,000 cert. petitions typically submitted for the Court’s consideration every year. So the fact that the Court issued one here does indicate that at least four Justices found that the issue raised in Midland’s petition potentially merits review. For many of the reasons we have discussed previously, this is unsurprising. The issue of National Bank Act preemption is one involving an important federal statute administrated by federal agencies, and Midland—along with a number of other industry players—explained just how significant the impact of the Second Circuit’s decision could be for the industry as a whole.

What the SG says in its response to a CVSG can often carry quite a bit of weight with the Court. Historically, when the SG supports the grant of cert., the Court follows that recommendation about 80% of the time. We think the chances could be even higher in this case given the importance of the issue—perhaps more than 90%. Conversely, however, when the SG recommends against a cert. grant, the Court has rejected that recommendation and granted cert. only about 20% of the time. And more often than not the SG does recommend against a grant, often arguing that the Court should wait until the issue in dispute has been addressed by more of the appellate courts before wading in to address it.

In making its recommendation, the Solicitor General will consider a host of relevant perspectives. Both parties will have the chance to submit a detailed memorandum laying out their positions, and to meet with the SG’s Office to advocate their side. The SG’s Office will also seek input from federal agencies whose work intersects with the issue. Other stakeholders may also weigh in with their perspectives—industry members, for example, often file memoranda, sometimes in coordination with one another, explaining the issue’s importance. After the SG files the invited brief, the parties will then have a short window to file a reply.  

As a practical matter, the issuance of a CVSG extends the timeline for resolution of the cert. petition and, if the petition is granted, resolution of the case. Although the SG’s Office is given no formal deadline to file its response, it usually files responses to CVSGs in May, August, or December. If the SG’s Office files its response in this case in May, the earliest the Court would act on Midland’s petition would be late-June—just before its Summer recess—and if it grants review, the earliest the case could be heard would be October 2016, with a decision coming in late 2016 or early 2017. If the SG’s Office responds instead in August, the timetable would be pushed back further, and if the Court grants review, a decision might not come until Spring 2017. The Second Circuit’s decision would remain good law in the interim. We have linked a timeline here and at the end of this alert depicting the possible scenarios.

In the meantime, we continue to monitor how other courts react to the Second Circuit’s Madden ruling. In particular, we will be watching whether courts addressing newly-originated performing loans will distinguish Madden on the ground that it dealt with the sale of a defaulted loan to a third-party. We think this distinction could be salient.

Finally, recall that Midland never sought a formal stay of the district court proceedings.  Thus, those proceedings continue to move forward slowly, but surely.  It is possible that the district court may address the viability of the class action, as well as Midland’s state law defenses, while Midland’s cert. petition is pending. As detailed in our prior client alert, those state law issues are important and may potentially provide substantial protection to lenders and purchasers of loans.   

We will continue to monitor the proceedings in both the Supreme Court and district court. Meanwhile, feel free to reach out to us with any questions.