On November 18, the Court of Appeals for the Second Circuit reversed a trial court decision that had denied a motion to dismiss on Article III standing grounds. Applying recent U.S. Supreme Court precedent, the Second Circuit ruled that allegations of a state statutory violation and risk of future harm are insufficient to establish Article III standing absent allegations of concrete harm.

In Maddox v. Bank of N.Y. Mellon Tr. Co., N.A., the plaintiffs entered into a mortgage loan, which was assigned to The Bank of New York Mellon Trust Company, N.A., in its capacity as trustee for a securitization trust (the Trustee). After the plaintiffs sold the property and paid the loan in full, the trust servicer did not file a satisfaction of mortgage for almost a year. Three months after the recordation, the plaintiffs filed a putative class action against the Trustee in the Western District of New York alleging a violation of New York’s mortgage-satisfaction-recording statutes, which impose monetary penalties for failure to record within 30-days of satisfaction. The Trustee moved to dismiss the complaint, arguing, among other things, that the plaintiffs lacked standing under Article III because they did not sustain actual damages from the late recording. The court denied the Trustee’s motion, but certified the standing issue for interlocutory appeal.

On appeal, the Second Circuit initially affirmed the court’s decision, but granted a rehearing after the U.S. Supreme Court decided TransUnion LLC v. Ramirez, — U.S. –, 141 S. Ct. 2190 (2021), which addressed similar standing questions. In Ramirez, the Court emphasized that standing under Article III requires an “injury in fact,” which is concrete, particularized, and actual or imminent, not conjectural or hypothetical. Ramirez, as summarized by the Second Circuit, “established that in suits for damages plaintiffs cannot establish Article III standing by relying entirely on a statutory violation or risk of future harm.” Applying this principle to the Maddox case, the Second Circuit concluded that the plaintiffs lacked standing because they did not allege any actual damages caused by the alleged statutory violation.

Although the Second Circuit noted that delayed recordation of a mortgage satisfaction may cause actual damages, the mere possibility that these harms might occur was not enough to establish injury, in fact. Plaintiffs must plead facts indicating an injury actually materialized and caused them concrete harm. Additionally, the court held that the emotional distress claimed by the plaintiffs was not plausible, especially where the satisfaction was recorded three months before the complaint was filed. As the plaintiffs failed to allege injury in fact, the court held that they lacked Article III standing and their claims must be dismissed.

In conclusion, the Second Circuit noted that the plaintiffs, and other potential class members, could recover their statutory damages in New York state court. The court warned, however, that “to the extent that such members (or their lawyers) prefer to form a class and bring their claims in federal court, they must come prepared to prove that they suffered concrete harm due to [the Trustee’s] violation of the relevant statutes.”