O'Melveny Authors SIFMA Memo Questioning Legality of California Eminent Domain Proposal

July 17, 2012

July 17, 2012

The Securities Industry and Financial Markets Association (SIFMA) today released a legal memo drafted by O’Melveny & Myers LLP partners Walter Dellinger, Jonathan Hacker, and Matthew Close that addresses the numerous legal and Constitutional problems with a proposal created by Mortgage Resolution Partners and being considered by the County of San Bernardino in California to use eminent domain to acquire mortgage loans. SIFMA issued the following release regarding the memo, which can be accessed at the link below.

Memo Questions Legality of California Eminent Domain Proposal

Release Date: July 17, 2012
Contact: Katrina Cavalli, 212.313.1181, kcavalli@sifma.org
Andrew DeSouza, 202.962.7390, adesouza@sifma.org


Memo Questions Legality of California Eminent Domain Proposal 

New York, NY, July 17, 2012—SIFMA today released a legal memo drafted by law firm O’Melveny & Myers, LLP at the request of the Association that addresses the numerous legal and Constitutional problems with a proposal created by Mortgage Resolution Partners (MRP) and being considered by the County of San Bernardino in California to use eminent domain to acquire mortgage loans.

“As currently conceived, the MRP proposal suffers from multiple apparent legal and procedural defects, including defects arising under the U.S. Constitution and the California Constitution and under the laws of California and San Bernardino County governing the exercise of eminent domain authority,” wrote Walter Dellinger of O’Melveny & Myers. “In light of these defects, we believe the MRP proposal is unlikely to survive a judicial challenge.”

Among the issues with the proposal identified by O’Melveny & Myers:


  • The MRP proposal is subject to challenge as an impermissible “Taking” of private property under the U.S. Constitution and California Constitution;
  • The MRP proposal could be challenged as a violation of the Contracts Clause of the U.S. Constitution;
  • The MRP proposal may impermissibly burden interstate commerce in violation of the U.S. Constitution’s Commerce Clause;
  • The MRP proposal appears to contravene the San Bernardino County Charter (which restricts the JPA’s authority under the state “common powers” rule); and
  • The legal structure of the MRP proposal would expose the JPA, its participating municipalities, and taxpayers to potentially enormous liability to existing note holders if courts recognize—as they likely will—the correct market value of performing loans.

 

"Mr. Dellinger’s analysis confirms our belief that there is a strong basis on which to challenge the legality of using eminent domain in the mortgage context,” said SIFMA President and CEO Tim Ryan. “We strongly urge San Bernardino County, the Cities of Fontana and Ontario, and JPA members to consider this analysis when deciding if and how to proceed."

 

Earlier this year, San Bernardino County created a Joint Exercise Powers Authority in agreement with the cities of Fontana and Ontario to devise a Homeownership Protection Plan. MRP’s, which is a private company, proposal to use eminent domain is one proposal being considered under that framework.

 

On Friday, July 13, SIFMA spoke at the JPA hearing in opposition to the plan. Previously, SIFMA, along with 17 other trade associations, sent a letter to San Bernardino County and the JPA in opposition to MRP’s proposal.

 

The Securities Industry and Financial Markets Association (SIFMA) brings together the shared interests of hundreds of securities firms, banks and asset managers. SIFMA's mission is to support a strong financial industry, investor opportunity, capital formation, job creation and economic growth, while building trust and confidence in the financial markets. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.