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Pauses, Clicks, and Dead Air Do Not a TCPA Claim Make
consumer financial services Litigation Update FALL 2016
In a nonprecedential opinion, the Seventh Circuit recently reminded TCPA plaintiffs that they carry the burden of proof as to whether calls were made with an automated telephone dialing system (“ATDS”). The TCPA restricts the use of ATDS equipment when calling cellular telephones. Calls cannot be made with an ATDS without the prior express consent of the consumer. See 47 U.S.C. §227. In Norman v. AllianceOne Receivables Management, Inc., No. 15-1780 (7th Cir. Dec. 22, 2015), the plaintiff alleged seven calls were made to his cell phone without his prior express consent. The plaintiff contended the calls were made with an ATDS because he heard a “pause,” “clicking,” and “dead air.” The plaintiff went on to cite as further support of the nature of the calls, a guide published by the Federal Trade Commission which indicates that auto-dialed calls often result in hang-ups and dead air. By contrast, AllianceOne provided the court with an affidavit by its custodian of records which included an authenticated log of all calls made to the plaintiff. The affidavit indicated the calls were manually made, that the system used to make the calls did not have the capacity to make automated calls and that the system required the collector to enter all phone numbers by hand. In considering AllianceOne’s motion for summary judgment, the district court determined that the affidavit brought forward by AllianceOne was admissible and properly laid the foundation for the admission of the telephone log as a business record. By contrast, the court determined that the plaintiff’s evidence of pauses, clicks, and dead air was not persuasive and moreover, the FTC guide relied upon by the plaintiff was inadmissible hearsay. On appeal, the Seventh Circuit affirmed, holding that: (a) call logs are admissible business records when properly authenticated, and (b) the FTC guide cited by the plaintiff was properly excluded as hearsay. The case, while not groundbreaking, should serve as a reminder to plaintiffs, and a comfort to defendants, that plaintiffs must bring forth competent evidence to support the use of an ATDS in order to prevail on their TCPA claims.
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Smith Debnam’s Consumer Finance Litigation practice provides a multi-disciplinary approach to litigation, bringing together attorneys from across several of our creditors' rights practice groups to ensure our clients receive the appropriate experience as needed. Our team's depth of experience in the consumer financial services sector, both in litigation and compliance matters, is rooted in a thorough understanding of the complex regulatory environment surrounding the financial services industry. We counsel an expansive list of clients on compliance and licensing matters to prevent future litigation and mitigate risks associated with litigation. From banks and non-bank financial services companies, mortgage servicers and originators to payday lenders, and private student lenders to auto finance companies, we advise on measures clients can take to ensure compliance with applicable statutes. We regularly defend financial services providers in litigation matters involving the full range of laws and regulations surrounding the consumer finance industry, including federal and state consumer protection laws, fair and responsible lending claims, challenges to loan servicing involving consumers in bankruptcy, and federal and state UDAP claims, just to name a few. Our attorneys regularly defend financial service providers and members of the collection industry in state and federal court, as well as regulatory matters. We are heavily involved in a number of trade groups supporting the financial services industry, including the following: ACA International National Creditors Bar Association (NARCA) American Financial Services Association Mortgage Bankers of the Carolinas North Carolina Bankers Association South Carolina Bankers Association American Bar Association’s Consumer Financial Services Committee North Carolina Creditors Bar Association
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New Cases Illustrate the Boundaries of TCPA
Caren D. Enloe Jeff D. Rogers Jerry T. Myers Christina M. Taylor Lauren V. Reeves Samuel D. Fleder Franklin Drake W. Parker Dozier
Two recently decided cases serve as a reminder of the TCPA's reach on the one hand and its limitations on the other. VICARIOUS LIABILITY IS ALIVE AND WELL UNDER TCPA The first of these cases, Harrington v. Roundpoint Mortgage Servicing Corp., serves as a reminder that the notion of vicarious liability for calls made by third parties is alive and well under the TCPA. See Harrington v. Roundpoint Mortgage Servicing Corp. 2:15-cv-322-FtM-38MRM (M.D. Fl. Feb. 18, 2016). In Harrington, the plaintiff alleged that calls made by the mortgage servicer to collect past due mortgage payments violated the TCPA because the mortgage servicer placed the calls to the plaintiff's cell phone without his prior express consent. The plaintiff contended that because the mortgage servicer made those calls on behalf of the creditor, the creditor was also liable for those calls. The creditor moved to dismiss. Relying in part on dicta from the Eleventh Circuit’s decision in Mais v. Gulf Coast Collection Bureau, 768 F. 3d 110, 119 (11th Cir. 2014) (stating that the 2008 FCC Ruling has the force of law), the court deferred to the 2008 FCC Ruling which provides that “a creditor on whose behalf an autodialed or prerecorded message call is made to a wireless number bears the responsibility for any violation of the Commission’s rules. Calls placed by a third party collector on behalf of that creditor are treated as if the creditor itself placed the call.” In the Matter of Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 23 FCC Rcd 559, 565 (2008). The court, therefore, concluded based upon the FCC Ruling and existing case law that the creditor may be held vicariously liable for the calls made by its mortgage servicer. Going further, the court also ruled that the creditor may also be directly liable for the same calls, again relying upon the FCC 2008 Ruling which states that “all calls placed by a third party collector on behalf of that creditor are treated as if the creditor itself placed the call.” Id. The court, therefore, denied the motion to dismiss. TECHNOLOGY PROVIDERS ARE NOT LIABLE UNDER TCPA FOR THE USE OF THEIR TECHNOLOGY Meanwhile, a Michigan court also recently addressed the boundaries of the TCPA. This time, the consumer sought to hold LiveVox, a provider of automated dialer software, liable for calls made using its software. In Selou v. Integrity Solution Services, the court granted LiveVox’s motion to dismiss a TCPA action brought against it. Selou v. Integrity Solution Services, Case No. 15-1097 (E.D. Mich. Feb. 16, 2016). In its complaint, the consumer alleged that the debt collector used LiveVox’s software to make calls and that LiveVox provided technology to enable others to engage in their dialing campaigns, it was liable under the TCPA for those calls to the extent they violated the TCPA. LiveVox filed a motion to dismiss asserting it functions as a common carrier with no liability because it only provides technological services through which its customers can make calls. As identified by the court, the issue was whether the utilization of LiveVox’s technology could render it liable under the TCPA. In granting LiveVox’s motion to dismiss, the court first noted that the legislative history of the TCPA indicates that Congress only intended for the statute to apply “to the persons initiating the telephone call or sending the message and…not the common carrier or other entity that transmits the call or message and is not the originator or controller of the content of the call or message.” S. Rep. No. 102-178 (1991). The court then concluded that based upon the case law and the July 2015 FCC Ruling, LiveVox is not considered the maker or initiator of the calls. See In the Matter of Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 30 FCC Rcd. 7961, 7978-7984 (July 10, 2015) (stating that entities that merely make technology available are not the makers of calls and do not have liability under the TCPA). Moreover, the court was also dismissive of any theory of vicarious liability noting that the complaint did not allege facts that suggested that LiveVox manifested asset for the debt collectors to act on LiveVox’s behalf or subject to its control.
Eleventh Circuit Requires Strict Compliance with FDCPA's Initial Communication Requirements
District Court Takes on Electronic Dispute Options Under FDCPA
A single page collection letter recently gave the Southern District of Illinois the opportunity to address a range of issues including alleged threats of litigation and the use of a website portal for debt validation requests. In Blanchard v. North American Credit Services, the initial demand letter to the consumer offered “the chance to pay what you owe voluntarily by sending payment, or using our online payment process.” The letter contained conflicting information as to the address to which correspondence should be sent, stating at the top of the letter not to send correspondence to a particular PO Box while listing the PO Box address for correspondence at the bottom of the letter. Blanchard v. North American Credit Services, C.A. No. 15-1295-DRH (S.D. Ill.) at Dkt. No. 1. To further complicate matters, the letter, after providing debt validation language that mirrored 15 U.S.C. §1692g’s validation notice requirements, then allowed consumers to dispute the debt by way of stating so in the comments section of the collection agency’s web page or sending the dispute to the agency at a second PO Box. The consumer filed suit under the FDCPA asserting two issues with the language of the letter. First, the consumer complained that the opportunity to pay voluntarily was a veiled threat of suit and violated section 1692e. Secondly, the consumer raised concerns with the conflicting information provided as to where to direct correspondence and where to register disputes, asserting the same was confusing and overshadowed the validation notice. The collection agency moved to dismiss the complaint contending that the complaint failed to state a claim under the FDCPA. The court agreed. The court reviewed the language offering the consumer a chance to pay voluntarily as being, at most, puffery and held that such statements are allowed under the FDCPA since “it is perfectly obvious to even the dimmest debtor that the debt collector would very much like him to pay the amount demanded straight off, sparing the debt collector any further expense.” Blanchard, C.A. No. 15-1295-DRH, 2016 U.S. Dist. LEXIS 48548 at *9 (S.D. Il. Apr. 11, 2016) quoting Taylor v. Cavalry Inv., L.L.C., 365 F. 3d 572, 575-576 (7th Cir. 2004). The court seemed further swayed by the fact that the complaint did not explain or even mention how the statement was false or misleading. Moving on to the conflicting statements as to where correspondence could be sent, the court disagreed with the consumer that the conflicting statements overshadowed the validation notice of Section 1692g because the letter presents “a clear path to provide a written dispute” by providing the consumer with two options to notify the debt collector of his dispute as required by Section 1692g(b). Moreover, the court was not swayed that the option of submitting comments to the debt collector’s website circumvented the requirement of section 1692g(b) that notification must be provided in writing. The court relied upon the Black Law Dictionary definition of “writing” to include electronic communications. By doing so, the court essentially blessed the website portal option. The most interesting aspect of the case and the one for debt collectors to ponder is whether website portals are a viable option for submitting section 1692g(b) disputes. As technology continues to advance, I anticipate more companies will begin to offer this option – after all, the CFPB has a complaint portal! Having said that, a website portal alone would most likely be deemed insufficient as it arguably would leave certain consumers without a means to dispute (assuming they have no access to the Internet). For debt collectors contemplating the use of an electronic dispute portal, this opinion provides some support for the validity of electronic submissions in tandem with traditional avenues of submission.
Collection communications with consumer’s counsel must meet the same standard as those directly with a consumer according to the Eleventh Circuit. In Bishop v. Ross Earle & Bonan, P.A. 817 F.3d 1268 (11th Cir. 2016), the defendant law firm sent a debt collection letter to a consumer in the care of his attorney. The letter omitted the “in writing” language required by section 1692g. Instead, it provided: Federal law gives you thirty (30) days after your receipt of this letter, to dispute the validity of the debt or any portion of it. If you do not dispute it within that period, we will assume it is valid. If you do dispute the debt or any portion of it, you must notify us within the said thirty (30) day period and we will, as required by law, obtain and mail to you, proof of the debt. The consumer filed suit alleging that the letter did not comply with 15 U.S.C. §1692g. The district court dismissed the lawsuit determining that the complaint failed to state a claim upon which relief could be granted. On appeal, the appellate court addressed the following issues of first impression: (a) whether a debt collection letter sent to the consumer’s attorney rather than directly to the consumer is a communication for purposes of the FDCPA; and (b) whether by omitting the “in writing” language required by section 1692g, a debt collector can simply waive the “in writing” requirement and avoid violation of 1692g. In reviewing the first issue, the court looked at the requirements of section 1692g to ascertain whether a letter sent to a consumer’s attorney was, in fact, a “communication” for purposes of the FDCPA. In determining that the provision applies to indirect communications to the consumer’s attorney, as well as those directly with the consumer, the court relied on the definition of “communication” provided within the FDCPA as including “the conveying of information regarding a debt directly or indirectly to any person through any medium.” The court, therefore, concluded that the provisions of section 1692g are triggered by communications with counsel and such communications must include the debt validation language required by section 1692g. The court additionally rejected the notion that 1692g “gives debt collectors discretion to omit the “in writing” requirement or cure improper notice by claiming a waiver.” In doing so, the court took note that the requirements are couched in terms of “shall” and also pointed out that the consumer’s rights to verification under 1692g(b) are only triggered when a dispute in made in writing, The moral of the story for debt collectors is to comply strictly with the language of section 1692g. Letter violations are easy to prosecute and easy pickings for the consumer bar.
CFPB Penalizes Another Collection Law Firm
Seventh Circuit Holds Debt Buyer's Feet to the Fire for its Attorney's Miscues
On April 25, 2016, the Consumer Financial Protection Bureau (CFPB) issued its latest consent order against Pressler & Pressler, a New Jersey law firm that collects consumer debt. The CFPB issued a similar consent order back in December against Georgia law firm Frederick J. Hanna & Associates. In both orders, the CFPB highlighted what it deemed to be unfair and deceptive practices by the firms to collect consumer debts. The focus of both consent orders rests with the collection activity the law firms performed on behalf of clients who purchased the defaulted consumer debts. In both situations, the CFPB claimed that the debt purchasers and the law firms attempted to collect debts without first making a sufficient review of loan documents and account statements to confirm that the debts were owed. This failure to review, in CFPB’s estimation, resulted in the law firms attempting to collect on debts that were not owed. In response, the CFPB assessed a $3.1 million penalty against the Hanna firm and a $1 million penalty against the Pressler firm. During the review periods, both the Hanna and Pressler law firms initiated litigation on thousands of consumer accounts each month. Both firms relied heavily on staff to review account data and to perform the necessary scrubs to eliminate bankrupt or deceased accounts and to confirm consumer addresses. In both enforcement actions, the CFPB asserted that the firms’ attorneys were not meaningfully involved in reviewing accounts before initiating litigation. The CFPB found this lack of meaningful attorney involvement violated both the Fair Debt Collection Practices Act and the Dodd-Frank Act. Both consent orders specify the activities the firms’ attorneys must take to demonstrate meaningful involvement in cases they file. The firms must: Before sending a demand letter or making a collection call, have in their possession a charge-off statement, and if the case is based on a breach of contract, either account statements from the creditor indicating actual use of the account or a copy of the account/loan agreement signed by the consumer. If the account is owned by a debt buyer, the attorney must also have evidence of the chain of title to the account. Before filing suit, the attorney of record for the case must log into the consumer’s account in the firm’s case management system, creating a record showing the attorney’s review of the account. In addition to reviewing the account level documentation, the attorney must also confirm the following: Case filing falls within the statute of limitations, Consumer has not filed bankruptcy Consumer’s address has been verified using a historically reliable and accurate source Case filing occurs in a proper venue. Additionally, both consent orders prohibit the attorneys’ use of any affidavits supplied by their clients, which the attorney knows or should know may be defective. Examples of defective affidavits include those in which the affiant falsely claims personal knowledge of the character, amount, or legal status of a debt; those in which the affiant falsely claims to have performed account level document review; and those affidavits which were not actually executed in the presence of a notary. As with the Hanna order, the Pressler consent order is only binding on the Pressler law firm. However, it does contain guidance for all law firms that collect consumer debt. It is likely that aspects of this consent order will make their way into the debt collection rules expected soon from the CFPB. The Pressler consent order confirms two key directives from the CFPB’s consent order in the Hanna case. First, collection law firms must be familiar with their clients’ processes for executing affidavits. Second, collection law firms must be able to demonstrate that their attorneys are actually involved in the review of documents used in support of litigation. Both orders also require that attorneys retain final approval and ultimate oversight of all processes followed by their staff. Attorneys must also have final approval for all letter and pleading templates used by the firm in prosecuting their cases. While attorneys do not have to personally perform every step involved in the prosecution of their cases, these consent orders make it clear that they must be involved in every key decision arising in their cases.
As a general rule, a principal may only be held vicariously liable for the acts of its agent where it has actual control over the conduct; but what if the principal is a debt buyer and its attorneys violate the FDCPA? A recent opinion by the Seventh Circuit holds that debt buyers are strictly liable for FDCPA violations of their attorneys and other vendors. In Janetos v. Fulton Friedman & Gullace, LLP, a debt buyer hired a law firm to collect on accounts where the debt buyer had already obtained a judgment. The initial demand letters sent out by the law firm did not comply with 15 U.S.C. §1692g(a)(2) in that they failed to clearly identify the current creditor or owner of the debt. The consumers filed suit against both the law firm and the debt buyer (current creditor) under the FDCPA and alleged that the debt buyer was vicariously liable for the acts of its lawyers. The debt buyer contended that it could not be held vicariously liable for the letters the law firm drafted and sent. The court disagreed and in doing so joins the Ninth and Third Circuits in holding that because the debt buyer was itself a debt collector subject to FDCPA, it is responsible for FDCPA violations committed by others acting on its behalf. Janetos v. Fulton Friedman & Gullace, LLP, C.A. No. 15-1859, 2016 U.S. App. LEXIS 6361, *18 (7th Cir. Apr. 7, 2016); see also Pollice v. National Tax Funding, L.P., 225 F.3d 379, 404-06 (3d Cir. 2000); Fox v. Citicorp Credit Services, Inc., 15 F.3d 1507, 1516 (9th Cir. 1994). According to the court, “[w]e think it is fair and consistent with the Act to require a debt collector who is independently obliged to comply with the Act to monitor the actions of those it enlists to collect debts on its behalf.” Id. at *19. The opinion is troublesome in that the court expressly rejects any argument requiring a showing of control by the debt collector over the particular activity alleged to violate the FDCPA. Therefore, it appears that the Seventh Circuit will be holding debt buyers strictly liable for the FDCPA actions of their attorneys and other vendors.
Supreme Court Rules in FDCPA Case
The Supreme Court unanimously reversed the Sixth Circuit in Sheriff v. Gillie, Docket No. 15-338, holding that letters sent on the Ohio Attorney General’s letterhead by private debt collectors are neither deceptive nor misleading. While we are still digesting the opinion as to its long-term import, here are our initial impressions: In Sheriff, the Ohio Attorney General appointed private law firms as “special counsel” to collect debt on the state’s behalf. When communicating with the debtors, the Ohio Attorney General required special counsel to use letterhead with the Attorney General’s Office logo and Attorney General’s name on it. Concerning each of the letters in question, the signature block identified the private attorney by name and address and included the designation “special” or “outside” counsel to the State Attorney General. Moreover, each letter included a statement that identified the communication as coming from a debt collector for the purpose of collecting a debt. The consumers contended the letters were deceptive and misleading attempts to collect consumer debts and violated the FDCPA. The district court granted summary judgment in favor of the debt collectors, holding that special counsel were officers of the state of Ohio and therefore covered under § 1692a(6)(C)’s exemption. Gillie v. Law Office of Eric A. Jones, LLC, et al., 37 F.Supp.3d 928 (S.D.O.H. 2014). Further, the court held that even if the defendants were not exempt from the FDCPA, the statements at issue were not false or misleading. The Sixth Circuit vacated the judgment concluding that special counsel were not exempt as officers of the state and remanded to the district court for trial on whether the use of the letterhead was misleading. Gillie v. Law Office of Eric A. Jones, LLC, et al., 785 F.3d 1091 (6th Cir. 2015). In the Supreme Court The defendants’ petition to the Supreme Court posed two issues. First, whether the defendants were exempt from the FDCPA’s coverage as “state officers” and secondly, whether the special counsel’s use of the Attorney General’s letterhead was false or misleading under §1692e. Assuming for argument's sake that special counsel did not qualify as “state officers” for purposes of the FDCPA, the court held that the use of the Attorney General’s letterhead was not false or misleading and did not violate the FDCPA. By jumping to the second issue, the Court’s holding has broader implications that it might not otherwise have had and yet, it does not address the issue we were all hoping to see addressed: the general liability standard for violations of §1692e. Currently, the circuits are split as to the general liability standard for debt communications. The majority of circuits rely on the least sophisticated consumer standard while other circuits have applied an “unsophisticated consumer” standard. While the Court had the opportunity to adopt a singular test applicable across the circuits, it sidestepped the issue. Instead, the Court focused on whether the use of the Attorney General’s letterhead at the Attorney General’s direction was false or misleading and specifically, on whether it violated 15 USC §§1692e (9) and (14). Subsection 9 prohibits debt collectors from falsely representing that a communication is “authorized, issued or approved” by a State. Subsection 14 prohibits debt collectors from using a name other than their true name. The Court concluded that the letters did not violate either provision. Since the Attorney General required the use of his letterhead, “[s]pecial counsel create no false impression in doing just what they had been instructed to do. Instead, their use of the Attorney General’s letterhead conveys on whose authority special counsel write to the debtor.” Slip Op. 8-9. Likewise, the Court concluded there was no violation of subsection 14. “Far from misrepresenting special counsel’s identity, letters sent by special counsel accurately identify the office primarily responsible for collection of the debt…special counsel’s affiliation with that office, and the address…to which payment should be sent.” Slip Op. at 9. Takeaways The biggest takeaway is what Sheriff did not do. While it tackled the issue with the broadest ramifications (the §1692e issue), it did not address the liability standard and nowhere is there any mention of the “least sophisticated consumer." Instead, the Court focused solely on the language of subsections 9 and 14 in the context of the underlying facts and whether the letters were, in fact, deceptive or misleading. The Court concluded that not only was the communication accurate but also was dismissive of any contention that the communication was deceptive, describing the letters as “milquetoast." The second big takeaway comes from both the opinion and the oral arguments. In both, the Court demonstrates a very practical approach to the FDCPA and does not appear to be inclined to expand liability under the FDCPA to include far-fetched notions of consumer confusion or intimidation. Instead, by keeping its opinion to the narrow issues presented, the Court appears content to focus on the underlying facts and rely upon the four corners of the statute, interpreting the Act in a practical and narrow manner, giving meaning to the Congressional intent of the Act.
A district court in California has suggested that present capacity is required to establish a claim under the Telephone Consumer Protection Act (the "TCPA"). See Chyba v. Bayview Loan Servicing, LLC, C.A. No. 14-cv-1415, 2016 U.S. Dist. LEXIS 59494 (S.D. Cal. May 3, 2016). In a dispute with a mortgage servicer, the consumer raised an assortment of claims including the FDCPA and the TCPA. The only claim left unresolved by the parties' cross motions for summary judgment was the TCPA claim. Ironically, that's where the court's decision gets interesting. With respect to the TCPA, the consumer contended her mortgage servicer made 11 automated calls to her cell phone. In support of her motion for summary judgment, the consumer filed an affidavit indicating that at the beginning of each call, there was an "artificial time delay." She also submitted a handwritten call log and pictures of her cell phone's screen showing the mortgage servicer's number. In response, the mortgage servicer contended the calls originated from a landline that "cannot be used" for auto-dialed calls. The court denied both parties' motions for summary judgment after determining an issue of fact existed as to whether the calls were made by an automated telephone dialing system and ordered the parties to undertake additional discovery on the issue. Specifically, the court ordered that the discovery should concern "whether the 1300 phone line is able and did use an automated system to call the Plaintiff's cell phone." As many may recall, one of the hallmarks of the FCC 2015 Declaratory Ruling is the FCC's rejection of a present use or current capacity test to determine whether a dialing system is subject to the TCPA. The FCC instead held that the capacity of an autodialer is not limited to its present configuration, but also includes potential functionalities even if it currently lacks the requisite software. The FCC's holding on that issue is one of the key issues on appeal in the D.C. Circuit. See ACA International v. Federal Communications Commission, Case No. 15-1211 (D.C. Cir. June 10, 2015). It would appear from Chyba, that at least one judge in the Southern District of California agrees with the appellants in the FCC appeal and believes that the FCC's definition is out of whack with the statutory language of 47 U.S. §227 and the correct analysis is the present capacity.
District Court Suggests Present Capacity Required for TCPA Claims
District Court Shuts Down the "Back Door" on Offers of Judgment
Since the original publication of this article, the United States Supreme Court has granted a writ of certiorari and will hear this case in the October 2016 term.
A district court in Minnesota has shut the “back door” on a collection agency that attempted to moot a putative class action by tendering the maximum amount of damages sought by the plaintiff. In Ung v. Universal Acceptance Corp., C.A. No. 15-127, 2016 U.S. Dist. LEXIS 72861 (D. Minn. June 3, 2016), prior to the plaintiff’s motion to certify class, the defendant tendered to the named plaintiff a check for the maximum amount of statutory TCPA damages sought on plaintiff’s individual claim, along with a letter offering to stipulate to an award of costs and an injunction prohibiting further calls to the plaintiff’s cell phone. When the check was returned, and the offer rejected, the collection agency moved for judgment asserting that the action was mooted, relying upon the Supreme Court’s decision earlier this year in Campbell-Ewald v. Gomez. When the Supreme Court issued its decision in Campbell-Ewald v. Gomez earlier this year regarding offers of judgment, a glimmer of hope arose for defendants in the dissenting opinions of Chief Justice Roberts and Justice Alito. In Campbell-Ewald, the Supreme Court held that a Rule 68 offer of full statutory relief does not moot a class action. See Campbell-Ewald v. Gomez, __ U.S. __, 136 S. Ct. 663 (2016). In Campbell, the majority held that a case becomes moot only “when it is impossible for a court to grant any effectual relief whatever to the prevailing party.” Id., 136 S. Ct. at 670. The court continued its rationale by noting that since the defendant’s offer lapsed without acceptance, they retained the same stake in the litigation they had at the outset. In other words, “[a]n unaccepted settlement offer - like any unaccepted contract offer – is a legal nullity, with no operative effect.” Genesis Healthcare Corp. v. Symczyk, __ U.S. __, 133 S. Ct. 1523, 1534 (2013) (Kagan, J., dissenting). In the dissenting opinions of Justice Roberts and Justice Alito, however, hope was not lost. Both noted that the majority in Campbell-Ewald did not say that payment of complete relief would lead to the same conclusion. In fact, Justice Alito’s dissent went so far as to suggest that a defendant could moot a case by paying over the money sought by plaintiff either by handing them a certified check or by depositing the funds in an account in plaintiff’s name or with the court. Campbell-Ewald, 136 S.Ct. 663, 684. In what was termed by the Minnesota district court as defendant’s attempt “to shoehorn its case through Campbell-Ewald’s back door,” the defendant moved to dismiss the action arguing that by tendering complete relief rather than merely offering it, the case was moot. The court disagreed and denied the motion. “[I]n this court’s view, there is no principled difference between a plaintiff rejecting a tender of payment and on offer of payment…Indeed, other than their labels, the two do not differ in any appreciable way once rejected: in either case, the plaintiff ends up in the exact same place he occupied before his rejection.” Ung at *13-14. Moreover, the court was also persuaded by the fact that the defendant’s offer required further action by the court -- the entry of the stipulated injunction -- and the court remained troubled by the fact that mooting the case would preclude the court from entering the injunction. The court also was disturbed by the fundamental fact that mooting the entire action based upon the individual claim being mooted would cause a significant failure of the class action device, noting that for the class action device to work, the court must have a reasonable opportunity to consider and decide the motion for certification. As stated by the court, “[a]ccepting Universal’s argument would place control of a putative class action in the defendant’s hands…The law does not countenance the use of individual offers to thwart class litigation.” Ung at *21.
The Eleventh Circuit has made it clear: it will not back down from its decision in Crawford v. LVNV Funding, a decision it issued in 2014 that has been the subject of hot debate ever since. In Crawford, the Eleventh Circuit ruled that the filing of a proof of claim was an attempt to collect a debt and the filing of a proof of claim on time-barred debt violated FDCPA. Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014). Since Crawford, the debate has raged on with several courts weighing in. Under one rationale or another, the majority have held that the filing of a proof of claim on a time-barred debt does not give rise to a claim under FDCPA. The Eleventh Circuit, however, is sticking to its guns and in a recent decision expanded its position in Crawford. The court expanded its position by addressing the issue left unanswered by Crawford: whether the Bankruptcy Code preempts the FDCPA where the debt collector files a proof of claim on a debt it knows to be time-barred. Johnson v. Midland Funding, LLC, C.A. No. 15-11240, 2016 U.S. App. LEXIS 9478 (11th Cir. May 24, 2016). In Johnson, the court answered that question in the negative, finding that the Bankruptcy Code does not preempt the FDCPA. Instead, “[t]he FDCPA easily lies over the top of the Code’s regime, so as to provide an additional layer of protection against a particular kind of creditor.” Johnson at *15. In its analysis, the court found that the Bankruptcy Code and FDCPA “differ in their scopes, goals, and coverage, and can be construed together in a way that allows them to coexist.” Johnson at *13-14. The court concluded that the two statutes could be reconciled because “they provide different protections and reach different actors.” Johnson at *14. While the Bankruptcy Code allows creditors to file proofs of claim even on time-barred debt, it does not require that they do so. While “creditors can file proofs of claim they know to be barred by the relevant statute of limitations, those creditors are not free from all consequences of filing these claims.” Johnson at *10. The court read the statutes together as “providing different tiers of sanctions for creditor misbehavior in bankruptcy.” Johnson at *15 The court was adamant that, regardless of the circumstances, if a debt collector, as defined by the FDCPA, “files a proof of claim for a debt that the debt collector knows to be time-barred, that creditor must still face the consequences imposed by the FDCPA for a ‘misleading’ or ‘unfair’ claim.” Johnson at *16. The court’s decision expands the Eleventh Circuit’s view that the filing of time-barred proofs of claim by debt collectors is a FDCPA violation even if the Bankruptcy Code allows the debt collectors to do so. If there is good news to be had from the Eleventh Circuit’s opinion, it is that the court recognized that the FDCPA’s bona fide error defense may protect debt collectors who unintentionally or in good faith file time barred proofs of claim. Those playing in the debt buyer space should continue to watch for developments on this issue as there is a growing divide in the circuits. See, e.g., Simmons v. Roundup Funding, LLC, 622 F.3d 93 (2d Cir. 2010); Garfield v. Ocwen Loan Servicing, 811 F.3d 86 (3d Cir. 2016); Simon v. FIA Card Servs., 732 F.3d 259 (3d Cir. 2013); Covert v. LVNV Funding, 779 F.3d 248 (4th Cir. 2015); Gatewood v. CP Medical, LLC, Case No. 15-6008 (8th Cir. Jul. 10, 2015); Walls v. Wells Fargo Bank, N.A., 276 F. 3d 502 (2002). While the Supreme Court denied certiorari in Crawford, the broader holding in Johnson and the split in the circuits make it more likely that the Supreme Court will address this issue on the next appeal.
Eleventh Circuit Expands Crawford Ruling
On May 18, 2016, the Seventh Circuit ruled in St. John v. CACH, LLC, Nos. 14-2760, 14-3724, & 15-1101, 2016 U.S. App. LEXIS 9117 (7th Cir. 2016), that debt collectors do not have to intend to go to trial when filing complaints in order to comply with the Fair Debt Collection Practices Act (“FDCPA”). Section 1692e(5) of the FDCPA states that “[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt,” and “[t]he threat to take any action that cannot legally be taken or that is not intended to be taken” is a violation of the act. In St. John, individual consumers sued debt collection companies for FDCPA violations, claiming the companies filed lawsuits with “no intention of going to trial.” Id. at *2. The companies initially filed suit to recover on credit card accounts held by the consumers, but ultimately dismissed their actions voluntarily. Id. The consumers then asserted that this voluntary dismissal before trial violated Section 1692e(5)’s prohibition against “[t]he threat to take any action that…is not intended to be taken.” The Seventh Circuit disagreed and held that the consumers did not show that the companies “did not intend to keep their supposed threat of going to trial,” nor that the companies ever threatened to go to trial in the first place. Id. at *6. The court pointed out that there was no allegation (nor proof) that the companies planned or intended to go to trial; rather, the consumers merely claimed that the companies “implicitly communicated an intention to go to trial simply by filing the complaints.” Id. at *5. Ultimately, this argument was insufficient to support the consumers’ allegations and constitute an FDCPA violation. In reaching its decision, the Seventh Circuit noted that “debt collectors who sue to recover a debt are no different from any other plaintiff.” Id. at *7–8. This reasoning in itself was helpful for the financial services industry because consumers and their attorneys often argue that debt collectors should essentially be held to a higher standard when they engage in litigation. Now, though—at least in the Seventh Circuit—debt collectors in the industry will not be held liable under FDCPA “just for filing a complaint.” Id. at *8. They can “weigh the anticipated costs of trial against the potential benefits when considering how far to advance the litigation,” just like any plaintiff in any legal action. Id. Because “litigation is inherently a process,” parties may come to a resolution that is more efficient and practical than taking a case all the way through trial. Id. at *7. In fact, the court noted, settlements and pre-trial dismissals may benefit defendants in debt collection actions as well. Id. n.2. A collector may be willing to settle a case for much less than the consumer owes to avoid the time, cost, and uncertainty of trial. Id. In St. John, there was no contention that the consumers didn’t owe the money; they did not deny they owed the debts or claim the debts weren’t legally enforceable. Id. at *5. Avoiding a trial may have actually benefited the consumers who brought suit. The court also discussed the true scope and purpose of the FDCPA. Although the FDCPA was created to protect consumers from deceptive or unfair practices by debt collectors, it does not punish them for “engaging in a customary cost-benefit analysis when conducting litigation.” Id. at *8. To force debt collectors—unlike any other plaintiff—to see their cases all the way to trial would extend far beyond the requirements of Section 1692e(5). The St. John ruling may create a continuum on which debt collection actions are enforceable. Complaints must be filed in good faith with some basis for verifying the legitimacy of debts owed; however, a debt collector is not required to go to trial in order to show that the debt is valid or risk running afoul of the FDCPA. Id. at *5, 8. The Act was not established to effectively bar debt collectors from recourse simply because it is not in the collector’s best interest to go to trial, “even when its claim is unquestionably legitimate, and even when no other recourse is left.” Id. at *8. Debt collectors, as long as their actions are in good faith, can have the same array of litigation options as any other plaintiff.
Professional TCPA Plaintiff Doesn't Have Standing to Bring Claims
Professional plaintiffs may need to reconsider their business strategy in the wake of the Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016). In Stoops v. Wells Fargo Bank, N.A., a consumer bought and activated at least 35 prepaid cell phones with the hope on capitalizing on wrong number calls. The plaintiff readily admitted that she purchased the phones for the purpose of filing lawsuits under TCPA and selected locations in Florida as the assigned locations (and corresponding area codes) “because there is a depression in Florida” where “people would be usually defaulting on their loans or their credit cards.” Stoops, C.A. No. 3:15-83, 2016 U.S. Dist. LEXIS 82380, *2 (W.D. Pa. Jun. 24, 2016). When the plaintiff received a series of calls from Wells Fargo’s home mortgage group, the plaintiff filed suit alleging TCPA violations. Through the course of discovery, the plaintiff admitted that she was “doing” TCPA violations as a business and had a shoebox full of burner phones for the sole purpose of “suing clients like yours, Wells Fargo, for violating the TCPA.” Id.at * 32. On summary judgment, the court addressed the question of whether the plaintiff had standing to bring TCPA claims. Relying in part on the Supreme Court’s decision in Spokeo and in part on the purpose of the TCPA, the court granted summary judgment in favor of the bank. In doing so, the court concluded that the plaintiff had neither constitutional nor prudential standing to bring claims under the TCPA. Where, as here, the plaintiff admits that she files TCPA actions as a business, the plaintiff’s “privacy interests were not violated when she received calls from Defendant. Indeed, Defendants’ calls “[did] not adversely affect the privacy rights that {the TCPA] is intended to protect…Because Plaintiff has admitted that her only purpose in using her cell phones is to file TCPA lawsuits, the calls are not “a nuisance and an invasion of privacy.” Id.at * 34 (internal citations omitted). Moreover, the court concluded the Plaintiff did not suffer an injury in fact based upon any violation of the plaintiff’s economic rights. While the court was dismissive of defendant’s argument that there could be no injury in fact absent some allegations of actual damages, the court nonetheless held that “[b]ecause Plaintiff has admitted that her only purpose in purchasing her cell phones and minutes is to receive more calls, thus enabling her to file TCPA lawsuits, she has not suffered any economic injury.” Id. at * 38. Moreover, the court held that the Plaintiff did not have prudential standing because her interests were not within the zones of interests protected by the TCPA. “Because Plaintiff does not have “the sort of interest in privacy, peace, and quiet, that Congress intended to protect, the Court finds that she has failed to establish that the injury she complains of “falls within the zone of interests sought to be protected by the statutory provision whose violation forms the legal basis for [her] complaint.” Id. at * 47-48. The case bears consideration for a couple of reasons. First, defense counsel did its homework and was aware the plaintiff was a serial litigant. Secondly, the case appears to have been won at the deposition stage where defense counsel elicited testimony as to the number of burner phones plaintiff had and plaintiff’s business plan. Finally, the case provides an even more expansive perspective of standing as a defense and broadens the defense beyond constitution standing.
Debt Collectors "Are No Different than Any Other Plaintiff"
District Court Opinion Shows Collateral Impact of Crawford Decision
Furnisher Does Not Violate FCRA By Reporting Discharged Debt
Seventh Circuit Joins Fray Regarding Time-Barred Proofs of Claim
A recent decision out of the Southern District of Georgia shows the collateral impact of the Crawford v. LVNV Funding proof of claim decision issued by the Eleventh Circuit. In Crawford, the Eleventh Circuit ruled that the filing of a proof of claim was an attempt to collect a debt and that the filing of a proof of claim on time-barred debt violated the FDCPA. Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014). Since Crawford, the debate has raged on with several courts weighing in on the subject. Under one rationale or another, the majority have held that the filing of a proof of claim on a time-barred debt does not give rise to a claim under the FDCPA. The Eleventh Circuit, however, is sticking to its guns and a recent decision by the Southern District of Georgia reflects the collateral impact of the Crawford decision. In McNorrill v. Asset Acceptance, LLC, the court confronted the issue of whether the collection of money resulting from the filing of a time-barred proof of claim in and of itself violates the FDCPA. McNorrill v. Asset Acceptance, LLC, C.A. No. 1:14-cv-210, 2016 U.S. Dist. LEXIS 95216 (S.D. Ga. Jul. 21, 2016). In McNorrill, the plaintiff, a Chapter 13 debtor, contended that the defendant filed a proof of claim on time-barred debt. During the bankruptcy, neither the debtor nor the trustee objected to the proof of claim. As a result, the defendant received payments under the debtor’s Chapter 13 plan. The plaintiff contended that the debt buyer not only violated the FDCPA by filing the proof of claim but also alleged that “Defendant’s collection [of] money as a result of the filing of time-barred proofs of claim…is a false, deceptive, or misleading representation or an unfair means of collection of a debt.” Id. at *4. The debt buyer filed a motion to dismiss claiming that plaintiff’s claims were time-barred. With respect to the consumer’s claim that the filing of the proof of claim violated the FDCPA, the court agreed the claim was time-barred. However, the court disagreed as to the remaining claim, concluding that the debt buyer’s acceptance of payments was an independent violation and the consumer’s claim was not time-barred because payments were received by the debt buyer within the one year of the filing of the action. Turning to the merits of the claim, the court concluded that the debt buyer’s acceptance of Chapter 13 payments was independent of the filing of the proof of claim itself and stated a plausible claim for relief. In making its determination, the court was persuaded by the same concerns noted by the Eleventh Circuit in Crawford – specifically, that payment of a time-barred claim “necessarily reduces the payments to other legitimate creditors with enforceable claims.” Id. at *13. Moreover, the court concluded that “whether the FDCPA prohibits Defendant’s acceptance of payments is a matter of the FDCPA and not Bankruptcy or state law, and the “permitted by law” language found in §1692f(1) is not relevant.” Id. at *16. The decision makes clear the lasting impact of the Crawford decision, at least in the Eleventh Circuit with respect to continuing chapter 13 payments. What is not clear is whether a bona fide error defense would be effective under these circumstances – particularly where the debt buyer has relied upon the prior overwhelming authority holding that the filing of a proof of claim is not subject to the FDCPA. A district court in Nevada recently granted a mortgage company’s motion to dismiss FCRA claims where the reported debt had been discharged in bankruptcy. The opinion serves as a reminder of the rules governing the reporting of discharged debt. In Riekki v. Bayview Fin. Loan Servicing, the consumer alleged that the subject debt was discharged pursuant to his Chapter 13 bankruptcy and that the creditor continued to report balances through the pendency of the bankruptcy as well as post-petition. Riekki v. Bayview Financial Loan Servicing, 2:15-cv-2427, 2016 U.S. Dist. LEXIS 99527 (D. Nev. Jul. 28, 2016). The consumer disputed the credit reporting noting that the “balance on the account should be “$0” and the status should be reporting as current” as a result of his discharge. [Complaint, ¶ 192]. On motions to dismiss, the defendant contended that the plaintiff’s FCRA claim failed as a matter of law because the reporting of delinquencies during the pendency of a bankruptcy proceeding or after discharge is not inaccurate under the FCRA. The defendant further pointed to the provisions of 15 U.S.C. §1681c which allows for the reporting of collection issues for seven years after a bankruptcy discharge and reporting the bankruptcy itself is allowed for ten years after the discharge. The court agreed holding that 15 U.S.C. §1681c “undermines any arguments that…debts discharged in bankruptcy [are] unreportable.” Riekki at *5.
Last week, the Seventh Circuit chimed in on whether time barred proofs of claim violate the FDCPA. In Owens v. LVNV Funding, LLC, the Seventh Circuit affirmed three district court decisions which dismissed FDCPA claims against debt buyers who filed time-barred proofs of claim. Owens v. LVNV Funding, LLC, Nos. 15-2044, 15-2082, 15-2109 (7th Cir. Aug. 10, 2016). In doing so, the Seventh Circuit joins the Second and Eighth Circuits in siding against the Eleventh Circuit’s decision in Crawford v. LVNV Funding, LLC, 758 F.3d 1254 (11th Cir. 2014). In Owens, the consumers argued that the act of filing a proof of claim on a time-barred debt is inherently misleading because the term “claim” only includes legally enforceable obligations. The consumers additionally argued that the filing of a time-barred proof of claim is inherently deceptive because a debt buyer’s business plan depends on the reality that the debtor, its counsel, or the trustee may sometimes fail to object to time-barred claims, thus allowing the time-barred claim to receive payment to the detriment of the debtor and other creditors. The Definition of a "Claim." In rejecting the consumers’ arguments, the Court first noted that in most states, the statute of limitations does not extinguish the debt. It simply limits the avenues of recourse. The court went on to reject the consumers’ narrow definition of “claim” - instead holding that a “claim” is defined as a right to payment and that a creditor with a stale debt retains some right to payment. The Court drew support for its position from the Bankruptcy Code’s claim allowance procedure and the fact that the Bankruptcy Code contemplates the statute of limitations as one of the enumerated grounds for disallowing a claim. The Court, therefore, concluded that “a proof of claim on a time-barred debt does not purport to be anything other than a claim subject to dispute in the bankruptcy case.” Slip Op. at 13. The Dispositive Issue. While the court defined a claim broadly to include time-barred proofs of claim, it held that that issue was not dispositive of the case. The dispositive issue before the court was whether defendants’ conduct in filing the proofs of claim was false, deceptive or misleading under the FDCPA. In concluding that it was not, the court first noted that the act of filing a time-barred proof of claim is not in and of itself a violation of the FDCPA. The court sided with the Second and Eighth Circuit in rejecting the rationale of the Eleventh Circuit in Crawford. The court distinguished between litigation and bankruptcy proofs of claim and held that concerns regarding the misleading or deceptive nature of filing time-barred claims is less acute in the bankruptcy context because the bankruptcy rules require the proof of claim to include the age of the debt and the claims process is designed to allow the debtor, its counsel, and the trustee to object to the claim. The Competent Attorney Standard. In addressing whether the proofs of claim were false or misleading, the court rejected the unsophisticated consumer standard adopted in the Eleventh Circuit. Noting the presence of counsel in most cases and trustees in all cases, the court concluded the proper standard to evaluate the debt buyers’ action is that of the “competent attorney.” Slip Op. at 18. In reviewing the actions of the debt buyers, the Court concluded that there was nothing deceptive or misleading about the debt buyers’ conduct. In each instance, the proof of claim provided accurate and complete information about the status of the debts, and the debtor’s counsel had to look no further than the proof of claim to determine whether or not the statute of limitations had run. Keys to the Decision. The opinion is important for a number of reasons. Parties seeking to rely upon it should note the following: • First, the opinion does not hold that the Bankruptcy Code preempts the FDCPA. Instead, the court’s opinion is consistent with its prior holding in Randolph v. IMBS, Inc., 368 F.3d 726 (7th Cir. 2004) (holding that the Bankruptcy Code does not preempt the FDCPA) and that the two statutes can be read consistently and together. • Second, the opinion does not hold that the act of filing a time-barred proof of claim is in and of itself a violation of the FDCPA. • Finally, the court’s decision is limited to the facts presented. In fact, the court goes to great lengths to note that “if defendants had filed proofs of claim with inaccurate information, or had otherwise engaged in deceptive or misleading debt collection practices, plaintiffs would have a cause of action under the FDCPA.” Slip Op. at 19.
Fourth Circuit Weighs in on Time-Barred Proof of Claim Debate
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Joining the proof of claim fray, the Fourth Circuit has held that the filing of a time-barred proof of claim does not violate the FDCPA when the statute of limitations does not extinguish the debt. Dubois v. Atlas Acquisitions, No. 15-1495, 2016 U.S. App. LEXIS, *22-23 (4th Cir. Aug. 25, 2016). In joining the majority of circuits, the Fourth Circuit held that while filing a proof of claim is debt collection activity regulated by the FDCPA, the filing of a proof of claim that is time-barred does not violate the FDCPA when the statute of limitations does not extinguish the debt. In reaching its conclusion, the court was persuaded by several of the points articulated by other courts over the past two years: In Maryland, the state where the bankruptcy was pending, the statute of limitations does not extinguish the debt. It merely limits the avenues of recourse. The court took a broad view of the meaning of a claim, holding that a “claim” is defined as a right to payment and that a creditor with a stale debt retains some right to payment. As was the case in the Seventh Circuit, the Court drew support for its position from the Bankruptcy Code’s claim allowance procedures. The Court noted that the Bankruptcy Code contemplates the filing of time-barred proofs of claim as evidenced by the fact that the statute of limitations is one of the enumerated grounds for disallowing a claim. The court was also persuaded by the unique circumstances presented in the bankruptcy context and concluded that the reasons why it is unfair or misleading to sue on a time-barred debt are significantly diminished in a Chapter 13 bankruptcy: First, the Bankruptcy Code contemplates the existence of a trustee who is charged with reviewing proofs of claim and objecting to time-barred claims thereby stopping the creditor from engaging in further collection efforts and discharging the claim; Secondly, the amount paid into the bankruptcy by the debtor is not affected by the number of unsecured claims filed. Therefore, there is no harm to the consumer (who the FDCPA is designed to protect) if additional claims are filed; Thirdly, the Bankruptcy Rules require creditors to accurately state the last transaction and charge off date for the account, making stale claims easier to detect; and Finally, the debtor in a Chapter 13 bankruptcy is a voluntary participant and instigator of the bankruptcy and not an involuntary party to a lawsuit. Keys to the Decision The opinion is important for a number of reasons. Parties seeking to rely upon it should note the following: First, the opinion does not hold that the Bankruptcy Code preempts FDCPA. In fact, the Court never reached the issue. Secondly, the court’s decision does not address the contents of the proof of claim or the conduct of the debt collector. Many of the courts to date have gone to great lengths to limit their holdings to instances where the defendants filed accurate, albeit time-barred, proofs of claim; however, as noted by the dissent, the majority opinion in this matter never reached the conduct of the debt collector. Instead, the Fourth Circuit’s opinion appears to focus solely on whether or not the statute of limitations extinguished the debt.
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