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  • 9th Circuit: Administrator vicariously liable for debt collectors’ alleged TCPA violations

    Courts

    On March 22, the U.S. Court of Appeals for the 9th Circuit reversed a lower court’s decision to dismiss TCPA claims against a student loan administrator (defendant), finding that the administrator could be held vicariously liable for a contractor’s alleged debt collection attempts. The plaintiff claimed in her suit that the companies hired by the contracted student loan servicer violated the TCPA by using an autodialer when attempting to contact borrowers to collect payment. The plaintiff argued that the defendant was “vicariously liable” for the alleged TCPA violations of the companies that were hired to collect the plaintiff’s debts, and that the defendant was “similarly liable under the federal common law agency principles of ratification and implied actual authority.” The claims against the collectors and the servicer were dismissed for lack of personal jurisdiction, and the lower court ruled on summary judgment that a jury could not hold the defendant responsible for the actions of the servicer.

    On appeal, the split three-judge panel held that a reasonable jury could find that the defendant knew of the alleged TCPA violations, and that because the defendant “ratified the debt collectors’ calling practices by remaining silent,” or alternatively, willfully ignored potential violations through its collections arrangement with the servicer, a jury could find a “principal-agent” relationship—even if one did not exist in the contract—and the court should hold it liable for the collectors’ TCPA violations. According to the panel, there was evidence in the record that the defendant “had actual knowledge” of the alleged violations through audit reports provided by the servicer and “did nothing” to ensure that the debt collectors complied with the law. However, the entire panel agreed that the defendant was not per se vicariously liable for the debt collectors’ alleged TCPA violations.

    In dissent, Judge Bybee agreed with the panel that the defendant is not per se vicariously liable for the debt collectors’ practices, and noted in addition that there is not enough evidence to show that the defendant consented to practices that violate the TCPA or that it granted the debt collectors authority to violate the law. He wrote, “there is no evidence whatsoever that [the defendant] approved of such practices. In fact, the only evidence in the record is to the contrary: when [the defendant] learned of wrongful practices, it reported them to [the servicer] and asked [the servicer] to correct the problem.”

    Courts Ninth Circuit Appellate Robocalls TCPA Debt Collection Autodialer Class Action

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  • 9th Circuit: Plaintiffs failed to show harm in FCRA action

    Courts

    On March 25, the U.S. Court of Appeals for the 9th Circuit affirmed dismissal of five plaintiffs’ allegations against two credit reporting agencies, concluding the plaintiffs failed to show they suffered or will suffer concrete injury from alleged information inaccuracies. According to the opinion, the court reviewed five related cases of individual plaintiffs who alleged that the credit reporting agencies violated the FCRA and the California Consumer Credit Report Agencies Act (CCRAA), by not properly reflecting their Chapter 13 bankruptcy plans across their affected accounts after they requested that the information be updated. The lower court dismissed the action, holding that the information in their credit reports was not inaccurate under the FCRA. On appeal, the 9th Circuit, citing to U.S. Supreme Court’s 2016 ruling in Spokeo v. Robins (covered by a Buckley Special Alert), concluded that the plaintiffs failed to show how the alleged misstatements in their credit reports would affect any current or future financial transaction, stating “it is not obvious that they would, given that Plaintiffs’ bankruptcies themselves cause them to have lower credit scores with or without the alleged misstatements.” Because the plaintiffs failed to allege a concrete injury, the court affirmed the dismissal for lack of standing, but vacated the lower court’s dismissal with prejudice, noting that the information may indeed have been inaccurate and leaving the door open for the plaintiffs to refile the action.

    Courts Ninth Circuit Appellate Spokeo FCRA Bankruptcy Credit Reporting Agency

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  • 9th Circuit issues opinion in Wadler, remands for possible new trial

    Financial Crimes

    On February 26, 2019, the Ninth Circuit issued a long-awaited opinion in a case involving a life sciences manufacturing company and its former General Counsel. The 23-page opinion, slated for publication, takes a mixed view of the trial outcome, vacating in part, affirming in part, and remanding for the district court to determine whether to hold a new trial.

    Two years ago, following a $55 million civil and criminal FCPA settlement by the company, a jury awarded Wadler (the company’s former General Counsel) $11 million in punitive and compensatory damages, including double back-pay under Dodd-Frank, in his whistleblower retaliation case against his former employer. The company appealed to the Ninth Circuit, arguing that the district court erroneously instructed the jury that SEC rules or regulations prohibit bribery of a foreign official; that the company’s alleged FCPA violations resulted from Wadler’s own failure to conduct due diligence as the company’s General Counsel; that the district court should have allowed certain impeachment testimony and evidence related to Wadler’s pursuit and hiring of a whistleblower attorney; and that Wadler was not a “whistleblower” under Dodd-Frank because he only reported internally and did not report out to the SEC. The Court heard arguments on November 14, 2018. 

    Section 806 of the Sarbanes-Oxley Act, codified as 18 U.S.C. § 1514A, protects whistleblowers from retaliation under certain circumstances, including reporting violations of “any rule or regulation of the Securities and Exchange Commission.” The company alleged, and the Ninth Circuit agreed, that the district court’s jury instructions incorrectly stated that Section 806 encompasses reports of FCPA violations. The Court ruled that “statutory provisions of the FCPA, including the three books-and-records provisions and anti-bribery provision . . . are not ‘rules or regulations of the SEC’ under SOX § 806.” However, the Court found that with the right instructions, a jury could have still ruled in Wadler’s favor. Accordingly, the Court vacated the Section 806 verdict and remanded to the district court for consideration of a new trial. On the other hand, the Court held that the same jury instruction error was harmless for the purposes of Wadler’s California public policy claim, so the Court upheld that verdict and its associated damages. The Court also rejected the company’s claims of evidentiary error. Finally, the Court ruled that under another case involving a real estate investment company and its former executive, Dodd-Frank does not apply to people who only report misconduct internally, and vacated the Dodd-Frank claim. As for damages, the Ninth Circuit affirmed Wadler’s compensatory and punitive damages award but vacated the double back-pay associated with the Dodd-Frank claim. 

    This decision is likely the first circuit court opinion to cite the case in an FCPA case for its holding that individuals who only report violations internally do not hold “whistleblower” status under Dodd-Frank.

    For prior coverage of the matter, please see herehere, and here.

    Financial Crimes FCPA Whistleblower SEC Dodd-Frank Sarbanes-Oxley Ninth Circuit

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  • 9th Circuit rejects challenge to Santa Monica's short-term rental law

    Courts

    On March 13, the U.S. Court of Appeals for the 9th Circuit affirmed dismissal of two online short-term rental companies’ (plaintiffs) action challenging the City of Santa Monica’s Ordinance 2535. According to the opinion, Ordinance 2535, which was amended in 2017, imposed four obligations on online platforms hosting rentals: (i) collecting and remitting Transient Occupancy Taxes; (ii) regularly disclosing listings and booking information to Santa Monica; (iii) only booking properties licensed and listed on Santa Monica’s registry; and (iv) refraining from collecting a fee for “ancillary services.” The plaintiffs challenged the Ordinance, arguing that it was preempted by the Communications Decency Act of 1996 (CDA) and it violated the First Amendment by restricting commercial speech, because it required the plaintiffs to monitor and remove third-party content. The lower court dismissed the action concluding the plaintiffs failed to state a claim under the CDA and the First Amendment.

    On appeal, the 9th Circuit upheld the lower court’s ruling. The appellate court determined that Ordinance 2535 was not expressly preempted by its terms, nor would it “pose an obstacle to Congress’s aim to encourage self-monitoring of third-party content” under the CDA because it only required the plaintiffs to monitor incoming requests to complete a booking transaction, which is content that is “distinct, internal, and nonpublic.” As for the First Amendment claim, the appellate court concluded that the effect of Ordinance 2535 on its face is to regulate booking transactions, which is “nonexpressive conduct,” rejecting the plaintiffs’ claims that it required them to monitor screen advertisements. Moreover, the appellate court noted that the Ordinance does not target websites that advertise the very same properties but do not process transactions, which underscores the proposition that the Ordinance is only targeting companies that “engage in unlawful booking transactions.”

    Courts Ninth Circuit Appellate First Amendment

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  • HOLA preemption question moves to 9th Circuit

    Courts

    On February 27, the U.S. District Court for the Northern District of California granted a national bank’s request to certify for interlocutory appeal whether state law claims involving interest on escrow accounts were preempted by the Home Owners Loan Act (HOLA). As previously covered by InfoBytes, three plaintiffs filed suit against the bank, arguing that it must comply with a California law that requires mortgage lenders to pay interest on funds held in a consumer’s escrow account, following the U.S. Court of Appeals for the 9th Circuit’s decision in Lusnak v. Bank of America. The bank moved to dismiss the action, arguing, among other things, that the claims were preempted by HOLA. The court acknowledged that HOLA preempted the state interest law as to the originator of the mortgages, a now-defunct federal thrift, but disagreed with the bank’s assertion that the preemption attached throughout the life of the loan, including after the loan was transferred to a bank whose own lending is not covered by HOLA. Specifically, the court looked to the legislative intent of HOLA and noted it was unclear if Congress intended for preemption to attach through the life of the loan, but found a clear goal of consumer protection.

    By granting the motion for interlocutory appeal, the court noted that the frequency with which the HOLA issue arises, “weighs in favor of allowing the Ninth Circuit to resolve this question.” Moreover, the court cited to a recent 9th Circuit case, in which the appellate court recognized HOLA preemption as a “novel legal issue.” The court also temporarily granted the bank’s request to stay the proceedings pending the resolution of the 9th Circuit action.

    Courts Mortgages Escrow HOLA Ninth Circuit Appellate State Issues

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  • District Court cites 9th Circuit, holds Fannie Mae is not a CRA

    Courts

    On February 26, the U.S. District Court for the Northern District of California granted summary judgment in favor of Fannie Mae in an action brought by a consumer alleging that Fannie Mae violated the California Consumer Credit Reporting Agencies Act (CCCRA) and the Fair Credit Reporting Act (FCRA) by prohibiting lenders from providing consumers a copy of Fannie Mae’s Desktop Underwriter (DU) report. According to the opinion, two years after completing a short sale on his previous home, a consumer sought a mortgage with three lenders. One lender used Fannie Mae’s DU program to determine if the loan would be eligible for purchase by the agency, but the DU report listed his prior mortgage loan as a foreclosure rather than a short sale. The lender ultimately denied the application, rather than manually underwrite it. Upon reviewing Fannie Mae’s motion for summary judgment, the court noted that in order for the consumer to succeed on his CCRA and FCRA claims, he must establish Fannie Mae is a credit reporting agency. The court rejected the consumer’s attempts to distinguish his case from the recent 9th Circuit decision in Zabriskie v. Fed. Nat’l Mortg. Ass’n, which held that Fannie Mae was not a credit reporting agency under the FCRA. (Covered by InfoBytes here.) The court acknowledged that even though Fannie Mae may have problems with its foreclosure recommendations in the DU system, it does not undercut the conclusion that Fannie Mae operates the DU system to assist lenders in making purchasing decisions, does not “regularly engage[] in . . . the practice of assembling or evaluating” consumer information, and therefore, is not a credit reporting agency.

    Courts Fannie Mae Credit Reporting Agency FCRA Ninth Circuit Appellate Foreclosure

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  • 9th Circuit affirms $8 million California whistleblower claim

    Courts

    On February 26, the U.S. Court of Appeals for the 9th Circuit affirmed a former general counsel’s whistleblower retaliation claim, under California public policy, against a biopharmaceutical manufacturer and its CEO but vacated the jury’s Sarbanes-Oxley Act (SOX) and Dodd-Frank Act verdicts. According to the opinion, the general counsel sued the company and the CEO claiming whistleblower retaliation under SOX, the Dodd-Frank Act, and California wrongful termination case law, claiming the company fired him after he alleged the company may have violated the FCPA in China. The jury awarded the general counsel $11 million, including $2.96 million in lost wages, which was doubled under the Dodd-Frank Act’s whistleblower provision, and $5 million in punitive damages. The company appealed the verdict arguing the district court erred in the instructions to the jury when it stated that statutory provisions of the FCPA constitute “rules or regulations of the SEC for purposes of whether [the general counsel] engaged in protected activity under SOX.”

    On appeal, the 9th Circuit concluded the district court’s instructional error was not harmless as to the SOX claim, finding that the statutory provisions of the FCPA are not “rules or regulations of the SEC under SOX” as instructed to the jury. While the error was not harmless, the appellate court rejected entering judgment in favor of the company and instead, remanded the case back for proper instruction. Additionally, the appellate court vacated the district court’s instructions for the jury to enter judgment in favor of the Dodd-Frank Act claim, citing to the Supreme Court decision in Digital Realty Trust Inc. v. Somers. The appellate court concluded that the whistleblower provision of the act does not apply to purely internal reports and entered judgment in favor of the company. As for the California public policy claim, the appellate court determined that the incorrect SOX jury instructions were harmless because his California claim did not depend on SOX and the jury “necessarily would have reached the same verdict under proper instruction.” The affirmation of the California claim and associated damages left the general counsel with an award of nearly $8 million.

    Courts Ninth Circuit Appellate Whistleblower FCPA Dodd-Frank Sarbanes-Oxley State Issues

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  • 9th Circuit holds inclusion of state disclosure requirements violate FCRA standalone requirement

    Courts

    On January 29, the U.S. Court of Appeals for the 9th Circuit held that the defendant employer violated the Fair Credit Reporting Act’s (FCRA) standalone document requirement when it included extraneous state disclosure requirements within a disclosure to obtain a consumer report on the plaintiff, a prospective employee. The panel also concluded that the defendant’s form failed to satisfy both the FCRA and the California Investigative Consumer Reporting Agencies Act’s (ICRAA) “‘clear and conspicuous’ requirements because, although the disclosure was conspicuous, it was not clear.” According to the opinion, the plaintiff signed a “Disclosure Regarding Background Investigation,” and was employed for several months before voluntarily terminating her employment. Following her departure from the company, the plaintiff filed a putative class action against the defendant, alleging a failure to make proper disclosure under the FCRA and the ICRAA. The plaintiff claimed that the disclosure form included not only a disclosure as required by the FCRA stating that the defendant could obtain a consumer report on her, but also additional disclosure requirements for several other states.

    The district court initially granted the defendant’s motion for summary judgment as to the FCRA and as to ICRAA’s clear and conspicuous requirement, holding that the disclosure form complied with both statutes. On appeal, the 9th Circuit first rejected the plaintiff’s assertion that the disclosure form violated the standalone document requirements because it included all the application materials she filled out during the employment process. The panel declined to extend this principle to the FCRA’s definition of a “document,” stating that the employment packet was distinct from the disclosure form. However, the 9th Circuit cited to its 2017 decision in Syed v. M-I, LLC, which held that “‘a prospective employer violates Section 1681b(b)(2)(A) when it procures a job applicant’s consumer report after including a liability waiver in the same document as the statutorily mandated disclosure.’” Noting the statute’s plain language, the 9th Circuit concluded in Syed that the FCRA meant what it said—“the required disclosure must be in a document that ‘consist[s] ‘solely’ of the disclosure.’” Moreover, the panel stated that Syed considered the standalone requirement with regard to any surplusage, and that the “FCRA should not be read to have implied exceptions, especially when the exception—in that case, a liability waiver—was contrary to FCRA’s purpose.”

    The 9th Circuit also concluded that the district court erred in holding that the disclosure form was clear because the form (i) contained language a reasonable person would not understand, and (ii) the language combined federal and state disclosures, which would confuse a reasonable reader. However, the panel held that the disclosure form met the conspicuous requirement since the defendant capitalized, bolded, and underlined the headings for each section of the disclosure and labeled the form so an applicant could see what she was signing. Accordingly, the 9th Circuit affirmed in part and vacated in part the district court’s decision, and remanded the case for further proceedings.

    Courts FCRA Ninth Circuit Appellate Disclosures State Issues

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  • 9th Circuit holds defendant’s website and mobile app must comply with ADA

    Courts

    On January 15, the U.S. Court of Appeals for the 9th Circuit held that the Americans with Disabilities Act (ADA) applies to a national pizza chain’s website and mobile app “even though customers predominantly access them away from the physical restaurant” because the “statute applies to the services of a public accommodation, not services in a place of public accommodation.” According to the opinion, the plaintiff sued the defendant seeking damages and injunctive relief, contending that the defendant’s website and app did not work with his screen-reading software. The plaintiff requested that the court order the defendant to alter its website and app to comply with Web Content Accessibility Guidelines (WCAG) 2.0 and make it accessible to individuals with disabilities as required by Title III of the ADA. The defendant argued that the ADA does not apply to its online offerings, and that applying the ADA would violate its due process rights.

    Although the district court held that Title III of the ADA applied to the defendant’s website and app, it granted defendant’s motion to dismiss under the primary jurisdiction doctrine, stating that in order to “cure” due process concerns, it would require “meaningful guidance” on website accessibility standards yet to be issued by the DOJ in order “to determine what obligations a regulated individual or institution must abide by in order to comply with Title III.” On appeal, the 9th Circuit reversed the district court’s reliance on the primary jurisdiction doctrine, finding it to be inapplicable since waiting for the DOJ to provide guidance on accessibility standards would cause “needless” delay of a resolution the lower court could determine. Moreover, the fact that the DOJ has not articulated a website accessibility standard does not violate a defendant’s due process rights because the “ADA articulates comprehensible standards to which [the defendant’s] conduct must conform.”

    Courts Americans with Disabilities Act Ninth Circuit Appellate

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  • District Court allows TCPA action to proceed, citing 9th Circuit autodialer definition as binding law

    Courts

    On January 17, the U.S. District Court for the District of Arizona denied a cable company’s motion to stay a TCPA action, disagreeing with the company’s arguments that the court should wait until the FCC releases new guidance on what constitutes an automatic telephone dialing system (autodialer) before reviewing the case. A consumer filed a proposed class action against the company, arguing that the company violated the TCPA by autodialing wrong or reassigned telephone numbers without express consent. The company moved to stay the case, citing the FCC’s May 2018 notice (covered by InfoBytes here), which sought comments on the interpretation of the TCPA following the D.C. Circuit’s decision in ACA International v. FCC (setting aside the FCC’s 2015 interpretation of an autodialer as “unreasonably expansive”). The company argued that the FCC would “soon rule on what constitutes an [autodialer], a ‘called party,’ in terms of reassigned number liability, and a possible good faith defense pursuant to the TCPA,” all of which would affect the company’s liability in the proposed class action. The court rejected these arguments, citing as binding law Marks v. Crunch San Diego, LLC, a September 2018 decision from the U.S. Court of Appeals for the 9th Circuit that broadly defined what constitutes an autodialer under the statute (covered by InfoBytes here), and therefore, determining there was nothing to inhibit the court from proceeding with the case. As for the FCC’s possible future guidance on the subject, the court concluded, “there seems little chance that any guidance from the FCC, at some unknown, speculative, future date, would affect this case.”

    Courts TCPA ACA International Autodialer Ninth Circuit Appellate FCC Class Action

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