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11th Circuit reverses dismissal of “shotgun” FDCPA, FCRA, TCPA pleadings
On March 16, the U.S. Court of Appeals for the Eleventh Circuit partially reversed a district court’s dismissal of a lawsuit against several defendants for alleged violations of the FDCPA, the FCRA, and the TCPA, holding that the plaintiff’s third amended complaint was not filled with “shotgun pleadings.” The matter revolves around several statutory and common-law claims arising from the defendants’ allegedly-unlawful debt collection attempts, which were dismissed multiple times by the district court as “shotgun pleadings.” In her third amended complaint—which alleged 10 causes of action—the plaintiff contended, among other things, that the defendants failed to respond to letters she sent to dispute the alleged debt and failed to notify credit reporting agencies (CRA) of the dispute. The plaintiff also alleged that certain defendants called her cell phone multiple times using an automatic telephone dialing system. The district court entered final judgment in favor of all the defendants, minus the CRA defendant, stating, among other things, that the plaintiff continued to “‘lump the defendants together. . .and provide generic and general factual allegations as if they applied to all defendants.’”
On appeal, the 11th Circuit concluded that the district court erred in dismissing six of the 10 counts as shotgun pleadings. “While not at all times a model of clarity, [the third amended complaint] is reasonably concise, alleges concrete actions and omissions undertaken by specific defendants, and clarifies which defendants are responsible for those alleged acts or omissions,” the appellate court wrote. However, the appellate court agreed that the district court correctly dismissed two counts for failing to state a claim related to claims concerning one of the defendant’s alleged attempts to collect delinquent tax payments owed to the IRS. According to the appellate court, since “tax obligations do not arise from business dealings or other consumer transactions they are not ‘debts’ under the FDCPA.’”
5th Circuit will review CFPB constitutionality case en banc
On March 20, the U.S. Court of Appeals for the Fifth Circuit issued an opinion ordering that—“on the Court’s own motion”—it will conduct an en banc hearing on whether the CFPB’s single-director leadership structure is constitutional. The order vacates the appellate court’s March 3 opinion (covered by InfoBytes here), in which it previously determined that there was no constitutional issue with allowing the Bureau director to only be fired for cause. According to the now-vacated opinion, the majority concluded that the claim that the Bureau’s structure is unconstitutional “find[s] no support. . .in constitutional text or in Supreme Court decisions.” The 5th Circuit’s prior decision came the same day the U.S. Supreme Court heard oral arguments in Seila Law LLV v. CFPB on the same issue.
Appellate court affirms dismissal of RESPA kickback suit
On March 13, the U.S. Court of Appeals for the Fourth Circuit affirmed the dismissal of a putative class action filed by two consumers (plaintiffs) against a real estate brokerage group (real estate defendant) and a title company (title defendant), (collectively defendants), alleging a kickback scheme in violation of RESPA. The plaintiffs bought a house in 2008 with the help of a real estate agent affiliated with the real estate defendant. The real estate agent told the plaintiffs that the title defendant would provide settlement services, after which the plaintiffs filed an acknowledgment that they understood they could use the title company of their choice for their closing, and that they were not first-time homebuyers. The plaintiffs indicated their approval to use the settlement company selected by the real estate agent. Five years later, the plaintiffs filed suit, claiming that the real estate agent’s referral to the title defendant violated RESPA. The consumers, as lead class members, alleged that a marketing agreement between the defendants provided for payments by the title defendant to the real estate defendant for settlement services referrals. The plaintiffs claimed that the illegal kickback arrangement denied class members of ‘“impartial and fair competition between settlement service[s] providers in violation of RESPA.’”
The district court granted the defendants’ motion for summary judgement, holding that the plaintiffs lacked Article III standing to file suit because they were not overcharged in the settlement of their real estate transaction and did not otherwise show an injury-in-fact. In addition, the court determined that the claim was time-barred under RESPA’s one-year statute of limitations.
On appeal, the 4th Circuit agreed with the district court that the plaintiffs lacked standing, noting that “a statutory violation is not necessarily synonymous with an intangible harm that constitutes injury-in-fact.” The appellate court pointed out that the plaintiffs did not claim to have been overcharged for settlement services, and indeed, the plaintiffs agreed that the settlement service fees were reasonable. The appellate court also rejected the plaintiffs’ assertion that they suffered a concrete injury due to the lack of competition between settlement service providers.
District court grants summary judgment in favor of bank in TCPA robocall suit
On March 13, the U.S. District Court for the District of New Jersey granted a large bank’s (defendant) motion for summary judgment in a proposed class action alleging that the plaintiff received an unsolicited telemarketing call. The plaintiff—who was himself a TCPA investigator for an attorney—was a long-time customer of the defendant when he answered a robocall from the defendant in March 2005. The plaintiff filed suit against the defendant alleging that the robocall from the defendant violated the TCPA. In response, the defendant filed a motion for summary judgment which put forth three arguments: (i) plaintiff did not have Article III standing to sue because he was not injured by the call; (ii) the plaintiff had an existing business relationship with the defendant as a long-time customer; and (iii) the content of the call did not violate the law at the time of the call.
Here, the court determined that the plaintiff lacked Article III standing to sue the defendant because he did not show an injury-in-fact as a result of the robocall. The court added, “notably, [p]laintiff does not assert, nor has he put forward any evidence to show, that he suffered nuisance, annoyance, inconvenience, wasted time, invasion of privacy, or any other such injury.” Moreover, the court pointed to the plaintiff’s position and asserted that as a TCPA investigator, “he welcomed such calls.” The court additionally held that the plaintiff lacked statutory standing for similar reasons. As a customer of the defendant, the court stated that plaintiff’s claims were subject to the TCPA’s “established business relationship” exemption in effect at the time of the call. The court agreed with the defendant’s argument that the call did not violate the TCPA prohibitions in effect at the time of the call. Further, the court found that the call’s content did not violate FCC regulations at the time for “abandoned telemarketing calls and dual-purpose calls.” As a result, the court dismissed as moot the plaintiff’s motion for class certification and his motion to file a second amended complaint.
District court grants bank’s partial summary judgment in FDIC RMBS suit
On March 11, the U.S. District Court for the Southern District of New York granted partial summary judgment in favor of the securities arm of a large banking group (defendant) in an FDIC suit alleging securities violations in the offering, sale, or distribution of residential mortgage-backed security (RMBS) certificates to a now failed bank. As receiver for the failed bank, the FDIC filed suit in 2007 concerning, among other things, two senior certificates purchased by the failed bank. The FDIC alleged that the defendant omitted key facts and made numerous false statements of material fact to sell RMBS certificates to the failed bank and additionally performed due diligence on the underlying loans, thus participating in the distribution of the certificates. The agency further alleged that although the defendant “did not directly purchase or sell the senior certificates, [the defendant] is still an underwriter as defined under the Securities Act because of its ‘direct or indirect participation’ in the distribution of the senior certificates.”
The court sided with the defendant, finding that even though its “due diligence and review of prospectus supplements helped facilitate the securities offerings, those activities do not involve the purchase, offer, or sale of the securities and thus are not part of their distribution.” The court reasoned that the prospectus supplements of the senior class certificates specifically state that the defendant was only an underwriter for the subordinated class certificates and not for the senior class certificates purchased by the failed bank. Accordingly, the court granted the defendant’s motion for partial summary judgment, dismissing the two claims with respect to the senior certificates.
District court rejects financing company’s dismissal bid in student loan debt relief scam
On March 11, the U.S. District Court for the Southern District of New York denied the motion of a Minnesota-based indirect finance company (defendant) to dismiss allegations that its participation in a student loan relief operation violated the Racketeer Influenced and Corrupt Organization Act (RICO), ruling that the borrowers had properly alleged mail and wire fraud and had established a pattern of “open-ended continuity.” According to the named plaintiffs, the defendant contracted dealers who marketed “student loan assistance services” to federal student loan borrowers, who were then redirected to pay the defendant a fee of $1,300 to file applications on their behalf for adjustments such as loan consolidation or enrollment in an income-driven repayment plan. Because the dealers could not legally accept the payments directly, the defendant allegedly approved borrowers for financing and made upfront payments to dealers for each recruited borrower. In denying the dismissal bid, the court ruled that “these allegations, if assumed true, establish that, in devising the scheme, [the defendant] intended to deceive borrowers so that they would incur debts to it.” Moreover, “[g]iven these allegations, the Amended Complaint contains sufficient allegations that reveal ‘the threat of continuity,’. . . and sufficient support for the proposition that [the defendant] ‘ha[s] been trying to continue’ the alleged scheme with respect to individuals in addition to the [n]amed plaintiffs,” the court wrote.
As previously covered by InfoBytes, last December the CFPB denied a petition by one of the defendants to modify or set aside a civil investigative demand (CID) issued by the Bureau, which seeks information as part of an investigation into the defendant’s promotion of student loan debt relief programs. Separately, the FTC and the Minnesota attorney general entered a stipulated order against the defendant for violations of TILA and the assisting and facilitating provision of the Telemarketing Sales Rule, which resulted in the defendant being permanently banned from engaging in transactions involving debt relief products and services or making misrepresentations regarding financial products and services (covered by InfoBytes here).
5th Circuit: Interest disclosure does not violate FDCPA
On March 12, the U.S. Court of Appeals for the Fifth Circuit affirmed a district court’s decision that a debt collector (defendant) did not violate the FDCPA by mentioning that interest may accrue on an unpaid debt in a collection letter. In this case, the plaintiff alleged that the defendant violated the FDCPA’s prohibition on false, deceptive, or misleading representations in connection with the collection of a debt when it sent him a letter that included line items detailing the amount owed, separate line items that showed interest and fees as $0, and a disclosure that stated “[i]n the event there is interest or other charges accruing on your account, the amount due may be greater than the amount shown above after the date of this notice.” The plaintiff contended that the defendant was not allowed to collect interest on debts placed by the original creditor and that the original agreement between the plaintiff and the creditor “‘does not allow’ for interest to accrue or for other charges to be added.” The district court granted summary judgment for the defendant, stating that the letter accurately conveyed what was possible under the Texas Finance Code—that interest could accrue—and was therefore not false, deceptive, or misleading.
On appeal, the 5th Circuit affirmed the district court’s ruling, holding that “[t]he challenged statement in the letter is not false, deceptive or misleading because it merely expresses a common-sense truism about borrowing—if interest is accruing on a debt, then the amount due may go up.” [Emphasis in the original.] According to the appellate court, the “simple statement would have been clear even to an unsophisticated borrower. . . .” Moreover, the appellate court concluded that it did not matter whether the plaintiff’s agreement with the creditor prohibited interest or other charges “because the language at issue does not state that [the defendant or the creditor] would—or even could—collect interest.”
Credit reporting agency FCRA suit may go forward
On March 9, the U.S. District Court for the Eastern District of Pennsylvania denied the motion to dismiss and motion to strike a claim of a credit reporting agency (CRA) and its subsidiary (defendants) in a putative class action that alleged the defendants: (i) knowingly used inaccurate eviction information in their tenant screening reports, and (ii) inaccurately represented that they obtained eviction information from public sources, each in violation of the FCRA. Specifically, the plaintiff alleged that the CRA failed to disclose that the eviction information was maintained and sold through the subsidiary, and when the plaintiff requested her credit report from the CRA, the CRA omitted information maintained by the subsidiary and therefore the credit report did not contain “all information in the consumer’s file at the time of the request” as required by the FCRA. She argued that the FCRA prohibits the CRA defendant from skirting the requirement of full and accurate disclosure of consumer information by assigning that duty to a third party—in this case, the subsidiary defendant.
According to its memorandum, the court rejected the CRA’s argument that it could not be held liable for faulty reports issued by its subsidiary. The court answered the question of whether plaintiff “sufficiently alleged that defendant evaded its obligation to make full and accurate disclosure of plaintiff's consumer file. . .through the use of corporate organization, reorganization, structure or restructuring,” concluding that she did so. The court dismissed the defendants’ motion to strike without prejudice, indicating the defendants can raise their argument again in an opposition to class certification.
Maryland Court of Appeals reverses trial court approval of settlement for interfering with CPD action
On March 3, the Maryland Court of Appeals reversed a trial court’s approval of a proposed settlement in a class action based on fraudulently induced assignments of annuity payments. The class members were recipients of structured settlement annuities from lead paint exposure claims who responded to ads by a structured settlement factoring company (company). The class members then transferred the rights to their settlement annuity contracts to the company, which paid the class members lump sums for the rights at a discount. The class filed a lawsuit against the company in 2016, alleging that it had engaged in fraud in procuring the annuity contract transfers. Around the same time, the Consumer Protection Division of the Maryland AG’s Office (CPD) had filed suit against the company alleging violations of the State Consumer Protection Act. Several months after both actions were filed, the CFPB filed a similar suit against the company based on the same alleged misconduct. All three actions sought similar kids of relief with respect to the same individuals, though the bases for seeking relief and the nature and amount of relief sought differed among the actions.
The class and the company proceeded towards a negotiated settlement, to which the trial court signed a proposed final order, certifying the class and approving the settlement, despite CPD’s opposition to both issues. Following the court’s approval, the company moved for summary judgment in its case against the CPD, which the court granted because it held CPD’s claim for restitution for the same individuals was barred by res judicata; CPD’s claim for injunctive relief and civil penalties is still currently awaiting trial.
Following an appeal, the Court of Appeals granted the company’s petition to consider whether “class members [may] lawfully release and assign to others their right to receive money or property sought for their benefit by [CPD] or [CFPB] through those agencies’ separate enforcement actions” under state and federal consumer protection laws, respectively.
The Court of Appeals held that the lower court erred in approving the settlement, stating that consumers “have no authority, through a private settlement, whether or not approved by a court, to preclude CPD from pursuing its own remedies against those who violate . . . [Maryland’s] Consumer Protection Act, including a general request for disgorgement/restitution.” In particular, the Court of Appeals held that the parties cannot preclude CPD from pursuing the remedies of disgorgement and restitution, as that would directly contravene CPD’s statutory authority to sanction the company for wrongful conduct. For this reason, the Court of Appeals concluded that the trial court’s approval of the settlement must be reversed and remanded the case for further proceedings.
Another appellate court holds that a debt buyer qualifies as a debt collector under the FDCPA
On March 9, the U.S. Court of Appeals for the Ninth Circuit held that an entity that purchases consumer debts, but outsources the collection activity to a third party still qualifies as a debt collector under the FDCPA. According to the opinion, the plaintiff sued the debt buyer (defendant) claiming it was “vicariously and jointly liable” for alleged FDCPA violations by the third party collector. The district court granted the defendant’s motion to dismiss, ruling that the plaintiff failed to state a claim because debt purchasing companies like the defendant “who have no interactions with debtors and merely contract with third parties to collect on the debts they have purchased simply do not have the principal purpose of collecting debts.” The district court reasoned that Congress intended the FDCPA to apply only to those who directly interact with customers, based on the court’s interpretation of the language used in the substantive provisions of the law.
On appeal, the 9th Circuit reversed the dismissal, determining that the FDCPA does not solely regulate entities that directly interact with consumers. As applied to the defendant, the court found that the purpose of the FDCPA would be “entirely circumvented” if the law’s restrictions did not apply to companies like the defendant. Accordingly, the appellate court concluded that an entity that otherwise meets the “principal purpose” definition of debt collector—“any business the principal purpose of which is the collection of any debts”—cannot avoid liability under the FDCPA merely by hiring a third party to perform debt collection activities on its behalf. The appellate court stressed that Congress’s intent in enacting the FDCPA was to eliminate abusive, deceptive, and unfair collection practices, and that its interpretation of the principal purpose prong of the debt collector definition furthers the FDCPA’s purpose. The 9th Circuit joined the 3rd Circuit, which issued an order last year (covered by InfoBytes here) concluding that “[a]s long as a business’s raison d’etre is obtaining payment on the debts that it acquires, it is a debt collector. Who actually obtains the payment or how they do so is of no moment.”