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California state appeals court partially reverses proposed class action suit addressing arbitration terms
On October 2, a California state appeals court partially reversed a trial court’s denial of class certification in a putative class action alleging that a written cardmember agreement issued by a credit card company contained unconscionable and unenforceable arbitration terms. According to the opinion, after the cardmember and his company failed to make timely and sufficient payments on their accounts, the credit card company closed the accounts and filed a collection action. The cardmember subsequently filed a putative class action cross-complaint against the credit card company and two other card issuers, alleging the arbitration terms in the cardmember agreements he signed are unlawful under California’s Unfair Competition Law, and asserting, among other things, that the legally unenforceable contract terms prevented negotiations, prohibited injunctive relief, and failed to communicate to cardholders what the rules would be at the time of arbitration. The cardmember further alleged that cardholders were overcharged annual credit card fees or purchase fees “as consideration for the promises contained in the cardmember agreement.” During the course of the litigation, the credit card companies sent certain cardmembers modified contract terms, which allowed cardmembers the option to reject arbitration altogether if a written rejection notice was provided within a specific time period.
The trial court denied class certification, finding, among other things, that the cardmember was not an adequate class representative and did not have claims typical of the putative class because there was no evidence he paid annual fees and that individual issues would predominate with respect to procedural unconscionability and each individual class member’s entitlement to declaratory relief. On appeal, the court held that the trial court “used improper criteria and erroneous assumptions” when reaching its decision that “procedural unconscionability would involve predominantly individualized issues.” Moreover, the appellants and absent class members were linked by common questions, including whether it was unreasonable for the respondent to modify its arbitration terms during pending litigation, since this denied cardholders who opted out of arbitration the right to join the class.
Lehman seeks to add indemnity claims against mortgage sellers
On October 1, Lehman Brothers Holdings Inc., the firm’s plan administrator, and certain subsidiaries moved to increase the indemnification claims brought against mortgage sellers, seeking to include obligations resulting from more than $2.45 billion in residential mortgage-backed securities (RMBS) trust claims. Lehman’s prior claims addressed indemnification claims held against roughly 3,000 counterparties involving more than 11,000 mortgage loans related to litigation settlements reached with Fannie Mae and Freddie Mac. Lehman now seeks to increase the indemnification claims to include claims from additional settlements reached earlier this year for an additional $2.45 billion in RMBS allowed claims. The proposed amended order does not seek to materially change existing procedures, but only seeks to add claims which had not accrued when the original order was entered pursuant to Federal Rule of Bankruptcy Procedure 9024. Lehman asserts the amendment is appropriate under Bankruptcy Rule 7015 and would benefit the creditors by “expediting the resolution and recovery on account of such claims and by increasing distributions to creditors.”
11th Circuit holds deaf plaintiff not required to file complaint with FCC before filing lawsuit under other federal disability rights laws
On September 28, the U.S. Court of Appeals for the 11th Circuit vacated a district court’s decision to grant a Florida city’s (City) motion to dismiss for lack of subject matter jurisdiction, holding that (i) the Twenty-First Century Communications and Video Accessibility Act of 2010 (CVAA) did not require the appellant to exhaust his remedies before the FCC prior to commencing a lawsuit under other federal disability statutes; and (ii) the primary-jurisdiction doctrine does not apply to this case.
According to the opinion, the appellant, a deaf individual, alleged that none of the video content stored on the City’s four webpages provided closed captioning, in violation of the Rehabilitation Act and the Americans with Disabilities Act. The district court dismissed the action without prejudice, holding the CVAA requires exhaustion of remedies by the FCC as a prerequisite to the filing of a lawsuit.
On appeal, the 11th Circuit rejected as “an overbroad reading of the statute” the City’s argument that the CVAA contains an exhaustion requirement for claims brought under other disability rights statutes. In support of its position that the FCC only has exclusive jurisdiction over closed captioning complaints brought under the relevant section of the CVAA, the Court cited a 9th Circuit decision, which concluded “the FCC’s exclusive jurisdiction over complaints under the CVAA does nothing to extinguish [the plaintiff’s] right to pursue broader relief for online captioning under [California state law].” In rejecting the City’s primary-jurisdiction argument, the 11th Circuit first cited instances where the FCC—in a report to Congress and in a communication to this plaintiff in an unrelated action—took the position that the CVAA does not require plaintiffs to exhaust administrative remedies as a prerequisite to bringing lawsuits under other federal statutes. The Court also applied the two-factor primary jurisdiction doctrine test, concluding that (i) the FCC has no expertise with respect to the claims under the other federal disability rights statutes before the lower court; and (ii) “this case presents no special need for uniformity.”
Court denies motion to certify classes in TCPA action against national mortgage servicer
On September 27, the U.S. District Court for the Northern District of Illinois denied certification of two proposed classes in a TCPA action against a national mortgage servicer, concluding that plaintiff had failed to meet his burden of demonstrating, under FRCP 23(b)(3), that common issues of fact or law predominated over any questions affecting only individual members. According to the opinion, plaintiff alleged the mortgage servicer contacted consumer phones, without express consent, using an automatic telephone dialing system (autodialer) in violation of the TCPA. One of the four named plaintiffs sought to represent two classes of consumers who were contacted by the servicer two or more times between October 2010 and November 2014: (i) those who received calls or texts and told the servicer to cease contact; and (ii) those who received calls and told the servicer it had called the wrong number.
The court found the issue of consent was decisive in this action, relying on authority holding that individual issues of consent predominate where a defendant “provides specific evidence that a significant number of putative class members consented to contact . . . .” The opinion notes that mortgage servicer’s policies contained a process for flagging accounts that withdrew consent to be contacted and if an account was flagged, the autodialer would not initiate calls to that number. The mortgage servicer argued that many consumers gave permission, retracted it, and gave the permission to be contacted again. The court found the servicer had “put forth specific evidence establishing that a significant percentage of the putative class consented to receiving calls.” The court reviewed expert reports by both parties and ultimately concluded that the method for determining class members suggested by the plaintiff and the plaintiff’s expert did not “adequately identify a common way to address the individual variations of consent and revocation that occurred in this case.” The court determined that it would need to conduct an individualized consent inquiry for accountholders in each putative class.
District Court concludes a small virtual currency is a “commodity” under the Commodities Exchange Act
On September 26, the U.S. District Court for the District of Massachusetts denied a virtual currency trading company’s motion to dismiss, concluding that smaller virtual currencies are commodities that may be regulated by the CFTC. In January, the CFTC bought an action alleging the company violated the Commodities Exchange Act (CEA) and CFTC Regulation 180.1(a) by making false or misleading statements and omitting material facts when offering the sale of their company’s virtual currency. For example, the complaint alleges that the company falsely stated that its virtual currency was backed by gold, could be used anywhere Mastercard was accepted, and was being actively traded on several currency exchanges. Moreover, while consumers who purchased the virtual currency could view their accounts, they were unable to trade it or withdraw funds from their accounts with the company. The company moved to dismiss the case, arguing that the conduct did not involve a “commodity,” specifically one that underlies a futures contract, under the CEA. In denying the motion to dismiss, the court determined that Congress intended for the CEA to cover a certain “class” of items and specific items within that class are then “dealt in.” Because the company offered a type of “virtual currency” and it is “undisputed that there is futures trading in virtual currencies (specifically involving Bitcoin),” the court held that the CFTC sufficiently alleged the company’s product is a “commodity” under the CEA. The court also rejected the company’s other arguments, determining Regulation 180.1(a) was meant to combat the fraud alleged by the CFTC, notwithstanding its use of the term “market manipulation,” and the CFTC adequately pleaded the fraudulent claim under the regulation.
11th Circuit holds filed-rate doctrine bars class actions relating to lender-placed insurance
On September 24, the U.S. Court of Appeals for the 11th Circuit affirmed the district court’s dismissal of two class actions on grounds that the “filed-rate doctrine” precludes the plaintiffs’ claims. In their complaints, the plaintiffs alleged that their loan servicers charged “inflated amounts” for lender-placed insurance by receiving “rebates” or “kickbacks” from an insurance company without passing the savings on to consumers. The district court dismissed the actions with prejudice, holding that the filed-rate doctrine barred the plaintiffs’ claims. On appeal, the 11th Circuit upheld the lower court’s decision, finding that the plaintiffs’ allegations challenged the insurance company’s filed rate. As a result, the court determined that the plaintiffs’ allegations were textbook examples of claims barred by the nonjusticiability principle, which provides that duly-empowered administrative agencies have exclusive say over the rates charged by regulated entities because agencies are more competent than the courts at the rate-making process.
District court approves an $8.8 million TCPA class action settlement with an inmate telephone company
On September 24, the U.S. District Court for the Central District of California approved an $8.8 million class action settlement between consumers and an inmate telephone company. The settlement resolves allegations that the company violated the TCPA by playing a separate prerecorded “Notification Call” directing the receiving party to provide billing information for the inmate’s collect calls without obtaining the receiving party’s prior consent or providing the receiving party with an opt out mechanism for future calls. Under the terms of the settlement, the company will pay almost $175 to each class member and will change its practices to include both an interactive-voice/key activated opt-out mechanism and a toll-free number that the receiving party may use to opt-out of all future notification calls.
Court dismisses action by a tribal nation against a national bank for claims relating to the bank’s incentive compensation sales program
On September 25, the U.S. District Court for the District of New Mexico dismissed an action brought by a tribal nation against a national bank alleging, among other things, that the bank’s incentive compensation sales program resulted in the bank’s employees opening deposit and credit card accounts for consumers without obtaining their consent to do so. In December 2017, the tribal nation brought 17 claims against the national bank, including alleged violations of the Consumer Financial Protection Act (CFPA) and a variety of federal, state, tribal, and common law violations. The court rejected the tribal nation’s claims under the CFPA, holding they are barred by res judicata, as the claims previously had been litigated under the CFPB’s 2016 consent order (previously covered by InfoBytes here) and that the tribal nation was in privity with the CFPB. The court also rejected the tribal nation’s argument that it was entitled to civil penalties, injunctive and declaratory relief under the doctrine parens patriae, finding the tribal nation failed to allege facts sufficient to demonstrate standing for each claim and each form of relief. As for the state and tribal law claims, the court held that it lacked an independent basis for jurisdiction due to the court’s dismissal of all of the federal law claims.
Court sends class action TCPA suit against global ride-sharing company to arbitration
On September 20, the U.S. District Court for the Northern District of Illinois granted a global ride-sharing company’s motion for summary judgment, ruling that a user had consented to arbitrate any disputes when he signed up for an account with the company. Specifically, the named plaintiff of the proposed class action brought the suit against the company for allegedly violating the TCPA when he received a single text message he claims he did not consent to after signing up for the company’s app, and that he claimed he received after he deleted the app. The company moved to compel arbitration, which initially was denied in 2017, when the court held that the company had not shown enough evidence that users were aware of the arbitration agreement and ordered the parties to engage in expedited discovery limited to the arbitration agreement formation. However, following both parties’ cross-motions for summary judgment, the court determined that the plaintiff “failed to raise a genuine dispute as to whether he entered into an enforceable agreement to arbitrate,” and that the app presented a statement that creating an account meant that users agreed to the terms of service and privacy policy, which was presented to users “in an easy-to-read font on an uncluttered screen” and required no scrolling.
According to the court, “the manner in which this statement and the Terms of Service were presented placed a reasonable person on notice that there were terms incorporated with creating an . . . account and that, by creating an account, he or she was agreeing to those terms.” Concerning the plaintiff’s argument that his TCPA claim does not fall under the arbitration agreement’s purview, the court stated that the question of what falls within the scope of the arbitration agreement is itself subject to arbitration, and also stated that the Terms of Service specifically permitted the texting of promotional offers to customers, arguably requiring the TCPA claim to be arbitrated. The court dismissed without prejudice the plaintiff’s claims against the company and stayed the case until arbitration proceedings are resolved.
District Court holds hotel calling system is not an autodialer under TCPA
On September 24, the U.S. District Court for the Middle District of Florida held that a hotel calling system, which required human intervention before a call was placed, does not qualify as an automatic telephone dialing system (autodialer) under the TCPA. The plaintiff filed the putative class action complaint alleging the hotel chain used an autodialer to call her cell phone without her consent. The hotel moved for summary judgment, arguing that the system did not qualify as an autodialer under the TCPA because it required a hotel agent to click “Make Call” before the system dialed the number. The court agreed, concluding that the defining characteristic of an autodialer is “the capacity to dial numbers without human intervention,” which the court noted remains unchanged even in light of the D.C. Circuit decision in ACA International v. FCC (covered by a Buckley Special Alert here). Because the calling system would not initiate an outbound call without an agent clicking the “Make Call” button, the court determined the plaintiff’s TCPA claim failed and granted summary judgment for the hotel chain.