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California Court of Appeal: Including extraneous language in FCRA disclosure may constitute willful violation
On April 19, the California Court of Appeal for the Fourth Appellate District reversed a trial court’s summary judgment order and held that the inclusion of extraneous language in an employer’s FCRA disclosures to job applicants may constitute willful violation of the FCRA. The plaintiff filed a putative class action against the defendant employer, contending that it willfully violated the FCRA by providing job applicants with a disclosure that included extraneous language unrelated to the topic of consumer reports. The plaintiff alleged that the disclosure violated the FCRA’s requirement for providing a standalone disclosure informing the applicant that the employer may obtain the applicant’s consumer report when making a hiring decision upon applicant’s consent. The defendant filed a motion for summary judgment arguing that no reasonable jury could find that the plaintiff’s FCRA violation was willful, because the erroneous disclosure form was the result of a drafting mistake that took place when the defendant modified a sample disclosure provided by a consumer reporting agency to ensure compliance with the FCRA. The trial court granted the defendant’s motion, finding that any non-compliance resulted from a drafting was an inadvertent error.
On appeal, the Court of Appeal reversed and remanded with instructions that the trial court deny the motion for summary judgment. The appellate court found that “a reasonable jury could find that [the employer] acted willfully because it violated an unambiguous provision of the FCRA.” The Court of Appeal noted that that there’s evidence that at least one of the defendant’s employees was aware that the extraneous language would be included in the disclosure form. In addition, the continuous use of the allegedly problematic disclosure form for nearly two years could signify recklessness. The Court of Appeal reasoned further that the defendant’s “continued and prolonged use” of the “problematic” disclosure form “suggest[ed] that it had no proactive monitoring system in place to ensure its disclosure was FCRA-complaint.”
Nevada Supreme Court affirms ruling in default notice suit
On April 7, the Nevada Supreme Court denied a petition for rehearing and reaffirmed its prior conclusion that, under Nevada law, when a notice of rescission is recorded after a notice of default, the rescission cancels the acceleration triggered by the notice of default, and resets a statutory 10-year period for automatically clearing a lien on real property. NRS § 106.240 “provides a means by which liens on real property are automatically cleared from the public records after a certain period of time,” and specifically “provides that 10 years after the debt secured by the lien has become ‘wholly due’ and has remained unpaid, ‘it shall be conclusively presumed that the debt has been regularly satisfied and the lien discharged.’” The specific question before the Nevada Supreme Court was what effect a notice of rescission has on NRS § 106.240’s 10-year period when the notice is recorded after a notice of default. The Nevada Supreme Court upheld the lower court’s decision determining that “because a notice of rescission rescinds a previously recorded notice of default, the notice of rescission ‘effectively cancelled the acceleration’ triggered by the notice of default, such that NRS 106.240’s 10-year period was reset.”
District Court allows state claims concerning the use of individuals’ likenesses in online ads to proceed
On April 19, the U.S. District Court for the Northern District of California denied a motion to dismiss in a putative class action alleging a California-based website operator violated various Ohio, Indiana, and California state laws by appropriating individuals’ names and likenesses and using this information in online teaser profile advertisements. Plaintiffs contended that the “teasers” violated their rights of publicity, and that memberships give users access to data including location history, family members, court records, employment information, and more. Plaintiffs further stated that “they ‘did not consent to the commercial use of their personal information and personas to promote subscriptions to a website with which they have no relationship.’” Defendant moved to dismiss on numerous grounds, including lack of standing.
In denying the motion to dismiss, the court ruled that plaintiffs have Article III standing to sue and that plaintiffs sufficiently pleaded a cognizable injury in “that their names, likenesses, and related information have commercial value and were being used for a commercial purpose.” The court also reviewed the adequacy of pleadings with respect to the alleged state violations and concluded, among other things, that the defendant’s teasers “are not subject to statutory exceptions for newsworthiness or public interest information.” As to the defendant’s alleged violations of California’s Unfair Competition Law (UCL), the court considered whether the California Consumer Privacy Act (CCPA) “immunizes [defendant’s] behavior from UCL liability.” According to the defendant, the CCPA generally obligates businesses to notify California residents when personal information is being used, it also “contains an express exemption for the use of publicly available data.” Because this conduct is allegedly permitted by the CCPA, the defendant argued, it cannot violate the UCL. The court disagreed, writing that “all that these provisions of the CCPA do are exempt publicly available data from special notification and disclosure rules that the statute itself imposes on companies that collect Californians’ data. . . . They do not expressly or impliedly set aside privacy-based tort claims or related UCL claims.”
Florida court grants sovereign immunity to lender and company officials
On April 11, a Florida county court concluded that a defendant lender and certain company officials were entitled to sovereign immunity in a case concerning alleged usury claims. The plaintiff claimed the lender used its supposed federally-recognized tribal affiliation to escape state usury regulations. The court dismissed the complaint, however, finding that the lender is an “arm of the tribe” under a six-prong test established by the U.S. Court of Appeals for the Tenth Circuit in Breakthrough Management Group, Inc. v. Chukchansi Gold Casino & Resort. The test determines whether sovereign immunity should apply by examining, among other factors, an entity’s creation, the amount of control a tribe has over the entity, and the financial relationship between the tribe and the entity. According to the court, the defendant’s evidence suggests that the tribe created the defendant as a business entity “to generate and contribute revenues” to the tribe’s general fund. The court found that insufficient detail was presented to support the plaintiff’s assertion that the defendant pays a relatively small percentage of its gross revenues to the tribe. The court added that the plaintiff also failed to present evidence proving that large portions of the defendant’s revenue were distributed to non-tribal entities. In dismissing the case with prejudice, the court also dismissed claims against three individual defendants because they were entitled to sovereign immunity. The court concluded that the plaintiff’s allegations demonstrated that the individuals committed the alleged wrongs in their capacities as employees and officers and therefore the “real party in interest” is the lender.
District Court approves final $85 million class action privacy settlement despite objections
On April 21, the U.S. District Court for the Northern District of California granted final approval of an $85 million class action settlement resolving privacy and data security allegations against a video conferencing provider. As previously covered by InfoBytes, consolidated class members claimed the company violated several California laws, including invasion of privacy, the “unlawful” and “unfair” prongs under the Unfair Competition Law, implied covenant of good faith and fair dealing, and unjust enrichment, among others. According to the more than 150 million class members (defined as individuals who “registered, used, opened or downloaded the [company’s] [m]eetings [a]pplication”), the company unlawfully shared their personal data with unauthorized third parties, failed to prevent unwanted and unauthorized meeting disruptions, and misrepresented the strength of its end-to-end encryption measures. Under the terms of the final settlement, the company will establish an $85 million fund to pay valid claims, fees and expenses, service payments, and taxes, and will make several major changes to its practices to “improve meeting security, bolster privacy disclosures, and safeguard consumer data.” Among other things, the settlement stipulates that the company will “provide in-meeting notifications to make it easier for users to understand who can see, save and share [their] information and content by alerting users when a meeting host or another participant uses a third-party application during a meeting.” Additionally, the company will educate users about available security features and ensure its privacy statement discloses the ability of users to share user data with third parties through integrated third-party software, record meetings, and/or transcribe meetings.
The court considered several objections raised by certain class members, including concerns argued on behalf of a subclass of users who used the meeting application “as part of a business that was legally or contractually required to maintain client confidentiality as part of the services the business provided.” According to these objectors, the individual payment amounts are inadequate for individuals who held sensitive meetings. The court countered that the objectors’ claims did not differ from other class members and that the recovery is intended to cover users who did not receive the benefit of their bargain with the company, and not for “special harm arising from a duty to maintain client confidentiality.”
District Court denies class cert in data breach suit
On April 20, the U.S. District Court for the Northern District of California denied plaintiffs’ motion for class certification in a lawsuit alleging a defendant hotel and restaurant group breached its contract when a data breach exposed the plaintiffs’ credit card account numbers and other private information. Plaintiffs alleged the defendant contracted with a third-party reservation site, which required consumers to provide payment card information and other personally identifying information (PII). The plaintiffs contended that during the data breach, hackers accessed customer data, and argued that “had [the third party] ‘employed multiple levels of authentication,’ rather than ‘single factor authorization,’ the ‘hacker would not . . . have been able to access the system.” Plaintiffs further claimed that the defendant served as the third party’s agent and was therefore responsible for its conduct.
In declining to certify the class, the court ruled that the plaintiffs failed to successfully allege any of their three claims on behalf of the class. The court reviewed the plaintiffs’ breach of contract claims, which alleged that the defendant promised to safeguard class members’ PII but failed to provide notice on its website that a third party was processing the payment information. According to the court, the plaintiffs could not show that all of the proposed class members would have believed they were providing their information to the defendant because the defendant’s “Book Now” button sent the user to the third party’s website and the defendant’s privacy policy disclosed its use of third party websites. The court also rejected the plaintiffs’ assertion that the defendant disclosed personal information in violation of California Civil Code because the information was hacked rather than disclosed by either the defendant or the third party. With respect to the plaintiffs’ Texas Deceptive Trade Practices Act claims, the plaintiffs argued that the defendant’s statements about protective measures were misleading because the third party did not employ multi-layer authentication. The court concluded that class treatment of those claims was improper as it could not determine whether the practice was misleading for the entire class as the question is dependent on whether class members believed they were providing PII to the defendant or to the third party.
Michigan Court of Appeals affirms dismissal of post-judgment interest case, says state court rule precludes class actions
On April 21, the Michigan Court of Appeals affirmed a trial court’s dismissal of a post-judgment interest putative class action after concluding that a court rule that precludes “‘actions’ based on claimed violations of statutes that permit[ ] recovery of statutory damages in lieu of actual damages” necessitated the dismissal of the plaintiff’s class action claim. According to the opinion, after the plaintiff defaulted on her $900 credit card debt, the debt was assigned to the defendant debt collector who calculated the plaintiff’s unpaid balance to be $6,241.20. The defendant sought judgment against the plaintiff in that amount, plus interest, fees, and costs, and obtained a default judgment against the plaintiff after she did not respond. The defendant consequently obtained several writs of garnishment, all of which indicated that post-judgment interest had been added to the debt. Several years later, the plaintiff filed a putative class action alleging the defendant violated the FDCPA and the Michigan Regulation of Collection Practices Act (RCPA) by overstating how much she owed “and by impermissibly inflating [defendant’s] costs and the amount of interest it charged.” The state trial court dismissed the plaintiff’s class action claims with prejudice on the basis that Michigan Court Rules (MCR) preclude her from recovering statutory damages under the RCPA because the RCPA does not explicitly permit class actions. The court also dismissed her individual claims for lack of subject-matter jurisdiction.
On appeal, the plaintiff argued that the trial court erred when it dismissed her class action claims under MCR because she also sought equitable relief and actual damages; however, the Michigan Court of Appeals pointed to a provision in the MCR that states “[a]n action for a penalty or minimum amount of recovery without regard to actual damages imposed or authorized by statute may not be maintained as a class action unless the statute specifically authorizes its recovery in a class action.” The Court of Appeals explained that the RCPA is implicated under this rule because (i) it permits the recovery of statutory damages; and (ii) does not contain a provision explicitly permitting class actions, and as such, “plaintiff’s class action claims must be dismissed irrespective of the fact that she also sought injunctive relief, declaratory relief, and actual damages.” The Court of Appeals further held that even if the plaintiff attempted to plead individual claims, the case would not be allowed to proceed because the actual damages in this case are not high enough to meet the jurisdictional minimum amount in Michigan.
District Court granted final approval of a $5.7 million class action overdraft fee settlement
On April 22, the U.S. District Court for the Northern District of New York granted final approval of a $5.7 million class action settlement resolving allegations related to overdraft fees applied to certain bank account transactions. According to plaintiffs’ unopposed motion for preliminary approval, the bank was sued in 2020 for allegedly unfairly assessing and collecting overdraft fees on “Authorize Positive, Purportedly Settle Negative Transactions” (APPSN fees) as well as NSF fees. The bank denied the allegations and moved to dismiss, contending that the relevant account agreements are unambiguous, and that even if there were, “extrinsic evidence resolves the ambiguity in its favor on the whether the fees at issue are permitted.” In August 2021, the parties notified the court that they had reached an agreement. Under the terms of the preliminarily approved settlement, the bank will make a $4.25 million cash payment and will “forgive, waive, and agree not to collect an additional” $1.5 million in uncollected overdraft fees. Class members, defined as all current and former bank customers with consumer checking accounts who were charged a relevant fee between December 4, 2013, and November 30, 2021, will automatically receive their pro rata share of the settlement fund without having to prove they were harmed from the bank’s practices. There are no claim forms, and class members will be determined through the bank’s checking account data. A formula will be used to calculate each class member’s distribution. Under the terms of the settlement approximately $2.9 million will go towards customers who were charged APPSN fees, while roughly $1.3 million will be allocated for customers who were charged retry NSF fees.
9th Circuit affirms district court’s ruling in TCPA case
On April 5, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s decision denying a defendants’ motion to compel arbitration in a putative class action under the TCPA. The defendants were a digital marketing company and a debt-relief service company. According to the opinion, the plaintiffs visited the defendants’ websites, but allegedly did not see a notice in fine print stating, “I understand and agree to the Terms & Conditions which includes mandatory arbitration.” The underlined phrases “Terms & Conditions” and “Privacy Policy” were hyperlinks, but they appeared in the same gray font as the rest of the sentence. The marketing company and one of the defendants allegedly used the consumer’s contact information to conduct a telemarketing campaign on behalf of the debt relief companies by allegedly placing unsolicited telephone calls and text messaging consumers. The plaintiffs filed a putative class action, alleging that the calls and text messages were made without their consent, and therefore violated the TCPA. The defendants moved to compel arbitration, arguing that, by clicking on the “continue” buttons, the plaintiffs had agreed to the mandatory arbitration provision hyperlinked in the terms and conditions. The district court denied the defendants’ motion, concluding “that the content and design of the webpages did not conspicuously indicate to users that, by clicking on the ‘continue’ button, they were agreeing to [the service company’s] terms and conditions.”
On appeal, the 9th Circuit agreed with the district court, finding that the digital marketing company’s website did not contain a reasonably conspicuous notice of its terms and conditions. The 9th Circuit ruled that such notice must be expressly displayed in a font size and format where it can be deemed that a reasonable Internet visitor saw it and was aware of it. The appellate court noted that, on the websites at issue, “[t]he text disclosing the existence of the terms and conditions … is the antithesis of conspicuous,” and that “is printed in a tiny gray font considerably smaller than the font used in the surrounding website elements, and indeed in a font so small that it is barely legible to the naked eye. The comparatively larger font used in all of the surrounding text naturally directs the user's attention everywhere else.” The 9th Circuit also held that, “while it is permissible to disclose terms and conditions through a hyperlink, the fact that a hyperlink is present must be readily apparent. …[T]he design of the hyperlinks must put such a user on notice of their existence.”
District Court compels college operator to testify in CFPB CID challenge
On April 20, a magistrate judge for the U.S. District Court for the District of Utah issued a report and recommendation in a CFPB action seeking to compel testimony from a private, non-profit operator of several colleges as part of its petition to enforce a 2019 civil investigative demand (CID). The CID seeks information about (i) the operator’s private student loan program to determine whether its private financing program violated federal consumer financial laws; and (ii) litigation involving the operator’s student loan program in which it has been a party in since 2012. The CID also sought testimony for what it said was an investigation into whether the operator had misled student borrowers about the offered loans or signed them up for loans without their knowledge or consent—a potential UDAAP violation. Former Bureau Director Kathleen Kraninger previously denied a petition to set aside the CID (and ultimately ratified its enforcement), but offered to narrow the CID’s scope to only require testimony regarding the first of these topics on the condition that the operator would testify as scheduled. The Bureau filed a petition to enforce the CID after the operator failed to comply. The operator challenged the Bureau’s single-director structure (which was addressed in rulings issued by the U.S. Supreme Court in Seila Law v. CFPB and Collins v. Yellen, covered by a Buckley Special Alert here and InfoBytes here), and argued, among other things, that the CID was “overly broad” and “burdensome.”
The magistrate judge rejected the majority of the operator’s arguments, which included constitutional arguments, lack of relevance, abuse of process, and that the demand is too indefinite, overly broad and burdensome. The magistrate judge concluded that enforcing the compromise offered by the Bureau back in 2019 would be an equitable solution and give the agency the necessary information without imposing undue burden, explaining that the defendant “has now had multiple years to prepare witnesses for deposition and should not be unduly burdened to answer questions regarding its own private-student-loan program.”