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4th Circuit affirms district court’s decision in lone class member's appeal
On February 10, the U.S. Court of Appeals for the Fourth Circuit affirmed a district court’s approval of a $3 million class action settlement between a class of consumers (plaintiffs) and a national mortgage lender (defendant), resolving allegations arising from a foreclosure suit. In 2014, the lead plaintiffs alleged that the defendants violated federal and Maryland state law by failing to; (i) timely acknowledge receipt of class members’ loss mitigation applications; (ii) respond to the applications; and (iii) obtain proper documentation. After the case was litigated for six years, a settlement was reached that required the defendant to pay $3 million towards a relief fund. The district court approved the settlement and class counsel’s request for $1.3 million in attorneys’ fees and costs, but an absent class member objected to the settlement, arguing that “the class notice was insufficient; the settlement was unfair, unreasonable, and inadequate; the release was unconstitutionally overbroad; and the attorneys’ fee award was improper.” A magistrate judge overruled the plaintiff’s objections, finding that “both the distribution and content of the notice were sufficient because over 97% of the nearly 350,000 class members received notice,” and that “class members ‘had information to make the necessary decisions and . . . the ability to even get more information if they so desired.’”
On the appeal, the 4th Circuit rejected the class member’s argument that the magistrate judge lacked jurisdiction to approve the settlement where she had not consented to have the magistrate hear the case. The 4th Circuit noted that only “parties” are required to consent to have a magistrate hear a case and held that absent class members are not “parties,” noting that “every other circuit to address the issue has concluded that absent class members aren’t parties.” The appellate court also upheld the adequacy of the class notice, and held that the magistrate judge did not abuse his discretion in finding that the settlement agreement was fair, reasonable, and adequate.
District Court approves settlement of class claiming privacy violations
On February 11, the U.S. District Court for the Central District of California granted approval of a $217 million class action settlement, resolving allegations that the Transportation Corridor Agencies (TCA) and their contractors (collectively, “defendants”) allegedly repeatedly used their access to drivers’ personal information to share data. According to the plaintiffs’ motion for final approval of the settlement, the defendants allegedly provided toll violation information to the California Department of Motor Vehicles so the agency could prevent drivers' vehicle registration renewals until the outstanding tolls were paid, in violation of California law. According to the settlement, the TCA is required to forgive $135 million in penalties and pay $29 million in cash awards. Each class representative will receive $15,000 from TCA, and class counsel will receive $17.5 million. Among other things, TCA must also increase the time to pay unpaid toll citations from five to seven days and update its privacy policies to include a list of the categories of personal identifying information sent to third parties. The toll operator is required to pay $11.95 million in cash to class members as part of the settlement, in addition to $3,000 to each class representative and $3 million to class counsel. Additionally, Orange County Transportation Authorities are required to forgive $40 million in penalties and pay $1 million in cash and will be required to reduce the maximum toll violation.
Appeals Court to consider whether CFPA covers trusts
On February 11, the U.S. District Court for the District of Delaware stayed a 2017 CFPB enforcement action against a collection of Delaware statutory trusts and their debt collector after determining there may be room for reasonable disagreement related to questions of “covered persons” and “timeliness.” As previously covered by InfoBytes, last December the court ruled that the CFPB could proceed with the enforcement action, which alleged, among other things, that the defendants filed lawsuits against consumers for private student loan debt that they could not prove was owed or that was outside the applicable statute of limitations. The court concluded that the suit was still valid and did not need ratification in light of the U.S. Supreme Court’s 2020 decision in Seila Law v. CFPB (which determined that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau—covered by a Buckley Special Alert), upending its previous dismissal of the case, which had held that the Bureau lacked enforcement authority to bring the action when its structure was unconstitutional. At the time, the court also disagreed with the defendants’ argument that, as trusts, they are not “covered persons” under the Consumer Financial Protection Act (CFPA). While the defendants argued that they used subservicers to collect debt and therefore did not “engage in” providing services listed in the CFPA, the court stated that the trusts were still “engaged” in their business and the alleged misconduct even though they contracted it out.
However, the court now certified two questions for appeal to the U.S. Court of Appeals for the Third Circuit. The first question centers on whether the defendants qualify as “covered persons” subject to the Bureau’s enforcement authority. The court concluded that another court may rule differently on this “novel” issue. “I was the first judge to decide whether the Bureau may bring enforcement actions against creditors like the Trusts who contract out debt collection and loan servicing,” the judge wrote, noting that the judge previously assigned to the case had also “expressed ‘some doubt’ that the Trusts are covered persons.” The second question addresses the Bureau’s efforts to continue the case after Seila. The defendants argued that the suit should be dismissed because the initial filing was invalid due to the director’s unconstitutional insulation and was not ratified within the statute of limitations. In December the court had held that the Bureau did not need to ratify the suit because—pointing to the majority opinion in the Supreme Court’s decision in Collins v. Yellen (covered by InfoBytes here)—“‘an unconstitutional removal restriction does not invalidate agency action so long as the agency head was properly appointed[,]’” and therefore the agency’s actions are not void and do not need to be ratified, unless a plaintiff can show that “the agency action would not have been taken but for the President’s inability to remove the agency head.” The court now acknowledged, however, that Collins “is a very recent Supreme Court decision” whose scope is still being “hashed out” in lower courts, which therefore “suggests that there is room for reasonable disagreement and thus supports an interlocutory appeal here.”
District Court grants summary judgment in discriminatory lending suit
On February 10, the U.S. District Court for the Northern District of Illinois granted summary judgment in favor of a national bank, its subsidiary, and a lending corporation (collectively, “defendants”) with respect to discriminatory lending allegations brought by the County of Cook in Illinois (County). The County alleged that the defendants “identified and targeted minority borrowers ‘using advanced data mining techniques and predictive analysis methodologies,’” to make short-term profits from African American, Latino, and other borrowers protected by the Fair Housing Act through a purported “equity stripping scheme,” as well as by foreclosing disproportionately on their homes. The alleged illegal practices included, among other things, marketing loan products to consumers who were not qualified for them, offering incentives to employees to increase loan volume among borrowers with lower credit scores, and making high-risk loans. However, the court found that “even if a jury were persuaded that [the defendants] engaged in one or more of these practices at some point between 2004 and 2012, nothing in the county’s submissions offers a basis for the jury to leap from such a finding to the conclusion that defendants carried out an integrated equity stripping scheme targeting minority borrowers.” With respect to the County’s claim that defendants used “data mining” to identify and target minority populations for the purpose of marketing its home loans, the court found that “[I]f there is any authority for the proposition that soliciting business from minority prospects, or marketing in neighborhoods with a high concentration of minority residents, amounts to intentional discrimination in violation of the FHA, the county has not cited it.” The court also ruled that “[b]ecause the [County] acknowledges that its ledger (including the appropriations and expenditures of the three offices it claims had additional costs) was not affected by the alleged discrimination, compensatory damages are unavailable.”
1st Circuit vacates ruling in Maine FCRA case
On February 10, the U.S. Court of Appeals for the First Circuit vacated a district court’s ruling that the FCRA preempts amendments to the Maine Fair Credit Reporting Act that govern how certain debts are reported to credit reporting agencies. As previously covered by InfoBytes, a trade association—whose members include the three nationwide consumer credit reporting agencies (CRAs)—sued the Maine attorney general and the superintendent of Maine’s Bureau of Consumer Credit Protection (collectively, “defendants”) for enacting the 2019 amendments, which, among other things, place restrictions on how medical debts can be reported by the CRAs and govern how CRAs must investigate debt that is allegedly a “product of ‘economic abuse.’” The trade association argued that the amendments, which attempt to regulate the contents of an individual’s consumer report, are preempted by the FCRA, and contended that language under FCRA Section 1681t(b)(1)(E) should be read to encompass all claims relating to information contained in consumer reports. The district court agreed, ruling that, as a matter of law, the amendments are preempted by § 1681t(b)(1)(E). According to the court, Congress’ language and amendments to the FCRA’s structure “reflect an affirmative choice by Congress to set ‘uniform federal standards’ regarding the information contained in consumer credit reports,” and that “[b]y seeking to exclude additional types of information” from consumer reports, the amendments “intrude upon a subject matter that Congress has recently sought to expressly preempt from state regulation.” The defendants appealed.
On appeal, the plaintiff argued that the phrase “relating to information contained in consumer reports” broadly preempts all state laws, but the appellate court was not persuaded and concluded that the broad interpretation “is not the most natural reading of the statute’s syntax and structure.” The 1st Circuit found “no reason to presume that Congress intended, in providing some federal protections to consumers regarding the information contained in credit reports, to oust all opportunity for states to provide more protections, even if those protections would not otherwise be preempted as ‘inconsistent’ with the FCRA under 15 U.S.C. § 1681t(a).” In addition, the court reminded the plaintiff that “even where Congress has chosen to preempt state law, it is not ousting states of regulatory authority; state regulators have concurrent enforcement authority under the FCRA, subject to some oversight by federal regulators.” As such, the appellate court held that the FCRA did not broadly preempt the entirety of Maine’s amendments, and remanded the case back to the district court to determine the scope under which the amendments may be preempted by the FCRA.
District Court says NY champerty statute bars RMBS suit
On February 8, the U.S. District Court for the Southern District of New York issued an opinion granting in part and denying in part defendants’ motion for summary judgment and denying plaintiffs’ motions for partial summary judgment in parallel actions concerning pre-2008 residential mortgage-back securities (RMBS) trusts. In both cases, plaintiffs—RMBS certificateholders—filed suit alleging breaches of contractual, fiduciary, statutory, and common law duties with respect to certificates issued by RMBS trusts for which two of the defendants’ units served as trustee. Both plaintiffs alleged that the defendants failed to follow through on obligations to monitor the pre-2008 RMBS trusts that they administered. However, the court partially ruled in favor of the defendants, concluding that one set of plaintiffs could not avoid their loss in an RMBS trustee case brought against a different national bank, in which the court deemed the plaintiffs lacked a valid legal right to sue. In that matter, the U.S. Court of Appeals for the Second Circuit issued an opinion last October, agreeing with a different New York judge that “found the assignments champertous under New York law, rendering them invalid and leaving Plaintiffs without standing.” According to the 2nd Circuit, district court findings showed it was clear that the assignments were champertous “as they were made ‘with the intent and for the primary purpose of bringing a lawsuit.’”
The district court noted that the assignments of all the claims in the current matter were essentially identical to the issue already decided by the 2nd Circuit, and saw sufficient overlap to find the plaintiffs’ vehicles “collaterally estopped” from relitigating the issues of prudential standing and champerty. “The issues decided by the court of appeals relating to champerty and prudential standing are dispositive of the present action,” the court wrote. “Without prudential standing, the [] plaintiffs cannot assert claims arising out of the certificates and the entire [] action must be dismissed.” With respect to the other set of plaintiffs, while the court allowed certain claims to stand, it declined to grant any portion of the joint partial summary judgment related to the defendants’ alleged responsibilities as trustee, ruling that plaintiffs must prove those claims at trial.
7th Circuit affirms ruling in one case, overturns ruling in bona fide error case
On February 2, the U.S. Court of Appeals for the Seventh Circuit, in a consolidated case, affirmed summary judgment for one defendant’s FDCPA bona fide error defense and overturned summary judgment on the same defense for another. According to the opinion, the plaintiffs in each case disputed debts that appeared on their credit reports by notifying the defendants via fax. In the first case, an employee sent the fax dispute to the wrong department, and thus the dispute was never recorded on the account. In the second case, the defendant stopped monitoring the fax machine but had not disconnected it, and therefore did not even realize it received the dispute. The plaintiffs filed separate lawsuits, and the district courts in each case granted summary judgment for the defendants on the grounds that each was entitled to the FDCPA’s bona fide error defense.
The 7th Circuit consolidated the cases on appeal. The appellate court affirmed the first case, holding that the defendant’s procedures were “reasonably adapted” to avoid errors when receiving faxes because there were step-by-step instructions on which department to send faxes to. The court determined that the employee sent the fax to the wrong department by mistake. The plaintiff argued that the defendant nevertheless needed to have a policy in place for what to do when a fax ended up in the wrong department, but the 7th Circuit agreed with the district court that “[t]he absence of such a policy, however, does not mean that the defendant failed to maintain reasonably adapted procedures.” By contrast, the court found the procedures in the second case were not reasonably adapted and did not qualify for the bona fide error defense. While the defendant did remove its fax number from its website, it did not remove the number from the National Registry and did not announce that it would completely stop checking the machine, leaving it no way to prevent the relevant errors.
9th Circuit affirms judgment for defendant in FCRA suit
On February 8, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment in favor of a consumer reporting agency (defendant). The suit accused the defendant of violating the FCRA by willfully and negligently disclosing a 10-year-old criminal charge that had been dismissed six years prior to an inquiry made on the plaintiff’s credit report. The plaintiff allegedly submitted an application for housing in 2010, which was denied. In 2010, the defendant provided a tenant screening report, which included details of a criminal charge from 2000, which was outside the seven-year window of the FCRA. However, the plaintiff’s criminal charge was dismissed in 2004, which was within the seven-year reporting window. The plaintiff sued under the FCRA, alleging that the defendant reported criminal information older than seven years, failed to maintain procedures designed to avoid violating the FCRA and ensure the maximum possible accuracy of the information in the report, and failed to conduct a reasonable reinvestigation after receiving a consumer dispute.
In ruling for the defendant, the 9th Circuit stated that “to prove a negligent violation [of the FCRA], a plaintiff must show that the defendant acted pursuant to an objectively unreasonable interpretation of the statute.” The 9th Circuit held that Section 1681c(a)(5) of the FCRA “does not specifically state the date that triggers the reporting window.” Further, the appellate court looked to guidance from the FTC and the CFPB, which “appeared to permit reporting the charge” at the time.
As the appellate court explained, whether the consumer reporting agency correctly interpreted § 1681c(a)(5) to permit the reporting of a criminal charge that was filed outside of, but dismissed within, the statute’s seven-year window, arose as a matter of first impression. However, the consumer reporting agency introduced evidence that its interpretation was consistent with industry norms and standards. Likewise, FTC guidance on the question, at the time, appeared to permit reporting the charge. The appellate court noted, therefore, that it “cannot say, nor could any other reasonable fact finder, that on this record defendant’s violation of [the FCRA] was negligent, much less willful.” As a result, the 9th Circuit affirmed summary judgment in favor of the defendant.
District Court denies FTC’s stay bid in $550 million suit
On February 7, the U.S. District Court for the Northern District of Georgia denied the FTC’s motion to stay, or in the alternative, voluntarily dismiss its $550 million consumer deception case against a technology company and its CEO (collectively, “defendants”). The FTC filed the motion to stay (or voluntarily dismiss) after a recent U.S. Supreme Court decision altered the agency’s ability to obtain equitable monetary relief.
The FTC filed a suit in 2019 alleging the defendants made deceptive representations to customers and charged hidden, unauthorized fees in connection with the company’s “fuel card” products, which was in violation of Section 5 of the FTC Act. In 2019, when the agency filed its lawsuit, legal precedent held that the FTC could obtain restitution for consumers directly through such civil proceedings in federal court. However, in April of 2021, the Supreme Court held in AMG Capital Management, LLC v. FTC, that the FTC does not have statutory authority to obtain equitable monetary relief under Section 13(b) of the FTC Act. (Covered by InfoBytes here.)
As a result, the FTC filed its motion to stay or voluntarily dismiss in an attempt to preserve the possibility of obtaining monetary relief for injured consumers in federal court, while it pursues claims against the defendants through the agency’s administrative process. The defendants argued they would be harmed by a dismissal of the FTC’s suit in federal court since the defendants have spent money and resources on their case to date. The defendants also claimed that the FTC’s request was done to seek a more favorable forum, and that the FTC’s four-month delay in pursuing this new course after the Supreme Court’s AMG decision demonstrates bad faith. The court noted that “[i]n filing this lawsuit in federal court in December of 2019, the FTC was acting in reliance on the state of the law as it existed at that time in this circuit and all others except the Seventh Circuit,” and “[t]here is no fault, and nothing unreasonable, in the FTC’s decision.” Nevertheless, in denying the FTC’s motion, the court concluded that the “balance of equities does not weigh in favor of a stay or dismissal without prejudice.”
District Court grants MSJ to creditor in FCRA case
On February 4, the U.S. District Court for the Middle District of Florida granted a defendant creditor’s motion for judgment on the pleadings in a case alleging FCRA violations. The plaintiff alleged that the payment status for a tradeline appearing on her credit report incorrectly showed it as “90 days past due” despite the account being paid and closed. She filed suit against the defendant and two consumer reporting agencies (CRAs) claiming the information furnished by the defendant to the CRAs was inaccurate and that the CRAs prepared and issued credit reports containing “inaccurate and misleading information.” Under the FCRA, entities that furnish information to CRAs are required to ensure the accuracy of the information. If an entity receives a notice of dispute from a consumer it is required to conduct an investigation and report the results to the CRAs—actions, the plaintiff claimed, the defendant failed to do. She further contended that the “pay status” field—which she claimed “is ‘specifically designed to be understood as the current status of the account’”—was causing her credit score to be lower than if it was marked as closed. However, upon review, the court determined that when objectively viewing the plaintiff’s credit reports in their entirety, it is apparent that the account is accurate and not misleading. According to the court, “the only reasonable reading of the [disputed] account is that the account was past due in September 2020, at which time the account was updated one last time and closed—zeroing out the balance. It does not indicate, as [the plaintiff] argues, that she is currently 60 days (or 90 days) past due.” Moreover, no reasonable creditor would look at the report and be misled into believing that the plaintiff had a present pending amount due, the court added.