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2nd Circuit: Credit report showing “satisfied” judgment was not misleading
On April 9, the U.S. Court of Appeals for the Second Circuit held that a credit reporting agency’s (CRA) report that a judgment was “satisfied” was accurate and not misleading under the FCRA. According to the opinion, a debt collection action was brought and default judgment entered against the plaintiff. The parties ultimately filed a joint stipulation to resolve the action and discontinue all claims with prejudice. Afterwards, the CRA’s report showed the default judgment, but was later amended to read “judgment satisfied”—a statement that the plaintiff allegedly repeatedly disputed. The plaintiff ultimately filed a lawsuit against the CRA, alleging the agency “willfully and/or negligently violated various FCRA provisions by persisting in publishing [the] report and failing to follow certain of the FCRA’s procedural notice requirements.” Among other things, the plaintiff claimed that the CRA also violated the FCRA’s source-disclosure and reinvestigation provisions and should have disclosed that the information about the judgment came from a contractor-intermediary working for the CRA. The district court dismissed one of the FCRA claims and granted summary judgment to the CRA on the remaining FCRA claims.
On appeal, the 2nd Circuit agreed with the district court, concluding first that there was no FCRA reporting violation because the description of the judgment as “satisfied” was accurate. Moreover, the appellate court wrote, even if the CRA should have disclosed that the contractor was the source, the plaintiff “failed to present any evidentiary basis for concluding that he suffered actual damages” resulting from the CRA’s failure to not disclose or treat the contractor as a source or furnisher of the information about the judgment. The 2nd Circuit further rejected the plaintiff’s claims against the CRA for willful violations of sections 1681g and 1681i, concluding that the sections “can be reasonably interpreted not to require such a disclosure and no more need be shown.”
Massachusetts Appeals Court: Plaintiffs’ counterclaim under PHLPA filed after foreclosure sale is untimely
On April 7, the Massachusetts Appeals Court held that plaintiffs could not assert a violation of the Massachusetts Predatory Home Loan Practices Act (PHLPA) in connection with a foreclosure proceeding. In 2005, the plaintiffs obtained a loan to purchase a home but later defaulted on their mortgage. In 2016, the defendant loan servicer began foreclosure proceedings, and sent plaintiffs a right to cure letter followed by an acceleration notice more than 90 days later. Approximately a year later, the servicer sent the plaintiffs a notice of the foreclosure sale, purchased the property, and ultimately filed a summary process eviction action and motion for summary judgment, which the state housing court granted. The plaintiffs then filed a counterclaim alleging the servicer violated PHLPA § 15(b)(2). The servicer maintained, however, that it is “entitled to judgment as a matter of law because more than five years had passed between the time the [plaintiffs] closed on the loan and the time they brought their counterclaim for violation of the PHLPA,” and that, as such, “the five-year statute of limitations in § 15(b)(1) bars their counterclaim.”
On appeal, the Appeals Court majority determined that while the five-year statute of limitations under § 15(b)(1) did not apply to the borrowers’ counterclaim, § 15(b)(2)—under which the plaintiffs brought their counterclaim—“provides that a borrower may employ a defense, claim, or counterclaim ‘during the term of a high-cost home mortgage loan.’” However, because a foreclosure sale following acceleration of a note and mortgage “concludes the term of a mortgage loan,” the Appeals Court deemed the plaintiffs’ counterclaim was untimely.
Court signals approval of tribal lending settlement
On April 7, the U.S. District Court for the Eastern District of Virginia preliminarily approved a revised class action settlement concerning allegations that an operation used tribal sovereign immunity to evade state usury laws when charging unlawful interest on loans. The plaintiffs filed a class action complaint against the operation alleging, among other things, violations of the Racketeer Influenced and Corrupt Organizations Act, EFTA, and TILA. The preliminarily-approved revised settlement would cancel approximately 71,000 class member loans, including a group of loans sold by the operation to another investor. It would also require the operation to pay $86 million, including an additional $21 million payment from the individual defendant, and cap attorneys’ fees for class counsel at $15 million. The operation would also be required to comply with several non-monetary provisions, including (i) requesting that negative credit reporting information concerning the loans be deleted; and (ii) ensuring that key loan terms, including interest rates and payment schedules to borrowers, are disclosed in loan agreements in compliance with federal law.
2nd Circuit: Banking a known terrorist organization does not, by itself, establish Antiterrorism Act liability
On April 7, the U.S. Court of Appeals for the Second Circuit affirmed summary judgments (see here and here) dismissing amended complaints filed in two actions seeking to hold a U.K. bank and a French bank, respectively, liable under the Antiterrorism Act of 1990 (ATA) for allegedly “providing banking services to a charitable organization with alleged ties to Hamas, a designated Foreign Terrorist Organization (FTO) alleged to have committed a series of terrorist attacks in Israel in 2001-2004.” The complaints alleged that the U.K. bank and the French bank knowingly provided banking services, including sending millions of dollars in wire transfers, to organizations previously designated by the U.S. as Specially Designated Global Terrorists. The district court referred to the 2nd Circuit’s decision in Linde v. Arab Bank PLC, in which the appellate court held that “a bank’s provision of material support to a known terrorist organization is not, by itself, sufficient to establish the bank’s liability under the ATA,” and that “in order to satisfy the ATA’s requirements for civil liability as a principal,” the bank’s act must “also involve violence or endanger human life.” Moreover, the Linde opinion held, among other things, that a bank’s act must be intended to intimidate or coerce the civilian population or influence or affect a government, and that the bank “ must have been ‘generally aware of [its] role as part of an overall illegal or tortious activity at the time’” the assistance was provided.
The plaintiffs argued in a consolidated appeal that the district court misapplied the Linde holding and erred in concluding that the evidence presented was “insufficient to permit an inference that the bank was generally aware that it was playing a role in terrorism.” The banks countered that if the appellate court reversed the judgments, the claims should be thrown out for lack of personal jurisdiction. On appeal, the 2nd Circuit agreed with the district court’s dismissal of claims “on the ground that plaintiffs failed to adduce sufficient evidence that the bank itself committed an act of international terrorism within the meaning of §§ 2333(a) and 2331(1)” of the ATA. The opinion noted, among other things, that the plaintiffs’ experts said the charities to which the banks transferred funds as instructed by one of the organizations actually performed charitable work and that there was no indication that they funded terrorist attacks. As such, the banks’ conditional cross-appeal was dismissed as moot.
11th Circuit: Class members must arbitrate overdraft suits
On April 7, the U.S. Court of Appeals for the Eleventh Circuit upheld a district court’s ruling compelling individual arbitration in five separate putative class action suits concerning allegations that a national bank’s overdraft practices violated the covenant of good faith and fair dealing. The opinion does not address plaintiffs’ claims concerning the bank’s alleged overdraft practices, but rather reviews the enforceability of arbitration clauses contained in account agreements between plaintiffs and the bank (or its predecessor), which require individual, non-class arbitration of consumer account-related disputes. The plaintiffs appealed a ruling by the U.S. District Court for the Southern District of Florida that the account agreements “delegate[] to the arbitrator all questions of arbitrability, including Plaintiffs’ challenge to the enforceability of the arbitration clause,” and that it is up to the arbitrator, and not the court, to determine whether the parties are required to arbitrate. According to the plaintiffs, the arbitration clause is illusory and/or unconscionable and therefore unenforceable. They challenged, among other things, that “the incorporation of the [American Arbitration Association] (AAA) rules cannot overcome the plain language of the delegation clause,” which the plaintiffs argued limited delegation of gateway issues to those related to a disagreement about the meaning of the arbitration agreement or whether a disagreement is a “dispute” subject to binding arbitration.”
The appellate court disagreed, concluding that nothing in the account agreement with the bank “explicitly excludes or contradicts” anything included in the AAA rules, and that it has repeatedly held that an agreement that incorporates “AAA rules with language providing that ‘the arbitrator shall have the power to rule on his or her own jurisdiction,’” shows “a clear and unmistakable intent that the arbitrator should decide all questions of arbitrability.” Moreover, the 11th Circuit found no inconsistency in the account agreement’s language, holding that when “[r]ead together, we view the incorporation and delegation clause as ‘mutually reinforcing methods of delegation.’” With respect to the predecessor bank’s agreement, which does not contain a delegation provision, the appellate court ultimately determined that the arbitration clause was neither illusory and/or unconscionable.
Split 11th Circuit says website not a “public accommodation” under ADA
On April 7, a split U.S. Court of Appeals for the Eleventh Circuit concluded that a website is not a “public accommodation” under the Americans with Disabilities Act (ADA). The plaintiff sued a supermarket chain under Title III of the ADA, alleging its website was incompatible with screen reader software and caused him injury by denying him the “full and equal enjoyment” provided to sighted customers. The district court issued a judgment ordering the supermarket chain to bring its website into compliance with the Web Content Accessibility Guidelines 2.0 standard after concluding that the plaintiff sufficiently demonstrated a sufficient “nexus” between the website and the supermarket chain’s physical premises. On appeal, the appellate court reviewed, among other things, the question of whether websites are public accommodations under the ADA. The majority vacated the district court’s ruling that the website was an intangible barrier to the supermarket chain’s physical stores and in violation of the ADA. Specifically, the majority reviewed the 12 types of locations listed as public accommodations under Title III, and found that none of them were “intangible places or spaces, such as websites.”
The majority further distinguished its conclusion from its holding in Rendon. v. Valleycrest Products, Ltd., in which it determined that the ADA covers both tangible, physical barriers as well as “intangible barriers, such as eligibility requirements and screening rules or discriminatory policies and procedures that restrict a disabled person’s ability to enjoy the defendant entity’s goods, services and privileges,” noting that the “limited use website, although inaccessible by individuals who are visually disabled, does not function as an intangible barrier to an individual with a visual disability accessing the goods, services, privileges or advantages of [the supermarket chain’s] physical stores.” Moreover, the majority rejected the plaintiff’s argument that Rendon established that a plaintiff only has to demonstrate a “nexus” between the service and the physical public accommodation, declining to adopt such a standard after finding no basis for it in the ADA or in previous precedent. This decision further divides the circuits over the scope of a “public accommodation.”
Court rules debt purchaser qualifies as a “debt collector” and “collector” under federal and state law
On April 2, the U.S. District Court for the District of Maryland denied a defendant debt purchaser’s motion for summary judgment, ruling that the company qualifies as a “debt collector” and “collector” under the FDCPA, the Maryland Consumer Debt Collection Act (MCDCA), and the Maryland Consumer Protection Act (MCPA). The plaintiff had filed suit against three entities, including the defendant, alleging the entities violated the FDCPA, MCDCA, and MCPA by (i) threatening to file criminal charges; (ii) falsely implying that she committed a crime for which charges could be filed; and (iii) revealing information about the debts to her daughter and on voice mails with her employer. The defendant, who relied on the two other entities to conduct the actual debt collection, argued that it does not qualify as a debt collector under the FDCPA, and that it is not a “collector” under the MCDCA, and therefore cannot be held liable under the MCPA. The defendant further argued that, “regardless of whether it meets one these statutory definitions,” it cannot be held vicariously liable for actions taken by the other two entities.
The district court disagreed, ruling that the defendant qualifies as a debt collector under the “principal purpose” prong of the FDCPA and cannot evade liability “simply by outsourcing the specific collection activities to third parties.” With respect to whether it qualifies as a “collector” under the MCDCA and MCPA, the court noted that while the defendant argued that “it [did] not itself, or through in-house debt collectors, undertake any actions to collect [the plaintiff’s] debts, the definition of ‘collector’ is not limited only to persons or entities that directly engage with consumers to collect the debt.” As such, because the defendant qualifies as a debt collector and collector under federal and state law, it could be held vicariously liable. Moreover, the court stated there is “genuine dispute of material fact” regarding whether the defendant had a “principal-agent relationship” with the other two entities that subjects it to vicarious liability. In particular, contracts entered between the three entities allowed the defendant to, among other things, “exercise a great degree of control over consumer complaints” regarding collection actions.
11th Circuit: Arbitration provision survives termination of subscriber agreement
On April 5, the U.S. Court of Appeals for the Eleventh Circuit held that an arbitration provision survived the termination of a subscriber agreement between a defendant cable company and a customer. According to the opinion, the plaintiff obtained services from the defendant in December 2016, and signed a subscriber agreement containing an arbitration provision covering claims that arose before the agreement was entered into and after it expired or was terminated. The plaintiff terminated the defendant’s services in August 2017, but later called the defendant in 2019 to inquire about pricing and services. The plaintiff filed a putative class action, alleging the defendant violated the FCRA when it accessed his credit report during the call without his permission, thus lowering his credit score. The defendant moved to compel arbitration, which the district court denied, ruling that while the parties may have intended for the arbitration provision to survive termination of the subscriber agreement, the plaintiff’s claim fell outside the scope of the subscriber agreement because “no reasonable person would believe that the Arbitration Provision was so all-encompassing as to apply to all claims regardless of when they occurred or whether they related to the agreement.” Moreover, the district court ruled that the Federal Arbitration Act (FAA) “could only compel [the plaintiff] to arbitrate his FCRA claim if it ‘arose out of’ or ‘relate[d] to’ the 2016 subscriber agreement, which the district court held it did not.
On appeal, the appellate court disagreed, concluding that the plaintiff’s FCRA claim relates to the 2016 subscriber agreement since the defendant was only able to conduct the credit check during the phone call because of its previous relationship with the plaintiff. The plaintiff argued that he was calling to obtain new services and not to reconnect services, but the appellate court countered that the “reconnection provision” contained within the subscriber agreement provides broad language that defines terminate, suspend, and disconnect as not necessarily being mutually exclusive. However, the 11th Circuit clarified that its holding is narrow, and that because it concluded that the plaintiff’s claim did arise out of the subscriber agreement the court did not need to and was not making a determination about whether the “broad scope” of the arbitration provision in the subscriber agreement is enforceable under the FAA.
11th Circuit affirms dismissal of RESPA suit
On March 31, the U.S. Court of Appeals for the Eleventh Circuit affirmed dismissal of an action for failure to state a claim against a mortgage servicer, agreeing with the district court that the consumer failed to plausibly allege a “causal link” between the alleged RESPA violation and actual damages. According to the opinion, the plaintiff alleged he never received notice of a foreclosure sale on his deceased mother’s property, although he was the administrator of her estate. He filed suit, claiming the servicer failed to respond to his qualified written requests within 30 days as required under RESPA, and that as a result of the foreclosure, he allegedly “suffered actual damages from the loss of his mother’s home, loss of her belongings, and his mental anguish.” The servicer countered that the alleged “actual damages” did not result from the servicer’s failure to respond properly to the plaintiff’s letters, but rather were a result of the estate’s failure to pay the mortgage and the resulting foreclosure. In affirming the dismissal of the plaintiff’s claims, the 11th Circuit agreed with the district court that the plaintiff never asked the servicer to rescind the foreclosure sale (noting that under RESPA, a borrower is not authorized to request rescission of a foreclosure sale), and that, moreover, the servicer’s failure to do what the plaintiff actually asked it to do—provide information about the mortgage—did not cause his damages.
5th Circuit: Oral agreement to accept past-due mortgage payments is unenforceable under statute of frauds
On March 26, the U.S. Court of Appeals for the Fifth Circuit affirmed summary judgment for a national bank, upholding its foreclosure sale in a 2-1 opinion. According to the opinion, after the borrowers missed several payments the bank foreclosed on their property. The borrowers filed suit alleging, among other things, that the bank “violated the deed of trust and the Texas Property Code” by failing to send proper notices prior to the foreclosure of their home, and also violated the Texas Debt Collection Act (TDCA). The bank argued that it had properly served notice, and the district court agreed, granting summary judgment on the foreclosure-sale claims, concluding “that there was no genuine dispute over whether [the bank] properly sent notice in compliance with both the deed of trust and the Texas Property Code.” The district court also agreed with the bank that an oral agreement between the borrowers and a bank representative to accept a $14,000 payment “to bring the loan current” was “unenforceable under the statute of frauds because it modified the terms of the loan agreement.”
On appeal, the majority opinion considered, among other things, whether the statute of frauds barred consideration of the alleged oral agreement under the TDCA. The majority concluded that alleged oral agreement “cannot alone” sustain the borrowers’ claims under the TDCA. In order for the $14,000 to be considered “an actual, enforceable acceptance” as either part of the repayment plan or to bring the loan current, the agreement would have to be in writing under Texas law, the majority held. The dissenting judge argued, however, that the bank violated the TDCA by “misrepresenting, in a March 2017 phone call, that $14,000 would be automatically deducted from the [borrowers’] account to pay off the bulk of their past-due mortgage payments.” According to the dissent, “the phone call plausibly muddled the [borrowers’] understanding of whether they had a past-due mortgage debt, how much they owed, and whether they were in default,” thus creating a false sense of security about their mortgage—the kind of conduct the TDCA is intended to guard against.