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9th Circuit affirms summary judgment finding in favor of debt collector in lawsuit over retail card debt collection
On August 28, the U.S. Court of Appeals for the Ninth Circuit affirmed the decision of a district court to throw out a pair of consolidated punitive class action lawsuits brought against a nationwide debt collector company that alleged the company unlawfully attempted to collect debts incurred on retail-branded credit cards. A three-judge panel held that the debt collector did not “intentionally” violate provisions of the FDCPA when it circulated collection letters that did not disclose the time-barred natures of the debts under Oregon law and rejected the plaintiff’s argument that the district court had erred in granted summary judgment in favor of the company. The 9th Circuit noted that “mistakes about the time-barred status of a debt can be bona fide errors” and that the debt collector company presented evidence indicating that its failure to disclose that certain Oregon debts were time-barred were not intentional. Moreover, the 9th Circuit rejected plaintiff’s claim that a four-year statute of limitations applied to store-branded credit card accounts at the time the collection letters were sent, in part because the debt collector had sound reason to take the position that a six-year statute of limitations applied for an “account stated” under Oregon law. Ultimately, the applicable statute of limitations in this scenario remains “unsettled” under Oregon law. This, along with the fact that the 9th Circuit agreed that the company’s alleged violations were unintentional, resulted in the court’s decision to affirm the summary judgment finding in favor of the debt collector.
On July 13, a panel of the U.S. Court of Appeals for the Ninth Circuit entered an order amending an opinion filed on December 28, 2022 and denied a petition for rehearing en banc in a putative class action accusing a multinational technology company and search engine and its affiliated video-sharing platform of collecting children’s data and tracking their online behavior surreptitiously without parental consent in violation of state law and the Children’s Online Privacy Protection Act (COPPA). The panel unanimously voted against defendant’s en banc rehearing request, commenting that no other 9th Circuit judge has requested a vote on whether to consider the matter en banc.
Claiming the defendant used “persistent identifiers” — which the FTC’s regulations define as information “that can be used to recognize a user over time and across different Web sites or online services” — class members alleged state law claims arising under the constitutional, statutory, and common laws of California, Colorado, Indiana, Massachusetts, New Jersey, and Tennessee. Last December, the three-judge panel reversed and remanded the district court’s dismissal of the suit, disagreeing that the allegations were squarely covered, and preempted, by COPPA (covered by InfoBytes here.) On appeal, the 9th Circuit considered whether COPPA preempts state law claims based on underlying conduct that also violates COPPA’s regulations. The panel determined that “COPPA’s preemption clause does not bar state-law causes of action that are parallel to, or proscribe the same conduct forbidden by, COPPA. Express preemption therefore does not apply to the children’s claims.” The panel further noted that the U.S. Supreme Court and others have long held “that a state law damages remedy for conduct already proscribed by federal regulations is not preempted.”
The panel, however, amended its prior opinion to note that the FTC supports its conclusion that COPPA does not preempt the asserted state law privacy claims on the basis of either express preemption or conflict preemption. At the end of May, at the 9th Circuit’s request, the FTC filed an amicus brief (covered by InfoBytes here) arguing that COPPA does not preempt state laws that are consistent with the federal statute’s treatment of regulated activities. The panel concluded that neither express preemption nor conflict preemption bar the plaintiffs’ claims.
The U.S. Court of Appeals for the Ninth Circuit recently issued a split decision upholding a Nevada medical debt collection law after concluding the statute was neither preempted by the FDCPA or the FCRA, nor a violation of the First Amendment. SB 248 took effect July 1, 2021, in the wake of the Covid-19 pandemic, and requires debt collection agencies to provide written notification to consumers 60 days “before taking any action to collect a medical debt.” Debt collection agencies are also barred from taking any action to collect a medical debt during the 60-day period, including reporting a debt to a consumer reporting agency.
Plaintiffs, a group of debt collectors, sued the Commissioner of the Financial Institutions Division of Nevada’s Department of Business and Industry after the bill was enacted, seeking a temporary restraining order and a preliminary injunction. In addition to claiming alleged preemption by the FDCPA and the FCRA, plaintiffs maintained that SB 248 is unconstitutionally vague and violates the First Amendment. The district court denied the motion, ruling that none of the arguments were likely to succeed on the merits.
In agreeing with the district court’s decision, the majority concluded that SB 248 is not unconstitutionally vague with respect to the term “before taking any action to collect a medical debt” and that any questions about what constitute actions to collect a medical debt were addressed by the statute’s implementing regulations. With respect to whether SB 248 violates the First Amendment, the majority held that debt collection communications are commercial speech and thus not subject to strict scrutiny. As to questions of preemption, the majority determined that SB 248 is not preempted by either the FDCPA or the FCRA. The majority explained that furnishers’ reporting obligations under the FCRA do not include a deadline for when furnishers must report a debt to a CRA and that the 60-day notice is not an attempt to collect a debt and therefore does not trigger the “mini-Miranda warning” required in a debt collector’s initial communication stating that “the debt collector is attempting to collect a debt.”
The third judge disagreed, arguing, among other things, that the majority’s “position requires setting aside common sense” in believing that the FDCPA does not preempt SB 248 because the 60-day notice is not an action in connection with the collection of a debt. “The only reason that a debt collector sends a Section 7 Notice is so that he can later start collecting a debt,” the dissenting judge wrote. “It is impossible to imagine a situation where a debt collector would send such a notice except in pursuit of his goal of ultimately obtaining payment for (i.e., collecting) the debt.” The dissenting judge further argued that by delaying the reporting of unpaid debts, SB 248 conflicts with the FCRA’s intention of ensuring credit information is accurately reported.
The FTC recently filed an amicus brief in a case on appeal before the U.S. Court of Appeals for the Ninth Circuit, arguing that the Children’s Online Privacy Protection Act (COPPA) does not preempt state laws that are consistent with the federal statute’s treatment of regulated activities. The full 9th Circuit is currently reviewing a case brought against a multinational technology company accused of using persistent identifiers to collect children’s data and track their online behavior surreptitiously and without their consent in violation of COPPA and various state laws.
As previously covered by InfoBytes, last December the 9th Circuit reversed and remanded a district court’s decision to dismiss the suit after reviewing whether COPPA preempts state law claims based on underlying conduct that also violates COPPA’s regulation. At the time, the 9th Circuit examined the language of COPPA’s preemption clause, which states that state and local governments cannot impose liability for interstate commercial activities that is “inconsistent with the treatment of those activities or actions” under COPPA. The opinion noted that the 9th Circuit has long held “that a state law damages remedy for conduct already proscribed by federal regulations is not preempted,” and that the statutory term “inconsistent” in the preemption context refers to contradictory state law requirements, or to requirements that stand as obstacles to federal objectives. The opinion further stated that because “the bar on ‘inconsistent’ state laws implicitly preserves ‘consistent’ state substantive laws, it would be nonsensical to assume Congress intended to simultaneously preclude all state remedies for violations of those laws.” As such, the appellate court held that “COPPA’s preemption clause does not bar state-law causes of action that are parallel to, or proscribe the same conduct forbidden by, COPPA. Express preemption therefore does not apply to the children’s claims.” The defendant asked the full 9th Circuit to review the ruling. The appellate court in turn asked the FTC for its views on the COPPA preemption issue, specifically with respect to “whether the [COPPA] preemption clause preempts fully stand-alone state-law causes of action by private citizens that concern data-collection activities that also violate COPPA but are not predicated on a claim under COPPA.”
In agreeing with the 9th Circuit that plaintiffs’ claims are not preempted in this case, the FTC argued that nothing in COPPA’s text, purpose, or legislative history supports the sweeping preemption that the defendant claimed. According to the defendant, plaintiffs’ state law claims are inconsistent with COPPA and are therefore preempted “because the claims were brought by plaintiffs who were not authorized to directly enforce COPPA, and would result in monetary remedies under state law that COPPA did not make available through direct enforcement.” Moreover, all state law claims relating to children’s online privacy are inconsistent with COPPA’s framework, including those brought by state enforcers, the defendant maintained. The FTC disagreed, writing that the 9th Circuit properly rejected defendant’s interpretation, which would preempt a wide swath of traditional state laws. Moreover, COPPA’s preemption clause only applies to state laws that are “inconsistent” with COPPA so as not to create “field preemption,” the FTC said, adding that plaintiffs’ claims in this case are consistent with the statute.
On March 17, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s grant of summary judgment in favor of a defendant law firm that allegedly accessed a plaintiff’s credit report to obtain her current address after it was hired to collect unpaid homeowner association (HOA) assessments. The plaintiff filed a class action lawsuit claiming, among other things, that the defendant violated the FCRA by accessing her credit report without her consent and that neither the HOA nor the defendant are creditors within the meaning of the FCRA. The district court disagreed, concluding that the HOA was in fact a creditor for purposes of the FCRA. “Under the [a]greement, the HOA determines the assessment amount for a full year and then makes it payable in installments over the course of the year. Thus, it regularly extends credit,” the district court wrote, explaining that because the HOA is a creditor, its attorneys, in collecting on the account, have the right to review a consumer’s credit report without consent. Moreover, the district court determined that the defendant had established the requisite “direct link” between the credit transaction and its request for the plaintiff’s credit report.
The 9th Circuit concluded that the “[d]efendant’s reading of the statute was not objectively unreasonable” because the plaintiff “had a grace period during which she could receive half a month’s services that she had not yet paid for,” which “could be considered an extension of credit.” While concurring with the panel, one of the judges commented, however, that “[i]t is hard to imagine that Congress intended FCRA, a statute that protects consumer privacy, to empower HOAs composed of neighboring homeowners to run their neighbors’ credit reports if homeowners fall two weeks behind in their payments.” The judge recommended that the appellate court “revisit the issue,” noting that it is unclear under current case law whether an HOA assessment qualifies as a “credit transaction” under the FCRA.
On February 27, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s decision to abstain from enjoining a state action brought by a California county district attorney (DA) against a national bank, concluding that the enforcement action was not an exercise of “visitorial powers.” According to the opinion, the DA launched an investigation into the bank’s vendor and issued the bank an investigative subpoena seeking records of its banking activities. The bank objected, claiming the request “improperly infringes on the exclusive visitorial powers of the [OCC]” because it sought to inspect the bank’s books and records. The bank subsequently filed a complaint in the U.S. District Court for the Central District of California asking the court to enjoin the state action and requesting injunctive relief to prevent the DA from taking any action to enforce federal and state lending, debt collection, and consumer laws against the bank, or from exercising visitorial powers in violation of the National Bank Act (NBA). The DA withdrew his investigative subpoena and moved to dismiss for lack of subject matter jurisdiction on the ground that the case was now moot. The motion to dismiss was denied on the premise that the DA had not demonstrated that a “renewed investigative subpoena against [the bank] ‘could not be reasonably be expected.’”
The DA then filed a complaint in state court claiming the bank violated California law by hiring a third-party vendor to place “extensive harassing” debt collection phone calls to residents in the state. The complaint alleged violations of California’s Unfair Competition Law, the Rosenthal Fair Debt Collections Practices Act, and the right to privacy under the California Constitution. In federal court, the bank moved for summary judgment, arguing that the state action was an improper exercise of visitorial powers. The district court, however, ruled that the Younger v. Harris abstention (in which a federal court refrains from staying or enjoining pending state criminal prosecutions absent extraordinary circumstances or state civil enforcement actions when certain conditions are met) applied. The bank appealed.
The 9th Circuit considered two questions: (i) whether the Younger abstention was correctly applied, and (ii) whether the DA’s state court action “was an impermissible exercise of visitorial powers vested exclusively with the OCC.” The 9th Circuit held that the district court was correct in applying the Younger abstention doctrine because (i) “the state action qualified as an ‘ongoing’ judicial proceeding because no proceedings of substance on the merits had taken place in the federal action”; (ii) the state court action implicated an important state interest in consumer protection and nothing in federal law bars a DA from suing a national bank; (iii) the bank had the option to raise a federal defense under the NBA in the state court action; and (iv) the injunction the bank requested in the federal action would interfere with the state court proceeding. The 9th Circuit also rejected the bank’s arguments that the state action constituted an illegal exercise of visitorial powers that only belongs to the OCC or state attorneys general. The 9th Circuit cited the U.S. Supreme Court’s decision in Cuomo v. Clearing House Ass’n, L.L.C., in which the high court “held that bringing a civil lawsuit to enforce a non-preempted state law is not an exercise of visitorial powers,” and that “a sovereign’s ‘visitorial powers’ and its power to enforce the law are two different things.” Relying on the Cuomo holding, the 9th Circuit found that accepting the bank’s position “would mean that actions brought against national banks by federal or state agencies or, for that matter, individuals would be forbidden as unlawful exercises of visitorial powers.” “Such a result is wrong. It contradicts established law and is unsupported by any legal authority cited by [the bank]” and would additionally “raise serious anti-commandeering concerns under the Tenth Amendment.”
On January 27, the U.S. Court of Appeals for the Ninth Circuit ordered a district court to reassess its decision “under the changed legal landscape since its initial order and opinion” in an action concerning alleged misrepresentations made by a bi-weekly payments company. The Bureau filed a lawsuit against the company in 2015, alleging, among other things, that the company made misrepresentations to consumers about its bi-weekly payment program when it overstated the savings provided by the program and created the impression the company was affiliated with the consumers’ lender. In 2017, the district court granted a $7.9 million civil penalty proposed by the Bureau, as well as permanent injunctive relief, but denied restitution of almost $74 million sought by the agency. (Covered by InfoBytes here.) The company appealed the district court’s conclusion that it had engaged in deceptive practices in violation of the Consumer Financial Protection Act, while the Bureau cross-appealed the district court’s decision to deny restitution. The 9th Circuit consolidated the appeals for consideration.
During the pendency of the cross-appeals, the U.S. Supreme Court issued a decision in 2020 in Seila Law LLC v. CFPB, in which it 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). Following Seila, former Director Kathy Kraninger ratified several prior regulatory actions (covered by InfoBytes here), including the enforcement action brought against the company. At issue in the company’s appeal is whether the Bureau has authority to pursue its claims, including whether the agency’s funding mechanism is unconstitutional and whether its case is distinguishable from other actions and is entitled to dismissal for the Bureau director’s unconstitutional for-cause removal provision.
The appellate court declined to offer a position on these issues, and instead left them for the district court to consider. The 9th Circuit noted that since the district court’s 2017 order, “sister circuit courts have split” on the funding issue. “We vacate the district court’s order and remand, allowing it to reassess the case under the changed legal landscape since its initial order and opinion,” the appellate court wrote, directing the district court to “provide further consideration to [the company’s] argument on the constitutionality of the Bureau’s funding mechanism.” With respect to the Bureau’s appeal of the restitution denial, the 9th Circuit remanded the case to allow the district court to consider the effect CFPB v. CashCall and Liu v. SEC may have on the action (covered by InfoBytes here and here), as well as whether the agency “waived its claim to legal restitution by characterizing it only as a form of equitable relief before the district court.”
In December, the U.S. Court of Appeals for the Ninth Circuit reversed and remanded a district court’s decision to dismiss a suit alleging that a multinational technology company used persistent identifiers to collect children’s data and track their online behavior surreptitiously and without their consent in violation of the Children’s Online Privacy Protection Act (COPPA). According to the opinion, the company used targeted advertising “aided by sophisticated technology that delivers curated, customized advertising based on information about specific users.” The opinion further explained that “the company’s technology ‘depends partly on what [FTC] regulations call ‘persistent identifiers,’ which is information ‘that can be used to recognize a user over time and across different Web sites or online services.’” The opinion also noted that in 2013, the FTC adopted regulations under COPPA that barred the collection of children’s “persistent identifiers” without parental consent. The plaintiff class claimed that the company used persistent identifiers to collect data and track their online behavior surreptitiously and without their consent, and alleged state law claims arising under the constitutional, statutory, and common law of California, Colorado, Indiana, Massachusetts, New Jersey, and Tennessee, in addition to COPPA violations. The district court ruled that the “core allegations” in the third amended complaint were squarely covered, and preempted, by COPPA.
On appeal, the 9th Circuit considered whether COPPA preempts state law claims based on underlying conduct that also violates COPPA’s regulations. To determine this, the appellate court examined the language of COPPA’s preemption clause, which states that state and local governments cannot impose liability for interstate commercial activities that is “inconsistent with the treatment of those activities or actions” under COPPA. The opinion noted that the 9th Circuit has long held “that a state law damages remedy for conduct already proscribed by federal regulations is not preempted,” and that the statutory term “inconsistent” in the preemption context refers to contradictory state law requirements, or to requirements that stand as obstacles to federal objectives. The appellate court stated that it was not “persuaded that the insertion of ‘treatment’ in the preemption clause here evinces clear congressional intent to create an exclusive remedial scheme for enforcement of COPPA requirements.” The opinion noted that because “the bar on ‘inconsistent’ state laws implicitly preserves ‘consistent’ state substantive laws, it would be nonsensical to assume Congress intended to simultaneously preclude all state remedies for violations of those laws.” As such, the appellate court held that “COPPA’s preemption clause does not bar state-law causes of action that are parallel to, or proscribe the same conduct forbidden by, COPPA. Express preemption therefore does not apply to the children’s claims.”
In December, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s ruling holding an individual liable for violations of the FCRA, the TSR, and the CFPA after the defendant, who allegedly “played a central role” in the scheme — and other defendants — were sued by the CFPB for allegedly obtaining individuals’ credit reports illegally and charging advance fees for debt relief services. As previously covered by InfoBytes, the CFPB filed a complaint in 2020 claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products. However, the Bureau alleged that the defendants instead resold or provided the reports to numerous companies, including companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services and violated both the TSR and CFPA by placing telemarketing sales calls and sending direct mail to encourage consumers to consolidate their loans, while falsely representing that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and allow borrowers to change their servicer to the Department of Education. Settlements have already been reached with certain defendants (covered by InfoBytes here, here, and here). In August 2021, the U.S. District Court for the Central District of California granted the Bureau’s motion for summary judgment against the individual defendant after determining that undisputed evidence showed that the individual defendant, among other things, “obtained and later used prescreened lists from [a consumer reporting agency] without a permissible purpose” in order to send direct mail solicitations from the businesses that he controlled to consumers on the lists as opposed to firm offers of credit or insurance. (Covered by InfoBytes here.)
In September 2021, the district court entered judgment in favor of the Bureau against the individual defendant. While the individual defendant objected to the judgment, the district court ultimately determined that the Bureau is entitled to a judgment for monetary relief of over $19 million as redress for fees paid by affected consumers. This restitution is owed jointly and severally with the student loan debt relief company defendants in the amounts imposed in default judgments entered against each of them (covered by InfoBytes here).
On the appeal, the 9th Circuit cited “undisputed” evidence demonstrating how the individual defendant “violated” the FCRA, TSR, and CFPA. According to the appellate court, the defendant “is individually liable for corporate violations of the CFPA.” The appellate court further noted that the individual defendant “‘participated directly’ in these deceptive practices and ‘had the authority to control them,’” had a “central role” in these practices,” was “‘recklessly indifferent to the truth or falsity of the misrepresentations,’ and did not attempt to verify the truthfulness of statements” regarding the companies he controlled.
On December 13, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment in favor of the CFPB against a California-based student financial aid operation and its owner (collectively, “defendants”), which were sued for allegedly mailing deceptive solicitations to individuals that advertised help in applying for scholarships. As previously covered by InfoBytes, the defendants allegedly engaged in deceptive practices when they, among other things, represented that by paying a fee and sending in an application, consumers were applying for financial aid or the defendants would apply for aid on behalf the students. But, according to the Bureau, the consumers did not receive the promised services in exchange for their payment. The case was stayed in 2016 while the owner defendant faced a pending criminal investigation, until the court lifted the stay in 2019 after finding the possibility of the civil proceedings affecting the owner defendant’s ability to defend himself in the criminal proceeding “speculative and unripe.” In 2021, the U.S. District Court for the Southern District of California issued an order granting in part and denying in part the CFPB’s motion for partial summary judgment and granting the agency’s motion for default judgment (covered by InfoBytes here). The order required the defendants to pay a $10 million civil money penalty and more than $4.7 million in restitution. Additionally, default judgment was entered against the defendants on the merits of the Bureau’s claims, which included allegations that the defendants failed to provide privacy notices to consumers as required by Regulation P. The defendants appealed.
On appeal, the defendant-appellant argued that he was not subject to the Bureau’s authority because he provided nonfinancial advice on “free” scholarships and that the solicitations were not deceptive. The appellate court noted that the CFPA lists ten different categories of covered persons, one of which is “providing financial advisory services … to consumers on individual financial matters or relating to proprietary financial products or services ….” Because the solicitations dealt with the topic of financial aid and scholarships for college tuition, the 9th Circuit concluded that “[a]dvising students to exhaust scholarship opportunities before taking on debt is no less ‘financial’ than advising students to leverage their unique access to federally subsidized loans.” The appellate court noted that the defendant’s “advice covered the entire gamut of financial aid and was undoubtedly financial in nature.” The appellate court further noted that the defendant “is incorrect that scholarships are not financial in nature merely because they do not have to be repaid,” and that “the ordinary meaning of financial is broad and encompasses both cash financing and debt financing. Indeed, the definition of ‘finance’ specifically contemplates raising funds, regardless of their origin, for college tuition.”