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Financial Services Law Insights and Observations


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  • 9th Circuit says tribal lenders can arbitrate RICO class claims


    On September 16, a split U.S. Court of Appeals for the Ninth Circuit concluded that “an agreement delegating to an arbitrator the gateway question of whether the underlying arbitration agreement is enforceable must be upheld unless that specific delegation provision is itself unenforceable.” The appellate court’s decision reversed a district court’s ruling that an arbitration agreement entered between tribal lenders and borrowers was unenforceable because it impermissibly waived borrowers’ rights to pursue federal statutory claims. As previously covered by InfoBytes, in April the U.S. District Court for the Northern District of California granted class certification to residents who received loans from an online lender, allowing them to pursue class Racketeer Influenced and Corrupt Organizations Act (RICO) claims based on allegations they were charged interest rates that exceeded state limits for lenders claiming tribal immunity. The class of borrowers include California residents who collected loans from an Oklahoma-based tribe, and California residents who received loans from a Montana-based tribe. The district court also ruled that the entire arbitration agreement, including provisions containing a class action waiver, was unenforceable. The lenders appealed.

    On appeal, the 9th Circuit majority cited to the U.S. Supreme Court’s decision in Rent-A-Center, West, Inc. v. Jackson, which determined, among other things, that when a party challenges an entire agreement—not just an arbitration provision—deciding “gateway” issues such as enforceability must be delegated to an arbitrator. “We do not dispute that [b]orrowers have a reasonable argument that the arbitration agreement as written precludes them from asserting their RICO claims or other federal claims in arbitration. . . . And if that is true, the arbitration agreement is likely unenforceable as a prospective waiver,” the majority wrote. “But, when there is a clear delegation provision, that question is. . .for the arbitrator to decide so long as the delegation provision itself does not eliminate parties’ rights to purse their federal remedies,” the majority added.

    The 9th Circuit’s opinion differs from decisions issued by other appellate courts, which found that certain delegation provisions were unenforceable for various reasons after reviewing whether an arbitration agreement as a whole was unenforceable due to prospective waiver of federal claims. (See InfoBytes coverage of the 3rd and 4th Circuit decisions here and here.) The majority stated that the other appellate courts “considered the wrong thing by ‘confus[ing] the question of who decides arbitrability with the separate question of who prevails on arbitrability.’” According to the majority, “[t]he proper question is not whether the entire arbitration agreement constitutes a prospective waiver, but whether the antecedent agreement delegating resolution of that question to the arbitrator constitutes prospective waiver.”

    Courts Arbitration Tribal Lending RICO Interest Rate Usury Ninth Circuit Appellate

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  • 9th Circuit revives TCPA suit against insurance servicer


    On August 10, the U.S. Court of Appeals for the 9th Circuit revived a lawsuit against an insurance servicing company (defendant) for allegedly using both an automated telephone dialing system and an artificial or pre-recorded voice to place a job-recruitment call without obtaining the plaintiff’s consent. According to the opinion, the plaintiff filed a suit alleging, among other things, TCPA violations after receiving the pre-recorded voicemail from the defendant regarding his “industry experience” and that the defendant is “looking to partner with select advisors in the Los Angeles area.” The district court dismissed the plaintiff’s action under Federal Rule of Civil Procedure 12(b)(6) for failing “to state a claim upon which relief can be granted,” holding that the TCPA and the relevant implementing regulation do not prohibit conducting job recruitment robocalls to a cellular telephone number. In addition, the district court “read the Act as prohibiting robocalls to cell phones only when the calls include an ‘advertisement’ or constitute ‘telemarketing,’ as those terms have been defined” by the FCC. The court found that since the plaintiff admitted that the job recruitment call he received did not involve advertising or telemarketing, he had not adequately pleaded a violation of the TCPA.

    On the appeal, a three-judge panel of the 9th Circuit determined that the district court misread the TCPA and the implementing regulation when dismissing the plaintiff’s suit and remanded the case for further proceedings. The appellate court noted that the FCC provision was intended to tighten the consent requirement for robocalls that involve advertising or telemarketing, but the lower court incorrectly perceived the provision as “effectively removing robocalls to cellphones from the scope of the TCPA’s coverage unless the calls involve advertising or telemarketing.” Moreover, the panel wrote that “[t]he applicable statutory provision prohibits in plain terms ‘any call,’ regardless of content, that is made to a cellphone using an automatic telephone dialing system or an artificial or pre-recorded voice, unless the call is made either for emergency purposes or with the prior express consent of the person being called.”

    Courts TCPA Ninth Circuit Appellate FCC Robocalls Autodialer

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  • Supreme Court limits class standing in FCRA suit


    On June 25, the U.S. Supreme Court issued a 5-4 decision in TransUnion LLC v. Ramirez, holding that only a plaintiff concretely harmed by a defendant’s violation of the FCRA has Article III standing to seek damages against a private defendant in federal court. In writing for the majority, Justice Brett Kavanaugh reversed and remanded a 2020 decision issued by the U.S. Court of Appeals for the Ninth Circuit, which found that all 8,185 class members had standing to recover statutory damages due to, among other things, TransUnion’s alleged “reckless handling of information” from the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), which, according to the appellate court, subjected class members to “a real risk of harm” when TransUnion erroneously linked class members to criminals and terrorists with similar names in a database maintained by OFAC. (Covered by InfoBytes here.) The 9th Circuit, however, did reduce punitive damages, explaining that, although TransUnion’s “conduct was reprehensible, it was not so egregious as to justify a punitive award of more than six times an already substantial compensatory award.” TransUnion filed a petition for writ of certiorari after the 9th Circuit denied its petition for rehearing.

    The Court considered whether federal courts can certify consumer classes where the majority of class members have not alleged the type of concrete injury necessary to establish Article III standing, even if the named plaintiff suffered an injury meeting this bar. The parties stipulated prior to trial that only 1,853 members of the class had misleading credit reports containing OFAC alerts provided to third parties during the period specified in the class definition, whereas the remaining class members’ credit files were not provided to any potential creditors during that period. In applying the standing requirement of concrete harm, the majority concluded that the 6,332 class members whose credit reports were not provided to third parties did not suffer a concrete harm and thus did not have standing as to the reasonable-procedures claim. The majority further determined that even though all 8,185 class members complained about alleged formatting defects in certain mailings sent to them by TransUnion, only the lead plaintiff had demonstrated that the alleged defects caused him concrete harm, thus only he could move forward with those claims. According to the majority, the remaining class members failed to explain how the formatting error prevented them from requesting corrections to prevent future harm.

    “The mere existence of inaccurate information, absent dissemination, traditionally has not provided the basis for a lawsuit in American courts,” the majority wrote, adding that while the Court “has recognized that material risk of future harm can satisfy the concrete-harm requirement in the context of a claim for injunctive relief to prevent the harm from occurring, at least so long as the risk of harm is sufficiently imminent and substantial,” in this instance the 6,332 class members have not demonstrated that the risk of future harm materialized.

    Courts U.S. Supreme Court FCRA Credit Reporting Agency Appellate Ninth Circuit OFAC Class Action Standing Financial Crimes

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  • 9th Circuit partially reverses lower court’s ruling based on tech company's misleading statements


    On June 16, the U.S. Court of Appeals for the Ninth Circuit partially revived a securities fraud action brought by the state of Rhode Island on behalf of its employees’ retirement system against a California-based technology company, its holding company, and several individuals (collectively, “defendants”), reversing a district court’s dismissal. In 2018, investors sued the defendants after the technology company discovered a security glitch that same year on its now-defunct social network site that exposed hundreds of thousands of users’ private data. The suits were consolidated, with the state of Rhode Island as lead plaintiff, alleging the defendants deceived investors and caused the company’s shares to be traded at artificially inflated prices between the discovery of the software glitch and its disclosure. According to the plaintiffs, the defendants omitted material facts on Form 10-Qs filed with the SEC in 2018 by including statements such as “[t]here have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, 2017.” The defendants moved to dismiss for failure to state a claim, which the district court granted, stating, among other things, that the plaintiffs failed to adequately allege “falsity, materiality, and scienter” in statements made by the defendants in their April 2018 and July 2018 10-Qs.

    On appeal, the 9th Circuit reviewed the challenged statements, concluded that two statements made by the parent company in its 10-Qs were materially misleading or had omitted facts regarding the software issues, and vacated the dismissal of the plaintiffs’ falsity, materiality, and scienter claims. The appellate court also found that the defendants’ claim that the software problem had been patched by the time the challenged statements were made in their 10-Qs was not enough. “Given that [the company’s] business model is based on trust, the material implications of a bug that improperly exposed user data for three years were not eliminated merely by plugging the hole in [the social network site’s] security,” the appellate court wrote, further concluding that “[t]he market reaction, increased regulatory and governmental scrutiny, both in the United States and abroad, and media coverage alleged by the complaint to have occurred after disclosure all support the materiality of the misleading omission.” The 9th Circuit also referenced a so-called “Privacy Bug Memo” that was supposedly circulated among some of the defendants’ leadership team, which warned that disclosing these security issues “would likely trigger ‘immediate regulatory interest’ and result in the defendants ‘coming into the spotlight[.]’”

    Concerning the remaining 10-Q statements identified in the complaint, the 9th Circuit affirmed the district court’s dismissal of claims based on these statements after concluding that the plaintiffs did not plausibly allege that they were “misleading material misrepresentations.”

    Courts Ninth Circuit Appellate Privacy/Cyber Risk & Data Security Data Breach SEC

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  • 9th Circuit reverses ruling in FDCPA case


    On June 8, the U.S. Court of Appeals for the Ninth Circuit overturned a district court’s finding that an obligation for a rental property cannot be “primarily consumer in nature” under the FDCPA. The plaintiff and his wife purchased two properties in the same community in Arizona. The plaintiff and his wife claimed that they initially purchased the first property as a retirement home and only decided to use it as a rental property later. The plaintiff also claimed that he and his wife purchased the two properties with the intent of having tenants occupy them until they moved into one of them upon retirement. The defendant homeowner’s association sued the plaintiff in state court for allegedly failing to pay assessments and late fees associated with one of the properties. The plaintiff sued the defendant in federal court, alleging the attempts to collect the money violated the FDCPA. The district court granted summary judgment in favor of the defendant concluding that, “because there is no genuine dispute that the [first property] was a rental property, the obligation associated with the property is commercial, not consumer, in nature.” Consequently, because the obligation was not consumer in nature, the district court determined that it does not qualify as a “debt” subject to the FDCPA.

    On appeal, the 9th Circuit reversed the entry of judgment for the defendant and remanded to the district court with instructions that the court, “make a factual determination of the true purpose of the [plaintiff’s] acquisition of [both properties].” The 9th Circuit also noted that, “to determine whether the transaction was primarily consumer or commercial in nature, the court must ‘examine the transaction as a whole, paying particular attention to the purpose for which the credit was extended.’”

    Courts Ninth Circuit FDCPA Appellate

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  • District Court: Debt buyer vicariously liable for debt collector's actions


    On June 7, the U.S. District Court for the District of Oregon partially granted a plaintiff’s motion for summary judgment, finding that a debt buyer who puts accounts with a debt collector can be held vicariously liable for the actions of the debt collector, since the debt buyer “bear[s] the responsibility of monitoring the activities of those it hires to collect debts on its behalf.” The case is on remand from the U.S. Court of Appeals for the Ninth Circuit, which reversed the district court’s dismissal of the lawsuit and found that a company that purchases consumer debt is defined as a “debt collector” under the FDCPA, even if there is no direct interaction with consumers and the debt collection is outsourced to a third party (covered by InfoBytes here).

    The plaintiff sued the debt buyer (defendant) claiming it was “vicariously and jointly liable” for alleged FDCPA violations by the third-party collector. The district court granted the defendant’s motion to dismiss, ruling that the plaintiff failed to state a claim because debt purchasing companies like the defendant “who have no interactions with debtors and merely contract with third parties to collect on the debts they have purchased simply do not have the principal purpose of collecting debts.” The district court reasoned that Congress intended the FDCPA to apply only to those who directly interact with customers, based on the court’s interpretation of the language used in the substantive provisions of the law.

    On appeal, the 9th Circuit reversed the dismissal, determining that the FDCPA does not solely regulate entities that directly interact with consumers. The appellate court concluded that an entity that otherwise meets the “principal purpose” definition of debt collector—“any business the principal purpose of which is the collection of any debts”—cannot avoid liability under the FDCPA merely by hiring a third party to perform debt collection activities on its behalf.

    On remand, the district court judge found that the debt buyer and debt collector were in a principal-agent relationship “because the undisputed facts demonstrate that [the debt buyer] had a right to control [the debt collector’s] debt collection activities to a significant degree.” According to the opinion, the agreement between the debt buyer and collector allowed the debt buyer to audit the accounts it placed with the debt collector. During an audit, the debt buyer pointed out that the debt collector’s “collection efforts needed much improvement with regard to consumer compliance” and that “simple guidelines were not being followed.” In addition, the audit found that the debt buyer had prior knowledge of phone scripts the debt collector used when contacting debtors on its behalf. The judge concluded that “[b]y its acquiescence, [the debt buyer] ‘impliedly authorized’ [the debt collector’s] use of the script ‘and thus is liable for any violations of law caused by the firm’s use of those practices.”


    Courts Ninth Circuit Appellate FDCPA Debt Buyer

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  • 9th Circuit reverses $1.3 billion judgment following Supreme Court’s decision


    On June 8, the U.S. Court of Appeals for the Ninth Circuit issued an order vacating its December 2018 judgment, reversing a district court’s award of equitable monetary relief following the U.S. Supreme Court’s recent decision in FTC v. AMG Capital Management, and remanding the case to the district court for further proceedings consistent with the Supreme Court’s opinion. The decision impacts defendants—a Kansas-based operation and its owner—who were ordered in 2016 to pay an approximately $1.3 billion judgment for allegedly operating a deceptive payday lending scheme and violating Section 5(a) of the FTC Act by making false and misleading representations about loan costs and payments (covered by InfoBytes here). The 9th Circuit previously upheld the judgment (covered by InfoBytes here) by, among other things, rejecting the defendant owner’s challenge, which was based on an argument that the district court overestimated his “wrongful gain” and that the FTC Act only allows the court to issue injunctions. At the time, the 9th Circuit concluded that the defendant owner failed to provide evidence contradicting the wrongful gain calculation and that a district court may grant any ancillary relief under the FTC Act, including restitution. However, as previously covered by InfoBytes, the Supreme Court reversed the 9th Circuit and held that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement.”

    Courts Appellate Ninth Circuit FTC FTC Act Payday Lending TILA Disclosures U.S. Supreme Court

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  • 9th Circuit stays Seila CID pending Supreme Court appeal


    On June 1, the U.S. Court of Appeals for the Ninth Circuit granted Seila Law’s request to stay a mandate ordering compliance with a civil investigative demand (CID) issued by the CFPB. The order stays the appellate court’s mandate (covered by InfoBytes here) for 150 days, or until final disposition by the U.S. Supreme Court should the law firm file its expected petition of certiorari. Last month, Seila Law announced its intention to ask the Court “whether the ratification of the CFPB’s civil investigative demand is an appropriate remedy for the separation-of-powers violation identified by the Supreme Court.” In its motion, Seila Law claimed that the Bureau’s “alleged ratification” was not legally sufficient to cure the constitutional defect and that “an action taken by an agency without authority cannot be ratified if the principal lacked authority to take the action when the action was taken.” Seila Law further argued that the only appropriate remedy is dismissal of the petition to enforce the CID. The Bureau countered that former Director Kraninger’s ratification was valid, emphasizing that the majority of the 9th Circuit denied en banc rehearing last month (covered by InfoBytes here). The Bureau further contended that Seila Law did not demonstrate good cause for the stay or suggest that it would suffer irreparable harm should the motion be denied, pointing out that “equities now weigh overwhelmingly in favor” of requiring Seila Law’s compliance with the CID.

    Courts Appellate Ninth Circuit CFPB CIDs Seila Law U.S. Supreme Court

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  • 9th Circuit denies en banc rehearing in CFPB case against Seila Law


    On May 14, the U.S. Court of Appeals for the Ninth Circuit denied en banc rehearing of CFPB v. Seila Law, LLC. As previously covered by InfoBytes, following remand from the U.S. Supreme Court, a three-judge panel of the 9th Circuit had reaffirmed a district court order granting the CFPB’s petition to enforce a civil investigative demand (CID) sent to Seila Law. The panel wrote that “Director Kraninger’s ratification [of the CID] remedied any constitutional injury that Seila Law may have suffered due to the manner in which the CFPB was originally structured. Seila Law’s only cognizable injury arose from the fact that the agency issued the CID and pursued its enforcement while headed by a Director who was improperly insulated from the President’s removal authority. Any concerns that Seila Law might have had about being subjected to investigation without adequate presidential oversight and control had now been resolved. A Director well aware that she may be removed by the President at will had ratified her predecessors’ earlier decisions to issue and enforce the CID.”

    Judge Bumatay, joined by three other circuit judges, dissented from denial of en banc rehearing, arguing that “[o]ur court’s decision to deny rehearing en banc effectively means that Seila Law is entitled to no relief from the harms inflicted by an unaccountable and unchecked federal agency. Thus, while David slayed the giant, Goliath still wins.” Judge Bumatay further stressed that the doctrine of ratification does not permit the Bureau to “retroactively gift itself power that it lacked,” concluding that the panel’s condoning of the Bureau’s “power grab was erroneous.”

    Courts Appellate Ninth Circuit CFPB Seila Law

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  • 9th Circuit: Federal Foreclosure Bar preempts Nevada HOA law, maintaining Fannie Deed of Trust


    On May 5, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment in favor of a mortgage servicer in an action asserting claims arising from a homeowners’ association’s (HOA) nonjudicial foreclosure on real property in Nevada. According to the opinion, Fannie Mae originally purchased the loan on the property (secured by a Deed of Trust), which was eventually assigned to the mortgage servicer. Following the homeowners’ failure to pay their HOA dues, a foreclosure sale was held, and the property was conveyed to a limited liability company. The mortgage servicer filed a quiet title suit against the company, and the district court granted summary judgment in its favor on the basis that the Federal Foreclosure Bar (which prohibits the foreclosure of FHFA property without FHFA’s consent) “prevented the extinguishment of Fannie Mae’s Deed.”

    In agreeing with the district court, the 9th Circuit first rejected two threshold challenges raised by the company, holding that the mortgage servicer “properly and timely” raised its claims under the Federal Foreclosure Bar. Specifically, the appellate court determined that the mortgage servicer “presented ample evidence of its servicing relationship with Fannie Mae,” and that this relationship, along with authority delegated to Fannie Mae loan servicers to protect its mortgage loans, “was more than sufficient to establish” that the mortgage servicer was Fannie Mae’s loan servicer and, therefore “had the authority to assert the Federal Foreclosure Bar” in quiet title action. The 9th Circuit also concluded that the mortgage servicer filed the action within the applicable six-year statute of limitations. In holding that the Federal Foreclosure Bar preempted Nevada’s HOA law and prevented the extinguishment of Fannie Mae’s Deed of Trust, the appellate court noted, among other things, that the mortgage servicer demonstrated that Fannie Mae retained an enforceable interest in the loan at the time of the HOA foreclosure sale. The 9th Circuit rejected the company’s argument that the mortgage servicer “failed to produce a ‘signed writing’ evincing such interest as required by the Nevada statute of frauds.” According to the appellate court, given that the company “was not a party to the underlying loan agreement pursuant to which Fannie Mae acquired the loan,” the company could not raise the statute of frauds.

    Courts Appellate Ninth Circuit Fannie Mae FHFA Mortgages

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