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  • District Court denies summary judgment for auto financing company in TCPA action

    Courts

    On June 12, the U.S. District Court for the Northern District of Illinois denied an auto financing company’s renewed motion for summary judgment and request for reconsideration, concluding that the company’s calling system falls within the definition of automatic telephone dialing system (autodialer) under the TCPA.

    According to the opinion, two separate class actions were filed alleging that the company violated the TCPA when making calls to consumers regarding outstanding auto loans by using an autodailer. In April 2016, the company filed a motion for summary judgment, arguing, among other things, that the calling system it uses does not constitute an autodialer under the TCPA, and  moved to stay the proceedings until the D.C. Circuit issued its ruling in a related case, ACA International v. FCC. The court denied the motions but stated that it would “revisit any issues affected by [the ACA International] decision as needed.” In March 2018, the D.C. Circuit issued its ruling in ACA International, concluding that the FCC’s 2015 interpretation of an autodialer was “unreasonably expansive.” (Covered by a Buckley Special Alert here.)

    The company then filed the renewed motion for summary judgment and request for reconsideration of the earlier decision. The court denied the motion, concluding that the company’s calling system was an autodialer under the TCPA as a matter of law, because the system automatically dialed numbers from a set customer list. The court applied the logic of the 9th Circuit in Marks v. Crunch San Diego, LLC (covered by InfoBytes here), stating that it was not bound by the FCC’s interpretations of an autodialer based on ACA International, and “[a]s such, ‘only the statutory definition of [autodialer] as set forth by Congress in 1991 remains.’” After reviewing the legislative history of the TCPA, the court determined that “[g]iven Congress’s particular contempt for automated calls and concern for the protection of consumer privacy,” the autodialer definition “includes autodialed calls from a pre-existing list of recipients,” rejecting the company’s argument that an autodialer must have the capacity to generate telephone numbers, not just pull from a preexisting list. Additionally, the court concluded that the system “need not be completely free of all human intervention” to fall under the definition of autodialer.

    Courts Ninth Circuit TCPA Autodialer ACA International

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  • California District Court says payday lender’s arbitration provision is unconscionable

    Courts

    On June 10, the U.S. District Court for the Southern District of California denied a national payday lender’s motion to compel arbitration, agreeing with plaintiffs that the arbitration provision in their loan agreement was unenforceable because it was procedurally and substantively unconscionable. According to the opinion, plaintiffs filed a putative class action suit against the payday lender alleging the lender sells loans with usurious interest rates, which are prohibited under California’s Unfair Competition Law and Consumer Legal Remedies Act. The lender moved to compel arbitration asserting that the consumers’ loan agreements contain prohibitions on class actions in court or in arbitration, require arbitration of any claims arising from a dispute related to the agreement, and disallow consumers from acting as a “private attorney general.”

    The court first determined that California law applied.  It concluded that, while the lender was headquartered in Kansas, the consumers obtained their loans in California, and California “has a materially greater interest than Kansas in employing its laws to resolve the instant dispute,” based on its “material and fundamental interest in maintaining a pathway to public injunctive relief in unfair competition cases.”

    The court then determined that the arbitration provision was procedurally unconscionable because, even though the consumers had a 30-day opt-out window, it required them to waive statutory causes of action “before they knew any such claims existed.” Finally, because the provision contained a waiver of public injunctive relief, the court determined it was substantively unconscionable based on the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here). The court rejected the lender’s arguments that McGill was preempted under the Federal Arbitration Act (FAA), noting a 2015 decision by the U.S. Court of Appeals for the 9th Circuit, “effectively controls” the dispute and the 9th Circuit reasoned that a similar state-law rule against waivers was not preempted by the FAA. Lastly, the court held that the unconscionable public injunctive relief waiver provision was not severable from the entire arbitration provision, because the agreement contained “poison pill” language that would invalidate the entirety of the arbitration provision.

     

    Courts Arbitration Federal Arbitration Act State Issues Ninth Circuit Preemption

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  • 9th Circuit: Class decertification appropriate when representative lacks standing

    Courts

    On June 5, the U.S. Court of Appeals for the 9th Circuit affirmed a lower court’s decision to decertify a class of callers claiming their cellphone calls were unlawfully recorded, holding that the class representative lacked standing as to its individual claim. According to the opinion, customers of a concrete supplier alleged that calls placed to a phone system that the company began using in 2009 failed to inform callers that their cellphone calls were being recorded. In 2013, the company changed the recording to state that the calls maybe be “monitored or recorded.” The class representative sought to certify a class of all persons whose calls were recorded between the time that the company started using the call recording system in 2009 to when it updated the recording. The district court initially denied certification under the Federal Rule of Civil Procedure Rule 23’s predominance requirement, and later—after certifying the class based on evidence presented concerning the timing of certain recorded calls—decertified the class for failing to satisfy the “commonality” and “predominance” requirements once the concrete supplier identified nine customers who claimed they had actual knowledge of the recording practice during the class period. In addition, the court concluded that the class representative lacked standing to seek damages on its individual claim or injunctive relief because it lacked standing under the 2016 Supreme Court opinion Spokeo, Inc. v. Robins, which required that it show a concrete or particularized injury as a result of the concrete supplier's alleged violation. 

    On appeal, the 9th Circuit rejected the class’s argument that it “has standing to appeal the decertification order notwithstanding the adverse judgment against it on the merits” due to the following two exceptions to the mootness doctrine that may permit a class representative to appeal decertification even if its individual claims have been mooted: (i) the class representative “retains a ‘personal stake’ in class certification”; or (ii) “the claim on the merits is ‘capable of repetition, yet evading review,’” even though the class representative has lost “his personal stake in the outcome of the litigation.” The appellate court concluded that “neither of these mootness principles can remedy or excuse a lack of standing as to the representative's individual claims.”

    Courts Ninth Circuit Appellate Spokeo Standing Class Action State Issues

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  • 9th Circuit upholds rejection of consumer’s class action against auto finance company

    Courts

    On May 30, the U.S. Court of Appeals for the 9th Circuit affirmed summary judgment in favor of an auto finance corporation and various dealerships (collectively, “defendants”) in a putative class action alleging the defendants failed to provide add-ons the plaintiff purchased with the vehicle. The case, which was originally brought in Washington state superior court, was removed to federal court over the consumer’s objection, where the consumer amended the complaint to include a federal TILA claim. 

    According to the opinion, plaintiff alleged that his purchased vehicle did not come with three add-ons listed in the “Dealer Addendum,” which was a sticker affixed to the car. At the time of purchase, the customer was not aware of what the add-ons were, nor were they explained to him; the add-ons were only listed in the addendum. Plaintiff  argued that if he had known what the add-ons were, he would have declined them and paid a lower price for the vehicle. The district court rejected plaintiff’s arguments and granted summary judgment for the defendants on all claims.

    On appeal, the 9th Circuit upheld the entirety of the district court’s ruling, concluding the consumer offered no evidence that the add-ons identified in the Dealer Addendum were made part of the vehicle purchase transaction. Moreover, the appellate court upheld the district court’s decision not to remand the case back to state court, determining that while the district court did not have subject-matter jurisdiction at the time of removal, it had subject-matter jurisdiction at the time it rendered its final decision, due to the consumer’s voluntary addition of the TILA claim to the complaint. The appellate court also found that the district court did not abuse its discretion in denying the consumer’s request for additional discovery based on plaintiffs failure to “identif[y] the specific facts that further discovery would have revealed or explained[ed].”

    Courts Appellate Ninth Circuit Auto Finance Class Action

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  • 9th Circuit holds shipping company’s online arbitration agreement is valid

    Courts

    On May 30, the U.S. Court of Appeals for the 9th Circuit denied a plaintiff’s writ of mandamus challenging the district court’s order compelling arbitration of the plaintiff’s claims against a national shipping company. According to the opinion, a customer filed a putative class action complaint alleging the company “systematically overcharges” customers by applying delivery surcharge rates through third-parties, which are higher than the company’s advertised rates. The company moved to compel arbitration because the customer enrolled in a free, optional program offered by the company that provides tracking and managing services of packages; and that enrollment in the program required the customer to agree to arbitrate all claims related to the company’s shipping services. The customer argued that while he checked the box agreeing to the service terms and technology agreement when enrolling, he should not be bound by the arbitration agreement because it was, among other things “so inconspicuous that no reasonable user would be on notice of its existence.” The district court rejected the customer’s arguments and granted the motion to compel arbitration.

    On review of the writ of mandamus, the appellate court acknowledged that “locating the arbitration clause at issue here requires several steps and a fair amount of web-browsing intuition,” detailing that “...the first hyperlink [is] to the 96-page Technology Agreement. The user must then read the [service terms] and understand that they incorporate [additional terms and conditions of service]…. the user must visit the full [company] website, intuitively find the link [to the additional terms and conditions of service] at the bottom of the webpage, select it, and locate yet another link to the [terms and conditions of service]” in order to read the document and locate the arbitration clause. The appellate court held that the “extraordinary remedy of mandamus” could not be awarded because it could not say “with ‘definite and firm conviction’ that the district court erred by finding the incorporation [of the terms and conditions of service] valid” and found that there is no question the customer affirmatively assented to the terms. While it did not impact its analysis, the appellate court noted that the company’s service terms document now includes a hyperlink to the terms and conditions of service and expressly informs the user that the terms contain an arbitration provision.

    Courts Appellate Ninth Circuit Arbitration Writ of Mandamus Class Action

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  • 9th Circuit revives FCRA suit against credit reporting agency

    Courts

    On May 17, the U.S. Court of Appeals for the 9th Circuit revived a putative class action lawsuit against a national credit reporting agency for allegedly failing to follow reasonable procedures to assure maximum possible accuracy in the plaintiffs’ credit reports, in violation of the FCRA. According to the opinion, the credit reporting agency failed to delete all the accounts associated with a defunct loan servicer, despite statements claiming to have done so in January 2015. As of October 2015, 125,000 accounts from the defunct loan servicer were still being reported, and the accounts were not deleted until April 2016. A consumer filed the putative class action alleging the credit reporting agency violated the FCRA by continuing to report her past-due account, even after deleting portions of the positive payment history on the account. The district court granted summary judgment in favor of the credit reporting agency on the consumer’s claim that the credit reporting agency failed to “follow reasonable procedures to assure maximum possible accuracy” in her credit report.

    On appeal, the court determined that a “reasonable jury could conclude that [the credit reporting agency]’s continued reporting of [the account], either on its own, or coupled with the deletion of portions of [the consumer’s] positive payment history on the same loan, was materially misleading.” Moreover, the appellate court noted that a jury could conclude that the credit reporting agency’s reading of the FCRA “runs a risk of error substantially greater than the risk associated with a reading that was merely careless,” and that the length of delay in implementing the decision to delete the defunct loan servicers accounts “entail[ed] ‘an unjustifiably high risk of harm that is either known or so obvious that it should be known.’”

    Courts Appellate Ninth Circuit FCRA Credit Reporting Agency Class Action

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  • 9th Circuit: CFPB structure is constitutional; law firm must comply with CID

    Courts

    On May 6, the U.S. Court of Appeals for the 9th Circuit held that (i) the CFPB’s single-director structure is constitutional, and that (ii) the district court did not err when it granted the Bureau’s petition to enforce a law firm’s compliance with a 2017 civil investigative demand (CID). As previously covered by InfoBytes, the CFPB previously determined that none of the objections raised by the law firm warranted setting aside or modifying the CID, which sought information to determine whether the law firm violated the Telemarketing Sales Rule (TSR) when providing debt-relief services. The law firm contended that the CFPB’s single-director structure was unconstitutional and therefore the CID was unlawful. It argued further that the CFPB lacked statutory authority to issue the CID.

    On review, the 9th Circuit held that the for-cause removal restriction of the CFPB’s single director is constitutionally permissible based on existing Supreme Court precedent. The panel agreed with the conclusion reached by the U.S. Court of Appeals for the D.C. Circuit majority in the 2018 en banc decision in PHH v. CFPB (covered by a Buckley Special Alert) stating, “if an agency’s leadership is protected by a for-cause removal restriction, the President can arguably exert more effective control over the agency if it is headed by a single individual rather an a multi-member body.” The 9th Circuit noted that the dissenting opinion of then Court of Appeals Judge Brett Kavanaugh found that the single-director structure was unconstitutional and noted that “[t]he Supreme Court is of course free to revisit those precedents, but we are not.”

    The 9th Circuit next addressed the law firm’s argument that the CFPB lacked statutory authority when it issued the CID. The panel held that the TSR “does not exempt attorneys from its coverage even when they are engaged in providing legal services,” and therefore, the Bureau has investigative authority without regard to the Consumer Financial Protection Act’s (CFPA) practice-of-law exclusion. In addition, the panel rejected the law firm’s argument that the CID was vague or overly broad, and stated that the CID fully complied with the CFPA’s requirements and identified the allegedly illegal conduct and violations.

    Courts Appellate Ninth Circuit CFPB Single-Director Structure CIDs Telemarketing Sales Rule

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  • 9th Circuit: Administrator vicariously liable for debt collectors’ alleged TCPA violations

    Courts

    On March 22, the U.S. Court of Appeals for the 9th Circuit reversed a lower court’s decision to dismiss TCPA claims against a student loan administrator (defendant), finding that the administrator could be held vicariously liable for a contractor’s alleged debt collection attempts. The plaintiff claimed in her suit that the companies hired by the contracted student loan servicer violated the TCPA by using an autodialer when attempting to contact borrowers to collect payment. The plaintiff argued that the defendant was “vicariously liable” for the alleged TCPA violations of the companies that were hired to collect the plaintiff’s debts, and that the defendant was “similarly liable under the federal common law agency principles of ratification and implied actual authority.” The claims against the collectors and the servicer were dismissed for lack of personal jurisdiction, and the lower court ruled on summary judgment that a jury could not hold the defendant responsible for the actions of the servicer.

    On appeal, the split three-judge panel held that a reasonable jury could find that the defendant knew of the alleged TCPA violations, and that because the defendant “ratified the debt collectors’ calling practices by remaining silent,” or alternatively, willfully ignored potential violations through its collections arrangement with the servicer, a jury could find a “principal-agent” relationship—even if one did not exist in the contract—and the court should hold it liable for the collectors’ TCPA violations. According to the panel, there was evidence in the record that the defendant “had actual knowledge” of the alleged violations through audit reports provided by the servicer and “did nothing” to ensure that the debt collectors complied with the law. However, the entire panel agreed that the defendant was not per se vicariously liable for the debt collectors’ alleged TCPA violations.

    In dissent, Judge Bybee agreed with the panel that the defendant is not per se vicariously liable for the debt collectors’ practices, and noted in addition that there is not enough evidence to show that the defendant consented to practices that violate the TCPA or that it granted the debt collectors authority to violate the law. He wrote, “there is no evidence whatsoever that [the defendant] approved of such practices. In fact, the only evidence in the record is to the contrary: when [the defendant] learned of wrongful practices, it reported them to [the servicer] and asked [the servicer] to correct the problem.”

    Courts Ninth Circuit Appellate Robocalls TCPA Debt Collection Autodialer Class Action

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  • 9th Circuit: Plaintiffs failed to show harm in FCRA action

    Courts

    On March 25, the U.S. Court of Appeals for the 9th Circuit affirmed dismissal of five plaintiffs’ allegations against two credit reporting agencies, concluding the plaintiffs failed to show they suffered or will suffer concrete injury from alleged information inaccuracies. According to the opinion, the court reviewed five related cases of individual plaintiffs who alleged that the credit reporting agencies violated the FCRA and the California Consumer Credit Report Agencies Act (CCRAA), by not properly reflecting their Chapter 13 bankruptcy plans across their affected accounts after they requested that the information be updated. The lower court dismissed the action, holding that the information in their credit reports was not inaccurate under the FCRA. On appeal, the 9th Circuit, citing to U.S. Supreme Court’s 2016 ruling in Spokeo v. Robins (covered by a Buckley Special Alert), concluded that the plaintiffs failed to show how the alleged misstatements in their credit reports would affect any current or future financial transaction, stating “it is not obvious that they would, given that Plaintiffs’ bankruptcies themselves cause them to have lower credit scores with or without the alleged misstatements.” Because the plaintiffs failed to allege a concrete injury, the court affirmed the dismissal for lack of standing, but vacated the lower court’s dismissal with prejudice, noting that the information may indeed have been inaccurate and leaving the door open for the plaintiffs to refile the action.

    Courts Ninth Circuit Appellate Spokeo FCRA Bankruptcy Credit Reporting Agency

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  • 9th Circuit issues opinion in Wadler, remands for possible new trial

    Financial Crimes

    On February 26, 2019, the Ninth Circuit issued a long-awaited opinion in a case involving a life sciences manufacturing company and its former General Counsel. The 23-page opinion, slated for publication, takes a mixed view of the trial outcome, vacating in part, affirming in part, and remanding for the district court to determine whether to hold a new trial.

    Two years ago, following a $55 million civil and criminal FCPA settlement by the company, a jury awarded Wadler (the company’s former General Counsel) $11 million in punitive and compensatory damages, including double back-pay under Dodd-Frank, in his whistleblower retaliation case against his former employer. The company appealed to the Ninth Circuit, arguing that the district court erroneously instructed the jury that SEC rules or regulations prohibit bribery of a foreign official; that the company’s alleged FCPA violations resulted from Wadler’s own failure to conduct due diligence as the company’s General Counsel; that the district court should have allowed certain impeachment testimony and evidence related to Wadler’s pursuit and hiring of a whistleblower attorney; and that Wadler was not a “whistleblower” under Dodd-Frank because he only reported internally and did not report out to the SEC. The Court heard arguments on November 14, 2018. 

    Section 806 of the Sarbanes-Oxley Act, codified as 18 U.S.C. § 1514A, protects whistleblowers from retaliation under certain circumstances, including reporting violations of “any rule or regulation of the Securities and Exchange Commission.” The company alleged, and the Ninth Circuit agreed, that the district court’s jury instructions incorrectly stated that Section 806 encompasses reports of FCPA violations. The Court ruled that “statutory provisions of the FCPA, including the three books-and-records provisions and anti-bribery provision . . . are not ‘rules or regulations of the SEC’ under SOX § 806.” However, the Court found that with the right instructions, a jury could have still ruled in Wadler’s favor. Accordingly, the Court vacated the Section 806 verdict and remanded to the district court for consideration of a new trial. On the other hand, the Court held that the same jury instruction error was harmless for the purposes of Wadler’s California public policy claim, so the Court upheld that verdict and its associated damages. The Court also rejected the company’s claims of evidentiary error. Finally, the Court ruled that under another case involving a real estate investment company and its former executive, Dodd-Frank does not apply to people who only report misconduct internally, and vacated the Dodd-Frank claim. As for damages, the Ninth Circuit affirmed Wadler’s compensatory and punitive damages award but vacated the double back-pay associated with the Dodd-Frank claim. 

    This decision is likely the first circuit court opinion to cite the case in an FCPA case for its holding that individuals who only report violations internally do not hold “whistleblower” status under Dodd-Frank.

    For prior coverage of the matter, please see herehere, and here.

    Financial Crimes FCPA Whistleblower SEC Dodd-Frank Sarbanes-Oxley Ninth Circuit

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