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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.
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.”
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.’”
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.”
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.”
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.
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.”
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.
On April 23, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s refusal to compel arbitration against a technology company, concluding that children are not bound by arbitration provisions in their parents’ service contracts with the company. The appeals court held that the plaintiff children, who were not signatories to the service contracts, could not be compelled to arbitration because “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.”
In their June 2019 suit in the U.S. District Court for the Western District of Washington, the plaintiffs alleged that one of the corporation’s services caught and documented their communications, in violation of state wiretapping law. The defendant asserted that “the children were bound by arbitration provisions in the service contracts signed by their parents because they directly benefited from the agreements.” In affirming the district court’s decision on appeal, the Ninth Circuit agreed that the doctrine of equitable estoppel did not bind the plaintiff children to arbitrate because they “are not asserting any right or looking to enforce any duty created by the contracts between their parents and the corporation. Instead, plaintiffs bring only state statutory claims that do not depend on their parents’ contracts.”
On April 22, the U.S. Supreme Court unanimously reversed the U.S. Court of Appeals for the Ninth Circuit’s decision in AMG Capital Management v. FTC, holding 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.” The opinion impacts petitioners who were ordered in 2018 to pay an approximately $1.3 billion judgment for allegedly operating a deceptive payday lending scheme and making false and misleading representations about loan costs and payments (covered by InfoBytes here). At the time, the 9th Circuit rejected the petitioner’s challenge to the judgment (based on, among other things, the argument that the FTC Act only allows the court to issue injunctions), concluding that a district court may grant any ancillary relief under the FTC Act, including restitution. As previously covered by InfoBytes, last year the Court granted review and consolidated two cases that had reached different conclusions regarding the availability of restitution under § 13(b): (i) the 9th Circuit’s decision in FTC v. AMG Capital Management; and (ii) the 7th Circuit’s ruling in FTC v. Credit Bureau Center (covered by InfoBytes here), which held that Section 13(b) does not give the FTC power to order restitution.
In examining “whether Congress, by enacting §13(b) and using the words ‘permanent injunction,’ granted the Commission authority to obtain monetary relief directly from courts and effectively bypass the requirements of the administrative process,” the Court unanimously held that § 13(b) “does not explicitly authorize the Commission to obtain court-ordered monetary relief,” and that “such relief is foreclosed by the structure and history of the Act.” As such, the Court determined that it is “highly unlikely” that Congress would grant the FTC authority to circumvent traditional § 5 administrative proceedings by collecting restitution or disgorgement as an equitable relief power. Moreover, the Court discussed § 19 of the FTC Act, which was enacted two years after § 13(b) and “authorizes district courts to grant ‘such relief as the court finds necessary to redress injury to consumers,’ including through the ‘refund of money or return of property.’” The Court noted that since § 19 has limited authority and is only available against those who have engaged in an unfair or deceptive act or practice through which the FTC has issued a final cease and desist order (i.e. through an administrative proceeding), the Court found it “highly unlikely that Congress would have enacted provisions expressly authorizing conditioned and limited monetary relief if the Act, via §13(b), had already implicitly allowed the Commission to obtain that same monetary relief and more without satisfying those conditions and limitations.” Further, the Court stated that it was unlikely that Congress would have granted the FTC authority to “so readily” circumvent traditional § 5 administrative proceedings.
The Court stated that nothing in its opinion, however, prohibits the FTC “from using its § 5 or § 19 authority to obtain restitution on behalf of consumers,” adding that if the Commission “believes that authority too cumbersome or otherwise inadequate, it is, of course, free to ask Congress to grant it further remedial authority”—a request that the FTC made before the Senate Committee on Commerce, Science, and Transportation on Oversight of the Federal Trade Commission in 2020 and again on April 20, 2021 (covered by InfoBytes here). The Court reversed the judgment against the petitioners and remanded the case for further proceedings in line with its opinion.
FTC acting Chairwoman Rebecca Kelly Slaughter issued a statement following the Court’s decision: “With this ruling, the Court has deprived the FTC of the strongest tool we had to help consumers when they need it most. We urge Congress to act swiftly to restore and strengthen the powers of the agency so we can make wronged consumers whole.”
- Jeffrey P. Naimon to provide “Fair lending update” at the Colorado Mortgage Lenders Association Operational and Compliance Forum
- Kari K. Hall to discuss “Justice for all: Achieving racial equity through fair lending” at CBA Live
- Warren W. Traiger to discuss “On the horizon for CRA modernization” at CBA Live
- APPROVED Webcast: Strategy & Technology: A dynamic duo for successful regulatory exams
- Melissa Klimkiewicz to participate in Q&A on flood insurance at the NAFCU Virtual Regulatory Compliance School
- Daniel R. Alonso to discuss “Primer on cross-border prosecutions in Argentina, Brazil, Colombia, and Mexico for U.S. criminal lawyers” at a New York City Bar Association webinar
- Jonice Gray Tucker to discuss "Fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss “State law regulatory and enforcement trends” at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “Government investigations, and compliance 2021 trends” at the Corporate Counsel Women of Color Career Strategies Conference
- Max Bonici to discuss “BSA/AML trends: What to expect with the implementation of the AML Act of 2020” at the American Bar Association Banking Law Fall Meeting
- H Joshua Kotin to discuss “Modifications and exiting forbearance” at the National Association of Federal Credit Unions Regulatory Compliance Seminar
- Jonice Gray Tucker to discuss “Fintech trends” at the BIHC Network Elevating Black Excellence Regional Summit
- Amanda R. Lawrence to discuss “Consumer financial services government enforcement actions – The CFPB and beyond,” at the Government Investigations & Civil Litigation Institute Annual Meeting
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute