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9th Circuit affirms district court’s ruling in FCRA dispute
On July 24, the U.S. Court of Appeals for the 9th Circuit affirmed a district court’s ruling that the FCRA did not require a consumer reporting agency (defendant) to examine disputed items on an individual’s credit report because the credit repair company—and not the individual—submitted the request to the defendant. Under the FCRA, consumer reporting agencies are required to assess disputed credit file items when a consumer notifies the agency directly. However, the court stated that the plaintiff did not play a part in drafting, finalizing, or sending the letters that the credit repair company sent to the defendant on his behalf, and therefore granted summary judgment in favor of the defendant, ruling that the defendant’s duty to reinvestigate the claims relied upon the plaintiff himself submitting the dispute notifications.
On appeal, the 9th Circuit agreed with the district court that the defendant “did not act unreasonably” and was correct in entering summary judgment. “This case does not involve a letter sent to a consumer reporting agency by a consumer’s attorney,” the appellate court wrote in clarifying that the holding was limited to the facts of the specific case. “Nor does it involve one family member assisting another by sending a letter on the other’s behalf. It does not even involve a letter sent by a credit repair agency that a consumer reviewed and approved before it was submitted. We do not decide whether, in any of these circumstances, a consumer reporting agency would have a duty to reinvestigate. We only hold that, in this case, where [the plaintiff] played no role in preparing the letters and did not review them before they were sent, the letters sent by [the credit repair company] did not come directly from [the plaintiff].”
9th Circuit: Law firm owner liable for restitution from mortgage relief scheme
On July 16, the U.S. Court of Appeals for the 9th Circuit affirmed summary judgment in favor of the FTC in an action alleging two attorneys controlled or participated in a mortgage relief scheme, which falsely told consumers they could join “mass joinder” lawsuits that would save them from foreclosure and provide additional financial awards. In September 2017, the district court granted summary judgment against both defendants, concluding that the defendants knowingly deceived consumers when they falsely marketed that consumers could expect to receive $75,000 in damages or “a judicial determination that the mortgage lien alleged to exist against their particular property is null and void ab initio” if they agreed to join mass joinder lawsuits against their mortgagors. The operation resulted in over $18 million in revenue from the participating consumers.
On appeal from one defendant, the 9th Circuit agreed with the district court, determining the FTC provided “sufficient undisputed facts to hold [the defendant] individually liable for injunctive relief at summary judgment.” Specifically, the appellate court agreed that the FTC sufficiently proved three separate legal entities, one of which the defendant was the co-owner and corporate officer, “operate[d] together as a common enterprise,” which violated the FTC Act and Mortgage Assistance Relief Services Rule with their mortgage relief operation. Moreover, the appellate court determined that the defendant was “at least recklessly indifferent to [the other entities’] misrepresentations,” based on his knowledge of previous schemes operated by the other owners and reliance on a non-lawyer’s assurance that the marketing materials had been “legally approved,” making him “jointly and severally liable for restitution for the corporation’s unjust gains in violation of the FTC Act.”
9th Circuit denies rent-to-own company’s arbitration bid
On June 28, the U.S. Court of Appeals for the 9th Circuit affirmed the denial of a rent-to-own company’s motion to compel arbitration in a putative class action alleging the company charged excessive prices. According to the opinion, three named plaintiffs filed suit against the company in 2017, alleging that the company structured its rent-to-own pricing in violation of California law, including the Karnette Rental-Purchase Act, the Unfair Competition Law, the Consumers Legal Remedies Act, and the state’s prohibitions against usurious loans. The plaintiffs sought public injunctive relief, as well as compensatory damages and restitution, among other things. The company moved to compel arbitration in accordance with the arbitration agreement executed in connection with the plaintiff’s rent-to-own air conditioner contract. The district court denied the motion to compel arbitration, concluding that the arbitration agreement violates the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here) because it constitutes a waiver of the plaintiff’s substantive right to seek public injunctive relief. Moreover, the court concluded that McGill was not preempted by the Federal Arbitration Act (FAA), and that the agreement’s severance clause allowed for the plaintiff’s Karnette Act, UCL, and CLRA claims to be severed from the arbitration.
On appeal, the 9th Circuit agreed with the district court, rejecting the company’s arguments that McGill was preempted by the FAA. The appellate court found that McGill does not interfere with the bilateral nature of a typical arbitration, stating “[t]he McGill rule leaves undisturbed an agreement that both requires bilateral arbitration and permits public injunctive claims.” Moreover, the appellate court noted that the severance clause in the agreement, which precludes an arbitrator from awarding public injunctive relief, is triggered by the McGill rule, and disagreed with the company that the arbitrator would still adjudicate liability first, concluding that the clause provides “the entire claim be severed for judicial determination.”
Split 9th Circuit reverses dismissal of class action alleging bank-assisted fraud
On June 24, the U.S. Court of Appeals for the 9th Circuit reversed the dismissal of a non-customer class action against a California bank alleging the bank knowingly assisted a fraudulent scheme, in violation of California law. The class action asserts eight claims against the bank under California law, including aiding and abetting fraud and conspiracy to commit fraud, for allegedly “knowingly assist[ing] a $125 million fraudulent scheme” initiated by one of the bank’s clients. The district court dismissed the action, holding the consumers “had not pleaded sufficient facts giving rise to a plausible inference that [the bank] knew [its client] was misappropriating funds.”
On appeal, the 9th Circuit disagreed, concluding the consumers plausibly alleged specific allegations concerning the bank’s actual knowledge of the client’s misappropriation and fraud. The appellate court noted that while generally banks owe no duty to non-customers under California law, an exception exists when a bank “‘knowingly makes itself a party to a fraud, [it] must make good the loss that results from the misappropriation.’” The appellate court concluded that several allegations made by the consumers were plausible based on the bank using “atypical banking procedures,” which included “repeatedly making advances at [the client]’s request without obtaining supporting documentation or verifying that [the client] used the advanced proceeds appropriately (despite indications to the contrary) and extending maturity dates on short-term loans year after year (even when [the client] was in default).”
In dissent, a panel judge argued that the consumers made no specific allegations of the bank’s actual knowledge of the fraud, noting that the complaint is “vague and lengthy” and just “a series of common banking practices dressed up in ominous language.” Additionally, the judge noted that California courts traditionally only find actual knowledge in “‘extreme circumstances,’” and have previously “refused to hold banks liable in far more egregious cases than this.”
9th Circuit: FTC does not need to show irreparable harm to get injunctive relief
On June 17, the U.S. Court of Appeals for the 9th Circuit held that no showing of irreparable harm is required for the FTC to obtain injunctive relief when the relief is sought in conjunction with a statutory enforcement action where the applicable statute authorizes such relief. According to the opinion, the FTC brought an action against an entity and related individuals (collectively, “defendants”) operating a mortgage loan modification scheme for allegedly violating the FTC Act and Regulation O by making false promises to consumers for services designed to prevent foreclosures or reduce interest rates or monthly mortgage payments. (Previously covered by InfoBytes here.) The FTC brought the action under the second proviso of Section 13(b) of the FTC Act, which allows the agency to pursue injunctive relief without initiating administrative action. The district court granted the motion for preliminary injunction without requiring the FTC to make a showing of irreparable harm.
On appeal, the 9th Circuit rejected the defendants’ argument that the FTC was still required to demonstrate the likelihood of irreparable harm in a Section 13(b) action. The appellate court noted that the FTC’s position is supported by the court’s precedent, quoting “‘[w]here an injunction is authorized by statute, and the statutory conditions are satisfied . . ., the agency to whom the enforcement of the right has been entrusted is not required to show irreparable injury.’” The appellate court concluded that its precedent is not irreconcilable with the 2008 Supreme Court decision in Winter v. Natural Resource Defense Council, Inc, noting that Winter did not address injunctive relief in the context of statutory enforcement. Therefore, the appellate court concluded that although irreparable harm is required to obtain injunctive relief in an ordinary case, the district court did not error in granting injunctive relief, without the showing of irreparable harm, in conjunction with a statutory enforcement action.
9th Circuit reverses dismissal of TCPA class action against social media company
On June 13, the U.S. Court of Appeals for the 9th Circuit overturned the dismissal of a TCPA putative class action against a social media company, concluding the plaintiff adequately alleged the company sent text messages using an automated telephone dialing system (autodialer) in violation of the TCPA and holding that the “debt-collection exception” excluding calls “made solely to collect a debt owed to or guaranteed by the United States” from TCPA coverage is an unconstitutional restriction on speech. The consumer alleged that he that he had received a text message indicating that his account was accessed from an unrecognized device, although he allegedly was not a user of the social media site and never consented to the alerts.
On appeal, the company challenged the adequacy of the TCPA allegations and, alternatively, argued that the TCPA violates the First Amendment. The 9th Circuit concluded the plaintiff plausibly alleged the company’s text message system fell within the definition of autodialer under the TCPA— using the definition from its September 2018 decision in Marks v. Crunch San Diego, LLC. The appellate court rejected the company’s argument that an “expansive reading” of Marks would encapsulate any smartphone within the definition of autodailer and that the definition should not apply to “purely ‘responsive messages’” such as the text messages in question. The appellate court also agreed with the company— citing to the 4th Circuit’s recent decision in AAPC v. FCC, covered by InfoBytes here— that an exclusion under the TCPA that allows debt collectors to use an autodialer to contact individuals on their cell phones when collecting debts owed to or guaranteed by the federal government violates the First Amendment’s Free Speech Clause. However, the appellate court held that the debt collection exception is severable from the TCPA, and, therefore, declined to strike down the law it its entirety as the company requested.
District Court denies summary judgment for auto financing company in TCPA action
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.
California District Court says payday lender’s arbitration provision is unconscionable
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.
9th Circuit: Class decertification appropriate when representative lacks standing
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.”
9th Circuit upholds rejection of consumer’s class action against auto finance company
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].”