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9th Circuit: Revived FCRA suit questions reasonableness of furnisher’s investigation
On May 16, the U.S. Court of Appeals for the Ninth Circuit reversed and remanded a district court’s summary judgment ruling in favor of a defendant furnisher, stating that it is up to a jury to decide whether the defendant’s “reasonable investigation” into the plaintiff’s dispute complied with the FCRA. After the plaintiff defaulted on both his first and second mortgages, the property was foreclosed and sold. Several years later, the plaintiff tried to purchase another home but was denied a mortgage due to a tradeline on his credit report that showed one of his mortgages as past due with accruing interest and late fees due to missed payments. The plaintiff disputed the debt through the consumer reporting agency (CRA) and provided a citation to the Arizona Anti-Deficiency Statute, which abolished his liability for the reported debt. The CRA then told the defendant about the dispute and provided information about the statutory citation. The defendant originally “updated” the plaintiff’s account to show that the debt was being disputed, but continued to report current and past due balances. Yet after the plaintiff again disputed the validity of his debt, the defendant marked the account as “paid, closed” and changed the balance to $0.
The plaintiff sued, claiming the defendant violated the FCRA by failing to reasonably investigate his dispute and for reporting inaccurate information. The district court granted the defendant’s motion for summary judgment, ruling that the reports it made were accurate as a matter of law and that the defendant had reasonably investigated the dispute. Moreover, “whether the Arizona anti-deficiency statute rendered [plaintiff’s] debt uncollectible is a legal question, not a factual one,” the district court stated, adding that “the FCRA does not impose on furnishers a duty to investigate legal disputes, only factual inaccuracies.”
The 9th Circuit disagreed, writing that Arizona law required that the plaintiff’s balance be “abolished,” so it was “patently incorrect” for the defendant to report otherwise. In applying Arizona law, the plaintiff had “more than satisfied his burden” of showing inaccurate reporting, the appellate court wrote, explaining that the “situation was no different than a discharge under bankruptcy law, which extinguishes ‘the personal liability of the debtor.’” The 9th Circuit also held that the FCRA does not “categorically exempt legal issues from the investigations that furnishers must conduct.” Pointing out that the “distinction between ‘legal’ and ‘factual’ issues is ambiguous, potentially unworkable, and could invite furnishers to ‘evade their investigation obligation by construing the relevant dispute as a ‘legal’ one,’” the panel referred to an April 2021 amicus brief filed in support of the plaintiff by the CFPB, which argued that the FCRA does not distinguish between legal and factual disputes when it comes to furnishers’ obligations to investigate disputes referred from CRAs. The CFPB recently made a similar argument in an amicus brief filed last month in the 11th Circuit (covered by InfoBytes here). There, the CFPB argued that importing this exemption would run counter to the purposes of FCRA, would create an unworkable standard that would be difficult to implement, and could encourage furnishers to evade their statutory obligations any time they construe the disputes as “legal.”
Holding that there was a “genuine factual dispute about the reasonableness” of the defendant’s investigation, the appellate court ultimately determined that it would “leave it to the jury” to decide whether the defendant’s investigation had been reasonable. “Unless ‘only one conclusion about the conduct’s reasonableness is possible,’ the question is normally inappropriate for resolution at the summary judgment stage,” the appellate court stated. “Here, as is ordinarily the case, this question is best left to the factfinder.”
9th Circuit: Incomplete loan modification application bars plaintiff's CA Homeowner Bill of Rights claims
On May 11, the U.S. Court of Appeals for the Ninth Circuit affirmed dismissal of a plaintiff’s allegations that a lender violated RESPA and the California Homeowner Bill of Rights (HBOR), breached its contract, and breached the implied covenant of good faith and fair dealing. The court also dismissed the plaintiff’s request for promissory estoppel. In affirming the district court, the appellate court determined that the plaintiff’s HBOR claims failed, specifically because the plaintiff insufficiently showed that she incurred actual damages because of a RESPA violation. The appellate court also agreed that the plaintiff’s HBOR claims failed because she did not submit a complete application. Under HBOR, mortgage servicers are prohibited from reporting a notice of default if a lender’s “complete application for a first lien loan modification” is pending. The appellate court concluded that the plaintiff failed to sufficiently show that she had submitted a complete loan modification application, and did not demonstrate that she took follow-up action in response to a letter stating her loan modification application was incomplete, meaning her claim failed.
With respect to the plaintiff’s remaining claims, the 9th Circuit held, among other things, that the lender’s “alleged promise to consider plaintiff’s loan modification application upon dismissal of her lawsuit was neither sufficiently definite to create a contract nor sufficiently ‘clear and unambiguous to support a promissory estoppel.’” Moreover, the plaintiff’s claim for breach of the covenant of good faith and fair dealing also failed because she could not prove breach of contract. Specifically, she did not state a claim for breach of the deed of trust because, as the plaintiff herself noted, “she failed to perform under the deed of trust when she did not make loan payments, and performance under the contract is a necessary element of a breach of contract claim.”
The dissenting judge disagreed with the majority in two key respects. First, the judge argued the majority wrongfully rejected the plaintiff’s HBOR claim because the complaint contended that the lender “would send out such boilerplate letters so that it did not have to comply with the requirement that it cease foreclosure activities once an application is complete,” and that “a lender’s bad faith conduct does not render a borrower’s application incomplete.” Regarding the plaintiff’s good faith and fair dealing claim, the judge argued that the plaintiff plausibly alleged that she submitted a complete application to the lender. According to the complaint, the plaintiff submitted the necessary documents and was allegedly informed by the lender’s lawyer that “her application was ‘in review, which meant that plaintiff’s application was complete.’”
9th Circuit affirms district court’s ruling in TCPA case
On April 5, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s decision denying a defendants’ motion to compel arbitration in a putative class action under the TCPA. The defendants were a digital marketing company and a debt-relief service company. According to the opinion, the plaintiffs visited the defendants’ websites, but allegedly did not see a notice in fine print stating, “I understand and agree to the Terms & Conditions which includes mandatory arbitration.” The underlined phrases “Terms & Conditions” and “Privacy Policy” were hyperlinks, but they appeared in the same gray font as the rest of the sentence. The marketing company and one of the defendants allegedly used the consumer’s contact information to conduct a telemarketing campaign on behalf of the debt relief companies by allegedly placing unsolicited telephone calls and text messaging consumers. The plaintiffs filed a putative class action, alleging that the calls and text messages were made without their consent, and therefore violated the TCPA. The defendants moved to compel arbitration, arguing that, by clicking on the “continue” buttons, the plaintiffs had agreed to the mandatory arbitration provision hyperlinked in the terms and conditions. The district court denied the defendants’ motion, concluding “that the content and design of the webpages did not conspicuously indicate to users that, by clicking on the ‘continue’ button, they were agreeing to [the service company’s] terms and conditions.”
On appeal, the 9th Circuit agreed with the district court, finding that the digital marketing company’s website did not contain a reasonably conspicuous notice of its terms and conditions. The 9th Circuit ruled that such notice must be expressly displayed in a font size and format where it can be deemed that a reasonable Internet visitor saw it and was aware of it. The appellate court noted that, on the websites at issue, “[t]he text disclosing the existence of the terms and conditions … is the antithesis of conspicuous,” and that “is printed in a tiny gray font considerably smaller than the font used in the surrounding website elements, and indeed in a font so small that it is barely legible to the naked eye. The comparatively larger font used in all of the surrounding text naturally directs the user's attention everywhere else.” The 9th Circuit also held that, “while it is permissible to disclose terms and conditions through a hyperlink, the fact that a hyperlink is present must be readily apparent. …[T]he design of the hyperlinks must put such a user on notice of their existence.”
9th Circuit: Networking site cannot deny data scraping access to publicly available profiles
On April 18, on remand from the U.S. Supreme Court, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s order preliminarily enjoining a professional networking site from denying a data analytics company access to publicly available member profiles. At issue are allegations brought by the networking site claiming the data analytics company used automated bots to extract user data from the networking site’s website (a process known as “scraping”) for the purposes of selling its analytics services to businesses. The networking site sent the data analytics company a cease-and-desist letter, asserting violations of state and federal law, including the Computer Fraud and Abuse Act (CFAA). The data analytics company responded that it had a right to access the public pages and later sought a preliminary injunction. In granting the preliminary injunction, the district court ordered the networking site to, among other things, “remove any existing technical barriers to [its] public profiles, and to refrain from putting in place any legal or technical measures” that would block access.
The 9th Circuit previously affirmed the preliminary injunction, but was called to further consider whether the CFAA applies to the data analytics company’s data scraping after the U.S. Supreme Court vacated the appellate court’s judgment in light of its ruling in Van Buren v. United States.
On remand, the appellate court reviewed whether the data analytics company accessed data “without authorization” in violation of the CFAA after it received the cease-and-desist letter. The 9th Circuit found that the ruling in Van Buren, in which the Supreme Court suggested that the CFAA only applies in cases where someone is accused of hacking into or exceeding their authorized access to a network that is protected, or in situations where the “gates are up,” narrowed the CFAA’s scope and most likely did not apply to cases involving data scraped in bulk by automated bots from public websites. “A defining feature of public websites is that their publicly available sections lack limitations on access; instead, those sections are open to anyone with a web browser,” the appellate court wrote. “In other words, applying the ‘gates’ analogy to a computer hosting publicly available webpages, that computer has erected no gates to lift or lower in the first place.” Therefore, the court held, the phrase “without authorization” does not apply to public websites.
In determining that a preliminary injunction was appropriate, the appellate court held that the district court did not abuse its discretion in concluding that the data analytics company met the standard of establishing that the plaintiff is likely to succeed on the merits, is likely to suffer irreparable harm without such relief, that the “balance of equities” is in the favor of the plaintiff, and that the injunction would be in the public interest. The court found that the data analytics company showed that it “currently has no viable way to remain in business other than using [the networking site’s] public profile data” for its analytic services and “demonstrated a likelihood of irreparable harm absent a preliminary injunction.” In considering the balance of hardships, the 9th Circuit agreed that the scales “tipped sharply” in favor of the data analytics company “when weighing the likelihood that [the data analytics company] would go out of business against [the networking site’s] assertion that an injunction threatened its members’ privacy” and therefore risked the goodwill it had developed with its members. Finally, the court rejected the networking site’s claims that the data analytics company violated the CFAA, which would have preempted the remaining state law claims.
9th Circuit: Defendant is liable for third-party calls
Recently, the U.S. Court of Appeals for the Ninth Circuit affirmed in part and reversed in part a district court’s ruling that a defendant knew its third-party contractor was making pre-recorded calls to prospective consumers without consumers’ consent in violation of the TCPA. As previously covered by InfoBytes, in December 2017, consumers filed a consolidated class action against a cruise line, alleging violations of, among other things, the TCPA for marketing calls made to class members’ cell phones using an automatic telephone dialing system between November 2016 and December 2017. The suit alleged that the defendant hired a company to generate leads and initiate telephone calls to prospective consumers for cruise packages. The U.S. District Court for the Southern District of California denied dismissal of the TCPA action for lack of subject matter jurisdiction, concluding that the Court’s decision in Barr v. American Association of Political Consultants Inc., did not invalidate the TCPA in its entirety from 2015 until July 2020. In Barr the U.S. Supreme Court held that the TCPA’s government-debt exception is an unconstitutional content-based speech restriction and severed the provision from the remainder of the statute. (Covered previously by InfoBytes here.)
On the appeal, the issue was whether the defendant is liable under the TCPA for prerecorded voice calls made by the third-party contractor to the plaintiffs, who had not given prior express consent to be called. The 9th Circuit agreed with the district court’s decision in granting summary judgment for the defendant where the TCPA did not require the defendant to ensure that the third-party contractor had prior express consent for each call that it made to the defendant’s customers, nor did the defendant have actual authority over the third-party contractor. However, the 9th Circuit concluded that the defendant may be vicariously liable for the third-party contractor’s calls because it might have ratified them. The appellate court noted that the defendant knew that it received 2.1 million warm-transferred calls from the company between January 2017 and June 2018, but only 80,081 of those transfers were from individuals who had allegedly consented to receiving the calls. The defendant also had knowledge that there was a slew of mismatched caller data, and that the third-party contractor placed calls using prerecorded voices. The appellate court wrote that, “[t]hese facts, in combination with the evidence of widespread TCPA violations in the cruise industry, would support a finding that [the defendant] knew facts that should have led it to investigate [the company’s] work for TCPA violations.”
CFPB addresses servicers’ obligations to respond to borrower inquiries
On April 4, the CFPB filed an amicus brief in a case on appeal to the U.S. Court of Appeals for the Ninth Circuit concerning a mortgage loan servicer allegedly failing to answer multiple inquiries from two separate consumers regarding their loans despite the requirement under Regulation X that servicers respond when a borrower submits a request for information that “states the information the borrower is requesting with respect to the borrower’s mortgage loan.” The plaintiffs filed suit after the defendant servicer declined to provide the information requested, stating that it would not respond “because the issues raised are the same or very closely related to the issues raised” in pending litigation surrounding the mortgages.
The U.S. District Court for the District of Oregon dismissed the plaintiffs’ claims, noting that under RESPA, “a mortgage loan servicer only has an obligation to provide a written response to a [qualified written request] that seeks ‘information relating to the servicing of such loan,’” and that the plaintiffs’ inquiries regarding the ownership of their loans and requesting other miscellaneous information did not “trigger[] [the defendant’s] obligations to respond under Regulation X” because a servicer has a ‘duty to respond’ only if a request for information ‘relates to the servicing of the loan.’”
In urging the appellate court to overturn the decision, the Bureau argued that under Section 1024.36 of Regulation X “servicers generally must respond to ‘any written request for information from a borrower’ that seeks ‘information ... with respect to the borrower’s mortgage loan.’” According to the Bureau, although a servicing-related request would fall under this provision, it is just one type of request that seeks information ‘with respect to’ a loan and thereby triggers a servicer’s obligation to respond” under the rules. The Bureau stated that Regulation X broadly requires servicers to respond to requests that seek information “with respect to” a borrower’s mortgage loan, explaining that it “included explicit language to that effect in the 2013 Rule to make clear that the rule created a unified set of requirements such that servicers’ obligations to respond were the same for a qualified written request as for any other information request,” and that it “did not exclude information requests that do not relate to servicing from the scope of § 1024.36.” The Bureau agreed with the plaintiffs that there is “no litigation exception to a servicer's obligation to respond to information requests under Regulation X.” The Bureau further noted in a blog post that,“[a] pending lawsuit does not take away a borrower’s right to a response from their loan servicer under Regulation X.”
9th Circuit upholds dismissal of wrongful garnishment claims
On March 30, the U.S. Court of Appeals for the Ninth Circuit affirmed a lower court’s dismissal of claims based on the FDCPA and the Washington Consumer Protection Act (WCPA). According to the memorandum, the complaint alleged that the defendants violated the FDCPA and WCPA when they sought to garnish plaintiff’s wages based a state court judgment that was not yet final. The district court dismissed the FDCPA claim, holding that “at worst, Defendants violated a state court procedural rule—not substantive law—when they applied for the writ of garnishment based on the valid, albeit, not final judgment.” In affirming that dismissal, however, the appellate court noted that “[t]he issue is not whether [the defendant] and [the defendant’s attorney] violated state law but whether they violated the FDCPA.” The 9th Circuit clarified that “[t]he [plaintiff] might have argued that [the defendant] and [the defendant’s attorney] falsely represented the legal status of their debt by implicitly claiming in the garnishment application that the debt was subject to a final judgment. But they [did] not make this argument, so it is waived.” With respect to the WCPA claim, while the district court’s dismissal was based on a determination that the garnishment did not “occur[] in trade or commerce” as required under that statute, the 9th Circuit pointed out that if the garnishment was “a violation of the Washington Collection Agency Act (WCAA), [it] would have established an unfair or deceptive act in trade or commerce for purposes of the WCPA,” but upheld dismissal because the plaintiff had waived that argument as well.
9th Circuit affirms dismissal of investors’ data breach disclosures suit
On March 2, the U.S. Court of Appeals for the Ninth Circuit affirmed the dismissal of a class action suit for failure to state a claim, concluding that investors had failed to adequately allege that statements about the defendant company’s cybersecurity practices in the company’s 2018 Form 10-K amounted to securities fraud. The plaintiffs asserted that certain statements, including statements that the company maintained “a comprehensive security program,” “were misleading because they created the impression that [the company] implemented the data security best practices described in those statements no later than 2016, when in fact, the company did not implement those practices until later.” The plaintiffs argued that based on these statements, “a reasonable investor could have concluded that any data security improvements [the company] described would have been put in place in response to the two public hacks [the company] had experienced in the past, one in 2013 and one in 2016.” The 9th Circuit determined that the plaintiffs had failed to show that the company had misled investors into believing that it had made data security improvements specifically in response to the 2013 and 2016 data breaches and had “plead no facts supporting a reasonable inference that either of those hacks was a prominent enough milestone in company history that the average investor would be led to believe every data security improvement directly followed them.”
The plaintiffs further alleged that other statements in the 10-K were misleading because they “created the impression that it was unlikely [the company] had suffered an undetected data breach in the past, when in reality it was somewhat likely.” The appellate court rejected the plaintiffs’ argument and noted that “these statements would not give an ordinary investor reason to believe that [the company] was asserting that the risk that an undetected breach had occurred was particularly high or low, or that it had changed over time.” The 9th Circuit further agreed with the district court that the plaintiffs had failed to specifically allege that the company acted with the intent to deceive, manipulate, or defraud, or engage in “deliberate recklessness.”
9th Circuit affirms judgment for defendant in FCRA suit
On March 1, the U.S. Court of Appeals for the Ninth Circuit affirmed dismissal in favor of a consumer reporting agency (defendant). The suit accused the defendant of violating the FCRA by failing to disclose certain information about a consumer. The plaintiffs were originally part of a class action alleging FCRA disclosure violations against the defendant, but that case was dismissed. Instead of appealing the suit, three plaintiffs brought a separate proposed class action. The defendant removed the case to federal court and filed a motion to dismiss based on a failure to state a claim. Though the case was again dismissed, the plaintiffs were granted leave to amend their complaint. In their First Amended Complaint, the plaintiffs argued that under the FCRA, the disclosures they received from the defendant did not include, among other things: (i) behavioral data; (ii) “soft inquiries” not initiated by the consumer; (iii) the identity of parties procuring consumer reports; and (iv) the date on which employment data was reported. The district court found that the defendant was not obligated to include the behavioral data in its disclosure since the information alleged to have not been disclosed was not part of the consumer’s “file” under the FCRA and was not information that was or might be furnished in a consumer report.
On appeal, the 9th Circuit noted that “none of the information [the plaintiffs] contend [the defendant] failed to disclose is of the type that has been included in a consumer report in the past or is planned to be included in such a report in the future.” The appellate court also noted that “the date employment dates were reported can have no ‘bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal, characteristics, or mode of living.’” Since the district court found that the data that the consumers alleged the defendants failed to include in its disclosures is actually not subject to disclosure under the FCRA, the appellate court affirmed the district court’s dismissal.
9th Circuit affirms judgment for defendant in FCRA suit
On February 8, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment in favor of a consumer reporting agency (defendant). The suit accused the defendant of violating the FCRA by willfully and negligently disclosing a 10-year-old criminal charge that had been dismissed six years prior to an inquiry made on the plaintiff’s credit report. The plaintiff allegedly submitted an application for housing in 2010, which was denied. In 2010, the defendant provided a tenant screening report, which included details of a criminal charge from 2000, which was outside the seven-year window of the FCRA. However, the plaintiff’s criminal charge was dismissed in 2004, which was within the seven-year reporting window. The plaintiff sued under the FCRA, alleging that the defendant reported criminal information older than seven years, failed to maintain procedures designed to avoid violating the FCRA and ensure the maximum possible accuracy of the information in the report, and failed to conduct a reasonable reinvestigation after receiving a consumer dispute.
In ruling for the defendant, the 9th Circuit stated that “to prove a negligent violation [of the FCRA], a plaintiff must show that the defendant acted pursuant to an objectively unreasonable interpretation of the statute.” The 9th Circuit held that Section 1681c(a)(5) of the FCRA “does not specifically state the date that triggers the reporting window.” Further, the appellate court looked to guidance from the FTC and the CFPB, which “appeared to permit reporting the charge” at the time.
As the appellate court explained, whether the consumer reporting agency correctly interpreted § 1681c(a)(5) to permit the reporting of a criminal charge that was filed outside of, but dismissed within, the statute’s seven-year window, arose as a matter of first impression. However, the consumer reporting agency introduced evidence that its interpretation was consistent with industry norms and standards. Likewise, FTC guidance on the question, at the time, appeared to permit reporting the charge. The appellate court noted, therefore, that it “cannot say, nor could any other reasonable fact finder, that on this record defendant’s violation of [the FCRA] was negligent, much less willful.” As a result, the 9th Circuit affirmed summary judgment in favor of the defendant.