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  • 9th Circuit: Company cannot compel minor children to arbitration

    Courts

    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.”

    Courts Appellate Ninth Circuit Privacy/Cyber Risk & Data Security Arbitration

  • Supreme Court: FTC may not seek restitution or disgorgement under 13(b)

    Courts

    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.”

    Courts U.S. Supreme Court FTC Enforcement Consumer Redress FTC Act Appellate Ninth Circuit

  • 9th Circuit will rehear Oakland’s Fair Housing Act case en banc

    Courts

    On April 20, a majority of nonrecused active judges of the U.S. Court of Appeals for the Ninth Circuit vacated a three-judge panel’s 2020 Fair Housing Act (FHA) decision and ordered that the case be reheard en banc. As previously covered by InfoBytes, the City of Oakland sued a national bank alleging violations of the FHA and the California Fair Employment and Housing Act, claiming the bank provided minority borrowers mortgage loans with less favorable terms than similarly situated non-minority borrowers, leading to disproportionate defaults and foreclosures causing (i) decreased property tax revenue; (ii) increases in the city’s expenditures; and (iii) neutralized spending in Oakland’s fair-housing programs. Last year, the three-judge panel affirmed both the district court’s denial of the bank’s motion to dismiss claims for decreased property tax revenue, as well as the court’s dismissal of Oakland’s claims for increased city expenditures. Regarding Oakland’s alleged municipal expenditure injuries, the panel agreed with the district court that Oakland’s complaint failed to account for independent variables that may have contributed or caused such injuries and that those alleged injuries therefore did not satisfy the FHA’s proximate-cause requirement. The panel further held that Oakland’s claims for injunctive and declaratory relief were also subject to the FHA’s proximate-cause requirement, and that on remand, the district court must determine whether Oakland’s allegations satisfied this requirement. The bank filed a petition for panel rehearing and rehearing en banc last October, arguing, among other things, that the panel had “fashioned a looser, FHA-specific proximate-case standard” in conflict with the U.S. Supreme Court’s decisions involving the City of Miami (covered by InfoBytes here). Oakland responded by noting, however, that the panel’s decision is consistent with the City of Miami decisions, and that, among other things, the Supreme Court’s decision did not establish “precise boundaries of proximate cause” but rather asked lower courts to define “the contours of proximate cause under the FHA and decide how that standard applies to the City’s claims for lost property-tax revenue and increased municipal expenses.”

    Courts Appellate Ninth Circuit Fair Housing Fair Housing Act Consumer Finance Mortgages State Issues Fair Lending

  • 9th Circuit: Debt collector can invoke bona fide effort defense in time-barred suit

    Courts

    On March 9, the U.S. Court of Appeals for the Ninth Circuit reversed a district court’s dismissal of an FDCPA lawsuit, holding that while “strict liability” under the statute applies when a debt collector threatens litigation or files a lawsuit seeking to collect time-barred debt, the debt collector can avoid liability by invoking the bona fide error defense. In the case that gave rise to the plaintiff’s FDCPA claim, the plaintiff contested the debt collector’s state court lawsuit, arguing that it was filed outside the four-year statute of limitations applicable to sale-of-goods contract claims. The debt collector countered that Oregon’s six-year statute of limitations for other contract claims applied. After the state court ruled for the plaintiff, the plaintiff filed a putative class action lawsuit in the U.S. District Court for the District of Oregon against the defendants alleging violations of Sections 1692e and 1692f of the FDCPA. The district court granted the defendants’ motion to dismiss ruling that the plaintiff failed to state a claim because the state statute of limitations was unclear when the defendants attempted to collect the debt.

    On appeal, the 9th Circuit disagreed with the district court, concluding that because the “FDCPA takes a strict liability approach to prohibiting misleading and unfair debt collection practices, [] a plaintiff need not plead or prove that a debt collector knew or should have known that the lawsuit was time barred to demonstrate that the debt collector engaged in prohibited conduct.” However, the 9th Circuit held that the defendants may be able to avoid liability through the FDCPA’s affirmative defense for bona fide errors. The appellate court distinguished its holding from a 2010 U.S. Supreme Court case, Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, which held that mistakes about the FDCPA’s meaning are excluded from the bona fide error defense. Instead, the 9th Circuit found that “a mistake about the time-barred status of a debt under state law could qualify as a bona fide error within the meaning of the FDCPA” because it is a mistake of fact and not of law.

    Courts Appellate Ninth Circuit Debt Collection FDCPA

  • 9th Circuit: Arbitration agreement authorizes public injunctive relief under California law

    Courts

    On February 19, the U.S. Court of Appeals for the Ninth Circuit affirmed a grant of a motion to compel arbitration filed by the operator of a smartphone app that offers financial services to consumers, holding that an agreement between a consumer and the lender authorizes the arbitrator to award all injunctive remedies available in an individual lawsuit under California law. In this case, the plaintiff took out a credit-builder loan and was required to enroll in a program offered by the lender as a prerequisite for applying for the loan, which required the payment of monthly fees. After the consumer fell behind on her fees, deposits, and loan payments, she filed a putative class action suit claiming that when she tried to cancel her membership in the program, the lender informed her that she first had to pay off the loan in full, which could only happen after she paid the still-accumulating past-due membership fees. The lender moved to compel arbitration, which the district court granted, ruling that the arbitration agreement was fully enforceable and that the agreement “explicitly” did not violate the ruling established in McGill v. Citibank NA, as it allowed the arbitrator to award “all remedies in an individual lawsuit,” including, without limitation, public injunctive relief. On appeal, the 9th Circuit rejected the consumer’s argument that she could only secure public injunctive relief by acting as a private attorney general, which the arbitration agreement explicitly prohibited. “Public injunctive relief is available under California law in individual lawsuits—not just in private-attorney-general suits,” the appellate court wrote. “It follows that [the consumer] may secure that relief in arbitration under the [a]greement.” As a result, the court affirmed the district court’s order to compel arbitration.

    Courts Ninth Circuit Appellate Arbitration Mobile Banking State Issues

  • 9th Circuit reaffirms order enforcing Seila CID

    Courts

    On December 29, the U.S. Court of Appeals for the Ninth Circuit reaffirmed a district court’s order granting the CFPB’s petition seeking to enforce a civil investigative demand (CID) sent to Seila Law. As previously covered by InfoBytes, the Bureau filed a supplemental brief arguing that the formal ratifications of then-Acting Director Mick Mulvaney and current Director Kathy Kraninger, paired with the U.S. Supreme Court’s ruling in Seila v. CFPB, are sufficient for the appellate court to enforce the CID previously issued against the law firm, and that “[s]etting aside the CID at this point would serve no valid purpose.” In reaffirming the order, the appellate court wrote that “Director Kraninger’s ratification 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.” The 9th Circuit also rejected Seila Law’s argument that the ratification occurred outside the limitations period for bringing an enforcement action against the law firm, determining that the “statutory  limitations period pertains solely to the bringing of an enforcement action, which the CFPB had not yet commenced against Seila Law.”

    Courts Ninth Circuit Appellate CFPB Seila Law Single-Director Structure

  • 9th Circuit affirms dismissal of data breach class action against online payment firm

    Courts

    On December 17, the U.S. Court of Appeals for the Ninth Circuit affirmed dismissal of a class action suit brought against an online payments firm and associated entities and individuals (collectively, “defendants”) for allegedly misleading investors (plaintiffs) about a 2017 data breach. As previously covered by InfoBytes, the district court concluded that, while the plaintiffs plausibly alleged the defendants’ November 2017 announcement about the data breach was misleading because it only disclosed a security vulnerability and did not disclose a breach that “potentially compromised” 1.6 million customers until a month later in December, plaintiffs failed to show that the defendants knew the breach had affected 1.6 million customers when they made the initial statement. Moreover, the court concluded the plaintiffs failed to allege that plaintiffs’ cybersecurity expert was familiar with, or had knowledge of, the defendants’ specific security setup or that he actually talked to the defendants’ employees about the breach.

    On appeal, the 9th Circuit agreed with the district court, noting that the complaint lacked any allegation that the defendants had a motive to mislead investors in November, but not in December, such as the selling of stock during the relevant period. Thus, the appellate court could not conclude that the plaintiffs showed that the November announcement “was intentionally misleading or so obviously misleading that he must have been aware of its potential to mislead.” Therefore, the appellate court affirmed dismissal for failure to state a claim.

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

  • 9th Circuit vacates summary judgment in bankruptcy, FDCPA action

    Courts

    On November 25, the U.S. Court of Appeals vacated summary judgment in favor of defendants in an action alleging the defendants violated the FDCPA by attempting to collect a debt that was discharged in a bankruptcy proceeding and no longer owed. According to the opinion, after the plaintiff fell behind on dues that were owed to his homeownership association (HOA), a law firm acting as a debt collector on behalf of the HOA obtained a lien for the unpaid debt and initiated nonjudicial foreclosure proceedings. The plaintiff filed and received approval for Chapter 13 bankruptcy protection. A separate collection agency that received the plaintiff’s HOA arrearage payments eventually informed the bankruptcy trustee that the HOA debt was “paid in full,” with a notice issued to that effect. An order of discharge was entered in the case by the bankruptcy court after the completion of payment was verified. Following the bankruptcy discharge order, the law firm—whose records still showed an unpaid balance—undertook collection efforts again. The plaintiff informed the law firm that the debt had been paid, and—after further review—the law firm acknowledged a communication from the collection agency that stated the debt had been paid in full. The plaintiff filed suit, but the defendants argued that the claims were precluded under Walls v. Wells Fargo Bank, N.A. because the debt was discharged in bankruptcy. The district court granted the defendant’s motion for summary judgment, ruling that the plaintiff’s “FDCPA claims were precluded ‘because they are premised upon violations of the bankruptcy post-discharge injunction.’”

    On appeal, the 9th Circuit concluded that the plaintiff’s claims were not precluded by the Bankruptcy Code. The appellate court observed that while its 2002 decision in Walls generally indicates that the Bankruptcy Code precludes FDCPA claims premised on a violation of a bankruptcy discharge order, it did not apply in this case. Among other things, the panel determined that the plaintiff’s FDCPA claims were not premised on an issuance or violation of the discharge order in the bankruptcy proceeding. Rather, the plaintiff’s FDCPA claims were based on a debt that was fully satisfied through arrearage payments as part of a Chapter 13 plan before a discharge order was entered. As such, the appellate court determined that “just because [the plaintiff] made his arrearage payments through operation of a bankruptcy plan” it “does not render his FDCPA claims inextricably intertwined with bankruptcy issues.”

    Courts Appellate Ninth Circuit FDCPA Bankruptcy Debt Collection

  • 9th Circuit affirms dismissal of bank’s quiet-title action against HOA

    Courts

    On November 5, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court judgment, which had dismissed for failure to state a claim a national bank’s quiet-title action against the purchaser of real property at a foreclosure sale, a Nevada homeowners association (HOA), and the HOA’s agent (collectively, “defendants”). According to the opinion, borrowers financed the purchase of a home located within the HOA through the bank, but fell behind on their HOA dues. The HOA recorded a lien on the property for the delinquent assessments, foreclosed on the home to satisfy the lien, and ultimately sold the property at a public auction to a trust, which extinguished the bank’s deed of trust. The bank filed the quiet-title action against the defendants, alleging, among other things, that the foreclosure sale was invalid and that the bank’s “deed of trust continues as a valid encumbrance against the [p]roperty.” In addition, the bank claimed that applying Nevada Revised Statutes section 116.3116 “produces a harsh result” because it prioritizes an HOA lien over “all other liens, including the first deed of trust held by the mortgage lender,” and also violates the Takings Clause and the Due Process Clause of the U.S. Constitution. The bank further argued that the foreclosure sale was not valid because it did not receive adequate notice of the sale. The district court granted the defendants’ motion to dismiss, ruling, among other things, that the HOA had the right to foreclose on the property and that the bank had received adequate notice of the property’s sale.

    On appeal, the 9th Circuit concluded that the bank’s constitutional rights under the Takings Clause—which provides that private property cannot be taken for public use “without just compensation”—were not violated. “Because the enactment of section 116.3116 predated the creation of [the bank’s] lien on the property, [the bank cannot] establish that it suffered an uncompensated taking,” the appellate court wrote, additionally noting that “the foreclosure proceeding itself was not a ‘taking’ because the Takings Clause governs the conduct of the government, not private actors.” With respect to the alleged violation of the Due Process Clause, the appellate court agreed with the district court’s determination that the bank had received adequate, actual notice of the delinquent assessment and the foreclosure sale.

    Courts Appellate Ninth Circuit Foreclosure Mortgages

  • 38 state AGs argue for broad TCPA autodialer definition

    Courts

    On October 23, a coalition of 38 state attorneys general filed an amici curiae brief with the U.S. Supreme Court, urging the court to accept the broad definition of an autodialer under the TCPA, which would cover all devices with the capacity to automatically dial numbers that are stored in a list. As previously covered by InfoBytes, the Court agreed to review the U.S. Court of Appeals for the Ninth Circuit’s decision in Duguid v. Facebook, Inc. (covered by InfoBytes here), which concluded the plaintiff plausibly alleged the social media company’s text message system fell within the definition of autodialer under the TCPA. The 9th Circuit applied the definition from their 2018 decision in Marks v. Crunch San Diego, LLC (covered by InfoBytes here), which broadened the definition of an autodialer to cover all devices with the capacity to automatically dial numbers that are stored in a list.

    The attorneys general argue that the 9th Circuit’s definition of autodialer is “the only reading of the autodialer definition that is consistent with the ordinary meaning of the definition’s two key verbs: ‘store’ and ‘produce.’” Moreover, they assert the broad definition is within the original 1991 meaning of the TCPA when it was enacted by Congress as a way to address the gaps state consumer protection laws may have in preventing interstate telephone fraud and abuse. According to the attorneys general, every state statute that defined an autodialer in 1991, “understood that term to reach devices with the capacity to store and dial numbers from a predetermined list, regardless of whether a random or sequential number generator was used.” Therefore, when Congress enacted the TCPA with the intention to “supplement—not to shrink—preexisting state laws,” it would follow that Congress would not intentionally adopt a narrower definition than existed at the time among the states.

    Courts Appellate Ninth Circuit Autodialer TCPA

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