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In a unanimous ruling handed down on June 5, the United States Supreme Court held that the SEC is bound by a five-year statute of limitations on civil penalties or the return of illegal profits, citing 28 U.S.C. §2462 of the U.S. Code, which “establishes a [five-year] limitations period for ‘an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture.’” Justice Sotomayor delivered the opinion.
The decision resolves a New Mexico case dating back to 2009, in which a jury found the defendant liable for misappropriating more than $34.9 million from 1995 through July 2007 from four SEC-registered investment companies under his control. See S.E.C. v. Kokesh, 834 F.3d 1158 (10th Cir. 2016). The district court judge ordered the defendant to pay a $2.4 million civil penalty, nearly $35 million in disgorgement, and more than $18 million in prejudgment interest after finding that §2462 did not apply because “disgorgement” is not a penalty within the meaning of the statute. The defendant appealed the ruling on the grounds that the disgorgement should be set aside because the claims accrued more than five years before the SEC brought its action against him and are consequently barred under the five-year statute of limitations. However, the 10th Circuit affirmed the ruling of the lower court, agreeing that disgorgement was not a penalty.
The Supreme Court reversed. Justice Sotomayor explained why the Court disagreed with the 10th Circuit panel’s conclusion that disgorgement was not a penalty under the statute. The Court held that disgorgement “bears all the hallmarks of a penalty” and “is imposed as a consequence of violating a public law and . . . is intended to deter, not to compensate.” Consequently, disgorgement represent a penalty, thus falling within the five-year statute of limitations of §2462.
Fourth Circuit States Violation of FCRA that Fails to Demonstrate a Concrete Injury Not Enough for Standing
On May 11, the U.S. Court of Appeals for the Fourth Circuit issued an opinion vacating a nearly $12 million judgment in a class action brought on behalf of a 69,000 member class, concluding that a credit reporting agency’s decision to list a defunct credit card company—rather than the name of its current servicer—on an individual’s credit report does not, without more, create a sufficient injury under the Fair Credit Reporting Act (FCRA)for purposes of Article III standing. Furthermore, although the lead plaintiff alleged that he suffered a cognizable “informational injury,” in that he was denied the source of the adverse information on the report, the appeals court found that he failed to “demonstrate a concrete injury” as a result of the allegedly incorrect information listed on the credit report. (See Dreher v. Experian Info. Sols., Inc., No. 15-2119, 2017 WL 1948916 (4th Cir. May 11, 2017).)
The 2014 class action complaint against the credit reporting agency was filed by an individual who—when undergoing a background check for a security clearance—received a credit report that listed a delinquent credit card account with a creditor that had transferred the debt to a new servicer that was not listed as a source of information. When servicing the defunct company’s accounts, the new servicer had decided to do business using the creditor’s name, and directed the credit reporting agency to continue to reflect that name on the tradeline appearing for those specific accounts on its credit reports. The plaintiffs asserted that the credit reporting agency “deliberately [withheld] and inaccurately [stated] the identity of the source of reported credit information,” in violation of the FCRA. The credit reporting company sought summary judgment on the claims, arguing that the individual and the class lacked standing under the FCRA. However, the district court ruled in favor of the member class finding that the credit reporting company “committed a willful violation of . . . the [FCRA].”
In vacating the district court’s ruling, the Fourth Circuit opined that under the FCRA, a plaintiff “must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” The Fourth Circuit concluded that the individual could not clear the first hurdle. To establish “injury in fact,” the plaintiff must show that he or she suffered an invasion of a legally protected interest that is concrete and particularized. While the plaintiff alleged that the credit reporting agency had violated the FCRA by failing to “clearly and accurately disclose to the consumer . . . [t]he sources of the information [in the consumer’s file at the time of the request],” the Fourth Circuit concluded that the statutory violation alone did not create a concrete informational injury sufficient to support standing. “Rather, a constitutionally cognizable informational injury requires that a person lack access to information to which he is legally entitled and that the denial of that information creates a ‘real’ harm with an adverse effect.” In this instance, “the account had no legitimate effect on the [plaintiff’s] background check process, and [t]hus receiving a creditor’s name rather than a servicer’s name—without hindering the accuracy of the report of efficiency of the credit report resolution process—worked no real world harm.” Instead, the Fourth Circuit categorized the plaintiff’s allegations as chiefly “customer service complaints”—a type of harm unrelated to those Congress sought to prevent when enacting the FCRA.
On May 9, the Court of Appeals for the Ninth Circuit granted a petition for rehearing en banc filed by the FTC in a case involving whether the Commission may regulate an internet service provider’s slowing down of data after a customer has used a specified amount of data under an “unlimited” plan.
The FTC’s 2014 complaint alleged that AT&T’s practice of “data throttling,” and its subsequent failure to adequately inform its customers of this practice, violated Section 45(a) of the FTC Act. A federal district court dismissed the complaint, rejecting AT&T’s argument that it was exempt from FTC Section 45(a) enforcement because it is a common carrier. Section 45(a) allows the Commission to “prevent persons, partnerships or corporations, except . . . common carriers . . . from using . . . unfair or deceptive acts or practices” (emphasis added). The court held, however, that the common carrier exception applies only when the entity has the status of a common carrier and is engaging in common carrier activity. The district court order also held that “[w]hen this suit was filed, AT&T’s mobile data service was not regulated as common carrier activity by the [FCC],” and that “[o]nce the Reclassification Order of the [FCC] (which now treats mobile data [service] as common carrier activity) goes into effect, that will not deprive the FTC of any jurisdiction over past alleged misconduct as asserted in this pending action.”
In 2016, a three-judge Ninth Circuit panel reversed, holding that AT&T is exempt from Section 45(a) as a common carrier. See Fed. Trade Comm'n v. AT&T Mobility LLC, 835 F.3d 993 (9th Cir. 2016). The en banc court’s order vacates that ruling pending review by the full Ninth Circuit. Per the Ninth Circuit’s May 10 order, en banc oral argument will occur the week of September 18, 2017. The exact date and time will be announced in a separate order. Notably, given the recent uncertainty over which regulatory agency will oversee common carriers—the FTC or the FCC—the timing of this ruling is important.
Fourth Circuit Permits DOJ to Reject FCA Settlement After Government Declined to Intervene; Declines to Reach Issue of Statistical Sampling
In an opinion handed down on February 22, the Court of Appeals for the Fourth Circuit decided that the DOJ retains an unreviewable right to object to a proposed settlement agreement between a relator and a defendant even after the Government has declined to intervene in the case. See United States ex rel. Michaels v. Agape Senior Community, Inc., No. 15-2147 (4th Cir. Feb 14, 2017). The case concerned a qui tam relator who had alleged that Agape Senior Community and associated entities violated the FCA by submitting false claims to federal health care programs for nursing home related services that were not provided or provided to patients that were not eligible for them. After the Government declined to intervene in the case, the relator agreed to settle with defendants. However, the DOJ objected to the proposed settlement under 31 U.S.C. § 3730(b)(1)—which provides that an FCA lawsuit “may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting”—arguing, among other things, that “the settlement amount was “appreciably less than . . . the Government’s estimate of total damages.”
The Fourth Circuit concluded that, while a relator has the right to pursue his or her FCA claim after the United States declines to intervene, “the Attorney General possesses an absolute veto power over voluntary settlements in FCA qui tam actions.” In reaching this conclusion, the appellate panel emphasized the fact that, in an FCA case, the United States Government is a real party in interest, and, as such, it suffered damages as a result of the fraudulent conduct at issue. The holding largely aligns with existing Fifth and Sixth Circuit precedent, establishing an absolute veto power for the United States over settlements in declined FCA cases. However, the ruling stands at odds with the Ninth Circuit standard set forth in U.S. ex rel. Killingsworth v. Northrop Corp., 25 F.3d 715 (9th Cir. 1994), which ruled that, once it has declined to intervene, the Government can object to a proposed settlement only for “good cause,” and a settlement agreement may be invalidated only following a hearing to determine if the settlement is fair and reasonable.
On the issue of statistical sampling, the district court had determined that the use of statistical sampling evidence would be improper when a case turns on the medical necessity for individual patients. Though the issue was certified for interlocutory review, the Appellate panel declined to decide this issue because, among other reasons, the use of statistical sampling is not a pure question of law and, as such, interlocutory review had been “improvidently granted.”
Additional information and materials covering the FCA, the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), and the Program Fraud Civil Remedies Act (PFCRA) can also be found in BuckleySandler’s False Claims Act and FIRREA Resource Center.
9th Circuit Panel Reverses and Remands Dismissal of Pro Se Plaintiff’s Breach of Contract Claim in Connection with Bank’s Trial Loan Modification Process
In an opinion filed on March 13, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit reversed and remanded a district court’s dismissal of a homeowner-plaintiff’s breach of contract claim against a major bank for damages allegedly suffered when she unsuccessfully attempted to modify her home loan over a two-year period. Oskoui v. J.P. Morgan Chase Bank, N.A., [Dkt No. 47-1] Case No. 15-55457 (9th Cir. Mar. 13, 2017) (Trott, S.). The court also remanded with instructions to permit the pro-se plaintiff to amend her complaint to allege a right to rescind in connection with her previously-dismissed TILA claim in light of the Supreme Court’s January 2015 decision in Jesinoski v. Countrywide Home Loans, Inc. And, finally, the panel affirmed the district court’s ruling that the facts alleged demonstrated a claim under California’s Unfair Competition Law (“UCL”) because, among other reasons, the factual record supported a determination that the bank knew or should have known that the homeowner was plainly ineligible for a loan modification; yet, the bank encouraged her to apply for modifications (which she did), and collected payments pursuant to trial modification plans.
In reversing and remanding the district court’s ruling dismissing the breach of contract claim, the Ninth Circuit pointed to the styling on the first-page of the complaint—“BREACH OF CONTRACT”—along with allegations about the explicit offer language contained in the bank’s trial modification documents. The Ninth Circuit relied on the Seventh Circuit’s opinion in Wigod v. Wells Fargo, which it identified as the “leading federal appellate decision on this issue of contract,” to “illuminate the viability” of plaintiff’s breach of contract claim in connection with trial plan documents. 673 F.3d 547 (7th Cir. 2012). The Ninth Circuit remanded the claim with instructions to permit the plaintiff to amend if necessary in order to move forward with her breach of contract claim.
Special Alert: D.C. Circuit Grants Petition For Rehearing in PHH v. CFPB; Vacates Judgment Based on Bureau’s Unconstitutionality
Buckley Sandler Special Alert
On February 16, the U.S. Court of Appeals for the D.C. Circuit granted the CFPB’s petition for rehearing en banc of the October 2015 panel decision in CFPB v. PHH Corporation. Among other things, the panel decision declared the Bureau’s single-Director structure unconstitutional and would have allowed the President to remove the CFPB’s Director at will rather than “for cause” as set forth in the Dodd-Frank Act. As a result of the petition for rehearing being granted, the panel’s judgment is vacated and the full D.C. Circuit will hear PHH’s appeal of the $109 million penalty imposed by the CFPB under the anti-kickback provisions of the Real Estate Settlement Procedures Act (RESPA). Oral argument is scheduled for May 24, 2017.
As discussed in detail in our prior alert, the October panel decision unanimously concluded that the CFPB misinterpreted RESPA, violated due process by disregarding prior interpretations of the statute and applying its own interpretation retroactively, and failed to abide by RESPA’s three-year statute of limitations. However, only two of the three judges on the panel concluded that the CFPB’s status as an independent agency headed by a single Director violated the separation of powers under Article II of the U.S. Constitution. The third panel member, Judge Henderson, dissented from this portion of the opinion on the grounds that it was not necessary to reach the constitutional issue because the panel was already reversing the CFPB’s penalty on other grounds.
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If you have questions about the decision or other related issues, visit our Consumer Financial Protection Bureau practice for more information, or contact a BuckleySandler attorney with whom you have worked in the past.
Trevor McFadden, previously a partner with the law firm Baker McKenzie, was appointed Deputy Assistant Attorney General last month, with oversight over the Fraud and Criminal Appellate Sections. He takes over from Sung-Hee Suh, who was appointed to the role in September 2014.
D.C. Circuit Finds District Court Lacks Jurisdiction in Case Alleging Violations of D.C. Consumer Protection Laws
On July 26, the U.S. Court of Appeals for the D.C. Circuit vacated the district court’s ruling, opining that the plaintiffs in a putative class action failed to establish Article III standing to file suit in federal court. Hancock v. Urban Outfitters, Inc., No. 14-7047, WL 3996710 (D.C. Cir. July 26, 2016). In 2013, the consumer plaintiffs filed a complaint alleging that two D.C. retail stores violated the Identification Information Act, D.C. Code § 47-3151 et seq., and D.C. Consumer Protection Procedure Act, D.C. Code § 28-3901 et seq., by requesting the plaintiffs’ zip codes at the time of purchase. The district court dismissed the complaint, concluding that the plaintiffs had failed to state a claim. As such, the district court ruled that it was unnecessary to address the stores’ jurisdictional argument that the plaintiffs failed to plead an injury sufficient for Article III standing. Citing the recent Spokeo v. Robins Supreme Court ruling, the U.S. Court of Appeals for the D.C. Circuit disagreed: “The Supreme Court’s decision in Spokeo thus closes the door on [the plaintiffs’] claim that the Stores’ mere request for a zip code, standing alone, amounted to an Article III injury.” “Because the plaintiffs have not alleged any concrete injury in fact stemming from alleged violations of D.C. law,” the D.C. Circuit held that “the district court lacked jurisdiction to decide the merits of the case.” The D.C. Circuit vacated the district court’s judgment on the merits and remanded with instructions to dismiss the complaint.
On May 16, the United States Supreme Court issued an opinion vacating the Ninth Circuit’s 2014 ruling that a plaintiff had standing under Article III of the Constitution to sue an alleged consumer reporting agency as defined by the Fair Credit Reporting Act (FCRA), for alleged procedural violations of the FCRA, 15 U.S.C § 1681 et seq. Spokeo v. Robins, No. 13-1339 (U.S. May 16, 2016). According to plaintiff Thomas Robins, the reporting agency violated his individualized (rather than collective) statutory rights by reporting inaccurate credit information regarding Robins’s wealth, job status, graduate degree, and marital status in willful noncompliance with certain FCRA requirements. In a 6-2 opinion delivered by Justice Alito, the Court ruled that Robins could not establish standing by alleging a bare procedural violation because Article III requires a concrete injury even in the context of statutory violation. Here, the Ninth Circuit erred in failing to consider separately both the “concrete and particularized” aspects of the injury-in-fact component of standing. The Court opined that the Ninth Circuit’s analysis was incomplete:
[T]he injury-in-fact requirement requires a plaintiff to allege an injury that is both “concrete and particularized.” Friends of the Earth, Inc. v. Laidlaw Environmental Services (TOC), Inc., 528 U.S. 167, 180-181 (2000) (emphasis added). The Ninth Circuit’s analysis focused on the second characteristic (particularity), but it overlooked the first (concreteness). We therefore…remand for the Ninth Circuit to consider both aspects of the injury-in-fact requirement.
Relying on case law, the Court emphasized that the “irreducible constitutional minimum” of Article III’s standing to sue relies on the plaintiff demonstrating (i) an injury-in-fact; (ii) that the injury is fairly traceable to the challenged conduct of the defendant; and (iii) that the injury is likely to be redressed by a favorable judicial decision. Lujan v. Defenders of Wildlife, 504 U.S., 560-561 (U.S. June 12, 1992); Friends of the Earth, Inc., 528 U.S., at 180-181. Spokeo primarily revolves around the first element, establishing an injury-in-fact. Again relying on Lujan, the Court reasoned that to establish injury-in-fact, the plaintiff must “show that he or she suffered ‘an invasion of a legally protected interest’ that is ‘concrete and particularized’ and ‘actual or imminent, not conjectural or hypothetical.’” Lujan, at 560. According to the Court, the Ninth Circuit’s discussion of Robins’s standing to sue, and in particular its discussion of whether Robins had articulated an individualized statutory right rather than a collective right, concerned only the particularization element of establishing an injury-in-fact. The Court stated that the Ninth Circuit’s standing analysis was incomplete because it had failed to consider whether the “concreteness” requirement for an injury-in-fact—whether Robins had a “real” and “not abstract” injury—also had been satisfied. While the Court did make clear that a concrete injury could be intangible and that Congress may identify intangible harms that meet minimum Article III requirements, it noted that “Congress’ role in identifying and elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.”
The Court noted that because the Ninth Circuit had not fully distinguished concreteness from particularization, it had failed to consider whether the reporting agency’s procedural violations of the FCRA constituted a sufficient degree of risk to Robins to meet the concreteness standard. The Court observed that while a procedural violation of the FCRA may, in some cases, be sufficient to establish a concrete injury-in-fact, not all inaccuracies in consumer information, i.e. an incorrect zip code, cause harm or a material risk of harm. Further, because “Article III standing requires a concrete injury even in the context of a statutory violation” the Court explained that “Robins cannot satisfy the demands of Article III by alleging a bare procedural violation.”
The Court vacated the Ninth Circuit’s judgment, and remanded the case for the Ninth Circuit to consider both aspects of the injury-in-fact requirement.
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Questions regarding the matters discussed in this Alert may be directed to any of our lawyers listed below, or to any other BuckleySandler attorney with whom you have consulted in the past.
- Amanda Raines Lawrence, (202) 349-8089
- Fredrick Levin, (310) 424-3984
- Andrew Louis, (202) 349-8061
- Matthew Previn, (212) 600-2310
- Katherine Halliday, (202) 461-2996
On February 4, the U.S. Court of Appeals for the Ninth Circuit held that a plaintiff’s claim against a data broker alleged to have published inaccurate information about him has standing by virtue of the alleged violation of his statutory rights and need not demonstrate injury. Robins v. Spokeo, Inc., No. 11-56843, 2014 WL 407366, (9th Cir. Feb. 4, 2014). The district court held that the plaintiff failed to allege an injury in fact because his claims that the inaccurate information harmed, among other things, his ability to obtain employment did not sufficiently allege any actual or imminent harm. Applying its own precedent established in a long-running RESPA case that the U.S. Supreme Court declined to review in 2012, the court held that the violation of a statutory right usually is a sufficient injury to confer standing and that statutory causes of action do not require a showing of actual harm. The court determined that violations of statutory rights created by FCRA are concrete injuries that Congress can elevate to the status of legally cognizable injuries and are therefore sufficient to satisfy Article III’s injury-in-fact requirement. Further, the plaintiff adequately pled causation and redressability because (i) an alleged violation of a statutory provision caused the violation of a right created by that provision; and (ii) FCRA provides for monetary damages to redress the violation. The court reversed the trial court and remanded.
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Tim Lange to discuss "Ease your pain at the state level: Recommendations for navigating the licensing issues in the states" at the Online Lenders Alliance Compliance University
- Amanda R. Lawrence, Aaron C. Mahler, and Jonice Gray Tucker to discuss "Expanded role for the FTC ahead: Implications for bank and nonbank financial institutions" at an American Bar Association Banking Law Committee Webinar
- Buckley Webcast: Flirting with alternatives — Opportunities and challenges created by alternative data, modeling, and technology
- Daniel P. Stipano to discuss "Reporting requirements for credit unions: CTRs and SARs" at the National Association of Federally-Insured Credit Unions BSA Seminar
- Daniel P. Stipano and Moorari K. Shah to discuss "Vendor management: What is the NCUA looking for?" at the National Association of Federally-Insured Credit Unions BSA Seminar
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Summer Regulatory Compliance School
- Warren W. Traiger to discuss "CRA modernization" at the National Association of Industrial Bankers and the Utah Association of Financial Services Annual Convention
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Hank Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates and Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Risk management in enforcement actions: Managing risk or micromanaging it" at the American Bar Association Business Law Section Annual Meeting
- Daniel P. Stipano to discuss "Navigating the conflicting federal and state laws for doing business with cannabis companies" at the American Bar Association Business Law Section Annual Meeting
- Tim Lange to discuss "Services and value" at the North American Collection Agency Regulatory Association Annual Conference
- Amanda R. Lawrence to discuss "Data privacy litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "HMDA data is out, now what?" at the Mortgage Bankers Association Regulatory Compliance Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Amanda R. Lawrence to discuss "How to balance a successful (and stressful) career with greater personal well-being" at the American Bar Association Women in Litigation Joint CLE Conference