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District Court: Debt buyer vicariously liable for debt collector's actions
On June 7, the U.S. District Court for the District of Oregon partially granted a plaintiff’s motion for summary judgment, finding that a debt buyer who puts accounts with a debt collector can be held vicariously liable for the actions of the debt collector, since the debt buyer “bear[s] the responsibility of monitoring the activities of those it hires to collect debts on its behalf.” The case is on remand from the U.S. Court of Appeals for the Ninth Circuit, which reversed the district court’s dismissal of the lawsuit and found that a company that purchases consumer debt is defined as a “debt collector” under the FDCPA, even if there is no direct interaction with consumers and the debt collection is outsourced to a third party (covered by InfoBytes here).
The plaintiff sued the debt buyer (defendant) claiming it was “vicariously and jointly liable” for alleged FDCPA violations by the third-party collector. The district court granted the defendant’s motion to dismiss, ruling that the plaintiff failed to state a claim because debt purchasing companies like the defendant “who have no interactions with debtors and merely contract with third parties to collect on the debts they have purchased simply do not have the principal purpose of collecting debts.” The district court reasoned that Congress intended the FDCPA to apply only to those who directly interact with customers, based on the court’s interpretation of the language used in the substantive provisions of the law.
On appeal, the 9th Circuit reversed the dismissal, determining that the FDCPA does not solely regulate entities that directly interact with consumers. The appellate court concluded that an entity that otherwise meets the “principal purpose” definition of debt collector—“any business the principal purpose of which is the collection of any debts”—cannot avoid liability under the FDCPA merely by hiring a third party to perform debt collection activities on its behalf.
On remand, the district court judge found that the debt buyer and debt collector were in a principal-agent relationship “because the undisputed facts demonstrate that [the debt buyer] had a right to control [the debt collector’s] debt collection activities to a significant degree.” According to the opinion, the agreement between the debt buyer and collector allowed the debt buyer to audit the accounts it placed with the debt collector. During an audit, the debt buyer pointed out that the debt collector’s “collection efforts needed much improvement with regard to consumer compliance” and that “simple guidelines were not being followed.” In addition, the audit found that the debt buyer had prior knowledge of phone scripts the debt collector used when contacting debtors on its behalf. The judge concluded that “[b]y its acquiescence, [the debt buyer] ‘impliedly authorized’ [the debt collector’s] use of the script ‘and thus is liable for any violations of law caused by the firm’s use of those practices.”
9th Circuit reverses $1.3 billion judgment following Supreme Court’s decision
On June 8, the U.S. Court of Appeals for the Ninth Circuit issued an order vacating its December 2018 judgment, reversing a district court’s award of equitable monetary relief following the U.S. Supreme Court’s recent decision in FTC v. AMG Capital Management, and remanding the case to the district court for further proceedings consistent with the Supreme Court’s opinion. The decision impacts defendants—a Kansas-based operation and its owner—who were ordered in 2016 to pay an approximately $1.3 billion judgment for allegedly operating a deceptive payday lending scheme and violating Section 5(a) of the FTC Act by making false and misleading representations about loan costs and payments (covered by InfoBytes here). The 9th Circuit previously upheld the judgment (covered by InfoBytes here) by, among other things, rejecting the defendant owner’s challenge, which was based on an argument that the district court overestimated his “wrongful gain” and that the FTC Act only allows the court to issue injunctions. At the time, the 9th Circuit concluded that the defendant owner failed to provide evidence contradicting the wrongful gain calculation and that a district court may grant any ancillary relief under the FTC Act, including restitution. However, as previously covered by InfoBytes, the Supreme Court reversed the 9th Circuit and held that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement.”
11th Circuit affirms majority of $380 million data breach settlement
On June 3, the U.S. Court of Appeals for the Eleventh Circuit affirmed a district court’s approval of a roughly $380.5 million settlement between a class of consumers (plaintiffs) and a large consumer reporting agency (CRA), which resolved allegations arising from a 2017 cyberattack that caused a data breach of the CRA. (Covered by InfoBytes here.) The 11th Circuit’s opinion resolves challenges brought by objectors to the settlement who argued that plaintiffs lacked Article III standing because they did not have their identities stolen, and challenged, among other things, certain procedural requirements, the appropriateness of class certification given the possibility that some class members may have been able to recover state statutory damages, and the district court’s adoption of an approval order “ghostwritten” by plaintiffs’ counsel. The objectors also argued that the settlement was inadequate given the “unique risks associated with stolen social security numbers,” and disagreed with the award of $77.5 million in attorneys’ fees, as well as the district court’s decision to impose appeal bonds of $2,000 on each objector.
On appeal, the 11th Circuit rejected almost all of the objectors’ arguments after determining that class members—even if they were not victims of identity theft—faced a material risk of harm. The appellate court also held that the procedural requirements were not particularly burdensome given the roughly 147 million class members involved. Moreover, the appellate court concluded that the fact that class members in a couple of states could have argued for statutory damages did not make the named plaintiffs inadequate class representatives. Furthermore, the appellate court noted that (i) the settlement addressed the seriousness of the stolen social security numbers; (ii) attorneys’ fees (equal to 20.36 percent of the common fund) were within the reasonable range; (iii) objectors failed to show any “practice of uncritically adopting counsel’s proposed orders”; and (iv) the district court did not “abuse its discretion when it imposed the appeal bonds based on its finding that there was a ‘substantial risk that the costs of appeal will not be paid unless a bond is required.’” Moreover, the 11th Circuit noted that “[a]bsent the settlement, the class action could have faced serious hurdles to recovery, and now the class is entitled to significant settlement benefits that may not have even been achieved at trial,” adding that the FTC, CFPB, and state attorneys general for 48 states, the District of Columbia, and Puerto Rico all support the settlement.
The appellate court, however, did reverse the district court’s award of incentive payments to class representative and remanded the case solely for the purpose of vacating the awards.
5th Circuit holds global payment services company is not a “bank”
On June 1, the U.S. Court of Appeals for the Fifth Circuit determined that a “global payment services company” does not qualify as a bank under U.S. tax code, 26 U.S.C. § 581. According to the opinion, the company described its activities to the IRS in 2008 as “banking” while referring to its products as “financial services” despite making no meaningful changes to its business from prior years when it described itself as a “nondepository credit intermediation” business and its services as “money/wire transfers.” Because companies who claim bank status receive certain significant tax benefits, the company—which had invested billions of dollars in asset-backed securities, including mortgage-backed securities—deducted losses it incurred during the Great Recession against ordinary income. However, according to the opinion, nonbanks are only permitted “to deduct losses on securities to the extent they offset capital gains, which [the company] did not have during the relevant years.” The IRS disagreed with the company’s deductions, determined it was not a bank, and assessed tens of millions of dollars in tax deficiencies. The company unsuccessfully challenged the IRS in tax court, and, following a first appeal resulting in a remand, the tax court again concluded that the company was not a bank “because it neither accepts deposits nor makes loans.”
On appeal, the 5th Circuit affirmed the tax court’s decision, stating that it only needed to address the “deposit” requirement and holding that because customers do not deposit money with the company for safekeeping “the most basic feature of a bank is missing.” The appellate court explained that therefore, under the tax code, the company was not entitled to deduct from its taxes “large losses it incurred in writing off mortgage-backed securities during the Great Recession.”
11th Circuit: Insurance firm not required to pay broker’s $60 million TCPA judgment
On June 1, the U.S. Court of Appeals for the Eleventh Circuit held that an insurance firm is not required to pay a $60.4 million TCPA judgment arising out of a Florida-based insurance broker’s marketing campaign accused of sending unsolicited text messages and phone calls to consumers. The broker sought coverage against a class action which alleged, among other things, that “by sending the text messages at issue. . . , Defendant caused Plaintiffs and the other members of the Classes actual harm and cognizable legal injury [including] . . . invasions of privacy that result from the sending and receipt of such text messages.” In response, the insurance firm asserted that the policy did not cover invasion of privacy claims such as those brought in the class action against the broker. Subsequently, the broker settled the suit and assigned all of its rights against its insurer to the plaintiffs, who attempted to enforce the judgment against the insurance firm. The 11th Circuit found that the broker’s insurance policy excluded coverage of certain actions that would prompt a lawsuit, including claims of invasion of privacy. The appellate court also concluded that the TCPA class action arose out of an “invasion of privacy” because the class complaint specifically alleged that the broker “intentionally invaded the class members’ privacy and sought recovery for those invasions.”
However, one of the judges dissented from the ruling, opining that the policy the insurance firm wrote to the broker is “ambiguous as to whether it refers to the common-law tort called ‘invasion of privacy,’” noting that “in other words, if it could reasonably be so interpreted—then we must interpret it to refer only to that tort.” The judge also noted that it is “unclear to me why any party to an insurance policy would ever allow coverage to be dictated by the conclusory terms and labels that a plaintiff might later choose to include in her complaint.”
2nd Circuit says challenge to OCC’s fintech charter is unripe
On June 3, the U.S. Court of Appeals for the Second Circuit reversed a 2019 district court ruling, holding that NYDFS lacked Article III standing to pursue claims that the OCC’s policy to issue Special Purpose National Bank charters (SPNB charters) to non-depository fintech companies exceeded its statutory authority. As previously covered by InfoBytes, the district court entered final judgment in favor of NYDFS after concluding that the OCC’s SPNB policy should be set aside “with respect to all fintech applicants seeking a national bank charter that do not accept deposits,” rather than only those that have a nexus to New York State. Among other things, the district court, in denying the OCC’s motion to dismiss, determined that the OCC exceeded its authority under the National Bank Act because the Act “unambiguously requires receiving deposits as an aspect of the business,” and that “absent a statutory provision to the contrary, only depository institutions are eligible to receive [a SPNB] from [the] OCC.” The OCC appealed, and both parties filed briefs addressing issues related to ripeness and standing (covered by InfoBytes here).
On appeal, the 2nd Circuit concluded that NYDFS lacked Article III standing to pursue its claims because it failed to show that it had suffered an actual or imminent injury from the OCC’s decision to issue SPNB charters. The appellate court also found NYDFS’s claims to be “constitutionally unripe,” holding that NYDFS’s challenge is too speculative since no non-depository fintech companies have applied for or have been granted an SPNB charter. “It is unclear at this juncture whether New York law will ever be preempted in the ways [NYDFS] fears,” the appellate court wrote. However, the 2nd Circuit determined it lacked jurisdiction to decide the remaining issues on appeal and did not address the district court’s finding that “the ‘business of banking’ under the NBA unambiguously requires the receipt of deposits.” The appellate court remanded the case to the district court with instructions to enter a judgment of dismissal without prejudice.
NYDFS Superintendent Linda Lacewell issued a statement following the 2nd Circuit’s decision, in which she reiterated the importance of “guarding against any encroachment on the state regulatory system” and urged the OCC to reconsider its policy.
9th Circuit stays Seila CID pending Supreme Court appeal
On June 1, the U.S. Court of Appeals for the Ninth Circuit granted Seila Law’s request to stay a mandate ordering compliance with a civil investigative demand (CID) issued by the CFPB. The order stays the appellate court’s mandate (covered by InfoBytes here) for 150 days, or until final disposition by the U.S. Supreme Court should the law firm file its expected petition of certiorari. Last month, Seila Law announced its intention to ask the Court “whether the ratification of the CFPB’s civil investigative demand is an appropriate remedy for the separation-of-powers violation identified by the Supreme Court.” In its motion, Seila Law claimed that the Bureau’s “alleged ratification” was not legally sufficient to cure the constitutional defect and that “an action taken by an agency without authority cannot be ratified if the principal lacked authority to take the action when the action was taken.” Seila Law further argued that the only appropriate remedy is dismissal of the petition to enforce the CID. The Bureau countered that former Director Kraninger’s ratification was valid, emphasizing that the majority of the 9th Circuit denied en banc rehearing last month (covered by InfoBytes here). The Bureau further contended that Seila Law did not demonstrate good cause for the stay or suggest that it would suffer irreparable harm should the motion be denied, pointing out that “equities now weigh overwhelmingly in favor” of requiring Seila Law’s compliance with the CID.
6th Circuit: “Anxiety and confusion” not an injury under FDCPA
On May 28, the U.S. Court of Appeals for the Sixth Circuit held that a consumer’s alleged “confusion and anxiety” does not constitute a concrete and particularized injury under the FDCPA. The plaintiff alleged that the defendant’s debt collector, an attorney’s office, violated the FDCPA when it communicated with him, on behalf of a bank, by sending a letter stating the plaintiff’s mortgage loan was sent to foreclosure. The letter also informed the plaintiff that the bank “might have already sent a letter about possible alternatives,” further explaining how the plaintiff could contact the bank “to attempt to be reviewed for possible alternatives to foreclosure.” The plaintiff also alleged that the attorney’s office “sent a form of this letter to tens of thousands of homeowners and that it did so without having any attorney provide a meaningful review of the homeowners’ foreclosure files, so the communications deceptively implied they were from an attorney.” The plaintiff alleged the letter confused him because he was unsure if it was from an attorney, and that, moreover, the letter “raised [his] anxiety” by suggesting “that an attorney may have conducted an independent investigation and substantive legal review of the circumstances of his account, such that his prospects for avoiding foreclosure were diminished.”
The 6th Circuit found the plaintiff’s allegations to “come up short” in regard to proving that the statutory violations caused him individualized concrete harm. In addition, the appellate court said that “confusion doesn’t have a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit.”
6th Circuit: SBA can’t prioritize race or sex for Covid relief
On May 27, the majority of the U.S. Court of Appeals for the Sixth Circuit held that the Small Business Administration (SBA) cannot allocate limited Covid-19 relief funds based on the race and sex of the applicants. The plaintiff filed a lawsuit claiming the SBA’s practice of giving priority to certain Restaurant Revitalization Fund applicants (i.e. restaurants owned and controlled at least 51 percent by women, veterans, or the “socially and economically disadvantaged”) during the first 21 days violates the U.S. Constitution’s equal protection clause by impermissibly granting priority based on race and gender classifications. The plaintiff applied for funding on the first day the application period opened, but because the restaurant he co-owned 50/50 with his Hispanic wife was not owned 51 percent by a woman or a veteran, he faced an added evidentiary burden to show he qualified as “socially and economically disadvantaged” to get priority status. The plaintiff requested a temporary restraining order and a preliminary injunction to prohibit the SBA from granting funds unless it did so in a manner that ignored race and sex. The district court denied the request, as well as subsequent requests made by the plaintiff, ruling that he was unlikely to succeed on the merits of his claims.
On appeal, the majority of the Sixth Circuit disagreed, concluding that the district court should have issued an injunction pending appeal since the SBA “failed to justify its discriminatory policy.” According to the majority, the SBA “injected explicit racial and ethnic preferences into the priority process” by “presume[ing] certain applicants are socially disadvantaged based solely on their race or ethnicity.” Additionally, the majority stated that the “added evidentiary burden faced by white men and other non-presumptively disadvantaged groups stands in marked contrast with lenient evidentiary standards set by the American Rescue Plan Act,” and pointed out that “broad statistical disparities cited by the government are not nearly enough” to suggest intentional discrimination. Because “an effort to alleviate the effects of societal discrimination is not a compelling interest,” the majority stated, “the government’s policy is not permissible.” The majority also rejected the SBA’s argument that the issue was moot because the priority period for the program has ended, commenting that race and sex preferences continue to factor in whether an applicant receives funds before the program’s money runs out.
The dissenting judge argued, however, that the “Constitution permits the government to use race-based classifications to remediate past discrimination,” and added that the plaintiff has not demonstrated that he will be irreparably harmed by the way the program’s funds are distributed.
D.C Circuit keeps CDC eviction moratorium in place
On June 2, the U.S. Court of Appeals for the District of Columbia denied a group of realtors’ motion to lift an administrative stay placed by a district court on its own order, in which it had previously ruled that the CDC’s nationwide eviction moratorium issued in response to the Covid-19 pandemic exceeded the agency’s statutory authority with the temporary ban. As previously covered by InfoBytes, the district court vacated the CDC’s eviction moratorium and rejected the federal government’s request that the decision be narrowed, ruling that “when ‘regulations are unlawful, the ordinary result is that the rules are vacated—not that their application to the individual petitioner is proscribed.’” However, shortly after the federal government filed a notice of appeal, the district court stayed its own summary judgment order pending appeal.
In denying the plaintiffs’ motion to vacate the stay pending appeal, the appellate court held that the district court did not abuse its discretion in staying its own ruling, and noted that the federal government has a good chance of winning its appeal. “[W]hile of course not resolving the ultimate merits of the legal question, we conclude that [the federal government] has made a strong showing that it is likely to succeed on the merits,” the appellate court wrote, adding, among other things, that “Congress has expressly recognized that the agency had the authority to issue its narrowly crafted moratorium.” Moreover, the D.C. Circuit determined that the plaintiffs failed to show the likelihood of irreparable injury should the stay remain in place.