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11th Circuit says plaintiff lacks standing in collection letter case
On September 8, the U.S. Court of Appeals for the Eleventh Circuit issued an en banc decision in Hunstein v. Preferred Collection & Management Services, dismissing the case after determining the plaintiff lacked standing to sue. The majority determined that “[b]ecause Hunstein has alleged only a legal infraction—a ‘bare procedural violation’—and not a concrete harm, we lack jurisdiction to consider his claim.” In April 2021, the 11th Circuit held that transmitting a consumer’s private data to a commercial mail vendor to generate debt collection letters violates Section 1692c(b) of the FDCPA because it is considered transmitting a consumer’s private data “in connection with the collection of any debt.” The decision revived claims that the debt collector’s use of a third-party mail vendor to write, print, and send requests for medical debt repayment violated privacy rights established in the FDCPA. The 11th Circuit last November, however, voted sua sponte to rehear the case en banc and vacated its earlier opinion. (Covered by InfoBytes here.)
The en banc decision relied heavily on the U.S. Supreme Court’s ruling in TransUnion v. Ramirez (covered by InfoBytes here), which clarified the type of concrete injury necessary to establish Article III standing and directed courts “to consider common-law torts as sources of information on whether a statutory violation had caused a concrete harm.” The majority pointed out that when making a common-law tort comparison, courts “do not look at tort elements in a vacuum” but rather “make the comparison between statutory causes of action and those arising under the common law with an eye toward evaluating commonalities between the harms.”
“What harm did this alleged violation cause?” the majority questioned in its opinion, finding that no tangible injury or loss was identified in the complaint. Rather, the plaintiff analogized to the tort of public disclosure. The majority found that this comparison was inapposite, because “the disclosure alleged here lacks the fundamental element of publicity.” Because there was no public disclosure, there was no invasion of privacy and therefore no cognizable harm.
Four judges dissented, arguing that the plaintiff had standing to sue. They opined that the court’s job is not to determine whether the plaintiff stated a viable common-law tort claim, but rather to “compare the ‘harm’ that Congress targeted in the FDCPA and ‘harm’ that the common law sought to address” and to determine whether those harms bear a sufficiently “close relationship.” The dissenting judges found that the plaintiff’s allegations that the delivery of “intensely private information” to the vendor is the “same sort of harm that common-law invasion-of-privacy torts—and in particular, public disclosure of private facts—aim to remedy.” The dissent also stressed that even if the disclosure alleged by the plaintiff is less extensive than the type of disclosure of private information typically at issue in a common law invasion of privacy claim, that is a question of the degree of harm and not a question of the kind of harm, and therefore should not be the basis for dismissal.
11th Circuit affirms denial of title company’s cyber fraud claim
On September 6, the U.S. Court of Appeals for the Eleventh Circuit upheld a district court’s decision to deny insurance coverage to a Florida title company under its Cyber Protection Insurance Policy after it was allegedly “fraudulently induced—by an unknown actor impersonating a mortgage lender—to wire funds to an incorrect account.” The insurance company denied coverage on the basis that the title company did not meet the policy’s requirements. The title company submitted a claim under the cybercrime endorsement of its insurance policy, which includes a deceptive transfer fraud insurance clause that grants coverage provided certain criteria are met, including that the loss resulted from intentionally misleading actions, was done by a person purporting to be an employee, customer, client or vendor, and the authenticity of the wire transfer instructions was verified according to the title company’s internal procedures. The insurance company denied coverage, claiming that: (i) the mortgage lender to whom the funds were intended was not an employee, customer, client or vendor of the title company; and (ii) that the title company failed to verify the transfer request according to its procedures. The district court granted summary judgment in favor of the insurance company, agreeing that coverage did not exist under the plain language of the policy.
On appeal, the 11th Circuit determined that the mortgage lender was not listed as an entity under the plain language of the policy. It further disagreed with the title company’s position that under Florida law, insurance coverage clauses must “be construed as broadly as possible to provide the greatest amount of coverage,” and that the deceptive transfer fraud clause should also include “persons and entities involved in the real estate transaction.” The appellate court noted that “[a]s attractive as that proposition may be, it is simply not what the clause provides,” adding that because the clause “limits coverage to misleading communications ‘sent by a person purporting to be an employee, customer, client or vendor’” it must interpret these terms according to their plain meaning and may not “alter[] the terms bargained to by parties to a contract.”
11th Circuit says one-year statutory notice period cannot be varied
On August 26, the U.S. Court of Appeals for the Eleventh Circuit vacated and remanded a district court’s summary judgment in favor of a bank after determining that the plaintiff-appellants’ claim for statutory repayment is not time-barred. Plaintiffs (Venezuelan citizens residing in Venezuela) maintained personal and commercial bank accounts at a Florida branch of the bank. According to the plaintiffs, a bank employee changed the email account associated with the bank accounts to a new fraudulent email. Identity thieves were later able to bypass security measures on the account, gave correct answers to security questions, and sent documents with signatures that matched ones the bank had on file, resulting in roughly $850,000 being transferred out of one of the accounts. Plaintiffs contended they were locked out of their accounts and struggled to contact the bank for months without success. After eventually regaining access to their accounts, plaintiffs discovered the stolen money and sued for a variety of claims, including fraud, negligence, and breach of contract. They also claimed that the bank was required to refund them for the fraudulent wire transfers under Florida Statutes § 670.202. The bank argued, among other things, that the plaintiffs’ claims were time-barred because they failed to notify the bank about the alleged fraud within 30 days of receiving a bank statement. Plaintiffs responded that the Florida Statutes provide a one-year time period to notify a bank of an unauthorized wire transfer and stated that the time-period could not be modified by agreement. The district court entered summary judgment for the bank, concluding “that the one-year period was modifiable and that the parties had modified it.” The district court also determined that because the bank’s procedures were “commercially reasonable” and followed “in good faith” it was not liable to the plaintiffs to repay the wire transfers.
On appeal, the 11th Circuit held that the plaintiffs were still within their statutory one-year notification period when they notified the bank of the fraudulent wire transfers, and rejected the bank’s argument that it could shorten the notification period to 30 days. The 11th Circuit, in rejecting the bank’s argument determined that it cannot “shift the loss of an unauthorized order to the customer during the statutorily determined period,” adding that “if the one-year statutory notice period could be varied, then banks could insist that customers sign contracts that make the time to demand a refund of a fraudulent payment a day (or even less). That would impair the account holder’s right to a refund and defeat Florida’s intent that banks—not account holders— bear the risk of a fraudulent transfer for the first year following the transfer. And there’s no limiting principle in the text for how short banks could make the statutory refund period.” Pointing out that the bank was unable to identify a limiting principal at oral argument, the appellate court concluded that “if banks could modify the one-year period, there’s no principled way to draw the line as to how short of a refund period is too short.” On remand, the 11th Circuit also instructed the district court to review whether the bank’s security procedures are “commercially reasonable.”
11th Circuit reverses class action settlement in TCPA case
On July 27, the U.S. Court of Appeals for the Eleventh Circuit vacated and remanded a district court’s approval of a class action certification and settlement agreement in an TCPA action after determining that the plaintiff lacked Article III standing in light of the U.S. Supreme Court’s decision in TransUnion LLC v. Ramirez (covered by InfoBytes here). According to the opinion, the plaintiff sued the defendant, alleging it violated the TCPA by calling and texting her “solely to market its services and products through a prohibited automatic telephone dialing system.” After the case was consolidated, and after negotiating with the defendant, the plaintiffs submitted a proposed class settlement agreement that established a settlement fund of $35 million to the 1.26 million settlement class members, who would receive either a $35 cash payment or a $150 voucher for the defendant’s services. The district court had noted Salcedo v. Hanna, in which the 11th Circuit held “that receipt of a single unwanted text message was not a sufficiently concrete injury to give rise to Article III standing,” and that “the proposed class definition included individuals who received only one text message from [the defendant].” The district court determined that “even though some of the included class members would not have a viable claim in the Eleventh Circuit, they do have a viable claim in their respective Circuit [because of a circuit split]. Thus, [the defendant] is entitled to settle those claims in this class action although this Court would find them meritless had they been brought individually in the Eleventh Circuit”
On appeal, the 11th Circuit noted that TransUnion LLC v. Ramirez held that “every class member must have Article III standing in order to recover individual damages.” The appellate court further noted that “TransUnion says that we can’t award damages to plaintiffs who do not have Article III standing. And Article III standing goes to the heart of our jurisdiction to hear cases in the first place. It further stated that the court “cannot … check [its] Article III requirements at the door of the class action. Any class definition that includes members who would never have standing under our precedent is a class definition that cannot stand.”
11th Circuit: Statements indicating accrual of debt balance following settlement are enough to state a claim
On July 1, the U.S. Court of Appeals for the Eleventh Circuit overturned a district court’s dismissal of an FDCPA case, holding that statements sent to plaintiffs indicating that a debt balance was accruing after a settlement had been reached is enough to state a claim. According to the opinion, the plaintiffs defaulted on a mortgage and a servicer sued for foreclosure. While the foreclosure suit was pending, the defendant took over servicing of the loan. A “disagreement” arose, which led the plaintiffs to sue the defendant. A settlement was reached and it was agreed that the plaintiffs owed $85,790.99, which was to be paid in one year. However, four months later, the defendant sent a mortgage statement notifying the plaintiffs that their loan had “been accelerated” because they were “late on [their] monthly payments.” On the defendant’s “fast-tracked timetable,” the plaintiff owed $92,789.55 to be paid in a month, and if they did not pay, the defendant’s statement stated that they risked more fees and “the loss of [their] home to a foreclosure sale.” The plaintiffs continued to receive statements and the amount due increased monthly. The plaintiffs sued, saying the defendant violated the FDCPA by sending statements with incorrect balances. A district court ruled the periodic statements were unrelated to debt collection because the defendant was required to send monthly updates under TILA. The district court further determined that the plaintiffs failed to state an FDCPA claim, declined to exercise supplemental jurisdiction over the Florida law claims, and dismissed the complaint.
On appeal, the 11th Circuit ruled that statements must comply with the FDCPA, even if they are not required to be sent under the statute. The 11th Circuit reiterated that the respective requirements of TILA and the FDCPA can be approached in a “harmonized” fashion, stating that “a periodic statement mandated by [TILA] can also be a debt-collection communication covered by the FDCPA.” The appellate court reversed the district court’s dismissal because “the complaint here plausibly alleges that the periodic statements sent to the plaintiffs aimed to collect their debt.”
11th Circuit reversal emphasizes “harmonized” TILA, FDCPA statements
On June 7, the U.S. Court of Appeals for the Eleventh Circuit held that an individual claiming to have acted as a custodian of an account and not in her personal capacity must arbitrate claims brought against a national bank (defendant). The plaintiff and her mother co-owned an investment account that was eventually transferred to the defendant. The plaintiff’s mother notified the bank that the plaintiff would remain co-owner of the account and signed a brokerage account application containing an arbitration clause. Several years later, after the plaintiff noticed that numerous withdrawals were being made from the account by another family member, she obtained legal guardianship of her mother and applied for another brokerage account in order to move the funds to a new account she could access and oversee. The application included a brokerage agreement (which listed her mother as the account owner and was signed by the plaintiff as a joint account owner/custodian and as the primary applicant). The agreement contained a clause requiring arbitration of “[a]ll controversies that may arise between you, us and [the broker] concerning any subject matter, issue or circumstance whatsoever (including, but not limited to, controversies concerning any Account, order or transaction, or the continuation, performance, interpretation or breach of this or any other agreement between you, us and [the broker], whether entered into or arising before, on or after the date this Account is opened).”
The plaintiff eventually sued the bank alleging theft, aiding and abetting theft and fraud, and negligence, among other claims. The plaintiff contended that she was not bound by the arbitration agreement because she signed the agreement “not in her personal capacity, but as her mother’s guardian,” and that there is no arbitrable issue because her personal claims did not arise from the agreement. The district court granted the defendant’s motion to compel arbitration after determining the plaintiff had not alleged that the defendant fraudulently obtained her signature.
On appeal, the 11th Circuit interpreted the word “you” in the arbitration clause as referring to the plaintiff “as the person who applied for the account and signed the application.” In determining that the plaintiff is a signatory to the defendant’s agreement, the appellate court concluded that the plaintiff “has not alleged that her signature was nonvoluntary or otherwise fraudulently obtained[,]” and thus is bound by the arbitration clause. Moreover, the 11th Circuit rejected the plaintiff’s argument that her claims are not covered by the arbitration clause, writing that the “clause explicitly contemplates disputes arising from other issues or agreements ‘whether entered into or arising before, on or after the date this Account is opened.’”
Special Alert: Eleventh Circuit upholds terms of arbitration agreement in challenge under Dodd-Frank
On May 26, 2022, the United States Court of Appeals for the Eleventh Circuit issued a published decision holding that the Dodd-Frank Act does not prohibit the enforceability of delegation clauses contained in consumer arbitration agreements “in any way.” This opinion is of potentially broad significance in the class action and arbitration space since it is one of the first appellate decisions in the country concerning Dodd-Frank’s arbitration provision and supports broad enforcement of delegation clauses even where a statute could allegedly prohibit arbitration of the underlying claim.
In Attix v. Carrington Mortgage Services, LLC, the Eleventh Circuit reversed a decision of the United States District Court for the Southern District of Florida denying Carrington’s motion to compel arbitration that was based on the plaintiff’s argument that the anti-waiver provision in the Dodd-Frank Act, prohibited enforcement of the arbitration agreement. The anti-waiver provision of the Dodd-Frank Act provides that “no other agreement between the consumer and the creditor relating to the residential mortgage loan or extension of credit . . . shall be applied or interpreted so as to bar a consumer from bringing an action in an appropriate district court of the United States.” The district court agreed with the plaintiff’s argument that the Dodd-Frank Act prohibited arbitration of the underlying dispute and in doing so, side-stepped the delegation clause that delegated such threshold determinations to an arbitrator.
In a 52-page published opinion, the Eleventh Circuit reversed the decision of the district court, holding that the Dodd-Frank Act does not prohibit enforcing delegation clauses, such as the clause at issue, which “clearly and unmistakably” delegates to the arbitrator “threshold arbitrability disputes.” The circuit court found that in such circumstances, all questions of arbitrability are delegated to an arbitrator “unless the law prohibits the delegation of threshold arbitrability issues itself.”
The court went on to broadly hold that the Dodd-Frank Act does not prohibit the enforceability of delegation clauses “in any way.” In doing so, the Eleventh Circuit explained that if Dodd-Frank had been intended to prohibit the enforcement of delegation clauses, then it could have been drafted that way, but instead, “the actual statute is silent as to who may decide whether a particular contract falls within the scope of its protections.” While the Dodd-Frank Act prohibits arbitration agreements from being applied or interpreted in a particular manner, it does not prohibit the enforcement of delegation clauses, and as a result, the court held that under the terms of Carrington and the plaintiff’s agreement, the arbitrator (and not the court) must determine the threshold question of whether the Dodd-Frank Act prohibits enforcement of Carrington’s arbitration agreement since it is a “quintessential arbitrability question.”
Significantly, the court also held that a challenge to an agreement to arbitrate on the basis that a statute precludes its enforcement is not a “specific challenge” to a delegation clause found within the arbitration agreement, such that the court lacks jurisdiction to review the enforceability of the delegation clause. In other words, where a challenge “is only about the enforceability of the parties’ primary arbitration agreement” and there is a delegation clause, “an arbitrator must resolve it.” As the Eleventh Circuit explained, “when an appeal presents a delegation agreement and a question of arbitrability, we stop. We do not pass go.”
This case has significance for anyone considering drafting an arbitration agreement particularly in a class action context. A threshold drafting question is whether or not to delegate issues of arbitrability to the arbitrator or allow a court to resolve the issue. Under this decision, a question of whether a statute bars arbitration of claims is for the arbitrator to decide when there is a delegation clause, unless the statute also explicitly bars delegation clauses. This decision reinforces that inclusion of a properly drafted delegation clause in an arbitration agreement can result in a case improperly filed in court being more quickly sent to arbitration, even where the dispute is whether a statute prohibits the claim from being arbitrated in the first instance.
Buckley represented Carrington on appeal with a team comprising Fredrick Levin, who argued the appeal, Scott Sakiyama, Brian Bartholomay, and Sarah Meehan. For questions regarding the case, please contact one of the team members or a Buckley attorney with whom you have worked in the past.
CFPB, FTC weigh in on consumer reporting obligations under the FCRA
On May 5, the CFPB and FTC filed a joint amicus brief with the U.S. Court of Appeals for the Second Circuit, seeking the reversal of a district court’s decision which determined that a consumer reporting agency (CRA) was not liable under Section 1681e(b) of the FCRA for allegedly failing to investigate inaccurate information because the inaccuracy was “legal” and not “factual” in nature. The agencies countered that the FCRA, which requires credit reporting companies to follow reasonable procedures to assure maximum possible accuracy of the information included in consumer reports, “does not contain an exception for legal inaccuracies.”
The plaintiff noticed that the CRA reported that she owed a balloon payment on an auto lease that she was not obligated to pay under the terms of the lease. After the plaintiff confirmed she did not owe a balloon payment, she filed a putative class action against the CRA contending that it violated the FCRA by inaccurately reporting the debt. The CRA countered that it could not be held liable because “it is not obligated to resolve a legal challenge to the validity of the balloon payment obligation reported by” the furnisher “and that it reasonably relied on [the furnisher] to report accurate information.” Moreover, the CRA argued that even if it did violate the FCRA, the plaintiff was not entitled to damages because the violation was neither willful nor negligent. The district court sided with the CRA, drawing a distinction between factual and legal inaccuracies and holding that whether the plaintiff actually owed the balloon payment was a “legal dispute” requiring “a legal interpretation of the loan’s terms.” According to the district court, “CRAs cannot be held liable when the accuracy at issue requires a legal determination as to the validity of the debt the agency reported.” The court further concluded that since the plaintiff had not met the “threshold showing” of inaccuracy, the information in the consumer report “was accurate,” and therefore the CRA was “entitled to summary judgment because ‘reporting accurate information absolves a CRA of liability.’”
In urging the appellate court to overturn the decision, the agencies argued that the exemption for legal inaccuracies created by the district court is unsupported by statutory text and is not workable in practice. This invited defense, the FTC warned in its press release, “invites [CRAs] and furnishers to skirt their legal obligations by arguing that inaccurate information is only legally, and not factually, inaccurate.” The FTC further cautioned that a CRA might begin manufacturing “some supposed legal interpretation to insulate itself from liability,” thus increasing the number of inaccurate credit reports.
Whether the plaintiff owed a balloon payment and how much she owed “are straightforward questions about the nature of her debt obligations,” the agencies stated, urging the appellate court to “clarify that any incorrect information in a consumer report, whether ‘legal’ or ‘factual’ in character, constitutes an inaccuracy that triggers reasonable-procedures liability under the FCRA.” The agencies also pressed the appellate court to “clarify that a CRA’s reliance on information provided by even a reputable furnisher does not categorically insulate the CRA from reasonable-procedures liability under the FCRA.”
The Bureau noted that it also filed an amicus brief on April 7 in an action in the U.S. Court of Appeals for the Eleventh Circuit involving the responsibility of furnishers to reasonably investigate the accuracy of furnished information after it is disputed by a consumer. In this case, a district court found that the plaintiff, who reported several fraudulent credit card accounts, did not identify any particular procedural deficiencies in the bank’s investigation of her indirect disputes and granted summary judgment in favor of the bank on the grounds that the “investigation duties FCRA imposes on furnishers [are] ‘procedural’ and ‘far afield’ from legal ‘questions of liability under state-law principles of negligence, apparent authority, and related inquiries.’ Moreover, the district court concluded that there was no genuine dispute as to whether the bank conducted a reasonable investigation as statutorily required. The Bureau noted in its press release, however, that the bank “had the same duty to reasonably investigate the disputed information, regardless of whether the underlying dispute could be characterized as “legal” or “factual.” In its brief, the Bureau urged the appellate court to, among other things, reverse the district court’s ruling and clarify that the “FCRA does not categorically exempt disputes presenting legal questions from the investigation furnishers must conduct.” 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.” The brief also argued that each time a furnisher fails to reasonably investigate a dispute results in a new statutory violation, with its own statute of limitations.
11th Circuit affirms $23 million judgment against founder of debt relief operation
On March 9, the U.S. Court of Appeals for the Eleventh Circuit affirmed summary judgment in favor of the FTC and the Florida attorney general after finding that an individual defendant could be held liable for the actions of the entities he controlled. As previously covered by InfoBytes, the FTC and the Florida AG filed a complaint in 2016 against several interrelated companies and the individual defendant who founded the companies, alleging violations of the FTC Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act. The complaint alleged that the defendants engaged in a scheme that targeted financially distressed consumers through illegal robocalls selling bogus credit card debt relief services and interest rate reductions. Among other things, the defendants also claimed to be “licensed enrollment center[s]” for major credit card networks with the ability to work with a consumer’s credit card company or bank to substantially and permanently lower credit card interest rates and charged up-front payments for debt relief and rate-reduction services. In 2018, the court granted the FTC and the Florida AG’s motion for summary judgment, finding there was no genuine dispute that the individual defendant controlled the defendant entities, that he knew his employees were making false representations, and that he failed to stop them. The court entered a permanent injunction, which ordered the individual defendant to pay over $23 million in equitable monetary relief and permanently restrained and enjoined the individual defendant from participating—whether directly or indirectly—in telemarketing; advertising, marketing, selling, or promoting any debt relief products or services; or misrepresenting material facts.
The individual defendant appealed, arguing that there were genuine disputes over whether: (i) he controlled the entities; (ii) he had knowledge that employees were making misrepresentations and failed to prevent them; (iii) employee affidavits “attesting that they had saved customers money created an issue of fact about whether his programs did what he said they would do”; and (iv) he had knowledge of “rogue employees” violating the “do not call” registry to solicit customers.
On appeal, the 11th Circuit determined that the facts presented by the individual defendant did not create a genuine dispute about whether he controlled the entities, and further stated that the individual defendant is liable for the employees’ misrepresentations because of his control of the entities and his knowledge of those misrepresentations. The appellate court explained that while the individual defendant argued that he could not be liable because he did not participate in those representations, he failed to present any evidence in support of that argument and, even if he had, “it wouldn’t matter, because [the individual defendant’s] liability stems from his control of [the companies], not from his individual conduct.” Additionally, the appellate court held that whether the services were helpful to customers was immaterial and did not absolve him of liability, because liability for deceptive sales practices does not require worthlessness. As to the “do not call” registry violations, the appellate court disagreed with the individual defendant’s claim that an “outside dialer or lead generator”—not the company—placed the outbound calls, holding that this excuse also does not absolve him of liability.
11th Circuit affirms $7.5 million settlement on overdraft appeal
On February 16, the U.S. Court of Appeals for the Eleventh Circuit affirmed a district court’s class certification and approval of a $7.5 million settlement, which resolved allegations that, after merging with another national bank, the former bank (defendant) improperly assessed and collected overdraft fees. According to the opinion, a customer accused the bank of “high-to-low” posting that restructured customers’ debit transactions so that high value debits posted before low value ones, increasing the chance of overdrafts. After the defendant merged with the national bank in 2012, the national bank agreed to the $7.5 million settlement to resolve the claims. A class member (interested party-appellant) appealed the order. The interested party-appellant claimed “that the court abused its discretion by finding that the settlement class’s representative … adequately represented her (and her proposed subclass’s) interests and that the settlement class’s claims were typical of hers (and her proposed subclass’s).”
The 11th Circuit disagreed and found that the district court did not abuse its discretion because the plaintiff classes “suffered identical injuries” based on the defendant’s alleged high-to-low restructuring practices. Additionally, the appellate court found that “[t]he district court didn’t abuse its discretion by finding [the settlement class’s representative’s] claims were typical of those of the class.” The court also found that “[t]he district court could reasonably conclude that any difference in the value of the plaintiffs’ claims was too speculative or too small to create a fundamental conflict of interest.”