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On August 18, the Supreme Court of Pennsylvania affirmed a lower court’s decision, holding that 2008 amendments to the Pennsylvania Loan Interest and Protection Law (also known as “Act 6”), which raised the mortgage principle-amount ceiling from $50,000 to nearly $215,000, do not apply retroactively to loans executed prior to 2008. According to the opinion, in May 2002, homeowners executed a mortgage for $74,000. In 2008, the homeowners defaulted on their mortgage and in 2009, their bank—through its counsel—filed a mortgage foreclosure complaint, which included $1,300 in attorneys’ fees. In 2012, while their foreclosure was still pending, the homeowners filed a class action against the bank’s counsel, alleging the counsel violated Act 6’s limit on attorney’s fees. The trial court sustained the counsel’s demurrer, concluding that the homeowners’ mortgage was not “a ‘residential mortgage’ as Act 6 defined that term in 2002.” The superior court affirmed.
On appeal, the Pennsylvania Supreme Court agreed with the superior court, noting not only the “presumption against finding statutes retroactive,” but the state’s General Assembly’s “explicit instruction that courts should avoid applying legislation retroactively unless the statute clearly and manifestly states otherwise.” Because Act 6 does not expressly state that the 2008 increased mortgage-ceiling should apply to mortgages executed prior to the amendment, the Court concluded there was “no basis allowing for application of the updated law to the [homeowners]’ mortgage,” and thus, the counsel was not subject to Act 6’s limitation on attorneys’ fees.
On July 21, the U.S. District Court for the Northern District of California issued an order approving a $117.5 million class action settlement, including $23 million in attorneys’ fees, with a global internet company to resolve multidistrict litigation concerning the exposure of class members’ sensitive information stemming from multiple data breaches. The settlement approval follows a fairness hearing, as the court originally denied preliminary approval due to several identified deficiencies (covered by InfoBytes here), including that the settlement inadequately disclosed the sizes of the settlement fund and class, as well as the scope of non-monetary relief, and “appear[ed] likely to result in an improper reverter of attorneys’ fees.” Last July, the court preliminarily signed off on a revised settlement, conditionally certifying a class of U.S. and Israeli residents and small businesses with accounts between 2012 and 2016 that were affected by the breaches. These class members have been certified in the final approved settlement, which requires the company to provide class members with either two years of credit monitoring services or alternative compensation for members who already have credit monitoring. Among other things, the company will allocate at least $66 million each year to its information security budget until 2022, will increase the number of full-time security employees from current levels, and will “align its information security program with the National Institute of Standards and Technology Cybersecurity Framework” and “undertake annual third-party assessments to ensure compliance” with the framework.
California Court of Appeal: FTC Holder Rule preempts state law authorizing recovery of certain attorney fees
On June 9, the California Court of Appeal for the First Appellate District affirmed a trial court’s judgment in favor of a bank (defendant), holding that the FTC’s Holder Rule preempts California Civil Code section 1459.5, which authorizes a plaintiff to recover attorney fees on a Holder Rule claim even if it results in a total recovery that exceeds the amount the plaintiff paid under the contract. According to the court, the plaintiff sued the defendant (who was assigned the vehicle credit sale contract) after he discovered that the seller failed to disclose that the vehicle had been in a major collision, thus reducing its value. The parties settled for a sum equal to the vehicle’s purchase price, and the plaintiff filed a motion for attorney fees. The trial court denied the motion, determining that the plaintiff was not entitled to fees under a holding in Lafferty v. Wells Fargo Bank, which stated that a debtor cannot recover damages and attorney fees for a Holder Rule claim that collectively exceed the amount paid by the debtor under the contract. The plaintiff appealed.
The Court of Appeal agreed with the trial court, determining that it did not need to resolve the parties’ dispute as to whether Lafferty correctly construed the Holder Rule’s limitation on recovery because the FTC’s construction of the Holder Rule is entitled to deference. The Court of Appeal referenced the FTC’s 2019 confirmation of the Holder Rule (Rule Confirmation), after Lafferty issued, which addressed, among other things, several comments related to whether the Holder Rule’s “limitation on recovery to ‘amounts paid by the debtor’ allows or should allow consumers to recover attorneys’ fees above that cap.” The FTC provided the following statement within the Rule Confirmation: “We conclude that if a federal or state law separately provides for recovery of attorneys’ fees independent of claims or defenses arising from the seller’s misconduct, nothing in the Rule limits such recovery. Conversely, if the holder’s liability for fees is based on claims against the seller that are persevered by the Holder Rule Notice, the payment that the consumer may recover from the holder—including any recovery based on attorneys’ fees—cannot exceed the amount the consumer paid under the contract.”
On June 2, the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s judgment in a TCPA action against a bank, concluding that consent from the person intended to call does not exempt the bank from liability under the TCPA. According to the opinion, the bank’s vendors made over 180 automated calls to a child’s cell phone in attempt to collect past-due payments from a customer who used to have the same cell phone number, which had since been reassigned to the child’s mother. The customer of the bank had given consent to be called, but the mother and child had not. After a three-day jury trial, the jury returned a verdict in favor of the plaintiff on the TCPA claim, concluding that the bank could not escape liability under the TCPA because the customer it intended to call had given consent, and awarding $500 in statutory damages for each of the 189 unwanted calls, for a total of $94,500.
On appeal, the 9th Circuit affirmed the district court’s judgment after the jury trial. The appellate court noted it was “agreeing with other circuits,” on liability when it concluded that the district court “properly instructed the jury that consent from the intended recipient of the call was not sufficient.” Moreover, the appellate court held that the district court properly instructed the jury on the definition of “automatic telephone dialing system,” based on the panel’s decision in Marks v. Crunch San Diego, LLC (covered by InfoBytes here). Lastly, the appellate court also issued an opinion affirming the district court’s award of attorneys’ fees to the plaintiff.
District court approves $2.3 million class settlement resolving violations of Massachusetts debt collection laws
On March 23, the U.S. District Court for the District of Massachusetts issued an order granting final approval to a nearly $2.3 million class action settlement, reached through mediation, to resolve allegations that a subsidiary of a large U.S. retailer (defendant) made excessive debt collection calls to Massachusetts consumers. The named plaintiff claimed that the defendant violated the Massachusetts Consumer Protection Act and state debt collection regulations by calling consumers more often than twice in a seven-day period. The order also lowered the plaintiff’s attorneys’ fees because, according to the court, the case was not as risky as the attorneys claimed and not complex enough to warrant taking approximately one-third of the settlement fund.
On August 15, the U.S. District Court for the District of Connecticut held that a law firm violated the FDCPA, rejecting the law firm’s bona fide error defense, and awarded the consumer statutory damages. According to the opinion, the consumer alleged that the law firm violated the FDCPA in a 2016 debt collection letter sent to the consumer. Specifically, the consumer argued that the letter “‘ma[de] it impossible for a consumer to know how much is owed and if the debt will be considered paid if payment is made in full,’” because the letter contained two different balance amounts: (i) a “Charge-Off Balance” listed at $663.94 and (ii) a “Balance” or “Current Balance” listed as $565.46. The law firm acknowledged the existence of two different balance amounts, but asserted that the Current Balance was the correct amount and that the consumer “was not confused about what he owed.” The court rejected this argument, finding that under the “least sophisticated consumer standard,” a consumer would be confused by the two different balances, noting that the letter provided no explanation about the two different amounts. The law firm also argued that the inaccuracy was not material, and therefore it should not give rise to liability under the FDCPA. The court disagreed, finding that the difference between the two amounts was “more than trivial,” noting it almost exceeded one hundred dollars, and could induce a consumer to delay payment. Lastly, because the error in amounts was not a result of human judgment, but a failure in programming, the court rejected the law firm’s bona fide error defense. The court awarded the consumer statutory damages and authorized the consumer to seek reasonable costs and attorney’s fees.
California Court of Appeal: Prejudgment interest accrual did not violate Rosenthal Fair Debt Collection Practices Act
On July 1, the California Court of Appeal for the Fourth Appellate District affirmed in part and reversed in part a previous superior court judgment in favor of a debt collector, holding that the debt collector did not violate the California Rosenthal Fair Debt Collection Practices Act (the Rosenthal Act) by adding prejudgment interest from the date of charge-off to a consumer’s account, and reporting the account, with such additional interest, to several credit bureaus.
The lawsuit initially arose when the debt collector sued to collect the entire amount owed, and the consumer filed a cross-complaint alleging the debt collector had violated the Rosenthal Act, among other laws, by “‘falsely representing the character, amount, or legal status of the alleged debt,’ ‘failing to verify that the amount demanded was accurate,’ and ‘failing to provide an accurate accounting of the alleged debt.’” The superior court rejected the consumer’s claims and entered judgment in favor of the debt collector in the amount of the debt plus attorney’s fees.
On appeal, the Court of Appeal concluded that the debt collector did not violate the Rosenthal Act because the consumer failed to show that the original creditor waived the right to accrue additional interest on the account by not accruing the interest after charge-off. Moreover, the Court of Appeal noted that the statutory prejudgment interest rate is only available when there is no specified contractual rate. However, the Court determined that the debt collector did not improperly accrue interest when it applied a seven percent interest rate, as seven percent is lower than the statutory interest rate and the contractual interest rate. With respect to attorney’s fees, the Court of Appeal concluded the superior court improperly awarded fees associated with the legal action to collect the debt and the cross-complaint, noting that the superior court, “should have limited the fee award to time spent on efforts necessary to prove the allegations in the complaint.” Therefore, the court reversed the fee judgment and remanded the case back to superior court for “further consideration of the fee award in accordance with our narrower interpretation of the contractual fee provision.”
On May 15, the U.S. Court of Appeals for the 7th Circuit held a prevailing consumer’s request for $187,410 in attorney’s fees was unreasonable in a FDCPA action. In 2014, the consumer and a debt collector settled the consumer’s FDCPA related claims for $1,001 plus attorney’s fees of $4,500. Despite the settlement agreement, the debt collector continued to attempt to collect the debt, and the consumer sued a second time alleging violations of the FDCPA and FCRA. The consumer did not respond to multiple settlement offers from the debt collector, including one in March 2015 for $3,051, proceeding to trial on the FDCPA claim, and subsequently rejected a settlement offer from the debt collector of $25,000 and reasonable attorney’s fees. At trial, the jury only awarded the consumer the $1,000 in FDCPA statutory damages, after which he sought to recover $187,410 in attorney’s fees. The district court reduced his request to $10,875, concluding that the consumer’s rejection of “meaningful settlement offers precluded a fee award in such disproportion to his trial recovery.”
On appeal, the appellate court agreed with the district court that the March 2015 settlement offer of $3,051 was reasonable, rejecting the consumer’s argument that the settlement “was not substantial and therefore should have been disregarded by the district court in determining the fee award.” The appellate court also rejected the consumer’s argument that because the settlement offer disclaimed liability for the debt collector, his results at the jury trial were much better than the settlement as it yielded judgment on the merits. The appellate court noted that settlement offers regularly disclaim liability, and by operation, judgment against the debt collector would still have been entered under Rule 68. Therefore, the appellate court concluded the district court did not abuse its discretion when reducing the attorney’s fees to $10,875 based on 29 hours’ worth of work at an hourly rate of $375 prior to the March 2015 settlement offer.
On February 8, the U.S. District Court for the Eastern District of Virginia granted final approval to a $2.5 million putative class action settlement resolving allegations that a student loan servicer violated the TCPA by using an autodialer to contact student borrowers’ credit references without first obtaining their prior express consent. The settlement terms also require the servicer to pay more than $850,000 in attorneys’ fees and expenses. According to the plaintiff’s memorandum in support of its motion for preliminary approval of the class action settlement (as referenced in the final approval order), the servicer allegedly used an autodialer to contact the plaintiff’s cellphone without her prior express consent, which the servicer subsequently denied. The servicer had moved for summary judgment on multiple grounds, arguing, among other things, that the plaintiff could not establish that the servicer used an autodialer to place calls to her and other credit references listed on the delinquent student loans. Citing to the D.C. Circuit’s decision in ACA International v. FCC, which set aside the FCC’s 2015 interpretation of an autodialer as “unreasonably expansive,” (covered by a Buckley Special Alert), the servicer had argued that the decision “governs analysis of the issue” and that the plaintiff could not succeed in demonstrating that the telephone system used falls within the statutory definition of an autodialer. However, prior to the court issuing a ruling on the servicer’s summary judgment motion, the parties reached the approved settlement through mediation.
On January 31, the U.S. District Court for the Southern District of New York granted final approval and class certification to a $22 million settlement resolving class action allegations that a national bank improperly charged overdraft fees on “one-time, non-recurring” transactions made with a ride-sharing company. The court found that the bank mischaracterized these one-time charges as recurring transactions, which allowed the bank to charge overdraft fees of $35. Prior to the court’s approval of the settlement, 12 state Attorneys General sent a letter to the court arguing that the agreement’s release of liability to the ride-sharing company was inequitable. The court found, however, that the release “does not compromise the fairness, reasonableness, and adequacy of the settlement,” where, among other things, plaintiffs’ counsel investigated the viability of claims against the ride-sharing company and concluded that litigation against the company could present problems for the proposed class and for individual recovery. The $22 million settlement constitutes 80 percent of all revenues charged by the bank as a result of the overdraft fees. The court also approved $5.5 million in attorneys’ fees and $50,000 in costs.
- Jonice Gray Tucker to discuss “How the new administration sets the tone for 2021” at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Sherry-Maria Safchuk to discuss UDAAP in consumer finance at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable