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Florida Court of Appeal: Bank may seek attorney’s fees as a condition of loan reinstatement
On May 4, the Florida Court of Appeal, Fourth District, held that a borrower cannot sue a law firm for sending a letter seeking to collect attorney’s fees because the mortgage contract gave the bank the right to seek attorney’s fees from a prior foreclosure action as a condition of reinstating the loan. Previously, a trial court had awarded the borrower attorney’s fees following dismissal of a prior foreclosure action. The bank later brought a new foreclosure action against the borrower concerning the same property, and the law firm representing the bank sent the borrower a reinstatement letter requiring payment of attorney’s fees incurred by the bank in the prior foreclosure action in order to reinstate the loan. The trial court, citing a 2019 decision in U.S. Bank Trust, N.A. v. Leigh, granted summary judgment in favor of the law firm on the grounds that “the law firm was entitled to immunity under the litigation privilege because the Florida Consumer Collection Practices Act (FCCPA) claim was based on the reinstatement letter the law firm sent during the foreclosure proceedings” and because the borrower lacked standing.
On appeal, the Court of Appeal agreed with the law firm that it was entitled to collect attorney fees and costs and that the borrower lacked standing to bring his FCCPA claim. According to the Court of Appeal, a provision in the mortgage contact included language that “if the borrower defaulted and the lender accelerated the loan, the borrower would have the right to reinstate the loan if certain conditions were met.” Among these conditions was that the borrower would agree to “pay all expenses incurred in enforcing this Security Instrument, including, but not limited to, reasonable attorneys’ fees.” Applying the rationale of Leigh, the Court of Appeal found “that the law firm did not violate the FCCPA because it sought to recover a legitimate expense it was entitled to recover pursuant to a contract, that being the expense of attorney’s fees the lender incurred in the prior foreclosure action.”
Florida court grants sovereign immunity to lender and company officials
On April 11, a Florida county court concluded that a defendant lender and certain company officials were entitled to sovereign immunity in a case concerning alleged usury claims. The plaintiff claimed the lender used its supposed federally-recognized tribal affiliation to escape state usury regulations. The court dismissed the complaint, however, finding that the lender is an “arm of the tribe” under a six-prong test established by the U.S. Court of Appeals for the Tenth Circuit in Breakthrough Management Group, Inc. v. Chukchansi Gold Casino & Resort. The test determines whether sovereign immunity should apply by examining, among other factors, an entity’s creation, the amount of control a tribe has over the entity, and the financial relationship between the tribe and the entity. According to the court, the defendant’s evidence suggests that the tribe created the defendant as a business entity “to generate and contribute revenues” to the tribe’s general fund. The court found that insufficient detail was presented to support the plaintiff’s assertion that the defendant pays a relatively small percentage of its gross revenues to the tribe. The court added that the plaintiff also failed to present evidence proving that large portions of the defendant’s revenue were distributed to non-tribal entities. In dismissing the case with prejudice, the court also dismissed claims against three individual defendants because they were entitled to sovereign immunity. The court concluded that the plaintiff’s allegations demonstrated that the individuals committed the alleged wrongs in their capacities as employees and officers and therefore the “real party in interest” is the lender.
District Court denies defendant's motion in FCCPA case
On March 25, the U.S. District Court for the Middle District of Florida denied a TV provider’s (defendant) motion for summary judgment while partially granting and partially denying a motion for partial summary judgment from the plaintiff in a Florida Consumer Collection Practices Act (FCCPA) suit. According to the order, the plaintiff allegedly signed up for the defendant’s service, but “pause[d]” the program, which permitted her to suspend her service for nine months for $5 per month. The plaintiff filed for bankruptcy protection, listed the defendant as an unsecured creditor, and obtained a discharge. The plaintiff’s lawyer sent two faxes to the defendant, which disclosed to the defendant that the plaintiff was represented by counsel. The defendant sent five billing notifications and made six calls to the plaintiff, attempting to collect on the $5 monthly payment. A district court granted the defendant summary judgment on claims that it violated the FCCPA and the TCPA. The plaintiff appealed the decision, which affirmed the ruling on the TCPA claim, but reversed the FCCPA ruling, finding that the defendant may have attempted to collect a debt that was discharged and that it contacted the plaintiff after being notified that she was represented by an attorney. According to the order, the court stated that the “[p]laintiff has proffered enough evidence in the record from which a jury could reasonably infer that [the defendant] knew the Pause debt was invalid and that it did not have the right to collect it,” but “[o]n the other hand, considering the evidence in a light most favorable to [the defendant], a jury could reach the opposite conclusion, as [the defendant] has provided record evidence from which a jury could infer [the defendant] did not know that the Pause debt was invalid.”
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.
Florida house tries again on consumer privacy legislation
On March 2, the Florida house passed HB 9, which would, among other things, regulate the sale and sharing of consumers’ personal data and provide consumers the right to sue over alleged violations. This is the state’s latest attempt to pass comprehensive consumer privacy legislation. Last year, the Florida legislatures failed to reconcile differences in their bills before the session ended. Highlights of the bill (which include changes from last session’s versions) include:
- Applicability. The bill will apply to any entity meeting the definition of a controller, processor, or third party that buys, sells, or shares consumers’ personal information and (i) has global annual gross revenues exceeding $50 million; (ii) annually buys, receives, sells, or shares personal information of at least 50,000 consumers, households, or devices; or (iii) derives 50 percent or more of its global annual revenue from the selling or sharing of personal information. The bill sets forth numerous exemptions from its requirements, including personal information shared “with a financial service provided solely to facilitate short term, transactional payment processing for the purchase of products or services”; deidentified or aggregated personal information; data governed by certain federal, state, or local regulations or used to exercise or defend legal claims; certain personal information collected through a controller’s direct interaction with a consumer that is used to advertise or market products or services that are produced or offered directly by the controller; personal information used in the context of a consumer’s role or former role with the controller; specified protected health information; financial institutions covered by the Gramm-Leach-Bliley Act; personal information disclosed during intentional interactions or disclosed as part of a merger, acquisition, bankruptcy, or other transaction in which the third party assumes control of all or part of the controller; and personal information used to fulfill the terms of a written warranty, a product recall, or public- or peer-reviewed scientific or statistical research in the public interest.
- Consumer rights. Under the bill, consumers will be able to, among other things, access their personal data; request deletion or make corrections; and opt out of the sale or sharing of personal information to third-parties. Controllers will be required to deliver the requested information free of charge within 45-calendar days (a one-time additional 45-day extension may be granted), but are not required to provide personal information to a consumer more than twice in a 12-month period. Controllers will also be prohibited from selling or disclosing the personal information of minor consumers, except in certain circumstances. Additionally, the bill will provide controllers the ability to charge a consumer who exercises any of their rights under the bill “a different price or rate, or provide a different level or quality of goods or services to the consumer” provided the “difference is reasonably related to the value provided to the controller by the consumer’s data or is related to a consumer’s voluntary participation in a financial incentive program, including a bona fide loyalty, rewards, premium features, discounts, or club card program offered by the controller.” Financial incentives that are not unjust, unreasonable, coercive, or usurious may also be offered as long as consumers give prior consent and are allowed to revoke consent at any time. The bill further stipulates that contracts or agreements that waive or limit certain consumer rights are void and unenforceable.
- Disclosures. The bill will require controllers that collect consumers’ personal information to disclose certain information regarding data collection and selling practices to consumers at or before the point of collection. This information “may be provided through a general privacy policy or through a notice informing the consumer that additional specific information will be provided upon a certain request.” Additionally, processors or third parties must require any subcontractor to meet the same obligations with respect to personal information. Businesses also will be prohibited from collecting or using additional categories of personal information without first notifying consumers.
- Security. Under the bill, businesses will be required “to implement reasonable security procedures and practices” to protect consumers’ personal information.
- Private cause of action, right to cure. The bill will provide a private right of action to allow consumers to bring a civil action under certain circumstances for injunctive or declaratory relief, and establishes a damage amount of either statutory damages of at least $100 but not more than $750 per consumer per incident, or actual damages, whichever is greater. Consumers may obtain specific relief from businesses with annual gross revenues greater than $50 million. In lawsuits involving businesses with annual gross revenues exceeding $500 million, consumers also are permitted to recover attorneys’ fees and costs. Civil actions must be filed within one year after discovery of the violation. The Department of Legal Affairs is also authorized to take action against a controller, processor, or third party for unfair or deceptive acts or practices. Fines may be tripled if a violation involves consumers 18 years of age or younger, or if a controller, processor, or third party fails to cure the violation upon written notice within 45 calendar days.
If enacted in its current form, the bill would take effect January 1, 2023. The bill must be approved by the Florida senate and any differences reconciled before being sent to the governor.
FTC bans debt relief scheme operators
On February 28, the FTC announced the permanent ban of the operators (collectively, “defendants”) of a debt relief scheme from processing debt relief payments and ordered the defendants to pay a $5.3 million fine. According to the FTC’s July 2020 complaint, which was filed jointly with the Florida attorney general in the U.S. District Court for the Middle District of Florida, the defendants allegedly engaged in deceptive and abusive practices by selling their credit card interest rate reduction services to consumers in violation of the FTC Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices Act. The FTC and Florida AG claimed that the defendants utilized telemarketing calls promising to reduce consumers’ credit card interest rates permanently and substantially, and, after posing as representatives or affiliates of consumers’ credit card companies, the defendants allegedly claimed they could save consumers thousands of dollars in credit card interest and enable them to pay off their debt faster. The complaint also asserted that the defendants, at times, opened new credit cards that offered low introductory interest rates and transferred the balances of consumers’ existing debt to the new cards. For that, customers paid upfront fees of between $995 and $4,995 while also paying “substantial” fees to transfer the balances.
Under the terms of the settlement, the operators are permanently prohibited from participating the debt relief industry, misrepresenting material facts in connection with any product or service, and engaging in deceptive and abusive telemarketing acts and practices, unsubstantiated claims, and other payment practices. Two individual defendants agreed to pay a $225,000 monetary penalty and the other defendant agreed to pay $200,000.
District Court grants summary judgment in favor of debt collector
On January 31, the U.S. District Court for the Middle District of Florida granted summary judgment in favor of a defendant debt collector concerning alleged violations of the FDCPA. The plaintiff alleged that she received six phone calls from the defendant, starting in May of 2020, seeking to collect debt owed by the plaintiff’s granddaughter. The plaintiff allegedly explained to the defendant during the first call that she did not live with her granddaughter and that the defendant would not be able to reach the granddaughter through that number. She also allegedly requested the defendant stop calling. On June 27, 2020 the plaintiff filed suit alleging violations of Sections 1692d, 1692c(a)(1), and 1692e of the FDCPA and the Florida Consumer Collections Practices Act (FCCPA). The court dismissed the state law claim, as well as the plaintiff’s Section 1692d claim, after determining that “neither the volume and frequency nor the content of the calls constituted abusive or harassing conduct under the FDCPA or FCCPA.”
After reviewing the remainder of the FDCPA claims, the court ruled that the plaintiff’s Section 1692c(a)(1) claim failed because the protections afforded by Section 1692c(a)(1) are applicable only to a “consumer” meaning “any natural person obligated or allegedly obligated to pay any debt.” The court explained that because the plaintiff “did not owe the subject debt” the defendant was “entitled to judgment as a matter of law on” the Section 1692c(a)(1) claim. Additionally, the court determined that the plaintiff failed to show evidence that the defendant violated Section 1692e by making false, deceptive, or misleading representations when attempting to collect on the debt, because “[a] reasonable jury could not conclude from this record that the least sophisticated consumer would have been misled to believe that the purpose of the phone calls was to attempt to collect a debt from [the plaintiff].”
District Court denies MSJ in FDCPA case
On October 19, the U.S. District Court for the Middle District of Florida denied a defendant’s motion for judgment without prejudice concerning allegations that it knowingly ignored cease-and-desist letters sent by an individual while the individual had a pending bankruptcy petition. The plaintiff allegedly incurred a debt that was placed with the defendant for collection. After, the plaintiff sought protection under the Bankruptcy Code. During the bankruptcy case, the defendant allegedly sent the plaintiff text messages to collect the debt, the plaintiff responded with a cease-and-desist letter, and then the defendant sent the plaintiff a collection letter. The plaintiff sent another cease and desist letter and the defendant sent four more collection letters. Based on the defendant’s post-petition actions, the plaintiff sued for FDCPA and Florida Consumer Collection Practices Act violations. The defendant argued that the plaintiff failed to disclose this lawsuit in her bankruptcy case, which would result in the FDCPA case being dismissed on judicial estoppel grounds. However, the court found that while the plaintiff omitted the name and specific circumstances of her claims against the defendant, she “put the Bankruptcy Court, trustee, and creditors on notice she had a claim against a creditor and properly sought approval from the Bankruptcy Court before retaining counsel to pursue it.” The court went on to state that if the plaintiff “intended to deceive creditors or others in bankruptcy, filing the Application strayed from that intent,” and that “the filing mitigates any prejudice claimed by [the defendant].”
Florida reminds lenders of their credit reporting requirements under the CARES act
On February 10, the Florida Office of Financial Regulation released a set of “Compliance Tips” reminding lenders and their servicers that they may be required to report certain delinquent loans as “current” pursuant to the CARES Act. The guidance reminds lenders and loan servicers that under the federal CARES Act, those consumers who were not delinquent as of April 1, 2020 and who subsequently received an accommodation and are complying with the accommodation agreement should be reported as “current.” The tips also urged lenders to be proactive with borrowers to resolve credit reporting errors. Lastly, the tips advised lenders to seek out how reporting errors may have been made, and implement additional internal controls to ensure similar errors do not reoccur.
FTC, Florida issue TRO against rate-reduction operation
On July 16, the FTC and the Florida attorney general announced that the U.S. District Court for the Middle District of Florida granted a temporary restraining order against an allegedly fraudulent credit card interest rate reduction operation. According to the complaint, the operation violated the FTC Act, the Telemarketing Sales Rule, and the Florida Deceptive and Unfair Trade Practices act by targeting “financially distressed consumers and older adults” through telemarketing phone calls promising to substantially reduce their credit card interest rates and charging consumers upfront fees, ranging from $995 to $3,995. The operation typically charged the fees “during, or immediately following, the telemarketing call, often by using remotely created payment orders” against the consumer’s checking account or credit card. The complaint asserts that consumers often did not receive permanently reduced credit card interest rates, nor did they save “thousands of dollars on their credit card debt,” as promised. Beyond the temporary restraining order, the FTC is seeking a permanent injunction, restitution, and civil money penalties.