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Financial Services Law Insights and Observations


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  • 3rd Circuit affirms dismissal of NFL season ticket class action


    On August 29, the U.S. Court of Appeals for the 3rd Circuit affirmed the dismissal of a putative class action alleging that an NFL team’s season ticket sales practices had violated the implied covenant of good faith and fair dealing and the New Jersey Consumer Fraud Act (CFA). As previously covered by InfoBytes, the case was centered on the plaintiff’s purchase of a personal seat license (PSL) that “both allows and obligates” him to buy season tickets for particular seats at the team’s home games. The team later began selling seats in the same seating section without requiring PSLs, which the plaintiff alleged made his PSL “valueless” and “‘unsellable’ because defendants are currently giving away for free what cost him $8,000.” The district court dismissed the plaintiff’s claims with prejudice because the plaintiff had received the “reasonably expected fruits under the contract.” 

    On appeal, the 3rd Circuit agreed with the district court that the plaintiff had “received the fruits of his contract” because “[n]othing in the complaint suggests [the plaintiff] has lost the exclusive right to purchase season tickets for these seats” and the fact that the team “might now sell adjacent seats to members of the general public does not implicate [the plaintiff’s] rights and certainly does not strip him of the benefit for which he bargained.” Regarding the value of his PSA, the appellate court noted that when purchasing the PSL, the plaintiff represented that he was not acquiring it as an investment and had no expectation of profit. Finally, with regard to the CFA claim, the appellate court held that “simply changing the terms on which defendants sell other seats in the stadium is not misleading.”

    Courts Appellate Third Circuit Class Action State Issues Contracts

  • 3rd Circuit: Proof of written agreement needed for TILA claims


    On August 20, the U.S. Court of Appeals for the 3rd Circuit concluded that a plaintiff failed to adequately allege the existence of a written agreement for his deductible payment plan and therefore, his surgery institute did not violate TILA’s disclosure requirements. According to the opinion, the day before his surgery, the surgery institute orally agreed to accept a partial deductible payment and agreed to permit the plaintiff to pay the remaining deductible requirements in monthly installments. The plaintiff received two emails, one confirming the initial payment and the other confirming the payment plan and listing the plaintiff’s credit card. The institute performed the surgery, but the plaintiff failed to make any further payments on the deductible. Instead, the plaintiff filed an action against the institute alleging it violated TILA by extending credit and failing to provide the required disclosures. The district court granted judgment on the pleadings for the institute, concluding that the plaintiff' failed to establish a written agreement for the extension of credit. The court also issued sanctions, in the form of attorneys’ fees, against the plaintiff’s counsel, reasoning the counsel could have reasonably discovered the lack of written agreement and lack of payment before initiating the action.

    On appeal, the 3rd Circuit affirmed in part and reversed in part in the district court’s judgment. The appellate court agreed with the district court that the plaintiff failed to establish the existence of a written agreement for credit with the institute, noting “the requirement of a written agreement [under TILA] is not satisfied by a ‘letter that merely confirms an oral agreement.’” But the appellate court noted that the district court erred in relying on an admission to that effect by plaintiff’s counsel during a telephone conference. Nonetheless, the error was “harmless” because the plaintiff failed to establish a written agreement was executed and signed, stating “[n]owhere does he allege that he signed a written agreement, and the [] email correspondence was merely ‘confirming’ the ‘previously discussed’ agreement." The appellate court then reversed the district court’s sanctions ruling, concluding it abused its discretion when it imposed them.

    Courts Appellate Third Circuit TILA Regulation Z Disclosures

  • Accurate adverse reporting not a violation of FCRA, says 3rd Circuit


    On August 15, the U.S. Court of Appeals for the 3rd Circuit affirmed summary judgment in favor of a credit reporting agency (CRA), concluding that the CRA did not violate the Fair Credit Reporting Act (FCRA) by reporting past negative incidents. According to the opinion, after struggling financially, a married couple missed payments on at least five credit accounts. The consumers allegedly resolved the late payments and filed complaints with the CRA arguing the continued presence of the late payments misrepresented the “real status of their credit.” Additionally, the consumers argued some of the “key factors” the CRA discloses to credit providers, “such as ‘[s]erious delinquency’ or ‘[a]mount owed on revolving [a]ccounts is too high,’ are misleading.” The consumers filed suit against the CRA, alleging a variety of federal and state law claims, including violations of the FCRA for failing to maintain reasonable procedures and failing to conduct a reasonable investigation into disputes. The district court granted summary judgment in favor of the CRA and the consumers appealed their FCRA claims.

    On appeal, the 3rd Circuit agreed with the district court, concluding the consumers must show their credit report contains inaccurate information to prevail on their claims, which the consumers failed to do. The panel noted the consumers admitted they made the late payments and did not allege the adverse information is more than seven years old. The panel concluded the consumers’ claim “is not that the information in their credit reports and disclosures is inaccurate, but rather that it is irrelevant,” which does not support their claims for a violation under the FCRA.

    Courts FCRA Appellate Third Circuit Credit Reporting Agency Credit Report

  • 3rd Circuit: QR code on debt collection letter violates FDCPA


    On August 12, the U.S. Court of Appeals for the 3rd Circuit affirmed a district court ruling that an envelope containing an unencrypted “quick response” (QR) code that revealed a consumer’s account number when scanned violated the FDCPA. The plaintiff in this case received an envelope containing a collection letter with a printed QR code that, when scanned, revealed the internal reference number associated with the plaintiff’s account. The plaintiff filed a class action lawsuit, and the district court granted summary judgment for the plaintiff, finding that printing the QR code was no different than printing the account number on the envelope, which is a violation of the FDCPA. The defendant appealed, arguing, among other things, that (i) the plaintiff had not suffered a concrete injury; (ii) the QR code would have to be unlawfully scanned in order to obtain the account information; and (iii) the defendant’s conduct was covered under the FDCPA’s bona fide error defense, because it “erred by using industry standards for processing return mail.”

    On appeal, the 3rd Circuit affirmed the district court’s ruling. Specifically, the appellate court found that, with respect to injury, the plaintiff was not required to demonstrate that anyone actually intercepted the letter or scanned the QR code to determine that the contents related to debt collection—disclosure of the account number is itself the harm. The appellate court also rejected the defendant’s argument that someone needed to unlawfully scan the barcode, finding that there is no material difference between printing a QR code or printing an account number directly on an envelope because protected information was made available to the public. The appellate court also rejected the defendant’s bona fide effort defense, stating that the defendant misunderstood its FDCPA obligations and the printing of the QR code had not been the result of a clerical mistake or accident.

    Courts Third Circuit Appellate FDCPA Debt Collection Class Action

  • 3rd Circuit: FCA claims not barred by state’s equitable “entire controversy” doctrine


    On August 12, the U.S. Court of Appeals for the 3rd Circuit vacated the dismissal of a relator’s qui tam action, concluding that the federal action was not barred by New Jersey’s equitable entire controversy doctrine. In the case, an employer brought a defamation and disparagement suit against a former employee, and while the suit was pending, the employee brought a qui tam action under the False Claims Act (FCA) against the employer on behalf of the United States and the state of New Jersey. The qui tam action remained under seal for over seven years while the government investigated the action. During this time, the employer’s state court action against the employee was dismissed after the parties entered into a settlement agreement. After the government chose not to intervene in the FCA action, and the district court unsealed the complaint, the employee chose to proceed. The district court granted summary judgment in favor of the employer, finding that New Jersey’s “entire controversy” doctrine requires claims arising from related facts or transactions to be adjudicated in one action.

    On appeal, the 3rd Circuit concluded that New Jersey’s entire controversy doctrine did not apply to the employee’s qui tam action because, in FCA cases, the U.S. is the real party in interest. The appellate court noted that concluding otherwise would essentially allow the employee to “unilaterally negotiate, settle, and dismiss the qui tam claims during the Government’s investigatory period.” Moreover, the appellate court found that application of the doctrine “would incentivize potential [FCA] defendants to ‘smoke out’ qui tam actions by suing potential relators and then quickly settling those private claims,” in order to bar a potential qui tam action.

    Courts False Claims Act / FIRREA Appellate Third Circuit State Issues

  • 3rd Circuit: Debt collector cannot enforce original creditor’s arbitration agreement


    On July 12, the U.S. Court of Appeals for the 3rd Circuit affirmed the denial of a debt collector’s motion to compel arbitration, concluding the debt collector did not establish authority to enforce the arbitration agreement made between the consumer and the original creditor. According to the opinion, a consumer executed a credit card agreement with a creditor containing an arbitration clause. After the consumer fell behind on her payments, her account was referred to the debt collector for collection. The consumer filed suit against the debt collector, alleging that one of the collection letters violated the FDCPA by “failing to inform her whether interest would continue to accrue on her account.” The debt collector moved to compel arbitration based on the provision in the consumer’s credit card agreement with the original creditor, under a third-party beneficiary, agency, or equitable-estoppel theory. The district court rejected each theory and denied the motion, concluding that (i) the agreement did not “evince an intent to benefit” the debt collector; (ii) the FDCPA claim “did not bear a sufficient nexus to the credit-card agreement”; and (iii) the debt collector could not equitably estop the consumer from resisting arbitration under the 3rd Circuit’s previous interpretation of South Dakota law.

    On appeal, the 3rd Circuit agreed with the district court. The appellate court noted that the debt collector failed the test to enforce an agreement as a third-party beneficiary under South Dakota law, because the debt collector failed to establish that the original creditor and its consumers “would not have entered the card agreement but for the intent to benefit debt collectors.” As for the debt collector’s agency theory, the appellate court stated that the debt collector did not cite, and the court did not find, “South Dakota authority adopting a freestanding ‘agency’ theory of third-party enforcement.” Further, the appellate court noted that the debt collector’s arguments would fail under the South Dakota test for equitable estoppel and, therefore, the appellate court had “no basis to conclude that South Dakota would allow [the debt collector], as a non-signatory, to enforce [the original creditor]’s arbitration agreement with its customers.”

    Courts Appellate Third Circuit FDCPA Arbitration Debt Collection

  • 3rd Circuit: Collection letter failed to properly identify creditor in violation of FDCPA


    On July 10, the U.S. Court of Appeals for the 3rd Circuit reversed the dismissal of a FDCPA action against a debt collector, holding that the collection letter failed to apprise the least sophisticated debtor of the creditor’s identity. The complaint alleges that the debt collector “failed to identify ‘the name of the creditor to whom the debt is owed’” as required by the FDCPA because the letter listed “at least four entities” that were connected in some way to the debt. The district court dismissed the complaint, concluding the debt collector sufficiently identified the creditor.

    On appeal, the 3rd Circuit concluded that the letter failed to notify the least sophisticated debtor of the creditor’s identity for three reasons: (i) the letter did not expressly state that the bank was  the creditor or the owner of the debt; (ii) the letter identified the bank as the “assignee of” three other financial entities and “assignee” is a legal term that does not assist a debtor in understanding the relationships between the parties; and (iii) the letter as a whole failed to sufficiently identify the bank as the creditor, as the reference to three other entities “‘overshadowed’ the creditor’s identity.” The appellate court concluded that the letter failed to properly disclose the creditor and therefore, violated the FDCPA, reversing the district court’s dismissal of the complaint.

    Courts Debt Collection Third Circuit Appellate FDCPA Least Sophisticated Consumer

  • 3rd Circuit: Each premium payment could violate RESPA’s prohibition on kickbacks


    On June 19, the U.S. Court of Appeals for the 3rd Circuit affirmed the dismissal of a RESPA class action against a national bank, concluding the suit was not timely filed. According to the opinion, two consumers took out mortgages with the bank in 2005 and 2006. In 2011, the consumers were part of the putative class in a separate class action, alleging the bank violated RESPA by referring homeowners to mortgage insurers that then obtained reinsurance from a subsidiary of the bank, which the consumers claimed amounted to a kickback. After the class action was dismissed as untimely in 2013 and while it was pending appeal, the consumers filed a new class action as the named plaintiffs, which alleged the same violation of RESPA. The consumers argued that, while RESPA has a one-year statute of limitations, (i) RESPA makes each kickback a separately accruing wrong and that the insurers paid a kickback for each insurance premium payment, therefore, the suit is timely up to one year after the last premium payment and kickback; and  (ii) the filing of the first class action tolled the limitation period for their claims and because the class action continued until November 2013, tolling extended their limitations period until then.

    The appeals court upheld the district court’s dismissal of the action, agreeing with the consumers’ separate-accrual theory, but noting that the consumers paid no premiums in the year before they filed their complaint, so the limitations period had expired before the consumers filed the new action. Specifically, the appellate court rejected the bank’s argument that RESPA’s statute of limitations runs only from the mortgage closing, not from each later premium payment, holding that under RESPA the limitations period accrues separately for each kickback, stating “[s]o a party violates the Act anew each time it takes the discrete act of giving or receiving a kickback under an agreement to make referrals.”

    As for whether the 2011 class action tolled the consumers’ claims, the appellate court cited the Supreme Court’s 2018 opinion in China Agritech, Inc. v. Resh, noting that the Court in that case held that such tolling is only available for individual claims, not class claims. The appellate court rejected the consumers’ arguments that China Agritech does not apply to new class claims filed before the first action has officially ended, stating, “[t]olling new class actions filed while the first one was pending would encourage more plaintiffs to seek second bites at the apple.” Because the consumers’ action was not timely filed, the appellate court affirmed the district court’s dismissal.


    Courts RESPA Appellate Third Circuit Statute of Limitations Kickback Class Action

  • 3rd Circuit: Commercial purpose does not make unsolicited fax an advertisement under TCPA


    On May 28, the U.S. Court of Appeals for the 3rd Circuit, in a consolidated action, affirmed summary judgment that a health care provider database company’s (defendant) unsolicited fax did not violate the TCPA. According to the opinion, the defendant updated its database by sending unsolicited faxes to healthcare providers, requesting that they voluntarily update their contact information, if necessary. The fax included disclaimers that there was no cost to the recipient for participating in the database maintenance initiative and that it was not an attempt to sell a product. The plaintiff sued the defendant alleging a state law claim and that the fax violated the TCPA’s prohibition on sending unsolicited advertisements by fax. The district court entered summary judgment in favor of the defendant and declined to exercise jurisdiction over the state law claim.

    On appeal, the 3rd Circuit affirmed the district court’s judgment, rejecting the plaintiff’s third-party liability argument that the fax should be regarded as an advertisement, even though he was not a purchaser of the company’s services. The 3rd Circuit held that to establish third-party based liability under TCPA, the “plaintiff must show that the fax: (1) sought to promote or enhance the quality or quantity of a product or services being sold commercially; (2) was reasonably calculated to increase the profits of the sender; and (3) directly or indirectly encouraged the recipient to influence the purchasing decisions of a third party.” The appellate court found that, even though the defendant had a “profit motive” in sending the fax because it wanted to improve the quality of its product by making its database more accurate, “the faxes did not attempt to influence the purchasing decisions of any potential buyer,” nor did the fax encourage the recipient to influence the purchasing decisions of a third party.

    Courts Appellate Third Circuit TCPA

  • 3rd Circuit holds trustee not liable for RMBS losses


    On May 21, the U.S. Court of Appeals for the 3rd Circuit affirmed the trial court’s dismissal of an investor action against Residential Mortgage-Backed Securities (RMBS) trustees, concluding the investors failed to show that the trustees breached any duties owed under the governing documents. According to the opinion, investors filed suit against the owner trustee for fifteen RMBS trusts, which became “worthless in the wake of widespread loan defaults,” claiming breach of contract and the implied covenant of good faith. The investors argued the trustee (i) abdicated its responsibilities relating to the loan files; (ii) failed to provide written notice of default; and (iii) failed to intervene when other parties exercised their duties carelessly. The trial court dismissed all claims against the trustee.

    On appeal, the appellate court concluded the trial court correctly dismissed the claims. Specifically, the appellate court noted that under the trusts’ governing documents, the trustee was acting as an “owner trustee,” which was “primarily ministerial, involving limited duties such as executing documents on behalf of the trusts and accepting service of legal process.” The trustee did not have an overarching duty to protect the trusts, as it agreed “to perform only the modest functions” under the governing agreements and therefore, was shielded from that general liability. The appellate court concluded that the investors failed to show the trustee breached any actual duties owed under the governing agreements, rejecting the investors’ three specific claims for breach of contract. Moreover, the court emphasized that the governing agreement “forecloses the implied duty [the investors] propose,” noting that the trustee negotiated for limited liability and received a fee in exchange for modest functions, making it “difficult to imagine” the trustee would willingly agree to “sweeping supervisory responsibility.”

    Courts Appellate Third Circuit RMBS Mortgages


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