Skip to main content
Menu Icon Menu Icon
Close

InfoBytes Blog

Financial Services Law Insights and Observations

Filter

Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • Fourth Circuit Permits DOJ to Reject FCA Settlement After Government Declined to Intervene; Declines to Reach Issue of Statistical Sampling

    Courts

    In an opinion handed down on February 22, the Court of Appeals for the Fourth Circuit decided that the DOJ retains an unreviewable right to object to a proposed settlement agreement between a relator and a defendant even after the Government has declined to intervene in the case. See United States ex rel. Michaels v. Agape Senior Community, Inc., No. 15-2147 (4th Cir. Feb 14, 2017). The case concerned a qui tam relator who had alleged that Agape Senior Community and associated entities violated the FCA by submitting false claims to federal health care programs for nursing home related services that were not provided or provided to patients that were not eligible for them. After the Government declined to intervene in the case, the relator agreed to settle with defendants. However, the DOJ objected to the proposed settlement under 31 U.S.C. § 3730(b)(1)—which provides that an FCA lawsuit “may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting”—arguing, among other things, that “the settlement amount was “appreciably less than . . . the Government’s estimate of total damages.”

    The Fourth Circuit concluded that, while a relator has the right to pursue his or her FCA claim after the United States declines to intervene, “the Attorney General possesses an absolute veto power over voluntary settlements in FCA qui tam actions.” In reaching this conclusion, the appellate panel emphasized the fact that, in an FCA case, the United States Government is a real party in interest, and, as such, it suffered damages as a result of the fraudulent conduct at issue. The holding largely aligns with existing Fifth and Sixth Circuit precedent, establishing an absolute veto power for the United States over settlements in declined FCA cases. However, the ruling stands at odds with the Ninth Circuit standard set forth in U.S. ex rel. Killingsworth v. Northrop Corp., 25 F.3d 715 (9th Cir. 1994), which ruled that, once it has declined to intervene, the Government can object to a proposed settlement only for “good cause,” and a settlement agreement may be invalidated only following a hearing to determine if the settlement is fair and reasonable.

    On the issue of statistical sampling, the district court had determined that the use of statistical sampling evidence would be improper when a case turns on the medical necessity for individual patients. Though the issue was certified for interlocutory review, the Appellate panel declined to decide this issue because, among other reasons, the use of statistical sampling is not a pure question of law and, as such, interlocutory review had been “improvidently granted.”

    Additional information and materials covering the FCA, the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), and the Program Fraud Civil Remedies Act (PFCRA) can also be found in BuckleySandler’s False Claims Act and FIRREA Resource Center.

    Courts False Claims Act / FIRREA DOJ Appellate

    Share page with AddThis
  • Federal District Court Allows Discovery in Class Action Concerning Internet Company’s Collection of Biometric Data

    Privacy, Cyber Risk & Data Security

    In a Memorandum Opinion and Order handed down on February 27, a District Court in the Northern District of Illinois declined to dismiss a putative class action alleging that a cloud-based photographic storage service offered by an Internet company (the Company) violated the Illinois Biometric Information Privacy Act (BIPA) by automatically uploading plaintiffs’ mobile photos and allegedly scanning them to create unique face templates (or “faceprints”) for subsequent photo-tagging without consent.  Specifically, the Court rejected the Company’s argument that application of BIPA to facial geometry scanning by by an internet service located outside of Illinois is an improper extraterritorial application of Illinois law. 

    The Plaintiffs alleged that the Company failed to both (i) obtain the necessary authorization or consent to the creation and subsequent storing of “faceprints” by the photo storage service, or (ii) make publicly available a data retention and destruction schedule as required under the BIPA.  In responding to these claims, the Company argued that the term “biometric identifier,” as defined in the BIPA, does not extend to “in-person scans of facial geometry” and does not cover photographs or information derived from photographs.  The Company also sought to dismiss the case on jurisdictional grounds, arguing that under principles of federalism, pre-emption, and the extra-jurisdictional application of state law, the BIPA cannot properly regulate activity – such as the storage of data on the Company’s servers – that does not occur “primarily and substantially” within the state of Illinois.

    In analyzing the Company’s argument, the Court looked to the following two definitions set forth in the Illinois law:

    • “Biometric identifier,” which is defined as “a retina or iris scan, fingerprint, voiceprint, or scan of hand or face geometry” and explicitly “do[es] not include writing samples, written signatures, photographs. . . .”; and
    • “Biometric information,” which is defined as “any information, regardless of how it is captured, converted, stored, or shared, based on an individual’s biometric identifier used to identify an individual,” and explicitly “does not include information derived from items or procedures excluded under the definition of biometric identifiers.” 

    Ultimately, the Court disagreed with the Company’s reading of “biometric data” because, among other reasons, “nothing in the text of [the BIPA] directly supports this interpretation.”  The Court deferred deciding on the Company’s arguments that the claims would require extraterritorial application of the statute and/or would violate the Dormant Commerce Clause by reaching beyond state boundaries, because, among other reasons, “[d]iscovery is needed to determine whether there are legitimate extraterritoriality concerns.”

    On March 9, the Company filed a motion seeking permission to file an interlocutory appeal to the Seventh Circuit, with a request for a stay of further proceedings pending the appellate court’s decision on the request for an appeal.  

    Privacy/Cyber Risk & Data Security Courts State Issues Biometric Data

    Share page with AddThis
  • Federal Court in North Dakota Dismisses CFPB Complaint Against Payment Processor for Insufficient Factual Allegations

    Courts

    In an Order issued on March 17, a U.S. District Court for the District of North Dakota dismissed an enforcement action filed by the CFPB against a payment processor and its two top executives.  The Bureau had filed the lawsuit last year against a Fargo-based third-party payment firm, and its co-owners, alleging that the firm had “ignored” warnings from financial institutions of possible unauthorized debits and other possibly suspicious activity, including the possibility that the firm was processing electronic funds transfers on behalf of payday lenders in states where payday loans are illegal. 

    In granting Defendants’ motion to dismiss without prejudice, the Court held, among other things, that the CFPB had failed to “plead[] facts sufficient to support the legal conclusion that consumers were injured or likely to be injured” by the actions attributed to the defendants in the complaint.  As explained by the Court, "[a]lthough the complaint need not contain detailed factual allegations, it must contain 'more than an unadorned, the-defendant-unlawfully-harmed-me accusation.”  The Court emphasized both that (i) “[f]ormulaic recitations of the elements of a claim or assertions lacking factual enhancement are not sufficient,” and (ii) that “[t]he facts alleged in the complaint must be plausible, not merely conceivable.”  Applying this standard, the Court ultimately held that the CFPB’s complaint “d[id] not contain sufficient factual allegations to back up its conclusory statements regarding Intercept’s allegedly unlawful acts or omissions.”

    Courts CFPB Payment Processors Payday Lending

    Share page with AddThis
  • 9th Circuit Panel Reverses and Remands Dismissal of Pro Se Plaintiff’s Breach of Contract Claim in Connection with Bank’s Trial Loan Modification Process

    Courts

    In an opinion filed on March 13, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit reversed and remanded a district court’s dismissal of a homeowner-plaintiff’s breach of contract claim against a major bank for damages allegedly suffered when she unsuccessfully attempted to modify her home loan over a two-year period. Oskoui v. J.P. Morgan Chase Bank, N.A., [Dkt No. 47-1] Case No. 15-55457 (9th Cir. Mar. 13, 2017) (Trott, S.). The court also remanded with instructions to permit the pro-se plaintiff to amend her complaint to allege a right to rescind in connection with her previously-dismissed TILA claim in light of the Supreme Court’s January 2015 decision in Jesinoski v. Countrywide Home Loans, Inc. And, finally, the panel affirmed the district court’s ruling that the facts alleged demonstrated a claim under California’s Unfair Competition Law (“UCL”) because, among other reasons, the factual record supported a determination that the bank knew or should have known that the homeowner was plainly ineligible for a loan modification; yet, the bank encouraged her to apply for modifications (which she did), and collected payments pursuant to trial modification plans. 

    In reversing and remanding the district court’s ruling dismissing the breach of contract claim, the Ninth Circuit pointed to the styling on the first-page of the complaint—“BREACH OF CONTRACT”—along with allegations about the explicit offer language contained in the bank’s trial modification documents.  The Ninth Circuit relied on the Seventh Circuit’s opinion in Wigod v. Wells Fargo, which it identified as the “leading federal appellate decision on this issue of contract,” to “illuminate the viability” of plaintiff’s breach of contract claim in connection with trial plan documents.  673 F.3d 547 (7th Cir. 2012). The Ninth Circuit remanded the claim with instructions to permit the plaintiff to amend if necessary in order to move forward with her breach of contract claim.

    Courts Lending TILA UDAAP Appellate Mortgages CA UCL

    Share page with AddThis
  • In a Split Decision, D.C. Circuit Denies John Doe Company’s Request to Remain Anonymous Pending Appeal Challenging CFPB Subpoena; Judge Kavanaugh Dissents, Reiterates Critique of CFPB

    Courts

    On March 3, 2017, the U.S. Court of Appeals for the District of Columbia Circuit denied the request of an anonymous California-chartered, finance company based in the Philippines to remain anonymous pending the resolution of its challenge to a CFPB administrative subpoena. See John Doe Co. v. CFPB, March 3, [Order] No. 17-5026 (D.C. Cir. Mar. 3, 2017) (per curiam). In a 2-1 decision, the court found that the company had failed to show either that it was likely to succeed on the merits of its challenge to the CFPB’s constitutionality, or that it was likely to suffer irreparable harm from being identified as being under investigation. In denying the company’s motion, the panel majority emphasized, among other things, the fact that “[t]he Company’s sole argument regarding likelihood of success on the merits before this court and the district court has been to point to the now-vacated majority opinion in PHH.”   Judge Kavanaugh—who  back in October, assailed the “massive, unchecked” power of the single director-led CFPB—filed a dissenting opinion, in which he reiterated his call for how to fix the CFPB: namely, giving the president greater power to remove the agency’s director.

    As previously covered on InfoBytes, back in January, the John Doe finance company filed an action seeking to set aside or keep confidential a “civil investigative demand” served on the Company by the CFPB as part of an industry-wide investigation against companies that buy and sell income streams. The Company argued both that the CFPB had strayed outside the scope of its authority, and that in light of the pending challenge to the constitutionality of its structure in a separate case (PHH v CFPB), the Bureau should be barred from pursuing any investigation until the questions about its constitutionality are resolved. Fearing that the CFPB would post documents on its website revealing its identity, the company also sought a temporary restraining order to enjoin the CFPB from, among other things, disclosing the existence of its investigation and taking any action against the company unless and until the CFPB is constitutionally structured. John Doe Co. v. CFPB, D.D.C., No. 17-cv-00049 (D.D.C. Jan. 10, 2017). As covered in a recent BuckleySandler Special Alert, however, the D.C. Circuit on February 16, vacated the October 2015 panel decision in PHH v CFPB and will now rehear the case en banc.

    Courts Consumer Finance CIDs John Doe v CFPB PHH v. CFPB Litigation Single-Director Structure

    Share page with AddThis
  • Two Trade Associations File Notices of Intent to Submit Amicus Briefs in PHH v. CFPB

    Courts

    On March 8 and 9, two separate Notices of Intention to Participate as Amicus Curiae were filed in PHH Corp. v. CFPB. The first was filed by ACA International, a trade association for the credit and collections industry. The second was filed on behalf of the following parties: American Bankers Association; American Escrow Association; American Financial Services Association; Consumer Bankers Association; Credit Union National Association; Housing Policy Council of the Financial Services Roundtable; Independent Community Bankers of America; Leading Builders of America; Mortgage Bankers Association; National Association of Federally- Insured Credit Unions; National Association of Home Builders; National Association of REALTORS; and Real Estate Services Providers Council. Nearly all of the associations listed above filed either joint or separate amici briefs at the panel stage and believe that “the en banc Court will be aided by a brief addressing how the Bureau’s Order not only contravenes RESPA’s statutory text, governing regulations, and applicable policy statements, but also how the Order’s violation of fair-notice principles disrupts the critically important home-lending market.”

    Courts CFPB PHH v. CFPB RESPA Mortgages Litigation

    Share page with AddThis
  • Trump Administration Given March 17 Filing Date for Amicus Brief in PHH v CFPB; Requests to Intervene by Outside Organizations Denied by D.C. Circuit

    Consumer Finance

    On March 7, the U.S. Court of Appeals for the D.C. Circuit granted the United States’ unopposed motion, filed through the Office of the Solicitor General (“SG”), which requested an extension to file its amicus brief in PHH Corp. v. CFPB. Notably, amicus briefs supporting PHH must be filed by March 10 and those supporting the CFPB must be filed by March 31. The fact that the United States’ motion requested an extension until March 17—before the deadline for briefs supporting the CFPB—signals that the SG may present arguments supporting PHH that differ both from the CFPB and from the positions previously presented by the Obama Administration in briefing submitted on behalf of the United States back in December.

    As previously covered in InfoBytes, late last year the D.C. Circuit invited briefing by the SG’s office on behalf of the United States (note that the SG does not represent the CFPB; the Bureau is legally permitted to litigate on its own behalf.) The then Obama-led SG’s office took the position that the case should be reheard by the en banc court because, among other reasons, (i) the majority’s reasoning misapplied Supreme Court precedent on separation of powers issues and/or (ii) the panel majority should not have reached the constitutional issue. Now under the Trump Administration, the DOJ hinted that it may revise its positions with respect to both the constitutionality of the CFPB’s single-director-removable-only-for-cause structure, and, if it chooses, the merits of PHH’s argument that the Bureau’s RESPA interpretation was incorrect. Indeed, the short motion asserted, among other things, that “the views of the United States on matters involving the President’s removal power are not always entirely congruent with the views of independent agencies.”

    Also on March 7, the D.C. Circuit issued a separate order denying three pending “motions and alternative requests” seeking to intervene, or in the alternative, hold in abeyance requests to intervene submitted by the Democratic Ranking Members of the Senate and House Committees with jurisdiction over the CFPB, 16 State Attorneys General, a coalition of consumer interest groups, and two conservative advocacy groups working with State National Bank of Big Spring.

    Consumer Finance PHH v. CFPB Courts CFPB U.S. Solicitor General Trump DOJ RESPA Mortgages Litigation Single-Director Structure

    Share page with AddThis
  • Special Alert: Madden Class Action Moves Forward

    Courts

    On February 27, the U.S. District Court for the Southern District of New York issued a ruling in Madden v. Midland Funding, LLC,[1] holding that New York’s fundamental public policy against usury overrides a Delaware choice-of-law clause in the plaintiff’s credit card agreement.  The court allowed the plaintiff to proceed with Fair Debt Collection Practices Act (“FDCPA”) claims (and related state unfair or deceptive acts or practices claims) against the defendants, a debt buyer that had purchased the plaintiff’s charged-off credit card debt and its affiliated debt collector.  The court did not allow plaintiff’s claims for violations of New York’s usury law to proceed, as it held that New York’s civil usury statute does not apply to defaulted debts and that the plaintiff cannot directly enforce the criminal usury statute.  The court also granted the plaintiff’s motion for class certification.


    [1] No. 11-CV-8149, 2017 WL 758518 (S.D.N.Y. Feb. 27, 2017).


    Click here to read full special alert

    * * *

    If you have questions about the ruling or other related issues, visit our Class Actions practice for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.

    Courts Usury FDCPA Debt Collection Class Action Special Alerts Madden

    Share page with AddThis
  • District Court Advances Securitization Case Involving N.Y. State Usury Law

    Courts

    On February 27, a U.S. District Court in White Plains, N.Y. issued an Order ruling on motions for summary judgment and class certification in a consumer class-action against a debt collection company that purchased defaulted consumer debt from a national bank, and its affiliate, which sought collection of debt charged at a rate in excess of New York state usury limits. Midland Funding v. Madden, [Opinion & Order] No. 11-CV-8149 (CS) (S.D.N.Y. Mar. 1, 2017).

    As previously covered by InfoBytes, the district court had originally ruled in Defendants’ favor, holding that the National Banking Act (NBA) preempted state law usury claims against purchasers of debt from national banks. The Second Circuit, however, overturned that ruling in a May 2015 opinion to the extent it relied on the NBA, but remanded the case for a determination whether Delaware choice of law provisions in the credit agreement precluded the Plaintiff’s claims because the rates were not usurious in Delaware.

    Now, revising the issue on remand, the District Court held that New York’s criminal usury cap (but not the civil usury) applies to Plaintiff’s defaulted debt, notwithstanding the Delaware choice of law provision. The Court reasoned that New York does not follow the “rule of validation” (calling for courts to assume the parties intended to enter into a valid contract and apply the law of the state whose usury law would sustain it). The Court concluded, therefore, that the Plaintiff could predicate her FDCPA claims on a violation of New York’s criminal usury cap. Based on the foregoing, the Court granted partial summary judgment for the Defendant. The court also granted, but modified, Plaintiff’s request for class certification.

    Courts Consumer Finance Debt Collection Class Action FDCPA National Bank Act Usury Madden

    Share page with AddThis
  • Chairman of House Judiciary Committee Introduces Major Litigation Reform Bill

    Federal Issues

    In February, Representative Bob Goodlatte (R-Va.) introduced a new bill (H.R. 985) designed to “assure fairer, more efficient outcomes for claimants and defendants” in class-action and multi-district litigation. Dubbed the “Fairness in Class Action Litigation Act of 2017,” the proposed legislation would add a number of new hurdles and disclosure requirements that must be satisfied in connection with any case seeking class certification in federal court.

    Among other things, the proposed law would: (i) provide for mandatory disclosures designed to prevent the approval of class actions in which the lawyer representing the class is a relative of a party in the class action suit; (ii) require that “any third-party funding agreement be disclosed to the district court”; and (iii) require federal circuit courts to accept any appeals of district court orders granting or denying class certification. In addition, for plaintiffs seeking “monetary relief,” the law would add an express requirement that the plaintiff “affirmatively demonstrate that each proposed class member suffered the same type and scope of injury as the named class representative.” Moreover, the bill also seeks to address disproportionately large attorney’s fee awards by, among other things, limiting class counsel’s fees to a “reasonable percentage” of the total amount of payments both “distributed to and received by class members,” and, similarly capping the total fee award to no more than that  “received by all class members.”   

    Rep. Goodlatte—who is currently serving as Chairman of the House Judiciary Committee—also authored the Class Action Fairness Act of 2005 and was also behind another class action reform bill introduced in 2015 that failed to clear the Senate . As explained by the Chairman, the proposed legislation “seeks to maximize recoveries by deserving victims, and weed out unmeritorious claims that would otherwise siphon resources away from innocent parties.”

    Federal Issues Courts Class Action House Judiciary Committee

    Share page with AddThis

Pages