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California Court of Appeal upholds return of $331 million to NMS Deposit Fund despite legislative efforts
On April 2, the California Third District Court of Appeal upheld its July 2018 ruling that the state is required to return $331 million to the National Mortgage Settlement Deposit Fund (NMS Deposit Fund), reaching the same conclusion as it did previously notwithstanding newly enacted legislation. As previously covered by InfoBytes, three groups filed a lawsuit in 2014 against California Governor Jerry Brown and the state’s director of finance and controller alleging they unlawfully diverted money from the NMS Deposit Fund to make bond payments and offset general fund expenditures. The groups sought a writ of mandate compelling the state government to pay back approximately $350 million in diverted funds. After the Superior Court denied the writ, the Third District Court of Appeal reversed, concluding that the money still belongs in the NMS Deposit Fund, and not in the state’s General Fund. The state petitioned to the State Supreme Court for review and while the petition was pending, the governor signed SB 861, which states, “It is the intent of the Legislature…to confirm that allocations and uses of funds made by the director of finance from the National Mortgage Special Deposit Fund pursuant to [section 12531] in the 2011-12, 2012-13, and 2013-14 fiscal years were consistent with legislative direction and intent and to abrogate the holding of the Court of Appeal in [this case]. The Legislature further declares that the allocations made by the director of finance pursuant to [section 12531] were made for purposes consistent with the National Mortgage Settlement.” The Supreme Court directed the Court of Appeal to vacate the July 2018 opinion and reconsider in light of SB 861.
The Court of Appeal, having considered the views of the legislature in SB 861, confirmed its original conclusion from July 2018. Specifically, the court stated that the defendants’ reading of SB 861, “would effectively defeat the purpose of creating a special deposit fund to house the money” and would disregard the former Attorney General’s instructions for use of the settlement money, which was part of the National Mortgage Settlement. The Court of Appeal noted that in SB 861, the legislature declared that “the allocations…were made consistent with the National Mortgage Settlement,” but emphasized that “such a ‘belief is not binding on a court. . . .’” and the interpretation is “an exercise of the judicial power the Constitution assigns to the courts.” Therefore, upon second review, the Court of Appeal again held that the trial court erred when it did not issue a writ of mandate ordering the diverted funds to be returned to the NMS Deposit Fund.
11th Circuit: An implicit threat of litigation is enough to assert a FDCPA claim
On April 5, the U.S. Court of Appeals for the 11th Circuit reversed in part and affirmed in part a district court’s order dismissing a plaintiff’s action alleging a debt collector violated the FDCPA when attempting to collect on a time-barred debt. According to the opinion, the plaintiff brought a lawsuit asserting a debt collector (i) violated the FDCPA’s prohibition on “false, deceptive or misleading” practices under section 1692e; (ii) violated the FDCPA’s prohibition on “unfair or unconscionable” practices under section 1692f by attempting to collect on a time-barred debt; and (iii) violated Florida state collection laws. The district court dismissed the FDCPA claims, concluding that the law allows for collectors to seek “voluntary repayment of…time-barred debt so long as the debt collector does not initiate or threaten legal action,” and declined to exercise jurisdiction over the state law claims once it dismissed the FDCPA claims.
On appeal, the 11th Circuit affirmed the dismissal of the section 1692f claim, rejecting the argument that attempts to collect on time-barred debt are generally unconscionable or unfair under the law. As for the claim under section 1692e, the 11th Circuit concluded the collection letter could plausibly be misleading or deceptive to the “least sophisticated consumer.” Specifically, the 11th Circuit noted that, “as a general matter, a creditor can seek voluntary payment of a time-barred debt,” but the “right to seek repayment does not confer a right to mislead” and one must only “reasonably infer an implicit threat” of litigation to state a claim under section 1692e. The 11th Circuit concluded that the letter’s offer to “resolve” the debt at a discount—“combined with a deadline” to accept the offer—is a “warning” that the offer may not be renewed, and that a lack of disclosure that the debt is time barred could “plausibly deceive or mislead an unsophisticated consumer as to the legal status of the debt, even in the absence of an express threat of litigation.” In reversing the dismissal of the claim under section 1692e, the appellate court also reinstated the state law claim and remanded the case back to district court.
Colorado Court of Appeals reverses law firm penalty for affiliated vendor relationships
On April 4, the Colorado Court of Appeals reversed the trial court’s ruling assessing civil penalties against a foreclosure law firm for allegedly failing to disclose that its principals had an ownership interest in one of its vendors. The appeals court found that the civil penalty was not warranted because the failure to disclose “did not significantly impact members of the public as actual or potential consumers.” According to the opinion, the State of Colorado brought an enforcement action against a foreclosure law firm and its affiliated vendors, alleging, among other things, that the law firm and its vendors violated the Colorado Consumer Protection Act (the Consumer Act) by making “false or misleading statements of fact concerning the price” of their foreclosure services. The State argued that the relationship between the law firm and its vendors allowed the vendors to charge for services in excess of the market rate, pass on those costs to the law firm’s customers, and share a portion of the inflated costs with the law firm. While the trial court rejected two of the State’s claims against the defendants, it concluded that the law firm committed a deceptive practice under the Consumer Act that, “significantly impact[ed] the public as actual or potential consumers,” by failing to disclose its affiliated relationship with one of the vendors.
On appeal, the appellate court rejected the trial court’s conclusion that the alleged deception significantly impacted the public, noting that the deception was confined to two clients, Fannie Mae and Freddie Mac, in the context of their private agreements with the firm. Because the misrepresentation was in the context of a private relationship, and the tax-paying public were not “consumers of the law firm’s services for purposes of the Consumer Act,” the appellate court found the trial court erred when awarding the civil penalties under the Act. Moreover, the appellate court affirmed the trial court’s rejection of the State’s other claims against the law firm.
District Court rejects alarm company’s bid to escape vicarious liability under TCPA
On April 3, the U.S. District Court for the Northern District of West Virginia denied an alarm company’s motion for summary judgment in multi-district litigation consisting of approximately 30 cases alleging the company is vicariously liable for the telemarketing conduct of its authorized retailers in violation of the TCPA. The company moved for summary judgment arguing, among other things, that it is not a “seller” governed by the TCPA and no evidence exists of an agency relationship between the company and the authorized retailers.
The court rejected these arguments, finding a genuine dispute of material fact as to the agency relationship based on “substantial evidence of the [the company’s] control over its dealers’ sales tactics,” including “the right to control the manner and means by which its Authorized dealers sold [the company]’s services and exercis[ed] that control.” Moreover, the court determined that the company was aware of the allegedly unlawful telemarketing calls through “dozens of complaints involving hundreds of consumers” but failed to take measures to address the problem. As for whether the company was considered a “seller” under the TCPA, the court noted that the authorized dealers worked exclusively for the company, the company had the right of first refusal to purchase the contracts sold by the dealers, the company was “totally dependent” on the dealers’ success, and the telemarketing calls were made to increase the flow of consumers to both the dealers and the company, therefore making the company a “seller” under the TCPA.
FTC obtains $50.1 million judgment against publisher; settles deceptive marketing matter
On April 3, the FTC announced that the U.S. District Court for the District of Nevada ordered a publisher and conference organizer and his three companies (defendants) to pay more than $50.1 million to resolve allegations that the defendants made deceptive claims about the nature of their scientific conferences and online journals, and failed to adequately disclose publication fees in violation of the FTC Act. Among other things, the FTC alleged, and the court agreed, that the defendants misrepresented that their online academic journals underwent rigorous peer reviews but defendants did not conduct or follow the scholarly journal industry’s standard review practices and often provided no edits to submitted materials. The court determined that the defendants also failed to disclose material fees for publishing authors work when soliciting authors and often did not disclose fees until the work had been accepted for publication. The court also found that the defendants falsely advertised the attendance and participation of various prominent academics and researchers at conferences without their permission or actual affiliation.
In addition to the monetary judgment, the final order grants injunctive relief and (i) prohibits the defendants from making misrepresentations regarding their publications and conferences; (ii) requires that the defendants clearly and conspicuously disclose all costs associated with publication in their journals; and (iii) requires the defendants to obtain express written consent from any individual the defendants represent as affiliated with their products or services.
On the same day, the FTC also announced a settlement with a subscription box snack service to resolve allegations that the company violated the FTC Act by misrepresenting customer reviews as independent and failing to adequately disclose key terms of its “free trial” programs. Specifically, the FTC alleged that the company provided customers with free products and other incentives in exchange for posting positive online reviews and misrepresented that independent customers made the reviews or posts. The company also allegedly offered “free trial” snack boxes without adequately disclosing key terms of the offer, including the stipulation that if the trial was not canceled on time, the customer would be automatically enrolled as a subscriber and charged the “total amount owed for six months of snack box shipments.” The proposed order, among other things, prohibits the specified behavior and requires the company to pay $100,000 in consumer redress.
5th Circuit: District courts lack jurisdiction over claims arising from FDIC enforcement proceedings
On March 28, the U.S. Court of Appeals for the 5th Circuit held that federal district courts lacked subject matter jurisdiction over claims arising out of certain FDIC enforcement proceedings. According to the opinion, the FDIC brought two enforcement actions against the bank and its directors (plaintiffs), alleging violations of various banking laws and regulations, which resulted in civil money penalties and cease-and-desist orders. The plaintiffs petitioned the 5th Circuit for review. While the first appeal was pending, the plaintiffs filed a lawsuit in federal district court alleging the FDIC committed constitutional violations during the enforcement actions. Specifically, the plaintiffs alleged that the FDIC (i) targeted the bank due to the bank president’s age and denied it equal protection; and (ii) violated due process by preventing the plaintiffs from offering certain evidence and preventing the president’s ability to talk with his counsel at certain times. These allegations were raised and rejected during the FDIC’s second enforcement proceeding. The FDIC moved to dismiss the action for a lack of subject matter jurisdiction, asserting that the statutory review process precludes district court jurisdiction over actions arising from enforcement proceedings. The district court agreed and dismissed the action without prejudice, indicating that the bank could assert its claims in the district court on direct review of the agency’s final order. The bank appealed.
On appeal, the 5th Circuit noted that the language in the statute “virtually compels” it to concede that Congress intended to preclude district court jurisdiction over claims against the FDIC arising from enforcement proceedings. The appellate court then addressed whether the claims raised by the plaintiffs were the type of claims Congress intended to be reviewed within the statutory scheme. The appellate court determined that the Federal Deposit Insurance Act allows for “meaningful judicial review,” by authorizing review of challenges to a final agency order by a federal circuit court. Moreover, the court rejected the plaintiffs’ argument that its claims are “wholly collateral” to the administrative order because they did not challenge the merits of the order but rather, the claims “arise directly from alleged irregularities in the agency enforcement proceedings.” Lastly, the court found that the plaintiffs’ constitutional claims do not fall outside of the agency’s expertise. Based on the foregoing, the court found that the district court correctly dismissed the action.
District Court finds text messages were not sent by autodialer
On March 29, the U.S. District Court for the Northern District of Illinois granted a telecommunication company’s summary judgment motion in a putative TCPA class action involving text messages. The plaintiff asserted that the company sent him text messages asking survey questions, even though he did not consent and was registered on the Do Not Call list. The company argued that it did not use an automated dialing system (autodialer) to send the text messages to the plaintiff. The court agreed. Citing to the D.C. Circuit’s decision in ACA International v. FCC and analyzing the definition of an autodialer under the TCPA, the court concluded that the system used by the company to send the text messages was not an autodialer because it could not “generate telephone numbers randomly or sequentially.” The court also rejected the consumer’s argument that the system had “the capacity” to generate numbers randomly by selecting numbers to dial from a compiled list of accounts, noting that the TCPA “does not support a reading where ‘using a random or sequential number generator’ refers to the order numbers from a list are dialed.”
District Court: Using department store name as creditor is not prohibited under the FDCPA
On March 21, the U.S. District Court for the Southern District of Florida granted a debt collector’s motion for summary judgment in an action alleging that the debt collector violated the FDCPA by failing to name the creditor to whom the debt was owed. According to the opinion, the debt collector sent a consumer an initial demand letter stating it was attempting to collect a debt and named the department store associated with the credit card as the current and original creditor. The consumer initiated an action against the debt collector alleging violations of the FDCPA for failing to specifically name the creditor associated with the department store credit card. Both parties moved for summary judgment. Because the department store’s name was on the credit card, the application, and the billing statements, and consumers are directed to make payments to the department store by mail or online, the court determined that using the creditor’s name “could very well cause confusion and influence a consumer’s decision to pay or challenge the debt.” Using the department store’s name, while potentially a technical misrepresentation, is not a material misrepresentation under the FDCPA because it “would not mislead the least sophisticated consumer or influence a decision about whether to pay or challenge the debt,” as it named the entity the consumer had conducted business with in connection with the debt.
District Court: “Ringless” voicemail is a “call” under the TCPA
On March 25, the U.S. District Court for the Southern District of Florida granted in part and denied in a part a motion to dismiss a putative class action alleging that an auto dealer violated the TCPA by using a “ringless” voicemail platform to leave pre-recorded telemarketing voicemails on consumers’ cell phones without obtaining prior express consent. The defendant moved to dismiss the putative class claims arguing that (i) the plaintiff lacked standing and failed to state a claim because he did not receive a “call” within the meaning of the TCPA; (ii) the plaintiff lacked standing to seek declaratory or injunctive relief; (iii) the TCPA was unconstitutional; and (iv) the complaint failed to adequately allege that the defendant “willfully or knowingly violated the TCPA.”
The court rejected the defendant’s argument that the plaintiff did not receive a “call” as defined by the TCPA, concluding that a ringless voicemail is a call subject to the TCPA restrictions. The court found that the plaintiff had Article III standing because he sufficiently alleged an injury-in-fact and actual harm, including, among other things, invasion of privacy, aggravation, annoyance, and intrusion. The court further found that the plaintiff’s complaint alleged sufficient facts to support the TCPA claim and the allegation that defendant acted willfully or knowingly. The court also rejected defendant’s challenge to the TCPA’s constitutionality. However, the court found the plaintiff could not seek declaratory or injunctive relief because the plaintiff failed to show real and immediate threat of future harm or proffer a basis that would allow the court to infer that the defendant would ever send ringless voicemails again.
CFPB settles with online lead aggregator for $4 million
On March 28, the U.S. District Court for the Central District of California entered a stipulated final judgment and order resolving the CFPB’s allegations against a California-based company for allegedly buying and selling personal information from payday and installment loan applications without properly vetting buyers and sellers. As previously covered by InfoBytes, the CFPB’s December 2015 complaint alleged that, among other things, the company (i) knew or should have known that the lead generators in its network used false or misleading statements to obtain consumer information; and (ii) connected consumers with lenders that offered less favorable loan terms than were otherwise available, did not comply with state usury limits, or claimed they were exempt from state regulation and jurisdiction. The stipulated order requires the company to pay $1 million for consumer redress and $3 million in civil money penalties. Additionally, the company is banned from acting as a lead generator, lead aggregator, or data broker in connection with the offering of certain loans. The company neither admitted nor denied the allegations.