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Virginia district judge holds RESPA early intervention requirements confer private right of action
On February 20, a judge for the U.S. District Court for the Western District of Virginia ruled that the early intervention requirements of RESPA allow for a private right of action to pursue claims against loan servicers. According to the opinion, consumers filed a complaint against a mortgage servicer for allegedly violating RESPA’s early intervention requirements under Regulation X, Section 1024.39, which require the servicer to “establish or make good faith efforts to establish live contact with a delinquent borrower not later than the 36th day of the borrower’s delinquency” and promptly inform the borrower of potential loss mitigation options. The servicer filed a motion to dismiss the action for failure to state a claim, arguing that Section 1024.39 does not provide a private right of action. In denying the motion to dismiss, the court concluded that the CFPB adopted Section 1024.39 pursuant to Section 6 of RESPA, which expressly provides a private right of action and therefore, Section 1024.39 had been intended to convey a private right of action as well.
Texas Supreme Court says borrowers must arbitrate with payday lender
On February 23, the Texas Supreme Court affirmed a state appeals court panel decision which found that borrowers’ claims in a class action alleging a payday lender’s wrongful use of the criminal justice system to collect unpaid debts were subject to an arbitration agreement in their loan contracts with the payday lender. According to the opinion, the borrowers entered into loan contracts with the payday lender and used postdated checks as security for the loans. The payday lender deposited the postdated checks after the borrowers defaulted on their payment obligations, which resulted in the checks being returned for insufficient funds. The borrowers were then charged by the State of Texas for the issuance of bad checks and the charges were ultimately dismissed. The borrowers filed a class action lawsuit against the payday lender alleging the wrongful use of the criminal justice system to collect on their unpaid loans and asserted violations of, among other things, the Deceptive Trade Practices Act and Consumer Protection Act. The trial court denied the payday lender’s motion to compel arbitration because the court found that the class action allegations related to the use of the criminal justice system and not the underlying loan contract, and that the payday lender waived its right to arbitration by invoking the judicial process. Upon appeal, the panel versed the trial court’s decision. In affirming the appeals court panel holding, the Texas Supreme Court agreed that the class action suit was “factually intertwined with the loan contracts” and therefore, the arbitration provision applied and there was insufficient evidence to support the trial court’s holding that the payday lender waived its right to arbitrate.
Buckley Special Alert: Supreme Court limits definition of “whistleblower” in potentially hollow victory for public companies
On February 21, the U.S. Supreme Court issued its opinion in Digital Realty Trust, Inc. v. Somers, a long-anticipated case that clarifies who is protected as a “whistleblower” under the Dodd-Frank Act’s anti-retaliation provisions. In a unanimous decision penned by Justice Ginsburg, the Court held that the Dodd-Frank Act protects an individual only if he or she has reported a securities law violation to the U.S. Securities & Exchange Commission (SEC)—internal reports are not sufficient.
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Click here to read the full special alert.If you have questions about the decision or other related issues, please visit our Whistleblower practice page, or contact a Buckley attorney with whom you have worked in the past.
10th Circuit upholds TCPA statutory damages as uninsurable under Colorado law
On February 21, the U.S. Court of Appeals for the 10th Circuit affirmed a district court’s decision that under Colorado law, an insurance company had no duty to indemnify and defend its insured against TCPA claims seeking statutory damages and injunctive relief. According to the appellate opinion, the FTC and the states of California, Illinois, North Carolina, and Ohio sued a satellite television company for violations of the TCPA, Telemarking Sales Rule (TSR), and various state laws for telephone calls made to numbers on the National Do Not Call Registry (FTC lawsuit). The FTC lawsuit sought statutory damages of up to $1,500 per alleged violation and injunctive relief. The defendant requested that its insurer defend and indemnify it for the claims pursuant to existing policies. The insurance company filed a complaint for declaratory judgment, seeking a declaration that it need not defend or indemnify the company in the FTC lawsuit. The district court determined that there was no coverage for several reasons, including: (i) that the statutory TCPA damages were a “penalty,” rendering them uninsurable under Colorado law; and (ii) that the injunctive relief sought did not qualify as damages under the policies’ definition. The 10th Circuit Court of Appeals affirmed both holdings, concluding that no coverage existed.
Sixth Circuit rules borrowers lack standing under FDCPA
On February 16, the U.S. Court of Appeals for the Sixth Circuit held that a letter sent from an attorney on behalf of a mortgage servicing company to consumers violated the Fair Debt Collection Practices Act (FDCPA), but because the alleged violation did not meet the “injury in fact” requirement for standing, the consumers had no standing to sue. According to the opinion, the letter confirmed receipt of an executed warranty deed in lieu of foreclosure and reaffirmed that the mortgage servicer would “not attempt to collect any deficiency balance.” When the mortgage servicer attempted to collect the debt, the consumers cited the letter and the servicer agreed that nothing was owed. However, the consumers sued the attorney and the mortgage servicer claiming that the letter violated the FDCPA and the Ohio Consumer Sales Practices Act because it did not include a notice that it was from a debt collector. The claims against the servicer were resolved through arbitration, but a district court ruled that the attorney violated Ohio law for failing to include the appropriate disclosures. The attorney appealed, arguing that the consumers did not have standing to assert their federal and state law claims. However, citing the Supreme Court ruling in Spokeo, Inc. v. Robins, the Sixth Circuit held that the consumers must show more than a “bare procedural violation.” Even though the letter lacked the required disclosures required by the FDCPA, this lack of disclosures caused no harm to the consumers, and in fact, the “letter was good news when it arrived, and it became especially good news when [the servicer] persisted in trying to collect a no-longer-collectible debt.” Because the letter created no cognizable injury, the Sixth Circuit reversed the district court’s decision and dismissed the claims brought under the FDCPA and the Ohio Consumer Sales Practice Act for lack of standing.
TCPA lawsuit passes Spokeo, survives motion to dismiss
On February 20, a judge for the U.S. District Court for the Northern District of Illinois denied a national insurance company’s motion to dismiss a proposed Telephone Consumer Protection Act (TCPA) class action suit brought by a California-based plumbing company. The plaintiff had sued the insurance company and one of its agents for using an autodialer to make prerecorderd sales calls. One call was answered by the plaintiff’s principal and interrupted business, which Plaintiff alleges violated the TCPA. The plaintiff also alleges that the autodialed calls “seized and trespassed upon the use of its cell phones.” In its motion to dismiss, the insurance company argued, among other things, that the plaintiff failed to allege a concrete injury, which is required to establish standing. Citing the Supreme Court ruling in Spokeo, Inc. v. Robins, the judge held that the plaintiff had alleged sufficient facts, including the disruption to its business, to establish a concrete harm.
Supreme Court denies writ challenging data breach standing
On February 20, the U.S. Supreme Court denied without comment a medical insurance company’s petition for writ of certiorari to challenge an August 2017 D.C. Circuit Court of Appeals decision, which reversed the dismissal of a data breach suit filed by the company’s policyholders in 2015. According to the D.C. Circuit opinion, the policyholders sued the medical insurance company after the company announced that an unauthorized party had accessed personal information for 1.1 million members. The lower court dismissed the policyholder’s case, holding that they did not have standing because they could not show an actual injury based on the data breach. In reversing the lower court’s decision, the D.C. Circuit, citing the Supreme Court ruling in Spokeo, Inc. v. Robins, held that it was plausible that the unauthorized party “has both the intent and the ability to use [the] data for ill.” This was sufficient to show that the policyholders had standing to bring the claims because they alleged a plausible risk of future injury.
D.C. Circuit will not rehear False Claims suit against national bank
On February 16, the U.S. Court of Appeals for the D.C. Circuit denied a petition for an en banc rehearing of its December 2017 ruling affirming the dismissal of a False Claims Act suit against a national bank. The petition resulted from a 2013 lawsuit filed by a consumer against the bank, which alleged, among other things, that the bank falsely asserted that it had complied with certain obligations under the 2012 National Mortgage Settlement (the “Settlement”). The district court dismissed the suit, finding that the consumer lacked standing because he did not exhaust the required dispute resolution procedures contained in the Settlement. In December 2017, the D.C. Circuit affirmed the dismissal but disagreed with the lower court’s reasoning. According to the appellate opinion, the circuit court held that the consumer’s second amended complaint did not contain any allegedly false or deceptive statements made by the bank to the government-approved settlement monitor and that ultimately, “the decisive point is that the Monitor was aware of the practices and concluded that [the bank] was in compliance.”
District Court dismisses First Amendment challenge to Montana’s statute banning robocalls
On February 9, a federal judge for the U.S. District Court for the District of Montana denied a plaintiff’s motion for summary judgment, which sought to overturn the State of Montana’s statutory restrictions on robocalls. Among other things, the plaintiff—a Michigan-based political consulting firm that relies on automated calls to gather data—claimed the 1991 Montana statute violated its right to free speech under the First and Fourteenth Amendments of the United States Constitution by prohibiting automated sales and political campaign calls. However, the court ruled that the Montana statute is sufficiently narrowly tailored and is intended to preserve and protect residents’ “control over [their] property and personal choices regarding receipt of communications.” Exemptions to the ban, the court explained, can occur “if the permission of the called party is obtained by a live operator before the recorded message is delivered.” The narrow tailoring leaves “ample alternative (including all of the more traditional) channels of communication for the protected political speech.”
District judge rules financing contingency clause in retail installment contract does not violate TILA
On February 12, a federal judge in the U.S. District Court for the Eastern District of California held that a financing contingency clause in a retail installment contract (contract) did not violate the Truth in Lending Act (TILA). The clause provided that the dealership (defendant) could cancel the contract if it could not assign it to a financial institution on terms acceptable to the seller. According to the opinion, the plaintiff signed the contract with the defendant to purchase a car after being told she was approved for financing; however, the defendant later contacted the plaintiff and informed her that it was unable to assign her loan to a third party bank and demanded that she “return to the dealership with a co-signor or surrender the [v]ehicle.” The plaintiff asserted that “she never received a written notice explaining why [the] defendant [had] revoked its extension of credit” or why it had cancelled the contract. Among other things, the plaintiff argued that the defendant’s actions violated (i) TILA when it inserted a seller’s right to cancel provision in the contract, and (ii) a “breach of ‘good faith and fair dealing obligation.’” However, with respect to TILA, the judge found no violation, holding that while TILA requires certain disclosures for the purpose of avoiding the “uninformed use of credit,” it does not prohibit the inclusion of financing contingencies. Here, the contract included all required elements under TILA and the properly disclosed credit terms were not rendered meaningless or invalid just because the dealership reserved a unilateral right to rescind the contract. The judge further dismissed the breach of good faith claim, noting that the defendant was acting within the allowed terms of the right to cancel provision.