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On June 10, the DOJ announced that the U.S. District Court for the Middle District of Florida entered a consent order against several defendants accused of violating the Fair Housing Act by targeting Hispanic homeowners for predatory mortgage loan modification services. After several Hispanic homeowners filed discrimination complaints with HUD, the agency conducted an investigation, issued charges of discrimination, and referred the matter to the DOJ for litigation. According to the DOJ’s complaint, the defendants targeted Hispanic homeowners with deceptive Spanish-language advertising “that falsely promised to cut their mortgage payments in half” and guaranteed “lower payments in a specific timeframe in exchange for thousands of dollars of upfront fees and continuing monthly fees of as much as $550, which defendants claimed were ‘non-refundable.’” The DOJ further contended that many of the targeted Hispanic homeowners (who had limited English proficiency) were told not to communicate with their lenders and were instructed to stop making monthly mortgage payments; however, the defendants allegedly “did little or nothing to obtain the promised loan modifications,” leading to defaults and foreclosures.
The consent order, reached in partnership with the Civil Rights Division’s Housing Section, enters a nearly $4.6 million judgment (which is mostly suspended) against the defendants to compensate harmed homeowners. Of this amount, $95,000 in total will go to three individuals who intervened as plaintiffs in the DOJ’s lawsuit. Defendants must also pay a $5,000 civil penalty. In addition to monetary relief, the consent order permanently enjoins defendants “from providing any mortgage relief assistance services, including, but not limited to, mortgage loan modification, foreclosure rescue, or foreclosure defense services.” The consent order also imposes training and reporting/recordkeeping requirements for defendants’ other real-estate activities.
On June 8, the U.S. District Court for the Southern District of New York granted a plaintiffs’ motion for final approval of a class action settlement resolving claims that several retail businesses failed to establish reasonable safeguards that led to a data breach. According to the opinion, the plaintiff alleged that a syndicate accessed cardholder information and sold it on the so-called dark web. The plaintiffs also claimed that the breach caused them to spend time monitoring their accounts, safeguarding account information, and, for some plaintiffs, resolving fraudulent charges and withdrawals. The settlement provides for two different levels of payments to affected consumers. Tier 1 claimants, who must provide proof of a payment transaction during the period of the breach and confirm that they spent time monitoring account information after the breach, will receive $30. Tier 2 claimants will be reimbursed for documented out-of-pocket expenses incurred as a result of the breach, such as costs and expenses related to identity theft or fraud, late fees, and unauthorized charges and withdrawals, in an amount not to exceed $5,000. The total amount to be paid to class members is approximately $278,000.
On June 6, the U.S. District Court for the Northern District of Ohio granted a national bank’s (defendant) motion for summary judgment in a case alleging it violated the TCPA by placing unwanted telephone calls and text messages. According to the order, the plaintiff filed suit in April 2021, alleging the defendant called him 88 times without his consent regarding a debt using an automated dialing system in violation of the TCPA. The court found that the plaintiff had given his consent to be contacted when he signed a signature card for his account that included his number. The court noted that his consent permitted the defendant “to use text messaging, artificial or prerecorded voice messages and automatic dialing technology for informational and account service calls, but not for telemarketing or sales calls.” The court further concluded that “prior express consent permits a creditor to contact a debtor by any telephonic means,” and emphasized that the “TCPA is not intended to stop a bank from calling its customers, but rather to stop telemarketers from making random, sequentially generated ‘robocalls’ to consumers who do not wish to receive them.”
On June 6, the U.S. District Court for the District of New Jersey granted a defendant bank’s motion to dismiss, ruling that the plaintiff’s inspection fee allegations are barred on collateral estoppel grounds. The plaintiff filed a class action suit claiming the defendant’s computer software orders property inspections after borrowers’ loans are in default and then charges borrowers for the improper inspection fees. According to the opinion, the defendant initiated foreclosure proceedings in 2012 against the plaintiff in state court after she missed payments. The parties litigated the matter for several years in state court, and in 2018, the plaintiff filed a motion for leave to add class action claims related to the defendant’s inspection fee collection system. The state court denied plaintiff’s motion, finding the proposed claims to be without merit and futile. Final judgment of foreclosure was granted to the bank. Similar proceedings involving the same class action counterclaims occurred after the defendant requested that the judgment be vacated to add an additional lien holder as a defendant. The defendant again applied for entry of final judgment, but withdrew this application allegedly in response to the Covid-19 pandemic. Ultimately the state court dismissed the foreclosure action without prejudice for lack of prosecution. The plaintiff filed an instant complaint in federal court.
The defendant argued that the plaintiff “should be collaterally estopped from bringing these claims because the New Jersey Superior Court ruled on the exact issues [plaintiff] raises here in the prior foreclosure action brought by [defendant] against [plaintiff] in state court, ultimately dismissing them with prejudice.” The plaintiff countered “that because the foreclosure action was dismissed without entry of judgment, collateral estoppel does not apply.” In agreeing with the defendant, the court stated that “the doctrine of collateral estoppel applies whenever an action is ‘sufficiently firm to be accorded conclusive effect,” adding that the state court’s orders in the foreclosure action are “sufficiently firm as to warrant conclusive effect.” According to the court, “[t]hese decisions—particularly the second dismissal with prejudice—were clearly intended to be the final adjudication of the precise issues that [plaintiff] is now attempting to relitigate in the instant action.”
On June 7, the U.S. District Court for the District of Columbia granted preliminary approval of a class action settlement resolving claims that a government agency and its contractor (collectively, defendants) did not detect hackers because they failed to establish reasonable safeguards that led to a data breach. According to the memorandum of law in support of the plaintiff’s motion for preliminary approval, a data breach occurred in June 2015 that compromised financial records, Social Security numbers, and other personal information of anyone who underwent a background check at the agency since 2000. The agency allegedly controlled numerous electronic systems without valid authorizations, failed to implement multi-factor authentication for accessing systems, failed to patch, segment, and continuously monitor systems, and failed to implement centralized data security protocols. According to the plaintiff’s motion, the settlement (if granted final approval) would require the U.S. government to pay $60 million of the settlement fund and the contractor to pay $3 million. The settlement agreement provides that “[e]ach valid claim will be paid at $700, except that if the actual amount of documented loss exceeds $700, the claim will be paid in that amount, up to $10,000.”
On June 1, the U.S. District Court for the District of Arizona ruled that a health care company must face a proposed class action related to claims that its failure to implement cybersecurity safeguards led to a data breach that compromised individuals’ personal health information. In granting in part and denying in part defendant’s motion to dismiss, the court declined to dismiss several of the plaintiffs’ claims for negligence, ruling that the second amended complaint sufficiently alleged that the defendant employed inadequate data security and that plaintiffs suffered an actual injury as a result of the data breach because the monitoring services offered by the defendant were insufficient and offered for too short of time causing certain plaintiffs to purchase additional identity protection products and/or services. However, other negligence claims were dismissed after the court determined that some of the plaintiffs failed to allege any actual damages or out-of-pocket expenses. Additionally, while the court allowed several state law claims to proceed, it dismissed claims brought under the California Consumer Protection Act due to the plaintiff’s failure to provide the requisite pre-suit notice within the 30-day time period as required by law, finding the failure could not be cured by the passage of time. Other state law claims, involving violations of the Wisconsin Deceptive Trade Practices Act and Pennsylvania Unfair Trade Practices and Consumer Protection Law, were also dismissed due to a failure to articulate cognizable losses.
Special Alert: Eleventh Circuit upholds terms of arbitration agreement in challenge under Dodd-Frank
On May 26, 2022, the United States Court of Appeals for the Eleventh Circuit issued a published decision holding that the Dodd-Frank Act does not prohibit the enforceability of delegation clauses contained in consumer arbitration agreements “in any way.” This opinion is of potentially broad significance in the class action and arbitration space since it is one of the first appellate decisions in the country concerning Dodd-Frank’s arbitration provision and supports broad enforcement of delegation clauses even where a statute could allegedly prohibit arbitration of the underlying claim.
In Attix v. Carrington Mortgage Services, LLC, the Eleventh Circuit reversed a decision of the United States District Court for the Southern District of Florida denying Carrington’s motion to compel arbitration that was based on the plaintiff’s argument that the anti-waiver provision in the Dodd-Frank Act, prohibited enforcement of the arbitration agreement. The anti-waiver provision of the Dodd-Frank Act provides that “no other agreement between the consumer and the creditor relating to the residential mortgage loan or extension of credit . . . shall be applied or interpreted so as to bar a consumer from bringing an action in an appropriate district court of the United States.” The district court agreed with the plaintiff’s argument that the Dodd-Frank Act prohibited arbitration of the underlying dispute and in doing so, side-stepped the delegation clause that delegated such threshold determinations to an arbitrator.
In a 52-page published opinion, the Eleventh Circuit reversed the decision of the district court, holding that the Dodd-Frank Act does not prohibit enforcing delegation clauses, such as the clause at issue, which “clearly and unmistakably” delegates to the arbitrator “threshold arbitrability disputes.” The circuit court found that in such circumstances, all questions of arbitrability are delegated to an arbitrator “unless the law prohibits the delegation of threshold arbitrability issues itself.”
The court went on to broadly hold that the Dodd-Frank Act does not prohibit the enforceability of delegation clauses “in any way.” In doing so, the Eleventh Circuit explained that if Dodd-Frank had been intended to prohibit the enforcement of delegation clauses, then it could have been drafted that way, but instead, “the actual statute is silent as to who may decide whether a particular contract falls within the scope of its protections.” While the Dodd-Frank Act prohibits arbitration agreements from being applied or interpreted in a particular manner, it does not prohibit the enforcement of delegation clauses, and as a result, the court held that under the terms of Carrington and the plaintiff’s agreement, the arbitrator (and not the court) must determine the threshold question of whether the Dodd-Frank Act prohibits enforcement of Carrington’s arbitration agreement since it is a “quintessential arbitrability question.”
Significantly, the court also held that a challenge to an agreement to arbitrate on the basis that a statute precludes its enforcement is not a “specific challenge” to a delegation clause found within the arbitration agreement, such that the court lacks jurisdiction to review the enforceability of the delegation clause. In other words, where a challenge “is only about the enforceability of the parties’ primary arbitration agreement” and there is a delegation clause, “an arbitrator must resolve it.” As the Eleventh Circuit explained, “when an appeal presents a delegation agreement and a question of arbitrability, we stop. We do not pass go.”
This case has significance for anyone considering drafting an arbitration agreement particularly in a class action context. A threshold drafting question is whether or not to delegate issues of arbitrability to the arbitrator or allow a court to resolve the issue. Under this decision, a question of whether a statute bars arbitration of claims is for the arbitrator to decide when there is a delegation clause, unless the statute also explicitly bars delegation clauses. This decision reinforces that inclusion of a properly drafted delegation clause in an arbitration agreement can result in a case improperly filed in court being more quickly sent to arbitration, even where the dispute is whether a statute prohibits the claim from being arbitrated in the first instance.
Buckley represented Carrington on appeal with a team comprising Fredrick Levin, who argued the appeal, Scott Sakiyama, Brian Bartholomay, and Sarah Meehan. For questions regarding the case, please contact one of the team members or a Buckley attorney with whom you have worked in the past.
On May 31, the U.S. District Court for the Western District of Washington granted a plaintiff’s motion for class certification in an action alleging a defendant debt collector placed unsolicited calls to borrowers’ cell phones when attempting to collect federal student loan debt. The plaintiff contended that the defendant violated the TCPA by calling her up to seven times a day without her consent using an automatic telephone dialing system (autodialer) and prerecorded calls or artificial voice calls. According to the plaintiff, in 2019, the defendant obtained her cell phone number through skip-tracing services performed by one of its vendors. The defendant allegedly had access to a call recording from a 2017 conversation between a Department of Education contractor and the plaintiff during which the plaintiff provided her phone number. The defendant, however, allegedly was not aware of the recording nor did it seek to access the file until after the plaintiff filed suit. The defendant also supposedly received a file from the contractor containing the plaintiff’s number but not until after it already acquired the number from the skip-tracing vendor. The defendant denied that it used an autodialer or made prerecorded calls or artificial voice calls. The defendant also claimed that “because it had constructive access to the recording of plaintiff’s 2017 phone conversation with [the contractor] and received the  file with plaintiff’s number, it had plaintiff’s prior express consent to receiving calls.”
The court certified the class, ruling that the question of whether access to the files in question was sufficient to confer consent under the TCPA is “a closer legal question, but not one that overcomes predominance at this stage.” According to the court, “the issue of whether defendant can show that its right of access to [the contractor’s] files constituted prior express consent is one that is currently capable of classwide resolution. Accordingly, while the affirmative defenses defendant presses will no doubt be important to the outcome of the litigation, they presently do not undercut the central common issues in this case.”
On May 31, the FTC announced that the U.S. District Court for the Eastern District of Maryland granted a temporary restraining order against a credit repair operation for allegedly engaging in deceptive practices that scammed consumers out of more than $213 million. According to the FTC’s complaint, the operation targeted consumers with low credit scores promising its products could remove all negative information from their credit reports and significantly increase credit scores. The operation allegedly violated the FTC Act, the Credit Repair Organizations Act, and the Telemarketing Sales Rule by, among other things, (i) making misrepresentations regarding its credit repair services; (ii) selling a product that purportedly sends rent payment information to credit bureaus even though “this information is not generally part of consumers’ credit score and many credit bureaus don’t accept this kind of information directly from consumers”; (iii) charging illegal advance fees; (iv) failing to provide consumers required information such as refund and cancellation policies; and (v) recruiting consumers to sell credit repair products to other consumers as part of a pyramid scheme even though few consumers ever received the promised earnings (and many consumers actually lost money as agents). Beyond the temporary restraining order, the FTC is seeking a permanent injunction, monetary relief, and other equitable relief.
On May 26, the California Supreme Court affirmed a trial court’s ruling that the FTC’s Holder Rule does not limit liability for attorney’s fees. According to the opinion, the plaintiff bought a used vehicle from the dealership (defendant) pursuant to an installment sales contract, which was subsequently assigned to a bank that became the “holder” of the contract. The plaintiff filed suit against the defendant and the bank, alleging misconduct by the dealership in the sale of the car regarding advertised features she needed due to a disability. A jury found for the plaintiff on one of her causes of action — breach of the implied warranty of merchantability under the Song-Beverly Consumer Warranty Act and awarded her $21,957.25 in damages. The plaintiff filed a posttrial motion seeking attorney’s fees in the amount of $169,602 under the Song-Beverly Act. The bank argued that it could not be liable for attorney’s fees based on the provision of the Holder Rule limiting recovery to the “amount paid by the debtor.” The trial court disagreed and granted the plaintiff’s motion.
The California Supreme Court granted review to resolve a split among the appellate courts on whether ‘“recovery’ under the Holder Rule includes attorney’s fees and limits the amount of fees plaintiffs can recover from holders to amounts paid under the contract.” The opinion noted the divide among the state’s appellate courts on this issue, citing on the one hand Pulliam v. HNL Automotive Inc. (holding that the Holder Rule does not limit the attorney’s fees a plaintiff may recover), and on the other hand, Lafferty v. Wells Fargo Bank, N.A. (stating that a debtor cannot recover damages and attorney fees for a Holder Rule claim that collectively exceed the amount paid by the debtor under the contract) and Spikener v. Ally Financial, Inc., (finding that the Holder Rule preempts California Civil Code section 1459.5, which authorizes a plaintiff to recover attorney fees on a Holder Rule claim even if it results in a total recovery that exceeds the amount the plaintiff paid under the contract, covered by InfoBytes here).
On appeal, the California Supreme Court unanimously concluded that “the Holder Rule does not limit the award of attorney’s fees where, as here, a buyer seeks fees from a holder under a state prevailing party statute,” as opposed to seeking fees under the Holder Rule itself. Specifically, “[t]he Holder Rule’s limitation extends only to ‘recovery hereunder.’” The California Supreme Court continued that “[t]his caps fees only where a debtor asserts a claim for fees against a seller and the claim is extended to lie against a holder by virtue of the Holder Rule. Where state law provides for recovery of fees from a holder, the [Holder] Rule’s history and purpose as well as the Federal Trade Commission’s repeated commentary make clear that nothing in the Rule limits the application of that law.”
- Jedd R. Bellman to discuss “The CFPB’s crackdown on collection junk fees and the growing anti-CFPB rhetoric” at an Accounts Recovery webinar
- Benjamin W. Hutten to discuss “Latest on AML regulations and impact of economic sanctions” at a Mortgage Bankers Association webinar
- Benjamin W. Hutten to discuss “Fundamentals of financial crime compliance” at the Practicing Law Institute
- Benjamin W. Hutten to discuss “Ongoing CDD: Operational considerations” at NAFCU’s Regulatory Compliance & BSA Seminar