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On May 17, the West Virginia Supreme Court of Appeals vacated a state circuit court’s ruling to deny a motion to compel arbitration in a case related to bounced convenience checks drawn on a consumer’s credit card account, finding that the circuit court’s order failed to contain sufficient findings of fact or conclusions of law to allow the Supreme Court of Appeals to conduct a proper review. According to the opinion, the plaintiff-respondent sued the debt collector defendants for invasion of privacy and violations of the West Virginia Consumer Credit and Protection Act after the defendants attempted to collect debt arising from two convenience check transactions that were allegedly returned as unpaid. The defendants moved to compel arbitration and presented enrollment forms that contained arbitration clauses purportedly signed by the plaintiff-respondent. However, the plaintiff-respondent claimed the enrollment forms were never presented to her, that her signature was applied to the forms electronically after she used a card reader terminal to electronically cash her checks, and that the “signing process was ‘rushed’ and unfair.” Following a brief hearing on the motion to compel arbitration, the circuit court entered an order denying the motion to compel arbitration.
On appeal, the state’s highest court vacated the circuit court’s order, which it found to be “unclear and contradictory in its rulings,” in that the lower court appeared to determine that the plaintiff-respondent had not agreed to the terms of the arbitration agreement, but also appeared to determine that the contract was unconscionable and could not be enforced. The high court remanded the case for further proceedings, including determining whether an arbitration agreement existed, and if it did, whether the agreement was unconscionable.
10th Circuit: Compliance employees must show they went beyond established protocols to obtain FCA whistleblower retaliation protection
On April 30, the U.S. Court of Appeals for the 10th Circuit affirmed the dismissal of a former employee’s False Claims Act (FCA) whistleblower retaliation claims, holding that employees with compliance responsibilities bear the burden of showing that their alleged protected activities are not simply part of their job responsibilities. The case concerned a qui tam relator who alleged her former employer systemically violated the FCA when it knowingly and fraudulently billed the government for inadequately or improperly completed work, and then fired her in retaliation for trying to end the alleged fraud. According to the plaintiff—who was previously employed as a senior quality control analyst responsible for reviewing investigators’ work and documenting incomplete investigations—the company violated the FCA by: (i) “falsely certifying that it performed complete and accurate investigations”; (ii) “falsely certifying that it did proper case reviews and quality-control checks”; and (iii) “falsifying corrective action reports.” The district court, however, entered summary judgment for the company on all counts, determining that the plaintiff’s qui tam claims were “‘substantially the same’ as those that had been publically disclosed” in previous investigations and news reports, and dismissing her claims under the public disclosure bar. Her retaliation claim was dismissed after the district court determined that she had failed to properly plead that the company was on notice that she was engaging in protected activity.
On appeal, the 10th Circuit concluded that the district court erred in its legal determinations on the qui tam claims, vacated the order for summary judgment, and remanded those claims for further proceedings. However, the 10th Circuit agreed with the district court’s decision to dismiss the plaintiff’s whistleblower retaliation claim, stating that in order to establish FCA whistleblower liability, an employer must know that the employee’s actions were connected to a claimed FCA violation, and an employee “must overcome the presumption that her internal reports of fraud were part of her job.” The appellate court held that because the plaintiff’s allegations did not show that she went outside of established protocols or broke her chain of command, she failed to allege adequately that the company was on notice of her claimed FCA-protected activity.
On May 17, the U.S. Court of Appeals for the 9th Circuit revived a putative class action lawsuit against a national credit reporting agency for allegedly failing to follow reasonable procedures to assure maximum possible accuracy in the plaintiffs’ credit reports, in violation of the FCRA. According to the opinion, the credit reporting agency failed to delete all the accounts associated with a defunct loan servicer, despite statements claiming to have done so in January 2015. As of October 2015, 125,000 accounts from the defunct loan servicer were still being reported, and the accounts were not deleted until April 2016. A consumer filed the putative class action alleging the credit reporting agency violated the FCRA by continuing to report her past-due account, even after deleting portions of the positive payment history on the account. The district court granted summary judgment in favor of the credit reporting agency on the consumer’s claim that the credit reporting agency failed to “follow reasonable procedures to assure maximum possible accuracy” in her credit report.
On appeal, the court determined that a “reasonable jury could conclude that [the credit reporting agency]’s continued reporting of [the account], either on its own, or coupled with the deletion of portions of [the consumer’s] positive payment history on the same loan, was materially misleading.” Moreover, the appellate court noted that a jury could conclude that the credit reporting agency’s reading of the FCRA “runs a risk of error substantially greater than the risk associated with a reading that was merely careless,” and that the length of delay in implementing the decision to delete the defunct loan servicers accounts “entail[ed] ‘an unjustifiably high risk of harm that is either known or so obvious that it should be known.’”
On May 15, the U.S. Court of Appeals for the 7th Circuit held a prevailing consumer’s request for $187,410 in attorney’s fees was unreasonable in a FDCPA action. In 2014, the consumer and a debt collector settled the consumer’s FDCPA related claims for $1,001 plus attorney’s fees of $4,500. Despite the settlement agreement, the debt collector continued to attempt to collect the debt, and the consumer sued a second time alleging violations of the FDCPA and FCRA. The consumer did not respond to multiple settlement offers from the debt collector, including one in March 2015 for $3,051, proceeding to trial on the FDCPA claim, and subsequently rejected a settlement offer from the debt collector of $25,000 and reasonable attorney’s fees. At trial, the jury only awarded the consumer the $1,000 in FDCPA statutory damages, after which he sought to recover $187,410 in attorney’s fees. The district court reduced his request to $10,875, concluding that the consumer’s rejection of “meaningful settlement offers precluded a fee award in such disproportion to his trial recovery.”
On appeal, the appellate court agreed with the district court that the March 2015 settlement offer of $3,051 was reasonable, rejecting the consumer’s argument that the settlement “was not substantial and therefore should have been disregarded by the district court in determining the fee award.” The appellate court also rejected the consumer’s argument that because the settlement offer disclaimed liability for the debt collector, his results at the jury trial were much better than the settlement as it yielded judgment on the merits. The appellate court noted that settlement offers regularly disclaim liability, and by operation, judgment against the debt collector would still have been entered under Rule 68. Therefore, the appellate court concluded the district court did not abuse its discretion when reducing the attorney’s fees to $10,875 based on 29 hours’ worth of work at an hourly rate of $375 prior to the March 2015 settlement offer.
On May 17, the CFPB announced it filed a lawsuit in the U.S. District Court for the Eastern District of New York against a New York debt-collection law firm. According to the Bureau’s complaint, between 2014 and 2016 the law firm allegedly initiated more than 99,000 collection lawsuits in an attempt to collect debts through reliance on “non-attorney support staff, automation, and both a cursory and deficient review of account files,” in violation of both the FDCPA and the Consumer Financial Protection Act. The Bureau alleges the lawsuits contained names and signatures of attorneys despite those attorneys “not being meaningfully involved in reviewing the merits of the lawsuits,” including not reviewing pertinent documentation related to the debts, such as account applications, billing statements, payment histories, and the terms and conditions governing an account. The law firm allegedly did not perform reviews of the contracts related to debt sales, despite filing lawsuits on behalf of debt buyers that have been accused of unlawful debt collection practices. The Bureau is seeking an injunction, damages, redress to consumers, and the imposition of a civil money penalty.
On May 14, the California Reinvestment Coalition (CRC) announced it filed a lawsuit in the U.S. District Court for the Northern District of California against the CFPB for allegedly failing to implement Section 1071 of the Dodd-Frank Act, which requires the Bureau to collect and disclose data on lending to small, women, and minority-owned businesses. In the complaint, the CRC argues that the failure to implement Section 1071 violates two provisions of the Administrative Procedures Act. Specifically, the CRC alleges the that Bureau has “unlawfully withheld and unreasonably delayed” the implementation of Section 1071 since Dodd Frank’s passage in 2011, and also, that the Bureau has acted “arbitrarily and capriciously” by informing financial institutions to “not to make [the] inquiries, nor compile, maintain, and submit [the loan application] data” required by Section 1071. The CRC claims that the failure to collect and publish the data has harmed its ability to advocate for access to credit, advise organizations working with women and minority-owned small businesses, and work with lenders to arrange investment in low-income and communities of color. The CRC is seeking the court to invalidate the Bureau’s countermanding of Section 1071’s requirements on financial institutions and an order or writ compelling the Bureau to issue a final rule implementing Section 1071.
On May 13, the U.S. Supreme Court unanimously held that a relator has up to 10 years to bring a qui tam suit under the False Claims Act (FCA) whether or not the government intervenes in the suit. According to the opinion, in November 2013, a relator brought a suit against two defense contractors alleging they defrauded the U.S. Government by submitting false payment claims for security services in Iraq through early 2007. The relator claimed he told federal officials about the allegedly fraudulent conduct in November 2010, but the Government declined to intervene. The defendants moved to dismiss the action as barred by the six year statute of limitations under 31 U. S. C. §3730(b)(1), while the relator claimed the action was timely under §3730(b)(2)— which states that a FCA civil action may not be brought “more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed.” The district court dismissed the action, while the U.S. Court of Appeals for the 11th Circuit reversed the decision, concluding that §3730(b)(2) applies in “nonintervened actions, and the limitations period begins when the Government official responsible for acting knew or should have known the relevant facts.”
Upon review, the Supreme Court rejected the defendants’ argument that the six year statute of limitations in §3731(b)(1) applies to all relator-initiated actions (whether the Government intervenes or not), while § 3731(b)(2) applies only to qui tam actions when the Government intervenes, arguing the interpretation is “at odds with fundamental rules of statutory interpretation.” Moreover, the Court concluded that the relator in a nonintervened suit is not “the official of the United States” whose knowledge triggers §3731(b)(2)’s three-year limitations period, as it was not what Congress intended, and a private relator is neither “appointed as an officer of the United States nor employed by the United States.”
On May 13, the U.S. Court of Appeals for the 2nd Circuit held that the FDCPA’s statute of limitations period starts when the violation occurs, rather than when the plaintiff receives notice of the violation. According to the opinion, a law firm (defendant) seeking to collect a debt against a borrower sent a restraining notice to a national bank, which erroneously referenced the plaintiff’s social security number and address. The bank froze the plaintiff’s accounts on December 13, 2011. The bank lifted the freeze two days later after the plaintiff contacted the bank about the freeze. On December 14, 2012, the plaintiff filed a lawsuit against the debt collector, alleging FDCPA violations. The plaintiff claimed the action was filed within the one-year statute of limitations because he did not learn about the restraining notice until December 14, 2011. In 2016, the district court, however, held that the statute of limitation was triggered when the defendant mailed the restraining notice (December 6), and thus the complaint was time-barred. The plaintiff appealed, and the 2nd Circuit held that an FDCPA violation occurs when an individual is injured by unlawful conduct and not when the notice is mailed. On remand, the parties conducted limited discovery, which confirmed that the bank placed a freeze on the plaintiff’s accounts on December 13, which was also the date that the plaintiff learned about the freeze. The defendant then moved for summary judgment, arguing that the complaint is time barred given that it was filed one year and one day after the date of the account freeze. The district court agreed, and the plaintiff filed a second appeal.
On the second appeal, the 2nd Circuit affirmed the district court’s decision. The appellate court reminded the plaintiff that a violation of the FDCPA occurs when an individual is injured by unlawful conduct—which in this case was the date the accounts were frozen—and emphasized that the panel’s earlier holding was not intended to “expand the FDCPA’s statute of limitations by requiring that individuals also receive ‘notice of the FDCPA violation.’” Because the plaintiff’s suit was filed one year and one day after the bank froze his accounts, his claim was time-barred.
On May 13, the U.S. District Court for the District of New Jersey denied a debt collector’s motion to compel arbitration in an FDCPA action, concluding that the existence of an arbitration agreement was not yet apparent based on the amended complaint. According to the opinion, a consumer brought a putative class action against a debt collector alleging the three collection letters it sent were “deceptive and misleading” under the FDCPA because the letters contained language regarding the possibility of IRS reporting, even though the debt was under the $600 threshold required for reporting. As previously covered by InfoBytes, the district court dismissed the action on its merits, without reaching the defendant’s motion to compel arbitration. The U.S. Court of Appeals for the 3rd Circuit reversed, finding “the least sophisticated debtor could be left with the impression that reporting could occur” and therefore the language could signal a potential FDCPA violation, notwithstanding the letter’s qualifying statement that reporting is not required every time a debt is canceled or settled.
On remand, the debt collector moved to compel arbitration of the claims arising from the three letters on an individual basis, arguing that the credit agreement between the consumer and the original creditor contained an arbitration provision and providing an example of the original creditor’s credit card agreement. The plaintiff rejected the example agreement, arguing that it was merely a generic exemplar that did not “demonstrate its applicability” to the consumer. In denying the debt collector’s motion, the court directed the parties to conduct limited discovery on the existence of an enforceable arbitration agreement between the parties. The court also denied the debt collector’s motion to dismiss new claims added to the amended complaint as time-barred because they “relate back” to the original complaint.
On May 8, the U.S. Court of Appeals for the 11th Circuit affirmed in part and reversed in part the dismissal of a consumer’s putative class action against her reverse mortgage servicer for the alleged improper placement of flood insurance on her home. The consumer claimed violations of the FDCPA and multiple Florida laws, including the Florida Deceptive and Unfair Trade Practices Act (FDUTPA), based on allegations that the mortgage servicer improperly executed lender-placed flood insurance on her property, even though the condo association had flood insurance covering the property. The lender-placed flood insurance resulted in $5,200 in premiums added to the balance of the loan, and an increase in financing costs on the mortgage. The district court dismissed the action, concluding the mortgage servicer was required by federal law to purchase the flood insurance and the monthly account statements were not collection letters under the FDCPA or state law.
On appeal, the 11th Circuit agreed with the district court that the monthly account statements of the reverse mortgage, which prominently stated “this is not a bill” in bold, uppercase letters, and did not request or demand payment, were not an attempt to collect a debt under the FDCPA. Additionally, the appellate court concluded that the consumer failed to allege the mortgage servicer was a debt collector within the meaning of the FDCPA because the complaint does not allege that the debt was in default. The appellate court also affirmed the district court’s dismissal of the state debt collection claims for similar reasons. However, the appellate court reversed the district court’s dismissal of the consumer’s FDUTPA claims, noting that the mortgage servicer failed to cite to a state or federal law requiring it to purchase flood insurance “when it has reason to know that the borrower is maintaining adequate coverage” in the form a condo association insurance.
- Buckley Webcast: Hot topics in debt collection — An analysis of recent federal FDCPA litigation
- Jonice Gray Tucker to discuss "How to succeed in law school" at the SEO Law DC Panel Discussions
- Amanda R. Lawrence to discuss "Navigating the challenges of the latest data protection regulations and proven protocols for breach prevention and response" at the ACI National Forum on Consumer Finance Class Actions and Government Enforcement
- Sasha Leonhardt and John B. Williams to discuss "Privacy" at the National Association of Federally-Insured Credit Unions Summer Regulatory Compliance School
- Warren W. Traiger to discuss "CRA modernization" at the National Association of Industrial Bankers and the Utah Association of Financial Services Annual Convention
- Benjamin W. Hutten to discuss "Requirements for banking inherently high-risk relationships" at the Georgia Bankers Association BSA Experience Program
- Henry Asbill to discuss "Ethical guidance in conducting internal investigations – The intersection of Yates an Upjohn" at the American Bar Association Southeastern White Collar Crime Institute
- Brandy A. Hood to discuss "RESPA Section 8/referrals: How do you stay compliant?" at the New England Mortgage Bankers Conference
- Daniel P. Stipano to discuss "Lessons learned from recent enforcement actions and CMPs" at the ACAMS AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Assessing the CDD final rule: A year of transitions" at the ACAMS AML & Financial Crime Conference