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DOJ initiates SCRA action for auctioning servicemember vehicles without court orders
On April 15, the DOJ filed a complaint in the U.S. District Court for the Eastern District of Virginia against a Virginia-based towing company for allegedly auctioning vehicles owned by at least seven active duty servicemembers without first obtaining the required court orders. Under the Servicemembers Civil Relief Act (SCRA), a person holding a lien on property or effects of a servicemember may not enforce or foreclose on that lien during, or within 90 days after, a period of military service without a court order. According to the complaint, several factors should have alerted the towing company to the fact that the vehicles belonged to a servicemember, including that the vehicles were towed from a military base and one contained a duffel bag containing military uniforms and other evidence of the servicemember’s military service. Additionally, the DOJ contended, among other things, that the company’s policies and procedures “failed to include any mention at all of the SCRA or the protections it grants to servicemembers whose vehicles have been towed,” nor did these policies include the use of the Defense Manpower Data Center database “to determine a vehicle owner’s military status prior to selling, auctioning off, or otherwise disposing of a vehicle without a court order.” The DOJ seeks damages for the affected servicemembers and civil penalties, as well as a court order enjoining the company and all associated persons from engaging in the illegal conduct.
District Court grants final approval of $10 million class action settlement
On April 11, the U.S. District Court for the Eastern District of New York granted final approval to a $10 million class action settlement resolving allegations that a defendant bank breached its payment card processing servicing contracts with merchants by imposing excessive fees without contractually required notice. Additionally, the plaintiffs alleged that the defendant was “unjustly enriched by imposing early termination fees that constituted unlawful penalties.” The settlement class includes over 200,000 merchants that entered into a payment card processing servicing contract with the defendant and who paid at least one of the fees underlying the litigation from October 2011 to the settlement date. Those fees include annual fees, early termination fees, and paper statement fees. According to the memorandum in support of the unopposed motion for preliminary approval of class settlement, the deal would provide $10 million in cash to the settlement class, and attorneys representing the class can seek up to one-third of that fund in attorneys’ fees. In addition, each of the three class representatives will be granted $10,000 service awards, per the motion.
District Court rules “informational harm” does not create standing in FDCPA case
On April 6, the U.S. District Court for the District of Connecticut granted a defendant law firm’s motion for judgment on the pleadings in a putative class action, ruling the plaintiff lacked standing to bring a claim for abusive debt collection under the FDCPA. The plaintiff incurred a debt that was placed with a collection agency. The collection agency sent the plaintiff a letter, to which the plaintiff sent three letters disputing the debt and requesting validation of the debt as well as the agency’s authority to collect on the debt. According to the plaintiff, she never received the requested verification. The original creditor eventually hired the defendant to collect the debt. The defendant sent its own letter enclosing verification of the debt. The plaintiff sued alleging the defendant’s letter violated Section 1692g(b) of the FDCPA, which requires debt collection efforts to cease after timely dispute of a debt until the debt collector provides verification of the debt to the debtor. According to the plaintiff, her previous requests for validation triggered obligations under Section 1692g(b) with respect to the defendant, thus obligating the defendant to cease collection efforts until the validation information was provided to the plaintiff. She also asserted violations of Section 1692(e) on the grounds that an attorney did not meaningfully review her file before the defendant’s letter was sent. The defendant moved for judgment on the pleadings on two grounds: lack of standing and failure to state a claim that defendant violated the FDCPA.
The court agreed with the defendant that the plaintiff failed to show an injury-in-fact, as required for Article IIII standing, and instead only alleged informational harm including confusion caused by the defendant’s letter. The court held that confusion is not a legally cognizable injury and found that the plaintiff lacked standing because she did not suffer a cognizable injury.
9th Circuit: Defendant is liable for third-party calls
Recently, the U.S. Court of Appeals for the Ninth Circuit affirmed in part and reversed in part a district court’s ruling that a defendant knew its third-party contractor was making pre-recorded calls to prospective consumers without consumers’ consent in violation of the TCPA. As previously covered by InfoBytes, in December 2017, consumers filed a consolidated class action against a cruise line, alleging violations of, among other things, the TCPA for marketing calls made to class members’ cell phones using an automatic telephone dialing system between November 2016 and December 2017. The suit alleged that the defendant hired a company to generate leads and initiate telephone calls to prospective consumers for cruise packages. The U.S. District Court for the Southern District of California denied dismissal of the TCPA action for lack of subject matter jurisdiction, concluding that the Court’s decision in Barr v. American Association of Political Consultants Inc., did not invalidate the TCPA in its entirety from 2015 until July 2020. In Barr the U.S. Supreme Court held that the TCPA’s government-debt exception is an unconstitutional content-based speech restriction and severed the provision from the remainder of the statute. (Covered previously by InfoBytes here.)
On the appeal, the issue was whether the defendant is liable under the TCPA for prerecorded voice calls made by the third-party contractor to the plaintiffs, who had not given prior express consent to be called. The 9th Circuit agreed with the district court’s decision in granting summary judgment for the defendant where the TCPA did not require the defendant to ensure that the third-party contractor had prior express consent for each call that it made to the defendant’s customers, nor did the defendant have actual authority over the third-party contractor. However, the 9th Circuit concluded that the defendant may be vicariously liable for the third-party contractor’s calls because it might have ratified them. The appellate court noted that the defendant knew that it received 2.1 million warm-transferred calls from the company between January 2017 and June 2018, but only 80,081 of those transfers were from individuals who had allegedly consented to receiving the calls. The defendant also had knowledge that there was a slew of mismatched caller data, and that the third-party contractor placed calls using prerecorded voices. The appellate court wrote that, “[t]hese facts, in combination with the evidence of widespread TCPA violations in the cruise industry, would support a finding that [the defendant] knew facts that should have led it to investigate [the company’s] work for TCPA violations.”
10th Circuit: Extended overdraft fees do not qualify as interest under the NBA
On April 8, the U.S. Court of Appeals for the Tenth Circuit concluded that extended overdraft fees do not legally qualify as interest under the National Bank Act (NBA). According to the opinion, after the plaintiff overdrew funds from his checking account, the bank covered the cost of the item and charged an initial overdraft fee. The bank later began imposing an extended overdraft fee each business day following the initial overdraft, ultimately assessing 36 separate overdraft fees. The plaintiff filed a putative class action, contending that the bank’s extended overdraft fees qualify as interest under the NBA, and that the amount charged (which he claimed translated to an effective annualized interest rate between 501 and 2,462 percent) violated the NBA’s anti-usury provisions because it exceeded Oklahoma’s maximum annualized interest rate of 6 percent. While the plaintiff recognized that the initial overdraft fee qualifies as a “deposit account service,” he argued that the extended overdraft fee “‘is an interest charge levied by [the bank] for the continued extension of credit made in covering a customer’s overdraft’ and therefore cannot be considered connected to the same banking services that [the bank] provides to its depositors.” The district court disagreed and dismissed the action for failure to state a claim after determining that the bank’s extended overdraft fees were fees for “deposit account services” and were not “interest” under the NBA.
In affirming the district court’s dismissal, the appellate majority (an issue of first impression in the 10th Circuit) agreed that the fees qualify as non-interest account fees rather than interest charges under the NBA. The majority deferred to the OCC’s 2007 Interpretive Letter, which addressed the legality of a similar overdraft program fee structure. The letter “represents OCC’s reasonable interpretation of genuinely ambiguous regulations, and OCC’s determination that fees like [the bank’s] extended overdraft fees are ‘non-interest charges’ is neither plainly erroneous nor inconsistent with the regulations it interprets,” the majority wrote. “As ‘non-interest charges’ under § 7.4002, [the bank’s] extended overdraft fees are not subject to the NBA’s usury limits, and [plaintiff] fails to state a claim,” the majority added.
The dissenting judge countered that extended overdraft fees are interest, and that the OCC’s interpretation did not deserve deference because these fees “unambiguously” meet the definition of interest under 12 C.F.R. § 7.4001(a). According to the dissenting judge, this regulation provides that “‘interest’ ... includes any payment compensating a creditor ... for an extension of credit,” and that as such, the “definition maps onto extended overdraft fees like [the bank’s]” and thus the plaintiff had stated a claim.
8th Circuit: No standing in FCRA action following Spokeo
On May 3, the U.S. Court of Appeals for the Eighth Circuit vacated a district court’s approval of a class action settlement agreement in an FCRA action after determining that the plaintiff lacked Article III standing in light of the U.S. Supreme Court’s decision in Spokeo, Inc. v. Robins. According to the opinion, after the plaintiff applied for employment with the defendant, the defendant made a conditional offer of employment to the plaintiff and also asked her to sign an authorization for release of information so that it could conduct a background investigation of the plaintiff, including a criminal background search. The plaintiff contended that, after the defendant reviewed the background screening report, it withdrew the conditional offer of employment and did not provide her an opportunity before the offer was withdrawn to correct or explain the results in the report. A follow-up letter, which included a copy of the report and a description of her rights under the FCRA, was sent to the plaintiff stating that if she planned to dispute the information she had to do so within seven days from receipt of the letter. The plaintiff commenced the action in February 2016, alleging the defendant violated the FCRA by: (i) “taking adverse employment action based on a consumer report without first providing the report to the applicant”; (ii) “obtaining a consumer report without providing a disclosure form that complied with the FCRA”; and (iii) “exceeding the scope of the authorization by obtaining more information than the disclosed in the authorization.” In May 2016, the parties reached a tentative settlement agreement, but four days later the Supreme Court issued its decision in Spokeo, which requires plaintiffs to show that they have suffered a concrete injury in fact that is fairly traceable to the challenged conduct of the defendant, and not just allege a statutory violation. Following Spokeo, the defendant moved to dismiss for lack of standing, but the district court approved the settlement.
On appeal, the 8th Circuit concluded that the plaintiff lacked Article III standing to bring her FCRA claims, determining, among other things, that “the right to pre-action explanation to the employer is not unambiguously stated in the text of the statute,” and that “[n]either the text of the FCRA nor the legislative history provide support for [plaintiff’s] claim that she has a right under the FCRA to not only receive a copy of her consumer report, but also discuss directly with the employer accurate but negative information within the report prior to the employer taking adverse action.” The plaintiff “may have demonstrated an injury in law, but not an injury in fact,” the appellate court wrote. With respect to the plaintiff’s other two claims, the appellate court noted that she failed to show any claim of harm—tangible or intangible. Because Schumacher lacked standing to assert any of her claims, the appellate court vacated the district court’s order and remanded the case with instructions to return the case to the state court.
District Court preliminarily approves TCPA class action settlement
On October 28, the U.S. District Court for the Northern District of California granted final approval to a $14.1 million settlement in a class action against an affiliate of a real estate services company for allegedly violating the TCPA by soliciting calls to consumers. According to the plaintiff’s motion for preliminary approval, the plaintiff alleged that he received unwanted telephone solicitations on behalf of the defendant to his residential telephone lines that he had previously registered on the “Do Not Call” registry, in addition to alleging that he received repeated unwanted telemarketing calls even after he had requested that the defendant and/or its agents not call him back. Each member of the settlement class, which consists of individuals in the U.S. who received two or more calls since September 13, 2014 on their residential telephone number from the defendant’s affiliate that promoted the purchase of the defendant’s goods and services, will receive $350.00. The final settlement also includes $2.77 million in attorney fees and costs.
California Court of Appeal: Plaintiffs bound to arbitration in online license agreement
On March 29, the California Court of Appeal for the Fourth Appellate District held that plaintiffs are bound to the terms of an arbitration agreement contained in a defendant video game company’s online license agreement, reversing a trial court’s finding that there was no conspicuous notice of an arbitration agreement and that a reasonably prudent user would not have had notice. According to the opinion, the plaintiff minor used “real money” to make in-game purchases of “loot boxes,” which offered players “randomized chances” to obtain desirable or helpful items. The minor and his father (collectively, “plaintiffs”) sued the defendant, alleging the sale of these loot boxes constituted unlawful gambling, and, thus, violated the California Unfair Competition Law. The defendant moved to compel arbitration based on a dispute resolution policy incorporated into various iterations of the online license agreement that users were presented when they signed up for, downloaded, and used the defendant’s service. The trial court denied the defendant’s motion for the reasons stated above, which the defendant appealed. In addition to agreeing to an end-user license agreement containing an arbitration provision when the plaintiff initially registered and downloaded the game, the defendant maintained that the plaintiff agreed to arbitration several times when the license agreement was updated.
Reviewing whether the defendant’s various notices sent to the plaintiff minor before the purchase of the loot boxes were sufficient to compel arbitration, the Court of Appeal concluded that the pop-up presenting an updated license agreement, which was the operative agreement when the plaintiff minor purchased the loot boxes, “provided sufficiently conspicuous notice.” The court also determined that the notice of arbitration itself appeared in a scrollable text box that included a section clearly titled dispute resolution, and that by clicking the “Continue” button the user was agreeing to all the terms of the license agreement. Specifically, the Court of Appeal held that the plaintiff minor could not have continued to use the defendant’s service if he did not click the “Continue” button. “In the context of the transaction at issue, we conclude [defendant’s] pop-up notice provided sufficiently conspicuous notice of the arbitration agreement such that Plaintiffs are bound by it,” the Court of Appeal wrote.
District Court: Pressing the “acknowledge button” is a signature under E-SIGN
On March 31, the U.S. District Court for the District of Columbia granted summary judgment on behalf of a plaintiff consulting firm, ruling that the defendant breached the terms of a binding contract entered into with the plaintiff, which he “signed” by pressing an “acknowledge button” on a Proprietary Information and Assignment of Inventions Agreement (PIIA). According to the court’s memorandum opinion, the case involves a dispute concerning the rights in a software program developed by the defendant while working at the firm. Previously, the court granted partial summary judgment to the plaintiff, which declared that the parties had an enforceable contract under which the defendant had assigned his rights in the software program to the plaintiff. At the time, the defendant argued that even though he had pressed the acknowledge button, “he ‘never understood’ nor ‘intended’ himself to be bound by the PIIA[.]” As such, he challenged the plaintiff’s assertion that he had assented to the PIIA. The court disagreed, concluding that evidence established “that the PIIA itself drew an ‘equivalence’ between acknowledging and agreeing,” and that “since there was no separate signature line, nor any instructions or directions to print and sign the PIIA, [defendant] had ‘no reason to think that [plaintiff] expected a more formal acceptance of the’ PIIA than the acknowledgement he provided.” Accordingly, the court concluded that “acknowledging” the PIIA amounted to the defendant’s signature in this context, thus satisfying the E-SIGN Act for purposes of satisfying the statute of frauds and binding the defendant to its terms, which included assigning any of his rights in the software to the plaintiff.
In granting summary judgment in favor of the plaintiff on its breach of contract claim, the court first reiterated its previous position that undisputed evidence showed that the defendant acknowledged the PIIA, that the defendant intended to acknowledge the PIIA, and that acknowledgment constituted a signature for purposes of the E-SIGN Act. The court also determined that the plaintiff carried its burden of proof as to showing the plaintiff breached the PIIA and that the plaintiff was sufficiently damaged by the defendant’s breaches.
CFPB addresses servicers’ obligations to respond to borrower inquiries
On April 4, the CFPB filed an amicus brief in a case on appeal to the U.S. Court of Appeals for the Ninth Circuit concerning a mortgage loan servicer allegedly failing to answer multiple inquiries from two separate consumers regarding their loans despite the requirement under Regulation X that servicers respond when a borrower submits a request for information that “states the information the borrower is requesting with respect to the borrower’s mortgage loan.” The plaintiffs filed suit after the defendant servicer declined to provide the information requested, stating that it would not respond “because the issues raised are the same or very closely related to the issues raised” in pending litigation surrounding the mortgages.
The U.S. District Court for the District of Oregon dismissed the plaintiffs’ claims, noting that under RESPA, “a mortgage loan servicer only has an obligation to provide a written response to a [qualified written request] that seeks ‘information relating to the servicing of such loan,’” and that the plaintiffs’ inquiries regarding the ownership of their loans and requesting other miscellaneous information did not “trigger[] [the defendant’s] obligations to respond under Regulation X” because a servicer has a ‘duty to respond’ only if a request for information ‘relates to the servicing of the loan.’”
In urging the appellate court to overturn the decision, the Bureau argued that under Section 1024.36 of Regulation X “servicers generally must respond to ‘any written request for information from a borrower’ that seeks ‘information ... with respect to the borrower’s mortgage loan.’” According to the Bureau, although a servicing-related request would fall under this provision, it is just one type of request that seeks information ‘with respect to’ a loan and thereby triggers a servicer’s obligation to respond” under the rules. The Bureau stated that Regulation X broadly requires servicers to respond to requests that seek information “with respect to” a borrower’s mortgage loan, explaining that it “included explicit language to that effect in the 2013 Rule to make clear that the rule created a unified set of requirements such that servicers’ obligations to respond were the same for a qualified written request as for any other information request,” and that it “did not exclude information requests that do not relate to servicing from the scope of § 1024.36.” The Bureau agreed with the plaintiffs that there is “no litigation exception to a servicer's obligation to respond to information requests under Regulation X.” The Bureau further noted in a blog post that,“[a] pending lawsuit does not take away a borrower’s right to a response from their loan servicer under Regulation X.”