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District Court approves $14.8 million cloud subscription settlement
On August 4, the U.S. District Court for the Northern District of California approved a $14.8 million class action settlement resolving claims that a major technology company allegedly misled users about its cloud storage practices. In 2020, plaintiffs filed an amended complaint alleging the company breached its agreement with customers by hosting user data on third-party servers without providing proper notice, which resulted in overcharges. The plaintiffs alleged that the “selection of a cloud storage provider is a significant and material consideration as it involves entrusting all of a user’s stored data—including sensitive information like photographs, documents of all kinds, and e-mail content—to be stored by the cloud storage provider,” and that “users have an interest in who is offering this storage and taking custody of their data.” Plaintiffs claimed that, while the company assured users that it was the provider of the purchased cloud storage service, it was actually reselling cloud storage space on other third parties’ cloud facilities and charging users a “premium” for believing their data was being stored by the company. Approximately 16.9 million class members will receive individual settlement payments based on the overall payments made by each user for his or her cloud subscription during the class period. In granting final approval of the settlement, the court noted that the deal is fair, reasonable, and adequate.
Consulting firm agrees to $4.95 million settlement to resolve class data breach claims
On February 16, the U.S. District Court for the Southern District of New York granted final approval of a $4.95 million class action settlement, resolving allegations that a consulting firm failed to use reasonable data security measures when designing web-based portals for state employment agencies in Illinois, Colorado, and Ohio. According to the class’s supplemental brief in support of their motion for final approval, the allegedly poorly designed websites were subject to a data breach that resulted in unauthorized access to unemployment seekers’ personally identifiable information. The parties agreed to a nationwide settlement class of 237,675 individuals in Illinois, Colorado, and Ohio. These individuals were notified by their state employment agencies that certain personal information submitted when applying for pandemic-related unemployment claims may have been inadvertently exposed in a data breach. Under the terms of the settlement, the defendant agreed to establish a $4.95 million settlement fund to compensate eligible claimants, and will pay more than $1.6 million in attorneys’ fees and costs, as well as class member service awards.
FTC sues weight-loss companies alleging COPPA and FTC Act violations
On February 16, the FTC filed a complaint for permanent injunction in the U.S. District Court for the Northern District of California against an international weight loss service organization and its subsidy (collectively, “defendants”) for allegedly using unfair and deceptive practices to obtain personal information of underage users without parental consent. According to the complaint, the defendants violated the Children’s Online Privacy Protection Act and Section 5 of the FTC Act by collecting and keeping personal information from children under 13 without providing notice to or obtaining consent from their parents. The complaint alleges that the defendants, among other things, failed to: (i) “provide through the App and website a clear, understandable, and complete direct notice to parents of [the] Defendants’ practices”; (ii) “make reasonable efforts, taking into account available technology, to ensure that parents receive the direct notice”; and (iii) “obtain verifiable parental consent before any collection, use, or disclosure of personal information from children.” The proposed settlement is pending court approval.
DOJ says Fair Housing Act covers appraisal discrimination
On February 14, the DOJ filed a statement of interest in a lawsuit alleging defendants violated the Fair Housing Act (FHA or the Act) by discriminating on the basis of race in connection to a residential home appraisal. The plaintiffs, a Black couple, sought to refinance their home mortgage, and received an appraisal from the defendants valued at $995,000. However, a few weeks later a second appraiser valued their home at $1,482,500. The plaintiffs alleged that their race factored into the defendants’ low valuation, which violated federal and state law, including the FHA. The defendants moved to dismiss for failure to state a claim, arguing that the FHA does not apply to residential appraisers, and that the plaintiffs failed to allege facts that make out a prima facie case at this stage of litigation.
In its statement of interest, the DOJ noted that both the agency and HUD share enforcement authority under the FHA, including addressing appraisal discrimination. The DOJ also highlighted Executive Order 13985, which directed federal agencies “to address ‘[o]ngoing legacies of residential segregation and discrimination’–including ‘a persistent undervaluation of properties owned by families of color,’” (issued in 2021 and covered by InfoBytes here), and stated that President Biden also established an interagency task force to, among other things, “‘root out discrimination in the appraisal and homebuying process.’” To illustrate that the FHA applies to residential appraisals and appraisers, the DOJ pointed to the FHA’s text and to caselaw to demonstrate that the statute applies to residential mortgages. “[B]y its plain terms, the Act directly prohibits discrimination by ‘any person or other entity’ engaged in the “apprais[al] of residential real property,” the DOJ stated, adding that the appraisal exemption under Section 3605(c) clarifies that while appraisers may consider relevant and nondiscriminatory factors, they may not discriminate on the basis of protected classes. The DOJ also disagreed with the defendants’ position that under Section 3603 the FHA is not applicable to the subject property, stating that the section referenced by the defendants was only effective until 1968 and that henceforth, “all dwellings are covered by the FHA unless specifically exempted.” Additionally, the DOJ cited caselaw, which “found that proper defendants for appraisal-related discrimination may include not only appraisers, but their employers and the lenders who relied on their valuations.” With respect to the defendants’ prima facie argument, the DOJ contended, among other things, that the FHA “simply requires that Plaintiffs allege a plausible entitlement to relief as a result of Defendants’ ‘discriminatory housing practices.’”
4th Circuit affirms district court’s decision in lone class member's appeal
On February 10, the U.S. Court of Appeals for the Fourth Circuit affirmed a district court’s approval of a $3 million class action settlement between a class of consumers (plaintiffs) and a national mortgage lender (defendant), resolving allegations arising from a foreclosure suit. In 2014, the lead plaintiffs alleged that the defendants violated federal and Maryland state law by failing to; (i) timely acknowledge receipt of class members’ loss mitigation applications; (ii) respond to the applications; and (iii) obtain proper documentation. After the case was litigated for six years, a settlement was reached that required the defendant to pay $3 million towards a relief fund. The district court approved the settlement and class counsel’s request for $1.3 million in attorneys’ fees and costs, but an absent class member objected to the settlement, arguing that “the class notice was insufficient; the settlement was unfair, unreasonable, and inadequate; the release was unconstitutionally overbroad; and the attorneys’ fee award was improper.” A magistrate judge overruled the plaintiff’s objections, finding that “both the distribution and content of the notice were sufficient because over 97% of the nearly 350,000 class members received notice,” and that “class members ‘had information to make the necessary decisions and . . . the ability to even get more information if they so desired.’”
On the appeal, the 4th Circuit rejected the class member’s argument that the magistrate judge lacked jurisdiction to approve the settlement where she had not consented to have the magistrate hear the case. The 4th Circuit noted that only “parties” are required to consent to have a magistrate hear a case and held that absent class members are not “parties,” noting that “every other circuit to address the issue has concluded that absent class members aren’t parties.” The appellate court also upheld the adequacy of the class notice, and held that the magistrate judge did not abuse his discretion in finding that the settlement agreement was fair, reasonable, and adequate.
District Court approves settlement of class claiming privacy violations
On February 11, the U.S. District Court for the Central District of California granted approval of a $217 million class action settlement, resolving allegations that the Transportation Corridor Agencies (TCA) and their contractors (collectively, “defendants”) allegedly repeatedly used their access to drivers’ personal information to share data. According to the plaintiffs’ motion for final approval of the settlement, the defendants allegedly provided toll violation information to the California Department of Motor Vehicles so the agency could prevent drivers' vehicle registration renewals until the outstanding tolls were paid, in violation of California law. According to the settlement, the TCA is required to forgive $135 million in penalties and pay $29 million in cash awards. Each class representative will receive $15,000 from TCA, and class counsel will receive $17.5 million. Among other things, TCA must also increase the time to pay unpaid toll citations from five to seven days and update its privacy policies to include a list of the categories of personal identifying information sent to third parties. The toll operator is required to pay $11.95 million in cash to class members as part of the settlement, in addition to $3,000 to each class representative and $3 million to class counsel. Additionally, Orange County Transportation Authorities are required to forgive $40 million in penalties and pay $1 million in cash and will be required to reduce the maximum toll violation.
Appeals Court to consider whether CFPA covers trusts
On February 11, the U.S. District Court for the District of Delaware stayed a 2017 CFPB enforcement action against a collection of Delaware statutory trusts and their debt collector after determining there may be room for reasonable disagreement related to questions of “covered persons” and “timeliness.” As previously covered by InfoBytes, last December the court ruled that the CFPB could proceed with the enforcement action, which alleged, among other things, that the defendants filed lawsuits against consumers for private student loan debt that they could not prove was owed or that was outside the applicable statute of limitations. The court concluded that the suit was still valid and did not need ratification in light of the U.S. Supreme Court’s 2020 decision in Seila Law v. CFPB (which determined that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau—covered by a Buckley Special Alert), upending its previous dismissal of the case, which had held that the Bureau lacked enforcement authority to bring the action when its structure was unconstitutional. At the time, the court also disagreed with the defendants’ argument that, as trusts, they are not “covered persons” under the Consumer Financial Protection Act (CFPA). While the defendants argued that they used subservicers to collect debt and therefore did not “engage in” providing services listed in the CFPA, the court stated that the trusts were still “engaged” in their business and the alleged misconduct even though they contracted it out.
However, the court now certified two questions for appeal to the U.S. Court of Appeals for the Third Circuit. The first question centers on whether the defendants qualify as “covered persons” subject to the Bureau’s enforcement authority. The court concluded that another court may rule differently on this “novel” issue. “I was the first judge to decide whether the Bureau may bring enforcement actions against creditors like the Trusts who contract out debt collection and loan servicing,” the judge wrote, noting that the judge previously assigned to the case had also “expressed ‘some doubt’ that the Trusts are covered persons.” The second question addresses the Bureau’s efforts to continue the case after Seila. The defendants argued that the suit should be dismissed because the initial filing was invalid due to the director’s unconstitutional insulation and was not ratified within the statute of limitations. In December the court had held that the Bureau did not need to ratify the suit because—pointing to the majority opinion in the Supreme Court’s decision in Collins v. Yellen (covered by InfoBytes here)—“‘an unconstitutional removal restriction does not invalidate agency action so long as the agency head was properly appointed[,]’” and therefore the agency’s actions are not void and do not need to be ratified, unless a plaintiff can show that “the agency action would not have been taken but for the President’s inability to remove the agency head.” The court now acknowledged, however, that Collins “is a very recent Supreme Court decision” whose scope is still being “hashed out” in lower courts, which therefore “suggests that there is room for reasonable disagreement and thus supports an interlocutory appeal here.”
District Court grants summary judgment in discriminatory lending suit
On February 10, the U.S. District Court for the Northern District of Illinois granted summary judgment in favor of a national bank, its subsidiary, and a lending corporation (collectively, “defendants”) with respect to discriminatory lending allegations brought by the County of Cook in Illinois (County). The County alleged that the defendants “identified and targeted minority borrowers ‘using advanced data mining techniques and predictive analysis methodologies,’” to make short-term profits from African American, Latino, and other borrowers protected by the Fair Housing Act through a purported “equity stripping scheme,” as well as by foreclosing disproportionately on their homes. The alleged illegal practices included, among other things, marketing loan products to consumers who were not qualified for them, offering incentives to employees to increase loan volume among borrowers with lower credit scores, and making high-risk loans. However, the court found that “even if a jury were persuaded that [the defendants] engaged in one or more of these practices at some point between 2004 and 2012, nothing in the county’s submissions offers a basis for the jury to leap from such a finding to the conclusion that defendants carried out an integrated equity stripping scheme targeting minority borrowers.” With respect to the County’s claim that defendants used “data mining” to identify and target minority populations for the purpose of marketing its home loans, the court found that “[I]f there is any authority for the proposition that soliciting business from minority prospects, or marketing in neighborhoods with a high concentration of minority residents, amounts to intentional discrimination in violation of the FHA, the county has not cited it.” The court also ruled that “[b]ecause the [County] acknowledges that its ledger (including the appropriations and expenditures of the three offices it claims had additional costs) was not affected by the alleged discrimination, compensatory damages are unavailable.”
1st Circuit vacates ruling in Maine FCRA case
On February 10, the U.S. Court of Appeals for the First Circuit vacated a district court’s ruling that the FCRA preempts amendments to the Maine Fair Credit Reporting Act that govern how certain debts are reported to credit reporting agencies. As previously covered by InfoBytes, a trade association—whose members include the three nationwide consumer credit reporting agencies (CRAs)—sued the Maine attorney general and the superintendent of Maine’s Bureau of Consumer Credit Protection (collectively, “defendants”) for enacting the 2019 amendments, which, among other things, place restrictions on how medical debts can be reported by the CRAs and govern how CRAs must investigate debt that is allegedly a “product of ‘economic abuse.’” The trade association argued that the amendments, which attempt to regulate the contents of an individual’s consumer report, are preempted by the FCRA, and contended that language under FCRA Section 1681t(b)(1)(E) should be read to encompass all claims relating to information contained in consumer reports. The district court agreed, ruling that, as a matter of law, the amendments are preempted by § 1681t(b)(1)(E). According to the court, Congress’ language and amendments to the FCRA’s structure “reflect an affirmative choice by Congress to set ‘uniform federal standards’ regarding the information contained in consumer credit reports,” and that “[b]y seeking to exclude additional types of information” from consumer reports, the amendments “intrude upon a subject matter that Congress has recently sought to expressly preempt from state regulation.” The defendants appealed.
On appeal, the plaintiff argued that the phrase “relating to information contained in consumer reports” broadly preempts all state laws, but the appellate court was not persuaded and concluded that the broad interpretation “is not the most natural reading of the statute’s syntax and structure.” The 1st Circuit found “no reason to presume that Congress intended, in providing some federal protections to consumers regarding the information contained in credit reports, to oust all opportunity for states to provide more protections, even if those protections would not otherwise be preempted as ‘inconsistent’ with the FCRA under 15 U.S.C. § 1681t(a).” In addition, the court reminded the plaintiff that “even where Congress has chosen to preempt state law, it is not ousting states of regulatory authority; state regulators have concurrent enforcement authority under the FCRA, subject to some oversight by federal regulators.” As such, the appellate court held that the FCRA did not broadly preempt the entirety of Maine’s amendments, and remanded the case back to the district court to determine the scope under which the amendments may be preempted by the FCRA.
District Court says NY champerty statute bars RMBS suit
On February 8, the U.S. District Court for the Southern District of New York issued an opinion granting in part and denying in part defendants’ motion for summary judgment and denying plaintiffs’ motions for partial summary judgment in parallel actions concerning pre-2008 residential mortgage-back securities (RMBS) trusts. In both cases, plaintiffs—RMBS certificateholders—filed suit alleging breaches of contractual, fiduciary, statutory, and common law duties with respect to certificates issued by RMBS trusts for which two of the defendants’ units served as trustee. Both plaintiffs alleged that the defendants failed to follow through on obligations to monitor the pre-2008 RMBS trusts that they administered. However, the court partially ruled in favor of the defendants, concluding that one set of plaintiffs could not avoid their loss in an RMBS trustee case brought against a different national bank, in which the court deemed the plaintiffs lacked a valid legal right to sue. In that matter, the U.S. Court of Appeals for the Second Circuit issued an opinion last October, agreeing with a different New York judge that “found the assignments champertous under New York law, rendering them invalid and leaving Plaintiffs without standing.” According to the 2nd Circuit, district court findings showed it was clear that the assignments were champertous “as they were made ‘with the intent and for the primary purpose of bringing a lawsuit.’”
The district court noted that the assignments of all the claims in the current matter were essentially identical to the issue already decided by the 2nd Circuit, and saw sufficient overlap to find the plaintiffs’ vehicles “collaterally estopped” from relitigating the issues of prudential standing and champerty. “The issues decided by the court of appeals relating to champerty and prudential standing are dispositive of the present action,” the court wrote. “Without prudential standing, the [] plaintiffs cannot assert claims arising out of the certificates and the entire [] action must be dismissed.” With respect to the other set of plaintiffs, while the court allowed certain claims to stand, it declined to grant any portion of the joint partial summary judgment related to the defendants’ alleged responsibilities as trustee, ruling that plaintiffs must prove those claims at trial.