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En banc 9th Circuit: FHA does not support downstream injuries
On September 28, the U.S. Court of Appeals for the Ninth Circuit issued an en banc decision concluding that the Fair Housing Act (FHA) “is not a statute that supports proximate cause for injuries further downstream.” As previously covered by InfoBytes, the City of Oakland sued a national bank alleging violations of the FHA and the California Fair Employment and Housing Act, claiming the bank provided minority borrowers mortgage loans with less favorable terms than similarly situated non-minority borrowers, which led to disproportionate defaults and foreclosures and caused (i) decreased property tax revenue; (ii) increased city expenditures; and (iii) neutralized spending in Oakland’s fair-housing programs. In 2020, a three-judge panel affirmed both the district court’s denial of the bank’s motion to dismiss claims for decreased property tax revenue, as well as the court’s dismissal of Oakland’s claims for increased city expenditures. (Covered by InfoBytes here.) The panel further held that Oakland’s claims for injunctive and declaratory relief were also subject to the FHA’s proximate-cause requirement and, on remand, the district court must determine whether Oakland’s allegations satisfied this requirement. The bank filed a petition for panel rehearing and rehearing en banc last year arguing, among other things, that the panel had “fashioned a looser, FHA-specific proximate-cause standard” in conflict with the U.S. Supreme Court’s decision in Bank of America Corp. v. City of Miami. As covered by a Buckley Special Alert, in 2017, the Supreme Court held that municipal plaintiffs may be “aggrieved persons” authorized to bring suit under the FHA against lenders for injuries allegedly flowing from discriminatory lending practices, but that such injuries must be proximately caused by, rather than simply the foreseeable result of, the alleged misconduct.
The 9th Circuit agreed with the bank and remanded the case for dismissal of the FHA claims and proceedings consistent with the opinion. Citing the Miami decision as one of the leading factors, the panel stated that “[w]e begin where Miami began, with ‘[t]he general tendency. . .not to go beyond the first step,’” adding that “[t]here is no question that Oakland’s theory of harm goes beyond the first step—the harm to minority borrowers who receive predatory loans. Oakland’s theory of harm runs far beyond that—to depressed housing values, and ultimately to reduced tax revenue and increased municipal expenditures. Oakland thus fails a strict application of the general tendency not to stretch proximate causation beyond the first step.” The panel also affirmed the district court’s decision that Oakland failed to sufficiently plead claims related to increased municipal expenditures and reversed the district court’s denial of the bank’s motion to dismiss claims for lost property tax revenue and injunctive and declaratory relief.
District Court says bank must face reopened accounts allegations
On September 27, the U.S. District Court for the District of New Jersey granted in part and denied in part a national bank’s motion to dismiss a putative class action concerning allegations that the bank opened and reopened accounts without notifying customers. The plaintiffs alleged that they discovered the bank reopened closed accounts after receiving tax refunds and a one-off refund from a retailer. According to the plaintiffs, the bank accepted deposits into the reopened accounts and then allegedly collected funds from the accounts, resulting in unanticipated fees.
The court issued an opinion, calling it an issue of first impression within the Third Circuit, finding that “account numbers, whether new or old, which identified or provided access to the disputed accounts opened in Plaintiffs’ names each qualified as a ‘card, code, or other means of access’ to those accounts” under [EFTA] § 1693i(a).” Since the opening of an account “necessarily must be accompanied with an account number associated with that account,” the court found that the plaintiffs sufficiently stated a claim that the bank violated § 1693i(a). Among other things, the court disagreed with the bank’s argument that it could not “have been unjustly enriched by assessing [the plaintiff] fees in exchange for her acceptance of the services [the bank] provides,” stating that the bank’s argument “either misunderstands or purposefully misconstrues the basis” for the plaintiff’s claim, which was that the bank “opened the account in her name without her permission, and therefore did not have a contractual basis for assessing such fees associated with maintaining that account[.]” The court also allowed the plaintiffs’ unjust enrichment claim and Massachusetts Consumer Protection Act claim to proceed. While the court provided the plaintiffs the opportunity to file an amended complaint to revive their dismissed breach of contract claims, their FCRA allegations were dismissed with prejudice.
District Court orders student loan debt-relief defendant to pay $20 million
On September 23, the U.S. District Court for the Central District of California entered a judgment in favor of the CFPB against an individual defendant in an action taken by the Bureau against a lender and several related individuals and companies (collectively, “defendants”) for alleged violations of the Consumer Financial Protection Act (CFPA), Telemarketing Sales Rule (TSR), and Fair Credit Reporting Act (FCRA). As previously covered by InfoBytes, the CFPB filed a complaint in 2020 claiming the defendants violated the FCRA by, among other things, illegally obtaining consumer reports from a credit reporting agency for millions of consumers with student loans by representing that the reports would be used to “make firm offers of credit for mortgage loans” and to market mortgage products. However, the Bureau alleged that the defendants instead resold or provided the reports to numerous companies, including companies engaged in marketing student loan debt relief services. The defendants also allegedly violated the TSR by charging and collecting advance fees for their debt relief services, and violated both the TSR and CFPA by placing telemarketing sales calls and sending direct mail to encourage consumers to consolidate their loans, while falsely representing that consolidation could lower student loan interest rates, improve borrowers’ credit scores, and allow borrowers to change their servicer to the Department of Education. Settlements have already been reached with certain defendants (covered by InfoBytes here, here, and here).
In August the court granted the Bureau’s motion for summary judgment against the individual defendant after determining that undisputed evidence showed that the individual defendant, among other things, “obtained and later used prescreened lists from [a consumer reporting agency] without a permissible purpose” in order to send direct mail solicitations from the businesses that he controlled to consumers on the lists as opposed to firm offers of credit or insurance. (Covered by InfoBytes here.) At the time, the court found that injunctive relief, restitution, and a civil money penalty were appropriate remedies. While the individual defendant objected to the proposed judgment, the court ultimately ordered that the Bureau is entitled to a judgment for monetary relief of over $19 million as redress for fees paid by affected consumers. This restitution is owed jointly and severally with the student loan debt relief company defendants in the amounts imposed in default judgments entered against each of them (covered by InfoBytes here). Additionally, the court determined that the individual defendant “recklessly” violated the CFPA, TSR, and FCRA, warranting a $20 million civil money penalty. The individual defendant is also permanently banned from participating in telemarketing activities or from using or obtaining prescreened consumer reports.
FTC settles with debt collector
On September 27, the FTC announced a settlement with a Georgia-based debt collection company and its owners (collectively, “defendants”) for allegedly engaging in fraudulent debt collection practices. As previously covered by InfoBytes, the FTC filed a complaint against the defendants alleging that they violated the FTC Act and the FDCPA by, among other things: (i) posing as law enforcement officers, prosecutors, attorneys, mediators, investigators, or process servers when calling consumers to collect debts; (ii) using profane language and threatening consumers with arrest or serious legal consequences if debts were not immediately paid; (iii) threatening to garnish wages, suspend Social Security payments, revoke drivers’ licenses, or lower credit scores; (iv) attempting to collect debts that were either never owed or were no longer owed; (v) unlawfully contacting third parties, such as family members or employers; and (vi) adding unauthorized or impermissible charges or fees to consumers’ debts. The U.S. District Court for the Northern District of Georgia granted a temporary restraining order against the defendants in September 2020. Under the terms of the stipulated final order, the FTC ordered that the defendants are banned from the debt collection industry, prohibited from misrepresenting that they are attorneys or affiliated with a law firm or whether a consumer owes any kind of debt, and are prohibited from making misleading claims while selling a product or service. The order also requires the defendants to pay more than $266,000 to the Commission. A $3 million monetary judgment will be partially suspended upon completion of asset transfers from all financial institutions holding accounts in the defendants’ names.
6th Circuit: TCPA robocall claims not invalidated by severance of 2015 amendment in AAPC
On September 9, the U.S. Court of Appeals for the Sixth Circuit determined that the U.S. Supreme Court’s decision in Barr v. American Association of Political Consultants Inc. (AAPC) (covered by InfoBytes here, which held that the government-debt exception in Section 227(b)(1)(A)(iii) of the TCPA is an unconstitutional content-based speech restriction and severed the provision from the statute) does not invalidate a plaintiff’s TCPA claims concerning robocalls he received prior to the Court issuing its decision. In the current matter, the plaintiff filed a proposed class action alleging violations of the TCPA’s robocall restriction after he received two robocalls from the defendant in late 2019 and early 2020 advertising its electricity services. Following the Court’s decision in AAPC, the district court granted the defendant’s motion to dismiss, ruling that because severance of the exception in AAPC only operates prospectively, “the robocall restriction was unconstitutional and therefore ‘void’ for the period the exception was on the books.” As such, the district court concluded that because the robocall restriction was void, it could not provide a basis for federal-question jurisdiction for alleged TCPA robocall violations arising before the Court severed the exception.
On appeal, the 6th Circuit conducted a severability analysis, holding that the district court erred in concluding that the court, in AAPC, offered “‘a remedy in the form of eliminating the content-based restriction' from the TCPA.” Rather, the appellate court pointed out that “the Court recognized only that the Constitution had ‘automatically displace[d]’ the government-debt-collector exception from the start, then interpreted what the statute has always meant in its absence,” adding that the legal determination in AAPC applied retroactively and did not render the entire TCPA robocall restriction void until the exception was severed by the court. A First Amendment defense presented by the defendant premised on the argument that “government-debt collectors have a due-process defense to liability because they did not have fair notice of their actions’ unlawfulness” for robocalls placed before AAPC was also rejected. The 6th Circuit opinion emphasized that “[w]hether a debt collector had fair notice that it faced punishment for making robocalls turns on whether it reasonably believed that the statute expressly permitted its conduct. That, in turn, will likely depend in part on whether the debt collector used robocalls to collect government debt or non-government debt. But applying the speech-neutral fair-notice defense in the speech context does not transform it into a speech restriction.”
District Court: Arbitration provision is severable from a voided loan contract
On September 16, the U.S. District Court for the Southern District of Alabama granted a defendant tribal payday lender’s motion to dismiss and compel arbitration, ruling that an arbitration agreement in a loan contract is still valid even if an arbitration panel found the contracts were void. The plaintiff initiated an arbitration proceeding against the defendant alleging that payday loan contracts carrying interest rates between 200 and 830 percent were void because the defendant was not licensed under the Alabama Small Loans Act to extend such loans. An American Arbitration Association panel determined, among other things, that the defendant had waived any tribal sovereign immunity, “the transactions involved off-reservation commercial activities to which sovereign immunity does not apply,” and that the loans were entirely void because each of the loans was extended without a license. The plaintiff filed suit in state court to confirm the arbitration award and pursue a class action on the premise that the loans are usurious and should be declared void. The defendant removed the case to federal court and asked the court to dismiss the proposed class action and compel arbitration. The district court agreed with the defendant that the arbitration agreement in the voided loan contract remained binding despite the arbitrator’s earlier determination in the plaintiff’s favor. Specifically, the court disagreed with the plaintiff’s argument that the arbitrator’s determination meant that “no aspect of the contact survives,” stating that the plaintiff “overlooks a central tenet in binding precedential arbitration law: severability.” According to the court, “‘[a]s a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract.’”
DOJ settles SCRA violations with New Jersey student lending authority
On September 20, the DOJ announced a settlement with a New Jersey’s student lending authority, resolving allegations that the authority obtained unlawful court judgments in violation of the Servicemembers Civil Relief Act (SCRA) against two military servicemembers who co-signed student loans . According to the press release, the DOJ launched an investigation into the authority after receiving a report from the Coast Guard that the authority obtained a default judgment in 2019 against a Coast Guard petty officer who co-signed on behalf of the two student loans. The complaint, filed by the DOJ in the U.S. District Court for the District of New Jersey, states that the authority “obtained default judgments against two SCRA-protected servicemembers” by failing “to file true and accurate affidavits indicating the military status of [the two service servicemembers].” According to the DOJ, lenders can verify an individual’s military status by utilizing a defense data center’s free and public website, or by reviewing their files to confirm military status. The authority allegedly filed affidavits in state court that inaccurately stated that the servicemembers were not in military service, even though the authority had conducted searches in the defense data center’s website that confirmed that the individuals were active military servicemembers.
The settlement notes that the authority must pay $15,000 each to the two servicemembers who had default judgments entered against them, and must pay a $20,000 civil penalty. Among other things, the settlement also requires the authority to provide compliance training to its employees and to develop new policies and procedures consistent with the SCRA. The settlement also notes that the authority, since the opening of the investigation, has been fully cooperative and has “taken steps to improve its compliance with the SCRA.”
Illinois state appellate court applies different limitation periods under BIPA
On September 17, the First District Appellate Court of Illinois held that different limitation periods should be applied to the Biometric Information Privacy Act (BIPA), concluding that while Section 15 imposes various duties that all concern privacy, “each duty is separate and distinct.” Specifically, the panel stated that claims related to “[a]ctions for slander, libel or for publication of matter violating the right of privacy” have a one-year limitation period, while “all civil actions not otherwise provided for” carry a five-year limit. Plaintiffs filed a class action complaint alleging violations of BIPA Sections 15(a), 15(b), and 15(d), claiming the defendant collected, stored, used, and disseminated individuals’ biometric data obtained through fingerprint scans without, among other things, (i) informing plaintiffs of the purpose and length of the storage and use of their data; (ii) receiving written release from plaintiffs; (iii) providing a retention schedule and guidelines for destroying the data; or (iv) obtaining consent from plaintiffs and other employees to disseminate their data to third parties. The defendant moved to dismiss, arguing that the claims were filed outside the limitation period, noting that while BIPA itself has no limitation provision, “the one-year limitation period for privacy actions under Code section 13-201 applies to causes of action under [BIPA] because [BIPA’s] purpose is privacy protection.” A state trial court denied the defendant’s motion to dismiss, ruling that the plaintiffs’ claims were subject to Illinois’ “catchall” five-year limitation provision rather than the state’s one-year privacy claim limitation period, since the plaintiffs were alleging specific BIPA violations rather than a general privacy invasion.
On appeal, the appellate court considered the limitations question and determined, among other things, that since Illinois’ one-year statute of limitations applies only to published privacy violations, it can only govern BIPA claims filed under section 15(c)’s profit restrictions and section 15(d)’s disclosure/dissemination prohibitions. As such, plaintiffs suing under BIPA’s section 15(a)’s retention requirements, section 15(b) informed consent, and section 15(e) data safeguarding requirements have five years to bring such claims since these duties “have absolutely no element of publication or dissemination.”
9th Circuit says tribal lenders can arbitrate RICO class claims
On September 16, a split U.S. Court of Appeals for the Ninth Circuit concluded that “an agreement delegating to an arbitrator the gateway question of whether the underlying arbitration agreement is enforceable must be upheld unless that specific delegation provision is itself unenforceable.” The appellate court’s decision reversed a district court’s ruling that an arbitration agreement entered between tribal lenders and borrowers was unenforceable because it impermissibly waived borrowers’ rights to pursue federal statutory claims. As previously covered by InfoBytes, in April the U.S. District Court for the Northern District of California granted class certification to residents who received loans from an online lender, allowing them to pursue class Racketeer Influenced and Corrupt Organizations Act (RICO) claims based on allegations they were charged interest rates that exceeded state limits for lenders claiming tribal immunity. The class of borrowers include California residents who collected loans from an Oklahoma-based tribe, and California residents who received loans from a Montana-based tribe. The district court also ruled that the entire arbitration agreement, including provisions containing a class action waiver, was unenforceable. The lenders appealed.
On appeal, the 9th Circuit majority cited to the U.S. Supreme Court’s decision in Rent-A-Center, West, Inc. v. Jackson, which determined, among other things, that when a party challenges an entire agreement—not just an arbitration provision—deciding “gateway” issues such as enforceability must be delegated to an arbitrator. “We do not dispute that [b]orrowers have a reasonable argument that the arbitration agreement as written precludes them from asserting their RICO claims or other federal claims in arbitration. . . . And if that is true, the arbitration agreement is likely unenforceable as a prospective waiver,” the majority wrote. “But, when there is a clear delegation provision, that question is. . .for the arbitrator to decide so long as the delegation provision itself does not eliminate parties’ rights to purse their federal remedies,” the majority added.
The 9th Circuit’s opinion differs from decisions issued by other appellate courts, which found that certain delegation provisions were unenforceable for various reasons after reviewing whether an arbitration agreement as a whole was unenforceable due to prospective waiver of federal claims. (See InfoBytes coverage of the 3rd and 4th Circuit decisions here and here.) The majority stated that the other appellate courts “considered the wrong thing by ‘confus[ing] the question of who decides arbitrability with the separate question of who prevails on arbitrability.’” According to the majority, “[t]he proper question is not whether the entire arbitration agreement constitutes a prospective waiver, but whether the antecedent agreement delegating resolution of that question to the arbitrator constitutes prospective waiver.”
District Court denies company’s bid to arbitrate in class action
On September 15, the U.S. District Court for the Southern District of California denied a defendant tech company’s motion to compel arbitration, dismiss or stay a class action lawsuit alleging that it violated the California Invasion of Privacy Act, among other things, by monitoring certain contract employees’ social media activity. The complaint alleges that the named plaintiff, a contract delivery driver for the company, and other contract employees, utilized an online platform to “discuss ‘a myriad of issues surrounding their employment,’ including strikes, protests, pay, benefits, deliveries, working conditions, and unionizing efforts.” The plaintiff alleged that the company was secretly monitoring and wiretapping the employees’ social media groups and created a team “to ‘monitor and/or intercept[]’ posts to closed [online] groups ‘in real time . . . using automated monitoring tools,’” without obtaining consent.
With respect to the defendants’ motion to compel arbitration, the company argued that, under the applicable terms of service, the plaintiff was required to arbitrate his claims on an individual basis. The court, however, found that that the plaintiff met his burden to demonstrate that the claims alleged do not fall within the scope of the arbitration provision.