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Financial Services Law Insights and Observations


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  • 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.”

    Courts TCPA Class Action Autodialer U.S. Supreme Court Appellate Ninth Circuit Third-Party

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  • District Court denies defendant’s motion to certify an interlocutory appeal in BIPA case


    On March 18, the U.S. District Court for the Northern District of Illinois denied a retailer’s motion to certify for interlocutory appeal the court’s earlier ruling denying, in part, the retailer’s motion to dismiss. This multi-district litigation involves allegations that the retailer used a database containing photographs of individuals and other information to identify people whose images appeared in its surveillance cameras, in violation of the Illinois Biometric Information Privacy Act (BIPA), and California and New York laws. In denying the request for interlocutory appeal, the district court held that its earlier ruling had faithfully applied U.S. Court of Appeals for the Seventh Circuit precedent regarding standing of those who allege invasions of their personal privacy, and that the Supreme Court’s decision in TransUnion v. Ramirez (covered by InfoBytes here) did not undermine that precedent. It also held that the retailer’s disagreement with its prior application of the alleged facts to BIPA and its prior ruling that the plaintiffs had stated claims under California and New York laws did not warrant interlocutory review.

    Courts BIPA Privacy/Cyber Risk & Data Security MDL Appellate Seventh Circuit U.S. Supreme Court

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  • District Court rules ratification unnecessary for CFPB to proceed with 2017 enforcement action


    On March 16, the U.S. District Court for the Southern District of New York ruled that the CFPB can proceed with its 2017 enforcement action against a New Jersey-based finance company alleging, among other things, that it misled first responders to the World Trade Center attack and NFL retirees about high-cost loans mischaracterized as assignments of future payment rights. In 2020, the U.S. Court of Appeals for the Second Circuit vacated a 2018 district court order dismissing the case on the grounds that the Bureau’s single-director structure was unconstitutional, and that, as such, the agency lacked authority to bring claims alleging deceptive and abusive conduct by the company (covered by InfoBytes here). The 2nd Circuit remanded the case to the district court, determining that the U.S. Supreme Court’s ruling in Seila Law LLC v. CPFB (holding that the director’s for-cause removal provision was unconstitutional but severable from the statute establishing the Bureau, as covered by a Buckley Special Alert) superseded the 2018 ruling. The appellate court further noted that following Seila, former Director Kathy Kraninger ratified several prior regulatory actions (covered by InfoBytes here), including the enforcement action brought against the defendants, and as such, remanded the case to the district court to consider the validity of the ratification of the enforcement action. The defendants later filed a petition for writ of certiorari, arguing that the Bureau could not use ratification to avoid dismissal of the lawsuit, but the Supreme Court declined the petition. (Covered by InfoBytes here.)

    In 2021, the defendants filed a motion to dismiss the Bureau’s enforcement action on the grounds that “it was brought by an unconstitutionally constituted agency” and that the Bureau’s “untimely attempt to subsequently ratify this action cannot cure the agency’s constitutional infirmity.” After narrowly reviewing whether the Bureau had the authority to bring claims under the Consumer Financial Protection Act, the district court turned to the Supreme Court’s June 2021 majority decision in Collins v. Yellen, which held that “‘an unconstitutional removal restriction does not invalidate agency action so long as the agency head was properly appointed[.]’” Accordingly, 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.” (Covered by InfoBytes here.) The district court’s March 16 opinion applied Collins and ruled that “the CFPB possessed the authority to bring this action in February 2017 and, hence, that ratification by Director Kraninger was unnecessary.”

    Courts CFPB CFPA Enforcement Single-Director Structure Appellate Second Circuit U.S. Supreme Court Seila Law

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  • District Court partially grants bank’s motion in TCPA case


    On March 3, the U.S. District Court for the Western District of Kentucky partially granted and partially denied a defendant bank’s motion for summary judgment in a TCPA case. According to the opinion, the plaintiff allegedly did not meet his minimum monthly credit card payments, so the defendant began conducting debt collection calls. The defendant allegedly attempted 574 communications via phone call, prerecorded messages, or text messages, including 111 prerecorded messages, during a 7-month period.

    The plaintiff filed suit, alleging the defendant violated the TCPA by contacting him using an automatic telephone dialing system (ATDS) before and after he allegedly revoked consent to be contacted. The district court held that the telephone system used by the defendant to contact the plaintiff did not qualify as an ATDS under the Supreme Court’s ruling in Facebook v. Duguid (Covered by a Buckley Special Alert here), which narrowed the definition of an ATDS under the TCPA. The court was “not persuaded by [the plaintiff’s] argument that [the telephone system] is an ATDS simply because it has the ‘capacity to store telephone numbers using a random or sequential number generator, and then to dial those numbers without human intervention.’”

    The plaintiff also argued that the defendant violated the TCPA by sending the 111 prerecorded messages. The court determined that while the plaintiff had initially consented to being contacted by the defendant when he provided his telephone number to create his account, there was a genuine dispute of material fact as to whether the plaintiff subsequently revoked his consent. Even though the defendant submitted seven call recordings between itself and the plaintiff in support of its argument that the plaintiff did not specifically revoke consent, the court explained that “the evidence could lead reasonable minds to differ,” including the plaintiff’s deposition testimony, his request to have information sent to him via mail, his refusal to talk to a collector and hanging up the phone on a subsequent call, and his failure to answer the phone when the defendant called.

    Courts TCPA Autodialer U.S. Supreme Court Debt Collection Consumer Finance

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  • 5th Circuit remands shareholders’ net worth sweep claims to lower court


    On March 4, a split U.S. Court of Appeals for the Fifth Circuit, on remand from the U.S. Supreme Court, sent a shareholders’ suit back to the district court for further proceedings consistent with the Supreme Court’s decision in Collins v. Yellen, in which the Supreme Court, relying on its decision in Seila Law LLC v. CFPB, held that FHFA’s leadership structure was unconstitutional because it only allowed the president to fire the FHFA director for cause. (Covered by InfoBytes here.) In Collins, the Supreme Court reviewed the 5th Circuit’s en banc decision stemming from a 2016 lawsuit brought by a group of Fannie Mae and Freddie Mac (GSEs) shareholders against the U.S. Treasury Department and FHFA, in which shareholders claimed that the Housing and Economic Recovery Act of 2008 (Recovery Act), which created the agency, violated the separation of powers principal because it only allowed the president to fire the FHFA director “for cause.” The shareholders also alleged that FHFA acted outside its statutory authority when it adopted a third amendment to the Senior Preferred Stock Purchase Agreements, which replaced a fixed-rate dividend formula with a variable one requiring the GSEs to pay quarterly dividends equal to their entire net worth minus a specified capital reserve amount to the Treasury Department (known as the “net worth sweep”). (Covered by InfoBytes here.) At the time, while the en banc appellate court reaffirmed its earlier decision that FHFA’s structure violated the Constitution’s separation of powers requirements, nine of the judges concluded that the appropriate remedy should be severance of the for-cause provision, not prospective relief invalidating the net worth sweep, stating that “the Shareholders’ ongoing injury, if indeed there is one, is remedied by a declaration that the ‘for cause’ restriction is declared removed. We go no further.”

    The split Supreme Court had affirmed the 5th Circuit’s en banc decision regarding the FHFA’s structure, but left intact the net worth sweep and remanded the case to the appellate court to determine “what remedy, if any, the shareholders are entitled to receive on their constitutional claim.” Justice Samuel Alito, who wrote for the majority, stated that “[a]lthough the statute unconstitutionally limited the President’s authority to remove the confirmed Directors, there was no constitutional defect in the statutorily prescribed method of appointment to that office. As a result, there is no reason to regard any of the actions taken by the FHFA in relation to the third amendment as void.”

    On remand, the en banc 5th Circuit majority ordered the district court to decide whether the shareholders suffered compensable harm from the unconstitutional removal provision, observing that the Supreme Court left open the possibility that the unconstitutional restriction on the President’s power to remove the FHFA director could have inflicted compensable harm. Noting that the Supreme Court had sketched “possible causes and consequences of such harm along with the Federal Defendants’ denial of any such harm,” the majority stressed that “it became clear” during oral argument that “the prudent course is to remand to the district court to fulfill the Supreme Court’s remand order.”

    However, five of the appellate judges dissented from the majority decision on the grounds that nothing in the Supreme Court’s decision precluded the 5th Circuit from deciding the harm issue, pointing out that the appellate court could “easily do so in light of [its] previous conclusion that ‘the President, acting through the Secretary of the Treasury, could have stopped [the Net Worth Sweep] but did not.’” The dissenting judges noted that because the shareholders failed to point to sufficient facts to cast doubt on the 5th Circuit’s previous decision, the appellate court “should modify the district court’s judgment by granting declaratory relief in the Plaintiff’s favor, stating that the ‘for cause’ removal provision as to the Director of the FHFA is unconstitutional. In all other respects, we should affirm.”

    Courts Appellate Fifth Circuit Fannie Mae Freddie Mac GSE FHFA Single-Director Structure HERA U.S. Supreme Court

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  • 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.”

    Courts CFPB Student Lending Appellate Third Circuit Enforcement UDAAP CFPA Consumer Finance Seila Law U.S. Supreme Court

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  • 9th Circuit affirms judgment for defendant in TCPA autodialer suit


    On January 19, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment in favor of a defendant accused of violating the TCPA after allegedly using an automatic telephone dialing system (autodialer). The plaintiff claimed that the defendant’s platform qualifies as an autodialer since it “stores telephone numbers using a sequential number generator because it uploads a customer’s list of numbers and produces them to be dialed in the same order they were provided, i.e., sequentially.” According to the 9th Circuit, the plaintiff’s interpretation would mean that “virtually any system” with the capability to store a pre-produced list of telephone numbers would qualify as an autodialer if it could also autodial the stored numbers. The court noted that this interpretation was rejected in the U.S. Supreme Court’s 2021 decision in Facebook Inc. v. Duguid, which narrowed the definition of what type of equipment qualifies as an autodialer under the TCPA and held that an autodialer “must have the capacity either to store a telephone number using a random or sequential generator or to produce a telephone number using a using a random or sequential number generator.” (Covered by a Buckley Special Alert here.)

    The plaintiff attempted to rely on a footnote in the Court’s ruling, which endeavored to explain why the terms “produce” and “store” were used in the definition of an autodialer, but the 9th Circuit concluded that the footnote discussion was not central to the Court’s analysis in Duguid and therefore did not require it to adopt the plaintiff’s interpretation. After finding that the defendant’s system does not qualify as an autodialer “merely because it stores pre-produced lists of telephone numbers in the order in which they are uploaded,” the appellate court concluded that the plaintiff’s TCPA claims failed. It further determined that even if Duguid did not foreclose the plaintiff’s argument, the district court was correct to conclude that the system at issue “does not have the capacity to automatically dial telephone numbers.”

    Courts Appellate Ninth Circuit U.S. Supreme Court TCPA Autodialer

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  • Supreme Court blocks OSHA mandate


    On January 13, a divided U.S. Supreme Court issued an order blocking a Department of Labor’s Occupational Safety and Health Administration (OSHA) rule mandating that employers with 100 or more employees require employees to be fully vaccinated or be subject to a weekly Covid-19 test at their own expense. However, in a separate order the Court allowed a separate rule issued by the Department of Health and Human Services requiring Covid-19 vaccinations for health care workers (unless exempt for medical or religious reasons) at Medicare- and Medicaid-certified providers and suppliers to take effect.

    In November, the U.S. Court of Appeals for the Fifth Circuit issued a nationwide stay on the emergency temporary standard (ETS) that included the mandate to employers, describing enforcement of the ETS illegitimate and calling the OSHA rule “unlawful” and “likely unconstitutional.” (Covered by InfoBytes here.) However, last month, the 6th Circuit lifted the stay in a 2-1 ruling, stating that “[b]ased on [OSHA’s] language, structure and Congressional approval, OSHA has long asserted its authority to protect workers against infectious diseases.” (Covered by InfoBytes here.) The applicants, seeking emergency relief from the Court to reinstate the stay, argued that the rule exceeded OSHA’s statutory authority and is otherwise unlawful.

    In agreeing that the applicants are likely to prevail, the Court majority granted the application for relief and stayed the OSHA rule pending disposition of the applicants’ petitions for review in the 6th Circuit, as well as disposition of any timely petitions for writs of certiorari. “Although Congress has indisputably given OSHA the power to regulate occupational dangers, it has not given that agency the power to regulate public health more broadly,” the majority wrote. Adding that the ETS is a “blunt instrument” that “draws no distinctions based on industry or risk of exposure to COVID-19,” the majority stated that the Occupational Safety and Health Act does not plainly authorize the rule.

    The dissenting judges argued that the majority’s decision “stymies the Federal Government’s ability to counter the unparalleled threat that COVID–19 poses to our Nation’s workers. Acting outside of its competence and without legal basis, the Court displaces the judgments of the Government officials given the responsibility to respond to workplace health emergencies.”

    With respect to the Department of Health and Human Services rule, the Government applied to stay injunctions issued by two district courts preventing the rule from taking effect. In granting the application and staying the injunctions, the majority of the Court found that one of the Department’s basic functions authorized by Congress “is to ensure that the healthcare providers who care for Medicare and Medicaid patients protect their patients’ health and safety,” concluding that “[h]ealthcare workers around the country are ordinarily required to be vaccinated for diseases” and that “addressing infection problems in Medicare and Medicaid facilities is what [the Secretary] does.” 

    In dissent, four justices argued that the efficacy or importance of Covid-19 vaccines was not at issue in assessing the injunctions, stating that the district court cases were about “whether [the Centers for Medicare and Medicaid Services] has the statutory authority to force healthcare workers, by coercing their employers, to undergo a medical procedure they do not want and cannot undo,” and arguing that “the Government has not made a strong showing that Congress gave CMS that broad authority.”

    Courts U.S. Supreme Court Appellate Sixth Circuit OSHA Covid-19 Department of Labor Department of Health and Human Services Fifth Circuit

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  • Supreme Court vacates $10 million judgment in light of TransUnion ruling


    On January 10, the U.S. Supreme Court issued a short summary disposition granting a petition for a writ of certiorari filed by a lender and an appraisal management company. Rather than hearing arguments in the case, the Court immediately vacated the judgment against the defendants and ordered the U.S. Court of Appeals for the Fourth Circuit to reexamine its decision in light of the Court’s ruling in TransUnion v. Ramirez (which clarified the type of concrete injury necessary to establish Article III standing, and was covered by InfoBytes here).

    As previously covered by InfoBytes, in March 2021, a divided 4th Circuit affirmed a district court’s award of over $10 million in penalties and damages based on a summary judgment that an appraisal practice common before 2009 was unconscionable under the West Virginia Consumer Credit and Protection Act. During the appeal, the defendants argued that summary judgment was wrongfully granted and that the class should not have been certified since individual issues predominated over common ones, but the appellate court majority determined, among other things, that there was not a large number of uninjured members within the plaintiffs’ class because plaintiffs paid for independent appraisals and “received appraisals that were tainted.”

    The defendants argued in their petition to the Court that the 4th Circuit’s “fundamentally unjust” holding could not stand in the wake of TransUnion, which ruled that every class member must be concretely harmed by an alleged statutory violation in order to have Article III standing. According to the defendants, the divided panel “affirmed the class certification and the class-wide statutory-damages award, because the class members all faced the same risk of harm: the appraisers had been ‘exposed’ to the supposed procedural error, and the class members paid for the appraisals, even though the court ‘cannot evaluate whether’ any harm ever materialized.”

    Courts U.S. Supreme Court Fourth Circuit Appellate Appraisal Appraisal Management Companies Settlement Mortgages State Issues Consumer Finance West Virginia

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  • District Court denies plaintiff’s motion to remand FDCPA


    On December 22, the U.S. District Court for the Northern District of California denied a plaintiff’s motion to remand, ruling that a default judgment allegedly obtained fraudulently in an underlying collection lawsuit qualifies as a concrete injury in fact to the plaintiff in an FDCPA suit. According to the order, the plaintiff sued the defendants, a process server and its employee, for fraudulently certifying that service of process had been made to the plaintiff in a state debt collection action and obtaining a default judgment against the plaintiff as a result, which the plaintiff described as engaging in the practice of “sewer service.” The plaintiff sued the defendants in state court and the action was removed to federal court by the defendants. The plaintiff filed a motion to remand for lack of standing, claiming that his complaint “does not sufficiently allege a concrete harm to confer [Article III] standing to Plaintiff” because the complaint “solely asserts a bare procedural violation of the [FDCPA].” While “Article III requires plaintiff to show ‘(i) that he suffered an injury in fact that is concrete, particularized, and actual or imminent; (ii) that the injury was likely caused by the defendant; and (iii) that the injury would likely be redressed by judicial relief,’” the court noted that the plaintiff’s argument “focuses only on the ‘concreteness’ of the ‘injury in fact.’” Applying the U.S. Court of Appeals for the Ninth Circuit’s two-step framework for determining whether a statutory violation is a “concrete” harm, and considering the U.S. Supreme Court’s decision in TransUnion LLC v. Ramirez decision (covered by InfoBytes here), the court found that the plaintiff’s complaint sufficiently alleged a “concrete” injury in fact for alleged violations of the FDCPA arising from alleged sewer service.

    Specifically, the court indicated that the 9th Circuit’s first step requires the court “‘[t]o identify the interests protected by the FDCPA’ by examining the ‘[h]istorical practice’ and the ‘legislative judgment’ underlying the provisions at issue’” and determine whether “the FDCPA ‘provisions at issue were established to protect the plaintiff’s concrete interests.’” Although the defendants failed to identify any historical or common-law practices, the court found that legislative history of the FDCPA indicates that Congress enacted the statute to protect consumers from abusive collection practices, which include engaging in sewer service. The court further cited to district courts’ decisions concluding that “the ‘FDCPA codifies Plaintiff's concrete interest in being free from abusive debt collection practices.’” Turning to step two of the 9th Circuit’s framework, the court considered whether the sewer service allegations present a material risk of harm that had materialized and “actually harm[ed] Plaintiff’s interests under the FDCPA.” The court found that the “Complaint sufficiently allege[d] that the risk of harm to Plaintiff’s concrete interests materialized” because the “Complaint plead[ed] that the fraudulent proof of service specifically targeted Plaintiff, advanced the state debt collection action against Plaintiff to a stage where default judgment was pending, and caused Plaintiff to obtain legal representation to defend Plaintiff in the state debt collection action [which] do more than present a ‘risk of harm’ to Plaintiff’s interests under step two.” On this basis, the court denied the plaintiff’s motion to remand the action.

    Courts FDCPA California Debt Collection Ninth Circuit Appellate U.S. Supreme Court

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