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FDIC codifies appointment of ALJs
On January 12, the FDIC published a final rule amending 12 CFR Part 308 to codify the agency’s “practice of having certain adjudicative functions performed by an inferior officer of the United States appointed by the FDIC’s Board of Directors.” The clarification follows a 2018 U.S. Supreme Court decision in Lucia v. SEC, which held that SEC administrative law judges (ALJs) are “inferior officers” subject to the Appointments Clause (Clause) of the Constitution (covered by InfoBytes here). The FDIC notes that while the Lucia decision did not directly affect the agency or FDIC ALJs, the Board has chosen to “formally appoint the ALJs that preside over FDIC enforcement proceedings.” The final rule, which also makes other technical edits to the agency’s rules of practice and procedure to update outdated references to certain position titles, becomes effective immediately.
District court denies dismissal and stay of CFPB action
On November 30, the U.S. District Court of the District of Maryland denied a motion to dismiss an action brought by the CFPB against a debt collection entity, its subsidiaries, and their owner (collectively, “defendants”), rejecting the defendants’ argument that the Bureau lacked standing to bring the action. As previously covered by InfoBytes, in September 2019, the Bureau alleged the defendants violated the FCRA, FDCPA, and the CFPA by, among other things, failing to (i) establish or implement reasonable written policies and procedures to ensure accurate reporting to consumer-reporting agencies; (ii) incorporate appropriate guidelines for the handling of indirect disputes in its policies and procedures; (iii) conduct reasonable investigations and review relevant information when handling indirect disputes; and (iv) furnish information about accounts after receiving identity theft reports about such accounts without conducting an investigation into the accuracy of the information. The defendants moved to dismiss the action arguing, among other things, that (i) the Bureau lacks standing to bring the action; and (ii) Director Kraninger’s ratification of the litigation was invalid. In the alternative, the defendants moved to stay the lawsuit until the U.S. Supreme Court issued a ruling in Collins v. Mnuchin (covered by InfoBytes here).
The court denied the motion to stay, concluding that the issues pending before the Supreme Court in Mnuchin may not necessarily apply to the Bureau, as they are different agencies and further, there is no issue of ratification in Mnuchin. Thus, given the “uncertainty surrounding the effect a decision in Collins v. Mnuchin will have on the present case,” the court denied the motion to stay. The court also denied the motion to dismiss, concluding, among other things, that the Supreme Court’s finding in Seila Law LLC v. CFPB (covered by a Buckley Special Alert) that the Bureau had a constitutional defect in its leadership structure under Article II does not diminish the agency’s Article III standing. Moreover, the court concluded that the decision in Seila Law does not mean that the Bureau “lacked authority during the time in which it was led by an improperly removable Director,” and therefore the Bureau had the authority to initiate the September 2019 lawsuit against the defendants. Further, the court held that the July 2020 ratification of the enforcement action was proper.
Another district court dismisses TCPA action for lack of jurisdiction
On October 29, the U.S. District Court for the Northern District of Ohio dismissed a TCPA action against an energy service company and “ten John Doe corporations” (collectively, defendants), concluding that the court lacked jurisdiction over cases involving unconstitutional laws. According to the opinion, the plaintiff filed the putative class action against the defendants alleging the companies violated the TCPA by placing pre-recorded calls to the plaintiff’s cell phone without consent. While the action was pending, on July 6, the U.S. Supreme Court concluded in Barr v. American Association of Political Consultants Inc. (AAPC) that the government-debt exception in Section 227(b)(1)(A)(iii) of the TCPA is an unconstitutional content-based speech restriction (covered by InfoBytes here). The defendants moved to dismiss the action for lack of subject matter jurisdiction and the court agreed. Specifically, the court agreed with the defendants that the severance of Section 227(b)(1)(A)(iii) must be applied prospectively, thus, the statute can only be applied to robocalls made after July 6 and prior to 2015 (when the now unconstitutional government-debt exception in Section 227(b)(1)(A)(iii) was enacted). Because “the statute at issue was unconstitutional at the time of the alleged violations,” the court concluded it lacked subject-matter jurisdiction over the matter and dismissed the action.
As previously covered by InfoBytes, the U.S. District Court for the Eastern District of Louisiana was the first known court to dismiss a TCPA action based on lack of jurisdiction over calls occurring after the exception’s enactment but prior to the Supreme Court’s decision on July 6.
U.S. Supreme Court to continue remote oral arguments through December
On October 9, the United States Supreme Court announced that all oral arguments scheduled for November and December will take place by telephone conference, and all parties will participate remotely. The proceedings will follow a similar format as hearings in October, including for live audio feed, and posting of audio and transcripts on the website daily.
District court: No subject-matter jurisdiction for unconstitutional TCPA section
On September 28, the U.S. District Court for the Eastern District of Louisiana granted in part and denied in part a motion to dismiss, concluding that the court lacked subject matter jurisdiction in a TCPA action over 129 out of 130 robocalls made prior to the U.S. Supreme Court’s July 6 decision in Barr v. American Association of Political Consultants Inc (AAPC) (covered by InfoBytes here). According to the opinion, the plaintiffs filed a putative class action against a telecommunications company for violating Section 227(b)(1)(A)(iii) of the TCPA, which prohibits robocalls to cell phones without prior express consent. The company moved to dismiss the action, arguing that the Supreme Court decision in AAPC—which concluded the government-debt exception in Section 227(b)(1)(A)(iii) is an unconstitutional content-based speech restriction—makes the alleged violations unenforceable in federal court because the provision was determined to be unconstitutional. In response, the plaintiffs argued that because the Supreme Court’s decision preserved the general ban on robocalls to cellphones by severing “the new-fangled government-debt exception,” the Supreme Court “confirmed that [Section] 227(b)(1)(A)(iii) was constitutional all along.”
The district court disagreed with the plaintiffs, concluding that during the years that Section 227(b)(1)(A)(iii) permitted robocalls for government-debt collection while prohibiting other categories of robocalls, the entirety of the provision was unconstitutional. The district court noted that the Supreme Court’s opinion in AAPC provided little guidance, only “dicta of no precedential force.” The court looked to Justice Gorsuch’s opinion concurring in part and dissenting in part, noting his reasoning was better “as a matter of law and logic.” Because the entirety of Section 227(b)(1)(A)(iii) was unconstitutional prior to the Supreme Court’s severance of the government-debt exception on July 6, the district court dismissed the action with respect to the alleged TCPA violations that occurred prior to that date, but denied dismissal for the one robocall made after July 6. Lastly, the court granted a stay of the action pending the Supreme Court’s decision in Duguid v. Facebook, Inc (covered by InfoBytes here and here).
3rd Circuit: Section 13(b) of the FTC Act does not give the agency restitution power
On September 30, the U.S. Court of Appeals for the Third Circuit reversed a district court’s order of $448 million in disgorgement, concluding that disgorgement is not a remedy available under Section 13(b) of the FTC Act. According to the opinion, the FTC brought an action against the owners of a testosterone treatment patent (defendants) for allegedly “trying to monopolize and restrain trade over [the treatment],” in violation of Section 13(b) of the FTC Act. The district court dismissed the FTC’s claims related to the reverse-payment agreement the defendants entered into with another pharmaceutical company but held the defendants liable for the FTC’s sham-litigation allegations and ordered the defendants to pay $448 in disgorgement of ill-gotten gains. The district court denied the FTC’s request for an injunction.
On appeal, the 3rd Circuit concluded, among other holdings, that the court erred by ordering disgorgement, as it lacked the authority to do so under Section 13(b) of the FTC Act. Specifically, the appellate court noted that Section 13(b) “authorizes a court to ‘enjoin’ antitrust violations,” but is silent on disgorgement. The appellate court rejected the FTC’s contention that Section 13(b) “impliedly empowers district courts” to order disgorgement as well as injunctive relief, concluding that “the context of Section 13(b) and the FTC Act’s broader statutory scheme both support ‘a necessary and inescapable inference’ that a district court’s jurisdiction in equity under Section 13(b) is limited to ordering injunctive relief.” Thus the appellate court reversed the order of $448 million in disgorgement.
In reaching this conclusion, the appellate court noted its determination was consistent with the 7th Circuit’s decision FTC v. Credit Bureau Center (covered by InfoBytes here), which also held that the FTC does not have the power to order restitution under Section 13(b). As previously covered by InfoBytes, the U.S. Supreme Court granted consolidated review in Credit Bureau Center and in the 9th Circuit’s decision in FTC v. AMG Capital Management (covered by InfoBytes here). The Court will decide whether the FTC can demand equitable monetary relief in civil enforcement actions under Section 13(b) of the FTC Act.
11th Circuit: Class action incentive fees are unlawful
On September 17, the U.S. Court of Appeals for the Eleventh Circuit reversed and vacated a district court judgment awarding an “incentive payment” to a TCPA class action representative, concluding it violates a U.S. Supreme Court decision prohibiting such awards. Additionally, the 11th Circuit remanded the case so that the district court could adequately explain its findings on the fees and costs issues. According to the opinion, a consumer initiated a TCPA class action against a collection agency for allegedly calling phone numbers that had originally belonged to consenting debtors but were subsequently reassigned to non-debtors. The action quickly moved to settlement and one class member objected, challenging “the district court’s decision to set the objection deadline before the deadline for class counsel to file their attorneys’-fee petition.” Additionally, among other things, the objector argued that the proposed $6,000 incentive award to the class action representative violates the 1880s Supreme Court decisions in Trustees v. Greenough and Central Railroad & Banking Co. v. Pettus. The district court overruled the class member’s objections.
On appeal, the 11th Circuit concluded that the district court “repeated several errors” that “have become commonplace in everyday class-action practice.” Specifically, the appellate court held that the district court “violated the plain terms of Federal Rule of Civil Procedure 23(h)” by setting the settlement objection date more than two weeks before the date class counsel had to file their attorneys’ fee petition. The appellate court also concluded that the district court violated the Supreme Court’s rule from Greenough and Pettus, which provides that “[a] plaintiff suing on behalf of a class can be reimbursed for attorneys’ fees and expenses incurred in carrying on the litigation, but he cannot be paid a salary or be reimbursed for his personal expenses.” The 11th Circuit noted that modern day incentive awards pose even more risks than the concerns from Greenough, promoting “litigation by providing a prize to be won.” Thus, according to the appellate court, although incentive awards may be “commonplace” in class action litigation, they are not lawful and therefore, the district court’s decision must be reversed.
Trade groups amend Payday Rule complaint
On August 28, two payday loan trade groups (plaintiffs) filed an amended complaint in the U.S. District Court for the Western District of Texas in ongoing litigation challenging the CFPB’s 2017 final rule covering payday loans, vehicle title loans, and certain other installment loans (Rule). As previously covered by InfoBytes, the court granted the parties’ joint motion to lift the stay of litigation, which was on hold pending the U.S. Supreme Court’s decision in Seila Law LLC v. CFPB (covered by a Buckley Special Alert, holding that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau). In light of the Supreme Court’s decision, the Bureau ratified the Rule’s payments provisions and issued a final rule revoking the Rule’s underwriting provisions (covered by InfoBytes here).
The amended complaint requests the court set aside the Rule and the Bureau’s ratification of the rule as unconstitutional and in violation of the Administrative Procedures Act (APA). Specifically, the amended complaint argues, among other things, that the Bureau’s ratification is “legally insufficient to cure the constitutional defects in the 2017 Rule,” asserting the ratification of the payment provisions should have been subject to a formal rulemaking process, including a notice and comment period. Moreover, the amended complaint asserts that the payment provisions are “fundamentally at odds” with the Bureau’s lack of authority to create usury limits because they “improperly target[] installment loans with a rate higher than 36%.” Finally, the amended complaint argues that the Bureau “arbitrarily and capriciously denied” a petition from a lender seeking to exempt debit-card payments from the payment provisions of the rules.
District court rescinds arbitration order in ATM and overdraft fee case
On August 10, the U.S. District Court for the Southern District of California agreed to reconsider a prior decision, which granted a bank’s motion to compel arbitration in connection with a lawsuit concerning the bank’s assessment of two types of fees. As previously covered by InfoBytes, the court compelled arbitration of a plaintiff’s lawsuit asserting claims for breach of contract and violation of California’s Unfair Competition Law due to the bank’s alleged practice of charging fees for out-of-network ATM use and overdraft fees related to debit card transaction timing. The court concluded that even if the California Supreme Court case McGill v. Citibank rule— which held that an arbitration agreement is unenforceable if it constitutes a waiver of the plaintiff’s substantive right to seek public injunctive relief (covered by a Buckley Special Alert here)—was applicable to a contract, it would not survive preemption as the U.S. Supreme Court has “consistently held that the Federal Arbitration Act (FAA) preempts states’ attempts to limit the scope of arbitration agreements,” and “the McGill rule is merely the latest ‘device or formula’ intended to achieve the result of rendering an arbitration agreement against public policy.”
The plaintiff moved for the court’s reconsideration after the U.S. Court of Appeals for the Ninth Circuit issued opinions in Blair v. Rent-ACenter, Inc. et al and McArdle v. AT&T Mobility LLC). In Blair (and similarly in McArdle), the 9th Circuit concluded that McGill was not preempted by the FAA. The appellate court found that McGill does not interfere with the bilateral nature of a typical arbitration, stating “[t]he McGill rule leaves undisturbed an agreement that both requires bilateral arbitration and permits public injunctive claims.” (Covered by InfoBytes here.)
The court granted the plaintiff’s motion, concluding that the public injunction waiver in the account agreement is “encompassed by McGill” and therefore, the arbitration agreement is “invalid and unenforceable,” and because the arbitration agreement includes a non-severability clause, the “clause plainly invalidates the entire arbitration agreement section as a result of the invalidity and unenforceability of the public injunction waiver provision therein.”
Supreme Court to review FHFA structure, FTC restitution, and TCPA autodialing
On July 9, the U.S. Supreme Court agreed to review the following cases:
- FHFA Constitutionality. The Court agreed to review the U.S. Court of Appeals for the Fifth Circuit’s en banc decision in Collins. v. Mnuchin (covered by InfoBytes here), which concluded that the FHFA’s structure—which provides the director with “for cause” removal protection—violates the Constitution’s separation of powers requirements. As previously covered by a Buckley Special Alert last month, the Court held that a similar clause in the Dodd-Frank Act that requires cause to remove the director of the CFPB violates the constitutional separation of powers. The Court further held that the removal provision could—and should—be severed from the statute establishing the CFPB, rather than invalidating the entire statute.
- FTC Restitution Authority. The Court granted review in two cases: (i) the 9th Circuit’s decision in FTC V. AMG Capital Management (covered by InfoBytes here), which upheld a $1.3 billion judgment against the petitioners for allegedly operating a deceptive payday lending scheme and concluded that a district court may grant any ancillary relief under the FTC Act, including restitution; and (ii) the 7th Circuit’s FTC v. Credit Bureau Center (covered by InfoBytes here), which held that Section 13(b) of the FTC Act does not give the FTC power to order restitution. The Court consolidated the two cases and will decide whether the FTC can demand equitable monetary relief in civil enforcement actions under Section 13(b) of the FTC Act.
- TCPA Autodialer Definition. The Court agreed to review the U.S. Court of Appeals for the Ninth Circuit’s decision in Duguid v. Facebook, Inc. (covered by InfoBytes here), which concluded the plaintiff plausibly alleged the social media company’s text message system fell within the definition of autodialer under the TCPA. The 9th Circuit applied the definition from their 2018 decision in Marks v. Crunch San Diego, LLC (covered by InfoBytes here), which broadened the definition of an autodialer to cover all devices with the capacity to automatically dial numbers that are stored in a list. The 2nd Circuit has since agreed with the 9th Circuit’s holding in Marks. However, these two opinions conflict with holdings by the 3rd, 7th, and 11th Circuits, which have held that autodialers require the use of randomly or sequentially generated phone numbers, consistent with the D.C. Circuit’s holding that struck down the FCC’s definition of an autodialer in ACA International v. FCC (covered by a Buckley Special Alert).