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On October 2, the U.S. District Court for the District of Maryland certified a class of mortgage borrowers who alleged that a Maryland bank referred them to a title firm in exchange for cash and kickbacks in violation of RESPA. The court’s decision approved a class defined as borrowers of federally-related mortgage loans originated or brokered by the bank who were referred to the title firm in connection with the closing of their loan. As previously covered by InfoBytes, the case originally was dismissed on the grounds that the plaintiffs’ RESPA claims were time-barred, but the U.S. Court of Appeals for the Fourth Circuit reversed the decision, finding that the plaintiffs were entitled to proceed because the kickback scheme was allegedly “fraudulently concealed” by the defendants. Among other things, the plaintiffs claimed that the title firm provided bank loan officers kickbacks in exchange for referrals, including cash payments, free marketing materials, credits for future marketing services, and customer referrals from other lenders. Because of these alleged kickbacks, the plaintiffs contended they were deprived of “impartial and fair competition” and “paid more for their settlement services than they otherwise would have.” The defendant argued, among other things, that the plaintiffs lacked standing because they did not suffer a concrete injury, and that the class was overboard because the plaintiffs had not proven that each loan was affected by a RESPA violation or that every loan fell outside a relevant exemption.
The court found that the plaintiffs had standing, stating that the plaintiffs have shown evidence supporting their claims that they may have been overcharged. But the court also noted that the bank may be able to continue to challenge that the plaintiffs failed to allege more than a mere procedural violation of RESPA. The court likewise rejected the bank’s objections to class certification, ruling that the plaintiffs were able to show that a majority of the loans were not subject to a RESPA exemption, and that the concern over RESPA exemptions “does not predominate over the numerous, imperative questions that are answerable on a class-wide basis.”
9th Circuit splits with 4th Circuit, concludes arbitration agreement does not apply to acquired company
On September 30, the U.S. Court of Appeals for the Ninth Circuit issued a split opinion affirming a district court’s decision against arbitration in a proposed class action, which accused a satellite TV provider (defendant) of violating the TCPA by allegedly placing unauthorized prerecorded messages to customers’ cell phones without prior express written consent. According to the opinion, the plaintiff signed a contract containing an arbitration agreement with a telecommunications company in 2011 that eventually acquired the defendant in 2015. After the plaintiff filed his complaint, the defendant moved to compel arbitration, arguing that as an affiliate of the telecommunications company, it was entitled to arbitration. The district court disagreed and ruled that the contract signed between the plaintiff and the telecommunications company “did not reflect an intent to arbitrate the claim that [the plaintiff] asserts against [the defendant].”
On appeal, the majority concluded that “under California contract law, looking to the reasonable expectations of the parties at the time of the contract, a valid agreement to arbitrate did not exist between plaintiff and [the defendant] because [the defendant] was not an affiliate of the [telecommunications company] when the contract was signed.” The majority acknowledged that its decision is contrary to a recent 4th Circuit opinion (covered by InfoBytes here), in which that majority concluded that that an arbitration agreement signed by the plaintiff with the telecommunications company in 2012 when she opened a new line of service was extended to potential TCPA allegations against the defendant when the telecommunications company acquired the defendant in 2015. However, the 9th Circuit majority held that under the defendant’s interpretation of the agreement, the plaintiff “would be forced to arbitrate any dispute with any corporate entity that happens to be acquired by [the telecommunications company], even if neither the entity nor the dispute has anything to do with providing wireless services to [the plaintiff]—and even if the entity becomes an affiliate years or even decades in the future.” Moreover, the majority concluded that to enforce an agreement the plaintiff signed with the telecommunications company before it acquired the satellite TV provider would lead to “absurd results.”
In dissent, the minority wrote that because the agreement with the telecommunications company covered its affiliates and there is nothing in the agreement’s wording stating that it would only “refer to present affiliates” on the day of signing, the defendant should be able to compel arbitration.
On September 28, the U.S. District Court for the Southern District of California allowed fraud claims under California’s Unfair Competition Law (UCL) and breach of contract claims to proceed against a national bank and several independent ATM operators (collectively, “defendants”) in a putative class action alleging that the defendants (i) charged unwarranted fees for using out-of-network (OON) ATMs for balance inquiries; (ii) made deceptive and misleading representations on screens and on signs regarding those fees; and (iii) assessed fees in violation of governing account documents. As previously covered by InfoBytes, the class action alleged 13 claims against the defendants for violations of, among other things, the UCL, and claims for conversion, negligence, and breach of contract. In March, the court dismissed all 13 claims but allowed the plaintiffs leave to amend a number of them. After the plaintiffs filed their amended complaint, the defendants subsequently submitted four new motions to dismiss.
The court denied dismissal of the UCL claims against all ATM operators, concluding that the plaintiffs sufficiently alleged claims under the fraud prong. Specifically, the court noted that the plaintiffs provided details with enough particularity, such as the date and location and examples of the specific screen prompts, which established that the ATM operators “employed a misleading series of screen prompts at the ATM machines to trick Plaintiffs, and other accountholders, into engaging in OON balance inquiries.” However, the court dismissed all the unjust enrichment claims and one plaintiff’s breach of contract claim against the national bank, concluding, among other things, that the dispute between the plaintiffs and national bank is covered by a “valid and enforceable written agreement,” which precludes the assertion of unjust enrichment. Moreover, the court allowed two plaintiffs’ breach of contract claims to proceed against the national bank, determining that “[b]oth parties have set forth reasonable, opposing interpretations of the [account agreement],” and the plaintiffs’ definition of “balance inquiry” under the agreement is at least plausible. Thus, the court denied dismissal as to those claims.
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.
On September 1, the U.S. District Court for the Central District of California determined that certain claims could proceed in a suit alleging a national bank failed to properly refund payments made pursuant to guaranteed asset protection (GAP) waiver agreements entered into in connection with auto loans. According to the plaintiffs’ suit, the bank knowingly collected unearned fees for GAP Waivers and “concealed its obligation to issue a refund on the GAP Waiver fees for the portion of the GAP Waiver’s initial coverage that was cut short by early payoff, and denied any obligation to return the unearned GAP fees.” The bank sought dismissal of the suit, arguing, among other things, that—with the exception of one consumer’s claims—all of the plaintiffs’ contracts include “a condition precedent under which the [p]laintiffs must first submit a written refund request for unearned GAP fees before being entitled to a refund,” which condition was not fulfilled.
The court dismissed breach of contract claims brought by eight of the 11 plaintiffs, noting that seven of these plaintiffs were not excused from complying with the condition precedent in their contracts with the bank, and had not pled sufficient facts to allege compliance; the court held that the eighth plaintiff’s claim was barred by the statute of limitations. The court allowed the breach of contract claims filed by two plaintiffs whose contracts did not contain condition precedent language to proceed, and allowed the final plaintiff’s breach of contract claim to proceed because the bank did not move to dismiss such. The court kept the declaratory judgment requests intact for the three plaintiffs whose contract claims were allowed to proceed, but determined such plaintiffs could not assert standing under laws of states where they do not reside and did not receive an injury. Further, the court granted the bank’s request to dismiss TILA claims—noting that the statute does not apply to indirect auto lenders like the bank—and tossed claims brought under California’s Unfair Competition Law.
The bank also asked the court to strike the six class action claims included in the plaintiffs’ first amended complaint. However, the court denied the bank’s request to strike the plaintiffs’ nationwide class allegations calling it premature. “Deciding whether the alleged classes can be maintained is properly done on a motion for class certification because at that point ‘the parties have had an opportunity to conduct class discovery and develop a record,’” the court noted.
On August 28, the U.S. District Court for the District of Maryland certified a class of mortgage borrowers who alleged a national bank (defendant) referred them to a title firm in exchange for free marketing materials pursuant to an undisclosed agreement. In doing so, the court approved a class defined as borrowers who (i) had a loan originated or brokered through the defendant; and (ii) received title and settlement services from the title firm in connection with the closing of their loan. The plaintiffs claimed their payments to the title firm were shared in part with the defendant through their broker, who received free marketing materials in exchange for the referrals in violation of RESPA. Additionally, the plaintiffs alleged that “because of this kickback arrangement, they paid higher costs for their settlement services than they otherwise would have paid.”
The defendant argued, among other things, that the named plaintiffs lacked Article III standing because they did not pay more for settlement services, contending that the title firm’s fees “were based on prevailing market rates in the geographic location and did not depend” on the “alleged kickbacks.” Additionally, the defendant argued that the named plaintiffs are not adequate class representatives because they do not have knowledge sufficient to prove their own claims. The court disagreed, stating the plaintiffs “presented some evidence to corroborate the claim that they were harmed by paying higher fees than they would have absent the alleged RESPA violations,” and that “burdensome individualized scrutiny of each proposed class member’s transaction” was not necessary to establish each violation.
On August 19, the U.S. District Court for the Northern District of California granted preliminary approval of a $650 million biometric privacy settlement between a global social media company and a class of Illinois users. If granted final approval, the settlement would resolve consolidated class action claims that the social media company violated the Illinois Biometric Information Privacy Act (BIPA) by allegedly developing a face template that used facial-recognition technology without users’ consent. A lesser $550 million settlement deal filed in May (covered by InfoBytes here), was rejected by the court due to “concerns about an unduly steep discount on statutory damages under the BIPA, a conduct remedy that did not appear to require any meaningful changes by [the social media company], over-broad releases by the class, and the sufficiency of notice to class members.” The preliminarily approved settlement would also require the social medial company to provide nonmonetary injunctive relief by setting all default face recognition user settings to “off” and by deleting all existing and stored face templates for class members unless class members provide their express consent after receiving a separate disclosure on how the face template will be used.
On August 17, the U.S. District Court for the District of Utah certified two classes related to a debt collector’s efforts to pursue judgments on defaulted debts without being appropriately registered with the state. The order certified two classes: one for class claims arising under the FDCPA, and another for class claims brought under the Utah Consumer Sales Practices Act (UCSPA). The court certified the UCSPA class for liability purposes only, as the statute does not allow a plaintiff to seek statutory damages on behalf of a class, leaving “issues related to what relief may be available for which class members to subsequent proceedings.” According to the order, the lead plaintiff filed a lawsuit against the defendant after it attempted to collect unpaid medical debt. The defendant obtained a judgment but was not registered as a debt collector in the state when it filed the action. The defendant argued that Utah’s registration requirement did not apply to it and filed a motion for summary judgment, but the court disagreed and allowed the plaintiff to seek certification for two classes of individuals who had debt collection lawsuits filed against them in Utah by the defendant while it was unlicensed. Among other things, the defendant argued that the plaintiff’s proposed class included individuals without an underlying consumer debt, which destroyed commonality under Rule 23. The court agreed and limited the proposed FDCPA class to individuals who were sued for a “debt” as defined by 15 U.S.C. § 1692a(5). However, the court stated that the need for individualized determinations concerning each class member’s debt did not upset Rule 23’s predominance requirement, and concluded that the issue does not predominate over the question of whether the failure to register as a debt collector was a violation of the FDCPA and UCSPA. The court also disagreed with the defendant’s res judicata argument to defeat the certification request, ruling that even though the defendant ultimately obtained a judgment against the lead plaintiff—which it also allegedly did for at least 645 other members of the class—that was not enough to prove a conflict existed between the lead plaintiff and the other unaffected members of the class.
On August 10, the U.S. District Court for the Southern District of Florida granted final approval of a $7.5 million settlement, resolving a decade-long multidistrict litigation concerning overdraft fees. The settlement covers allegations that a U.S.-based affiliate of an international bank charged improper assessment and collection of overdraft fees due to “high-to-low posting.” In 2012, the bank was purchased by a U.S. national bank and the national bank inherited the litigation as the successor in interest. The settlement involves over 148,000 class members, “who, from October 10, 2007 through and including March 1, 2012, incurred one or more Overdraft Fees as a result of [the bank]’s High-to-Low Posting.” The $7.5 million settlement includes $10,000 to the sole class representative and over $2.6 million to the class attorneys (representing 35% of the settlement fund).
On July 20, the U.S. Court of Appeals for the Ninth Circuit affirmed (in a published and an unpublished opinion) a $142 million class action settlement between a nationwide class of consumers and a national bank, concluding the class was unified by a claim under federal law. The published opinion specifically affirmed the district court’s holding that the class satisfied the predominance requirement under Rule 23 of the Federal Rules of Civil Procedure. In the unpublished memorandum disposition, the 9th Circuit affirmed the district court’s certification of the settlement class, approval of the settlement, award of attorneys’ fees, and approval of notice.
As previously covered by InfoBytes, the settlement covers a 2015 class action lawsuit regarding retail sales practices that involved bank employees creating deposit and credit card accounts without obtaining consent to do so. In April 2017, the bank agreed to expand the original settlement class to include claims dating back to May 2002, resulting in a settlement amount of $142 million. The district court certified the class and approved the settlement. Objectors appealed, arguing that the class did not satisfy the predominance requirement, because the court did not do a choice-of-law analysis.
On appeal, the 9th Circuit upheld the district court’s rulings on the settlement, concluding that the district court did not abuse its discretion in holding the class met the federal predominance requirements. Specifically, the appellate court held that the FCRA claim unified the class, allowing the class to “show that the FCRA’s elements were proven by a common course of conduct.” Moreover, the appellate court concluded that the “existence of potential state-law claims did not outweigh the FCRA claim’s importance.” In a separate unpublished memorandum opinion, the appellate court affirmed, among other things, the award of attorney’s fees, which were “well below the 25% benchmark.”
- H Joshua Kotin to discuss "Being fair, responsible, & profitable" at the QuestSoft Lending Compliance & Risk Management Virtual Conference
- Kathryn L. Ryan to discuss "NMLS mortgage call report – Where’s NMLS 2.0?" at the QuestSoft Lending Compliance & Risk Management Virtual Conference
- Thomas A. Sporkin to discuss "Managing internal investigations and advanced government defense" at the Securities Enforcement Forum
- Jeffrey P. Naimon to discuss "2021 - A new beginning/what's to come" at the QuestSoft Lending Compliance & Risk Management Virtual Conference
- H Joshua Kotin to discuss "Mortgage servicing in a recession: Early intervention, loss mitigation and more" at the NAFCU Virtual Regulatory Compliance Seminar
- Daniel R. Alonso to discuss "Independent monitoring in the United States" at the World Compliance Association Peru Chapter IV International Conference on Compliance and the Fight Against Corruption
- Jonice Gray Tucker to discuss "Cyber security, incident response, crisis management" at the Legal & Diversity Summit
- Jonice Gray Tucker to discuss "The future of fair lending" at the Mortgage Bankers Association Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Regulatory Compliance Conference
- Kathryn L. Ryan to discuss "Pandemic fallout – Navigating practical operational challenges" at the Mortgage Bankers Association Regulatory Compliance Conference
- Jonice Gray Tucker to discuss "Consumer financial services" at the Practising Law Institute Banking Law Institute
- Daniel P. Stipano to discuss "BSA/AML - Covid impact and regulatory/guidance roundup" at an NAFCU webinar