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District court compels arbitration of biometric privacy suit
On May 15, the U.S. District Court for the Northern District of Illinois granted an online photography company’s motion to compel arbitration in a biometric privacy lawsuit, notwithstanding the company’s unilateral modification of arbitration terms after the lawsuit was filed. According to the opinion, the plaintiffs created an account on the company’s website in August 2014. In May 2015, the company added an arbitration provision to its Terms of Use. In June 2019, the plaintiffs filed the proposed class action alleging the company violated the Illinois Biometric Information Privacy Act (BIPA) “by using facial-recognition technology to extract biometric identifiers for ‘tagging’ individuals and by ‘selling, leasing, trading, or otherwise profiting from Plaintiffs’…biometric information.’” In September 2019, the company sent an email to all of its users that its account Terms of Use were updated, including provisions regarding arbitration. The email stated that if users continued to use the website or did not close their account by October 1, 2019, they were deemed to have accepted the updated terms. The plaintiffs’ account remained open as of October 2, 2019. The company moved to compel arbitration of the plaintiffs’ claims. The plaintiffs argued that the September 2019 email did not create a binding agreement to arbitrate and that it should not apply retroactively to the June 2019 claim.
The court rejected the plaintiffs’ arguments, concluding that they were already bound to arbitration by the 2015 update to the company’s terms of use, because the terms accepted in 2014 included a “change-in-terms” provision, allowing the company to revise terms from time to time by posting revisions. Moreover, the court disagreed with the plaintiffs that the September 2019 email was “an attempt by [the company] to ‘surreptitiously’ bind unwitting putative class members to arbitration agreements,” noting that the 2019 modifications did not significantly alter users’ rights under the arbitration agreement and the court would “not rely on the 2019 email to find that any putative class members agreed to arbitrate.”
$550 million preliminary settlement reached in biometric privacy class action
On May 8, plaintiffs in a biometric privacy class action in the U.S. District Court for the Northern District of California filed a motion requesting preliminary approval of a $550 million settlement deal. The preliminary settlement, reached between a global social media company and a class of Illinois users, would resolve consolidated class claims that alleged the social media company’s face scanning practices violated the Illinois Biometric Information Privacy Act (BIPA). As previously covered by InfoBytes, last August the U.S. Court of Appeals for the 9th Circuit affirmed class certification and held that the class’s claims met the standing requirement described in Spokeo, Inc. v. Robins because the social media company’s alleged development of a face template that used facial-recognition technology without users’ consent constituted an invasion of an individual’s private affairs and concrete interests. According to the motion for preliminary approval, the settlement would be the largest BIPA class action settlement ever and would provide “cash relief that far outstrips what class members typically receive in privacy settlements, even in cases in which substantial statutory damages are involved.” If approved, the social media company must also provide “forward-looking relief” to ensure it secures users’ informed, written consent as required under BIPA.
FCRA class action dispute stayed for Supreme Court appeal
On April 15, the U.S. Court of Appeals for the Ninth Circuit granted a joint motion to stay a mandate pending a credit reporting agency’s (CRA) filing of a petition for writ of certiorari with the U.S. Supreme Court. If a petition is filed, the stay will continue until final disposition by the Court. As previously covered by InfoBytes, in February the 9th Circuit reduced punitive damages in a class action against the CRA for allegedly violating the FCRA by erroneously linking class members to criminals and terrorists with similar names in a database maintained by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). The appellate court found that all class members had standing due to, among other things, the CRA’s alleged “reckless handling of information from OFAC,” which subjected class members to “a real risk of harm,” and rejected the CRA’s request for judgment as a matter of law or a new trial on the basis that the class had failed to provide sufficient evidence of injuries or to support the damages award. The appellate court concluded, however, that the $52 million punitive damages award was “unconstitutionally excessive,” explaining that, although the CRA’s “conduct was reprehensible, it was not so egregious as to justify a punitive award of more than six times an already substantial compensatory award.”
The CRA subsequently filed a petition for rehearing (which the appellate court denied), challenging, among other things, the 9th Circuit’s conclusion that the CRA’s decision to make the credit reports available to numerous potential creditors and employers was “sufficient to show a material risk of harm to the concrete interest of all class members.” The CRA argued that this was “exactly the sort of hypothetical risk of injury the Supreme Court has made clear does not cut it” to establish concrete injury, and that the decision was inconsistent with the 9th Circuit’s own precedent, in which the appellate court determined that “the risk of injury becomes material only when the document gets into third-party hands.” The CRA also argued that the 4 to 1 benchmark ratio between punitive damages and statutory damages was still too high, because it “conflicts not just with the Supreme Court’s commands, but with decisions from other circuits finding much lower compensatory-damages awards sufficiently ‘substantial’ to demand a 1:1 ceiling.”
Banks face class actions for prioritizing large customers for PPP loans
On April 20, five class action lawsuits were filed in the U.S. District Court for the Central District of California against six of the nation’s largest banks, alleging that the banks prioritized existing, large customers over smaller businesses for the Small Business Administration’s (SBA's) Paycheck Protection Program (PPP) loans. The suits claim that the banks submitted PPP applications for existing large customers first, failing to process applications in the order they were received. Moreover, pursuant to the CARES Act, the SBA provided PPP lenders with origination fees on a sliding scale, from 1 percent to 5 percent, based on the amount of each loan. The complaints allege that higher origination fees provided incentive for the banks to process higher dollar loans ahead of smaller dollar loans. See the complaints here, here, here, here, and here.
District court dismisses class action overdraft fee claims
On March 31, the U.S. District Court for the Northern District of Illinois dismissed proposed class action overdraft fee claims brought against a national bank and the national bank’s parent company. The plaintiff argued that the bank unfairly charged him overdraft fees for debit transactions he made using two separate merchant debit cards (known as “decoupled debit cards”) that linked to his bank account. The plaintiff contended that because the bank’s contract language stated it would not charge overdraft fees on “non-recurring” debit transactions, this language should control despite the fact that the decoupled debit cards were not issued by the bank. The plaintiff brought multiple claims against the bank, including “breach of contract, breach of the covenant of good faith and fair dealing, unconscionability, conversion, and unjust enrichment.” The bank moved to dismiss for failure to state a claim.
The court first dismissed all claims brought against the national bank’s parent company, saying that the plaintiff combined and conflated the two entities. The court then dismissed with prejudice the plaintiff’s claims against the national bank for breach of the implied covenant of good faith and fair dealing, conversion, and unjust enrichment. The court also dismissed, but without prejudice, the claims against the national bank for breach of contract and unconscionability, although the court noted that the bank’s contract language “only applies to debit cards or access devices that were issued by [the bank], unlike the decoupled debit cards at issue here.”
District court approves $2.3 million class settlement resolving violations of Massachusetts debt collection laws
On March 23, the U.S. District Court for the District of Massachusetts issued an order granting final approval to a nearly $2.3 million class action settlement, reached through mediation, to resolve allegations that a subsidiary of a large U.S. retailer (defendant) made excessive debt collection calls to Massachusetts consumers. The named plaintiff claimed that the defendant violated the Massachusetts Consumer Protection Act and state debt collection regulations by calling consumers more often than twice in a seven-day period. The order also lowered the plaintiff’s attorneys’ fees because, according to the court, the case was not as risky as the attorneys claimed and not complex enough to warrant taking approximately one-third of the settlement fund.
Appellate court affirms dismissal of RESPA kickback suit
On March 13, the U.S. Court of Appeals for the Fourth Circuit affirmed the dismissal of a putative class action filed by two consumers (plaintiffs) against a real estate brokerage group (real estate defendant) and a title company (title defendant), (collectively defendants), alleging a kickback scheme in violation of RESPA. The plaintiffs bought a house in 2008 with the help of a real estate agent affiliated with the real estate defendant. The real estate agent told the plaintiffs that the title defendant would provide settlement services, after which the plaintiffs filed an acknowledgment that they understood they could use the title company of their choice for their closing, and that they were not first-time homebuyers. The plaintiffs indicated their approval to use the settlement company selected by the real estate agent. Five years later, the plaintiffs filed suit, claiming that the real estate agent’s referral to the title defendant violated RESPA. The consumers, as lead class members, alleged that a marketing agreement between the defendants provided for payments by the title defendant to the real estate defendant for settlement services referrals. The plaintiffs claimed that the illegal kickback arrangement denied class members of ‘“impartial and fair competition between settlement service[s] providers in violation of RESPA.’”
The district court granted the defendants’ motion for summary judgement, holding that the plaintiffs lacked Article III standing to file suit because they were not overcharged in the settlement of their real estate transaction and did not otherwise show an injury-in-fact. In addition, the court determined that the claim was time-barred under RESPA’s one-year statute of limitations.
On appeal, the 4th Circuit agreed with the district court that the plaintiffs lacked standing, noting that “a statutory violation is not necessarily synonymous with an intangible harm that constitutes injury-in-fact.” The appellate court pointed out that the plaintiffs did not claim to have been overcharged for settlement services, and indeed, the plaintiffs agreed that the settlement service fees were reasonable. The appellate court also rejected the plaintiffs’ assertion that they suffered a concrete injury due to the lack of competition between settlement service providers.
District court grants summary judgment in favor of bank in TCPA robocall suit
On March 13, the U.S. District Court for the District of New Jersey granted a large bank’s (defendant) motion for summary judgment in a proposed class action alleging that the plaintiff received an unsolicited telemarketing call. The plaintiff—who was himself a TCPA investigator for an attorney—was a long-time customer of the defendant when he answered a robocall from the defendant in March 2005. The plaintiff filed suit against the defendant alleging that the robocall from the defendant violated the TCPA. In response, the defendant filed a motion for summary judgment which put forth three arguments: (i) plaintiff did not have Article III standing to sue because he was not injured by the call; (ii) the plaintiff had an existing business relationship with the defendant as a long-time customer; and (iii) the content of the call did not violate the law at the time of the call.
Here, the court determined that the plaintiff lacked Article III standing to sue the defendant because he did not show an injury-in-fact as a result of the robocall. The court added, “notably, [p]laintiff does not assert, nor has he put forward any evidence to show, that he suffered nuisance, annoyance, inconvenience, wasted time, invasion of privacy, or any other such injury.” Moreover, the court pointed to the plaintiff’s position and asserted that as a TCPA investigator, “he welcomed such calls.” The court additionally held that the plaintiff lacked statutory standing for similar reasons. As a customer of the defendant, the court stated that plaintiff’s claims were subject to the TCPA’s “established business relationship” exemption in effect at the time of the call. The court agreed with the defendant’s argument that the call did not violate the TCPA prohibitions in effect at the time of the call. Further, the court found that the call’s content did not violate FCC regulations at the time for “abandoned telemarketing calls and dual-purpose calls.” As a result, the court dismissed as moot the plaintiff’s motion for class certification and his motion to file a second amended complaint.
Credit reporting agency FCRA suit may go forward
On March 9, the U.S. District Court for the Eastern District of Pennsylvania denied the motion to dismiss and motion to strike a claim of a credit reporting agency (CRA) and its subsidiary (defendants) in a putative class action that alleged the defendants: (i) knowingly used inaccurate eviction information in their tenant screening reports, and (ii) inaccurately represented that they obtained eviction information from public sources, each in violation of the FCRA. Specifically, the plaintiff alleged that the CRA failed to disclose that the eviction information was maintained and sold through the subsidiary, and when the plaintiff requested her credit report from the CRA, the CRA omitted information maintained by the subsidiary and therefore the credit report did not contain “all information in the consumer’s file at the time of the request” as required by the FCRA. She argued that the FCRA prohibits the CRA defendant from skirting the requirement of full and accurate disclosure of consumer information by assigning that duty to a third party—in this case, the subsidiary defendant.
According to its memorandum, the court rejected the CRA’s argument that it could not be held liable for faulty reports issued by its subsidiary. The court answered the question of whether plaintiff “sufficiently alleged that defendant evaded its obligation to make full and accurate disclosure of plaintiff's consumer file. . .through the use of corporate organization, reorganization, structure or restructuring,” concluding that she did so. The court dismissed the defendants’ motion to strike without prejudice, indicating the defendants can raise their argument again in an opposition to class certification.
Maryland Court of Appeals reverses trial court approval of settlement for interfering with CPD action
On March 3, the Maryland Court of Appeals reversed a trial court’s approval of a proposed settlement in a class action based on fraudulently induced assignments of annuity payments. The class members were recipients of structured settlement annuities from lead paint exposure claims who responded to ads by a structured settlement factoring company (company). The class members then transferred the rights to their settlement annuity contracts to the company, which paid the class members lump sums for the rights at a discount. The class filed a lawsuit against the company in 2016, alleging that it had engaged in fraud in procuring the annuity contract transfers. Around the same time, the Consumer Protection Division of the Maryland AG’s Office (CPD) had filed suit against the company alleging violations of the State Consumer Protection Act. Several months after both actions were filed, the CFPB filed a similar suit against the company based on the same alleged misconduct. All three actions sought similar kids of relief with respect to the same individuals, though the bases for seeking relief and the nature and amount of relief sought differed among the actions.
The class and the company proceeded towards a negotiated settlement, to which the trial court signed a proposed final order, certifying the class and approving the settlement, despite CPD’s opposition to both issues. Following the court’s approval, the company moved for summary judgment in its case against the CPD, which the court granted because it held CPD’s claim for restitution for the same individuals was barred by res judicata; CPD’s claim for injunctive relief and civil penalties is still currently awaiting trial.
Following an appeal, the Court of Appeals granted the company’s petition to consider whether “class members [may] lawfully release and assign to others their right to receive money or property sought for their benefit by [CPD] or [CFPB] through those agencies’ separate enforcement actions” under state and federal consumer protection laws, respectively.
The Court of Appeals held that the lower court erred in approving the settlement, stating that consumers “have no authority, through a private settlement, whether or not approved by a court, to preclude CPD from pursuing its own remedies against those who violate . . . [Maryland’s] Consumer Protection Act, including a general request for disgorgement/restitution.” In particular, the Court of Appeals held that the parties cannot preclude CPD from pursuing the remedies of disgorgement and restitution, as that would directly contravene CPD’s statutory authority to sanction the company for wrongful conduct. For this reason, the Court of Appeals concluded that the trial court’s approval of the settlement must be reversed and remanded the case for further proceedings.