Every week, AccountsRecovery.net brings you the most important news in the industry. But, with compliance-related articles, context is king. That’s why the brightest and most knowledgable compliance experts are sought to offer their perspectives and insights into the most important news of the day. Read on to hear what the experts have to say this week.
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Rotkiske v. Klemm SCOTUS Update
- The industry’s three major trade groups and the government of the United States each filed amicus briefs with the Supreme Court late last week in Rotkiske v. Klemm, a case that will be heard in October and seek to determine with the one-year statute of limitations to file a claim alleging violations of the Fair Debt Collection Practices Act begins — when the violation occurs or when the individual notices that the violation has occurred. More details here.
- The respondent in an upcoming Supreme Court case that will seek to determine when the statute of limitations clock on an alleged violation of the Fair Debt Collection Practices Act starts running has filed his brief, arguing that the clock should start ticking from the date the violation occurs and not the date when the violation is uncovered. More details here.
WHAT THIS MEANS, FROM RICK PERR OF FINEMAN, KREKSTEIN & HARRIS: The government’s agreement with industry and the Court of Appeals for the Third Circuit is a welcome development. While pinpointing the statute of limitations at the date the violation allegedly occurred will not end FDCPA litigation, it will curtail the discovery rule, which has artificially increased the statute of limitations sometimes by months. A positive decision by the US Supreme Court will also bolster the industry’s continued argument that the FDCPA must be read as written and not through some fanciful interpretive lens.
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Judge Dismisses FDCPA Case Over Lack of Standing
A District Court judge in Michigan has dismissed a Fair Debt Collection Practices Act case that was filed by a plaintiff who alleged he was “bullied” by a defendant because the plaintiff did not suffer any actual injury in the case. More details here.
WHAT THIS MEANS, FROM JUNE COLEMAN OF CARLSON & MESSER: This case, Burns v. Midland Funding, LLC, is a great case for the industry, and one wonders if other courts will adopt this analysis. Midland’s attorney filed a lawsuit against the consumer and hired a process server to serve the complaint and file a proof of service. When Burns did not respond to the consumer, the attorney obtained a judgment and attempted to enforce the judgment by obtaining a bank levy and a wage garnishment. Burns claims this is the first time he knew of the collection lawsuit. He asked the trial court to set aside the judgment. The attorney could not or did not produce the process server, and the trial court set aside the judgment and because the summons had expired, the trial could dismissed the case without prejudice. The attorney re-filed that case and Burns agreed to a consent judgment for the full amount. Burns filed an FDCPA lawsuit, alleging that Midland’s affidavits are based on inadmissible hearsay and that Midland does not possess adequate documentation. Burns noted that the Midland affidavit was signed more than 10 days prior to filing, which is not permitted by Michigan law. Burns complains that he was bullied into signing a consent judgment.
The Michigan District Court was not impressed by Burns’ allegations and complaints. The District Court dismissed the case for lack of Article III standing, i.e. Spokeo concrete and particularized injury. With respect to the first court action, the Court notes that “even assuming that everything Burns says is true,” no injury arose because the trial court vacated the judgment and dismissed the case. Burns also noted that the wage garnishment from the first case led to the loss of his job. The Court refused to find that this was an injury Burns suffered because of Midland and its attorney, noting that such conduct would be illegal and liability for such conduct would attach to the employer. The District Court also rejected any argument that Burns was forced into a consent judgment. The Court noted that Burns did not dispute or deny the debt, or that the affidavit that sets forth the debt amount was inaccurate. Despite alleged deficiencies in the affidavit, Burns would have to allege that the information was fraudulent to have injury. In the current situation, if Midland had done what Burns claimed needed to be done, the outcome would have been the same. Burns would have consented to a judgment. And perhaps most importantly, the Court rejected any suggestion that stress or emotional distress arose from Midland’s conduct – but that any stress or emotional distress was the result of having to address a debt owed by Burns.
Although there are courts that might not follow the Burns decision and its analysis, this case provides a blueprint for arguing that unless the amount of the debt is wrong, allegations that there are mere errors in a court document do not constitute concrete and particularized injury, but rather mere procedural violations. Perhaps other courts will follow this analysis, and perhaps expand it to other situations.
Judge Denies MTD in TCPA Case Over Collection Calls Allegedly Made via ATDS
A District Court judge in Oklahoma has denied a defendant’s motion to dismiss after it was sued for allegedly violating the Telephone Consumer Protection Act by making collection calls using an automated telephone dialing system to the plaintiff’s cell phone after consent to do so had been revoked. More details here.
WHAT THIS MEANS, FROM NICOLE STRICKLER OF MESSER STRICKLER: The main issue faced by the Court was whether Plaintiff had adequately pled an ATDS, as defined by the TCPA. The Court noted the increasing split authority as the the proper definition after ACA International, but ultimately decided that despite the uncertainty, Plaintiff had adequately pled her claim. While the Court acknowledged that a bare allegation that Defendant used an ATDS is not enough to survive dismissal, the court found additional allegations from which it could reasonably infer that the calls were made using an ATDS: the frequency of the calls, the unpredictability of the calls and the fact the calls would disconnect when being directed to voicemail without Defendant leaving any voicemail. The Court also voiced concern in requiring a plaintiff to make allegations regarding the technical aspects of a device, including the precise level of human intervention needed to make a call, when he or she has no way of knowing those details prior to discovery. Ultimately, it will be interesting to see what this Court decides as the the definition of ATDS after the benefit of discovery.
Appeals Court Upholds 98% Reduction of Damages in TCPA Suit
The Court of Appeals for the Eighth Circuit has affirmed a lower court’s ruling that dramatically reduced the amount awarded to plaintiffs in a class-action lawsuit alleging violations of the Telephone Consumer Protection Act because applying the statutory damage award of $500 per call in this case resulted in a “shockingly large amount” of damages that ultimately violated the Due Process clause of the Constitution. More details here.
WHAT THIS MEANS, FROM ETHAN OSTROFF OF TROUTMAN SANDERS: At first blush, the Eighth Circuit’s decision affirming a district court awarding $32 million in a TCPA class action does not bode well for any business using dialer technology, particularly as it follows a Fourth Circuit decision upholding a $61 million vendor liability verdict in Krakauer v. Dish Network, LLC. However, the Eighth Circuit upheld the district court’s decision to limit the jury’s award to $10 per call, rather than the statutory minimum of $500 per call, which the Court concluded would have implicated due process concerns. Additionally, the Court’s opinion provides a helpful analysis of the distinction between theories of direct and agency liability under the TCPA.
Plaintiffs filed suit against defendants ccAdvertising and Dr. James Leininger in 2014, alleging that they received two telephone calls advertising a film entitled Last Ounce of Courage. The film was financed in part by Dr. Leninger and marketed by ccAdvertising, which made approximately 3.2 million phone calls over the course of a week to promote the film. The phone calls were formatted as a poll that concerned topics such as “American freedom and liberty” and “religious freedom.” After hearing two polling questions, call recipients were asked if they would like to hear more information about the film. The Golans, however, did not answer either phone call and instead received two messages on their answering machine that stated “Liberty. This was a public survey call. We may call back later.”
The case went to trial in August 2017. At the close of the evidence, the district court granted the Plaintiff’s motion for judgment as a matter of law against ccAdvertising. The district court did not, however, offer their proposed jury instruction with regard to Dr. Leninger. As a result, the Golans abandoned a direct liability theory against Dr. Leninger and only submitted an agency theory to the jury, naming Dr. Leninger as the principal and ccAdvertising as his agent.
The jury returned a verdict in favor of Dr. Leninger and the other defendants. At the close of trial, ccAdvertising moved the district court for a reduction of damages, arguing that the statutory damages of $500 per call for 3,242,493 calls – a total of over $1.6 billion – was so excessive that it violated the due process clause of the Fifth Amendment. The district court agreed, reducing the damages award to $10 per call and entering judgment in the amount of $32,424,930.
The plaintiffs appealed the district court’s jury instruction on direct liability against Dr. Leninger, but the Eighth Circuit found no error. The Court determined that the Golans’ proposed jury instruction “articulated too loose a standard for direct liability and blurred the line between direct and agency liability.” The proposed instruction, which suggested that a defendant could be held liable directly if he or she “had direct, personal participation in the conduct found to have violated the TCPA” or “personally authorized the conduct found to have violated the TCPA,” did not comport with the TCPA’s plain language. The Eighth Circuit found that the rejected instruction would improperly “allow direct liability even where the defendant did not ‘initiate’ the calls.” Absent any evidence that Dr. Leninger actually placed the calls, the proffered jury instruction was improper.”
Finally, the Court rejected the plaintiffs’ argument that the district court erred in reducing the award of statutory damages, calling the original statutory damage award “a shockingly large amount,“ in particular when “[c]ompared … to the conduct of ccAdvertising. It plausibly believed it was not violating the TCPA.” The Court further noted that ccAdvertising had prior consent to contact call recipients about religious liberty, which was “a predominant theme of Last Ounce of Courage.” And while the Eighth Circuit found that the harm at issue was enough to confer standing, it was nonetheless “not severe” in the eyes of the Court.
NC AG Sues Collection Agency For Not Having License, Using Criminal Summonses To Collect
The Attorney General of North Carolina has filed a lawsuit and received a temporary restraining order against a series of entities owned by one individual who purchases defaulted debts from a rent-to-own chain and attempts to collect on the debts by sending unsigned criminal summonses or even going as far as to get the summonses signed using the wrong state law. More details here.
WHAT THIS MEANS, FROM LAUREN VALENZUELA OF PERFORMANT: Did we just go back in time? The collection tactics, activities, and behavior described in the AG’s complaint are reminiscent of the pre-FDCPA era collection horror stories I’ve heard about. In a time when law abiding collection agencies get sued for following the statutory language of §1692g in their validation notices, I cannot help but think to myself “this kind of stuff still goes on in 2019?!” I’m glad to see the North Carolina AG’s Office is weeding out bad actors who give law abiding collection agencies and debt buyers a bad reputation. North Carolina does not mess around – it is a felony to operate/do business as a collection agency without a permit in North Carolina. In addition to seeking a permanent injunction against the defendant and restitution for impacted consumers, the AG is also seeking civil penalties in the amount of $4,000 per violation of North Carolina’s Unfair and Deceptive Trade Practices Act and civil penalties for each day the defendant transacted business in North Carolina without a certificate of authority or registration. Yikes!
Judge Grants MSJ For Defense in FDCPA Case Over Alleged SOL Violation
A District Court judge in Washington has granted summary judgment in favor of a defendant that was sued for allegedly violating the Fair Debt Collection Practices Act when it sent a collection letter to an individual to attempt to collect on a time-barred debt and did not inform the individual that any payment could revive the statute of limitations. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: I found Elston v Encore, which concerned a letter seeking to collect a debt which was beyond the statute of limitations, interesting for two reasons. First I question whether the pendulum is starting to swing back in our direction.
Are the Courts beginning to realize how it works in debtor land? A debtor gets mail, doesn’t really look at it and puts it aside in a pile as if it will get better with age, like fine wine. He/she then sees an ad by one of those fine fellows/ladies claiming to be a consumer advocate. The ad doesn’t say “bring me your tired, your poor etc” it asks the debtor to come in or send or the accumulated mail, he/she has been ignoring for months. The CA then pores over the accumulated mail and looks for something that the attorney can allege as a violation. And then they sue.
In Elston the allegation was that the letter was deceptive because it didn’t state clearly enough that the debt was out of statute and therefore could not be sued. The Court however disagreed and found the notice on the letter was sufficient. The interesting part is that before looking at the merits of the Plaintiff’s arguments and dismissing them the Court addressed whether the Plaintiff even had standing post Spokeo and asking the rhetorical question – was there a concrete injury. In answering that question the Court relied on the reasoning of a recent 7th Circuit case Casillas v. Madison Avenue Associates, Inc, 926 F.3d 329 (7th Cir. 2019) which also concerned alleged omissions in a letter. The Casillas Court wrote:
It is certainly true that the omission put those consumers who sought to dispute the debt at risk of waiving statutory rights. But it created no risk for the plaintiffs in that case, who did not try (and, for that matter, expressed no plans to try) to dispute the debt. It is not enough that the omission[*10] risked harming someone — it must have risked harm to the plaintiffs. Casillas at 336. (emphasis in the original)
In Elston the Court pointed out:
Here, Plaintiff does not claim that she was misled by anything in the letter. She does not allege that she was confused about the status of her debt or that she took any action based on Defendants’ alleged failure to warn her of the supposed risk of reviving the statute of limitations. Elston at *10.
So No Harm No Foul.
The other highlight to my mind was the Court’s reference to the CFPB, Consent Orders and FTC.
(“The Court also judicially notices nearly identical language that both the [CFPB] and [FTC], two agencies tasked with enforcing the FDCPA, have required collectors of time-barred debts to adopt in publicly filed consent decrees.”).[Genova v. Total Card, Inc., 193 F. Supp. 3d 360, 367-68 (D.N.J. 2016)] While this may not be binding on the Court, it is persuasive that two agencies tasked with oversight into this very issue support the language used. Elston at *14.
As the industry reviews the Notice of Proposed Rules the question constantly running through my mind is what effect the final rules will have. The language above gives hope to the idea that when the Rules are finally finished the Courts will rely on them instead of the widely varying interpretations we now have.
Appeals Court Upholds Ruling That Collector Can Not Use Arbitration Provision in FDCPA Case
The Court of Appeals for the Third Circuit has upheld a lower court’s ruling that a third-party collection agency can not invoke the creditor’s mandatory arbitration agreement because the defendant’s request to follow the choice-of-law clause in the original cardholder agreement does not provide the proper basis to allow the defendant to enforce the arbitration agreement. More details here.
WHAT THIS MEANS, FROM BOYD GENTRY OF THE LAW OFFICE OF BOYD GENTRY: Although arbitration clauses may be silver bullets in some cases, there are limits. This case is just one example of a court that found a way to narrowly read a broadly written arbitration clause. It appears that the bank needed to be a party to the FDCPA suit to compel arbitration. The Court cited two ways to compel arbitration:
Alltran can enforce the arbitration clause based on its avowed role as Citibank’s agent if either (1) “all the claims against the nonsignatory defendants are based on alleged substantially interdependent and concerted misconduct by both the nonsignatories and one or more of the signatories to the contract,” or (2) Orn “asserts ‘claims arising out of agreements against nonsignatories to those agreements without allowing those defendants also to invoke the arbitration clause contained in the agreements.’ ”
That second situation seems to apply here: Orn’s FDCPA claim arose from the card agreement – without the card agreement there would be no account, no obligation to enforce, no terms of interest, etc. Yet, the Court of Appeals seemed to dismiss this avenue with only one sentence of conclusory analysis. Maybe that is why the Opinion is not precedential.
Judge Appoints Master to Review $4M TCPA Settlement
A District Court judge in Pennsylvania has appointed a former state Supreme Court justice as master in a case to determine whether a proposed $4 million settlement in a Telephone Consumer Protection Act case is sufficient. More details here.
WHAT THIS MEANS, FROM KELLY KNEPPER-STEPHENS OF TRUEACCORD: The recent District Court appointment of a special “Master” (just another judge with a super fun title) to review the fairness of a proposed $4 million settlement in a TCPA case might have slid by your radar this week with the Mueller hearing and the House passing the Stopping Bad Robocalls Act with only three nay voters. Although the settlement for a TCPA case might seem low, the District Court noted in the reason for appointing the master to review the settlement the high amount of attorney’s fees that equalled more than one third of the settlement (that’s over $1.3M) where the individual class members would each get $38 dollars and the case had virtually no litigation practice. The court said, “Also of concern in this case is the very large amount of attorneys’ fees being sought as a percentage of recovery, compared to the anticipated net return to each class member who filed a claim,” Baylson wrote in a May opinion. “As stated in other decisions, every dollar going to counsel is one less dollar doing to the class.” Sergei Lemberg, a well-known Plaintiff’s attorney in the credit and collection industry, served as the counsel for Robert Ward, the named class representative. Mr. Ward received five-to-10 autodialed phone calls from Flagship Credit Acceptance, an auto lender, who called in an attempt to reach a different consumer. The appointment of the master demonstrates the Court’s commitment to making sure the settlement is fair and reasonable all around, including the massive amount of attorneys fees in comparison to the actual work in the case. The Stopping Bad Robocalls Act is a bill to watch as it seeks to amend the TCPA definition of autodialer, make call blocking technology available to all consumers free of charge, and requiring phone carrier to create authentication protocols to help consumers distinguish whether a call is coming from a “real caller.” Provisions of this bill are likely to impact right party contact rates and increase the need for legitimate businesses to use other channels of communication to reach consumers.
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