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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Supreme Court Rules FDCPA SOL Starts When Violation Occurs, Not When Discovered
In a major victory for the industry, the Supreme Court, in an 8-1 decision yesterday, determined that the one-year statute of limitations to file a suit alleging a violation of the Fair Debt Collection Practices Act starts when the violation allegedly occurs and not when it is discovered. More details here.
WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: Nice – an early holiday gift from the Supreme Court. In the recent decision in Rotkiske v. Klemm, No. 18-328, 2019 WL 6703563 (U.S. Dec. 10, 2019), the High Court held that a general “discovery rule” cannot be used to extend the FDCPA’s statute of limitations provision, which specifically provides that an action may be brought “within one year from the date on which the violation occurs”, not when the violation is discovered. (15 U.S.C. § 1692k(d).) The Supreme Court noted that several statutes include provisions that, in certain circumstances, would begin the running of a limitations period to file lawsuits upon the discovery of a violation, injury, or some other event. The FDCPA’s 15 U.S.C. § 1692k(d) limitations period to file an action does not contain similar language and the Supreme Court refused to read a discovery rule into the statute when plain language dictates otherwise.
This is very good news for the industry, particularly for debt collectors that do business within the Fourth and Ninth Circuit Courts of Appeal, where a “discovery rule” has previously been applied to FDCPA claims. (See Lembach v. Bierman, 528 Fed.Appx. 297 (4th Cir. 2013) and Mangum v. Action Collection Serv., Inc., 575 F.3d 935 (9th Cir. 2009).) Under the discovery rule, the limitations period for filing a lawsuit by a plaintiff claiming FDCPA violations begins when the plaintiff discovers, or reasonably should discover, the alleged violation. With the Supreme Court’s ruling, discovery rules are no longer viable. This puts more pressure on consumers and their counsel to timely file actions within one year from the time the violation actually occurs, as the limitations period for filing FDCPA claims now has a shorter life span. Also, before this decision, under the discovery rule, consumers and their counsel could “fabricate” when the consumer actually received a collection letter that allegedly violated the FDCPA in order to stretch out the limitations period of a technically stale claim. The decision will necessarily curtail such conduct.
An interesting issue is whether Rotkiske will be applied retroactively, even in the Fourth and Ninth Circuit Courts of Appeal, where Rotkiske arguably represents a new rule of law. While judicial decisions are ordinarily retroactive in civil cases, the Ninth Circuit has previously refused to retroactively apply Supreme Court precedent where the effect would be to shorten the statute of limitations, rather than to lengthen it. (See e.g. Usher v. City of Los Angeles, 828 F.2d 556 (9th Cir. 1987).)
We will see how the plaintiffs’ bar reacts to Rotkiske and what arguments they will make. But regardless of any potential retroactivity issues that may arise in some parts of the country, the ruling in Rotkiske will definitely help to curtail the flood of FDCPA lawsuits filed against debt collectors every year. Let’s drink to that! Happy holidays to all.
Judge Dismisses FDCPA Suit After Two Agencies Report Same Debt to Credit Bureau
A District Court judge in Connecticut has granted a defendant’s motion to dismiss after it was sued for allegedly violating the Fair Debt Collection Practices Act because it was one of two collection agencies that reported the same unpaid debt to a credit bureau. More details here.
WHAT THIS MEANS, FROM PORTER HEATH MORGAN OF MALONE FROST MARTIN: This is a good decision to dismiss the plaintiff’s complaint where it was poorly pled. The industry is all too familiar with judges who would give a plaintiff time to amend and add to their complaint and keep the lawsuit open, so for that reason alone, this is a good ruling.
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TCPA Class Action Filed Over Collection Calls
A class-action lawsuit has been filed alleging that Bank of America violated the Telephone Consumer Protection Act by making debt collection calls to individuals on their cell phone using an automated telephone dialing system after the individual had indicated he was being represented by an attorney. More details here.
WHAT THIS MEANS, FROM NICOLE STRICKLER OF MESSER STRICKLER: The complaint filed against Bank of America in this case is nothing new. In this case, plaintiff seeks to assert a TCPA cause of action and represent a class based upon his purported receipt of a single unwanted call after revocation of consent. The more interesting aspect of the case will be how far the case progresses. Recent defense strategy has included challenges to a call recipient’s standing to assert claims where the recipient only receives a single call or message. Recall that in federal court a plaintiff must state facts sufficient to show that he suffered a “injury in fact” sufficient to confer jurisdiction on the federal court or face dismissal. Notably, the Ninth Circuit (where the case is located) has ruled that the recipient of two unsolicited text messages affords standing under the TCPA. In contrast, the Eleventh Circuit has held that the recipient of a single multimedia text message advertisement did not suffer the requisite “injury in fact” to establish standing. Notably, the vast majority of courts have found text messages to constitute a “call” under the TCPA and thus, those cases examining texts may give guidance about how a court may view a true telephone call under the TCPA. Certainly, it will be interesting to see how other circuits weigh in on the issue.
FDCPA Case Includes Dueling Motions for Attorney’s Fees
In what seems to be an unusual situation, a District Court judge has ruled on competing motions for attorney’s fees and costs from both sides in a Fair Debt Collection Practices Act case in which a jury sought to award the plaintiff the maximum statutory damages under the FDCPA but the judge reduced the award by 75%. More details here.
WHAT THIS MEANS, FROM DENNIS BARTON OF THE BARTON LAW GROUP: Nevada’s district court opinion in Gonzalez v. Allied Collection Services, Inc. shines a light on a few important concepts. In that case, summary judgment was entered against Allied, and the jury trial was only as to statutory fees and attorney’s fees. A “prevailing party” is, generally speaking, the party that wins the case. Either party gets costs and potentially fees if they meet the definition of the “prevailing party.” The defendant’s road, as you may have guessed, is much more difficult. Consumer plaintiffs only need to win an itty-bitty part of their case to meet the statutory definition of a prevailing party. That entitles them to court costs and attorney’s fees.
If an FDCPA plaintiff brings three claims, (s)he only needs to win one of the three to be the prevailing party for the purposes of being awarded costs and fees. Even though a defendant may win a defense verdict as to two of three claims (or nine out of ten or even 99 out of 100), the defendant is the losing party. To be the “prevailing party,” Defendant must win a verdict as to all claims. Then the defendant is entitled to costs but not fees. Defendant only gets fees if it proved the case was brought in bad faith and for the purpose of harassing the collector. That is a steep hill, and judges rarely find cases are only brought to harass. Overall, I only recommend spending the time and money needed to defend a case, and especially pushing it all the way to trial, if I assess a significant probability to winning all claims. Close only counts in horseshoes, hand grenades, and if you’re the plaintiff in a consumer lawsuit.
Yes, all of that is pull-out-your-hair frustrating. And it gets worse. After the defendant wins on two of the three claims (as Allied did), the court does not take the plaintiff’s margin of victory into account when ruling on fees. For example, Allied won two of the three claims, so it makes sense that the requested fees should be decreased by 2/3. Nope. Courts are generally prohibited from doing that. Moreover, the plaintiff in Gonzalez was awarded $250 while the attorneys received over $105,000 in fees – that is over 40,000% more than the plaintiff received. Under the law, that is honkey dory. The attorney may still go to hell for that, but it’s legal here on Earth.
There are some other issues in this opinion, but the practical takeaway should be to carefully evaluate your ability to win each and every claim prior to defending a case. I often recommend fighting back because it is the only way to stop predictor bully-on-the-playground plaintiff’s attorneys. BUT do not make matters worse for yourself. Be sure you choose the right suits where you have a strong defense as to each count because this is not horseshoes or hand grenades, and you are certainly not a consumer plaintiff.
Senator Launches Investigation Into Non-Profit Hospital’s Collection Practices
Sen. Chuck Grassley [R-Iowa] is calling out some non-profit hospitals for their “relentless” debt collection efforts and is investigating one such facility for how it handles debt collection, charity care, and financial assistance programs. More details here.
WHAT THIS MEANS, FROM MATT KIEFER OF THE PREFERRED GROUP OF TAMPA: With regard to this article, it hit a special nerve with me. There is more to it than the media would have you believe. I know there is a lot of hype in the media, especially print media, with journalists jumping on tearjerker stories about hospital collection practices and perhaps some using agencies that are a bit more aggressive than others in filing suits. However, what they fail to convey is these perceptions may be distorted. The public is largely unaware of ever-thinning margins many hospitals operate under due to smaller reimbursements from insurance companies and Medicare and Medicaid as well as increasing patient responsibility (copays and deductibles). Under IRS guidelines (501R), non-profit hospitals already have to have financial assistance programs and the patients are made aware of this at the onset of care, up and through the collections process. Remember, even though regular medical debt can’t be reported for 180 days from the date of delinquency, 501R hospitals have to allow for a minimum of 240 days from the date of delinquency to allow the patient to apply for financial assistance — even during the collections process.
The article states that the answers he is seeking comes from these questions:
- How much money has the hospital collected from patients whose bills were at least 30 days past due? How many of those people were eligible for financial assistance?
- How much charity care has the hospital provided in the past five years?
- What was the hospital’s policy for notifying patients who had outstanding debts before the accounts were transferred for further collection efforts?
- What is the hospital’s policy for transferring accounts to third-party agencies?
- What steps does the hospital take to ensure debts are accurate before attempting to collect on them?
- What was the hospital’s policy for determining whether to sue an individual for an unpaid debt?
- Did the hospital own a licensed third-party collection agency? If so, how much has it collected in the past five years and what techniques did it use to collect?
The first question would account for most of the money where a patient didn’t pay a copay up front. (Patient presented in the ER, or from an ambulance, and was in an accident, or didn’t have the money to pay at the time of service but the hospital has to treat them by law, regardless of their ability to pay). The media largely ignores abuse of the ER and people who do not pay. Many homeless will use the ER to as a shelter from bad weather or use it as a clinic for non-life-threatening complaints. In many cases Medicaid recipients don’t have a copay or they may have a negligible share of cost and will seek out treatment at an ER for minor aches and pains that others with insurance (and a higher copay) would self-treat, work through it, or see their primary care physician.
Many people also wait for their insurance to adjudicate a claim before they pay their portion (if they pay) and this is usually not within the first 30 days of treatment. The second question regarding charity is already handled under 501R guidelines. The hospitals already have to compute and demonstrate financial community benefit. I struggle with the rest except the threshold to sue because it makes sense there is a threshold to sue and to ensure a patient has assets to effect recovery. Otherwise, you are spending money for nothing. But for those that meet charity guidelines, a better question would be how many patients did NOT fill out the paperwork or were otherwise non-compliant? In those media interviews where the patient states the hospital is suing them for a “valid” debt for services rendered and they state they can’t pay: Does the media tell us how many are paying a cable bill, cell phone bill, watching TV on a large screen smart TV at home, or driving a newer car? You see those things take priority over medical debt and those bills are definitely getting paid. But that doesn’t fit into the narrative of the big bad hospitals taking advantage of people nor does it fit the political pandering to the entitlement mentality by promising a bunch of free stuff
Also, please don’t conflate this issue with surprise billing, when an out-of-network physician unexpectedly treats a patient at an “in network” hospital. That is a totally separate issue. It is also one that is already being addressed by Congress. No, this issue deals with the “WHY”. Why are patients sent to collections? Why are some sued? Why are wages garnished? Why aren’t patients paying- PERIOD? Why are the medical costs higher?
We always hear about the $6 Tylenol. But the costs behind that Tylenol consists of a host of “other costs” that also have to be considered but that is never considered by the media. The drug has to be ordered from the pharmacy. There are controls and audits in place, especially for narcotics. In many cases a pharmacy worker has to manually walk the ordered drug to the floor, put it into a Pyxis machine and then the nurse has to retrieve it using a fingerprint scanner. There are audits by state on federal regulators that occur frequently, and in the case of Medicare, if the hospital fails the audit and doesn’t make corrections fast enough or the corrections are not sufficient it could cost the hospital its ability to accept Medicare reimbursement. In the case of Medicaid, a Medicaid RAC auditor could deny claims it deemed unnecessary and the hospital may be forced to fight to substantiate the charges for Medicaid patients. The costs include not only compliance, policy and procedure reviews, audits by state and federal regulators, accreditation groups, and must take into consideration the practice of defensive medicine and rising malpractice insurance for high risk professionals due to frivolous litigation in many areas. Additionally, the costs in rural areas and the operating margins of those facilities needs to be considered because they may be disproportionally higher than urban areas. According to Beckers, in 2018 there were 21 hospitals that shut their doors which means those communities were left to find another provider or travel farther for services.. Another 11 have closed so far this year.
With regard to whether of not the hospital owned its own third-party debt collection agency to collect, what difference does that make? There are fewer and fewer hospital-owned agencies than when I started over 18 years ago due to a variety of reasons. Medical debt, as stated before, is among the last debt to be paid by a person who may also have a mortgage, a car, a cell phone, and cable bill. So, for media that seems to have such an appetite for going after “big corporations”, sob stories, and anything to get ratings and headlines, please do a little more research before going on the attack. Yes, healthcare is expensive, and research is also expensive. But if we are going to further the sense of entitlement in this country by promoting a narrative of “it is simply wrong to collect from patients”, ask why people from other countries including those with socialized medicine are flocking to the USA for treatment? Stay healthy, embrace good habits including eating healthy and exercising, live a good life but also PAY YOUR MEDICAL BILLS PLEASE!
Revamped TRACED Act Passes House, Senate & President Also Expected to Sign Off
The House of Representatives yesterday passed the Pallone-Thune TRACED Act, an undertaking that the Senate is expected to copy next week, and one of the bill’s biggest supporters says that President Trump will sign the bill once it hits his desk before the holidays. More details here.
WHAT THIS MEANS, FROM JUNE COLEMAN OF CARLSON & MESSER: The TRACED Act adds some additional teeth to administrative actions, but also address the spoofing of telephone numbers. First, the TRACED Act increases penalties that the FCC can issue by $10,000 against companies in administrative actions that intentionally violate the TCPA. And the amendments further provide a statute of limitations for administrative actions: one year for violations related to calls to cell phone and four years for violations related to recorded calls to residential phones. This may have some impact on private, civil lawsuit. The TCPA does not have a statutory statute of limitations, and courts have imputed a four-year statute of limitations under 28 U.S.C. section 1658(a), which contains the “catch all” statute of limitations for federal statutory claims without an express state of limitations provision. However, the TRACED Act administrative statute of limitations may lead courts to apply the one-year/four-year statute of limitations in the TRACED Act. Time will tell.
TRACED Act also recognizes that calls by autodialers are particularly problematic when the caller information is spoofed. Therefore, the TRACED Act mandates that the FCC prepare an annual report to Congress regarding the number of TCPA complaints, including spoofing complaints, and the track record for administrative actions. This is an important distinction – so often people discuss autodialer calls and spoofing interchangeably.
And the TRACED Act sets forth a plan to develop call blocking technology and require providers to develop such. Most importantly, probably, the TRACED Act specifically recognizes that call blocking technology leads to the blocking of calls that are permitted. The TRACED Act references a safe harbor for service providers who inadvertently block calls that are appropriate, which includes establishing a process to permit a calling party adversely affected by call blocking legitimate calls. While this is a first step, I hope that this moves us down the path to a time when legitimate calls, even if unwanted by the consumer, will not be blocked.
Recognizing that call blocking and call spoofing are integral components of consumer complaints about “robo-dialing” will hopefully educate consumers about the differences between the three. Since the TRACED Act was passed by the House last week, it returned to the Senate for approval of the changes made in the House. There is some hope that the Senate will pass the amended version and it will head to the President for signing. We will have to see how this continues to proceed as the holiday season is upon us and as the House and Senate address other governmental issues.
Appeals Court Upholds Lower Attorney Fee Award in FDCPA Case
The Court of Appeals for the Third Circuit has denied a plaintiff’s appeal for a larger attorney fee award in a Fair Debt Collection Practices Act case that was settled. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: The facts of Scanno v F.H. Cann & Associates are fairly common. The plaintiff brought the action as a class action and it turned out that it was unlikely that a class could be certified. In this case due to an arbitration provision contained within the terms and conditions. F.H. Cann then attempted to settle the matter and each settlement was rejected on the premise that the total settlement would not cover the attorney fees counsel claimed incurred as of the date of each offer. [Mentioned in the Magistrate Judge’s Report and Recommendation (“R&R”) which was relied on by the District Court but not commented on, was the fact the prior offers to settle were never conveyed to the plaintiff. Arguably, at that point there was both an ethical breach and a conflict of interest raised between the plaintiff and her counsel since the rationale was that the proffered settlements would not give the attorney what he felt he was entitled to, notwithstanding it would have been a benefit for his client to end the litigation quickly with a good result. Food for thought.] Finally with a motion pending to remove to arbitration, the plaintiff accepted an offer to settle consisting of $1000, the maximum individual statutory damages the plaintiff could win and agreed that plaintiff’s counsel would be permitted to file an application for reasonable attorney fees.
The application was for $24,550 in legal fees (49.1 hours @ $500) and an additional $2,350.00 for an additional 4.7 hours spent on reply brief. The District Court approved the R&R which reduced the billable time by 11.8 hours and reduced the time allegedly spent on the fee application by 40% awarding a total of $10,418.
There are several takeaways from this decision that should warm the hearts of those of us defending these cases. First and foremost is that the 3rd Circuit agreed that the District Courts reduction was appropriate pointing out that the “amount of time billed was excessive given counsel’s significant experience in this field” and that “the District Court may reduce the fee award “to account for . . . limited success” on the merits of the claim or for other factors, such as the experience of counsel and the complexity of the legal issues involved.” In essence, you can’t claim to be the second coming of Clarence Darrow and then claim your efficiency at a task is no better than a first year attorney.
In looking at the numbers the Magistrate Judge cut the loadstar (amount of time billed times hourly rate) by 11.8 hours. The majority of that lost time was for three tasks. Counsel billed 3.1 hours for research and drafting the complaint (1 hour reduction from that); 5 hours for legal research and drafting a 2.5 page letter responding to a motion to compel arbitration (3 hour reduction) and 11.8 hours for researching, drafting, and filing an opposition to a motion for leave to amend. (6.8 hours reduction). Repeatedly the Court pointed out that those hours were excessive for “an experienced practitioner of nearly three decades.”
In what I found to be a particularly gratifying comment, the 3rd Circuit also supported a reduction in the billable hours charged for the preparation of the fee application due to its limited success.
The undersigned has had the opportunity to discuss the issue of fee applications with the Magistrate Judge who authored the Report and Recommendation (the plaintiff’s attorney in the case just discussed was also in the conversation) and she indicated that the Courts may start looking a little more carefully at these applications and the fact that all too often cases that should be settled quickly are dragged out to allow the plaintiffs’ counsel to run up fees. (Did I just really say that?)
Settlement Highlights Different Costs of Settling FDCPA and TCPA Cases
A recently settled class action is making the rounds in the credit and collection industry as it showcases the vast differences between settling cases alleging violations of the Fair Debt Collection Practices Act and those alleging violations of the Telephone Consumer Protection Act. More details here.
WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN SANDERS: In the recent Sheehan settlement the named Plaintiff claimed that he received debt collection calls from the Defendant via an ATDS or prerecorded voice that were intended for other people. He alleged that he employed “stop calling” phrases but that the calls to his cell phone continued. While revocation cases of this sort are rarely certifiable the Defendant elected to resolve the case on a class-wide basis.
And wow. The vast difference between the approved settlement funds– $40,000 for the FDCPA portion of the claim, and $3,710,000 for the TCPA portion is demonstrative of the continuing trend of high dollar TCPA settlements. Remember, these claims relate to virtually identical allegations yet the TCPA settlement was nearly 100 times more than the FDCPA settlement.
“Wrong number” class claims continue to be brought and settled despite issues with certifiability of the class. This particular settlement highlights why the TCPA, which is essentially a strict liability statute, continues to be used by plaintiffs’ attorneys to extract large settlements from companies across industries. We continue to wait on the FCC to shake some common sense into the definition of ATDS
Judge Awards Plaintiff $190k in TCPA Case Over Calls to Reassigned Number
A District Court judge in New York has imposed a $190,000 judgment against a defendant that was accused of violating the Telephone Consumer Protection Act by making nearly 400 calls — to the wrong individual — to collect on a delinquent credit card account. More details here.
WHAT THIS MEANS, FROM KELLY KNEPPER-STEPHENS OF TRUEACCORD: The new decision In Jimenez v. Credit One Bank (decision here) on reassigned numbers continues to increase the risk of using a dialer to call cell phones. Where is the reassigned number database? It cannot be ready soon enough. In the meantime, insurance providers are leaving the credit and collection space and/or adding riders to policies that do not extend coverage to TCPA claims. So what can you do about it? Make sure that you have really assessed the risk in your dialing policy and keep in mind two things: (1) Dialing the number is the violation – it does not matter if the person answers the phone call OR if the phone even rings. In Jimenez the court awarded $500 for each of the 380 phone calls the defendant made. This included 43 calls that never rang on the plaintiff’s phone because the number had been temporarily disconnected. The court found that what mattered is the dialing of the number – not whether or not the person answered. In fact, the court made this decision even though the defendant’s call logs for those 43 calls that showed a result code of either “No Answer” or “Invalid Phone Number.” Perhaps this means, call centers everywhere should consider adding a result code for disconnected number (not sure if the system or triple tones can identify a disconnected number)? (2) Consent only applies to the person who gave consent when the number has been reassigned there is no defense to the second, third, fourth, or fiftieth call to the number.
State Appeals Court Rules Lack of License Not Enough to Sever Arbitration
A state Appeals court in New Jersey has upheld a lower court’s ruling that a debt buyer that purchased a delinquent account and subsequently sued to collect on the unpaid debt is entitled to the same arbitration clause from the original agreement, even though the debt buyer was not licensed in New Jersey. More details here.
WHAT THIS MEANS, FROM JUDD PEAK OF FROST-ARNETT: This is an interesting issue and one that falls outside of normal “compliance” news items. The consumer argued that the collection agency could not sue him for collection because it was not licensed in New Jersey, his home state. However, the underlying agreement contained a binding arbitration clause. Consequently, the court ruled that whether the agency was legally able to sue the consumer was an issue to be decided by an arbitrator. Even more broadly, the question of enforceability of the arbitration clause is to be decided by the arbitrator.
While this decision fell under New Jersey state law, it largely mirrors interpretations of the Federal Arbitration Act (FAA). The FAA generally pushes as many questions in arbitration to the arbitrator, and the ability of a court to make decisions on an underlying dispute are limited (such as compelling arbitration or narrow exceptions for overturning an arbitrator’s award).
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