Compliance Digest – March 6

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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.

Judge Orders Plaintiff’s Attorney to Pay Defendant’s Attorneys $12k in Fees

A District Court judge in Minnesota has ordered a plaintiff’s attorney to pay $12,133.35 to cover the attorney’s fees incurred by the defendant in a Fair Debt Collection Practices Act case, bringing an end to a case where the attorney admitted to acting “petty” and was accused of prolonging the litigation to augment his recovery. More details here.

WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: United States District Judge Wilhelmina M. Wright (District of Minnesota) recently awarded defense fees in an FDCPA case, even though the Plaintiff technically was the prevailing party after accepting a defense offer of judgment for $1,001. See Ricketson v. Advantage Collection Professionals, LLC, Case No. 21-cv-2541 (D. Minn. Feb. 21, 2023). In Ricketson, the defense sought its fees pursuant to 28 U.S.C. § 1927, a sanctions-based fee-shifting statute that can be used to punish an attorney personally for conduct that multiplies proceedings unreasonably and vexatiously. 

28 U.S.C. § 1927 is not frequently raised during litigation. This case, however, is a textbook example of when it makes sense to try. After accepting an offer of judgment that included paying Plaintiff’s “reasonable attorneys’ fees,” the Plaintiff’s attorney intentionally delayed a resolution of that reasonable amount by: (1) refusing to provide a summary of time and expenses incurred, (2) refusing to engage in good faith in discovery regarding the time and expenses incurred, and (3) making misrepresentations to opposing counsel and a magistrate judge about the amount that had been billed to the Plaintiff on a given date. Plaintiff’s attorney later admitted that his actions were “petty” and the Court agreed, finding that Plaintiff’s counsel had “used the Federal Rules of Civil Procedure as a tool for no apparent purpose other than to obstruct and harass opposing counsel and prolong the resolution of the parties’ dispute.” As a result, the Plaintiff’s attorney was hit with a $12,133.35 fee award that he is required to personally satisfy.

While 28 U.S.C. § 1927 is not to be lightly invoked, and typically has no place in standard litigation, it can be a strong weapon to combat an opposing counsel’s intentional stonewalling or delay tactics. While probably reserved for the worst of behavior, the Ricketson case is a good reminder that there are tools available to address such behavior. 

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Judge Dismisses FDCPA Class Action Over Disputed Debt for Lack of Standing

A District Court judge in New Jersey has dismissed a Fair Debt Collection Practices Act class action for lack of standing, ruling that the plaintiff did not provide any evidence to support her claim that the defendant failed to communicate to the credit bureaus that a debt was being disputed. More details here.

WHAT THIS MEANS, FROM CHANTEL WONDER OF GORDON REES: Following the final Hunstein decision, many courts are taking a closer look at the injury (or lack of injury) pled in the Complaint and dismissing actions for lack of standing, including judges outside the 11th Circuit. In Chapman v. AA Action Collection Co., Judge Martini concluded that “Plaintiff failed to establish that she suffered a concrete injury to confer Article III standing,” as she did not establish publication of misleading information on her credit report and risk of future harm is not sufficient alone to support Article III damages.

State court judges are also applying a similar standing analysis in statutory violation cases. For example, in Southam v. Red Wing Shoe Co., Inc., 343 So. 3d 106, 113 (Fla. 4th DCA 2022), review denied, SC22-1052, 2022 WL 16848677 (Fla. Nov. 10, 2022), a Florida state appellate court found that the appellant lacked standing because he did not demonstrate an injury in fact. In Saleh v. Miami Gardens Square One, Inc., — So.3d —- (2023), 2023 WL 152151, the Southam analysis was applied and the court found that the “trial court properly dismissed Selah’s complaint as legally insufficient for failure to plead an actual injury…” This trend started in the 11th Circuit separate from the Hunstein saga when the court found in Muransky v. Godiva Chocolatier, Inc., 979 F. 3d 917, 920 (11th Cir. 2020), that a “party does not have standing to sue when it pleads only the bare violation of the statute.” State courts have issued similar decisions in California (People ex rel. Becerra v. Superior Court, 29 Cal. App. 5th 486, 495-96 (2018)) and New York (Smahaj v Retrieval-Masters Creditors Bureau, Inc., 69 Misc. 3d 597 (2020)).

This turning of the tide is a surprising and positive development for the credit industry, and opens up many strategic defense options early in lawsuits.

Judge Recommends Dismissing FCRA, FDCPA Claims Against Creditors

A Magistrate judge in Texas has recommended granting motions to dismiss filed by two creditors who were sued, along with a pair of collection agencies, for violations of the Fair Debt Collection Practices Act and the Fair Credit Reporting Act, among other claims, by an attorney who blamed the losses of separate lawsuits on poor Internet service offered by the defendants. More details here.

WHAT THIS MEANS, FROM PATRICK NEWMAN OF BASSFORD REMELE: LOTS going on in this order, folks. We’re all busy, so let’s focus on the court’s assessment of the statutory causes of action (FDCPA, FCRA, and Texas Deceptive Trade Practices Act).

Now, these statutes are oft-maligned — including by Yours Truly in this very space! — as overly-mechanical, unforgiving, and serving as a vehicle to line the pockets of the plaintiffs’ bar at the expense of the hyper-compliant ARM industry. For a change, this order illustrates some of the glass-half-full characteristics of statute-based litigation. Namely, very specific definitions of who is subject to the Acts (e.g., “debt collectors” not creditors); who has standing to enforce them (e.g., the federal government, not individual plaintiffs); and the limitations periods within which claims must brought under them (e.g., “two years to bring suit” does in fact mean “two years to bring suit”).

The industry can benefit from the “hardline” nature of these claims, too (sometimes)! And, really, any time a federal court issues an order that frames all or part of a plaintiffs’ position as “desperate” and potentially “frivolous,” that’s a positive for the ARM industry. Here’s to more positivity going forward!

FCC Issues Proposed Rule to Block Illegal Text Messages

The chair of the Federal Communications Commission yesterday proposed a rule that would require mobile service providers to automatically block text messages that are “highly likely” of being illegal. More details here.

WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: This is another one of the FCC’s attempts at doing something good for the public – to try to stop text messages from companies the FCC (in its opinion) deems are transmitting illegal robotexts. The new rule requires the upstream telecom carriers to block those texts the FCC identifies are from illegal sources. The problem is, that laden with good intention are potentially going to be companies the FCC wrongfully identifies as illegal.  This could result in a “chilling effect” on free speech on good actors who accidentally fall into the bad actor category. And if you are one of those unfortunate companies that has to traverse through FCC red tape in an effort to seek to unwind an illegal moniker designation, one cannot imagine the herculean effort it would require. 

That is why, when sending out text messages, it is important to know:

• Do you have a protocol for obtaining consent to text phones numbers in the first place?
• Is obtaining consent necessary in light of the Facebook decision? 
• Are there reasons other than autodialer issues where consent can assist companies when starting a text campaign?  
• How should your collection text messages be sent;   
• What method of texting should be used — Long code? Short Code? 
• What should the content of your text look like to prevent consumers  from considering your message “Spam”, especially when such messages may contain hyperlinks to payment portals. 

It is important that the content of the messages you send separate you from the pack and don’t have the potential to fall within miles of the FCC radar.

So much to think about, but all of this is doable. Partnering with the right text message platform and consulting with knowledgeable outside counsel on the rules surrounding text messaging can guide you through all of these issues. 

Judge Allows Idaho AG to Intervene in Case Challenging State Collection Law

If I mention Frank Vandersloot, Idaho, and medical debt collection, that may trigger your memory of a billionaire who lobbied and advocated for the enactment of the Idaho Patient Act, a law that went into effect two years ago that cracked down on what it labeled to be “aggressive” collection of medical debts. That law is being challenged in court, and yesterday, a judge in Idaho ruled that the Idaho Attorney General will be allowed to intervene in the case in order to argue that the law is not unconstitutional. More details here.

WHAT THIS MEANS, FROM LAURIE NELSON OF AUTOSCRIBE: While it is common to see motions to intervene, what makes this motion to intervene interesting is the timing in which it was filed. The then Attorney General, Lawrence G. Wasden, filed the motion to intervene on December 16, 2022, almost two months after the Court issued a memorandum decision on October 27, 2022. The Court’s decision found that sections of the Idaho Patient Act were unconstitutional.

Before filing the motion, the Attorney General wrote to the Court on December 9, 2022, and requested the Court to delay the final judgment, so it had time to review the pleadings and research the issues. The fact that this motion was filed after such a review would lead to the assumption that the Attorney General feels confident that the Court’s analysis of the Act may be flawed. Or, as some have suggested, the Attorney General could have political reasons to take all measures to protect the Act. Melaleuca CEO Frank VanderSloot was the individual who pushed for the Patient Act in question. Mr. VanderSloot is a significant contributor to GOP candidates, including a $15,000 contribution to the now Attorney General of Idaho, Raul Labrador’s campaign.

Regardless of why the Attorney General’s office pursued the motion for intervention, both parties, the defendant and plaintiff, argued against it. The Court denied the wishes of both parties and granted the motion in favor of the Attorney General, Raul Labrador. So, until the final judgment is issued, Idaho stands that an Attorney General can intervene in constitutional matters. The motion was granted pursuant to the Attorney General’s interest only, with the legal argument to be heard later. While this motion was granted on Idaho law and not Federal law, which incorporates within the right to intervene an element of timeliness, it is still surprising to see a motion to intervene granted so late in a case.

Supreme Court Denies Petition in FDCPA Standing Case

As we await word from the Supreme Court about whether it will hear arguments in the Consumer Financial Protection Bureau’s funding case, the highest court in the land yesterday announced it had denied a petition from a plaintiff who had won $350,000 in a Fair Debt Collection Practices Act case, only to have it overturned for lack of standing by the Court of Appeals for the Seventh Circuit. More details here.

WHAT THIS MEANS, FROM JOHN REDDING OF ALSTON & BIRD: In yet another Article III standing case, the U.S. Supreme Court recently denied a petition seeking to overturn the 7^th Circuit’s decision overturning a class action jury verdict on the basis of lack of standing. While standing cases remain active and we will certainly see more, the 7^th Circuit dissent would have the bases for standing loosened a bit . . . at least in the 7^th Circuit. In this case, the 7^th Circuit majority relied on the plaintiff’s failure to take action on the letter at issue necessarily resulted in no more than a risk of concrete injury, but no actual concrete injury. The dissent characterizes the majority decision as holding that emotional distress and other non-physical or monetary harm cannot confer standing. The dissent further notes, however, that the 7^th Circuit has ignored Spokeo’s requirement to consider whether an intangible harm is closely related to a harm traditionally regarded as conferring standard.

We will no doubt continue to see standing claims raised by both plaintiffs and defendants as they make decisions on the best venue for an action. However, it remains important for industry to understand how the different Circuits are considering the standing question and the likelihood of a finding of standing, or lack thereof, based on an intangible injury claim. In some instances, including wihtin the 7^th Circuit, it appears standing will not be found to exist, while in others it will. We will all continue to monitor this important area for developments and some semblance of consistency, but perhaps the question will ultimately have to be placed back in the hands of the Supreme Court and it will have to decide it wants to further address the issue.

Insurance Company Dismisses Suit Against Collector

An insurance company has voluntarily dismissed a lawsuit it brought against a collection operation it sued last year, seeking a declaratory judgment that it was not responsible for covering the company in a class-action lawsuit that had been filed against it. More details here.

WHAT THIS MEANS, FROM VIRGINIA BELL FLYNN OF TROUTMAN PEPPER: On February 14, 2023, the United States District Court for the District of Maryland granted the parties’ stipulation of voluntary dismissal, ending the inquiry into whether the plaintiff insurance company had a contractual duty to defend the defendant insured, a debt collector, in the underlying suit.

The defendant is a party to an underlying class action lawsuit, where the defendant’s debt collection practices are alleged to have violated Maryland law and the FCRA. On May 27, 2022, the plaintiff filed a complaint against the defendant seeking a declaratory judgment that it had no obligation to pay the defendant’s defense costs or to indemnify them for the claims asserted against them in the underlying lawsuit. The insurance company argued that it provided coverage to the defendant between October 2020 and October 2021 pursuant to an errors and omissions policy. However, the policy excluded coverage for any class action lawsuit that was filed against the defendant. Because the underlying lawsuit is a purported class action, the insurance company filed suit and requested a declaratory judgment that the policy does not provide coverage for this type of action.

The defendant filed a motion to dismiss for failure to state a claim and a response in opposition to the insurance company’s motion for summary judgment. Defendant’s motions were premised on the fact that the underlying action “is not presently a ‘class action suit’ but is, instead, merely a complaint with class allegations.” Before the court could rule on these motions, the plaintiff voluntarily dismissed the action.

Although it is uncertain how the court would have ultimately ruled, this case serves as a reminder that the mere filing of a class action complaint does not guarantee that the lawsuit will survive class certification. Still, insurers will likely seek to tighten the language surrounding this policy exclusion to avoid further exposure to expensive claims.  

I’m thrilled to announce that Bedard Law Group is the new sponsor for the Compliance Digest. Bedard Law Group, P.C. – Compliance Support – Defense Litigation – Nationwide Complaint Management – Turnkey Speech Analytics. And Our New BLG360 Program – Your Low Monthly Retainer Compliance Solution. Visit www.bedardlawgroup.com, email John H. Bedard, Jr., or call (678) 253-1871.