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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 Grants MTD in FDCPA Case for Lack of Standing
Too little, too late, a District Court judge in New York has ruled, granting a defendant’s motion to dismiss a Fair Debt Collection Practices Act case, determining that claims raised by the plaintiff in opposing the motion to dismiss to prove she had standing do not reach the threshold necessary to allow the case to proceed. More details here.
WHAT THIS MEANS, FROM CHRISTOPHER MORRIS OF BASSFORD REMELE: Plaintiff filed a single count FDCPA case in federal court, complaining about collection communications regarding a $250 bill which she disputed. Following discovery, defendant collector asked the Court to grant summary judgment or dismiss the case for lack of standing. In response, plaintiff claimed the following harm: fear of negative credit reporting, incurring attorneys’ fees to deal with the collector, and expending time and money to investigate the bill. Plaintiff also argued that the court should find standing to serve the interests of “judicial economy” given that discovery had been completed and the case was ready for trial. But the Court held plaintiff’s claims did not meet the required standing threshold, such that it simply had no choice but to dismiss the matter, regardless of the merits of the claim. The Court had no sympathy for judicial economy/equitable arguments – noting that while re-litigating the case in state court might be burdensome on the parties, this was a burden “of Plaintiff’s own making.”
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Appeals Court Overturns Dismissal of FDCPA Class-Action, Leaves Same Case Before Two Different Judges
It definitely seems like more of an “inside baseball” type of ruling, but the Court of Appeals for the Sixth Circuit has overturned the dismissal of a Fair Debt Collection Practices Act case — in which three separate appeals were filed — leaving the same case pending before two different judges in the same district and asking them to “sort out” how the cases should proceed. More details here.
WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: This recent Sixth Circuit opinion should serve as a reminder to litigants and district courts alike of the importance and prominence of the Rules of Civil Procedure. Giving the district court’s administrative closure the once over, the opinion serves as a reminder that such closures are simply that, administrative in nature and not a final adjudication on the merits. A final adjudication requires more and parties should be vigilant in noting any additional language in a court’s administrative order which provides for a further dismissal after a certain number of days if no further action is taken.
State Court Judge Dismisses Hunstein Class Action
A state court judge in Illinois has granted a defendant’s motion to dismiss a Hunstein class-action case, ruling that the process of the defendant sending the information to the vendor that prepared and mailed the collection letter was not a communication in connection with the collection of a debt, and therefore, not subject to the Fair Debt Collection Practices Act case. More details here.
WHAT THIS MEANS, FROM COOPER WALKER OF FROST ECHOLS: Dare I say we might be heading towards the end of Hunstein claims? I’m almost scared to say it, but I think it’s true. This is one of a number of state courts that have now shot down a Hunstein claim. It sure seems that we’re on the trajectory for the plaintiff’s bar to find something else to occupy their time (and if there is one thing we can be certain of, it’s that they will find something else). Kudos to the state court for providing a solid opinion with good arguments and supporting case law to be used in future cases. I think most of us would agree that we would prefer to be in federal court, but if you end up stuck in state court your odds are looking good.
Appeals Court Upholds Lower Court Ruling for Attorney’s Fees in RFDCPA Case
The California Court of Appeals has upheld a lower court’s ruling awarding $30,450 in attorney’s fees to the lawyers representing a plaintiff in a Rosenthal Fair Debt Collection Practices Act case — which was about $68,000 less than the plaintiff was seeking. More details here.
WHAT THIS MEANS, FROM HEATH MORGAN OF MORGAN LYONS WATTS MORGAN: This is a good case affirming the limits to excessive fee requests in the 6th District of California that should be helpful to the industry, but especially those in California. The first major findings of significance was that the lower court was permitted to deny plaintiffs’ counsel request for a billable rate of $700, $600, and $500 an hour based on their office location rates as opposed to rates where the consumer lived and where this case was filed. While most jurisdictions would find those “hourly rates” excessive for attorneys with 24, 14, and 12 years of experience, the plaintiff’s attorneys claimed those based on a different location from where the case was filed. This denial of that theory should give defendants case law to push back when other plaintiff’s attorneys claim such excessive rates. The second major finding held the trial court’s determination that it would not award attorneys fees allocated to a motion that was not filed. Here, despite claiming the high hourly rates for their years of experience, the same plaintiffs’ attorneys also claimed it took them 30 hours to draft a motion for summary judgment that they never filed. This decision should help defendants push back from other plaintiff’s attorneys who seek to pad their award of attorneys fees with drafting motions and pleadings that are not relevant to the resolution of the case.
Report Calls Out Plaintiff’s Attorneys for Mass Arbitration “Shakedown”
The U.S. Chamber of Commerce’s Institute for Legal Reform has published a report calling out plaintiff’s attorneys for filing hundreds or thousands of similar demands against a defendant in arbitration proceedings that force defendants to settle claims in a form of “blackmail.” More details here.
WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: The U.S. Chamber of Commerce Institute for Legal Reform recently published a lengthy paper regarding a tactic used by certain plaintiffs’ attorneys – the mass arbitration shakedown. The idea is to file as many identical individual arbitration claims as possible against the same defendant, so that the defendant is immediately responsible to pay hefty initial arbitration fees just to try to defend itself. Under AAA and JAMS consumer and employment claims rules, for example, businesses are often required to subsidize the upfront arbitration fees. While the plaintiff might need to pay a $225-$400 filing fee, the defendant company may responsible for fees up to $4,275 per claim. For that reason, the defendant may choose to settle the claims even if they lack merit. Some companies have eliminated arbitration agreements completely or are now modifying them to include a bellwether process to address mass arbitration demands (where a small sample of test cases are tried and remaining claims are mediated).
Parts of the paper read like a horror story, describing not just attorneys that join forces and clients to collectively file a large volume of legitimate individual arbitration claims, but attorneys that threaten claims in the names of nonexistent or deceased individuals or former clients that do not have claims, or violate protective orders or use other unethical advertising or solicitation practices to amass a sufficient “inventory” of claimants.
The research provides examples of mass arbitrations filed against companies like Uber (12,501 arbitration demands triggering fees in excess of $18 million), TurboTax (125,000 demands for arbitration), Amazon (75,000 demands for arbitration), and Samsung (threat to file over 104,00 individual arbitration demands). While these are all high-profile businesses, the paper points out that arbitrations and settled threats are not public proceedings, such that there is no way to know how often this actually occurs and what other types of companies may be targeted at a smaller, but still potentially devastating, scale.
While our industry is no stranger to shakedown lawsuits, I am not aware of any mass arbitration shakedown schemes. If this becomes a problem, however, quietly paying off the threats does not seem like the best solution. I’d prefer an industry-wide defense war with an affirmative attack against any unethical practices.
Eleventh Circuit Grants En Banc Rehearing to Determine if Salcedo Should be Overturned
For years, the Court of Appeals for the Eleventh Circuit has been an outlier among its brethren, holding that an individual who received a single — unwanted — text message lacked standing to sue under the Telephone Consumer Protection Act because he did not suffer a concrete injury. That ruling is now going under the microscope, after the Eleventh Circuit granted an en banc rehearing in Drazen v. Pinto. More details here.
WHAT THIS MEANS, FROM DAVID SHAVER OF SURDYK DOWD & TURNER: Drazen v. Pinto has a complicated procedural history. In short, Drazen originally sued GoDaddy in August 2019 over promotional calls and texts that she received on her cellphone. Drazen alleged violations of the TCPA and brought her case as a nationwide class action. In June 2020, the Southern District of Alabama certified the case as a class action for settlement purposes, even though some class members had received only a single text from GoDaddy. The District Court believed that standing under Article III existed because the named plaintiffs had standing under Eleventh Circuit precedent and the class members who had only received a single text (who would not have standing under Eleventh Circuit precedent) would have had standing in another circuit.
The case made its way to the Eleventh Circuit after a class member objected to the settlement. The objector, Pinto, argued that the settlement was actually a “coupon settlement” and that the attorneys’ fees that were sought/awarded were disproportionate to the class recovery. Pinto argued that, under CAFA, the attorneys’ fees sought/awarded were subject to heightened scrutiny and the District Court had not engaged in the appropriate analysis. Ultimately, the District Court overruled Pinto’s objections in December 2020 and entered a final order confirming the class settlement. Pinto then appealed to the Eleventh Circuit in January 2021.
After briefing and oral argument, the Eleventh Circuit vacated the District Court’s final order in July 2022 and remanded the case for further proceedings because the class included individuals who did not have Article III standing under the Eleventh Circuit’s August 2019 Opinion in Salcedo v. Hanna. In Salcedo, the Eleventh Circuit found that an individual who received a single unwanted text message had not suffered an injury-in-fact as is required for Article III standing.
This prompted Drazen to seek an en banc rehearing. According to Drazen, Salcedo is in tension with the decisions of other circuits that have found Article III standing to exist where the Eleventh Circuit has not. The decisions cited by Drazen, however, are not I-was-injured-by-a-single-unwanted-text cases like Salcedo. They are, instead, cases based on more than one allegedly prohibited call or text.
En banc briefing in Drazen is currently scheduled to be completed by the end of May so a decision from the Eleventh Circuit may not be forthcoming until the end of this year or perhaps later. I am particularly interested to see how the Eleventh Circuit addresses those decisions from other circuits and whether it continues to believe that a single unwanted text is not enough of an injury to confer Article III standing. Either way, standing issues remain front-and-center in our industry and standing issues should be analyzed in every case (whether federal or state, as some states have standing requirements similar to the federal requirements). And this is particularly true in class action litigation. The Supreme Court has made it clear that if absent class members are going to receive relief, each must have Article III standing.
NCLC Petitions CFPB For Rule Regulating Credit Reporting by Collectors
The National Consumer Law Center has submitted a petition to the Consumer Financial Protection Bureau requesting that original creditors be responsible for furnishing information related to debt collection activity undertaken by third-party debt collectors or debt buyers, and that collectors should be required to review documents like the original application or agreement and charge-off billing statements prior to being allowed to furnish information to the credit reporting agencies. More details here.
WHAT THIS MEANS, FROM JOHN REDDING OF ALSTON & BIRD: On March 3, the NCLC petitioned the CFPB to craft a rulemaking that (i) strictly regulates credit furnishing by debt collectors and buyers, (ii) requires translation of consumer reports into 8 languages, and (iii) establish a new Ombudsman office to assist consumers unable to correct errors in their credit reports. Relying on few randomly selected cases and studies that appear more like advocacy pieces, NCLC proposes that any reporting by a collection agency must be included in the original creditor’s tradeline, apparently ignoring the fact that different furnishers would be involved and result in incorrect information about who is furnishing what information in violation of the FCRA.
The petition also proposes the CFPB require review of specific documentation prior to furnishing and also define what a furnisher must review to verify disputed information. Furnishers, particularly those that have been subject to examination or investigation into dispute handling practices, might welcome a rule in which the CFPB defines the exact steps required to conduct “reasonable investigation,” thereby removing any question – a step the CFPB has refused to take during examinations or investigations to date.
While an interesting read, the likelihood of the CFPB issuing such a rule under the current administration – or perhaps any rule absent a court order to do so (e.g., Section 1071 small business rule) – is probably somewhere close to zero. This Bureau seems to eschew rulemaking in favor of inflammatory blog posts, press releases and the occasional consent order.
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.
