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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.
Seventh Circuit Reverses Ruling on Standing in FDCPA Class Action
Ruh Roh, Raggy, the worm on standing may have finally turned. Many Fair Debt Collection Practices Act complaints allege that plaintiffs spent “time and money,” and it appears that the Court of Appeals has put a price tag on how much money needs to be spent in order for a plaintiff to have standing to sue, reversing a lower court’s dismissal of a suit. Just how much are we talking about? $3.95. More details here.
WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: Earlier this month, the Seventh Circuit reversed the dismissal of an FDCPA class action lawsuit. After this 2018 lawsuit had been litigated for more than a year and the district court certified a class in 2020, the defendants moved to dismiss for lack of jurisdiction, citing a string of emerging opinions from the Seventh Circuit holding that an FDCPA plaintiff who alleges mere confusion has not alleged a sufficient injury to confer Article III standing to sue in federal court.
The Seventh Circuit has now disagreed with the district court’s finding that “the time and money spent” by the plaintiff “to send [a] second validation request” after she allegedly was confused by the first response sent by an entity other than the collection agency “did not rise to the level of detriment required for standing in FDCPA cases.” See Mack v. Resurgent Capital Servs., L.P., 2021 WL 3901747, *3 (N.D. Ill. Sept. 1, 2021). In finding insufficient harm, the district court relied on the fact that the plaintiff had failed to allege that she took “some action related to her debt management choices” based on her confusion, like making a payment. The Seventh Circuit found error in that conclusion, instead holding that the alleged confusion caused by the first validation response caused the plaintiff “to suffer a concrete detriment to her debt-management choices in the form of the expenditure of additional money to preserve rights that she had already preserved” – i.e., postage in the amount of $3.95, evidenced by a receipt attached to the Complaint.
According to the Seventh Circuit, the distinguishing factor between this case and others – where dismissals were upheld because the plaintiffs were found to have caused themselves injury or were trying to clear up their own confusion by seeking advice from a lawyer, for example – is that this plaintiff “spent extra money not to clear up her confusion but in order to preserve her right to seek validation.” Hmmmm. While I understand the difference in theory, it seems to me that many allegations of harm based on purported time, effort, and money spent by an FDCPA plaintiff could be restated and alleged in a manner that focuses on the preservation of an FDCPA right, instead of clearing up confusion. Even if not intended, I expect that this opinion will lead to some renewed and more nuanced standing arguments and opinions, at least in the Seventh Circuit.
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Judge Remands FDCPA Cases Back to State Court, Calls Out ‘Remarkable Uniformity’ of Allegations
I will freely admit that there are a lot of people who have been following Fair Debt Collection Practices Act caselaw for a lot longer than I have, but, for my money, Judge Brian Cogan of the District Court for the Eastern District of New York might have the most honest and blunt assessment of the state of FDCPA lawsuits that I have seen. Granted, the ruling in question is arguably better for the plaintiffs than the defendants, but you have to tip your hat to the guy for being so direct. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: Many of us lucky enough to practice in the New York City area have gotten use to the Hon. Brian M Cogan, U.S.D.J’s straight talk regarding the frequent filers that plague our clients. While Judge Cogan may not always rule in your favor, you can bet that at least you’ll get some quotable language you can use elsewhere. In Jaakov E. Friedman v Cavalry Portfolio Services, LLC, and Menachem Deutsch vs. Allied Account Services, Inc., Judge Cogan saw two cases on his docket which raised “identical standing issues” both brought by Stein Saks. On his own accord he consolidated them for the purposes of his ruling. The two Defendants had different defense counsel and neither party suggested consolidation.
Judge Cogan is keeping track of his cases and apparently figured he could kill two Saks cases with one decision. Along the way he made several astute observations regarding the cookie cutter complaints filed in these FDCPA cases. In his alert Mikey G. repeated some of the pithier comments made by the Judge so I won’t repeat them here.
So, is there a serious takeaway here? Yes. The court recognizes that there is a new dynamic at work due to the effect of TransUnion on the standing issue. All of a sudden, we have defense counsel arguing that yes indeed the plaintiff was injured by their clients and Plaintiff’s attorneys arguing, ah, not really. At some point the Federal Courts may turn on us for “frivolous” removal. My humble suggestion, if there are no concrete damages pled, be judicious with removal – one strategy might be removal for the purpose of forcing the Plaintiff to admit there are no actual/concrete damages as remand is sought.
One thing for sure, if you simply remove everything, warranted or not, Judge Cogan and others like him will be keeping track.
Appeals Court Denies Motion to Compel Arbitration in Call Frequency Case
The Court of Appeals for the First Circuit has affirmed the denial of a motion to compel arbitration in a case alleging a collector violated state law in Massachusetts related to call frequency caps, upholding a state Supreme Court ruling that not only are third parties not covered by arbitration provisions, but that the manner in which the collector attempted its appeal necessitated its denial. More details here.
WHAT THIS MEANS, FROM RICK PERR OF KAUFMAN, DOLOWICH & VOLUCK: This case is less about the substantive law than it is about the litigation, removal, and appeal process. Defendant collection agency sought to compel arbitration of the litigation between it and the consumer based on a contract between Verizon and the consumer. One of the issues was whether the contract in question was even the correct contract governing the debt. The collection agency presented little proof it applied, that plaintiff consented to arbitration, or that the collection agency was an intended beneficiary of the contract.
Second, the procedural posture of the case worked against the agency. The collection agency originally filed the motion to compel arbitration when the case was in state court. It was denied. The agency did not file a timely interlocutory appeal in state court. Instead, it removed the case to federal court. The thing about removal is that a transferred case remains in the same procedural position as it was before removal. Thus, the agency was stuck with a denied motion. The agency, nevertheless, filed a second motion to compel arbitration in federal court. The court treated the motion not as a new motion but as a motion for reconsideration of the denied state court motion. Such a motion is evaluated on a different, higher standard, which necessitated a denial of the motion.
On appeal to the federal appellate court, the United States Court of Appeals for the First Circuit upheld the denial of the motion for reconsideration. This was not based as much on the substance of the motion as it was on the process.
The good news for the ARM industry is that had there been a cleaner presentation of the issues, the motion to compel might have been successful.
Appeals Court Rules One RVM Enough for Plaintiff to Have Standing
An opinion out of the Court of Appeals for the Sixth Circuit that was issued last week started making the rounds last night because it addresses the issue of standing, albeit related to the Telephone Consumer Protection Act. The Court reversed a District Court ruling by determining that the receipt of a single ringless voicemail message is enough of a concrete injury for the plaintiff to have standing to sue in federal court. More details here.
WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW & CULBERTSON: Is a single text, call, voice message or ringless voicemail sent in violation of the TCPA sufficient for Article III standing? In 2019 and 2020, the 11th Circuit Court of Appeals issued opinions that held those did not create sufficient “injuries.” Grigorian v. FCA US LLC, 838 F. App’x 390 (11th Cir. 2020); Salcedo v. Hanna, 936 F.3d 1162 (11th Cir. 2019). These rulings have helped defendants in opposing class certification and some individual claims.
The defendant in Dickson v Direct Energy pushed that angle successfully in an Ohio District Court. The trial judge in a TCPA case agreed with the 11th Circuit, holding that a telemarketers ringless voicemail did not create standing. Unfortunately, the 6th Circuit disagreed. The court reasoned that the receipt of even a single ringless voicemail resembled the common law tort of intrusion upon seclusion (i.e., the right to be left alone). That common law analog was sufficient to create Article III standing.
This is not an outlier ruling. Instead, it is looking like the 11th Circuit is in the minority on this issue, and that may not last long. In a bit of coincidental timing, the 11th Circuit sat en banc last week to hear oral arguments on whether its prior “one call” rulings were good law. The case is Drazen v Pinto but is often referred to as the GoDaddy TCPA settlement. It is often hard to predict an outcome based on the oral argument. However, the judges made many comments that indicated they would undo the prior rulings and hold that there is sufficient Article III injury even for one contact in violation of the TCPA. If so, the “one contact” doctrine was a short term victory for TCPA defendants.
Judge Remands Hunstein Case Back to State Court
A District Court judge in Florida has remanded a Fair Debt Collection Practices Act case back to state court where it was originally filed, ruling the plaintiff lacks standing to sue, while also denying the plaintiff’s request for attorney’s fees and costs because the defendant removed the case to federal court. More details here.
WHAT THIS MEANS, FROM CHRIS MORRIS OF BASSFORD REMELE: Once again, a federal district court has remanded to state court an FDCPA lawsuit (which included a Hunstein type theory, among a couple other FDCPA claims) originally removed to federal court by the Defendant agency. But this case had been filed and removed before the Eleventh Circuit’s ruling in Hunstein, and had been stayed for a period of time pending that decision. In response to the Plaintiff’s request for a remand together with an award of fees, the Defendant agency tried to keep the case in federal court by arguing that Hunstein was distinguishable and that the Plaintiff had sufficiently alleged injuries in the current case. Noting that removal jurisdiction is narrowly construed, with all doubts resolved in favor of remand, the district court rejected the agency’s arguments and remanded the case to state court. But the Plaintiff’s fee claim for improper removal was denied, in light of the fact that the removal was filed prior to the Hunstein decision. While the Defendant escaped a fee award given the timing of removing the case prior to Hunstein, it will be increasingly difficult to avoid fee awards against defendants removing Hunstein type claims, as these federal remand orders pile up.
CFPB Issues Warning Over Use of AI Chatbots
The Consumer Financial Protection Bureau yesterday painted a target on artificial intelligence, issuing an advisory about banks and companies in the financial services industry using the technology in chatbots, saying it can lead to violations of consumer finance laws and harm consumers by providing inaccurate information and diminished customer service. More details here.
WHAT THIS MEANS, FROM LESLIE BENDER OF EVERSHEDS-SUTHERLAND: Last week the CFPB issued a challenge to financial institutions regarding whether or not AI Chatbots are or are not providing needed or essential customer service. The detailed spotlight summed up the CFPB’s year-long research on the topic. The CFPB concluded that while chatbots “may be useful for resolving basic inquiries … their effectiveness wanes as problems become more complex.” Moreover the CFPB raised concerns about whether or not financial institutions’ AI and chatbot technology might be out of sync with essential consumer financial protection laws and might themselves violate laws, erode customer trust and cause consumer harm. The CFPB’s focus on AI Chatbots comes shortly after the CFPB announced its collaboration with a handful of other federal regulators to raise concerns about whether or not tech marketed as “artificial intelligence” was really taking the bias out of decision making or instead was producing outcomes that result in unlawful discrimination. While the CFPB has embraced communicating with consumers in methods that align with their communication preferences, it is clear that the CFPB remains laser focused on understanding “how technology is transforming financial services,” as noted by Director Chopra in last week’s statement to the House Committee on Financial Services, and whether or not consumers’ privacy is being protected while allowing consumers to “more easily switch and gain access to new products.” Bank and nonbank financial institutions can expect more CFPB work in this fast-changing digital economy with an emphasis on UDAAP prevention.
State Appeals Court Affirms Denial of Certification in FDCPA Class Action
A state Appeals Court in Georgia has affirmed a lower court’s denial of class certification in a Fair Debt Collection Practices Act case, ruling the plaintiff failed adequately assess the size of the class, thus not meeting the numerosity component required for certification. More details here.
WHAT THIS MEANS, FROM DAVID GRASSI OF FROST ECHOLS: This case serves as a reminder that when a consumer is bringing an FDCPA class action, the consumer must meet all requirements for class certification. Here, Portfolio Recovery Associates, LLC (“PRA”) purchased a portfolio of debt, which included a debt owed by Mr. Cagle. PRA sued Mr. Cagle who, after having a default set aside, filed a class action counterclaim contesting PRA’s used misleading form affidavits that were not based on personal knowledge. Mr. Cagle ultimately sought class certification for a class of over 39,500 members for whom he claimed PRA used similar affidavits.
But Mr. Cagle put the cart before the horse. In support of his class certification motion, he included 2,000 case captions of PRA actions attached to an affidavit of counsel and copies of six PRA affidavits. However, Mr. Cagle failed to provide any evidence the six affidavits contained misleading information or that the affiants lacked personal knowledge. Further, with respect to at least four affidavits, PRA provided evidence the affiant did in fact have personal knowledge. Simply put, the consumer failed to present evidence the numerosity requirement was met. The Court further noted that, without more, numerosity could not be inferred simply because PRA filed a large number of lawsuits.
The take away for defending against class certification is to make the consumer dots the “i’s” and crosses the “t’s,” i.e. make sure they are establishing each element required for class certification with sufficient evidence.
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.