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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.
Appeals Court Dismisses Hunstein Copycat for Lack of Standing
The Court of Appeals for the Third Circuit has ruled the plaintiff in a Hunstein Fair Debt Collection Practices Act case does not have standing to sue and has vacated a lower court’s dismissal of the case for a different reason and remanded the case back to state court in New Jersey where it was originally filed. More details here.
WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: Dervitz v. ARS National Services serves as a harsh reminder that Article III standing can be raised at any time including, sua sponte, at the appellate level. In Dervitz, a Hunstein copy cat case, the district court dismissed the case after removal because the consumer had failed to fully disclose her claims in her Chapter 7 bankruptcy. Because the court determined those claims arose prepetition, the case was dismissed. Dervitz appealed that dismissal to the Third Circuit where the parties fully briefed the matter on its merits. After dispensing with oral arguments, the Third Circuit ultimately determined that it did not have subject matter jurisdiction because the plaintiff did not have Article III standing. As a result, the Court remanded the case back to the district court with instructions that, in turn, it remand the matter back to the state court who presumably will now examine the claims of the plaintiff anew. In other words, the parties are back to the drawing board, at least as to the state claims.
Dervitz serves as a reminder that Article III standing can be raised at any point in the litigation, even on appeal. This has proven especially true in FDCPA litigation with an upward trend in dismissals and remands based upon a lack of Article III standing. Litigants, therefore, should continue to assess Article III standing throughout the phases of litigation and consider its impact on litigation.
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Appeals Court Overturns Ruling in FDCPA Case, Says Plaintiff Lacked Standing
The Court of Appeals for the Seventh Circuit has vacated a lower court’s summary judgment ruling in favor of a plaintiff in a Fair Debt Collection Practices Act case and remanded the case back to the District Court so it can be dismissed because the plaintiff lacked standing to sue in the first place. More details here.
WHAT THIS MEANS, FROM XERXES MARTIN OF MARTIN GOLDEN LYONS WATTS MORGAN: This is a strong standing opinion against a creative argument for a violation of the FDCPA. Howe, an attorney, sued Mr. Patterson for an unpaid student loan debt. When he served Patterson, he included four requests for admission, one which asked Patterson to admit the allegations were true, and another that he had no valid counterclaim. While the collection suit was pending, Patterson filed suit alleging Howe violated the FDCPA by not informing him that by not responding to these requests would deem them as admitted, thus was deceptive and misleading. He argued this caused him harm by confusing him and causing him to lose negotiation leverage.
Judge Hamilton hit the bullseye on lack of concrete harm in the standing analysis from TransUnion LLC v. Ramirez, and down to his own court’s opinions in Brunett v. Convergent Outsourcing, Inc., Pierre v. Midland Credit Mgmt., Inc., and Persinger v. Southwest Credit Systems, LP. The opinion first knocked down the harm claims finding Patterson showed nothing more than confusion which did not cause him to take any detrimental action. The opinion delivered another knockdown punch with finding no close historical or common-law claim analogous to effects of failing to answer requests for admission. Last, the opinion landed its knockout blow on the timing of the claims. Patterson argued he lost leverage in negotiation due to the deemed admissions. However, his FDCPA suit was filed four months before resolving the underlying collection suit, therefore the argument that the admissions could be used against him at that time were “neither concrete nor imminent” thus only speculative in nature. Solid win for the collection industry.
Appeals Court Overturns FDCPA Ruling For Defendant
For the second time, the Court of Appeals for the Fifth Circuit has overturned a ruling in a Fair Debt Collection Practices Act case in favor of the defendant, this time outlining three ways that a reasonable jury could have found the defendant violated the statute when it attempted to recover money that was overpaid to a pair of elderly homeowners related to recovery efforts in the wake of Hurricanes Katrina and Rita. More details here.
WHAT THIS MEANS, FROM ISSA MOE OF MOSS & BARNETT: This opinion is a reminder that in litigation, facts can dictate outcomes. To recap: In 2007, two consumers—both widowed octogenarians—applied for and received grants after Hurricane Katrina devastated their homes. The grant program agreements required disclosure of previously received repair benefits, and authorized the State to recoup duplicative payments if applicants failed to disclose them. Both consumers had received prior repair benefits, but neither disclosed them on their application. The prior benefits were reported to the State of Louisiana in 2007 and flagged on the consumers’ accounts. A decade passed with no action on the accounts.
Then, in 2017, a law firm sent the consumers dunning letters seeking to collect the duplicative payments. The letters included threats to sue in 90 days if the debts were not paid, and stated the consumers may have to pay attorneys’ fees if the firm filed suit. One consumer hired an attorney and disputed her debt, after which point the law firm changed the basis for the debt to include a 30% penalty for lack of flood insurance (which was not in the grant program agreements). The other consumer agreed to a $25/month payment plan because she was “terrified” by the letter, feared she would lose her house, and feared that litigation would destroy her financially. Not a great set of facts for the law firm.
The consumers sued the law firm under the FDCPA, alleging false representations regarding the debts and threats to take action the firm could not legally take. The defendant won not once, but twice at the district court level. Unfortunately, the defendant also lost not once, but twice at the appellate level. And the Fifth Circuit issued what could be described as a beatdown on this second appeal. The court found — if not searched for — a reason to rule in the plaintiffs’ favor on every issue, including standing, the accuracy of the debts, whether the debts were time-barred, and whether penalties and attorneys’ fees were recoverable. The Fifth Circuit gave the defendant no breaks whatsoever, even though it appeared both plaintiffs had in fact violated the terms of their grant agreements and received duplicative payments.
So, what’s the takeaway? Again, facts matter in litigation. Don’t ignore them when setting litigation strategy. Also, in the unlikely event that you get hit with an FDCPA lawsuit in the Fifth Circuit after attempting to recover home repair grant funds from widowed octogenarians who lost their homes to a hurricane, you might want to consider an early exit in that litigation. If history is any indication, it might not end well for you if you pick that fight.
Virginia Appeals Court Grants En Banc Rehearing in Debt Buying Case
The Court of Appeals of Virginia yesterday granted a petition for an en banc rehearing in the case it ruled on last month that overturned a lower court’s decision in favor of a debt buyer, ruling that the debt buyer had “scanty and incomplete” evidence to prove it owned the debt and thus had a right to collect on it, and has ordered the lower court to enter a judgment indicating the plaintiff does not owe the debt. More details here.
WHAT THIS MEANS, FROM MONICA LITTMAN OF KAUFMAN DOLOWICH: If you are a debt buyer or a law firm in Virginia that files collection lawsuits, this is a case to keep an eye on. The full Virginia Court of Appeals is now going to decide what type of evidence is required for a debt buyer to show that it owns a debt. The appellate court’s first opinion found the debt buyer did not have standing because the documentation was insufficient to establish chain of title of the debt. The debt buyer had attached four bills of sale to the underlying collections complaint, but they did not contain any account number for the debtor nor any specific evidence of the assignment of the account. The appellate court also held that even if there was standing, the supporting documents failed to establish the full chain of title.
This decision underlies the important point that you need to have the full chain of title documents for collection lawsuits in any state. Courts are scrutinizing every step in the chain of title to make sure that transfer of ownership of the debt was properly documented. If you do not have that documentation, you risk an adverse decision from a court. On the flip side, if you want to enforce an arbitration agreement in the original contract for the debt (which usually has a class action waiver) against a consumer, you will need to show each link of the chain of title and how it flows to the current creditor/debt buyer.
Appeals Court Upholds Ruling in CFPB Debt Collection Case
The Court of Appeals for the Third Circuit yesterday affirmed that trusts are covered persons and subject to the provisions of the Consumer Financial Protection Act and that the Consumer Financial Protection Bureau did not have to ratify this action before the statute of limitations expired in an interlocutory appeal. More details here.
WHAT THIS MEANS, FROM LORI QUINN OF GORDON REES: The CFPB brought suit against Trusts who filed suits against consumers. The Trusts and Intervenors’ to the action moved to dismiss arguing the Trusts were not “covered persons” under the US Supreme Court’s decision in Seila Law. The District Court found that the CFPB’s suit was untimely (outside of the three-year statute of limitation) when it was ratified by the CFPB director and rejected the CFPB’s argument that the statute of limitations should be equitably tolled. The CFPB was granted leave to file an Amended Complaint where it alleged the Trusts were covered persons under the CFPA.
The lower Court considered the Seila Law decision, as well as, the Collins decision where whether ratification was necessary was not mentioned where an action was taken by an unconstitutionally insulated agency director. The District Court found the CFPB was properly appointed and that the Trusts were covered persons under the CFPA. The Trusts filed a motion for interlocutory appeal on these two issues.
The Third Circuit Court of Appeals relying on decisions of the Tenth and Ninth Circuit Court of Appeals, the Third Circuit did not remand the issue of ratifying the lawsuit. The Third Circuit did “…respond to the District Court’s queries…” and held the Trust and companies collecting on these debts were covered persons under the CFPA because the engaged in the activities contained in the statute and also that the CFPB was not required to ratify the action before the statute of limitations had run.
State Appeals Court Affirms Ruling for Defendant in FDCPA Class Action
A New Jersey appeals court has upheld a ruling in favor of a defendant that was sued in a class action for violating the Fair Debt Collection Practices Act, ruling a boilerplate statute of limitations disclosure made by the defendant was not materially deceptive. More details here.
WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: Woodhouse v Heartland Resolution Group is the most recent ruling on efforts to collect debt that has aged beyond the statute of limitations for a timely collection lawsuit (i.e., “out of statute debt”). It is a good ruling that approves of a somewhat common disclosure.
In the past dozen years there has been a lot of litigation over efforts to collect on out of statute debt. The genesis of the theory was a CFPB consent decree from a dozen years ago that required an agency to use disclosures when collecting this aged debt. After that, there was a wave of federal lawsuits for not using an out of statute disclosure. The industry responded by adopting disclosures, which often were based on the CFPB consent decree language or recently enacted State laws. Then, in the category of “no good deed goes unpunished,” we saw a new group of lawsuits that picked over the disclosures being used. Those lawsuits often were not particularly successful and eventually slowed down significantly. Interestingly, the CFPB studied the issue for years and issued Reg F, in which it decided not to provide a safe harbor language for use when collecting on out of statute debt. That was a bit of a surprise.
One of the things we are seeing in response to the federal court Article III rulings is that some older plaintiff FDCPA theories are getting a revival in state court filings. The Woodhouse case seems like an example of that. Fortunately, the court rejected it soundly and hopefully other state courts will do the same.
Judge Denies Defendant’s MJOP in FDCPA Case
A District Court judge in New Jersey has denied a defendant’s motion for judgment on the pleadings in a Fair Debt Collection Practices Act case, shooting down each of the four arguments made by the defendant why the case should be ruled in its favor. More details here.
WHAT THIS MEANS, FROM BRENT YARBOROUGH OF MAURICE WUTSCHER: At this stage of the case we still don’t know whether the plaintiff’s allegations have any merit, but those allegations serve as a reminder that using the CFPB’s model validation notice won’t protect you if the information that populates the fields is incorrect. Proper testing and auditing can reveal potential issues, and good procedures can be used to support defenses like the bona-fide-error defense. Also, follow-up communications sent during the validation period are risky because they often lead to “overshadowing” claims, though there are ways to mitigate this risk with careful drafting and (again) good procedures.
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.