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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 Blocks FTC’s Noncompete Rule From Going into Effect
A District Court judge in Texas has granted a preliminary injunction against the Federal Trade Commission’s rule to ban noncompete agreements, saying the agency does not have the rule-making authority to enact such a rule and that the plaintiffs suing the FTC are likely to succeed on the merits of their case. More details here.
WHAT THIS MEANS, FROM LESLIE BENDER OF EVERSHEDS SUTHERLAND: Perhaps as a sign of court decisions to come, a week after the Supreme Court struck down four decades of Chevron deference cases, a federal district court preliminarily enjoined the Federal Trade Commission’s (“FTC”) rulemaking related to non-compete agreements. On July 3, 2024, Judge Ada Brown presiding in a federal district court in Dallas, Texas preliminarily enjoined the FTC from enforcing its rule banning employers from using non-compete clauses in agreements with their employees. The Texas judge promised to rule on the merits of the case before the end of August, 2024.
The case, Ryan LLC et al v. FTC tested the issue of whether or not the FTC’s rulemaking authority extended to banning employer/employee non-compete agreements that generally prohibit an employee from competing against an employer.
In Ryan LLC, the FTC explained its rulemaking was prompted by research and public comments that led it to find that one in five American workers are subject to non-competes of some sort – a form of unfair competition. Until the FTC promulgated its rule in April, 2024, the Ryan LLC court notes that 46 states have regulated employers’ use of non-competes through caselaw and statutes. Based upon the results of the FTC’s requests for information and hearings, the FTC concluded that non-compete clauses are “unfair methods of competition” and promulgated its ban on non-competes (the “Rule”). In publishing the Rule, the FTC relied on the “unfair methods of competition” provisions of the Federal Trade Commission Act (the “FTC Act”).
The Ryan LLC lawsuit, filed earlier this year challenged the FTC’s action under the Administrative Procedure Act or “APA” which empowers a reviewing court to hold unlawful and set aside certain agency action(s), findings and conclusions. Ryan LLC challenged the FTC’s actions on three bases: (i) FTC acted without statutory authority; (ii) FTC’s acts, findings and conclusions were “arbitrary” and “capricious;” (iii) the non-compete rule resulted from an unconstitutional exercise of power. Citing the Loper Bright decision the Ryan LLC court notes that “[t]he deference that Chevron requires of courts reviewing agency action cannot be squared with the APA.”
The Ryan LLC court takes note that from 1978 until promulgation of the non-compete rule in 2024, the FTC did not promulgate a single substantive rule under Section 6(g) of the FTC Act – the “unfair methods of competition” section. As a result Judge Brown concludes that Congress did not give the FTC substantive rulemaking authority under Section 6(g) of the FTC Act. The court also concludes that the FTC’s actions in prescribing a rule unlimited in time or circumstance preliminarily suggests the FTC rulemaking was “arbitrary” and “capricious.” Judge Brown declined to rule on to whether or not the Rule resulted from an unconstitutional exercise of power.
Although the ruling in the Ryan LLC case seems to clearly enjoin the FTC from enforcing the Rule, the scope of where and how the decision applies is less than clear. The plaintiffs in the Ryan LLC case sought a nationwide injunction of the effectiveness of the FTC’s non-compete rule; however, Judge Brown did not believe the parties submitted adequate briefing by the plaintiffs to justify either a nationwide injunction or “associational standing.” The preliminary injunction then is limited in scope to the named plaintiff group – Ryan LLC, Chamber of Commerce of the USA, Business Roundtable, Texas Association of Business, and the Longview Chamber of Commerce.
As a result of this decision, employers may want to consider reviewing any practices they have of using non-compete covenants or agreements. Although it appears the impact of the Loper Bright decision is already being felt, it is unclear what the effect will be of particular courts carving out unique circumstances in which federal agency rulemaking may be challenged and found wanting. In addition, folks should stay tuned to other ways we cannot yet imagine in which courts will no longer apply Chevron deference to federal agencies’ actions.
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Judge Dismisses Debt Collection Class Action Against Software Provider Over Convenience Fees
A Magistrate judge in Texas has recommended that a defendant in a Texas Debt Collection Practices Act class-action lawsuit have its motion for summary judgment granted. The defendant, a company that provides software for property managers to allow tenants to pay their rent online via a payment portal, was sued for charging consumers a fee when paying via debit or credit cards. Among the arguments raised by the plaintiff was that the defendant was a collector because its portal software was a form used to collect consumer debts. More details here.
WHAT THIS MEANS, FROM LORAINE LYONS OF MARTIN GOLDEN LYONS WATTS MORGAN: The Texas Debt Collection Act (TDCA) is broader than the FDCPA as it applies to debt collectors and third-party debt collectors. However, in this case, the TDCA did not apply to the Defendant, a software company. The Defendant’s business involves licensing payment portal software to landlords for their tenants’ online rent payments. The portal offers both a free payment option and charges a service fee for debit or credit card transactions. The Plaintiff argued various novel interpretations to bring the Defendant under the TDCA, either as a “debt collector” or as a seller of a “form” for debt collection purposes. These arguments were rejected by the court. This case serves as a useful reference for anyone dealing with claims seeking to expand the application of the TDCA.
Judge Grants MJOP for Defendant in FDCPA Case Over ‘Inconvenient’ Communication Method
Good news for the industry in the form of a positive ruling in an “inconvenient time or place” lawsuit filed against a collection operation. A District Court judge in Alabama has granted a defendant’s motion for judgment on the pleadings in a Fair Debt Collection Practices Act case, ruling that indicating a preference for receiving communications via email does not mean communications in other forms are inconvenient. More details here.
WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: The Court, relying on prior decisions, distinguished the difference between the language of the statute referencing “time and place” and rejected the notion that the statue also encompasses medium of communication. There could be no other rational result. So, hooray for the good guys.
However, there are two arguments in the decision to take notice of. One, as its first defense, Defendant argued its “letter was a verification letter, which is required to be mailed by 15 U.S.C. § 1692g(b).” The Court ignored that argument focusing on the difference between time and place and medium. The second is Plaintiff’s argument that Credit Management violated “§ 1692c(a)(1) in light of “Regulation F,” specifically 12 C.F.R. § 1006.14(h)(1) of Regulation F, which implements the FDCPA.”
Section 1006.14(h)(1) provides that “a debt collector must not communicate or attempt to communicate with a person through a medium of communication if the person has requested that the debt collector not use that medium to communicate with the person.” However, the subsequent section provides exceptions to; § 1006.14(h)(1). Section 1006.14(h)(2) states that “[n]otwithstanding the prohibition in paragraph (h)(1) of this section: (ii) [i]f a person initiates contact with a debt collector using a medium of communication that the person previously requested the debt collector not use, the debt collector may respond once through the same medium of communication used by the person.” Opinion at pages 5-6. Emphasis added
A word to the wise, make sure you capture how a debtor communicates with you (including a scan of the envelope) to forestall this argument being raised.
Appeals Court Overturns Ruling on Concept of ‘Reasonable Consumer Behavior’
This looks like one of those “I’m-not-a-lawyer-but-this-looks-like-something-you-should-be-aware-of-because-it-could-be-relevant-to-collections” type of rulings. The Court of Appeals for the Seventh Circuit has overturned a lower court’s dismissal of a suit accusing a retailer of violating the Illinois Consumer Fraud and Deceptive Business Practices Act and the Illinois Deceptive Trade Practices Act on the grounds of what constitutes “reasonable consumer behavior” which, to me, sounds eerily similar to the “least sophisticated consumer.” More details here.
WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW & CULBERTSON: Mike was right here to pick up the close relationship between FDCPA cases and this consumer fraud action against Walmart. Kahn v Walmart is a consumer class action, alleging in-store deceptive pricing practices. It alleged violations of the state’s Consumer Fraud and Deceptive Business Practices Act and the Illinois Uniform Deceptive Trade Practices Act. The trial court dismissed the matter on a R. 12 motion. The 7th Circuit remanded. It held that the state consumer protection laws at issue here all require plaintiffs to prove that the relevant acts or practices are “likely to deceive reasonable consumers” and that this standard “requires a probability that a significant portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled.”
This is extremely close to the standard for evaluating FDCPA claims in the 7th Circuit. That standard was first articulated 25 years ago in Johnson v. Revenue Mgmt. Corp. (7th Circ. 1999): “As in trademark cases, it will be necessary to show that the additional language of the letters unacceptably increases the level of confusion.”
The standard was quickly refined to provide: (1) some claims clearly do not violate the Act and can be dismissed, (2) others clearly violate the law and judgment can be entered for plaintiff, but (3) the vast middle category includes debt collection language that is not misleading or confusing on its face, but has the potential to be misleading to the unsophisticated consumer; in such cases, plaintiffs may prevail only by producing extrinsic evidence, such as consumer surveys, to prove that unsophisticated consumers do in fact find the challenged statements misleading or deceptive.
Kahn demonstrates that the standards are similar in evaluating the merits of various consumer cases, such as trademark, false labeling, false marketing, deceptive practices acts, and FDCPA lawsuits.
Appeals Court Rules Defendant Can Refuse to Pay Arbitration Fees
The Court of Appeals for the Seventh Circuit issued a ruling this week on the topic of arbitration that at least one published report claims will allow defendants to effectively choose between court proceedings or arbitration hearings by doing nothing more than refusing to arbitration fees. More details here.
WHAT THIS MEANS, FROM JESSICA KLANDER OF BASSFORD REMELE: An important win. This ruling underscores the importance of pushing plaintiffs to provide concrete evidence in establishing the validity of arbitration agreements. There has been an ever growing trend from the plaintiffs bar to attempt to assert mass class claims in arbitration. Because arbitration may come with assessment of astronomical fees against the defense at the outset, such actions can strong arm large settlements – even where the attempted claims are unsubstantiated or frivolous. This case represents a win for the defense against these attempted actions. Here, the Court confirmed that merely presenting ancillary documentation, such as arbitration demands or spreadsheets, was insufficient to prove customer status. The Court’s emphasis on the need for tangible proof, like receipts or order numbers, is a clear message that plaintiffs must come prepared with the necessary documentation to substantiate their claims in order to establish a right to arbitration. This ruling should help to protect defendants and hopefully curb this dangerous new trend among the plaintiff’s bar.
Bill Introduced in House to Sunset Chevron Rules
A bill has been introduced in the House of Representatives that would require federal agencies to wipe out rules that have been upheld by Chrevron Deference as a means of correcting “disasters caused by decades of Chevron” and put the power of lawmaking back with Congress, according to the bill’s sponsor. More details here.
WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: If a certain agency’s overzealousness was one end of the spectrum, H.R. 8889 may be the other end. To date, the text of the proposed bill has not been officially published, but the bill’s author has made it available. The bill proposes to require a compilation of all Rules upheld by a Court based upon Chevron deference and then a series of sunsetting of those Rules. In other words, the Bill proposes an astounding 40 year review of all present rules upheld by Chevron deference. If memory serves, the House took up a similar bill in 2017 attacking agency action which, while passing the House, never got through the Senate. I’m therefore going to get out the popcorn and wait and see.
That being said, it is undeniable that agency power is being checked and put back into place by the Supreme Court. Last month, the Supreme Court struck down Chevron deference in a split decision (Loper Bright Enterprises v. Raimondo) and the following week, opened the door for more attacks on agency action by ruling thatthe statute of limitations to challenge an action by a federal agency begins to run when the plaintiff is injured by the action (Corner Post, Inc. v. The Board of Governors of the Federal Reserve System). What impact these two decisions will have remains to be seen.
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.
