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Washington Federal Court Holds Standard Business Practices Insufficient to Support Arbitration Claim
On February 15, the U.S. District Court for the Western District of Washington held that a cable company could not force arbitration of a dispute by relying only on its standard business practices to support its claim that the plaintiff agreed to arbitrate. Permison v. Comcast Holdings Corp., No. C12-5714, 2013 WL 594304 (W.D. Wash. Feb. 15, 2013). A cable customer with accounts in Colorado and Washington sued the company alleging TCPA violations. The cable company sought to compel arbitration, claiming that “Welcome Kit” materials executed by the customer included an agreement to arbitrate. In support of its motion to compel arbitration with regard to the Colorado accounts, the cable company submitted an affidavit describing its standard business practice, which requires technicians to provide customers with the Welcome Kit, and obtain customer signatures on certain terms and conditions included in the Kit. The court held that reliance on standard business practices is insufficient. Instead, the court stated, the cable company must produce business records or testimony showing that the customer actually received the arbitration agreement and assented to its terms. The court noted that the cable company presented actual evidence with regard to the Washington account, but held that it is not clear whether that contract, and its arbitration clause, impact the customer’s TCPA claims because of imprecise pleading. The court denied the company’s motion to compel arbitration and granted the customer leave to clarify his claims. The court’s holding follows a recent 10th Circuit decision that affirmed a district court’s dismissal of claims based on unrefuted declarations submitted by a TV and internet service provider’s employees concerning its standard practices for entering into agreements provided to customers in writing by the installation technician at the time the services were installed.
California District Court Unseals FCA Complaint Filed Against Numerous Banks
Last week, after the government declined to intervene in the case, the U.S. District Court for the Central District of California unsealed a qui tam False Claims Act (FCA) complaint filed by a whistleblower in April 2012 against numerous banks. U.S. ex rel Hastings v. Wells Fargo Bank, N.A., No. 12-3624, Complaint (C.D. Cal. Apr. 26, 2012). The relator claims that the banks knowingly endorsed for FHA-insurance mortgage loans originated in transactions where down payment gift programs were used fraudulently. According to allegations in the complaint, the banks’ programs generated gift funds by manipulating the sales price to pass FHA down payment assistance fees onto the buyer. Further, the alleged system forced the borrower to repay the down payment gift, a violation of FHA policy. The relator alleges that the banks then submitted to HUD false certifications for the non-compliant endorsed loans, upon which HUD relied to issue FHA mortgage insurance. The relator claims that the government was required to pay, and will continue to have to pay, FHA benefits on defaulted loans that contained material violations, and seeks treble damages and penalties under the FCA, a cease and desist order against the lenders, and a civil penalty of $5,500 to $11,000 for each alleged violation of the FCA.
Fourth Circuit Affirms Marital Privilege Does Not Apply to Emails Exchanged Using Employer's Computer
On December 13, the U.S. Court of Appeals for the Fourth Circuit held that the marital privilege does not protect information included in emails exchanged via a spouse’s employer-owned computer and network. United States v. Hamilton, No. 11-4847, 2012 WL 6200731 (4th Cir. Dec. 13, 2012). In an appeal of his criminal conviction on bribery charges, a Virginia lawmaker argued that the email evidence used to convict him was admitted in violation of the marital communications privilege. That common law privilege generally protects privately made communications between spouses. On appeal, the court extended by analogy the U.S. Supreme Court’s holding in Wolfe v. United States, 291 U.S. 7 (1934) to modern technology and held that the lawmakers use of his employer’s computer to send the allegedly privileged communications constituted a voluntary disclosure of the communications, thus waiving the privilege. The court explained that the district court did not err in admitting the communications based on its reasoning that the lawmaker did not take any steps to protect the communications in question, even with knowledge that his employer had in place a policy that permitted the employer to inspect emails stored on its system. As the court explained, the lawmaker was required to acknowledge his employer’s policy each time he logged-on to his work computer, and therefore had no reasonable expectation of privacy. After dispensing with the lawmakers’ other claims on appeal, the appeals court upheld the district court’s conviction.
FDIC Obtains Jury Verdict and Settlement in Separate Actions in California District Court Against Former Bank Officers and Prohibition Order Against Bank CEO
On December 7, the FDIC, as receiver of a failed bank, obtained a jury verdict in its favor in the U.S. District Court for the Central District of California against a group of former bank officers. FDIC v. Van Dellen, No. 10-CV-04915, Doc. 596 (C.D. Cal. Dec. 7, 2012). On December 12, the former chief executive officer of the same bank settled a separate FDIC civil action and consented to an order of prohibition from further participation in the banking industry. FDIC v. Perry, No. CV 11-5561 (C.D. Cal. Dec. 12, 2012); In re Perry, No. FDIC-12-642e. In the first case, the FDIC sued the group of former officers, alleging that, in pursuit of bonuses for high loan origination volumes, the officers approved homebuilder loans to unqualified borrowers. The jury found that the former officers breached their duty of care and acted negligently in approving 23 loans and awarded approximately $169 million in damages to the FDIC. In a separate action against the former CEO of the same bank, the FDIC alleged that the CEO was negligent in allowing the bank to generate mortgage loans in 2007 which the bank was then unable to sell, allegedly resulting in $600 million in losses to the bank. The CEO settled the FDIC’s claims for $12 million, $1 million of which is to be paid from personal funds and the remainder from insurance funds. In addition, the CEO consented to an FDIC order prohibiting him from further participation in the conduct of any financial institution or organization.
Fifth Circuit Holds Data on Personal Cell Phone Not Protected by Stored Communications Act
On December 12, the U.S. Court of Appeals for the Fifth Circuit held that the Stored Communications Act (SCA) does not apply to data stored in a personal cell phone and affirmed a district court’s grant of summary judgment to the defendants. Garcia v. City of Laredo, Texas, No. 11-41118, 2012 WL 6176479 (5th Cir. Dec. 12, 2012). In this case, after being terminated from her employment based on evidence downloaded by her employer from her cell phone, a former police dispatcher sued the City of Laredo for violating the SCA by accessing the contents of her cell phone without permission. The appeals court agreed with the district court that the cell phone data was not protected by the SCA. Consistent with decisions by the Eleventh Circuit and several district courts that the SCA does not apply to data stored on a personal computer, the court reasoned that an individual’s cell phone is analogous to an individual’s computer hard drive – it only enables, and does not provide an electronic communication service. Therefore, the court held, the contents of the device are outside the scope of the “facilities” covered by the SCA. The court affirmed summary judgment in favor of the City of Laredo.
South Carolina Supreme Court Holds Web-Based Emails Not Protected Under The Stored Communications Act
On October 10, the South Carolina Supreme Court held that emails opened and retained by the recipient in a web-based email system are not protected under the Stored Communications Act (SCA), because they are not stored for the purposes of backup protection. Jennings v. Jennings, No. 27177, 2012 WL 4808545 (S.C. Oct. 10, 2012). The plaintiff sued an individual that gained unauthorized access to the plaintiff’s web-based email system, alleging, among other things, that the hacker violated the SCA. The SCA proscribes the unauthorized accessing of an electronic communication while it is in “electronic storage,” which in relevant part means that it is stored by an electronic communication service for the purpose of backup protection. The state supreme court noted that the plaintiff had opened the emails and retained them, but had not made any other copy of them. The court held that such emails, therefore, were not in “electronic storage” for the purposes of “backup” protection, reasoning that the plain meaning of “backup” does not apply to a single copy of a communication, i.e. web-based emails that are not downloaded to a computer or stored elsewhere.
Seventh Circuit Holds TCPA Prohibits Automated Calls to Cell Phones without Consent from Current Subscriber
On May 11, the U.S. Court of Appeals for the Seventh Circuit held that the Telephone Consumer Protection Act (TCPA) requires consent from a current cell phone subscriber to receive automated calls – even if a former subscriber to the same number had previously given consent to be contacted. Soppet v. Enhanced Recovery Company, LLC, No. 11-3819, 2012 WL 1650485 (7th Cir. May 11, 2012). The court affirmed a district court decision certifying a class of consumers who alleged that their cell phones were automatically dialed in violation of TCPA. The defendant debt collectors argued that it was not a violation of the TCPA to call a cell phone number if a previous subscriber to that number had given the consent required by the TCPA because the previous subscriber was the “intended recipient” of the call. The court rejected this argument because, even though the TCPA does not define who the “called party” is that must consent to be contacted, its use throughout the TCPA indicates that “called party" refers to the currently subscribed cell phone user, and not to any previous user.
Nevada Supreme Court Rules on Admissibility of Text Messages
On April 5, the Nevada Supreme Court held that a lower court abused its discretion when it admitted text messages absent sufficient evidence corroborating the identity of the sender. Rodriguez v. Nevada, No. 56413, 2012 WL 1136437 (Nev. Apr. 5, 2012). The defendant was found guilty in trial court of multiple counts related to an attack on a woman in her home. On appeal he argued that the trial court erred in overruling an objection to the admission of 12 text messages because the state failed to authenticate the messages and the messages constituted inadmissible hearsay. The Nevada Supreme Court held that it is essential that the identity of the author of the text message be established through the use of corroborating evidence. In this case, although the state established that the victims cell phone was stolen during the attack, and that the defendant was in possession of the cell phone prior to being arrested, the state did not offer any evidence that the defendant authored 10 of the 12 messages. Two messages were admissible and were not hearsay because in those instances, the state was able to offer bus surveillance video of the defendant using the phone at the time the two messages were sent. Despite the erroneous admission of the other 10 text messages, however, the Nevada Supreme Court held that the error was harmless.
Supreme Court Holds Only Pecuniary Damages Available Under Federal Privacy Act
On March 28, the U.S. Supreme Court ruled 5-3 that the Privacy Act of 1974, which regulates how federal agencies handle personal information, does not unequivocally authorize damages for mental or emotional distress. Cooper v. FAA, No. 10-1024, 2012 WL 1019969 (U.S. Mar. 28, 2012). In this case, an airline pilot sued the Federal Aviation Administration (FAA) and other federal agencies for impermissibly exchanging information about his HIV status in connection with a criminal investigation. The pilot claimed to suffer emotional and mental distress due to the disclosure. The U.S. Court of Appeals for the Ninth Circuit held that the term actual damages in the Privacy Act is not ambiguous and includes damages for mental and emotional distress. The Supreme Court reversed, holding, as the district court originally held, that the term is ambiguous and therefore does not waive the governments sovereign immunity from liability for nonpecuniary damages. The narrow ruling only directly impacts actions under the Privacy Act, and the court notes that actual damages can mean different things in different contexts. As such, the holding does not invalidate prior lower court rulings that actual damages under other statutes, including the Fair Credit Reporting Act and the Fair Housing Act, can include damages for emotional or mental distress.
DOJ Obtains Guilty Verdict in Haitian Money Laundering and FCPA Case
On March 12, the Department of Justice announced a guilty verdict in the case of a foreign official accused of laundering bribes paid to him by two Miami-based telecommunications companies. Following a week-long trial, the jury convicted the former director of Haiti’s state-owned telecommunications company on all counts, including nineteen counts of money laundering and two counts of conspiracy to commit money laundering. The laundered funds were alleged to be proceeds of bribes paid by U.S. companies to the defendant to obtain a preference in telecommunications rates and other favorable treatment in violation of the Foreign Corrupt Practices Act. The jury found that the defendant concealed the payments through subsequent transactions and by falsely characterizing the nature of the payments as “commissions” and “payroll.”