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District Court approves $14 million wireless rates settlement
On November 8, the U.S. District Court for the Northern District of California granted final approval to a $14 million settlement resolving allegations that a telecommunications company made misleading claims regarding its administrative fees. According to the plaintiffs’ memorandum of points and authorities in support of motion for preliminary approval of class settlement, current and former wireless-service customers of the defendant (plaintiffs) with post-paid wireless service plans were charged an improper administrative fee. The plaintiffs alleged, generally, that the defendant’s representations and advertisements regarding the monthly price of its post-paid wireless service plans were misleading because the prices did not include the administrative fee, and that the defendant implemented and charged the administrative fee in a deceptive and unfair manner. According to the terms of the $14 million settlement agreement, $3.5 million of the award will cover attorney fees and costs, with additional funds allocated to cover litigation expenses.
North Carolina Supreme Court orders appeals court to review HAMP fraud claims
On November 4, the Supreme Court of North Carolina determined that an appeals court erred by remanding a case concerning a defendant bank’s Home Affordable Modification Program to a trial court with instructions to make factual findings and conclusions of law on the defendant’s motion to dismiss. Plaintiffs sued the defendant alleging fraud and other related claims arising out of the bank’s mortgage modification program. The trial court dismissed the claims for failure to state a claim pursuant to North Carolina’s Rule of Civil Procedure 12(b)(6), after concluding that plaintiffs’ claims were time barred and “that ‘the claims of all [p]laintiffs who were parties to foreclosure proceedings [were] barred by the doctrines of res judicata and collateral estoppel.’” Plaintiffs appealed. A divided panel of the Court of Appeals remanded the case to the trial court claiming that “it could not ‘determine the reason behind the grant’ and could not ‘conduct a meaningful review of the trial court’s conclusions of law.’” The North Carolina Supreme Court countered, however, that there exists “no legal basis or practical reason for the Court of Appeals to remand the case to the trial court to make factual findings and conclusions of law” as “a trial court is not required to make factual findings and conclusions of law to support its order unless requested by a party”—a request neither party made. According to the North Carolina Supreme Court, the appeals court erred by not conducting a de novo review of the sufficiency of the plaintiffs’ allegations. The North Carolina Supreme Court ordered the appeals court to address whether the plaintiffs’ allegations, if treated as true, are sufficient to state a claim upon which relief can be granted.
District Court certifies class in FDCPA suit
On November 4, the U.S. District Court for the District of New Jersey granted a plaintiffs’ motion for class certification in an FDCPA suit related to credit reporting language used in collection letters. According to the opinion, the plaintiffs received collection letters from the defendant with a statement that read: “Our records indicate there is still a balance on this past due account. Please respond to this letter within seven days or we may take additional collection efforts. The creditor shown above has authorized us to submit this account to the nationwide credit reporting agencies. As required by law, you are hereby notified that a negative credit report reflecting your credit record may be submitted to a credit reporting agency if you fail to fulfill the terms of your credit obligations.” The plaintiffs alleged FDCPA violations against the defendant, claiming that the letters constituted false and misleading collection efforts because the defendants did not intend to report the debts to credit reporting agencies within seven days of the letters’ receipt, as the defendant’s policy was to report debts “approximately sixty (60) days from placement absent contract instructions from its client.” The court noted that the collection letter in question was sent to 984 individuals, meeting the numerosity component for class certification. The court also held that, because all members of the class share the same FDCPA claim, the commonality and predominance components of certification were satisfied. The court also ruled that typicality, adequacy, ascertainability, and superiority components were met, and certified the class.
District Court preliminary approves $4.3 million data breach settlement
On November 4, the U.S. District Court for the Eastern District of Michigan granted preliminary approval of a $4.3 million class action settlement regarding a data breach, following the filing of the plaintiffs’ unopposed motion for preliminary approval of class action settlement. After a plaintiff consolidated her suit with other similar lawsuits, the plaintiff class sued the defendant for negligence, unjust enrichment, and breach of contract, alleging their personal information was stolen from the defendant during a malware attack due to lack of cybersecurity measures. The settlement provides for, among other things, three years of free credit-monitoring services for the plaintiff class, up to $2,500 per member to cover out-of-pocket expenses related to the breach, up to $80 per member to cover lost time remedying issues related to the breach, $75 per member for California residents for claims under state statutes, and a year of password-managing services. The plaintiffs are seeking service awards of $1,500 for each of the 15 representative plaintiffs. The motion also noted that class counsel will ask the court for just over $1.4 million in attorneys’ fees to be deducted from the settlement fund.
6th Circuit affirms FCRA summary judgment
On November 4, the U.S. Court of Appeals for the Sixth Circuit affirmed a district court’s summary judgment ruling in favor of a credit reporting agency (defendant) accused of violating the FCRA. According to the opinion, a father and son (plaintiff) filed Chapter 7 bankruptcy petitions just over a year apart with the same attorney. Both petitions had their similar names, identical address, and, mistakenly, the plaintiff’s social security number. Although the attorney corrected the social security number on the father’s bankruptcy petition the day after it was filed, the defendant allegedly failed to catch the amendment and erroneously reported the father’s bankruptcy on the plaintiff’s credit report for nine years. When the plaintiff noticed the error, he sent the defendant a letter and demanded a sum in settlement. The defendant removed the father’s bankruptcy filing from the plaintiff’s credit report. The plaintiff sued two credit reporting agencies, alleging they violated the FCRA by failing to “follow reasonable procedures to assure maximum possible accuracy” of his reported information. One of the agencies settled with the plaintiff. A district court granted the other defendant’s motion for summary judgment, which the plaintiff appealed.
On the appeal, the 6th Circuit noted that the plaintiff “has standing to bring this action, but also agree that he cannot establish that [defendant’s] procedures were unreasonable as a matter of law.” The appellate court found that, because the defendant gathered information from reliable sources and because someone “with at least some legal training” would have had to manually review the bankruptcy docket to notice that the Social Security number had been updated, the defendant did not violate the FCRA. The appellate court wrote that the defendant’s “processes strike the right balance between ensuring accuracy and avoiding ‘an enormous burden’ on consumer credit reporting agencies.” Furthermore, the 6th Circuit stated that, “[g]iven the sheer amount of data maintained by these companies, we know that consumers are ‘in a better position . . . to detect errors’ in their credit reports and inquire about a fix.”
4th Circuit says website does not qualify for Section 230 immunity
On November 3, the U.S. Court of Appeals for the Fourth Circuit reversed and remanded a district court’s summary judgment ruling that a public records website, its founder, and two affiliated entities (collectively, “defendants”) could use Section 230 liability protections under the Communications Decency Act (CDA) to shield themselves from credit reporting violations. As previously covered by InfoBytes, plaintiffs alleged, among other things, that because the defendants’ website collects, sorts, summarizes, and assembles public record information into reports that are available for third parties to purchase, it qualifies as a consumer reporting agency (CRA) under the FCRA, and as such, must follow process-oriented requirements that the FCRA imposes on CRAs. However, the district court determined that the immunity afforded by Section 230 of the Communication and Decency Act applied to the FCRA and that the defendants qualified for such immunity and could not be held liable for allegedly disseminating inaccurate information and failing to comply with the law’s disclosure requirements.
On appeal, the 4th Circuit reviewed whether a consumer lawsuit alleging violations of the FCRA’s procedural and disclosure requirements and seeking to hold the defendants liable as the publisher or speaker of information provided by a third party is thereby preempted by Section 230. The appellate court agreed with an amicus brief filed in 2021 by the FTC, CFPB, and the North Carolina Department of Justice, which urged the appellate court to overturn the district court ruling on the basis that the court misconstrued Section 230—which they assert is unrelated to the FCRA—by extending immunity to “claims that do not seek to treat the defendant as the publisher or speaker of any third-party information.” According to the amicus brief, liability turns on the defendants’ alleged failure to comply with FCRA obligations to use reasonable procedures when preparing reports, to provide consumers with a copy of their files, and to obtain certifications and notify consumers when reports are furnished for employment purposes.
The 4th Circuit held that Section 230(c)(1) of the CDA “extends only to bar certain claims, in specific circumstances, against particular types of parties,” and that the four claims raised in this case were not subject to those protections. “Section 230(c)(1) provides protection to interactive computer services,” the appellate court wrote, “[b]ut it does not insulate a company from liability for all conduct that happens to be transmitted through the internet.” Specifically, the appellate court said two of the counts—which allege that the defendants failed to give consumers a copy of their own report when requested and did not follow FCRA requirements when providing reports for employment purposes—do not seek to hold the defendants liable as a speaker or publisher, and therefore fall outside Section 230 protections. As for the remaining two counts related to claims that the defendant failed to ensure records for employment purposes were complete and up-to-date, or adopt procedures to assure maximum possible accuracy when preparing reports, the 4th Circuit concluded that the defendants “made substantive changes to the records’ content that materially contributed to the records’ unlawfulness. That makes [defendants] an information content provider, under the allegations, for the information relevant to Counts Two and Four, meaning that it is not entitled to § 230(c)(1) protection for those claims.”
Plaintiff wins $148,000 in data breach suit
On November 3, the U.S. District Court for the District of Minnesota granted a plaintiff technical consulting and software development company’s motion for summary judgment in a data breach suit. According to the order, an unknown bad actor gained unauthorized access to the email account of a plaintiff’s employee and created multiple “rules” that interfered with the proper receipt of incoming emails. The bad actor sent emails to and from the account, at times impersonating the employee and at times impersonating clients. The plaintiff issued two invoices to a particular client while these rules were in place: one invoice was for $137,000 for the plaintiff’s services, and the other invoice was for an additional $39,962. The bad actor emailed the client, posing as the employee, and wrote that it had “recently changed banks and our previous account . . . has been closed, hence, all payments effective immediately will be made directly to our new bank account in compliance with the policy of the company.” The bad actor requested confirmation as to when the client would pay the first invoice “so we can forward our new bank account details.” The client sent the payment to an account controlled by the bad actor. After discovering the bad actor’s conduct, the plaintiff recovered some of that money with the help of the U.S. Secret Service but sought insurance coverage for nearly $148,000, court records show. The defendant had insured the plaintiff under a technology professional liability (TPL) policy that incorporated a Data Breach Coverage Form, which included a “Cyber Business Interruption and Extra Expense” clause. The plaintiff submitted a claim to the defendant seeking coverage under the policy for the money lost to the bad actor. The defendant denied the plaintiff’s claim for coverage. The plaintiff sued, alleging that the defendant’s denial of coverage breached the TPL policy. The court found that using “‘impairment’ rather than ‘interruption’ in the Clause itself demonstrates that the TPL policy specifically grants coverage when a business suffers something less than a total suspension of operations.” The court further noted that the policy covers the loss, granted summary judgment to the plaintiff on its claim that the defendant breached the policy by denying coverage, and awarded the plaintiff nearly $148,000 in damages.
4th Circuit vacates $10.6 million judgment, orders district court to reevaluate class standing
On October 28, the U.S. Court of Appeals for the Fourth Circuit remanded a $10.6 million damages award it had previously approved in light of the U.S. Supreme Court’s decision in TransUnion LLC v. Ramirez. As previously covered by InfoBytes, in January, the Supreme Court vacated the judgment against the defendants and ordered the 4th Circuit to reexamine its decision in light of TransUnion (which clarified the type of concrete injury necessary to establish Article III standing, and was covered by InfoBytes here). Previously, a divided 4th Circuit affirmed a district court’s award of $10.6 million in penalties and damages based on a summary judgment that an appraisal practice common before 2009 was unconscionable under the West Virginia Consumer Credit and Protection Act (covered by InfoBytes here). During the appeal, the defendants argued that summary judgment was wrongfully granted and that the class should not have been certified since individual issues predominated over common ones, but the appellate court majority determined, among other things, that there was not a large number of uninjured members within the plaintiffs’ class because plaintiffs paid for independent appraisals and “received appraisals that were tainted.” At the time, the 4th Circuit “concluded that the ‘financial harm’ involved in paying for a product that was ‘never received’ was ‘a classic and paradigmatic form of injury in fact.’” On remand, the 4th Circuit considered questions of standing and ultimately determined that TransUnion requires the district court to reevaluate the standing of class members.
4th Circuit says AMG Capital does not alter FTC’s $120.2 million judgment
On November 1, the U.S. Court of Appeals for the Fourth Circuit predominantly upheld a district court’s final judgment in an FTC action involving a Belizean real estate scheme. As previously covered by InfoBytes, the FTC initiated the action in 2018 against several individuals and corporate entities, along with a Belizean bank, asserting that the defendants violated the FTC Act and the Telemarketing Sales Rule (TSR) by advertising and selling parcels of land that were part of a luxury development in Belize through the use of deceptive tactics and claims. In 2019, a settlement was reached with the Belizean bank requiring payment of $23 million in equitable relief, and in 2020, the district court ordered the defaulted defendants to pay over $120.2 million in redress and granted the FTC’s request for permanent injunctions (covered by InfoBytes here and here). Later, in 2021, the district court denied a request to set aside the $120.2 million default judgment, disagreeing with the defendants’ argument that the U.S. Supreme Court’s decision in AMG Capital Management, LLC v. FTC (which unanimously held that Section 13(b) of the FTC Act “does not authorize the Commission to seek, or a court to award, equitable monetary relief such as restitution or disgorgement”—covered by InfoBytes here) nullified the judgment. The district court stated that the AMG Capital decision does not render judgments in the case void, and that “[i]n its Opinion rendered before the Supreme Court reached its decision, the Court considered the effect that a decision in AMG Capital adverse to the FTC might have, reasoning that: ‘this Court’s findings of fact and determinations as to liability—including contempt of court and violations of the Telemarketing Services Rule []—would not be affected by a decision in AMG.’” (Covered by InfoBytes here.)
On appeal, the 4th Circuit determined that the defendants advanced “a mixed bag of factual and legal challenges” to various contempt orders, equitable monetary judgments, permanent injunctions, and default judgments, finding that there was no abuse of discretion by the district court. While the appellate court reversed the $120.2 million judgment after finding it to be invalid under the Supreme Court’s decision in AMG Capital, it noted that because the defendants violated the FTC Act and the TSR they cannot escape the judgment. “The findings made by the district court show that [the defendant’s] Belizean business venture was dishonest to the core,” the 4th Circuit wrote. “The district court correctly surmised that this sort of deception lies at the heart of what the FTC is empowered to seek out and stop.” According to the appellate court, while “the FTC may seek injunctive relief under Section 13, the Supreme Court held in AMG Capital that it does not authorize the FTC to seek, or a court to award, ‘equitable monetary relief such as restitution or disgorgement.’” However, the defendant “latches onto this last point, claiming that the judgment in the [] case must be thrown out under AMG Capital. ... Vacating that judgment does not help [him], however, because he already has a $120.2 million judgment against him for contempt of the telemarketing injunction, and the FTC has conceded that it is not seeking $240.4 million against [him].” Essentially, AMG Capital “does not undercut the injunctive relief entered under Section 13(b), and the $120.2 million order can be upheld under the contempt judgment, so AMG does not in fact change the bottom line,” the 4th Circuit concluded.
District Court stays CFPB payday action following 5th Circuit decision
On October 31, the U.S. District Court for the Northern District of Texas stayed an enforcement action filed by the CFPB against a defendant Texas-based payday lender until after the U.S. Court of Appeals for the Fifth Circuit issues its mandate in CFSA v. CFPB. As previously covered by a Buckley Special Alert, a three-judge panel unanimously held in CFSA that the CFPB’s funding structure created by Congress violated the Appropriations Clause of the Constitution. The parties filed a joint motion saying there was “good cause” to pause further proceedings in the litigation, explaining that the “agreed stay pending issuance of the mandate in CFSA will promote efficient resolution of the case, as the final decision in CFSA will control the resolution of key issues presented in [defendant’s] pending motion to dismiss.” One of the arguments raised in the defendant’s motion to dismiss centers around the assertion that the Bureau’s complaint should be dismissed because the agency’s funding structure violates the Constitution’s separation of powers.
In July, the Bureau sued the defendant for allegedly engaging in illegal debt-collection practices and allegedly generating $240 million in reborrowing fees from borrowers who were eligible for free repayment plans, in violation of the CFPA (covered by InfoBytes here). According to the Bureau, the defendant allegedly “engaged in unfair, deceptive, and abusive acts or practices by concealing the option of a free repayment plan to consumers who indicated that they could not repay their short term, high-cost loans originated by the defendant.” The defendant also allegedly attempted to collect payments by unfairly making unauthorized electronic withdrawals from over 3,000 consumers’ bank accounts.