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11th Circuit reverses class action settlement in TCPA case
On July 27, the U.S. Court of Appeals for the Eleventh Circuit vacated and remanded a district court’s approval of a class action certification and settlement agreement in an TCPA action after determining that the plaintiff lacked Article III standing in light of the U.S. Supreme Court’s decision in TransUnion LLC v. Ramirez (covered by InfoBytes here). According to the opinion, the plaintiff sued the defendant, alleging it violated the TCPA by calling and texting her “solely to market its services and products through a prohibited automatic telephone dialing system.” After the case was consolidated, and after negotiating with the defendant, the plaintiffs submitted a proposed class settlement agreement that established a settlement fund of $35 million to the 1.26 million settlement class members, who would receive either a $35 cash payment or a $150 voucher for the defendant’s services. The district court had noted Salcedo v. Hanna, in which the 11th Circuit held “that receipt of a single unwanted text message was not a sufficiently concrete injury to give rise to Article III standing,” and that “the proposed class definition included individuals who received only one text message from [the defendant].” The district court determined that “even though some of the included class members would not have a viable claim in the Eleventh Circuit, they do have a viable claim in their respective Circuit [because of a circuit split]. Thus, [the defendant] is entitled to settle those claims in this class action although this Court would find them meritless had they been brought individually in the Eleventh Circuit”
On appeal, the 11th Circuit noted that TransUnion LLC v. Ramirez held that “every class member must have Article III standing in order to recover individual damages.” The appellate court further noted that “TransUnion says that we can’t award damages to plaintiffs who do not have Article III standing. And Article III standing goes to the heart of our jurisdiction to hear cases in the first place. It further stated that the court “cannot … check [its] Article III requirements at the door of the class action. Any class definition that includes members who would never have standing under our precedent is a class definition that cannot stand.”
Louisiana appellate court affirms district court’s decision in SCRA case
On June 29, the Court of Appeal for the Second District of Louisiana affirmed a trial court’s grant of summary judgment in favor of a national bank in an SCRA case. According to the opinion, an active duty servicemember and his wife filed for bankruptcy after purchasing a mortgage on a property from a national bank (defendant). The defendant appeared in the bankruptcy proceedings and moved to abandon the property for purposes of eventual foreclosure. The plaintiffs moved out of the state and were granted a discharge under Chapter 7 bankruptcy laws. The defendant has not foreclosed on the property, asserting that the mortgage account remains subject to the protections of the federal SCRA. The plaintiffs filed suit, claiming ownership of the property due to the defendant’s failure to foreclose against them within five years of the abandonment of the property in the bankruptcy, asserting that their obligations under the mortgage are prescribed.
The appellate court agreed that the mortgage account is subject to the protections of the SCRA, which tolls any state prescriptive period for the duration of one’s active-duty military service. According to the opinion, despite “no evidence of repayment” to the bank of any of the underlying mortgage debt, the plaintiffs claimed ownership of the subject property because the bank failed to “foreclose against them within five years of the abandonment of the property in the bankruptcy.” Agreeing with the bank that the mortgage account still remained subject to the protections of the SCRA, the court determined that: (i) the servicemember and his wife “cannot point to any law or jurisprudence that would provide an exception to the mandatory tolling provision of the SCRA [50 U.S.C. § 3936] in these circumstances;” (ii) the couple “never executed a waiver of rights form”; (iii) the “five-year prescriptive period [under Louisiana law] has been tolled on the mortgage” for the entirety of the servicemember’s active-duty military service; and (iv) the bank’s time to foreclose on the subject property “has not prescribed, as the prescriptive period has not started to run.” The appellate court concluded that the couple’s “obligations on the mortgage have not been extinguished, and they are not the owners of the subject property.”
4th Circuit: Borrower must return loans proceeds to rescind reverse mortgage
On July 14, the U.S. Court of Appeals for the Fourth Circuit held that a borrower has three years to rescind a reverse mortgage loan if a lender fails to provide required TILA disclosures, but that in order for the cancellation of the loan to be complete the proceeds must be returned. The borrower attempted to rescind a reverse mortgage she took out on her home after discovering the lender allegedly did not provide required TILA disclosures at closing. She notified the lender seeking to rescind the mortgage, but later sued after the lender failed to honor her rescission rights as required by Section 1635(b) of TILA. At trial, a jury sided with the lender, finding that it did not fail to honor the borrower’s attempt to rescind the loan. However, the district court issued judgment as a matter of law for the borrower, holding that the lender violated TILA’s requirements following the borrower’s notice of rescission, and ruling that because of this failure, the borrower was not required to return $60,000 in loan proceeds. The lender appealed.
In vacating the district court’s order granting judgment as a matter of law, the appellate court held that the district court’s ruling violated TILA’s recission provisions, which are intended to return all parties to their status prior to the loan agreement. “To decide otherwise would bestow a remarkable windfall on a borrower and penalty on the lender divorced from the text of TILA and the entire purpose of rescission,” the Fourth Circuit wrote. Moreover, the appellate court concluded that while a lender’s obligations in response to a rescission notice are mandatory, nothing in Section 1635(b) “specifies that if the lender fails to take these actions, it loses its right to the monies it loaned to the borrower.”
Florida appeals court: Injury required for FACTA standing
On July 13, a Florida District Court of Appeals affirmed the dismissal of Fair and Accurate Credit Transactions Act (FACTA) class claims brought against a defendant shoe company after determining that the lead plaintiff lacked standing because he suffered no “distinct or palpable” injury. The plaintiff first filed a class action suit in federal court, claiming a receipt he received from the company included 10 digits of his credit card number—a violation of FACTA’s truncation requirement, which only permits the last five digits to be printed on a receipt. The plaintiff did not allege that his credit card was used, lost, or stolen in any way, nor was evidence presented to show there was any danger of his credit card being used. The suit was stayed pending the resolution of a different FACTA dispute in the U.S. Court of Appeals for the Eleventh Circuit. As previously covered by InfoBytes, a split en banc 11th Circuit concluded that the plaintiffs in that separate action lacked standing because they did not allege any concrete harm and vacated a $6.3 million settlement. Specifically, the en banc majority rejected the named plaintiff’s argument that “receipt of a noncompliant receipt itself is a concrete injury,” and noted that “nothing in FACTA suggests some kind of intrinsic worth in a compliant receipt.”
Following the 11th Circuit decision, the parties agreed to dismiss the federal action and remanded a later-filed action to state court where the plaintiff argued that “state standing was plenary and therefore less restrictive than federal standing.” The trial court disagreed and granted the defendant’s motion to dismiss, ruling that “Florida requires a concrete injury to have standing,” and “alleging a mere statutory violation does not convey standing per se.” The trial court ruled that “obtaining a receipt in alleged violation of FACTA does not satisfy this requirement,” and the appeals court agreed, holding that, among other things, no actual damages occurred since nothing was alleged to have been charged to the plaintiff’s account, nor was there the imminent possibility of injury because the plaintiff retained possession of the receipt. In its opinion, the appellate court cited the U.S. Supreme Court’s decisions in Spokeo and TransUnion with approval, noting that “individuals ‘must allege some threatened or actual injury resulting from the putatively illegal action.’”
4th Circuit says foreign debit fee contract language is ambiguous
On July 7, the U.S. Court of Appeals for the Fourth Circuit held that a class action breach of contract suit related to foreign debit card fees charged by a credit union may proceed. Class members claimed that the credit union’s contract allows fees only when customers make debit card purchases in a foreign country—not when customers make a purchase while they are physically in the U.S. even if the merchant is abroad. According to the contract’s disclosure agreement and fee schedule, debit card transactions “made in a foreign country” and non-credit union “Point-of-sale and ATM transactions made in a foreign country” will incur a one percent fee.
In vacating the district court’s ruling that the card contracts clearly prohibited these fees, the 4th Circuit concluded that the contract’s language is ambiguous and subject to different interpretations. While class members and the credit union both cited dictionary definitions in support of their arguments, the appellate court said the contract’s language “simply does not clarify whether the location of the account holder or the seller determines whether the transactions are made in foreign countries.” In an online context, the 4th Circuit pointed to questions posed by the 7th Circuit: “Where is the point of sale for such a purchase—the consumer’s computer? the vendor’s headquarters? the vendor’s server? cyberspace generally?” The 4th Circuit further noted that the contracts could have been clearly drafted to explain whether online transactions were “made in foreign countries” if they were between account holders physically in the U.S. and foreign sellers but “were not.”
11th Circuit: Statements indicating accrual of debt balance following settlement are enough to state a claim
On July 1, the U.S. Court of Appeals for the Eleventh Circuit overturned a district court’s dismissal of an FDCPA case, holding that statements sent to plaintiffs indicating that a debt balance was accruing after a settlement had been reached is enough to state a claim. According to the opinion, the plaintiffs defaulted on a mortgage and a servicer sued for foreclosure. While the foreclosure suit was pending, the defendant took over servicing of the loan. A “disagreement” arose, which led the plaintiffs to sue the defendant. A settlement was reached and it was agreed that the plaintiffs owed $85,790.99, which was to be paid in one year. However, four months later, the defendant sent a mortgage statement notifying the plaintiffs that their loan had “been accelerated” because they were “late on [their] monthly payments.” On the defendant’s “fast-tracked timetable,” the plaintiff owed $92,789.55 to be paid in a month, and if they did not pay, the defendant’s statement stated that they risked more fees and “the loss of [their] home to a foreclosure sale.” The plaintiffs continued to receive statements and the amount due increased monthly. The plaintiffs sued, saying the defendant violated the FDCPA by sending statements with incorrect balances. A district court ruled the periodic statements were unrelated to debt collection because the defendant was required to send monthly updates under TILA. The district court further determined that the plaintiffs failed to state an FDCPA claim, declined to exercise supplemental jurisdiction over the Florida law claims, and dismissed the complaint.
On appeal, the 11th Circuit ruled that statements must comply with the FDCPA, even if they are not required to be sent under the statute. The 11th Circuit reiterated that the respective requirements of TILA and the FDCPA can be approached in a “harmonized” fashion, stating that “a periodic statement mandated by [TILA] can also be a debt-collection communication covered by the FDCPA.” The appellate court reversed the district court’s dismissal because “the complaint here plausibly alleges that the periodic statements sent to the plaintiffs aimed to collect their debt.”
N.J. appeals court says debt collector may file suit during the pandemic
On June 29, the Superior Court of New Jersey, Appellate Division affirmed a lower court’s granting of summary judgment in favor of a plaintiff debt collector in an action over whether a suit could be filed during the Covid-19 pandemic despite a clause in an agreement with the original creditor that barred collection actions in a disaster area. According to the opinion, the plaintiff purchased a portfolio of debts, including two credit card debts owned by the individual defendant. The plaintiff sued the defendant after attempts to collect on the debts were unsuccessful. The defendant filed a third-party complaint against the plaintiff asserting counterclaims accusing the plaintiff of violating the FDCPA, and stating that collection agencies were barred by an executive order that allegedly prohibited the initiation and adjudication of debt collection matters during the pandemic. A lower court granted the plaintiff’s motion for summary judgment, after finding no genuine issue of material fact which would prevent summary judgment in favor of the plaintiff. Specifically, the lower court “found that plaintiff provided sufficient, credible evidence in the record that established the nexus between the accounts and defendant,” and “also found the executive order and FDCPA argument meritless,” as “no directive existed that prevented agencies from initiating debt collection matters during the COVID-19 pandemic.” The defendant appealed.
On appeal, the defendant argued, among other things, that the lower court had “improperly relied on inadmissible hearsay documents” and erred in finding the executive order and FDCPA inapplicable. The defendant referred to a clause in an agreement she had with the original creditor, which said: “Without limiting the foregoing, [plaintiff] further represents and warrants that it shall: . . . (x) upon declaration by [the Federal Emergency Management Agency] or any appropriate local, state or federal agency that a location is a disaster area, [plaintiff] agrees to temporarily suspend its collection activities within said area until such time as is reasonable and practicable.” The appeals court agreed with the lower court’s reasoning, and called the defendant’s argument “baseless.” According to the appeals court, the defendant “failed to present evidence that an executive order prohibited the commencement and adjudication of debt collection matters during a state emergency related to the COVID-19 pandemic” and failed to establish “that there is a contractual bar to plaintiff filing a debt collection suit in a disaster area.”
8th Circuit says bank is entitled to proceeds from condo sale
On June 24, the U.S. Court of Appeals for the Eighth Circuit affirmed a trial court’s decision that a plaintiff bank is entitled to the proceeds from the sale of a condominium despite the defendant’s ex-husband’s bankruptcy and an outstanding balance owed to the bank on a business loan. When the defendant signed and initialed a mortgage securing the financing of a condominium, she consented to her ex-husband’s execution of the note but was not a signatory. The mortgage contained three provisions, including (i) a choice-of-law provision specifying that Iowa law governed the mortgage; (ii) a homestead waiver, in which the defendant and her ex-husband “waive[d] all appraisement and homestead exemption rights relating to” the condominium, except as prohibited by law; and (iii) a future advances clause or “dragnet clause,” which granted the plaintiff a security interest in the mortgage that covered future funds the ex-husband may borrow. The plaintiff initiated litigation against the defendant seeking a declaratory judgment that the defendant’s portion of the escrowed sale proceeds was subject to the mortgage’s future advances clause, and that the plaintiff could apply the proceeds to her ex-husband’s business loan. The trial court concluded that the bank was entitled to the proceeds.
On appeal, the 8th Circuit concluded that the mortgage’s future advances clause encompassed and secured the defendant’s ex-husband's business loan. Among other things, the appellate court rejected the defendant’s arguments that (i) the plaintiff failed to make a prima facie case that it was entitled to the condo sale proceeds because it purportedly “did not prove the proceeds comported with the mortgage’s maximum obligation limit clause (finding “no miscarriage of justice in declining to analyze her claim”); and (ii) the mortgage forced “her to waive her homestead rights in contravention of public policy” and in violation of the FTC’s “unfair credit practices” regulation (16 C.F.R. § 444.2)—a regulation, the appellate court pointed out, that does not apply to “banks” by its own terms. The 8th Circuit also rejected defendant’s unconscionability claim under Iowa law, stating that the “doctrine of unconscionability does not exist to rescue parties from bad bargains.” The appellate court further rejected the defendant’s other “equitable arguments” as “untenable” primarily because the mortgage is a “credit agreement” regulated under Iowa Code § 535.17(5)(c), and that statute expressly displaces equitable remedies.
5th Circuit remands nonjudicial foreclosure suit back to state court
On June 16, the U.S. Court of Appeals for the Fifth Circuit held that a plaintiff borrower’s requested damages in a foreclosure lawsuit did not exceed the federal jurisdictional threshold amount of $75,000, and sent the case back to Texas state court. The plaintiff sued the financial institution in state court after it sought a nonjudicial foreclosure on his house, asserting violations of the Texas Debt Collection Act, breach of the common-law duty of cooperation, fraud, and negligent misrepresentation. The suit was removed to the U.S. District Court for the Northern District of Texas, with the defendant arguing that the suit automatically stayed its nonjudicial foreclosure sale, thus putting the value of the house ($427,662) as the amount in dispute, instead of the plaintiff’s requested relief of $74,500. The plaintiff moved to remand the case to state court on the premise “that the amount in controversy could not exceed the stipulated maximum of $74,500.” The district court denied the plaintiff’s motion, ruling that it “had to measure the amount in controversy ‘by the value of the object of the litigation,’” and not by what the plaintiff’s complaint says the damages were not to exceed.
In reversing and remanding the case to state court, the 5th Circuit concluded that, because the defendant did not show that the automatic stay brought the house’s value into controversy, it “failed to establish by a preponderance of the evidence that the amount in controversy exceeded $75,000.” The appellate court agreed with the plaintiff’s assertion that the house was simply collateral and “thus irrelevant to the amount in controversy,” writing that “[i]t is well-settled that neither the collateral effect of a suit nor the collateral effect of a judgment may count toward the amount in controversy.” The 5th Circuit also determined that the plaintiff expressly stipulated in both his original state-court petition and in a declaration “that he is seeking total damages not to exceed $74,500,” and that this stipulation is legally binding.
California appeals court says lender cannot move bitcoin loan suit to Delaware
On June 14, the California Court of Appeal for the Second Appellate District reversed a trial court’s decision staying a suit against a lender and its loan payment processor (collectively, “defendants”) and enforcing a Delaware forum selection clause. The appeals court held that the plaintiff borrower’s unwaivable right to a jury trial under California law could be violated if the case proceeded in Delaware. According to the opinion, the plaintiff obtained $2.275 million in loans secured by bitcoin from the lender (a Delaware LLC that is licensed and regulated by California’s Department of Financial Protection and Innovation). When the value of bitcoin dropped, the lender sold the plaintiff’s bitcoin under the terms of the governing loan agreements. The plaintiff sued, “seeking, among other things, damages, return of his bitcoin, and cancellation of the loan agreements.” The defendants moved to stay the case because the Delaware forum selection clause required the case to be litigated in Delaware. The plaintiff countered that transferring the case to Delaware would “substantially diminish” his unwaivable rights under California law. The trial court eventually concluded that transferring the case to Delaware would not diminish the plaintiff’s rights and granted the stay pending litigation in Delaware. The trial court also stayed a second suit brought by the plaintiff alleging violations of California’s Unfair Competition Law and False Advertising Law, holding that the second suit involved the same primary rights as the first suit.
In reviewing the consolidated cases, the appeals court determined, among other things, that the Delaware forum selection clause in this case contains a predispute jury waiver. “Because California has a fundamental policy against such a waiver, Defendants carry the burden of proving that Delaware would not diminish this important right,” the appeals court wrote, adding that under Delaware law “contractual provisions that waive the contracting parties’ right to trial by jury have been upheld, and relevant case law provides insufficient assurance that Delaware courts will apply California’s important public policy to this dispute.” Additionally, the appeals court concluded that the defendants’ proposed “offer to stipulate that the Delaware court should apply California law” provides “little assurance that a Delaware court would enforce such a stipulation under the facts present here.”