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D.C. Circuit Court Affirms Dismissal of Suit, FCA First-to-File Bar Applies
In an opinion handed down on July 25, the Court of Appeals for the D.C. Circuit affirmed a district court’s dismissal of a False Claims Act (FCA) suit because it violated the first-to-file bar, ruling that a relator must re-file a qui tam action and cannot merely amend a complaint where the relator’s complaint was filed when a related qui tam case was still pending. The first-to-file bar provides that if an individual brings an action under the FCA, “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.”
The case concerned a qui tam relator who claimed that a telecommunications company overbilled on government contracts, thereby violating the FCA, which “penalizes the knowing submission of a false or fraudulent claim for payment to the federal government.” While the first suit was still pending, the relator filed a second suit alleging that the fraud was more widespread. The related suit was then resolved, but a district court dismissed the second suit based on the FCA’s first-to-file bar, which the D.C. Circuit affirmed. In 2015, the U.S. Supreme Court granted the relator’s petition for certiorari, and vacated the D.C. Circuit’s decision, citing a holding in Kellogg Brown & Root Services, Inc., et al v. Carter, 135 S. Ct. 1970 (2015), in which the Court claimed that the first-to-file bar only applies when a previous suit is pending—not once it has been resolved. Therefore, once the first-filed suit has been resolved, the first-to-file bar “no longer prohibits bringing a new action.” Because the statute of limitations period had run while the case was being appealed to the Supreme Court, the relator sought to amend his complaint rather than file a new action. The defendant moved to dismiss, and the district court granted the defendant’s motion. The relator appealed the ruling back to the D.C. Circuit, but the appellate court sided with the defendants and dismissed the relator’s action without prejudice. However, the appellate court expressly declined to opine on whether the statute of limitations would be equitably tolled if the relator were to re-file his complaint.
District Judge Denies Summary Judgement in FTC, New York AG FDCPA Suit
On July 18, the U.S. District Court for the Western District of New York denied summary judgment in a suit filed by the FTC and the New York Attorney General against four corporate defendants (Corporate Defendants) and four individual defendants (Individual Defendants) alleging that the Defendants engaged in abusive and deceptive debt collection practices. See Federal Trade Commission and People of the State of New York v. Vantage Point Services, LLC, Case 1:15-cv-00006-WMS-HKS (W.D.N.Y., Jul. 18, 2017). Plaintiffs argued that the Corporate Defendants, together with several non-defendant debt-collecting businesses, engaged in a single debt-collection enterprise. The Corporate Defendants maintained, however, that while they “did business with the various entities, either by placing debt with them or by processing payments on debt they were collecting,” the businesses remained separate, distinct entities, and they operated independently.
The court found that there were “numerous disputed issues of fact” concerning the plaintiffs’ common enterprise theory, including a failure by the plaintiffs to specify which entities allegedly made threats or used illegal tactics to collect debt. Indeed, the court noted that while there was “overwhelming evidence of wrongdoing,” the plaintiffs had “failed to link that wrongdoing to any specific Defendant.” In fact, the court observed that the “majority of the wrongdoing appears to have been committed by the non-defendant call initiators.” The court also found material disputes of fact as to whether the Corporate Defendants shared office space and commingled funds and as to whether the Individual Defendants were liable at all.
Judge Issues Ruling that Federal Safe Harbor Provision Applies in RESPA Case
On July 13, a federal judge in the U.S. District Court for the Western District of Kentucky issued an opinion holding that a safe harbor provision for affiliated business arrangements under Section 8(c)(4) of RESPA protects a Louisville law firm's relationship with a string of now-closed title insurance agencies. (See CFPB v. Borders and Borders, Plc, No. 3:13-cv-01047-CRS-DW (W.D. Ky. July 13, 2017)). In 2013, the CFPB alleged the firm violated RESPA by paying kickbacks for real estate settlement referrals through a network of joint ventures with the principals of nine title insurance companies. (See previous InfoBytes summary here.) The judge granted the firm’s motion for summary judgment on only one safe harbor question, stating that the firm’s agreements with the title insurance agencies qualified as “affiliated business arrangements” because it “disclosed the relationship…, the customers could reject the referral, and the Bureau failed to show that the [title insurance companies] received anything of value beyond their ownership interests.”
The judge rejected the firm's claim that the CFPB cannot seek disgorgement as a remedy and further declined to address the firm’s ultra vires argument that the CFPB is an unconstitutional agency and therefore lacks legal authority to bring suit, stating that the en banc decision in PHH Corp. v. CFPB has not yet been issued.
Notably, however, the judge appeared to suggest that case could be appealed because the firm’s other arguments fail to qualify for RESPA safe harbors under Sections 8(c)(1) and 8(c)(2).
Enforcement Actions Announced by CFTC for Fraud, Registration Violations in Florida
On July 11, the CFTC announced that the U.S. District Court for the Middle District of Florida entered an order for final judgment by default against two individuals and their company for fraudulently soliciting investors in a commodity pool, misappropriating pool participants’ funds, and committing futures fraud, among other things. According to the CFTC complaint filed on January 26 of 2017, the defendants fraudulently marketed their company to prospective participants, materially misrepresented their past trading success using fabricated high rates of return, provided account statements to investors showing fictitious increases in value, and failed to disclose defendant’s previous permanent injunction on trading.
In addition to imposing a permanent injunction on trading and registration, the Court ordered defendants to pay civil monetary penalties of almost $1.85 million as well as restitution of $459,613. An appointed monitor will oversee the defendants’ payment of restitution. The Court also required one of the defendants to affirmatively disclose his violations in any future marketing materials, presentations, speeches or websites. The required disclosure names his violations, the amount of restitution and civil penalties he must pay, along with the case numbers of his CFTC actions.
Both of the defendants recently pleaded guilty to related criminal charges. One defendant was sentenced to one year and one day in prison in connection with her guilty plea to one count of obstruction of justice, and the other defendant is awaiting sentencing in connection with his guilty plea to one count of wire fraud.
International Bank Settles RMBS Claims with FHFA for $5.5 Billion
On July 12, the Federal Housing Finance Agency (FHFA), as conservator of Fannie Mae and Freddie Mac (GSEs), announced a $5.5 billion settlement with an international bank. The settlement resolves FHFA’s claims, lodged in a federal lawsuit in the District of Connecticut, that the bank violated federal and state securities laws in relation to residential mortgage-backed securities (RMBS) trusts purchased by the GSEs between 2005 and 2007. The settlement covers all RMBS “issued, sponsored, sold, or underwritten by . . . [d]efendant between January 1, 2004 and December 31, 2008,” which is intended to include all securities for which FHFA brought claims against the bank in the District of Connecticut action. Under the terms of the agreement, the bank will pay $4.525 billion of the settlement amount to Freddie Mac, and approximately $975 million to Fannie Mae.
Fifth Circuit Affirms Debt Collector Violation of FDCPA
On July 6, the U.S. Court of Appeals for the Fifth Circuit held that a debt collector violated the Fair Debt Collection Practices Act (FDCPA) when it failed to notify credit reporting agencies that a consumer had disputed a debt. The Fifth Circuit further determined that this failure was sufficient to comprise a concrete injury conferring standing for the consumer to sue.
In its opinion, the appellate court focused on FDCPA § 807(8) and § 809(b), since the debt collector argued that the requirements in § 809 apply to § 807(8), relieving it of its notification duty under § 807(8). Although the appellate court found that the consumer had not disputed his debt under § 809, it agreed with the district court that this failure did not obviate the debt collector’s responsibility under § 807(8). The appellate court found that the debt collector was in violation of the FDCPA for passing on “credit information which is known or which should be known to be false, including the failure” to notify credit agencies of consumer’s disputed debt. Additionally, the appellate court determined that the debt collector’s violation of § 807(8) “exposed [the consumer] to a real risk of financial harm caused by an inaccurate credit rating.”
District Court Order Dismissing TCPA Claim Reversed on Appeal
On July 10, the U.S. Court of Appeals for the Third Circuit held that a single telemarketing call to a consumer established a concrete injury sufficient to support a Telephone Consumer Protection Act (TCPA) suit against a New Jersey-based fitness company. The appellate court reversed the District Court’s dismissal of the suit “because the TCPA provides [the consumer] with a cause of action, and her alleged injury is concrete.”
The appellate court considered two questions in the appeal: (i) was the alleged robocall a violation of the TCPA? If so, (ii) is the alleged injury concrete enough to provide Article III standing to sue under the United States Constitution? The court answered the first question by noting that the TCPA prohibits robocalls and prerecorded messages to cellular phones and that it “does not limit—either expressly or by implication—the statute's application to cell phone calls.” In answering the second question, the court determined that the alleged injury is exactly the kind of injury the TCPA was created to prevent: a nuisance or invasion of privacy.
The Third Circuit remanded the case for further proceedings consistent with their findings.
CFTC Enters into First-Ever Non-Prosecution Deals in Spoofing Investigation
On June 29, the Commodity Futures Trading Commission (CFTC) entered into non-prosecution agreements with three futures traders who admitted to engaging in “spoofing” in the U.S. Treasury futures market between 2011 and 2012 (see non-prosecution agreements here, here, and here). Spoofing involves placing bids or offers with the intent to cancel before execution. Here, the traders placed a small bid or offer on one side of the market and a large bid or offer on the opposite side of the market to be cancelled almost immediately (often in less than one second). The traders used the strategy to get smaller orders filled (and filled more quickly) at favorable prices.
This is the first time the CFTC has used non-prosecution agreements, which the Director of Enforcement called “a powerful tool to reward extraordinary cooperation in the right cases, while providing individual and organizations strong incentives to promptly accept responsibility for their wrong doing and cooperate with the Division’s investigation.” In announcing the agreements, the CFTC lauded the traders’ “timely and substantial cooperation,” noting that their efforts provided assistance in connection with a $25 million settlement with the multinational bank they worked for earlier this year.
Second Circuit Affirms No Actual Harm in FACTA Suit
On June 26, the U.S. Court of Appeals for the Second Circuit held that, without concrete evidence of actual harm, a consumer lacks standing under the Fair and Accurate Credit Transactions Act (FACTA) to sue a merchant for printing credit card expiration dates on receipts. The consumer alleged that printing the expiration date on her credit card receipt led to a material risk of identity theft, and therefore constituted an injury-in-fact sufficient to confer Article III standing. The court disagreed, noting that Congress’s amendments to FACTA belie that expiration dates on credit card receipts increase the risk of identity theft. Moreover, the court held that the consumer failed to allege actual harm from the merchant’s practice.
The court’s decision in Cruper-Wienmann comes approximately one month after the U.S. Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 194 L. Ed. 2d 635 (2016), as revised (May 24, 2016), which held that “bare procedural violation[s], divorced from any concrete harm” are not enough to establish standing.
CFPB Sues Credit Repair Companies for $2 Million
On June 27, the CFPB filed two complaints in the District Court for the Central District of California against several credit repair companies and affiliated individuals. The CFPB alleged that these defendants violated the Consumer Financial Protect Act and the Telemarketing Sales Rule by charging consumers illegal fees and misleading consumers about services (see complaints here and here).
According to a CFPB press release, the defendants allegedly “[c]harged illegal advance fees” such as initial consultation fees, and set-up fees prior to providing certain services. Defendants also allegedly “[f]ailed to disclose limits on ‘money-back guarantees’” and “[m]isled consumers about the benefits of their services” by suggesting they could remove negative information from credit reports and “substantial[ly] increase” credit scores.
The CFPB submitted a proposed final judgment for each suit. In the first suit, the CFPB proposed a civil money penalty of over $1.5 million, and restrained defendants from working in credit repair services or maintaining an ownership interest in any company that provides credit repair services for a period of five years. In the second suit, the CFPB sought similar injunctive relief, and also proposed “equitable monetary relief in the form of disgorgement . . . in the amount of $500,000.”