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9th Circuit affirms ruling for CFPB in deceptive solicitations case
On December 13, the U.S. Court of Appeals for the Ninth Circuit affirmed summary judgment in favor of the CFPB against a California-based student financial aid operation and its owner (collectively, “defendants”), which were sued for allegedly mailing deceptive solicitations to individuals that advertised help in applying for scholarships. As previously covered by InfoBytes, the defendants allegedly engaged in deceptive practices when they, among other things, represented that by paying a fee and sending in an application, consumers were applying for financial aid or the defendants would apply for aid on behalf the students. But, according to the Bureau, the consumers did not receive the promised services in exchange for their payment. The case was stayed in 2016 while the owner defendant faced a pending criminal investigation, until the court lifted the stay in 2019 after finding the possibility of the civil proceedings affecting the owner defendant’s ability to defend himself in the criminal proceeding “speculative and unripe.” In 2021, the U.S. District Court for the Southern District of California issued an order granting in part and denying in part the CFPB’s motion for partial summary judgment and granting the agency’s motion for default judgment (covered by InfoBytes here). The order required the defendants to pay a $10 million civil money penalty and more than $4.7 million in restitution. Additionally, default judgment was entered against the defendants on the merits of the Bureau’s claims, which included allegations that the defendants failed to provide privacy notices to consumers as required by Regulation P. The defendants appealed.
On appeal, the defendant-appellant argued that he was not subject to the Bureau’s authority because he provided nonfinancial advice on “free” scholarships and that the solicitations were not deceptive. The appellate court noted that the CFPA lists ten different categories of covered persons, one of which is “providing financial advisory services … to consumers on individual financial matters or relating to proprietary financial products or services ….” Because the solicitations dealt with the topic of financial aid and scholarships for college tuition, the 9th Circuit concluded that “[a]dvising students to exhaust scholarship opportunities before taking on debt is no less ‘financial’ than advising students to leverage their unique access to federally subsidized loans.” The appellate court noted that the defendant’s “advice covered the entire gamut of financial aid and was undoubtedly financial in nature.” The appellate court further noted that the defendant “is incorrect that scholarships are not financial in nature merely because they do not have to be repaid,” and that “the ordinary meaning of financial is broad and encompasses both cash financing and debt financing. Indeed, the definition of ‘finance’ specifically contemplates raising funds, regardless of their origin, for college tuition.”
Supreme Court agrees to hear second appeal over student debt relief plan
On December 12, the U.S. Supreme Court granted a petition for certiorari in a student debt relief challenge currently pending before the U.S. Court of Appeals for the Fifth Circuit. As previously covered by InfoBytes, the DOJ filed an application on behalf of the Department of Education (DOE) asking the U.S. Supreme Court to stay a judgment entered by the U.S. District Court for the Northern District of Texas concerning whether the agency’s student debt relief plan violated the Administrative Procedure Act’s (APA) notice-and-comment rulemaking procedures. In a brief unsigned order, the Supreme Court deferred the DOE’s application for a stay, pending oral argument. The Supreme Court said it will treat the application as a “petition for a writ of certiorari before judgment,” and announced a briefing schedule will be established to allow the case to be argued in the February 2023 argument session to resolve the legality of the program. Oral arguments are scheduled for February 28, 2023.
The Supreme Court said it will consider whether the respondents (individuals whose loans are ineligible for debt forgiveness under the plan, as covered by InfoBytes here) have Article III standing to bring the challenge. The Supreme Court will also consider whether the DOE’s plan is “statutorily authorized” and “adopted in a procedurally proper manner.”
This is the second case concerning the Biden administration’s student debt relief plan that the Supreme Court has agreed to hear. On December 1, the Supreme Court agreed to hear the Biden administration’s appeal of an injunction entered by the U.S. Court of Appeals for the Eighth Circuit, which temporarily prohibits the Secretary of Education from discharging any federal loans under the DOE’s student debt relief plan. (Covered by InfoBytes here.)
District Court says consumer not provided meaningful opportunity to opt-out of arbitration provision
On December 9, the U.S. District Court for the Southern District of New York denied a defendant bank’s motion to compel arbitration in an action alleging the bank’s policy on overdraft fees caused customers to pay fees on accounts that were allegedly “never actually overdrawn.” Plaintiff filed a putative class action against the defendant seeking monetary damages from the defendant’s assessment and collection of these fees, and the defendant moved to compel arbitration. The court considered, among other things, whether 2014 and 2021 versions of the bank’s deposit account agreements constituted a request for the plaintiff to enter into a new agreement, in addition to whether “the extent to which a party subject to an agreement containing an arbitration provision with an optout clause . . . has a continuing obligation or opportunity to opt-out of arbitration each time the contract is amended or whether the party is bound by their assent to or rejection of arbitration at the first instance the opt-out procedure is offered.”
The court noted that the plaintiff’s account, which was opened in 2004, was governed by a 2002 version of an agreement that did not contain any dispute resolution provisions, nor did it require mandatory arbitration. However, the agreement did include a change of terms provision that stated customers “could be ‘bound by these changes, with or without notice.’” The agreement was amended in 2008 to include an arbitration provision and contained an opt-out clause allowing customers to reject the arbitration provision within 45 days of opening an account. In 2014, the defendant sent a notice to customers about further modifications made to initial account disclosures. The 2014 notice stated that customers could opt out of the entire amended agreement, which contained the arbitration clause, if they closed their account within 60 days. If they chose not to close the account, customers would be deemed to have accepted the amended agreement. A 2021 amendment agreement also included the arbitration provision. The defendant argued that the plaintiff is subject to the arbitration provision because he could have opted out as early as 2008 but chose not to and continued to use his account after receiving the 2014 notice.
The court disagreed, stating that the plaintiff would still have been obligated to arbitrate disputes under a survival clause in the 2008 contract, which said that the arbitration clause “shall survive the closure of your deposit account.” The court found that the 2014 notice did not provide the plaintiff a meaningful opportunity to opt out of arbitration. Moreover, because the plaintiff was unable to opt out under the 2008 agreement, “no contract to arbitrate was formed, and [the plaintiff] was not required to opt out again when [the defendant] amended the contract in or about January 2014 or thereafter.” “The lack of notice and absolute lack of opportunity for [the plaintiff] to opt out render the 2008 [agreement] unconscionable under New York law, which seeks to ‘ensure that the more powerful party’ — here, [the defendant] — ‘cannot ‘surprise’ the other party with some overly oppressive term,’ like an arbitration provision with an opt-out procedure that could never be exercised,” the court wrote.
SEC accuses defendants of engaging in $6 million fraudulent offering scheme
On December 7, the SEC filed a complaint against a venture capital firm and its co-founder and CEO (collectively, “defendants”) for allegedly making fraudulent offers and sales of purported shares of sought-after pre-IPO companies. According to the SEC, the defendants did not own the shares at the time of the solicitations and never acquired them. Instead of purchasing the securities, the SEC alleged that the CEO used the investor funds for personal use and created fraudulent documentation and statements to deceive investors. The SEC also alleged that the CEO’s other co-founder “performed important tasks with respect to the company including opening business bank accounts, completing paperwork necessary to form the business, and other administrative tasks,” and encountered, but failed, to act upon sufficient red flags regarding the company’s operations. The SEC’s complaint alleged violations of antifraud provisions of the federal securities laws and is seeking permanent injunctive relief, disgorgement plus prejudgment interest, and civil penalties against the defendants.
District Court stays action against remittance provider while Supreme Court weighs CFPB’s funding structure
On December 9, the U.S. District Court for the Southern District of New York stayed an action brought by the CFPB and the New York attorney general against a defendant remittance provider until after the U.S. Supreme Court decides if it will review whether the U.S. Court of Appeals for the Fifth Circuit erred in holding that the Bureau’s funding structure violates the Appropriations Clause of the Constitution. Last month the DOJ, on behalf of the CFPB, submitted a petition for a writ of certiorari seeking Supreme Court review of the 5th Circuit’s decision during its current term. (Covered by InfoBytes here.) The New York AG and the Bureau sued the defendant in April for allegedly violating the EFTA and its implementing Regulation E, the Remittance Rule, and the Consumer Financial Protection Act (CFPA), among various consumer financial protection laws, in its handling of remittance transfers. (Covered by InfoBytes here.)
The defendant argued that the district court should hold off on deciding on its motion to dismiss per the aforementioned argument, but should nonetheless rule on its pending motion to transfer. The Bureau opposed the defendant’s request for a stay, countering “that a stay would not promote efficiency” since the issue of the Bureau’s standing would not affect the claims brought in the current action. The Bureau further asserted “that the public and the parties’ interest weighs against a stay, as it would hinder Plaintiffs’ enforcement of the consumer protection laws and make obtaining evidence down the line more difficult.”
The district court disagreed, stating that the Supreme Court may address the broader issue of the Bureau’s standing to bring enforcement actions in its decision, and that, regardless, the agency’s claims in the current action “are inextricably linked to CFPB rules and regulations, which themselves may be implicated by a Supreme Court decision should it grant the petition.” The district court stayed the case in its entirety and said that it will wait to decide on both motions until after the Supreme Court decides on the Bureau’s filed petition for a writ of certiorari.
Parties reach agreement to resolve data scraping allegations
On December 8, the U.S. District Court for the Northern District of California issued a consent judgment and permanent injunction against a now-defunct plaintiff data analytics company in an action concerning whether the plaintiff breached a user agreement with a defendant professional networking site by using an automated process to extract user data (a process known as “scraping”) for the purposes of selling its analytics services to businesses. The case was sent back to the district court earlier this year by the U.S. Court of Appeals for the Ninth Circuit (on remand from the U.S. Supreme Court) after the appellate court affirmed the district court’s order preliminarily enjoining the defendant from denying the plaintiff access to publicly available member profiles. (Covered by Infobytes here.)
As previously covered by InfoBytes, last month the district court ruled that the plaintiff breached its user agreement by creating fake accounts and copying url data as part of its scraping process. Nonetheless, at the time, the district court noted that there remained a legitimate dispute over whether the defendant waived its right to enforce the user agreement after the plaintiff openly discussed its business model, including its reliance on scraping, at conferences it organized that were attended by defendant’s executives. The district court further questioned when the defendant became aware of the plaintiff’s scaping, whether it should have taken “steps to legally enforce against known scraping” sooner, and whether the defendant can raise certain defenses to its breach of contract claim tied to the plaintiff’s data scraping and unauthorized use of data.
On December 6, the parties separately reached an agreement to resolve all outstanding claims in the case. The final consent judgment enters a $500,000 judgment against the plaintiff and waives all other monetary relief. Additionally, the plaintiff is permanently enjoined from scraping or accessing the defendant’s platform without express written permission, whether directly or indirectly through a third party or whether logged in to an account or not. The plaintiff is also prohibited from developing, using, selling, or distributing any software or code for data collection from the defendant’s platform. The plaintiff must also delete all software code in its possession that is designed to access the defendant’s platform, must delete all member profile data in its possession (including data stored with a third party), and is barred from “using, distributing, selling, analyzing, or otherwise accessing any data” collected without the defendant’s express permission, whether directly or indirectly through a third party, among other requirements.
District Court says sellers may be vicariously liable for third-party TCPA violations
On December 5, the U.S. District Court for the Western District of Washington denied an online retail pharmacy’s (defendant) motion for summary judgment in a TCPA suit. According to the order, the defendant engaged with a third party to call potential customers and transfer leads who were interested in the defendant’s services to its inbound call center. The order further noted that the third party contracted with another company to generate leads. Like the third party, the company did not make any calls but contracted with one or more vendors to place calls. The plaintiff received two calls from a prerecorded message that introduced itself as a person with the company. After asking the plaintiff if anyone in the household used prescription medications, among other things, he was transferred to an employee of the defendant who identified the defendant company by name and tried to sell the plaintiff their services. The plaintiff sued the defendant, arguing that it was “vicariously liable” for calls he received from a telemarketer that transferred the calls to the defendant’s sales representative. The defendant argued it was not directly liable under the TCPA because it did not directly place the calls to the plaintiff. The defendant also said it was not vicariously liable for calls placed by vendors because those vendors did not have express or implied actual authority to place calls for the defendant.
According to the district court, courts may hold sellers such as the defendant vicariously liable for TCPA violations of third-party callers “where the plaintiff establishes an agency relationship, as defined by federal common law, between the defendant and the third-party caller.” The court further wrote that labeling the contracted company “an independent contractor in the agreement with [the defendant] does not foreclose a finding that an agency relationship existed.” The district court also noted that there was a “genuine issue” of material fact as to whether the defendant had an agency relationship with the contracted company’s vendor.
Social media platform awarded $365,000 in scraping suit
On December 8, the U.S. District Court for the Northern District of California enjoined a data trading company (defendant) from accessing a social media platform (plaintiff), and ordered it to pay $361,790 in attorney fees and $3,640 in court costs to the platform. According to the complaint, the defendant unlawfully scraped the profiles of over 90 million of the plaintiff’s users before selling the data. The complaint specifically alleged that the defendant sold “in-depth insights into the demographics and psychographics of influencers and their audiences.” The order enjoined the defendants from, among other things: (i) accessing or attempting to access the plaintiff’s platforms; (ii) developing, offering, and marketing software or computer code intended to automate the collection of data; and (iii) engaging in any activity that disrupts the plaintiff’s platforms.
Appellate court reverses BIPA decision
On November 30, the Illinois Court of Appeal for the Fourth Appellate District reversed and remanded a trial court’s decision to grant a defendant plating company’s motion for summary judgment in a Biometric Information Privacy Act (BIPA) suit. The plaintiff began working for the defendant in 2014. From the beginning of his employment, the plaintiff clocked into his job using a fingerprint, but the defendant did not have a written retention-and-destruction schedule for biometric data until 2018. The plaintiff was subsequently terminated and then filed suit claiming that the defendant violated BIPA by failing to establish a retention-and-destruction schedule for the possession of biometric information until four years after it first possessed the plaintiff’s biometric data. The trial court granted the defendant’s motion for summary judgment, finding that section 15(a) of BIPA established no time limits by which a private entity must establish a retention-and-destruction schedule for biometric data. The plaintiff appealed.
The appellate court reversed the trial court’s order, finding that Section 15(a) specified that a private entity “in possession of” biometric data must develop a written policy laying out its retention and destruction protocols, and the duty to develop a schedule is triggered by possession of the biometric data. The appellate court noted that its decision “is consistent with the statutory scheme, which imposes upon private entities the obligation to establish [BIPA]-compliant procedures to protect employees' and customers' biometric data.” The appellate court went on to note that it “can discern no rational reason for the legislature to have intended that a private entity ‘develop’ a ‘retention schedule and guidelines for permanently destroying’ (id. § 15(a)) biometric data at a different time from that specified in the notice requirement in section 15(b), which itself must inform the subject of the length of time for which the data will be stored (i.e., retained), etc.” The appellate court concluded “that the duty to develop a schedule upon possession of the data necessarily means that the schedule must exist on that date, not afterwards,” and stressed that this is “the only reasonable interpretation” in light of BIPA's “preventive and deterrent purposes.”
Furthermore, the appellate court rejected the defendant’s argument that “the statutory duty is satisfied so long as a schedule exists on the day that the biometric data possessed by a defendant is no longer needed or the parties’ relationship has ended," stating that the statutory language “belies this interpretation.”
California appellate court upholds judgment in RFDCPA suit
On November 23, the California Court of Appeal for the Fourth Appellate District upheld a summary judgment ruling for a creditor over allegations that it violated the Rosenthal Fair Debt Collection Practices Act (RFDCPA). The plaintiff, the widow of a former patient of the defendant doctor, asserted claims against the doctor and his professional corporation (collectively, “defendants”) alleging that they were debt collectors within the meaning of the RFDCPA. The plaintiff alleged that the defendants violated the RFDCPA by sending “multiple bills and making incessant” phone calls seeking payment for services provided to her husband before he died. The plaintiff requested that the defendants stop contacting her and seek payment through insurance and the hospital. The defendants used two different companies for its third-party billing services, and those companies sent invoices to the plaintiff, who responded that payment inquiries for her deceased husband should only be submitted to the insurance company and the medical center. The trial court granted the defendants’ motion for summary judgment, ruling they did not meet the statute’s definition of a debt collector.
The appellate court affirmed, finding that “a medical service provider that exclusively uses an unaffiliated, third-party billing service to collect payment for services rendered to patients” is not a “debt collector” within the meaning of the RFDCPA. The court found that although the RFDCPA “applies to those who collect debts on behalf of themselves,” the law still requires that a defendant “must regularly and in the ordinary course of business ‘engage in’ debt collection” for liability to attach. The appellate court emphasized that it was not holding that “a creditor may never be vicariously liable for the actions of a debt collector on an agency theory.” Instead, the plaintiff carried “the burden to demonstrate a triable issue of material fact on the existence of such an agency relationship, and she failed to do so on this record.”