InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
9th Circuit stays Seila CID pending Supreme Court appeal
On June 1, the U.S. Court of Appeals for the Ninth Circuit granted Seila Law’s request to stay a mandate ordering compliance with a civil investigative demand (CID) issued by the CFPB. The order stays the appellate court’s mandate (covered by InfoBytes here) for 150 days, or until final disposition by the U.S. Supreme Court should the law firm file its expected petition of certiorari. Last month, Seila Law announced its intention to ask the Court “whether the ratification of the CFPB’s civil investigative demand is an appropriate remedy for the separation-of-powers violation identified by the Supreme Court.” In its motion, Seila Law claimed that the Bureau’s “alleged ratification” was not legally sufficient to cure the constitutional defect and that “an action taken by an agency without authority cannot be ratified if the principal lacked authority to take the action when the action was taken.” Seila Law further argued that the only appropriate remedy is dismissal of the petition to enforce the CID. The Bureau countered that former Director Kraninger’s ratification was valid, emphasizing that the majority of the 9th Circuit denied en banc rehearing last month (covered by InfoBytes here). The Bureau further contended that Seila Law did not demonstrate good cause for the stay or suggest that it would suffer irreparable harm should the motion be denied, pointing out that “equities now weigh overwhelmingly in favor” of requiring Seila Law’s compliance with the CID.
FTC seeks to restore Section 13(b) redress authority
On May 19, acting FTC Chairwoman Rebecca Kelly Slaughter published a letter reaffirming the need to restore the Commission’s ability to return money to harmed consumers following the U.S. Supreme Court’s decision in FTC v. AMG Capital Management. As previously covered by InfoBytes, on April 22, the Court 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.” Last month, Slaughter testified before both House and Senate subcommittees on the need for Congressional action to clarify Section 13(b) and affirmatively confirm the FTC’s authority to seek permanent injunctions and other equitable relief for violations of any law under its enforcement authority (covered by InfoBytes here).
Slaughter’s letter, directed to Senators Maria Cantwell (D-WA) and Roger Wicker (R-MS)—the chair and ranking member of the Senate Committee on Commerce, Science, and Transportation, respectively—addressed several issues raised by the U.S. Chamber of Commerce concerning recently introduce legislation (see H.R. 2668), which is intended to restore the FTC’s ability under Section 13(b) to seek consumer compensation in antitrust and consumer protection cases. Among other things, Slaughter disagreed with the Chamber’s position that Congress always intended for Section 13(b) to be used only in so-called “fraud cases.” She pointed to a 1994 action, in which Congress “directly ratified the FTC’s reliance on Section 13(b) in all manner of cases by expanding its venue and service of process provisions without placing any limitations on the types of cases to which Section 13(b) applies,” and noted that to date, the FTC has obtained billions of dollars of monetary relief for consumers, many of which were in non-fraud consumer protection cases. According to Slaughter, limiting the FTC’s ability to seek monetary relief to only “cases involving ‘egregious’ frauds” would allow companies and individuals “adjudicated to have engaged in unfair, deceptive, or anticompetitive practices” to keep money earned from unlawful conduct at the expense of harmed consumers.
Slaughter also emphasized that limiting Section 13(b) to only ongoing or imminent conduct does not make sense. Waiting for violations to recur in order to obtain a federal court injunction, Slaughter argued, “creates weak incentives for compliance, and is an inefficient enforcement mechanism that will result only in more consumer harm.” In addressing the Chamber’s concern that statutory fix proposals lack a statute of limitations for monetary relief under Section 13(b), Slaughter emphasized that H.R. 2668 would provide a 10-year limit on monetary relief.
FTC asks Congress to restore redress authority
On April 27, acting FTC Chairwoman Rebecca Kelly Slaughter asked the House Energy and Commerce Subcommittee on Consumer Protection and Commerce to pass legislation to clarify Section 13(b) of the FTC Act and restore the Commission’s ability to return money to harmed consumers following the U.S. Supreme Court’s decision in FTC v. AMG Capital Management. As previously covered by InfoBytes, on April 22, the Court unanimously reduced the FTC’s powers by holding 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.”
Section 13(b), Slaughter testified, has been “the agency’s primary and most effective way of returning money to consumers,” as it authorizes the Commission to sue directly in federal court for violations of the FTC Act. Until recently, “seven of the twelve courts of appeals, relying on longstanding Supreme Court precedent, interpreted the language in Section 13(b) to authorize district courts to award the full panoply of equitable remedies necessary to provide complete relief for consumers, including disgorgement and restitution of money,” Slaughter emphasized, noting, however, that a shift in recent court interpretations of Section 13(b) has “significantly limited the Commission’s primary and most effective tool for providing refunds to harmed consumers.” Slaughter also stressed that “if Congress does not act promptly, the FTC will be far less effective in its ability to protect consumers and execute its law enforcement mission.”
H.R. 2668, introduced by House Democrats, seeks to affirmatively confirm the FTC’s authority to seek permanent injunctions and other equitable relief for violations of any law under its enforcement authority. In her prepared statement, Slaughter told the Subcommittee that legislation such as H.R. 2668 is “urgently needed to address legal challenges to critical authority that enables the FTC to do its job of protecting consumers and competition.” She further noted that legislation is needed to ensure that the FTC is able to prevent harmful conduct from reoccurring. Slaughter pointed to two recent decisions issued by the U.S. Court of Appeals for the Third Circuit that reinterpreted Section 13(b) and “jeopardize[d] the FTC’s ability to enjoin illegal conduct in federal court.” The decisions “hamper the Commission’s longstanding ability to protect consumers by enjoining defendants from resuming their unlawful activities when the conduct has stopped but there is a reasonable likelihood that the defendants will resume their unlawful activities in the future,” she stated.
Supreme Court: FTC may not seek restitution or disgorgement under 13(b)
On April 22, the U.S. Supreme Court unanimously reversed the U.S. Court of Appeals for the Ninth Circuit’s decision in AMG Capital Management v. FTC, holding 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.” The opinion impacts petitioners who were ordered in 2018 to pay an approximately $1.3 billion judgment for allegedly operating a deceptive payday lending scheme and making false and misleading representations about loan costs and payments (covered by InfoBytes here). At the time, the 9th Circuit rejected the petitioner’s challenge to the judgment (based on, among other things, the argument that the FTC Act only allows the court to issue injunctions), concluding that a district court may grant any ancillary relief under the FTC Act, including restitution. As previously covered by InfoBytes, last year the Court granted review and consolidated two cases that had reached different conclusions regarding the availability of restitution under § 13(b): (i) the 9th Circuit’s decision in FTC v. AMG Capital Management; and (ii) the 7th Circuit’s ruling in FTC v. Credit Bureau Center (covered by InfoBytes here), which held that Section 13(b) does not give the FTC power to order restitution.
In examining “whether Congress, by enacting §13(b) and using the words ‘permanent injunction,’ granted the Commission authority to obtain monetary relief directly from courts and effectively bypass the requirements of the administrative process,” the Court unanimously held that § 13(b) “does not explicitly authorize the Commission to obtain court-ordered monetary relief,” and that “such relief is foreclosed by the structure and history of the Act.” As such, the Court determined that it is “highly unlikely” that Congress would grant the FTC authority to circumvent traditional § 5 administrative proceedings by collecting restitution or disgorgement as an equitable relief power. Moreover, the Court discussed § 19 of the FTC Act, which was enacted two years after § 13(b) and “authorizes district courts to grant ‘such relief as the court finds necessary to redress injury to consumers,’ including through the ‘refund of money or return of property.’” The Court noted that since § 19 has limited authority and is only available against those who have engaged in an unfair or deceptive act or practice through which the FTC has issued a final cease and desist order (i.e. through an administrative proceeding), the Court found it “highly unlikely that Congress would have enacted provisions expressly authorizing conditioned and limited monetary relief if the Act, via §13(b), had already implicitly allowed the Commission to obtain that same monetary relief and more without satisfying those conditions and limitations.” Further, the Court stated that it was unlikely that Congress would have granted the FTC authority to “so readily” circumvent traditional § 5 administrative proceedings.
The Court stated that nothing in its opinion, however, prohibits the FTC “from using its § 5 or § 19 authority to obtain restitution on behalf of consumers,” adding that if the Commission “believes that authority too cumbersome or otherwise inadequate, it is, of course, free to ask Congress to grant it further remedial authority”—a request that the FTC made before the Senate Committee on Commerce, Science, and Transportation on Oversight of the Federal Trade Commission in 2020 and again on April 20, 2021 (covered by InfoBytes here). The Court reversed the judgment against the petitioners and remanded the case for further proceedings in line with its opinion.
FTC acting Chairwoman Rebecca Kelly Slaughter issued a statement following the Court’s decision: “With this ruling, the Court has deprived the FTC of the strongest tool we had to help consumers when they need it most. We urge Congress to act swiftly to restore and strengthen the powers of the agency so we can make wronged consumers whole.”
Special Alert: Supreme Court narrows TCPA autodialer definition
On April 1, the United States Supreme Court issued its long-awaited opinion in Facebook Inc. v. Duguid. The 9-0 decision narrows the definition of what type of equipment qualifies as an autodialer under the Telephone Consumer Protection Act (TCPA), a federal statute that generally prohibits calls or texts placed by autodialers without the prior express consent of the called party.
The TCPA defines an autodialer as equipment with the capacity both “to store or produce telephone numbers to be called, using a random or sequential number generator,” and to dial those numbers. The question before the Supreme Court in Facebook was whether that definition encompasses equipment that can “store” and dial telephone numbers, even if the device does not use “a random or sequential number generator.” The Court held it does not. Rather, to qualify as an “automatic telephone dialing system,” the Court held that a device must have the capacity either to store or produce a telephone number using a random or sequential generator. In other words, the modifier “using a random or sequential number generator” applied to both terms “store” and “produce.”
Background
In 2014, Noah Duguid received text messages from Facebook alerting him that someone attempted to access his Facebook account. However, Duguid alleged that he never provided Facebook his phone number and did not have a Facebook account.
Duguid was unable to stop the notifications and eventually brought a putative class action against Facebook, alleging that Facebook violated the TCPA by maintaining technology that stored phone numbers, and sent automated texts to those numbers each time the associated account was accessed by an unrecognized device or web browser.
The U.S. District Court for the Northern District of California dismissed Duguid’s amended complaint with prejudice, but the Ninth Circuit reversed, finding Duguid stated a claim under the TCPA by alleging Facebook’s notification system automatically dialed stored numbers. The Ninth Circuit held that an autodialer as defined under the TCPA, need not have the capacity to use a random or sequential number generator, but that it need only have the capacity to store number to be called and to dial those numbers automatically.
Holding
The Supreme Court reversed the Ninth Circuit, holding that to “qualify as an ‘automatic telephone dialing system,’ a device must have the capacity either to store a telephone number using a random or sequential generator or to produce a telephone number using a random or sequential number generator.”
In reaching this decision, the Court explained that “expanding the definition of an autodialer to encompass any equipment that merely stores and dials telephone numbers would take a chainsaw” to the nuanced problems Congress sought to address with the TCPA. It further explained that Duguid’s interpretation of an autodialer—the one adopted by the Ninth Circuit—“would capture virtually all modern cell phones, which have the capacity to store telephone numbers to be called” and “dial such numbers.” “TCPA’s liability provisions, then, could affect ordinary cell phone owners in the course of commonplace usage, such as speed dialing or sending automated text message responses.”
And while the Court acknowledged that interpreting the statute in the manner it did may limit its application, the Court reasoned that it “cannot rewrite the TCPA to update it for modern technology,” and that its holding reflected the best reading of the statute.
If you have any questions regarding the Supreme Court’s decision regarding the TCPA, please visit our Class Actions practice page, or contact a Buckley attorney with whom you have worked in the past.
Court rules CFPB lacked authority to bring suit while its structure was unconstitutional
On March 26, the U.S. District Court for the District of Delaware dismissed a 2017 lawsuit filed by the CFPB against a collection of Delaware statutory trusts and their debt collector, ruling that the Bureau lacked enforcement authority to bring the action when its structure was unconstitutional. As previously covered by InfoBytes, the Bureau alleged the defendants filed lawsuits against consumers for private student loan debt that they could not prove was owed or that was outside the applicable statute of limitations, which allowed them to obtain over $21.7 million in judgments against consumers and collect an estimated $3.5 million in payments in cases where they lacked the intent or ability to prove the claims, if contested. In 2020, the court denied a motion to approve the Bureau’s proposed consent judgment, allowing the case to proceed. The defendants filed a motion to dismiss, arguing that the Bureau lacked subject-matter jurisdiction because the defendants should not have been under the regulatory purview of the agency, and that former Director Kathy Kraninger’s ratification of the enforcement action, which followed the Supreme Court holding in Seila Law LLC v. CFPB that that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the Bureau (covered by a Buckley Special Alert), came after the three-year statute of limitations had expired. While the Bureau acknowledged that the ratification came more than three years after the discovery of the alleged violations, it argued that the statute of limitations should be ignored because the initial complaint had been timely filed and that the limitations period had been equitably tolled.
The court rejected the subject-matter jurisdiction argument because it held that the term “covered persons” as used in the Consumer Financial Protection Act, 12 U.S.C. § 5481(6), is not a jurisdictional requirement. However, the court then determined that the Bureau’s claims were barred by the statute of limitations. The Bureau filed the complaint while operating under a structure later found unconstitutional in Seila Law, and Director Kraninger’s subsequent ratification of the action came after the limitations period had expired. The court concluded that this made the complaint untimely. It also rejected the Bureau’s equitable tolling argument based on the Bureau’s failure to take actions to preserve its rights during the period when its constitutionality was in question. The court also noted that the Bureau “failed to pursue this very argument seriously in its brief,” which presented the equitable tolling argument in a “brief and conclusory” fashion.
FTC restructures rulemaking as justices debate its limits on consumer redress
On March 25, FTC acting Chairwoman Rebecca Kelly Slaughter announced a new rulemaking group within the FTC’s Office of the General Counsel created to streamline and strengthen the Commission’s rulemaking process and coordinate rulemaking among various units. The FTC’s current rulemaking process is decentralized, according to Slaughter, with individual bureaus and divisions responsible for particular rules. “The new structure will aid the planning, development, and execution of rulemaking,” she said, noting that with the “new group in place, the FTC is poised to strengthen existing rules and to undertake new rulemakings to prohibit unfair or deceptive practices and unfair methods of competition.” Slaughter also emphasized the critical importance of effective rulemaking “given the risk that the Supreme Court substantially curtails the FTC’s ability to seek consumer redress under Section 13(b)” through enforcement actions.
As previously covered by InfoBytes, last year the Court granted review in two cases that had reached different conclusions regarding the availability of restitution under Section 13(b) of the FTC Act: (i) the 9th Circuit’s decision in FTC v. AMG Capital Management (covered by InfoBytes here), which upheld a $1.3 billion judgment against the petitioners for allegedly operating a deceptive payday lending scheme and concluded that a district court may grant any ancillary relief under the FTC Act, including restitution; and (ii) the 7th Circuit’s ruling in FTC v. Credit Bureau Center (covered by InfoBytes here), which held that Section 13(b) does not give the FTC power to order restitution. The Court consolidated the two cases and will decide whether the FTC can demand equitable monetary relief in civil enforcement actions under Section 13(b) of the FTC Act.
The same day, Acting Chairwoman Slaughter released the FTC’s 2020 Annual Highlights. Among other things, it discusses the Commission’s response to the Covid-19 pandemic and efforts to educate consumers about Covid-19-related scams, as well as businesses’ responsibilities concerning honest advertising.
Court cites 6th Circuit, rules TCPA covers autodialers using stored lists
On February 25, the U.S. District Court for the Northern District of West Virginia ruled that a satellite TV company cannot avoid class claims that it made unwanted calls to stored numbers using an automatic telephone dialing system (autodialer). The company filed a motion to dismiss plaintiff’s claims that it violated Section 227 of the TCPA when it made illegal automated and prerecorded telemarketing calls to her cellphone using an autodialer. The company argued, among other things, that the “statutory definition of an [autodialer] covers only equipment that can generate numbers randomly or sequentially,” and that “nothing in the complaint plausibly alleges that any of the calls were sent using that type of equipment.” According to the company, list-based dialing cannot be subject to liability under the TCPA. The court disagreed, stating that the TCPA makes it clear that it covers autodialers using stored lists. The court referenced a 6th Circuit decision in Allan v. Pennsylvania Higher Education Assistance Agency, which determined that “the plain text of [§ 227], read in its entirety, makes clear that devices that dial from a stored list of numbers are subject to the autodialer ban.” (Covered by InfoBytes here.) The court also referenced decisions issued by the 2nd, 6th, and 9th Circuits, which all said that the TCPA’s definition of an autodialer includes “autodialers which dial from a stored list of numbers.” However, these appellate decisions conflict with holdings issued by the 3rd, 7th, and 11th Circuits, which have concluded that autodialers require the use of randomly or sequentially generated phone numbers, consistent with the D.C. Circuit’s holding that struck down the FCC’s definition of autodialer in ACA International v. FCC (covered by a Buckley Special Alert). Currently, the specific definition of an autodialer is a question pending before the U.S. Supreme Court in Duguid v. Facebook, Inc. (covered by InfoBytes here). The court further ruled that three out-of-state consumers should be removed from the case as they failed to meet the threshold for personal jurisdiction, and also reiterated that the case could not be arbitrated as the company’s arbitration clause was “unconscionable.”
Courts say TCPA not invalidated by Supreme Court decision
On January 31, the U.S. District Court of the Central District of California denied dismissal of a putative class action alleging that a consumer lender violated the TCPA, concluding that the U.S. Supreme Court’s decision in Barr v. American Association of Political Consultants Inc. (AAPC) (covered by InfoBytes here) does not bar the claims. According to the order, a consumer filed the putative class action alleging that the lender violated the TCPA by placing telemarketing calls to residential numbers listed on the National Do Not Call Registry. The lender moved to dismiss the action, arguing that the Court’s decision in AAPC (holding that the government-debt exception in Section 227(b)(1)(A)(iii) of the TCPA is an unconstitutional content-based speech restriction, and severing the provision from the statute), invalidated the entire TCPA from the time the offending exception was added in 2015 to July 2020 when the Court severed the provision from the statute. The district court disagreed, concluding that the Court’s decision in AAPC was limited to the specific provision for robocalls to cell phones in Section 227(b) and did not extend to Section 227(c)’s do not call provisions. Additionally, the court concluded that the “Court in AAPC did not conclude that the entire TCPA was unconstitutional.” Thus, Section 227(c) “remained ‘fully operative as law’” from 2015 through July 2020.
Earlier on January 28, the U.S. District Court for the Southern District of California denied dismissal of a TCPA action for lack of subject matter jurisdiction, concluding that the Court’s decision in Barr, did not invalidate the TCPA in its entirety from 2015 until July 2020. According to the order, consumers filed a consolidated class action against a cruise line, alleging violations of, among other things, the TCPA for marketing calls made to class members’ cell phones using an automatic telephone dialing system between November 2016 and December 2017. The cruise line moved to dismiss the action, arguing that the Court’s decision in AAPC (holding that the government-debt exception in Section 227(b)(1)(A)(iii) of the TCPA is unconstitutional “because it favored debt-collection speech over political or other speech in violation of the First Amendment,” and severing the provision from the statute), invalidated the entire TCPA from when the offending exception was enacted in 2015, until the Court severed the amendment in July 2020. Disagreeing with other district courts (covered by InfoBytes here and here), the district court rejected the cruise line’s argument, concluding that the Court did not intend to have TCPA actions “cavalierly dismissed by a district court.” The district court relied on a statement made by Justice Kavanaugh in the Court’s plurality opinion, stating “our decision today does not negate the liability of parties who made robocalls covered by the robocall restriction.” The district court rejected the cruise line’s argument that Kavanaugh’s statement is dicta, because, among the fragmented decisions, seven justices “agree that the 2015 amendment should be severed and the liability of parties making robocalls who were not collecting a government debt is not negated.” Thus, because the cruise line was not attempting to collect a government debt, the district court denied the motion to dismiss.
Court says CFPB unconstitutionality argument strays from Supreme Court ruling in Seila
On January 13, the U.S. District Court for the Middle District of Pennsylvania denied a student loan servicer’s motion for judgment on the pleadings, ruling that the servicer’s argument that the CFPB is unconstitutional “strays afar” from the U.S. Supreme Court’s finding in Seila Law LLC v. CFPB. The servicer previously argued that the Supreme Court’s finding in Seila (covered by a Buckley Special Alert)—which held that that the director’s for-cause removal provision was unconstitutional but was severable from the statute establishing the CFPB—meant that the Bureau “never had constitutional authority to bring this action and that the filing of [the] lawsuit was unauthorized and unlawful.” The servicer also claimed that the statute of limitations governing the CFPB’s claims prior to the decision in Seila had expired, arguing that Director Kathy Kraninger’s July 2020 ratification came too late. However, the court determined, among other things, that “[n]othing in Seila indicates that the Supreme Court intended that its holding should result in a finding that this lawsuit is void ab initio.” The court further noted that the servicer’s assertion that the Bureau “‘never had constitutional authority to bring this action’ is belied by Seila’s implicit finding that the CFPB always had the authority to act, despite the Supreme Court’s finding that the removal protection was unconstitutional.”