InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Federal District Court Rejects Putative Class Challenge To Servicer's Compliance With IFR Order
On May 12, the U.S. District Court for the Western District of Kentucky held that it lacks jurisdiction to review allegations that a mortgage servicer operating under an OCC consent order was negligent in its maintenance of records related to the order. Harris v. Citimortgage, Inc., No. 13-783, slip op. (W.D. Ky. May 12, 2014). The case stems from an amended OCC consent order entered in 2013 as part of the government’s decision to halt the Independent Foreclosure Review Process. The borrower in this action claimed, on behalf of herself and a class of similarly situated borrowers, that one of the settling servicers failed to keep up-to-date records and failed to exercise reasonable care in the maintenance of those records, resulting in the borrower’s foreclosure status being incorrectly classified and the borrower being paid less money under the order than she would have been if she her status had been properly classified. The court explained that the consent order requires the OCC to validate the categorization of borrowers, and that the payments to borrowers are established by the OCC at its discretion. To assess the borrower’s negligence claim, the court would be required to review the OCC’s validation of the borrower’s categorization and payment, which the court is prohibited from doing under federal law. The court dismissed the borrower’s action.
Third Circuit Denies Rehearing of Class Certification Denial In Class Ascertainability Case
On May 2, the U.S. Court of Appeals for the Third Circuit denied a petition for rehearing en banc in Carrera v. Bayer, 727 F.3d 300 (3d Cir. 2013), a closely-watched case on class ascertainability. Last year, a three-judge panel of the Third Circuit reversed a district court’s certification of a Rule 23(b)(3) class, holding that plaintiffs must present far better evidence of class member ascertainability to achieve certification than “[a] party’s assurance to the court that it intends or plans to meet the requirements [of Rule 23].” 727 F. 3d at 306, quoting In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305, 318 (3d Cir. 2008). The plaintiff in the case proposed to ascertain members of a class of purchasers of defendant’s over-the-counter drug product through company sales records that plaintiff assumed (with some support) existed. The district court certified the class, holding although the company lacked records to identify purchasers, class members could be ascertained through loyalty card records, online sales, or affidavits of class members attesting they purchased the product and stating the amount they purchased. Reversing class certification, the three-judge panel rejected plaintiff’s proposal to allow absent class members to self-identify by affidavit. In a 9-4 ruling, the full Third Circuit refused to re-hear the case but the four dissenters criticized the denial. Although Carrera is technically binding only on the federal courts of Pennsylvania, New Jersey, and Delaware, the decision may have broad national impact in that the original appeals decision was already being cited in courts across the country. The end result may be that (i) in the absence of adequate defendant records, class action plaintiffs must take far more significant pre-certification discovery, including subpoenas to third parties, to prove in some detail that records provide the data needed to ascertain class members; and (ii) courts are far less likely to accept class actions or settlements thereof that rely on affidavits alone to prove class membership.
Ninth Circuit Reverses Denial Of Class Certification In Disparate Impact Case
On April 24, the U.S. Court of Appeals for the Ninth Circuit reversed a district court’s denial of class certification in a disparate impact age discrimination case, holding that the court erred in considering merits issues when determining class certification. Stockwell v. San Francisco, No. 12-15070, 2014 WL 1623736 (9th Cir. Apr. 24, 2014). The case involves claims brought by a group of police officers on behalf of a putative class alleging workplace age discrimination in violation of the California Fair Employment and Housing Act. The class representatives allege that the city’s promotion policy had a disparate impact on employees over the age of 40. The district court denied the named plaintiffs’ motion to certify the class, holding that the claims failed to satisfy Rule 23(a)(2)’s commonality requirement because the named plaintiffs’ statistical analysis did not establish a general policy of discrimination under Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), and failed to demonstrate that the policy caused any resulting disparate impact. On appeal, the court determined that in considering the statistical analysis, the district court improperly relied on merits issues to reach its conclusion rather than focusing on whether the questions presented were common to the members of the putative class. The Ninth Circuit held that “the officers have identified a single, well-enunciated, uniform policy that, allegedly, generated all the disparate impact of which they complain,” and that “whatever the failings of the class’s statistical analysis, they affect every class member’s claims uniformly.” Further, the court held whether the policy caused the disparate impact is a single significant question of fact common to all class members. The court reversed the district court’s holding on commonality, and remanded for consideration of other class certification prerequisites, including predominance.
N.D. Cal. Validates Forum Selection Clause In Website's Hyperlinked Terms Of Use
On April 11, the U.S. District Court for the Northern District of California held that the forum selection clause within a website’s terms of use provisions, which an online customer had to accept in order to proceed with the transaction, is valid and supports a transfer of the case to another forum. Moretti v. Hertz Corp., No. 13-2972, 2014 WL 1410432 (N.D. Cal. Apr. 11, 2014). An online customer filed a putative class action in California state court against a car rental company and a travel website over a price disclosure dispute. The companies removed the action to federal court and sought to transfer the case to Delaware based on a forum selection clause included in the terms of use provisions on the travel website through which the car rental was arranged. In support of the motion to transfer, the travel website provided employee declarations establishing that the terms of use included a forum selection clause, and that the transaction could not have been completed unless the customer clicked a box to accept the terms of use. The court held that even though the terms of use were provided through a hyperlink on the site, in the absence of affirmative denial from the customer that he did not click to accept the terms of use, the customer had notice and consented to the terms and the forum selection clause contained therein. The court granted the defendants’ transfer motion and ordered the case transferred to the District Court of Delaware.
SDNY Certifies Interlocutory Appeal In Lender-Placed Insurance Dispute
On April 3, the U.S. District Court for the Southern District of New York certified an interlocutory appeal of an order denying a motion to dismiss filed by a group of insurers facing class allegations of unlawful lender-placed insurance practices. Rothstein v. GMAC Mortgage, LLC, No. 12-3412, 2014 WL 1329132 (S.D.N.Y. Apr. 3, 2014). In declining to dismiss the case, the court held, among other things, that the filed rate doctrine did not bar borrowers' claims because the doctrine applies only where the challenged rate is one imposed directly by an insurer, and does not apply to lender-placed insurance where a third-party—the lender or servicer—acquires the insurance at a filed rate and bills the borrower for the costs. On the insurers’ motion for interlocutory appeal, the court held that the issue of whether the filed rate doctrine applies is a question of law that could be dispositive and for which there is substantial ground for a difference of opinion, and that the potential to avoid protracted litigation warranted certification for appeal. BuckleySandler represents the insurers in this action.
C.D. Cal. Court Holds Overnight Delivery Companies Covered By RESPA
On March 21, in a suit brought by borrowers who had paid overnight delivery fees at closing, the U.S. District Court for the Central District of California held that the overnight delivery services provided by certain delivery companies to a parent company of various escrow companies were “settlement services” under RESPA and concluded that borrowers had pleaded facts sufficient to establish that defendant parent company may have violated RESPA by accepting marketing fees from certain delivery companies in exchange for “referring”—via its escrow subsidiaries—overnight delivery business to those delivery companies. Henson v. Fidelity Nat’l Fin. Inc., No. 14-cv-01240, slip op. (C.D. Cal. Mar. 21, 2014). In this case, the defendant parent company’s allegedly required its escrow subsidiaries to use certain delivery companies in connection with loan closings. Defendant parent company, in turn, allegedly received a marketing fee from those delivery companies based on the volume of business it sent to the delivery companies through its escrow subsidiaries. On the parent company’s motion to dismiss, the court held that the overnight delivery service was a “settlement service” under RESPA given that Regulation X specifically lists a “delivery” as a settlement service if provided in connection with a real estate settlement. The court further held that a “referral” under RESPA need not be linked to particular transactions and thus that a RESPA violation could occur where a master agreement required subsidiaries to use certain delivery service providers in exchange for a marketing fee received by a parent company. However, the court agreed with the defendant that the borrowers failed to adequately plead either a split of an unearned fee or that defendant did not perform any service in exchange for the marketing fee it received. Thus the court denied, in part, and granted, in part, the defendant’s motion to dismiss.
Seventh Circuit Holds Retailer's Credit Card Upgrade Program Did Not Violate TILA
On March 19, the U.S. Court of Appeals for the Seventh Circuit held that a retailer’s credit card upgrade program that replaced existing customers’ limited use store charge cards with unsolicited general use credit cards did not violate TILA, and affirmed the district court’s dismissal of a putative class action. Acosta v. Target Corp., No. 13-2706, 2014 WL 1045202 (7th Cir. Mar. 19, 2014). Under the upgrade program, the retailer automatically issued new general purpose cards to existing store card customers and closed the old account upon either the activation of the new account or rejection by the consumer of the new card. The class representatives claimed that the program constituted an offer to change the underlying account relationship and violated TILA’s prohibition on the mailing of unsolicited credit cards. The court held that the program fell within TILA’s exemption for substitute cards based on the common understanding of “substitution” and the Federal Reserve Board staff’s Regulation Z commentary. The court also rejected the cardholders’ argument that they were fraudulently induced to accept the new card. The court determined that the retailer disclosed the reasons for a change in the APR and did not raise the rate unless payments were missed, and sufficiently disclosed the potential for a change in credit limit. The court also held that the retailer’s omission of the fact that cardholders could take steps to retain their store card account was not fraudulent, and added that to hold otherwise would require the retailer “to disclose any condition that could theoretically be negotiated with the card issuer.” The court also affirmed the dismissal of the cardholders’ breach of contract and tortious interference claims.
Data Breach Class Settlement Approved After Eleventh Circuit Held Identity Theft Following Breach Presents Cognizable Injury
Recently, the U.S. District Court for the Southern District of Florida approved a class settlement in a case in which the plaintiffs claimed financial harm from a health care companys failure to protect their personal information. Resnick v. AvMed Inc., No. 10-24513 (S.D. Fla. Feb. 28, 2014). The settlement follows a September 2012 decision from the U.S. Court of Appeals for the Eleventh Circuit, in which the court reversed the district court's dismissal of the case and held that because the complaint alleged financial injury, and because monetary loss is cognizable under Florida law, the plaintiffs alleged a cognizable injury. The court explained that the plaintiffs demonstrated a sufficient nexus between the data breach and the identity theft beyond allegations of time and sequence because the plaintiffs plead that they were careful in protecting their identities and had never been victims of identity theft. The settlement requires the company to pay $3 million, with each class member receiving up to $10 for each year they paid an insurance premium, up to a maximum of $30. The company also agreed to implement new data security measures.
EDNY Judge Substantially Narrows Claims In Consolidated Overdraft Class Actions
On March 5, the U.S. District Court for the Eastern District of New York held that the named plaintiffs lack standing to bring claims in a multidistrict class action alleging illegal overdraft practices by a national bank. In re HSBC Bank, USA, N.A., Debit Card Overdraft Fee Litigation, No. 13-md-2451, 2014 WL 868827 (E.D.N.Y. Mar. 5, 2014). The three consolidated actions are similar to numerous actions filed against national banks across the country in which bank customers have alleged, generally, that banks manipulated debit card transactions to increase the number of overdraft fees charged to customers by re-ordering daily transactions from highest to lowest dollar amount, resulting in a higher number of individual overdraft transactions. On the bank’s motion to dismiss in this case, the court held that the named plaintiffs never lived or conducted business in 10 of the 12 states where the allegations arose and therefore lacked standing under the applicable state statutes giving rise to the claims. The court added that if the plaintiffs sought to add representatives from the other states, it would be difficult for the court to adjudicate the claims given the discrepancies between state laws. The court dismissed numerous claims under the laws of the two remaining states (California and New York), but allowed the plaintiffs breach of implied covenant and good faith and fair dealing claims under both New York and California law, and claims under California’s Unfair Competition Law and False Advertising Law, to proceed.
SCOTUS Holds State-Law Securities Class Actions Not Precluded By Federal Law
On February 26, the Supreme Court held that the Securities Litigation Uniform Standards Act of 1998 (Securities Litigation Act) does not preclude four state-law based class actions against firms and individuals who allegedly helped Allen Stanford conceal a multi-billion dollar Ponzi scheme because Stanford’s alleged misrepresentations were not material to the plaintiffs’ decisions to buy or sell a covered security and thus were not made “in connection with” the purchase or sale of a covered security. Chadbourne & Parke LLP v. Troice, No. 12-79, 2014 WL 714697 (2014). The Court explained that the Securities Litigation Act specifically forbids plaintiffs from bringing state-law based class actions if the plaintiffs allege “a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security.” In this case, the plaintiffs were investors who purchased uncovered securities (certificates of deposit in Stanford International Bank) with the expectation that Stanford would use the proceeds to purchase covered securities (securities traded on a national exchange). Stanford instead used the proceeds to finance his Ponzi scheme and invest in speculative real estate ventures. The Court, by a 7-2 margin, concluded that Stanford’s misrepresentations were not made “in connection with” the purchase or sale of a covered security because the misrepresentations did not lead anyone to buy, sell, or maintain positions in covered securities. Rather, Stanford’s misrepresentations induced the plaintiffs to take positions in uncovered securities (the certificates of deposit). The court reasoned that the “in connection with” phrase suggests a connection that matters, and a connection only matters “where the misrepresentation makes a significant difference to someone’s decision to purchase or to sell a covered security, not to purchase or sell an uncovered security.” Thus, the Court determined that the Securities Litigation Act’s prohibition on state law-based class actions did not apply to the plaintiffs in this case, and affirmed the Fifth Circuit’s order reversing the district court’s dismissal of the plaintiffs’ claims.