Friday, July 28, 2017

FYI: 4th Cir Holds SCRA Does Not Apply to Mortgage Loan Incurred During Service, Even If Borrower Re-Enlists

The U.S. Court of Appeals for the Fourth Circuit recently held that the federal Servicemembers Civil Relief Act ("SCRA') does not apply to a mortgage loan obligation incurred while a borrower is a member of the military, even where he subsequently leaves and then later re-enlists in the military prior to a foreclosure sale.   

 

A copy of the opinion is available at:  Link to Opinion

 

The borrower ("Borrower") obtained a mortgage loan to purchase his home from the lender while he was serving in the U.S. Navy.  After his discharge from the Navy, the Borrower defaulted on his mortgage loan, and the current loan owner ("Mortgagee") began foreclosure proceedings.

 

During the foreclosure proceedings, but before the sale was held, the Borrower enlisted in the U.S. Army.  The Owner continued the foreclosure action and sold the property at a foreclosure sale while the Borrower was an active member of the Army. 

 

After the sale, the Borrower also executed a "Servicemembers' Civil Relief Act Addendum and Move Out Agreement," in which he stated that he was "affirmatively waiv[ing] any rights and protections provided by [50 U.S.C. § 953] with respect to the May 15, 2008 Deed of Trust . . . and the May 13, 2009 foreclosure sale."

 

More than five years after the foreclosure sale, the Borrower filed a lawsuit against the Mortgagee alleging the foreclosure sale was invalid under the SCRA. 

 

As you may recall, the SCRA requires a lender to obtain a court order before foreclosing on or selling property owned by a current or recent servicemember where the mortgage obligation "originated before the period of the servicemember's military service."  50 U.S.C. § 3953(a), (c). 

 

The parties filed cross-motions for summary judgment, and the trial court granted summary judgment to the Mortgagee, ruling that because the Borrower obtained his mortgage loan during his service in the Navy, the loan was not subject to SCRA protection.  The trial court found that the resolution of the case "turn[ed] on the interpretation of the phrase 'originated before the period of the servicemember's military service,'" which the trial court noted was an issue of first impression where the borrower had multiple periods of military service. 

 

The trial court noted that, on its own, "the language . . . is unclear on whether it contemplates multiple periods of  military  service,"  but  "the  specific  context  of  the  language indicates  that  the  statute  does  not  apply  to  obligations  incurred  while  one  is  in  the military,  because  the  underlying  concern  is  the  impact  military  service  may  have  on  a servicemember's  income  and  status,  uncontemplated  at  the  time  when  they  incurred  the obligation."   

 

The trial court  accordingly  concluded  that  "[b]ecause  it  is  undisputed  that  [the Borrower's] mortgage originated while he was in the military, that obligation does not qualify under  [§  3953(a)]"  and,   "[ a]s  a  result,  the Borrower  cannot  claim  the  remedy  provided  in  [§ 3953(c)]."

 

Because  of  its  ruling,  the  trial court  did  not  reach  the Mortgagee's  alternative argument that the Borrower had waived his rights under the SCRA by executing the addendum to his move-out agreement. 

The Borrower appealed.

 

On appeal, the Borrower argued that because he incurred his mortgage loan obligation during his service in the Navy, the SCRA applied.  

 

The Fourth Circuit disagreed.  In reaching its conclusion, the Fourth Circuit agreed with the trial court's interpretation of the SCRA, that it was "designed to ensure that servicemembers do not suffer financial or other disadvantages as a result of entering the service," and that the SCRA accomplishes this goal "by shielding servicemembers whose income changes as a result of their being called to active duty, and who therefore can no longer keep up with obligations negotiated on the basis of prior levels of income.  Such a change in income and lifestyle was not a factor in [the Borrower's] case, as the mortgage at issue here originated while he was already in the service."   

 

The Fourth Circuit further held that the SCRA "explicitly creates two classes of obligations those protected and those not.  It provides protection to only those obligations that originate before the servicemember enters the military service.  It thus grants protection to obligations incurred outside of military service, while denying protection to obligations originating during the servicemember's military service."

 

Because the Borrower's obligation originated when he was in the Navy, it "was not in the class of obligations protected by the statute." 

 

The Borrower further argued that even though his mortgage loan was not a protected obligation at the time he incurred it, he obtained retroactive protection when he later entered the Army because the obligation was incurred before he entered the Army.

 

The Fourth Circuit disagreed, noting that such an interpretation of the SCRA "reads the singular word 'before' myopically," and that "[i]t would lead to inconsistent treatment of substantially identical obligations and would introduce arbitrariness into Congress' distinction between protected an unprotected obligations." 

 

The Court therefore held that "because [the Borrower's] mortgage obligation originated when he was in the Navy, it was not a protected obligation under § 3953(a), and his later enlistment in the Army did not change that status to afford protection retroactively.  Accordingly, we affirm the district court's judgment." 

 

Because of the ruling, the Fourth Circuit did not determine whether, in the alternative, the Borrower executed a valid waiver of his rights under the SCRA. 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Wednesday, July 26, 2017

FYI: 3rd Cir Serves Up Double Fault in FDCPA, TCPA Decision

A recent ruling from the U.S. Court of Appeals for the Third Circuit examines both the provision of consent under the federal Telephone Consumer Protection Act (TCPA) and the bona fide error defense for debt collectors under the federal Fair Debt Collection Practices Act (FDCPA).

 

The ruling has dire implications for debt collectors, creditors and any commercial enterprise using telephone technology and QR codes in communicating with customers.

 

A copy of the opinion is available at:  Link to Opinion

 

First up is the TCPA. The trial court ruled that the collection agency violated the TCPA when it used an automated dialing system to call the consumer to collect a medical debt without prior consent because the defendant's deposition witness previously testified that "the dialer does the dialing."

 

In an attempt to fix this error, the collector later submitted an affidavit stating that the telephone dialing system used "human intervention" to make the calls. The trial court labeled this a "sham affidavit" and would not consider it. Worse, even though the consumer appears to have provided his cell phone number to the hospital where he incurred the medical debt, the Third Circuit ruled "more is required" than the simple provision of the cell phone number to an intermediary hospital that was not a creditor.

 

Distinguishing rulings from the Sixth and Eleventh Circuits (Baisden and Mais, respectively), the Third Circuit pointed out that in those cases the hospital intake forms gave permission to release the consumer's information for payment purposes. Here, there was no evidence that the consumer released his information to be used for payment purposes. The court affirmed an award to the consumer of $34,000 for 69 telephone calls.

 

Now for the FDCPA ruling — the Third Circuit held that a debt collector cannot rely on a trial court decision to escape FDCPA liability. That's tough because as new theories develop, companies will often adjust their practices to align with applicable decisions.

 

In this case, the debt collector had made operational changes to use Quick Response codes in its mail communications to consumers. It did so relying on two trial court decisions that found that the use of QR codes visible on the face of envelopes did not violate the FDCPA. When the debt collector was later sued for using such QR codes, the trial court here found that it did violate the FDCPA, but the debt collector was exempt from liability under the FDCPA's bona fide error exception because it relied on the earlier trial court decisions.

 

The Third Circuit reversed, finding that a bona fide error cannot be premised on a mistaken legal interpretation of the FDCPA, even when it is premised on trial court decisions from within the same Circuit.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Tuesday, July 25, 2017

FYI: Fla App Ct (4th DCA) Upholds Judgment for Borrower in Foreclosure Where Mortgagee Did Not File Allonge

The District Court of Appeal of the State of Florida, Fourth District, recently affirmed a final judgment in favor of a borrower because the foreclosing mortgagee failed to file the original allonge to the note, holding that as a result the mortgagee lacked standing for foreclose.

 

A copy of the opinion is available at:  Link to Opinion

 

A mortgagee sued to foreclose the mortgage, attaching copies of the promissory note and an "Endorsement and Assignment of Note" to the complaint. The endorsement was "blank."

 

At trial, the mortgagee offered the original note into evidence, but only a copy of the endorsement. After briefing, the trial court entered judgment in favor of the borrower and the mortgagee appealed.

 

On appeal, the mortgagee argued "that the endorsement and assignment was merely an assignment for which the original document was not required."  The Appellate Court rejected this argument and agreed with the borrower that "the subject document was an allonge and, as such, [the mortgagee] was required to file the original."

 

The Appellate Court explained that "'[a] promissory note is a negotiable instrument …' [and] [w]here a document is a negotiable instrument, the best evidence rule, as codified [in § 90.953(1), Florida Statutes] requires the production of the original." Subsection 90.953(1) provides that "[a] duplicate is admissible to the same extent as an original, unless … [t]he document or writing is a negotiable instrument …. 'Therefore, a party who seeks to foreclose on a mortgage must produce the original note.'"

 

The Appellate Court explained further that an allonge was "an addition to a negotiable instrument" that must be "so firmly affixed thereto as to become a part thereof. … Although Florida's Uniform Commercial Code does not specifically mention an allonge, the Code provides that '[f]or the purpose of determining whether a signature is made on an instrument, a paper affixed to the instrument is a party of the instrument … [under § 673.2041(1), Florida Statutes]."

 

The Appellate Court the reasoned that when an allonge is blank or "does not identify a specific payee[,]" it is "payable to bearer." "If an instrument is payable to bearer, it may be negotiated by transfer of possession alone" [pursuant to§ 673.2011(2), Florida Statutes]."

 

The Appellate Court concluded that since 'an allonge is part of the note, and an original note is required, it follows that an original allonge is required. … "or a satisfactory reason must be given for failure to do so."

 

"Because [the mortgagee] failed to produce the original allonge and did not plead a lost instrument count," the Appellate Court affirmed the trial court's judgment in favor of the borrower.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Sunday, July 23, 2017

FYI: Ill App (1st Dist) Holds Borrower Could Not Challenge Foreclosure Sale Notice As Unlawfully Discriminatory

The Illinois Court of Appeals, First District, recently determined that a borrower in a foreclosure matter did not have standing to challenge whether the mortgagee's notice of sale was in violation of the Illinois Human Rights Act ("IHRA"). 

 

Following the entry of a judgment of foreclosure, the plaintiff mortgagee published its notice of sale, in which the mortgagee required that anyone attending the sale possess a "photo identification issued by a government agency." 

 

The mortgagee purchased the property at the sale, and then moved for an order confirming the sale.  The borrower objected to the mortgagee's motion, arguing that the language in the notice requiring government-issued identification violated the IHRA because it discriminated on the basis of national origin. 

 

The Appellate Court concluded that borrower did not have standing to assert the notice was discriminatory because he had not identified any individual, including himself, who went to the sale with adequate funds to purchase the property but was denied access because they did not have the required identification. 

 

In the absence of such evidence, the Appellate Court held that the borrower failed to identify a distinct and palpable injury traceable to the language in the notice.  Accordingly, the Appellate Court affirmed the trial court's confirmation of the order of sale.

 

A copy of the opinion is available at:  Link to Opinion

 

The trial court entered a judgment of foreclosure and sale on the borrower's property in favor of the mortgagee.  Following a judicial sale in which the mortgagee purchased the property, the mortgagee moved for any order confirming the sale pursuant to 735 ILCS 5/15-1508. 

 

The borrower did not contest the judgment of foreclosure, but objected to the motion to confirm the sale, asserting that the published notice of sale was discriminatory and violated the IHRA.

 

The mortgagee's notice of sale contained the following language: "You will need a photo identification issued by a government agency (driver's license, passport, etc.) in order to gain entry into our building and the foreclosure sale room . . ." The borrower contended this language violated the IHRA and prevented the court from confirming the sale under section 15-508(b). 

 

Following a hearing, the trial court entered an order approving the sale.  In its order, the trial court stated "the court makes a finding that [borrower] has not met [his] burden to show that the sale should not be approved.  Further, the court finds that [borrower] has not proven that the notice of sale violated the IHRA or that [borrower] has standing to raise that issue."

 

The borrower filed a notice of appeal, challenging the confirmation of the sale.

 

On appeal, the Appellate Court observed that borrower did not address at all the trial court's finding that he did not have standing to challenge whether the notice of sale was discriminatory. 

 

Instead, the Court noted, the borrower only challenged the notice as discriminatory, alleging that the notice discriminated on the basis of national origin.  In particular, the borrower argued that persons who had entered the country without proper documentation, particularly Mexican nationals, were prohibited from obtaining a government-issued identification and, thus, would be unable to participate in the judicial sale of the property.

 

The borrower therefore asserted that the terms of the sale were unconscionable and not commercially reasonable because the "universe of potential buyers" would be limited.

 

In response, the mortgagee argued that the borrower had forfeited any challenge to the trial court's finding that he lacked standing to contest the notice because he did not address it in his appellate brief.  The mortgagee also argued that the notice did not violate the IHRA because (1) the language requiring a government-issued identification does not discriminate on the basis of national origin, and (2) the IHRA does not bar discrimination based on citizenship status. 

 

The Appellate Court acknowledged that the  borrower did not address the standing issue in his brief, but determined that forfeiture is a limit on the parties, not the court, and the Court could exercise its discretion to review an otherwise forfeited issue. 

 

The Court first addressed the broad discretion given to trial courts under section 15-508 of the Illinois Code of Civil Procedure, which among other things states that the trial court shall confirm a foreclosure sale unless the trial court finds that (i) proper notice of the sale was not given, (ii) the terms of the sale were unconscionable, (iii) the sale was conducted fraudulently, or (iv) justice was otherwise not done.  Section 15-508 also provides that the trial court's decision to confirm or reject a judicial sale will not be disturbed absent an abuse of the court's discretion.

 

Addressing the standing issue, the Court established that "a plaintiff possesses standing to sue when the plaintiff has suffered an injury in fact to a legally cognizable interest."  Noyola v. Board of Education of the City of Chicago, 227 Ill. App. 3d 429, 432 (1992).  The Court continued, "the claimed injury may be actual or threatened, and it must be (1) distinct and palpable, (2) fairly traceable to the defendant's actions, and (3) substantially likely to be prevented or redressed by the grant of the requested relief."  Glisson v. City of Marion, 188 Ill. 2d 211, 221 (1999).

 

The Court determined that, at the trial court level, the borrower had not identified any person, including himself, who went to the judicial sale with the adequate funds to purchase the property but was denied access due to a lack of government-issued identification.  Indeed, citing I.C.S. Illinois, Inc. v. Waste Management of Illinois, 403 Ill. App. 3d 211, 225 (2010), the Appellate Court noted that the plaintiff could not establish standing to challenge the result of a bidding competition without establishing that he would have been successful "but for the defendant's conduct."

 

The Court also observed that the borrower did not present any evidence at the trial court level that any undocumented person was actually discouraged from bidding.  According to the Appellate Court, in the absence of such evidence borrower's claim is "purely speculative." 

 

As a result, the Court held, the borrower did not establish a distinct and palpable injury fairly traceable to the notice of sale.  Thus, the borrower failed to establish he had standing to assert a violation of the IHRA as a basis to challenge the sale.

 

Accordingly, the Appellate Court affirmed the judgment of the trial court.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

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Friday, July 21, 2017

FYI: 9th Cir Holds "Free and Clear" Bankruptcy Sale Was Not Rejection of Unexpired Leases, Did Not Implicate 11 U.S.C. § 365(h)

The U.S. Court of Appeals for the Ninth Circuit recent held that a bankruptcy trustee was authorized to sell real estate free and clear of unexpired leases under 11 U.S.C. § 363(f), and the sale was not a rejection of the unexpired leases and therefore did not implicate 11 U.S.C. § 365(h).

 

In so ruling, the Ninth Circuit adopted the minority approach established in Precision Indus., Inc. v. Qualitech Steel SBQ, LLC, 327 F.3d 537 (7th Cir. 2003), which held that sections 363 and 365 may be given full effect without coming into conflict with one another. 

 

By allowing the bankruptcy trustee to sell the property free and clear of the unexpired leases, in the Ninth Circuit's view, the estate was able to fetch higher price for the property and maximized recovery for all creditors.

 

A copy of the opinion is available at:  Link to Opinion

 

The developer ("Developer") of a 5,700-acre resort in Montana obtained a $130 million loan secured by a mortgage and assignment of rents from a lender, who later assigned the note and mortgage to a limited liability company.  A collection of interrelated entities owned the resort and managed its amenities, including a ski club, golf course, and residential and commercial real-estate sales and rentals.  At issue are two leases of commercial property at the resort.

 

The Developer defaulted on loan payments and petitioned for bankruptcy protection.  The limited liability company had a claim of more than $122 million secured by the mortgage on the property, making it the largest creditor in the bankruptcy, and subsequently assigned its interest to an assignee ("Creditor").  The bankruptcy trustee and Creditor agreed to a plan for liquidating "substantially" all of Developer's real and personal property, and stated that the sale would be "free and clear of all liens."

 

The trustee moved the bankruptcy court for an order authorizing and approving the sale free and clear of all liens except for certain specified encumbrances, and provided that other specified liens would be paid out of the proceeds of the sale or otherwise protected. 

 

The two leases at issue were not mentioned in either the list of encumbrances that would survive the sale, or the list of liens which protection would be provided.  The lessees ("Lessees") objected and argued that 11 U.S.C. § 365 gave them the right to retain possession of the property notwithstanding the trustee's sale.

 

After the bankruptcy court authorized the sale, Creditor won the auction with a bid of $26.1 million and argued that its bid was contingent on the property being free and clear of the leases.  The bankruptcy court approved the sale, and the order stated that the sale was free and clear of any "Interests," a term defined to include any leases "(except any right a lessee may have under 11 U.S.C. § 365(h), with respect to a valid and enforceable lease, all as determined through a motion brought before the Court by proper procedure)."

 

The trustee then requested leave to reject the two leases because the subject property was no longer property of the estate.  Meanwhile, Creditor moved for a determination that the property was free and clear of the leases.  Lessees renewed their prior arguments as objections to Creditor's motion.

 

At the evidentiary hearing, the bankruptcy court determined, among other things, that one of the leases was below fair market rental value, that the leases were junior to Creditor's mortgage, and were not protected from foreclosure of Creditor's mortgage by subordination or non-disturbance agreements.  Based on these findings, the bankruptcy court held that the sale was free and clear of the two commercial leases.  Lessees appealed to the district court, which affirmed, and this appeal followed.

 

The principal issue on appeal is whether the two leases survived the trustee's sale of the property to Creditor. 

 

As you may recall, 11 U.S.C. § 363 authorizes the trustee to sell property of the estate, both within the ordinary course of business and outside of bankruptcy.  See 11 U.S.C. § 363(b), (c).  Sales may be "free and clear of any interest in such property of an entity other than the estate," only if:

 

(1) applicable nonbankruptcy law permits sale of such property free and clear of such interest;

(2) such entity consents;

(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on the property;

(4) such interest is in bona fide dispute; or

(5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.

 

11 U.S.C. § 363(f).

 

Meanwhile, 11 U.S.C. § 365 of the Code authorizes the trustee, "subject to the court's approval," to "assume or reject any executory contract or unexpired lease of the debtor."  11 U.S.C. § 365(a).  The rejection of an unexpired lease leaves a lessee in possession with two options:  treat the lease as terminated (and make a claim against the estate for any breach), or retain any rights—including a right of continued possession—to the extent those rights are enforceable outside of bankruptcy.  11 U.S.C. § 365(h).

 

When the trustee sells property free and clear of encumbrances, and one of the encumbrances is an unexpired lease—federal courts have addressed the interplay between 11 U.S.C § 363 and 11 U.S.C. § 365 in different ways.

 

The majority of bankruptcy courts that have addressed this issue held that sections 363 and 365 conflict when they overlap because "each provision seems to provide an exclusive right that when invoked would override the interest of the other."  In re Churchill Props., 197 B.R. 283, 286 (Bankr. N.D. Ill. 1996); see also In re Haskell, L.P., 321 B.R. 1, 8-9 (Bankr. D. Mass. 2005); In re Taylor, 198 B.R. 142, 164-66 (Bankr. D.S.C. 1996).  These courts held that section 365 trumps section 363 under the canon of statutory construction that the specific prevails over the general, and the legislative history regarding section 365 evinced a clear intent by Congress to protect a tenant's estate when the landlord files bankruptcy.

 

However, in Precision Indus., Inc. v. Qualitech Steel SBQ, LLC, 327 F.3d 537 (7th Cir. 2003), the U.S. Court of Appeals for the Seventh Circuit held that sections 363 and 365 may be given full effect without coming into conflict with one another, because lessees are entitled to seek "adequate protection" under 11 U.S.C. § 363(e), and were not without recourse in the event of a sale free and clear of their interests. 

 

The Ninth Circuit here followed the Seventh Circuit, and held that sections 363 and 365 did not conflict.  Section 363 governed the sale of estate property and section 365 governed the rejection of a lease, and according to the Ninth Circuit, where there was a sale but no rejection (or a rejection, but no sale), there was no conflict between the statutes.  Here, because the parties agreed that the two leases were not rejected prior to the sale, the Ninth Circuit ruled that section 365 was not triggered. 

 

The Ninth Circuit noted that a limitation in the majority approach was that while it protected lessees, a property subject to a lease would presumably fetch a lower price and therefore reduce the value of the property of the estate.  Therefore, this approach is contrary to the goal of maximizing creditor recovery, which was a core purpose of the Bankruptcy Code.

 

Accordingly, the Ninth Circuit affirmed the lower courts' ruling that the bankruptcy trustee's sale of Debtor's property was free and clear of unexpired leases.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


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and

 

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Thursday, July 20, 2017

FYI: SD Fla Holds Website That "Operates as Gateway to Physical Locations" Is Subject to ADA

The U.S. District Court for the Southern District of Florida recently held, after a non-jury trial, that a regional supermarket chain violated the federal Americans with Disabilities Act ("ADA") because its website was inaccessible to the visually impaired.

 

A copy of the Verdict and Order is available at:  Link to Opinion

 

The plaintiff, a legally-blind customer of the supermarket who also suffers from cerebral palsy, sued under the ADA, 42 U.S.C. §§ 12181-12189, alleging that its website was not accessible, seeking declaratory and injunctive relief, attorney's fees and costs.

 

The parties did not dispute that the plaintiff had a qualifying disability under the ADA or that the stores, some of which also had pharmacies, were "public accommodations" as defined by the ADA. The issues in dispute were: (1) whether the supermarket's website was subject to the ADA as a public accommodation or was itself a public accommodation; (2) whether the plaintiff "was denied the full and equal enjoyment of [the supermarket's] goods, services, facilities, privileges, advantages, or accommodations because of his disability; and (3) whether the requested modifications to [the] website are reasonable and readily achievable."

 

After a non-jury trial, the Court held that "the Defendant has violated the Plaintiff's rights under the ADA", and found in favor of the Plaintiff.

 

The plaintiff testified that he could use a computer, but could not see the screen. Instead, he "uses access technology software" called "JAWS" that "reads" the screen for him by telling him what is happening on the screen and "what he needs to type." He also used other access programs, but they didn't work as well as JAWS.

 

The plaintiff frequently shopped at the defendant grocery chain because of its low prices, and also filled his prescriptions at the stores that had a pharmacy, the last time bring two and a half to three years ago.

 

In 2015 or 2016, the plaintiff learned that the defendant had a website that was supposedly accessible. He wanted to use the website because he found it embarrassing to have to go the store in person to ask for help filling a prescription.

 

He testified that 90% of the website's functions did not work properly with the JAWS program. This deterred him from "enjoying [the supermarket's] goods and services." In contrast, the plaintiff "has used other grocery stores because from their website he can create a shopping list and just hand it to the employee and he could use coupons he obtains from the website and he can pick up prescriptions in privacy." In addition, the plaintiff testified, these competitors "have websites which he can use with his screen reader software."

 

The defendant's corporate representative "testified that the defendant was in the process of designing an ADA policy for its website but did not currently have one in place," and that the supermarket was taking steps to modify its website to make it more accessible to those with disabilities, but that the current website had "not been tested … for use with universal screen readers." He also testified that his employer "knows that it is feasible to make its website accessible to screen reader software and has set aside $250,000 to do this."

 

The plaintiff's expert, who works at a company in Washington state "that tests mobile and web software for accessibility issues[,]" testified that "[i]f the web page is using the common industry standards or following the World Wide Web Consortium accessibility guidelines then the screen reader software should work on the web page. The consortium is made up of a group of committees and subcommittees with representatives from government and industry."

 

Having performed an analysis of the defendant's website, which included manual and automated testing of the "main website as well as the digital coupon, store locator and pharmacy sections[,]" the expert "opin[ed] that most of the accessibility issues can be corrected with simple modifications of one or two source codes." Finally , he testified that "his company could fix all the problems for $37,000 or less."

 

The Court found that "whether the cost to modify the website is $250,00 or $37,000 is of no moment" because it "pales in comparison to the $2 million [defendant] spent in 2015 to open the website and the $7 million it spent in 2016 to remake the website…." In addition, the Court stressed the expert's unrebutted testimony that it was feasible to modify the website and was, in fact, in process of doing so.

 

The Court also found that "the fact the third party vendors operate certain parts of the … website is not a legal impediment to [defendant's] obligation to make its website accessible to the disabled" because "many, if not most, of the third party vendors may already be accessible to the disabled and, if not, [defendant] has a legal obligation to require them to be accessible if they choose to operate within the [defendant's] website."

 

Turning to its conclusions of law, the Court first addressed whether the plaintiff had standing to sue under the ADA, concluding that he did because "[a] plaintiff's allegation that he intends on visiting the subject premises in the near future is sufficient to establish standing to seek injunctive relief under the ADA." Since the plaintiff testified that "he tried unsuccessfully to access [the defendant's] website and that he intends to patronize [defendant's] stores again if he can access [its] website[,] [and,] [i]n addition, there is a causal connection between the injury and the alleged inaccessibility of the website, and it is likely that the injury will be redressed by a favorable decision[,]" the Court concluded that plaintiff "has standing to bring his claim."

 

The Court then turned to the question of "whether, as a result of the fact that he is visually impaired, [plaintiff] was denied the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of a place of public accommodation[,]" which is what the ADA prohibits.

 

The Court pointed out that "[c]ourts are split on whether the ADA limits places of public accommodation to physical spaces" and that "[t]he Eleventh Circuit has not addressed whether websites are public accommodations for purposes of the ADA."

 

"Where a website is heavily integrated with physical store locations and operates as a gateway to the physical store locations, courts have found that the website is a service of a public accommodation and is covered by the ADA. … On the other hand, where a website is wholly unconnected to a physical location, courts within the Eleventh Circuit have held that the website is not covered by the ADA."

 

The Court, however, ultimately determined that it "need not decide whether [defendant's] website is a public accommodation in and of itself, because the factual findings demonstrate that the website is heavily integrated with [defendant's] physical store locations and operates as a gateway to the physical store locations."

 

The Court rejected defendant's argument that plaintiff was not denied access to defendant's stores "as a result of the inaccessibility of the website" because "the ADA does not merely require physical access to place of public accommodation. Rather, the ADA requires that disabled individuals be provided 'full and equal enjoyment of the goods, services, facilities, privileges, advantages, and accommodations of any place of public accommodation…."

 

The Court concluded that "[t]he services offered on [defendant's] website, such as the online pharmacy management system, the ability to access digital coupons that link automatically to a customer's rewards card, and the ability to find store locations, are undoubtedly services, privileges, advantages, and accommodations offered by [defendant's] physical store locations. These … are especially important for visually impaired individuals since it is difficult, if not impossible, for such individuals to use paper coupons found in newspapers or in grocery stores, to locate the physical stores by other means, and to physically go to a pharmacy location in order to fill prescriptions."

 

The Court held that, because "[t]he factual findings demonstrate that [defendant's] website is inaccessible to visually impaired individuals who must use screen reader software[,]" the defendant "violated the ADA because the inaccessibility of its website has denied [plaintiff] the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations that [it] offers to its sighted customers."

 

The Court then turned to the plaintiff's remedy under the ADA, explaining that "a prevailing plaintiff is not entitled to damages, but he may recover reasonable attorney's fees." In addition, "[i]injunctive relief is available under the ADA if the discrimination includes 'a failure to remove architectural barriers, and communication barriers that are structural in nature, in existing facilities … where such removal is readily achievable."

 

Because the defendant "presented no evidence that it would be unduly burdensome to make its website accessible to visually impaired individuals" and making the recommended modifications would make the website accessible to the visually impaired, the Court concluded that plaintiff was entitled to injunctive relief.

 

Finally, the Court found that plaintiff was entitled to recover his reasonable attorney's fees and costs as the prevailing party and established a briefing schedule, warning both sides that it would not hesitate to impose sanctions for unreasonably seeking or opposing fees and costs.

 

The Court then provided that parties with the basic terms of the proposed injunction, and instructed the parties to submit the dates by which the website modifications need to be completed, with the injunction to expire in three years given "the Defendant's sincere and serious intent to make its website accessible to all."

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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Email: rwutscher@MauriceWutscher.com

 

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