Sunday, September 23, 2018

INVITATION: CCFL @ Ft. Worth (Nov 5-6, 2018) | 30+ In-House Counsel Attending

Please join us at the Annual Consumer Financial Services Conference organized by The Conference on Consumer Finance Law, and hosted at Texas A&M Law School.

 

We are pleased to announce that we have more than 30 in-house counsel from various companies already registered.

 

 

WHEN:  Nov. 5-6, 2018

WHERE:  Ft. Worth, TX

CLE:  12.0 CLE Credits to Be Provided, including 1.0 hr of Ethics

PRICE:  $495 before October 8, 2018

 

REGISTRATION:  http://www.ccflonline.org/conference

 

(or you can use the attached to register by mail)

 

Please circulate this Invitation to any other people -- inside or outside your firm or company -- whom you think might be interested in attending.

 

The Conference will include presentations by some of the best and brightest speakers and practitioners in the country on various topics.

 

We look forward to seeing you!

 

 

 

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   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

Webinars

 

and

 

California Finance Law Developments

 

 

 

FYI: Fla Sup Ct Resolves Conflict on Deadline to Claim Foreclosure Surplus Funds

In a dispute over surplus funds from a judicial foreclosure property sale, the Florida Supreme Court recently held that a subordinate lienholder's claim to surplus funds — filed sixty-one days after the public auction — was timely and superior to the claim of the former record owners of the property.

 

In so ruling, the Florida Supreme Court resolved a certified conflict between Florida's Second and Fourth District Courts of Appeal by concluding that the sixty-day timeframe for filing a claim to surplus under the provisions of chapter 45, Florida Statutes, begins upon the clerk's issuance of the certificate of disbursement, and not the date of the public auction. 

 

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

 

After final judgment of foreclosure was entered against the former owners of real property (the "Former Owners"), a public auction sale date was set, and in accordance with section 45.031(1)(a), Florida Statutes, the final judgment included the requisite statement regarding a potential surplus. 

 

The public auction was held on July 2, 2015. The clerk issued the certificate of sale on July 6, 2015 and the certificate of title was issued on July 14, 2015.  The certificate of disbursements, reflecting a surplus of $86,093.27, was not issued until July 29, 2015.

 

On August 4, 2015, the holder of a subordinate third mortgage on the subject property ("Third Mortgagee") filed a claim asserting its right to $20,573.64 of the surplus amount.  On September 1, 2015, sixty-one days after the public auction, the Former Owners filed a verified claim for mortgage foreclosure surplus, acknowledging the timely claim of the Third Mortgagee, and requesting issuance of an Order disbursing $20,573.64 to the Third Mortgagee, and the remainder to themselves. 

 

On September 2, 2015, the holder of a subordinate second mortgage ("Subordinate Lienholder") filed a claim asserting its right to the entire surplus amount.  The Subordinate Lienholder's claim was filed more than sixty days after the public auction, but within sixty days of the clerk's filing of the certificates of sale, title and disbursement.

 

At a hearing on the parties' competing claims for surplus, the trial court rejected the Subordinate Lienholder's claim to the surplus as untimely under section 45.031 because it "was not submitted within 60 days of the foreclosure sale held on July 2, 2015," and directed the clerk to disburse $20,573.64 of the surplus to the Third Mortgagee, and the remainder to the Former Owners.

 

The Subordinate Lienholder appealed to the Florida District Court of Appeals for the Second District (Second District, or 2nd DCA), arguing "that a foreclosure sale is not complete until the clerk issues the certificate of sale." 

 

Focusing primarily on the language with section 45.031(7)(b) which provides the form for the clerk's certificate of disbursements and "only refers to the 'sale,' not the 'certificate of sale,' and consistent with two prior decisions of the Court, the Second DCA concluded that the statute unambiguously provided that the cutoff for submitting claims for surplus funds is sixty days from the date of the public auction.  Bank of New York Mellon v. Glenville, 215 So. 3d at 1285-1286 (Fla. 2d DCA 2017). 

 

The 2nd DCA further rejected the Subordinate Lienholder's argument that the sixty-date period should begin form the day the clerk issues the certificate of title, concluding that it waived that argument by not raising the issue prior to rehearing, but noting that it was consistent with the Florida Fourth District Court of Appeals' (Fourth District or 4th DCA) ruling in Straub v. Wells Fargo Bank, N.A., 182 So. 3d 878, 881 (Fla. 4th DCA 2016). 

 

In Straub, the Fourth District affirmed the trial court's ruling that the subordinate lienholder's claims to surplus was timely because the sixty-day period begins to run upon the issuance and filing of the certificate of title.  Straub, 182 So. 3d at 881.  Notably, the 4th DCA's opinion in Straub did not mention the clerk's issuance of the certificate of disbursements.

 

Observing conflict between the two rulings, the Second Circuit Court certified conflict with Straub, while opining that Straub's construction of the term "sale" "confuses the meaning of several subsections of section 45.031.  Straub, 182 So. 3d at 1287 (Fla. 2d DCA 2017).

 

The certified conflict issue before the Florida Supreme Court required it to construe the term "60 days after the sale," as used in section 45.031, Florida Statutes (2015). 

 

As an initial matter, Section 45.032(1)(c) defines "surplus" to mean "the funds remaining after payment of all disbursements required by the final judgment of foreclosure and shown on the certificate of disbursements."  Section 45.032(3) references a very specific sixty-day period, referenced in the following three paragraphs of the subsection, stating "[d]uring the 60 days after the clerk issues a certificate of disbursements, the clerk shall hold the surplus pending a court order."

 

The Florida Supreme Court first noted that the Second Circuit failed to take this specific sixty-day period identified in 45.032(3) in reaching its conclusion in the underlying appeal, instead focusing largely on what it considered to be a clear meaning of section 45.031(7)(b) that avoided confusing the meaning of other subsections of section 45.031. Glenville, 215 So. 3d at 1286-87. 

 

In examining the statute's plain meaning, the Supreme Court noted that the 2nd DCA's conclusion that "sale" as used in section 45.031(7)(b) referred to the public auction given the use of the term in other subsections of the statute stopped short in its consideration of relevant provisions of the statutory scheme for judicial sales.  However, looking to section 45.032 to understand the meaning of section 45.031 is proper because section 45.031, section 45.032, and several other sections of chapter 45 together comprise a statutory scheme relating to judicial foreclosure sale procedures. See Sch. Bd. of Palm Beach Cty. v. Survivors Charter Sch., Inc., 3 So. 3d 1220, 1234 (Fla. 2009).

 

It is well-established under Florida law that the term "sale" in Chapter 45 must be understood in light of the specific context in which it is used.   Allstate Mortgage Corp. of Florida v. Strasser, 286 So. 2d 201 (Fla. 1973).  Here, interpretation of the sixty-day provision of section 45.031(7)(b) in light of the sixty-day provision of section 45.032(3) is supported by the rule that "a specific statute covering a particular subject area always controls over a statute covering the same and other subjects in more general terms." McKendry v. State, 641 So. 2d 45, 46 (Fla. 1994).  Indeed, "surplus" is defined under section 45.032.

 

The Florida Supreme Court thus disagreed with the Second District and reasoned that "the sixty-day period in section 45.031(7)(b) must be understood in a way that is consistent with the sixty-day period in section 45.032(3)," and is not triggered by the public auction.   However, this reasoning also required the Supreme Court to disapprove of the Fourth District's reasoning in reaching its conclusion in Straub.

 

While acknowledging that the 4th DCA's opinion in Straub correctly determined that the sixty-day cutoff period does not begin until after the actual transfer of ownership of the property, the Supreme Court found fault in its conclusion that the sixty-day period begins upon the issuance of the certificate of title, as the certificate of disbursements may not always be issued on the same day as the certificate of title, as demonstrated in the underlying action before the 2nd DCA.  (Compare § 45.031(7)(a), Fla. Stat. requiring the clerk to file the certificate of disbursements "[o]n filing a certificate of title").

 

Accordingly, the Florida Supreme Court concluded that that the actual triggering event for filing a claim to surplus "sixty days after the sale" under the provisions of chapter 45, Florida Statutes, begins with the issuance of the certificate of disbursements. 

 

Because the Subordinate Lienholder's claim was timely filed before the expiration of that sixty-day period, the Supreme Court quashed the Second District's underling decision in Glenville, and expressly disapproved the Fourth District's reasoning of Straub as inconsistent with its reasoning here.

 

 

 

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   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

Webinars

 

and

 

California Finance Law Developments

 

 

 

Wednesday, September 19, 2018

FYI: 9th Cir Holds CAFA Amount In Controversy Includes Future Attorney's Fees Incurred After Removal

The U.S. Court of Appeals for the Ninth Circuit recently reversed a trial court's order remanding a putative class action lawsuit to state court on the ground that the defendant removing party failed to prove that the amount in controversy exceed the $5 million, as required for jurisdiction under the Class Action Fairness Act ("CAFA").

 

In so ruling, the Ninth Circuit held that the amount in controversy for jurisdiction under CAFA includes all attorneys' fees that the plaintiff would be entitled to under a contract or statute, including future fees incurred after the date of removal.

 

A link to the opinion is available at:  Link to Opinion

 

A driver ("Employee") filed a wage-and-hour class action against his employer ("Employer"), a trucking and transportation company.  The Employee alleged that the Employer denied him and other employees proper overtime pay, meal periods, and appropriate wage statements. 

 

The complaint sought wages and premiums owed, prejudgment interest, statutory penalties, attorneys' fees under California Labor Code § 218.5 and 1194, and costs of suit.  The Employee also asked for equitable relief under California's unfair competition law and statutory damages under California's Private Attorneys General Act (PAGA).

 

During the litigation, the Employee delivered a mediation brief that listed total damages in the amount of $5,924,104, which included $948,192 in unpaid rest period premiums, $150,000 in attorneys' fees and costs incurred as of the date of the brief, and $531,404 in interest on unpaid overtime wages.  The Employee also estimated that the Employer faced PAGA penalties of $5,874,079.

 

In October 2017, the Employer filed a notice of removal asserting jurisdiction under CAFA.  As you may recall, CAFA gives trial court's jurisdiction over civil actions in which "the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs," the proposed class consists of more than 100 members, and "any member of [the] class of plaintiffs is a citizen of a State different from any defendant."  28 U.S.C. § 1332(d)(2).

 

Using the damages listed in the mediation brief -- minus estimated interest payments and PAGA penalties, which are not included in the amount in controversy -- the Employer alleged that the amount in controversy was $5,392,700.  The Employer also argued that in addition to the $150,000 in attorneys' fees and costs incurred to date, the trial court could recognize future attorneys' fees that would accrue over the course of the case.

 

The trial court determined that because the complaint did not include a claim for failure to provide rest periods, the $948,192 for unpaid rest period premiums could not be included as part of the jurisdictional amount.  The trial court also ruled that attorneys' fees may only include fees incurred as of the date of removal, which was $150,000.  Because the Employer established that only $4,778,575 was at stake, the trial court held that this amount did not meet the minimum required under CAFA, and remanded the case to state court.

 

This appeal followed.

 

The Ninth Circuit began its analysis by observing that where "it is unclear or ambiguous from the face of a state-court complaint whether the requisite amount in controversy is pled,  the removing defendant bears the burden of establishing, by a preponderance of the evidence, that the amount in controversy exceeds the jurisdictional threshold."  Urbino v. Orkin Servs. of Cal., 726 F.3d 1118, 1121-22 (9th Cir. 2013).

 

While the appeal was pending, the Ninth Circuit issued its ruling in Chavez v. JPMorgan Chase & Co., 888 F.3d 413 (9th Cir. 2018), which held that "the amount in controversy is not limited to damages incurred prior to removal -- for example, it is not limited to wages a plaintiff-employee would have earned before removal (as opposed to after removal)," but rather "is determined by the complaint operative at the time of removal and encompasses all relief a court may grant on that complaint if the plaintiff is victorious." 

 

The Ninth Circuit acknowledged that before Chavez, it had not clarified what it meant to say by the amount in controversy is determined "at the time of removal," and trial courts had not consistently applied this language.  However, the Ninth Circuit clarified this issue in Chavez.  Therefore, the only issue on appeal was whether the trial court erred in concluding that the Employer had failed to prove, by a preponderance of the evidence, that CAFA's amount in controversy requirement was met. 

 

The Employee argued that Chavez should be limited to its facts, and that it applied only to the claims for future wage loss.

 

However, while Chavez itself concerned a claim for future wage loss, the Ninth Circuit stated that its holding applied to any class of damages included in the amount in controversy.  Specifically, the amount in controversy included "all relief claimed at the time of removal to which the plaintiff would be entitled if she prevails."  Chavez, 888 F.3d at 418.  Thus, the Ninth Circuit concluded that its reasoning in Chavez applied equally to attorneys' fees available under fee shifting statutes.

 

Next, the Employee argued that future attorneys' fees should not be included in the amount in controversy because they are inherently speculative and can be avoided by the defendant's decision to settle an action quickly.  The Employee relied on Gardynski-Leschuck v. Ford Motor Co., 142 F.3d 955 (7th Cir. 1998), where the Seventh Circuit held that under the Magnuson-Moss Warranty Act, 15 U.S.C. § 2310(d), the amount in controversy cannot include attorneys' fees that have not yet been incurred.

 

The Ninth Circuit explained that its precedent in Chavez was controlling. 

 

Moreover, unlike the Seventh Circuit where the defendant need only show "a  reasonable probability" that the amount in controversy exceeds the minimum, the Ninth Circuit requires a removing defendant to prove that the amount in controversy (including attorneys' fees) exceeds the jurisdictional threshold by a preponderance of evidence.  The defendant is also required to make this showing with summary judgment type evidence.

 

Given defendants' obligation to prove future attorneys' fees by a preponderance of the evidence, and noting the trial's expertise in evaluating litigation expenses, the Ninth Circuit concluded that it did not share the Seventh Circuit's concerns about calculating future attorneys' fees.

 

In the Ninth Circuit's view, the amount in controversy must include future attorneys' fees because the complaint demanded attorneys' fees permitted by California law.  The trial court's conclusion that, as a matter of law, the amount in controversy included only the $150,000 in attorneys' fees incurred up to the time of removal was incorrect.

 

Accordingly, the Ninth Circuit reversed the trial court's order remanding the case to state 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   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

Webinars

 

and

 

California Finance Law Developments

 

 

 

Sunday, September 16, 2018

FYI: 8th Cir Rules Terminating Bank Employees for Criminal Convictions Involving Dishonesty Not Unlawful Discrimination

The U.S. Court of Appeals for the Eighth Circuit recently affirmed summary judgment in favor of a bank that was sued by a putative class alleging discriminatory employment practices that supposedly violated Title VII of the Civil Rights Act of 1964 and the Iowa Civil Rights Act.

 

In so ruling, the Court held that the plaintiffs failed to establish a prima facie case of disparate impact because even if the bank's policy of summarily terminating applicants or employees with a criminal conviction involving dishonesty or breach of trust had a disparate impact, the banks' decision to comply with the applicable federal law was a business necessity under Title VII.

 

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

 

As you may recall, a federal law, 12 U.S.C. § 1829 (a)(1)(a), prohibits "any person who has been convicted of any criminal offense involving dishonesty or a breach of trust" from employment at any financial institution insured by the Federal Deposit Insurance Corporation ("FDIC"). The law provides that disqualified persons may apply for a waiver, but no disqualified person can begin or continue employment with an insured institution until the waiver is obtained.

 

The plaintiffs, ten African Americans and Latinos, filed suit against the bank in the United States District Court for the Southern District of Iowa on behalf of a putative class alleging that the bank's "policy of summarily terminating or withdrawing offers of employment to any [disqualified] individual" was discriminatory and violated Title VII of the Civil Rights Act of 1964 and the Iowa Civil Rights Act.

 

The bank moved for summary judgment. The plaintiff's moved for additional time to conduct discovery under Federal Rule of Civil Procedure 56(d), which the magistrate judge granted in part and denied in part.

 

The district court granted the bank's motion for summary judgment, holding that the plaintiffs "failed to establish a prima facie case under any theory of employment discrimination pursuant to either federal or state law."

 

The plaintiffs appealed, "arguing that the district court misapplied disparate-impact law." They also challenged "the magistrate judge's ruling on their Rule 56(d) motion."

 

The Eighth Circuit framed the ultimate issue in the case as being "whether the appellants had established a prima facie case of Title VII disparate impact, and if they had, whether [the bank] failed to show a business necessity defense."

 

The plaintiffs-appellants argued that the bank "refused to adopt the alternative practices of giving advance notice of the need for a waiver, granting leave to seek a waiver, and providing direct sponsorship of a waiver." The plaintifff-appellants argued that, if the bank had uniformly enforced such policies, that would have minimized the disparate impact caused by the law's automatic disqualification.

 

The Eighth Circuit disagreed, first citing Title VII, 42 U.S.C. § 2000e-2(K)(1)(A)(i), which provides that "an unlawful disparate impact is established … 'only if … a complaining party demonstrates that a respondent uses a particular employment practice that cause a disparate impact on the basis of race … and the respondent fails to demonstrate that the challenged practice is job related for the position in question and consistent with business necessity.'"

 

In order to establish a prima facie disparate impact claim, plaintiffs must show: "(1) an identifiable, facially-neutral personnel policy or practice; (2) a disparate effect on members of a protected class; and (3) a causal connection between the two."

 

The Court rejected the plaintiff-appellants' argument that "the presented sufficient statistical evidence to show that disparity between white and non-white … employees and potential employees and that [the bank] failed to show a business necessity."

 

The Eighth Circuit reasoned that even if the bank's policy of uniformly terminating disqualified African-American and Latino employees at twice the rate of white employees caused a disparate impact, "the district court correctly recognized that the bank's 'sound business decision was to terminate regardless of race or age or ethnicity.'"

 

This was because failure to comply with 12 U.S.C. § 1829 "placed [the bank] at risk of daily fines of $1 million. Further, 'any bank or other financial institution wisely would prefer for its customers to be served by employees who were not … persons convicted of crimes of dishonesty.'"

 

The Eighth Circuit concluded that the bank's "policy of summary employment exclusion following … disqualification [under § 1829] is a business necessity." It also concluded that the appellants failed to present sufficient "evidence or statistics showing that … alternative practices would have reduced the disparate impact on people of color. … The statistics do not support the inference that any of the alternative practices put forward by the applicants would result in proportionally more non-white employees receiving waivers and thereby reduce the disparate impact. Without meaningful evidentiary support for their contention, the appellants' argument fails."

 

The Court also rejected the plaintiffs-appellants' challenge to the magistrate judge's denial of their motion seeking additional discovery because the appellants failed to file an objection to the magistrate judge's order. "Because the appellants failed to test the magistrate judge's pre-trial motion ruling before the district court, they cannot now leapfrog the district court and appeal the order directly to us."

 

Accordingly, the district court's summary judgment ruling in favor of the defendant bank was affirmed.

 

 

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   |   Massachusetts   |   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.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

Webinars

 

and

 

California Finance Law Developments 

 

 

Thursday, September 13, 2018

FYI: 5th Cir Holds CFPB's CID Did Not Adequately Advise of Alleged Violation

The U.S. Court of Appeals for the Fifth Circuit held that a civil investigation demand ("CID") issued by the Consumer Financial Protection Bureau ("CFPB") did not adequately advise the respondent of the nature of the conduct constituting the alleged violation under investigation and the provision of law applicable to such violation.

 

Accordingly, the Fifth circuit reversed the ruling of the trial court granting the CFPB's petition for an order to enforce the CID.

 

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

 

Under 12 U.S.C. § 5562(c)(1), the CFPB may issue CIDs to "any person" whom the CFPB "has reason to believe" may have documents, tangible things, or information "relevant to a violation."

 

Each CID must "state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation."  12 U.S.C. § 5562(c)(2). 

 

This is known as "notification of purpose."  12 C.F.R. § 1080.5.  If a recipient does not comply with the CID, the CFPB may file a petition in federal court to enforce it.  12 U.S.C. § 5562(e)(1).

 

Here, the CFPB issued a CID to a company ("Company") that provides public records to the public through an internet-based search engine.

 

The CID's "Notification of Purpose" read: "The purpose of this investigation is to determine whether consumer reporting agencies, persons using consumer reports, or other persons have engaged or are engaging in unlawful acts and practices in connection with the provision or use of public records information in violation of the Fair Credit Reporting Act . . . or any other federal consumer financial law.  The purpose of this investigation is also to determine whether Bureau action to obtain legal or equitable relief would be in the public interest."

 

During a meet and confer with the CFPB, the Company asserted that the Notification of Purpose was inadequate, and that the CFPB did not have jurisdiction over it.  The Company then filed a petition with the CFPB to set aside the CID, which was denied.

 

The CFBP then filed a petition in federal court seeking an order to enforce the CID.  The trial court rejected the Company's argument that the CID failed to provide fair notice of the violation under investigation as required by section 5562(c)(2), and that the CFPB lacked jurisdiction.  Accordingly, the trial court ordered that the Company respond to the CID.

 

The Company appealed. 

 

On appeal, the Fifth Circuit determined that "[t]he CFPB did not comply with 12 U.S.C. § 5562(c)(2) when it issued this CID to [the Company]."  In so ruling, the Court noted that the CFPB did not state the "conduct constituting the alleged violation which [was] under investigation," rather the Notification of Purpose provided only that the CFPB was investigating "unlawful acts and practices in connection with the provision or use of public records information."

 

The Fifth Circuit determined that "this Notification of Purpose does not identify what conduct, it believes, constitutes an alleged violation."

 

Further, the CID did not identify "the provision of law applicable to such violation," as required.  Instead, the Notification of Purpose referred only "to the Fair Credit Reporting Act, an expansive law governing all activities relating to the reporting of consumers' credit information.  Such reference to a broad provision of law that the CFPB has authority to enforce does nothing to clarify what conduct is under investigation." 

 

Moreover, the Fifth Circuit noted that the Notice of Purpose's statement that the CFPB was investigating "any other federal consumer financial law" defeated "any specificity provided by the reference to FCRA."   

 

The Court further explained that a "reasonable relevance" standard applies to enforcement of administrative subpoenas.  Under the "reasonable relevance" standard, court will enforce an administrative subpoena if: "(1) the subpoena is within the statutory authority of the agency; (2) the information sought is reasonably relevant to the inquiry; and (3) the demand is not unreasonably broad or burdensome." 

 

The Fifth Circuit determined that "[b]ecause the CID issued to [the Company] fails to identify the conduct under investigation or the provision of law at issue, we cannot review it under our 'reasonable relevance' standard." 

 

As "the CFPB does not have 'unfettered authority to cast about for potential wrongdoing,'" it "must comply with statutory requirements."

 

The Fifth Circuit held "that the CFPB failed to advise [the Company] of 'the nature of the conduct constituting alleged violation which is under investigation and the provision of law applicable to such violation.'"  12 U.S.C. § 5562(c)(2). 

 

Thus, the ruling of the trial court was reversed.

 

 

 

 

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   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

Webinars

 

and

 

California Finance Law Developments 

 

Tuesday, September 11, 2018

FYI: 8th Cir Rules Against Debtor Who Tried to "Provoke" FDCPA Violation

The U.S. Court of Appeals for the Eighth Circuit recently held that a consumer waived his right under the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (FDCPA) to cease further communications by calling the debt collector and asking questions about the underlying debt.

 

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

 

A law firm obtained a judgment against a debtor in connection with a credit card debt.  The debtor was a former debt collector and had litigated a number FDCPA claim against other debt collectors. 

 

The law firm mailed a garnishment notice to the debtor's credit union in attempt to collect on the judgment.  Each time, the law firm also mailed a copy of the garnishment summons to the debtor, along with a similar cover letter.  The cover letter stated "[t]hese documents were served upon [the credit union].  If you have any questions, please contact one of our collection representatives at 800-514-0791."

 

The debtor called the telephone number on the cover letter and spoke with a representative of the law firm.  The representative broached the possibility of settling the debt, but only in response to the debtor s questions about the debt.  The debtor immediately told the representative that he had sent the law firm a cease and desist letter and suggested that the representative violated its directive.

 

The debtor filed a complaint alleging that the law firm violated sections 1692c(c) and 1692e(10) of the FDCPA by sending the garnishment summons cover letter and attempting to collect the debt over the phone.  The debtor alleged that this was a "bait-and-switch" scheme designed to deceive unsophisticated consumers.

 

The debtor sued the law firm in state court and the law firm removed the case to federal court.  The trial court granted the law firm's motion for summary judgment and dismissed the case with prejudice.

 

This appeal followed.

 

As you may recall, section 1692c(c) of the FDCPA requires a debt collector to cease further communications if the consumer notifies the debt collector in writing that he wishes to cease further communications with respect to such debt.  15 U.S.C. § 1692c(c).

 

Section 1692e of the FDCPA prohibits a debt collector from using "any false, deceptive, or misleading representation or means in connection with the collection of any debt," including the use of any false representation or deceptive means to collect or attempt to collect any debt."  15 U.S.C. § 1692e(10).

 

The Eighth Circuit applies the unsophisticated consumer standard to FDCPA claims.  Strand v. Diversified Collection Serv., 380 F.3d 316, 317 (8th Cir. 2004).  "This standard protects the uninformed or naive consumer, yet also contains an objective element of reasonableness to protect debt collectors from liability for peculiar interpretations of collection letters."  Id., at 317-18.

 

The debtor argued that the law firm violated section 1692c(c) because the cover letter directed him to call the law firm, but rather than connecting him to someone that could answer questions about the garnishment summons, he was subjected to efforts to collect the debt. 

 

The debtor also argued that the law firm violated his rights under section 1692c(c) because he called only about the topic of the garnishment summons and did not wish to talk about the debt.

 

The trial court found that the debtor initiated the call "and the brief conversation regarding settling the underlying debt occurred only in response to [the debtor's] direct questions of what he was 'gonna do about' the debt."  The representative answered the debtor's questions by stating that the law firm was willing to settle the debt and asked if he was interested in doing so. 

 

The trial court noted that the law firm did not pressure or badger the debtor in any way.  It held that the debtor waived his cease communication directive by asking questions about the debt.  The trial court described the call as "an unsubtle and ultimately unsuccessful attempt to provoke [the law firm] into committing an FDCPA violation." 

 

The Eight Circuit agreed and found nothing improper about providing the debtor with a contact number in the cover letter.  Further, the Eight Circuit determined that "[the debtor's] waiver of his cease letter was "knowing and voluntary, just as it would be were he an unsophisticated debtor."" 

 

Thus, the Eighth Circuit held that the law firm did not violate section 1692c(c).

 

Next, the debtor argued that the law firm violated section 1692e(10), by falsely or deceptively communicating through the cover letter, that a collection representative could answer garnishment summons questions "when in fact the telephone number provided reaches those unable to discuss legal documents." 

 

However, the Eight Circuit did not find any inaccurate information in the cover letter.  The letter did not state that the number provided will be answered by an attorney prepared to answer question solely about garnishment.  Instead, it suggested that a collection representative could be reached at the listed number, and that proved to be true.

 

Regarding the debtor's allegation that the letter accompanying the garnishment summons was a scheme to work around his directive to cease communication, the Eight Circuit stated that "this is the exact sort of peculiar interpretation against which debt collectors are protected by the objective element of the unsophisticated consumer standard."

 

Accordingly, the Eighth Circuit affirmed the trial court's order granting the debt collector's motion for summary judgment.

 

 

 

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

 

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