Tuesday, July 5, 2022

FYI: 8th Cir Holds Future Advances Clause Applied to Separate Business Loans to Co-Mortgagor

The U.S. Court of Appeals for the Eighth Circuit recently held that the language of a future advances clause entitled the foreclosing mortgagee to the surplus proceeds of a condominium sale where there was an outstanding balance owed to same mortgagee on separate business loans extended to a different co-mortgagor.

 

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

 

The appeal arose out of a consumer loan extended by the plaintiff mortgagee ("Mortgagee") to the defendant's husband ("Husband"). The loan was secured by a mortgage executed by the defendant ("Wife") and Husband and secured by their condominium located in Iowa. The mortgage included a future advances clause which granted Mortgagee a security interest in the condominium covering future funds Husband might borrow.

 

Husband subsequently borrowed additional sums under three notes to keep his business running (the "Business Notes"). Wife was not a party to these notes.  Shortly thereafter, Husband filed for Chapter 7 Bankruptcy. Husband and Wife subsequently sold the condominium, divorced, and Wife moved to a different state.

 

After the note evidencing the loan to Wife was paid from the sale, approximately $249,117.65 remained of the sale proceeds which were deposited in escrow in Husband's bankruptcy. The bankruptcy court found that pursuant to the future advances clause, Husband's portion of the escrowed proceeds were required to pay down the Business Notes. The bankruptcy court further found that Husband could not claim a homestead exemption for the proceeds.

 

Mortgagee subsequently brought a separate action against Wife seeking a declaratory judgment that Wife's portion of the proceeds be subject to the mortgage's future advances clause and that Mortgagee could apply the proceeds to the Business Notes. The trial court granted summary judgment in favor of Mortgagee and Wife appealed.

 

Wife first argued that the trial court erred in finding that the mortgage's future advances clause secured the Business Notes.

 

In Iowa, when there is no clear supportive evidence of a contrary intention, a future advances clause will encompass a particular debt in two instances: (1) when they are of the same kind and quality or relate to the same transaction or series of transactions as the principal obligation secured; and (2) the document evidencing the subsequent advance refers to the mortgage as providing security therefor. Freese Leasing, Inc. v. Union Tr. & Sav. Bank, 253 N.W.2d 921, 927 (Iowa 1977).

 

Wife argued that the Business Notes were of a "completely different character" than the original note evidencing the loan made to her.

 

However, the Eighth Circuit pointed out that the nature of the debt is only material when there is no "clear, supportive evidence of a contrary intention" that the mortgage can secure other, unrelated debt. The mortgage at issue made it plain that it could secure "[a]ll present and future debts from [Husband] to [Bank]," without requiring the debt to be mentioned in the future debt instrument, whether the "future debt [wa]s unrelated to or of a different type than th[at] debt," or if Husband "incur[red] [debts] either individually or with others who may not sign this [Mortgage]."

 

The Eighth Circuit held that the indisputable evidence demonstrated the mortgage also secured the Business Notes, noting the unambiguous language of the future advances clause, its bold presence and Wife's signature at the end of the Mortgage as well as her initials on the page containing the future advances clause.

 

Wife alternatively argued that the mortgage was rendered unenforceable by various contractual formation problems.

 

Wife first argued that there was no meeting of the minds as she did discuss or understand the terms of the future advances provision. However, under Iowa law, it is not a defense to enforcement of a contract that a party did not read fully and consider the terms of the contract. Bryant v. Am. Express Fin. Advisors, Inc., 595 N.W.2d 482, 486 (Iowa 1999). Because there was no evidence of duress, incapacity, coercion or other formation problems, and Wife accepted the terms by signing the contract, the Eighth Circuit found Wife was bound by the contract. See Gosiger, Inc. v. Elliot Aviation, Inc., 823 F.3d 497, 502 (8th Cir. 2016).

 

Wife next argued that her initials and signature on the mortgage did not equate to her having agreed to be bound by its terms and implications. The Eighth Circuit again found no evidence that called into question her execution of the Mortgage. See Bryant, 595 N.W.2d at 487. The argument that the mortgage forced Wife to waive her homestead rights in contravention of public policy, was also rejected as the regulation relied on by Wife did not apply to banks such as Mortgagee.

 

Wife further claimed that the clause was unconscionable. The Eighth Circuit noted that Wife's argument was essentially that the contract was a bad bargain and thus, rejected the claim.  See C&J Vantage Leasing Co. v. Wolfe, 795 N.W.2d, 65, 80 (Iowa 2011) ("[T]he doctrine of unconscionability does not exist to rescue parties from bad bargains.")

 

Wife also argued that Mortgagee failed to make a prima facie showing of its entitlement to the proceeds because it failed to prove the proceeds comported with the Mortgage's maximum obligations limit clause.  The Eighth Circuit rejected this argument as well, as it was raised for the first time on appeal.

 

Similarly, the argument that the mortgage was not a credit agreement due to its lack of the disclosure that would be required by Iowa Code § 535.17(3) was rejected as it was also raised for the first time on appeal.

 

Wife further made numerous equitable arguments which were precluded because the mortgage was a "credit agreement" under Iowa Code § 535.17(5)(c).  Although Wife argued that the mortgage was not a "credit agreement" under this provision of the Iowa Code, the Eighth Circuit disagreed finding that a mortgage fits within Iowa's definition of "credit agreement." Finally, all Wife's remaining arguments were not addressed as the Court found them "wholly devoid of merit and/or frivolous.

 

Thus, the Eighth Circuit affirmed the judgment of the trial court, denied Wife's motion to certify questions of law to the Iowa Supreme Court and denied Mortgagee's motion to strike a portion of Wife's reply brief as moot.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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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Saturday, July 2, 2022

FYI: 9th Cir Holds Bank's Automated Reply Text Messages Did Not Violate TCPA

The U.S. Court of Appeals for the Ninth Circuit recently affirmed a trial court's grant of summary judgment in favor of the defendant bank in an action brought under the federal Telephone Consumer Protection Act ("TCPA"), 47 U.S.C. § 227.

 

In so ruling, the Ninth Circuit held that messages sent by the plaintiff consumer's phone to the bank's "short code" number provided the required prior express consent for the bank's responsive messages.

 

The Court also affirmed the trial court's award of "costs" under Federal Rule of Civil Procedure 41(d), but reversed the trial court's award of attorney's fees as "costs" under Rule 41(d) as a matter of right.

 

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

 

The consumer filed a putative class action suit against the defendant bank, in which he claimed that the bank sent text messages to his mobile phone without the prior express consent required by the TCPA.

 

The consumer was not a customer of the bank during the relevant period. During that time, however, the consumer's mobile phone sent 11 text messages to the bank's short code number. A short code is a short telephone number a business can use to send and receive text messages.

 

Ten of the text messages were unrelated to the bank or its services, and the bank replied with the first responsive text option. The remaining text message from the consumer to the bank consisted of the word "STOP," to which the bank replied with the second responsive text option. These reply texts were the only text messages the bank sent to the consumer's mobile phone.

 

The trial court granted summary judgment in favor of the bank, concluding that each text message from the consumer's mobile phone constituted prior express consent for each of the bank's reply texts.

 

The trial court also granted the bank's motion for an award of "costs" under Fed. R. Civ. Pro. Rule 41(d) which the bank incurred in defending identical litigation commenced by the consumer in a separate federal district court, in which the consumer entered a voluntary dismissal and the other court dismissed the case "without costs to any party."

 

Finally, the trial court decided "costs" under Rule 41(d) included the attorney's fees incurred by the bank in defending the other litigation and therefore included such attorney's fees in the award of "costs."

 

The consumer timely appealed both the trial court's grant of summary judgment in favor of the bank on his TCPA claim and its inclusion of attorney's fees as part of its Rule 41(d) award of "costs" to the bank.

 

As you may recall, the TCPA prohibits making calls to any cellular number by using a system that dials telephone calls automatically or by using an "artificial or prerecorded voice'" unless the caller received "prior express consent" from the recipient. 47 U.S.C. § 227(b).

 

The TCPA does not define prior express consent. However, in Van Patten v. Vertical Fitness Grp., LLC, the Ninth Circuit adopted the FCC's interpretation of the statute: that a person who knowingly releases his number consents to be called at that number for informational purposes, and that consent is "effective" where the responsive messages relate to the same subject or type of transaction as the messages that led to the response. 847 F.3d 1037, 1044-45 (9th Cir. 2017); In re Rules & Regulations Implementing the Telephone Consumer Protection Act of 1991, 7 F.C.C. Rcd. 8752, 8769 (Oct. 16, 1992).

 

The consumer argued that the Ninth Circuit has discretion to refuse to employ the FCC's order interpreting "prior express consent." However, the Ninth Circuit noted that Van Patten is a published opinion and binding precedent. See Miller v. Gammie, 335 F.3d 889, 900 (9th Cir. 2003) (en banc) (holding a published opinion may be overruled by a three-judge panel only when it is clearly irreconcilable with an intervening higher authority).

 

Further, the Ninth Circuit found that Van Patten's reasoning -- i.e., that providing a telephone number to a business as part of telephone communication to that business constitutes express consent to a responsive contact from that business within the scope of that communication - was applicable to the facts here. The consumer initiated contact with the bank, and the bank automatically replied to each contact with a single responsive text message to confirm receipt, provide information that the short code belonged to the bank, and explain how to stop or continue communication.

 

The Ninth Circuit held that, by sending text messages to the bank's short code, the consumer expressly consented to receiving reply text messages. Each informative and confirmatory reply text message from the bank fell within the scope of the consumer's text message initiating contact, and, therefore, "the scope of [the consumer's] consent to contact." Id. at 1046.

 

Therefore, the Ninth Circuit held that the trial court did not err in applying Van Patten and granting summary judgment in favor of the bank.

 

The Ninth Circuit then addressed the consumer's argument that the trial court abused its discretion by including attorney's fees in its award of "costs" to the bank under Fed. R. Civ. Pro. Rule 41(d).

 

Rule 41(d) allows a court to award "costs" incurred in litigation to a party if the plaintiff dismissed that litigation and then filed another suit based on the same claims, against the same defendant. The Ninth Circuit had not previously decided whether attorney's fees are available under Rule 41(d) as part of "costs."

 

Here, the Ninth Circuit held that Rule 41(d) "costs" do not include attorney's fees as a matter of right, and thus reversed the trial court's award of attorney's fees in favor of the bank under Rule 41(d). In so holding, the Court announced that it is joining every other Circuit that has meaningfully considered this issue through published opinions. See Horowitz v. 148 S. Emerson Assocs. LLC, 888 F.3d 13, 25 (2d Cir. 2018); see also Garza v. Citigroup Inc., 881 F.3d 277, 283-284 (3rd Cir. 2018); see also Andrews v. Am.'s Living Ctrs., LLC, 827 F.3d 306, 311 (4th Cir. 2016); see also Portillo v. Cunningham, 872 F.3d 728, 739 (5th Cir. 2017); see also Rogers v. Wal- Mart Stores, Inc., 230 F. 3d 868, 874 (6th Cir. 2000), cert. denied, 532 U.S. 953 (2001).

 

Agreeing with the rulings of the other Circuits, the Ninth Circuit concluded that "costs" is a term which has a long-standing definition that does not inherently include attorney's fees, and nothing in the text of Rule 41(d) compels a contrary reading of this well-understood term.

 

However, the Ninth Circuit did not decide whether attorney's fees are available under Rule 41(d) if the underlying statute so provides. This is because the Court determined that it is undisputed that the TCPA does not provide for the award of attorney's fees to the prevailing party.

 

Accordingly, the Ninth Circuit held that the trial court correctly granted summary judgment in favor of the bank, but abused its discretion in including attorney's fees in its award of "costs" under Rule 41(d).

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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, June 29, 2022

FYI: CFPB Issues Advisory Opinion on "Convenience" or "Speed Pay" Fees

The federal Consumer Financial Protection Bureau (CFPB) today issued an Advisory Opinion on "convenience" or "speed pay" fees, such as "fees imposed for making a payment online or by phone", under the federal Fair Debt Collection Practices Act (FDCPA).

 

The full Advisory Opinion is available at:  Link to Advisory Opinion

 

Among other things, the CFPB says:

 

  • Such "convenience" or "speed pay" fees violate the FDCPA, unless the fees are "expressly authorized by the agreement creating the debt or permitted by law"

 

  • This includes situations in which "a third-party payment processor collects a pay-to-pay fee from a consumer and remits to the debt collector any amount in connection with that fee, whether in installments or in a lump sum"

 

  • Silence in the law is not authorization

 

Of note, it is possible that regulators or litigants could attempt to impose this Advisory Opinion through state laws on creditors who are not otherwise subject to the FDCPA.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   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:

 

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Sunday, June 26, 2022

FYI: 6th Cir Holds "Objectively Baseless" Debt Collection Lawsuit Violated FDCPA

The U.S. Court of Appeals for the Sixth Circuit recently ruled that a debt collector violated the federal Fair Debt Collection Practices Act (FDCPA) when it sued a debtor's wife to recover her husband's legal fees under Ohio's Necessaries Statute.

 

In so ruling, the Sixth Circuit held that:

 

(a) the debt collection lawsuit brought first against the debtor's wife violated Ohio Supreme Court precedent, and therefore was objectively baseless; and

 

(b) bringing a claim against a party under circumstances where the state supreme court has explicitly held the party cannot be held liable is a violation of the FDCPA.

 

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

 

Prior to the litigation giving rise to the appeal, the defendant debt collector (Debt Collector) filed a debt collection action against the plaintiff spouse (Spouse) and her husband (Debtor) seeking to recover unpaid attorney's fees owed by Debtor.

 

Debt Collector asserted a "spousal obligation to support" claim against Spouse pursuant to Ohio's Necessaries Statute which permits the collection of certain debts from one spouse that were incurred by the other.

 

Spouse filed a lawsuit alleging violations of the FDCPA, arguing that Creditor's lawsuit against her for legal fees incurred by Debtor was "objectively baseless."  The parties filed cross-motions for summary judgment and the trial court resolved the motions in favor of Debt Collector.  The Spouse appealed.

 

As you may recall, under the FDCPA, "[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt."  15 U.S.C. §1692e.  A violation of the FDCPA occurs when the debt collector's action or representation is materially misleading or false. Wallace v.  Wash.  Mut.  Bank,  F.A.,  683  F.3d  323,  326–27  (6th  Cir.  2012), and has the purpose of inducing payment by the debtor. Grden v. Leikin Ingber & Winters PC, 643 F.3d 169, 173 (6th Cir. 2011).

 

The Sixth Circuit noted that advancing a debt collection claim that is ultimately unsuccessful does not, in and of itself, rise to an FDCPA violation. Heintz v. Jenkins, 514 U.S. 291, 296 (1995). However, a litigation filing containing a material misstatement of state law that is "false, deceptive, or misleading" at the time it is made can constitute an FDCPA violation. Van Hoven v. Buckles & Buckles, P.L.C., 947 F.3d 889, 893-94 (6th Cir. 2020) (quoting 15 U.S.C. § 1692e).

 

The Sixth Circuit distinguished between what constitutes a non-winning debt collection claim that violates the FDCPA and one that does not. "A lawyer does not 'misrepresent' the law by advancing a reasonable legal position later proved wrong." Id. at 896. However, if the "legal contention was objectively baseless at the time it was made", it is "legally indefensible and groundless in law" and violates the FDCPA. Id.

 

The Sixth Circuit noted that the Ohio Necessaries Statute provides that a "married person must support the person's self and spouse," and if one is "unable to do so, the spouse of the married person must assist in the support so far as the spouse is able." Ohio Rev. Code § 3103.03(A).

 

The parties and the trial court focused on whether attorneys' fees constituted "necessaries" under the statute. The trial court found that Debt Collector's claim was "at the very least, arguable" as the Supreme Court of Ohio has held that certain attorneys' fees' are recoverable against a spouse. See Wolf v. Friedman, 253 N.E.2d 761, 765-67 (Ohio 1969); Blum v. Blum, 223 N.E.2d 819, 820-21 (Ohio 1967).

 

However, the Sixth Circuit held that the issue of whether attorneys' fees are included under the Ohio Necessaries Statute as irrelevant, as Debt Collector's lawsuit failed to comply with the statute's threshold procedural requirements.

In an earlier case, the Ohio Supreme Court held that "each married person retains primary responsibility for supporting himself or herself from his or her own income or property," and a "nondebtor spouse becomes liable only if the debtor spouse does not have the assets to pay for his or her necessaries." Embassy Healthcare v. Bell, 122 N.E.3d 117, 121 (Ohio 2018). Thus, the Sixth Circuit noted, Embassy Healthcare requires a creditor to first exhaust its debt collection efforts against the debtor before it can attempt to collect from the spouse.

 

Specifically, the Ohio Supreme Court held in Embassy Health that "[a] creditor must…first seek satisfaction of its claim from the assets of the spouse who incurred the debt. [The Ohio Necessaries Statute] does not impose joint liability on a married person for the debts of his or her spouse." Id.

 

The Sixth Circuit found the ruling in Embassy Health established that the debt collection lawsuit brought first against Spouse was objectively baseless. The Court further held that bringing a claim against a party under circumstances where the state supreme court has explicitly held the party cannot be held liable is a violation of the FDCPA.

 

Thus, the Sixth Circuit reversed the trial court's judgment, and remanded with instructions to enter judgment in favor of Spouse.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

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Wednesday, June 22, 2022

FYI: 5th Cir Holds TPP Allowed for "Grace Period", and Servicer Breached TPP by Not Providing Permanent Mod

The U.S. Court of Appeals for the Fifth Circuit recently reversed a trial court's judgment in favor of a mortgage servicer ruling that the servicer had violated its obligations under a Trial Period Plan (TPP) in connection with a proposed loan modification when the servicer failed to offer a permanent loan modification after the borrower made payments in compliance with the "grace period" provisions of the TPP.

 

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

 

The case arises out of a Trial Period Plan ("TPP") offered in response to a borrower's ("Borrower") request for assistance from his home loan Servicer ("Servicer") after Borrower defaulted on his home loan. The TPP required three payments. The TPP stated that Borrower must make the payments on January 1, February 1, and March 1.  It also contained provisions which stated the payments must be made in the month in which they were due.

 

After Borrower made the three payments in the months in which they were due, but not on the first day of each month, Servicer informed Borrower he was ineligible for the permanent modification as he failed to comply with the terms of the TPP. Servicer then posted Borrower's property for foreclosure.

 

Borrower filed suit against Servicer alleging breach of contract. The trial court granted summary judgment in favor of Servicer, declining to give force to the grace period provisions of the TPP and thus finding that Borrower failed to comply with the provisions of the TPP's payment deadlines. Borrower appealed.

 

The Borrower and secured property were located in Texas.  Under Texas law, a plaintiff in a breach of contract action must show: "(1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of the contract by the defendant; and (4) damages sustained by the plaintiff as a result of the breach" to establish a breach of contract claim.  Smith Int'l, Inc. v. Egle Grp., LLC, 490 F.3d 380, 387 (5th Cir. 2007).

 

Servicer first argued that the TTP was not a valid binding contract. However, the Fifth Circuit found the text of the TPP made clear that Servicer intended to be bound by the terms of the TPP upon Borrower's performance.

 

The Court referenced specific provisions of the TPP in reaching this decision including the following language: "If you successfully complete the [TTP] by making the required payments, you will receive a permanent modification with an interest rate of 6.375% which will be fixed for 480 months from the date the modification is effective." The Fifth Circuit also referenced the provision stating: "If you make your new payments timely we will not conduct a foreclosure sale." And finally, the Court noted the TPP expressly defined the terms of acceptance as "[t]he terms of this offer are accepted and the terms of your [TPP] are effective on the day you make your first trial period payment, provided you have paid it on or before the last day of [January 2019]." Thus, the Court found that an enforceable contract was created when Borrower made the first trial period payment on January 18, 2019.

 

Alternatively, Servicer argued that Borrower failed to comply with the requirement of the TPP that he make payments "in a timely manner." In support of this argument, Servicer noted the TPP established monthly deadlines of January 1, February 1, and March 1, 2019 on which payments were to be made, and that Borrower failed to meet these payment deadlines.

 

The Fifth Circuit rejected this argument because the language of the TPP also established a grace period which allowed for the acceptance of payments as long as they were made "in the month in which it is due."  Although the Court noted neither the TPP nor the parties used the term "grace period" to describe the language in the TPP, the Court found it was plainly contemplated by the text.

 

In response, Servicer argued that the Fifth Circuit should ignore the grace period as it irreconcilably conflicted with the monthly deadlines, and the express statement that "time is of the essence." The Court disagreed, noting that grace periods are common features of contracts and that grace periods and deadlines are in fact designed to co-exist.

 

Finally, the Fifth Circuit noted that even if the two provisions were irreconcilably conflicted, Servicer would have had to articulate some theory as to why the deadline provision should be favored over the grace period provision. "[R]espect for text requires that 'judges must do the least damage they can.'" Id.  (quoting Herrmann v. Cencom Cable Assocs., 978 F.2d 978, 983 (7th Cir. 1992)).

 

The Fifth Circuit found Servicer's failure to provide a reason as to why favoring the deadlines would "do the least damage" to the text of the TPP fatal to its case. Id. Because "if [the Court] [we]re truly unable to discern which provision should control, the proper resolution is to apply the unintelligibility canon and to deny effect to both provisions." Id. (cleaned up). Thus, both provisions would be ignored, and the Court would have reversed accordingly.

 

Thus, the Fifth Circuit ruled that Servicer violated its obligations under the TPP by refusing to grant the permanent loan modification and proceeding with foreclosure after Borrower met his obligations. The Court therefore reversed and remanded for further proceedings.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   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.


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Monday, June 13, 2022

FYI: 11th Cir Holds TILA Periodic Statements Can Trigger FDCPA and FCCPA Liability

The U.S. Court of Appeals for the Eleventh Circuit recently reversed a trial court's dismissal of a consumer's complaint against a mortgage servicer brought under the federal Fair Debt Collections Practices Act ("FDCPA") and the Florida Consumer Collection Practices Act ("FCCPA").

 

In so ruling, the Eleventh Circuit held that monthly mortgage statements may constitute "communications" under the FDCPA and the FCCPA if they "contain debt-collection language that is not required by the Truth in Lending Act ("TILA") or its regulations" and the context suggests that the statements are an attempt to collect or induce payment on a debt.

 

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

 

A consumer sued his mortgage servicer, claiming that several mortgage statements sent by the servicer, as required by TILA, misstated a number of items, including the principal balance due. The consumer alleged that by sending these incorrect statements, the servicer violated the FDCPA and FCCPA.

 

The trial court dismissed the consumer's complaint with prejudice, agreeing with the mortgage servicer that the statements in question were not communications in connection with the collection of a debt and therefore not covered by the FDCPA and the FCCPA. The consumer timely appealed.

 

The question on appeal was whether monthly mortgage statements required by TILA and its implementing regulations can constitute communications in connection with the collection of a debt under the FDCPA and the FCCPA.

 

The FDCPA requires that the challenged communications be "in connection with the collection of a[ ] debt." See 15 U.S.C. §§ 1692d, 1692e(10), 1692f(1). The substantive FCCPA provisions similarly require that the correspondences be made in connection with "collecting [a] . . . debt[.]" Fla. Stat. §§ 559.72(7), 559.72(9). Both statues therefore require a nexus between the communication and the collection of a debt.

 

The Eleventh Circuit has held that the FDCPA's "in connection with the collection of a[ ] debt" language asks whether the "challenged conduct is related to debt collection," i.e., is "an attempt to 'collect' [a] debt." Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211, 1217 (11th Cir. 2012).

 

Additionally, TILA requires mortgage lenders and/or servicers to send their mortgagees a statement once per billing cycle, updating them on a number of items. These items are the amount of the principal obligation under the mortgage; the current interest rate in effect; the date on which the interest rate may reset or adjust; the amount of any prepayment penalty that may be charged; late payment fees; a telephone number and electronic mail address that can be used to obtain information regarding the mortgage; the names and contact information of credit counseling agencies or programs reasonably available; and such other information as may be required by regulation. See 15 U.S.C. § 1638(f)(1).

 

The Eleventh Circuit here concluded that the statements, even though required by TILA, were "related to debt collection." 

 

First, the statements expressly said that they were "an attempt to collect a debt" and that "[a]ll information obtained will be used for that purpose." Second, the statements had entries for "loan due date," "payment due date," "amount due," "total amount due," "interest-bearing principal," "deferred principal," "outstanding principal," and "interest rate." Third, the statements included a "delinquency notice" box, which listed overdue payments and the amount needed to bring the account current.  Finally, the statements attached a monthly payment coupon at the bottom of the first page with the mortgage servicer's address. The coupon included late fee information and instructed the consumer to "[p]lease detach bottom portion and return with your payment" and "[m]ake checks payable to [the mortgage servicer]"

 

The Eleventh Circuit holistically viewed a communication that expressly states that it is "an attempt to collect a debt," that asks for payment of a certain amount by a certain date, and that provides for a late fee if the payment is not made on time as plausibly "related to debt collection." Reese, 678 F.3d at 1217.

 

The context of the statements also mattered to the Eleventh Circuit. By the time the mortgage servicer sent the mortgage statements, the consumer had prevailed in a foreclosure action brought by the creditor for the consumer's mortgage loan. During that litigation, the mortgage servicer was servicing the loan. Therefore, the sums listed as allegedly due and owing in the statements, along with the delinquency notice, could have been viewed as an attempt to collect (or induce payment on) a disputed and allegedly defaulted debt. See Grden v. Leikin Ingber & Winters PC, 643 F.3d 169, 173 (6th Cir. 2011); Gburek v. Litton Loan Servicing LP, 614 F.3d 380, 386 (7th Cir. 2010).

 

Although some portions of the statements could have been for informational purposes, as prescribed by TILA, the Eleventh Circuit also held that a communication can have dual purposes. See Reese, 678 F.3d at 1217.

 

Furthermore, in this case, the mortgage statements contained "this is an attempt to collect a debt" language that is not required by the TILA or its regulations. The Eleventh Circuit noted that while the FDCPA mandates that consumers be told in the "initial written communication" that a "debt collector is attempting to collect a debt and that any information obtained will be used for that purpose," 15 U.S.C. § 1692e(11), neither the FDCPA nor TILA requires the use of such language in subsequent communications or periodic statements. "A monthly statement that is in conformity with TILA may nevertheless include additional language that constitutes debt collection." Green v. Specialized Loan Servicing LLC, 766 F. App'x 777, 785 (11th Cir. 2019).

 

Therefore, the Eleventh Circuit held that monthly mortgage statements required by TILA and its regulations can plausibly constitute communications in "connection with the collection of a[ ] debt" under the FDCPA and in connection with "collecting [a] . . . debt" under the FCCPA if (a) they contain the FDCPA's "this is an attempt to collect a debt" language, (b) they request or demand payment of a certain amount by a certain date, (c) they provide for a late fee if the payment is not made on time, and (d) the history between the parties suggests that the statement is an attempt to collect on a disputed debt. See Lear v. Select Portfolio Servicing, Inc., 309 F.Supp.3d 1237, 1240 (S.D. Fla. 2018).

 

Additionally, the Eleventh Circuit considered the guidance bulletin issued in 2013 by the Consumer Financial Protection Bureau, on which the trial court relied. See Consumer Financial Protection Bureau, Implementation Guidance for Certain Mortgage Servicing Rules, CFPB Bulletin 2013-2, 2013 WL 9001249 (Oct. 15, 2013). In that bulletin, the CFPB provided an "advisory opinion" concerning the "cease communications" option provided by the FDCPA. See 15 U.S.C. § 1692c(c). The CFPB concluded that servicers who are debt collectors are generally not liable under § 1692c(c) to consumers who make a "cease communications" request if they comply with the regulations issued under federal laws like TILA, including 12 C.F.R. § 1026.41 (the periodic statement regulation).

 

However, the Eleventh Circuit recognized that an agency's interpretive bulletin provides non-controlling guidance, and its persuasiveness depends on the thoroughness, consistency, and validity of its reasoning. See Rodriguez v. Farm Stores Grocery, Inc., 518 F.3d 1259, 1268 n.5 (11th Cir. 2008). Given that the CFPB bulletin deals only with consumers who choose the "cease communications" option under the FDCPA, the Court reasoned that the bulletin's guidance did not extend to the present situation. See 15 U.S.C. § 1692k(e). Indeed, the Court determined that there is nothing in the bulletin indicating that the CFPB sought to provide an advisory opinion excluding all TILA- required periodic mortgage statements from FDCPA coverage no matter the circumstances.

 

Accordingly, the Eleventh Circuit held that a required monthly mortgage statement that generally complies with TILA and its regulations can plausibly be a communication "in connection with the collection of a[ ] debt" under the FDCPA or in connection with "collecting [a] . . . debt" under the FCCPA if it contains additional debt-collection language. Thus, the Court reversed the trial court's dismissal of the consumer's complaint and remanded for further proceedings.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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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Thursday, June 9, 2022

FYI: Ill App Ct (3rd Dist) Rejects FCRA "Punitive Damages" Claim Due to Insufficient Supporting Allegations

The Appellate Court of Illinois, Third District, recently reversed a trial court's order dismissing a debtor's federal Fair Credit Reporting Act (FCRA) counterclaim against a bank. 

 

In so ruling, the Appellate Court held that:

 

(1)  The declaration supporting the bank's motion to dismiss improperly denied substantial allegations in Debtor's FCRA counterclaim; and

 

(2) The trial court properly rejected the debtor's motion to amend his claim to include a prayer for punitive damages, because the debtor did not allege any facts to support an allegation that the bank willfully violated the FCRA.

 

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

 

The appeal arose from a collection action filed by bank ("Creditor") against a credit card account holder ("Debtor"). Debtor asserted counterclaims against Creditor including claims for violation of the federal Truth in Lending Act (TILA) and the FCRA.  Creditor moved to dismiss the counter-claims as time barred and the trial court granted the motions. Debtor appealed (the "First Appeal") and the Appellate Court affirmed the dismissal of the TILA claim but reversed the dismissal of the FCRA claim.

 

On remand, Debtor moved to amend his FCRA claim to include a prayer for relief of punitive damages and his motion was denied.

 

Creditor moved to dismiss, arguing the FCRA claim failed as a matter of law because there was no evidence that Creditor received a dispute as alleged.  Debtor also filed a cross-motion to strike Creditor's motion to dismiss and for civil contempt.

 

The trial court denied Debtor's motions and granted Creditor's motion to dismiss the FCRA claim with prejudice. Debtor appealed the orders denying leave to amend, civil contempt relief, and to strike Creditor's motion, and the order granting Creditor's motion to dismiss.

 

Debtor argued the trial court erred in granting the motion to dismiss as Creditor did not provide any admissible affirmative matter to negate his counterclaim. Creditor argued that the trial court properly ruled that Debtor's FCRA claim failed as a matter of law.

 

As you may recall, under FCRA, a furnisher party may be subject to civil liability if it fails to comply with the requirements of the FCRA. See 15 U.S.C. §§ 1681n, 1681o (2018). The FCRA requires a consumer reporting agency ("CRA") to notify a furnisher when it receives a notification from a consumer of an alleged error in the consumer's credit report. See 15 U.S.C. §§ 1681i(a), 1681s-2(b) (2018). A furnisher's duty to investigate does not arise under the FCRA until after the CRA notifies the creditor of a dispute.

 

Debtor alleged that he notified a CRA of the alleged billing errors of Creditor, that Creditor failed to correct the errors, and that Creditor continued to issue erroneous negative credit reports based on the errors.

 

With its motion to dismiss, Creditor provided the declaration of the assistant vice president and Creditor's operations consultant in Creditor's legal order and case resolution operations group. The declaration stated that Creditor had no record of receiving an automatic consumer dispute verification ("ACDV") from any CRA in reference to Debtor's account in the subject time period.

 

Debtor argued the declaration was insufficient as it was not an affidavit and did not provide any affirmative matter sufficient to support Creditor's motion to dismiss.

 

The Appellate Court found the declaration sufficient in form as the information was based on the declarant's personal knowledge, a search of Creditor's records, and was made under penalties of perjury. See Ill. S. Ct. R. 191 (eff. Jan. 4, 2013); see also 735 ILCS 5/1-109 (West 2018).

 

However, the Appellate Court also found that despite the form being sufficient, the substance of the declaration was not "affirmative matter" but instead "evidence that refutes a well-pleaded fact of the complaint." Griffin v. Universal Casualty Co., 274 Ill. App. 3d 1056, 1063 (1995) (citing Chicago Title & Trust Co. v. Weiss, 238 Ill. App. 3d 921 (1992)).

 

The Appellate Court explained that the declaration simply identified a factual matter which was not appropriate for motion to dismiss, as it denied a substantial allegation in Debtor's FCRA counterclaim. Therefore, the Appellate Court reversed the order granting Creditor's motion to dismiss.

 

Debtor next argued that the trial court erred in denying his motion to amend his claim to include a prayer for punitive damages. Punitive damages are only available where a defendant acted willfully, under the FCRA. See 15 U.S.C. § 1681n (2018). Conduct that creates "'an unjustifiably high risk of harm that is either known or so obvious that it should be known'" is willful. Redman v. RadioShack Corp., 768 F.3d 622, 627 (7th Cir. 2014) (quoting Farmer v. Brennan, 511 U.S. 825, 836 (1994)).

 

The Appellate Court noted that, as the trial court correctly found, Debtor did not allege any facts to support an allegation that Creditor willfully violated the FCRA. As such, the Appellate Court found the trial court's ruling was not an abuse of discretion.

 

Finally, Debtor argued the trial court erred in denying his motion for civil contempt. Debtor argued Creditor manipulated court orders and submitted court orders without the consent of Debtor or the trial court. The Appellate Court found the record disproved this argument, and thus affirmed the denial of the motion for civil contempt.

 

Accordingly, the Appellate Court reversed the trial court's order granting Creditor's motion to dismiss and affirmed the remaining orders.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6th 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   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   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

 

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and

 

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