Friday, April 19, 2019

FYI: 4th Cir Holds FCRA Furnisher Liability Claim Not Viable Against Federal Gov't

The U.S. Court of Appeals for the Fourth Circuit recently held that a trial court lacked jurisdiction over a claim for violation of the federal Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. ("FCRA") involving a student loan administered by the U.S. Department of Education because Congress did not waive sovereign immunity for suits under FCRA.

 

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

 

This appeal arose from the plaintiff's claim that the government agency responsible for administering the federal student loan program violated FCRA. 

 

The plaintiff alleged that the government agency violated 15 U.S.C. § 1681s-2(b), which requires a furnisher after being notified that a consumer disputes information relating to his credit, to "conduct an investigation with respect to the disputed information."  His dispute concerned an allegedly fraudulent student loan in his name.

 

The government agency filed a motion to dismiss for lack of subject matter jurisdiction based on sovereign immunity.  The trial court granted the motion to dismiss.

 

The only issue on appeal was whether the United States waived sovereign immunity for suits alleging that the federal government willfully or negligently violated FCRA.

 

As you may recall, the Supreme Court of the United States has recognized that sovereign powers have "traditionally enjoyed" a "common-law immunity from suit."  Santa Clara Pueblo v. Martinez, 436 U.S. 49, 58 (1978).  "Absent a waiver, sovereign immunity shields the Federal Government and its agencies from suit."  FDIC v. Meyer, 510 U.S. 471, 475 (1994).

 

"A waiver of the Federal Government's sovereign immunity must be unequivocally expressed in statutory text and will not be implied."  Lane v. Pena, 518 U.S. 187, 192 (1996).  Waivers cannot contain an ambiguity, which "exists if there is a plausible interpretation of the statute that would not authorize money damages against the Government."  FAA v. Cooper, 566 U.S. 284, 290-91 (2012).

 

On appeal, the Fourth Circuit first noted that FCRA's causes of action for willful and negligent violations apply to any "person."  15 U.S.C. §§ 1681n-1681o. 

 

The statute itself defines "person" to include "any individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency, or other entity."  15 U.S.C. § 1681a(b). 

 

The plaintiff argued that because the federal government is a "government", and any "government" is a person, and as any "person" can be liable, the government agency can be liable for FCRA violations.

 

The Fourth Circuit disagreed, explaining that the word "person" should not be interpreted on a blank state because there is a "longstanding interpretative presumption that "person" does not include the sovereign."  Vt. Agency of Nat. Res. v. U.S. ex. rel. Stevens, 529 U.S. 765, 780 (2002). 

 

Although § 1681a(b)'s definition of a "person" includes the term "government," the Fourth Circuit observed that the federal government is ordinarily not considered to be a person under 1 U.S.C. § 1 (general definition of "person" throughout the United States Code). 

 

The Fourth Circuit further observed that statutes waiving sovereign immunity are normally quite clear, citing the Little Tucker Act (28 U.S.C. § 1346(a)(2)) and the Federal Tort Claims Act (28 U.S.C. § 2674), both of which specifically describe claims against the United States. 

 

The definition section on which the plaintiff relied did not specifically mention the United States or the federal government.  Instead, it described only liability against a "person." 

 

This, as the Fourth Circuit explained, was "hardly evidence of an unequivocal intent to waive federal sovereign immunity in the same way as statutes that specifically describe actions against the United States."

 

The Fourth Circuit also addressed one explicit waiver of sovereign immunity elsewhere in FCRA that did not apply to plaintiff's claims. 

 

Section 1681u empowers the Federal Bureau of Investigation to obtain information from consumer reporting agencies in connection with its counterterrorism efforts.  This section contained a clear waiver:  "Any agency or department of the United States obtaining or disclosing any consumer reports, records, or information contained therein in violation of [§ 1681u] is liable to the consumer to whom such consumer reports, records, or information relate" for statutory, actual, and sometimes punitive damages.  15 U.S.C. § 1681u(j).

 

Unlike the asserted waiver on which the plaintiff relied, the Fourth Circuit described the waiver in § 1681u(j) as "plain as day."

 

The Fourth Circuit also noted that federal agencies are sometimes required by law to report delinquent debts to the consumer reporting agencies.  Each report would give rise to potential liability under FCRA.  The true cost of a waiver could be enormous when considering the potential for punitive damages.

 

The Fourth Circuit further noted FCRA empowers the Federal Trade Commission and the Consumer Finance Protection Bureau to enforce its various provisions.  States also play a role in enforcing FCRA's various provisions.  Thus, a waiver would permit federal agencies and states to pursue punitive damages against the federal government. 

 

The Fourth Circuit concluded that "FCRA's text and structure make clear that no unambiguous and unequivocal waiver of sovereign immunity has taken place," as required.

 

Accordingly, the Fourth Circuit affirmed the trial court's dismissal of the case for want of subject matter jurisdiction.

 

 

 

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, April 16, 2019

FYI: 11th Cir Says Offering to 'Resolve' a Time-Barred Debt Can Violate FDCPA Absent Disclosures

The U.S. Court of Appeals for the Eleventh Circuit recently ruled that an offer to "resolve" a debt without disclosing its time-barred status may be deceptive or misleading under the federal Fair Debt Collection Practices Act (FDCPA) even in the absence of an express threat of litigation.

 

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

 

The letter at issue stated the debt collector wanted to "resolve" the consumer's account by accepting a reduced amount by a specific date.  The consumer filed a lawsuit alleging the letter was false and misleading in violation of 15 U.S.C. § 1692e.

 

Relying on Freyermuth v. Credit Bureau Services, Inc., 248 F.3d 767 (8th Cir. 2001), Huertas v. Galaxy Asset Management, 641 F.3d 28 (3d Cir. 2011), and Elrich v. Convergent Outsourcing, Inc., the trial court dismissed the complaint with prejudice because the letter "did not contain any language that could be interpreted as initiating or threatening legal action" on a time-barred debt.

 

The trial court distinguished the case from Daugherty v. Convergent Outsourcing, Inc., 836 F.3d 507 (5th Cir. 2016), Buchanan v. Northland Group., Inc., 776 F.3d 393 (6th Cir. 2015), and McMahon v. LVNV Funding, LLC, 744 F.3d 1010 (7th Cir. 2014), which held that using the word "settle" could imply an impermissible threat of litigation when used with respect to a time-barred debt.

 

The trial court was of the opinion that "resolve" did not rise to the same level of litigation threat as "settle."

 

Violation Can Occur Without Express Threat of Litigation

 

On appeal, the Court was persuaded by the very decisions from which trial court distinguished the case.  Following the reasoning of those cases, the Court concluded that "an express threat of litigation is not required to state a claim for relief under § 1692e so long as one can reasonably infer an implicit threat."

 

The Court noted that the deadline for the payment and the notice that there was no obligation to renew the offer heightened the possibility of such an inference.  Further, the Court was not convinced that the word "resolve" was "materially distinguishable" from the word "settle."

 

Although the defendants argued it would be "untenable" to require debt collectors to "analyze and advise debtors as to the merits of any potential statute of limitations defense," the Court saw no such burden.  Quoting Buchanan, "if a debt collector is unsure about the applicable statute of limitations, it would be easy to include general language about that possibility. . ."

 

Thus, in reversing the decision of the trial court on this issue, the Court held that any language that could reasonably imply the threat of litigation on time-barred debt violates the FDCPA unless accompanied by a notice that the debt is, in fact, time-barred.

 

NY Trial Court Dismisses Similar Claim

 

Another recent case on the issue presents an interesting comparison.

 

In Hollander v. Alliant Capital Mgmt., LLC, No. 18-CV-02808 (DLI)(VMS), 2019 U.S. Dist. LEXIS 58381 (E.D.N.Y. Mar. 31, 2019), the plaintiff argued that a collection letter violated the FDCPA by failing to disclose that the time-barred debt could not be enforced by legal action and that a partial payment might restart the statute of limitations.

 

The decision noted that the Second Circuit Court of Appeals has yet to address the issue of whether "time-barred" debt disclosures are required but dismissed the claim, nonetheless.

 

Although the FDCPA claim was premised on a debt being collected after the statute of limitations had expired, the court found that the complaint offered no factual allegations to support that conclusion because it: 1) did not state the date the debt was incurred; 2) did not state which statute of limitations applied; and 3) did not specify when the statute of limitations expired.

 

Therefore, the plaintiff's claim was an "unadorned legal conclusion."  The complaint filed with the trial court in Holzman in the Southern District of Florida similarly failed to plead those elements.

 

 

 

 

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

 

 

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Monday, April 15, 2019

FYI: 5th Cir Holds Providing Reason for Loss Mit Denial Once Is Enough Under RESPA

The U.S. Court of Appeals for the Fifth Circuit recently held that a mortgage servicer only had to comply with the federal Real Estate Settlement Procedure Act ("RESPA") requirements regarding loss mitigation applications once when the servicer had already provided the same reasons the denial of a loan modification in response to a prior loss mitigation application.

 

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

 

In 2005, a borrower executed a deed of trust in favor of a lender to refinance his home. In 2012, the servicer began servicing the loan. In 2014, the mortgagee became the holder of the note secured by the deed of trust.  The borrower went in and out of default several times since 2009 and last made a loan payment in 2014.

 

In 2012, the servicer initiated a foreclosure, and the borrower submitted the first of four loss mitigation applications.  The servicer denied the loan modification request because the loan owner did not allow the modification.  The servicer subsequently denied the other three modification applications over several years.

 

In 2015, the servicer accelerated the loan and set the property for foreclosure.  In response, the borrower filed to suit in state court against the mortgagee and the servicer to stop the foreclosure.  The defendants removed the case to federal court. 

 

Relevant to this appeal, the borrower alleged that the mortgagee and servicer defendants violated RESPA and the Texas Debt Collection Act ("TDCA").  Specifically, the borrower alleged that defendants violated section 1024.41(c) and (d) of RESPA's implementing regulation because, even though the loan owner did not change and the servicer had previously identified the loan owner, subsequent loss mitigation denials did not "repeat the name of the owner of the mortgage note."

 

As you may recall, 12 U.S.C. § 1024.41(c) provides that after receiving a completed loss mitigation application more than 37 days before a foreclosure sale, the loan servicer shall (1) "[e]valuate the borrower for all loss mitigation options available to the borrower" and (2) "[p]rovide the borrower with a notice in writing stating the servicer's determination of which loss mitigation options, if any, it will offer to the borrower on behalf of the owner or assignee of the mortgage."

 

Further, section 1024.41(d) states that: "[i]f a borrower's complete loss mitigation application is denied for any trial or permanent loan modification option available to the borrower pursuant to paragraph (c) of this section, a servicer shall state in the notice sent to the borrower pursuant to paragraph (c)(1)(ii) of this section the specific reason or reasons for the servicer's determination for each such trial or permanent loan modification option."

 

Section 1024.41(i) also provides that a: "servicer is only required to comply with the requirements of this section for a single complete loss mitigation application for a borrower's mortgage loan account."

 

The trial court held that the defendants only had to comply with RESPA's requirements to identify the loan owner "for one loss mitigation application" and granted summary judgment in favor of the defendants on all of the borrower's claims.  This appeal followed.

 

The Fifth Circuit initially examined the borrower's argument that the trial court erred in entering summary judgment because the defendants failed to raise their defense of 1024.41(i) as an affirmative defense. This was an issue of first impression for the Fifth Circuit.

 

As you may recall, Rule 8(c) of the Federal Rules of Civil Procedure requires defendants to "affirmatively state any avoidance or affirmative defense."  Defendants denied the allegation that they did not comply with section 1024.41(i), but did not raise their alleged compliance as an affirmative defense.  Essentially, the defendants maintained "that they could not have violated RESPA by failing to comply with § 1024.41 because they did, in fact, comply with that section."  The Fifth Circuit rejected the borrower's argument, ruling that the defendants "use of § 1024.41(i) in their motion for summary judgment is merely an expansion of the denial in their answer." 

 

Next, the Fifth Circuit turned to the borrower's argument that the trial court erred when it found that the defendants only had to comply with section 1024.41's requirement to identify the loan owner for one loss mitigation application.  The borrower argued that this wrongly makes section 1024.41, which became effective on January 10, 2014, retroactive. 

 

The Fifth Circuit agreed that section 1024.41 is not retroactive, but nevertheless rejected the borrower's argument in this case because "if the servicer complied with the requirements of the provision prior to the effective date, that compliance must be credited to the servicer because it need only comply with such a requirement once."  To find otherwise, the Court noted, would wrongly read section 1024.41's limitation on duplicative requests out of the statute's effective date.

 

Further, the "purpose of the regulation is not to make already compliant servicers repeat their compliance actions, but rather to bring noncompliant servicers into compliance."  Thus, "[s]ection 1024.41 is a forward-looking provision, but it accounts for a servicer's past actions by requiring only one compliance per requirement." 

 

As such, when the servicer previously complied with section 1024.41 in response to prior loss mitigation applications, it did not have to repeat the name of the same loan owner in each subsequent response, and the trial court properly entered summary judgment on this issue and the alleged TDCA claim based on a violation of section 1024.41.

 

The Fifth Circuit also analyzed the borrower's claim that the defendants violated sections 392.304(a)(14), (19) of the TDCA which provide that:

 

 

a debt collector may not use a fraudulent, deceptive, or misleading representation that employs the following practices:

. . . .

(14) representing falsely the status or nature of the services rendered by the debt collector or the debt collector s business;

. . . .

[or] (19) using any other false representation or deceptive means to collect a debt or obtain information concerning a consumer.

 

 

The borrower argued that that the defendants violated these provisions of the TDCA "by holding out the possibility of a [loan] modification."  The Fifth Circuit had little trouble rejecting this argument because the defendants never promised the borrower a loan modification by asking him to submit loss mitigation applications and the borrower presented no evidence that the defendants knew they would deny the request when they asked for applications.

 

Finally, the Fifth Circuit wrote separately to admonish the borrower because the case history "demonstrates beyond cavil that [the borrower] has spent the last 10 years gaming the system through a series of applications for loan modification, a flawed bankruptcy filing, and the institution of this lawsuit." The Fifth Circuit cautioned the borrower, "and his present and future counsel, if any, that further machinations to prolong this litigation or delay foreclosure proceedings could and likely will be met with sanctions."

 

Thus, the Fifth Circuit affirmed the trial court's summary judgment order in favor of the mortgagee and the servicer and against 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

 

 

 

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

 

 

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Friday, April 12, 2019

FYI: Cal App (4th Dist) Confirms Limited Liability for Foreclosure Trustees

The Court of Appeal for the Fourth District of California recently held that a trustee conducting a non-judicial foreclosure is not subject to tort liability unless it violated duties established by the deed of trust and governing statutes, or if the trustee has effectively taken on a different or modified duty by its actions.

 

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

 

A commercial developer purchased real property and obtained a loan to fund construction.  The loan was secured by a deed of trust on the property.

 

The lender sent a notice of default stating that the payments required under the loan had not been made and demanded payment of the total payoff balance.  A title company recorded a substitution of trustee, which substituted the title company as a the new trustee under the deed of trust. 

 

When the developer failed to pay off the loan, the title company (Trustee) recorded the notice of default and a notice of trustee's sale.  The property was sold at a public auction.

 

The developer filed a lawsuit.  The operative second amended complaint asserted claims for wrongful foreclosure, wrongful disseisin and ouster, and conspiracy.

 

The trial court sustained the Trustee's demurrer to the developer's second amended complaint without leave to amend, and it subsequently entered judgment in favor of the title company.  

 

This appeal followed.

 

On appeal, the developer argued that each of the three causes of action it asserted against the Trustee were adequately pleaded to survive demurrer. 

 

As you may recall, in California, "[a] beneficiary or trustee under a deed of trust who conducts an illegal, fraudulent or willfully oppressive sale of property may be liable to the borrower for wrongful foreclosure."  Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 929.  However, "[t]he trustee of a deed of trust is a not a true trustee with fiduciary obligations, but acts merely as an agent for the borrower-trustor and lender-beneficiary."  Id., at p. 927.

 

The trustee's "only duties are: (1) upon default to undertake the steps necessary to foreclose the deed of trust; or (2) upon satisfaction of the secured debt to reconvey the deed of trust."  Heritage Oaks Partners v. First American Title Ins. Co. (2007) 155 Cal. App. 4th 339, 345.

 

The Appellate Court observed that neither the deed of trust nor the governing statutes created a duty on the part of the Trustee to verify that beneficiary received a valid assignment of the loan or verify the authority of the person who signed the substitution of trustee. 

 

"Such an inquiry is beyond the scope of the trustee's duties," the Appellate Court explained, "and there is no appropriate basis for imposing tort liability on [the Trustee] for failing to take actions that are beyond the scope of its duties."

 

The developer argued in Lupertino v Carbahal (1973) 35 Cal.App.3d 742, the court found that the trustee was equitably estopped from asserting that it complied with the notice requirements of the non-judicial foreclosure statutes.  There, the trustee mailed the notice of trustee's sale to only the borrowers' address of record, and because the borrowers had moved, they did not receive actual notice in time to cure the default.

 

The Appellate Court explained that the trustee in Lupertino had previously been in communication with the borrowers at their then-current address.  "[B]y its actions, the trustee effectively took on the duty of communicating with the borrowers at their then-current address, regardless of the borrowers' failure to update their address of record."  The Court noted that the developer did not raise any similar issues against the Trustee's actions in this case.

 

Additionally, to successfully challenge a foreclosure, the Appellate Court noted that a plaintiff must show both a failure to comply with the procedural requirements for the foreclosure sale and that the irregularity prejudiced the plaintiff.  Knapp v. Doherty (2004) 123 Cal.App.4th 76, 96.

 

The developer alleged that the trustee's sale was noticed for March 3, 2015, but the property was not sold until March 5, 2015, and the sale price was less than the outstanding principal balance due on the loan.  In the Appellate Court's view, these facts, without more, do not support the developer's assertions that the Trustee failed to properly notice and conduct the foreclosure sale. 

 

The developer also argued that the notice of default contained "irregularities" including, among other things, that it was signed by an agent of the beneficiary and listed an incorrect address and phone number for the beneficiary. 

 

The Appellate Court observed that Civil Code ' 2924(a)(1) permits the trustee, mortgagee, or any of their authorized agents to record the notice of default.  It further observed that the developer did not plead any facts demonstrating prejudice flowing from the purported defects in the notice.  Specifically, that the defect impaired its ability to protect its interest in the property. 

 

Thus, the Appellate Court concluded that the Trustee's demurrer  to the wrongful foreclosure claim was properly sustained. 

 

The Appellate Court then turned to the developer's remaining causes of action for "wrongful disseisin and ouster" and "conspiracy." 

 

Noting that both of these claims were derivative of the wrongful foreclosure claim, and that the developer did not argue how these claims might still be viable even if the wrongful foreclosure cause of action was not, the Appellate Court concluded that Trustee's demurrer as to the remaining claims was also properly sustained. 

 

Accordingly, the Appellate Court affirmed the trial court's order sustaining without leave to amend the Trustee's demurrer to the second amended complaint.

 

 

 

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   |   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.


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Wednesday, April 10, 2019

FYI: 9th Cir Reverses Summary Judgment on TCPA Allegations That Creditor Ratified Contractor's TCPA Violations

The U.S. Court of Appeals for the Ninth Circuit recently reversed a summary judgment award in favor of a student loan buyer, holding that triable issues of fact existed as to whether it had actual knowledge of or willfully ignored and thereby ratified the Telephone Consumer Protection Act ("TCPA") violations of the debt collectors contracted by the owner's servicer.

 

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

 

The plaintiff received student loans through a federal program under which the owner of the loans "guarantees student loans made by private lenders and then takes ownership of those loans if a student-borrower defaults.

 

The borrower defaulted and the owner of the loans contracted with a loan servicing company, which in turn contracted with debt collectors to collect on loans in default.

 

Five different debt collection companies began calling the borrower and left pre-recorded messages using a cellular telephone number that "she neither provided in connection with her student loans nor consented to be called on."

 

The borrower sued the loan owner, loan servicer and several debt collectors, alleging the violated the TCPA by calling the borrower's telephone number without her express consent using an automatic telephone dialing system ("ATDS") and leaving pre-recorded messages. All of the defendants except the loan owner were "dismissed for lack of personal jurisdiction."

 

The trial court granted the loan owner's motion for summary judgment and the borrower appealed, arguing that (a) the owner was vicariously liable for the debt collectors' TCPA violations under a 2008 Order of the Federal Communications Commission; and (b) the owner was vicariously liable "under the federal common law agency principles of ratification and implied actual authority."

 

On appeal, the Ninth Circuit began by explaining that "[u]nder the TCPA, it is unlawful 'to make any call (other than … with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice … to any telephone number assigned to a … cellular telephone service."

 

The FCC's 2008 Order determined that "[c]alls placed by a third party collector on behalf of that creditor are treated as if the creditor itself placed the call." Because Congress had addressed the issue directly and "the 2008 FCC Order is a fully adjudicated declaratory ruling," it is entitled to deference under the Supreme Court's decision in Chevron, U.S.A. Inc. v. Natural Res. Def. Council. 

 

Rejecting the plaintiff's first argument, the Court pointed out that "[t]hough the 2008 FCC Order implies a creditor could be liable for a debt collector's TCPA violations, the Order does not make such liability per se or automatic. … To the contrary, in a 2013 order, the FCC clarified that a court should determine whether a defendant is vicariously liable for the TCPA violations of a third-party called by using federal common law agency principles."

 

The Ninth Circuit also explained that the borrower's argument ignored the Court's 2014 decision in Gomez v. Campbell-Ewald Co., "which held that 'a defendant may be vicariously liable for TCPA violations where the plaintiff establishes an agency relationship, as defined by federal common law, between the defendant and a third-party caller." Thus, "there is no per se liability."

 

The Court then turned to analyze the applicable federal common law agency principles, looking to the Restatement (Third) of Agency for guidance, focusing on the "two agency principles that [plaintiff] believes makes [the owner/creditor] liable for the debt collectors' TCPA violations—ratification and implied actual authority."

 

The Ninth Circuit explained that "ratification is the principal's assent (or conduct that justifies a reasonable assumption of assent) to be bound by the prior action of another person or entity. … [and] creates consequences of actual authority, including, in some circumstances, creating an agency relationship when none existed before."

 

A principal ratifies a third party's acts in two ways: "[t]he first is by a 'knowing acceptance of the benefit'. … The second way … is through 'willful ignorance.'"

 

The Court cited its 2018 decision in Kristensen v. Credit Payment Servs. Inc., a TCPA class action and "the only case in our circuit, or any circuit, that analyzes in what circumstances ratification may create an agency relationship when none existed before …." That case involved a text message sent to plaintiff's cell phone without his prior consent "as part of a marketing campaign for payday lenders."

 

The plaintiff sued "the lenders and marketing companies but not the company that sent the text message. The trial court granted summary judgment for the defendants, rejecting plaintiff's theory of vicarious liability that "defendants ratified … the [sender's] unlawful texting campaign by accepting customer leads while knowing that [the sender] was using texts to generate those leads." The Ninth Circuit affirmed, holding that because the non-party sender was not an agent or "purported agent of the defendants, they could not have ratified the [sender's] acts."

 

The Ninth Circuit distinguished Kristensen because "[u]nlike the texting publisher in Kristensen, here, a reasonable jury could find that the debt collectors pretended and demonstrably assumed to act as [the owner/creditor's] agents."

 

Having found Kristensen inapplicable, the Court analyzed "whether a triable issue of fact exists as to whether [the owner/creditor's] conduct 'justifies a reasonable assumption' that it assented to the debt collector's allegedly unlawful calling practices."

 

Highlighting that "[t]h focal point of ratification is an observable indication that a principal has exercised an explicit or implicit choice to consent to the purported agent's acts[,]" the Court found that "a reasonable jury could conclude that [the owner/creditor] accepted the benefits—loan payments—of the collectors' calls while knowing some of the calls may have violated the TCPA. If a jury concluded that [the owner/creditor] also had 'knowledge of material facts,' [its] acceptance of the benefits of the collector's unlawful practices would constitute ratification."

 

Because there was "evidence that [the owner/creditor] communicated consent to the debt collectors through acquiescence in their calling practices that allegedly violated the TCPA[,]" and the knowledge of material facts requirement can be met either through "actual knowledge" or "willful ignorance," the Court found that "a reasonable jury could find that [the owner/creditor] ratified the debt collectors' calling practices by remaining silent and continuing to accept the benefits of the collectors' tortious conduct despite knowing what the collectors were doing or, at the very least, knowing of facts that would have led a reasonable person to investigate further."

 

Because triable issues of fact existed as to whether the owner/creditor had actual knowledge of or engaged in willful ignorance and thereby ratified the debt collector's calling practices, the Ninth Circuit held that "a reasonable jury could find that [the owner/creditor] ratified the debt collectors' calling practices" and reversed the trial court's order granting summary judgment in defendant's favor.

 

 

 

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

 

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