Friday, June 21, 2019

FYI: 8th Cir Rejects Alleged Data Breach Victim's UDAP, UDTPA, Common Law, and Other Claims

The U.S. Court of Appeals for the Eighth Circuit ("Eighth Circuit") recently upheld the dismissal of an alleged data breach victim's allegations under the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA), the Illinois Personal Information Protection Act (PIPA), and the Illinois Uniform Deceptive Trade Practices Act (UDTPA), as well as various common law claims.

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

 

In June and July 2014, hundreds of retail grocery stores operated by three different entities ("Grocers") were hacked, resulting in the theft of its customers' card information, including their names, credit or debit card account numbers, expiration dates, personal identification numbers, and card verification value codes.  After the Grocers notified customers of the cyberattack via a press release in August 2014, a second cyberattack took place around August or September 2014.

 

Affected customers ("Customers") filed multiple putative class actions against the stores, alleging that the attacks were related and resulted from the stores' failure to properly safeguard their customers' personal information. 

 

After the cases were consolidated, the Grocers moved to dismiss, asserting that plaintiffs lacked standing, and failed to state a claim upon which relief could be granted.  The Grocers' motion to dismiss was granted without prejudice for lack of standing pursuant to Rule 12(b)(1), as the trial court concluded that none of the plaintiffs had alleged an injury in fact because the complaint's allegations were insufficient to plausibly suggest that plaintiffs were likely to suffer future identity theft. The trial court did not address defendants' alternative motion under Rule 12(b)(6) for failure to state a claim.

 

The Customers' subsequent motions to alter or amend the trial court's judgment pursuant to Rule 59(e), or alternatively, for leave to amend the complaint were denied.  Thereafter, the Customers appealed the trial court's dismissal for lack of subject-matter jurisdiction, but did not appeal the denial of their Rule 59(e) motion.

 

On appeal, (the "First Appeal") the Eighth Circuit affirmed the trial court's ruling that the complaint did not sufficiently allege a substantial risk of identity theft, and the customers' allegations of future injury did not support standing.  See In re SuperValu, Inc., 870 F.3d 763 (8th Cir. 2017). 

 

However, because one of the Customers ("Customer 1") alleged a present injury in fact — that he suffered a fraudulent charge on the credit card he previously used to make a purchase at one of the stores affected by the data breaches — the appellate court concluded that he had standing to bring suit, and remanded to allow the trial court to consider the grocers' motion to dismiss pursuant to Rule 12b(6) as to Customer 1 in the first instance.

 

On remand, the Grocers renewed their motion to dismiss.  A week later, the Customers filed a second motion for leave to amend, with a proposed amended complaint that added general allegations about the likelihood of identity theft following a data breach — many of which were based on the same affidavits attached to their previously-denied motion to alter or amend judgment pursuant to Rule 59(e).  The trial court denied the Customers' motion for leave to amend, holding that futility and undue delay compelled denial under Rule 15(a)(2).  The trial court also granted dismissal as to all claims asserted by Customer 1 because: (i) he did not shop at a grocery store owned by two of the three defendant Grocers, and; (ii) his claims against the third defendant Grocer where he did shop ("Grocer 1") because his causes of action for negligence, consumer protection, implied contract and unjust enrichment failed as a matter of law. 

 

The instant, second appeal followed.

 

After addressing various procedural arguments not relevant here, the Eighth Circuit reviewed the dismissal of each of Customer 1's four claims for failure to state a claim under Rule 12(b)(6).

 

First examining Customer 1's negligence claims, the Court turned to applicable Illinois state law which requires that a complaint must allege "facts that establish the existence of a duty of care owed by the defendant to the plaintiff, a breach of that duty, and an injury proximately caused by that breach" to state a claim for negligence.  Marshall v. Burger King Corp., 856 N.E.2d 1048, 1053 (Ill. 2006). 

 

As the Illinois Supreme Court had not yet addressed whether a retailer has a qualifying special relationship with its customers to trigger obligations to protect its financial information, the Eighth Circuit looked to a recent ruling from the Seventh Circuit which addressed the same question, and predicted that Illinois would not impose such a duty on retailers.  See Cmty. Bank of Trenton v. Schnuck Mkts., Inc., 887 F.3d 803, 816 (7th Cir. 2018), citing Cooney v. Chicago Public Schools 943 N.E.2d 23, 28–29 (Ill. App. Ct. 2010). 

 

The Eighth Circuit further rejected Customer 1's alternative argument that Section 45(a) of the Federal Trade Commission Act creates a duty enforceable through an Illinois negligence action, as having previously been rejected in Illinois federal court.  See Cmty. Bank of Trenton v. Schnuck Mkts., Inc., 210 F. Supp. 3d 1022, 1041 (S.D. Ill. 2016).  Accordingly, the Eighth Circuit held that dismissal of Customer 1's negligence claims was proper.

 

The Court next analyzed Customer 1's claims raised under various Illinois consumer protection statutes, the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA), the Illinois Personal Information Protection Act (PIPA), and the Illinois Uniform Deceptive Trade Practices Act (UDTPA).  Primarily, the court noted that the PIPA does not create a separate cause of action and may be pursued only by satisfying ICFA's requirements.  See 815 Ill. Comp. Stat. 530/20; Best v. Malec, No. 09 C 7749, 2010 WL 2364412, at *7 (N.D. Ill. June 11, 2010).

 

The Eighth Circuit held that Customer 1's alleged injuries of time spent monitoring his account, the single fraudulent charge (for which he did not specifically allege he was required to pay), and effort to replace his compromised card did not constitute actual damage and an 'actual pecuniary loss' as required under ICFA.  815 Ill. Comp. Stat. 505/10a(a); Kim v. Carter's Inc., 598 F.3d 362, 365 (7th Cir. 2010).  The Court further rejected Customer 1's argument that the collateral source doctrine, in which "benefits received by an injured party from a source wholly independent of, and collateral to, the tortfeasor will not diminish damages otherwise recoverable from the tortfeasor" applies to an ICFA claim.   Wills v. Foster, 892 N.E.2d 1018, 1022 (Ill. 2008).

 

As to his cause of action under Illinois' UDTPA, Customer 1's claims fail because the only available remedy under the statute is injunctive relief, and the complaint fails to show that he is "likely to be damaged" by Grocer 1 in the future, as required.  See Glazewski v. Coronet Ins. Co., 483 N.E.2d 1263, 1267 (Ill. 1985).  For these reasons, all of Customer 1's claims under Illinois consumer protection statutes (ICFA, PIPA, UDTPA) were appropriately dismissed for failing to state a claim.

 

Without further analysis, the Eighth Circuit concluded that Customer 1's claim for breach of an implied contract also failed for failure to sufficiently allege that the Customers were party to an implied contract.

 

As to his remaining claim for unjust enrichment, Customer 1 alleged that Grocer 1's delay in informing customers of the data breach resulted in in an unjust benefit to Grocer 1, because he would not have shopped and expended money on groceries at its store if it had immediately informed its customers of the breach.

 

To state a claim of unjust enrichment in Illinois, "a plaintiff must allege that the defendant has unjustly retained a benefit to the plaintiff's detriment, and that defendant's retention of the benefit violates the fundamental principles of justice, equity, and good conscience." HPI Health Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 545 N.E.2d 672, 679 (Ill. 1989).

 

Here, the Eighth Circuit opined that common sense rejects Customer 1's theory because he did not pay, or allege to pay a premium "for a side order of data security and protection"—the amounts he paid for groceries would have been the same whether he paid by cash or credit card.  Irwin v. Jimmy John's Franchise, LLC, 175 F. Supp. 3d 1064, 1072 (C.D. Ill. 2016) (applying Arizona law).   As such, he does not adequately allege a benefit conferred in exchange for protection of his personal information nor shown how Grocer 1's retention of his payment would be inequitable. Carlsen v. GameStop, Inc., 833 F.3d 903, 912 (8th Cir. 2016).   The Eighth Circuit therefore concluded that Customer 1 failed to state a plausible claim of unjust enrichment.

 

For these reasons, dismissal of Customer 1's complaint under Rule 12(b)(6) for failure to state a claim 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

 

 

 

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Wednesday, June 19, 2019

RE: FYI: 11th Cir Holds Moving to Reset Foreclosure Sale During Loss Mit Did Not Violate RESPA or FDCPA

The U.S. Court of Appeals for the Eleventh Circuit affirmed the dismissal of a borrower's claim, holding that a mortgage servicer's motion to reschedule a previously set foreclosure sale after it approved the borrower for a trial loan modification plan did not violate the federal Real Estate Settlement Procedures Act, 12 U.S.C. § 2601, et seq. ("RESPA") because the motion to reschedule did not move for an order of sale.

 

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

 

A borrower defaulted on her mortgage loan and her lender filed a foreclosure action.  The lender obtained final summary judgment in its favor and set a foreclosure sale date.  The sale date was continued several times to allow the borrower to apply for a loan modification. 

 

The servicer approved a trial modification plan that required six monthly payments, but instead of cancelling the foreclosure sale outright, moved to reschedule the sale due to the ongoing loss mitigation efforts.  The borrower responding by filing a motion to cancel the sale noting that she had made the first of the six required payments on her loan modification plan.  The foreclosure court granted the borrower's motion and cancelled the sale.

 

Subsequently, the borrower sent the servicer a notice of error under 12 C.F.R. § 1024.35 of Regulation X alleging that the servicer had violated section 1024.41(g) by only moving to reschedule the sale because it did not take all "reasonable steps" to cancel the sale.

 

Before receiving a response from the servicer, the borrower filed a complaint against the servicer in the trial court alleging that it violated RESPA and the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. ("FDCPA") by moving to reschedule the foreclosure sale after the servicer had approved her for a loan modification trial plan.  The borrower based her FDCPA claim on the same conduct that she alleged violated RESPA and Regulation X.

 

The servicer moved to dismiss arguing that it did not violate RESPA because the foreclosure sale date was set before the servicer approved the loan modification trial plan. Thus, when it moved to reschedule the existing sale date the servicer did not "move for foreclosure judgment or sale, or conduct a foreclosure sale," in violation of section 1024.41(g).

 

The trial court granted the motion to dismiss because RESPA and Regulation X "did not prohibit a request for a foreclosure sale to be rescheduled while the borrower is engaged in a modification plan where the foreclosure judgment and order of sale were entered before the commencement of the modification plan."  The trial court also dismissed the FDCPA claim because it was based on the alleged RESPA violation.

 

This appeal followed.

 

Initially, the Eleventh Circuit noted that RESPA prohibits a mortgage servicer from moving for a "foreclosure judgment or order of sale, or conduct[ing] a foreclosure sale" when a borrower "submits a complete loss-mitigation application at least 37 days before a scheduled foreclosure sale." 

 

The issue here then is whether filing a motion to reschedule an existing foreclosure sale that was set before the borrower submitted a completed loss-mitigation application is a motion for "order of sale."  The Eleventh Circuit concluded that it does not because the regulation "does not, by its terms, prohibit a servicer from moving to reset an already-scheduled foreclosure sale."

 

As Regulation X does not define the phrase "order of sale," the Eleventh Circuit examined its common usage for its meaning. It found that "order" generally means "a command, direction, or instruction." The word "of" is "a function word indicating a possessive relationship." And "sale" in this context is "the transfer of property or title for a price." 

 

Together these definitions mean the phrase "order of sale," indicates "a legal document issued by a court that commands or directs property to be sold so that a transfer of ownership of title to the property will occur for a price." Thus, "a motion to simply reschedule a foreclosure sale that was previously set in accordance with an already-existing order of sale" is not "the same thing as a motion for order of sale itself."  Instead, the motion is merely a "housekeeping-type motion that does no more than seek permission to change the date of sale that the court has previously ordered."

 

The Eleventh Circuit observed that section 1024.41(g) supports its interpretation because it only prohibits three things: "motions for foreclosure judgment, motions for orders of sale, and foreclosure sales themselves." Motions seeking a foreclosure judgment and a foreclosure sale are plainly "substantive and dispositive motions."  As such, a motion for an order of sale is also "a substantive and dispositive motion."  The motion to reschedule the existing sale date was not a substantive or dispositive motion any more than "a motion that seeks to reschedule a hearing on a motion to dismiss."

 

The Eleventh Circuit also concluded that the borrower's interpretation was "inconsistent with the consumer-protection purposes of RESPA. A servicer that already obtained a foreclosure order would risk foregoing its ability to foreclose by engaging in loss-mitigation efforts if moving to reschedule a foreclosure sale that was already set violated RESPA.  Thus, "servicers would be heavily disincentivized against offering loss-mitigation options to delinquent borrowers and helping them complete loss-mitigation applications—any time a foreclosure sale had already been scheduled." 

 

Finally, the Eleventh Circuit considered the borrower's argument that the Consumer Financial Protection Bureau's ("CFPB") interpretation of Regulation X supports the borrower's interpretation of section 1024.41(g).  The Eleventh Circuit rejected this argument for several reasons.  First, it did not have to follow the CFB's interpretation because "the regulatory language unambiguously answers the question at Issue."

 

Additionally, the CFPB commentary is consistent with the outcome here for two reasons.  First, the CFPB commentary suggests that Regulation X only prohibits filing dispositive motions, not administrative motions to reschedule an existing date.  Second, the servicer here sought to suspend the foreclosure sale which is consistent with the CFPB commentary that "it is appropriate to suspend a foreclosure sale when a borrower is performing under an agreement on a loss mitigation option."  See Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X), 78 Fed. Reg. at 10,833 (emphasis added).  That is precisely what happened here.  The servicer suspended the sale and the sale did not occur.

 

Thus, the Eleventh Circuit affirmed the trial court's dismissal of this action.

 

 

 

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

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

 

Admitted to practice law in Illinois

 

 

 

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Sunday, June 16, 2019

FYI: 7th Cir Creates Split on Spokeo Standing, Rules in Favor of Defendant in FDCPA Disclosure Case

The U.S. Court of Appeals for the Seventh Circuit recently affirmed a trial court's ruling that a debtor lacked Article III standing to sue a debt collector for failing to notify her in its debt validation letter that to trigger the federal Fair Debt Collection Practices Act's ("FDCPA") protections she had to communicate a dispute in writing because the only harm she suffered was receiving the incomplete letter.

 

In so ruling, the Seventh Circuit created a circuit split on this issue as in Macy v. GC Services Limited Partnership, 897 F.3d 747 (6th Cir. 2018), the Sixth Circuit held under identical facts that the complaint in that case alleged a concrete injury because depriving a consumer of this information put them at a greater risk of future harm.

 

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

 

A debt collector sent a letter to a debtor demanding payment that largely complied with section 1692g(a) of the FDCPA, except it did not state that the debtor had to send any dispute to the debt collector in writing. 

 

The debtor sued on behalf of herself and a putative class alleging that the letter violated the FDCPA.  As you may recall, a 1692g(a) notice must state, among other items, that a debtor has two options to verify her debt. 

 

First, the debtor must notify the debt collector "in writing" that she disputes the debt. § 1692g(a)(4). Second, the debtor may send a "written request" to the debt collector for the name and address of the original creditor. § 1692g(a)(5).

 

The debtor did not allege that she sent a dispute regarding the debt or that she would do so, but claimed the letter breached her rights under the FDCPA and sought to recover $1,000 in statutory damages for herself, a statutory award for the class members, attorneys' fees, and costs.

 

While the case was pending the Seventh Circuit decided Groshek v. Time Warner Cable, Inc., 865 F.3d 884 (7th Cir. 2017), which followed the Supreme Court's Spokeo decision in holding that without anything more "a plaintiff cannot satisfy the injuryinfact element of standing simply by alleging that the defendant violated a disclosure provision of a consumer protection statute."  As such, the trial court concluded that the debtor lacked Article III standing.

 

This appeal followed.

 

Initially, the Seventh Circuit observed that to establish standing a plaintiff must allege "an injury-in-fact that is traceable to the defendant's conduct and redressable by a favorable judicial decision."  This case concerns the first injury-in-fact requirement which involves "an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical."

 

Although Congress enabled consumers to sue debt collectors that fail to comply with the FDCPA, 15 U.S.C. § 1692k(a), the Seventh Circuit held that this does not mean that every plaintiff has standing as even in the context of a statutory violation.  Instead, the Court held, Congress must adhere to Article III's requirement that a plaintiff suffer "a concrete injury."   A "bare procedural violation" like the one the debtor alleged here does not satisfy this requirement.

 

The Seventh Circuit acknowledged that the Sixth Circuit's opinion in Macy, under a nearly identical fact pattern, concluded that a failure to notify plaintiffs that they had to dispute their debts in writing established a concrete injury sufficient to confer Article III standing because "[w]ithout the information about the inwriting requirement, Plaintiffs were placed at a materially greater risk of falling victim to abusive debt collection practices."

 

The Seventh Circuit disagreed with this approach because regardless of whether the omission created a risk that consumers who sought to dispute the debt may waive their statutory rights, it created no risk for the named plaintiffs who did not dispute the debt or even plan to dispute the debt.  In the Seventh Circuit's view, the risk that the omission may harm "someone" does not confer standing.  Instead, the omission "must have risked harm to the plaintiffs."

 

Next the Seventh Circuit rejected the debtor's argument that she sufficiently alleged a concrete injury because depriving her of the knowledge that she had to submit disputes in writing constituted an "informational injury."  The Seventh Circuit had little trouble rejecting this argument because "the denial of information subject to public disclosure is one of the intangible harms that Congress has the power to make legally cognizable. (Emphasis in original).  A public disclosure law protects "the public's interest in evaluating matters of concern to the political community" and denying a request for information under such a law "necessarily implicates that interest."  The debtor did not seek and was not denied any such information. 

 

The debtor also argued that Havens Realty Corp. v. Coleman, 455 U.S. 363 (1982), demonstrated that she suffered a concrete "informational injury" because the defendant violated a statutory requirement. Havens Realty involved a minority plaintiff that sued the defendant after it "falsely told her that an apartment complex had no vacancies."  Although the plaintiff in Havens Realty did not intend to rent an apartment, she requested the information because she suspected that the defendant was practicing "unlawful racial steering."  She had a concrete injury because the Fair Housing Act gave everyone "a legal right to truthful information."  The debtor argued that the FDCPA "likewise conferred on all debtors a right to complete information about their statutory rights."

 

The Seventh Circuit disagreed because the Havens Realty plaintiff did not allege harm based on any received "inaccurate or incomplete information."  Instead, she claimed the defendant harmed her by lying to her because of her race.  This invasion is precisely the "interest that the Fair Housing Act protects: freedom from racial discrimination in the pursuit of housing."  That is not the harm the debtor claimed nor the harm that the FDCPA protects against.

 

Thus, the Seventh Circuit affirmed the trial court's ruling.

 

 

 

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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and

 

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