Wednesday, December 14, 2022

FYI: 9th Cir Holds Companies Can Sue Under ATDS Provisions of TCPA, Mixed-Use Cell Phones Can Be "Residential"

The U.S. Court of Appeals for Ninth Circuit recently reversed a trial court's judgment dismissing a federal Telephone Consumer Protection Act ("TCPA") complaint brought by a group of home improvement contractors for lack of statutory standing.

 

In so ruling, the Ninth Circuit held that the contractor plaintiffs had statutory standing under Sections 227(b) and 227(c) of the TCPA because the statutory text includes not only "person[s]" but also "entit[ies]", and registered cell phones that are used for both personal and business purposes are presumptively "residential."

 

The Ninth Circuit also held that the contractors alleged a concrete and particularized injury sufficient for Article III standing.

 

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

 

As you may recall, the TCPA prohibits calls using automatic telephone dialing systems ("ATDS") to cell phones, see 47 U.S.C. Section 227(b), and telephone solicitations sent to residential telephone subscribers who have registered their phone numbers on the national do-not-call registry, see 47 U.S.C. Section 227(c). Both provisions provide private causes of action for damages and injunctive relief.

 

The complaint here alleged that the website defendants' use of an ATDS to call the contractors' cell phones violated Section 227(b) and that the websites' text messages to the contractors' cell phones that were registered on the national do-not-call registry violated Section 227(c).

 

The website defendants moved to dismiss, contending among other things that the contractors lacked Article III and statutory standing. The trial court assumed that the contractors had Article III standing, but held under the "zone of interests" test of Lexmark International, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014), that the contractors lacked statutory standing under the TCPA. The trial court dismissed the contractors' complaint with prejudice. The contractors timely appealed.

 

On appeal, the websites argued that the contractors lacked Article III standing because the contractors were known to solicit business inquiries from potential customers and therefore did not suffer a concrete and particularized injury in receiving solicitations from the websites.

 

"[T]o satisfy Article III's standing requirements, a plaintiff must show (1) it has suffered an 'injury in fact' that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision." Id. (alteration in original) (quoting Friends of the Earth, Inc. v. Laidlaw Env't Servs., Inc., 528 U.S. 167, 180–81 (2000)).

 

Furthermore, the Ninth Circuit wrote in Van Patten v. Vertical Fitness Grp., LLC that, in enacting the TCPA, Congress "establishe[d] the substantive right to be free from certain types of phone calls and texts absent consumer consent . . . [and] identified unsolicited contact as a concrete harm." 847 F.3d 1037, 1043 (9th Cir. 2017).

 

According to Van Patten, "an effective consent is one that relates to the same subject matter as is covered by the challenged calls or text messages." Id. at 1044–45. Importantly, "providing a phone number in itself [does not mean] that the consumer has expressly consented to contact for any purpose whatsoever". Instead, the scope of consent is "related to the reason [the plaintiff] gave his number in the first place." Id. at 1045–46.

 

The Ninth Circuit noted that the contractors alleged in their complaint that they received unsolicited, unconsented automated text messages from the websites on their cell phones. Even assuming that the websites acquired the contractors' phone numbers through publicly available online directories, the Court held that they did not provide "prior express consent" as the Court construed that phrase in Van Patten.

 

Moreover, the Ninth Circuit concluded that the contractors' harm was particularized because the TCPA provides that even one unconsented message can violate the statute, and the websites provided no basis to disbelieve the contractors' allegation that each of them received at least one message. "A plaintiff alleging a violation under the TCPA 'need not allege any additional harm beyond the one Congress has identified'" to establish Article III standing. Van Patten, 847 F.3d at 1043.

 

Thus, the Ninth Circuit held that the contractors alleged a concrete and particularized injury sufficient for Article III standing.

 

The Ninth Circuit also concluded that the contractors had statutory standing under Section 227(b) of the TCPA. The websites argued that the TCPA protects only individuals from unwanted calls, and that the contractors fell outside of the TCPA's zone of interest. However, because the statutory text includes not only "person[s]" but also "entit[ies]," the Court reasoned that all of the contractors had standing to sue under Section 227(b) of the TCPA.

 

The contractors who placed their cell phone numbers on the national do-not-call registry also alleged additional claims under Section 227(c). Noting that Section 227(c) and its implementing regulations apply only to "residential" telephone subscribers, the websites argued that because the contractors used their cell phones both for personal calls and for calls associated with their home improvement businesses, they did not qualify as residential subscribers.

 

The question on appeal was therefore whether a cell phone that is used for both business and personal purposes can be a "residential" phone within the meaning of Section 227(c).

 

The Ninth Circuit noted that, in the view of the Federal Communications Commission (FCC), a subscriber's use of a residential phone in connection with a home-based business does not necessarily take an otherwise residential subscriber outside the protection of Section 227(c).

 

Relying on the FCC's regulations and orders, the Court thus concluded that a presumptively residential cell phone can be residential even when used for both personal and business purposes. In the absence of FCC guidance on the precise question of when a mixed-use phone ceases to become a residential phone or a business phone, the Court held that the contractors' registered cell phones that are used for both personal and business purposes are presumptively "residential" within the meaning of Section 227(c). At the motion to dismiss stage, the Court therefore concluded that these contractors had standing to sue under Section 227(c).

 

Nevertheless, the Ninth Circuit also indicated that after discovery, the websites may seek to argue that they have rebutted the presumption of a residential cell phone by showing that the contractors' cell phones were used to such an extent and in such a manner as to be properly regarded as business rather than residential lines.

 

Accordingly, the Ninth Circuit concluded that the contractors had standing under Article III and statutory standing under Sections 227(b) and (c) of the TCPA. The Court therefore reversed and remanded to the trial court for proceedings consistent with this opinion.

 

 

 

 

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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Monday, December 12, 2022

FYI: NY Court of Appeals Confirms Secured Lender May Collect Accounts Receivable of the Debtor

The New York Court of Appeals recently reversed the rulings of both the trial court and intermediate appellate court, and held that under Article 9 of the Uniform Commercial Code (UCC) a secured lender may collect the accounts receivables owed to the debtor by third parties.

 

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

 

The plaintiff lender entered into a promissory note and security agreement with a non-party subcontractor whereby the subcontractor could borrow up to $3 million dollars from the lender. The subcontractor granted the lender a security interest in its assets and the lender filed a UCC-1 financing statement.

 

More specifically, the collateral for the loan "constituted substantially all existing and future assets and properties of [the subcontractor], including, 'all right, title and interest of [the subcontractor] in and to its (a) accounts . . . .'", and the term "Accounts" included the accounts receivable arising from invoices the subcontractor issued to its customers.

 

The defendant contractor entered into a contract with the subcontractor.  The plaintiff lender notified the contractor of its security interest and collateral assignment in the subcontractor's accounts.

 

The subcontractor defaulted and the lender demanded immediate repayment under the terms of the promissory note and security agreement. Ultimately, the subcontractor declared bankruptcy. The lender brought an action against the defendant contractor alleging that the lender was entitled to recover all amounts the contractor owed to the subcontractor after contractor received notice of the lender's assignment. The defendant contractor filed a motion to dismiss lender's complaint.

 

The trial court dismissed the lender's complaint holding that UCC § 9-607 "'does not determine whether an account debtor, bank, or other person obligated on collateral owes a duty to a secured party'"; (2) the agreement between the lender and the subcontractor was "a security interest and was not an assignment"; and (3) UCC § 9-607 applies to assignments, not security interests.

 

The lender appealed, and the intermediate appellate court affirmed the trial court, holding that the lender "did not have an independent cause of action against subcontractor pursuant to UCC § 9-607" because section 9-607(e) does not authorize a secured creditor, as distinct from an assignee, to recover from a nonparty debtor like the subcontractor.

 

The lender again appealed to the New York Court of Appeals.

 

The Court of Appeals analyzed the litigants' arguments under UCC § 9-406 and § 9-607.  As you may recall, UCC § 9-607(a)(3), entitled "Collection and Enforcement by Secured Party," states as follows:

 

If so agreed, and in any event after default, a secured party. . . may enforce the obligations of an account debtor or other person obligated on collateral and exercise the rights of the debtor with respect to the obligation of the account debtor or other person obligated on collateral to make payment or otherwise render performance to the debtor, and with respect to any property that secures the obligations of the account debtor or other person obligated on the collateral.

 

The defendant contractor argued that, because the subcontractor advised the defendant contractor that there was a "dispute" between the subcontractor and contractor, the lender cannot rely on § 9-607(a)(3), which begins, "If so agreed." The Court of Appeals disagreed because the phrase "If so agreed" referred to the agreements relating to the security interest (here, the Promissory Note and Security Agreement between the lender and the subcontractor), and allowing a claimed dispute to nullify sections 9-607 and 9-406 would render the sections meaningless.

 

Instead, the Court of Appeals held that, because the lender was a "secured party", the lender had the authority to enforce the rights of its debtor (the subcontractor) to collect on the obligations of the account debtor (the defendant contractor), and that section 9-607 did not itself determine whether an account debtor owes a duty to a secured party.

 

The Court of Appeals also analyzed UCC § 9-406(a), which states:

 

An account debtor on an account, chattel paper, or a payment intangible may discharge its obligation by paying the assignor until, but not after, the account debtor receives a notification, authenticated by the assignor or the assignee, that the amount due or to become due has been assigned and that payment is to be made to the assignee. After receipt of the notification, the account debtor may discharge its obligation by paying the assignee and may not discharge the obligation by paying the assignor.

 

The defendant contractor argued that only assignors, not holders of security interests, could rely on the payment-redirection provisions contained in UCC § 9-406. The Court of Appeals disagreed because the UCC does not distinguish between a security interest and an assignment and there is no separate definition of "assignment," "assignor" or "assignee".  The Court of Appeals also noted that New York state and federal case law concurred that treating assignments and security interests identically promotes efficient dealings between the parties.

 

The Court of Appeals further held that under UCC § 9-406, an account debtor who receives a secured creditor's notice asserting its right to receive payment directly can pay the secured creditor and receive a complete discharge or can seek proof from the secured creditor that it possesses a valid assignment and withhold payment in the interim.

 

Here, the Court of Appeals noted the differences in UCC §§ 9-406 and 9-607 and noted that section 9-607 addresses the rights of a secured party vis à vis the debtor to collect a specified payment right while section 9-406 addressed the secured party's rights against the account debtor to collect a specified payment right.  The Court also noted that the Permanent Editorial Board for the Uniform Commercial Code rejected any rulings that interpreted "the term "assignment" as referring only to an outright assignment of ownership" as incorrect.

 

Therefore, the Court of Appeals held that nothing in UCC §§ 9-607 or 9-406 prohibited the lender and the subcontractor's contractual agreement.  Instead, under Section 9-406, once the lender provided the requisite notification to the defendant contractor, the contractor could not discharge its obligation by paying the subcontractor, but must instead pay the lender or ask for proof of assignment from the lender.

 

Accordingly, the Court of Appeals reversed the lower courts' rulings dismissing the lender's complaint.

 

 

 

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

 

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and

 

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