FYI: 6th Cir Confirms Bank Entitled to Restitution When Payment Made by "Mistake" and Not "For Value"

The U.S. Court of Appeals for the Sixth Circuit recently held that, because a bank teller paid checks on an account that had insufficient funds by "mistake" and did not take those checks "for value" by issuing replacement "teller's checks", the bank was entitled to restitution for the amount of the checks under the Tennessee Commercial Code.

 

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

 

A farmer dealt with an insurance broker at a brokerage firm to obtain a crop insurance policy. Later that year, the farmer discovered that certain portions of his property could not be farmed due to excess moisture. The farmer filed a claim under the insurance policy, but the insurer denied the claim as beyond the scope of the policy.

 

The farmer accused the broker of failing to obtain proper coverage. The broker then provided the farmer with two checks drawn from his firm's account. The firm's account had insufficient funds to cover the draws. The farmer gave the broker nothing in consideration for the checks. The farmer twice unsuccessfully attempted to cash the checks.

 

Months later, after exchanging text messages with the broker, the farmer was heading to a bank when the broker sent a text message reading "everything stopped." At the bank, the farmer asked for cashier's checks in exchange for the brokerage firm checks, without mentioning his past attempts to negotiate the checks. The teller did not check the balance in the firm's account but printed "teller's checks" payable to the farmer. When the teller realized the account lacked sufficient funds, the bank issued a stop payment order.

 

The farmer sued to enforce the checks. The bank counterclaimed for restitution. The trial court held that the bank paid the checks by mistake and that the farmer did not give value. Accordingly, the court granted summary judgment to the bank on its claim for restitution. The farmer timely appealed.

 

Chapter Three of the Tennessee Commercial Code governs negotiable instruments. See Tenn. Code Ann. § 47-3-101. This statutory framework served as the legal backdrop for the question on appeal:

 

When is a bank entitled to restitution from a payee when it pays an instrument to the payee drawn on an account with insufficient funds? See Tenn. Code Ann. § 47-3-418(b).

 

The threshold inquiry in answering that question is whether the bank here "paid" the farmer by "mistake." Id. If it did, the next inquiry is whether the farmer took the "instruments" in "good faith" and "for value." Id. § 47-3-418(c). If the farmer did not do so, then the bank was entitled to restitution.

 

Upon review of the principles of "mistake" and "restitution" in the Tennessee Commercial Code, the Sixth Circuit determined that a bank paying a check on the erroneous belief that the underlying account contained sufficient funds constitutes the type of mistake eligible to be remediated by restitution, which the Court held was the situation here. The record reflected that the bank's teller felt "rushed" and was "working under the assumption that the funds were available," an assumption that was "not in accord with the facts." Thus, the Court held that a "mistake of fact" by the teller occurred, meaning the farmer was not entitled to payment on the checks he attempted to cash.

 

However, even with the bank's mistake qualifying for restitution under Tennessee's Commercial Code, the Sixth Circuit reasoned that the farmer would not be obligated to pay restitution if he took the checks "in good faith and for value." Tenn. Code Ann. § 47-3-418(c). The bank argued that the checks were taken neither in good faith nor for value. The Court only addressed the "value" question.

 

The most relevant subsection to the Sixth Circuit regarding "value" was § 47-3-303(a)(3), which provides that payment of "an antecedent claim" is a transfer "for value." Id. Conversely, "[a] moral obligation alone is not a sufficient consideration to sustain a promise." Evans, Fite, Porter & Co. v. Bell, 83 Tenn. 569, 572 (1885); see also Tenn. Code Ann. § 47-3-418 cmt. 3.

 

The record reflected that the broker gave the checks to the farmer because he felt "morally obligated to help" him, not in exchange for a release of claims by the farmer. Indeed, the broker testified that the farmer never gave the broker anything in return for these payments. Furthermore, the farmer, in a deposition, testified that he and the broker never discussed a claim or potential lawsuit when he received the checks from the broker. Even after the broker took his time in paying him, in fact, the farmer never threatened to sue the broker.

 

Thus, the Sixth Circuit concluded that the farmer did not take the checks "for value" because they were nothing more than a gratuitous gift. And as the farmer failed to satisfy Tenn. Code Ann. § 47-3- 418(c)'s "for value" requirement, the Court held that the bank was entitled to restitution.

 

Accordingly, the Sixth Circuit affirmed the trial court's summary judgment in favor of the bank.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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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FYI: Nevada Installment Loan Companies Subject to Significant New Data Security Requirements

Nevada installment loan companies are subject to significant new data security requirements as specified in Nevada Senate Bill 355, which was approved by Gov. Joe Lombardo in June and goes into effect Oct. 1, 2023.

 

The legislation amends numerous statutory sections pertaining to regulated entities, but particularly affects installment loan companies ("licensees") licensed pursuant to the Nevada Installment Loan and Finance Act, Nev. Rev. Stat. Ann. § 675.010, et seq.

 

REMOTE EMPLOYEE WRITTEN AGREEMENT

 

Remote employees "engaging in the business of lending" must enter into a written agreement with licensees. An employee engages in the business of lending if they:

 

• Solicit loans in Nevada or make loans to persons in Nevada, unless these are isolated, incidental or occasional transactions; or
• Are located in Nevada and solicit loans outside of Nevada or make loans to persons located outside of Nevada, unless these are isolated, incidental or occasional transactions.

 

Nev. Rev. Stat. Ann. § 675.060(2).

 

These remote employees must agree to:

 

• Maintain the confidentiality of data concerning borrowers and potential borrowers while working at the remote location;
• Maintain all data of the licensee electronically while working at the remote location;
• Read and comply with the data security policy adopted by the licensee;
• Keep any equipment provided to the employee by the licensee for use at the remote location safe and secure in the manner prescribed by the licensee;
• Never print or otherwise reproduce physical documents containing any data of the licensee at the remote location;
• Never disclose to a borrower or potential borrower that the employee is working at a remote location;
• Never convey to a borrower or potential borrower that the remote location at which the licensee is working is the place of business of the licensee; and
• Never conduct any interactions with a borrower or potential borrower in person at the remote location.

 

REMOTE LOCATION DATA SECURITY

 

Remote locations must be in the United States and must:

 

• Be sufficiently connected to the systems used by the licensee and allow the licensee to monitor and oversee the work of the employee as though the employee were performing the same work at the licensee's place of business; and
• Require the employee to enter unique credentials, passwords, or similar information to access the computerized data system.

 

DATA SECURITY POLICY

 

If remote employees are engaging in the business of lending, the licensee must develop a written data security policy to ensure that:

 

• Data of the licensee that is stored at or accessible from a remote location is protected against unauthorized or accidental disclosure, access, use, modification, duplication or destruction;
• Remote employees can access the computerized data system of the licensee only through the use of a virtual private network or other similarly secure system;
• Updates and repairs necessary to keep data and equipment secure are installed or implemented immediately;
• All data is stored in a safe and secure manner;
• Each remote location contains computers or other electronic devices that use reasonable security measures, such as antivirus software and firewalls;
• The computerized data system may only be accessed through computers or other electronic devices that are issued by the licensee and can only be used by employees while performing activities approved by the licensee;
• An internal or external risk assessment is performed annually on the protection of the data;
• After the performance of a risk assessment, the data security policy is updated to correct any deficiencies identified in the risk assessment;
• The licensee has procedures in place establishing actions that must be taken upon the:
• Discovery of a breach of the security of the computerized data system; and
• Occurrence of an emergency, including a fire or natural disaster;
• The data of the licensee is disposed of in a timely and secure manner as required by applicable law and contractual requirements; and
• The licensee is able, without the licensee being physically present at a remote location, to disconnect, disable, or erase any computer or device provided to remote employees.

 

DATA BREACH NOTIFICATION REQUIREMENTS

 

The legislation also exempts licensees from Nevada's data breach notification statutes (Nev. Rev. Stat. Ann. § 603A.300, et seq.) and instead creates new and different notice requirements, including:

 

• Determination whether notice is required is based in part on an analysis of the risk of harm to affected residents;
• A notice deadline of not more than 30 days, as opposed to just "in the most expedient time possible and without unreasonable delay";
• A prohibition of notice by email if a breach involves a username, password or other login credentials to an email account furnished by the licensee;
• Specific information that must be included in a breach notification;
• Notice to the attorney general if there are more than 500 affected residents.

 

Unlike the general data breach notification statutes, the legislation does not include:

 

• A provision that a data collector subject to and compliant with the privacy and security provisions of the Gramm-Leach-Bliley Act is deemed to be in compliance with the notification requirements;
• A requirement that a data collector notify consumer reporting agencies of a breach affecting more than 1,000 persons.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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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FYI: 6th Cir Holds Single Ringless Voicemail Enough for Article III Standing in TCPA Case

The U.S. Court of Appeals for the Sixth Circuit recently held that a single ringless voicemail is enough to confer standing to a plaintiff under the federal Telephone Consumer Protection Act, 47 U.S.C. § 227 (TCPA).

 

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

 

The plaintiff individual alleged that the defendant sent multiple ringless voicemails to his cell phone advertising its services. Specifically, the plaintiff alleged that the defendant left a ringless voice mail "RVM," an RVM is a voicemail left directly into a recipient's voicemail box, without placing a traditional call to the recipient's wireless phone. Plaintiff alleged that he received numerous RVMs from the Defendant.

 

Plaintiff filed suit individually and on behalf of all others similarly situated, alleging that Defendant violated the TCPA's automated calling prohibitions under 47 U.S.C. § 227(b)(1) by sending the RVMs to him without his consent. Plaintiff claimed that he was harmed by these communications because they tied up his phone line, cost him money, and were generally a nuisance. Plaintiff also averred that the calls disturbed his solitude and invaded his privacy.

 

During discovery, defendant's expert maintained that out of the eleven voicemails allegedly received by Plaintiff, only one could be attributed to the Defendant. Based on this, Defendant moved to dismiss Plaintiff's lawsuit for lack of Article III standing and argued that Plaintiff suffered no concrete injury. The trial court granted Defendant's motion and held because Plaintiff only received one RVM, a single RVM did not constitute a concrete harm sufficient for Article III purposes because: (a) Plaintiff could not recall what he was doing when he received the RVM, (b) Plaintiff was not charged for the RVM, (c) the RVM did not tie up his phone line, and (d) Plaintiff spent an exceedingly small amount of time reviewing the RVM. This appeal followed. 

 

On appeal, the Sixth Circuit examined the factors necessary for Plaintiff to establish standing:  (1) a concrete and particularized injury-in-fact which (2) is traceable to the defendant's conduct and (3) can be redressed by a favorable judicial decision. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992); see also Spokeo, 578 U.S. at 338 n.6; Spokeo, Inc. v. Robins, 578 U.S. 330, 338 (2016).

 

The Sixth Circuit had not previously ruled on whether the receipt of a single RVM for commercial purposes presents a concrete harm sufficient to confer standing to make a claim under the TCPA. Here, the Court found that Plaintiff's claims satisfy the demands of Article III . To determine whether an intangible harm —- such as Plaintiff's receipt of an unsolicited RVM —- rose to the level of a concrete injury, the Appellate Court examined common law history and tradition and Congress's judgment in enacting the law at issue.

 

Plaintiff argued that the unwanted RVM resembled the common law tort of intrusion upon seclusion. The Sixth Circuit noted this common law tort can result in an unlawful invasion of privacy, but the scope of liability for the actual tort of intrusion upon seclusion is more circumscribed and confined to liability to cases where a defendant's conduct is "highly offensive to the ordinary reasonable man." Restatement § 652B cmt. d; see also Charvat v. NMP, LLC, 656 F.3d 440, 452–53 (6th Cir. 2011); In re Nickelodeon Consumer Priv. Litig., 827 F.3d 262, 291, 293 (3d Cir. 2016).

 

The Sixth Circuit addressed the U.S. Court of Appeals for the Seventh Circuit's opinion in Gadelhak v. AT&T Services, Inc. 950 F.3d 458 (7th Cir. 2020). In Gadelhak, the Seventh Circuit held that the plaintiff in that case suffered an injury after receiving five unwanted text messages. The Seventh Circuit reasoned that when the defendant sent unsolicited text messages, it made a similar intrusion into his privacy or seclusion. Id. at 462 (citing Restatement § 652B cmt. d).

 

IN addition, the Sixth Circuit examined Supreme Court of the United States' analysis in Spokeo that distinguished the common law and congressional power to define the injury as outlined in the TCPA. Specifically, the Sixth Circuit held, "a few unwanted automated text messages may be too minor an annoyance to be actionable at common law. But such texts nevertheless pose the same kind of harm that common law courts recognize —- a concrete harm that Congress has chosen to make legally cognizable. Id. at 462–63 (quoting Spokeo, 578 U.S. at 341); see also id. at 463 n.2.

 

The Sixth Circuit further noted that Defendant's single voicemail to Plaintiff combined with considerations that some consider their phone number a matter of private information, and people commonly exercise discretion in publicizing their phone numbers, entrusting them only to their circle of friends and family indicated that telephones can logically be considered part of one's private domain to which the right to be left alone extends.

 

The Sixth Circuit explained that its ruling is consistent with jurisprudence from the Seventh Circuit in Gadelhak, 950 F.3d at 462, 463 n.2 and the U.S. Court of Appeals for the Ninth Circuit's ruling in Van Patten v. Vertical Fitness Grp., LLC, 847 F.3d 1037, 1043 (9th Cir. 2017).  In Van Patten, the Ninth Circuit held that unsolicited phone calls or text messages, by their nature, invade the privacy and disturb the solitude of their recipients. Van Patten, LLC, 847 F.3d at 1043.

 

In reaching its decision, the Sixth Circuit rejected a decision by the U.S. Court of Appeals for the Eleventh Circuit Court that held a plaintiff did not establish standing based on the receipt of a since voicemail or RVM because the plaintiff failed to show the voicemail "rendered her phone unavailable to receive legitimate calls or messages for any period of time." See Grigorian v. FCA US LLC, 838 F. App'x 390 (11th Cir. 2020); Salcedo v. Hanna, 936 F.3d 1162 (11th Cir. 2019).

 

The Defendant here argued that an intrusion upon seclusion occurs only when a person's "peace and quiet" is disturbed by an audible sound like a ringing phone, or when a person's attention is otherwise taken away from what they are doing.  However, the Sixth Circuit disagreed and noted that the inquiry of the injury is limited to whether the plaintiff's claimed injury is similar in kind to one recognized at common law. Moreover, the Sixth Circuit held Plaintiff alleged an intangible harm that bore a sufficiently close relationship to the traditional common law tort of intrusion upon seclusion.

 

Therefore, the Sixth Circuit held Plaintiff suffered a concrete injury in fact sufficient for Article III standing purposes because the receipt of an unsolicited RVM bears a close enough relationship to the kind of injury protected by the common law tort of intrusion upon seclusion, and Plaintiff's claimed harm is directly correlated with the protections addressed by Congress in the TCPA.

 

Accordingly, the Sixth Circuit reversed the trial court's dismissal of Plaintiff's suit for failure to demonstrate an injury in fact and remanded the case for further proceedings.

 

 

 

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