FYI: 3rd Cir Holds OFAC Alert Covered by FCRA, Affirms Reduction in Punitive Damages

The U.S. Court of Appeals for the Third Circuit recently affirmed a district court's order that: (1) remitted a jury's punitive damages award of $750,000 to $100,000 on claims brought under the Fair Credit Reporting Act ("FCRA"); (2) denied the defendant credit reporting agency's motion for judgment as a matter of law; and (3) rejected the defendant credit reporting agency's challenge to the jury's compensatory damages award.

A copy of the opinion is available at: http://www.ca3.uscourts.gov/opinarch/082465p.pdf

This matter arose from a credit report prepared by defendant Trans Union for a car dealership, which report confused plaintiff's identity with the identity of someone with a similar name.  The report contained an alert which identified plaintiff as being on a list of Specially Designated Nationals & Blocked Persons List ("SDN List"), compiled by the Office of Foreign Assets Control ("OFAC").  Conducting business with or extending credit to anyone named on the SDN List may result in civil as well as criminal penalties.  Recognizing the need to ensure that innocent persons are not associated with the SDN List, OFAC regulations state that "organizations involved in the credit reporting process … should strive to protect consumers from erroneous or misleading information appearing on credit reports." 

Trans Union offers its "OFAC Advisor" to creditors who purchase others of its product.  The information included in the OFAC Advisor is not included in credit reports that Trans Union sends to consumers on request.  When plaintiff learned of the error on report from the car dealership, she contacted Trans Union four times in an effort to correct her credit report.  The information was not corrected and this lawsuit followed.  A jury awarded plaintiff both actual and punitive damages, finding in part that Trans Union had breached the standard of care required by Section 1681e(b) of the FCRA, which requires a consumer reporting agency to "follow reasonable procedures to assure maximum possible accuracy of the information" when preparing a "consumer report" and that Trans Union willfully violated Sections 1681g and 1681i of the FCRA.  Plaintiff appealed the district court's remittitur of the jury's award of punitive damages and Trans Union appealed the district court's denial of its motion for judgment as a matter of law, as well as the damages award that the court did approve. 

In affirming the district court's orders, the Third Circuit disagreed with Trans Union's argument that the OFAC alert is not covered by the FCRA, because, according to Trans Union the OFAC alert is not part of a "consumer report."  Rather, the Court held that "Trans Union's argument that the OFAC alert somehow manages to avoid the reach of the FCRA ignores the breadth of the language that Congress used in drafting that statute."  The Court noted that the term "consumer report" is defined in the FCRA as "any . . . communication of any information by a consumer reporting agency" and "[t]he applicability of the FCRA is not negated merely because the creditor/dealership could have used the OFAC Screen to comply with the USA PATRIOT Act." 

The Court also held that the jury was correct in concluding that Trans Union was negligent in dealing with plaintiff, as required for liability under FCRA Section 1681e(b). The Court pointed out that the standard under Section 1681e(b) is for a credit reporting agency to use reasonable procedures to assure "maximum possible accuracy," not just reasonable accuracy, and held that "[t]he jury could reasonably conclude that Trans Union could have taken steps to minimize the possibility that it would erroneously place an OFAC alert on a credit report," such as checking the birth date of the consumer against that of the person on the SDN List. 

The Court also affirmed the district court's denial of Trans Union's motion for judgment as a matter of law on plaintiff's claim under Section 1681g of the FCRA, which requires that a credit reporting agency furnish to a consumer all information in the consumer's file at the time a consumer makes a request for such information.  In so doing, the Court rejected Trans Union's reasoning that because the SDN list is not part of its own database, it is not part of the "consumer's file," ultimately holding that "information relating to the OFAC alert is part of the consumer's 'file' as defined in the FCRA."

Furthermore, the Third Circuit agreed that Trans Union violated Section 1681i of the FCRA by failing to "promptly reinvestigate any information in a consumer's file that is disputed by a consumer," because "the jury could reasonably have concluded that Trans Union would have discovered the inaccuracy in [plaintiff's] report … if it had reasonably investigated the matter," as required.  Moreover, the Court held that it was "reasonable for the jury to conclude that [plaintiff] had adequately informed Trans Union that its reinvestigation did not resolve her dispute and that Trans Union failed to note that on her credit report, as required by the FCRA [Section 1681i(c)]," even though plaintiff "never explicitly filed a statement of dispute," as required under Section 1681i(b) of the FCRA.

Finally, as to the plaintiff's attempt to challenge the jury's punitive damages award of $750,000, the Court applied the Supreme Court's holding in Donovan v. Penn Shipping  that a "plaintiff in federal court . . . may not appeal from a remittitur order he has accepted," even if such acceptance is under protest.   Here, the district court had granted the defendant's motion for a retrial on damages, unless the plaintiff accepted a remittitur, given the district court's finding that the punitive damages awarded by the jury "exceeded permissible limits."  Plaintiff accepted the remittitur under protest.  Based on the Donovan ruling, the Court rejected plaintiff's challenge to the remittitur. 

As to the jury's actual damages award, the Court held that the award of $50,000 was not excessive given plaintiff's psychological and stress-related suffering.  The Court also upheld the district court's award of $100,000 in punitive damages given the jury's findings that "Trans Union willfully violated §§ 1681g and 1681i" was supported by the record.

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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Our updates are available on the internet, in searchable format, at: http://updates.kw-llp.com

 

 

 The information transmitted (including attachments) is covered by the Electronic Communications Privacy Act, 18 U.S.C. 2510-2521, is intended only for the person(s) or entity/entities to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient(s) is prohibited. If you received this in error, please contact the sender and delete the material from any computer.  Notice Under U.S. Treasury Department Circular 230: To the extent that this e-mail communication and the attachment(s) hereto, if any, may contain written advise concerning or relating to a Federal (U.S.) tax issue, United States Treasury Department Regulations (Circular 230) require that we (and we do hereby) advise and disclose to you that, unless we expressly state otherwise in writing, such tax advise is not written or intended to be used, and cannot be used by you (the addressee) or other person(s), for purposes of (1) avoiding penalties imposed under the United States Internal Revenue Code or (2) promoting, marketing or recommending to any other person(s) the (or any of the) transaction(s) or matter(s) addressed, discussed or referenced herein. Each taxpayer should seek advice from an independent tax advisor with respect to any Federal tax issue(s), transaction(s) or matter(s) addressed, discussed or referenced herein based upon his, her or its particular circumstances.  

FYI: FRB Proposes Revisions to Rules Requring New TILA Disclosures for Loan Mods

The Federal Reserve Board recently proposed revisions to the rules for determining when a modification of an existing closed-end mortgage loan secured by real property or a dwelling is a new transaction requiring new disclosures. 

 

The Federal Register notice for the proposed rule is available at:

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20100816e1.pdf

 

The proposed rules would provide that new TILA disclosures are required when the parties to an existing closed-end loan secured by real property or a dwelling agree to modify key loan terms, without reference to state contract law.

 

New disclosures would be required when, for example, the parties agree to change the interest rate or monthly payment, advance new money, or add an adjustable rate or other "risky" feature such as a prepayment penalty.

 

The proposal also provides that whenever a fee is imposed on a consumer in connection with a modification, including a modification for a consumer in default, a "new transaction" would occur requiring new TILA disclosures.

 

In addition, if a new transaction is created, and the new transaction's APR exceeds the threshold for a "higher-priced mortgage loan" under the FRB's 2008 HOEPA rules, then special HOEPA protections would apply to the new transaction.

 

Importantly, the FRB notes that, "[c]onsistent with the current rule, the proposal would exempt modifications reached in a court proceeding, and modifications for borrowers in default or delinquency, unless the loan amount or interest rate is increased, or a fee is imposed on the consumer."

 

Certain beneficial modifications, such as "no cost" rate and payment decreases, would also be exempt from the requirement for new TILA disclosures.

 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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 are available on the internet, in searchable format, at: http://updates.kw-llp.com

 

 

---

From: Ralph Wutscher [mailto:rwutscher@kahrlwutscherllp.com]
Sent: Friday, August 27, 2010 11:02 AM
To: Ralph Wutscher
Cc: SoCalOffice; D.C. Office; Chicago Office
Subject: FYI: FRB Proposes Significant Changes to Reverse Mtg Disclosures and Ads

The Federal Reserve Board recently proposed significant changes to reverse mortgage advertisements and disclosures. 

 

The Federal Register notice for the proposed rule is available at:

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20100816e1.pdf

 

These proposed rules would:

 

• Impose rules for reverse mortgage advertising to ensure advertisements contain accurate and balanced information.

 

• Change the disclosures consumers receive for reverse mortgages, including:  (a) at application, creditors must provide a new, two-page disclosure which highlights in simple language the basic features and risks of reverse mortgages;  (b)  within three days after receiving the consumer's application, creditors must provide transaction-specific disclosures that reflect the actual terms of the reverse mortgage being offered, which must be presented in a tabular format;  (c) at least three days before closing the loan, creditors must provide final disclosures in the same format, to facilitate comparison with the earlier disclosures; and  (d) creditors also must ensure that their advertisements for reverse mortgages are accurate and balanced. 

 

• Prohibit certain unfair practices in the sale of financial products with reverse mortgages, such as:  (a) prohibiting creditors from conditioning a reverse mortgage on the consumer's purchase of another financial or insurance product;  (b) requiring that a consumer receive counseling about reverse mortgages before a creditor can impose nonrefundable fees for a reverse mortgage or close the loan; and  (c) prohibiting creditors from steering consumers to specific reverse mortgage counselors or compensating counselors or counseling agencies.

 

The comment period ends 90 days after publication of the proposal in the Federal Register, which is expected shortly.

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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 are available on the internet, in searchable format, at: http://updates.kw-llp.com

 

 

 

FYI: FRB Proposes Significant Changes to Reverse Mtg Disclosures and Ads

The Federal Reserve Board recently proposed significant changes to reverse mortgage advertisements and disclosures. 

 

The Federal Register notice for the proposed rule is available at:

http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20100816e1.pdf

 

These proposed rules would:

 

• Impose rules for reverse mortgage advertising to ensure advertisements contain accurate and balanced information.

 

• Change the disclosures consumers receive for reverse mortgages, including:  (a) at application, creditors must provide a new, two-page disclosure which highlights in simple language the basic features and risks of reverse mortgages;  (b)  within three days after receiving the consumer's application, creditors must provide transaction-specific disclosures that reflect the actual terms of the reverse mortgage being offered, which must be presented in a tabular format;  (c) at least three days before closing the loan, creditors must provide final disclosures in the same format, to facilitate comparison with the earlier disclosures; and  (d) creditors also must ensure that their advertisements for reverse mortgages are accurate and balanced. 

 

• Prohibit certain unfair practices in the sale of financial products with reverse mortgages, such as:  (a) prohibiting creditors from conditioning a reverse mortgage on the consumer's purchase of another financial or insurance product;  (b) requiring that a consumer receive counseling about reverse mortgages before a creditor can impose nonrefundable fees for a reverse mortgage or close the loan; and  (c) prohibiting creditors from steering consumers to specific reverse mortgage counselors or compensating counselors or counseling agencies.

 

The comment period ends 90 days after publication of the proposal in the Federal Register, which is expected shortly.

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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 are available on the internet, in searchable format, at: http://updates.kw-llp.com

 

 

 

FYI: 2nd Cir Affirms Dismissal of TCPA Putative Class Action, Notwithstanding Shady Grove

The U.S. Court of Appeals for the Second Circuit recently affirmed a district court's dismissal of a class action case brought under the federal Telephone Consumer Protection Act ("TCPA") for lack of federal jurisdiction, even after reconsidering the case in light of the Supreme Court's holding in Shady Grove v. Allstate.  (See our prior update on the Supreme Court's ruling in Shady Grove, below.)

 

A copy of the opinion is available at: http://www.ca2.uscourts.gov/decisions/isysquery/5c2c261f-e997-4937-925d-34aa7478d369/2/doc/07-2191-cv_opn.pdf#xml=http://www.ca2.uscourts.gov/decisions/isysquery/5c2c261f-e997-4937-925d-34aa7478d369/2/hilite/

 

As the Second Circuit noted, this case centers on the intersection of four laws:

 

(a) the federal Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227, which provides a statutory penalty of $500 for each instance of unsolicited, commercial fax transmission and a federal cause of action "if otherwise permitted by the laws or rules of court of a State." Id. § 227(b)(3) (emphasis added);

 

(b) New York C.P.L.R. 901(b), which prohibits class-action suits seeking statutory damages;

 

(c) Federal Rule of Civil Procedure 23, which authorizes class-action suits in federal courts when various criteria are met; and

 

(d) the federal Class Action Fairness Act (CAFA), 28 U.S.C. § 1332(d)(2)(A), which gives federal courts jurisdiction over class actions alleging at least $5 million of damages so long as there is minimal diversity among the parties.

 

Plaintiff brought this putative class action in federal court under, alleging violations of the TCPA by defendant.  Plaintiff grounded federal jurisdiction in the Class Action Fairness Act ("CAFA").  Defendant moved to dismiss, claiming that the district court lacked jurisdiction pursuant to New York C.P.L.R. 901(b), which prohibits class action suits seeking statutory damages.  The district court agreed and the Second Circuit affirmed, based on its ruling in Bonime v. Avaya, which raised the same issue.  The Supreme Court vacated the decision and remanded the case for reconsideration in light of its holding in Shady Grove v. Allstate that N.Y.C.P.L.R. 901(b) conflicts with Fed. R. Civ. P 23.  This opinion followed.

 

In Bonime, the Second Circuit held that C.P.L.R. 901(b) applied to TCPA actions in New York for two independent reasons: (1) because Congress directed that the TCPA be applied as if it were a state law, the Erie doctrine required federal courts to apply C.P.L.R. 901(b) to TCPA claims in New York and (2) the specific language of the TCPA that allows a person to sue under it only "if otherwise permitted by the laws or rules of court of a State … constitutes an express limitation on the TCPA." 

 

Ultimately the Second Circuit ruled that the Supreme Court's holding in Shady Grove abrogated its first rationale because "if the requirements of Rule 23 are met and if federal jurisdiction otherwise exists, C.P.L.R. 901(b)'s bar of New York class-action suits seeking statutory damages is irrelevant." 

 

The Court, however, also held that "[b]ecause Shady Grove says nothing about Bonime's second ground, we find that ground continues to control this case."  The Court explained that under its interpretation of the TCPA, "Congress intended to give states a fair measure of control over solving the problems that the TCPA addresses."  As applied here, the Court held that "[t]he ability to define when a class cause of action lies and when it does not is part of that control."

 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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 are available on the internet, in searchable format, at: http://updates.kw-llp.com

 

 

---

From: Ralph T. Wutscher
Sent: Thursday, May 06, 2010 6:44 PM
To: Ralph Wutscher
Cc: SoCalOffice; D.C. Office; Chicago Office
Subject: FYI: US Sup Ct Says Rule 23 Allows Class Action, Despite State Law Prohibition On Class Actions for Remedy Sought

The U.S. Supreme Court ruled recently that a state law precluding class actions to recover "penalties" such as statutory interest did not prevent a federal district court sitting in diversity from hearing the same issue in a class action under Federal Rule of Civil Procedure 23.  A copy of the opinion is attached.

Under New York law, Allstate Insurance Co. ("Allstate") had 30 days within which to either pay Shady Grove Orthopedic Associate's ("Shady Grove") insurance claim, or deny it.  Allstate paid the claim, but did so late and refused to pay statutory interest that accrued on the overdue benefits.  Alleging that Allstate routinely refused to pay interest on overdue benefits, Shady Grove filed a diversity suit in the U.S. District Court for the Eastern District of New York to recover the unpaid statutory interest and also sought relief on behalf of itself and a class of all others to whom Allstate owed interest.

The District Court dismissed the case for lack of jurisdiction.  The court held that N. Y. Civ. Prac. Law Ann. §901(b) ("§901(b)")--which precludes a class action to recover a penalty--applies in diversity suits in federal court despite Federal Rule of Civil Procedure 23.  Because statutory interest is a "penalty" under New York law, the court reasoned, §901(b) prohibited the proposed class action.  The Second Circuit concluded that Rule 23 and §901(b) were not in conflict and affirmed.  The Supreme Court reversed and remanded, but divided its ruling into five parts, with several concurrences in each part.

In the judgment of the court (Parts I and II-A of the opinion), Justices Scalia, Roberts, Stevens, Thomas and Sotomeyer first noted that Federal Rule 23 would control if it conflicted with §901(b), and that Rule 23 specifically states that "[a] class action may be maintained" where certain conditions are met.  The court then rejected the Second Circuit's holding, ruling that since §901(b) establishes specific conditions under which a suit "may not be maintained as a class action," it could not apply in diversity suits.  The court further expanded on this, explaining that Rule 23 explicitly empowers a federal court to certify a class in each and every case where the Rule's criteria are met.

The majority also discounted the dissent's claim that §901(b) could coexist with Rule 23.  The dissent had characterized §901(b) as applying only to the remedy that might be available in a class action, as opposed to the question of whether a suit could be maintained as a class action.  However, the majority disagreed, again noting that "Rule 23 permits all class actions that meet its requirements."  Allowing the imposition of additional requirements--such as those presented by §901(b)--would render Rule 23 partially invalid, the majority ruled.

Justices Scalia, Thomas, Sotomeyer and the Chief Justice further concurred in Parts II–B and II–D of the decision, holding that the Rules Enabling Act (28 U.S.C. §2072), rather than the Erie Doctrine, controls the validity of a given rule.  Citing Sibback v. Wilson & Co. (312 U.S. 1, 14 (1941)), the court interpreted Section 2072(b)'s requirement that a rule "not abridge, enlarge or modify any substantive right" to mean that a rule will remain valid only as long as it governs "the manner and the means" by which the litigants' rights are enforced.  A rule may not alter "the rules of decision by which [the] court will adjudicate [those] rights," or the available remedies.

Finally, in Part II-C, Justice Stevens distinguished the judgment of the court.  First noting that under §2072(b), a federal rule cannot govern when the application of that rule would "abridge, enlarge or modify any substantive right," Justice Stevens argued that there could be rare cases of state law so "bound up" or "intertwined" with substantive rights and remedies that the state law could effectively define the scope of the state-created right and that application of a federal rule in such a case could violate the Rules Enabling Act.  The plurality disagreed, concluding that the correct analysis was established in Sibback's single test of "whether a Federal Rule regulates substance or procedure" and that Justice Stevens' approach would be unworkable, as it "would allow States to force a wide array of parochial procedures on federal courts so long as they are 'sufficiently intertwined' with a state right or remedy."

 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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 are available on the internet, in searchable format, at: http://updates.kw-llp.com

 

 

 The information transmitted (including attachments) is covered by the Electronic Communications Privacy Act, 18 U.S.C. 2510-2521, is intended only for the person(s) or entity/entities to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient(s) is prohibited. If you received this in error, please contact the sender and delete the material from any computer.  Notice Under U.S. Treasury Department Circular 230: To the extent that this e-mail communication and the attachment(s) hereto, if any, may contain written advise concerning or relating to a Federal (U.S.) tax issue, United States Treasury Department Regulations (Circular 230) require that we (and we do hereby) advise and disclose to you that, unless we expressly state otherwise in writing, such tax advise is not written or intended to be used, and cannot be used by you (the addressee) or other person(s), for purposes of (1) avoiding penalties imposed under the United States Internal Revenue Code or (2) promoting, marketing or recommending to any other person(s) the (or any of the) transaction(s) or matter(s) addressed, discussed or referenced herein. Each taxpayer should seek advice from an independent tax advisor with respect to any Federal tax issue(s), transaction(s) or matter(s) addressed, discussed or referenced herein based upon his, her or its particular circumstances.  

FYI: 9th Cir Holds CA Furnisher Dispute Investigation Provision Preempted Under FCRA

The United States Court of Appeals for the Ninth Circuit recently held,
among other things, that debtor's claim against a debt collector under
Section 1785.25(f) of the California Consumer Credit Reporting Agencies
Act ("CCRAA"), Cal. Civ. Code § 1785.1 et seq., was preempted by the
federal Fair Credit Reporting Act ("FCRA"), 15 U.S.C. § 1681t(b)(1)(F),
and that a reinvestigation claim made under the CCRAA requires that a
debtor show the alleged inaccurate credit reporting was "patently
incorrect or materially misleading."

A copy of the opinion is available at:
http://www.ca9.uscourts.gov/datastore/opinions/2010/08/18/09-15030.pdf

Debtor received medical services for which neither she nor her insurer
paid. Debtor's hospital assigned the debt to Credit Consulting Services
("CCS"), a collection agency, which sent Debtor a series of dunning
letters and eventually notified the three defendant credit reporting
agencies (collectively, "CRA"). Debtor made various requests to CCS and
CRA to verify the debt, to report the debt as disputed, and to provide a
description of how the debt was verified. Debtor made a final demand that
the negative report be removed and CRA, that Debtor receive damages and
attorneys fees, and that another investigation be performed.

Debtor filed a class action complaint in California state court against
CCS and CRA, alleging violations of the CCRAA for the CRA's alleged
failure to properly investigate and respond to Debtor's dispute, and CCS's
alleged reporting of a debt it knew or should have known to be
illegitimate. Debtor sought class certification, an injunction, damages
and fees. CCS filed for a demurrer without leave to amend on the basis
that the FCRA preempted Debtor's CCRAA claims, which the state court
granted. The CRAs removed under the Class Action Fairness Act of 2005
("CAFA"), 28 U.S.C. § 1332(d).

The district court denied Debtor's motion to remand the case to state
court, granted CRA's motion for summary judgment, denied Debtor's motion
for class certification as moot, and denied Debtor's motion to amend as
futile. The Ninth Circuit affirmed on all issues.

The Ninth Circuit first held that CRA's motion for removal of the case to
federal court was timely. As you may recall, under CAFA, district courts
have jurisdiction where, among other things, the amount in controversy
exceeds the sum or value of $5,000,000. The timeliness of removal of CAFA
actions is governed by 28 U.S.C. § 1446(b), which "identifies two
thirty-day periods for removing a case." The first period is triggered
"if the case stated by initial pleading is removable on its face." The
second period is triggered "if the initial pleading does not indicate that
the case is removable, and the defendant receives 'a copy of an amended
pleading, motion, order or other paper' from which removability may be
ascertained.'"

In this case, Debtor's complaint "lacked any indication of the amount in
controversy" and therefore did not fall under the first period.
Addressing the settlement demand sent prior to the complaint, the Court
held that "any document received prior to receipt of the initial pleading
cannot trigger the second thirty-day removal period." Moreover, a
"pre-complaint document containing a jurisdictional clue can operate in
tandem with an indeterminate initial pleading to trigger some kind of
hybrid between the first and second removal periods." Next, the Court
rejected Debtor's argument that CRA's could have ascertained the amount in
controversy from the civil cover sheet's invocation of "unlimited"
jurisdiction, because the cover sheet did not indicate the amount demanded
by each putative class member. Ultimately, the motion was timely because
CRA removed within thirty days of Debtor's deposition testimony, which
constitutes "other paper" and from which CRA "could reasonably determine
for the first time that the amount in controversy" met CAFA's threshold.

The Ninth Circuit also held that it had jurisdiction to hear Debtor's
appeal of the state court's grant of CCS's demurrer. "After removal, the
federal court takes the case up where the State court left it off" and "an
order entered by a state court 'should be treated as though it had been
validly rendered in the federal proceeding.'" In this case, the state
court's grant of the demurrer is equivalent of a motion to dismiss under
Federal Rule of Civil Procedure 12(b)(6). Under federal law, "such a
dismissal as to only one of several defendants is appealable when, as
here, it has merged into the final judgment."

The Court next held that Debtor's claims against CCS under Sections
1785.25(a) and (f) of the CCRAA were waived and preempted, respectively.
The FCRA provides that "no requirement or prohibition may be imposed under
the laws of any State…relating to the responsibilities of persons who
furnish information to consumer." 15 U.S.C. §1681t(b)(1)(F). The FCRA
expressly saves Section 1785.25(a) of the CCRAA, which prohibits knowingly
reporting inaccurate information. However, Debtor failed to defend this
claim in response to CCS's demurrer and therefore abandoned that claim.

In addition, Debtor's claim that CCS did not perform adequate
investigation in violation of Section 1785.25(f) was preempted as "section
1785.25(a) is the only substantive CCRAA furnisher provision specifically
saved by the FCRA." Section 1785.25(f) requires furnishers who receive
notice of a dispute to complete an investigation and to review relevant
information

The Court also held that Debtor's claims against the CRAs under Section
1785.16 of the CCRAA were properly dismissed. In general, Section 1785.16
requires a CRA to reinvestigate the status of a consumer's credit
information if the completeness or accuracy the information is disputed by
the consumer. Debtor argued that inaccuracy is not a required element of
a reinvestigation claim under the CCRAA, an unresolved issue in California
state courts. However, the CCRAA's reinvestigation provision is
"substantially based upon the FCRA" and, although the FCRA does not have
an "inaccuracy requirement," the Ninth Circuit has previously held that a
claim under the FCRA's reinvestigation provision requires "a prima facie
showing of inaccurate reporting." Based upon these statutory similarities
and Ninth Circuit case law, the Court defined "inaccurate" under the CCRAA
as "patently incorrect or materially misleading."

The Court first held there was no patent error in Debtor's credit report
because Debtor "concedes that 'all the data that shows in my credit report
is correct' on its face." Debtor argued that, even if technically
accurate, the credit report was misleading because she was not legally
obligated to pay the medical bill. The Court rejected this argument
because "reinvestigation claims are not the proper vehicle for
collaterally attacking the legal validity of consumer debts."

Lastly, the Court held that the lower court properly denied Debtor's
motion for leave to amend. Because Debtor "cannot show any inaccuracy as
a matter of law," the Court concluded "that amendment to include other
claims requiring inaccuracy would be futile." Fed. R. Civ. P. 15(a)
(granting judges discretion to deny leave to amend where amendment would
be futile.)

Let me know if you have any questions. Thanks.

Ralph T. Wutscher
Kahrl Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 2100
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (866) 581-9302
Mobile: (312) 493-0874
RWutscher@kw-llp.com
http://www.kw-llp.com

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FYI: 7th Cir Reverses Dismissal of FHA Allegations, Discusses Fed Ct Pleading Standards

The United States Court of Appeals for the Seventh Circuit recently held that a prospective home-equity loan borrower's ("Borrower") common law fraud claims against a lender and appraiser were properly dismissed by the lower court, but reversed the lower court's dismissal of the Borrower's Fair Housing Act, 15 U.S.C. § 3605 ("FHA"), claims against the lender and appraiser.

 

A copy of the opinion is available at:  http://www.ca7.uscourts.gov/tmp/0I0U8KYZ.pdf

 

Borrower brought suit against defendants CitiBank, N.A. ("CitiBank"), and the appraiser hired by CitiBank ("Appraiser"), under the FHA and the Equal Credit Opportunity Act, 15 U.S.C. § 1691(a)(1).  Borrower alleged that CitiBank conditionally accepted her for a home-equity loan, but CitiBank had the property appraised well below the value stated on the loan application in order that Citibank could deny the loan.  Borrower alleged that CitiBank's and Appraiser's actions were motivated by racial discrimination.  The lower court construed these allegations to include a common law fraud claim against the defendants in Borrower's complaint. 

 

The lower court granted Citibank's motion to dismiss as to all claims, and Borrower appealed only the FHA and common law fraud allegations.  The Seventh Circuit affirmed the lower court as to the common law fraud claim, but reversed as to the FHA claim.

 

The Court held that Borrower stated a claim against CitiBank under the FHA.  As you may recall, the FHA "prohibits businesses engaged in residential real estate transactions, including '[t]he making…of loans or providing other financial assistance…secured by residential real estate' from discriminating against any person on account of race."  The Court reasoned that Borrower's "complaint identifies the type of discrimination that she thinks occurs (racial), by whom (CitiBank…through Appraiser), and when (in connection with her effort in early 2009 to obtain a home-equity loan."  

 

The Court also held that Borrower stated a claim against Appraiser under the FHA.  The Court rejected Appraiser's argument that the FHA does not apply to appraisers, noting that Section 3605(b)(2) includes "the selling, brokering, or appraising of residential real property" in the definition of "residential real estate-related transactions."  Borrower's pleading was sufficient because she alleged that Appraiser "knew [Borrower's] race, and she accuses them of discriminating against her in the specific business transaction that they had with her" by inaccurately valuing her property.

 

The Seventh Circuit went on to affirm the lower court's ruling that Borrower failed to state a claim against CitiBank and Appraiser for common law fraud.  Under the heightened pleading standards of Federal Rule of Civil Procedure 9(b) for fraud claims, "a plaintiff must plead actual damages arising from her reliance on a fraudulent statement."  In addition, "only out-of-pocket losses allegedly arising from the fraud are recoverable" where there is no contract.  In this case, there was no contract between CitiBank and Borrower, and Borrower "never alleged that she lost anything from the process of applying for the loan."  As to Appraiser, Borrower failed to allege "that she relied on their appraisal" or "any out-of-pocket losses that she suffered because of it."

 

The Court also addressed the proper pleading standard under Federal Rule of Civil Procedure 8(a) in light of the "plausibility" standard set forth by the Supreme Court in Twombly, Erickson and Iqbal.  According to the Seventh Circuit, a pleading does not require "specific facts" and the district court should not decide "which version is more likely than not."  Rather, "the plaintiff must give enough details about the subject-matter of the case to present a story that holds together."  "In other words, the court will ask itself could these things have happened, not did they happen."  However, "abstract recitations of the elements of a cause of action or conclusory legal statements" are insufficient to state a cause of action under Rule 8(a). 

 

The dissent argued that the majority incorrectly drew a distinction between discrimination cases and "more complex" cases, thereby misapplying the pleading standard set forth in Twombly and Iqbal.  The dissent also characterized Borrower's allegations as implausible, reasoning that "all that's alleged (besides pure speculation about the defendants' motive) is that someone was denied a loan because her house is mistakenly appraised for less than its market value."  For this, as well as concerns about asymmetric discovery burdens, the dissent argued the lower court was correct in dismissing Borrower's FHA claims.

 

Let me know if you have any questions.  Thanks.

 

 

Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

105 W. Madison Street, Suite 2100
Chicago, Illinois  60602
Direct:  (312) 551-9320 

Fax:  (866) 581-9302
Mobile:  (312) 493-0874

RWutscher@kw-llp.com

http://www.kw-llp.com

 

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 are available on the internet, in searchable format, at: http://updates.kw-llp.com

 

 

 The information transmitted (including attachments) is covered by the Electronic Communications Privacy Act, 18 U.S.C. 2510-2521, is intended only for the person(s) or entity/entities to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient(s) is prohibited. If you received this in error, please contact the sender and delete the material from any computer.  Notice Under U.S. Treasury Department Circular 230: To the extent that this e-mail communication and the attachment(s) hereto, if any, may contain written advise concerning or relating to a Federal (U.S.) tax issue, United States Treasury Department Regulations (Circular 230) require that we (and we do hereby) advise and disclose to you that, unless we expressly state otherwise in writing, such tax advise is not written or intended to be used, and cannot be used by you (the addressee) or other person(s), for purposes of (1) avoiding penalties imposed under the United States Internal Revenue Code or (2) promoting, marketing or recommending to any other person(s) the (or any of the) transaction(s) or matter(s) addressed, discussed or referenced herein. Each taxpayer should seek advice from an independent tax advisor with respect to any Federal tax issue(s), transaction(s) or matter(s) addressed, discussed or referenced herein based upon his, her or its particular circumstances.