FYI: 11th Cir Says Payment Through Internet-Based Intermediary Was FDCPA "Debt"

The United States Court of Appeals for the Eleventh Circuit recently held that the reversal of payment and related fees charged by an internet-based payment intermediary to its customer after a third-party's payment was determined to be fraudulent was a "debt" under the Fair Debt Collection Practices Act 15 U.S.C. §§ 1692 et seq. ("FDCPA"), and the Florida Consumer Collection Practices Act, Fla. Stat. §§ 559.72 et seq. ("FCCPA").
 
A copy of the opinion is available at:  http://www.ca11.uscourts.gov/opinions/ops/201012461.pdf
 
Plaintiff-debtor received the proceeds from the sale of a laptop through internet-based intermediary PayPal.  PayPal subsequently discovered that the laptop purchaser's payment was fraudulent, and demanded Plaintiff-debtor reimburse PayPal for the payment and related fees pursuant to the PayPal User Agreement.  PayPal then employed Defendant-debt collector to pursue the funds when Plaintiff-debtor refused to reimburse the payment and fees.  Plaintiff-debtor brought suit against Defendant-debt collector, alleging that the collection efforts constituted a form of harassment and contained false and misleading representations in violation of the FDCPA, FCCPA, and for common law invasion of privacy by intrusion.
 
Defendant-debt collector moved for summary judgment on all counts, arguing Plaintiff-debtor's obligation to PayPal did not constitute a "debt" under the FDCPA or the FCCPA, and that Plaintiff-debtor did not plead sufficient facts to maintain the claim of invasion of privacy.  The District Court granted the motion as to the privacy claim but not the FDCPA and FCCPA.  Plaintiff-debtor was awarded damages and fees at trial.  Defendant-debt collector appealed the lower court's denial of its motion for summary judgment, and the Appellate Court affirmed.
 
As you may recall, "to recover under both the FDCPA and the FCCPA (a Florida state analogue to the federal FDCPA), a plaintiff must make a threshold showing that the money being collected qualifies as a 'debt.'" The FDCPA and the FCCPA identically define "debt" as: "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment. 15 U.S.C. § 1692a(5) and Fla. Stat. § 559.55(1) (emphasis added).  "Accordingly, the FDCPA and FCCPA apply only to payment obligations of a (1) consumer arising out of a (2) transaction in which the money, property, insurance, or services at issue are (3) primarily for personal, family, or household purposes."
 
Analyzing the case before it under the three prongs, the Eleventh Circuit first held that Plaintiff-debtor was a "consumer," reasoning that Plaintiff-debtor was a purchaser of PayPal's services.  In addition, "the mere fact that Plaintiff-debtor consumes PayPal's services in order to facilitate a separate sale does not thereby negate his consumer status with respect to PayPal."
 
The Eleventh Circuit next held that a "transaction" occurred for purposes of the FDCPA and FCCPA.  "At a minimum, a 'transaction' under the FDCPA must involve some kind of business dealing or other consensual obligation." In this case, Plaintiff-debtor "had utilized PayPal's services in a transaction and, according to the terms of that transaction, was under a contractual obligation to repay the money."   In addition, Plaintiff-debtor's "transaction with PayPal did not cease upon the transfer of funds to his account; rather, he remained under a continuing contractual obligation to refund any invalidated payments—an obligation which arose from the transaction itself." 
 
Rejecting Defendant-debt collector's argument, the Court distinguished the case before it from previous cases in which erroneous credits to customers' accounts by banks were held not to be "transactions" under the FDCPA.  In those cases, there is was no indication "that the debtors had a contractual obligation dictating their liability in the event of any overpayment."
  
Lastly, the Defendant-debt collector argued on appeal that the subject transaction was for commercial purposes and therefore the Plaintiff-debtor did not satisfy the requirement that the services provided be "primarily for personal, family, or household purposes."  However, Defendant-debt "was not clearly raised" in Defendant-debt collector's initial brief, and therefore the Court deemed the issue waived. 

 

Notwithstanding the waiver, the Eleventh Circuit held the third prong was satisfied because the Plaintiff-debtor did "not run a business and specifically registered his PayPal account as a 'personal account,' which the User Agreement defines as an account 'used for non-business purposes and used primarily for personal, family, or household purposes.'"

 

 

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

Email:  RWutscher@kw-llp.com

http://www.kw-llp.com

 

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FYI: IL to Enact "Civil Union" Statute Likely Affecting Homestead, Credit Disclosure and Other Laws

Illinois Governor Pat Quinn is expected to sign into law the "Illinois Religious Freedom Protection and Civil Union Act," providing for civil unions in Illinois. 

 

The legislation may be important for banks, lenders and other consumer financial services companies, among other things due to homestead, credit disclosure, credit discrimination, employment and other marital and spousal rights laws.

 

The full text of the legislation is available at:

http://www.ilga.gov/legislation/96/SB/PDF/09600SB1716lv.pdf

 

The new legislation provides that:  "A party to a civil union is entitled to the same legal obligations, responsibilities, protections, and benefits as are afforded or recognized by the law of Illinois to spouses, whether they derive from statute, administrative rule, policy, common law, or any other source of civil or criminal law."

 

The parties to the civil union would have to apply for and obtain a certificate, similar to a marriage license.

 

Under Illinois law, if the Governor sings the legislation into law as he has publicly stated he would, the new statute should become effective on June 1, 2011.

 

 

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: 11th Cir Confirms No Private Right of Action for Excessive Notary Fees Under Georgia Statute

The United States Court of Appeals for the Eleventh Circuit affirmed in part and vacated in part the lower court's dismissal for failure to state a claim of a putative class action seeking recovery of notary fees in excess of the statutory maximum set by OCGA 45-17-11(b), the Georgia notary fee statute.

 

The opinion is available online at: http://www.ca11.uscourts.gov/opinions/ops/200815983op2.pdf.

 

The Eleventh Circuit certified four questions concerning Georgia law to the Georgia Supreme Court.  The Georgia court replied as follows:  (1) there is no private civil cause of action, express or implied, under OCGA section 45-17-11; (2) under the facts of the present case, the "voluntary payment doctrine cannot bar a breach of contract claim;" (3) the statute of limitations was "not tolled" for the plaintiff's fraud and "money had and received" claims; (4) a corporation , while not "directly or vicariously liable" for violations of OCGA, can become liable "if it participates in or procures the notary's violations."

 

Applying the Georgia Supreme Court's rulings, the Eleventh Circuit held that OCGA section 45-17-11 does not create a private civil cause of action to recover notary fees, had been properly dismissed by the district court.
 
The plaintiffs also asserted that the district court had erred when it had dismissed their "fraud and "money had and received"" claim on statute of limitations grounds.  The Eleventh Circuit noted that more than five years had passed since the plaintiffs had signed the relevant loan agreement.  Moreover, the Court was unconvinced by the plaintiffs' contention that "equitable tolling" should apply because lender had supposedly committed fraud when they contracted for "reasonable and necessary" notary fees, and then charged "fees far exceeding the statutory maximum" and failed to inform the plaintiffs of the statutory maximum.  The Georgia Supreme Court held that equitable tolling did not apply because the plaintiffs "could have discovered the discrepancy" between the statutory fee and the actual fee by "simple reference" to the statute.  Therefore, the Eleventh Circuit held the district court had not erred in dismissing the plaintiffs' second claim.

 

Plaintiffs' third claim that the lender had breached the loan agreement provision which stated that notary fees would be "reasonable and necessary" was dismissed by the district court under Georgia's "voluntary payment statute."   However, the Eleventh Circuit vacated the dismissal.  The Georgia Supreme Court held that the statutory limit under OCGA was $4, and that the lender had not only charged the plaintiffs $350, but had not informed them of the statutory limit and had in fact "expressly and affirmatively misrepresented" that their notary fee was "reasonably necessary."  Given these circumstances, the Georgia Supreme Court found that Plaintiffs "alleged sufficient "artifice, deception, or fraudulent practices" to qualify under the exception to the Georgia voluntary payment statute.  The Eleventh Circuit noted that the plaintiffs' breach of contract claim would fall within the six year statute of limitations for written contracts in Georgia.

 

Finally, the Eleventh Circuit held that, although the Georgia Supreme Court found that under Georgia law a corporation "employing notaries public" was "neither directly nor vicariously subject to section 45-17-11," the corporation could be liable for a notary's violation of the statue "if [the corporation] participates in or procures the notary's violations."  The Eleventh Circuit held that it was a question for the district court whether the lender had so procured its notary's statutory violations.

 

 

 

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

Email:  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: Indiana App Ct Holds Noncompliance with HUD/FHA Regs is a Valid Defense to FHA Foreclosure Action

Rick Vance of Stites & Harbison PLLC in Louisville, Kentucky (www.stites.com) provides the update below/attached regarding a recent Indiana appellate court opinion.

 

"It's not getting any easier for lenders seeking foreclosure on delinquent FHA home loans in Indiana.  In a case of first impression, the Indiana Court of Appeals held that a servicer's noncompliance with HUD servicing regulations is a valid affirmative defense to the foreclosure of an FHA-insured mortgage.  Lacy-McKinney v. Taylor, Bean & Whitaker Mortg. Corp., 2010 Ind. App. LEXIS 2161 (Ind. Ct. App. Nov. 19, 2010). 

 

"The Federal Housing Administration operates a mortgage insurance program for the purpose of encouraging lenders to issue loans at favorable interest rates to otherwise ineligible borrowers.  Participating lenders must comply with rules imposed by the Department of Housing and Urban Development (HUD), including the servicing regulations contained at 24 CFR § 203.500 – § 203.681.  These regulations include requirements that in certain default circumstances servicers may not immediately accelerate and foreclose, but must first meet face-to-face with borrowers prior to filing a foreclosure claim, accept partial payments, and engage in other timely  loss mitigation efforts.

 

"The Indiana appellate court rejected the loan servicer's argument that the HUD regulations apply only to the relationships between mortgagees and the government and that Congress did not intend for the regulations to be used by mortgagors as a private right of action or defense.  Instead, the court found that public policy, the language of the regulations and precedents from other state courts supported its decision that a mortgagee's satisfaction of HUD-imposed regulations is a binding condition precedent to its right to foreclose on an FHA-insured property.  Finding that the servicer improperly refused the borrower's partial payments and failed to conduct a face-to-face meeting prior to foreclosure, the appellate court reversed the trial court's summary judgment in favor of the mortgagee and remanded the case for further proceedings.  An appeal has not yet been filed.

 

"Although the Lacy-McKinney decision only allows the HUD regulations to be used by borrowers as a shield and not a sword, it is certain to attract attention from the growing number of attorneys specializing in the representation of borrowers facing foreclosure."

 

 

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: LA Sup Ct Confirms YSP Not Included in HOEPA "Points and Fees"

The Supreme Court of Louisiana recently confirmed that a yield spread premium is not part of the "total points and fees payable by the consumer at or before closing" within the meaning of the Home Ownership and Equity Protection Act (HOEPA).  A copy of the opinion is attached.

 

This case arises from an adjustable rate promissory note executed by Kathleen Johnson Parnell (Parnell), and secured by a mortgage on her home.  The HUD-1 Settlement Statement prepared in connection with the loan closing noted that the lender paid the mortgage broker a YSP of $1,264.  The HUD-1 stated that the YSP was "paid outside of closing."

 

On June 19, 2003, Parnell demanded rescission under the federal Truth in Lending Act.  Parnell claimed that her loan was subject to HOEPA, as the "points and fees charged in connection with her loan exceeded eight percent of the total loan amount."  She further claimed that she had not received certain disclosures required by HOEPA. 

 

Following her demand, starting in September of 2003, Parnell stopped making the monthly payments due on her loan.  The lender denied the demands made in Parnell's June letter, as her points and fees totaled only 6.7 percent of the total loan amount by its calculation.  The owner of the loan sought to seize and sell Parnell's house in response to her failure to make payments on her promissory note.  However, the note secured by the mortgage was later paid in full on June 26, 2006, from insurance proceeds following Hurricane Katrina.

 

In September of 2008, the loan owner filed a motion for summary judgment as to all claims asserted by Parnell in her June 2003 letter.  The trial court held that the YSP paid by the lender to the mortgage broker "outside of closing" is "not included in HOEPA's "point and fees" calculation" because "it was not paid or payable by Parnell at the time of closing."  Therefore, the trial court granted the Bank's motion for summary judgment, and dismissed Parnell's petition with prejudice.  Parnell appealed this decision.

 

The court of appeals reversed the portion of the trial court's decision granting summary judgment relating to Parnell's HOEPA claim.  The court of appeals "adopted a consumer-oriented view to HOEPA and a related regulation, Regulation Z."  Under this interpretation, the court found that "payable", in relation to the YSP, meant "legally enforceable or obligated to pay rather than paid."   Therefore, "Parnell was legally obligated to pay the yield spread amount at or before closing" because of her obligation to pay a higher rate of interest during the life of the loan.  This inclusion of the YSP in the points and fees calculation made the loan subject to HOEPA's disclosure requirements.

 

The Louisiana Supreme Court reversed.  The Court noted that "the phrase "points and fees" includes all compensation paid to mortgage brokers and excludes interest," but "all "points and fees" must be "payable by the consumer at or before closing."

 

Therefore, the Court held that while the statute itself and relevant case law sought to prevent "allowing lenders and financial institutions to manipulate the payment of points and fees . . . to avoid triggering the HOEPA protections", the Board's Official Staff Commentary clearly stated that "mortgage broker fees that are not paid by the consumer" are not included in calculating points and fees under HOEPA.

 

Thus, the Court held that, in cases where "the YSP is paid by the lender to the broker at the time of closing" and the borrower satisfies their obligation by paying a higher interest rate "over the course of the loan," the YSP should not be included "in the calculation of the eight percent trigger."

 

 

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

Email:  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: Ill App Ct Says Assignee for the Benefit of Creditors Entitled to Reasonable Compensation Ahead of Perfected Secured Party

The Illinois Appellate Court for the Second District recently held that an assignee for the benefit of creditors was entitled to receive reasonable compensation for services and expenses before the satisfaction of perfected secured interests, because Section 9-102(a) of the Uniform Commercial Code ("UCC") does not transform an assignee for the benefit of creditors into a creditor with a competing security interest for the debtor's collateral.

 

A copy of the opinion can be found at: http://www.state.il.us/court/Opinions/AppellateCourt/2010/2ndDistrict/November/2091287.pdf

 

Plaintiff-Creditor obtained a perfected security interest in Defendant-Debtor's collateral on October 22, 2004.  Defendant-Debtor entered into an assignment for the benefit of creditors with third-party intervenor Trustee on November 18, 2008, which provided the trustee "reasonable compensation" for his services and expenses "from the Assets." 

 

Plaintiff-Creditor first learned of the trust agreement on November 21, 2008.  Plaintiff-Creditor obtained a judgment against Debtor and moved to collect on that judgment.  The trustee intervened, seeking fees and expenses for his duties as assignee.  Plaintiff-Creditor moved for summary judgment against the trustee, asserting that, as a perfected secured creditor under the UCC, it had priority over the trustee, a lien creditor.

 

The trial court granted summary judgment in favor of Plaintiff-Creditor, and the trustee appealed.  The Appellate Court reversed and remanded, holding that the UCC did not preclude the payment of reasonable compensation to the trustee for his services as assignee in an assignment for the benefit of creditors arrangement.

 

As you may recall, Section 9-102(a) of the UCC defines "lien creditor" in pertinent part as "an assignee for the benefit of creditors from the time of assignment."  The Plaintiff-Creditor argued that inclusion of an assignee for the benefit of creditors within the definition of "lien creditor" transforms, in the context of assessing an assignee for the benefit of creditor's right to his or her fees and expenses, the assignee into a mere lien creditor with a competing security interest for the debtor's collateral. 

 

However, the Court disagreed, reasoning that the Plaintiff-Creditor's interpretation of the UCC was illogical and inconsistent with the legislative intent in enacting the UCC, given the role of an assignee for the benefit of creditors. 

 

The Court noted that, "[i]f assignees were required to forgo payment in favor of perfected security interests, no assignee would take on the task of liquidating assets, and assignments for the benefit of creditors would cease to be available as an efficient method of maximizing the liquidation value of troubled companies."  In addition, the Court noted that the Plaintiff-Creditor's "interpretation would put an assignee in competition with the creditors he or she is bound to serve," which "is an absurd scenario because it transforms a fiduciary into a competing creditor."  Moreover, "an assignment for the benefit of creditors is a common-law vehicle used to liquidate a company's assets, and, pursuant to the common law, the assignee has a right to his or her reasonable fees and expenses." "If the General Assembly had intended to foreclose this common-law right, it would have clearly and explicitly set forth in the statute that a perfected secured creditor such as Creditor has priority over the assignee's right to fees and expenses."

 

The Court also commented "on the scope of the trial court's calculation of reasonable compensation" on remand.  The "trial court is to take into account that Trustee's compensation shall be based at least in part on the benefits that Creditor received between the date it had notice of Trustee's assignment and the date Creditor notified Trustee to cease his liquidation efforts." The Court reasoned that the Plaintiff-Creditor received certain payments and, by not objecting to the assignment upon notice thereof, Plaintiff-Creditor at a minimum, implicitly accepted the services that Trustee rendered. "In other words, in spite of Creditor's status as a secured creditor, Trustee's notice to the Creditor and the Creditor's implicit acceptance of Trustee's services enable Trustee to collect reasonable compensation for his services" based upon "the concept of quantum meruit."

 

 

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

Email:  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