FYI: 7th Cir Rules in Favor of Borrower In Case Involving Alleged Denial of Permanent HAMP Mod Following Completed Trial

The U.S. Court of Appeals for the Seventh Circuit recently held that a borrower stated valid state law claims in connection with a mortgage servicer's alleged refusal to make a HAMP loan modification permanent after the borrower complied with a "trial" modification.  A copy of the opinion is attached. 

 

The borrower allegedly entered into a four month "trial" loan modification pursuant to a Trial Period Plan ("TPP") with the mortgage loan servicer ("Servicer"), wherein Servicer agreed to permanently modify the loan if she qualified under the HAMP guidelines.  The borrower alleged that she timely made all four payments under the TPP, and that she otherwise qualified for a permanent modification, but that Servicer nevertheless refused to grant her a permanent modification. 

 

The borrower then brought a putative class action asserting seven counts: (1) breach of contract; (2) promissory estoppel; (3) breach of the Servicer Participation Agreement; (4) negligent hiring; (5) fraudulent misrepresentation or concealment; (6) negligent misrepresentation or concealment; and (7) violation of the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA"). 

 

The district court dismissed the lawsuit in its entirety pursuant to Rule 12(b)(6).  The district court reasoned that the borrower's claims were premised on Servicer's obligations under HAMP, which does not confer a private federal right of action on borrowers to enforce its requirements.  The borrower then appealed with respect to all claims except the alleged breach of the Service Participation Agreement. 

 

On appeal, the Seventh Circuit noted there were "two sets of issues."  The first issue concerned "whether [the borrower] stated viable claims under Illinois common law and ICFA."  The second issue concerned whether the state-law claims were "preempted or otherwise barred by federal law."  The Seventh Circuit concluded that the borrower stated viable causes of action with respect to her breach of contract, promissory estoppel, fraudulent misrepresentation and ICFA claims, and that HAMP does not preempt otherwise viable state-law claims. 

 

The Seventh Circuit held that the borrower asserted a valid common law claim for breach of contract, by properly pleading the six elements: (1) offer and acceptance, (2) consideration, (3) definite and certain terms, (4) performance by the plaintiff of all required conditions, (5) breach, and (6) damages. 

 

Servicer argued that there was no "offer" because the TPP was not an enforceable offer to permanently modify the mortgage, as it was conditioned on further review of financial information following its completion to make sure the borrower qualified under HAMP.  The Court disagreed, and noted that the promise was conditioned on acts by the borrower to comply with the requirements of the TPP and on her financial information remaining true and accurate.  The Court held that "[o]nce [Servicer] signed the TPP Agreement and returned it to [the borrower], an objectively reasonable person would construe it as an offer to provide a permanent modification agreement if she fulfilled its conditions."   

 

The Seventh Circuit further held that the TPP contained sufficient consideration because the borrower "incurred cognizable legal detriments," and "agreed to open new escrow accounts, to undergo credit counseling (if asked), and to provide and vouch for the truth of her financial information." 

 

Moreover, the requirement "definite and certain terms" was met because although "the trial terms were just an 'estimate' of the permanent modification terms, the TPP fairly implied that any deviation from them in the permanent offer would also be based on [Servicer's] application of the established HAMP criteria and formulas."  Thus, "[t]he terms of the TPP [were] clear and definite enough to support [the borrower's] breach of contract theory." 

 

The Seventh Circuit further also that the borrower asserted a valid promissory estoppel claim, by pleading the elements that (1) defendant made an unambiguous promise to plaintiff; (2) plaintiff relied on such promise; (3) plaintiff's reliance was expected and foreseeable; and (4) plaintiff relied on the promise to her detriment.  The Court held that the borrower properly alleged that Servicer made an unambiguous offer to give her a permanent loan modification if she complied with the terms of the TPP, that the borrower reasonably relied on that promise, and that the reliance led to her detriment because she lost the opportunity to use other remedies to save her home, or simply default. 

 

The Seventh Circuit held that the borrower's claims based on negligence were barred by the economic loss doctrine, which "bars recovery in tort for purely economic losses arising out of a failure to perform contractual obligations."  While there are a number of exceptions to the economic loss doctrine, each are rooted in the general rule that "[w]here a duty arises outside of the contract, the economic loss doctrine does not prohibit recovery in trot for the negligent breach of that duty."  The Court held that "[t]o the extent [Servicer] had a duty to service [the borrower's] home loan responsibly and with competent personnel, that duty emerged solely out of its contractual obligations."  Therefore, the Seventh Circuit ruled the claims based on negligence were properly dismissed. 

 

However, the Court held that the borrower stated a claim for fraudulent misrepresentation, noting that there is an exception to the economic loss doctrine "where the plaintiff's damages are proximately caused by a defendant's intentional, false representation, i.e., fraud."  The Seventh Circuit further held that the borrower adequately pled the elements of a fraudulent misrepresentation claim, which are (1) a false statement of material fact; (2) known or believed to be false by the party making it; (3) intent to induce the other party to act; (4) action by the other party in reliance on the truth of the statement; and (5) damage to the other party resulting from that reliance.

 

The Seventh Circuit noted that "the only element seriously at issue on the pleadings is reasonable reliance."  The Court held that "the TPP as a whole supports [the borrower's] reading of it to require [Servicer] to offer her a permanent loan modification once it determined she was qualified and sent her an executed copy, and she satisfied the conditions precedent." 

 

The Court further held that though the claim represented promissory fraud (i.e. a false statement of intent regarding future conduct), it was nevertheless actionable because the plaintiff alleged it was part of a scheme to defraud, where she accused [Servicer] of a deliberately implementing a "system designed to wrongfully deprive its eligible HAMP borrowers of an opportunity to modify their mortgages." 

 

However, the Seventh Circuit held that the borrower failed to state a claim for fraudulent concealment, which requires a plaintiff to plead all the elements of fraudulent misrepresentation, as well as alleging "the defendant intentionally omitted or concealed a material fact that it was under a duty too disclose to the plaintiff."  The Court held that Servicer did not have a "fiduciary or confidential relationship" with the borrower, nor did it involve a "situation where plaintiff places trust and confidence in defendant, thereby placing defendant in a position of influence and superiority over plaintiff." 

 

The Seventh Circuit held the borrower adequately pled a ICFA claim, which requires pleading (1) a deceptive or unfair act or practice by the defendant; (2) the defendant's intent that the plaintiff rely on the deceptive or unfair practice; and (3) the unfair or deceptive practice occurred during the course of conduct involving trade or commerce.  Moreover, "a plaintiff must demonstrate that the defendant's conduct is the proximate cause of her injury."  In asserting her claim, the borrower incorporated her common law fraud claims.  Additionally, she alleged that Servicer "dishonestly and ineffectually implemented HAMP." 

 

In holding that all the elements for ICFA were met, the Seventh Circuit disagreed with the district court, which dismissed the claim on the grounds that the borrower did not alleged Servicer acted with intent to deceive and because she did not allege pecuniary damages.  The Seventh Circuit stated that "'intent to deceive' is not a required element of a claim under the ICFA, which provides redress 'not only for deceptive business practices, but also for business practices that, while not deceptive, are unfair.'"  The Court also held that the borrower alleged actual pecuniary loss because, among other things, she "incurred costs and fees" and "lost other opportunities to save her home." 

 

After ruling that the borrower asserted several valid state law causes of action, the Seventh Circuit further held that federal law did not preempt or displace the borrower's claims arising out of state law.  In so holding, the court noted that "[p]reemption can take on three different forms: express preemption, field preemption, and conflict preemption."  Servicer conceded that express preemption did not apply, but argued for both field and conflict preemption.  Servicer further argued what the Court called a "novel theory" that the borrower's claims were displaced because they attempt an "end-run" on the lack of a private right of action under HAMP.  The Seventh Circuit held that none of the theories applied.

 

A state law is preempted under field preemption "if federal law so thoroughly occupies the legislative field 'as to make reasonable the inference that Congress left no room for the States to supplement it.'"  Servicer argued that the Home Owners Loan Act ("HOLA") occupies the relevant field, and that HOLA and the corresponding Office of Thrift Supervision ("OTS") regulations displace state common-law suits that effectively impose any standards for the processing and servicing of mortgage loans, whether the conflict with federal policy or not. 

 

The Seventh Circuit held that such a reading was "directly at odds with the saving clause of 12 C.F.R. § 560.2(c), and inconsistent with [its] decision in [In re Ocwen Loan Servicing, LLC Mortg. Servicing Litigation, 491 F.3d 638 (7th Cir. 2007]."  In Ocwen, the court held that "HOLA and the OTS regulations did not preempt suits by 'persons harmed by the wrongful acts of savings and loan associations' seeking 'basic state common-law-type remedies.'"  The court further noted that Ocwen "stands for the principle that HOLA preempts generally applicable state laws only when they 'could interfere with federal regulation' – that is, those that actually conflict with the regulatory program."  Thus, the Court held that field preemption did not apply.

 

Implied conflict preemption may apply where either (1) it is impossible for a private party to comply with both state and federal requirements, or (2) where sate law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.  Servicer did not contend it would be impossible to comply with state-law duties without violating federal law.  Instead, it argued the second version of conflict preemption, known as "obstacle" preemption. 

 

Servicer argued that allowing the borrower's state-law claims would undermine the purposes of Congress by substantially interfering with Servicer's ability to service residential mortgage loans," and "frustrate Congressional objectives in enacting [the 2008 Act] . . . to stabilize the economy and provide a program to mitigate 'avoidable' foreclosures." 

 

The Seventh Circuit held that the first argument was inconsistent with Ocwen, because there the court held that "conventional" state law claims for breach of contract, fraud, and deceptive business practices complemented rather than conflicted with HOLA.  The Court also found that the second argument lacked merit, holding "[t]here is no indication that Congress meant to foreclose suits against servicers for violating state laws that impose obligations parallel to those established in a federal program." 

 

Finally, the Seventh Circuit held that the "end-run" theory to preemption did not apply.  "The end-run theory is built on the novel assumption that where Congress does not create a private right of action for violation of a federal law, no right of action may exist under state law, either."  However, the Seventh Circuit noted that the issue was not "whether federal law itself provides private remedies, but whether it displaces remedies otherwise available under state law."  The Court held that "[t]he absence of a private right of action from a federal statute provides no reason to dismiss a claim under a state law just because it refers to or incorporates some element of the federal law." 

 

"To find otherwise would required adopting the novel presumption that where Congress provides no remedy under federal law, state law may not afford one in its stead." 

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
 

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FYI: NY AG Settles Penalties in MERS-Related Litigation for $25M

New York Attorney General Eric T. Schneiderman settled MERS-related allegations against several of the nation's largest banks for $25 Million, in addition to amounts to be paid by the same entities in connection with the national mortgage settlement.

 

The lawsuit was filed as People of the State of New York v. JPMorgan Chase & Co. 2768-2012, New York State Supreme Court (Brooklyn).  A copy of the complaint is available at:
http://www.oag.state.ny.us/sites/default/files/press-releases/2012/FINAL-SUMMONS-AND-COMPLAINT.pdf

 

The NY AG alleged that the use of MERS supposedly "resulted in a wide range of deceptive and fraudulent foreclosure filings in New York state and federal courts, harming homeowners and undermining the integrity of the judicial foreclosure process."  

 

More specifically, the NY AG alleged that:

 

-  The MERS system is a "bizarre and complex end-around of the traditional public recording system," allowing its members to avoid paying "more than $2 billion in recording fees."

 

-  Numerous New York foreclosure actions listed MERS as plaintiff, when MERS supposedly lacked the legal authority to foreclose and did not own or hold the promissory note, allegedly despite saying otherwise in court filings.

 

-  Assignments of New York mortgages signed by MERS certifying officers were often "automatically generated and 'robosigned' by individuals who did not review the underlying property ownership records, confirm the documents' accuracy, or even read the documents."   The NY AG claimed that the assignments were "false and defective," because they often "masked gaps in the chain of title and the foreclosing party's inability to establish its authority to foreclose, and as a result have misled homeowners and the courts."

 

-  The use of non-employee MERS "certifying officers" to execute legal documents "confused, misled, and deceived homeowners and the courts and made it difficult to ascertain whether a party actually has the right to foreclose," and "without disclosing that they are not MERS employees, but instead are employed by other entities, such as the mortgage servicer filing the case or its counsel."  In addition, the NY AG asserted that "individuals have executed legal documents on behalf of MERS, such as mortgage assignments and loan modifications, when they were either not designated as a MERS certifying officer at the time or were not authorized to execute documents on behalf of MERS with respect to the subject loan."

 

-  MERS and its members supposedly "deceived and misled borrowers" by failing to identify the real party in interest pursuing the foreclosures, and often indicating that MERS was acting as nominee for a lender that was no longer in existence at the time of filing.

 

-  The MERS System is "riddled with inaccuracies which make it difficult to verify the chain of title for a loan or the current note-holder, and creates confusion among stakeholders who rely on the information." In addition, the NY AG asserted that as a result of these inaccuracies, mortgage satisfactions were often supposedly recorded against the wrong property.

 

The lawsuit seeks a declaration that the alleged practices violate the law, as well as injunctive relief, damages for harmed homeowners, and civil penalties. The lawsuit also seeks a court order requiring defendants to take all actions necessary to cure any title defects and clear any improper liens resulting from their fraudulent and deceptive acts and practices.

 

This MERS-related settlement reportedly precludes New York from seeking penalties of $5,000 for each alleged violation. However, the state will continue to pursue damages allegedly incurred by New York homeowners as a result of the banks' use of the MERS system, and will seek court-ordered changes to the MERS system.

 

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
 

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FYI: 9th Cir Holds FAA Preempts California Rule Prohibiting Arbitration of Claims for Public Injunctive Relief, Including Under UCL

The U.S. Court of Appeals for the Ninth Circuit recently held that:  (1) the Federal Arbitration Act preempted a California rule against arbitrating claims for public injunctive relief; and  (2) the state common law contract defense of unconscionability was not available to invalidate an arbitration clause, where a loan agreement clearly and conspicuously set forth the arbitration clause and provided ample opportunity to opt-out of arbitration.

 

A copy of the opinion is available at: 

http://www.ca9.uscourts.gov/datastore/opinions/2012/03/07/09-16703.pdf.

 

Plaintiffs ("Plaintiff Borrowers") brought a putative class action in California state court against a bank ("Defendant Bank") that extended student loans to the Plaintiff Borrowers.  The complaint alleged that the Defendant Bank violated California's Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, et seq. ("UCL"), with respect to student loans the Plaintiff Borrowers obtained in order to fund their training to become helicopter pilots. 

 

The Plaintiff Borrowers alleged that, after they had enrolled in aviation school in California and incurred substantial debt, the school became insolvent, filed for bankruptcy protection, and ceased operations.  The Plaintiff Borrowers claimed that, as a result of the demise of the aviation school, they were left unable to complete their training and lost all the money they had borrowed from the Defendant Bank.  The Plaintiff Borrowers alleged among other things that the aviation school had engaged in misleading marketing tactics to attract students, and that the Defendant Bank improperly continued to extend student loans despite its alleged knowledge of the aviation school's precarious financial condition.   The Plaintiff Borrowers sought an injunction enjoining the Defendant Bank from enforcing the loan agreements and from engaging in false and deceptive practices with respect to certain consumer credit agreements. 

 

The student loan agreements provided that federal and Ohio law would govern the agreements.  The loan agreements also contained an arbitration clause that waived class-actions and allowed either party to elect binding arbitration of disputes.  In addition, the loan agreements included an opt-out provision, allowing Plaintiff Borrowers the opportunity to opt-out of the arbitration clause within a specified period after signing the agreement.   The Plaintiff Borrowers signed the agreements without opting-out of the arbitration clause. 

 

The Defendant Bank removed the case to federal district court, and moved to compel arbitration pursuant to the arbitration clause.  The district court denied the motion to compel.  In so doing, the district court declined to apply Ohio law in accordance with the choice-of-law provision.  Ruling that Ohio law was contrary to California's "fundamental policy" prohibiting arbitration of claims for public injunctive relief, the district court applied California law and thus held that the arbitration clause was unenforceable. 

 

The Defendant Bank appealed the denial of its motion to compel arbitration.  During the pendency of the interlocutory appeal, the Defendant Bank also moved to dismiss the Plaintiff Borrowers' complaint, arguing that the National Bank Act and federal regulations preempted the Plaintiff Borrowers' California UCL claims.  Retaining jurisdiction over the case, the district court dismissed the complaint on federal preemption grounds, and entered judgment against the Plaintiff Borrowers.  The Plaintiff Borrowers appealed. 

 

The Ninth Circuit reversed the denial of the motion to compel arbitration, vacated the judgment of dismissal, and remanded.

 

As you may recall, the Federal Arbitration Act ("FAA") provides that arbitration agreements are "valid, irrevocable, and enforceable" unless the agreements can be invalidated "upon such grounds as exist at law or equity for the revocation of any contract," such as fraud, duress, or unconscionability.  See 9 U.S.C. § 2. 

 

Finding it unnecessary to address whether California or Ohio law applied to this case, the Ninth Circuit focused on the FAA's preemption of state law.  In its analysis of the FAA, the Ninth Circuit noted that the Supreme Court identified two situations in which the FAA preempts state law:  (1) where state law prohibits the arbitration of a particular type of claim; and (2) where a generally applicable doctrine under state law, such as unconscionability, is applied in a manner that creates an obstacle to the FAA's objective of enforcing arbitration agreements according to their terms.  See AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1747 (2011) ("Concepcion"). 

 

The Ninth Circuit analyzed whether decisions of the California Supreme Court and Ninth Circuit should be followed in light of the Supreme Court's Concepcion decision.  See Broughton V. Cigna Healthplans of California, 988 P.2d 67 (Cal. 1999), Cruz v. Pacificare Health Systems, Inc., 6 P.3d 1157 (Cal 2003), and Davis v. O'Melveny & Myers, 485 F.3d 1066, 1082 (9th Cir. 2007)(holding that California law prohibits arbitration of claims for injunctive relief on behalf of the general public, including claims under the UCL). 

 

In reviewing various court decisions that addressed whether the so-called "Broughton-Cruz" rule remained viable after Concepcion, the Court concluded that it did not.  The Ninth Circuit reasoned that, because the Broughton-Cruz rule prohibited the arbitration of a "particular type of claim" – here, claims for public injunctive relief --  the rule could not survive Concepcion.  Accordingly, the Court held that the FAA preempted California's prohibition against the arbitration of claims for public injunctive relief.

 

In so ruling, the Ninth Circuit noted that, post-Concepcion, the public policy arguments advanced by the Plaintiff Borrowers no longer justified invalidating an otherwise enforceable arbitration agreement, and that the FAA deprived state legislatures of the ability to require judicial resolution of claims that parties contractually agreed to resolve through arbitration.  The Court noted, however, that federal statutory claims were not subject to arbitration under the FAA if Congress intended to keep such claims out of arbitration.  See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 627 (1985)(absent countervailing federal policy, the FAA requires enforcement of private arbitration agreements).

 

Mindful that its holding could adversely affect the enforcement of certain state laws such as the UCL, and thereby thwart the legislative purposes of state law, the Court nevertheless noted that the preemption analysis in Concepcion required the result in this case. 

 

Turning to the issue of unconscionability as a state-law contract defense to the arbitration clause, the Ninth Circuit noted that this common law defense survived Concepcion.  Applying California law, the Court pointed out that the promissory notes clearly and conspicuously set forth the arbitration agreement, plainly stated that the Plaintiff Borrowers would waive certain rights unless they opted-out of the arbitration agreement, and contained a clear warning to Plaintiff Borrowers to read the loan contract carefully before signing it.  Accordingly, the Ninth Circuit ruled that the Plaintiff Borrowers lacked an unconscionability defense to enforcement of the arbitration clause.

 

Finally, because the Court's ruling on the enforceability of the arbitration agreement rendered moot Plaintiff Borrowers' appeal of the district court's dismissal of the complaint, the court declined to address whether the National Bank Act and federal regulations preempted the UCL.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
 

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FYI: 9th Cir Upholds Ruling Against Debt Collector, Including Owner of Debt Collector Personally Liable Under FDCPA

The U.S. Court of Appeals for the Ninth Circuit recently held that:  (1) debt collection letters erroneously stating that interest and legal fees were owing on a debt violated the federal Fair Debt Collection Practices Act, where governing state law did not permit such fees; (2) the sole owner of a debt collection company was a "debt collector" and personally liable for violating the FDCPA, because he was personally involved in the improper debt collection process, and (3) the Court of Appeals lacked jurisdiction to hear an appeal of post-judgment awards of damages and attorney's fees, where a notice of appeal purporting to "amend" a prior notice of appeal was untimely filed.

 

A copy of the opinion can be found at: 
http://www.ca9.uscourts.gov/datastore/opinions/2012/03/08/09-17449.pdf.

 

Plaintiff individual allegedly wrote two checks to a gambling casino located in Nevada.  Both checks bounced.  The casino assigned its claim based on the dishonored checks to a debt collection company ("Company"), which allegedly sent a total of eight debt collection letters to the Plaintiff seeking payment on the debt. 

 

After receiving the first debt collection letter, the Plaintiff allegedly sent a certified letter to the Company disputing the debt and refusing to pay.  The Company allegedly continued to attempt collection on the debt by sending additional debt collection letters.  Plaintiff sent the Company a second letter disputing the debt and refusing to pay, but the Company allegedly continued to send further debt collection letters.  The numerous collection letters varied as to the exact amount the Plaintiff owed, and certain letters allegedly stated that under California law Plaintiff owed treble damages, interest, returned-check charges, and/or attorney fees in addition to principal.

 

The Plaintiff filed suit in district court in California, naming both the Company and its sole owner ("Owner") as defendants (collectively the "Debt Collectors").  The complaint alleged among other things that the Debt Collectors violated the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., by sending false and misleading debt collection letters to the Plaintiff.   The parties filed cross motions for summary judgment. 

 

The district court ruled that the Company violated the FDCPA by falsely claiming in its letters that it was entitled to treble damages, interest, and legal fees under California law, because Nevada law applied to the debt and Nevada law did not permit the collection of interest and legal fees.  The district court also ruled that the Owner qualified as a "debt collector," and was therefore personally liable for the FDCPA violations.  The district court entered summary judgment in favor of the Plaintiff.  The Debt Collectors filed a timely notice of appeal after the entry of summary judgment. 

 

Just over a week after the entry of summary judgment, the Plaintiff moved to amend the judgment to include $1000 in statutory damages, which the district court granted.   Then, more than six months after the entry of summary judgment, the Plaintiff filed a petition for attorney's fees, and the district court awarded over $24,000 in attorney's fees and costs.

 

Subsequently, the Debt Collectors unsuccessfully moved to vacate and dismiss the action due to the death of the Plaintiff.  The court allowed Plaintiff's son to be substituted as representative of the deceased plaintiff.  In response, the Debt Collectors filed an "amended notice of appeal" 34 days after the date of the order of substitution.  The "amended" notice of appeal purported to amend the initial, timely filed notice of appeal to also include appeals of the post-judgment awards of damages, attorney's fees, and costs.   

 

The Ninth circuit affirmed the grant of summary judgment against the Debt Collectors, and dismissed the appeal relating to the post-judgment awards of damages and attorney's fees for lack of jurisdiction.

 

As you may recall, the FDCPA defines a "debt collector" in part as any person who regularly collects debts owed or asserted to be owed to another and prohibits the use of any false, deceptive or misleading representation in connection with the collection of any debt.  15 U.S.C. §§ 1692a(6), 1692e.  With certain exceptions, the FDCPA also prohibits contacting any debtor who has notified a debt collector in writing that the consumer refuses to pay a debt and allows a Plaintiff to recover statutory damages.  15 U.S.C. § 1692c(c), 1692e.   

 

In addition, Nevada law prohibits debt collectors from collecting interest or fees unless such amounts have been added to the principal before the debt collector received the item for collection.  Nev. Rev. Stat.  §  649.375(2)(a)(2011).  Nevada law also limits the amount of damages available to a debt collector for each check written with insufficient funds on deposit.  Nev. Rev. Stat. 41.620(1).

 

Applying Nevada law, the Ninth Circuit ruled that, because the letters applied the wrong state's laws, and erroneously stated that the Plaintiff owed fees and interest and further overstated the amount of damages, the letters were false and misleading and therefore violated Section 1692e of the FDCPA.  The Court also ruled that the Company violated section 1692c(c) in continuing to send collection letters to the Plaintiff after the Plaintiff disputed the debt and refused to pay.

 

The Ninth Circuit declined to address the Debt Collectors' argument that they were not liable under the FDCPA because the incorrect statements in the debt collection letters were the result of a bona fide error as to which state's law governed the debt.  Because this argument was raised for the first time on appeal, the Ninth Circuit considered the defense waived.

 

The Ninth Circuit also considered whether the Owner of the Company could be held personally liable under the FDCPA.  In so doing, the Court considered whether the Owner qualified as a "debt collector" for purposes of the FDCPA and as such whether the Owner "was personally involved in at least one violation of the FDCPA."  Agreeing with the district court, the Ninth Circuit concluded that the Owner satisfied the FDCPA's definition of a debt collector, and that the Owner was personally involved in the collection attempts against the Plaintiff through his act of signing a letter falsely stating that the Plaintiff owed interest on the principal.  The Court also noted that the Owner had sent the collection letter after he had received, and signed for, the Plaintiff's certified letter disputing the debt and refusing to pay.  Thus, the court ruled that such personal involvement in the collection efforts rendered the Owner personally liable.

 

The Ninth Circuit also ruled that the Debt Collectors failed to timely file a notice appealing the awards of statutory damages and attorney's fees and permitting the substitution of plaintiff.  Noting the mandatory and jurisdictional nature of notices of appeal, the Court ruled that the doctrine of "relation back" does not apply to an amended notice of appeal as it does to the filing of a complaint.  Compare FRCP 15(c)(1)(amendments to complaint "relate back" to the date of original complaint if the amended pleading arises out of same transaction or occurrence) with FRAP 3 and 4(appellant has 30 days to file notice of appeal).  As the Court observed, the Debt Collectors waited beyond the 30 day deadline to file an "amended" notice of appeal.  The Court accordingly ruled that it lacked jurisdiction to hear appeals of those orders.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
Mobile: (312) 493-0874
Email: RWutscher@mtwllp.com
 

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