FYI: Cal App Ct Reverses Dismissal of Untimely Origination Fraud Claims, Holding Allegations Sufficient to Support Fraudulent Concealment

The California Court of Appeals, Third Appellate District, recently held that a borrowers' allegations of fraudulent concealment in connection with the origination of their home loan were, if proven, sufficient to toll the applicable statute of limitations period, reversing the lower court's ruling dismissing the borrowers' claims.

 

A copy of the opinion is available at http://www.courts.ca.gov/opinions/documents/C070452.PDF.

 

Two borrowers sued their mortgage broker ("broker"), loan originator ("originator") and the originator's successor in interest ("owner"), alleging misrepresentation and fraudulent concealment in connection with the origination of the borrowers' home loan.  The broker and originator each separately demurred.  The lower court issued an order sustaining the broker's demurrer without leave to amend, and dismissing the originator.  Subsequently, the broker was also dismissed.  The borrowers appealed.

 

The borrowers alleged that the broker and originator hired an appraiser who supposedly "significantly inflated" the value of the property; that the broker supposedly indicated to the borrowers that they did not qualify for any loan with more favorable terms than the loan offered by the broker - even though this allegedly was not true; and that the broker supposedly did not explain the terms of the loan to the borrowers. 

 

The loan closed in 2006.  In 2009, the borrowers had difficult making payments, and contacted the originator to inquire into whether they might modify their loan.  The borrowers alleged that it was supposedly only during this conversation that they learned the true terms of the loan. Borrowers then retained counsel, at which time they allegedly learned of the inflated appraisal. 

 

The statute of limitations periods for the borrowers' various causes of action were between 2 and 4 years.  All would be untimely using the date of the loan closing; none would be untimely using the date where the borrowers purportedly became aware of the facts underlying this matter. 

 

As you may recall, California law provides that if a party has notice of facts which would put a reasonable person on inquiry notice, or if a party has a reasonable opportunity to obtain information from sources open to investigation, the limitations period begins to run.  See Community Cause v. Boatwright, 124 Cal.App.3d 888, 902 (1981).  Where a pleading is untimely on its face, it is the plaintiff's burden to demonstrate an exception to the limitations period.  The doctrine of fraudulent concealment tolls the statute of limitations, where a defendant's deceptive conduct "has caused a claim to go stale."  Aryeh v. Canon Business Solutions, Inc., 55 Cal.4th 1185, 1192 (2013). 

 

With that standard in place, the Court determined that the borrowers' allegations, if proven at trial, would establish that the limitations period began to run in 2009 - thus making the lower court's dismissal of the originator and broker improper.  

 

The originator and mortgage broker argued that because the borrowers asked questions at closing, and because they received a copy of the appraisal at issue, they were on notice of the terms of the loan at the time of the closing. 

 

The Court disagreed, finding that the borrowers' purported lack of knowledge concerning their mortgage loan was due to the alleged "failure" of the mortgage broker to explain the terms of the loan to the borrowers, in derogation of the broker's fiduciary duty to the borrowers.  The Court also held that the fact that the borrowers received a copy of the appraisal "does not of itself provide any notice to first-time buyers that the appraisal's bases were improper..." 

 

For those reasons, the Court determined that "nothing in the circumstances surrounding the closing of the loan makes [borrowers'] unawareness of the true circumstances unreasonable." 

 

The Court concluded by noting that "evidentiary facts" developed at trial could well demonstrate that the borrowers' lawsuit was untimely.  However, the Court held that "the allegations establish with adequate specificity nondisclosures and misrepresentations" sufficient for it to determine that the demurrer should not have been sustained. 

 

Accordingly, the Court reversed the lower court's judgments of dismissal, and directed the lower court to overrule the demurrers of the originator and broker.    

 

 

FYI: S.D. Fla. Rules FCC's 2008 TCPA Ruling Not Entitled to Deference, Interprets "Express Consent" in TCPA Narrowly

In a putative class action for alleged violation of the federal Telephone Consumer Protection Act ("TCPA"), the U.S. District Court for the Southern District of Florida recently ruled that:

 

(1) The defendant debt collectors failed to show that the plaintiff consumer provided express consent to receive auto-dialed debt collection calls to his cell phone from the relevant creditor, although the plaintiff consumer may have provided consent to a related entity; and

 

(2) The FCC's finding in its 2008 TCPA ruling that "the provision of a cell phone number to a creditor…reasonably evidences prior express consent" is not entitled to deference by the Court.

 

A copy of the opinion is attached.

 

Plaintiff consumer ("Debtor") had become ill and went to the emergency room.  During the admissions process, Debtor's wife, acting on his behalf, provided Debtor's cell phone number and signed several admission documents.  By signing the "Conditions of Admission" form, the wife acknowledged that hospital staff may release Plaintiff's healthcare information for the purposes of payment.

 

Subsequently, Debtor received treatment from Florida United Radiology, L.C. ("Florida United"), a hospital based provider owned by Sheridan Acquisition, P.A. ("Sheridan"), and incurred a debt of less than fifty dollars.  Upon Debtor's failure to pay, the account was forwarded to Gulf Coast Collection Bureau, Inc. ("Gulf Coast") for collection.  Using its predictive dialer, Gulf Coast made between 15 and 30 calls to Debtor's cell phone and left four messages relating to the debt.

 

Debtor brought a putative class action against Gulf Coast, Florida United, and Sheridan for violations of the Telephone Consumer Protection Act ("TCPA").  Without class certification having been decided, the Court considered each party's motion for summary judgment.

 

Under the TCPA, it is unlawful for any party to make a non-emergency call, using an automatic telephone dialing system to any cellular telephone number, "unless the call is made with the prior express consent of the called party."  See 47 U.S.C. §227(b)(1)(A)(iii).  Courts have held that prior express consent is a defense to a TCPA violation.  See Manfred v. Bennet Law, PLLC, 2012 WL 6102071, at *2 (S.D. Fla. Dec. 7, 2012).

 

In 2008, the Federal Communications Commission ("FCC") issued a declaratory ruling that interpreted the statutory phrase "prior express consent" under the TCPA ("2008 FCC Ruling").  The FCC found that calls to wireless numbers provided by the called party "in connection with an existing debt" are permissible.  See 23 F.C.C.R. 559 (2008).  It concluded that "the provision of a cell phone number to a creditor, e.g., as part of a credit application, reasonably evidences prior express consent by the cell phone subscriber to be contacted at that number regarding the debt."  Id.

 

As a preliminary matter, the Court found that it had jurisdiction to pass on the validity of the 2008 FCC Ruling.  The Court held that the "exclusive jurisdiction" of the federal courts of appeals was limited to proceedings "to enjoin, set aside, annul, or suspend" any order of the FCC.  See 28 U.S.C. §2342(1); 47 U.S.C. §402(a).  Because Debtor's action sought damages for TCPA violations and did not seek to enjoin, set aside, annul or suspend an FCC order, the Court ruled that it had jurisdiction to review the 2008 FCC Ruling.

 

Examining the 2008 FCC Ruling itself, the Court held that the FCC was not discussing "express consent," but was "instead engrafting into the statute an additional exception for 'implied consent' – one that Congress did not include."  The Court held that, although it may be "reasonable to presume" that, in providing a cell phone number on a credit application, the debtor consents to be called by a creditor, such consent is "implied."  Therefore, the Court held that the FCC's construction is "inconsistent" with the TCPA's requirement of "express consent," and "is not entitled to deference."

 

Alternatively, the Court found that the 2008 FCC Ruling does not apply to the medical case setting, at least under the facts in this case.  As opposed to the context of retail purchases, when a person provides a phone number to a hospital, he "would expect that number to be used to inform him of issues relating to his health and treatment, first and foremost."

 

Even assuming that the 2008 FCC Ruling applies, the Court held that the defendants failed to show that Debtor provided consent to be called to the "relevant creditor."  The Court noted that the defendants bore the burden to establish consent under the TCPA and must show that Debtor in fact gave prior express consent to be called.  See Hicks v. Client Servs., Inc. 2009 WL 2365637, at *5 (S.D. Fla. June 9, 2009).  Here, the Court noted that Debtor's cell phone number was provided "to the Hospital, not to Florida United, which is the creditor in this case."  The Court noted that, although the Hospital may have been permitted to disclose Debtor's information to affiliated entities and agents, that "has nothing to do with whether [Debtor] gave consent to Florida United, a separate creditor."  As such, the Court granted Debtor's motion for summary judgment on the consent issue.

 

Additionally, because neither Sheridan nor Florida United made any calls to Debtor, the Court granted their summary judgment motion.  Even assuming traditional tort rules of vicarious liability apply, the Court held that the undisputed evidence revealed that neither Sheridan nor Florida United "exercised, or had the right to exercise, the kind of control over Gulf Coast necessary to create vicarious liability."

 

Accordingly, the Court denied Gulf Coast's Motion for Summary Judgment; granted Sheridan and Florida United's motion for summary judgment; granted Debtor's motion for summary judgment in part, leaving the issue of whether Gulf Coast's violations were willful or knowing to be decided at trial.  Due to the "significant changes in the case's landscape," the Court also denied Debtor's motion for class certification without prejudice.

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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@mwbllp.com

 

Admitted to practice law in Illinois

 

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FYI: 2nd Cir Holds Debt Collector's Debt Validation Notice Requiring Dispute in Writing Violates FDCPA

The U.S. Court of Appeals for the Second Circuit recently vacated the dismissal of a consumer's claim that the defendant debt collector's debt validation notice violated the federal Fair Debt Collection Practices Act ("FDCPA") by stating that a challenge to the validity of the debt must be made in writing.  In so ruling, the Second Circuit followed the Ninth Circuit, and declined to follow the Third Circuit, on this issue.

 

A copy of the opinion is available here:  Link to opinion

 

Plaintiffs-Appellants ("Debtors"), who had failed to make payments to purchase a timeshare, brought a putative class against Defendant-Appellee ("Debt Collector"), alleging that Debt Collector's notice ("Notice") violated the FDCPA.  The Notice read, in relevant part:

 

UNLESS YOU NOTIFY US IN WRITING WITHIN THIRTY (30) DAYS AFTER RECEIPT OF THIS LETTER THAT THE DEBT, OR ANY PART OF IT, IS DISPUTED, WE WILL ASSUME THAT THE DEBT IS VALID.  IF YOU DO NOT NOTIFY US OF A DISPUTE, WE WILL OBTAIN VERIFICATION OF THE DEBT AND MAIL IT TO YOU.  ALSO UPON YOUR WRITTEN REQUEST WITHIN THIRTY (30) DAYS, WE WILL PROVIDE YOU WITH THE NAME AND ADDRESS OF THE ORIGINAL CREDITOR IF DIFFERENT FROM WYNDHAM.

 

Specifically, Debtor claims that the Notice violated 15 U.S.C. §1692g(a)(3) because it indicated that a "challenge to the validity of the debt must be made in writing and cannot be made orally."  The trial court granted Debt Collector's motion to dismiss for failure to state a claim, holding that a debt validation notice requiring that disputes must be presented in writing does not violate §1692g(a)(3).  See Hooks v. Forman Holt Eliades & Ravin LLC, No. 11 Civ. 2767, 2012 WL 3322637 (S.D.N.Y. Aug. 13, 2012).  The Second Circuit Court of Appeals disagreed.

 

As you may recall, under §1692g(a), a debt collector must send consumer debtors a written notice that contains:  (1) the amount of the debt;  (2) the name of the creditor to whom the debt is owed;  (3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;"  (4) a statement that if the consumer notifies the debt collector in writing within the thirty day-period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and  (5) a statement that, upon the consumer's written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.  See 15 U.S.C. §1692g(a). 

 

Additionally, §1692g(b) provides that if the consumer "notifies the debt collector in writing" of a dispute, then the debt collector must "cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt… and a copy of such verification…is mailed to the consumer by the debt collector."  Id. at §1692g(b). 

 

The issue considered by the Court, one of first impression for the Second Circuit, was whether a consumer debtor can only obtain her rights under §1692g(a)(3) by disputing the validity of the debt in writing.

 

Debt Collector argued that, because sections 1692g(a)(4), (a)(5), and (b) state that a consumer debtor can only obtain her rights by notifying the debt collector in writing, the writing is also required under §1692g(a)(3).  Indeed, the Third Circuit has held that a consumer debtor must send a written statement to contest the validity of the debt under §1692g(a)(3).  See Graziano v. Harrison, 950 F.2d 107 (3d Cir. 1991).  According to the Third Circuit, to not impose a writing requirement under §1692g(a)(3) would result in an "incoherent…system" in light of the explicit writing requirements in sections 1692g(a)(4), (a)(5), and (b).  Id. at 112.

 

However, the Second Circuit found the reasoning of the Ninth Circuit more persuasive.  In Camacho v. Bridgeport Financial, Inc., 430 F.3d 1078 (9th Cir. 2005), the Ninth Circuit concluded that a debtor need not send a writing to contest the debt under §1692g(a)(3). 

 

The Ninth Circuit in Camacho held that Congress did not intend to impose a writing requirement under subsection (a)(3) as evidenced by the explicit writing requirements of subsections (a)(4) and (a)(5).  See id. at 1080.  Significantly, the Ninth Circuit supported its interpretation in light of the other FDCPA protections, which depend only on "whether a debt was disputed, and not on whether there was a prior writing."  See id. at 1081-82.  For example, once a debt has been disputed, a debt collector cannot communicate the debtor's credit information to other without disclosing the dispute.  See 15 U.S.C. §1692e(8).  Also, if the debtor owes multiple debts and makes a payment, the debt collector cannot apply the payment to the disputed debt.  See id. at §1692h.

 

Like the Ninth Circuit in Camacho, the Second Circuit held that, because the "right to dispute a debt is the most fundamental of those set forth in §1692g(a)," it is reasonable that it can be exercised by debtors "who may have some difficulty with making a timely written challenge."  The Second Circuit noted the benefits of other FDCPA provisions which are triggered by a dispute, and not by a prior writing.  See, e.g., §§1692e(8), 1692h.  Additionally, the Second Circuit stated that, because the debtor's rights under sections 1692g(a)(4), (a)(5), and (b) are "more burdensome," it "makes sense to require debtor consumers to take the extra step of putting a dispute in writing."

 

Although Debt Collectors argued that this was a new legal rule and should be given "purely prospective effect," the Second Circuit disagreed.  Because the Court interpreted its ruling as not "in tension" with any prior holding, and because many district courts in the Second Circuit have found that §1692g(a)(3) does not require a written notice, there was no "justifiable reliance" as is required for prospective application.

 

Accordingly, the Second Circuit vacated the lower court's dismissal and remanded for further proceedings.

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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@mwbllp.com

 

Admitted to practice law in Illinois

 

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:
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