FYI: 3rd Cir Rules TCPA Allows Prior Express Consent to be Revoked, and Does Not Place Temporal Limit on Revoking Consent

The U.S. Court of Appeals for the Third Circuit recently ruled that the federal Telephone Consumer Protection Act of 1991 ("TCPA"), 47 U.S.C. § 227(b)(1)(A)(iii), allows a consumer to revoke prior express consent, and that there is no temporal time limitation on that right.

 

In so ruling, the Court reversed and remanded the district court's dismissal in favor of the creditor, because while the TCPA is silent as to revocation of consent, the Third Circuit held that:  (1) Congress did not intend to depart from the common law meaning of consent, which allows for withdrawal of consent; (2) the TCPA is remedial in nature, and its silence regarding revocation should be construed to benefit consumers; and (3) the FCC's ruling in Soundbite, which concluded consumers may revoke their prior express consent to be contacted by autodialer systems, supported such a finding.

 

A copy of the opinion is available at:  http://www2.ca3.uscourts.gov/opinarch/122823p.pdf.

 

Around December 2007, the plaintiff applied for a line of credit from the creditor to purchase computer equipment. The credit application required that she provide her home phone number, but the consumer listed her cellular phone number. In doing so, however, the consumer neither stated that the number was for a cellular phone, nor did she indicate that the creditor should not use an automated telephone dialing system to call her at the provided number.

 

The creditor granted the consumer a line of credit, which she used to purchase computer equipment. The consumer subsequently defaulted on her debt. The creditor then began using an automated telephone dialing system to call the consumer's cellular phone, leaving pre-recorded messages on her voicemail concerning the debt.

 

In December 2010, the consumer sent a letter to the creditor, listing her phone number and asking the creditor to stop calling. The letter did not indicate that the number was for a cellular phone.  The consumer alleged that, after receiving her letter, the creditor called her cellular phone approximately forty times over the three week period, using an automated telephone dialing system.

 

The consumer filed a complaint, asserting violations of 47 U.S.C. § 227(b)(1)(A)(iii), the TCPA's provision banning certain automated calls to cellular phones.  The consumer alleged that, after receiving her letter, the creditor had a duty under the TCPA to stop all autodialed calls to her cellular phone because she had withdrawn her prior express consent to be contacted at that number via an automated dialing system.  The case was subsequently removed under 28 U.S.C. § 1441.

 

The creditor moved to dismiss the complaint for failure to state a claim. The District Court granted the motion, holding that the consumer could not revoke her prior express consent for three reasons.  First, the lower court concluded that the lack of language in the TCPA providing for "post-formation revocation of consent" weighed in favor of finding that no such right exists.  Gager v. Dell Fin. Servs., LLC, No. 11-cv-2115, 2012 WL 1942079, at *6 (M.D. Pa. May 29, 2012). Second, the District Court held that, although the consumer was entitled to give "instructions to the contrary" as to whether the creditor could use an automated telephone dialing system to call her, those instructions had to be "provided at the time [she] . . . knowingly release[d] her telephone number" to the creditor.  Id.  Finally, the District Court determined that, because calls regarding debt collection are not subject to the TCPA and because the creditor's calls were for debt collection purposes, the consumer failed to allege a violation of the TCPA. Id.

 

The consumer then appealed.  On appeal, the Third Circuit was presented with two issues: (1) whether the TCPA allows a consumer to revoke "prior express consent" to be contacted via an automated telephone dialing system on a cellular phone; and (2) if a revocation right exists, whether there is a temporal limitation on that right.

 

As you may recall, the relevant portion of the TCPA provides that it is unlawful for any person:

 

"to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice . . . to any telephone number assigned to a paging service, cellular telephone service, specialized mobile radio service, or other radio common carrier service, or any service for which the called party is charged for the call."  47 U.S.C. § 227(b)(1)(A)(iii).

 

Importantly, the statute does not contain any language expressly granting consumers the right to revoke their prior express consent.

 

The Third Circuit noted that the most significant guidance from the FCC on the issue of revocation of prior express consent comes from a decision issued after the District Court dismissed the consumer's claim. See In the Matter of Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, SoundBite Communications, Inc., 27 FCC Rcd. 15391 (Nov. 26, 2012) (hereinafter "SoundBite").

 

In SoundBite, the FCC issued a declaratory ruling to resolve the issue of whether "a consumer's prior express consent to receive text messages from an entity can be construed to include consent to receive a final, one-time text message confirming that such consent has been revoked." Id. at 15395 ¶ 9. The FCC concluded that a text message confirming an opt-out request is permissible under the TCPA. Id. at 15394 ¶ 7, 15398 ¶ 15.

 

The creditor argued that the TCPA's silence as to whether a consumer may revoke her prior express consent to be contacted via an autodialing system supports the conclusion that the right does not exist.  Because Congress has passed several other remedial consumer protection statutes providing the consumer with a right to stop unwanted communications, the creditor argued it would have done so in the TCPA if it intended.

 

In examining the issue, the Third Circuit disagreed with the creditor's position for three reasons. 

 

First, the Third Circuit held that Congress did not intend to stray from the common law meaning of consent because it did not treat the term differently from its common usage.  Consent is both voluntary, and at common law, it may be withdrawn.  Restatement (Second) of Torts § 892A, cmt. i (1979).

 

Second, the Third Circuit held that because the TCPA is a remedial statute, which was passed to protect consumers from unwanted telephone calls, it is to be construed to benefit consumers.  See Lesher v. Law Offices of Mitchell N. Kay, PC, 650 F.3d 993, 997 (3d Cir. 2011).   Therefore, the Court concluded that the TCPA's silence concerning revocation of prior express consent "should not be seen as limiting a Consumer's right to revoke prior express consent. Instead, [it] view[ed] the silence in the statute as evidence that the right to revoke exists."

 

Third, the Third Circuit held that the FCC's SoundBite ruling only provided further evidence that it reached the correct decision.  According to the Third Circuit, SoundBite's conclusion was clear in providing that consumers may revoke prior express consent to be contacted by autodialing systems.  Further, the Court noted that SoundBite is consistent with the TCPA's purpose.  As such, the Third Circuit found that SoundBite provided further support for its holding that a consumer may revoke prior express consent.

 

The creditor further argued that even if the TCPA allowed for prior express consent, the consumer had to deliver "instructions to the contrary" at the time she filled out her credit application, or, in other words, there is a temporal limit on when a consumer may revoke prior written consent.

 

The Third Circuit disagreed with the creditor's position, ruling instead that the lack of express language in the TCPA regarding any temporal limit should not be interpreted as imposing such a limit.  The Third Circuit read the silence in the TCPA in favor of the consumer, since, as the Court previously held, the TCPA is remedial in nature.

 

The Third Circuit again relied upon the common law understanding of consent; a person should be allowed to withdraw consent any time she no longer wishes to continue a particular sort of action.

 

The Third Circuit further noted in SoundBite, the revocation of consent in that decision came well after consent was initially provided.  Therefore, the Court held there is no temporal time limit on revocation of prior express consent under the TCPA.

 

Lastly, the creditor argued that the consumer still failed to state a cause of action under the TCPA for two reasons: (1) the TCPA's content-based exemption for autodialed debt collection calls precluded the consumer from withdrawing her prior express consent; and (2) equitable principles dictated that the consumer should not be able to revoke her prior express consent.

 

The Court rejected both arguments.  First, the Third Circuit held that the content-based exemption does not apply to cellular phones.  Rather, it only applied to autodialed calls made to land-lines.  See 47 C.F.R. § 64.1200(a)(2).   The Third Circuit recognized that the only exemptions in the TCPA that apply to cellular phones are for emergency calls and calls made with prior express consent.  Therefore, the Third Circuit concluded that the content-based exemption did not apply.

 

Next, the Third Circuit rejected the creditor's argument that basic principles of contract law should preclude the consumer from withdrawing her prior express consent.  The creditor argued that a creditor's consent to receive automated phone calls constitutes consideration in support of the application.  Further, the creditor argued that it would be unfair to allow a consumer to revoke prior express consent because a creditor may not be able to reach the consumer by autodialer in the debt-collection context.

 

The Third Circuit was not persuaded, finding that the ability to use an autodialing system is not an essential term to a credit agreement.  Moreover, the Third Circuit concluded that the creditor's argument overlooks the fact that the creditor may still use a live person to contact the consumer in order to collect its debt.

 

Accordingly, the Third Circuit reversed the District Court's opinion, ruling that the consumer stated a plausible claim for relief because (1) the TCPA affords her the right to revoke her prior express consent to be contacted on her cellular phone via an autodialing system and (2) there is no temporal limitation on that right.  The case was 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

 

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FYI: Cal App Ct Allows Wrongful Foreclosure Claim Based on Alleged "Faulty Securitization" Arguments

The California Court of Appeal, Fifth Appellate District, recently held that a borrower stated a cause of action for wrongful foreclosure, where the borrower alleged that an assignment of his deed of trust was void because the transfer of the loan into an asset securitization trust took place after the closing date of the trust. 

 

A copy of the opinion is available at http://www.courts.ca.gov/opinions/documents/F064556.PDF. 

 

A lender extended a loan to a borrower, and the loan was sold and transferred into an asset securitization trust, with servicing apparently retained.  The lender was later seized by the Office of Thrift Supervision, and the Federal Deposit Insurance Company ("FDIC") was appointed as receiver.  The FDIC transferred the lender's assets and liabilities to another bank (the "bank"). 

 

The borrower defaulted on his loan, and the bank instituted nonjudicial foreclosure proceedings.  A nonjudicial sale was held. The borrower then filed the instant complaint, alleging numerous causes of action in connection with his claim that the loan was never properly transferred into the asset securitization trust. 

 

The bank filed a demurrer, which the lower court sustained.  The lower court then entered a judgment of dismissal, and the borrower appealed. 

 

On appeal, the Appellate Court focused on the borrower's allegation that the foreclosure was wrongful, in that it was allegedly instituted by a non-holder of the deed of trust.  Specifically, the borrower argued that his note and loan were not transferred into the trust prior to its closing date, nor was the assignment or the borrower's deed of trust ("DOT") recorded prior to the same date.  Therefore, according to the borrower, the assignment was ineffective, and the foreclosure was therefore initiated by a non-holder of the DOT. 

 

The Court noted that it agreed with a recent holding that a valid cause of action for wrongful foreclosure exists where "a party alleged not to be the true beneficiary instructs the trustee...to initial judicial foreclosure."  See Barrionueva v. Chase Bank, N.A. (N.D. Cal. 2012) 885 F. Supp. 2d 964, 973.  But to assert such a cause of action, the Court stated that "the plaintiff must allege facts that show the defendant who invoked the power of sale was not the true beneficiary." 

 

The Appellate Court also addressed the possibility that the borrower might not have standing to challenge the assignment, inasmuch as the borrower was not a party to the assignment.  The Appellate Court held that a borrower can challenge an assignment of a note and DOT where the defect asserted would void the assignment, rather than make it voidable at the election of the assignor. 

 

With that standard in place, the Court proceeded to examine whether the borrower's allegations -- specifically, that the assignment of the DOT occurred after the relevant asset securitization trust closed -- might render that assignment void. 

 

The Appellate Court answered in the affirmative.  To reach its conclusion, the Court first noted that the borrower alleged that the trust was formed under New York law.  The Court then recited that under New York law, "every sale, conveyance or other act of the trustee in contravention of the trust...is void."  New York Estates, Powers & Trusts Law section 7-2.4. 

 

Accordingly, the Appellate Court determined that a legal basis existed to conclude that an assignment into a trust after the closing date of that trust would render the act void.  Although the Court acknowledged that several courts disagreed with its position, it noted that "we believe applying the statute to void the attempted transfer is justified because it protects the beneficiaries of [the trust] from potential adverse tax consequences..." 

 

Based on the foregoing analysis, the Appellate Court held that the borrower "stated a cognizable claim for wrongful foreclosure under the theory that the entity invoking the power of sale...was not the holder of the [borrower's] deed of trust."
 
The bank argued that the borrower failed to allege that he made a valid and viable tender of payment of the indebtedness.  However, the Court noted that "[t]ender is not required where the foreclosure sale is void, rather than voidable..." and accordingly rejected the bank's argument. 

 

The Court therefore reversed the lower court's judgment of dismissal, and directed the lower court to vacate its order sustaining the general demurrer.   

 

 

 

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: 1st Cir Holds FIRREA Bars Consumers' Allegations Against Transferee Bank

The U.S. Court of Appeals for the First Circuit recently affirmed a district court's entry of summary judgment in favor of a failed institution's successor in interest, ruling that a borrowers' claims alleging violations of state consumer protection laws by the failed institution were jurisdictionally barred by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA"), and that a transfer of a mortgage, authorized by federal law, obviates the need for the specific written assignment that state law would otherwise require.

   

A copy of the opinion is available at:  http://media.ca1.uscourts.gov/pdf.opinions/12-2485P-01A.pdf

 

A bank extended a variable rate loan to the plaintiff borrowers secured the plaintiffs' residence. The bank was subsequently closed by the Office of Thrift Supervision, and the FDIC was appointed its receiver.  The FDIC sold the originating bank's loans and mortgages, including the plaintiffs' loan, to the defendant. 

 

Following the defendant's assumption of these loans, the plaintiffs defaulted, and the defendant initiated foreclosure proceedings culminating in the judicial sale of the subject property. 

 

The plaintiffs filed this action seeking money damages and injunctive relief against the defendant, alleging violations of state consumer protection laws by the originating bank and that the foreclosure was unlawful based upon the improper assignment of the mortgage.  The district court granted defendant's summary judgment motion as to these claims. 

 

Plaintiffs appealed the ruling, maintaining that the loan violated state consumer protection laws, and that the foreclosure sale was invalid because the defendant did not have a specific written assignment of the mortgage as required by state law.

 

In first addressing the state consumer protection law claims, the Court determined that summary judgment was appropriate based upon the jurisdictional bar under FIRREA.

 

As you may recall, FIRREA sets forth a detailed claims-processing regime. See 12 U.S.C. § 1821(d)(3)-(13). This regime affords "a streamlined method for resolving most claims against failed institutions in a prompt, orderly fashion, without lengthy litigation." Marquis v. FDIC, 965 F.2d 1148, 1152 (1st Cir. 1992).  The FDIC, once ensconced as receiver, must publish a notice requiring claims to be filed with it by a specified date. 12 U.S.C. § 1821(d)(3)(B)(i). 

 

The FDIC has 180 days within which to approve or disallow a filed claim. Id.§ 1821(d)(5)(A)(i). Disappointed claimants may either pursue an administrative review process or seek judicial review in an appropriate federal district court. Id. § 1821(d)(6)(A).

 

This claims-processing regime is not optional: participation in it is "mandatory for all parties asserting claims against failed institutions." Marquis, 965 F.2d at 1151. The failure to pursue an administrative claim is fatal. See id. at 1152-53.

 

FIRREA provides:

 

          "[N]o court shall have jurisdiction over –

(i)       any claim or action for payment from, or any action seeking a determination of rights with respect to, the assets of any depository institution for which the [FDIC] has been appointed receiver, including assets which the [FDIC] may acquire from itself as such receiver; or

(ii)      any claim relating to any act or omission of [the failed] institution or the [FDIC] as receiver. 

Id. § 1821(d)(13)(D). 

 

Thus, as noted by the Court, FIRREA "strip[s] the federal district courts of subject-matter jurisdiction whenever a plaintiff tries to pursue a covered claim without going through the claims-processing regime." See Acosta-Ramírez v. Banco Popular de P.R., 712 F.3d 14, 19-20 (1st Cir. 2013); Simon v. FDIC, 48 F.3d 53, 56- 57 (1st Cir. 1995).

 

In the matter before the Court, the FDIC had properly followed all the notice requirements provided by FIRREA, but the plaintiffs failed to file any claim before the deadline.  Rejecting the borrowers' arguments, the Court held that:  (1) "no principled basis for the plaintiffs' implication that the jurisdictional bar exists only during the currency of a receivership;"  (2) FIRREA explicitly bars jurisdiction over "any claim relating to any act or omission" of the failed financial institution, including consumer claims; (3) FIRREA only requires that the FDIC mail notice to known creditors or claimants, which it did here;  and  (4) FIRREA creates a pathway for the holder of an inchoate claim to introduce it into the claims-processing regime, but the borrowers did not invoke this remedy either.

 

Accordingly, the Court held that because the plaintiffs did not comply with the requirements of the claims-processing regime, the jurisdictional bar erected by section 1821(d)(13)(D) pretermits their consumer protection claims.

 

The Court then turned to plaintiffs' claim that the foreclosure sale was unlawful because defendant did not possess a written assignment of the mortgage at the time of foreclosure, and therefore allegedly could not validly exercise the power of sale contained in the mortgage. 

 

The Court held that this claim was also barred under FIRREA.  The Court noted that the plaintiffs' mortgage was assigned to the defendant under FIRREA, which specifically authorizes the FDIC to transfer assets of a failed financial institution "without…assignment."  12 U.S.C. § 1821(d)(2)(G)(i)(II).  The Court determined that requiring additional compliance with state laws requiring a written assignment, as argued by plaintiffs, "would require us to turn the Supremacy Clause upside down," holding that "a transfer of a mortgage, authorized by federal law, obviates the need for the specific written assignment that state law would otherwise require." 

 

Accordingly, the Court affirmed the lower court's judgment in favor of the defendant. 

 

 

 

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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