FYI: 4th Cir Holds FDCPA Allows Oral Disputes, Circuit Split Widens on the Issue

The U.S. Court of Appeals for the Fourth Circuit recently vacated the dismissal of a federal Fair Debt Collection Practices Act (“FDCPA”) action, holding that the FDCPA does not require that a consumer must dispute the validity of a debt in writing, thereby allowing oral disputes. 

 

There is now a widening split in the circuit courts on this issue.  The Third Circuit has held that section 1692g(a)(3) must be read to include a writing requirement. See Graziano v. Harrison, 950 F.2d 107 (3d Cir. 1991).  On the other hand, the Second and Ninth Circuits have held that the plain text of section 1692g(a)(3) permits oral disputes. See Hooks v. Forman, Holt, Eliades & Ravin, LLC, 717 F.3d 282 (2d Cir. 2013); Camacho v. Bridgeport Fin. Inc., 430 F.3d 1078 (9th Cir. 2005).  Thus, the Fourth Circuit joins the Second and Ninth Circuits on this issue.

 

A copy of the opinion is available at:  http://www.ca4.uscourts.gov/Opinions/Published/131151.P.pdf

 

Two plaintiffs sued the defendant debt collector under the FDCPA, alleging that that the debt collector’s “debt validation” or “1692g” notice violated the FDCPA by stating that the consumer must dispute the validity of the debt in writing.

 

Specifically, the collection notice stated that “ALL PORTIONS OF THIS CLAIM SHALL BE ASSUMED VALID UNLESS DISPUTED IN WRITING . . .”

 

The plaintiffs asserted that the imposition of a writing requirement amounted to the use of a “false representation or deceptive means to collect or attempt to collect any debt,” in violation of section 1692e(10) of the FDCPA.

 

The debt collector moved to dismiss, contending that section 1692g(a)(3) contains an inherent requirement that a consumer must dispute the debt in writing.  The district court granted the motion to dismiss on that basis.  This appeal followed.

 

The Fourth Circuit disagreed with the lower court’s ruling, and instead held that section 1692g(a)(3) does not contain a requirement that a consumer dispute the debt in writing, and in fact allows for oral disputes. 

 

As you may recall, section 1692g(a)(3) of the FDCPA provides in pertinent part that a “debt validation” or “1692g” notice must contain “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.”  15 U.S.C. 1692g(a)(3)

 

In holding that section 1692g(a)(3) allowed oral disputes, the Fourth Circuit compared the language of section 1692g(a)(3) to section 1692g(b), which expressly requires a consumer to notify the debt collector “in writing” that a debt is disputed in order to be entitled to receive verification by the debt collector. 

 

The Court was not persuaded by the debt collector’s argument that allowing oral disputes under section 1692g(a)(3) would confuse consumers into believing that an oral dispute triggers the further protections of other subsections of 15 U.S.C. 1692g, when in fact those protections are waived if not invoked in writing inconsistent with the other debt dispute mechanisms found in section 1692g(b). 

 

According to the Fourth Circuit, the plain language of section 1692g(a)(3) does not require the consumer to dispute the debt in writing.  The Court also determined that oral disputes would not lead to absurd results, and rejected the imposition of a writing requirement for disputes under section 1692g(a)(3). 

 

Thus, the Fourth Circuit vacated the judgment of the district court that dismissed the plaintiff's complaint and remanded for further proceedings consistent with its opinion.

 

 

 

 

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

 

 

          McGinnis Wutscher Beiramee LLP

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FYI: Cal Fed Ct Holds Providing Cell Phone Number to Business Constitutes "Prior Express Consent" Under TCPA, Including as to Contractors

The U.S. District Court for the Central District of California recently held that, where a consumer provides a cell phone number to a business, that act constitutes "prior express consent" to receive autodialed calls at that number -- including from the business’ contractors -- for the purposes of the federal Telephone Consumer Protection Act. 

 

A copy of the opinion is attached. 

 

A consumer booked a flight with an airline, via the airline's website.  The consumer provided her cell phone number when prompted to do so.  A travel service working with the airline then sent the consumer a text message to the plaintiff’s cell phone, inviting her to reply "yes" to receive flight notification services by phone.  The consumer did not reply, and neither the airline nor the travel service sent additional messages. 

 

The consumer then filed suit, alleging that the airline violated the Telephone Consumer Protection Act, 47 U.S.C. Sec. 227, et seq. ("TCPA"), and seeking to represent a class of people who received similar text messages from the travel service. 

 

As you may recall, the TCPA among other things makes it unlawful for any person to make a call using an automatic dialing system to a cellular telephone, without the recipient's "express consent."  47 U.S.C. Sec. 227(b)(1)(A). 

 

The travel service moved for summary judgment, arguing that the consumer's act of voluntarily providing her cell phone number to the airline constituted "express consent" for purposes of the TCPA.   The plaintiff in turn argued that she did not voluntarily provide her cellphone number, but instead, that the airlines website told her she had to provide a telephone number in order to book her flight, and she was not informed or aware that the airlines would consider her act of supplying her cellphone number to constitute consent to receive text messages.

 

More specifically, the plaintiff argued that, at most, the act of providing a telephone number on a form provided by a company during a business transaction conveys “implied consent” to be called, but not the “express consent” required by 47 U.S.C. § 227(b)(1)(A).  She also argued that the issue of consent is a question of fact, not law, and points to evidence that a person booking a flight on the airlines website cannot complete the transaction without providing a telephone number, and would not naturally assume that simply by doing so, she was expressing consent to be called at that number by an automatic telephone dialing system.

 

The court scrutinized the language of a 1992 Federal Communications Commission ("FCC") order implementing the TCPA, which provides that "persons who knowingly release their phone numbers have in effect given their invitation or permission to be called at the number which they have given, absent instructions to the contrary," and to legislative history cited by the FCC in the 1992 order.  In re Rules & Reg's Implementing the Tel. Consumer Prot. Act of 1991, 7 F.C.C.R. 8752, 8769 Para. 31 (1992). 

 

The court also examined a 2008 FCC order also implementing the TCPA, in which the FCC “clarif[ied] that autodialed and prerecorded message calls to wireless numbers that are provided by the called party to a creditor in connection with an existing debt are permissible as calls made with the ‘prior express consent’ of the called party.”  In re Rules & Reg’s Implementing the Tel. Consumer Prot. Act of 1991, 23 F.C.C.R. 559  ¶ 1 (2007).

 

In addition, the court held that even if the Ninth Circuit’s reference in Satterfield v. Simon & Schuster, Inc., 569 F.3d 946, 954 (9th Cir. 2009), to the dictionary definition of “express consent” was intended to express disagreement with the FCC’s interpretation, the Ninth Circuit had no power to reject the FCC rule in the course of an appeal from a judgment denying a TCPA claim.  See U.S. West Communications, Inc. v. Hamilton, 224 F.3d 1049, 1054 (9th Cir. 2000).  The court reasoned that, under the Administrative Orders Review Act (also known as the “Hobbs Act”), the exclusive jurisdiction of the courts of appeals to review the validity of FCC rulings may be invoked “only by filing a petition for review of the FCC’s final order in a court of appeals naming the United States as a party.”  Id. (citation and internal quotation marks omitted); 28 U.S.C. § 2344.

 

Applying the FCC’s 1992 order, the court determined that "[u]nder the FCC's definition, it is undisputed that [the consumer] 'knowingly release[d]' her cellphone number to [the airline], and by doing so gave permission to be called at that number..." 

 

Accordingly, the court held that the plaintiff "consented to be called be contacted on her cellphone about flight-related matters," and that therefore the "single text message sent to [the consumer's] cellphone fell within the scope of her 'prior express consent.'"

 

The court also held that the plaintiff’s consent extended from the airlines to the travel service.  In the court’s words, “[n]o reasonable consumer could believe that consenting to be contacted by an airline company about a scheduled flight requires that all communications be made by direct employees of the airline, but never by any contractors performing services for the airline.”

 

The Court therefore entered summary judgment in favor of the travel service. 

 

 

 

 

 

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

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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FYI: Ohio App Ct Confirms Borrowers Lack Standing to Challenge Assignment, Non-Holder Must Have Possession of Note to Be Able to Enforce

The Court of Appeals of Ohio, Eighth District, recently reversed in part a lower court’s entry of summary judgment and judgment of foreclosure after determining that the foreclosing trustee bank failed to adequately establish that it had the ability to enforce the note.  However, the Court affirmed the lower court’s entry of summary judgment as to the borrower’s breach of contract claims against the trustee bank.

 

In reaching its decision, the Court determined:

 

1) The borrowers lacked standing to challenge the validity of an assignment of mortgage;

 

2) The failure of the trustee bank to provide documentary evidence of its status as a holder of the note or nonholder in possession with rights to enforce created a genuine issue of material fact which precluded summary judgment in its favor; and

 

3) The borrowers must submit evidence to support their claims of improper payment allocation and penalties in order to survive a summary judgment motion supported by evidence demonstrating a lack of genuine issues of material fact. 

 

A copy of the Appellate Court’s opinion is available at:  Link to Opinion

 

Following the origination of the residential mortgage loan, the mortgage and note were subsequently sold, assigned and transferred to a trust.  However, as noted by the Court, the only evidence of the negotiation of the note to the trust was an affidavit submitted by the trustee bank stating that the servicer executed an allonge to the note, endorsing it in blank and delivering possession of the note to the trust, but no allonge appeared in the record.

 

After the borrowers defaulted on the loan, the trustee bank filed its foreclosure complaint. In response, the borrowers filed a counterclaim asserting various claims against the trustee bank, all of which were later dismissed by the trial court except for the borrowers’ claim for breach of contract.  Specifically, the borrowers alleged that the servicer failed to properly credit payments to the subject loan generating inappropriate penalties, in violation of the loan agreement. 

 

The trustee bank moved for summary judgment as to the borrowers’ breach of contract claim and on its foreclosure action.  The magistrate issued a ruling granting the trustee bank’s motion, and the trial court affirmed the magistrate’s ruling over the borrowers’ objections. The borrowers appealed. 

 

On appeal, the Appellate Court first determined that the trustee bank did have standing to foreclose. 

 

The Court noted that in a foreclosure action in Ohio the current holder of the note and mortgage is the real party in interest.  A party’s interest is determined at the time of the filing of the suit, and can be established if the plaintiff either (1) has had a mortgage assigned to it, or (2) is the holder of the note. 

 

The Court noted that the record demonstrated the trustee bank’s standing through the recorded mortgage assignments from the original mortgagee to the trustee bank all recorded prior to the filing of the foreclosure action. 

 

The borrowers argued that these assignments of mortgage were defective.  Specifically, the borrowers claimed that a prior assignment was ineffective due to the lack of a recorded power of attorney accompanying the assignment, and that the assignment to the trustee bank failed because it did not include a copy of the trust agreement.

 

In rejecting the borrowers’ arguments, the Court cited a well-established precedent in Ohio that provides that mortgagors and similarly situated appellants lack standing to challenge the validity of assignments.  Specifically, the Appellate Court noted that when the mortgagor is not a party to the transfer agreement, and his contractual obligations under the mortgage are not affected in any way by the assignment, the mortgagor lacks standing to challenge the assignment.  

 

Accordingly, the Appellate Court concluded that the trustee bank had standing to pursue the foreclosure action based upon the properly record assignments of mortgage.

 

Second, the Appellate Court determined that summary judgment as to the foreclosure claim was inappropriate due to a genuine issue of material fact as to the trustee bank’s right to enforce the note. 

 

As you may recall, in Ohio, the foreclosing party must establish: (1) that the plaintiff is the holder of the note and the mortgage or is a party entitled to enforce the instrument; (2) if the plaintiff is not the original mortgagee, the chain of assignments and transfers of the mortgage to the plaintiff; (3) that the mortgagor is in default; (4) that all conditions precedent have been met; and (5) the amount of principal and interest due.

 

Relevant to the Court’s holding, neither the trust nor the trustee bank were the identified payee on the note.  As you may recall, under the UCC, which has been adopted by Ohio, in order for one other than the payee to enforce the note, the note must be negotiated to another who then becomes the holder of the note.  After negotiation, an entity is a holder if the instrument is payable to an identified person and the identified person is in possession of the instrument, or if it is payable to the bearer, anyone in possession.  Additionally, a nonholder in possession with rights of a holder is also capable of enforcing the note. 

 

The Court determined that the trial court erred in determining that the trustee bank was a nonholder in possession. 

 

In reaching its decision, the Court noted multiple inconsistencies with the affidavits submitted by the trustee bank to support its standing to enforce the note.  First, the Court noted that the trustee bank failed to introduce any documentary evidence that the note had been indorsed at any time.  Second, the trustee bank could not be a nonholder with rights to enforce because its own affidavit demonstrated that the servicer of the subject loan was in possession of the note and not the trustee bank, and the trustee bank failed to establish what if any agency relationship existed between the trustee bank and the servicer.  Finally, the assignments were not sufficient to demonstrate the trustee bank’s ability to enforce the note where the trustee bank’s own affidavit provided that the note is endorsed to bearer and that the trustee bank was not in possession.  

 

The Court concluded that the material inconsistencies concerning the trustee bank’s ability to enforce the note made summary judgment on this issue inappropriate.

 

Finally, the Court determined that summary judgment was appropriate as to the borrowers’ breach of contract claim. 

 

Ohio follows the general rule that the moving party bears the initial responsibility of informing the trial court of the basis for a motion for summary judgment, and identifying those portions of the record before the trial court which demonstrate the absence of a genuine issue of fact on a material element of the nonmoving party’s claim.  However, the nonmoving party has a reciprocal burden of specificity and cannot rest on mere allegations or denials in the pleadings. 

 

The Court noted that the borrowers failed to offer any evidentiary support for their arguments that the servicer misapplied payments.  Although the trustee bank provided a payment history demonstrating a pattern of late or missing payments for which it could validly assess fees under the loan agreement, the borrowers failed to offer any evidence to rebut the evidence offered by the trustee bank.  Accordingly, the Court concluded that summary judgment was therefore appropriate as to the borrowers’ breach of contract claim. 

 

In sum, the Court affirmed, in part, and reversed, in part, the trial court’s order granting summary judgment, and remanded the matter 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

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.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.

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