FYI: Cal App Ct Upholds Denial of Class Cert in Call Recording Case Under California Penal Code § 632

The California Court of Appeal, Second District, recently affirmed a trial court’s denial of class certification in an action challenging the defendant’s alleged failure to inform its customers that outbound calls were being recorded.

In so ruling, the Court held that there was no per se violation of California Penal Code § 632 (“section 632”), which prohibits the recording of confidential communications without the consent of all parties to the communication, as section 632 requires an individual plaintiff to have an objectively reasonable expectation that a phone call will not be recorded.

Therefore, the Court held that “determining whether an individual plaintiff had an objectively reasonable expectation that his or her telephone conversation would not be recorded is a question of fact subject to individualized proof.”

A copy of the opinion is available at:   http://www.courts.ca.gov/opinions/documents/B244769.PDF

The plaintiff putative class representative (“Plaintiff”) had an insurance policy with an insurer (“Insurer”).  Over a three year period, Plaintiff called Insurer approximately 12 times to renew her policy or to make a claim.  During each inbound call, Plaintiff was advised the call was being recorded for quality assurance purposes.

Plaintiff also received several calls from Insurer which were recorded.  However, Plaintiff was never advised that the calls were recorded.

As a result of the Insurer’s failure to disclose that outbound calls to Plaintiff were recorded, Plaintiff filed a putative class action alleging statutory invasion of privacy under California Penal Code § 632.

Section 632(a) states:

Every person who, intentionally and without the consent of all parties to a confidential communication, by means of any electronic amplifying or recording device, eavesdrops upon or records the confidential communication, whether the communication is carried on among the parties in the presence of one another or by means of a telegraph, telephone, or other device, except a radio, shall be punished…

Section 632(c) defines a confidential communication as:

any communication carried on in circumstances as may reasonably indicate that any party to the communication desires it to be confined to the parties thereto, but excludes a communication made in a public gathering or in any legislative, judicial, executive or administrative proceeding open to the public, or in any other circumstance in which the parties to the communication may reasonably expect that the communication may be overheard or recorded.

Pursuant to Penal Code § 637.2, Plaintiff filed a putative class action lawsuit seeking statutory penalties of $5,000 for each alleged violation, and sought recovery of all attorneys’ fees and costs. 

Plaintiff moved for class certification defining the putative class as “all persons within the state of California who received telephone calls from employees, agents or representatives of Insurer … and whose telephone calls were recorded without warning from July 13, 2006 to October 27, 2009.”  Plaintiff claimed there were common questions of fact and law predominated because: (1) Insurer was the only defendant; (2) Insurer’s policy was to record all outbound calls placed by its sales group; (3) outbound calls were not preceded by an automated warning that the call would be recorded; and (4) prior to 2009, Insurer did not direct its sales group to advise customers it was recording outbound calls.

In opposition, Insurer argued that class treatment is not appropriate for a section 632 claim such claims present multiple individual factual issues.  Specifically, Insurer argued that each individual putative class member had a unique experience with Insurer including the relationship of the individual with Insurer, the number of times the individual heard the automatic disclosure when placing a call to the Insurer, and the individual’s experience with other companies that monitor calls for quality assurances.  The Insurer also claimed that Plaintiff raised additional fact questions as to what type of phone received the Insurer’s calls, as section 632 does not apply to cell phones or cordless phones. 

The trial court ruled that an individualized inquiry was necessary to determine whether each putative class member had an objectively reasonable expectation that his or her phone calls were not being recorded by Insurer. Furthermore, the trial court held there needed to be an individual inquiry as to what type of phone was used by each class member. Therefore, the trial court denied Plaintiff’s request for class certification and Plaintiff appealed. 

On appeal, Plaintiff argued there were common questions of law and fact to support class certification.  As you may recall, “a class action cannot be maintained where each member’s right to recover depends on facts peculiar to his case…because… the community of interest requirement is not satisfied if every member of the alleged class would be required to litigate numerous and substantial questions during his individual right to recover.” Caro v. Procter & Gamble Co. (1993) 18 Cal. App. 4th 644, 667-668. The Court proceeded to examine whether common questions of law and fact predominated over individualized ones.

The Court began its analysis by examining the language of section 632 and focused its attention on defining the term “confidential communication.” The Court concluded a conversation is “confidential under section 632 if a party to that conversation has an objectively reasonable expectation that a conversation is not being overheard or communicated.” Flanagan v. Flanagan (2002) 27 Cal.4th 766, 775.

Plaintiff argued that liability is established by showing there was no notification that the communication was being recorded. Put another way, Plaintiff contended that recording of any conversation without advising the other party was a per se violation of section 632.   Thus under Plaintiff’s view, there was no need to have each class member individually prove his or her objectively reasonable expectation that a phone call was not being recorded. 

The Court disagreed with Plaintiff, noting that nothing  “in the language of section 632 or case law interpreting a ‘confidential communication’ suggests recording a conversation without advising the other party constitutes a per se violation of the statue.”  Thus, the Court held there needed to be an individual determination to decide what each putative class member’s objectively reasonable expectation was regarding whether a phone call was being recorded.

In addition, the Court stated that a jury could reach different conclusions concerning different putative class members, as one putative class member may have had limited experience with the Insurer and was not aware all calls were recorded, while another putative class member may have an extensive relationship with the Insurer and understood all calls were recorded.  The Court also noted that due process gives Insurer the right to cross-examine each putative class member regarding those experiences that may affect the reasonableness of an individual’s alleged confidentiality expectation.

Therefore, the Court affirmed the trial court’s ruling that the requirements for a class certification were not met.

 

 

 

 

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: 11th Cir Holds FHA Mortgage Allows Lender to Require More Flood Insurance Than Federal Minimum

The U.S. Eleventh Circuit Court of Appeals recently held that the Federal Housing Administration (“FHA”) Model Mortgage Form unambiguously makes the federally required flood-insurance amount the minimum, not the maximum, the borrower must have. 

 

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

 

The case arises from a residential mortgage loan on property located in a FEMA designated special flood hazard area.  The borrower signed a standard FHA Model Mortgage contract which included the FHA flood insurance covenant.  As you may recall, the covenant provides:

 

Fire, Flood and Other Hazard Insurance. Borrower shall insure all improvements on the Property, whether now in existence or subsequently erected, against any hazards, casualties, and contingencies, including fire, for which Lender requires insurance.  This insurance shall be maintained in the amounts and for the periods that Lender requires.  Borrower shall also insure all improvements on the Property, whether now in existence or subsequently erected, against loss by floods to the extent required by the Secretary. 

 

See 54 Fed. Reg. 27,604 (June 29, 1989) (hereafter, “Covenant 4”).

 

As you may recall, the National Flood Insurance Act (“NFIA”), 42 U.S.C. §§ 4001, et seq., requires a minimum amount of flood insurance before a federal agency can provide “any financial assistance” for home purchases in areas that present “special flood hazards” as designated by FEMA.  See 42 U.S.C. § 4012a(a).  Specifically, the NFIA mandates that homes receiving assistance from a federal agency be covered “by flood insurance in an amount at least equal to the outstanding principal balance of the loan or the maximum limit of coverage made available under the [NFIA].” 42 U.S.C. § 4012a(b)(1)(A).  The “maximum limit of coverage” under the NFIA is $250,000.  44 C.F.R. § 61.6.

 

HUD requires that all FHA guaranteed loans for homes in special flood hazard areas be covered by flood insurance in “in an amount at least equal to either the outstanding balance of the mortgage, less estimated land cost, or the maximum amount of the NFIP insurance available with respect to the property improvements, whichever is less.”  24 C.F.R. § 203.16a(c).  This requirement is implemented by HUD through Covenant 4.  See 54 Fed. Reg. 27,596, 27,601 (June 29, 1989). 

 

As the Eleventh Circuit noted, “[s]ome courts have found the covenant ambiguous because it does not clearly indicate whether the federally required flood-insurance amount is a minimum or a maximum. Other courts have held that the covenant unambiguously makes the federally required amount a minimum and allows lenders to require borrowers to have more flood insurance than federal law demands.”

 

Following the origination of the loan, the borrower purchased and maintained flood insurance on the property in an amount equal to the original principal balance of the loan.  The original lender did not make any demand of the borrower to increase the amount of flood insurance.  Subsequently, the defendant acquired the mortgage loan, and notified the borrower that she needed to increase her flood insurance coverage to either $250,000 or the home’s replacement value, whichever was less.  The defendant also notified the borrower the defendant would obtain lender placed flood insurance if the borrower failed to correct the deficient flood insurance amount. 

 

The borrower did not increase her flood insurance coverage as requested by the lender, and as a result the lender purchased the additional insurance and passed the premium cost to the borrower. 

 

The borrower filed this lawsuit against the lender alleging breach of contract, breach of an implied covenant of good faith and fair dealing, breach of fiduciary obligations, and unjust enrichment for demanding more flood insurance than required under the applicable HUD and FHA regulations.  The lower court granted the lender’s motion to dismiss the borrower’s complaint. 

 

The borrower argued on appeal that Covenant 4 can be reasonably interpreted as limiting the insurance amount that lenders can require to the minimum set by the Secretary of HUD.  In particular, the borrower relied upon the third sentence of Covenant 4 which provides “Borrower shall also insure all improvements on the Property … against loss by floods to the extent required by the Secretary. 

 

The Eleventh Circuit was not persuaded by the borrower’s interpretation. 

 

In rejecting the borrower’s argument, the Court noted that the traditional contract interpretation principles were inadequate for interpreting uniform provisions mandated by federal regulation.  Specifically, when a contract contains a uniform, standard-form provision required by the federal government, such as Covenant 4, two supplemental considerations must be taken into account:  (1) the interpretation of the provision cannot vary from place to place or from contract to contract; and  (2) the federal government drafted the language to implement federal directives.  Thus, interpreting the federally mandated provisions requires that the Court also interpret the regulations themselves. 

 

The Court looked first to the language of Covenant 4 itself to discern whether the meaning is clear in light of the context and purpose of the regulatory scheme.  The Court determined that the language in Covenant 4 is not ambiguous, and that the only reasonable interpretation is that a mortgage lender may require the borrower to have more flood insurance than the HUD-determined minimum.

 

In reaching this ruling, the Eleventh Circuit held that the first two sentences of Covenant 4 explicitly allows the lender to set the required insurance amount for “hazards” which the Court noted, clearly includes floods.  The third sentence, upon which the borrower based its arguments, provides a separate and independent requirement that the borrower maintain the federally required minimum amount of flood insurance in addition to – not in lieu of – what the lender requires.  The Court concluded that the language of Covenant 4 sets two minimum requirements for the borrower, one set by the lender and one set by HUD, and both of which the borrower must satisfy. 

 

The Court noted that its interpretation of Covenant 4 is supported by other provisions of the mortgage contract and by the nature of the lender’s interest in the mortgaged property.  As an example, the Court pointed to Paragraph 7 of the standard-form mortgage contract which allows the lender to “do and pay whatever is necessary” to “protect the value of the Property and the Lender’s rights” including payment of hazard insurance.  The Court found that the “value of the property” was not limited to the unpaid principal balance, but rather extended to the continued receipt of the interest payments over the lifetime of the loan. Similarly, the Court found that the lender’s exposure to the risk of loss extends to the replacement value of the home and not merely the loan’s principal balance. 

 

Moreover, the Eleventh Circuit noted that the NFIA and FHA regulations supported its interpretation.  The Court found that the inclusion of the term “at least” in the HUD requirements for flood insurance are consistent with interpreting Covenant 4 to allow the lender to require more insurance than the HUD minimums, and inconsistent with interpreting the covenant to prohibit more.

 

The Court also determined that the statutory and regulatory context supports a determination that the lender can require insurance in excess of the HUD minimums.  The FHA mortgage-guarantee scheme places the risk of flood losses on the lender, which makes the lender’s need for more flood insurance particularly acute.  For instance, if a flood damages the property, the lender cannot collect from the United States until it has repaired the damage or deducted the cost of repairing the damage from the insurance benefits.  24 C.F.R. § 203.379.  Thus, if the insurance were merely limited to the unpaid balance, the lender would not be able to insure against the risk the regulatory scheme imposes because the cost of repairing the damage may exceed the unpaid balance of the loan. 

 

The Court also pointed out that the borrower’s interpretation would cause absurd results.  The Court noted that HUD does not require any flood insurance for homes outside the FEMA designated special flood hazards, which under the borrower’s interpretation would prevent the lender from requiring any flood insurance at all.  Moreover, the borrower’s interpretation would prevent lenders from requiring insurance for mortgages above $250,000.  Accordingly, the Court concluded that the regulatory scheme supports the interpretation of Covenant 4 to allow lenders to require insurance beyond the minimum set by HUD.  

 

The Court also determined that the borrower’s extracontractual claims failed as a matter of law.  First, the Court found that because it already determined that Covenant 4 allows the lender to require insurance above the federal minimums the borrower’s claims for breach of the duty of good faith and fair dealing were without merit. 

 

As to the borrower’s breach of fiduciary duty claims against the lender, the Court first noted under the applicable Alabama law lenders do not owe a general fiduciary duty to the borrower.  Then, the Court dismissed many of the borrower’s fraud allegations for the same reasons the breach of contract claim failed. 

 

Additionally, in rejecting the borrower’s claims of kickbacks, the Court noted that the defining characteristic of a kickback is divided loyalties, but the lender was not acting on behalf of the borrower or representing her interests.  The loan agreement makes it clear that the insurance requirement is for the lender’s protection.   

 

Accordingly, the Court affirmed the lower court’s dismissal of the borrower’s complaint for failure to state a claim. 

 

 

 

 

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.

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FYI: Cal App Ct Reverses Ruling in Favor of Lender on Trespass and Nuisance Allegations Following Lender's Foreclosure

The California Court of Appeal, Fourth District, recently reversed a trial court’s grant of summary judgment in favor of a lender regarding allegations that the lender maintained a nuisance and overused an easement that it obtained through a foreclosure sale.

A copy of the opinion is available at:   http://www.courts.ca.gov/opinions/documents/D062532.PDF

Plaintiffs owned a piece of real property located in La Mesa, California.  A condominium project (the “Aragon Project”) was to be constructed on another property adjacent to the Plaintiffs’ property.  The Aragon Project had three phases of construction and was to be governed by the Aragon Homeowners Association (the “HOA”).  The Aragon Project was funded via a revolving line of credit given by a bank (“Bank”).

The Aragon Project property had an “ingress and egress” easement over Plaintiffs’ property.  Specifically, the easement granted “the right of ingress and egress for public road purposes over, along and across the easterly 40 feet thereof.” This easement was created in 1941 by the previous property’s owner.

The developer began construction on the Aragon Project and within 4 years, phases 1 and 2 were completed.  During the construction of phases 1 and 2, the developer made substantial improvements to the easement including installing sewers and storm drains ad well as paving it. After completing the first two phases of the Aragon Project, the developer transferred its ownership interest to the HOA.

During construction of phase 3, the developer went bankrupt.  As a result of the developer’s bankruptcy, Bank gained title to various portions of the Aragon Project via trustee sale including the deed creating the subject easement.

After the developer completed construction of phases 1 and 2, Plaintiffs filed a lawsuit claiming the easement’s improvements and structures were an overuse and were outside the scope of the easement’s description.  Plaintiffs alleged causes of action for trespass, nuisance, injunctive relief and declaratory relief.  Bank and the HOA were the named defendants.

Bank subsequently filed a motion for summary judgment arguing:  (1) it did not own the structures and improvements at issue;  (2) it did not maintain or control the structures and improvements at issue;  (3) it could not be held liable for tort actions under former section 1365.9, as it is not an owner of individual condominium units; ; (4) the structures and improvements at issue do not violate the reserved easement; and  (5) could not be held liable as it only acted as a lender to the developer regarding the Aragon project. The Court granted Bank’s motion for summary judgment, and Plaintiffs appealed.

The Appellate Court began its analysis by determining if there was a triable question of fact as to whether the easement’s improvements and addition of structures could constitute overuse.  The Court determined there was a triable question of fact regarding whether the easement was being overused.

The Court then addressed Bank’s argument that it did not own, control, or maintain any of the Aragon Project’s structures or improvements.  Plaintiffs argued that Bank took a security interest in the Aragon Project’s personal property, as well as an interest in the easement and improvements thereon. The Court held Bank did hold an interest in the Aragon Project’s structures and improvements.

Specifically, the Court examined the trustee’s deeds Bank gained through its foreclosure.  The initial trustee’s deed gave Bank ownership of the Aragon Project’s completed condominium phases as well as several uncompleted condominiums in final phase of the project. The subsequent trustee’s deed gave Bank ownership of the Aragon Project’s property including the easement at issue.  The only properties exempted from Bank’s trustee’s deeds were any property interests previously deeded to the HOA.  Thus, the Court held nothing established that Bank did not own the Aragon Project’s improvements and structures. 

Bank next contended the HOA owned the easement’s improvements and structures and thus, only the HOA is liable to Plaintiff.  Bank relied on a Covenants, Conditions and Restrictions’ (“CC&R’s) provision that stated the HOA had a duty to maintain the Aragon Project’s improvements and structures. However, the Court rejected this argument as Bank offered no explanation as to how the CC&R’s maintenance provision absolved Bank of an ownership interest in the subject improvements.

Bank next argued that when the Aragon Project developer transferred  a completed portion to the HOA, it automatically transferred all the easement rights to the HOA.  The Court found this argument unpersuasive as the developer transferred ownership rights to both Bank and the HOA, and therefore both have rights in the subject easement.

The Court then addressed Bank’s argument that it is merely a “lender” and is immune under California Civil Code section 3434.  Section 3434 states:

A lender who makes a loan of money, the proceeds of which are used or may be used by the borrower to finance the design, manufacture, construction, repair, modification or improvement of real or personal property for sale or lease to others, shall not be held liable to third persons for any loss or damage occasioned by any defect in the real or personal property so designed, manufactured, constructed, repaired, modified or improved or for any loss or damage resulting from the failure of the borrower to use due care in the design, manufacture, construction, repair, modification or improvement of such real or personal property, unless such loss or damage is a result of an act of the lender outside the scope of the activities of a lender of money or unless the lender has been a party to misrepresentations with respect to such real or personal property.

The Court rejected its immunity argument as Bank failed to show how its ownership interests were within the scope of activities a lender of money typically engages in.  Thus, Bank failed to meet section 3434’s burden and was not immune from liability.

Lastly, Bank argued that former Civil Code section 1365.9 entitled it to summary judgment.  Former section 1365.9(b) states:

Any cause of action in tort against any owner of a separate interest arising solely by reason of an ownership interest as a tenant in common in the common area of a common interest development shall be brought only against the association…

The Appellate Court held that, in order to be afforded protection under section 1365.9(b), Bank was required to show the HOA maintained and had in effect one or more policies of insurance which included coverage for general liability of the association. Cal. Civ. Code §1365.9(b)(1). Additionally, the insurance policies had to cover the causes of action alleged by Plaintiffs. Id. 

The Court held that section 1365.9 was inapplicable as Bank failed to show that any of the HOA’s insurance policies covered the Plaintiffs’ claims.  Therefore, the Court determined that Bank was not entitled to summary judgment under former Civil Code section 1365.9(b).

Accordingly, the California Court of Appeals, Fourth District, reversed the lower’s court’s ruling granting Bank’s motion for summary judgment.

 

 

 

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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FYI: 6th Cir Holds Inclusion of "Costs" in Amounts Due Did Not Violate FDCPA, If Costs Recoverable Under Relevant State Law

The U.S. Court of Appeals for the Sixth Circuit recently held that the inclusion of a demand for costs, in a dunning letter and before they had been awarded by a court, does not violate the federal Fair Debt Collection Practices Act (“FDCPA), if such costs are permitted by the relevant state law to a prevailing party in a lawsuit.

 

The Court also concluded that an affidavit from a debt collection company’s representative purporting to have “personal knowledge” of the business records of a third party does not constitute a materially false or misleading statement for purposes of the FDCPA, when in fact the affiant relied on records originally created by the third party.

          

A copy of the Court’s opinion can be found at:  http://www.ca6.uscourts.gov/opinions.pdf/14a0069n-06.pdf.

 

After the plaintiff defaulted on a credit card, the creditor sold the account and the right to claim the balance owed to a collection company.  The collection company then hired a law firm to recover the debt.  In response to the plaintiff’s request of proof that she owed the debt, the law firm sent the plaintiff a packet that included an affidavit from a representative of the collection company. 

 

The affidavit contained three statements that were the subject of the litigation.  First, the representative affirmed that he had “personal knowledge” of the facts contained in the affidavit.  Second, the representative stated that the facts contained in the affidavit were based upon the “electronic business records in question, which are part of the [company’s] regular business records.”  Third, the affidavit stated the actual amount of the balance due and owing followed by the term “and costs.” 

 

The collection company initiated a collection action in state court in Kentucky, requesting the outstanding balance and costs.  Attached to the complaint was the same packet previously sent to the plaintiff, which included the affidavit of the representative of the collection company. 

 

In response, the plaintiff filed a class action lawsuit against the collection company in federal court in Ohio, alleging that the company violated the FDCPA by “intentionally filing of false affidavits for the purpose of obtaining judgments against debtors in collection lawsuits and coercing debtors.”  The district court granted the collection company’s motion for summary judgment, holding that the term “costs” was unclear but was not material.  Likewise, the district court also held that an affiant’s assertion that he had personal knowledge of the debt based on business records of a third party was not a material violation of the FDCPA.

 

As you may recall, the FDCPA bars “conduct the natural consequence of which is to harass, oppress, or abuse any person in connection with the collection of a debt.”  15 U.S.C. § 1692d.  Section 1692e provides that “a debt collector may not use any false, deceptive, or misleading representation or means” in connection with the collection of a debt.  Section 1692e(2)(A) prohibits a party from making a “false representation” of the “amount” of any debt.  Section 1692e(10) prohibits a party from using “false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.”   

 

On appeal, the issues related to the use of the terms “costs” and “personal knowledge” in the representative’s affidavit and whether those terms violated the FDCPA.  The plaintiff argued that including the term “and costs” after the exact amount owed in the affidavit constituted violations of 15 U.S.C. § 1692e. 

 

The Sixth Circuit acknowledged that in assessing whether a debt collector’s actions violate the FDCPA, the Sixth Circuit and other courts “apply an objective test based on the understanding of the least sophisticated consumer.”  The Court also acknowledged that the FDCPA protects the “gullible and the shrewd,” but “also prevents liability for bizarre or idiosyncratic interpretations of collection notices by preserving a quotient of reasonableness and presuming a basic level of understanding and willingness to read with care.” 

 

The Sixth Circuit concluded that, because Kentucky law permits costs to be awarded “as of course to the prevailing party,” the affidavit accurately described the law when it referred to costs.  The Court determined that the fact that costs had not yet been awarded was irrelevant, because neither had interest or the principal amount due, and no argument was raised that asserting those amounts were “due and owing” in the affidavit was unfair, false or deceptive.  Therefore, according to the Court, “the simple request for costs in an unstated amount, where such costs are permitted by state law to the prevailing party, is not a false representation and does not violate” the provisions of the FDCPA.

 

The Court also analyzed the use of the term “costs” under 15 U.S.C. § 1692f, which prohibits the “use of unfair or unconscionable means to collect or attempt to collect any debt,” and proscribes “the collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.”   Based on the Court determined that seeking costs was permitted under Kentucky law, the Court concluded there was no violation.  The Court also concluded that the plaintiff’s cardmember agreement with the original creditor permitted seeking costs.  Thus, the Sixth Circuit held there was no violation of 15 U.S.C. § 1692f. 

 

The Sixth Circuit then examined the use of the term “personal knowledge” in the company representative’s affidavit.  The relevant portion of the statement at issue read “the facts recited herein are based upon the electronic business records of the account in question, which are part of [the company’s] regular business records.”  The plaintiff argued that the statements were false because the president did not have personal knowledge of the data – he acquired the data from the original creditor.  The Court rejected the plaintiff’s argument.  As the Sixth Circuit noted, “multiple courts, including this circuit, have determined that an affiant’s statement of ‘personal knowledge’ regarding a record originally generated by a third party that the attesting party has subsequently reviewed does not violate the FDCPA.”  The Court also determined that even if the affidavit statement was misleading, it was not material. 

 

Ruling that the use of the term “and costs” as part of the amount due in a dunning letter, if costs were recoverable under the relevant state law, did not violate the FDCPA, and that an affiant is qualified to have personal knowledge of information contained in the records in a company’s file that were created by a third party, and that the related “personal knowledge” statement was not materially misleading or deceptive, the Sixth Circuit affirmed the district court’s ruling granting the collection company’s motion for summary judgment. 

 

 

 

 

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.

Our updates are available on the internet, in searchable format, at:
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FYI: MD Fla Holds No Consent Required Under Florida Security of Communications Act for Recording of Business Calls

The U.S. District Court for the Middle District of Florida recently held that the Florida Security of Communications Act, Fla. Stat. § 934.10, et seq. (“FSCA”), generally allows companies to record business calls conducted in the ordinary course of the companies’ business with the consumer’s consent.

 

Specifically, the court held that under the FSCA a business does not have to obtain consent to record a call, if:  (a) the communication is recorded by equipment furnished by a provider of wire or electronic communication service in the ordinary course of its business; and  (b) the call is recorded in the ordinary course of business.

 

A copy of the opinion is attached. 

 

A putative class action was filed by credit card holders who accused a credit card accounts servicer (“Servicer”) of recording telephone calls without their consent. 

In 2010 and 2011, Servicer placed phone calls to plaintiff credit card holders regarding their credit card accounts.  Servicer has a policy to record all incoming and outgoing calls from their inception until their termination. 

 

Plaintiff credit card holders alleged that Servicer never obtained their consent to record any phone calls placed to them.  Plaintiff credit card holders filed a putative class action alleging that Servicer’s recording of telephone conversations, without consent, was a violation of the FSCA.

 

As you may recall, the FSCA makes it a crime to intentionally intercept any electronic communications without the prior consent of all parties to the communication.

 

Servicer moved for summary judgment arguing that its recording and interception actions were legal due to FSCA’s “business extension exception.”

 

The FSCA’s business extension exception applies when a communication is intercepted by any telephone or telegraph equipment furnished by a provider of wire or electronic communication services in the ordinary course of its business, and the call is intercepted in the ordinary course of the interceptor’s business.  See, e.g., Royal Health Care Servs., Inc. v. Jefferson-Pilot Life Ins. Co., 924 F.2d 215, 217 (11th Cir. 1991).  The term “intercept” is defined as “the aural or other acquisition of the contents of any wire, electronic, or oral communication through the use of any electronic, mechanical, or other device.” §934.02(3), Fla. Stat.

 

However, the plaintiff credit card holders argued that Servicer’s recording device was used to intercept the call and a recording device is not “telephone equipment furnished by a provider of wire or electronic communication services.” 

 

On the other hand, Servicer contended the telephone system was the intercepting device because it acquired the contents of the communication while the recording device merely recorded the contents of the telephone conversations.   Servicer further argued that its telephone system was telephone equipment furnished by an electronic communication service within the meaning of the business extension exception rule.

 

The Court examined at length whether the Servicer’s telephone system or a recording device intercepted the telephone calls. The Court determined Servicer’s telephone system equipment intercepted the call.  The Court made this determination based upon the fact the recording device had no function unless it was attached to a telephone system and it could not be used to listen to phone calls.

 

The Court then examined whether its phone system was provided by a wire or electronic communication services in its ordinary course of business. The Court held the phone systems were provided by a business of wire or electronic communication services as the phones were purchased from Avaya and Verizon.  The Court further held that Avaya and Verizon are providers of wire or electronic communication services.

 

The Court next examined whether Servicer intercepted the calls in the ordinary course of its business.  Ruling in favor of Servicer on this issue, the Court reasoned the intercepted calls concerned charges on plaintiff credit card holders’ accounts and these calls were not made for any other reason besides Servicer’s business interests. 

 

Accordingly, the Court held that the business extension exception of the FSCA applied, and granted Servicer’s motion for summary judgment.

 

 

 

 

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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