FYI: 6th Cir Rejects "Ascertainability" Argument, Holds Any Recipient of "Junk Fax" Has Standing Under TCPA

The U.S. Court of Appeals for the Sixth Circuit recently affirmed a district court’s grant of class certification and summary judgment in favor of a plaintiff class concerning alleged “junk fax” violations of the federal Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq. (“TCPA”).

 

In doing so, the Court rejected the defendant’s argument that class was not objectively ascertainable, because the record demonstrated the fax numbers were objective data, and thus according to the Court the ascertainability requirement had been satisfied.  The Court further held that any recipient of an unsolicited fax advertisement has standing to raise TCPA violations, as opposed to just the owner of the fax machine that received the unsolicited fax.

 

A copy of the opinion can be found at:  http://www.ca6.uscourts.gov/opinions.pdf/14a0143p-06.pdf

 

Defendant corporation (“Defendant”) responded to an advertisement – ironically sent to it via fax -- from an alleged “fax blasting” company that advertised it would send 10,000 fax advertisements for its customers.  The Defendant hired the fax blasting company to send advertisements on its behalf and the it sent out over 10,000 fax advertisements.

 

Plaintiff wholesaler (“Plaintiff”) received one of the Defendant’s fax advertisements. The Plaintiff had no prior relationship with the Defendant and did not give permission to receive the fax advertisement.

 

The Plaintiff filed suit alleging violations of the TCPA.  After amending its complaint twice, the Plaintiff moved for class certification and proposed the following class definition:

 

All persons who were successfully sent a facsimile on February 20, 2006, February 21, 2006 or February 22, 2006 from “Lake City Industrial Products, Inc.”; inquiring, “Sick And Tired of Thin, Low Quality Import Pipe Thread Sealing Tapes?”; stating “End the problems now with high quality, MADE IN U.S.A. 100% virgin ptfe pipe thread sealing tapes!”; and offering “Free! Private label on every roll for first time orders.” 

 

In support of its motion, the Plaintiff attached a report from its expert witness that stated “a total of 10,627 successful transmissions of a complete fax [i.e., the Lake City advertisement] were successfully sent to and received by 10,627 unique fax numbers.”

 

The Defendant opposed the motion for class certification arguing, among other things, that Michigan Court Rule 3.501(A)(5) (“MCR 3.501(A)(5)”) forbids the maintenance of class actions in TCPA cases in Michigan federal courts. 

 

As you may recall, MCR 3.501(A)(5) states that “an action for a penalty or minimum amount of recovery without regard to actual damages imposed or authorized by statute may not be maintained as a class action unless the statute specifically authorizes its recovery in a class action.”

 

The district court rejected the Defendant’s argument and certified the class. The Plaintiff proceeded to summary judgment. The Defendant opposed summary judgment by arguing that: (1) it should not be held liable under the TCPA for the fax blaster’s actions, as the fax blaster was a separate company that actually sent the faxes;  (2) the Plaintiff failed to offer evidence regarding how many recipients had printed the advertisement; and (3) that the entry of summary judgment would bankrupt the Defendant.

 

The district court granted the Plaintiff’s motion for summary judgment. The Defendant appealed. 

 

On appeal, the Defendant argued the class definition was improper and overbroad because it included persons who lacked standing to assert a TCPA claim, and that MCR 3.501(A)(5) prevents the maintenance of a class action for TCPA violations in Michigan.

 

As to its standing argument, the Plaintiff attacked the class definition because it included “persons that may not have ever received, noticed or printed the fax but who are somehow associated with a number on the hard drive’s fax logs . . . [and] further includes persons that may not be (or who were) the owners of the machines or fax number [who] may or may not have actually received [the] fax.” 

 

In support of its standing argument, the Defendant cited Machesney v. Lar-Bev of Howell, Inc., 292 F.R.D. 412 (E.D. Mich. 2013). In Machesney, the court held that the “person or entity that owned the fax machine that received the unsolicited fax advertisement at issue is the [only] person or entity with standing to assert a TCPA claim.” Id. at 428. It made this determination after reviewing the legislative history of the TCPA and concluding that the statute was “intended to address . . . the cost of the paper and ink incurred by the owner of the fax machine.”

 

The Sixth Circuit declined to follow the Machesney court’s reasoning.  Specifically, the Sixth Circuit held there was no reason for the Machesney court to examine the legislative history of the TCPA because its plain language prohibits the “use of any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement.” 47 U.S.C. § 227(b)(1)(C).

 

Moreover, the Sixth Circuit disagreed with the Machesney court’s conclusion that the TCPA was “intended to address . . . the cost of the paper and ink incurred by the owner of the fax machine,” stating it was too narrow.  The Court acknowledged that Congress was concerned with costs associated with unsolicited fax advertisements, but explained that “unsolicited fax advertisements impose costs on all recipients, irrespective of ownership and the cost of paper and ink, because such advertisements waste the recipients’ time and impede the free flow of commerce.”

 

Thus, the Sixth Circuit rejected the Defendant’s reliance on Machesney for the proposition that owners (and only owners) of fax machines have standing to sue under the TCPA.

 

The Defendant also addressed the meaning of the phrase “successfully sent,” which appeared in the Plaintiff’s class definition. Specifically, the Defendant argued a fax might be “successfully sent” without being received by its intended recipient. However, the Defendant did not present any evidence to rebut the Plaintiff’s expert witness’s report that explained over 10,000 faxes were successfully sent and received by 10,000 different fax numbers. Thus, the Sixth Circuit rejected the Defendant’s argument.

 

The Defendant next argued that the class was not objectively ascertainable. However, the Sixth Circuit rejected this argument because the record demonstrated the fax numbers were objective data, and thus the ascertainability requirement had been satisfied.

 

The Defendant also argued the district court erred when it declined to apply MCR 3.501(A)(5). Specifically, the Defendant argued that because the “TCPA contains a damages provision that provides for a minimum amount of recovery ($500 per violation) without regard to actual damages and because it does not specifically authorize recovery in a class action, TCPA suits cannot be maintained as class actions in Michigan state court.” 

 

The Sixth Circuit held that MCR 3.501(A)(5) did not apply because federal courts have federal-question jurisdiction over private TCPA suits. Mims v. Arrow Financial Services, LLC, 132 S. Ct. 740,747 (2012). 

 

The Court noted that “Congress may bypass the federal rules and require the federal courts to apply state procedure.” In re Nguyen, 211 F.3d 105, 108 (4th Cir. 2000.) The Defendant argued that the following statutory language evidenced Congress’s intent that state procedural rules apply in all TCPA suits: “a person or entity may, if otherwise permitted by the laws or rules of court of a State bring in an appropriate court of that State.”

 

However, the Sixth Circuit held that Congress simply intended to “enable states to decide whether and how to spend their resources on TCPA enforcement.” Giovanniello v. ALM Media, LLC, 726 F.3d 106, 114 (2d Cir. 2013). Thus, the Court held the language relied upon by the Defendant does not provide a basis to apply state procedural rules in TCPA class actions brought in federal court.

 

The Court acknowledged that allowing TCPA class-action suits to be maintained in federal district courts could lead to forum shopping. However, the U.S. Supreme Court recently held in a case involving a conflict between Rule 23 of the Federal Rules of Civil Procedure and a New York procedural rule prohibiting class actions in cases involving a statutory penalty, that a “Federal Rule governing procedure is valid whether or not it alters the outcome of the case in a way that induces forum shopping.” Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393, 416 (2010).

 

Thus, the Sixth Circuit rejected the Corporation’s argument that the district court erred in declining to apply MCR 3.501(A)(5), and affirmed the district court’s 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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FYI: SD Texas Rules in TCPA Cell Phone Case that Self-Serving Testimony by Borrower Is Not Sufficient to Oppose MSJ on Consent Issue

The U.S. District Court for the Southern District of Texas recently granted summary judgment in favor of a lender (“Lender”) and against a borrower (“Borrower”) as to the Borrower’s claims under the federal Telephone Consumer Protection Act, 47 U.S.C. § 227, et seq. (“TCPA”), and the Texas Telephone Consumer Protection Act, Tex. Bus. And Comm. Code § 305.053 (“Texas TCPA”).

 

In so ruling, the Court held that the Borrower provided his prior express consent to be called on his cell phone using an automatic telephone dialing system by including his cell phone number on a credit application, and that this prior express consent was never revoked. 

 

The Borrower argued that he revoked consent, but the Court rejected the Borrower’s self-serving testimony, as the Lender’s records showed that no such revocation had occurred.  Additionally, the Court held that if there was no TCPA violation, there could be no Texas TCPA violation.

 

The Court further ruled:

 

1.       The Lender was entitled to summary judgment as to the Borrower’s Texas Debt Collection Act, Tex. Fin. Code § 292.001, et seq. (“TDCA”) claim because the Lender’s attempts to communicate were not harassing, abusive or unconscionable;

 

2.       The Lender did not intentionally intrude upon the Borrower’s seclusion because the Lender had a bona fide business purpose for its administration of the loan and communications with the Borrower; and

 

3.       Summary judgment in favor of the Lender as to the Lender’s breach of contract claim was appropriate, because the Lender performed its obligations under the contract, and the Lender suffered damages in the amount of the unpaid balance on the loan.

 

A copy of the Court’s ruling is attached.

 

The Borrower applied for an auto loan with the Lender for the purchase of a vehicle.  On his credit application, the Borrower provided his cell phone number. Subsequently, the Borrower and Lender entered into a retail installment contract (“Contract”) to finance the purchase of the vehicle.  In October of 2009, the Borrower defaulted on the loan.  The Lender provided a total of eight months of payment deferments, waived certain fees and extended payment due dates.  The Borrower failed to make any payment after December 2012.

 

The Lender placed calls to the Borrower’s cell phone.  Over 99% of the calls placed by the Lender to the Borrower went unanswered or otherwise did not result in a conversation.  The Borrower placed almost 50 calls to the Lender. 

 

The Lender’s records showed that Borrower never communicated any written or oral request for the Lender to stop calling his cell phone.  Instead, the Lender’s records showed that he repeatedly verified that his cell phone number was an acceptable contact number.

 

Based upon this record, the Court found that the Lender’s actions were consistent with “industry standards and practices under the circumstances” and demonstrated intent to provide the Borrower with an opportunity to become current on the loan. Additionally, the Court found that the Lender did not act with any intent to harass or abuse the Borrower.  It never used any profanity or abusive or harassing language towards the Borrower and only communicated with the Borrower for the purpose of obtaining the payments due.

 

The Court further concluded that by providing his cell phone number in his initial credit application, the Borrower provided prior express consent to be called at that number.  In Re Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 23 F.C.C.R. 559, 564 (2008); Cunningham v. Credit Mgmt., L.P., 3:09-CV-1497-GB(BF), 2010 WL 3791104 at *4-5 (N.D. Tex. Aug. 30, 2010) report and recommendation adopted, 3:09-CV-1497-G(BF), 2010 WL 3791049 (N.D. Tex. Sept. 27, 2010).  The Court further found that the Borrower never “effectively communicated any revocation of his prior express consent to be called on his cell phone using an automated telephone dialing system.” 

 

Additionally, the Court found Borrower’s “self-serving and uncorroborated contention that he revoked consent is contradicted by the overwhelming evidence in the record.”  Because the Borrower failed to raise a genuine dispute of material fact as to whether he revoked prior express consent, the Lender did not violate the TCPA’s restriction on placing calls to the Borrower’s cell phone using an automatic telephone dialing system without his prior express consent.

 

The Court next addressed the Borrower’s Texas TCPA claim.  Because the Lender did not violate the TCPA, it did not violate state law claims arising under the Texas TCPA.  As you may recall, the Texas TCPA proscribes only that conduct which is also prohibited by the TCPA.  If there is no violation of the TCPA, there is no violation of the Texas TCPA.  Tex. Bus. & Com. Code Ann. § 305.053; Shields v. Americor Lending Grp., Inc., 01-06-00475-CV, 2007 WL 2005079 at *3 n.8 (Tex. App. July 12, 2007).

 

The Court also found that the Lender could not have violated the TDCA because the Lender’s communications did not constitute harassment.  The volume or number of calls alone was insufficient to establish intent to harass, and the records did not show any intent to harass.  Accordingly, the Lender’s administration of the loan and interactions with the Borrower were not harassing, abusive, or unconscionable under the TDCA.

 

Next, the Court held that the Lender did not intentionally intrude upon the Borrower’s seclusion that would be highly offensive to a reasonable person.  As you may recall, in order to be actionable, the intrusion must be highly offensive, meaning that it must be unreasonable, unjustified, or unwarranted.  The Court concluded that the Lender had a bona fide business purpose for its administration of the loan and communications with the Borrower.

 

Additionally, the Court concluded that the Lender had a permissible purpose for obtaining the Borrower’s credit report.  As you may recall, under the federal Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. (“FCRA”), one permissible purpose for obtaining credit information is in connection with a credit transaction.  A business may permissibly obtain credit information when it obtains such information in connection with a business transaction that is initiated by the consumer or to review an account to determine whether the consumer continues to meet the terms of the contract.  15 U.S.C. § 1681(a)(3)(A), (F).  Accordingly, the Court granted summary judgment in the Lender’s favor as to the invasion of privacy claim.

 

Finally, the Court concluded that the Lender was entitled to damages from the Borrower for its breach of contract counterclaims because the Lender performed its obligations under the contract and it suffered damages as a result of the Borrower’s breach in the amount of the unpaid balance on the loan.

 

 

 

 

 

 

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: 2nd Cir Holds Failure to Disclose Claims in BK Does Not Bar Later Action on Claims If BK Dismissed Rather Than Discharged

The U.S. Court of Appeals for the Second Circuit recently held that a borrower who failed to disclose claims in bankruptcy was not later barred from bringing those claims because her bankruptcy petition was dismissed rather than discharged. 

 

The Second Circuit also reversed the district court’s grant of summary judgment as to the borrower’s TILA and fraud claims due to factual disputes, but affirmed the district court’s dismissal of the borrower’s RICO, ECOA, New York General Business Law, fraud, and negligent misrepresentation claims.

 

In affirming the district court’s dismissal of the borrower’s civil racketeering claim, the Second Circuit followed the Seventh Circuit’s reasoning in Tellis v. United States Fidelity & Guaranty Co., 826 F.2d 477, 478 (7th Cir. 1986) that “multiple acts of mail fraud in furtherance of a single episode of fraud involving one victim and relating to one basic transaction cannot constitute the necessary pattern” requirement of RICO.

 

A copy of this opinion is available at:  Link to Opinion

 

In 2004, the plaintiff-borrower (“Borrower”) was in default on her first and second residential mortgages.  Borrower obtained a new loan from a lending company (“Lender”) that allowed her to avoid foreclosure.  The loan was serviced by a wholly-owned subsidiary of Lender (“Servicer”).

 

By 2005, Borrower was again in default.  In 2006, in order to forestall an imminent foreclosure sale, Borrower filed bankruptcy.  Borrower failed to list any claims against Lender or Servicer in her bankruptcy petition (the “Petition”).  The Petition was later dismissed.  In 2011, after a second bankruptcy filing, Borrower’s real property was sold in foreclosure.

 

In 2008, Borrower filed suit against both Lender and Servicer and asserted claims under RICO, ECOA, TILA, and New York General Business Law (“GBL”) § 349, as well as common-law claims of fraud and negligent misrepresentation.  Lender and Servicer moved for summary judgment and argued that Borrower lacked standing because she failed to disclose the claims in 2006 bankruptcy Petition.

 

In opposition to summary judgment, Borrower testified that a representative of Lender told her that Lender and Servicer were “foreclosure rescuers” and that “because of her full-time-student status and reduced work [], she could not afford to make any monthly payments on a mortgage for at least a year.”  According to Borrower, the representative “said he would ‘tailor’ for [Borrower] a one-year ‘bridge loan’ of $35,000, and that Lender would take care of her monthly payments to her mortgagees and stave off foreclosure for a year; thereafter that loan would be converted to a 30-year fixed-rate mortgage loan.  According to Borrower, the representative “urged [Borrower] to act on [Lender’s] offer promptly, telling her that since Borrower was an African-American, [her former lender] would foreclose very quickly.” 

 

In support of the motion for summary judgment, Lender’s loan officer “denied telling [Borrower] that he or [Lender] was a ‘foreclosure rescuer’ and denied that he ever offered her a ‘bridge loan’ or used that term. Instead, [the loan officer] stated that he told [Borrower], and always believed she understood, that the loan from [Lender] would result in a mortgage on her property.”  According to Lender’s loan officer, “he never told [Borrower] she would not have to make payments on her loan for a year, or that because she was an African-American her lenders would foreclose very quickly.”

 

The loan closing took place at JFK airport.  In opposition to summary judgment, Borrower testified that she “met ‘Defendants representative’ and that she ‘signed some blank pages as requested by Defendants' representative.’”  Borrower testified that “she never requested a mortgage from Servicer or Lender but that they, without her knowledge, intent, or consent, “use[d her] signatures to manufacture a mortgage" on her home in the amount of $504,000.”  Borrower further testified that “she did not receive copies of any note or mortgage” and “she did not receive closing documents” until mid-2007. 

 

In support of the motion for summary judgment, the attorney who handled the loan closing “denied that he asked [Borrower] to sign any blank pages, saying “I have never requested, nor have I been asked to request, that a borrower sign blank pages.”  The attorney also testified that “[t]he closing took place at JFK airport in [his] car; no one other than he and [Borrower] was present.”  The attorney testified “that he described the closing documents to [Borrower], and she reviewed them before signing them … his customary practice, like that of most lenders, was to request that the borrower sign multiple copies of documents, and to give the borrower copies at the closing.”

 

The district court granted Lender and Servicer’s summary judgment motions principally on standing grounds.  The district court “concluded that Borrower’s failure to disclose her claims in her 2006 bankruptcy case barred her from asserting them …”

 

As you may recall, Section 349(b)(3) of the Bankruptcy Code provides that unless the bankruptcy court for cause orders otherwise, “a dismissal of a case … revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case.”  11 U.S.C. § 349(b)(3).

 

In granting Lender’s and Servicer’s motion for summary judgment, the district court reasoned that Section 349 was overridden with respect to undisclosed claims by Section 554 of the Bankruptcy Code.  Section 554 is titled “Abandonment of property of the estate.”  Section 554 provides that unless the court orders otherwise, “any property scheduled under section 521(a)(1) of this title not otherwise administered at the time of the closing of a case is abandoned to the debtor” and "property of the estate that is not abandoned under this section and that is not administered in the case remains property of the estate.” Id. § 554(c), (d) (emphases added).  The district court concluded that because Borrower had not disclosed her claims against Lender and Servicer in her bankruptcy Petition, those claims were not “scheduled” and remained property of the bankruptcy estate even after the bankruptcy petition was dismissed.

 

The Second Circuit reversed and found that “if the debtor owned the property prior to the commencement of the bankruptcy case, a dismissal returns that property to the debtor.”  The Second Circuit rejected the district court’s analysis that Section 349 was overridden by Section 554.  The Second Circuit reasoned that Section 554 “has no applicability after a dismissal.  Thus, although subsections (c) and (d) of § 554 prescribe different treatments for assets at the time a bankruptcy case is ‘closed,’ depending on whether they were or were not listed in a § 521(a)(1) schedule, the dismissal of the case under § 349, automatically revesting all of the property of the estate in its prior owners, means that there are no assets remaining to be abandoned or administered.”

 

The Second Circuit next analyzed, in seriatim, whether the district court’s grant of summary judgment was proper vis-à-vis Borrower’s claims for violations of RICO, ECOA, and New York General Business Law, and for fraud and negligent misrepresentation.

 

As you may recall, to establish a Civil RICO violation under 18 U.S.C. §1962(c), “a plaintiff must show that the defendant conducted, or participated in the conduct, of a RICO enterprise's affairs through a pattern of racketeering activity.”  See, e.g., Cruz v. FXDirectDealer, LLC (FXDD), 720 F.3d 115, 120 (2d Cir. 2013).  “‘[R]acketeering activity,’” as defined in RICO, may consist of any of a number of criminal offenses, listed in 18 U.S.C. § 1961(1), including mail fraud in violation of 18 U.S.C. § 1341, and wire fraud in violation of 18 U.S.C. § 1343.

 

A “pattern of racketeering activity” consists of “at least two acts of racketeering activity.”  18 U.S.C. § 1961(5).  In order to prove such a “pattern,” a civil RICO plaintiff also “must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity.”  H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 239 (1989) (emphasis in original). The requisite continuity may be found in “either an 'open-ended' pattern of racketeering activity (i.e., past criminal conduct coupled with a threat of future criminal conduct) or a ‘closed-ended’ pattern of racketeering activity (i.e., past criminal conduct ‘extending over a substantial period of time’).” GICC Capital Corp. v. Technology Finance Group, Inc., 67 F.3d 463, 466 (2d Cir. 1995).

 

In support of her RICO claims, Borrower asserted that “Defendants engaged in wire fraud, consisting of interstate or international telephone conversations she had with [the loan officer] and of [Lender’s] solicitation from her of faxed documents in order to facilitate the allegedly promised bridge loan.”  Borrower also “asserted that Defendants engaged in mail fraud, consisting of Servicer’s mailing to her of mortgage statements in January and February 2005 and default notices in March and April 2005, and of sporadic mailings by Lender's counsel in 2005-2010 relating to Lender’s state-court foreclosure action.” 

 

The Second Circuit found that this evidence could not “permit a rational inference of either open ended or closed-ended continuity of racketeering activity.”  The Second Circuit also concluded that the Borrower’s evidence was “insufficient to show the necessary pattern and that Defendants were entitled to summary judgment dismissing her claims under § 1962(c).”  The Second Circuit cited a Seventh Circuit decision for the proposition that "multiple acts of mail fraud in furtherance of a single episode of fraud involving one victim and relating to one basic transaction cannot constitute the necessary pattern," Tellis v. United States Fidelity & Guaranty Co., 826 F.2d 477, 478 (7th Cir. 1986); see also Slaney v. The International Amateur Athletic Federation, 244 F.3d 580, 599 (7th Cir.), cert. denied, 534 U.S. 828 (2001).

 

The Second Circuit also affirmed the district court’s dismissal of Plaintiff’s ECOA claims.  As you may recall, the ECOA provides that it is “unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction[,] . . . on the basis of race, color, religion, national origin, sex or marital status, or age.”  15 U.S.C. § 1691(a).  In opposition to Defendants' summary judgment motion, Borrower’s only references to discrimination were her assertion that the loan officer had advised her that her prior lender would foreclose very quickly because she is African-American, and a conclusory reference to “Defendants' discriminatory actions.”  The Second Circuit found that these conclusory statements were insufficient to create a genuine issue to be tried as to the discrimination element of Borrower’s ECOA claims. 

 

The Second Circuit also affirmed the district court’s dismissal of Borrower’s claims under the New York General Business Law.  As you may recall, the New York General Business Law makes it unlawful to engage in “[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in [New York] state . . . .”  N.Y. Gen. Bus. Law § 349(a).  To state a claim under GBL § 349, a plaintiff “must prove three elements: first, that the challenged act or practice was consumer-oriented; second, that it was misleading in a material way; and third, that the plaintiff suffered injury as a result of the deceptive act.” Stutman v. Chemical Bank, 95 N.Y.2d 24, 29, 709 N.Y.S.2d 892, 895 (2000).

 

To show that the challenged act or practice was consumer-oriented, a plaintiff must show that it had “a broader impact on consumers at large”: “Private contract disputes, unique to the parties, for example, would not fall within the ambit of the statute . . . .” Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20, 25, 623 N.Y.S.2d 529, 532 (1995).  The Second Circuit found that Borrower had failed to produce any evidence that the acts of Lender and Servicer were committed against consumers in general or indeed against anyone other than Borrower.  Thus, the Second Circuit affirmed the district court’s dismissal of Borrower’s GBL claim.

 

The Second Circuit also affirmed the district court’s dismissal of Borrower’s negligent misrepresentations claims.  To prevail on a claim of negligent misrepresentation under New York law, a plaintiff must show “(1) the existence of a special or privity-like relationship imposing a duty on the defendant to impart correct information to the plaintiff; (2) that the information was incorrect; and (3) reasonable reliance on the information.” J.A.O. Acquisition Corp. v. Stavitsky, 8 N.Y.3d 144, 148, 831 N.Y.S.2d 364, 366 (2007). “[L]iability in the commercial context is ‘imposed only on those persons who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party such that reliance on the negligent misrepresentation is justified.’” Eternity Global Master Fund Limited v. Morgan Guaranty Trust Co. of New York, 375 F.3d 168, 187 (2d Cir. 2004) (quoting Kimmell v. Schaefer, 89 N.Y.2d 257, 263, 652 N.Y.S.2d 715, 719 (1996)).  

 

In support of her claims, Borrower’s only attempt to show the requisite special relationship between herself and Defendants consists of her argument that “Defendants claimed special expertise in bridge loans to forestall foreclosures.”  The Second Circuit found that Borrower’s argument was foreclosed by the New York Court of Appeals decision in Greenberg, Trager & Herbst, LLP v. HSBC Bank USA, 17 N.Y.3d 565, 934 N.Y.S.2d 43 (2011), which held that “an arm's length borrower-lender relationship . . . does not support a cause of action for negligent misrepresentation.” Id. at 578, 934 N.Y.S.2d at 50.

 

The Second Circuit reversed the district court’s dismissal of Borrower’s TILA and common law fraud claims.  Borrower had testified that she had not received the disclosures required by TILA.  Because Borrower’s testimony was only contradicted by the loan closing attorney contrary oral testimony, the Court held that this was enough to avoid summary judgment as to the TILA claim.

 

In their motion for summary judgment on Borrower’s common law fraud claims, Lender and Servicer had argued that Borrower had not suffered any damages because her foreclosure was in fact delayed by the refinancing transaction.  In addition, Servicer argued that there was no evidence that Servicer had anything to do with the alleged conduct that forms the basis for Plaintiff's claims.  The Second Circuit rejected these arguments.  The Second Circuit noted that Borrower had presented evidence that Servicer and Lender shared a single hiring department, that the loan officer's supervisor reported to Servicer’s chief executive officer, that a Servicer vice president was involved in her loan transaction, and that a Servicer document referred to her loan as a “Servicer Credit Loan.”

 

The Second Circuit also determined that it could not accept Lender’s argument that Borrower had not suffered any damages as a matter of law because Borrower “was charged more than $35,000 in settlement fees in the mortgage transaction, and she eventually lost her home in foreclosure. Whether she suffered injury is a question to be answered by a factfinder.”

 

 

 

 

 

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 Rules Statement in 1692g Notice That "Creditor" Would Assume Debt Valid Absent Dispute Did Not Violate FDCPA

The U.S. Court of Appeals for the Eleventh Circuit recently held that a letter to a borrower stating that the “creditor” would assume the validity of a debt (if not disputed within thirty days) – rather than the “debt collector” -- was not misleading, did not violate the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”). 

 

According to the Court, even if borrowers would be deterred from disputing the debt by the language of the letter, they would have been so deterred if the statutory language were used.

 

A copy of the opinion is available at: http://media.ca11.uscourts.gov/opinions/pub/files/201312450.pdf

 

Borrower received a letter (the “Letter”) from her lender’s law firm (“Law Firm”), which indicated that it was a communication for the purpose of collecting a debt.  The Letter stated that Law Firm represented the interests of the lender and that Borrower could dispute the validity of the debt within thirty days of receipt of receipt of the Letter.

 

Although the Letter included several indications that a lawsuit was forthcoming, it was not accompanied by the service of any papers initiating a lawsuit.  Nor did it provide any information pertaining to a legal matter, other than referring to the creditor and Borrower as plaintiff and defendant, respectively, in the subject line.  Also, the Letter stated, “[e]ven though you are required to file a response to the lawsuit prior to the thirty (30) days, your validation rights, as set forth in this notice, shall not expire for thirty (30) days.”  Nevertheless, a foreclosure action was filed three days later.

 

Borrower brought a class action suit under 15 U.S.C. § 1692e, which prohibits debt collectors from using false or deceptive means to collect a debt.  Borrower claimed that the Letter was inconsistent with those disclosure required for an “initial communication” under 15 U.S.C. § 1692g(a)(3).  Specifically, the Letter stated that failure to dispute within thirty days would result in the debt being assumed valid by the creditor, whereas the FDCPA requires a statement that the debt collector – not the creditor – will assume the debt’s validity in the case of a failure to dispute within thirty days.

 

However, the district court dismissed the action, determining that the Letter was not an “initial communication” as defined by the FDCPA because it concerned a foreclosure action and fell into the exception for formal pleadings in a civil action.  Alternatively, the district court determined that, even if the Letter were an initial communication, the technical violation of the statute would not mislead Borrower regarding the nature of her rights.  The present appeal followed.

 

As you may recall, the FDCPA prohibits debt collectors from using “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e.  Also, the FDCPA requires a debt collector to send the debtor certain required information with or within 5 days of the initial communications.  However, the FDCPA expressly excludes from the category of “initial communication” any communication “in the form of a formal pleading in a civil action.”  15 U.S.C. § 1692g(d).

 

Along with the amount of the debt, the name of the creditor to whom the debt is owed, and information about disputing the debt, see 15 U.S.C. § 1692g(a), the debt collector must  provide “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).

 

Considering the “initial communication” issue first, the Eleventh Circuit held that the Letter was an attempt to collect a debt, and that the exception for “formal pleadings” does not apply.  Turning the language of the FDCPA, the Court noted that, although the FDCPA provides no definition of an “initial communication,” it does define “communication” broadly.  See 15 U.S.C. § 1692a(2) (“[T]he conveying of information regarding a debt directly or indirectly to any person through any medium.”).  Moreover, the Court observed that “[t]he fact that the letter and documents relate to the enforcement of a security interest does not prevent them from also relating to the collection of a debt within the meaning of § 1692e.”  Reese v. Ellis, Painter, Ratterree & Adams, LLP, 678 F.3d 1211, 1218 (11th Cir. 2012).

 

Analyzing the language of the Letter, the Court was persuaded that the Letter was not a formal pleading.  Among other facts cited as supporting the Court’s position was that the Letter stated it was for the purpose of collecting a debt, referring to such collection efforts; stated the amount of the debt and indicated that it must be paid in certified funds; was on the Law Firm’s letterhead, not any court’s; and gave the name of the creditor where it discussed payments.  Further, the only references to a lawsuit were “fleeting.”

 

However, as to whether the Letter violated the FDCPA, the Eleventh Circuit held that “substitut[ing] ‘creditor’ for ‘debt collector’ when informing the consumer of who would assume that the debt was valid if the debt was not contested within thirty days” did not violate 15 U.S.C. § 1692e. 

 

Notably, the Court assumed, without deciding, that using such language might deter the “least sophisticated consumer. . . from pursuing his or her rights to dispute the debt. . . if he or she failed to dispute the debt within the thirty-day period.”  See Slip. Op. at p. 8-9; Iyamu v. Clarfield, Okon, Salomone, & Pincus, P.L., 950 F. Supp. 2d 1271, 1274 (S.D. Fla. 2013).  Nevertheless, “because the debt collector is obviously the agent of the creditor, the same implication arises from the notice required by § 1692g(a)(3) as from [Law Firm’s] erroneous statement.  In other words, the least sophisticated consumer would think that if the debt collector was entitled to assume that the debt is valid, the creditor would have the same right.”  Slip. Op. at p. 9.  Thus, as the same implication arose under either the language of the FDCPA or the language of the Letter, the Letter itself did not mislead Borrower.

 

Accordingly, the Eleventh Circuit affirmed the dismissal of Borrower’s class action lawsuit.

 

 

 

 

 

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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