FYI: 2nd Cir Holds Debt Collector Did Not Have "Prior Express Consent" Under TCPA, When Cell Number Was Provided by Non-Customer When Closing Deceased Customer's Account

The U.S. Court of Appeals for the Second Circuit recently held that a debt collector did not have prior express consent to make auto-dialed collection calls to the plaintiff’s cell phone under the TCPA, because the mobile number was obtained during the closure of an account and not “provided during the transaction that resulted in the debt owed.”

 

A copy of the opinion is also available at:  Link to Opinion

 

In September 2008, a debtor passed away leaving a $68 balance on her account with her electric power supplier.  The debtor’s relative (“Consumer”) contacted the power company to discontinue service at the debtor’s apartment, providing his mobile telephone number as a requirement in the process. 

 

After the account went unpaid, the power company hired a debt collector (“Debt Collector”) to collect the debt.  Although Consumer never received any bill for the debtor’s account, Debt Collector placed seventy-two automated telephone calls to Consumer over the course of nine months.

 

Consumer filed a complaint against Debt Collector, asserting, among other things, violation of the federal Telephone Communication Protection Act of 1991, 47 U.S.C. § 227, et seq. (“TCPA”). 

 

As you may recall, the TCPA makes it “unlawful for any person … to make any call … using any automatic telephone dialing system or an artificial or prerecorded voice … to any telephone number assigned to a … cellular telephone service.”  47 U.S.C. § 227(b)(1)(A)(iii).  There is no liability for calls  “made with the prior express consent of the called party.”  Id.

 

The district court granted summary judgment to Debt Collector on all claims, holding that Debt Collector was not liable because Consumer consented to the collection calls when he provided his number to the power company.

 

On appeal to the Second Circuit, the question before the Court was whether the Debt Collector’s calls were made with Consumer’s “prior express consent” within the meaning of the TCPA.

 

The Debt Collector argued that Consumer consented to the calls, because he voluntarily provided his mobile number to the power company in connection with the debtor’s account, and did not expressly limit the purpose for which his number could be used.

 

Relying on rulings by the Federal Communications Commission (“FCC”), the Second Circuit disagreed, holding that Consumer did not provide his prior express consent because the number was not provided “during a transaction that resulted in the debt owned.” 

 

The Second Circuit noted that the FCC previously ruled that where there is an “established business relationship” – a term that the FCC defines broadly as “a prior or existing relationship formed by voluntary two-way communication” – a business need not obtain specific consent to make auto-dialed telephone calls to a consumer.  See In the Matter of Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, Report and Order, 7 FCC Rcd. 8752 ¶ 34-35 (1992).

 

However, in 2008, the FCC ruled that “prior express consent [for automated debt collection calls] is … granted only if the wireless number was provided by the consumer to the creditor, and that such number was provided during the transaction that resulted in the debt owed.”  In the Matter of Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, Request of ACA International for Clarification and Declaratory Ruling, 23 FCC Rcd. 559 ¶ 10 (2008).

 

Relying on this ruling, the Second Circuit held that Consumer did not provide prior express consent to be called because he provided his number long after the debt was incurred, and was not in any way responsible for – or even fully aware of – the debt.  Thus, the Court concluded that Debt Collector’s calls were prohibited by the TCPA, and that the district court erred in granting summary judgment in favor of Debt Collector.

 

Notably, the Second Court explained in a footnote that its opinion did not decide what the outcome would be if a consumer were to open an account with a creditor and initially provide only his home phone number, but later in the course of the relationship provide a wireless number.  Whether a subsequently given phone number is given as part of a continuing “transaction,” or a transaction separate from the initial one that “resulted in the debt owed,” is a question the Court expressly left for another day. 

 

In addition, as the Consumer was not an official representative of the deceased customer’s estate, the Second Circuit did not decide whether the outcome of this case would change if he had been. 

 

Accordingly, the Second Circuit reversed the judgment of the district court and remanded for further proceedings.

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (312) 284-4751
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FYI: NV Sup Ct Holds HOA Has Super-Priority Lien For Up to 9 Months of Unpaid HOA Dues, Non-Judicial Foreclosure Extinguishes Previously Recorded First-Lien DOT

The Supreme Court of Nevada recently held that a homeowners’ association’s assessment lien maintained super-priority status for nine months of unpaid dues against a first position deed of trust, and that the nonjudicial foreclosure of the HOA lien extinguished a previously recorded first deed of trust. 

 

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

 

At issue was a property located in a common-interest community subject to Covenants, Conditions, and Restrictions (CC&Rs) recorded in 2000. In 2007, the borrowers executed a promissory note and deed of trust on the property in favor of appellee lender (“Lender”).  By 2010, the borrowers were delinquent on their homeowners’ association (“HOA”) dues, and also defaulted on their obligations to Lender.  The HOA and Lender each commenced nonjudicial foreclosure actions.

 

At the HOA’s foreclosure sale, Appellant (“Foreclosure Purchaser”) purchased the property, and thereafter, received and recorded a trustee’s deed.  During that time, the Lender’s trustee’s sale had been postponed.

 

Following the HOA’s foreclosure sale, Foreclosure Purchaser brought an action to quiet title and enjoin the Lender’s trustee’s sale, arguing that the HOA trustee’s deed extinguished Lender’s first deed of trust, and therefore the Lender had no interest in the property.

 

The district court denied Foreclosure Purchaser’s motion for a preliminary injunction and granted Lender’s countermotion to dismiss. The lower court reasoned that to validly foreclose its super-priority lien, an HOA must initiate a judicial foreclosure action.  As a consequence of proceeding nonjudicially, the court held that the Lender’s deed of trust survived the HOA’s trustee’s sale.  Foreclosure Purchaser appealed.

 

As you may recall, Nev. Rev. Stat. Ann. (“NRS”) § 116.3116(1) permits an HOA to impose a lien against a unit for unpaid dues. The statute affords such a lien higher priority than a previously recorded first deed of trust for nine months of unpaid dues, but affords the lien lower priority for any additional unpaid dues. NRS § 116.3116(2).

 

The Nevada HOA lien is therefore effectively split into two pieces, a super-priority piece “consisting of the last nine months of unpaid HOA dues…,” which is “prior to a first deed of trust, and a sub-priority piece “consisting of all other HOA fees or assessments,” which is “subordinate to a first deed of trust.” Op. at *6.

 

On appeal, Lender argued that NRS §116.3116(2) creates merely a payment priority between the HOA and the beneficiary of a first deed of trust and not a true priority lien.  According to Lender, the super-priority portion of the HOA lien does not acquire super-priority status until the beneficiary of a first deed of trust forecloses, at which point, a foreclosure purchaser is required to pay off the super-priority portion of the HOA lien to obtain clear title. In contrast, if NRS §116.3116(2) creates in an HOA lien true priority status, then an HOA lien is senior to a first deed of trust, and foreclosure on that lien will extinguish a first deed of trust.

 

The Nevada Supreme Court rejected Lender’s payment priority argument, and held that NRS 116.3116(2) gives an HOA a true super-priority lien, complete with the ability to extinguish a first deed of trust upon foreclosure sale.  Specifically, the Court determined that the statutory language providing for a HOA lien “prior to” other liens and encumbrances (to the extent of nine months of unpaid dues), relates to lien priorities and “does not speak in terms of payment priorities.” Op. at *10.

 

In response to Lender’s argument that it is inequitable to allow a nominal lien to extinguish a first deed of trust securing hundreds of thousands of dollars in debt, the Court observed, “[a]s a junior lienholder, [Lender] could have paid off the [HOA] lien to avert loss of its security; it could have also established an escrow for [HOA] assessments to avoid having to use its own funds to pay delinquent dues.” Op. at *16-17.

 

The Court also determined that the official comments to §3-116 of the Uniform Common Interest Ownership Act of 1982 (UCIOA), the provisions of which Nevada adopted and codified as NRS Chapter 116, supported the Court’s reading of §116.3116(2). The comments acknowledge that the split-lien approach is a “significant departure from existing practice,” and explain that “[a]s a practical matter, secured lenders will most likely pay the 6 [in Nevada, nine] months assessments demanded by the association rather than having the association foreclose on the unit.” Op. at *11-12.

 

The Nevada Supreme Court further referenced the Joint Editorial Board for Uniform Property Acts’ (JEB) 2013 report canvassing case law construing the UCIOA’s super-priority lien provisions. The report endorsed the position that foreclosure on the super-priority portion of an HOA lien extinguishes a lower priority first deed of trust, and explicitly criticized prior Nevada federal district court decisions holding a contrary view.

 

Lender next argued that the HOA was required to commence its foreclosure action through the judicial process, and because it failed to do so, the non-judicial foreclosure sale was subject to Lender’s first deed of trust. For support, Lender relied on the language in NRS 116.3116(2) that defines the super-priority piece of an HOA’s lien as consisting of “assessments for common expenses…which would have become due in the absence of acceleration during the 9 months immediately preceding institution of an action to enforce the lien.”  Lender claimed that the phrase “institution of an action to enforce a lien” suggests a civil action brought in a court of law and that it required the HOA to foreclose its lien by way of the judicial process. 

 

Disagreeing, the Nevada Supreme Court observed that the provisions in NRS 116.31162 “speak[] to the statutory notices of delinquency, default and election to sell required of a nonjudicial foreclosure sale.” Op. at 18. The Court noted that NRS §§116.31163-116.31168 concern and explain the mechanics and requirements of nonjudicial foreclosure sales of HOA liens. The Court utilized the same reasoning to dispel the dissenting opinion’s position that NRS Chapter 116 requires judicial foreclosure of the super-priority piece of an HOA lien but authorizes nonjudicial foreclosure of any sub-priority lien.

 

Accordingly, the Nevada Supreme Court reversed the lower court’s order of dismissal, vacated the order denying preliminary injunctive relief, 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

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

                                www.mwbllp.com

 

 

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FYI: 9th Cir Holds "Sue or Be Sued" Clause in Fannie Mae's Charter Provides Federal Question Jurisdiction Over Claim By or Against Fannie Mae

The U.S. Court of Appeals for the Ninth Circuit recently held that Federal National Mortgage Association’s (“Fannie Mae”) federal corporate charter confers federal question jurisdiction over claims brought by or against Fannie Mae.

 

A copy of the opinion is available at: http://cdn.ca9.uscourts.gov/datastore/opinions/2014/10/02/10-56068.pdf

 

The plaintiffs brought two lawsuits in federal district court raising state and federal law claims against Fannie Mae following the initiation of foreclosure proceedings.  The district court dismissed both cases. 

 

Thereafter, plaintiffs filed a lawsuit in California state court, alleging state law claims.  Fannie Mae removed to federal court, arguing that the sue-and-be-sued clause in its federal corporate charter conferred federal question subject matter jurisdiction.  The plaintiffs filed a motion to remand, which the district court denied.  The district court later dismissed all of plaintiffs’ claims as barred by res judicata and collateral estoppel.

 

On appeal, the plaintiffs argued that the district court lacked subject matter jurisdiction.  The Ninth Circuit disagreed, and held that under the rule announced in American National Red Cross v. S.G., 505 U.S. 247 (1992), Fannie Mae’s federal charter confers federal question jurisdiction over claims brought by or against Fannie Mae. 

 

The sue-and-be-sued clause in Fannie Mae’s charter authorizes Fannie Mae “to sue and be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal.” 12 U.S.C. §1723a(a).

 

The Ninth Circuit, held that this language confers federal question jurisdiction over claims brought by or against Fannie Mae. 

 

In so ruling, the Ninth Circuit relied on Red Cross.  In Red Cross, the United States Supreme Court gave a clear rule for construing sue-and-be-sued clauses for federally chartered corporations.  The Court held that “a congressional charter’s ‘sue and be sued’ provision may be read to confer federal court jurisdiction if, but only if, it specifically mentions the federal courts.”  505 U.S. at 255.

 

The question in Red Cross was whether the American National Red Cross’s federal charter conferred federal question jurisdiction over suits brought by or against the Red Cross.  The sue-and-be-sued clause in the Red Cross’s charter authorized the Red Cross “to sue and be sued in courts of law and equity, State or Federal, within the jurisdiction of the United States.” Id. at 248.  The Court held that the clause conferred federal question jurisdiction.  Id. at 257.

 

As the Fannie Mae sue-and-be-sued clause contains a specific reference to federal court, it too confers federal question jurisdiction

 

Accordingly, the Ninth Circuit affirmed the District Court’s ruling in favor of Fannie Mae.

 

 

 

 

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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