FYI: 9th Cir Rejects Claims of Escrow Errors Against Non-Servicer Assignee of Mortgage Loan, Confirms WA Allows Servicer to Be Separate from Loan Owner

The U.S. Court of Appeals for the Ninth Circuit recently affirmed a district court’s dismissal of a borrower’s claims for breach of contract and breach of fiduciary duty relating to alleged failures to properly disburse escrow amounts against a non-servicer assignee of a mortgage loan.

 

In so ruling, the Court confirmed that Washington does not bar splitting the loan servicing duties from the right to receive payment under the note.

 

A copy of the opinion is available at: http://cdn.ca9.uscourts.gov/datastore/opinions/2015/07/14/13-35596.pdf

 

The deed of trust between the borrower and the loan originator required the borrower to pay the hazard insurance premium in an escrow account, and the loan originator to make insurance payments when due. 

 

The deed of trust specifically provided, however, that the loan servicing obligations did not necessarily transfer to a subsequent purchaser of the loan.  The obligations could instead remain with the loan originator or transferred to a new loan servicer unless otherwise provided by the subsequent purchaser.

 

The loan originator continued to service a loan after selling it to the subsequent purchaser.  The loan originator then issued a batch of escrow disbursement checks for hazard insurance premiums to the hazard insurer, which bounced, the insurance was cancelled, and the loan originator filed for bankruptcy.

 

The borrower’s property later was destroyed by a fire, and the borrower was eventually paid insurance proceeds of $186,000 from the loan originator’s lender placed insurer, who charged higher insurance premiums than the original insurer selected by the borrower. 

 

As a result of the lender-placed insurance, the borrower’s monthly mortgage payments increased from $1,500 to $2,300 due to the increased insurance premiums, his living expenses increased because his property was destroyed, and he failed to make his monthly payments on the loan.  The insurance proceeds were therefore given to the new loan servicer as a final satisfaction of the loan debt.

 

Thereafter, the borrower filed suit against the assignee and purchaser of the loan, alleging breach of contract and breach of fiduciary duty and other related claims.  The case was removed to federal district court and dismissed, and the borrower appealed. 

 

On appeal, the Ninth Circuit first held the borrower’s breach of contract allegations were contradicted by the deed of trust, which provided that the subsequent purchaser did not necessarily assume the loan servicing obligations.  Accordingly, under the terms of the deed of trust, the loan servicing obligations could remain -- and this case, did remain -- with the loan originator. 

 

The Appellate Court distinguished the borrower’s reliance on Paullus v. Fowler, 367 P.2d 130, 135 (Wash. 1961), and the general rule that an assignee of a contract stands in the shoes of his assignor.  Rather, “an assignee in an executory contract is not liable on the underlying obligations absent an express assumption of those obligations” under Washington law.  Lewis v. Boehm, 947 P. 2d 1265, 1270 (Wash. Ct. App. 1997).

 

In addition, the borrower relied on Bain v. Metropolitan Mortgage Group, Inc., 285 P. 3d 34, 41-42 (Wash. 2012), for the proposition that Washington bars splitting the loan servicing duties from the right to receive the payments on the note.

 

The Ninth Circuit disagreed, holding that Bain did not bar splitting the loan servicing duties from the right to receive payment under the note.  On the contrary, the Appellate Court noted, Washington law did not prohibit an arrangement whereby the loan obligations would remain with the loan originator, and this arrangement was typical of such home loans obtained by the subsequent purchaser, as discussed in Am. Bankers Mortg. Corp. v. Fed. Home Loan Mortg. Corp., 75 F. 3d 1401, 1404 (9th Cir. 1996). 

 

The Ninth Circuit further held that the fiduciary duty of an escrowee to pay the insurance premiums held in escrow likewise remained with the loan originator. 

 

Accordingly, the Appellate Court affirmed dismissal of the borrower’s claims for breach of contract and breach of fiduciary duty. 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher 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: 11th Cir Provides Contours to Determination of Whether Communications Are Subject to FDCPA

The U.S. Court of Appeals for the Eleventh Circuit recently affirmed the dismissal of a borrower’s allegations under the federal Fair Debt Collection Practices Act (“FDCPA”) and the Florida Consumer Collection Practices Act (“FCCPA”) as to one letter, the purpose of which was to request additional information, but reversed as to two other letters, holding that they were sent in connection with the collection of a debt. 

 

A copy of the opinion is available at: http://media.ca11.uscourts.gov/opinions/unpub/files/201413900.pdf

 

The plaintiff’s mortgage loan went into default and the law firm representing the lender sent the borrower three letters. Two weeks later, the borrower sued the law firm under the federal Fair Debt Collection Practices Act (“FDCPA”) and the Florida Consumer Collection Practices Act (“FCCPA”).

 

The district court dismissed plaintiff’s allegations, because it found that the “animating purpose” of the letters was to respond to plaintiff’s requests, not to demand payment in an attempt to collect a debt, and thus, neither the FDCPA nor the FCCPA applied.

 

The borrower appealed the dismissal, arguing that the letters on their face said they were sent for the purpose of collecting a debt, and failed to contain certain required disclosures.

 

The Eleventh Circuit began its analysis by pointing out that the FDCPA prohibits debt collectors from using “any false, deceptive, or misleading representation or means in connection with the collection of any debt.” In its initial communication, a debt collector must disclose that “it is attempting to collect a debt and that any information obtained will be used for the purpose” and, in later communications, must disclose that it is a debt collector. Although the FDCPA does not define “initial communication,” it does define “communication” as “the conveying of information regarding a debt directly or indirectly to any person through any medium.”

 

Relying on its decision in Caceres v. McCalla Raymer, LLC, 755 F. 3d 1299, 1302 (11th Cir. 2013), the Eleventh Circuit noted that, when determining whether a communication is “is in connection with the collection of any debt,” and thus subject to the FDCPA and FCCPA, courts look to the language of the letter at issue for statements that demand payment, warn that additional fees will accrue if payment is not made, or state that the sender is attempting to collect a debt.

 

However, the Court also noted that a communication can have more than one purpose, such as providing information to a debtor, while also attempting to collect a debt.  In addition, the Court noted that a demand for payment does not need to be express, but can be implied when the letter states the amount owed, describes payment options and where the debt can be paid, and expressly states that the purpose of the letter is to collect a debt.

 

The Eleventh Circuit concluded that the first letter was not sent in connection with the collection of debt, but instead merely responded to the debtor’s request for validation of the debt and requested completion of a missing form.  Because the first letter did not mention the amount owed, implicitly or explicitly demand payment, or discuss the repercussions of non-payment, the Court held it was not an attempt to collect a debt. Thus, the Court affirmed the district court’s dismissal with prejudice as to the first letter.

 

The Court, however, concluded that the other two letters were attempts to collect a debt, because each contained an implicit demand for payment, stated the amount of the debt, and described how and where payment could be made.

 

Also, one of the other two letters stated that fees and costs would continue to accrue until the default was cured, and the other stated that the debt would continue to increase if the borrower did not reinstate the loan. Finally, both letters expressly stated that they were sent in an attempt to collect a debt.

 

Because the two letters were communications sent in connection with the collection of a debt, the Eleventh Circuit held that as to these letters, the district court erroneously dismissed the borrower’s FDCPA and FCCPA allegations.

 

Accordingly, the district court’s order dismissing the borrower’s allegations was affirmed as to the first letter, but reversed as to the other two letters, and the case remanded for further proceedings.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

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FYI: 4th Cir Holds Written Notice Not Required for Violation of Automatic Stay, Fed Dist Ct Had Jurisdiction to Hear Claim for Stay Violation

The U.S. Court of Appeals for the Fourth Circuit recently reversed the dismissal of a Chapter 13 bankruptcy debtor’s complaint filed in federal district court alleging that defendants foreclosed on and sold the debtor’s home in violation of the automatic stay, holding that the federal district court had subject matter jurisdiction and the complaint adequately stated a plausible claim for relief under 11 U.S.C. § 362(k).

 

In so ruling, the Court held that 11 U.S.C. § 362(k), which created a private right of action for damages for willful violation of the stay, may be filed in federal district court because such a claim is a cause of action arising under Title 11 of the United States Code.

 

In addition, the Court held that § 362(k) does not require any particular form of notice, and the debtor’s mere allegation of actual notice of the pending bankruptcy was enough to meet the willfulness requirement and survive a motion to dismiss.

 

A copy of the opinion is available at: http://www.ca4.uscourts.gov/Opinions/Published/132326.P.pdf

 

The debtor’s father conveyed to her part of the family farm. The debtor took out a loan and placed a mobile home on her part of the farm.

 

Some years later, the debtor refinanced the loan in order to remodel the family farmhouse, but lost her job less than one year later. She asked for a loan modification, but was denied because of her unemployment.

 

The mortgagee’s law firm commenced foreclosure proceedings, and in response the debtor filed a petition under Chapter 13 of the U.S. Bankruptcy Code. However, the bankruptcy case was dismissed a few weeks later because the debtor failed to file the required schedules and other papers required by the bankruptcy rules.

 

Less than 6 months later, the debtor filed a second Chapter 13 case in an attempt to stop the foreclosure proceedings. That same day, the debtor’s husband gave oral notice of the bankruptcy filing through phone calls to the mortgagee and its lawyers.

 

Two days after she filed the second case, the bankruptcy court ordered the debtor to show cause why the petition should not be dismissed. Two days after this order, the mortgagee sold the farm at a foreclosure sale, and the following day the bankruptcy court dismissed the second case.

 

The debtor sued the mortgagee, its foreclosure firm, and the loan servicer in federal district court for allegedly violating the automatic stay under 11 U.S.C. § 362(k) and also asserted various state law claims.

 

The servicer moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6) because the debtor failed to allege that the servicer had any knowledge of the second bankruptcy case when the foreclosure sale took place and, thus, any violation was not willful or deliberate. The district court granted the servicer’s motion, and dismissed the federal and related state law claims. The debtor appealed the order of dismissal. 

 

The remaining defendants moved to dismiss and for summary judgment. One of the motions argued that the district court lacked subject matter jurisdiction over the debtor’s § 362(k) claim because that section provided a private right of action that could only be enforced by the bankruptcy court. The district court agreed and dismissed the complaint against the remaining defendants.

 

The Fourth Circuit then dismissed, sua sponte, the debtor’s appeal from the first order of dismissal because it was an interlocutory or non-final order.  The debtor moved for reconsideration of the second order of dismissal, which was denied by the district court.

 

The debtor then filed an unopposed motion for clarification in the Fourth Circuit because on the one hand, the district court found that the second order of dismissal was final, but, on the other hand, the Fourth Circuit had just recently dismissed the debtor’s appeal on the basis that the first order of dismissal was not a final order. The Fourth Circuit recalled its mandate, reopening the debtor’s appeal for rehearing on the merits.

 

In the re-opened appeal, the Fourth Circuit first addressed whether it had jurisdiction to hear the case, concluding that the trial court’s second order of dismissal was a final judgment, because an order dismissing a claim for lack of subject matter jurisdiction necessarily dismisses the claim as to all defendants and, thus the second order of dismissal disposed of the entire case.

 

The Appellate Court reasoned that, because the district court could have certified its first order of dismissal as a final judgment for purposes of appeal under Rule 54(b) and the district court entered the second order of dismissal as to the remaining defendants before the Court of Appeals considered the debtor’s appeal from the first and non-final interlocutory order of dismissal, it had jurisdiction to hear the case.

 

The Fourth Circuit then turned to address whether the district court erred by ruling that it lacked subject matter jurisdiction to adjudicate the debtor’s § 362(k) claim.

 

It began its analysis by pointing out that prior to 1984, no private right of action for damages existed for violating the automatic stay contained in 11 U.S.C. § 362(a). However, in 1984 Congress added 11 U.S.C. § 362(k), which created a private right of action for damages for willful violation of the stay. Congress did not, however clarify which courts have jurisdiction over a § 362(k) claim.

 

After reviewing the relevant provisions of the 1984 amendments, the Fourth Circuit concluded that district courts have original, but not exclusive jurisdiction over a claim for willful violation of the automatic stay under § 362(k) because such a claim is a cause of action arising under Title 11 of the United States Code.

 

Even though under 11 U.S.C. § 157(a), the district court can refer a § 362(k) claim to the bankruptcy court for recommended findings of fact and conclusions of law or to adjudicate the claim to final judgment, the Fourth Circuit held this does not deprive the district court of jurisdiction.

 

The Appellate Court reasoned that § 157 is not jurisdictional in nature but is instead a “procedural mechanism” authorizing a bankruptcy court “(1) to hear constitutionally core claims to final judgment, subject to appeal in the district court, and (2) to recommend findings of fact and conclusions of law to the district court in constitutionally no-core matter for de novo review and final judgment by the district court.”

 

The Fourth Circuit rejected the argument that the district court’s procedural standing order of referral of “all bankruptcy matters” to the bankruptcy court deprived the district court of subject matter jurisdiction because the district court at all times retained original jurisdiction over any bankruptcy matter, core and non-core.

 

In addition, the Appellate Court held that, because none of the parties objected to the district court’s failure to refer the case to the bankruptcy court, they waived the argument that only the bankruptcy court could hear the case.

 

Turning to the merits, the debtor argued that the district court erred by dismissing her § 362(k) claim against the servicer because it applied the wrong legal standard when it concluded that the complaint failed to allege sufficient facts to state a plausible claim for relief.

 

The Fourth Circuit agreed that the district court applied the wrong legal standard by finding that  if, after accepting the complaint’s well-pleaded allegations as true, “a lawful alternative explanation appears a more likely cause of the complained of behavior, the claim for relief is not plausible.”

 

The Appellate Court pointed out that a motion under Rule 12(b)(6) challenges the legal sufficiency of a complaint, which “is determined by assessing whether the complaint contains sufficient facts, when accepted as true, to state a claim to relief that is plausible on its face,” and “[t]his plausibility standard requires only that the complaint’s factual allegations be enough to raise a right to relief above the speculative level.” A plaintiff does not have to show “that her right to relief is probable or that alternative explanations are less likely; rather, she must merely advance her claim across the line from conceivable to plausible.” If the explanation is plausible, the complaint states a claim, “regardless of whether there is a more plausible alternative explanation.”

 

Turning to the complaint, the Fourth Circuit concluded that the complaint contained sufficient factual allegations to show that the servicer had notice of the debtor’s second bankruptcy petition and that she sustained injury as a result of the violation.

 

The Appellate Court rejected the servicer’s argument that, because the complaint failed to allege that the debtor provided it with written notice of the second bankruptcy petition, it could not have willfully violated the automatic stay.

 

The Fourth Circuit held that § 362(k) does not require any particular form of notice and instead creates liability for a willful violation of the automatic stay. The Appellate Court held that the complaint alleged that the servicer had actual notice of the second bankruptcy petition when the home was sold, and therefore it sufficiently alleged the element of willfulness and stated a plausible claim for relief under § 362(k).

 

Finally, the Appellate Court rejected the servicer’s argument that the filing of the second bankruptcy petition less than 180 days after her first petition was dismissed did not trigger the automatic stay because the debtor was not an “eligible debtor.” 

 

Although the Fourth Circuit agreed that certain filings, like a Chapter 13 petition, do not operate as a stay “of any act to enforce any lien against or security interest in real property … if the debtor is ineligible under 11 U.S.C. § 109(g) to be a debtor in a case under Title 11,” there was no showing that the debtor willfully failed to comply with the bankruptcy court’s orders or to appear before the court to prosecute the case properly.

 

Instead, the Appellate Court noted that the record showed that the first bankruptcy case was dismissed for failure to file certain schedules or other documents, with no mention that the failure was willful or knowing and deliberate. In addition, the Appellate Court also noted that the bankruptcy court did not dismiss the debtor’s first bankruptcy case for 180 days with prejudice, which bankruptcy courts frequently do when imposing the filing ban authorized by § 109(g). Likewise, the second bankruptcy petition was dismissed because the debtor failed to satisfy § 109(h)(1)’s credit counseling requirement, not because she was not an eligible debtor under 109(g)(1).

 

Thus, because the issue of whether the debtor was “eligible” when she filed the second petition is a fact-intensive inquiry, and no evidence was presented on this question, the Fourth Circuit rejected the servicer’s alternative basis for dismissal.

 

Because the district court’s dismissal of the state law claims was based on its ruling that the complaint failed to state a claim under § 362(k), which the Court of Appeals reversed, the Court vacated the dismissal of the state law claims as well.

 

The judgment of the district court was vacated, the district court’s dismissal of debtor’s § 362(k) claim against the servicer was reversed, and the case remanded for further proceedings. 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 493-0874
Fax: (312) 284-4751
Email: rwutscher@mauricewutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: MD Court of Special Appeals Holds FDCPA Claims Barred by Collateral Estoppel, But Not by Res Judicata

The Maryland Court of Special Appeals recently held that a borrower could not maintain a lawsuit asserting federal Fair Debt Collection Practices Act (“FDCPA”) and other related state-law claims because those claims were barred by collateral estoppel due to litigation in a prior collection action.

 

In so ruling, the Court held that the doctrine of res judicata did not necessarily bar the borrower from narrowly attacking the means used to collect the debt under the FDCPA and state law, rather than attacking the validity of the debt itself, because the FDCPA and related state-law allegations gave rise to new and different claims. 

  

A copy of the opinion is available at: http://www.mdcourts.gov/opinions/cosa/2015/1084s14.pdf

 

At issue in this case were two separate, but related lawsuits: a collection action filed by a debt collector, and a subsequent lawsuit by the borrower attacking the judgment in the first action.   In 2012, a debt collector filed a collection action against the borrower in small claims court in the District Court of Maryland for Montgomery County.   In response, the borrower raised two defenses: (1) that the debt collector did not own the debt; and (2) that the debt collector did not have standing to sue.  Following a hearing, the District Court entered judgment in favor of the debt collector.  The borrower appealed.

 

On appeal to the Circuit Court for Montgomery County, the case was heard de novo.  Again, the borrower challenged the debt collector’s ownership of the debt and standing.  The debt collector presented voluminous documentary evidence documenting the debt and chain of ownership, and even cross-examined the borrower (who presented no evidence of his own). Ultimately, the Circuit Court held that the borrower’s testimony was not credible, and entered judgment in favor of the debt collector.

 

The borrower then moved to set aside that judgment.  That motion was later denied and the judgment became final in 2014 (the borrower never appealed this judgment).  However, before filing the motion to set aside that judgment, he also filed a second law suit against the debt collector and its attorneys.

 

In the second lawsuit, the borrower alleged that in collecting the debt and filing suit in the collection action, the debt collector and its attorneys violated the FDCPA, the Maryland Consumer Debt Collection Act (“MCDCA”) and the Maryland Consumer Protection Act (“MCPA”).  Again, he alleged lack of standing and that the debt collector did not own the debt.  Additionally, he alleged that the amount of the debt alleged in the collection action was false, and argued that the judgment in the collection action was “void” because he did not have an opportunity to cross-examine witnesses. 

 

The defendant debt collectors moved to dismiss on res judicata and collateral estoppel grounds, and the Circuit Court granted that motion and dismissed the borrower’s Second Amended Complaint with prejudice.  The borrower appealed.

 

On appeal, the Maryland Court of Special Appeals held that while not all of the borrower’s claims were barred by res judicata, they were all plainly barred by collateral estoppel. 

 

For the purposes of this case, the Appellate Court simplified the distinction between these two doctrines.  It held that “[i]n sum, claim preclusion [res judicata] bars litigation of claims, whereas issue preclusion [collateral estoppel] generally bars re-litigation of facts.”

 

The Appellate Court held that the borrower’s attempt to assert lack of standing and lack of ownership of the debt arguments were barred by res judicata/claim preclusion.  It held that the borrower had a fair opportunity to litigate those claims before and lost in District Court and Circuit Court.  Accordingly, the Court of Special Appeals held that the borrower could not have another “bite at the apple” in this second lawsuit, and affirmed the dismissal of those claims.

 

However, the Court of Special Appeals held that res judicata did not apply to the borrower’s FDCPA and related state-law claims.  The Court held that, although res judicata barred the borrower from attacking the finality of the judgment in the collection action, it did not necessarily bar him from narrowly attacking the means used to collect the debt, rather than the validity of the debt itself, because those were different claims.  The Appellate Court assumed for the sake of argument that the borrower only meant to assert his FDCPA and related claims in this very narrow manner.

 

Nevertheless, the Appellate Court held that, even under this assumption the FDCPA and related state-law claims were still barred under collateral estoppel. 

 

The Appellate Court held that the alleged “facts” that formed the basis for those claims were the same facts already litigated and issues already decided in the first case.  It held that while those claims were “asserted for the first time at trial in this case…[they] are all predicated on allegations decided against [the borrower] in the collection case.” 

 

Accordingly, the Court of Special Appeals held that all of those issues were precluded from being litigated again under collateral estoppel, and affirmed the Circuit Court’s dismissal with prejudice of the FDCPA and related state-law claims.

 

 

Ralph T. Wutscher
Maurice Wutscher 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

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FYI: FCC Issues Significant TCPA Interpretation Changes Affecting Telemarketing and Servicing

As referenced in our prior update below, the Federal Communications Commission (“FCC”) recently issued its Declaratory Ruling and Order FCC 15-72 (“Order”) addressing more than 20 requests for clarification or other action relating to various issues under the TCPA.

 

One of the dissenting Commissioners (Ajit Pai) noted that, “[r]ather than focus on the illegal telemarketing calls that consumers really care about, the Order twists the law’s words even further to target useful communications between legitimate businesses and their customers.  This Order will make abuse of the TCPA much, much easier. And the primary beneficiaries will be trial lawyers, not the American public.”

 

A copy of the Order is available at:

 

https://www.fcc.gov/document/tcpa-omnibus-declaratory-ruling-and-order

 

Among other things, the FCC’s Order provides that:

 

 

1.  “Callers cannot avoid obtaining consumer consent for a robocall simply because they are not ‘currently’ or ‘presently’ dialing random or sequential phone numbers.”

 

The FCC re-states its position that:  (1) “dialing equipment generally has the capacity to store or produce, and dial random or sequential numbers (and thus meets the TCPA’s definition of ‘autodialer’) even if it is not presently used for that purpose, including when the caller is calling a set list of consumers;  (2) “predictive dialers, as previously described by the Commission, satisfy the TCPA’s definition of ‘autodialer’ for the same reason;” and  (3) “callers cannot avoid obtaining consent by dividing ownership of pieces of dialing equipment that work in concert among multiple entities.”

 

The FCC states that “the capacity of an autodialer is not limited to its current configuration but also includes its potential functionalities,” and “even when the equipment presently

lacked the necessary software, it nevertheless had the requisite capacity to be an autodialer.”

 

Even though this “broad interpretation of ‘capacity’ could potentially sweep in smartphones because they may have the capacity to store telephone numbers to be called and to dial such numbers through the use of an app or other software,” the FCC stated “there is no evidence in the record that individual consumers have been sued based on typical use of smartphone technology. Nor have these commenters offered any scenarios under which unwanted calls are likely to result from consumers’ typical use of smartphones. We have no evidence that friends, relatives, and companies with which consumers do business find those calls unwanted and take legal action against the calling consumer. We will continue to monitor our consumer complaints and other feedback, as well as private litigation, regarding atypical uses of smartphones, and provide additional clarification if necessary.”

 

The FCC declined the “address the exact contours of the ‘autodialer’ definition or seek to determine comprehensively each type of equipment that falls within that definition that would be administrable industry-wide.” 

 

Instead, the FCC reiterated that the “prohibitions of [section] 227(b)(1) clearly do not apply to functions like ‘speed dialing,” that the “basic functions of an autodialer are to ‘dial numbers without human intervention’ and to ‘dial thousands of numbers in a short period of time.’”

 

However, “[h]ow the human intervention element applies to a particular piece of equipment is specific to each individual piece of equipment, based on how the equipment functions and depends on human intervention, and is therefore a case-by-case determination.”

 

Nevertheless, according to the FCC, “[t]here must be more than a theoretical potential that the equipment could be modified to satisfy the ‘autodialer’ definition. Thus, for example, it might be theoretically possible to modify a rotary-dial phone to such an extreme that it would satisfy the definition of ‘autodialer,’ but such a possibility is too attenuated for us to find that a rotary-dial phone has the requisite ‘capacity’ and therefore is an autodialer.”

 

 

2.  A called party “may revoke consent at any time and through any reasonable means.”

 

The FCC states that “a called party may revoke consent at any time and through any reasonable means. A caller may not limit the manner in which revocation may occur.”

 

The FCC also emphasized that “regardless of the means by which a caller obtains consent, under longstanding [FCC] precedent, if any question arises as to whether prior express consent was provided by a call recipient, the burden is on the caller to prove that it obtained the necessary prior express consent.”

 

 

3.  Consent must be specific to the type of call, and type of telephone service of the number being dialed.

 

The FCC clarified “that porting a telephone number from wireline service to wireless service does not revoke prior express consent.  Stated another way, if a caller obtains prior express consent to make a certain type of call to a residential number and that consent satisfies all of the requirements for prior express consent for the same type of call to a wireless number, the caller can continue to rely on that consent after the number is ported to wireless.”

 

“Until such revocation occurs, the caller may reasonably rely on the valid consent previously given and take the consumer at his word that he wishes for the caller to contact him at the number he provided when the caller obtained the consent.”

 

However, the FCC stressed that its Order “in no way relieves a caller of the obligation to comply with the prior express consent requirements applicable to calls to wireless numbers.”

 

Thus, “if a caller did not obtain prior express consent for a type of call to the number when it was residential because no prior express consent was required, but prior express consent is required for that type of call to a wireless number, the caller would have to obtain the consumer’s prior express consent to make such calls after the number is ported

to wireless.”

 

 

4.  Only “the consumer assigned the telephone number dialed and billed for the call” or “the non-subscriber customary user of a telephone number included in a family or business calling plan” may consent.

 

The FCC states that the “called party” under the TCPA is “the subscriber, i.e., the consumer assigned the telephone number dialed and billed for the call, or the non-subscriber customary user of a telephone number included in a family or business calling plan. Both such individuals can give prior express consent to be called at that number.”

 

However, “providing one’s phone number evidences prior express consent to be called at that number, absent instructions to the contrary.”

 

 

5.  “Callers are liable for robocalls to reassigned wireless numbers when the current subscriber to or customary user of the number has not consented, subject to a limited, one-call exception for cases in which the caller does not have actual or constructive knowledge of the reassignment.”

 

The FCC states that “the TCPA requires the consent not of the intended recipient of a call, but of the current subscriber (or non-subscriber customary user of the phone) and that caller best practices can facilitate detection of reassignments before calls.”

 

In addition, “[c]allers who make calls without knowledge of reassignment and with a reasonable basis to believe that they have valid consent to make the call should be able to initiate one call after reassignment as an additional opportunity to gain actual or constructive knowledge of the reassignment and cease future calls to the new subscriber.  If this one

additional call does not yield actual knowledge of reassignment, we deem the caller to have constructive knowledge of such.”

 

However, “the caller is liable for any calls thereafter.”

 

The FCC specifically declined to “add an affirmative, bad-faith defense that vitiates liability upon a showing that the called party purposefully and unreasonably waited to notify the calling party of the reassignment in order to accrue statutory penalties.”

 

In addition, “[t]he caller, and not the called party, bears the burden of demonstrating: (1) that he had a reasonable to basis to believe he had consent to make the call, and (2) that he did not have actual or constructive knowledge of reassignment prior to or at the time of this one-additional-call window we recognize as an opportunity for callers to discover reassignment.”

 

 

6.  The FCC rejected one Petitioner’s arguments (subsequently withdrawn) that “the TCPA’s protections are limited to telemarketing calls to wireless numbers and should not require consent for non-telemarketing robocalls made with a predictive dialer.”

 

 

7.  “The TCPA’s consent requirement applies to short message service text messages (“SMS” or “text message”),” as well as “internet to phone text messages,” in addition to voice calls.

 

 

8.  The FCC’s 2012 “prior express written consent” rule is waived “for certain parties for a limited period of time to allow them to obtain updated consent.”

 

Several petitioners sought “relief from or clarification of the prior-express-written-consent rule that became effective October 16, 2013,” which “requires prior express written consent for

telemarketing calls; to get such consent, telemarketers must tell consumers the telemarketing will be done with autodialer equipment and that consent is not a condition of purchase.”

 

The FCC granted these petitions “(including their members as of the release date of this Declaratory Ruling) a retroactive waiver from October 16, 2013, to release of this Declaratory

Ruling, and then a waiver from the release of the Declaratory Ruling through a period of 89 days following release of this Declaratory Ruling to allow Petitioners to rely on the ‘old’ prior express written consents already provided by their consumers before October 16, 2013 (the effective date of new requirement).”

 

The FCC clarified that “the ‘old’ written express consents provided by consumers before October 16, 2013, remain effective for a period of 89 days following release of this Declaratory Ruling. Petitioners must come into full compliance within 90 days after release of this Declaratory Ruling for each subject call, which [the FCC] believes is a reasonable amount of time for Petitioners to obtain the prior express written consent required by the current rule.”

 

 

9.  “’[O]n demand’ text messages sent in response to a consumer request are not subject to TCPA liability.”

 

The FCC states that “a one-time text sent in response to a consumer’s request for information does not violate the TCPA or the Commission’s rules so long as it: (1) is requested by the consumer; (2) is a one-time only message sent immediately in response to a specific consumer request; and (3) contains only the information requested by the consumer with no other marketing or advertising information.”

 

The FCC emphasized that “this ruling applies only when the on-demand text message has been expressly requested by the consumer in the first instance.”

 

 

10.  “[C]ertain free, pro-consumer financial- and healthcare-related messages” are exempt “from the consumer-consent requirement, subject to strict conditions and limitations to protect consumer privacy.”

 

More specifically, the FCC exempted calls and texts concerning “(1) “transactions and events that suggest a risk of fraud or identity theft; (2) possible breaches of the security of customers’ personal information; (3) steps consumers can take to prevent or remedy harm caused by data security breaches; and (4) actions needed to arrange for receipt of pending money transfers.”

 

The FCC imposed the following restrictions and requirements regarding these messages:

 

“1) voice calls and text messages must be sent, if at all, only to the wireless telephone number provided by the customer of the financial institution;

2) voice calls and text messages must state the name and contact information of the financial institution (for voice calls, these disclosures must be made at the beginning of the call);

3) voice calls and text messages are strictly limited to the [specified purposes] and must not include any telemarketing, cross-marketing, solicitation, debt collection, or advertising content;

4) voice calls and text messages must be concise, generally one minute or less in length for voice calls (unless more time is needed to obtain customer responses or answer customer questions) and 160 characters or less in length for text messages;

5) a financial institution may initiate no more than three messages (whether by voice call or text message) per event over a three-day period for an affected account;

6) a financial institution must offer recipients within each message an easy means to opt out of future such messages, voice calls that could be answered by a live person must include an automated, interactive voice- and/or key press-activated opt-out mechanism that enables the call recipient to make an opt-out request prior to terminating the call, voice calls that could be answered by an answering machine or voice mail service must include a toll-free number that the consumer can call to opt out of future calls, text messages must inform recipients of the ability to opt out by replying ‘STOP,’ which will be the exclusive means by which consumers may opt out of such messages; and,

7) a financial institution must honor opt-out requests immediately.”

 

In addition, the exemption only applies “only if they are not charged to the recipient, including not being counted against any plan limits that apply to the recipient (e.g., number of voice minutes, number of text messages).”

 

As to healthcare related messages, the FCC stated that “provision of a phone number to a healthcare provider constitutes prior express consent for healthcare calls subject to HIPAA by a HIPAA-covered entity and business associates acting on its behalf, as defined by HIPAA, if the covered entities and business associates are making calls within the scope of the consent given, and absent instructions to the contrary.”

 

In the situation “where a party is unable to consent because of medical incapacity, prior express consent to make healthcare calls subject to HIPAA may be obtained from a third party—much as a third party may consent to medical treatment on an incapacitated party’s behalf. A caller may make healthcare  calls subject to HIPAA during that period of incapacity, based on the third party’s prior express consent. Likewise, just as a third party’s ability to consent to medical treatment on behalf of another ends at the time the patient is capable of consenting on his own behalf, the prior express consent provided by the third party is no longer valid once the period of incapacity ends.  A caller seeking to make healthcare calls subject to HIPAA to a patient who is no longer incapacitated must obtain the prior express consent of the called party.”

 

The FCC also adopted the following conditions for each exempted message made by or on behalf of a healthcare provider:

1) voice calls and text messages must be sent, if at all, only to the wireless telephone number provided by the patient;

2) voice calls and text messages must state the name and contact information of the healthcare provider (for voice calls, these disclosures would need to be made at the beginning of the call);

3) voice calls and text messages are strictly limited to [certain specific healthcare-related purposes]; must not include any telemarketing, solicitation, or advertising; may not include accounting, billing, debt-collection, or other financial content; and must comply with HIPAA privacy rules ;

4) voice calls and text messages must be concise, generally one minute or less in length for voice calls and 160 characters or less in length for text messages;

5) a healthcare provider may initiate only one message (whether by voice call or text message) per day, up to a maximum of three voice calls or text messages combined per week from a

specific healthcare provider;

6) a healthcare provider must offer recipients within each message an easy means to opt out of future such messages, voice calls that could be answered by a live person must include an automated, interactive voice- and/or key press-activated opt-out mechanism that enables the call recipient to make an opt-out request prior to terminating the call, voice calls that could be answered by an answering machine or voice mail service must include a toll-free number that the consumer can call to opt out of future healthcare calls, text messages must inform recipients of the ability to opt out by replying ‘STOP,’ which will be the exclusive means by which consumers may opt out of such messages; and,

7) a healthcare provider must honor the opt-out requests immediately.”

 

In addition, the exemption only applies “only if they are not charged to the recipient, including not being counted against any plan limits that apply to the recipient (e.g., number of voice minutes, number of text messages).”

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

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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From: Ralph T. Wutscher <rwutscher@mauricewutscher.com>
Date: Sun, May 31, 2015 at 8:33 AM
Subject: FYI: FCC Proposes Significant TCPA Interpretation Changes Affecting Telemarketing and Servicing
To: "Ralph T. Wutscher" <rwutscher@mauricewutscher.com>
Cc: Florida Office, Chicago Office, San Francisco Office, San Diego Office, New York Office, New Jersey Office, Philadelphia Office, Ohio Office, Indiana Office, DC Office

The Federal Communications Commission announced a fact sheet proposal by Chairman Tom Wheeler to respond to some two dozen pending petitions regarding various aspects of the federal Telephone Consumer Protection Act (“TCPA”). 

 

The FCC states that the proposed actions would be “one of the most significant FCC consumer protection actions since it established the Do-Not-Call Registry with the FTC in 2003.”

 

The Commission will vote on the proposal at its Open Meeting on June 18, 2015.

 

A copy of the fact sheet is available at:  http://transition.fcc.gov/Daily_Releases/Daily_Business/2015/db0527/DOC-333676A1.pdf

 

According to the fact sheet, and among other things, the following issues would be addressed in the proposed actions:

 

 

1.  Revocation of Consent:

 

The FCC Chairman states “[c]onsumers would have the right to revoke their consent to receive robocalls and robotexts in any reasonable way at any time.”  This would affect calls to landline home service, and to wireless/cell numbers.

 

2.  “Do Not Disturb” or “Call Blocking” Technology

 

The FCC Chairman states “[c]arriers could offer robocall-blocking technologies to consumers. It would give the go-ahead for carriers to implement market-based solutions that consumers could use to stop unwanted robocalls.”  This would affect calls to landline home service, and to wireless/cell numbers.

 

3.  Calls to Re-Assigned Numbers, the “One Free Pass” Rule.

 

The FCC Chairman proposes to make clear that “[c]onsumers who inherit a phone number would not be subject to a barrage of unwanted robocalls to which a previous subscriber of the number consented. If a phone number has been reassigned, callers must stop calling the number after one call.”  This would affect calls to landline home service, and to wireless/cell numbers.

 

4.  Definition of “Automatic Telephone Dialing System”

 

The FCC Chairman proposes to double-down on the FCC’s position that “[a]n ‘autodialer’ is any technology with the capacity to dial random or sequential numbers. The rulings would ensure robocallers cannot skirt consumer consent requirements through changes in calling technology design or by calling from a list of numbers.”  This would affect calls to wireless/cell numbers.

 

5.  Limited Exceptions for Urgent Circumstances

 

The FCC Chairman proposes to allow “[f]ree calls or texts to, for example, alert consumers to possible fraud on their bank accounts or remind them of important medication refills would be allowed. The proposal is very clear about what such messages can be and what they cannot be (i.e., no marketing or debt collection). In addition, consumers would have the ability to opt out of even these permitted calls and texts.”  This would affect calls to wireless/cell numbers.

 

 

 

Ralph T. Wutscher
Maurice Wutscher 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@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

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:

Financial Services Legal Developments

 

and

 

The Consumer Financial Services Blog™

 

and

 

California Finance Law Developments

 

and

 

Insurance Recovery