FYI: SD NY Dismisses TCPA Class Action, Holding No Direct or Vicarious Liability Adequately Pled

The U.S. District Court for the Southern District of New York recently dismissed a putative class action alleging violations of the federal Telephone Consumer Protection Act ("TCPA") against a marketing company that conducted a mass text message advertising campaign on behalf of a national retail clothing store.

 

In so ruling, the Court held that:  (1) the plaintiffs failed to adequately plead that the marketing company is directly liable under the TCPA as the party who "made" the subject text messages; and  (2) the plaintiffs failed to adequately plead any agency relationship between the marketing company and the company that actually sent the subject text messages.

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

 

The plaintiffs' third amended complaint ("TAC") sought statutory damages and injunctive relief, alleging that the defendants – including the marketing company, and the retail clothing store – supposedly violated the TCPA by sending unsolicited or "spam" text messages using an automatic telephone dialing system ("ATDS") to consumers' cellular phones without their prior express consent.

 

The marketing company moved to dismiss the TAC for failure to state a claim upon which relief may be granted, arguing that even accepting the TAC's factual allegations as true, the TAC failed to state a plausible claim for either direct or vicarious liability on the marketing company's part.

 

As you may recall, the TCPA makes it unlawful for anyone:  "(A) to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice — . . . (iii) to any telephone number assigned to a . . . cellular telephone service . . . or any service for which the called party is charged for the call."  See 47 U.S.C. § 227(b)(1)(A)(iii).

 

In opposition, the plaintiffs argued that the TAC stated a claim because the TCPA's implementing regulation, 47 C.F.R. § 64.1200(a)(2) prohibits any person from initiating, or causing to be initiated, any telephone call or text message that constitutes advertising or telemarketing without the prior express written consent of the called party.

 

The Court rejected this argument, reasoning that the TAC only contained allegations of violation of section 227(b)(1)(A)(iii) of the TCPA, which imposes liability for "making" a telephone call or text, not its implementing regulation, which does not define "make" and instead uses the words "initiate, or cause to be initiated."  Thus, the Court held, the plaintiffs put the language of the statute at issue in the TAC, not the language of the implementing regulation.

 

The Court explained that the other courts that have addressed the issue have "held that the verb 'make' imposes civil liability only on the party that places the call or text."

 

The plaintiffs did not allege in the TAC that the marketing company actually sent or placed the texts, but rather alleged in conclusory fashion that it "caused texts to be sent on behalf of [the retailer]," and the defendants were "responsible for sending the Spam Texts" to many people throughout the United States.

 

Parsing the language of the TAC, the Court concluded that "[t]he absence of an allegation of who actually 'made' or physical placed the text message is not lost on the Court. Plaintiffs' conclusory assertions that [the marketing company] sent or caused the text message to be sent is simply a legal conclusion devoid of further factual enhancement.  Because Plaintiffs do not plead that [the marketing company] 'made,' i.e., physically placed or actually sent, the text messages, the TAC fails to state a claim that is plausible on its face under section 227(b)(1)(A)(iii) of the TCPA."

 

Having determined that the TAC failed to state a claim for direct liability against the marketing company, the Court analyzed whether it stated a claim for vicarious liability under the TCPA.

 

The Court rejected the plaintiffs' argument that the TAC sufficiently alleged that a third party company whose "texting platform" actually sent the messages was the marketing company's agent, and the marketing company controlled the texting campaign.

 

The Court held that "[e]ven assuming that there is vicarious liability for a violation of section 227(b) of the TCPA, Plaintiffs fail to plead facts that [the third party texting platform provider] was the [marketing company's] agent."  The Court held it was not enough to allege in conclusory fashion that the marketing company controlled the third party with the texting platform. Instead, the Court held that the plaintiffs had to allege "some facts regarding the relationship between an alleged principal and agent (or an allege agent and sub-agent)."

 

The Court ruled that the plaintiffs' mere conclusory allegations that the third party texting company was the marketing company's agent or that the marketing company had the right to control the sending of the texts, without more, fail to plead an agency relationship -- between the marketing company and the texting company or any other entity -- sufficient to allege vicarious liability under section 227(b)(1)(A)(iii) of the TCPA.

 

Accordingly, the Court dismissed the plaintiffs' TCPA claims against the marketing company, and the marketing company's motion to strike the class allegations in the TAC was denied as moot.

 

 

 

 

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: 6th Cir Confirms Debt Collection or Foreclosure Not Compulsory Counterclaim in FDCPA Action

The U.S. Court of Appeals for the Sixth Circuit recently confirmed that a servicer and loan owner who did not bring a debt collection or foreclosure action as a counterclaim to a federal Fair Debt Collection Practices Act lawsuit did not waive their ability to collect on the debt in the future.

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

In August 2004, the borrowers ("Borrowers") obtained a loan and executed a note to purchase property.  The note was secured by a mortgage on the property.  Later that year, the loan was sold to an investor ("Investor").  The servicer ("Servicer") began servicing the loan in 2008.

In July 2011, Servicer brought a foreclosure action against Borrowers in state court.  Under Ohio Law, a party who seeks to foreclose on a mortgage must generally prove that "it is the current holder of the note and mortgage." See BAC Home Loan Servicing, L.P. v. Kolenich, 958 N.E.2d 194, 200 (Ohio Ct. App. 2011).  Although Investor was the holder of the note at the time the suit was filed, Servicer allegedly misrepresented that it was the holder and had standing to file the suit.

In 2011, Servicer filed a motion for summary judgment in the foreclosure action.  Borrowers filed a memorandum in opposition, arguing that Servicer had not shown that it was the holder of the note.  The state court denied Servicer's motion for summary judgment, and Servicer voluntarily dismissed the case.

Borrowers filed a complaint in federal court against Servicer and Investor alleging violations of the federal Fair Debt Collection Practices Act ("FDCPA")

. 

As you may recall, a successful FDCPA plaintiff must establish that a defendant is a "debt collector" as defined by the FDCPA.  Those "collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity … concerns a debt which was not in default at the time it was obtained by such person[s]" are excluded from the definition of a "debt collector" under the FDCPA.  15 U.S.C. § 1692a(6)(F)(iii).  Because the district court found that Investor and Servicer acquired their interests in the debt prior to the date Borrowers defaulted, the district court found that Investor and Servicer were not debt collectors.

Although Servicer and Investor prevailed in the FDCPA action, they did not bring a foreclosure action as a counterclaim.  Borrowers filed a new complaint requesting a declaration barring Servicer or Investor from bringing a future foreclosure action and to quiet title.  The district court held that neither entity was required to bring a foreclosure action as a compulsory counterclaim to the FDCPA action and granted their motion to dismiss both claims.

Borrowers appealed and argued that a debt collection (foreclosure) action was a compulsory counterclaim to their FDCPA lawsuit and, therefore, both Servicer and Investor waived their ability to foreclosure in the future through their failure to bring a foreclosure action as a counterclaim.

Rule 13(a) of the Federal Rules of Civil Procedure provides:

A pleading must state as a counterclaim any claim that – at the time of its service – the pleader has against the opposing party if the claim: (A) arises out of the transaction or occurrence that is the subject matter of the opposing party's claim; and (B) does not require adding another party over whom the court cannot acquire jurisdiction.

Fed. R. Civ. P. 13(a)(1).

In order to prove that a foreclosure action is a compulsory counterclaim to an FDCPA action, a borrower must first show that the two claims "arise" out of the same transaction or occurrence.  A court looks to whether there is "a logical relationship between the two claims[.]" See Maddox v. Ky. Fin. Co., 736 F.2d 380, 382 (6th Cir, 1984).  "Under this test, [a court] determines whether the issues of law and fact raised by the claims are largely the same and whether substantially the same evidence would support or refute both claim." See Sanders v. First Nat'l Bank & Trust Co. in Great Bend, 936 F.2d 273, 277 (6th Cir. 1991).  A partial overlap in issues of law and fact does not compel a finding that two claims are logically related.  See Peterson v. United Accounts, Inc. 628 F.2d 134, 1137 (8th Cir. 1981).

The Sixth Circuit noted that it had previously held that a counterclaim on the underlying debt in a Truth in Lending Act ("TILA") action is permissive rather than compulsory.  See Maddox, 736 F.2d at 383.  In so doing, the Sixth Circuit concluded:

While the claim and counterclaim do arise out of the same transaction within the literal terms of Rule 13(a), we do not believe that they are logically related in such a way as to make the counterclaim compulsory.  The claim and counterclaim will present entirely different legal, factual and evidentiary questions.  It is not clear that the interests of judicial economy and efficiency would be served in the least by requiring that the two claims be heard.

See id. at 383, construing Whigham v. Beneficial Finance Co. of Fayetteville, Inc., 599 F.2d 1322, 1323-24 (4th Cir. 1979) (concluding that debt collection and TILA claims raise "significantly different" issues of fact and law).

Next, the Court noted that while it had yet to address whether a counterclaim to collect the underlying debt is a compulsory in a FDCPA action, the Sixth Circuit noted that the framework in cases dealing with TILA supported a finding that Defendants were not required to bring a debt collection action as a counterclaim to Borrowers' FDCPA lawsuit.  See, e.g., Maddox, 736 F.2d at 380; Sanders, 936 F.2d at 273; Whigham, 599 F.2d at 1322.

First, the Sixth Circuit noted that the FDCPA claim raises different issues of law than a foreclosure action.  A foreclosure action alleges "that the borrower has defaulted on a private loan contract governed by state law." Whigham, 599 F2d at 1324.  Conversely, a FDCPA action requires interpretation of federal statutory law and regulations designed to "eliminate abusive debt collection practices by debt collectors." 15 U.S.C. § 1692(e).

Second, the Sixth Circuit concluded that the factual issues presented by a FDCPA claim and a foreclosure action are not largely the same.  Notably, the dispositive issue in the FDCPA action, the date in which the Defendants acquired their interest in the debt, was entirely irrelevant in a foreclosure action.  Further, the Sixth Circuit noted that while a foreclosure action requires a lender to prove that a debtor is in default and to prove the amount that a debtor owes, an FDCPA claim focuses on the "use of unfair methods to collect [a debt]." Peterson, 638 F.2d at 1136.

Finally, the Sixth Circuit noted that policy considerations supported finding that a counterclaim on the underlying debt in an FDCPA action is permissive rather than compulsory.  Such a rule could systematically usurp state law debt claims for adjudication by state courts.  See Maddox, 736 F.3d at 383.  Likewise, such a rule would require lenders to initiate foreclosure proceedings as a counterclaim when they otherwise may not have done so – frustrating the purposes of the FDCPA by creating a disincentive for debtors to sue.  See id. at 383 n.1.

Accordingly, the Sixth Circuit affirmed the district court's ruling granting Investor and Servicer's motion to dismiss.

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: 9th Cir Confirms TILA Section 1641(g) Does Not Apply Retroactively

The U.S. Court of Appeals for the Ninth Circuit recently held that a 2009 amendment to the federal Truth in Lending Act ("TILA"), codified at 15 U.S.C. § 1641(g), which contains disclosure requirements for the sale or transfer of a mortgage loan, does not apply retroactively.

 

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

 

The plaintiff homeowners ("Homeowners") brought a putative class action against two banks ("Banks") alleging violations of various federal and state laws and alleging claims arising out of the modification of the deed of trust for the plaintiffs' home ("Deed of Trust").  Among those claims, the Homeowners asserted that the Banks did not comply with the disclosure requirements of section 1641(g) when one of the Banks transferred the Deed of Trust to the other Bank in 2006.

 

As you may recall, TILA (at 15 U.S.C. 1641(g)) requires that "not later than 30 days after the day on which a mortgage loan is sold or otherwise transferred or assigned to a third party, the creditor that is the new owner or assignee of the debt" must notify the "borrower in writing of such transfer."  The disclosure must also include the date of transfer, contact information of the new loan owner, and other relevant information. 

 

Failure to comply with those requirements allows a borrower to sue to recover actual damages, a statutory penalty up to $4,000 on individual claims and up to $1 Million in a class action, plus fees and costs.  See 15 U.SC. § 1640(a).

 

However, Congress did not enact section 1641(g) until 2009.  Thus, the Homeowners argued that section 1641(g) purportedly applied retroactively. 

 

The Ninth Circuit disagreed and held that the section 1641(g) disclosure requirements did not apply retroactively because Congress did not express any clear intent for retroactive application.

 

The Court held that retroactive application of statutes is generally disfavored.  And, citing controlling U.S. Supreme Court precedent, the Ninth Circuit also held that the "presumption against retroactive legislation…can only be overcome where Congress expresses a clear and unambiguous intent to do so." 

 

As the Ninth Circuit further explained, the legal effect of a statute "should ordinarily be assessed under the law that existed when the conduct took place."  Thus, the Court held that if a new statutory provision, such as section 1641(g), would "impair rights a party possessed" when it previously acted, or otherwise "increase a party's liability for past conduct, or impose new duties with respect to transactions already completed," then courts may not apply a statute retroactively absent  a "clear congressional intent favoring such a result."

 

Applying these standards to the Homeowners claims, the Ninth Circuit examined the history of section 1641(g)'s enactment and the text of the statute itself. 

 

The Court held that retroactive application of § 1641(g) would plainly impair the Banks rights when they acted because, consistent with the law in 2006 (and the loan documents), the Banks "had a right to sell or transfer the loan without notice to the Borrower."  Also, the Ninth Circuit held that retroactive application of the law would increase the Banks' liability for damages because the 2009 amendment imposed new duties, a private right of action for failure to comply with those duties, statutory damages, and the ability for a borrower to recover attorneys' fees and costs.

 

Given the presence of these substantial factors weighing against retroactive application of section 1641(g), the Ninth Circuit examined whether there as any evidence in the statute itself or its legislative history showing that "Congress expressed a clear and unambiguous intent" that it apply retroactively. 

 

As the Court explained, when section 1641(g) was introduced in the U.S. Senate, the bill's sponsors stated that the TILA amendment was necessary because existing law only required notice to a borrower of a change in the servicer of their loan, and not a change in the owner of the loan. 

 

The Ninth Circuit found "no clear indication in Section 1641(g)'s text or in its legislative history that Congress intended for it to apply to loans that had been transferred before its enactment."  In addition, the Court noted that retroactive application of the statute would be absurd because if it were "given retroactive effect, the 30-day reporting period would have already lapsed for all loan transfers that occurred more than a month before enactment, and it would have been impossible for those creditors to comply with the reporting requirement." 

 

Thus, the Court held it was unlikely that Congress would have subjected creditors to such broad liability "without at least giving them a way to comply with section 1641(g) for loan transfers that predated its enactment." 

 

Accordingly, the Ninth Circuit held that section 1641(g) does not apply retroactively, and affirmed the lower court's ruling.

 

 

 

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

 

 

 

California   |   Florida   |   Illinois   |   Indiana   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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FYI: MD Fla Bankr Court Holds Mortgagee's Secured Claim Not Time-Barred

The U.S. Bankruptcy Court for the Middle District of Florida recently overruled a debtor's objection to a mortgagee's secured claim and denied the debtor's motion to determine secured status, holding that the issues should have been brought by adversary proceeding, and in any event neither Florida's statute of limitations nor its statute of repose barred enforcement of the note and mortgage.  A copy of the opinion is attached.

 

A mortgagee filed a mortgage foreclosure action in Florida state court in 2009. The complaint contained a paragraph accelerating the note. The mortgagee also recorded a notice of lis pendens in the public records.  The foreclosure action was dismissed without prejudice at trial in 2013.

 

The borrower filed a Chapter 13 bankruptcy and the mortgagee filed a secured claim, to which the borrower as bankruptcy debtor objected. The debtor filed a motion to determine the secured status of the mortgage. The basis for both the objection and motion was the debtor's argument that the note and mortgage were unenforceable and any new foreclosure action was barred by Florida's statute of limitations and statute of repose.

 

The bankruptcy court held an evidentiary hearing on May 13, 2015 on the debtor's objection and motion to determine secured status.

 

The bankruptcy court characterized the dispute as whether the mortgagee held a secured claim that was enforceable against the debtor's real property, and began by explaining that under Florida's statute of limitations, a mortgage foreclosure action must be filed within 5 years after a default. Florida's statute of repose provides that if the final maturity date of a mortgage is "ascertainable from the record of it," the mortgage lien terminates 5 years after the maturity date.

 

The mortgagee argued in opposition that the debtor's arguments have been adopted by only a minority of Florida and federal courts, and that the majority of courts that have considered the issues presented, including the Florida Supreme Court and federal courts, disagree. In addition, the mortgagee argued that the proper vehicle to resolve the dispute was through an adversary proceeding rather than the claims process in the main bankruptcy case.

 

The bankruptcy court first addressed the procedural question of whether the dispute was a contested matter that could be resolved in the main case or must be resolved by an adversary proceeding. It explained that, while objections to claims and determinations of secured status normally are contested matters that can be resolved in the main bankruptcy case, Federal Rule of Bankruptcy Procedure 7001(2) requires that certain contested matters—those to "to determine the validity, priority or extent of a lien or other interest in property"—must be brought as an adversary proceeding.

 

The bankruptcy court rejected the debtor's argument that Rule 7001 did not apply because he was not seeking to determine the validity of the lien, but to determine the enforceability of the note, as an attempt to "repackage" the substance of the relief sought, which clearly involved the validity and extent of the mortgage lien in question.

 

The bankruptcy court then explained that even if it was wrong on the procedural question, the result would be the same – the bankruptcy court quickly disposed of the debtor's second argument that the mortgage was barred by the statute of repose.

 

First, the bankruptcy court held that the recording of the lis pendens did not change the maturity date because on its face it said nothing of the sort and just provided notice of a pending foreclosure lawsuit involving the property. Second, because the face of the note reflected a maturity date of December 1, 2035, the statute of repose did not expire for another 25 years.

 

The bankruptcy court then rejected the debtor's first argument under the Florida Third District Court of Appeal's decision in Deutsche Bank Trust Co. v. Beauvais, which held that once the note is accelerated, the 5-year statute of limitations begins to run on the entire debt.  The court noted that Beauvais conflicts with several federal decisions applying Florida law and the Florida Supreme Court's decision in Singleton v. Greymar Associates.

 

As you may recall, federal courts in Florida have uniformly held that "when mortgagees accelerate the note and mortgage and bring unsuccessful foreclosure actions, the clock on the statute of limitations does not begin to running as to the entire mortgage (or later defaults), and all of these cases implicitly hold that a dismissal without prejudice does not affect this. And those cases that discuss the distinction between dismissals with and without prejudice reject the argument that it makes a difference."

     

Moreover, the bankruptcy court held that in Singleton, the Florida Supreme Court narrowed the application of res judicata in foreclosure cases, holding that '[w]hile it is true that a foreclosure action and an acceleration of the balance due based upon the same default may bar a subsequent action on that default, an acceleration and foreclosure predicated upon a subsequent default presents a separate and distinct issue.'"

 

The court reasoned that the debtor's argument and the Beauvais ruling's "approach to the statute of limitations issue is simply too parochial and creates too great a risk of windfalls to mortgagors. The better view is that dismissals with and without prejudice operate in the same matter with respect to the statute of limitations in mortgage foreclosures, and that a lender in [the plaintiff's] position here does not lose its right to enforce its note and mortgage merely because the statute of limitations has run as to earlier payment defaults."

 

Concluding that "[t]he note and mortgage are enforceable against the debtor and his property", the bankruptcy court indicated it would "reconsider these questions should the debtor file an adversary proceeding", overruled the debtor's objection without prejudice, and denied his motion without prejudice. 

  

 

 

 

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

 

 

 

California   |   Florida   |   Illinois   |   Indiana   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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: 4th Cir Upholds Injunctive Relief Class Settlement That Also Released Statutory and Punitive Damages Claims

The U.S. Court of Appeals for the Fourth Circuit recently rejected a challenge to a class action settlement by a group of consumers objecting to the release of statutory and punitive damages claims – but not claims for actual damages – in exchange for non-monetary injunctive relief under the federal Fair Credit Reporting Act ("FCRA"), holding that the district court did not abuse its discretion in approving the settlement or awarding attorney's fees to class counsel.

 

A copy of the opinion is available at: http://www.ca4.uscourts.gov/Opinions/Published/142006.P.pdf

 

In 2011, a putative class of consumers whose personal information was sold by a well-known "data broker" and computerized legal research provider, sued under the FCRA for allegedly selling consumers' data without complying with the consumer protection provisions of the FCRA.

 

For years, the defendant data broker allegedly sold proprietary "identity reports" to the debt collection industry, "used to locate people and assets, authenticate identities, and verify credentials" supposedly without complying with the FCRA under the auspices that the identity reports were not a "consumer report" within the meaning of the FCRA.

 

The complaint alleged that the main defendant violated the FCRA by:  1) selling its identity reports without making sure the buyers were purchasing them for the permissible purposes allowed by the FCRA;  2) refusing to allow consumers to view their reports; and  3) refusing to investigate when consumers disputed information in the reports. The plaintiffs proposed three corresponding classes.

 

After protracted litigation, the parties reached a settlement pursuant to which the main defendant agreed to pay monetary awards to one class of plaintiffs, and as to another class of plaintiffs to substantially revise the identity reports in order to incorporate various consumer protection provisions in return for a release of statutory damages but not any claims for actual damages.

 

The district court certified two settlement classes pursuant to the settlement agreement and Federal Rule of Civil Procedure 23(b)(2) and (b)(3) and approved the settlement. The first class, certified under Rule 23(b)(3), included approximately 31,000 persons who requested copies of their reports or tried to dispute information contained therein, who would receive roughly $300 each in exchange for a release of the FCRA claims.

 

The second, much larger class (the "Rule 23(b)(2)class"), consisted of approximately 200 million people whose personal information was stored on the defendant's database between November of 2006 and April of 2013.

 

The Rule 23(b)(2) class waived any claim for statutory and punitive damages, but unlike the smaller monetary relief class, retained the right to recover actual damages. In exchange, the Rule 23(b)(2) class received injunctive relief in the form of a fundamental change in the suite of products the main defendant offered for sale.

 

After a hearing, the district court certified the classes and approved the settlement, reasoning as to the Rule 23(b)(2) class that certification was appropriate "because the relief sought by the class is injunctive, rather than monetary, and 'indivisible' in that it 'will accrue to all members of the [nationwide] class.'" The district court rejected the objectors' argument that the lack of opt-out rights precluded certification, reasoning that class members retained the right to sue for actual damages and waived only statutory damages, which were "uniform as to all class members."

 

The district court also approved the settlement as "fair, reasonable and adequate" under Federal Rule of Civil Procedure 23(e)(2) because of the extensive negotiations leading to the agreement and the strengths of the parties' claims and defenses. In particular, the district court reasoned that because of the existence of a 2008 Federal Trade Commission Opinion Letter concluding that the identity reports were outside the scope of the FCRA, the objectors' chances of recovering statutory damages based on a willful violation were "speculative at best" such that the release of those claims in exchange for injunctive relief was "demonstrably fair and adequate."

 

The district court also approved incentive awards of $5,000 to each of the lead plaintiffs and $5.3 million in attorney's fees to class counsel.

 

A group of class members who claimed they were entitled to opt out of the Rule 23(b)(2) class appealed, objecting to certification of the Rule 23(b)(2) class and the settlement itself.

 

On appeal, the Fourth Circuit explained that under Rule 23(a), a party seeking class certification must demonstrate "numerosity," "commonality" of questions of law or fact, "typicality" and that the plaintiffs can adequately protect the interests of the class members. If these requirements are met, the proposed class must fall within one of three types of class set forth in Rule 23(b).

 

The Court noted that case involved Rule 23(b)(2), which allows certification when "the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole." Because of its uniform nature, this type of class is deemed to be homogenous and "mandatory" in the sense that "opt-out rights" are not required or provided under the rule.

 

The Fourth Circuit then pointed out that federal circuit courts of appeals, including the Fourth, have held that "mandatory Rule 23(b)(2) classes may be certified in some cases even when monetary relief is at issue. … Where monetary relief predominates, Rule 23(b)(2) certification is inappropriate. … But where monetary relief is 'incidental' to injunctive or declaratory relief, Rule 23(b)(2) certification may be permissible." The reasoning underlying this judicial interpretation is that if individual monetary awards predominate over uniform, class-wide injunctive or declaratory relief, the "'presumption of cohesiveness' breaks down and the procedural safeguard of opt-out rights becomes necessary."

 

The Court rejected the objectors' argument that certification of the Rule 23(b)(2) class was inappropriate because the statutory damages waived under the settlement agreement predominated over the injunctive relief awarded and thus were not "incidental" to such relief. It reasoned that the case before it was a "paradigmatic" Rule 23(b)(2) case because the injunctive relief was "indivisible" and benefitted all class members simultaneously, and the statutory damages claims released under the settlement were not the kind of "individualized claims that threaten class cohesion" and are thus prohibited under the Supreme Court's 2011 decision in Wal-Mart Stores, Inc. v. Dukes, which held that back-pay damages under Title VII "are not 'incidental' for purposes of Rule 23(b)(2) and may not be certified under that Rule."

 

The Fourth Circuit also rejected the objectors' argument that the released statutory damages claims were not "incidental" to injunctive relief because the plaintiffs' complaint did not seek injunctive relief, reasoning that even though the FCRA does not expressly provide a private right of action for injunctive relief, the defendant was "free to agree to a settlement enforcing a contractual obligation that could not be imposed without its consent."

 

The Court found inapposite rulings of the Fifth and Eleventh Circuits which had held that if a statute does not provide for injunctive relief, a Rule 23(b)(2) class cannot be certified because in those cases the defendants did not agree to a settlement but instead opposed certification. According to the Fourth Circuit in this case, the fact that the plaintiffs did not plead injunctive relief in their complaint did not matter because Rule 23(b)(2) by its terms applies only if "final injunctive relief … is appropriate respecting the class as a whole."

 

Looking to the agreement itself and the final relief it called for in order to determine whether a monetary remedy was appropriate, the Fourth Circuit held that because the relief awarded to the Rule 23(b)(2) class was primarily injunctive, the concern that the request for injunctive relief was illusory and asserted only to rationalize an otherwise improper damages award did not exist.

 

Relying on dicta in the Supreme Court's Dukes ruling, the objectors argued alternatively that even if the released statutory damages claims were incidental to injunctive relief and did not predominate, certifying the class without opt-out rights violated due process.  Agreeing with the district court, the Fourth Circuit found that the holding in Dukes was not as broad as the objectors argued.  Instead, the Court noted, Dukes merely held that "claims for individualized monetary relief may not be certified under Rule 23(b)(2)."

 

The Fourth Circuit reasoned that Dukes did not overturn the established rule that a so-called mandatory Rule 23(b)(2) class seeking monetary relief can be certified "so long as that relief is 'incidental' to injunctive or declaratory relief—meaning that damages must be in the nature of a 'group remedy,' flowing 'directly from liability to the class as a whole." In those types of cases, "opt-out rights are not required because individualized adjudications are unnecessary."

 

The Court cited 2012 and 2014 decisions from the Seventh and Second Circuits in support for its conclusion that certification is still possible when monetary damages are sought by the class, so long as they are "incidental" to declaratory or injunctive relief, concluding that the procedural safeguards built into Rule 23 sufficiently protect the due process rights of objecting class members.

 

The Fourth Circuit found it particularly important that the settlement agreement itself made opt-out rights unnecessary because any member of the class could still pursue a claim for actual damages. Because class members could still sue for individualized harm caused by the defendant, the Court held their due process rights were not violated.

 

The Court reasoned that, practically speaking, the objectors' argument would discourage settlement because defendants would not agree to settlements like the one as issue if they could not thereby achieve "something approaching global peace." Given the procedural protections of Rule 23 and the retention of the right to sue for actual damages, "any marginal benefit that might accrue to disenchanted class members is unlikely to be worth this cost."

 

Finally, the Fourth Circuit held that the district court did not abuse its discretion in approving the $5,000 incentive awards to the class representatives, rejecting the objectors' argument that representation was inadequate because the awards created a conflict of interest between the lead plaintiffs and other class members. The Court reasoned that the incentive awards are common in class actions and their purpose is to "compensate class representatives for work done on behalf of the class, make up for financial or reputational risk undertaken in bringing the action, and, sometimes, to recognize their willingness to act as a private attorney general."

 

While under certain circumstances preferential treatment of class representatives is not appropriate, such as when incentive agreements are reached at the beginning of the case and thus the lead plaintiffs may "compromise the interest of the class for personal gain," the Fourth Circuit held that in the case at bar, the incentive awards were not agreed upon before the settlement and were not "conditioned on the Class Representatives' support for the Agreement." The Court noted that this was also "not a case in which unnamed class members received 'only perfunctory relief'" because the district court determined that the changes to defendant's business practices provided substantial relief to class members.

 

The Court then rejected the objectors' argument that the settlement was unfair and inadequate because it released class members' claims for statutory damages without affording them any monetary relief in return, finding that the district court did not abuse its discretion and correctly applied the Rule 23 factors in concluding that the agreement was fair, reasonable and adequate.

 

The Fourth Circuit reasoned that the district court correctly emphasized the weakness of the plaintiffs' claims on the merits in finding that the agreement was substantively reasonable. In order to recover statutory damages under the FCRA, plaintiffs would have to prove that defendant's actions were "willful," which in turn requires that defendant had taken an "objectively unreasonable" interpretation of the FCRA in concluding that its identity reports were not "consumer reports" under the FCRA. Because the Supreme Court has clarified that when "the statutory text and relevant court and agency guidance allow for more than one reasonable interpretation … a defendant who merely adopts one reasonable interpretation' cannot be held liable as a willful violator..." and the governing regulatory agency, the FTC, had opined that the identity reports were not subject to the FCRA, defendant's interpretation was not unreasonable.

 

On the other hand, the Court pointed out that the Rule 23(b)(2) settlement provided the class with substantial injunctive relief, including a nationwide program that would result in a "significant shift in industry practices, making [the main defendant] the industry leader in consumer-information protection" and the record contained testimony by an expert that the monetary value of such relief "is in the billions of dollars."

 

Concluding that the district court did not abuse its discretion in approving the settlement as fair, reasonable and adequate under Rule 23(e), the Fourth Circuit found the objectors' single-minded focus on the lack of monetary relief to be "unsupported by the law and also imprudent as a matter of common sense [because] [t]here was no realistic prospect that [defendant] could or would provide meaningful monetary relief to a class of 200 million people."

 

The Court also rejected the objectors' argument that the settlement improperly granted immunity to the defendant for future FCRA claims arising from its new "contact and locate" product because it was free to change the product in the future "into a product that is indeed a 'consumer report' under the FCRA, while class members bound by their stipulation, will be unable to respond."

 

The Fourth reasoned that this argument overstated defendant's freedom to act under the settlement agreement because the agreement established "boundaries for the design and implementation of [the contact and locate product], which assure that the product cannot operate as a 'consumer report' for purposes of the FCRA."

 

In addition, the settlement agreement provided that the new products would not be considered "consumer reports" under the FCRA "so long as [they] are not used in whole or in part as a factor in determining eligibility for credit or any other purpose that could qualify them as consumer reports." In other words, the Fourth Circuit noted, the defendant did not receive a "free pass from FCRA liability" because the agreement only applied as long as the contact and locate product "remains true to the parties' intent and is not used in a manner that would make it 'consumer report.'"

 

Turning to the last argument, raised by a single class member as to the district court's attorney's fee award, the Court explained that Federal Rule of Civil Procedure 23(h) authorizes the court to award reasonable attorney's fees authorized by the parties' agreement, and such an award is reviewed under an abuse of discretion standard.

 

Under Fourth Circuit precedent, review of a fee award is "'sharply circumscribed,' and a fee award 'must not be overturned unless it is clearly wrong.'" The lone objector argued that the district court failed to explain the basis for its award sufficiently and that class counsel's hourly rate and number of hours were unreasonable.

 

The Court acknowledged that the district court's explanation was brief, only one paragraph, but nevertheless found the explanation was sufficient and concluded the district court did not abuse its discretion in awarding $5.3 million in attorney's fees, reasoning that class counsel invested large amounts of time and labor and obtained an excellent result in a complex case because the agreement "'provides substantial benefits for over 200 million consumers' and 'forces [defendant] to comply with the FCRA.'"

 

Turning to the reasonableness of class counsel's hourly rate, the Court explained that the district court relied, in addition to counsel's affidavit regarding prevailing market rates, on the testimony of an expert, who opined that class counsel's hourly rates were comparable to those charged in bankruptcy cases and similar class actions. Accordingly, the district court's explanation, while short, was supported by sufficient evidence.

 

Finally, the Fourth Circuit found significant the fact that only one of 200 million class members objected to the fee award, which bolstered the appellate Court's conclusion that the district court did not abuse its discretion.

 

Accordingly, the ruling of the district court was affirmed.

 

 

 

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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Email: rwutscher@MauriceWutscher.com

 

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FYI: EDNY Stays TCPA Putative Class Action Pending SCOTUS Cases and Petition in DC Cir

Joining several other federal district courts around the country, the U.S. District Court for the Eastern District of New York recently granted a joint motion to stay proceedings in a putative class action lawsuit alleging violation of the federal Telephone Consumer Protection Act, 47 U.S.C. 227, et seq. ("TCPA"). 

 

The Court found that appeals currently pending before the Supreme Court of the United States would likely result in controlling determinations as to:  (1) whether a Rule 68 offer of judgment renders a matter moot;  (2) whether a plaintiff has standing to pursue his claims in the absence of actual damages or injury in fact; and  (3) whether a named putative class plaintiff may certify a class of individuals that were not injured.

 

Moreover, the Court found that a petition pending before the U.S. Court of Appeals for the D.C. Circuit would likely result in more precise definitions of certain terms and provisions of the TCPA.

 

Accordingly, the Court granted the joint motion to stay the proceedings, finding that a stay pending the outcome of the Supreme Court and the DC Circuit litigation was in the interests of justice.

 

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

 

The plaintiffs ("Plaintiffs"), individually and on behalf of a putative class, alleged that the defendants ("Defendants") violated the TCPA by sending commercial text messages to Plaintiffs' and class members' cell phones without their consent. Plaintiffs filed a motion for class certification simultaneously with the filing of their Complaint.

 

Defendants served Plaintiffs with Offers of Judgment pursuant to Fed. R. Civ. P. 68.  One of the plaintiffs ("Settling Plaintiff") accepted Defendants' Offer of Judgment and the court granted his motion for judgment based on settlement.  The other named plaintiff ("Remaining Plaintiff") did not accept Defendants' Offer of Judgment.

 

Defendants filed a motion to stay proceedings pending the resolution of certain Supreme Court and DC Circuit matters. 

 

Defendants argued that the resolution of three cases for which the Supreme Court recently granted certiorari will likely result in precedent-controlling determinations with respect to the following issues in this case: (1) whether Defendants' Rule 68 offer of judgment renders this matter moot; (2) whether the Remaining Plaintiff has standing to pursue this matter in the absence of actual damages or injury in fact; and (3) whether the Remaining Plaintiff may certify a class of individuals that were not injured. See Gomez v. Campbell-Ewald Co., 768 F.3d 871 (9th Cir. 2014), cert. granted, 135 S. Ct. 2311 (May 18, 2015); Robins v. Spokeo, Inc., 742 F.3d 409 (9th Cir. 2014), cert. granted, 135 S.Ct. 1892 (Apr. 27, 2015); Bouaphakeo v. Tyson Foods, Inc., 593 F. App'x 578 (8th Cir. 2014), cert. granted, 135 S. Ct. 2806 (Jun. 8, 2015) (collectively, the "Supreme Court Cases").

 

Specifically, the Petition for a Writ of Certiorari filed in the Campbell-Ewald matter presents the following questions: "1. Whether a case becomes moot, and thus beyond the judicial power of Article III, when the plaintiff receives an offer of complete relief on his claim" and "2. Whether the answer to the first question is any different when the plaintiff has asserted a class claim under Federal Rule of Civil Procedure 23, but receives an offer of complete relief before any class is certified." Petition for Writ of Certiorari, Campbell-Ewald Co., 2015 WL 241891 (No. 14-857).

 

The Petition for a Writ of Certiorari filed in the Spokeo matter presents the question of "[w]hether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm . . . by authorizing a private right of action based on a bare violation of a federal statute." Petition for Writ of Certiorari, Spokeo, 2014 WL 1802228 (No. 13-1339).

 

Finally, the Petition for Writ of Certiorari filed in the Tyson matter presents the question of "[w]hether a class action may be certified or maintained under Rule 23(B)(3) . . . when the class contains hundreds of members who were not injured and have no legal right to any damages." Petition for Writ of Certiorari, Tyson, 2015 WL 1285369 (No. 14-1146).

 

Defendants also argued that a petition filed in the U.S. Court of Appeals for the DC Circuit challenging the validity of a 2015 TCPA Order issued by the Federal Communications Commission will similarly affect the outcome of this litigation to the extent that the DC Circuit clarifies certain definitions within the TCPA. See also ACA Int'l v. FCC, No. 15-1211 (D.C. Cir.).

 

The Amended Petition for Review filed in ACA alleges, inter alia, that the FCC's treatment of the term "capacity" in the TCPA's definition of an "automatic telephone dialing system" is arbitrary, capricious, and an abuse of discretion. Amended Petition for Review at 2-3, ACA v. In'tl v. FCC, No. 15-1211 (D.C. Cir. July 13, 2015). The ACA Amended Petition for Review also requests that the FCC be compelled to either: (a) "establish a viable safe harbor for autodialed `wrong number' non-telemarketing calls to reassigned wireless numbers" or (b) "define `called party' as a call's intended recipient." Id. at 5.

 

Defendants requested a stay pending the outcome of the Supreme Court Cases or, alternatively, a stay pending the disposition of the DC Circuit. 

 

Subsequent to the filing of Defendants' motion, the parties' counsel executed a Stipulation agreeing to stay this matter pending the outcome of the Supreme Court Cases and the DC Circuit (the "Stipulation").

 

The Court began its analysis by discussing its inherent power to stay proceedings is incidental to its inherent power to "`control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants.'" Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d 83, 96 (2d Cir. 2012).

 

As you may recall, in determining whether to enter a stay, the court considers: "(1) the private interests of the plaintiffs in proceeding expeditiously with the civil litigation as balanced against the prejudice to the plaintiffs if delayed; (2) the private interests of and burden on the defendants; (3) the interests of the courts; (4) the interests of persons not parties to the civil litigation; and (5) the public interest." Trikona Advisors Ltd. v. Kai-Lin Chuang, No. 12-CV-3886, 2013 WL 1182960, at *2-3 (E.D.N.Y. Mar. 20, 2013).

 

It is within the district court's sound discretion to enter a stay pending the disposition of an independent matter whose outcome will likely affect a case on the court's calendar. Trikona, 2013 WL 1182960, at *2. See, e.g., Ruggieri v. Boehringer Ingelheim Pharm., Inc., 06-CV-1985, 2012 WL 1521850 (D. Conn. Feb. 24, 2012).

 

The Court found that a stay pending the outcome of the Supreme Court cases and the petition before the DC Circuit was in the interests of justice. The Court further noted that the parties agreed that a stay is appropriate and it is clear that the outcome of the Supreme Court Cases could potentially conclude this matter and will, at the very least, settle important issues of law relating to the Remaining Plaintiff's claims.

 

The Court's determination is consistent with other district courts that have deemed it appropriate to stay TCPA lawsuits pending the outcome of Campbell-Ewald and Spokeo. See, e.g., Eric B. Fromer Chiropractic, Inc. v. N.Y. Life Ins. and Annuity Corp., 15-CV-4767, 2015 WL 6579779 (C.D. Cal. Oct. 19, 2015).

 

Similarly, the Court also found that resolution of the petition before the DC Circuit will more precisely define terms set forth in the TCPA. Thus, the factors weigh in favor of a stay of this matter and therefore the Court granted the parties' request for a stay pending the outcome of the Supreme Court cases and DC Circuit.

 

 

 

 

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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