Saturday, January 30, 2016

FYI: 9th Cir Affirms Denial of Class Cert in TCPA Action on Ascertainability and Predominance Grounds

The U.S. Court of Appeals for the Ninth Circuit recently affirmed a district court's order denying class certification in a lawsuit alleging violation of the federal Telephone Consumer Protection Act, 47 U.S.C. 227, et seq. ("TCPA"), holding that the "the district court did not abuse its discretion by finding the requirements of Rule 23(b)(3) unsatisfied," and that the "district court appropriately determined that it would be extremely difficult to ascertain the identities of the individuals who had not consented to receive the messages."

 

A copy of the Ninth Circuit's opinion is available at:  Link to Opinion.  A copy of the district court's order is available at: Link to Opinion

 

The defendants operate a pay-per-call "phone sex" and "sex text" service.  When calls arrive, the defendants disclose that continuing the call serves as consent to receiving special offers via text messages.  After making this disclosure, the defendants then instruct callers on how to opt-out of any future communications.  A potential customer who fails to opt-out receives a text message from the defendants' automated system within one week of the initial call.  Recipients who fail to opt-out or respond to the first text message receive a second text message approximately one week later.

 

The plaintiff alleged that he called the defendants' service by accident, and immediately hung up after realizing his mistake.  He also alleged that the defendants sent a text message to his phone approximately three weeks later. Because the plaintiff did not opt-out, he subsequently received a second text message from the defendants.

 

Filing suit under the TCPA, the plaintiff moved to certify a nationwide class consisting of all consumers that received one or more "unauthorized" text messages from the defendants.  The district court denied the plaintiff's motion, holding that the plaintiff's "proposed class is unascertainable and unidentifiable" and that the plaintiff also failed "to demonstrate that common questions predominate and that class action is the superior method of adjudication under Rule 23(b)(3)."

 

On appeal, the Ninth Circuit held that district court correctly determined that the plaintiff failed to meet the predominance and superiority requirements under Rule 23(b)(3).  

 

Under Rule 23(b)(3), a class can only be certified where "questions of law or fact common to class members predominate over any questions affecting only individual class members." Fed. R. Civ. P. 23(b)(3). These common questions must be a "significant aspect of the case" that can be determined for each class member in a single adjudication. See Berger v. Home Depot U.S.A., 741 F.3d 1061, 1068 (9th Cir. 2014).  In addition, a putative class plaintiff must demonstrate that "a class action is superior to other available methods for fairly and efficiently adjudicating the controversy."  Fed. R. Civ. P. 23(b)(3).

 

The Ninth Circuit explained that the "central issue" involved was whether each putative class member received unauthorized text messages. As the district court found, however, reaching this determination would require myriad individual inquiries into whether each class member: (1) called into the defendants' service purposefully or by accident;  (2) saw any advertisements disclosing the defendants' text messaging practices;  (3) heard the disclosure about the defendants' text messaging practices during the initial phone call; and  (4) attempted to opt-out of receiving text messages from the defendants.

 

Faced with these significant uncommon questions, the Ninth Circuit held that the district court did not abuse its discretion in finding that the plaintiff failed to demonstrate that common questions predominate, as required under Rule 23(b)(3).

 

For similar reasons, the Ninth Circuit agreed with the district court's finding that it would be "extremely difficult" to ascertain the identity of potential class members.

 

The district court explained that, although not explicitly referenced in Rule 23(a), a proposed class definition must provide an "administratively feasible" means of identifying class members without delving into the merits of the case.

 

The plaintiff's proposed class definition, however, consisted only of those who received "unauthorized" text messages. In light of the defendants' disclosure and opt-out procedures, the district court would necessarily have to conduct individual inquiries as to whether each potential class member consented to receiving the text messages at issue.  This would "render the proposed class not ascertainable or identifiable, because significant inquiry as to each individual class member would be required, as well as inquiry into the merits of the claim."  Stated differently, the trial court "would have to hold 'mini-trials' to determine who received unauthorized text messages and thus, who is a class member," in a process that be unmanageable. 

 

As a result, the Ninth Circuit held that the district court did not abuse its discretion in holding that the proposed class members were not "readily ascertainable."

 

Accordingly, the Ninth Circuit affirmed the district court's order denying the plaintiff's motion for class certification.

 

 

 

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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Thursday, January 28, 2016

FYI: Parsing the CFPB's EFTA Bulletin

The Consumer Financial Protection Bureau issued a bulletin on November 23, 2015 "intended to remind entities of their obligations under the Electronic Fund Transfer Act (EFTA) and Regulation E."  A careful read is needed, as Bulletin 2015-06 can be easily misinterpreted.

 

A copy of the CFPB's Bulletin 2015-06 is available at:  Link to Bulletin 2015-06

 

As you may recall, electronic transfers become subject to the EFTA and Regulation E when they are made from a consumer's "account."  Credit cards will typically not cause a transfer from a consumer's account, but debit cards would cause a transfer from a consumer's account.  

 

Much of the Bulletin's focus is directed at the preauthorized electronic fund transfer ("PAT"), referred to as an "electronic fund transfer authorized in advance to recur at substantially regular intervals."  See 12 CFR § 1005.2(k).

 

E-Sign and the EFTA Guidance

 

Bulletin 2015-06 provides favorable guidance on the interplay between the EFTA and the Electronic Signatures in Global and National Commerce Act ("E-Sign").

 

EFTA and Regulation E require PATs to be in writing and "signed or similarly authenticated" by the consumer. The Bulletin confirms that if an entity uses E-Sign, it can obtain a consumer's signature by use of an oral recording of a consumer's agreement to a PAT.

 

Under E-Sign, provided all E-Sign disclosures and other requirements are satisfied, recording a consumer's statement of, for example, "I agree to the agreement . . ." would qualify as an electronic signature. The Bulletin provides other examples of electronic signatures.

 

The problem for many companies is that EFTA and Regulation E require the PAT agreement to be "in writing."  As the Bulletin itself notes, E-Sign draws a distinction between an "electronic record" and an "electronic signature."  In the above example, we have only obtained an "electronic signature" under E-Sign.

 

'Electronic Record' PATs Cannot Be Oral Recordings

 

While the oral recording of the consumer's voice in the above example could go on to include the terms of the agreement, E-Sign expressly prohibits creating an "electronic record" solely by ". . . a recording of an oral communication . . . except as otherwise provided under applicable law."  That "under applicable law" exception does not work under the EFTA since it expressly requires a PAT to be in writing.

 

As noted by the CFPB in the Bulletin, E-Sign would prohibit an oral recording of an agreement as an "electronic record" where a statute or regulation (such as the EFTA and Regulation E) requires that the agreement "be provided or made available to a consumer in writing."  But the Bulletin then goes on to say in footnote 20 that the E-Sign prohibition does not extend to a PAT "authorization," because "Regulation E does not specify that entities must provide a writing to consumers when obtaining the authorization."

 

The wording used in footnote 20 is not well versed.  It could easily be misunderstood to mean that the "writing" requirement may be satisfied by an oral recording of an agreement based upon the bureau's interpretation of Regulation E.  That construction, though, is contrary to EFTA section 1693e(a), which requires the PAT agreement be made "only in writing, and a copy of such authorization shall be provided to the consumer when made."

 

E-Sign prohibits the creation of an electronic record by an oral recording of an agreement, which the Bulletin, prior to footnote 20, does not dispute. But the wording of footnote 20 could be construed to mean an electronic record can be made by simply making a recording of the "document" during a telephone call.  Such an interpretation would, at the minimum, require rulemaking, which the bulletin does not do.

 

Elements of a PAT Authorization

 

It is likely that footnote 20 in the Bulletin is addressing other elements of the PAT authorization. First, it is noting the distinction between "electronic records" and "electronic signatures" under E-Sign and is speaking only to the "electronic signature." Second, it may also be speaking to the timing of the delivery of the authorization to the consumer.

 

On the elements necessary for an electronic signature, the bulletin correctly notes that EFTA and Regulation E require clear assent to the PAT agreement: the "authorization must be readily identifiable as such to the consumer and the terms of the preauthorized EFTs must be clear and readily understandable to the consumer. The authorization process should evidence the consumer's identity and assent to the authorization." That sounds more like a concern for the electronic "signature" than the electronic record.

 

Four elements are necessary to any complete PAT authorization: 1) that the transfers are recurring; 2) the timing of each transfer; 3) the amount of each transfer and 4) that the consumer is authorizing the PAT. The bulletin is focused on the fourth element – the consumer's authorization or electronic signature. The first three elements would be part of the electronic record.

 

But following the Bulletin's guidance in this case may not be wise. Simply incorporating requirements 1 through 3 into a form may not satisfy EFTA and Regulation E. If the amounts of the transfers vary, that imposes a different set of requirements. If this will be accomplished under E-Sign, E-Sign carries with it its own set of mandatory disclosures in consumer transactions, which are detailed and may be cumbersome for some to implement.

 

Delivery of Written Authorization, Electronic or Paper, Can Follow Assent to Authorization

 

It will not be enough to make a copy of the authorization "available" to the consumer; instead a copy of the authorization must be provided to the consumer. But what has plagued many under the EFTA is the timing of the delivery of the "written agreement" authorizing the PAT. Must it be provided before the PAT begins, at the time of the "authorization," or afterwards?

 

The Bulletin answers the question by saying that you can obtain an E-Sign signature and then provide the writing separately, either in paper or as an E-Sign electronic record. According to bulletin footnote 20, "Regulation E does not specify that entities must provide a writing to consumers when obtaining the authorization."

 

Bulletin Does Not Alter E-Sign Requirements for Electronic Records

 

Now, as far as the PAT written agreement is concerned, the Bulletin correctly states it may be either in paper or E-Sign compliant electronic record form. The Bulletin's statement "Regulation E requires persons that obtain authorizations for preauthorized EFTs to provide a copy of the terms of the authorization to the consumer," can be read as demonstrating that the "written agreement" requirement does not authorize the use of oral recordings to satisfy the writing requirement.

 

It is probably best to read the Bulletin as the CFPB's attempt to clarify that E-Sign does work in EFTA PAT transactions and that PAT agreements can be provided to the consumer after the agreements become effective.

 

For more about the EFTA and Regulation E, please sign up to view our webinar here.

 

 

 

 

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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Wednesday, January 27, 2016

FYI: Fla App Ct (2nd DCA) Holds Voluntary Dismissal of Foreclosure Based on Mistaken Advice of Counsel Could Not Be Undone

The District Court of Appeal of Florida, Second District, recently reversed a trial court's order vacating a voluntary dismissal based on mistaken advice from counsel regarding the statute of limitations, holding that the voluntary dismissal was the result of a deliberate judgment by counsel, and not the type of non-judgmental, clerical mistake that Florida law recognizes as a basis to undo a voluntary dismissal.

 

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

 

In March of 2013, borrowers created a land trust, naming their attorney as trustee. They then transferred to the trustee real property encumbered by a mortgage.  In July of 2013, the mortgagee sued to foreclose, naming borrowers and the trustee as defendants.

 

Based on advice of counsel that the foreclosure claim was likely barred by the statute of limitations, the plaintiff mortgagee voluntarily dismissed the foreclosure in August of 2014.  The mortgagee later learned that one of the borrowers was on active duty in the U.S. military "and that his service may have tolled the statute of limitations in accord with the Servicemembers Civil Relief Act."

 

In September of 2014, the mortgagee filed a motion under Florida Rule of Civil Procedure 1.540(b) seeking to vacate the voluntary dismissal. The Motion did not explain the reasons for the relief sought or provide any evidence in support, and was denied.

 

The mortgagee renewed its Motion in October of 2014, this time supported by an affidavit explaining that had it known that one of the borrowers was in active military service, the foreclosure case would not have been dismissed. The Motion cited Rule 1.540, "but did not identify the specific subsection of the rule upon which it relied."

 

At the hearing, mortgagee argued that the voluntary dismissal was a mistake based on the borrower's military service and thus fell within subsection 1.540(b)(1). In response, the borrowers argued that "the intentional filing of a voluntary dismissal was a tactical mistake that could not provide the trial court with jurisdiction to reinstate the case…."  Without taking evidence, the trial court granted the Motion and the trustee and borrowers appealed.

 

On appeal, the borrowers and trustee argued both that the voluntary dismissal based on an incorrect assumption as to the borrower's military service could not be undone under Rule 1.540(b)(1), and in any event that they were entitled to an evidentiary hearing.

 

The Appellate Court noted that a voluntary dismissal under Rule 1.420(a)(1) ends a trial court's jurisdiction over a case. "The [Florida Supreme] court has recognized only one exception to the rule that a notice of dismissal terminates a trial court's jurisdiction with 'absolute finality'—the existence of grounds justifying relief under rule 1.540(b)."

 

The Court explained that "[b]ecause a trial court necessarily has jurisdiction to determine whether it has jurisdiction, the filing of a rule 1.540(b) motion after a case has been voluntarily dismissed vests the trial court with the limited authority to determine whether the grounds asserted by the movant justify relief under the rule. … Where a motion under rule 1.540(b) sets forth 'a colorable entitlement to relief,' the trial court should conduct an evidentiary hearing to determine whether such relief should be granted."

 

However, the Appellate Court continued, "[i]t follows that where the allegations of a rule 1.540(b) motion do not give rise to a right to relief, an evidentiary hearing on those allegations is not required and the trial court's jurisdiction is limited to the entry of an order denying the motion."

 

The Court reasoned that "rule 1.540(b)(1) provides relief from an improvidently filed notice of voluntary dismissal on grounds of mistake. In determining whether relief is warranted on this basis, the [Florida] supreme court has distinguished between judgmental or tactical errors by a party or its counsel and other types of errors that do not involve the deliberate exercise of judgment. … Judgmental or tactical errors are not regarded as mistakes within the meaning of rule 1.540(b)(1)—and thus will not relieve a party from a voluntary dismissal—while nonjudgmental errors do qualify for relief under the rule."

 

Stated differently, according to the Appellate Court, trial courts only have jurisdiction to correct clerical or administrative errors, not errors of law based on misjudgment or miscalculation.

 

Based on the allegations in the renewed Motion to Vacate, the Appellate Court concluded that "the filing of the notice of voluntary dismissal in this case was a judgmental or tactical error." The Motion alleged that the dismissal was filed because the mortgagee's counsel believed the statute of limitations had run. It also alleged that the tactical reason for the dismissal was to try to collect the note outside of court.  The Court noted that, just because the dismissal was based on a mistaken assumption of fact regarding military service, which was in turn based on a decision not to conduct a military search because it received the file from prior counsel, "does not change the character as a judgmental or tactical decision."

 

The Appellate Court distinguished those cases where "courts have used rule 1.540(b)(1) to grant relief from voluntary dismissals. The common thread in those cases is that the basis for relief was a mistake in execution of a party's or lawyer's decision regarding voluntary dismissal, not a decision to voluntarily dismiss that a party or lawyer later concluded was ill-advised."

 

The Court cited the situation where an attorney intends to dismiss a case without prejudice, but an assistant mistakenly drafts the notice with prejudice, as a "classic example" of this type of mistake for which the rule provides relief.

 

Because the Appellate Court found that the renewed Motion on its face indicated that the attorney's mistake was judgmental rather than clerical in nature, the Court ruled that subsection 1.540(b)(1) did not apply and there was no other basis alleged in the Motion — such as newly discovered evidence that could not have been discovered by due diligence or fraud, misrepresentation or other misconduct of the adverse party — the trial court lacked jurisdiction to do anything besides deny the Motion. An evidentiary hearing was not required.

 

The Court reversed the trial court's order granting the renewed Motion to Vacate and remanded with instructions for the trial court to enter an order denying the Motion and reinstating the voluntary dismissal 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   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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Monday, January 25, 2016

FYI: MD Fla Holds Bankruptcy Code Precludes FDCPA Claim for Filing POC on Time-Barred Debt

The U.S. District Court for the Middle District of Florida recently dismissed allegations that a debt buyer violated the federal Fair Debt Collection Practices Act by filing a proof of claim on time-barred debt, holding that such claims are precluded by the Bankruptcy Code, and that the FDCPA does not provide a private right of action against debt collectors who file time-barred proofs of claim in bankruptcy court.

 

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

 

The plaintiff individual owed a credit card debt and filed for bankruptcy protection under Chapter 13 of the Bankruptcy Code. The statute of limitations on the credit card debt expired before the plaintiff's bankruptcy petition was filed.  The owner of the debt filed a proof of claim in the bankruptcy.

 

The debtor filed a civil action in federal district court, alleging that the filing of the proof of claim on a time-barred debt violated the FDCPA by supposedly "(1) making a false representation of the legal status of a debt; (2) using a false representation and deceptive means to collect a debt; and (3) using unfair an unconscionable means to collect a debt."

 

The defendant debt buyer moved to dismiss, arguing that "because the Bankruptcy Code permits creditors to file time-barred proofs of claim, such conduct cannot constitute a FDCPA violation."

 

The Court began by explaining that although the Eleventh Circuit Court of Appeals held in Crawford v. LVNV Funding LLC that filing a time-barred proof of claim in bankruptcy court violates the FDCPA, it expressly "'declin[ed] to weigh in on … [w]hether the Code preempts the FDCPA when creditors misbehave in bankruptcy,' and noted that its sister circuits are split on the issue."

 

The Court then pointed out that post-Crawford, courts in the Middle District of Florida have confronted the preclusion issue "head on." Two judges held that the Bankruptcy Code precludes an FDCPA claim, while another held that the debtor could pursue an FDCPA claim for filing a proof of claim on time-barred debt.

 

The two opinions in the majority reasoned that the Bankruptcy Code provides remedies for stale claims such as objecting to the claim followed by a contested hearing, and concluded that "the FDCPA must yield to the Bankruptcy Code," and "FDCPA does not provide a private right of action against a creditor who files a stale proof of claim in a bankruptcy case."

 

The Court here agreed with the reasoning of the majority, explaining that "if FDCPA actions were allowed in this context, 'debtors would be encouraged to file adversary proceedings instead of simply an objection to the creditor's claim, which is incredibly inefficient and undermines the process provided in the Bankruptcy Code.'"

 

The Court in the case at bar did not find the lone minority case persuasive because it relied heavily on the Eleventh Circuit's Crawford decision, which declined to address the preclusion issue because the debt buyer in Crawford did not raise it.

 

Instead, the Court found the other two opinion persuasive, holding that "[u]nder the facts presented here, the FDCPA and the Bankruptcy Code are at an irreconcilable conflict because the FDCPA prohibits filing a time-barred claim while the Bankruptcy Code permits it. In such cases, the FDCPA must yield to the Bankruptcy Code, which already provides protections for debtors faced with stale proofs of claim." Thus, the Court joined the majority in the Middle District of Florida "in holding that the FDCPA does not provide a private right of action against creditors who file time-barred proofs of claim in bankruptcy court."

 

Because all six counts in the complaint were based on the filing a proof of claim on time-barred debt, the Court granted the motion to dismiss with prejudice against filing any independent FDCPA claim based on the same facts, but without prejudice to the debtor's ability to object to the claim in the bankruptcy case.

 

 

 

 

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   |   Maryland   |   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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and

 

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Sunday, January 24, 2016

FYI: 2nd Cir Holds Debtor Can Bring Post-Discharge FDCPA Claims in District Court

The U.S. Court of Appeals for the Second Circuit recently held that a debtor in bankruptcy can pursue claims under the federal Fair Debt Collection Practices Act ("FDCPA") in district court for trying to collect a discharged debt, reversing a judgment dismissing the FDCPA claims and requiring the plaintiff seek relief in bankruptcy court.

 

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

 

The debtor defaulted on her mortgage loan and filed for Chapter 13 bankruptcy, agreeing in her reorganization plan to pay the arrearage on her mortgage in monthly payments.  The debtor received a discharge of her personal obligation under the mortgage in August of 2013.  She later agreed to make monthly payments in order to avoid foreclosure.

 

The debtor made only one payment post-discharge, and in February of 2014 the loan servicer demanded the debtor pay the arrears for post-bankruptcy monthly payments as well as the mortgage loan arrears that had been discharged. The servicer also reported to one of the credit reporting agencies that the debtor owed the discharged amount.

 

The debtor sued in federal district court, alleging that the servicer's attempt to collect the discharged arrears violated several provisions of the FDCPA.  In addition, the debtor alleged that the servicer violated the FDCPA by the manner in which it tried to collect the monthly payments she agreed to make post-discharge.  Namely, the borrower alleged that the servicer supposedly failed to give the so-called "mini-Miranda warning" during conversations with her, and supposedly failed to send the disclosures required under 15 U.S.C. § 1692g within 5 days of the first contact.

 

The district court dismissed the debtor's complaint, ruling that the federal Bankruptcy Code provides the exclusive remedy for alleged violations of the bankruptcy discharge injunction through a motion for contempt under 11 U.S.C. § 105(a). In addition, the district court held that the debtor's FDCPA claims were in direct conflict with the provisions of the Bankruptcy Code and were thus precluded.

 

On appeal by the debtor, the Second Circuit began by discussing whether the Bankruptcy Code impliedly repealed all or some FDCPA claims for violating the discharge injunction.

 

"When it is claimed that a later enacted statute creates an irreconcilable conflict with an earlier statute, the question is whether the later statute, by implication, has repealed all or, more typically, part of the earlier statute."  Repeal by implication is disfavored, and "[i]n the absence of some affirmative showing of an intention to repeal, the only permissible justification for a repeal by implication is when the earlier and later statutes are irreconcilable."

 

The Second Circuit then explained that where, as here, "the later statute is the Bankruptcy Code, a distinction must be made between claim brought under the earlier statute during the pendency of a bankruptcy proceeding and those brought after a discharge."  The Court pointed out that four federal Circuit Courts of Appeals have addressed FDCPA claims filed while the bankruptcy was pending. 

 

The Court noted that, while the Second Circuit in Simmons v. Roundup Funding, LLC "has ruled that the FDCPA does not authorize suit during the pendency of bankruptcy proceedings", that decision "does not include the word 'repeal'" and "appeared to find the FDCPA inapplicable" while the bankruptcy case is pending. In addition, the Court noted that the Ninth Circuit also "ruled that the Bankruptcy Code precludes FDCPA claims brought during the pendency of bankruptcy proceedings" in Walls v. Wells Fargo Bank, N.A.

 

On the other hand, two Circuits, the Seventh and Third, have held that although the two statutes overlap at certain points, there was no repeal by implication and they are not in irreconcilable conflict, with both Circuits allowing debtors to bring FDCPA claims during the pendency of a bankruptcy case.

 

Turning to the case at bar, which involved post-discharge FDCPA claims, the Court concluded that "the Bankruptcy Code does not broadly repeal the FDCPA for purposes of FDCPA claims based on conduct that would constitute alleged violations of the discharge injunction. No irreconcilable conflict exists between the post-discharge remedies of the Bankruptcy Code and the FDCPA"

 

The Court reasoned that in the post-discharge context, the debtor – in the Court's words – "no longer has the protection of the bankruptcy court," which in Simmons it "deemed decisive on the preclusion issue prior to discharge."  Moreover, the Bankruptcy Code provision governing the discharge injunction, 11 U.S.C. § 524(1)(2), "does not explicitly create a cause of action for its violation, whereas the automatic stay provision provides such a remedy, see id. § 362(k)."

 

The Second Circuit then turned to address whether the Bankruptcy Code repealed by implication specific provisions of the FDCPA for alleged post-discharge conduct that violated the discharge injunction.

 

The loan servicer argued that debtor's FDCPA allegations irreconcilably conflicted with the Bankruptcy Code's post-discharge remedies.  The Court disagreed, reasoning that the servicer's "communication, even without a mini-Miranda warning, was an attempt to collect a discharged debt in violation of the Bankruptcy Code. The absence of a mini-Miranda warning also violated the FDCPA. There is no conflict."

 

Turning to the debtor's claims that the servicer violated subsections 1692e(11) and 1692(a)(3) by trying to collect the post-bankruptcy monthly payments the debtor agreed to make to avoid foreclosure, the Court concluded that "these alleged violations do not conflict with any provisions of the Bankruptcy Code."

 

Finally, the Court rejected the district court's reasoning that even if some of debtor's FDCPA claims did not directly conflict with the Bankruptcy Code's discharge injunction, the complaint should be dismissed under the Supreme Court's Colorado River abstention doctrine because that decision "created a limited abstention doctrine in the context of ongoing, parallel state proceedings, which do not exist here."

 

However, the Second Circuit also held that "[w]e do not rule out the unlikely possibility that in adjudicating a debtor's FDCPA claims, a district court might consider it useful to stay its proceedings to permit the plaintiff to seek clarification from a bankruptcy court as to the proper interpretation of some aspect of that court's rulings, including the discharge injunction. But the remote possibility of a need for such clarification provides no basis for routing all FDCPA claims exclusively into the bankruptcy court."

 

Accordingly, the district court's judgment was reversed, and the case remanded with instructions to reinstate debtor's FDCPA 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

 

 

 

California   |   Florida   |   Illinois   |   Indiana   |   Maryland   |   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.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

Webinars

 

and

 

California Finance Law Developments

 

and

 

Insurance Recovery Services