Saturday, March 19, 2016

FYI: 7th Cir Rejects Breach of Contract Allegations By Borrowers of Failed Bank Against Purchaser Bank

The U.S. Court of Appeals for the Seventh Circuit recently affirmed the dismissal of a breach of contract claim brought by a group of investors against a bank that purchased the assets of a failed bank in receivership, because there was no writing memorializing the alleged agreement, as required by the federal Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA") and the Illinois Credit Agreement Act ("ICAA").

 

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

 

A bank extended loans to a group of real property investors in 2008 and also agreed to loan them $700,000 for repairs and renovations, which was placed in escrow. The parties did not, however, execute a separate written escrow agreement.  In 2009, the Federal Deposit Insurance Corporation ("FDIC") closed the bank, and sold the loans to the plaintiff purchasing bank.

 

Despite repeated demands by the investors, the plaintiff purchasing bank never released the escrowed $700,000.

 

In 2010, the plaintiff purchasing bank filed a lawsuit to enforce the notes and guarantees, and to foreclose the against the three subject properties. The investors counterclaimed, arguing that the bank's refusal to release the escrow funds was a breach of contract.

 

The bank moved to dismiss, arguing that all the investors except one lacked standing to sue under Federal Rule of Civil Procedure 12(b)(1) and the counterclaim failed to state a claim upon which relief can be granted under Rule 12(b)(6) because there was no written escrow agreement.

 

The district court granted the motion to dismiss with prejudice, reasoning that:

 

(a) section 1823(e) of FIRREA, which provides that "[n]o agreement which tends to diminish or defeat the interest of the [FDIC] … shall be valid against the [FDIC] unless such agreement … is in writing …", barred the claim because the escrow agreement was never reduced to writing and tended to diminish the interest of the FDIC and its assignee, the plaintiff purchasing bank; and

 

(b) the claim was barred by the ICAA because "Illinois courts have held that escrow agreements for loan proceeds are credit agreements within the meaning of the ICAA … [and in order to] maintain an action on a credit agreement, the ICAA requires the agreement to be in writing."

 

On appeal, the investors first argued that "FIRREA does not apply in situations where the defunct bank is holding escrowed money for investors."  However, the Seventh Circuit noted the investors did "not cite any applicable legal authority or provide support for this proposition." Accordingly, the Seventh Circuit held that "this undeveloped argument is waived." Also, because the investors did not address the district court's construction of the ICAA, the Seventh Circuit held that any challenge to this part of the order was also waived.

 

The Seventh Circuit also rejected the investors' second argument "that by failing to return the escrow money, [the bank] committed conversion", finding that the investors waived this argument "because they only raised a breach of contract claim before the district court."

 

Finally, the Court rejected the investors' last argument, that the district court "could have permitted them to file a third amended complaint so that they could proceed under a theory of conversion" because the investors never moved to amend the counterclaim for a third time and "it was not the district court's responsibility to ask the investors to do so or to make their legal arguments for them."

 

Accordingly, the district court's judgment 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

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Friday, March 18, 2016

FYI: Fla App Ct (3rd DCA) Reverses Dismissal of Foreclosure Due to Mortgagee's Generic Witness Disclosure

The Third District Court of Appeal, State of Florida, recently reversed the dismissal of a mortgage foreclosure action based on the mortgagee's failure to provide the name of the corporate representative who was to testify at trial, holding that dismissal was an overly harsh sanction given that no prejudice was shown.

A copy of the opinion is available at: http://www.3dca.flcourts.org/opinions/3D15-0058.pdf

In October of 2009, the trustee of a mortgage-backed securities trust sued to foreclose a mortgage on real property in Miami-Dade County, Florida. In October of 2014, the case was set for trial.

The pretrial order required that the parties exchange witness lists showing the name and address of any non-expert witness to be called at trial. The order also warned that failure to "strictly comply" may result in sanctions.

The borrower failed to file a witness list altogether. The plaintiff mortgagee filed a witness list that contained a generic description of one witness — i.e., the corporate representative of the loan servicer — rather than the witness' name.

At trial, when the plaintiff mortgagee announced that it was calling the corporate representative to testify, this time referring to him by his proper name, the borrower objected because he was not on the witness list.

In response, the plaintiff mortgagee explained that it did not know the exact name of the person who would testify when it filed its witness list and the borrower suffered no prejudice as a result, such that it should either be allowed to proceed or the case should be continued to mitigate any prejudice or harm.

The trial judge reasoned that the issue was not whether the borrower suffered any prejudice from the failure to list the witness' name, but rather the plaintiff mortgagee's failure to comply strictly with the pretrial order. It then struck the plaintiff mortgagee's sole witness and dismissed the case based on the court's inherent authority to enforce its orders.

The Appellate Court reversed because the trial court, in determining whether the testimony of an undisclosed witness should be excluded, failed to consider the factors required by the Florida Supreme Court in its decision in Binger v. King Pest Control, 401 So. 2d 1310 (Fla. 1981).

Binger requires a trial judge to consider prejudice or "surprise in fact" to the opposing party, the ability to avoid any resulting prejudice, whether the calling party acted in bad faith, and whether the efficient trial of the case will be disrupted. Under Binger, if the court concludes after considering these factors that allowing the undisclosed witness to testify will not substantially affect the fairness of the trial, the witness should be allowed to testify.

The Appellate Court found that the trial judge erred by refusing to consider whether the borrower would suffer prejudice by allowing the witness to testify.  While the plaintiff mortgagee did not strictly comply with the terms of the pretrial order, the borrower was aware that a representative of the plaintiff mortgagee would testify about the relevant business records produced during discovery. Moreover, the borrower never requested the identity of the witness or attempted to depose the witness during discovery.

Because the record failed to show any surprise in fact about the existence of the witness or the subject matter about which he would testify, the Appellate Court concluded the borrower did not suffer any prejudice, the plaintiff mortgagee's witness should not have been precluded from testifying nor the case dismissed.

The Appellate Court explained that, although the trial court had the inherent authority to control its docket, that discretion must be exercised cautiously, particularly when the undisclosed witness is a party's only witness at trial, because doing so would be "the legal equivalent of the death penalty" for the party's case.

Because exclusion and dismissal in the case at bar was a punishment out of proportion to the magnitude of the offense, the order of dismissal was reversed and the case remanded.

 

 

 

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, March 17, 2016

FYI: WD NC Grants Stay of TCPA Lawsuit Pending DC Circuit Challenge to FCC Order

The U.S. District Court of the Western District of North Carolina recently stayed proceedings in a suit pending the U.S. Court of Appeals for the District of Columbia's ruling on challenges to the Federal Communication Commission's ("FCC") Declaratory Ruling and Order, 30 FCC Rcd. 7961 (2015) (the "FCC Order") under the federal Telephone Consumer Protection Act ("TCPA").

 

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

 

The plaintiff's credit card agreement contained an arbitration provision requiring that all claims against the lender, including claims against third parties to whom the plaintiff's debt was assigned for collection, be subject to arbitration.  The card issuer assigned the plaintiff's account to a third party debt collector.  The collector manually dialed the plaintiff's phone from a telephone system that allegedly had the capacity to place an autodialed call. 

 

The plaintiff filed suit in North Carolina state court against the collector alleging that the collector violated the TCPA by using an "automatic telephone dialing system" (ATDS) to contact her regarding the debt.  Although the collector manually dialed the plaintiff's phone, the plaintiff claimed that the collector's telephone system had the capacity to place autodialed calls and was thus an ATDS.

 

The collector removed the case to federal court, and then moved to dismiss and compel arbitration.  Alternatively, the collector moved to stay proceedings pending rulings in a consolidated appeal and a class action suit that could be dispositive of the plaintiff's claims. The Court denied the collector's motion to dismiss, but granted the collector's motion to stay.

 

The Western District of North Carolina held that the plaintiff was not required to pursue her claims in arbitration because the arbitration provision in the card agreement was not binding. The Court disagreed with the collector's assertion that the plaintiff consented to arbitration simply by using her credit card account. The Court noted that the arbitration provision was not dated, and contained neither the plaintiff's signature nor a proof of notice. Furthermore, the arbitration provision did not contain information linking the agreement with the plaintiff's account.  Accordingly, the Western District of North Carolina denied the collector's motion to dismiss and compel arbitration.

 

However, the Court granted the collector's motion to stay proceedings pending resolution of the DC Circuit appeal of the FCC Order.  The Court explained that several appeals of the FCC Order were consolidated by the United States Judicial Panel on Multidistrict Litigation before the Court of Appeals for the District of Columbia regarding challenges to the FCC Order defining telephone systems that qualify as an ATDS under the TCPA. The Court held that resolution of the consolidated appeals in the DC Circuit could be dispositive of the borrower's TCPA claims, noting the lack of any rebuttal from the borrower regarding this issue.

 

However, the Court denied the collector's motion to stay the proceedings pending final approval of the class action settlement in Graff v. United Collections Bureau, Inc., Case no. 2:12-cv-02402 (E.D.N.Y.). Although the borrower was a member of the putative settlement class in Graff, the Court denied the collector's request to stay the proceedings as moot, noting that it already granted the stay due to the DC Circuit appeal.

 

 

 

 

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, March 16, 2016

FYI: 6th Cir Reverses Dismissal of Class Action That Overlapped With Another Earlier-Filed Class Action

The U.S. Court of Appeals for the Sixth Circuit recently reversed a district court's dismissal of a putative class action lawsuit, holding that while the district court was correct that the first-to-file rule applied because of a previous class action involving substantially the same parties and claims, it was an abuse of discretion to dismiss the present case given the jurisdictional and procedural hurdles the plaintiffs would face if forced to become part of the earlier class action filed in another federal judicial district.

 

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

 

In March of 2014, a group of landowners in Medina, Ohio sued a natural gas company in the U.S. District Court for the Northern District of Ohio, alleging that the defendant stored natural gas under their property without compensation in violation of the Natural Gas Act, 15 U.S.C. § 717f.

 

The defendant received a "Certificate of Public Convenience and Necessity from the Federal Energy Regulatory Commission ("FERC") permitting it to store natural gas in the "Medina Field," "a naturally-occurring system of porous underground rock" into which defendant pumped natural gas during the low-demand summer months and extracted it in the winter, when demand is high. In exchange for the permit, the Natural Gas Act required the defendant to compensate any landowner whose land forms part of the Medina Field. The Act also required the defendant to file an eminent domain proceeding in the federal district court where the property is located if it could not reach agreement with the landowners.

 

The defendant offered each owner $250 in exchange for an easement allowing the natural gas storage under their land, which was rejected. The defendant did not file an eminent domain proceeding thereafter as required by the Act.

 

Meanwhile, in 2012, another group of landowners had previously filed a class action on behalf of all similarly situated Ohio landowners against the same defendant in the U.S. District Court for the Southern District of Ohio based on the same alleged conduct of not compensating owners after storing natural gas under their lands.

 

In response to the complaint in the present lawsuit, the defendant filed a counterclaim in the first case in April of 2014 seeking to exercise its power of eminent domain over the entire putative class, which included the landowners in the present case.

 

The defendant then moved to dismiss the present case, arguing that under the so-called "first-to-file" rule the putative class plaintiffs in the present case should litigate their claims in the earlier case. The district court found that the first-to-file rule applied and dismissed the present case, from which the plaintiffs appealed.

 

On appeal, the Sixth Circuit, reviewing the dismissal under an abuse of discretion standard, explained that the "first-to-file rule is a prudential doctrine that grows out of the need to manage overlapping litigation across multiple districts … [and] provides that, 'when actions involving nearly identical parties and issues have been filed in two different district courts, the court in which the first suit was filed should generally proceed to judgment."

 

Noting a scarcity of case law in the Sixth Circuit applying the rule, the Court explained that other circuit courts "generally evaluate three factors: (1) the chronology of events, (2) the similarity of the parties involved, and (3) the similarity of the issues or claims at stake." If all three factors apply, the court "must also determine whether any equitable considerations, such as evidence of 'inequitable conduct, bad faith, anticipatory suits, [or] forum shopping,' merit not applying the first-to-file rule in a particular case."

 

The Court found that all three factors were satisfied in the case at bar, and therefore that the first-to-file rule presumptively applied.

 

The first factor was satisfied because it "simply asks which of the two overlapping cases was filed first" and, although the Court agreed with the plaintiffs that defendant never filed an eminent domain action complaint, and its counterclaim in the first case not filed until after the present case was already pending, the Court agreed with the defendant that the first case was filed over a year before the plaintiffs here filed their case.

 

Turning to the second factor, similarity of the parties, the Court explained that the "first-to-file rule applies when the parties in the two actions 'substantial[ly] overlap,' even if they are not perfectly identical." It then found that even though the class in the earlier case had not been certified, because "for purposes of identity of the parties when applying the first-to-file rule, courts have looked at whether there is substantial overlap with the putative class even though the class has not yet been certified…", the plaintiffs here "undoubtedly would be members" of the class in the first case once certified. Even if the class in the first case included additional class members not parties to the present case, the overlap sufficed to satisfy the second factor.

 

The Sixth Circuit reasoned that even if the plaintiffs here opted out of the class once certified in the first action, this "would undercut the purpose of the first-to-file rule: parties, not courts, would determine when the rule could be applied and could force resource-draining duplicative class actions to proceed simultaneously. This would unduly burden the courts, and could be used as a vexatious litigation tactic. While the opt-out right may allow for (and perhaps anticipate) duplicative litigation, … it should not prospectively prohibit courts' efforts to conserve resources by applying the first-to-file rule."

 

Addressing the third factor, similarity of the issues, the Court noted that, as with the second factor, "the issues need only to substantially overlap in order to apply the first-to-file rule." Because the plaintiffs here brought substantially the same claims and were seeking the same relief as the landowners in the first case, the Sixth Circuit found the third factor was satisfied.

 

The Sixth Circuit then addressed whether equitable considerations weighed against applying the first-to-file rule, pointing out that while "[c]ourts have repeatedly warned that the first-to-file rule 'is not a mandate directing wooden application of the rule without regard to extraordinary circumstances, inequitable conduct, bad faith or forum shopping … deviations from the rule should be the exception, rather than the norm." The Court found that the defendant did not engage in forum shopping or other inequitable conduct by trying to litigate all claims in the first case, and thus "the equities to not clearly support finding that this is one of those rare cases" where the first-to-file rule should not apply.

 

Turning to the final issue, the Sixth Circuit agreed with the district court that the first-to-file rule applied to the case at bar and "[o]ther circuits have held that dismissal is an option available to a district court when applying the first-to-file rule" in some circumstances.  However, the Court found that the case at bar was not one of those circumstances.

 

Relying on the fact that "[o]ther circuits have said that a district court can abuse its discretion by dismissing a case under the first-to-file rule when doing so could adversely affect a party's interests", the Sixth Circuit concluded that the district court abused its discretion by dismissing the second action.

 

The Court reasoned that both the plaintiffs in the present case and the defendant argued that the class could not be certified in the first case, and if this happened the plaintiffs here would not be parties to that case, which could prejudice their ability to have their claims heard on the merits.

 

By way of examples, the Sixth Circuit noted the statute of limitations could pose a problem and, more importantly in the Court's view, because the district court did not specify whether the dismissal was with or without prejudice, meaning it would be treated as an adjudication on the merits by default under Fed. R. Civ. P. 41(b), "will be barred from pursuing their claims against [the defendant natural gas company] if the class in the first case is not certified, if it is certified and the plaintiffs here choose to opt out, or if the plaintiffs here successfully challenge being joined in the first case via the defendant's counterclaim.

 

Because in the Court's view dismissal of the present case would bar the plaintiffs "from fully protecting their interests, even while [the first case] goes forward," the Court concluded that the district court should have stayed the present lawsuit instead of dismissing it. The district court's dismissal order was accordingly reversed and the case remanded for further proceedings consistent with the Sixth Circuit's opinion.  

 

 

 

 

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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Tuesday, March 15, 2016

FYI: 6th Cir Rules in Favor of Debt Collector in TCPA "Attenuated Consent" Case

The U.S. Court of Appeals for the Sixth Circuit recently affirmed summary judgment in favor of a debt collector on federal Telephone Consumer Protection Act ("TCPA") allegations.

 

In so ruling, the Court held that, by providing their cellular telephone number to the primary service provider when they incurred the debt, the plaintiffs gave their "prior express consent" to be called on their cellular telephones by the debt collector of a secondary services provider, even though the debt collector did not receive the cellular telephone numbers directly from the plaintiffs. 

 

A copy of the opinion is available at:  http://www.ca6.uscourts.gov/opinions.pdf/16a0037p-06.pdf

 

Plaintiffs received medical care from a hospital.   As part of their care at the hospital, the plaintiffs received anesthesiology services.  After plaintiffs did not pay their bills for the anesthesiology services, the delinquent accounts were sent to the debt collector for collection. The debt collector called plaintiffs' cell phone numbers, despite never having received their contact information directly from the plaintiffs. 

 

The debt collector received the numbers from the anesthesiology services provider, which in turn received them from the hospital.  As part of their admission for services to the hospital, the plaintiffs signed Patient Consent and Authorization forms covering "all medical and surgical care." 

 

One of the plaintiffs' authorizations also provided that the hospital could use the health information as needed. 

 

The other plaintiff signed two different forms. In 2011, she agreed to the same terms described above.  Another form, however, was different and provided that the hospital can use her health information for, among other things, collecting moneys due from the plaintiff.  The form also authorized the hospital to release the health information to other third parties, as necessary. 

 

Plaintiffs alleged that the debt collector violated the TCPA by using an "automatic telephone dialing system" and an "artificial or prerecorded voice" to place nonconsensual calls to their cell phone numbers because they had not given their numbers to the debt collector, or the creditor on whose behalf it was calling, the anesthesiology services provider. The district court granted summary judgment in favor of the debt collector, reasoning that plaintiffs had given their "prior express consent" by way of providing their contact information to the hospital and therefore were precluded from bringing claims under the TCPA.  Plaintiffs appealed.

 

As you may recall, the TCPA regulates the use of certain technology when placing calls to consumers. It makes it unlawful for any person to place a call "using any automatic telephone dialing system or an artificial or prerecorded voice" to a cell phone number without obtaining the "prior express consent of the called party." 47 U.S.C. § 227(b)(1)(A)(iii). "[T]he FCC has interpretive authority over the [TCPA]," Charvat v. EchoStar Satellite, LLC, 630 F.3d 459, 467 (6th Cir. 2010), and its "rulings . . . shape the law in this area[.]" Hill v. Homeward Residential, Inc., 799 F.3d 544, 551 (6th Cir. 2015).

 

The Sixth Circuit began its analysis by discussing the FCC's role in interpreting the TCPA.  The FCC has provided extensive guidance regarding what constitutes "prior express consent," and four of its interpretations are particularly pertinent. First, in 1992, the FCC interpreted "prior express consent" to include a form of implied consent, reasoning in a Report and Order that "persons who knowingly release their phone numbers have in effect given their invitation or permission to be called at the number which they have given, absent instructions to the contrary." In the Matter of Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 7 FCC Rcd. 8752, 8769 (1992) (the "1992 Order").

 

In support of this construction, the FCC relied upon the TCPA's legislative history, "noting that in such instances, 'the called party has in essence requested the contact by providing the caller with the telephone number for use in normal business communications.'" Id. at 8769 n.57. The FCC was careful to distinguish between these permissible contacts where a party "call[s] a number which was provided as one at which the called party wishes to be reached" and impermissible contacts where a party learns of a telephone number in another way, such as by capturing a telephone number via Caller ID. Id. at 8769. The FCC extended this general proposition in 2008 to cell phone numbers. In the Matter of Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 23 FCC Rcd. 559, 559 (2008) (the "2008 Ruling").

 

The FCC concluded that the provision of a cell phone number to a creditor, e.g., as part of a credit application, reasonably evidences prior express consent by the cell phone subscriber to be contacted at that number regarding the debt, and that such number was provided during the transaction that resulted in the debt owed. Id. at 564–65 (footnote omitted).

 

Next, the Sixth Circuit recognized that in the FCC's 2014 GroupMe Declaratory Ruling, the FCC held "that the TCPA does not prohibit a caller . . . from obtaining the consumer's prior express consent through an intermediary[.]" Matter of GroupMe, Inc./Skype Commc'ns S.A.R.L Petition for Expedited Declaratory Ruling Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 29 FCC Rcd. 3442, 3444 (2014) ("GroupMe"). Extending the logic of the 1992 Order and the 2008 Ruling to intermediaries, the FCC noted the TCPA's ambiguity as to how consent need be obtained. But the FCC emphasized that "prior express consent" is not so narrow as to only require consent between the parties, but it did make clear that consent to be called at a number in conjunction with a transaction extends to a wide range of calls "regarding" that transaction, even in at least some cases where the calls were made by a third party. Id. at 3446. Thus, consent may be obtained by and conveyed through an intermediary. Id. at 3444–47.

 

Fourth and finally, the FCC affirmed its GroupMe decision on July 10, 2015. See In the Matter of Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 30 FCC Rcd. 7961 (2015) ("2015 Order"). The FCC stated that "[i]mportantly, . . . an intermediary can only convey consent that has actually been obtained, and cannot provide consent on behalf of another party." Id. at 7990–91. Put differently, the context of the consent provided is critical. See Hill, 799 F.3d at 552; compare, e.g., Murphy v. DCI Biologicals Orlando, LLC, 797 F.3d 1302, 1308 (11th Cir. 2015) with Nigro v. Mercantile Adjustment Bureau, 769 F.3d 804, 806–07 (2d Cir. 2014).

 

Plaintiffs argued the FCC's rulings do not apply where a consumer provides his cell phone number to one entity during the course of a business relationship, which then provides that number to another entity, which then provides that number to a debt collector to call on its behalf.

 

Plaintiffs focused on the 2008 Ruling's statement that "prior express consent is deemed to be granted only if the wireless number was provided by the consumer to the creditor." 2008 Ruling, 23 FCC Rcd. at 564. The essence of their argument was that in order for the FCC's "prior express consent" rulings to apply, the plaintiffs needed to provide their cell phone numbers to their creditor -- here, the anesthesiology services provider -- which they did not do. The Sixth Circuit rejected this reading of the FCC's interpretations.

 

The Sixth Circuit referenced its holding in Hill where "a person gives his 'prior express consent' under the [TCPA] if he gives a company his number before it calls him." 799 F.3d at 552. There, the Sixth Circuit emphasized that the context in which a debtor provides his cell phone number matters.  Importantly, we noted that while debtors "typically give their cellphone number as part of a credit application at the beginning of the debtor-creditor relations, it doesn't have to be that way." Id.

 

The Sixth Circuit next discussed Mais v. Gulf Coast Collection Bureau, Inc., 768 F.3d 1110 (11th Cir. 2014), which the district court in this case found dispositive. Indeed, the Sixth Circuit found Mais was indistinguishable from the present facts, and persuasive regarding how to apply the FCC's "prior express consent" interpretations.

 

In Mais, the plaintiff sought emergency medical treatment from a hospital. Id. at 1113. As part of the admissions process, the plaintiff's wife provided the hospital with the plaintiff's cell phone number. Id. The admissions forms, signed by the plaintiff's wife, contained a variety of disclosures regarding what the hospital may do with the plaintiff's "health information," including disclosing the information to its "business associates" (i.e., its independent physicians) and for the purpose of "bill[ing] and collect[ing] payment." Id. at 1114.  The account was eventually referred to a debt collection agency, which used automated technology to place calls to plaintiff's cell phone number, and the plaintiff brought a purported class action under the TCPA. Id. The Eleventh Circuit rejected the same argument plaintiffs present here:  that the FCC's 2008 Ruling applies only to situations where a consumer provides a cell phone number "to the creditor . . . during the transaction that resulted in the debt owed." Id. at 1122–23.

 

The Sixth Circuit found persuasive the Eleventh Circuit's reliance on the fact that the FCC has held that "prior express consent" exists when one has "made the number available to the creditor regarding the debt"; i.e., not just in "direct delivery" cases. Id. The Mais court bolstered this conclusion by noting the FCC's recognition in GroupMe "that the TCPA does not prohibit a caller from obtaining consent through an intermediary."

 

Plaintiffs attempted to distinguish Mais, arguing that it enlarges the scope of the FCC's rulings. 

 

First, they argued Mais construed the phrase "provide" too broadly to mean something more than just "directly giving a cellular telephone number to a creditor" and thus read out its consumer protection construction. The Sixth Circuit found this contention to be meritless because it would require it to both opine on the validity of the FCC's rulings (which it cannot do) and ignore the FCC's use of the word "available."

 

Second, Plaintiffs argued that "prior express consent" is an exception and thus must be strictly construed. To follow this argument, the Sixth Circuit noted it would have to reject the FCC's guidance — which it cannot do.

 

Third, plaintiffs contended that none of the FCC's rulings relied upon by the Eleventh Circuit support its conclusion. Notably, according to the plaintiffs, the Mais court misread GroupMe to apply to the provision of cell phone numbers by an intermediary as opposed to "prior express consent." They also contended that GroupMe's holding is narrower because the servicer at issue obtained prior express from consumers then represented that prior express consent to others. 

 

The Sixth Circuit disagreed.  The Sixth Circuit recognized that the FCC's GroupMe ruling stressed that "allowing consent to be obtained and conveyed via intermediaries in this context facilitates . . . normal, expected, and desired business communications in a manner that preserves the intended protections of the TCPA." 29 FCC Rcd. at 3445. The 2015 Order also emphasized that consent depends "upon the facts of each situation." 30 FCC Rcd. at 7990.

 

Fourth, the plaintiffs argued that Mais undermines the rationale of the "prior express consent" exception. That is, the plaintiffs argued the rule codifies social practice:  if one gives a number (especially when requested), it is an invitation to be called.  From this, the plaintiffs argued there is no social practice to extend the giving of a number to one party as an invitation for a third party to call.

 

The Court rejected these arguments.  In sum, the Sixth Circuit adopted the Mais conclusion that consumers may give "prior express consent" under the FCC's interpretations of the TCPA when they provide a cell phone number to one entity as part of a commercial transaction, which then provides the number to another related entity from which the consumer incurs a debt that is part and parcel of the reason they gave the number in the first place.

 

More specifically, the Sixth Circuit held that the provision of a cell phone number to a hospital, that then provides that cell phone number to an affiliated physicians' group that provided medical services to a consumer arising out of the same occurrence of hospitalization, constitutes "prior express consent" under the TCPA for the affiliated physicians' group or its debt collector to call the cell phone number.

 

The Court noted that the FCC's rulings in this area make no distinction between directly providing one's cell phone number to a creditor and taking steps to make that number available through other methods.  Moreover, the Court noted that the FCC's GroupMe ruling and 2015 Order make clear that there is no one way for a caller to obtain consent. 

 

Next, the Sixth Circuit examined the facts at hand to determine whether plaintiffs provided their "prior express consent" as part of their admissions to the hospital. One authorization signed in 2009 and the authorization at issue in Mais was virtually indistinguishable. In Mais, the plaintiff acknowledged that the hospital "may use and disclose health information about your treatment and services to bill and collect payment from you[.]"  One plaintiff here similarly represented that "[the hospital] may use [her] health information for a range of purposes including . . . billing and collecting money's due from [her.]" The Mais plaintiff understood that the hospital could "use and disclose health information . . . [t]o business associates we have contracted with to perform the agreed upon service and billing for it," "disclose your health information to our business associates so that they can perform the job we've asked them to do and bill you," and "release the healthcare information for purposes of . . . payment . . . ." Id. Likewise, the 2009 authorization here included similar language.

 

The issue here was whether "health information" in the authorization included the plaintiff's cell phone number. Relying on Mais, the district court answered in the affirmative, relying in part on the Health Information Portability and Accountability Act ("HIPAA"), finding that the hospital's registration forms, in which it received plaintiffs' wireless numbers, constitute information related to future payment, and therefore, part of plaintiffs' health information. 

 

Plaintiffs contended this was in error because: (1) the authorization in Mais expressly defined "health information," and the 2009 authorization did not; (2) HIPAA and its definition of "health information" do not apply to consumers; (3) the general public would not understand the ordinary meaning of "health information" to include a cell phone number; and (4) the adhesive nature of the authorization must be construed in plaintiffs' favor.

The Sixth Circuit acknowledged that these arguments carry some weight, but held that the result would be nonsensical. That is, the Court explained that the plaintiffs' reading would make the express provision authorizing disclosure of the plaintiff's information as "necessary for . . . purposes" of "billing and collecting moneys due from [her]" inoperative if the hospital could not release the very contact information —including her cell phone number — she provided to the hospital as part of her admission.

 

Moreover, the Sixth Circuit held that the district court properly relied upon HIPAA to bolster its conclusion.  Although the plaintiff did not draft the 2009 authorization, the authorization is a contract related to giving consent for medical care, and, as such, "health information" must be read through this prism to give it a proper meaning. See Savedoff v. Access Grp., Inc., 524 F.3d 754, 764 (6th Cir. 2008).  Under HIPAA, "health information" includes "any information . . . created or received by a health care provider . . . relat[ing] to . . . the past, present, or future payment for the provision of health care to an individual." 42 U.S.C. § 1320d(4).  The Sixth Circuit held that contact information most undoubtedly is any information that relates to a patient's payment for care provided.

 

Next, the Sixth Circuit rejected the plaintiffs' argument that the consent was valid for only one year.  After setting forth all of the specific "authorizations," the 2009 authorization then carved out a specific authorization for the release of a certain kind of information:  "The preceding authorizations for release of medical information include authorization for the release of information regarding drug and/or alcohol abuse, HIV (Human Immunodeficiency Virus) testing or HIV infection related conditions. This authorization shall remain valid for one (1) year."  The Court held that a plain reading of this language indicates that the one-year restriction is not for the entire 2009 authorization, but rather for the authorization relating to release of information for drugs, alcohol, and HIV.

 

In sum, the Sixth Circuit held that the district court correctly granted summary judgment in favor of the debt collector for those calls it placed to plaintiff arising out of her 2009 authorization.

 

The Court also held that the plaintiffs' 2011 authorizations similarly could not be read in the manner suggested by plaintiffs. Just as in Mais and the 2009 authorizations, the 2011 authorization similarly put plaintiffs on notice that the hospital "may use [their] health information for many reasons as needed . . . [including for] billing and payment." This authorization is broader in two key respects: (1) it allows the hospital to use plaintiffs' health information "for many reasons as needed" as opposed to the 2009 authorization's "for a range of purposes"; and (2) unlike the 2009 authorization, the 2011 authorization is not limited to the "release [of their] health information . . . to such employees, agents or third parties as are necessary for these purposes and to companies who provide billing services for physicians or other providers involved in my medical care."

 

In addition, and as with the 2009 authorization, the Court held that "health information" necessarily includes plaintiffs' contact information; otherwise, the provision concerning "billing and payment" would be rendered meaningless.  Next, the Court held that the plaintiffs' contentions that the 2011 authorization's "may use" phrase could not be read as "may disclose," and that the authorization did not specifically identify the entities to which the hospital would disclose, wholly ignored the broad and separate provision authorizing the "release" of plaintiffs' health information.

Accordingly, the Sixth Circuit held that the district court also correctly granted summary judgment to the debt collector for those calls it placed to plaintiffs arising out of the 2011 authorization.

 

The Sixth Circuit ultimately concluded that plaintiffs sought medical treatment from the hospital, and in the course of this relationship, both gave the hospital their cell phone numbers and authorized it to disclose their cell phone numbers to others. The "other" in this case — the anesthesiology services provider — had a significant relationship with the hospital, plaintiffs, and most critically, the debts owed by plaintiffs that arose from the transactions in which plaintiffs provided their cell phone numbers.

 

As a final matter, the Sixth Circuit rejected the plaintiffs' reliance on the statement in the FCC's 2008 Ruling that the cell phone number must be "provided during the transaction that resulted in the debt owed" for the proposition that the debt collector "failed to prove that the numbers were provided during the anesthesiology services transactions that resulted in the anesthesiology services debts owed."  

 

The Court noted that this same argument was previously rejected in Hill, 799 F.3d at 551.  The Court noted that the FCC never used the words "initial" or "original" before "transaction," but instead said that the debtor gives his consent when he gives his number "during the transaction" that involves the debt (i.e., "regarding the debt").

 

Accordingly, the Sixth Circuit affirmed the district court's ruling in favor of the debt collector.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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Email: rwutscher@MauriceWutscher.com

 

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