FYI: SDNY Allows Defendant's Offer of Full Relief to Moot TCPA Action

In a putative class action for alleged violation of the federal Telephone Consumer Protection Act, 47 U.S.C. § 227 et seq. ("TCPA"), and notwithstanding the recent ruling by the Supreme Court of the United States in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016), the U.S. District Court for the Southern District of New York recently granted a defendant's request to enter judgment in the consumer's favor providing all relief sought only by the plaintiff in his individual capacity.

 

A copy of the opinion is attached.  Since the time of this ruling, the plaintiff filed an appeal to the U.S. Court of Appeals for the Second Circuit.

 

A plaintiff sued an entertainment services company for alleged violation of the TCPA.  The district court denied the consumer's motion for class certification and related motion for reconsideration.  Thus, only the plaintiff's individual TCPA claim for $500 in statutory damages or a maximum award of $1500 if the violation was willful or knowing remained at issue. 

 

The defendant offered the consumer $1,503 plus costs, and moved for an entry of judgment in favor of the plaintiff.  The district court granted the defendant's motion, holding that the U.S. Supreme Court's decision in Campbell-Ewald did not reach the question of whether the district court had authority to enter a judgment for the plaintiff over the plaintiff's objections and dismiss the action if the full amount in controversy were actually paid.

 

As you may recall, in Campbell-Ewald v. Gomez, 136 S. Ct. 663 (2016), the Supreme Court of the United States recently held that a lawsuit is not mooted when a plaintiff refuses to accept an offer of judgment.  The Supreme Court expressly did not address the question of what happens when a defendant follows through with its offer by tendering complete individual relief, depositing the monetary relief with the court, and moving for entry of judgment.

 

Here, the District Court held that Campbell-Ewald did not "disrupt the Second Circuit's precedent allowing for the entry of judgment for the plaintiff over plaintiff's objections."  Instead, the Court held that Campbell-Ewald precludes a dismissal in favor of the defendant because of unaccepted, offered relief that obliges the defendant to pay nothing, where such offered relief is "only a proposal" with "no continuing efficacy." 136 S. Ct. at 670.

 

The District Court looked to Second Circuit precedent which comported with this principal and made judgment and full relief in favor of the plaintiff necessary precursors to the dismissal of an action in the event of an unaccepted settlement offer.  See, e.g., Tanasi v. New Alliance Bank, 786 F.3d 195, 200 (2d Cir. 2015) ("Absent [an] agreement, however, the district court should not enter judgment against the defendant if it does not provide complete relief."); McCauley v. Trans Union, L.L.C., 402 F.3d 340, 342 (2d Cir. 2005)(vacating dismissal in defendant's favor, which relieved it of the obligation to pay an unaccepted settlement, and remanding for entry of default judgment in favor of plaintiff); Bank v. Caribbean Cruise Line, Inc., 606 F. App'x 30, 31 (2d Cir. 2015)("Under the law of our Circuit, an unaccepted Rule 68 offer alone does not render a plaintiffs individual claims moot before the entry of judgment against the defendant but rather, only after the entry of judgment in the plaintiffs favor is the controversy resolved such that the court lacks further jurisdiction.")(internal citations omitted).

 

Therefore, the District Court concluded that "once the defendant has furnished full relief, there is no basis for the plaintiff to object to the entry of judgment in its favor. A plaintiff has no entitlement to an admission of liability, as a party can always incur a default judgment and liability without any factual findings."  The Court held that a defendant's deposit of a full settlement with the court, and consent to entry of judgment against it, will eliminate the live controversy before a court.

 

The District Court ruled that it would enter judgment in the plaintiff's favor upon the defendant's deposit of a bank or certified check in the amount of $1,503 plus $400 in court costs, and issue an injunction as requested by the plaintiff.  The District Court also ordered the clerk to mark the case closed upon the defendant's submission of the judgment.

 

 

 

 

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
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FYI: 9th Cir Rejects Challenge to CFPB Enforcement Authority

In a split decision, the U.S. Court of Appeals for the Ninth Circuit recently affirmed, in part, summary judgment in favor of the Consumer Financial Protection Bureau (CFPB) in an enforcement action against a law firm operating as a loan modification company.

 

In so ruling, the Court rejected the attorney loan modification company's argument that the CFPB was without authority to commence an enforcement action before its Director was properly nominated and confirmed.

 

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

 

The defendant, a licensed California attorney, operated a law firm that offered home loan modification services to consumers.

 

In July 2012, the CFPB filed a civil enforcement action against the defendant alleging that he violated the Consumer Financial Protection Act (CFPA) by suggesting to consumers that his loan modification program was affiliated with the government and by implying that consumers would likely obtain mortgage relief.

 

The CFPB further alleged that the defendant violated Regulation O (12 C.F.R. §§ 1015.1-11) by, among other things, accepting up-front payment for mortgage relief services before negotiating loan modification agreements with the consumers' lenders.

 

The CFPB sought a permanent injunction, restitution, and disgorgement of compensation. The CFPB also sought and obtained a temporary restraining order to appoint a receiver, freeze Defendant's assets, and prohibit the defendant from operating his business.

 

In June 2013, the district court entered summary judgment in favor of the CFPB and ordered $11,403,338.63 in disgorgement and restitution.

 

On appeal, the Ninth Circuit first considered whether the CFPB had standing to bring the civil enforcement action. To bring a case, a private litigant must have more than a general grievance or an interest in seeing the law obeyed. But because the Constitution authorizes the Executive Branch to enforce federal law, its duly appointed officers are exempted from the "concrete and particularized injury" requirements that private parties face under Article III. Thus the Court examined whether the CFPB had authority, as part of the Executive Branch, to bring the enforcement action in July 2012.

 

The defendant argued that the CFPB did not have a validly appointed director until July 2013, when its director was confirmed by the Senate. For support, the defendant cited NLRB v. Noel Canning, 134 S.Ct. 2550 (2014), in which the Supreme Court held that the President's recess appointments to the National Labor Relations Board did not satisfy Article II's Appointment Clause requirements because they did not occur when the Senate was out of session. The President's initial appointment of the CFPB's director occurred on the same day in 2012 and in the same manner as the NLRB appointments at issue in Canning.

 

According to the defendant, because his initial appointment was invalid, the Director lacked authority to initiate a civil enforcement action in July 2012. And, to continue that argument, if the Director did not have authority to bring the enforcement action then the CFPB could not stand in the shoes of the Executive Branch for purposes of Article III standing. 

 

In rejecting this argument, the Ninth Circuit explained that while the failure to have a properly confirmed director might raise Article II Appointments Clause issues, it would not deprive a court of its Article III jurisdiction to hear a case. The Court examined a number of cases in which the Supreme Court described Appointments Clause questions as nonjurisdictional and concluded that: "no court, including the Supreme Court, has ever suggested that Article II problems nullify Article III jurisdiction." The Ninth Circuit panel then held that the director's subsequent valid appointment, along with his August 30, 2013 ratification of all actions taken while he was serving as a recess appointee, cured any Article II deficiencies.

 

The Ninth Circuit then turned to the merits of the CFPB's case against the defendant. The Court found that the defendant's marketing mailer was deceptive because it suggested an affiliation with the United States government. Among other things, the mailer bore the Equal Opportunity Housing logo and stated that it was a "Notice of HUD Rights." The CFPB also submitted evidence that consumers were deceived by the mailer.

 

The defendant argued that he could not be held responsible for the marketing materials because they were developed by another entity, which settled with the CFPB earlier in the litigation. But the Court found that the defendant's position was contradicted by evidence demonstrating the defendant's control over, and approval of, the marketing materials at issue. The Court also rejected the defendant's arguments that the representations in the marketing materials were mere "puffery" and that any deceptive practices were corrected by the consumer agreements, which accurately described the services offered.

 

The Ninth Circuit likewise upheld the district court's finding that the defendant violated Regulation O. The defendant argued that he was not a "mortgage assistance relief service provider" subject to Regulation O because he did not provide mortgage relief services in exchange for consideration. To the contrary, he argued, consumers were only charged for custom legal products and any loan modification services were provided as part of a pro bono program. The Court characterized this as an "obvious attempt to evade the requirements of Regulation O." Even though the defendant's contracts with consumers described the loan modification services as pro bono, the Court concluded that those services were only available to consumers who paid for the legal products.

 

Turning to the district court's $11,403,338.63 judgment for disgorgement and restitution, the Ninth Circuit rejected the defendant's arguments that the district court should not have included fees paid by satisfied consumers, fees refunded by the defendant to consumers, or fees paid by consumers who were not deceived by the fraudulent marketing materials.

 

The Court was, however, receptive to the defendant's argument that the district court improperly calculated the monetary judgment by including the time period prior to the effective dates for Regulation O and the CFPA. The Ninth Circuit thus vacated this part of the district court's decision and remanded for the district court to consider whether money earned by the defendant prior to the effectiveness of Regulation O and the CFPA should be included as part of the monetary judgment.

 

Lastly, the defendant argued that the district court abused its discretion in ordering injunctive relief because it was not clear that the violations were ongoing or likely to recur. Specifically, the defendant asserted that he had no desire and ability to continue to assist distressed homeowners and that this created a factual dispute sufficient to deny the injunction.

 

The Ninth Circuit found that the record, in particular evidence that the defendant evaded and complicated the investigatory process, supported the district court's injunctive relief. The Ninth Circuit also found that the district court carefully considered the scope of the injunction and tailored it to match the risk of harm identified and minimize the impact on the defendant's business, pointing to the district court's rejection of the first proposed injunction as too broad because it would unduly limit the defendant's ability to engage in lawful employment without providing corresponding benefit to consumers.

 

The dissent took issue with the majority's analysis of the standing issue, concluding instead that because the director was not properly appointed at the time the enforcement action was commenced, the CFPB lacked executive power and was thus without Article III standing. The dissent further provided that because Article III standing must exist at the time a complaint is filed, the director's subsequent ratification of actions taken during his recess appointment was insufficient to cure the CFPB's lack of standing. The dissent concluded that the district court was obligated to dismiss the enforcement action for want of jurisdiction.

 

 

 

 

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: 8th Cir Declines to Apply Rooker-Feldman to Preclude FDCPA Action Based on State Court Lawsuit

In a federal Fair Debt Collection Practices Act (FDCPA) lawsuit, the U.S. Court of Appeals for the Eighth Circuit recently held that the Rooker-Feldman doctrine does not apply where the complained of conduct was not the underlying judgment but rather events that occurred during the state court litigation.

 

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

 

The original creditor assigned a debt to a collection agency which in turn hired an attorney to collect the debt from the debtor.  The attorney sent a letter, made a phone call and ultimately filed suit in the name of the creditor against the debtor in Missouri state court in November 2012. 

 

The debtor did not answer or otherwise appear, and the attorney obtained a default judgment in December 2012.  Thereafter, the attorney docketed the judgment in Illinois state court to initiate garnishment proceedings.  The debtor again did not answer or otherwise contest the garnishment proceedings, and a wage garnishment order was entered on December 4, 2013. 

 

Debtor filed an FDCPA complaint against the debt collector attorney on December 19, 2013 alleging that based on the assignment documents, the attorney did not have the authority to file suit in the name of the original creditor, and that the real party in interest was actually the collection agency and not the original creditor. 

 

The debtor further alleged that the Illinois garnishment action was filed in an improper venue, and that the amounts being sought under the garnishment were improper.

 

The trial court dismissed part of the complaint based on statute of limitations grounds, and held that the FDCPA's venue requirement does not apply to the post-judgment wage garnishment under the Rooker-Feldman doctrine as the complaint related to attempts to challenge the legitimacy of the Missouri judgment.

 

On appeal the Eighth Circuit addressed Rooker-Feldman, first explaining that the doctrine precludes lower federal courts from exercising jurisdiction over actions seeking review of, or relief from, state court judgments.  Citing prior Eighth Circuit opinions, the Court further explained that the "doctrine is limited in scope and does not bar jurisdiction over actions alleging independent claims arising from conduct in underlying state proceedings." 

 

Because the alleged violation was the ability to actually file the underlying state court complaint, the debt collector attorney argued that Rooker-Feldman necessarily had to apply here as the underlying issue was an issue in the state court litigation. 

 

However, relying on prior Eighth Circuit decisions, the Court rejected the argument holding instead that "prior litigation of an issue in state court may trigger traditional preclusion principles, but it does not necessarily strip the federal courts of jurisdiction."  Ultimately, because the debtor was alleging statutory violations based on the attorney's actions "in the process of obtaining the judgment and order," the Eighth Circuit held that the Rooker-Feldman doctrine would not apply.

 

After declining to apply Rooker-Feldman, the Court addressed the statute of limitations argument, and agreed with the lower court that all of the activities in Missouri including the filing of the complaint and default judgment were barred by the FDCPA's one year statute of limitations.  The Eighth Circuit also declined to apply equitable tolling based on its prior ruling holding that the FDCPA's statute of limitations is jurisdictional and not subject to equitable tolling.

 

The Eighth Circuit also affirmed the lower court's ruling that the FDCPA's venue restriction does not apply to the registration of a foreign judgment.

 

Finally, the Eighth Circuit remanded the case back to the lower court to address potential violations arising from the conduct in the Illinois wage garnishment proceedings that were neither barred by the statute of limitations or Rooker-Feldman but were not otherwise addressed in the lower court'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

 

 

 

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FYI: 5th Cir Holds No Waiver By Accepting Payments After Default But Before Acceleration

The U.S. Court of Appeals for the Fifth Circuit recently held that a mortgagee did not waive or abandon its right to foreclose by accepting payments after a default by the borrower, but before acceleration, when no representations were made to the borrower that payments less than the full obligation would bring the loan current. 

 

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

 

A borrower obtained a loan secured by a deed of trust ("DOT").  The DOT obligated the borrower to make monthly payments and gave the mortgagee the right to accelerate and foreclose in the event of a default. 

 

The DOT contained the following non-waiver provisions:

 

12. Borrower Not Released; Forbearance By Lender Not a Waiver. Extension of the time for payment or modification or amortization of the sums secured by this [DOT] granted by Lender to Borrower or any Successor in Interest of Borrower shall not operate to release the liability of Borrower or any Successors in Interest of Borrower. . . . Any forbearance by Lender in exercising any right or remedy including, with-out limitation, Lender's acceptance of payments from third persons, entities or Successors in Interest of Borrower or in amounts less than the amount then due, shall not be a waiver of or preclude the exercise of any right or remedy.

 

In December 2009, the borrower informed the mortgagee he could not make his monthly payment on time.  His December 2009 payment was made late, but the borrower alleged he made his subsequent payments on time through June of 2011.

 

Sixteen months later, the borrower allegedly returned from vacation to find that the mortgagee had returned his two mortgage payments for May and June of 2011.  The mortgagee had also initiated foreclosure proceedings.  The mortgagee sold the property at foreclosure sale over a year later

 

The borrower sued the mortgagee in state court where summary judgment was granted in favor of the mortgagee.  The plaintiff borrower then brought a second state suit against the mortgagee which was dismissed with prejudice. 

 

The plaintiff mortgagee then brought a state law quiet title action against the foreclosure purchaser claiming that the mortgagee waived its right to foreclose by accepting payments for sixteen months after the initial default, and thus could not sell the home to the foreclosure purchaser.  The purchaser removed the action to federal court where the district court dismissed the plaintiff borrower's claim.  The plaintiff borrower appealed.

 

On appeal, the plaintiff borrower argued that the DOT's non-waiver provisions did not apply because he only sought to have the note reinstated and was not attempting to avoid liability under the note.  The Firth Circuit rejected this argument as frivolous. 

 

Next, the plaintiff borrower claimed that the mortgagee waived its right to accelerate and foreclose by accepting his payments for sixteen months after the initial default before accelerating the note, and by failing to foreclose until three years after default. 

 

Analyzing the plaintiff borrower's argument, the Court cited precedent noting that the plaintiff borrower misread the three recent rulings his argument relied upon. 

 

The relevant Fifth Circuit rulings involved mortgagee that sent notices of acceleration after defaults by the borrowers.  The borrowers in each case argued that Section 16.035 of the Texas Civil Practices and Remedies Code barred the lenders' right to foreclose because more than four years had passed since the lenders first accelerated the notes.  However, the Fifth Circuit found in each case that the mortgagees had not violated the four year statute of limitations in Section 16.035 of the Texas Civil Practices and Remedies Code. 

 

The Court held that the mortgagees in the other cases had either waived or abandoned the initial acceleration by accepting additional payments after acceleration or by representing that the borrowers could bring the loans current by making payments less than the entire obligation.

 

The Fifth Circuit found that the reasoning behind its other rulings did not apply here, because the mortgagee here accepted payments after the borrower's default, but did not accept payments after the note was accelerated.

 

In addition, the Court, noted, the mortgagee here never made any representations to the borrower that the note could be made current by making payments less than the entire outstanding obligation.

 

For these reasons, the Fifth Circuit held that the DOT's non-waiver provision allowed the mortgagee to accept payments less than the entire obligation or defer acceleration and foreclosure after default without waiving any of its rights.

 

Therefore, the Court held, the mortgagee only engaged in conduct that was contemplated by the DOT's non-waiver provisions and consistent with its intent to preserve the right to accelerate and foreclose.

 

Accordingly, the Fifth Circuit affirmed the district court's dismissal.

 

 

 

 

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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