FYI: 11th Cir Finds No Irreconcilable Conflict Between FDCPA and Bankruptcy Code

In a much-anticipated follow-up to its 2014 decision in Crawford v. LVNV Funding, LLC, 738 F.3d 1254 (11th Cir. 2014), the U.S. Court of Appeals for the Eleventh Circuit recently held that there is no irreconcilable conflict between the federal Fair Debt Collection Practices Act (FDCPA) and the Bankruptcy Code.

 

In so ruling, the Court reversed the dismissal of two FDCPA cases filed against debt buyers that submitted proofs of claim on debts that were subject to a statute of limitations defense.

 

A copy of the opinion is available at:  http://media.ca11.uscourts.gov/opinions/pub/files/201511240.pdf

 

As you may recall, in its 2014 decision in Crawford, the Eleventh Circuit held that a debt collector violates the FDCPA when it files a proof of claim in a bankruptcy case on a debt that it knows to be "time-barred."  But the panel in Crawford did not consider whether the Bankruptcy Code preempts or displaces the FDCPA "when creditors misbehave in bankruptcy."  Crawford at 1262, n. 7.

 

The action at hand arose from two appeals from the United States District Court for the Southern District of Alabama. The underlying lawsuits concerned FDCPA claims filed against debt buyers that filed proofs of claim in the plaintiffs' Chapter 13 bankruptcy cases. The proofs of claim related to debts that, if sued upon, would have been subject to a statute-of-limitations defense based on Alabama's six-year limitation period. The District Court dismissed both cases based on a finding that the Eleventh Circuit's decision in Crawford placed the FDCPA and the Bankruptcy Code in irreconcilable conflict such that there was an implied repeal of the FDCPA by the Code.

 

The Eleventh Circuit recognized that a creditor is permitted to file a proof of claim on a debt subject to a statute-of-limitations defense, and the Court pointed out that when the "bankruptcy process is working as intended," a time-barred proof of claim will not be paid by the bankruptcy estate.  The Court also noted that just because creditors are permitted to file proofs of claim on debts that are subject to a statute-of-limitations defense, they are not free from all of the consequences of filing these claims.

 

The Eleventh Circuit noted that creditors which meet the FDCPA's definition of "debt collector" are a "narrow subset of the universe of creditors who might file proofs of claim in a Chapter 13 bankruptcy." Under the FDCPA, debt collectors are prohibited from using "any false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. $ 1692e.  In addition, debt collectors may not use any "unfair or unconscionable means to collect or attempt to collect any debt." 15 U.S.C. $ 1692f.

 

The Court reiterated its holding in Crawford that a debt collector's filing of a proof of claim on a "time-barred" debt violates the FDCPA.

The Eleventh Circuit disagreed with the District Court's finding that an "irreconcilable conflict" between the Bankruptcy Code and the FDCPA amounted to an implied repeal of the FDCPA by the Code.

 

Instead, the Eleventh Circuit held that the FDCPA and the Bankruptcy Code can be construed together in a way that allows them to coexist.

 

According to the Eleventh Circuit, the Bankruptcy Code and the FDCPA provide different tiers of sanctions for creditor misbehavior in bankruptcy. Under the Bankruptcy Code, a bankruptcy trustee can object to any time-barred proof of claim and the bankruptcy court will deny payment of the claim if it finds that the objection is proper. In addition, a bankruptcy court has the power to sanction a party for misbehavior that is more severe.

 

The Eleventh Circuit explained that the FDCPA, rather than conflicting with the Bankruptcy Code, provides an additional layer of protection from a particular type of creditor – i.e., a debt collector. The Court pointed out that although the Bankruptcy Code permits the filing of a proof of claim on a debt subject to a limitations defense, it does not require it.

 

Also, the Court noted, a debt collector may still file a proof of claim on a debt that it knows is beyond the applicable limitations period, so long as it is willing to subject itself to a potential action under the FDCPA.  The Court compared this to a frivolous lawsuit, ruling that nothing prohibits the filing of a frivolous lawsuit, but the filer will be subject to sanctions.

 

On the other hand, the Eleventh Circuit held, the debt collector who unintentionally or in good faith files a proof of claim on a debt subject to a limitations defense may find safe harbor in the FDCPA's bona fide error defense.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

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

 

Admitted to practice law in Illinois

 

 

 

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FYI: FCC Issues NPRM as to Calls "Made Solely to Collect a Debt Owed to or Guaranteed by the United States"

The Federal Communications Commission (FCC) recently issued a Notice of Proposed Rulemaking (NPRM) regarding recent amendments to the federal Telephone Consumer Protection Act (TCPA), seeking comment on among other things: 

 

(1) which calls are covered by the phrase "solely to collect" under the amendments; 

(2) the meaning of the phrase "a debt owed to or guaranteed by the United States" in the amendments; 

(3) how the FCC should restrict the number and duration of covered calls;

(4) whether consumers should have a right to stop covered calls at any point the consumer wishes; and 

(5) whether callers should be required to inform consumers of such a right.

 

A copy of FCC's NPRM is available at:  Link to NPRM

 

As you may recall, Congress amended the TCPA in the Bipartisan Budget Act of 2015 to allow autodialed calls "made solely to collect a debt owed to or guaranteed by the United States" without the prior express consent of the called party. 

 

The amendments also require the FCC to "prescribe regulations to implement the requirements" within nine months of enactment of the amendments (i.e., by Aug 2, 2016), and to adopt rules to "restrict or limit the number and duration" of these covered calls.

 

"Solely to collect a debt"

 

Among other things, the FCC proposes to interpret "solely to collect a debt" to mean "only those calls made to obtain payment after the borrower is delinquent on a payment."  The FCC also proposes that "servicing calls" -- i.e., "calls to convey debt servicing information" -- should be included in covered calls.

 

The FCC seeks comment on how it should interpret the term "delinquent," or whether covered calls may "only be made after the debtor is in default," how it should define "default," and whether a distinction should be made "between default caused by non-payment and a default resulting from a different cause under the terms of the debt instrument."

 

The FCC also seeks comment on what types of calls should be included in "servicing calls," how to distinguish servicing calls from "marketing calls," whether covered calls should be allowed to start only after a borrower is delinquent on a payment, and whether delinquency should also be a trigger for debt servicing calls.

 

"Owed to or guaranteed by the United States"

 

The FCC also seeks comment on the meaning of the phrase "a debt owed to or guaranteed by the United States," including "whether there are any circumstances under which a party other than the federal government obtains a pecuniary interest in a debt such that the debt should no longer be considered to be 'owed to . . . the United States.'"

 

For example, the FCC asks for comment on "[w]hat is a debt 'owed to' the United States and a debt 'guaranteed by' the United States?," and "[d]oes the phrase 'owed to or guaranteed by' include debts insured by the United States?," and "would a debt still be 'owed to . . . the United States' if the right to repayment is transferred in whole or part to anyone other than the United States, or a collection agency collects the funds and then remits to the federal government a percentage of the amount collected?" 

 

Who May Be Called

 

The FCC seeks comment on whether the phrase "solely to collect a debt" should "include only calls to the person or persons obligated to pay the debt," and whether the FCC should "limit covered calls to the cellular telephone number the debtor provided to the creditor, e.g., on a loan application."

 

The FCC also seeks comment on "whether calls to persons the caller does not intend to reach, that is persons whom the caller might believe to be the debtor but is not, are covered by the exception," and proposes to exclude such calls from the exception. 

 

In addition, the FCC proposes "that calls to a wireless number a debtor provided to a creditor, but which has been reassigned unbeknownst to the caller, are not covered by the exception, but have the same one-call window the [FCC] has found to constitute a reasonable opportunity to learn of reassignment." 

 

Who May Make Covered Calls

 

The FCC proposes to allow "calls made by creditors and those calling on their behalf, including their agents," but asks whether "there a limiting principle to determining who should be deemed to be acting on behalf of the creditor."

 

The also seeks comment on "whether and, if so, how the Supreme Court's recent decision in Campbell-Ewald Co. v. Gomez [regarding unaccepted offers of judgment, and the mootness doctrine] should inform our implementation of the Budget Act amendments to the TCPA."

 

Limits on Number and Duration of Covered Calls

The FCC proposes to limit the number of covered calls to three per month, per delinquency and only after delinquency.  The FCC also proposes "that the limit on the number of calls should be for any initiated calls, even if unanswered by a person."

 

The FCC also seeks comment on "the maximum duration of a voice call, and whether [it] should adopt different duration limits for prerecorded- or artificial-voice calls than for autodialed calls with a live caller," whether the FCC should limit the length of text messages, and how to count "debt servicing calls" for purposes of the proposed three-call limit per month.

 

Consumer's Ability to Stop Covered Calls

 

The FCC proposes "that consumers should have a right to stop [covered] calls at any point the consumer wishes," and that "stop-calling requests should apply to a subsequent collector of the same debt."

 

The FCC also proposes "to require callers to inform debtors of their right to make such a request," and seeks comment "on when and how callers should provide such notice."

 

The FCC also seeks comment on whether callers making covered calls should be required "to record any request to stop calling and provide a record of such a request to subsequent callers along with other information about the debt."

 

 

 

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: Nevada Sup Ct Holds HOA Superpriority Lien Does Not Include Atty Fees and Collection Costs

The Supreme Court of Nevada recently held that a superpriority lien for common expense assessments pursuant to Nevada Revised Statutes ("NRS") 116.3116(2) does not include collection fees and foreclosure costs incurred by a homeowners' association ("HOA").

 

In so ruling, the Court also held that an HOA's covenants, conditions, and restrictions ("CC&Rs") that purport to create a superpriority lien covering a different period of time than allowed by NRS 116.3116(2) is superseded and negated by the statute.

 

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

 

The HOA recorded its Declaration of CC&Rs in July 2005. Later that year, a homeowner purchased the property.  The HOA had the ability to collect and charge assessments, and administer and enforce the CC&Rs upon unit owners, for the purpose of benefitting the community.

 

In June 2009, the homeowner became delinquent on his mortgage loan and subsequently, and the mortgagee recorded a notice of default. In August 2009, the HOA also recorded a notice of default against the homeowner for nonpayment of association assessments and other costs.

 

The mortgagee foreclosed on the property before the HOA could do so. A foreclosure auction was held the same day.  The purchaser subsequently transferred the property by quitclaim deed to the respondent, a holding company.

 

The HOA demanded around $6,000 to extinguish its lien, as the holding company acquired the property subject to the HOA's unextinguished superpriority lien.  The HOA lien included roughly $2,700 in collection fees and foreclosure costs. The holding company acknowledged the property was subject to the superpriority lien but denied that the HOA lien included nine months -- rather than only six months -- of unpaid assessments, or the collection fees and foreclosure costs.

 

The holding company ultimately filed the underlying action, seeking a declaratory ruling that under NRS 116.3116(2), the superpriority portion of an HOA's lien consists of nine months' (or alternatively six months' based on the CC&R's) worth of assessments, and does not include collection fees and foreclosure costs.

 

The trial court granted partial declaratory relief holding that the HOA's CC&Rs limited it's superpriority lien to an amount equal to six months of assessments, which did not offend NRS 116.3116(2)'s superpriority provision providing for nine months' assessments. The HOA then appealed.

 

As you may recall, NRS 116.3116(1) confers to an HOA a lien on a homeowner's unit for unpaid assessments, construction penalties, and fines levied against the unit. NRS 116.3116(2) establishes the priority of that lien, splitting the lien into two pieces—"a superpriority piece and a subpriority piece." SFR Invs. Pool 1 v. U.S. Bank, N.A., 130 Nev., Adv. Op. 75, 334 P.3d 408, 411 (2014). 

 

Under NRS 116.3116(2), the superpriority lien is "prior to all security interests . . . to the extent of any charges incurred by the association on a unit pursuant to NRS 116.310312 and to the extent of the assessments for common expenses based on the periodic budget adopted by the association pursuant to NRS 116.3115 which would have become due in the absence of acceleration during the 9 months immediately preceding institution of an action to enforce the lien." 

 

The HOA argued that the Supreme Court of Nevada should adopt the holding in Hudson House Condominium Ass'n Inc. v. Brooks, 611 A.2d 862 (Conn. 1992). The Connecticut court in Hudson House concluded that the superpriority lien included interest, collection costs, and attorney fees. The court relied on a Connecticut statute which authorized costs and attorney's fees. The court in Hudson House believed including such costs and fees with the superpriority lien was the only reasonable and rational result as common expense assessments are often small, and the prioritized portion of the lien is typically the only collectable portion for an HOA, that the legislature would not have authorized such proceedings without including the costs of collection.

 

The Supreme Court of Nevada first disagreed with Hudson House because the Connecticut court did not conduct a statutory analysis of the superpriority lien language under the Nevada statute.  The Court also noted that neither the Connecticut statute creating the lien nor NRS 116.3116(2) mention collection fees and costs, and both states' statues provide that the lien is limited to the extent of the assessment for common expenses.

 

Second, the Supreme Court of Nevada held that the Nevada legislature has the authority to determine the definition of a superpriority lien and may provide for additional recovery of collection fees and costs under other provisions. Lastly, the Supreme Court of Nevada disagreed with Hudson House because the Connecticut court, in effect, found the HOA as the prevailing party, making it entitled to costs and fees under the Connecticut statute. Accordingly, the Supreme Court declined to apply the holding in Hudson House to the instant case.

 

The HOA also argued that Nevada Administrative Code ("NAC") 116.470 must also be applied in conjunction with NRS 116.3116(2).  The administrative code provision -- NAC 116.470 -- sets a cap of $1,950 on foreclosure fees and costs that applies in most foreclosure sales. The HOA argued that if the statutory provision -- NRS 116.3116(2) -- is read to not include collection fees and foreclosure costs, it would contradict the NAC provision by removing the need for a cap. The Supreme Court of Nevada disagreed, holding that interpreting the superpriority lien to include such fees and costs does not preclude them from being incurred up to the cap.

 

The Supreme Court also looked to the legislative history of the statutory provision and found that the Nevada Legislature did not intend for collection fees and foreclosure costs to be included in a superpriority lien. The Court noted that the NRS cultivated from the Uniform Common Interests Ownership Act ("UCIOA") of 1982, and that section 3-116 of the UCIOA is substantially similar to NRS 116.3116.  The Court observed that UCIOA 3-116 amended the section to include reasonable attorney fees and foreclosure costs. However, the Court noted, although a similar amendment was considered for NRS 116.3116, the Nevada Legislature never adopted such an amendment. 

 

Moreover, because the costs of collecting as set forth in the later amended NRS 116.310313 was omitted from NRS 116.3116(2), the Supreme Court of Nevada presumed the Nevada Legislature did not intend for such costs to be included as part of an HOA's superpriority lien.

 

The HOA also urged the Supreme Court of Nevada to give deference to an advisory opinion from the Commission for Common Interest Communities and Condominium Hotels ("CCICCH"). The CCICCH determined that Nevada law authorized the collection of charges for late payment of assessments as a portion of the super lien amount.

 

Alternatively, the holding company suggested the Supreme Court give deference to the Nevada Real Estate Division ("NRED"), as they are charged with administering Chapter 116 of the NRS. Additionally, the holding company argued that the CCICCH had no authority to publish administrative opinions because such authority is reserved by statute to the NRED. The NRED concluded that the HOA's lien does not include costs of collecting as defined by NRS 116.310313.

 

The Supreme Court of Nevada was persuaded by the NRED interpretation.  The Court concluded that the superpriority lien granted by NRS 116.3116(2) did not include an amount for collection of fees and foreclosure costs incurred, but instead it is limited to an amount equal to the common expense assessments due during the nine months before foreclosure.

 

The Court then addressed the question of if the HOA's CC&R's liens were superseded by NRS 116.3116. The HOA argues there were two superpriority liens, a statutory lien and a contractual lien under their CC&R's. The holding company argued NRS 116.3116 superseded the CC&R's, but the time frame in the CC&R's (six months) shortened NRS 116.3116(2)'s allowance of nine months of common expense assessments.

 

The trial court had held there to be only one superpriority lien, which included interest, costs, and other fees, as long as the prioritized portion of the lien does not exceed the amount equal to six months of assessments, as noted in the CC&R's.  On appeal, the Supreme Court noted that the language in the CC&R's indicated that a lien was created covering certain fees and costs over six months preceding foreclosure. However, the Court also noted that NRS 116.1206(1) provided that any provision contained in a declaration is superseded by the provisions of chapter 116.

 

Accordingly, the Supreme Court of Nevada held that NRS 116.1206(1) negated the effect of the CC&R's provisions relating to the six-month priority lien because they violate the plain language of NRS 116.3116(2) by limiting the prioritized portion to six months when the statute allows for nine months, and including certain fees and costs. Thus, the Court held that the trial court's limitation of the superpriority lien to six months was in error.

 

In sum, the Supreme Court of Nevada concluded that a superpriority lien pursuant to NRS 116.3116(2) does not include additional amounts for collection fees and foreclosure costs that an HOA incurs preceding a foreclosure sale.  Instead, the HOA's superpriority lien is limited to an amount equal to nine months of common expense assessments.  In addition, to the extent that CC&R provisions can be read as creating a superpriority lien covering a different time frame than provided by NRS 116.3116(2), the CC&R provisions are superseded by statute and thus negated.

 

Accordingly, the Court affirmed in part and reversed in part the trial court's ruling.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

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

 

Admitted to practice law in Illinois

 

 

 

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FYI: Ill App Ct (1st Dist) Holds Pleading Plaintiff is "Mortgagee" Sufficient Under Illinois Mortgage Foreclosure Law

The Appellate Court of Illinois, First Judicial District, recently held that an allegation that the plaintiff is a "mortgagee" under the Illinois Mortgage Foreclosure Law ("IMFL") is sufficient to plead its capacity to sue.

 

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

 

The plaintiff mortgagee filed a complaint alleging defendant borrowers were in default, and that it was the "mortgagee" under the IMFL, 735 ILCS 5/15-1208. The plaintiff attached copies of the mortgage and the note indorsed in blank to the complaint.

 

The defendants subsequently filed a motion to dismiss and requested the circuit court to strike portions of the complaint, arguing that the plaintiff failed to sufficiently plead its capacity to sue, in that the plaintiff's allegation that it was the "mortgagee" provided no indication of plaintiff's interest in the loan. The defendants also argued that the plaintiff could not qualify as the holder of the note because the note listed a different entity as the lender.

 

The trial court denied defendant's motion without stating a basis. Defendants then answered the complaint and asserted three affirmative defenses: (1) lack of standing in that the plaintiff supposedly did not demonstrate it was the holder of the note; (2) lack of consideration in that the plaintiff supposedly did not pay anything in exchange for the transfer of the note; and (3) lack of privity to contract as the defendants did not execute a contract with the plaintiff.  The plaintiff filed a motion to strike the affirmative defenses.

 

After the plaintiff presented the original note indorsed in blank in open court, the trial court allowed the defendants to withdraw with prejudice their affirmative defenses, which then allowed the plaintiff to withdraw its motion to strike as moot.

 

The trial court granted the plaintiff's motion for summary judgment and a judgment for foreclosure was entered. The defendants appealed.

 

As you may recall, the IMFL establishes the formal pleading requirements for a foreclosure complaint. Section 15-1504(a)(3)(N) of the IMFL requires the plaintiff to state the capacity in which it brings the foreclosure. The section further provides how a plaintiff might be a mortgagee, such as by being the legal holder of the indebtedness, pledgee, agent, trustee under a trust deed "or otherwise as appropriate."

 

Section 15-1208 of the IMFL defines a "mortgagee" as "(i) the holder of an indebtedness or obligee of a non- monetary obligation secured by a mortgage or any person designated or authorized to act on behalf of such holder and (ii) any person claiming through a mortgagee as successor." 735 ILCS 5/15-1208.

 

The Appellate Court based its holding on the phrase "or otherwise as appropriate" in Section 15-1504(a)(3)(N) of the IMFL. The Court found that "or otherwise as appropriate" indicates the list provided is not all inclusive. The Appellate Court found that stating that the plaintiff is a "mortgagee" under the IMFL is sufficient to plead a plaintiff's capacity the bring a foreclosure cause of action under the IMFL.

 

Additionally, by attaching copies of the mortgage and a note endorsed in blank to the complaint, the Appellate Court held that the plaintiff sufficiently pled that it was bringing suit in the capacity of legal holder of the indebtedness.  Accordingly, the Appellate Court held that the plaintiff complied with the IMFL's pleading requirements.

 

Thus, the Appellate Court found that the trial court did not err when it denied the defendants' motion to dismiss, and affirmed the judgment of the trial court.

 

 

 

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

 

 

 

Alabama   |   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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FYI: 7th Cir Holds Data Breach Plaintiffs Alleged Enough For Art III Standing, But Ruling May Not Hold Up Under Spokeo

Reversing the trial court's ruling dismissing the action for lack of standing, the U.S. Court of Appeals for the Seventh Circuit recently held that the increased risk of fraudulent credit or debit card charges and possible identity theft due to a data breach that already occurred was "certainly impending future harm", and was sufficient for Article III standing.

 

In addition, the Court also held that time and money the plaintiffs allegedly spent resolving fraudulent charges and plausible identity theft, also were sufficient injuries for Article III standing.

 

However, this opinion was issued prior to the Supreme Court of the United States' ruling in Spokeo v. Robins, which clarified that harm sufficient to confer Article III standing cannot be hypothetical or conjectural; it must be "actual or imminent."  It is not clear whether the Seventh Circuit's ruling in this case will withstand scrutiny under Spokeo v. Robins.

 

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

 

A restaurant chain experienced a computer hack which resulted in credit and debit-card data being stolen. On June 12, 2014, the restaurant announced this computer hack and as a precaution encouraged its customers to monitor their card statements.  

 

Months after the original announcement, the restaurant determined the data was stolen from only 33 restaurants, including only one from Illinois. The plaintiffs did not dine at this location.

 

The plaintiffs each brought their own suit against the restaurant chain seeking damages resulting from the data security breach, on behalf of themselves and on behalf of a putative class.

 

The first plaintiff allegedly dined at the restaurant chain in April, 2014 and supposedly noticed fraudulent charges on his debit card two months later. This plaintiff allegedly then learned about the data breach at the restaurant and claimed that he purchased a credit monitoring service to protect against identity theft. He spent $106.89 on the service.

 

The second plaintiff dined at the same restaurant location as the first plaintiff, but did not have any fraudulent charges on his debit card.  However, the second plaintiff alleged he spent spend time and effort monitoring his credit card statements and his credit report to ensure that no fraudulent charges had been made on his card.

 

The two suits were consolidated. In the aggregate, the claims they asserted on behalf of the class exceeding $5,000,000 and minimal diversity existed.  The district court dismissed the consolidated action for lack of standing.

 

As you recall, to invoke federal jurisdiction, plaintiffs must demonstrate that they have suffered a concrete and particularized injury that is fairly traceable to the challenged conduct, and is likely to be redressed by a favorable judicial decision.

 

The Seventh Circuit previously examined standing in a case involving a data breach. In Remijas v. Neiman Marcus Grp., LLC, 794 F.3d 688 (7th Cir. 2015), a department store experienced a data breach that potentially exposed the payment–card data of all customers who paid with cards during the previous year. The Seventh Circuit identified two future injuries that were sufficiently imminent: the increased risk of fraudulent credit or debit-card charges, and the increased risk of identity theft.  The Seventh Circuit held in Remijas that these were not mere "allegations of possible future injury," but instead were the type of "certainly impending" future harm that the Supreme Court requires to establish standing.

 

The Seventh Circuit in Remijas also held there was no need to speculate as to whether customer information had been stolen and what information was taken where a data theft that had already occurred.

 

Moreover, the Seventh Circuit in Remijas found injuries sufficient for standing in the time and money the class members spent resolving fraudulent charges, as well as in the identity theft that had already occurred or in the time and money spent protecting against future identity theft.  The Seventh Circuit in Remijas held that the fact that the data breach had already occurred made the risk of identity theft and fraudulent charges sufficiently immediate to justify mitigation.

 

In the instant case, the plaintiffs alleged the same sort of future injuries as were discussed in Remijas. The Seventh Circuit found it is plausible to infer a substantial risk of harm from a data breach because a primary incentive for hacks is to make fraudulent charges or assume the consumers' identities.

 

The Seventh Circuit held that both named plaintiffs alleged sufficient facts to support standing.  According to the Court, one plaintiff had already allegedly experienced fraudulent charges, although the bank was able to stop the charges before they went through, and the other plaintiff allegedly spent time and effort monitoring his financial information as a guard against fraudulent charges and identity theft.

 

The defendant restaurant chain argued that the plaintiffs' mitigation was unreasonable because there was no threat of identity theft.  However, the plaintiffs alleged that the defendant had encouraged customers to monitor their credit reports, rather than simply their credit and debit card statements for existing affected cards.  The First Circuit previously found that expenses for replacing cards and purchasing a credit monitoring service were reasonably mitigation after a data breach. See Anderson v. Hannahford Bros. Co., 659 F.3d 151, 162 (1st Cir. 2011). Thus, Seventh Circuit here ruled that the plaintiffs' mitigation was reasonable.

 

The defendant also contested whether the plaintiffs' data was actually exposed in the breach. The Seventh Circuit found this immaterial as the plaintiffs' factual allegations must only be plausible at the pleadings stage. The Court held that the plaintiffs did plausibly allege their data was stolen, as the defendant addressed customers who had dined at all of its stores in the United states, and admitted it did not originally know how many stores were affected.  The Court noted that although this creates a factual dispute, it does not destroy standing.

 

The Seventh Circuit also briefly discussed the plaintiffs' other alleged injuries. The Court found that at least some of the plaintiffs' injuries qualify as immediate and concrete injuries to support Article III standing.

 

The Seventh Circuit then addressed causation and redressability. The Court found that the plaintiffs alleged that the defendant's location they both visited was among the locations involved in the data breach and included enough facts to meet the plausibility standard. The defendant alleged alternative causes for the plaintiffs' claim, but the Court held that merely identifying potential alternative causes does not defeat standing.

 

As to redressability, the Court held that the plaintiffs and those in the putative class (should it be certified), allegedly have quantifiable financial injuries including purchasing a credit monitoring service, loss of point accrual (if it has monetary value), and reimbursement for fraudulent charges.  The Seventh Circuit held that a favorable judgment would redress the plaintiffs' injuries.

           

The Seventh Circuit lastly addressed the defendant's alternative argument that the plaintiffs failed to state a claim upon which relief could be granted. The Court did not address this argument as the district court dismissed the plaintiffs' claims for lack of subject matter jurisdiction. The Court noted it could only grant additional relief if the appellee files a cross-appeal and the defendant in this case did not do so.

 

In sum, the Seventh Circuit concluded that the plaintiffs alleged enough to support Article III standing, and reversed the trial court's ruling.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

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

 

Admitted to practice law in Illinois

 

 

 

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FYI: 3rd Cir Rejects Attempt to Distinguish Campbell-Ewald, Holds Rule 68 Offer of Judgment Did Not Moot Claims

The U.S. Court of Appeals for the Third Circuit recently upheld a trial court's ruling that an unaccepted offer of judgment under Fed. R. Civ. Pro. Rule 68, made before a plaintiff files a motion for class certification, does not make the case moot. 

 

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

 

The named plaintiff filed a putative class action against the defendants for alleged violation of the federal Telephone Consumer Protection Act ("TCPA"). The plaintiff alleged that the defendants transmitted more than 10,000 facsimiles to the plaintiff and other members of the class without express invitation or permission.

 

On November 15, 2013, before the plaintiff filed a motion for class certification, the defendants made offers of judgment under Fed. R. Civ. Pro. 68 to the named plaintiff.

 

The defendant offered "$1,500 for each and every facsimile advertisement sent to Plaintiff . . . as alleged in Plaintiffs' complaint . . . and in addition any such other relief which is determined by a court of competent jurisdiction to be necessary to fully satisfy all of the individual claims of Plaintiff . . . arising out of or related to the transmission of facsimile advertisements sent to Plaintiff . . . by or on behalf of Defendants." 

 

The defendant also offered to pay costs and stop sending any facsimile advertisements that violated the TCPA. The plaintiff did not respond to the offers of judgment.

 

On December 4, 2013, the defendants moved to dismiss for lack of subject matter jurisdiction under Fed. R. Civ. Pro. 12(b)(1), arguing the unaccepted offers of judgment mooted the case.

 

The trial court judge, relying on Weiss v. Regal Collections, 385 F.3d. 337 (3d Cir. 2004), denied the defendants' motion to dismiss on the grounds that the plaintiff's action could proceed because they had not engaged in "undue delay" in failing to file their motion for class certification and a successful class certification would relate back to the filing of the class complaint. The relation back of the certification of the proposed would allow for the class representative to retain standing to litigate class certification, though his individual claim might moot.

 

The defendants subsequently moved to certify the trial judge's order for interlocutory appeal. The trial judge certified his order denying defendants' motion in order that the appellate court could review the question of whether an unaccepted offer of judgment under Rule 68 in a putative class action, when the offer is made before the plaintiff files a motion for class certification pursuant to Rule 23, moots the plaintiff's entire action including the putative class claims, and thereby depriving the court of federal subject matter jurisdiction.

 

As you may recall, FRCP 68 provides:

 

At least 14 days before the date set for trial, a party defending against a claim may serve on an opposing party an offer to allow judgment on specified terms, with the costs then accrued. If, within 14 days after being served, the opposing party serves written notice accepting the offer, either party may then file the offer and notice of acceptance, plus proof of service. The clerk must then enter judgment. . . . An unaccepted offer is considered withdrawn, but it does not preclude a later offer. Evidence of an unaccepted offer is not admissible except in a proceeding to determine costs.

 

See Fed. R. Civ. P. 68(a)-(b).

 

The Third Circuit upheld the trial court's ruling, expressly relying on Campbell-Ewald Company v. Gomez, 136 S. Ct. 663 (2016).  According to the Appellate Court, the underlying allegations in Campbell-Ewald were indistinguishable from the present case. 

 

In Campbell-Ewald, the Supreme Court of the United States held that "an unaccepted offer to satisfy [a] named plaintiff's individual claim [is not] sufficient to render a case moot when the complaint seeks relief on behalf of the plaintiff and a class of persons similarly situated." Id. It further held that "in accord with Rule 68 of the Federal Rules of Civil Procedure . . . an unaccepted settlement offer has no force." Id. Accordingly, because an unaccepted settlement offer has no force, it moots neither the plaintiff's individual claims nor the case as a whole.

 

The Third Circuit found that Campbell-Ewald overruled their previous holding in Weiss that an offer of compete relief will generally moot a plaintiff's claim, as at that point the plaintiff retains no personal interest in the outcome of the litigation.

 

Accordingly, the Appellate Court found that where an unaccepted offer of judgment under Fed. R. Civ. Pro. 68, made before a plaintiff files a motion for class certification, does not make the case moot, and thus affirmed the trial court's order denying defendants' motion to dismiss.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

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

 

Admitted to practice law in Illinois

 

 

 

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

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

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

 

Financial Services Law Updates

 

and

 

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and

 

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and

 

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and

 

Insurance Recovery Services