FYI: 7th Cir Rejects FDCPA Claims That Illinois Wage Garnishments Are Actions "Against Consumer"

The U.S. Court of Appeals for the Seventh Circuit recently held that a wage garnishment action under Illinois law is not a legal action "against a consumer" under the federal Fair Debt Collection Practices Act (FDCPA).

 

Accordingly, the Court held, an Illinois wage garnishment action need not be pursued only in the judicial district in which the debtor signed the debt agreement, or in which the debtor currently resides, under 15 U.S.C. § 1692i(a)(2).

 

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

 

Two Illinois debtors filed similar complaints against a debt collector in the U.S. District Court for the Northern District of Illinois, alleging that the debt collector violated the FDCPA by filing wage garnishment actions against the debtors' employers in a judicial district where the debtors did not live.

 

In both cases, the debt collector obtained default judgments against each of the debtors. In each case, the debt collector then filed wage garnishment actions in the First Municipal District in downtown Chicago and obtained summonses against the debtors' respective employers.

 

In their complaints, both debtors argued that the debt collector's filing of the wage garnishment action in the district closest to the employers violated the FDCPA's venue provision, 15 U.S.C. § 1692i(a)(2), because, according to the debtors, the debt collector should have filed the wage garnishment actions in the municipal district in which the debtors resided. 

 

The debt collector moved to dismiss the debtors' complaints on the basis that its filing of an affidavit for a wage deduction did not constitute a "legal action" against a "consumer" within the meaning of the FDCPA. The trial courts agreed with the debt collector and granted its motions to dismiss the debtors' complaints. The debtors appealed and consolidated their appeals.  

 

As you may recall, 15 U.S.C. § 1692i(a)(2) is aimed at preventing debt collectors from filing claims against consumers in improper venues. The debtors filed their complaints relying on 15 U.S.C. § 1692i, which provides in relevant part that "[a]ny debt collector who brings any legal action on a debt against any consumer shall … bring such action only in the judicial district or similar legal entity—(A) in which such consumer signed the contract sued upon; or (B) in which such consumer resides at the commencement of the action." 15 U.S.C. § 1692i(a)(2).

 

The parties here did not dispute that: (1) each debtor qualified as "consumer" under the FDCPA; and (2) the defendant was a "debt collector" under the FDCPA. The sole issue on appeal was whether the debt collector's wage garnishment actions constituted a "legal action … against any consumer" under § 1692i.  

 

On appeal, the Seventh Circuit first determined the plain meaning of "legal action," which is not defined in the FDCPA. Basing its interpretation on Black's Law Dictionary, which was in effect at the time the FDCPA was enacted, and on the Ninth Circuit's rulings in S&M Inv. Co. v. Tahoe Reg'l Planning Agency, 911 F.2d 324, 327 (9th Cir. 1990), and Fox v. Citicorp Credit Svcs., Inc., 15 F.3d 1507, 1515 (9th Cir. 1994).  The Seventh Circuit concluded that "legal action" under § 1692i means all judicial proceedings. 

 

The Seventh Circuit then turned its attention to meaning of the phrase "against any consumer" in 15 U.S.C. § 1692i(a)(2).

 

The debtors argued that the Seventh Circuit should interpret wage garnishment actions under Illinois law as being directed at the underlying judgment debtor and not their third-party employers because the statutory scheme requires that judgment debtors receive notice and an opportunity to contest responses given by their employers during the proceedings.

 

The Seventh Circuit rejected the debtors' argument, holding that the focus of the Illinois wage deduction scheme is on the third-party employer, not the judgment debtor.

 

The Seventh Circuit held that, first, the summons is issued against the employer, not the debtor, and must be served upon the employer and a judgment debtor is only entitled to notice via U.S. mail. 735 ILCS 5/12?805(a). 

 

Second, in Illinois, the debt collector serves interrogatories upon the employer who then must respond to them under oath. 735 ILCS 5/12?808(c). Third, although the debtor receives a copy of the employer's answered interrogatories and may contest those answers or request a hearing to dispute whether certain wages are exempt, the only response that is necessary for the action to continue the action is the employer's. 735 ILCS 5/12-811(a)–(b). In other words, the judgment debtor is not a necessary participant.

 

Fourth, the Illinois employer may be found liable if it does not comply with the wage garnishment process, including having a conditional judgment entered against it if it fails to appear and answer in response to a summons, 735 ILCS 5/12-807(a). The Seventh Circuit observed that no such penalty exists for the judgment debtor. Finally, the Seventh Circuit concluded that wage garnishment actions must be filed in the county where the third party employer resides, regardless of the judgment debtor's residence. Ill. S. Ct. R. 277(d).

 

Due to these characteristics of an Illinois wage garnishment action, the Seventh Circuit concluded that a wage-garnishment action is a legal proceeding against an employer, not a consumer.  

 

The Seventh Circuit based its conclusion both on precedent and the purpose behind the FDCPA. The Seventh Circuit relied on Smith v. Solomon & Solomon, P.C., 714 F.3d 73, 75 (1st Cir. 2013), in which the First Circuit analyzed a similar Massachusetts wage deduction scheme and concluded the action was "geared toward compelling the [employer] to act, not the debtor." 714 F.3d at 76. There, the Massachusetts wage deduction scheme, like Illinois's regime, required the summons to be issued against the employer and filed in the county where the employer resides. Id. at 75– 76. Like the Illinois scheme, the Massachusetts regime required that the debtor receive notice and "an opportunity to contest." Id. at 76.  The Seventh Circuit also noted that the Eighth Circuit, when analyzing the same Illinois wage garnishment scheme in Hageman v. Barton, 817 F.3d 611, 618 (8th Cir. 2016), also concluded the action was not "against any consumer."

 

The Seventh Circuit also noted that the Federal Trade Commission's 1988 commentary on the FDCPA provides "[i]f a judgment is obtained in a forum that satisfies the requirements of [15 U.S.C. § 1692i], it may be enforced in another jurisdiction, because the consumer previously has had the opportunity to defend the original action in a convenient forum." Id. (quoting Statements of General Policy or Interpretation Staff Commentary On the Fair Debt Collection Practices Act, 53 Fed. Reg. 50,097, 50,109 (Dec. 13, 1988)).

 

The Seventh Circuit also noted that the debtors had a chance to defend themselves in a venue that was considered appropriate under its interpretation of § 1692i at the time the suits were filed. At that time, Newsom v. Friedman, 76 F.3d 813 (7th Cir. 1996) was still good law in the Seventh Circuit. Under Newsom, Illinois circuit courts constituted a "judicial district" within the meaning of § 1292i, rejecting the Newsom's plaintiff's interpretation there that Cook County Circuit Court's Municipal Department's smaller units—the municipal district—could constitute a "judicial district or similar legal entity," which, if accepted, would have required debt collectors to file their complaints in the proper municipal district.

 

Therefore, the Court noted that under Newsom, debt collectors would not have violated the FDCPA's venue provision if they filed their complaint against a debtor in any municipal district in Cook County, so long as the resident resided in Cook County or the consumer signed the contract being sued upon in Cook County. The Court explained that this is what the creditors in this case did when they filed suit in Cook County Circuit Court against the debtors who were Cook County residents. The Seventh Circuit noted that it was irrelevant in Newsom that the creditors filed their complaints against the plaintiffs in the First Municipal District and not the Sixth Municipal District. 

 

The Seventh Circuit also noted that Newsom remained intact until it was overruled in in Suesz v. Med-1 Solutions, LLC, 757 F.3d 636 (7th Cir. 2014) (en banc). Under Suesz, debt collectors must now file in the proper municipal district within Cook County Circuit Court.  That decision was issued in July 2014, which the Seventh Circuit noted was too late for the debtors in this case, because the one-year statute of limitations had already run on their FDCPA claims. 15 U.S.C. § 1692k(d).

 

Although Suesz was made retroactive, 757 F.3d at 649–50, the Court held Suez did not invalidate the FDCPA's statute of limitations and bring to life claims for which the limitations period had long run. The Seventh Court, relying on Soignier v. Am. Bd. of Plastic Surgery, 92 F.3d 547, 553 (7th Cir. 1996), refused to circumvent the important policies underlying a statute of limitations, which include "rapid resolution of disputes; repose for those against whom a claim could be brought; avoidance of litigation involving lost evidence or distorted testimony of witnesses."  

 

The debtors also argued that the Seventh Circuit should embrace the reasoning of Adkins v. Weltman, Weinberg & Reis Co., L.P.A., No. 2:11-CV-00619, 2012 WL 604249 (S.D. Ohio Feb. 24, 2012), in which the district court analyzed the Ohio wage garnishment regime and determined that "[o]nly the judgment creditor and the judgment debtor have any beneficial interest at stake in a garnishment action" and that the employer is only a "nominal 'defendant.'"

 

The Seventh Circuit rejected the debtors' argument, noting that there was a key feature that differentiated Illinois's regime from the Ohio regime -- to file a wage garnishment action in Illinois, a debt collector must file it in the county where the third party employer resides. Ill. S. Ct. R. 277(d).

 

Under Illinois law then, if, for example, the judgment debtor lived in Boone County and executed the contract at issue in Boone County and the debtor's employer resided in Winnebago County, the debt collector would never be able to garnish the debtor's wages without violating the FDCPA.

 

Noting that the FDCPA was created to prevent abusive debt collection practices, not to prevent law abiding debt collectors from collecting on legally enforceable debts, the Seventh Circuit declined to adopt interpretation of the unpublished decision of Adkins.  

 

Accordingly, the Seventh Circuit affirmed the district courts' judgments dismissing the debtors' complaints.

 

 

 

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   |   Georgia   |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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

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

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars

 

and

 

California Finance Law Developments

 

and

 

Insurance Recovery Services

 

 

 

 

FYI: 9th Cir Rejects FDCPA Claim for Failure to Disclose "Debt Collector" Status in Follow Up Communications

The U.S. Court of Appeals for the Ninth Circuit recently held that there is no federal Fair Debt Collection Practices Act ("FDCPA") violation if a subsequent communication is sufficient to disclose to the least sophisticated debtor that the communication was from a debt collector, even without expressly stating "this communication is from a debt collector."

 

In reaching the conclusion, the Court gave weight to the extensive communication between the debtor and debt collector, prior to the debt collector's employee leaving a voicemail in which the employee stated he was from the debt collector.

 

A link to the opinion is available at:  Link to Opinion

 

In order to qualify for a business credit card, a debtor filled out the application using his spouse's former business.  The debtor used the credit card for personal items and subsequently defaulted on the debt.  The creditor referred the debt to a debt collector. 

 

The debt collector first contacted the debtor on the telephone.  The debt collector required its employees to identify both the nature of the call and to identify the company as a debt collector.  The debtor did not allege that the debt collector employee failed to communicate this information during its initial contact with the debtor. 

 

In two telephone calls, the debtor and his wife each referred the debt collector employee to a debt settlement firm.  Over the next few weeks, the debt collector employee communicated exclusively with the debt settlement firm.  The debt collector made multiple attempts to reach the debtor's representative during this time. 

 

The case was later assigned to a different debt collector employee.  This newly-assigned employee had all remaining relevant contacts with the debtor.  

 

After failed attempts to reach the debt settlement firm, the debt collector employee emailed the debtor to thank him for a telephone inquiry to settle the debt.  The debtor wrote back and offered to settle the credit card debt for a percentage of the total due.  The debt collector employee wrote that he would provide the information to the creditor. 

 

The next day, the debt collector employee and the debtor again exchanged emails concerning more details as to settlement.

 

A few days later, the debtor emailed the debt collector employee about the status of the settlement offer.  The debt collector employee wrote back and explained that there was no update.

 

A week later, the debt collector employee called the debtor and left the following message: "Hello this is a call for [the debtor] from [the employee] at the [law firm].  Please call sir, it is important, my number is [law firm number].  Thank you."  In the voicemail message, the employee did not state that the company was a debt collector. 

 

After the voicemail, the debtor and the debt collector employee exchanged eleven additional emails in the span of eight days.  The debt collector employee informed the debtor that his offer had been declined and that the debt collector would move forward with legal action.  The parties still had not reached an agreement almost three months after the initial contact. 

 

The debt or filed suit alleging that the voicemail did not disclose the debt collector was as a debt collector, in supposed violation of the federal Fair Debt Collection Practices Act ("FDCPA").  The lower court held a bench trial and ruled in favor of the debtor.   The debt collector appealed the ruling.

 

On appeal, the Ninth Circuit noted that 15 U.S.C. § 1692(e)(11) requires a debt collector to disclose in the initial communication that the debt collector is attempting to collect a debt and any information obtained will be used for that purpose.  The provision also requires that the debt collector must "disclose in subsequent communications that the communication is from a debt collector," with the exception of formal pleadings made in a legal action.

 

The Court also clarified that any error in a debt collector's communications must be material in order to be actionable under § 1692e of the FDCPA.  The Court recited that mere technical errors that deceive no one do not give rise to liability under the FDCPA.

 

As you may recall, the "least sophisticated debtor" standard for FDCPA claims assumes a basic level of understanding, but does not include bizarre or idiosyncratic interpretations.  Accordingly, the Court examined whether the voicemail at issue would be sufficient to disclose to the least sophisticated debtor that the call was on behalf of a debt collector. 

 

The Court noted that prior to the relevant voicemail, the debtor and the debt collector employee had been involved in potential settlement discussions for about a two week period.  The debtor had made a telephone inquiry to the debt collector employee about settlement.  The debt collector employee and the debtor exchanged eight emails in this time period. 

 

Moreover, the Court gave weight to the fact that, at the time the debt collector employee left the voicemail, the debtor had a pending settlement offer for a percentage of the total due.  The debtor even asked the debt collector employee for a status report as to the settlement offer.   Most importantly for the Court, in the voicemail the debt collector employee identified himself by his first name and stated that he was from the debt collector.

 

The Ninth Circuit determined that the lengthy communication history and the fact that the debt collector employee identified himself by his first name and stated that he was from the debt collector was sufficient to disclose to the least sophisticated debtor that the communication at issue was from a "debt collector" under 15 U.S.C.§ 1692(e)(11).

 

The Court noted that any other interpretation of the voicemail at issue would be bizarre or idiosyncratic.  In this context, the Court found that the voicemail was not "false, deceptive, or misleading" under 15 U.S.C.§ 1692(e).

 

The Court held that § 1692(e)(11) does not require subsequent communications from a debt collector to use any specific language so long as it is sufficient to disclose that the communication is from a debt collector. 

 

Accordingly, the Ninth Circuit 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

 

 

 

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

 

 

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

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

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars

 

and

 

California Finance Law Developments

 

and

 

Insurance Recovery Services

 

 

 

 

FYI: 9th Cir Holds Nevada HOA Lien Foreclosure Statute Facially Unconstitutional

The U.S. Court of Appeals for the Ninth Circuit held that the Nevada home owners association (HOA) foreclosure statute facially violated mortgage lenders' constitutional due process right, and that the Nevada legislature's enactment of a statute governing foreclosure of liens by HOAs constituted "state action." 

 

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

 

A purchaser of Nevada real estate who acquired title at a home owners association (HOA) foreclosure sale brought an action in Nevada state court seeking to quiet title and a declaration against the mortgage lender, as holder of first deed of trust on property.  The lender removed the action to the federal court.

 

The U.S. District Court for the District of Nevada granted the purchaser's summary judgment motion.  The trial court based its ruling in favor of the purchaser on Nevada Revised Statutes section 116.3116, et seq. (the "Nevada HOA Statute").  The lender appealed to the Ninth Circuit.

 

As you may recall, the Nevada HOA Statute strips a mortgage lender of its first deed of trust when an HOA forecloses on the property based on delinquent HOA dues.  The Nevada HOA Statute also purports to shift the burden of ensuring adequate notice from the foreclosing HOA to a mortgage lender without regard for: (1) whether the mortgage lender was aware that the homeowner had defaulted on her dues to the HOA, (2) whether the mortgage lender's interest had been recorded such that it would have been easily discoverable through a title search, or (3) whether the HOA had made any effort whatsoever to contact the mortgage lender.

 

On appeal, the purchaser argued that Nevada Revised Statutes section 107.090 should be read into the Nevada HOA Statute and that its provisions cured any deficiency.  The purchaser argued that Nevada Revised Statute section 116.31168(1), which incorporated section 107.090, mandated actual notice to mortgage lenders whose rights are subordinate to an HOA super priority lien. Section 116.31168(1) states "[t]he provisions of NRS 107.090 apply to the foreclosure of an association's lien as if a deed of trust were being foreclosed."  According to the purchaser, this incorporation of section 107.090 meant that foreclosing HOAs were required to provide notice to mortgage lenders even absent a request. 

 

The Ninth Circuit rejected the purchaser's argument, holding that the purchaser's reading would impermissibly render the express notice provisions of Chapter 116 entirely superfluous.  The Appellate Court relied on S. Nev. Homebuilders Ass'n v. Clark County, 121 Nev. 446, 117 P.3d 171, 173 (2005), which held that a statute must be interpreted "in a way that would not render words or phrases superfluous or make a provision nugatory." 

 

The Ninth Circuit held that section 116.31163 and section 116.31165 required any secured creditor to request notice of default from an HOA before the HOA had any obligation to provide such notice.  Accordingly, Court found that if section 116.31168(1)'s incorporation of section 107.090 were to have required HOAs to provide notice of default to mortgage lenders even absent a request, section 116.31163 and section 116.31165 would have been meaningless.

 

In addressing the constitutionality of the Nevada HOA Statute's "opt-in" notice scheme, the Ninth Circuit relied on Small Engine Shop, Inc. v. Cascio, in which the U.S. Court of Appeals for the Fifth Circuit concluded that an "opt-in" notice clause contained in Louisiana's real property foreclosure statute could not satisfy due process requirements.  Small Engine Shop, Inc. v. Cascio, 878 F.2d 883 (5th Cir. 1989).  The clause at issue in Small Engine Shop, Inc. provided that actual notice of seizure of real property was required for only those who requested it.  The U.S. Court of Appeals for the Fifth Circuit explained that it would be unconstitutional for the state by statute to "prospectively shift the entire burden of ensuring adequate notice to an interested property owner regardless of the circumstances."  Small Engine Shop, Inc. at 884.

 

The Ninth Circuit therefore held that the Nevada HOA Statute's "opt-in" notice scheme, which required an HOA to alert a mortgage lender that it intended to foreclose only if the lender had affirmatively requested notice, facially violated the lender's constitutional due process rights under the Fourteenth Amendment to the United States Constitution. 

 

The purchaser also argued that there had been no "state action" for purposes of constitutional due process.  The Ninth Circuit rejected the purchaser's argument and held that the "state action" requirement had been met.  Relying on Am. Mfrs. Mut. Ins. Co. v. Sullivan, 526 U.S. 40, 50, 119 S.Ct. 977, 143 L.Ed.2d 130 (1999) and Apao v. Bank of New York, 324 F.3d 1091, 1094 (9th Cir. 2003), the Ninth Circuit observed that the fact that the foreclosure sale itself was a private action was irrelevant to the lender's due process argument, and held that the Nevada Legislature's enactment of the Nevada HOA Statute was a "state action" and that the enactment of the Statute unconstitutionally degraded the lender's interest in the property.  

 

Thus, the Ninth Circuit ruled that Nevada Revised Statutes section 116.3116's "opt-in" notice scheme facially violated mortgage lenders' constitutional due process rights. The Court vacated the district court's judgment and remanded the case for proceedings consistent with its 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

 

 

 

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

 

 

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

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

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars

 

and

 

California Finance Law Developments

 

and

 

Insurance Recovery Services

 

 

FYI: ND Ill Holds HPA Preempts Breach of Contract and UDAP Claims "Relating to" HPA's Requirements

The U.S. District Court for the Northern District of Illinois recently held that the federal Homeowners Protection Act, 12 U.S.C. § 4901, et seq. ("HPA"), preempts state law UDAP and breach of contract claims, when the state law claims are based on allegations "relating to" the HPA's requirements.

 

A copy of the opinion is attached.

 

A borrower purchased private mortgage insurance (PMI) in connection with his mortgage loan.  He received the required PMI disclosure form, notifying him that his PMI policy would automatically terminate on the date his principal balance was scheduled to reach 78 percent of the original value of the property.

 

The borrower later entered into a loan modification agreement.  The borrower alleged that if the servicer "had properly calculated the automatic PMI termination date based on the loan modification, he would have been entitled to a new automatic termination date."  He also alleged that the servicer "never notified him of a newly calculated PMI termination date or of his rights to automatic PMI termination pursuant to a newly calculated date."

 

The borrower asserted that the "failure to terminate the PMI or to provide him with the appropriate notifications violated the HPA."  He also asserted "that the PMI disclosure form that he was provided became part of a contract between him and [the servicer], a contract that he claims [the servicer] violated by failing to terminate PMI at the proper time."  In addition, the borrower asserted that, by failing to comply with the HPA, the servicer supposedly "engaged in unfair acts and practices" in alleged violation of the state UDAP statute.

 

As you may recall, the HPA requires that a mortgagor's PMI obligation "shall terminate . . . on the termination date" if the mortgagor is current on his payments. 12 U.S.C. § 4902(b). The "termination date" is the date on which the principal balance of the mortgage is first scheduled to reach 78 percent of the original value of the property securing the loan. Id. § 4901(18).

 

Following termination of PMI under the HPA, the servicer must return any unearned PMI premium no later than 45 days after termination. Id. § 4902.  In addition, the Court noted that when the PMI obligation terminates under the HPA, the servicer must notify the mortgagor in writing, within 30 days of termination, that the PMI has terminated and that he no longer has PMI and owes no further premium, payments, or other fees in connection with the PMI.  Id. § 4904(a). If, however, the servicer determines that a mortgage did not meet the requirements for PMI termination, the Court noted that the servicer must provide written notice, within 30 days of the scheduled termination date, of the grounds relied on to make that determination. Id. § 4904(b).

If a mortgagor and mortgagee agree to a loan modification, "the cancellation date, termination date, or final termination shall be recalculated to reflect the modified terms and conditions of such loan." Id. § 4902(d).

 

The HPA also contains an express preemption clause, which provides that the HPA "shall supersede any provisions of the law of any State relating to requirements for obtaining or maintaining private mortgage insurance in connection with residential mortgage transactions, cancellation or automatic termination of such private mortgage insurance, any disclosure of information addressed by this chapter, and any other matter specifically addressed by this chapter."  12 U.S.C. § 4908(a)(1).  

 

The HPA does not preempt "protected State laws" — i.e., laws concerning PMI requirements enacted before or within two years after the date the HPA was adopted on July 29, 1998 by a state that had PMI requirements in effect before January 2, 1998 — unless they are inconsistent with the HPA. Id. § 4908(a)(2)(A), (C).  A protected state law that requires earlier PMI termination or the disclosure of more information, earlier disclosure, or more frequent disclosures is not considered inconsistent with the HPA.  Id. § 4908(a)(2)(B).

 

The borrower here did not argue that his state law claims were based on "protected State laws" under the HPA. Instead, the borrower argued that the HPA does not preempt his breach of contract or state UDAP claims because those claims supposedly did not "relate to the HPA requirements relating to private mortgage insurance."

 

The Court disagreed, pointing out that the borrower's state law allegations did not assert anything materially different than the borrower's HPA allegations.  The Court noted that "[a]llowing the state law claims to go forward, the court concluded, would allow those claims to 'function as an alternate enforcement mechanism, echoing the enforcement provisions of the HPA, and frustrating Congress' objective of a uniform regulatory scheme.'" 

 

The Court found that the borrower's state-law UDAP claim was "based on the same conduct as his HPA claim, and thus such claims — if allowed to proceed — would provide Illinois plaintiffs an alternative mechanism to enforce their HPA rights, thereby frustrating Congress' goal of uniformity." 

 

The Court also found that the borrower's "breach of contract claim in this case is based entirely on the HPA's PMI termination and disclosure requirements." 

 

The Court noted that breach of contract claims are "usually not subject to preemption because contractual claims are generally based on self-imposed, rather than state-imposed, obligations."  Although "Congress' intention to stop States from imposing their own substantive standards does not necessarily imply any intent to restrict private parties from bargaining with each other and agreeing to take on different substantive obligations themselves," the Court held that "breach of contract claims are not immune from preemption."

 

Thus, the Court held that "to the extent Congress' purpose in enacting the HPA was 'to remove from the states' purview the regulation of requirements concerning PMI cancellation and disclosure,' … allowing a plaintiff to enforce alleged violations of the HPA through an alternative remedial mechanism, such as a breach of contract claim, would be 'fundamentally at odds with the goal of uniformity that Congress sought to implement.'"

 

The borrower argued that "state law claims that do not impose additional obligations, but only add additional remedies for conduct prohibited under federal law, are not preempted."  Rejecting this argument, the Court held that "all of the general preemption cases [the borrower] cites involved the assertion of independent state law claims  — that is, state law claims whose success did not depend upon a finding that the federal law at issue was violated." 

 

Here, the Court noted, the borrower's "state law claims are entirely dependent on his HPA claim."  The Court held this means the state law claims were preempted under the HPA.

 

Accordingly, the Court granted the servicer's motion to dismiss those claims.

 

 

 

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

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

 

Admitted to practice law in Illinois

 

 

 

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

 

 

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

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

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars

 

and

 

California Finance Law Developments

 

and

 

Insurance Recovery Services

 

 

 

 

FYI: SD Cal Holds No Standing For TCPA Plaintiff Alleging 290 Nonconsensual Calls

The U.S. District Court for the Southern District of California recently held that a TCPA plaintiff alleging some 290 unwanted autodialed calls to her call phone did not demonstrate "concrete injury" sufficient to confer Article III standing under Spokeo v. Robins.

 

A copy of the opinion is attached.

 

The plaintiff failed to make payments her credit card, and started to receive collection calls. The defendant creditors allegedly called the plaintiff on her cellular telephone over 290 times using an automated telephone dialing system ("ATDS") over the course of six months between July and December 2014.  The plaintiff answered only three of these telephone calls.

 

The plaintiff alleged that "Defendant's unlawful conduct caused Plaintiff severe and substantial emotional distress, including physical and emotional harm, including but not limited to: anxiety, stress, headaches (requiring ibuprofen, over the counter health aids), back, neck and shoulder pain, sleeping issues (requiring over the counter health aids), anger, embarrassment, humiliation, depression, frustration, shame, lack of concentration, dizziness, weight loss, nervousness and tremors, family and marital problems that required counseling, amongst other injuries and negative emotions." She also testified in her deposition that, as a result of the collection calls, she suffered "nervousness, a lot of tension, problems with my husband, headaches, my neck, and they would go down to my back and I would lose my appetite. I lost weight."

 

As you may recall, "the 'irreducible constitutional minimum' of standing consists of three elements. The plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision."  Spokeo v. Robins, 136 S. Ct. 1540, 1547 (2016) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992)).

 

The Court recited that "Congress cannot erase Article III's standing requirements by statutorily granting the right to sue to a plaintiff who would not otherwise have standing.'" Spokeo, 136 S.Ct. at 1547-48.  "To establish injury in fact, a plaintiff must show that he or she suffered 'an invasion of a legally protected interest' that is 'concrete and particularized' and 'actual or imminent, not conjectural or hypothetical.'" Id. at 1548 (quoting Lujan, 504 U.S. at 560).

 

Again citing Spokeo, the Court noted that a plaintiff does not "automatically satisf[y] the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right. Article III standing requires a concrete injury even in the context of a statutory violation." Id. at 1549.  A "bare procedural violation, divorced from any concrete harm," does not satisfy the injury-in-fact requirement of Article III. Id.

 

The Court also noted that "a plaintiff must demonstrate standing for each claim he seeks to press." DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 352 (2006). In other words, "standing is not dispensed in gross." Id. (quoting Lewis v. Casey, 518 U.S. 343, 358 n.6 (1996)).

 

The Court observed that, because the TCPA provides for a separate statutory $500 damage award for each call that violates its provisions, the plaintiff must establish standing for each violation -- i.e., the plaintiff must have suffered an injury in fact caused by each individual nonconsensual autodialed call to her cell phone.

 

In other words, "[t]he determination of standing to bring a TCPA claim based on a call made using an ATDS does not change whether it is the only call alleged to have violated the TCPA or 1 of 290 calls that allegedly violated the TCPA," and "the Court must determine whether [p]laintiff has evidence of an injury in fact specific to each individual call, and not in the aggregate based on the total quantity of calls."

 

The Court explained that "[i]nstead of basing a violation based on the quantity of calls, or creating a private right of action for someone who has received an excessive number of calls over time from the same offender, the TCPA treats every single call as a separate, independent violation, regardless of who made the call, the time of the call, the reason for the call, or whether the recipient was even aware the call was made or aware that it was made with an ATDS."

 

However, the Court noted, "Congress's finding that the proliferation of unwanted calls from telemarketers causes harm does not mean that the receipt of one telephone call that was dialed using an ATDS results in concrete harm. In other words, regardless of Congress's reasons for enacting the TCPA, one singular call, viewed in isolation and without consideration of the purpose of the call, does not cause any injury that is traceable to the conduct for which the TCPA created a private right of action, namely the use of an ATDS to call a cell phone."

 

Stated differently, the Court held the fact that Congress created a TCPA private right of action for each nonconsensual call made using an ATDS does not mean "that an individual who receives one call to her cell phone using an ATDS suffers a concrete harm" sufficient to confer Constitutional standing. 

 

"Under Spokeo, if the defendant's actions would not have caused a concrete, or de facto, injury in the absence of a statute, the existence of the statute does not automatically give a Plaintiff standing. See Spokeo, 136 S.Ct. at 1547-48 ("Congress cannot erase Article III's standing requirements by statutorily granting the right to sue to a plaintiff who would not otherwise have standing.") (quoting Raines v. Byrd, 521 U.S. 811, 820 n.3 (1997)." 

 

In the Court's words, "the mere dialing of a cellular telephone number using an ATDS, even if the call is not heard or answered by the recipient, does not cause an injury to the recipient. That the TCPA allows private suits for such calls does not somehow elevate this non-injury into a concrete injury sufficient to create Article III standing."

 

Turning to the matter at hand, the Court noted that the plaintiff alleged that the defendants supposedly violated the TCPA over 290 times -- i.e., each time they allegedly called her cell phone using an ATDS after the plaintiff claims she revoked her consent to call her cell phone.

 

The Court divided the alleged calls into three categories: (1) calls of which the plaintiff was not aware either because her phone did not ring or she did not hear it ring; (2) calls that the plaintiff heard ring on her phone but that she did not answer; and (3) calls that the plaintiff answered and spoke with a representative of the defendants.  After examining the evidence, the Court held that the plaintiff here failed to "demonstrate that any one of [the d]efendants' over 290 alleged violations of the TCPA, considered in isolation, actually caused her a concrete harm."

 

The Court explained that, "[a]lthough a defendant violates the TCPA by dialing a cell phone with an ATDS, it is possible that the recipient's phone was not turned on or did not ring, that the recipient did not hear the phone ring, or the recipient for whatever reason was unaware that the call occurred. … A plaintiff cannot have suffered an injury in fact as a result of a phone call she did know was made. Moreover, even for the calls Plaintiff heard ring or actually answered, Plaintiff does not offer any evidence of a concrete injury caused by the use of an ATDS, as opposed to a manually dialed call."

 

Although the plaintiff asserted "lost time, aggravation, and distress," the Court held that the plaintiff failed "to connect any of these claimed injuries in fact with any (or each) specific TCPA violation."

 

The Court held that a nonconsensual call to a cell phone made using an ATDS "is merely a procedural violation," which when "divorced from any concrete harm," does not satisfy the injury-in-fact requirement of Article III.

 

Accordingly, the Court held that calls of which the plaintiff was not aware -- "either because her ringer or phone were turned off, or because she did not have her phone with her when the calls occurred" -- did not result in any plausible injuries in fact that could be traceable to the alleged TCPA violation.  "For Plaintiff to have suffered 'lost time, aggravation, and distress,' she must, at the very least, have been aware of the call when it occurred."  Thus, the Court held that the plaintiff did not have standing to sue for any calls of which she was not aware.

 

As to calls of which the plaintiff was aware but did not answer -- for example, the plaintiff asserted "that she called the number that appeared on her phone and when someone answered on behalf of Defendants, she hung up" -- the Court held that the plaintiff "must demonstrate that she suffered an injury in fact solely as a result of the telephone ringing for that particular call." 

 

Here, the Court held that "[n]o reasonable juror could find that one unanswered telephone call could cause lost time, aggravation, distress, or any injury sufficient to establish standing. When someone owns a cell phone and leaves the ringer on, they necessarily expect the phone to ring occasionally. Viewing each call in isolation, whether the phone rings as a result of a call from a family member, a call from an employer, a manually dialed call from a creditor, or an ATDS dialed call from a creditor, any 'lost time, aggravation, and distress,' are the same. Thus, Defendants' TCPA violation (namely, use of an ATDS to call Plaintiff) could not have caused Plaintiff a concrete injury with respect to any (and each) of the calls that she did not answer."

 

The Court noted that only two of the 290 calls were actually answered.  Here, the Court held that "Plaintiff does not offer any evidence demonstrating that Defendants' use of an ATDS to dial her number caused her greater lost time, aggravation, and distress than she would have suffered had the calls she answered been dialed manually, which would not have violated the TCPA. Therefore, Plaintiff did not suffer an injury in fact traceable to Defendants' violation of the TCPA, and lacks standing to make a claim for any violation attributable to the calls she actually answered."

 

The Court held that "the specific facts of this case reveal that any harm suffered by Plaintiff is unconnected to the alleged TCPA violations. Defendants here were creditors of Plaintiff and were attempting to collect a debt. They were calling Plaintiff's cell phone because that was the only telephone number she provided them. Although these calls seeking to collect debts may have been stressful, aggravating, and occupied Plaintiff's time, that injury is completely unrelated to Defendants' use of an ATDS to dial her number."

 

Importantly, the Court also held that the plaintiff "would have been no better off had Defendants dialed her telephone number manually."

 

"A plaintiff who would have been no better off had the defendant refrained from the unlawful acts of which the plaintiff is complaining does not have standing under Article III of the Constitution to challenge those acts in a suit in federal court." McNamara v. City of Chicago, 138 F.3d 1219, 1221 (7th Cir. 1998).

 

In addition, the fact that "the use of an ATDS may have allowed Defendants to call a greater number of debtors more efficiently did not cause any harm to Plaintiff." See Silha v. ACT, Inc., 807 F.3d 169, 174-75 (7th Cir. 2015) ("[A] plaintiff's claim of injury in fact cannot be based solely on a defendant's gain; it must be based on a plaintiff's loss."). In other words, the Court held, "Plaintiff's alleged concrete harm was divorced from the alleged violation of the TCPA." See Spokeo, 136 S.Ct. at 1549 (holding that "a bare procedural violation, divorced from any concrete harm, [does not] satisfy the injury-in-fact requirement of Article III").

 

Accordingly, the Court held that the plaintiff did not and cannot satisfy the injury-in-fact requirement of Article III, and dismissed the TCPA allegations.

 

 

 

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   |   Georgia  |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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

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

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars

 

and

 

California Finance Law Developments

 

and

 

Insurance Recovery Services