FYI: 6th Cir Rejects Debt Collector's Efforts to Distinguish Campbell-Ewald Following Offer of Judgment Success in Trial Court

Applying Campbell-Ewald, the U.S. Court of Appeals for the Sixth Circuit revived a consumer plaintiff's ability to proceed with a putative class action, holding that an unaccepted offer of settlement or judgment generally does not moot a case, even if the offer would fully satisfy the plaintiff's demands for relief. 

 

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

 

A consumer filed a putative class action against a debt collector under the federal Fair Debt Collection Practices Act (FDCPA) and survived the defendant debt collector's motion to dismiss. The debt collector subsequently offered the plaintiff consumer judgment in his favor, but the consumer decided against the offer and the offer expired. 

 

The debt collector moved to dismiss once again on the basis that it had offered the consumer all the relief he sought, and that consequently there was no longer a live case or controversy. 

 

The district court, applying then binding precedent of O'Brien v. Donnelly Enters., 575 F.3d 567 (6th Cir. 2009), dismissed the case for lack of subject matter jurisdiction and entered judgment in the consumer's favor, over the consumer's objections.  The district court also dismissed the consumer's class certification motion as moot.  The consumer appealed.

 

The Sixth Circuit began its analysis by addressing the applicability of the Supreme Court of the United States' ruling in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016), a case decided after the district court entered the judgment at issue.  As you may recall, in Campbell-Ewald, the Supreme Court held that an unaccepted offer of settlement or judgment generally does not moot a case, even if the offer would fully satisfy the plaintiff's demands for relief. 

 

The Court of Appeals rejected the debt collector's argument that the district court's entry of an enforceable final judgment in favor of the consumer granting him all the relief he wanted distinguished the present matter from Campbell-Ewald.  In so ruling, the Sixth Circuit noted that the district court stated it had felt compelled to enter such an order as a result of O'Brien.  Consequently, the Sixth Circuit held that under the Supreme Court's ruling in Campbell-Ewald, there was an Article III controversy between the consumer and the debt collector. 

 

Next, the Sixth Circuit examined the debt collector's argument that the Court lacked jurisdiction to review the appeal because the district court's final judgment for the consumer had already given him all the relief he sought.  The debt collector argued that the debtor had no stake in the litigation as a result of the judgment entered by the district court and that stake was required to retain jurisdiction for an appeal. 

 

The Court of Appeals rejected the debt collector's argument, ruling that an erroneously entered judgment does not deprive a plaintiff of his stake in the underlying litigation.  In other words, the Sixth Circuit held, an appellate court has jurisdiction to correct an erroneous judgment by a trial court, including under the circumstances here in light of Campbell-Ewald. 

 

Last, the Court found it unnecessary to address the merits of the consumer's motion for class certification.  The Sixth Circuit reasoned that if it were erroneous to enter a judgment, then it was also erroneous to dismiss the consumer's motion for class certification as moot.   Consequently, the Court held, the class certification motion was best decided through litigation before the district court. 

 

Thus, the Sixth Circuit vacated the trial court's judgment dismissing for lack of jurisdiction and entering a money judgment, and remanded the case.

 

 

 

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

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

 

Admitted to practice law in Illinois

 

 

 

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 

 

FYI: Fla Sup Ct Holds Each Default Triggers New SOL, Manner of Dismissal of Prior Foreclosure Not Material to SOL Analysis

The Supreme Court of Florida today issued its long-awaited ruling in Bartram v. U.S. Bank, involving when Florida's 5-year mortgage foreclosure statute of limitations is triggered.

 

The Court held that:

 

1.  "[W]ith each subsequent default, the statute of limitations runs from the date of each new default providing the mortgagee the right, but not the obligation, to accelerate all sums then due under the note and mortgage."

 

2.  A mortgagee is "not precluded by the statute of limitations from filing a subsequent foreclosure action based on payment defaults occurring subsequent to the dismissal of the first foreclosure action, as long as the alleged subsequent default occurred within five years of the subsequent foreclosure action."

 

3.  "When a mortgage foreclosure action is involuntarily dismissed pursuant to Rule 1.420(b), either with or without prejudice, the effect of the involuntary dismissal is revocation of the acceleration, which then reinstates the mortgagor's right to continue to make payments on the note and the right of the mortgagee, to seek acceleration and foreclosure based on the mortgagor's subsequent defaults. Accordingly, the statute of limitations does not continue to run on the amount due under the note and mortgage."

 

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

 

The borrower's mortgage loan was evidenced in part by a standard residential form mortgage, which required the mortgagee "to give the borrower notice of any default and an opportunity to cure before

the mortgagee could proceed against the secured property in a judicial foreclosure action."  The standard residential form mortgage "also granted the borrower a right to reinstate the note and Mortgage after acceleration if certain conditions were met, including paying the mortgagee all past defaults and other related expenses that would be due 'as if no acceleration had occurred.'"

 

The borrower stopped making payments on his mortgage loan, a mortgage foreclosure action ensued, and the mortgage foreclosure action was subsequently dismissed.  The trial court noted that the involuntary dismissal "was an adjudication on the merits and the case has been closed."  The mortgagee did not appeal the dismissal.

 

The borrower's payment defaults occurred both before and after the foreclosure action was brought and subsequently dismissed.

 

Subsequently, the borrower's ex-wife filed a separate foreclosure action.  The borrower cross-claimed against the mortgagee, seeking a declaratory judgment that the mortgage was canceled and seeking to quiet title to the property in his favor and against the mortgagee.  The borrower argued that Florida's 5-year statute of limitations barred the mortgagee from bringing another foreclosure action.

 

The trial court agreed with the borrower.  The trial court held that the mortgagee could not enforce its rights under the note or mortgage that were the subject of the mortgagee's prior foreclosure action, cancelled the note and mortgage, and released the mortgagee's lien. 

 

The mortgagee appealed.  The appellate court reversed the trial court's ruling, remanded the case to the trial court, and certified the question of the application of Florida's 5-year mortgage foreclosure statute of limitations to the Supreme Court of Florida.

 

The Supreme Court of Florida noted that it previously held in Singleton v. Greymar Associates, 882 So. 2d 1004 (Fla. 2004), that "when a second and separate action for foreclosure is sought for a default that involves a separate period of default from the one alleged in the first action, the case is not necessarily barred by res judicata," and that that an "acceleration and foreclosure predicated upon subsequent and different defaults present a separate and distinct issue than a foreclosure action and acceleration based on the same default at issue in the first foreclosure action."

 

Here, after examining a number of the rulings entered in the wake of Singleton, the Court noted that "[w]e agree with the reasoning of both our appellate courts and the federal district courts that our analysis in Singleton equally applies to the statute of limitations context present in this case."

 

Therefore, the Supreme Court of Florida held, "with each subsequent default, the statute of limitations runs from the date of each new default providing the mortgagee the right, but not the obligation, to accelerate all sums then due under the note and mortgage."

 

Continuing with its holding, the Court added:

 

the statute of limitations on the balance under the note and mortgage would not continue to run after an involuntary dismissal, and thus the mortgagee would not be barred by the statute of limitations from filing a successive foreclosure action premised on a "separate and distinct" default. Rather, after the dismissal, the parties are simply placed back in the same contractual relationship as before, where the residential mortgage remained an installment loan, and the acceleration of the residential mortgage declared in the unsuccessful foreclosure action is revoked.

 

The Supreme Court of Florida explained that "[a]bsent a contrary provision in the residential note and mortgage, dismissal of the foreclosure action against the mortgagor has the effect of returning the parties to their pre-foreclosure complaint status, where the mortgage remains an installment loan and the mortgagor has the right to continue to make installment payments without being obligated to pay the entire amount due under the note and mortgage."

 

The Court also examined whether the dismissal of the prior foreclosure action with or without prejudice had any significance.  The Court held that the distinction was not material to the statute of limitations analysis.

 

The Supreme Court of Florida clarified that "[w]hether the dismissal of the initial foreclosure action by the court was with or without prejudice may be relevant to the mortgagee's ability to collect on past defaults. However, it is entirely consistent with, and follows from, our reasoning in Singleton that each subsequent default accruing after the dismissal of an earlier foreclosure action creates a new cause of action, regardless of whether that dismissal was entered with or without prejudice."

 

The Court found significant that the standard mortgage reinstatement provision "granted the mortgagor, even after acceleration, the continuing right to reinstate the Mortgage and note by paying only the amounts past due as if no acceleration had occurred."  Therefore, the Court held, "[i]n the absence of a final judgment in favor of the mortgagee, the mortgagor still had the right under paragraph 19 of the Mortgage, the reinstatement provision, to cure the default and to continue making monthly installment payments."

 

Here, the Supreme Court of Florida explained, "[b]y the express terms of the reinstatement provision, if, in the month after the dismissal of the foreclosure action, [the borrower] began to make monthly payments on the note, the [mortgagee] could not have subsequently accelerated the entire note until there were future defaults. Once there were future defaults, however, the [mortgagee] had the right to file a subsequent foreclosure action -- and to seek acceleration of all sums due under the note -- so long as the foreclosure action was based on a subsequent default, and the statute of limitations had not run on that particular default."

 

Accordingly, the Supreme Court of Florida indicated its approval of the appellate court's ruling in favor of the mortgagee, and answered the certified question in the negative.

 

 

 

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: 7th Cir Rules Borrowers Alleged Enough for Standing, But RESPA Claim Failed at Summary Judgment Due to Lack of Damages

The U.S. Court of Appeals for the Seventh Circuit recently held that a mortgage loan servicer violated the federal Real Estate Settlement Procedures Act, 12 U.S.C. § 2601, et seq. (RESPA) by failing to properly respond to the borrowers' request for information, but because the borrowers failed to provide evidence of damages stemming from the violation, the servicer was entitled to summary judgment.

 

In so ruling, the Court held that the borrowers sufficiently alleged a concrete injury in fact that was fairly traceable to servicer's alleged violation of RESPA in order to have standing under Spokeo, but that "[w]hether the allegations are sufficient to overcome a motion for summary judgment is a different matter entirely."

 

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

 

As you may recall, RESPA imposes a duty on mortgage loan servicers to respond promptly to a borrower's written request for information.  See 12 U.S.C. § 2605(e).

 

The borrowers sent the mortgage loan servicer a borrower information request, asking for information about their loan account, payments made, and the interest rates applied to their account. The servicer informed the borrowers that it could not identify a problem with their account, and that they needed to identify more information or else it would not be able to respond to their request.

 

The borrowers then filed an action against the servicer under RESPA and Wisconsin law for allegedly failing to properly respond to their request for information regarding their escrow account.

 

The borrowers subsequently moved for summary judgment on their RESPA claim and on their Wis. Stat. § 224.77(1) claims. The servicer filed a cross motion for summary judgment on all of the borrowers' claims.  The U.S. District Court for the Eastern District of Wisconsin granted the servicer's motion for summary judgment based on the borrowers' failure to demonstrate any resulting damages, and the borrowers appealed.

 

The Seventh Circuit first addressed whether the borrowers had standing to sue.  In order to have standing, "[t]he 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, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016).  The Supreme Court of the United States clarified the requirements for standing and noted that the injury must be concrete and not just a "bare procedural violation divorced from any concrete harm."  Spokeo, 136 S. Ct. 1540.

 

Thus, the Seventh Circuit looked to see whether the borrowers pled sufficient factual allegations supporting their assertion that they suffered an injury in fact that was fairly traceable to loan servicer's alleged violation of RESPA.

 

The Court noted the borrowers' allegations that they suffered damage to their credit, and that the servicer forced them to pay greater payments and a higher interest rate than that negotiated in their loan modification.

 

Based on these allegations, the Seventh Circuit held that the borrowers "sufficiently alleged an injury for purposes of standing, even if those allegations are not sufficient to survive summary judgment." 

 

The Seventh Circuit further noted that "[a]lleging injury for purposes of standing is not the same as submitting adequate evidence of injury under the statute to survive a motion for summary judgment," and "[w]hether the allegations are sufficient to overcome a motion for summary judgment is a different matter entirely."

 

After examining the borrowers' evidence submitted at summary judgment, the Court found that even taking all of the borrowers' facts as true, "they simply have not alleged any causal connection between the injury they allege, including the claim for emotional damages, and [the servicer's] failure to respond to the qualified written request for information, as opposed to the foreclosure on their loan, the loan modification process, or the litigation in general."

 

The Seventh Circuit held that the borrowers failed to provide evidence sufficient to support an award of actual damages to pursue their RESPA claims, noting that the borrowers failed to allege any causal connection between their injuries and the servicer's failure to respond to their qualified written request for information.

 

In so ruling, the Court also held that "simply having to file suit, however, does not suffice as a harm warranting actual damages."

 

The borrowers argued that their claims of emotional distress, which allegedly stemmed from the servicer's actions, were sufficient to survive a motion for summary judgment.  However, the Seventh Circuit disagreed, holding that the borrowers failed provide sufficient evidence to demonstrate that their injuries arose from the servicer's inadequate response to a request for information under RESPA.

 

The Court also held that for the same reasons that borrowers' claims were insufficient under RESPA, the borrowers had not set forth sufficient evidence to overcome the servicer's motion for summary judgment on the Wisconsin state law claim. The Court held that the borrowers failed to meet their burden of setting forth sufficient evidence to demonstrate an injury under Wisconsin law.

 

Accordingly, the Seventh Circuit affirmed the district court's award of summary judgment in favor of the servicer as to both the RESPA and the Wisconsin state law 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: 9th Cir Holds Foreclosure Trustee Not FDCPA "Debt Collector"

The U.S. Court of Appeals for the Ninth Circuit recently held that the trustee of a California deed of trust securing a real estate loan was not a "debt collector" under the federal Fair Debt Collection Practices Act (FDCPA), because the trustee was not attempting to collect money from the borrower. 

 

In so ruling, the Court held that "actions taken to facilitate a non-judicial foreclosure, such as sending the notice of default and notice of sale, are not attempts to collect "debt" as that term is defined by the FDCPA."

 

The Court also vacated the dismissal of the borrower's federal Truth In Lending Act claim, confirming its prior ruling in Merritt v. Countrywide Fin. Corp., 759 F.3d 1023 (9th Cir. 2014), that a mortgagor need not allege the ability to repay in order to state a TILA rescission claim.

 

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

 

A borrower sought damages under the FDCPA, alleging that the foreclosure trustee initiated a California non-judicial foreclosure and sent her a notice of default and a notice of sale that misrepresented the amount of debt she owed.  The borrower also sought to rescind her mortgage transaction under TILA.

 

The trial court granted the servicer's motion to dismiss the borrower's FDCPA claims, and dismissed her TILA claim.

 

The borrower appealed, arguing that the foreclosure trustee was a "debt collector" under the FDCPA because the notice of default and the notice of sale constituted attempts to collect debt and threatened foreclosure unless she brought her account current.

 

The Ninth Circuit disagreed, holding that the California foreclosure trustee would only be liable if it had attempted to collect money from the borrower.

 

As you may recall, the FDCPA imposes liability on "debt collectors."  Under the FDCPA, the word "debt" is defined as an "obligation . . . of a consumer to pay money."  15 U.S.C. § 1692a(5).  The FDCPA's definition of "debt collector" includes entities that regularly collect or attempt to collect debts owed or due or asserted to be owed or due to another.

 

Distinguishing rulings from the Fourth and Sixth Circuits, and agreeing with the California Courts of Appeal, the Ninth Circuit held that a California foreclosure trustee was not a "debt collector" subject to the FDCPA because the foreclosure trustee was not attempting to collect money from the borrower.

 

Specifically, the Court noted that the Fourth Circuit's ruling in Wilson v. Draper & Goldberg, P.L.L.C., 443 F.3d 373, 378–79 (4th Cir. 2006), "was more concerned with avoiding what it viewed as a 'loophole in the [FDCPA]" than with following the [FDCPA]'s text," which the Ninth Circuit found improper. 

 

The Court also noted that the Sixth Circuit's ruling in Glazer v. Chase Home Fin. LLC, 704 F.3d 453, 461 (6th Cir. 2013), "rests entirely on the premise that 'the ultimate purpose of foreclosure is the payment of money," but "the FDCPA defines debt as an 'obligation of a consumer to pay money."  The Ninth Circuit emphasized that "[f]ollowing a trustee's sale, the trustee collects money from the home's purchaser, not from the original borrower. Because the money collected from a trustee's sale is not money owed by a consumer, it isn't 'debt'" as defined by the FDCPA."

 

The Ninth Circuit held that the object of a non-judicial foreclosure in California is to retake and resell the security on the loan, and thus actions taken to facilitate a non-judicial foreclosure, such as sending the notice of default and notice of sale, are not attempts to collect "debt" under the FDCPA.

 

Accordingly, the Ninth Circuit concluded that the foreclosure notices at issue were an enforcement of a security interest, rather than debt collection under the FDCPA. 

 

The Ninth Circuit found it significant that California expressly exempts trustees of deeds of trust from liability under the California Rosenthal Act, Cal. Civ. Code. § 2924(b), the state analogue of the FDCPA, observing that holding California foreclosure trustees liable under the FDCPA would subject them to obligations that would frustrate their ability to comply with the California statutes governing non-judicial foreclosure.

 

The Ninth Circuit agreed with the foreclosure trustee, and, citing Sheriff v. Gillie, 136 S. Ct. 1594, 194 L. Ed. 2d 625 (2016), in which the U.S. Supreme Court instructed that the FDCPA should not be interpreted to interfere with state law unless Congress clearly intended to displace that law, the Ninth Circuit affirmed the district court's dismissal of the FDCPA claim, declining to create a conflict with state foreclosure law in its interpretation of the term "debt collector."

 

Turning to the borrower's TILA claims, which the trial court had dismissed without prejudice, the Court noted that it recently held in Merritt v. Countrywide Fin. Corp., 759 F.3d 1023, 1032-33 (9th Cir. 2014), that a mortgagor need not allege the ability to repay the loan in order to state a rescission claim under TILA. However, this was the basis of the trial court's dismissal of the TILA claim.

 

Accordingly the Ninth Circuit vacated the dismissal of the borrower's TILA claim and remanded it to the trial court for reconsideration.  The Court also affirmed the dismissal of the borrower's FDCPA claims, vacated the dismissal of her TILA claims, and remanded the TILA claims for reconsideration.

 

 

 

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