FYI: 4th Cir Vacates $11MM FCRA Class Action Judgment Citing Spokeo

Relying on Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), the U.S. Court of Appeals for the Fourth Circuit recently vacated and remanded for dismissal a trial court's summary judgment ruling in favor of the plaintiff in an $11 million, 69,000 member class action under the federal Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. (FCRA), where the defendant credit reporting agency listed the name of a defunct credit card issuer instead of the name of the servicer as the source of information on the plaintiff's credit report.

 

In so ruling, the Fourth Circuit held that the plaintiff had not suffered an injury-in-fact arising from alleged incomplete or incorrect credit report information, and thus had not satisfied the constitutional standing requirements to pursue a claim.

 

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

 

During a background check for security clearance the plaintiff claimed that he first discovered that his cousin had opened a credit card in his name and had run up a substantial balance. The plaintiff requested credit reports from three credit reporting agencies to clear up the problem.

 

One of those reports listed the tradeline under the name of the original creditor with a P.O. Box address. Plaintiff sent letters to the original creditor requesting verification of the debt and received a response on the creditor's letterhead along with a statement showing the outstanding balance and a copy of the online credit card application with his name and social security number.

 

The plaintiff then wrote to the creditor requesting it stop reporting the account as inaccurate but did not receive a response. He then contacted the credit reporting agency directly to make the same request but without result.

 

The plaintiff alleged that that caused him stress and wasted his time, but the credit reporting error not affect his security clearance, which was approved.

 

Later, the account was deleted from his credit file. The original creditor had gone out of business during the 2008 financial crises and the FDIC had become the receiver and appointed a servicing company to collect the outstanding balances on the portfolio of accounts. The servicer conducted its work using the original creditor's name, phone number, and website and furnished account information to credit reporting agencies under the original creditor's name so as not to be confusing to account holders who might not recognize the name of the servicer but would know the name of the creditor with whom they had opened their accounts.

 

The plaintiff sued the servicer and the credit reporting agency asserting class claims and individual claims alleging that they violated the FCRA by failing to include the servicer's name in the tradelines as the source of the information.

 

The trial court certified the class, and granted the plaintiff's motion for summary judgment explaining that it was objectively unreasonable to exclude the servicer's name from the tradeline. The trial court denied the credit reporting agency's motion for summary judgment reasoning that the FCRA created "a statutory right to receive the sources of information for one's credit report" so that if a source is not disclosed, the violated right creates "a sufficient injury-in-fact for constitutional standing." The parties stipulated to damages of $11.7 million for the class and the credit reporting agency appealed.

 

On appeal, the Fourth Circuit pointed out that the trial court failed to analyze whether the injury was specific and concrete, as Spokeo requires, but merely concluded that any violation of the statute was sufficient to create an injury-in-fact.

 

The Appellate Court analyzed the holding in Spokeo explaining that the injury-in-fact requirement is not automatically satisfied where a statute grants a right and authorizes a person to "vindicate that right" but the person does not have any concrete harm. Put another way, a plaintiff cannot allege a "bare procedural violation, divorced from any concrete harm" and still gain standing. The Appellate Court concluded, based on Spokeo, that "a technical violation of the FCRA may not rise to the level of an injury in fact for constitutional purposes."

 

The Fourth Circuit pointed out that this conclusion was in agreement with the D.C. Circuit's conclusion that "a plaintiff suffers a concrete informational injury where he is denied access to information required to be disclosed by statute, and he suffers, by being denied access to that information, the type of harm Congress sought to prevent by requiring disclosure."

 

Applying the reasoning in Spokeo, the Fourth Circuit found that the plaintiff had not suffered a cognizable and specific injury, even an intangible "informational injury", where the credit reporting agency did not report the name of the servicer for the tradeline in addition to the creditor.

 

The Appellate Court also pointed out that the plaintiff had failed to demonstrate how the exclusion of the servicer's name would have made any difference in the fairness or accuracy of his credit report or the efficiency of resolving his credit dispute ,and rejected the plaintiff's argument that there was value in "knowing who it is you're dealing with" or that the servicer was hiding who is really was.

 

Instead, the Fourth Circuit found that the servicer name missing from the credit report did not have any practical effect on plaintiff. Thus, the Appellate Court concluded that the plaintiff had merely alleged a statutory violation without concrete harm.

 

The Fourth Circuit held, contrary to the trial court's holding, that "a statutory violation alone does not create a concrete informational injury sufficient to support standing," rather, it must create a "real harm with an adverse effect."

 

Therefore, the Appellate Court held that the plaintiff failed to assert Article III standing, and the trial court's holding in favor of the plaintiff was vacated and the case was remanded to the trial court for dismissal.

 

 

 

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

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

 

Admitted to practice law in Illinois

 

 

 

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FYI: MD Ala Holds Servicer Did Not Violate Discharge By Sending Periodic Statements, NOI, Delinquency Notices, Hazard Ins Notices

The U.S. Bankruptcy Court for the Middle District of Alabama recently held that a mortgage servicer did not violate the discharge injunction in 11 U.S.C. § 524, by sending the discharged borrowers monthly mortgage statements, delinquency notices, notices concerning hazard insurance, and a notice of intent to foreclose.

 

Moreover, because the borrowers based their claims for violation of the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. ("FDCPA") on the violation of the discharge injunction, the Court also dismissed their FDCPA claims, with prejudice.

 

A copy of the opinion is attached.

 

In August 2010, the borrowers ("Borrowers") filed a petition in bankruptcy pursuant to Chapter 7 of the Bankruptcy Code.  In their petition, the Borrowers reported a foreclosure action in their Statement of Financial Affairs but inaccurately stated its status as having been disposed by way of a judgment.  In fact, a foreclosure action was filed against the Borrowers in state court but it was still pending at the time they filed their Chapter 7 petition. 

 

Moreover, the Borrowers made no mention of the property in their Statement of Intention.  Essentially, the Borrowers' petition indicated that they were no longer the owners of the mortgaged property, which was inaccurate.

 

In October 2010, the prior servicer filed a motion for relief from automatic stay.  The Court granted the motion in November 2010.  Subsequently, the Borrowers received a discharge in December 2010.

 

In December 2016, Borrowers filed a complaint alleging that their new mortgage servicer ("Servicer") violated the discharge injunction and the FDCPA, when it mailed them monthly mortgage statements, delinquency notices, notices of lender placed hazard insurance, and a Notice of Intent to Foreclose.  The Borrowers alleged that the Servicer "had absolutely no legitimate reason to correspond with [them] regarding the Property" because they allegedly vacated the property before filing bankruptcy.

 

In rejecting the Borrowers' arguments, the Court held "that acts reasonably taken to service a mortgage or to foreclose a mortgage [did] not violate the discharge injunction, even if the debtor discharged his personal liability on the indebtedness secured by the mortgage." 

 

According to the Court, the Servicer's communications did not violate the discharge injunction because a creditor has a right to foreclose a mortgage after discharge.  Because the Servicer was required to give the debtor certain notices either under the terms of the mortgage or applicable law, "it necessarily follows that the giving of such notices [did] not violate the discharge injunction."

 

Moreover, the Court noted, until the time the mortgage is foreclosed, and for a period thereafter, a debtor has a right to redeem the property from the creditor upon the payment of the amount due.  Therefore, the Court held that a creditor who did not advise the debtor as to how much is due on the mortgage impinged upon the debtor's right of redemption.

 

Additionally, the Court stated that debtors should not be permitted to "game the system" where the creditors are found to violate the discharge injunction if they gave various notices, but violate state and federal law if they do not. 

 

Therefore, the Court concluded that "[a] creditor who acts reasonably and in good faith should not be placed in the horns of a dilemma."  As the Court explained, "[i]f the act of providing required notices is unlawful, the mortgagee's right to foreclose is destroyed and, by extension, the mortgage itself is destroyed as well."

 

However, the Court was careful to note that a servicer can violate the discharge injunction if it did something in addition to routine mortgage servicing or foreclosure processing to prove that it "intended" to violate the discharge injunction.  But here, according to the Court, the Borrowers failed to allege that the Servicer did anything beyond routine mortgage loan servicing.

 

In addition, the fact that the Borrowers allegedly moved out of the property before filing bankruptcy, the Court noted, "did not effect a transfer of title to the mortgagee, nor did it change the status of their obligation under the mortgage."  Thus, the Court held that the Servicer had a "legitimate reason" to contact the Borrowers about the mortgage servicing and foreclosure. 

 

Because the Borrowers based their FDCPA claims on a violation of the discharge injunction, the Court held that the Borrowers failed to allege any violation of the FDCPA.

 

Accordingly, the Court granted the Servicer's motion to dismiss the Borrowers' allegations with prejudice.

 

 

 

 

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: Cal App Ct (3rd Dist) Holds Loan Mod Denial Letter Allowing Only 15 Days to Appeal Was "Material Violation" of HOBR

The Appellate Court of California, Third District, recently held that a mortgage servicer violated California's Homeowner Bill of Rights ("HOBR"), Civ. Code § 2923.6(d), when it sent the borrower a loan modification denial letter stating that the homeowner had only 15 days to appeal the denial.

 

In so ruling, the Appellate Court held that the servicer's denial letter was a material violation of section 2923.6, and therefore the homeowner alleged a valid cause of action for injunctive relief under section 2924.12.

 

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

 

The borrower ("Borrower") defaulted on his home mortgage and a notice of default was recorded.  Borrower submitted a complete application for a loan modification to the mortgage servicer ("Servicer") and asserted a significant change in financial conditions.  The Servicer denied Borrower's request for a loan modification.  The Servicer's denial letter stated that Borrower had 15 days to file an appeal of the decision.

 

As you may recall, section 2923.6(d) provides:

 

If the borrower's application for a first lien loan modification is denied, the borrower shall have at least 30 days from the date of the written denial to appeal the denial and to provide evidence that the mortgage servicer's determination was in error.

 

Section 2923.6(f)(1) states, in relevant part:

 

Following the denial of a first lien loan modification application, the mortgage servicer shall send a written notice to the borrower identifying the reasons for denial, including the following … The amount of time from the date of the denial letter in which the borrower may request an appeal of the denial of the first lien loan modification and instructions regarding how to appeal the denial.

 

The borrower filed this action seeking injunctive relief.  In his complaint, Borrower alleged that the Servicer's denial letter was a material violation of section 2923.6(d), because it gave him only 15 days to appeal the denial, instead of 30 days, and therefore the trustee's sale could not legally proceed.

 

As you may recall, section 2924.12 allows for injunctive relief if there is a "material violation" of any of various statutes, including section 2923.6.  Thus, Borrower's complaint must allege a material violation of section 2923.6 to obtain injunctive relief.

 

The Servicer demurred to the complaint, arguing among other things that section 2923.6 prohibited the recording of a notice of default or notice of sale, or conducting a sale, unless certain requirements are met.  Because the Servicer did not actually conduct the sale within the appeal period, it argued that its denial letter did not violate section 2923.6.  The trial court sustained the Servicer's demurrer without leave to amend.

 

On appeal, Borrower argued that by sending a denial letter that purported to give him only 15 days to file an appeal, the Servicer committed a material violation of section 2923.6, because subdivision (f) of that section provides that such a denial letter must include "[t]he amount of time from the date of the denial in which the borrower may request an appeal," and subdivision (d) of that section specifies that "the borrower shall have at least 30 days from the date of the written denial to appeal the denial."

 

Essentially, Borrower argued that a denial letter that provides a period of time that is less than the 30 day minimum the law requires violates section 2923.6 and is ineffective.  Therefore, the Borrower argued, an injunction can issue under section 2924.12 to enjoin any trustee's sale until that violation is corrected by the issuance of a new denial letter that set forth a legally adequate period for appeal.

 

Borrower also argued that he was not obligated to file his notice of appeal to the denial of the loan modification until the Servicer provided a denial letter that fully complies in all material aspects with the mandates of section 2923.6.

 

The Servicer argued that it did not violate section 2923.6(f) because that subdivision requires only that the denial letter include "[t]he amount of time from the date of the denial letter in which the borrower may request an appeal," and the denial letter here did so – even if the amount of time specified in the letter was less than the minimum amount of time allowed by section 2923.6(d).

 

The Servicer further argued that it did not violate section 2923.6 because a trustee's sale was not held within the 30 day appeal period provided by subdivision (d), prohibited by both subdivision (c) of the statute – which applies while a "complete first lien loan modification application is pending" – and subdivision (e) of the statute – which applies once "the borrower's application for a first lien loan modification is denied."

 

Additionally, the Servicer argued that Borrower did not file an appeal in the 30 day statutory period, and thus, even if the denial letter was deficient, Borrower was not prejudiced by the letter.  

 

The Appellate Court rejected the Servicer's arguments, and held that section 2923.6 required the Servicer to advise Borrower in the denial letter how much time Borrower had to appeal.  And, the Court held, HOBR required the Servicer to give Borrow at least 30 days to appeal.  Thus, the Court held, to comply with the law, the denial letter must inform Borrower of an appeal period that is at least 30 days in length. 

 

In this case, the Servicer's denial letter did not comply with the law because it advised Borrower he had only 15 days to appeal.  Because the denial letter did not give Borrower the full amount of time to appeal provided by law, the Appellate Court held that Borrower's right to appeal was effectively diminished as a result.  Thus, the Court held, the Servicer's denial latter was a material violation of section 2923.6.

 

Moreover, the Appellate Court held that Borrower's failure to allege that the Servicer conducted a trial sale within the 30 day appeal period established only that Borrower did not allege a violation of section 2923.6(c) or (e).  But here, according to the Appellate Court, it was enough that Borrower alleged a violation of the 30 day appeal provisions of section 2923.6(d) and (f).

 

Relatedly, because the Appellate Court concluded that the Servicer's denial letter was a material violation of section 2923.6, Borrower was entitled to relief under section 2924.12. 

 

As you may recall, section 2924.12(a) provides that "[i]f a trustee's deed upon sale has not been recorded, a borrower may bring an action for injunctive relief to enjoin a material violation of Section … 2923.6" and "[a]ny injunction shall remain in place and any trustee's sale shall be enjoined until the court determines that the mortgage Lender, mortgagee, trustee, beneficiary, or authorized agent has corrected and remedied the violation or violations giving rise to the action for injunctive relief." 

 

Thus, according to the Appellate Court, the Borrower's failure to file an appeal from denial of his application did not invalidate his claim.  The Court held that nothing in the statutory scheme denied Borrower the right to relief under section 2924.12 because he did not file an appeal sooner.  Therefore, the Court held, Borrower's failure to file an appeal was irrelevant.

 

Accordingly, the Appellate Court reversed and remanded the case with instruction to vacate the trial court's order sustaining the Servicer's demurrer, and to enter a new order denying the demurrer.

 

 

 

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: SCOTUS Holds FDCPA Not Violated By Proof of Claim on Time-Barred Debt

In a 5-3 decision handed down earlier today, the Supreme Court of the United States held that the federal Fair Debt Collection Practices Act (FDCPA) is not violated when a debt collector files a proof of claim for a debt subject to the bar of an expired limitations period.

 

The Supreme Court:

 

•           held that the filing of such a proof of claim is not false, misleading, deceptive or unconscionable in violation of sections 1692e or 1692f of the FDCPA;

•           found that claims under the Bankruptcy Code need not be capable of being "enforceable" in a civil lawsuit; and,

•           held that the Bankruptcy Code does not preclude application of the FDCPA to bankruptcy litigation.

 

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

 

The defendant debt buyer sought review by the Supreme Court of an adverse decision it had received from the Eleventh Circuit Court of Appeals.

 

Many cases were stayed across the country (including cases before the Third and Fifth Circuit Courts of Appeals) awaiting today's decision. This decision should resolve many of them.

 

 

 

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   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

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:

 

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and

 

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