FYI: 9th Cir Holds Defendant Not Vicariously Liable Under TCPA

The U.S. Court of Appeals for the Ninth Circuit recently held that a defendant could not be held vicariously liable under the federal Telephone Consumer Protection Act (TCPA) because the phone calls at issue were made by a company whose telemarketers were independent contractors, and thus were not acting as the defendant's agents under the federal common law of agency.

 

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

 

A company that sold automobile service contracts, sometimes called extended warranties, contracted with a telemarketing company to sell its products. The agreement set forth mandatory "authorized sales and marketing methodologies" and provided that the telemarketer could not use any method that violated state or federal law, including "robo-calling."

 

A resident of Reno, Nevada who had registered his cellular telephone number on the Federal Trade Commission's national do-not-call registry, filed a class-action lawsuit against the seller and telemarketing company, alleging that he had received 4 calls to his cellular phones from the seller using an "automatic telephone dialing system" in violation of TCPA.

 

The TCPA, 47 U.S.C. § 227(b)(1)(A), makes it unlawful for a person to make a phone call, except for emergency calls or calls made with the express consent of the person called, using an "automatic telephone dialing system or an artificial or prerecorded voice" to any cellular telephone number. The regulations implementing the TCPA prohibit any person from soliciting or making a sales call to any residential number registered on the national do-not-call registry. 47 C.F.R. § 64.1200(c)(2).

 

The trial court entered a default against the telemarketing company because its attorneys withdrew and then the company failed to retain new counsel.  The court granted the plaintiff leave to amend and the amended complaint added another Nevada resident as co-plaintiff and also added the seller as a defendant, alleging that it was vicariously liable for the telemarketer's calls.

 

The seller moved for summary judgment, which the trial court granted, and the plaintiffs appealed to the Ninth Circuit.

 

On appeal, the seller argued that it could not be held vicariously liable for the telemarking company's calls.

 

The Ninth Circuit explained that it had "previously clarified that 'a defendant may be held vicariously liable for TCPA violations where the plaintiff establishes an agency relationship, as defined by federal common law, between the defendant and a third-party caller.'"

 

The Court analyzed the distinction between an agent with actual authority, citing the Restatement (Third) of Agency, and an individual acting as an independent contractor, "who does not have the traditional agency relationship with the principal necessary for vicarious liability. … Generally, a principal is not vicariously liable for the actions of an independent contractor, because the principal does not have sufficient control over an independent contractor." While courts look to the "totality of the circumstances," the "'essential ingredient … is the extent of control exercised by the employer.'"

 

The Ninth Circuit then "adopt[ed] the following ten factor as relevant to the determination of whether an individual providing services for a principal is an agent or an independent contractor: 1) the control exerted by the employer, 2) whether the one employed is engaged in a distinct occupation, 3) whether the work is normally done under the supervision of an employer, 4) the skill required, 5) whether the employer supplies tools and instrumentalities [and the place of work], 6) the length of time employed, 7) whether payment is by time or by the job, 8) whether the work is in the regular business of the employer, 9) the subjective intent of the parties, and 10) whether the employer is or is not in business."

 

After apply the ten factors, the Court found that the telemarketing company "and its telemarketers were not acting as [the seller's] agents when they place the calls at issue in this case."

 

The Ninth Circuit reasoned that while the seller exercised some control over the telemarketing company by requiring that certain records be kept, reports provide, security measures taken to protect consumer information, payments collected and approval of scripts, this was insufficient. The seller "did not have the right to control the hours the telemarketers worked nor did it set quotas for the number of calls or sales the telemarketers had to make." This limited control of the telemarketers supported independent contractor status.

 

Next, the Court found that the telemarketing company "was an independent business, separate and apart from [the seller] … and it was engaged in the 'distinct occupation' of selling [vehicle service contracts] through telemarketing" because it sold for many clients, not just the seller, during the relevant time period. This factor strongly suggested that the "telemarketers were independent contractors rather than employees."

 

The calls made by the telemarketers were not directly supervised by the seller, which also weighed in favor of independent contractor status.

 

The Court did not address "the skill required to place the calls or sell a [vehicle service contract]" because the record was devoid of any such evidence.

 

Regarding tools and instrumentalities, the Ninth Circuit found that while the seller provided some, the telemarketing company "provided far more …, including its own phones, computers, furniture, and office space." This factor also supported independent contractor status.

 

The Court next found that while the relationship lasted three years, the contract was for one year, with either party having the ability to cancel by giving 30-days' notice. Such "designated impermanency of the relationship supports a finding of independent contractor status."

 

Next, the Ninth Circuit found that because the telemarketing company "was paid a commission for each sale, rather than for the time the telemarketers worked[,] [t]his is a strong indicator that the telemarketers were independent contractors."

 

The Court did find, however, that because selling vehicle service contracts through telemarketers was a "regular part" of the seller's business, "this factor tends to favor finding an agency relationship."

 

Although the record was unclear as the "subjecting intent of the parties," the fact that the telemarketing company sold vehicle service contracts for several sellers reflected that the telemarketing company's "intent was to have its telemarketers operate as independent contractors for many different companies."

 

The Ninth Circuit found that the tenth and final factor, that the seller "is a business, … favors finding an agency relationship."

 

Adding up the factors, the Ninth Circuit concluded that it was "clear that [the telemarketing company's] telemarketers were independent contractors rather than agents."  Because the telemarketers were independent contractors and not the seller's agents, the Court held that the seller could not be held vicariously liable for the telemarketing company's calls that violated the TCPA.

 

Accordingly, the trial court's judgment was affirmed.

 

 

 

 

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: 4th Cir Holds Def Must Present Sufficient Evidence to "Determine - Not Speculate" as to CAFA's Requirements

The U.S. Court of Appeals for the Fourth Circuit recently held that a defendant invoking jurisdiction under the federal Class Action Fairness Act, 28 U.S.C. § 1332(d) ("CAFA"), must provide sufficient evidence to allow the court to determine – not speculate – that it was more likely than not that there were at least 100 class members and the aggregate amount in controversy exceeded $5,000,000.

 

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

 

Between July 2013 and March 2014, a consumer purchased two Samsung Galaxy S4 cell phones from the defendant wireless service provider.  The phones were only operable on a Code Division Multiple Access ("CDMA") network. 

 

Unknown to the consumer, the wireless service provider had begun to shut down its CDMA network.  When the wireless service provider completed that process in 2015, the consumer alleged that his phones were locked out of the CDMA network and rendered "useless and worthless."

 

In September 2015, the consumer filed a putative class action in the Circuit Court for Baltimore City, Maryland.  The consumer alleged that the wireless service provider's actions violated Maryland's express warranties and implied warranties of merchantability and fitness for a particular purpose, which in turn was a violation of the Magnuson-Moss Warranty Act, 15 U.S.C. § 2301, et seq. ("MMWA").

 

As you may recall, under the MMWA, a consumer may bring a class action in state or federal court alleging a breach of warranty under state law if there are more than 100 named plaintiffs.  Id., § 2310(d).  The consumer defined the class as:  "All Maryland citizens who, between July 12, 2013 and March 13, 2014, purchased a CDMA mobile telephone from [the wireless service provider] which was locked for use only on [the wireless service provider's] CDMA network."

 

The wireless service provider removed the case to the United States District Court for the District of Maryland.  The wireless service provider invoked CAFA, which granted jurisdiction over putative class action with (1) more than 100 class members, (2) an aggregate amount in controversy exceeding $5,000,000, and (3) minimal diversity between the parties.  28 U.S.C. §§ 1332(d)(2), (5).

 

In support of its notice of removal, the wireless service provider provided a declaration stating that during the relevant period "[the wireless service provider's] customers purchased at least 50,000 CDMA handsets that were shipped to and activated in Maryland."  Because the consumer stated in his complaint that each phone costs "hundreds of dollars," the wireless service provider applied a conservative estimate of $200 per phone and asserted that there were at least 100 class members and "the total amount in controversy is, at minimum, $10,000,000."

 

The consumer then moved to remand the case to state court.  The consumer argued that the wireless service provider did not satisfy its burden to allege jurisdiction under CAFA because the class that the wireless service provider described in its notice of removal was broader than the consumer's defined class.  According to the consumer, the wireless service provider's assertion that it sold 50,000 cell phones that were shipped to and activated in Maryland fails to meet CAFA's requirements because the class only consists of Maryland citizens who purchased a CDMA phone.

 

In its opposition, the wireless service provider provided another declaration stating that "[the wireless service provider's] records indicate that between July 12, 2013 and March 13, 2014, [the wireless service provider's] customers who listed addresses located in Maryland … purchased at least 47,760 CDMA handsets that were 'locked' to [the wireless service provider's] CDMA network."  Again, using the conservative estimate of $200 per phone, the wireless service provider alleged that the revised amount in controversy was $9,552,000, still well above the CAFA threshold. 

 

Notably, the wireless service provider argued that it need not, and could not, provide the exact number of handsets Maryland citizens purchased.  Thus, the wireless service provider urged the district court to make the inference that the vast majority of its Maryland customers were Maryland citizens.

 

The trial court granted the motion to remand.  In so ruling, the trial court found that, although the wireless service provider sufficiently asserted federal jurisdiction under CAFA, it did not establish jurisdiction by a preponderance of the evidence.  The trial court rejected the wireless service provider's preferred evidence – the declaration attesting that the wireless service provider sold 47,760 locked phones during the relevant time period to customers who listed a Maryland address – because it was "over-inclusive" since "the Class includes only Maryland citizens, but [the wireless service provider's] evidence pertains to all customers who provided Maryland addresses."  This appeal followed.

 

On appeal, the wireless service provider argued that its evidence showed it was more likely than not that the putative class included more than 100 members and the amount in controversy exceeded $5,000,000.

 

As you may recall, the defendant bears the burden of alleging that CAFA jurisdiction exists.  Strawn v. AT&T Mobility LLC, 530 F.3d 293, 296 (4th Cir. 2008).  When a plaintiff's complaint leaves the amount of damages unspecified, the defendant must provide evidence to "show … what the stakes of litigation … are given the plaintiff's actual demands."  Brill v. Countrywide Home Loans, Inc., 427 F.3d 446, 449 (7th Cir. 2005) (emphasis omitted).  To resolve doubts regarding a defendant's asserted amount in controversy, "both sides submit proof and the court decides, by a preponderance of the evidence, whether the amount-in-controversy requirement has been satisfied."  Dart Cherokee Basin Op. Co. v. Owens, 135 S. Ct. 547, 554 (2014).

 

Jurisdiction under CAFA existed if at least 100 Maryland citizens purchased more than $5,000,000 worth of locked phones from the wireless service provider.

 

First, the Fourth Circuit agreed with the trial court that the wireless service provider's initial statement that it sold "at least 50,000 CDMA mobile telephones that were shipped to and activated in Maryland" was sufficient to allege jurisdiction under CAFA.  When the consumer filed the motion to remand, the wireless service provider was then required to prove jurisdiction by a preponderance of the evidence. 

 

The key inquiry in determining whether the amount-in-controversy requirement was met, according to the Fourth Circuit, was not what the plaintiff will actually recover, but "an estimate of the amount that will be put at issue in the course of the litigation."  McPhail v. Deere & Co., 529 F.3d 947, 956 (10th Cir.2008). 

 

A removing defendant may rely on overinclusive evidence to establish the amount in controversy so long as the evidence showed that it was more likely than not that "a fact finder might legally conclude that" damages will exceed the jurisdictional amount.  Kopp v. Kopp, 280 F.3d 883 885 (8th Cir. 2002).

 

In this case, the consumer chose to limit the class to Maryland citizens but this, in the Fourth Circuit's view, did not require the wireless service provider to make a "definitive determination of domicile."  Moreover, the Court noted that many factors relevant to the domicile inquiry are publicly available, including business and professional licensures, property ownership, property taxes, and voter registration.

 

The Fourth Circuit held that, in order to meet its burden under CAFA, the wireless service provider must provide enough facts to allow a court to determine – not speculate – that it is more likely than not that the class action belongs in federal court. 

 

Thus, the Court held that, while the wireless service provider may rely on evidence that may be overinclusive, the party seeking to invoke CAFA jurisdiction must provide enough factual detail for the trial court to discharge its constitutional duty and assess whether jurisdiction exists.

 

But, because the trial court committed a legal error in disregarding the wireless service provider's evidence as overinclusive, the Fourth Circuit was unable determine whether the wireless service provider met its burden to prove jurisdiction. 

 

Accordingly, the Fourth Circuit vacated the trial court's judgment and remanded the case for reconsideration 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

 

 

 

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FYI: Fla App Ct (5th DCA) Reverses Foreclosure Judgment That Excluded Interest and Escrow

The District Court of Appeal of the State of Florida, Fifth District ("5th DCA"), recently reversed final judgment of foreclosure entered in favor of a mortgagee that omitted interest and escrow amounts due, and remanded to the trial court to modify judgment to include these amounts.

In so ruling, the 5th DCA determined that the mortgagee met its burden to provide the trial court with figures necessary to calculate the interest and escrow amounts through its' witnesses' testimony and evidence.

 

The Court further reversed the trial court's dismissal of an HOA as a party to the foreclosure action, concluding that neither the HOA nor the mortgagee had presented competent evidence to establish lien priority.

 

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

 

In April 2013, a mortgage servicer mailed a notice of default to the borrowers, alleging a default, and requiring immediate payment of $124,082.20 to cure the default.   After the borrower failed to cure the default, the mortgagee filed a foreclosure complaint seeking the principal amount due on the Note and Mortgage, along with interest from the date of default, late charges, costs of collection, reasonable attorney's fees, and other expenses as permitted by the mortgage. 

 

The complaint also included the subject property's homeowners' association ("HOA") as a defendant to the foreclosure proceedings, asserting that any interest it may claim in the mortgaged property "is subordinate, junior, and inferior to the lien of [mortgagee's] mortgage."

 

In its answer and affirmative defenses, the HOA among other things sought judgment proving that its interest was superior to that of the mortgagee, citing its recorded declaration to support its purported entitlement to expenses and assessments.  The borrowers also answered and asserted lack of standing, failure to satisfy a condition precedent, and lack of certification as affirmative defenses.

 

At the close of trial, the borrowers moved for involuntary dismissal, arguing that the payment history was improperly admitted, and that the mortgagee had failed to establish any amounts due for interest and escrow.  The HOA also moved for involuntary dismissal, arguing that the mortgagee failed to present any evidence that its claim was superior to the HOA's. 

 

Despite the mortgagee's request for judicial notice of the recorded general warranty deed and recorded mortgage to prove its priority over the HOA's lien, the trial court entered judgment in favor of the mortgagee and against borrowers only in the amount of the principal amount, and dismissed the HOA from the action, holding that "their lien is superior to the mortgage and they are not foreclosed."

 

The borrowers appealed the final judgment of foreclosure, and the mortgagee cross-appealed the award that was limited to only principal, and the dismissal of the HOA as a superior lienholder.

 

The 5^th DCA first considered the mortgagee's argument that the court erred by omitting interest and escrow from the judgment. 

 

At trial, the mortgagee's witness testified to the fixed interest rate and unpaid principal for determination of the amount of interest due, and provided the court with the figures necessary to determine the escrow amount.  The Appellate Court concluded that these figures were supported by the payment history, and the note, which combined with the witnesses' testimony, provided the trial court with competent, substantial evidence to easily calculate the interest and escrow amounts. 

 

Accordingly, the 5h DCA reversed and remanded the foreclosure judgment for the trial court to modify final judgment to include intense and escrow amounts.

 

As to the trial court's determination that the HOA's lien was superior to that of the mortgagee, the Appellate Court reversed dismissal of the HOA, citing a lack of competent evidence to establish which party had a superior interest and remanded for the trial court to reinstate the HOA as a party to the litigation, and allowing either party to request an evidentiary hearing to resolve the issue. 

 

 

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: DC Cir Confirms Mediation Not Required Prior to Judicial Foreclosure

The U.S. Court of Appeals for the District of Columbia Circuit recently affirmed the dismissal of a borrower's counterclaims and the entry of summary judgment in the mortgagee's favor, holding that the borrower failed to state claims a) for declaratory and injunctive relief for allegedly failing to properly foreclose a deed of trust; b) for supposedly violating the federal Fair Debt Collection Practices Act (FDCPA);  c) quite title;  d) for supposedly violating the Fair Credit Reporting Act (FCRA);  and  e) civil conspiracy.

 

In so ruling, the Court held that District of Columbia law clearly does not require mediation prior to judicial foreclosure.

 

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

 

The borrower took out a loan in 2003 secured by a deed of trust on his home in Washington, D.C., but defaulted in 2012. The loan was assigned to the bank in 2013 by the original lender.  The mortgagee filed a foreclosure action in the Superior Court for the District of Columbia, but the case was removed to federal court by the Internal Revenue Service, which was named as a party.

 

The borrower raised a number of counterclaims against the mortgagee.  The trial court granted summary judgment in the mortgagee's favor and dismissed the borrower's counterclaims challenging the validity of the assignment of the loan and deed of trust. The borrower appealed.

 

The DC Circuit first addressed whether summary judgment was appropriate, finding that "[b]ecause [the borrower] provided no evidence to indicate the Bank is not the rightful holder of the Note, there is no dispute of material fact that the Bank holds the Note."  The Appellate Court held that, because "D.C. law allows the holder of a note to enforce the deed of trust by judicial foreclosure, … the district court property entered summary judgment for judicial foreclosure."

 

The Court then rejected the borrower's argument that the mortgagee violated the National Housing Act, 12 U.S.C. § 1701x(c)(5), by not providing him with a notice that "homeownership counseling", and also violated D.C. law by providing him with "notice of his right to 'foreclosure mediation.'"

 

The DC Circuit reasoned that the mortgagee's law firm provided the borrower with a letter "advising him of his default and of a telephone number to call for homeownership counseling", and the borrower "does not explain why this was insufficient notice." 

 

The Court also disagreed that D.C. law "requires mediation prior to judicial foreclosure."

 

The DC Circuit refused to address the borrower's argument that the mortgagee violated the pooling and servicing and trust agreements for the loan at issue, because "even a pro se complainant must plead factual matter that permits the court to infer more than the mere possibility of misconduct."

 

The Court next rejected the borrower's FDCPA claim because that statute only applies to debt collectors, not creditors like the mortgagee here collecting its own debt.

 

The DC Circuit also rejected the borrower's quiet title claim because his argument that the mortgagee "has no right to the property … is contradicted by the Deed of Trust signed by [the borrower]."

 

The Court affirmed the trial court's dismissal of the FCRA claim on the basis that "there is no private cause of action for the alleged violations", because the borrower did challenge the ruling in his brief and, therefore, "forfeited his claim."

 

Finally, the DC Circuit found that the trial court correctly dismissed the civil conspiracy claim because the borrower "failed to meet the heightened pleading requirements for fraud" by not providing any evidence supporting an inference that an illegal agreement existed among the alleged conspirators, the bank, "unknown new investors," and the mortgagee's attorney, to defraud the borrower.

 

Accordingly, the trial court's judgment in favor of the mortgagee was affirmed.

 

 

 

 

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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FYI: 11th Cir Confirms that Servicer May Designate Address for QWRs

The U.S. Court of Appeals for the Eleventh Circuit recently affirmed a summary judgment ruling in favor of a mortgage servicer, holding that the servicer had no duty to respond to a Qualified Written Request ("QWR") under the federal Real Estate Settlement Procedures Act, 12 U.S.C. 2601 et seq. ("RESPA") because the borrower failed to send the QWR to the servicer's designated address for QWR receipt.

 

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

 

A mortgage servicer sent a letter to a borrower advising that the lender transferred the servicing of the borrower's mortgage loan to the servicer. The letter notified borrower of three separate addresses to use for correspondence — one address for General Correspondence, one address for all Disputes/Inquiries, and one address for Payment Remittance.  The otherwise identical addresses contained different post office box numbers.

 

After receiving the service transfer notice, borrower's counsel sent correspondence designated as a QWR under RESPA, 12 U.S.C. § 2605(e), to the servicer at the servicer's General Correspondence address.  The letter disputed the servicer's standing to enforce the note, requested the loan owner's name, address and phone number, and requested a certified copy of the note in its current condition.

 

The servicer received the letter at its General Correspondence address and forwarded the letter to its Disputes/Inquiries department. In response to the QWR, the servicer sent borrower two letters.  The first letter identified the holder of the note.  The second letter advised borrower that he mailed his letter to the wrong address, and once again notified borrower of the correct Disputes/Inquiries address.  However, the servicer failed to timely provide borrower a certified copy of the note in its current condition.

 

The borrower sued the servicer alleging that he was entitled to actual and statutory damages under RESPA because the servicer did not properly respond to his purported QWR.

 

The servicer moved for summary judgment claiming, among other things, that the purported QWR did not trigger its acknowledgment and response obligations under RESPA because borrower did not mail the letter to the correct address.  The trial court granted the servicer summary judgment.  Specifically, the trial court found that the servicer had no duty to respond to the QWR because borrower mailed the QWR to the wrong address.

This appeal followed.

Initially, the Eleventh Circuit observed that when a borrower submits a QWR then the servicer must provide "a written response acknowledging receipt of the correspondence" and otherwise respond within specified time periods.  12 U.S.C. § 2605(e)(1)(A), (e)(1)(B), (e)(2).

 

As you may recall, RESPA authorized the Secretary of the Department of Housing and Urban Development "to prescribe such rules and regulations" and "make such interpretations . . . as may be necessary to achieve [the statute's] purposes."  12 U.S.C. § 2617 (repealed 2011).  The Secretary then promulgated Regulation X, 24 C.F.R. § 3500.21 (repealed 2014), RESPA's primary implementing regulation. 

 

Regulation X authorized servicers to "establish a separate and exclusive office and address for the receipt and handling of qualified written requests."  24 C.F.R. § 3500.21(e)(1). The Secretary's final rulemaking notice indicated that when a servicer designates and address for receiving QWR's, "then the borrower must deliver its request to that office in order for the inquiry to be a 'qualified written request.'"  Real Estate Settlement Procedures Act, Section 6, Transfer of Servicing of Mortgage Loans (Regulation X), 59 Fed. Reg. 65,442, 65,446 (Dec. 19, 1994). 

 

Later, the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") transferred the Secretary's rulemaking authority to the Consumer Financial Protection Bureau ("CFPB").  The CFPB rescinded the version of Regulation X at issue in this case, and promulgated a new Regulation X that also permits a servicer to require borrowers to send QWR's to a designated address. 12 C.F.R. §§ 1024.35(c), 1024.36(b).

The borrower maintained that he did not have to send the QWR to the Disputes/Inquiries address because the servicer did not designate a specific address to receive only QWRs. The borrower argued that designating a general address to receive Disputes/Inquiries was insufficient.  Instead, the borrower argued, section 3500.21 required the servicer to explicitly use the term "qualified written requests."

 

The Eleventh Circuit rejected this argument.  As the servicer directed borrowers to send "all written requests to the specified address," it necessarily directed borrowers to send QWRs to the specified address.  The Eleventh Circuit also noted that the servicer used "more accessible language than Regulation X required," because borrowers probably would be more familiar with lay terms like "disputes," "inquiries," and "written requests" than with the statutory term, "qualified written request." 

 

Further, the Eleventh Circuit observed that it would be "perverse" to penalize a servicer for subjecting itself to the additional administrative burden to evaluate and sort a larger quantity of mail to identify QWRs to minimize consumer confusion. 

 

The Court noted that this does not mean that a servicer may designate an address to receive QWR's with terminology so vague that it would fail to advise a borrower of the specified address intended for QWRs.  Instead, the Court held that a servicer must designate an exclusive address for QWRs that is "clear to a reasonable borrower." 

 

The Eleventh Circuit had "little difficulty" in determining that the servicer met this standard.

 

The borrower also argued that he did not have to send his QWR to the Disputes/Inquiries address because the servicer did not "establish a separate and exclusive office" solely to respond to QWRs.  The Eleventh Circuit noted that it construes "[r]egulations with a common sense regard for regulatory purposes and plain meaning."  United States v. Fuentes-Coba, 738 F.2d 1191, 1195 (11th Cir. 1984).  The Court held that the borrower's proposed construction of section 3500.21(e)(1) fails this test because it would frustrate, not serve, the regulation's purpose.

 

The Eleventh Circuit noted that the section 3500.21(e)(1) was designed "to help servicers timely respond to QWRs by enabling them to more easily identify and prioritize correspondence that purport to be QWRs."  To require "a servicer to maintain a separate office for the sole function of processing QWRs would impose high costs on the servicer while providing little benefit."  The borrower argued that a servicer could train employees at a QWR-only processing facility, but the Eleventh Circuit rejected this argument because a servicer could also train employees at a common mail processing office. 

 

The Eleventh Circuit concluded that it is more sensible to construe Section 3500.21(e)(1) to allow a servicer to designate an office "separate" from any other office as its exclusive office for receiving QWRs, without any regard to any other function that office may serve. This "construction accords with § 3500.21(e)(1)'s text and purpose."  The Court held that the servicer therefore "successfully invoked § 3500.21(e)(1) by directing borrowers to mail QWRs to a particular office, even though it used that office for other purposes as well."

 

Thus, the Eleventh Circuit held that a servicer does not have to devote an offer for the separate and exclusive purpose of processing QWRs to "establish a separate and exclusive office" to receive and handle QWRs.

Accordingly, the Eleventh Circuit affirmed the trial court's summary judgment ruling in favor of the servicer and against the borrower.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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