FYI: 8th Cir Rules No RESPA Penalty Without Actual Damages or Similar Acts With Other Borrowers

The U.S. Court of Appeals for the Eighth Circuit held that, under the federal Real Estate Settlement Procedures Act ("RESPA"), because the borrower did not prove actual damages he also could not prove he was entitled to 'additional' statutory damages, and therefore failed to prove an essential element of his RESPA claim.

 

In so ruling, the Eighth Circuit als held that "[a] borrower cannot manufacture a pattern or practice by sending multiple requests in quick succession involving the same subject matter," and "that two instances of noncompliance are not enough."    

 

Accordingly, the ruling of the trial court granting summary judgment in favor of the borrower was reversed. 

 

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

 

The plaintiff borrower ("Borrower") took out a mortgage loan in August 2001, which loan was serviced by the defendant servicer ("Servicer") beginning in June 2013.  As part of the servicing transfer, the Servicer received the prior servicer's payment records which included payment records beginning in June 11, 2011.

 

The partial payment history showed that the Borrower was one-month delinquent on the loan as of the first entry for June 2011.  The partial payment history also showed that the Borrower fell behind by another payment between June 2011 and June 2013.  Accordingly, the Servicer sent the Borrower a notice that loan payments were past due.

 

The Borrower made several calls to the Servicer disputing that the account was past due, and he made a complaint with the Minnesota Attorney General's Office.  The Attorney General's office sent the Servicer a letter on October 9, 2013, which the Servicer responded to on October 18, 2013.  In its response, the Servicer noted that its records showed the Borrower was delinquent by two months.  The Servicer further stated that if the Borrower wished to challenge his delinquency, he needed to provide records from the prior loan servicer, and the front and back of cancelled checks showing that the prior servicer received all payments. 

 

On November 8, 12, and 25, 2013, the Borrower's attorney sent a series of three qualified written requests to the Servicer asking for information, including why the Servicer believed the account was past due.  The Servicer responded to all three letters on December 9, 2013 and reiterated that the Borrower must provide the records described in the letter to the Attorney General's Office if he wished to convince the Servicer that the account was current. 

 

On December 27, 2013 and February 4, 2014, the Borrower's attorney sent the Servicer two more qualified written requests, in which he provided a complete copy of the Borrower's payment history and his bank records from January 2012 to November 2013.  The December 27 letter stated that the Borrower paid $80 for the bank records but did not mention any costs for obtaining the loan payment history. 

 

The Servicer responded to the letters on February 5 and March 13, 2014, respectively.  The Servicer provided a listing of the Servicer's records for the loan beginning in November 2011 and repeated the Servicer's position that the loan was delinquent. 

 

The Borrower then sued the servicer under RESPA and a Minnesota statute that piggybacks on RESPA by forbidding a servicer to violate a "federal law regulating residential mortgage loans."  Minn. Stat. § 58.13, subdiv. 1 (a)(8). 

 

The trial court granted summary judgment in favor of the Borrower on his claims, concluding that the Servicer failed to conduct a sufficient investigation into the Borrower's letters regarding the pre-June 2011 delinquency and to provide the Borrower with the information that he requested as required by RESPA. 

 

The trial court awarded the Borrower his actual damages of $80 suffered in obtaining his bank records for 2012 to 2013, and found that the Servicer engaged in a "pattern and practice" of noncompliance that entitled the Borrower to $2,000 in statutory damages.  The Borrower also received his attorneys' fees and costs.

 

On appeal to the Eighth Circuit, the Servicer first argued that it responded adequately to the Borrower's written requests.  In analyzing the issue, the Eighth Circuit noted that "[w]hether [the Servicer] failed to comply with RESPA depends on what type of investigation the statute requires in response to a qualified written request." 

 

After reviewing the meaning of the word "investigation" and the purpose of RESPA, the Eighth Circuit concluded that "§2605(e)(2)(B)-(C) imposes a substantive obligation on mortgage loan servicers to conduct a reasonably thorough examination before responding to a borrower's qualified written request." 

 

The Court further ruled that the Servicer "[f]ailed to conduct a reasonable investigation of [the Borrower's] pre-June 2011 loan payment history," because it "did not obtain, review, or provide the full payment history as [the Borrower] requested," rather it only referred back to its prior letter to the Attorney General's Office.  Because the Servicer did not provide a full loan payment history, the Borrower was required to obtain a copy himself. 

 

The Servicer argued that the pre-June 2011 payment history was "unavailable" because it did not receive it from the prior servicer, but the Court disagreed, determining that it could have obtained them through a reasonable investigation, which would have included asking the prior servicer.  Thus, the Servicer "failed to comply with § 2605(e)(2)(C)(i) when it did not provide the pre-2011 payment history in response to [the Borrower's] request."

 

The Servicer next argued that even if it failed to comply with certain duties under RESPA, the Borrower's claim still failed because he did not show damages, an essential element of a claim under RESPA.  The Eighth Circuit agreed. 

 

Although the Borrower had to obtain a copy of the pre-2011 payment history from the prior servicer himself due to the Servicer's failure to provide a copy, he "did not claim that he paid any money for those records, and the district court did not award damages on that basis."  Instead, the district court awarded $80 for his expenses incurred in obtaining 2012 to 2013 bank statements, but those records did not relate to the dispute between the Borrower and Servicer over whether he was past due before June 2011. 

 

Thus, the Borrower did not pay the $80 "as a result of" the Servicer's failure to investigate and provide information about the pre-2011 payment history.  The Eighth Circuit "therefore conclude[d] that [the Borrower] did not submit sufficient evidence of actual damages under RESPA."

 

Further, the Court held that "[b]ecause [the Borrower] suffered no actual damages, the district court's award of statutory damages must be reversed," because "the plain language of § 2605(f)(1)(B) requires a borrower to recover actual damages before he can be eligible to recover 'additional' statutory damages." 

 

Even if this were not the case, the Eighth Circuit ruled that the Borrower still did not present sufficient evidence of "pattern or practice of noncompliance," which requires that "a plaintiff must show that noncompliance with the statute 'was the company's standard operating procedure – the regular rather than the unusual practice.'" 

 

The Court noted that "[t]here was no evidence that [the Servicer] failed to investigate and respond reasonably to qualified written requests from other borrowers," and the Borrower conceded "that two instances of noncompliance are not enough."  Further, "[a] borrower cannot manufacture a pattern or practice by sending multiple requests in quick succession involving the same subject matter." 

 

In sum, "[b]ecause [the Borrower] did not present evidence of damages resulting from [the Servicer's] failures to comply with RESPA, he failed to establish an essential element of his claim under RESPA.  We therefore reverse the district court's grant of summary judgment for [the Borrower[ and remand with directions to enter judgment for [the Servicer] on the RESPA claim."

 

 

 

 

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: Mass. SJC Holds Passive Debt Buyers Are Not 'Debt Collectors' Under State Law

In an important ruling for mortgage loan, retail installment contract, credit card, and other debt buyers, the Massachusetts Supreme Judicial Court (SJC) held that passive debt buyers are not "debt collectors" under the Massachusetts Fair Debt Collection Practices Act (MDCPA).

 

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

 

An amicus brief filed by Receivables Management Association International and written by Maurice Wutscher attorneys in support of the appellant is available at:  Link to Amicus Brief

 

As you may recall, in Massachusetts, "debt collectors" must obtain a license from the Division of Banks, the state agency tasked with regulating debt collection in the Commonwealth. Under the MDCPA, an entity is a debt collector if (1) it is engaged in a "business the principal purpose of which is the collection of debt," or (2) it "regularly collects or attempts to collect, directly or indirectly, a debt owed or due…another." G.L. c. 93, § 24.

 

In 2012, a debt buyer inquired with the Division whether a license was necessary for a company that "does not have employees or interact with consumers directly" but instead "contracts with licensed third party debt collectors and law firms to service accounts on its behalf."

 

The Division responded that it was not necessary, referencing its long-standing position held since 2006 that passive debt buyers that purchase debt, but do not directly engage in the collection of the purchased debt, are not required to obtain a debt collector license provided that all collection activity performed on behalf of such debt buyers is done by a properly licensed debt collector or a licensed attorney.

 

Subsequently, a licensed debt collector filed lawsuits and obtained judgments against the plaintiffs on the debt buyer's behalf. Thereafter, the plaintiffs each sued the debt buyer on behalf of themselves and all others similarly situated, seeking declaratory and injunctive relief, and alleging that the debt buyer was operating as a debt collector without a license in violation of the MDCPA, was unjustly enriched and violated the Massachusetts consumer protection statute, G.L. c. 93A.

 

As the trial judge noted:

 

These lawsuits are notable in that the only conduct alleged to be unlawful here is [the debt buyer's] failure to obtain a license from the [Division]. That is, these two cases do not claim that [the debt buyer] – or any entity acting on its behalf – has harassed any debtor or made any misrepresentations in an attempt to collect on a debt. [The debt buyer] is not accused of seeking to collect amounts it has no basis to believe that it is owed or using information about a debtor in an improper manner. Instead, the lawsuits focus exclusively on the fact that [the debt buyer] is unlicensed.

 

On cross motions for summary judgment, the trial judge granted summary judgment to the plaintiffs on their claims that the debt buyer violated the MDCPA by operating as a debt collector without a license. The debt buyer appealed, and the SJC granted applications for direct appellate review.

 

On appeal, the SJC concluded that passive debt buyers do not fall within either of the two separate definitions of "debt collector" contained in the MDCPA. Specifically, passive debt buyers do not fit within the first definition because their "principal purpose" is not the "collection of debt."

 

In reaching this conclusion, the SJC noted that, because this first prong of the definition is not "plain and unambiguous" as it applies to passive debt buyers, the Court must look to the legislative history on the development of the MDCPA.

 

However, because the legislative history of the MDCPA is essentially silent on the Legislature's intent, the Court analyzed the history of the FDCPA, in which the MDCPA was modeled and largely follows, concluding that "there is no evidence that Congress ever intended to include within this definition debt buyers that own the debts but use a third party to collect the debts and therefore have no contact with the debtors."

 

The SJC also considered the Division's long-standing interpretation of the MDCPA, noting that "an administrative agency's interpretation of a statute within its charge is accorded weight and deference." Massachusetts Med. Soc'y v. Commisioner of Ins., 450 Mass. 311, 319 (2008). The Court determined the Division's interpretation was reasonable and, because passive debt buyers have no contact with consumers, reflected the core concern of the MDCPA, which is to prevent abusive debt collection practices.

 

Further, the Court concluded that passive debt buyers do not "regularly collect[] or attempt[] to collect, directly or indirectly, debts owed or due" to another. Adopting the interpretation of the United States Supreme Court in Henson v. Santander Consumer USA, Inc., 137 S. Ct. 1718, 1721-1722 (2017), the SJC concluded that passive debt buyers are not "debt collectors" under the second prong of the definition because they deal with debts that they own instead of debts owed to another.

 

Accordingly, the SJC vacated the judgment of the lower court.

 

The ruling should not be construed to mean that passive debt buyers are not regulated under Massachusetts debt collection regulations, which treats passive debt buyers as creditors and continues to regulate their conduct as such.

 

 

 

 

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: 9th Cir Holds "Increased Risk of Future Identity Theft" Sufficient for Standing in Data Breach Class Action

In a data breach putative class action, the U.S. Court of Appeals for the Ninth Circuit recently held that the plaintiffs sufficiently alleged Article III standing based on an alleged "increased risk of future identity theft."

 

In so ruling, the Ninth Circuit rejected the defendant's argument that Clapper v. Amnesty International USA, 568 U.S. 398 (2013), in which the Supreme Court of the United States held the "an objectively reasonable likelihood" of injury was insufficient to confer standing, required dismissal.

 

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

 

In January 2012, hackers breached the servers of an online retailer and allegedly stole the names, account numbers, passwords, email addresses, billing and shipping addresses, telephone numbers, and credit and debit card information of more than 24 million customers.

 

Several of these customers filed putative class actions in federal courts across the county, and the cases were consolidated for pretrial proceedings.  Although some of the plaintiffs alleged that hackers used stolen information about them to make financial transactions, the plaintiffs of this appeal ("Plaintiffs") did not allege that they suffered financial losses of any kind from identity theft.

 

The trial court dismissed the Plaintiffs' claim for lack of Article III standing.  This appeal followed.

 

On appeal, the Ninth Circuit had to determine whether the Plaintiffs had standing to sue based on alleged risk of future harm.  As you may recall, to have Article III standing:

 

a plaintiff must show (1) it has suffered an "injury in fact" that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision.

 

Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180-81 (2000).

 

A plaintiff threatened with future injury has standing to sue "if the threatened injury is certainly impending,' or there is a "substantial risk that harm will occur.'"  Susan B. Anthony List v. Driehaus, 134 S. Ct. 2334, 2341 (2013).

 

The Ninth Circuit addressed Article III standing of victims of data theft in Krottner v. Starbucks Corp., 628 F.3d 1139 (9th Cir. 2010).  In Krottner, a thief stole a laptop containing personal information of approximately 97,000 employees.  Krottner, 628 F.3d at 1140.  Some employees sued and the only harm that most alleged was an "increased risk of future identity theft."  Id., at 1142.  The Ninth Circuit held that this was sufficient for Article III standing, holding that the plaintiffs had "alleged a credible threat of real and immediate harm" because the laptop with their personal information had been stolen.  Id., 1143.

 

The retailer argued that the Supreme Court of the United States's more recent ruling in Clapper v. Amnesty International USA, 568 U.S. 398 (2013) meant that Krottner did not control this case. 

 

In Clapper, the plaintiffs challenged surveillance procedures authorized by federal law, and argued that they had Article III standing "because there [was] an objectively reasonable likelihood that their communications [would] be acquired "at some point in the future."  Clapper, 568 U.S. at 401.  The Supreme Court held that "an objectively reasonable likelihood" of injury was insufficient because the plaintiffs in Clapper relied on a multi-link chain of inferences that was "too speculative" to constitute a cognizable injury in fact.  Id.

 

However, in the Ninth Circuit's view, the plaintiffs' alleged injury in Krottner did not require a speculative chain of inference.  See Krottner, 628 F.3d at 1143.  Rather, the Ninth Circuit explained that the laptop thief in Krottner had all the information he needed to open accounts or spend money in the plaintiffs' names.  Id., at 1142. 

 

Moreover, the Ninth Circuit noted that Clapper's standing analysis was "especially rigorous" because the case arose in a sensitive national security context involving intelligence gathering and foreign affairs, and because the plaintiffs were asking the courts to declare actions of the executive and legislative branches unconstitutional.  Clapper, 568 U.S. at 408.

 

Therefore, the Ninth Circuit held that Krottner was not clearly irreconcilable with Clapper, and remained binding law.

 

Next, the Ninth Circuit applied Krottner to Plaintiffs' allegations.  Specifically, the Ninth Circuit compared the sensitivity of the stolen data in this case to that in Krottner.

 

The Plaintiffs alleged that the information stolen from the retailer can be used to commit identity theft, including by placing them at higher risk of "phishing" and "pharming," which were ways for hackers to exploit information they already have to obtain even more personal information.  Plaintiffs also alleged that their credit card numbers were stolen.  Although there was no allegation in this case that the stolen information included social security numbers, as there was in Krottner, the Ninth Circuit found that the information taken in the data breach gave hackers the means to immediately commit fraud or identity theft.

 

Additionally, the Ninth Circuit noted that there were other plaintiffs in this case who alleged that the hackers had already commandeered their accounts or identities using information taken from the data breach.  While those plaintiffs' claims were not at issue in this appeal, according to the Ninth Circuit, their alleged harm undermined the retailer's assertion that the stolen data cannot be used for fraud or identity theft. 

 

The Court also noted that two plaintiffs whose claims were at issue in this appeal claimed that the hacker took over their AOL accounts, and sent advertisements to people in their address books.  Though not a financial harm, as the Ninth Circuit explained, "these alleged attacks further support Plaintiffs' contention that the hackers accessed information that could be used to help commit identity fraud or identity theft."

 

Thus, the Ninth Circuit concluded that the Plaintiffs had sufficient alleged an injury in fact under Krottner.

 

The Court then turned to the remaining Article III requirements:  whether the alleged risk of future harm is "fairly traceable" to the conduct challenged, and whether the injury will be redressed by the litigation.

 

In Remijas v. Neiman Marcus Group, LLC, 794 F.3d 688 (7^th Cir 2015), the Seventh Circuit recognized "[t]he fact that some other store might have caused the plaintiffs' private information to be exposed does nothing to negate the plaintiffs' standing to sue" and their injury were nonetheless "fairly traceable" to the defendant's data breach.  Remijas, 794 F.3d at 697.

 

Relying on Remijas, the Ninth Circuit determine that even if the Plaintiffs suffered identity theft or fraud caused by data stolen in other breaches (rather than the data stolen from the vendor in this case), it would not negate their standing to sue.  As the Ninth Circuit explained, those issues were more about the merits of causation and damages and less about standing.

 

The Ninth Circuit also found that the risk of identity theft was redressable by relief that could be obtained through this litigation.  Namely, if the Plaintiffs succeeded on the merits, any proven injury could be compensated through damages.  See Remijas, 794 F.3d at 696-97.

 

Accordingly, the Ninth Circuit reversed the trial court's judgment as to the Plaintiffs' standing and remanded to the trial court for further proceedings.

 

 

 

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   |   Massachusetts   |   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:

 

Financial Services Law Updates

 

and

 

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