FYI: 7th Cir Vacates $10MM FLSA Award Against Mortgage Company

The U.S. Court of Appeals for the Seventh Circuit recently joined Fourth, Sixth, Eighth, Ninth, and Eleventh Circuits, in ruling that class or collective arbitrability is a gateway question that is presumptively for the court to decide, rather than the arbitrator.

 

In so ruling, the Court vacated the trial court's order enforcing a $10 Million federal "wage and hour" Fair Labor Standards Act arbitration award against the defendant.

 

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

 

The plaintiff filed a putative class and collective action against her former employer.  She alleged  wage and hour violations under the Fair Labor Standards Act, and breach of her employment contract. 

 

The plaintiff's employment agreement contained an arbitration cause and class action waiver:

 

In the event that the parties cannot resolve a dispute by the [alternative dispute resolution] provisions contained herein, any dispute between the parties concerning the wages, hours, working conditions, terms, rights, responsibilities or obligations between them or arising out of their employment relationship shall be resolved through binding arbitration in accordance with the rules of the American Arbitration Association applicable to employment claims.  Such arbitration may not be joined with or join or include any claims by any persons not party to this Agreement.

 

The trial court held that the arbitration clause was enforceable but struck the sentence waiving plaintiff's right to bring a class or collective proceeding in arbitration.  The court sent the parties to arbitration. 

 

The arbitrator certified a class for two reasons.  First, he determined that he was required to ignore the class action waiver because the trial court had invalidated it.  Second, he determined that the parties agreed to class arbitration because the agreement incorporated the Rules of the American Arbitration Association for employment claims.

 

The arbitrator awarded $10 million in damages and fees in favor of plaintiff and the class.  The trial court entered judgment enforcing the arbitration award. 

 

This appeal followed.

 

The first issue addressed on appeal was whether the class action waiver was enforceable. 

 

While this case was on appeal, the U.S. Supreme Court issued its ruling Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018), which upheld the validity of class action or collective action waiver provisions like the one in the plaintiff's employment agreement.  Consequently, Seventh Circuit held that trial court erred in striking the class action waiver. 

 

The second issue on appeal was whether it is for the court or an arbitrator to decide if an arbitration agreement permits class or collective arbitration.  The plaintiff argued that, notwithstanding the class action waiver, the arbitration agreement reflected the parties affirmative consent to class and collective arbitration. 

 

The Seventh Circuit began its analysis by observing that "every federal court of appeal to reach the question has held that the availability of class arbitration is a question of arbitrability." 

 

Joining the Fourth, Sixth, Eighth, Ninth, and Eleventh Circuits, the Seventh Circuit determined that whether the availability of class or collective arbitration is a gateway issue that is presumptively for the court, rather than the arbitrator. 

 

The Seventh Circuit reasoned that whether the agreement permits class or collective arbitration required the adjudicator to determine: (1) whether the employer agreed to arbitrate not only with the Plaintiff, but also with members of her proposed class; and (2) whether the agreement to arbitrate covered a particular controversy. 

 

In the Seventh Circuit's view, these issues are typically reserved for the court.

 

The Seventh Circuit also found that class and collective arbitration involve the threshold decision of whether to certify a class.  The arbitrator must investigate a variety of issues incidental to the actual dispute, including whether the putative class meets the requirements in Rule 23(a). 

 

Noting that class and collective arbitration require procedure rigor that bilateral arbitrations do not, and the stakes to the defendant due to the loss of appellate review, the Seventh Circuit concluded that "the district court should conduct the threshold inquiry regarding class or collective arbitrability."

 

Accordingly, the Seventh Circuit vacated the trial court's order enforcing the arbitration award, and remanded the for further proceedings consistent with its opinion.

 

 

 

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

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

 

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FYI: N.D. Illinois Joins Other Courts in Limiting Scope of "ATDS" Under TCPA

The U.S. District Court for the Northern District of Illinois recently held that the defendant company did not use an automatic telephone dialing system ("ATDS") because its phone system did not use a random or sequential number generator to store or produce phone numbers to be called.

 

In so ruling, the Court reversed a prior order and now entered summary judgment in favor of the defendant company on the plaintiff's alleged TCPA claim in light of ACA International v. FCC, 885 F.3d 687, 695 (D.C. Cir. 2018).

 

A copy of the opinion is attached.

 

The defendant company's (Company) phone system sent text messages to the plaintiff (Plaintiff) "by pulling her number from a database of stored numbers — an address book — and then automatically sending that number a text message."  The Plaintiff alleged that the Company sent her text messages without her prior express consent using an ATDS and sued the Company for allegedly violating the Telephone Consumer Protection Act. 47 U.S.C. § 227(b)(1)(A)(iii) ("TCPA"). 

 

As you may recall, the TCPA defines an ATDS to be equipment that has the capacity "to store or produce telephone numbers to be called, using a random or sequential number generator." 47 U.S.C. § 227(a)(1). 

 

In 2014, relying on the 2003, 2008, and 2012 FCC rulings that interpreted an ATDS to include systems that dialed numbers taken from a stored list without human intervention, the trial court denied the Company's motion for summary judgment finding that a dispute existed over whether the Company's phone system was an ATDS. 

 

In 2015 the FCC issued a ruling again interpreting the ATDS provision of the TCPA.  30 F.C.C. Rcd. 7961 (2015).  The 2015 FCC decision reaffirmed its prior interpretation that "dialing equipment generally has the capacity to store or produce, and dial random or sequential numbers (and thus meets the TCPA's definition of 'autodialer') even if it is not presently used for that purpose, including when the caller is calling a set list of consumers." 30 F.C.C. Rcd. 7961, 7971–74 (2015) (citing the 2003 and 2008 TCPA Orders).

 

However, the U.S Circuit Court of Appeals for the District of Columbia Circuit in ACA International examined the 2015 FCC decision and "set aside the Commission's explanation of which devices qualify as an ATDS."  The Court of Appeals found the FCC interpretation of an ATDS that included a device that "can call from a database of telephone numbers generated elsewhere" incompatible with the statutory definition that required an ATDS to generate the phone "numbers to be called, using a random or sequential number generator."

 

The Company moved to reconsider summary judgment in light of ACA International arguing that its phone system was not an ATDS because it did not use a random or sequential number generator to store or produce phone numbers to be called.  In response, the Plaintiff argued that there is nothing to reconsider because the District Court denied the summary judgment motion in 2014 based on the 2003, 2008, and 2012 FCC orders issued before the 2015 FCC decision that ACA International set aside.  The Plaintiff maintained that the 2003, 2008, and 2012 FCC orders survived ACA International.  Thus, according to the Plaintiff the 2003, 2008, and 2012 FCC orders remain in effect and still bind the District Court. 

 

The district court acknowledged that it "must apply the FCC's definition of ATDS."  The Court also agreed that the petitions in ACA International only sought review of the 2015 order. 

 

Nevertheless, the Court observed that ACA International set aside the FCC's "treatment of the qualifying functions of an ATDS" and "wiped the slate clean."

 

Further, the Court noted that the 2015 FCC order "reaffirmed" its earlier orders. This necessarily "brought the entire agency definition of ATDS up for review in ACA International."  The ACA International court plainly reviewed all "pertinent pronouncements" the FCC made concerning the ATDS definition of an ATDS. 

 

Thus, the Court concluded that "the FCC's prior orders are no longer binding."

 

Here the Company's phone system did not have the capacity to generate random or sequential numbers to be dialed.  Instead, it only dialed numbers from a stored list. The TCPA requires that a dialing system has the capacity to store or produce telephone numbers, using a random or sequential number generator to qualify as an ATDS. 47 U.S.C. § 227(a)(1).

 

The Court found that the statute "is not ambiguous."  Further, the phrase "using a random or sequential number generator" applies to the numbers to be called.  As such, phone lists created without random or sequential number generation capacity fall outside the statute's ATDS definition.

 

Thus, trial court granted the motion to reconsider in light of ACA International, and because the Company's phone system is not an ATDS, and entered judgment in favor of the defendant company.

 

 

 

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: 7th Cir Holds Attorney's Fees and Emotional Distress Not "Actual Damages" for RESPA QWR Claim

The U.S. Court of Appeals for the Seventh Circuit recently affirmed a trial court's finding that a servicer did not violate the federal Real Estate Settlement Procedures Act (RESPA) and Wis. Stat. § 224.77 because the borrower could not prove that the servicer's alleged failure to completely respond to a "qualified written request" (QWR) caused any actual damages, notwithstanding the alleged attorney's fees incurred in reviewing the servicer's response and the borrower's alleged emotional distress.

 

In so ruling, the Seventh Circuit held that "RESPA was not intended to give people who cannot pay their mortgages the means to engage in burdensome fishing expeditions in the hope of somehow passing the blame for their foreclosure onto the mortgage servicers in state court."

 

The Seventh Circuit also held that the non-borrower spouse lacked standing to sue under RESPA and Wisconsin law.

 

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

 

As you may recall, RESPA imposes duties on a loan servicer that receives a QWR for information from a borrower.  12 U.S.C. § 2605(e). 

 

Section 2605(e) requires the servicer to do one of the following three things no later than 30 business days after receiving a QWR from a borrower:  (1) make appropriate corrections to the borrower's account and provide written notice of the corrections to the borrower; (2) after investigating the borrower's account, provide a written explanation as to why the servicer believes the account does not need correction; or (3) after investigating the borrower's account, provide the requested information or explain in writing why the information cannot be obtained.

 

Wisconsin law provides similar protection under Wis. Stat. § 224.77, which prohibits mortgage brokers from engaging in a wide range of conduct, including anything that would "violate any provision of this subchapter" or any "federal or state statute."  Wis. Stat. § 224.77(1)(k). 

 

Additionally, mortgage servicers must maintain the competence necessary to maintain their role as a servicer and may not engage in conduct "that constitutes improper, fraudulent, or dishonest dealing."  Wis. Stat. § 224.77(1)(m).

 

The plaintiffs, husband and wife, obtained an adjustable rate loan to purchase their home.  The wife used an inheritance from her mother to help buy the house, but she was never named as a party to the title of the property, the mortgage, or the promissory note.  The husband is the borrower on the loan.

 

The loan owner filed a foreclosure action but dismissed that first foreclosure action after a loan modification.  The plaintiffs fell behind on the modified payments and the loan owner filed a second foreclosure action.  On November 13, 2012, the state court entered a judgment of foreclosure against the husband.  He did not appeal the state court's judgment of foreclosure.

 

The husband filed Chapter 13 bankruptcy to stop the sheriff s sale.  In June 2015, the parties entered into a modified payment agreement that required the husband to pay a lump sum of $9,000.  When the husband failed to make this payment, the loan owner sought relief from automatic stay.

 

The husband responded by converting his Chapter 13 bankruptcy into a Chapter 7 bankruptcy.  That triggered another automatic stay only twelve days before the scheduled sale.  After the bankruptcy court entered a discharge for the Chapter 7 bankruptcy, the sheriff's sale was rescheduled for October 11, 2016.

 

On August 15, 2016, nearly four years after the foreclosure judgment was entered and two months before the scheduled sale, the husband sent a letter to the servicer asking twenty two wide ranging questions about his account.  His questions included the identities of the loan owner, details about how payments were applied throughout the duration of the loan, the creation of his escrow account, a list of charges and fees, and "an identification of each and every modification, forbearance, forgiveness, reinstatement, or other debt-relief or mortgage-relief type program" for which the borrower had "ever been considered" by "any servicer or lender."

 

The servicer treated the letter as a QWR and said it would respond by September 30, the last day to submit a response within the 30 business day deadline under section 2605(e).

 

On September 28th, two days before the servicer's deadline to respond under RESPA, the plaintiffs filed a motion in state court titled "Defendant's Counterclaim Maturing After Pleading" in an effort to reopen the 2012 foreclosure case, and a complaint in federal court alleging that the loan servicer violated RESPA and Wis. Stat. § 224.77 by failing to respond to the QWR.

 

On September 30th, the loan servicer provided its response to the QWR with 58 pages of attachments.  The response addressed most of the questions but not all.  The servicer did not address the question regarding every past modification and stated that the request was "too broad," but invited the husband to provide further details about his request.

 

The state court dismissed the new counterclaims as untimely.  The sheriff's sale finally took place on November 29, 2016.  In a further effort to remain in his foreclosed home, the husband filed for bankruptcy again on December 27, 2016.

 

In February 2018, the federal trial court granted the servicer's motion for summary judgment.  The court found that the husband had standing under both federal and state law (and assumed that the wife had standing under state law), but that the plaintiffs did not establish a violation of law or how any failures to respond to their questions caused them any harm.

 

This appeal followed.

 

The Seventh Circuit began its analysis by review the wife s standing to bring claims under RESPA and Wis. Stat. § 224.77. 

 

The Seventh Circuit found that the wife lacked standing because she was not named on the property's title or the mortgage or the note, she was not a party to any of the bankruptcies or the loan modification, and her discovery responses conceded that the servicer had no legal duty to her under RESPA.  In the Seventh Circuit's view, the wife could not satisfy the Spokeo requirements because she had no legal interest that could have been harmed by the servicer.

 

The wife argued that she had standing under Wisconsin law as a "person aggrieved," which is defined as "[a] person who is aggrieved by an act which is committed by a mortgage banker, mortgage loan originator, or mortgage broker in violation of [§ 224.77] may recover in a private action."  Wis. Stat. § 224.80(2). 

 

The wife claimed that she was harmed by the servicer's failure to respond to the QWR, because she used her inheritance to help purchase the home and would lose the house if the lender is allow to sell it. 

 

However, the Seventh Circuit explained that the Wisconsin Supreme Court had clarified that an aggrieved party under  § 224.77 is "one having an interest" which is "injuriously affected" by the alleged violation.  Liebovich v. Minn. Ins. Co., 310 Wis. 2d 751, 774 (Wis. 2008).  Because the wife did not have any legal interest in the property or in the outcome of this proceeding, the Seventh Circuit held that the wife cannot bring a challenge under ' 224.77.

 

The husband, however, easily satisfied the standing requirements.  As the Seventh Circuit explained, he was a borrower on the loan and alleged injury from having to fight the foreclosure without the requested information. 

 

The central issue on the appeal was whether the husband could recover damages under 12 U.S.C. § 2605(f) when the only harm alleged was that the response to his QWR did not contain information he wanted to help fight the foreclosure he had already lost in state court.

 

The Seventh Circuit noted that RESPA does not provide relief for mere procedural violations and borrowers bringing claims under RESPA must show actual injury. 

 

The Seventh Circuit explained that even assuming some aspects of the servicer's response were incomplete and may have violated RESPA, the husband did not provide any evidence show that his alleged injuries -- "out of pocket expenses and emotional distress" -- were triggered by the servicer's failure to comply with section 2605(e)(2).

 

Attorney's fees to review the response could not be a cost incurred as a result of an alleged violation.  As the Seventh Circuit explained, if attorney's fees constitute actual damages under RESPA, this would render section 12 U.S.C. § 2605(f)(3) (prevailing plaintiffs can collect attorney fees) superfluous. 

 

The Seventh Circuit acknowledged that the prospect of losing a home can be highly stressful, but determined that the husband's testimony was not sufficient to show "emotional distress damages" triggered by any arguable RESPA violations.  The source of his stress were his inability to make timely payments and the sale and imminent eviction. 

 

Finding that the husband had failed to provide evidence of actual injury, the Seventh Circuit stated that "RESPA was not intended to give people who cannot pay their mortgages the means to engage in burdensome fishing expeditions in the hope of somehow passing the blame for their foreclosure onto the mortgage servicers in state court."

 

The husband also argued that the Rooker-Feldman doctrine did not bar his state law claims under  § 224.77 because he was merely seeking damages rather than reconsideration of the state court foreclosure.   

 

As you may recall, "[t]he Rooker-Feldman doctrine prevents lower federal courts from exercising jurisdiction over cases brought by state-court losers challenging state-court judgments rendered before the district court proceedings commenced."  Mains v. Citibank, N.A., 852 F.3d 669, 675 (7th Cir. 2017).

 

The Seventh Circuit rejected this argument, finding that the husband's "assertion denies the substance of what he actually seeks in federal court."  To find in his favor, a federal court would be required to contradict directly the state court's decisions by finding that the loan owner was not entitled to the final judgment of foreclosure.  The Seventh Circuit concluded that the husband cannot relitigate the foreclosure through his state law claims.

 

The Seventh Court also rejected the claim that attorney's fees constitute actual harm under § 224.77 for the same reasons under RESPA. 

 

Accordingly, the Seventh Circuit affirmed the judgment dismissing the action as to the husband on the merits and as to the wife for lack of standing.

 

 

 

 

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   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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