FYI: Bankruptcy Law in 2020: A Look Back and What to Expect Moving Forward

The following is a quick summary of various significant bankruptcy law developments from the past year:

 

No Spike in Consumer Filings

 

To the contrary, we have not seen the spike in consumer filings that was expected due to the pandemic. This is believed to be due, in part, to foreclosure and eviction moratoriums being enacted and the paycheck and unemployment stipends from the federal government.  The PPP program has also helped prevent businesses from furloughing staff.  Whether we see a spike in 2021 will depend on how the government and financial system continue to react to the pandemic.

 

Proof of Claim Filings Up in Some States

 

While the number of consumer filings did not explode, plaintiff and debtor attorneys continued to pursue actions concerning the itemization of interest fees and costs in proof of claims.  Although this issue has not been widespread throughout the country, we have seen an increase in activity in Florida, Georgia, and Virginia.  And although we have no federal appellate court opinions, several bankruptcy courts have handed down conflicting decisions on how these amounts should be set out.

 

In Thomas v. Midland Funding LLC (17-0510), a bankruptcy judge for the U.S. District Court for the Western District of Virginia issued a lengthy opinion setting forth her views on whether the breakdown of interest, fees, and costs satisfies the itemization requirement set forth in the Federal Rule of Bankruptcy Procedure 3001(c)(2)(a) which requires "[i]f, in addition to its principal amount, a claim includes interest, fees, expenses, or other charges incurred before the petition was filed, an itemized statement of the interest, fees, expenses, or charges shall be filed with the proof of claim."

 

In Thomas, the court decided that the creditor, by failing to properly itemize interest and fees, did not comply fully with FRBP 3001(c), opening itself up to potential sanctions under FRBP 3001(c)(2)(D). The court has the ability to "award other appropriate relief, including reasonable expenses and attorney's fees caused by the failure."

 

We will see where the Western District of Virginia proceeds on this issue, but it has laid out a current road map for creditors to follow.

 

FDCPA, Bankruptcy and Standing

 

Addressing Fair Debt Collection Practices Act issues on bankruptcy matters is not just occurring within the bankruptcy cases. Although the bankruptcy court may be the proper forum to raise these issues, we have seen an increase of cases filed in federal district courts as well.  The question that arises is whether the debtor (plaintiff) has standing to file such an action.

 

In Trichell v. Midland Credit Management Inc., 964 F.3d 990 (11th Cir. 2020), the Eleventh Circuit held that the debtor received a misleading letter but suffered no injury.  As a result, these "information injuries" did not confer Article III standing on the debtor.  As debtors attempt to bring FCDPA actions for violations of the discharge injunction or failure to properly itemize interest fees and costs in proof of claims, the Eleventh Circuit calls into question whether such claims will have standing.

 

The Seventh Circuit has also handed down several similar decisions. See Bazile v. Finance System of Green Bay, 2020 U.S. App. LEXIS 39433 (7th Cir. 2020), Spuhler v. State Collection Service, 2020 U.S. App. LEXIS 39434 (7th Cir. 2020), Brunett v. Convergent Outsourcing, 2020 U.S. App. LEXIS 39270 (7th Cir. 2020), and Gunn v. Thrasher, Buschmann & Voelkel, 2020 U.S. App. LEXIS 39267 (7th Cir. 2020). 

 

SBRA aka Subchapter V

 

The year 2020 in bankruptcy law started with an eye on increasing the ability of small businesses to utilize the Chapter 11 process in a more efficient and less expensive way, which led to a record number of commercial filings, a reduction in consumer filings, and a test of the bankruptcy system.

 

In February, the Small Business Reorganization Act went into effect.  SBRA, or Subchapter V, allowed businesses with liabilities up to $2,725,625 to file a simplified version of Chapter 11.

 

The goal of Subchapter V was to streamline the reorganization process and reduce costs for smaller commercial debtors during the pendency of the case.

 

There are key elements of Subchapter V that differentiate it from a typical Chapter 11 reorganization.  In a Subchapter V proceeding, only the debtor can file a plan, there is no disclosure statement requirement, the debtor repays its creditors over a period of three to five years, a Subchapter V trustee is appointed, and there are no quarterly United States Trustee (UST) fees. The requirements of Subchapter V allow the business to complete the plan without expending substantial amounts of costs in legal and UST fees.

 

It proved to be a major incentive for companies to file under the Subchapter V, as quarterly fees under a typical Chapter 11 could run into the tens of thousands of dollars over the life of a Chapter 11 plan.  Attorney fees also tend to be reduced under Subchapter V as there is no disclosure statement requirement and no hearing to approve.  This allows more of the debtor's revenues to be used to fund a plan. Additionally, in Chapter 11 proceedings, it could take months before a plan is even filed.  In larger cases, this could last years as some debtors could be granted numerous extensions.  Unsecured creditors would see no payment during that time.  Under SBRA, a Subchapter V debtor is required to file its plan within 90 days of the filing of the bankruptcy case.

 

The implementation of the CARES Act made a substantial change to SBRA:  it raised the debt ceiling to $7.5 million, allowing more businesses to take advantage of Subchapter V and avoid the delays and costs of a traditional Chapter 11 proceeding.  The pandemic and CARES Act has led to the month to month increase in business bankruptcy filings by approximately 40 percent from the prior years.

 

New Bill Proposes to Amend Bankruptcy Code

 

As 2020 comes to a close, we have seen a new bill introduced to amend the Bankruptcy Code.  Sen. Elizabeth Warren (D-Mass.) and Rep. Jerrold Nadler (D-N.Y.) have introduced the Consumer Bankruptcy Reform Act of 2020.  The proposed legislation would eliminate Chapter 7 and Chapter 13 bankruptcy filings and replace them with a new Chapter 10.  It would allow a consumer debtor to have three types of plans, provide for very minimal, if any, payback to unsecured creditors, and allow debtors to create their own valuations for the purposes of stripping all liens, including all residential mortgages.  And it would allow for the discharge of student loans and other currently non-dischargeable obligations.

 

The bill also provides for FDCPA actions in bankruptcy cases and gives the CFPB power in bankruptcy cases. Whether this bill will survive may well be decided by the eventual makeup of the Senate. It may also give creditors the opportunity to push for the amendment of certain rules pertaining to proof of claim filings.

 

What Will the New Year Bring?

 

The year 2020 has been a year that many would like to forget.  What 2021 brings will be a wait and see scenario.

 

For example:

 

Once foreclosures and evictions are once again initiated, are we likely to see increases in consumer filings?  Can small business survive, or will there be additional closures?  Will the CARES Act be extended past its sunset date of March 2021?

 

On FDCPA actions and bankruptcy, will the federal appellate courts provide any additional guidance?  At the Supreme Court, will our highest court continue to accept and hear bankruptcy cases? And in Congress, is bankruptcy reform on the horizon?

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
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   |   Tennessee   |   Texas   |   Washington, DC

 

 

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FYI: 2020 Year-End Wrap Up: State AG Enforcement Actions

In a year when families and business were forced to make immediate and radical adjustments, government offices also scrambled to proceed in a new environment. Regulators shifted resources in order to comply and respond to complaints of price-gouging while also continuing the investigations and enforcement actions already on the books.

 

The life cycle of most enforcement actions and initiatives involve many years — up to six years or more — with others being quickly investigated and resolved within a month to a year. Price-gouging cases fall into the category of the latter, and while important, are not the routine cases.

 

Enforcement actions can also be distinguished by those that are multi-state actions versus an investigation controlled and led by just one state. Cases also fall into distinct subject-matter areas demonstrating the trends in enforcement actions. Multi-state investigations can take up to eight years before completion with a public announcement.

 

This year included many such investigations coming either to suit or settlement. The following is by no means a comprehensive report on the many classifications, but rather a sampling of investigations.

 

For links to the underlying actions, please see our full blog post on this subject:  Full Blog Post

 

 

Data Breach

 

For well over a decade, state law makers have expanded the authority of state attorneys general relevant to data breach notification. Without meaningful and new national cybersecurity legislation, the states will continue to be the primary enforcers of data security.

 

The 2014 Home Depot data breach case concluded with a $17.5 million price tag. The retailer was hit with malware that allowed hackers to obtain payment card information through stores in the U.S. between April 10 and Sept. 13, 2014. The attorneys general of 45 states and the District of Columbia joined the action, which was led by Texas, Connecticut and Illinois. 

 

 

Consumer Finance

 

With COVID-19 emergency orders, and consumers' finances being tighter, regulatory oversight and enforcement is likely to increase.

 

In May, 34 attorneys general announced a settlement with the nation's largest subprime auto lender. This settlement included $550 million in relief to consumers. The Illinois-led coalition began in 2015 after receiving complaints regarding the company's alleged predatory loan practices in connection with its risk-based models and other alleged deceptive sales practices related to ancillary products.

 

Restitution included a $65 million payout to identified consumers who defaulted on their loans between Jan. 1, 2010 through Dec. 31, 2019 and did not have their car repossessed. The consumers also get to keep the vehicles and the loan balances are waived – a $45 million value. An additional $2 million was paid to a settlement administrator and the states also received an additional $5 million. In addition, the company agreed to waive the deficiency balances for certain defaulted borrowers equaling $433 million.

 

On Dec. 7, the CFPB and the States concluded their joint investigation against a mortgage company related to their servicing practices for 2011 through 2017. The proposed judgment, if accepted by the court, provides for civil penalties paid to the Bureau and restitution to already identified individuals outlined in each state's filing.

 

In June, New York announced a settlement with a home loan company that included $17 million in loan forgiveness to New York customers who "were placed in unfair, interest-only loan modifications by the company."

 

In March, the Commonwealth of Massachusetts obtained a consent judgment from a "buy-here, pay-here" automobile dealer. The Commonwealth initiated suit back in in September of 2017. The judgment requires the car dealer to cancel debts and pay $1.5 million to consumers.

 

Massachusetts was also busy in the small-loan lending space. In January, the state announced that it secured an Assurance of Voluntary Complaint and obtained $1.25 million from an online lender for usury. The Commonwealth determined that the upfront fees charged by lender should be included in the calculation of interest because the amounts disbursed to consumers were less than the face-value of the loan.

 

In February, Maryland entered a final order against a title-loan company and its owner for operating without a license and "making usurious loans targeting consumers in financial distress." The order requires the company to pay $2.2 million in restitution and a $1,200,750 in penalties.

 

 

Debt Collection

 

In September, the FTC along with state regulators and attorneys general announced a sweeping law enforcement action called "Operation Corrupt Collector." The FTC filed five suits against debt collectors, the Bureau filed three cases, and the Department of Justice and U.S. Postal Inspector brought three criminal cases. In addition, the following states reported actions as part of the operation: Arizona, California, Colorado, Connecticut, Florida, Idaho, Illinois, Indiana, Massachusetts, New Mexico, North Carolina, North Dakota, New York, Ohio, South Carolina, and Washington.

 

As reported by InsideArm: "The Receivables Management Association International (RMAI) applauded the FTC and state and local governments for their commitment to enforcing the law against companies who are blatantly breaking the law to collect debts consumers do not owe or engaging in abusive and threatening practices."

 

In September, the New York Attorney General joined forces with the feds and filed suit against Buffalo-based debt collection agencies and its owners for engaging in prohibitive conduct by "extorting payments from consumers by using illegal and deceitful tactics." The press release notes that the New York AG obtained $66 million the years prior in similar actions.

 

On Sept. 29, Ohio Attorney General Yost announced a lawsuit filed against a debt collector for violations of the Ohio Consumer Sales Practices Act and FDCPA. The lawsuit was filed after the agency received complaints that the company was contacting family members, co-workers, and employers of debtors for the purpose of disclosing debts and intimidating debtors.

 

In August, Pennsylvania entered into an Assurance of Voluntary Compliance with a Pennsylvania based bank in connection with its collection practices. The AG's office claims the bank would threaten legal action never intended to take and was engaged in forum shopping by filing actions in counties unconnected with the consumer or the transaction.

 

 

Telemarketing and "Robocalls"

 

In August, the Washington State Attorney General obtained a judgment for $10 million following suit against an air duct cleaning company for making over 13 million "robocalls" from 2017 through 2019. The AG's office filed suit after receiving 120 complaints from consumers concerning the company's actions.

 

In June of this year, Texas announced that it filed suit along with six other states in U.S. District Court, Southern District of Texas for violations of the Telephone Consumer Protection Act. The suit alleges that the companies placed calls to cell phones and home phones with pre-recorded messages and used caller id spoofing.

 

On Nov. 20, TRACED (Telephone Robocall Abuse Criminal Enforcement and Deterrence) Working Group filed its report. The group was convened by the U.S. Attorney General, in consultation with the Chairman of the FCC, and includes the FTC and CFPB along with the National Association of Attorneys General led by Mississippi, Nebraska, New Hampshire, and North Carolina.

 

In May, the CFPB and Commonwealth of Massachusetts filed suit against a credit repair telemarketer for violations of the Telemarking Sales Rule and deceptive conduct dating back to 2011.

 

On Oct. 23, the attorneys general of 38 states banded together in filing an amici curiae brief with the U.S. Supreme Court in the Dugid v. Facebook case. The states aligned themselves with the Ninth Circuit's definition of an auto dialer covered under the TCPA. The states contend that every state statute back in 1991 defined an auto dialer to include devices "with the capacity to store and dial numbers from a predetermined list, regardless of whether a random or sequential number generator was used."

 

 

Student Loans and For-Profit Institutions

 

In September, 48 AGs and the Consumer Financial Protection Bureau announced a national settlement agreement for $330 million against the operator of a private loan program for students at ITT Tech, a for-profit defunct educational institution. The allegations are that the lender participated in and with ITT Tech in predatory lending practices by not making students aware of "the true cost of repayment for these loans until after they took out the loan."

 

The school closed in September 2016 and filed for bankruptcy after being hit by the federal Department of Education with heavy sanctions at the same time as being under investigation by attorneys general related to deceptive practices. In 2019, 44 AGs settled with another ITT loan provider, requiring the lender to discharge loan balances valued at $168 million.

 

 

Debt Relief and Debt Settlement

 

Enforcement actions related to debt relief continue to be a hot topic for federal and state regulators. Individual states continue to pursue companies in this industry for violations of state debt settlement and deceptive trade statutes. In addition, attorneys general can bring claims under the federal Telemarketing Sales Rule which specifically calls out debt relief companies and prohibits advanced fees.

 

In April, Minnesota obtained a settlement with a California-based company for collecting impermissible advanced fees. The agreement requires the company to pay $121,019.18, which is the full amount of fees collected and not refunded to consumers. On Dec. 16, Pennsylvania announced another settlement with the company, requiring it to cease operation, pay restitution of $75,000, and $50,000 to the state for costs and penalties.

 

In October, Massachusetts secured a judgment against debt relief companies for engaging in unfair and deceptive practices related to paying impermissible upfront fees.

New York reached a consent judgment for $5.5 million against three debt relief companies. The consent judgment stems from the suit originally filed in 2018.

New York also breathed life into its 2011 settlement with a debt relief company and secured an additional settlement of $3.6 million in restitution for the company for violating the terms of the previous agreement.

 

In July, the Florida AG and FTC announced a settlement with a debt relief company. The settlement provides more than $16 million in refunds to consumers. The AG and FTC alleged that the company falsely promised to pay, settle, or obtain dismissal of consumers' debts.

 

 

Batterygate: The iPhone case

 

In November, California's attorney general announced a multistate settlement whereby Apple agreed to pay $113 million for misrepresenting the iPhone battery and performance throttling related to the iPhone 6 and 7. Earlier this year, Apple resolved class action lawsuits filed in 2017 and 2018 for similar issues and in 2018 the Department of Justice filed suit.

 

 

The Honda Airbag Saga

 

When any product goes bad, state enforcement actions are likely to follow. If something is unsafe and sold, then the argument is that somewhere there must be a false, misleading, and deceptive act.

 

On Aug. 27, 44 AGs announced an $84,151,210 settlement with Honda related to faulty Takata airbags in Honda and Acura vehicles. The frontal airbags could rupture and send metal fragments flying. While the settlement is specific that Honda admits no wrongdoing, the defect caused 14 deaths and 200 injuries.

 

The related class action, In re Takata Airbag Products Liability Litigation, obtained settlement approval by the court in September 2017 for $605 million. The claims in the class action are identical to the allegations in the multi-state enforcement case. Car and Driver provides additional backstory on the faulty Takata airbags where Takata admits to deceiving manufacturers such as Honda. Still, Honda takes the hit.

 

 

Google and Facebook in the Crosshairs

 

Back in September 2019, Texas Attorney General Paxton announced that Texas was leading 50 attorneys general in a multistate investigation of Google's business practice and "overreaching control of online advertising markets and search traffic."  This was a follow-up to the June 2019 comment filed by Attorney General Paxton and Iowa Attorney General Miller with the FTC urging a renewed focus on "consumer privacy and data in antitrust enforcement actions against dominate technology platforms that collect and leverage consumer data."

 

As reported by CNN Business, shortly after the 2019 announcement, Google punched back and filed an open records request for the state to turn over volumes of documents and materials. At the same time, by seeking a protective order from a court, Google also sought to block the AG from releasing information to "consultants."

 

The investigation finally resulted in lawsuits being filed by two groups of attorneys general, instead of one. On Dec. 16, the State of Texas along with nine states filed suit against Google in U.S. District Court – Eastern District of Texas for anti-trust and consumer protection violations as summarized by the state's press release. On Dec. 17, an additional 39 states filed suit in U.S. District Court in Washington D.C., the same court in which the DOJ filed its own anti-trust suit related to the company's search engine a month prior.

 

While there is some commonality among these suits, the Texas action dives deeper by accusing the company of abuse of power by displaying ads in tech-marketing campaigns.

 

In a related, but much more typical posture, 46 states, the District of Columbia and Guam in conjunction with the FTC announced a suit filed against Facebook for anti-competitive conduct. The suit was the result of a lengthy and cooperative joint investigation into Facebook's practices.

 

 

Drugs and Devices

 

Over the past decades, the state attorneys general have pursed investigations with Big Pharma against manufacturers in connection with deceptive marketing practices. The investigations resulted in significant settlements that included injunctive relief and big civil penalties.

 

In February, a $1.6 billion global settlement was announced between the state attorneys general against the largest generic opioid manufacturer in the U.S. Negotiations regarding the final settlement are ongoing as the company filed for bankruptcy. In 2017 the National Association of Attorneys General brought attention to opioid abuse as a matter of public health. That same year a coalition of 40 states served investigative subpoenas on eight companies who manufactured opioids. In 2017 the attorneys general quickly investigated and initiated lawsuits against the manufacturers of the drugs. Interestingly, 36 states filed an amicus letter in the Northern District of Ohio opposing "exorbitant attorneys' fees" requested by the plaintiff's lawyers in opioid litigation.

 

In 2012 investigations commenced against manufacturers of surgical mesh for deceptive practices in the marketing of the product. In September, the surgical mesh enforcement investigation into C.R. Bard and its parent company Becton, Dickson and Company yielded a $60 million settlement for the 48 participating states. Although the company ceased manufacturing the product, the relief includes future injunctive terms in addition to the civil penalty.

 

Another surgical mesh investigation concluded in October 2019 against Johnson & Johnson and its subsidiary Ethicon with a civil penalty of $116.9 million. On Oct. 16, 2020, Attorney General Rosenblum of Oregon announced its individual surgical mesh settlement of $5.5 million against Johnson & Johnson, having opted out of the multi-state investigation. Oregon sued Johnson & Johnson in December 2019. California also did not participate in the multistate. The California Department of Justice sued Johnson & Johnson back in May 2016 and obtained a judgment for $343.99 million in civil penalties against the company following a nine-week trial.

 

 

Transitioning into 2021

 

Be prepared, informed, and nimble.

 

We believe we are likely to see an increase in investigations that market or involve services connected to a consumer's home or vehicle (home improvement and services, claims of energy savings, foreclosure, warranty sales, auto finance, and auto sales).

 

Price-gouging may not be in the limelight, but regulators will be on the look-out for businesses perceived to be taking advantage of the pandemic and consumer fear in marketing of their products. The phrase "safe and effective" has specific meaning to regulators but in today's time, the concept of "safe" pivoted.

 

State agencies in combination with attorneys general will likely increase probes into nursing homes, care-giving facilities, and home health care. Protection of the elderly is always in the AG mission statement, and government agencies are tasked with ensuring the physical and financial safety of those in nursing homes, assisted living facilities or obtaining services from certain health care providers.

 

Finally, data breach cases are likely to continue to rise especially as risk increases with workers based in remote settings.

 

State attorneys general (and the feds) have broad authorization to initiate investigations and broad power to determine conduct that violates consumer protection statutes and regulations. It is not just the scammer or fraudster who is investigated, nor the big company.

 

Big or small and within any industry, a business can find themselves the recipient of an investigatory subpoena. Regulatory scrutiny is different than routine litigation. But a basic compliance program that involves good customer service along with a response plan can go a long way to mediating the business costs and disruption when a consumer complaint finds itself in the hands of an investigator or AG resulting in a subpoena.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
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   |   Tennessee   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars

 

 

 

FYI: 2020 Review: 3rd Cir FDCPA and TCPA Opinions

Not unlike many other circuits in 2020, the U.S. Court of Appeals for the Third Circuit did not publish a large number of opinions covering the federal Fair Debt Collection Practices Act (FDCPA) or the Telephone Consumer Protection Act (TCPA).

 

However, a few key opinions are of note to those in the consumer protection litigation field. Most remarkable was the resolving of the circuit split that the Third Circuit had created almost 30 years ago in Graziano v. Harrison.

 

The following is a chronological summary of the Third Circuit's key opinions in FDCPA and TCPA cases.

 

Tabb v. Ocwen Loan Servicing, LLC, 798 Fed. Appx. 726 (3d Cir. 2020)

 

The Third Circuit reversed the dismissal of a complaint filed under the FDCPA by a debtor who had been discharged in bankruptcy based on the sending of correspondence and monthly mortgage statements.

 

All the letters and statements contained a bankruptcy disclaimer, and the district court dismissed the complaint based on the disclaimer finding that the communications were not sent for debt collection purposes. The district court also dismissed the claims related to the monthly statements based upon the provisions of the Truth in Lending Act (TILA) that required a mortgage servicer to send monthly statements to borrowers.

 

In reversing, the Third Circuit first held that while TILA does require the sending of the monthly statements, the implementing regulations clarify that TILA does not require the sending of mortgage statements to borrowers who had been discharged in bankruptcy.

 

The Third Circuit further found that the bankruptcy disclaimers were buried within fine print on the back of the statements where the front contained due dates, balances due, reinstatement amounts and other information indicative of collection, thus stating a claim under the FDCPA.

 

Destefano v. Udren Law Offices, PC, 802 Fed. Appx. 688 (3d Cir. 2020)

 

The Third Circuit affirmed the dismissal of an FDCPA complaint based upon the filing of a foreclosure lawsuit as being barred by the FDCPA's one-year statute of limitations. The complaint was filed within one year of service of the foreclosure complaint but more than one year after the foreclosure complaint had been filed.

 

Riccio v. Sentry Credit, Inc., 954 F.3d 582 (3d Cir. 2020)

 

Nearly 30 years after authoring an opinion that has been rejected by the Second, Fourth and Ninth Circuits and ignored by the First, Fifth, Sixth and Seventh Circuits, the Third Circuit finally acknowledged that its original interpretation of 15 U.S.C. 1692g(a)(3) was wrong.

 

Long before the growth of the cottage industry of litigation under the FDCPA, the Third Circuit held in Graziano v. Harrison that "given the entire structure of section 1692g, subsection (a)(3) must be read to require that a dispute, to be effective, must be in writing."  For years, most courts outside of the Third Circuit simply read the statute as it was written and did not require a debtor to dispute a debt in writing under 1692g(a)(3).

 

Finally, the Third Circuit decided to revisit Graziano when Riccio was presented on appeal. The Court succinctly explained that the plain reading of 1692g(a)(3) confirmed that disputes did not have to be in writing unlike 1692(g)(4) and (5) which specifically have "in writing" requirements.

 

The Court noted that the Second, Fourth and Ninth Circuits previously split with the Third Circuit and its holding in Graziano in finding that there was no requirement for disputes to be in writing and also that the First, Fifth, Sixth and Seventh Circuits did not require a written dispute either.

 

With the "in writing" debate resolved once and for all, the Third Circuit also added a footnote that any collector who had previously sent "Graziano-compliant letters" should not be liable based the Riccio decision because they had relied upon then existing case law.

 

Physicians Healthsource, Inc. v. Cephalon, Inc., 954 F.3d 615 (3d Cir. 2020)

 

In a "junk fax" case under the TCPA, the Third Circuit addressed both prior express consent and opt-out language. The faxes at issue were sent to a doctor from a prescription drug representative.

 

There was no dispute that the plaintiff provided its fax number to the defendant by way of business cards to the defendant's representatives. At issue was whether this provision of the fax number constituted prior express consent. The plaintiff argued that express consent was different from express invitation and permission, the former of which only relates to telephone calls while the latter relates to faxes.

 

The Third Circuit disagreed finding that the two terms are interchangeable and applied its precedent on express consent finding that the providing of the fax number to the defendant constituted consent. With regard to the opt-out language because the faxes at issue were solicited faxes, there was no need for such language based on the text of the statute.

 

Dotson v. Nationwide Credit, Inc., 2020 U.S. App. LEXIS 30732 (3d Cir. Sep. 28, 2020)

 

The Third Circuit affirmed the dismissal of a complaint based upon a collection letter that included the language "as of the date of this letter" when referring to the account balance where the balance was not accruing interest.

 

The Court rejected the plaintiff's argument that a consumer could be confused as to the actual balance due because the letter incorrectly implied that the balance could increase.

 

A Mixed Bag for the Industry

 

In sum, it was a mixed bag for the industry from the Third Circuit as is often the case.

 

In Tabb, the Third Circuit warned mortgage servicers that a bankruptcy disclaimer needs to be prominent in any post-discharge communications including monthly statements in order to shield them from liability. In Destefano it confirmed that the statute of limitations on a lawsuit runs from the date of filing and not the date of service.

 

Riccio finally put an end to lawsuits that were unique to Third Circuit collections and Dotson sided with the Second Circuit and others who have been clamping down on interest accrual claims that are more lawyer's cases than those involving deceptive communications. Finally, the Dotson opinion bolstered the prior consent defense for defendants who still send faxes.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 603
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   |   Tennessee   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog™

 

and

 

Webinars

 

 

 

FYI: 2020 Review: FDCPA and TCPA Opinions from the 2nd Circuit

The U.S. Court of Appeals for the Second Circuit was relatively quiet when it came to the Fair Debt Collection Practices Act (FDCPA) and the Telephone Consumer Protection Act (TCPA) in 2020, but when it did issue opinions, several were quite impactful.

 

Most significant was its decision to side with the Ninth Circuit and its broad interpretation of an automatic telephone dialing system which likely helped set the stage for the Supreme Court to resolve the split in 2021. 

 

The following is a chronological report of the Second Circuit's opinions in FDCPA and TCPA cases.

 

Isaac v. NRA Grp., LLC, 798 Fed. Appx. 693 (2d Cir. 2020)

 

The Second Circuit affirmed the judgment of the district court that found that collection letters were not required to include the disclosures required by 15 U.S.C. 1692g(a) because they were not the initial communications sent to the debtors by the debt collector.

 

Bryan v. Credit Control, LLC, 954 F.3d 576 (2d Cir. 2020)

 

The Second Circuit reversed the dismissal of an FDCPA complaint based upon the alleged failure to identify the creditor to whom the debt is owed as required by 15 U.S.C. 1692g(a)(2).

 

The letter in issue identified the creditor as Kohl's, the department store who has private label credit cards that are issued in partnership with Capital One Bank. Even though Kohl's serviced the accounts and issued all billing statements in their name, the cardmember agreement provided that Capital One was the "creditor and issuer" of the account.

 

Based upon the language of the cardmember agreement, the Second Circuit held that Capital One was actually the creditor to whom the debt was owed and that the letter should have identified it as such.

 

Duran v. La Boom Disco, Inc., 955 F.3d 279 (2d Cir. 2020)

 

In a text messaging case, the Second Circuit threw its hat into the ring to define automatic telephone dialing system (ATDS) under the TCPA. Since the opinion opened by defining the TCPA as having been enacted to "cure America of that 'scourge of modern civilization': telemarketing," one could see where this opinion was headed and the Second Circuit joined the Ninth Circuit in holding that an ATDS need only have the capacity to store or produce telephone numbers to be called, using a random or sequential number generator.

 

Thus, in the Second Circuit, a predictive dialer is an ATDS. On the human intervention prong, the court took a narrow view and reasoned that click to send was not sufficient human intervention because the system still dials the numbers.

 

Chaperon v. Sontag & Hyman, PC, 819 Fed. Appx. 61 (2d Cir. 2020)

 

The Second Circuit affirmed the dismissal of a complaint based on a claim that an initial letter did not quote the language of 15 U.S.C. 1692g(a) verbatim. Specifically, the plaintiff challenged the failure to quote that portion of 1692g(a)(3) and (4) which permits a debtor to dispute "any portion" of a debt when the collection letter did not include the "any portion" language.

 

Citing to its own prior precedent as well as an opinion from the Sixth Circuit on this very issue, the Second Circuit held that there is no requirement that letters quote the statute verbatim so long as the notices are given effectively.

 

Wagner v. Chiari & Ilecki, LLP, 973 F.3d 154 (2d Cir. 2020)

 

In a wrong debtor case, the Second Circuit reversed a district court's granting of summary judgment based on a bona fide error defense finding that a reasonable jury could find that the defendant did not maintain proper procedures to avoid the specific error that occurred in this case.

 

Mizrachi v. Wilson, 2020 U.S. App. LEXIS 35189 (2d Cir. Nov. 5, 2020)

 

The Second Circuit reversed the dismissal of a complaint based on a letter that allegedly overshadowed the validation notice of 1692(g)(a). Specifically, the letter which advised that the matter had been referred to the law firm to file suit stated, in all capital letters "THERE MAY BE NO FURTHER NOTICE OR DEMAND IN WRITING FROM [WILSON] PRIOR TO THE FILING OF SUIT."

 

The Second Circuit held that even though there was no date restriction on the filing of the suit or the debtor's ability to dispute the debt, the threat of the suit and its consequences could mislead a debtor into believing that immediate payment was the only way to avoid these consequences thus overshadowing the debtor's validation rights.

 

SUMMARY:

 

The Second Circuit definitely did not make any new friends among defendants with its bombshell TCPA opinion in Duran.

 

However, the Court offered a few helpful opinions under the FDCPA with Isaac, holding that the requirements of 1692g only apply to the initial communication and not subsequent letters, as well as Chaperon, which held that one need not quote 1692g verbatim in collection letters so long as the validation notice is still conveyed effectively.

 

But Bryan will make collectors check the fine print with their clients to make sure they know the correct legal entity for whom they are collecting. Mizrachi is another in a long line of threatened suit overshadowing cases that should cause concern for collection attorneys. Finally Wagner may make summary judgment on a bona fide error defense very difficult and make all such cases jury questions.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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Email: rwutscher@MauriceWutscher.com

 

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