FYI: 9th Cir Holds TCPA Autodialer Must Generate and Dial Random or Sequential Phone Numbers

The U.S. Court of Appeals for Ninth Circuit recently affirmed a trial court's dismissal of a putative class action suit brought under the federal Telephone Consumer Protection Act (TCPA), 47 U.S.C. § 227 because another panel of the Ninth Circuit had previously held that an autodialer must generate and dial random or sequential telephone numbers under the TCPA's plain text.

 

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

 

The named plaintiff in this class action alleged that the defendant company violated the TCPA by sending unsolicited "Birthday Announcement" text messages to consumers' cell phones; he alleged that these text messages were sent through an autodialer that used a "random or sequential number generator" (RSNG) to store and dial the telephone numbers of the consumers being texted. The plaintiff did not argue that the RSNG actually generated the consumers' phone numbers, but that the RSNG was used to determine the order in which the phone numbers were stored and dialed.

 

The defendant disagreed with the plaintiff's interpretation of the autodialer provision and argued that a TCPA-defined RSNG must actually generate the phone numbers in the first instance.

 

The trial court dismissed the class action suit with prejudice, and the plaintiff timely appealed.

 

As you recall, the TCPA generally bans calls made to a telephone if the call is generated by an "automated telephone dialing system," commonly referred to as an "autodialer". Id. § 227(b)(1)(A). The statute defines an autodialer as a piece of equipment with the capacity "to store or produce telephone numbers to be called, using a random or sequential number generator [an RSNG]," and "to dial such numbers." Id. § 227(a)(1)(A).

 

The question on appeal was whether a TCPA-defined autodialer must use an RSNG to generate the telephone numbers that are dialed.

 

During the Ninth Circuit's deliberations, another panel of the Ninth Circuit decided Borden v. eFinancial, LLC, 53 F.4th 1230 (9th Cir. 2022), which held that "an [autodialer] must generate and dial random or sequential telephone numbers under the TCPA's plain text." Id. at 1231. Therefore, the Ninth Circuit here concluded that the defendant here also did not violate the TCPA because it did not use a TCPA-defined autodialer that randomly or sequentially generated the telephone numbers in question.

 

The plaintiff countered that Borden did not control the outcome here because he said that Borden addressed the "production" prong of §227(a)(1)(A), not the "storage" prong at issue here. But the Ninth Circuit observed that the Borden panel did not limit its holding to the "production" prong. Borden instead interpreted the definition of an autodialer in its entirety, finding that the text and context of the TCPA "make[] clear that the number in 'number generator' . . . means a telephone number." Borden, 53 F.4th at 1233. This is true regardless of whether the numbers are stored or produced.

 

Thus, the Ninth Circuit affirmed the judgment of the trial court.

 

Judge VanDyke issued a concurring opinion recognizing that the Ninth Circuit was compelled to follow Borden's precedent, but also disagreeing with the precedent because it concluded that the word "number" means the same thing in all instances where it appears in the TCPA's definition of an autodialer. Specifically, Borden decided that a "random or sequential number generator" in the definition must mean a "random or sequential phone number generator" because the other times that the word "number" is used in the definition clearly refer to a phone number. Id. at 1233

 

But Judge VanDyke reasoned that Borden's interpretation of autodialer overlooks that the phrase "random or sequential number generator" has a known meaning as a computational tool which is not limited to generating phone numbers, as the Supreme Court of the United States acknowledged in Facebook, Inc. v. Duguid, 141 S. Ct. 1163, 1172 n.7 (2022). Specifically, in footnote 7, Duguid stated: "an autodialer might use a random number generator to determine the order in which to pick phone numbers from a preproduced list. It would then store those numbers to be dialed at a later time." Id.

 

Furthermore, Judge VanDyke determined that to interpret the TCPA as Borden did removes any independent meaning for the word "store" in the clause "store or produce." The judge noted that the interpretive quandary presented in Duguid was whether "using a random or sequential number generator" refers back to both "produce" and "store." But the Supreme Court gave "store" an independent meaning from "produce" in Duguid, footnote 7, in that a random or sequential number generator might also be used to determine the "order in which to pick" preproduced telephone numbers "stored" in the RSNG, regardless of how they were generated.

 

Nevertheless, Judge VanDyke concluded that the Borden panel erroneously nullified the significance of the word "store" in the clause "store or produce," by sneaking the term "produced" back into the relative clause, redefining an autodialer as equipment that can "store...telephone numbers to be called, [which are produced] using a random or sequential [telephone] number generator." By removing any independent meaning for "store" from the TCPA's definition of autodialer, Judge VanDyke stated that the Borden panel silently cut the legs out from under the Supreme Court of the United States' interpretive rationale in Duguid.

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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 Affirms Bankruptcy Court Ruling Avoiding Judgment Lien on Calif Homestead Property

The U.S. Court of Appeals for the Ninth Circuit recently affirmed a bankruptcy court's judgment in favor of a debtor who sought to avoid a judgment lien under California's homestead exemption law.  

 

In so ruling, the Ninth Circuit held that, when a judgment lien impairs a debtor's state-law homestead exemption, the Bankruptcy Code requires courts to determine the exemption to which the debtor would have been entitled in the absence of the lien. 

 

Here, Ninth Circuit held, the California exemption amount in effect at the time of the filing of the bankruptcy petition applied, even though the language of the California exemption for judgment liens would have required calculation of the amount of the exemption as of a different date.

 

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

 

In 2014, a creditor filed a judgment lien for $256,075.95 against a debtor's home in California ("judgment lien"). Seven years later, in 2021, the debtor filed a Chapter 7 bankruptcy petition. Before the debtor's bankruptcy petition was filed, California amended its bankruptcy laws to substantially increase the homestead exemption to the greater of one (1) the "median sale price for a single-family home" in the debtor's county the year before the debtor claims the exemption, "not to exceed" $600,000; or (2) $300,000. See Cal. Civ. Proc. Code § 704.730(a) (2021).

 

California opted out of the default exemptions provided in the Bankruptcy Code, and California's homestead exemption prescribes a set exemption amount based on the characteristics of the property and homeowner.

 

Based on the homestead exemption in effect at the time the debtor filed bankruptcy, the debtor claimed a $600,000 homestead exemption and sought to avoid the entire judgment lien.  However, the trustee argued that California Code of Civil Procedure § 703.050(a) requires that "the amount of an exemption shall be made by application of the exemption statutes in effect . . . at the time the judgment creditor's lien on the property was created".  Therefore, the trustee argued, the debtor was only entitled to the $100,000 homestead exemption available when the judgment lien was originally recorded in 2014.

 

The debtor's calculation valued the homestead exemption at $600,000 which would result in the avoidance of the entire judgment lien. The trustee calculated the homestead exemption at $100,000.00 which would result in the creditor receiving $434,029.72.

 

The bankruptcy court held that 11 U.S.C. § 522(f) required application of the $600,000 homestead exemption in effect in 2021, when the bankruptcy petition was filed, and that the debtor could therefore avoid the entire judgment lien. The trustee appealed.

 

On appeal, the Ninth Circuit examined how the Bankruptcy Code's lien avoidance procedure applies to liens that "impair an exemption to which the debtor would have been entitled" under 11 U.S.C. § 522(f)(1). 

 

Under Section 522, a lien may be avoided when "the sum of (i) the lien; (ii) all other liens on the property; and (iii) the amount of the exemption that the debtor could claim if there were no liens on the property" is greater than "the value that the debtor's interest in the property would have in the absence of any liens." Id. § 522(f)(2)(A).

 

The Ninth Circuit held that the Supreme Court of the United States' ruling in Owen v. Owen, 500 U.S. 305 (1991), controlled here.  Relying on Owen, the Ninth Circuit held that Section 522(f) requires courts to determine the exemption to which the debtor would have been entitled but for the existence of the judicial lien at issue. The Court of Appeals noted the importance of the phrase "would have been" entitled to in the absence of any judgment liens.

 

Based on this language, Owen held that Section 522(f) "establishes as the baseline, against which impairment is to be measured, not an exemption to which the debtor 'is entitled,' but one to which he 'would have been entitled.'" Id. at 311. Based on the holding in Owen, the Court of Appeals determined that at the time of the debtor's bankruptcy filing, absent the judgment lien, debtor could claim a $600,000.00 homestead exemption under Cal. Civ. Proc. Code § 704.730 (2021).

 

The trustee argued that under existing Ninth Circuit precedent the bankruptcy court had to apply the state exemption law with all its restrictions and limitations.  Wolfe v. Jacobson (In re Jacobson), 676 F.3d 1193 (9th Cir. 2012). The Ninth Circuit in In re Jacobson held that "it is the entire state law applicable on the filing date that is determinative of whether an exemption applies". 

 

The Ninth Circuit disagreed because, under Owen, the Bankruptcy Code's policy of permitting state-defined exemptions is not "absolute" and must be applied along with whatever competing or limiting policies are in the Bankruptcy Code."  500 U.S. at 313. In addition, the Court of Appeals noted, In re Jacobson addressed "whether certain funds belonged to a Chapter 7 estate," and "[n]othing in the case concerned the lien avoidance procedures at issue here."  Therefore, the Ninth Circuit held, Owen and not In re Jacobson was "the relevant precedent".

 

Accordingly, the Ninth Circuit affirmed the bankruptcy court's ruling.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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: 8th Cir Holds Statute of Limitations for Facial Challenges to Agency Action Accrue at Publication

The U.S. Court of Appeals for Eighth Circuit recently held that, when plaintiffs bring a facial challenge to a final agency action, the right of action accrues and the limitations period begins to run upon publication of the regulation.

 

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

 

The North Dakota Retail Association, the North Dakota Petroleum Marketers Association, and a North Dakota convenience store (Merchants) filed a complaint against the Board of Governors of the Federal Reserve System (FRB) raising a facial challenge to a regulation relating to the collection of interchange fees by third parties authorized to collect interchange fees, alleging that the regulation violated the Administrative Procedures Act, 5 U.S.C. § 704 (APA).

 

The FRB moved to dismiss the complaint as barred by the statute of limitations. The trial court dismissed, finding (i) a 2015 clarification of the regulation at issue did not constitute a final agency action to renew the statute of limitations, (ii) the statute of limitations on the convenience store's claims began to run with the publication of the regulation in 2011, and (iii) the Merchants' claims did not warrant equitable tolling. The Merchants timely appealed.

 

On appeal, the Merchants first argued that the statute of limitations renewed when the FRB published the clarification in 2015.

 

"Agency action made reviewable by statute and final agency action for which there is no other adequate remedy in a court are subject to judicial review." 5 U.S.C. § 704. Under the APA, "[t]wo conditions must be satisfied for an agency action to be final." Sisseton-Wahpeton Oyate of Lake Traverse Res. v. Corps of Eng'rs, 888 F.3d 906, 914-15 (8th Cir. 2018).

 

First, the action cannot be tentative or interlocutory in nature and "must mark the 'consummation of the agency's decision-making process.'" Id. at 915, quoting Bennett v. Spear, 520 U.S. 154, 177- 78 (1997). "Second, 'the action must be one by which rights or obligations have been determined, or from which legal consequences will flow.'" Id., quoting Bennett, 520 U.S. at 178.

 

"To constitute a final agency action, the agency's action must have inflicted 'an actual, concrete injury' upon the party seeking judicial review." Id., quoting Williamson Cty. Reg'l Planning v. Hamilton Bank, 473 U.S. 172, 193 (1985).

 

Here, the Eighth Circuit held that the 2015 clarification was not a final agency action because it was not was not the final "consummation of the agency's decision-making process." Sisseton-Wahpeton Oyate, 888 F.3d at 915.  Specifically, the clarification did not modify the regulation or create any additional rights or obligations as to the Merchants. See id.

 

Furthermore, the Court observed that the clarification did not create a new fee or expand any existing fees, nor did it "inflict[] 'an actual, concrete injury' upon the [Merchants]." Id., quoting Williamson Cty. Reg'l Planning, 473 U.S. at 193.

 

The Merchants also asserted that the convenience store's facial challenge to the regulation first accrued when the store opened in 2018, rather than when the regulation was published in 2011.

 

Claims arising under the APA are subject to a six-year statute of limitations. See 5 U.S.C. § 704; 28 U.S.C. § 2401(a); see also Izaak Walton League of Am., Inc. v. Kimbell, 558 F.3d 751, 758 (8th Cir. 2009). "A claim against [the] United States first accrues on the date when all the events have occurred which fix the liability of the Government and entitle the claimant to institute an action." Id. at 759.

 

The "standard rule [is] that accrual occurs when the plaintiff has a complete and present cause of action." Rassier v. Sanner, 996 F.3d 832, 836 (8th Cir. 2021), quoting Bay Area Laundry & Dry Cleaning Pension Tr. Fund v. Ferbar Corp. of California, 522 U.S. 192, 201 (1997).

 

The Eighth Circuit rejected the Merchants' argument because, in Izaak Walton, it held that the six-year statute of limitations accrued upon publication of the regulation and barred plaintiffs' facial challenge. See Izaak Walton, 558 F.3d at 762.

 

Additionally, the Court noted that other circuit courts have held that APA claims accrue, and the statute of limitations begins to run, when an agency publishes a regulation. See, e.g., Trafalgar Cap. Assocs. v. Cuomo, 159 F.3d 21, 34 (1st Cr. 1998); Wong v. Doar, 571 F.3d 247, 263 (2d Cir. 2009); Paucar v. AG of the United States, 545 Fed. Appx. 121, 124 (3d Cir. 2013); Outdoor Amusement Bus. Ass'n v. Dep't of Homeland Sec., 983 F.3d 671, 681-82 (4th Cir. 2020); Sierra Club v. Slater, 120 F.3d 623, 631 (6th Cir. 1997); Shiny Rock Min. Corp. v. United States, 906 F.2d 1362, 1363 (9th Cir. 1990); Vincent Murphy Chevrolet Co. v. United States, 766 F.2d 449, 452 (10th Cir. 1985); Ctr. for Biological Diversity v. Hamilton, 453 F.3d 1331, 1334-35 (11th Cir. 2006); Harris v. FAA, 353 F.3d 1006, 1010 (D.C. Cir. 2004); Preminger v. Sec'y of Veterans Affairs, 498 F.3d 1265, 1272 (Fed. Cir. 2007).

 

Thus, the Eighth Circuit concluded that, when plaintiffs bring a facial challenge to a final agency action, the right of action accrues, and the limitations period begins to run, upon publication of the regulation.

 

In this case, the Merchants challenged the collection of interchange fees by third parties authorized to collect interchange fees by the regulation. See 76 Fed. Reg. 43,394. As part of this challenge, the Merchants sought to invalidate the text of the regulation in all applications. Thus, the Eighth Circuit concluded that the Merchants brought a facial challenge to the regulation, making it untimely. See 28 U.S.C. § 2401(a).

 

However, the Eighth Circuit observed that plaintiffs, like the convenience store, with untimely facial challenges may have a remedy.

 

"In some cases, a plaintiff may escape the statute of limitations by establishing that he or she is eligible for equitable tolling." Sisseton-Wahpeton Oyate, 888 F.3d at 917. "Equitable tolling allows for an extension of the prescribed limitations period 'when the plaintiff, despite all due diligence, is unable to obtain vital information bearing on the existence of his [or her] claim.'" Id.

 

A plaintiff is entitled to equitable tolling only by showing "'(1) that he [or she] has been pursuing his [or her] rights diligently, and (2) that some extraordinary circumstances stood in his [or her] way' and prevented timely filing." Holland v. Florida, 560 U.S. 631, 649 (2010), quoting Pace v. DiGuglielmo, 544 U.S. 408, 418 (2005).

 

Ultimately, the Eighth Circuit held that the Merchants' equitable tolling argument failed on its merits. The Merchants had notice of the publication of the regulation in 2011, but did not sue the FRB until more than ten years later. The Merchants also failed to show that they had been pursuing their rights diligently. See Holland, 560 U.S. at 649.

 

Because the FRB published the regulation in 2011 and the Merchants were not eligible for equitable tolling, the Court concluded that the Merchants' facial challenge to the regulation remained time-barred by the six-year statute of limitations under 28 U.S.C. § 2401(a).

 

Accordingly, the Eighth Circuit affirmed the judgment of the trial court.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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: Ill App Ct (1st Dist) Rejects Challenge to Foreclosure Affidavit Based on Reliance on Prior Servicer's Records

The Appellate Court of Illinois, First District, recently upheld a trial court's order granting a mortgagee's motion for summary judgment, judgment of foreclosure, sale, and order confirming the foreclosure sale.

 

In so ruling, the Appellate Court held that:

 

-1  The current mortgagee's reliance on the business records of prior mortgage servicers in its summary judgment and foreclosure affidavit did not affect the propriety of the affidavit; and

 

-2  The borrower's affidavit asserting performance under a supposed Home Affordable Modification Program ("HAMP") agreement were unsubstantiated, conclusory and merely self-serving, and the trial court did not err in disregarding and rejecting the borrower's affidavit.

 

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

 

A borrower obtained a loan secured by a mortgage in 2007.  The mortgage loan was subsequently sold and assigned to a different company (First Assignee). In 2011, the First Assignee filed a foreclosure action against the borrower.

 

The borrower defended the foreclosure action and argued that that he entered into the loan with the originating lender, and that the First Assignee did not have standing to bring the foreclosure action. After a prolonged period of litigation, the mortgage loan was sold and assigned again, a different company (Second Assignee) was substituted in as the plaintiff of the foreclosure action.

 

In 2017, the Second Assignee filed a motion for judgment of foreclosure and sale of the property and a motion for summary judgment against the borrower. The borrower responded to the motion for summary judgment by submitting an affidavit that included allegations that he entered into a trial loan modification program plan with the First Assignee.

 

The borrower swore in his affidavit that the First Assignee promised to allow him to receive a permanent loan modification under the Home Affordable Modification Program (HAMP), that he made three trial loan payments, and that the First Assignee verbally informed him that "because of a system backlog, the loan documents would be delayed and he would need to continue making loan payments in the meantime".  Under these circumstances, the borrower argued, the foreclosure should never have been filed, and the Second Assignee "was legally bound to give a permanent HAMP loan modification to him."  The borrower filed his own motion for summary judgment against the mortgagee based on the same affidavit.

 

The Second Assignee argued that the borrower raised these allegations for the first time at the motion for summary judgment and therefore should be deemed waived and not considered.  Moreover, the Second Assignee argued, the borrower's only evidence supporting borrower's claim was his self-serving and unsupported affidavit. In 2017, the trial court denied both parties motions for summary judgment but ruled the Second Assignee did have standing to pursue the foreclosure.

 

In 2019, the mortgage loan was sold and assigned again and another entity (Third Assignee) was substituted in as the foreclosure plaintiff. The Third Assignee filed a new motion for summary judgment and argued that it established a prima facie case for foreclosure, that the borrower had waived any HAMP-related defense, and that the HAMP program was terminated such that the borrower had no available remedy. The Third Assignee also argued that the borrower's only evidence supporting borrower's claim was his self-serving and unsupported affidavit.

 

In 2019, the mortgage loan was sold and assigned again and another entity (Fourth Assignee) substituted in as the foreclosure plaintiff in the case prior to the adjudication of the motion for summary judgment. The borrower also cross-filed a motion for summary judgment raising substantially similar claims and defenses that he raised in the previous motion for summary judgment hearing.

 

This time, the trial court granted the mortgagee's summary judgment motion and denied borrower's summary judgment motion. In its ruling, the trial court found that the mortgagee's business records affidavit complied with Illinois Supreme Court rules and were admissible while the borrower's affidavit was conclusory and referred to unsubstantiated promises and allegations that were not supported with other evidence. As a result, the trial court held the borrower did not raise any genuine issues of material fact to overcome the mortgagee's motion for summary judgment.

 

In June of 2021, the trial court entered a judgment of foreclosure and sale of the property and entered an order approving the sale. This appeal followed.

 

On appeal, the borrower argued that the statements in his affidavit regarding his alleged approval for a HAMP loan modification and performance under its terms created a genuine issue of a material fact; his affidavit was not merely conclusory, and that the trial court improperly considered the mortgagee's affidavit instead of declaring it inadmissible hearsay due to the fact that it relied on records of other companies.

 

In addressing the borrower's arguments, the Appellate Court found that the borrower was properly informed that his loan modification application was denied. Furthermore, the Appellate Court held that the business records affidavit submitted by the plaintiff was admissible because the business records affidavit was made in the regular course of business and at or near the time of event or occurrence.  US Bank, National Ass'n v. Avdic, 2014 IL App (1st) 132430, ¶ 40).

 

The Appellate Court further acknowledged that banks freely buy, sell, and transfer mortgage loans and it was not relevant that some business records were created by another company.

 

Lastly, the Appellate Court concurred with the trial court that the borrower's affidavit was self-serving and conclusory, and did not create any genuine issue of material fact sufficient to deny the mortgagee's motion for summary judgment.

 

Accordingly, the Appellate Court held that the trial court properly granted the mortgagee's motion for summary judgment and denied the borrower's cross-motion for summary judgment, and therefore affirmed the trial court's judgment.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

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FYI: 9th Cir Holds Companies Can Sue Under ATDS Provisions of TCPA, Mixed-Use Cell Phones Can Be "Residential"

The U.S. Court of Appeals for Ninth Circuit recently reversed a trial court's judgment dismissing a federal Telephone Consumer Protection Act ("TCPA") complaint brought by a group of home improvement contractors for lack of statutory standing.

 

In so ruling, the Ninth Circuit held that the contractor plaintiffs had statutory standing under Sections 227(b) and 227(c) of the TCPA because the statutory text includes not only "person[s]" but also "entit[ies]", and registered cell phones that are used for both personal and business purposes are presumptively "residential."

 

The Ninth Circuit also held that the contractors alleged a concrete and particularized injury sufficient for Article III standing.

 

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

 

As you may recall, the TCPA prohibits calls using automatic telephone dialing systems ("ATDS") to cell phones, see 47 U.S.C. Section 227(b), and telephone solicitations sent to residential telephone subscribers who have registered their phone numbers on the national do-not-call registry, see 47 U.S.C. Section 227(c). Both provisions provide private causes of action for damages and injunctive relief.

 

The complaint here alleged that the website defendants' use of an ATDS to call the contractors' cell phones violated Section 227(b) and that the websites' text messages to the contractors' cell phones that were registered on the national do-not-call registry violated Section 227(c).

 

The website defendants moved to dismiss, contending among other things that the contractors lacked Article III and statutory standing. The trial court assumed that the contractors had Article III standing, but held under the "zone of interests" test of Lexmark International, Inc. v. Static Control Components, Inc., 572 U.S. 118 (2014), that the contractors lacked statutory standing under the TCPA. The trial court dismissed the contractors' complaint with prejudice. The contractors timely appealed.

 

On appeal, the websites argued that the contractors lacked Article III standing because the contractors were known to solicit business inquiries from potential customers and therefore did not suffer a concrete and particularized injury in receiving solicitations from the websites.

 

"[T]o satisfy Article III's standing requirements, 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." Id. (alteration in original) (quoting Friends of the Earth, Inc. v. Laidlaw Env't Servs., Inc., 528 U.S. 167, 180–81 (2000)).

 

Furthermore, the Ninth Circuit wrote in Van Patten v. Vertical Fitness Grp., LLC that, in enacting the TCPA, Congress "establishe[d] the substantive right to be free from certain types of phone calls and texts absent consumer consent . . . [and] identified unsolicited contact as a concrete harm." 847 F.3d 1037, 1043 (9th Cir. 2017).

 

According to Van Patten, "an effective consent is one that relates to the same subject matter as is covered by the challenged calls or text messages." Id. at 1044–45. Importantly, "providing a phone number in itself [does not mean] that the consumer has expressly consented to contact for any purpose whatsoever". Instead, the scope of consent is "related to the reason [the plaintiff] gave his number in the first place." Id. at 1045–46.

 

The Ninth Circuit noted that the contractors alleged in their complaint that they received unsolicited, unconsented automated text messages from the websites on their cell phones. Even assuming that the websites acquired the contractors' phone numbers through publicly available online directories, the Court held that they did not provide "prior express consent" as the Court construed that phrase in Van Patten.

 

Moreover, the Ninth Circuit concluded that the contractors' harm was particularized because the TCPA provides that even one unconsented message can violate the statute, and the websites provided no basis to disbelieve the contractors' allegation that each of them received at least one message. "A plaintiff alleging a violation under the TCPA 'need not allege any additional harm beyond the one Congress has identified'" to establish Article III standing. Van Patten, 847 F.3d at 1043.

 

Thus, the Ninth Circuit held that the contractors alleged a concrete and particularized injury sufficient for Article III standing.

 

The Ninth Circuit also concluded that the contractors had statutory standing under Section 227(b) of the TCPA. The websites argued that the TCPA protects only individuals from unwanted calls, and that the contractors fell outside of the TCPA's zone of interest. However, because the statutory text includes not only "person[s]" but also "entit[ies]," the Court reasoned that all of the contractors had standing to sue under Section 227(b) of the TCPA.

 

The contractors who placed their cell phone numbers on the national do-not-call registry also alleged additional claims under Section 227(c). Noting that Section 227(c) and its implementing regulations apply only to "residential" telephone subscribers, the websites argued that because the contractors used their cell phones both for personal calls and for calls associated with their home improvement businesses, they did not qualify as residential subscribers.

 

The question on appeal was therefore whether a cell phone that is used for both business and personal purposes can be a "residential" phone within the meaning of Section 227(c).

 

The Ninth Circuit noted that, in the view of the Federal Communications Commission (FCC), a subscriber's use of a residential phone in connection with a home-based business does not necessarily take an otherwise residential subscriber outside the protection of Section 227(c).

 

Relying on the FCC's regulations and orders, the Court thus concluded that a presumptively residential cell phone can be residential even when used for both personal and business purposes. In the absence of FCC guidance on the precise question of when a mixed-use phone ceases to become a residential phone or a business phone, the Court held that the contractors' registered cell phones that are used for both personal and business purposes are presumptively "residential" within the meaning of Section 227(c). At the motion to dismiss stage, the Court therefore concluded that these contractors had standing to sue under Section 227(c).

 

Nevertheless, the Ninth Circuit also indicated that after discovery, the websites may seek to argue that they have rebutted the presumption of a residential cell phone by showing that the contractors' cell phones were used to such an extent and in such a manner as to be properly regarded as business rather than residential lines.

 

Accordingly, the Ninth Circuit concluded that the contractors had standing under Article III and statutory standing under Sections 227(b) and (c) of the TCPA. The Court therefore reversed and remanded to the trial court for proceedings consistent with this opinion.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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: NY Court of Appeals Confirms Secured Lender May Collect Accounts Receivable of the Debtor

The New York Court of Appeals recently reversed the rulings of both the trial court and intermediate appellate court, and held that under Article 9 of the Uniform Commercial Code (UCC) a secured lender may collect the accounts receivables owed to the debtor by third parties.

 

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

 

The plaintiff lender entered into a promissory note and security agreement with a non-party subcontractor whereby the subcontractor could borrow up to $3 million dollars from the lender. The subcontractor granted the lender a security interest in its assets and the lender filed a UCC-1 financing statement.

 

More specifically, the collateral for the loan "constituted substantially all existing and future assets and properties of [the subcontractor], including, 'all right, title and interest of [the subcontractor] in and to its (a) accounts . . . .'", and the term "Accounts" included the accounts receivable arising from invoices the subcontractor issued to its customers.

 

The defendant contractor entered into a contract with the subcontractor.  The plaintiff lender notified the contractor of its security interest and collateral assignment in the subcontractor's accounts.

 

The subcontractor defaulted and the lender demanded immediate repayment under the terms of the promissory note and security agreement. Ultimately, the subcontractor declared bankruptcy. The lender brought an action against the defendant contractor alleging that the lender was entitled to recover all amounts the contractor owed to the subcontractor after contractor received notice of the lender's assignment. The defendant contractor filed a motion to dismiss lender's complaint.

 

The trial court dismissed the lender's complaint holding that UCC § 9-607 "'does not determine whether an account debtor, bank, or other person obligated on collateral owes a duty to a secured party'"; (2) the agreement between the lender and the subcontractor was "a security interest and was not an assignment"; and (3) UCC § 9-607 applies to assignments, not security interests.

 

The lender appealed, and the intermediate appellate court affirmed the trial court, holding that the lender "did not have an independent cause of action against subcontractor pursuant to UCC § 9-607" because section 9-607(e) does not authorize a secured creditor, as distinct from an assignee, to recover from a nonparty debtor like the subcontractor.

 

The lender again appealed to the New York Court of Appeals.

 

The Court of Appeals analyzed the litigants' arguments under UCC § 9-406 and § 9-607.  As you may recall, UCC § 9-607(a)(3), entitled "Collection and Enforcement by Secured Party," states as follows:

 

If so agreed, and in any event after default, a secured party. . . may enforce the obligations of an account debtor or other person obligated on collateral and exercise the rights of the debtor with respect to the obligation of the account debtor or other person obligated on collateral to make payment or otherwise render performance to the debtor, and with respect to any property that secures the obligations of the account debtor or other person obligated on the collateral.

 

The defendant contractor argued that, because the subcontractor advised the defendant contractor that there was a "dispute" between the subcontractor and contractor, the lender cannot rely on § 9-607(a)(3), which begins, "If so agreed." The Court of Appeals disagreed because the phrase "If so agreed" referred to the agreements relating to the security interest (here, the Promissory Note and Security Agreement between the lender and the subcontractor), and allowing a claimed dispute to nullify sections 9-607 and 9-406 would render the sections meaningless.

 

Instead, the Court of Appeals held that, because the lender was a "secured party", the lender had the authority to enforce the rights of its debtor (the subcontractor) to collect on the obligations of the account debtor (the defendant contractor), and that section 9-607 did not itself determine whether an account debtor owes a duty to a secured party.

 

The Court of Appeals also analyzed UCC § 9-406(a), which states:

 

An account debtor on an account, chattel paper, or a payment intangible may discharge its obligation by paying the assignor until, but not after, the account debtor receives a notification, authenticated by the assignor or the assignee, that the amount due or to become due has been assigned and that payment is to be made to the assignee. After receipt of the notification, the account debtor may discharge its obligation by paying the assignee and may not discharge the obligation by paying the assignor.

 

The defendant contractor argued that only assignors, not holders of security interests, could rely on the payment-redirection provisions contained in UCC § 9-406. The Court of Appeals disagreed because the UCC does not distinguish between a security interest and an assignment and there is no separate definition of "assignment," "assignor" or "assignee".  The Court of Appeals also noted that New York state and federal case law concurred that treating assignments and security interests identically promotes efficient dealings between the parties.

 

The Court of Appeals further held that under UCC § 9-406, an account debtor who receives a secured creditor's notice asserting its right to receive payment directly can pay the secured creditor and receive a complete discharge or can seek proof from the secured creditor that it possesses a valid assignment and withhold payment in the interim.

 

Here, the Court of Appeals noted the differences in UCC §§ 9-406 and 9-607 and noted that section 9-607 addresses the rights of a secured party vis à vis the debtor to collect a specified payment right while section 9-406 addressed the secured party's rights against the account debtor to collect a specified payment right.  The Court also noted that the Permanent Editorial Board for the Uniform Commercial Code rejected any rulings that interpreted "the term "assignment" as referring only to an outright assignment of ownership" as incorrect.

 

Therefore, the Court of Appeals held that nothing in UCC §§ 9-607 or 9-406 prohibited the lender and the subcontractor's contractual agreement.  Instead, under Section 9-406, once the lender provided the requisite notification to the defendant contractor, the contractor could not discharge its obligation by paying the subcontractor, but must instead pay the lender or ask for proof of assignment from the lender.

 

Accordingly, the Court of Appeals reversed the lower courts' rulings dismissing the lender's complaint.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Tennessee   |   Texas   |   Washington, DC

 

 

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FYI: 9th Cir Rejects "Coupon Settlement" and Other Challenges to Class Counsel Fee Award

The U.S. Court of Appeals for Ninth Circuit recently rejected several challenges to an attorney's fee award in connection with a class action settlement.

 

In so ruling, the Ninth Circuit held that the class action settlement was not a coupon settlement, and the trial court did not err in concluding that the settlement was not subject to the restrictions on the award of attorneys' fees to class counsel imposed on such settlements by the federal Class Action Fairness Act (CAFA).

 

In addition, the Ninth Circuit held that the trial court did not abuse its discretion in calculating the class counsel's fee award.

 

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

 

A class of plaintiffs brought breach of contract and consumer law claims against a ride-share company alleging the company misrepresented the safety measures, background checks, and other efforts it took to provide safety for its customers.

 

The trial court certified a class of approximately 22.4 million members and approved a settlement that provided both monetary and injunctive relief. The plaintiffs had requested $8.125 million in fees —- i.e., 25% of the face value of the settlement fund and a 4.4 multiplier on their lodestar of $1,961,905. The trial court held that CAFA attorney fee restrictions did not apply. 

 

The trial court, applying the percentage-of-fund method, granted fees but reduced the award to $5,689,440, which was approximately 17.5% of the face value of the fund and 2.9 times the lodestar. Three objectors appealed the fee award.

 

Under CAFA, 28 U.S.C. § 1712, the courts must apply "heightened scrutiny" when approving settlement agreements awarding coupon relief. In re Online DVD-Rental Antitrust Litig., 779 F.3d 934, 949 (9th Cir. 2015). Second, courts must apply "a series of specific rules" to attorney fee awards in coupon settlements under § 1712(a)–(c). In re HP Inkjet Printer Litig., 716 F.3d 1173, 1178 (9th Cir. 2013).

 

Where a settlement awards both coupon and non-coupon relief, such as monetary or injunctive relief, "the total fee award . . . is the sum of: (i) 'a reasonable contingency fee based on the actual redemption value of the coupons'" and "(ii) 'a reasonable lodestar amount to compensate class counsel for any non-coupon relief obtained.'" Chambers v. Whirlpool Corp., 980 F.3d 645, 659, 660 (9th Cir. 2020) (quoting HP Inkjet, 716 F.3d at 1184–85).

 

However, Section 1712 only applies if the settlement is a "coupon settlement." Online DVD, 779 F.3d at 950. Courts apply the three factors identified in Online DVD to determine whether a particular instance of class relief is a coupon: "(1) whether class members have 'to hand over more of their own money before they can take advantage of' a credit, (2) whether the credit is valid only 'for select products or services,' and (3) how much flexibility the credit provides, including whether it expires or is freely transferrable." Easysaver, 906 F.3d at 755 (quoting Online DVD, 779 F.3d at 951).

 

Regarding the first Online DVD factor, the Ninth Circuit determined that the class payouts in this case were based on the number of "Safe Rides Fees" that each individual class member incurred. The average award was approximately $1.07, with the largest single award estimated at $135.40, but a majority of class members receiving $0.35 or less. Although most class members' settlement awards were too small to purchase a ride without paying more out of pocket, the Court held that this factor weighed against defining the credits as coupons because class members could claim their reward up-front in cash and also passively receive cash if they did not use their credit.

 

However, the Ninth Circuit also concluded that the second Online DVD factor weighed in favor of holding the credits as coupons because the credits were only valid for that particular ride-share company's services. See Chambers, 980 F.3d at 660.

 

Nevertheless, the Ninth Circuit decided that the third Online DVD factor favored holding that the settlement at issue here was not a coupon settlement. This is because, upon one year's expiration, the credits became cash without requiring further action by the class member. In the Court's view, the reversionary cash payment provided a flexible alternative to using the credits, and structuring the payment in this fashion saved administrative expense.

 

Because two of the three Online DVD factors favored characterizing the settlement as a non-coupon settlement, the Ninth Circuit held that the trial court did not err in concluding that the settlement was not a coupon settlement within the meaning of CAFA.

 

Additionally, the Ninth Circuit held that the trial court did not abuse its discretion in calculating the class counsel's fee award. See In re Hyundai & Kia Fuel Economy Litigation, 926 F.3d 539, 556 (2019) (en banc) (defining standard of review).

 

Specifically, the Ninth Circuit held that the trial court did not err in awarding fees for hours spent pursuing unsuccessful settlements. Although a court should not award fees for "hours that are excessive, redundant, or otherwise unnecessary," Hensley v. Eckerhart, 461 U.S. 424, 434–35 (1983), the Ninth Circuit noted that a trial court is not precluded from compensating attorneys for time spent negotiating unsuccessful settlements, so long as the fees are not "excessive, redundant, or otherwise unnecessary." Here, the second, and final, settlement merely amended the first, so the Court reasoned that the hours spent negotiating the first settlement were not redundant or unnecessary.

 

Accordingly, the Ninth Circuit concluded that the trial court correctly concluded that the settlement here was not a coupon settlement within the meaning of CAFA, and did not abuse its discretion in making the fee award. Therefore, the Court affirmed the trial court's ruling.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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   |   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