Settlement Offer Does Not Moot Class Action

In a 6-3 decision issued today, the Supreme Court ruled that defendants cannot rely on a strategic offer of judgment to the named plaintiff to moot the claims of the putative class.

After an unfavorable Ninth Circuit decision, U.S. Navy contractor Campbell-Ewald asked the high court to consider, inter alia, whether defendants can strategically offer individual plaintiffs full relief at the outset of the litigation to avoid a long court battle or a potential multi-million dollar class settlement.

The opinion, delivered by Justice Ginsburg, held “in accord with Rule 68 of the Federal Rules of Civil Procedure, that an unaccepted settlement offer has no force. Like other unaccepted contract offers, it creates no lasting right or obligation. With the offer off the table, and the defendant’s continuing denial of liability, adversity between the parties persists.”

The Rule 68 strategy, which had been endorsed by the Seventh Circuit and certain district courts at various points in time, had been used by class action defendants to help combat the wave of TCPA litigation over the past few years. But the Court’s decision today is likely to have wide-reaching consequences in consumer class action cases, particularly cases that involve statutory penalties that can escalate quickly.

The full decision can be read here: Campbell-Ewald v. Gomez Slip Opp.Campbell-Ewald v. Gomez Slip Opp

Definition of an Autodialer a Question for the Jury

A recent opinion from the Southern District of California suggests that now there is no bright-line rule regarding what qualifies as human intervention for purposes of determining whether an autodialer was used. In denying a motion for summary judgment filed by Yahoo, the court found that:

“there are genuine issues of fact as to whether the [Messenger platform] is an ATDS. A reasonable jury could conclude that the welcome text is produced and sent by an ATDS as the term is defined in the TCPA.”

Zeroing in on the FCC’s recent order describing the ATDS as “case-by-case” decision, the court entirely ignored the crux of the FCC’s directive on autodialers: “the basic functions of an autodialer are to dial numbers without human intervention and to dial thousands of numbers in a short period of time.” Yahoo’s Messenger platform required the users to initiate the transmission of each welcome message, and the platform could not send thousands of welcome messages in a short period of time without the action of individual users. Thus, it should clearly fall outside the definition of an ATDS. This opinion is another example of the  unpredictability of litigation. We hope other courts will continue to see that individual human intervention for each call or message is all that is needed to avoid mischaracterizing the telephone or text messaging equipment as an ATDS.

Read more at our client alert here, drafted by Raymond Y. Kim, Zachary C. Frampton, Henry Pietrkowski, and Abraham J. Colman.

Supreme Court to Decide False Claims Act “Implied Certification” Theory

On December 4, 2015, the U.S. Supreme Court granted certiorari in Universal Health Services, Inc. v. United States ex rel. Escobar, No. 15-7, to review the so-called “implied certification” theory of liability under the federal False Claims Act (FCA). That theory, which both the federal government and private “relators” have invoked with increasing frequency, finds an FCA violation for those who seek funds from the government while in violation of a legal or contractual obligation—even when they have not expressly verified their compliance with that legal or contractual obligation. Given the breadth of circumstances in which the implied certification theory has been, and can be, applied, the Court’s ruling in Universal Health Services could bring far-reaching changes to the scope of FCA liability.

Read more at our client alert here.

Supreme Court re Arbitration : Go Ask Your Congress

With its last opinion of 2015, the Supreme Court added DIRECTV v. Imburgia to the ever-growing line of decisions reversing California courts refusal to enforce provisions in arbitration agreements that barred class arbitration. Imburgia presents the Court’s second look at the hostility of California law to waivers of class wide arbitration. Three years ago, after California courts refused to enforce provisions in arbitration agreements that barred class arbitration (on the ground that the provisions were unconscionable), a closely divided court in AT&T Mobility v. Concepcion disagreed, holding that the Federal Arbitration Agreement (“FAA”) preempted the California doctrine invalidating those waivers.

Imburgia involves the agreements that petitioner DIRECTV was using after California adopted the prohibition on class action waivers, but before the Supreme Court rejected that prohibition. Trying to avoid classwide arbitration, the form agreement at that time included a provision indicating that “if the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire [arbitration provision] is unenforceable.” After Concepcion, DIRECTV assumed that it could resume arbitrations in California. But in this case the California Court of Appeal held that the provision still barred arbitration, reasoning that whatever the Supreme Court might have said about federal law, the law of California (“your state”) would find the agreement to dispense with class arbitration unconscionable.

The Supreme Court reversed the California Court of Appeal, holding that the Federal Arbitration Agreement preempted the California doctrine invalidating those waivers. The practical implications of the ruling are that opponents of bans on class actions are not going to find refuge in the Supreme Court. The opinion sends message that there’s no way to get avoid FAA preemption other than Congress acting. Read more on SCOTUSblog.

Target “Data Breach Task Force” Documents Deemed Privileged

The Minnesota magistrate judge presiding over discovery in the litigation seeking to hold Target Corp. liable for the retailer’s 2013 data breach issued an order denying the motion by a plaintiff class of about 9,000 banks to compel production of certain documents relating to Target’s internal investigation that were withheld on privilege grounds.

Target withheld production of the details of its investigation conducted by a “Data Breach Task Force” (DBTF) under the attorney-client privilege or work product doctrine, due to the extraordinary nature of the breach that placed it outside the “regular” business functions or “ordinary work”. Instead, Target argued, the communications were privileged because the DBTF “facilitated Counsel’s investigation and provision of legal advice.”

On October 23, 2015, Magistrate Judge Jeffrey Keyes issued an order largely denying plaintiff’s motion to compel. Judge Keyes explained that Target effectively established that the purpose of the DBTF was to educate its lawyers so that they could provide legal advice.  The case is In re: Target Corporation Customer Data Security Breach Litigation, No. 0:14-md-02522 (D. Minn.). Read more at our client alert available here.

What has the CFPB said about that?

As an early “holiday gift,” to help you more easily search for a particular piece of guidance from the CFPB, we’ve put together two CFPB guidance documents. The first is a compilation of all nine issues of the CFPB’s Supervisory Highlights, from 2012 to 2015. The second is a compilation of all the CFPB’s Bulletins, as of December 1, 2015.

CFPB Supervisory Highlights 2012-2015     CFPB Bulletins 2011-2015

We hope these are useful for quick searches for recent guidance from the CFPB.

Refreshing Dismissal of ‘Silly’ TCPA Claim Against PayPal

On Thursday, October 29, 2015, the Ninth Circuit affirmed summary judgment of a proposed class action accusing PayPal of violating the Telephone Consumer Protection Act by sending users unsolicited text messages, following a hearing in which a judge said the claims were among the “silliest” he’s encountered. Opinion is available here: Roberts v. Paypal.

Plaintiff David Roberts had argued that when he gave the online payment site his phone number, he wasn’t giving it consent to send him a welcoming text message, which he said fell outside a Federal Communications Commission provision that allows businesses to send texts that are “normal business communications.” In their memorandum released Thursday, the circuit justices disagreed.

“Roberts’ contention that the FCC’s 1992 interpretation limits the consent expressed by release of a phone number to ‘normal business communications’ or ‘normal, expected or desired communications,’ is without merit … ,”  the Ninth Circuit memorandum states. “[I]t is unclear how the text message at issue could be anything other than a normal business communication.”
At that hearing, Ninth Circuit Judge Richard Clifton called the controversy over PayPal’s texted greeting “one of the silliest claims I’ve ever heard.”

After the FCC’s omnibus ruling drastically increasing the scope of the TCPA’s definition of autodialer, TCPA litigation has become a fight about consent. The Court’s ruling in Roberts v. Paypal represents a common sense approach to consent. It gives companies who contact their customers via telephone some repose that they do not need to split hairs on whether consent applies to some calls but not other types of calls. Let’s hope this approach establishes that consent is consent in the context of TCPA.

Georgia Court Sheds Light on CFPB’s Power to Sue Companies that ‘Recklessly Provide Substantial Assistance

On September 1, 2015, the Consumer Financial Protection Bureau (“CFPB”) won an important decision in which a federal court, for the first time, interpreted the meaning of “recklessly provid[ing] substantial assistance” under the Consumer Financial Protection Act (“CFPA”). Perhaps since it was an order denying the defendants’ motions to dismiss released just before the Labor Day weekend, it has not received much attention. But it has wide-ranging implications for those business-to-business (“B2B”) companies that may have previously thought they could fly below the CFPB’s radar.

The case, CFPB v. Universal Debt & Payment Solutions, LLC, et al., arose from a scheme by some allegedly fly-by-night companies that were collecting “phantom” debt – that is, debt that consumers did not owe. In March 2015, the CFPB filed a complaint in the Northern District of Georgia against not only the alleged phantom debt collectors and their owners, but also against the much larger payment processors that enabled them to take debit and credit card payments. Since the payment processors did not provide services directly to consumers, the CFPB alleged that they were “service providers” to the debt collectors, and that they had engaged in unfair practices in connection with debt collection. In denying the defendants’ motions to dismiss, the court held the CFPB had alleged facts sufficient to support this count.

In addition – for the first time in a litigated case – the CFPB included a count alleging that the payment processors also violated section 1036(a)(3) of the CFPA by recklessly providing substantial assistance to companies. Following a thorough discussion of what it means to “recklessly provide substantial assistance,” the court found that the CFPB had alleged facts sufficient to support this count. This client alert summarizes the key points of the court’s order.

To continue reading, please click here.

CFPB Warns Again About Marketing Services Agreements May Violate REPSA

On October 8, 2015, following up on a series of enforcement actions against industry participants engaged in “marketing services agreements” (“MSAs”), the CFPB issued a Compliance Bulletin (No. 2015-15) entitled “RESPA Compliance and Marketing Services Agreements [“MSAs”].” The thrust of the Bulletin is again warning companies that “many MSAs necessarily involve substantial legal and regulatory risk for the parties to the agreement, risks that are greater and less capable of being controlled by careful monitoring than mortgage industry participants may have recognized in the past.”

MSAs have been around for some time now. Basically, they are contracts in which a person who is in a position to refer settlement service business (e.g., real estate brokers, title insurance agents, residential mortgage lenders) agrees to perform certain advertising and marketing services on behalf of a settlement service provider in return for compensation. The Bulletin begins by describing MSAs as agreements that are “usually framed as payments for advertising or promotional services, but in some cases the payments are actually disguised compensation for referrals.” This, in turn, could violate the Real Estate Settlement Procedures Act’s prohibition of the payment of fees or other “things of value” for the referral of settlement service business.

The CFPB’s intended message to settlement service providers appears to be that the legal and regulatory risks of being involved in MSAs (to both the companies and individuals within the companies) are simply too great and too difficult to control to justify entering into or continuing them.

Companies and individuals thinking of entering into an MSA or that are currently involved in an MSA should read our full blog post here.

CFPB Moves to Ban Class Action Waivers in Consumer Financial Services Contracts

In a move long anticipated by the industry, the Consumer Financial Protection Bureau (CFPB) on October 7, 2015 proposed to ban class action waivers in consumer financial contracts. Although the proposed ban would not take effect for a few years, it could lead to an increase in consumer class action lawsuits—some of which  have been held in check by class action waiver provisions in recent years. According to the CFPB, more than half of credit card contracts and 44 percent of checking account agreements contain arbitration clauses, and these provisions are common in auto finance contracts as well.

The CFPB’s announcement came in the form of a 34-page “outline of proposals” that must be reviewed by a Small Business Review Panel before the CFPB can begin formal rulemaking. Announcing the proposal, CFPB Director Richard Cordray criticized class action waivers as a “free pass that prevents consumers from holding their financial providers directly accountable for the harm they cause when they violate the law.” But industry representatives have argued that class action waivers protect the industry from frivolous class litigation.

Key takeaways:

  • Ban Will Likely Take Effect in 2018, Will Not Affect Existing Contracts
  • Proposal Follows March 2015 Report to Congress that Foreshadowed a Proposed Ban
  • Silver Lining in CFPB Preserving Mandatory Pre-Dispute Arbitration Clauses for Individuals
  • Consumer Financial Companies Should Focus on Consumer Compliance and Anticipate an Increase in Class Action Litigation

Read more about the CFPB’s proposal in our client alert.

 

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