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 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.


Court Finds Employer Did Not Violate FCRA Through Use of Background Report in Hiring Decision

On October 1, 2015, the U.S. District Court for the Eastern District of Pennsylvania issued a decision in Ramos v. Genesis Healthcare, LLC, upholding an employer’s use of a credit report in connection with a decision to not hire an applicant and further held that the employer did not fail to give the applicant sufficient opportunity to explain the issues identified in the background report before making a final decision to decline the job application.

Plaintiff Doris Ramos applied for a job as an occupational therapist with Genesis Healthcare, a company which provides nursing and other rehabilitative services. Genesis interviewed Ramos and orally extended a job offer, subject to completion of a background check. Genesis obtained a background report from General Information Services (GIS), which runs background checks and scores applicants based on criteria provided by potential employers. Ramos’ background report described three criminal convictions, including a conviction involving injury to a child. Although GIS scored the report as requiring review by Human Resources, Genesis determined that based on the background report, Ramos did not meet its criteria for employment and scored her as unqualified.

The following day, Ramos was sent a Pre-Adverse Action Notice, as required by 15 U.S.C. § 1681b(b)(3)(A), and which informed Ramos that she had the right to dispute the accuracy of the information in the background report. Ramos subsequently spoke to Genesis’ Human Resources group and tried to explain why certain information relating to the identified convictions was inaccurate. Genesis stood by its decision. Ramos filed suit against Genesis, GIS and an affiliate thereof. With respect to Genesis, Plaintiff claimed that Genesis, when it graded Ramos as unqualified, had in fact made an adverse action decision, and that Genesis violated FCRA by failing to provide a Pre-Adverse Action Notice before an adverse decision had “actually” been made.

The Court granted summary judgment to Genesis on the claim, finding that FCRA “allows for the formation of an intent to take adverse action before complying with § 1681b(b)(3)(A)”, and that even if the Genesis had graded Ramos as unqualified, the fact that Genesis subsequently communicated with Ramos and considered her explanation was sufficient proof that a final employment decision had not been made when Ramos was scored as unqualified. In summary, Genesis was “entitled to make an internal determination of ‘intent’ to revoke the employment offer so long as it affords a real opportunity to challenge this internal determination.” The court also rejected Ramos’ claim that the seven days between the mailing of the Pre-Adverse Action Notice and Genesis’ relaying of its final decision was insufficient time to contest the issues in the background report, finding that FCRA did not suggest a bright-line test for what constituted a reasonable amount of time between the Pre-Adverse Action Notice and the adverse action.

The case illustrates that notwithstanding the increasing use of background reports and scoring of job candidates based on the results of background reports, employers can avoid potential FCRA claims (both individual plaintiff and class action) by fulfilling the purposes of the Pre-Adverse Action Notice requirement and providing job applicants with a reasonable opportunity to explain or contest information contained in a background report used to make an employment decision. The case is Ramos v. Genesis Healthcare, LLC, Eastern District of Pennsylvania No. 15-52.


CFPB and DOJ Issue Consent Order for Mortgage Lender to Pay $27 Million to Mitigate Illegal Redlining Activities

On September 24, 2015, the Consumer Financial Protection Bureau (“CFPB”) and the Department of Justice (“DOJ”) announced a joint action against New Jersey-based Hudson City Savings Bank for discriminatory redlining practices that denied residents of majority-Black-and-Hispanic neighborhoods fair access to mortgage loans.  The agencies allege that the bank took steps to avoid, and thereby discourage, applications from prospective borrowers in predominantly Black and Hispanic communities.  If the proposed consent order is approved by the court, Hudson City will pay $25 million in direct loan subsidies to qualified borrowers in the affected communities, $2.25 million in community programs and outreach, and a $5.5 million penalty. This represents the largest redlining settlement in history to provide such direct subsidies.

The Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating against applicants in credit transactions on the basis of characteristics such as race, color, and national origin.  In their complaint, the CFPB and DOJ alleged that from at least 2009 to 2013, Hudson City violated the law when it engaged in illegal redlining by offering unequal access to credit based on the race and ethnicity of prospective borrowers’ neighborhoods.  The DOJ also alleges that Hudson violated the Fair Housing Act, which also prohibits discrimination in residential mortgage lending.

The Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the CFPB to take action against creditors engaging in discrimination in violation of the ECOA.

The consent order is the culmination of a CFPB examination that began in 2014.  “We allege that Hudson City’s redlining practices illegally cut off opportunities for consumers in predominantly Black and Hispanic neighborhoods to get a mortgage and achieve the dream of homeownership,” said CFPB Director Richard Cordray. “Without access to affordable credit, neighborhoods deteriorate in the long shadow cast by unfair lending. Today’s action seeks to remove the redline by bringing more than $27 million in mortgage subsidies and outreach programs, along with new bank branches to the communities who should have had access from the beginning.”

“This case should send a message to lenders throughout the country that the Justice Department will not tolerate racial discrimination in the extension of credit,” said Principal Deputy Assistant Attorney General Vanita Gupta, head of the Civil Rights Division.  “A lending institution must treat all potential borrowers equally, regardless of their race or the racial composition of their neighborhood, when deciding to offer its loan services.  We encourage all lenders to proactively identify responsible lending opportunities that exist in predominantly minority neighborhoods within their lending areas.”

Hudson City is a federally-chartered savings association that focuses its lending on the origination and purchase of mortgage loans secured by single-family properties.

The complaint and the proposed consent order resolving the complaint have been simultaneously filed with the United States District Court for the District of New Jersey.  The consent order will have the full force of law only when signed by the presiding judge.