Familiar scene: a disgruntled auto purchaser visits counsel to complain about having been defrauded by a dealer. After exiting the dealership, the dealer couldn’t place the customer’s retail installment contract and brought him back for a re-write of the deal on less favorable terms. To boot, the car broke down on the way home from the dealership. Counsel fly-specks the financing contract and yells “eureka” when she discovers a technical glitch in the paperwork, followed by a quick prayer to a favorite deity that the infirmity might infect thousands of similar contracts, all sold to a major financial institution.
All that is left is to find a handy consumer protection statute with a “modest” provision for per “victim” statutory damages. A class action is born!
Of course, the technical glitch has caused no harm to anyone, … (read more…)
In a case closely watched by corporations and the class action bar, on May 29, 2014, the California Supreme Court issued its decision in Duran v. U.S. Bank, N.A., 59 Cal. 4th 1 (2014). Although it was an employment law dispute, Duran has implications for class actions in California state court (and perhaps in federal court as well), including those asserted against financial services defendants.
Some had hoped that Duran would bar the use of … (read more…)
The financial services industry knows well that California’s Unfair Competition Law (“UCL”) has an expansive scope, applying to any conduct that might be called a business practice and permitting courts to evaluate whether such conduct is “unfair” under subjective and uncertain standards. But the California Supreme Court’s recent decision in Loeffler v. Target Corp., 58 Cal. 4th 1081 (2014), reiterates that the UCL’s reach is not without limits.
Loeffler concerned the type of arcane question typical of many UCL claims: is hot coffee sold “to go” by a retailer exempt from California’s sales tax law? Plaintiffs alleged the coffee was subject to an exemption for takeout food and that they were thus wrongfully charged sales tax on their morning cups of joe. Plaintiffs filed a putative class action under the UCL and the Consumer Legal Remedies Act (“CLRA”), suing Target for a refund and seeking an injunction on further tax collection. The trial court sustained Target’s demurrer, and the Court of Appeal affirmed.
In a 4-3 decision written by Chief Justice Cantil-Sakauye, the Supreme Court affirmed. The court explained that under California’s sales tax law, the taxpayer is actually the retailer, not the consumer. While a consumer may pay the retailer an amount designated as sales tax on a receipt, that fee is only a reimbursement to the retailer for sales tax it pays. Once the retailer pays the reimbursement to the State Board of Equalization (“Board”), it is subject to a legislative “safe harbor” under Revenue and Taxation Code Section 6901.5 and has no further liability for any excess tax reimbursements collected.
Preparing and filing a proof of claim in a bankruptcy case used to be a fairly simple process. Today, especially for mortgage servicers, proofs of claims are one of the most difficult (and tedious) aspects of servicing a mortgage loan where the borrower has filed for Chapter 13 bankruptcy relief. Since the addition of Bankruptcy Rule 3002.1 in 2011, nearly every aspect of the mortgage loan balance must be broken down in the proof of claim. Further, the rule requires the loan servicer to periodically update the claim in the event of a post-petition payment change or for the addition of a recoverable expense. Upon completion of a Chapter 13 plan, the servicer has the burden to prove that the borrower is not current at the end of the bankruptcy case (even where the debtor is not paying post-petition mortgage payments through the plan).
In large part, it appears that these new rules have been addressed by the servicing industry and, after some initial hiccups, there is substantial compliance. However, common issues related to proofs of claims are beginning to surface that have nothing to do with the financial information. Rather, they involve the naming of the “creditor” in the proof of claim and the failure of a new servicer to update a claim upon transfer of servicing rights.
Who Is The Creditor? One of the initial entries on a proof of claim form is: “Name of Creditor (the person or other entity to whom the debtor owes money or property)”. Prior to the enactment of Bankruptcy Rule 3002.1, the practice of many mortgage servicers was to list itself, rather than the owner of the loan, as the creditor. However, an increasing number of bankruptcy courts, especially in the Eastern District of California, have scrutinized this practice, finding that the servicer is misrepresenting its status as the owner of the loan – that such a practice is deceptive and creates confusion for the debtor as well as the court.
The Private Attorneys General Act (“PAGA”) allows an aggrieved employee to bring a lawsuit to recover civil penalties against an employer personally or on behalf of other current and former employees for violations of the California Labor Code. Under PAGA, aggrieved employees can virtually sue for any alleged violation of the Labor Code.
An employee suing under PAGA does so as the proxy or agent of the state’s labor enforcement agencies and collects penalties on behalf of the state. In other words, an action under PAGA does not involve the employee/employer relationship. Rather, it is an enforcement action designed to protect the public and not to benefit private parties.
In order to bring a claim under PAGA, an employee must first give written notice to the employer and the Labor Workforce Development Agency (“LWDA”) of the alleged violations of the Labor Code, with the supporting factual basis for the violations. If within 33 days, the LWDA chooses not to issue a citation or fails to issue a citation within 158 days of the employee’s notice, the employee may commence a civil action. If civil penalties are recovered, the LWDA will receive 75 percent and the remaining 25 percent will go to the aggrieved employees.
How Is PAGA Different From A Class Action? A PAGA claim is different from a class action in many respects. Most important to note is that on June 23, 2014, the California Supreme Court held that the right to bring a representative PAGA claim cannot be waived by the terms of an employment contract. See Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal. 4th 348 (2014). Thus, while employment contracts may forbid class actions, and require arbitration of individual claims, PAGA provides another avenue for unhappy workers to circumvent this contractual prohibition.
Courts differ as to whether the $500,000 statutory cap on class action recovery under the federal Fair Debt Collection Practices Act (“FDCPA”) (and its California counterpart, the “Rosenthal Act”) renders class certification the superior method for adjudicating mass unfair debt collection actions.
The FDCPA, by itself and as incorporated by the Rosenthal Act, caps class action recovery at “the lesser of $500,000 or 1 per centum of the net worth of the debt collector”. 15 U.S.C. § 1692k(a)(2)(B); Cal. Civ. Code § 1788.17. Plaintiffs in an individual case, however, can recover a maximum statutory penalty of $1,000 per case. 15 U.S.C. § 1692k(a)(2)(A). Thus, where the class is large, or where the net worth of the debt collector is small, the putative class members stand to recover significantly less than if they had filed suit individually.
As a general proposition, some courts hold that classes should not be certified where the class members’ recovery would be “de minimis”. See, e.g., Wilson v. Transworld Systems, Inc., 2002 WL 1379246 (M.D. Fla. Mar. 29, 2002) (holding that denial of class certification was appropriate in an FDCPA case to preserve rights of individuals to “pursue collection of actual damages (rather than some arbitrary and miniscule participation in a global award)”).
However, “[o]ther courts have held that a class action may be the superior method of adjudicating FDCPA claims even if the amount of potential recovery by each class member is small or negligible.” Durham v. Continental Cent. Credit, 2010 WL 2776088, at *6 (S.D. Cal. July 14, 2010). As the Ninth Circuit stated in Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935 (9th Cir. 2009), “[t]he overarching focus remains whether trial by class representation would further the goals of efficiency and judicial economy.” 571 F.3d at 946. Similarly, the costs of litigation may weigh more heavily than the likely result. See, e.g., Wolin v. Jaguar Land Rover North America, LLC, 617 F.3d 1168, 1175-76 (9th Cir. 2010) (“Where recovery on an individual basis would be dwarfed by the cost of litigating on an individual basis, this factor weighs in favor of class certification.”).
In the last five years, we have seen an unprecedented spike in lawsuits filed by individual borrowers against their lenders and loan servicers. These lawsuits were brought primarily to delay the foreclosure process, mostly lacking in merit. But because civil litigation is a slow process, simply filing suit was often enough to buy the delinquent borrower an extra three to nine months in the property. Careless reporting by media sources helped stir up this frenzy.
As a result, today there are significantly more plaintiffs’ attorneys versed in the mortgage field. With the upswing in the economy (and corresponding decline in foreclosures), many of these attorneys are facing a drop off in their business. This is making them more aggressive in seeking out targets.
The good news is that the attorneys still focusing on origination theories should not survive long. The “MERS lacks standing to foreclose,” “securitizing a loan destroys the lien,” and “my lender lied to me about the value of my property” theories have almost uniformly been rejected. See Rajamin v. Deutsche Bank National Trust Co., 757 F.3d 79 (2d Cir. 2014); Graham v. Bank of America, N.A., 226 Cal. App. 4th 594 (2014). Thus, lenders facing these types of claims should still be able to dispose of them efficiently at the pleadings stage.
The savvier plaintiffs’ attorneys, however, are pursuing a different avenue of attack: challenging how lenders and servicers handled loss mitigation communications and applications. Both the California Homeowner Bill of Rights (“HOBR”), and the Consumer Financial Protection Bureau’s (“CFPB”) revisions (and additions) to Regulations Z and X, provide potent weapons to support these claims. Recent developments in California case law have increased the risk to lenders and servicers even further.
It’s an all too familiar story. Congress passes a consumer protection statute to remedy a perceived abuse–junk faxes and unwanted cell phone solicitations in the case of the Telephone Consumer Protection Act–with a per violation penalty (an automatic $500 per call and up to $1,500 for intentional violations). The class action bar looks at it as the next mother lode and starts mining. The factual underpinnings for the claims are limited only by class counsel’s imagination, which is boundless. The penalties multiplied by thousands of calls creates gargantuan exposure and the suits proliferate. The gold rush is on!
We recently took a run at limiting one of the more extreme misapplications of the TCPA in a case called Breslow v. Wells Fargo, 755 F.3d 1265 (11th Cir. 2014) The issue in Breslow was whether the phrase “called party” as used in the TCPA’s express consent exemption means “subscriber” or “intended recipient.” Obscure though it may seem, the definition of the phrase is actually of broad-ranging impact and determines, for instance, whether a dialer can be held liable for calls placed to its customer when the phone number has changed hands without the knowledge of the dialer. Spoiler alert: it can be.
We faced an uphill climb in Breslow because the Seventh Circuit had previously produced a decision, Soppet v. Enhanced Recovery Co., 679 F.3d 637 (7th Cir. 2012), finding, contrary to common sense, that the phrase “called party” means “subscriber.” Soppet was penned by the esteemed Judge Easterbrook and his ruling was not only antithetical to our position in Breslow, it heaped gratuitous scorn upon it. “The phrase ‘intended recipient’ does not appear anywhere in TCPA Section 227, so what justification could there be for equating ‘called party’ with ‘intended recipient of the call’?”, the decision inquires with disdain. Indeed, throughout the decision Judge Easterbrook finds repeated opportunity to point out just how silly it is to believe that “called party” might mean “intended recipient.”
In February 2014, Severson & Werson achieved a major victory on behalf of a shared vehicle start-up in Seattle, Washington. The court dismissed a nationwide TCPA class action in favor of Severson’s client, finding that the contours of “express consent” were broad enough to encompass instances where a customer received a text message after providing a cellular number as part of an online registration process.
On February 10, 2014, Severson & Werson’s Joseph W. Guzzetta (SF) and Sunny S. Huo (SF) achieved a complete victory on behalf of a national loan servicer in a court trial of claims brought by a borrower under California’s Unfair Competition Law in San Mateo County Superior Court. At the trial, the court granted Severson’s motion for non-suit on behalf of the servicer, agreeing that the plaintiff could not prove that the defendant had engaged in acts of unfair competition under California law. Prior to trial, the court had granted the motion for summary adjudication filed by Severson as to the claims asserted by the plaintiff for wrongful foreclosure and violation of the Real Estate Settlement Procedures Act. The case was Keil v. Aurora Loan Services, LLC, et al. (San Mateo County Superior Court Case No. CIV-500377).
In 2001, the Consumer Finance Report was awarded “best newsletter” by the Legal Marketing Association, Bay Area Chapter. It is edited by Joseph W. Guzzetta, with the assistance of Evelina Manukyan and Elizabeth Holt Andrews, and is published three times each year for the benefit of our clients and others with concerns requiring current information focusing on California developments in the areas of consumer finance and litigation. Joseph Guzzetta is an associate of the Firm who specializes in defending financial institution clients against single-plaintiff lawsuits and class action cases. He can be reached in the San Francisco office or by email at firstname.lastname@example.org. The contents of this publication are for informational purposes only. No responsibility is assumed for errors in the publishing process. © 2014 Severson & Werson, … (read more…)