msteiner Phillip-Barilovits

Michael J. Steiner & Philip Barilovits

In recent years, distribution of class settlement funds to various charitable groups has become commonplace. For distributions to class members that are unclaimed, impractical to distribute, or de minimis, courts will often bless a distribution of settlement funds to a charitable organization under the “cy pres” doctrine. The doctrine takes its name from the French Norman term “cy pres comme possible,” which is perhaps best rendered in English as “as close as possible.” Widely used in situations where charitable trust funds can no longer be used precisely as the benefactor originally intended, the cy pres doctrine was adopted for use in class actions as well.

“The cy pres doctrine allows a court to distribute unclaimed or non-distributable portions of a class action settlement fund to the ‘next best’ class … (read more…)


Donald J. Querio

After the landmark decision in AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), businesses with arbitration clauses in their consumer and employment agreements breathed a sigh of relief. There was finally some protection against the legalized extortion racket that we know as class actions. But Concepcion involved an arbitration clause that expressly precluded the arbitrator from hearing class claims. Where an arbitration clause is silent on the class issue and the arbitrator is deemed to be able to hear class claims, a business may face the worst of both worlds—exposure to potentially net-worth killing class claims and virtually no right to appeal from an adverse ruling by the arbitrator. In the face of a silent arbitration clause, the first question becomes: Who is charged with deciding whether class claims are arbitrable—the court or the arbitrator?

Two recent California Court of Appeal decisions have determined that the issue of arbitrability of class claims is normally for the trial court to decide and not the arbitrator, unless the arbitration clause expressly states to the contrary. Garden Fresh Restaurant Corp. v. Super. Ct., 231 Cal. App. 4th 678, 687 (2014) (“‘classwide arbitrability is a gateway question rather than a … (read more…)

-Articles In This Issue-

The Pitfalls of Super-Priority of HOA Liens

Susan M. Santerelli

In another blow to the financial services industry, the Nevada Supreme Court has dropped a bombshell on lenders who make senior loans secured by real property in Nevada, and potentially other states that have adopted the Uniform Common Interest Ownership Act (“UCIOA”). SFR Invs. Pool I, LLC v. U.S. Bank, N.A., 334 P.3d 408 (Nev. 2014). UCIOA was promulgated in its initial form in 1982 by the National Conference of Commissioners on Uniform State Laws, with the intent to govern the formation, management and termination of a common interest community, whether a condominium, planned community or real estate cooperative. Alaska, Colorado, Connecticut, Minnesota, Nevada and West Virginia enacted the original 1982 version of UCIOA. UCIOA was subsequently amended in 1994 and again in 2008. Connecticut and Vermont enacted the 1994 version, and Connecticut, Delaware and Vermont enacted the 2008 version.




Does Section 2923.3 Require A Foreign Language Translation Be Added To The Face Of Recorded Foreclosure Notices?

Sunny S. Huo

There has been a recent round of investigations by at least one government agency looking into whether trustees violated California Civil Code Section 2923.3(c)(1) and (d)(1) when they record a Notice of Default or a Notice of Sale that does not have the single-sentence translation required by that statute appearing on the first page. This investigation appears to be based on an incomplete interpretation of the statute.

Section 2923.3 was passed to help provide non-English speaking borrowers the same level of notice concerning foreclosures as tenants receive. It was not passed to add a new (meaningless) requirement on documents sent for recordation. As the Legislature explained when debating the enacting bill:

Home borrowers who are not proficient in English are entitled by law to a summary translation of their mortgage loan when the contract is negotiated in one of the five dominant languages in California other than English. When that home is subject to foreclosure, however, there is currently no translation obligation.


A $1.5 Billion Mistake—Be The Master Of Your Termination Statement

Donald H. Cram

“A secured party is the master of its own termination statement,” or so says the Supreme Court of Delaware in ruling that a UCC-3 termination statement, which was filed by mistake and resulted in the termination of a $1.5 billion term loan, was effective because the filing was authorized by the secured parties involved.

The Uniform Commercial Code (“UCC”) tells us that a financing statement ceases to be effective upon the filing of a termination statement if “the secured party of record authorizes the filing.” A termination statement filed without authorization is ineffective.

But what does it mean to “authorize” the filing of a termination statement? Specifically, is consent (even mistaken consent) to the filing of a termination statement sufficient, or must the secured party subjectively intend to release the collateral identified in the termination statement? This is the most important issue litigated in Official Comm. of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank, N.A., et al. (In re Motors Liquidation Company), 103 A.3d 1010 (Del. 2014), and is an issue of immense consequence to all secured creditors.



Have You Determined Whether Your Sick Leave Policy Is Compliant With California’s New Paid Sick Time Law?

Rhonda L. Nelson & Danielle M. Ellis-Andrews

Effective July 1, 2015 – All California Employers Must Offer Paid Sick Time To Part-Time, Temporary and Full-Time Employees To Care for Themselves, Extended Family, and Victims of Domestic Violence

On September 10, 2014, Governor Jerry Brown signed the Healthy Workplaces, Healthy Families Act of 2014 (the “Act”), which provides paid sick days to millions of Californians – roughly 40% of the state’s workforce – who do not currently earn this benefit. The Act does not apply just to employers who currently provide no paid sick leave benefit to their employees; it also applies to employers who already provide paid sick leave or paid time off benefits to their employees. Accordingly, all employers must carefully review the Act to make certain they are compliant by July 1, 2015. The Act applies to all employers, all employees (with few exceptions) and provides a wider range of circumstances under which leave may be taken. It also provides a more expansive definition of “family member” compared to those found in most paid leave policies.



Can Your “Legal Department” Get You in Trouble?

Scott J. Hyman

What is a “Legal Department”? Must it have lawyers? Can a finance company call its collection employees who perform quasi-legal functions its “Legal Department”? The Federal Trade Commission (“FTC”) says maybe not. The FTC recently sued RTB Enterprises, Inc., and its principal, for improper debt collection practices, one of which included using legal-sounding terms that left consumers with the impression that the communication was from or on behalf of an attorney, such as “breach of contract,” “affidavit signed against you,” and “due to the legal nature” of the call. Moreover, the FTC alleged that RTB did not have a Litigation Department or a Pre-Litigation Department that included attorneys, nor did it employ collectors who worked with or referred matters to attorneys.

In its Official Staff Commentary to the Fair Debt Collection Practices Act (“FDCPA”), the FTC stated that “[a] debt collector may not send a collection letter from a ‘Pre-Legal Department,’ where no legal department exists.” Statements of General Policy or Interpretation: Staff Commentary on the FDCPA, 53 Fed. Reg. 50097-02, 50105 (Dec. 13, 1988). At least two circuit court cases provide support for interpreting a debt collector’s use of the term “Legal Department” to suggest to a least sophisticated consumer that a department exists with licensed attorneys. Rosenau v. Unifund Corp., 539 F.3d 218, 223 (3d Cir. 2008) (“a debtor receiving a [] letter [from a debt collector using the heading ‘Unifund Legal Department’] could reasonably infer that the Legal Department contains attorneys who played a role in writing or sending the letter”); LeBlanc v. Unifund CCR Partners, 601 F.3d 1185 (11th Cir. 2010); see also In re Belile, 209 B.R. 658 (Bankr. E.D. Pa. 1997) (The evidence of record established that the defendant’s legal department did not employ anyone licensed to practice law and was therefore incapable of seeking a civil judgment. Because the defendant had no legal department capable of filing suit, the defendant had made a false representation); but see Ostrander v. Accelerated Receivables, 2009 WL 909646, at *6 (W.D.N.Y Mar. 31, 2009) (“Even applying the ‘least sophisticated consumer’ standard, it cannot be said that by simply stating that she worked in the ‘legal department,’ defendant . . . gave a ‘false representation or implication’ that she was an attorney at law or that the communication was from an attorney, in violation of 15 U.S.C. § 1692e(3).”).



Regulators Focus On “Transaction Fees” In Debt Collection

Jonathan D. Dykstra

Recently, regulators–particularly the Federal Trade Commission (“FTC”)–have taken an active interest in companies charging “transaction fees” when collecting on their accounts. Regulators are particularly concerned about situations where the borrower is not given any meaningful choice to avoid extra costs and fees. Fees for payments by phone, overnight delivery, online payments, and any other “convenience” charges are subject to regulation.

Some of the factors regulators consider are: (1) the charge to the borrower relative to the cost of providing the service, and (2) whether the borrower has meaningful choices to avoid the fees in paying the obligation.

The FTC recently sued Consumer Portfolio Services, Inc. (“CPS”) for violations of the Fair Debt Collection Practices Act (“FDCPA”) and other federal laws. “The FTC alleged that–among other things–‘in numerous instances, CPS has imposed NSF fees in amounts higher than that permitted by contract or law . . . [by assessing] other fees, including late fees, in amounts higher than that permitted by contract or law or when it has no basis to assess the fee.’ It also alleged that: (1) CPS required that consumers pay a fee to obtain an extension, even though the extension did not ‘defer accrued interest or fees’ or ‘stop monthly late fees from accruing on a delinquent account in the month that the extension is granted’, (2) told consumers that they must remit their loan payments through Western Union or MoneyGram via electronic account debit, electronic check, or credit card via telephone, text message, online, or in person at a Western Union or MoneyGram location, but Western Union or MoneyGram charged consumers a ‘convenience fee’ of up to $12 and remitted a portion of each fee to CPS.”

CPS settled with the FTC by: (1) paying a $55 million penalty, (2) agreeing to refrain from all of the above actions (and more), and (3) agreeing to update its systems, policies and procedures to safeguard against the alleged violations.



Judicial Treatment Of The CDIA METRO-2 Manual Under FCRA

Alisa A. Givental


The Fair Credit Reporting Act (“FCRA”) prohibits furnishers of credit from providing inaccurate or misleading information to Consumer Reporting Agencies (“CRAs”). The meaning of “inaccuracy,” however, remains hotly-litigated.

The manual published by the Consumer Data Industry Association (“CDIA”) states that the “purpose of [the CDIA] guide is to document [the credit reporting] process” and the “Industry Standards” for consumer reporting. District courts, however, are split on whether the CDIA manual sets the standard of care and accuracy. Plaintiffs have argued that furnishers’ non-compliance with the CDIA manual and METRO-2 codes renders reporting inaccurate. Courts have rejected this argument, but also found compliance with the manual and METRO-2 to be a defense.

For example, California courts have rejected the argument that noncompliance with CDIA guidelines by itself renders the information furnished inaccurate. Giovanni v. Bank of America, N.A., 2013 WL 1663335 (N.D. Cal. Apr. 17, 2013); Mortimer v. Bank of America, N.A., 2013 WL 1501452, at *12 (N.D. Cal. Apr. 10, 2013) (“failure to comply with the CDIA guidelines does not render [a] report incorrect.”); Sheridan v. FIA Card Servs., N.A., 2014 WL 587739 (N.D. Cal. Feb. 14, 2014); see also Jones v. Experian Info. Solutions, Inc., 2012 WL 2905089 (E.D. Va. July 16, 2012).

But, courts have also found compliance with the CDIA manual to be dispositive as a defense. Grossman v. Barclays Bank Delaware, 2014 WL 647970 (D. N.J. Feb. 19, 2014); Toliver v. Experian Info. Solutions, Inc., 973 F. Supp. 2d 707, 719 (S.D. Tex. 2013).

Courts caution, however, that following the CDIA manual and METRO-2 can still result in inaccurate reporting. In Jones, for example, the court stated that “the position taken in the CDIA Resource Guide . . . that a debt must be reported at a zero current balance upon entry of the Confirmation Order, prior to [a petitioner’s] Chapter 13 discharge – [is] inconsistent with the Chapter 13 discharge provision in 11 U.S.C. § 1328, and the weight of authority.” 2012 WL 2905089, at *3. Likewise, the CDIA directive to report “no data” instead of overdue payments while a Chapter 7 petition is pending has been rejected where “it was factually accurate… that [the] accounts were past due.” Sheridan, 2014 WL 587739, at *5; see also Mortimer, 2013 WL 1501452.



2014’s TCPA Standing Defense Losing Ground

Eric J. Troutman

In Palm Beach Golf Center–Boca, Inc. v. Sarris, 771 F.3d 1274 (11th Cir. 2014), the Eleventh Circuit Court of Appeal rejected a constitutional “injury in fact” standing defense where the plaintiff had no memory of receiving, seeing or reading a one-page fax. The court held that injury sufficient for standing purposes was established by tying up of a fax transmission line, in this instance for 60 seconds, according to the plaintiff’s expert witness. But the potentially more troubling aspect of this decision may be a flawed additional rationale that future plaintiffs may misapply to try to argue that non-recipients of faxes have standing to sue under the Telephone Consumer Protection Act (“TCPA”), something the Eleventh Circuit surely did not intend.

Standing under the TCPA has always been a difficult issue for defendants. The TCPA’s much-ballyhooed private right of action does state that any “person” may bring suit for a TCPA violation, not just an “aggrieved” or “injured” person. 47 U.S.C. § 227(b)(3).

But does that really mean Congress intended to let anyone anywhere sue for any TCPA violation without an Article III “injury in fact”?

No. Numerous district court opinions have held that–although the TCPA affords “statutory standing” to anyone–the language of the TCPA does not disturb traditional application of constitutional and prudential standing limitations. See, e.g., Anderson v. AFNI, Inc., 2011 WL 1808779, at *7-8 (E.D. Pa. May 11, 2011) (“The TCPA makes plain that the only limitations on standing under the statute are those imposed by constitutional and prudential requirements.”)

As Palm Beach Golf Center itself recognizes, this traditional approach requires that a plaintiff suffer an “injury in fact”–an invasion of a legally protected interest that is (a) concrete and particularized, and (b) actual or imminent, not “conjectural” or “hypothetical.” See Martin v. Leading Edge Recovery Solutions, LLC, 2012 WL 3292838, at *4-5 (N.D. Ill. Aug. 10, 2012). So basic are these requirements that the United States Supreme Court speaks of them as “irreducible constitutional minimums,” “essential and unchanging parts” of the Constitution and even as “a key factor in dividing the power of government between the courts and the two political branches.” Vermont Agency of Natural Resources v. U.S. ex rel. Stevens, 529 U.S. 765, 771 (2000).



About the Firm

Since its founding over 70 years ago, Severson & Werson has gained a reputation for providing specialized advice, legal services, and expertise to financial institution clients. The services we provide run the gamut, from litigation to regulatory matters, legislative affairs and formulating and implementing nationwide strategies for such things as defending consumer class action cases. The scope of our practice is national, and today the Firm’s clients include many of the nation’s premier banks, savings associations, commercial and consumer finance companies, mortgage companies and loan servicers, and insurance concerns.

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 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…)