Glass & Goldberg | Financing, Property & Bankruptcy Law

On July 5, 2016, the U.S. District Court for the Southern District of California ordered Citizens Bank to pay more than $4.55 million to settle a consumer class action that claimed the bank violated the TCPA by using an automated dialing system to call consumers without their permission.

Last year, the FCC broadened its applicability of the Telephone Consumer Protection Act (TCPA) regarding automatic telephone dialing systems.  The FCC instituted several new rules, one of which prohibits companies from using an automatic telephone dialing system to call wireless phones or to leave prerecorded marketing messages on landlines without consent.

In addition, the FCC affirmed the TCPA’s definition of autodialer as “any technology with the capacity to dial random or sequential numbers.”  The FCC also clarified that any equipment used to send Internet-to-phone texts is an autodialer.

In the case — Sanders, et. al v. RBS Citizens, N.A. — plaintiff Linda Sanders filed a class action alleging that Citizens Bank violated the TCPA by using an automatic telephone dialing system to call her cell phone numerous times without her permission.  The bank denied making the calls to Sanders and the more than one million members of the class in violation of the TCPA.

The case has been litigated for more than two years before the two parties reached a proposed settlement applying to all class members, which are any consumers who received a call on their cell phone from Citizens or a third party calling about a Citizens account made with an autodialer or pre-recorded voice from Dec. 20, 2009 through July 13, 2015.

A Fairness Hearing on the proposed settlement has been scheduled for early 2017.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

The U.S. District Court for the Central District of California has ruled that a defendant in a TCPA case cannot compel arbitration of a proposed consumer class action suit because the consumer was unaware of the arbitration provision in the Terms of Use page on the defendant’s website.

The case — Nghiem v. Dick’s Sporting Goods — was brought by plaintiff Phillip Nghiem against Dick’s Sporting Goods (DSG) and Zeta Interactive Corp. (Zeta) for alleged violations of the Telephone Consumer Protection Act (TCPA).  Nghiem had opted into DSG’s mobile alerts text messaging subscription service and six months later, opted out of the service by texting the word “stop” to the program’s number.  Nghiem received a reply text message stating that he had unsubscribed and would not receive any more mobile alerts.

Nghiem alleged that over the next six months, he continued to receive mobile alerts from DSG in violation of the TCPA and filed a proposed class action.  DSG and Zeta moved to compel arbitration, stating that the plaintiff was bound by the Terms of Use on DSG’s website to arbitrate his claims.  Nghiem argued that he was unaware of the arbitration provision and that even if he had agreed to it, the agreement does not cover TCPA claims nor can it be enforced by Zeta, a third party.

In denying DSG and Zeta’s motion to compel arbitration, the Court deferred to the Ninth Circuit’s reasoning in regard to browsewrap agreements which “purport to bind users simply by their existence, no matter whether the user has actually viewed them. Because of this lack of assent on the part of consumers, courts enforce browsewrap agreements with reluctance, and will generally only do so when a consumer has ‘actual or constructive knowledge of a website’s terms and conditions.’”

The Court found that the facts in the case were insufficient for it to determine if the plaintiff had actual knowledge of the Terms of Use on DSG’s website, stating that actual knowledge is not something to be “safely assumed” and defendants had not provided any evidence that the plaintiff had actual knowledge of the arbitration agreement.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

The Consumer Financial Protection Bureau (CFPB) has released its Spring 2016 Rulemaking Agenda as part of its obligation under the Regulatory Flexibility Act to publish regulatory agendas twice a year.  The CFPB outlined its major current initiatives, including:

Arbitration

The CFPB issued a Notice of Proposed Rulemaking on arbitration clauses on May 5, 2016.  The proposed rule prohibits class action waivers in pre-dispute arbitration agreements and requires companies that engage in arbitration to furnish certain records to the CFPB.

Payday, Auto Title and Similar Lending Products

The CFPB released a Notice of Proposed Rulemaking to restrict payday loans and similar lending products on June 2, 2016.  The proposed rule requires lenders to take steps to ensure consumers have the ability to repay loans and eliminates repeated debit attempts that increase fees.

Prepaid Accounts

The Bureau will issue a final rule this summer that creates consumer protections for prepaid financial products, including reloadable cards and similar products that consumers use in place of traditional bank checking accounts.

Mortgage Servicing

The CFPB expects to issue a final rule amending certain aspects of mortgage servicing rules that became effective in 2013.  The rule is expected to address enhanced loss mitigation requirements as well as compliance with certain rules when a borrower is in bankruptcy or is a potential or confirmed successor in interest.

Know Before You Owe

The Bureau expects to issue a Notice of Proposed Rulemaking in late July to amend the Know Before You Owe mortgage disclosure forms to address various issues raised by the industry.

Debt Collection

The CFPB continues to be engaged in developing proposed rules to regulate debt collection practices and is in the process of analyzing consumer survey response data on the issue.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

In a recent decision, a California Court of Appeal voided a default judgment because the plaintiff’s complaint did not specify the amount of damages being sought, stating that a default judgment is subject to attack at any time when damages exceed relief requested in a formal complaint.

In Dhawan v. Biring, both parties were business partners until the plaintiff sued the defendant alleging 13 contract and fraud-based causes of action.  Defendant did not answer and a default judgment was entered.  Seven years later, defendant filed a motion to vacate and set aside the default judgment, citing Code of Civil Procedure Section 580(a) which states that damages cannot exceed the relief demanded in a complaint.  The court granted the defendant’s motion to vacate and plaintiff appealed.

The appellate court concluded that the default judgment was void because it exceeded the court’s jurisdiction and upheld the trial court’s ruling.  Citing Section 580(a), the appeals court reiterated that damages awarded in excess of the amount demanded in the complaint are not within the court’s jurisdiction to grant, therefore making the judgment void (not merely voidable).

The court rejected plaintiff’s argument that the default judgment should not be voided because the damages were specified in a statement of damages provided to the plaintiff during the original trial.  The appellate court said that a statement of damages is not a formal notice, which can only be provided via an amended complaint in cases not involving a personal injury claim.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

The U.S. Court of Appeals for the Ninth Circuit has ruled that the discovery rule applies to all plaintiff actions brought under the Fair Debt Collection Practices Act (FDCPA), and that the one-year FDCPA statute of limitations starts to run in all cases when the plaintiff knew or had reason to know about a collection case.

In Lyons v. Michael & Associates, the defendant filed a debt collection suit against the plaintiff in Monterey, California, on December 7, 2011.  The plaintiff lived — and incurred the debt — in San Diego.  On January 3, 2013, the plaintiff filed suit alleging that the defendant violated the FDCPA by filing their collection suit in the incorrect judicial district.  A district court dismissed the plaintiff’s suit as time-barred, ruling that an FDCPA violation occurs at the time the debt collection action is filed.

On June 8, 2016, the Ninth Circuit reversed the district court’s ruling, finding that the discovery rule applies in FDCPA actions and therefore, the plaintiff’s action was not time-barred since the one-year FDCPA statute of limitations did not start running until the plaintiff knew or had reason to know about the collection action.  She did not know until she received service of process, which was done within the year prior to her suit being filed.

In reaching its decision, the Ninth Circuit cited its 2009 decision in Mangum v. Action Collection Service Inc., where a plaintiff alleged that a debt collector violated the FDCPA by wrongfully disclosing her debt information to an outside party.  “In general, the discovery rule applies to statutes of limitations in federal litigation, that is, federal law determines when the limitations period begins to run, and the general federal rule is that a limitations period begins to run when the plaintiff knows or has reason to know of the injury which is the basis of the action.”

The Ninth Circuit said that although the circumstances of the two cases were different, the discovery rule was properly applied and, in fact, applies equally regardless of what type of FDCPA violation is alleged.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

A New Jersey Bankruptcy Court has ruled that a loophole in the Bankruptcy Code may enable Chapter 7 debtors to exempt inherited IRAs from a bankruptcy estate, seemingly diverging from a 2014 U.S. Supreme Court decision that inherited IRAs were not exempt from bankruptcy.

In its unanimous 2014 ruling, the Supreme Court distinguished inherited IRAs from other IRAs established by an individual for his or her own retirement.  Because the beneficiary of an inherited IRA cannot make contributions to that IRA, an inherited IRA does not provide any tax incentives, which is an important purpose of other IRAs.  Since the beneficiary of an inherited IRA has different rules for taking distributions than other IRA owners, this also establishes inherited IRAs as different from other IRAs.  These differences, the Court reasoned, are enough to disqualify an inherited IRA from qualifying for the federal bankruptcy exemption.

In deciding In re Norris, the New Jersey Bankruptcy Court said the Supreme Court’s decision in Clark v. Rameker was not applicable since the high court only considered whether an inherited IRA constituted “retirement funds” for the purpose of the Bankruptcy Code’s retirement exemption.

In its ruling for the debtor, the Court considered the applicability of Section 541(c)(2), known as the “spendthrift trust exception,” which provides that “a restriction on the transfer of a beneficial interest of the debtor in a trust that is enforceable under applicable nonbankruptcy law is enforceable in a case under this title.” New Jersey law provides that any property held in a qualifying trust and distributions from that trust are excluded from the bankruptcy estate, including trusts that qualify under Section 408 of the Internal Revenue Code, which includes IRAs.

The Court then clarified a five-part test to determine whether an IRA is excluded from a bankruptcy estate under Section 541(c)(2):

• The IRA meets the standard of “trust” per Section 541(c)(2);
• The IRA funds constitute a debtor’s “beneficial interest” in the trust;
• The IRA is qualified under Section 408 of the Internal Revenue Code;
• The NJSA provision that property held is exempt from all creditor claims must be a restriction on the transfer of IRA funds; and
• The restriction must be enforceable under nonbankruptcy law.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

A bill that would require the Consumer Financial Protection Bureau (CFPB) to verify consumer complaints and put into context the complaints it currently publishes in an online database has been introduced by Arizona Congressman Matt Salmon.

The CFPB Consumer Complaint Database accepts complaints from consumers about financial institution products and services, including bank accounts, mortgages, credit cards, consumer loans, debt collection, credit reporting, money transfers and payday loans.  The consumer provides information to the Bureau on who they are and the nature of the complaint, including a written narrative. The CFPB forwards each complaint to the financial institution identified by the consumer in the complaint for response, then tracks the response and resolution in the online Consumer Complaint Database.

The publicly available information posted by the CFPB in the database includes the complaint ID number, the financial products or services that are the targets of the complaint, a 2-8 word explanation of the issue, the complainant’s state and zip code, the name of the financial institution and their response to the consumer complaint (“Closed”, “In progress”, “Closed with explanation”, “Closed with monetary relief” or “Closed with non-monetary relief”) and narrative from the original consumer complaint.

Rep. Salmon said he introduced the CFPB Data Accountability Act because “the current database is disorganized and does little to provide the American people with important information to inform their decision-making. My bill would improve the current database by requiring the CFPB to verify the facts of each complaint and present this information in an aggregated format so that consumers have better access to CFPB-collected data and can make better decisions about their financial futures.”

The new bill would require the CFPB to modify its Consumer Compliant Database to include:

• Consumer complaint information can only be made available in an aggregated format after the Bureau has taken steps to ensure that any proprietary, personal or confidential consumer information is not made public.
• Complaints must be verified when the consumer alleges that laws or regulations have been violated by the provider of a consumer financial product or service.
• Complaints about specific consumer financial products are services can only be made available to the public if the Bureau includes information on what percentage of its complaints involve that product or service compared to the total number of consumers that use the product or service.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

The U.S. Court of Appeals for the Seventh Circuit has ruled that debt collectors do not violate the deceptive threat provision of the Fair Debt Collection Practices Act (FDCPA) for filing a lawsuit against a debtor without the intention to go to trial.

In St. John v. Cavalry Portfolio Services, three consumers filed suit against their respective collection agencies, alleging that the agencies sued them to settle debts but never intended to proceed to trial and therefore violated the FDCPA’s provision against debt collectors using any false, deceptive or misleading representation threatening to take action they do not intend to take during the collection of a debt. The consumers said the proof of this violation was that the debt collectors later moved for voluntary dismissal of each suit.

The Seventh Circuit said that filing and then dismissing a lawsuit is not “trickery,” but is instead a process where recovery of a debt may be achieved at different stages, of which trial may not be the most cost-effective or desirable.  “There are many reasons why a litigant may eventually want to dismiss its own case,” the Court noted. “That it ultimately seeks to do so does not provide an adequate basis to broadly discern its original intentions at the time of filing, much less to specifically infer that it did not intend to prove its case at trial.”

In addition, the Court said that since the plaintiffs never claimed that the debt collectors stated their intention to go to trial, their claim was not viable.  Since the consumers owed the debts over which the suits were filed, there was no indication the suits were not filed in good faith.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

The Bankruptcy Court of the Central District of California ruled recently that officers and directors of an insolvent company owe a fiduciary duty to the company’s creditors and that exculpatory provisions in a company’s governing documents do not excuse them from that duty.

The case — In re AWTR Liquidation, Inc. — involved the bankruptcy of Rhythm & Hues Studios Inc., the graphic effects studio that produced the Academy Award-winning film Life of Pi and others.  The studio filed bankruptcy after its three primary directors made a series of poor business investments and allegedly enriched themselves at the expense of the company.

The court found that under California law, directors are protected by the business judgment rule to the extent that they act in good faith and uphold their duty to preserve and enhance the value of the corporation.  However, when directors’ actions breach that duty, the business judgment rule will not apply.

In addition, the court found that directors’ duties to a company’s creditors begin at the onset of insolvency since it is at that time that creditors become “risk bearers” with their claims affected by the decisions of company directors and officers.  The court also said that directors’ duties to creditors are supplemental to their existing duties to shareholders, which the court recognized might cause a conflict when creditors and shareholders have different approaches to risk.  Shareholders may favor business decisions with more risk since there is more reward for them, while creditors typically opt for strategies that minimize risk so their claims are protected.

This recent decision clarifies that in California, once a corporation becomes insolvent, its creditors have standing to enforce claims not only against the corporation but also its officers and directors.

The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to info@glassgoldberg.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.