Source: https://www.consumerclassdefense.com/
Timestamp: 2019-04-20 23:16:24+00:00

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Recently, the Supreme Court of the United States granted certiorari in the matter of Rotkiske v. Klemm. At issue is whether the discovery rule tolls the statute of limitations under the Fair Debt Collections Practices Act (FDCPA). The controversy is centered on the FDCPA statutory text, “the date on which the violation occurs,” 15 U.S.C. § 1692k(d), and whether such language governs in a dispute or the discovery rule tolls the statute of limitations. The discovery rule holds that the statute of limitations begins when the plaintiff knew or should have known of the facts giving rise to his legal claim. In granting certiorari, the Supreme Court weighs in on a split between the Third Circuit and the Fourth and Ninth Circuits.
The plaintiff-petitioner’s claim arises from a debt collection action that dates back to 2008. The defendant, a third-party debt collector, initially filed suit but failed to properly serve the plaintiff because the defendant attempted service at an address where the plaintiff no longer resided. The defendant later withdrew the suit and refiled in 2009. Unbeknownst to the plaintiff, however, someone who resided at his former address accepted service of the second complaint filed in 2009. After failing to appear to defend himself, the debt collector later obtained a default judgment against the plaintiff. A lien was placed on the plaintiff’s credit report. Years later, upon discovering the lien, the plaintiff sued in the Eastern District of Pennsylvania, alleging that the default judgment was obtained in violation of the FDCPA. The defendant filed a motion to dismiss. In his response, the plaintiff argued that the discovery rule should have tolled the statute of limitations, or, alternatively, that the court should equitably toll the limitations period. The district court eventually dismissed the suit finding that the statutory language controlled, i.e., the limitations period starts “from the date on which the violation occurs.” 15 U.S.C. § 1692k(d). On appeal, the plaintiff challenged only the district court’s holding on the discovery rule issue. After a panel hearing but before issuing an opinion, the Third Circuit ordered an en banc hearing.
The Third Circuit’s en banc opinion affirmed the district court’s holding that the FDCPA’s statutory plain language controlled. Judge Hardiman, writing for the court, relied on TRW Inc. v. Andrews, where the Supreme Court explained that courts must begin statutory analyses by analyzing the text itself and then consider context and structure. See 534 U.S. 19, 28 (2001). Judge Hardiman further noted that the Court in TRW recognized that Congress may “implicitly” exclude a broader discovery rule by “explicitly” including a narrower one. 534 U.S. at 28. Stated differently, the narrow plain language Congress included in the FDCPA (“the date on which the violation occurs”) controlled because it clearly foreclosed the possibility of a broader general discovery rule applying. Additionally, the court observed that the practices forbidden under the FDCPA are apparent when they occur and thus do not support the application of the discovery rule. The Third Circuit left open the possibility that equitable tolling may be appropriate under the FDCPA when there is fraudulent, misleading, or self-concealing conduct. The court, however, did not explore this issue because it was not raised on appeal.
In its Supreme Court petition, the Rotkiske plaintiff points to two cases from the Fourth and Ninth Circuits that contravene the Third Circuit’s reasoning. First, in Mangum, the Ninth Circuit panel held that the discovery rule applied in an FDCPA action. In reaching its conclusion, the Ninth Circuit relied on internal circuit precedent concerning the application of the discovery rule to violations of the Fair Credit Reporting Act (FCRA). That precedent was overturned by the Supreme Court in TRW v. Andrews. The Ninth Circuit explained that, while the Supreme Court’s guidance in TRW did cast doubt on the Ninth Circuit’s earlier decision, the Supreme Court’s rationale did not apply in Mangum, which involved the FDCPA, an entirely different statute from the one at issue in TRW. Furthermore, the Ninth Circuit noted that it could not reject preexisting Ninth Circuit law.
Second, in Lembach, the Fourth Circuit issued a non-binding per curiam opinion that also cited the Ninth Circuit’s Mangum decision. The Fourth Circuit likewise held that the general discovery rule applied in an FDCPA action. In so doing, the Fourth Circuit premised its approach on dicta from TRW – that “lower federal courts generally apply a discovery accrual rule when a statute is silent on the issue.” 534 U.S. at 27 (internal citation omitted). However, the Fourth Circuit stressed the factual circumstances that precluded plaintiffs from acting until they discovered the counterfeit signatures that had enabled debt collectors to foreclose on their home. Because Lembach involved fraud and concealment, the decision rests on a somewhat different footing from those involving a “general” discovery rule. See TRW, 534 U.S. at 27 (citing Holmberg v. Armbrecht, 327 U.S. 392 (1946) and allowing for equitable tolling as to fraud and concealment). Thus, it is not clear whether the Fourth Circuit would apply the discovery rule in an FDCPA case lacking fraud and concealment.
It remains to be seen whether the Supreme Court will adhere to the approach announced in TRW and uphold the Third Circuit’s conclusion. If the Supreme Court deviates from its earlier precedent, the consequences for third-party debt collectors could be far reaching. If the discovery rule applies, third-party debt collectors could see liability arise well beyond the apparent one-year statutory limit because, unlike the FCRA, the FDCPA does not include a statute of repose.
Seyfarth Shaw will continue to monitor developments in this matter.
 Lembach v. Bierman, 528 F. App’x 297 (4th Cir. 2013).
 Mangum v. Action Collection Serv., Inc., 575 F.3d 935 (9th Cir. 2009).
 In a separate dispute centered on the discovery rule applying to FCRA violations, the Supreme Court reversed the Ninth Circuit holding that the discovery rule applied to issues involving the FCRA. The Supreme Court explained that the FCRA was not an area of law that “cries out for application” of the discovery rule and explained that the embedded statute of limitations within the statute precluded application of the discovery rule. See 534 U.S. at 28.
 Although the Rotkiske plaintiff does not rely on this case, the Eighth Circuit has also found that “[t]he Supreme Court did not in TRW invalidate the presumption of reading the discovery accrual rule into federal statutes.” Maverick Transp., LLC v. U.S. Dep’t of Labor, Admin. Review Bd., 739 F.3d 1149, 1154 (8th Cir. 2014).
The FDCPA is intended to “eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses.” 15 U.S.C. § 1692, Congressional Findings and Declarations of Purpose.
In Obduskey v. McCarthy & Holthus LLP, No. 17-1307, 2019 WL 1264579 (U.S. Mar. 20, 2019), the Supreme Court held that a business, such as a law firm, that is principally engaged in the enforcement of a security interest, like non-judicial foreclosure proceedings, is not a “debt collector” under the primary definition of the FDCPA. Rather, the Court held that the law firm at issue came under the ambit of the limited-purpose definition. Entities that meet the primary definition of a debt collector under the FDCPA are subject to a myriad of limitations aimed at protecting consumers.
In reaching its decision, Justice Breyer engaged in a three step statutory analysis of the FDCPA. First, to avoid surplusage, the limited-purpose definition must be read to constrict the primary definition. Next, the Court reasoned that Congress may have chosen to “treat security-interest enforcement differently from ordinary debt collection in order to avoid conflicts with state non-judicial foreclosure schemes.” Finally, the Court held that upon review of the legislative history of the FDCPA, it appears that the limited-purpose definition was a compromise between full inclusion of security interest enforcement and exclusion of the same.
The Court concluded that “in our view, the last sentence does (with its § 1692f(6) exception) place those whose ‘principal purpose … is the enforcement of security interests’ outside the scope of the primary ‘debt collector’ definition, where the business is engaged in no more than the kind of security-interest enforcement at issue here—non-judicial foreclosure proceedings.” By excepting those who principally enforce security interests from the full scope of the FDCPA, the Court also “exclude[d] the legal means required to do so,” including sending pre-foreclosure notices.
If you have any questions regarding this or any related topic please contact the authors, your Seyfarth attorney, or any member of Seyfarth Shaw’s Commercial Class Action Defense or Consumer Financial Services Litigation Teams.
Seyfarth Synopsis: On March 20, 2019, in Frank, et al. v. Gaos, No. 17-961, 2019 WL 1264582 (U.S. Mar. 20, 2019), the U.S. Supreme Court held that the Article III standing preconditions to federal court litigation, as described in Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016), will not be undermined. The ruling is important for any corporate counsel involved in defending class actions and in negotiating the resolution of such litigation.
We previously blogged on the supplemental briefing development before the Supreme Court in Frank v. Gaos, No. 17-961, and now we can report on the Supreme Court’s decision. Commentators had expressed the view that the case would provide the Supreme Court with an opportunity to determine whether cy pres provisions in settlement are appropriate. The Supreme Court’s ruling did not go that far.
In Frank v. Gaos, the Supreme Court has affirmed Spokeo by remanding the case to the U.S. Court of Appeals for the Ninth Circuit without considering whether a class settlement that provides cy pres payments but no money to absent class members is “fair, reasonable, and adequate” under Rule 23(e)(2). The Supreme Court made its remand ruling in an unusual per curiam decision. The Supreme Court reiterated, again, that a federal statutory violation alone does not equate to Article III standing. It remanded because of “a wide variety of legal and factual issues not addressed in the merits briefing before us or at oral argument.” Id. at *3. The Supreme Court opined that Article III standing turns on “whether any named plaintiff has alleged [statutory] violations that are sufficiently concrete and particularized to support standing.” Id.
The stakes on remand are high, of course — a lack of standing means no day at all in federal court.
Litigants should expect federal district courts to conduct an exacting analysis of Article III standing where the allegations in a complaint do not obviously allege concrete monetary damages. Since the existence, or not, of concrete injury may raise “a wide variety of legal and factual issues,” litigants should expect federal district courts to conduct early evidentiary hearings where the complaint allegations appear to raise only technical statutory violations.
Litigants also should expect more lawsuits to be commenced in state court if federal court Article III standing appears weak. Many states do not have constitutions with the same Article III standing precondition to litigation that appears in the U.S. Constitution. Where a claim arises under only federal law, such as breach of fiduciary duty litigation under 29 U.S.C. § 1132(a)(3), defendants should pay much more attention to Spokeo.
Federal agency officials may be under more pressure to vindicate federal statutory rights where Spokeo issues appear in the complaints.
Lastly, the Supreme Court’s ruling sends a signal to the lower federal courts that Spokeo provides a very real way for the courts to opt out of federal court litigation. Declining jurisdiction may be preferable to messy litigation that often, these days, present strong partisan political controversies with no easy resolution.
It thus makes eminent sense for litigants to consider, again, what Spokeo held — a plaintiff seeking to invoke federal jurisdiction must show: (1) an injury in fact (2) caused by the defendant’s conduct that is (3) redressable by a favorable federal court decision.
The Federal Rules of Appellate Procedure are generally liberal and allow the appellate courts a great deal of discretion: for example, FRAP 2 allows a Court of Appeals to “suspend any provision of these rules in a particular case and order proceedings as it directs, except as otherwise provided in Rule 26(b).” As the Supreme Court emphasized on Tuesday in Nutraceutical Corp. v. Lambert, that final caveat is important.
Troy Lambert sued Nutraceutical, a dietary supplement company, for failing to properly label products. He sued on behalf of a class of similarly situated consumers, and the federal district court initially certified a class. However, Nutraceutical successfully moved to decertify after discovery. Ten days later, during a status conference, Lambert informed the court that he intended to move for reconsideration. The court ordered him to submit the motion by ten days after the conference, which he did. The court denied his motion, at which point Lambert petitioned the Ninth Circuit for permission to file an interlocutory appeal of both the decertification order and the denial of reconsideration.
Nutraceutical objected that Lambert’s petition was outside the permissible time to file a petition. At the time, FRCP 23(f) allowed the appellate court to “permit an appeal” of an order denying class cert “if a petition for permission to appeal is filed . . . within 14 days after the order is entered.” (The language has since changed slightly, but the substance of the rule is the same.) Lambert’s petition was not filed until several months after the decertification order was entered. Nonetheless, the Ninth Circuit held that it could grant Lambert’s petition because, first, the FRCP time limit was non-jurisdictional, and second, Lambert was entitled to equitable tolling of the time because he had been diligent in seeking relief, first from the district court and then from the appellate court.
Nutraceutical appealed the timeliness issue, and the Supreme Court reversed. Justice Sotomayor, writing for a unanimous court, agreed with the Ninth Circuit that the rule was not jurisdictional. But, the Court said, the time to file is mandatory and cannot be tolled. The distinction between mandatory and non-mandatory deadlines, the Court noted, depends on the “text of the rule.” Even a “deadline . . . phrased in an unqualified manner” may be susceptible to equitable tolling if the text does not clearly preclude tolling.
Does that spell the end of the road for Lambert or other litigants who pursue a timely motion for reconsideration but fail to timely appeal a Rule 23 order? No, it does not for two reasons.
First, if the party moves for reconsideration (at least within 14 days of the original order), that motion does not toll the time to petition for an appeal, but it can make “an otherwise final decision of a district court not final,” which “affects the antecedent issue of when the 14-day limit begins to run.” The Court also left open the possibility, to be considered by the circuit court on remand, that a timely motion for reconsideration could have the same effect even if not filed within the 14-day window.
Second, Lambert argued, and the Court remanded for the lower court to consider, that the denial of reconsideration was also “an order granting or denying class-action certification,” with its own 14-day window for a petition for permission to appeal.
Where does that leave litigants? On the one hand, the Court’s unanimous ruling draws a clear line in the sand: there is simply no equitable tolling available when it comes to seeking permission to appeal. Thus, in theory, litigants ought to proceed straight to seeking an appeal of an unfavorable ruling without waiting to see if a better result can be obtained on reconsideration (or, at the very least, ought to pursue them in tandem). On the other hand, the opinion creates some uncertainty as to whether a litigant like Lambert can use reconsideration to get around the deadline to seek appeal, lack of tolling notwithstanding.
On January 8, 2019, Judge Grasz, writing for an Eighth Circuit panel, reiterated the need for district courts to determine Article III standing before approving class settlements. The appeal stemmed from a putative class action wherein U.S. District Court Judge Nanette Laughrey decided to enforce the parties’ tentative settlement agreement without first deciding the standing issue.
Plaintiff filed the class action suit in Missouri state court in February 2016 alleging that SC Data Center (SC Data) had committed violations of the Fair Credit Reporting Act (FCRA). SC Data later removed the case to federal court. The parties reached a tentative settlement agreement in May 2016, just days prior to the Supreme Court’s decision in Spokeo v. Robins, which held that the Ninth Circuit failed to determine Article III standing prior to deciding a FCRA claim. In July 2016, SC Data unsuccessfully moved to dismiss the class action citing plaintiff’s lack of standing. Judge Laughrey held that the named plaintiff’s standing to bring the FCRA claim had no bearing on her standing to enforce the parties’ class-action settlement encompassing unnamed plaintiffs. Thereafter, the parties submitted their class-action settlement agreement, and Judge Laughrey later approved it.
The Eighth Circuit rejected plaintiff’s argument that Judge Laughrey need not have assessed the standing issue because SC Data cannot avoid a settlement agreement based on a change in law that might have affected its settlement calculus. Instead, the Court reasoned that Spokeo was not a substantive change in law that affected the parties’ settlement strategy but was merely a reiteration of the law of standing. The Court vacated Judge Laughrey’s approval of the settlement agreement and remanded the case for determination of the standing issue.
This decision highlights the need for clients to examine whether standing exists before agreeing to a class action settlement. Furthermore, the Eighth Circuit opinion may make it more difficult for parties to reach class action settlements when there is a standing issue, particularly if a court determines that standing is required for each putative class member. Here, however, the Eighth Circuit did not address the issue of whether standing is required for each, individual putative class member.
Seyfarth Shaw continues to monitor the developments involving class actions and will keep its readers apprised of updates.
 Robertson v. Allied Sols., LLC, 902 F.3d 690, 698 (7th Cir. 2018).
In a matter of first impression, the Fifth Circuit upheld a dismissal by the Northern District of Texas holding that a lender cannot be held vicariously liable for a loan servicer’s purported violation of the Real Estate Settlement Procedures Act (“RESPA”). In upholding the decision, the Court held that the borrower failed to plead an agency relationship, and that, even if an agency relationship existed, the lender could not be held vicariously liable as a matter of law for the servicer’s alleged failure to comply with RESPA. In reaching its decision, the Fifth Circuit relied upon a plain reading of RESPA, which imposes duties only on loan servicers and restricts liability to those who fail “to comply with any provision” of RESPA.
There is presently a split of authority nationally at the district court level as to the viability of the vicarious liability theory under RESPA. As always, we will continue to monitor and report on key developments in this area.
Seyfarth Synopsis: On November 6, 2018, the United States Supreme Court signalled that the Article III standing preconditions to federal court litigation, as described in Spokeo, Inc. v. Robins, 136 S .Ct. 1540 (2016), are not likely to be diminished any time soon. The Court did so by requesting supplemental briefing on the application of Spokeo after oral argument had occurred.
In Frank v. Gaos, No. 17-961, awaiting decision by the Court, the plaintiffs alleged that Google violated the Stored Communications Act (SCA), 18 U.S.C. § 2710 et seq., by disclosing their search terms, thereby allowing third parties to “reidentify” them and connect them to particular searches. The plaintiffs reached a class action settlement with the defendant in which it agreed to pay $8.5 million into a settlement fund. After accounting for attorneys’ fees and named plaintiff awards, the parties agreed that the money would be distributed to charities (also known as cy pres payments). Two individuals objected that the settlement fund should be distributed to class members rather than to charities. The objections were overruled. The objectors then successfully petitioned for certiorari. The United States filed an amicus brief before oral argument.
Following oral argument, the Court asked the parties and the United States to file supplemental briefing addressing “whether any named plaintiff has standing such that the federal courts have Article III jurisdiction over this dispute.” On November 30, 2018, the United States filed its supplemental brief. The United States took the position that the plaintiffs lack Article III standing, and for that reason, have no federal forum in which to raise their claim.
Spokeo is the backdrop to the unusual request for supplemental briefing and the position of the United States. Spokeo held that a plaintiff seeking to invoke federal jurisdiction must show: (1) an injury in fact (2) caused by the defendant’s conduct that is (3) redressable by a favorable federal court decision. While an injury in fact may exist solely by virtue of statutes creating legal rights, Article III jurisdictional requirements still require a concrete injury.
The United States now argues that plaintiffs in Frank v. Gaos do not allege Article III standing because Congress has not conveyed any express judgment that their alleged injury should provide a basis to sue. The government says that the “search term injury” does not have a foundation in tort law, such as libel or slander law. The government also argues that the allegations about potential reidentification are too speculative to create standing.
1. The Supreme Court remains very interested in whether a federal court plaintiff has a sufficiently concrete injury to earn a federal forum, even if she can show a technical statutory violation.
2. Second, while Congress may impose laws on tech companies using web site data, a consequent inquiry will be — Can a plaintiff show a concrete injury that would allow a lawsuit in federal court? Without a private right of action that allows suit, the data protection law may lack teeth.
3. Third, Frank v. Gaos says nothing about state court jurisdiction. Expect more technical statutory violation cases to be brought in state court, provided standing exists under the state constitution. See, for example, our discussion here. This in turn may make it harder to develop uniform law throughout the Unites States on important social issues.
4. Fourth, the Supreme Court’s focus on Article III standing may be part of a broader push by the Court to limit the role of the federal courts in resolving conflict in the hyper-partisan political times in which we now live. In other words, the Supreme Court may be saying that we live in an federal judicial era where less is more when it comes to federal judicial intervention.

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