Consumer Crossroads: Where Financial Services and Litigation Intersect

Earlier this year, this blog reported on the Supreme Court's grant of certiorari in Rotkiske v. Klemm to resolve a split in circuits on the Fair Debt Collection Practices Act's (FDCPA) statute of limitations. This week, in an 8:1 opinion delivered by Justice Thomas, the Court concluded that the one-year statute of limitations in the FDCPA begins to run when the violation occurs, not when the violation is discovered. In doing so, they overturned rulings by the Fourth and Ninth Circuit, which had held the FDCPA's statute of limitations was subject to equitable tolling.

Cities and towns have become increasingly aggressive in their efforts to avoid blight resulting from vacant and foreclosed properties and enforce the state and local sanitary codes. At what point does a valid code violation enforcement effort become an excessive fee or receiver lien, motivated by cities and towns' need to raise revenue? Is there any way for a property owner to challenge a city's or town's $500/day fine for failing to correct minor code violations? A state court in Florida is currently hearing just such a case.

In Taggart v. Lorenzen, the U.S. Supreme Court reviewed the 9th Circuit Court of Appeals' Order, which affirmed the Bankruptcy Appellate Panel's Order vacating civil contempt sanctions against Bradley Taggart's ("Bradley") creditors for violation of a Bankruptcy Court discharge Order. On certiorari to the Court, the central issue was to determine "what the appropriate criteria should be for a Court to hold a creditor in civil contempt for attempting to collect a debt that a discharge order has immunized from collection." And, SCOTUS adopted an objective standard, which creditors should be mindful of going forward.

Yesterday, the United States Supreme Court heard oral argument on appeal from the Fourth Circuit's decision issued in PDR Network, LLC v. Carlton & Harris Chiropractic, Inc. The issue is whether a district court must accept the Federal Communication Commission's (FCC) rule interpreting an "unsolicited advertisement" under the Telephone Consumer Protection Act (TCPA). The district court held that PDR Network, LLC did not violate the TCPA when it faxed an unsolicited advertisement to Carlton & Harris Chiropractic for a free Physicians' Desk Reference. In doing so, the district court declined to apply the FCC's 2006 rule that interpreted an unsolicited advertisement under the TCPA to include fax messages that promote goods or services at no cost. On appeal, however, the Fourth Circuit reversed concluding that the district court should have applied the FCC's rule because the Hobbs Act, which establishes judicial review for final orders of certain federal agencies, requires a party to first challenge an agency rule with the respective agency before challenging the rule in court. The Supreme Court is left to decide whether the district court has authority to hear PDR's challenge to the FCC's rule in its defense of this TCPA lawsuit without any prior agency challenge.

Less than three months after hearing oral arguments in Obduskey v. McCarthy & Holthus LLP, Case No. 17-1307, the United States Supreme Court held, in a 9-0 decision, that a business engaged in nonjudicial foreclosure proceedings is not a "debt collector" under the Fair Debt Collection Practices Act (FDCPA, "the Act"), except for the limited prohibitions set forth in 1692(f)(6). The decision provides helpful guidance to law firms and loan servicers who pursue nonjudicial foreclosures.

As we predicted last year, the United States Supreme Court earlier this week granted Plaintiff's petition for certiorari in Rotkiske v. Klemm to resolve a split in the circuits on whether the statute of limitations for a Fair Debt Collection Practices Act (FDCPA) claim begins when the alleged violation occurred (known as the "occurrence rule") or when the consumer discovers the alleged violation (known as the "discovery rule").

For mortgage servicers and foreclosure firms, yesterday's oral argument before the Supreme Court in Obduskey v. McCarthy & Holthus LLP, U.S. Supreme Court, 17-1307 and the upcoming decision, could be a game changer. At issue: a split in the federal circuits over whether the non-judicial foreclosure of a mortgage constitutes debt collection, as defined by the Fair Debt Collection Practices Act.

In a unanimous decision, the United States Supreme Court held on June 11, 2018 that a pending motion for class certification does not toll the statute of limitations for the filing of a new class action lawsuit by a putative class member. Writing for the majority in China Agritech, Inc. v. Resh, Justice Ruth Bader Ginsburg repeatedly emphasized that the "efficiency and economy of litigation" is not promoted by allowing less than diligent plaintiffs to file a new, but time-barred, class action lawsuit. Clarifying the Court's prior holding in American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974), Justice Ginsburg wrote that "[e]ndless tolling is not the result envisioned by American Pipe."

At the close of a 108 page decision filed in response to motions to dismiss a CFPB enforcement action, Consumer Financial Protection Bureau v. RD Legal Funding, LLC, C.A. No. 17-cv-890, Judge Loretta Preska of the U.S. District for the Southern District of New York (within Second Circuit jurisdiction) granted the motions by concluding the CFPB's structure was unconstitutional. This is significant because the D.C. Circuit had determined en banc earlier this year that the CFPB was constitutional in PHH Corp. v. CFPB.

What does the United States Supreme Court's decision issued earlier this week in Midland Funding, LLC v. Johnson mean for debt collectors? It means that debt collectors may file proofs of claim in a debtor's bankruptcy on time-barred debt without risk of violating the Fair Debt Collection Practices Act (FDCPA). In Johnson, a debt collector filed a proof of claim in bankruptcy court for a debt that was outside the six year statute of limitations, the bankruptcy court dismissed the claim as time-barred, and the debtor filed a separate, subsequent lawsuit arguing that the claim was misleading in violation of the FDCPA. The Eleventh Circuit agreed concluding that filing proofs of claim on time-barred debt amounted to false and misleading conduct.

Over the last ten years, cities like Miami, Florida have experienced a decrease in property tax revenues, an increase in demand for police, fire and other municipal services, and an increase in foreclosures and vacancies, particularly in minority neighborhoods. In what appears to be a response to this environment, the City sued Bank of America and Wells Fargo for violations of the Fair Housing Act, claiming they intentionally issued riskier mortgages on less favorable terms to African-American and Latino customers. According to the City, this discriminatory conduct caused higher foreclosure rates and vacancies among minority borrowers, which in turn lowered property values, diminished property-tax revenues and increased the demand for municipal services to remedy the blight that foreclosures and vacancies generate.

On April 18, 2017, the Supreme Court of the United States heard oral argument on the issue of whether the Fair Debt Collection Practices Act ("FDCPA") extends beyond traditional "debt collectors" to those entities that purchase debts from the original lender after a consumer account is in default, commonly known as "debt buyers." The case, Henson v. Santander Consumer USA, Inc., No. 16-349, on appeal from the United States Court of Appeals for the Fourth Circuit, touches upon the original purpose of the FDCPA in eliminating abusive debt collection practices by debt collectors. The key inquiry for the Court then was to determine whether the Congressional intent behind the Act was indeed to regulate all groups of entities in the debt collection marketplace or, in fact, more limited in scope to just those companies that collect directly or indirectly on behalf of another entity.