Author Archive for Allan Enriquez

7th Cir. Upholds Dismissal of Unlawful Data Retention Claim Under Spokeo

The U.S. Court of Appeals for the Seventh Circuit recently held that although a consumer’s suit against a cable service provider for failing to destroy his personal information was a substantive violation of the federal Cable Communications Policy Act, it failed to allege a concrete injury sufficient to confer standing.

A copy of the opinion in Gubala v. Time Warner Cable, Inc. is available at:  Link to Opinion.

A consumer subscribed to a cable service and provided the cable service operator with his date of birth, home address, home and work telephone numbers, social security number, and credit card information. Two years later, he canceled his subscription and eight years after that, upon inquiring, learned that all the information he had given the cable service when he subscribed a decade earlier remained in the company’s possession in apparent violation of federal law.

The federal Cable Communications Policy Act (“Cable Act”) 47 U.S.C. § 551(e), provides that a cable operator “shall destroy personally identifiable information if the information is no longer necessary for the purpose for which it was collected and there are no pending requests or orders for access to such information.”  47 U.S.C. § 551(e).

Section 551(f)(1) of the Cable Act provides that “any person aggrieved by any act of a cable operator in violation of this section may bring a civil action in a United States district court,” however the consumer presented neither allegation nor evidence of having been “aggrieved” by the cable operator’s violation of section 551(e).

The consumer filed a putative class action lawsuit against the cable operator seeking injunctive relief for alleged violations of 47 U.S.C. § 551(e).

The district court dismissed the suit on the ground that the consumer lacked standing. As an alternative ground for dismissal, the trial court ruled that even if the plaintiff had standing, he failed to state a claim upon which relief could be granted.  The trial court also held that the consumer could not be given an injunction, the only remedy he sought, because he had an adequate remedy at law — namely damages, authorized by section 551(f) of the Cable Act, which he had failed to seek.

The consumer appealed to the Seventh Circuit.

As you may recall, Article III of the U.S. Constitution authorizes the federal judiciary only to decide cases or controversies.  Such a case is not, however, justiciable under federal law unless the plaintiff has a “concrete” interest in prevailing in the case, for such an interest is the sine qua non of “standing to sue.”

The consumer argued that the Supreme Court of the United States’ recent admonishment that “Article III standing requires a concrete injury even in the context of a statutory violation,” applies only to violations of statutory rights that can be categorized as “procedural” rather than “substantive.” Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1549 (2016).

The Seventh Circuit disagreed. The Court noted that, as here, a failure to comply with a statutory requirement to destroy information could be substantive, yet need not cause a concrete injury.  The Court held that although the consumer might be able to prove a violation of the Cable Act, he had not alleged any plausible risk of harm substantial enough to be deemed “concrete” as a result of the violation. See Spokeo, supra, at 1549.

The Seventh Circuit assumed for the sake of argument that the cable operator had violated the statute by failing to destroy the consumer’s personally identifiable information, as alleged.  However, the Court observed that although there was a risk of harm, the consumer had not alleged that the cable operator had ever given away or leaked or lost any of his personal information.

Accordingly, the Seventh Circuit reasoned, the consumer only had a claim that the violation of the Cable Act made him feel aggrieved.  The Court held that the consumer could not bring a claim for damages because the damages could not possibly be quantified and were not alleged.

As for injunctive relief in lieu of damages, the Court noted that having not alleged that he was aggrieved by the cable operator’s statutory violation the consumer could not establish irreparable harm.

The consumer further contended that a violation of section 551(e) was a violation of a right of privacy. However, again the Seventh Circuit disagreed, observing that although violations of rights of privacy are actionable, the consumer did not allege a violation of his privacy because there is no indication that the cable operator had released, or allowed anyone to disseminate, any of his personal information.

The consumer’s final argument was that his personal information had economic value which the cable operator had deprived him of by retaining it.

The Seventh Circuit again disagreed, dismissing this argument as gibberish, and observing that the cable operator did not take the consumer’s personal information away from him.

Additionally, the Court noted that the duty of a cable provider to destroy a subscriber’s personal information is qualified by the reference in section 551(e) to section 551(d), which authorizes disclosure of such information if “necessary to render, or conduct a legitimate business activity related to, a cable service or other service provided by the cable operator to the subscriber … [or if] made pursuant to a court order authorizing such disclosure, if the subscriber is notified of such order by the person to whom the order is directed.” 47 U.S.C. § 551(d).

The Court explained that these disclosure provisions presuppose the right and indeed duty of the cable operator to retain rather than destroy subscriber personal information for specified reasons, which qualified the cable operator’s duty of destruction invoked by the consumer.

In sum, the Court held that the absence of any allegation — let alone evidence — of any concrete injury inflicted or likely to be inflicted on the consumer as a consequence of cable operator’s continued retention of his personal information precluded the relief sought and required that it affirm the district court’s judgment dismissing the consumer’s suit for lack of standing.

Fla. App. Court (5th DCA) Holds Noncompliance with FHA Requirement Need Not Be Pleaded as Affirmative Defense in Foreclosure

The District Court of Appeal of Florida, Fifth District, recently ruled that a specific denial that a mortgagee complied with HUD’s pre-foreclosure regulations that were incorporated into the mortgage was a denial of a condition precedent to foreclosure that shifted the burden to the mortgagee to prove compliance.

A copy of the opinion is available at:  Link to Opinion.

A borrower obtained a Federal Housing Administration (FHA) mortgage loan.  The note specifically incorporated federal HUD regulations, including 24 C.F.R. § 203.604(b).  That section requires, among other things, that a lender have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting, prior to commencing foreclosure.

The mortgagee filed a complaint to foreclose on the FHA mortgage loan.  In her answer, the borrower denied the mortgagee’s allegation that it performed all conditions precedent to foreclosure, specifically the obligation to provide face-to-face counseling under 24 C.F.R § 203.604(b).

At trial, the mortgagee called one witness, a research officer for the mortgagee.  Through the testimony, the mortgagee introduced and the trial court admitted into evidence the original note, the original mortgage, and the loan payment history.

After the mortgagee rested, the borrower moved for involuntary dismissal, arguing that the mortgagee failed to comply with 24 C.F.R. § 203.604 before filing the complaint.  The mortgagee argued that the borrower had to establish the mortgagee’s alleged noncompliance with section 203.604 as an affirmative defense.  The trial court agreed with the mortgagee.

The borrower recalled the mortgagee’s witness who testified that she did not know whether the borrower refused to participate in a face-to-face interview.  The witness testified that she did not have information on the interview.  However, she testified that it was the mortgagee’s practice to have face-to-face interviews on these loans.

The borrower testified that she would have participated in an interview, but the mortgagee never offered her that opportunity.  After the borrower rested, she renewed her motion for involuntary dismissal.  The trial court denied the involuntary dismissal and granted judgment of foreclosure for the mortgagee.  The borrower appealed.

On appeal, the Fifth District noted that a plaintiff may plead a general satisfaction of all conditions precedent, but Florida Rule Civil Procedure 1.120(c) requires a defendant’s corresponding denial of performance or occurrence to be made specifically and with particularity.  Moreover, the Court noted that under Florida law a specific denial of a general allegation of the performance or occurrence of a condition precedent shifts the burden to the plaintiff to prove the allegations concerning the subject matter of the specific denial.

The Court determined that a denial as to a condition precedent is not an affirmative defense, which relates only to matters of avoidance.  Rather, a denial as to a condition precedent is a special form of denial that must be pleaded with specificity.  The Court explained that the most common condition precedent in the mortgage foreclosure context is paragraph 22, which requires the lender to send a default letter to the borrower before foreclosure.

The Fifth District acknowledged that no Florida court had held that 24 C.F.R. § 203.604 constitutes a condition precedent to foreclosure.  However, the Fifth District considered the issue in Diaz v. Wells Fargo Bank, N.A., 180 So. 3d 279 (Fla. 5th DCA 2016).  There, the defendants specifically denied in their answer that the lender complied with all conditions precedent to foreclosure, including section 203.604.  However, the mortgage in Diaz did not specifically incorporate the HUD regulations.  Consequently, the Diaz court held that when it is unclear whether alleged condition precedent applies, the burden is on the party asserting the existence of the condition precedent to establish their applicability.

The Fifth District explained that, unlike Diaz, the borrower’s note and mortgage specifically incorporated HUD regulations, including the face-to-face interview requirement as a condition precedent to commencing foreclosure.

The Court found no meaningful reason to treat compliance with 24 C.F.R. § 203.604 in connection with an FHA mortgage differently than compliance with paragraph 22 in a standard mortgage, which the Florida courts had determined is a condition precedent.

The Fifth District was satisfied that the borrower specifically denied in her answer that the mortgagee complied with all conditions precedent, stating that the mortgagee did not engage in a face-to-face interview as mandated by 24 C.F.R. § 203.604.  This, the Court held, shifted the burden back to the mortgagee to prove at trial that it complied with the section.

The Fifth District determined that the mortgagee wholly failed to meet its burden, providing no evidence that it engaged in a face-to-face interview before filing its foreclosure complaint.  The Court also noted that the mortgagee additionally failed to demonstrate that any of the enumerated exceptions to the face-to-face interview requirement applied.

Accordingly, the Fifth District reversed and remanded with instructions to enter an involuntary dismissal.

11th Cir. Holds CAFA Jurisdiction Remains Even When Class Claims Are Dismissed Before Certification

The U.S. Court of Appeals for the Eleventh Circuit recently held that federal courts that have original subject matter jurisdiction over state law claims under the federal Class Action Fairness Act retain that jurisdiction even when the class claims are dismissed before the class is certified.

A copy of the opinion is available at:  Link to Opinion.

An FBI investigation found evidence that some employees of a fuel supplier that operates the largest chain of truck stops in the United States engaged in a conspiracy to defraud the supplier’s purchasers. One purchaser filed a putative class action on behalf of itself and others similarly situated in federal court against the fuel supplier.

The purchaser brought the following state and federal law claims: (1) violations of 18 U.S.C. § 1962(c) for racketeering; (2) violation of 18 U.S.C. § 1962(d) for conspiracy to commit racketeering; (3) breach of contract under state law; (4) deceptive trade practices in violation of state law; (5) unjust enrichment under state law; (6) fraudulent misrepresentation under state law; (7) negligent misrepresentation under state law; and (8) suppression of the proper discounts owed to the class members under state law.

The purchaser based federal subject matter jurisdiction over all eight claims under CAFA, 28 U.S.C. § 1332(d).  The purchaser also claimed federal question jurisdiction under 28 U.S.C. § 1331 for the federal racketeering claims, diversity jurisdiction under 28 U.S.C. § 1332(a), and supplemental jurisdiction under 28 U.S.C. § 1367.

The district court dismissed both of the purchaser’s federal racketeering claims and its state law claims for fraudulent misrepresentation, negligent misrepresentation, suppression of discounts, and deceptive practices.  This left the breach of contract and unjust enrichment claims, asserted both individually and on behalf of a putative class.

While this case was pending, a rival class action suit reached a court approved settlement in the U.S. District Court for the Eastern District of Arkansas.  The parties in this matter acknowledged that the Arkansas settlement would deprive the purchaser of standing to pursue its class claims.  Consequently, the district court dismissed all class claims in the complaint.  At this point, solely the individual breach of contract and unjust enrichment claims survived.

Meanwhile, six other separate suits were pending against the fuel supplier in five other federal judicial districts brought by parties who had opted out of the nationwide Arkansas class settlement and who were making similar claims as the corporation.  The six suits were consolidated with the purchaser’s suit into one multidistrict-litigation (“MDL”) proceeding in the U.S. District Court for the Eastern District of Kentucky.  Subsequently, the MDL court became aware of information that deprived it of diversity jurisdiction.  Without deciding jurisdiction under CAFA, the MDL court remanded this case to the Alabama district court.

On remand, the purchaser moved to dismiss its remaining claims without prejudice in order that it could refile in Alabama state court.  The district court dismissed the claims without prejudice.  The fuel supplier appealed.

As you may recall, under CAFA, a federal trial court has original jurisdiction over a putative class action if the amount in controversy exceeds $5 million as aggregated from the claims of the individual class members, the suit is brought as a class action for a proposed class with at least 100 members, and any member of the class is a citizen of a state different from any defendant.

The Eleventh Circuit examined its ruling in Vega v. T-Mobile USA, Inc., 564 F.3d 1256 (11th Cir. 2009), a case removed from state to federal court.  There, the Court found that a failure to certify a class does not divest the federal courts of subject matter jurisdiction under CAFA.  The Court reasoned that “‘jurisdictional facts are assessed at the time of removal; and post-removal events (including non-certification, de-certification, or severance) do not deprive federal courts of subject matter jurisdiction.'”

The Eleventh Circuit noted that every circuit court since Vega to consider the question has held that post-removal events do not oust CAFA jurisdiction.  In fact, the reasoning in Vega was explicitly adopted by the U.S. Court of Appeals for the Seventh Circuit in Cunningham Carter Corp. v. Learjet, Inc., 592 F.3d 80 (7th Cir. 2010).

The Eleventh Circuit clarified that a case under CAFA can be dismissed for lack of jurisdiction if those claims contain frivolous attempts to invoke CAFA jurisdiction.  However, the Eleventh Circuit noted, in these cases, the federal court did not lose CAFA jurisdiction, but rather the court never had jurisdiction in the first place.

Next, the Eleventh Circuit addressed whether there is a different result in this matter because the purchaser filed directly in federal court under CAFA but wished to refile in state court.

The Court explained that there was a policy distinction between removal cases and cases initially filed in federal court.  The Court cautioned that in removal cases there were concerns about forum manipulation that dictate against a plaintiff’s post-removal amendments to affect jurisdiction.  As a result, the Eleventh Circuit noted, a court should guard against a plaintiff whose case was removed to federal court and who then amends its pleadings to manipulate its way back into state court.

On the other hand, the Eleventh Circuit explained that there were no forum manipulation concerns when the plaintiff chooses a federal forum and then pleads away jurisdiction through amendment.  In the situation where a plaintiff files a complaint in federal court and then voluntarily amends the complaint, courts should look to the amended complaint to determine jurisdiction.

However, the Eleventh Circuit distinguished this case from those where a plaintiff files in federal court and amends out of CAFA.  The parties in this action did not suggest any action by the purchaser that divested the federal courts of CAFA jurisdiction.  Rather, the purchaser argued that the district court’s dismissal of the class claims after the settlement in the Arkansas case destroyed CAFA jurisdiction.

However, the Eleventh Circuit noted that the Arkansas settlement occurred after the corporation filed its complaint.  Moreover, the Court noted, there was no evidence that the complaint was frivolous or deficient under CAFA at the time it was filed.

The Eleventh Circuit found no basis for distinguishing cases originally filed in federal court under CAFA from those removed to federal court when the post-filing action that did away with the class claims is not an amendment to the complaint.   Accordingly, the Court held that CAFA continued to confer original federal jurisdiction over the purchaser’s remaining state law claims in the suit.

Last, the Eleventh Circuit did not agree with the trial court’s decision to analyze supplemental jurisdiction because supplemental jurisdiction has a role in CAFA cases only in those that have state-law claims that were never subject to CAFA jurisdiction.  Here, there is no dispute that all eight federal and state claims were properly pleaded as CAFA claims.  Consequently, the trial court had original jurisdiction over all eight claims.

Accordingly, the Eleventh Circuit reversed the trial court’s dismissal and remanded for further proceedings.

2nd Cir. Rules Successful Offer of Judgment Mooted TCPA Putative Class Action

The U.S. Court of Appeals for the Second Circuit recently held in a non-precedential opinion that a consumer, in the circumstances of this case, did not have standing to bring putative class action claims after entry of judgment in his favor on his individual claims pursuant to the defendants’ offer of judgment under Rule 68 of the Federal Rules of Civil Procedure.

A copy of the opinion in Bank v. Alliance Health Networks, LLC is available at:  Link to Opinion.

A consumer filed an individual and putative class action alleging that several companies violated the federal Telephone Consumer Protection Act , 47 U.S.C. § 227, and New York’s General Business Law, § 399-p.

The district court dismissed the consumer’s putative class action claims for a lack of subject matter jurisdiction after the entry of judgment in his favor pursuant to an offer of judgment under Rule 68.  The consumer appealed.

The Second Circuit began its analysis by addressing its prior ruling in Tanasi v. New Alliance Bank, 786 F.3d 195 (2d Cir. 2015).  There, the Second Circuit, contrary to the opinion of other circuits, held that an unaccepted offer of settlement or judgment, on its own, will not moot a plaintiff’s claims.  However, any individual claims are rendered moot where a judgment has been entered and plaintiff’s claims have been satisfied. Subsequently, the Supreme Court of the United States in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016), came to the same conclusion as the Second Circuit.

The Second Circuit noted that it had not addressed the issue of whether, in all cases, the rendering moot of a plaintiff’s individual claims undermines the plaintiff’s standing to pursue claims on behalf of a putative class.  In Tanasi, the Second Circuit explicitly left open the question of whether unresolved class action claims can ever provide an independent basis for justiciability.  Ultimately, the Court decided not to reach this question here because the consumer did not have any connection to a “live claim of his own” or any cognizable interest in pursuing the class claims.

The Second Circuit cited Campbell-Ewald for the rule that Article III limits federal court jurisdiction to cases and controversies at all stages of review, not merely at the time the complaint is filed.  The Court then distinguished the effect of a putative and a certified class.

The Second Circuit determined that although a certified class may obtain independent status for purposes of standing, where the individual claims of the putative class representative are rendered moot prior to certification, in general, the entire action becomes moot.  Consequently, the Court held that because the consumer was the sole individual representative for the putative class, once his claim was no longer live, no plaintiff remained in a position to pursue the class claims.

The Court acknowledged that in certain circumstances the rendering of a named plaintiff’s individual claim as moot will not remove the basis for the associated class action.  However, the Court determined that none of those circumstances applied to the consumer.  For example, the Second Circuit examined the relation back doctrine, which occasionally allows a court to review a class certification decision even after a plaintiff’s individual claims have been rendered moot.  But that line of cases was inapplicable here because there was no class certification decision or any other reason to link the consumer’s once-live claim to the now-independent class claims.

The Second Circuit then rejected the consumer’s argument that his expectation of an incentive reward as representative of the putative class gave him a personal stake in the class litigation.

The Court noted that standing requires that a plaintiff allege a concrete injury that creates a legally protected interest in pursuing the litigation.  The Court determined that the consumer’s interest in a potential incentive award was merely a purely hypothetical possibility of recovery that did not meet the standing requirements, because an incentive reward is not guaranteed but rather solely within the discretion of the district court after a class is certified and recovery occurs.

Moreover, in this matter there was never a determination as to whether there might be a cognizable class in this case, as he never moved for class certification.  Consequently, the Court held that the consumer did not meet the requirements for standing.

Accordingly, the Second Circuit affirmed the judgment of the trial court.

Fla. Fed. Court Holds Servicer Could Not Invoke Jury Waiver in Mortgage

The U.S. District Court for the Middle District of Florida recently held that a mortgage servicer did not have standing to invoke a jury trial waiver in a mortgage when the servicer was not a party to the mortgage.

A copy of the opinion in Shallenburg v. PNC Bank, NA is available at:  Link to Opinion.

The borrowers entered into a mortgage loan agreement.  The borrowers alleged that the mortgage servicer placed at least 94 telephone calls to them seeking to collect money owed under the mortgage.  The servicer was not a party to the mortgage, but the borrower alleged that the servicer was a creditor under the Florida Consumer Collection Practices Act, Florida Statutes § 559.55(5).

The borrowers sued the servicer alleging that it violated provisions of the FCCPA and the federal Telephone Consumer Protection Act, 47 U.S.C. §227(b)(1)(A).  The borrowers demanded a jury trial.

The mortgage contained a waiver that stated:  “Borrower hereby waives any right to a trial by jury in any action, proceeding, claim, or counterclaim, whether in contract or tort, at law or in equity, arising out of or in any way related to this Security Instrument or the Note.”  The servicer moved to strike the jury demand arguing that the language of the mortgage prohibits a jury trial.

The District Court first examined whether the servicer had standing to enforce the jury trial waiver in the mortgage as a non-party to the contract.  The Court noted that borrowers cited three Southern District of Florida cases for the position that the servicer lacks standing to invoke the clause, among them Williams v. Wells Fargo Bank., 2011 WL 4901346 (S.D. Fla. Oct. 14, 2011).  There, the court denied a servicer’s motion to strike a jury demand based on a mortgage jury trial waiver because the servicer was not party to the mortgage.

The District Court then noted that the servicer relied on cases that did not squarely address the issue of whether non-parties have standing to invoke jury trial waivers contained in a mortgage.  Consequently, the Court found that the servicer, as a non-party to the mortgage contract, did not have standing to invoke the jury trial waiver in the mortgage.

The Court then examined whether the servicer had standing to invoke the mortgage clause as a result of its status as a creditor.  The Court was not satisfied with the mere allegation in the complaint that the servicer was a creditor.  The Court noted that the servicer did not allege any facts or supply any documentation affirming this assertion.  More important to the Court, the servicer did not present any legal support for its conclusion that creditors are entitled to invoke a jury waiver in a mortgage.

Considering the historical importance of jury trials, and the general policy of “indulging every reasonable presumption against waiver,” the District Court held that the servicer failed to meet its burden in showing that the borrowers’ demand for jury trial should be stricken.

Based on this analysis, the Court did not have a need to address the issue of whether the borrowers’ TCPA and FCCPA claims against the servicer fell within the scope of the jury trial waiver.

Accordingly, the District Court denied the servicer’s motion to strike the borrowers’ demand for jury trial.

11th Cir. Holds Bank’s Failure to Stop Theft of Deposit Funds Could Constitute ‘Aiding and Abetting’

The U.S. Court of Appeals for the Eleventh Circuit recently held that a noncustomer pleaded sufficient facts to bring state law negligence and fraud causes of action against a bank when a bank customer engaged in the fraud.

In so ruling, the Court held that “[b]ecause banks do have a duty to safeguard trust funds deposited with them when confronted with clear evidence indicating that those funds are being mishandled, a bank’s inaction — that is, its failure to stop the theft of such trust funds — can constitute substantial assistance” sufficient to state a claim for “aiding and abetting fraud” against a bank.

A copy of the opinion is available at:  Link to Opinion.

This action arises from a scheme in which the bank’s customer stole $750,000 from a business investor.  The investor alleged that he was defrauded by the bank customer in a scheme involving depositing funds in an escrow account at the bank.  The bank customer allegedly set up a company for individuals to deposit money into the company’s escrow accounts with the pretense that the funds would be used to secure loans from global banking institutions and underwriters.  Allegedly, the bank customer simply used the deposited funds to pay for the company’s operating expenses and personal expenses.

The investor filed a first amended complaint as a matter of right.  The bank moved to dismiss the first amended complaint for failure to state a claim.  The investor opposed the motion to dismiss and sought leave to file a second amended complaint with additional allegations.

In the proposed second amended complaint, the investor asserted state law causes of action against the bank for negligence, gross negligence, aiding and abetting fraud, and aiding and abetting conversion.  Specifically, in his proposed second amended complaint, the investor set forth additional allegations that the bank’s vice president who prepared the paperwork to open the company’s escrow accounts permitted the customer to name the account as an escrow account even though account had not complied with the bank’s procedures for opening an escrow account.

The investor also alleged that several months after opening the account, the bank’s vice president wrote a letter on the bank’s letterhead representing that the bank customer’s company’s “[e]scrow account” had “deposits in a business checking and savings account in the seven digit amounts” when in fact the total balance in all the company’s accounts with the bank at that time was less than $100,000.

The investor’s allegations also indicated that the bank customer paid off the bank vice president for supporting his fraudulent acts.  The investor alleged that the customer told an associate that he had loaned a bank employee $100,000 and that the customer paid the vice president $100,000 several months after she opened the company’s accounts.  The customer allegedly did not pay the bank vice president directly; instead, the company transferred $100,000 from an account with the bank to the bank account of an entity the vice president controlled.

The bank opposed the investor’s motion for leave to file a second amended complaint, arguing that the allegations were insufficient to establish that the bank or the vice president knew about the fraudulent scheme or provided substantial assistance to the bank customer.  While the motion to dismiss the first amended complaint was pending, the investor pursued discovery in the case.

The trial court granted the bank’s motion to dismiss, dismissing the first amended complaint with prejudice.  The trial court also denied as futile the investor’s motion for leave to file the proposed second amended complaint.

The investor filed a motion for reconsideration of the court’s order dismissing his claims with prejudice and denying leave to amend his complaint. In the motion to reconsider, the investor set forth additional allegations based on facts he learned through discovery to support his contentions that (1) the bank vice president knew that the company was supposed to be holding the investor’s money in escrow; (2) the bank vice president assisted the bank customer in the fraudulent scheme; and (3) the bank customer paid the vice president $100,000 in exchange for her assistance.

The new allegations stated that the bank customer’s company employees met with the bank vice president at her office at the bank, showed her a copy of the escrow agreement between the investor and the company, and told her that the company would be holding the investor’s money in escrow.

In addition, the investor now alleged that the bank vice president assured company employees before the investor wired money to the bank that the company would hold his money in the company escrow account with the bank.  Allegedly, the bank vice president continued to tell the company employees that the investor’s money was being held in the escrow account even though the bank customer had taken the money.  The investor also alleged that the bank vice president tried to prevent a bank employee from investigating the company’s escrow account in connection with the letter describing the account’s funds.

The trial court denied the investor’s motion to reconsider, determining that even considering the new allegations, the investor failed to establish that the bank or the bank vice president knew of, or substantially assisted, the bank investor’s fraud.  The investor appealed the trial court’s orders.

The bank subsequently moved to recover its attorney’s fees under Florida’s offer of judgment statute.  The district court granted the bank’s motion and the bank appealed the award.  A consolidated appeal followed.

On appeal, the Eleventh Circuit determined that the central issue in the appeal was whether the trial court erred in denying the investor’s motion to reconsider, thereby preventing him from amending his complaint.

As you may recall, in Florida, a negligence action requires that a plaintiff establish that the defendant owed a duty, that the defendant breached the duty, and that this breach caused the plaintiff damages. Consequently, the Court had to determine whether the allegations were sufficient to establish that the bank owed a duty to the investor, a noncustomer.

The Eleventh Circuit noted that Florida, like other jurisdictions, recognizes as a general matter that a bank does not owe a duty of care to a noncustomer that has no direct relationship with the bank.  However, the Court explained that an exception to this rule is triggered when a fiduciary relationship exists between a customer of the bank and the noncustomer, the bank knows or ought to know of the fiduciary relationship, and the bank has actual knowledge of its customer’s misappropriation.

The Court held that the investor stated a claim for relief with respect to the negligence cause of action, as the investor’s allegations were sufficient to establish that a fiduciary relationship existed between the investor and the company because the investor alleged that the company held the money in escrow for the investor.

Next, the Eleventh Circuit determined that the investor’s allegations were sufficient to infer that the bank knew of the fiduciary relationship between the investor and the company, a bank customer.  Specifically, the investor alleged that company employees met with the bank vice president at her office at the bank, showed her a copy of the escrow agreement between the investor and the company, and told her that the company would be holding the investor’s money in escrow.

Moreover, the Eleventh Circuit determined that the bank vice president’s knowledge should be imputed to the bank because under Florida law, the knowledge an agent or employee acquires within the scope of her authority generally may be imputed to her principal or employer.

An exception to the imputation rule in Florida occurs when an agent acts adversely to the corporation.  In this situation, the knowledge is not imputed to the corporation.  The Court, however, noted that this exception requires that the agent’s interest be “entirely adverse” to the principal’s interests.  In other words, the agent’s act must be neither intended to benefit the corporation nor cause short or long term benefit to the corporation.

The Eleventh Circuit determined that the vice president’s knowledge could be imputed to the bank because the vice president’s interests were not entirely adverse to the bank.  The investor’s allegations indicated that the vice president’s acts brought some short term gain to the bank, namely the business of an escrow account at the bank.

The Eleventh Circuit then determined that the investor’s allegations were sufficient to establish that the bank had knowledge of the bank customer’s misappropriations.

In support of this conclusion, the Court cited the allegations that the bank vice president (1) allowed the company to label its account as an escrow account, even though she and the company had not complied with the bank’s procedures for opening an authorized escrow account; (2) assured the company employees before the investor wired money to the bank that the company would hold his money in the company escrow account with the bank; (3) continued to tell the company employees that the investor’s money was being held in the escrow account even though the bank customer had taken the money; (4) tried to prevent a bank employee from investigating the company’s escrow account in connection with the letter; and (5) surreptitiously received $100,000 from the bank customer.

The Eleventh Circuit held it was reasonable to infer from these allegations that the bank vice president was assisting the bank customer in his fraudulent scheme, and to conclude that the bank vice president knew that the bank customer was misappropriating money from the company escrow account.

Next, the Eleventh Circuit determined that the investor alleged sufficient facts to state a claim for aiding and abetting fraud.

The Court noted that, “[a]lthough no Florida court has explicitly recognized a cause of action for aiding and abetting fraud, Florida courts have assumed a cause of action” for aiding and abetting fraud with the following elements: (1) the existence of an underlying fraud; (2) that the defendant had knowledge of the fraud; and (3) that the defendant provided substantial assistance to advance the commission of the fraud.

The Court was satisfied that the first two elements were plainly met. The Court determined that the investor had plausibly alleged the third element of substantial assistance.

“Substantial assistance occurs when a defendant affirmatively assists, helps conceal or fails to act when required to do so, thereby enabling the breach to occur.” Lerner v. Fleet Bank, N.A., 459 F.3d 273, 295 (2d Cir. 2006).  The Eleventh Circuit noted that “[m]ere inaction constitutes substantial assistance only if the defendant owes a fiduciary duty directly to the plaintiff.”

The Court held that “[b]ecause banks do have a duty to safeguard trust funds deposited with them when confronted with clear evidence indicating that those funds are being mishandled, a bank’s inaction — that is, its failure to stop the theft of such trust funds — can constitute substantial assistance.” Id.

Consequently, the Court held that the investor’s allegations were sufficient to show that the bank’s inaction met the “substantial assistance” element for aiding and abetting fraud.

The Eleventh Circuit reversed the trial court’s ruling, and remanded the case.  The attorney’s fees award in favor of the bank was also summarily overturned.

Illinois App. Court Rejects Foreclosure Borrower’s Challenge to Service by Publication

The Appellate Court of Illinois, First District, recently held that a mortgagee’s affidavits detailing the due and diligent inquiry it undertook to attempt to personally serve a borrower were sufficient to allow service by publication in a mortgage foreclosure action.

A copy of the opinion is available at:  Link to Opinion.

The mortgagee filed a mortgage foreclosure complaint, but could not achieve personal service on the borrower.  The trial court authorized the mortgagee to serve the borrower by publication notice.  The mortgagee later filed an affidavit for service by publication.

In the affidavit, counsel for the mortgagee asserted that she had made a due and diligent inquiry to find the borrower, to ascertain her respective places of residence, and that upon due inquiry such borrower could not be found.

In addition to counsel’s affidavit, the mortgagee filed affidavits from three separate special process services.  In the first affidavit, a special process server averred that he attempted to serve the borrower personally at the property address seven times in a week’s time in mid-December 2013.  The affidavit further stated that he attempted to serve the borrower multiple times during the day including twice around 9:30 p.m.  After each attempt of service, the process server stated that he made no contact with the borrower and “was unable to gain access onto the property.”

In the second affidavit, another special process server attested that he attempted to serve the borrower at the property address seven times in a week’s time in late December 2013.  He asserted he was not able to gain entry to the property, but noted that on two occasions dogs were present within the yard of the property and on one occasion the lights inside the property were on.

In the third affidavit, another special process server averred that her search revealed only one known address for the borrower.  She attested that on Jan. 2, 2014, upon conducting a “skip trace” of the borrower as well as a search of multiple databases (including, but not limited to, social security, employment, voter registration, professional licenses, the department of corrections, and other property records), no other addresses or contact information were found for the borrower.  She further attested that she attempted to call the borrower on Dec. 31, 2013, using three different phone numbers, but was unable to contact the borrower.  She also asserted that a vehicle registered to the borrower was at the property address.

Subsequently, the mortgagee filed a Certificate of Publication from a local newspaper, which indicated that the publication notice regarding this foreclosure matter was published on four occasions throughout a particular month.

After the borrower failed to appear, the mortgagee moved for a default judgment and a judgment of foreclosure and sale.  The trial court granted the judgments.  Thereafter, the mortgagee filed a notice of entry of default judgment, judgment of foreclosure, which indicated the notice of default had been mailed to the borrower at the property address.

Thereafter, notice of the judicial sale of the property was then mailed to the borrower at the property address, and indicated the sale would take place at a specific time, place and date.

The day the property was set to be sold, the borrower appeared in court pro se and presented an emergency motion to stay the sale of the property.  The borrower did not challenge the trial court’s jurisdiction in this motion.

Over the mortgagee’s objection, the trial court granted the borrower’s motion and stayed the sale of the property.  Thereafter, the borrower filed a series of motions. The borrower filed a motion to “vacate all orders and judgments and dismiss with prejudice.”  There, she argued that service was improper because it was attempted during the December holidays.  The trial court denied the borrower’s motion to vacate.

That same day, the borrower filed another motion to quash in which she argued that the mortgagee did not obtain leave to have a special process server serve the summons and did not produce any affidavits describing the diligent efforts to inquire about her whereabouts.  The borrower further argued that she received no notices from the clerk of the trial court.

This motion was supported by the borrower’s own affidavit in which she attested that she resided at the property address at all times relevant, and that she had not been concealed within the state, and that her place of residence and whereabouts were readily ascertained, and that she believed that the private process servers failed to perform a diligent inquiry as to her residence and whereabouts.

Two days later, the borrower filed a motion to vacate the default judgment in which she argued that she was never served, and that the mortgagee did not have a court order that would allow it to serve the borrower via a special process server.

The trial court denied the borrower’s motion to quash and the motion to vacate, expressly finding that the borrower waived her objection to jurisdiction because she previously presented motions to dismiss and motions to continue sale.

The property was later sold to the mortgagee as the highest bidder.  Thereafter, the mortgagee filed its motion to confirm the sale, requesting that an in personam deficiency judgment be entered against the borrower for the deficiency after the sale.

While the mortgagee’s motion to confirm the sale was pending, the borrower filed two motions to reconsider the circuit court’s order denying her motion to vacate the default judgment and the circuit court’s denial of her motion to quash.  The borrower raised the same arguments she had in her previous motions.

The mortgagee opposed the borrower’s motions to reconsider, arguing that the motions were untimely and that the borrower failed to establish that the trial court had misapplied the existing law when it denied her motions.

The trial court denied the borrower’s motions to reconsider, and entered a briefing schedule regarding the bank’s motion to confirm the sale.  The borrower did not file a response to the mortgagee’s motion to confirm the sale.  Instead, the borrower filed a petition to vacate the judgment of foreclosure and set aside the sale in which she continued to assert the circuit court lacked jurisdiction over her. The mortgagee did not file a reply.  The trial court granted the motion to confirm the sale and denied the borrower’s petition.

The trial court entered an order approving the sale of the property and an in personam deficiency judgment.  The order further provided that the memorialization of the court’s oral pronouncements and ruling would be issued to the parties by mail. The borrower appealed.

The Illinois Appellate Court first addressed the borrower’s motion to quash service of process by publication issue.  The Court held that service by publication was proper and therefore the trial court had personal jurisdiction over the borrower when it entered the default orders and the judgment of foreclosure prior to the borrower filing the emergency motion.

The Court noted that section 2-206(a) of the Illinois Code of Civil Procedure permits a plaintiff to serve process on a defendant by publication in limited cases where the plaintiff has strictly complied with the requirements for such service.  The Court also cited the local rule of the trial court that further expands on the requirement for an affidavit, particularly in mortgage foreclosure actions.  Specifically, in mortgage foreclosure cases in the county at issue, all affidavits for service of summons by publication must be accompanied by a sworn affidavit by the individual making a due inquiry and setting forth with particularity the action taken to demonstrate an honest and well directed effort to find the individual.  Cook Co. Cir. Ct. R 7.3 (Oct. 1, 1996).

The Appellate Court determined that serving parties had to strictly comply with the mandates of service by publication, including the requirements of due diligence and due inquiry.  These requirements require an honest and well-directed effort to ascertain the whereabouts of an individual.  In addition, a party may challenge service by publication through his own affidavit.  In such a scenario, the trial court should hold an evidentiary hearing.

In this matter, the Appellate Court held that the mortgagee’s affidavits were sufficient to meet the Illinois requirements for service by publication because they stated that the borrower could not be personally served because her whereabouts could not be ascertained at her last known place of residence.  Specifically, the three special process servers submitted affidavits and detailed the significant efforts to locate the borrower.

For example, the affidavits detailed the date and time of attempted service, and even made notations about the state of the property.  The Court emphasized the efforts included conducting a skip trace that revealed the only address for the borrower as the relevant real property and annotating information about a vehicle that was registered to the borrower that was kept at the relevant property.

The Appellate Court was satisfied that the extensive efforts fulfilled the requirements of the Illinois Code of Civil Procedure and the local county court.  The Court also found the borrower’s own affidavit unavailing because she did not challenge the mortgagee’s assertion that the borrower could not be found with due diligence.

The Court also rejected the borrower’s position that that the special process servicers should have spoken to the borrower’s neighbors.  The Court relied on Household Finance Corp. III v. Volpert, 227 Ill. App. 3d 453, 455 (1992), for the proposition that a process server need not speak with neighbors when there is evidence that someone resides at the relevant real property but refuses to accept the service.

The Court also rejected the borrower’s argument that there was no good faith effort to serve her, as the parties were both litigating a separate non-foreclosure action.  The Appellate Court reasoned that the record did not demonstrate that the borrower’s whereabouts could be ascertained through an inquiry in that action.

Based on this analysis, the Appellate Court held that the trial court had personal jurisdiction over the borrower, and the authority to enter the judgment of foreclosure and sale.

Next, the Court addressed whether the trial court erred in denying her motion to reconsider the denial of her motion to vacate.  The Court noted that the purpose of a motion to reconsider is to bring to the circuit court’s attention newly discovered evidence, changes in the law, or errors in the court’s previous application of existing law.

The Appellate Court acknowledged that the trial court did not substantively examine the motion to quash, but rather dismissed the motion on procedural grounds.  However, the Court itself performed the substantive motion to quash analysis in the present opinion and found no error in granting the motion to quash.  The Appellate Court also rejected the borrower’s argument that the mortgagee’s notice of the motion for default was not completely filled out because the record revealed this argument to be factually incorrect.

Additionally, the Appellate Court rejected the borrower’s argument that the trial court erred in denying her petition to vacate.  The Court explained that a petition to vacate is only available when there is a final and appealable order.  Here, the borrower requested this relief prior to a final and appealable order, as a judgment ordering the foreclosure of a mortgage is not final and appealable until the trial court enters an order approving the sale and directing the distribution.

Last, the Appellate Court addressed the issue of whether the trial court erred in entering a personal deficiency judgment.  The Court was satisfied with the record to support the deficiency judgment.  The Court noted the judgment amount, the total amount owed to the mortgagee, considering attorney’s fees and costs, and the deficient sale price of the property.

Furthermore, the Court found that the borrower filed an appearance to dispute the deficiency judgment, which constituted a judicial admission for the purposes of imparting in personam jurisdiction over the borrower for the personal deficiency judgment.

Accordingly, the Appellate Court affirmed the trial court’s judgment.

6th Cir. Rejects Debt Collector’s Efforts to Distinguish Campbell-Ewald Following Offer of Judgment Success in Trial Court

Applying Campbell-Ewald, the U.S. Court of Appeals for the Sixth Circuit revived a consumer plaintiff’s ability to proceed with a putative class action, holding that an unaccepted offer of settlement or judgment generally does not moot a case, even if the offer would fully satisfy the plaintiff’s demands for relief.

A copy of the opinion in Conway v. Portfolio Recovery Associates, LLC is available at:  Link to Opinion.

A consumer filed a putative class action against a debt collector under the federal Fair Debt Collection Practices Act (FDCPA) and survived the defendant debt collector’s motion to dismiss. The debt collector subsequently offered the plaintiff consumer judgment in his favor, but the consumer decided against the offer and the offer expired.

The debt collector moved to dismiss once again on the basis that it had offered the consumer all the relief he sought, and that consequently there was no longer a live case or controversy.

The district court, applying then binding precedent of O’Brien v. Donnelly Enters., 575 F.3d 567 (6th Cir. 2009), dismissed the case for lack of subject matter jurisdiction and entered judgment in the consumer’s favor, over the consumer’s objections.  The district court also dismissed the consumer’s class certification motion as moot.  The consumer appealed.

The Sixth Circuit began its analysis by addressing the applicability of the Supreme Court of the United States’ ruling in Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663 (2016), a case decided after the district court entered the judgment at issue.  As you may recall, in Campbell-Ewald, the Supreme Court held that an unaccepted offer of settlement or judgment generally does not moot a case, even if the offer would fully satisfy the plaintiff’s demands for relief.

The Court of Appeals rejected the debt collector’s argument that the district court’s entry of an enforceable final judgment in favor of the consumer granting him all the relief he wanted distinguished the present matter from Campbell-Ewald.  In so ruling, the Sixth Circuit noted that the district court stated it had felt compelled to enter such an order as a result of O’Brien.  Consequently, the Sixth Circuit held that under the Supreme Court’s ruling in Campbell-Ewald, there was an Article III controversy between the consumer and the debt collector.

Next, the Sixth Circuit examined the debt collector’s argument that the Court lacked jurisdiction to review the appeal because the district court’s final judgment for the consumer had already given him all the relief he sought.  The debt collector argued that the debtor had no stake in the litigation as a result of the judgment entered by the district court and that stake was required to retain jurisdiction for an appeal.

The Court of Appeals rejected the debt collector’s argument, ruling that an erroneously entered judgment does not deprive a plaintiff of his stake in the underlying litigation.  In other words, the Sixth Circuit held, an appellate court has jurisdiction to correct an erroneous judgment by a trial court, including under the circumstances here in light of Campbell-Ewald.

Last, the Court found it unnecessary to address the merits of the consumer’s motion for class certification.  The Sixth Circuit reasoned that if it were erroneous to enter a judgment, then it was also erroneous to dismiss the consumer’s motion for class certification as moot.   Consequently, the Court held, the class certification motion was best decided through litigation before the district court.

Thus, the Sixth Circuit vacated the trial court’s judgment dismissing for lack of jurisdiction and entering a money judgment, and remanded the case.

Fla. App. Court (1st DCA) Dismisses Foreclosure Due to Trial Court’s Lack of Jurisdiction

The District Court of Appeal for the First District, State of Florida recently ordered the dismissal of a foreclosure action because it held that the trial court’s jurisdiction expired prior to the entry of the judgment of foreclosure in the case.

The Appellate Court held that the trial court failed to consider whether it had jurisdiction over the action to enter judgment of foreclosure after it previously dismissed the same action.

A copy of the opinion in Franklin v. Bank of America, N.A. is available at:  Link to Opinion.

A mortgagee commenced a foreclosure action against a borrower in 2009.  The mortgagee alleged that the borrower was in default and that it was entitled to foreclose on the property as the holder of the mortgage and note.

As you may recall, under Florida law, a party seeking to foreclose must tender the original promissory note to the trial court or seek to reestablish the lost note.  The mortgagee failed to produce the original note during discovery and the borrower sought to compel such production.  In January 2013, the trial court ordered the mortgagee to file the original note and mortgage within 30 days of the order.  The mortgagee did not comply.

In May 2013, the borrower filed his motion to dismiss the case due to the mortgagee’s failure to comply with the court’s order.  The trial court denied the motion, and stated that its previous order compelling the mortgagee to file the original note was still in effect.

In February 2014, the borrower filed a second motion to dismiss, again based on the mortgagee’s continued failure to comply with the court’s order to produce the original documents.  The trial court granted the motion to dismiss “without prejudice.”

A few days thereafter, the borrower erroneously filed and served a notice of hearing on his second motion to dismiss.  This notice did not constitute a motion for rehearing.  This mistaken “notice” did not postpone the entry of the order, revive the pendency of his second motion to dismiss, or toll the time for any challenge to the order by the mortgagee.

There was apparently no hearing on the borrower’s mistaken notice of hearing, and no transcript was contained in the record to indicate any oral motion or ruling.  In April 2014, without explanation or reference to its February 2014 order, the trial court entered a second order on the borrower’s second motion to dismiss, this time denying the motion and directing the mortgagee to file an amended complaint within 60 days.

After the eventual filing of the amended complaint, which asserted a new cause of action to enforce a lost note, and upon the mortgagee’s motion for summary judgment, the trial court entered summary final judgment of foreclosure in favor of the mortgagee in August 2015.  The borrower appealed.

The First District Court of Appeal exclusively analyzed the issue of jurisdiction to arrive at its decision.  The Court explained that jurisdiction over an action does not endure indefinitely and that it was an error for the trial court never to address the viability of its jurisdiction over the case after the entry of the order of dismissal in February 2014.

The Appellate Court held that the entry of the order granting the second motion to dismiss, without prejudice, but without indicating any future judicial action in that particular case, together with the lack of a future motion on the order, resulted in finality and the concomitant loss of the court’s jurisdiction in this particular case.

The First District supported its ruling by considering the Florida Rules of Civil Procedure, the history of the case at that point, and the appealable nature of that order.

In analyzing the Florida Rules of Civil Procedure, the Appellate Court focused on the “without prejudice” language in the order.  The Court explained that “without prejudice” can indicate the trial court’s intention to bring an end to the judicial labor in the matter.

Moreover, a dismissal under rule 1.420(b) of the Florida Rules of Civil Procedure operates as an adjudication on the merits.  Thus, the First District held, a second lawsuit on the same note, mortgage, and default is barred as res judicata unless the court includes the phrase “without prejudice” in the order of dismissal.

The First District then turned to the history of the case to support its ruling.  The February 2014 order was final and appealable as a sanction for discovery abuses.  The Court noted that Florida appellate courts have upheld orders dismissing action without prejudice as a sanction for discovery violations.

The Appellate Court noted that the dismissal order was appealable, but the mortgagee did not appeal the order of dismissal entered in February 2014.  The Court also noted that the mortgagee did not file a motion for rehearing, appeal, or motion for relief from judgment or order, pursuant to Rule 1.540 of the Florida Rules of Civil Procedure.

The First District held that these were the available mechanisms for challenging the order and in light of these mechanisms the time to rehear the order expired in March 2014.  The Appellate Court held that the trial court’s jurisdiction to enter additional rulings is limited, and decreases as time progresses after a final, appealable order is entered by the trial court.  The Appellate Court also noted that a trial court loses jurisdiction of a case at the expiration of the time for filing a petition for rehearing.

Consequently, the First District held, the trial court had no jurisdiction to further entertain the mortgagee’s claim against the borrower on the same cause of action.

The Court concluded that the order entered in April 2014, denying the borrower’s second motion to dismiss (despite the previous grant of the same motion in February 2014), and directing the mortgagee to file an amended complaint in the same case, was a nullity as was the judgment of foreclosure entered on the amended complaint.

Accordingly, the First District reversed the trial court’s judgment of foreclosure, and remanded for dismissal of the case.

9th Cir. Holds Car Dealer Failed to Provide ‘Completed Inspection Report’ as to ‘Certified’ Used Car

The U.S. Court of Appeals for the Ninth Circuit recently held that a car dealership inspection certificate violated California statutory law that required that a vehicle seller provide a “completed inspection report” prior to the sale of any “certified” used car.

In so ruling, the Court held that the term “inspection report” was a term of art in the auto industry and in other state statutes, and that the California Legislature must have been aware of its usage.

A copy of the opinion in Gonzales v. CarMax Auto Superstores, LLC is available at:  Link to Opinion.

An individual purchased a vehicle from a car dealership.   The individual alleged that he was drawn to the car dealership after hearing advertisements regarding the benefits of purchasing a “certified” vehicle that had passed the car dealership’s rigorous “125-point” certification inspection.  The individual alleged that he would have paid less, or possibly not even purchased the car, had it not been a “certified” vehicle.

According to the individual, it is the car dealership’s policy to simply provide purchasers of used vehicles with a pre-printed car dealership “Quality Inspected Certificate” listing the vehicle components that were inspected.  The individual received two versions of the certificate: a one-sided certificate provided to him prior to sale, and a two-sided certificate, which was placed in the glove compartment before he took possession of the vehicle.

In addition to the two certificates that the car dealership provides to purchasers of used vehicles, the car dealership also uses a third document known as a “CQI/VQI Checklist.”  This checklist contains 236 points of inspection and is filled out by a technician during the inspection process.

The CQI/VQI Checklist, unlike the certificates, indicates the condition of each individual component inspected. Rather than provide the CQI/VQI Checklist to consumers, the car dealership destroys the document after the inspection results are entered into its electronic system, and no copy of the checklist is retained.

Shortly after purchasing the vehicle, the individual experienced some difficulty with the car. The individual filed suit in state court alleging violation of California consumer protection laws — (1) the Consumer Legal Remedies Act (“CLRA”); (2) the Song-Beverly Consumer Warranty Act (“Song-Beverly”); (3) common law fraud and deceit; and (4) the Unfair Competition Law (“UCL”).

The individual’s central theory was that the car dealership violated state law by failing to provide him with a “completed inspection report” prior to the sale of the “certified” vehicle.

The car dealership removed to federal court asserting diversity jurisdiction. A week after removal, the car dealership filed a motion to dismiss, as well as a motion to strike the individual’s punitive damages claim.

The following month, while the motion to dismiss the first amended complaint was pending, the district judge issued an order to show cause regarding subject matter jurisdiction, noting that he had “serious doubts” as to whether the case met the amount-in-controversy requirement.

After the parties responded to the order to show cause, the district judge found that the car dealership had shown by a preponderance of the evidence that the amount in controversy was more than $75,000 and thus the action was properly removable.

The district court then granted the car dealership’s motion to dismiss on all claims except for the CLRA and UCL claims. Following discovery, the car dealership filed a motion for summary judgment on the CLRA and UCL claims. The district court granted the motion, holding that there was no material legal difference between the one-sided form and the two-sided form, and that both forms were legally sufficient.

The individual appealed the district court’s dismissal and summary judgment orders.  In this opinion, the Ninth Circuit only considered the appeal of the summary judgment.

The Court of Appeals for the Ninth Circuit first addressed the potential lack of subject matter jurisdiction. As you may recall, to establish original jurisdiction based on diversity of parties, the amount in controversy must exceed the sum or value of $75,000, exclusive of interest and costs.  The Ninth Circuit explained that the amount in controversy is the amount at stake in the underlying litigation and includes damages, the cost of complying with an injunction, as well as attorney’s fees awarded under fee shifting status.  The Court of Appeals held that the amount in controversy in this matter exceeded the minimal required when the potential cost of complying with injunctive relief was considered along with the individual’s claims for compensatory and punitive damages.

Next, the Court of Appeals considered the individual’s claims under the California CLRA and UCL claims.

Section 11713.18 of the California Vehicle Code prohibits a car dealer from either advertising for sale or selling a used vehicle as “certified” under nine circumstances, including if:  “[p]rior to sale, the dealer fails to provide the buyer with a completed inspection report indicating all the components inspected.” Cal. Veh. Code § 11713.18(a)(6).  The statute further provides that a violation of any of these provisions is actionable under the CLRA, the UCL, false advertising statutes, or any other applicable state or federal law. Cal. Veh. Code §  11713.18(b).

Applying the state law, the Ninth Circuit held that the car dealership’s certificates did not satisfy the requirements of § 11713.18.  The Court found support for its ruling in the plain meaning of the statutory language, as the statute requires a completed “inspection report.”

The Court explained that, while the term is not defined in the statute, an “inspection report” is a term of art in the automobile industry.  Specifically, the Ninth Circuit noted, the term “inspection report” is understood to mean a report that lists the components inspected, with a space corresponding to each component in which the inspector designates whether or not that component is functional.

The Ninth Circuit also noted that a “completed inspection report” is one in which those spaces have been appropriately marked so as to indicate the result of the inspection.  The Court further noted that these terms are common in California state statutes, regulations, and everyday usage in the auto industry, and other states also use such a term of art for a document that requires an area for marking the components for defects.

The Court held it had to assume that the California legislature was aware of the meaning of “inspection report” and intended the meaning to control.  In disregarding this meaning, the Court would have improperly made the word “completed” superfluous.

The Ninth Circuit also found support for its ruling in the purpose, history, and public policy of the statute.  The Court noted that section 11713.18(a)(6) was part of California’s “Car Buyer’s Bill of Rights,” which, according to the author of the bill, aimed to “strengthen the protections afforded [to] California car buyers by improving laws regarding the sales, marketing, and financing of new and used vehicles.”  Assembly Judiciary Comm., 2005-2006 Session, Analysis of AB-68 5 (March 1, 2005).

Prior to the enactment of this bill, the California legislature noted that there was no legal standard for use of the term “certified,” despite the growing trend for dealers to use this term.  According to the Court, the legislature enacted this statute to protect consumers and assure that they received a fair bargain and for there to be transparency in the sale of “certified” vehicles.

The Ninth Circuit emphasized that the car dealership’s certificates did not provide the status of the individual components inspected under its inspections.  Instead, the Court noted, the certificates merely guaranteed that the vehicle’s overall condition satisfied its certification program and listed the components under the program.  The Court found dispositive the fact that the consumer did not know neither the condition of the individual components nor which, or how many, components must pass the test before a vehicle is “certified.” In other words, the Court explained, the individual did not know what it meant to pass the inspection.

The Ninth Circuit rejected the car dealership’s argument based on the drafting history of the legislation.  In drafting the bill, the California legislature deleted the phrase “and certifies that all of the inspected components meet the express written standards of the vehicle certification program.”  The Court explained that this deletion spared dealers from another substantive obligation, while leaving the requirement to provide a “completed inspection report” intact.

Accordingly, the Ninth Circuit reversed the district court’s grant of summary judgment in favor of the car dealership and sua sponte granted summary judgment in favor of the individual.

NY Supreme Court Holds Notice of Default Not Required to Deceased Borrower’s Estate

A New York Supreme Court held that the notice of default requirement in New York Real Property Actions and Proceedings Law (RPAPL) § 1304 applies only to a borrower and not a borrower’s estate.

As a result, according to the Court, foreclosing entities do not have to provide a notice of default pursuant to the RPAPL to a borrower’s estate after the death of the borrower.

A copy of the opinion in US Bank NA v. Levine may be found here: Link to Opinion. 

A mortgagee commenced a residential mortgage foreclosure action after a deceased borrower’s estate failed to make payments.  The mortgagee moved for summary judgment, and the borrower’s estate opposed the motion.

The major issue of contention was whether the notice of default provision of the RPAPL § 1304 applies when the borrower is deceased.

As you may recall, RPAPL § 1304 among other things mandates that the mortgagee must provide the borrower notice that the loan is in default and that the home is at risk, at least 90 days before beginning an action against a borrower to foreclose on the mortgage.  Proper service of the notice is a condition precedent to the commencement of the foreclosure action.

The New York Supreme Court, a trial court in Westchester County, considered various arguments from the borrower’s estate but ultimately granted summary judgment and an order of reference in favor of the mortgagee.

The trial court noted that there was no New York Appellate Division case on point, but that several trial courts had addressed the issue.  Following other lower courts in the State of New York, the trial court found persuasive the method of service required by section 1304.

Under RPAPL § 1304[2], the notice is to be sent to the borrower by registered or certified mail and by first class mail to the last known address of the borrower.  The trial court found the statute’s language was specific to a borrower even if there were other non-borrowing parties with some interest in the property.

The trial court also noted that while section 1304 does not define the term “borrower,” logic dictates that a “borrower” is someone who, at a minimum, “either received something and/or is responsible to return it.”

Accordingly, the Court held that the statute requires only that the borrower be given notice, and when the borrower is deceased, the provisions of RPAPL § 1304 are not applicable.

The trial court also rejected the estate’s argument that there was an issue of fact precluding summary judgment.  Furthermore, the trial court did not find persuasive the estate’s laches argument because the borrower had not made a mortgage payment since 2008.

Last, the trial court held that a previous dismissal of a prior action commenced against the borrower was not dismissed on the merits and was consequently not res judicata precluding the present action.

Thus, the trial court granted the mortgagee’s motion for summary judgment.

11th Cir. Confirms Third-Party Garnishments Not Subject to FDCPA Venue Provision

The U.S. Court of Appeals for the Eleventh Circuit recently held that the federal Fair Debt Collection Practices Act’s venue provision did not apply to post-judgment action garnishment proceedings.

A copy of the opinion in Ray v. McCullough Payne & Haan, LLC is available at: Link to Opinion.

A debt collector filed a collection action.  In compliance with the FDCPA’s venue provision, the debt collector brought that action in Fulton County, Georgia, where the debtor resided.

After obtaining a judgment against the debtor in that action, the debt collector initiated a garnishment proceeding against the debtor’s bank to collect on the judgment.  As required by Georgia law, it brought the garnishment action in Cobb County, Georgia, where the bank, as the garnishee, was located.

In response to the garnishment action, the debtor filed suit against the debt collector alleging that it violated the FDCPA by bringing the garnishment action in a judicial district other than the one in which the debtor resided or signed the underlying contract.

The district court dismissed the debtor’s complaint.  The debtor appealed.  The only question on appeal was whether the FDCPA’s venue provision applies to post-judgment garnishment proceedings.

As you may recall, the venue provision in the FDCPA requires that “[a]ny debt collector who brings any legal action on a debt against any consumer shall . . . bring such action only in the judicial district or similar legal entity — (A) in which such consumer signed the contract sued upon; or (B) in which such consumer resides at the commencement of the action.” 15 U.S.C. § 1692i(a)(2).

The Eleventh Circuit first noted that there was no binding precedent on this issue in its circuit because previous rulings on this issue were unpublished and unpublished opinions are nonbinding.  The Court did not analyze the unpublished decision in its circuit, but instead highlighted three decisions in other circuits on this issue.

First, the Court summarized the facts and reasoning of the First Circuit’s opinion in Smith v. Solomon & Solomon, PC, 714 F.3d 73 (1st Cir. 2013), which involved post-judgment enforcement proceedings under Massachusetts’ trustee process.  The First Circuit found that the Massachusetts trustee process action is geared toward compelling the trustee to act, not the debtor.  The First Circuit concluded that because post-judgment enforcement proceedings under Massachusetts law did not qualify as a legal action “against the consumer,” the FDCPA venue provision did not apply to them.

Next, the Court analyzed the Eighth Circuit’s opinion in Hageman v. Barton, 817 F.3d 611 (8th Cir. 2016), which involved post-judgment enforcement proceedings under Illinois law.  Following the First Circuit’s lead, the Eighth Circuit looked to the state statutes governing Illinois’ garnishment proceedings. Like Massachusetts, Illinois requires the judgment-creditor to direct its summons against the consumer’s employer and required the employer to respond to and comply with any garnishment order.  The Eighth Circuit concluded that because a post-judgment garnishment action under Illinois law did not amount to an action against the consumer, the FDCPA’s venue provision did not apply to it.

The Court then briefly mentioned the Ninth Circuit’s opinion in Fox v. Citicorp Credit Services, Inc., 15 F.3d 1507, 1515 (9th Cir. 1994), concerning the venue provisions in the FDCPA under Arizona law.  The Eleventh Circuit found the Fox opinion to hold little persuasive value because the opinion did not discuss the “against any consumer” language in the FDCPA or whether its venue provision applied to actions directed at third parties rather than consumers.

Turning to the present matter, the Eleventh Circuit first noted that the FDCPA’s venue provision language states that it only applies to legal actions “against any consumer.” 15 U.S.C. § 1692i(a).  Consequently, whether the provision applies to Georgia garnishment proceedings depends on whether those proceedings are legal actions “against any consumer.”

The Eleventh Circuit held that a Georgia garnishment proceeding was not an action “against a consumer” under Georgia law.  In support, the Court cited the procedural requirements of the garnishment process in Georgia.  In Georgia, the judgment creditor directs its summons to the garnishee (not the consumer), Ga. Code § 18- 4-8(a), and it requires the garnishee (not the consumer) to file an answer, Ga. Code § 18-4-10(a).  Moreover, the governing statute specifically provides that “[a] garnishment proceeding is an action between the plaintiff [judgment-creditor] and garnishee.”  Ga. Code § 18-4-15(a).

The Court found that the process is fundamentally an action against the garnishee, not the consumer, despite the fact that in Georgia a consumer may become a party to the garnishment by filing a claim with the clerk of court.  Consequently, the Eleventh Circuit held, the FDCPA’s venue provision did not apply to post-judgment garnishment proceedings under Georgia law and the debtor’s FDCPA claim failed.

After stating its ruling, the Eleventh Circuit found it appropriate to discuss the debtor’s arguments to the contrary.  First, the Court did not find persuasive the debtor’s canon of construction argument.  In short, the Court did not agree that the term “against any consumer” modified only the term “debt” and not the term legal action.  The Court believed instead that “against any consumer” modified “legal action,” and the FDCPA venue provision applied to a “legal action . . . against any consumer.”

The Court also did not adopt the debtor’s policy argument.  The debtor argued that excluding post-judgment garnishment proceedings from the FDCPA’s coverage undermines the venue provision’s purpose to prevent debt collectors from filing suits in distant and inconvenient forums, thereby depriving consumers of the opportunity to defend themselves against debt-collection lawsuits.  The Eleventh Circuit was satisfied that a consumer would not lose his opportunity to defend himself from a debt-collection lawsuit because the original suit to collect on the debt had to occur in a forum that was convenient for the consumer.  The Court pointed out that the Federal Trade Commission’s reading of the FDCPA supported this reasoning.

Last, the Eleventh Circuit did not find persuasive the debtor’s federalism argument that the meaning of federal law should not hinge on state law definitions.  The Court asserted that although federal law governs the interpretation of a federal statute, federal law sometimes adopts state law as the federal rule of decision.  This is more than appropriate when a national rule is unnecessary to protect the statute’s federal interests.  The Court found in this matter that the interpretation of the venue provision is consistent with the statute’s purpose.

Accordingly, the Eleventh Circuit affirmed the district court’s dismissal.