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This Year’s Top Consumer Credit Decisions From the 2nd Circuit

fair credit reporting actHere are my choices for the most influential decisions in consumer credit litigation in the past year from the U.S. Court of Appeals for the Second Circuit. The cases concerned Article III standing, credit reporting, unwanted faxes, and an FDCPA “interest accrual” claim.

Maddox v. Bank of N.Y. Mellon Trust Co., N.A., 2021 U.S. App. LEXIS 34056 (2d Cir. 2021)

After the U.S. Supreme Court issued its opinion in TransUnion, LLC v. Ramirez, the Second Circuit went with the nuclear option when addressing Article III standing in pure statutory violation cases. Maddox involved a pure statutory violation involving the failure to timely file a satisfaction of mortgage in violation of two New York state statutes, R.P.L. § 275 and R.P.A.P.L. § 1921.  The statutory fine of $1,500 was the only damage the plaintiffs sought.

Procedurally, the Second Circuit originally found standing but vacated its opinion after a rehearing necessitated by Ramirez. Maddox made clear that if all the plaintiff has is a statutory violation, there is “no concrete harm, no standing.” Now most garden variety consumer credit complaints will be litigated in state courts.  In fact, the Second Circuit specifically said so: “In any event, the Maddoxes need not show a cloud, reputational harm, or any other injury. The Maddoxes have an easy way to collect their reward for reporting the Bank’s delay in recording the mortgage satisfaction: they may recover the statutory penalty in state court.”

As for the violation in issue, the Second Circuit rejected the notion that a nebulous risk of future harm could confer standing nor could a “perfunctory allegation of emotional distress.”

Shimon v. Equifax Info. Servs. LLC, 994 F.3d 88 (2d Cir. 2021)

In a credit reporting reinvestigation case, the Second Circuit affirmed a district court opinion siding with a credit reporting agency in a semantics argument with a disgruntled consumer.

At issue was a judgment that was “satisfied” as correctly reported instead of “implicitly vacated” as argued by the consumer. The state court docket used the terms “settled.” The other element of the appeal was an argument that the agency failed to disclose the sources of information in his file. However, the fatal flaw to this claim was that the plaintiff presented no evidence of actual damages as a result of the failure which is an element of the negligence-based claim.

On the willfulness-based claim the Second Circuit agreed with the agency’s interpretation of sources to reasonably include the public agency reporting the data (in this case the court) and not to include contractors or intermediaries that the agency employed to collect the data (in this case LexisNexis).

Gorss Motels, Inc. v. Lands’ End, Inc., 997 F.3d 470 (2d Cir. 2021)

Last year, the Second Circuit put a hurt on debt collectors with its expansive definition of an automatic telephone dialing system. Thankfully for the industry that opinion was nullified by the United States Supreme Court in Facebook, Inc. v. Duguid earlier this year.

The only major TCPA opinions issued by the Second Circuit both involved faxes that were particularly bothersome to Gorss Motels, Inc.

In the first case at issue was whether Gorss gave prior express permission to receive the faxes. In its franchise agreement with Wyndham Hotel Group, Gorss expressly gave permission to both Wyndham and its “affiliates” to offer them “optional assistance” which was interpreted to include fax advertisements.

The fact that Gorss provided its fax number in the agreement did not help its cause. The Second Circuit agreed with decisions from the Third and Eleventh Circuits which similarly held that prior express permission existed when a company provided its fax number to another party and permission to receive information from them and their affiliates.

Of note is that the Second Circuit addressed standing early in the opinion quickly finding that the nuisance of receiving unwanted faxes was sufficient under Spokeo, but this was a pre-Ramirez opinion.

Gorss Motels, Inc. v. FCC, 2021 U.S. App. LEXIS 35776 (2d Cir. 2021)

The other TCPA case addressed by the Second Circuit was also filed by Gorss Motels, Inc.

Procedurally this case involved the FCC’s decision to remove the Solicited Fax Rule from the Code of Federal Regulations in 2020 based on an opinion from the D.C. Circuit holding that the Solicited Fax Rule was unlawful in a 2017 opinion.

The Solicited Fax Rule required opt-out instructions to be included on all faxes, even those that had been invited and were not unsolicited. Gorss’s argument was that the 2020 Order repealing the Solicited Fax Rule was improper since the 2017 opinion was only binding on the D.C. Circuit.

However, the Second Circuit corrected Gorss with an explanation of the history of the litigation involving the Solicited Fax Rule and the fact that the judicial panel on multidistrict litigation consolidated all of the petitions pending into one matter in the D.C. Circuit. Thus, the D.C. Circuit order was binding on all the Circuits.

Undaunted, Gorss also asked the Second Circuit to reconsider the issue already decided by the D.C. Circuit which it declined to do.  The opinion includes quite an in-depth analysis of the Hobbs Act and review of agency orders like the one at issue in order to justify its reasoning for its decision to deny the petition and to allow the 2020 repeal order to stand.

The Second Circuit definitely did not make any new friends among state court judges with its “no concrete harm, no standing” holding in Maddox nor is it likely to be welcome at Gorss Motels which may want to just turn off its fax machine. But the Second Circuit did offer two nice opinions for those in the collection industry with Cortez v. Forster & Garbus, LLP hopefully ending the interest accrual line of cases once and for all and Rubin v. Montefiore Med. Ctr., which solidified the right of creditors to collect their own debts without fear of FDCPA liability.  

Cortez v. Forster & Garbus, LLP, 999 F.3d 151 (2d Cir. 2021)

The Second Circuit issued what should be the final nail in the “interest accrual” coffin that has been plaguing the Circuit since Avila v. Riexinger & Associates, LLC was issued in 2016.

In Avila, a prolific plaintiff’s firm brought suit against a debt collector for failing to disclose whether interest was accruing on various settlement offers that needed to be accepted by a date certain. This was not the initial letter sent to the consumer.

Relying on its prior decisions in Taylor v. Financial Recovery Services, Inc. and Avila, the Second Circuit held that “a debt collector clearly extending an offer of full satisfaction if payment is made by a specified date is not subject to liability under section 1692e for failing to disclose that a consumer’s balance may increase due to interest and fees.”

More importantly, the Second Circuit held that 1692e “does not require that a collection notice anticipate every potential collateral consequence that could arise with the payment or nonpayment of a debt.”

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Tom Dominczyk is based in Maurice Wutscher's New Jersey office and supports the firm's matters in its New York and Pennsylvania offices, practicing in the firm's Commercial Litigation, Consumer Credit Litigation and Bankruptcy groups. Tom has successfully represented financial institutions and law firms throughout the country for claims filed under the Fair Debt Collection Practices Act, Fair Credit Reporting Act and various state consumer protection statutes. In addition to his litigation practice, Tom represents national, regional and local creditors in a variety of bankruptcy matters ranging from the defense of adversary actions to complex non-dischargeability litigation and preference defenses. He served as a Judicial Clerk to the Honorable Graham T. Ross, P.J.F.P., Superior Court of New Jersey, Somerset County. For more information, see https://mauricewutscher.com/attorneys/thomas-r-dominczyk/

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