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MS Obtains Unanimous Jury Verdict in Favor of Clients in FDCPA Case

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On April 8, 2015, a jury of seven sitting in the Southern District of California determined that a law firm and its asset purchaser client did not violate the Fair Debt Collection Practices Act, 15 U.S.C. 1692 et seq. (“FDCPA”) by including a request for 10% interest in the prayer for relief of a state court collection complaint.  In Hadsell v. Mandarich Law Group, LLP and CACH, LLC, a consumer filed an FDCPA claim against the two companies alleging a myriad of false claims, including that the companies had disclosed the debt to third parties and failed to abide by a request to cease and desist. After success on motions to dismiss and summary judgment, the case proceeded to a jury trial on one sole issue: whether a request for 10% statutory interest in the prayer for relief of a state court complaint violates the FDCPA where the credit card contract in question provided for an 8.9% interest rate. Like many consumer law claims against law firms, this complaint was spurred from a state court collection action on the debt. In late 2011, Mandarich Law Group, LLP filed a state court complaint on behalf of CACH, LLC to collect on a defaulted Bank of America account.  The state court complaint had two counts, breach of contract and account stated.  In the prayer for relief, the complaint requested that the court find that a 10% interest apply under the account stated theory.

Approximately 30 days after the state court suit was filed, the consumer filed suit in the U.S. District Court for the Southern District of California, claiming that the collection action, among other activity, violated the FDCPA. Plaintiff was represented by the San Diego law firms of Hyde & Swigart and Kazerouni Law Group.

The Plaintiff’s focal point during the jury trial was that the defendants intentionally violated FDCPA § 1692(f) and (f)(1) by requesting 10% interest when they were aware of the 8.9% interest rate that was set by the initial contract between the consumer and creditor.  Defendants argued, in contrast, that there was a valid factual basis to pursue the account stated claim and for the Court to assess 10% interest--- the default rate under the California Code---- based on the final charge-off statement on the account.  Further, Defendants’ argued that asking the state court to decide the question of interest was not an attempt to collect an authorized amount as the court had the legal ability to award it under the facts.  The jury unanimously agreed and found that no violation of the FDCPA occurred.

Lead trial counsel for Defendants was Nicole M. Strickler of MS&S. For more information on this case or any other FDCPA related issues, contact her at nstrickler@messerstrickler.com or at 312-334-3442.

CALIFORNIA COURTS HIT THE BRAKES ON PUTATIVE TCPA CLASS ACTIONS WITH THEIR ENFORCEMENT OF ARBITRATION PROVISIONS

Two federal district courts in California recently granted defendants’ motions to compel arbitration, sending two putative TCPA class actions to arbitration.  In Mendoza v. Ad Astra Recovery Services, Inc., No. 2:13-cv-06922 (Jan. 6, 2014 C.D. Cal.), plaintiff brought a TCPA class action against an agent of a payday lending firm who had left pre-recorded voicemail messages on his cell phone regarding a debt he had failed to repay.  Plaintiff, however, had signed a contract with the payday lending firm at the time he received the loan, by which he waived the right to pursue a class action and agreed to arbitrate any potential claims.  The arbitration clause covered “any claim, dispute or controversy between you and us (or related parties) that arises from or relates in any way to this Agreement . . . ; any of our marketing, advertising, solicitations and conduct relating to your request for Services; our collection of any amounts you owe; or our disclosure of or failure to protect any information about you.”

Plaintiff raised three arguments against enforcement of the arbitration provision.  First, he argued that defendant lacked standing to enforce the agreement.  The court rejected this argument, finding that defendant had standing as an agent of the payday lending firm.  Plaintiff next argued that his claim was not covered by the arbitration clause.  The court disagreed, noting that the clause was extremely broad.  Under the clause, “‘[c]laim’ [was] to be given the broadest possible meaning and include[d] . . . claims based on any . . . statute[.]”  Importantly, the clause also expressly included claims arising out of debt-collection activities.  Lastly, plaintiff argued that the arbitration provision was unconscionable.  The court found that the clause was not procedurally unconscionable because it “gave plaintiff the unilateral right to reject arbitration at any time within 30 days of signing the contract.”  The court also found that the clause was not substantively unconscionable because the clause was set out conspicuously on a separate page of the contract and the contract contained the following warning:

VERY IMPORTANT. READ THIS ARBITRATION PROVISION CAREFULLY. IT SETS FORTH WHEN AND HOW CLAIMS . . . WILL BE ARBITRATED INSTEAD OF LITIGATED IN COURT. IF YOU DON’T REJECT THIS ARBITRATION PROVISION IN ACCORDANCE WITH SECTION 1 BELOW, UNLESS PROHIBITED BY APPLICABLE LAW, IT WILL HAVE A SUBSTANTIAL IMPACT ON THE WAY IN WHICH YOU OR WE RESOLVE ANY CLAIM.

In Sherman v. RMH, LLC, et al., No. 13-cv-1986 (Jan. 2, 2014 S.D. Cal.), plaintiff brought a TCPA class action against a dealership who had left a pre-recorded voicemail message on his cell phone reminding him that it was the anniversary of his auto purchase and that it was time for “another status review of [his] ownership experience.”  When plaintiff purchased his car, however, he signed a Retail Installment Sales contract which included an arbitration clause.  Like the clause in Mendoza, the arbitration clause contained in the Retail Installment Sales contract was broad enough to encompass plaintiff’s claim: “Any claim or dispute, whether in contract, tort, statute or otherwise . . ., between you and us or our employees, agents, successors or assigns, which arise out of or relate to your credit application, purchase or condition of this vehicle, this contract or any resulting transaction or relationship . . . shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.”  The court like its counterpart in the Central District, rejected the plaintiff’s arguments that the clause did not cover the claim at issue and that the clause was unconscionable. 

By signing contracts containing arbitration clauses, the plaintiffs in the aforementioned cases relinquished any right to pursue TCPA claims through a class action. These recent decisions stress the importance of ensuring that arbitration clauses contain class action waivers and are broad enough to encompass potential TCPA claims.  For more information on this topic or assistance in reviewing or drafting arbitration clauses, please contact Katherine Olson at 312-334-3444 or kolson@messerstrickler.com.  

Yet Another Important Decision on the Recent TCPA Case

Recently, an interesting decision was made in Darren Roy vs. Dell Financial Services, LLC, 3:13-CV-738.  The action arises from phone calls made by DFS to Plaintiff Darren Roy’s “1-800” business number to collect Plaintiff’s consumer debt.   Roy claims DFS violated the Telephone Consumer Protection Act (TCPA), the Pennsylvania Fair Credit Extension Uniformity Act (FCEUA), and his state law right to privacy by intrusion upon seclusion. Roy alleged in his complaint that DFS called him on a repetitive and continuous basis in an attempt to collect a consumer debt he incurred from purchasing computers for his personal use.  Roy also alleged that DFS called Roy over 1,000 times at his “1-800” business number without his consent using an automatic telephone dialing system and pre-recorded messages.  Since Roy never gave his number to DFS, he believes that DFS used “skip tracing” to obtain it.  Roy further alleges he DFS to stop calling him at his “1-800” number.  Roy alleges that he sent DFS cease and desist letters in 2011, 2012, and 2013, but that DFS continued to call him. Roy filed his complaint in March of this year and DFS moved to dismiss the Complaint.

Judge Caputo noted that dismissal is appropriate only if a plaintiff has not pleaded “enough facts to state a claim to relief that is plausible on its face.”  Bell Atl. Corp. v. Twombly, 550 U.S. at 570 (2007).  Judge Caputo also noted that the TCPA was enacted as part of the Federal Communications Act to “deal with increasingly common nuisance- telemarketing.”  ErieNet, Inc. v. Velocity Net, Inc., 156 F. 3d 513, 514 (3d Cir. 1998).  Roy claimed that DFS’s unauthorized and repeated calls to his “1-800” number violated the TCPA, but further alleged that these calls were made in an attempt to collect his consumer debt.  Judge Caputo ruled to dismiss Roy’s TCPA claim for failure to state a claim pursuant to Fed. R. Civ. P. 12 (b)(6).quoting Meadows v. Franklin Collection Serv., Inc., 414 F. App’x 230, 235, 236.  Judge Caputo stated: “The FCC has determined that all debt-collection circumstances are excluded from the TCPA’s coverage.  The FCC has “unequivocally stated’ that ‘calls solely for the purpose of debt collection are not telephone solicitations and do not constitute telemarketing’ and ‘calls regarding debt collection.. are not subject to the TCPA’s separate restrictions on ‘telephone solicitations.’”

In addition, Judge Caputo denied Roy’s request to file an amended complaint.  Although leave to amend should be “freely” granted “when justice so requires,” Fed. R. Civ. P. 15 (a)(2), denial of leave to amend is appropriate where amendment would be futile.  Judge Caputo stated that in this case an amendment would be futile because the amendment to the Complaint would not alter the fact that Roy cannot state a claim upon which relief could be granted under the TCPA.

As the sole basis for the Court’s jurisdiction- Roy’s TCPA claim- was dismissed with prejudice, the Court declined to exercise supplemental jurisdiction over Roy’s remaining state law claims. Those claims could be re-filed in state court.

To read full decision, please follow the link http://law.justia.com/cases/federal/district-courts/pennsylvania/pamdce/3:2013cv00738/93161/20