It Was a Reasonable Investigation Just See the Police Officer’s Comment

By on March 15, 2022

Author: Lori Quinn

Anyone who has been met with a Fair Credit Reporting Act against furnisher of credit information case knows that it turns on the “reasonableness” of the investigation. After a parade of letters and disputes concerning a debt for a one-way plane ticket purchased on a credit card that Woods claimed was the result of identity theft – a claim rejected by the original creditor validated and, in turn, LVNV’s collection agent Resurgent validated the debt, Wood obtained a police report. The extensive record of letters, disputes and, critically, an Automated Consumer Dispute Verification (“ACDV”), which included a copy of the police report noting that the original creditor validated the account were analyzed by the Court.

Woods sued Resurgent and LVNV for violations of the Fair Debt Collection Practices Act and the Fair Credit Reporting Act. The District Court granted defendants’ motion for summary judgment and Woods appealed. In Woods v LVNV Funding, LLC, No. 21-1981, 2022 WL 594277 (7th Cir. Feb. 28, 2022), the 7th Circuit affirmed the District Court’s granting LVNV and Resurgent’s motion for summary judgment. Woods argued that Resurgent’s investigation of the dispute could have gone further, and that, as a result, the investigation was not “reasonable”. Woods suggests that a reasonable investigation would have included subpoenaing the airline to identify the person who took the flight to track down the identity thief or confirm the validity of the debt. In other words, Woods argued that defendants’ investigation was not reasonable because it was not exhaustive. The 7th Circuit found this to be outside Congress’ intent stating that it was “…implausible that Congress, in drafting a consumer protection statute like the FDCPA, would have sent consumers on such a wild goose chase.”

In a classic rejection of the FCRA requiring a “perfect” investigation, the 7th Circuit confirmed Section 1681-s(2)(b) requires only a reasonable investigation dependent on the nature of the dispute. The 7th Circuit noted that, even though the notice of a dispute (the ACDV), included a police report, the report advised that the investigating officer noted that the creditor concluded that the debt was not the result of identity theft or fraud. Therefore, Resurgent was within its rights to rely on those representations in the ACDV. Ultimately, Resurgent’s issuance of similar letters to Woods, concluding that Woods was responsible for the debt and Resurgent’s repeated (and unanswered) requests for Woods to provide information to assist in its investigation, was part and parcel of a reasonable investigation. Be warned, however, the 7th Circuit concluded their opinion but stating this decision provides “no license for furnishers to offload their § 1681s-2(b)(1)(A) investigation obligations to consumers by spamming them with request for additional information.”

Finally, Woods argued that Resurgent’s letters were false representations or a deceptive means to collect a debt because the original creditor later found he did not owe the debt. The 7th Circuit was unconvinced, noting there is a difference between “literal falsity” and “false” under the 1692e of the FDCPA. The 7th Circuit found that “a statement isn’t false unless it would confuse the unsophisticated consumer and that Woods’ appeal is based on the applicable statutory language in 1692e”. Despite the strict liability of the FDCPA, Woods failed to explain why Resurgent’s letters were materially false.

Filed under Fair Credit Reporting Act, FCRA

Faulty service? Default judgment? Garnishment? No harm, no foul.

By on March 4, 2022

Author: Avanti Bakane

Eastern District of Michigan court finds lack of Article III standing where plaintiffs alleged faulty service, wrongful default judgments, and garnishments issued as a result.

Plaintiffs were the targets of collection lawsuits filed by the defendant law firm and its various collection lawyers. In their federal lawsuit against defendants, plaintiffs pursued FDCPA claims, alleging that the lawyers falsely attested to proofs of service of the lawsuits upon them such that default judgments were then entered against them. What’s more, plaintiffs set forth that defendants issued garnishments pursuant to those judgments, and “[t]he garnishees withheld money” due to Plaintiffs. 

Pretty wild, right? Of course, you’re wondering whether the plaintiffs were in fact, the correct debtors of the outstanding accounts. Well, the court grasped on to this as well. 

In a succinct nine-page ruling, without holding any argument, the United States District Court for the Eastern District of Michigan disposed of plaintiffs’ claims, granting defendants’ motion to dismiss based upon lack of Article III standing and denying each of plaintiffs’ amended motion for class certification, motion to stay, and motion to limit communication as moot.

In doing so, the court found that plaintiffs’ argument that they sustained damages in the form of reputational harm, deprivation of due process, and monetary loss was not supported by their complaint allegations, which only made “a general reference to ’emotional’ and ‘general’ damages.” Further,  plaintiffs failed to allege that they did not owe these accounts or otherwise explain how the default judgments were defamatory, thus, negating any argument that defendants harmed plaintiffs’ reputation in conveying falsities regarding private financial information to third parties.

The court then visited the argument that by way of faulty proofs of service, plaintiffs were deprived of their right to notice and the opportunity to be heard, such that they were unable to challenge the collection actions. Here, the court again found plaintiffs’ complaint devoid of any such allegations. Interestingly, the court held, “And state court records show the Kline Plaintiffs have set aside the default judgments entered against them and Plaintiff Byrd does not assert she is unable to do so. Thus, at best, this is a risk of harm argument that is insufficient to establish concrete harm under Ramirez.”

Finally, as to any allegations of monetary loss, the general allegations that “garnishees withheld money” from plaintiffs were insufficient to establish concrete harm, particularly where with respect to each plaintiff, funds were either released, returned (prior to plaintiffs filing their federal lawsuit), or never held. 

In disposing of plaintiffs’ complaint without prejudice, the court noted that other courts have rejected the argument that the cost of hiring an attorney to defend a state collection action is sufficient to satisfy the injury-in-fact requirement. 

As to any opportunity to amend, the court disallowed this because plaintiffs had not filed any motion to amend nor attach a copy of a proposed amended complaint to their response to motion to dismiss. 

We have all not only seen our clients sued for (much) less but also – perhaps due to optics – on the hook for damages and fees in such situations. The court took a hard stance here, requiring the complaint to address injury, harm, and damages with specificity, and where it did not, finding it deficient as to standing. Plaintiffs’ failure to amend their complaint put the nail in the coffin in a suit we would otherwise expect to generate traction, particularly, where the underlying conduct had accompanying criminal charges.  

Kline, et al. v. Fishman Group, et al. (E.D. Mich. 2:21-11272 Feb. 28, 2022).

Filed under FDCPA

TCPA Family Feud – Survey Says: Second Circuit Rejects Third Circuit and Holds that a Faxed Invitation to Participate in a Market Research Survey in Exchange for Money Does Not Constitute an “Advertisement” Under the TCPA

By on February 28, 2022

Author: Thomas Blatchley

The Second Circuit recently affirmed a District Court dismissal, holding as a matter of first impression that an unsolicited faxed invitation to participate in a market research survey in exchange for money does not constitute an “unsolicited advertisement” under the Telephone Consumer Protection Act. See Bruce Katz, M.D., P.C. v. Focus Forward, LLC, 22 F.4th 368 (2d Cir. 2022). Looking to the statutory text, legislative history and FCC implementation, the Second Circuit rejected a recent Third Circuit decision and found that invitations to participate in a survey, without more, are not advertisements under the TCPA.

Plaintiff’s Complaint alleged that that on or about September 12, 2019, and October 25, 2019, Defendant sent Plaintiff two unsolicited faxes seeking participants in market research surveys, in violation of the TCPA, as amended by the Junk Fax Prevention Act. Both faxes explained that Defendant was “currently conducting a market research study and “offer[ed] an honorarium of $150 for [the recipient’s] participation in a . . . telephonic interview.” Plaintiff filed a putative class action alleging violations of the TCPA, seeking both injunctive relief and statutory damages. Defendant filed a Rule 12(b)(6) motion to dismiss, arguing that an unsolicited faxed invitation to participate in a market research survey does not constitute an “unsolicited advertisement under the TCPA. The District Court agreed and granted the motion to dismiss.

The TCPA, as amended by the JFPA, prohibits the use of “any telephone facsimile machine, computer, or other device to send, to a telephone facsimile machine, an unsolicited advertisement.” An “unsolicited advertisement” is defined by the statute as “any material advertising the commercial availability or quality of any property, goods, or services which is transmitted to any person without that person’s prior express invitation or permission.” Additionally, in 2006 the FCC promulgated a rule that construes the TCPA specifically proscribing any faxed surveys “that serve as a pretext to an advertisement,” which the Second Circuit previously considered in Physician’s Healthsource, Inc. v. Boehringer Ingelheim Pharmaceuticals, Inc., 847 F.3d 92, 96 (2d Cir. 2017) (held that an unsolicited fax promoting a free event could serve as a pretext for an advertisement, but only where the event had a “commercial nexus to a firm’s business, i.e., its property, products or services.”).

This appeal, as a matter of first impression, centered on the interpretation of what constitutes an “unsolicited advertisement” under the TCPA. Specifically, whether a fax inviting the recipient to take a survey in exchange for money constitutes an “advertisement” under the TCPA.

The Second Circuit began its analysis by recognizing that a split panel of the Third Circuit recently held in Fischbein v. Olson Research Group, 959 F.3d 559 (3d Cir. 2020) that such faxes are advertisements, reasoning that “an offer of payment in exchange for participation in a market survey is a commercial transaction, so a fax highlighting the availability of that transaction is an advertisement under the TCPA.” Not surprisingly, the plaintiff urged the Second Circuit to adopt Fischbein’s reasoning and conclusion. The defendant (and the District Court) relied on multiple district court decisions holding the opposite. Those decisions essentially concluded that mere invitations to participate in a survey, without more to render them a pretext for advertising, should not themselves be viewed as prohibited advertisements under the TCPA.

The Second Circuit agreed with the District Court that the subject faxes were not facially “advertisements” under the TCPA. Looking to the plain language of the TCPA, specifically the meaning of “unsolicited advertisement” (see definition above), the Court found that faxes seeking a recipient’s participation in a survey plainly do not advertise the commercial availability or qualify of any property, goods or services, and therefore cannot be “advertisements” under the TCPA. Notably, the Second Circuit disagreed with the majority opinion in Fischbein on whether the faxes could be construed as advertising the availability of a service. The Second Circuit, rejecting the Third Circuit interpretation, found that the TCPA neither prohibits communications advertising the availability of an opportunity nor does it prohibit communications advertising communications advertising the availability of transactions that are commercial in character. The TCPA simply prohibits communications advertising the “availability . . . of any property, goods or services.” Finally, the Second Circuit found that the legislative history of the TCPA and the FCC’s implementation of that law supported the defendant’s position that the faxes are not advertisements.

In summary, the Second Circuit held that a faxed invitation to participate in a market research survey in exchange for money does not constitute an “advertisement” under the TCPA. The decision is a significant victory for TCPA fax defendants, at least in the Second Circuit, and sets the stage for a continued Circuit split.

Filed under TCPA

Why You Should Wait to File a Motion for Summary Judgment in a “Hunstein” Claim – The Lessons of Khimmat

By on February 14, 2022

Author: Andrew Schwartz

Anyone who defends debt collectors is well aware of the Hunstein line of cases in the 11th Circuit. In the modified (Hunstein 1 and Hunstein 2, and, at-the-moment vacated Hunstein 2, pending en banc review) the 11th Circuit determined that the use of a letter vendor by a debt collector to print and mail collection letters to consumer could be deemed prohibited communication in violation of Section 1692c(b) of the Fair Debt Collection Practices Act (“FDCPA”).1 The 11th Circuit decisions seemingly ignored the intent and purpose of Section 1692c – to prevent embarrassment to a consumer through communications to friends, family members and employers. As a result, “Hunstein” lawsuits spread like dandelions.

However, until Khimmat v. Weltman, Weinberg and Reis Co., LPA, Civ. No. 2:21-CV-02944-JDW, 2022 WL 356561, at *1 (E.D. Pa. Feb. 7, 2022) no court has addressed the material claims in Hunstein (beyond dicta critical of Hunstein).

In the context of a motion for judgment on the pleadings, the Honorable Joshua D. Wolson in the United States District Court for the Eastern District of Pennsylvania, discerned that a debt collector’s use of a letter vendor could be a violation of 1692c(b) of the FDCPA.2

The decision examines whether the process of sending of consumer data to a letter vendor for the purposes of printing, folding and mailing a letter is a communication in connection with the collection of any debt with any person. The Court held that the transfer of data was a communication and that this communication was in connection with the collection of a debt. Finally, the Court left open whether the communication was to a person (i.e., whether the letter vendor perceives the content of the “communication” – whether a human read the information provided by the debt collector) and left this issue for further development of the record and summary judgment.

The Court addresses the FTC and CFPB’s indirect approval of the use of letter vendors by debt collectors. The conclusion of the Court seems correct in that the FTC and CFPB have not expanded on their general acknowledgment of the use of letter vendors to the conclusion that the use of such vendor comports with the FDCPA. It is this part of the decision that truly begs the question of when the CFPB is going take on the task of promulgating directives as to the lawful use of letter vendors. These directives are long overdue and should have been addressed in Regulation F. One can only hope that the CFPB addresses this issue with no further delay.

While this decision is unhelpful, it has some exceptional flaws. Most glaringly, when faced with the permissible use of telegram companies by a debt collector versus the use of a letter vendor, the court draws the incongruous conclusion that telegram companies are wire-based, regulated utilities and, as such, the transfer of data from a debt collector to a telegram company is different than that transfer of the same data via computer to a letter vendor. In reality, this is a distinction with no difference.
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1 Hunstein is premised on a motion to dismiss standard, not a summary judgment standard.
2 Again, under the motion to dismiss standard.

Filed under FDCPA

Are Lost Sleep and Annoyance Enough to Convey Standing?

By on February 4, 2022

Author: Melissa Manning

An ongoing question in consumer protection litigation is, how concrete does an injury need to be in order to confer standing?

Well, according to a recent Northern District of Illinois decision, a mere “sense of indignation,” “lost sleep” and “aggravated annoyance” won’t cut it. (Side note: This is probably for the best or the makers of Wordle might be in for a world of hurt.)

In Milisavljevic v. Midland Credit Management, LLC et al, 1:19-cv-08449, Milisavljevic was sued in state court after failing to make required payments towards his credit card debt. When he then filed no responsive pleading, defendant debt buyer sent Milisavljevic a copy of its filed motion for default judgment and an unsigned proposed judgment order. Thinking that the unsigned order meant he already lost in state court, Milisavljevic didn’t respond and a judgment order was indeed entered against him. Plaintiff then retained counsel to vacate the default judgment and file a purported class action against defendants for violations of the FDCPA alleging that defendants regularly present draft orders of judgment to the Illinois courts that are different than those they send to consumers in connection with the motions of default judgments they file in collection cases.

Unfortunately for Milisavljevic, the Court found that his allegations of  “severe emotional distress,” and “lost sleep” were not sufficient to confer standing under Article III. Quoting the Seventh Circuit in Gunn v. Thrasher, Buschmann & Voelkel, P.C., 982 F.3d 1069, 1072 (7th Cir. 2020) “the Supreme Court has never thought that having one’s nose out of joint and one’s dander up creates a case or controversy.”

What’s a five letter word for the Seventh Circuit’s response to dubious injury allegations: snark.

Filed under FDCPA

Significant Win in the USDC for the Northern District of Georgia

By on January 27, 2022

Author: Andrew Schwartz

Significant Win in the USDC for the Northern District of Georgia

Shipley v. Equifax Info. Servs., LLC, No. 1:20-cv-4295-JPB (N.D. Ga. Jan. 25, 2022).

What is a reasonable investigation of true identity theft under the Fair Credit Reporting Act, 15 U.S.C. §1681s-2(b)?

A thief (probably with one of those Snidley Whiplash mustaches) stole Ms. Shipley’s identity and rented an apartment in Georgia. Fair Collections & Outsourcing (“FCO”) was tasked with collecting the unpaid rent. The collection odyssey began in 2018, with a call to Ms. Shipley. During this call, Ms. Shipley claimed that she was a victim of identity theft and that she possessed proof that the subject debt arose from identity theft. She agreed to send this proof to FCO, but she did not follow through. The pattern continued over the years, FCO contacting Ms. Shipley, Ms. Shipley claiming she was a victim of identity theft and that she had proof. Ms. Shipley deciding not to follow through.

In 2020, Ms. Shipley sent a dispute letter to Equifax claiming she was a victim of identity theft. FCO received notice of the dispute from Equifax, triggering an obligation on FCO, the furnisher, to conduct a reasonable investigation of the alleged identity theft.

What did FCO do? It reviewed the dispute letter Ms. Shipley provided to Equifax. It reviewed the dispute information from Equifax – what the cool kids know as an “ACDV”. It reviewed the records from the creditor – the lease, the ledger, and the move out statement and it contacted the creditor. At each stage in FCO’s investigation, the personal identifying information matched (this being true identity theft, such a match is not surprising). So, FCO contacted Ms. Shipley and provided her with a fraud affidavit. Ms. Shipley elected not to respond to the fraud affidavit. Thereafter, FCO completed its investigation and verified the debt to Equifax as belonging to Ms. Shipley. Ms. Shipley finally responded by suing FCO for alleged violations of the FCRA.

After wrapping up discovery, FCO filed a motion for summary judgment, asserting that no reasonable finder-of-fact could find that FCO’s investigation was anything other than reasonable and in compliance with the FCRA. As most Plaintiffs are wont to do, Ms. Shipley strenuously opposed the motion, claiming that FCO could have done more in its investigation (handwriting analysis, driver’s license verification, and the like).

On October 29, 2021, the Magistrate Judge issued a Report and Recommendation in favor of FCO. Ms. Shipley objected, but the District Judge overruled the objections, holding that it is not what additional investigation could have been done by FCO, but whether the investigation FCO undertook was reasonable. And it was. And FCO won.

In so ruling, the Court set a standard for reasonable investigations in instances of alleged identity theft under the FCRA. If a furnisher received an identity theft dispute, and it reviews the dispute and documents accompanying the dispute, if it reviews its records and the records of the creditor, if it confirms the personal identifying information with the creditor and, also issues a fraud affidavit, the investigation is a reasonable investigation under Section 1681s-2(b) of the FCRA.

This was a rock solid win on a significant and hotly contested issue in consumer law. With the invaluable assistance of Jasmine Peele and Leslie Eason, in our Atlanta office and Matt Johnson, in our Philadelphia office, and the support (and guts) of FCO and its insurance carrier, Great American, we were able to score a significant victory for FCO and for the collection industry.

Filed under Fair Credit Reporting Act, FCRA

Ninth Circuit Affirms Summary Judgment in Favor of TCPA Defendant on Duguid Footnote 7 Argument

By on January 27, 2022

Author: Thomas Blatchley

On January 19, 2022, the Ninth Circuit affirmed a District Court’s Order granting summary judgment to defendant, holding that the subject dialing platform was not an automatic telephone dialing system or ATDS under the TCPA. Meier v. Allied Interstate LLC, Case No. 20-55286 (9th Cir. Jan. 19, 2022). The decision is yet another victory for TCPA defendants rejecting plaintiffs’ Duguid footnote 7 argument that an ATDS simply use a random number generator to determine the order in which to ptick numbers from a pre-produced list and then store those numbers to be dialed in the future.

On appeal, plaintiff-appellant argued that defendant’s LiveVox Platform is an ATDS under the TCPA. The LiveVox platform requires customers (including defendant) to upload lists of telephone numbers; it does not produce the numbers it dials using a random or sequential number generator. Significantly, during the pendency of the appeal, the U.S. Supreme Court held that an ATDS “must have the capacity either to store a telephone number using a random or sequential generator or to produce a telephone number using a random or sequential number generator.” Facebook, Inc. v. Duguid, 141 S. Ct. 1163, 1167 (2021).1

The Ninth Circuit found that plaintiff must show that the dialing platform stores telephone numbers using a random or sequential generator. Plaintiff-appellant did not argue that the LiveVox system stored telephone numbers using a random number generator, but instead argued that it stored telephone numbers using a sequential number generator because it uploads a customer’s list of numbers and produces them to be dialed in the same order they were provided, e.g., sequentially. The Ninth Circuit rejected this argument, finding that virtually every system that stores a pre-produced list of telephone numbers would qualify as an ATDS if it could also autodial the stored numbers. Of course, this is the same outcome the Supreme Court rejected in Duguid when it reversed a district court holding that an ATDS need only have the capacity to store numbers to be called and to dial such numbers automatically. Not surprisingly, the Ninth Circuit rejected plaintiff-appellant’s expansive interpretation and reliance on footnote 7 of the Duguid decision that endeavored to explain why Congress might have used both “produce” and “store” in the ATDS definition. Accordingly, the Ninth Circuit held that the LiveVox system did not qualify as an ATDS under the TCPA simply because it stores pre-produced lists of telephone numbers in the order in which they are uploaded.
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1 For a comprehensive overview of the Duguid decision, see here.

Filed under TCPA

Turned Out to Be a White Christmas After All

By on January 19, 2022

Authors: Avanti Bakane, Thomas Blatchley, and Mary Curtin

In a late December holiday present to furnishers everywhere, the Eleventh Circuit struck another blow to Plaintiffs’ “dispute/non-dispute” scheme wherein Plaintiffs seek to hold furnishers liable for failing to investigate a dispute, when in fact the furnishers have been notified by one or more credit reporting agencies that the account was no longer being disputed. In White v. Equifax Info. Serv’s LLC , Case No. 21-11840 (11th Cir. Dec. 23, 2021), the Court affirmed what Fair Credit Reporting Act (FCRA) reasonableness actually requires of furnishers faced with these tenuous claims.

The underlying facts are straightforward and recognizable to those in the industry. When Plaintiff Veda White observed in credit reports from two CRAs a notation that she disputed her Wells Fargo tradeline, she sent a letter to those CRAs saying she no longer disputed the tradeline. The CRAs then forwarded that letter to Wells Fargo asking that Wells Fargo investigate the dispute.

Because Wells Fargo had not received any direct contact from Plaintiff saying she no longer disputed the tradeline, Wells Fargo’s records indicated that the tradeline was still in dispute. Wells Fargo reported as much to the CRAs, who left the dispute notation on Plaintiff’s reports. After seeing that the notation remained, Plaintiff filed suit against Wells Fargo in federal court for the Northern District of Georgia alleging that it violated the FCRA by failing to investigate her dispute.

Here, two key facts made the difference for the panel: (1) the confusing nature of Plaintiff’s “non-dispute” letter to the CRAs and (2) the fact that the letter was sent to the CRAs and not to the furnisher, Wells Fargo.

Plaintiff’s letter to the CRAs, which is contained in the body of the Eleventh Circuit’s opinion, stated:

The panel rejected Plaintiff’s tortured arguments, which relied on the unreasonable assumption that the above correspondence should have informed the furnisher that the dispute was resolved and no longer disputed by Plaintiff. In a terse opinion of just eight pages, the Eleventh Circuit neatly dismantled Plaintiff’s theory, explaining:

What Ms. White wants Wells Fargo to do—either (1) to intuit that she no longer disputed the tradeline from her report to the CRAs or (2) to reach out to her directly to clarify and confirm that she no longer wished to dispute the tradeline—goes beyond what FCRA reasonableness requires.

However, furnishers and defense counsel alike should note that the Court took care to observe that perhaps there may be other, better practices available to furnishers, such as contacting the consumer to determine whether she was, as an initial matter, attempting to resolve the underlying dispute with that furnisher through the CRAs as an intermediary. Of note, the Court unequivocally held that such “better” practices are not what FCRA reasonableness requires. This direct and unwavering statement of the law from the Eleventh Circuit should stem the tide of FCRA “non-dispute” claims which have flooded federal dockets for the past few years.

Next up – we watch (and defend) as the ever-persistent plaintiffs’ bar tries to skirt White and similar rulings across the circuits by abandoning their FCRA theory and testing their “non-dispute” claims under the Fair Debt Collections Practices Act (FDCPA) instead.

A complete copy of the White v. Equifax Info. Serv’s, LLC opinion can be accessed via the Eleventh Circuit at this link.

Filed under Fair Credit Reporting Act, FCRA

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