Ninth Circuit Reverses Approval of Class Settlement: Incentive Awards to Representatives Cannot Be Conditioned on Supporting Settlement
The U.S. Court of Appeals for the Ninth Circuit recently reversed a district court's approval of a class action settlement in a case involving claims under the Fair Credit Reporting Act and its California counterpart. In Radcliffe v. Experian Info. Solutions, Inc., the court held that the class representatives and class counsel had not adequately represented the interests of the absent class members and thus had deprived them of due process.
The settlement agreement conditioned incentive awards to the named plaintiffs on their support of the settlement, and the court concluded that this created a conflict of interest that essentially decimated the adequacy of the representation of the class. "We once again reiterate that district courts must be vigilant in scrutinizing all incentive awards to determine whether they destroy the adequacy of the class representatives."
Court of Appeal Reverses Denial of Class Certification Based on Rees-Levering
In Ramirez v. Balboa Thrift and Loan, the 4th District Court of Appeal reversed the trial court's denial of plaintiff's class certification motion, holding the trial court based its ruling on an inaccurate interpretation of Rees-Levering.
In Ramirez, plaintiff purchased a car with financing assigned to defendant Balboa, defaulted on payments and surrendered the car. Balboa sent plaintiff a "Notice of Intention to Dispose of Motor Vehicle" (NOI). Plaintiff did not seek to reinstate the loan, but later sent a $25 payment. Balboa wrote off the loan and reported the account as charged off on plaintiff's credit report. Plaintiff filed a putative class action alleging a 17200 cause of action based on alleged violations of Rees-Levering. Specifically, plaintiff alleged that Balboa's NOI violated section 2983.2(a)(2) of Rees-Levering because it did not contain the specific "conditions precedent" to reinstatement of the loan.
Continue Reading...Ninth Circuit En Banc Panel Upholds Arbitration Provision, Declines to Consider Whether Concepcion Preempts Broughton-Cruz.
Last year, in Kilgore v. Keybank, a three judge panel held that the Federal Arbitration Act (FAA) preempted California's Broughton-Cruz rule, which exempts a public injunction claim from arbitration. (See Broughton v. Cigna and Cruz v. Pacificare). In Kilgore, former students of Silver State, a now-defunct private helicopter school, filed a putative class action case against Key Bank and other defendants for violations of California's Unfair Competition Law after the school closed its doors and filed for bankruptcy, leaving plaintiffs without a diploma, certificate, or other accreditation. Plaintiffs each borrowed between $50,000 and $60,000 from KeyBank to finance their vocational education and signed loan contracts containing an arbitration clause which stated that plaintiffs waived their rights to litigate any claim in court or proceed with any claim on a class basis unless the plaintiffs opted out of the arbitration clause by a date certain. The three judge panel held that the Broughton-Cruz rule did not survive the Supreme Court's landmark decision in AT&T Mobility LLC v. Concepcion because the Rule "prohibits outright the arbitration of a particular type of claim" and reversed the district court's denial of the plaintiffs' motion to compel arbitration.
The en banc panel, however, declined to rule on the issue of whether Concepcion preempts Broughton-Cruz. Instead, the Court found that it did not need to reach the broad issue of whether or not Broughton-Cruz remains viable because the plaintiffs' claims in this instance did not fall within Broughton-Cruz' purview. (See Kilgore v. Keybank.) Specifically, the Court held that plaintiffs' claims did not fall within the "narrow exception to the rule that the FAA requires state courts to honor arbitration agreements" because the requested prohibitions against reporting defaults or seeking enforcement of the subject notes would only benefit approximately 120 putative class members. The Court noted that the central premise of Broughton-Cruz is that "the judicial forum has significant institutional advantages over arbitration in administering a public injunctive remedy, which as a consequence will likely lead to the diminution or frustration of the public benefit if the remedy is entrusted to arbitrators." The Court found that the concern for the public at large was inapplicable here because, by plaintiffs' own admission, the class affected by the alleged practices is small, the alleged statutory violations have ceased, and there is no real prospective benefit to the public at large from the relief sought by plaintiffs.
The Court also held that the requested injunction against disbursing loans to sellers who do not include Holder Rule language in their contracts fell outside of the Broughton-Cruz rule because it only related to past harms. As alleged in the plaintiffs' complaint, KeyBank has since completely withdrawn from the private school loan business and is not engaging in other comparable transactions.
Consequently, the en banc panel reversed the denial of defendants' motion to compel arbitration and remanded with instructions to compel arbitration.
Continue Reading...HAMP Requires Mortgage Servicers to Offer Permanent Loan Modification to TPP-compliant Borrowers
In West v. JPMorgan Chase, a California Court of Appeal held that when a defaulting mortgage borrower enters into a temporary loan payment reduction plan with the mortgage servicer under the Home Affordable Mortgage Program ("HAMP"), and when the borrower complies with the terms of the plan, HAMP requires the loan servicer to offer the borrower a permanent loan modification.
In 2008, Congress responded to the rapidly deteriorating financial market conditions by enacting the Emergency Economic Stabilization Act, the centerpiece of which was the Troubled Asset Relief Program ("TARP"). TARP required the Secretary of the Treasury to "implement a plan that seeks to maximize assistance for homeowners and . . . encourage the servicers of the underlying mortgages . . . to take advantage of . . . available programs to minimize foreclosures." 12 U.S.C. 5219(a). Pursuant to that authority, the Treasury Secretary implemented HAMP, which induced lenders, with financial incentives, to refinance mortgages with more favorable interest rates and allow homeowners to avoid foreclosure.
Continue Reading...First Appellate District Upholds Arbitration Provision in Adhesive Consumer Contract
After an extensive analysis of procedural and substantive unconscionability, the First District California Court of Appeal upheld an arbitration provision contained in an adhesive, form automobile finance contract. In Vasquez v. Greene Motors, Inc., the First District reversed the trial court's order finding procedural and substantive unconscionability and denying arbitration on those grounds. Citing AT&T Mobility LLC v. Concepcion, the appellate court also rejected the plaintiff's argument that the arbitration provision was unconscionable because it contained a class action arbitration waiver and prohibited the arbitration of "public" claims. The First District ordered the trial court to enter an order directing arbitration under the terms of the sales contract.
Plaintiff Vasquez sued a car dealer and the assignee of his loan for damages in connection with the terms of his auto financing. The trial court denied the defendants' petition to compel arbitration on the ground that the provision was unconscionable. The First District reversed and remanded.
U.S. Supreme Court Reverses 3rd Circuit On Class Certification
In Comcast v. Behrend, a class-action antitrust case, the U.S. Supreme Court held that the class was improperly certified under Rule 23(b)(3) because the plaintiffs' damages model was not limited to only those damages attributable to plaintiffs' theory of recovery.
In Comcast, subscribers to Comcast's cable-television services alleged that Comcast obtained an illegal monopoly of the cable television market and engaged in conduct designed to exclude and prevent competition. Specifically, the plaintiffs alleged that Comcast and its subsidiaries allegedly "clustered" their cable television operations within the Philadelphia market by swapping their systems outside the region for competitor systems inside the region, thereby eliminating competition and holding prices for cable services above competitive levels. The plaintiffs proposed four theories of antitrust impact which allegedly increased cable subscription rates throughout the Philadelphia area.
The district court certified the class and limited the plaintiffs' four theories of antitrust impact to just one theory that Comcast engaged in anti-competitive clustering conduct that deterred the entry of "overbuilders," (i.e., companies that build competing networks in areas where an incumbent cable company already operates), into the Philadelphia area. The district court found that the damages from Comcast's deterrent efforts could be calculated on a class-wide basis, even though the plaintiffs' expert acknowledged that his regression model did not isolate damages resulting from any one of plaintiffs' theories. Comcast appealed.
On appeal, Comcast contended that the class was improperly certified because plaintiffs' damages model failed to quantify damages from overbuilder deterrence, the only theory of injury remaining in the case. A divided panel of the Third Circuit Court of Appeals affirmed the district court's class certification, finding that Comcast's attacks on the merits of the methodology had no place in the class certification inquiry. The court further held that Comcast's contentions did not refute the district court's holding that plaintiffs would be able to measure class-wide damages through a common methodology.
Ninth Circuit: Removal Clock In CAFA Case Not Triggered When Complaint Silent On Amount In Controversy
The Supreme Court in Kuxhausen v. BMW Financial Services held that the removal clock under Section 1446(b) is not triggered when a plaintiff's complaint fails to state all the facts necessary for diversity jurisdiction under the Class Action Fairness Act (CAFA).
In Kuxhausen, the plaintiff filed a putative class action complaint against a car dealership and BMW Financial Services (BMW) for numerous violations arising out of a retail installment contract that allegedly included unconscionable arbitration clauses and falsely indicated that registration and/or titling fees were not applicable to a vehicle purchase. The plaintiff subsequently filed a first amended complaint which added a new group of California consumers.
BMW then removed the case to federal court based on CAFA. The plaintiff moved to remand on the grounds that BMW's removal was untimely. The district granted plaintiff's motion to remand, and BMW sought leave to appeal, which the 9th Circuit granted.
On appeal, BMW argued that its removal was timely because plaintiff's original complaint did not contain all of the facts necessary for diversity jurisdiction. Specifically, BMW argued that the thirty-day period for removing plaintiff's original complaint was not triggered because it did not reveal that the amount in controversy exceeded CAFA's five million dollar threshold.
Continue Reading...CFPB Releases 2013 FDCPA Report
The Consumer Financial Protection Bureau last week released its 2013 Annual Report on the Fair Debt Collection Practices Act.
The annual report (1) provides background on the FDCPA and the debt collection market;
(2) summarizes the CFPB's Consumer Response function and the number and types of
consumer complaints regarding debt collection received by the FTC in 2012; (3) describes the
CFPB’s supervision program as it relates to debt collection; (4) presents recent developments
in the CFPB and FTC’s law enforcement and advocacy programs; (5) discusses recent
education and outreach initiatives; (6) discusses recent research and policy initiatives; and (7)
discusses coordination and cooperation between the CFPB and the FTC in the administration
of the FDCPA.
US Supreme Court: Stipulation Can't Defeat CAFA Jurisdiction
The Supreme Court in Standard Fire Ins. Co. v. Knowles held that a named plaintiff's stipulation purporting to limit damages to less than $5 million cannot defeat federal court jurisdiction under the Class Action Fairness Act (CAFA).
In Standard Fire, the plaintiff in a putative class action complaint signed a sworn stipulation affirming that neither Plaintiff nor the class would seek damages in excess of $5 million, including costs and attorneys' fees. After defendant removed the case to federal court based on CAFA, plaintiff moved to remand, arguing his stipulation defeated CAFA's $5 million in controversy requirement. The district court remanded. Defendant appealed, but the 8th Circuit declined to hear the appeal. The Supreme Court granted certiorari to resolve a split between the circuits over whether such a damages stipulation can defeat CAFA jurisdiction.
Holder Rule Not Limited to Transactions Rendered Worthless
In Lafferty v. Wells Fargo Bank, a California Court of Appeal recently held that the Holder Rule, which allows a buyer to assert against the holder of a consumer credit contract all claims that he or she could assert against the seller, applies regardless of whether the seller's breach rendered the transaction worthless to the buyer.
The Holder Rule, originally adopted by the FTC in 1975, was designed to protect a consumer from being without a remedy after purchasing a product on credit terms, learning the product is defective, and being refused promised maintenance by the seller, who has assigned the debt to a third party. Absent a rule allowing the buyer to assert claims against the third-party holder of the credit contract, a buyer is "robbed of the only realistic leverage he possessed that might have forced the seller to provide satisfaction - his power to withhold payment." Lafferty at *6 (citing 41 Fed. Reg. 20022 (1976)).
In Lafferty, the plaintiffs had purchased a motor home and financed that purchase with an installment contract. When the motor home turned out to be defective, neither the seller nor the manufacturer repaired it. The buyers brought suit against, inter alia, Wells Fargo, the assignee of the installment contract. The trial court sustained Wells Fargo's demurrer, finding that the Holder Rule did not apply because the seller's breach of contract did not render the motor home worthless. The appellate court reversed.
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