Earlier this month, in Schweitzer v. Comenity Bank, the Eleventh Circuit held that a consumer can partially revoke consent to be called under the Telephone Consumer Protection Act (TCPA), This decision will only further complicate the already complex and treacherous net of liability cast by that statute.
What to do now about the new CFPB rule on arbitration? (1) begin planning now and (2) begin actual preparation after the 60 days runs.
Congress has 60 days after publication of the new CFPB rule to take action to stop the application of this rule. Publication occurred on Wednesday (July 19th). It is impossible to predict what Congress will do. However, we can be virtually certain that absent such Congressional action, this new rule will apply 180 days after those 60 days expire. While there are other possible hurdles for this rule (for instance, an expected lawsuit challenging the rule; a possible new CFPB Director in the future; a challenge to the CFPB’s structure, etc.), these other impacts are unlikely to prevent the rule from beginning to have application.
We suggest you use the next 60 days to plan but wait to make any substantial expenditures until it is certain what Congress will do. Here are some key questions which financial institutions should consider during those 60 days:
The Dodd Frank Act expressly provided that any CFPB rule on arbitration would not apply to existing contracts. 12 U.S.C. § 5518(d). Therefore, the CFPB rule released last week will only bar class action waivers for contracts “entered into after” the applicable date for the regulation (60 days after publication of the rule in the Federal Register and then 180 days after that date).
However, the CFPB has taken an aggressive position on what is an existing contract. Therefore, for existing customers, lenders and other “covered persons” will need to examine every change in any product or services they offer that is subject to the arbitration rule. If any “new product or service” is given to an existing customer, the new regulation applies to that product or service even if it is covered by the terms of an existing contract (assuming that the new product or service is within the scope of the rule). In such a case, the lender would need to amend the previous agreement or provide a new agreement for the new product and could not rely on the arbitration clause to avoid a class action.
The Consumer Financial Protection Bureau (CFPB) issued a rule on Monday prohibiting class action waivers in arbitration provisions of certain consumer contracts. The rule—to be codified at 12 C.F.R. § 1040—also requires covered businesses to submit records to the CFPB regarding any arbitration filed by or against their customers regarding covered products and services. The provided records will be made public and hosted by the CFPB on a searchable database. The likely impact of this rule (should it be allowed to go into effect) will be significant for financial institutions and dramatically alter their relationships with their customers.
Last month, the Eleventh Circuit rejected a plaintiff’s bid to keep her class action in state court even though CAFA’s local controversy exception would have required a remand. In Blevins v. Aksut, No. 16-11585, — F.3d —, (11th Cir. Mar. 1, 2017), the Court held that the “local controversy” exception to CAFA jurisdiction does not apply when the federal court has an independent basis for subject matter jurisdiction.
Elizabeth Blevins, on behalf of herself and a putative class, sued Seydi Aksut, M.D. and several affiliated persons and entities, alleging that they operated an unlawful scheme to defraud them. Dr. Aksut would allegedly falsely tell patients that they required heart surgery and would perform these unnecessary surgeries. The defendants would then bill patients for the procedures. After learning about the practice, Blevins filed suit in an Alabama state court, asserting that Dr. Aksut and his co-defendants violated the Racketeer Influenced and Corrupt Organizations Act. The defendants removed the case to federal court and moved to dismiss.
Blevins filed a motion to remand, contending that CAFA’s local-controversy provision prohibited the trial court from exercising jurisdiction. The local controversy exception directs federal courts to decline to exercise CAFA jurisdiction when certain criteria are met, including when two-thirds or more of the proposed class members are citizens of the state where the action was filed, the defendant is a citizen of the same state, and the principal injuries occurred in the same state.
The trial court denied Blevins’s motion to remand, and she appealed to the Eleventh Circuit, which affirmed. The Court explained that CAFA was one way to get class actions into federal court, not the exclusive way to do so. As such, the “local controversy” exception does not apply when a federal court has an independent basis for jurisdiction. In this case, the plaintiff asserted claims under a federal statute—RICO—which gave the district court federal question jurisdiction. The removal was proper on that basis. Interestingly, after affirming the denial of the motion to remand, the Eleventh Circuit reversed the district court’s dismissal of the lawsuit, holding that payments made to a medical provider are compensable injuries under RICO.
Blevins is a reminder that CAFA is not the only basis for removing a class action to federal court. Class actions could also be removed when they assert a claim under federal law, independently meet the requirements for diversity jurisdiction, the case relates to a bankruptcy proceeding, or there is some other independent basis for federal jurisdiction. Accordingly, when considering whether to remove, Defendants should remember to consider all possible bases for federal subject matter jurisdiction.
Since 2011, a Subcommittee of the Federal Rules Advisory Committee has been mulling changes to Rule 23 of the Federal Rules of Civil Procedure. On April 14, 2016, the Advisory Committee forwarded proposed changes to the Standing Committee on Rules of Practice and Procedure, recommending that they be published for public comment. On August 12, the Standing Committee published a draft. Any approved changes will be made effective December 1, 2018.
The most significant changes involve measures to deter “bad faith” objectors. Under the new Rule 23(e)(5)(B), the Court must approve any side payment to an objector or objector’s counsel associated with withdrawing an objection or abandoning an appeal from a judgment approving a settlement.
In a case sure to encourage more class action filings under Florida’s Unfair and Deceptive Trade Practice Act, the Eleventh Circuit upheld a Florida District Court’s certification of a class of consumers that purchased or leased 2014 Cadillac CTS Sedans in Florida. Carriulo et. al v. General Motors Company, Doc. No. 15-14442 (11th Cir. May 17, 2016) Opinion. The consumers alleged General Motors violated Florida’s Unfair and Deceptive Trade Practices Act by affixing window stickers to the CTS Sedans that claimed the vehicles received five-star safety ratings from the National Highway Traffic and Safety Administration (“NHTSA”). Id. 3-6. Specifically, the stickers represented each CTS Sedan received perfect five-star ratings in driver frontal crash tests, passenger frontal crash tests, and rollover crash tests. Id. But, the NHTSA had not yet rated the CTS Sedan. Id. The NHTSA later rated the CTS Sedan as five-star rated in driver frontal crash and rollover, but only awarded a four-star rating in passenger frontal crash tests. Id.
The consumers argued they incurred damages due to the erroneous stickers. GM argued that the predominance requirement for certifying a class was not met as “the liability question will be highly individualized because the buying and leasing experiences of each proposed class member was not uniform.” Id. p. 11. Specifically, some buyers may not have seen the sticker, may not have relied on it, may not have cared about safety, and each proposed class member’s price negotiation would have been different. Id. The Eleventh Circuit (and the District Court) rejected this argument, noting:
“Because a plaintiff asserting a FDUTPA claim ‘need not show actual reliance on the representation or omission at issue,’ the mental state of each class member is irrelevant. In Davis, the First District Court of Appeal of Florida recognized that the absence of a reliance requirement means ‘the impediment to class litigation that exists for multiple intrinsic fraud claims does not exist’ in FDUTPA cases. Thus, General Motors is incorrect to suggest that the plaintiffs must prove that every class member saw the sticker and was subjectively deceived by it.”
Id. p. 11.
The Eleventh Circuit went on to address damages and causation, holding:
Moreover, because the injury is not determined by the plaintiffs’ subjective reliance on the alleged inaccuracy, causation and damages may also be amenable to class-wide resolution. FDUTPA damages are measured according to ‘the difference in the market value of the product or service in the condition in which it was delivered and its market value in the condition in which it should have been delivered according to the contract of the parties.’” Rollins, Inc. v. Heller, 454 So. 2d 580, 585 (Fla. Dist. Ct. App. 1984) (quotation omitted).
* * *
“The plaintiffs may show that a vehicle presented with three perfect safety ratings is more valuable than a vehicle presented with no safety ratings. General Motors received the same benefit of the bargain from the sale or lease to each class member — even if individual class members negotiated different prices — because a vehicle’s market value can be measured objectively.
As the district court recognized here, a manufacturer’s misrepresentation may allow it to command a price premium and to overcharge customers systematically. Even if an individual class member subjectively valued the vehicle equally with or without the accurate  sticker, she could have suffered a loss in negotiating leverage if a vehicle with perfect safety ratings is worth more on the open market. As long as a reasonable customer will pay more for a vehicle with perfect safety ratings, the dealer can hold out for a higher price than he would otherwise accept for a vehicle with no safety ratings.”
Id. pp. 13-15.
GM also argued that since two of the three five-star ratings actually turned out to be true, consumers could not maintain claims as to those ratings. The Eleventh Circuit rejected this argument also, declaring “[a] defendant may not escape FDUTPA liability under Florida law merely because a deceptive or misleading statement later turns out to be true. The injury occurs at the point of sale because the false statement allows the seller to command a premium on the sales price.”
Although this statement begs the question, “if the statement turns out to be true, isn’t a premium price warranted?” the Eleventh Circuit did not address that question– nor did it address the Supreme Court’s Spokeo injury-in-fact requirement.
This decision shows that financial services clients should take FDUPTA class allegations seriously and should brace for the filing of more such claims.
The Alabama legislature recently adopted legislation to prevent class actions in federal court under the Alabama Deceptive Trade Practice Act (“ADTPA”). As reported here last summer, the Eleventh Circuit held in Lisk v. Lumber One Wood Preserving LLC, 792 F.3d 1331 (11th Cir. 2015) that the ADTPA’s prohibition on class actions does not apply in federal court. Thus, a private plaintiff could bring a class action under the ADTPA by suing in federal court. Not surprisingly, several plaintiff counsel began bringing these previously unavailable class actions following the Lisk decision.
Last week, the Consumer Financial Protection Bureau (“CFPB”) issued a proposed rule which would prohibit mandatory arbitration provisions in millions of banking contracts, including contracts with consumers for credit cards and bank accounts. While financial institutions would still be allowed to offer arbitration as an option to customers individually, they would no longer be able to require it be done individually for claims brought as class actions. The intended, and drastic, result of the rule is that consumers would be free to join together in class action suits against their financial institutions for grievances which they had previously only been able to negotiate individually.
A class action filed last week in the Northern District of Georgia disputes the ability of a lender to charge post-payment interest for certain home mortgage loans when the lender has not provided a very specific disclosure form. In Felix v. SunTrust Mortgage, Inc., No. 16-66, Sarah Felix alleges the she took out an FHA-insured loan in in 2009. When she sold her home in 2015, she requested a payoff statement from the lender. According to Ms. Felix, the lender sent the payoff statement on April 6 and included interest for the entire month of April in the total payoff amount. Though Ms. Felix paid off the loan on April 8, she alleges that she was still charged interest for the entire month of April.