Second Circuit Holds That TCPA Does Not Permit Consumer to Unilaterally Revoke Consent for Telephone Contact Provided in Binding Contract

By: Diana M. Eng and Andrea M. Roberts

In Reyes v. Lincoln Automotive Financial Services, the United States Court of Appeals for the Second Circuit recently held that the Telephone Consumer Protection Act (“TCPA”) does not permit a consumer to unilaterally revoke consent to be contacted by telephone when such consent is given as bargained-for consideration in a binding contract. Reyes v. Lincoln Automotive Fin. Servs., 2017 WL 3675363 (2d Cir. June 22, 2017).

Background

In 2012, Plaintiff-Appellant, Alberto Reyes, Jr. (“Plaintiff”), leased a car which was financed by Defendant-Appellee, Lincoln Automotive Financial Services (“Lincoln”). The lease contained a provision which expressly permitted Lincoln to contact Plaintiff. Plaintiff stopped making payments under the lease and, as a result, Lincoln called Plaintiff in an attempt to cure his default. Plaintiff disputed his balance on the lease and alleged that he requested that Lincoln cease contacting him. Despite Plaintiff’s alleged revocation of consent, Lincoln continued to call Plaintiff. As such, Plaintiff filed a complaint in the Eastern District of New York alleging violations of the TCPA.

The TCPA was enacted to protect consumers from “unrestricted telemarketing” which could be “an intrusive invasion of privacy.” See Mims v. Arrow Fin. Servs., LLC, 565 U.S. 368, 371 (2012) (internal citations omitted). Under the TCPA, any person within the United States is prohibited from “initiat[ing] any telephone call to any residential telephone line using an artificial or prerecorded voice to deliver a message without the prior express consent of the called party.” 47 U.S.C. 227(b)(1)(B).

Lincoln moved for summary judgment to dismiss the complaint, and the district court granted the motion, holding that (1) Plaintiff had failed to produce sufficient evidence to establish that he revoked his consent to be contacted and (2) the TCPA does not permit a party to a legally binding contract to unilaterally revoke bargained-for consent to be contacted by telephone. Plaintiff appealed both rulings.

The Second Circuit’s Decision

The Second Circuit affirmed the district court’s holding that under the TCPA, a consumer cannot unilaterally revoke its consent to be called when such consent was part of a bargained-for exchange.[1] In assessing whether a party can revoke prior consent under the TCPA, the Second Circuit agreed with the holdings of its sister courts that a party can revoke prior voluntary or free consent under the statute. See Gager v. Dell Financial Services, 727 F.3d 265 (3d Cir. 2013) (plaintiff permitted to revoke consent, where consent was provided in an application for a line of credit); Osorio v. State Farm Bank F.S.B., 746 F.3d 1242 (11th Cir. 2014) (plaintiff could revoke consent, where consent was provided in an application for auto insurance). The Second Court noted, however, that unlike in Gager and Osorio, Plaintiff’s consent was not provided gratuitously. Rather, Plaintiff’s consent was included as an express provision of a contract with Lincoln. Accordingly, the Second Circuit drew a distinction between the definition of consent under tort and contract law. Specifically, in tort law, the term “consent” is defined as a “voluntary yielding to what another purposes or desires.” Black’s Law Dictionary (10th ed. 2014). However, under contract law, “consent to another’s actions can ‘become irrevocable’ when it is provided in a legally binding agreement, in which case any ‘attempted termination is not effective.’” See Restatement (Second) of Torts 892A(5) (Am. Law Inst. 1979); see also 13-67 Corbin on Contracts 67.1 (2017).

The Second Circuit also determined that a contractual term need not be “essential” to be enforced as part of a binding agreement and that contracting parties are bound to perform on the agreed upon terms; a party who agreed to a valid term in a binding contract cannot later renege on that term or unilaterally declare that it no longer applies simply because the contract could have been performed without it. “[R]eading the TCPA’s definition of ‘consent’ to permit unilateral revocation at any time, as [Plaintiff] suggests, would permit him to do just that,” and the Second Circuit could not “conclude that Congress intended to alter the common law of contracts in this way.” (citation omitted).

Conclusion

This decision is significant, as it addressed the novel issue of whether consent that is given as part of a bilateral contract may be unilaterally revoked by a consumer under the TCPA. Based on Reyes, financial institutions that have consent provisions in binding contracts with consumers have a powerful defense against TCPA claims. In practice, if a contract with a consumer contains an express consent provision, the financial institution would need to agree to the consumer’s request to revoke. Financial institutions should also be cognizant that a consumer, who provides consent to be called in an application, may unilaterally revoke such consent.

[1] The Second Circuit also held that the district court erred in finding that no reasonable jury could find that Plaintiff revoked his consent, as Plaintiff had introduced sworn testimony of revocation. However, this error does not impact the ruling that Plaintiff nevertheless cannot unilaterally revoke his consent under the TCPA when such consent is part of a binding contract.

Florida Second District Court of Appeal Ruling Highlights the Possible Pitfalls of Relying on Prior Servicer Records

By: Michael R. Esposito

Florida’s Second District Court of Appeal (“Second District Court”) recently held that a mortgagee failed to demonstrate it satisfied the condition precedent in a residential mortgage foreclosure. Allen v. Wilmington Trust, N.A., 2D15-2976, 2017 WL 1325896 (Fla. 2d DCA 2016). In Allen, the underlying mortgage contained the standard provision which requires a lender/servicer to notify the borrower of a default prior to the loan being accelerated and a foreclosure filed. In addition to the foregoing provision, the mortgage specified that any notice mailed in relation to the instrument “shall be deemed to have been given to [b]orrower when mailed by first class mail or when actually delivered to [b]orrower’s address if sent by other means.” Prior to the commencement of the action, a notice of default was mailed to the borrower by the prior loan servicer, EMC Mortgage Corporation (“EMC”), in accordance with the provision. Thereafter, Wilmington Trust, N.A. (“Wilmington”) filed a complaint on or about November 21, 2012, seeking foreclosure of the subject mortgage. In response to the lawsuit, the borrower denied Wilmington satisfied all conditions precedent to filing the lawsuit and raised an affirmative defense that asserted Wilmington failed to establish that a notice of default was provided as required by the mortgage.

During the bench trial, a corporate representative of the current servicer testified on behalf of Wilmington. The witness testified as to the boarding process used to verify the accuracy of the records of EMC and specified the related business records included a notice of default that was addressed to the borrower and dated March 12, 2010. Further, the witness testified that because the letter existed, it had been sent to the borrower and there were no records indicating the notice was returned as undeliverable. More importantly, the witness confirmed the business records associated with the loan did not specifically show the notice was actually mailed to the borrower and she was unable to testify as to EMC’s mailing procedures. In response, the borrower objected to the witness’ testimony that EMC mailed the notice and argued Wilmington failed to establish the appropriate foundation for the testimony since she was unfamiliar with the prior servicer’s procedures. Despite the trial court’s denial of the objection, the borrower argued at the close of the bench trial that Wilmington neglected to demonstrate it satisfied the condition precedent of mailing the notice of default. Ultimately, the trial court held the witness’ testimony as to the boarding process was sufficient to show Wilmington satisfied the condition precedent and entered a final judgment of foreclosure in favor thereof.

In reviewing the matter, the Second District Court held the trial court incorrectly relied on the boarding process to prove the notice of default was actually mailed. Although the witness’ testimony as to the boarding process was sufficient to support the admission of the notice of default, the Second District Court concluded that the testimony and evidence proffered failed to establish the notice of default was mailed to the borrower. In support of its conclusion, the Second District Court cited to Burt v. Hudson & Keyse, LLC, 138, So. 3d 1193 (Fla. 5th DCA 2014) and held that while the notice of default was dated, it did not contain any proof that the notice was mailed to the borrower. Without proffering further evidence of proof of regular business practice, an affidavit swearing that the notice of default was mailed, or a return receipt, Wilmington was only able to rely upon the testimony of its witness, who was unable to show personal knowledge of EMC’s general practice in mailing letters. As a result, the Second District Court reversed and remanded the action for dismissal since Wilmington was unable to demonstrate the notice of default was mailed pursuant to an established business procedure of EMC and, therefore, could not prove the required condition precedent was satisfied.

This case highlights the litigation risks associated with service transferred loans and the importance of current loan servicers obtaining all relevant business records and/or education on prior servicer policies and procedures.

U.S. Supreme Court Rules that New York General Business Law § 518 Regulates Free Speech Provided for in the First Amendment

By: Jonathan M. Robbin

In a unanimous decision in Expressions Hair Design, et. al. v. Schneiderman, Attorney General of New York, et al., the United States Supreme Court held that New York General Business Law (“GBL”) § 518, which prohibits the ability of a merchant to impose a surcharge on a credit card user in lieu of payment of cash, regulates free speech. In sum, the Court concluded that § 518 specifically restricts how a merchant communicates prices of items, rather than the actual price and surcharge.

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Second Circuit Holds Payoff Letter Stating that “Total Amount Due” May Include Other Amounts that Are Not Yet Due Does Not Satisfy FDCPA Amount Due Requirement

By:      Jonathan Robbin and Thomas Brodowski

In Andrew Carlin, individually and on behalf of a class v. Davidson Fink LLP, Case No. 15-3105-cv (2d Cir. March 29, 2017),[1] the Second Circuit vacated an order and judgment of the District Court in favor of a debt collector, holding (1) that a mortgage foreclosure complaint is not an “initial communications” for purposes of § 1692g liability; and (2) that a Payoff Statement including the language “estimated fees, costs, additional payments, or escrow disbursements not yet due” does not state the “amount of the debt” as required by the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (“FDCPA”).

In June 2013, Davidson Fink filed a foreclosure complaint (the “Complaint”) against Carlin, seeking to foreclose on a 2005 mortgage given by Carlin that was allegedly in default. The Complaint included a “Notice Required by the Fair Debt Collection Practices Act,” which referred Carlin to the Complaint for the “amount of the debt” and notified Carlin that he had thirty (30) days to dispute the validity of the debt. The Complaint, however, failed to state the amount of the debt.

Thereafter, Carlin sent Davidson Fink a letter on July 12, 2013 disputing the debt and requesting a verification of the exact amount purportedly owed. In response, Davidson Fink sent Carlin a letter dated August 9, 2013 which contained, among other things, a Payoff Statement. The Payoff Statement identified a “Total Amount Due” of $205,261.79. But, in small print below the amount due, the Payoff Statement included the following disclaimer:

“To provide you with the convenience of an extended “Statement Void After” date, the Total Amount Due may include estimated fees, costs, additional payments and/or escrow disbursements that will become due prior to the “Statement Void After” date, but which are not yet due as of the date this Payoff Statement is issued.”

Notably, the Payoff Statement did not include the amounts of the estimated fees, costs, or additional payments, nor did the Payoff Statement indicate how those amounts were calculated. Consequently, Carlin sued Davidson Fink for alleged violations of the FDCPA. Davidson Fink filed a motion to dismiss, which the District Court originally denied, but then reversed its ruling following Davidson Fink’s subsequent motion for reconsideration. Carlin appealed.

Under the FDCPA, a debt collector must, within five days after an initial communication with a consumer debtor in connection with the collection of any debt, send the consumer a written notice containing the amount of the debt. See 15 U.S.C. § 1692g(a). The FDCPA does not define an “initial communication,” but states that “[a] communication in the form of a formal pleading in a civil action shall not be treated as an initial communication for purposes of subsection (a) of this section.” 15 U.S.C. § 1692g(d) (added by the Financial Services Regulatory Relief Act of 2006, Pub. L. No. 109-351, § 802(a), Stat. 1966, 2006-07 (2006)). As such, the Second Circuit also held that mortgage foreclosure complaints are not “initial communications” for purposes of § 1692g liability.

Despite the Complaint not being the initial communication, the Second Circuit held that Davidson Fink’s follow-up August 9, 2013 letter (“August Letter”) constituted the “initial communication” and was sent in connection with the collection of the debt.[2] Having determined that the August Letter was an initial communication sent to collect a debt, the Second Circuit also held that the amount of the debt stated in the August Letter was insufficient under § 1692g. Using the least sophisticated consumer standard, the Second Circuit held that because the Payoff Statement did not identify the “estimated fees, costs, [and] additional payments,” nor did it explain how those amounts are calculated, the Court was unable to determine if those amounts were properly part of the debt owed.[3] Thus, absent fuller disclosure, an unsophisticated consumer would not be able to do so either.

The Second Circuit emphasized that debt collectors like Davidson Fink can take added measures to shield themselves from FDCPA liability by revising their standard payoff statements or by including the safe harbor language formulated in the Avila v. Riexinger & Assocs., LLC[4] case.

Thus, debt collectors should ensure that Payoff Statements are clear and ambiguous as to the date in which the amount stated in the payoff will be good through and that if the funds are not received by that date, payment will increase over time.

[1] Carlin v. Davidson Fink LLP, 2017 U.S. App. Lexis 5438 (2d Cir. March 29, 2017)

[2] Plaintiff Carlin argued his July 12, 2013 letter to Davidson Fink constituted the “initial communication” but, it is well-settled that communications initiated by debtors to debt collectors are not “initial communications” under the FDCPA. See, e.g. Derisme v. Hunt Leibert Jacobson P.C., 880 F. Supp. 2d 339, 367-68 (D. Conn. 2012); Lane v. Fein, Such & Crane, LLP, 767 F. Supp. 2d 382, 387 (E.D.N.Y. 2011); Gorham-Dimaggio v. Countrywide Home Loans, Inc., No. 1:05-cv-0583, 2005 WL 2098068, at *2 (N.D.N.Y. Aug. 30, 2005).

[3] The FDCPA defines “debt” as “any obligation or alleged obligation of a consumer to pay money arising out of a transaction…, whether or not such obligation has been reduced to judgment.” 15 U.S.C. § 1692a(5).

[4] 817 F.3d 72 (2d Cir. 2016) (holding though not required by the text of the statute, a notice would also satisfy § 1692g if it used language such as: “As of today, [date], you owe $  . This amount consists of a principal of $   , accrued interest of $   , and fees of $   . This balance will continue to accrue interest after [date] at a rate of $   per [date/week/month/year].”).

Second Circuit Upholds Bankruptcy Court Order Denying Borrowers’ RESPA Claim on the Grounds the QWR Was Mailed to the Incorrect Address

By: Andrea M. Roberts

In Barry F. Mack v. ResCap Borrower Claims Trust, Case Number 16-304 (2d Cir. Jan. 31, 2017) the Second Circuit recently affirmed the Bankruptcy Court’s order sustaining Residential Capital, LLC’s (“ResCap”) objection to the borrowers, Barry and Cheryl Mack’s (“Borrowers”) Proof of Claim for damages based on, among other things, failure to respond to a Qualified Written Request (“QWR”) in violation of the Real Estate Settlement Procedures Act (“RESPA”). The Second Circuit held that Borrowers’ Proof of Claim was properly denied, because Borrowers did not mail the QWR to the designated address and therefore, ResCap’s lack of response did not violate RESPA.

In 2009 Borrowers sent a QWR to GMAC Mortgage LLC (“GMAC”) querying why an erroneous foreclosure action against them remained pending even though GMAC had notified them that they were not in default. Notably, Borrowers did not send the QWR to the address designated by GMAC for receipt of QWRs. Instead, Borrowers sent the QWR to the address designated for “General Inquiries.” GMAC never responded to Borrower’s QWR.

In May 2012, ResCap and 51 of its subsidiaries, including GMAC, filed for bankruptcy.[1] Borrowers timely filed a Proof of Claim for money damages premised upon, among other things, a violation of RESPA for GMAC’s failure to respond to the QWR. After a trial, the Bankruptcy Court sustained ResCap’s objection to the Borrower’s RESPA claim on the grounds that the Borrowers failed to mail the QWR to the correct address. Borrowers appealed.

Under RESPA, a mortgage servicer can “establish a designated address for QWRs.” See Roth v. CitiMortgage Inc., 756 F.3d 178, 181 (2d Cir. 2014). If a servicer designates a specific address for receipt of QWRs, “then the borrower must deliver its request to that office in order for the inquiry to be a ‘qualified written request.’” Id. (quoting RESPA, § 6, Transfer of Servicing of Mortgage Loans (Regulation X), 59 Fed. Reg. 65,442, 65,446 (Dec. 19, 1994)). The failure to send the QWR to a servicer’s designated address “does not trigger the servicer’s duties under RESPA.” Id. (quoting Berneike v. CitiMortgage, Inc., 708 F.3d 1141, 1148-49 (10th Cir. 2013).

The Second Circuit found that although there is no dispute that the Borrowers sent a QWR to GMAC, and GMAC failed to respond to the QWR, because Borrowers did not send the QWR to GMAC’s designated address for receipt of QWRs, the duty to respond to the Borrower’s letter under RESPA was never triggered. Therefore, GMAC did not violate RESPA. Accordingly, the Second Circuit held that the Bankruptcy Court properly sustained ResCap’s objection to the Borrowers’ RESPA claim.

In practice, borrowers or their counsel have attempted to attach purported QWRs to pleadings and then allege RESPA violations for failure to respond. This decision confirms that financial institutions cannot be liable under RESPA if the QWR is not directed to the designated address.

[1] GMAC is a named debtor under the Borrower Claims Trust Agreement dated December 17, 2013 (the “Agreement”). Under the Agreement, in pursuing any borrower-related causes of action, such matters and/or execution of any documents relating thereto, are to be in the name of “ResCap Borrower Claims Trust.”

NY Appellate Court Holds CPLR 205(a) Applies to Note Owner’s Successor in Interest If Prior Action Not Dismissed for Failure to Prosecute

By: Andrea M. Roberts and Diana M. Eng

In Wells Fargo Bank, N.A., as Trustee, in Trust for the Registered Holders of Park Place Securities, Inc., Asset-Backed Pass-Through Certificates, Series 2005-WCW1 v. Doron Eitani, Index No. 2014-9426 (2d Dept. Feb. 8, 2017), the New York Appellate Division, Second Department, determined the novel issue of whether a plaintiff, such as the Trust, who is a successor in interest as the holder and owner of the note and mortgage, is entitled to take advantage of the savings provision of CPLR 205(a). The Second Department decided in the affirmative by affirming the denial of defendant David Cohan’s motion pursuant to CPLR 3211(a)(5) to dismiss the foreclosure action on the grounds that it was time-barred.

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Magistrate Judge Declines to Apply Spokeo to FCRA Case Against TransUnion

By: Louise Bowes Marencik

On January 18, 2017, a federal magistrate judge concluded that the ruling in Spokeo does not apply to a putative class action brought against TransUnion.

In Miller v. TransUnion, LLC, the plaintiff alleged that TransUnion violated Section 1681g(a) of the Fair Credit Reporting Act by providing misleading and confusing information to consumers which suggested that their names appear on the Office of Foreign Assets Control’s (OFAC) list of terrorists, money launderers, drug traffickers, and other enemies of the United States.  No. 3:12-CV-1715, 2017 U.S. Dist. LEXIS 7622 (M.D. Pa. Jan. 18, 2017).  On August 3, 2015, the United States District Court for the Middle District of Pennsylvania stayed the proceedings because the United States Supreme Court had granted certiorari in Spokeo Inc. v. Robins. On May 16, 2016, the Spokeo Court opined on the standard for the injury-in-fact requirement to establish standing under Article III of the United States Constitution, which requires that plaintiffs must show “concrete” and “particularized” injuries, as it relates to claims under the Fair Credit Reporting Act (FCRA). 136 S. Ct. 1540 (2016). The Court held that the appellate court’s standing analysis was incomplete because it failed to consider the distinction between concreteness and particularization, and it did not address whether the particular procedural violations alleged in the case caused sufficient risk to meet the concreteness requirement.

In the instant case, the Court lifted the stay on May 31, 2016, and allowed for briefing on the issue of whether the Spokeo decision had any impact on the plaintiff’s motion for class certification. TransUnion argued that Miller failed to argue a sufficiently “concrete” injury to support standing under Article III.  In his January 18, 2017 Report and Recommendation, Magistrate Judge Martin C. Carlson noted that, in Spokeo, the Court explained that a bare procedural violation does not satisfy this requirement, using the example of a credit report containing an incorrect zip code as a FCRA violation that would not constitute a concrete harm. However, the Spokeo Court clarified that an intangible harm may be sufficiently concrete to allow standing under Article III. The Judge chose to follow the United States District Court for the Northern District of California’s decision in a similar case involving OFAC disclosures, where the Court found that the confusing disclosure could cause concrete harm in the form of emotional distress about whether the recipient is listed in the OFAC database. Larson v. TransUnion, LLC, 2016 WL 4367253, *2 (N.D. Cal. Aug. 11, 2016).   Accordingly, the Judge recommended that the United States District Court for the Middle District of Pennsylvania decline to accept TransUnion’s interpretation of Spokeo, and find that Miller’s alleged injuries were sufficiently particularized and concrete to establish standing under Article III.  Assuming the Court follows this recommendation, the decision could suggest that Spokeo’s impact on a plaintiffs’ ability to show injuries caused by FCRA violations will be less substantial than originally thought.