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Every week, AccountsRecovery.net brings you the most important news in the industry. But, with compliance-related articles, context is king. That’s why the brightest and most knowledgable compliance experts are sought to offer their perspectives and insights into the most important news of the day. Read on to hear what the experts have to say this week.
California Appeals Court Overturns Ruling in Debt Collection Case
A California Appeals Court has reversed a lower court’s ruling in favor of a collection law firm and debt collection operation that were sued for violating the Fair Debt Collection Practices Act (FDCPA), ruling that the public interest exception to the state’s anti-SLAPP law applies to the case. More details here.
WHAT THIS MEANS, FROM JACOB BACH OF MARTIN GOLDEN LYONS WATTS MORGAN: This case shows that success at the trial level does not guarantee success as the appeal level, especially at the state level. The appeal focused on application of the California anti-slapp law, whether the lawsuit was in the public interest, and whether a suit seeking damages was “brought solely in the public interest or on behalf of the general public.” The appellate court found that a suit for damages in which the plaintiff does not seek any greater relief than the proposed class can include a claim for damages. In essence, FDCPA class actions in California state court are not prohibited by the California anti-slapp law.
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Indiana Appeals Court Affirms Ruling in Non-Compete Case Involving RCM Provider
The Indiana Court of Appeals has affirmed a ruling in favor of defendants that were sued by a revenue cycle management company for violating a second non-compete agreement, which came four years after one of the defendants signed her first agreement when she started working for the company. The defendant was told that if she didn’t sign the second non-compete agreement, she would be fired. More details here.
WHAT THIS MEANS, FROM LAURIE NELSON OF PAYMENTVISION: The April 2024 FTC rule banning nearly all non-compete agreements nationwide, while recently overturned by a federal Texas court on August 20, 2024, underscores the evolving regulatory landscape. The court’s decision stated that the FTC lacked authority to issue such a rule, but the FTC is considering an appeal, leaving the future of federal non-compete regulations uncertain. Despite this uncertainty, the regulatory focus on worker protections suggests that non-compete agreements and other restrictive covenants will face heightened scrutiny.
This case highlights the importance of tailoring non-compete agreements to be reasonable in scope and duration, ensuring they protect legitimate business interests without unduly restricting an employee’s ability to work. While continued employment can serve as valid consideration for signing a new non-compete agreement, enforceability still depends on the agreement’s reasonableness and alignment with state law.
If non-compete agreements are critical to business success, they must be narrowly drafted to protect legitimate interests without being overbroad. For example, preventing an employee from working for a competitor in any capacity is likely unenforceable. Instead, non-compete agreements should have a defined scope, focusing on:
- Specific roles or activities that pose a competitive threat.
- Geographic limitations, where applicable.
- Reasonable durations.
Additionally, sufficient consideration must be provided, and the agreement should explicitly state this. For example, as illustrated in this case, continued employment is a valid consideration when clearly articulated.
Given the ongoing challenges to enforceability, companies should consider alternative strategies to protect their interests. Options include:
- Confidentiality Agreements: Focus on safeguarding sensitive information without restricting employee mobility.
- Non-Solicitation Agreements: Prevent poaching of clients or employees while being less restrictive than non-competes.
Regardless of the agreements in place, businesses must implement robust internal controls to secure sensitive information and limit access. This minimizes exposure if an employee departs, providing an additional layer of protection.
Judge Denies MTD in FCRA Case Over Permissible Purpose
A District Court judge in Kentucky has denied a defendant’s motion to dismiss a Fair Credit Reporting Act case after it was accused of accessing the plaintiffs’ credit reports without a permissible purpose, ruling that the amended complaint includes sufficient factual allegations to support a plausible claim at this stage of the proceedings. More details here.
WHAT THIS MEANS, FROM JACQUELYN DICICCO OF J. ROBBIN LAW: In May v. Equifax Information Services, et al., Case No.: 5:24-cv-86-KKC (Caldwell, J. Nov. 18, 2024),the District Court for the Eastern District of Kentucky, Central Division at Lexington, denied defendant, Rocket Mortgage, LLC’s (“Rocket”), motion to dismiss plaintiffs’ complaint, alleging that defendant violated the Fair Credit Reporting Act (“FCRA”) by accessing plaintiffs’ credit reports without a permissible purpose. In May, plaintiffs owned a property to which Rocket held as collateral to secure payment of the mortgage secured against it. Plaintiffs defaulted on the mortgage and Rocket foreclosed, sold the property, and waived any deficiency. Despite the satisfaction of the mortgage, plaintiffs alleged that, for a period of time, Rocket thereafter made several requests for, and received numerous copies of, plaintiff’s credit report. Plaintiffs alleged that Rocket’s pulling of the credit report, after the satisfaction of its mortgage, was impermissible and, thus, a violation of the FCRA. Rocket moved to dismiss both the complaint and amended complaint, which the Court denied. The Court analyzed the statutorily enumerated purposes by which the FCRA allows disclosure of credit information to an entity set forth in 15 U.S.C. § 1681b. In so analyzing, the Court held that the following allegations made by plaintiffs, at the pleading stage, support an inference that Rocket did not have a permissible purpose to obtain the credit report: (1) since the foreclosure sale, plaintiffs did not apply for new credit with Rocket; (2) since the foreclosure sale, plaintiffs did not have an open account with Rocket; and (3) since the foreclosure sale, plaintiff did not have a business relationship with Rocket. The Court focused on two (2) questions: “First, when does ‘review’ of a closed account constitute a permissible purpose under § 1681(a)(3)(A)? And second, does the amended complaint include facts demonstrating Rocket Mortgage did not have permissible purpose in pulling Mr. May’s information?” In answering these questions, the Court held that, although the amended complaint does not explicitly allege whether plaintiffs had ongoing debt obligations, it does assert that plaintiffs’ debt with the mortgage was satisfied pursuant to the foreclosure sale and that, this, is enough, at the pleading stage, to support a reasonable inference that Rocket lacks permissible purpose to obtain plaintiff’s credit report when the account was closed. This case serves as a reminder to lenders/debt collectors to be aware of the caveats within the FDCPA and to proceed with caution on closed accounts.
I’m thrilled to announce that Bedard Law Group is the new sponsor for the Compliance Digest. Bedard Law Group, P.C. – Compliance Support – Defense Litigation – Nationwide Complaint Management – Turnkey Speech Analytics. And Our New BLG360 Program – Your Low Monthly Retainer Compliance Solution. Visit www.bedardlawgroup.com, email John H. Bedard, Jr., or call (678) 253-1871.
