I’m thrilled to announce that Frost Echols is the new sponsor for the Compliance Digest. Frost Echols reputation has been built on aggressively protecting the rights of businesses throughout our local jurisdictions. Founding partners, Mike Frost and Chad Echols, developed a deep understanding of regulatory compliance, commercial litigation and business operations through years of advising executives in the collection industry. We are committed to a strategic, economic, and aggressive approach to your legal representation.
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.
Judge Rejects Bid to Send FCRA Suit Back to Small Claims Court
A District Court judge in California has denied a motion to remand a Fair Credit Reporting Act lawsuit back to small claims court, ruling that language in a cardholder agreement allowing disputes to be pursued in small claims court did not waive the defendant’s right to remove the case to federal court. More details here.
WHAT THIS MEANS, FROM CRYSTAL DUPLAY OF FROST ECHOLS: In Modiri v. Barclays, the plaintiff alleged violations of the Fair Credit Reporting Act (FCRA). After Barclays removed the case to federal court on the basis of federal-question jurisdiction, the plaintiff sought remand to small claims court. The plaintiff argued that remand was required because Barclays had asserted an Article III standing as an affirmative defense and because the cardholder agreement’s arbitration and small-claims provision required the dispute to remain in small claims court. The Northern District of California denied the motion to remand.
The decision underscores that asserting lack of Article III standing as an affirmative defense does not amount to a concession that federal jurisdiction is absent. Courts must independently evaluate whether standing exists. For creditors and servicers, the ruling is a useful reminder that, unless a contract expressly waives removal, defendants may still remove federal statutory claims to federal court despite small-claims or arbitration language.
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House Republicans Float Sweeping CFPB Overhaul, Seek Industry Feedback
The House Financial Services Committee is asking the public to weigh in on a discussion draft of legislation that would fundamentally restructure the Consumer Financial Protection Bureau, with comments due by August 21. More details here.
WHAT THIS MEANS, FROM BROOKE CONKLE OF TROUTMAN PEPPER LOCKE: The House Financial Services Committee’s discussion draft signals a meaningful shift in how Congress thinks about federal consumer financial oversight. Bringing the CFPB under the congressional appropriations process would fundamentally change the Bureau’s independence. The proposed cost-benefit and small business impact analysis requirements for rulemakings are particularly significant for the debt collection and consumer financial services space, as they could put a real check on the Bureau’s ability to push through broad regulatory changes without a more rigorous justification. With the comment deadline set for August 21, this is a real opportunity for industry stakeholders to shape what the CFPB looks like going forward.
State Appeals Court Sides with Debtor Who Proved He Answered Discovery
A state Court of Appeals in Texas has reversed a trial court order appointing a post-judgment receiver to collect on a credit card judgment, ruling that the plaintiff offered no evidence to support its motion. More details here.
WHAT THIS MEANS, FROM CHRIS HAHN OF MAURICE WUTSCHER: A Texas Court of Appeals recently reversed a trial court’s order appointing a post-judgment receiver to enforce a credit card judgment, concluding that the judgment creditor failed to satisfy its evidentiary burden under Texas’ turnover statute, Tex. Civ. Prac. & Rem. Code § 31.002. Although the creditor claimed the debtor failed to respond to post-judgment discovery and relied on purportedly deemed admissions, those unsworn assertions were insufficient to overcome the record, which reflected a certificate of service showing the debtor had timely served responses. Without competent evidence establishing that the judgment remained unpaid or that the debtor owned non-exempt property subject to turnover, the appellate court reversed the receivership order and remanded the matter for further proceedings.
The decision emphasizes that judgment creditors seeking turnover relief or the appointment of a receiver must present competent evidence establishing each statutory prerequisite under Texas’ turnover statute, rather than relying on unsupported allegations or procedural assumptions.
Judge Dismisses Veteran’s FDCPA Suit Against VA Debt Management Center
A District Court judge in Wisconsin has granted a defendant’s motion to dismiss a Fair Debt Collection Practices Act lawsuit filed by a veteran disputing a benefits overpayment debt, ruling that federal courts have no jurisdiction to hear challenges to Department of Veterans Affairs benefits decisions. More details here.
WHAT THIS MEANS, FROM SARAH DOERR OF COZEN O’CONNOR: The Shelton case illustrates the extent to which pro se plaintiffs can weaponize courts against creditors, even when their claims are of questionable merit and brought in the wrong forum. This case was the plaintiff’s fourth bite at the proverbial apple, yet defendant had to expend significant resources responding to several rounds of filings and pleadings. Tempting as it may be to ignore claims that seemingly have no chance of success, it behooves creditors to consult with counsel early on to plot an efficient course to (official) dismissal.
Missed Payments, Missed Deadline, Made-Up Cases: Appeals Court Affirms Judgment for Auto Lender
The Court of Appeals of Minnesota has affirmed a grant of summary judgment in favor of the plaintiff in a lawsuit seeking the return of a Mercedes-Benz from a defendant who stopped making his monthly payments, and used the occasion to call out fabricated legal citations in the defendant’s appellate brief. More details here.
WHAT THIS MEANS, FROM DAVID ISRAEL OF SESSIONS, ISRAEL & SHARTLE: The Ngouambe decision provides a good example of the litigation risks with self-inflicted errors.
First, the consumer, through his attorney, admits to breaching the contract and to his obligation to pay the account. Second, the consumer makes a promise to the court to bring the account current, then broke that promise. Last, the consumer fails to raise an objection to the judgment in favor of the creditor, thereby forfeiting his defenses on appeal.
Simple lesson – be careful what you say in any pleading or before the court to make sure you are accurate.
Judge Invokes 154-Year-Old Precedent to Deny Default Judgment in FDCPA Case
A District Court judge in Illinois has denied a motion for default judgment against a defendant in a Fair Debt Collection Practices Act case, ruling that entering judgment against one defendant while claims against a second defendant remain pending would risk contradictory outcomes, in an opinion with considerably more personality than the average ruling. More details here.
WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW & CULBERTSON: We’re generally too busy to read cases for fun. However, if you have a chance, you’ll get a kick out of N.D. IL Judge Seeger’s ruling in Love v Travelers Management Group, et al. He essentially writes a 28 page law review article on a relatively straightforward legal issue but does so with humor. In the process, he explains it “isn’t common for the leading case on a procedural question to come from the Reconstruction era” – Frow v. De La Vega, 82 U.S. 552, 554 (1872).
If you want the holding, you could probably just skip to the last page. Even the judge says he rambled on: “All of this is a long way of making a simple point.” That simple point is that the court “needs to sit tight on entering a default judgment against the agent until this Court has resolved the claims against the principal on the merits.”
He explains that when the liability of co-defendants is mutually dependent, multiple judgments create a potential for inconsistencies. He elaborates on this point: “Joint liability is like being on a ship with a bunch of friends, and hitting an iceberg in the North Atlantic. It’s sink-or-float time, for everyone. You’re going to stay afloat as a group, or you’re all going down together. Everyone is in the same boat, literally and figuratively.”
It’s not a particularly complex legal issue but Judge Seeger surely makes it a fun story.
Judge Rejects Attempt to Undo Arbitration Loss for Plaintiff in FCRA Case
A District Court judge in Georgia has denied a plaintiff’s motion to vacate an arbitration award that was entered in favor of a defendant accused of violating the Fair Credit Reporting Act and state law over allegedly inaccurate credit reporting. More details here.
WHAT THIS MEANS, FROM PREANDRA LANDRUM OF BASSFORD REMELE: I thought this decision was a good reminder of how difficult it is to overturn an arbitration award. The court made clear that disagreement with how an arbitrator weighed the evidence, or even with the arbitrator’s application of the law, generally is not enough to warrant vacatur. The court’s review is extremely limited and focuses on whether one of the narrow grounds for vacatur under the FAA has been established. Overall, the decision also highlights the degree of finality arbitration can provide once a dispute has been fully heard and decided.
State Appeals Court Upholds Denial of Reconsideration in FDCPA Suit Over Repossessed Vehicle
The Wisconsin Court of Appeals has affirmed the denial of a motion for reconsideration in a lawsuit that included a Fair Debt Collection Practices Act claim against a pair of creditors that repossessed a vehicle the plaintiffs said they had purchased in cash from a third party. More details here.
WHAT THIS MEANS, FROM KHARI GRIFFIN OF CLARK HILL: The Wisconsin Court of Appeals affirmed the denial of a motion for reconsideration in a lawsuit against a pair of creditors, involving the Fair Debt Collection Practices Act (FDCPA), where defendants repossessed a vehicle the plaintiffs allegedly purchased in cash from a third-party. Defendants repossessed the vehicle under a judgment obtained against the individual who sold the vehicle to the plaintiffs. The court of appeals affirmed the circuit court’s ruling, which cited to the lack of contract between the parties and the plaintiffs’ failure to sufficiently plead as bona fide purchasers of the vehicle.
Judge Trims Defense Expert Testimony in FDCPA Class Action Over Collection Suits
A Magistrate Court judge in New York has granted in part and denied in part a motion to exclude the testimony of a defense expert in a Fair Debt Collection Practices Act class action accusing a group of student loan trusts and their collectors of filing “sham” collection lawsuits they allegedly could not prove if contested. More details here.
WHAT THIS MEANS, FROM JOHN MAREES OF MESSER STRICKLER BURNETTE: This decision serves as an important reminder that expert testimony has limits particularly where an expert is asked to opine on issues that are ultimately for the court or jury to decide. While the Court permitted testimony regarding the student loan securitization process and related industry practices, it excluded portions of the expert’s opinions that crossed into legal conclusions and other impermissible subjects. For creditors, debt buyers, and collection agencies defending FDCPA litigation, this ruling underscores the importance of developing a strong evidentiary record rather than relying too heavily on expert opinions to establish or refute liability.
Appeals Court Affirms Dismissal of FCRA Case Over Post-Bankruptcy Mortgage Reporting
The Court of Appeals for the Seventh Circuit has affirmed the dismissal of a Fair Credit Reporting Act lawsuit against a defendant, ruling that determining whether a consumer’s mortgage was discharged in bankruptcy is a legal question that credit reporting agencies are not required to answer. More details here.
WHAT THIS MEANS, FROM JASON TOMPKINS OF BALCH & BINGHAM: The most important sentence from this opinion is, “That is, the FCRA does not require CRAs to resolve legal disputes, interpret contracts or statutes, or determine the validity or enforceability of debts.” Rather, obligations under the FCRA involve factual determinations. Here, the plaintiff’s dispute raised the legal import of her bankruptcy proceeding on her mortgage, but the legal effect of the bankruptcy on the mortgage was not apparent on the face of the bankruptcy dockets. This holding is consistent with several other circuits, thought some of those have retreated from the “legal vs. factual” question and focused instead on whether a dispute is “readily verifiable.” The result is essentially the same. Importantly, the court here left open the possibility that that some legal documents may be so clear or commonplace that the dispute could be considered a “factual inaccuracy.”
Frost Echols reputation has been built on aggressively protecting the rights of businesses throughout our local jurisdictions. Founding partners, Mike Frost and Chad Echols, developed a deep understanding of regulatory compliance, commercial litigation and business operations through years of advising executives in the collection industry. We are committed to a strategic, economic, and aggressive approach to your legal representation.
