Saturday, October 20, 2018

FYI: 9th Cir Holds Class Counsel Fee Award Improperly Failed to Treat Credits as "Coupons" Under CAFA

The U.S. Court of Appeals for the Ninth Circuit held that the trial court erred in awarding $8.7 million in attorneys' fees in a class action settlement because it did not treat $20 credits issued as part of the settlement as "coupons" under the Class Action Fairness Act ("CAFA").

In so ruling, the Court held that, because the trial court included the full face value of the coupons in its calculation of the fee award, the "error require[d] recalculation of the fee award." 

Accordingly, the Ninth Circuit vacated the trial court's attorneys' fee award.

A copy of the opinion is available at:  Link to Opinion

The defendant company ("Company") operates online businesses that sell flowers, chocolates, fruit baskets, and other similar items.

The plaintiff and seven other class representatives (collectively, "Plaintiffs") purchased items from a Company business, and were then presented with a pop-up advertisement for $15 off another item from the same website. 

Clicking the pop-up enrolled Plaintiffs in the Company's membership rewards program, and transmitted the Plaintiffs' payment information to a separate defendant company (collectively, with Company, "Defendants"), which proceeded to charge Plaintiffs a $1.95 activation fee and recurring $14.95 monthly membership fee.

Plaintiffs did not consent to joining the rewards program or having their data transferred to another entity.  Plaintiffs also never received the promised coupons, gift codes, or any other savings benefits. 

Plaintiffs filed a putative class action in the Southern trial of California alleging violations of various state laws arising from Defendants' operation of their membership rewards program. 

After two years of litigation, the parties agreed to settle.  The proposed settlement provided class members with two forms of relief – monetary reimbursement of membership fees upon submission of a claim, and a $20 credit which did not require the submission of a claim that could be used to purchase items on Defendants' websites. 

The settlement established a $12.5 million fund from which Defendants would pay up to $8.7 million in attorneys' fees, $80,000 in enhancement awards to the Plaintiffs, and $200,000 in litigation costs.  The approximately $3.5 million remaining would be available to fund the settlement's administration costs and to reimburse class members for their membership fees "on a pro rata basis up to the full amount owed." 

After the refunds were issued, any remaining funds were to be distributed as a cy pres award to several universities.

The trial court preliminarily approved the settlement, and the parties informed the court that the class contained approximately 1.3 million consumers. 

Class members were notified of the settlement and given a 135-day period to request a refund, during which only about 3,000 class members did so.  Their submitted claims requested a total of $225,000 in cash refunds, leaving approximately $3 million of the settlement's cash fund to be distributed to the cy pres beneficiaries.

Separately, class counsel moved for $8.7 million in fees and $200,000 in costs.

The trial court subsequently held a final settlement approval hearing at which a class member ("Objector") objected to the settlement.  He argued that the attorneys' fee award did not comply with CAFA's requirements for settlements awarding coupons and that the cy pres award was improper.

The trial court rejected the objections and issued a final order approving both the settlement and class counsel's accompanying fee request.  The Objector appealed and the Ninth Circuit vacated and remanded in light of their decision in In re Online DVD-Rental Antitrust Litigation (In re Online DVD), 779 F.3d 934 (9th Cir. 2015). 

On remand, the trial court determined that, under In re Online DVD, the credits should not be construed as coupons, and that it was therefore unnecessary to apply CAFA's requirements for coupon settlements.  Using $38 million as the total value of the settlement, the court then approved the $8.7 million attorneys' fee award based on both percentage-of-recovery and lodestar calculations. 

The Objector again appealed challenging the attorneys' fee and cy pres awards. 

On appeal, the Ninth Circuit held that the Objector's "challenge to the attorney's fees award succeeds because the trial court failed to treat the $20 credits as coupon under CAFA, but we reject the cy pres arguments." 

In so ruling, the Court first noted that "CAFA imposes restrictions on attorney's fee awards for class action settlements that provide class members relief in the form of coupons," as it requires trial courts to consider the value of only those coupons "that were actually redeemed" when calculating the total relief awarded to a class. 

However, CAFA provides no definition of "coupon," so courts have been left to define the term on their own. 

The Ninth Circuit explained that in In re Online DVD, it outlined three factors to guide the inquiry: "(1) whether class members have 'to hand over more of their own money before they can take advantage of' a credit, (2) whether the credit is valid only 'for select products or services,' and (3) how much flexibility the credit provides, including whether it expires or is freely transferrable."

The Ninth Circuit then noted that the trial court relied on an additional factor not present in In re Online DVD, and found that the credits should not be construed as coupons in part because it concluded that the settlement was "stronger than" the settlement in In re Online DVD in terms of how closely the relief matched class members' alleged injury.

The Ninth Circuit disagreed with this reasoning, noting that "the trial court's inclusion of this factor conflated the coupon analysis with whether the settlement was fair and reasonable."
Moreover, "[r]egardless of the substance of the underlying claim or injury, CAFA prevents settling parties from valuing coupons at face value without accounting for their redemption rate.  Accordingly, the trial court erred by incorporating an improper factor into its analysis of whether the credit was a coupon under CAFA." 

Applying the correct legal standard, the Ninth Circuit held that the "only logical conclusion" was that the credits were coupons under CAFA.  Thus, because the trial court included the full face value of the coupons in its calculation of the fee award, the "error require[d] recalculation of the fee award." 

As the Court explained, "[w]hen a fee award in a coupon settlement is calculated using the percentage-of-recovery method, CAFA requires that any calculation of the size of the settlement fund . . . be determined using the redemption rate of the coupons."  Because it did not have the redemption information, the Ninth Circuit would not approve the trial court's percentage-of-recovery evaluation.

The settling parties argued that the award could still be upheld based on the trial court's lodestar calculation.

However, the Ninth Circuit determined that "the trial court . . . went astray when it reverse-engineered the lodestar multiplier using a value of the settlement that included the full face value of all the $20 coupons." 

The Ninth Circuit therefore held that "the attorney's fee award must be vacated," and "the award should be recalculated in a manner that treats the $20 credits as coupons under CAFA." 

The Court next addressed the Objector's argument that cy pres should not be used to distribute the remaining settlement funds.

The Ninth Circuit disagreed, and held that "it was not an abuse of discretion for the trial court to approve the use of cy pres . . . or to approve these particular recipients."


Eric Tsai
Maurice Wutscher LLP 
71 Stevenson Street, Suite 400
San Francisco, CA 94105
Direct: (415) 529-7654
Fax: (866) 581-9302
Mobile: (714) 600-6000
Email: etsai@MauriceWutscher.com

Admitted to practice law in California, Nevada and Oregon




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Thursday, September 27, 2018

FYI: 9th Cir Adopts Broad Definition of ATDS Under TCPA, Reverses Trial Court's Ruling

The U.S. Court of Appeals for the Ninth Circuit recently held that the term automatic telephone dialing system ("ATDS"), as defined by the federal Telephone Consumer Protection Act, 47 U.S.C. § 227, et seq. ("TCPA"), includes devices that store telephone numbers to be called, "whether or not those numbers have been generated by a random or sequential number generator."

Accordingly, the Ninth Circuit vacated the trial court's order dismissing the plaintiff's putative class action asserting violations of the TCPA.

A copy of the opinion is available at:  Link to Opinion

In 2012, Plaintiff signed up for a gym membership with defendant gym ("Defendant").  After joining the gym, Plaintiff received three text messages from Defendant over an eleven month period, which Plaintiff's phone carrier charged him for.  In February 2014, Plaintiff filed a putative class action against Defendant alleging violations of the TCPA.  Plaintiff specifically alleged that Defendant sent text messages via an ATDS that had the "the capacity to send text messages to cellular telephone numbers from a list of telephone numbers automatically and without human intervention."

Defendant subsequently moved for summary judgment, which the trial court granted.  Specifically, the trial court held the system sending the text messages at issue was not an ATDS as it did not have the present or potential capacity "to store or produce telephone numbers to be called, using a random or sequential number generator."  Plaintiff timely appealed.  The Ninth Circuit vacated the submission of Plaintiff's appeal pending a decision in ACA Int'l v. FCC, 885 F.3d 687 (D.C. Cir. 2018) ("ACA").

As you may recall, the D.C. Circuit in ACA Int'l v. FCC vacated the FCC's interpretation of the types of devices that qualified as an ATDS leaving only the statutory definition Congress created in 1991 that defined an ATDS as "equipment which has the capacity—(A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers."  47 U.S.C. § 227(a)(1).

The chief issue on appeal here was whether the text message sending device (the "System"), qualified as an ATDS for TCPA purposes.  The System is a web-based marketing platform designed to send promotional text messages to a list of stored telephone numbers.  The System stores phone numbers when: (1) an individual manually enters the phone numbers into the System; (2) a customer responds to a text message, which automatically provides the customer's phone number in the System; or (3) a customer provides his or her phone number by completing a consent form on the System's website.   

On appeal, Plaintiff argued a piece of equipment qualifies as an ATDS "if it has the capacity to store telephone numbers and then dial them."  Defendant responded by arguing that in order to qualify as an ATDS, "a device must store telephone numbers that have been produced using a random or sequential number generator."  The Ninth Circuit disagreed with both interpretations explaining that "both parties fail to make sense of the statutory language without reading additional words into the statute."  

After finding the definition of an ATDS ambiguous, the Ninth Circuit held that an ATDS includes devices with the capacity to call stored numbers automatically and that the definition is not limited to devices having the capacity to call numbers produced by a "random or sequential number generator." 

The Court found support for its interpretation of § 227(a)(1) in other TCPA provisions that allowed an ATDS to call selected numbers from a list of phone numbers as opposed to a system that simply dials a block of random or sequential phone numbers.  See e.g., 47 U.S.C. §§ 227(b)(1)(A), and (b)(1)(A)(iii). 

The Ninth Circuit further noted that when Congress amended certain TCPA sections after the FCC's 2015 Order, it did not amend the TCPA's definition of an ATDS.  This is even though the FCC's prior orders defined an ATDS "to include devices that could dial numbers from a stored list."  The Court concluded that Congress' decision to forgo amending the statutory definition of an ATDS meant Congress "tacitly approved" the FCC defining an ATDS to include devices with the ability to dial numbers from a stored list.  See, Lorillard v. Pons, 434 U.S. 575, 580 (1978).

Accordingly, the Ninth Circuit held that § 227(a)(1)'s definition an ATDS includes equipment with the capacity to: (1) store numbers to be called; or (2) produce numbers to be called, using a random or sequential number generator—and to dial such numbers.

The Ninth Circuit further rejected Defendant's argument that a device cannot be an ATDS unless it operates "without any human intervention whatsoever."  In rejecting this argument, the Court explained Congress clearly targeted equipment that could engage in automatic dialing as opposed to equipment "that operated without any human oversight or control."

Accordingly, the Ninth Circuit reversed the trial court's order granting Defendant's motion for summary judgment and remanded the matter for further proceedings. 


Eric Tsai
Maurice Wutscher LLP 
71 Stevenson Street, Suite 400
San Francisco, CA 94105
Direct: (415) 529-7654
Fax: (866) 581-9302
Mobile: (714) 600-6000
Email: etsai@MauriceWutscher.com

Admitted to practice law in California, Nevada and Oregon




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Thursday, September 20, 2018

FYI: 9th Cir Holds CAFA Amount In Controversy Includes Future Attorney's Fees Incurred After Removal

The U.S. Court of Appeals for the Ninth Circuit recently reversed a trial court's order remanding a putative class action lawsuit to state court on the ground that the defendant removing party failed to prove that the amount in controversy exceed the $5 million, as required for jurisdiction under the Class Action Fairness Act ("CAFA").

In so ruling, the Ninth Circuit held that the amount in controversy for jurisdiction under CAFA includes all attorneys' fees that the plaintiff would be entitled to under a contract or statute, including future fees incurred after the date of removal.

A link to the opinion is available at:  Link to Opinion

A driver ("Employee") filed a wage-and-hour class action against his employer ("Employer"), a trucking and transportation company.  The Employee alleged that the Employer denied him and other employees proper overtime pay, meal periods, and appropriate wage statements. 

The complaint sought wages and premiums owed, prejudgment interest, statutory penalties, attorneys' fees under California Labor Code § 218.5 and 1194, and costs of suit.  The Employee also asked for equitable relief under California's unfair competition law and statutory damages under California's Private Attorneys General Act (PAGA).

During the litigation, the Employee delivered a mediation brief that listed total damages in the amount of $5,924,104, which included $948,192 in unpaid rest period premiums, $150,000 in attorneys' fees and costs incurred as of the date of the brief, and $531,404 in interest on unpaid overtime wages.  The Employee also estimated that the Employer faced PAGA penalties of $5,874,079.

In October 2017, the Employer filed a notice of removal asserting jurisdiction under CAFA.  As you may recall, CAFA gives trial court's jurisdiction over civil actions in which "the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs," the proposed class consists of more than 100 members, and "any member of [the] class of plaintiffs is a citizen of a State different from any defendant."  28 U.S.C. § 1332(d)(2).

Using the damages listed in the mediation brief -- minus estimated interest payments and PAGA penalties, which are not included in the amount in controversy -- the Employer alleged that the amount in controversy was $5,392,700.  The Employer also argued that in addition to the $150,000 in attorneys' fees and costs incurred to date, the trial court could recognize future attorneys' fees that would accrue over the course of the case.

The trial court determined that because the complaint did not include a claim for failure to provide rest periods, the $948,192 for unpaid rest period premiums could not be included as part of the jurisdictional amount.  The trial court also ruled that attorneys' fees may only include fees incurred as of the date of removal, which was $150,000.  Because the Employer established that only $4,778,575 was at stake, the trial court held that this amount did not meet the minimum required under CAFA, and remanded the case to state court.

This appeal followed.

The Ninth Circuit began its analysis by observing that where "it is unclear or ambiguous from the face of a state-court complaint whether the requisite amount in controversy is pled,  the removing defendant bears the burden of establishing, by a preponderance of the evidence, that the amount in controversy exceeds the jurisdictional threshold."  Urbino v. Orkin Servs. of Cal., 726 F.3d 1118, 1121-22 (9th Cir. 2013).

While the appeal was pending, the Ninth Circuit issued its ruling in Chavez v. JPMorgan Chase & Co., 888 F.3d 413 (9th Cir. 2018), which held that "the amount in controversy is not limited to damages incurred prior to removal -- for example, it is not limited to wages a plaintiff-employee would have earned before removal (as opposed to after removal)," but rather "is determined by the complaint operative at the time of removal and encompasses all relief a court may grant on that complaint if the plaintiff is victorious." 

The Ninth Circuit acknowledged that before Chavez, it had not clarified what it meant to say by the amount in controversy is determined "at the time of removal," and trial courts had not consistently applied this language.  However, the Ninth Circuit clarified this issue in Chavez.  Therefore, the only issue on appeal was whether the trial court erred in concluding that the Employer had failed to prove, by a preponderance of the evidence, that CAFA's amount in controversy requirement was met. 

The Employee argued that Chavez should be limited to its facts, and that it applied only to the claims for future wage loss.

However, while Chavez itself concerned a claim for future wage loss, the Ninth Circuit stated that its holding applied to any class of damages included in the amount in controversy.  Specifically, the amount in controversy included "all relief claimed at the time of removal to which the plaintiff would be entitled if she prevails."  Chavez, 888 F.3d at 418.  Thus, the Ninth Circuit concluded that its reasoning in Chavez applied equally to attorneys' fees available under fee shifting statutes.

Next, the Employee argued that future attorneys' fees should not be included in the amount in controversy because they are inherently speculative and can be avoided by the defendant's decision to settle an action quickly.  The Employee relied on Gardynski-Leschuck v. Ford Motor Co., 142 F.3d 955 (7th Cir. 1998), where the Seventh Circuit held that under the Magnuson-Moss Warranty Act, 15 U.S.C. § 2310(d), the amount in controversy cannot include attorneys' fees that have not yet been incurred.

The Ninth Circuit explained that its precedent in Chavez was controlling. 

Moreover, unlike the Seventh Circuit where the defendant need only show "a  reasonable probability" that the amount in controversy exceeds the minimum, the Ninth Circuit requires a removing defendant to prove that the amount in controversy (including attorneys' fees) exceeds the jurisdictional threshold by a preponderance of evidence.  The defendant is also required to make this showing with summary judgment type evidence.

Given defendants' obligation to prove future attorneys' fees by a preponderance of the evidence, and noting the trial's expertise in evaluating litigation expenses, the Ninth Circuit concluded that it did not share the Seventh Circuit's concerns about calculating future attorneys' fees.

In the Ninth Circuit's view, the amount in controversy must include future attorneys' fees because the complaint demanded attorneys' fees permitted by California law.  The trial court's conclusion that, as a matter of law, the amount in controversy included only the $150,000 in attorneys' fees incurred up to the time of removal was incorrect.

Accordingly, the Ninth Circuit reversed the trial court's order remanding the case to state court.


Eric Tsai
Maurice Wutscher LLP 
71 Stevenson Street, Suite 400
San Francisco, CA 94105
Direct: (415) 529-7654
Fax: (866) 581-9302
Mobile: (714) 600-6000
Email: etsai@MauriceWutscher.com

Admitted to practice law in California, Nevada and Oregon




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Monday, September 3, 2018

FYI: 9th Cir Holds FDCPA Plaintiff Must Prove Defendant's Net Worth

The U.S. Court of Appeals for the Ninth Circuit recently held that the plaintiff carries the burden of proving the debt collector's net worth to obtain statutory damages in a class action under the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. ("FDCPA").

A copy of the opinion is available at:  Link to Opinion

A consumer financed the purchase of a computer through an installment loan.  When the consumer defaulted, the creditor charged off the account and sold the debt to a third party.  The third party referred the account to a law firm which sent collection letters that failed to identify the correct original creditor.  The law firm filed a complaint but ultimately dismissed the lawsuit.

The consumer filed suit alleging that the law firm's letters and complaint violated section 1692e of the FDCPA by using "false, deceptive, or misleading representation[s] or means in connection with the collection of any debt."  The trial court certified a class of consumer plaintiffs.

The trial court then granted the debt collector's motion for summary judgment, but the Ninth Circuit reversed and remanded.  The Ninth Circuit found that the misidentifications were material under the FDCPA as a matter of law.

On remand, the trial court dismissed the consumer's letter-based claims for lack of standing.  The consumer's complaint-based claim went to trial.  The focus at trial was evidence supporting the class award of statutory damages and the law firm's bona fide error defense.

The trial court determined that the plaintiff carried the burden at trial of introducing evidence regarding the law firm's net worth.  The law firm had produced hundreds of pages of bank statements, copies of checks, tax returns, and deposition testimony regarding its financial condition.  Despite access to this evidence, the consumer did not provide an expert to interpret the financial information for the jury.

Thus, the trial court found that the consumer lacked competent evidence to satisfy his burden of production at trial, and dismissed his complaint-based class claim. 

This appeal followed.

As you may recall, the FDCPA provides a two-step determination for awarding statutory damages to class members, excluding named plaintiffs.  15 U.S.C. § 1692k(a)-(b). 

First, the fact finder determines the damages ceiling.  Specifically, a class may recover statutory damages "not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector[.]"  15 U.S.C. § 1692k(a)(2)(B). 

Second, the exact amount of damages within that range is determined based on various non-exhaustive factors, including "the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, the resources of the debt collector, the number of persons adversely affected, and the extent to which the debt collector's noncompliance was intentional."  15 U.S.C. § 1692k(b)(2). 

The FDCPA, however, is silent as to which party carries the burden of producing evidence at trial of the defendant's net worth. 

The parties agreed that one percent of the law firm's net worth was less than $500,000, and therefore the limit on statutory damages available to the class must be one percent of the law firm's net worth.  The consumer argued that the law firm carried the burden of introducing evidence of its own net worth.

The Ninth Circuit began its analysis by observing "one of the most basic positions of law -- that the plaintiff bears the burden of proving his case, including the amount of damages"  Faria v. M/V Louise V, 945 F.2d 1142, 1143 (9th Cir. 1991). 

To determine whether the FDCPA provides an exception to the default rule, the Ninth Circuit noted that section 1692k limits statutory damages for the class to "the lesser of" of $500,000 or one percent of the defendant's net worth.  Congress' use of "the lesser of" signals that the FDCPA requires the factfinder to determine the defendant's net worth in calculating statutory damages. 

Thus, the Ninth Circuit held that evidence of the defendant's net worth was a prerequisite to establishing statutory damages in a class action.

Next, the consumer argued that the fact finder can skip the cap analysis in subsection (a), and proceed directly to the list of factors in subsection (b), on which he conceded that he carried the burden of proof. 

The consumer also argued that the law firm must bear the burden of proof because it had superior access to the relevant evidence, and placing the burden on the plaintiff would increase litigation costs and discourage class actions under the FDCPA. 

The Ninth Circuit rejected these arguments because Congress did not structure section 1692k to allow the factfinder to award any amount, and then allow the debt collector to limit damages by introducing evidence of its net worth as an affirmative defense.  The Ninth Circuit supported its reasoning with the FDCPA's two exceptions to liability of debt collectors. 

The first exception is the bona fide error defense for defendants that can "show by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error."  15 U.S.C. § 1692k(c). 

The second exception is the safe harbor from liability where the defendant can show it complied with an advisory opinion by the Consumer Financial Protection Bureau.  15 U.S.C. § 1692k(e). 

The Court held that sections 1692k(c) and 1692k(e) indicate that "Congress knew how to shift the burden of proof to the defendant, but chose not to do so regarding evidence of net worth."  Therefore, the Court continued, the FDCPA's "text and structure" makes evidence of net worth essential to a class statutory damages award; it is not an affirmative defense." 

Thus, the Ninth Circuit held that "[i]f a plaintiff seeks class statutory damages, it carries the burden of introducing such evidence at trial."

Accordingly, the Ninth Circuit affirmed the trial court's dismissal of the consumer's class action.  


Eric Tsai
Maurice Wutscher LLP 
71 Stevenson Street, Suite 400
San Francisco, CA 94105
Direct: (415) 529-7654
Fax: (866) 581-9302
Mobile: (714) 600-6000
Email: etsai@MauriceWutscher.com

Admitted to practice law in California, Nevada and Oregon




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Monday, August 27, 2018

FYI: CA Imposes SOL Notice Requirement on Debt Collectors; Bans Legal Action on 'Time-Barred' Debt

The California legislature recently passed Assembly Bill 1526, relating to the collection of a debt that is beyond the statute of limitations for bringing legal action.

As you may recall, since 2014, when collecting from California residents, debt buyers have been required by Cal. Civ. Code § 1788.52(d)(2) to provide one of two notices, as applicable, when a debt is "time-barred."

The new legislation creates the same requirement for debt collectors, making it a violation for a debt collector to send a collection letter to a consumer on a time-barred debt without providing the debtor with one of the following written notices, depending on the age of the debt:

"The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it. If you do not pay the debt, [insert name of debt collector] may [continue to] report it to the credit reporting agencies as unpaid for as long as the law permits this reporting.";

or,

"The law limits how long you can be sued on a debt. Because of the age of your debt, we will not sue you for it, and we will not report it to any credit reporting agency."

The applicable notice must be included in the first written communication sent to the consumer after the debt becomes time-barred.

The new law also amends Cal. Civ. Proc. Code § 337, pertaining to the statute of limitations for written contracts and book accounts, by prohibiting the initiation of a legal action on time-barred debt, rather than requiring a consumer to raise it as an affirmative defense.  A similar prohibition currently exists for debt buyers under Cal. Civ. Code § 1788.56.

Pending approval by the governor, the new law will become effective Jan. 1, 2019.


Eric Tsai
Maurice Wutscher LLP 
71 Stevenson Street, Suite 400
San Francisco, CA 94105
Direct: (415) 529-7654
Fax: (866) 581-9302
Mobile: (714) 600-6000
Email: etsai@MauriceWutscher.com

Admitted to practice law in California, Nevada and Oregon




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Monday, August 13, 2018

FYI: 9th Cir Holds 4-yr Federal "Catch-All" SOL Applies to SCRA Claims

On an issue of first impression, the U.S. Court of Appeals for the Ninth Circuit recently held the federal catchall statute of limitations of four years under 28 U.S.C. § 1658(a) applies to private suits alleging violations of section 303(c) of the federal Servicemembers Credit Relief Act ("SCRA"). 

Accordingly, the Ninth Circuit affirmed the dismissal of the plaintiff's complaint as time-barred.

A copy of the opinion is available at:  Link to Opinion

In 2006, the plaintiff ("Plaintiff"), a U.S. Marine, refinanced a mortgage loan on his home in the state of Washington with a loan from the defendant mortgagee ("Mortgagee"). On January 16, 2009, the Mortgagee initiated foreclosure proceedings.  Four months later, on May 18, 2009, the Marines recalled Plaintiff to active service in Iraq.

On July 21, 2010, after Plaintiff completed his service in Iraq, the Marines released him from military duty.  Following his release, Plaintiff advised the Mortgagee of his military service and requested an opportunity to refinance his loan.

The Mortgagee allegedly ignored his request and proceeded with a foreclosure sale of Plaintiff's home on August 20, 2010.

Almost six years after the sale, Plaintiff filed suit in federal district court against the Mortgagee alleging it violated section 303(c) of the SCRA, which at that time prohibited the "sale, foreclosure, or seizure of property" for a breach of a mortgage obligation if "made during, or within nine months after, the period of the servicemember's military service" unless such sale, foreclosure, or seizure occurred by court order or under waiver by the servicemember of his SCRA rights.  50 U.S.C. § 3953(c).

The Mortgagee moved to dismiss the complaint as time-barred, arguing that the SCRA does not contain a statute of limitations, and therefore the district court should apply the closest state-law analogue to the SCRA, which the Mortgagee argued was the Washington Consumer Protection Act (four-year limitation period), or the Deeds of Trust Act (two-year limitation period). 

In response, Plaintiff argued that the court need not look to a state statute, and that the Uniformed Services Employment and Reemployment Rights Act ("USERRA") was the most analogous.  The USERRA expressly provides that "there shall be no limit on the period for filing" a claim.  Plaintiff argued in the alternative that the court should apply the six-year statute of limitations for breach of contract claims. 

In its reply, the Mortgagee argued for the first time that 28 U.S.C. § 1658(a) should apply, which provides a four-year statute of limitations.

The trial court granted the Mortgagee's motion to dismiss, applying the four-year statute of limitations contained in the Washington Consumer Protection Act.  The trial court did not comment on the applicability of 28 U.S.C. § 1658(a).  The case was then appealed to the Ninth Circuit. 

On appeal, Plaintiff argued that the trial court erred and should have applied the limitations period of either the USERRA or breach of contract claim. The Mortgagee's primary argument on appeal was that the SCRA claim was time-barred under the catchall four-year limitations period of 28 U.S.C. § 1658(a).

The Ninth Circuit first noted that "[t]raditionally, when a federal statute creating a right of action did not include a limitations period, courts would apply the limitations period of the 'closest state analogue.'"  However, "in 1990, Congress established – in 28 U.S.C. § 1658(a) – a uniform, catchall limitations period for actions arising under federal statutes enacted after December 1, 1990."  Section 1658(a) provides a four-year limitation period.

Notably, a cause of action "'aris[es] under an Act of Congress enacted after' 1990 within the meaning of § 1658(a) if the 'plaintiff's claim against the defendant was made possible by a post-1990 enactment.'"  Further, "[s]uch enactments include amendments to preexisting statutes that create 'new rights of action and corresponding liabilities.'" 

The Mortgagee argued that because no private right of action for section 303(c) violations existed until 2010 when the SCRA was amended to add an express private right of action, section 1658(a) applied. 
The Ninth Circuit agreed, stating that "[t]he applicability of § 1658(a) turns on whether the 2010 amendment to the SCRA created a 'new right[] of action and corresponding liabilities' that were not available to servicemembers before 1990.'" 

It was undisputed that neither the SCRA nor its predecessors (which dated back to 1918) contained an express private right of action until Congress, in the Veterans' Benefits Act of 2010, added a section to the SCRA providing that servicemembers whose SCRA rights are violated may "obtain any appropriate equitable or declaratory relief . . . [and] recover all other appropriate relief, including monetary damages." 

However, Plaintiff argued that despite lack of an express right of action prior to 2010, servicemembers had an implied private right of action under the predecessor to the SCRA before 1990.

The Ninth Circuit disagreed, noting that "[n]o federal appeals court, including this Court, has ever held that these acts created a private right of action before 2010, and several district courts in this circuit and elsewhere that addressed this question have come to difference conclusions about the various sections of the SCRA."  

Accordingly, the Ninth Circuit held that Plaintiff's "complaint arises under an Act of Congress enacted after 1990 and is thus governed – and barred – by the four-year limitations period in 28 U.S.C. § 1658(a)."


Eric Tsai
Maurice Wutscher LLP 
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