Sunday, December 16, 2018

FYI: Cal App Ct (4th DCA) Rules Servicer and Investor Did Not Violate HBOR

The Court of Appeals of California, Fourth District, recently affirmed summary judgment awarded in favor of the mortgage servicer and loan owner defendants on the borrowers' claims for alleged violations of the California Homeowner Bill of Rights (HBOR), finding that the defendants properly contacted the borrowers and provided them with the required foreclosure information before recording the notice of default. 

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

The plaintiffs ("Borrowers") obtained a loan in 2007, secured by their residence.  In 2013, the Borrowers defaulted and entered into a loan modification agreement with the loan owner ("Owner").  The Borrowers then defaulted on the loan modification agreement.

On March 10, 2014, the then mortgage servicer ("Servicer") sent the Borrowers a letter that contained documents that outlined their eligibility and the protections contained in the federal Servicemembers Civil Relief Act.  Between March 18 and November 22, 2014, the Servicer spoke to the Borrowers multiple times regarding the status of their mortgage account, their financial situation, foreclosure avoidance options, and on at least three occasions provided them with a toll free number for the Department of Housing and Urban Development (HUD).

The Borrowers submitted a complete loan application to the Servicer in March 2014, but the Servicer denied the application.  The Borrowers did not appeal this denial.

The Servicer informed the Borrowers via letter on November 26, 2014 that they could request copies of their payment history and the note, the name of the entity that "holds the loan," and any "assignments of mortgage or deed of trust required to demonstrate" the right to foreclose.

On January 14, 2015, the Servicer recorded a notice of default for the loan stating the amount that the Borrowers had to pay to bring their account current.  The notice of default included a declaration averring that the Servicer had contacted the Borrowers.

On April 28, 2015, the Servicer recorded a notice of trustee's sale against the property.

The Borrowers last made a payment on the loan in October 2013. The trustee's sale had not occurred as of June 19, 2017. The borrowers filed suit against the Owner and Servicer.  The operative complaint sought to enjoin the sale and alleged that defendants violated the HBOR (Cal. Civ. Code,  §§ 2923.55, 2923.6) and California Business and Professions Code § 17200 by not contacting the Borrowers before recording the notice of default and properly informing them about their foreclosure alternatives.

The defendants moved for summary judgment supported by a declaration arguing that the undisputed facts demonstrated that they did not violate the HBOR or section 17200. The trial court granted the Defendants motion for summary judgment.  This appeal followed.

Initially, the Appellate Court observed that the HBOR, "effective January 1, 2013, was enacted 'to ensure that, as part of the nonjudicial foreclosure process, borrowers are considered for, and have a meaningful opportunity to obtain, available loss mitigation options, if any, offered by or through the borrower's mortgage servicer, such as loan modifications or other alternatives to foreclosure.'" Civ. Code, § 2923.4, subd. (a).

As you may recall, California has amended the HBOR since its passage, but when the Servicer recorded the notice of default, the HBOR required the Servicer to send a letter informing the Borrowers that they have the right to request certain loan documents before recording the notice of default.  See former Cal. Civ. Code, § 2923.55, subds. (a)-(b). A servicer or any other party also could not record the notice of default until 30 days after making initial contact with the borrower in person or by telephone to "assess" the borrower's financial situation and to "explore" foreclosure alternative options. Id. The servicer must inform the borrower during this initial contact that they may request an additional meeting to take place within 14 days and provide the borrower with HUD's toll-free phone number to find a HUD-certified housing counseling agency. Id.  A borrower may seek injunctive relief "to enjoin a material violation" of former section 2923.55, before anyone records a trustees deed upon sale. See former § 2924.12, subd. (a)(1).

The Borrowers argued on appeal that disputed material facts regarding whether Defendants complied with former section 2923.55 before recording the notice of default should have precluded summary judgment.  The Borrowers cited Mabry v. Superior Court (2010) 185 Cal.App.4th 208, 215, to argue that whether a defendant complied with section 2923.55's requirements is typically a "classic question of fact that" the trier of fact must resolve.

The Appellate Court noted that it construes the terms "assess" and "explore" narrowly "to avoid crossing the line from state foreclosure law into federally preempted loan servicing."  Mabry, 185 Cal.App.4th at 232.  Thus, it limits exploration "to merely telling the borrower the traditional ways that foreclosure can be avoided (e.g., deeds 'in lieu,' workouts, or short sales), as distinct from requiring the lender to engage in a process that would be functionally indistinguishable from taking a loan application in the first place." Id.

The Appellate Court found that the trial court correctly determined that the Defendants "satisfied the requirements of former section 2923.55" before recording the notice of default." 

Specifically, before recording the notice of default, the Servicer initiated at least 11 phone calls with the Borrowers, the husband borrower called and spoke to the Servicer eight more times, and the Servicer unsuccessfully tried to call the Borrowers an additional 35 times.  During the phone calls the Servicer discussed the following with the Borrowers: a loss mitigation review; their loan modification application; payment options; the HUD referral phone number; the possible sale of the property; and offered to conduct a loss mitigation meeting several times. This evidence "clearly establishes" that Defendants made a prima facie showing that they met "all of the contact and notice requirements of former section 2923."

The Appellate Court also found that Defendants made a prima facie showing that they "complied with the requirements of former section 2923.55, subdivision (b)(2) by fully reviewing and processing" the Borrowers' "loan modification application before recording the notice of default."

The burden then shifted to the Borrowers to come forward with evidence sufficient to give "rise to one or more triable issues of fact."  The husband borrower presented evidence that before the Servicer recorded the notice of default he did not recall any phone calls occurring or being offered a meeting to discuss foreclosure alternatives.  However, he did not actually deny the contacts or the contents or the discussions.  

The Appellate Court found this insufficient to create a triable issue of material fact "and entitled the defendants to summary judgment."

The Borrowers also argued that a material fact dispute remained because the Defendants did not initiate the contacts.  The Appellate Court rejected this argument because the evidence showed that the Servicer initiated multiple contacts and because former section 2923.55 did "not require that a lender initiate the contact; rather, the statute requires only that the lender make contact in some manner and provide the borrower with an opportunity to discuss the borrower's financial situation and possible options for avoiding foreclosure."  To hold otherwise would have elevated "form over substance." 

The Borrowers argument also failed because a violation of the statute's provisions must be "material" to support a claim for an injunction.  Thus, when "the purpose of the statute is met -- if the borrower has had an opportunity to have at least two substantive discussions with the lender regarding the borrower's financial situation and possible options for avoiding foreclosure -- then the fact that one or both of these discussions may have arisen as a result of the borrower initiating the telephone call with the lender or its agent cannot be considered to constitute a 'material' violation of the statute."

Finally, because the Borrowers' claims for violations of section 17200 are predicated on their failed HBOR claims the trial court correctly found that the defendants are also entitled to summary judgment of their alleged section 17200 claims.

Accordingly, the Appellate Court affirmed the trial court's judgment. 


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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Sunday, December 2, 2018

FYI: SD Cal Dismisses Data Security Breach Class Action Against Mortgage Company

The U.S. District Court for the Southern District of California recently dismissed a consumer’s putative class action lawsuit against a mortgage lending and servicing company for purported damages sustained as a result of a security breach wherein his personal information was compromised, and the hackers attempted to open credit cards in his name.

Although the Court previously concluded that the consumer had standing to bring his claims under Article III of the Constitution, it held that the consumer failed to state causes of action for negligence and violations of various California laws.

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

A consumer (“Consumer”), on behalf of himself and others similarly situated, sued his mortgage sued a mortgage lender and servicer (“Mortgage Company”) after its customer database was hacked, and confidential customer information, such as social security numbers, was compromised. 

The consumer claimed that he suffered monetary and emotional distress damages as a result of a cybercriminal’s attempts to open credit cards in his name, as a result of the Mortgage Company’s inadequate security and failure to timely notify its customers of the breach. 

The Consumer filed suit against the Mortgage Company in the Superior Court of California, San Diego County, alleging causes of action for: (i) negligence; (ii) violation(s) of California Constitution (Art. I, § I); (iii) violation(s) of the California Customer Records Act (Civ. Code § 1798.80); (iv) violation(s) of the California Consumers Legal Remedies Act (Cal. Civ. Code § 1750), and; (v) violation(s) of the California Unfair Competition Law (Cal. Bus. & Prof. Code § 17200).

The Mortgage Company removed the action to United States District Court for the Southern District of California under the Class Action Fairness Act, and moved to dismiss the Consumer’s complaint for lack of standing and failure to state a claim.

First, in considering the Consumer’s Article III standing, the federal trial court rejected the Mortgage Company’s arguments that increased risk of identity theft is not an injury in fact, citing the Ninth Circuit’s recent holding that data-breach-victims pled "an injury in fact based on a substantial risk that hackers will commit identity fraud" and established a reasonable inference of causation by alleging that his identity was stolen and exploited.  In re Zappos.com, Inc.,888 F.3d 1020, 1029 (9th Cir. 2018). 

In addition, the Court held that the Mortgage Company’s argument that the Consumer failed to allege it possessed his data at the time of the breach or that it was actually stolen was undermined by its admission that it sent notices to customers who may have been affected by the breach -- which consumer received-- and in any event, was waived because it was raised for the first time in the Mortgage Company’s reply brief.  Thus, the motion to dismiss for lack of standing was denied.

Next, in examining the Consumer’s negligence claims, the federal trial court drew analogies to the Ninth Circuit case of Krottner v. Starbucks, wherein the plaintiff consumer similarly alleged that personal information was misused, but the court couldn’t find “loss related to the attempt to open a bank account in his name.”  Krottner v. Starbucks Corp., 406 F. App'x 129, 131 (9th Cir. 2010).  

Although the Starbucks court found risk of identity theft following a data breach sufficient to supply an injury-in-fact for standing, the Starbucks consumer plaintiff’s claims were insufficient to support actual damages for a negligence claim because the injuries "stem from the danger of future harm."  Here, the Consumer failed to distinguish his case from Starbucks, and the Court found his allegations were too vague for the court or Mortgage Company to evaluate.  Thus, the Consumer’s negligence claims were dismissed, but with leave to amend.

Following amendment by the Consumer, the Court dismissed the negligence claim with prejudice and without leave to amend.  The Consumer alleged damages such as “diminution in value of his personal data, overpayments to [Mortgage Company], and continued risk to his financial information.”  However, as to the alleged continued risk of harm, the Court held the allegation was “still insufficient because it stems from the danger of future harm,” which is insufficient under Starbucks.  The Court also held that the alleged diminution of value of his personal data failed to allege “enough facts to establish how his personal information is less valuable as a result of the breach.”  Similarly, as to the alleged overpayment to Mortgage Company, the Consumer failed to “provide any information to show that he paid a premium for [Mortgage Company] to provide reasonable and adequate security measures.”

The Consumer also argued that the Mortgage Company’s breach of data violated his right to privacy under Art. I, Section I of the California Constitution.  However, the loss of personal data through insufficient security fails to constitute “a serious invasion of privacy” that is “an egregious breach of the social norms underlying the privacy right” necessary to meet the standard of actionable conduct under the California Constitution.  Hill v. Nat'l Collegiate Athletic Assn., 7 Cal. 4th 1, 37, 40 (1994); In re iPhone Application Litig.,844 F. Supp. 2d 1040, 1063 (N.D. Cal. 2012) ("Even negligent conduct that leads to theft of highly personal information, including social security numbers, does not approach the standard of actionable conduct under the California Constitution and thus does not constitute a violation of Plaintiffs' right to privacy." ).  Accordingly, these claims, too, were dismissed, with leave to amend.

Next, the court considered the Consumer’s claims that the Mortgage Company failed to comply with the Customer Records Act, Civ. Code § 1798.80 (“CRA”), which requires businesses to protect customers' personal information by maintaining "reasonable security procedures," and if a data breach occurs, to notify affected customer's "without unreasonable delay" §§ 1798.81.5, 82. 

The Consumer argued that the Mortgage Company waived its argument by failing to address this claim, but the Court found just the opposite, and that the Consumer failed to address the Mortgage Company’s arguments that dismissal was warranted for failure to allege injury, and for conclusory allegations about security, data disposal and notification.  Thus, the claim was deemed abandoned, and dismissed with leave to amend.  See, e.g., Shull v. Ocwen Loan Servicing, LLC, 2014 WL 1404877, at *2 (S.D. Cal. Apr. 10, 2014).

Following amendment by Consumer, the Court also dismissed the CRA claim with prejudice and without leave to amend.  The Court noted that, although the CRA requires businesses to notify customers of a data breach "in the most expedient time possible and without reasonable delay” (Cal. Civ. Code § 1798.82(a)), courts have required plaintiffs to “show that the delay in notification led to incremental harm.”  The Consumer did not do so here.

Moreover, the CRA requires businesses to "implement and maintain reasonable security procedures and practices appropriate to the nature of the information." Cal. Civ. Code § 1798.81.5.  The Court held that Consumer “could have identified what made [Mortgage Company]'s security measures unreasonable by comparison to what other companies are doing, but simply knowing of higher-quality security measures is not sufficient to state a claim.”

The Consumer’s claims under the Consumers Legal Remedies Act (“CLRA”) asserted that the Mortgage Company violated various provisions of Cal. Civ. Code § 1770(a)'s ban on unfair business practices that result "in the sale or lease of goods or services to any consumer."

As you may recall, the CLRA defines "services" as "work, labor, and services for other than a commercial or business use, including services furnished in connection with the sale or repair of goods." § 1761. 

Here, the Court accepted the Mortgage Company’s argument that home loans do not qualify as “the sale of a service” under the CLRA, citing California Supreme Court authority that that "ancillary services that insurers provide to actual and prospective purchasers of life insurance" do not count as a "service" under the CLRA because the activity centers on a "contractual obligation to pay money." Fairbanks v. Superior Court, 46 Cal. 4th 56, 61, 65 (2009).  Thus, the Consumer’s CLRA claims were dismissed, but without leave to amend.

Lastly, the Consumer claimed that the Mortgage Company violated California’s Unfair Competition Law (Cal. Bus. & Prof. Code § 17200) (“UCL”) by supposedly engaging in unfair business practices by failing to provide sufficient security for his data. 

Here, the Court noted that the Consumer’s complaint failed to explain which theory he was advancing under the UCL.  Although his opposition brief suggested the Consumer relied upon his CLRA and CRA claims as predicates for an unlawful theory, because those causes of action failed to state a claim, and because the Consumer failed to sufficiently allege “lost money or property,” as required, the Consumer’s Unfair Competition Law claim also failed to state a cause of action, and was dismissed with leave to amend.

Consumer amended his UCL claim, but the Court held the amendments were insufficient, and this time dismissed the UCL claim with prejudice.  The Court noted that a UCL plaintiff must "have suffered an `injury in fact' and `lost money or property as a result of such unfair competition."  Consumer argued that he met this element because funds were withdrawn without his consent from his bank account.  However, the Court noted, Consumer’s bank quickly reversed the transaction, and therefore Consumer suffered no “injury in fact,” as required.

Accordingly, the motion to dismiss Consumer’s putative class action lawsuit was granted with prejudice and without leave to amend.


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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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 
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Email: etsai@MauriceWutscher.com

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