tag:blogger.com,1999:blog-82334193934021875632024-02-19T00:46:49.548-08:00California Finance Litigation BlogCalifornia Finance Litigation BlogErichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comBlogger320125tag:blogger.com,1999:blog-8233419393402187563.post-28244640892585714412019-11-15T15:59:00.003-08:002019-11-15T15:59:22.454-08:00FYI: 9th Cir Holds FCRA "Permissible Purpose" Plaintiff Had Standing, Establishes Elements for Such Claims<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">
<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In a case of first impression in that circuit, the U.S. Court of Appeals for the Ninth Circuit recently reversed a trial court’s dismissal of a consumer’s Fair Credit Reporting Act (“FCRA”) claim for lack of standing and failure to state a claim, holding that the plaintiff had Article III standing.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In so ruling, the Ninth Circuit held that the consumer suffered a concrete injury in fact when a bank obtained her credit report for a purpose not authorized by the statute, and it was irrelevant whether the report was published or used by the party requesting it.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court further held that: (1) in order to state a claim under this provision of FCRA, a plaintiff only needs to allege that the credit report was obtained for an unauthorized purpose; (2) the defendant must then plead that it was obtained for an authorized purpose; and (3) the plaintiff need not plead the actual purpose, but only facts creating a reasonable inference the report was obtained for an improper purpose.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a data-saferedirecturl="https://www.google.com/url?q=http://cdn.ca9.uscourts.gov/datastore/opinions/2019/10/31/17-55944.pdf&source=gmail&ust=1573947174663000&usg=AFQjCNE5ueiN3Uyt9F3LqCOojDOA8yUiKw" href="http://cdn.ca9.uscourts.gov/datastore/opinions/2019/10/31/17-55944.pdf" style="color: #1155cc;" target="_blank">Link to Opinion</a></span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">A consumer reviewed her credit report from one of the “big three” credit reporting agencies and discovered that a bank with whom she allegedly had no prior or existing relationship had requested her credit report. The consumer filed suit alleging that the bank violated the FCRA by obtaining her credit report without her consent and not for any of the purposes authorized under the Act.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The trial court dismissed the complaint with prejudice for lack of standing and failure to state a claim, and the plaintiff appealed.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">On appeal, the Ninth Circuit noted that the case presented two issues of first impression in that circuit: “(1) whether a consumer suffers a concrete Article III injury in fact when a third-party obtains her credit report for a purpose not authorized by the FCRA and (2) whether the consumer-plaintiff must plead the third-party’s actual unauthorized purpose in obtaining the report to survive a motion to dismiss.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court answered “yes” to the first question and “no” to the second, holding that “a consumer suffers a concrete injury in fact when a third-party obtains her credit report for a purpose not authorized by the FCRA … [,] a consumer-plaintiff need allege only that her credit report was obtained for a purpose not authorized by the statute to survive a motion to dismiss[,] [and] the defendant has the burden of pleading it obtained the report for an authorized purpose.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court noted that the FCRA prohibits a person from using or obtaining a consumer report for any purpose unless it is obtained for an authorized purpose and the user certifies the authorized purpose for which it is obtained or used.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, FCRA provides that a “consumer reporting agency” can only furnish a consumer report for certain enumerated purposes “and no other.” See 15 U.S.C. § 1681(b)(a).</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">These permissible purposes include, among other things, that the consumer report was obtained in response to a court order, or pursuant to the consumer’s written instructions, or only “[t]o a person which it has reason to believe — (A) intends to use the information in connection with a credit transaction involving the consumer … and involving the extension of credit to, or review or collection of an account of, the consumer; (B) … for employment purposes; or (C) in connection with the underwriting of insurance involving the consumer; or (D) … in connection with a license or other benefit granted by a governmental instrumentality …; or (E) [to] a potential investor or servicer, or current insurer …; or [who] otherwise has a legitimate business need for the information—(i) in connection with a business transaction that is initiated by the consumer; or (ii) to review an account to determine whether the consumer continues to meet the terms of the account.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">On the issue of standing, the Court explained that Article III of the U.S. Constitution limits federal courts’ power “only to ‘Cases’ and ‘Controversies’ … [and] ‘[s]tanding to sue is a doctrine rooted in the traditional understanding of a case or controversy.’ … ‘[T]he irreducible constitutional minimum’ of standing consists of three elements. The plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.’”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">According to the Ninth Circuit, the case at bar primarily involved the first “injury in fact” element, with the Court explaining that “[t]o establish injury in fact, a plaintiff must show that he or she suffered ‘an invasion of a legally protected interest’ that is ‘concrete and particularized’ and ‘actual or imminent, not conjectural or hypothetical.’ … ‘Concrete’ is not, however, necessarily synonymous with ‘tangible.’ Although tangible injuries are perhaps easier to recognize … intangible injuries can nevertheless be concrete.’”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">“’In determining whether an intangible harm constitutes injury in fact, both history and the judgment of Congress play important roles … [and] it is instructive to consider whether an alleged intangible harm has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American courts.’ … ‘The … injury required by Art. III may exist solely by virtue of ‘statutes creating legal rights, the invasion of which creates standing.’”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit further recited that “a bare procedural violation may not establish a concrete harm sufficient for Article III standing[,]” but “an alleged procedural violation [of a statute] can by itself manifest concrete injury where Congress conferred the procedural right to protect a plaintiff’s concrete interests and where the procedural violation presents ‘a risk of real harm’ to that concrete interest.’”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court also explained that it has “recognized a distinction between violations of a procedural right …and a substantive right … [and a] violation of a substantive right invariably ‘offends the interests that the statute protects.’”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Based on the foregoing prior rulings, the Court concluded that the plaintiff had standing to sue under FCRA section 1681b(f)(1) because “[f]irst, obtaining a credit report for a purpose not authorized under the FCRA violates a substantive provision of the FCRA.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">This is because, the Ninth Circuit held, this section of FCRA, “which prohibits obtaining a credit report for a purpose not otherwise authorized—protects the consumer’s substantive privacy interest. The section does not merely ‘describe a procedure’ that one must follow. Rather, [it] is the central provision protecting the consumer’s privacy interest: every violation invades the consumer’s privacy right that Congress sought to protect in passing the FCRA.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Court held, “the Plaintiff ‘need not allege any further harm to have standing.’”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Second, the Court noted that it had “previously found the invasion of the interest at issue — the right to privacy in one’s consumer credit report — confers standing.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">“Third, historical practice also supports a finding of standing … [because] [t]he harm attending a violation of §1681b(f)(1) of the FCRA is closely related to—if not the same as—a harm that has traditionally been regarded as providing a basis for a lawsuit: intrusion upon seclusion (one form of the tort of invasion of privacy).”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit concluded that the plaintiff had “standing to vindicate her right to privacy under the FCRA when a third-party obtains her credit report without a purpose authorized by the statute, regardless whether the credit report is published or otherwise used by that third-party.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court then turned to the second issue of first impression: “[m]ust “the consumer-plaintiff plead the third-party’s actual unauthorized purpose in obtaining the credit report to survive a motion to dismiss? The Court answered “no,” finding that “[t]he trial court erred in holding that … [plaintiff] has the burden of pleading the actual purpose behind [defendant’s] procurement of her credit report. A plaintiff need allege only facts giving rise to a reasonable inference that the defendant obtained his or her credit in violation of §1681b(f)(1) to meet their burden of pleading.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">As with any affirmative defense, the defendant bears “the burden of pleading it had an authorized purpose to acquire [plaintiff’s] credit report[,] … first, because “the FCRA generally prohibits obtaining a credit report, … but then provides a numerous and diverse list of exceptions[.] … As such, the authorized purposes … are matters of exception that the defendant must plead as a defense.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">“Second, placing the burden on the plaintiff would be unfair, as it would require the plaintiff to plead a negative fact that would generally be peculiarly within the knowledge of the defendant.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Finally, the Ninth Circuit concluded that the complaint contained “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face’”.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Here, the Court noted that the plaintiff alleged “that she did not have a credit relationship with [defendant]” and made “factual assertions which negative each permissible purpose for which [defendant] could have obtained her credit report and for which [plaintiff] could possibly have personal knowledge.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the trial court’s order of dismissal was reversed and the case remanded.</span></span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;"><b>Maurice Wutscher LLP</b></span><span style="font-family: "courier new"; font-size: 12pt;"> </span><span style="font-family: "arial" , sans-serif; font-size: 12pt;"><br />71 Stevenson Street, Suite 400<br />San Francisco, CA 94105<br />Direct: (415) 529-7654</span><o:p></o:p></div>
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<i><span style="font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Admitted to practice law in California, Nevada and Oregon</span></span></i><o:p></o:p></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-56451584509410136172019-11-04T16:48:00.001-08:002019-11-04T16:48:02.059-08:00FYI: Cal App Ct (1st Dist) Refuses to Enforce Predispute Jury Waiver Despite Forum Selection Clause<div class="MsoNormal" style="background-color: white; color: #444444; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px;">
<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court of Appeal of the State of California, First Appellate District, recently held that a forum selection clause in favor of a New York forum was unenforceable where the clause included a predispute jury trial waiver, which is unenforceable under California law but which would have been enforceable under New York law. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Appellate Court reversed the order of dismissal entered by the trial court. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a href="https://www.courts.ca.gov/opinions/documents/A150863.PDF" style="color: #4d469c; text-decoration-line: none;">Link to Opinion</a></span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The plaintiff storeowner ("Plaintiff") filed a lawsuit against the defendant company ("Defendant") alleging that the Defendant supposedly defrauded the Plaintiff regarding a lease agreement for credit card processing equipment.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The complaint alleged causes of action for fraud, rescission, injunctive relief, and violation of the California Business and Professions Code section 17200. The complaint also attached a lease agreement, which provided that New York law would apply to all disputes between the parties, and that all disputes "shall be instituted and prosecuted exclusively in the federal or state court located in the State and County of New York." Further, the agreement provided that "YOU AND WE WAIVE, INSOFAR AS PERMITTED BY LAW, TRIAL BY JURY IN ANY DISPUTE."</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Defendant moved to dismiss the complaint based on the forum selection clause of the lease agreement. The trial court granted the dismissal, and the matter was appealed. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">On appeal, the Appellate Court first observed that "California favors contractual forum selection clauses so long as they are entered into freely and voluntarily, and their enforcement would not be unreasonable," but "California courts will refuse to defer to the selected forum if to do so would substantially diminish the rights of California residents in a way that violates our state's public policy."</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court also noted that a party opposing enforcement of a forum selection clause ordinarily bears the burden of proving why it should not be enforced, but the burden is "reversed when the claims at issue are based on unwaivable rights created by California statutes [in which case] the party seeking to enforce the forum selection clause bears the burden to show litigating the claims in the contractually designated forum" will not diminish the substantive rights afforded under California law.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Plaintiff argued that the forum selection clause impacted his substantive rights under California law because it includes a predispute waiver of the right to a jury trial and such right is unwaivable, even voluntarily, under California law. Thus, the Plaintiff argued that the trial court erred in failing to place the burden on the Defendant to prove litigating in New York would not result in a diminution of his substantive rights under California law.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Defendant argued that the Plaintiff's lawsuit did not involve claims based on unwaivable rights under a statutory scheme and therefore the burden should not shift to the Defendant.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In siding with the Plaintiff, the Appellate Court held that "enforcing the forum selection claim here would be contrary to California's fundamental public policy protecting the jury trial right and prohibiting courts from enforcing predispute jury trial waivers."</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Although the Plaintiff's claims were not based on a statutory scheme which includes an antiwaiver provision, the "complaint includes a demand for a jury trial, which [the Plaintiff] correctly argues is unwaivable in predispute contracts under California law." The right to a jury trial "is inviolate under the California Constitution, and which may only be waived by the methods enumerated by the Legislature." </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">However, "[w]hile California law holds predispute jury trial waivers are unenforceable, it is undisputed that under New York law there is no similar prohibition." </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court next considered whether the right to jury trial was a substantive or procedural right, which it noted "is an open question."</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">After analyzing the issue, the Appellate Court determined that "even if the rule is considered procedural, it is intimately bound up with the state's substantive decision making" and "serves substantive state policies" of preserving the right to jury trial, which is "an interest the California Constitution zealously guards."</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Thus, the Appellate Court held that "because enforcement of the forum selection clause here has the potential to contravene a fundamental California policy of zealously guarding the inviolate right to a jury trial, which is unwaivable by predispute agreements, [the Defendant] bears the burden of showing that litigation in New York" will not diminish the Plaintiff's substantive rights under California law.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Defendant argued that the only issue to be decided was the enforcement of the forum selection clause, and that the issue of whether to enforce the jury trial waiver should be decided by a New York court. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court disagreed, ruling that "enforcing the forum selection clause in favor of New York will put the issue of enforceability of the jury trial waiver contained in the same agreement before the New York court," and "[b]ecause New York permits predispute jury trial waivers, and California does not, enforcing the forum selection clause has the potential to operate as a waiver of a right the Legislature and our high court have declared unwaivable."</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court therefore held that "the trial court erred in enforcing the forum selection clause in favor of a New York forum where the clause includes a predispute jury trial waiver, which . . . is unenforceable under California law."</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Appellate Court reversed the order of dismissal entered by the trial court, and remanded the matter for entry of a new order denying the motion to dismiss.</span></span></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-68910418190693704162019-10-22T07:26:00.002-07:002019-10-22T07:26:51.987-07:00FYI: Cal App Ct (2nd Dist) Upholds Over 60% Reduction on Consumer Plaintiff's Attorney Fee Award<div class="MsoNormal" style="background-color: white; color: #444444; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px;">
<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Court of Appeals of California, Second District, recently upheld a trial court's ruling reducing the amount of a plaintiff's attorney's fee award in a consumer litigation action to less than 40% of the amount sought by the plaintiff's counsel.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a href="https://scholar.google.com/scholar_case?case=3445742402992126878&hl=en&as_sdt=6&as_vis=1&oi=scholarr" style="color: #4d469c; text-decoration-line: none;">Link to Opinion</a>. The opinion was later revised slightly and certified for publication: <a href="https://scholar.google.com/scholar_case?case=1802911542030471032&hl=en&as_sdt=6&as_vis=1&oi=scholarr" style="color: #4d469c; text-decoration-line: none;">Link to Opinion</a></span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">A car buyer sued the manufacturer of a used car she purchased under California's Song-Beverly Consumer Warranty Act, Civ. Code, § 1790 et seq., for alleged defects that the manufacturer refused to repurchase. The parties settled the litigation, with the manufacturer agreeing to pay the purchaser plaintiff $85,000 plus reasonable attorney fees and expenses.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The plaintiff purchaser moved for a fee award using the lodestar method that consisted of a $127,792.50 base amount with a 1.5 multiplier, for a total of $191,688.75. However, the trial court awarded only $73,864 in fees.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">This appeal followed.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Just as with many consumer statutes that allow the successful consumer to recover attorney's fees, in an action under California's Song-Beverly Consumer Warranty Act, the prevailing buyer has the burden of "showing that the fees incurred were `allowable,' were `reasonably necessary to the conduct of the litigation,' and were `reasonable in amount'."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court noted the extensive case law establishing that:</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">- The "trial judge is the best judge of the value of professional services rendered in his [or her] court, and while his [or her] judgment is of course subject to review, it will not be disturbed unless the appellate court is convinced that it is clearly wrong."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">- In addition, "the lodestar method vests the trial court with the discretion to decide which of the hours expended by the attorneys were `reasonably spent' on the litigation, and to determine the hourly rates that should be used in the lodestar calculus."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">- While the trial court has broad discretion to increase or reduce the proposed lodestar amount based on the various factors identified in case law, including the complexity of the case and the results achieved, the court's analysis must begin with the `actual time expended, determined by the court to have been reasonably incurred.'" </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">- "A trial court may not rubber stamp a request for attorney fees, but must determine the number of hours reasonably expended."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">- In evaluating whether the attorney fee request is reasonable, the trial court should consider "`whether the case was overstaffed, how much time the attorneys spent on particular claims, and whether the hours were reasonably expended.'"</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">- "Reasonable compensation does not include compensation for `padding' in the form of inefficient or duplicative efforts." </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">- "A reduced award might be fully justified by a general observation that an attorney overlitigated a case or submitted a padded bill or that the opposing party has stated valid objections.'"</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">- "In making its calculation [of a reasonable hourly rate], the court may rely on its own knowledge and familiarity with the legal market, as well as the experience, skill, and reputation of the attorney requesting fees, the difficulty or complexity of the litigation to which that skill was applied, and affidavits from other attorneys regarding prevailing fees in the community and rate determinations in other cases."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court also noted that "it is inappropriate and an abuse of a trial court's discretion to tie an attorney fee award to the amount of the prevailing buyer/plaintiff's damages or recovery in a Song-Beverly Act action.'" A "'rule of proportionality' would make it difficult for individuals with meritorious consumer rights claims to obtain redress from the courts when they cannot expect a large damages award."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Pointing to various statements by the trial judge at the hearing on attorney's fees, the plaintiff argued that the trial court engaged in a prohibited proportionality analysis in setting the attorney fee award.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">However, the Appellate Court noted that "the trial court's final written order in the instant case did not suggest in any respect that the court reduced the attorney fee award based on the size of the settlement award."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Instead, the Appellate Court noted that the trial court's order indicated a fee reduction was warranted because it was unreasonable to have 6 different lawyers from 2 different law firms for the plaintiff, "staffing a case that did not present complex or unique issues, did not involve discovery motions, and did not go to trial." In addition, the trial court found the attorneys' hourly rates of $500 per hour to over $600 per hour to be unreasonably high.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The plaintiff also argued that "the trial court arbitrarily cut 83.5 hours of reasonably incurred fees billed by six attorneys who worked on the case, citing concerns about inefficiencies and duplication," but without referencing "any specific examples of inefficiencies or redundancies as a result of the number of attorneys staffing the case."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court noted that "[a]n across-the-board reduction in hours claimed based on the percentage of total time entries that were flawed, without respect to the number of hours that were actually included in the flawed entries, is not a legitimate basis for determining a reasonable attorney fee award."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Nevertheless, the Appellate Court noted that the trial court "made clear that its approach was designed to reduce the total award to the reasonable amount that would have been billed had there been an appropriate number of attorneys on the case. The court could properly have made an across-the-board reduction of 30 percent to accomplish the same purpose."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Therefore, the Appellate Court rejected the plaintiff's argument here as well, holding that "[p]lainly, it is appropriate for a trial court to reduce a fee award based on its reasonable determination that a routine, non-complex case was overstaffed to a degree that significant inefficiencies and inflated fees resulted." </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The plaintiff also argued the trial court improperly reduced the hourly rates of $500 to $650 per hour for her attorneys to $300 per hour, even though she "submitted ample evidence, which Defendant failed to rebut, that her counsel's rates were reasonable and commensurate with other consumer attorneys' rates."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">However, the Appellate Court again disagreed, noting that "even if Plaintiff established that her attorneys' rates were generally commensurate with other consumer law attorneys with the same level of experience and skill, Plaintiff ignores that there are a number of factors that the trial court may have taken into consideration in determining that reductions in the attorneys' hourly rates were warranted. The court reasonably could have reduced the rates based on its finding that the matter was not complex; that it did not go to trial; that the name partners were doing work that could have been done by lower-billing attorneys; and that all the attorneys were doing work that could have been done by paralegals."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In sum, the Appellate Court held that the plaintiff failed to meet "her burden to show an abuse of discretion in the trial court's reduction of the attorneys' hourly rates."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Therefore, the Appellate Court affirmed that trial court's order awarding fees and costs, and also allowed the defendant manufacturer to recover its costs on appeal.</span></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-13727915062842715242019-10-14T12:30:00.002-07:002019-10-14T12:30:36.782-07:00FYI: Cal App Ct (2nd Dist) Rejects Claim That Loan Assignment During Default Was Void<div class="MsoNormal" style="background-color: white; color: #444444; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px;">
<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Court of Appeal for the Second District of California recently affirmed the dismissal of a borrower's claims for wrongful foreclosure alleging that the assignment of his mortgage to the foreclosing entity was invalid.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In so ruling, the Second District rejected the borrower's argument that a mortgage cannot be assigned to another entity while the loan is in default as illogical and incorrect, in part because this reasoning would allow borrowers to prevent lenders from assigning debt by refusing to make payments.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a href="https://scholar.google.com/scholar_case?case=17176957184930073425&hl=en&as_sdt=6&as_vis=1&oi=scholarr" style="color: #4d469c; text-decoration-line: none;">Link to Opinion</a></span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">A borrower took out a mortgage loan secured by a deed of trust to his home (the "Loan"). After the initial lender was closed and placed into receivership by the federal government, the FDIC as receiver transferred the Loan to a new entity ("Assignor"), who in turn assigned the Loan to yet another entity ("Assignee") and recorded the assignment. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Thereafter, a substitution of trustee was recorded declaring that Assignee was substituted for a new trustee ("Trustee") on the Loan. The Assignee and Trustee foreclosed the Borrower's home in April 2017.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The borrower filed a wrongful foreclosure action against the Assignee and Trustee alleging that they had no rightful claim to foreclose on his home on the basis that: (i) the initial lender sold his mortgage to entities that were not named defendants to the foreclosure, and; (ii) that the Loan was not legally transferred, conveyed or assigned to Assignee because the borrower defaulted on the Loan nearly eight years prior to the time of assignment. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The trial court sustained the Assignee and Trustee's demurrer to the borrower's complaint and the instant appeal followed.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">On appeal, the appellate court reviewed the Borrower's chief argument that a financial institution may not validly assign a mortgage loan to another entity while the loan is in default, and that such an assignment is "void." </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Under California law, it is not enough for a homeowner merely to allege a mortgage assignment was voidable. See, e.g., Yhudai v. IMPAC Funding Corp. (2016) 1 Cal.App.5th 1252, 1256. Rather, the homeowner must allege facts supporting a legally viable theory as to why the challenged assignment is void as a matter of law. See, e.g., Kalnoki v. First American Trustee Servicing Solutions, LLC (2017) 8 Cal.App.5th 23, 44; cf. Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 929–930 [distinguishing between void and 4 voidable contracts].</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Here, the Appellate Court noted that complaint asserted without any logical basis or supporting legal authority that a borrower, by refusing to pay, can prevent a lender from assigning the debt. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Examining the Borrower's argument that the assignment was void, the Second District was unpersuaded by this "strange suggestion," concluding that the Borrower's argument was legally incorrect because he did not explain how the assignments were void as a matter of law. See, e.g., Mendoza, supra, 6 Cal.App.5th at pp. 811– 820.). </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The other five claims raised in the borrower's complaint failed for not being within the jurisdiction of the appellate court (federal claims dismissed upon removal as invalid and remanded to state court), forfeited as not raised in the opening brief (claims for violation of Civil Code section 2934 or for cancellation of written instruments), or for want of an underlying claim (claim for unfair competition).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Because the Borrower failed to provide a logical basis for his argument suggesting that the assignment of his mortgage loan while in default was void, nor any supporting legal authority, the Second District concluded that the trial court's judgment sustaining the demurrer without leave to amend was proper, and affirmed the judgment.</span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;"><b>Maurice Wutscher LLP</b></span><span style="font-family: "courier new"; font-size: 12pt;"> </span><span style="font-family: "arial" , sans-serif; font-size: 12pt;"><br />71 Stevenson Street, Suite 400<br />San Francisco, CA 94105<br />Direct: (415) 529-7654</span><o:p></o:p></div>
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<i><span style="font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Admitted to practice law in California, Nevada and Oregon</span></span></i><o:p></o:p></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-43324614690490188572019-10-10T07:34:00.000-07:002019-10-10T07:34:09.588-07:00<div class="MsoNormal" style="background-color: white; color: #444444; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px;">
<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The U.S. Court of Appeals for the Ninth Circuit recently affirmed a trial court's summary judgment ruling in favor of the financial services defendants in an action to rescind the mortgage under the federal Truth in Lending Act, 15 U.S.C. § 1601, et seq. (TILA).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In so ruling, the Ninth Circuit held that the plaintiff consumer did not have a right of rescission under TILA because he previously quitclaimed his interest in the property to his ex-wife, and his new loan to acquire the property from his ex-wife was a "residential mortgage transaction".</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a href="https://scholar.google.com/scholar_case?case=11324277989565989104&q=Barnes+v.+Chase+Home+Finance,+LLC&hl=en&as_sdt=400006&as_ylo=2019&as_vis=1" style="color: #4d469c; text-decoration-line: none;">Link to Opinion</a></span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The plaintiff and his now ex-wife obtained title to the subject property in 1990. In 2003, Plaintiff quitclaimed the property to his wife, and she then encumbered the property with a series of deeds of trust listing her as the sole owner.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The couple divorced in 2007. The divorce judgment awarded the property to Plaintiff, and ordered him to among other things "immediately refinance the mortgage owning on said property in order to remove Wife's name from said financial obligation." The judgment also ordered Plaintiff to pay his ex-wife $100,000.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The lender extended a loan to Plaintiff, who executed a deed of trust securing the note on the property. Plaintiff used the proceeds from the loan to pay off his ex-wife's outstanding loan balance and to satisfy the money judgment. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Plaintiff filed suit against the lender and its successors (Defendants) seeking rescission of the loan and other relief. The trial court dismissed his claim for rescission as time-barred, and granted summary judgment against him on his claims for declaratory and injunctive relief and damages. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit vacated the trial court's judgment and remanded, holding that Plaintiff's letter to the loan servicer gave proper, timely notice of rescission within three years of the loan transaction under TILA.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">On remand, the trial court again granted summary judgment in favor of Defendants, holding that Plaintiff had no statutory right under TILA to rescind the mortgage because his loan was a residential mortgage transaction.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, TILA defines a residential mortgage as "a transaction in which a mortgage is created or retained against the consumer's dwelling to finance the acquisition or initial construction of such dwelling." 15 U.S.C. § 1602(x).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The trial court concluded that, although Plaintiff had "a partial interest in the property from 1990 to 1997 and was the sole owner from 1997 to 2003, his interest in the property was fully extinguished in 2003 when he conveyed the entirety of his interest to his wife via quitclaim deed."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The trial court further found that pursuant to his obligations under the divorce judgment, Plaintiff entered into the loan in question specifically to acquire ownership interest in the property, and thus "[the loan] was a residential mortgage transaction as to which TILA provide[d] no statutory right of rescission."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">This appeal followed. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Plaintiff argued that the issue of whether his loan was a residential mortgage transaction was not properly before the trial court on remand because Defendants waived the issue by failing to raise it until after the prior appeal, and because defendants' argument was barred by law of the case and the Ninth Circuit's mandate in the prior appeal.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit disagreed, holding that "a defendant need not raise every possible argument in a motion for summary judgment and may make a different argument on remand if a grant of summary judgment in its favor is reversed on appeal."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In the prior appeal, the Ninth Circuit never ruled on the issue whether Plaintiff had a right of rescission. Instead, it merely held that Plaintiff's letter to the servicer provided sufficient notice that he was exercising his right to rescind, and the trial court therefore erred in dismissing his claims for rescission on the ground of improper notice. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Thus, the Ninth Circuit held that "neither law of the case nor the mandate on appeal barred the district court from addressing defendants' 'residential mortgage transaction' argument."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Plaintiff also argued that the trial court misinterpreted the statute by including in the definition of a residential mortgage transaction an initial acquisition and a reacquisition of the property.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Plaintiff cited the Official Staff Interpretations to Regulation Z, which provides that the term residential mortgage transaction "does not include a transaction involving a consumer's principal dwelling if the consumer had previously purchased and acquired some interest to the dwelling, even though the consumer had not acquired full legal title." 12 C.F.R. Pt. 226, Supp. I, Subpt. A § 226.2(a)(24)-5(i) ().</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit observed that the "refinance" ordered by the divorce judgment allowed Plaintiff to pay off his ex-wife's outstanding mortgage and then made it possible for Plaintiff to acquire the property in his own right. The loan was not a refinance where the borrower changed from the ex-wife to Plaintiff, and Plaintiff did not acquire title until the day after he signed the loan. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Thus, the Ninth Circuit held, the trial court correctly concluded that the Official Staff Interpretations to Regulation Z refers to a situation where the borrower increases an existing ownership interest using loan proceeds, rather than the situation where the borrower reacquires a property after he had given up all ownership interest.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Next, Plaintiff argued that the 2003 quitclaim deed did not establish his subsequent lack of ownership interest in the property because upon the filing of the dissolution of marriage, the property took on communal attributes and he acquired a "species of co-ownership." </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit held, without deciding the issue, that assuming Plaintiff gained an interest in the property by operation of Oregon law, he still "acquired" his interest for purposes of TILA's "residential mortgage transaction" provision. As the Ninth Circuit explained, the plain language of the statute requires a transaction in which a mortgage is created "to finance the acquisition or initial construction of such dwelling."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Plaintiff also argued that the language used in the loan documents showed that he already owned an interest in the property before he took out the loan.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">However, the Ninth Circuit stated that the lender's characterization of the transaction was not determinative, and even if Plaintiff believed the purpose of the loan was to comply with the divorce judgment, the fact remained that he had no interest in the property when he took out the mortgage.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Ninth Circuit affirmed the trial court's grant of summary judgment in favor of the Defendants.</span></div>
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<span style="background-color: transparent; color: #222222; font-family: arial, sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;"><b>Maurice Wutscher LLP</b></span><span style="font-family: "courier new"; font-size: 12pt;"> </span><span style="font-family: "arial" , sans-serif; font-size: 12pt;"><br />71 Stevenson Street, Suite 400<br />San Francisco, CA 94105<br />Direct: (415) 529-7654</span><o:p></o:p></div>
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<i><span style="font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Admitted to practice law in California, Nevada and Oregon</span></span></i><o:p></o:p></div>
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<span style="background-color: transparent; font-family: "arial" , sans-serif; font-size: 9pt;">ALABAMA | CALIFORNIA | FLORIDA | ILLINOIS | MARYLAND | MASSACHUSETTS | NEW JERSEY | NEW YORK | OHIO | PENNSYLVANIA | TEXAS | WASHINGTON, D.C.</span><span style="color: #022f88; font-family: "calibri"; font-size: xx-small;"><span style="font-size: 11pt;"> </span></span><span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;"> </span></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-48089570042969570662019-10-10T07:31:00.001-07:002019-10-10T07:34:32.926-07:00<span style="color: #003399; font-family: arial, sans-serif; font-size: 12pt;">The U.S. Court of Appeals for the Ninth Circuit recently vacated
an order sua sponte remanding to state court a putative class action removed
under the federal Class Action Fairness Act.</span><br />
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">In so ruling, the Ninth Circuit held:</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">1. When a notice
of removal plausibly alleges a basis for federal court jurisdiction, a federal
trial court may not remand the case back to state court without giving the
defendants an opportunity to demonstrate that the jurisdictional requirements
were satisfied;</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">2. The amount in
controversy may be based on reasonable assumptions tied to the allegations in
the complaint;</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">3. When a
statute or contract provides for the recovery for attorneys' fees, prospective
attorneys' fees must be included in the assessment of the amount in
controversy; and </span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">4. The
defendants' summary judgment motion in state court, asserting that the plaintiffs'
claims were barred by a release from a prior class action settlement, did not
defeat federal court jurisdiction. </span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">A copy of the opinion is available at: <a href="https://scholar.google.com/scholar_case?case=3064885571765880389&q=Blanca+Argelia+Arias+v.+Residence+Inn+by+Marriott&hl=en&as_sdt=400003">Link
to Opinion</a></span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">An employee filed a putative class action against her employer
in state court, alleging that the employer failed to compensate its employees
for wages and missed meal breaks and failed to issue accurate itemized wage
statements, all in violation of state wage and hour laws.</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">The employer removed the case to federal court alleging minimum
diversity jurisdiction under the federal Class Action Fairness Act
(CAFA). </span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">As you may recall, a federal trial court has original
jurisdiction under CAFA if: (1) any member of the class is a citizen of a
state different from any defendant, (2) the class contains at least 100
members, and (3) the amount in controversy exceeds $5,000,000. 28 U.S.C.
§ 1332(d)(2), (d)(5)(B).</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">To show minimum diversity, the employer alleged that it was a
citizen of Maryland and Delaware and the employee was a citizen of
California. To satisfy the class size requirement, the employer provided
a declaration stating that it employed at least 2193 nonexempt employees during
the period defined in the complaint.</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">To satisfy the amount in controversy requirement, the employer
relied on its employee data (e.g., number of nonexempt employees, hourly rate
of pay, and number of workweeks worked by putative class members), and then
made assumptions about the frequency of the violations alleged in the
complaint.</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">Using assumed violation rates, the employer alleged a potential
amount in controversy exceeding $15 million, with its most "conservative
estimate" totaling over $5.5 million, including attorneys' fees (which the
employer asserted should be included to in the calculation).</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">After the employer filed the notice of removal, the trial court
issued an order sua sponte remanding the case to state court. The trial
court stated that the employer's calculations of the amount in controversy was
" unpersuasive" and rested on "speculation and
conjecture." </span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">The trial court faulted the employer for not offering
evidentiary support for its assumptions, and concluded that "prospective
attorneys' fees are too speculative" to be included in the amount in
controversy.</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">The litigation proceeded in state court. The employer
filed a motion for summary judgment, arguing that a release from a related
class action settlement barred all of the employee's claims.</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">The employer filed a timely petition for permission to appeal
under 28 U.S.C. § 1453(c)(1), which the Ninth Circuit granted.</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">The employer argued that the trial court imposed an erroneous
burden of proof by sua sponte remanding the case to state court without
allowing it an opportunity to support its allegations with evidence.</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">The Ninth Circuit observed that "when a defendant seeks
federal-court adjudication, the defendant's amount-in-controversy allegation
should be accepted when not contested by the plaintiff or questioned by the
court." Dart Cherokee Basin Operating Co., LLC v. Owens, 574 U.S.
81, 87 (2014).</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">The appellate court noted that the trial court did not conclude
that the employer's allegations were implausible. Instead, the trial
court stated that the employer failed to meet its burden of proving the amount
in controversy with evidence. </span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">The Ninth Circuit also noted that a notice of removal "need
not contain evidentiary submissions." Dark Cherokee, 574 U.S. at
84. "[W]hen a defendant's assertion of the amount in controversy is
challenged and both sides submit proof, the court decides by a preponderance of
the evidence whether the amount-in-controversy requirement has been
satisfied." Id., at 88.</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">Thus, the appellate court held that the trial court's sua sponte
order deprived the employer of "a fair opportunity to submit proof."</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">Next, the employer argued that the trial court erred in
disallowing its assumptions in its estimate of the amount in controversy.</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">The Ninth Circuit explained that a removing defendant is
permitted to rely on "a chain of reasoning that includes
assumptions." Ibarra v. Manheim Invs., Inc., 775 F.3d 1193, 1199
(9th Cir. 2015). However, "assumptions cannot be pulled from thin
air but need some reasonable ground underlying them." Id.</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">The employee alleged that the employer " routinely"
failed to provide overtime wages and compensation for rest and meal
breaks. The employer assumed six minutes of unpaid overtime per day and
one missed rest break per week.</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">The employer assumed that 100% of wage statements were
inaccurate because the employee alleged that "[n]ot one of the paystubs
that Plaintiffs received complied with Labor Code § 226b."</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">Based on the allegations in the complaint, and noting that the
amount in controversy was merely an estimate of the total amount in dispute,
the Ninth Circuit determined that the trial court mischaracterized the
employer's assumptions as being "speculation and conjecture."</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">The employer also argued that the trial court erred by "refusing
to consider prospective attorneys' fees in the amount in controversy."</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">The Ninth Circuit agreed, stating that "[w]e have long held
(and reiterated [in early 2018]) that attorneys' fees awarded under
fee-shifting statutes or contracts are included in the amount in
controversy." Fritsch v. Swift Transp. Co. of Ariz., LLC, 899 F.3d
785, 794 (9th Cir. 2018).</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">Because the complaint sought recovery of attorneys' fees, and
because there was no dispute that at least some of the California wage and hour
laws in the complaint entitle a prevailing plaintiff to an award of attorneys'
fees, the Ninth Circuit held that the trial court should not have excluded
prospective attorneys' fees from the amount in controversy.</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">The employee argued that the employer's summary judgment motion
in state court defeated federal court jurisdiction, because it argued that her
claims were barred by a release from a prior class action settlement.</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">The Ninth Circuit disagreed, explaining that post-filing
developments do not defeat jurisdiction if jurisdiction was properly invoked as
of the time of filing of the complaint. Further, the strength of any
defense indicated the likelihood of the plaintiff prevailing, but is irrelevant
to determining the amount at stake in the litigation.</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">The employee also suggested that jurisdiction was defeated
because she stipulated that the amount in controversy did not exceed
$5,000,000.</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">However, the U.S. Supreme Court has held that when "a
class-action plaintiff stipulates, prior to certification of the class, that
he, and the class he seeks to represent, will not seek damages that exceed $5
million in total," the trial court should ignore the stipulation when
assessing the amount in controversy. Std. Fire Ins. Co. v. Knowles, 568
U.S. 588, 590, 596 (2013).</span><o:p></o:p></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12.0pt;">Accordingly, the Ninth Circuit vacated the trial court's order
refusing federal court jurisdiction, and remanded for further proceedings.</span><o:p></o:p></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;"><b>Maurice Wutscher LLP</b></span><span style="font-family: "courier new"; font-size: 12pt;"> </span><span style="font-family: "arial" , sans-serif; font-size: 12pt;"><br />71 Stevenson Street, Suite 400<br />San Francisco, CA 94105<br />Direct: (415) 529-7654</span><o:p></o:p></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;">Fax: (866) 581-9302</span><o:p></o:p></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;">Mobile: (714) 600-6000</span><o:p></o:p></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;">Email: </span><u><span style="color: blue; font-family: "arial" , sans-serif; font-size: 12pt;">etsai@MauriceWutscher.com</span></u><o:p></o:p></div>
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<i><span style="font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Admitted to practice law in California, Nevada and Oregon</span></span></i><o:p></o:p></div>
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<span style="background-color: transparent; font-family: "arial" , sans-serif; font-size: 9pt;">ALABAMA | CALIFORNIA | FLORIDA | ILLINOIS | MARYLAND | MASSACHUSETTS | NEW JERSEY | NEW YORK | OHIO | PENNSYLVANIA | TEXAS | WASHINGTON, D.C.</span><span style="color: #022f88; font-family: "calibri"; font-size: xx-small;"><span style="font-size: 11pt;"> </span></span><span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;"> </span></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-4656705148199441042019-09-14T10:29:00.002-07:002019-09-14T10:29:35.459-07:00FYI: Cal App Ct (2nd Dist) Upholds Denial of Class Cert Based on Survey and Statistical Sampling<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">
<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Court of Appeal for the Second District of California affirmed an order denying class certification in a wage and hour litigation, holding that plaintiffs' proposed anonymous, double-blind survey and statistical sampling failed to address individualized issues for liability and damages.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In so ruling, the Appellate Court held that the plaintiffs' trial plan was unmanageable and unfair because, among other things, the proposed survey deprived the defendants of the ability to cross-examine the witnesses and to assert defenses. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a data-saferedirecturl="https://www.google.com/url?q=https://scholar.google.com/scholar_case?case%3D1101411594855109206%26q%3DMcCleery%2Bv.%2BAllstate%2BInsurance%2BCo%26hl%3Den%26as_sdt%3D400006%26as_ylo%3D2019%26as_vis%3D1&source=gmail&ust=1568554380201000&usg=AFQjCNGyVz3C6quFkKwdxLBCfp5yB9OFOQ" href="https://scholar.google.com/scholar_case?case=1101411594855109206&q=McCleery+v.+Allstate+Insurance+Co&hl=en&as_sdt=400006&as_ylo=2019&as_vis=1" style="color: #1155cc;" target="_blank">Link to Opinion</a></span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In this putative class action, property inspectors (Plaintiffs) alleged that they were engaged by three service providers to perform property inspections for two insurance companies. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Plaintiffs alleged they were employees of the insurers and service companies (Defendants) jointly, and Defendants failed to pay minimum wages and overtime (Cal. Lab. Code § 1194), furnish timely or accurate wage statements (Cal. Lab. Code § 226(e)), establish a policy for meal or rest breaks, or reimburse them for employment expenses (Cal. Lab. Code § 2802), and in so doing violated California's Unfair Competition Law (Bus. & Prof. Code § 17200, et seq.).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Plaintiffs moved for class certification, supported by their expert's declaration that liability could be determined and damages calculated classwide by using "established survey methods and statistical analyses" of a random sample of class members.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The trial court denied certification on the ground that Plaintiffs failed to show their status as employees could be established on predominantly common proof.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Plaintiffs appealed and the Appellate Court reversed the order, remanding with instructions for the trial court to evaluate the Plaintiffs' trial plan. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">On remand, the Plaintiffs' expert elaborated on the trial plan, proposing an anonymous, double-blind survey of all class members. Specifically, the plan provided that all potential class members would be invited to participate in the survey and a telephone survey firm would conduct interviews and ask questions concerning:</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">(1) the amount of overtime worked, (2) the numbers of meal and rest breaks to which inspectors were entitled to take under California law but did not take (assume the law applied to these individuals), (3) the amount of time inspectors spent performing specific tasks of relevance to the claimed minimum wage violations, (4) the number of miles that inspectors drove to do their work, [and] (5) the amount of money that inspectors spent for other business expenses incurred in connection with their work.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The respondents would receive a small financial incentive to participate in the survey, and would be told their answers and participation were confidential.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The respondents would asked to recall, among other things, the time they spent doing inspection, the number of days per week worked beginning in 2005, the number of hours worked, when they took breaks and the duration of each break, whether they incurred expense, and which of the three service companies and only one of the insurers they worked for and for how long.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The survey did not include questions about the second insurer for unknown reasons. When asked why, Plaintiffs' expert answered "I wasn't asked to do that." </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Using the sampling data from the survey, Plaintiffs' expert would generate estimated totals for each subclass, apportioned separately for inspections done for each of the Defendants, and provide a margin of error and confidence levels.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In opposition to Plaintiffs' trial plan, Defendants' expert identified several flaws in the proposed survey. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">First, the survey asked no questions related to the employee/independent contractor distinction, and in fact avoided questions about the degree of independence inspectors enjoyed. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Specifically, the survey did not ask questions about the Defendants' knowledge or control of any facet of an inspector's workday, e.g., how many hours the inspector worked, what breaks were or could have been taken, or what meets were attended or expense incurred. Defendants argued that this deficit left the independent contractor question unanswered and potentially skewed the survey results by artificially narrowing variances.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The expert also argued that the very precise recall required by the survey questions about events stretching back 10 years invited significant error. Further, if the data showed that the respondents' experiences varied widely, the average may not be representative of the actual experiences of many members of class, and the anonymous nature of the survey led to inaccurate and unverifiable results.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The trial court again denied certification, finding Plaintiffs' statistical sampling unworkable because it did not specify which insurer's inspections were performed, or explain whether the inspectors' failure to take meal or rest breaks was due to preference or to the exigencies of the job. Also, the survey's anonymity deprived the Defendants from cross-examining witnesses to verify responses or test them for accuracy or bias.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">This appeal followed.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, " in wage and hour cases where a party seeks class certification based on allegations that the employer consistently imposed a uniform policy or de facto practice on class members, the party must still demonstrate that the illegal effects of this conduct can be proven efficiently and manageably within a class setting." Duran v. U.S. Bank National Assn. (Cal. 2014) 59 Cal. 4th 1, 28-29. " Class certification is appropriate only if 'individual questions can be managed with an appropriate trial plan.'" Id., at 27.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Plaintiffs argued that their expert's survey was "methodologically correct and scientifically valid, captured all pertinent variation in hours worked among inspector, eschewed irrelevant questions, and produced reliable and accurate results."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court explained that the problem with the survey was not the scientific measurement procedure, rather it failed as a trial plan because it did not fairly establish Defendants' liability on a classwide basis as to any claim.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">With respect to overtime and meal and rest breaks, the Appellate Court noted that "simply having the status of an employee [did] not make the employer liable for a claim for overtime compensation or denial of breaks." Instead, "[a]n individual employee establishe[d] liability by proving actual overtime hours worked without overtime pay, or by providing that he or she was denied rest or meal breaks."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court found that Plaintiffs' expert asked no questions about the second insurer, and thus, it was unclear how Plaintiffs could establish the liability of the second insurer without considering whether any inspector worked for this insurer more than eight hours in a day or 40 in a week (Lab. Code § 510).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court explained that Plaintiffs' plan also failed with respect to their minimum wage claim (Lab. Code § 1194), because the inspectors were paid a piece rate for each inspection performed and Plaintiffs offered no explanation how they could establish the number of inspections performed for the second insurer, how long they took, or what the second insurer paid for them.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Regarding the meal and rest period claims, the Appellate Court explained that the inspectors performed inspections for a number of insurance companies, including non-parties, often in the same day, but the survey failed to ask if anyone ever worked long enough in a day for either of the insurance companies in this case to be entitled to a meal or rest period from that insurer or any of its three co-employers.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Further, the Appellate Court noted that "plaintiffs made no effort to explain how they could establish through common proof what expenses, if any, inspectors incurred for any particular insurer, or how they were deprived of wage statements."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court determined that the anonymous survey deprived the Defendants of any meaningful examination of any witnesses, as Plaintiffs expert did not know who the survey respondents were and why any class member had chosen not to participate.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">After the Appellate Court issued an opinion affirming the trial court's ruling, Plaintiffs petitioned for rehearing, arguing that Defendants' liability could be established independent of the survey by examining the various policies and contracts demonstrating all the Defendants were co-employers that had the right to control Plaintiffs' work.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Plaintiffs argued that liability may be established classwide by the failure of one employer to pay overtime or provide a rest break on even a single occasion.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">This approach, in the Appellate Court's view, was similar to that rejected in Duran, where the plaintiffs alleged their employer had misclassified them as outside sales persons, rendering them exempt from overtime laws. In Duran, the plaintiffs proposed to proceed classwide with an initial liability phase and a second phase to address the extent of damages, but the California Supreme Court held that whether a given employee is properly classified depends in large part on the employee's individual circumstance. Duran, 15 Cal.4th at 36. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court also observed that in Brinker, the California Supreme Court analyzed the elements of the off-the-clock claim before it, holding that "liability is contingent on proof [the employer] knew or should have known off-the-clock work was occurring." Brinker, 53 Cal.4th at 1024. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">As the Appellate Court explained, "an employer's liability for failure to provide overtime or rest breaks will depend on the employees' individual circumstance. Liability to one employee by one employer does not establish even that employer's liability to other employees, much less the liability of a joint employer to any employee."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Court continued, explaining that "[e]ven if a class action trial could determine that an employer is liable to an entire class for a consistently applied policy or uniform job requirements and expectations contrary to Labor Code requirements, or if it knowingly encouraged a uniform de factor practice inconsistent with the requires, any procedure to determine the defendant's liability to the class must still permit the defendant to introduce its own evidence, both to challenge the plaintiffs showing and to reduce overall damages."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Plaintiffs proposed that once the subclasses were certified and liability established in the first phase, class members could submit claims by answering a questionnaire, and any dispute could be resolved in "streamlined trials" where Defendants could cross-examine claimants and present their own witnesses. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court explained that this approach would render any prior liability phase either duplicative or superfluous, as Defendants would likely raise several objections, and consequently the second phase could easily occupy the trial court for several months.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Finding that Plaintiffs' survey afforded "no fair, manageable way" to establish liability on common proof, the Appellate Court affirmed the trial court's order denying class certification.</span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;"><b>Maurice Wutscher LLP</b></span><span style="font-family: "courier new"; font-size: 12pt;"> </span><span style="font-family: "arial" , sans-serif; font-size: 12pt;"><br />71 Stevenson Street, Suite 400<br />San Francisco, CA 94105<br />Direct: (415) 529-7654</span><o:p></o:p></div>
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<i><span style="font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Admitted to practice law in California, Nevada and Oregon</span></span></i><o:p></o:p></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-41166623490110386552019-08-28T07:43:00.002-07:002019-08-28T07:43:12.868-07:00FYI: 9th Cir Holds Supporting Evidence Not Required for CAFA Removal<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">
<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The U.S. Court of Appeals for the Ninth Circuit recently reversed a trial court order remanding a case to state court for lack of jurisdiction under the federal Class Action Fairness Act (“CAFA”) because the jurisdictional allegations pled provided a short and plain statement of jurisdiction.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Court held this was sufficient, even without supporting evidence, to confer jurisdiction.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a data-saferedirecturl="https://www.google.com/url?q=https://scholar.google.com/scholar_case?case%3D11110273120101694111%26q%3D%2BEhrman%2Bv.%2BCox%2BCommunications,%2BInc%26hl%3Den%26as_sdt%3D400003&source=gmail&ust=1567088846736000&usg=AFQjCNFQ73hR3_kZUz1dYjPeIUpuYyaKVg" href="https://scholar.google.com/scholar_case?case=11110273120101694111&q=+Ehrman+v.+Cox+Communications,+Inc&hl=en&as_sdt=400003" style="color: #1155cc;" target="_blank">Link to Opinion</a></span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">A plaintiff filed a class action complaint against a defendant in California state court claiming that defendant “had engaged in unlawful business practices related to the advertisement and sale of residential internet services” Plaintiff filed the case on behalf of himself and all California consumers that paid for defendant’s internet services within the last four years.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Defendant removed the putative class action to the federal trial court pursuant to CAFA. In the notice of removal, defendant, a citizen of Delaware and Georgia, alleged that it met CAFA’s jurisdictional requirements “because it was a putative class action with more than 100 class members,” and “that the amount in controversy exceeded $5,000,000, exclusive of interest and costs.” Defendant also alleged that that minimal diversity existed between the parties because plaintiff and all class members were California Citizens.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Plaintiff moved to remand the case to state court by making a facial challenge to the notice of removal. Specifically, plaintiff argued that defendant had not “adequately plead the existence of minimal diversity” because defendant based the citizenship allegations solely “on information and belief.”</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The trial court granted plaintiff’s motion to remand finding that defendant’s citizenship allegations were insufficient to establish minimal diversity because they were based on no more than “sensible guesswork.” This appeal followed.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit began its analysis by noting that Congress enacted CAFA with the “intent . . . to strongly favor the exercise of federal diversity jurisdiction over class actions with interstate ramifications.” CAFA gives federal trial courts jurisdiction over class actions when, “any member of a class of plaintiffs is a citizen of a State different from any defendant.” 28 U.S.C. § 1332(d)(2)(A). In contrast to section 1332(a)’s complete diversity of citizenship requirement, the Ninth Circuit observed that CAFA only requires “minimal diversity.”</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The issue in this appeal is what the “removing defendant must plead in its notice of removal.” </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The removing defendant has the burden to plead minimal diversity by including in the notice of removal “a short and plain statement of the grounds for removal.” 28 U.S.C. § 1446(a). Congress borrowed the “short and plain statement” standard from Rule 8(a), signifying to the Ninth Circuit that courts should liberally construe removal allegations similar to other pleadings. The Ninth Circuit also noted that the removing defendant may plead minimal diversity based on “information and belief,” without submitting evidence to support the allegations.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Defendant alleged that “all putative class members were citizens of California.” The Ninth Circuit rejected plaintiff’s argument that defendant had to come forth with evidence to demonstrate why it believed its citizenship allegations. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Instead, the Court held that a removing defendant may base its citizenship allegations “solely on information and belief.” Here, defendant’s notice of removal contained the required short and plain statement that the putative class members were all California citizens necessary to confer jurisdiction under CAFA.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit also determined that the trial court erred by placing the burden on the removing defendant “to prove its jurisdictional allegations in response to” plaintiff’s facial challenge. Instead, jurisdictional factual allegations at the pleading stage “need not be proven unless challenged.” This is especially true, the Ninth Circuit noted, because CAFA contains “no antiremoval presumption.” </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit found it significant that plaintiff’s motion to remand only facially challenged the legal adequacy of the notice of removal, instead of factually challenging the jurisdictional allegations because a facial challenge accepts the removing defendant’s allegations as true and then argues that the allegations on their face fail to confer jurisdiction. As a result, the Appellate Court held it was improper for the trial court to require defendant “to present evidence in support of its allegation of minimal diversity.”</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Thus, the Ninth Circuit held that defendant’s jurisdictional allegations, which provided a short and plain statement of the parties’ citizenships based on information and belief, met its burden to plead minimal diversity. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit therefore reversed the trial court’s order remanding the case to state court.</span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-67118085341417088852019-08-26T13:55:00.002-07:002019-08-26T13:55:56.810-07:00FYI: Cal App (3rd Dist) Allows HOBR Claim for Vague Reasons for Loan Mod Denial<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">
<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court of Appeal for the Third District of California recently affirmed in part, and reversed in part, an order granting a mortgage servicer’s motion to dismiss several causes of action brought by plaintiff borrowers for denying their requests to modify their mortgage loan.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The appellate court affirmed the dismissal as to the borrowers’ counts for breach of contract, negligence, and intentional infliction of emotional distress. However, it also held that the borrowers stated that a valid cause of action under California’s Homeowner Bill of Rights, section 2923.6, and reversed as to that claim.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Specifically, the appellate court concluded that the servicer’s explanation that it “do[es] not have the contractual authority to modify [the] loan because of limitations in [its] servicing agreement” was not sufficiently detailed, and that without knowing the actual reason for denial, it could not be said for certain that the failure to provide “specific reasons for the investor disallowance” as required under section 2923.6(f) was not material.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a data-saferedirecturl="https://www.google.com/url?q=https://www.courts.ca.gov/opinions/documents/C081345.PDF&source=gmail&ust=1566938774074000&usg=AFQjCNEzcahZwOkQncgH0M4ZOS6VwbJdWA" href="https://www.courts.ca.gov/opinions/documents/C081345.PDF" style="color: #1155cc;" target="_blank">Link to Opinion</a></span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">After falling behind on their mortgage loan, the plaintiffs-borrowers (“Borrowers”) requested loss mitigation assistance from their mortgage servicer (“Servicer”) and alleged that they were offered a loan modification in exchange for agreeing to make three trial payments of $1,633.53. Borrowers completed the trial payments but were not offered a modification, which led to Servicer recording a notice of default three months later. After first dismissing an action against Servicer without prejudice, the Borrowers initiated the instant litigation in early 2014.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In late 2014, Borrowers submitted a completed loan modification application with supporting documents to Servicer to review Borrowers for a Home Affordable Modification Program (“HAMP”) or a non-Hamp “Trial Payment Plan” modification. Two months later, the Servicer denied the Borrowers for the HAMP modification, purportedly due to lack of contractual authority to modify the loan due to limitations in its servicing agreement. However, the Borrowers were provided a non-Hamp Trial Payment Plan offer that required them to make three trial payments—the first one in the amount of $171,745.78—which was “essentially an initial payment of the past due total arrearages.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Borrowers appealed the Servicer’s denials, arguing that the non-Hamp Trial Payment Plan was a constructive denial and that they would have been approved if “fairly and carefully reviewed.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Borrowers’ operative third amended complaint alleged five causes of action against the Servicer for: (1) breach of contract, (2) violation of California’s Business & Professions Code section 17200 (not at issue on appeal), (3) negligence, (4) violation of California’s Homeowner Bill of Rights, section 2923.6, and (5) intentional infliction of emotional distress.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">As was the case with the prior Complaints, the trial court sustained the Servicer’s demurrer to the third amended complaint as to all causes of action, and this time, without leave to amend. The instant appeal from the judgment of dismissal followed.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Initially, the Third District reviewed Borrowers breach of contract claim, which alleged that the Servicer had breached the written contract to extend a mortgage modification in exchange for three trial payments. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The appellate court noted that the purported contract attached to the third amended complaint referred multiple times to the agreement Servicer offered as a “Special Forbearance Agreement,” and expressly stated that it was “not a waiver of the accrued or future payments that become due, but a period for you to determine how you will be able to resolve your financial hardship.” Further, the purported “agreement” made no promise of a loan modification, but that “[t]he lender is under no obligation to enter into any further agreement,” and completion of trial payments would result only in a review for a loan modification based on investor approval.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Borrowers’ argument that the temporary payment plan which led them to believe a permanent modification was forthcoming was tantamount to a binding contract was rejected by the trial court. On appeal, they argued that the trial court erred in finding that the forbearance agreement did not obligate the Servicer to modify their mortgage loan, citing the 4th District’s holding in West v. West v. JPMorgan Chase Bank, N.A. (2013) 214 Cal.App.4th 780, which held a “Trial Plan Agreement” required the lender to offer a permanent loan modification. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Third District similarly found Borrowers’ argument unconvincing, and distinguished the facts from West, which offered a modification under HAMP, for the case at bar, which expressly disclaimed a promise to modify. Whereas West was grounded in a Treasury directive and HAMP guidelines, the forbearance agreement here offered offer no comparable authority for imposing a similar obligation upon the Servicer. Accordingly, the appellate court concluded that the Servicer’s demurrer was properly sustained as to their breach of contract claim.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Borrowers’ negligence claim argued that the Servicer owed them a general duty of care in the handling and processing of their loss mitigation review and negligently made false representations in promising a modification in exchange for trial payments. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">While acknowledging that a financial institution can owe a duty of reasonable care in processing loan modifications (Alvarez v. BAC Home Loans Servicing, LP (2014) 228 Cal.App.4th 941), the trial court sustained the Servicer’s demurrer as to this count on the basis that Borrowers merely alleged that a nonexistent contract was not honored, and the claim for negligence per se similarly failed for failure to reference any such violation.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">On appeal, the Borrowers argued that the failed to adequately apply Alvarez, and that a per se duty of care is also owed under California's Homeowner Bill of Rights. The appellate court disagreed. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Even assuming that the Servicer owed a duty of care in processing the loan application, the Third District held that Borrowers’ third amended complaint failed to allege a breach or any facts that might suggest a failure to comply with any duty under Alvarez. Thus, the trial court’s decision to sustain the Servicer’s demurrer as to Borrower’s negligence claim was affirmed.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Next, the appellate court reviewed the dismissal of the Borrower’s cause of action under California’s Homeowner Bill of Rights. In sustaining the Servicer’s demurrer, the trial court rejected the Borrowers claims that their written denials were insufficiently detailed to comply with section 2923.6(f) on the basis that Borrowers’ allegations were vague and they failed to provide authority that anything more was required.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, Section 2923.6 subdivision (f) of the Homeowner Bill of Rights requires a servicer, following the denial of a loan modification, to send written notice “identifying the reasons for the denial.” Subdivision (f)(2) further requires that “[i]f the denial was based on investor disallowance, the specific reasons for the investor disallowance” must be given. (§ 2923.6, subd. (f)(2)).</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">On appeal, the Third District analyzed the Servicer’s denial for a HAMP modification, which explained that “[we] do not have the contractual authority to modify your loan because of limitations in our servicing agreement.” The appellate court concluded that the statement was ambiguous and did not suffice as an explanation – at least for the purposes of a demurrer. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Although the Servicer argued that the purported violation was not material, as is required for a borrower to bring a claim for injunctive relief under section 2923.6 when a deed upon sale has not yet been recorded, the appellate court disagreed, reasoning that it could not determine whether the failure to provide “reasons for the disallowance” was not material without knowing the investor’s actual reason for denying the HAMP modification.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Because the appellate court concluded that Borrowers stated a claim under section 2923.6, the trial court’s order sustaining the demurrer to the Homeowner Bill of Rights claim was reversed.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Lastly, the Third District reviewed the sustained demurrer as to the Borrowers’ intentional infliction of emotional distress claim—that the Servicer’s refusal to provide a modification and offer approving modification conditioned only upon payment of $171,745.78 in arrearages constituted “extreme and outrageous” conduct.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In sustaining the demurrer, the trial court explained that creditors, such as the Servicer, enjoy a qualified privilege to protect their economic interest by asserting their legal rights—in this instance, to collect the 6-plus years of arrearages due on the loan—even though doing so may cause emotional distress. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">On appeal, the Borrowers argued that the trial court failed to adequately consider cases finding actionable conduct based on improper creditor action. Bundren v. Superior Court (1983) 145 Cal.App.3d 784, 790 (creditor who knows the debtor is susceptible to emotional distress due to a physical or mental condition may incur liability for causing emotional distress). The Borrowers claim that the Servicer knew its conduct was likely to cause more emotional distress than a typical debt collection because it knew they were trying to modify their loan since 2010 and could become homeless. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">While acknowledging that the Bundren court held that creditors could lose their qualified privilege to protect their economic interest if outrageous and unreasonable means are used to seek payment, the appellate court found no such conduct occurred here which “exceed[ed] all bounds usually tolerated by decent society, of a nature which is especially calculated to cause, and does cause, mental distress of a very serious kind.” ’ ” (Christensen v. Superior Court (1991) 54 Cal.3d 868, 904–905.). Thus, the demurrer was sustained as to the Borrowers’ claims for intentional infliction of emotional distress.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">For all of the foregoing reasons, the Third District reversed the trial court's order sustaining the demurrer as to the Borrowers’ claims under the Homeowners’ Bill of Rights, but affirmed as to all other counts, and remanded to the trial court for proceedings consistent with the appellate court's opinion.</span></span></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-78583038952721479612019-08-21T14:44:00.002-07:002019-08-21T14:44:22.423-07:00FYI: Cal App (2nd Dist) Holds No Duty of Care Owed in Loan Mod Negotiations<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">
<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Disagreeing with contrary rulings from the First and Sixth Districts, the California Court of Appeal for the Second District recently affirmed a trial court’s ruling that no duty of care is owed to a borrower during contract negotiations for a mortgage loan modification.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a data-saferedirecturl="https://www.google.com/url?q=https://scholar.google.com/scholar_case?case%3D5495556844946585621%26hl%3Den%26as_sdt%3D6%26as_vis%3D1%26oi%3Dscholarr&source=gmail&ust=1566510199259000&usg=AFQjCNEbhMFJ0ckJ8dNR1AMCnI7oD-IZDw" href="https://scholar.google.com/scholar_case?case=5495556844946585621&hl=en&as_sdt=6&as_vis=1&oi=scholarr" style="color: #1155cc;" target="_blank">Link to Opinion</a></span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In 1998, plaintiff borrower (“Borrower”) obtained a $500,000.00 loan secured by a deed of trust (the “First Loan”). The First Loan is not at issue. In 2005, Borrower obtained two junior loans from defendant bank (“Bank”) in the amounts $167,820.00 (the “Second Loan”) and $82,037.00 (the “Third Loan”) (collectively, the “Junior Loans”). Borrower subsequently encountered financial troubles leading the Bank to record a notice of default on the Second Loan in September 2009. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In January 2010, Borrower contacted the Bank seeking to modify the Junior Loans and subsequently submitted loan modification requests to the Bank on January 29, 2010. In March 2010, Borrower received correspondence from the Bank concerning the Second Loan, which Borrower claimed led him to believe the Second Loan had been converted into an unsecured loan. Around this time, Borrower separately alleged the Bank contacted his wife and informed her no foreclosure sale would occur and that the Bank “was simply trying to recover money through standard collection practices.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In April 2010, Borrower received a second letter from the Bank where it offered to charge off 50% of the Second Loan’s balance if the Bank and Borrower could reach a satisfactory arrangement. Borrower claims the letter reinforced his belief that the Second Loan had been converted into an unsecured loan.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In November 2010, the Bank sold the Second Loan to a different entity (“Note Holder”) and canceled the Third Loan in March 2014. In August 2013, Borrower separately modified the First Loan.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In April 2014, the Note Holder recorded a notice of default as to the Second Loan leading Borrower to submit several loan modification requests. Borrower asserted the Note Holder never responded to his modification attempts, and instead informed him in August of 2014 that the Second Loan service transferred to another entity (the “Current Servicer”). Thus, Borrower submitted another loan modification application to the Current Servicer who rejected as a result of Borrower “having too little income.” </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Borrower subsequently filed for Chapter 7 bankruptcy relief and submitted two additional loan modification applications during the pendency of his bankruptcy. The Current Servicer rejected both of loan modification applications again citing Borrower’s low income. In 2014, Borrower, with the assistance of a legal aid representative, submitted a third loan modification application. The Current Servicer allegedly informed the legal aid representative that it no longer considered the Second Loan as being in “active foreclosure.” Borrower separately contacted the Note Holder who informed Borrower that “it would consider a modification in lieu of foreclosure.” </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In October 2014, Borrower’s bankruptcy was dismissed lifting the bankruptcy stay. Borrower subsequently learned that the property at issue would be sold in five days’ time. Borrower immediately contacted the Current Servicer who confirmed the property’s sale date. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The property was subsequently sold via foreclosure sale with the Note Holder being the highest bidder. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Borrower subsequently instituted the instant action against Bank asserting causes of action for: (1) negligence; (2) intentional infliction of emotional distress (“IIED”); and (3) violations of Business and Professions Code section 17200 (“Section 17200”). </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Relevant to this appeal and his negligence claim, Borrower alleged the Bank owed Borrower a duty of care to: (1) “process, review, and respond carefully and completely to the loan modification applications [Borrower] submitted to [the Bank]; and (2) refrain from engaging in unfair and offensive business practices that confused Borrower and prevented him from pursing foreclosure prevention alternatives. Borrower further alleged the Bank breached its duty of care by failing to respond to his loan modification applications and by stating it would not conduct a foreclosure, among other things. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Bank demurred to Borrower’s operative complaint, which the superior court granted without leave to amend. Specifically, the trial court dismissed Borrower’s negligence claim because Borrower failed “to plead facts supporting a tort duty of care by [Bank] to Borrower regarding the loan modification.” The trial court sustained the Bank’s demurrer to Borrower’s IIED claim for failure to plead outrageous conduct and separately dismissed the Section 17200 “for want of an underlying claim.” </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Borrower appealed the lower court’s order sustaining Bank’s demurrer without leave to amend.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">On appeal, Borrower argued the Bank owed him a duty of care under the holdings of Alvarez v. BAC Home Loans Servicing, L.P. (2014) 228 Cal.App.4th 941 (Alvarez); Daniels v. Select Portfolio Servicing, Inc. (2016) 246 Cal.App.4th 1150 (Daniels). </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, the Alvarez and Daniels rulings held that a lender owes a borrower a duty of care in tort during mortgage modifications negotiations. However, there is a sharp conflict among California courts as to whether a lender owes a duty of care to a borrower during mortgage loan modification negotiations, and the California Supreme Court has not resolved the conflict.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court began its analysis by examining Southern California Gas Leak Cases (2019) 7 Cal.5th 391 (“Gas Leak Cases”), which recently found there is no tort duty where the damages complained of purely are economic. Specifically, the Gas Leak Cases held that economic losses flowing from “a financial transaction gone awry” are “primarily the domain of contract and warranty law or the law of fraud, rather than of negligence.’” <span class="m_3069718686318846490GramE">(Gas Leak Cases, supra, 7 Cal.5th at p. 402.)</span></span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court further noted “a striking degree of unanimity” weighing against the Alvarez and Daniels decisions as courts in at least 23 jurisdictions refuse “to import tort duties during mortgage modifications negotiations. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court next examined the Restatement of Torts (“Restatement”) and found it provided that “no liability in tort for economic loss caused by negligence in the performance or negotiation of a contract between its parties.” Indeed, the Restatement further explained that the economic loss rule “prevents the erosion of contract doctrines by the use of tort law to work around them<span class="m_3069718686318846490GramE">…[</span>and] also reduces the confusion that can result when a party brings suit on the same facts under contract and tort theories that are largely redundant in practical effect.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court separately noted “the ability of legislatures to craft remedies beyond the ken of courts<span class="m_3069718686318846490GramE">…[</span>as] through the democratic process, the Legislature can bring to bear a mix of expertise while considering competing concerns to craft a solution in tune with public demands.” <span class="m_3069718686318846490GramE">Gas Leak Cases, supra, 7 Cal.5th at p. 413.</span></span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Thus, the Court held that the trial court properly dismissed the Borrower’s negligence claim because “a lender does not owe a borrower a common law duty to offer, consider, or approve a loan modification.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Concerning Borrower’s other causes of action, the Court found his IIED claim was frivolous and that the trial court correctly dismissed Borrower’s Section 17200 claim.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Court affirmed the trial court’s order sustaining Bank’s demurrer without leave to amend.</span></span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;"><b>Maurice Wutscher LLP</b></span><span style="font-family: "courier new"; font-size: 12pt;"> </span><span style="font-family: "arial" , sans-serif; font-size: 12pt;"><br />71 Stevenson Street, Suite 400<br />San Francisco, CA 94105<br />Direct: (415) 529-7654</span><o:p></o:p></div>
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<i><span style="font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Admitted to practice law in California, Nevada and Oregon</span></span></i><o:p></o:p></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-2276299276909203672019-08-19T07:42:00.002-07:002019-08-19T07:42:50.060-07:00FYI: 9th Cir Holds Violation of Facial Recognition Law Sufficient for Standing, Upholds Class Cert<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">
<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The U.S. Court of Appeals for the Ninth Circuit recently held that the class plaintiffs alleged a concrete and particularized harm sufficient to confer Article III standing where the defendant company’s alleged collection, use, and storage of the plaintiffs’ biometric information was the substantive harm targeted by the Illinois Biometric Information Privacy Act (“BIPA”), which statute protects the plaintiffs’ concrete privacy interests. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit further held that the district court did not abuse its discretion in certifying the class.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Ninth Circuit affirmed the district court orders certifying the class, and denying the defendant’s motion to dismiss.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a data-saferedirecturl="https://www.google.com/url?q=https://scholar.google.com/scholar_case?case%3D700824758355243630%26hl%3Den%26as_sdt%3D6%26as_vis%3D1%26oi%3Dscholarr&source=gmail&ust=1566312051609000&usg=AFQjCNEumbmPET12idTtzxPxw0qOZL1N_w" href="https://scholar.google.com/scholar_case?case=700824758355243630&hl=en&as_sdt=6&as_vis=1&oi=scholarr" style="color: #1155cc;" target="_blank">Link to Opinion</a></span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Facebook, Inc. (“Facebook”) operates one of the largest social media platforms in the world, with over one billion active users. When a new user registers for a Facebook account, they must create a profile and agree to Facebook’s terms and conditions, which permit Facebook to collect and use data in accordance with Facebook’s policies.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In 2010, Facebook launched a feature called Tag Suggestions. When Tag Suggestions is enabled, Facebook may use facial-recognition technology to analyze whether the user’s Facebook friends are in photos uploaded by that user. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Facebook users living in Illinois brought a class action in a federal district court in California against Facebook claiming that Facebook’s facial-recognition technology violates Illinois law. Specifically, the Plaintiffs alleged that Facebook violated BIPA by collecting, using, and storing biometric identifiers from their photos without obtaining a written release and without establishing a compliant retention schedule.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Under BIPA, “[a]ny person aggrieved” by a violation of its provisions “shall have a right of action” against an “offending party.”</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Facebook moved to dismiss the complaint for lack of Article III standing on the ground that the Plaintiffs had not alleged any concrete injury. While the motion to dismiss was pending, the Plaintiffs moved to certify a class under Rule 23.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The district court denied Facebook’s motion to dismiss, and certified a Rule 23(b)(3) class of “Facebook users located in Illinois for whom Facebook created and stored a face template after June 7, 2011.” The matter was then appealed. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">On appeal, the Ninth Circuit addressed the issue of Article III standing, noting that to establish standing a plaintiff “must have suffered an ‘injury in fact’ – an invasion of a legally protected interest which is (a) concrete and particularized; and (b) actual or imminent, not conjectural or hypothetical.”</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">A concrete injury need not be tangible, but in determining whether an intangible injury is concrete, courts consider both history and legislative intent. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In determining whether the violation of a statute causes a concrete injury, the Ninth Circuit has adopted a two-step approach: “(1) whether the statutory provisions at issue were established to protect [the plaintiff’s] concrete interests (as opposed to purely procedural rights), and if so (2) whether the specific procedural violations alleged in the case actually harm, or present a material risk of harm to, such interests.”</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In considering the first factor, the Ninth Circuit noted that “[p]rivacy rights have long been regarded as providing a basis for a lawsuit in English or American courts.” Moreover, in recent Fourth Amendment jurisprudence, “the Supreme Court has recognized the potential for unreasonable intrusions into personal privacy” related to enhanced technology. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In light of this background, the Ninth Circuit “conclude[d] that an invasion of an individual’s biometric privacy rights has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American courts.”</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Moreover, “[t]he judgment of the Illinois General Assembly, which is ‘instructive and important’ to our standing inquiry, . . . supports the conclusion that the capture and use of a person’ biometric information invades concrete interests.”</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit therefore concluded that “the statutory provisions at issue” in BIPA were established to protect an individual’s “concrete interests” in privacy, not merely procedural rights.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Court next turned to whether the specific procedural violations alleged actually harm, or present a material risk of harm to, such interests.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In concluding that they did, the Ninth Circuit noted that the Plaintiffs alleged that a violation of the BIPA requirements allowed Facebook to create and use a face template and retain that template for all time. Thus, “[b]ecause the privacy right protected by BIPA is the right not to be subject to the collection and use of such biometric data, Facebook’s alleged violation of these statutory requirements would necessarily violate the plaintiffs’ substantive privacy interests.”</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Ninth Circuit held that “plaintiffs’ have alleged a concrete injury-in-fact sufficient to confer Article III standing.”</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Court next turned to Facebook’s argument that the district court abused its discretion by certifying the class. Specifically, Facebook argued that class certification was not compatible with Rule 23(b)(3), which requires that “questions of law or fact common to class members predominate over any question affecting only individual members.” Facebook further argued that the Illinois extraterritoriality doctrine precludes the district court from finding predominance.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit disagreed, determining that the “threshold questions of BIPA’s applicability can be decided on a class-wide basis,” by deciding if the violation of BIPA occurred when plaintiffs used Facebook in Illinois, or if they occurred when Facebook’s servers created a face template.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Facebook additionally argued that the district court abused its discretion by certifying a class because a class action is not superior to individual actions, because the possibility of a large, class-wide statutory damages award defeats superiority. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit rejected this argument, ruling that “nothing in the text or legislative history of BIPA indicates that a large statutory damages award would be contrary to the intent of the General Assembly.” </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Thus, the Ninth Circuit held that “the district court did not abuse its discretion in determining that a class action is superior to individual actions in this case.”</span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;"><b>Maurice Wutscher LLP</b></span><span style="font-family: "courier new"; font-size: 12pt;"> </span><span style="font-family: "arial" , sans-serif; font-size: 12pt;"><br />71 Stevenson Street, Suite 400<br />San Francisco, CA 94105<br />Direct: (415) 529-7654</span><o:p></o:p></div>
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<i><span style="font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Admitted to practice law in California, Nevada and Oregon</span></span></i><o:p></o:p></div>
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<span style="background-color: transparent; font-family: "arial" , sans-serif; font-size: 9pt;">ALABAMA | CALIFORNIA | FLORIDA | ILLINOIS | MARYLAND | MASSACHUSETTS | NEW JERSEY | NEW YORK | OHIO | PENNSYLVANIA | TEXAS | WASHINGTON, D.C.</span><span style="color: #022f88; font-family: "calibri"; font-size: xx-small;"><span style="font-size: 11pt;"> </span></span><span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;"> </span></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-71084819331342482302019-08-14T07:48:00.002-07:002019-08-21T14:44:37.542-07:00FYI: 9th Cir Holds No FCRA Violation by CRA When Dispute Did Not Come "Directly" From Consumer<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">
<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">The U.S. Court of Appeals for the Ninth Circuit held that where a company sent dispute letters to a credit reporting agency (“CRA”) on behalf of a consumer, but the consumer did not identify the items to be disputed, review the letters, or otherwise play any role in preparing the letters, the letters did not come “directly” from the consumer, and the CRA was not required to conduct a reinvestigation under section 1681i of the federal Fair Credit Reporting Act (“FCRA”).</span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">As a result, the Ninth Circuit held that the CRA did not violate section 1681i, and also did not act unreasonably and therefore did not violate section 1681e(b).</span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">Accordingly, the Ninth Circuit affirmed the trial court’s order granting summary judgment in favor of the defendant CRA.</span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a data-saferedirecturl="https://www.google.com/url?q=https://scholar.google.com/scholar_case?case%3D8508095939099359962%26hl%3Den%26as_sdt%3D6%26as_vis%3D1%26oi%3Dscholarr&source=gmail&ust=1565879193445000&usg=AFQjCNGfBSofPVzD0Js2QI6Y0Px6XiSMAg" href="https://scholar.google.com/scholar_case?case=8508095939099359962&hl=en&as_sdt=6&as_vis=1&oi=scholarr" style="color: #1155cc;" target="_blank">Link to Opinion</a></span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">A consumer (“Consumer”) hired a credit repair organization (“Company”) to perform “credit repair services.” The Company thereafter sent a letter to a credit reporting agency (“CRA”) asserting that several items in the Consumer’s credit file were inaccurate, and asking the CRA to conduct a reinvestigation to verify the items’ accuracy.</span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">The Consumer had no input on the preparation of the letter, and did not review the letter before it was sent. </span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">After receiving the letter, the CRA sent a letter to the Consumer stating that it had “received a suspicious request in the mail” and “determined that it was not sent by [the Consumer].” The CRA further informed the Consumer that it would “not be initiating any disputes based on the suspicious correspondence.” Finally, the CRA explained that the Consumer could call the CRA or visit its website if he believed the information in his credit file was inaccurate or incomplete. </span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">The Consumer did neither. Instead, the Company sent several more letters to the CRA on the Consumer’s behalf. However, the Consumer again had no input on the drafting of the letters, and did not review them before they were sent. The CRA did not initiate a reinvestigation after receiving the letters.</span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">The Consumer thereafter filed a complaint alleging that by failing to take action in response to the letters, the CRA supposedly violated two provisions of FCRA. Specifically, section 1681i, which requires consumer reporting agencies to reinvestigate disputed items, and section 1681e(b), which requires CRAs to use reasonable care in preparing consumer reports.</span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">The CRA moved for summary judgment, and the trial court granted the motion ruling that section 1681i only required the CRA to reinvestigate disputes that came from the Consumer directly. The trial court also determined that the Agency did not violate section 1681e(b) because, in its view, that statute did not apply to reinvestigation procedures at all. </span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">The matter was then appealed. </span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">On appeal, the Ninth Circuit first analyzed the application of section 1681i, which provides in relevant part that CRAs must “conduct a reasonable reinvestigation” when an item in the consumer’s file “is disputed by the consumer and the consumer notifies the agency directly . . . of such dispute.”</span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">The Ninth Circuit observed that the question therefore was “whether those letters came ‘directly’ from [the Consumer].”</span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">In concluding that they did not, the Court considered the “unambiguous meaning of the word ‘directly,’” which it noted is defined by Merriam-Webster’s Third New International Dictionary as “without any intervening agency or instrumentality or determining influence.”</span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">Thus, the Ninth Circuit determined that “to notify a consumer reporting agency of a dispute ‘directly,’ a letter must come from the consumer and be sent to the agency.” </span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">However, in this case the Consumer “played almost no part in submitting the dispute letter to [the CRA].” Specifically, he “did not identify the items to be disputed,” and “did not review the letter [the Company] drafted before it sent it to [the CRA].” Moreover, he testified that he had “absolutely no input” into the contents of the letter at all.</span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">Under those facts, the Ninth Circuit held that “the letters did not come directly from [the Consumer].” However, the Court cautioned that its “holding is limited to the facts before us,” and “[w]e only hold that, in this case, where [the Consumer] played no role in preparing the letters and did not review them before they were sent, the letters sent by [the Company] did not come directly from [the Consumer].”</span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">The Ninth Circuit therefore affirmed the ruling of the district court granting the CRA’s motion for summary judgment on the section 1681i claim.</span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">The Court next reviewed the claim under section 1681e(b), which provides in relevant part that CRAs must “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom [a consumer report] relates.”</span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">The appellant argued that even if section 1681i did not require the Agency to conduct a reinvestigation, its refusal to reinvestigate nevertheless violated section 1681e(b) because it was unreasonable.</span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">The Ninth Circuit disagreed, stating that “it would make little sense to use Section 1681e(b) to impose liability on [the CRA] for conduct that satisfied Section 1681i,” because that “Section 1681i represents Congress’s determination that a consumer reporting agency is only required to initiate a reinvestigation if a consumer notifies the agency of a dispute directly.” </span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">Thus, “[i]t cannot be unreasonable for agencies to follow that guidance.” The Ninth Circuit therefore held that the Agency “did not act unreasonably and, as a result, did not violate Section 1681e(b).”</span></div>
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<span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;">Accordingly, the Ninth Circuit affirmed the trial court’s order granting summary judgment in favor of the CRA. </span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;"><b>Maurice Wutscher LLP</b></span><span style="font-family: "courier new"; font-size: 12pt;"> </span><span style="font-family: "arial" , sans-serif; font-size: 12pt;"><br />71 Stevenson Street, Suite 400<br />San Francisco, CA 94105<br />Direct: (415) 529-7654</span><o:p></o:p></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;">Email: </span><u><span style="color: blue; font-family: "arial" , sans-serif; font-size: 12pt;">etsai@MauriceWutscher.com</span></u><o:p></o:p></div>
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<i><span style="font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Admitted to practice law in California, Nevada and Oregon</span></span></i><o:p></o:p></div>
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<span style="background-color: transparent; font-family: "arial" , sans-serif; font-size: 9pt;">ALABAMA | CALIFORNIA | FLORIDA | ILLINOIS | MARYLAND | MASSACHUSETTS | NEW JERSEY | NEW YORK | OHIO | PENNSYLVANIA | TEXAS | WASHINGTON, D.C.</span><span style="color: #022f88; font-family: "calibri"; font-size: xx-small;"><span style="font-size: 11pt;"> </span></span><span style="color: #003399; font-family: "arial" , sans-serif; font-size: 12pt;"> </span></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-64843451977293914182019-08-07T07:43:00.003-07:002019-08-07T07:43:51.297-07:00FYI: 9th Cir Holds TCPA's "Federal Debts" Exception Unconstitutional, Joins 4th Cir<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">
<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The U.S. Court of Appeals for the Ninth Circuit recently reversed the dismissal of a putative class action under the federal Telephone Consumer Protection Act, 47 U.S.C. </span><span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">§</span><span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;"> 227, et seq. (TCPA), finding that the plaintiff adequately alleged that the defendant placed calls using an automated telephone dialing system. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In so ruling, the Ninth Circuit joined with a similar ruling by the Fourth Circuit, and held that the TCPA’s exception for calls “made solely to collect a debt to or guaranteed by the United States” was incompatible with the First Amendment and severed the exception as an unconstitutional restriction on speech.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a data-saferedirecturl="https://www.google.com/url?q=http://cdn.ca9.uscourts.gov/datastore/opinions/2019/06/13/17-15320.pdf&source=gmail&ust=1565275329198000&usg=AFQjCNEliWblO5lTbnLihwACETHUkJHx6g" href="http://cdn.ca9.uscourts.gov/datastore/opinions/2019/06/13/17-15320.pdf" style="color: #1155cc;" target="_blank">Link to opinion</a></span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, the TCPA prohibits the use of an automatic telephone dialing system (ATDS) to place informational or collection calls or text messages to a cell phone without the user’s prior express consent. The TCPA defines 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. </span><span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">§</span><span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;"> 227(a)(1).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The plaintiff alleged that the defendant used an ATDS to alert its users, as a security precaution, when their account was accessed from an unrecognized device or browser. For unknown reasons, the plaintiff received messages from the defendant despite not being a user of the defendant’s products and services, and never consented to such alerts.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The plaintiff sued on behalf of two putative classes: people who received a message from the defendant without providing their cell phone number to the defendant; and, people who notified the defendant that they did not wish to receive messages but later received at least one message.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The plaintiff alleged that the defendant maintained a database of phone numbers and explained how the defendant programed its equipment to automatically generate messages to those stored numbers. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The defendant filed a motion to dismiss. The trial court concluded that the plaintiff inadequately alleged that the defendant used an ATDS to send its messages and dismissed the complaint with prejudice.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit began its analysis by explaining that an ATDS need not be able to use a random or sequential generator to store numbers. Instead, it merely needs to have to capacity to “store numbers to be called” and “to dial such numbers automatically.” Marks v. Crunch San Diego, LLC, 904 F.3d 1041, 1053 (9th Cir. 2018).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The defendant urged the Ninth Circuit to interpret Marks narrowly, as such an expansive definition of an ATDS would capture smartphones because they can store numbers and, using built in automated response technology, dial those numbers automatically.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The defendant also sought to differentiate its equipment because it stored numbers “to be called” only reflexively as a preprogramed response to external stimuli outside of its control. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit disagreed, stating that the statutory text provide no basis to exclude equipment that stored numbers “to be called” only reflexively. Instead, the equipment need only have the “capacity” to store numbers to be called. 47 U.S.C. </span><span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">§</span><span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;"> 227(a)(1).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Moreover, the Ninth Circuit noted that phone numbers are frequently stored for purposes other than “to be called”, and provided examples such as merchants and restaurants that stored numbers to identify customers in their loyalty program.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Unpersuaded by these arguments, the Ninth Circuit held that plaintiff sufficiently plead that the defendant used an ATDS.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The defendant also argued that it was entitled to dismissal on the pleadings because the TCPA excepts calls “made for emergency purposes.” 47 U.S.C. </span><span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">§</span><span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;"> 227(b)(1)(A).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">However, because the plaintiff alleged that he did not have an account with the defendant, meaning his account could not have faced a security issue, the Ninth Circuit determined that the emergency exception cannot apply to the defendant’s text messages.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Next, the Ninth Circuit turned to the defendant’s argument that the TCPA’s “debt-collection exception” was incompatible with the First Amendment. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, in 2015 Congress added an exception for calls “made solely to collect a debt owed to or guaranteed by the United States.” 47 U.S.C. </span><span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">§</span><span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;"> 227(b)(1)(A)(iii).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit observed that the pre-amendment TCPA was content neutral and consistent with the First Amendment. Gomez v. Campbell-Ewald Co., 768 F.3d 871, 876 (9th Cir. 2014), aff’d 136 S. Ct. 663 (2016).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The TCPA satisfied intermediate scrutiny, as the Ninth Circuit explained, because it was narrowly tailored to advance the “government’s significant interest in residential privacy” and left open “ample alternative channels of communication.” Moser v. Fed. Commc’ns Comm’n, 46 F.3d 970, 974 (9th Cir. 1995).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">However, the Ninth Circuit noted that the debt-collection exception changed the framework because the TCPA now favors speech “solely to collect a debt owed to or guaranteed by the United States.” </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Because this section “target[ed] speech based on its communicative content”, the Ninth Circuit found the exception content-based and therefore subject to strict scrutiny. Reed v. Town of Gilbert, Ariz., 135 S. Ct. 2218, 2226 (2015).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Under strict scrutiny the debt collection exception may be justified only if it is narrowly tailored to serve compelling state interests. Reed, 135 S. Ct. at 2226.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit observed that the government advanced only one interest: “the protection of personal and residential privacy.” </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">However, the Ninth Circuit found autodialed calls to collect government debt were “every bit as invasive of residential and privacy rights as any other automated call,” and permitting callers to collect government debt hinders, not furthers, the government’s asserted interest.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Moreover, the debt collection exception in the Ninth Circuit’s view was not the least restrictive means to protective the public fisc. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">As the Ninth Circuit explained, “Congress could protect the public fisc in a content neutral way by phrasing the exception in the terms of the relationship rather than content,” or “[t]he government could also obtain consent from its debtors or place the calls itself.”</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Because the debt-collection exception was insufficiently tailored to advance the government’s interests, the Ninth Circuit concluded that the debt-collection exception failed strict scrutiny. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Lastly, the Ninth Circuit explained that only the debt collection exception violated the First Amendment and severing the exception would not undermine the TCPA.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit noted that its ruling was consistent with the Fourth Circuit’s ruling in Am. Ass'n of Political Consultants, Inc. v. FCC, 923 F.3d 159 (4th Cir. 2019), which also held that the debt collection exception was unconstitutional and severance was the appropriate remedy.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Ninth Circuit reversed the trial court’s ruling and remanded for further proceedings.</span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;"><b>Maurice Wutscher LLP</b></span><span style="font-family: "courier new"; font-size: 12pt;"> </span><span style="font-family: "arial" , sans-serif; font-size: 12pt;"><br />71 Stevenson Street, Suite 400<br />San Francisco, CA 94105<br />Direct: (415) 529-7654</span><o:p></o:p></div>
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<i><span style="font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Admitted to practice law in California, Nevada and Oregon</span></span></i><o:p></o:p></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-21554369921524297932019-07-29T12:30:00.000-07:002019-07-29T12:30:08.066-07:00FYI: Cal App Ct (1st Dist) Holds Rosenthal Act Allows Class Actions, Cure Provisions Apply to Debtor Notices<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">
<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In an unreported opinion, the Court of Appeal for the First District of California recently held that a debt collector that violated the minimum type-size requirement for collection letters under Cal. Civil Code </span></span><span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">§</span></span><span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;"> 1812.701(b) may utilize the procedure for curing violations under California’s Rosenthal Fair Debt Collection Practices Act (Rosenthal Act) to correct its violations.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">However, the Appellate Court reversed the dismissal because the trial court should have allowed the consumer to amend the complaint or locate a suitable class representative after granting summary judgment in favor of the debt collector on her individual claim.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In so ruling, the Court also held that Rosenthal Act violations may be brought as class actions under a 1999 amendment essentially incorporating the federal Fair Debt Collection Practices Act’s provisions into the Rosenthal Act.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a data-saferedirecturl="https://www.google.com/url?q=https://scholar.google.com/scholar_case?case%3D980132856452276219%26hl%3Den%26as_sdt%3D6%26as_vis%3D1%26oi%3Dscholarr&source=gmail&ust=1564514428666000&usg=AFQjCNGQ4Vv0_7xf8amSUoMEN7YDcB-DvQ" href="https://scholar.google.com/scholar_case?case=980132856452276219&hl=en&as_sdt=6&as_vis=1&oi=scholarr" style="color: #1155cc;" target="_blank">Link to Opinion</a></span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The consumer received a debt collection letter from the debt collector that did not provide certain statutorily required language in the proper type-size. The consumer filed a complaint on behalf of a putative class alleging violation of Cal. Civil Code </span></span><span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">§</span></span><span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;"> 1812.701(b). As you may recall, a violation of section 1812.701(b) is “considered a violation of the Rosenthal Fair Debt Collection Practices Act”. Cal. Civil Code </span></span><span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">§ </span></span><span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">1812.702</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Nine days after it was served with the consumer’s complaint, the debt collector sent a revised collection letter that contained the required language in the same type-size as that which was used to inform her of her debt.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The debt collector argued that it cured the alleged violation within the 15-day period prescribed by Cal. Civil Code </span></span><span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">§ </span></span><span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">1788.30(d) for a curable Rosenthal Act violation. The debt collector moved for summary judgment on the consumer’s individual claim. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The trial court found that the “cure” provision under section 1788.30(d) applied to the debt collector’s section 1812.701(b) violation, and granted the debt collector’s motion for summary judgment and dismissed the entire putative class action.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, debt collection practices in California are governed by federal law and by California’s Rosenthal Fair Debt Collection Practices Act, Cal. Civil Code </span></span><span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">§ </span></span><span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">1788, et seq.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Originally the Rosenthal Act did not permit class actions. In 1999, the Legislature passed Assembly Bill No. 969, adding Cal. Civil Code B' 1788.17 to the Rosenthal Act, which provides in relevant part: “[n]otwithstanding any other provision of this title, every debt collector collecting or attempting to collect a consumer debt shall comply with the provisions of Sections 1692b to 1692j, inclusive, of, and shall be subject to the remedies in Section 1692k of [the FDCPA].” </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Section 1692k of the FDCPA specifically provides for both individual and class action remedies, but does not contain a cure provision like the Rosenthal Act.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Then in 2003, the Legislature enacted the Consumer Collection Notice law, Cal. Civil Code </span></span><span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">§§ </span></span><span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">1812.700-1812.702, which required third party debt collectors subject to the FDCPA, in their first written notice to debtors, to provide a description of debtor rights under state and federal law. <span class="m_-5636761320929776780GramE">Cal. Civil Code B' 1812.700(a).</span></span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">As relevant in this case, “[t]he type-size used in the disclosure shall be at least the same type-size as that used to inform the debtor of his or her specific debt, but is not required to be larger than 12-point type.” <span class="m_-5636761320929776780GramE">Cal. Civil Code § 1812.701(b).</span></span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The cure provision in the Rosenthal Act states: “[a] debt collector shall have no civil liability under this title if, within 15 days either after discovering a violation which is able to be cured, or after the receipt of a written notice of such violation, the debt collector notifies the debtor of the violation, and makes whatever adjustments or corrections are necessary to cure the violation with respect to the debtor.” <span class="m_-5636761320929776780GramE">Cal. Civil Code § 1788.30(d).</span></span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The consumer argued that the trial court erred in applying section 1788.30(d) because the cure provision was repealed when the Legislature enacted section 1788.17 to require debt collector to comply with listed provisions of the FDCPA and subjected them to the remedies in section 1692k of the federal act. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court disagreed. Finding no express repeal language in Civil Code </span></span><span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">§ </span></span><span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">1788.18, the Appellate Court explained that an implied repeal will be found “only when there is no rational basis for harmonizing the two potentially conflicting statutes.” Garcia <span class="m_-5636761320929776780GramE">v. McCutchen (1997) 16 Cal.4th 469, 477</span>. The Appellate Court observed that the Ninth Circuit Court of Appeals addressed this very issue in Afewerki v. Anaya Law Grp. (9th Cir. 2017) 868 F.3d 771, and held that section 1788.17 did not remove or impliedly repeal section 1788.30b’s defense for cured violations.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court noted that while section 1788.17 applied “[n]otwithstanding any other provision” of the Rosenthal Act, the mere incorporation of certain provisions from the FDCPA -- none of which says anything about curing violations -- did not render sections 1788.17 and 1788.30(d) so inconsistent that the two cannot operate concurrently.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Moreover, the Appellate Court found nothing in the legislative history of section 1788.17 indicating <span class="m_-5636761320929776780GramE">an intent</span> to repeal section 1788.30(d).</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The consumer also argued that the type-size violation cannot be cured under section 1788.30(d) because the statute requires compliance in the debt collector’s first written communication to the consumer. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Alternatively, the consumer argued that the cure provision did not apply to the debt collector’s section 1812.701(b) violation.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court rejected these arguments, citing the floor analysis of Senate Bill No. 1022 -- the bill that enacted the Consumer Collection Notice Law -- and noted that the Legislature intended a violation of the type-size requirement to be a Rosenthal Act violation and subject to the 15-day correction period. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Thus, the Appellate Court found no error in the trial court’s application of section 1788.30, and its determination that the debt collector’s violation could be cured in a writing sent after the first written communication with the debtor.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Next, the Appellate Court turned to the consumer’s argument that the trial court erred by dismissing the entire putative class action after granting summary judgment on her individual claim.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">To resolve this issue, the Appellate Court began by considering whether the language “individual action” in section 1788.30 barred a class action based on alleged violations of section 1812.701(b).</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, the remedies provision of the Rosenthal Act state that “[a]ny debt collector who violates this title with respect to any debtor shall be liable to that debtor only in an individual action, and his liability therein to that debtor shall be in an amount equal to the sum of any actual damages sustained by the debtor as a result of the violation.” <span class="m_-5636761320929776780GramE">Cal. Civil Code B' 1788.30(a).</span> </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The debt collector may also be liable for statutory damages for a willful violation. <span class="m_-5636761320929776780GramE">Cal. Civil Code § 1788.30(b).</span> </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">However, in the Appellate Court’s view, section 1788.17 may be reasonably read to incorporate the class action remedies of the FDCPA into the Rosenthal Act, “[n]otwithstanding any other provision” of the Rosenthal Act, such as the individual action provisions in section 1788.30.b</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court observed that several federal courts faced with <span class="m_-5636761320929776780GramE">this questions</span> have concluded that “class actions may proceed under the amendment to the Rosenthal Act.” <span class="m_-5636761320929776780GramE">Gonzales v. Arrow Fin. Servs., LLC (9th Cir. 2011) 660 F.3d 1055, 1066 (collecting cases).</span></span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Thus, the Appellate Court determined that the consumer could bring a putative class action for claim under section 1812.701(b).</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Finally, the Appellate Court turned to the issue of the pick off exception in putative class actions.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, a typical pick off situation arises when prior to class certification, a defendant gives the named plaintiff the entirety of the relief claimed by that individual and then attempts to obtain dismissal of the action, on the basis that the named plaintiff can no longer pursue a class action. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The involuntary receipt of relief does not, of itself, prevent the class plaintiff from continuing as a class representative. Wallace <span class="m_-5636761320929776780GramE">v. GEICO General Ins. Co. (2010) 183 Cal.App.4th 1390, 1399</span>. Rather, the trial court must decide whether the named plaintiff can continue to fairly represent the class in light of the individual relief offered by the defendant. Id., at pp. 1399-1400.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The debt collector argued that it did not pick off the named plaintiff, but rather, it substantively prevailed on the merits of her individual claim based upon the cure defense under section 1788.30(d).</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">However, the Appellate Court determined that the debt collector did not prevail against the consumer in the sense that her allegations were disproven or shown to be meritless. Instead, her allegations were implicitly conceded and the debt collector did not produce any evidence that it corrected the alleged violations as to the rest of the putative class.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In the Appellate Court’s view, the debt collector voluntarily gave special treatment to the named plaintiff only, resulting in the elimination of her standing to maintain a putative class action.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Thus, the Appellate Court held that the trial court erred in dismissing the entire putative class action without affording the consumer the opportunity to amend her complaint, redefine the putative class, or locate a suitable class representative. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Appellate Court reversed the trial court’s judgment and remanded for further proceedings.</span></span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;"><b>Maurice Wutscher LLP</b></span><span style="font-family: "courier new"; font-size: 12pt;"> </span><span style="font-family: "arial" , sans-serif; font-size: 12pt;"><br />71 Stevenson Street, Suite 400<br />San Francisco, CA 94105<br />Direct: (415) 529-7654</span><o:p></o:p></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;">Email: </span><u><span style="color: blue; font-family: "arial" , sans-serif; font-size: 12pt;">etsai@MauriceWutscher.com</span></u><o:p></o:p></div>
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<i><span style="font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Admitted to practice law in California, Nevada and Oregon</span></span></i><o:p></o:p></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-27437757253969544912019-07-05T13:42:00.002-07:002019-07-05T13:42:07.403-07:00FYI: Cal App Ct (1st Dist) Rejects Servicer's Attempt to Condition Reinstatement on Payment of Deferred Amounts<div class="MsoNormal" style="background-color: white; color: #444444; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px;">
<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court of Appeal of the State of California, First Appellate District, recently held that California Civil Code § 2924c permits a borrower to reinstate a modified home mortgage loan by paying only the past due modified payments and associated fees and charges, and that a servicer cannot lawfully condition reinstatement of a loan on the payment of amounts that were deferred in the loan modification. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In so ruling, the Appellate Court rejected the servicer's argument that the loan modification agreement allowed it to nullify the modification upon the borrower's default and to require payment of the earlier default according to the original terms.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a href="https://scholar.google.com/scholar_case?case=905595422683765262&q=Charles+Taniguchi+v.+Restoration+Homes,+LLC&hl=en&as_sdt=400006" style="color: #4d469c; text-decoration-line: none;">Link to Opinion</a></span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The borrowers (Borrowers) obtained a loan modification that adjusted the principal balance, reduced the interest rate and monthly payments, and deferred accrued and unpaid interest and principal, fees, and foreclosure expenses. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The modification provided that failure to make modified payments as scheduled would be an event of default, the modification would be null and void at the lender's option, and the lender would have the right to enforce the loan according to the original terms.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The servicer (Servicer) recorded a notice of default stating that the borrowers would have to pay the four missed monthly payments and associated late charges and fees, plus all the sums that had previously been deferred under the loan modification, in order to avoid foreclosure.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Borrowers asserted four causes of action against the Servicer: violation of California Civil Code § 2924c, violation of California Business and Professions Code § 17200, et seq. (UCL), breach of contract, and breach of the covenant of good faith and fair dealing. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The trial court granted the Servicer's motion for summary judgment and denied the Borrowers' cross-motion for partial summary judgment. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Borrowers appealed the trial court's grant of summary judgment to the Servicer on their causes of action for violation of section 2924c and the UCL.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, section 2924c(a)(1) provides that when a mortgage loan is accelerated as a result of a homeowner's default, the homeowner can reinstate the loan by paying all amounts due, "other than the portion of principal as would not then be due had no default occurred." </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In other words, the homeowner can cure the default and reinstate his or her loan by paying the amount of the default, including fees and costs resulting from the default, rather than the entire accelerated balance. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Borrowers argued that under section 2924c, the Servicer "could not lawfully condition reinstatement of their loan on the payment of amounts that were deferred in the loan modification." They argued that requiring them to pay the deferred balance, instead of just the missed payments plus costs, "essentially requires them to waive their right of reinstatement with respect to the modified loan."</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Servicer argued that the loan modification gave it the option to enforce the original loan terms if the Borrowers defaulted on the modified loan, and because the under the original loan pre-modification the deferred amounts were due and owing, the deferred amounts could properly be required as a condition of reinstatement under section 2924c.b</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court began its analysis by observing that the default was the failure to make payments on the modified loan. Section 2924c gave the Borrowers the opportunity to cure their precipitating default by making up those missed payments and paying the associated fees and charges. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In the Appellate Court's view, demanding the deferred amounts after the loan was modified meant that the Borrowers would have been in default throughout the term of the modified loan even if they timely made every required monthly payment. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">If the Borrowers had made all of their modified payments, as the Appellate Court explained, the Servicer could not have claimed the deferred amounts until the end of the loan. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Thus, the Appellate Court concluded that the Servicer failed to demonstrate that the Borrowers could not prevail on their claim that Servicer violated section 2924c, and the trial court erred in granting summary judgment to the Lender on this claim.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Because the Servicer "failed to show that its conduct was consistent with section 2924c," the Appellate Court also held it was an error to grant summary judgment on the UCL cause of action predicated on the violation of section 2924c.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Appellate Court reversed the judgment and remanded for further proceedings.</span></span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-51830088234197234852019-06-26T11:21:00.002-07:002019-06-26T11:21:38.929-07:00FYI: Cal Sup Ct Allows Creditor Holding Senior and Junior Liens to Seek Deficiency on Sold-Out Second Lien<div class="MsoNormal" style="background-color: white; color: #444444; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px;">
<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Supreme Court of California recently held that the anti-deficiency statute in California Code of Civil Procedure § 580d did not bar a creditor holding two deeds of trust on the same property from recovering a deficiency judgment on the junior lien extinguished by a non-judicial foreclosure sale on the senior lien. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a href="https://scholar.google.com/scholar_case?case=2597301449426459975&hl=en&as_sdt=6&as_vis=1&oi=scholarr" style="color: #4d469c; text-decoration-line: none;">Link to Opinion</a></span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The bank extended two loans to the borrowers that were secured by deeds of trust on a commercial property. The bank sold both loans to an investor that subsequently foreclosed on the first deed of trust and acquired the property at a public auction. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The investor sued the borrowers to recover the amount still owned on the second deed of trust extinguished by the trustee's sale. Both parties moved for summary judgment.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The trial court granted summary judgment in favor of the borrowers, holding that Code of Civil Procedure § 580d barred a deficiency judgment on the junior lien. The appellate court reversed the trial court's judgment. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Supreme Court granted review.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, "California has an elaborate and interrelated set of foreclosure and antideficiency statutes relating to the enforcement of obligations secured by interests in real property." Alliance Mortgage Co. v. Rothwell (1995) 10 Cal. 4th 1226, 1236. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Secured creditors must abide by the one form of action rule, and that action is foreclosure which may be either judicial or non-judicial. Code of Civil Proc. 726(a). </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In a judicial foreclosure, a secured creditor may seek a deficiency judgment to recover the difference between the amount of the debt and the fair market value of the property if the property is sold for less than amount of the outstanding debt. However, the debtor has a statutory right to redemption. Alliance Mortgage, 10 Cal. 4th at 1236.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In a non-judicial foreclosure, also known as a trustee's sale, the creditor exercises the power of sale under the deed of trust, and the debtor has no statutory right of redemption. But under section 580d, "the creditor may not seek a deficiency judgment" after a non-judicial foreclosure. Id.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Specifically, Section 580d(a) provides that "no deficiency shall be owed or collected, and no deficiency judgment shall be rendered for a deficiency on a note secured by a deed of trust or mortgage on real property or an estate for years therein executed in any case in which the real property or estate for years therein has been sold by the mortgagee or trustee under power of sale contained in the mortgage or deed of trust."</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The question before the Supreme Court was whether California Code of Civil Procedure § 580d barred a deficiency judgment on a junior lien held by a senior lienholder that sold the property comprising the security for both liens. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Supreme Court began its analysis by observing that before the enactment of section 580d, a debtor had a statutory right to redemption under a judicial foreclosure but not under a trustee's sale. This right to redeem, as the Supreme Court explained, was similar to the prescription of a deficiency judgment, which had the effect of making the security satisfy a realistic share of the debt. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Supreme Court next analyzed the leading case of Simon v. Superior Court (1992) 4 Cal. App. 4th 63, which held that section 580d precludes a deficiency judgment for a junior lienholder who was also the foreclosing senior lienholder. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In Simon, the junior and senior loans were issued just four days part, and the deeds of trust securing the loans were recorded on the same date. Simon treated the two loans as one to prevent creditors from circumventing the provisions of section 580d. It was in that context that Simon said courts will not penalize creditors from extending multiple loans secured by trust deeds on the same property. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Here, the Supreme Court found no evidence to suggest that the two notes in this case were executed in separate transactions to evade section 580d. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Supreme Court observed that the loans at issue here were executed in separate transactions more than two years apart. There was no evidence of any irregularity at the foreclose sale to suggest that the investor sought an excessive recovery by obtaining a deficiency judgment on the junior lien. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Because no sale occurred under the junior deed of trust, the Supreme Court heled that the section 580d did not bar a deficiency judgment on the junior loan. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">However, the Supreme Court cautioned that, where there is evidence of gamesmanship by the holder of the senior and junior liens on the same property, two liens may still be treated as a single lien within the meaning of section 580d. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Supreme Court affirmed the judgment of the appellate court.</span></span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;"><b>Maurice Wutscher LLP</b></span><span style="font-family: "courier new"; font-size: 12pt;"> </span><span style="font-family: "arial" , sans-serif; font-size: 12pt;"><br />71 Stevenson Street, Suite 400<br />San Francisco, CA 94105<br />Direct: (415) 529-7654</span><o:p></o:p></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-10684560543772327852019-05-20T19:07:00.002-07:002019-05-20T19:07:42.473-07:00FYI: 9th Cir Rejects Challenges to CFPB Structure and CID<div class="MsoNormal" style="background-color: white; color: #444444; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px;">
<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The U.S. Court of Appeals for the Ninth Circuit ("Ninth Circuit") recently affirmed a trial court's Order requiring a law firm to respond to interrogatories and requests for production of documents pursuant to a Civil Investigative Demand promulgated by the Consumer Financial Protection Bureau's ("CFPB" or "Bureau").</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In so ruling, the Ninth Circuit cited prior Supreme Court separation-of-power opinions which indicate that the Bureau's restriction permitting removal of its Director only by the president "for cause" did not violate the Constitution's separation of powers doctrine to conclude that its structure was constitutionally permissible. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit also held that the Civil Investigative Demand was proper because the Bureau was permitted to investigate the law firm for potential Telemarketing Sales Rule violations pursuant to an exception to the practice-of-law exclusion, and because the Bureau complied with the demand requirements under section 5562(c)(2).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a href="https://scholar.google.com/scholar_case?case=1729009318971460757&hl=en&as_sdt=6&as_vis=1&oi=scholarr" style="color: #4d469c; text-decoration-line: none;">Link to Opinion</a></span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The CFPB opened an investigation to determine whether a law firm ("Law Firm") violated the Telemarketing Sales Rule, 16 C.F.R. pt. 310 in the course of providing debt-relief services to its consumer clients. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">After the Law Firm refused to comply with the CFPB's Civil Investigative Demand requiring it to respond to seven interrogatories and four requests to produce documents (the "CID"), the CFPB filed a petition in the United States District Court for the Central District of California to enforce compliance. The trial court granted the CFPB's petition and ordered the Law Firm to respond to the CID. The instant appeal ensued.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">On appeal, the Law Firm argued that the CFPB's structure violates the U.S. Constitution's separation of powers doctrine, and that the CFPB lacked statutory authority to issue the CID. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In considering the Law Firm's first argument, the Ninth Circuit analyzed the history of the formation and purpose of establishing the CFPB, the powers bestowed upon it to implement and enforce federal consumer financial laws, and the role of its single Director appointed by the President with the advice and consent of the Senate. 12 U.S.C. § 5491(b). </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, the Bureau's Director serves for a term of five years that may be extended until a successor has been appointed and confirmed, and may be removed by the President only for "inefficiency, neglect of duty, or malfeasance in office." § 5491(c)(1)-(3). It is this "only for cause" provision that the Law Firm challenges and contends that an agency with the CFPB's broad law-enforcement powers may not be headed by a single Director removable by the President only for cause. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit reviewed prior Supreme Court separation-of-powers decisions to determine whether the CFPB's structure is constitutionally permissible. In Humphrey's Executor v. United States, 295 U.S. 602 (1935), the petitioner similarly challenged the structure of the Federal Trade Commission ("FTC"), which similarly allowed for removal of the agency's five Commissioners only by the President for cause. There, the Supreme Court held that the for-cause removal restriction was a permissible means of ensuring that the FTC's Commissioners would "maintain an attitude of independence" from the President's control. Id. at 629.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit remarked that like the FTC, the CFPB exercises quasi-legislative and quasi-judicial powers, and Congress could therefore seek to ensure that the agency discharges those responsibilities independently of the President's will. See PHH Corp. v. CFPB, 881 F.3d 75, 91-92 (D.C. Cir. 2018) (en banc) (noting that the CFPB acts in part as a financial regulator, a role that has historically been viewed as calling for a measure of independence from the Executive Branch). </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">As such, the Ninth Circuit opined, the Supreme Court's reasoning in its decisions in Humphrey's Executor and Morrison v. Olson, 487 U.S. 654 (1988) applied equally to the CFPB, and the for-cause removal restriction protecting the CFPB's Director does not "impede the President's ability to perform his constitutional duty" to ensure that the laws are faithfully executed. Morrison, 487 U.S. at 691.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Ninth Circuit viewed the Supreme Court's separation-of-powers decisions in those cases as controlling, and the CFPB's structure as constitutionally permissible.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Next, the Ninth Circuit considered the Law Firm's argument that the CFPB lacked statutory authority to issue the CID. First, the Law Firm argued that the CID's investigation into its advertising of legal services violated the Consumer Financial Protection Act's practice-of-law exclusion, 12 U.S.C. § 5517(e)(1), which provides that the Bureau "may not exercise any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law under the laws of a State in which the attorney is licensed to practice law." </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit rejected this argument, and concluded that the trial court correctly applied one of the exceptions to the practice-of-law exclusion. Under Section 5517(e)(3), the CFPB's authority is not limited with respect to any attorney, "to the extent they are otherwise subject to enumerated consumer laws or authorities under subtitle F or H" – including enforcement of the Telemarketing Sales Rule, which does not exempt attorneys from its coverage even when they are engaged in providing legal services. 15 U.S.C. § 1602; Telemarketing Sales Rule ,75 Fed. Reg. 48,458-01, 48-467-69 (Aug. 10, 2010).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Law Firm's second argument that the CID failed to "state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation" as required under § 5562(c)(2) was also rejected, as the Ninth Circuit concluded that the CID properly identified the allegedly illegal conduct under investigation and provision of applicable law to put the Law Firm on notice of the conduct being investigated. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the trial court's order requiring the Law Firm to comply with the CFPB's Civil Investigative Demand was affirmed.</span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;"><b>Maurice Wutscher LLP</b></span><span style="font-family: "courier new"; font-size: 12pt;"> </span><span style="font-family: "arial" , sans-serif; font-size: 12pt;"><br />71 Stevenson Street, Suite 400<br />San Francisco, CA 94105<br />Direct: (415) 529-7654</span><o:p></o:p></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-87293068400444882902019-05-13T10:01:00.002-07:002019-05-13T10:01:51.329-07:00FYI: Cal App Ct (5th Dist) Holds Borrower Entitled to Atty Fees for Successful TRO<div class="MsoNormal" style="background-color: white; color: #444444; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px;">
<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court of Appeal for the Fifth District of California recently held that a court may award attorneys' fees pursuant to Civil Code § 2924.12(h) when a borrower obtains a temporary restraining order to stop a non-judicial foreclosure sale. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a href="https://www.courts.ca.gov/opinions/documents/F075858.PDF" style="color: #4d469c; text-decoration-line: none;">Link to Opinion</a></span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The borrowers filed an ex parte application for a temporary restraining order ("TRO") to enjoin the trustee's sale of their home. The application contained a request for attorneys' fees and costs.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The trial court granted the TRO and set a hearing to show cause for a preliminary injunction. The order required the defendants to pay $3,500 in attorneys' fees pursuant to Civil Code § 2924.12.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The loan servicer brought this appeal of the attorneys' fees award.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, section 2924.12(h) provides that: "[a] court may award a prevailing borrower reasonable attorney's fees and costs in an action brought pursuant to this section. A borrower shall be deemed to have prevailed for purposes of this subdivision if the borrower obtained injunctive relief or was awarded damages pursuant to this section."</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The loan servicer argued that the borrowers did not prevail for purposes of section 2924.12(h) because they merely obtained a TRO.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court considered Monterossa v. Superior Court (2015) 237 Cal. App. 4th 747, where the Third District held that section 2924.12(h) permitted an award of attorneys' fees to a borrower who had obtained preliminary injunction, as opposed to permanent, injunctive relief. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Monterossa court concluded that such fees were permitted by the plain language of the statute because "injunctive relief" incorporates "both preliminary and permanent injunctive relief." Monterossa, 237 Cal. App. 4th at 753.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Monterossa court explained that the purpose of the statutory scheme is to provide borrowers with a meaningful opportunity to obtain available loss mitigation options, and a borrower who successfully forces the lender to comply with the statutory process by obtaining a preliminary injunction has prevailed. Monterossa, 237 Cal. App. 4th at 755.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court found this reasoning persuasive, holding that "the plain statutory language is dispositive of this appeal." The borrowers prevailed in obtaining a TRO, which was a form of injunctive relief, and therefore the Court held that attorneys' fees were authorized under the statute. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The loan servicer also argued that the fee request was procedurally defective.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, a party may seek statutory attorneys' fees as costs through any of four methods: (1) on noticed motion, (2) at the time a statement of decision is rendered, (3) on application supported by affidavit made concurrently with a claim for other costs, or (4) on entry of a default judgment. Code Civ. Proc. § 1033.5(a)(10)(B), (c)(5).</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Rule 3.1702 of the California Rules of Court proscribes a noticed motion procedure whenever the court is required to determine whether the requested fee is reasonable or whether the requestor is a prevailing party. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Civil Code § 2924.12(h) requires a determination that the plaintiff is a prevailing party and that the requested fees are reasonable, but the borrowers did not file a notice motion for the fee request. Thus, the Appellate Court held that the grant of fees based on an ex parte application was improper.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Appellate Court reversed the award of attorneys' fees and remanded for further proceeding. </span></span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<i><span style="font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Admitted to practice law in California, Nevada and Oregon</span></span></i><o:p></o:p></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-4178378115801504552019-04-22T16:11:00.002-07:002019-04-22T16:11:23.262-07:00FYI: 9th Cir Holds That Citizenship of Bank Acting as Trustee Controls for Diversity Purposes<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">
<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The U.S. Court of Appeals for the Ninth Circuit held that the Supreme Court of the United States’ decision in Americold Realty Trust v. ConAgra Foods, Inc. did not upset the Supreme Court’s prior holding in Navarro Ass’n v. Lee, and that “when a trustee files a lawsuit or is sued in her own name her citizenship is all that matters for diversity purposes.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Ninth Circuit held that the trial court properly exercised its jurisdiction over the matter where the bank - acting as trustee - was sued in its own name, and along with the other named defendants, was of diverse citizenship with the plaintiff. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a data-saferedirecturl="https://www.google.com/url?q=https://scholar.google.com/scholar_case?case%3D16353951745358862303%26q%3DDemarest%2Bv.%2BHSBC%2BBank%2BUSA,%2B%26hl%3Den%26as_sdt%3D400003%26as_ylo%3D2019&source=gmail&ust=1556060352328000&usg=AFQjCNEFxH-LevnFoaPqhv3U2LCTxtrCjw" href="https://scholar.google.com/scholar_case?case=16353951745358862303&q=Demarest+v.+HSBC+Bank+USA,+&hl=en&as_sdt=400003&as_ylo=2019" style="color: #1155cc;" target="_blank">Link to Opinion</a></span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The plaintiff borrower (“Borrower”) took out a loan, and the loan was later securitized and the deed of trust was assigned to the bank (“Bank”), which acted as trustee for a trust (“Trust”). The Trust was governed by a pooling and servicing agreement, which provided that all “right, title and interest” in the Trust were conveyed to the Bank “for the use and benefit of the Certificateholders,” and the Bank was given the power to hold the Trust’s assets, sue in its own name, transact the Trust’s business, terminate servicers, and engage in other necessary activities.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In her complaint, the Borrower asserted various causes of action under California law, including wrongful foreclosure. The Borrower named, among others, the Bank.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The defendants removed the matter to the trial court based on diversity jurisdiction. The notice of removal specifically stated that it was filed on behalf of, among others, the Bank as trustee for the Trust. The notice further stated that the Bank was incorrectly sued in its name only, without referencing the Trust.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The notice asserted that the Bank was a national banking association organized under the laws of the United States, with its main office in Virginia, and was therefore a citizen of Virginia for diversity purposes.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Because no defendant was, like the Borrower, a citizen of California, the notice concluded that diversity jurisdiction was established and removal was proper.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The trial court agreed and the matter remained in federal court. The trial court subsequently granted summary judgment in favor of the defendants. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Borrower appealed. On appeal, she did not contest the trial court’s summary judgment decision, but instead only challenged the court’s subject matter jurisdiction over the action.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, federal subject matter jurisdiction – specifically, diversity jurisdiction – exists where an action is between “citizens of different states,” and the “matter in controversy exceeds the sum or value of $75,000.” It requires “complete diversity” of citizenship, meaning that “the citizenship of each plaintiff is diverse from the citizenship of each defendant.” </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Borrower argued that the defendants failed to establish diversity jurisdiction because, following Americold, they were required to demonstrate the citizenship of the Trust’s investors, and could not simply rely on the citizenship of the Bank as its trustee.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In addressing the argument, the Ninth Circuit first discussed two other pertinent Supreme Court decisions, Navarro and Carden v. Arkoma Associates. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit explained that in Navarro, the Supreme Court reaffirmed that “a trustee is a real party to the controversy for purposes of diversity jurisdiction when he possesses certain customary powers to hold, manage, and dispose of assets for the benefit of others.” </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">However, in Carden, the Supreme Court held that “diversity jurisdiction in a suit by or against the [limited partnership] entity depends on the citizenship of ‘all the members.’” The Supreme Court further explained that Navarro was consistent with that rule because it “did not involve the question whether a party that is an artificial entity other than a corporation can be considered a ‘citizen’ of a State, but the quite separate question whether the parties that were undoubted ‘citizens’ . . . were the real parties to the controversy.” </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit noted that although other “[c]ourts applying Navarro and Carden to the question of a trust’s citizenship for diversity purposes have reached different conclusions,” in 2006 it had held in Johnson v. Columbia Props. Anchorage, LP that a “[a] trust has the citizenship of its trustee or trustees.” </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">However, in 2016 the Supreme Court decided Americold, in which it addressed “how to determine the citizenship of a ‘real estate investment trust.’” In analyzing the issue, the Supreme Court noted that under the applicable state law, a “real estate investment trust” was not a corporation, but instead “an ‘unincorporated business trust or association’ in which property is held and managed ‘for the benefit and profit of any person who may become a shareholder.’”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Thus, the Supreme Court determined that the real estate investment trust’s “shareholders appear[ed] to be in the same positions as the shareholders of a joint-stock company or the partners of a limited partnership – both of whom we viewed as members of their relevant entities,” and “therefore conclude[d] that for purposes of diversity jurisdiction, [the real estate investment trust’s] members include its shareholders.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">However, the Supreme Court expressly stated that it was not overturning Novarro, but instead distinguished it noting that “Navarro had nothing to do with the citizenship of [a] trust,” rather it “reaffirmed a separate rule that when a trustee files a lawsuit in her name, her jurisdictional citizenship is the State to which she belongs.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In applying Americold to its case, the Ninth Circuit stated that “[a]lthough [the Borrower] suggests that Americold constituted a sea change in how courts determine the citizenship of a trust, we do not find the decision to be quite so momentous. Indeed, the Court clearly articulated that which we already knew: ‘when a trustee files a lawsuit or is sued in her own name her citizenship is all that matters for diversity purposes.’”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit ruled that because the Borrower sued the Bank in its own name, and did not mention the Trust either in the caption or in the complaint’s list of defendants, “Americold holds that, because [the Bank] as trustee was ‘sued in [its] own name, [its] citizenship is all that matters for diversity purposes.’”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, “[t]he parties were . . . completely diverse, and the trial court properly exercised diversity jurisdiction in over the action.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">After reaching its ruling, the Ninth Circuit noted in dicta that there was potential conflict between its decision in Johnson that “[a] trust has the citizenship of its trustee or trustees” and Americold where the Supreme Court concluded that the citizenship of nontraditional trusts should be determined based on their members, not trustees.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">After discussing the differences between “traditional trusts” and other artificial entities to which states have applied the “’trust’ label,” the Ninth Circuit concluded that “Johnson remains good law when applied to what Americold labelled traditional trusts.” </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Moreover, “in such a case, as Navarro held, the trustee is the real party in interest, and so its citizenship, not the citizenships of the trust’s beneficiaries, controls the diversity analysis.” </span></span></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-68345584204911051372019-04-12T07:27:00.002-07:002019-04-12T07:27:23.384-07:00FYI: Cal App (4th Dist) Confirms Limited Liability for Foreclosure Trustees<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">
<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Court of Appeal for the Fourth District of California recently held that a trustee conducting a non-judicial foreclosure is not subject to tort liability unless it violated duties established by the deed of trust and governing statutes, or if the trustee has effectively taken on a different or modified duty by its actions.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a data-saferedirecturl="https://www.google.com/url?q=https://scholar.google.com/scholar_case?case%3D13498650474097209097%26q%3DCitrus%2BEl%2BDorado%2Bv.%2BChicago%2BTitle%2BCo%26hl%3Den%26as_sdt%3D400006%26as_ylo%3D2019&source=gmail&ust=1555161217159000&usg=AFQjCNH3GeXIfTSbYVmGH-IZQQ68QJXzMQ" href="https://scholar.google.com/scholar_case?case=13498650474097209097&q=Citrus+El+Dorado+v.+Chicago+Title+Co&hl=en&as_sdt=400006&as_ylo=2019" style="color: #1155cc;" target="_blank">Link to Opinion</a></span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">A commercial developer purchased real property and obtained a loan to fund construction. The loan was secured by a deed of trust on the property.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The lender sent a notice of default stating that the payments required under the loan had not been made and demanded payment of the total payoff balance. A title company recorded a substitution of trustee, which substituted the title company as a the new trustee under the deed of trust. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">When the developer failed to pay off the loan, the title company (Trustee) recorded the notice of default and a notice of trustee’s sale. The property was sold at a public auction.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The developer filed a lawsuit. The operative second amended complaint asserted claims for wrongful foreclosure, wrongful disseisin and ouster, and conspiracy.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The trial court sustained the Trustee’s demurrer to the developer’s second amended complaint without leave to amend, and it subsequently entered judgment in favor of the title company. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">This appeal followed.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">On appeal, the developer argued that each of the three causes of action it asserted against the Trustee were adequately pleaded to survive demurrer. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, in California, “[a] beneficiary or trustee under a deed of trust who conducts an illegal, fraudulent or willfully oppressive sale of property may be liable to the borrower for wrongful foreclosure.” Yvanova v. New Century Mortgage Corp. (2016) 62 Cal.4th 919, 929. However, “[t]he trustee of a deed of trust is a not a true trustee with fiduciary obligations, but acts merely as an agent for the borrower-trustor and lender-beneficiary.” Id., at p. 927.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The trustee’s “only duties are: (1) upon default to undertake the steps necessary to foreclose the deed of trust; or (2) upon satisfaction of the secured debt to reconvey the deed of trust.” Heritage Oaks Partners v. First American Title Ins. Co. (2007) 155 Cal. App. 4th 339, 345.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court observed that neither the deed of trust nor the governing statutes created a duty on the part of the Trustee to verify that beneficiary received a valid assignment of the loan or verify the authority of the person who signed the substitution of trustee. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">“Such an inquiry is beyond the scope of the trustee’s duties,” the Appellate Court explained, “and there is no appropriate basis for imposing tort liability on [the Trustee] for failing to take actions that are beyond the scope of its duties.”</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The developer argued in Lupertino v Carbahal (1973) 35 Cal.App.3d 742, the court found that the trustee was equitably estopped from asserting that it complied with the notice requirements of the non-judicial foreclosure statutes. There, the trustee mailed the notice of trustee’s sale to only the borrowers’ address of record, and because the borrowers had moved, they did not receive actual notice in time to cure the default.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court explained that the trustee in Lupertino had previously been in communication with the borrowers at their then-current address. “[B]y its actions, the trustee effectively took on the duty of communicating with the borrowers at their then-current address, regardless of the borrowers’ failure to update their address of record.” The Court noted that the developer did not raise any similar issues against the Trustee’s actions in this case.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Additionally, to successfully challenge a foreclosure, the Appellate Court noted that a plaintiff must show both a failure to comply with the procedural requirements for the foreclosure sale and that the irregularity prejudiced the plaintiff. Knapp v. Doherty (2004) 123 Cal.App.4th 76, 96.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The developer alleged that the trustee’s sale was noticed for March 3, 2015, but the property was not sold until March 5, 2015, and the sale price was less than the outstanding principal balance due on the loan. In the Appellate Court’s view, these facts, without more, do not support the developer’s assertions that the Trustee failed to properly notice and conduct the foreclosure sale. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The developer also argued that the notice of default contained “irregularities” including, among other things, that it was signed by an agent of the beneficiary and listed an incorrect address and phone number for the beneficiary. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court observed that Civil Code ' 2924(a)(1) permits the trustee, mortgagee, or any of their authorized agents to record the notice of default. It further observed that the developer did not plead any facts demonstrating prejudice flowing from the purported defects in the notice. Specifically, that the defect impaired its ability to protect its interest in the property. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Thus, the Appellate Court concluded that the Trustee’s demurrer to the wrongful foreclosure claim was properly sustained. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Appellate Court then turned to the developer’s remaining causes of action for “wrongful disseisin and ouster” and “conspiracy.” </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Noting that both of these claims were derivative of the wrongful foreclosure claim, and that the developer did not argue how these claims might still be viable even if the wrongful foreclosure cause of action was not, the Appellate Court concluded that Trustee’s demurrer as to the remaining claims was also properly sustained. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Appellate Court affirmed the trial court’s order sustaining without leave to amend the Trustee’s demurrer to the second amended complaint.</span></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-50434492453797650902019-04-10T16:21:00.002-07:002019-04-10T16:21:16.671-07:00FYI: 9th Cir Reverses Summary Judgment on TCPA Allegations That Creditor Ratified Contractor's TCPA Violations<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">
<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The U.S. Court of Appeals for the Ninth Circuit recently reversed a summary judgment award in favor of a student loan buyer, holding that triable issues of fact existed as to whether it had actual knowledge of or willfully ignored and thereby ratified the Telephone Consumer Protection Act (“TCPA”) violations of the debt collectors contracted by the owner’s servicer.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a data-saferedirecturl="https://www.google.com/url?q=http://cdn.ca9.uscourts.gov/datastore/opinions/2019/03/22/17-55373.pdf&source=gmail&ust=1555024683145000&usg=AFQjCNFc8XBqywxj7xzcT9WC9Sd61ytjcA" href="http://cdn.ca9.uscourts.gov/datastore/opinions/2019/03/22/17-55373.pdf" style="color: #1155cc;" target="_blank">http://cdn.ca9.uscourts.gov/<wbr></wbr>datastore/opinions/2019/03/22/<wbr></wbr>17-55373.pdf</a>.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The plaintiff received student loans through a federal program under which the owner of the loans “guarantees student loans made by private lenders and then takes ownership of those loans if a student-borrower defaults.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The borrower defaulted and the owner of the loans contracted with a loan servicing company, which in turn contracted with debt collectors to collect on loans in default.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Five different debt collection companies began calling the borrower and left pre-recorded messages using a cellular telephone number that “she neither provided in connection with her student loans nor consented to be called on.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The borrower sued the loan owner, loan servicer and several debt collectors, alleging the violated the TCPA by calling the borrower’s telephone number without her express consent using an automatic telephone dialing system (“ATDS”) and leaving pre-recorded messages. All of the defendants except the loan owner were “dismissed for lack of personal jurisdiction.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The trial court granted the loan owner’s motion for summary judgment and the borrower appealed, arguing that (a) the owner was vicariously liable for the debt collectors’ TCPA violations under a 2008 Order of the Federal Communications Commission; and (b) the owner was vicariously liable “under the federal common law agency principles of ratification and implied actual authority.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">On appeal, the Ninth Circuit began by explaining that “[u]nder the TCPA, it is unlawful ‘to make any call (other than … with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice … to any telephone number assigned to a … cellular telephone service.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The FCC’s 2008 Order determined that “[c]alls placed by a third party collector on behalf of that creditor are treated as if the creditor itself placed the call.” Because Congress had addressed the issue directly and “the 2008 FCC Order is a fully adjudicated declaratory ruling,” it is entitled to deference under the Supreme Court’s decision in Chevron, U.S.A. Inc. v. Natural Res. Def. Council. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Rejecting the plaintiff’s first argument, the Court pointed out that “[t]<span class="m_823016463917593945GramE">hough</span> the 2008 FCC Order implies a creditor could be liable for a debt collector’s TCPA violations, the Order does not make such liability per se or automatic. … To the contrary, in a 2013 order, the FCC clarified that a court should determine whether a defendant is vicariously liable for the TCPA violations of a third-party called by using federal common law agency principles.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit also explained that the borrower’s argument ignored the Court’s 2014 decision in Gomez v. Campbell-Ewald Co., “which held that ‘a defendant may be vicariously liable for TCPA violations where the plaintiff establishes an agency relationship, as defined by federal common law, between the defendant and a third-party caller.” Thus, “there is no per se liability.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court then turned to analyze the applicable federal common law agency principles, looking to the Restatement (Third) of Agency for guidance, focusing on the “two agency principles that [plaintiff] believes makes [the owner/creditor] liable for the debt collectors’ TCPA violations—ratification and implied actual authority.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit explained that “ratification is the principal’s assent (or conduct that justifies a reasonable assumption of assent) to be bound by the prior action of another person or entity. … [<span class="m_823016463917593945GramE">and</span>] creates consequences of actual authority, including, in some circumstances, creating an agency relationship when none existed before.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">A principal ratifies a third party’s acts in two ways: “[t]he first is by a ‘knowing acceptance of the benefit’. … The second way … is through ‘willful ignorance.’”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court cited its 2018 decision in Kristensen v. Credit Payment Servs. Inc., a TCPA class action and “the only case in our circuit, or any circuit, that analyzes in what circumstances ratification may create an agency relationship when none existed before ….” That case involved a text message sent to plaintiff’s cell phone without his prior consent “as part of a marketing campaign for payday lenders.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The plaintiff sued “the lenders and marketing companies but not the company that sent the text message. The trial court granted summary judgment for the defendants, rejecting plaintiff’s theory of vicarious liability that “defendants ratified … the [sender’s] unlawful texting campaign by accepting customer leads while knowing that [the sender] was using texts to generate those leads.” The Ninth Circuit affirmed, holding that because the non-party sender was not an agent or “purported agent of the defendants, they could not have ratified the [sender’s] acts.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit distinguished Kristensen because “[u]nlike the texting publisher in Kristensen, here, a reasonable jury could find that the debt collectors pretended and demonstrably assumed to act as [the owner/creditor’s] agents.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Having found Kristensen inapplicable, the Court analyzed “whether a triable issue of fact exists as to whether [the owner/creditor’s] conduct ‘justifies a reasonable assumption’ that it assented to the debt collector’s allegedly unlawful calling practices.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Highlighting that “[t]h focal point of ratification is an observable indication that a principal has exercised an explicit or implicit choice to consent to the purported agent’s <span class="m_823016463917593945GramE">acts[</span>,]” the Court found that “a reasonable jury could conclude that [the owner/creditor] accepted the benefits—loan payments—of the collectors’ calls while knowing some of the calls may have violated the TCPA. If a jury concluded that [the owner/creditor] also had ‘knowledge of material facts,’ [its] acceptance of the benefits of the collector’s unlawful practices would constitute ratification.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Because there was “evidence that [the owner/creditor] communicated consent to the debt collectors through acquiescence in their calling practices that allegedly violated the TCPA[,]” and the knowledge of material facts requirement can be met either through “actual knowledge” or “willful ignorance,” the Court found that “a reasonable jury could find that [the owner/creditor] ratified the debt collectors’ calling practices by remaining silent and continuing to accept the benefits of the collectors’ tortious conduct despite knowing what the collectors were doing or, at the very least, knowing of facts that would have led a reasonable person to investigate further.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Because triable issues of fact existed as to whether the owner/creditor had actual knowledge of or engaged in willful ignorance and thereby ratified the debt collector’s calling practices, the Ninth Circuit held that “a reasonable jury could find that [the owner/creditor] ratified the debt collectors’ calling practices” and reversed the trial court’s order granting summary judgment in defendant’s favor.</span></span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;"><b>Maurice Wutscher LLP</b></span><span style="font-family: "courier new"; font-size: 12pt;"> </span><span style="font-family: "arial" , sans-serif; font-size: 12pt;"><br />71 Stevenson Street, Suite 400<br />San Francisco, CA 94105<br />Direct: (415) 529-7654</span><o:p></o:p></div>
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<i><span style="font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Admitted to practice law in California, Nevada and Oregon</span></span></i><o:p></o:p></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-9052808380262279192019-04-07T13:05:00.002-07:002019-04-07T13:05:36.261-07:00FYI: 9th Cir Holds GSE Is Not "Consumer Reporting Agency" Under FCRA<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">
<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The U.S. Court of Appeals for the Ninth Circuit recently held that a government sponsored enterprise ("GSE) that licensed underwriting software to lenders was not a consumer reporting agency under the federal Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. ("FCRA"). </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In so ruling, the Ninth Circuit determined that the GSE did not assemble or evaluate consumer information to furnish consumer reports to third parties. Instead, the GSE merely provided software to allow lenders to assemble or evaluate such information. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a data-saferedirecturl="https://www.google.com/url?q=https://scholar.google.com/scholar_case?case%3D9444783627707133329%26hl%3Den%26as_sdt%3D6%26as_vis%3D1%26oi%3Dscholarr&source=gmail&ust=1554745585621000&usg=AFQjCNHrW0j7cSbkXEd_QcnpR474zA2Npg" href="https://scholar.google.com/scholar_case?case=9444783627707133329&hl=en&as_sdt=6&as_vis=1&oi=scholarr" style="color: #1155cc;" target="_blank">Link to Opinion</a></span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The plaintiffs had a short sale after defaulting on their mortgage. After waiting two years, they attempted to refinance their mortgage and a number of lenders used a software called Desktop Underwriter ("DU") to ascertain whether a loan to them would be eligible for purchase by the GSE.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The GSE created DU to allow lenders to enter the information about the borrower and the property. DU automatically applies the guidelines and requirements in the GSE's selling guide. The lender can also contract with credit bureaus to pay for and import the borrower's credit report into DU. The lender then uses DU to underwrite the loan. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">DU analyzes all the inputted or imported information and provides a report called "DU Findings", on a loan's eligibility for purchase by the GSE. The GSE is not involved in the process of generating DU Findings.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Three of the eight DU Findings created in evaluating the plaintiffs' prospective loan stated that the loan was ineligible due to a foreclosure reported within the last seven years -- which was inaccurate.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The plaintiff sued the GSE under the FCRA, which requires a consumer reporting agency to follow "reasonable procedures to assure maximum possible accuracy of consumer information." 15 U.S.C. § 1681e(b). </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">On cross-motions for summary judgment, the district court held that the GSE acted as a consumer reporting agency when it licensed DU to lenders and it was therefore subject to the FCRA. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The case went to trial and the jury was instructed that "[i]n connection with its actions in this case [the GSE] is a consumer reporting agency,' [and] the DU findings are 'consumer reports.'" The jury returned a verdict for the plaintiffs and awarded $30,000 in damages. The trial court also awarded attorneys' fees and costs under FCRA's fee shifting provision. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">On appeal, the GSE argued that it was not liable under the FCRA because it was not a consumer reporting agency.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, the FCRA defines a consumer reporting agency as "any person which [1] regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers [2] for the purpose of furnishing consumer reports to third parties." 15 U.S.C. § 1681a(f).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit observed that the GSE did not assemble or evaluate information when a lender uses DU. Lenders assembled the consumer information by inputting it into DU, and lenders themselves contracted with and paid the credit bureaus for the reports. Apart from creating, licensing, and updating DU, the GSE did not assemble or evaluate consumer information. Instead, the Ninth Circuit found that DU was merely a tool for lenders to do so at their own choosing.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Additionally, the Ninth Circuit noted that its interpretation of the FCRA aligned with the Federal Trade Commission's ("FTC") guidelines, which opined that "[a] seller of software to a company that uses the software product to process credit report information is not a [consumer reporting agency] because it is not 'assembling or evaluating' any information."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The plaintiffs argued that the GSE stored backups of software-generated case files and updated DU's database requirements for information imported from credit bureaus. In the Ninth Circuit's view, none of this activity demonstrated that the GSE assembled or evaluated information for the purpose of furnishing a consumer report. Instead, the GSE merely provided software that allowed lenders to assemble or evaluate such information. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The plaintiffs also argued that the GSE's licensing agreement with the lenders stated that: "[a]s Licensee's agent, [GSE] shall, and is hereby expressly authorized by Licensee to obtain Consumer Credit Data for the sole purpose of performing a Prequalification Analysis and/or making an underwriting recommendation." </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit observed that the agreement also stated that it was the licensee-lender who used DU "to request and receive Consumer Reports and/or analyze or evaluate Consumer Credit Data in underwriting Mortgage Loan Applications." Thus, evidence of what the GSE described itself in the licensing agreement was not what the GSE actually did.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Next, the GSE argued that it was not a consumer reporting agency because it did not assemble or evaluate consumer information for "the purpose of furnishing consumer reports to third parties." 15 U.S.C. § 1681a(f).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, FCRA defines "consumer report as any communication by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of servicing as a factor in establishing the consumer's eligibility for credit, insurance, employment, or other statutorily enumerated purposes." 15 U.S.C. § 1681a(d)(1).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The GSE argued that even if it were assembling or evaluating consumer information as a result of DU, it did not do so for the purpose of furnishing consumer reports to third parties. Instead, its purpose is only to facilitate a transactions between the lender and the GSE.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit agreed based on the plain mean of "purpose". DU determined whether a loan was eligible for purchase by the GSE based only on information provided to it by lenders and credit bureaus. DU contained no evaluation or new information regarding the borrower's creditworthiness that was not already provided by the lender or credit bureau. The Ninth Circuit did not find any evidence indicating that the GSE assembled or evaluated consumer information. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit further observed that FCRA imposed duties on consumer reporting agencies to provide a variety of disclosures to consumers. If the GSE was a consumer reporting agency under FCRA, it would be required to comply with the disclosure requirements and that interpretation would contradict Congress' design for the GSE to operate only in the secondary mortgage market to deal directly with lenders, and not with borrowers themselves. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Ninth Circuit reversed the trial court's judgment in favor of the plaintiffs and remanded with instructions to enter judgment in favor of the GSE. </span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;"><b>Maurice Wutscher LLP</b></span><span style="font-family: "courier new"; font-size: 12pt;"> </span><span style="font-family: "arial" , sans-serif; font-size: 12pt;"><br />71 Stevenson Street, Suite 400<br />San Francisco, CA 94105<br />Direct: (415) 529-7654</span><o:p></o:p></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;">Email: </span><u><span style="color: blue; font-family: "arial" , sans-serif; font-size: 12pt;">etsai@MauriceWutscher.com</span></u><o:p></o:p></div>
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<i><span style="font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Admitted to practice law in California, Nevada and Oregon</span></span></i><o:p></o:p></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-78475352179906196132019-03-24T15:06:00.001-07:002019-03-24T15:06:31.278-07:00FYI: SCOTUS Rules FDCPA Has Extremely Limited Applicability to Persons Engaging in Nonjudicial Foreclosure Proceedings<div class="MsoNormal" style="background-color: white; color: #444444; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px;">
<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The U.S. Supreme Court recently issued its much-anticipated opinion in <i><a href="https://www.supremecourt.gov/opinions/18pdf/17-1307_7lho.pdf" style="color: #4d469c; text-decoration-line: none;">Obduskey v. McCarthy & Holthus LLP</a></i>, ruling the federal Fair Debt Collection Practices Act does not cover persons engaged in "non-judicial foreclosures" except with respect to a single provision contained in the FDCPA.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Colorado, like many western states, has a procedure that allows a lender to foreclose property without the need to file a lawsuit.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Here, as you may recall, a Colorado borrower defaulted on his home loan and the mortgage servicer hired a law firm to pursue a non-judicial foreclosure. The borrower informed the law firm he was disputing the debt and the law firm, without responding to the dispute, proceeded with the non-judicial foreclosure.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The borrower then filed a lawsuit against the mortgage servicer and law firm alleging, among other things, violation of the FDCPA by proceeding with the foreclosure without first providing verification of the debt in response to his dispute as required by 15 U.S.C. § 1692g(b). The mortgage servicer and law firm filed motions to dismiss.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The FDCPA defines a debt collector as persons engaged "in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts." The Colorado borrower alleged this included the law firm and mortgage servicer.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">However, the FDCPA's definition of a debt collector also states that "[the] term [debt collector] also includes any person . . . in any business the principal purpose of which is the enforcement of security interests" for purposes of section 1692f(6). The law believed this provision excluded its efforts undertaken in the nonjudicial foreclosure.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The trial court agreed with the law firm and mortgage servicer and granted their motions to dismiss, determining that the mortgage servicer was not a "debt collector" under the FDCPA because the loan was not in default when it began servicing the loan.[1] The trial court also found the law firm's nonjudicial foreclosure activities were "outside the scope of the FDCPA."</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The borrower appealed and the U.S. Court of Appeals for the Tenth Circuit affirmed the District Court's decision, explaining that despite findings to the contrary by three other circuits (the Fourth, Fifth, and Sixth) and the Colorado Supreme Court, a nonjudicial foreclosure is not an attempt to collect money. Therefore, the "mere act of enforcing a security interest through a non-judicial foreclosure proceeding does not fall under the FDCPA."</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The U.S. Supreme Court granted the borrower's Petition for a Writ of Certiorari on June 28, 2018, and heard oral argument on Jan. 7, 2019.</span></span></div>
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<b><span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Ruling</span></span></b></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Supreme Court first looked to the language of the FDCPA which provides a "general" definition for "debt collector."[2] However, that subsection also provides: "For the purpose of section 808(6) [15 U.S.C. § 1692f(6)][3], such term also includes any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the enforcement of security interests." (emphasis added).</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Focusing on the italicized terms above, and particularly the word "also," the Court stated the phrase "strongly suggests that one who does no more than enforce security interests does not fall within the scope of the general definition. Otherwise why add this sentence at all?"</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Second, the Court explained that it makes sense to "treat security-interest enforcement differently from ordinary debt collection in order to avoid conflicts with state nonjudicial foreclosure schemes." As an example, the Court noted state nonjudicial foreclosures procedures include consumer protection provisions, some of which are in conflict with the FDCPA, such as the requirement to publicize the sale.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Third, the Court looked to the legislative history which evidenced conflicting proposals regarding the applicability of the entire FDCPA to persons who enforce security interests. "Given these conflicting proposals, the Act's present language has all the earmarks of a compromise: The prohibitions contained in §1692f(6) will cover security-interest enforcers, while the other 'debt collector' provisions of the Act will not."</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Court concluded with the seemingly narrow holding that "but for §1692f(6), those who engage in only nonjudicial foreclosure proceedings are not debt collectors within the meaning of the Act."</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">[1] The FDCPA's definition of "debt collector" excludes "any person collecting or attempting to collect any debt owed or due or asserted to be owed or due another to the extent such activity concerns a debt which was not in default at the time it was obtained by such person." 15 U.S.C. § 1692a(6)(F)(iii).</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">[2] "The term 'debt collector' means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." 15 U.S.C. §1692a(6).</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">[3] Section 1692f(6) prohibits: "[t]aking or threatening to take any nonjudicial action to effect dispossession or disablement of property if—(A) there is no present right to possession of the property claimed as collateral through an enforceable security interest; (B) there is no present intention to take possession of the property; or (C) the property is exempt by law from such dispossession or disablement."</span></span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<i><span style="font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Admitted to practice law in California, Nevada and Oregon</span></span></i><o:p></o:p></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-50120534378552572872019-02-13T07:42:00.000-08:002019-02-13T07:42:00.320-08:00FYI: Cal App Ct (2d Dist) Holds Former Servicer and Trustee Entitled to Recover Attorneys' Fees<div class="MsoNormal" style="background-color: white; color: #444444; font-family: Arial, Tahoma, Helvetica, FreeSans, sans-serif; font-size: 13px;">
<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Court of Appeals for the Second District of California held that California's fee shifting statue in California Civil Code § 1717 permitted a former loan servicer and foreclosure trustee to recover their attorneys' fees authorized by the contract, even though the deed of trust was assigned to another financial institution.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">However, the Court vacated the trial court's award of attorneys' fees against the borrower because the deed of trust only permitted attorneys' fees to be added to the loan balance.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a href="https://law.justia.com/cases/california/court-of-appeal/2018/b281874.html" style="color: #4d469c; text-decoration-line: none;">Link to Opinion</a></span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The borrower defaulted on the mortgage and sued the loan servicer and foreclosure trustee (collectively, "defendants") to stop the foreclosure. Her complaint asserted four causes of action: (1) violation of California Civil Code § 2923.5, (2) quiet title, (3) unlawful debt collection practices in violation of the California Rosenthal Act, and (4) declaratory and injunctive relief. </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The trial court sustained the defendants' demurrers without leave to amend. The appellate court affirmed the trial court's ruling on appeal. The defendants moved for attorneys' fees pursuant to the deed of trust and the Rosenthal Act.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">In relevant part, section 9 of the deed of trust authorizes the lender pay "reasonable attorneys' fees to protect its interest in the Property and/or rights in the Security Instrument." Section 9 further states that "[a]ny amounts disbursed by Lender under this Section 9 shall become additional debt of Borrower secured by this Security Instrument."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Section 14 of the deed of trust states in pertinent part: "Lender may charge Borrower fees for services performed in connection with Borrower's default, for the purpose of protecting Lender's interest in the Property and rights under this Security Instrument, including, but not limited to, attorney fees."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The defendants argued that they were entitled to attorneys' fees pursuant to sections 9 and 14 -- even though the deed of trust had been assigned to another financial institution -- because California Civil Code § 1717 authorizes courts to enforce contractual attorney fee clauses.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The trial court granted the motion for attorneys' fees and ordered the borrower to pay the defendants $46,827.40. The trial court did not discuss the defendants' request for fees pursuant to the Rosenthal Act.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">This appeal followed.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The first issue on appeal was whether the defendants were entitled to contractual attorneys' fees under the deed of trust even though they were neither the lender nor signatories to the promissory note or deed of trust.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, California Civil Code § 1717(a) provides that "[i]n any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs." </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Section 1717 has been "interpreted to further provide a reciprocal remedy for a nonsignatory defendant, sued on a contract as if he were a party to it, when a plaintiff would clearly be entitled to attorneys' fees should he prevail in enforcing the contractual obligation against the defendant." Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 128.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Although the defendants were not the original lender identified in the note and deed of trust, the Court noted that the defendants were agents of the lender who had authority to enforce the lender's rights under the contracts. The borrower sued the defendants for taking actions authorized by the deed of trust during their tenure as loan servicer and trustee. Thus, in the Court's view the defendants stood in the shoes of a party to the contract and could recover attorney fees as provided by the contract pursuant to section 1717.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The second issue on appeal was whether the deed of trust authorized a separate award to pay attorneys' fees, as opposed to adding the fees to the loan balance.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Court observed that section 9 of the deed of trust provides that any amounts disbursed by the lender "shall become additional debt of Borrower secured by this Security Instrument." The Court held that the text of section 9 did not authorize a separate award of attorneys' fees.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Court also found that the word "charge" in section 14 of the deed of trust authorizes the lender to charge the borrowers attorneys' fees it may have incurred and add those fees to the outstanding balance due under the promissory note. In the Court's own words, "[t]here is no language in section 14 that indicates the trust deed permits a freestanding contractual attorney fees award."</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The defendants argued that because they were no longer the active servicer or trustee of the deed of trust, their attorneys' fees were not amounts disbursed by the lender under section 9 and adding their attorneys' fees to the loan balance would be unjustified.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Court found the argument unpersuasive because the defendants' right to seek attorneys' fees in the first place, despite being non-parties to the contracts, depended on their assertion that they acted as the lender's agents and stood in the lender's shoes. As the Court explained, the defendants "must take the bitter with the sweet." </span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Thus, the Court concluded that the deed of trust permitted the defendants to recover their attorneys' fees but did not authorize a separate fee award against the borrower.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The loan servicer also argued that it was entitled to attorneys' fees under the Rosenthal Act, as an independent basis for a fee award against the borrower.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">As you may recall, the Rosenthal Act includes a provision authorizing a court to award reasonable attorneys§ fees to a "prevailing creditor upon a finding by the court that the debtor's prosecution or defense of the action was not in good faith." Civil Code § 1788.30(c).</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">The Court determined that the borrower advanced a colorable argument in her complaint, and therefore the Rosenthal Act did not authorize an award of attorneys' fees to the loan servicer under these circumstances.</span></div>
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<span style="color: #003399; font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the Court reversed the order compelling the borrower to pay $46,827.40 in attorneys' fees and remanded for further proceedings consistent with its opinion. </span></div>
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Erichttp://www.blogger.com/profile/04509548158593016578noreply@blogger.comtag:blogger.com,1999:blog-8233419393402187563.post-80309889722019203062019-01-21T15:45:00.002-08:002019-01-21T15:45:57.211-08:00FYI: 9th Cir Holds Debtor Who Successfully Challenges Automatic Stay Fee Award Also Entitled to Appellate Fees<div class="MsoNormal" style="background-color: white; color: #222222; font-family: Arial, Helvetica, sans-serif; font-size: small;">
<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In a case of first impression, the U.S. Court of Appeals for the Ninth Circuit recently held that a debtor who successfully challenges -- as opposed to a debtor who defends -- an award of attorney’s fees and costs for violations of the automatic stay under § 362(k) of the Bankruptcy Code is entitled to an award of appellate fees and costs.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In so ruling, the Court reversed the trial court’s order denying the debtor’s motion for appellate attorney’s fees and costs, and remanded the matter to the trial court with instructions to remand to the bankruptcy court to calculate reasonable attorney’s fees and costs on appeal. </span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">A copy of the opinion is available at: <a data-saferedirecturl="https://www.google.com/url?q=http://cdn.ca9.uscourts.gov/datastore/opinions/2018/12/20/17-16506.pdf&source=gmail&ust=1548199716443000&usg=AFQjCNG56t4bbMW7_M75i94x12Ao81ZngA" href="http://cdn.ca9.uscourts.gov/datastore/opinions/2018/12/20/17-16506.pdf" style="color: #1155cc;" target="_blank">Link to Opinion</a></span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Husband and wife debtors filed a petition under Chapter 13 of the Bankruptcy Code in October of 2012, which triggered the automatic stay under section 362 of the Code. The debtors listed a $3,535 unsecured, nonpriority debt in their schedules owed to a medical services company. The debt, however, had previously been assigned to a collection agency in July of 2012.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The collection agency, which did not receive notice of the bankruptcy, filed a collection action against the wife in July 2013. The parties entered into a payment plan, but the debtor defaulted.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The collection agency served a writ of garnishment on the debtors in April of 2014. The debtor’s counsel demanded that the garnishment be dissolved, but the wife’s wages were garnished for several more weeks before stopping.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In June of 2014, debtors filed a motion for contempt in the bankruptcy court against the collection agency for violating the automatic stay. The motion was unopposed and the bankruptcy court granted it in August of 2014, awarding $1,295 in damages and $1,277 for attorney’s fees and costs. The debtors appealed both awards, arguing that “the bankruptcy court erred in failing to account for several days of attorneys’ work needed to end the stay violation.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">While the appeal was pending, the Ninth Circuit held in In re Schwartz-Tallard that section 362(K)(1) of the Bankruptcy Code authorized an award of reasonable attorney’s fees and costs incurred on appeal in defending a judgment under section 362(k).</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The trial court affirmed the damages award, “but remanded to the bankruptcy court the attorneys’ fees calculation in light of Schwartz-Tallard. The bankruptcy court then awarded attorneys’ fees and costs of $16,324.40, in addition to the $1,277 initially awarded[, but] refused to award attorneys’ fees and costs incurred on appeal, claiming it lacked jurisdiction due to a pending application for these fees before the trial court.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In June of 2017, the trial court denied the debtors’ motion for appellate attorney’s fees and costs because debtors failed to file a memorandum of “points and authority” required by the court’s local rules. In the alternative the trial court held that section 362(k) “does not allow for recovery of appellate work when a party is prosecuting, and not defending, the judgment on appeal.” The debtors appealed to the Ninth Circuit.</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit first addressed the trial court’s applicable local rule, which provides relevant part that “[t]he failure of a moving party to file points and authorities in support of the motion constitutes a consent to the denial of the motion….”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit reasoned that, although “[o]nly in rare cases will we question the exercise of jurisdiction in connection with the application of local rules[,]” the case before it was “one of those rare cases.” It then concluded that the trial court abused its discretion because the debtor’s motion “clearly indicated that the attorney’s fees and costs requested pertained solely to the appeal, and did not need to be further segregated.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Turning to the issue of appellate attorney’s fee and costs, the Court began by explaining that section 362(k)(1) of the Bankruptcy Code provides in relevant part that “an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit then disagreed with the trial court’s reading of its Schwartz-Tallard ruling, explaining that “[p]reviously, [in Sternberg v. Johnston] we interpreted § 362(k)(1) as limiting attorneys’ fees and costs awards to those incurred in stopping a stay violation. ‘Once the violation has ended, any fees debtor incurs after that point in pursuit of a damage award would not be to compensate for ‘actual damages under § 362(k)(1),’ and thus fees incurred pursuing damages for a stay violation were not recoverable under the statute. … However, Schwartz-Tallard overruled Sternberg in 2015.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court reasoned that, as it explained in Schwartz-Tallard, “’Congress undoubtedly knew that unless debtors could recover the attorney’s fees they incurred in prosecuting an action for damages, many would lack the means or financial incentive (or both) to pursue such actions.’ … Allowing for attorneys’ fees and costs while prosecuting an action for damages is likely the only way debtors in bankruptcy can afford to pursue damages. As is the case here, damages themselves may be too limited to justify an action if attorneys’ fees and costs in pursuit of those damages are not recoverable.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court noted that “[u]nlike most fee-shifting statutes, the language does not explicitly refer to a ‘prevailing party.’ … Still, § 362(k)’s ‘phrasing signals an intent to permit, not preclude, an award of fees incurred in pursuing a damages recovery.’ … The statute clearly provides for damages and attorney’s fees and costs for an injured debtor when a creditor violates the automatic stay. … Section 362(k)(1) also serves a deterrent function much like many fee-shifting statutes.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">In addition, the Ninth Circuit continued, “fee shifting statutes allow for recovery of attorneys’ fees incurred in establishing a party’s claim for fees. … This principle ensures that the fee award is not diluted by the time and effort spent on the claim itself, … and includes appellate attorney’s fees when a party successfully challenges the trial court’s award or when a party successfully defends a favorable judgment on appeal.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">“Most fee-shifting statute cases that award appellate attorneys’ fees do so for successfully defending a judgment on appeal. … Significantly, Schwartz-Tallard also reached this outcome after carefully considering the purpose of § 362(k). If a creditor unsuccessfully appeals a bankruptcy court’s judgment in favor of a debtor, it stands to reason that the party who violated the stay should continue to pay for its harmful behavior by compensating the debtor for its appellate attorneys’ fees and costs.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Ninth Circuit then noted that “courts also grant appellate attorneys’ fees in fee-shifting statute cases when, as here, parties successfully challenge initial judgments on appeal. … Indeed, we are not aware of any authority suggesting that, although fees may be awarded under a fee-shifting statute for defending a judgment on appeal, they are not available for successfully challenging the judgment as inadequate. As note, the firmly established principle is that ‘attorneys fees may be awarded for time devoted in successfully defending appeals of or challenges to the trial court’s award of attorney’s fees.’”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">The Court concluded that although it was “unaware of any previous case that has analyzed § 362(k)’s application of this principle, the purpose of § 362(k) strongly favors the outcome we now reach.” Because the Ninth Circuit found that § 362(k) is meant to protect debtors when a creditor violates the automatic stay and “thus seeks to make debtors whole, as if the violation never happened, to the degree possible[,] [t]his reasonably includes awarding attorney’s fees and costs on appeal to a successful debtor, even when the debtor must bring the appeal.”</span></span></div>
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<span style="color: #022f88; font-family: Arial; font-size: small;"><span style="font-family: Arial, sans-serif; font-size: 12pt;">Accordingly, the trial court’s order refusing to award the debtors their attorneys’ fees and costs incurred on appeal was reversed, and the case remanded to the trial court, with instructions to remand to the bankruptcy court to determine the amount of reasonable appellate attorney’s fees and costs.</span></span></div>
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<span style="background-color: transparent; color: #222222; font-family: "arial" , sans-serif; font-size: 12pt;">Eric Tsai</span></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;"><b>Maurice Wutscher LLP</b></span><span style="font-family: "courier new"; font-size: 12pt;"> </span><span style="font-family: "arial" , sans-serif; font-size: 12pt;"><br />71 Stevenson Street, Suite 400<br />San Francisco, CA 94105<br />Direct: (415) 529-7654</span><o:p></o:p></div>
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<span style="font-family: "arial" , sans-serif; font-size: 12pt;">Email: </span><u><span style="color: blue; font-family: "arial" , sans-serif; font-size: 12pt;">etsai@MauriceWutscher.com</span></u><o:p></o:p></div>
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<i><span style="font-family: "arial" , sans-serif;"><span style="font-size: x-small;">Admitted to practice law in California, Nevada and Oregon</span></span></i><o:p></o:p></div>
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