English Makes Next Move; Appeals CFPB Leadership Decision to D.C. Circuit

Last week in the case of Leandra English v. Donald J. Trump et al. Judge Timothy Kelly denied a second request to remove President Trump’s pick to lead the Consumer Financial Protection Bureau (CFPB) until a permanent replacement can be nominated and confirmed. On Friday, English made her next move by filing an appeal with the U.S. District Court for the District of Columbia. She also requested that the decision be expedited.

Read insideARM’s coverage of the circumstances of the first denial (English’s request for a temporary restraining order) here.

Read insideARM’s coverage of the second denial (English’s request for an injunction) here.

You can download a copy of the Notice of Appeal here.

The Notice itself is brief (case references removed for readability),

Notice is hereby given that Plaintiff Leandra English appeals to the United States Court of Appeals for the District of Columbia Circuit from the order of this Court denying her motion for a preliminary injunction, entered on January 10, 2018. 

In addition, the plaintiff is entitled to—and hereby requests—expedited appellate review.  

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This case presents precisely the sort of extraordinary circumstances that justify expedited consideration. The plaintiff is entitled by law to serve as Acting Director of the Consumer Financial Protection Bureau (CFPB). Defendant Donald J. Trump, however, has unlawfully purported to appoint Defendant John M. Mulvaney to that position. As a result, the plaintiff is suffering a continuing and manifestly irreparable injury: the usurpation of her position at the fore of a federal agency in a role that will disappear as soon as the President nominates and the Senate confirms a new Director. Moreover, there is an urgent public need for clarity as to the Acting Director position at the CFPB. The CFPB is the primary federal regulator of many consumer financial products and services, issuing rules and taking enforcement actions affecting a large portion of the economy. The dispute between the plaintiff, the President, and Mr. Mulvaney has generated substantial attention in the media, which has repeatedly noted the existence of public confusion over the CFPB’s leadership. Until the full judicial process has run its course, the Bureau’s employees, the companies it regulates, and millions of American consumers will continue to suffer under a cloud of disruptive legal uncertainty.

In light of these circumstances, the plaintiff respectfully requests that the Court of Appeals accord expedited treatment to this case.

insideARM Perspective

In my perspective last week I contemplated whether English would appeal, and said this,

Maybe. It seems to me, though, that as a practical matter, the time required for an appeal will approach (or even exceed) the period of Mulvaney’s acting directorship, which by law is capped at 210 days. (You may recall that oral arguments in the case of PHH Corp. v. Consumer Financial Protection Bureau took place on May 24, 2017; we still await a decision. And, another case still pending in the D.C. Court of Appeals, ACA International, et al. v. the Federal Communications Commission (FCC) and United States of America, saw oral arguments in October 2016; still no decision there either.)

Hence, her request for expedited treatment.

 

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BREAKING: Department of ED Completes Corrective Action in Debt Collection Contract

UPDATED 9:20am 1/12/2018: The following details about the award was published in a press release today by Performant Corporation:

According to the Department of Education, the total contract award amount for the base period and option period is not to exceed $400,000,000. The base period of performance for this contract is January 11, 2018 through January 10, 2023. The contract also includes a single, three (3) year Optional Ordering Period which is January 11, 2023 through January 10, 2026; a one year (1) Optional In-payment Retention Period, which is January 11, 2026 through January 10, 2027; and two 6 month Optional In-payment Retention Periods, which is January 11, 2027 through July 10, 2027 and July 11, 2027 through January 10, 2028.

One of the few publicly-traded companies in the ARM industry, Performant Corporation (PFMT) stock is up significantly since yesterday’s announcement.

Meanwhile, last night The Washington Post published an article that re-opened the matter of alleged ties between Education Secretary Betsy DeVos and Performant through a loan made to the firm several years ago by LMF WF Portfolio, a limited liability corporation in which DeVos was once an investor. insideARM wrote about this when it was first reported in January 2017, and also published a response from the company.

—–

This afternoon, as ordered last month by Judge Thomas Wheeler, the Department of Education (ED) completed the long-awaited corrective action for the Private Debt Collection Unrestricted Contract Award. According to several sources, letters have been sent to all offerors. ED has submitted the following to the U.S. Court of Claims:

On January 11, 2018, the Department of Education completed its corrective action. The Department evaluated revised proposals, prepared and documented a new source selection decision, and awarded contracts to Performant Recovery, Inc. and Windham Professionals, Inc., the two offerors whose proposals were determined to be the most advantageous to the Government. (emphasis added)

Also on January 11, 2018, the Department of Education issued notices of termination for the convenience of the Government of seven contracts issued on December 9, 2016 (The CBE Group, Inc., Financial Management Systems Investment Corporation, GC Services Limited Partnership, Premiere Credit of North America, LLC, Value Recovery Holdings, LLC, Windham Professionals, Inc., and Transworld Systems, Inc.).

Finally, the Department of Education is proceeding to send out the appropriate notifications to the unsuccessful offerors.

So what’s left:

  • The two firms that are operating under Award Term Extensions (ATEs) on April 28, 2017 — Alltran (formerly Enterprise Recovery Systems, Inc.) and Pioneer Credit Recovery.   
  • The small business contractors: Action Financial Services, Bass & Associates, Central Research, Coast Professional, Credit Adjustments, FH Cann & Associates, Immediate Credit Recovery, National Credit Services, Inc., National Recoveries, Professional Bureau of Collections of Maryland, and Reliant Capital Solutions
  • The two companies receiving the unrestricted contract award today, Performant Recovery and Windham Professionals.

You can download a copy of the notice to the court here.

insideARM Perspective

Wow. This is indeed surprising. Many of us thought that the corrective action would lead to more unrestricted contract awards, not fewer.

Well, the good news is that a decision has been made and accounts should now be able to flow without restriction. That’s good for borrowers, for the firms receiving the work, and likely for ED, which can now possibly move on with overseeing the servicing rather than focusing on the deciding of who will service.

Of course, those that had originally received the unrestricted award on December 9, 2016 but have now lost it are not going to be happy (no doubt the understatement of the year). These firms have invested heavily to remain prepared to service accounts; and they have invested heavily in the legal battle to protect their contract award.

And, there are those that invested heavily to (unsuccessfully) protest the December 9, 2016 award. Also not happy.

Will there be another round of lawsuits? Time will tell.

What will happen now will be a re-ramping up among the firms left standing to accept what will seem like a firehose of accounts. This process began among the small business contractors and those with the ATEs just before the holidays, as ED placed 930,000 accounts after a months-long temporary restraining order imposed by the original judge overseeing the protests.

Today’s decision lends additional certainty for the companies that came out of the melee with a contract, so actual planning for the future can begin. What we may also see is those who have a contract hiring those who don’t in order to manage the volume.

A new chapter begins.

Visit this page to see the complete coverage on insideARM of the Department of Education Private Collection Contract.  

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Alorica Financial Solutions Ignites With Appointment of New President

Jay King

IRVINE, Calif., – Alorica, a leading global platform generating 600 million customer interactions annually, today announced the appointment of Jay King as president of Alorica Financial Solutions, the company’s full-service credit risk and revenue recovery business. Going beyond receivables management, Alorica Financial Solutions delivers a full suite of customized financial care services ranging from first-party collections to automated credit risk control solutions that enable the world’s most valuable brands to boost revenue, reduce costs and enhance customer relationships. 

As president of Alorica Financial Solutions, King will lead global strategies that drive client satisfaction, revenue growth and the expansion of Alorica’s financial care, risk control, and receivables management products. The appointment of King supports Alorica’s accelerated expansion in the financial solutions marketplace in response to increased client demand. 

“Jay is a world-class financial solutions leader with deep revenue recovery, customer care and market-leading product development expertise,” said Chris Crowley, chief commercial officer at Alorica. “His successful track record of driving client satisfaction, revenue growth and global expansion strengthens our position as we grow our financial solutions offerings with existing and new clients. We’re pleased to welcome Jay to our leadership team.” 

Over the last three years, Alorica has grown its financial solutions business organically and through acquisitions. During this time, Alorica has strategically invested in attracting top talent, expanded its global delivery system, and integrated its advanced data analytics and CX intelligence capabilities to deliver best-in-class financial solutions. As a result, Alorica today is poised to deliver seamless credit and collection support services globally from operational locations in the United States, Latin America, Asia-Pacific and Europe. 

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“I’m very excited to join Alorica at this point in the company’s growth cycle to lead our financial solutions group,” said King. “We have an experienced leadership team who clearly understands this ever-changing industry and the importance of customer satisfaction. Alorica Financial Solutions is at the forefront of delivering a unique combination of scale and customized financial support services, and I couldn’t be more pleased to join this world-class team.” 

A seasoned and well-respected industry leader, King has served in a variety of leadership roles throughout his career, most recently as president of North America operations for Expert Global Solutions (EGS). Prior to that, King served as senior vice president of outsource operations for NCO Financial Systems, and he co-founded Total Outsource Systems, which specialized in credit and collections support services such as: credit extension, fraud prevention, first-party collections and customer engagement solutions. For more information, please link to Jay King’s Alorica profile here

About Alorica

At Alorica, we only do one thing — we make lives better. How? As the world’s leading platform for all customer interactions, we create insanely great experience for customers fueled by innovative technology, advanced data analytics, and CX intelligence. Utilizing insights from more than 600 million consumer interactions curated annually, Alorica is a systems integrator of choice to 25 of the Fortune 50 healthcare companies, six of the 10 largest financial institutions, four of the five largest telecommunications companies, and five of the largest retail companies. We call the OC home, headquartered in Irvine, Calif., with more than 100,000 employees in approximately 150 locations across 17 countries and 11 time zones around the globe. Alorica Financial Solutions is powered and performed by Alorica subsidiaries.

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Judge: Mulvaney Stays at CFPB; Denies English Request for Injunction

Yesterday Judge Timothy Kelly denied a second request to remove President Trump’s pick to lead the Consumer Financial Protection Bureau (CFPB) until a permanent replacement can be nominated and confirmed. The case is Leandra English v. Donald J. Trump et al. in the United States District Court for the District of Columbia.

You can read yesterday’s 46-page Memorandum and Order by Judge Kelly here.

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The first ruling was on November 28, 2017 when he denied Leandra English’s request for a restraining order to bar the President’s choice, Mick Mulvaney, from serving as the CFPB’s acting director.

The conflict kicked off on Friday of the Thanksgiving weekend last November, when then Director Richard Cordray announced it would be his last day, and that he was naming his chief of staff, Leandra English, as deputy director. Because of two conflicting laws governing how to fill the vacancy, many claimed it was unclear who was actually in charge. Mulvaney showed up with donuts on Monday following the holiday weekend and began work. Mulvaney quickly made it clear he intended to come to work until the President or a judge said otherwise. Indeed, this is what has happened. As insideARM has reported, quite a few actions have been taken — most notably, updating the officially stated mission of the CFPB. English has also reportedly been at work, but not in concert with Mulvaney. 

In yesterday’s ruling Judge Kelly addressed the legal standard required for a preliminary injunction to be granted. He cited: 

A preliminary injunction is “an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief.” To warrant a preliminary injunction, a plaintiff must establish that (1) she “is likely to succeed on the merits”; (2) she “is likely to suffer irreparable harm in the absence of preliminary relief”; (3) the “balance of equities” tips in her favor; and (4) “an injunction is in the public interest.” The last two factors “merge when the Government is the opposing party.” The plaintiff “bear[s] the burdens of production and persuasion” when moving for a preliminary injunction. (References omitted for readability)

He added,

…The purpose of a preliminary injunction “is merely to preserve the relative positions of the parties until a trial on the merits can be held.” When a plaintiff seeks an injunction that would alter the status quo rather than merely preserve it (i.e., a mandatory injunction), some district courts in this Circuit have applied an even higher standard.

Dismissing this, however, he stated that English could not meet the traditional standard, so the Court need not resolve this question of a higher standard.

Judge Kelly proceeded to dismiss all of English’s arguments in detail. The upshot is this:

The Court finds that English is not likely to succeed on the merits of her claims, nor is she likely to suffer irreparable harm absent the injunctive relief sought. Moreover, the balance of the equities and the public interest also weigh against granting the relief. Therefore, English has not met the exacting standard to obtain a preliminary injunction.

Legal and grammar geeks (like me) will enjoy the pivotal discussion of “shall” on pages 22-23 of the Memorandum. Kelly writes,

English’s displacement argument relies heavily on Dodd-Frank’s use of the word “shall.” She argues that this word is both “mandatory” and “unqualified,” and creates an unavoidable conflict between Dodd-Frank and the FVRA that must be resolved in favor of Dodd-Frank.

My personal favorite line is this borrowed quote:

Shall is, in short, a semantic mess…”

Shall is, in short, a semantic mess. Black’s Law Dictionary records five meanings for the word.” A. Scalia & B. Garner, Reading Law: The Interpretation of Legal Texts § 11, at 113 (2012) (emphasis in original) …This is why courts look to the entire statutory context to determine how to construe it [“shall”].

 Judge Kelly concludes with this,

There is little question that there is a public interest in clarity here, but it is hard to see how granting English an injunction would bring about more of it. …The President has designated Mulvaney the CFPB’s acting Director, the CFPB has recognized him as the acting Director, and it is operating with him as the acting Director. Granting English an injunction would not bring about more clarity; it would only serve to muddy the waters. Therefore, the balance of the equities and the public interest weigh against the injunction. …For all of the above reasons, English’s Motion for a Preliminary Injunction is DENIED.

insideARM Perspective

And so life continues. Will English appeal? Maybe. It seems to me, though, that as a practical matter, the time required for an appeal will approach (or even exceed) the period of Mulvaney’s acting directorship, which by law is capped at 210 days. (You may recall that oral arguments in the case of PHH Corp. v. Consumer Financial Protection Bureau took place on May 24, 2017; we still await a decision. And, another case still pending in the D.C. Court of Appeals, ACA International, et al. v. the Federal Communications Commission (FCC) and United States of America, saw oral arguments in October 2016; still no decision there either.)

Meanwhile, as reported by Breitbart News and the Credit Union Times earlier this week, Jeb Hensarling (R-Texas), the soon-to-retire House Financial Services Chairman, endorsed NCUA Chairman J. Mark McWatters to be the next CFPB director. Hensarling himself has been rumored to be on the short list for that job. 

As I’ve recently said, some have speculated that the leadership change at the CFPB might mean that debt collection rules will never see the light of day. I’m not so sure I agree with that. There has certainly been a delay. However if Mulvaney’s new mission to “identify and address outdated… regulations” applies to any industry, it is tailor-made for debt collection. With a law enacted in the 1970’s and a mass of conflicting court decisions, rules governing this industry need to be simpified, clarified, and modernized. 

2018 is going to be an interesting year, one way or the other.

 

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Debt Collection Activity Alone Does Not a Debt Collector Make, According to Northern District of Illinois

To paraphrase the FDCPA, a business satisfies the definition of “debt collector” if its primary purpose is the collection of debts or if it regularly collects debts owed to another.  While Henson v. Santander USA, Inc., 582 U.S. ___ (2017), already provided thorough analysis of the “regular collection of debt” prong of this definition, the U.S. Supreme Court intentionally declined to comment on the “primary purpose” prong. 

In a case decided earlier this week, that second prong is put to the test. Skinner v. LVNV Funding, LLC, 2018 WL 319320 (N.D. Ill. Jan. 8, 2018) does not unequivocally state what satisfies the “primary purpose” prong, but it does provide clear guidance about what does not.

You can read the Skinner decision here

Background 

Plaintiff, represented by attorney Celetha Chatman of Community Lawyers Group, Ltd., brought a claim under the FDCPA and the Illinois Collection Agency Act (“ICAA”), alleging that her credit report contained an incorrect account balance. Plaintiff filed a motion for summary judgment accompanied by a motion for the court to take judicial notice of a court docket listing hundreds of debt collection suits filed by LVNV Funding. LVNV Funding filed a cross-summary judgment motion in response, claiming that Plaintiff failed to meet her burden of proof to show that LVNV Funding meets the definition of debt collector. 

The Decision 

Judge Marvin E. Aspen granted Plaintiff’s motion for judicial notice of the court docket but otherwise sided with LVNV Funding. Summary judgment was entered for LVNV Funding based on Plaintiff’s procedural deficiencies alone, thus not needing to evaluate the merits of any alleged FDCPA or ICAA violation.  

Judge Aspen agreed with LVNV Funding that Plaintiff failed to meet her burden to show that LVNV Funding is a debt collector per the FDCPA. Since Henson v. Santander already concluded that debt buyers such as LVNV Funding do not fall under the “regular collection of debt” prong of the definition, the Skinner decision focused on the “primary purpose” prong.  

According to the decision, merely showing that an entity engages in the collection of debt is insufficient to show that this is the primary purpose of the business. Judge Aspen stated that without knowing the full extent of LVNV Funding’s business, it is impossible to determine what percentage of the business is dedicated to debt collection, and thus impossible to determine if the “primary purpose” of LVNV Funding’s business is debt collection. Judicial notice of the hundreds of collection suits filed by LVNV Funding does not satisfy this deficiency. 

After discarding the FDCPA claim, Judge Aspen similarly discards Plaintiff’s ICAA claim.  The decision finds that Plaintiff incorrectly filed a private cause of action under section 9(a), which only provides for a cause of action for Illinois’ Department of Financial and Professional Regulations. Plaintiff argued that an Illinois Court of Appeals decision supports her position. However, Judge Aspen noted that this decision is merely persuasive but does not bind the court since the Illinois Supreme Court is silent on the issue. 

Based on reasoning above, Judge Aspen denied Plaintiff’s motion for summary judgment and granted LVNV’s motion for summary judgment, effectively resolving the case in LVNV’s favor.

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5 Compliance Hot Spots to Consider when Choosing a Patient Finance Vendor

The healthcare provider community has been distracted from its central role of providing quality clinical care. Instead, providers and hospital financial executives are grappling with insurers under pressure, uncertainty about the future of Medicaid and healthcare policy, and the uneasy emergence of consumers as the third-largest payer of healthcare services.

Acknowledging the need to bridge the patient finance gap, more and more healthcare systems and physician practices are vetting patient finance and engagement partners. Finding patient finance partners that can help navigate the two most highly-regulated industries in America—healthcare and financial services—is a significant task. One criteria that should actually be front and center is the compliance function.

It’s not easy for providers to know how to evaluate vendors from a compliance and regulatory perspective. Since there is no abdicating compliance risk, the best approach is to find service providers who are capable of helping shoulder the load, and who are equally committed to helping patients get and keep access to the care they need, when they need it.

Revenue cycle leaders need to keep patients engaged, improve financial performance and simultaneously comply with a litany of laws and regulations. Where should one focus during the patient finance vendor RFP process?

Fluency in compliance

Providers may not realize that if they’re offering payment plans greater in term length than four months, the Consumer Financial Protection Bureau (CFPB) considers it a loan, even if the interest rate is 0%. The consumer protections governing these loans are robust, thanks in part to the hangover from the subprime lending fiasco, which caused regulators to paint all lenders with broad strokes. Vendors need to know the issues and how they apply to the revenue cycle. They should be expert in an exhaustive list of rules including (but not limited to) those set forth by the CFPB, the Truth in Lending Act, Gramm-Leach-Bliley Act, and a host of other protections, of course including HIPAA.

Charter check

Many healthcare providers don’t realize that the charters governing a finance vendor’s banking partners matter. Those vendors operating under a federal charter are governed by a higher standard than those operating under state charters. Not all state charters are as stringent, and a banking partner relationship does not necessarily mean rigorous risk management protocols are in place. Compare the protections of federal vs. state banking charters and consider the risk exposure of not engaging a vendor partnered with a bank operating under a federal charter.

Right-size investment in compliance oversight

What does a compliance-centered culture look like? Look for partners who:

    • have helped their clients develop a clear and updated credit policy—which is mandatory. Ask to see examples.
    • conduct non-discrimination testing and have a training protocol to make sure the guardrails are part of your standard front- and back-office operating procedure.
    • subject every single piece of marketing material (that a consumer would receive) about finance options to a rigorous compliance and regulatory overview before it’s used. Ask to see the criteria for the review process.

 

  • can operationalize compliance with a thick alphabet soup including, but not limited to: the CFPB, the Patriot Act, the FCRA, the Military Lending Act, the Service Member’s Civil Relief Act, spam regulations, and the list goes on. Ask prospective vendors: What specific laws and regulations are you screening for and how do you do it? The list should be long.

Relationship matters

Few would argue that offering patient finance options is supposed to bridge not just the affordability gap, but also the relationship gap between patient and provider. Since a great clinical experience can be ruined by the financial hangover, it’s especially important to engage vendors who keep the patient-provider relationship at the center of the patient experience. Beware the vendors who send, for example, statements with their own logos or their banking partner logos on their invoices, instead of the healthcare provider’s. It’s the patient-provider relationship that should stay in first place, assuage any worries and make the consumer feel valued and cared for. Look for vendors who will keep their provider clients’ brand identity and brand promise front and center.

Focus on patient engagement

If your patient finance partner is taking the right approach, they’re not calling patients to address an unpaid bill or a specific encounter. Instead, they call to keep patients feeling valued and cared for. They’re calling to talk about empowering patients to get care when they need it on an ongoing basis, and to offer a way to manage that ongoing empowerment with a revolving line of credit or another financial service. This is not volume work; this is quality work.

Bottom Line

As the self-pay crisis reaches the tipping point, there will be even more vendors in this space offering patient financing without the proper compliance and regulatory underpinnings. Conscientious partners will have protocols in place to ensure that consumers are treated fairly and providers aren’t overburdened by risk. Make sure you take the time to vet and engage a vendor who has ALL the appropriate compliance and regulatory mechanisms in place to protect consumers and providers alike.

Thanks goes to the executive leadership and compliance teams at CarePayment for their subject matter expertise on this article.

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Altus Completes Multiple SOC Certifications

NEW ORLEANS, La. — Altus Global Trade Solutions, an innovative account receivables management (ARM) firm, today announced that it has successfully completed the Service Organization Control (SOC) 1 Type II and SOC 2 Type II audits. These comprehensive certifications verify Altus’ commitment to uphold the strongest accounting and security protocols.

An independent licensed CPA and SOC audit specialist conducted the evaluation of Altus’ controls. SOC 1 certifies that a service organization’s controls are suitably designed and implemented in line with Federal regulations.

“Altus delivers trust based services to our clients, and by communicating the results of this audit, our clients can be confident of their reliance on Altus’ controls,” says Tom Brenan, IV, president Altus Global Trade Solutions. “As a globally recognized ARM firm, maintaining robust compliance operations is a core principle of our business.”

Specifically geared to technology companies, SOC 2 service auditor reports focus on a service organization’s non-financial reporting controls as they relate to security, availability, processing integrity, confidentiality, and privacy. This extensive reporting standard provides independent validation that Altus’ internal control environment operations in accordance with the American Institute of Certified Public Accountants (AICPA) trust services principles and criteria.

“Rightly so, companies are concerned with their security and data privacy,” says Bryan Clancy, executive vice president of sales at Altus, “SOC 2 Type II certification assures our client’s data is secured with a reputable firm who implements data privacy and security controls.  Receiving this from an independent specialist further solidifies Altus as a premier service organization.”

About Altus Global Trade Solutions

Altus Global Trade Solutions is an innovative account receivables management firm helping leading companies gain new levels of confidence and control over their credit to cash cycle. We combine the most advanced technology with the largest international network of trained, certified professionals to streamline first and third-party asset recovery at the highest levels of security and compliance.   Backed by our world-class ARM Managed Services Team, we gather and analyze rich insights and best practices at every step to continuously improve and enhance your entire receivables management process in ways you can see, feel and measure. For more information, visit www.trustaltus.com or connect with us on LinkedIn.

For more information, please contact Christina Reed at christinareed@trustaltus.com

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Judge Was Not Kind to Collection Agency Plaintiffs in RICO Case Decision

On Monday, a New Jersey District Court judge granted defendants’ motion to dismiss claims against them in the case of Winters, et al, v. Jones, et al,. You may recall this as the RICO case; insideARM first wrote about the lawsuit when it was filed in December 2016.

A copy of the judge’s Order can be found here.

A copy of the judge’s Opinion can be found here. The Opinion is not for publication.

Editor’s Note:  An unpublished opinion is a decision of a court that is not available for future citation as precedent because the court deems the case to have insufficient precedential value.

Background

A putative class action lawsuit was filed on Monday, December 5, 2016 against five New Jersey law firms alleging that the firms are running a “Mafia-style” racketeering operation that has been targeting ARM (Accounts Receivable Management) companies by filing spurious Fair Debt Collection Practices Act (FDCPA) class actions, initiated primarily to generate attorneys’ fees.

A copy of the original Complaint can be found here.

The Plaintiffs in the case are Jeffrey A. Winters (Winters) and Collection Solutions, Inc., (CSI) a New Jersey Corporation. Winters is the sole shareholder of CSI. CSI also operates under the trade name of United Credit Specialists (UCS). CSI and UCS are primarily engaged in debt collection services.

The named Defendants are:

  • Joseph K. Jones, Esq. (Jones), and Benjamin J. Wolf, Esq. (Wolf). They are attorneys licensed to practice in New Jersey, New York, and Connecticut, who practice as principal Members of Jones, Wolf & Kapasi, LLC (JWKLLC).
  • Laura S. Mann, Esq. (Mann). Mann is an attorney licensed in New Jersey and the principal of the Law Offices of Laura S. Mann, LLC (MannLLC)
  • Ari H. Marcus, Esq. (Marcus) and Yitzchak Zelman, Esq. (Zelman). Marcus and Selman are attorneys licensed to practice in New Jersey and New York and are the principals in Marcus & Zelman, LLC (MZLLC)

The complaint alleged that starting in 2013 and accelerating since, Defendants had schemed to operate a business plan (RICO Plan) in violation of 18 USCA §1961, et seq., the Federal RICO Statute (RICO), and the similar New Jersey RICO Statute, NJSA 2C:4 l-l, et seq. (NJRICO). 

A few examples of the alleged conduct include (see a more complete list in our December 2016 article):

  • Defendants avoid Small Claims Courts or unprofitable immediate payment of nominal claims without attorney’s fees, by filing spurious putative class actions in Federal Court en masse, on the theory that the vast majority of the relatively deep-pocketed defendants would view a quick settlement for under $100,000 as basically a nuisance claim; with the rare contested case only confirming to Defendants the practical advisability of settling early on a class basis.
  • Defendants search out, solicit, and develop professional Plaintiffs retained to pose as theoretical “least sophisticated consumers”; falsely imputing imaginary consequences and the requisite actual damages to those Plaintiffs, when any actual damages are likely prevented by consultation with referring attorneys or Defendants.
  • Defendants knowingly ignoring the almost universal absence of actual damages and lack of typicality, while falsely alleging the existence of certifiable plaintiff classes; all the while necessarily knowing that the alleged classes had little or no chance of being certified if there was any critical examination by the Court or adversary counsel of the propriety of certification.

Judge Vazquez’s Opinion

Judge John Michael Vazquez’s Opinion was in response to the motions to dismiss plaintiff’s amended complaint. The motions were considered and granted without oral argument. Judge Vazquez sated that the First Amended Complaint (FAC) “suffers from defective legal theories, both substantively and as pled. Moreover, Plaintiff’s factual allegations are severely lacking in light of the federal pleading requirements.”

Specifically,

The Court finds that the FAC fails to plead plausible factual allegations against Defendants. The FAC is riddled with factually unsupported accusations and wholly conclusory language. Besides inflammatory language and conclusory allegations (most notably “sham” litigation), Plaintiffs offer by way of “proof’ little more than print-outs from PACER reflecting cases that Defendants worked on. Plaintiffs claim that the following actions show a fraud of epic proportions: (1) filing a large number of cases, (2) settling a “majority” of those cases “relatively quickly”; (3) acting as co-counsel in several cases; (4) Jones and Mann conducting a legal seminar on the FDCPA; and (5) in two cases, Abranzov and Franco, Defendants using the same general format of pleadings and the same general theory of the case. None of these facts, individually or collectively, reflect any improper conduct nor can any reasonable inference of wrongdoing be drawn therefrom.

In his analysis, Judge Vazquez summarized two relevant doctrines, both used by the Defendants in their Motion to Dismiss. First, he raised the Noerr-Pennington Doctrine, which protects the First Amendment right to petition the Government for a redress of grievances. Basically, he says, this doctrine protects the Defendants’ right to bring the cases in question against Plaintiffs.

Second, he addressed the New Jersey Litigation Privilege (NJLP), which – according to New Jersey courts – “shields ‘any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action.’” (in other words, it provides immunity for defamation actions). While he goes on to note that the NJLP is not absolute, and remedies exist for a plaintiff to allege abuse of the judicial system, the Plaintiffs in this case did not attempt to use these remedies.

He stated that both of these doctrines on their own potentially preclude the current case…nonetheless he provided other reasons to dismiss the complaint as well. A few highlights follow that represent the pattern of the Judge’s Opinion.

As to the allegations of fraud, Judge Vazquez responds:

Plaintiffs have done little more than point the Court to PACER filings and assert in a conclusory fashion that these filings evidence fraud. Plaintiffs have failed to analyze any of Defendants’ filings to plausibly plead which were allegedly fraudulent and why they were so. Yet, even if Plaintiffs were able to plausibly set forth factual allegations, the underlying theory of wire fraud would not find legal support. Numerous courts have rejected the theory that the filing of complaints, along with other litigation activity, can be the basis of wire or mail fraud.

As to the allegations of obstruction of justice, Judge Vazquez responds:

Plaintiffs further allege that Defendants obstructed justice in violation of 1$ U.S.C. § 1503 as a predicate act. The FAC sets forth one paragraph to support this claim. In the first sentence, Plaintiffs state that Defendants obstructed justice “by virtue of using corrupt plaintiffs to file lawsuits in Federal Court primarily for the purpose of securing settlements inuring primarily for the benefit of Defendants.” Id. In the second sentence, Plaintiffs recite the elements of an obstruction of justice claim and perfunctorily state that Defendants’ actions fit these elements. These two sentences are merely conclusory and wholly insufficient to plead a plausible obstruction of justice claim.

As to the allegations of extortion, Judge Vazquez comments:

…Moreover, N.J.S.A. § 2C:20-5 provides that “[a] person is guilty of theft by extortion if he purposely and unlawfully obtains property of another by extortion.” Under the statute there are seven provisions (a-g) that list ways a person may commit extortion. Plaintiffs, however, do not specify which provision(s) they believe Defendants are liable under. Further, no provision appears to apply to Defendants’ alleged misconduct. The Court, therefore, is at a loss as to how Plaintiffs’ believe the facts of this case fit within the theft by extortion statute. It will not speculate. Plaintiffs have not provided sufficient facts to plausibly plead theft by extortion and the legal theory is suspect at best.

Similar to the pattern of responses above, Judge Vazquez found that Plaintiffs’ allegations of RICO, conspiracy, fraud, negligence, and legal malpractice were insufficiently pled; he proceeded to grant Defendants’ motions to dismiss.

The Judge left a small window for Plaintiffs to file a Second Amended Complaint, but added, “In light of the numerous factual and legal deficiencies, the Court has real concerns that any attempted amendment of the FAC would be futile.” He gave Defendants 30 days to file, but also noted that if they do so, “and Defendants to not believe that Plaintiffs have adequately addressed the numerous deficiencies in the FAC, Defendants can also file another motion for Rule 11 sanctions.”

insideARM Perspective

When this suit was first filed it generated quite a bit of chatter within the ARM industry.  The idea of an agency “fighting back” against perceived frivolous litigation was interesting. Still, most observers felt the litigation was a steep uphill climb.  Judge Vazquez has effectively thrown a very large bucket of ice cold water on the Plaintiffs.  The hill just got even more steep.

It is also interesting to note how difficult it has been for agencies to get sanctions against consumer plaintiff’s attorneys when they get frivolous cases dismissed. However now that the tables are turned, the judge clearly opened the door for sanctions against the agencies and their and the attorneys, should they choose to proceed.

Judge Was Not Kind to Collection Agency Plaintiffs in RICO Case Decision
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CFPB Bank Complaints Normalized; Such Analysis Eludes Debt Collectors

Some believe that under the Trump Administration, the Consumer Complaint Database maintained by the CFPB will be discontinued, or at least will no longer be published. In anticipation, LendEDU, a marketplace for personal and student loans, refinancing and consolidation, has produced an analysis of bank complaints from 2017 (data was pulled on December 13, 2017).

The analysis includes lists of:

  1. Banks with the most CFPB complaints per billions of dollars in deposits (all product/complaint types)
  2. Banks with the most banking-related CFPB complaints per billions of dollars in deposits
  3. Banks with no CFPB complaints

According to the LendEDU report, they analyzed 223,992 complaints for items 1 and 3, and 18,230 for item 2. All complaints in the study were received by the CFPB between January 1 and December 10, 2017. Deposit data was pulled from Marketwatch, and cross referenced with Yahoo’s Financial Data. 62 financial institutions were included in the analysis.

Item 1 (Banks with most CFPB complaints per billions in deposits) contains 49 entities; Item 2 (Banks with most banking-related complaints per billions in deposits) contains 48 entities. Here are the top 5 from each list. The full lists can be viewed here, on LendEDU.com.

Banks With the Most CFPB Complaints Per Billions of Dollars in Deposits

LendEDU-Table 1-News-1.8.2018

Banks With the Most Banking-Related CFPB Complaints Per Billions of Dollars in Deposits

LendEDU-Table 2-News-1.8.2018 

insideARM Perspective

From the perspective of the ARM industry, what’s really interesting here is that markets containing an abundance of large public companies have the ability to normalize complaint data. Debt collectors have complained for years about the unfairness of the way complaint data is made public, and in fact the way it is used by regulators to prioritize enforcement investigations. It is not hard to imagine why those with the highest volume might have the most (absolute number of) complaints.

In the spirit of adding context, although these charts represent banks with the most CFPB complaints, the numbers we’re talking about represent an incredibly low complaint rate. It’s unclear how many accounts are represented by $1 billion — no doubt this varies by bank based on their average balance; this would require further normalization. But for the sake of argument, let’s use an average account balance of $5,000. This means that there would be 200,000 accounts per billion dollars. Six complaints per billion dollars would then translate to a complaint rate of .003%. Pretty low by any standards.

Because the debt collection industry is comprised nearly 100% of small (extremely small, when compared with banks), privately-held companies, there is no readily available data for normalization; say, number or face value of accounts serviced, or revenue collected. This has put many companies at a disadvantage, especially because creditors (potential clients) have used the database as one way to vet current or potential service providers.

CFPB Bank Complaints Normalized; Such Analysis Eludes Debt Collectors
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Mulvaney Selects Chief of Staff; Lawmaker Pushes Controversy About English

On Friday House Financial Services Committee Chairman Jeb Hensarling (R-TX) announced that Kirsten Sutton Mork, the committee’s Staff Director, would be departing the committee to serve as Chief of Staff for the Consumer Financial Protection Bureau (CFPB). Hensarling said of Mork,

“As one of my longest-serving and most dedicated aides, Kirsten has been an indispensable advisor to me for the last nine years. Her leadership, deep understanding of financial policy and the legislative process, strength of character, and commitment to conservative principles have been vital to the great victories the committee has achieved for the American people during her tenure here. While I am sad to lose such exceptional talent, I know she will do an outstanding job as Chief of Staff for the CFPB and be a tireless advocate for American consumers.”

According to the announcement, Mork began her career as finance assistant for then-candidate Peter Roskam of Illinois during his 2006 campaign, later serving as a Legislative Assistant covering financial services issues for Congressman Roskam and then Congressman Tom Price from 2007-2009. Mork served in Hensarling’s personal office as Financial Services Policy Advisor and then Legislative Director from 2009-2013 before being appointed as the Financial Services Committee’s Deputy Staff Director in 2013. She has been Staff Director for the committee since early 2017.

This occurs amidst one lawmaker’s call for a probe into how Leandra English — who held the Chief of Staff position until mid-November of last year when she was promoted to Deputy Director by departing Director Cordray — got that job in the final days of the Obama Administration. 

On November 29, 2017, Sen. Ron Johnson (R-Wis) sent a letter to the Office of Personnel Management (OPM), outlining this:

From January 3, 2016, until January 7, 2017, Ms. English was a political appointee in the Obama Administration at OPM, working as the Principal Deputy Chief of Staff for the Office of the Director.  After receiving approval from OPM, Ms. English converted on January 8, 2017 from her political appointment at OPM into a career position at CFPB, a conversion that came with a salary increase of over $11,000.  Ms. English has not remained in the role for which OPM approved a conversion and instead was tapped by CFPB to play several different roles.  Ms. English’s first position at CFPB after her political conversion was as Chief of Staff for the Chief Operating Officer at CFPB.  From January 8, 2017 to November 24, 2017, however, Ms. English assumed different leadership roles at CFPB, including Chief of Staff for CFPB.  In summary, after the election of President Trump but before his inauguration, Ms. English successfully turned a political appointment by President Obama at OPM into a career position at the CFPB through the approval of the then-Acting Director of the OPM, to whom she served as the Principal Deputy Chief of Staff.

On Thursday of last week, Johnson escalated his concerns to the Office of Special Counsel:

“Based on the information that [the Office of Personnel Management] provided to the Committee, it may be appropriate for the Office of Special Counsel to review whether the conversion of Ms. English from a political appointment at OPM to a career position within CFPB adhered to the merit system principles.”

He referenced a process called “[burrowing], a practice in which a non-career, political appointee converts to a career position outside of competitive hiring processes.” He added,

“Burrowing threatens to undermine the merit-based principles that serve as the foundation of the civil service because it allows political staff to be favored over potentially more qualified candidates. The Office of Special Counsel is charged with investigating hiring decisions based on political affiliation, which is a violation of civil service laws. …According to information provided by OPM, it appears that OPM hastily approved Ms. English’s conversion in the waning days of the Obama Administration based on information that included errors, potential conflicts of interest, and insufficient independent verification.

…In reviewing the case file, [OPM’s Agency Compliance and Evaluation office] found two documents placed the position there [in the Office of the COO] in error rather than in the Office of the Director, which is the correct location of the position. While OPM asserted that the mistake “did not affect OPM’s substantive review and determination,” the documentation was subsequently demonstrated to contain errors. The CFPB only amended the paperwork after Ms. English’s appointment.

insideARM Perspective

Um. Isn’t the selection of Kirsten Sutten Mork for Chief of Staff pretty much the same thing as the 2016 appointment of Leandra English? It seems Mork’s entire career has been spent as a political appointee, and in fact her soon to be former boss has been named as a potential candidate to be the permanent CFPB Director. And, for that matter, wouldn’t it be fair to say that most of the senior CFPB roles had been filled by people who shared the same fundamental views about the mission of the Bureau as former Director Cordray?

I get that, technically, “burrowing” occurs when one’s political position is about to end and one takes a position that a civil servant usually would hold. So, English might be burrowing because her political position at OPM was ending in weeks (as Obama would be leaving office), while Mork technically would not be burrowing because her political position was/is not ending imminently. Perhaps as a technical matter, it is also relevant that English was a political SES (Senior Executive Service) at an agency while Mork was a political appointee on the Hill.    

Nonetheless, maybe it’s because I have never been a civil servant, but I am lost in the technicalities here. And from a practical standpoint, I wonder about the limited liklihood that – in Washington especially – one could identify enough senior people who are 100% free of political affiliation… Not so much because everyone is politically motivated, but because talented people find their way into a range of jobs over the course of a career. Must a political appointment disqualify someone from ever taking a civil service job in the future?

 

Mulvaney Selects Chief of Staff; Lawmaker Pushes Controversy About English
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