The Bad Reyes saga just keeps on getting worse for TCPA defendants.

In a decision entered today, the Court has found that the Defendant waived its one-way intervention protections by doing nothing more than failing to alert the Court of its right to be free from pre-certification substantive rulings. See  Reyes v. BCA Fin. Services, Case No. 16-24077, 2018 U.S. Dist. Lexis 176628 (S.D. Fl. Oct. 15, 2018).  In other words, the Court has found that a TCPA defendant must affirmatively assert one-way intervention protections in order to preserve them.  The ruling can be found here: Reyes One Way Intervention Ruling

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The Reyes story began back in May, 2018 when the Court issued its first critical ruling in Reyes v. Bca Fin. Servs., Case No. 16-24077-CIV-GOODMAN, 2018 U.S. Dist. LEXIS 80690 (May 14, 2018 S.D. Fl.), a case that would forever become known in TCPAland as “Bad Reyes.”  In that decision, the Court entered summary judgment on behalf of Plaintiff finding that  ACA Int’l had not overturned the 2003 and 2008 Predictive Dialer Rulings, becoming the first case in the country to so hold.

But fate had so much more in store for this case.

In June, the Court rejected the Defendant’s bid to take an interlocutory appeal of the summary judgment ruling concluding that there was not a “substantial ground for difference of opinion” on the issue of whether or not ACA Int’l set aside the FCC’s predictive dialer rulings. (Since then numerous courts have held that the rulings were set aside–including courts within the Eleventh Circuit and including the only Circuit Court of Appeal decision to consider the issue to date.)

And then things really went off the rails for Defendant when the court subsequently certified a massive wrong number class action in Bad Reyes. Reyes v. BCA Fin. Servs., No. 16-24077-CIV, 2018 U.S. Dist. LEXIS 106449 (S.D. Fla. June 26, 2018).

Interestingly, however, the entry of certification after summary judgment in favor of the Plaintiff seems to have violated the decades old rule protecting defendants from one way intervention. As I’ve written previously:

“The one-way intervention doctrine dates back to the U.S. Supreme Court holding in Am. Pipe & Constr. Co. v. Utah, 414 U.S. 538, 547, 94 S.Ct. 756, 763, 38 L.Ed.2d 713 (1974).  There the Court held, inter alia, that substantive merits issues cannot be addressed in dispositive fashion in a putative class action before certification issues are decided. Otherwise class members can benefit from awaiting the outcome of the dispositive motion–losing nothing if the class representative’s position is rejected and then leaping to join the class if the dispositive motion is decided in their favor. That would be unfair and, as the Supreme Court pointed out in Am. Pipe, the amended rules do not allow for such nonsense:

A recurrent source of abuse under the former Rule lay in the potential that members of the claimed class could in some situations await developments in the trial or even final judgment on the merits in order to determine whether participation would be favorable to their interests. If the evidence at the trial made their prospective position as actual class members appear weak, or if a judgment precluded the possibility of a favorable determination, such putative members of the class who chose not to intervene or join as parties would not be bound by the judgment. This situation—the potential for so-called ‘one-way intervention’—aroused considerable criticism upon the ground that it was unfair to allow members of a class to benefit from a favorable judgment without subjecting themselves to the binding effect of an unfavorable one. The 1966 amendments were designed, in part, specifically to mend this perceived defect in the former Rule and to assure that members of the class would be identified before trial on the merits and would be bound by all subsequent orders and judgments.

Am. Pipe & Constr. Co. v. Utah, 414 U.S. at 547.

As a result, class action practitioners know well to never file a dispositive motion pre-certification–at least not one that effects the claims of the class as a whole. Putative class counsel will not file such motions because doing so likely waives their clients’ right to subsequently seek certification. Defendant’s counsel will not do so because filing such a motion would likely be deemed a waiver of the rule against one-way intervention (i.e. an invitation to the Court to rule on the substantive issue pre-certification).”

Undeterred by the apparent violation of their one-way intervention protections, the intrepid Reyes defendant swiftly brought a motion for reconsideration asking the court to reconsider the certification ruling in light of its previous grant of summary judgment on the ATDS issue in favor of the Plaintiff. Despite its timely effort to assert the procedural abnormality, the Court has now rejected Defendant’s one-way intervention argument concluding that it had been waived.

In reaching that conclusion, the the Court first noted that parties have the responsibility to bring such arguments to a court’s attention and cannot merely expect the court to know the law. The Court argues that the failure to raise one way intervention effectuates a waiver because if “‘the law is the law and the Court knows the law,’ then the legal concept of waiver would be a nullity.” Reyes at *8.

Notably, of course, waiver is most often implied where a party takes an affirmative act contrary to a position later taken in litigation, so its not technically true that the legal doctrine of “waiver” would be rendered a “nullity” if parties were allowed to assume that courts will not act directly contrary to their rights. Nonetheless, the question of who has the responsibility to make sure the one way intervention doctrine is not violated is an interesting one.  As the Supreme Court notes, Rule 23 was amended to assure that “members of the class would be identified before trial on the merits and would be bound by all subsequent orders and judgments….” Am. Pipe & Constr. Co. v. Utah, 414 U.S. at 547. That seems to be an edict that is stern and rigid and not subject to an easy inference of waiver by a party that simply assumed the proceeding would not violate the Rules.

Then again, the Court has a very valid point vis “it is not the Court’s job to advance arguments on behalf of the parties.” So perhaps the issue is whether the protections against one way intervention are mere “arguments”–which are commonly waived when not asserted by parties in litigation– or are they affirmative rights that cannot be lightly waived absent knowing and voluntary conduct?  The Reyes court certainly views matters through the former lens–  “when a party waits until reconsideration to raise a new argument, the argument is considered waived” Reyes at *7–but one could certainly adopt the later position and still be of reasonable mind in my view.

But there is more to this story anyway.

The Reyes court also holds that it has the discretion to rule on a summary judgment motion pre-certification, one-way intervention be darned. See Reyes at *10, citing Kehoe v. Fid. Fed.Bank & Tr., 421 F.3d 1209, 1211 (11th Cir. 2005).  This is a pretty aggressive position considering–as the Reyes Court readily admits–Kehoe dealt with a defendant’s summary judgment motion. So while a defendant may choose to risk waiving the protections of one-way intervention by seeking its own ruling on a class-wide substantive issue pre-certification, that doesn’t seem to make it ok for a plaintiff to run roughshod over those protections unilaterally–which is what happened in Reyes. But Reyes reads Kehoe very broadly and apparently for the proposition that a court always has the discretion to rule on any summary judgment motion pre-certification, a determination that seems to grant district courts the discretion to will away one-way intervention altogether. Reyes buttresses this finding by noting that the Eleventh Circuit has previously reversed denial of certification in at least one case where a Plaintiff’s motion for summary judgment had already been granted. See Reyes at *11, citing Dickens v. GC Services Limited Partnership. 706 F.App’x 529 (11th CVir. 2017). While it naturally follows that such a ruling would necessarily violate the one-way intervention protections afforded to the Defendant, it doesn’t seem to follow that the Eleventh Circuit intentionally disregarded the rule since Dickens does not mention one-way intervention at all.  And Dickens certainly does not hold that district courts are free to disregard Am. Pipe & Constr. Co. v. Utah, even if it (the Eleventh Circuit panel) did so.

There is one final and interesting wrinkle to the latest Reyes ruling.  The Court finds that, as a threshold matter, the grant of summary judgment in favor of the Plaintiff on the issue of whether or not Defendant’s dialer is an ATDS is not necessarily a substantive ruling applicable to the entire class. But the class definition includes calls made by Defendant “using computer assisted dialing technology manufactured or designed by Noble” and the MSJ found “that the Noble predictive dialer, as used by BCA Financial, was an ATDS as a matter of law.” See Reyes, 2018 U.S. Dist. Lexis 80690 at *37. So maybe there’s some daylight between the class definition and the reach of the summary judgment ruling but its tough to say that the ruling won’t be dispositive as to some large portion of the class, which seems sufficient to trigger one-way intervention concerns.

This last piece of Reyes is also curious considering footnote one of the original Reyes ruling, which reads: “Moreover, it [the MSJ] concerns threshold issues that may impact the class, if it is certified. Therefore, the Court deems it prudent to rule on the summary judgment motion first.” Reyes , 2018 U.S. Dist. Lexis 80690 at *6, fn 1. So the driving impetus behind the Court granting summary judgment before certification in the first place was the Court’s belief that the ruling would have classwide impact. But the Court now finds that the ruling did not violate one way intervention because the ruling may not have such impact after all.

At bottom, the Reyes court stands as a stern reminder to defendants to be ever-vigilant in asserting one-way intervention protections. Assuming Reyes is correct that one-way intervention protections are discretionary to some degree, defendants will be much better served by asserting their rights early in a proceeding. As you might expect, a court is unlikely to reverse itself after it has put in the hard work of considering a beefy certification motion and ruling on it. So asserting the issue as soon as it becomes apparent will save the court time and might just prevent a wayward certification ruling after the class members have already had a peek at the merits of their claim.

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Editor’s note: This article is provided through a partnership between insideARM and Womble Bond Dickinson. WBD powers our TCPA case law chart and provides a steady stream of their timely, insightful and entertaining take on this ever-evolving, never-a-dull-moment topic. WBD – and all insideARM articles – are protected by copyright. All rights are reserved.

In a September 30, 2018 decision, the Eastern District of Wisconsin found that there is no specific labelling requirement in the Fair Debt Collection Practices Act (FDCPA) for identifying the creditor and found nothing wrong with listing both PayPal Credit and Comenity Capital Bank in a collection letter in Smith v. Simm Associates, Inc., No. 17-cv-769 (E.D. Wisc. Sept. 30, 2018).

Factual and Procedural Background

Simm Associates, Inc. (Simm) sent a debt collection letter to plaintiff notifying her of an outstanding debt. The letter identifies PayPal Credit as Simm’s client and Comenity Capital Bank (Comenity) as the “Original Creditor.” As stated in the decision, “Comenity Capital Bank is the actual creditor, [but] the bank holds itself out as PayPal Credit in its transactions with consumers and thus would be more familiar with the PayPal name.”

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Plaintiff filed a two-pronged FDCPA lawsuit against Simm alleging that: (1) Simm failed to list the current creditor since it identified Comenity as the “original creditor” and (2) that the letter was false, deceptive, or misleading.

After the court granted class certification, the parties filed cross motions for summary judgment.

The Decision

The court found that Simm’s letter stated the creditor information “clearly enough that the recipient is likely to understand it.” (Internal citation omitted.)

The court agreed with Simm that the FDCPA does not require that the letter explicitly include the label “current creditor.” According to the court, it was clear from the letter that Comenity is the entity to whom the debt was owed.

The court also found no issue with the letter listing both Comenity and PayPal Credit. The court cited and agreed with the reasoning of another case against Simm containing similar allegations: Maximiliano v. Simm Associates, Inc., No. 17-CV-80341 (S.D. Fla. Feb 8, 2018).

The court summarized the Maximiliano decision as follows:

The Maximiliano court found that Simm’s demand letter left “no room for confusion in the eyes of the least sophisticated consumer.” It reasoned that by disclosing PayPal Credit as Simm’s client, Comenity as the original creditor, the amount of the debt, and the PayPal Credit account number, Simm’s letter allowed a consumer to easily identify the nature of the debt. The court therefore held that the letter, read in whole, properly identified the current creditor because the “least sophisticated consumer” is unlikely to know that Comenity is actually providing the credit line. The court concluded that “from the perspective of the least sophisticated consumer receiving the demand letter at issue, Simm identified the name under which Comenity transacted business with PayPal Credit account holders, such as Plaintiff.”

(Internal citations omitted.)

Persuaded by the Maximiliano ruling, the court granted summary judgment in favor of Simm.

insideARM Perspective

Debt collectors that collect on accounts that are owed to an entity that may not be as familiar to the consumer as another entity that the consumer regularly transacted with (for example, branded credit card accounts) might now have a little more guidance on how to proceed with identifying the creditor in collection letters. We now have two district courts from different parts of the country that found the value of helping the consumer recognize the debt by identifying the entity with which the consumer is familiar.

On a procedural note, this decision came after the court already certified the class in this suit. While class certification may be discouraging to an FDCPA defendant, this case illustrates that it is still worth fighting the case if the merits are strong.

Last week, four separate entities filed amicus briefs in the State National Bank of Big Spring v. Mnuchin, Case No. 18-5062, case before the U.S. Supreme Court this term. As previously reported by insideARM, this case questions the constitutionality of the Bureau of Consumer Financial Protection’s (BCFP or Bureau) structure due to the “for-cause” removal requirement of the Bureau’s director, the Bureau’s exemption from Congress’s power of the purse, and lack of internal checks and balances due to the Bureau’s single director structure.

All four petitions are filed in support of State National Bank of Big Spring, arguing that the Court should find the Bureau’s structure unconstitutional.

Buckeye Institute Brief

The Ohio-based think tank makes two main arguments. First, that the Bureau is almost completely insulated from oversight by the Executive and Legislative branches of government due to the “for-cause ” requirement for removing the director. Due to the 5 year term of the director, the brief points out that “a President could serve a full term without ever having any say in who runs this powerful agency.” The brief also calls out the Bureau’s bypass Congress’s power of the purse because it does not rely on the Legislative branch for funding.

One interesting argument in this brief is that it advocates for a state, rather than a national, solution. The Buckeye Institute states that the nation is large, diverse, and polarized and asks “[w]hy, then, do we try to resolve so many issues on a national level?”

Southeast Legal Foundation, National Federation of Independent Business Small Business Legal Center, and Cato Institute Brief

This brief argues that “Congress violated the separation of powers principle when it created the [BCFP] and gave the [BCFP]’s Director unilateral and unchecked power to legislate, execute, and adjudicate nineteen federal consumer protection statutes.” This brief points to an issue that the D.C. Circuit Court of Appeals summarily denied in its en banc rehearing of PHH v. Consumer Financial Protection Bureau: considerations of individual liberties. The brief argues that the separation of powers protects individual liberties and that the current structure of the Bureau does the opposite.

Landmark Legal Foundation Brief

This brief likewise finds that Congress violated the separation of powers with the creation of the BCFP. It discusses how executive power in the Bureau is not diffused with a multi-member commission. Instead, it rests solely in the hands of a single director who can be removed only for cause by the President. This brief, similar to the Southeast Legal Foundation’s brief, speaks to the Bureau’s exemption from Congress’s power of the purse by being allowed to set its own budget and draw funds directly from the Federal Reserve.

Pacific Legal Foundation Brief

What sets this brief apart from the others is that it references how the Bureau steps on the toes of the Judicial branch. This brief discusses all of the different hurdles a company must clear within the BCFP before it has a chance at judicial review of the matter. Even when a company finally gets its case before a court, the decision can only be reviewed under the “abuse of discretion” standard and the BCFP’s findings of fact are “all but unreviewable.”

This brief also calls out the Bureau’s ability to create regulations by enforcement. By using enforcement actions to establish new policies, the Bureau could “challenge conduct that was, prior to the enforcement action, perfectly legal.”

insideARM Perspective

While all four of these briefs show support a finding that the Bureau’s structure is unconstitutional, we will likely see briefs supporting the other side of the argument in the weeks to come. With Justice Kavanaugh now officially on the bench, who authored the dissenting opinion in the en banc review of PHH v. CFPB, we already know how at least one vote will go.

As it relates to the comments made in the Pacific Legal Foundation’s brief, Acting Director Mick Mulvaney stated that his hope was to provide clear regulatory rules and reduce regulation by enforcement. However, what the current director (or acting director) does is not indicative of what a future director could do. Bringing this issue to the Supreme Court’s attention is important as the court can clarify whether this type of action by the Bureau is constitutional.

The due date for the Bureau’s response in the Supreme Court case was moved from October 10, 2018 to November 9, 2018.

Collectors frequently point to contradictory language among the FDCPA and other statutes as proof that standardized debt collection rules are needed in this industry. However, even in an industry where consumer attorneys frequently make “creative” arguments, it is rare to see a claim that the FDCPA itself contains contradictory language. In a number of recent cases, consumer attorneys are arguing that the validation language from the statute – the same language collectors have been using since the FDCPA was enacted in 1977 — is now somehow unclear and confusing. Specifically, consumer attorneys argue that the first sentence of the validation notice (relating to disputes), which does not contain an “in writing” requirement, contradicts the second sentence of the notice, which does require a written request from the consumer to receive verification. Unfortunately, two Courts in New Jersey within the past year sided with the consumers in denying debt collectors’ motions to dismiss on this issue. Two more cases on the issue – on which the debt collectors prevailed – are pending before the Third Circuit Court of Appeals.

In this episode of the Debt Collection Drill podcast, Moss & Barnett attorneys John Rossman and Mike Poncin examine the recent cases alleging that the standard validation language violates the FDCPA and provide guidance for debt collectors seeking to avoid liability on this issue.

Listen here.

Marks? What’s Marks?

That’s the question TCPA litigants may be asking themselves after today’s big win by Defendants in Gary v. Gershwin A. Drain Trueblue, Case No. 17-cv-10544, 2018 U.S. Dist. LEXIS 175021 (E.D. Mich. Oct. 11, 2018). There the Court granted summary judgment to the defendants on the ground that the system used to send the challenged text messages did not have the capacity to randomly or sequentially generate numbers to dial. Thus the system was not an ATDS subject to the TCPA. And Marks was never mentioned.

Avid readers of TCPAland – and who isn’t? – will recall the Trueblue case from the Court’s earlier order denying summary judgment to the Plaintiff back in August. There the court held that the Plaintiff’s lack of  evidence respecting the defendants’ use of a random or sequential number generator precluded summary judgment to the Plaintiff. Not surprisingly given the earlier ruling, the Defendants then turned around and filed a summary judgment motion of their own arguing–not surprisingly given the earlier ruling–that the lack of random or sequential number generation justified judgment in their favor. The court–not surprisingly given the earlier ruling–agreed. Talk about completing a layup.

Trueblue II, as TCPAland is already calling the decision, tracks the reasoning of the original Trueblue decision and is equally favorable to defendants.

First, ACA Int’l overruled the 2003 and 2008 Predictive Dialer rulings:

In short, because of the D.C. Circuit’s holding in ACA International, this Court need not defer to the FCC’s understanding of the capacity and functions of an autodialer under the TCPA.

Trueblue II at *7-8.

Next, the Court finds that random or sequential number generation is required to make an ATDS an ATDS:

To qualify as an automated telephone dialing system under the TCPA, a piece of equipment must have the capacity to (1) store or produce telephone numbers to be called, using a random or sequential number generator, and (2) dial such numbers. 42 U.S.C. § 227(a)(1).

Trueblue II at *10.

And, finally, the Court finds that Defendants’ dialer did not generate numbers in random or sequential fashion:

Defendants have presented evidence that WorkAlert lacks the capability to randomly or sequentially dial or send text messages. Hence, even viewing all the evidence in a light most favorable to Plaintiff, no reasonable juror could decide in Plaintiff’s favor on this issue.

Trueblue II at *12.

Well there you go. Judgment for the defense.

But we have some bonus material to consider. Most importantly, the Court holds directly that the Defendants’ dialing systems are not an ATDS even if they operate automatically. (Where’s that finger-stroking-chin emoji thing found on the keyboard?)

Indeed, the Court absorbed the Plaintiff’s copious evidence respecting the automated nature of the Defendants’ system with good humor before casting it all aside with an icy one-liner:

But more to the point, the plain language of the TCPA does not prohibit the use of devices with automated functions

Trueblue II at *14.

So…yeah. Marks? What’s Marks? 

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Trueblue II is the first ATDS functionality test to be decided after the Marks decision and it is reMarksable(too much?) that the Court did not mention the Ninth Circuit Court of Appeal’s big ruling. Nonetheless, this is a huge win for defendants and an enduring reminder that most courts will read the TCPA’s statutory language to include, you know, the statutory language–including the requirement of the use of a random or sequential generator to qualify as an ATDS.

Someone let the FCC know ok? Comment period closes soon.

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Editor’s note: This article is provided through a partnership between insideARM and Womble Bond Dickinson. WBD powers our TCPA case law chart and provides a steady stream of their timely, insightful and entertaining take on this ever-evolving, never-a-dull-moment topic. WBD – and all insideARM articles – are protected by copyright. All rights are reserved.

Yesterday, a bipartisan coalition of 35 state attorneys general submitted a reply comment in response to a public notice issued by the Consumer and Governmental Affairs Bureau requesting comments on how the FCC can empower telephone providers to block illegal robocalls. The FCC last November released the 2017 Call Blocking Order and adopted a set of robocall rules that allowed telephone providers to proactively block calls from invalid and unassigned numbers – but the attorneys general state in their reply comment, that this hasn’t been enough to cure the problem. “By the end of this year, the industry expects a 33% increase…” they state.

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The attorneys general request that the FCC create a new rule that would specifically target neighborhood spoofing. The rule could help reduce the spoofed robocalls from numbers with the same area code as the consumer, or even calls from the consumer’s own number.

They inform the FCC that law enforcement alone will not solve the robocall problem in the country and that “despite the 2017 Call Blocking Order, which increased providers’ ability to illegally spoofed calls, the robocall problem appears to be getting worse.” The attorneys tell the FCC they would like to construct on the 2017 Call Blocking Order, permitting carriers to “use new technology to detect and block illegal spoofed calls.” ‘

Further, they state that the government and the telephone industry must work together to combat the pervasive robocall problem, given the ability of the robocallers to hide their identities and frustrate law enforcement with just a computer and internet connection. They request for increasing the collaboration among telephone providers and the government in an effort “to identify and implement new methods to combat the proliferation of these illegal acts. Also, we encourage the FCC to implement additional reforms, as necessary, to respond to technological advances that make illegal robocalls and illegal spoofing such a difficult problem to solve.”

“Only be working together, and utilizing every tool at our disposal, can we hope to eradicate this noxious intrusion on consumers’ lives”, they state.

As Eric has opined before, Congress needs to focus on the scammers and the 35 attorneys general agree – we need to work together to implement new solutions to combat these illegal actors. While the government may not be able to simply just ban all robocalls, hopefully this formal comment urges the FCC to further work with telephone providers to advance technology to help target unlawful robocalls.

insideARM Perspective

In addition to the  state attorneys’ general comment discussed above, several other entities submitted comments and replies to the FCC’s public notice. 

Consumer Advocates

A group of consumer advocates, including Consumer Union, NCLC, Consumer Action, Consumer Federation of America, NACA, and Public Citizen, submitted both a comment and reply. Their main push was for the FCC to not only focus its efforts on illegal robocalls, but to also focus on unwanted calls received by consumers. The group specificallys calls out calls from debt collectors as unwanted. Because of this, the group suggests an inclusive definition of “robocall.” 

The consumer advocates also recommend against creating a whitelist of numbers or sending call intercept messages. The group’s argument is that both of these efforts would provide a lot of information to bad actors, thus increasing the likelihood of spoofing.

The group’s reply discusses call labeling as it relates to debt collection and the FDCPA’s requirements.

Debt collectors have raised concerns that some call-flagging services that prominently label debt collection calls may create privacy concerns for the called parties. However, we do not agree that the Fair Debt Collection Practices Act (“FDCPA”) —which does not allow debt collectors to notify third parties that they are contacting the consumer—would make a collector liable for the consequences of a label someone else applied to their caller ID. However, the labeling can violate the privacy of the person called. Therefore, we urge the FCC to work with both the CFPB and call-labeling companies to find ways to accurately indicate to the consumer the identity of the caller without causing this breach of privacy to the consumer.

CTIA

CTIA, a group that represents the U.S. wireless communications industry, advocated for regulatory flexibility that would allow carriers to apply a holistic approach to stopping illegal robocalls. CTIA argues that inflexible rules and regulations would impact the carrier’s ability to continue finding for solutions in an ever-changing environment because of hurdles such as needing to divert resources to ensure compliance. CTIA also recommends a safe habor for carriers trying to solve for the illegal robocall issue. According to CTIA, carriers — unlike third party applications — have a very low rate of false positives.

Caller ID v. Call Labeling

Several comments from businesses recommended using caller ID instead of or, at the very least, in conjunction with call labeling. Consumers are unlikely to answer calls that contain spam or fraud anywhere in the label. Using caller ID would give the consumer more information about who is calling, thus enabling the consumer to make a better informed decision about whether or not to make the call. Silent in the comments, however, is a discussion about third party disclosure issues as they relate to caller ID that debt collectors face under the FDCPA.

Editor’s note: This article is provided through a partnership between insideARM and Womble Bond Dickinson. WBD powers our TCPA case law chart and provides a steady stream of their timely, insightful and entertaining take on this ever-evolving, never-a-dull-moment topic. WBD – and all insideARM articles – are protected by copyright. All rights are reserved.

UNIVERSITY PARK, Fla. — National Creditors Bar Association (NCBA) presented its 2018 awards and scholarships last week at the NCBA 2018 Fall Conference in Nashville.

President’s Award: Weltman, Weinberg & Reis, Co., LPA

President Yale Levy presented the 2018 President’s Award to the law firm Weltman, Weinberg & Reis, Co., LPA of Cleveland, Ohio. The NCBA President’s Award is given annually to an individual or a NCBA member firm who exhibits outstanding leadership for the benefit of the association. The service of this award’s recipient is of such a magnitude that NCBA may not have achieved its current level of excellence without their efforts. Past recipients include Nathan Willner, Steve Markoff, Yale Levy, Brent Yarborough, Harvey Sharinn, Adam Olshan, Tom Canary, Mike Buckles, Tomio Narita, June Coleman, Brenda Majewski, Alane Becket and Mark Groves.

Donald Kramer Award: Representatives Alex Mooney and Vicente Gonzalez

NCBA presented its 2018 Donald Kramer Award to U.S. Representatives Alex Mooney (R-WV) and Vicente Gonzalez (D-TX). The Donald Kramer Award, named in honor of NCBA founder Don Kramer, is presented to individuals whose efforts have made a substantial and lasting impact for the benefit of the creditors rights community.

Representatives Mooney and Gonzalez are the co-sponsors of H.R. 5082 – Practice of Law Technical Clarification Act of 2018.

NCBA Member of the Year Award: Manuel H. Newburger

National Creditors Bar Association (NCBA) presented the 2018 Member of the Year Award to Manuel H. Newburger with the law firm Barron & Newburger, P.C. of Austin, Texas. Mr. Newburger is the first recipient of the award, given to a NCBA Member who demonstrated extraordinary commitment to the NCBA vision.

Outstanding SCBA Award: Texas Creditors Bar Association

The 2018 Outstanding SCBA Award was presented to the Texas Creditors Bar Association. The award recognizes a state creditors bar association (SCBA) which has best demonstrated high-level activity in the legal community and NCBA, and which has overcome significant challenges.

Community Service Award: Bass & Associates, P.C.

The NCBA 2018 Community Service Award was presented to the law firm Bass & Associates, P.C. The award recognizes a NCBA member firm that has donated generously to the betterment of their community. Bass & Associates, P.C. organized the Irreverent Warriors Silkies Hike: 22 With 22 for the 22. In addition to the firm’s recognition, the recipient receives a check to the charity of their choice: Irreverent Warriors.

2018 Scholarships

The following scholarship recipients were formally announced at the NCBA 2018 Fall Conference in Nashville, Tennessee. In a tie for second place were Dakota West and Tiffany Price. Dakota West is from West Law Group, PLLC and is a Junior studying Mechanical Engineering at The University of Alabama. Tiffany Price is from Reimer Law Co. and is an undergraduate senior studying Psychology/Public Relations and Strategic Communication at Ashland University. Dakota and Tiffany each received a $1,000 scholarship.

The first place winner was Kain Maher from Becket & Lee.  Kain is a sophomore studying English education at Millersvile University. Kain received a $5,000 scholarship.

The NCBA Scholarship Program was established to promote financial literacy to our future leaders of our communities. This year’s applicants were asked to submit a video or essay on the topic “The Importance of Access to Credit – Dos and Don’ts to Establish and Maintain Good Credit”. The submissions were judged on originality, clarity and insight on the subject. Members of NCBA’s client community and the NCBA Awards and Scholarships Committee willingly served as judges this year.

ATLANTA, Ga. — Plaza Services, LLC is pleased to welcome Jason Rheaume as the company’s Vice President of Legal and Agency Management. Mr. Rheaume will be responsible for developing and managing Plaza Services’ attorney network as well as supporting both agency and overall inventory management.

Andrew Simpson, Chief Operating Officer, commented, “We are very excited to add Jason to our Plaza Services executive team. He is the ideal industry professional to give our company the solid foundation we need to expand into new products that have different servicing needs. His strong data analytics skills and deep knowledge of legal collection operations provide the perfect blend of expertise needed to build our legal network.”

Mr. Rheaume has 22 years of experience in the collections industry. Prior to joining Plaza Services, Mr. Rheaume was Director of Attorney Network Management with Galaxy Asset Management. Throughout his career, he has distinguished himself through achievements such as developing and managing multiple attorney networks, including networks focused on garnishment and judgment renewal processes, creating agency networks, managing company operations, and designing and implementing multiple proprietary processes to increase efficiency of data analyzation and organizational processes. Drawing on his extensive experience in all facets of legal collection operations, Mr. Rheaume will be instrumental to Plaza Services by leveraging his experience and industry relationships to build a model for long term success.

“I am thrilled to break new ground with Plaza Services,” says Jason Rheaume. “This is a tremendous opportunity to work alongside an exceptionally strong leadership team and to open a new channel of legal revenue for the company. I look forward to putting my experience and strong legal collection knowledge to work for our partnership. I aim to establish new tools, systems and processes for better decision making that will deliver exceptional performance while building a best-in-class legal network.”

While Mr. Rheaume’s primary objective is to build Plaza Services’ legal network, his responsibilities will also include the development and management of the company’s agency network. Mr. Rheaume and Plaza Services share the mutual goal of optimizing efficiency, maximizing performance, and expanding Plaza Services’ presence within the ARM industry.

About Plaza Services, LLC

Plaza Services, LLC is an accounts receivables portfolio firm committed to providing consumers a positive experience while providing creditors maximum value for receivables portfolios in a fully compliant manner. The Plaza Services team has developed proprietary tools and technology that affirm the company’s commitment to compliance and technology. Founded in 2013, Plaza Services is headquartered in Atlanta, Ga.

This week FMS Investment Corp. (FMS) filed a protest with the U.S. Government Accountability Office (GAO) regarding the terms of the Federal Student Aid (FSA) NextGen procurement (Solicitation 91003118R0024). In a saga that began in 2014, and has seen multiple rounds of protests and litigation come and go, I dub this the beginning of Chapter 5.

Briefly, here is how we moved through the first four chapters

1. Chapter 1 began in 2014 when the five-year 2009 ED contract for debt collectors ended. New small business contracts were awarded on schedule, but the large-firm contracts were delayed. More than 40 large collection agencies entered the two-phase process. After ED made its initial cut, formal protests were launched by some of the companies not making it to phase two. Generally, the protests challenged the selection criteria. Finally, in December 2016 contracts were awarded to seven large companies (down from 17 on the previous contract). This led to dozens of protests by firms that believed the process was flawed and unfair.
2. So began Chapter 2 of the matter, with a VERY LENGTHY “re-do” of the solicitation, which resulted in awards to just two large companies, in January 2018.
3. This led to Chapter 3, with more protests, more litigation, and finally… nothing. No large company awards at all. On May 3, 2018 ED cancelled the whole solicitation, rescinded the contract awards from the two companies, and re-called the accounts still being worked by the firms that had an Award Term Extention (ATE) from the previous contract. There were more protests, and a temporary injunction of the recall, but ultimately, the protests were dismissed, and the accounts were returned to ED, thus ending Chapter 3. 
4. …Which gave rise to Chapter 4 in June 2018, with eight companies protesting the cancellation of the solicitation, arguing that it was irrational. This chapter ended on Friday afternoon, September 14, 2018. Judge Wheeler ruled in favor of the PCAs, and permanently enjoined ED from cancelling the solicitation – at least based on the current Administrative Record.
5. Chapter 5 began this week, by jumping to a new protest over a different, initially unrelated but now apparently very related contract – the one for NextGen servicing. The same company that led the last round of litigation, FMS, has filed the first protest regarding Phase II of NextGen, claiming that ED has unfairly changed the nature of the Solicitation, and excluded PCAs from the ability to compete.

What’s NextGen?

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In August 2017 ED announced a “Next Generation Processing and Servicing” plan (NextGen) that would put all federal student loan servicers on a common technology platform with a single database in order to drastically improve customer support.

By February 2018, ED issued a Solicitation for Phase I of the project, including a diagram (you can see it in this story) showing that default servicing and recovery (including PCAs) are in the overall vision, but not part of the current Solicitation.

At the end of September 2018, ED announced it had completed Phase I, and had chosen a set of vendors who are eligible to participate in Phase II – which now clearly encompasses post-default servicing and collection activity.

What’s the protest about?

The 28-page protest goes into a lot of detail about the history of the PCA program and solicitation process summarized above. I won’t cover that again. What’s new are the following claims:

Fairness

• During the Chapter Four litigation, ED went out of its way to insist that Phase I of the NextGen procurement was about development of the online system for servicing, and that there was no target date yet for moving to the next phase; this decision would be made upon completion of Phase I.
• ED informed the Court of Federal Claims that loan servicing and default loan collection are two separate services, and Phase I of NextGen was only intended to cover loan servicing (as a result, PCAs did not submit bids in response to the Phase I Solicitation).
• ED’s own regulations for a two-phase procurement like NextGen require it to give reasonable and adequate notice of a procurement’s scope so potential offerors can decide whether to participate in the opportunity. While specific requirements may be refined during the second phase, those revisions cannot be outside the scope of the initial notice.
• On September 24, 2018 – ten days after the court ruled against ED in Chapter Four – ED issued an RFP for Phase II of NextGen, now appearing to include services for loans in default.
• However, it was too late for PCAs to respond because ED has limited Phase II bids only to those firms selected in Phase I.
• ED has not, and cannot articulate any reasonable justification for limiting the Phase II competition with these new default collection services requirements only to offerors who submitted proposals under a Phase I RFP that did not contemplate or include these requirements.

Also, improper bundling

• Notwithstanding the arguments above about the fairness of bundling two services (loan servicing and defaulted loan collections) that have never before been bundled, and without contemplating the bundling in Phase I – it is unclear that the bundling is even legal.
• Office of Management and Budget (OMB) Circular A-129 describes two separate regimes for loan servicing and debt collection.
• Federal law requires PCAs to be compensated through contingency fees. Loan servicing is paid for through Congressional appropriation.
• Bundling loan servicing and default collection services creates an internal conflict of interest for any awardee because there is a natural incentive to shift work to that service which provides the highest compensation structure.
• ED has not explained how these structural differences will be resolved.

What’s next?

FMS is requesting:

• A complete copy of the Phase I and Phase II RFPs, including all amendments and attachments (some of which were only available to participating offerors).
• All documents comprising the source selection plan and evaluation plan established for this procurement.
• All communications or documents relating to ED’s inclusion of default collection services within the NextGen procurement.
• A hearing pending further development of the record.
• A request for protective order to cover the proprietary and sensitive documents that will be produced as part of the protest.
• A GAO decision sustaining the protest and recommending that ED take corrective action to modify the RFP to remove default collection service, or if it does want to include default collection services, that ED cancel the RFP and issue a new solicitation for business operations process solutions and allow PCAs to submit proposals.

Continental Service Group (ConServe), which was the lead plaintiff in the early chapters of this saga, also filed a bid protest related to this Solicitation, on the same day as FMS.

insideARM Perspective

I suspect we will see more protests. Unlike the other chapters, which related only to procurement of unrestricted (large) PCA contractors, this affects all PCAs, including the small business contractors who are currently working to collect defaulted student loans for ED. Under the current circumstances, none of those firms would be allowed to bid on the NextGen work either.

Debt collectors, especially those dealing with high volumes of accounts, inevitably face the issue of a debtor having the same name as an unrelated third-party. The Fair Debt Collection Practices Act (FDCPA) provides a defense to a debt collector that unintentionally violates the statute despite having reasonable policies and procedures in place to prevent such violation. In Ali v. Portfolio Recovery Associates, LLC et al., No. 15-CV-6178 (N.D. Ill. Sept. 30, 2018), the Northern District of Illinois reviewed whether a debt collector was entitled to summary judgment on the bona fide error defense in a situation where it served a wrong party who had the same name as the consumer. While the court’s opinion dealt with several issues, this article will focus on the bona fide error defense.

Factual and Procedural Background

Portfolio Recovery Associates, LLC (PRA) purchased a debt that was owed by an individual named “Syed H. Ali” who was born in 1972, whose social security number ended in 8783, and who resided at an address in Moore, Texas.

While attempting to collect on this account, PRA sent collection letters to the Moore, Texas address that came with the account. The consumer never responded and none of the letters came back as undeliverable. Next, PRA attempted to send letters to a Houston, Texas address associated with the account. One of these letters came back to PRA with a note stating “MOVE, NO FORWARD.” Finally, PRA attempted to contact the consumer by sending letters to at an Aurora, Illinois address that it obtained through Experian and an internal legal resource. Once again, the consumer did not contact PRA nor were any of these letters returned.

PRA referred the account to its legal collections team. Prior to approving collections litigation, PRA’s attorneys reviewed the account to ensure that: the account was within the statute of limitations; the account was not disputed or in bankruptcy; the consumer is not a minor, over 65, or active duty military; and the account was not in an active pay status.

Once the account was approved, PRA’s attorneys commenced a collections lawsuit and attempted service on the consumer at the Aurora, Illinois address. After five unsuccessful attempts at service, the father of a minor with the same name — including middle initial — as the debtor (SHA) accepted service.

The father retained an attorney to represent SHA in the collections action. When the attorney contacted PRA’s counsel to discuss the lawsuit, it became evident that the lawsuit was filed against the incorrect person because the birth year and social security number did not match. The following day, PRA dismissed the collections lawsuit.

SHA’s parents filed an FDCPA lawsuit on his behalf against PRA for what occured. Both parties filed motions for summary judgment.

The Decision

While the court acknowledged that PRA had many procedures in place to ensure they were collecting from the correct person, it denied PRA’s motion for summary judgment on the issue.

Editor’s Note: Of importance here is the legal standard for granting a motion for summary judgment. The court will grant a summary judgment if the undisputed facts viewed in the light most favorable to the non-moving party show that the moving party is entitled to judgment as a matter of law. A denial of a summary judgment motion does not mean that the moving party lost the case; it simply means that there is some issue of fact that is disputed and is more appropriate to be reviewed in the context of a trial.

The underlying error, according to the court, was that PRA attempted collection efforts and “served the collections complaint at an address where another person bearing the same name (including middle initial) lived.”

The court acknowledged certains facts supporting that PRA “reasonably believed the [consumer] likely lived there and unintentionally violated [the] FDCPA when [it] sent the summons to the address in good faith.” The supporting facts include:

• PRA received the Aurora, Illinois address from multiple sources.
• PRA attempted to verify this address by placing calls and sending letters.
• The letters sent to the Aurora address were not returned as undeliverable.
• Nobody contacted PRA about not being the debtor until after the suit was filed.

The court also acknowledged that PRA presented evidence of procedures specifically intended to avoid suing and serving a person at the wrong address. These procedures included placing calls, sending letters, and reviewing accounts prior to commencing litigation.

However, even with all of the above, the court denied PRA’s motion for summary judgment because “the fact that another ‘Syed H. Ali’ lived at the same address associated with the Debtor raises a triable issue about whether the protocols in place were sufficiently construed to avoid incorrect service.”

insideARM Perspective

Considering the facts above, it is hard to imagine what else a debt collector can do to ensure they are communicating with the correct person when their efforts are met with radio silence. For a consumer that has an identical name as a third party, the best way to ensure that the debt collector is attempting to communicate with the right party is by verifying personal information such as date of birth or social security number — how is a debt collector to do that when none of their communication attempts are being answered?

This is a great example of how communicating with, rather than avoiding, a debt collector can be helpful. As soon as someone engaged with PRA — here, SHA’s attorney after the suit was filed — and verified that SHA was not the consumer that PRA was trying to reach, PRA dismissed the lawsuit. Had someone contacted and verified with PRA that it was attempting to reach the wrong person, the collections lawsuit could have been avoided altogether.