The Fair Debt Collection Practices Act (FDCPA) places a cap on class action damages. Specifically, class action damages cannot exceed the lesser of 1% of the defendant’s net worth or $500,000. On August 20, 2018, the Ninth Circuit reviewed a yet unaddressed question: which side bears the burden of proof to show a defendant’s net worth? According to Tourgeman v. Nelson & Kennard et al., Case No. 16-56190 (9th Cir. Aug. 20, 2018), this burden lies with the plaintiff.

Factual and Procedural Background

Appellant David Tourgeman incurred a debt with Dell Financial Services, who later sold the debt to Collins Financial Services. Collins then retained Nelson & Kennard to file a collection suit against appellant. Nelson & Kennard attempted to reach appellant by mail, but never received a response to their letter. The firm then filed a complaint with the court to collect on the account.

Appellant filed a putative class action complaint against Nelson & Kennard alleging that both the letter and the complaint violated the FDCPA. This matter bounced back and forth between the district court and the Ninth Circuit on questions of liability. Ultimately, the matter went to trial on two issues: class action damages and the bona fide error defense. Appellant, who was then the plaintiff, did not present any evidence regarding Nelson & Kennard’s net worth during the trial.

Appellant attempted to argue that Neslon & Kennard bore the burden of proof to show its net worth. Disagreeing with appellant, the district court found that the plaintiff in a FDCPA action bears this burden, a decision that appellant appealed.

The Decision

The Ninth Circuit agreed with the district court and concluded that the burden of proof to show a defendant’s net worth in the context of FDCPA class action damages rests with the plaintiff. In reaching this conclusion, the court looked at general principles of law and the language of the statute itself.

Generally, the judicial system imposes the burden of proof on the party seeking relief, which is the plaintiff. There are certain instances where the burden of proof shifts to the defendant, but that is generally limited to when the defendant wants to plead that an affirmative defense or exception applies to the case. The instant case does not fall within any of the latter categories , so the Ninth Circuit concluded that the burden rests with the plaintiff.

One other way that the burden of proof may shift is if the statute calls for it. Since the FDCPA caps class action damages at the lesser of 1% of net worth or $500,000, the court found that the statute “requires the factfinder to determine the defendant’s net worth in calculating statutory damages. In other words, Congress made evidence of the defendant’s net worth a prerequisite to establishing statutory damages.” The court went on to say that Congress would have written the statute differently if it intended the burden of proof to shift. For example, the statute wording would have been “$500,000 unless the defendant establishes…”

The court was unconvinced by appellant’s argument that Nelson & Kennard should have produced evidence regarding its net worth at trial because it has better access to that information. The court noted that plaintiffs’ attorneys have a fairly easy route to acquiring a debt collector’s financial information through different litigation discovery tools such as interrogatories and requests for production of documents. In this case, appellant received Nelson & Kennard’s financial information through discovery, so at the time trial went forward the information was already in appellant’s hand.

Based on the above, the Ninth Circuit concluded that the plaintiff bears the burden of proof to show a defendant’s net worth.

insideARM Perspective

The court’s decision here is well reasoned. If a plaintiff wants damages from a defendant, then it is the plaintiff’s job to prove both that defendant is liable and what amount of damages is appropriate. To require a defendant to prove how much the damages against him should be is like forcing him to walk himself down the plank.

One small portion of the court’s decision discusses how appellant attempted to argue that litigation costs would increase and discovery battles would be inevitable if the plaintiff bore the burden of proof to show a debt collector’s net worth, an argument the court denied. This observation stands out specifically because discovery was conducted in this case and the financial information was produced after the court entered a protective order. This allegedly burdensome work was already done and yet appellant still presented none of it at trial despite it being available.

On a procedural note, if defendant has a claim against plaintiff that arises from the same transaction or occurrence, then the courts require defendant to file what is called a counterclaim within the same action for the sake of judicial economy. In other words, the courts would prefer to address all issues in one court case than in multiple cases across their docket. If the defendant files a counterclaim, then he steps into the role of a plaintiff for those particular claims. An example in the debt collection context would be if a debt collector files a collection suit against a consumer and, within that suit, the consumer files a FDCPA counterclaim against the debt collector. In that situation, even though the consumer is a defendant within the suit, he steps into the role of a plaintiff for the FDCPA counterclaim and thus bear the burden of proof.

Editor’s Note: Quick access to the podcast here.

Well here it is, the podcast you’ve been waiting for.

YouMail’s “Robocall Index” is cited by everyone–and I mean everyone–as the source of data related to the purported uptick in “robocalls” since 2015. Here’s a short list of what “everyone” looks like (in no particular order):

• Business Insider
• USA Today
• The New York Times
• The Washington Post
• Forbes
• CNBC
• Gizmodo
• NBCNews.com
• Slate Magazine
• WIRED
• MarketWatch.com
• Money Magazine
• Arizona Daily Sun
• Casper Star Tribune
• Idaho Statesman
• Huffington Post
• Komando.com
• Bakersfieldnow.com
• WWBT NBC 12
• Fox 61 (CT)
• New Hampshire Business Review 
• RadioIowa
• 24/7 Wall Street

Each of these stories declares, in some form or fashion, that robocalls are on the rise. I cautioned a few weeks back that without knowing what the “robocall index” is actually tracking, however, these media outlets might be spreading “fake news.”  

More problematically, the NCLC and other “pro-consumer” groups have begun “unmasking” the numbers listed on YouMail’s “robocall index” and declaring that legitimate American businesses are to blame for the majority of robocalls plaguing the country. The NCLC even provided a chart to the FCC purporting to list the “Top 20” robocallers in the country–virtually all of them legitimate American businesses presumably making calls to reach their customers about existing accounts. Once again, however, without understanding what the “Robocall Index” is actually tracking, jumping to the conclusion that these calls are actually unwanted “robocalls” seems problematic–especially since the NCLC’s own FCC comment noted that a large percentage of the so-called “robocalls” were account reminders and other desired forms of contact. And ironically, as Numeracle’s CEO Rebekah Johnson told the Ramble podcast two weeks ago, mislabeling legitimate calls as robocalls or scam calls actually works profound anti-consumer effects. 

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All of this has led here. YouMail’s CEO Alex Quilici–who is nothing short of brilliant–agreed to sit down with the Czar and the team IN STUDIO in the Womble Bond Dickinson West Coast Podcast Studio and get to the bottom of this. He deftly and honestly discussed the methodology behind the “Robocall Index” including the various assumptions that go into compiling the index. As Mr Quilici explains, the index is actually an extrapolation of robocall volume based upon a set of data collected by the call-blocking app maker based upon its own customer’ experiences. In his revealing interview, Mr. Quilici confirms that the “robocall” index includes desired calls–including payment alerts and reminder messages–that are not commonly blocked by consumers. He also distanced himself and YouMail from third parties that rely on the “robocall index” to advance their own agendas.

Listen to the interview (found here) to learn:

• What does the robocall index really track?
• How can YouMail identify robocalls anyway?
• What assumptions are built in to the extrapolation?
• Are there any industry standards for what a robocall is and isn’t?
• Are there any industry standards for call blocking at all?
• What assumptions does YouMail make regarding the types of calls that consumers do and do not want?
• Does the robocall index include wanted calls, account alerts and other desired communications?
• What steps is YouMail taking to refine the robocall index to make it more accurate?
• Does YouMail stand behind the representations made by third parties respecting the identity of robocallers?
• Given the power that YouMail and other app manufacturers wield in determining whether or not consumers answer calls what steps does YouMail take to make sure it doesn’t inaccurately identify and block calls?

The interview is absolutely required listening for anyone relying on the robocall index and we’ll probably submit a transcript to the FCC for consideration.

Before we get to the interview, however, you’ll also enjoy the team breaking down the big TCPA news of the week, including the new Few case, a case about a cute little kitten, and the “big bust” FCC oversight hearing. (Sorry for the head fake on that one.) We also give Ocwen a round of applause for its big win in Keyes v. Ocwen Loan Servicing, No. 17-cv-11492, 2018 U.S. Dist. LEXIS 138445, at *15 (E.D. Mich. Aug. 16, 2018). The case finds that an Aspect predictive dialer system is not an ATDS as a matter of law. Now that’s big news!

Please enjoy.

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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.

Last week, insideARM published an article about a Northern District of Illinois case that barred a plaintiff’s attempt at claim splitting where a Fair Debt Collection Practices Act (FDCPA) claim involved two separate accounts but arose from the same set of facts against the same defendant. The issue of claim splitting came up again in the midwest, this time before the Seventh Circuit Court of Appeals.

On August 13, 2018, the opinion in Portalatin v. Blatt, Hasenmiller, Leibsker & Moore, LLC, Nos. 16-1578 and 17-3335 (7th Cir. Aug. 13, 2018) found that a plaintiff cannot recover for the same FDCPA claim against two separate defendants.

Factual and Procedural Background

Blatt, Hasenmiller, Leibsker & Moore, LLC (Blatt) filed a lawsuit against plaintiff to collect on a debt owed to Midland Funding, LLC (Midland) within the state circuit court — but not the same municipal district court — where plaintiff resides. After Blatt filed this suit, the Seventh Circuit published its opinion in Suesz v. Med-1 Solutions, 757 F.3d 636 (7th Cir. 2014) (insideARM previously published an article about the Suesz decision). In Suesz, the Seventh Circuit reversed its precedent and found that a debt collection action must be filed in the smallest venue available where the plaintiff resides. In the instant case, that means within the municipal district where plaintiff resides.

Blatt fixed this issue and refiled the case in the correct municipal district. Regardless, since the Seventh Circuit made its decision in Suesz retroactive, plaintiff sued Blatt and Midland for violating the FDCPA by not filing the collection action against plaintiff in the correct venue.

At some point, plaintiff settled the matter with Midland. The settlement agreement stated that it resolved all claims. Through a motion to dismiss and a later a motion to alter or amend the judgment entered against Blatt, both of which were denied by the district court, Blatt argued that plaintiff’s settlement with Midland made the FDCPA claim against Blatt moot. Blatt appealed these denials to the Seventh Circuit.

The Decision

The court, agreeing with Blatt, found that the claim against Blatt should have been dismissed by the district court. The court noted that the settlement agreement with Midland resolved all claims in the action, including the FDCPA claim against Blatt. Since plaintiff’s suit contained an additional non-FDCPA claim against Midland, the court briefly discussed whether a settlement can be apportioned between claims in such a way that a plaintiff still has a piece of the pie available against a second non-settling defendant. While the court noted that such a breakdown is allowed, it is not an issue here since the settlement agreement failed to provide any allocation for the settlement funds other than to resolve all claims.

The court also pointed to the text of the FDCPA where damages are limited to $1,000 on an individual basis per action, not per claim or per defendant. The court stated that Congress if congress intended FDCPA damages to be allowed in any other way, it would have explicitly stated so in the statute, citing as an example the Freedom of Access to Clinic Entrances Act. In the instant case, the claims against Midland and Blatt are indivisible — they pertain to the same set of facts and are the same FDCPA violation. Since plaintiff is only entitled to one FDCPA award per action and that award was accounted for in the settlement with Midland, the Seventh Circuit found that the district court should have dismissed the case and plaintiff should not have been awarded attorneys fees from Blatt.

insideARM Perspective

In the judicial context, damages are intended to make an injured plaintiff whole again — not better off than he or she was prior to the injury. Congress very clearly stated that as far as statutory damages are in play for the FDCPA, making plaintiff whole has a limit per action, not per claim or per defendant. The midwest appears to be a hotbed for FDCPA claim splitting, which attempts to make a plaintiff more than whole in regards to damages. The trend appears clear: one set of facts equals one FDCPA award. Since this is a Seventh Circuit decision, it will be binding precedent on the lower courts within the jurisdiction, which includes district courts in Illinois, Wisconsin, and Indiana. It can also be used as guidance to courts around the country if this issue pops up elsewhere.

CARROLLTON, Texas — The CMI Group organized a company-wide event, partnering with the Children’s Advocacy Center for Denton County’s (CACDC) Back to School Drive.

This year’s donation included 80 backpacks and countless wish list items that totaled more than $950.00 to the CACDC. “We are thrilled at the success of the back to school drive,” said Alma Rabago, Account Resolution & Office of the President Manager at The CMI Group. “Giving back to the community is important to us at CMI. We value the impact we can make as an organization, and we look forward to our next event!”

The Children’s Advocacy Center for Denton County is a non-profit agency that works with law enforcement, the District Attorney’s Office, Child Protective Services, and medical professionals on the
investigation and prosecution of severe child abuse cases in Denton County.

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About CMI

CMI is a 100% employee-owned, full-service receivable management firm providing leading-edge solutions to customers nationwide. Through its subsidiaries, CMI delivers innovative revenue cycle, accounts receivable management, and contact center solutions resulting in enhanced operational efficiency and increased revenue for its customers. Founded in 1985 and serving a multitude of industries, CMI has headquarters in Carrollton, Texas, with satellite offices in Dallas and Rochester, Minn. For more information, visit www.thecmigroup.com.

On August 23, the Senate Committee on Banking, Housing, and Urban Affairs will vote to determine whether Kathy Kraninger will become the next director of the Bureau of Consumer Financial Protection (BCFP or Bureau).

President Donald Trump announced Kraninger as his pick for lead role at the BCFP back in June. Kraninger underwent questioning at a Senate confirmation hearing in July, where she remained tight lipped for the most part. The confirmation hearing was followed by a some pointed written questions from Sen. Elizabeth Warren (D-MA). It is unknown whether those questions were answered or will be answered prior to Thursday’s vote. The vote, originally scheduled for early August, was postponed by the Committee just before a brief recess.

The commissioners from the Federal Communications Commission (FCC) appeared for a congressional oversight hearing today. The majority of the hearing revolved around net neutrality and the race to 5G, with the first (and very brief) mention of robocalls about an hour and a half into the hearing. As of hour two and a half, there was virtually no mention of the Telephone Consumer Protection Act (TCPA) by the Senators; Chairman Pai mentioned it only briefly.

Senator Ed Markey (D-MA) first raised the robocall issue, commenting that robocalls continue to be a concern that is “driving people crazy.” Sen. Markey asked the FCC’s Chairman Ajit Pai how the Commission intends to proceed to put protections in place.

Chairman Pai stated that the FCC is taking a two-pronged approach to deal with the robocall issue: regulation and enforcement. He briefly elaborated on the second prong, stating that the FCC is the number one consumer protection authority on the issue and has issued fines. Chairman Pai also stated that the FCC issued a public notice after the D.C. Circuit’s decision and is taking public input on how to proceed. insideARM previously wrote about the request for input.

Later in the hearing, Senator Richard Blumenthal (D-CT) brought up a piece of legislation he introduced titled Repeated Objectionable Bothering of Consumers on Phones Act (ROBOCOP Act), which addresses the issue of robocalls. Sen. Blumenthal sought the commission’s support of the act. Commissioner Rosenworcel stated her support; the other commissioners agreed to review the Act.

Senator Shelley Moore Capito (R-WV) asked whether the robocall issue was the same or different than the call spoofing issue. Chairman Pai confirmed that spoofing is indeed one of the most insideous parts of robocalling.

At the time this article was published, there were no other mentions of these issues.

insideARM Perspective

The FCC has certainly had a busy year, as was evident in this hearing. Previously, insideARM published articles about letters sent to Chairman Pai by a group of Democratic and a group of Republican senators. While issues related to the TCPA and robocalls is a focal point for the ARM industry, they are only some of many issues that the FCC is addressing. It is unfortunate that Chairman Pai did not comment further on the regulation prong of the issue.

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On July 23, 2018, the Bureau of Consumer Financial Protection (BCFP or Bureau) denied a petition to modify or set aside its second Civil Investigative Demand (CID) against Firstsource Advantage, LLC (Firstsource). Together, the petition and order comprise of 61 pages. Below are highlights of each.

The CIDs and the Petition

According to the redacted petition filed by Firstsource, the BCFP issued its first CID in April of 2017. Prior to receiving the first petition, Firstsource received ample communication from the BCFP in regards to what prompted the CID. The company states in its petition that, despite its belief there was no violation of the Fair Debt Collection Practices Act (FDCPA), it chose to be transparent with the BCFP and responded fully to the CID.

On September 28, 2017, the Bureau issued a second CID against Firstsource. Firstsource filed a petition to set aside or amend this second CID for several reasons, including:

1. There was no FDCPA violation and the documents received by the BCFP from the first CID supports this statement.
2. The second CID should be set aside because the BCFP had no justification for issuing it. Firstsource claims the Bureau failed to identify a reason to believe that the company violated the FDCPA in any capacity.
3. Firstsource called out the communication received from the BCFP regarding the first CID and that the CFPB provided no such communication prior to the second CID.

In the event the Bureau decided not to set aside the second CID, Firstsource argued that it should be modified. The company claimed that responding to the CID as currently written would be unduly burdensome as it would require manually reviewing hundreds of thousands of audio files. The petition also argued that the second CID targets certain accounts that are time barred by the FDCPA’s statute of limitations.

Firstsource also requested confidential treatment of its petition and the BCFP’s response thereto.

BCFP’s Order Denying Petition

The BCFP’s order, signed by Acting Director Mick Mulvaney, denied Firstsource’s petition in its entirety, except that it agreed to redact certain portions of the petition.

The Bureau refused to set aside the CID, stating that the standard for issuing a CID does not require a narrative or meaningful dialogue about the investigation. Instead, the BCFP found that it only needs to state the nature of the conduct constituting the violation, which it claims it did.

The BCFP also declined to modify the petition, largely relying on vague and procedural reasoning. The BCFP ruled that Firstsource’s statement that responding to the CID would require manual review of hundreds of thousands of audio files was not sufficiently specific to qualify as unduly burdensome. The Bureau also declined to modify the CID so that only a sample of call recordings would need to be produced because the request to do so was not timely submitted.

As for Firstsource’s argument that the CID requests information about accounts that are time-barred by the FDCPA’s statute of limitations, the Bureau responded that the order states the FDCPA was not the only statute being investigated — the BCFP was also looking into any potential violations of the Consumer Financial Protection Act (CFPA). The statute of limitations under the CFPA is three years from the time of discovery, not from the time the violation occurred. Since the Bureau has not yet discovered a violation, the statute of limitations has not yet been triggered, thus making it okay to request the information. The BCFP topped off this argument by stating that, “here, the Bureau seeks the recordings in question to determine (and discover) whether there has been a violation” — thus effectively triggering the statute of limitations if a violation is found.

insideARM Perspective

CIDs are generally confidential matters, but they may become public if a company chooses to challenge the demand for information, which is what occurred here. Due to this, companies likely weigh carefully their decisions to challenge CIDs in order to prevent needlessly publicizing that they are in the BCFP’s crosshairs.

Responding to CIDs is a burdensome process; to have to do it twice in a row is even more so. As this is the second CID issued against Firstsource in a short amount of time, it is interesting that the BCFP would deny some requests on procedural and somewhat vague grounds. Denying the request to provide samples of recordings due to the timing of the request falls flat on an informed reader. It is also hard to imagine how listening to hundreds of thousands of audio files does not qualify as an unduly burdensome request when such a task would require significant manpower to complete.

With that said, the most interesting portion of the order is the discussion on the statute of limitations. If the statute of limitations does not begin to run until a violation is discovered and the BCFP has the ability to issue CIDs with no time limit in order to discover such violations, which would then trigger the statute of limitations once discovered, then it seems that liability is open ended…forever?

As we reported a couple weeks back, U.S. Sen. John Thune (R-S.D.) submitted a letter to FCC Chairman Ajit Pai–signed by several other Republican Senators– urging a rollback of the Commission’s broad reading of the Telephone Consumer Protection Act (TCPA) following ACA Int’l. 

Senator Thune is not just any old senator however. He is the chairman of the Senate Committee on Commerce, Science, and Transportation and, in that capacity, he has convened a hearing titled “Oversight of the Federal Communications Commission (FCC)” and asked (ordered?) the Commissioners to have a word about, inter alia, the TCPA. In other words, it seems the FCC’s Commissioners just got called to the principle’s office.

The hearing is to take place on August 16, 2018 and will allow the “Senators the opportunity to ask commissioners questions about topics of critical importance to their states and constituents” including–not surprisingly– the FCC’s efforts to “combat[] robocalls.”  Notably, all four of the sitting Commissioners are scheduled to attend. Video of the hearing will be available here, and you better believe we’ll be watching.

It’ll be interesting to see what questions the Committee members have for the Chairman and the remaining Commissioners. We’ll be paying especially close attention for any comment regarding the possible timing for a ruling on the Public Notice. Expect a swift report from TCPAland.com after the hearing. More to come…

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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.

The Federal Reserve Bank of New York (New York Fed) recently released its Quarterly Report on Household Debt and Credit. In addition to showing the breakdown of credit origination and delinquency by type of debt, the report points to something interesting: a sharp incline of accounts closing on credit reports and a decrease in the number of consumer credit accounts appearing on credit reports. Specifically, accounts closing increased by 9.7% since the first quarter of 2018.

According to the New York Fed, this change is due to the new National Consumer Assistance Plan (NCAP) which began its rolling implementation in mid-2016 and was fully implemented by late 2017. The NCAP, as discussed in a previously-published article by insideARM, sets additional rules regarding what can be reported and what information is needed prior to reporting an account. For example, collection agencies were advised not to report debts that did not arise from a contract or agreement to pay and not to report medical debt that is less than 180 days old.

This decline in reported collection accounts is likely temporary. According to the New York Fed, once collection agencies accustom themselves to the NCAP requirements, the number of reported accounts in collections is likely to increase from its current point.

The New York Fed accompanied this report with a blog post that discussed NCAP’s impact on consumers’ credit scores. Roughly 18% of consumers saw their credit score increase by over 30 points and 20% of consumers saw their credit score decrease, which, according to the New York Fed, is likely attributed to other negative aspects of the consumer’s credit file. The majority of consumers saw only a slight increase in their credit score.

insideARM Perspective

As the New York Fed pointed out, the sharp decline in reported collection accounts is not surprising considering the implementation of the NCAP. Agencies that credit report dedicate a fair portion of their resources to ensure the process is accurate and runs smoothly. Any time compliance requirements are changed, it takes some time to adjust to the new directions. Agencies with more resources or smaller inventory may be able to pivot quickly, while others may need to put a pause on credit reporting until they can ensure they comply with the new requirements. Once agencies catch up, the number is likely to rise again. However, due to the new restrictions on the type of accounts that may be reported and when, the number is unlikely to stabilize at its former rate from a time when such restrictions were not in place.

DALLAS, Texas — SWC Group launched a second-quarter charity food drive for Metrocret Services and the Coast Bend Food Bank. During this time, SWC Management staff placed team donation boxes throughout their Texas offices in Carrollton and Corpus Christi for employees to submit food donations. Employees also donated money in exchange for the chance to wear jeans throughout the work week. The two offices compiled eight boxes of food products and raised nearly $1,200 in donations.

 “Metrocrest Services and the Coastal Bend Food Bank do great work to help feed and serve our local communities. We are honored to assist them and the families they support with our donations. SWC is thankful for the opportunity to aid those families in need,” says Jeff Hurt, CEO. “We look forward to continued involvement.”

About SWC Group

SWC Group is one of the nation’s leading providers of accounts receivable management and customer service solutions. They bring over 40 years of proven experience in the government, tolling, utility, telecommunications, cable, property management, and education industries. SWC Group annually manages billions of dollars in receivable accounts, proudly serving organtiations of all sizes from Fortune 500 private firms to small public agencies. 

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