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Trump’s Financial Regulations Executive Order and the Future of the CFPB

February 14, 2017 in Articles, Consumer Financial Protection Bureau (CFPB), Financial Institutions

On February 3rd, President Trump signed an executive order, marking the President’s first official step towards his plan to scale back on financial regulations.  Presidential Executive Order on Core Principles for Regulating the United States Financial System, signed 3 Feb 2017.  The order directs the Secretary of the Treasury and the Financial Stability Oversight Council (FSOC) to conduct a comprehensive review of current financial industry rules and regulations, including a review of the Dodd-Frank Act of 2010, which, among other things, created the Consumer Financial Protection Bureau (CFPB).   Dodd-Frank Wall Street Reform and Consumer Protection Act, codified at 124 Stat. 1376 (2010).  This executive order jeopardizes the future of the Dodd-Frank Act and the CFPB.

The Dodd-Frank Act, a law enacted during the Obama administration in response to the 2008 financial crisis, increased the number of regulations in the financial services industry.   The Trump Administration has vocally opposed Dodd-Frank and the CFPB, criticizing that they fail to “address the causes of the financial crisis.”  Press Briefing by Press Secretary Sean Spicer (3 Feb 2017), available at https://www.whitehouse.gov/the-press-office/2017/02/03/press-briefing-press-secretary-sean-spicer-232017-8.  Press Secretary Sean Spicer called the Dodd-Frank Act a “disastrous policy” as he unveiled the executive order. Id.  The order directs the Secretary of the Treasury and the FSOC to identify rules and regulations that are a detriment to economic growth, and to report findings to the President within 120 days.

What does the Executive Order do?

While a complete overhaul of the financial regulatory system was a major campaign promise of Trump, the signed Executive Order does not offer much clarification on the Administration’s plan of attack.  Besides ordering a review of regulations, the order itself does not eliminate, suspend, or otherwise alter any current financial agency, rule, or regulation.  Rather, the order outlines seven broad “core principles” that create the guiding framework for the Administration’s attempt to restructure the financial regulatory system.

The seven “core principles” in the Executive Order mirrors language in the Financial CHOICE Act of 2016, a bill first introduced by chairman of the House Financial Services Committee, Rep. Jeb Hensarling (R-Texas), last September.  2016 H.R. 5983 (introduced 9 Sept 2016).  According to a recent Bloomberg report, Hensarling plans to reintroduce a version of this bill to the floor “as soon as this week.”  Steven T. Dennis and Elizabeth Dexheimer, Trump’s Dodd-Frank Do-Over Diverted to Slow Lane With Obamacare, Bloomberg Politics (7 Feb 2017), available at https://www.bloomberg.com/politics/articles/2017-02-07/trump-s-dodd-frank-do-over-diverted-to-slow-lane-with-obamacare.  This bill, if passed, would repeal key provisions of the Dodd-Frank Act—including the “Volcker Rule” (which restricts banks from making certain speculative investments) and the “Durbin Amendment” (which limits the fees that may be charged to retailers for debit card processing).  See the “Volcker Rule” at 12 U.S.C. § 1851 and the “Durbin Rule” at § 1075. 

The Future of the Consumer Financial Protection Bureau

The creation of the Consumer Financial Protection Bureau (CFPB) was one of the most contentious and widely debated reforms under the Dodd-Frank Act of 2010, and President Trump’s Executive Order has paved the way to dismantle the CFPB’s current structure and authority.  Congressional Republicans have plans in the works to convert the CFPB into an executive commission, with authority and structure similar to the Securities and Exchange Commission or the Commodity Futures Trading Commission.  Norbert Michel, The CFPB Is In The Crosshairs, Exactly Where It Belongs, Forbes, 24 Jan 2017, available at http://www.forbes.com/sites/norbertmichel/2017/01/24/the-cfpb-is-in-the-crosshairs-exactly-where-it-belongs/#4284afec4b2a.  For instance, under Rep. Hensarling’s CHOICE Act, the Consumer Financial Protection Act of 2010 would be amended by replacing the single CFPB director with a bipartisan commission.  As such, the CFPB would then be subject to the congressional appropriations process, expanded judicial review, and additional congressional oversight.  This would limit the CFPB’s authority to take action against entities for abusive practices.  See 2016 H.R. 5983.

Besides the legislature, the CFPB has been under attack in the judiciary as well.  In October 2016, the D.C. Circuit issued a unanimous decision in PHH Corp., et al. v Consumer Financial Protection Board,  831 F.3d 1, on petition for review of an order of the Consumer Financial Protection Bureau (2016), ruling that the CFPB’s single-director-removable-only-for-cause structure is unconstitutional.  The Court remedied this constitutional defect by eliminating the removal-only-for-cause provision from the Dodd-Frank Act.  Since this ruling, the director of the CFPB is now subject to the supervision by the President, and the President now has the power to terminate the director without cause.  Id.

Also at risk is the future of the current director of the CFPB, Richard Cordray.  Cordray, former Ohio Attorney General, has eighteen months left on his term as director, but the likelihood of him completing this term is not assuring.  While Trump’s aides have not stated a desire to fire Cordray, Republicans have been vocally calling for the President to fire the director. Just this week, Sen. Ben Sasse called for the firing of Cordray, and openly criticized the CFPB for “snowballing power into one big, unaccountable bureaucracy.”  Ben Sasse, Op-Ed in USA Today, Sen. Sasse: Fire Richard Cordray, (7 Feb 2017) available at http://www.usatoday.com/story/opinion/2017/02/07/time-fire-richard-cordray/97607116/.  House Financial Services Chairman Jeb Hensarling also called on Trump to “move quickly” and fire Cordray.  Gregory Roberts, Trump Should Fire CFPB’s Cordray, Hensarling Says, Bloomberg BNA, 8 Feb 2017, available at https://www.bna.com/trump-fire-cfpbs-n57982083487/.

 

Repealing Dodd-Frank: Can it be Done?

While most Republican congressional members support Trump’s plan to overhaul Dodd-Frank, completely gutting the law may be easier said than done.  To date, there is no consensus among Republicans on a repeal plan.  While Hensarling’s CHOICE Act may gain momentum in the House once reintroduced, the bill will not be met with the same enthusiasm in the Senate, according to a report by FBR Capital Markets.  See Steven T. Dennis, Trump’s Dodd-Frank Do-Over.  Even if legislation were introduced, dismantling Dodd-Frank would require 60 votes in the Senate, where Republicans hold only 52 seats.  Although some Dodd-Frank regulations can be weakened by circumventing Congress—i.e. through regulators appointed by Trump—key provisions cannot be repealed without legislation. Jim Puzzanghera, Democrats dig in to fight Trump’s takedown of Dodd-Frank financial regulations, Los Angeles Times (6 Feb 2017), available at   http://www.latimes.com/business/la-fi-dodd-frank-demoocrats-20170206-story.html. 

Meanwhile, Congressional Democrats continue to put up a fight against undoing Dodd-Frank and restructuring the CFPB into a bipartisan committee.  See Norbert Michael, The CFPB Is In The Crosshairs.   Opponents believe that dismantling Dodd-Frank could have a crippling effect on the economy.  Senate Minority Leader Chuck Schumer has claimed he has the votes to stop an outright repeal of Dodd-Frank.  Anders Melin, Schumer Says He can Block Trump’s Efforts to Repeal Dodd-Frank, Bloomberg (20 Nov 2016), available at https://www.bloomberg.com/news/articles/2016-11-20/schumer-says-he-ll-fight-trump-tooth-and-nail-over-dodd-frank.  Barney Frank, one of the name authors of Dodd-Frank, has said that repealing the act would place the entire financial system at risk, and lead the system to “crash.”  Matt Egan, Dodd-Frank author Barney Frank: Killing it could fuel new ‘crash,’ CNN Money (7 Feb 2017), available at http://money.cnn.com/2017/02/07 /investing/barney-frank-dodd-frank-wall-street law/index.html?sr= fbmoney020717 barney-frank-dodd-frank-wall-street-law0748PMVODtopLink&linkId=34222726.

All things considered, the executive order issued by the President has set a preliminary framework for reining in on financial regulations.  As the 120-day clock continues to tick, it remains unclear whether the repeal of Dodd-Frank will occur through congressional means. With each day passing only time will tell whether the order will turn into action, or whether it was simply a way to memorialize the President’s political rhetoric.

 

See the full text of the Executive Order here.

See the full text of Rep. Jeb Hensarling’s Financial CHOICE Act of 2016 here.

See the full text of PHH  Corp., et al. v Consumer Financial Protection Board here.

Dormant No Longer. Ohio Revises Dormant Judgment Statutes

December 15, 2016 in Ohio Courts, Post Judgment Execution

On December 8, 2016 the Ohio Senate unanimously passed revisions to Ohio Revised Code section 2329 regarding dormant judgments and the bill now awaits the expected signature of Governor Kasich.  In Ohio, a judgment would become dormant if execution was not issued upon the judgment for a 5 year period.  Revised Code Section 2327.01 defined “execution” specifically as a writ of execution or a certificate of judgment lien.  Garnishments and other proceedings in aid of execution were not considered “execution” for purposes of keeping a judgment active and out of dormancy.  However, with the new revisions to Section 2329, an order of garnishment will now also keep an Ohio judgment from becoming dormant.  The revisions to 2329.07(B)(1)(c) provide that “An order of garnishment is issued or is continuing, or until the last garnishment payment is received by the clerk of courts or the final report is filed by the garnishee, whichever is later.” 

This is great news for all of our client’s who have obtained judgments in the State of Ohio.  The revisions allow for the creditor to seek the most successful and expeditious forms of collection upon the judgment without fear of dormancy.  A creditor is no longer pigeon-holed into issuing execution that may be unfruitful, costly, or unnecessary for the sole purpose of keeping a judgment active and may now continue with the proceedings that have proven the most successful in the case at hand. 

The text and analysis of the bill may be found at the Ohio Legislatures Website:  https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA131-SB-227

Insurers Are Exempt From Ohio Consumer Statute

February 26, 2016 in Ohio Consumer Sales Practices Act (OCSPA), Ohio Courts

The Consumer Sales Practices Act (CSPA) is an Ohio statute governing consumer transactions that limits a number of specific business practices as well as more general prohibitions against unfair and deceptive acts by businesses against consumers. As the Ohio Supreme Court recently held however, a number of transactions and businesses are specifically exempted from the statute and its prohibitions. In this case, cost estimates provided by insurers are not required to follow the CSPA’s requirements.

In Dillon, et. al., v. Farmers Insurance of Columbus, Inc., Farmers provided insurance coverage for Dillon’s automobile. After crashing his vehicle, Dillon reported the accident to Farmers to have his vehicle repaired. Dillon chose Mission Auto Connection, Inc. to repair his vehicle and Farmers, after an inspection, provided an estimate for the amount it would pay to repair the vehicle. The estimate was based on using non-original equipment manufacturer (OEM) parts as provided in the insurance agreement. Dillon however instructed Mission Auto to repair the vehicle using OEM parts and was aware that he would be responsible for the difference in cost. He then sued Farmers for a CSPA violation for providing an estimate based on non-OEM parts and not getting Dillon to sign an acknowledgement of such.

The CSPA and the requirements and prohibitions it contains apply only to consumer transactions. Consumer transactions are defined by the statute to include transactions primarily for personal, family or household purposes but it also specifically excludes transactions between consumers and specific types of business entities, including insurers. A specific provision of the CSPA, ORC 1345.81, requires that any insurer providing a repair estimate based on the use of non-OEM parts must include a disclaimer on the estimate and have the consumer acknowledge the disclaimer by signing the estimate. This creates a potential statutory conflict as the CSPA specifically excludes transactions with insurers from the statute but the provision regarding repair quotes specifically names insurers as having to comply with the provision.

The trial and appellate courts upheld Dillon’s argument that statutory interpretation requires the more specific provision to apply when two statutes are in contradiction with one another and cannot be reconciled to give effect to both. As the provision regarding repair quotes is more specific than the general definition provision excluding insurers from the CSPA as a whole, the repair quote provision should apply and Farmers should have complied with its requirements. The courts further held that as the repair quote statute was enacted subsequent to the CSPA definitions, the later enacted provision should take precedence indicating the legislature’s wish for insurers to be covered by that provision.

The Ohio Supreme Court however sided with Farmers and reversed the lower courts’ decision, finding that both statutes can be construed so as to give effect to both. The Supreme Court held that while insurers are clearly covered by the provision’s requirements, the statute provides a remedy only if the violation is in connection with a consumer transaction. As the remedy provided by the CSPA provision is limited to consumer transactions and insurers are excluded from the definition of consumer transactions, the CSPA provision prevents insurers from issuing repair estimates without the non-OEM disclosure but provides no remedy for breach of the provision. Dillon is therefore limited to receiving a declaratory judgment or injunction regarding Farmers’ failure to comply with the provision.

The Ohio Supreme Court in this case provides a reminder that, if possible, apparently contradictory statutes must be read in such a way that each is given effect before rules of statutory construction determining priority may be applied. It also points out that the exclusions written into the CSPA are effective and entities such as insurers and banks may not be sued for damages under CSPA.

The Full Text of the Opinion May Be Found HERE

6th Circuit Upholds TCPA Dismissal in Healthcare Admissions Case

February 17, 2016 in Medical and Healthcare, Ohio Courts, TCPA

In June of 2015 we posted on the positive decision of the US District Court for the Southern District of Ohio in the matter of Baisden v. Credit Adjustments, Inc. whereby the District Court found “prior express consent” was given to Credit Adjustments to call the Plaintiff’s cellphone when the number was presented to a hospital at the time of admission and thereby negated the Plaintiffs’ Telephone Consumer Protection Act (TCPA) claims.  (original post and discussion of the facts of the case may be found HERE).  On February 12, 2016, the 6th Circuit Court of Appeals upheld the ruling of the District Court and found that the Plaintiffs had given express consent for their cellphone to be called.  This decision is of importance because Credit Adjustments was not hired by the hospital directly, but by the anesthesiologists who also provided services to the Plaintiffs.  The court found that the express consent was not only given to the hospital, but also applied to the “other health care providers” including the anesthesiologists and its collection agency.  It is important to note that the consent did not “automatically” transfer and was carefully analyzed by the court in relation to the admission documents and the language they contained.  Since the process of a single admission point is utilized by many healthcare providers and is a common practice in the industry, it is comforting to see the process upheld with regard to TCPA claims.  

The complete 6th Circuit Opinion may be found HERE.

Limitation of Liability Does Not Violate Consumer Sales Practices Act

January 20, 2016 in Ohio Consumer Sales Practices Act (OCSPA), Ohio Courts

In the matter of Barto v. Boardman Home Inspection, Inc. the Ohio Eleventh District Court of Appeals determined that the limitation of liability provision in a home inspection contract was not unconscionable and thereby did not violation the Ohio Consumer Sales Practices Act.

Barto hired Boardman Home Inspection, which is solely owned and operated by David Shevel to perform a home inspection on a home they were purchasing.  The parties entered into a written agreement prior to the inspection that included the areas for inspection as well as a limitation of liability clause.  The clause limited Boardman’s liability to the amount paid for the inspection and inspection report.  After agreeing to the terms, Shevel performed the inspection including a visual inspection on the roof and determined that asphalt shingles were proper for the pitch of the roof.   After Barto took possession of the home, the roof leaked because asphalt shingles were not proper for the actual pitch of the roof causing damage to the home.

Barto sued Boardman Home Inspection and David Shevel for negligence and for violations of the Consumer Sales Practices Act.   The trial court determined that the limitation of liability clause was not unconscionable and therefore did not violate the Consumer Sales Practices Act.  As such, it limited Boardman’s liability to $350.00.  The court also determined that Shevel could not be held personally responsible for any negligence as he was clearly identified as an agent for Boardman.

The Court of Appeals affirmed the decision finding that the limitation of liability clause did not violate the Consumer Sales Practice Act.  The court looked favorably upon the 9th District’s decision in Green v. Full Service Property Inspections, LLC, 2013-Ohio-4266, which also found that a limitation of liability provision in a home inspection contract did not violate the Consumer Sales Practices Act.  In finding that the clause was not unconscionable, the court noted some important factual findings including:  that the clause was set off in the agreement in a separate paragraph, that the consumer was not rushed into signing the agreement or prevented from asking questions about it, that the consumer was not prevented from negotiating terms, and that the consumer was not prevented from hiring another inspection company.

A limitation of liability clause can be a powerful tool in any contract.  It is a way for the parties to agree upon the amount of damages should any problems arise, allowing the parties to quantify their risk and exposure.  Using a rational amount that is logically connected to the underlying transaction along with the factual findings above regarding negotiation and execution of the agreement should allow a party to limit their liability without running afoul of the Consumer Sales Practices Act.

The Full Text of the Opinion May Be Found HERE.

Landlord’s Liability for Tenant’s Dog

November 9, 2015 in Landlord Tenant Law, Ohio Courts

Ohio Appeals Court Renders Ruling in Favor of Landlords in “Dog-Harboring” Case

In Morris v. Cordell, the First Appellate District Court of Appeals of Ohio, based in Cincinnati, recently rendered an interesting opinion regarding the potential liability of a landlord of a single-family house for injuries sustained from a dog’s activity.

In Morris, the Plaintiff alleged he was walking on a street with his grandchildren and a leashed dog when another dog darted out of a single-family house and began to wrestle with Plaintiff’s dog, ultimately resulting in the Plaintiff falling and injuring his knee.  The Plaintiff sued the resident of the house, Cordell, as well as the owners, the Langs, who were Cordell’s aunt and uncle. 

Cordell admitted she owned the dog which ran from the single-family house.  Mr. and Mrs. Lang purchased the house for Cordell to live in, and had an oral agreement with Cordell to pay rent plus utilities.  Cordell paid rent for a while, but stopped before this incident.  However, she continued to pay the utilities and took care of the property, including paying for grass-cutting and HVAC tune-ups.  The Langs paid the real estate taxes and paid for major repairs.  Residing nearby, the Langs visited the house often, but entered only with Cordell’s permission. 

In his lawsuit, Morris alleged Cordell and the Langs were owners or harborers of the dog in question.  The Langs filed a motion for summary judgment, seeking to terminate the case against them prior to trial, contending they were not owners, keepers or harborers of the dog per Ohio revised Code 955.28.  The trial court granted the summary judgment motion, resulting in this appeal.

Revised Coder 955.28 states in relevant part, “[t]he owner, keeper, or harborer of a dog is liable in damages for any injury, death, or loss to person or property that is caused by the dog…” and imposes strict liability.  In this case, there was no evidence the Langs owned the dog, and since they were not in the vicinity when the incident occurred, they were not considered “keepers” of the dog.  That left Plaintiff with the task of proving the Langs were “harborers” of the dog.  To determine this, the Court focused on the control of the premises where the dog lived.  “A person who is in control of the premises where a dog lives and silently acquiesces in the dog being kept there by the owner can be held liable as a harborer of the dog.”

Citing several Ohio cases, the Court observed, “[g]enerally, a landlord will not be held responsible for injury caused by a tenant’s dog so long as the tenant is in exclusive possession and control of the premises.  Absent a contrary agreement, a lease agreement transfers both the possession and control of the premises to the tenant.  The hallmark of control is the ability to admit or exclude others from the property.”  Furthermore, the Court observed the presumption that if the leased premises consists of a single-family house, it is presumed that exclusive possession and control of the entire property belongs to the tenant. 

The evidence in this case showed Cordell had possession and control of the premises; the Langs did not have keys to the property and only assisted with or entered the house with Cordell’s permission and knowledge.  The Plaintiff attempted to argue this was not a “true” landlord-tenant situation due to, among other things, the familial situation, the failure to pay rent, and the absence of a written lease.  He contended the Langs’ assistance in tending to the property and Cordell’s children and the dog demonstrated control and possession of the property.  However, the Appeals Court found that a lease can exists even in the absence of a writing and a failure to pay rent, and even where the owner pays real estate taxes, insures the property and makes major repairs. 

Plaintiff cited the case of Godsey v. Franz out of the Sixth District of Ohio, wherein that Court found the owner of a house and farm was liable as a “harborer” of his son’s dog, even though the owner lived in a house on adjacent land.  In Godsey, the son lived on a 100-acre farm owned by his father, occupying a house without a written lease and without paying rent.  However, the son maintained the house and its immediate surroundings.  The father testified he felt free to go to and from the house where his son lived because he owned it, and that his son’s eight dogs were free to run back and forth between the adjacent farms.  The Godsey Court found the father to fall within the definition of “harborer” of the dog because he allowed the dogs to be in the common or shared areas of the farms. 

The Morris Court distinguished Godsey because this was a single-family house and did not involve any common areas.  “Generally, a common area is an area over which multiple people have possession and control.”  Ultimately, Morris could not overcome the presumption Cordell, the tenant, had exclusive control and possession of the premises.  The Court observed, “[A] landlord cannot be a harborer of a dog that is kept on the premises the tenant has sole control over,” and upheld the lower Court’s ruling granting summary judgment to the Langs.

The fact that the premises in question was under the exclusive control and possession of the tenant, and that there were no common areas and thus, no question of control in any way by the landlord, was key in this case which construed Ohio law on the subject.

OCSPA Class Actions Require Actual Damage

October 5, 2015 in Ohio Consumer Sales Practices Act (OCSPA), Ohio Courts

OCSPA Class Actions Require Actual Damage

In Felix v. Ganley Chevrolet, the Ohio Supreme Court recently held that ALL members of a plaintiff’s class action alleging violations of the Ohio Consumer Sales Practices Act (“OCSPA”) must have suffered actual injury as a result of the alleged conduct to maintain an action. 

In Felix, the Plaintiffs filed suit against a car dealership for deceptive practices under the OSCPA.  They included a claim that the arbitration provision contained in the dealer’s contracts was unconscionable and that the dealer’s practices pertaining to the clause violated the OSCPA.  The Felixes sought to certify a class that included any consumer who signed a contract with any of Ganley’s 25 companies that included the same arbitration clause.  The trial court held that the inclusion of the arbitration provision violated the OSCPA and awarded the statutory damage of $200 per transaction to each class member.  The court of appeals upheld this decision and the Ohio Supreme Court granted review for the purpose of determining if all members of a plaintiff’s class alleging violations of the OCSPA must have suffered actual damage. 

The OCSPA allows the recovery of “damages” in a class action (See R.C. § 1345.09(B)) but the code limits those damages to “actual damages” and does not allow for the recovery of the statutory damages laid out by the OCSPA for individual actions.  The Court found this reasoning consistent with the purpose of the individual damage provisions in the OCSPA to encourage consumers with smaller amounts of damage to bring their claims.  The court found this purpose unnecessary in class action claims because the aggregation of claims constitutes the necessary deterrent to noncompliance with the statute.

The Court stated that the suffering of some injury is one of the most basic requirements to bringing a lawsuit and is an indispensable part of civil actions.   In the case of a class action, common evidence must be shown that all members of the class suffered some injury.  The “fact of damage” (the existence of injury) goes directly to the predominance inquiry required under Civil Rule 23(b)(3) for class actions.   A claim that requires individual inquiry into the fact of damage does not meet this predominance requirement.  Damage must result for the common action alleged to cause actual injury to all of the class members.  Without a showing that all class members were damaged, the predominance requirement is not met and the class must fail. 

In Felix, the Court found that the Plaintiffs did not show that all consumers who signed a contract with the offending provision were damaged and therefore the class claims must be denied.  While the language used in all of the contracts may have violated the OCSPA, the Plaintiffs were still required to show that this caused actual injury to all members of the class.  The violation, in and of itself, was not enough to award damages to the class without a showing of actual injury to each and every class member. 

The Full Text of the Opinion May Be Found HERE

Offer of Judgment May Moot Class Action

September 18, 2015 in Class Action, FDCPA, Ohio Courts

Uncertified Class Actions May Be Dismissed Upon Complete Offer of Judgment

Class actions based on alleged Fair Debt Collection Practices Act (FDCPA) violations can become extraordinarily expensive for debt collectors, with costs potentially including statutory damages of up to $500,000, plaintiff’s attorney’s fees, and costs, in addition to the substantial costs required to defend the litigation even if the claim is defeated. Due to the high potential costs, many debt collectors will attempt to quickly settle potential class action claims early in the litigation process.  By using a complete offer of judgment, defendants of potential class actions may be able to prevent class action certification and quickly resolve the litigation.

A class action requires at least one individual plaintiff to pursue the case on behalf of the entire class. All lawsuits also require that the plaintiff have a case or controversy for the court to have jurisdiction. A complete offer of judgment offers the plaintiff everything that they have sought in the case and therefore eliminates their legal interest in pursuing the case. If the class has not yet been certified and all of the plaintiff’s claims have been satisfied, the plaintiff will then be prevented from representing the class and the class action claims must be dismissed.

In Malone v. Portfolio Recovery Associates, LLC, Portfolio Recovery Associates (PRA) used a complete offer of judgment to quickly resolve a putative FDCPA class action and dismiss the class action claims. After Malone’s filing of her initial disclosure detailing her individual demands in the lawsuit, PRA sent her a complete offer of judgment offering to pay her $1,001 in statutory damages plus costs and reasonable attorney’s fees, as demanded in her initial disclosure. PRA then moved to dismiss the class action claims, arguing that as all of Malone’s demands had been met, she could no longer represent the class and the court lacked subject matter jurisdiction over the claims.

The court noted two situations that would prevent the dismissal of the class action claims. First, the offer of judgment must meet every demand of the plaintiff. Any demand that is not met, no matter how small, will allow the plaintiff to continue with the class action claims. Secondly, if the plaintiff has already moved to certify the class, the court may refuse to dismiss the class action claims if the certification is pending and has been pursued with reasonable diligence by the plaintiff. As the court found neither situation applied, judgment was granted to the plaintiff on her individual claims and the class action claims were dismissed.

Malone provides a useful example in how an offer of judgment presented early in a putative class action case can be used to quickly settle the lawsuit. This procedure does, however, effectively grant the plaintiff the maximum she could receive on an individual FDCPA claim and it should be pursued prior to any attempt to certify the class. Dismissal of the class claims also does not permanently prevent a class action as another member of the class is free to attempt a new class action. While such a decision must be carefully weighed, in some circumstances a complete offer of judgment can be a useful tool in resolving class action litigation.

The offer of judgment rule is found in Federal Civil Rule 68.  While most States have adopted this into their own state civil rules, each state’s civil rules must be reviewed closely if the action is presented in state court instead of federal court.  For example, Ohio has not adopted federal civil rule 68 and the offer of judgment procedure is not available in Ohio state courts.

A copy of Malone v. Portfolio Recovery Associates, LLC may be found HERE

No Common Law Implied Warranty of Habitability in Landlord-Tenant Arrangements

September 11, 2015 in Kentucky Courts, Landlord Tenant Law

Kentucky Court of Appeals Confirms No Common Law Implied Warranty of Habitability in Landlord-Tenant Arrangements in Closely Watched Case

            On July 10, 2015, a panel of the Kentucky Court of Appeals rendered a decision in Wildcat Property Management, LLC v. Franzen, 2014-CA-000964-MR, a closely-watched case in the landlord-tenant realm.  The appeal generated filings of amicus curia briefs from the Greater Lexington Apartment Association and The Louisville Apartment Association.  In Wildcat Property Management, the Appeals Court panel vacated and remanded a Fayette County trial decision that had granted partial summary judgment in favor of student tenants and their parent guarantors, and denied the landlord’s motion for summary judgment.  The Court of Appeals found the Trial Court’s decision that the residential lease in question was void and unenforceable, and therefore the Uniform Residential Landlord Tenant Act (URLTA) did not apply, was in error.  In the process, the Court confirmed Kentucky does not recognize a common law implied warranty of habitability in a landlord-tenant context.

            Wildcat Property Management leased a house to several student tenants, with the tenants’ parents acting as guarantors for the lease.  The tenants failed to pay any rent under the lease, and Wildcat Property Management evicted them from the premises and brought a lawsuit for damages for unpaid rent for the months of occupancy, damages for two months following the eviction due to an inability to re-lease the premises for the same dollar amount, a claim for a “performance fee” under the lease, a claim for the security deposit, late fees, and the electric and water bills during the tenants’ occupancy.

            Wildcat Property Management filed a Motion for Summary Judgment, arguing the tenants failed to pay rent and were evicted, thus breaching the lease and damaging the landlord.  The tenants filed a cross Motion for Summary Judgment, claiming, for the first time, the premises were uninhabitable, alleging the premises were dirty, in disrepair, and that the landlord failed to deliver on a promise to make certain repairs and to completely renovate the interior of the house, including installing an exterior hot tub.  Apparently, some of the renovations were made after the signing of the lease, but the hot tub was not installed.

            The Trial Court denied the landlord’s Motion for Summary Judgment, and granted the tenant’s Motion for Partial Summary Judgment, holding “the property tendered by Wildcat Property was not in the condition represented in the Lease or by its oral representations.  Further, the trial court found that certain conditions on the property affected the health and safety of the Tenants.  In sum, the trial court held that the Lease was void and that URLTA, particularly KRS 383.625, did not apply to the parties’ dispute.  Finally, it concluded that the Tenants were only liable to Wildcat Property in quantum meruit for reasonable rent during the time they actually lived in the house.” 

            In reversing the Trial Court, the Appeals Court panel first affirmed the long-standing rule that Kentucky common law does not recognize an implied warranty of habitability in landlord-tenant arrangements.  Instead, the tenant can only obtain relief for “habitability” issues by looking to the language of the lease or to any applicable statutes.  Although the Trial Court did not expressly find an “implied warranty of habitability” in this situation, the Appeals Court noted concern that this was the basis for the ruling.  The Appeals Court panel noted a signed “move-in inspection” clause in the lease, where the tenants acknowledged they had inspected the premises to be leased and agreed they were habitable.  Further, although the tenants had argued oral representations made by the landlord prior to the execution of the lease provided evidence the house was uninhabitable, the Appeals Court panel observed the tenants did not make any claims regarding habitability for almost five years after the lease was signed, and regardless, such pre-lease oral representations were barred by an “entire agreement” clause immediately before the signature page in the lease stating: “This Lease shall not be affected by any agreement or representations not specifically contained in writing herein.  No modification or addition to the terms of this Lease shall be binding on either of the parties unless made with good and valuable consideration, and in writing signed by each of the parties.”  Accordingly, based upon the actual language of the lease and the irrelevance of the pre-signing oral representations concerning habitability the Appeals Court panel found the Trial Court erred in finding the lease was void and unenforceable, and noted “Our decision is bolstered by the lack of any implied warranty of habitability under Kentucky law.”

            Since no common law implied warranty of habitability exists in Kentucky, the tenant would need to look to the actual rental agreement or to any applicable statute “for remedies when a rental unit is defective or requires repair.”  Lexington-Fayette County has adopted URLTA, the Uniform Residential Landlord Tenant Act (codified at KRS 383.500 – 383.715).  Kentucky authorizes individual counties and cities to adopt URLTA, leading to a bit of a patchwork quilt of landlord-tenant jurisprudence in the Commonwealth.  “Where adopted, URLTA, although supplemented by the common law, is the exclusive remedy.” 

            The Appeals Court panel cites several sections of URLTA that “express a working definition of ‘habitability’ under the statutory directives,” and then cites several of URLTA’s remedies for tenant’s aggrieved by a landlord’s failure to comply with the “habitability” provisions.  According to the Decision, the tenants continued to live in the house and did not provide any conclusive evidence regarding repairs to the house, and the tenants never proceeded under URLTA.

            The Appeals Court panel signified concerns regarding the Trial Court decision: “Here, the impact of the trial court’s ruling is to create a process that is unreasonable.  First, under the trial court’s reasoning, the signing of a lease would no longer create a viable contract since a tenant could state, after the signing of a lease, that the premises are not ‘habitable’ and void the lease.  Even more troubling, tenants, in this scenario, could actually void the lease at the end of the tenancy.”

            The Appeals Court panel found the lease was valid and signed in a jurisdiction where URLTA applied.  The tenants failed to pursue any remedies regarding habitability under URLTA.  Therefore, the Appeals Court panel vacated the decision of the Trial Court and remanded the case for a determination of the landlord’s damages under URLTA, and stated “If the trial court’s ruling were to prevail, tenants could ignore the procedures and policies under URLTA and void rental agreements at any point of tenancy and desecrate the uniform, comprehensive statutory scheme under URLTA that provides clear guidelines for tenants and landlords.”

The Full Text of the Opinion May Be Found HERE

When a Person is Not a Person Under the FDCPA

August 7, 2015 in FDCPA

The Sixth Circuit Expands the Pool of Potential Plaintiffs Who Can Qualify as a “Person” to Bring Forth a Claim Under the FDCPA

The Sixth Circuit of the United States Court of Appeals rendered a novel ruling on July 23, 2015 in Anarion Investments LLC v. Carrington Mortgage Services, LLC, whereby the Court seemingly broke new ground in finding a company/ legal entity to be considered a “person” under the Fair Debt Collection Practices Act (FDCPA) for the purposes of bringing a lawsuit against a debt collector. 

Anarion Investments LLC was the ultimate assignee of a residential lease and option, obtaining the assignment when the assignor’s residence was in foreclosure.  Carrington published certain foreclosure notices in a local newspaper stating Brock & Scott was a “substitute trustee” for this bank loan “by an instrument duly recorded.”  Anarion alleged the instrument did not exist, and claimed misrepresentation under the FDCPA in a lawsuit in Federal District Court, which the Court dismissed.  On appeal, the sole issue before the Sixth Circuit Court was whether Anarion is a “person” under provision 15 USC §1692k of the FDCPA providing, “any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person.”

Citing the federal Dictionary Act, the Sixth Circuit decided the term “person” in 15 USC §1692k included Anarion, finding the context of use of the word “person” did not indicate otherwise.    The Court noted “person” is used twenty-four times in the FDCPA and “sometimes” includes artificial entities.  The Court cited examples of the use of “person” in the FDCPA and found that, even though the statute notes protections to “physical person, reputation or property of any person,” seemingly indicating a Plaintiff must be a “natural person,” corporations have “reputations” and “property,” so a corporation or business entity could qualify as a plaintiff under the statute.  The Court also cited the statute’s definition of “consumer,” which specifically uses the term “natural person,” and opines that when Congress meant to use a limiting definition of person as a “natural person” it used that exact phrase.  Finally, the majority discounts that this expansive definition of “person” would frustrate the FDCPA’s purpose, noting the statute does not allow a lawsuit to be brought under the FDCPA for business debts, and that “[n]ormally, therefore, businesses will not have any basis to bring an FDCPA claim.”  The Court also claims that it remained to be seen whether Anarion could bring a lawsuit under the FDCPA, i.e., Anarion qualified as a “person” under 15 USC §1692k, but it had not yet proven whether, for example, “any of the defendants’ representations were made ‘with respect to’ Anarion, as required for relief under §1692k(a) of the Act.”

Judge Bernice Bouie Donald wrote a spirited dissent, arguing artificial legal entities do not qualify as persons entitled to a remedy under the FDCPA.  The dissent acknowledges the Dictionary Act, but finds the context of the use of “person” within the FDCPA compels the finding that Congress did not mean to afford legal entities protection, citing congressional history of the FDCPA, as well as existing jurisprudence regarding the FDCPA and the Dictionary Act.  The dissent observes that the context and history clearly indicate the FDCPA was meant to protect “natural persons” from potential debt collection abuses, citing the FDCPA’s stated purpose.  The dissent explains “…the Act is most consistent when one considers debtors to be natural persons, facing creditors and debt collectors of all stripes-from individuals to banks and other companies.  This reading is reflected throughout the statutory text, including those sections cited by Anarion and the majority.”  Under the Dictionary Act, the context of the FDCPA indicates “person” in 15 USC §1692k must mean natural person, according to the dissent. 

The dissent noted that the majority’s analysis might apply as regards the provisions it highlights, but its analysis also supports a more context-appropriate interpretation.  That interpretation being that the FDCPA aims to protect natural persons from debt collectors of all kinds – individuals and corporations.  Furthermore, the dissent opined, “The existing jurisprudence surrounding the FDCPA echoes this more nuanced interpretation.  Despite the thousands of claims that have been brought in federal court since the passage of the FDCPA in 1977, neither the majority nor the parties cite a single instance in which a legal entity has sued as a ‘person’ entitled to relief under the Act.”

While this definition expands the pool of potential FDCPA Plaintiff’s it should be noted that a business debt will still not come under the protection of the FDCPA.  As the majority noted, the definition of “debt” in 15 USC §1692(a)(5) clearly eliminates business debt from FDCPA protection regardless of the person or entity bringing the claim. 

 

The Full Text of the Opinion May Be Found Here

TCPA and Health Care Admissions

June 29, 2015 in Ohio Courts, TCPA

In the case of Baisden v. Credit Adjustments, Inc. the US District Court for the Southern District of Ohio reviewed the issue of the application of the Telephone Consumer Protection Act (“TCPA”) to “other health care providers” in the context of hospital admission and subsequent collection. 

In the case, Baisden sought medical care from a local hospital.   As part of his admission, Baisden signed a “Patient Consent and Authorization” form that contained a standard Release of Information provision.  The provision entitled the hospital to release the patient’s “health information” for various reasons including insurance, billing, other health care providers, and other various reasons.  In conjunction with his hospital stay, Baisden also received services from the hospital’s anesthesia provider.  The anesthesiologists subsequently billed Baisden for the services provided and Baisden failed to pay as required.  The anesthesiologists then transferred Baisden’s account to Credit Adjustments to collect upon the unpaid balance.  Credit Adjustments made numerous phone calls to Baisden in an attempt to collect the anesthesiologist’s bill.  Baisden then sued Credit Adjustments claiming violations of the TCPA for contacting him on his cellphone using an automated dialing system.  Credit Adjustments claimed that it received prior consent from Baisden due to the completed consent and authorization forms that Baisden signed upon admission to the hospital.

The court addressed two issues, 1) whether the hospital forms signed by Baisden also applied to the anesthesiologist and the anesthesiologist’s third party debt collector and 2) whether the signed form actually provided express consent under the TCPA.

The patient consent form signed by Baisden included language regarding the release of information and stated, “I authorize Mount Carmel to receive or release my health information… to such employees, agents, or third parties as are necessary for these purposes…”  The list of purposes included “billing and collecting moneys due from me.”  Baisden argued that this transfer of “health information” did not include his cellular telephone number or any permission derived to call it.  Citing favorably to the Eleventh Circuit opinion in Mais v. Gulf Coast Collection Bureau, Inc., 768 F.3d 1110 (11th Cir. 2014), the Court determined that the cellphone number provided on the hospital admission form was part of the record from the visit and was the contact information given by Baisden related to billing.  The Court further examined the HIPPA definition of “health information” which includes, “any information … created or received by a health care provider” that “relates to … the past, present or future payment for the provision of health care to an individual.”  Finding that “health information” included the cellular telephone and the consent to contact it, the Court further noted that the anesthesiologist was easily one of the “other health care providers” that served the hospital and the consent was transferred to them and their attempts to collect the outstanding bill.

The Court also addressed the issue regarding the signed form providing express consent as required under the TCPA.  Again citing favorably to the Mais decision the Court took the same approach and also performed a similar analysis under the 2008 FCC Declaratory Ruling which provides that prior express consent exists when a cell phone subscriber makes the number available to the creditor regarding the debt.  The court also looked to a 2014 FCC Order in In re GroupMe, Inc./Skype Commc’ns S.A.R.L. Petition, 29 FCC Rcd. 3442, 3447 (March 27, 2014) which provided that “the TCPA does not prohibit a caller from obtaining consent through an intermediary.”  Using these two rulings along with the Mais decision, the court found that a cellular phone subscriber can provide their number to a creditor, like the anesthesiologists in this case, by affirmatively giving an intermediary (the hospital) permission to transfer the number to the anesthesiologist for use in billing.  By providing the number at the time of service, Baisden agreed to be contacted at that number.   The court thereby found that prior express consent had been given to call Baisden’s cellphone.   

Accordingly the Court granted summary judgment in favor of Credit Adjustments and denied Baisden’s TCPA claims.  Baisden has recently appealed this decision to the 6th Circuit. 

The Full Text of the Opinion May Be Found HERE

TCPA Suit Falls Within Insurance Invasion of Privacy Exception

May 22, 2015 in TCPA

TCPA Suit Falls Within Invasion of Privacy Exception

After defending and settling a putative class action suit alleging violations of the Telephone Consumer Protection Act, the Los Angeles Lakers attempted to have their insurer, Federal Insurance Co., cover the costs of defending the action. A California court however, sided with Federal Insurance by finding that a TCPA action is by definition an action based on an invasion of privacy and therefore not covered by the Lakers’ insurance policy.

In 2012, David Emmanuel filed the putative class action against the Lakers. The case stemmed from his receipt of an unsolicited text message from the Lakers after he sent a text message to a number to have a message appear on an arena scoreboard during a Lakers game. Emmanuel filed the putative class action in California federal court on behalf of all fans who received a text message in response to their display of a message on the arena scoreboard. The district court dismissed the case finding that the sending of a text message to the Lakers to display a message on the arena scoreboard gave consent for the Lakers to send a follow up text message in response.

Emmanuel appealed the dismissal to the Ninth Circuit Court of Appeals but reached a settlement with the Lakers while the appeal was ongoing. The Lakers then proceeded to file a claim with Federal Insurance for the costs associated with the defense of the litigation. Federal denied the claim stating that an exception in the insurance contract preventing payment for alleged invasions of privacy applied to TCPA suits.

The Lakers sued Federal Insurance over the denied claim alleging that the defense of the TCPA case was not a case based on invasion of privacy, but rather for the alleged annoyance and nuisance of incurring telephone charges or consuming telephone time. The Lakers pointed out that Emmanuel alleged only economic damages and did not request any damages for invasion of privacy. The Lakers further contended that for TCPA cases to be excluded under an insurance policy, an express provision is required.

The Court ruled against the Lakers finding that the TCPA was created to protect consumers against invasions of privacy by preventing unsolicited phone calls and text messages. Even though Emmanuel claimed only economic damages, the Court found that the economic damages stemmed from the Lakers alleged invasion of privacy. The failure to plead invasion of privacy therefore did not eliminate the basis for the economic damages. As such, the Court determined that the case was based on an alleged invasion of privacy and the insurance exclusion applied, even though the case against the Lakers was dismissed finding no such invasion of privacy.  The California Court held that a TCPA suit is by definition a case based on invasion of privacy, regardless of the type of damages sought.

Since invasion of privacy is a common exclusion in insurance contracts, entities at risk of a TCPA case should carefully review their insurance policies to ensure that they are covered for defense costs in those cases. Any insurance contract should note that any exception for invasion of privacy does not apply for TCPA cases or specifically note that TCPA cases are covered regardless of other exemptions in the contract.

Los Angeles Lakers Inc. v. Federal Insurance Co., CV 14-7743 DMG, in the United States District Court for the Central District of California.  The Text of the Opinion May be Found HERE.

WE’VE MOVED!

May 18, 2015 in News

Slovin & Associates Co., LPA is pleased to announce that our firm has moved office locations.  Nestled between the iconic Cincinnati Museum Center and the downtown central business district, our office is now conveniently located at 644 Linn Street in the historic Queensgate neighborhood of Cincinnati. 

Be Wary of Incorporating Clauses in Commercial Contracts

May 8, 2015 in Kentucky Courts

The Kentucky Supreme Court rendered an interesting decision recently in Dixon v. Daymar Colleges Group, LLC, 2012-SC-000687-DG. In this case, a group of students challenged a for-profit college’s enrollment process as both procedurally and substantively unconscionable.  The College challenged the students’ right to institute legal proceedings in circuit court based upon an arbitration clause on the reverse side of a “Student Enrollment Agreement.”  The Court found attempted incorporating language found in the contract was not sufficient to prove assent to arbitrate, and the students who signed the agreement were not bound by the arbitration clause on the reverse side of the agreement, reversing the Kentucky Court of Appeals.

This lengthy case recites an interesting factual scenario whereby students executed Student Enrollment Agreements upon initial visit with college personnel. Apparently, some of them did not realize they had actually enrolled in the college.  Several students sued the college in 2010, claiming the college’s representations and promises were deceptive.  The Agreement was a single page, front and back.  The students only signed the front of the agreement.  Above the signature line, in regular type, was the following clause:  “This Agreement and any applicable amendments, which are incorporated herein by reference, are the full and complete agreement between me and the College.”  The Students were also directed to initial in a blank space they had read all of the terms of the agreement, directly above the signature line.

The reverse side of the agreement contained several additional provisions, including an a clause in regular type requiring the students to arbitrate any dispute, controversy or claim arising out of their enrollment, the actual Agreement, or any breach of the Agreement.  Noteworthy terms of the arbitration provision were: “(1) the Students Are required to split the costs of arbitration with Daymar; (2) the Students are responsible for their own attorneys’ fees; (3) the validity or enforcement of the arbitration provision is a question for the arbitrator, not a court; and (4) Kentucky law shall govern the validity, interpretation, and performance of the Agreement.”  The students were not permitted to amend any of the provisions of the Agreement.   The students claimed they were unaware of the arbitration clause or its meaning, and the college conceded no admissions counselor could have explained its meaning or how the arbitration process would operate.

The trial court found the arbitration clause procedurally unconscionable due to the rushed enrollment process and substantively unconscionable due to the costs of arbitration being unduly expensive in this situation.  However, the Court of appeals rejected these arguments, including, among other findings, that the students’ signatures on the line in the middle of the front page was sufficient because it was below the “incorporating language.”

The Kentucky Supreme Court reversed the Court of Appeals, focusing on the students’ challenge whether they actually agreed to arbitrate the merits of the dispute and who should have the primary power to decide the arbitrability of the merits.  This blog focuses on the issue of the whether the signature in the middle of the Agreement was sufficient, and whether the arbitration provision was properly incorporated into the agreement and therefore, whether it was binding on the students.

The students argued they were not bound by the clause because they did not sign at the end of the writing, as required by Kentucky revised Statute (KRS) 446.060.  They also argued the attempted incorporating language was insufficient to actually incorporate the clause on the reverse side.  The college argued there is no requirement an arbitration clause be signed, rejected the contention that the Statute of Frauds applied to the Agreement, and argued the incorporating language was sufficient.

The Court found that, although an arbitration clause need not be signed in Kentucky, it must be in writing.  It also found that since the Statute of Frauds did apply because “it was contemplated by the parties that the contract would not, and could not, be performed within the year, even though it was possible of performance within that time, it comes within the inhibition of the Statute,” and the students could not obtain their degree within one year, then the contractual agreement did need to be signed at the end.

Even so, the college could have still prevailed in requiring arbitration if it had successfully incorporated by reference the arbitration clause on the reverse side.  In order to properly incorporate other terms, the language must clearly show the parties had knowledge of and actually assented to those incorporated other terms, and the actually incorporating language must be clear.  If the signature then follows proper incorporating language, then there will be a successful incorporation of the clearly identified other terms.

At the bottom of the first page, the following clause was found: “This Agreement and any applicable amendments, which are incorporated herein by reference, are the full and complete agreement between me and the College.  By signing this, Agreement, I confirm that no oral representations or guarantees about enrollment, academics, financial aid, or career/ employment prospects have been made to me, and that I will not rely on any oral statements in deciding to sign this Agreement.  My enrollment is not complete and this Agreement is not in effect until it is signed by an Authorized College Official.”  Below that clause was the following clause, capitalized: “—I HAVE READ BOTH PAGES OF THIS STUDENT ENROLLMENT AGREEMENT BEFORE I SIGNED IT AND I RECEIVED A COPY OF IT AFTER I SIGNED IT.”  The students were to initial in a blank space adjacent to that clause.  Below that clause was the signature line.

The Court found multiple problems with the attempt to incorporate the arbitration clause.  The attempted incorporating language claims to apply to “any applicable amendments” and the arbitration clause was an “original term.”  Furthermore, the clause providing the students “read both pages” was not sufficient because it does not also state they “assented” to the terms referenced, including the arbitration clause.  The attempted incorporating language was not sufficient, and therefore, Kentucky’s requirement that the contract be signed at the end of the document was not met.  Accordingly, the Kentucky Supreme Court found the arbitration clause did not apply.

This Kentucky case is instructive because far too often, attempts at incorporating terms following a signature on a contract, including many commercial contracts, seem to be an “after thought.”  This case gives an idea of the level of scrutiny a court may give to attempted incorporating language, especially if the terms attempting to be incorporated appear controversial or not truly agreed upon.  Care should be given that any incorporating language be absolutely clear on what is being incorporated, that the incorporated language is incorporated herein by reference and made a part hereof, that the incorporated terms be described as specifically as possible, and evidence on its face that the parties actually assent to all terms.

 

THE FULL TEXT OF THE OPINION MAY BE FOUND HERE

Oral Guarantees and the Leading Object Rule

April 17, 2015 in Creditors Rights, Ohio Courts

In the matter of Willoughby Supply Company v. Robert Inghram, the Ohio Eleventh District Court of Appeals affirmed a decision upholding an owner’s oral guaranty of a corporate debt through the application of the leading object rule.

In the case Robert Inghram was the owner and sole shareholder of a business.  In his dealings with Willoughby Supply the business filled out a credit application and a personal guaranty.  Mr. Inghram denied signing the guaranty and through the course of the trial it was discovered that the guarantee was likely signed by one of his employees.  However, evidence also showed that, in a phone call with Willoughby Supply, Mr. Inghram orally acknowledged the personal guarantee.  The trial court found this acknowledgment to be a ratification of the guarantee and applied the leading object rule as an exception to the Statute of Frauds and enforced the guarantee.

Ohio follows the leading object rule as an exception to the Statute of Frauds.  The leading object rule provides that oral contracts by third parties guaranteeing another’s debt are not within the Statute of Frauds, if the guarantor’s principal purpose is to benefit his or her own business or pecuniary interest.

In this case Inghram argued that the promise of a stockholder to pay the debts of a corporation remains within the Statute of Frauds.  However, the Court found that where the promisor owns all, or substantially all, of the stock in the corporation, and is transacting his business in its name for personal convenience, there is sufficient consideration running to him personally to take it out of the statute.    The Court found that as the sole owner, Inghram clearly benefited from the agreement.

Concurring in the judgment, Judge Timothy Cannon notes that the doctrine of equitable estoppel would also apply to the case at hand.  Equitable estoppel provides relief where one party induces another to believe certain facts are true and the other party changes his position in reasonable reliance to his detriment on those facts.  By orally confirming that he signed the guarantee, inducing Willoughby Supply to extend credit, Inghram was estopped from later arguing that the signature was not valid.

The Full Text of the Opinion May Be Found HERE

Permissible Voicemails Under the FDCPA

March 13, 2015 in FDCPA

The content of a voicemail message that the Fair Debt Collection Practices Act (FDCPA) permits to be included on a consumer’s voicemail has long been a source of debate. As Congress, the FTC, and the CFPB have failed to give significant guidance on how the FDCPA should apply to voicemail messages, it has been left to the courts to parse the seemingly conflicting statutory requirements.

In Pollock v. GC Services Limited Partnership- Delaware, the trial court found on a motion for summary judgment that, under the FDCPA, a voicemail leaving only a name, intended recipient, and callback number did not constitute a communication and that a single voicemail without meaningful disclosure of the caller’s identity could not constitute harassment. (13-13652, E.D. MI 2014).

In Pollock, the defendant GC Services attempted to collect a debt on behalf of its client, QVC, from Lisa Pollock. GC Services called Pollock and left a message on her voicemail stating “Good morning, this message is intended for Lisa Pollock. My name is Carlos Sierra and I would appreciate you calling me back at 1-866-862-2789. Once again, that number is 1-866-862-2789. Thank you.” Pollock returned the call and spoke with a different representative of GC Services who attempted to collect the debt. Pollock then filed a lawsuit against GC Services alleging that it violated the FDCPA for failing to disclose in the message that it was a debt collector and for placing a call without meaningful disclosure of the caller’s identity.

Pollock’s first argument that GC Services violated the FDCPA for failing to identify itself as a debt collector is based on 15 USC 1692e(11). The section requires that a notice be given to the consumer that the debt collector is “attempting to collect a debt and that any information obtained will be used for that purpose” during the “initial communication with the consumer.”  A “communication” is defined as “the conveying of information regarding a debt directly or indirectly to any person through any medium.” 15 USC 1692a(2). The court found that as a matter of law, a voicemail that contained only the name, intended recipient, and callback number does not fall within the definition of a communication and therefore the notice in 1692e(11) is not required to be included in such voicemail messages.

Pollock’s second argument was that GC Services violated the FDCPA for making a telephone call without meaningful disclosure of the caller’s identity as required by 15 USC 1692b(1). Pollock alleges that meaningful disclosure requires both the name and employer of the caller and GC Services included only the name in its message. The court noted however that the language of the statute indicates that debt collectors are precluded from making “telephone calls without meaningful disclosure” and the plural use of calls indicates that a single telephone call without disclosure does not constitute a violation. As only a single message was left with Pollock, the court did not address whether the message would have violated the section if it had been left more than once.

The court’s summary judgment ruling shows the need for debt collectors to closely manage the wording of any voicemail messages left for consumers. While the courts have reached varying interpretations of the FDCPA with respect to voicemail messages, this court has indicated that, at a minimum, a single voicemail message to a consumer containing only the caller’s name, intended recipient, and callback number is permissible under the Act.

FDCPA Class Award Limited Per Action

February 18, 2015 in FDCPA

Statutory Award for Class Action Lawsuits Brought Against Multiple Defendants under the Fair Debt Collection Practices Act Limited to Per Action Basis

 

VIOLET P. BLANDINA, on behalf of herself and all others similarly situated, Plaintiff v. MIDLAND FUNDING, LLC, et al.

 

On February 2, 2015, the U.S. District Court for the Eastern District of Pennsylvania, located in the Third Circuit, issued a decision as to whether the proper award of statutory damages in a class action lawsuit brought against multiple defendants via § 1692k(a)(2)(B) of the Fair Debt Collection Practices Act (FDCPA) should be determined under a “per named defendant” basis or under a “per action” basis. Under the FDCPA, the statutory award for a class action lawsuit is limited to the lesser of $500,000 or 1% of the net worth of the debt collector. The Plaintiff in this case, Ms. Violet P. Blandina, argued on behalf of herself and one other Plaintiff member of the class action suit, that the statutory award amount should be granted on a per named defendant basis, thus allowing the Plaintiffs to recover $500,000 from each of the two named Defendants for a maximum recovery of $1,000,000. The named Defendants, Midland Funding, LLC and Midland Credit Management, Inc., argued that the statutory award should be limited to a per action basis, thus limiting the maximum recovery in this case to $500,000 for the single action brought by the Plaintiff members of the class.  

 

In this case, Plaintiff, Ms. Violet P. Blandina brought a class action suit alleging that the Defendants, Midland Funding LLC and Midland Credit Management Inc. had violated the FDCPA by sending to the Plaintiff and one other similarly situated class member a false, deceptive and misleading debt collection letter. The collection letter sent to the Plaintiffs stated that, if the Plaintiffs agreed to pay a reduced amount to satisfy the debt they owed, the Defendants would stop applying interest on that debt. In fact however, the Defendants were not then, or at any time, applying interest to the debt owed by the Plaintiffs, thus giving rise to an FDCPA violation claim. Plaintiffs’ class action sought recovery under FDCPA § 1692k(a)(2)(B) of the aforementioned $500,000 statutory amount to be applied on a per named defendant basis, for a total recovery of $1,000,000. Defendants filed a motion for determination as to whether the statutory award amount should be applied on a per named defendant basis or on a per action basis.

 

The District Court deciding the issue looked to prior Third Circuit Court decisions which had examined the wording of § 1692k(a)(2)(A) of the FDCPA, a provision granting $1,000 statutory damages to individual, rather than class action, plaintiffs who brought suit against multiple defendants. Those prior court decisions held that, due to the wording and plain meaning of that provision, the statutory award sought by an individual plaintiff against multiple defendants should be awarded on a per action basis. The District Court, examining the case at hand, stated that because the wording of § 1692k(a)(2)(A), pertaining to individual plaintiff claims, is substantially similar to the wording of § 1692k(a)(2)(B), pertaining to class action plaintiff claims, the court is directed to reach an outcome similar to those court decisions prior. Thus, the court ruled that due to the plain meaning of § 1692k(a)(2)(B), class action claims brought against multiple defendants under the FDCPA must, too, award statutory damages on a per action basis. The Plaintiff class was therefore permitted to only recover a maximum of $500,000 from the named Defendants in this single action case.

Enforceability of Arbitration Agreements

October 21, 2014 in Ohio Consumer Sales Practices Act (OCSPA), Ohio Courts

Ohio has a public policy favoring the enforcement of arbitration provisions in contracts and ORC 2711.01(A) provides that such provisions will be enforced unless grounds exist in law or equity for revocation of the contract. The Ohio Court of Appeals recently addressed the issue and looked at whether an arbitration provision in a consumer contract should be upheld in a suit alleging violations of the Consumer Sales Practices Act.

In Tamara Hedeen v. Autos Direct Online, Inc., the plaintiff alleged violations of the Ohio Consumer Sales Practices Act, fraud, and deceit arising from a contract to purchase a vehicle. 8th Dist. Cuyahoga No. 100582, 2014-Ohio-4200. Tamara Hedeen (“Hedeen”) purchased the vehicle online from Autos Direct Online (“ADO”) and discovered after delivery that the vehicle had been in an accident and had unrepaired damage. The contract signed by Hedeen included an arbitration agreement and ADO moved to stay proceedings pending arbitration. The trial court granted the motion and Hedeen appealed the decision. The Court of Appeals addressed five potential grounds for not enforcing the arbitration provision.

The Court of Appeals first addressed whether ADO waived its right to arbitrate by waiting five months to file its motion and by participating in discovery and pretrial hearings. A party may waive its right to arbitration if it acts inconsistently with that right. Such an inconsistency may be found in a delay requesting arbitration, the extent of participation in the litigation prior to requesting arbitration, the filing of a counterclaim without  a motion for a stay, or if the plaintiff would be prejudiced by the inconsistent acts. The Appeals Court determined that ADO did not waive its right to arbitrate as it participated in the litigation only as required by the court and moved to stay the proceedings before the litigation within 75 days of answering the complaint.

The Appeals Court then addressed whether ADO was required to attach authenticated evidence to its Motion to Stay Pending Arbitration. Hedeen cited case law indicating that a copy of the arbitration agreement must be included with the motion along with an affidavit stating that the arbitration agreement is the agreement that was signed. The Appeals Court found that case inapplicable as it was unclear if the parties agreed to arbitrate and an oral contract was involved. In this case, Hadeen inadvertently admitted that she signed the agreement and did not dispute the authenticity of the arbitration agreement or her signature on it. As such, the trial court had the discretion to admit the arbitration agreement into evidence.

Hedeen also argues that the arbitration agreement was procedurally and substantively unconscionable, both of which are required for an agreement to be found unconscionable. Procedural unconscionability occurs when no voluntary meeting of the minds was possible due to the circumstances of the execution and substantive unconscionability is found when the terms are found to not be commercially reasonable. Hadeen alleged that there was procedural unconscionability because ADO failed to notify her of or explain the arbitration agreement and the arbitration agreement was included in a stack of papers emailed to her. The Appeals Court found no procedural unconscionability since Hedeen had an adequate opportunity to read the arbitration agreement, the agreement was set out on its own page with a bold notice directly above Hadeen’s signature, Hadeen had no impairment or disability that prevented her from understanding the agreement, and she made no effort to renegotiate its terms.  As there was no procedural unconscionability, the court did not address substantive unconscionability.

The arbitration agreement also contained a provision requiring the losing party to pay the attorney fees of the prevailing party in arbitration. The Ohio Consumer Sales Practices Act however provides for the shifting of attorney fees only if the action was both groundless and filed or maintained in bad faith. While courts have found that statutory remedies may be heard in arbitration, they have also found a violation of public policy if they prevent the remedial purpose of the statute from being achieved. Hadeen argues that enforcement of an arbitration agreement with such a provision is contrary to public policy as it would directly contradict Ohio law protecting consumers who bring claims in good faith. The Appeals Court agreed and found that the arbitration agreement could not be enforced due to the “loser-pays” attorney fee shifting provision.

Hedeen also alleges that a provision in the arbitration agreement that states the arbitration is “final and binding” is against public policy as Ohio law sets out circumstances when a court may vacate an arbitral award. The Appeals Court rejected this argument as Ohio law requires such a statement before an arbitration award may be enforced in court.

While the Appeals Court ultimately found the arbitration agreement could not be enforced due to the loser-pays attorney fee shifting provision, it also detailed a number of other arguments that are insufficient to prevent the enforcement of such agreements. Without the loser-pays provision, the arbitration would have been upheld, showing the strong preference for enforcing arbitration agreements by Ohio courts.

** Many thanks to William Abbey for his contributions to this article.  William is a law clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.  **

The Full Text of the Court Opinion May Be Found Here: http://www.supremecourt.ohio.gov/rod/docs/pdf/8/2014/2014-ohio-4200.pdf

OCC Issues Guidance for Debt Sales

August 6, 2014 in Creditors Rights

On August 4, 2014 the Office of the Comptroller of the Currency (“OCC”) issued new Risk Management Guidance to all National Banks and Federal Savings Associations regarding the sale of consumer debt.  The OCC bulletin issues guidance on best practices and procedures for the sale and resale of debt from banks to debt buyers. 

In addition to describing the internal policies and procedures that a bank must develop and implement regarding debt-sale arrangements the bulletin also describes the due diligence that a bank must go through when selecting a debt buyer.  Banks are expected to “fully understand the debt buyers’ collection practices, including the resources that debt buyers or their agents use to manage and pursue collection.”   This includes the requirement that the bank review the debt buyers audited financial statements and confirm all required licenses and insurance policies are in place.  The bank must also assess the debt buyers’ reputation and confirm that the debt buyers’ staff is “appropriately trained to ensure that it follows applicable consumer protection laws and treats customers fairly throughout the collection process.”  Banks are required to perform all due diligence before entering into a sale agreement with the debt buyer. 

Further, the bulletin also lays out the documentation that a bank must provide to a debt buyer “at the time of sale.”  This is required to ensure that the debt buyer has “accurate and complete information necessary to enable them to pursue collections in compliance with applicable laws and consumer protections” at the time of sale.  The bulletin requires the bank to provide the debt buyer with:

–          A copy of the signed contract or other documents that provide evidence of the relevant consumer’s liability for the debt in question

–          Copies of all, or the last 12 (whichever is fewer) account statements

–          All account numbers used by the bank (and if appropriate its predecessors) to identify the debt at issue

–          An itemized account of all amounts claimed to be owed in connection with the debt to be sold, including the loan principal, interest and all fees.

–          The name of the issuing bank, and if appropriate, the store or brand name.

–          The date, source, and amount of the debtor’s last payment and the dates of default and amount owed.

–          Information about all unresolved disputes and fraud claims made by the debtor.  Information about collection efforts (both internal and third-party efforts, such as by law firms) made through the date of sale.

–          The debtor’s name, address, and Social Security number.

The bulletin concludes by listing certain types of debt and certain situations under which debt should not be sold by the bank and also a requirement that policies and procedures be in place to ensure all parties involved in the debt-sale arrangement comply fully with all applicable consumer protection laws.

 

The Full Text of the OCC’s August 4, 2014 Bulletin may be found: HERE

Update: Suesz v. Med 1 Solutions, Reversed

July 18, 2014 in FDCPA, Indiana Courts

On May 14, 2013 we reported on the Indiana District Court case of Suesz v. Med 1 Solutions, which determined that the Marion County Small Claims Courts were not “judicial districts” as defined by  15 U.S.C.§ 1692i for purposes of the Fair Debt Collection Practices Act (“FDCPA”).   In reaching this decision, the district court relied on the 7th Circuit case of Newsom v. Friedman.  The district court’s decision was originally upheld by a panel of the 7th Circuit on October 31, 2013 with a 2-1 decision.  However, upon rehearing en banc, on July 2, 2014 the 7th Circuit both reversed the district court in Suesz and overruled Newsom.  

The circuit court held that the “venue approach” should be used when determining if a court is a “judicial district” for purposes of the FDCPA.  Under this approach, a “judicial district” will be the “smallest geographic area relevant to venue in the court system in which the case is filed.”  In the plain terms, the 7th Circuit determined that if venue is not proper in the court in which the initial complaint was filed, the complaint was not filed in the correct “judicial district” and a possible FDCPA violation has occurred.   The circuit court stated that the “venue approach” would be more practical and would stop debt collectors from purposefully choosing inconvenient forums and forum-shopping for the most advantageous court.

The July 2, 2014 Suesz opinion may be found HERE

Supreme Court Rules that Heirs Lose IRAs in Bankruptcy Court

June 27, 2014 in Bankruptcy, Creditors Rights

Inherited IRAs are not exempt in Chapter 7 bankruptcy

During bankruptcy, the assets of the debtor are placed in a bankruptcy estate, which is used to pay back creditors. In order to allow for the debtor to have a fresh start with the ability to provide for his or her basic needs without becoming a dependent of the state, the bankruptcy code allows debtors to withdraw or “exempt” certain assets from the bankruptcy estate to save for their own use. Included in the code at 11 USC § 522(b)(3)(C) are exemptions for retirement funds, including traditional IRAs and Roth IRAs, that meet certain standards. In Clark v. Rameker, the United States Supreme Court determined that the exemption does not apply to an inherited IRA. 13-299, 2014 WL 2608860, 2014 U.S. LEXIS 4166 (U.S. June 12, 2014).

Traditional and Roth IRAs provide tax advantages to individuals to encourage them to save for retirement. In addition, to ensure the funds are used for retirement purposes, restrictions are placed on the funds and a 10% penalty is assessed if a withdrawal is taken before the individual is 59.5 years old. When the owner of a traditional or Roth IRA dies, the account is transferred to an heir.  If the heir is the owner’s spouse, the heir may choose to roll over the funds into their own IRA account or keep the account separate as an inherited IRA. All other heirs must keep the account separate as an inherited IRA. Heirs may not contribute to an inherited IRA account and must either withdraw the full balance within five years of inheritance or take annual distributions until the account is depleted.

Ruth Heffron established a traditional IRA in 2000, and the account was worth $450,000 at the time of her death in 2001. The account passed to her daughter Heidi Heffron-Clark, who elected to keep the account as an inherited IRA and receive distributions from the account. The daughter & her husband filed a Chapter 7 bankruptcy petition in October 2010 listing the inherited IRA, then worth $300,000, as exempt under the 11 U.S.C. § 522(b)(3)(C) retirement fund exemption. The bankruptcy court disallowed the exemption finding that due to the owner’s death, the funds were not retirement funds since they were not for anyone’s retirement. The decision was reversed at both the district and circuit level and was appealed to the Supreme Court.

The Supreme Court focused on the language of the exemption: “retirement funds to the extent that those funds are in a fund or account that is exempt from taxation under section 401, 403, 408, 408A, 414, 457, or 501(a) of the Internal Revenue code of 1986.” 15 USC § 522(b)(3)(C).  Using the plain meaning of the words, the Court found that retirement funds are “sums of money set aside for the day an individual stops working.” The Court found that the purpose of this exemption was to permit debtors to save money for retirement and not to allow for immediate spending by the debtor and for the exemption to apply the account must be both retirement funds and exempt from taxation.

In applying this standard to the inherited IRA, the Court found three significant differences between an inherited IRA and a traditional or Roth IRA. First, unlike retirement funds which encourage saving for retirement, the current owner is not permitted to contribute any funds to an inherited IRA. Second, inherited IRAs require the owner to withdraw funds either in a lump sum or annually regardless of the owner’s retirement status. Finally, the owner is permitted to withdraw all funds in an inherited IRA for any purpose, without restriction or penalty. This represented a significant departure from the plain meaning of the term retirement funds and the Court found it did not apply to an inherited IRA.

Even though the funds were initially contributed as retirement funds, the Court focused on the current status of the funds, finding that the above differences changed the status of the funds to non-retirement. The Court also rejected the debtor’s argument that the funds should be exempted as they remained exempt from taxes under the Internal Revenue Code. The Court found that the language of the exemption requires that the funds be both retirement funds and exempt from taxation, with inherited IRAs only satisfying the taxation requirement.

As inherited IRAs don’t fit within the definition of retirement funds and their exemption from the bankruptcy estate doesn’t serve the purposes of the bankruptcy code, the Court found that inherited IRAs are not exempt in a Chapter 7 bankruptcy.

** Many thanks to William Abbey for his contributions to this article.  William is a law clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.  **

Attorney Chris Arlinghaus Now Licensed in Indiana

June 11, 2014 in News

Slovin & Associates is pleased to announce attorney Christopher Arlinghaus is now admitted to practice law in the state courts of Indiana.  Chris is looking forward to assisting individuals and companies in the area of creditor’s rights and civil litigation in Indiana, as well as continuing to practice in Ohio and Kentucky.

Tenant Liability for Post-Eviction Rent

June 6, 2014 in Articles, Landlord Tenant Law

Following an eviction, a major source of dispute between landlords and former tenants is whether the evicted tenant must continue to pay rent on the premises, even though they no longer have a right to occupy them. As with most issues governed by state law, the outcome of a lawsuit for post-eviction rent varies by jurisdiction. In particular, Ohio, Kentucky, and Indiana all allow for the recovery of post-eviction rent in at least some circumstances.

Lawsuits for failure to pay rent post-eviction are based on a breach of contract. Unlike tort law, where the goal of damages is to place the victim back in the position they were in prior to the tort, the role of damages resulting from a breach of contract is to place the non-breaching party in the position they would be in if the contract had been fully performed. It is under this basis that courts may permit post-eviction rent, allowing landlords to collect rent for the remainder of the lease term for which they contracted. Other jurisdictions however view an eviction as a choice-of-remedy whereby the landlords may achieve immediate repossession of the property and sue for accrued rent but only by forfeiting the right to continue collecting rent.

Ohio and Kentucky permit landlords to recover rental payments for the remainder of the lease after the eviction of a tenant in most situations. In these states, the filing of an eviction notice terminates the tenant’s right to possession but does not terminate the lease itself or the other obligations of the parties. The apparent inequity, of requiring the evicted tenant to continue paying for the property while being denied its use, is permitted because it is the result of the tenant’s own breach of the lease. Nohr v. Hall’s Rentals, LLC, 2013 WL 462004 (Ky. App. Feb. 8, 2013). Imposing post-eviction rent also prevents tenants from refusing payment in order to exit a lease early. As landlords are entitled to receive rents for the entire contracted lease term, Ohio courts have noted landlords shouldn’t have to choose between eviction and collecting rent on the remainder of the lease. Dennis v. Morgan, 89 Ohio St.3d 417 (2000). In these states, rent continues to accrue after eviction until the end of the lease term or until the premises have been leased to a new tenant.

Indiana, by default, does not permit landlords to collect post-eviction rent. Indiana courts view the filing of an eviction as complete termination of the lease and ends the further accrual of rent. As quoted by the Indiana Court of Appeals, “it is a general rule that a tenant will be relieved of any obligation to pay further rent if the landlord deprives the tenant of possession and beneficial use and enjoyment of any part of the demised premises by an actual eviction.” Gigax v. Boone Village Ltd. Partnership, 656 N.E.2d 854, 858 (1995). Indiana does, however, allow for post-eviction rent to accrue if a savings clause is included in the lease. To be effective, the clause must be unambiguous and expressly state that liability for rent continues after an eviction. Landlords in Indiana should be careful to include such clauses in their lease agreements and ensure they are explicit to ensure the collectability of post-eviction rent.

A limitation in all three states to collecting post-eviction rent is the need for the landlord to attempt to mitigate its damages. Based in contract law, this requirement prevents landlords from receiving a windfall in rent from a tenantless property. Once the tenant has been evicted, the landlord must make a reasonable effort to lease the property to a new tenant. The obligation of the evicted tenant to continue paying rent is then reduced by the amount of rent paid by the new tenant during the remainder of the lease term. Failure to make a reasonable effort to lease the property can result in a forfeiture of some or all post-eviction rent. In Stumph Road Properties Co. v. Suchevits, the court found that an apartment complex did not take sufficient steps to re-lease an apartment and awarded damages for two months rather than the twelve months the apartment was vacant. Ohio 8th Dist. No. 86513, 2005 WL 2812751 (Oct. 27, 2005).

Courts examine the landlord’s efforts to lease the property in comparison to the efforts of a reasonably prudent person in determining if damages have been mitigated. Though it isn’t dispositive, whether a new tenant was found and the time taken to secure the new lease is a major factor. Courts also look to the amount of advertising, discussions with prospective tenants, placement with a realtor, placement of signs, and any other action taken to lease the property in determining whether mitigation occurred. Even with efforts to re-lease, an extended vacancy may not be considered reasonable by the court; the Ohio Supreme Court indicated a seven month vacancy “strains the limits of reasonableness.” Dennis v. Morgan, 89 Ohio St.3d 417, 420 (2000).

Landlords in Ohio, Kentucky, and Indiana can therefore generally expect to continue receiving rent after evicting a tenant so long as their leases, particularly in Indiana, are properly drafted and there are reasonable efforts made to lease the property.

 

** Many thanks to William Abbey for his contributions to this article.  William is a law clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.  **

FDCPA Not Applicable to Proof of Claim Filings

May 16, 2014 in Creditors Rights, FDCPA, Kentucky Courts, Medical and Healthcare

In March of 2014 the US District Court of for the Eastern District of Kentucky discussed the application of the Fair Debt Collection Practices Act (“FDCPA”) to bankruptcy proof of claim filings. Plaintiff, Mallard, filed an adversarial proceeding with the bankruptcy court alleging that Defendant’s failure to redact numerical medical billing codes in a proof of claim filing violated the FDCPA and constituted harassment because the codes disclosed private medical information. In granting summary judgment in favor of Defendants, the US District Court for the Eastern District of Kentucky found that the FDCPA does not apply to proof of claim filings.

On October 1, 2012, the Plaintiff filed for bankruptcy protection under Chapter 13. On October 22, 2012, Wynn-Singer filed a proof of claim on behalf of Infectious Disease Consultants (“IDC”), a Kentucky healthcare provider. In their claim, Wynn-Singer attached unredacted billing records which included codes for the Plaintiff’s medical condition. On April 1, 2013, the Plaintiff filed an adversary proceeding. Mallard alleged that the disclosure of the private health information constituted harassment in violation of the FDCPA. When Wynn-Singer filed its Motion for Summary Judgment they asserted that filing a proof of claim cannot be the basis for an action under the FDCPA. The Plaintiff claims that by disclosing his medical information, Wynn-Singer violated 15 U.S.C. §1692d, which prohibits harassment or abuse in connection with the collection of a debt and 15 U.S.C §1692f, which prohibits unfair or unconscionable means of debt collection.

Although the Sixth Circuit has not specifically addressed the applicability of the FDCPA to proofs of claims, it has found that the FDCPA is broadly construed. Hartman v. Great Seneca Fin. Corp., 569 F.3d 606 (6th Cir. 2009). However, the Kentucky District Court reasoned that “for a communication to be in connection with the collection of a debt, an animating purpose of the communication must be to induce payment by the debtor.” citing Grden v. Leikin Ingber & Winters PC, 643 F.3d 169, 173 (6th Cir. 2011). The court determined that the filing a proof of claim does not constitute a demand for payment from a debtor. Rather, at best, it is a request to participate in the claims allowance process of a debtor’s estate. 11 U.S.C. §§ 502, 1306, 1326.

In reaching this decision, the court cited favorably to the Bankruptcy Court of the Northern District of Georgia which explained:

[F]iling a proof of claim in bankruptcy cannot be the basis for an FDCPA claim because it is not an activity against a consumer debtor. The FDCPA is designed to regulate debt collection activities against unsophisticated consumers. To constitute a debt collection activity under the FDCPA, the activity must asserted against a consumer. The filing of a proof of claim is a request to participate in the distribution of the bankruptcy state under court control. In re McMillen, 440 B.R. 907, 912 (Bankr. N.D. Ga. 2010)

The court further reasoned that the purpose of the FDCPA is to eliminate abusive debt collection practices to protect consumers. The FDCPA defines “consumer” as “any natural person obligated or allegedly obligated to pay any debt.” 15 U.S.C. §1692a(3). Under this definition, the court found that the debtor’s estate is not a natural person and as such, filing a proof of claim is not a form of debt-collection activity.

While the court dismissed the FDCPA claims, care should always be taken when filing claims of a medical nature. In this case, the codes disclosed Plaintiff’s HIV diagnosis. It was argued, that this disclosure violates Kentucky Revised Statute 214.181 which prohibits the disclosure of HIV test results. The court allowed these claims to proceed. The court also noted that such disclosures could cause issues with medical licensing boards and federal regulations under HIPPA.

The Full Text of the Opinion May be Found Here.

Many thanks to Kim Goldwasser for her contributions to this article. Kim is a paralegal with Slovin & Associates Co., L.P.A.

Out-of-State Debt Collectors Do Not Need a License in Indiana

April 17, 2014 in Creditors Rights, FDCPA, Indiana Courts

The Indiana Court of Appeals has held that an out-of-state debt collector with no physical place of business in Indiana is not required to obtain a license from the Indiana Department of Financial Institutions (“DFI”) to collect debts within the state. In Wertz v. Asset Acceptance, LLC, Nathan Wertz (“Wertz”) filed a counterclaim against Asset Acceptance, LLC (“Asset”) alleging violations of the Indiana Deceptive Consumer Sales Act and the Fair Debt Collection Practices Act for failing to obtain a license from DFI to collect on consumer loans. Ind.App. No. 71A03-1305-CC-175 (Mar. 21, 2014). The Court accepted DFI’s opinion on the statute in interpreting the Indiana Uniform Consumer Credit Code (“IUCCC”) and held that a license is required only if a creditor has a physical location within Indiana.

On August 9, 2012, Asset filed suit against Wertz to recover a balance due on a Chase credit card on which Wertz had allegedly defaulted. Wertz filed a counterclaim and putative class action against Asset alleging that Asset engaged in the practice of taking assignment of and collecting on Indiana consumer debts without a license as required by the IUCCC. Wertz further claimed that by collecting consumer debts without a license, Asset violated the FDCPA and Indiana Deceptive Consumer Sales Act. Arguing that it was not required to seek a license to collect consumer debts under the Act, Asset filed a motion to dismiss the counterclaim. The motion to dismiss Wertz’s counterclaim and class action was granted and Wertz appealed.

The IUCCC requires that a license be obtained “to regularly engage in Indiana in … taking assignment of consumer loans [or] undertaking direct collection of payments from or enforcement of rights against debtors arising from consumer loans” unless they are a depositary institution or a registered collection agency. Asset admitted it is not classified as a depository institution and is not registered as a collection agency. It also admitted to taking assignment of and collecting on consumer loans without having a license to do so. Asset argued however, that the phrase “regularly engage in Indiana” does not include companies, such as itself, with no physical presence in the state and therefore the licensing requirement does not apply. Wertz alleges that the statute does apply and Asset has violated the statute by not obtaining a license.

The Court of Appeals found the language “regularly engage in Indiana” to be ambiguous and looked to both the purpose of the statute and the interpretation of the statute by the relevant administrative agency. The Court determined the purpose of the IUCCC is to protect consumers from unfair collection practices by requiring creditors with sufficient minimum contacts with Indiana that “regularly engage in Indiana” in the collection of consumer debts to obtain a license. DFI, the agency tasked with enforcement of the statute, has issued guidance indicating that “regular” refers to at least twenty-five times per year and “engaged in Indiana” requires a physical presence within the state.

Wertz argued that the DFI opinion should not be used, as the interpretation is based on the official comments to the statute rather than the statutory language itself, and the interpretation was not issued through a formal rule making process and therefore deference to the agency is not required. The Court rejected Wertz’s first argument, relying on Basileh v. Alghusain, finding that the commentary to a uniform code enacted by the legislature is indicative of the legislature’s intent and the commentary is to be used when interpreting the statute. 912 N.E.2d 814 (Ind.2009). The Court then noted that a formal rulemaking process is not required before Indiana agencies are granted deference in statutory interpretation and the broad nature of DFI’s guidance authority would make such a process difficult.

The court held that the statutory guidance of DFI was valid and deserved great deference from the court. As such, an out-of-state business without a physical location within Indiana is not covered by the IUCCC and its licensing requirements. Asset did not meet the criteria to be covered by the statute and therefore did not need a license to pursue its case against Wertz. The dismissal of Wertz’s claims against Asset was affirmed.

The Full Text of the Wertz v. Asset Acceptance Opinion May Be Found HERE:

** Many thanks to William Abbey for his contributions to this article.  William is a law clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.  **

Debt Buyer May Have Personal Knowledge of Records

April 1, 2014 in FDCPA, Ohio Courts

In an environment where successfully obtaining judgment against debtors who have defaulted on their obligations requires a sworn affidavit attesting to the amount and nature of the debt, the language that the affidavit contains can be critical.  The U.S. District Court for the Eastern District of Tennessee recently broadened language the 6th Circuit found acceptable for a debt buyer to use in testifying about account records created by the original creditor. 

In Sells v. LVNV Funding, LLC, the plaintiff, Carl T. Sells brought an action against LVNV Funding (“LVNV”) under the Federal Debt Collection Practices Act alleging violation of several provisions of the Act. Sells argued that the debt buyer, who merely purchased the account after default, did not have actual personal knowledge of the account creation and terms and therefore the affidavit filed with the collection case was false and misleading.   

The debt at issue in the original action was a credit card debt that Sells incurred and then defaulted on. It was assigned to LVNV who ultimately brought suit in November of 2010, with a copy of an affidavit attached. The affidavit stated a principal amount due of $6,321.47 and asked for pre and post judgment interest, as well as reasonable attorneys’ fees. With respect to the amount of the debt the affidavit stated: “on the Date of Assignment [5/28/2009], all ownership rights were assigned to, transferred to, and became vested in Plaintiff [LVNV], including the right to collect the purchased balance owing of $6,321.47 plus any additional accrued interest.

The District Court likened this case to the recent opinion by the 6th Circuit in Clark v. Main Street Acquisition Corp 2014 WL 274469 (6th Cir. January 17, 2014) regarding the use of an affidavit were the debt buyer claims personal knowledge of the debt.  In, Clark, the 6th Circuit stated that claims of personal knowledge refer to business records, which include the original lender’s records. 

The language LVNV used included,

–          “I have personal knowledge regarding Plaintiff’s creation and maintenance of its normal business books and records, including computer records of its account receivables.”

–          “In the ordinary courts of business, Plaintiff regularly acquires revolving credit accounts, installment accounts, service accounts and/or other credit lines.  The records provided to Plaintiff have been represented to include information provided by the original creditor or it successor in interest.”

–          “Based upon the business records maintained on account XXXXXX (hereinafter “Account”) which are a compilation of the information provided upon acquisition and information obtained since acquisition…”

Quoting from the Clark decision, the District Court stated, “Such an affidavit is not ‘inaccurate or misleading’ and even if it was ‘the representation was still not material’ because ‘the least sophisticated consumer understands that lenders and debt collectors will by necessity have to rely on business records they may not personally have created, especially in an age of automated, computerized transactions.’” (citing 2014 WL 274469 at *4).

           

The full text of the Sells opinion can be found here.

The full text of the Clark opinion can be found here

 

Special thanks to Meredith Hughes for her contributions to this article.  Meredith is a Litigation Clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.

Carmack Amendment Preempts State Law Claims Against Common Carriers

March 13, 2014 in Creditors Rights, Ohio Courts, UCC

The Federal Carmack Amendment preempts all state law claims against common carriers for damaged interstate shipments according to the Ohio Court of Appeals in the Fourth Appellate District. Originally enacted in 1906 as an amendment to the Interstate Commerce Act of 1887, the Carmack Amendment is designed to provide a uniform nationwide method of recovery for damage to shipments on common carriers. The appeals court found that only federal law claims could be brought against UPS for a damaged shipment in state court and any state statutory and common law claims are preempted. Dean v. UPS Legal Dept., 4th Dist. No. 13CA21, 2014-Ohio-619.

In Dean, Jared Dean purchased a tankless water heater from a local retailer for $500 and sold it through eBay for $1,600 to a buyer in California. He took the water heater to Staples where he purchased shipping and surrendered the package for shipment. UPS then shipped the package to California where it was refused due to damage. Dean’s claims with UPS and Staples were denied due to improper packaging.

Dean then filed a small claims petition in the Athens County Municipal Court against UPS for $1,740 representing the resale value of the water heater and the shipping cost. The complaint did not specify the legal theory or cause of action for which he was seeking damages. The trial court interpreted his claims under the Ohio common law rather than federal law, despite UPS briefing on the preemption of state law by the Carmack Amendment. Dean was awarded $1,600 by the trial court and UPS appealed asserting a number of errors including preemption of state law by the Carmack Amendment.

Citing significant case law, the appeals court found that Congress intended to completely preempt all state statutory and common law when it enacted the Carmack Amendment in order to provide a single method of recovery for shippers to recover damages to delivered property. The appeals court quoted the Supreme Court noting “Almost every detail of the subject is covered so completely that there can be no rational doubt that Congress intended to take possession of the subject, and supersede all state regulation with reference to it.” Adams Express Co. v. Croninger, 226 U.S. 491 (1913).

The court also noted that state courts still have jurisdiction over claims against common carriers if the claims are brought under federal rather than state law. Dean did not specify federal law or the Carmack Amendment in his complaint and the trial court interpreted his claims under state law. As such, the Carmack Amendment served as a complete defense to Dean’s state law claims and the appeals court reversed the judgment against UPS. By UPS’s request, on remand the trial court was instructed to interpret Dean’s claims under the Carmack Amendment.

The Full Text of the Court’s Opinion May Be Found Here: http://www.sconet.state.oh.us/rod/docs/pdf/4/2014/2014-ohio-619.pdf

The Text of the Carmack Amendment May Be Found Here: http://www.law.cornell.edu/uscode/text/49/14706?qt-us_code_tabs=3

** Many thanks to William Abbey for his contributions to this article.  William is a law clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.  **

No Private Right of Action Under FCRA for Erroneous Reporting

February 7, 2014 in Credit Reporting, Ohio Courts

The Eight District Court of Appeals in Ohio has dismissed the claims of a consumer filed under the Fair Credit Reporting Act (FCRA) for erroneous reporting stating that no private right of action exists. In the summer of 2011, Stephen Johnson discovered an item on his credit report relating to an overdue amount to KeyBank and promptly notified KeyBank. Within two weeks, KeyBank rectified the error and all notations of the alleged debt were removed from the reporting agency ChexSystems. However, despite the correction, Johnson demanded monetary compensation from KeyBank and eventually sued KeyBank for conducting an “unauthorized inquiry” and “illegally” reporting him to a consumer reporting agency. Johnson also raised several state law causes of action.

 KeyBank filed a motion for judgment on the pleadings which was granted and Johnson’s claims were dismissed. Johnson promptly filed an appeal.

The Court of Appeals dealt first with Johnson’s FCRA claim.  The court noted that KeyBank is a furnisher as defined by the FCRA.  A furnisher has two responsibilities under the Act.  A furnisher is required to report accurate information and correct any inaccurate information as well as being responsible to undertake certain investigations when information is disputed by the consumer.  The court dismissed Johnson’s claims holding that no private cause of action is available to a consumer under the FCRA for erroneous reporting.  The court further noted that enforcement in this case resides exclusively with federal and state agencies. 

Section 1681s-2(c) specifically exempts violations of 1681s-2(a) from private civil liability.  Section 1681s-2(a) prohibits a person from furnishing information to a consumer reporting agency that is known or has reasonable cause to be known to be false or if the person has been notified by the consumer that the information is false and it in fact false.  Violations of this type are explicitly reserved for enforcement by the Federal Trade Commission.  As such, Johnson’s claim failed to state a claim upon which relief could be granted as no private right of action existed concerning the erroneous reporting.   

With respect to Johnson’s state law claims of identity theft, libel, and conspiracy to defraud, the Court found that the sole fact underlying his allegations related to KeyBank’s erroneous reporting to ChexSystems. Therefore, all Johnson’s state law claims were preempted under Section 1861(b)(1)(F) of the FCRA.

Based on its findings, the Court of Appeals affirmed the trial court’s judgment dismissing the complaint.

The Full Text of the Opinion May Be Found At:  http://www.sconet.state.oh.us/rod/docs/pdf/8/2014/2014-ohio-120.pdf

 

Special thanks to Meredith Hughes for her contributions to this article.  Meredith is a Litigation Clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.

Verification Letters are Key in Factoring Agreements

February 3, 2014 in Construction, Creditors Rights, Indiana Courts

The Indiana Court of Appeals overturned a superior court ruling finding that the doctrine of promissory estoppel is applicable to verification letters in factoring contracts and should control in the case of Sterling Commercial Credit – Michigan, LLC v. Hammert’s Iron Works, Inc. 998 N.E.2d 752 (Ind. Ct. App. 2013). The case was brought to the court on Sterling’s appeal following a superior court ruling in favor of Hammert’s on both cross-motions for summary judgment.

The conflict addressed in this case arose from a contract for construction of a clinic in Evansville, Indiana. Hammert’s, which was responsible for the structural steel framing & decking, entered into a $490,000 subcontract with National Steel Erectors, Inc. (“NSE”) with terms calling for payment only after Hammert’s was paid by the general contractor. To provide liquidity, NSE entered into a Factoring and Security Agreement with Sterling. Sterling agreed to pay NSE 85% of the amount due when invoiced and would later receive the full payment directly from Hammert’s. Before making the payment, Sterling required a verification letter from Hammert’s asserting that the invoiced amount was earned, due, owing, and final except for payment.

Sterling purchased three invoices from NSE and received verification letters from Hammert’s for all three. Hammert’s paid the first invoice received without issue. Before paying the second invoice, Hammert’s inquired about the status of NSE’s payments to subcontractors who were currently owed $50,116.49. With the second invoice payment, Hammert’s included a letter indicating that NSE’s subcontractors must be paid and requested that the letter be signed and returned. Sterling disregarded the letter and kept the payment for the second invoice. NSE failed to pay its subcontractors and subsequently filed for bankruptcy. Hammert’s paid the subcontractors on NSE’s behalf and finished the construction itself but did not pay Sterling for the third invoice it had purchased from NSE.

Sterling filed suit against Hammert’s asserting breach of contract and that they detrimentally relied on Hammert’s verification letter in providing funding to NSE. Sterling argued that the doctrine of promissory estoppel should obligate Hammert’s to pay the third invoice. Hammert’s counter-claimed alleging breach of the agreement to pay NSE’s subcontractors, misappropriation of funds, and argued that the doctrine of promissory estoppel was inapplicable.

 Rather than rule on the breach of contract issues, the Indiana Court of Appeals decided the controversy solely using promissory estoppel. The doctrine is based on equitable principles and has been found to be applicable to commercial transactions under the Uniform Commercial Code. Promissory estoppel requires “(1) a promise by the promisor (2) made with the expectation that the promisee will rely thereon (3) which induces reliance by the promisee (4) of a definite and substantial nature and (5) injustice can be avoided only by enforcement of the promise.” The Appeals court found that the verification letter sent by Hammert’s satisfied the requirements of promissory estoppel as they were promises to pay the invoices with the expectation that Sterling would lend money to NSE based on the letter. As such, Hammert’s was estopped from refusing to pay the invoices and was not permitted to attach the additional terms to the payment requiring payments to NSE’s subcontractors.

The appeals court reversed and remanded the trial courts decision with instructions to enter judgment in favor of Sterling on the claim and counter-claim. The court also indicated that the decision was a continuation of doctrine from other courts finding that the issuance of a verification letter to a factor will prevent the debtor from refusing to pay the debt at a later date, regardless of intervening circumstances. Care should therefore be taken in submitting and securing verification letters in factoring agreements as the letter will prevent the later reduction or offset of the payment for other obligations that arise.

The Full Text of the Opinion May Be Found Here:  http://www.in.gov/judiciary/opinions/pdf/11271303ebb.pdf

 

** Many thanks to William Abbey for his contributions to this article.  William is a law clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.  **

Waiver of Contractual Interest Does Not Necessarily Waive Right to Statutory Interest

January 6, 2014 in FDCPA, Kentucky Courts

In late November 2013, the US District Court for the Eastern District of Kentucky found that the waiver of prejudgment contractual interest by the original creditor did not necessarily, by itself, waive the right of a debt buyer to collect prejudgment statutory interest and therefore a request for prejudgment statutory interest did not violate the Fair Debt Collection Practices Act (“FDCPA”)

Portfolio Recovery Associates, LLC (“PRA”) filed a complaint attempting to collect a debt and requested the principal balance in addition to pre-judgment interest at the statutory rate of 8%.  In response, the defendant, Dede Stratton filed a class action suit.  Stratton alleged that PRA’s attempt to collect the pre-judgment statutory interest violated three provisions of the FDCPA. According to Stratton, PRA: (1) falsely represented the character, amount, and/ or legal status of the debt , (2) took an action that cannot legally be taken by filing the state court complaint, and (3) attempted to collect interest on a debt that was neither authorized by agreement nor permitted by law.  The debt arose when Stratton stopped making payments on her GE, F.S.B/ Lowe’s credit card (“GE”). GE eventually sold the debt to PRA, who filed the complaint against the debtor, seeking to collect the debt. After Stratton filed the putative class action in response, PRA filed a motion to dismiss.

In deciding PRA’s motion, the Court broke the analysis down into two parts. In the first part, the judge examined whether GE’s waiver of its right to collect contractual interest of 21.99% automatically operates as a waiver of its right to collect statutory interest from the date of the charge-off. By not charging the contractual rate of interest between the charge-off date and the date that GE sold it to PRA, it was argued that GE waived its right to assess interest at that rate. Because by assignment, PRA only inherits the rights in the debt that GE had at the time of purchase, anything GE had waived PRA could not collect.

However, PRA did not seek the contractual interest rate.  Instead, PRA sought statutory interest. Kentucky’s statutory interest rate is intended to operate in the absence of a contractually agreed upon rate.  The parties agreed and the court concurred that a party may not seek both contractual interest and statutory interest for the same period of time, however, the court found that the waiver of one did not necessarily waive the other.  The court therefore concluded that the mere fact that GE waived contractual interest did not, by itself, lead to the conclusion that it waived statutory interest. 

The court next addressed, and dispensed with, all three of the alleged FDCPA violations, the first of which was that by requesting an 8% prejudgment interest rate, PRA falsely represented the character, amount, and/ or legal status of the debt (1692e(2)(A)). The court held that because PRA reasonably believed it was entitled to the requested interest rate and the request was just that: a request to the court for consideration and not a demand on the debtor, it did not amount to a false representation of the debt.  Stratton’s second alleged FDCPA violation was that by filing the state court complaint PRA threatened to take an action that cannot legally be taken, violating 1692e(5). For a debtor to prove this violation he or she must establish two elements: (1) a threat to take an action; (2) showing that (a) the action can’t legally be taken and (b) the debt collector never intended to take the action. Distinguishing between “threats to take action” and the actions actually taken, the court held that this provision applies only to threats to take action and not the actions actually taken by PRA.   

The third alleged violation was that PRA’s attempt to collect interest on a debt that was neither authorized by agreement nor permitted by law violated 1692f(1) because it is an unfair and unconscionable means by which to collect or attempt to collect a debt. As established previously in the opinion, PRA’s “mere request in its valid state court debt collection action was not improper, much less unfair or unconscionable.”

Having determined that Stratton’s allegations had no merit, the Court granted PRA’s motion to dismiss.

The Full Text of the Opinion May Be Found At: http://scholar.google.com/scholar_case?case=13820757548343320467&hl=en&as_sdt=6,36

Special thanks to Meredith Hughes for her contributions to this article.  Meredith is a Litigation Clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.  

Prevailing Wage Law – State v. Federal

December 12, 2013 in Construction, Ohio Courts

The Court of Appeals of Ohio recently upheld a Defiance County Common Pleas decision and found that the lower court had correctly interpreted the relevant state statute and applied the facts of the case accordingly. The International Brotherhood of Electrical Workers Local Union No. 8 (the “Union”) had sued the Board of Defiance County Commissioners (the “County”) for violating the Ohio Prevailing Wage Law on a jail building project. As the federal government partially funded the project, the County argued the Ohio statute did not apply. The Common Pleas Court granted summary judgment to the County and the Court of Appeals upheld the decision finding the Union’s interpretation of the applicable statutes to be fundamentally flawed and its remaining arguments to be baseless.

 The case resulted from a dispute over wages on a Defiance County construction project at a local jail. The County financed the project by issuing bonds and the federal government provided funding equal to forty five percent of the interest payable on the bonds. The County solicited bids for the project and stated that the Ohio Prevailing Wage Law would not apply to the project and that the federal Davis-Bacon Act would apply instead. The Union then filed suit to force the County to apply the state law to the project.

The statutes at issue are a state and federal statute governing wages for employees working on public projects. The federal Davis-Bacon Act requires that qualified employees be paid “the prevailing wage rate for their job classification as determined by the Secretary of Labor.” The Act applies to any federally funded construction project. The similar Ohio Prevailing Wage Law requires laborers and mechanics to be paid the “so-called prevailing wage in the locality where the project is to be performed.” The Ohio law would have resulted in a higher wage for the workers on the project. The Ohio law does not apply however, to projects that are wholly or partly funded by the federal government, if there is a federal law that prescribes predetermined minimum wages.

The Union first argued that the Ohio exemption did not apply because the federal government did not fund the project. They posited that the County funded the project through the bond issue and the federal government simply provided funding to help pay the interest on the bonds rather than the project itself. The Court quickly dispensed with this argument finding it was a distinction without a difference. The federal funds were deposited into an account used to pay the bond principal and interest, the federal funds were not restrict or intended to be used solely for interest payments, and financing interest is clearly part of the cost of a project. As such, the federal government funded part of the project and the Davis-Bacon Act applied.

The Union’s second argument is that the federal act should not preempt state law and the County should apply the Ohio Prevailing Wage Law as well. The Union’s position results from a clearly erroneous reading of the Ohio statute and its exception. The Court first pointed out that the federal law was not preempting state law, but rather the state law contained an exemption for projects with federal funding. The exception to the Ohio statute applies when “all or any part” of a project is federally funded and the Union’s argument that the project was not federally funded due to the timing and amount of the federal funding was clearly at odds with the statutory language.

The Court of Appeals found the Union’s arguments to be clear misinterpretations of the Ohio Prevailing Wage Law. Further, the Court found the argument that the project was not federally funded to be clearly illogical and designed to avoid the apparent result of the straightforward reading of the statutes. The case serves as an illustration that a mischaracterization of the facts and creative readings of statutes shouldn’t be used as a basis for a statutory claim.

 

The Full Text of the Opinion May Be Found at: 

http://www.sconet.state.oh.us/rod/docs/pdf/3/2013/2013-ohio-5198.pdf

** Many thanks to William Abbey for his contributions to this article.  William is a law clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.  **

Randy Slovin and Brad Council 2014 Super Lawyers

December 4, 2013 in News

Slovin & Associates is pleased to announce that once again Randy Slovin and Brad Council have been included in the Thomson Reuters 2014 Ohio Super Lawyers list.  Randy was named a 2014 Ohio Super Lawyer and Brad was named a 2014 Rising Star.

Super Lawyers is a rating service of outstanding lawyers from more than 70 practice areas who have attained a high-degree of peer recognition and professional achievement. The selection process is multi-phased and includes independent research, peer nominations and peer evaluations.  A Rising Star includes those who are 40 years old or younger, or who have been practicing for 10 years or less.  No more than 5% of attorney’s in a state are named as Super Lawyers and no more than 2.5% are named Rising Stars.

Courts Have Broad Powers to Rectify Fraudulent Transfers

November 18, 2013 in Creditors Rights, Ohio Courts

Ohio has adopted the Uniform Fraudulent Transfer Act, which prevents debtors from transferring assets to defraud creditors. ORC § 1336. The Ohio Court of Appeals recently detailed the broad equitable powers that the courts possess to rectify fraudulent transfers of property used to hide assets from creditors in their decision Individual Bus. Servs. v. Carmack. 2013-Ohio-4819 (Ohio Ct. App., Montgomery County Nov. 1, 2013). In Cormack, the Defendant Danies Carmack transferred two pieces of real property to her husband and a related LLC shortly after being found liable for $192,055.61, in order to prevent the property from being used to satisfy the judgment. The trial court found Danies Carmack, her husband, and the LLC jointly and severally liable for the full judgment and the Ohio Court of Appeals affirmed the decision.

Danies Carmack owned and operated Individual Business Systems, Inc. (IBS) for fifteen years and was employed by the company for twelve years prior to assuming full ownership. Over the course of her ownership, she took $192,055.61 in loans from the company which were not repaid. In 2000, Danies retired and donated the company to Citizens Motorcar Company, including the outstanding loans. In 2002, during a suit against IBS for breach of a commercial lease, IBS filed a cross-claim against Danies alleging she had improperly removed money from the company on multiple occasions and classified the transactions improperly as loans to shareholders. IBS was granted summary judgment against Danies for the account receivable worth $192,055.61.

Immediately following the judgment against her, Danies transferred a piece of real property to her husband, Robert Carmack, and a Key West condominium to Sunset Cottages, LLC, an entity controlled by Robert. Danies was left without assets to pay the judgment against her and later filed for bankruptcy. IBS sued Danies, Robert, and Sunset alleging the transfers were fraudulent under ORC § 1336.04 and 1336.05 and the trial court found all three defendants jointly and severally liable for the entire $192,055.61 judgment against Danies. The defendants then appealed the judgment citing several assignments of error.

The defendants first allege that the Florida condominium could not be fraudulently transferred as it qualified for the Florida homestead exemption as Danies’ primary residence. The trial court determined that Danies’ primary residence was in fact Ohio and not Florida preventing the exemption from applying. The Court of Appeals found that the trial court’s finding was not against the manifest weight of the evidence and therefore upheld its decision.

The Defendants then alleged that the transfer of property from Danies to Sunset was not fraudulent under ORC § 1336.04(A)(1). To be fraudulent under the statute, the transfer must have been made “with actual intent to hinder, delay, or defraud any creditor of the debtor.” Due to the difficulty in determining actual fraudulent intent, ORC § 1336.04(B) provides eleven “badges of fraud” which may be used to presume fraudulent intent as they are circumstances frequently attending fraudulent transfers. If a creditor can show the presence of a sufficient number of badges of fraud, some courts have required as few as three, then the defendant must prove the transfer was in good faith and for a reasonably equivalent value to prevent the finding of a fraudulent transfer. The trial court found six badges of fraud were present in the transfer, (1) the transfer was to an insider, (2) Danies continues to use the property, (3) the transfer was concealed, (4) a lawsuit was filed against Danies prior to the transfer, (5) Danies was insolvent at the time of the transfer, and (6) the transfer occurred shortly after a substantial debt was incurred. The defendants argue that they have proved the transfer was not fraudulent as the plaintiffs were denied punitive damages, the LLC was created for the purposes of limiting premises liability, and Robert had agreed to hold Danies harmless for any debt on the property and pay her living expenses. The Court of Appeals agreed with the trial court and found such evidence insufficient to overcome the numerous badges of fraud.

The Defendants also alleged that the transfer of the property to Robert was not fraudulent under ORC § 1336.04(A)(1). The trial court again found six badges of fraud present in the transfer: (1) the transfer was to an insider, (2) Danies retained possession of the property and continued to live there, (3) the transfer was made shortly after a judgment was obtained against Danies, (4) the transfer consisted of substantially all of Danies’ assets, (5) there was no consideration for the transfer, and (6) Danies was insolvent at the time of the transfer. The defendants argued that the transfer was routine due to Robert’s real estate investment business and his continued payment for her living expenses constituted adequate consideration. The Court of Appeals found the transfer to be unique in the business and lacking any consideration and therefore fraudulent due to the numerous badges of fraud.

The defendants’ final arguments allege that they should not be jointly and severally liable for the full judgment amount and the exact values of the property were not determined at the time of transfer. While the statute generally only imposes liability for the value of the transferred property, the Court of Appeals found that the trial court has broad equitable powers to grant “any relief that the circumstances may require.” ORC § 1336.07(A)(2)(c). The court stated that the primary purpose of the statute is to provide compensation to a creditor who has been damaged by a fraudulent debtor. As the parties were closely related and used that relationship to commit the fraudulent transfers, were each involved with at least one fraudulent transfer, and IBS had been attempting to collect the debt for almost a decade, the Court of Appeals found that joint and several liability for all defendants was an appropriate equitable remedy. The appeals court also found that it was not necessary to determine the value of the property on the exact date of transfer as the trial court had considered the available evidence to estimate the value and the purpose of the statute is equitable compensation for damaged creditors.

The Carmack case illustrates the broad equitable power of the court to compensate creditors for fraudulent transfers. In Carmack, the court found Danies’ husband and his company liable for her judgment without any direct proof of fraudulent intent. The presence of sufficient badges of fraud allowed the intent to be presumed absent compelling evidence to the contrary. As such, creditors have a powerful tool to use in situations where debtors have attempted to hide or protect assets from creditors.

The Full Text of the Opinion May Be Found at: 

http://www.supremecourt.ohio.gov/rod/docs/pdf/3/2013/2013-ohio-4109.pdf

** Many thanks to William Abbey for his contributions to this article.  William is a law clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.  **

6th Circuit Reviews Tyler v. DH Capital and Finds Error in Res Judicata Analysis But Affirms on Standing Grounds

November 8, 2013 in FDCPA, Kentucky Courts

As we discussed in February of this year, a District Court in Kentucky granted defendant, DH Capital Management’s (“DHC”), motion to dismiss a FDCPA action filed by Dionte Tyler in which the court found that the case failed on the grounds of res judicata and lack of standing due to Tyler’s bankruptcy filing.  (A full accounting of the lower court’s decision may be found here: FDCPA Claim Barred by res judicata and Lack of Standing).

Tyler believed the District Court had erred by holding that his claims were barred because he failed to present them as counterclaims in the original state-court action and that he had no standing because the cause of action belonged to his bankruptcy estate. Tyler appealed to the U.S. 6th Circuit Court of Appeals, which in turn found that the District Court erred in the application of res judicata but affirmed on the issue of standing.

The Court of Appeals addressed the two issues in turn.  Beginning with the procedural bar, the court held that while there will be instances where compulsory counterclaims that are not raised should be barred in a suit that was voluntarily dismissed without prejudice, in this instance the case was not sufficiently advanced to warrant application of the bar. Tyler filed his answer two days after DHC filed its notice of dismissal. Under Kentucky Rule 41.01, a notice of dismissal is effective immediately; the case was closed before Tyler filed his answer and so the content thereof does not matter. In addition, the principles of res judicata only apply to adjudications on the merits. Obviously, no such finality exists here. After a voluntary dismissal, the rules of res judicata do not prevent a party from asserting an unraised counterclaim, anymore than it prevents a party from re-filing suit.

While successful on his first assignment of error, Tyler was less so on his second: the Court held that the suit was the property of Tyler’s bankruptcy estate and as such, only the bankruptcy trustee had standing to bring it. The law surrounding this question is fairly straightforward: all legal or equitable interests of the debtor in property as of the commencement of the case are considered property of the bankruptcy estate. However, the inquiry required to determine at what point it becomes bankruptcy property, followed by when the actionable violation occurred, is far less straightforward.

A cause of action becomes the property of the bankruptcy estate, when the asset is “sufficiently rooted in the pre-bankruptcy past” of the debtor. Pre-petition conduct or facts alone will not root a claim in the past; there must be a pre-petition violation. All causes of action that hypothetically could have been brought pre-petition are property of the estate. Therefore, in Tyler’s case, if DHC’s alleged violation occurred prior to the filing of the bankruptcy petition, the cause of action may only be properly initiated by the bankruptcy trustee.

Tyler argued that the cause of action accrued when he was served with notice. The Court disagreed: violation occurred at filing, and thus Tyler’s FDCPA claim is pre-petition property of the estate. The Court stated several reasons for their conclusion. First, filing a complaint may cause harm to the debtor even before service is perfected. Second, the alternative to dating violations from the filing of the complaint can become factually complicated. Third, there is no viable logic for protecting debt collectors who have filed complaints but not yet served process. And finally, the relevant bankruptcy-law question is when the claim is minimally actionable, not when it is fully matured.

The final issue the court had to resolve in determining standing was whether Tyler’s failure to schedule the asset in his bankruptcy filings deprives him of the right to bring the claim. Failure to schedule an asset does have an affect on whether the trustee abandoned it. If the trustee abandons it, Tyler can pursue it. But he must schedule it first.  After that, it is only when the trustee declines to pursue it that Tyler will possess the requisite standing to bring his claim.

The full text of the opinion may be found here: http://scholar.google.com/scholar_case?case=8332826360302085246&hl=en&lr=lang_en&as_sdt=4,111,126,275,276,280,281,293,294,301,302,303,338,339,343,344,356,357,364,365,366,381&as_vis=1&oi=scholaralrt

Special thanks to Meredith Hughes for her contributions to this article.  Meredith is a Litigation Clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.  

 

Corporations Cannot Bring CSPA Claims

October 9, 2013 in Ohio Consumer Sales Practices Act (OCSPA), Ohio Courts

The Third Court of Appeals in Ohio recently found, in Semco, Inc. v. Sims Bros., Inc., that a corporation is prevented from bringing claims under Ohio’s Consumer Sales Practices Act (CSPA) and affirmed an award of $26,130 in attorney’s fees against Semco for bringing such a claim in bad faith. 2013-Ohio-4109. CSPA governs consumer transactions between a supplier and a consumer and prevents a number of unfair, deceptive or unconscionable acts or practices. In particular, the court rejected Semco’s argument that they could bring a CSPA claim against another corporation for a transaction involving their employees.

In the case, two employees of Semco, a foundry, stole metal from the foundry and sold it to Sims Bros., a metal recycler. Semco sued Sims Bros. under a number of different theories for the value of the metal stolen from Semco. Among the claims brought by Semco, Semco alleged that Sims Bros. violated CSPA by purchasing metal from the employees even though they suspected it was stolen.

 To prevail on a CSPA claim, there must be a consumer transaction that violates the statute. CSPA defines a consumer transaction as “a sale, lease, assignment, award by chance, or other transfer of an item of goods, a service, a franchise, or an intangible, to an individual for purposes that are primarily personal, family, or household, or solicitation to supply any of these things.” ORC 1345.01(A). The Ohio Supreme Court has ruled that “an individual” refers only to a natural person and does not include a business entity, such as a corporation. Culbreath v. Golding Ents., L.L.C., 114 Ohio St.3d 357.

 Semco asserted that a consumer transaction occurred between Sims Bros. and its employees when it purchased the stolen metal from them. As the metal belonged to Semco, it argued that it was entitled to stand in the employee’s place to file suit against Sims Bros. Without addressing other problems with characterizing the transaction as a consumer transaction, the Court found that the Plaintiff in a CSPA suit must be a natural person. The court found the “stand in the shoes” argument proposed by Semco to be erroneous and that as a corporation Semco is expressly prevented from filing a CSPA suit.

 CSPA may only be used by individual consumers and all forms of business entities are forbidden from filing suit under the Act. In addition, the Act does not allow businesses to file suit on behalf of an individual who has engaged in a consumer transaction. In Semco, the trial court found that alleging such a claim as a corporation amounts to bad faith and awarded attorney fees to the defendant for Semco’s claim under CSPA. The court also ruled against Semco on all other claims. The Appellate Court affirmed the trial court’s decision including the imposition of attorney’s fees against Semco for filing a claim under CSPA in bad faith.

** Many thanks to William Abbey for his contributions to this article.  William is a law clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.  **

Randy Is Again Teaching Debtor-Creditor Law at UC Law School

September 24, 2013 in News

It’s back to school time again and Randy Slovin is preparing for his 3rd year as an adjunct professor at the University of Cincinnati College of Law.  He is again teaching the course for the fall 2013 semester titled “Debtor-Creditor Law”.  Some of the topics included in the course are fraudulent conveyances, common law claims of debtors against creditors such as invasion of privacy, the federal Fair Debt Collection Practices Act and the Fair Credit Reporting Act, and post-judgment remedies of creditors.

Medical Services to Spouse Presumed Reasonable and Necessary

September 13, 2013 in Medical and Healthcare, Ohio Courts

The matter of Orchard Villa v. Irene Suchomma came before the Court of Appeals, Sixth Appellant District, in Lucas County Ohio on July 19, 2013.  The trial court found Ms. Suchomma to be liable for her deceased husband’s medical expenses.

In June, 2009, Joseph Suchomma signed a contract with appellee Orchard Villa to recuperate from a recent leg amputation. The contract contained a private pay provision.    His stay at Orchard Villa lasted until January, 2010.  Shortly after his release, Mr. Suchomma was diagnosed with leukemia and died on April 20, 2010. Prior to his death, Mr. Suchomma utilized Medicare Parts A and B and private insurance but had an outstanding balance of $20,692.80.  Orchard Villa then sued Mrs. Suchomma for the balance when she refused to pay.  The trial court agreed that Mrs. Suchomma was responsible for the outstanding balance.

The appellant asserts that the trial court erred by citing Rev. Code §3103.03 which provides that …  “(A) Each married person must support the person’s self and spouse out of the person’s property or by the person’s labor. If a married person is unable to do so, the spouse of the married person must assist in the support so far as the spouse is able. …”  The appellate court found that there was not sufficient evidence to indicate that Mrs. Suchomma was unable to pay the debt to Orchard Villa thereby upholding the trial court’s ruling.  The appellate court cites Kincaid, 48 Ohio St.3d at 80, 549 N.E. 2d 517 stating that the determination of a spouse’s ability to provide financially for one’s spouse “is a matter to be decided with the sound discretion of the trial court.”  Upon review, the appellate court did not find any abuse of that discretion. While the court admits that Mrs. Suchomma’s resources are limited, they believe that her sole ownership of the marital home as well as survivor benefit and her own income that she has is more than capable of aiding in her husband’s support as outlined in Rev. Code §3103.03. 

In her appeal, Mrs. Suchomma also contends that the service(s) provided by Orchard Villa were not in good faith as required the Rev. Code §3103.03 (C) which states:

 If a married person neglects to support the person’s spouse in accordance with this section, any other person, in good faith, may supply the spouse with necessaries for the support of the spouse and recover the reasonable value of the necessaries supplied from the married person who neglected to support the spouse unless the spouse abandons that person without cause.

The trial court record contains documentation that supports the fact that despite accumulating past-due balances, Orchard Villa continued to provide the same level of care throughout his stay there.  As such, the appellate court agreed with the trial court.

Mrs. Suchomma further contended that the balance due is not equivalent to the reasonable value of the services rendered.  Wagner v. McDaniels, 9 Ohio St.3d 184, 459 N.E.2d 561 (1984) states, “proof of the amount paid or the amount of the bill rendered and of the nature of the services performed constitutes prima facie evidence of the necessity and reasonableness of the charges.”  Orchard Villa provided all the bills and documentation to support the reasonableness of the services while Mrs. Suchomma provide only an assertion of the contract rate being unequal to reasonable value.  Further, Mr. Suchomma extended his stay by ten days without arguing the reasonableness of the contract rate.  The appellate court upheld the ruling of the trial court on this issue as well.

The Full Text of the Opinion May Be Found At:  http://www.supremecourt.ohio.gov/rod/docs/pdf/6/2013/2013-ohio-3186.pdf

Many thanks to Kim Goldwasser for her contributions to this article.  Kim is a paralegal with Slovin & Associates Co., L.P.A. 

Court Finds FDCPA Does Not Require Updating Credit Report With Dispute

September 6, 2013 in Credit Reporting, FDCPA, Indiana Courts

The Fair Debt Collections Practices Act requires that when a debt collector reports a debt to a consumer reporting agency, they must also report whether the debt is disputed. This requirement leaves open the question of what happens if a debt becomes disputed after the debt collector has already reported it. Does the collector have an obligation to update the reporting agency’s information?  In February of 2013, the District Court in the Southern District of Indiana in the case of Joshua Rogers v. Virtuoso Sourcing Group, LLC, decided that they did not, holding that once a debt collector has reported that the consumer owes the debt, they do not have a continuing, affirmative obligation to report if it becomes disputed at a later date.

In January 2012, Virtuoso reported to a consumer reporting agency that the plaintiff, Joshua Rogers, had defaulted on a debt. Four months later, Virtuoso received notice that Rogers was disputing the debt. When Rogers checked his credit report several months later, it still reflected the debt, but not that it was disputed.  Rogers brought an action against Virtuoso for violations of the FDCPA. He argued that the language of section 1692e(8), which states that it is a violation of the FDCPA to “communicate or threaten to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed” supported a finding that Virtuoso had an affirmative duty to update the credit reporting agency’s information once they knew the debt was disputed.

The District Court disagreed. Relying on an 8th Circuit Court of Appeals decision and a 1988 Federal Trade Commission Staff Commentary, the Court stated that, “if a debt collector elects to communicate ‘credit information’ about a consumer, it must not omit a piece of information that is always material – whether the debt was disputed.” In addition, the Court emphasized language from the 1988 Staff Commentary: “When a debt collector learns of a dispute after reporting the debt to a credit bureau, the dispute need not also be reported.” When combined, this language clearly states that unless a debt collection agency chooses to report again after a debt becomes disputed, it is under no obligation to update a credit reporting agency’s information.

The Court also wasted little time responding to Rogers’ reliance on a 1997 FTC Staff Letter: “[it] is ambiguous at best…[and] does not stand for the proposition that the debt collector has an obligation to report the debt after the dispute.” This finding in spite of explicit language in the Letter which states that “if a dispute is received after a debt has been reported to a consumer reporting agency, the debt collector is obligated by Section 1692e(8) to inform the consumer reporting agency of the dispute.” The Court qualified this by stating that it only applies if a debt collector chooses to continue to report; it did not require them to report multiple times.

Finding such, the Court held that the plaintiff’s claim failed as a matter of law and granted defendant’s motion to dismiss.

The Full Text of the Opinion May Be Found At: http://scholar.google.com/scholar_case?case=155166204411155402&hl=en&as_sdt=2&as_vis=1&oi=scholarr

Special thanks to Meredith Hughes for her contributions to this article.  Meredith is a Litigation Clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.  

Ohio’s New Law – Potential Benefits of Cure Offers in CSPA Claims

August 27, 2013 in Ohio Consumer Sales Practices Act (OCSPA)

The Ohio Consumer Sales Practices Act (CSPA) provides consumers with remedies against suppliers who engage in deceptive or unconscionable acts or practices. The CSPA allows consumers to recover economic and non-economic damages as well as treble damages, attorney’s fees and court costs in some situations. The prospect of large payouts by pursuing CSPA claims in court however, causes many plaintiffs, and their attorneys, to reject reasonable settlement offers in the hopes of getting much larger payouts through litigation. The result is a statute that is far more punitive to businesses and a windfall for plaintiff’s attorneys than it is a remedy for damaged consumers.

In an effort to balance the effects of the CSPA and encourage settlement instead of litigation, on April 2, 2012 Governor Kasich signed Ohio House Bill 275 into law enacting ORC 1345.092. Effective since July 3, 2012, ORC 1345.092 provides suppliers with an opportunity to avoid the most significant penalties of the CSPA by offering settlement to the consumer early in the litigation process.

ORC 1345.092 allows suppliers to make a cure offer to the consumer within 30 days of being served with a CSPA suit. The cure offer must include a settlement for damages known as a “supplier’s remedy” and in addition must offer to pay attorney’s fees up to $2,500 and court costs. The consumer then has 30 days to accept or reject the offer by filing notice with the court. If the consumer rejects the offer, they cannot collect treble damages, court costs or attorney fees incurred after the offer date unless the court awards damages in an amount greater than the supplier’s remedy.

The supplier’s cure offer must follow a number of requirements to provide the defendant with protection from increased damages. The supplier must deliver the cure offer via certified mail, return receipt requested, in addition to filing a copy with the court. A prominent notice must also be included in the offer with specific statutory language. If the consumer accepts the offer, they must submit documentation of attorney’s fees and court costs to the supplier. The supplier then has the opportunity to contest any unreasonable attorney fees before paying the settlement.

If the consumer declines the settlement offer and proceeds with litigation, the supplier will have some protection against excessive damage awards. If the consumer wins the case but is granted a damage award less than or equal to the amount offered by the defendant as a supplier’s remedy, the consumer will be barred from receiving treble damages as well as all attorney’s fees and court costs incurred after the cure offer was made. If the consumer receives a damage award greater than the supplier’s remedy however, the consumer will retain all rights to collect treble damages, attorney’s fees and court costs.

The result of ORC 1345.092’s enactment is a strong incentive for both consumer and supplier to settle CSPA disputes early in the litigation. If a supplier can reasonably estimate the potential damages that may be awarded to a consumer plaintiff in a dispute, they can offer an appropriate settlement and protect themselves from the most severe penalties of the CSPA. Consumers likewise are encouraged to accept reasonable settlement offers as rejecting them will result in a similar damage award offset against their own attorney’s fees. In addition to avoiding practices that violate the CSPA, suppliers should consider the potential benefits of using the new cure provision to reduce their liability under the statute.

** Many thanks to William Abbey for his contributions to this article.  William is a law clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.  **

Can the FDCPA Be Used as an Enforcement Mechanism for Other Statutes?

August 8, 2013 in FDCPA, Kentucky Courts

Several of the actions prohibited by the Fair Dept Collection Practices Act (FDCPA) use vague language that is not defined by the Act. Recently, debtors have attempted to use the language as an enforcement mechanism for procedural violations of unrelated statutes to collect statutory damages and attorney’s fees otherwise not permitted. The United States District Court for the Eastern District of Kentucky recently dismissed such an attempt.

In Currier v. First Resolution Inv. Corp., First Resolution obtained a default judgment against Currier on October 1, 2012, which Currier moved to vacate on October 5. First Resolution sought a judgment lien on Currier’s real property two days later. The request for a judgment lien was improper as KRS § 426.030 requires judgment creditors to wait ten days after a judgment before seeking a judgment lien and KRS § 426.720 only permits judgment liens on final judgments. Subsequently, Currier’s motion to vacate the default judgment was granted and she filed an action against First Resolution alleging that the improper seeking of the judgment lien under Kentucky law violated three sections of the FDCPA.

Currier first alleged that First Resolutions seeking of a judgment lien was an unfair and unconscionable act prohibited by 15 USC 1692f of the FDCPA. There is no definition in the statute of what is unfair and unconscionable, though the statute does provide a non-exclusive list of examples. Currier posited that as the act was not permitted by law it should be considered unfair and unconscionable. The court sided with similar rulings in other circuits finding that while ambiguous, the statute gives no hint that it may be used as an enforcement mechanism for other state or federal laws and therefore an act prohibited by a separate statute is not unfair and unconscionable per se. The court did indicate that conduct prohibited by other statutes may be actionable under § 1692f if it is unfair and unconscionable independent of the statute.

Currier’s second argument alleged a violation of § 1692f(1) which forbids “the collection of any amount … unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” Currier argued that the filing of a judgment lien not permitted by law violated the wording of the statute. The court disagreed, finding that the section prohibits the collection of unauthorized amounts rather than unauthorized methods. As the amount First Resolution attempted to collect in placing the lien was authorized by the FDCPA, the improper placing of the lien did not violate the statute.

Currier’s final argument alleges that First Resolution violated § 1692e(5) which prohibits the “threat of any action that cannot be legally taken or that is not intended to be taken.” Currier argued that as the judgment lien could not legally be placed against her at the time First Resolution filed for it, First Resolution made a threat of an action that could not legally be taken upon sending her notice. The FDCPA does not define “threat” and the courts have had varying interpretations on its application. Some courts have found that there can be no threat if the action is actually taken. This court followed a line of cases indicating that a threat and action are not necessarily mutually exclusive. A threat under the FDCPA however, was found to be a threat to take an action to induce payment of a debt. Merely providing notice as required when actually taking the action however, does not qualify as a threat for FDCPA purposes.

The court in Currier, found that while First Resolution’s filing of a judgment lien prior to the time permitted by statute was likely improper, it was not a violation of the FDCPA. The FDCPA was not available for enforcement of other statutes and did not apply to First Resolution’s actions. While a collector’s actions could violate the FDCPA and a separate statute, it would need to be found to violate both individually.

 

The Full Text of the Opinion May Be Found at:

http://scholar.google.com/scholar_case?case=3641462025453617942&hl=en&lr=lang_en&as_sdt=4,111,126,275,276,280,281,293,294,301,302,303,338,339,343,344,356,357,364,365,366,381&as_vis=1&oi=scholaralrt

 

Many thanks to William Abbey for his contributions to this article.  William is a law clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law. 

Hospital May Seek Full Payment from Third Party Insurer

August 5, 2013 in Medical and Healthcare, Ohio Courts

In response to the increasing influence of health insurance corporations and medical providers, the Ohio legislature attempted to set forth circumstances under which a hospital or other provider could collect on medical debt, and from whom. On July 8, 2013, in Annette Hayberg v. Robinson Memorial Hospital Foundation, the Ohio Court of Appeals interpreted one such attempt: RC 1751.60(A). That section states “every provider or health care facility” as therein defined “that contracts with a health insuring corporation to provide health care services to the health insuring corporation’s enrollees or subscribers shall seek compensation for covered services solely from the health insuring corporation and not, under any circumstances, from the enrollees or subscribers.”

The case began with a car accident in October 2003, resulting in Annette Hayberg being injured. The driver at fault was Hayberg’s husband, who was employed by General Motors Corporation, with whom he (and she) had health insurance (“GM plan”). That plan was administered by Anthem Blue Cross and Blue Shield (“Anthem”). The car was insured by Nationwide Insurance Company (“Nationwide”). Beginning with Hayberg’s stay in defendant’s hospital following the accident: Anthem paid the hospital 89% of the total invoice, per the contract between Anthem and General Motors. When it became clear that Nationwide was liable for the medical expenses, Nationwide paid the full invoice, at which point the hospital reimbursed Anthem.

The initial litigation centered on the $2,566.06 difference between what Anthem paid the hospital and what Nationwide paid. After the trial court granted summary judgment in the hospital’s favor and denied her cross motion for summary judgment, Hayberg appealed.

On appeal, Hayberg alleged two assignments of error, (1) since the hospital was under contract with Anthem, it was prohibited from seeking compensation from appellant in excess of the contracted rates plus approved co-payments and deductibles; and (2) appellee violated R.C. 1751.60 by seeking and retaining compensation in excess of the contracted rates plus approved co-payments and deductibles under the contract with Anthem. Hayberg v. Physicians Emergency Serv., Inc., 2008-Ohio-6180 (Ohio Ct. App. Nov. 28, 2008).

On appeal, the Court held that the statute did not permit the hospital to collect a greater amount than it was entitled to under its contract with General Motors, reversed the trial court’s decision and remanded it for further consideration. While the case was on remand, a new decision came out of the Supreme Court of Ohio, King v. ProMedica Health System, Inc., 129 Ohio St.3d 596, 2011-Ohio-4200. King held that per the express terms of 1751.60(A), the statute is applicable only when there is a contract between a provider and a health insuring corporation, and provider seeks compensation for services rendered and it is violated when the provider seeks compensation directly from the insured, rather than from third parties, such as auto insurers. Defendants filed a motion requesting summary judgment in light of the express holding of King, maintaining that King had the effect of nullifying the appellate court’s prior holding with regards to the claim’s viability under the statute; the trial court agreed and summary judgment was granted.

Hayberg, in her second appearance before the Court of Appeals, alleged the trial court committed prejudicial error by granting the appellee’s motion for summary judgment based on the “law-of-the case doctrine.”  The doctrine holds that a prior decision of a reviewing court (here the appellate court’s first decision) is to remain binding upon both the trial and appellate court in all ensuing proceedings. It does not allow trial courts to alter appellate mandates, except when there are intervening decisions from the Supreme Court, and therefore the Court of Appeals first interpretation of the statute should have been applied to the trial court’s decision and summary judgment should not have been granted. However, the Court ruled that King qualified as an intervening event, supplanting their earlier decision. Under King, the statute does not apply to the hospital’s separate request for payment from Nationwide, since it only applies when there is a contract between the hospital and insurer. Therefore, summary judgment in the hospital’s favor was appropriate.

The Full Text of the Opinion May Be Found Here:

http://www.sconet.state.oh.us/rod/docs/pdf/11/2013/2013-ohio-2828.pdf

Special thanks to Meredith Hughes for her contributions to this article.  Meredith is a Litigation Clerk with Slovin & Associates Co., L.P.A. and student at the University of Cincinnati College of Law.  

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