On June 27, the United State Supreme Court denied a debt buyer’s petition for certiorari in a Second Circuit case that raises the issue of whether New York’s state usury law is preempted by the National Bank Act (NBA) when a national bank-originated debt is purchased by a nonbank. Midland v. Madden, No. 15-610 (U.S. June 27, 2017). As previously covered in InfoBytes, the nonbank debt buyer was assigned debt owed by a New York consumer. The debt carried an interest rate in excess of that permitted by New York law but which was permitted by the law of the bank’s home state, which the bank lawfully “exported.” Facing a usury challenge, the debt buyer argued that it was able to continue charging the valid rate made by the national bank and that it did not have to abide by the consumer debtor’s state usury laws. The Second Circuit rejected the debt buyer’s argument, reasoning that the NBA did not apply to the debt buyer because it was not acting on the national bank’s behalf. The Supreme Court did not grant the debt buyer’s petition for certiorari, leaving the Second Circuit ruling in effect. Notably, at the request of the Supreme Court, the Solicitor General and the OCC filed a brief stating the position of the United States as to whether the Supreme Court should grant the petition for certiorari. Although the brief advised that the Court not grant certiorari, the Government’s brief sharply criticized the Second Circuit’s decision.
On July 11, the U.S. Court of Appeals for the Eleventh Circuit reversed and remanded a decision from the District Court for the Southern District of Georgia, concluding that the district court had erred in dismissing the plaintiff’s claims under Section 1681s-2(b) of the FCRA. Hinkle v. Midland Credit Mgmt., Inc. et al., No. 15-10398 (11th Cir. July 11, 2016). Pursuant to 15 U.S.C. § 1681s-2(b), after receiving notice of a dispute, furnishers of information are required to either verify disputed information via investigation or to notify the credit reporting agencies (CRAs) that the disputed information cannot be verified. At issue in Hinkle was whether the debt buyer’s search of its internal records was a reasonable investigation to verify debt accounts when the plaintiff disputed their validity. The debt buyer argued that, “once it compared the information the CRAs possessed with its own internal records and confirmed a match, it was entitled to report the accounts as having been ‘verified.’” The plaintiff maintained that, without obtaining account-level information beyond its internal records, the debt buyer should have reported the results of its reinvestigation to the CRAs as “cannot be verified.” The court agreed with the plaintiff, determining that a reasonable jury could find that the debt buyer’s failure to attempt to consult account-level documentation to confirm that it was seeking to collect the debts from the right person, was an unreasonable investigation on the facts of this case.
On June 16, the United States Supreme Court issued an opinion vacating a First Circuit ruling on the grounds that the appellate court’s interpretation of the False Claims Act’s (FCA) materiality requirement to include any statutory, regulatory, or contractual violation is overly broad. Universal Health Servs., Inc. v. U.S. ex rel. Escobar, No. 15-7 (U.S. June 16, 2016). In a unanimous opinion delivered by Justice Clarence Thomas, the Court held that the implied false certification theory can be a basis for liability under the FCA when (i) the defendant submits a claim for payment to the government that makes specific representations about the goods or services provided; and (ii) the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements make its representations misleading half-truths. However, the Court did not adopt the appellate court’s expansive interpretation of what constitutes a “false or fraudulent claim” under this theory, concluding:
A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment. Nor is it sufficient for a finding of materiality that the Government would have the option to decline to pay if it knew of the defendant’s noncompliance. Materiality, in addition, cannot be found where noncompliance is minor or insubstantial.
On June 8, the Ninth Circuit reversed the district court’s dismissal of a plaintiff’s complaint alleging that the debt collector defendants’ collection action against her violated the Fair Debt Collection Practices Act (FDCPA), finding that the plaintiff’s complaint was filed within one year of the date on which she first learned of the collection action and was thus timely. Lyons v. Michael & Associates, No. 13-56657 (9th Cir. June 8, 2016). On December 7, 2011, the defendants filed a debt collection action against the plaintiff in Monterey, California, despite the fact that the plaintiff resided in San Diego at the time she incurred the debt. On January 3, 2013, the plaintiff initiated a separate action alleging that the defendants violated the FDCPA by bringing their collection action against her in the wrong judicial district. The district court dismissed the plaintiff’s complaint as time-barred, finding that it was filed more than one year after the defendants filed their collection action against plaintiff. The Ninth Circuit reversed, opining that the “discovery rule” applies in FDCPA actions and, therefore, the statute of limitations on the plaintiff’s FDCPA claim did not begin to run until the plaintiff “kn[ew] or ha[d] reason to know of the injury which is the basis of the action.” Because the plaintiff did not have knowledge of the defendants’ collection action until she was served with process—which was less than one year before she filed her action—her FDCPA complaint was timely.
Third Circuit Upholds District Court’s Ruling in its First Case Interpreting the Scope of SCRA Protections
Last month, the U.S. Court of Appeals for the Third Circuit affirmed the district court’s ruling that protections pursuant to the Servicemembers Civil Relief Act (SCRA) do not apply to a business owned by a servicemember. Davis v. City of Philadelphia, No. 15-2937 (3d Cir. May 4, 2016). In 2004, the servicemember plaintiff transferred his and his wife’s property to a Pennsylvania company that he and his wife owned. The plaintiff, having served in the military between 2008 and 2011, claimed that the property’s tax debt should have been reduced under the SCRA. The district court granted the City’s motion to dismiss, holding that because the plaintiff was not personally liable for his company’s debt, the City had not denied him relief under the SCRA.
The Third Circuit affirmed, finding that the plain language of the SCRA’s property tax interest rate cap and its protection against penalties extend only to “property…owned individually by a servicemember or jointly by a servicemember and a dependent or dependents.” 50 U.S.C. § 3991(e) (emphasis added). The SCRA defines “servicemember” as “a member of the uniformed services;” therefore, the court reasoned that property owned by a servicemember is a separate legal entity from the actual servicemember and is ineligible for the SCRA’s protections. The court held that the servicemember failed to prove that an interest in excess of six percent was assessed against him while on active duty or that he actually owned the property. Rather, because the company was the actual owner of the property and was solely liable for tax debt, the Third Circuit affirmed the district court’s ruling.