By Nicolas G. Keller

On September 12, 2018, Judge Loretta Preska of the District Court for the Southern District of New York dismissed the New York State Attorney General’s (“NYAG”) suit against RD Legal Funding, LLC, and related entities (collectively, “RD Entities”)[1] for allegedly defrauding individuals awaiting payouts from two separate funds—the September 11th Victim Compensation Fund of 2011 (“VCF”) and the fund arising out of the NFL Concussion Litigation Settlement Agreement (“NFL Fund”).[2] The Court’s ruling demonstrates the potentially far-reaching implications of the ongoing debate over the constitutionality of the CFPB’s structure in terms of not only the CFPB’s enforcement actions but also those of state actors. 

The lawsuit, commenced jointly by the NYAG and the Consumer Financial Protection Bureau (“CFPB”) in February 2017, alleges that the defendants’ transactions with individuals that the defendants characterized as “purchases” or “assignments” of VCF or NFL Fund payouts are substantively high-interest loans.[3] The CFPB and the NYAG assert that the alleged loans are usurious and violate provisions of the Consumer Financial Protection Act (“CFPA”)—also known as Title X of the Dodd-Frank Act—and various New York state fraud and usury laws.[4]

Nearly three months ago, on June 21, the Court dismissed the CFPB from the suit.[5] The gist of the Court’s holding, which we wrote more about here, was that the CFPB’s structure as an independent agency headed by a single director who can be removed by the President only for cause violates separation of powers.[6]  And the Court ruled that the remedy for this constitutional infirmity is to strike the CFPA in its entirety, thereby leaving the CFPB without the authority to bring suit.[7]  The Court also noted that:

By Nicolas G. Keller

On May 21, 2018, President Trump signed into law a resolution disapproving the Consumer Financial Protection Bureau’s (“CFPB”) guidance on Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act (“Indirect Auto Lending Guidance” or “Guidance”).  In that Guidance, the CFPB expressed the view that certain indirect auto lenders—that is, lenders that coordinate with dealerships to provide auto loans to consumers—are subject to the Equal Credit Opportunity Act and its anti-discriminatory provisions.[1] 

The CFPB issued the Indirect Auto Lending Guidance in 2013 as a bulletin, not a formal rule, and did not submit it to Congress for review under the Congressional Review Act (“CRA”), which would have allowed Congress sixty days to disapprove the Guidance by simple majority vote in both houses.[2]  However, in March 2017, Senator Patrick Toomey of Pennsylvania requested that the Government Accountability Office (“GAO”) determine whether the Indirect Auto Lending Guidance is a “rule” under the CRA and therefore subject to the disapproval procedures.[3]  In an opinion issued on December 5, 2017, the GAO concluded that the Guidance is indeed a “rule” under the CRA—this was effectively treated as a trigger for the sixty-day clock, enabling Congress to exercise its powers under the CRA even though the Guidance was never submitted to Congress or published in the Federal Register.[4]  In its opinion, the GAO expressed a broad stance on the reach of the CRA over agency guidance, stating that “CRA requirements apply to general statements of policy which, by definition, are not legally binding.”[5]  This holds open the door for the CRA to be used to disapprove agency guidance that is much older than sixty days, as was the case with the Indirect Auto Lending Guidance.

By William M. Strom

On November 17, the U.S. Supreme Court dismissed its review of two related antitrust class actions involving ATM fees and, in an atypical move, explained its reason why. In each of the consumer class actions, Visa, Inc. v. Osborn (No. 15-961) and Visa, Inc. v. Stoumbos (No. 15-962), plaintiffs below had persuaded the D.C. Circuit to allow them to maintain antitrust challenges against credit card company rules preventing independent ATM operators from imposing lower fees for transactions processed on networks that are not owned by Visa or MasterCard.

Petitioners, the credit card companies and associated banks, had argued in their petition for certiorari that allegations of their participation in a business association were not enough to support an action for antitrust conspiracy, and that the D.C. Circuit decisions allowing the challenges to go forward created a direct conflict with the rule in the Ninth Circuit. Certiorari was granted on June 28, 2016, to resolve the question “[w]hether allegations that members of a business association agreed to adhere to the association’s rules and possess governance rights in the association, without more, are sufficient to plead the element of conspiracy in violation of Section 1 of the Sherman Act.” But after making changes to their legal team, petitioners argued in merits briefing that the credit card companies and banks were engaged in a joint venture—a single entity that is incapable of engaging in a conspiracy as a matter of law. The respondent class and the United States as amicus curiae argued in their briefs that petitioners’ shift in legal argument amounted to an abandonment of the position advanced in the petition for certiorari.

The Court agreed and dismissed the petition as improvidently granted. This permits the consumers’ class actions to proceed in the lower courts and leaves the question of Sherman Act liability for the activities of business associations open, at least until another case presents a more appropriate vehicle.

The U.S. Supreme Court’s order of dismissal can be found here. Additional coverage of the cases is available from SCOTUSBlog.

By William M. Strom

On November 15, plaintiffs lost their TRO motion in a proposed consumer class action alleging that Anthem Blue Cross of California made unannounced benefits cuts for renewing health insurance customers who purchased from Anthem or from the state’s health insurance exchange, Covered California.  Plaintiffs contend that Anthem is switching health insurance customers without warning from Preferred Provider Organizations (PPOs), which cover some out-of-network services, to Exclusive Provider Organizations (EPOs), which offer no out-of-network coverage, in violation of the federal Affordable Care Act (ACA) and California state consumer protection law.  Plaintiffs cite notices Anthem sent to many of its California customers earlier this year assuring customers that their plans would be renewed if they took no action.  In truth, plaintiffs allege, Anthem will switch these customers from PPOs to EPOs.  As a result of these switches, say plaintiffs, some health insurance customers will lose access their physicians.  Plaintiffs seek a court order requiring Anthem to keep customers’ existing health insurance plans in place.

Judge John Shepard Wily, Jr., of the Superior Court of California, Los Angeles County, denied plaintiffs’ motion for TRO on the ground that plaintiffs had yet to suffer injury due to the health-plan changes, which are not scheduled to take effect until January. Plaintiffs have not filed a notice of appeal to date.  Anthem spokesperson Darrel Ng said that the company was pleased with the court’s decision and that state regulators have approved Anthem’s policy changes.

The case is Simon v. Blue Cross of California, Superior Court of California, Los Angeles County, No. BC639205. Click here to read the L.A. Times’ report on the case.

By Daniel A. Johnson

Last month, Twitter was dealt a setback in a case where it is accused of sending unwanted texts with “recycled” phone numbers in violation of the Telephone Consumer Protection Act (TCPA).  The case is a putative class action titled Nunes, et al. v. Twitter Inc., No. 3:14cv02843 (N.D. Cal.), and on July 1, the court denied Twitter’s motion for summary judgment, and granted the plaintiff’s cross-motion. 

According to the court’s opinion, some Twitter users sign up to receive tweets via text message, but will later change phone numbers without bothering to inform Twitter.  This can be a problem because sometimes cell phone carriers “recycle” old discarded phone numbers, assigning them to new cell phone users, in which case the person with the recycled number may allegedly receive unwanted tweets.  The plaintiff in the case claims to have been in this position.  On that basis, she brought suit under the TCPA, which allegedly renders it unlawful to “make any call” —a phrase courts interpret as including texts—using an automatic telephone dialing system without the consent of the recipient. 

By Daniel A. Johnson

Last month, the Federal Trade Commission issued an opinion and order concluding that a clinical laboratory, LabMD, Inc., committed an unfair act or practice in violation of Section 5 of the FTC Act as a result of its allegedly “unreasonable” data security practices.  This FTC matter has been closely watched and may well have a significant impact as an official confirmation—or arguably a broadening—of the law’s scope.

According to the FTC’s opinion, LabMD operated as a clinical laboratory that conducted tests on patient specimen samples and reported the test results to its physician customers.  As a result, it had collected sensitive personal information for over 750,000 patients over the course of its operations, including their names, addresses, dates of birth, Social Security numbers, insurance information, diagnosis codes, and physician orders for tests and services.  According to the FTC, LabMD allegedly failed to institute “basic security practices” at least from 2005 until 2010.  For example, it allegedly lacked the following measures: “file integrity monitoring or intrusion detection system”; “adequate[] monitor traffic coming across its firewalls”; “data security training” for “its information technology personnel or other employees”; “a policy requiring strong passwords”; software “update[s]” to “protect against known vulnerabilities”; and overly broad assignment of “administrative rights” that permitted management employees to download peer-to-peer (P2P) file-sharing applications. 

By Michael A. Scodro and Ramon Villalpando

On April 29, 2016, the Supreme Court will consider whether to grant the certiorari petition in POM Wonderful et al v. Federal Trade Commission (15-525), which asks the Court to identify the standard of review applicable to agency decisions that prohibit truthful, yet allegedly misleading, advertising.  The case arises out of an FTC complaint filed against POM claiming, among other things, that certain POM ads misleadingly implied that pomegranate juice was a scientifically-established treatment for disease.  An administrative law judge determined that a subset of the challenged ads contained this implied message, but the full Commission later banned a substantially larger group of ads, concluding that these ads made implied, misleading claims.  On appeal, the D.C. Circuit deferred to the FTC’s determination and upheld the ban, rejecting POM’s argument that—to safeguard POM’s First Amendment rights—the court should have reviewed the Commission’s decision de novo.

By Michael A. Scodro

Issued on December 14, 2015, DirectTV v. Imburgia represents the newest in a line of Supreme Court decisions applying the Federal Arbitration Act (FAA) to enforce contractual arbitration provisions.  Here, a service agreement between DirectTV and its customers requires arbitration of any future disputes and expressly waives either party’s right to initiate arbitration on a class-wide basis, with the exception that, if the “law of your state” prohibits the waiver of class arbitration, then the arbitration provision as a whole “is unenforceable.”  Two customers sued DirectTV, seeking to proceed in court rather than arbitration on the theory that the “law of” their “state,” California, does indeed prohibit class-action waivers in arbitration.  It was this theory—requiring application of the term “law of your state” to California—that divided lower courts and attracted Supreme Court review.