To every garnishment there is a season –

Tower Credit garnished the debtor’s wages. In defense of a later preference action, Tower argued that its garnishment was effective when served (taking it outside the preference period), not when the debtor in fact received money. The Fifth Circuit disagreed: “The combination of Supreme Court precedent and the overwhelming weight of persuasive authority applying § 547(e)(3) make clear that a debtor’s wages cannot be transferred until they are earned. Thus, we hold that a creditor’s collection of garnished wages earned during the preference period is an avoidable transfer made during the preference period even if the garnishment was served prior to that period.” Tower Credit v. Schott, No. 16-30274 (March 13, 2017).

No, that’s not an FCRA claim

fcra logoBacharach, upset by the handling of credit reporting by SunTrust, sued it under the FCRA. The Fifth Circuit affirmed summary judgment for SunTrust, noting:

  • Reporting about a failed “flip” of commercial property — especially when the alleged losses involved lost rental income — did not fall within the scope of the FCRA;
  • Evidence of other, unrelated payment problems during the relevant period negated the element of causation; and
  • “Vague and conclusory deposition testimony” does not establish actionable emotional distress under the FCRA.

Bacharah v. Suntrust Mortgage, No. 15-31009 (June 30, 2016).

Tax lien transfer isn’t an extension of credit.

ej4-truth_in_lending_act_finBillings v. Propel Financial Services, LLC involved plaintiffs, making claims under the Truth in Lending Act, arising from property tax loans they obtained in exchange for the transfer of their tax liens pursuant to the Texas Tax Code. Applying prior precedent in a an analogous bankruptcy context, the Fifth Circuit held: “[I]t is clear that the payments made by defendants to the relevant taxing authorities and the subsequent transfer of the tax liens and execution of the promissory notes did not extinguish the original tax obligations, but rather, simply transferred the preexisting tax obligations to new entities. Thus, the transfers and promissory notes did not create new debts that would be subject to TILA, but rather transferred existing tax obligations, which are not ‘debts’ subject to TILA.” No. 14-51326-CV (April 29, 2016).

Overserved causes of action

400_SPILL ICE CREAM CONEAppellant “Why Not LLC” (unfortunately, not the appellee, despite the perfect name for that side of an appeal) complained of a frozen yogurt franchise termination by Yumilicious. The district court granted summary judgment on Why Not’s many causes of action, and the Fifth Circuit affirmed, principally on grounds relating to Yumilicious’s lack of intent and the terms of the franchise agreement. In the course of doing so, the opinion offers a primer on commonly-litigated issues about basic business torts in Texas. The Court observed that Why Not’s pleading had presented “a large serving of claims and counterclaims piled precariously together,” and concluded: “This saccharine swirl of counterclaims suggests that litigants, like fro-yo fans, should seek quality over quantity.” Yumilicious v. Barrie, No. 15-10508 (April 6, 2016). (The opinion is silent as to whether Why Not has any relation to the left fielder on Bud Abbott’s famous baseball team.)

Investigation in business dispute does not violate FCRA

jake gittesThe plaintiffs in Hall v. Phenix Investigations were also defendants in contentious state court fraudulent transfer litigation.  They alleged that a private investigation firm violated the FCRA in its work in that litigation.  The Fifth Circuit affirmed the dismissal of the case on the pleadings, finding that “the report was commissioned for use in ongoing commercial litigation, which is not a qualifying purpose of the FCRA even it may potentially be used for such a purpose someday.  And, “[e]ven assuming that filing a lawsuit to collect on a judgment could constitute the collection of a consumer account within the meaning of the FCRA, there is no collection of a consumer account here because the judgment arose from a commercial transaction.”  No. 15-10533 (March 29, 2016, unpublished).

Who can sue about a car lease?

corollaDixon complained that he was defrauded into leasing a Toyota Corolla, having been told that the lease would be tax-exempt because his co-lessee was a non-profit entity.  The Fifth Circuit affirmed dismissal, finding that the Consumer Leasing Act does not confer standing unless all lessees are natural persons, which the non-profit was not.   Dixon v. Toyota Motor Credit Corp., No. 14-30426 (July 23, 2015).

How to create a fact issue in a credit reporting case.

creditreportAfter completing her Chapter 13 plan, Juliana Jett owed roughly $35,000 on her mortgage, with $0 past due.  Her Experian credit report, however, erroneously showed it as discharged with a $0 balance, which Jett alleged caused her to be denied refinancing. She complained to Experian four times, who in turn sent an “automatic credit dispute verification form” to American Home Mortgage Servicing each time.   She sued under the Fair Credit Reporting Act, alleging that “[i]n each instance, American Home tried to correct the information but returned a blank [Consumer Information Indicator] field so Experian did not process the updates.”  The Fifth Circuit reversed a summary judgment for the servicer as to Jett’s negligence claim, noting that this evidence allowed an inference that “American Home knew that Jett’s information was being reported inaccurately and attempted to correct it.”  The adequacy of the servicer’s procedures was an issue to be resolved at trial.  Jett v. American Home Mortgage Servicing, Inc., No. 14-10771 (June 10, 2015, unpublished).

How to sign documents

300px-JohnHancocksSignature.svgCan a note be endorsed with a photocopied signature?  Yes. Whittier v. Ocwen Loan Servicing, LLC, No. 13-20639 (Dec. 3, 2014, unpublished) (citing Tex. Bus. & Com. Code § 1.201(b)(37)) (“Signed” includes using any symbol executed or adopted with present intention to adopt or accept a writing.”)

Can a “deed of trust . . . upon a homestead exempted from execution,” which “shall not be valid or binding unless signed by the spouse of the owner,” be signed in separate but identical documents?  Yes.  Avakian v. Citibank, N.A., No. 14-60175 (Dec. 9, 2014) (citing Duncan v. Moore, 7 So. 221, 221-22 (Miss. 1890)) (“There is much force in the imageargument of defendant’s counsel that the statute does not require a joint deed of husband and wife for the conveyance of the husband’s homestead . . . that the substantial thing is the written evidence of such consent; and that this may be as certainly shown by a separate instrument as by signing the deed of the husband.”)

This ATM Charges $2. Got it? $2.

Mabary withdrew money from an A$2TM machine. While she received an on-screen notice about a $2.00 fee, the machine did not have a posted external notice about the fee — a violation of the Electronic Funds Transfer Act at the time.  After amendments to the EFTA that eliminated the Bank’s liability (if applicable), the district court dismissed Mabary’s claim and denied certification of a related class.  Mabary v. Home Town Bank, N.A., No. 13-20211 (Nov. 5, 2014).  The Fifth Circuit reversed, holding: (1) Mabary had Article III standing as a result of EFTA’s definition of injury, even though she did receive a form of notice; (2) a Rule 68 offer of proof to her – precertification – did not moot her claim; and (3) EFTA’s imageamendments did not fall within the exception to the general presumption against statutory retroactivity.  A dissent took issue with the standing holding as “respectfuly, silly stuff,” reasoning: “Mabary cannot show that she suffered a cognizable injury in fact, so she can sue only if the existence of her statutory cause of action sufficed to satisfy Article III.”

Home Alone

The Baptists bought a home insurance policy from Nationwide in 2006.  In 2008, they lost their home to foreclosure.  They remained in the house, however, until December 2011 — before a court-ordered eviction date of January 13, 2012, but after fire did serious damage to the house in December.  They made a claim on the Nationwide policy, which discovered that they no longer owned the house as part of its post-loss investigation. Nationwide Mut. Ins. Co. v. Baptist, No. 13-60726 (Aug. 7, 2014).  While Nationwide won a summary judgment about coverage on the ground that the Baptists no longer had an insurable interest by the time of the fire, the Fifth Circuit affirmed because the Baptists’ “renewals of their policy constituted their affirmations to Nationwide of their initial application for insurance, material portions of which were no longer true.”  Those misstatements allowed Nationwide to rescind the policy under Mississippi law.

TILA and the “no good deed goes unpunished” principle

The Leas joined a wholesale membership club, and made a $100 payment that day as part of the down payment.  Their contract did not include the starting date, interval, or date of the month when their installment payments would be due over the next 3 years for the $4,000 membership fee.  Lea v. Buy Direct LLC, No. 13-20281 (June 12, 2014).  The Fifth Circuit found that TILA applied because the Leas had entered a credit transaction, even if they had not bought any goods yet.  Then, recognizing that “[Defendant’s] decision to leave the contract blanks unfilled was, at least in part, an accomodation to the Leas,” the Court nevertheless reversed the district court’s summary judgment for the club on the Leas’ TILA claim.  “Perhaps our reversal falls into the category of letting no good deed go unpunished.  Another perspective, though, is that TILA provides an unvarying set of rules that protect consumers who might otherwise voluntarily waive what they should not.”  Thus, although “[w]e do not perceive any harm here . . . harm is not a prerequisite for [TILA] relief.”

Fatal omission — UPDATED

Two cases warn against skipping foundational steps (or “not showing your work”):

1.  The dismissal of Garcia v. Jenkins Babb, LLP was affirmed for failure to allege facts sufficient under Iqbal to show that an FDCPA claim arose from a consumer transaction; more specifically, “giv[ing] no indication what item was purchased or what service was paid for, much less explain how the item or service was intended for personal or family use.”  No. 13-10886 (May 29, 2014, unpublished).  (The case returned, and dismissal was again affirmed, in Israel v. Primary Financial Services, No. 14-10012 (May 28, 2015, unpublished)).

2.  An award of sanctions was reversed and remanded in Arnold v. Fannie Mae when “the
district court abused its discretion by failing to adequately articulate the authority, the basis, and the reasoning for the sanctions” under Rule 11, inherent power, or 28 U.S.C. § 1927.

How much federal question allows removal

In the recent case of French v. EMC Mortgage Corp., No. 13-50417 (April 29, 2014, unpublished), these allegations were deemed to “reference[] the FDCPA by way of asserting a cause of action under this federal statute,” and thus allowing removal:

“V.  ILLEGAL MORTGAGE SERVICING AND DEBT COLLECTION PRACTICES.

. . .

Specifically in collection calls and notices, monthly statements, payoff statements, foreclosure notices, and otherwise, EMC routinely makes misrepresentations to borrowers about their loans, including: [6 topics]

. . .

Plaintiffs submit that Defendant EMC’s conduct in this matter is in direct violation of the Texas Fair Debt Collection Practices Act, the Federal Fair Debt Collection Practices Act and the above referenced stipulated injunction.”

This case rested on Howery v. Allstate Ins. Co., 243 F.3d 912 (5th Cir. 2001), in which the following allegations did not create federal question jurisdiction, because “[f]rom its context, it appears that Howery’s mention of federal law merely served to describe types of conduct that violated the DTPA, not to allege a separate cause of action under the FCRA”:

The acts, omissions, and other wrongful conduct of Allstate complained of in this petition constituted unconscionable conduct or unconscionable course of conduct, and false, misleading, or deceptive acts or practices. As such, Allstate violated the Texas Deceptive Trade Practices Act, Sections 17.46, et seq., and the Texas Insurance Code, including articles 21.21, 21.21-1, 21.55, and the rules and regulations promulgated thereunder, specifically including 28 TAC Section 21.3, et seq. and 21.203.

Allstate’s destruction of [Howery’s] file … constituted a further violation of the Texas Deceptive Trade Practices Act, for which plaintiff sues for recovery. Allstate also engaged in conduct in violation of the Federal Trade Commission rules, regulations, and statutes by obtaining Plaintiff’s credit report in a prohibited manner, a further violation of the Texas Deceptive Trade Practices Act….

While these holdings are consistent, the line between them is only a few words in a lengthy pleading.  They underscore the importance of detail in considering whether removal is appropriate.

What does the discovery rule require?

Congress amended the Fair Credit Reporting Act to have a limitations period of “2 years after the date of discovery by the plaintiff of the violation that is the basis for such liability.”   The plaintiff in Mack v. Equable Ascent Financial, LLC argued that this amendment meant that “he could not have ‘discovered’ the violation until he had researched the statute.”  No. 13-40128 (April 11, 2014).  The Fifth Circuit disagreed, finding that the amendment was made to equalize the treatment of different types of claims, and that the plaintiff’s reading “would indefinitely extend the limitations period.”

Partial Rule 68 offer does not moot case

Payne sued Progressive Financial for violations of fair debt collection statutes, seeking statutory damages, actual damages, attorneys fees, and costs.  Payne v. Progressive Financial Services, No. 13-10381 (April 7, 2014).  Progressive made a Rule 68 offer of $1,001 in damages and fees to the date of the offer, to which Payne did not respond.  The district court reasoned that Payne had not pleaded a basis to recover actual damages, and that the unaccepted offer mooted her claim for statutory damages because it exceeded the amount she could recover.  The Fifth Circuit reversed, finding that the district court’s analysis of the actual damages claim conflated jurisdiction with resolution of the merits; accordingly, Progressive’s offer was incomplete because it did not address actual damages.  A footnote reminds that a complete Rule 68 offer can moot a case, and that the Court did not reach the argument that the offer was incomplete because it did not include post-offer fees and costs.