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New Jersey Federal Court Holds That Collection Letter Informing Debtor That He Could Call Debt Collector if He Had Insurance Coverage for the Debt Violated the FDCPA Banner Image

New Jersey Federal Court Holds That Collection Letter Informing Debtor That He Could Call Debt Collector if He Had Insurance Coverage for the Debt Violated the FDCPA

Month: December 2018

New Jersey Federal Court Holds That Collection Letter Informing Debtor That He Could Call Debt Collector if He Had Insurance Coverage for the Debt Violated the FDCPA

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The United States District Court for the District of New Jersey recently granted the plaintiff debtor’s motion for summary judgment and held that a debt collection letter stating, “[i]f you carry any insurance that may cover this obligation, please contact [the defendant debt collector’s] office at the number above” violated the Fair Debt Collection Practices Act (“FDCPA”).  See Kassin, v. AR Resources, Inc., 2018 WL 6567703 (D.N.J. Dec. 13, 2018).  In the putative class action, defendant debt collector sent a collection letter to plaintiff that contained the requisite validation notice that plaintiff could dispute the debt in writing within 30 days of receipt of the letter.  However, before including this language, the letter stated “[i]f you carry any insurance that may cover this obligation, please contact [defendant’s] office at the number above.”  Plaintiff then filed this action, arguing that the validation notice stating that plaintiff had to dispute the debt in writing—which is required by 15 U.S.C. 1692g—was overshadowed by this language stating plaintiff could call defendant.  The Court denied defendant’s motion to dismiss and, after discovery, the parties cross-moved for summary judgment.

The Court denied defendant’s motion and granted plaintiff’s, finding that the letters violated the FDCPA.  Although the Court acknowledged that “the case before me presents a close call,” it held:

A least sophisticated debtor could reasonably interpret that language to mean that to the extent the debtor believes that an insurance provider is responsible for payment of a portion of the debt (e.g., if the debtor only believes he or she is responsible for a co-payment), or the whole debt, he or she may dispute the debt obligation by calling [defendant], rather than disputing the debt in writing.  In other words, the least sophisticated debtor could reasonably be misled into calling — rather than writing — to dispute a debt by claiming that the insurance provider is the liable party.

Based on this potential to mislead consumers in violation of the FDCPA, the Court granted plaintiff’s motion for summary judgment.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

WOTUS Proposal Would Reduce Waters Subject to Federal Regulation

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The newly proposed definition of the Waters of the United States (“WOTUS”) may clarify what water features are federally regulated under the Clean Water Act, but, if adopted, it is sure to spark further litigation.  On December 11, 2018, the United States Environmental Protection Agency (“USEPA”) and the Army Corps of Engineers (“Army Corps”) proposed the much-anticipated revised definition of WOTUS, which establishes the jurisdictional reach of the Clean Water Act.  The current definition of WOTUS, adopted during the Obama Administration, is far-reaching and includes areas such as mudflats, sandflats, isolated wetlands and ephemeral and intermittent streams.  To the satisfaction of many in the commercial, industrial and farming communities, the new proposal limits the extent of WOTUS to six identified categories of water features.  But environmental groups believe these limitations will result in less protection for the Country’s wetlands and water resources and, in fact, have referred to the revised definition as the “dirty water rule.”

According to the USEPA and the Army Corps, the proposed WOTUS definition is “simple, understandable and implementable” and was drafted to provide clarity to the regulators and the regulated community.  Much of the uncertainty in the current WOTUS rule results from the “significant nexus” provision that allows federal regulators to determine, on a fact specific basis, whether a particular water feature is a WOTUS.  This provision provides the USEPA and Army Corps with the ability to use a “know it when they see it” inquiry to determine whether a water feature is subject to federal regulation.  It also encompasses nebulous areas such as ponds that are only filled during rainfall events and isolated wetlands.  The new proposal eliminates the “significant nexus” provision and encompasses only relatively permanent flowing waterbodies that are either traditionally navigable or have a connection to a traditionally navigable waterway.  It also limits federal protection to those wetlands that either abut or have a direct hydrologic surface connection to navigable waters.  The reach of the Clean Water Act under the revised definition is unquestionably reduced.  

The proposed WOTUS definition sets forth six exclusive categories of waters that fall within the jurisdiction of the federal Clean Water Act.  The revised definition initially identifies WOTUS as waters that are used, or were used in the past, or may be susceptible to use, in interstate or foreign commerce (“navigable waters”).  The remaining WOTUS categories are contingent upon this first enumerated category.  For example, tributaries are included if they are tributaries of navigable waters.  Most importantly wetlands and impoundments are federally regulated only if they are adjacent or connected to navigable waters.  To add clarity, the USEPA and Army Corps specifically set forth waters that are not WOTUS, including certain ditches, prior converted cropland, artificially irrigated areas, artificial lakes and ponds and groundwater.   

The newly proposed WOTUS rule attempts to reduce the uncertainty of the current rule by identifying specific categories of WOTUS.  Although certain language in the proposal, such as waters that “were used in the past or may be susceptible to use” in commerce, continues to create some ambiguity, the regulated community appears pleased with the increased clarity the proposed definition provides.  Environmentalists, however, are concerned that the lack of a “significant nexus” test and the elimination of certain categories of water features in the proposed rule will reduce protection for important US waters as required by the Clean Water Act.  As such, it is anticipated that the adoption of the proposed WOTUS rule will spark additional litigation.  Moreover, the ability of the rule to provide clarity and increased certainty to regulators and the regulated community will only be known with the passage of time.  For now, the WOTUS saga continues.       

For more information, please contact the author Laurie J. Sands at lsands@riker.com or any attorney in our Environmental Practice Group.

New York Supreme Court Holds Title Insurance Company Not Liable for Fraud Claim Made by Former Owner of Property

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The Supreme Court of New York, Suffolk County, recently granted Fidelity National Title Company’s (“Fidelity”) motion to dismiss and held that Fidelity could not be liable to the former owner of a property for fraud.  See DeMaio v. Fidelity Nat. Title Co., Docket No. 31159/2012 (N.Y. Sup. Ct. 2018).  In the case, plaintiff was the owner of the property at issue.  Plaintiff purportedly sold the property to a couple, the Capozellos, and the Capozellos sold it again to defendant Stephen Zangre.  Zangre encumbered the property with a mortgage to defendant Wells Fargo’s assignor.  Plaintiff later reobtained title to the property via a separate action based on allegations of fraud and deceit against the Capozellos, and then brought this action against Wells Fargo seeking to void the mortgage on the property.  During the course of discovery, plaintiff served a subpoena on Fidelity, who had issued the title insurance policies to Zangre and Wells Fargo’s assignor.  Plaintiff eventually served Fidelity with a third-party complaint asserting claims of fraud and falsification of records regarding the sale from the Capozellos to Zangre.  The claim was based on the allegation that Fidelity knew of plaintiff’s claim against Capozellos at the time of the sale to Zangre but nonetheless closed the sale.  Fidelity moved to dismiss.

The Court granted Fidelity’s motion.  First, it found that plaintiff’s fraud claim failed because there was no allegation of any representation made by Fidelity to plaintiff.  “Plaintiff was not in privity with Fidelity; he is not the beneficiary of the title insurance policies; and Fidelity’s issuance of the title insurance policies to Zangre and Wells Fargo did not in itself result in any injury to plaintiff.”  Second, because there could be no fraud claim, the falsification of records claim that was based on an alleged concealment of documents evidencing the fraud also failed.  Finally, the Court found that the fraud claim was barred by the statute of limitations because plaintiff had known about the title insurance policies since 2006.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

New Jersey Appellate Court Holds Shareholder in Closely-Held Corporation Cannot Bring Direct Claims Against Only Other Shareholder for Alleged Mismanagement, but Can for Breach of Shareholder Agreement

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In a
decision approved for publication, New Jersey’s Appellate Division provides an
important reminder as to the crucial distinction between direct and derivative
claims in shareholder actions.  Specifically, in Tully v. Mirz, the
Appellate Division held that one of two shareholders of a closely-held
corporation could not bring a direct action against the other shareholder for
the other shareholder’s alleged mismanagement of the corporation and conversion
of corporate funds, but that he had the right to bring direct claims for the
other shareholder’s alleged breach of contract and breach of the covenant of
good faith and fair dealing.  See Tully v. Mirz, 2018 WL
6204908 (N.J. Super. Ct. App. Div. Nov. 29, 2018).  The facts are as
follows.

In 2005,
plaintiff and defendant formed Interstate Fire Protection, Inc. (“IFP”) and
were IFP’s only shareholders.  In 2009, plaintiff and defendant allegedly
entered into a written agreement stating they were equally responsible for
IFP’s liabilities “unless the losses are occasioned by the willful neglect or
default, and not the mere mistake or error, of any of the parties.”  IFP
defaulted on a line-of-credit loan with TD Bank in 2015.  In April 2016,
TD Bank obtained a $530,687.40 judgment against IFP and the guarantors on the
loan, including plaintiff, defendant, and another company owned by plaintiff.
Plaintiff later settled with TD Bank on behalf of himself and his company, and
TD Bank released them from the judgment in exchange for a payment of
$300,000.  Defendant and IFP remained liable to TD Bank.

In 2016,
plaintiff brought this action against defendant on his own behalf alleging,
among other things, that he loaned money to IFP that has not been repaid, that
defendant mismanaged IFP, and that defendant converted IFP’s funds for personal
use.  Based on these allegations, plaintiff pled six counts:  breach
of fiduciary trust (Count One); breach of contract relating to the 2009
agreement (Count Two); mismanagement (Count Three); breach of the covenant of
good faith and fair dealing relating to the 2009 agreement (Count Four);
conversion (Count Five); and fraud (Count Six).  After trial, the trial
court dismissed the action for lack of standing, finding that the action was
brought improperly as a direct action when it should have been brought as a
derivative action on behalf of IFP.  It stated:  “Although this Court
does have the discretion to treat Plaintiff’s claim as a direct action since
IFP was a closely held corporation, the fact that IFP has creditors who are
still seeking recovery from IFP funds precludes Plaintiff’s recovery as an
individual.”

On appeal,
the Court affirmed in part and reversed in part.  The Court first found
that a court has discretion to construe a derivative claim as a direct claim
for closely-held corporations so long as it will not “(i) unfairly expose the
corporation or the defendants to a multiplicity of actions, (ii) materially
prejudice the interests of creditors of the corporation, or (iii) interfere
with a fair distribution of the recovery among all interested persons.”
Here, because plaintiff and defendant were the only shareholders, the Court was
concerned only with whether construing these claims as direct claims would
materially prejudice the rights of IFP’s creditors.  Finding that the
record did not allow it to determine whether construing these derivative claims
as direct would prejudice IFP’s creditors, the Court affirmed the trial court’s
decision and dismissed Counts One (breach of fiduciary trust), Three
(mismanagement), Five (conversion), and Six (fraud), all of which “concern
IFP’s assets and operations rather than plaintiff as an individual.”
Nonetheless, the Court reversed the trial court on Counts Two (breach of
contract) and Four (breach of the covenant of good faith and fair
dealing).  In doing so, it held that these claims were direct because plaintiff,
and not IFP, was the party to the 2009 contract at issue and that plaintiff
therefore had the right to bring the claims directly.

This
decision is of note for creditors and owners of closely-held companies in
reinforcing who has standing to bring certain claims against a company’s
principals and when principals may sue each other.

For a copy
of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

Seventh Circuit Affirms Dismissal of RESPA When Only Alleged Actual Damages Were Attorneys’ Fees and Emotional Distress

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The United States Court of Appeals for the Seventh Circuit recently held that a borrower’s claims under the Real Estate Settlement Procedures Act (“RESPA”) were properly dismissed because he did not suffer any actual damages.  See Moore v. Wells Fargo Bank, N.A., 908 F.3d 1050 (7th Cir. 2018).  In the case, the borrower purchased a home in 2006.  He defaulted on his mortgage and, after multiple modifications and foreclosure actions, the defendant loan servicer obtained a final judgment of foreclosure in 2012.  The sheriff’s sale was rescheduled multiple times due to the parties’ attempts to modify and plaintiff’s bankruptcy filing, but eventually was scheduled for October 11, 2016.  On August 15, 2016, plaintiff sent a qualified written request (“QWR”) to defendant asking 22 questions about his loan.  Defendant responded to the QWR but did not answer all of plaintiff’s questions.  Plaintiff brought this action, alleging that defendant violated RESPA through its failure to properly respond to the QWR and caused him to suffer actual damages including attorneys’ fees and emotional distress.  The trial court granted defendant’s motion for summary judgment.

On appeal, the Court affirmed, holding that “RESPA does not provide relief for mere procedural violations. Plaintiffs bringing claims under RESPA must show actual injury.”  First, the Court found that the $900 in attorneys’ fees plaintiff incurred when he paid an attorney to review defendant’s QWR response could not constitute actual damages under the statute because they were not incurred “as a result of” the alleged violation.  To hold otherwise “would allow a borrower to create a RESPA claim that pulls itself up by its own bootstraps, creating the required damages by pursuing the inquiry itself, at least with the help of a lawyer.”  Second, the Court found that plaintiff’s alleged emotional damages also were insufficient.  “The problem here is that [plaintiff’s] stress had essentially nothing to do with any arguable RESPA violations. The obvious sources of his stress were the facts that he was not able to make timely payments toward his mortgage, that the lender had won a judgment of foreclosure, and that sale and eviction were imminent” and not the QWR response.  Accordingly, the Court affirmed the dismissal of the action.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

Fifth Circuit Denies Attorneys’ Fees in Successful FDCPA Action Due to Attorneys’ “Outrageous” Actions

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The United States Court of Appeals for the Fifth Circuit recently held that the attorneys representing a successful plaintiff in a Fair Debt Collection Practices Act (“FDCPA”) litigation were not entitled to any fees due to their “outrageous” fee request and other actions in the matter.  See Davis v. Credit Bureau of the South, 2018 WL 6009258 (5th Cir. Nov. 16, 2018).  In the case, the defendant debt collector misrepresented itself as a credit bureau in violation of 15 U.S.C. 1692e(16).  The district court granted plaintiff’s motion for summary judgment, finding a FDCPA violation had occurred and awarding $1,000 in statutory damages, but denied her request for compensatory damages and her state law claims.  Plaintiff’s counsel then filed a motion for attorneys’ fees, seeking $130,410 based on a claim that the attorneys spent nearly 300 hours on the matter at a rate of $450 per hour.  The district court found that both the number of hours and the rate were “excessive by orders of magnitude” and denied the motion in its entirety.  Plaintiff appealed the decision, arguing that the FDCPA mandates that a debt collector “is liable” for reasonable attorneys’ fees and that a court is required to award such fees to a prevailing plaintiff.

On appeal, the Fifth Circuit affirmed.  Although it acknowledged that some circuits have found that the award of fees to a successful plaintiff is mandatory under the FDCPA, it also noted that the Third and Fourth Circuits permit the denial of fees in “unusual circumstances.”  See, e.g., Graziano v. Harrison, 950 F.2d 107 (3d Cir. 1991).  The Court then found that the “extreme facts of the instant case justify the district court’s denial of attorney’s fees.”  Among other things, the Court found that this type of straightforward case did not justify almost 300 hours in fees and that counsel’s work product, which was “replete with grammatical errors, formatting issues, and improper citations” did not support a $450 hourly rate.  The Court further noted that plaintiff—a former employee at the law firm who brought this action—seemingly manufactured this claim by requesting a letter be sent to her parents’ home in Texas and calling defendant on a recorded line from the law firm, and further found that she was “not the type of person Congress intended to protect with the attorney fee-shifting provision.”  Based on all of these issues, the Court affirmed the denial of fees, stating that “[a]lthough complete denial of otherwise generally mandatory attorney’s fees is a rare and drastic sanction, the outrageous facts in this case suggest that the district court did not abuse its discretion.”

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Dylan Goetsch at dgoetsch@riker.com.

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