Tuesday, January 24, 2017

Student loans: ESCAPE [harassment by student loan collectors by coming] TO WISCONSIN!

note: Scott Walker does not actually want
to help you with your student loans.
To most people who deal with student loans, the big news in January has been the CFPB's filing a lawsuit against Navient for illegal activities in regards to student loans.  The CFPB was probably just following our firm's lead, though, as on January 17 the Eastern District of Wisconsin Court (Judge Stadtmueller) ruled in favor of my clients on a student loan lawsuit, allowing the suit to continue over Navient's objections.

The case is Riel v. Navient Solutions, Inc., (16 CV 1191, ED WI) the plaintiffs, represented by me, are suing Navient for illegal collection practices involving student loans.  The plaintiffs are alleging that Navient violated the Wisconsin Consumer Act by calling the debtor after he retained counsel, by calling too much and at the wrong times, by contacting relatives, and by otherwise engaging in unsconscionable behavior.

Navient, as defendants do, filed a motion to dismiss the case. Navient said the entire case had to be dismissed, as well as attacking certain individual claims.

The plaintiffs were, as noted, suing in part for a court order enjoining Navient from collecting the loans in question, based on what was alleged to be Navient's unconscionable conduct. Navient argued that the plaintiffs couldn't bring that claim because (they said) section 425.107 of the Wisconsin Statutes is defensive only, The Court agreed with that, finding that Subchapter 1 of chapter 425 applies only to actions brought by a creditor, and so holding that the defense of unconscionability can only be raised by a debtor as a defense to such an action, rather than affirmatively.  (The Court said that cases where plaintiffs have been allowed to raise such issues affirmatively, such as Drogorub v. Payday Loan Store of WI, Inc., 826 N.W.2d 123 (Wis. Ct. App. 2012) did not compel a different result.)

Navient's larger attack was against the claims under chapter 427 for illegal collection practices. Navient asserted that the Higher Education Act pre-empted the Wisconsin Consumer Act, in its entirety, as well as pre-empting specific claims the plaintiffs made.  

On pre-emption as a whole, the Court disagreed, citing an earlier case brought by Attorney Pagel, Weber v. Great Lakes Educ. Loan Servs., Inc., No. 13-CV-291-WMC, 2013 WL 3943507 *4 (W.D. Wis. July 30, 2013). What Weber and now Riel held was that the Higher Education Act only pre-empts provisions of state consumer law which directly conflict with or limit HEA responsibilities and rights:

it is technically possible to comply with the WCA's anti-harassment provisions and the HEA regulations. See Wis. Stat. § 427.104(g) and (h). ... the Court finds that a prohibition on harassment offers no obstacle to the enforcement of those regulations, especially in light of the presumption against preemption. Plaintiffs' allegations reveal that Navient's call volume far exceeded the minimum requirements of Section 682.411. 


The ruling allows the plaintiffs to continue to seek damages for the frequency of phone calls, while denying the right to seek damages for calls made to the debtor after the debtor retained a lawyer.

The case is still at the early stages, but surviving a motion to dismiss is a significant event in any lawsuit, let alone one dealing with the third rail of debtor law, student loans.  In addition, this marks the second time that a federal court in Wisconsin has ruled on HEA pre-emption of the Wisconsin Consumer Act, and each suit has squarely decided that where compliance with both laws is possible, the WCA is not pre-empted, making clear that student loan debtors enjoy the protection of the WCA in Wisconsin.  This is significant because chapter 427 applies to any collection actions taken against someone while they are in Wisconsin, even if the loan was originated somewhere else, so students who move to Wisconsin (or come back home after college) will be protected by the WCA's regulations.

Friday, December 30, 2016

Repossession: Summit Credit Union agrees to pay $110,000 after Court finds it engaged in illegal collection activities.

The other day we resolved a case of mine for $110,000, as the header says. The factual background was this:

In 2012, Summit Credit Union filed a small claims replevin action against my client. The small claims action was filed in Dane County. My client (who responded pro se by in part denying a default existed) suffered a default judgment against her because she faxed an answer in rather than appearing in person.

Thereafter, although the client requested Summit reopen the judgment, Summit refused, and the client entered into a payment plan that was to cure any claimed default. Almost immediately, Summit sent a repossession agent to the client's house, anyway, even before the payment plan had been reduced to writing. That repossession was unsuccessful. A year later, when the payment plan was believed to have ended by the client, she stopped paying (Summit asserted the plan had not ended) and Summit threatened another repossession, so she hired me.

In 2016, Rock County's Judge McCrory, after a 1-day trial, found that Summit's actions violated sections 427.104(1)(h) and (j) of the Wisconsin Consumer Act -- that Summit had tried to enforce nonexistent rights, and engaged in behavior that could be construed as harassing.  The matter was set for a damages hearing in March 2017, but after mediation, Summit agreed to pay $110,000 to resolve the case without admission of liability. The client will also keep the car, have the lien released, pay no more money, and have any credit reports of the matter deleted.

Of interest: Summit could have resolved the case early on for less than $10,000. Lesson learned? We'll see.

Friday, November 18, 2016

Legal Malpractice: Then again, bloggers are poor substitutes for appellate judges, so take my opinion with a grain of salt.

The standard for how much evidence you need to get to a jury is a squishy one, to say the least: judges frequently are in the position of trying to determine what a reasonable jury might do, and whether a jury would be speculating or otherwise ruling in a vacuum of evidence.  But how to determine those things is tough; the 7th Circuit has frequently observed that judges are poor substitutes for the average person, being well-educated and experienced in the law.

That's what I kept thinking as I read the per curiam October 12, 2016 opinion from the Wisconsin Court of Appeals in Halbman v. Barrock.

Halbman, the client, sued Barrock, the lawyer, for malpractice stemming from a personal injury suit Barrock had handled. In the first trial, Barrock got Halbman a verdict of $182,250, but that verdict was set aside because of comments Barrock had made during closing arguments. In the retrial, the jury returned a verdict for $36,000. Barrock then received a check for about $29,000 from the insurance company, and kept it.  So Halbman sued for malpractice.

The court dismissed Halbman's claim at the close of the plaintiff's case, saying

 "I never saw any figures up here about" costs and expenses incurred, adding, "I can't guess at that. It's your duty to prove that; that's your burden." The court added:
[H]ow that [$]36,000 [verdict from the second trial] became [$]29,653, there must be some type of, there must be some type of public record that could have been obtained to provide to the Court showing what properly would have been taken off that amount so that the insurance company didn't have to pay. That's why they came up with a net check of [$]29,653.14. You know, that's what I'm saying. I don't have the burden of proving this, you do.

Now, I haven't heard anything about it. What am I supposed to do?

....

If you have to do it by serving Barrock with a subpoena duces tecum to bring his books and records regarding what was supplied, any kind of settlement agreements, on and on and on and on it goes.

Again, here we are today at trial, jury sworn, you rested, and all I have is one figure that I'm supposed to figure out everything else from. The jury has to get more direction than that.

....

I mean I can't determine this. I don't have any proof. I have questions. I'm sure the jury has questions too.

....

Now, I'm sorry but ... there has been no damage shown sufficient to allow for a reasonable jury to come to a calculation of what the damages are in this case. I'm not saying that he didn't cause damage, he probably did. I just can't determine how much. But that's not my job, that's your job.

The evidence of damages at trial appeared to be the amount of the check, and the Barrock-Halbman fee agreement.

The Court of Appeals upheld, ruling:

The retainer agreement indicates Halbman would be entitled to funds from a recovery once the attorney's fee of "Thirty three and one third percent" had been taken out of "the total valued amount recovered" and Halbman's attorneys had been reimbursed for "costs and expenses, and any judgment costs" incurred in relation to the case. In his briefing on appeal, Halbman cites to no numbers presented as evidence in the trial other than the $29,653.14 written on the check made out to him and Barrock following the second trial. From this, he contends "a jury could render a verdict in Halbman's favor for two-thirds of $29,653.14 or $19,768.76 based upon the terms of the Retainer entered into between the parties." The problem with Halbman's contention is that it fails to account for the "costs and expenses" also required to be paid pursuant to "the terms of the Retainer." He cites to no trial evidence as to the amount of costs and expenses the jury would have to deduct—from either $36,000 or $29,653.14 or $19,768.76—under the retainer agreement in order to render a lawful verdict pursuant to that document.
The court also noted in a footnote that Halbman had testified to some costs and payments:

Halbman fails to cite to trial evidence related to any costs and expenses incurred. Reviewing the trial transcript ourselves, we observe that Halbman testified at one point to paying "10 to 15,000" "towards the trial of this matter." Halbman also indicated he issued some checks to Barrock for "court costs," "there was cash involved too," and around "four or five thousand" dollars in "court costs" "came out of" the $36,000 award. He also testified that after Barrock received the check for $29,653.14, he visited Barrock's office and "was told that [Barrock] was keeping ... $7,000 for fees and that the check would be for fees and for him and I think there was like a hundred-some dollars left or something like that." Halbman further testified he had spent "about 30, 40,000" for "[l]andscaping work [that he apparently had performed for Barrock] that I wasn't paid for and money that I paid him for the trial." Again, Halbman makes no mention in either his brief-in-chief or his reply brief to any of this vague testimony. Nonetheless, even if we were to consider it, it still provided the jury with no basis to compute a damage award other than guesswork and speculation.

So would the jury have had to guess -- rather than being somewhat uncertain? It's well established that damages don't need to be computed with a mathematical certainty. A jury could, in my opinion, have looked at that evidence (including what appears to be an admission by Barrock about how the $29,000 would be divided) and have determined -- by a preponderance of the evidence -- that the $29,653.14 was after deduction of costs, and that Halbman was entitled to 2/3 of the money left.

I think courts make a mistake taking cases away from a jury; I think the standard should be that juries should hear cases (whether you want a jury trial is another matter for another day) and that there should be a very high burden before taking the case away from the jury; I don't think that standard, or even the standard the court used here, was met.

That's not to say there weren't flaws in Halbman's case: for example, why not subpoena Barrock's records to see what costs he was owed? And for that matter, why not sue for conversion or breach of contract as well, and, finally, why not sue for the difference between that first verdict and the second?

The opinion doesn't answer any of those questions, but it does help -- even in a muted, per curiam kind of way -- set the bar even higher for malpractice litigants.

Wednesday, November 16, 2016

Cell Phones: You shouldn't have to read between the lines to determine the truth of a claim, but then, lawyers need to have jobs, right?

Here's a simple case: A woman sues the "University" of Phoenix, alleging that they called her cell phone numerous times per day without her prior consent, using an autodialer, and that therefore the calls violated the Telephone Consumer Protection Act.

The university, in response, produces phone records that show it called the woman only after she submitted a website form on its site, and that it stopped as soon as she revoked consent.

Done, right? Case over, Phoenix wins.

NOT SO FAST! The woman says she didn't visit that website but submitted applications for a job through other websites, and is certain that she got multiple calls from the university prior to June 22, the day the "University" claims she filled out a form on its site.

In response, the "University" also produces a web address from the woman using its website on June 22. It provides an affidavit denying that it lists jobs on three sites the woman mentioned. It provides an affidavit showing the calls it placed from an autodialer, which all show one number, and that number only appears on the woman's cell bill after June 22. In other words, Phoenix produces evidence the woman might have lied about using the site, and evidence showing all calls it placed from an autodialer were made only after the woman used the site.

Done, right? Case over, Phoenix wins.

NOT SO FAST AGAIN! This is why I like judges who do their job and dislike lawyers who pull this kind of crap. Let's read the judge's exact ruling on summary judgment:

After reviewing the evidence, this Court cannot conclude that Chladni's testimony "is blatantly contradicted by the record, so that no reasonable jury could believe it." First, contrary to the University's argument, Chladni's testimony that she never visited the University's website is not contradicted by two separate declarations. The declaration from the Marketing Operations Analyst for the University's parent company does not conflict with Chladni's because it confirms that the University advertised on at least one of the websites that Chladni testified she may have used to submit her job application

Hmm.

Second, the University has not shown that Chladni's testimony, that she had no option but to check the consent box on the online job application form, is contradicted by the record. On this point, the University again relies upon the declaration of its Marketing Operations Analyst, who stated that all of the University's digital marketing contained an opt-out option. But, the screenshot attached to the Analyst's declaration does not depict the same form the University alleges was submitted by Chladni, as the consent language on each is different. While the opt-out box on the screenshot is obvious, there is no way to tell, other than from Chladni's testimony, whether the opt-out method on the form she submitted was equally clear. Therefore, the record evidence does not squarely contradict Chladni's testimony.

Hmmmm.

 Third, with respect to Chladni's recollection of the number and timing of telephone calls that she received, the University again claims that the declaration of its Vice-President of Reporting and Analytics Services contradicts her testimony. He attested that the University used only one telephone number to contact students in Chladni's area code in May and June 2015, which does not appear on Chladni's telephone records prior to June 22, 2015. This, however, is simply a dispute over the competing credibility of two witnesses and should generally not be resolved by the court on summary judgment. ....

While the University also produced business records showing seven telephone calls to Chladni, these records are limited to calls it placed using the Avaya Proactive Contact system. The University admits that it placed one additional call to Chladni using the Avaya Communications Manager system, but these records are not in evidence. Accordingly, this evidence, which does not eliminate the possibility that the University placed calls using a third autodialing system, does not contradict Chladni's testimony. Similarly, Chladni's telephone records do not eliminate the possibility that the University called her from more than one telephone number. Chladni testified that the University called her an average of five to six times a day during May and June 2015 from more than one telephone number, but that she could not recall which numbers in her telephone records belonged to the University. Consistent with this testimony, the telephone records show that there are several days in which Chladni received more than five calls from multiple telephone numbers. In the absence of evidence identifying the owner of each telephone number, a jury would not be compelled to reject Chladni's account.

Hmmmmmmmmmmmmmmmmmmmmmm.

The devil is in the details -- and the devil is in lawyers who submit misleading affidavits and make misleading arguments from those affidavits.

Friday, November 11, 2016

Debt Collection: Yes, George, Because Of Society.

The social contract is an important thing: it attempts to keep society from taking steps that would degrade civilization down, down, down, until humanity is nothing but a coarse reflection of its former glory, to keep (as it were) us from turning Michaelangelo's David into gravel for road building.

But enough about the election! Today I am talking about contract contracts, the way businessmen talk about them: deals businessmen and businessswomen make and adhere to without fail, binding obligations by which (for example) a person might agree to pay a $1,000 fine imposed by his fellow homeowners if he removes some plants.

That's what happened in Agrelo v. Affinity Mgmt Servs LLC (11th Cir. 11/9/16): Some condo owners in Florida got some good news on November 9: Their suit was reinstated by the 11th circuit! The owners -- the Agrelos -- were fined $1,000 by their condo association for making changes in the condo structure and removing some plants, and the dispute escalated to where the association and its management company hired a law firm to dun the debtors.  The debtors, God bless them, sued, and claimed that all three -- condo association, lawyers, management company -- had violated the FDCPA and a Florida law that also protected consumers from debt collectors and creditors.

The district court dismissed claims against the condo association and management company on the grounds that the fine was not a 'debt' and the companies were not 'debt collectors.' The 11th circuit reversed, reviewing first what is, or is not, a debt under the FDCPA, and held that debts which arise by agreement are 'debts' whereas debts which arise solely by operation of law (like taxes) are not 'debts' as far as the FDCPA are concerned:

In essence, our jurisprudence in this area of law can be distilled into the principle that FDCPA and FCCPA "debts" arise from actual—as opposed to social—contracts.

The debt here, a fine imposed by power granted through a homeowners' contract, was a 'debt' arising from 'actual' contracts.

The Court also noted that Florida law, unlike the FDCPA, didn't apply solely to "debt collectors" but was more expansive. Reversed! Remanded! Everyone's happy!

At least for now. I estimate that by this time next year the FDCPA, Consumer Financial Protection Bureau, most of the Wisconsin Consumer Act and similar laws, and perhaps big swaths of America itself, will no longer exist. But in the meantime, let's fiddle before our new President lights the fire.

Thursday, October 27, 2016

Mortgage Lending: $4.94 in postage is enough damages to sue a lender for violating RESPA.

Recently, the 7th Circuit held that a claim that the failure to respond to a qualified written request for information under RESPA failed because the deposition testimony of the borrowers was insufficient to provide evidence that the violation had caused the damages.

In that case, after settling the aforementioned foreclosure action, the lender had posted an incorrect interest rate on the borrowers' account online, and sent the borrower bills asserting a right to legal fees, among other claimed errors. The request was intended to clarify the interest rate applied and the application of the borrowers' payments to the loan, rather than unallowed legal fees. The lender never provided a substantive response, saying it could not discern what questions the borrowers were asking.

The borrowers had testified to emotional distress, attorney's fees, and other troubles, but the 7th Circuit held that the damages appeared more linked to the earlier foreclosure action by that lender than to the qualified written request.

Yesterday, in Payne v. Seterus Inc. (WD LA 2016), a federal court held that a borrower stated a claim for relief based on damages of less than $10. Seterus is alleged to have taken over the borrower's mortgage, and post-bankruptcy, the borrower did not receive any billing statements. He faxed or made online inquiries at least four times in less than a month, then sent two certified letters at $4.94 each.  The borrower asserted that he'd paid more than the regular payment each month to avoid a delinquency, but despite that had learned that Seterus was reporting his loan past due, and he alleged that because of that got declined for two car loans, and had to pay a higher rate when he finally got the loan.

Seterus filed a motion to dismiss, a tactic generally used by all large corporations who can pay a team of lawyers thousands of dollars per hour to try to litigate consumers into the ground (these are of course the same corporations that can't find the money to employ somebody to respond to the requests in the first place). The borrower amended his complaint, and the Court held that Payne stated a claim for damages, because the certified letters were not paid for until after the failure to respond to earlier requests, and so the payments were "caused by" the failure to respond.

The court also held that there might be a link to the denied loans and higher interest rate:

   "To constitute actual damages, the negative credit rating must itself cause damage to the plaintiff as evidenced by, for example, failing to qualify for a home mortgage." Anokhin vBAC Home Loan ServicingLP, No.2:10-CV-00395-MCE-EFB, 2010 WL 3294367, *3 (E.D. Cal. Aug. 20, 2010). Plaintiff alleges that Seterus' adverse credit reports resulted in him twice being denied a car loan, and ultimately paying a higher interest rate. Had Seterus responded properly, Payne could have possibly avoided damage to his credit and addressed billing issues.

The Court also held that the failure to respond to several letters in a row wasn't a 'pattern' sufficient to qualify for statutory damages because the letters were all sent in a short time.

Here is the problem I have with this. Or problems.

First, the way the Court has set this up, in the earlier 7th Circuit case, all those borrowers would have had to do would be this: after the initial failure to respond properly, the debtors could quite literally have mailed the same letter again, using certified mail for five bucks, and they could have sued successfully.

Is that a coherent interpretation of a 'consumer protection' statute? That borrowers without (according to the 7th Circuit) a plausible claim for damages can maintain a suit if they write just one more time?  At that point they can go to court and recover at least that $4.94, plus any attorney's fees they might claim, but prior to that they can'? (Leave alone for now this question: suppose the lender doesn't respond the first 1, 3, 5, 56 times, and then a certified letter is sent, and the lender responds? What do you suppose the courts would do? My guess? Say there can't be damages because you got your response. That's just a guess, though, so until that happens, it's just my pessimism.)

Second, in the 7th Circuit case, the borrowers' damages (according to the Court) seemed more caused by the foreclosure than by the failure to respond. But in Payne, the borrower's negative credit rating is almost certainly caused in no small part by the fact that he'd just gotten out of bankruptcy.

I'm not critical of the Payne court for that: That judge got it right: whether the credit rating was harmed by the negative reporting, the bankruptcy, or both, and to what degree, is a factual question to be determined at trial.  It certainly wouldn't be right to dismiss the case at that stage simply because there might be other reasons for the credit problems.

It's the 7th Circuit case that causes me concern: the judges, on appeal, believed the damages were more likely from the foreclosure than the failure to respond. But they weren't factfinders, and no juror, or any factfinder, ever saw the testimony of those borrowers, who, had they had the foresight to mail just one more letter -- a letter not required by RESPA and which should not have to be sent because RESPA is very clear and has been the law for roughly 100 jillion years -- had the 7th Circuit borrowers mailed just one more letter, they'd have gotten their day in court, like Payne.

People spend millions of dollars to become president, or governor, or lobby Congress, to change the law.  What a colossal waste! All they have to do is put some people through law school, get them onto the bench, and have the judges start undoing the consumer protections, piece by piece.

Thursday, September 29, 2016

Debt Collection: All that stuff you learned in law school still doesn't amount to a hill of beans, Ilsa.

A new Wisconsin Consumer Act case will no doubt be trotted out to run its paces by debt collectors who get sued for debt collecting in the wrong way, but its impact is really nothing at all.

In Smith v. Capital One Bank USA, Smith sued the credit card company for extraterritorial garnishment. The defendants -- Messerli & Kramer, handling one of the 83 gajillion cases each of their lawyers is expected to oversee -- removed the case to federal court and moved to dismiss.

Smith asserted that Messerli & Capital One's actions have violated his federal civil rights, which he asserted were rights under the "Dormant Commerce Clause" and the Full Faith & Credit Clause. The Dormant Commerce Clause is, like the Rule in Shelley's Case, something I once had to know a lot about but in the past 18 years have used absolutely zero times. I use geometry more than I use the Dormant Commerce Clause. So I won't discuss it here. It doesn't matter.

The Full Faith & Credit Clause is the clause that says states have to respect other state's laws. It also does not come into play in my practice, ever, and I won't discuss that, either.

In each case, the Court was unable to discern how Smith, even at the pleading stage, could prove a violation of these acts, and so the Court dismissed the section 1983 claims the debtor brought.

Smith also had a claim under the Wisconsin Consumer Act, but his claim was time-barred; open-end credit plans have a two-year statute of limitations under the Act, and Smith's claims were brought outside that time period.

So the case stands for this: The Constitution does not prohibit extraterritorial garnishment, and statutes of limitations have meaning. I look forward to reiterating that phrase in literally every brief I file in response to a motion to dismiss for the rest of my career, or at least until a new case that has no impact on anything but seems like it might matter comes out, and debt collectors latch onto that.