PACBAFallSeminar&AnnualMeeting

October11

2019

2019Seminar&AnnualMeeting

October11,2019 8:30a.m.to3:00p.m.

TheDesmondHotel1LibertyBlvd,Malvern,PA19355

8:00a.m.to8:30a.m. RegistrationandBreakfast

8:30a.m.to8:40a.m. OpeningremarksbyPACBAPresident BritSuttell,Esquire8:40a.m.to9:40a.m. HotTopicsinConsumerLitigationfor2019 JasonG.Wehrle,Esquire

9:40a.m.to9:45a.m. Break

9:45a.m.to10:45a.m. LookingAheadtotheFinalRules:AnticipatingtheNew

BattlesandChallengesJoannNeedleman,Esquire

10:45a.m.to11:00a.m.Break

11:00a.m.to12:00p.m SCRAUpdate

AshleyBeach,Esquire12:00p.m.to12:45p.m. Lunch

12:45p.m.to1:55p.m. BankruptcyUpdate2019

JamesWarmbrodt,Esquire1:55p.mto2:00p.m. Break

2:00p.m.to3:00p.m. CurrentTrendsinDebtCollectionLitigation

RobertJ.Polas,EsquireMatthewD.Urban,EsquireThomasJ.Michael,Esquire

3:00p.m.to3:30p.m. PACBABoardofDirectorsMeeting

SpeakerPresentations

HotTopicsinConsumerLitigationfor2019JasonG.Wehrle,EsquireSummary:Thispresentationwillreviewthemostimpactfullegaldecisionsof2019todateandhowtheywillimpactthedebtcollectionindustry.OurfocuswillbeonrecentrulingsinPennsylvania,howeverwewillalsolookbacktorulingsfromotherjurisdictionswhichmayaffecthowPennsylvaniapractitionersdobusiness.WewillalsolookattherecentchangesattheCFPB,particularlytheappointmentofanewpermanentdirector.Finally,wewillpulloutourcrystalballtoseewhatlegaltrendsandissuesweanticipatebecominghottopicsin2020andbeyond.LookingAheadtotheFinalRules:AnticipatingtheNewBattlesandChallengesJoannNeedleman,EsquireSummary:TheCFPB'sNoticeofProposedRulemaking(NPRM)andcommentperiodhasended.ThenextyearwillseesignificantadvocacyfrombothindustryandconsumergroupswhowilltrytoinfluencetheCFPBtocraftafinalruletomeettheirrespectivepriorities.ThispresentationwilllookatthreecriticalareasoftheNPRM(electroniccommunications,thedeliveryofelectronicdisclosuresandmeaningfulinvolvement)fromtheviewpointofbothindustryandconsumergroups.AttorneyswillneedtounderstandnotonlytheframeworkofwhatisbeingproposedbuthowtheCFPBenvisionstheseproposalstobeimplementedwhichmaycreatenewlegalandoperationalchallenges.SCRAUpdateAshleyBeach,EsquireSummary:AshleyBeach,EsquirewillprovidetipsonhowtocomplywiththeprovisionsoftheSCRAwhilealsodiscussingrecentcaselawandenforcementactionsbytheCFPBandotherregulatorybodies.BankruptcyUpdate2019JamesWarmbrodt,EsquireSummary:BankruptcyUpdate2019willdiscussnewcasedecisionsfromthepastyearinPennsylvaniathatimpactallareasofbankruptcyincludingconfirmations,motionsforrelieffromstay,objectionstoclaimsandalloftheethicalconsiderationsregardingtherecoverabilityoffeesandcosts.CurrentTrendsinDebtCollectionLitigationRobertJ.Polas,EsquireMatthewD.Urban,EsquireThomasJ.Michael,Esquire

Summary:Debtcollectionlitigationisevolvingaseachdaypasses.Whetheryouarepursuingaclaiminthemagisterialdistrictcourtorinthecourtofcommonpleasthereareuniquechallengesthatariseineachcourt.Inthissession,threeexperiencedcollectionattorneyswillrelaytheirexperiencesinthesecourtsfromtheperspectiveofrepresentingalltypesofcreditorsandalltypesofclaims.

JasonG.Wehrle,Esquire

ManagingPartnerWesternPennsylvaniaOfficeMintzerSarowitzZerisLedva&Meyers,LLP

JasonWehrle,Esq.,istheManagingPartnerofthePittsburghoffice.Heconcentrateshispracticeincommerciallitigation,consumerlitigationdefenseandprofessionalliabilitydefense.

JasonhaslecturedextensivelyonavarietyoflegalissuesatthePennsylvaniaBarInstituteandforvariouscreditanddebtcollectionindustryorganizationssuchasACAInternational,NARCAandthePennsylvaniaCreditorsBarAssociation.Hisbroadpracticeexperienceincludescommerciallitigation,complexcivilandconstructionlitigation,realestateandcommercialbankruptcylaw,professionalliabilityactions,includingclaimsagainstattorneysandaccountants,aswellasdirectorandofficerliabilityclaims.OtherclientsincludedebtcollectionagenciesanddebtbuyersinmattersarisingfromtheapplicationoftheFairDebtCollectionPracticesActandtheFairCreditReportingAct.

Jasonalsohassignificantexperienceinhandlingdiversecommercialmatterssuchasrestrictivecovenantclaims,unfairtradepracticesandwagepaymentandcollectionlawclaims.Additionally,hecounselsbusinessesandprofessionalsonimplementationofcomplianceandriskmanagementprogramsorothermeasurestohelpavoid,oratleastlimit,potentialexposuretolitigation.

JoannNeedleman,Esquire

LeaderConsumerFinancialServicesRegulatory&CompliancePracticeGroupClarkHill,PLC.

JoannNeedleman,Esq.,leaderofthefirm'sConsumerFinancialServicesRegulatory&CompliancePracticeGroup,servesasanavigatortoherclientsseekingadviceandguidanceinthecomplexregulatoryenvironmentfacingthefinancialservicesindustry.Sheprovidescounsel,consultation;andlitigationservicestoawidearrayoffinancialinstitutions,lawfirms,creditreportingagencies,aswellasventurecapitalfirmslookingtoinvestinthefin-techspace.AformermemberoftheConsumerFinancialProtectionBureau's(CFPB)ConsumerAdvisoryBoard,Joannhasbeenabletoprovideherclientswithusefulstrategiesinordertopreparefornewareasofregulatoryscrutiny.Oftenaskedbyclientstoquicklyassessanewpolicystatementorguidanceissuedbyfederalandstateregulators,Joannisabletobreakdowntheissuesandprovidecommonsensesolutionsthatensureherclients'policies,proceduresandbusinessoperationsarefullycompliantwithcurrentregulatoryexpectations.

Joannalsohasfarreachinglitigationexperienceinstateandfederalcourts,successfullydefendingcreditorsagainstavarietyoffederalconsumerprotectionclaimsincluding,butnotlimitedto,theFairDebtCollectionPracticesActandFairCreditReportingAct,aswellasstatestatutes.

JoannisfrequentlyquotedinAmericanBankerandtheWallStreetJournalforherinsightoftheCFPB.

JoannistheimmediatepastPresidentoftheBoardofDirectorsoftheNationalCreditorsBarAssociation(NARCA).

AshleyBeach,EsquirePartner,FoxRothschild,LLP

AshleyBeach,Esq.,willprovidetipsonhowtocomplywiththeprovisionsoftheSCRAwhilealsodiscussingrecentcaselawandenforcementactionsbytheCFPBandotherregulatorybodies.

JamesWarmbrodt,Esquire

Attorney,KMLLawGroup,P.C.JamesC.Warmbrodt,Esq.,isanattorneyinthePittsburghofficeofKMLLawGroup,P.C.,whereheisengagedintherepresentationofsecuredlendersinbankruptcycourtproceedings.Hehasbeenacreditors'rightsattorneyformorethan15years,andhasengagedinthedefenseofactionsbroughtundertheFDCPAandotherfederalandstateconsumerstatutes.HeisagraduateofEasternKentuckyUniversityandtheUniversityofPittsburghSchoolofLaw.HeisamemberoftheAlleghenyCountyBarAssociationandisadmittedtopracticebeforetheU.S.DistrictCourtsintheEastern,MiddleandWesternDistrictsofPennsylvania.

RobertJ.Polas,Esquire

AssociateCounselLitigationDepartment(PA)(OH)PortfolioRecoveryAssociates,LLC.

RobertN.PolasJr.,Esq.,isagraduateofEdinboroUniversityofPennsylvania(B.A.,2001)andAppalachianSchoolofLaw(J.D.,2004).Mr.PolasisadmittedtopracticeinPennsylvania(2005)includingtheWestern,MiddleandEasternFederalDistrictCourts;Ohio(2012);andDistrictofColumbia(2018).Azealousadvocateofcreditors'remedies,Mr.Polas'practicefocusesprimarilyoncreditorrepresentation,includingthecollectionofretailandcommercialaccountsreceivables,togetherwiththedefenseoftheFairDebtCollectionPracticesAct(FDCPA)andotherconsumerprotectionstatutes.Forthepast10yearsMr.PolashasworkedexclusivelyasAssociateCounselforPortfolioRecoveryAssociates,LLC.intheirIn-Houselitigationdepartmentwithresponsibilitiesincludingalllitigationactivity,strategy,operationalworkflow,developmentandexecutionofinitiativessupportingpreandpostjudgmentcollectionactivity.Mr.PolasservesasthelegislationliaisonforDBAInternationalaswellasVicePresidentofthePennsylvaniaCreditor'sBarAssociation.

MatthewD.Urban,EsquireShareholder,Weltman,Weinberg&Reis,Co,L.P.A.

MatthewD.Urban,Esq.,isaShareholderwhomanagesthePittsburghLocalLawOfficeandoverseescreditunionworkacrossPennsylvania.InadditionhepracticesintheareaofConsumerCollections,focusingonawidevarietyofcollectionmatters.Mr.UrbanearnedaB.A.magnacumlaudeinHistoryfromWestVirginiaUniversityin2000,andaJ.D.fromDuquesneUniversitySchoolofLawin2003.HeislicensedinPennsylvaniaandisadmittedtopracticebeforetheU.S.DistrictCourtfortheWesternandMiddleDistrictsofPennsylvania.HeservesontheBoardofDirectorsforthePennsylvaniaCreditors'BarAssociation.

ThomasJ.Michael,EsquirePrincipal,ThomasJ.MichaelAssociates,LLC.

TomMichaelSr.,Esq.,hasnearlythirtyyearsofexperienceasalitigator.Mr.MichaelattendedtheUniversityofDuquesneSchoolofLawandjoinedthePennsylvaniaBarin1979asasolepractitioner.Duringhislegalcareer,Mr.Michaelhasbeenpartnerattwofirms,Reiley&DeFalice(1988-1992)andtheLawOfficesofArthurBlake(2002-2005),wherehespecializedincomplexlitigationandtoxictort.Mr.MichaelfoundedThomasJ.Michael&Associates,LLC.in2005andhasfocusedoncreditor'srightseversincegrowingthecollectionsappearancepracticesignificantlysincethattime.

2019PACBASeminarandAnnualMeeting

Exhibitor

ForSureLegalServicesTimClark

250WoodlakeDr.Holland,Pennsylvania18966Phone:(267)249-2170www.forsurelegal.com

HotTopicsinConsumerLitigationfor2019

JasonG.Wehrle,Esquire

HOT TOPICS IN CONSUMER LITIGATION 2019

The Pennsylvania Creditors Bar AssociationFall Seminar and Annual Meeting

October 11, 2019Malvern, PA

Legal Disclaimer

This information is not intended to be legal advice and may not be used as legal advice. Legal advice must be tailored to the specific circumstances of each case. Every effort has been made to assure this information is up to date. However, it is not intended to be a full and exhaustive explanation of the law in any area, nor should it be used to replace the advice of your own legal counsel.

Overview

1. The state of consumer litigation over the past year

2. Notable Decisions from Pennsylvania and the Third Circuit

3. Notable Decisions from around the country4. What we may have to look forward to over

the next year

Why are we here?

• 14,344 total lawsuits for 2018, including:• 9009 FDCPA• 4531 FCRA• 3803 TCPA

• 66,596 complaints to BBB• 51,631 complaints to BCFP

– Courtesy of Webrecon.com

Why are we here?

As of August 31, 2019

• 9624 total lawsuits for 2019, including:• 5728 FDCPA• 3297 FCRA• 2300 TCPA

Courtesy of Webrecon.com

Some good news

Comparison 2018-2019

• CFPB complaints -14.4%• FDCPA lawsuits -10.3%• FCRA lawsuits +5.1%• TCPA lawsuits +15% (40% of suits were class

action.)

Notable PA and Third Circuit Decisions

QR Codes-That’s a No No

• DiNaples v. MRS BPO, LLC, D.C., No. 2-15-cv-01435, (3rd Circuit, August 12, 2019).– Section 1692f(8) of the FDCPA prohibits a debt collector from “[u]sing

any language or symbol, other than the debt collector’s address, on any envelope when communicating with a consumer by use of the mails.”

– Douglass v. Convergent Outsourcing, 765 F.3d 299 (3rd Cir. 2014). Third Circuit held that a debt collector violates this section by displaying the debtor’s account number on an envelope.

– In DiNaples, the Third Circuit extended its rationale in Douglass by holding that QR codes on the face of an envelope, that display account numbers when scanned, violate the FDCPA.

QR Codes-That’s a No No

• including the QR code on envelopes – like the account number – is “susceptible to privacy intrusions,” particularly in the age of smartphones where a reader app is a quick download away.– What about envelopes themselves?

• Court rejected MRS’s bona fide error defense, reiterating that it does not apply to an incorrect interpretation of the FDCPA, but instead only to clerical or factual mistakes.

QR Codes-That’s a No No

• Court’s standing rationale is troublesome.– disclosure of account information in itself is a

concrete harm under Spokeo v. Robins, 136 S.Ct. 1540 (2016)

– Disclosure implicates core privacy concerns of the FDCPA.

– DiNaples did not have to show actual or imminent harm – MRS made her account information available to the public.

Agreements to Arbitrate-Papa Don’t Preach

• John Egan v. Live Nation Worldwide, Inc., 18-1794 (3rd Cir. 2019)– Egan Filed suit claiming violation of ADA.– Live Nation moved to compel arbitration based upon

arbitration provisions in Terms of Use contained in website Egan used to purchase Madonna tickets.

– Findings of fact regarding existence of arbitration agreement could only be decided by bench or jury trial not at summary judgment stage.

– Unpublished opinion, but something to keep in mind.

Agreements to Arbitrate, part 2

• Orn v. Alltran Financial, LP, 2019 WL 3061530 (3d. Cir. 2019).– Alltran collected debt on behalf Bank and was sued under

FDCPA.– Alltran attempted to enforce arbitration agreement

contained in Bank’s credit card agreement under third-party beneficiary and agency grounds.

– Court found Alltran failed to even plead that the contract was entered into for Alltran’s benefit.

– Also found no facts to support agency claim, but did not rule out such a claim under different facts.

Debt collector? Who me?

• Barbato v. Crown Asset Management, LLC, et al, No. 18-1042 (3rd Cir. Feb. 22, 2019).– Lawsuit stemmed from debt Barbato defaulted on in 2010. – Crown purchased Barbato’s account and referred it to

another company for collection.– Crown argued it was not a debt collector because its

“principal purpose” was acquisition of debts, not collecting debts.

– Crown relied upon Supreme Court’s ruling in Henson v. Santander for appeal.

Debt collector? Who me?

• Court held that “an entity that has the ‘collection of any debts’ as its ‘important’ ‘aim’ is a debt collector under the principal purpose definition.

• Decision limits Henson to the interpretation of the “regularly collects” definition in the FDCPA.

• Who collects the debts does not matter. If you are in the business of purchasing and collecting debt, you are a debt collector in the Third Circuit.

When is a Predictive Dialer not an ATDS?

• Smith v. Navient Solutions, LLC, 2019 U.S. Dist. LEXIS 131231 (W.D. Pa. Aug. 4, 2019).– Smith cosigned on student loan for his daughter who defaulted.– Smith provided consent for automated calls to Navient, but later

revoked. – Received 136 calls post revocation. – Predictive dialers may be an ATDS where some feature enables them

to randomly or sequentially generate numbers. – Where dialer merely calls numbers from a list that is created and

uploaded to the software, it is not an ATDS.– Decision followed Dominguez v. Yahoo, Inc., 894 F.3d 116 (3d Cir.

2018).– Contrast: Ruby v. Dish Network, 2019 U.S. Dist. LEXIS 62472 (E.D. Pa.

March 25, 2019), – FCC to the Rescue??

OVERSHADOWINGCoulter v. Receivable Management Systems, Civil Action No. 17-3970 (E.D. Pennsylvania, February 14, 2019)• Plaintiff alleged that RMS’ collection letter containing validation

notice was overshadowed and contradicted by language informing the debtor to call RMS if debt was due to failure of insurance to pay.

• RMS’ letter contained the proper validation notice. • Court ruled that even though this was “a close one” that least

sophisticated debtor could reasonably think the letter instructed the debtor to raise insurance related disputes by phone instead of in writing.

• Practice tip: Make sure there is nothing in your letter that could in any way be construed to overshadow or contradict the validation notice.

News and Notables From Across the Land

New York-Confessions of Judgment

• On August 30, 2019 the New York governor signed S 6395.

• Prohibits creditors from obtaining confessions of judgments through the New York court system against individuals and businesses located outside of the state in order to seize borrower assets.

• Under S 6395, an entry of judgment may only be filed in “the county where the defendant’s affidavit stated that the defendant resided when it was executed or where the defendant resided at the time of filing.”

When the Bell Tolls• Statute of Limitations and Discovery Rule

– Benzemann v. Houslanger & Associates, PLLC, et al., No. 18-1162-cv (2d Cir. May 13, 2019)

– 12/6/2011: Law firm sent request under NY law to freeze debtor’s account. Bank froze account 12/13/11

– 12/14/11 Benzemann learns account frozen – 12/14/12 Benzemann files suit – Debtor argued he must receive notice of the violation before the statute of

limitations can begin to run. – Court ruled that the Benzemann learned the account was frozen on 12/13/11,

and that is when the clock began to run. – Statute of limitations for FDCPA violation begins when injury occurs, not when

the debtor receives notice of the violation. – Second Circuit sidestepped discovery rule issue by finding discovery occurred

on 12/13/11. Still a split of authority on discovery rule. – Supreme Court to the rescue? Rotiske v. Klemm, 890 F.3d (3rd Cir. 2018), cert.

granted 139 S.Ct 1259 (U.S. Feb. 25, 2019). Oral argument scheduled 10/16/19. Stay tuned!

FOR THE WIN!

One Text Does Not a Case Make

• Salcedo v. Hanna, No. 17-14077 (11th Cir. Aug. 28, 2019)– Plaintiff allegedly received a single text message.– Class action.– Motion to dismiss for lack of Article 3 standing.– The court distinguished single-fax cases, which

involved actual usage of paper, toner, and ink, and legitimately tied up a fax machine for around a minute. The court held that those type of tangible costs are simply lacking in a text case, particularly when the plaintiff did not allege that he was charged per text.

Pump up the Volume

• Call Volume. §1692d. Debt collector may not harass, oppress or abuse anyone in collecting a debt. Specifically, the collector may not cause the telephone to ring or engage with a person repeatedly and/or continuously with intent to harass, oppress or abuse.

• Question has always been (and still is), what constitutes repeated and/or continuous?

• How many calls is too many?

Pump up the Volume, Con’t.

• Tyler v. Mirand Response Systems, Inc., 2019 U.S. Dist. LEXIS 81808 (S.D. Tx. May 15, 2019)– 30-40 calls over two month period. – Court found call volume was reasonable. Plaintiff

initially consented to calls, then revoked consent. No calls made after revocation.

– Court held no intent to harass. Intent cannot be established by number of calls alone. Must look to other factors.

Pump up the Volume, 2.0

• Young v. Medicredit, Inc., 2019 U.S. Dist. LEXIS 71020 (S.D. Tex. Apr. 26, 2019)– Collector called 79 times in 681 day period.– Never more than once a day.– Never before 8am and never after 9pm.– Called two days in a row on only 12 occasions.– Court ruled that the above factors established that

Medicredit did not intend to harass or oppress.

Bona Fide Error• Abdollahzadeh v. Mandarich Law Group, LLP,

2019 U.S. App. LEXIS 12887 (7th Cir April 29, 2019). – Delinquent account sold to debt buyer who referred

to law firm to collect. Debtor tried to make payment in 2011, but it never cleared.

– Debt buyer’s data indicated last payment was in 2011 and law firm relied on this information.

– Debt was actually time-barred.– Law firm argued bona fide error and that it had

reasonable policies in place to prevent collection of time barred debts.

Bona Fide Error, Con’t.

• Law firm showed it relied upon information from debt buyer, including affidavit from debt buyer.

• Firm utilized an automated “scrub” which flagged accounts for statute of limitations.

• Attorney also personally reviewed file before filing suit.

• Court found that procedures did not need to be perfect, just reasonable.

• Moral of the story? CYA!

FOR THE LOSS

Third Party CommunicationsHolloway v. JTM Capital Management, LLC, No. 1:18-cv-1794 (N.D. Ohio Mar. 5, 2019)

• Plaintiff argued JTM violated FDCPA by attempting to collect debt discharged in bankruptcy even though JTM did not directly communicate with Plaintiff.

• JTM made an inquiry to a credit reporting agency about the status of Plaintiff’s debt.

• Court ruled this was an attempt to collect a debt because JTM sought information for the purpose of debt collection, and thus violated the FDCPA, because the debt had been discharged.

• Court held the FDCPA allows communication with a credit reporting agency, if permitted by law. This communication was not permitted by law, because the debt did not exist anymore.

Are Hyperlinks Communications?

• Lavallee v. Med-1 Solutions, LLC, 17-3244 (7th Cir. Aug. 8, 2019)– Med-1 Solutions sent emails to the consumer that

did not contain disclosures or information about the debt in the subject line or body of the message.

– Provided a hyperlink to a secure portal that included all of the required disclosures and account information.

– Court ruled the email was not a communication since it did not contain disclosures of debt information.

Are Hyperlinks Communications?

• New can of worms?• Will this impact sending validation notices via

text message? • Due to the character limits of text messages, it

is unlikely that all required disclosures—especially the validation notice—will fit within the body of the text.

• What if text message is the debtor’s preferred vehicle for communication?

Least Sophisticated Debtor

Ortiz v. Advanced Call Center Technologies, LLC, 2:17-CV-4046 (E.D. N.Y. July, 2019).• Plaintiff alleged 5 different ways Defendant violated

FDCPA.• Court essentially ruled against Plaintiff on 4 of 5, but

allowed one claim to go forward.• Collection letter listed the amount currently due as

$580, but also listed the account balance as $7,747.00. • Court ruled the statement was misleading because the

least sophisticated consumer could interpret the letter as an offer to resolve the entire debt for $580.

…SAY WHAT??

Don’t Fight too HardBroome v. Kohn Law Firm, S.C., et al, 3:19-cv-00032, (W.D. Wisc. April 15, 2019)• Broome claimed law firm violated FDCPA by filing in wrong venue.• Dispute arose as to Broome’s request for attorneys’ fees.• Law firm objected to virtually every aspect of Plaintiff’s counsel’s fee

request.• Court noted that this type of objection is fair as a general matter, but

denied law firm’s objections finding that the law firm’s defense tactics prompted most of the fees.

• Court found that when a defendant drives up litigation costs through its own aggressive strategy, it cannot later object to counsel’s efforts to do what is necessary to prevail.

• Court awarded $22, 333.25 in fees on a case that resolved on an offer of judgment of $2,500.00.

• Attempt by the Court to coerce Defendants into early settlements?

That’s not a Good IdeaFTC v. Federal Recoveries, LLC, et al, docket # 16-3811-cv, January 11, 2019.• FTC’s enforcement action against 13 corporate entities operating

together as a "single debt collection enterprise "for alleged violations of the FTC Act’s "unfair or deceptive acts or practices" provision, as well as the Federal Fair Debt Collection Practices Act.

• Employee debt collectors would "routinely contact debtors by telephone and falsely identify themselves as ‘processors,’ ‘officers,’ or ‘investigators’ from a ‘fraud unit’ or ‘fraud division,’ then accuse debtors of check fraud or a related crime and threaten them with criminal prosecution if they did not pay their debts."

• Lower court’s $10.85 million order of disgorgement was not excessive and the enterprise principals were personally liable for that amount along with the corporate entities.

End on a Good NoteOcampo v. Client Services, Inc., No. 1:18-cv-4326 (E.D.N.Y. Jul. 3, 2019)• Plaintiff claimed that a collection letter did not properly identify the creditor to

whom the debt was owed.• Letter identified creditor as: “Re: Synchrony Walmart MC“• Court ruled this was not a violation of the FDCPA.

– If she is able to fill out the Walmart credit card application, she is able to comprehend that a reference line in a collection letter to Walmart refers to her Walmart credit card, especially when she has used it to charge thousands of dollars in purchases.

– What possible interpretation of the name, account number, and amount due could plaintiff have besides that which was clearly intended? This is her Walmart credit card; it simply cannot be anything else. Plaintiff offers no alternative construction. If she doesn’t know that it is her Walmart credit card that is being collected, her sophistication level is below that of the least sophisticated consumer.

– Court ruled this was a “lawyer’s case” meaning it alleges a defect of which only a sophisticated lawyer, not the least sophisticated consumer, would conceive.

Questions??

Think of Something Later?

Jason G. WehrleManaging Partner Western Pennsylvania OfficeMintzer Sarowitz Zeris Ledva & Meyers, LLP2605 Nicholson Road, Building V| Suite 5100 | Sewickley, PA 15143 Tel 412.928.0502 │ Direct 412.407.6553 | Fax 412.928.0506NY, NJ, PA, FL, WV, DE, MDJWehrle@DefenseCounsel.comwww.DefenseCounsel.com

LookingAheadtotheFinalRules:AnticipatingtheNewBattlesandChallenges

JoannNeedleman,Esquire

1

Pennsylvania Creditors Bar Association

2019 Annual Meeting

Looking Ahead to the Final Rules: Anticipating the New Battles and

Challenges

Joann Needleman, Esq.

Member & Leader, Consumer Financial Services Regulatory & Compliance

(215) 640-8536jneedleman@clarkhill.com

clarkhill.com

2

DISCLAIMER

This information is not intended to be legal advice and may not beused as legal advice. Legal advice must be tailored to the specificcircumstances of each case. Every effort has been made to assurethis information is up-to-date. It is not intended to be a full andexhaustive explanation of the law in any area. It should not be usedto replace the advice of your own legal counsel.

clarkhill.com

3

HOW DID WE GET HERE?

4

DEBT COLLECTION RULEMAKING TIMELINE

Notice of Proposed Rule (NPR)Published. Comments Due August 19, 2019.

May 6, 2019 Aug 2, 2019

Comment Period Extended to September 18, 2019.

Sept 2020 (approx.)

Sept 18, 2019

Stakeholder comments submitted to CFPB.

Sep. 2021 (approx.)

Effective Date of Final Rule.

Final Rule Published.

clarkhill.com

5

WHAT DOES THE NPR SAY?

clarkhill.com

6

RELEVANT SECTIONS:

• Electronic Communications – requirements, restrictions, pitfallsand safe harbors

• Electronic Disclosures

• Meaningful Involvement

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ELECTRONIC COMMUNICATION

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Requirements

Allows unlimited emails & text • Excluded from call cap totals. • Other aspects of FDCPA apply.

Must have opt-out in all communications• Can use short codes, i.e.

“STOP”.

Consent does not transfer• Not enough that creditor

obtained consent.

Bona Fide Error Process

1. Email or telephone number consumer “recently” used to contact the debtor for all other purposes but opt-out; or

2. Hello/Goodbye Letter A. Creditor or debt collector notified the consumer,

other than through non-work email or telephone number (text) that identified debt collector who would be contacting consumer using the non-work email or telephone number, that an opt-out provision was provided and that the opt-out has not expired; or

B. Creditor or prior debt collector notified consumer at least 30 days prior with same provisions;

and Debt collector took additional steps to prevent error.

§1006.6 - COMMUNICATING BY EMAIL/TEXT

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§1006.6(b)(1) –INCONVENIENT TIME & PLACE§1006.22(f)& (g) –RESTRICTIONS AND SAFE HARBORS

Inconvenient Times/Places:• Duty upon debt collector to know or should have known (what are the

facts & circumstances).• One call safe harbor – if consumer initiates a contact at a time they

previously said was inconvenient, can call once to confirm.

Work Email • Know or should know standard.• Cross reference §1006.22(f)(3) - prior consent or received an email from

the work address.

Prohibitive Conduct - Can’t communicate in a medium that consumer prohibits, but• One call safe harbor to confirm if consumer opts-out; and • If consumer initiates contact can call unlimited times in order to respond

back to consumer.

clarkhill.com

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BATTLE/CHALLENGES

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INDUSTRY v. CONSUMER ADVOCATES

INDUSTRY• Overwhelming support.• Expansion to permit work

email.• Consent from creditor

should be enough.

CONSUMER GROUPS• Overwhelming opposition. • No alternatives proposed except that

there must be an opt-in as well as an opt-out.

• Opt-out through “any reasonable means” (sound familiar).

• Ignore data on use of electronic communication.

Potential Challenges: • Must have consumer consent. before

any communication sent• Can’t exempt 3rd party disclosures.

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ELECTRONIC DISCLOSURES

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§1006.42 PROVIDING ELECTRONIC DISCLOSURES

Where is it Applicable:• In providing disclosure with respect to a written request for verification of the debt

or copy of the judgment.• In providing disclosure with respect to a written request for the name and address

of the original creditor, if different than the current creditor.

Main Themes: • Ensuring there is actual notice to the consumer.• Notice provided in a form that the consumer may keep and access later.• Opt-out and mini-Miranda are exempt from these requirements unless they are in

a validation notice.

E-Sign Will be Required – this will be the challenge

Possible use of Hyperlink – but Lavallee decision may result in CFPB having to adopt alternatives.

14

BATTLE/CHALLENGES

15

INDUSTRY v. CONSUMER ADVOCATES

INDUSTRY

• E-Sign should not apply in general. • E-Sign should not apply to validation

notices which are initial communication. • CFPB should grant exemption under E-

Sign. • Consent from creditor sufficient.• Too complicated, may result in it be

under-utilization.

Potential Challenge: • Requirement to use E-Sign for initial

communication.• Any requirement to prove validation

notice was received or opened (FDCPA does not require this).

CONSUMER GROUPS

• E-Sign applies for every communication.

• CFPB has no authority to grant exemptions.

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MEANINGFUL INVOLVEMENT (LITIGATION)

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§1006.18(g) – “SAFE HARBOR” IN DEBT COLLECTION LITIGATION

NPR says attorneys comply with section if they personally do the following:

1. Draft or reviews pleadings, motions or other papers; and2. Review information to support the pleading and determines to the best of the

attorney’s knowledge, information and belief that the:A. Claims and defenses are warranted by existing law; B. The factual contentions have evidentiary support; and C. Denials of factual contentions are warranted on the evidence or, if

specifically so identified are reasonably based on belief or lack of information.

• This is not a safe harbor but an attempt to regulate process.• CFPB has provided an affirmative defense that would need to be proven after

extensive discovery.• This will create a multitude of inconsistent standards that will be court driven.

18

BATTLES/CHALLENGES

19

INDUSTRY v. CONSUMER ADVOCATES

INDUSTRY

• No meaningful involvement in the text of the FDCPA.

• Regulation of process.• If looking to Rule 11, standard

omitted good faith basis for bring action.

• Interference with attorney client privilege.

• Interference with state law requirements.

Potential Challenge: • Proposal was arbitrary and

capricious.• Overreach of CFPB authority.

CONSUMER GROUPS

• Attorney should be required to review “original account level documentation”.

20

POST NPR ADVOCACY

21

MEANINGFUL INVOLVEMENT (LETTERS)

22

§1006.34(d)(2) – Safe Harbor and Model Form B-3

A debt collector who uses Model Form B–3 in appendix B of this part complies with the requirements of paragraphs (a)(1)(i) and (d)(1) of this section.

§1006.34(a)(1)(i) – sending the validation notice. §1006.34(d)(1)(i) – validation information described in (c) of this section is clear and conspicuous.

What is the validation information in (c):• Mini miranda;• Information about the debt (name of debt collector, creditor, itemization of debt

etc);• Information about consumer protection; and • Consumer response information (tear-off).

All the items found in §1692g plus additional items.

23

CONSIDER THIS…

• No requirement that validation notice be on attorney letterhead. • No requirement that validation notice be signed. • Nothing in the NPR suggests that attorney or non-attorney debt collectors are

required to use the form differently.

THEREFORE,

A safe harbor should exist not only for all the requirements of §1692g but §1692e and all its subparts, including 1692e(3).

Remember, the attorney exemption was removed in 1986 to level the playing field between attorneys and non-attorney debt collectors. Doesn’t Model Form accomplish this?

24

QUESTIONS?

25

THANK YOU

BankruptcyUpdate2019JamesWarmbrodt,Esquire

2019 CONSUMER BANKRUPTCY UPDATE

Pennsylvania Creditors Bar Association2019 Seminar and Annual Meeting

James C. Warmbrodt, EsquireKML Law Group, P.C.

2591 Wexford-Bayne Road, Ste. 201Sewickley, PA 15143

412-430-3590

1

The information contained in the within materials is presented for educational or discussion purposes, only, and is not intended as legal

advice, nor should it be relied upon as legal advice.

2

Transition

Hon. John J. Thomas BK ED PA

Hon. Richard E. Fehling BK ED PA

Scott F. Waterman, Esq. Ch 13 Trustee, ED PA

3

Bankruptcy Code Amendments

Section 104 dollar amount increases:

§ 101(18) “family farmer” debt limit increased to $10,000,000 (Chapter 12)

§ 101(51D) “small business debtor” debt limit increased to $2,725,625 (Ch 11)

§ 109(e) Chapter 13 debtor, unsecured debt < $419,275; secured < $1,257,850

§ 522(d)(1) $25,150 exemption, equity in residential real property

§ 522(d)(2) $4,000 exemption, equity in one motor vehicle

§ 522(d)(1) $12,575 “spillover” exemption (unused (d)(1))

4

SCOTUS

Mission Product Holdings, Inc. v. Tempology, LLC139 S.Ct. 1652 (May 20, 2019)

The rejection of an executory contract under Section 365 breaches the contract but does not rescind it.

Debtor’s rejection of a trademark licensing agreement did not deprive the licensee of its rights to use the trademark.

5

SCOTUS

Taggart v. Lorenzen, 139 S.Ct. 1795 (June 3, 2019)

A court may hold a creditor in civil contempt for violating a discharge order if there is no fair ground of doubt as to whether the order barred the creditor’s conduct.

In other words, civil contempt may be appropriate if there is no objectively reasonable basis for concluding that the creditor’s conduct may be lawful.

6

Third CircuitIn re Hackler, No. 18-1650 (September 12, 2019)

• New Jersey tax sale voidable as a preferential transfer under Section 547(b).

In re Titus, Nos. 17-3701 and 17-3823 (February 20, 2019)

• The direct deposit of wages into an entireties account was a fraudulent transfer voidable under Section 544(b)(1) and the Pennsylvania Uniform Fraudulent Transfer Act.

7

Violation of the automatic stayIn re Johnson, No. 19-10256-AMC (BK ED PA)

Section 362(k)(1) provides that “an individual injured by any willful violation of a stay shall recover actual damages, including costs and attorneys’ fees, and in appropriate circumstances, may recover punitive damages”.

A creditor “willfully” violates the stay when he or she does so with knowledge of the bankruptcy.

Willfulness does not require that the creditor intend to violate the stay, only that the acts which violate the stay be intentional.

8

Relief from the automatic stay

In re Schaffer, No. 18-18133-AMC (BK ED PA)

Relief from stay granted to unsecured creditor

Debtor’s bad faith in this and previous bankruptcy case constituted cause for granting relief under Section 362(d)(1).

Bankruptcy petitions filed with the primary purpose of obstructing creditors without a reorganizational purpose or an ability to reorganize are filed in bad faith.

9

Relief from the automatic stay

In re Donaghy, No. 18-15459-ELF (BK ED PA)

Debtor entered into a consent judgment in the state court foreclosure action.

Debtor opposed a motion for relief from stay, challenging creditor’s standing to bring the action and alleging that creditor was not the holder of the note.

The state court judgment was res judicata of creditor’s right to enforce the mortgage.

10

Objection to proof of claim

In re George, No 18-17927-ELF (BK ED PA)

Debtor signed Guaranty under seal, therefore the statute of limitations had not expired and the debt was enforceable under PA law.

The word “seal” next to the signature line is not required, and the unambiguous text of a document suffices to render the document a sealed instrument, citing, Driscoll v. Arena, 2019 Pa. Super. LEXIS 603 (Pa. Super. 2019)

11

Objection to proof of claim

In re Nicholson, No. 14-04228-RNO (BK MD PA)

Court disallowed claim where creditor failed to provide underlying contract and admissible proof of the assignment of the claim.

12

Effect of plan confirmation

In re Venanzio, No. 14-20614-CMB (BK WD PA)

Court disallowed late filed claim stating arrears in excess of the amount of arrears set forth in debtor’s confirmed Chapter 13 plan.

A confirmation order is res judicata as to all issues decided or which could have been decided at the hearing on confirmation, pursuant to Section 1327(a).

13

Effect of plan confirmationIn re Fraser, 15-22470-CMB (BK WD PA)

Court dismissed post-confirmation complaint to strip down mortgage claim to value of the property.

The confirmed plan’s provision for paying the mortgage claim in full was res judicata, as the deadline contained in the confirmation order for commencing adversary proceedings had expired.

Debtor had not established a change in circumstances that is substantial, material or unanticipated at the time of confirmation to support a modification of the plan under Section 1329(a) to alter the treatment of the mortgage.

14

Modification of a confirmed Ch 13 plan

In re Conrad, 16-03844-HWV (BK MD PA)

Court denied motion to modify a confirmed plan that would have reduced distributions to unsecured creditors from 100% to 21%.

Neither the unambiguous language of Section 1329 nor res judicata require a showing of unanticipated or substantial change as a prerequisite to modification.

A proposed modification must satisfy the Section 1322 and 1325 requirements for confirmation of a plan, including the Section 1325(a)(3) requirement that the plan be proposed in good faith.

15

Lien stripping

In re Berger, NO. 18-20778-GLT (BK WD PA)In re Yeomans, NO. 17-23757-GLT (BK WD PA)

Sovereign immunity did not prevent debtors from stripping down/stripping off tax liens.

Lien stripping is an in rem proceeding; in rem procedures do not give rise to a defense of sovereign immunity because they are not suits “against” the state.

16

Ch. 13 plan confirmation

In re Heiser, No. 18-01410-RNO (BK MD PA)

An installment land sale contract can be treated under a plan as if a residential mortgage which can be cured during the plan’s five-year term.

The installment land contract creates a “lien” under the Bankruptcy Code’s broad definition of that term, and can therefore be addressed under Section 1322(b)(2).

17

Case conversion

In re Campbell, No. 18-00773-RNO (BK MD PA)

There is no absolute right to convert from Chapter 7 to Chapter 13; if the bankruptcy court finds that such conversion would be in bad faith, the motion to convert may be denied.

Court denied debtor’s motion to convert to Chapter 13 where debtor had failed to demonstrate the ability to fund a Chapter 13 plan.

18

Voluntary dismissal

In re Pinnick, No. 18-22149-GLT (BK WD PA)

A debtor does not have an absolute right to dismiss a chapter 7 case.

The court utilizes an interest balancing approach to ascertain whether or not dismissal is in the best interests of the debtor and the creditors of the estate, with particular emphasis on whether the dismissal would be prejudicial to creditors.

19

Concurrent bankruptciesIn re Swigert, No. 18-04351-HWV (BK MD PA)

The Bankruptcy Code does not prohibit contemporaneous bankruptcy filings by the same debtor.

The court should conduct an inquiry into the good faith of any petition that results in concurrent bankruptcy proceedings involving the same debtor.

The bankruptcy court should act to halt any consequence of the subsequent and concurrent petition that circumvents a prior decree, constitutes and imposition upon and an abuse of the process of the court, or represents a clear effort to circumvent the Bankruptcy Code.

20

Civil contempt / EthicsIn re Ransom, No. 15-10886-TPA (BK WD PA)In re Randolph, No. 15-10895-TPA (BK WD PA)

Proof of civil contempt requires demonstration, by clear and convincing evidence with respect to each element, that (1) a valid order of court existed, (2) the defendant had knowledge of the order, and (3) the defendant disobeyed the order.

A party’s disobedience of a valid court order need not be “intentional” in order to support a finding of contempt.

Good faith is not a defense to civil contempt.

21

EthicsIn re Ransom, In re Randolph (contd.)

Pa.R.P.C. §1.16(a)(1) requires an attorney to withdraw from representation if the representation will result in a violation of the Rules of Professional Conduct or other law.

Pa.R.P.C. §3.3(b) prohibits abetting a client’s fraudulent conduct related to the proceeding.

Pa.R.P.C. §3.5(d) prohibits engaging in conduct intended to disrupt a tribunal.

Pa.R.P.C. §8.4(c) prohibits engaging in conduct involving dishonesty, fraud, deceit or misrepresentation.

Pa.R.P.C. §8.4(d) prohibits engaging in conduct that is prejudicial to the administration of justice.

22

EthicsIn re Matters involving Willis, Misc. No. 19-204-JAD (BK WD PA)

Chapter 13 Trustee’s motion to disgorge fees alleging that counsel:

• Obtained advance expense retainer of $500 per client but then filed motions to permit payment of filing fees over time;

• Did not disclose advance expense retainer to the court;• In cases closed/dismissed where fees were unpaid, did not return

funds to the debtor or pay them to the court but retained them;• In some cases received payment of additional fees when filing fees

were unpaid;

23

In re Matters involving Willis (contd)

• Retained and comingled expenses and costs advanced in his operating account;

• Did not submit motions to pay fees in installments to clients for review and approval despite pleadings bearing the electronic signature of the debtor;

• Filed false statements with the court indicating receipt of zero dollars from clients and agreement to accept zero dollars for his services;

• Filed bankruptcy petitions without client’s knowledge or consent;

• Filed bankruptcy petitions without obtaining “wet” signatures from clients.

24

In re Matters involving Willis (contd)

Violations of statutes/rules:

• Fed.R.Civ.P. 11 and Fed.R.Bankr.P. 9011 by falsely representing that client’s had signed petitions and installment motions when they had not;

• Rule 3.1 of the PA Rules of Professional Conduct, which prohibits an attorney from asserting an issue unless there is a basis in law or fact for doing so;

• Rule 3.3 of the PA Rules of Professional Conduct, which imposes a duty of candor to a tribunal;

• Rule 8.4 of the PA Rules of Professional Conduct, which prohibits an attorney from actions prejudicial to the administration of justice;

• Rule 1.4 of the PA Rules of Professional Conduct, which imposes a duty upon counsel to communicate with his or her client;

25

In re Matters involving Willis (contd)

Violations of statutes/rules (contd):

• 11 U.S.C. § 526(a)(2), which makes it unlawful to make any untrue or misleading statement in a document filed in a bankruptcy case.

• LBR 5005-7 and 5005-15, which require that counsel obtain and retain actual client signatures on bankruptcy petitions;

• Fed.R.Bankr.P. 1006, which prohibits counsel’s acceptance of further compensation when filing fees remain unpaid;

• Fed.R.Bankr.P. 2016, which prohibits inaccurate statements of attorney;• Rule 1.5 of the PA Rules of Professional Conduct, which prohibits commingling

of expense retainers without depositing them into an IOLTA account;• Rule 1.16(d) of the PA Rules of Professional Conduct, which requires counsel to

refund any advance payment of fees or expenses that have not been earned or incurred.

26

In re Matters involving Willis (contd)

Mitigating factors:

• Counsel has been cooperative during the court’s inquiry;• Counsel immediately and without contest remitted the

retainer funds at issue to the Chapter 13 Trustee;• Counsel has been sincere and acknowledged the

shortcomings in the manner in which he has handled certain aspects of his practice;

• Counsel has taken unilateral action to correct problems in his practice and has hired professionals to assist him in those efforts.

27

In re Matters involving Willis (contd)

Court ordered remedial action:

• Disgorgement motion granted; fees collected to be paid to the Clerk;• Excess expense retainer funds shall be returned to debtors or, where

Chapter 13 cases remain pending; applied to plan funding;• Counsel shall refund $100 per client to those clients from whom “wet”

signatures were not obtained; • Counsel shall reimburse the Chapter 13 trustee for fees in all cases which

had to be reopened;• Counsel is to prepare and present a continuing legal education program on

the topic of best practices for attorneys in consumer bankruptcy cases;• Counsel is required to cooperate with the Disciplinary Board with a court-

recommended audit of counsel’s IOLTA account.

28

QUESTIONS?

29

THANK YOU!

30

NotesPage

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Legal Disclaimer

The information presented is for general informational and educational purposes only.

This presentation is not a substitution for consultation with an attorney. Consultation is not

only recommended, but encouraged.