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Archive for the ‘Commercial Litigation/Directors & Officers’ Category

Ninth Circuit: Creditors May Be Vicariously Liable for TCPA Violations Based on Common Law Ratification Principles

Posted on: April 16th, 2019

By: Nikki Sachdeva

In a recent opinion, the U.S. Court of Appeals for the Ninth Circuit reversed a district court’s grant of summary judgment in favor of a creditor, finding that common law principles of ratification may create vicarious liability under the Telephone Consumer Protection Act (TCPA). In Henderson v. United Student Aid Funds, 2019 U.S. App. LEXIS 8597 (9th Cir. Mar. 22, 2019), the Court heard an appeal by named plaintiff Henderson in a putative class action brought under the TCPA. After ceasing to make payments on her student loan, Henderson began receiving calls from several debt collection companies. Henderson alleged that the pattern of the calls, which included several prerecorded messages to a cellular telephone number she had not provided in connection with her loan application or consented to be called on, evidenced the use of a combination of skip-tracing and autodialing. Such combined use is prohibited by the TCPA.  47 U.S.C. § 227(b)(1)(A)(iii).

United Student Aid Funds (“USA Funds”), which owned Henderson’s loans, had hired a loan servicer, which in turn hired debt collectors to collect on the unpaid loans. USA Funds did not have contractual relationships with the debt collectors, nor did it have day-to-day interactions with them. However, USA Funds had access to the debt collectors’ performance reports and had previously reviewed the debt collectors’ call notes upon identification of an issue with improper calling practices. As to the loan servicer, USA Funds monitored its regulatory compliance and, while it did not have the ability to fire debt collectors, USA Funds had the ability to ask the loan servicer to replace debt collectors.

In 2017, the U.S. District Court for the Southern District of California granted summary judgment in favor of USA Funds. The district court rejected Henderson’s arguments that there was a triable issue of fact as to whether USA Funds could be liable under theories of classical agency or implied actual authority. Further, finding that there was no principal-agent relationship between USA Funds and the debt collectors, the district court held that USA Funds could not be vicariously liable under a ratification theory.

The Ninth Circuit, in a 2-1 decision, reversed the district court’s grant of summary judgment and remanded for further proceedings. The Court held that there was a material issue of fact as to whether USA Funds ratified the debt collectors’ calling practices. According to the Court’s opinion, federal common law principles of ratification may create vicarious liability under the TCPA even where the contractual agreements at issue state and/or suggest an independent contractor relationship rather than an agency relationship. First, the Court held that ratification may create an agency relationship where none existed before where the acts are “done by an actor… who is not an agent but pretends to be.” The Court noted that the debt collectors told borrowers they were calling on behalf of USA Funds and accepted payments on USA Funds’ behalf. Finding that there was a triable issue of fact, the Court continued: “a reasonable jury could conclude that USA Funds accepted the benefits—loan payments—of the collectors’ calls while knowing some of the calls may have violated the TCPA. If a jury concluded that USA Funds also had ‘knowledge of material facts,’ USA Funds’ acceptance of the benefits of the collector’s unlawful practices would constitute ratification.”

The Ninth Circuit’s decision in Henderson raises issues for creditors and other businesses who engage third parties to conduct borrower or consumer calls on their behalf. Businesses should be mindful that they may be exposed to vicarious liability under the TCPA based on improper conduct by third parties even where there is no contractual relationship with the entity making the allegedly violative telephone calls.

If you have any questions or would like more information, please contact Nikki Sachdeva at [email protected].

New Medical Devices and Performance Criteria

Posted on: February 12th, 2019

By: Koty Newman

The Food and Drug Administration (“FDA”) recently issued final guidance (the “Guidance”), providing a framework for its new Safety and Performance Based Pathway for its updated 510(k) process. Section 510(k) of the Food, Drug and Cosmetic Act requires medical device manufacturers to notify the FDA of their intent to market a medical device. Notification enables the FDA to determine if the product is equivalent to a device already on the market, which by extension, helps the FDA determine if the device is at least as safe and effective as the already marketed device.

The FDA’s Safety and Performance Based Pathway evidences the FDA’s recognition that it may be less burdensome for device manufacturers to show a new device’s substantial equivalence to a predicate device by demonstrating that the new device meets certain performance criteria, rather than directly testing the new device against a predicate device. Thus, “[i]nstead of reviewing data from direct comparison testing between the two devices, FDA could support a finding of substantial equivalence based on data showing the new device meets the level of performance of appropriate predicate device(s),” the Guidance states. In order to discern the requisite performance criteria, manufacturers should look to descriptions in FDA guidance, FDA-recognized consensus standards, and special controls.

The Guidance states that the “FDA believes that use of performance criteria is only appropriate when FDA has determined that (1) the new device has indications for use and technological characteristics that do not raise different questions of safety and effectiveness than the identified predicate, (2) the performance criteria align with the performance of one or more legally marketed devices of the same type as the new device, and (3) the new device meets all of the performance criteria.” Further, a manufacturer may use this program only if the manufacturer can rely entirely on performance criteria to demonstrate substantial equivalence. The FDA will still require that a manufacturer identify a predicate device in order for the FDA to determine the relevant intended use and technological characteristics decision points.

The FDA will maintain a list of device types that are appropriate for the Safety and Performance Based Pathway on its website, along with other information that will be helpful for manufacturers intending on navigating this particular Pathway, such as “guidances that identify the performance criteria and testing methods recommended for each device type.”

This policy represents an expansion of the long-applied approach by the FDA, giving device manufacturers an additional pathway to demonstrate substantial equivalence. For the manufacturers who cannot, or prefer not to, rely on this Safety and Performance Based Pathway, direct comparison with a predicate device will remain available to determine whether the new device is substantially equivalent to a predicate device.

The FDA is also seeking public comment on questions such as whether it should make public a list of devices or manufacturers who make products that rely on older predicates, such as predicates that have been on the market for ten-or-so years, and whether there are actions the FDA could pursue to promote the use of more current predicates. The public will have until April 22, 2019 to comment.

If you have any questions or would like more information, please contact Koty Newman at (678) 996-9122 or [email protected].

District Court in California Certifies a Class of Five Million Against Walmart

Posted on: February 8th, 2019

By: Koty Newman

On January 17, 2019, a Federal District Court in California certified a class of five million Walmart applicants. The Class Representatives allege that Walmart failed to comply with the Fair Credit Reporting Act’s (“FCRA”) disclosure requirements by including extraneous information in its disclosure forms, thus violating disclosure and authorization requirements. The Class Representatives also allege that Walmart obtained investigative reports without informing the applicants of their right to request a written summary of their rights under the FCRA.

For a court to certify a class, the court must find that the proposed class satisfies the four requirements of Federal Rule of Civil Procedure 23(a): numerosity, typicality, commonality, and adequacy of representation. The facts of this case were tailor-made to meet these requirements. The Court noted that with the proposed class of five million applicants and employees, the class would be so numerous that joining all the members would be impracticable. The Court also found that the Class Representatives would adequately represent the class and vigorously prosecute the action on behalf of the class.

The requirements of typicality and commonality overlap to some degree, and the Court found that both were satisfied in this case. The Class Representatives, as applicants to Walmart, were found to be typical of the class because their interests align with those of the class. Finally, the case satisfied the commonality requirement given that every person in the class allegedly encountered similar confusing extraneous material in violation of the Fair Credit Reporting Act during their application process to Walmart. Each class member also allegedly was not informed of his or her right to request a written summary of his or her rights. The Court found these common issues would predominate the adjudication of the case, even though there may be small factual differences among individuals in the class. Thus, the Court held that it made practical sense to certify the class and resolve all of these individual’s problems in one case, rather than five million cases.

The Court also noted that this case presents more than a mere technical violation of the FCRA. The Class Representatives have, in essence, alleged that Walmart accessed their personal information in violation of their protected rights, a concrete harm.

This ongoing case serves as a warning to employers across the United States who conduct background investigations; comply with the FCRA, or you may face the prospect of having all those applicants come back to haunt you in a class action. If you have any questions or need help with an FCRA case, please contact one of our attorneys for guidance.

If you have any questions or would like more information, please contact Koty Newman at [email protected].

998s: The Stealth Policy Limit Demand

Posted on: February 7th, 2019

By: Tim Kenna & Kristin Ingulsrud

In personal injury practice, the claimant’s attorney will sometimes serve a statutory offer to compromise in tandem with service of the summons and complaint. This strategy has a two-fold impact on the case. The first is that if the plaintiff obtains a better result at trial, it may seek costs and prejudgment interest at 10%. The second is that the 998 be relied upon as a policy limit demand. In both cases, the running of the defendant’s time to accept the 998 triggers the consequences of a failure to settle. An insurer’s rejection of a valid policy limit demand can result in extracontractual exposure. Licudine v. Cedars-Sinai Medical Center, No. BC499153, 2019 Cal. App. LEXIS 2*, directly addresses the requirement that an early 998 is only valid if the offer is reasonable under the totality of the facts. The relevant factors are (1) how far into the litigation the 998 offer was made, (2) the information available to the offeree prior to the lapse of the 998 offer, (3) whether the offeree let the offeror know it lacked sufficient information to evaluate the offer, and (4) how the offeror responded. The court struck plaintiffs request for millions in prejudgment interest following a verdict far in excess of the 998 on the ground that it was premature because Cedars had not had an adequate opportunity to evaluate damages.

Licudine is relevant to the 998 used as a policy limit demand. The factors considered by Licudine also apply to the determination of the validity of conditional policy limit demands in general. See Critz v. Farmers Ins. Group (1964) 230 Cal.App.2d 788, 798 (insurer should request additional time to respond to policy limit demand if further investigation of facts needed). Following trial, the results of a motion to tax costs could determine whether the 998 was valid as a policy limit demand. In either event, the case is critical of the premature demand for settlement designed to “game the system.”

If you have any questions or would like more information please contact Tim Kenna at [email protected] and Kristin Ingulsrud at [email protected].

Georgia Court of Appeals Concludes the Term “Affiliate” is Ambiguous

Posted on: February 4th, 2019

By: Jake Carroll

In Salinas v. Atlanta Gas Light Company,[1] the Georgia Court of Appeals’ recently examined whether Georgia Natural Gas (“GNG”) and Atlanta Gas Light Company (“AGLC”) were “affiliates.” Both AGLC and GNG were owned and controlled, either directly or through an intermediary, by a company named AGL Resources, Inc.

In Salinas, AGLC sought to dismiss Plaintiff’s claims and compel arbitration. In support of its argument, AGLC relied on a term in GNG’s service agreement that required the Plaintiff to arbitrate any disputes with GNG’s “affiliates.” However, since the term “affiliate” was not defined in GNG’s agreement, the Court of Appeals looked at how the term “affiliate” is defined in the Georgia Code, Black’s Law Dictionary, and other jurisdictions, and ultimately determined that the term is ambiguous. The Court of Appeals construed the agreement against GNG—the drafter of the contract—and as a result, AGLC could not demand arbitration of Plaintiff’s dispute.

While the Court of Appeals did not set-out a specific definition for “affiliate,” the Court’s analysis provides a couple of practice tips to anyone involved in drafting, reviewing, or enforcing contracts, including commercial agreements, government contracts, or insurance policies.

  1. Define Your Terms: The Salinas Court may not have had to address the meaning of “affiliates” if the Agreement had defined the term. But, since the term was not defined, the Court looked elsewhere, including other jurisdictions, the Georgia Code, and the dictionary to determine its meaning. Including a definitions section is an easy way to set out the agreed-upon meaning of a term throughout a contract, and should not be overlooked.
  2. Be Explicit: If there is a certain sibling or parent corporation that should be a beneficiary of a contract, consider listing the specific “affiliates” to which the contract or agreement should apply.
  3. Check Your State’s Code: The Court noted that the term “affiliate” is defined over 20 times in the Georgia Code, and the definitions vary. For example, in the context of financial institutions, an affiliate is an entity that controls the election of a majority of directors, trustees of a financial institution, or an entity that owns or controls 50 percent or more of the financial institution. O.C.G.A. § 7-1-4 (1). In Georgia’s Corporations Act, the definition of affiliate is broader: “a person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a specified person.” O.C.G.A. § 14-2-1110 (1).[2] Depending on the type of corporate entity, “affiliate” may not include every entity in a corporate structure, and certain rules regarding ownership and control may be relevant.

If you need help with this issue, or any other commercial law questions, Jake Carroll practices construction and commercial law, is licensed to practice in Georgia and Florida, and is a member of Freeman Mathis & Gary’s Construction Law and Tort and Catastrophic Loss practice groups. He represents corporations and manufacturers in a wide range of litigation and corporate matters involving breach of contract, business torts, and products liability claims. He can be reached at [email protected].

[1] 347 Ga. App. 480; 819 S.E.2d 903 (2018).
[2] See also O.C.G.A. § 18-2-71 (1) (B) (“Affiliate” has multiple definitions, including “[a] corporation 20 percent or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote by the debtor or a person who directly or indirectly owns, controls, or holds with power to vote 20 percent or more of the outstanding voting securities of the debtor[.] …”).