On July 6, 2018, Leandra English, through her attorney via Twitter, announced she would be resigning from the Consumer Financial Protection Bureau (“CFPB”). In so doing, Ms. English is also dropping her lawsuit against the CFPB in which she challenged Mick Mulvaney’s status as the acting director and claimed that she was the true acting director. Ms. English attributed her resignation decision to President Trump’s nomination of Kathy Kraninger, a White House aide, to be the CFPB’s director.

Ms. English was previously promoted by then-Director Richard Cordray before his departure the day after last November’s Thanksgiving holiday. Later, during that holiday weekend, Ms. English filed suit to block President Trump’s appointment of Mr. Mulvaney as the CFPB’s acting director. In her suit, Ms. English argued that she was the rightful successor to Director Cordray and challenged the President’s authority to appoint Mr. Mulvaney under the Federal Vacancies Reform Act of 1998 (“FVRA”). Ms. English pursued the lawsuit even though the U.S. Department of Justice’s Office of Legal Counsel had issued a memorandum that concluded the president had the authority to appoint a temporary replacement since the statute provided him with the “exclusive means” to do so unless there was a supervening statute that specified otherwise.

The U.S. District Court for the District of Columbia denied relief to Ms. English over Mr. Mulvaney’s appointment. She appealed that decision to the D.C. Circuit, which appears poised to reject her claim due, in part, to her lack of standing. If the Senate confirms Ms. Kraninger’s nomination, the confirmation will moot Ms. English’s lawsuit. Although Ms. English’s decision may end that lawsuit, the CFPB faces other challenges, and several courts have found the agency’s statutory structure unconstitutional. For additional information, see our prior alerts on this issue here.

Executive Summary and Takeaway. User agreements for websites and apps have become increasingly prevalent in recent years, and courts have had to adapt traditional rules of contract interpretation to the new digital frontier. On June 25, 2018, the First Circuit reversed a district court decision enforcing an arbitration clause contained in the terms of service for the defendant’s smartphone app, finding that those terms were not sufficiently “conspicuous” for a user to know that he or she had agreed to be bound by them. The First Circuit’s decision continues a trend of judicial hostility to arbitration clauses, and is notable for its scrutiny of the record below: the court studied in minute detail the design and content of the registration screen containing a hyperlink to the terms of service—including the size, shape, color, font, and location of the hyperlink—and concluded that the link to the terms of service failed “to grab the user’s attention.” Businesses with similar user agreements governed by Massachusetts law or that could potentially apply to Massachusetts consumers should review their websites and/or apps to ensure that their platforms disclose any terms of use in a clear and conspicuous manner in relation to the rest of the content on the screen.

Additional Background. To use the services provided by the defendant company (the “Company”) via its smartphone app, a customer must first register with the Company by creating an account. As part of the registration process, users are shown a screen that requests their payment information and notifies them that by creating an account they are agreeing to the Company’s Terms of Service and its Privacy Policy:

The words “Terms of Service & Privacy Policy” are in a clickable box that includes a hyperlink. Upon clicking on that hyperlink, the user is directed to a screen with two other links: one to the Terms of Service, and the other to the Privacy Policy. The user can view either document by clicking on the appropriate link.

Continue Reading First Circuit Invalidates Arbitration Clause in Mobil App User Agreement

On June 21, 2018, in deciding a motion to dismiss a complaint brought the Consumer Financial Protection Bureau (“CFPB”)and the State of New York, Judge Loretta Preska of the U.S. District Court for the Southern District of New York held that the CFPB’s structure is unconstitutional.

Previously the D.C. Circuit, sitting en banc in PHH Corp. v. CFPB, 881 F.3d 75 (D.C. Cir. 2018), had held that Title X of the Dodd-Frank Act, which “established the CFPB as an ‘independent bureau’ within the Federal Reserve System,” was validly enacted. Judge Preska disagreed with the panel and adopted the minority view proposed by the dissent in that case. First, she accepted Judge Brett Kavanaugh’s conclusion that the CFPB was unconstitutionally structured because it is an “independent agency that exercises substantial executive power and is headed by a single Director.” Namely, Judge Kavanaugh took issue with the CFPB’s unchecked authority vested in a single director, where history, liberty, and presidential authority dictate otherwise. Continue Reading An SDNY Dilemma: CFPB Held Unconstitutional Over Director Removal Provision

In China Agritech, Inc. v. Resh, the Supreme Court recently held that pending class actions do not toll the limitations period for successive class actions. The ruling limits plaintiffs’ ability to bring successive class actions and will increase certainty for defendants sued in class actions. Continue Reading Supreme Court Rules that Class Actions Do Not Toll the Limitations Period for Successive Class Actions

Certain restaurants, grocers, and other food establishments will soon be required to comply with the Food and Drug Administration’s (“FDA”) menu labeling rules. The FDA previously finalized menu labeling rules in connection with the Affordable Care Act to make calorie and nutritional information more available to consumers dining out. Last year, the FDA extended the compliance deadline to May 7, 2018. Continue Reading FDA Menu Labeling Rules Unfreeze

A federal judge recently held that a plaintiff cannot state a claim for false advertising under Illinois law by cherry picking statements in isolation if, on the whole, the information available to plaintiff dispelled the alleged deception. On April 6, 2018, the Northern District of Illinois dismissed a proposed class action that unsuccessfully claimed that a fast food restaurant and an Illinois franchisee had misrepresented the value of certain value meals. The proposed class action, filed in Illinois in 2016, was one of hundreds of cases filed that year alone in a recent surge in food consumer class action litigation.

According to a recent report by the U.S. Chamber Institute for Legal Reform, food marketing class actions increased from about 20 in 2008 to over 425 active cases in federal courts in 2015 and 2016. During this same two-year period, Illinois ranked as a favorite of the class action bar by hosting the fourth largest number of food class actions in federal courts and only trailed California, New York and Florida.

Background

Plaintiff filed a class action complaint against a fast food restaurant and its franchisee alleging that certain value meals were not a good value because consumers could have purchased the meal items separately at a lower cost than the bundled meal. Plaintiff claimed that marketing the meals as “values” suggests that the meals cost less than ordering each item individually. Plaintiff therefore argued that labeling such meals as value meals was false, deceptive, and misleading in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act.

Judge Elaine Bucklo rejected Plaintiff’s claims. She held that, under Illinois law, consumers who simply don’t bother to compare prices easily visible at the point of purchase cannot claim they have been misled. Judge Bucklo reasoned that, although Plaintiff’s argument had “superficial appeal,” she and the consumers she sought to represent had all the information necessary to compare prices. Judge Bucklo noted that, if Plaintiff had “take[n] the time to compare prices,” she would have realized that she could have saved a few cents by purchasing the items individually.

In holding that there could be “no possibility for deception,” Judge Bucklo relied on a line of cases dismissing similar claims where plaintiff consumers received all the information they needed to make an informed purchasing decision. Judge Bucklo distinguished the fast food restaurant’s prominent display of all prices near the chain’s registers from situations where “consumers would have to consult an ingredients list or other fine print to determine whether prominent images or labels a defendant uses in connection with its product accurately reflect the product’s true nature or quality.”

Takeaway

The court’s decision is a victory for food chains and other restaurants. Restaurants and retailers should consider prominently displaying all information necessary to evaluate pricing claims in advertisements or at the point of purchase.

The battle for control of the Consumer Financial Protection Bureau (“CFPB”) raged on this Thursday during oral argument before the United States Court of Appeals for the District of Columbia Circuit in English v. Trump. All three panel judges seemed skeptical of English’s claim that she should be acting director of the CFPB, but two judges questioned whether President Trump could appoint Mulvaney as acting director when a provision in the Dodd-Frank Act states that a subsection on budgeting and financial management “may not be construed as implying … any jurisdiction or oversight over the affairs or operations of the [CFPB]” by the Office of Management and Budget (“OMB”).  Continue Reading D.C. Circuit Questions English’s Standing to Challenge CFPB Control

In response to “the void left by the Trump Administration’s pullback of the [CFPB],” the New Jersey Attorney General recently announced that Paul R. Rodriguez will be serve at the Director of the New Jersey Division of Consumer Affairs, the state’s lead consumer protection agency.  Mr. Rodriguez will serve as the Acting Director of the Division beginning on June 1, 2018, until he is confirmed by the New Jersey Senate.  This appointment fulfills one of Governor Phil Murphy’s promises to create a “state-level CFPB” in New Jersey.

Several other state attorneys general, including those in California, Connecticut, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, New Mexico, North Carolina, Oregon, Vermont, Virginia, and Washington, have announced that they intend to fill any void resulting from leadership changes at the CFPB by continuing to vigorously enforce federal consumer protection laws, as well as the consumer protection laws of their respective states.  This sentiment was memorialized in a December 14, 2017, letter from the attorneys general to President Trump expressing their support for the CFPB’s mission and their disapproval of Mick Mulvaney’s appointment as CFPB Acting Director.

Seyfarth Shaw will continue to monitor and report on this potential state-level CFPB formation trend and related enforcement activity.

Seyfarth Synopsis: In light of the uncertainties surrounding lawsuits alleging violations of the Illinois Information Biometric Privacy Act (“BIPA”), the Northern District of California has taken a firm position on a plaintiff’s Article III standing. U.S. District Judge James Donato delivered opinions in In re Facebook Biometric Info. Privacy Litig., Case No. 15-CV-03747; 2018 U.S. Dist. LEXIS 30727 (N.D. Cal. Feb. 26, 2018) and Gullen v. Facebook Inc., Case No. 16-CV-00937; 2018 U.S. Dist. LEXIS 34792 (N.D. Cal. March 2, 2018), denying Facebook’s motions to dismiss for lack of subject matter jurisdiction in both cases. The court held that plaintiffs’ Article III standing was satisfied through mere collection of biometric information.

The decisions provide plaintiffs the ability to get their feet in the door and threaten businesses and employers alike. The court dismissed Facebook’s argument that Article III standing requires “real-world harms,” stating that the argument exceeds the law. Instead, the court held that a plaintiff has standing when they are deprived of procedures that protect statutorily protected interests, similar to the procedures outlined in the BIPA. Continue Reading California Federal District Court Does Not ‘like’ Facebook’s Standing Argument in Illinois Biometric Information Privacy Act Case

On March 16, 2018, the D.C Circuit issued a decision invalidating portions of the FCC’s 2015 TCPA Omnibus Declaratory Ruling and Order. Notably, the decision overturns as “arbitrary and capricious” the FCC’s definition of an automated telephone dialing system (“ATDS”) and the one-call safe harbor for calling a phone number that has been reassigned to a non-consenting person. The decision was not a complete victory for businesses as the D.C. Circuit sustained the FCC’s order on both consumers’ ability to revoke consent and the scope of the “time-sensitive healthcare call” exemption.

The FCC’s Definition of ATDS is Arbitrary and Capricious

In the 2015 Order, the FCC defined an ATDS as equipment that contained the potential “capacity” to dial random or sequential numbers, even if that capacity could be added only through specific modifications or software updates, so long as the modifications were not too theoretical or too attenuated. In crafting this definition, the FCC noted that smartphones could be included within the definition and only categorically ruled out a rotary-dial telephones.

In striking down the 2015 Order, the court made it clear that under the current definition of an ATDS, anyone with a smartphone, which the court estimates to be 80% of the population, is at risk of violating the TCPA because “all smartphones, under the Commission’s approach, meet the statutory definition of an autodialer.” Under the FCC’s interpretation, if a person sent a group text message to ten acquaintances without obtaining their express consent, he or she would be liable for ten distinct violations of the TCPA, with a minimum damage recovery of $5,000. In sum, the court held that “[i]t cannot be the case that every uninvited communication from a smartphone infringes federal law, and that nearly every American is a TCPA-violator-in-waiting, if not a violator-in-fact.” The D.C. Circuit held that, if the 2015 Ruling does not encompass smartphones, then the FCC failed to “articulate a comprehensible standard.”

In striking down the FCC’s sweeping definition of an ATDS, the court ordered the FCC going forward to take into account whether a system actually used autodialer functionality or whether it was merely possible to download software to convert a telephone into an ATDS. Additionally, the court held that the FCC must determine whether the definition of an ATDS requires that a system “must itself have the ability to generate random or sequential telephone numbers,” or whether it is “enough if the device can call from a database of telephone numbers generated elsewhere.” Finally, the court left open the issue of human intervention. Based on the decision, if the FCC departs from the statutory requirement of using a random or sequential number generator, it must also tackle the issue of human intervention.

In light of Chairman Ajit Pai’s expression of support for business-friendly reforms to the TCPA, it is likely that the D.C. Circuit’s ruling may result in real change in this area of the law.

The FCC’s One-Call Safe Harbor and Definition of “Called Party” are Arbitrary and Capricious

The court then turned its attention to the distinct challenges raised by the reassignment of cell phone numbers. Under the 2015 Order, a caller could place only a single call to a reassigned number before running afoul of the TCPA. Per the 2015 Order, a “called party” was the current subscriber, i.e. the consumer assigned the number and billed for the call.

The D.C. Circuit rejected both the one-call safe harbor for calling reassigned numbers and the definition of “called party.” The court held that issues related to calls or texts to reassigned numbers where the prior owners had provided consent to be contacted, present a looming challenge because “there is no dispute that millions of wireless numbers are reassigned each year.”

The court set aside the FCC’s post-reassignment interpretation on the ground that a one-call safe harbor is “arbitrary and capricious.” In reaching this result, the court focused on the FCC’s own determination that callers must be able to reasonably rely on the consent provided by former subscribers when calling or texting. Based on the record before it, the court held that it was not reasonable to hold that placing a single call to a reassigned number was likely to afford a caller reasonable notice that the number was one of the millions of numbers reassigned each year. By striking down the one-call safe harbor and the definition of “called party,” the court provided defendants with a potential defense to avoid liability for calling reassigned numbers if a defendant can establish that its reliance on the former subscriber’s consent was reasonable at the time it placed calls to the new subscriber.

Critically, in addition to striking down the one-call safe harbor, the court set aside the definition of “called party” as the “current subscriber” on the grounds that it would impose strict liability for calls to reassigned numbers. Thus, it appears that defendants may once again argue that “called party” means “intended recipient” when defending against TCPA claims based on calls or texts to reassigned numbers.

Consumers May Still Revoke Consent in Any “Reasonable” Manner

In upholding consumers’ right to revocation of consent, the court set limits. As an initial matter, a consumer may only revoke consent using “reasonable” means. The reasonableness of the revocation is governed by a totality-of-the-circumstances test. Thus, if a consumer uses creative revocation techniques or declines to follow reasonable revocation procedures set forth by the caller, the revocation may not be reasonable or permissible. Moreover, the D.C. Circuit emphasized that the FCC’s ruling “does not address revocation rules mutually adopted by contracting parties,” meaning that callers and consumers may contractually agree to revocation mechanisms.

TCPA Consent Standards for Healthcare Calls Upheld

The D.C. Circuit declined to expand the scope of calls placed to wireless numbers without express consent “for which there is exigency and that have healthcare treatment purposes.” Under the 2015 Order, calls placed to consumers for certain purposes, including, appointment reminders, pre-operative instructions and lab results do not require consent. In upholding the contours of the 2015 Order, the court declined to except “advertisements, solicitations and post-treatment financial communications” from the consent requirements. The court held that billing communications are not made for “emergency purposes.”

Conclusion

As of now, the state of the TCPA is in flux. Under Chairman Pai, we are cautiously optimistic that the new FCC regime will likely advance more business-friendly rules. We will continue to monitor changes to the law and provide timely updates.