BANKING HEADACHES: Plaintiff Challenges Debt Collections Under TCPA ATDS Provisions
Hi Folks! We just saw an interesting complaint filed, where the plaintiff claims he revoked his consent to be contacted by a debt collector.
Generally, debt-collection-related TCPA lawsuits are at an all-time low, especially in the Ninth Circuit. However, Plaintiff Aaron Maxwell brought a complaint against First National Bank of Omaha for three different claims relating to its debt collection attempts, including a violation of the automatic telephone dialing system (“ATDS”) provisions of the TCPA. Maxwell v. First National Bank of Omaha, 2:25-cv-00652 (C.D. Cal. filed January 27, 2025). Plaintiff alleges that he revoked his consent to be contacted via a “certified notice” sent to Defendant. Id. The “certified notice” was a letter from Plaintiff’s counsel confirming that he represented Plaintiff and advising Defendant to no longer contact the Plaintiff. Id.
The de facto rule is that consumers may revoke TCPA consent through any reasonable means. New revocation rules—unimpacted by the 11th Circuit’s decision to strike down 1:1 consent requirements—are coming into effect April 11, 2025, which will codify the reasonable revocation rule into 47 C.F.R. § 64.1200, among additional changes.
It appears that a certified notice sent on Plaintiff’s behalf constitutes reasonable means through which to revoke consent.
Still, Maxwell v. First National Bank of Omaha is interesting because debt collectors have not been subject to many ATDS lawsuits in recent years, especially in the Ninth Circuit, as the Supreme Court in Facebook, Inc. v. Duguid and Ninth Circuit (subsequently) in Borden v. eFinancial, LLC have both held that an ATDS must generate random numbers—although those definitions are strangely inconsistent.
In any case, this is a TCPA lawsuit against a debt collector for violating the ATDS provisions. For debt collectors, courts within the Ninth Circuit have found that debt collection attempts are incompatible with ATDS usage because debt collectors do not generate random numbers. See McDonald v. Navy Federal Financial Group, 2023 WL 5797724 (D. Nev. Sept. 7, 2023) (finding implausible plaintiff’s claim that she was contacted by a debt collector using an ATDS).
It will be interesting to see how the court treats Plaintiff’s TCPA ATDS claim in this action. It seems that the ATDS claim should be dismissed, but courts within this circuit have gone the other way in recent years—even for debt collectors.
Supreme Court to Decide Whether Federal Courts May Certify a Class with Uninjured Class Members
On January 24, 2025, the Supreme Court granted certiorari in Lab. Corp. of Am. Holdings v. Davis, Case No. 24-304, on the question of “[w]hether a federal court may certify a class action pursuant to Federal Rule of Civil Procedure 23(b)(3) when some members of the proposed class lack any Article III injury.” In TransUnion LLC v. Ramirez, 594 U.S. 413, 431 (2021), the Supreme Court made clear that “[e]very class member must have Article III standing in order to recover individual damages,” but the Court did not answer the question of when a class member’s standing must be established and whether a class can be certified if it contains uninjured class members.
Since Transunion, the question of whether a court can even certify a class in the first place if it contains uninjured class members has divided the Circuits. Some courts have denied class certification if there are uninjured class members while other courts have found that questions of class member standing can be addressed after certification. Even the courts that have denied class certification are not in agreement, with some finding that the issue arises under Article III and others addressing the impact of uninjured class members in the context of Federal Rule of Civil Procedure 23. Those addressing the issue under Article III have generally found that Article III bars certification where the class includes any class member who lacks standing, while courts addressing the issue under Rule 23 usually find that more than a de minimis number of uninjured class members will cause individual issues to predominate over common ones. Thus, until now, whether a class could be certified with any uninjured class members—and, if so, how many class members were permitted to be uninjured for the class to still be certified—largely depended on where the case was pending. The Supreme Court is now poised to address the question of when and how class member standing must be addressed and what impact it has on class certification.
The Court has ordered an accelerated briefing schedule in the matter — the Petitioner’s brief on the merits is to be filed on or before March 5, 2025; Respondents’ brief on the merits is to be filed on or before March 31, 2025; and the reply brief is to be filed by April 21, 2025. This accelerated schedule indicates that the Court will hear and decide the case this term. We should therefore have an answer by late June/early July 2025 on whether a federal court can certify a class containing uninjured class members under Rule 23(b)(3).
We will keep you posted with further developments in the case.
Illinois Loses First Shot at Interchange Fees on State and Local Taxes
Illinois enacted a law that prohibits a credit card holder’s bank from charging or receiving interchange fees on the portions of transactions that include Illinois state or local taxes and gratuities, in effect starting July 1, 2025. IL Interchange Fee Prohibition Act (“IFPA”) 815 ILCS 151/150-1 et seq. The Illinois Bankers Association and others collectively sought relief in the federal courts to prevent the IFPA from taking effect and asserted that the IFPA is preempted by federal laws, is unconstitutional under the Supremacy Clause of the United States Constitution, and is discriminatory under the dormant Commerce Clause of the United States Constitution because it imposes a regulatory measure that “benefit[s] in-state economic interests by burdening out-of-state competitors.” Compl. ¶ 202 to 224. They won a preliminary injunction that temporarily blocks the law while the challenge proceeds. Illinois Bankers Association’s et al. v. Kwame Raoul, in his official capacity as Illinois Attorney General, No. 24 C 7307 (N. D. Ill. Dec. 20, 2024).
A preliminary injunction in any court requires, at a minimum, the court to believe that the party seeking the injunction has a reasonable likelihood of success on the merits of the actual case and will suffer irreparable harm if application of the law is not stayed while the case proceeds. This means at least two things. First, you have to be prepared for a mini-proceeding on the case before you get to the trial stage at which you would put on your full case. That is, if you cannot demonstrate that you are likely to ultimately win and you would be harmed by not halting the law early, why would the court want to stay the application of a law at an early stage of your case? Second, if you win a preliminary injunction, you are more likely to ultimately prevail.
The court found that:
the IFPA prohibits charging or receiving interchange fees on the portion of a credit card transaction that includes Illinois state or local taxes or gratuities;
the IFPA defines an interchange fee as “a fee established, charged, or received by a payment card network for the purpose of compensating the issuer for its involvement in an electronic payment transaction[;]”
under the federal National Bank Act powers, banks are authorized to engage in any activity that is “incidental to the business of banking [;]”
Office of the Comptroller of the Currency guidance makes clear that processing credit and debit card transactions is part of the business of banking;
the IFPA directly regulates credit and debit card transactions by dictating the amount that banks can charge for a transaction; and
by barring a credit card issuer from charging interchange fees on state and local taxes and gratuities, the IFPA alters a bank’s right to determine how best to structure their non-interest fee arrangements with merchants.
The banks demonstrated irreparable harm by proving that costs to make changes to their payment processing systems (the current systems do not distinguish whether the transaction is for state and local tax or gratuities) would not be recouped if the law was later struck down.
The takeaway here is that a preliminary injunction and a challenge in federal court are powerful tools that can add leverage if the case is right for using them. Often state tax challenges are prohibited in federal courts under the Tax Injunction Act, which provides that federal courts “shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” 28 USC § 1341. However, if you can get there, make a federal case out of it!
What Does the Change in Presidential Administration Mean for Pending Mandamus Actions?
In recent years, many immigration applicants have filed mandamus actions with the federal courts, seeking them to compel U.S. Citizenship and Immigration Services (USCIS) and the Department of State (DOS) to adjudicate delayed immigration benefits applications. Invariably, when a mandamus action is brought, the defendants not only include USCIS, its director, the DOS, and its secretary, but also the U.S. attorney with jurisdiction over the application, the Department of Justice, and the attorney general. With a new presidential administration soon taking office, many mandamus plaintiffs are concerned about whether their lawsuits will be dismissed and if they will need to refile suit.
The Federal Rules of Civil Procedure 25(d) provide that when a public officer who is a party in an official capacity resigns or otherwise ceases to hold office while the application is pending, the federal court action does not cease. In fact, the officer’s successor is automatically substituted as a party to the mandamus action. Later proceedings should be in the substituted party’s name, but a change in public officer cannot adversely impact the parties’ substantial rights. Thus, those who have relied on the courts to help them get decisions on their pending immigration applications may continue pursuing this course of action. 2024 saw a continued increase in mandamus actions nationwide as USCIS and DOS struggle to meet processing time goals even where statutorily required.
‘Motive’ or ‘Animus’? Lessons From Appellate Practice
The term “animus” is often used interchangeably with “motive” by lawyers and courts, but the two words have different meanings and connotations, and confusion between them can become an unnecessary complication. None of us needs any extra complications. So, practitioners may want to choose their words carefully.
Quick Hits
Lawyers may want to avoid using the term “animus” when a case depends solely on “motive,” as employment statutes generally focus on actions taken “because of” a protected characteristic.
The term “animus” can complicate legal cases unnecessarily, and its negative connotations are often irrelevant to the core issue of whether a decision was motivated by a protected characteristic.
Courts and lawyers often use the term “animus” interchangeably with “motive,” but it is crucial to choose words carefully to avoid unnecessary complications in legal arguments.
There is reason for using the term “animus” when “motive” is meant. First, it sounds awkward to write, “the defendant was not motivated by retaliatory motive.” Substituting “animus” at the end sounds better. Second, there is authority for the proposition that “animus” can simply mean “motive” or “intent,” without any negative connotations. For example, according to Black’s Law Dictionary, “animus” is defined as “Mind; soul; intention; disposition; design”), and other dictionaries have similar definitions. Third, as the Supreme Court of the United States explained in a 2024 decision, Murray v. UBS Securities, LLC, evidence of “motive” evidence often also shows “animus,” even when one defines “animus” to include negative connotations, such as “prejudice” or “comparable hostile or culpable intent.” Supervisors motivated by an employee’s race seem likely to be harboring negative feelings about that the employee’s race.
All that said, lawyers may want to consider avoiding the term “animus” when the case depends only on “motive,” which it usually does. Employment statutes generally prohibit “discriminating” against an employee “because of” the employee’s protected characteristic. The Supreme Court pointed out in Gross v. FBL Financial Services, Inc., decided in 2009, that taking an action “because of” a protected characteristic means it was the “reason” for the decision―i.e., what motivated the decision. AndBlack’s Law Dictionary defines “Motive” as the “Cause or reason that moves the will and induces action”). The Supreme Court also noted in Gross, as well as in Bostock v. Clayton County, Georgia, that ‘because of” means that the prohibited reason must have actually made the difference in the sense of being a “but for” cause.
In short, the statutes prohibit employers from treating employees differently because of a protected characteristic, and they do so without regard to the decision’s subtext, the Supreme Court further explained in Murray. That means “animus,” defined with its negative connotations, is irrelevant. Thus, in Murray, it did not matter if the employer treated the whistleblowing employee differently because of a desire for revenge or because of a beneficent “belief that the employee might be happier in a position that did not have SEC reporting requirements.” Similarly, when an employer treats women differently, it does not matter that it generally favors women or wants to protect them, the Court held in Automobile Workers v. Johnson Controls, Inc., a 1991 ruling. The opposite is also true. No matter how much ill will the decisionmaker had, a claim is not actionable if it made no difference in the decision made, the Court stated in Hartman v. Moore, a 2006 decision.
Second Circuit Adopts “At Least One Purpose” Rule for False Claims Act Cases Premised on Anti-Kickback Statute Violations
On December 27, 2024, the U.S. Court of Appeals for the Second Circuit held in U.S. ex rel. Camburn v. Novartis Pharmaceuticals Corporation that a relator adequately pleads a False Claims Act (“FCA”) cause of action premised on violation of the Anti-Kickback Statute (“AKS”) by alleging, with sufficient particularity under Federal Rule of Civil Procedure 9(b) (“Rule 9(b)”), that at least one purpose (rather than the sole or primary purpose) of the alleged kickback scheme was to induce the purchase of federally reimbursable health care products or services.[1]
In doing so, the Second Circuit joins seven other Circuit Courts—the First, Third, Fourth, Fifth, Seventh, Ninth, and Tenth Circuits—in adopting the “at least one purpose” rule. This ruling lowers the bar in the Second Circuit for relators pleading AKS-based FCA claims.
Interplay Between FCA and AKS Violations
Under the AKS, “a claim that includes items or services resulting from a violation [of the AKS] … constitutes a false or fraudulent claim” under the FCA.[2]
The AKS prohibits persons from, among other things, “knowingly and willfully” soliciting or receiving “any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind—
in return for referring an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a federal health care program, or
in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program[.]”[3]
Alleged “Sham” Speaker Events & Excessive Compensation
In U.S. ex rel. Camburn, the relator, a former Novartis sales representative, filed a qui tam action in the U.S. District Court for the Southern District of New York alleging violations of the FCA premised on violations of the AKS. The relator alleged that Novartis operated a kickback scheme with the intent of bribing providers to prescribe Gilenya, a multiple sclerosis drug. Specifically, the relator alleged that Novartis operated a sham peer-to-peer speaker program that served as a mechanism for the company to offer remuneration to physicians in exchange for prescribing Gilenya. The relator alleged that the payments made to providers under the guise of this speaker program “caused pharmacies and physicians to submit false claims to the government and to the states for healthcare reimbursement under programs including Medicare Part D, Medicaid, and TRICARE.”[4]
U.S. District Court’s Dismissal with Prejudice
The federal government, as well as 29 states and the District of Columbia, among other parties, declined to intervene in the lawsuit. After granting the relator multiple opportunities to amend his complaint to plead factual allegations with sufficient particularity required by Rule 9(b), the district court held that the relator still failed to adequately plead the existence of a kickback scheme. Because the relator’s FCA claim was based on violations of the AKS, the district court dismissed the relator’s Third Amended Complaint with prejudice and did not address whether the relator sufficiently pled the remaining elements of his FCA claim.
Second Circuit’s Adoption of “At Least One Purpose” Rule
On appeal, the Second Circuit adopted the “at least one purpose” rule and found that, to survive dismissal, the relator “needed only to allege that at least one purpose of the remuneration was to induce prescriptions, without alleging a cause-and-effect relationship (a quid pro quo) between the payments and the physicians’ prescribing habits.”[5] Applying this standard, the Second Circuit concluded that the relator adequately pleaded an AKS violation with respect to the following three categories of allegations: (1) holding “sham” speaker events with no legitimate attendees, (2) excessively compensating physician speakers for canceled events, and (3) deliberately selecting and retaining certain speakers to induce a higher volume of prescriptions of Gilenya.
Specifically, the Second Circuit found that the relator’s “illustrative examples” of physician-speakers presenting solely to other Novartis speakers or to members of their own practice over lavish restaurant meals supported a strong inference that at least one purpose of the speaker program was to provide kickbacks to prescribers. The panel also found that the relator’s allegations that the compensation paid to physician speakers for canceled events ($20,000 to $22,500 to each speaker) over a two-year period in comparison to the dollar value of the allegedly fraudulent claims submitted to the government for reimbursement (between to $1 to $1.7 million) during that same period gave rise “to a strong inference that the payments constituted, at least in part, unlawful remuneration.”[6] Likewise, the relator’s inclusion of testimony from two Novartis sales representatives regarding the company’s alleged practice of offering speaking engagements to physicians to incentivize them to prescribe Gilenya suggested that these engagements were organized to induce providers to prescribe the drug.
The Second Circuit held that these allegations, accepted as true for purposes of the motion to dismiss, “plausibly and ‘strongly’ suggest Novartis operated its speaker program at least in part to remunerate certain physicians to prescribe Gilenya.”[7] Accordingly, the Second Circuit remanded the case to the district court to determine whether the relator sufficiently pleaded the remaining elements of his FCA claim and to weigh the adequacy of the claims under state and municipal law.
The Second Circuit affirmed, however, the district court’s conclusion that the relator “failed to link Novartis’s DVD initiative, ‘entertainment rooms,’ visual aids for billing codes, and one-on-one physician dinners with a strong inference that Novartis used these tools, at least in part, to induce higher prescription-writing,” with the caveat that another FCA claim predicated on an AKS violation may in fact survive dismissal if similar facts were pleaded with greater particularity.[8]
Practical Takeaways
This case highlights the importance of drug manufacturers and other regulated entities’ duty to implement robust and ongoing health care compliance programs in order to continuously and thoroughly evaluate enforcement and whistleblower risk relative to marketing and other business activities.
This decision’s adoption of the “at least one purpose” rule lowers the bar for relators in the Second Circuit to plead FCA violations premised on noncompliance with the AKS. Indeed, the Second Circuit rejected arguments that remuneration is unlawful under the AKS only if the “sole purpose” or “primary purpose” of the payment is to induce health care purchases. As eight circuits across the country have now held, allegations involving a single improper purpose can allow a case to survive dismissal. In these circuits, a relator merely needs to allege that at least one purpose of the remuneration was to induce the purchase of federally reimbursable health care products or services.
The heightened Rule 9(b) pleading standard fully applies in FCA cases premised on AKS violations. While the “at least one purpose” rule broadens liability, the district court and Second Circuit made clear that FCA allegations will be scrutinized to ensure they comport with the heightened Rule 9(b) pleading requirements.
Epstein Becker Green Attorney Ann W. Parks contributed to the preparation of this post.
ENDNOTES
[1] 2024 WL 5230128 (2d Cir. Dec. 27, 2024).
[2] 42 U.S.C. § 1320a-7b(g).
[3] Id. at § 1320a-7b.
[4] Camburn, 2024 WL 5230128, at *2.
[5] Id. at *4.
[6] Id. at *6.
[7] Id. at *6 (cleaned up) (quoting Hart, 96 F.4th 145, 153 (2d Cir. 2024)).
[8] Id. at *19.
Rule 37 in Action – Case Dismissed
As stated in my previous blog, “A Rule 37 Refresher – As Applied to a Ransomware Attack,” Federal Rule of Civil Procedure 37(e) (“Rule 37”) was completely rewritten in 2015 to provide more clarity and guidance to the sanction process under the Rule.
In Jones v. Riot Hospitality Group, LLC, the Ninth Circuit makes very clear that, when the court faces a sanctions analysis based upon evidence that there is data that should have been preserved, that was lost because of failure to preserve, and that can’t be replicated, then the court has two additional decisions to make: (1) was there prejudice to another party from the loss or (2) was there an intent to deprive another party of the information. If the former, the court may only impose measures “no greater than necessary” to cure the prejudice. If the latter, the court may take a variety of extreme measures, including dismissal of the action. An important distinction was created in Rule 37 between negligence and intention.
Rule 37(e)(2) is clear that the court may impose a variety of extreme measures, including dismissal of a case if there is a violation of Rule 37 with an intent to deprive another party of the relevant information. The Jones case demonstrates this rule in action. The Jones case involves Alyssa Jones, a former waitress at a Scottsdale bar, who sued the bar’s owner-operator, Ryan Hibbert, and his company, Riot Hospitality Group, alleging Title VII violations and common law tort claims. During discovery, upon noticing an unusual pattern of time gaps in the text messages that Jones produced in discovery, along with deposition testimony that demonstrated that particular people had indeed texted with her during those gaps, the court ordered the parties to jointly retain a third-party forensic search specialist to review the phones of Jones and certain witnesses.
The court ultimately found that Jones intentionally deleted relevant text messages with co-workers from 2017 and 2018 and coordinated with her witnesses to delete messages from 2019 and 2020. The court used “reasonable inferences” to determine that it was done with the intent to deprive Riot of use of the messages in the lawsuit. The district court dismissed the case, using the five-factor test for terminating sanctions articulated in Anheuser-Busch, Inc. v. Nat. Beverage Distrib., 69 F.3d 337, 348 (9th Cir. 1995).
The 9th Circuit found that the use of the Anheuser-Busch test was not necessary and that, to dismiss a case under Rule 37(e (2), a district court need only find that:
Rule 37(e) prerequisites are met,
the spoliating party acted with the intent required under Rule 37(e)(2), and
lesser sanctions are insufficient to address the loss of the ESI.
Takeaways:
1. If you are in a spoliation dispute, make sure you have the experts and evidence to prove or defend your case.
2. When you are trying to prove spoliation, know the test. If intent to deprive is proven (with direct or circumstantial evidence), then proving prejudice is not a prerequisite to sanctions.
3. Be aware of, plan for, and enforce data preservation protocols early in your case.