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John specializes in representing loan servicers, debt buyers/collection companies in class action and individual cases.

On December 22, a federal court applied the plain language of the “whistleblower-protection provisions” of the False Claims Act, including 31 U.S.C. § 3730(h), to hold that a plaintiff may bring a retaliation claim against a former employer even if that employer was not the subject of any FCA allegations.  In O’Hara v. NIKA Technologies, Inc., the Fourth Circuit reversed the district court’s conclusion that § 3730(h) only applies to retaliation by an employer that is also the alleged FCA violator while upholding the lower court’s grant of summary judgment in favor of the employer on different grounds.

Plaintiff William O’Hara was a senior cost estimator for a project contract awarded by the National Institute of Standards and Technology to O’Hara’s employer, NIKA Technologies, Inc.  O’Hara filed suit under § 3730(h) alleging that a separate company, Northern Taiga Ventures, Inc. (“NTVI”), had defrauded the government by submitting change orders with unnecessary improvements and inaccurate costs and that he was fired because he brought these allegations to the attention of the government.

The district court granted NIKA’s summary judgment motion, finding that the FCA’s retaliation statute applies only to claims alleged against the whistleblower’s employer.  The lower court also found that O’Hara’s second claim under the American Recovery and Reinvestment Act (the “ARRA”) failed to establish that NIKA would not have fired him absent his disclosures.  In so holding, the district court cited O’Hara’s failure to meet his employment responsibilities such as timely submission of cost estimates for various project designs.

Section 3730(h)(1) protects a whistleblower from retaliation for “lawful acts done . . . in furtherance of an action under this section.”  The Court of Appeals emphasized that the provision’s plain language provides protection from retaliation based on the type of conduct disclosed by the whistleblower and not “the whistleblower’s relationship to the subject of his disclosures.”  As a result, the Court held that a whistleblower can bring a retaliation claim even when the FCA disclosures were not directed at the employer.

Nonetheless, the Court ruled that based on the undisputed facts, the retaliation clam failed because O’Hara failed to show that the conduct he disclosed “reasonably could have led to a viable FCA action.”  Specifically, O’Hara’s complaints centered on a bid for a change order that he contended was unnecessary.  However, the government had expressly requested the bid for the change order, and the Court reasoned that a contractor cannot be liable for defrauding the government when it was following the government’s explicit instructions.

Employers receiving whistleblower allegations from their employees or agents should be mindful that § 3730(h)’s protections apply whether the allegations are directed at the employer or a third party such as another contractor.

Troutman Sanders will continue to monitor related circuit court opinions concerning the interpretation of the “whistleblower-protection provisions” of the FCA.

On Tuesday, December 12, from 3-4 p.m. ET, Join Troutman Sanders for a webinar focused on a practical issue of great importance to mortgage loan originators and servicers: how to ensure confidential information is protected, when faced with an investigation by state or federal regulators.

The webinar will (1) outline the common law principles and statutory provisions implicating confidentiality for companies being investigated by federal and state regulators; (2) provide practical guidance on how to secure confidentiality agreements from regulators; and (3) discuss key provisions that should be incorporated into any confidentiality agreement with a regulator. This webinar will benefit counsel providing advice and analysis in litigation, compliance, and regulatory matters.

To register, click here.

On Tuesday, October 24, 2017, the Senate voted to nullify the Consumer Financial Protection Bureau’s (“CFPB”) arbitration rule (the “Rule”) in a 51-50 vote. Only two Republicans voted against the measure – Lindsey Graham (SC) and John Kennedy (LA). President Trump praised the vote, saying that he will sign the resolution when it reaches his desk. The Senate vote ensures that the arbitration Rule will not take effect.

The Bureau’s Arbitration Rule

On July 10, 2017, the CFPB issued its long-awaited final Rule banning class action waivers in arbitration provisions for covered entities. In addition, the Rule required covered entities to provide information to the Bureau regarding any efforts to compel arbitration. The Rule was slated to take effect in early 2018.

Subject to certain enumerated exemptions, the Rule applied to most “consumer financial products and services” that the CFPB oversees, including those that involve lending money, storing money, and moving or exchanging money, as well as to the “affiliates” of such companies when the “affiliate is acting as that person’s service provider.”

The Rule would have prohibited a provider from relying on a pre-dispute arbitration agreement entered into after the compliance date with respect to any aspect of a class action that concerns any covered consumer financial product or service.

Further, the Rule included a requirement that providers who used pre-dispute arbitration agreements to submit to the CFPB certain records relating to arbitral and court proceedings. The Bureau intended to use the information to continue monitoring such proceedings for developments that implicated consumer protection concerns.

Procedural History of the Challenge

On July 25, 2017, only two weeks after the Bureau issued the Rule, the House of Representatives voted to repeal the Rule under the Congressional Review Act, which permits Congress to overturn regulations with a simple majority vote. Republican representatives argued that the Rule would negatively affect business, while House Democrats countered that the Rule protects Americans’ right to seek redress of harms in court. In the weeks leading up to the Senate’s vote, Democratic AGs from around the nation urged lawmakers to vote against the measure and consumer advocates branded the legislation as a boon to financial institutions. Meanwhile, the Department of the Treasury released a report critical of the Rule, claiming that it rested on a shaky foundation of cherry-picked data. The Senate approved the repeal on October 24, 2017, in another party-line vote.

Practical Takeaways

The impending March 2018 deadline imposed by the Rule has now been lifted by Congress’s invalidation of the Rule. Going forward, the struggle between some state courts and the Supreme Court of the United States over state law limitations on the enforceability of arbitration agreements under the Federal Arbitration Act (FAA) likely will continue indefinitely. As illustrated most recently in DIRECTV v. Imburgia, 136 S. Ct. 463 (2015), the Supreme Court has repeatedly reversed state court refusals to enforce arbitration agreements, applying the broad pro-arbitration policy embodied in the FAA. Some States and State courts, on the other hand, have attempted to limit arbitration under state law. A notable recent example is California’s SB 33, which permits an existing customer of a bank to sue a depository bank when a fraudulent account is opened unknowingly in the consumer’s name. With the invalidation of the Rule, this struggle will continue.

Consumer-facing companies that do not have an arbitration program, or a program that has not been recently refreshed, might now consider adding or updating arbitration clauses to their agreements.

Troutman Sanders advises clients both within and outside the CFPB’s authority in developing and administering consumer arbitration agreements, and has a nationwide defense practice representing financial institutions and other consumer-facing companies in many types of class actions and individual claims. We will continue to monitor these regulatory developments.

On July 10, the Consumer Financial Protection Bureau issued its long-awaited final Rule banning class action waivers in arbitration provisions for covered entities, as well as requiring the covered entities to provide information to the CFPB regarding any efforts to compel arbitration.  This Rule is of significance to any financial services company that utilizes consumer contracts containing arbitration provisions. The Rule is scheduled to take effect on March 19, 2018 and will govern contracts executed after that time.

The Substance of the Rule

The Rule contains requirements that apply to a provider’s use of a “pre-dispute arbitration agreement” that is entered into on or after the compliance date.  The Rule defines “pre-dispute arbitration agreement” as an agreement that (1) is between a covered person and a consumer, and (2) provides for arbitration of any future dispute concerning a covered consumer financial product or service.  The form or structure of the agreement is not determinative; an agreement can be a pre-dispute arbitration agreement under the Rule regardless of whether it is a standalone agreement, an agreement or provision that is incorporated into, annexed to, or otherwise made a part of a larger contract, is in some other form, or has some other structure.

The Rule prohibits a provider from relying on a pre-dispute arbitration agreement entered into after the compliance date with respect to any aspect of a class action that concerns any covered consumer financial product or service.  That prohibition may apply to a provider with respect to a pre-dispute arbitration agreement initially entered into between a consumer or a covered person other than the initial provider, such as debt collectors seeking to collect on the contract or assignees of the contract.  The CFPB also specifically stated that the Rule applies to “indirect automobile lenders,” using them as an example of covered entities.

The Rule requires that, upon entering into a pre-dispute arbitration agreement, a provider must ensure that certain language set forth in the Rule is included in the agreement.  Generally, the required language informs consumers that the agreement may not be used to block class actions.

The Rule also requires providers that use pre-dispute arbitration agreements to submit to the CFPB certain records relating to arbitral and court proceedings.  The requirement to submit these records applies to: (1) specified records filed in any arbitration or court proceedings in which a party relies on a pre-dispute arbitration agreement; (2) communications the provider receives from an arbitrator pertaining to a determination that a pre-dispute arbitration agreement does not comply with due process or fairness standards; and (3) communications the provider receives from an arbitrator regarding a dismissal of or refusal to administer a claim due to the provider’s failure to pay required filing or administrative fees.

The CFPB will use information it collects to continue monitoring arbitral and court proceedings to determine whether there are consumer protection concerns that may warrant further Bureau action.  The CFPB is also finalizing provisions that will require it to publish on its website the materials it collects, with appropriate redactions as warranted, to provide greater transparency into the arbitration of consumer disputes.

Small Business Compliance Guide

In late September, the CFPB issued a small entity compliance guide designed to assist small businesses providing covered financial products and services with compliance with the Rule.  The guide provides an additional, succinct summary of the requirements of the Rule, and it sets forth a number of illustrations as to when the Rule does and does not apply.

Due to this additional interpretative guidance, along with the strict potential penalties for non-compliance with the Rule, all companies offering consumer products and services and utilizing arbitration provisions should be familiar with the guide and consult counsel on further compliance issues, as necessary.

Troutman Sanders LLP will continue to monitor developments with the CFPB’s arbitration Rule, including challenges to its implementation.

On July 18, the District Court for the Central District of California granted in part and denied in part a motion for attorneys’ fees, costs, and other payments in a Fair Credit Reporting Act class action suit.  The motion accompanied a proposed $400,000 settlement, with a third of the funds allocated to class counsel for fees.  Unsatisfied with the reasonableness of the fee request, the Court reduced the fee award and ordered more money be made available to class members.

The case, Smith v. A-Check America, Inc., arose from allegations that A-Check America, a consumer reporting agency, had improperly disclosed antiquated criminal information in background investigation reports it prepared.  The disclosures at issue, such as traffic violations or arrests occurring seven or more years before the report was compiled, are proscribed by Section 1681c(a) of the FCRA.  In the three-year class period, A-Check America made such disclosures in reports for over 2,700 individuals.

Before trial, the parties agreed to settle for a lump sum payment of $400,000, with nearly half going to fees, expenses, and administrative costs.  The parties submitted the agreement for the Court’s approval, and Smith moved for costs, fees, and expenses.  In deciding the motion, the Court held that class counsel’s attorneys’ fees – and as a result the proposed award to the putative class members – were unreasonable, and that departure from the Ninth Circuit’s benchmark of 25% for fees in class action suits was not warranted.

The Court first addressed the reasonableness of the settlement by applying the factors established in Torrisi v. Tucson Elec. Power Co., 8 F.3d 1370, 1375 (9th Cir. 1993).  Those factors include, among others, the strength of a plaintiff’s case; the risk, expense, complexity, and likely duration of further litigation; and the amount offered in settlement.  Particularly important to the Court’s decision was the amount offered in settlement – the Court found that the $133,333.33 intended for attorneys’ fees was unreasonable.  Instead of rejecting the proposed settlement, however, the Court relied on a provision of the agreement that allowed for reduction of an award without voiding the agreement.  As a result, the fee award was reduced to $100,000 – a fourth of the settlement fund.  The difference was pivotal to the Court, which wrote that “after the reduction to the attorneys’ fee award, the balance of factors favors final approval and that the settlement agreement is fair, reasonable, and adequate.”

The Court then took aim at the motion for attorneys’ fees, and its analysis primarily focused on the percentage-of-the-fund method, which the Smith plaintiffs sought to employ.  As the Court opined, the plaintiffs’ 33% attorneys’ fee award was contrary to Ninth Circuit precedent that set a benchmark of 25% for attorneys’ fees in class action suits.  Notwithstanding that benchmark, the Court observed that departure – either upward or downward – is permissible.  Specifically, the Court would consider a deviation based on the results achieved; the risks of litigation; the skill required and the quality of work; the contingent nature of the fee; the burdens of representing a class; and awards made in similar cases.

Applying those factors, the Court found that a departure from the benchmark was not warranted.  Noting an average range of $22 to $200 for class members in FCRA cases, the Court did not find this case to be an “exceptional one.”  Indeed, depending on the nature of the disclosure they suffered, class members could receive a maximum award of $114 but as little as $28.  Although the Court acknowledged that the case was staffed by skilled attorneys who had spent considerable time litigating, it rejected the plaintiffs’ contention that there was an unusual amount of risk as compared to other FCRA cases.  Most notable perhaps was the Court’s apparent disregard for class counsel’s contingent fee arrangement, which it did not consider to be a factor weighing in favor of upward departure. Similarly, the Court’s application of a lodestar cross-check did not change its analysis, and it concluded that plaintiffs’ counsel “ha[d] not met their burden to establish that the rates they seek [were] reasonable.”

In sum, the Court held that this case did not present the “unusual circumstances” to justify a departure from the Ninth Circuit’s 25% benchmark for attorneys’ fees awards in class action suits.  By doing so, the Court not only added to the available compensation for the class members, but also to the landscape of FCRA class action.

Countering a nationwide trend of “ban the box” ordinances that prohibit employers from asking about an individual’s criminal history at the initial application stage, Indiana has become the first state to ensure through legislation that employers can inquire into applicants’ criminal histories.  The legislation prohibits localities from implementing “ban the box” ordinances.  The measure has been met with protest from industry advocates, including the American Civil Liberties Union.

In connection with the new legislation, however, Indiana Governor Eric Holcomb issued an executive order “banning the box” for jobs within the executive branch.  Effective July 1, 2017, applications for employment in the executive branch may not contain inquiries into an applicant’s criminal history at the initial application stage, unless the conviction for a specific crime would disqualify an applicant for employment.  As such, the State of Indiana remains divided on the issue. 

At least 26 states have passed some measure of “ban the box” ordinances, along with scores of municipalities.  It remains to be seen whether Indiana’s most recent legislative action will lead the opposite trend.  Troutman Sanders will continue to monitor related legislative developments concerning employment background screening and employee hiring.


The recent matter of Nesbitt, et al. v. Postmates Inc., Case No. CGC15547146 in the Superior Court of the State of California, County of San Francisco, demonstrates the continuing trend of litigation regarding the content of background disclosure forms, as well as ongoing issues regarding the failure of employers to provide notice of adverse action to applicants.

The plaintiffs challenged Postmates’ background screening form, stating that the form was not in a “stand alone” format, as required by the Fair Credit Reporting Act.  The plaintiffs also alleged that the company failed to take the necessary steps to inform the applicants when making adverse hiring decisions on the basis of the background screening reports.

To settle the lawsuit, Postmates will create a $2.5 million settlement fund to be distributed to eligible class members, which will include all consumers who applied to work as a Postmates courier and were subjected to an employment background check between July 31, 2013 and May 1, 2016.

The case illustrates the continuing focus on employers’ disclosure forms and compliance with adverse action requirements under the FCRA.  Over the past three years, there has been a dramatic uptick in claims alleging that employers did not set forth the background screening authorization form in a “stand alone” document that consisted only of the disclosure.  Claims regarding the failure to provide adverse action notices, as well as the timing of such notices, also remain frequent.  This latest settlement is yet another reminder of compliance issues that should be considered by all employers.

Troutman Sanders is an industry leader in FCRA compliance and litigation, and it will continue to monitor these litigation developments.

Indiana Governor Eric Holcomb has issued an executive order “banning the box” for jobs within the executive branch.  Effective July 1, applicants for employment in the executive branch will no longer be subject to inquiries about their criminal history at the initial application stage, unless the conviction for a specific crime would disqualify the applicant for employment.  “Where state law specifically prohibits employment based on certain convictions or pending charges, applicants will be asked about their criminal records (example: application for a family case manager position with the Indiana Department of Child Services),” a press release stated.

Holcomb remarked that “this executive order will give Hoosiers with criminal records a second chance by helping them overcome the stigma of their past and live productive lives.  We are giving those with criminal records more opportunity to seek public service as a state employee.”

Indiana is now the 27th state to “ban the box” for public sector employees in some manner.  This executive order is consistent with recent increases in legislative scrutiny of employment application practices at the initial application stage. 

Troutman Sanders will continue to monitor related legislative developments concerning employment background screening and employee hiring.


The United States Supreme Court has denied a petition seeking review of a Seventh Circuit decision holding that a consumer lacked Article III standing to challenge an alleged violation of the Fair and Accurate Transactions Act where the defendant retailer printed more than the last five digits of his credit card number and the expiration date on a credit card receipt.

In the petition, the plaintiff alleged that the decision was at odds with recent Ninth Circuit authority over what constitutes a “concrete injury” under the Supreme Court’s 2016 FCRA decision in Spokeo, Inc. v. Robins.  The petition stated:  “Federal courts are split as to whether the credit card truncation requirements of FACTA are mere procedural requirements, the violation of which is insufficient on its own to confer standing, or whether an individual whose credit card information was improperly truncated has already suffered a concrete injury before any further harm results from the violation .  Answering this question will not only resolve the split as to FACTA, but it will more broadly clarify this courts opinion in Spokeo for the numerous circuit and district courts that have disagreed over its interpretation.”  The Supreme Court denied the petition without elaboration.

The case is one of hundreds of district court and circuit court decisions to address the impact of Spokeo on consumer standing.  While these issues continue to get resolved in the lower courts in varying ways, the Supreme Court has so far resisted revisiting the issue.

 We will continue to monitor developments under Spokeo


On January 20, 2017, the Ninth Circuit Court of Appeals issued a decision of first impression in Syed v. M-I, LLC, a putative class action, when it held that a prospective employer willfully violated the Fair Credit Reporting Act by including a liability waiver in its FCRA background check disclosure form. 

In the underlying case, Syed applied for a job with M-I.  During the application process, M-I provided a form labeled “Pre-employment Disclosure Release.”  The form provided that the employer would obtain Syed’s credit history and that other information could be collected and used to make a decision on his employment application.  The form also included a waiver that discharged, released, and indemnified the “prospective employer … , their agents, servants, employees, and all parties that rely on this release and/or the information obtained with this release from any and all liability and claims arising by reason of the use of this release and dissemination of information that is false and untrue if obtained by a third party without verification.” 

Under the FCRA, before obtaining a background check on a prospective or current employee for employment purposes, an employer is required to make disclosure of the prospective background check in a writing consisting “solely” of the disclosure.  Additionally, the viability of an employee’s class action often depends on the plaintiff’s ability to establish not only a violation of the FCRA but also that such violation was “willful.” 

The district court granted M-I’s motion to dismiss, finding that Syed’s willfulness allegations were insufficient.  The Ninth Circuit disagreed.  Not only did the court reverse the district court and find that Syed’s complaint sufficiently stated a claim, it also found that M-I’s use of the disclosure form was a willful violation of the FCRA.  In reversing the district court, the Ninth Circuit held that the language in Section 1681b(b)(2)(A) was unambiguous in its requirement that the disclosure and authorization be presented in a form that “consists solely of the disclosure.”  In its opinion, the Ninth Circuit explicitly rejected M-I’s argument that the statutory text was “less than pellucid” and noted that a “lack of guidance” does not render an interpretation reasonable.  The Court also noted that M-I’s inclusion of the liability waiver in its disclosure form “comports with no reasonable interpretation of 15 U.S.C. § 1681b(b)(2)(A).” 

The Ninth Circuit denied a request for rehearing in March.  The defendant has now petitioned the Supreme Court for review, arguing that the plaintiff lacks standing under the Supreme Court’s 2016 decision in Spokeo, Inc. v. Robins due to a lack of “concrete” harm from the alleged violation, and that the finding of willfulness was incorrect given the text of the statute.  The petition also emphasizes the important nature of the question for the industry. 

We will continue to monitor further developments in this case, as well as other decisions addressing issues of “willfulness” and “standing” under the FCRA.