Who should decide the “gateway” issue of arbitrability? That is, should a court or an arbitrator decide whether a particular issue is subject to arbitration?  According to the Fourth Circuit, it depends on the agreement to arbitrate.  

On January 4, the Fourth Circuit issued an opinion in Novic v. Credit One, No. 17-2168, 2019 WL 103878 (4th Cir. 2019), holding that the “delegation clause” in a credit card agreement dictated that the “gateway” issue of arbitrability was itself subject to arbitration.  Specifically, the arbitration provision of the agreement contained a clause that stated “[c]laims subject to arbitration include disputes related to enforceability or interpretation of this Agreement.”  

The case concerned a consumer, Charleene Novic, who obtained a credit card from Credit One.  After she accrued a past-due balance, Credit One sold the account to a debt collector.  Novic, however, argued that the past-due balance was the result of fraudulent charges.  The debt collector sued over the outstanding balance and Novic eventually prevailed.  Novic then turned her sights on Credit One, suing the company for alleged violations of the Fair Credit Reporting Act resulting from reporting of the past-due balance.  Credit One moved to compel arbitration under the cardholder agreement.  

The district court denied Credit One’s motion to compel, concluding that the company had lost its right to compel arbitration after it assigned Novic’s account to a debt collector.  Credit One appealed, arguing that an arbitrator should decide the “gateway” issue of whether Novic’s claims should be arbitrated as well as the actual merits of the case.  

The Fourth Circuit agreed with Credit One and vacated the district court’s ruling.  In its opinion, the Court held that parties may agree to arbitrate the threshold issue of arbitrability, which allows the arbitrator to determine his or her own jurisdiction. The Court cautioned, however, that any delegation of issue of arbitrability must be set out in “clear and unmistakable” language in the parties’ agreement.  After applying that standard to the card holder agreement at issue, the Court concluded that it “unambiguously require[d] arbitration of any issues concerning the ‘enforceability’ of the arbitration provisions .”  

The Fourth Circuit’s decision represents another affirmation of the strong federal policy favoring arbitration, and serves as a reminder that the “gateway” to a favorable result when compelling arbitration is the use of “clear and unmistakable” language in arbitration agreements.


Earlier this month, the apparent next chair of the U.S. House Committee on Financial Services, along with almost two dozen other Democrats, urged the Consumer Financial Protection Bureau’s new director to proactively supervise firms for compliance with servicemember lending rules. 

In a letter to CPFB Director Kathleen Kraninger, Rep. Maxine Waters (D-Calif.) and twenty-two of her colleagues on the Committee stated that legal authorities and a bipartisan group of lawmakers agree that there is “no question” that the CFPB has the authority and obligation to supervise lenders for violating the Military Lending Act, or “MLA.”  The letter, as a result, requested that Kraninger formally commit to “resuming a consistent supervisory role over consumer protection laws, including the MLA, for the most robust and efficient protection of servicemembers and their families.”  It further warned that members of the military continue to be targets for “unscrupulous actors” and cited statistics showing that the agency handled 47% more servicemember complaints in 2017 than it did in 2016.

Over the summer, The New York Times reported that former CFPB acting director Mick Mulvaney planned to halt the agency’s use of supervisory examinations to check for lenders’ compliance with the MLA.  The MLA places a 36% interest rate cap on loans to military borrowers, bans mandatory arbitration clauses, and restricts other lender practices and loan terms.  Under that new planned policy, the agency would not proactively search for MLA violations on a routine basis, although it would accept and pursue cases against lenders upon receiving complaints.  This move resulted from a determination that the CFPB lacked explicit statutory authority to incorporate MLA compliance checks into its examinations.

The letter from House Democrats rides on the coattails of servicemember groups, consumer advocates, and others who swiftly opposed the change, arguing that dropping the compliance checks could expose active-duty troops and their families to harm from predatory lenders and, in the process, jeopardize military readiness.  Even the U.S. Department of Defense stated that the CFPB failed to consult with it about this change in policy.

As the likely next chair of the House Financial Services Committee, Waters underscored, through her criticism of Mulvaney and his policies, the pledges she has made to prioritize consumer protection during her new term in office.  In a statement, Waters asserted, “Of particular importance is ensuring that the [CFPB] is not dismantled by Trump’s appointees.  This critical agency must be allowed to resume its work of protecting consumers from unfair, deceptive or abusive practices without interference from the Trump Administration.” 

Troutman Sanders will continue to monitor CFPB developments under House Democrats’ leadership in 2019.


It is commonplace today for businesses to include binding arbitration provisions in customer agreements.  It is also common for these arbitration agreements to have a “delegation provision,” where the parties agree to delegate to the arbitrator – not the court – questions of whether the arbitration agreement applies to a dispute. But even when the parties agree to a delegation provision, do courts always have to compel disputes to arbitration when the parties disagree over whether the agreement applies? What if one party argues that it would be “wholly groundless” to compel a case to arbitration because the dispute is clearly outside the agreement’s reach? On January 8, 2019, the U.S. Supreme Court unanimously resolved a circuit split in favor of arbitration, once again instructing courts to enforce arbitration agreements as written.

In Schein v. Archer and White Sales, Inc. (opinion here), the litigants were parties to an arbitration agreement that required them to resolve disputes pursuant to the American Arbitration Association’s rules. These rules gave the arbitrator (not the court) the power to resolve questions of arbitrability – i.e., whether the arbitration agreement applies to a particular dispute. When Schein sought to compel arbitration, Archer and White refused, claiming the dispute fell outside the scope of the arbitration agreement. They also argued that the arbitrator should not get to decide the reach of the arbitration agreement because it was “wholly groundless” to even claim the arbitration agreement applied.

This is where the circuit split comes in. Relying on Fifth Circuit precedent, the district court decided that, while it normally would be incapable of resolving questions of arbitrability when the contract delegates that gateway question to the arbitrator, it could do so when it would be “wholly groundless” to find the arbitration agreement applied. In other words, when a litigant argues the “wholly groundless” exception to a delegation provision, the district court could peek behind the curtain to look at the scope of the arbitration agreement. The Fifth Circuit affirmed the district court’s decision in an opinion that ran contrary to several other circuits.

Given the circuit split, the U.S. Supreme Court granted certiorari to decide whether a “wholly groundless” exception to a binding delegation provision is consistent with the Federal Arbitration Act. And it decided that it is not. In the unanimous decision, Justice Kavanaugh explained arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms. “When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract.” According to the Court, this is “true even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.”

In sum, the Court unanimously rejected the notion that a court is allowed to decide whether a dispute is subject to arbitration when the contract delegates that question to the arbitrator. Even if the argument for arbitration could be frivolous or unfounded, that is a decision for the arbitrator to make, not the Court. In Justice Kavanaugh’s words, “when the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.”

Ultimately, if an arbitration provision includes a delegation provision, it will be exceedingly difficult for a litigant to argue that the case does not belong in arbitration post-Schein – at least until the arbitrator decides whether the case is arbitrable.

Troutman Sanders has a nationwide defense practice representing companies in many types of class actions and individual claims, including in arbitration. In fact, Troutman Sanders prevailed on this precise issue regarding the “wholly groundless” exception in front of the Eleventh Circuit, prior to the Schein decision. We will continue to monitor these arbitration-related developments in the U.S. Supreme Court and lower courts.

Pursuant to 11 U.S.C. § 1322(b)(2), a Chapter 13 bankruptcy plan cannot modify the rights of a secured creditor whose claim is only secured by an “interest in real property that is the debtor’s principal residence.”  On December 6, the Eleventh Circuit held that this provision prevents the discharge of a mortgage in a Chapter 13 bankruptcy, regardless of whether the plan “provided for” the mortgage or whether the mortgagee filed a proof of claim.  The case is In re Dukes, No. 16-16513, 2018 WL 6367176 (11th Cir. Dec. 6, 2018). 

Factual Background 

In 2009, Mildred Dukes filed for Chapter 13 bankruptcy.  Her plan listed a first and second mortgage on her primary residence—both held by Suncoast Credit Union—and provided that payments would be made directly to Suncoast.  Suncoast filed a proof of claim for the second mortgage, but not the first.  Shortly after Dukes filed the plan, she requested and received permission to pay make her mortgage payments directly.  The bankruptcy court confirmed Dukes’ plan and, after she timely made all her payments under the plan, discharged “all debts provided for by the plan.” 

While the bankruptcy was ongoing, Dukes defaulted on her mortgages and, in 2013, Suncoast foreclosed under the second mortgage.  The credit union then sought a personal judgment against Dukes on the first mortgage.  To do so, Suncoast commenced an adversary proceeding in the bankruptcy case, seeking a determination that Dukes’ personal liability on the first mortgage had not been discharged. 

Chapter 13’s Antimodification Provision 

The bankruptcy court held that the mortgages were not discharged because they were not “provided for” by the plan and that, in any event, Suncoast’s right to a deficiency judgment could not be modified due to § 1322(b)(2).  After an unsuccessful appeal to the district court, Dukes took her case to the Eleventh Circuit. 

But the Eleventh Circuit affirmed, holding that there could “be no discharge of the mortgage given the antimodification provision in §1322(b)(2).” While the credit union did not object to the bankruptcy plan, this was not evidence that it consented to a modification of its rights “because the plan did not contain any modification that would be objectionable.”  Under the plan, the rights and obligations of both Dukes and Suncoast “remained solely governed by the original loan documents.” 

Dukes’ argument that the bankruptcy discharged her personal liability was likewise unpersuasive. Because state law allowed Suncoast to pursue a deficiency judgment against Dukes, any modification of that right would be prohibited by § 1322(b)(2). Likewise, the fact that it did not file a proof of claim for the first mortgage did not bar it from recovering, even though 11 U.S.C. § 502(b)(9) generally disallows claims that are not timely filed. Again, the antimodification provision in § 1322(b)(2) prevented such a modification of the credit union’s rights. 

Whether the Mortgages were “Provided For”

Judges Julie Carnes and Anne Conway went further, holding that the mortgages were not discharged because Dukes’ bankruptcy plan did not “provide for” them.  Drawing on the Supreme Court’s decision in Rake v. Wade, 508 U.S. 464 (1993), they held that a debt is not discharged if the Chapter 13 bankruptcy plan does “nothing more than mention” the debt. 

Because Dukes’ mortgages “remained governed solely by the original loan documents,” her Chapter 13 plan did not put Suncoast on notice that the plan might modify its rights. To the extent that Dukes’ plan was ambiguous as to whether it “provided for” the mortgages, Dukes, as the drafter of the plan, had to “pay the price.”

On Oct. 4, 2018, in Smith v. Mutual of Omaha Insurance Company,[1] the United States District Court for the Southern District of Iowa ruled the plaintiff could not advance his putative class action under the Fair Credit Reporting Act if he qualified as an independent contractor rather than an employee. The decision presents another helpful reading of the “employment purposes” provision in the FCRA and becomes part of a small but growing body of law providing clarity on this recurring issue of importance. The decision highlights a limitation on the FCRA’s reach, but the issue has been unsettled and companies who utilize a large number of independent contractors may still find themselves defending against FCRA class actions.

Requirements for Reports Used for “Employment Purposes”

Some of the FCRA’s most litigated protections apply when a consumer report is obtained by an employer for “employment purposes.”[2] This includes obtaining the consumer’s written authorization in a “stand-alone disclosure” and providing a pre-adverse action notice and summary of rights if the consumer report will be used to make an adverse employment decision. Likewise, a consumer reporting agency furnishing a consumer report for employment purposes must follow certain certification requirements and provide a summary of rights with the report. Importantly, these steps are only required if the report is obtained for employment purposes. “Employment purposes” is defined by the FCRA as “a report used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee.”[3] It’s these last three words that have caused confusion.

Continue reading the article on Law360.


[1] Smith v. Mutual of Omaha Insurance Company , No. 4:17-cv-00443 (S.D. Iowa Oct. 4, 2018).

[2] 15 U.S.C. § 1681b(b).

[3] 15 U.S.C. § 1681a(h).

The Northern District of California recently held that medical records are not discoverable in Fair Credit Reporting Act cases when a plaintiff only generally alleges that he or she suffered emotional harm.  In Prado v. Equifax Information Services, LLC, the plaintiff claimed Equifax mixed up her credit report with that of her sister, whose report contained several negative items.  Prado claimed that because of the mix-up, her credit card companies lowered her credit limits and denied her requests to have the original limits reinstated.  Prado claimed Equifax violated the FCRA by failing to adequately respond to her disputes.  In her suit, she did not assert a separate claim for intentional infliction of emotional distress. 

During discovery, Equifax served a request for production seeking all documents relating to “any medical or mental treatments” Prado “received in the past seven years.”  Prado objected to the request on the grounds that it was overly broad, irrelevant, and an invasion of her privacy.  In response to her objection, Equifax argued the medical records were relevant based on the emotional distress allegation.  Moreover, Equifax argued that it was not seeking a medical examination. 

The Court sustained Prado’s objections, relying on other similar decisions from its district.  The Court noted that where a plaintiff alleges general “garden variety” distress without a separate claim for emotional distress and does not intend to use an expert or medical records to prove emotional-distress damages, she does not place her medical history so at issue to warrant compelling production of her medical records.”  The Court further noted that “delving” into a plaintiff’s medical or psychiatric records may be “even more invasive than conducting a medical or psychological examination.” 

This decision is an example of why it is important to know each Court’s case law on discrete discovery issues.  While the result may have been different in another court, it is clear, at least for now, that the Northern District of California is not going to allow defendants access to a plaintiff’s medical records in FCRA cases unless the plaintiff has asserted a separate and distinct claim for emotional distress.  Other courts have reached a different conclusion on this issue. 

On January 3, 49 state attorneys general announced a settlement with Career Education Corporation (“CEC”), a for-profit education company, to resolve claims that CEC engaged in unfair and deceptive practices.  The settlement requires CEC to forgo any collection efforts against $493.7 million in outstanding loan debt held by nearly 180,000 former students.  It also imposes a $5 million fine on the company.  California was the only state not participating.

CEC operates online courses through American InterContinental University and Colorado Technical University.  CEC’s other brands include Briarcliffe College, Brooks Institute, Brown College, Harrington College of Design, International Academy of Design & Technology, Le Cordon Bleu, Missouri College, and Sanford-Brown.  According to the attorneys general, CEC used “emotionally-charged language” emphasizing the pain in prospective students’ lives to encourage them to enroll in CEC’s schools, deceived students regarding the total costs of enrollment, misled students about the transferability of their earned credits, misrepresented job prospects for graduates, and deceived prospective students about post-graduation employment rates.  The attorneys general contended that students who enrolled in CEC classes incurred substantial debts that they could not repay or discharge, when they otherwise would not have done so absent the misrepresentations.  CEC denied the allegations, but entered into the settlement agreement to resolve the AGs’ claims.

The settlement agreement requires CEC to make improved disclosures to students, including anticipated total direct costs, median debt for completion of CEC’s programs, program default rates, program completion rates, transferability of credits, median earnings for graduates, and job placement rates.  CEC must also improve students’ ability to cancel their enrollment, allowing students no fewer than seven days to cancel and receive a full refund, and up to 21 days for students with fewer than 24 credits from online programs.  In addition, the AGs are requiring CEC to inform all qualifying former students that they no longer owe money to CEC.

The investigation was led by the Maryland Attorney General’s Office.  “CEC’s unscrupulous recruitment and enrollment practices caused considerable harm to Maryland students,” said Maryland Attorney General Brian Frosh.  “The company misled students.  It claimed that students would get better jobs and earn more money, but its substandard programs failed to deliver on those promises.  The school encouraged these students to obtain millions of dollars in loans, placing them at great financial risk.  Now CEC will have to change its practices and forgo collection on those loans.”

A copy of the settlement agreement is available here

Effective January 1, Troutman Sanders promoted 13 attorneys to the partnership, including Virginia Flynn and Ethan Ostroff, two active contributors to the Consumer Financial Services Law Monitor blog. In addition, contributors Mohsin Reza and James Trefil were promoted to counsel, and Kyle Deak was named the managing partner of Troutman Sanders’ Raleigh office. 

Virginia Flynn represents clients in federal and state court, both at the trial and appellate levels in complex litigation and business disputes, healthcarerelated issues, financial services litigation, and consumer litigation. Virginia often counsels clients to ensure they comply with the myriad of growing laws in the consumer law and financial services fields, with an emphasis on the many “alphabet soup” federal consumer protection statutes. 

Ethan Ostroff focuses on financial services litigation and consumer law compliance counseling. He defends consumer-facing companies of all types in individual and class action claims across the country. Ethan’s litigation, compliance, and regulatory practice includes representing debt buyers, debt collectors, loan servicers, banks, auto finance companies, credit card issuers, consumer reporting agencies, and other related consumer finance entities, in particular with the “alphabet soup” of state and federal consumer protection statutes. 

Mohsin Reza focuses on representing financial institutions and other corporate clients in commercial, consumer, and lender liability disputes. Mohsin has significant experience litigating claims brought under federal consumer protection statutes.  

James Trefil represents clients in federal and state court, both at the trial and appellate levels, with a focus on areas of complex litigation, financial services litigation, and consumer litigation. Jim has represented clients within these areas in a wide variety of litigation matters involving class actions, contracts, torts, and federal and state consumer protection laws. 

Kyle Deak, an established partner within the Consumer Financial Services section, has been named managing partner of the Troutman Sanders’ Raleigh office. Kyle succeeds Walter Fisher, who has managed the Raleigh office since 2016 and most recently has overseen its strategic relocation to North Hills. Kyle has extensive experience both serving as the first chair in jury trials and handling appeals in state and federal courts throughout the United States. His practice primarily involves the representation of financial institutions, loan servicers, and mortgage investors in lender liability actions, real property financing disputes, foreclosures, and other commercial disputes.

More than two weeks have passed since the government shutdown began on December 22, 2018, and there is still no immediate end in sight. President Trump has resolved to continue the shutdown for as “long as it takes,” declining to sign spending legislation without the requested $5 billion for the border wall.  Federal governmental entities, including the judiciary, are now facing an uncertain future should the shutdown continue beyond this week.

According to the Administrative Office of the U.S. Courts, the court system has enough money to run through January 11, 2019, by using court fee balances and other funds not dependent on a new appropriation.  But if the shutdown continues past January 11, 2019 and exhausts the federal Judiciary’s resources, courts will have to develop plans for reduced operations, including forcing nonessential workers to stay home while skeleton crews (without pay) handle matters deemed essential under law.

Under such a scenario, criminal cases and other critical cases will likely be prioritized while civil cases may be delayed. Judges will have significant latitude to determine which cases move forward and which are deferred.

Some courts have already begun to issue their directions in anticipation of a prolonged shutdown.  Ruben Castillo, chief judge of the U.S. District Court for the Northern District of Illinois in Chicago, for example, said he is ready to operate a “triage system” if the shutdown extends beyond January 11. “I will have to have a meeting with our court personnel and tell them I won’t be able to pay them. Then we’ll have to shut down civil trials,’’ Judge Castillo said.

Other courts, such as the United States District Court for the Western District of Kentucky and United States District Court in the Southern District of West Virginia, have issued sua sponte general orders holding in abeyance any civil matters involving the government as a party to “avoid any default or prejudice to the United States or other civil litigants occasioned by the lapse in funding.”  But specific judges within those District Courts, including Joseph R. Goodwin in Western Virginia, issued orders exempting their cases from the first judge’s order. Judge Goodwin wrote: “It is my view that the government should not be given special influence or accommodation in cases where such special considerations are unavailable to other litigants.”

Still other courts are taking a “wait-and-see” approach.  The chief judge of the United States District Court for the Eastern District of California, for instance, is expected to issue an order detailing the scope of operations under lapsed appropriations if the shutdown continues past January 11.

In sum, the shutdown appears likely to create a complex, court-by-court or even judge-by-judge response. The shutdown could consequently cause confusion and a patchwork of differing and conflicting orders among the courts. The main general impact may be felt on civil matters, and those functions that require involvement by court staff, such as trials, hearings and some clerk’s office functions. However, absent intervening court orders, functions not requiring human attention, such as execution by parties of deadlines by non-filed discovery papers or filing papers through PACER, may not be impacted at all.

While we wait five more days to see if the government can resolve its differences, parties should take steps now to research any applicable orders and directions that may impact their pending litigation on a court-by-court or even judge-by-judge basis. Parties will then be best prepared to address the circumstances they may face should the shutdown continue after the federal judiciary runs out of money.

A recent immigration proposal from the Trump administration seeks to require the use of credit reports and scores as part of the U.S.’s immigration and green card review process.  The proposal, which specifically notes the Fair Credit Reporting Act in discussing an applicant’s requirement to provide (and sometimes pay for) a credit report, will also require the federal government and United States officials to comply with the FCRA.

Specifically, the proposal states:

In addition to the opportunity cost of time associated with completing and filing Form I-944, applicants must bear the cost of obtaining a credit report and credit score from any one of the three major credit bureaus in the United States to be submitted with the application.  Consumers may obtain a free credit report once a year from each of the three major consumer reporting agencies (i.e., credit bureaus) under the Fair Credit Reporting Act (FCRA). However, consumers are not necessarily entitled to a free credit score, for which consumer reporting agencies may charge a fair and reasonable fee.  DHS does not assume that all applicants are able to obtain a free credit report under FCRA specifically for fulfilling the requirements of filing Form I-944 and acknowledges that obtaining a credit score would be an additional cost.

It is expected that by giving the federal government, and specifically the Department of Homeland Security and U.S. Citizenship and Immigration Services, the ability to require the pulling of, and review of, an individual’s credit report, the federal government, in turn, will be faced with potential liability under the FCRA.  Moreover, it should be assumed that state attorneys general—some with differing views from the Trump administration—will be monitoring compliance with the FCRA, in addition to how an individual’s credit report and score directly impacts the immigration review process.

While the proposal does not state the exact weight that will be given to an individual’s credit score, the specific requirement that credit reports are to be part of the immigration process, alone, suggests that it will likely be a key aspect of any review.