An Unwelcome Pokemon Go Terms of Service Surprise, and How to Opt Out

Most mobile app users do not take the time to read the terms of service that typically accompany opening and using the app for the first time.  Doubtless, most of the 7.5-plus million people who have downloaded the Pokemon Go! smartphone app are typical in this sense.  Getting into the fine print, however, reveals a problem for users who agree to the terms: a forced arbitration clause which (1) eliminates the user’s ability to sue the game’s developer publicly in court, instead requiring private arbitration of any dispute; and (2) eliminates the user’s ability to participate in any class action.  This is of concern for any consumer product, but particularly in the case of an app which presents potential privacy and data security risks.  In short, frequently the only efficient way to hold a corporation accountable for breaches of privacy or data security is through a class action lawsuit.  This is because: (1) the investigative costs involved in this type of litigation are immense; (2) the harm to each individual affected user may be very small; and (3) the overall harm to all affected users may be many millions of dollars.

Forced arbitration has been a growing phenomenon in large corporations’ terms of service for decades.  From the consumer advocate’s perspective, these clauses and procedures are pernicious.  The Consumer Financial Protection Bureau agrees, and after finding that such clauses in bank and financial institution contracts are unfair and unconscionable as a whole, has proposed a regulation outlawing forced arbitration clauses in consumer financial services contracts.  Of course, this regulation would not affect Niantic, the developer of Pokemon Go!, since its business is computer software and not financial services.

The silver lining is that the Pokemon Go! terms of service allows users to opt out of the forced arbitration clause, as long as they do so within 30 days of first agreeing to the terms of service.  All the user needs to do is email Niantic at termsofservice@nianticlabs.com and clearly state that the user is opting out of the arbitration clause in the terms of service.  Our recommendation is that all Pokemon Go! users preserve their legal rights in this way.

Debt Collection Lawsuits May Break the Law

Huge numbers of lawsuits are filed by debt collectors and debt buyers in Michigan’s district courts every day.  Some of the larger debt buyers may file hundreds of lawsuits per year in a single district court.  These are relatively small-dollar cases, seeking anywhere from $100 up to $5,000 or more, typically on past due credit card accounts that have been written off and sold by the original creditor (in the case of a legitimate debt), to a debt buyer, and then possibly re-sold to a string of other debt buyers.

Many people who have been sued by debt collectors do not know what to do.  The debt may seem legitimate, or may even be legitimate.  Frequently these defendants simply do not contest the lawsuit, a default judgment is entered against them, and ultimately their bank accounts or wages are garnished to pay the debt collector.  The problem is that the plaintiff–the debt collector who filed the lawsuit–might have broken the law when it filed the lawsuit, or might not even have had the right to any payment at all.

The Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. § 1692 et seq., prohibits debt collectors from making false or misleading statements or using unfair methods to collect consumer debts.  This includes statements made and methods used in lawsuits to collect debts.  If the plaintiff claims amounts are owed that are not actually owed, that is unlawful under 15 U.S.C. § 1692e.  If the plaintiff has filed a time-barred claim–which is typically the case if no payments have been made on the debt in six or more years–that is also a violation.  Debt collectors’ legal complaints frequently contain deceptive and misleading statements that could give rise to defenses to the debt, as well as counterclaims for monetary damages.

The following common practices among debt buyers are all grounds for relief under the FDCPA:

  • Misrepresenting the original creditor to whom the debt was owed;
  • Seeking more money than what is actually owed;
  • Including non-recoverable fees and costs in the amount sought in the lawsuit;
  • Improperly including certain fees and costs in garnishments;
  • Misrepresenting that the complaint was prepared by an attorney of law firm, when in fact it was prepared by a non-lawyer;
  • Providing false or misleading contact information;
  • Including false, misleading or fabricated documentary evidence as support for the complaint.

Many consumers sued by buyers of old defaulted debt feel they cannot afford an attorney to defend their case.  This is not necessarily true, particularly when a consumer lawyer finds that there is a viable counterclaim against the debt collector under the FDCPA.  This is because, as a remedial consumer protection statute, the FDCPA provides for the payment of attorney fees by the debt collector if a violation is proven.

If you have been sued by a debt collector, contact us for a consultation free of charge.

Banks and Stolen Money

It is surprisingly common for company bookkeepers, controllers and accountants to steal company funds and funnel the money to their banks and other creditors.  Today’s Ponzi schemes (think Bernie Madoff, or the closest local analogue, CyberNET) also cannot survive without using bank services like credit accounts, deposit accounts and wire transfer facilities.  More than once in my practice I have faced the questions: when the fraudster no longer has the ill-gotten funds, what can the victim do?  Do the banks and other creditors have to account for the stolen funds?  These are simple questions with complex answers.

In the case of CyberNET (also called Cyberco), the company was engaged in a Ponzi-like scheme amounting to a $100 million fraud on its creditors, mostly consisting of equipment leasing companies.  CyberNET’s line bank, Huntington National Bank, saw warning signs that CyberNET’s business was not what it appeared to be.  It even went so far as to tell CyberNET to find a new bank, and negotiated accelerated paydowns of its $17 million line of credit to CyberNET.  That credit line was fully repaid just before an FBI raid of the company effectively shut it down. The creditors left holding the bag asked the question: would Huntington have to account for any of the tens of millions it received that were proceeds of the fraud?  The answer was yes, but not without a complicated and protracted legal fight.

Michigan law and the bankruptcy code each provide specific means of recovering stolen money and fraudulent transfers of funds.  In Huntington’s case, while the bank successfully defended claims that it had “aided and abetted” the CyberNET fraud, it ultimately lost in an adversary proceeding in bankruptcy court on theories of avoidance of fraudulent transfers.  These theories depended upon the bank failing to prove that it accepted the illegitimate funds “in good faith.”  The judgment against Huntington, totaling over $80 million, is currently on appeal to the Sixth Circuit.

An avoidance theory may also be useful outside the bankruptcy context, where defrauded parties may be able to make use of Michigan’s Uniform Fraudulent Transfers Act to pull back ill-gotten funds that were subsequently transferred to a bank, creditor or another.  In that instance, the pivotal questions are again the recipient’s “good faith,” along with an inquiry whether the recipient “gave value” for the transfer.

Even negligence and unjust enrichment theories may be relied upon to hold recipient of stolen or fraudulently obtained funds accountable.  In Michigan, for example, a common-law “duty of inquiry” exists whereby a bank must conduct a “reasonable inquiry” to ensure that when it receives funds from a third party that does not owe it money (through, e.g., a company check stolen by its bookkeeper), that the presenter is authorized to use those funds.  Otherwise, it accepts third-party funds at its own peril.  It cannot simply look the other way and accept what it should know are stolen or ill-gotten funds.

Litigating against banks is never a simple proposition, and should not be done lightly.  Banks are accustomed to fighting lawsuits and can afford teams of skilled attorneys.  However, in the right case, and pursuing the right legal strategy, they are not untouchable–as the Huntington case clearly shows.

John Oliver, Consumer Advocate

As an attorney representing individuals in disputes with large corporations for nearly a decade, it has frequently occurred to me that most consumers are unaware of substantial legal rights they have, including laws that exist for the express purpose of protecting consumers from specific unfair business practices.  I have been surprised to find a kindred spirit in comedian John Oliver of HBO’s Last Week Tonight with John Oliver, whose concern with consumer affairs on the show has included major problems with credit reporting as well as debt collection and debt buying scams (caution: strong language).  I am pleased to see these troubling issues discussed in a popular forum, by a public figure with a genuine passion for consumer rights.

What Mr. Oliver does not explore in these entertaining and informative pieces are the legal frameworks available under the Fair Credit Reporting Act (“FCRA”) and Fair Debt Collection Practices Act (“FDCPA”), which encourage aggrieved consumers and their attorneys to act as “private attorneys general” to regulate the industries that abuse credit reports and those that resort to unfair and deceptive means of collecting seriously delinquent debts–some of which may even be time-barred, or not owed in the first place.  While these statutes and the numerous precedents that interpret them are not the stuff of late night television, they are major tools in the arsenal of consumer advocates such as myself, and can form the basis for significant recoveries for consumers themselves.

Spokeo v. Robins

Many laws designed to protect individuals from corporate abuses rely in part on the imposition of “statutory damages.”  This typically means that if the plaintiff can show a violation of the law, there is some minimum amount of money that must be awarded.  These are exceptions to the general rule that a plaintiff’s recovery is limited to the amount of actual damages proven.

Statutory damages are an important part of the enforcement mechanisms in the Fair Debt Collection Practices Act (“FDCPA”), Fair Credit Reporting Act (“FCRA”), Real Estate Settlement Procedures Act (“RESPA”), Truth in Lending Act (“TILA”) and many other consumer protection laws.  This is because the availability of statutory damages acts as a deterrent to violations of the law that are destructive, but whose economic impact on any individual may be difficult to prove or speculative.  For example, where a statute such as the FCRA or FDCPA gives a consumer the right to receive certain information, a company’s failure to comply might not give rise to any provable “actual” damages.  Enforcement of those rights then depends upon statutory damages.

The United States Supreme Court was presented with a  far-reaching challenge to statutory damages in the recent case Spokeo v. Robins.  In that case, the plaintiffs in a class action had alleged that a web site used for personal investigations and background checks had violated the Fair Credit Reporting Act by failing to maintain procedures to ensure accuracy of its reports.  The plaintiff class sought statutory damages under the FCRA.  The defendant argued that because the plaintiff had not shown any “actual damages,” he lacked “standing” to bring the lawsuit under Article III of the Constitution–even though the FCRA itself provides for a cause of action that seeks only statutory damages.  Without standing, the plaintiff’s case could not be maintained.

The Spokeo case was on appeal from the United States Court of Appeals for the Ninth Circuit, which had held that violation of the FCRA itself was enough of an “injury” to satisfy the Article III standing requirements.  The United States Supreme Court disagreed in part, finding that the Ninth Circuit had failed to correctly analyze whether a “concrete” injury had been adequately alleged by the plaintiff.  The Court remanded the case for a new determination of this issue.

On its face, the Spokeo decision might appear harmful to the interests of consumers, given that many important protections in the FCRA, FDCPA, RESPA and TILA are only effectively enforceable through statutory–not actual–damages.  However, within the Court’s opinion are indications that those protections remain viable.  For example, the opinion acknowledges that a consumer’s injury need not be “tangible” in order to provide a basis for Article III standing.  It also notes that “risk of real harm” can satisfy the injury requirement for standing.  This is an especially important note in the context of statutes giving consumers the right to accurate information, where the failure to provide that information creates a real risk of harm.

In the coming months and years, it is expected that many corporations will rely on and attempt to expand on Spokeo to constrain consumer rights.  Vigilant consumer advocates should be cognizant of this and work to ensure that the courthouse doors are not closed to their clients.

Foreclosure as Debt Collection

Michigan law is notoriously unfavorable to homeowners facing foreclosure.  Homeowners who have been unfairly treated by lenders, mortgage servicers or foreclosure lawyers have been denied relief in Michigan’s courts time after time, as the traditional legal theories used to combat wrongful foreclosures have slowly eroded.

One frequently neglected tool in the homeowner’s arsenal is the federal Fair Debt Collection Practices Act (“FDCPA”), which restricts the foreclosure activities of attorneys and default mortgage servicers.  The FDCPA, long used by consumer protection lawyers against debt collectors, also prohibits many types of misleading, deceptive and unfair activities by these servicers and foreclosure lawyers.  The Sixth Circuit confirmed the applicability of the FDCPA to foreclosure activity in the important case  Glazer v. Chase Home Finance LLC, paving the way for consumer lawyers to hold foreclosing parties accountable for money damages and attorney fees.  Thus, while the FDCPA may not preserve the homeowner’s property rights in cases of wrongful or unfair foreclosure, it may be used to obtain restitution for the homeowner’s economic losses and mental anguish.

Contact us if you have experienced wrongful, unfair or deceptive conduct in connection with a foreclosure on your home.  We may be able to help.

TJW