Of Chickens, Debt Collection and Standing

By Dawn Causey, Andrew Doersam and Thomas Pinder

For those following the Supreme Court, the upcoming fall term is “egg-celent.” Not only is the Supreme Court hearing three cases about chickens and the Commerce Clause, there are several banking cases the American Bankers Association is watching, including Obduskey v. McCarthy & Holthus LLP.

Obduskey will address whether the Fair Debt Collection Practices Act applies to nonjudicial mortgage foreclosures. In 2009, a Colorado homeowner defaulted on his Wells Fargo mortgage. Wells initiated nonjudicial foreclosure proceedings and spent six years attempting to foreclose on the property. During the foreclosure process, the homeowner cried “fowl,” alleging that Wells Fargo violated the FDCPA’s debt validations procedures and sued Wells Fargo in Colorado federal district court. Both the district court and the Tenth Circuit held the FDCPA does not apply to nonjudicial foreclosures. However, the Tenth Circuit’s holding conflicts with the Third, Fourth, and Sixth Circuits, as well as the state supreme courts of Alaska and Colorado. Given the changing composition of the Supreme Court—including a new justice—it is difficult to gauge how it will come down on this issue.

In Lorenzo v. SEC, the Supreme Court will review whether an individual is liable for a fraudulent scheme when emailing misleading statements made by someone else. The dispute arose from emails sent by Francis Lorenzo, the former director of investment banking at Charles Vista, LLC, to two potential investors, which included “several key points” about then-client W2Energy Holdings’ convertible debenture offering. The emails failed to mention recent material devaluation of W2Energy’s intangible assets.
The SEC charged Lorenzo, as well as his boss and Charles Vista, with fraud in violation of the Securities Act Section 17(a)(1), Exchange Act Section 10(b), and Rule 10b-5. The firm and the boss settled; Lorenzo fought the charges, but the SEC administrative law judge ultimately found that he acted willfully with the intent to deceive, manipulate or defraud. On appeal, the D.C. Circuit concluded that Lorenzo did not actually “make” the statement and therefore was not liable under Rule 10b-5(b).

However, the D.C. Circuit determined that Lorenzo was liable for perpetuating the fraudulent scheme because he knowingly sent the false statements in the email. Judge Brett Kavanaugh issued a blistering dissent. He criticized the administrative law proceeding and the SEC’s decision to uphold its liability findings. He also stated the majority opinion’s deference to the SEC was unwarranted in these circumstances.

Moving on, Apple v. Pepper focuses on antitrust and standing. The dispute is over whether Apple, by charging app developers a 30 percent commission fee and only allowing iOS apps to be sold through its own store, has inflated the price of iPhone apps. Plaintiffs, a class of consumers, alleged that Apple’s closed-app system has monopolized the aftermarket for iPhone software apps.

Apple argues that the plaintiffs do not have the right to sue under current U.S. antitrust laws. At the core of the lawsuit is another Supreme Court case from 1977, Illinois Brick Co. v. Illinois, which established that a consumer cannot sue for antitrust damages if the consumer is not the direct purchaser of a good or service. According to Apple, iPhone consumers are direct purchasers only in the sense that they deal directly with Apple in purchasing apps from the App Store, but they are not direct purchasers of Apple’s app distribution services.

Now to the chickens. For years, people have been pondering “why did the chicken cross the road?” But this fall, the question becomes: What happens when the chicken cannot cross state lines? Is that a violation of the commerce clause? In three separate cases, a group of states, suppliers and restaurants are challenging California and Massachusetts laws that block the sale of poultry if the animals were confined or fed in a cruel manner. (The two states demand that their chickens have free range and are treated humanely before they are slaughtered and sold for consumption.) The challengers are ultimately asking the Supreme Court address whether lawmakers in any one state may dictate how farmers in other states raise livestock.

From chickens to debt collection, the Supreme Court certainly has a full plate this upcoming term.

Dawn Causey is general counsel at ABA, where Thomas Pinder is SVP for litigation and Andrew Doersam is a paralegal.