This week, the Ninth Circuit is examining whether collecting a city’s location data from e-scooters violates the Fourth Amendment and whether a consumer lender can circumvent state usury laws by issuing loans. through a tribal intermediary.
SANCHEZ V. LADOT
The Court rules that a Los Angeles program regulating electric scooters does not violate the Fourth Amendment.
Sign: Justices Wardlaw, Hurwitz and Rosenthal (SD Tex.), with Justice Hurwitz writing the opinion.
Climax: “[T]he considerations animating the “narrow” decision of the Court in Carpenter refusing to apply the doctrine of third parties are not present here. . . . Because the Third Party Doctrine fully applies to Sanchez’s voluntary agreement to provide location data to e-scooter operators, LADOT’s collection of such data is not research and does not violate the Fourth Amendment. or the California Constitution. »
Background: In 2018, the City of Los Angeles created a program to regulate rentable electric scooters from companies such as Bird, Lime, and Lyft. The purpose of this program was to prevent electric scooters from cluttering the sidewalk and blocking access to the street. The program required companies to obtain permits from the Los Angeles Department of Transportation (“LADOT”). As part of the permit application, LADOT asked electric scooter companies to share real-time location data for each scooter.
Plaintiff Justin Sanchez is a frequent electric scooter rider. He was concerned that location data from electric scooters would allow the City of Los Angeles to track individual drivers, including their transportation history. He sued on the grounds that LADOT’s permission program, specifically its location tracking regulations, violated the Fourth Amendment, a similar provision of the California Constitution and the California Electronic Communications Privacy Act (CalECPA ). The District Court granted LADOT’s motion to dismiss without leave to amend.
Results: The Ninth Circuit confirmed. First, the Court considered standing. LADOT argued that Sanchez lacked standing because he alleged only speculative harm – that the city strength one day track electric scooter riders. Sanchez countered that simply collecting location data was a concrete injury for the purposes of standing, and the Ninth Circuit agreed.
Moving on to the merits, the committee then assessed whether LADOT’s collection of location data is Fourth Amendment research. Consistent with Supreme Court precedent, this analysis focuses on whether LADOT’s e-scooter program violates “a subjective expectation of privacy that society recognizes as reasonable.” Kyllo v. United States, 533 US 27, 33 (2001). The Ninth Circuit held that this was not the case due to the doctrine of third parties. As the panel explained, individuals have no expectation of privacy when they voluntarily disclose information to third parties, such as banks and telephone companies. In Carpenter v. United States, 138 S.Ct. 2206 (2018), the Supreme Court ruled that government collection of cell site location information (“CSLI”) violated a reasonable expectation of privacy and that the third party doctrine did not apply. not in this case. But the Ninth Circuit distinguished Carpenterexplaining why the CSLI at issue was different from location data that an electric scooter rider voluntarily shares with scooter companies.
Next, the Court upheld the District Court’s denial of Sanchez’s CalECPA claim. CalECPA limits how the state handles “electronic device information.” It contains a citizen lawsuit provision allowing private enforcement only in certain situations, that’s to say when individuals are subject to warrants that do not comply with CalECPA. Cal. Penal Code § 1546.4(c). The Court ruled that Sanchez could not sue under CalECPA. And finally, the court upheld the district court’s decision to dismiss without leave to amend, finding that no additional facts could remedy the flaws in Sanchez’s complaint.
CFPB V. CASHCALL, INC.
Court finds that a consumer loan company was rightly held liable for making loans that circumvented state usury and licensing laws, but dismissed for retrial on the appropriate remedy.
Sign: Judges Owens, Nelson and Miller, with Judge Miller writing the opinion.
Climax: “[P]Parties cannot circumvent the limits of their ability to specify governing law simply by structuring their agreement so that it has a nominal, but entirely artificial, relationship to the desired jurisdiction.
Background: CashCall, Inc. provides high interest consumer loans. Originally operating primarily in California, CashCall sought to expand to other states, but feared that usury laws in those states would make its business unprofitable. To circumvent this problem, CashCall entered into an agreement with Western Sky, a South Dakota LLC based on the Cheyenne River Sioux Reservation. CashCall would immediately buy every loan made by Western Sky. All economic benefits and risks were transferred to CashCall, which managed the loans. None of the Western Sky borrowers lived on the reservation, nor applied for loans on tribal land. The borrowers signed the loan agreements electronically on Western Sky’s website, which was hosted by CashCall’s servers in California. The loan agreements contained a choice of law clause designating Indian law, not state law, as governing the loans.
The CFPB brought this lawsuit against CashCall and its CEO, alleging that they had engaged in “unfair, deceptive or abusive” practices in violation of the Consumer Financial Protection Act. The district court found CashCall liable, finding that the choice of law clause was unenforceable because CashCall was the true lender and applied the law of the borrowers’ home states. He also concluded that CashCall’s CEO could be individually liable due to his direct involvement in the scheme. After a bench trial, the district court found that CashCall’s violation was not knowing or reckless, and imposed a fine of $10.3 million, but declined to order restitution. The parties filed a cross-appeal.
Results: The Ninth Circuit confirmed in part, reversed in part and remanded for further proceedings. First, the Court rejected CashCall’s argument that the CFPB could not pursue enforcement because it was unconstitutionally structured. While the Supreme Court had ruled that the CFPB’s organizational statute unconstitutionally limited the president’s power to remove the agency’s sole director, both the complaint and the notice of appeal were filed while the Bureau was headed by a legally appointed director.
As to CashCall’s liability, the Ninth Circuit rejected CashCall’s argument that tribal law (as opposed to state law) applied. Applying federal common law principles of choice of law, the Court found that state law governed the loans. Although choice of law provisions generally govern the parties to a contract, the Court held that this was not the case here because “the chosen law [jurisdiction] has no substantial connection with the parties or the transaction and there is no other reasonable basis for the choice of the parties”. “In essence, all of the loan transactions at issue here were conducted by CashCall, not Western Sky.” And there was no “basis for finding a relationship between the tribe and the transactions”.
The Court also rejected CashCall’s argument that APFC’s liability for a deceptive practice cannot be based on a violation of state law. CFPA’s prohibition on unfair and deceptive practices “encompasses easily leading a consumer to believe that an invalid debt is in fact a legally enforceable obligation,” the court said. And it didn’t matter that the reason the debt was invalid was state law. Similar prohibitions in the Fair Debt Collection Practices Act apply to “attempts to collect a debt that state law has invalidated,” the court explained. He also rejected CashCall’s argument that relying on state law in this context would create constitutional problems by federalizing usury laws – CashCall’s multi-jurisdictional scheme involved interstate commerce, a federal concern.
With respect to the appeal issue, the Ninth Circuit found that Cashcall did not act recklessly at first, as he had taken the advice of a competent regulatory attorney. But beginning in September 2013, the court noted, regulatory counsel advised CashCall that its scheme was likely illegal. And while CashCall closed new loans, it continued to collect on existing loans. Given these circumstances, the Ninth Circuit reversed the civil penalty and remanded with instructions for the district court to reassess recklessness — and therefore potentially higher penalties — for the period beginning in September 2013. CashCall CEO could be held individually liable for the same reason, the court said: “continuing to collect loans after September 2013 was unwise”.
Finally, the Ninth Circuit reversed the district court’s order denying restitution because it was based on an error of law. The district court had denied restitution because it found that CashCall had not acted in bad faith, that the borrowers had received the benefit of their market – the proceeds of the loan – and because the CFPB had not established the amount of restitution that would be appropriate. But those were not proper grounds to deny restitution, the Ninth Circuit said. Scienter is not required for restitution, the court explained. And whether the borrowers received the loan proceeds was irrelevant – restitution is appropriate under the CFPA where it achieves the statutory goals of consumer protection and promoting transparency. And the refund amount could be (at least initially) determined by CashCall’s net earnings. The Court also remanded for further restitution proceedings.