CURRENT MONTH (November 2024)
Antitrust Law
What Is the FTC “Merger Portal?”
By Barbara Sicalides and Julian Weiss, Troutman Pepper Hamilton Sanders LLP
At the open meeting of the Federal Trade Commission (“FTC”) this month, agency staff and commissioners discussed the recently launched “Merger Portal.” The portal is available on the FTC’s website and provides the public with an additional method of communicating opinions and facts regarding mergers to the agency.
According to FTC staff, the goals of the “Merger Portal” project are to (1) evolve—not upend—the existing FTC.gov complaint process; (2) give users a “more direct path” to merger complaints; and (3) collect useful information for merger investigations and enforcement actions. Members of the public can continue to comment on or raise concerns about a merger, as they have in the past, through counsel or direct electronic or telephonic communications with the agency. Staff and the commissioners noted that public input is welcome and can be important to merger enforcement. The Kroger/Albertsons merger, currently being challenged by the FTC and several state attorneys, was used as an example of a transaction where public input benefited the agency’s enforcement effort. The Merger Portal, described as part of an effort to “systemize” opportunities for public involvement, could also be an effective way to alert the agency to potentially anticompetitive transactions that fall below the Hart-Scott-Rodino (“HSR”) thresholds.
Individuals or companies using the Merger Portal can do so anonymously and are able to check boxes to identify the type of harm that they allege the transaction will cause, such as “increased prices,” “reduced quality,” “reduced innovation,” and “labor market concerns.” Individuals are not required to provide any further explanation, and none of the specific boxes request information related to any procompetitive benefits of potential mergers. The FTC’s Office of Policy and Coordination will manage complaints received by forwarding them to the division of FTC reviewing the transaction or with the relevant industry experience.
The Merger Portal was initially announced in the same FTC press release that announced the agency’s final rule overhauling the HSR process. That rulemaking was published in the Federal Register on November 12, 2024, making the effective date for the new HSR information requirements February 10, 2025.
The Merger Portal has been in operation for a month, and some public comments have been received. The rulemaking, like the Merger Portal, will expand the amount and types of information provided to staff responsible for reviewing transactions with the aim of better and more easily identifying those that may substantially lessen competition or tend to create a monopoly. Although the new administration might seek to reverse, modify, or delay some or all of these recent changes, the two sitting Republican commissioners voted in favor of them and noted the value of at least of some of the additional information that the agency will receive as a result.
Consumer Finance Law
CFPB Consent Order Alleges Payments Provider Illegally Froze and Took Funds From Accounts of Incarcerated Customers
By Eric Mogilnicki and Tyler Smith, Covington & Burling LLP
On November 14, the Consumer Financial Protection Bureau (“CFPB”) entered into a consent order with Global Tel Link Corporation (“GTL”) and its affiliates. GTL is a payments company that contracts with correctional facilities to provide money transfer and other services to incarcerated people and their friends and families. The CFPB alleges that GTL engaged in unfair conduct under the Consumer Financial Protection Act when it blocked consumers’ accounts after a chargeback and required repayment of the chargeback (plus, in some circumstances, a fee) to restore the account. GTL also allegedly failed to disclose to consumers complete fee schedules for money transfers. The CFPB also alleges that GTL engaged in abusive conduct when it drained customers’ accounts following periods of inactivity without providing sufficient notice.
The order requires GTL and its affiliates to provide at least $2 million in redress in the form of fees customers and their families and friends paid to unblock accounts, pay a $1 million civil penalty, and discontinue its allegedly unlawful conduct.
CFPB Publishes Reports Highlighting Repayment Experiences of Student Loan Borrowers
By Eric Mogilnicki and Tyler Smith, Covington & Burling LLP
In mid-November, the CFPB issued two reports describing the repayment experiences of student loan borrowers.
- On November 13, the Bureau issued initial results from its Student Loan Borrower Survey, which the agency conducted between October 2023 and January 2024. Among other findings: 61 percent of surveyed borrowers who received debt relief said the relief allowed them to pursue other opportunities more quickly than they otherwise could have. In addition, 42 percent of surveyed borrowers reported that they had only ever participated in the standard repayment plan; of those, 31 percent reported not knowing that they could choose an alternative plan.
- On November 15, the Bureau released the annual report of the CFPB Student Loan Ombudsman, which summarizes the Bureau’s analysis of the more than 18,000 student loan borrower complaints made between July 1, 2023, and June 30, 2024. Like the Student Loan Borrower Survey, the report highlights benefits borrowers have received by participating in student loan debt relief programs, such as income-driven repayment plans and cancellation programs. The report also highlights problems borrowers have faced in the repayment process, including servicing problems (e.g., problems with billing, auto pay errors, and inaccurate guidance regarding repayment options) and customer service issues (e.g., website access issues and delayed or inaccurate communications).
CFPB Study Finds Disparities in Lenders’ Treatment of Black Small Business Loan Applicants
By Eric Mogilnicki and Tyler Smith, Covington & Burling LLP
On November 13, the CFPB released the results of a study that, in the Bureau’s words, “reveal[ed] significant disparities in how lenders treat Black and white small business owners seeking loans.” To perform the study, the Bureau conducted match-pair testing by engaging in secret shopping at twenty-five bank branches in Fairfax County, Virginia, and Nassau County, New York. The study, which involved one hundred in-person test visits, revealed that branch bankers were significantly more likely to encourage Black participants to apply for a small business loan, despite white participants having similar or even slightly worse credit profiles. Lenders were also more likely to suggest credit cards and home equity loans to Black business owners—they discussed nonrequested or alternative credit products with 59 percent of Black participants, but only 39 percent of white participants.
CFPB Director Chopra Indicates CFPB May Enforce FTC’s “Click-to-Cancel” Rule
By Eric Mogilnicki and Tyler Smith, Covington & Burling LLP
On November 14, CFPB Director Rohit Chopra released a statement regarding the Federal Trade Commission’s recent finalization of its “Click-to-Cancel” Rule, which updates its existing “Negative Option Rule” to make it easier for consumers to cancel unwanted subscriptions and memberships that require recurring payments. According to Director Chopra, the Rule “will further enable the CFPB to protect consumers from being tricked into paying for products or services they do not want or need.”
Comerica Bank Sues CFPB, Asks Court to Declare Investigation Illegal
By Eric Mogilnicki and Tyler Smith, Covington & Burling LLP
On November 8, Comerica Bank filed a lawsuit against the CFPB regarding the Bureau’s investigation into, and potential enforcement action related to, the bank’s conduct as servicer of the Department of the Treasury’s “Direct Express” program. The suit seeks declaratory relief deeming that investigation and potential enforcement action unlawful because the CFPB “sought to circumvent the comprehensive framework established by EFTA [(the Electronic Fund Transfer Act)] and Regulation E and rely instead on its authority to prohibit UDAAPs [(unfair, deceptive, or abusive acts or practices)]” under the Consumer Financial Protection Act. The complaint also alleges that the Bureau violated Comerica’s constitutional right to due process by failing to provide sufficient notice of its UDAAP claims, and that the CFPB is improperly funded because it must be funded through the “combined earnings” of the Federal Reserve, which has not run a profit for two years.
Texas Federal Judge Denies Industry Bid to Stay CFPB Small Business Rule Pending Appeal
By Eric Mogilnicki and Tyler Smith, Covington & Burling LLP
On November 14, a district court judge for the Southern District of Texas denied a bid by industry groups to stay the compliance deadlines for the CFPB’s Section 1071 Rule. That rule, promulgated under Section 1071 of the Dodd-Frank Act, requires the collection of small business lending data. The plaintiffs had sought a stay pending the groups’ appeal of the district court’s August 26 order upholding the rule. The court’s order finds that the harms from complying with a rule the court deems valid do not constitute “irreparable harm,” and that the groups thus “have not met their ‘heavy burden’ to show that the circumstances justify such ‘extraordinary relief.’”
CFPB Sued by Debt Collectors
By Eric Mogilnicki and Brandon Howell, Covington & Burling LLP
On November 1, the ACA (formerly the American Collectors Association) sued the CFPB in the District Court for the District of Columbia, seeking to set aside the CFPB’s recent advisory opinion on the Fair Debt Collection Practices Act. The complaint alleges that in issuing the advisory opinion, the CFPB has exceeded its statutory authority because although it is “styled as a ‘reminder’ to debt collectors of their legal obligations, the CFPB’s Advisory Opinion transgresses into legislative rulemaking.” The ACA argues that the advisory opinion establishes four new rules on debt collectors and so could not be issued without the CFPB complying with rulemaking obligations under various federal statutes, including the Administrative Procedure Act. The plaintiffs also allege that the advisory opinion provisions about medical debt “insert debt collectors into the private healthcare decisions made between patients and their providers,” and that this too far exceeds the CFPB’s authority given by Congress. Finally, the ACA argues that the CFPB is improperly funded because it must be funded through the “combined earnings” of the Federal Reserve, which has not run a profit for two years.
CFPB and CMS Issue Joint Statement Regarding Improper Charges Imposed on Qualified Medicare Beneficiaries
By Eric Mogilnicki and Tyler Smith, Covington & Burling LLP
On October 31, the CFPB and Centers for Medicare & Medicaid Services (“CMS”) released a joint statement clarifying that federal law prohibits Medicare and Medicare Advantage providers and suppliers, as well as debt collectors, from imposing certain charges on a group of low-income Medicare recipients known as Qualified Medicare Beneficiaries (“QMBs”). The statement notes that federal law prohibits healthcare providers who accept Medicare from billing QMBs for cost sharing, which includes co-pays and deductibles. According to the joint statement, some providers have imposed improper charges on QMBs, a practice which occurred in part when Medicare Advantage plans gave those providers inaccurate information about recipients. The joint statement clarifies that this practice may be illegal under the Fair Debt Collection Practices Act, which makes it unlawful to collect on bills that are not actually owed. The statement also notes that reporting these debts to consumer reporting agencies may violate the Fair Credit Reporting Act’s requirement for furnishers to verify the accuracy of information they furnish. Through the joint statement, CMS instructs healthcare providers to refund any charges improperly imposed on QMBs, and it notes that providers who impose such charges may be subject to sanctions.
Eastern District of Pennsylvania Finds National Bank Owes Noncontractual Duty to Monitor and Warn Accountholders of Potentially Fraudulent Activity
By Tyler Hamilton, Pilgrim Christakis LLP
On November 19, 2024, the Eastern District of Pennsylvania denied a motion to dismiss in Downz v. Citizens Bank, N.A., in relevant part, on the grounds that Citizens Bank owed a duty to notify its accountholder of ongoing fraudulent activity on her account. Plaintiff filed suit against Citizens Bank alleging she was the victim of fraud perpetrated by a third party through her home equity line of credit and checking account held with Citizens Bank. The third-party fraudsters alleged caused Plaintiff to unknowingly overdraft approximately $105,000 on her line of credit. Citizens Bank allegedly had knowledge that Plaintiff was a victim of attempted or potential fraud but failed to take actions to notify her before the overdrafts occurred. On these allegations, Plaintiff filed suit against Citizens Bank for negligence per se, violations of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, aiding and abetting fraud, and breach of contract.
Citizens Bank filed a motion to dismiss each of Plaintiff’s claims largely on the basis that Plaintiff’s claims were barred by Pennsylvania’s “gist of the action” doctrine. Under the “gist of the action” doctrine, tort claims are precluded where those claims merely constitute claims for a party’s breach of its contractual obligations. Courts evaluate the application of the doctrine by examining the nature of the defendant’s purported duty. If that duty is governed by contract then the plaintiff is limited to contractual damages. But if the duty constitutes a “broader social duty owed to all individuals” that exists regardless of the contract, the plaintiff’s tort claim may proceed. Here, the Court concluded Citizens Bank owed Plaintiff a duty to monitor her account for fraud, accurately reflect her account balances, warn her of suspected and ongoing fraudulent activity, and prevent her from obtaining fraudulent funds that had been deposited into her account. Further, the Court determined Citizens Bank’s duties were “imposed” by the law of torts, regardless of the parties’ underlying contract; thus, Plaintiff’s tort claims could proceed and Citizens Bank’s motion to dismiss was denied.
While the Court’s decision merely allows Plaintiff’s claims to proceed to discovery (and does nothing to resolve the allegations on their merits), the Downz opinion highlights that, in some circumstances, financial institutions may owe duties to their accountholders and clients that exist beyond the express terms of the parties’ contract. This not only impacts the actions financial institutions may need to take in those situations but also dictates the types of claims that may be available to plaintiffs should disputes arise.
Gaming Law
Litigation Continues on Several Fronts Before the U.S. Supreme Court on the Constitutionality of Federal Horseracing Act
By Amanda Z. Weaver, PhD, attorney at Snell & Wilmer, LLP
Issues related to the constitutionality of the 2020 Horseracing Integrity and Safety Act (the “Act”) continue to percolate in the courts to include petitions for writs of certiorari filed with the United States Supreme Court, even after Congress amended the Act.
The Act created, inter alia, the Horseracing Integrity and Safety Authority (“HISA”), which in turn established standing committees for Racetrack Safety and Anti-Doping and Medication Control to enhance horse and rider safety and wellbeing while ensuring the integrity of racing. See HISA, “Our Mission”; see also July 2024 Month-in-Brief (for further background on HISA and its committees).
In response to a Fifth Circuit ruling for the second time that the Act is unconstitutional, on October 16, 2024, the Federal Trade Commission (“FTC”) and HISA, as well as FTC and HISA officials, and other interested parties filed petitions for writs of certiorari with the Supreme Court for review of the Fifth Circuit’s decision. See FTC v. Nat’l Horsemen’s Benevolent & Ass’n, No. 24-429, Pet. for Writ of Cert., at 6; Docket No. 24-433. The Supreme Court has yet to set a conference date to consider the petitions.
The Fifth Circuit reasoned in both the initial case that it remanded and in the subsequent appeal following remand, essentially that since the Act allowed HISA, a nongovernmental entity, to support the FTC in implementing the Act in a way that HISA was not subordinate to the FTC and not subject to the FTC’s authority, the Act was unconstitutional. Id. at 4 (internal quotation marks and citation omitted).
In December 2022, Congress, in response to the Fifth Circuit’s initial 2022 decision, amended the Act giving the FTC more authority. Even after this amendment, the Fifth Circuit still held the Act to be unconstitutional. See FTC v. Nat’l Horsemen’s Benevolent & Protective Ass’n, No. 24-429, Pet. for Writ of Cert., at 6.
Meanwhile, Oklahoma, Louisiana, West Virginia, and the Oklahoma Racing Commission, along with a number of businesses and racing organizations (“Plaintiffs”), also filed a case against the FTC and HISA arguing that the Act was unconstitutional for essentially the same reasons the Fifth Circuit found the Act to be unconstitutional. The Sixth Circuit held that the Act was constitutional.
Although the Supreme Court denied the Plaintiffs’ initial writ of certiorari for the Sixth Circuit case, on July 18, 2024, the Plaintiffs filed for rehearing on the denial. After being ordered to respond, the United States, the FTC, FTC officials, and HISA did so, arguing mainly that the petitions filed in the Fifth Circuit cases presented the best vehicle for Supreme Court review, and in the alternative asking the matter be stayed pending the Supreme Court’s resolution of the Fifth Circuit case. Oklahoma v. United States, No. 23-402, Reply in Support of Petition for Rehearing, at 1–3. The Supreme Court will consider the petitions in its December 6, 2024, conference.
Intellectual Property Law
Fact vs. Fiction: Netflix Series Under Fire
By Emily Poler, Poler Legal, LLC
Two popular Netflix miniseries, Baby Reindeer and Inventing Anna, are causing headaches for the streaming giant by being subjects of defamation lawsuits. Each action highlights unique nuances of defamation law.
Inventing Anna tells the “based on a true story” tale of Anna Sorokin, who defrauded a variety of New York institutions and individuals out of about $275,000. One of her real-life friends, plaintiff Rachel DeLoache Williams, claims the series’ version of her is false and defamatory, especially in scenes showing her abandoning a depressed Sorokin in Morocco and thus painting her as a “disloyal” villain. Netflix sought to dismiss the lawsuit on grounds the allegedly defamatory statements were substantially true or were not defamatory, arguing that its characterization of Williams was an opinion protected by the First Amendment from defamation claims.
The District Court denied the motion, finding that the issue of whether Sorokin was actually distraught in Morocco, or if that was an invention of the producers, is a question of fact that can be proven true or false. (Only false statements of fact can serve as a basis for a claim of defamation). The Court concluded that showing the Williams character ditching a friend when she was depressed could indeed leave viewers with a negative view of the real Williams, and thus serve as the basis for a defamation claim. The case is proceeding.
In contrast, the case related to Baby Reindeer focuses on the question of whether the series’ portrayal of a character called “Martha” is “of and concerning” a real-life person—plaintiff Fiona Harvey. The series, which begins with the words “this is a true story,” was written by Richard Gadd as a fictionalized version of his own life and portrays “Martha” as “a twice convicted criminal” who spent five years in prison for stalking people, as well as physically and sexually assaulting Gadd’s character on the show.
According to the lawsuit, viewers unearthed clues on social media to identify Harvey as the basis for “Martha” and began subjecting her to social media vitriol. While she is acquainted with Gadd, Harvey says she has never been convicted of any crime and never assaulted him.
Interestingly, the relevant case law does not consider whether a fictional character can have their real-life basis identified by internet sleuths. Rather, the inquiry is whether a person who knows the plaintiff would reasonably conclude that the plaintiff was the fictional character. Numerous elements in the “Martha” character’s storyline unconnected to anything in Harvey’s real life make an argument that the character is not based on Harvey. But the internet has spoken, and that’s enough for Harvey to sue Netflix for $170 million.
Cases like these are becoming routine for Netflix, which in June settled a defamation suit brought by former New York City prosecutor Linda Fairstein against the streamer over how she was portrayed in When They See Us. It will be interesting to see if such cases cause Netflix to implement any preemptive creative process changes going forward.
