Category Archives: united states court of appeals

Is it illegal for a debt collector to attempt to collect a debt that is no longer valid and enforceable as a matter of law?

On April 11, 2011, the United States Court of Appeals for the Third Circuit affirmed the decision of the District Court dismissing a consumer’s claims against his debtors.  Huertas v. Galaxy Asset Management, LLC, No. 10-2532, CITATION.

Consumer Hector Huertas sued credit card companies, Asset Management Professionals (“AMP”) and Applied Card Bank (“ACB”), for violations of the Fair Debt Collection Practices Act (“FDCPA”) and New Jersey Consumer Fraud Act (“NJCFA”).  Huertas alleged that ACB transferred a “false debt” – a debt upon which New Jersey’s six-year statute of limitations had run – in violation of NJCFA and that AMP was seeking to collect that “false debt” in violation of the FDCPA and improperly obtained his credit report in violation of the Fair Credit Reporting Act (“FCRA”) which imposes civil liability upon a person that willfully obtains a consumer credit report for any purpose not authorized by the FRCA.

AMP and ACB moved to dismiss Huertas’ complaint on the ground that he failed to state claims against AMP and ACB.  The United States District Court for the District of New Jersey granted the motions of AMP and ACB and dismissed Huertas’ complaint against each entity.  The District Court reasoned that while the expiration of the statute of limitations made the debt unenforceable, the debt was not extinguished.  As a result, neither ACB’s assignment of the debt nor AMP’s efforts to collect the debt violated the law.

Huertas appealed the dismissal of his complaint to the United States Court of Appeals for the Third Circuit.  On appeal, Huertas claimed that the District Court erred in concluding that the expiration of the statute of limitations did not extinguish the debt.  The Court of Appeals agreed with the District Court and held that Huertas still owed the debt as it was not extinguished as a matter of law.  Thus, Huertas failed to state claims against ACB or AMP regarding the validity of the debt.

According to the Court of Appeals, Huertas’ FDCPA claim against AMP “turns on whether a debt collector may attempt to collect upon a timebarred debt without violating the statute.”  Id.  The court acknowledged that the issue was one of first impression for it, but noted that the majority of courts faced with a similar situation have held that “when the expiration of the statute of limitations does not invalidate a debt, but merely renders it unenforceable, the FDCPA permits a debt collector to seek voluntary repayment of the time-barred debt so long as the debt collector does not initiate or threaten legal action in connection with its debt collection efforts.”  Id.; see also Freyermuth v. Credit Bureau Servs., Inc., 248 F.3d 767, 771 (8th Cir. 2001); Wallace v. Capital One Bank, 168 F.Supp.2d 526, 527-29 (D.Md. 2001); Shorty v. Capital One Bank, 90 F.Supp.2d 1330, 1331-33 (D.N.M. 2000).  It is the “threatening of a lawsuit which the debt collector knows or should know is unavailable or unwinnable by reason of a legal bar such as the statute of limitations is the kind of abusive practice the FDCPA was intended to eliminate.”  Id. citing Beattie v. D.M. Collections, Inc., 754 F.Supp. 383, 393 (D.Del. 1991).  Thus, whether AMP violated the FDCPA turned on whether its letter to Huertas of February 11, 2009 “threatened litigation.”  Id.

AMP’s letter to Huertas advised that the account was reassigned; requested Huertas call to “resolve this issue”; included a privacy notice; and advised Huertas that unless the debt alleged was disputed within thirty days, AMP would assume that the debt was valid.  Finally, the letter contained the following language at the bottom, in bold capital letters, “THIS IS AN ATTEMPT TO COLLECT A DEBT.”  The court held that, “even the least sophisticated consumer would not understand AMP’s letter to explicitly or implicitly threaten litigation … Since it is appropriate for a debt collector to request voluntary repayment of a time-barred debt, it would be unfair if debt collectors were found to violate the FDCPA both if they include the mandated language (because inclusion would threaten suit) and if they do not (because failure to include a mandatory notice violates the statute).”  Id.  Thus, the court held that Huertas failed to state claim against AMP for violation of the FDCPA based upon AMP’s letter and affirmed the dismissal of Huertas’ complaint against AMP on the ground that it violated the FDCPA.

The court also held that AMP did not violative the FRCA when it obtained Huertas’ credit report.  The FRCA expressly permits distribution of a consumer report to an entity that “intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer.”  Id.; see also 15 U.S.C. §1681(a)(3)(A).  Since Huertas sought and received credit from ACB and accumulated credit card debt, AMP was permitted to access Huertas’ credit report for the purposes of collecting on his delinquent accounts.  Such access is permitted under 15 U.S.C. §1681(a)(3)(A).

The court similarly dismissed Huertas’ claims against AMP and ACB based upon the NJCFA and Racketeering Influenced and Corrupt Organization (“RICO”).  The court held that Huertas failed to state a NJCFA claim because “the reach of the [NJCFA] is intended to encompass only consumer transactions involving the marketing and sale of merchandise or services.”  Id.  Huertas seeks to recover for ACB’s transfer of his debt to a third party and AMP’s attempts to collect on the account – actions not covered by the NJCFA.  The court similarly reasoned that Huertas failed to allege facts sufficient to state a claim under RICO as there was no evidence “that [Huertas] was deprived of the benefit of his bargain under that contract.”  Id.  In summary, the Court of Appeals affirmed the decision of the District Court that dismissed all of Huertas’ claims against AMP and ACB.


© 2011 Nissenbaum Law Group, LLC

May an employer be sued for denying an employee leave under the Family Medical Leave Act?

The United States Court of Appeals for the Third Circuit recently affirmed in part and reversed in part the decision of the United States District Court for the Middle District of Pennsylvania.  Erdman v. Nationwide Ins. Co., No. 07-3796, 582 F.3d 500 (3d Cir. 2009). The issue the Court of Appeals addressed was whether an employer may be sued for denying an employee leave under the Family Medical Leave Act.

Brenda Erdman worked full-time for Nationwide Insurance from 1980 until 1998 when she requested part-time employment so she could care for her daughter Amber, whom was born with Down’s Syndrome.  Nationwide granted Erdman’s request and also permitted her to switch to a four-day work week a few years later.  Prior to 2002, Nationwide permitted Erdman to work extra hours and count that time towards “comp time”, rather than be paid for it.  In early 2003, Erdman was informed by her new supervisor that she was no longer permitted to accrue “comp time” and that her part-time position would be eliminated.  Erdman was given the option to return to work full-time and she did so.  Prior to returning to a full-time position, Erdman asked whether Nationwide was going to honor her previously approved vacation request for the entire month of August, which Erdman normally used to prepare Amber to return to school in the fall.  Erdman was told that it was unlikely her vacation would be approved, so she decided to request the time as leave under the Family Medical Leave Act (“FMLA”).

Shortly after Erdman returned to full-time employment in April 2003, she submitted paperwork requesting FMLA leave from July 7th to August 29th.  Initially, Human Resources told Erdman there were no problems with her FMLA leave.  Unfortunately, Nationwide terminated Erdman thereafter, on May 9, 2003, citing behavioral problems that allegedly culminated in a telephone call in which Erdman used profanity.  Specifically, Erdman said, “this is a personal call and should not be reviewed for quality purposes, a–holes.”  Erdman sued Nationwide in the United States District Court for the Middle District of Pennsylvania claiming she was unlawfully terminated under the Americans with Disabilities Act (“ADA”) for requesting leave pursuant to the FMLA.

The District Court dismissed Erdman’s case at Nationwide’s request on the grounds that Erdman had not accumulated sufficient hours to qualify as an eligible employee under the FMLA and on the grounds that Nationwide did not terminate her based upon “unfounded stereotypes and assumptions against employees who associate with disabled people.”  Id. at 6.  Instead, the District Court held that Nationwide’s termination of Erdman was motivated by Erdman’s prior modifications to her work schedule.  Erdman appealed the District Court’s decision to the United States Court of Appeals for the Third Circuit.

The Court of Appeals initially determined that Erdman accumulated sufficient worked hours in the prior year to be eligible for FMLA leave.  Nationwide countered that Erdman could not recover under a retaliation theory since she never actually took FMLA leave.  The Court reasoned it would be absurd to permit an employer to escape liability for punishing an employee for taking FMLA leave simply because the employer fired the employee before the leave began.  Per the Court, the question was whether Nationwide’s actions amounted to interference with Erdman’s FMLA rights or retaliation for asserting them.

To succeed on an interference claim, Erdman had to show that she was 1) entitled to and 2) denied some benefit under the FMLA.

To establish a retaliation claim, Erdman had to show: 1) she was protected by the FMLA; 2) she suffered an adverse employment action; and 3) the adverse action was causally related to her exercise of FMLA rights.

The Court held that Erdman established all three factors of a retaliation claim.  It also held that Erdman did not have to actually begin FMLA leave to be protected by the law.  As a result, the Court held generally that terminating an employee for a valid FMLA request may constitute interference with the employee’s FMLA rights as well as retaliation against the employee.

In applying that reasoning to the facts, the Court determined that Erdman relied upon the ADA’s “association provision,” which prohibits “denying equal jobs or benefits to a qualified individual because of the known disability of an individual with whom the qualified individual is known to have a relationship or association.”  42 U.S.C. §12112(b)(4).  The Court reviewed the evidence to determine if it was sufficient to establish that Nationwide terminated Erdman because of Amber’s disability.  To establish that, Erdman was required to show that she would not have been terminated had she requested time off for a different reason.  In other words, Erdman had to show that Nationwide terminated her due to Amber’s disability and not due to Erdman’s stated intention to take leave.  The Court held that there was no evidence that Nationwide terminated Erdman because of Amber’s disability.  Therefore, the Court affirmed the District Court’s dismissal of Erdman’s ADA claim.

Download Erdman v. Nationwide Ins. Co., No. 07-3796, 582 F.3d 500 (3d Cir. 2009)


© 2011 Nissenbaum Law Group, LLC

May a court stop someone from starting a new job when they are accused of stealing trade secrets from their old job?

The United States Court of Appeals for the Third Circuit was recently asked to prevent an individual from starting a new job after he was accused of stealing trade secrets from his old job.  Bimbo Bakeries USA, Inc. v. Botticella, No. 10-1510, 613 F.3d 102 (3d Cir. 2010).

Chris Botticella was employed as Vice President of Operations for Bimbo Bakeries USA, Inc. (“Bimbo”) from 2001 to January 2010.  In early 2009, he signed a “Confidentiality, Non-Solicitation and Invention Assignment Agreement” (the “Agreement”) with Bimbo.  Bimbo claimed that he possessed a broad range of confidential information about Bimbo, its products and its business strategy; including the secret behind the “nooks and crannies” of Thomas’ English Muffins.  The Agreement restricted Botticella from competing directly with Bimbo, prevented him from disclosing confidential or proprietary information and required him to return to Bimbo every work-related document in his possession upon termination of his employment.  The Agreement did not include a restriction on where Botticella could work if he left Bimbo.

In October 2009, Botticella accepted a job with Hostess Brands, Inc. (“Hostess”).  He did not immediately tell Bimbo about this new position, so he continued receiving confidential and proprietary information from Bimbo.  Hostess made Botticella sign an “Acknowledgment and Representation Form” (“Form”) before he began working there.  The Form stated that Hostess was not interested in any confidential information, proprietary information or trade secrets that Botticella obtained from Bimbo.  The Form also prevented Botticella from disclosing any such information to Hostess.  Botticella gave Bimbo notice of his resignation on January 4, 2010 and he was officially terminated by Bimbo on January 13, 2010.

Bimbo sued Botticella after he began working for Hostess and requested a preliminary injunction to prevent him from working there.  The United States District Court for the Eastern District of Pennsylvania granted Bimbo’s request for a preliminary injunction.  That injunction prohibited Botticella from working for Hostess; from divulging to Hostess any of Bimbo’s confidential or proprietary information; and directed him to return any confidential or proprietary information in his possession to Bimbo.  Botticella appealed the District Court’s decision and all proceedings were stayed while the United States Court of Appeals for the Third Circuit heard the case.

The Third Circuit reviewed Pennsylvania law and determined that the District Court properly exercised its discretion in preventing Botticella from working for Hostess if it believed there was a threat he would expose Bimbo’s trade secrets.  The Third Circuit also determined that the District Court made the proper inquiry when deciding whether to grant the injunction, which is: “whether there is sufficient likelihood, or substantial threat of a defendant disclosing trade secrets.”  Id. at 26.

The Third Circuit held that Botticella’s position with Hostess was substantially similar to his position with Bimbo.  The record supported that conclusion since Botticella’s position with Hostess would involve broad oversight over bakery operations, just like his position with Bimbo.  The Third Circuit also agreed that the evidence supported the conclusion that Botticella intended to use Bimbo’s trade secrets while employed with Hostess.  This evidence included Botticella’s failure to immediately disclose his acceptance of a job from a direct competitor which permitted him to remain in a position to receive Bimbo’s confidential information.  The evidence also showed that Botticella received confidential information after accepting the Hostess job and that he copied Bimbo’s trade secret information from his work laptop onto external storage devices.  As a result, the Third Circuit concluded that Bimbo was likely to succeed against Botticella on its claim for misappropriation of trade secrets.

The Third Circuit similarly held that Bimbo would suffer irreparable harm without an injunction because disclosure of its trade secrets to Hostess would put it at a competitive disadvantage.  The Third Circuit also held that the potential harm to Botticella was outweighed by the potential harm to Bimbo and agreed that an injunction was warranted and the restraint necessary to prevent greater irreparable harm from befalling Hostess.

The Third Circuit agreed with the District Court’s conclusion that granting the injunction was consistent with the public interest.  The Third Circuit was “satisfied on the facts of this case that the public interest in preventing the misappropriation of Bimbo’s trade secrets outweighs the temporary restriction on Botticella’s choice of employment.”  Id. at 38.

In conclusion, the Third Circuit affirmed the preliminary injunction issued in favor of Bimbo which prevented Botticella from continuing to work with Hostess.  The case was remanded to the District Court with the injunction in place for a trial on whether Botticella actually misappropriated Bimbo’s trade secrets.

Download Bimbo Bakeries USA, Inc. v. Botticella, No. 10-1510, 613 F.3d 102 (3d Cir. 2010)


© 2011 Nissenbaum Law Group, LLC