January 3, 2012

John Stone, Senior Attorney, National Legal Research Group

By federal statute, anyone seeking to board a commercial airline flight must be screened by the Transportation Security Administration ("TSA") in order to ensure that he or she is not "carrying unlawfully a dangerous weapon, explosive, or other destructive substance." 49 U.S.C. §§ 44901(a), 44902(a)(1). The details of the screening process have largely been left to the discretion of the agency.

In response to a 2004 congressional directive, but also to address the inadequacies of the older magnetometers through which passengers were required to pass, the TSA began contracting with private vendors to develop advanced imaging technology ("AIT") for use at airports. One of the AIT scanners subsequently procured by the TSA uses millimeter wave technology, which relies upon radio frequency energy, and the other uses backscatter technology, which employs low‑intensity X‑ray beams. Each technology produces a crude image of an unclothed person, who must stand in the scanner for several seconds while it generates the image. That image enables the operator of the machine to detect a nonmetallic object, such as a liquid or powder—which a magnetometer cannot detect—without touching the passengers coming through the checkpoint.

February 7, 2012

Steve Friedman, Senior Attorney, National Legal Research Group

The Truth in Lending Act ("TILA"), 15 U.S.C. §§ 1692–1692p, is a federal consumer protection statute intended "to promote consumers' 'informed use of credit' by requiring 'meaningful disclosure of credit terms[.]'"  Chase Bank USA v. McCoy, 131 S. Ct. 871, 874 (2011) (quoting 15 U.S.C. § 1601(a)).  Pursuant to its authority under TILA, the Board of Governors of the Federal Reserve System has promulgated Regulation Z, codified as 12 C.F.R. part 226, "which requires credit card issuers to disclose certain information to consumers."  Id.  Among other things, TILA and its implementing Regulation Z give the consumer-borrower a remorse period in which to rescind a transaction.

Significantly, when the TILA notice is provided in writing, as opposed to electronically, Regulation Z requires that lenders "deliver two copies of the notice" and that such notice include "[t]he date the rescission period expires."  12 C.F.R. § 226.23(b)(1).  Ordinarily, the rescission period is three business days, see 15 U.S.C. § 1635(a), but that period is extended to three years if the requisite notice of the right to cancel is not delivered to the borrower, see 12 C.F.R. § 226.23(a); see also 15 U.S.C. § 1635(f).  This distinction proved critical in a recent case from the U.S. Court of Appeals for the Ninth Circuit.

In Balderas v. Countrywide Bank, No. 10-55064, 2011 WL 6824977 (9th Cir. filed Dec. 29, 2011), a Spanish-speaking couple alleged that they had been pressured by a bank and its representatives to enter into a mortgage loan that the bank knew they could not afford and on terms they did not agree to.  Among other theories, the plaintiffs sought to rescind the entire transaction, alleging that they had been given defective copies of TILA's notice of right to cancel in that the notice did not include the date on which their right to rescind expired.  However, the district court granted the bank's Rule 12(b)(6) motion to dismiss, because the court determined that the plaintiffs had been entitled under TILA to only a three-day rescission period, which had elapsed prior to the filing of their lawsuit.  The court's decision was based upon a copy of a nondefective notice-of-right-to-cancel letter bearing the plaintiffs' signatures, attached as Exhibit 14 to the complaint, that included an acknowledgment that the plaintiffs had received two copies of said notice.  Upon the plaintiffs' appeal, the Ninth Circuit reversed and remanded.

Initially, the appellate court recognized that the plaintiffs' signatures on the disclosure statement did not conclusively prove that it had been delivered to them as required by TILA. "[P]roviding someone a document long enough to sign it does not comply with 12 C.F.R. § 226.23(b)(1), which requires the lender to 'deliver' copies of the Notice of the Right to Rescind to the consumer." Id. at *3.  By using the word "deliver," Regulation Z undoubtedly commands that the consumer be allowed to keep the notice.  See also 12 C.F.R. § 226.17(a)(1) (the requisite written disclosures must be provided "in a form that the consumer may keep").  The court drove this point home by relating a couple of common-sense analogies:  "When you have pizza delivered, you don't sign for it and let the deliveryman take it back to the restaurant.  And when a newspaper boy delivers a paper, he doesn't show you the headlines and then return it to the printer."  2011 WL 6824977, at *3.

The Lawletter Vol 36 No 6

Brad Pettit, Senior Attorney, National Legal Research Group

A recent advisory issued by the Chief Counsel's Office of the Internal Revenue Service ("IRS") sets forth the IRS's position on the procedures that its agents must follow in order to obtain a taxpayer's e-mails from his or her Internet service provider ("ISP").  In I.R.S. Chief Counsel Advisory ("I.R.S. C.C.A.") 2011-41-017 (July 8, 2011), the IRS interpreted provisions of the Internal Revenue Code relating to examination of a taxpayer's records, the Stored Communications Act ("SCA"), and a decision by the U.S. Court of Appeals for the Sixth Circuit, and concluded that there are certain restrictions on the ability of an IRS agent to issue a summons to a taxpayer's ISP, seeking the contents of a taxpayer's electronic communications.

The Internal Revenue Code provides that

For the purpose of ascertaining the correctness of any return, making a return where none has been made, [or] determining the liability of  any person for  any internal revenue  tax . . . , the Secretary [of the Treasury] is authorized—

(1)        To examine any books, papers, records, or other data which may be relevant or material to such inquiry;

(2)        To summon the person liable for tax or required to perform the act, or any officer or employee of such person, or any person having possession, custody, or care of books of account containing entries relating to the business of the person liable for tax or required to perform the act, or any other person the Secretary may deem proper, to appear before the Secretary at a time and place named in the summons and to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry[.]

 I.R.C. § 7602(a)(1)–(2).  The federal SCA states that

[a] governmental entity may require the disclosure by a provider of electronic communication service of the contents of a wire or electronic communication, that is in electronic storage in an electronic communications system for one hundred and eighty [180] days or less, only pursuant to a warrant issued using the procedures described in the Federal Rules of Criminal Procedure (or, in the case of a State court, issued using State warrant procedures) by a court of competent jurisdiction.

The Lawletter Vol 36 No 6

John Stone, Senior Attorney, National Legal Research Group

The California Invasion of Privacy Act ("Act"), Cal. Penal Code § 632, prohibits unconsented-to recording or monitoring, regardless of the content of the conversation or the purpose of the monitoring.  The law is intended to protect rights that are separate and distinct from the right to prevent the disclosure of improperly obtained private information, and it requires the assent of all parties to a communication before another person may listen.  An actionable violation of the Act occurs the moment a surreptitious recording or eavesdropping takes place, regardless of whether it is later disclosed.

In Kight v. CashCall, Inc., 200 Cal. App. 4th 1377, 2011 WL 5829678 (Nov. 21, 2011), the court reversed a summary judgment for the defendant company, finding that a lending corporation was potentially liable for violating the Act's prohibition against eavesdropping on telephone calls, without the consent of all parties, if it had directed one or more of its employees to secretly listen to a telephone conversation between a borrower and another employee.  The legislature enacted the Act prohibiting the recording of confidential communications to ensure an individual's right to control the firsthand dissemination of a "confidential communication," and the legislature further expressed its intent to strongly protect an individual's privacy rights in electronic communications.

During the relevant period for the class action, CashCall randomly monitored 547 calls to and from the servicing department:  225 inbound calls and 322 outbound calls.  The calls were monitored for quality control purposes to ensure that CashCall employees were following CashCall's policies and procedures and applicable laws governing debt collections. Supervisors monitored calls either electronically by using software or by physically sitting next to the representative and "plugging" in to the call.  For purposes of the summary adjudication motion, it was assumed that the calls were not recorded; the supervisor would listen to the call while the conversation was occurring.

While in many cases of incoming calls the customer heard the familiar recording that "[t]his call may be monitored or recorded for quality control purposes," it was not always the case, and it was never the case on outgoing calls.  At the beginning of the borrower relationship, CashCall generally provided written notice to all borrowers that information disclosed to CashCall would be disseminated to "those employees who need to know that information to provide products or services to you."

A "person" is defined in the Act broadly to include business entities like the defendant in Kight.  Based on the facts before it, the appellate court ruled that the lender corporation had potentially violated the Act's prohibition against eavesdropping on telephone calls if the borrowers had had a reasonable expectation that their telephone conversations with its employees were not being secretly overheard by other employees, even if the borrowers knew that the information in their calls would eventually be disseminated to other employees.

The Lawletter Vol 36 No 6                                   

Alistair Edwards, Senior Attorney, National Legal Research Group

For obvious reasons, one's decision to purchase or not to purchase a home may be impacted by the knowledge that there was a previous murder or suicide (or a combination of both) at the home.  Does the seller have a duty to disclose this sort of information to a potential purchaser?  Does the failure to disclose this information before the sale is accomplished amount to an actionable fraud or a negligent misrepresentation on the part of the seller?

Recently, in Milliken v. Jacono, 2011 PA Super 254, 2011 WL 5936768, a Pennsylvania court suggested that a home seller may be required to disclose to a potential purchaser that the house had been the site of a murder-suicide involving the home's prior owners.  First, the court considered whether there was a duty to disclose this information under Pennsylvania's Real Estate Seller Disclosure Law ("RESDL"), 68 Pa. Cons. Stat. §§ 7301–7315.  The RESDL requires that a seller of residential real estate disclose to a buyer any material defect with the property.  See 68 Pa. Cons. Stat. § 7303.  The court indicated that the murder-suicide history would constitute a material defect under the RESDL if it were to have a significant adverse impact on the value of the property.  The court went on to hold that there was a genuine issue of material fact on the issue of a material defect under the RESDL, thereby precluding the defendant seller's and real estate agents' motion for summary judgment on the purchaser's claim for a RESDL violation.

Likewise, the court also held that there were genuine issues of material fact as to the purchaser's claims for fraud and negligent misrepresentation (as well as the Unfair Trade Practices and Consumer Protection Law claim).  As with the RESDL claim, the court held that there were factual disputes concerning whether the murder‑suicide incident was a material defect.  With respect to the fraud claim, the court commented:

Whether a fact is material in the context of a fraud claim hinges on whether the transaction would have been consummated if the other party knew of the fact. See Skurnowicz v. Lucci, 798 A.2d 788, 793 (Pa.Super.2002).  Here, Buyer has alleged that had she known of the murder suicide, she would not have purchased the property.  R. at 268a.  Based on the foregoing, we conclude that whether Sellers and Agents failed to disclose a material fact was a question for the jury.  See Alloway v. Martin, 434 Pa.Super. 518, 644 A.2d 201, 204 (Pa.Super.1994) (stating that "fraud is a question of fact for the trier‑of‑fact to decide").  Accordingly, we conclude that the trial court erred in granting Sellers and Agents summary judgment on Buyer's fraud claim.

2011 WL 5936768, at *6.