Erceg v. LendingClub Corporation

Background

Luka Erceg alleges that he applied for financing for his children’s tutoring through Your Tuition Solutions, a loan broker owned and/or operated by Springstone Financial LLC, which the opinion describes as a LendingClub subsidiary. After a LendingClub representative left him a message, Erceg returned the call and later received a call from the representative. He alleges that the October 3, 2018 call was recorded without notice, and that he disclosed sensitive personal and financial information during the call.

Erceg asserts three causes of action: violations of California Penal Code sections 632 and 632.7, and Massachusetts General Laws chapter 272, section 99. He also seeks to represent a nationwide class of individuals whose calls with LendingClub were recorded without their knowledge and consent.

Motion to Stay

LendingClub sought to stay the action while the California Supreme Court reviewed a related California Court of Appeal decision concerning whether section 632.7 prohibits a participant in a call from recording it. LendingClub argued that the decision could affect both the section 632.7 claim and the section 632 claim.

Applying the factors governing a discretionary stay—including possible harm, hardship from proceeding, and whether a stay would simplify the case—the court agreed that the California Supreme Court’s decision could be dispositive or otherwise provide important guidance. The court found that the delay would not cause unfair prejudice and that LendingClub had taken steps to preserve relevant evidence.

The court therefore stayed Erceg’s California Penal Code section 632.7 and section 632 causes of action pending the California Supreme Court’s decision. LendingClub was directed to file a notice of recent authority within 48 hours after that ruling, attaching the decision without legal or factual argument.

Motion to Dismiss the Massachusetts Claim

LendingClub moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal for failure to state a legally sufficient claim, of Erceg’s Massachusetts claim. The court explained that Massachusetts General Laws chapter 272, section 99 imposes liability for intentionally intercepting, attempting to intercept, or procuring the interception of wire or oral communications, and states that it protects Massachusetts residents.

The opinion states that Erceg was a California resident and was in California when the alleged recording occurred. The court could not find authority applying the Massachusetts statute to a nonresident who was outside Massachusetts when the recording occurred.

The court applied California’s choice-of-law approach. It found no identified substantive difference between the California and Massachusetts recording laws because both generally require the consent of all parties to record a telephone call. The court also stated that, even if minor differences existed, California had the greater interest in applying its privacy laws to protect a California resident whose privacy was allegedly invaded in California.

Because Erceg could pursue claims under California’s privacy statutes, the court held that he had a sufficient remedy under California law. It granted LendingClub’s motion to dismiss the Massachusetts cause of action without leave to amend, meaning the court did not permit another amended pleading for that claim.

Motion to Strike Class Allegations

LendingClub separately moved under Rule 12(f) to strike the nationwide class allegations. A motion to strike asks the court to remove improper material from a pleading. The court noted that such motions are generally disfavored and that class allegations should be stricken before discovery only in the rare case where the allegations are clearly incapable of succeeding under any circumstances.

The court rejected LendingClub’s argument that the proposed class was overbroad at the pleading stage. It distinguished authorities addressing class certification, where individualized choice-of-law questions may matter, from the present motion to strike. The court concluded that discovery would be necessary if the case continued after the California Supreme Court’s ruling and that the proposed class was not overbroad based on the allegations in the amended complaint.

The court denied LendingClub’s motion to strike the nationwide class allegations.

Disposition

The court stayed the California Penal Code sections 632.7 and 632 causes of action, granted without leave to amend LendingClub’s motion to dismiss the Massachusetts General Laws chapter 272, section 99 cause of action, and denied LendingClub’s motion to strike the nationwide class allegations. Judge Haywood S. Gilliam, Jr. signed the order.