Saturday, September 14, 2019

FYI: Cal App Ct (2nd Dist) Upholds Denial of Class Cert Based on Survey and Statistical Sampling

The Court of Appeal for the Second District of California affirmed an order denying class certification in a wage and hour litigation, holding that plaintiffs' proposed anonymous, double-blind survey and statistical sampling failed to address individualized issues for liability and damages.

 

In so ruling, the Appellate Court held that the plaintiffs' trial plan was unmanageable and unfair because, among other things, the proposed survey deprived the defendants of the ability to cross-examine the witnesses and to assert defenses. 

 

A copy of the opinion is available at:  Link to Opinion

 

In this putative class action, property inspectors (Plaintiffs) alleged that they were engaged by three service providers to perform property inspections for two insurance companies. 

 

Plaintiffs alleged they were employees of the insurers and service companies (Defendants) jointly, and Defendants failed to pay minimum wages and overtime (Cal. Lab. Code § 1194), furnish timely or accurate wage statements (Cal. Lab. Code § 226(e)), establish a policy for meal or rest breaks, or reimburse them for employment expenses (Cal. Lab. Code § 2802), and in so doing violated California's Unfair Competition Law (Bus. & Prof. Code § 17200, et seq.).

 

The Plaintiffs moved for class certification, supported by their expert's declaration that liability could be determined and damages calculated classwide by using "established survey methods and statistical analyses"  of a random sample of class members.

 

The trial court denied certification on the ground that Plaintiffs failed to show their status as employees could be established on predominantly common proof.

 

Plaintiffs appealed and the Appellate Court reversed the order, remanding with instructions for the trial court to evaluate the Plaintiffs' trial plan. 

 

On remand, the Plaintiffs' expert elaborated on the trial plan, proposing an anonymous, double-blind survey of all class members.  Specifically, the plan provided that all potential class members would be invited to participate in the survey and a telephone survey firm would conduct interviews and ask questions concerning:

 

(1) the amount of overtime worked, (2) the numbers of meal and rest breaks to which inspectors were entitled to take under California law but did not take (assume the law applied to these individuals), (3) the amount of time inspectors spent performing specific tasks of relevance to the claimed minimum wage violations, (4) the number of miles that inspectors drove to do their work, [and] (5) the amount of money that inspectors spent for other business expenses incurred in connection with their work.

 

The respondents would receive a small financial incentive to participate in the survey, and would be told their answers and participation were confidential.

 

The respondents would asked to recall, among other things, the time they spent doing inspection, the number of days per week worked beginning in 2005, the number of hours worked, when they took breaks and the duration of each break, whether they incurred expense, and which of the three service companies and only one of the insurers they worked for and for how long.

 

The survey did not include questions about the second insurer for unknown reasons.  When asked why, Plaintiffs' expert answered "I wasn't asked to do that." 

 

Using the sampling data from the survey, Plaintiffs' expert would generate estimated totals for each subclass, apportioned separately for inspections done for each of the Defendants, and provide a margin of error and confidence levels.

 

In opposition to Plaintiffs' trial plan, Defendants' expert identified several flaws in the proposed survey. 

 

First, the survey asked no questions related to the employee/independent contractor distinction, and in fact avoided questions about the degree of independence inspectors enjoyed. 

 

Specifically, the survey did not ask questions about the Defendants' knowledge or control of any facet of an inspector's workday, e.g., how many hours the inspector worked, what breaks were or could have been taken, or what meets were attended or expense incurred.  Defendants argued that this deficit left the independent contractor question unanswered and potentially skewed the survey results by artificially narrowing variances.

 

The expert also argued that the very precise recall required by the survey questions about events stretching back 10 years invited significant error.  Further, if the data showed that the respondents' experiences varied widely, the average may not be representative of the actual experiences of many members of class, and the anonymous nature of the survey led to inaccurate and unverifiable results.

 

The trial court again denied certification, finding Plaintiffs' statistical sampling unworkable because it did not specify which insurer's inspections were performed, or explain whether the inspectors' failure to take meal or rest  breaks was due to preference or to the exigencies of the job.  Also, the survey's anonymity deprived the Defendants from cross-examining witnesses to verify responses or test them for accuracy or bias.

 

This appeal followed.

 

As you may recall, " in wage and hour cases where a party seeks class certification based on allegations that the employer consistently imposed a uniform policy or de facto practice on class members, the party must still demonstrate that the illegal effects of this conduct can be proven efficiently and manageably within a class setting."   Duran v. U.S. Bank National Assn. (Cal. 2014) 59 Cal. 4th 1, 28-29.  " Class certification is appropriate only if 'individual questions can be managed with an appropriate trial plan.'" Id., at 27.

 

The Plaintiffs argued that their expert's survey was "methodologically correct and scientifically valid, captured all pertinent variation in hours worked among inspector, eschewed irrelevant questions, and produced reliable and accurate results."

 

The Appellate Court explained that the problem with the survey was not the scientific measurement procedure, rather it failed as a trial plan because it did not fairly establish Defendants' liability on a classwide basis as to any claim.

 

With respect to overtime and meal and rest breaks, the Appellate Court noted that "simply having the status of an employee [did] not make the employer liable for a claim for overtime compensation or denial of breaks."   Instead, "[a]n individual employee establishe[d] liability by proving actual overtime hours worked without overtime pay, or by providing that he or she was denied rest or meal breaks."

 

The Appellate Court found that Plaintiffs' expert asked no questions about the second insurer, and thus, it was unclear how Plaintiffs could establish the liability of the second insurer without considering whether any inspector worked for this insurer more than eight hours in a day or 40 in a week (Lab. Code § 510).

 

The Appellate Court explained that Plaintiffs' plan also failed with respect to their minimum wage claim (Lab. Code § 1194), because the inspectors were paid a piece rate for each inspection performed and Plaintiffs offered no explanation how they could establish the number of inspections performed for the second insurer, how long they took, or what the second insurer paid for them.

 

Regarding the meal and rest period claims, the Appellate Court explained that the inspectors performed inspections for a number of insurance companies, including non-parties, often in the same day, but the survey failed to ask if anyone ever worked long enough in a day for either of the insurance companies in this case to be entitled to a meal or rest period from that insurer or any of its three co-employers.

 

Further, the Appellate Court noted that "plaintiffs made no effort to explain how they could establish through common proof what expenses, if any, inspectors incurred for any particular insurer, or how they were deprived of wage statements."

 

The Appellate Court determined that the anonymous survey deprived the Defendants of any meaningful examination of any witnesses, as Plaintiffs expert did not know who the survey respondents were and why any class member had chosen not to participate.

 

After the Appellate Court issued an opinion affirming the trial court's ruling, Plaintiffs petitioned for rehearing, arguing that Defendants' liability could be established independent of the survey by examining the various policies and contracts demonstrating all the Defendants were co-employers that had the right to control Plaintiffs' work.

 

Plaintiffs argued that liability may be established classwide by the failure of one employer to pay overtime or provide a rest break on even a single occasion.

 

This approach, in the Appellate Court's view, was similar to that rejected in Duran, where the plaintiffs alleged their employer had misclassified them as outside sales persons, rendering them exempt from overtime laws.  In Duran, the plaintiffs proposed to proceed classwide with an initial liability phase and a second phase to address the extent of damages, but the California Supreme Court held that whether a given employee is properly classified depends in large part on the employee's individual circumstance.  Duran, 15 Cal.4th at 36. 

 

The Appellate Court also observed that in Brinker, the California Supreme Court analyzed the elements of the off-the-clock claim before it, holding that "liability is contingent on proof [the employer] knew or should have known off-the-clock work was occurring."  Brinker, 53 Cal.4th at 1024. 

 

As the Appellate Court explained, "an employer's liability for failure to provide overtime or rest breaks will depend on the employees' individual circumstance.  Liability to one employee by one employer does not establish even that employer's liability to other employees, much less the liability of a joint employer to any employee."

 

The Court continued, explaining that "[e]ven if a class action trial could determine that an employer is liable to an entire class for a consistently applied policy or uniform job requirements and expectations contrary to Labor Code requirements, or if it knowingly encouraged a uniform de factor practice inconsistent with the requires, any procedure to determine the defendant's liability to the class must still permit the defendant to introduce its own evidence, both to challenge the plaintiffs showing and to reduce overall damages."

 

Plaintiffs proposed that once the subclasses were certified and liability established in the first phase, class members could submit claims by answering a questionnaire, and any dispute could be resolved in "streamlined trials" where Defendants could cross-examine claimants and present their own witnesses. 

 

The Appellate Court explained that this approach would render any prior liability phase either duplicative or superfluous, as Defendants would likely raise several objections, and consequently the second phase could easily occupy the trial court for several months.

 

Finding that Plaintiffs' survey afforded "no fair, manageable way" to establish liability on common proof, the Appellate Court affirmed the trial court's order denying class certification.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Tuesday, September 10, 2019

FYI: 7th Cir Holds LLC Act Did Not Shield Owner From Liability for Fraudulent Loan Closings

The U.S. Court of Appeals for the Seventh Circuit recently ruled in favor of a bank suing to recover for a fraudulent loan scheme, finding that the Illinois LLC Act did not shield the closing agent company's owner from liability in a fraud scheme because he was substantially involved in the fraud and the scheme would have failed without his individual participation.

 

A copy of the opinion is available at:  Link to Opinion

 

Straw buyers submitted fraudulent loan applications to a bank. The participants in the scheme used an attorney to represent the sellers at the closing.  The attorney owned the closing agent company, an Illinois LLC, which the participants used for the majority of the closings  (Title Company).  The closings took place at the attorney's office.

 

The bank gave closing instructions to the Title Company "to notify the bank immediately of any misrepresentations that would influence the bank's decision to make the loan" and to suspend the transaction when "the loan is owner occupied and the closing agent has knowledge that the borrower does not intend to occupy the property."

 

The attorney failed to comply with either requirement.  Instead, the attorney concealed the buyer's misrepresentations from the bank and instructed "closing agents to complete closings even when buyers were purchasing multiple properties."

 

The bank filed suit against the attorney in his individual capacity alleging multiple fraud claims.  In particular, the bank alleged the attorney knew that the buyers were straw buyers in a fraud scheme that made false representations to the bank in their loan applications. 

 

After conducting a bench trial, the trial court found that the attorney knew of the fraudulent scheme as the Title Company's owner and as the attorney for the sellers in the transactions.  The trial court also found that the attorney substantially assisted in the fraud scheme. 

 

Accordingly, the trial court entered judgment in favor of the bank and against the attorney.  This appeal followed.

 

The Seventh Circuit first noted that to prevail on an Illinois fraud claim, the plaintiff must prove: "(1) a false statement of material fact; (2) known or believed to be false by the person making it; (3) an intent to induce the other party to act; (4) action by the other party in reliance on the truth of the statement; and (5) damage to the other party resulting from such reliance."  In addition, an Illinois aiding and abetting claim requires that "(1) the party whom the defendant aids performed a wrongful act causing an injury, (2) the defendant is aware of his role when he provides the assistance, and (3) the defendant knowingly and substantially assisted the violation."

 

The Seventh Circuit examined the attorney's argument that the trial court erred because the Illinois Limited Liability Company Act shielded him from liability. Under the Illinois LLC Act "the debts, obligations, and liabilities of a limited liability company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the company. A member or manager is not personally liable for a debt, obligation, or liability of the company solely by reason of being or acting as a member or manager." 805 ILCS 180/1010(a).

 

The attorney individually participated in each closing as the seller's counsel and personally directed the Title Company's employees to conceal the fraud from the bank.  Thus, the Seventh Circuit held that section 10-10 of the Illinois LLC Act does not shield the attorney from liability for participating in the fraud scheme because the judgment was based on his individual conduct, not his membership in the LLC. 

 

The Seventh Circuit also rejected the attorney's argument that as the seller's attorney he cannot be personally liable for aiding and abetting the fraud because it is not possible for an agent and their principal to conspire under Illinois law.  The argument failed because the attorney waived it and because it is contrary to Illinois law.  In Illinois, there is no "per se bar that prevents imposing liability upon attorneys who knowingly and substantially assist their clients in causing another party╩╣s injury.  See, e.g., Thornwood, Inc. v. Jenner & Block, 799 N.E.2d 756, 768 (Ill. App. Ct. 2003). 

 

Here, the attorney reviewed fraudulent closing statements, held the closings at his law office, and attended the closings. He knew about and was substantially involved in the fraud scheme.  Thus, acting as the seller's attorney in the transactions did not protect the attorney from liability for participating in the fraud.

 

Therefore, the Seventh Circuit affirmed the trial court's order in favor of the bank and against the attorney.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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Sunday, September 8, 2019

FYI: 3rd Cir Holds QR Code on Envelope Violates FDCPA

The U.S. Court of Appeals for the Third Circuit recently held that a debt collector violated the federal Fair Debt Collection Practices Act ("FDCPA") when the envelope it sent to a debtor displayed an unencrypted code that revealed the debtor's account number when scanned.

 

A copy of the opinion is available at:  Link to Opinion

 

A consumer defaulted on her credit card and the bank that issued it assigned the account to a debt collection agency. The debt collector sent the consumer "a collection letter as a pressure-sealed envelope that had a QR [or quick response] code printed on its face. QR codes … can be scanned by a reader downloadable as an application (better known as an 'app') on a smartphone."

 

Upon being scanned, the QR code reader revealed a sequence of letters, symbols and numbers, part of which was the internal reference number associated with the consumer's account at the debt collection agency."

 

The consumer filed a putative class action lawsuit against the debt collection agency, alleging that it violated subsection 1692f(8) of the FDCPA, which prohibits debt collectors from "[u]sing any language or symbol other than the debt collector's address, on any envelope when communicating with a consumer by use of the mails."

 

Both sides moved for summary judgment. The trial court granted plaintiff's motion as to liability based on the Third Circuit's ruling five years ago in Douglass, which "held that a debt collector violates § 1692f(8) by placing on an envelope the consumer's account number with the debt collector." The trial court reasoned that "there was no meaningful difference between displaying the account number itself and displaying a QR code — scannable 'by any teenager with a smartphone app'— with the number embedded."

 

The trial court also rejected both the debt collector's argument that the plaintiff "had not 'suffered a concrete injury,' explaining that [plaintiff] was injured by "'the disclosure of confidential information[,]'" and the "argument that it was protected by the FDCPA's 'bona fide error defense.'"

 

The trial court entered judgment for the plaintiff and the certified class.  The debt collector appealed.

 

On appeal, the Third Circuit first addressed whether plaintiff had standing to sue, the first step in determining whether it had subject matter jurisdiction over the case. The Court explained that in order to satisfy the "case or controversy" required for a federal court to hear a case under Article III of the Constitution, the plaintiff must "have standing to sue. … Standing has three elements: '[t]he plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.' … An 'injury in fact' is one that is 'concrete and particularized.' … To be concrete, the injury 'must actually exist.' … It must be 'real,' not 'abstract.'"

 

After reviewing the Supreme Court's ruling in Spokeo to determine whether the plaintiff's intangible injury was sufficiently concrete, the Court concluded that plaintiff "suffered a concrete injury when her debt collector sent her a letter in an envelope displaying a QR code that, when scanned, revealed her account number with the debt collection agency."

 

The Court reasoned that it had already applied the principles set forth in Spokeo in its 2018 decision in St. Pierre v. Retrieval-Masters Creditors Bureau, which "held that a debtor suffered a concrete injury when a debt collector … sent him a collection letter in an envelope displaying his account number with the debt collector."

 

The third Circuit went on to explain that "[i]n Douglass, we had held that displaying a consumer's account number on an envelope was no 'benign,' explaining that such conduct 'implicates a core concern animating the FDCPA—the invasion of privacy.' … Thus, in St. Pierre, we concluded that the harm inflicted by exposing the debtor's account number was 'a legally cognizable injury.' … We explained that, because the harm involves the invasion of privacy, it 'is closely related to harm that has traditionally been regarded as providing a basis for a lawsuit in English and American courts.' … And therefore, per Spokeo, the plaintiff in St. Pierre had standing."

 

Here, the Court concluded that even though it did not expressly address the QR-code issue in Douglass and St. Pierre, "the reasoning of those two cases inevitably dictates that [the plaintiff] has suffered a concrete injury. … Whether disclosed directly on the envelope or less directly through a QR code, the protected information has been made accessible to the public…."

 

Because according to the Court the disclosure was itself a concrete harm, the plaintiff did not have to show "that someone had actually intercepted her mail, scanned the barcode, read the unlabeled string of numbers and determined the contents related to debt collection—or it was imminent someone might do so."

 

Having held that plaintiff had standing to sue, the Court considered whether the trial court correctly held that "she had a successful claim under the FDCPA."

 

First, it analyzed the text of § 1692f(8), finding "[t]here is no dispute that that provision plainly prohibits the QR code."

 

Next, the Court rejected the debt collector's argument "to read a benign language exception into § 1692f(8)" because a literal reading "would seemingly prohibit including 'a debtor's address and an envelope's pre-printed postage,' as well as 'any innocuous mark related to the post, such as 'overnight mail' and 'forwarding and address correction requested.'"

 

The Third Circuit reasoned that the disclosure of the account number itself was an invasion of privacy. "As explained above with respect to standing, the harm here is still the same — the unauthorized disclosure of confidential information. And if such disclosure was not benign, disclosure via an easily readable QR code is not either. Protected information has still been compromised."

 

Thus, the Court affirmed the trial court's holding that the debt collector violated the FDCPA by sending "an envelope displaying an unencrypted QR code that, when scanned, reveals the debtor's account number."

 

The Third Circuit also rejected the debt collector's bona fide error defense because "the bona fide error defense in § 1692k(c) does not apply to a violation of the FDCPA resulting from a debt collector's incorrect interpretation of the requirements of that statute.' … Put differently, 'FDCPA violations forgivable under § 1692k(c) must result from 'clerical or factual mistakes,' not mistakes of law.'" The debt collector did not make a mistake of fact, but instead "just misunderstood its obligations under the FDCPA." By arguing "that it 'mistakenly believed that its conduct could not conceivably violate the FDCPA[,]" the debt collector essentially admitted that it made a mistake of law, not one of fact.

 

Accordingly, the trial court's judgment was affirmed.   

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Thursday, September 5, 2019

FYI: 11th Cir Holds Single Alleged TCPA Violation Not Enough for Standing, Disagrees with 9th Cir

The U.S. Court of Appeals for the Eleventh Circuit recently held that the receipt of one unwanted text message in alleged violation of the federal Telephone Consumer Protection Act was not enough to allege a concrete harm that meets the injury-in-fact requirement of Article III.

 

In so ruling, the Eleventh Circuit noted that it was not persuaded by the Ninth Circuit's opinion in Van Patten v. Vertical Fitness Group, LLC, 847 F.3d 1037 (9th Cir. 2017), which held that the receipt of two unsolicited text messages constituted an injury in fact. 

 

Accordingly, the Eleventh Circuit reversed the ruling of the trial court that the plaintiff had standing to sue, and remanded with instructions to dismiss without prejudice.   

 

A copy of the opinion is available at:  Link to Opinion

 

The plaintiff ("Plaintiff"), a former client of an attorney ("Defendant"), received a multimedia text message from Defendant offering a ten percent discount on his services.

 

The Plaintiff filed suit in the trial court as a representative of a putative class of former clients of Defendant who received unsolicited text messages in the past four years, alleging class-wide violations of the TCPA.

 

Defendant moved to dismiss the complaint based on lack of standing, as well as for failure to state a claim against him.

 

The trial court disagreed, and denied the motion to dismiss.  However, the trial court allowed Defendant to pursue an interlocutory appeal, and stayed its proceeding pending appeal.

 

On appeal, the Eleventh Circuit first discussed the TCPA.  As you may recall, the TCPA prohibits using automatic telephone dialing systems to call residential or cellular telephone lines without the consent of the called party, and prohibits sending unsolicited advertisements via facsimile machine.  The TCPA also authorizes the Federal Communications Commission ("FCC") to enact implementing regulations. 

 

Under this rulemaking authority, the FCC has applied the statute's regulations of voice calls to text messages.

 

After explaining that the Plaintiff's complaint facially stated a cause of action under the TCPA, the Eleventh Circuit next turned to whether Plaintiff had Article III standing. 

 

As you may recall, to establish Article III standing, a plaintiff must have: (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.

 

Moreover, the injury in fact must be concrete.  When the concreteness of an injury is difficult to recognize, courts look to "history and the judgment of Congress" for guidance.

 

However, "an act of Congress that creates a statutory right and a private right of action to sue does not automatically create standing."  Instead, "Article III standing requires a concrete injury even in the context of a statutory violation."

 

Here, Plaintiff alleged that receiving one text message "caused Plaintiff to waste his time answering or otherwise addressing the message," and "[w]hile doing so, both Plaintiff and his cellular phone were unavailable for otherwise legitimate purposes."  Plaintiff alleged that the message also "resulted in an invasion of Plaintiff's privacy and right to enjoy the full utility of his cellular device."

 

Initially, the Court observed that the Ninth Circuit ruling in Van Patten involved a nearly identical issue, and that Ninth Circuit held that the receipt of two unsolicited text messages constituted an injury in fact. 

 

However, the Eleventh Circuit found that decision unpersuasive, and noted that in the absence of any controlling authority, it would turn its "analysis to the framework outlined by the Supreme Court in Spokeo," which required it to "look to history and the judgment of Congress to see whether they support treating [Plaintiff's] allegations as a concrete injury in fact." 

 

With respect to the judgment of Congress, the Eleventh Circuit noted that Congress has said nothing about the harms from telemarketing via text message, although "Congress was concerned about 'intrusive invasion[s] of privacy' into the home when it enacted the TCPA." 

 

Still, the Eleventh Circuit disagreed with the Ninth Circuit's conclusion in Van Patten that "Congress identified unsolicited contact as a concrete harm," choosing instead to "focus[] our analysis on text messaging specifically."

 

The Eleventh Circuit next turned to history for guidance.  Specifically, with respect to Plaintiff's allegations of invasion of privacy, the Court "look[ed] to the generally accepted tort of intrusion upon seclusion, which creates liability for invasions of privacy that would be 'highly offensive to a reasonable person.'"

 

In comparing Plaintiff's alleged harm to the tort of intrusion upon seclusion, the Eleventh Circuit determined that "[s]imply sending one text message to a private cell phone is not closely related to the severe kinds of actively intermeddling intrusions that the traditional tort contemplates." 

 

With respect to Plaintiff's allegations of nuisance, the Eleventh Circuit compared them to traditional torts of trespass and nuisance, but found "them also to be distinct both in kind and in degree." 

 

As to trespass, Plaintiff "alleged no invasion of any interest in real property here."  

 

As to nuisance, under Florida law "mere disturbance and annoyance as such do not in themselves necessarily give rise to an invasion of a legal right," and Plaintiff's text message is therefore "not closely related to these traditional harms because it is not alleged to have infringed upon [Plaintiff's] real property, either directly or indirectly."

 

Plaintiff also asked the Court to consider the personal property torts of conversion and trespass to chattel.  However, the Eleventh Circuit was unconvinced, explaining that "although [Plaintiff's] allegations here bear a passing resemblance to this kind of historical harm, they differ so significantly in degree as to undermine his position."

 

Thus, the Eleventh Circuit concluded that "history and the judgment of Congress do not support finding concrete injury in [Plaintiff's] allegations."  Accordingly, the Court held that Plaintiff's "allegations do not state a concrete harm that meets the injury-in-fact requirement of Article III." 

  

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


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Financial Services Law Updates

 

and

 

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and

 

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Monday, September 2, 2019

FYI: 7th Cir Holds No FDCPA Claim Where Consumer Failed to Prove Credit Card Transactions Were for "Consumer" Purposes

The U.S. Court of Appeals for the Seventh Circuit recently affirmed judgment in favor of two debt collectors and against a debtor for his claims arising under the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. ("FDCPA") and the Wisconsin Consumer Act, Wis. Stat. §§ 421-427 ("WCA").

 

In so ruling, the Court held that the debtor did not create a triable issue of material fact to overcome summary judgment because he failed to present sufficient evidence that the transactions comprising the credit card debt on the underlying account were for "personal, family, or household purposes", and therefore that the debt was a "consumer debt" subject to the FDCPA and WCA.

 

A copy of the opinion is available at:  Link to Opinion

 

A law firm ("Law Firm") filed suit against a debtor ("Debtor") in Wisconsin state court (the "State Court Action") to collect amounts due to its client debt collector ("Debt Collector").  Debtor denied knowledge of, or association with the issuer of the credit card at issue ("Creditor"), and filed suit against the Law Firm alleging violations of the FDCPA and WCA for filing the State Court Action without first providing Debtor notice of his right to cure the default.

 

After the State Court Action was dismissed on the basis of Debtor's denial that he incurred the underlying debt, Debtor amended his federal complaint against the Law Firm to add the Debt Collector as an additional defendant. 

 

In ruling upon the parties' cross motions for summary judgment, the trial court entered judgment in favor of the Law Firm and Debt Collector, holding that Debtor failed to failed to establish that the debt at issue was a "consumer debt," incurred was for personal, family or household purposes, and therefore, was not subject to the FDCPA or WCA.  The instant appeal followed.

 

On appeal, the Seventh Circuit first examined the plain language of the FDCPA and WCA and its purpose to protect personal borrowers from abusive debt collection practices. 

 

As you may recall, the FDCPA defines a "debt" as "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes." 15 U.S.C. § 1692a(5). Similarly, the WCA protects transactions involving a "customer," Wis. Stat. § 421.301(13), and defines a "customer" as "a person … who seeks or acquires real or personal property, services, money or credit for personal, family or household purposes," id. § 421.301(17).

 

Although the Debtor maintained that the underlying debt was not his, the Seventh Circuit noted that he nonetheless may claim FDCPA protection by showing that the debt collector treated him as a "consumer" allegedly owing a consumer debt. Loja v. Main St. Acquisition Corp., 906 F.3d 680, 684 (7th Cir. 2018) (holding "that the definition of 'consumer' under the FDCPA includes consumers who have been alleged by debt collectors to owe debts that the consumers themselves contend they do not owe").

 

However, the Court held, a plaintiff proceeding under this theory still must offer evidence to establish that the debt was a "consumer debt." 

 

Thus, the issue to be decided on appeal was whether the Debtor submitted sufficient evidence to create a triable issue of fact that the underlying credit card debt was incurred for personal, family, or household purposes.

 

The debtor argued that five pieces of evidence established that the debt incurred on the credit card account was consumer debt: (1) his statements that to the extent he was liable for the debt, it was a consumer debt; (2) the defendants' treatment of the debt as a consumer debt by including FDCPA disclaimers on the collection letters, suing Debtor in his personal capacity, and sending communications to his personal address; (3) the Law Firm and Debt Collector's description of their consumer debt collection services on their websites; (4) an employee of the Creditor's email description of the underlying account as a "consumer account"; and (5) the billing statements listing purchases made on the credit card for personal, family, or household purposes.  The appellate court examined each of the Debtor's arguments in order.

 

First, as to Debtor's own contention that his own statements suffice to prove that the debt was a consumer debt, the Seventh Circuit noted that the Debtor's representations in this case directly conflicted with those in the State Court Action. 

 

Specifically, his Complaint in the federal action alleged that "[t]o the extent that [Debtor] entered into a credit agreement with [Creditor], such agreement was entered into for personal, family or household purposes," yet in the State Court Action, he maintained that he never applied for, had knowledge of, or made purchases or payments towards the account.  Without any affidavit or sworn testimony to support his claims, the Debtor's allegations alone failed to establish that the debt at issue was a "consumer debt," and the Seventh Circuit rejected Debtor's self-serving statements.

 

Next, the Court reviewed Debtor's argument that the Law Firm and Debt Collector's treatment of the debt—including use of FDCPA disclaimers in collection letters—established that the debt was a consumer debt.  The Seventh Circuit also rejected this argument, noting that courts "have held repeatedly that merely including FDCPA disclaimers on debt collection letters is insufficient evidence that the debt was a consumer debt because debt collectors may be exercising caution and including disclaimers on all communications with debtors simply to avoid any FDCPA liability." See, e.g., Gburek v. Litton Loan Serv. LP, 614 F.3d 380, 386 n.3 (7th Cir. 2010) (noting that evidence that letter included disclaimer identifying it as attempt to collect a debt "does not automatically trigger the protections of the FDCPA"). 

 

The Seventh Circuit was also unpersuaded by the Debtor's arguments that filing of the State Court Action and mailing of communications to the Debtor's home address established the debt as a consumer debt, because an individual can be sued in a personal capacity for a business debt, and can carry on business activities from his residence. 

 

Without lengthy analysis, the Seventh Circuit also rejected Debtor's argument that the debt was a consumer debt because the Law Firm and Debt Collector advertised services collecting consumer debt on their websites, concluding that such general descriptions of their services have no bearing on the debt they attempted to collect from Debtor in this case.

 

The Court next analyzed the Debtor's argument that the district court improperly excluded an email from the Creditor which identified the Debtor's account in default as "a consumer account."  The email, sent by an employee of the Creditor in response to an inquiry from the Debtor's counsel, was characterized by the trial court as "a statement made by someone other than the declarant to prove the truth of the matter asserted (that the debt was consumer debt)," and excluded as inadmissible hearsay. 

 

On appeal, the Debtor contended that the email was not inadmissible hearsay, but instead, an admissible statement of an opposing party under Fed. R. Evid. 801(d)(2)(C).  However, because the email was offered to provide the truth of the matter asserted — i.e. establish that the Creditor itself stated the account was a consumer account — the Seventh Circuit concluded that the email was correctly characterized as hearsay.  Fed. R. Evid. 801(c), 802.  Moreover, the Court found that the exception under Rule 801(d)(2)(C) did not apply, because the email came from an employee of the Creditor — who was not a party to the lawsuit — and cannot be attributed to the opposing parties here, the Law Firm and Debt Collector. 

 

Alternatively, the Debtor argued that the email was admissible under the residual exception to the hearsay rule, Rule 807.  Rule 807(a) provides that a statement not otherwise subject to a hearsay exception "is not excluded by the rule against hearsay" if: (1) the statement has equivalent circumstantial guarantees of trustworthiness; (2) it is offered as evidence of a material fact; (3) it is more probative on the point for which it is offered than any other evidence that the proponent can obtain through reasonable efforts; and (4) admitting it will best serve the purposes of these rules and the interests of justice. Fed. R. Evid. 807(a).

 

The Seventh Circuit concluded that the email did not satisfy any of these conditions because: (1) the statement was not made under oath or subject to cross-examination; (2) Debtor sought to introduce the email to show that Creditor stated the account was a consumer account, but such distinction did not provide a factual dispute of whether the debt was a consumer debt; (3) Debtor could have obtained sworn deposition or in-court testimony of the Creditor's employee or any other representative through reasonable efforts, and; (4) Debtor failed to establish that admitting the email will "serve the purposes of these rules and the interests of justice."  Accordingly, the appellate court agreed with the district court's determination that the Creditor's email was properly excluded as inadmissible hearsay.

 

Lastly, the Seventh Circuit considered the Debtor's argument that the billing statements on the account demonstrate that the debt in question was a consumer debt. 

 

While the statements showed that most charges to the account were purchases of low dollar amounts primarily at gas stations and convenience stores, they also shed no light on why these charges were incurred. 

 

Because the Debtor was unable to explain whether these transactions were for a consumer as opposed to a business purpose, the billing statements failed to provide adequate information for a trier of fact to conclude that his purchases were made for personal, family, or household purposes. Cf. Matin v. Fulton, Friedman & Gullace LLP, 826 F. Supp. 2d 808, 812 (E.D. Pa. 2011) (finding the court "lack[ed] sufficient information to determine whether the purchases were made for primarily personal, family, or household purposes" based on account statement where plaintiff was "unable to recall what purchases she made on her credit card and the purpose for those purchases").

 

For the foregoing reasons, the Seventh Circuit concluded that the trial court properly determined that the Debtor failed to submit sufficient evidence to create a triable issue of material fact that the underlying debt at issue was a "consumer debt" for the purpose of the FDCPA and WCA.  Accordingly, judgment in favor of the Law Firm and Debt Collector and against the Debtor was affirmed.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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