Wednesday, March 15, 2017

FYI: 8th Cir Confirms Doc Prep Fees Violate Missouri UPL Statute, Upholds Application to Out-of-State Class Members Due to Choice of Law Provision

In a "doc prep fee UPL" class action, the U.S. Court of Appeals for the Eighth Circuit recently affirmed a trial court's rulings as to class certification and application of a choice-of-law provision on a class-wide basis.


In so ruling, the Court also reversed and remanded the lower court's determination that the attorney's fees for the class counsel should be paid solely from the common fund in light of the fee shifting provision in the contract.


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


The named class plaintiffs purchased a boat from the defendant, a nationwide retailer of sporting goods, equipment, and vehicles.  The retailer included as part of the transaction its standard form sales agreement, and a document fee for the preparation of that agreement. 


Plaintiffs filed their putative class action lawsuit in Missouri state court alleging that the retailer violated Missouri statutes prohibiting the unauthorized practice of law by charging the document fee for preparing the sales agreement. See Mo. Rev. Stat. 484.010 and 484.020. 


Following class certification by the state court, the matter was removed to the federal trial court by the retailer, where the retailer unsuccessfully moved to decertify the class. The federal trial court required plaintiffs' counsel to analyze the defendant's customer files to determine how many transactions included the standard choice of law provision which designated Missouri as the applicable forum, and thus, the nationwide class was limited to only those agreements.  Following this review, the class was determined to consist of approximately 100,000 members.  


Subsequently, the trial court entered summary judgment in the plaintiffs' favor, ruling that charging a document fee for the completion of the standard sales agreement constituted unauthorized law business in violation of Missouri Statute 484.020. 


The trial court awarded the class damages based upon the total fee amount charged by the retailer in each transaction, and trebled this amount as provided under the applicable Missouri statute.  Although the agreements at issue also contained a fee shifting provision, the trial court further determined that the class counsel should be paid from only the actual damages portion of the common fund - not including the trebled damages award - based upon Section 4 of the Clayton Act.


The trial appealed the judgment and fee award.  Specifically, the retailer argued that 1) class certification was incorrect because each contract was too individualized; 2) the district court incorrectly interpreted the Missouri statute for unauthorized practice of law; and 3) it was incorrect to apply the Missouri statute for transactions which arose outside of Missouri.


The plaintiffs filed a cross-appeal in which they argued the trial court erred in determining the amounts of the attorney fees award by not including the trebled damages award, and in not enforcing the fee shifting provision contained in the sales agreement.


First, the Eighth Circuit addressed the retailer's challenge to class certification.  The Eighth Circuit noted that the challenge encompassed the lower court's determination pursuant to Fed. R. Civ. P. 23(a)(2) and (b)(3) as to the commonality and predominance of class claims, as well as the implicit requirement for ascertainability. 


The Court recited that a class is ascertainable when its members may be identified by reference to objective criteria. Citing Sandusky Wellness Ctr. v. Medtox Sci., Inc., 821 F.3d 992, 996 (8th Cir. 2016).  In this matter, the Court found that the class was clearly ascertainable as it simply included all consumers whose sale agreements included the Missouri choice-of-law provisions and were charged the document preparation fee.  The Court further noted that the trial court required an intensive file-by-file review specifically for the purposes of excluding non-qualifying consumers. 


Similarly, the Eighth Circuit found that the class met the commonality and predominance requirements.  In doing so, the Court noted that the class was defined by the retailer's own corporate policy to utilize a standard sale agreement including the Missouri choice-of-law provision, and thus, the "case presented a 'classic case for treatment as a class.'" Steinberg v. Nationwide Mut. Ins. Co., 224 F.R.D. 67, 74 (E.D.N.Y. 2004).  Therefore, the Court determined that the identified class members all had the common and predominant issue as to whether the retailer's practice of charging a document fee in the standard form violated Missouri's statute prohibiting unauthorized law practice.


Second, the Eighth Circuit rejected the retailer's argument that the district incorrectly interpreted the applicable Missouri statute prohibiting the unauthorized practice of law as applied to the facts.  The Court noted that prior Missouri case law held that "charging a separate fee for the completion of legal forms by non-lawyers constitutes the unauthorized practice of law business."  Carpenter v. Countrywide Home Loans, Inc., 250 S.W.3d 697, 702 (Mo. 2008).


In addition, the Court noted that the standard sales agreement used by the retailer included a power of attorney form which has been previously determined to be a legal form in Missouri.  Accordingly, the Eighth Circuit affirmed the judgment entered by the lower court because "once it is determined that a particular document is legal in nature, the act of charging a fee for the preparation or compilation of that document constitutes unauthorized law business, even when a non-lawyer does not exercise any legal judgment in completing the form."


Relatedly, the retailer argued that the trial court incorrectly based the calculation of damages on the entire document fee charged even though the charges also potentially included non-prohibited activities.  The Eighth  Circuit found these arguments to be without merit.  As noted by the Court, the specific fee at issue was charged to the customers separately from the legitimate portions of the contract, and therefore, the damages were appropriately based upon the entire fee amount.


Third, the Eighth Circuit determined that there was no error in applying Missouri law to the class members whose transactions occurred outside of Missouri.  In doing so, the Court found no merit in the retailer's argument that the application of the statute was penal in nature, because the State of Missouri was not a party to the action or that the State of Missouri indicated that it intended to enforce the criminal portions of the Missouri statute.  Further, the Court held that the sale agreement had a valid Missouri choice of law provision which is binding upon the contracting parties. 


Accordingly, the Court affirmed the judgment entered against the retailer and denied the entirety of the retailer's appeal.


As to the cross-appeal by the plaintiffs, the Eighth Circuit found that the trial court did err in not enforcing the fee shifting provisions of the sales agreement, and instead providing payment to the attorneys out of the common fund.


In doing so, the Court noted that in cases with a contractual fee-shifting provision, the court must weigh the equitable principles underlying the creation of the common fund doctrine against the fee shifting provision agreed upon by the parties.  Initially, the Eighth Circuit quickly noted that an award under a fee-shifting provision is not necessarily dispositive of the amounts due to the class counsel, and that additional amounts may be due to counsel from the common fund.  However, the mere creation of the common fund "is not sufficient to establish a finding that the common fund doctrine must be applied when awarding attorney fees."  Haggert v. Woodley, 809 F.3d 1336, 1356 (Fed. Cir.). 


In weighing the equities, the Eighth Circuit determined that payment of the attorneys' fees under the fee shifting provision accommodates both concerns underlying the common fund doctrine, i.e. (1) class counsel is able to recoup reasonable compensation, and (2) there is no risk that the named plaintiff unjustly pays for the fees of the class counsel.  In addition, the Court found that paying the attorneys' fees from the common fund would be inequitable because it "nullifies the class's contractual right, as a prevailing party" to recover under the fee shifting provision agreed upon by the parties under the defendant's sales agreement. 


Finally, the Eighth Circuit held that if on remand, the trial court found that the class counsel was owed additional fees above and beyond those due under the fee shifting provision, that the trial court was to use the common fund as a whole - including treble damages - to determine the appropriate compensation. 


Accordingly, the lower court's decision to pay class counsel from the common fund was reversed and the issue remanded to the lower court for a determination as to the amounts due under the fee shifting provision and otherwise.





Ralph T. Wutscher
Maurice Wutscher LLP
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