Tuesday, November 13, 2018

FYI: 1st Cir Holds Reference to "Auction Price" Rather Than "Fair Market Value" Insufficient for Deficiency Notice

The U.S. Court of Appeals for the First Circuit recently held that, at least under the Massachusetts version of the UCC, post automobile repossession and sale notices must expressly advise the borrower that any deficiency will be calculated using the difference between the amount owed on the loan and the fair market value of the vehicle instead of the difference between the amount owed on the loan and the auction sale price.

 

In so ruling, the Court held that the defendant's compliance with the safe-harbor provision contained in the Massachusetts UCC that uses the auction sale proceeds to measure any deficiency was not sufficient to avoid liability.

 

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

 

Plaintiff filed a putative class action alleging that an auto finance company defendant violated Massachusetts consumer protection laws by failing to provide her with adequate loan deficiency notifications after she defaulted on her automobile loan. 

 

The defendant allegedly repossessed the automobile and sent the plaintiff a post-repossession notice to the plaintiff advising her that the defendant intended to sell the automobile at auction.  The notice informed the plaintiff that: "[t]he money received from the sale (after paying our costs) will reduce the amount you owe.  If the auction proceeds are less than what you owe, you will still owe us the difference."

 

The car sold for $8,900 at auction.  After the auction, the defendant sent another notice to plaintiff advising that it calculated her deficiency by subtracting the auction sale price from the outstanding loan balance.

 

The plaintiff alleged that the notices violated the Massachusetts version of the Uniform Commercial Code ("UCC") and the Massachusetts consumer protection statute, Mass. Gen. Laws ch. 93A, § 2(A), because they calculated plaintiff's deficiency liability using the automobile sale price at auction instead of the automobile's fair market value.

 

The trial court entered summary judgment in favor of the defendant finding that the notice tracked the safe-harbor provision contained in the Massachusetts UCC that uses the auction sale proceeds to measure any deficiency and because the plaintiff did not provide any evidence that the fair market value exceeded the auction proceeds. The plaintiff appealed.

 

The First Circuit first certified the matter to the Massachusetts Supreme Judicial Court because the claims depended on questions of Massachusetts law.  Relevant to the First Circuit's opinion, the Supreme Judicial Court held that post-repossession and post-sale notices like the notices defendant sent to plaintiff must "expressly describe the deficiency as the difference between the amount owed on the loan and the fair market value of the vehicle."

 

Initially, the First Circuit, affirmed the trial court's ruling that plaintiff did not demonstrate that the fair market value exceeded the auction proceeds because she failed to offer sufficient evidence to meet her burden of proof on this issue.

 

The First Circuit then turned to whether the defendant's post-repossession and post-sale notices complied with Massachusetts law.  Applying the new Supreme Judicial Court standard here, the First Circuit had little trouble concluding that the notices defendant sent to plaintiff did not comply because they described the deficiency as the difference between the amount owed and the money received from the sale when the notices must describe the deficiency as the difference between the amount owed and the automobile s fair market value.

 

The First Circuit rejected the defendant's argument that fair market value is the same as the auction price here and that its notices, which used the safe-harbor language in Mass. Gen. Laws ch. 106, § 9-614(3), therefore "conveyed the fair market value concept" because the Supreme Judicial Court "made it clear that a creditor's use of the UCC safe-harbor language in deficiency notifications is inadequate under Massachusetts law."

 

The First Circuit also rejected the defendant's argument that applying the Supreme Judicial Court's holding to it after it sent the notices violated its "constitutional right to due process" because the defendant failed to raise this issue in the trial court proceeding or on appeal before the Supreme Judicial Court's ruling.  The defendant therefore waived this argument.

 

Thus, the First Circuit determined that the trial court's entry of summary judgment in favor of the defendant was improper and remanded for further proceedings consistent with its opinion.

 

 

 

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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Sunday, November 11, 2018

FYI: 7th Cir Holds Debt Collector Waived Arbitration by "Gratuitous Delay"

The U.S. Court of Appeals for the Seventh Circuit held that a defendant waived its right to arbitrate due to its "gratuitous delay" in seeking arbitration, where it waited thirteen months after the filing of the lawsuit before moving to compel arbitration, and that any showing of prejudice to the non-moving party was not required.

 

Accordingly, the Seventh Circuit affirmed the trial court's ruling denying a motion to compel arbitration.

 

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

 

The plaintiff ("Plaintiff") applied for and received a credit card from a bank ("Bank").  The credit card contract included an agreement to arbitrate all disputes related to the account.  The agreement also contained a waiver of the right to seek class action relief. 

 

The Bank hired a debt collector ("Collector") to collect an allegedly unpaid balance on the credit card.  The Collector informed the Plaintiff that it would commence collection proceedings unless she disputed the debt in writing.  

 

On July 15, 2016, the Plaintiff brought a class action suit against the Collector arguing that it violated the federal Fair Debt Collection Practices Act when it required her to dispute the debt in writing.

 

In August 2016, the Collector filed a motion to dismiss for failure to state a claim, lack of standing, and lack of personal jurisdiction.  The motion did not mention the arbitration agreement.

 

The Plaintiff subsequently filed an amended complaint and renewed her motion for class certification.  The Collector again filed a motion to dismiss and opposed the class certification, but did not mention the arbitration agreement in any of its briefs.

 

While the motions were pending, several discovery disputes arose an on February 17, 2017, the magistrate scheduled a discovery conference. 

 

After the discovery conference was held, the Collector sent the Plaintiff a letter on March 10, 2017 notifying her of the arbitration agreement and demanding arbitration.  Three days later, the Plaintiff unequivocally refused to proceed to arbitration.

 

The letter was not filed, and the trial court was not notified that the Collector had demanded arbitration.

 

On April 19, 2017, the Collector filed an answer and affirmative defenses to the amended complaint.  The Collector did not mention the arbitration agreement.

 

On June 19, 2017, the trial court denied the Collector's motion to dismiss. 

 

On August 7, 2017, thirteen months after the suit began, the Collector moved to compel arbitration. 

 

The trial court denied the motion on two grounds.  First, it found that as a non-signatory to the arbitration agreement, the Collector could not enforce the agreement.  Second, it found that the Collector waived any right to arbitrate by not diligently asserting that right. 

 

The Collector appealed. 

 

On appeal, the Seventh Circuit first addressed the issue of whether the Collector had waived any right to compel arbitration.

 

In analyzing the issue, the Court first noted that "[l]ike any other contractual right, the right to arbitrate can be waived."  Further, if the Collector "waived any right to arbitrate, the company necessarily waived any right to oppose class certification premised on the agreement."

 

The Plaintiff did not argue that the Collector expressly waived any right to arbitrate.  Thus, the question was "whether we should infer that forfeiture occurred."

 

To determine whether a forfeiture occurred, a court must "determine that, considering the totality of the circumstances, a party acted inconsistently with the right to arbitrate."

 

The Seventh Circuit explained that "[m]any factors are relevant to this analysis, but due diligence or the lack thereof is particularly important."  Included in the consideration is "whether the allegedly defaulting party participated in litigation, substantially delayed its request for arbitration, or participated in discovery." 

 

However, the court "need not find that the nonmoving party was prejudiced by the delay in seeking arbitration." 

 

The Seventh Circuit noted that the Collector "did not privately demand arbitration until eight months after the Plaintiff filed suit," and then after the Plaintiff's refusal, "waited another five months before moving to compel." 

 

Further, the Collector's "explanation for these delays [was] entirely inadequate," as it claimed it was initially unaware of the agreement.  The Seventh Circuit found this explanation "suspect," as such arbitration agreements are commonplace, and "federal regulations require credit card issuers to post their credit card agreements online." 

 

Moreover, the Court noted that even setting aside the initial eight-month delay, "the company's actions from that point were unjustified and manifestly inconsistent with an intention to arbitrate" because it filed an answer to the complaint which contained no reference to the agreement, and it failed to supplement its briefs on the motion to dismiss and for class certification even though those motions remained pending.

 

The Seventh Circuit therefore held that "[o]n these facts, the district court's conclusion that [the Collector] waived its right to arbitration was not erroneous."

 

Because it determined that the Collector waived any right to arbitrate, the Seventh Circuit did not reach the issue of whether the Collector could have enforced the arbitration agreement as a non-signatory.

 

 

 

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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Wednesday, November 7, 2018

FYI: 7th Cir Holds Pl's Oral Testimony of Payment Demand in Violation of FDCPA Insufficient to Defeat Def's Documentary Evidence

The U.S. Court of Appeals for the Seventh Circuit held that a plaintiff's oral testimony that a $100 payment was demanded of her in violation of the federal Fair Debt Collection Practices Act ("FDCPA") was insufficient to withstand summary judgment where the debt collector defendant produced documentary evidence to support its testimony that no such demand was made.

 

Accordingly, the Seventh Circuit affirmed the ruling of the trial court granting summary judgment in favor of the defendant. 

 

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

 

After the plaintiff ("Plaintiff") fell behind on her car payments, the defendant collector ("Collector") repossessed the vehicle on behalf of the lender ("Bank"). 

 

Upon learning of the repossession, the Plaintiff called the Bank who told her she would need to satisfy the full amount of the defaulted loan to receive the car back.  Because she could not do so, the Plaintiff instead sought only to retrieve personal items she had left in the car. 

 

The Plaintiff thereafter had discussions with a representative of the Collector, who she alleges told her multiple times that she would have to pay $100 to recover her personal items. 

 

The Plaintiff further claimed that she had a meeting at the Collector's office at which time the Collector allegedly gave her an "assessment fee" form that stated she would have to pay a $100 fee to retrieve her property.  The Plaintiff considered the $100 fee a demand for loan repayment. 

 

The Collector denied making a demand for $100 from Plaintiff, and instead claimed that the $100 was an administrative fee that the Bank agreed to pay.  The Collector also had a document that supported its claim.

 

The document, entitled "Receipt for Redeeming Personal Property," described the $100 as a "Handling Fee" and contained a handwritten notation that "All Fees billed to [Bank]." 

 

The Plaintiff refused to sign the receipt form and therefore never recovered her property.  Instead, she filed a lawsuit alleging that the Collector, its president, and the Bank each violated the FDCPA. 

 

The trial court granted summary judgment in favor of the defendants concluding that: (1) the Plaintiff failed to produce any evidence refuting the defendants' showing, backed by the documentary record, that neither the Collector nor the Bank attempted to collect a $100 payment from her, and (2) that even accepting the Plaintiff's allegation that $100 was demanded of her, she did not provide any evidence casting doubt on the defendants' showing that the $100 was only an administrative handling fee owed to the Collector, as opposed to a demand for repayment on the auto loan owed to the Bank.

 

The Plaintiff appealed.

 

On appeal, the Plaintiff "emphasize[d] the breadth of the prohibition on unfair debt collection practices in 15 U.S.C. § 1692f, while also underscoring that the prohibitions extend to repossession agents who undertake otherwise prohibited collection efforts on behalf of creditors." 

 

The Plaintiff further contended that the evidence at least raised a question fact to defeat summary judgment on the issue whether the Collector was working on behalf of the Bank to collect $100 to apply towards the defaulted car loan. 

 

The Seventh Circuit disagreed, noting that "[t]he record on summary judgment shows that [the Plaintiff] was not able to back her allegation that [the Collector] demanded the $100 fee of her with anything beyond her own say so."

 

Conversely, the Collector "backed its contrary testimony with the Receipt for Redeeming Personal Property, which expressly established that [the Bank] – not [the Plaintiff] – would make the $100 payment." 

Moreover, that same document showed "that the $100 handling fee was just that – an administrative expense that [the Collector] sought to recover for its role in processing requests to redeem personal property from repossessed vehicles." 

 

Accordingly, the Court held that "[t]here is no way on this record to view the handling fee as some sort of masked demand for a principal payment to [the Bank]."

 

Moreover, the Seventh Circuit determined that even if it accepted the Plaintiff's contention that her initial phone calls with the Collector entailed a demand for a $100 payment, "[o]n summary judgment she needed to go further and create a genuine issue of fact as to whether [the Collector] demanded such a payment on behalf of [the Bank] as a lender." 

 

Because the Plaintiff did not do so, the Seventh Circuit affirmed the ruling of the trial court.

 

 

 

 

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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Saturday, November 3, 2018

FYI: 1st Cir Confirms Rooker-Feldman Barred Borrower's State and Federal Law Claims

The U.S. Court of Appeals for the First Circuit ("First Circuit") recently affirmed dismissal of a borrower's state and federal law claims, concluding that the trial court lacked jurisdiction under the Rooker-Feldman Doctrine, because the borrower's federal suit sought to invalidate the state courts' judgments.

 

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

 

After a borrower ("Borrower") defaulted on her mortgage loan, the assignee to the Borrower's mortgage ("Mortgagee") filed a petition in the Massachusetts Land Court ("land court") to foreclose the mortgaged property (the "foreclosure action").  Final judgment was entered in the Mortgagee's favor, and the property was sold to the Mortgagee at a foreclosure sale.

 

The Mortgagee then turned to the state's county Housing Court ("housing court") and filed a summary process action to evict the Borrower, who in turn filed a counterclaim.  After lengthy motion practice, and challenges to the validity of the mortgage assignment, the Mortgagee was eventually awarded possession of the property.  The Borrower's appeal of the final judgment in the eviction action was dismissed for failure to post bond.

 

Five months later, the Borrower field suit against the Mortgagee in the U.S. District for the District of Massachusetts, among other things alleging claims for wrongful foreclosure, violation of the Massachusetts consumer protection statute, Mass. Gen. Laws ch. 93A, § 9(1), breach of the covenant of good faith and fair dealing, and negligent infliction of emotional distress.

 

The Mortgagee filed a motion to dismiss, which was granted by the federal trial court, which held that it lacked subject-matter jurisdiction over Borrower's claims under the Rooker-Feldman Doctrine.  The instant appeal followed.

 

As you may recall, the Rooker-Feldman doctrine preserves the Supreme Court's exclusive jurisdiction over "appeals from final state court judgments," Lance v. Dennis, 546 U.S. 459, 463 (2006) (per curiam), by divesting lower federal courts of jurisdiction to hear certain cases brought by parties who have lost in state court, see Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 291- 93 (2005); Coggeshall v. Mass. Bd. of Regist. of Psychologists, 604 F.3d 658, 663 (1st Cir. 2010). Specifically, the doctrine - 6 - applies to "cases brought by state-court losers complaining of injuries caused by state-court judgments [that were] rendered before the district court proceedings commenced and invit[e] district court review and rejection of those judgments." Exxon Mobil, 544 U.S. at 284.

 

Here, the First Circuit noted that the Borrower's federal suit seeks to challenge the validity of both the foreclosure and mortgage assignment, which both fell within the compass of the state court judgments of foreclosure and rejecting Borrower's challenge to the mortgage assignment in the eviction action.

 

The Court concluded that Borrower's claims were all premised upon her claims that Mortgagee acquired the mortgage through a pattern of fraudulent activity—the very issue raised in her counterclaim to the eviction action, and denied by the housing court — and nothing more than artfully pleaded attempts to evade the reach of the Rooker-Feldman Doctrine.  See Davison v. Gov't of P.R. - P.R. Firefighters Corps., 471 F.3d 220, 223 (1st Cir. 2007) (applying Rooker-Feldman doctrine when "the only real injury to Plaintiffs is ultimately still caused by a state court judgment").

 

Similarly, her wrongful foreclosure claim was necessarily decided in the land court, and both the foreclosure and eviction actions were sufficiently final to trigger the Rooker-Feldman doctrine, as final judgment of foreclosure was entered five years prior to the initiation of the federal suit, and Borrower forfeited her opportunity to appeal the housing court's eviction judgment by failing to post bond.  See Davison v. Gov't of P.R. - P.R. Firefighters Corps., 471 F.3d 220, 223 (1st Cir. 2007) (applying Rooker-Feldman doctrine when "the only real injury to Plaintiffs is ultimately still caused by a state court judgment").

 

Lastly, First Circuit considered whether the plaintiff, in bringing her federal suit, impermissibly invited the federal trial court to review and reject one or more final state-court judgments. 

 

In order to grant the Borrower's requested relief to vacate the final judgment of foreclosure and enter an injunction prohibiting post-foreclosure proceedings, the district court would be compelled to review, reject and reverse the state courts' rulings — an invitation that could not be accepted under the Rooker-Feldman doctrine.  See Davison, 471 F.3d at 223. 

 

The Court also rejected the Borrower's fallback position that her federal claims were based on legal theories not presented in the state courts, and should be allowed to proceed.

 

In so ruling, the First Circuit held that even the federal claims still could not escape the Rooker-Feldman bar, which is not contingent upon identity of issues actually litigated in prior state-court proceedings, but whether those claims proffered in the subsequent federal suit are, in effect, an end-run around a final state-court judgment.  See Maymó-Meléndez v. Álvarez-Ramírez, 364 F.3d 27, 33 (1st Cir. 2004); Federación de Maestros de P.R., 410 F.3d at 24 (stating that "a federal suit seeking an opposite result [from a final state court judgment] is an impermissible attempt to appeal the state judgment to the lower federal courts").

 

Accordingly, because the Borrower's federal suit sought to invalidate the state courts' judgments, the First Circuit held that the federal trial court lacked jurisdiction to consider the Borrower's claims, and the federal trial court's dismissal order 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

 

 

 

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

 

 

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Wednesday, October 31, 2018

FYI: 11th Cir Upholds Approval of FACTA Class Settlement Despite Non-Lodestar Class Counsel Fees, Other Issues

The U.S. Court of Appeals for the Eleventh Circuit recently affirmed a class settlement where the defendant allegedly violated the federal Fair and Accurate Credit Transactions Act, 15 U.S.C. § 1601, et seq. (FACTA) by printing point-of-sale credit card receipts that included more than the last five digits of the card number. 

 

In so ruling, and over the objections of two class members, the Eleventh Circuit held that :

 

1.     Consistent with similar prior rulings from other federal appellate courts, the named plaintiff had Spokeo standing to pursue the claims, because the FACTA claims were similar to the common law tort of breach of confidence; and

 

2.    Class counsel's untimely attorney's fees motion -- filed two weeks after the deadline for class members to object had passed -- did not warrant reversal because four other class members objected after receiving notice of the preliminary approval of class settlement; and

 

3.    A lodestar analysis was not required for class counsel's fees, because the compensation secured by class counsel and risk of litigation justified an award of one-third of the settlement fund for attorneys' fees and a $10,000 incentive to the class representative.

 

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

 

A consumer filed a class action alleging that a retail merchant violated the FACTA by printing a receipt that showed his credit card number's first six and last four digits.

 

As you may recall, FACTA prohibits merchants from printing "more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction."  15 U.S.C. § 1681c(g)(1).

 

The FACTA provides for a combination of actual and statutory damages.  15 U.S.C. § 1681n(a).  For statutory damages, FACTA provides for an award of $100 to $1,000 for each willful violation.  15 U.S.C. § 1681n(a)(1)(A). 

 

The parties agreed to settle on a class wide basis and proposed a settlement fund of $6.3 million from which all fees, costs, and class members would be paid. 

 

Class members who submitted a timely claim form would receive approximately $235 as their pro-rata share of the settlement fund.  None of the money would revert to the merchant.  Class counsel would receive an award of attorneys' fees of up to one-third of the settlement fund, which would be $2.1 million.  The consumer would receive an incentive award of $10,000.

 

The trial court granted the motion for preliminary approval, certified the class under Rule 23(b)(3), and approved the form of notice.  Under the preliminary approval order, class members who wanted to be excluded from the settlement were required to give written notice of exclusion to the claims administrator. 

 

Two class members objected to the settlement, arguing that class counsel's fee motion was inadequate under Rule 23(h), that the court should subject any attorney's fee award to a lodestar analysis, and a $10,000 incentive award was not warranted. 

 

After a fairness hearing, the trial court approved the settlement and awarded the incentive award and attorneys' fees to the consumer and class counsel respectively. 

 

The objectors appealed.

 

The Eleventh Circuit began its analysis by reviewing the consumer's standing to pursue a FACTA claim against the merchant.

 

The objectors argued that the named plaintiff did not allege a concrete injury to confer Article III standing under the Supreme Court's decision in Spokeo, Inc. v. Robins 136 S. Ct. 1540 (2016).  Instead, the consumer merely alleged that the merchant willfully violated its duty not to print more than five digits of its credit card number on a receipt. 

 

The Eleventh Circuit disagreed, noting that FACTA was "aimed at protecting consumers from identity theft" and imposed a duty on merchants not to "print more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction."  15 U.S.C. § 1681c(g)(1).

 

The Eleventh Circuit compared the merchant's disclosure of the consumers credit card number to the common law tort of breach of confidence.  Typical breach of confidence cases, as the Eleventh Circuit explained, involve a customer entrusting information or items to trusted persons, who would without permission disclose those items to other people for personal gain.  An important difference between the breach of confidence tort and privacy torts was the identification of harm.

 

The Eleventh Circuit explained that in privacy cases, the harm was usually construed in terms of exposure "with an emphasis on publication as the cause of the harm."  But in breach of confidence cases, the harm happens when the plaintiff's trust in the breaching party is violated.  Applying this view, the Eleventh Circuit found that when the consumer used his credit card, he entrusted the merchant with his credit card number and his trust was violated when that card number was not kept confidential.

 

The Eleventh Circuit observed that FACTA established a duty of care for merchants that print receipts and defined that duty as requiring printing no more than five digits of customers' credit card numbers.  The FACTA also made willful violations of that duty actionable. 

 

The Eleventh Circuit also observed that because the consumer received the receipt from the merchant, the consumer had to shoulder the cost of protecting or destroying the untruncated receipt.

 

Thus, the Eleventh Circuit concluded that the consumer suffered a concrete harm when the merchant provided an untruncated receipt. 

 

Moreover, the Eleventh Circuit reasoned that its holding was consistent with the decisions of the Second, Seventh, and Ninth Circuits "where customers alleged that they suffered a risk of identity theft because the receipts included their credit card expiration date, which was a violation of FACTA, 15 U.S.C. § 1681c(g).  See Bassett v. ABM Parking Servs., Inc. 883 F.3d 776 (9th Cir. 2018); Crupar-Weinmann v. Paris Baguette Am., Inc., 861 F.3d 76 (2d Cir. 2017); Meyers v. Nicolet Rest. of De Pere, LLC, 843 F.3d 724 (7th Cir. 2016). 

 

Next, the Eleventh Circuit examined the objectors' challenge to the sufficiency of the notice of the attorney's fees motion. 

 

As you may recall, Rule 23(h)(1) requires that notice of the motion for attorney's fees be served on all parties "in a reasonable manner."  Although the statute does not define "reasonable manner," courts interpreting Rule 23(h) have observed that the right to object to the fee motion under Rule 23(h)(2) necessarily means that courts must give notice of the attorney's fee motion itself.

 

The objectors argued that the untimely attorney's fees motion -- filed two weeks after the deadline for class members to object had passed -- deprived class members of the notice they needed to assess the fee request and violated Rule 23(h).

 

The Eleventh Circuit explained that the trial court erred by requiring class members to object before they could assess the attorney's fee motion, but held that the error did not warrant reversal because four class members objected after receiving notice of the preliminary approval of class settlement. 

 

Two class members made detailed arguments in opposition to the requested attorney's fee and incentive award, which the trial court considered.  In the Eleventh Circuit's view, there was no reason to think other unnamed class members would have made arguments besides those made by the objectors. 

 

Thus, the Eleventh Circuit determined that the trial court did not abuse its discretion by awarding attorney's fees, despite the Rule 23(h) violation.

 

The objectors also argued that the trial court applied the wrong legal test to evaluate class counsel's fee request. 

 

The objectors argued that the trial court should have applied a lodestar analysis as required by Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542 (2010).  In Perdue, the Supreme Court allowed the award of attorney's fees under a fee-shifting statute to be enhanced above the lodestar amount, but only in "rare" and "exceptional" cases.  Perdue, 559 U.S. at 554.

 

However, the Eleventh Circuit noted that class counsel sought attorney's fees from a common fund, rather than under a fee-shifting statute.  The Eleventh Circuit also noted that the common-fund doctrine applied to class settlements that result in a common fund even when class counsel could have pursued attorney's fees under a federal fee-shifting statute.

 

The Eleventh Circuit acknowledged that the award of attorney's fees was bigger than some award in other suits, and a prior panel observed that the "majority of common fund fee awards fall between 20% and 30% of the fund." 

 

In the Eleventh Circuit's view, the trial court justified the above-benchmark award attorneys' fees.  The trial court emphasized that the results obtained conferred substantial benefits on the class members who submitted claims, and discussed the significant legal hurdles class counsel faced with regard to establishing standing based on risk of identity theft.  The trial court also explained the difficulty of proving willfulness. 

 

Lastly, the Eleventh Circuit explained that the $10,000 incentive award to the class representative was not an abuse of discretion. 

 

To support its reasoning, the Eleventh Circuit noted that the trial court awarded the class representative the incentive award "for his efforts in this case" and found that the class settlement conferred "substantial benefits" on the class member. 

 

Accordingly, the Eleventh Circuit affirmed the order approving the settlement.

 

 

 

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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Monday, October 29, 2018

FYI: Missouri Sup Ct Denies Arbitration Where Chosen Arbitrator No Longer Available

The Supreme Court of Missouri recently affirmed the denial of a lender's motion to compel arbitration of a consumer's putative class claims because the arbitration provision at issue designated the use of a specific arbitrator which was no longer available to handle creditor claims. 

 

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

 

Following the borrower's default under a small personal loan, the lender brought an action in Missouri state court for collection of the debt.  The borrower filed counterclaims against the lender for alleged violations of the Missouri consumer protection statute and requested class certification for her claim. 

 

The lender filed an application with the trial court to compel the borrowers counterclaim to arbitration. 

 

The loan agreement contained an arbitration provision which provided, in part, that any claim or dispute arising under the agreement "shall be resolved by binding arbitration by the National Arbitration Forum, under the Code of Procedure then in effect." 

 

However, several years prior to the commencement of the present litigation, the National Arbitration Forum (NAF) entered into a consent decree with the Minnesota State Attorney General which required it to immediately stop providing arbitration services for consumer claims, including the claims asserted by the borrower in the matter at hand.  Consequently, NAF was not available to act as an arbitrator.

 

Due to NAF's unavailability, the lender requested that the trial court designate a new arbitrator pursuant to Section 5 of the Federal Arbitration Act, 9 U.S.C. § 1, et seq.  ("FAA").

The trial court denied the lender's request and the lender sought an immediate appeal."

 

The Missouri Supreme Court granted the transfer of the appeal from the intermediate appellate court. 

 

In deciding the issue, the Missouri Supreme Court first noted that the sole question before it was whether or not under the FAA the court was compelled to appoint an arbitrator to replace NAF.  The lender had failed to adequately raise in the trial court any argument under Missouri's Uniform Arbitration Act.  The Court did not address whether or not the result may have been different under the Missouri statute. 

 

As explained by the Court, Section 5 of the FAA is merely a default provision which requires a court to appoint a substitute arbitrator unless it appears the parties did not intend to arbitrate before a substitute arbitrator in the event their chosen arbitrator became unavailable.  Further, the FAA in general "reflects the overarching principle that arbitration is a matter of contract."  Am. Express Co. v. Italian Colors Rest., 570 U.S. 228, 233 (2013). Thus, the question at hand was one primarily of contract interpretation.

 

The Court recited the standard rules of contract interpretation in Missouri, in that courts ascertain the "intent of the parties by looking at the words of the contract and giving those words their plain, ordinary, and usual meaning."  Ethridge v. TierOne Bank, 226 S.W.3d 127, 131 (Mo. banc 2007). And if those terms are "unequivocal, plain, and clear, the court is bound to enforce the contract as written."  Malan Realty Inv'rs, Inc. v. Harris, 953 S.W.2d 624, 626-27 (Mo. banc 1997). 

 

Applying these standards to the arbitration provision, the Court found that the terms at hand were unequivocal, plain and clear that the parties agreed to arbitrate only before NAF.  In addition to the language quoted above, the Court further found that the requirement that the claims be submitted to the NAF headquarters or one of its branches further evidenced the parties' intent to use NAF exclusively. 

 

The Court further held that "nothing in the FAA authorizes (let alone requires) a court to compel a party to arbitrate beyond the limits of the agreement it made."

 

The Court further commented somewhat critically that the contract was one of adhesion freely drafted by the lender, and "having made the choice to insist upon NAF " and only NAF "as the arbitration forum, [the lender] cannot now look to Section 5 of the FAA to expand the arbitration promise it extracted from [the borrower]." 

 

The Court clarified that its opinion was not that "merely identifying an arbitrator in an arbitration agreement" would support the refusal to appoint a substitute under Section 5 of the FAA, and instead, there must be "a basis to conclude the parties' arbitration agreement was limited to the specified arbitrator."

 

Indeed, the Court noted that a great deal of case law had arisen following the NAF consent decree.  Yet the ruling in those cases differed wildly depending upon the exact terms of the arbitration provisions at issue.

 

Accordingly, the Court affirmed the trial court's denial of the lender's motion to compel arbitration and remanded the case for further proceedings. 

 

 

 

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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