Wednesday, September 19, 2018

FYI: 9th Cir Holds CAFA Amount In Controversy Includes Future Attorney's Fees Incurred After Removal

The U.S. Court of Appeals for the Ninth Circuit recently reversed a trial court's order remanding a putative class action lawsuit to state court on the ground that the defendant removing party failed to prove that the amount in controversy exceed the $5 million, as required for jurisdiction under the Class Action Fairness Act ("CAFA").

 

In so ruling, the Ninth Circuit held that the amount in controversy for jurisdiction under CAFA includes all attorneys' fees that the plaintiff would be entitled to under a contract or statute, including future fees incurred after the date of removal.

 

A link to the opinion is available at:  Link to Opinion

 

A driver ("Employee") filed a wage-and-hour class action against his employer ("Employer"), a trucking and transportation company.  The Employee alleged that the Employer denied him and other employees proper overtime pay, meal periods, and appropriate wage statements. 

 

The complaint sought wages and premiums owed, prejudgment interest, statutory penalties, attorneys' fees under California Labor Code § 218.5 and 1194, and costs of suit.  The Employee also asked for equitable relief under California's unfair competition law and statutory damages under California's Private Attorneys General Act (PAGA).

 

During the litigation, the Employee delivered a mediation brief that listed total damages in the amount of $5,924,104, which included $948,192 in unpaid rest period premiums, $150,000 in attorneys' fees and costs incurred as of the date of the brief, and $531,404 in interest on unpaid overtime wages.  The Employee also estimated that the Employer faced PAGA penalties of $5,874,079.

 

In October 2017, the Employer filed a notice of removal asserting jurisdiction under CAFA.  As you may recall, CAFA gives trial court's jurisdiction over civil actions in which "the matter in controversy exceeds the sum or value of $5,000,000, exclusive of interest and costs," the proposed class consists of more than 100 members, and "any member of [the] class of plaintiffs is a citizen of a State different from any defendant."  28 U.S.C. § 1332(d)(2).

 

Using the damages listed in the mediation brief -- minus estimated interest payments and PAGA penalties, which are not included in the amount in controversy -- the Employer alleged that the amount in controversy was $5,392,700.  The Employer also argued that in addition to the $150,000 in attorneys' fees and costs incurred to date, the trial court could recognize future attorneys' fees that would accrue over the course of the case.

 

The trial court determined that because the complaint did not include a claim for failure to provide rest periods, the $948,192 for unpaid rest period premiums could not be included as part of the jurisdictional amount.  The trial court also ruled that attorneys' fees may only include fees incurred as of the date of removal, which was $150,000.  Because the Employer established that only $4,778,575 was at stake, the trial court held that this amount did not meet the minimum required under CAFA, and remanded the case to state court.

 

This appeal followed.

 

The Ninth Circuit began its analysis by observing that where "it is unclear or ambiguous from the face of a state-court complaint whether the requisite amount in controversy is pled,  the removing defendant bears the burden of establishing, by a preponderance of the evidence, that the amount in controversy exceeds the jurisdictional threshold."  Urbino v. Orkin Servs. of Cal., 726 F.3d 1118, 1121-22 (9th Cir. 2013).

 

While the appeal was pending, the Ninth Circuit issued its ruling in Chavez v. JPMorgan Chase & Co., 888 F.3d 413 (9th Cir. 2018), which held that "the amount in controversy is not limited to damages incurred prior to removal -- for example, it is not limited to wages a plaintiff-employee would have earned before removal (as opposed to after removal)," but rather "is determined by the complaint operative at the time of removal and encompasses all relief a court may grant on that complaint if the plaintiff is victorious." 

 

The Ninth Circuit acknowledged that before Chavez, it had not clarified what it meant to say by the amount in controversy is determined "at the time of removal," and trial courts had not consistently applied this language.  However, the Ninth Circuit clarified this issue in Chavez.  Therefore, the only issue on appeal was whether the trial court erred in concluding that the Employer had failed to prove, by a preponderance of the evidence, that CAFA's amount in controversy requirement was met. 

 

The Employee argued that Chavez should be limited to its facts, and that it applied only to the claims for future wage loss.

 

However, while Chavez itself concerned a claim for future wage loss, the Ninth Circuit stated that its holding applied to any class of damages included in the amount in controversy.  Specifically, the amount in controversy included "all relief claimed at the time of removal to which the plaintiff would be entitled if she prevails."  Chavez, 888 F.3d at 418.  Thus, the Ninth Circuit concluded that its reasoning in Chavez applied equally to attorneys' fees available under fee shifting statutes.

 

Next, the Employee argued that future attorneys' fees should not be included in the amount in controversy because they are inherently speculative and can be avoided by the defendant's decision to settle an action quickly.  The Employee relied on Gardynski-Leschuck v. Ford Motor Co., 142 F.3d 955 (7th Cir. 1998), where the Seventh Circuit held that under the Magnuson-Moss Warranty Act, 15 U.S.C. § 2310(d), the amount in controversy cannot include attorneys' fees that have not yet been incurred.

 

The Ninth Circuit explained that its precedent in Chavez was controlling. 

 

Moreover, unlike the Seventh Circuit where the defendant need only show "a  reasonable probability" that the amount in controversy exceeds the minimum, the Ninth Circuit requires a removing defendant to prove that the amount in controversy (including attorneys' fees) exceeds the jurisdictional threshold by a preponderance of evidence.  The defendant is also required to make this showing with summary judgment type evidence.

 

Given defendants' obligation to prove future attorneys' fees by a preponderance of the evidence, and noting the trial's expertise in evaluating litigation expenses, the Ninth Circuit concluded that it did not share the Seventh Circuit's concerns about calculating future attorneys' fees.

 

In the Ninth Circuit's view, the amount in controversy must include future attorneys' fees because the complaint demanded attorneys' fees permitted by California law.  The trial court's conclusion that, as a matter of law, the amount in controversy included only the $150,000 in attorneys' fees incurred up to the time of removal was incorrect.

 

Accordingly, the Ninth Circuit reversed the trial court's order remanding the case to state 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

 

 

 

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Sunday, September 16, 2018

FYI: 8th Cir Rules Terminating Bank Employees for Criminal Convictions Involving Dishonesty Not Unlawful Discrimination

The U.S. Court of Appeals for the Eighth Circuit recently affirmed summary judgment in favor of a bank that was sued by a putative class alleging discriminatory employment practices that supposedly violated Title VII of the Civil Rights Act of 1964 and the Iowa Civil Rights Act.

 

In so ruling, the Court held that the plaintiffs failed to establish a prima facie case of disparate impact because even if the bank's policy of summarily terminating applicants or employees with a criminal conviction involving dishonesty or breach of trust had a disparate impact, the banks' decision to comply with the applicable federal law was a business necessity under Title VII.

 

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

 

As you may recall, a federal law, 12 U.S.C. § 1829 (a)(1)(a), prohibits "any person who has been convicted of any criminal offense involving dishonesty or a breach of trust" from employment at any financial institution insured by the Federal Deposit Insurance Corporation ("FDIC"). The law provides that disqualified persons may apply for a waiver, but no disqualified person can begin or continue employment with an insured institution until the waiver is obtained.

 

The plaintiffs, ten African Americans and Latinos, filed suit against the bank in the United States District Court for the Southern District of Iowa on behalf of a putative class alleging that the bank's "policy of summarily terminating or withdrawing offers of employment to any [disqualified] individual" was discriminatory and violated Title VII of the Civil Rights Act of 1964 and the Iowa Civil Rights Act.

 

The bank moved for summary judgment. The plaintiff's moved for additional time to conduct discovery under Federal Rule of Civil Procedure 56(d), which the magistrate judge granted in part and denied in part.

 

The district court granted the bank's motion for summary judgment, holding that the plaintiffs "failed to establish a prima facie case under any theory of employment discrimination pursuant to either federal or state law."

 

The plaintiffs appealed, "arguing that the district court misapplied disparate-impact law." They also challenged "the magistrate judge's ruling on their Rule 56(d) motion."

 

The Eighth Circuit framed the ultimate issue in the case as being "whether the appellants had established a prima facie case of Title VII disparate impact, and if they had, whether [the bank] failed to show a business necessity defense."

 

The plaintiffs-appellants argued that the bank "refused to adopt the alternative practices of giving advance notice of the need for a waiver, granting leave to seek a waiver, and providing direct sponsorship of a waiver." The plaintifff-appellants argued that, if the bank had uniformly enforced such policies, that would have minimized the disparate impact caused by the law's automatic disqualification.

 

The Eighth Circuit disagreed, first citing Title VII, 42 U.S.C. § 2000e-2(K)(1)(A)(i), which provides that "an unlawful disparate impact is established … 'only if … a complaining party demonstrates that a respondent uses a particular employment practice that cause a disparate impact on the basis of race … and the respondent fails to demonstrate that the challenged practice is job related for the position in question and consistent with business necessity.'"

 

In order to establish a prima facie disparate impact claim, plaintiffs must show: "(1) an identifiable, facially-neutral personnel policy or practice; (2) a disparate effect on members of a protected class; and (3) a causal connection between the two."

 

The Court rejected the plaintiff-appellants' argument that "the presented sufficient statistical evidence to show that disparity between white and non-white … employees and potential employees and that [the bank] failed to show a business necessity."

 

The Eighth Circuit reasoned that even if the bank's policy of uniformly terminating disqualified African-American and Latino employees at twice the rate of white employees caused a disparate impact, "the district court correctly recognized that the bank's 'sound business decision was to terminate regardless of race or age or ethnicity.'"

 

This was because failure to comply with 12 U.S.C. § 1829 "placed [the bank] at risk of daily fines of $1 million. Further, 'any bank or other financial institution wisely would prefer for its customers to be served by employees who were not … persons convicted of crimes of dishonesty.'"

 

The Eighth Circuit concluded that the bank's "policy of summary employment exclusion following … disqualification [under § 1829] is a business necessity." It also concluded that the appellants failed to present sufficient "evidence or statistics showing that … alternative practices would have reduced the disparate impact on people of color. … The statistics do not support the inference that any of the alternative practices put forward by the applicants would result in proportionally more non-white employees receiving waivers and thereby reduce the disparate impact. Without meaningful evidentiary support for their contention, the appellants' argument fails."

 

The Court also rejected the plaintiffs-appellants' challenge to the magistrate judge's denial of their motion seeking additional discovery because the appellants failed to file an objection to the magistrate judge's order. "Because the appellants failed to test the magistrate judge's pre-trial motion ruling before the district court, they cannot now leapfrog the district court and appeal the order directly to us."

 

Accordingly, the district court's summary judgment ruling in favor of the defendant bank 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 13, 2018

FYI: 5th Cir Holds CFPB's CID Did Not Adequately Advise of Alleged Violation

The U.S. Court of Appeals for the Fifth Circuit held that a civil investigation demand ("CID") issued by the Consumer Financial Protection Bureau ("CFPB") did not adequately advise the respondent of the nature of the conduct constituting the alleged violation under investigation and the provision of law applicable to such violation.

 

Accordingly, the Fifth circuit reversed the ruling of the trial court granting the CFPB's petition for an order to enforce the CID.

 

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

 

Under 12 U.S.C. § 5562(c)(1), the CFPB may issue CIDs to "any person" whom the CFPB "has reason to believe" may have documents, tangible things, or information "relevant to a violation."

 

Each CID must "state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation."  12 U.S.C. § 5562(c)(2). 

 

This is known as "notification of purpose."  12 C.F.R. § 1080.5.  If a recipient does not comply with the CID, the CFPB may file a petition in federal court to enforce it.  12 U.S.C. § 5562(e)(1).

 

Here, the CFPB issued a CID to a company ("Company") that provides public records to the public through an internet-based search engine.

 

The CID's "Notification of Purpose" read: "The purpose of this investigation is to determine whether consumer reporting agencies, persons using consumer reports, or other persons have engaged or are engaging in unlawful acts and practices in connection with the provision or use of public records information in violation of the Fair Credit Reporting Act . . . or any other federal consumer financial law.  The purpose of this investigation is also to determine whether Bureau action to obtain legal or equitable relief would be in the public interest."

 

During a meet and confer with the CFPB, the Company asserted that the Notification of Purpose was inadequate, and that the CFPB did not have jurisdiction over it.  The Company then filed a petition with the CFPB to set aside the CID, which was denied.

 

The CFBP then filed a petition in federal court seeking an order to enforce the CID.  The trial court rejected the Company's argument that the CID failed to provide fair notice of the violation under investigation as required by section 5562(c)(2), and that the CFPB lacked jurisdiction.  Accordingly, the trial court ordered that the Company respond to the CID.

 

The Company appealed. 

 

On appeal, the Fifth Circuit determined that "[t]he CFPB did not comply with 12 U.S.C. § 5562(c)(2) when it issued this CID to [the Company]."  In so ruling, the Court noted that the CFPB did not state the "conduct constituting the alleged violation which [was] under investigation," rather the Notification of Purpose provided only that the CFPB was investigating "unlawful acts and practices in connection with the provision or use of public records information."

 

The Fifth Circuit determined that "this Notification of Purpose does not identify what conduct, it believes, constitutes an alleged violation."

 

Further, the CID did not identify "the provision of law applicable to such violation," as required.  Instead, the Notification of Purpose referred only "to the Fair Credit Reporting Act, an expansive law governing all activities relating to the reporting of consumers' credit information.  Such reference to a broad provision of law that the CFPB has authority to enforce does nothing to clarify what conduct is under investigation." 

 

Moreover, the Fifth Circuit noted that the Notice of Purpose's statement that the CFPB was investigating "any other federal consumer financial law" defeated "any specificity provided by the reference to FCRA."   

 

The Court further explained that a "reasonable relevance" standard applies to enforcement of administrative subpoenas.  Under the "reasonable relevance" standard, court will enforce an administrative subpoena if: "(1) the subpoena is within the statutory authority of the agency; (2) the information sought is reasonably relevant to the inquiry; and (3) the demand is not unreasonably broad or burdensome." 

 

The Fifth Circuit determined that "[b]ecause the CID issued to [the Company] fails to identify the conduct under investigation or the provision of law at issue, we cannot review it under our 'reasonable relevance' standard." 

 

As "the CFPB does not have 'unfettered authority to cast about for potential wrongdoing,'" it "must comply with statutory requirements."

 

The Fifth Circuit held "that the CFPB failed to advise [the Company] of 'the nature of the conduct constituting alleged violation which is under investigation and the provision of law applicable to such violation.'"  12 U.S.C. § 5562(c)(2). 

 

Thus, the ruling of the trial court was reversed.

 

 

 

 

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   |   Indiana   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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Tuesday, September 11, 2018

FYI: 8th Cir Rules Against Debtor Who Tried to "Provoke" FDCPA Violation

The U.S. Court of Appeals for the Eighth Circuit recently held that a consumer waived his right under the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (FDCPA) to cease further communications by calling the debt collector and asking questions about the underlying debt.

 

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

 

A law firm obtained a judgment against a debtor in connection with a credit card debt.  The debtor was a former debt collector and had litigated a number FDCPA claim against other debt collectors. 

 

The law firm mailed a garnishment notice to the debtor's credit union in attempt to collect on the judgment.  Each time, the law firm also mailed a copy of the garnishment summons to the debtor, along with a similar cover letter.  The cover letter stated "[t]hese documents were served upon [the credit union].  If you have any questions, please contact one of our collection representatives at 800-514-0791."

 

The debtor called the telephone number on the cover letter and spoke with a representative of the law firm.  The representative broached the possibility of settling the debt, but only in response to the debtor s questions about the debt.  The debtor immediately told the representative that he had sent the law firm a cease and desist letter and suggested that the representative violated its directive.

 

The debtor filed a complaint alleging that the law firm violated sections 1692c(c) and 1692e(10) of the FDCPA by sending the garnishment summons cover letter and attempting to collect the debt over the phone.  The debtor alleged that this was a "bait-and-switch" scheme designed to deceive unsophisticated consumers.

 

The debtor sued the law firm in state court and the law firm removed the case to federal court.  The trial court granted the law firm's motion for summary judgment and dismissed the case with prejudice.

 

This appeal followed.

 

As you may recall, section 1692c(c) of the FDCPA requires a debt collector to cease further communications if the consumer notifies the debt collector in writing that he wishes to cease further communications with respect to such debt.  15 U.S.C. § 1692c(c).

 

Section 1692e of the FDCPA prohibits a debt collector from using "any false, deceptive, or misleading representation or means in connection with the collection of any debt," including the use of any false representation or deceptive means to collect or attempt to collect any debt."  15 U.S.C. § 1692e(10).

 

The Eighth Circuit applies the unsophisticated consumer standard to FDCPA claims.  Strand v. Diversified Collection Serv., 380 F.3d 316, 317 (8th Cir. 2004).  "This standard protects the uninformed or naive consumer, yet also contains an objective element of reasonableness to protect debt collectors from liability for peculiar interpretations of collection letters."  Id., at 317-18.

 

The debtor argued that the law firm violated section 1692c(c) because the cover letter directed him to call the law firm, but rather than connecting him to someone that could answer questions about the garnishment summons, he was subjected to efforts to collect the debt. 

 

The debtor also argued that the law firm violated his rights under section 1692c(c) because he called only about the topic of the garnishment summons and did not wish to talk about the debt.

 

The trial court found that the debtor initiated the call "and the brief conversation regarding settling the underlying debt occurred only in response to [the debtor's] direct questions of what he was 'gonna do about' the debt."  The representative answered the debtor's questions by stating that the law firm was willing to settle the debt and asked if he was interested in doing so. 

 

The trial court noted that the law firm did not pressure or badger the debtor in any way.  It held that the debtor waived his cease communication directive by asking questions about the debt.  The trial court described the call as "an unsubtle and ultimately unsuccessful attempt to provoke [the law firm] into committing an FDCPA violation." 

 

The Eight Circuit agreed and found nothing improper about providing the debtor with a contact number in the cover letter.  Further, the Eight Circuit determined that "[the debtor's] waiver of his cease letter was "knowing and voluntary, just as it would be were he an unsophisticated debtor."" 

 

Thus, the Eighth Circuit held that the law firm did not violate section 1692c(c).

 

Next, the debtor argued that the law firm violated section 1692e(10), by falsely or deceptively communicating through the cover letter, that a collection representative could answer garnishment summons questions "when in fact the telephone number provided reaches those unable to discuss legal documents." 

 

However, the Eight Circuit did not find any inaccurate information in the cover letter.  The letter did not state that the number provided will be answered by an attorney prepared to answer question solely about garnishment.  Instead, it suggested that a collection representative could be reached at the listed number, and that proved to be true.

 

Regarding the debtor's allegation that the letter accompanying the garnishment summons was a scheme to work around his directive to cease communication, the Eight Circuit stated that "this is the exact sort of peculiar interpretation against which debt collectors are protected by the objective element of the unsophisticated consumer standard."

 

Accordingly, the Eighth Circuit affirmed the trial court's order granting the debt collector's motion for summary judgment.

 

 

 

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   |   Indiana   |   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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Sunday, September 9, 2018

FYI: 7th Cir Holds Trial Court Erred in Reducing Punitive Damages Without New Trial

The U.S. Court of Appeals for the Seventh Circuit held that the trial court erred when it reduced the plaintiff's punitive damages award without giving him the option of a new trial on damages. 

 

Accordingly, the Seventh Circuit reversed the ruling of the trial court, and remanded the matter for the court to offer the plaintiff the option of a new trial on damages. 

 

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

 

An inmate plaintiff ("Plaintiff") filed a complaint against members of a prison's medical staff and administrative team alleging they were indifferent to his serious medical need in violation of the Eighth Amendment.  Plaintiff subsequently added the defendant health care company ("Defendant"), which provided medical care to inmates in Illinois prisons. 

 

Following a trial, the jury awarded Plaintiff $10,000 in compensatory damages and $500,000 in punitive damages. 

 

However, the Defendant argued that the punitive damages award violated the Fourteenth Amendment's prohibition on excessive or arbitrary punishment.  The trial court agreed and reduced the punitive damages to $50,000. 

 

Initially, the trial court also gave Plaintiff a choice between retrying the issue of punitive damages and accepting the reduced award, but later withdrew the option and entered a judgment that awarded only $50,000 in punitive damages (plus the jury's compensation award). 

 

Plaintiff appealed, arguing that the trial court erred in reducing the jury's award of punitive damages without offering him a new trial.

 

In analyzing the issue, the Seventh Circuit first noted that "excessive punitive-damages awards violate the Due Process Clause."  Further, the Supreme Court of the United States (SCOTUS) has "instructed courts to review whether an award of punitive damages exceeds the Due Process Clause's bounds by considering the reprehensibility of the defendant's conduct, the ratio between punitive and compensatory damages, and any civil penalties that punish similar behavior." 

 

The Seventh Circuit then observed that the trial court applied these guidelines to conclude "that an award of punitive damages equal to fifty times compensatory damages violates the Due Process Clause and must be reduced."  The Court noted that this was "consistent with the Supreme Court's caution that few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process."

 

However, although the trial court's ruling was consistent with the SCOTUS guidelines, "[t]he decision to limit punitive damages to five times compensatory damages was arbitrary," and the trial court did not explain why it "chose a multiplier of five, rather than seven, or three, or nine and one-half." 

 

Thus, "[t]he prudent course when a district court reduces a punitive-damages award is to offer the plaintiff a choice between the reduced award and a new trial, for the jury rather than the judge has the principal responsibility for factual evaluations." 

 

Because the trial court did not offer Plaintiff a new trial, the Seventh Circuit held that its "judgment must be vacated and the case remanded for the court to offer [Plaintiff] the option of a new trial." 

 

However, the Court further clarified that it did "not decide whether the Seventh Amendment prohibited the court from unilaterally reducing [Plaintiff's] award on constitutional grounds." 

 

Instead, the Seventh Circuit noted that the SCOTUS has "not resolved that issue, and the district court should not have addressed it either.  Neither party asked the district court to decide whether the Seventh Amendment allows a judge to reduce punitive damages without offering a new trial as an alternative." 

 

Thus, the trial court should not have created that issue, but instead "Plaintiff must be given the option of a new trial as a matter of sound procedure, not constitutional law." 

 

The Seventh Circuit further explained that if Plaintiff chose a new trial on remand, "the jury must be allowed to consider both compensatory and punitive damages," but "a second jury need not consider [Defendant's] liability."

 

Plaintiff also asked the Seventh Circuit to "decide whether he is entitled to punitive damages exceeding five times the compensatory award."  However, "because the district court held that the jury's award of punitive damages violated the Due Process Clause, reviewing the merits of the district court's decision to cap punitive damages at five times compensatory damages would require unnecessary constitutional analysis, which is to be avoided."

 

 

 

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   |   Indiana   |   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.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

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The Consumer Financial Services Blog

 

and

 

Webinars

 

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California Finance Law Developments

 

 

 

Thursday, September 6, 2018

FYI: 7th Cir Holds Pl's Settlement of Parallel Claim Against Another Defendant Mooted FDCPA Claim

The U.S. Court of Appeals for the Seventh Circuit recently reversed a judgment against a debt collector, finding that the plaintiff's settlement with the creditor for the same indivisible injury mooted the plaintiff's federal Fair Debt Collection Practices Act (FDCPA) claims for statutory damages, attorneys' fees, and costs against the debt collector. 

 

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

 

As you may recall, the FDCPA requires a debt collector in the circumstances relevant to this appeal to file a complaint "only in the judicial district or similar legal entity" where the debtor signed the contract or resides when the debt collector files suit. 15 U.S.C. § 1692i(a)(2). 

 

Before Suesz v. Med-1 Solutions, 757 F.3d 636 (7th Cir. 2014), the Seventh Circuit interpreted "judicial district" in Illinois to mean a circuit trial court, and not its municipal subdivisions.  Newsom v. Friedman, 76 F.3d 813, 818-19 (7th Cir. 1996), overruled by Suesz, 757 F.3d 636.  The Circuit Court of Cook County as a whole, and not its suburban municipal subdivisions, was a "judicial district."  Thus, if the debtor resided in Cook County when the debt collector filed suit, then a debt collector could file suit in downtown Chicago.

 

In October 2013, the creditor (Creditor), through its law firm (Law Firm), filed an action to recover a credit card debt against the Plaintiff in the Circuit Court of Cook County's First Municipal District located in downtown Chicago.  At the time, Plaintiff resided in the suburban Fourth Municipal District. In April 2014, the state trial court entered default judgment in favor of the Creditor and against the Plaintiff.

 

In July 2014, the Seventh Circuit overruled Newsom holding that "judicial district or similar legal entity" in section 1692i means "the smallest geographic area that is relevant for determining venue in the court system in which the case is filed."  Suesz, 757 F.3d at 638, 64950.  The Seventh Circuit made its holding retroactive.

 

In October 2014, Plaintiff filed this suit against the Creditor and the Law Firm alleging that they violated section1692i(a)(2) of the FDCPA because they sued her in the wrong judicial district.  She sought to recover actual damages, statutory damages, attorneys' fees and costs.

 

Plaintiff also alleged that the Creditor violated the Illinois Consumer Fraud and Deceptive Business Practice Act and sought actual damages, punitive damages, attorneys' fees, and costs.

 

Plaintiff settled with the Creditor for $5,000 and a release of the underlying debt.  The settlement agreement failed to apportion the settlement funds to any claims, but provided that each party bears its own attorney's fees and costs.

 

In September 2015, Plaintiff abandoned her remaining actual damage claim against the Law Firm and instead only sought FDCPA statutory damages. The Law Firm then moved to dismiss Plaintiff's FDCPA claim under the single-satisfaction rule arguing that the settlement with the Creditor mooted Plaintiff's claims, but the trial court denied the motion.

 

At trial, the jury awarded Plaintiff $200 in statutory damages.  Then, the trial court awarded Plaintiff $69,393.75 in attorneys' fees and $772.95 in costs against Law Firm. 

 

The trial court denied the Law Firm's post-trial motions and this appeal followed.

 

Relevant to this appeal, whether a settlement mooted a case is a question of law that the Seventh Circuit reviews de novo.

 

Initially, the Seventh Circuit reiterated that federal courts only have "limited jurisdiction." U.S. Const. art. III, § 2, cl. 1.  "Jurisdiction requires 'an actual controversy' at all stages of review, not merely at the time the complaint is filed."  Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 669 (2016).

 

"If an intervening circumstance deprives the plaintiff of a personal stake in the outcome of the lawsuit, at any point during the litigation, the action can no longer proceed and must be dismissed as moot." Genesis Healthcare Corp. v. Symczyk, 569 U.S. 66, 72 (2013).  A settlement may moot a plaintiff's case. See Wegscheid v. Local Union 2911, 117 F.3d 986, 991 (7th Cir. 1997).

 

Relevant here, the prospect of an attorneys' fees award "does not create a justiciable controversy if nothing else is at stake in the litigation." Crabill v. Trans Union, LLC, 259 F.3d 662, 666 (7th Cir. 2001). The moving party bears the burden to prove mootness.

 

The Seventh Circuit also reiterated that "a plaintiff is only entitled to a single recovery for a single injury, regardless of how many defendants could be liable for that single injury, or how many different theories of recovery could apply to that single injury."  Thus, if a plaintiff's settlement with a defendant provides a plaintiff with all the relief available for a single, indivisible injury, then the plaintiff generally cannot prosecute a claim for the same injury against another defendant because the settlement moots the claim. 

 

Here, the plaintiff admitted that her "claims stem from the same conduct and arise from a single, indivisible act."  For $5,000 Plaintiff dismissed her claims against the Creditor and the Creditor agreed to release the underlying debt. 

 

A plaintiff may settle with a defendant and still pursue a claim against a different defendant by allocating the funds in good faith to maximize recovery against the non-settling defendant, but besides indicating each party bears its own attorneys' fees and costs, the Plaintiff here did not allocate the settlement funds. 

 

Instead, the Court held, the settlement "encompasses and resolves all claims arising out of the facts alleged in or capable of being alleged in this federal action."  This relieved the Law Firm from "proving which funds satisfy which claims" because the settling plaintiff is "in a better position than a non-settling defendant to ensure a settlement agreement properly allocates funds." The Seventh Circuit held that the $5,000 settlement therefore covers Plaintiff's FDCPA statutory damages claim.

 

The Seventh Circuit next examined whether the settlement mooted Plaintiff s statutory damages claim.  The Seventh Circuit noted that this was an issue of first impression in this Circuit. 

 

The Seventh Circuit began its analysis with the relevant language of the FDCPA:

 

(a) Amount of damages

Except as otherwise provided by this section, any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person in an amount equal to the sum of:

(1) any actual damage sustained by such person as a result of such failure;

(2)(A) in the case of any action by an individual, such additional damages as the court may allow, but not exceeding $1,000.

 

15 U.S.C. § 1692k(a).

 

The Seventh Circuit observed that the FDCPA limits the amount of statutory damages, capping them at $1,000 per action, not per violation and not per defendant.  See Harper v. Better Bus. Servs., Inc., 961 F.2d 1561, 1563 (11th Cir. 1992).

 

Further, "the actual-damages provision mirrors the statutory damages provision." As such, "actual damages for the same single, indivisible injury are not multiplied by the number of defendants."  This, the Court held, demonstrates that the number of defendants does not multiply the statutory damages "provided in the parallel clause."

 

Courts generally are required to strictly and narrowly construe statutes in derogation of the common law.  The FDCPA, "construed strictly and narrowly, provides no clear, express basis to extend statutory damages beyond the common-law single-recovery rule."  Although Congress could have provided that a plaintiff may recover statutory damages on a "per defendant" basis, it did not.

 

Therefore, the Seventh Circuit concluded that the number of defendants does not multiply the available FDCPA statutory damages "where the plaintiff suffered an indivisible harm caused by defendants who did not violate the FDCPA independently of each other."

 

The Seventh Circuit recognized that its decision is in line with its sister circuits that examined this issue. See Goodmann v. People s Bank, 209 Fed.Appx. 111, 114 (3d Cir. 2006) ("We agree with Appellees that 15 U.S.C. § 1692k(a)(2)(A) is best read as limiting statutory damages to $1,000 per successful court action."); Peter v. GC Servs., L.P., 310 F.3d 344, 352 n.5 (5th Cir. 2002) ("[D]amages for violation of the FDCPA in § 1692k are limited to actual damages, plus maximum statutory damages of $1000 per action, not per violation'."); Wright v. Fin. Serv. of Norwalk, Inc., 22 F.3d 647, 651 (6th Cir. 1994) ("Congress intended to limit "other damages" to $1,000 per proceeding, not to $1,000 per violation."; Harper, 961 F.2d at 1563 ("[T]he plain language of section 1692k(a)(2)(A) provides for maximum statutory damages of $1,000.").

 

The Seventh Circuit accordingly held that Plaintiff was only entitled to recover FDCPA statutory damages capped at $1,000 for her indivisible injury once.  Thus, Plaintiff's settlement with the Creditor mooted her FDCPA statutory damages claim against the Law Firm, and Plaintiff was not entitled to attorney' fees or costs from the Law Firm. 

 

The Seventh Circuit therefore vacated the judgment against the Law Firm. and remanded for additional proceedings consistent with its opinion.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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