Saturday, May 26, 2018

FYI: ND Ind Grants Class Cert Over Objections as to Standing, Commonality of Injury, "Consumer" Debt

The U.S. District Court for the Northern District of Indiana recently concluded that the objective "unsophisticated consumer" standard applicable in the Seventh Circuit for whether there was a material misrepresentation under the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692e (FDCPA) parallels the commonality requirement for class certification under Fed. R. Civ. P. 23(a).  

 

In addition, the District Court concluded that receiving a false and misleading dunning letter from a debt collector, as plaintiff alleged, establishes an injury in fact to the plaintiff.  According to the Court, even though the injury was intangible, it was concrete and particularized, thus establishing the requirements under Spokeo. 

 

Finally, the District Court concluded that plaintiff could limit the class to individuals in a single state even though her complaint made allegations on behalf of a putative class consisting of individuals in multiple states.  According the Court, the broadest class possible is not require, and instead Rule 23 encourages specific and limited classes.  Because the requirements for class certification under Rule 23 were satisfied, and plaintiff alleged an injury in fact, thus giving her standing to represent the proposed class, the District Court granted plaintiff's renewed motion for class certification -- subject to slight revisions to the definition of the proposed class.

 

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

 

Plaintiff brought this putative class action against the defendant debt collector, alleging the defendant sent her a dunning letter that was false or misleading in violation of the FDCPA.  In particular, the dunning letter represented to plaintiff that no report would be made to the credit reporting agencies if plaintiff availed herself to one of the settlement options the debt collector offered.  According to plaintiff, the dunning letter was false and misleading because the debt had already been reported to the credit reporting agencies by the time the dunning letter was sent.  Plaintiff alleged that consumers in Indiana, Illinois and Wisconsin had received the dunning letters.

 

Despite alleging consumers in multiple states had received the dunning letter, plaintiff sought certification of the following proposed class: (a) all individuals in Indiana (b) who were sent a letter by defendant (c) offering a settlement (d) and stating that "your delinquent account may be reported to the national credit bureaus" (e) where the debt was reported to one or more national credit bureaus (Equifax, Trans Union, or Experian) on or before the date in the letter for receipt of the settlement, or first payment thereof, and (f) the letter was sent at any time during a period beginning July 13, 2016 and ending August 3, 2017. 

 

The District Court first set out the requirements plaintiff needed to satisfy in order to have the matter certified as a class action. As you may recall, "Rule 23(a) prescribes requirements of numerosity, commonality, typicality, and a representative that will fairly and adequately protect the interests of the class. Rule 23(b)(3) authorizes the type of class action in which 'the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members' and that is 'superior to other available methods for fairly and efficiently adjudicating the controversy.'"

 

According to the Court, the numerosity requirement was easily satisfied, as plaintiff had identified over 39,000 individuals meeting the definition of the proposed class.

 

Next, the Court turned its attention to what it believed was the biggest issue: the commonality requirement.  "The predominant legal question posed by the case is common to all members of the class, namely whether this notice violated the FDCPA by misrepresenting that no report would be made to a national credit bureau if the recipient timely availed herself of one of the settlement options offered."

 

In reliance on the Supreme Court of the United States's ruling in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 131 S. Ct. 2541, 180 L. Ed. 2d 374 (2011), the defendant first challenged the commonality requirement by asserting that determining whether all potential members of the class suffered the same injury could not be done on a class-wide basis. 

 

The District Court rejected defendant's argument. "The question of FDCPA compliance posed here by the same form letter sent to 39,000 debtors is clearly not analogous to the 'literally millions of employment decisions at once' involved in Dukes, in which the challenged decisions were all discretionary and distinctly made."

 

The next challenge asserted by the defendant was that whether a material misstatement had been made required an individualized inquiry to determine if the alleged misstatement "actually affected the recipient's decision-making."  Relying on Seventh Circuit precedent as to the applicable standard for § 1692e claims under the FDCPA, the District Court rejected the challenge.  "Claims under § 1692e use an objective 'unsophisticated consumer' standard, under which 'it is unimportant whether the individual that actually received a violative letter was misled or deceived.'  Our test for determining whether a debt collector violated § 1692e is objective, turning not on the question of what the debt collector knew but on whether the debt collector's communication would deceive or mislead an unsophisticated, but reasonable, consumer."

 

The Court continued, "the question will be not whether any particular plaintiff's decision-making was influenced by the challenged text of the notice, but whether 'a significant fraction of the population would be.'"

 

The defendant also raised a standing defense, asserting that class certification was not appropriate because "detailed and individualized inquiry" would be required to determine each class member's injury in fact supporting standing to sue.  In response, plaintiff asserted that, for purposes of class certification, only the plaintiff needs to establish standing.

 

The Court concluded that only the plaintiff needed to establish standing for class certification. Turning to whether the plaintiff suffered an injury in fact, the District Court again looked to Seventh Circuit precedent as to injuries under the FDCPA. "Claims under the FDCPA challenging a dunning letter as false and misleading present an injury in fact. Though intangible, the injury is both concrete, because it presents an appreciable risk of harm to the plaintiff, and particularized, because the challenged letter was sent directly to the plaintiff."

 

The Court continued, "the value of receiving truthful information about one's financial affairs" and the ill effects of receiving misleading information "may be hard to quantify, especially where, as here, the plaintiff did not act upon the misinformation, but such a harm is both concrete and particularized, and so is an injury in fact for purposes of standing analysis." 

 

Next, the District Court rejected defendant's argument that class certification was inappropriate based on the necessity to determine whether the dunning letters at issue involved consumer transactions, as required under the FDCPA.  "The need to show that the transactions involved in a particular case are consumer transactions is inherent in every FDCPA class action and if that alone precluded certification, there would be no class actions under the FDCPA." 

 

The Court's remedy to cure any potential ambiguity was to include the "consumer debt" limitation within the proposed definition of the class. With that revised definition of the proposed class, the Court concluded that the commonality and typicality requirements under Rule 23 were also satisfied.

 

The defendant also challenged plaintiff's limitation of the putative class to individuals in Indiana when the complaint made allegations on behalf of individuals in Indiana, Illinois and Wisconsin.  The District Court rejected defendant's argument.  "The broadest possible class is not required.  To the contrary, the class requirements of Rule 23 encourage rather specific and limited classes.  Furthermore, there is no provision that limits defendants being exposed to more than one FDCPA class action lawsuit. The statewide scope of the class is perfectly acceptable."

 

Finally, the District Court concluded plaintiff was an appropriate representative of the putative class.  The defendant had asserted plaintiff was not an appropriate representative because the class definition was limited to those members in Indiana but plaintiff lived in Illinois.  The Court determined this was a "non-starter" because plaintiff lived in Indiana at the time the dunning letters at issue were sent to her.

 

In concluding all of the requirements of Rule 23 were satisfied for class certification, the District Court summarized its findings: "The class action is not only the superior method, but the best one for pursuing remedies under the FDCPA. As the Seventh Circuit has observed, '[b]ecause these are small-stakes cases, a class suit is the best, and perhaps the only, way to proceed.'"

 

Accordingly, the District Court granted plaintiff's motion for class certification subject to revising the class definition to be limited to consumer debt.  

 

 

 

 

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, May 23, 2018

FYI: 5th Cir Holds Mortgagee Needed to Issue New Acceleration Notice Before Foreclosing

The U.S. Court of Appeals for the Fifth Circuit held that where a mortgagee rescinded prior a notice of intent to accelerate and then filed a foreclosure action without first issuing a new notice of intent to accelerate, it failed to meet its burden to show clear and unequivocal notice of intent to accelerate prior to filing suit, and therefore was not entitled to foreclosure judgment. 

 

Accordingly, the Fifth Circuit reversed the ruling of the trial court granting summary judgment in favor of the bank, and dismissed the foreclosure action. 

 

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

 

The defendant borrowers ("Borrowers") obtained a loan from the lender, which loan was secured by a Texas Home Equity Security Instrument on the Borrowers' home.  The Borrowers' loan was subsequently assigned to the plaintiff bank ("Bank") in 2014. 

 

On April 15, 2011, one of the Bank's predecessors mailed the Borrowers a notice of default and intent to accelerate.  On June 22, 2011, the Borrowers were sent a notice of acceleration.  On March 6, 2012, the predecessor sent a notice of default and intent to accelerate, followed by another notice of acceleration on May 22, 2013.  

 

On November 3, 2014, the Bank sent the Borrowers a "Notice of Rescission of Acceleration," which stated that the lender "hereby rescinds Acceleration of the debt and maturity of the Note," and that the "Note and Security Instrument are now in effect in accordance with their original terms and conditions, as though no acceleration took place." 

 

On June 25, 2015, the Bank sued the Borrowers seeking a judgment of foreclosure or, alternatively, a judgment of equitable subrogation.  In August 2015, the Bank filed an amended complaint stating that the Bank "accelerates the maturity of the debt and provides notice of this acceleration through the service of this Amended Complaint." 

 

On August 26, 2016, the Bank moved for summary judgment, which the trial court granted.  The Borrowers appealed.

 

At issue on appeal was whether the Bank properly accelerated the note. 

 

In addressing the issue, the Fifth Circuit noted that the Bank's "lien includes an optional acceleration clause, under which the 'Lender at its option may require immediate payment in full of all sums secured by this Security Instrument.'" 

 

Under Texas law, "[e]ffective acceleration requires two acts: (1) notice of intent to accelerate, and (2) notice of acceleration."  Also, "[b]oth notices must be clear an unequivocal." 

 

The Fifth Circuit determined that the Bank's "complaint could serve as adequate notice of acceleration, but only if it was preceded by a valid notice of intent to accelerate." 

 

In determining whether there was a valid notice of intent to accelerate, the Fifth Circuit first noted that "Texas courts have not squarely confronted whether a borrower is entitled to a new round of notice when a borrower [sic] re-accelerates following an earlier rescission." 

 

Thus, "[f]orced to make an Erie guess, we hold that the Texas Supreme Court would require such notice, and that [the Bank] has therefore failed to meet its summary judgment burden." 

 

Further, "[t]he Texas Supreme Court would likely conclude that [the Bank] acted 'inconsistently' by rescinding acceleration and then re-accelerating without notice." 

 

The Fifth Circuit determined that once the Bank rescinded the notice of acceleration, the Borrowers did not have "clear and unequivocal notice that [the Bank] would exercise the option." 

 

"Because [the Bank] failed to meet its burden to show clear and unequivocal notice of intent to accelerate prior to filing suit, it is not entitled to a foreclosure judgment." 

 

Accordingly, the Fifth Circuit reversed the trial court's grant of summary judgment, and entered a judgment of dismissal.

 

 

 

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, May 20, 2018

FYI: 7th Cir Remands Putative Class Action to State Court for Lack of Spokeo Standing

The U.S. Court of Appeals for the Seventh Circuit recently held that a putative class action alleging violations of the federal Fair and Accurate Credit Transactions Act ("FACTA") could not be removed to federal court because the plaintiffs lacked Article III standing, which deprived the federal trial court of subject matter jurisdiction.

 

Accordingly, the Seventh Circuit remanded the case to the federal trial court with instructions to return the case to state court.

 

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

 

The lead plaintiffs filed a class-action complaint in Illinois state court alleging that the defendant, which operates public parking lots at the Dayton International Airport, allegedly violated 15 U.S.C. § 1681c(g)(1) (FACTA) by printing the expiration date of plaintiffs' credit cards on their parking receipts. The complaint did not allege that plaintiffs had suffered any credit card fraud or identity theft.

 

The defendant removed the case to federal court.  The defendant then moved to dismiss, arguing that because the plaintiff's had not alleged any concrete injury in fact, they lacked Article III standing to sue and the court lacked subject matter jurisdiction.

 

In response, the plaintiffs, in a surprise move designed to keep their case alive in another forum despite the lack of any concrete injury, also moved to remand the case to state court, arguing that the defendant bore the burden of establishing subject matter jurisdiction and, lacking that, the federal court had to return the case to state court.

 

The federal trial court denied the motion to remand the case to state court, reasoning that it had federal question jurisdiction because the case arose under FACTA , and therefore that it had subject matter jurisdiction under 18 U.S.C. § 1331, which gives federal courts "original jurisdiction" over claims "arising under" a federal statute.

 

The federal trial court then turned to the issue of standing, reasoning that because they did not allege any actual harm, but only statutory violations, the plaintiffs could not establish that they had standing and, accordingly, the court did not have subject matter jurisdiction. The federal trial court granted the plaintiffs leave to amend, but when they failed to do so, dismissed the case with prejudice.

 

On appeal, the Seventh Circuit note that as the party invoking federal jurisdiction, the defendant had the burden of establishing "that all elements of jurisdiction—including Article II standing—existed at the time or removal. … Removal is proper only when a case could originally have been filed in federal court."

 

The Appellate Court rejected the defendant's reasoning that removal to federal court was proper "because § 1441(a) allows removal of cases over which federal courts would have had 'original jurisdiction' and 28 U.S.C. § 1331 grants federal courts 'original jurisdiction' over claims 'arising under' a federal statute." It reasoned that "reliance on the phrase 'original jurisdiction' is not enough, because federal courts have subject-matter jurisdiction only if constitutional standing requirements also are satisfied."

 

In other words, the Seventh Circuit reasoned, under the Supreme Court's holding in Spokeo, Inc. v. Robins, in order to establish federal subject-matter jurisdiction, the removing defendant must also show that plaintiffs suffered a "concrete and particularized" injury that is "actual or imminent" and not just a technical statutory violation.

 

The Seventh Circuit noted that the plaintiffs "did not sufficiently alleged an actual injury" because merely alleging "'actual damages' in the complaint's prayer for relief does not establish Article III standing."

 

The Appellate Court concluded that because Article III standing was lacking, 28 U.S.C. § 1447(c) required that a federal trial court remand the case to state court if "at any time before final judgment it appears that the district court lacks subject matter jurisdiction."

 

In addition, the Seventh Circuit concluded that the case should not have been dismissed with prejudice because "[a] suit dismissed for lack of jurisdiction cannot also be dismissed 'with prejudice'; that's a disposition on the merits, which only a court with jurisdiction may render." Dismissal with prejudice was also not appropriate as a sanction under Federal Rule of Civil Procedure Rule 41(b) because while the plaintiffs failed to amend their complaint and "[a] willful failure to prosecute can fit the bill, … no finding of willfulness in this case justified a punitive dismissal on the merits."

 

The Appellate Court declined to award plaintiffs their attorney's fees under § 1447(c) because their "brief does not adequately develop a basis to do so." However, the Seventh Circuit pointed out the defendant's "dubious strategy has resulted in a significant waste of federal judicial resources, much of which was avoidable."

 

Accordingly, the trial court's judgment was vacated with instructions to remand 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

 

 

 

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

 

 

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

 

and

 

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and

 

Webinars

 

and

 

California Finance Law Developments