Friday, May 24, 2019

FYI: 7th Cir Rejects Pl's Effort to Run Up Attorney's Fees After Rejecting Reasonable Offer

The U.S. Court of Appeals for the Seventh Circuit recently held that the trial court did not abuse its discretion when it reduced the plaintiff's counsel's $187,410 fee claim to $10,875 after the debtor only recovered only a $1,000 statutory damages award on his federal Fair Debt Collection Practice Act ("FDCPA") claim at trial and the debt collector had issued a Rule 68 offer of judgment early in the case that exceeded the amount the debtor recovered.

 

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

 

After a debt collector purchased a debtor's credit card debt, the debtor sued the debt collector alleging a violation of the FDCPA. 

 

The debt collector quickly issued an offer of judgment pursuant to Federal Rule of Civil Procedure 68.  The debt collector offered to eliminate the debt, to pay the debtor $1,001 plus reasonable attorneys' fees and costs through the date of the plaintiff's acceptance of this offer, in an amount agreed upon by the parties, and if no agreement can be made, to be determined by the Court.  The offer terms disclaimed any liability. The debtor accepted the offer and the parties agreed to $4,500 in reasonable attorneys' fees.

 

Subsequently, the debt collector engaged in further conduct that caused the debtor to file a second suit against the debt collector alleging several violations of the FDCPA and the federal Fair Credit Reporting Act ("FCRA").

 

The debt collector once again responded by trying to promptly resolve the case.  The debt collector issued successive Rule 68 offers of judgment in the amounts of $1,500, $2,500, and $3,501, with additional terms that mirrored the accepted offer in the first case, but this time the debtor did not accept.

 

After cross-motions for summary judgment, the Court only allowed the debtor to proceed to trial on one of his alleged FDCPA and FRCA claims, and precluded the debtor from recovering any punitive damages.  This left the debtor with the ability to recover up to $1,000 in statutory damages on his FDCPA claim and $21,000 in actual damages for his emotional distress claim.

 

One week before trial, the debt collector again tried to resolve the matter by offering the debtor $25,000 to resolve all remaining claims and to cover his attorneys' fees and costs. The debtor rejected the offer, hired two more attorneys to assist with prosecuting his remaining claims, and proceeded to trial.  The jury found the debtor had no actual damages and awarded him $1,000 in FDCPA statutory damages.

 

The debtor's counsel then sought $187,410 in attorneys' fees, and $2,744 in costs under the FDCPA.

 

As you may recall, a Rule 68 offer of judgment limits the plaintiff's ability to recoup costs incurred after the offer date and may limit any attorneys' fee award too, but section 1692k(a)(3) of the FDCPA creates an exception because it defines attorneys' fees separately from costs, allowing the prevailing debtor to recover reasonable attorneys' fees despite any offer of judgment.

 

However, the trial court noted, the attorneys' fees must still be reasonable.  The trial court held that it must consider that the debtor rejected the debt collector's Rule 68 offer of $3,501 and instead proceeded to trial.  In so ruling, the court also held that it must should consider substantial settlement offers when deciding the reasonable attorneys' fees amount to award. 

 

Here, because the debtor obtained only limited success at trial, and rejected a settlement proposal more than three times the amount of his ultimate recovery, the trial court reduced the attorneys' fees award to the $10,875 that had been incurred when the debt collector made the third offer of judgment given that the debtor did not establish any new principals of law or suffer any ongoing harm.

 

The trial court awarded the debtor $436 in costs as the prevailing party and also awarded the debt collector $3,064 for the costs it incurred after issuing the third offer of judgment.

 

This appeal followed.

 

The Seventh Circuit began its analysis by acknowledging that section 1692k(a)(3) of the FDCPA entitles the prevailing party to a reasonable attorneys' fee award. To determine a reasonable fee award, courts usually employ the lodestar method multiplying the attorney's reasonable hourly rate by the reasonable hours expended and then adjusting the amount to account for the degree of success and the public interest advanced.

 

The Seventh Circuit rejected the debtor's argument that he did not understand what the offer of $3,501 plus reasonable attorneys' fees and costs offer meant because he accepted an offer with the same terms in the first lawsuit and managed to negotiate and receive a reasonable amount to cover legal fees.  Here, the Court noted, the debtor's counsel only had to request a fee award that would cover the time necessary to finalize the settlement.  The Seventh Circuit characterized this next step as easy given the relative simplicity of the claims.

 

The debtor next argued that the trial court abused its discretion in lowering the fee award to $10,875 because the terms of the offer disclaimed liability. The Seventh Circuit had little trouble concluding that this argument missed the mark because the debtor's acceptance of the offer, by operation of Rule 68, would have resulted in a judgment being entered against the debt collector. As such, when the judgment hit the trial court's docket, the prior disclaimer of liability would have been a dead letter.

 

The Seventh Circuit concluded by noting that the debt collector offered the debtor a substantial settlement offer at the beginning of the case that was more than three times the statutory damages available to the debtor and included reasonable attorneys' fees and costs. 

 

Despite this, the Court noted, the debtor proceeded to incur $187,410 in attorneys' fees, only to walk away with $1,000 in statutory damages.  The Seventh Circuit held that the attorneys' fees incurred did not reflect the reasonable attorney work that is often inevitable as part of traveling a diligent litigation course. Instead, the Court noted, the vast majority of the attorneys' fees the debtor incurred were for time spent pursuing an unsuccessful and ill-advised effort to win a much bigger payout than was even remotely possible in the circumstances giving rise to his claims.

 

As such, the trial court did not abuse its discretion, and the Seventh Circuit affirmed the trial court's ruling.

 

 

 

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 22, 2019

FYI: TX Sup Ct Upholds Contractual Waiver of Statute of Limitations for Deficiency Claims

The Supreme Court of Texas held that the contractual waiver of the statute of limitations on deficiency claims contained in a guaranty agreement was sufficiently "specific and for a reasonable time" as to be enforceable and not void as against public policy. 

 

Accordingly, the Texas Supreme Court affirmed the ruling of the appellate court, although it disagreed with portions of the appellate court's reasoning.

 

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

 

The lender extended a loan to the borrower, which loan was secured by property owned by the borrower.  A guarantor ("Guarantor") guaranteed the loan pursuant to a guaranty agreement ("Agreement").

The Agreement contained a number of waivers of defenses, including certain statutes of limitations. 

 

After the borrower defaulted on the loan, the lender's successor ("Bank") foreclosed on the real property securing the loan.  The sale of the property took place in November 2011.  As the purchase price of the property was not sufficient to satisfy the unpaid balance, the Bank sued the Guarantor to recover the deficiency in June 2015. 

 

The Guarantor moved for summary judgment, arguing that the Bank's claim was barred by the Texas Property Code's two-year statute of limitations for deficiency claims.  See Tex. Prop. Code § 51.003(a).  In response, the Bank moved for partial summary judgment, arguing that the Guarantor waived the two-year statute of limitations when he signed the Agreement. 

 

The trial court denied the Guarantor's motion and granted the Bank's motion.  The Bank the moved for final summary judgment on its deficiency claim, which was granted.

 

On appeal, the Guarantor argued that under Texas appellate court decisions applying the Texas Supreme Court decision in Simpson v. McDonald, 179 S.W.2d 239 (Tex. 1944), a statute of limitations defense can only be waived if the language of the waiver is specific and for a defined period of time.  The Guarantor further argued that the waiver he agreed to was indefinite and thus void as against public policy under Simpson, which held that "an agreement in advance to waive or not plead the statutes of limitation is void as against public policy." 

 

The Bank argued that under the Texas Supreme Court's decision in Moayedi v. Interstate 35/Chisam Road, L.P., 438 S.W.3d 1 (Tex. 2014), a party such as the Guarantor can waive all statute of limitations defenses indefinitely by signing a broad waiver of all defenses.

 

The appellate court affirmed, holding that under Moayedi the agreement to waive "all rights or defenses arising by reason of . . . any . . . anti-deficiency law" was sufficient to waive the two-year statute of limitations under section 51.003(a.).  However, the court did not decide whether the Agreement's waiver provision was sufficient to waive all possible statute of limitations defenses, because the Bank sued within the four-year limitations period applying generically to suits to collect debts.  Thus, the appellate court concluded that the Bank's lawsuit was timely even if the Guarantor could not contractually waive all limitations defenses.

 

The appellate court did not consider the Guarantor's argument that his contractual waiver of the limitations period was void as against public policy under Simpson, because it concluded he waived the argument by failing to affirmatively plead it as a "matter constituting an avoidance" under Texas Rule of Civil Procedure 94.

 

The matter was then appealed to the Texas Supreme Court.

 

There, the Guarantor argued that he did not waive his argument that the contractual abandonment of the statute of limitations is void as against public policy.  Further, he argued that, under Simpson, his agreement to waive section 51.003(a)'s two-year limitations period was void unless it was specific and for a predetermined length of time.

 

The Bank abandoned its argument that the Agreement waived all statute of limitations defenses, and instead argued only that the Guarantor waived all defenses under section 51.003, including the two-year statute of limitations.  The Bank argued that the effect of waiving the two-year limitations period was that the four-year limitations period of section 16.004(a)(3) applied as a backstop, and that its lawsuit was filed within the four-year period.

 

The Texas Supreme Court first considered whether the Guarantor waived its argument under Simpson by failing to plead it in his answer.  In making its ruling, the Court determined that it need not decide whether the Guarantor waived its argument by failing to plead it in his answer, because the Bank waived the alleged pleading error by not raising it in the trial court prior to judgment.  Accordingly, the Supreme Court ruled that the appellate court "erred by declining to consider the Guarantor's void-as-against-public-policy argument."

 

The Supreme Court next turned to the Guarantor's argument.  The Court noted that following Simpson, appellate courts in Texas have built on its holding to require that a waiver of a statute of limitations is void unless the waiver is "specific and for a reasonable time." 

 

The Texas Supreme Court agreed with those subsequent appellate court decisions, and held that "[b]lanket pre-dispute waivers of all statutes of limitation are unenforceable, but waivers of a particular limitations period for a defined and reasonable amount of time may be enforced."

 

The court next analyzed the three discrete sections of the agreement that potentially waived the statute of limitations. 

 

Section (E) stated that the Guarantor "waives any and all rights or defenses arising by reason of . . . any statute of limitations, if at any time any action or suit brought by Lender against Guarantor is commenced, there is outstanding indebtedness of Borrower to Lender which is not barred by any applicable statute of limitations."

 

Section (F) purported to waive "any defenses given to guarantors at law or in equity other than actual payment and performance of the Indebtedness."

 

The Supreme Court held that under Simpson, sections (E) and (F) were both unenforceable with respect to statutes of limitation because they purport to completely waive all limitations periods.

 

However, Section (A) provided that "Guarantor also waives any and all rights or defenses arising by reason of (A) any 'one action' or 'anti-deficiency' law or any other law which may prevent Lender from bringing any action, including a claim for deficiency, against Guarantor, before or after Lender's commencement or completion of any foreclosure action, either judicially or by exercise of a power of sale . . ."

 

The Texas Supreme Court determined that "[u]nlike sections (E) and (F), section (A) is both 'specific' and 'for a reasonable time.'"

 

In reaching its conclusion, the Court explained that section (A) was specific because it "waives a particular, identifiable statute of limitations – the two-year period provided by section 51.003."

 

Further, section (A) satisfied the "for a reasonable time" requirement, because although it did not state a substitute limitations period or provide a specific end-date for the waiver, the law in this instance provided for a four-year limitations period as a backstop. 

 

Specifically, "[o]nce section 51.003(a)'s two-year statute of limitations is waived by operation of section (A), the four-year statute of limitations applying to suits to collect debts found in section 16.004(a)(3) of the Civil Practice and Remedies Code becomes applicable."

 

The Court therefore held that the Agreement "does not run afoul of the policy concerns animating Simpson because it is specific and for a reasonable time," and thus the Agreement was enforceable.

 

 

 

 

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

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

 

Admitted to practice law in Illinois

 

 

 

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

 

 

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Sunday, May 19, 2019

FYI: 9th Cir Rejects Challenges to CFPB Structure and CID

The U.S. Court of Appeals for the Ninth Circuit ("Ninth Circuit") recently affirmed a trial court's Order requiring a law firm to respond to interrogatories and requests for production of documents pursuant to a Civil Investigative Demand promulgated by the Consumer Financial Protection Bureau's ("CFPB" or "Bureau").

 

In so ruling, the Ninth Circuit cited prior Supreme Court separation-of-power opinions which indicate that the Bureau's restriction permitting removal of its Director only by the president "for cause" did not violate the Constitution's separation of powers doctrine to conclude that its structure was constitutionally permissible.  

 

The Ninth Circuit also held that the Civil Investigative Demand was proper because the Bureau was permitted to investigate the law firm for potential Telemarketing Sales Rule violations pursuant to an exception to the practice-of-law exclusion, and because the Bureau complied with the demand requirements under section 5562(c)(2).

 

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

 

The CFPB opened an investigation to determine whether a law firm ("Law Firm") violated the Telemarketing Sales Rule, 16 C.F.R. pt. 310 in the course of providing debt-relief services to its consumer clients. 

 

After the Law Firm refused to comply with the CFPB's Civil Investigative Demand requiring it to respond to seven interrogatories and four requests to produce documents (the "CID"), the CFPB filed a petition in the United States District Court for the Central District of California to enforce compliance.  The trial court granted the CFPB's petition and ordered the Law Firm to respond to the CID.  The instant appeal ensued.

 

On appeal, the Law Firm argued that the CFPB's structure violates the U.S. Constitution's separation of powers doctrine, and that the CFPB lacked statutory authority to issue the CID. 

 

In considering the Law Firm's first argument, the Ninth Circuit analyzed the history of the formation and purpose of establishing the CFPB, the powers bestowed upon it to implement and enforce federal consumer financial laws, and the role of its single Director appointed by the President with the advice and consent of the Senate.  12 U.S.C. § 5491(b). 

 

As you may recall, the Bureau's Director serves for a term of five years that may be extended until a successor has been appointed and confirmed, and may be removed by the President only for "inefficiency, neglect of duty, or malfeasance in office." § 5491(c)(1)-(3).  It is this "only for cause" provision that the Law Firm challenges and contends that an agency with the CFPB's broad law-enforcement powers may not be headed by a single Director removable by the President only for cause. 

 

The Ninth Circuit reviewed prior Supreme Court separation-of-powers decisions to determine whether the CFPB's structure is constitutionally permissible.  In Humphrey's Executor v. United States, 295 U.S. 602 (1935), the petitioner similarly challenged the structure of the Federal Trade Commission ("FTC"), which similarly allowed for removal of the agency's five Commissioners only by the President for cause.  There, the Supreme Court held that the for-cause removal restriction was a permissible means of ensuring that the FTC's Commissioners would "maintain an attitude of independence" from the President's control. Id. at 629.

 

The Ninth Circuit remarked that like the FTC, the CFPB exercises quasi-legislative and quasi-judicial powers, and Congress could therefore seek to ensure that the agency discharges those responsibilities independently of the President's will.  See PHH Corp. v. CFPB, 881 F.3d 75, 91-92 (D.C. Cir. 2018) (en banc) (noting that the CFPB acts in part as a financial regulator, a role that has historically been viewed as calling for a measure of independence from the Executive Branch). 

 

As such, the Ninth Circuit opined, the Supreme Court's reasoning in its decisions in Humphrey's Executor and Morrison v. Olson, 487 U.S. 654 (1988) applied equally to the CFPB, and the for-cause removal restriction protecting the CFPB's Director does not "impede the President's ability to perform his constitutional duty" to ensure that the laws are faithfully executed. Morrison, 487 U.S. at 691.

 

Accordingly, the Ninth Circuit viewed the Supreme Court's separation-of-powers decisions in those cases as controlling, and the CFPB's structure as constitutionally permissible.

 

Next, the Ninth Circuit considered the Law Firm's argument that the CFPB lacked statutory authority to issue the CID.  First, the Law Firm argued that the CID's investigation into its advertising of legal services violated the Consumer Financial Protection Act's practice-of-law exclusion, 12 U.S.C. § 5517(e)(1), which provides that  the Bureau "may not exercise any supervisory or enforcement authority with respect to an activity engaged in by an attorney as part of the practice of law under the laws of a State in which the attorney is licensed to practice law." 

 

The Ninth Circuit rejected this argument, and concluded that the trial court correctly applied one of the exceptions to the practice-of-law exclusion.  Under Section 5517(e)(3), the CFPB's authority is not limited with respect to any attorney, "to the extent they are otherwise subject to enumerated consumer laws or authorities under subtitle F or H" – including enforcement of the Telemarketing Sales Rule, which does not exempt attorneys from its coverage even when they are engaged in providing legal services.   15 U.S.C. § 1602; Telemarketing Sales Rule ,75 Fed. Reg. 48,458-01, 48-467-69 (Aug. 10, 2010).

 

The Law Firm's second argument that the CID failed to "state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such violation" as required under § 5562(c)(2) was also rejected, as the Ninth Circuit concluded that the CID properly identified the allegedly illegal conduct under investigation and provision of applicable law to put the Law Firm on notice of the conduct being investigated. 

 

Accordingly, the trial court's order requiring the Law Firm to comply with the CFPB's Civil Investigative Demand 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

 

 

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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Webinars

 

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California Finance Law Developments

 

 

 

Friday, May 17, 2019

FYI: 5th Cir Rules in Lender's Favor in Agricultural Lien Priority Dispute

In an agricultural lien contest between three creditors of a bankrupt commercial farm, the U.S. Court of Appeals for the Fifth Circuit recently affirmed the trial court's award of summary judgment in favor of a bank that provided debtor-in-possession financing, holding that the locale of the farm products determined the applicable lien law and that bank's lien was superior to the liens of two nurseries' that supplied trees and shrubs because the latter were either unperfected or unenforceable.

 

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

 

The debtor, "a wholesale grower of trees, shrubs, and other plants, with headquarters in Texas and offices in Michigan, Oregon and Tennessee[,]" filed bankruptcy in June of 2016.

 

Two creditors were commercial nurseries located in Oregon that supplied trees and shrubs to the debtor in return for security interests in the goods sold. Another creditor, a bank headquartered in Pennsylvania, loaned the debtor money in return for a security interest in most of debtor's assets. The bank also provided post-petition debtor-in-possession financing so the debtor could stay in business.

 

The bankruptcy court ordered that the debtor-in-possession financing included the pre-petition loan and that the bank's lien was subordinate only to valid, perfected pre-petition liens.

 

The nurseries sued the bank in federal court, seeking a declaratory judgment that their liens were superior to the bank's lien. The bank filed a counterclaim seeking a declaratory judgment that the nurseries' liens were unenforceable.

 

The parties filed cross-motions for summary judgment and the trial court granted the bank's motion. The nurseries appealed.

 

On appeal, the Fifth Circuit first approved the trial court's ruling as to "which choice-of-law analysis should determine the law governing the lien dispute[,]" reasoning that the trial court correctly declined to choose whether bankruptcy courts "should  apply forum or federal choice-of-law rules" because "both would give the same answer[;]" namely, Texas.

 

Under Texas law, "agricultural lien perfection and priority are governed by the law of the jurisdiction where 'farm products are located[,]" which meant Michigan, Tennessee and Oregon, where the products were delivered to the debtor's farms.

 

Turning to the merits, the Fifth Circuit agreed with the trial court that the nurseries' liens were not perfected and were thus inferior to the bank's lien "due to defective financing statements." The defect was that the debtor's legal name was not exactly reproduced on the financing statements, as required under Michigan and Tennessee law.

 

Addressing the Oregon products, the Fifth Circuit agreed with the trial court's conclusion that one nursery "failed to extend its lien under Oregon law."  Because the nursery's lien was unenforceable, it could not be senior to the bank's lien.

 

The Fifth Circuit therefore affirmed the trial court's summary judgment ruling in the bank's favor.

 

 

 

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

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

 

Admitted to practice law in Illinois

 

 

 

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

 

 

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


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

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

Webinars

 

and

 

California Finance Law Developments

 

 

 

Wednesday, May 15, 2019

FYI: 11th Cir Splits from Other Circuits on Spokeo Standing

The U.S. Court of Appeals for the Eleventh Circuit ("Eleventh Circuit") sua sponte issued a new opinion to vacate and replace its prior opinion affirming approval of a class action settlement against a retailer for alleged violation of the Fair and Accurate Credit Transactions Act, 15 U.S.C. 1681, et seq. ("FACTA") for printing more digits of his credit card number on a receipt than permitted under the Act.

 

Departing from contrary opinions by other federal appellate courts, the Eleventh Circuit's new opinion offers an updated analysis of the plaintiff-appellee consumer's standing to bring the action under Spokeo, holding that the risk of identity theft the consumer suffered was sufficiently concrete to confer Article III standing, and also bears a close enough relationship to the common law tort of breach of confidence to make the consumer's injury concrete.

 

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

 

A consumer ("Consumer") filed suit in the U.S. District Court for the Southern District of Florida against a prominent chocolate retailer ("Merchant") alleging that the store issued him a receipt that showed his credit card number's first six and last four digits after he made a purchase at one of the Merchant's stores.  The Consumer's Complaint sought relief on behalf of himself, and a class of customers under the Fair and Accurate Credit Transactions Act, 15 U.S.C. 1681, et seq. ("FACTA") as a result of the Merchant's allegedly willful violation, which purportedly exposed him and the proposed class "to an elevated risk of identity theft."

 

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)), and allows for recovery of statutory damages even if the customer received and kept the defective receipt and submits no evidence of identity theft or negative impact to their credit. 15 U.S.C. § 1681n(a); Engel v. Scully & Scully, Inc., 279 F.R.D. 117, 125–26 (S.D.N.Y. 2011).

 

After the Merchant's motion to dismiss was denied, a preliminary class-wide settlement was reached, which included a $6.3 million settlement fund (providing each class member an estimated $235 as its pro-rata share), a one-third contingency fee of $2.1 million to class counsel, and a $10,000 incentive award to the Consumer as class representative.  The Consumer's motion for preliminary approval addressed potential risks favoring pre-trial settlement, including potential challenges to the class members' Article III standing to pursue their FACTA claims dependent upon the outcome of Spokeo, Inc. v. Robins, 578 U.S. ___, 136 S. Ct. 1540 (2016), then-pending before the Supreme Court. 

 

The motion for preliminary approval and proposed form notice were granted, and a scheduling order for the class members to file claims, objections or opt-outs was set approximately two-and-a-half weeks prior to the Consumer's deadline to move for final settlement approval, including the requested attorney's fees and incentive award.

 

Of the 318,000 class members who received notice of the settlement, over 47,000 submitted claim forms.  Only fifteen members opted out, including five who objected to the settlement.  Two class members (the "Objecting Class Members") objected to the proposed class-wide settlement, arguing that (i) the Consumer's $10,000 incentive award was not warranted, (ii) the proposed attorney's fee award should be subject to a lodestar analysis, and (iii) notice of the fee motion was inadequate under Rule 23(h).  See Fed. R. Civ. P. 23(h)(1) ("[n]otice of the motion [for attorney's fees and nontaxable costs] must be served on all parties and, for motions by class counsel, directed to class members in a reasonable manner."). 

 

The Consumer subsequently filed the motion for final approval of settlement along with a separate motion for attorneys' fees at the court's direction, and four days later—before the Objecting Class Members field their opposition briefs—the magistrate issued a report and recommendation ("R&R") to approve the class settlement and full attorneys' fees  and incentive awards as proposed.  The Objecting Class Members proceeded with filing their opposition briefs and objections to the magistrate's R&R, which were considered at a fairness hearing before the court, wherein counsel for one of the Objecting Class Members raised a new objection concerning the Consumer's standing under Article III. 

 

Over the Objecting Class Members' objections, the trial court approved the settlement, including the requested attorneys' fees and incentive award, rejecting the Objecting Class Members' argument that notice of the fee motion was not adequate because it had "permitted objections to be filed both before and after" it was filed, and also considered the R&R objections in reaching its conclusion that the fee and incentive awards were reasonable.

 

The Objecting Class Members appealed the final approval of settlement and one of the two appellants further challenged the Consumer's Article III standing to pursue a claim against the Merchant under FACTA on appeal. 

 

The Eleventh Circuit first addressed the Consumer's standing to bring the action under Article III.  This discussion is the court's self-declared "major change" from its previous opinion. 

 

As you may recall, Article III standing to invoke federal subject matter jurisdiction requires plaintiffs to show they suffered an injury in fact traceable to the defendant's conduct and redressable by a favorable judicial decision. Spokeo, Inc. v. Robins, 578 U.S. __, 136 S. Ct. 1540, 1547.  "To establish injury in fact, a plaintiff must show that he or she suffered 'an invasion of a legally protected interest' that is 'concrete and particularized' and 'actual or imminent, not conjectural or hypothetical.'"  Id. at 1548 (internal quotation omitted). 

 

Whether the Consumer's alleged injury was "particularized" was not at dispute because the heightened risk of identity theft affected him "in a personal and individual way"— it was his credit card number that appeared on the receipt. 

 

Instead, the Objecting Class Member's argument relied upon Spokeo's holding which reaffirmed a "'concrete' injury must be 'de facto'; that is, it must actually exist," (Id. at 1548) to argue that the Consumer lacked standing because the injury was not sufficiently "concrete" to confer standing.  The Consumer argued that his injury was also concrete because he suffered a heightened risk of identity theft when the Merchant printed more digits of his credit card number than allowed under FACTA. 

 

As the Eleventh Circuit pointed out, in cases like this, a plaintiff may show injury in fact by alleging "the violation of a procedural right granted by statute" poses a "risk of real harm" to a concrete interest. Id. at 1549. 

 

Here, the Consumer alleged that he suffered a heightened risk of identity theft as a result of the Merchant's FACTA violation—the very interest that Congress sought to protect with FACTA.  A consumer undoubtedly has a concrete interest in preventing his identity from actually being stolen.  See Attias v. Carefirst, Inc., 865 F.3d 620, 627 (D.C. Cir. 2017) ("Nobody doubts that identity theft, should it befall one of these plaintiffs, would constitute a concrete and particularized injury.").  Accepting these allegations as true, the Eleventh Circuit concluded that the Consumer established a risk of real harm to a concrete interest sufficient to establish standing under Spokeo.

 

The re-issued opinion acknowledges that its declines to follow the Third Circuit's recent ruling in Kamal v. J. Crew Grp., Inc., 918 F.3d 102, 114 (3d Cir. 2019), which rejected a consumer's FACTA claims for the same purported violations as the case at bar for not alleging a concrete article for Article III standing. 

 

However, the Eleventh Circuit contended that its holding here is not inconsistent with other circuits which found no standing in similar claims under FACTA pertaining to inclusion of a credit card expiration date on receipts, and is distinguishable because those opinions rely on Congress's finding in The Credit and Debit Card Receipt Clarification Act of 2007 (the "Clarification Act"), that "a receipt with a credit card expiration date does not raise a material risk of identity theft."  See Bassett v. ABM Parking Servs., Inc., 883 F.3d 776 (9th Cir. 2018); CruparWeinmann 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). 

 

The Eleventh Circuit reasoned that the legislative history of the Clarification Act reflects Congress's view that printing more than the last five digits of a credit card number contributes to the problem of identity theft because the Act left only limited liability for printing expiration dates in drafting the Clarification Act, and specifically found that FACTA's truncation requirement "prevents a potential fraudster from perpetrating identity theft or credit card fraud."  For these reasons, the Eleventh Circuit held that Congress judged the risk of identity theft suffered by the Consumer to be sufficiently concrete to confer standing to raise his FACTA claims.

 

Separately, the Court held, the Consumer could show standing based on the similarity between the alleged harm and the common law tort of breach of confidence.  Spokeo at 1549 (describing it as "instructive to consider whether an alleged intangible harm has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American courts"). 

 

A common law breach of confidence involves the offer a person's private information to a third party in confidence who reveals that information, and occurs when the plaintiff's trust in the breaching party is violated, whether or not the breach has other consequences (citations omitted). 

 

Here, because the Merchant printed more numbers of the Consumer's credit card than allowed under statute, it created a heightened risk that information the Consumer entrusted to it would become disclosed to the public — a risk the Eleventh Circuit concluded bears a close enough relationship to the disclosure of confidential information actionable at common law for breach of confidence to satisfy Article III under Spokeo. 

 

Although the Third Circuit's opinion in Kamal 918 F.3d at 114 rejected this case's original opinion that breach of confidence is sufficiently analogous to give rise to standing, the Eleventh Circuit noted that it has consistently read Spokeo to mean that, where the common law allowed a cause of action to remedy an injury, Congress can create a statutory cause of action to remedy the risk of such an injury.  Accordingly, it concluded that the Consumer suffered a concrete injury, and has standing to bring this action.

 

Lastly, in addressing the Objecting Class Members' remaining arguments concerning approval of the class settlement, the Eleventh Circuit held that although the trial court erred by setting an objection deadline before a filed motion for attorney's fees, the Objecting Class Members were not prejudiced because their arguments were adequately considered by the magistrate and the court.  

 

Moreover, the Eleventh Circuit held that the trial court did not abuse its discretion in its attorney's fees and incentive awards because (i) a lodestar analysis was not appropriate because the attorneys' fees were sought from a common fund, rather than a fee-shifting statute, and the above-benchmark award properly assessed risks faced by the class and its counsel, and; (ii) the incentive award was supported by the district court's record, which stated that the Consumer subjected himself to inconvenience and delays that did not materialize, but were a possibility when he was appointed to represent the class.

 

Accordingly, the trial court's approval of the class-action settlement was affirmed.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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