FYI: 7th Cir Reverses FDCPA Class Cert and Judgment Due to Lack of Standing

The U.S. Court of Appeals for the Seventh Circuit recently vacated judgment in favor of consumers and certification of a proposed class for claims that a debt collector violated sections 1692e and 1692f of the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. ("FDCPA") by excluding a statement that interest would accrue on the debts in their collection letters.

 

In so ruling, the Seventh Circuit concluded that the consumers failed to present evidence that the absence of a statement about interest had an effect on how they responded to the letters or managed their debts.

 

This, the Seventh Circuit held, did not satisfy the requirements for a plaintiff to set forth evidence of specific facts demonstrating that he or she suffered a concrete injury necessary for standing at the summary judgment stage.

 

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

 

Husband and wife consumers ("Consumers") incurred medical debts that the defendant, a debt collector ("Debt Collector") sought to collect on behalf of the medical‐care provider.  The Debt Collector mailed letters to the Consumers (the "Collection Letters") providing the debts' sums, but excluding a statement that interest would accrue on the debts.

 

The Consumers filed a putative class action complaint against the Debt Collector on behalf of themselves and a proposed class of all recipients of the Collection Letters alleging that the letters' omissions of a statement that interest would accrue on the debts violated the FDCPA by containing false, deceptive or misleading statements in violation of § 1692e, and that the statements amount to an unfair or unconscionable means of collecting a debt in violation of § 1692f.

 

The trial court entered summary judgment in the Consumers' favor and certified a class.  This appeal followed.

 

On appeal, the Debt Collector argued (1) that the Consumers lacked standing to sue based on the letters' lack of a statement about interest; (2) the Consumers were otherwise not entitled to judgment as a matter of law because no statement about interest was required under the FDCPA; and (3) class certification was improper.

 

As a threshold issue, the Seventh Circuit discussed the Consumers' Article III standing to bring their claims in federal court. 

 

As you likely recall, to establish standing, a plaintiff has the burden to establish that it has "(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial ruling." Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016); Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-561 (1992).

 

The Debt Collector argued that the Consumers lacked standing for failing to allege a concrete injury-in-fact in their complaint.  However, the Seventh Circuit found this argument misplaced, as it relied upon the standard for demonstrating standing at the pleading stage which did not govern here. See Spokeo, 136 S. Ct. at 1547; Silha v. ACT, Inc., 807 F.3d 169, 173–74 (7th Cir. 2015) (A plaintiff may initially demonstrate standing by pleading allegations that "plausibly suggest" each element of standing when all reasonable inferences are drawn in the plaintiff's favor). 

 

Instead, the applicable standard at the summary judgment phase requires a plaintiff to demonstrate standing by supplying evidence of "specific facts" that, taken as true, support each element of standing. Lujan, 504 U.S. at 561. 

 

The Consumers argued on appeal that the collection letters' failure to include a statement that the debts would accrue interest were misleading in violation of the sections 1692e(2)(A) and 1692f of the FDCPA were enough, by itself, to establish a concrete injury necessary for standing.

 

The Seventh Circuit noted that it recently rejected this argument in analogous contexts concerning Article III standing for claims raised under the FDCPA.  See Bazile v. Finance System of Green Bay, Inc., No. 19-1298 (7th Cir. 2020), (remanding district court's holding that plaintiff's satisfied requirements of Article III standing to bring FDCPA claims for findings of fact); Larkin v. Finance System of Green Bay, Inc. Nos. 18-3582 & 19-1537, 2020 WL 7332483 (7th Cir. Dec. 14, 2020) (affirming dismissal of claims under §§ 1692e and 1692f of the FDCPA for lack of standing where plaintiff consumer had not alleged that defendant debt collector's omission affected her in any way, or violation caused harm or put consumer at an appreciable risk of harm). 

 

For a concrete injury to result from the purported FDCPA violation, the court reasoned that the Collection Letters' exclusion of a statement about accruing interest must have detrimentally affected the debtors' handling of their debts.  See generally 15 U.S.C. §§ 1692(a), (e), 1692e. 

 

Here, the Consumers failed to present any record evidence that the absence of the statement affected how they responded to the collection letters or managed their debts, or even took any action to seek information whether the debts were accruing interest. 

 

For these reasons, the Seventh Circuit concluded that the Consumers' claims were non-justiciable, as they failed to set forth evidence of specific facts demonstrating they suffered a concrete injury necessary for standing.

 

Accordingly, the trial court judgment in favor of the Consumers' and certifying a class was vacated and remanded for proceedings consistent with this opinion.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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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FYI: 6th Cir Holds Non-Compliance With IRS Regs on "Qualified Education Loans" Not Relevant to Dischargeability

The U.S. Court of Appeals for the Sixth Circuit recently held that loans incurred by a debtor to pay university tuition were "qualified education loans" under the Bankruptcy Code and thus were not dischargeable.

 

In so ruling, the Sixth Circuit rejected the debtor's arguments that:

 

-  "[I]mporting a definition from a separate statutory context should entail importing any attendant regulations as well;" and therefore that

 

-  The "loans are not qualified education loans because she never filed an IRS Form W-9S expressly certifying that the loans were incurred to pay 'qualified higher education expenses' and she never received a Form 1098-E that would follow that certification".

 

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

 

The debtor took out 5 loans from a national bank totaling $76,049. The loan documents reflected that they were "[f]or students attending 4-year colleges and universities" and required the school to "certify the student applicant's year, enrollment status, loan amount (not to exceed the cost of education when combined with other financial aid), and recommended disbursement dates." The loans were disbursed directly to the university.

 

The debtor paid for several years and the loans were assigned to a new owner. The debtor filed a voluntary Chapter 7 bankruptcy petition and "listed the five … loans as dischargeable, claiming that they were not excepted under 11 U.S.C. § 523(a)(8)" and  then filed an adversary proceeding seeking an order that the loans were dischargeable.

 

The parties filed cross-motions for summary judgment and the bankruptcy court granted the loan owners' motion. The debtor appealed and the district court affirmed the  bankruptcy court. The debtor then appealed to the Sixth Circuit.

 

On appeal, the Court explained that subsection 523(a)(8)(B) "was enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 … [and] expanded to private loans § 523(a)(8)'s existing discharge exception for government-and-non-profit-backed educational loans. … Subsection (8)(B) defines qualified education loans by cross-reference to the tax code which in turn defines them, in relevant part, as: 'any indebtedness incurred by a taxpayer solely to pay qualified higher education expenses.'"

 

The Court agreed with the parties that it "should look to the initial purpose of [debtor's] loans, rather than their actual uses, to determine whether they fall within the scope of (8)(B)."

 

First, the Court pointed out, "the statutory definition of qualified education loan specifically focuses on whether the loan was 'incurred … to pay' qualified higher education expenses, rather than on its ultimate uses." In addition, "allowing debtors to discharge their student loans simply because they misuse the funds for non-educational expenses would not further Congress' goal of preserving the financial integrity of the student loan system."

 

The Court then analyzed the purpose to the loans by construing the loan documents, concluding that "[t]he bankruptcy court correctly concluded that the sole purpose of the … loans was to pay the cost of attendance at [university] minus the maximum amount of other financial aid [debtor] received."

 

The Court rejected the debtor's argument that the debtor's and university's status as 'eligible' were in dispute because the debtor "forfeited any dispute as to these facts by failing to raise them below." In addition, the debtor failed "to point to any evidence in the record, beyond the allegations in her complaint, that creates a dispute regarding these facts."

 

The Court also rejected as irrelevant to the issue of whether the loans are dischargeable the debtor's argument that "her non-receipt of IRS 1098-E forms and [the university's] failure to certify three of the five loans are also material facts."

 

The debtor's argument that the "loans are not qualified education loans because she never filed an IRS Form W-9S expressly certifying that the loans were incurred to pay 'qualified higher education expenses' and she never received a Form 1098-E that would follow that certification" fared no better. The Court reasoned that debtor "offers no authority for the general proposition that importing a definition from a separate statutory context should entail importing any attendant regulations as well, let alone any support for doing so in this specific context."

 

In short, the tax regulations relied upon by the debtor "have nothing to do with bankruptcy."

 

The Court affirmed the judgment of the bankruptcy court, concluding that because the "undisputed evidence in the record thus establishes that [debtor] incurred the … loans solely to pay her qualified higher education expenses at [university][,] … the loans are qualified education loans under 11 U.S.C. § 523(a)(8)(B)" and were not dischargeable.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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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FYI: 7th Cir Upholds Dismissal of Two FDCPA Class Action Cases on Spokeo/Standing Grounds

The U.S. Court of Appeals for the Seventh Circuit recently affirmed the dismissal of consumers' claims that a collection letter used false, deceptive, or misleading representations, or otherwise unfair or unconscionable methods to collect a debt, in supposed violation of sections 1692e and 1692f of the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (FDCPA).

 

Affirming the trial court's judgment on different grounds, the Seventh Circuit concluded that the bare procedural violation alleged by the letters' recipients failed to satisfy the "injury-in-fact" requirement to confer standing under Article III, as the consumers' complaint did not allege that the purported FDCPA violations injured them in any concrete way, tangible or intangible.

 

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

 

In March 2017, a debt collector ("Debt Collector") sent a dunning letter to a consumer ("Consumer 1") regarding debt related to medical services.  The letter included the statement ""You want to be worthy of the faith put in you by your creditor … . We are interested in you preserving a good credit rating with the above creditor."

 

In August and September 2017, another consumer ("Consumer 2") received three similar dunning letters from the Debt Collector, which, respectively, included the following statements: (1) "Your creditor is interested in you preserving a good credit rating with them"; (2) "You do not want to lose our confidence. You want to be worthy of the faith put in you by your creditor …" and; (3) "[y]our creditor has placed your bill for collection. To avoid errors and to clear your credit record with the above creditor, send or bring your payment to our office, or pay online … ."

 

Consumer 1 and Consumer 2 (collectively, the "Consumers"), both represented by the same law firm, filed nearly identical class-action lawsuits against the Debt Collector alleging that the collection letters violated the FDCPA by containing false, deceptive or misleading statements in violation of § 1692e, and that the statements amount to an unfair or unconscionable means of collecting a debt in violation of § 1692f.

 

The Debt Collector moved to dismiss the Consumers' complaints, arguing that the complaint was untimely and failed to state a claim, and challenging the Consumers' standings.  The trial court judge concluded that the Consumers had standing and timely filed suit, but dismissed the complaints for failing to state a claim, holding as a matter of law that the statements within the collection letters did not violate §§ 1692e or 1692f. 

 

The Consumers appealed, and the Seventh Circuit consolidated the cases because they presented identical questions of law.

 

On appeal, the Seventh Circuit initially discussed the Consumers' Article III standing to bring their claims in federal court.  As you likely recall, to establish standing, a plaintiff has the burden to establish that it has "(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial ruling." Spokeo, 136 S. Ct. at 1547.  

 

Many disputes about standing —- including this one -- turn on the "injury in fact" requirement: that a plaintiff must demonstrate 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 (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992)). 

 

The Seventh Circuit further noted that particularization is generally easy to understand—that it must "affect the plaintiff in a personal and individual way."  Lujan, 504 U.S. at 560 n.1; however, the concrete requirement can be trickier, as a concrete must be "real ,.. not abstract," but not necessarily tangible.  Spokeo, 136 S. Ct. at 1548-49.  In the context of a statutory violation, the injury-in-fact requirement of Article III is not satisfied for a "bare procedural violation" of a statute when the plaintiff has not alleged a concrete personal violation form the violation.  Id.

 

To analyze whether the Consumers met this threshold, the Seventh Circuit turned to recent rulings applying Article III standing analysis to violations of section § 1692g of the FDCPA. 

 

In Casillas v. Madison Avenue Associates, 926 F. 3d 329 (7th Cir. 2019), the plaintiff alleged that a collection letter violated section 1692g of the FDCPA by failing to inform her that if she wished to exercise her right to dispute the debt or demand verification of the creditor's identity, she had to do so "in writing" as § 1692g(a)(4) requires.  There, the Court concluded that because the consumer did not allege any injury or concrete harm by receiving a letter with an incomplete validation notice, that she lacked standing to sue.  Casillas, 926 F. 3d. at 339. 

 

However, in Lavallee v. Med-1 Solutions, 932 F. 3d 1049 (7th Cir. 2019), the collection letter received by the plaintiff did not provide any of the disclosures required by section § 1692g(a), which resulted in actual harm to the plaintiff from the statutory violation in that the debt collector sued her in state court to collect the outstanding debt.  Lavallee, 932 F.3d at 1053.  Because the plaintiff in Lavallee alleged that she "would have exercised her statutory rights [to dispute the debt and demand verification], thereby halting the collection litigation" if the debt collector had complied with its FDCPA notice obligations, the appellate court concluded that the plaintiff adequately plead a concrete injury to confer Article III standing.

 

Turning back to the case at bar, the Seventh Circuit concluded that the Consumers only generally alleged that certain statements in the collection letters were false, deceptive, or misleading, or unfair and unconscionable, but neither complaint alleged harm—or even an appreciable risk of harm—from the claimed statutory violation. 

 

Although the Consumers attempted to distinguish Casillas by arguing that their claims were raised under sections §§ 1692e and 1692f of the FDCPA, while Casillas alleged violations of section 1692g, the Seventh Circuit was not persuaded that the distinction made Casillas inapplicable or altered the Article III calculus. 

 

Because the Consumers failed to allege that the Debt Collector's FDCPA violation injured them in any concrete way as required under Article III, the Seventh Circuit concluded that their suits should have been dismissed for lack of standing. 

 

Accordingly, the Court modified the judgments to reflect a jurisdictional dismissal, and affirmed the trial court's judgment as modified.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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   |   Tennessee   |   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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