The U.S. Court of Appeals for the Seventh Circuit recently affirmed the dismissal of a debtor's federal Fair Debt Collection Action (FDCPA) lawsuit for lack of Article III standing.
In so ruling, the Seventh Circuit held that the debtor's hiring an attorney and paying an appearance fee, as well as alleged confusion, lost sleep, and emotional distress, were not sufficient to meet the requirements of standing.
A copy of the opinion is available at: Link to Opinion
An individual debtor defaulted on a debt owed to a bank. The debt was assigned to a collections company. The collections company hired a law firm to initiate debt collection proceedings.
The law firm filed a lawsuit against the borrower in state court and sought a judgment in the amount of the debt as well as "statutory attorney fees." However, the lawsuit included an affidavit from a representative of the collections company that that stated the assignee collections company was not seeking additional amounts after the charge-off date, including attorney's fees.
Due to the contradicting statements of the company and the law firm, the debtor sued the debt collectors under the FDCPA in federal court, alleging he was injured by the false, misleading, and deceptive communications from the law firm and the collections company. Specifically, the debtor's complaint alleged that defendant law firm filed a collection suit against him that included a prayer for attorney fees that was baseless under state law and therefore illegal under the FDCPA. See 15 U.S.C. § 1692e (2), (5) & (10).
The defendants both moved to dismiss the claim for lack of subject matter jurisdiction. The trial court granted defendants' motion to dismiss concluding that debtor did not establish Article III standing because the debtor's alleged confusion, lost sleep, and hiring a lawyer were not considered concrete harms sufficient to meet the requirements of standing. This appeal followed.
As you may recall, to establish standing under Article III of the Constitution, a plaintiff must demonstrate (1) that he or she suffered an injury in fact that is concrete, particularized, and actual or imminent, (2) that the injury was caused by the defendant, and (3) that the injury would likely be redressed by the requested judicial relief." Thole v. U.S. Bank N.A., 140 S. Ct. 1615, 1618 (2020).
Debtor argued that he suffered an injury when he hired an attorney to defend him in the collection action and he lost sleep due to concern about having to pay statutory attorney's fees.
First, the Seventh Circuit noted that its precedent clearly held that hiring an attorney and paying an appearance fee is not sufficient to establish standing. See Pierre v. Midland Credit Mgmt., Inc., 29 F.4th 934, 939 (7th Cir. 2022); Nettles v. Midland Funding LLC, 983 F.3d 896, 900 (7th Cir. 2020); Brunett v. Convergent Outsourcing, Inc., 982 F.3d 1067, 1069 (7th Cir. 2020).
Debtor further argued that he was injured because the statement about statutory attorney's fees led him to take a detrimental step by choosing to litigate the debt and paying an appearance fee, as opposed to paying or settling the debt. However, this allegation was contradicted in the debtor's own pleadings and information obtained during the discovery process.
Ultimately, the Seventh Circuit held that debtor's complaint consisted of confusion about what to do in the situation and the Seventh Circuit precedent has held that confusion leading one to hire a lawyer is insufficient to establish standing. See, e.g., Pierre, 29 F.4th at 939; Brunett, 982 F.3d at 1069.
Lastly, the debtor argued that his alleged lost sleep should constitute an injury. However, the Seventh Circuit again cited a case directly on point that previously held that a debtor's loss of sleep is insufficient to show a concrete harm. Wadsworth v. Kross, Lieberman & Stone, Inc., 12 F.4th 665 (7th Cir. 2021).
Accordingly, the Court of Appeals upheld the trial court's judgment dismissing debtor's claims.
Notably, Judge David Hamilton wrote a dissenting opinion that argued this case should be distinguished from prior Seventh Circuit precedent including Pierre v. Midland Credit Mgmt., Inc. case. Specifically, Judge Hamilton opined that hiring a lawyer to defend yourself in state court in an action where the debt collector allegedly violated the FDCPA should be distinguishable from consulting a lawyer to clear up your own confusion or to file your own lawsuit.
The dissenting Judge Hamilton believed that the expense of hiring a lawyer to defend a baseless or illegal lawsuit is a concrete injury and this should support a finding of standing consistent with the recently decided Supreme Court cases in TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021); Spokeo, Inc. v. Robins, 578 U.S. 330 (2016). In conclusion, Judge Hamilton believed that the Court should have vacated and remanded to allow debtor to clarify his theory on injury and standing. He also noted that future plaintiffs should show how the cost of defense counsel is a concrete injury under the standard outlined in TransUnion and Spokeo. However, the majority did not have the same view.
Ralph T. Wutscher
Maurice Wutscher LLP
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