FYI: 11th Cir Dismisses Def's FDCPA Appeal in Overshadowing Case As Moot, Even Though Offer of Judgment Reserved Right to Appeal

The U.S. Court of Appeals for the Eleventh Circuit recently dismissed an appeal involving a claim under the federal Fair Debt Collection Practices Act, concluding that the case was moot due to an earlier settlement whereby the defendant debt collector consented to judgment but reserved its right to appeal.   Notwithstanding the defendant's reservation of rights to appeal, the Court of Appeals ruled that there no longer was a live case or controversy to decide and that a post-settlement decision on the merits of the FDCPA claim would constitute an improper advisory opinion.

 

A copy of the opinion is available at:  http://www.ca11.uscourts.gov/opinions/ops/201114133.pdf.

 

Plaintiff debtor ("Debtor") filed a complaint against a debt collection company ("Debt Collector"), alleging that Debt Collector violated the federal Fair Debt Collections Practices Act, 15 U.S.C. § 1692 et seq. ("FDCPA") and the Florida Consumer Collection Practices Act, Fla. Stat. § 559.72 ("FCCPA").  Debtor claimed, among other things, that Debt Collector's dunning letter demanding immediate payment of amounts owed overshadowed and violated the requirement under Section 1692g of the FDCPA to disclose that Debtor had 30 days to dispute the debt.

 

Debt Collector moved for summary judgment, arguing in part that because the debt consisted entirely of unpaid highway tolls, the amount owed was not a "debt" covered under the FDCPA or the FCCPA.  In response, Debtor moved for summary judgment on his FDCPA claims. 

 

Granting summary judgment in Debtor's favor, the lower court ruled that Debt Collector's dunning letter violated Section 1692g, because the letter's language suggesting a need for immediate payment was inconsistent with and overshadowed the notification regarding the 30-day dispute period.  Debt Collector moved for reconsideration, which the lower court denied. 

 

Shortly after the lower court's ruling on the motion for reconsideration, Debtor accepted Debt Collector's settlement offer to agree to a judgment against it on the FDCPA claims and to pay Debtor damages plus attorneys' fees and costs.  The offer expressly reserved Debt Collector's right to appeal the lower court's rulings, including the grant of summary judgment in Debtor's favor.  The parties also stipulated to dismissal of the state-law FCCPA claim. 

 

The lower court accordingly dismissed that state-law claim with prejudice, and entered a final judgment in favor of Debtor on the FDCPA claims.  Debt Collector appealed, challenging the lower court's denial of its motion for reconsideration and seeking a ruling from the Eleventh Circuit that its dunning letter did not violate Section 1692g. 

 

Moreover, on the issue whether the settlement of Debtor's claims rendered the case moot, Debt Collector argued that the case was not moot because Debt Collector had expressly reserved its right to appeal and still had a stake in the outcome of the appeal.  Debtor on the other hand argued that the settlement mooted the litigation and that Debt Collector had waived its right to appeal by consenting to the final judgment.

 

As you may recall, Section 1692g provides that a debt collector must notify the consumer in writing that he has 30 days to dispute the debt and that "[a]ny collection activities and communication during the 30-day period may not overshadow or be inconsistent with the disclosure of the consumer's right to dispute the debt."  15 U.S.C. § 1692g(a),(b).

 

In addition, federal court jurisdiction is limited to actual cases and controversies under the U.S. Constitution, which requires that there be an actual injury that could be redressed by a favorable court decision.  See U.S. Const. Art. III; Crown Media, LLC v. Gwinnett County, GA, 380 F.3d 1317, 1324(11th Cir. 2004).  

 

Noting that settlement between parties generally renders a case moot, the Eleventh Circuit explained that no exceptions to this principle applied in this case because Debtor and Debt Collector settled all the FDCPA claims.  See U.S. Fire Ins. Co. v. Caulkins Indiantown Citrus Co., 931 F.2d 744, 748 (11th Cir. 1991)(settlement renders a case moot except where:  (1) one issue has become moot, but other issues have not; (2) one party "unilaterally alters its conduct to terminate the dispute"; and (3) a controversy is "capable of repetition, yet evade[es] review.").

 

Mindful that, as part of the settlement, Debt Collector reserved its right to appeal,  the Court ultimately concluded nevertheless that there was no justiciable controversy, because neither party had a continuing financial stake in the litigation.  In ruling that settlement of the FDCPA claims left no actual case or controversy between Debt Collector and Debtor, the Eleventh Circuit rejected Debt Collector's argument that the court should rule on the merits of the Section 1692g claim and conclude that the dunning letter did not violate section 1692g.  See Electrical Fittings Corp. v. Thomas & Betts Co., 307 U.S. 241, 59 S. Ct. 860 (1939)(exercising jurisdiction over appeal only to correct district court's procedural error but not to rule on the merits of the claim).

 

The Court also recognized that if it were to rule on the merits in this case, any decision would be a constitutionally prohibited advisory opinion concerning circumstances that may never arise.   See Bank West, Inc. v. Baker, 446 F.3d 1358, 1367 (11th Cir. 2006). 

 

Accordingly, the Eleventh Circuit dismissed the appeal for lack of jurisdiction due to mootness.

 

Ralph T. Wutscher
McGinnis 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@mtwllp.com
 

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 are available on the internet, in searchable format, at:
http://updates.kw-llp.com

FYI: 7th Cir Rules Class Action "Predominance" Turns on Efficient Use of Judicial Resources, Not Precluded by Individual Issues of Damages

The U.S. Court of Appeals for the Seventh Circuit recently clarified the "predominance" requirement for class certification under Federal Rule of Civil Procedure 23(b)(3), explaining that "predominance" is ultimately a question of efficiency in the use of judicial resources to resolve issues related to damages and liability where the stakes involved would be too small to justify individual lawsuits. 

 

The Court also reiterated that class certification should not be precluded on the basis of an absence of predominance where the only issue to be resolved is the amount of damages suffered by individual class members.  A copy of the opinion is attached.

 

Two groups of consumers (collectively the "Consumers") brought separate class action lawsuits based on the warranty laws of six different states.  The Consumers alleged that the washing machines they purchased from the defendant retailer ("Retailer") were supposedly defective.  Specifically, in one action (the "First Action") the Consumers claimed that a defect in the design of the washing machines allegedly caused mold growth.  In the second action ("Second Action"), Consumers alleged that a defective circuit board supposedly caused the machines suddenly to stop working. 

 

The lower court denied class certification in the First Action, ruling that common questions of fact did not predominate over individual questions.  In so ruling, the lower court agreed with Retailer that in modifying the design of various washing machines, the manufacturer had created design differences among the models purchased by the Consumers and that the Consumers thus experienced different types of defects.  Such differences, the lower court reasoned, precluded class certification.  Consumers appealed the denial of class certification in the First Action.

 

As to the Second Action, the lower court certified a class based in part on allegations that Retailer knew about the defective circuit board, but nevertheless charged Consumers for repairs of the defective machines.  Retailer appealed the lower court's class certification ruling in the Second Action.

 

The Seventh Circuit reversed the denial of certification in the First Action, but affirmed the grant of certification in the Second Action.

 

As you may recall, class certification requires that "questions of law or fact common to class members predominate over any questions affecting only individual members."  Fed. R. Civ. Proc. 23(b)(3).

 

Interpreting the term "predominance," the Court of Appeals explained that the question of predominance turns on whether a "class action is the more efficient procedure for determining liability and damages in a case. . . that may have imposed costs on tens of thousands of consumers, yet not a cost to any one of them large enough to justify the expense of an individual suit."  The Court also noted that where, as here, the stakes in an individual case would be too small to justify a lawsuit, denial of class certification would preclude any relief at all, suggesting that in such instances class certification would be appropriate. 

 

The Seventh Circuit also agreed with a sister court's grant of class certification in a case nearly identical to the First Action.  In so ruling, the Seventh Circuit observed that upholding the lower court's denial of certification in this case would create an undesirable "gratuitous" inter-circuit conflict.  See In re Whirlpool Corp., Front-Loading Washer Products Liability Litigation, 678 F.3d 409 (6th Cir. 2012). 

 

In addition, the Court also pointed out, first, that even though not all the plaintiffs in either the First or Second action had experienced identical problems with their washing machines, the absence of such problems was not a basis for denying class certification, because in certain states a defective product need not have failed in order for plaintiffs to recover.  Rather, the Court explained, the absence of such harm would be an argument for granting certification and then ultimately entering a judgment in Retailer's favor. 

 

Second, the Seventh Circuit stressed that class certification should not be denied in cases where the only issue is a determination of individual plaintiff's damages.  Pointing out the inefficiency of separate litigation entailing hundreds of different trials, the Court noted its preference for resolving in a single proceeding the issue whether the machines were defective, which the Court considered the question common to all the Consumers in both actions.   However, the Seventh Circuit also observed that, if cases were litigated separately, class certification would allow principles of res judicata or collateral estoppel to resolve the common question as to whether the machines were in fact defective.

 

Finally, the Seventh Circuit also indicated that judges could create sub-classes of plaintiffs in order to address in an orderly fashion the differences among them with respect to individual damages and state law, depending on the feasibility of drafting "a single, coherent set of jury instructions" in light of the extent of any differences among the various state laws involved in the two lawsuits.

 

Accordingly, the Seventh Circuit ruled that class certification was appropriate in both the First and Second Actions.

 

Ralph T. Wutscher
McGinnis 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@mtwllp.com
 

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 are available on the internet, in searchable format, at:
http://updates.kw-llp.com

 

 

 

FYI: 8th Cir Upholds Dismissal of "Show-Me-the-Note" Allegations, Holds Borrower Plaintiffs Fraudulently Joined Foreclosure Firm as Defendant

The U.S. Court of Appeals for the Eighth Circuit recently upheld the dismissal of numerous "show-me-the-note" allegations, but spared certain quiet title allegations relating to alleged defects in the assignments of mortgage that the parties had not addressed in their briefs.  The Court also held that diversity jurisdiction was proper, as the plaintiff borrowers fraudulently joined the local foreclosure firm as a defendant with the servicer and MERS.  A copy of the opinion is attached.

 

The Minnesota borrower plaintiffs each signed a promissory note and a mortgage on  which Mortgage Electronic Registration Systems, Inc. ("MERS") was the nominal  mortgagee.  MERS subsequently assigned each mortgage to the mortgage loan servicer ("Servicer"). 

 

After the plaintiffs defaulted on their repayment obligations, Servicer retained the legal services of a foreclosure law firm ("Foreclosure Firm") to aid them in foreclosing on the properties pursuant to Minnesota's foreclosure-by-advertisement statute.

 

The plaintiffs filed this action, alleging that neither Servicer nor MERS was entitled to foreclose on the properties, and that Foreclosure Firm knowingly made false representations regarding Servicer's authority to foreclose.  The plaintiff borrowers did not contest the validity of their initial mortgage agreements, nor did they contest their subsequent defaults.

 

Servicer and MERS removed the action to federal court based on the allegedly fraudulent joinder of Foreclosure Firm.  The federal district court denied the Homeowners' motion to remand and dismissed all of their claims with prejudice.

 

The district court viewed the complaint as articulating nothing more than repackaged versions of the "show-me-the-note" theory, which was previously rejected by both the Supreme Court of Minnesota and the U.S. Court of Appeals for the Eighth Circuit. See Jackson v. Mortg. Elec. Registration Sys., Inc., 770 N.W.2d 487, 490-91 (Minn. 2009); Stein v. Chase Home Fin., LLC, 662 F.3d 976, 978-79 (8th Cir. 2011).

 

On appeal, the plaintiffs contested the district court's exercise of subject matter jurisdiction, and insisted their theories of recovery were not premised on a failure to produce their promissory notes.  The Eighth Circuit affirmed the district court's dismissal of the Foreclosure Firm as fraudulently joined, and affirmed the dismissal with prejudice of the majority of the plaintiffs' claims, but partially reversed as to the dismissal of the quiet-title cause of action.

 

As you may recall, although it may facially appear that all of the defendants are not diverse from all of the plaintiffs, removal on grounds of diversity may still be proper if a non-diverse party has been fraudulently joined.   A party is fraudulently joined for purposes of diversity jurisdiction if there is "no reasonable basis in fact and law" for the claim brought against it.  Filla v. Norfolk S. Ry. Co., 336 F.3d 806, 810 (8th Cir. 2003).

 

The Eighth Circuit upheld the district court's ruling that all of the plaintiffs' claims against the Foreclosure Firm lacked a reasonable basis in fact and law.  Where attorneys act within the scope of their employment, Minnesota law provides protection from liability to third parties.  McDonald v. Stewart, 182 N.W.2d 437, 440 (Minn. 1970). The Court held that, absent knowing participation in fraud, none of the work performed by the Foreclosure Firm as foreclosing attorney could give rise to an actionable claim.

 

Examining the six misrepresentation claims asserted against the Foreclosure Firm, the Eighth Circuit held that the claims failed to allege any knowing participation by the Foreclosure Firm in the alleged fraud, and failed to plead with any specificity the facts and underlying the claims, as required.  Accordingly, the Court held that the Foreclosure Firm was properly dismissed as fraudulently joined.

 

The plaintiffs also argued that the doctrine of prior exclusive jurisdiction, which provides that when one court is exercising in rem jurisdiction over a res, a second court will not assume in rem jurisdiction over the same res, bars the district court from exercising subject matter jurisdiction over any of their claims, barred the district court from accepting jurisdiction.  However, the Appellate Court held that the doctrine does not apply to removal actions because the state court loses jurisdiction over a removed suit.

 

As to their allegations against the Servicer and MERS, the plaintiffs argued that their quiet-title action was not a "show-me-the-note" claim.  The complaint sought to quiet title based on seven potential defects in the Servicer or MERS's ability to foreclose on the mortgages.  Although the Appellate Court agreed with the lower court that many of the theories underlying the quiet-title claim were regurgitations of the "show-me-the note" theory, two of the quiet-title theories do not rely on the failure of the foreclosing party to produce the note.

 

Under these two theories, the assignments of mortgage from MERS to the Servicer of legal title to the mortgages either were unrecorded or executed by individuals lacking the legal authority to do so.  The plaintiffs argued that the resulting alleged defect in the chain of title of the mortgages deprived Servicer of the authority to foreclose on their properties.

 

The Court noted that the parties did not provide briefing specific to these two remaining quiet-title theories.  For instance, the Court questioned whether the plaintiffs still had any interest in the properties following the foreclosures, and whether the plaintiffs' interest is "adverse" to the mere security interest held by MERS or the Servicer for purposes of the quiet-title statute, as the borrowers conceded that valid security interests in the properties were created.

 

The Eighth Circuit also refused to alter the dismissal of their remaining claims to be without prejudice. "A district court does not abuse its discretion in failing to invite an amended complaint when plaintiff has not moved to amend . . . ." Carlson v. Hyundai Motor Co., 164 F.3d 1160, 1162 (8th Cir. 1999).  Dismissal with prejudice is appropriate where a party never "submitted a proposed amended complaint or clarified what one might have contained." Pet Quarters, Inc. v. Depository Trust & Clearing Corp., 559 F.3d 772, 782 (8th Cir. 2009).  Following the dismissal of their claims, the Court noted that the plaintiffs never sought leave to file an amended complaint or otherwise indicated how they would make the complaint viable.

 

Thus, the Eighth Circuit partially reversed the district court's dismissal of the quiet-title cause of action, affirmed the dismissal of the remaining counts, and remanded for proceedings consistent with its opinion.

Ralph T. Wutscher
McGinnis 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@mtwllp.com
 

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 are available on the internet, in searchable format, at:
http://updates.kw-llp.com

 

FYI: Ill App Ct Holds Post-Collection UDAP Lawsuit Against Lender Barred by Res Judicata, State UDAP Statute Does Not Apply to Attorneys

The Illinois Court of Appeals, Fifth District, recently held that:  (1) that a plaintiff's lawsuit alleging misconduct in connection with a lender's attempt to collect on a judgment was barred by res judicata, despite the plaintiff's argument that the lender intended to collect against another party who was a relative of the plaintiff; and (2) the Illinois Consumer Fraud Act does not apply to attorneys representing clients in the practice of law, even where the action is brought by a third party.   

 

A copy of the opinion is available at http://www.state.il.us/court/Opinions/AppellateCourt/2012/5thDistrict/5120110.pdf. 

 

A lender obtained a judgment against an individual, Ron Kosydor ("Kosydor"), and engaged a law firm to enforce that judgment.  Kosydor sued the lender and the law firm (collectively, the "defendants"), arguing that both entities had violated the Illinois Consumer Fraud and Deceptive Practices Act (the "Act") because both knew that Kosydor did not owe them any money. 

 

The defendants filed a motion to dismiss Kosydor's complaint, arguing (1) that the claim against the law firm must be dismissed because the Act does not apply to attorneys; and (2) that the claim against lender must be dismissed because it was barred by res judicata.  More specifically, the lender argued that the plaintiff was actually attacking the validity of the underlying judgment, which had already been litigated. 

 

Kosydor responded to the defendants'' motion to dismiss by arguing that the judgment obtained against "Ron Kosydor" had actually been entered against his father, Ron L. Kosydor (the "father").  Therefore, he argued, there was no identity of parties between the two actions, such that res judicata did not apply.  Kosydor also argued that he had not been a party to the original action.  In support of his argument, Kosydor stated that his social security number does not match the number listed on the citation to discover assets filed in connection with enforcing the judgment.  He further claimed that none of the business credit cards on which the action was based were in his name. 

 

The defendants filed a reply to Kosydor's response, who then filed an additional response.  Therein, Kosydor stated that he was a registered agent of a corporation, and was served with the summons and complaint in the original action only in that capacity.  He further stated that only the business and his father were liable for the relevant credit card debt.

 

The lower court agreed with the defendants' arguments, and dismissed Kosydor's complaint with prejudice.  Kosydor appealed. 

 

As you may recall, the doctrine of res judicata bars suits based on facts that would have constituted a counterclaim or defense in an earlier proceeding, where successful prosecution of the later action would either nullify an earlier judgment or impair the rights established in an earlier action.  See, e.g., Cabrera v. First National Bank of Wheaton, 324 Ill. App. 3d 85, 92 (2001).  For res judicata to apply, there must be an identity of both parties and causes of action. 

 

The Court began by examining the proceedings in the original action.  It noted that the lender filed a verified complaint against "Ron Kosydor" and the corporation.  The address listed in the complaint for "Ron Kosydor" was in fact Kosydor's address.  An alias summons was served on Kosydor, who neither filed a responsive pleading in the original action nor disputed service in the present matter.  A judgment was entered against "Defendant, Ron Kosydor," but no judgment was entered against the corporation. 

 

A notice of citation to discover assets was filed, which included a partial social security number.  That citation was served on a resident of Kosydor's home.

 

The Court then considered Kosydor's argument that the lower court never acquired personal jurisdiction over him.  It cited case law providing that in cases of misnomer - where the correct party is called by the wrong name - that party is still subject to the court's jurisdiction upon receiving notice of the action, whereas in cases of mistaken identity - where the wrong person is joined and served - the court does not acquire jurisdiction over the person served.  See Capital One Bank, N.A. v. Czekala, 379 Ill. App. 3d 737, 742-43 (2008).  The intent of the plaintiff is "pivotal" to determine whether a case involves misnomer or mistaken identity.  Id. 

 

The Court agreed with Kosydor's contention that, if he was named and served by mistake, then the lower court would not have obtained personal jurisdiction over him, and res judicata would not bar the instant action.  However, the Court "found no objective manifestations of the creditor's intent to name and serve someone other than [Kosydor]."  Specifically, the Court noted that the address listed on the summons were Kosydor's, not his father's, and further that Kosydor's name appeared on the credit card accounts in question. 

 

Similarly, the Court found "no evidence in the record" that Kosydor's father was connected with the corporation, or with the relevant credit card accounts. 

 

Kosydor asserted that he believed (but did not know) that the social security number listed on a citation to discover assets was that of his father. The Court did not find this argument persuasive, holding that "[t]he listing of an incorrect social security number on a citation to discover assets issued months after judgment does not constitute persuasive evidence of the defendants' intent to sue someone other than [Kosydor]..."

 

Therefore, because "all the requirements for res judicata to apply are present here," the Court found that Kosydor's action was barred. 

 

Next, the Court turned to Kosydor's claim against the law firm.  It noted the well-established principal that the Act does not apply to an attorney representing a client, because the attorney-client relationship is already subject to extensive regulation by the Court.  Kosydor argued that the Act should apply here, because he was not a client of the law firm, but rather a third party. 

 

The Court again disagreed, finding that Kosydor "does not point to a single case" establishing that third parties may sue attorneys representing clients where the cause of action is based on the Act.  For that reason, the Court held that "the Act does not apply to the conduct of attorneys when representing any client in the practice of law, even against a third party." 

 

Accordingly, the Court affirmed the lower court's judgment. 

 

Ralph T. Wutscher
McGinnis 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@mtwllp.com
 

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 are available on the internet, in searchable format, at:
http://updates.kw-llp.com