FYI: Cal App Ct Holds Consumer's Alleged Deceptive Collection Practices Lawsuit for Injunctive Relief Exempt from Anti-SLAPP Statute, Reverses Fee Award in Favor of Defendants

The California Court of Appeal, Fourth Appellate District, recently held that a consumer's putative class and representative action for injunctive relief against a computer company and a law firm satisfied the requirements of the public interest exception to California's Anti-SLAPP (Strategic Lawsuit Against Public Participation) statute, and as a result the defendants could not recover their attorney fees after the consumer voluntarily dismissed the action.  In so ruling, the California Court of Appeal reversed the trial court's judgment and award of attorney fees and costs order in favor of the defendants, and remanded the matter to the trial court with directions to deny the defendants' motion for attorney fees and costs.     

 

The Court's opinion can be found at http://www.courts.ca.gov/opinions/documents/D063473.PDF.

 

The case involves a consumer who purchased a computer from a computer company in 2001.  The computer company arranged for the consumer to obtain financing from an online bank. 

 

The consumer alleged that in 2007 the law firm generated a form collection letter to the consumer that misrepresented the original creditor of the consumer's loan.  The consumer also alleged that the attorney author of the letter did not review the letter or the file before signing it and, as a result, had not been "meaningfully involved" in connection with the collection of the debt under the FDCPA.  The consumer further alleged that the law firm had sent collection letters to hundreds of consumers that falsely identified the consumer's original creditor.  The consumer brought a single claim under California's Unfair Competition Law seeking an injunction to prevent the computer company and law firm from engaging in unlawful, unfair, and/or fraudulent debt collection practices.

 

In response to the lawsuit, the computer company and law firm filed a special motion to strike pursuant to the anti-SLAPP statute.  The consumer subsequently dismissed his lawsuit without prejudice. 

 

After the dismissal, the computer company and law firm filed a motion for their attorney fees and costs pursuant to the anti-SLAPP statute.  The consumer opposed the motion, contending that the computer company and law firm were not entitled to attorney fees under the anti-SLAPP statute because they would have prevailed on their special motion to strike as a prerequisite to awarding them attorney fees under the anti-SLAPP statute, and that the action was exempt from application of the anti-SLAPP statute pursuant to the public interest exception (§425.17).  In support of his claim the exemption applied, the consumer argued that the sole remedy he had sought was injunctive relief designed to prevent other California consumers from being harmed by unfair and unlawful debt collection practices. 

 

The computer company and law firm responded by arguing that the 3 requirements of the public interest exception were not satisfied.   The trial court found that although the consumer only sought injunctive relive and it was unlikely he would have benefited from the requested injunction, the consumer, according to the trial court, "had not shown an important public interest that affected a large group of persons would have been vindicated by his complaint or that private enforcement was necessary and placed any financial burden on the consumer greater than his stake in this action."  The trial court awarded the computer company and law firm attorney fees in the amount of $11,581.02, and the consumer appealed.

 

On appeal, the defendants argued that the Court of Appeal could affirm the trial court's ruling without determining whether the anti-SLAPP exemption applied.  In other words, the defendants argued they were entitled to fees because they realized their objectives in the litigation, irrespective of whether they would have prevailed on their special motion to strike. 

 

The Court of Appeal rejected this argument.  "The trial court's adjudication of the merits of a defendant's motion to strike is an essential predicate to ruling on the defendant's request for an award of fees and costs."  The Court also held a determination of whether a defendant would have prevailed on its motion to strike is an essential prerequisite to an award of attorney fees and costs under the anti-SLAPP statute.

 

The Court of Appeal next evaluated the three requirements that need to be established in order for the public interest exception of the anti-SLAPP statute to apply. 

 

The anti-SLAPP statute provides that actions brought in the public interest are not subject to the anti-SLAPP statute if three criteria are met:  (1) the plaintiff does not seek any relief greater than or different from the relief sought for the general public or a class of which the plaintiff is a member;  (2) the action, if successful, would enforce an important right affecting the public interest, and would confer a significant benefit on the general public or a large class of persons; and  (3) private enforcement is necessary and places a disproportionate financial burden on the plaintiff in relation to the plaintiff's stake in the matter.  The Court, citing the legislative history, determined that the exemption was created "to prevent the use of the anti-SLAPP device against specified public interest actions" and that the exemption was designed, in part, to apply to claims brought under the Unfair Competition Law.

 

The Court first analyzed whether the consumer's action was generally brought "solely in the public interest or on behalf of the general public."  To determine whether the matter was brought solely in the public interest, the Court was required to rely on the allegations of the complaint and the scope of the relief sought.  Here, the consumer's complaint contained a single claim under the Unfair Competition Law for violations of the FDCPA.  The consumer did not seek damages or restitution on behalf of himself or the class or the general public.  Instead, the sole remedy he sought was injunctive relief.  Based on the allegations and the relief sought, the Court of Appeal concluded that the matter was brought solely in the public interest.

 

The Court next evaluated the three specific requirements under the public interest exception.  The trial court had concluded that the consumer did not seek relief greater than or different from the relief sought for the general public.  The defendants attempted to argue that the consumer had sought relief personal to himself in a federal court lawsuit.  The Court rejected the defendants' argument, holding that the language of the exception does not encompass taking into consideration other lawsuits and, instead, only focuses on the lawsuit at issue. 

 

As to the requirement that the action, if successful, would enforce an important right affecting the public interest and would confer a significant benefit of the general public, the Court observed that the FDCPA was designed to eliminate abusive debt collection practices by debt collectors.  Because the consumer's complaint sought to enjoin the defendants from their alleged abusive debt collection practices, the Court concluded that the second requirement of the exemption had been satisfied. 

 

In so ruling, the Court also rejected the defendants' argument that the consumer was required to introduce evidence to establish that his action, if successful, would benefit the public.  The Court held that the determination is made by examining the lawsuit to determine whether the complaint is of the type that seeks to vindicate public policy goals.  Because of the relief sought in the complaint, the Court held that the merits of the complaint were irrelevant.

 

The final element the Court analyzed was whether the private enforcement was necessary and placed a disproportionate financial burden on the consumer in relation to his stake in the matter.  The Court acknowledged that the Unfair Competition Law and the FDCPA both allow for private attorney general actions.  And because no public entity had sought to enforce the rights the consumer sought to vindicate in his complaint, the Court concluded that private enforcement was necessary to enforce the rights at issue in the consumer's complaint. 

 

The Court rejected the defendants' argument that there was a possibility a public entity might bring a lawsuit.  According to the Court, the "possibility" of public action is insufficient.  As to the "disproportionate financial burden" element, the Court held that because the consumer had not sought any financial benefit, that fact alone was sufficient to support a finding that the financial burden on the consumer is disproportionate to his stake in the action.  The Court continued by finding that the consumer would have likely incurred litigation costs in proving violations of the FDCPA and possibly could have been liable for an adverse award of costs, thus increasing the financial burden on the consumer. 

 

Holding that the consumer's action satisfied each of the requirements of the public interest exception to the anti-SLAPP statute, the Court of Appeal concluded that the consumer's action was exempt from application of the anti-SLAPP statute.  The trial court's order was reversed and the matter was remanded with directions to deny the defendants' motion for attorney fees and costs.  The Court of Appeal also awarded the consumer costs on appeal. 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

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FYI: US Sup Ct Holds State AG Action on Behalf of State and Its Citizens Not Removable Under CAFA's "Mass Action" Provision

The Supreme Court of the United States recently held that unnamed parties who are real parties in interest do not count towards the "100 or more persons" requirement found in the definition of "mass action" in the federal Class Action Fairness Act of 2005 ("CAFA"), and therefore that removal of a state attorney general action brought on behalf of a state and its citizens under this provision was improper.

 

A copy of the opinion is available at http://www.supremecourt.gov/opinions/13pdf/12-1036_0971.pdf.

 

As you may recall, CAFA changed the requirements for diversity jurisdiction in two types of cases – class actions and mass actions. CAFA defines "class action" to mean "any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar statute" and "mass action" as "any civil action in which monetary relief claims of 100 or more persons are proposed to tried jointly on the ground that the plaintiffs' claims involve common questions of law or fact." 

 

For class and mass actions, CAFA expanded diversity jurisdiction in two ways.  First, it replaced complete diversity of citizenship among all plaintiffs and defendants with minimal diversity.  Minimal diversity allows federal jurisdiction over class and mass actions when any member of a class of plaintiffs is a citizen of a state different from any defendant. 

 

Second, CAFA grants federal jurisdiction over class and mass actions in which the aggregate amount in controversy exceeds $5 million, provided at least one plaintiff has claim greater than or equal to $75,000.00.

 

In March of 2011, the State of Mississippi ("the State") sued several makers of liquid crystal displays ("LCD displays") in state court, alleging that they had formed an international cartel to restrict competition and raise prices in the LCD market.

 

The State claimed that these actions violated two Mississippi statutes: the Mississippi Antitrust Act and the Mississippi Consumer Protection Act. The State sought injunctive relief and civil penalties under both statutes, along with punitive damages, costs, and attorney's fees. It also sought restitution for its own purchases "of LCD products and the purchases of its citizens."

 

Respondents filed a notice to remove the case from state to federal court, arguing that the case was removable under CAFA as either a "class action" or a "mass action." 

 

The District Court ruled that the suit did not qualify as a "class action" because it was not brought pursuant to Federal Rule of Civil Procedure 23 or any similar State statute or rule of procedure.  The District Court, however held that the suit did qualify as a "mass action," because it is a civil action in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs' claims involve common questions of law or fact.

 

The District Court nonetheless remanded the case back to state court on the basis of CAFA's "general public exception," which excludes from the mass action definition "any civil action in which . . . all of the claims in the action are asserted on behalf of the general public (and not on behalf of individual claimants or members of a purported class) pursuant to a State statute specifically authorizing such action." 28 U. S. C. §1332(d)(11)(B)(ii)(III).

 

The United States Court of Appeals for the Fifth Circuit reversed the District Court's holding.  Although it agreed with the District Court's determination that the State's suit is not a class action under CAFA. It also agreed that, under existing Fifth Circuit jurisprudence, the suit qualified as a "mass action" because the real parties in interest in Mississippi's suit were the more than 100 individual citizens who purchased the LCD products.

 

The Court of Appeals, however disagreed with the District Court's ruling that the suit fell within CAFA's general public exception, thus giving the United States District Court jurisdiction over these claims. 

 

The Supreme Court of the United States unanimously reversed the Court of Appeals.  The Supreme Court concluded that unnamed parties who are real parties in interest do not count towards the "100 or more persons" requirements found in CAFA's mass action definition.  

 

Significantly, plain text of CAFA's mass action definition which requires mass actions to have 100 or more persons rather than "100 or more named or unnamed real parties in interest."  The Supreme Court noted that although other sections of CAFA allowed the use of named or unnamed plaintiffs, and where Congress includes particular language in one section of a statute but omits it in another section of the same act, it is presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.  Congress chose not to use the phrase "named or unnamed" in CAFA's mass action provision, a decision the Court understood to be intentional.

 

The Supreme Court observed that CAFA's mass action jurisdictional requirement of $75,000.00 would become a jurisdictional nightmare if named and unnamed plaintiffs could be used to satisfy the plaintiff quantity requirement in mass actions.  A District Court would be unable to identify or value an unnamed plaintiff's claims.  

 

In addition, the Supreme Court noted the statutory context of CAFA's mass action requirements also supported their view.   Section 1332(d)(11)(C)(i) of CAFA provides that once a mass action has been removed to federal court, it "shall not thereafter be transferred to any other court . . .unless a majority of the plaintiffs in the action request transfer." If the term "plaintiffs" means "unnamed parties in interest," it would be practical impossible for a court to decide whether an action may be transferred. A District Court would have to identify and communicate with hundreds of thousands if not millions of real parties in interest to poll about their preferred forum.

 

The Supreme Court next addressed the Fifth Circuit's reasoning which stressed an analysis of the real parties in interest to a suit.  The Court held that rather than engaging in this type of analysis, the applicable test is whether Congress intended for unnamed parties to help satisfy the mass actions requirements under CAFA. 

 

Accordingly, the United States Supreme Court unanimously reversed and remanded the Court of Appeals decision, because of the language of CAFA. 

 

 

 

 

 

Ralph T. Wutscher
McGinnis Wutscher Beiramee 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@mwbllp.com

 

Admitted to practice law in Illinois

 

 

          McGinnis Wutscher Beiramee LLP

CALIFORNIA    |  FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                www.mwbllp.com

 

 

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