FYI: 7th Cir Holds Pl's Settlement of Parallel Claim Against Another Defendant Mooted FDCPA Claim

The U.S. Court of Appeals for the Seventh Circuit recently reversed a judgment against a debt collector, finding that the plaintiff's settlement with the creditor for the same indivisible injury mooted the plaintiff's federal Fair Debt Collection Practices Act (FDCPA) claims for statutory damages, attorneys' fees, and costs against the debt collector. 

 

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

 

As you may recall, the FDCPA requires a debt collector in the circumstances relevant to this appeal to file a complaint "only in the judicial district or similar legal entity" where the debtor signed the contract or resides when the debt collector files suit. 15 U.S.C. § 1692i(a)(2). 

 

Before Suesz v. Med-1 Solutions, 757 F.3d 636 (7th Cir. 2014), the Seventh Circuit interpreted "judicial district" in Illinois to mean a circuit trial court, and not its municipal subdivisions.  Newsom v. Friedman, 76 F.3d 813, 818-19 (7th Cir. 1996), overruled by Suesz, 757 F.3d 636.  The Circuit Court of Cook County as a whole, and not its suburban municipal subdivisions, was a "judicial district."  Thus, if the debtor resided in Cook County when the debt collector filed suit, then a debt collector could file suit in downtown Chicago.

 

In October 2013, the creditor (Creditor), through its law firm (Law Firm), filed an action to recover a credit card debt against the Plaintiff in the Circuit Court of Cook County's First Municipal District located in downtown Chicago.  At the time, Plaintiff resided in the suburban Fourth Municipal District. In April 2014, the state trial court entered default judgment in favor of the Creditor and against the Plaintiff.

 

In July 2014, the Seventh Circuit overruled Newsom holding that "judicial district or similar legal entity" in section 1692i means "the smallest geographic area that is relevant for determining venue in the court system in which the case is filed."  Suesz, 757 F.3d at 638, 64950.  The Seventh Circuit made its holding retroactive.

 

In October 2014, Plaintiff filed this suit against the Creditor and the Law Firm alleging that they violated section1692i(a)(2) of the FDCPA because they sued her in the wrong judicial district.  She sought to recover actual damages, statutory damages, attorneys' fees and costs.

 

Plaintiff also alleged that the Creditor violated the Illinois Consumer Fraud and Deceptive Business Practice Act and sought actual damages, punitive damages, attorneys' fees, and costs.

 

Plaintiff settled with the Creditor for $5,000 and a release of the underlying debt.  The settlement agreement failed to apportion the settlement funds to any claims, but provided that each party bears its own attorney's fees and costs.

 

In September 2015, Plaintiff abandoned her remaining actual damage claim against the Law Firm and instead only sought FDCPA statutory damages. The Law Firm then moved to dismiss Plaintiff's FDCPA claim under the single-satisfaction rule arguing that the settlement with the Creditor mooted Plaintiff's claims, but the trial court denied the motion.

 

At trial, the jury awarded Plaintiff $200 in statutory damages.  Then, the trial court awarded Plaintiff $69,393.75 in attorneys' fees and $772.95 in costs against Law Firm. 

 

The trial court denied the Law Firm's post-trial motions and this appeal followed.

 

Relevant to this appeal, whether a settlement mooted a case is a question of law that the Seventh Circuit reviews de novo.

 

Initially, the Seventh Circuit reiterated that federal courts only have "limited jurisdiction." U.S. Const. art. III, § 2, cl. 1.  "Jurisdiction requires 'an actual controversy' at all stages of review, not merely at the time the complaint is filed."  Campbell-Ewald Co. v. Gomez, 136 S. Ct. 663, 669 (2016).

 

"If an intervening circumstance deprives the plaintiff of a personal stake in the outcome of the lawsuit, at any point during the litigation, the action can no longer proceed and must be dismissed as moot." Genesis Healthcare Corp. v. Symczyk, 569 U.S. 66, 72 (2013).  A settlement may moot a plaintiff's case. See Wegscheid v. Local Union 2911, 117 F.3d 986, 991 (7th Cir. 1997).

 

Relevant here, the prospect of an attorneys' fees award "does not create a justiciable controversy if nothing else is at stake in the litigation." Crabill v. Trans Union, LLC, 259 F.3d 662, 666 (7th Cir. 2001). The moving party bears the burden to prove mootness.

 

The Seventh Circuit also reiterated that "a plaintiff is only entitled to a single recovery for a single injury, regardless of how many defendants could be liable for that single injury, or how many different theories of recovery could apply to that single injury."  Thus, if a plaintiff's settlement with a defendant provides a plaintiff with all the relief available for a single, indivisible injury, then the plaintiff generally cannot prosecute a claim for the same injury against another defendant because the settlement moots the claim. 

 

Here, the plaintiff admitted that her "claims stem from the same conduct and arise from a single, indivisible act."  For $5,000 Plaintiff dismissed her claims against the Creditor and the Creditor agreed to release the underlying debt. 

 

A plaintiff may settle with a defendant and still pursue a claim against a different defendant by allocating the funds in good faith to maximize recovery against the non-settling defendant, but besides indicating each party bears its own attorneys' fees and costs, the Plaintiff here did not allocate the settlement funds. 

 

Instead, the Court held, the settlement "encompasses and resolves all claims arising out of the facts alleged in or capable of being alleged in this federal action."  This relieved the Law Firm from "proving which funds satisfy which claims" because the settling plaintiff is "in a better position than a non-settling defendant to ensure a settlement agreement properly allocates funds." The Seventh Circuit held that the $5,000 settlement therefore covers Plaintiff's FDCPA statutory damages claim.

 

The Seventh Circuit next examined whether the settlement mooted Plaintiff s statutory damages claim.  The Seventh Circuit noted that this was an issue of first impression in this Circuit. 

 

The Seventh Circuit began its analysis with the relevant language of the FDCPA:

 

(a) Amount of damages

Except as otherwise provided by this section, any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person in an amount equal to the sum of:

(1) any actual damage sustained by such person as a result of such failure;

(2)(A) in the case of any action by an individual, such additional damages as the court may allow, but not exceeding $1,000.

 

15 U.S.C. § 1692k(a).

 

The Seventh Circuit observed that the FDCPA limits the amount of statutory damages, capping them at $1,000 per action, not per violation and not per defendant.  See Harper v. Better Bus. Servs., Inc., 961 F.2d 1561, 1563 (11th Cir. 1992).

 

Further, "the actual-damages provision mirrors the statutory damages provision." As such, "actual damages for the same single, indivisible injury are not multiplied by the number of defendants."  This, the Court held, demonstrates that the number of defendants does not multiply the statutory damages "provided in the parallel clause."

 

Courts generally are required to strictly and narrowly construe statutes in derogation of the common law.  The FDCPA, "construed strictly and narrowly, provides no clear, express basis to extend statutory damages beyond the common-law single-recovery rule."  Although Congress could have provided that a plaintiff may recover statutory damages on a "per defendant" basis, it did not.

 

Therefore, the Seventh Circuit concluded that the number of defendants does not multiply the available FDCPA statutory damages "where the plaintiff suffered an indivisible harm caused by defendants who did not violate the FDCPA independently of each other."

 

The Seventh Circuit recognized that its decision is in line with its sister circuits that examined this issue. See Goodmann v. People s Bank, 209 Fed.Appx. 111, 114 (3d Cir. 2006) ("We agree with Appellees that 15 U.S.C. § 1692k(a)(2)(A) is best read as limiting statutory damages to $1,000 per successful court action."); Peter v. GC Servs., L.P., 310 F.3d 344, 352 n.5 (5th Cir. 2002) ("[D]amages for violation of the FDCPA in § 1692k are limited to actual damages, plus maximum statutory damages of $1000 per action, not per violation'."); Wright v. Fin. Serv. of Norwalk, Inc., 22 F.3d 647, 651 (6th Cir. 1994) ("Congress intended to limit "other damages" to $1,000 per proceeding, not to $1,000 per violation."; Harper, 961 F.2d at 1563 ("[T]he plain language of section 1692k(a)(2)(A) provides for maximum statutory damages of $1,000.").

 

The Seventh Circuit accordingly held that Plaintiff was only entitled to recover FDCPA statutory damages capped at $1,000 for her indivisible injury once.  Thus, Plaintiff's settlement with the Creditor mooted her FDCPA statutory damages claim against the Law Firm, and Plaintiff was not entitled to attorney' fees or costs from the Law Firm. 

 

The Seventh Circuit therefore vacated the judgment against the Law Firm. and remanded for additional proceedings consistent with its opinion.

 

 

 

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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FYI: 9th Cir Holds FDCPA Plaintiff Must Prove Defendant's Net Worth

The U.S. Court of Appeals for the Ninth Circuit recently held that the plaintiff carries the burden of proving the debt collector's net worth to obtain statutory damages in a class action under the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. ("FDCPA").

 

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

 

A consumer financed the purchase of a computer through an installment loan.  When the consumer defaulted, the creditor charged off the account and sold the debt to a third party.  The third party referred the account to a law firm which sent collection letters that failed to identify the correct original creditor.  The law firm filed a complaint but ultimately dismissed the lawsuit.

 

The consumer filed suit alleging that the law firm's letters and complaint violated section 1692e of the FDCPA by using "false, deceptive, or misleading representation[s] or means in connection with the collection of any debt."  The trial court certified a class of consumer plaintiffs.

 

The trial court then granted the debt collector's motion for summary judgment, but the Ninth Circuit reversed and remanded.  The Ninth Circuit found that the misidentifications were material under the FDCPA as a matter of law.

 

On remand, the trial court dismissed the consumer's letter-based claims for lack of standing.  The consumer's complaint-based claim went to trial.  The focus at trial was evidence supporting the class award of statutory damages and the law firm's bona fide error defense.

 

The trial court determined that the plaintiff carried the burden at trial of introducing evidence regarding the law firm's net worth.  The law firm had produced hundreds of pages of bank statements, copies of checks, tax returns, and deposition testimony regarding its financial condition.  Despite access to this evidence, the consumer did not provide an expert to interpret the financial information for the jury.

 

Thus, the trial court found that the consumer lacked competent evidence to satisfy his burden of production at trial, and dismissed his complaint-based class claim. 

 

This appeal followed.

 

As you may recall, the FDCPA provides a two-step determination for awarding statutory damages to class members, excluding named plaintiffs.  15 U.S.C. § 1692k(a)-(b). 

 

First, the fact finder determines the damages ceiling.  Specifically, a class may recover statutory damages "not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector[.]"  15 U.S.C. § 1692k(a)(2)(B). 

 

Second, the exact amount of damages within that range is determined based on various non-exhaustive factors, including "the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, the resources of the debt collector, the number of persons adversely affected, and the extent to which the debt collector's noncompliance was intentional."  15 U.S.C. § 1692k(b)(2). 

 

The FDCPA, however, is silent as to which party carries the burden of producing evidence at trial of the defendant's net worth. 

 

The parties agreed that one percent of the law firm's net worth was less than $500,000, and therefore the limit on statutory damages available to the class must be one percent of the law firm's net worth.  The consumer argued that the law firm carried the burden of introducing evidence of its own net worth.

 

The Ninth Circuit began its analysis by observing "one of the most basic positions of law -- that the plaintiff bears the burden of proving his case, including the amount of damages"  Faria v. M/V Louise V, 945 F.2d 1142, 1143 (9th Cir. 1991). 

 

To determine whether the FDCPA provides an exception to the default rule, the Ninth Circuit noted that section 1692k limits statutory damages for the class to "the lesser of" of $500,000 or one percent of the defendant's net worth.  Congress' use of "the lesser of" signals that the FDCPA requires the factfinder to determine the defendant's net worth in calculating statutory damages. 

 

Thus, the Ninth Circuit held that evidence of the defendant's net worth was a prerequisite to establishing statutory damages in a class action.

 

Next, the consumer argued that the fact finder can skip the cap analysis in subsection (a), and proceed directly to the list of factors in subsection (b), on which he conceded that he carried the burden of proof. 

 

The consumer also argued that the law firm must bear the burden of proof because it had superior access to the relevant evidence, and placing the burden on the plaintiff would increase litigation costs and discourage class actions under the FDCPA. 

 

The Ninth Circuit rejected these arguments because Congress did not structure section 1692k to allow the factfinder to award any amount, and then allow the debt collector to limit damages by introducing evidence of its net worth as an affirmative defense.  The Ninth Circuit supported its reasoning with the FDCPA's two exceptions to liability of debt collectors. 

 

The first exception is the bona fide error defense for defendants that can "show by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error."  15 U.S.C. § 1692k(c). 

 

The second exception is the safe harbor from liability where the defendant can show it complied with an advisory opinion by the Consumer Financial Protection Bureau.  15 U.S.C. § 1692k(e). 

 

The Court held that sections 1692k(c) and 1692k(e) indicate that "Congress knew how to shift the burden of proof to the defendant, but chose not to do so regarding evidence of net worth."  Therefore, the Court continued, the FDCPA's "text and structure" makes evidence of net worth essential to a class statutory damages award; it is not an affirmative defense." 

 

Thus, the Ninth Circuit held that "[i]f a plaintiff seeks class statutory damages, it carries the burden of introducing such evidence at trial."

 

Accordingly, the Ninth Circuit affirmed the trial court's dismissal of the consumer's class action.  

 

 

 

 

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   |   Indiana   |   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

 

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and

 

California Finance Law Developments