Friday, January 17, 2020

FYI: 5th Cir Reverses Class Cert in FDCPA "Threat of Legal Action" Case

The U.S. Court of Appeals for the Fifth Circuit recently reversed certification of a consumer class alleging that a debt collection letter violated the federal Fair Debt Collection Practices Act ("FDCPA").

 

In so ruling, the Fifth Circuit held that certification of the class was inappropriate because the collection letter's purported false threats to take legal action was not capable of classwide resolution.  As such, the proposed failed to satisfy Federal Rule of Civil Procedure 23's commonality, typicality, and predominance requirements. 

 

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

 

A medical patient (the "Patient" or "Class Representative") who failed to pay for medical care received a series of collection letters from the medical center's ("Medical Center") voluntary debt collection service provider regarding unpaid medical bills.

 

One such letter (the "Collection Letter") advised that the account was delinquent despite past requests for payment, and that if it was the Patient's desire to clear its account, she "need[ed] to promptly remit the balance in full," and concluded stating "[t]o discuss payment arrangements call our office." 

 

The Patient did not contact the Debt Collector to discuss debt repayment programs, but instead contacted the Medical Center who advised that she could enter a payment plan if she made an upfront payment — which she could not afford.  The Patient claims that during the course of these conversations, she was under impression that the Medical Center would sue her to collect the outstanding debt.

 

The Patient/Class Representative brought claims on behalf of herself and all others similarly situated (the "Class Members") against the Medical Center's debt collector and its surety bondholder (the "Debt Collector") alleging that their collection letter violated the FDCPA by falsely threatening legal action against her and Class Members even though the medical enter never intended to file suit over the unpaid medical debt.

 

The trial court denied the parties' cross motions for summary judgments concluding that questions of fact remained about (1) whether an unsophisticated consumer would construe the Collection Letter to threaten legal action, and (2) whether the Medical Center intended to take legal action against the Patient/Class Representative.

 

Later in the case, the Class Representative's motion for class certification was granted.  The Fifth Circuit subsequently granted the Debt Collector's motion for leave to appeal the class certification under Rule 23(f).

 

As you recall, the FDCPA prohibits the use of "false, deceptive, or misleading representation[s] or means in connection with the collection of any debt" (U.S.C. § 1692e) and expressly forbids debt collectors from making a "threat to take any action . . . that is not intended to be taken."  15 U.S.C. § 1692e(5). 

 

Additionally, to certify a putative class, the class must meet all four threshold conditions of Rule 23(a) — that "(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class"—conditions commonly known as "numerosity, commonality, typicality, and adequacy of representation." Fed. R. Civ. P. 23(a); Gen. Tel. Co. of the Nw., Inc. v. EEOC, 446 U.S. 318, 330 (1980))– along with one of the provisions of Rule 23(b). 

 

Here, the Class Representative sought certification under Rule 23(b)(3), which additionally requires "that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy"—conditions commonly known as "predominance and superiority."  Fed. R. Civ. P. 23(b)(3); Amchem Products, Inc. v. Windsor, 521 U.S. 591, 615 (1997).

 

On appeal, the Debt Collector argued that the putative class failed the commonality and typicality requirements of Rule 23(a) as well as the predominance requirement of Rule 23(b)(3).

 

Interpreting these provisions, the Fifth Circuit reasoned that to establish liability under the FDCPA, the Class Members must prove not only that the Collection Letter threatened legal action, but that it did so despite the fact that the Medical Center did not intend to pursue legal action.

Turning first to Rule 23(a)(2)'s "commonality" requirement, the Court reviewed the standard set by the Supreme Court in Walmart v. Dukes, 564 U.S. 338, 348 (2011) that commonality requires more than a shared cause of action or common allegation of fact, but a common legal contention capable of class-wide resolution.  Dukes at 349-50.

 

Here, although every member of the putative class received the same allegedly threatening Collection Letter, the FDCPA penalizes empty threats, not all threats.  Like the failed putative Title VII sex discrimination class in Dukes, the Fifth Circuit opined that because the record was devoid of the Medical Center's debt collection lawsuit filing  practices, and no evidence was submitted evidencing its actual intent to sue the Class Representative or Class Members, there was no "glue" here "holding the alleged reasons for all those [letters] together"—i.e. a uniform intention for the Medical Center to file suit.  Dukes at 352. 

 

Thus, the Class Representative failed to demonstrate that the Debt Collector's purported false threats to take legal action against the Class Members was capable of classwide resolution, and failed to carry her burden to "affirmatively demonstrate" commonality.  Id. at 350.

 

For this reason, the Fifth Circuit held, the Class Representative could not establish typicality under Rule 23(a)(3) because her claim could not be "typical of the claims or defenses of the class" without a common issue, nor predominance under Rule 23(b)(2) without demonstrating common issues that "predominate over any questions affecting only individual class members."  Fed. R. Civ. P. 23(a)(3); Fed. R. Civ. P. 23(b)(2); Falcon, 457 U.S. at 157 n. 13 ("The commonality and typicality requirements of Rule 23(a) tend to merge.").

 

Noting that there was no need to separately analyze whether the class failed under Article III standing, the Fifth Circuit noted that standing issues exist because there are undoubtedly members within the defined class of "all persons in Texas.. who received the [Collection Letter]" who ignored the letter and therefore lack a cognizable injury under Article III. 

 

However, the Court declined to reach the issue, because the Supreme Court repeatedly instructed that it should first decide whether a proposed class satisfies Rule 23, before deciding whether it satisfies Article III, and that there is no need to answer the latter question if the class fails under the former. See Amchem, 521 U.S. at 612 ("The class certification issues are dispositive; because their resolution . . . is logically antecedent to the existence of any Article III issues, it is appropriate to reach them first.") (additional citations omitted).

 

Because the Fifth Circuit determined that the putative class failed under Rule 23 and could not be certified, the order granting class certification was reversed and remanded to the trial court for further proceedings.

 

 

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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Wednesday, January 15, 2020

FYI: 5th Cir Reverses Denial of Motion to Compel Arbitration in TILA Case

The U.S. Court of Appeals for the Fifth Circuit recently reversed the denial of a lender's motion to compel arbitration in an adversary bankruptcy proceeding for allegedly violating the federal Truth in Lending Act ("TILA"), holding that -- despite conflicting clauses in two different relevant agreements -- the parties had entered into a valid arbitration agreement that delegated the threshold issue of arbitrability to the arbitrator.

 

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

 

A borrower signed a loan agreement and also purchased insurance policies issued by the lender's subsidiary, both of which contained arbitration clauses.

 

Both agreements also delegated "to the arbitrator the power to decide gateway arbitrability issues, including whether a given claim is covered. The agreements, however, differed "over several procedural aspects of the arbitration, relating mainly to the selection and number of arbitrators, time to respond, location, and fee-shifting."

 

The borrower filed a Chapter 7 bankruptcy and brought adversary proceeding against the lender, alleging that it had violated TILA in its loan disclosures.

 

The lender moved to dismiss or compel arbitration, but the bankruptcy court denied the motion, holding that while the two agreements formed a single contract, the conflicting procedural provisions rendered them insufficient to form a contract to arbitrate under the law of the State of Mississippi.

 

The trial court affirmed and the lender appealed, arguing "that the arbitration agreements should be construed separately and that even if … construe[d] … together, the parties still formed a valid contract."

 

On appeal, the Fifth Circuit engaged in a two-step analysis. First, it looked to "state law to determine whether the parties formed 'any arbitration agreement at al.'" Second, it examined the contracts "to determine whether this claim is covered by the arbitration agreement."

 

However, the Court explained that "'the analysis changes' where the agreement delegates to 'the arbitrator the primary power to rule on the arbitrability of a specific claim.' … In such case, we ask only whether there is a valid delegation clause. If there is, then the arbitrator decides whether the claim is arbitrable."

 

In order to answer the first question, whether under Mississippi law "the parties created a valid contract to arbitrate[,]" the Court explained that it must "resolve two related issues. First, should the arbitration agreements be construed as one contract? Second, assuming we construe them together, did the parties have a meeting of the minds as to arbitration?"

 

First, the Fifth Circuit disagreed with the lender's argument that "the agreements should be construed separately because [it] assented only to the first arbitration agreement and not the second" given that it didn't sign the second one, so "only the first agreement applies." The Court reasoned that because "[u]nder Mississippi law, 'when separate documents are executed at the same time, by the same parties, as part of the same transaction, they may be construed as one instrument[,] … the bankruptcy court properly construed the agreements as one."

 

Next, the Court addressed whether the parties "entered into a valid contract to arbitrate despite inconsistencies in the contractual terms[,]" finding that although "Mississippi courts have not addressed whether conflicting terms in an arbitration agreement prevent a contract from forming[,]" the parties clearly expressed their intention "to arbitrate any dispute that might arise between them … and thus 'evidently intended to enter into a  binding contract.'" The procedural differences did not matter because the two agreements "speak with one voice about whether to arbitrate." Accordingly, the Court concluded that "under Mississippi law, the parties validly contracted to arbitrate."

 

The Fifth Circuit then reasoned that although "[o]rdinarily the next step—after concluding that there is a valid agreement—is to determine whether this claim is arbitrable[,]" since the lender "has pointed to a delegation clause, we ask only whether the parties 'evince[d] an intent to have the arbitrator decide whether a gen claim must be arbitrated." Concluding that "[t]hey did … [because] [e]ach agreement has a delegation clause that mirrors the one we held valid in [Kubala v. Supreme Prod. Servs., Inc., 830 F.3d 199 (5th Cir. 2016)] … it is for the arbitrator—not us—to decide whether [the borrower's] TILA claim is arbitrable. … It is similarly the arbitrator's province to resolve the inconsistent procedural terms."

 

The order denying the lender's motion to dismiss or compel arbitration was reversed, and the case was remanded with instructions "to refer the dispute to arbitration."

 

 

 

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   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

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