FYI: 2nd Cir Holds Named Plaintiffs in Putative Class Actions Must Individually Indicate Intent to Appeal

The U.S. Court of Appeals for the Second Circuit recently affirmed a trial court's grant of judgment on the pleadings and dismissal of two individual plaintiffs' claims in a putative class action lawsuit.

 

In so ruling, the Second Circuit held that Federal Rule of Appellate Procedure 3 requires named plaintiffs in a class action – who, unlike absent class members, have chosen to litigate their claims personally – to indicate individually their intent to appeal.

 

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

 

In 2013, two consumers were named individual plaintiffs in a consolidated complaint in federal court alleging that the defendants made material misrepresentations and omissions related to the release of the corporate defendant's new product, thereby artificially inflating the company's stock price. The two consumers were not selected as lead plaintiffs.

 

Subsequently, the trial court dismissed the putative class's complaint and denied leave to amend, concluding that the plaintiffs failed to plausibly allege that the defendants made misrepresentations or omissions of material fact, and failed to show that the defendants acted with scienter.

 

The designated lead plaintiffs appealed on behalf of the class, filing a notice of appeal that did not state that the two consumers were also appealing. In this prior appeal, the Second Circuit allowed the lead plaintiffs to amend the complaint, and the two consumers were again named in the amended complaint as individual plaintiffs.

 

On remand from the prior appeal, the defendants moved for judgment on the pleadings as to the two consumers, arguing that the earlier dismissal had become final as to them because they did not properly appeal.

 

The trial court granted the motion, concluding that under Federal Rule of Appellate Procedure 3, the two consumers had failed to appeal the earlier judgment against them because they did not indicate their intent to appeal in the notice of appeal filed by the lead plaintiffs. The two consumers moved for reconsideration, but the trial court denied the motion.

 

The two consumers then appealed, arguing that: (1) the trial court erred in dismissing their claims because Rule 3 does not require individual named plaintiffs in a class action to indicate their intention to appeal, so long as the appeal is filed by persons qualified to represent the class; (2) in the alternative, even if the judgment dismissing their earlier claims had become final, res judicata does not bar their new claims against an additional defendant not previously named; and (3) the trial court should have granted their motion for reconsideration.

 

The Second Circuit disagreed with the two consumers on all three of their points.

 

Federal Rule of Appellate Procedure 3(c)(1)(A) describes the party information that must be included in a notice of appeal:

 

The notice of appeal must . . . specify the party or parties taking the appeal by naming each one in the caption or body of the notice, but an attorney representing more than one party may describe those parties with such terms as "all plaintiffs," "the defendants," "the plaintiffs A, B, et al.," or "all defendants except X".

 

The Court noted that the requirement that the parties appealing clearly identify themselves serves an important purpose, as it "provide[s] notice to the court and to the opposing parties of the identity of the appellant or appellants, permitting the court and the opposition to know, for example, which parties are bound by the district court's judgment or which parties may be held liable for costs or sanctions on the appeal." Baylis v. Marriott Corp., 906 F.2d 874, 877 (2d Cir. 1990).

 

Based on a plain reading of Rule 3(c)(1)(A), the Second Circuit concluded that the fact that the two consumers are not mentioned anywhere in the notice of appeal is enough to defeat their argument that they successfully appealed.

 

However, the two consumers also attempted to use Rule 3(c)(3), which applies specifically to class actions, to save their claims. Rule 3(c)(3) provides:

 

In a class action, whether or not the class has been certified, the notice of appeal is sufficient if it names one person qualified to bring the appeal as representative of the class.

 

The two consumers argued that so long as a qualified class representative appeals, that appeal covers the entire class, including other named plaintiffs. However, the Second Circuit held that the provision covers unnamed class members that the party bringing the appeal is qualified to represent; it does not include individual named plaintiffs, who have appeared in the case as distinct parties separate from the class members represented by lead plaintiffs, and who, as in any other case, must appeal individually.

 

Had the Second Circuit accepted the two consumers' interpretation of Rule 3(c)(3), then the purpose of the notice requirement in Rule 3(c)(1)(A) would have been subverted in the Court's eyes. The two consumers could have chosen not to appeal, or filed an individual appeal and made different arguments than the lead plaintiffs. Or, if the lead plaintiffs chose not to appeal and thus to abandon the case, the two consumers could have pursued an appeal on their own behalf. As a result, allowing them to proceed as "an unnamed party" in the notice of appeal, as they argued the Court should, would "leave[] the notice's intended recipients – the appellee[s] and court – unable to determine with certitude whether [the two consumers] should be bound by an adverse judgment or held liable for costs or sanctions." Gonzalez v. Thaler, 565 U.S. 134, 147-148 (2012). The two consumers "could sit on the fence, await the outcome, and opt to participate only if it was favorable." Id.

 

The Second Circuit held similarly in Cohen v. UBS Financial Services Inc., 799 F.3d 174 (2d Cir. 2015). In that case, the plaintiff filed a putative class action against the corporate defendant, asserting claims under the Fair Labor Standards Act and California law. Id. at 175. The trial court granted the defendant's motion to compel arbitration based on an arbitration clause, and the plaintiff appealed. Id. On appeal, the plaintiff argued, inter alia, that California law prohibited arbitration of his California law claims. Id. at 180. The Second Circuit concluded that the plaintiff's own California law claims were time-barred, and although another named plaintiff had claims that were not time-barred, that named plaintiff had not indicated his intent to join the notice of appeal. Accordingly, the Court "reject[ed] [the plaintiff's] assertion that the other named plaintiffs... joined his appeal." Id. at 177 n.3.

 

The two consumers also argued that the Second Circuit's conclusion runs contrary to the Third Circuit's holding in Massie v. U.S. Dep't of Housing & Urban Development, 620 F.3d 340 (3d Cir. 2010). In Massie, the Third Circuit ruled that all named plaintiffs had adequately appealed, even though the original notice of appeal only listed one plaintiff by time. The Second Circuit here noted that Third Circuit law does not bind it.

 

However, more importantly, the Court distinguished the facts of Massie from the facts in this case because the original notice of appeal in Massie included "et al." after the lead plaintiff's name, and the plaintiffs later filed a second, untimely notice of appeal that listed all five named plaintiffs. Under those circumstances, the Third Circuit held that the named plaintiffs not listed in the original notice of appeal had still sufficiently appealed. These facts were not present in the presently discussed case.

 

Next, the two consumers contended that the Second Circuit's reading of Rule 3(c)(1)(A) imposes too great a burden on individual plaintiffs in a putative class action, especially in light of the US Supreme Court's decision in California Public Employees' Retirement System v. ANZ Securities, Inc., 137 S. Ct. 2042, 2054 (2017). In ANZ, the Supreme Court noted that plaintiffs can easily preserve their claims during the pendency of a class action, and that "[a] simple motion to intervene or request to be included as a named plaintiff in the class-action complaint may well suffice." Id. at 2054. The two consumers used this holding to argue that the Second Circuit was adding to the "simple" burden referenced by the Supreme Court.

 

However, the Second Circuit concluded that the burden the two consumers complained of was negligible; named plaintiffs are merely required to indicate their intent to appeal in a notice of appeal. Additionally, counsel for the two consumers (who also represented the lead plaintiffs) actually signed the notice of appeal as "Additional Counsel for Lead Plaintiffs and the Class" and did not mention any of the other named plaintiffs, including the two consumers. Counsel needed only to state that they signed on behalf of their individual clients, or to indicate in any way that those clients wished to appeal, which was a "simple" burden in the eyes of the Second Circuit.

 

Thus, the Second Circuit held that the trial court did not err in dismissing the two consumers' claims against the original defendants.

 

The two consumers also argued that even if their claims against the original defendants were barred by their failure to appeal, their claims against a defendant added after the lead plaintiffs' successful appeal should have been allowed to proceed. The Second Circuit disagreed and held that the two consumers' claims against the new defendant were barred by res judicata.

 

The doctrine of res judicata bars later litigation if "an earlier decision was (1) a final judgment on the merits, (2) by a court of competent jurisdiction, (3) in a case involving the same parties or their privies, and (4) involving the same cause of action." EDP Med. Computer Sys., Inc., 480 F.3d at 624 (internal quotation marks omitted).

 

As mentioned above, the Second Circuit concluded that the two consumers' failure to appeal the trial court's original dismissal of their claims rendered that dismissal a final judgment on the merits by a court of competent jurisdiction. Therefore, whether the two consumers' claims against the new defendant were barred turned on whether they involved the same cause of action as the claims in the original complaint, and whether the new defendant was in privity with the three original defendants.

 

"Even claims based upon different legal theories are barred [by res judicata] provided they arise from the same transaction or occurrence." L-Tec Elecs. Corp. v. Cougar Elec. Org., Inc., 198 F.3d 85, 88 (2d Cir. 1999).

 

The two consumers asserted claims against the new defendant based on the same allegedly misleading statement that was relied upon in the original complaint. Therefore, the Second Circuit held that the claims against the new defendant clearly arose from the same transaction or occurrence as the claims in the original complaint.

 

The two consumers argued that because the claims against the new defendant relied on newly discovered evidence showing that the statement was a misrepresentation, they were not barred by res judicata. However, the Second Circuit concluded that even claims based on newly discovered evidence do not escape the bar of res judicata "unless the evidence was either fraudulently concealed or it could not have been discovered with due diligence." L-Tec Elecs. Corp., 198 F.3d at 88 (internal quotation marks omitted).

 

The two consumers also argued that the new defendant was not in privity with the earlier defendants because he is being sued in his individual capacity under a "primary violator" theory of liability, which is different than the "control person" liability asserted against the original defendants. But the Second Circuit noted that the privity inquiry is a "functional" one, and "[r]es judicata may bar non-parties to earlier litigation . . . when the interests involved in the prior litigation are virtually identical to those in later litigation." Chase Manhattan Bank, N.A., 56 F.3d at 345-46 (emphasis omitted).

 

The new defendant was the chief legal officer of one of the original defendants when he made the statements giving rise to the claims against him and was speaking on behalf of the company. Therefore, the new defendant had a "sufficiently close relationship to the original defendant[s] to justify preclusion," Cent. Hudson Gas & Elec. Corp., 56 F.3d at 368, as their "agent," Sacerdote, 939 F.3d at 506. See also John St. Leasehold, LLC v. Cap. Mgmt. Res., L.P., 283 F.3d 73, 75 (2d Cir. 2002) (FDIC employees acting within the scope of their agency were in privity with employer FDIC for purposes of res judicata).

 

Accordingly, the Second Circuit held that the trial court properly dismissed the two consumers' claims against the new defendant.

 

Lastly, the two consumers argued that the trial court abused its discretion in denying their motion for reconsideration. "[A] party may move for reconsideration and obtain relief only when the [party] identifies an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice." Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Tr., 729 F.3d 99, 108 (2d Cir. 2013) (internal quotation marks omitted). "The standard for granting such a motion is strict, and reconsideration will generally be denied unless the moving party can point to controlling decisions or data that the court overlooked – matters, in other words, that might reasonably be expected to alter the conclusion reached by the court." Van Buskirk v. United Grp. of Cos., Inc., 935 F.3d 49, 54 (2d Cir. 2019) (internal quotation marks omitted).

 

The two consumers alleged that they presented "new evidence" in their motion for reconsideration, most notably an audio recording of the oral argument in Cohen. The Second Circuit was not persuaded that this recording is "evidence" at all, and if it is "evidence," the Court did not believe it is "new evidence" because the recording was readily available at the time of briefing before the trial court. The Court also stated that the recording provides no grounds for reconsideration because it did not alter the trial court's or the Second Circuit's understanding of Cohen. Third, the two consumers' interpretation of Cohen could not alter the outcome in this case because neither the trial court nor the Second Circuit relied solely on Cohen in interpreting Rule 3.

 

Thus, the Second Circuit decided that the trial court was warranted in denying the two consumers' motion for reconsideration.

 

Accordingly, the Second Circuit held that: (1) the two consumers' failure to appeal the trial court's first dismissal of their claims personally rendered that decision final as to them, and the trial court properly dismissed their attempt to renew their claims after the lead plaintiffs successfully appealed; (2) the two consumers' claims against the newly added defendant were barred by res judicata; and (3) the trial court did not abuse its discretion in denying reconsideration. Therefore, the Court affirmed the ruling of the trial court.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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: 7th Cir Upholds Order Remanding Putative Class Action Back to State Court for Lack of Article III Standing

The U.S. Court of Appeals for the Seventh Circuit recently affirmed a trial court's order granting a putative class plaintiff's motion to remand a case back to state court for lack of standing.

 

In so ruling, the Seventh Circuit held that the complaint described only a general regulatory violation, not something that is particularized to the plaintiffs and concrete, and that this was not enough to present a case that confers the plaintiffs with Article III standing to sue.

 

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

 

The defendant company provided a facial recognition tool to "scrape" pictures from social media sites such as Facebook, Twitter, Instagram, LinkedIn, and Venmo.

 

The defendant's software harvests from each scraped photograph the biometric facial scan and associated metadata (time and place stamps); that information is put onto a database, which is stored on multiple servers. The defendant offers access to this database to users who want to know more about the person in a photograph.

 

After the New York Times published an article about the defendant and its database, a wave of lawsuits followed. The plaintiffs here filed one such lawsuit, on behalf of themselves and a proposed class, in state court.

 

The initial complaint asserted violations of three subsections of the Illinois Biometric Information Privacy Act (BIPA), 740 ILCS 14/15(a), (b), and (c). The defendant removed that case to federal court, but shortly after removal the plaintiffs voluntarily dismissed the action.

 

The plaintiffs then returned to state court with a new, narrower lawsuit against the defendant. The new action was more focused in two respects: first, it alleged only a violation of BIPA, 740 ILCS 14/15(c); and second, the class definition was more constrained.

 

The defendant again removed the case to federal court. This time, the plaintiffs filed a motion to remand, in which they asserted that the violation of section 15(c) they described was only a "bare procedural violation, divorced from any concrete harm," see Spokeo, Inc. v. Robbins, 136 S. Ct. 1540, 1549 (2016), and thus did not support Article III standing.

 

The trial court agreed with the plaintiffs and ordered the case remanded to state court.

 

Because the case met the criteria of the federal Class Action Fairness Act, 28 U.S.C. § 1332(d), the defendant sought permission to appeal from the trial court's order. The Seventh Circuit agreed to take the appeal.

 

The Seventh Circuit noted that the party that wants the federal forum is the one that bears the burden of establishing that the court has subject matter jurisdiction over the case and that it falls within "the Judicial Power" conferred in Article III. See Schur v. L.A. Weight Loss Centers, Inc., 577 F.3d 752, 758 (7th Cir. 2009); Brill v. Countrywide Home Loans, Inc., 427 F.3d 446, 447 (7th Cir. 2005). Typically, the plaintiff has this burden, but not in cases of removal.

 

To establish standing under Article III of the Constitution, a party must demonstrate (1) that the plaintiff 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), citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61 (1992).

 

In this case, the Seventh Circuit focused exclusively on the injury-in-fact requirement, noting that the other two elements were not in dispute.

 

The plaintiffs' complaint raised only one claim under BIPA: that the defendant violated section 15(c), which reads:

 

c) No private entity in possession of a biometric identifier or biometric information may sell, lease, trade, or otherwise profit from a person's or a customer's biometric identifier or biometric information.

 

740 ILCS 14/15(c).

 

Additionally, the plaintiffs used the following class definition:

 

All current Illinois citizens whose biometric identifiers or biometric information were [sic], without their knowledge, included in the [the defendant's] Database at any time from January 1, 2016 to January 17, 2020 (the "Class Period") and who suffered no injury from defendant's violation of Section 15(c) of BIPA other than statutory aggrievement ...

 

The complaint concedes that none of the named plaintiffs, and no class member, "suffered any injury as a result of the violations of Section 15(c) of BIPA other than the statutory aggrievement alleged in Paragraph 38."

 

On appeal, the defendant urged the Seventh Circuit to equate a person's potential injury from the sale of her data with the injury from retention of that data that the Court recognized in Fox v. Dakkota Integrated Systems, LLC, 980 F.3d 1146 (7th Cir. 2020), or the injury it recognized in Bryant v. Compass Group USA, Inc., 958 F.3d 617 (7th Cir. 2020) from the collection of that data and the failure to obtain written consent.

 

In Fox, the Seventh Circuit held that "an unlawful retention of a person's biometric data is as concrete and particularized an injury as an unlawful collection of a person's biometric data." Fox 980 F.3d at 1155. In Bryant, the Court concluded that "allegations that [the defendant] had violated section 15(b)'s requirement both to inform those from whom it was collecting data that it was doing so and why, and to obtain their written consent, was both concrete and particularized, and thus were enough to support standing." Bryant 958 F.3d at 1154.

 

Indeed, the Seventh Circuit believed that a different complaint may have survived remand. The plaintiffs might have asserted, for example, that by selling their data, the defendant had deprived them of the opportunity to profit from their biometric information.

 

Or the plaintiffs could have argued that the act of selling their data amplified the invasion of their privacy that occurred when the data was first collected. The plaintiffs might even have asserted that the scraping of data from social media sites raises the cost of using those sites in some respect.

 

Here, however, the Seventh Circuit concluded that the plaintiffs intentionally offered a class definition too narrow for Article III standing, and the rule that the plaintiffs control their own cases applied.

 

Furthermore, the Court noted, there is nothing that prevents a putative class representative from taking a conservative approach to a class definition. And if the plaintiffs decide to broaden their class definition in the state court, the defendant will be able to attempt to remove the case again to federal court.

 

The Seventh Circuit decided that the plaintiffs have described only a general, regulatory violation, not something that is particularized and concrete.

 

The plaintiffs took care in their allegations, and especially in the scope of the proposed class they would like to represent, to steer clear of federal court, and, in general, plaintiffs may do this. As long as their allegations are in good faith, the plaintiffs may take advantage of the fact that Illinois permits BIPA cases that allege bare statutory violations, without any further need to allege or show injury. See Rosenbach v. Six Flags Entertainment Corp., 2019 IL 123186 ¶¶ 22–23.

 

The Seventh Circuit expressed no opinion as to the adequacy of the plaintiffs' complaint as a matter of Illinois law. Instead, the Court held that on the basis of the allegations of this complaint, the trial court correctly decided that the plaintiffs did not present a case that lies within the boundaries set by Article III, and so the court properly remanded the case to the state court.

 

Accordingly, the Seventh Circuit affirmed the trial court's order to remand the case to state court.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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: 7th Cir Holds "Stress and Confusion" Not Enough for Standing in FDCPA Case

The U.S. Court of Appeals for the Seventh Circuit recently vacated a trial court's summary judgment in favor of a debt collector and ordered dismissal for lack of Article III standing.

 

In so ruling, the Seventh Circuit held that stress and confusion alone are not concrete injuries sufficient to grant a plaintiff Article III standing for a federal Fair Debt Collection Practices Act (FDCPA) claim.

 

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

 

A consumer defaulted on a loan and, through counsel, sent the lender a letter stating that she refused to pay her debt and requesting that all future debt communications cease.

 

Soon after, the lender sold the debt to a debt collector. The debt collector was never informed that the consumer refused to pay her debt and that she was represented by counsel.

 

Eventually, the debt collector sent the consumer a dunning letter. The consumer, again through counsel, sent the debt collector a letter to notify it that she refused to pay and asking that all debt communications stop. The debt collector complied with the consumer's request and did not take any further actions.

 

Nevertheless, the consumer filed a lawsuit alleging that the debt collector violated 15 U.S.C. § 1692c(a)(2) and (c) of the FDCPA, which regulates debt collectors' communications with consumers. As you may recall, § 1692c(a)(2) prohibits a debt collector from directly communicating with a consumer who is represented by an attorney with respect to the debt and § 1692c(c) forbids a debt collector from directly communicating with a consumer who notifies a debt collector in writing that she refuses to pay the debt or that she wishes for the debt collector to stop communicating with her.

 

The consumer claimed "stress and confusion" as her injuries, arguing that the dunning letter made her feel like "her demand had been futile" and that she did not have rights under the FDCPA. According to the consumer, the dunning letter also made her "question whether she was still represented by counsel" and "whether she was required to pay the debt at issue."

 

The trial court granted summary judgment in favor of the debt collector on the merits, concluding that the debt collector could not have violated § 1692(a)(2) and (c) without actual knowledge of the consumer's first cease-communication request to the lender. The consumer then filed a motion to reconsider, the trial court denied the motion, and the consumer appealed.

 

The Seventh Circuit focused its analysis on Article III standing, even though neither party raised the issue in their briefs.

 

The Court noted that the "irreducible constitutional minimum of standing" requires the plaintiff or party invoking federal jurisdiction to demonstrate that she has suffered an injury in fact that is fairly traceable to the defendant's conduct and redressable by a favorable judicial decision. Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992). Standing must be established at the time the suit is filed. Pollack v. U.S. Dep't of Just., 577 F.3d 736, 742 n.2 (7th Cir. 2009).

 

To establish injury in fact, a plaintiff must allege a "concrete and particularized" injury. Friends of the Earth, Inc. v. Laidlaw Env't Servs. (TOC), Inc., 528 U.S. 167, 180 (2000). An injury is particularized if it "affect[s] the plaintiff in a personal and individual way," Lujan, 504 U.S. at 560 n.1, and it is concrete if it is "real, and not abstract." Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1548 (2016) (internal quotation marks omitted). To satisfy concreteness, the injury does not need to be tangible; a risk of real harm can suffice. Id. at 1549.

 

However, a statutory violation alone does not automatically lead to a concrete injury. Id. For an FDCPA violation, the plaintiff must allege in the complaint that "the violation harmed or presented an appreciable risk of harm to the underlying concrete interest that Congress sought to protect." Casillas v. Madison Ave. Assocs., Inc., 926 F.3d 329, 333 (7th Cir. 2019) (internal quotation marks omitted).

 

In this case, the Seventh Circuit concluded that the consumer did not allege a concrete injury. The Court reasoned that "confusion is not itself an injury." Brunett v. Convergent Outsourcing, Inc., 982 F.3d 1067, 1068 (7th Cir. 2020). Similarly, stress by itself, with no physical manifestations and no qualified medical diagnosis, does not amount to a concrete harm. Cf. United States v. All Funds on Deposit with R.J. O'Brien & Assocs., 783 F.3d 607, 616 (7th Cir. 2015) (noting that "purely psychological harm" does not suffice to establish Article III standing).

 

For the alleged injury to be concrete, the consumer must have acted "to her detriment, on that confusion." Brunett, 982 F.3d at 1068. The consumer did not prove to the Court that the debt collector's letter caused her to change her decision-making or put her in harm's way.

 

The consumer attempted to save her claim by arguing that the dunning letter was also an invasion of her privacy, which she submitted as an injury. However, the Seventh Circuit was not persuaded because this allegation was made for the first time in a supplemental memorandum. What mattered to the Court was what the consumer alleged in her operative complaint. Thornley v. Clearview AI, Inc., 984 F.3d 1241, 1242 (7th Cir. 2021); see also Borelli v. City of Reading, 532 F.2d 950, 951 (3d Cir. 1976) (per curiam) (noting that "[t]he question of standing is generally determined from the face of the complaint").

 

Accordingly, the Seventh Circuit concluded that the consumer failed to allege a concrete injury sufficient to grant her Article III standing in an FDCPA case and, therefore, vacated the trial court's judgment and remanded with instructions to dismiss for lack of subject matter jurisdiction.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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: 3rd Cir Holds No FDCPA Violation When Debt Collector Invited Phone Calls to ""Eliminate Further Collection Action"

The U.S. Court of Appeals for the Third Circuit recently held that that a debt collector did not violate federal Fair Debt Collection Practices Act (FDCPA) when it sent a consumer a collection letter inviting her to "eliminate further collection action" by calling the company, when in fact only written communication could legally stop collection activity.

 

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

 

A consumer failed to pay her credit card debt, and the card issuer hired a debt collector. The debt collector sent the consumer a collection letter that stated:

 

Please be advised that the above-referenced debt has been assigned to this firm to initiate collection efforts regarding your delinquent outstanding balance to our client. If you wish to eliminate further collection action, please contact us at [the debt collector's phone number].

 

(the "Contact Sentence").

 

In addition, the collection letter also stated:

Unless you notify this office within THIRTY (30) days of receiving this notice that you dispute the validity of this debt, or any portion thereof, this office will assume this debt is valid.

 

If you notify this office in writing within THIRTY (30) days of receiving this notice that this debt, or any portion thereof, is disputed, this office will obtain verification of the debt, or a copy of a judgment against you, and mail you a copy of such verification or judgment. Further, if you make a written request upon this office within THIRTY (30) days of receiving this notice, this office will provide you with the name and address of the original creditor, if different from the current creditor.

 

This is an attempt to collect a debt and any information obtained will be used for that purpose.

 

The consumer sued the debt collector under the FDCPA, arguing that the Contact Sentence would make a debtor uncertain about the correct method to dispute the debt.

 

The trial court disagreed with the consumer and granted summary judgment in favor of the debt collector. This timely appeal followed.

 

When deciding if a debt-collection action violates the FDCPA, courts in the Third Circuit employ the "least sophisticated debtor" standard. Jensen v. Pressler & Pressler, 791 F.3d 413, 418 (3d Cir. 2015). "The standard is an objective one, meaning that the specific plaintiff need not prove that she was actually confused or misled, only that the objective least sophisticated debtor would be." Id. at 419.

 

Under 15 U.S.C. § 1692e, "[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt." "[A] collection letter 'is deceptive when it can be reasonably read to have two or more different meanings, one of which is inaccurate.'" Wilson v. Quadramed Corp., 225 F.3d 350, 354 n.2 (3d Cir. 2000 (quoting Russell v. Equifax A.R.S., 74 F.3d 30, 35 (2d Cir. 1996)).

 

Also, under 15 U.S.C. § 1692g(a), a debt collector must provide the consumer with a written notice containing the following:

 

(1) the amount of the debt;

(2) the name of the creditor to whom the debt is owed;

(3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector;

(4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and

(5) a statement that, upon the consumer's written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor.

 

Id. § 1692g(a)

 

§ 1692g(a)(3) through (5) represent the "Validation Notice," which informs a consumer how to obtain verification of the debt, a copy of a judgment, or the name and address of the original creditor, and that she has thirty days in which to do so. Wilson, 225 F.3d at 353–54. It was not disputed that the debt collector here did provide the Validation Notice in the collection letter after the Contact Sentence.

 

If a consumer writes to a debt collector to dispute the debt or to request the name of the original creditor, then § 1692g requires the debt collector to "cease collection of the debt . . . until the debt collector obtains verification of the debt or a copy of a judgment, or the name and address of the original creditor, and [these materials are] mailed to the consumer by the debt collector." § 1692g. Thus, a phone call to a debt collector cannot legally stop collection activity.

 

In this case, the consumer argued that the collection letter is deceptive because it indicated that a telephone call was a "legally effective" method of stopping collection activity.

 

The Third Circuit was not persuaded by this argument because, while the debt collector did invite the consumer to call to "eliminate" collection activity, it never explicitly or implicitly stated that calling would legally force the debt collector to cease its collection efforts.

 

The consumer also asserted that because the Contact Sentence came before the Validation Notice in the collection letter, a debtor would be left confused as to whether she should call or write to exercise her rights under § 1692g.

 

The Third Circuit again disagreed because the Validation Notice specifically instructs the consumer to write to exercise her § 1692g rights, not to call.

 

Similarly, the Court noted that the Contact Sentence does not state or even suggest that the consumer could exercise her § 1692g rights over the phone. The Court also held that the order of the paragraphs does not create confusion. See Wilson, 225 F.3d at 356 (holding that a paragraph demanding immediate payment of a debt that preceded a Validation Notice did not create "an actual or apparent contradiction" with the Validation Notice in violation of § 1692g).

 

Accordingly, the Third Circuit concluded that the collection letter did not violate the FDCPA, and affirmed summary judgment in favor of the debt collector.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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Email: rwutscher@MauriceWutscher.com

 

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