Archives for May 2015

Don Maurice

Statutory damage claims, like those under the TCPA and the FCRA, will be scrutinized in the next session of the U.S. Supreme Court and its decisions could have broad implications for the financial services industry.

Today we look at one of the cases the court will consider, Gomez v. Campbell-Ewald Co. The case considers whether an offer of complete relief to a litigant will extinguish both her individual claims and, prior to class certification, render her class claims moot. A decision will likely impact litigation under the FDCPA, TILA, EFTA and other federal laws, which can expose financial services companies to extraordinary liability even though the injured party has suffered no real loss.

Mooting Individual Claims by Offering Judgment

Rather than engage in costly litigation to obtain a pyrrhic victory, some defendants choose not to fight and instead offer the plaintiff a judgment, usually exceeding the amount the plaintiff could recover if she were successful on her claim. Under the TCPA where only one communication is alleged to be a violation, a plaintiff with no actual loss might still be entitled to up to $1,500 in statutory damages. And that was the case in Gomez where Gomez alleged a violation of the TCPA from a single text message. The defendant offered Gomez a judgment of $1,503, plus costs. Gomez, though, sought to certify a class of other persons who had received a similar text message from the defendant, so he never accepted the offer and it lapsed.

The trial court denied the defendant’s request to dismiss Gomez’s case on the basis that it had offered him more than he could receive if he were successful at trial.  The Ninth Circuit affirmed the trial court’s decision, holding that unaccepted offers of judgment do not “moot” a plaintiff claim, pointing to its 2013 decision in Diaz v. First Am. Home Buyers Prot. Corp.

Circuit Law Conflicts 

Last week, the Second Circuit Court of Appeals handed down a decision in Tanasi v. New Alliance Bank, holding that an unaccepted offer of judgment, alone, does not moot a claim, siding with the Ninth Circuit and a similar holding from 2014 in the Eleventh Circuit decision Jeffrey M. Stein, D.D.S., M.S.D., P.A. v. Buccaneers L.P.

Tanasi does depart from the Ninth and Eleventh Circuits and suggests that a matter could be rendered moot by an unaccepted offer. Quoting the dissent from the Supreme Court’s 2013 decision Genesis Healthcare Corp. v. Symczyk, the Second Circuit wrote that an unaccepted offer of judgment will moot a case where the defendant “unconditionally surrenders . . . [such that] only the plaintiff’s obstinacy or madness prevents her from accepting total victory.” This second route sets in motion the potential for interesting lawyering.

These three Circuits are at odds with decisions from the Third, Fourth, Fifth, Seventh, Tenth, and Federal Circuits, which all have held that an unaccepted offer, alone, does moot the case and divest the federal court of jurisdiction.

Impact on Class Actions

Even in those Circuits which hold that an unaccepted Rule 68 offer of judgment can moot an individual’s claims, it does not necessarily follow that federal courts will find it divests them of jurisdiction over class claims, although the Fourth and Seventh Circuits have found a class can be mooted (Warren v. Sessoms & Rogers, P.A. and Damasco v. Clearwire Corp., respectively).

The Genesis decision threw a wrench into the majority view that pre-certification class claims cannot be mooted by unaccepted offers. Genesis found that a plaintiff’s refusal to accept such an offer of judgment in a “collective action” under the Fair Labor Standards Act rendered the plaintiff with “no personal interest in representing putative, unnamed claimants, nor any other continuing interest that would preserve her suit from mootness.” You could readGenesis to mean that by mooting the individual class representative claims, the class claims are mooted as well.

But FLSA collective actions are not the same as class actions under federal rule 23, leaving some to strictly read Genesis as having no impact on class action litigation, as the Ninth Circuit wrote in Gomez. But the Second Circuit’s opinion in Tanasi suggests it sees otherwise and also left open the door to moot class claims if an offer is made before class certification.

Supreme Court Outlook

Gomez presents an opportunity for the Supreme Court to resolve whether an unaccepted offer of judgment of complete relief moots individual claims as well as whether it moots class claims prior to certification. If it does not moot either, the fallout is likely to mean Rule 68 offers of judgment will see less use. Defendants will be forced to litigate cases even when they have offered to give the plaintiff all that she seeks. It will mean litigation can occur solely for the purpose of litigation.

A ruling that unaccepted offers moot individual claims will likely increase the use of complete relief offers in the Ninth and Eleventh Circuits, promoting a quick end to pointless litigation. It would have less impact in the remaining Circuits.

If the Supreme Court were to hold that an unaccepted Rule 68 offer moots class claims prior to class certification, the effect would be dramatic, particularly upon those cases that seek only statutory damages, which are often asserted against financial services companies. By offering to make the individual plaintiff whole, regardless of the merits of the claim, defendants may avoid the cost and expense of class action litigation driven primarily, if not solely, by a desire for a large award of plaintiff’s attorneys fees.

Two weeks ago, insideARM reported on a bill that was introduced in the District of Columbia Council that would impose additional burdensome requirements on debt buyers and collectors.

In that article we suggested that these types of bills may be part of a nationwide trend. I believe we can now officially confirm that speculation.

After just cursory research insideARM has identified numerous bills introduced in various state legislatures in the past three months that – if passed – would significantly impact the debt collection industry.

The proposed legislation reviewed ranges from variations on the theme outlined in the D.C. bill to obscure provisions in a seemingly unrelated bill.

Examples include:

In Maine a bill (HP075301) was introduced to amend the Maine Fair Debt Collection Practices Act to provide greater protection to debtors with regard to collection actions by debt buyers. The bill provides that a debt buyer may not collect on a debt without providing specified information that includes the name of the original creditor and all intervening creditors, as well as the sources of added fees and interest. The information must be also be included in the complaint to initiate the cause of action to collect the debt.

The Maine bill also proposes a 3-year statute of limitations that replaces all other limitations unless the existing limitations is a shorter period.

In Oregon a similar bill (HB 2252-3) was introduced.  The proposed bill includes similar specific notice requirements and outlines additional obligations before a debt buyer may bring legal action to collect debt.

In Illinois a bill (SB1866) was introduced amending the Crime Victims Compensation Act. In that bill there are provisions restricting debt collection activity against crime victims once a crime victim provides notice to a debt collector.

What does this all mean? Well, unfortunately here are my takeaways and questions:

1)      We can continue to expect bills introduced at every level of government (City, County, State and Federal) in reaction to the negative stories we see every day about the debt collection industry.

2)      Clients and prospects are requesting – and will continue to expect – specific policies and procedures to outline how a company intends to keep up with the ever changing regulatory landscape.

3)      Does the ARM industry have the financial resources to impact proposed legislation BEFORE it becomes law?

4)      The challenge of keeping up with these potential changes is immense. Is reliance on trade association updates and industry news sites like insideARM enough?  What are the alternatives?