In Powers v. Credit Mgmt. Servs., Inc., No. 13-2831 (8th Cir. Jan. 13, 2015), the United States Court of Appeals for the Eighth Circuit reversed the District of Nebraska’s order granting class certification of an action alleging violations of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (“FDCPA”) and Nebraska Consumer Protection Act( “NCPA”). The defendant, Credit Management Services (“CMS”), commences consumer debt collection actions in Nebraska state courts. When the named plaintiffs contested CMS’s state court collection complaint, CMS, through its attorneys, served nearly identical discovery requests seeking disclosure of employment and financial information regarding the plaintiffs.
In turn, the plaintiffs filed a putative class action against CMS and its in-house attorneys listed on the signature lines of the collection complaints and discovery requests, alleging that the complaints and discovery requests violated the FDCPA and NCPA. The District Court certified the action with four classes, concluding that the predominant common question was whether the defendants sent each class members standard collection complaints and discovery requests which violated the FDCPA and NCPA.
The Eighth Circuit granted the defendants’ leave to appeal under Rule 23(f) and reversed the District Court’s decision granting class certification, concluding that the court failed to conduct a rigorous analysis of the elements of Rule 23. The Eighth Circuit noted that, unlike “run-of-the-mill” FDCPA class actions that involve standard form collection letters sent directly to consumers, the issue in Powers was whether legal pleadings used by a debt collector violated the FDCPA.
The plaintiffs alleged two deficiencies with the complaints. First, the plaintiffs alleged that CMS’s standard form allegations, which sought an award of prejudgment interest under Nebraska law, violated the FDCPA because prejudgment interest was not permitted if the consumer contested the lawsuit (unless additional statutory requirements were subsequently met). The Eighth Circuit noted that while the issue of the whether the demand for prejudgment interest violated the FDCPA, as phrased by the plaintiffs, was “common” to the class, it was not capable of class-wide resolution without numerous individualized inquiries. Specifically, the Court held that even if the plaintiffs’ theory were correct (that the demand violated the FDCPA), the court would still need to inquire into whether CMS recovered prejudgment interest on all the underlying lawsuits (so that the alleged violations would be material), whether CMS had a legitimate claim to prejudgment interest under the facts of each case, and whether the plaintiffs’ legal theory was litigated by a class member at the state court level and resolved by the state court for purposes of issue preclusion.
Second, the plaintiffs alleged that CMS’s standardized statement in its complaint that “more than 90 days have elapsed since the presentation of this claim” violated the FDCPA because CMS typically did not present the claim but simply relied on the original creditor’s billing statement. The Eighth Circuit again concluded that while the issue, as phrased by the plaintiffs, appeared “common” to the class, CMS’s liability could not be resolved absent individualized inquiry into whether, amongst other things, CMS personally provided the 90 day presentation or relied on an assignor’s billing statement and whether the plaintiffs’ legal theory had been litigated in the underlying lawsuit for purposes of issue preclusion.
The plaintiffs also alleged that CMS’s standard-form discovery instructions “confuse and mislead the unsophisticated consumer as to his or her right in answering said discovery.” In granting class certification, the plaintiffs argued (and the District Court agreed), that FDCPA violations are assessed objectively through the eyes of an unsophisticated consumer, and therefore whether particular class members were represented by attorneys was irrelevant. The Eighth Circuit disagreed, holding that the “unsophisticated consumer” standard applies to FDCPA claims challenging communications sent directly to the consumer, and that this standard was inappropriate for judging communication between attorneys. Where an attorney represents a consumer in a debt collection proceeding, the Eighth Circuit held that it will presume that the attorney (rather than the FDCPA) will protect the consumer from overreaching or improper discovery tactics. Because the District Court did not engage in any analysis of how standard-form discovery requests could be deemed unreasonable without knowing the factual context of a particular case, class certification was therefore improper.
Accordingly, the Eighth Circuit reversed the District Court’s decision. A full copy of the Eighth Circuit’s decision is available here.
