Recent Seventh Circuit Decision Impacts Class Actions in FDCPA Cases

The Seventh Circuit Court of Appeals recently reversed and remanded a district court’s denial of a class certification motion in a Fair Debt Collection Practices Act (“FDCPA”) case. The opinion in Phillips v. Asset Acceptance, LLC, written by Judge Richard Posner, has a small impact on class actions in such cases and the role of a class representative. This case originated from an alleged violation of the FDCPA for the impermissible attempt to collect a consumer debt after the expiration of the statute of limitations. The Plaintiff, Gwendolyn Phillips, was originally sued by Asset Acceptance, a debt collector, on a debt arising from a purchase of natural gas for household use. The Plaintiff moved to certify a class of 793 others, 343 of whom resided in Illinois, who were also affected by the alleged improper debt collection practices. The district court judge found that the proposed class representative was an adequate class representative for only 23 members of the proposed 793 member class. Accordingly, the district court judge denied the motion to certify class for failure to satisfy the numerosity requirement of Rule 23(a). While numerosity was the ultimate basis for denying the motion, the main issue of the case was in regards to adequacy of representation and whether the applicable statute of limitations under the FDCPA is four years or five years.

The Plaintiff had been sued more than five years after the accrual of the claim. The majority of the proposed class, however, was sued between four and five years after the claims against them accrued. Plaintiff argued that the applicable statute of limitations is four years while the Defendant argued that it is five years. Defendant also argued that the district court judge should not rule on the applicable statute of limitations as it is a merits issue rather than one of class action procedure. Rather than resolve the applicable statute of limitations period, however, the district court judge concluded that Plaintiff was not an adequate representative of the class members because she did not have a true interest in representing the members who had been sued between four and five years after the accrual of the claim. Plaintiff appealed the decision.

The Seventh Circuit reversed the decision, first rejecting the district court’s finding that the Plaintiff was not an adequate class representative. Judge Posner noted that the role of a class representative is nominal. He stated that Plaintiff’s success of the case depends largely on the complexity of the class. Plaintiff has an incentive to assist the claims of the four-year debtors in order to keep the class large, which will ultimately result in a greater award should the suit be successful. Therefore, the Seventh Circuit was not convinced that the Plaintiff was not an adequate class representative.

The Seventh Circuit also held that the applicable statute of limitations under the FDCPA is four years. It rejected the argument that determining such a question would be improper at the stage of determining class certification. Judge Posner wrote in the opinion that resolution of the applicable statute of limitations was necessary in resolving the composition of the class and whether the suit could be maintained as a class at all. He added further that determining the applicable statute of limitations is a pure question of law and could be determined by the court without resolving factual disputes.

This opinion is interesting because it is very rare that an appellate court will reverse a lower court’s decision in favor of class certification. Moreover, had the district court’s denial been upheld, it would have limited the reach of the FDCPA and would also have narrowly interpreted the role of a class representative in such cases.