Class Action Liability

Second Circuit Adopts FDCPA Least Sophisticated Consumer Safe Harbor Approach Established by the Seventh Circuit

In Avila, et al. v. Riexinger & Associates, LLC, et al., Case No. 15-1584(L), the Second Circuit Court of Appeals applied the least sophisticated consumer standard of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (“FDCPA”) to conclude that a consumer cannot be expected to know that a total debt provided in a given statement continues to increase interest or other fees.  The Second Circuit held that when a debt collector issues a notice to a borrower that includes a statement of the complete amount of their debt, the debt collector must either accurately inform the consumer that the amount of the debt stated in the notice will increase over time based upon interest or other fees, or clearly state that the holder of the debt will accept payment of the amount set forth in full satisfaction of the debt if payment is made by a specified date. In Avila, a consumer brought a putative class action against a debt collector for violation of § 1692e of the FDCPA alleging that the practice of disclosing in a collection notice only the “current balance” of the amount owed amounts to “false, deceptive, or misleading” collection practices under the statute.  The consumer alleged that the notice led them to believe that the amount owed was not increasing.  The Second Circuit agreed and held that the least sophisticated consumer could believe that payment in full of the current balance provided in the notice would satisfy the entire debt owed, and that a failure to mention the ongoing accrual of interest and fees was misleading. Further, the Court held that “the FDCPA requires debt collectors, when they notify consumers of their account balance, to disclose that the balance may increase due to interest and fees.”

The Second Circuit also held that Section 1692e requires additional disclosures to ensure that consumers are not misled into thinking that simply paying the “current balance” as listed on the collection notice will always result in full satisfaction of the amount owed. Accordingly, the Second Circuit adopted the “safe harbor” approach established by the Seventh Circuit in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, & Clark, L.L.C., 214 F.3d 872 (7th Cir. 2000).  The “safe harbor” doctrine allows a debt collector to prevent liability under Section 1692e “if the collection notice either accurately informs the consumer that the amount of the debt stated in the letter will increase over time, or clearly states that the holder of the debt will accept payment of the amount set forth in full satisfaction of the debt if payment is made by a specified date.”

Although the Second Circuit declined to establish the exact language of any disclosure that a debt collector must use to sidestep a possible FDCPA violation, the Court expressed that the language proposed in Miller, 214 F.3d, at 876, would certainly qualify a debt collector for treatment under the newly-created safe-harbor.

Debt collection agencies, or those that act as debt collectors, should pay particular attention to the language of Miller that the Second Circuit suggests will satisfy the newly-recognized safe harbor provision. For information on revising statements to consumers to comply with the safe harbor language, or for other information regarding this topic, contact Stephanie Strickler at 312-334-3465 or at sstrickler@messerstrickler.com.

33% Attorney’s Fee Award Reduced to Lodestar Calculation in FLSA Settlement

Marshall v. Deutsche Post DHL, decided September 21, 2015 involved a collective action against DHL and DHL Express (USA) Inc. The plaintiffs represented a class of DHL agents working at airports in New York, Miami and Los Angeles who were “undercompensated through defendants’ alleged unlawful rounding of time, automatic deductions for meals, and requests that employees work off-the-clock.” Plaintiffs, through class counsel, obtained a settlement of $1,500,000 for the 242 class members involved. In approving the settlement, the district court stated that it had no issues with the settlement amount for the class members, but took issue with the calculation of class counsel’s attorney’s fees pursuant to that settlement. Although class counsel appeared to have billed a total of 1,325 hours on the case for a total lodestar figure of $591,571.25, class counsel requested $500,000 in fees, or one third of the settlement amount, and sought to be reimbursed for $33,371.39 for costs. The magistrate judge approved the proposed settlement and no class member or other interested party made any objection. Fast forward to the settlement approval by the district court – as stated above, the court took no issue with the settlement amount as to the class stating “the settlement is substantively fair and adequate and therefore is approved.” The court next evaluated class counsels’ request for an award equal to 1/3 of the total settlement amount. The court stated a “court may calculate a reasonable attorneys’ fee either by determining the so-called “lodestar” amount or by awarding a percentage of the settlement. “See McDaniel v. Cnty. Of Schenectady, 595 F.3d 411, 417 (2d Cir. 2010). The court also acknowledged that “the trend in this Circuit is toward the percentage method,” but either approach is appropriate. McDaniel, 595 F.3d at 417 (quoting Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96, 121(2d Cir. 2005). Even so, the court, citing to McDaniel, 595 F.3d at 417, stated “the percentage-of-the fund method”…“create[s] perverse incentives of its own, potentially encouraging counsel to settle a case prematurely once their opportunity costs begin to rise.”

The district court ultimately disagreed with the magistrate’s finding that the 1/3 award was reasonable stating that “there is reason to be wary of much of the case law awarding attorney’s fees in FLSA cases in this circuit” citing to Fujiwara v. Sushi Yasuda Ltd., 58 F.Supp. 3d 424, 436 (S.D.N.Y. 2014). Therefore, the district court followed several other New York federal district judges partial to Fujiwara and applied the lodestar method but refused to apply a multiplier. In doing so, the court reduced the award to $370,236.50, approximately 25 percent of the total settlement, stating “[w]hile counsel urge the use of a lodestar multiplier, the various considerations that might justify a multiplier have already been factored into the determination of counsel’s reasonable hourly rate. I decline to add a multiplier to the fee award.” See Goldberger v. Integrated Res., Inc., 209 F.3d 43, 51-57 (2d Cir. 2000).

The Marshall decision could present a concern for mid-size or larger firms, who generally bill at much higher rates, who are considering taking on the risk of employment common fund class or collective actions.

For more information on the FLSA, class or collective actions or any other employment law issue, please contact Dana Perminas at 312-334-3474 or dperminas@messerstrickler.com.

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CLASS ACTION STATUS GRANTED AGAINST UBER TECHNOLOGIES

Judge Edward Chen of the Northern District Court of California recently certified a class action suit against Uber Technologies, Inc. which claims the service treated its drivers like employees rather than independent contractors. The plaintiffs in this case believe that since Uber controls much of the drivers’ experiences (i.e. setting fares, deciding when and why they can be terminated, etc.), drivers should be classified as employees and therefore be eligible for expense reimbursements for car repairs, tips, and insurance. The class action will not apply to drivers that waived their right to litigate, certain drivers who work for independent transportation companies and drivers outside the state of California.  If a ruling limiting the class to those employed in the state of California is successfully appealed, however, the class action could be applicable to drivers around the country.

For more information regarding the class action against Uber or employment law generally, contact Joseph Messer at jmesser@messerstrickler.com or (312) 334-3440.

FLORIDA COURT HOLDS CONSENT ISSUE PRECLUDES CLASS CERTIFICATION IN TCPA CASE

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The Middle District of Florida recently denied class certification in a Telephone Consumer Protection Act (TCPA) case where there was no “class-wide” proof as to whether proposed class members consented to automated calls to their cellular telephones. 

See

Shamblin v. Obama for Am.

, No 13-2428, 2015 U.S. Dist. LEXIS 54849 (M.D. Fla. Apr. 27, 2015).  In doing so, the court confirmed that the burden of proving critical issues are susceptible to class-wide proof falls on class-action plaintiffs regardless of whether defendants bear the ultimate burden of proving or disproving certain issues at trial (in this case consent).

The TCPA makes it illegal to call any telephone number assigned to a cellular telephone service using an automatic-telephone-dialing system or an artificial or pre-recorded voice, unless the consumer expressly consents to same.

 In

Shamblin

, plaintiff filed a putative class action against Obama for America after receiving two unsolicited auto-dialed calls to her cellular telephone.  In finding that the commonality, predominance and superiority requirements for class certification were not satisfied, the court reasoned that Plaintiff was “not entitled to a presumption that all class members failed to consent” despite a lack of documentary evidence of consent and “[d]efendants have a constitutional right to a jury determination as to whether any person consented to receiving calls to their cellular telephone.”   As there was no class-wide proof available to decide consent, individualized inquiries into consent (including where, how, and when) would predominate trial, precluding class certification.

The Shamblin decision indicates that class treatment may not be the appropriate mechanism for adjudicating TCPA disputes where individual determinations with respect to consent exist.  For more information on the Shamblin decision or the TCPA generally, contact Katherine Olson at 312-334-3444 or kolson@messerstrickler.com.

Class Action Lawsuit Against Paramount Pictures Dismissed with Prejudice

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Soon after filing a class action lawsuit against Paramount Pictures Corporation, Michael Peikoff’s lawsuit was dismissed with prejudice. In the complaint filed in the United States District Court for the Northern District of California, Peikoff alleged that Paramount Pictures violated the Fair Credit Reporting Act (“FCRA”) when it ran credit report checks on potential employees. Peikoff claimed that, though Paramount had disclosed its intentions and received authorization from job applicants, the authorization form was included in the general job application in violation of the law.

Judge Vince Chhabria disagreed with Peikoff. The Court determined that Paramount did not act recklessly by including the authorization form within the job application nor did it violate the FCRA by using such language. Judge Chhabria found that although Paramount was not entirely upfront with its intentions to run credit checks, it did not violate federal law.

For more information about this case or the FCRA generally, contact Joseph Messer at

jmesser@messerstrickler.com

or (312) 334-3440.

Debt Buyers Beware! Post-Charge Off Interest May Lead to Class Action Liability

Tempting for many debt purchasers is the prospect of adding post-charge off interest or fees to a purchased debt. After all, upon acquisition of a debt a purchaser legally “stands in the shoes” of the predecessor creditor. Meaning, the buyer generally inherits that creditor’s rights to invoke the provisions of the original agreement between the creditor and debtor. In that many credit agreements typically include provisions allowing the imposition of interest and even the addition of late fees and collection costs, relying on those agreements to beef up the balance of the debt can be an attractive prospect. As a recent case has shown, however, debt purchasers should be wary of the shoes they step into. In McDonald v. Asset Acceptance LLC, 2013 WL 4028947 (E.D. Mich. 2013), a group of plaintiffs filed a class action complaint arguing that a debt purchaser illegally attempted to collect post-charge off interest in violation of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. Specifically, Plaintiffs alleged that while the original agreement between the original creditors and the debtors allowed for the imposition of interest, the creditors waived the right to collect interest once the debts were charged-off. A credit account is characterized as “charged-off” when it is treated as a loss and the creditor receives a tax deduction under the Internal Revenue Code. See, Victoria J. Haneman, The Ethical Exploitation of the Unrepresented Consumer, 73 Mo. L. Rev. 707, 713-714 (2008). Because a debt purchaser, as an assignee, “stands in the shoes” of the original creditor when it attempts collect on accounts, Plaintiffs argued that the waiver of interest by the original creditors foreclosed the purchasers’ right to subsequently add interest.

The McDonald Court explained that the propriety of the debt purchasers’ imposition of interest depended on whether the original creditors waived the right to impose interest prior to sale. The original creditors testified that as a normal course and practice they ceased from charging post-charge off interest due to cost of continuing to assess the charges. The Court also noted that the contracts of sale between the debt purchaser and creditors excluded post charge-off interest from the definition of “current balance” or “unpaid balance” in the agreements. The court found that the original creditors “intended to waive the right to collect interest on Plaintiff’s accounts” by taking “decisive and unequivocal acts to forgo the imposition of interest for strategic business reasons.” McDonald, 2013 WL 4028947 at *10. Further, the Court decided that the purchaser had no legal right or ability to retract the waiver made by its predecessor in interest. The Court held that the practice constituted violations of § 1692f(1) and § 1692e(2) (A) of the FDCPA and certified a class of consumers subject to the illegal imposition of interest. Importantly, the Court also denied the purchaser the use of the bona fide error defense explaining that ignorance of the law does not afford a debt collector a defense under the FDCPA. Id. at *13.

The lesson learned from this case is that a debt purchaser must thoroughly review not only their purchase of sale contract but also the general business practices of the creditor in regards to charged-off debt. For further information on this issue and others affecting the credit and collection industry, contact attorney Nicole M. Strickler, (312) 334-3442.

TCPA Traps in Health Care Collections: ACA International’s Article on Joe Messer & Nicole Strickler’s Presentation at ACA Fall Forum

Last month, Joe Messer and Nicole Strickler, partners at Messer Strickler, Ltd., gave two presentations at the ACA International’s 2013 Fall Forum in Chicago. The topics of their presentations were: “Avoiding TCPA Traps in Health Care Collections” and “The Forgotten and Misunderstood: Avoiding Liability under State Laws Affecting Debt Collection.” ACA International, the Association of Credit and Collection Professionals shared an overview, as well as valuable takeaways from one of these presentations with its audience by publishing an article “TCPA Traps in Health Care Collections” on the organization’s website. The presentation focused on the overview of the Telephone Consumer Protection Act (“TCPA”), vicarious liability for collectors and their health care provider clients, and recent TCPA case law that regulates medical debt collection. To emphasize the importance of Joe and Nicole’s message and information they shared, ACA International warned its audience in the article: “Violations of the TCPA can result in catastrophic class-action liability for collectors and their health care provider clients who may be sued on ‘vicarious liability’ grounds.”

Joe and Nicole have earned a national reputation for successfully defending lawsuits brought under the Fair Debt Collection Practices Act (“FDCPA”), Fair Credit Reporting Act (“FCRA”), TCPA, and other state and federal consumer protection laws. Both Joe and Nicole have substantial experience defending corporations, lending institutions, collection agencies, asset purchasers, lawyers as well as individuals; they have conducted many trials in state and federal courts and have served as lead counsel on multiple class action cases. Joe and Nicole are also active members and often presenters at ACA International, NARCA, NAPBS, ABA and other professional organizations.

To learn more about Telephone Consumer Protection Act and TCPA traps in health care collections, as well as potential liability for collectors in health care and other industries, contact Joe Messer at (312) 334-3440 or Nicole Strickler at (312) 334-3442.

Joseph Messer to Present at NAPBS 10th Annual Conference

Joseph Messer of Messer Strickler, Ltd. will be presenting at the NAPBS (National Association of Professional Background Screeners) 10th Annual Conference in Phoenix, AZ on Tuesday, September 17th.  The topic of the session is “Avoiding Class Action Liability under the Fair Credit Reporting Act.” Mr. Messer has been presenting before the industry for years.  He is a regular speaker for NARCA conferences and webinars, ACA International’s forums and conventions, and Illinois Collectors Association conferences.  Mr. Messer has also presented for the Chicago Bar Association.