Using Dukes In FDCPA Class Actions: How Wal-Mart Stores, Inc. v. Dukes Can Help FDCPA Defendants Defeat Class Certification

Any debt collector faced with an FDCPA class action should read the Supreme Court’s recent decision in Wal-Mart Stores, Inc. v. Dukes, 131 S.Ct. 2541 (2011) with care, because it provides a framework for potential challenges to class certification in FDCPA cases. Dukes was not an FDCPA case, of course – it was a class action alleging that Wal-Mart had violated Title VII by employing a discretionary pay and promotion system that discriminated against women. But Dukes provides a powerful reminder that class actions should only be certified in those rare cases where, after a rigorous analysis of the record, the court is satisfied that the plaintiff has met each of the detailed requirements for certification. Dukes will also help FDCPA defendants oppose class certification based upon the lack of “commonality” of the claims of the class members.

To figure out how Dukes might impact your particular case, start with some class action basics. Dukes reiterated that a class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only and that in order to “justify a departure from that rule, a class representative must be part of the class and possess the same interest and suffer the same injury as the class members.” See Dukes, 131 S.Ct at 2550 (citations, quotation marks omitted). In federal courts, the certification process is governed by Rule 23 of the Federal Rules of Civil Procedure, which places important limits on class actions. Rule 23 is designed to “ensure that the named plaintiffs are appropriate representatives of the class whose claims they wish to litigate” and its requirements “effectively limit the class claims to those fairly encompassed by the named plaintiff’s claims.” Id. (citations, quotation marks omitted).

Under Rule 23(a) of the Federal Rules of Civil Procedure, the party seeking certification must demonstrate that: (1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class. See Dukes, 131 S.Ct. at 2548. If the requirements of Rule 23(a) can be satisfied, the plaintiff must also demonstrate that the proposed class satisfies at least one of the three requirements listed in Rule 23(b). Id.

Plaintiffs often argue that a court should never consider the merits of the claim when deciding whether to certify a class, but Dukes reminds us that this is not true. Dukes confirms that "sometimes it may be necessary for the court to probe behind the pleadings before coming to rest on the certification question, and that class certification is proper only if the trial court is satisfied, after a rigorous analysis, that the prerequisites of Rule 23(a) have been satisfied, . . . . Frequently that rigorous analysis will entail some overlap with the merits of the plaintiff's underlying claim. That cannot be helped. The class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff's cause of action.” Id. at 2551-52 (citations, quotation marks omitted).

The plaintiffs in Dukes could not meet the requirements of Rule 23(a). Specifically, the Supreme Court reiterated that proving “commonality” – i.e., establishing the requisite “questions of law or fact common to the class” under Rule 23(a) – requires a plaintiff to submit evidence that “the class members have suffered the same injury.” Id. at 2551 (citation omitted, emphasis added). “This does not mean merely that they have all suffered a violation of the same provision of law.” Id. Instead, proof of “commonality” requires evidence “that all of their claims can productively be litigated at once.” Id. (emphasis added). In other words, the claims of the class “must depend upon a common contention” and that common contention “must be of such a nature that it is capable of classwide resolution - which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.” Id.

The Dukes Court explained that while identification of questions that are common to the class may be easy, the key inquiry when deciding to certify a class is whether proceeding on a classwide basis will generate common answers:

"What matters to class certification . . . is not the raising of common questions' - even in droves - but, rather the capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation. Dissimilarities within the proposed class are what have the potential to impede the generation of common answers."

Id. (italics in original, emphasis added, citation omitted). The Dukes Court held that litigation of the claims of the class members would not generate common answers, because the reasons for Wal-Mart’s employment decision would vary for each class member:

"Here respondents wish to sue about literally millions of employment decisions at once. Without some glue holding the alleged reasons for all those decisions together, it will be impossible to say that examination of all the class members' claims for relief will produce a common answer to the crucial question why was I disfavored."

Id. at 2552 (italics in original).

With Dukes as the backdrop, ask yourself whether the named plaintiff in your FDCPA class action can show “commonality” under Rule 23. Have the members of the class suffered the same injury? Often the answer is “no” because the class members may have incurred different alleged injuries based upon varying factors that may or may not be related to the alleged FDCPA violation. Can all of the class members claims be productively litigated at once in the same case? Do all of their claims depend on one common contention, the resolution of which will be central to the validity of all of their claims? Will litigating the case on a classwide basis make sense because it is apt to generate common answers to the same questions? Once again, the answer to these questions is often “no” because the resolution of each of class members’ claims will turn upon a disparate set of facts and circumstances, or because the defendant may have a different defense to the purported class members’ claims.

Like the plaintiffs in Dukes, many FDCPA plaintiffs will not be able to demonstrate “commonality” because resolution of claims of the proposed class members will turn upon thousands of individualized fact patterns. If the claims of the class members cannot be productively litigated at the same time, then under Dukes, class certification should be denied.

Lesher And “Legal Capacity” - The Third Circuit Grafts A New Concept Into The FDCPA With Lesher v. Mitchell N. Kay

If collection attorneys were looking for guidance on how to draft their collection letters without violating the FDCPA, the decision of the Third Circuit Court of Appeals in Lesher v. The Law Offices Of Mitchell N. Kay, _ F.3d _, 2011 WL 2450964 (3d Cir. 2011) definitely will not help them. In Lesher, the Court held that settlement letters sent on a law firm’s letterhead “raise[d] the specter of potential legal action” and were therefore false and misleading under section 1692e of the FDCPA, because the firm was not acting in a “legal capacity” when the letters were sent. See id. at *9. The term “legal capacity” is not defined by the FDCPA, however, and the Court did not explain exactly when an attorney is, or is not, acting in a “legal capacity” for his client.

The Lesher decision also held that the use of the disclaimer approved by the Second Circuit in Greco v. Trauner, Cohen & Thomas, 412 F.3d 360 (2d Cir. 2005), i.e., “[a]t this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account” on the back of the letters was not sufficient to inform the debtor that the firm was “acting solely as a debt collector and not in any legal capacity in sending the letters.” See Lesher, at *8.

In Lesher, the defendant sent two letters stating that the firm was “handl[ing]” the account and had been authorized to make a settlement proposal. Id. at *1. Neither letter was signed by an attorney, and neither contained any references to legal action if the settlement offer was not accepted. Id. Both letters stated, on the reverse side, that “no attorney with this firm has personally reviewed the particular circumstances of your account.” Id. There was nothing in the letters suggesting that the firm would initiate a lawsuit or otherwise escalate the matter if the debtor did not accept the settlement offer.

Despite this, the Third Circuit held that “the least sophisticated debtor, upon receiving these letters, may reasonably believe that an attorney has reviewed his file and has determined that he is a candidate for legal action.” Id. at *8. The Court held the letters falsely implied “that an attorney, acting as an attorney, is involved in collecting Lesher's debt.” Id. (emphasis added). The Lesher Court concluded: “[W]e believe that it was misleading and deceptive for the Kay Law Firm to raise the specter of potential legal action by using its law firm title to collect a debt when the firm was not acting in its legal capacity when it sent the letters.” Id. at *9 (emphasis added).

Thus, under Lesher, a collection attorney who is not “acting as an attorney” nor acting in a “legal capacity” must take extra care when sending a settlement letter to a consumer. But when, exactly, is a collection lawyer “acting as an attorney” or acting in a “legal capacity” for his client, consistent with Lesher? Can an attorney act in a “legal capacity” for his client before any decision has been made about whether to file a lawsuit? Is a lawyer “acting as an attorney” even when he is offering to settle a debt without initiating litigation? The Lesher Court does not explain the terms or provide any guidance, and there is nothing in the language of the FDCPA that defines either term.

The FDCPA prohibits collection attorneys from making materially false or misleading statements in their communications with consumers. The Act does not regulate the practice of law, however, nor does it govern the workflow and interaction between an attorney and his creditor client. But the Lesher Court did exactly that, holding that the defendant was not acting in a “legal capacity” for its client at the moment in time when the letters were sent.

The FDCPA should not be used as a vehicle for federal courts to regulate the practice of law. There is nothing in the language in the FDCPA which suggests that Congress wanted courts to use it to define or otherwise intrude upon the attorney-client relationship. See, e.g., American Bar Ass’n v. Federal Trade Comm’n, 430 F.3d 457, 467 (D.C. Cir. 2005) (rejecting argument that Congress intended the FTC to regulate attorneys using the privacy provisions of the Gramm-Leach Bliley Act: “[Congress] does not . . . hide elephants in mouseholes. (citation)”).

The Lesher decision is wrong. It unfairly penalizes an attorney for sending two truthful, non-threatening settlement letters to a consumer. It improperly interferes with the practice of law. It creates further confusion for an industry that is sorely in need of clarity. Lesher does not explain when an attorney is “acting as an attorney” and when he is not. Nor should any federal court utilize the FDCPA to do so.