For Attorneys Representing Community Associations: A Primer On FDCPA Class Actions And How To Avoid Them

(This post is adopted from the materials presented at the CAI Law Seminar in Las Vegas, Nevada on January 20, 2017)

Demystifying the FDCPA Class Action For HOA Attorneys

      Consumer attorneys have been filing FDCPA class actions against collection attorneys for decades, and the pace of those filings has increased sharply in the past ten years.  Attorneys who collect for national banks, debt buyers or other financial institutions have been regular targets in FDCPA class actions.  Attorneys who engage in collection work for community associations, however, have managed to remain off of the FDCPA class action radar.  This may now be changing as consumer attorneys are starting to focus more on your practice area.  This is another way of saying welcome to the FDCPA Class Action Party – you got here late.

       Any standardized statement that you make, or any standardized practice that you engage in, while collecting for your community association clients can be the target of an FDCPA class action.  As you evaluate your firm’s risk to these cases, you will want to review every consumer-facing interaction of the firm top to bottom, including any letter forms utilized, your standard telephone practices and voicemail messages, the complaints, pleadings, discovery requests, and the post-judgment collection practices you employ.  You will also want to evaluate all third party interactions that your firm engages in, such as contacts with relatives of the debtor, co-workers, interactions with consumer reporting agencies, and the procedures of the vendors that your firm employs, such as process servers. In some jurisdictions, even statements that you make to a court, or to your opposing counsel, may be governed by the FDCPA, so these practices should also be evaluated for compliance with the Act.

       If your firm is served with a class action complaint, you certainly must turn your attention to it immediately.  But there is no reason to panic.  There is a long road between the filing of a putative class action and the actual certification of a class by a court, and the plaintiff faces a lot of hurdles along the way. A class action lawsuit is only as strong as the claim that has been asserted by the class representative(s) who filed the case, and if their claim is not viable, the entire case fails.  Even if the class representative has a viable claim, that does not mean the case will necessarily be certified as a class action, or that it must be settled as one.  Class actions are the exception, not the rule.  The normal rule is that the aggrieved party is only allowed to pursue his or her own claims.  If that person can also meet all the requirements of Rule 23 of the Federal Rules of Civil Procedure, then the case may be certified as a class action.  But many putative class actions never make it that far.

Conducting Class Action Triage

      If an FDCPA class action complaint is served on your firm, you will want to do some immediate triage on the case to ensure that you are taking your defense in the right direction. Is the FDCPA claim asserted by the named plaintiff legally viable?  For cases that appear to be of marginal merit, your first instinct may be to file a motion to dismiss the complaint.  A motion to dismiss can be a great way to dispose of class action before it gets off the ground. You should consider the risks of filing such a motion, however, because in many jurisdictions, FDCPA claims can be decided by the Court as a matter of law.  You will ask the Court to rule in your favor as a matter of law on the motion, but are you prepared to lose this case as a matter of law in response to your motion? 

You should consider the entire account history of the named plaintiff and how that will impact the optics of the case. If the case optics are favorable for you, then how will they be best presented to the court?  You may be better off developing the facts of the claim and then presenting your defense in the form of a summary judgment motion, so the facts of the case can shine in your favor.

           What is the communication or practice that is being challenged by the plaintiff?  Is this a case that targets a core part of your firm’s business model, or a key part of your client’s business?  Or is this just a drafting mistake made by your firm that you need to correct anyway?  The answer to these questions will help you assess the true stakes of the case, and they can impact your decision on whether to seek to settle the case, or fight it, and how best to get to your desired goal.

         Finally, you should immediately begin your assessment of whether the case will be able to meet the Rule 23 requirements. What do you know about the class representative's account history and whether there are unique defenses to his claim?  You should pull his entire file to assess it for weaknesses in his ability to represent the class.  What do we know about the assigned judge?  It makes sense to see how this judge has ruled on FDCPA cases or other similar consumer protection cases in the past, and to determine the judge’s track record on certifying class actions of any type. 

Who is the attorney who filed the suit?  Some attorneys who file class actions are simply trying to leverage the case into a larger individual settlement, and they have no intention of following the case through to class certification.  Other attorneys have an established track record of pursuing and certifying FDCPA class actions.  Is this a dabbler, or a veteran FDCPA class action attorney? Your approach to the case may be significantly impacted by the identity of the attorney who filed it. 

Who is your defense attorney?  You should be working with an attorney who is experienced in defending FDCPA cases generally, but who also has experience defending class actions.  You should take an active role in your own defense, but resist the urge to represent yourself in an FDCPA class action unless the attorneys in your firm already have significant experience in this area.

Rule 23 Requirements

In many respects, a defendant is at a distinct advantage in an FDCPA class action.  From the moment you are served with the complaint, you have access to much of the evidence the plaintiff needs to pursue class certification.  You can immediately begin your assessment of the named plaintiff in the case, and you can start gathering evidence to defend against the plaintiff’s class certification motion, which likely will not be heard for several months.  The plaintiff will bear the burden of proof on the class certification motion, and the courts have made it clear that certifying a class is not a rubber stamp process. The Supreme Court has held that a district court must conduct a “rigorous analysis” of all the Rule 23 requirements. General Tel. Co. Of Southwest v. Falcon, 457 U.S. 147, 161 (1982). 

Plaintiff attorneys will often argue that the allegations of the complaint must be assumed true in a class certification motion, but this is not correct.  The Supreme Court has also observed that “class determination generally involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff's cause of action,” and that “it may be necessary for the court to probe behind the pleadings before coming to rest on the certification question.”  Falcon, 457 U.S. at 160; see also Powers v. Credit Mgmt. Servs., Inc., 776 F.3d 567, 569 (8th Cir. 2015) (district court abused discretion certifying FDCPA class “by failing to conduct rigorous analysis . . . of what the parties must prove that Rule 23 requires”) (citations and quotation marks omitted).

Numerosity

In order to prevail on a motion for class certification, plaintiff must show the class is “so numerous that joinder of all members is impracticable.”  See Fed. R. Civ. P. 23(a)(1). Generally this means at least 40 similarly situated class members, but “classes of fifteen or less are too small.”  Gomez v. Rossi Concrete, Inc., 270 F.R.D. 579, 588 (S.D. Cal. 2010); see also Ikonen v. Hartz Mountain Corp., 122 F.R.D. 258, 262 (S.D. Cal. 1988) (classes of twenty generally “are too small” and classes of forty or more are “numerous enough”).

The Court may make reasonable inferences about numerosity but the Court may not speculate that it exists.  Plaintiff needs to provide the court with evidence.  Vega v. T-Mobile USA, Inc., 564 F.3d 1256, 1267-68 (11th Cir. 2009) (district court’s “inference of numerosity” without supporting evidence “was an exercise in sheer speculation”); Smith v. City of Oakland, 2008 WL 2439691, *1 (N.D. Cal. June 16, 2008) (numerosity argument was “unsupported by anything other than ‘mere speculation’”); Thorne v. ARM, Inc., 2012 WL 3090039 (S.D. Fla. June 28, 2012) (no proof of numerous class members with section 1692d(6) claims).

Commonality

The Plaintiff bears the burden of proving that “there are questions of law or fact common to the class.”  See Fed. R. Civ. P. 23(a)(2). Commonality requires proof that class members have “suffered the same injury” and evidence their claims turn on a “common contention” that “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.” Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011); Powers v. Credit Mgmt. Servs., Inc., 776 F.3d 567, 571-73 (8th Cir. 2015) (reversing certification of FDCPA class where, inter alia, to resolve plaintiff’s theory of liability, every state-court collection lawsuit needed to be reviewed).

Typicality/Adequacy

Plaintiff also bears the burden of proving typicality and adequacy in order to prevail on a motion for class certification.  Typicality means evidence that “the claims or defenses of the representative parties are typical of the claims or defenses of the class.”  Fed.R.Civ.P. 23(a)(3).  Adequacy requires proof that named plaintiff and class counsel will “fairly and adequately protect the interests of the class.” Fed.R.Civ.P. 23(a)(4).

A defendant should immediately start gathering evidence regarding the named plaintiff and the particular circumstances of their account.  It is possible to upend an FDCPA class action if you can prove that the class representative is not typical of the rest of the class, or if the class rep would not be adequate.  See, e.g., Beck v. Maximus, Inc., 457 F.3d 291 (3d Cir. 2006) (remanding FDCPA class action to determine if BFE defense rendered class rep atypical and inadequate); Savino v. Computer Credit, Inc., 164 F.3d 81 (2d Cir. 1998) (denying certification in FDCPA case; class rep testified inconsistently on whether he received letter at issue); Dotson v. Portfolio Recovery Associates, 2009 WL 1559813 (E.D. Pa. June 3, 2009) (denying certification of FDCPA class action; unique defenses re: plaintiff’s credibility and cognitive disabilities). 

Predominance

Plaintiff also must prove “that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” See Fed. R. Civ. P. 23(b)(3); see also Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935, 947 (9th Cir. 2009) (Rule 23(b)(3) not satisfied where proceeding as a class would “require a fact-intensive, individual analysis of each employee's exempt status”); Zinser v. Accufix Research Institute, Inc., 253 F.3d 1180, 1189 (9th Cir. 2001)(affirming denial of cert:  “[i]mplicit in the satisfaction of the predominance test is the notion that the adjudication of common issues will help achieve judicial economy (Citation).”).

Courts have denied class certification in FDCPA class actions when they conclude that resolution of the class claims would require a series of mini-trials regarding the particular circumstances of each account.  See, e.g., Lee v. Javitch, Block & Rathbone, 522 F. Supp. 2d 945, 958-59 (S.D. Ohio 2007) (Rule 23(b)(3) not satisfied: whether affidavit violated FDCPA “would depend upon individual circumstances that pertain to that class member.”); Corder v. Ford Motor Co., 283 F.R.D. 337, 343 (W.D. Ky. 2012) (individual inquiries needed to determine if trucks of class members were purchased “primarily for personal, family or household purposes”; noting “this court will not certify a class action under the premise that Ford will not be entitled to fully litigate that statutory element in front of a jury. . . .”); OnStar Contract Litig., 278 F.R.D. 352, 381 (E.D. Mich. 2011) (defendant could not be deprived of the right to litigate defenses to each class member’s claim to prove that cars were not leased primarily for “personal, family or household purposes”).

Letter claims

      Collection attorneys are particularly vulnerable to FDCPA class actions targeting collection letters, since there is no way to dispute the contents of a letter, and most collection letters are forms that are used over and over again.  There are countless FDCPA class actions and individual actions filed that have successfully challenged the contents of collection letters.  See, e.g., Janetos v. Fulton, Friedman & Gullace, LLP, 825 F.3d 317 (7th Cir. 2016) (granting summary judgment for plaintiff in FDCPA class action where defendant’s letter failed to specifically identify the name of the current creditor); Avila v. Riexinger & Assoc., LLC, 817 F.3d 72 (2d Cir. 2016) (reversing dismissal of FDCPA class action where defendant’s letter stated “current balance” but failed to disclose balance might increase due to interest and late fees); Roundtree v. Bush Ross, P.A., 304 F.R.D. 644 (M.D. Fla. 2015) (certifying FDCPA class action; initial demand letter allegedly overshadowed notice of debtor’s rights required by section 1692g); Hanson v. JQD, LLC, 2014 WL 3404945 (N.D. Cal. July 11, 2014) (denying motion to dismiss FDCPA class action complaint; defendant sent letters to class seeking to collect late fees and threatening foreclosure allegedly in violation of California law); McCarter v. Kovitz Shifrin Nesbit, 2015 WL 74069 (N.D. Ill Jan. 5, 2015) (certifying FDCPA class action where initial demand letter allegedly overshadowed the notice required by section 1692g of the Act).

Collection Complaint claims

       Collection complaints filed in state court, and other discovery or pleadings served in state court actions, have been a fertile ground for FDCPA class action attorneys.  These suits often argue that a pleading, or a state court collection practice, does not comply with state law, and because it does not comply with state law, it also violates the FDCPA.  If a client has provided the attorney with incorrect information, that can also lead to an FDCPA claim against the attorney.  There are numerous examples of FDCPA claims that are based on state court pleadings or state court collection practices.  See, e.g., Marquez v. Weinstein, Pinson & Riley, P.S., _F.3d_, 2016 WL 4651403 (7th Cir. 2016) (collection complaints violated FDCPA where they alleged debt would be “considered valid” if not disputed within 30 days of the date of the complaint); Tourgeman v. Collins Fin. Servs., Inc., 755 F.3d 1109 (9th Cir. 2014) (collection complaints violated the FDCPA where they identified incorrect “original” creditor that had made the loans to class members); McCollough v. Johnson, et al., 637 F.3d 939 (9th Cir. 2011) (service of requests for admission on pro se defendant seeking admissions that law firm knew were false violated FDCPA).

Third Party Disclosure Claims

      The FDCPA not only regulates the contents of all of your direct communications with consumers, it also regulates the interactions that you have with third parties while engaged in debt collection.  This includes conversations with third parties while seeking to collect, such as family members or co-workers, messages left with third parties (either live, or on voice mail), interactions with consumer reporting agencies, and the conduct undertaken by vendors that you may retain, such as process servers.  All of your third party practices should be evaluated to guard against such claims.  See, e.g., Evon v. Law Offices of Sidney Mickell, 688 F.3d 1015 (9th Cir. 2012) (sending collection letters to work address “care of” the employer violated 1692c(b)); Halbertstam v. Global Credit and Collection Corp., 2016 WL 154090 (E.D.N.Y Jan. 12, 2016) (leaving a message with a third party with the collector’s callback information was improper third party disclosure in violation of FDCPA).

        Attorneys who collect for community associations have increasingly become targets for FDCPA class actions in recent years.  To reduce your exposure to these claims, a fresh look at all of your standardized practices and communications is well worth your time and effort.