JUDICIAL ESTOPPEL DEFENSE FOILS CLASS CERTIFICATION

Putative FDCPA claims are often brought as “one-off” proceedings, especially when the consumer’s goal is debt relief and an award of attorney fees to counsel who obtains it for him. But the most serious claims are those in which a consumer seeks something more: the certification of a class pursuant to Fed. R. Civ. P. 23 and relief for other consumers who putatively suffered the same type of FDCPA violation.

There are four requirements for class certification: “(1) the class is so numerous that joinder of all members is impracticable; (2) there are common questions of law or fact common to the class; (3) the claims or defense 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. Fed. R. Civ. P. 23(a). Through the history of FDCPA class action defense, much attention has been paid to the first three requirements. In Heisler v. Convergent Healthcare Recoveries, Inc., 2018 WL 4635674, Case No. 16-CV-1344 (E.D.Wisc., 2018), the United States District Court for the Eastern District of Wisconsin recently issued an Opinion & Order that reminds debt collectors and their counsel that the fourth requirement should never be overlooked,

In Heisler, the debtor defaulted on a medical debt. The creditor transferred the debt to CHRI for collection. On July 11, 2016, CHRI mailed a collection letter to the debtor. At the upper right hand side, the letter included an “agency number” and “Re: WF Inc.—Elwood Mem.” The debtor alleged that he did not recognize “WF Inc.-Elmwood Mem,” that no such corporate entity existed, and that the letter failed to properly identify his creditor in violation of  15 U.S.C. §1692e(10) and 15 U.S.C. §1692g(a)(2). The debtor filed suit against CHRI, seeking certification of a class of “all persons with addresses in the State of Wisconsin” to whom CHRI sent a debt collection letter that identified “Re: WF, Inc.-Elmwood Mem” as the creditor within one year prior to his lawsuit.

CHRI presented two defenses. First, CHRI alleged that debtor had no standing to assert a FDCPA claim because debtor admitted that he never opened the letter in issue. Citing the Supreme Court’s decision on FCRA based standing in Spokeo, CHRI claimed that debtor lacked standing because he asserted a “mere statutory violation.” The Court rejected CHRI’s argument, finding that since the imposition of a statutory penalty pursuant to the FDCPA does not depend upon proof that debtor was actually misled by the violation alleged, the fact that debtor never opened the letter was irrelevant.

As its second defense, CHRI alleged that a class should not be certified because debtor was not an adequate class representative. Specifically, CHRI claimed that debtor was subject to a defense that could not be sustained against other class members: judicial estoppel.

Judicial estoppel is an equitable defense. It seeks to protect the integrity of the judicial process by preventing a party who prevails on one ground in a lawsuit from repudiating that ground in a subsequent lawsuit. Judicial estoppel is often used to bar a debtor from pursuing a claim that he failed to properly disclose during a prior bankruptcy case.

In Heisler, the debtor had previously filed for Chapter 7 bankruptcy protection. His pleadings identified “Convergent Health Care Recoveries, Inc. (CHRI)” as an entity seeking to collect a debt that he owed to “Elmbrook Memorial.” CHRI argued that debtor should be judicially estopped from pursuing his class claims because he failed to identify his FDCPA claim as an asset in his bankruptcy. CHRI also alleged that estoppel was appropriate because debtor “showed no signs of being confused by CHRI’s letter” in his bankruptcy; he was able to identify the medical account that CHRI was collecting on Elmbrook Memorial’s behalf.

The Court did not address the validity of CHRI’s judicial estoppel defense. However, because CHRI presented a defense that was “peculiar to” the debtor, the Court did find that CHRI had demonstrated that debtor was not an adequate class representative. Citing CE Design Ltd. v. King Architectural Metals, Inc., 637 F.3d 721, 726 (7th Cir., 2011), the Court observed: “The fear is that the named plaintiff will become distracted by the presence of a possible defense applicable only to him so that the representation of the rest of the class will suffer.” As a result, the Court denied the debtor’s request for the certification of a class. See Randall v. Rolls-Royce Corp., 637 F.3d 818, 824 (7th Cir., 2011): “Named plaintiffs who are subject to a defense that would not defeat unnamed class members are not adequate class representatives.”

Heisler demonstrates the importance of a careful review of a debtor’s pleadings in a previous bankruptcy when the debtor files a FDCPA claim. Admissions and/or a failure to properly disclose the existence of the claim may provide a defense to the debtor’s request for the certification of a class. More significantly, they may even provide a defense to the individual claims that the debtor has asserted in the case.

If you have questions about FDCPA claims or other consumer protection litigation, our Litigation team is available to assist.

 

 

 

 

 

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