Wittman et al v. CB1, Inc.
Filing
33
FINDINGS AND RECOMMENDATIONS re 10 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM filed by CB1, Inc. IT IS RECOMMENDED that CB1's motion to dismiss and strike class allegations be DENIED. Signed by Magistrate Judge Carolyn S Ostby on 4/8/2016. (JDR, ) Modified on 4/8/2016 to add text and regenerate NEF (JDR, ).
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION
WILLIAM WITTMAN and AMBER
BELLAMY, for themselves and all
others similarly situated,
CV 15-105-BLG-SPW-CSO
FINDINGS AND
RECOMMENDATION OF
UNITED STATES
MAGISTRATE JUDGE
Plaintiffs,
vs.
CB1, INC.,
Defendant.
Plaintiffs William Wittman and Amber Bellamy (“Plaintiffs”)
bring this putative class action against CB1, Inc. (“CB1”) alleging
violations of the Fair Debt Collection Practices Act (“FDCPA”), 15
U.S.C. §§ 1692 et seq., and the Montana Consumer Protection Act
(“MCPA”), MCA §§ 30-14-101 et seq.
Now pending is CB1’s motion to dismiss the complaint and to
strike class allegations. ECF No. 10.1 The Court heard oral argument
on the motion on April 7, 2016. Having considered the parties’
“ECF No.” refers to the document as numbered in the Court’s
Electronic Case Files. See The Bluebook, A Uniform System of Citation,
§ 10.8.3. References to page numbers are to those assigned by ECF.
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arguments and submissions, and the applicable law, the Court
recommends as follows.
I.
BACKGROUND
The following facts are alleged in the Complaint and are, for
purposes of considering the pending motion to dismiss, assumed to be
true.
Plaintiffs William Wittman and Amber Bellamy incurred medical
bills at the Billings Clinic for treatment of various health issues and the
bills were placed for collection with CB1. ECF No. 1 at 3. CB1 sent
requests for payment to each Plaintiff and the requests indicated that
CB1 would collect a surcharge of 2.5% if the debt were paid with a debit
or credit card. Id. Each Plaintiff made payments to CB1 with a debit
card at CB1’s office in Billings, Montana, and CB1 added the 2.5%
surcharge to each Plaintiff’s bill. Id. at 2–3.
The Complaint further alleges that members of the putative class:
(1) incurred consumer debt that was placed with CB1 for collection; and
(2) received requests for payment from CB1 indicating that it would
collect a 2.5% surcharge for use of a debit or credit card, and that some
paid that fee. Id. 4. Plaintiffs allege that, on information and belief,
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CB1 agreed with card issuers not to charge a fee to consumers for using
a credit card. Id.
II.
PARTIES’ ARGUMENTS
CB1 argues that the Court should dismiss the Complaint for
failure to state a legally cognizable claim under Rule 12(b)(6).2 ECF No.
10 at 2. It further argues that the Court should strike paragraphs 4349 the Complaint, pursuant to Rule 12(f), on the grounds that Plaintiffs
cannot represent a class of individuals under the MCPA. Id.
CB1 argues that the FDCPA violation, alleged under section
1692f(1) of the Act, should be dismissed. It argues that: (1) the 2.5% fee
charged for payments made by debit or credit card was an optional
transaction fee and is permitted by the Electronic Funds Transfer Act
(“EFTA”), 15 U.S.C. § 1693, et seq., ECF No. 11 at 11–12; (2) the
Plaintiffs agreed to pay all collection expenses incurred in the collection
of Plaintiffs’ medical bills, id. at 13; (3) the fee is not incidental to
Plaintiffs’ principal debt, id. at 14; (4) the fee could have been easily
avoided by paying with another method; id. at 14–15; (5) Plaintiffs
References to the rules are to the Federal Rules of Civil
Procedure unless otherwise noted.
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never made the threshold showing that the fee was unfair or
unconscionable, or that they suffered substantial injury, id. at 15–16;
and (6) Plaintiffs were not unfairly steered towards making a debit card
payment. Id. CB1 argues that, for those reasons, the section 1692f(1)
claim should be dismissed.
Next, CB1 argues that the FDCPA violation under section
1692e(2)(B) should be dismissed because: (1) it hinges on a violation
under section 1692f(1), and without that violation there could be no
misrepresentation that it was entitled to the fee it requested; and (2) it
lawfully represented that it was entitled to the 2.5% fee because it was
permitted by statute and authorized by agreement. Id. at 19.
Under the MCPA, CB1 argues that it “merely provided notice of
an optional 2.5% transaction fee, which was permitted by statute and
authorized by agreement.” Id. at 22. It argues that this cannot be
considered an unfair or deceptive practice, nor do Plaintiffs allege the
fee was inherently unfair or deceptive. Id. at 21–22.
Finally, CB1 argues that Plaintiffs cannot represent a class of
similarly situated persons under the MCPA because it is expressly
prohibited by the statute itself. Id. at 23. It argues that because the
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claims must be governed by state law, the Court should strike
paragraphs 43 through 49 of the Complaint and dismiss the complaint
in its entirety, without leave to amend. Id. at 24.
Plaintiffs respond that the 2.5% fee violates section 1692f(1) of the
FDCPA because the fee is neither expressly permitted nor prohibited by
law and was not agreed to by the parties. ECF No. 17 at 6–7. They
argue that: (1) the fee is incidental to the debt because it is an amount
that is not the principal obligation, id. at 5; (2) the fee is not authorized
under the EFTA because fees under the EFTA must be reasonable and
proportional to the cost incurred, id. at 8–10; (3) any fees authorized by
the EFTA do not apply to CB1 because it is a merchant, not an issuer,
id.; (3) the fee exceeds the amount authorized under the EFTA, even if
it did apply to CB1, id.; and (4) regardless of whether the EFTA applies,
the fee is contractually prohibited and violates the FDCPA, because
CB1 agreed not to charge the fee with Visa and MasterCard. Id. at 11–
12.
Plaintiffs argue that the Ninth Circuit has not addressed whether
charging a fee for use of a credit card is permitted and that the only
District Court within the Ninth Circuit took the minority position,
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diminishing its persuasive authority. Id. at 12–13. They also argue that
whether a fee or surcharge is voluntary is a question of fact, because for
low income individuals, the inability to pay by check means there was
no choice, and a credit card was the only option. Id. at 14.
Plaintiffs acknowledge that the misrepresentation claim under
section 1692e of the FDCPA turns on the success of the claim under
section 1692f. They argue that if CB1 was barred from assessing the
fee, then it also misrepresented its rights in the demand letters to
Plaintiffs indicating that it could add the fee to payments made by debit
or credit card. Id. at 15.
Finally, Plaintiffs argue that they can represent a class under the
MCPA because the case was filed in Federal Court. Id. at 15–16. They
argue that, consistent with federal cases law, Rule 23 determines
whether Plaintiffs can represent a class, not state law. Id. at 16.
In reply, CB1 argues that the fee cannot be subject to a claim
under section 1692f(1) because: (1) “CB1 never claimed that Plaintiffs
owed this amount nor demanded that Plaintiffs pay this amount[,]” id.
at 9; (2) Plaintiffs do not dispute that they signed the CRA and thus
agreed to the fee, id. at 10–11; (3) the fee is permitted by law because
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the regulatory cap on interchange fees does not govern CB1 because
CB1 is a merchant rather than an issuer, id. at 12; and (4) the
Complaint does not include the basis for alleging CB1 agreed not to
charge the fee, and even if it did, the Plaintiffs cannot be a third party
beneficiary to any such agreements, id. at 13. Id. at 14.
Finally, CB1 argues that Plaintiffs cannot represent a class under
the MCPA because the class action prohibition is so intertwined with
the statute’s rights and remedies that it is substantive rather than
procedural, and thus Rule 23 does not apply. Id. at 16.
III. LEGAL STANDARD
Dismissal under Rule 12(b)(6) is proper only when the complaint
either (1) lacks a cognizable legal theory or (2) fails to allege sufficient
facts to support a cognizable legal theory. Zixiang Li v. Kerry, 710 F.3d
995, 999 (9th Cir. 2013). The Court’s standard of review under Rule
12(b)(6) is informed by Rule 8(a)(2), which requires that a pleading
contain a “short and plain statement of the claim showing that the
pleader is entitled to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 677–678
(2009) (quoting Fed. R. Civ. P 8(a)).
To survive a motion to dismiss under Rule 12(b)(6), a complaint
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must contain sufficient factual matter, accepted as true, to state a claim
for relief that is plausible on its face. A claim has facial plausibility
when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct
alleged. A plausibility determination is context specific, and courts
must draw on judicial experience and common sense in evaluating a
complaint. Levitt v. Yelp! Inc., 765 F.3d 1123, 1135 (9th Cir. 2014). In
Levitt, the Ninth Circuit summarized the test:
First, to be entitled to the presumption of truth, allegations
in a complaint or counterclaim may not simply recite the
elements of a cause of action, but must contain sufficient
allegations of underlying facts to give fair notice and to
enable the opposing party to defend itself effectively.
Second, the factual allegations that are taken as true must
plausibly suggest an entitlement to relief, such that it is not
unfair to require the opposing party to be subjected to the
expense of discovery and continued litigation.
Id. (citations omitted).
IV.
DISCUSSION
A.
COUNT 1: FDCPA
The FDCPA was created to “eliminate abusive debt collection
practices by debt collectors, to insure that those debt collectors who
refrain from using abusive debt collection practices are not
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competitively disadvantaged, and to promote consistent State action to
protect consumers against debt collection abuses.” 15 U.S.C. § 1692(e).
Under the FDCPA, a claim is evaluated under the least sophisticated
debtor standard, which asks whether the “least sophisticated debtor”
would likely be misled by a communication from a debt collector.
Guerrero v. RJM Acquisitions LLC, 499 F.3d 926, 934 (9th Cir. 2007).
The FDCPA is a strict liability statute, and is designed to protect all
consumers, regardless of a consumer’s sophistication. Gonzales v.
Arrow Fin. Services, LLC, 660 F.3d 1055, 1061 (9th Cir. 2011).
To allege a claim under the FDCPA, a plaintiff must establish
that “(1) the plaintiff is a ‘consumer’; (2) who was the object of a
collection activity arising from a ‘debt’; (3) the defendant is a ‘debt
collector’; and (4) the defendant violated a provision of the FDCPA.”
Flores v. Collection Consultants of California, 2015 WL 4254032, at *4
(C.D. Cal. Mar. 20, 2015) (citations omitted).
CB1 does not contest the first three elements outlined above, but
does argue that Plaintiffs failed to adequately allege the fourth
element—a violation of a provision of the FDCPA. Plaintiffs assert
violations under two provisions of the FDCPA, sections 1692f(1) and
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1692e(2)(B). The Court will address each statutory subsection in turn.
1.
SECTION 1692f
Section 1692f of the FDCPA prohibits a debt collector from using
“unfair or unconscionable means to collect or attempt to collect any
debt.” 15 U.S.C. § 1692f. It is a violation of this provision to collect
“any amount (including any interest, fee, charge, or expense incidental
to the principal obligation) unless such amount is expressly authorized
by the agreement creating the debt or permitted by law.” 15 U.S.C. §
1692f(1).
a.
Incidental to the Principal Obligation
CB1 argues that the fee at issue is not incidental to the principal
obligation, but is instead a voluntary, opt-in fee, and is only imposed if
the consumer chooses to pay by debit or credit card. ECF No. 11 at 14–
15.
The Ninth Circuit has not considered whether a transaction fee,
like the one at issue in this case, is permissible under the FDCPA. One
district court within the Ninth Circuit determined that a fee charged for
paying a debt by credit card, rather than by other means, was not
incidental to the principal obligation because such a fee is voluntary
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and could be avoided. Flores, 2015 WL at *8–10. There, the Plaintiffs
were challenging a $5.00 convenience fee applied in connection with an
offer to settle a consumer debt at a considerable discount. Id. at *2. The
settlement offer was entitled “OFFER TO SETTLE AT A HUGE
REDUCTION!” and included a provision that clarified “[i]f you have any
special needs or circumstances, we may be able to accommodate them.
Please do not hesitate to call use with any questions or concerns.” Id. In
Flores, the court acknowledged that cases outside of the Ninth Circuit
had concluded that similar fees were incidental to the principal
obligation and fell under the scope of the FDCPA on that basis. Id. But
the Flores court emphasized the voluntary nature and the
circumstances of the charge and found that any other result would
discourage other debt collectors from offering additional payment
options. Id. at *10.
The majority of courts have found that similar transaction fees are
incidental to the principal obligation, and thus fall under the scope of
the FDCPA.3 In Weast, the court addressed the voluntary nature of
Weast v. Rockport Fin., LLC, 115 F. Supp. 3d 1018, 1020 (E.D.
Mo. 2015); Quinteros v. MBI Associates, Inc., 999 F. Supp. 2d 434, 438
(E.D.N.Y. 2014); Shami v. Natl. Enter. Sys., 2010 WL 3824151
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transaction fees and found that “offering a payment option that does not
violate the statute does not save offering a payment option that would
violate the statute, as the latter is still an attempt to collect a fee which
is prohibited by the FDCPA.” Weast, 115 F. Supp 3d at 1023 (citing
Shami, 2010 WL at *3–4).
The Weast court then addressed whether the fee violated the
FDCPA if the debt collector did not receive any additional compensation
from the fee because it was passed on to the third party that had
imposed the fee. Id. at 1022. The court found that such a
determination was not possible when deciding a motion to dismiss, and
is more properly considered at a later stage, such as the summary
judgment stage. Id. Indeed, many of the courts that found similar fees
were incidental to the principal obligation did note that the
permissibility of the fee under the FDCPA ultimately turns on whether
or not the debt collector retains any portion of the fee. See Weast, 115 F.
Supp. 3d at 1022; Acosta v. Credit Bureau of Napa County, 2015 WL
1943244, at *3 (N.D. Ill. Apr. 29, 2015); Shami, 2010 WL at *4; Longo,
(E.D.N.Y. Sept. 23, 2010); Longo v. Law Offices of Gerald E. Moore &
Assocs., P.C., 2005 U.S. Dist. LEXIS 48493 (N.D. Ill. Feb. 3, 2005).
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2005 U.S. Dist. LEXIS at *13–14. In a similar line of reasoning, other
courts examining transaction fees for use of a particular form of
payment did not address whether the fees were incidental, but instead
concluded that the fees initially fell outside the scope of the FDCPA if
the fee is entirely passed on to a third party because that is not an
“attempt to collect” an impermissible fee.4
The Court is persuaded by the majority of courts that have found
a transaction fee imposed for using a certain payment method can be
considered incidental to the principal obligation. The FDCPA is to be
liberally construed in favor of the consumer. See Clark v. Capital
Credit & Collection Services, Inc., 460 F.3d 1162, 1176 (9th Cir. 2006).
During oral argument, CB1 argued that the voluntary nature of
the fee in Flores is similar to the fee at issue here. The Court disagrees.
In Flores, the collection attempt at issue was not a demand letter for
immediate payment in full to avoid a “lawsuit and associated costs,” as
is the case here—it was an optional settlement offer to pay off a
Lee v. Main Accounts, Inc., 125 F.3d 855 (6th Cir. 1997) (per
curium, unpublished); Mann v. Nat'l Asset Mgmt. Enters., 2005 U.S.
Dist. LEXIS 49552 (C.D. Ill. Feb. 24, 2005); Lewis v. ACB Bus. Services,
Inc., 911 F. Supp. 290, 292 (S.D. Ohio 1996).
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consumer debt at a significant discount, and provided that special needs
or circumstances may be accommodated. See ECF No. 12-2 at 1; Flores,
2015 WL at *2. Flores not only takes a minority position in regard to
transaction fees, but the very nature of the collection activity and
circumstances surrounding the fee in Flores distinguish it from the facts
at issue here. In addition, the amount of any fee CB1 might incur as a
result of accepting a payment by debit or credit card is unknown. It is
not possible to determine based on the record before the Court whether
any portion of the transaction fee is retained by CB1, or whether the
entirety of the fee is passed on to a third party imposing the fee for use
of a debit or credit card.
The Court, in construing the Complaint’s factual allegations as
true, finds that Plaintiffs have adequately alleged CB1 imposed an
incidental fee in the payment of their debt, which falls under the scope
of the FDCPA, section 1692f(1).
b.
Permitted by Law or Agreement
CB1 next argues that Plaintiffs fail to state a claim because the
fee was permitted by agreement and by law. ECF No. 11 at 11–14.
CB1 argues that the EFTA permits the type of fee at issue in this case.
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Id. at 12–14.
Here, Plaintiffs have adequately alleged that the fee was not
expressly permitted by agreement. Although CB1 argues that Plaintiffs
agreed to pay all collection expenses, and that such a fee is a collection
expense, there is no such agreement in the record now before the Court.
The Complaint alleges that the fee “was not contained in the
agreements creating the debts of the named Plaintiffs or the Plaintiff
class.” ECF No. 1 at 7. Additionally, the Complaint alleges that not
only did the Plaintiffs not agree to the fee, but that “[u]pon information
and belief, Defendant agreed with card issuers not to charge a fee to
consumers for using a credit card.” Id. at 4 (emphasis in original). At
this stage, the Court must construe Plaintiffs’ well-pleaded factual
allegations as true. See Levitt, 765 F.3d at 1135. Based on the
allegations in the Complaint, the Court cannot find that the fee was
expressly permitted by agreement.
Next, CB1’s argument under the EFTA is unpersuasive. CB1
asserts the fee is an interchange fee, but there is no evidence before the
Court to determine if that is true. CB1 has not demonstrated that the
2.5% fee is proportional to any cost actually incurred for accepting a
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payment with a debit or credit card, nor has it demonstrated that the
EFTA affirmatively allows a merchant to pass a 2.5% transaction fee off
to the consumer. Instead, CB1 argues that the caps imposed in the
EFTA do not apply because it is not an issuer. As discussed above,
whether a transaction fee of this nature is permissible turns on the
nature and circumstances of the fee. But at this stage, all inferences
must be drawn in favor of the Plaintiffs and Plaintiffs need only to state
enough to plausibly suggest they are entitled to relief. Bell A. Corp. v.
Twombly, 550 U.S. 544, 556–557 (2007). The nature of the fee is
unclear, and CB1 has not demonstrated that the EFTA affirmatively
permits the fee.
Finally, although CB1 argues that Plaintiffs have failed to
demonstrate the fee was unfair or unconscionable under the broader
umbrella of the FDCPA, section 1692f, such a showing is adequately
made by demonstrating a claim exists under section 1692f(1). Plaintiffs
did not allege a separate claim under the section 1692f umbrella. See
ECF No. 1. CB1 cites Mann for the proposition that a party must
demonstrate that an opt-in fee is unfair as a threshold to stating a
claim under section 1692f(1), but the court there only dismissed the
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claim under the first sentence of 1692f on that basis, and applied a
separate analysis to the claim under section 1692f(1). Mann, 2005 U.S.
Dist. LEXIS at *2–4. The court in Mann dismissed the claim under
section 1692f(1) on the basis that the $7.50 “convenience fee” for checkby-phone payment was not a “collection” within the meaning of the Act.
Id. at *4–5. As discussed above, this Court finds the majority of courts
persuasive in determining that the fee, particularly a percentage fee for
use of a credit or debit card, does fall within the scope of section
1692f(1). But here, a percentage fee for use of a credit or debit card is at
issue and the nature and handling of the fee is not before the court. It
is undisputed that CB1 collected that percentage fee. ECF No. 1 at 3–4.
The Court took judicial notice of the “Notice(s) of Legal Action” which
state that “a lawsuit … is now being instituted against you [and] …the
lawsuit and associated costs may be avoided by remitting payment in
full immediately!” and at the same time giving notice of the 2.5%
surcharge of use of a credit or debit card. ECF No. 12-2. In construing
the factual allegations of the Complaint as true, the Court finds that
Plaintiffs have adequately alleged a claim.
Thus, for the reasons discussed above, the Court recommends that
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CB1’s motion to dismiss Plaintiffs’ claim under the FDCPA, section
1692f(1) be denied.
2.
SECTION 1692e(2)(B)
Under section 1692e of the FDCPA, “[a] debt collector may not use
any false, deceptive, or misleading representation or means in
connection with the collection of any debt.” 15 U.S.C. § 1692e. A
violation of this provision includes the false representation of “any
services rendered or compensation which may be lawfully received by
any debt collector for the collection of a debt.” 15 U.S.C. § 1692e(2)(B).
CB1 argues that it did not falsely represent any right to
compensation because the transaction fee was permitted by statute and
authorized by agreement. ECF No. 11 at 19–21. As discussed above,
the Court cannot make these factual determinations at this stage.
Additionally, Plaintiffs concede that this claim is dependent on the
survival of the claim under section 1692f(1). Here, Plaintiffs have
adequately alleged a claim stating that CB1 asked for, and collected, an
impermissible fee. As a result, they have also adequately alleged a
claim that CB1 falsely represented that it was entitled to collect the fee.
In the Complaint, Plaintiffs allege that CB1 represented to Plaintiffs in
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a demand letter that it could collect a 2.5% fee if the debt were paid
with a debit or credit card, and that a 2.5% fee was added when
Plaintiffs made payments with a debit card. ECF No. 1 at 3; see also
ECF No. 12-2.
Thus, the Court finds that CB1’s motion to dismiss Plaintiffs’
claim under the FDCPA, section 1692e(2)(B), should be denied.
B.
COUNT 2: MCPA CLAIM
Although CB1 argues that the MCPA claim should be dismissed
for failure to state a claim, Plaintiffs have adequately alleged that they
were charged a 2.5% fee, and that the fee is not legally permitted. This
claim is predicated on the same conduct at issue under the FDCPA, and
as discussed above, Plaintiffs have individually stated claims. The next
question is whether these claims may proceed as a class action.
The consumer protection statutes in some states explicitly
prohibit class-action treatment of claims under those statutes.
Montana is one of those states.5 Under the MCPA, “[u]nfair methods of
See e.g., Alabama (Ala. Code § 8–19–10(f)); Georgia (Ga. Code
Ann. § 10–1–399(a)); Louisiana (La. Stat. Ann. § 51:1409); Montana
(MCA § 30–14–133(1)); South Carolina (S.C. Code Ann. § 39–5–140);
and Tennessee (Tenn. Code Ann. § 47–18–109).
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competition and unfair or deceptive acts or practices in the conduct of
any trade or commerce are unlawful.” MCA § 30–14–103. The Act
provides that:
A consumer who suffers any ascertainable loss of money or
property, real or personal, as a result of the use or
employment by another person of a method, act, or practice
declared unlawful by 30-14-103 may bring an individual but
not a class action under the rules of civil procedure in the
district court of the county in which the seller, lessor, or
service provider resides or has its principal place of business
or is doing business to recover actual damages or $500,
whichever is greater. An individual claim may be brought in
justice's court. The court may, in its discretion, award up to
three times the actual damages sustained and may provide
any other equitable relief that it considers necessary or
proper.
MCA § 30–14–133(1) (emphasis added).
In contrast, Rule 23 generally provides the procedure used in
federal courts to determine whether an action may be brought as a class
action. Rule 23 may conflict with state statutes, like the MCPA
prohibition on class actions.
In Shady Grove Orthopedic Associates, P.A. v. Allstate Ins. Co.,
559 U.S. 393 (2010), the Supreme Court addressed the conflict between
Rule 23 and a state statute prohibiting class action suits. The Court
held that Rule 23 preempted a New York state law prohibiting class
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actions in cases seeking penalties or statutory minimum damages.
Although five Justices joined in the judgment, there is no majority
opinion for the Court. Instead, there is a plurality decision, with a
concurring opinion that joins the plurality in part. Based on the split
nature of the decision, there is disagreement regarding which approach
outlined by the Court is binding. The Supreme Court has found that
“[w]hen a fragmented Court decides a case and no single rationale
explaining the result enjoys the assent of five Justices, the holding of
the Court may be viewed as that position taken by those Members who
concurred in the judgments on the narrowest grounds.” Marks v. U.S.,
430 U.S. 188, 193 (1977) (internal quotation omitted). But “[t]his
standard requires that the narrowest opinion is actually the ‘logical
subset of other broader opinions,’ such that it ‘embod[ies] a position
implicitly approved by at least five Justices who support the judgment.’”
Lair v. Bullock, 697 F.3d 1200, 1205 (9th Cir. 2012) (quoting King v.
Palmer, 950 F.2d 771, 781 (D.C.Cir.1991)(en banc)) (alteration in
original).
Many courts have interpreted the concurring opinion in Shady
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Grove, to be the narrowest grounds, and thus the controlling approach.6
Other courts have disagreed, and applied pre-Shady Grove approaches.7
The Eleventh Circuit found, in addressing the Alabama Deceptive
Trade Practices Act (“ADTPA”), that it did not matter which approach
controls because there was no meaningful distinction between the law
at issue in Shady Grove, and the prohibition against class actions found
in the ADTPA. Lisk v. Lumber One Wood Preserving, LLC, 792 F.3d
1331, 1335 (11th Cir. 2015). Thus, the Eleventh Circuit found that Rule
23 applied instead of the class action prohibition. Id.
The conflict between MCPA class action prohibition and Rule 23
has not been specifically addressed by any courts sitting in Montana,
See e.g., Friedman v. Dollar Thrifty Automotive Group, Inc., 2015
WL 8479746 (D. Colo. Dec. 10, 2015); In re Target Corp. Data Sec.
Breach Litig., 66 F. Supp. 3d 1154 (D. Minn. 2014); Phillips v. Philip
Morris Companies Inc., 290 F.R.D. 476 (N.D. Ohio 2013); In re Digital
Music Antitrust Litig., 812 F. Supp. 2d 390 (S.D.N.Y. July 18, 2011);
Tait v. BSH Home Appliances Corp., 2011 WL 1832941, at *8-9 (C.D.
Cal. May 12, 2011); In re Packaged Ice Antitrust Litig., 779 F. Supp. 2d
642 (E.D. Mich. March 11, 2011); In re Wellbutrin XL Antitrust Litig.,
756 F. Supp. 2d 670 (E.D. Pa. Dec. 22, 2010); Bearden v. Honeywell
Intern. Inc., 2010 WL 3239285 (M.D. Tenn. Aug. 16, 2010).
7 See e.g., Los Gatos Mercantile, Inc v. E.I. DuPont De Nemours
and Co., 2015 WL 4755335, at *21 (N.D. Cal. Aug. 11, 2015); In re
Hydroxycut Mktg. and Sales Practices Litig., 299 F.R.D. 648, 653 (S.D.
Cal. 2014); In re Lithium Ion Batteries Antitrust Litig., 2014 WL
4955377, at *20 (N.D. Cal. Oct. 2, 2014).
6
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nor by the Ninth Circuit. It has been addressed, however, by a few
federal district courts—though the results have been inconsistent.
Compare In re Hydroxycut Mktg. and Sales Practices Litig., 299 F.R.D.
648, 653 (S.D. Cal. 2014) with In re Target Corp. Data Sec. Breach
Litig., 66 F. Supp. 3d 1154, 1163-64 (D. Minn. 2014).
In Hydroxycut, the district court applied the pre-Shady Grove
approach to determine whether the application of a federal rule violates
the Rules Enabling Act. This approach looks to whether the
“application ‘affects only the process of enforcing litigants' rights and
not the rights themselves.’ ” Freund v. Nycomed Amersham, 347 F.3d
752, 762 (9th Cir. 2003) (quoting Burlington N. R. Co. v. Woods, 480
U.S. 1, 8 (1987)). Other courts in the Ninth Circuit have similarly
declined to find the concurrence in Shady Grove to be the controlling
approach and found that similar class action prohibitions are
procedural in nature. See Los Gatos Mercantile, Inc., 2015 WL 4755335,
at *21; In re Lithium Ion Batteries Antitrust Litig., 2014 WL 4955377,
at *20 n.20; In re Hydroxycut Mktg. and Sales Practices Litig., 299
F.R.D. at 653; In re Optical Disk Drive Antitrust Litig., 2012 WL
1366718, at *8 (N.D. Cal. Apr. 19, 2012).
-23-
The Court is not persuaded that the concurrence in Shady Grove
is the narrowest grounds. Part of the plurality opinion, written by
Justice Scalia, is joined by five Justices. But the concurring opinion as
to the second portion of the stated test under the Rules Enabling Act is
only that of Justice Stevens. It cannot be the logical subset of the
broader opinions because it is joined by any other Justice. See Lair, 697
F.3d at 1205. Instead, the Court will look only to the part of Justice
Scalia’s opinion that is joined by five Justices, and the pre-Shady Grove
approach in the Ninth Circuit, to determine whether application of a
federal rule violates the Rules Enabling Act.
Here, application of Rule 23 affects only the process of enforcing
the litigants’ rights. Although the same MCPA provision that prohibits
class actions also provides for minimum statutory damages, the
prohibition only alters the procedural means by which that remedy may
be pursued. The class action prohibition itself does not add, subtract, or
define any of the necessary elements of the claim. See Freund, 347 F.3d
at 762. Each individual could proceed with a suit under the MCPA and
receive the same remedy regardless of whether it is brought
individually or as part of a class action. In federal courts, “Rule 23
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permits all class actions that meet its requirements, and a State cannot
limit that permission by structuring one part of its statute to track Rule
23 and enacting another part that imposes additional requirements.”
Shady Grove, 559 U.S. at 401.
For these reasons, the Court finds that the MCPA class action
prohibition is procedural in nature and Rule 23 applies to determine
whether a claim may be brought as a class action. The Court also finds
that Plaintiffs have adequately stated a claim under the MCPA. Thus,
the Court recommends the motion be denied as to the MCPA claim.
C.
MOTION TO STRIKE
CB1 also argues that the Court should strike paragraphs 43
through 49 of the Complaint because Montana law prevents Plaintiffs
from representing a class of individuals under the MCPA. ECF No. 11
at 23–24. But, for the reasons discussed above, the Court finds that the
MCPA class action prohibition does not apply in federal court. As a
result, the Court recommends the request to strike paragraphs 43
through 49 be denied.
V.
CONCLUSION
IT IS RECOMMENDED that CB1’s motion to dismiss and strike
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class allegations (ECF No. 10) be DENIED.
NOW, THEREFORE, IT IS ORDERED that the Clerk shall serve
a copy of the Findings and Recommendation of United States
Magistrate Judge upon the parties. The parties are advised that
pursuant to 28 U.S.C. § 636, any objections to the findings and
recommendation must be filed with the Clerk of Court and copies
served on opposing counsel within fourteen (14) days after entry hereof,
or objection is waived. See Local Rule 72.3.
DATED this 8th day of April, 2016.
/s/ Carolyn S. Ostby
United States Magistrate Judge
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