Powers, et al v. Credit Management Services, Inc. et al
Filing
150
MEMORANDUM AND ORDER - THEREFORE, IT IS ORDERED: The plaintiffs' motion for class certification (Filing No. 77 ) is granted. The magistrate judge's findings and recommendations (Filing No. 105 ) are adopted in their entirety. The defendants' objection (Filing No. 107 ) is denied. Ordered by Judge Joseph F. Bataillon. (TCL )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
LAURA POWERS, NICHOLE PALMER, and
JASON PALMER, on behalf of themselves
and all others similarly situated,
8:11CV436
Plaintiffs,
MEMORANDUM AND ORDER
vs.
CREDIT MANAGEMENT SERVICES, INC.,
DANA K. FRIES, TESSA HERMANSON,
JESSICA L. V. PISKORSKI, BRADY W.
KEITH, and MICHAEL J. MORLEDGE,
Defendants.
This matter is before the court on the defendant’s objection (Filing No. 107) to the
magistrate judge’s findings and recommendations (Filing No. 105) granting the plaintiffs’
motion to certify class (Filing No. 77). The court conducted a de novo review of the
magistrate judge’s findings pursuant to 28 U.S.C. § 636(b)(1) and NECivR 72.3. The
court reviewed the full record, including the plaintiff’s brief and index of evidence (Filing
Nos. 78, 79, 95, 97, & 98), the defendants’ brief and index of evidence (Filing Nos. 88 &
89), and the transcript of the class certification hearing (Filing No. 104). The court
concludes that the magistrate judge’s findings and recommendations should be adopted
in their entirety.
BACKGROUND
Credit Management Services, Inc. (CMS) is a corporation with its principal place
of business in Grand Island, Nebraska. Michael J. Morledge is the sole owner of CMS.
The company employs four in-house attorneys:
Danna K. Fries (Fries), Tessa
Hermanson (Hermanson), Jessica L.V. Piskorski (Piskorski), and Brady W. Keith
(Keith). CMS is in the business of collecting debts from consumers. CMS routinely files
standardized collection complaints and discovery requests to collect from debtors. The
forms used in these complaints and requests have remained largely unchanged for at
least four years.
On July 12, 2011, CMS filed its standardized collection complaint against Laura
Powers (Ms. Powers) in the County Court of Douglas County, Nebraska. Exhibit A,
Filing No. 17-1.
The complaint alleges that Ms. Powers owed $454.00 to “GIKK
ORTHO SPECIALISTS.” The complaint demands that she pay this amount in addition
to attorney fees and a prejudgment interest of $224.48 accruing from April 25, 2007, to
June 7, 2011. The complaint also states that “[m]ore than 90 days have elapsed since
the presentation of this claim.” CMS lists all of its in-house attorneys on the claim
(Fries, Hermanson, Piskorski, and Keith), but only Hermanson’s signature appears on
the document.
Ms. Powers disputed the claim in county court and motioned for summary
judgment because CMS made the claim outside of the relevant statute of limitations. In
response, CMS changed the cause of action in the complaint. CMS then served Ms.
Powers with a discovery request.
Exhibit B, Filing No.17-2. Question 3 of CMS’s
interrogatory asks for the “full name(s) and address(es) of your present place(s) of
employment, your length of tenure, the regularity with which you receive compensation,
whether it is weekly, biweekly, monthly or other, and your present rate of
compensation.”
See Filing No. 17-2 at 5.
The discovery request also includes a
request for production of documents, in which CMS demands “the three most recent tax
returns filed by the Defendant [and] the three most recent payroll stubs from defendant’s
employment.” Id. at 6. CMS’s four in-house attorneys are listed in the signature block
2
of this document. While attempting to collect from Ms. Powers, CMS called her place of
employment and left a company-wide voicemail containing her Social Security number.
On July 26, 2011, CMS filed its standardized collection complaint against Nichole
and Jason Palmer (the Palmers) in the County Court of Douglas County. Exhibit C,
Filing No. 17-3. The complaint alleges that the Palmers owed a total of $856.38 to three
separate service providers. The format and terminology of the Palmer complaint is
nearly identical to the Powers complaint. Similar to the Powers complaint, the Palmer
complaint seeks attorney fees and prejudgment interest and asserts that “[m]ore than
90 days have elapsed since the presentation of this claim.” Comparable to the Powers
complaint, only one in-house attorney’s signature appears on the document, but the
names of all four attorneys are present in the signature block.1 The Palmers filed an
answer to the complaint in August of 2011.
CMS then served the Palmers with a
discovery request similar to the one served to Ms. Powers. Exhibit D, Filing Nos. 17-4 &
17-5. CMS also made a phone call to the Palmers’ household.
Ms. Powers and the Palmers allege that CMS’s collection complaints violate the
Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. (FDCPA), and the
Nebraska Consumer Protection Act, Neb. Rev. Stat. §§ 59-1601 – 59-1623 (NCPA).
They assert that the collection complaints violate the FDCPA and the NCPA because
the documents suggest that CMS routinely presents a claim to debtors 90 days prior to
filing the complaint in county court when in fact CMS does not engage in this practice.2
Additionally, the plaintiffs contend that the complaints seek to collect prejudgment
1
Fries signed the complaint in this case.
2
CMS routinely filed the complaint 90 days after the original creditor made the demand. CMS did not
regularly send its own demand 90 days prior to filing.
3
interest and attorney’s fees without adequate statutory support. Finally, Ms. Powers
and the Palmers contend that CMS’s discovery requests violate the FDCPA and the
NCPA because they are misleading and attempt to collect sensitive financial information
from consumers that is irrelevant to the case.
Pursuant to Rule 23 of the Federal Rules of Civil Procedure, Ms. Powers and the
Palmers requested class certification on behalf of the following four classes pursuant to
Fed. R. Civ. P. 23. The first FDCPA class consists of all Nebraska residents who
received a county court collection complaint from CMS in the form of Exhibits A or C
within the last year. The second FDCPA class consists of all Nebraska residents who
received a discovery request from CMS in the form of Exhibits B or D within the last
year. The first NCPA class consists of all Nebraska residents who received a county
court collection complaint from CMS in the form of Exhibits A or C within the four years.
The second NCPA class consists of all Nebraska residents who received a discovery
request from CMS in the form of Exhibits B or D within the last four years. See Filing
No. 77, Motion for Class Certification.
MAGISTRATE JUDGE’S FINDINGS
The magistrate judge found that the plaintiffs satisfied all four of the 23(a) class
certification requirements.
The magistrate judge found that the plaintiffs met the
numerosity, commonality, typicality, and adequacy of representation requirements. The
magistrate judge also determined that the plaintiffs satisfied the 23(b)(3) requirements
of predominance and superiority. Thus, the magistrate judge recommended certification
of the four requested classes and concluded that the case should move forward as a
class action lawsuit.
4
DISCUSSION
The court conducts a de novo review of the magistrate judge’s findings.
“Rigorous analysis” is necessary to ensure that the plaintiffs satisfied all Rule 23
requirements for certifying a class. Elizabeth M. v. Montenez, 458 F.3d 779, 784 (8th
Cir. 2006) (quoting Gen. Tel. Co. of the S.W. v. Falcon, 457 U.S. 147, 161 (1982)). This
rigorous analysis often results in some overlap with the merits of the plaintiff’s claim.
Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011). A certified class must
meet all the requirements discussed in Rule 23(a) and fit within one of the categories
outlined in rule 23(b). See Fed. R. Civ. P. 23.
A. Rule 23(a) Requirements
In order to certify a class to begin a class action lawsuit, Rule 23(a) necessitates
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 claim or defenses of the representative parties are typical to 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). These four 23(a) requirements are commonly referred to as
numerosity, commonality, typicality, and adequacy of representation. Amchem Prods.,
Inc. v. Windsor, 521 U.S. 591, 613 (1997). All four must be satisfied to certify a class.
1. Numerosity
Rule 23(a)(1) governs numerosity. To become certified under Rule 23(a)(1), a
class must be “so numerous that joinder of all members is impracticable.” There are no
strict guidelines in the Eighth Circuit regarding the class size required to satisfy
numerosity. See Estate of Mahoney v. R.J. Reynolds Tobacco Co., 204 F.R.D. 150,
5
153 (S.D. Iowa 2001).
Other courts have determined that “as few as forty class
members is sufficient to show joinder is impracticable.” Harris v. D. Scott Carruthers &
Assoc., 270 F.R.D. 446, 450 (D. Neb. 2010) (citing Hale v. AFNI, Inc., 264 F.R.D. 402,
404 (N.D. Ill. 2009)).
The plaintiffs contend that over 27,000 Nebraska residents received CMS
complaints in the applicable time frame. The defendants concede that it sent these
documents to over 5,000 individuals.
Therefore, the court finds the numerosity
requirement is met in this case. The court also notes that the defendants do not dispute
this issue.
2. Commonality & Typicality
Rule 23(a)(2) governs commonality. To become certified under Rule 23(a)(2),
there must be “questions of law or fact common to the class.” Fed. R. Civ. P. 23(a)(2).
The requirement is met when the legal issue “linking the class members is substantially
related to the resolution of the litigation.” Paxton v. Union Nat. Bank, 688 F.2d 552, 561
(8th Cir. 1982) (quoting American Finance Sys., Inc. v. Harlow, 65 F.R.D. 94, 107
(D.Md. 1974). However, it is not required that every issue in the case be shared by
each class member. Id. at 561. It is sufficient to base a class action upon a “common
contention . . . capable of classwide resolution.” Wal-Mart Stores 131 S. Ct. at 2551.
The burden on the plaintiff to establish commonality is “very light . . . and is easily
satisfied.” In re Hartford Sales Practices Litig., 192 F.R.D. 592, 603 (D. Minn 1999).
Rule 23(a)(3) governs typicality. Rule 23(a)(3) requires that “the claim(s) . . . of
the representative parties are typical to the claims or defenses of the class” to certify a
class.
Fed. R. Civ. P. 23(a)(3). The typicality requirement is satisfied when class
members’ claims arise from the same event or conduct, even if factual differences exist
6
between individual cases. Alpern v. UtiliCorp United, Inc., 84 F.3d 1525, 1540 (8th Cir.
1996). The burden on the plaintiff to prove typicality is “fairly easily met so long as other
class members have claims similar to the named plaintiff.”
Id. (quoting DeBoer v.
Mellon Mort. Co., 64 F.3d 1174 (8th Cir. 1995)). Typicality is not established, however,
when “proof of a violation requires individualized inquiry.” Elizabeth M., 458 F.3d 779,
787 (8th Cir. 2006).
The defendants contest the plaintiffs’ assertion of commonality and typicality
using the same arguments. First, the defendants contend that the court should not
certify the putative classes because this case necessitates a separate review of
individual claims. The defendants list nine factors that they believe the court is required
to review for each claim. Filing No. 107 at 4. The factors listed include: (1) which
pleadings contain similar terms, (2) whether or not the debtor was actually served,
(3) the manner in which the claim was presented, (4) whether it was liquidated or
unliquidated, (5) whether individuals responded, (6) whether debtors were represented
by counsel, (7) whether debtors objected, (8) whether judgments were entered, and (9)
what attorneys CMS employed at the time.
In considering these proposed factors, it is important to remember the main issue
in this case: whether CMS’s complaints in the form of Exhibits A & C and discovery
requests in the form of Exhibits B & D violate the FDCPA and/or the NCPA. Several of
the defendants’ proposed factors are completely irrelevant, such as whether the debtor
initially sought legal counsel. Other factors, such as the existence of prior judgments,
merely affect potential damages. The only individual inquiry required that is relevant to
the central issue in the case is a brief review of individual documents to determine if
they are in the form of Exhibits A, B, C, or D. This should not be a difficult task, as
7
Hermanson’s deposition indicates that CMS used essentially the same documents for
nearly four years.
As part of their argument in this regard, the defendants contend that class
certification is improper because the plaintiffs brought the action against all four inhouse attorneys in addition to CMS. The defendants claim that only one attorney drafts
and signs each collection complaint and discovery request. The court notes, however,
that all four attorneys’ names appear in the signature block on most of the documents in
question. The defendants also assert that all four attorneys did not work for CMS during
the entire period in question. Specifically, Keith was absent for a portion of the period at
issue. For these reasons, the defendants contend that all four attorneys should not be
held accountable for every document.
The defendants argue that the varying
involvement of in-house attorneys combined with the absence of some attorneys during
the applicable period necessitates the creation of multiple subclasses. The defendants
allege that this division renders a class action an ineffective method for litigating this
issue.
The court notes that the process of reviewing signature blocks is not so onerous
that it renders the class action ineffective. Additionally, as the magistrate judge noted,
the question of individual defendant liability should be addressed at a later stage in the
proceedings, not in the motion to certify class.
Finally, the defendants assert that the magistrate judge’s recommendation is
inconsistent with precedent in this district. The defendants point to Jenkins v. General
Collection, in which the court rejected a motion to certify class. Jenkins v. General
Colllection, Case No. 8:06CV743, 2008 WL 4104677 (D. Neb. 2008). In Jenkins, the
central issue common to all putative class members was that General Collection
8
allegedly collected from debtors after the relevant statute of limitations. See id. The
court could not make a single comprehensive ruling on this issue. See id. at 10,11.
Individual inquiries into claimants’ financial history were required. Id. Jenkins also
necessitated individual review of putative class members’ circumstances to determine
which statute of limitations applied in each case. Id.
In the present case, the issue that is common to all class members is whether
CMS’s standardized complaints and discovery documents violate the FDCPA and the
NCPA. Thus, the case at bar is distinguishable from the Jenkins case. Additionally, the
magistrate judge’s decision to certify class is consistent with this district’s previous
ruling in Evans v. Am. Credit Sys., Inc., which is more factually similar to the present
case than Jenkins. See Evans v. Am. Credit Sys., Inc., 222 F.R.D. 388 (D. Neb. 2004).
Thus the plaintiffs meet both the commonality and the typicality requirements.
The defendants’ arguments to the contrary are unpersuasive. This is especially true
considering that the burden on the plaintiff to establish these requirements is “very light”
and “fairly easily met.”
3. Adequacy of Representation
Rule 23(a)(4) governs adequacy of representation.
The rule provides that a
class’s named representatives must “fairly and adequately protect the interests of a
class.” Fed. R. Civ. P. 23(a)(4). The goal of the rule is to ensure (1) that the named
representatives have common interests with other class members, and (2) that the
named representatives vigorously prosecute class interests through qualified counsel.
Paxton, 688 F.2d at 562.
The defendants assert that Ms. Powers and the Palmers are not representative
of the entire proposed class because they employed counsel to aide them in responding
9
to CMS’s collection complaints and discovery requests. The defendants contend that
these parties cannot claim they were confused by the documents. FDCPA violations
are not based up whether the plaintiffs were subjectively confused or misled, however,
but are assessed objectively “through the eyes of an unsophisticated consumer.”
Peters v. Gen. Serv. Bureau, Inc., 277 F.3d 1051, 1055 (8th Cir. 2002).
Next, defendants argue that Ms. Powers and the Palmers are not adequate
representatives because they incurred no actual damages, yet they are suing for actual
damages on behalf of the class. In Rosario v. Livaditis, the Seventh Circuit held that all
class members are not required to suffer the same injury as the named classes to
maintain a class action, so long as all injuries arose from the defendant’s conduct. See
Rosario v. Livaditis, 963 F.2d 1013, 1018 (7th Cir. 1992). District court rulings in the
Eighth Circuit also support this principle. See Mund v. EMCC, Inc., 259 F.R.D. 180, 186
(D. Minn. 2009) (stating that differences in damages among individual class members
do not outweigh the value of common adjudication). While Ms. Powers and the Palmers
never actually paid CMS the alleged debt, they did incur damages by expending their
time and resources to hire attorneys to defend themselves against the claims. They
may also be entitled to statutory damages under the FDCPA and the NCPA. The fact
that other putative class members may have different damages is irrelevant, as the
damages to all members stemmed from the defendants’ standardized conduct.
Finally, the defendants contend that Ms. Powers is not an adequate
representative of the class because her primary motivation for filing the lawsuit was the
company-wide phone call she received containing her Social Security number. Ms.
Powers clearly states in her deposition, however, that she believed the phone call was a
“different situation” than the one at issue in this lawsuit. Filing No. 89-2 at 36:20. Ms.
10
Powers plainly defines the class she is representing as those individuals to whom CMS
sent misleading documents. See id. at 7:16-23,8:1-3. Similarly, CMS contends that the
Palmers were motivated to enter the lawsuit due to the phone call they received. Mr.
Palmer, in particular, was very upset by the call. However, he described the class as “a
group of people that have, you know, received the same thing.” Filing No. 89-4 at
12:19-20. Thus, the collection complaints and discovery requests are critical to the
cases of the representative parties.
The assertion that their complaints may be
motivated in part by phone calls is not relevant.
Consequently, the defendants’ arguments disputing adequacy of representation
are unpersuasive. In addition, the defendants do not dispute the magistrate judge’s
finding that the plaintiffs “will vigorously prosecute the interests of the class through
qualified counsel” and that the “plaintiffs demonstrated a strong understanding of their
case, their responsibilities to the class, and the expectations as class representatives.”
Filing No. 105 at 12. Thus, the court finds that Ms. Powers and the Palmers adequately
represent the putative class members.
B. Rule 23(b) Requirements
In addition to satisfying all 23(a) requirements, a certified class must fit within one
of the three categories discussed in Rule 23(b). Rule 23(b)(3) is the category most
applicable to the present case. It states that class certification is appropriate if “the
court finds that the questions of law or fact common to the members of the class
predominate over any questions affecting only individual members, and that a class
action is superior to other available methods for the fair and efficient adjudication of the
controversy.” The two 23(b)(3) requirements are often referred to as “predominance”
11
and “superiority,” and both are required to establish a class under this category. Bryant
v. Bonded Accounts Serv./Check Recovery, 208 F.R.D. 251, 261 (D. Minn. 2000).
1. Rule 23(b)(3) – Predominance
To establish predominance, the plaintiffs must prove that “questions of law or fact
common to class members predominate over any questions affecting only individual
members.” Fed. R. Civ. P. 23(b)(3). “In order to ‘predominate,’ common issues must
constitute a significant part of the individual cases.” Jenkins v. Raymark Indus., Inc.,
782 F.2d 468, 472 (5th Cir. 1986). When central issues common to a class are found to
predominate, Rule 23(b)(3) is satisfied even if other important issues must be tried
separately. Id. at 472.
The analysis for predominance is similar to the analysis conducted in the
commonality and typicality sections of Rule 23(a).
Similar to its commonality and
typicality arguments, the defendants provide factors that they believe the court must
review for each individual claim.
Despite providing these factors, however, the
defendants do not dispute that the central issue in this case is whether CMS’s
standardized documents violate the FDCPA and the NCPA. They do not dispute that a
single determination on this issue is applicable to all putative class members.
Additionally, a prior ruling in this district established that the question of whether widely
distributed form letters violate the FDCPA could constitute a predominant issue in a
factually similar case. See Evans, 222 F.R.D. at 395.
In addition to its above argument, the defendants assert that “the myriad of
subclasses that may exist” defeats predominance. First, the court notes that Rule
23(c)(5) specifically allows for the creation of subclasses where necessary. Second, the
defendants do not provide an argument describing how the formation of subclasses
12
detracts from the significance of the FDCPA and NCPA issues. Finally, the defendants
argue that individual damage calculations will be required for this class action. Again,
there is little analysis as to how this detracts from the significance of the FDCPA and
NCPA issues.
Moreover, rulings in other jurisdictions support the contention that
differences in damage calculations among putative class members does not defeat a
predominance finding. See Mund, 259 F.R.D. at 186.
The courts finds that the issue of whether CMS’s standardized practices violated
the FDCPA and the NCPA is the most significant issue in this case. The court also
finds that the issue is shared by all putative class members and concludes that the
predominance portion of Rule 23(b)(3) is satisfied.
2. Rule 23(b)(3) – Superiority
To establish superiority, the plaintiffs must prove that “a class action is superior
to other available methods for the fair and efficient adjudication of the controversy.”
Fed. R. Civ. P. 23(b)(3). “Where classwide litigation of common issues will reduce
litigation costs and promote greater efficiency, a class action may be superior to other
methods of litigation.” Valentino v. Carter-Wallace, Inc., 97 F.3d 1227, 1234 (9th Cir.
1996).
“Implicit in the satisfaction of the predominance test is the notion that the
adjudication of common issues will help achieve judicial economy.” Estate of Mahoney,
204 F.R.D. at 161 (quoting Valentino, 97 F.3d at 1234).
The defendants state that CMS has a low net worth. The defendants argues that
this fact precludes a class action because the FDCPA caps total damages at 1% of the
defendant’s net worth allowing for putative class members to receive only a “nominal”
recovery.
considered
However, the FDCPA specifically states that the class action should be
“without
regard
to
a
minimum
13
individual
recovery.”
15
U.S.C.
§ 1692k(a)(2)(B).
Additionally, the policy consideration behind Rule 23(b)(3) is “to
overcome the problem that small recoveries do not provide the incentive for any
individual to bring a solo action prosecuting his or her rights.” Amchem, 521 U.S. at 617
(quoting Mace v. Van Ru Credit Corp., 109 F.3d 338, 344 (7th Cir. 1997).
The defendants also argue that the maximum statutory award of $1,000
combined with the attorney fee-shifting features outlined in 15 U.S.C. §§ 1692k(a)(2)(A)
& (C) make individual litigation superior to a class action. This logic is fundamentally
flawed. Very few consumers would risk hiring an attorney for a $1,000 claim knowing
that attorney fees would not be paid for if the case were lost. Additionally, very few
attorneys would agree to represent an individual client for a contingency fee in a case
with such a small amount in controversy. For these reasons, the Seventh Circuit Court
of Appeals indicated that, because FDCPA claims are “small-stakes cases, a class suit
is the best, and perhaps the only, way to proceed.” Crawford v. Equifax Payment
Servs., Inc., 201 F.3d 877, 880 (7th Cir. 2000).
Finally, a class action suit is simply the most effective way to resolve this issue
while promoting judicial economy. As the magistrate judge stated, “resolution of the
plaintiff’s claims through a class action rather than through hundreds or thousands of
individual actions seeking damages is the superior approach.” Filing No. 105 at 15. In
addition. The superiority finding in this case is completely consistent with this court’s
findings in previous cases with similar fact patterns. See Evans, 222 F.R.D. 388.
For these reasons, a class action in this case provides incentives to prosecute
despite small individual recoveries. A class action is also the most effective method of
litigating this issue while maintaining judicial economy. Thus, the court finds that the
superiority portion of Rule 23(b)(3) is satisfied.
14
In conclusion, the court finds and agrees with the magistrate judge that the
plaintiffs meet all of the required elements described in Fed. R. Civ. P. 23(a) and Rule
23(b)(3).
THEREFORE, IT IS ORDERED:
1. The plaintiffs’ motion for class certification (Filing No. 77) is granted.
2. The magistrate judge’s findings and recommendations (Filing No. 105) are
adopted in their entirety.
3. The defendants’ objection (Filing No. 107) is denied.
Dated this 12th day of July, 2013.
BY THE COURT:
s/ Joseph F. Bataillon
United States District Judge
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