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7th Cir. Holds Mere Overstatement of Amount of Debt Not Enough for Spokeo Standing

credit card debt collectionThe U.S. Court of Appeals for the Seventh Circuit recently vacated a trial court’s order denying a debt collector’s motion to compel arbitration in a putative class action lawsuit filed by a consumer alleging violations of the federal Fair Debt Collection Practices Act (FDCPA), and remanded the case to the lower court with instructions to dismiss for lack of jurisdiction.

In so ruling, the Seventh Circuit concluded that although standing issues were not raised in the trial court, the Court lacked jurisdiction to address the arbitration question because the consumer failed to allege an injury-in-fact from the claimed violations of the FDCPA, 15 U.S.C. § 1692, et seq., and thus failed to plead facts to support her standing to sue under Article III of the Constitution.

A copy of the opinion in Nettles v. Midland Funding, LLC is available at:  Link to Opinion.

A debt collector sued a consumer debtor for past-due credit card debt.  The parties entered a consent judgment requiring a repayment plan with modest, $50 automatic monthly withdrawals from the consumer’s bank account. 

After three payments were withdrawn from the consumer’s account, the law firm, who was acting on behalf of the debt collector, dissolved.  An affiliate of the debt collector sent the consumer a collection letter advising that it would be servicing the remaining debt on the debt collector’s behalf but overstating her remaining balance by about $100.

The consumer filed a putative class action lawsuit against the debt collector and its affiliate on behalf of herself and a proposed class of consumers who received letters similar to the collection letter, alleging that its content was false, misleading, or otherwise unfair or unconscionable in violation of sections 1692e and 1692f of the FDCPA. 

The debt collectors moved to compel arbitration pursuant to a provision within the underlying credit card agreement with the consumer.  However, the motion was denied, as the trial court concluded that the clause did not apply to the consumer’s claim. 

The debt collectors appealed the denial of their motion to compel arbitration as permitted by the Federal Arbitration Act which authorizes an immediate appeal from an order denying a motion to compel arbitration. 9 U.S.C. § 16(a)(1); Hennessy Indus. v. Nat’l Union Fire Ins. Co., 770 F.3d 676, 678 (7th Cir. 2014).

On appeal, the parties’ briefs mostly concerned the arbitration issue, but also identified a possible problem with the consumer’s standing to sue. 

Though no one addressed whether the consumer adequately pleaded an actual injury fairly traceable to the alleged FDCPA violations in trial court, Article III standing is jurisdictional and cannot be waived. FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990); Freedom from Religion Found., Inc. v. Nicholson, 536 F.3d 730, 737 (7th Cir. 2008).

As you may recall, analysis of Article III standing asks whether the complaint “clearly allege[s] facts” demonstrating that a plaintiff has “(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016). An injury in fact is an “invasion of a legally protected interest that is concrete and particularized and actual or imminent, not conjectural or hypothetical.” Id. at 1548 (quotation marks omitted). A concrete injury is a real injury—that is, one that actually exists, though intangible harms as well as tangible harms may qualify. Id. at 1548–49.

Here, the complaint alleged that the collection letter violated the consumer’s rights under the FDCPA.  However, the Seventh Circuit held that this was insufficient to confer standing because the injury-in-fact requirement is not automatically satisfied “whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.” Id

The Seventh Circuit further noted that its recent decisions in Casillas and Larkin applied these principles to FDCPA claims resulting in dismissal for lack of standing, and that this case required the same result.  Casillas v. Madison Ave. Assocs., 926 F.3d 329 (7th Cir. 2019) (affirming dismissal of class action claims under § 1692g of the FDCPA for lack of standing where plaintiff consumer had not alleged that defendant debt collector’s omission affected her in any way, or violation caused harm or put consumer at an appreciable risk of harm); Larkin v. Finance System of Green Bay, Inc. Nos. 18-3582 & 19-1537, 2020 WL 7332483 (7th Cir. Dec. 14, 2020) (extended the reasoning of Casillas to claims under §§ 1692e and 1692f of the FDCPA). 

Because the consumer’s complaint did not allege that the statutory violations harmed her or created any appreciable risk of harm, she failed to plead facts supporting her standing to sue. 

Accordingly, the Seventh Circuit vacated the trial court’s order denying the debt collector’s motion to compel arbitration and remanded the case with instructions to dismiss the case for lack of jurisdiction.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

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