The U.S. Court of Appeals for the Eighth Circuit has reversed a District of Nebraska’s order granting class certification to a lawsuit, Powers v. Credit Management Services (CMS) Inc. The cases alleges Fair Debt Collection Practices Act (FDCPA) and Nebraska Consumer Protection Act (NCPA) violations.

Credit Management Services handles collection actions through Nebraska's state courts.  When the plaintiffs contested a complaint brought by CMS, the agency served nearly identical discovery requests seeking disclosure of employment and financial information on the plaintiffs. The plaintiffs in turn filed a putative class action against CMS and its in-house attorneys listed on the signature lines of the collection complaints, alleging that complaints and discovery requests violated the FDCPA and NCPA.  

The District Court certified the action with four classes, concluding that the predominant question was whether the defendants sent all class members standard collection complaints and discovery requests that violated the FDCPA and NCPA.

The Eighth Circuit reversed the District Court’s class certification ruling after determining it had failed to conduct a rigorous review. The Eighth Circuit noted that, unlike routine FDCPA class actions that involve standard form collection letters sent directly to consumers, the issue in Powers was whether legal pleadings used by a collector violated the FDCPA. 

The plaintiffs had alleged two deficiencies with the complaints. 

First, they alleged that standard form allegations from CMS, which sought an award of prejudgment interest under Nebraska law, violated the FDCPA because prejudgment interest was not permitted if the consumer contested the lawsuit.  

The Eighth Circuit noted that while the issue of whether a demand for prejudgment interest violated the FDCPA, as phrased by the plaintiffs, was common to the class, it was not capable of class-wide resolution without numerous individualized inquiries.  

Specifically, the court held that even if the plaintiffs' theory was correct (that the demand violated the FDCPA), the court still would need to determine if CMS recovered prejudgment interest on all the underlying lawsuits, whether CMS had a legitimate claim to prejudgment interest under the facts of each case and whether the plaintiffs’ legal theory was litigated by a class member at the state court level and resolved by the state court. 

Second, the plaintiffs alleged that a standardized statement in complaints from CMS - that more than 90 days had elapsed since claim presentation - violated the FDCPA because CMS did not present the claim but simply relied on the original creditor’s billing statement.  

The Eighth Circuit again concluded that while the issue, as phrased by the plaintiffs, appeared common to the class, liability of CMS could not be resolved absent individualized reviews into whether CMS provided the 90-day presentation or relied on an assignor’s billing statement and whether the plaintiffs' legal theory had been litigated in the underlying lawsuit.

The plaintiffs had alleged that the standard-form discovery instructions from CMS "confuse and mislead the unsophisticated consumer as to his or her right in answering said discovery.”  

In granting class certification, the plaintiffs argued (and the District Court agreed), that FDCPA violations are assessed objectively through the eyes of an unsophisticated consumer, and therefore whether particular class members were represented by attorneys was irrelevant.  

The Eighth Circuit disagreed, holding that the “unsophisticated consumer” standard applies to FDCPA claims challenging communications sent directly to the consumer, and that this standard was inappropriate for judging communication between attorneys.  Where an attorney represents a consumer in a debt collection proceeding, the Eighth Circuit held that it will presume that the attorney, rather than the FDCPA, will protect the consumer from overreaching or improper discovery tactics.  

Because the District Court did not engage in any analysis of how standard-form discovery requests could be deemed unreasonable without knowing the factual context of a particular case, class certification was therefore improper. 

A full copy of the Eighth Circuit’s decision is available here.

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