Seventh Circuit Finds Evidentiary Hearing Required for Factual Disputes as to Standing
Bazile v. Fin. Sys. of Green Bay, Inc., 983 F.3d 274 (7th Cir. 2020)
The U.S. Court of Appeals for the Seventh Circuit recently vacated a trial court’s judgment of dismissal and remanded the case with instructions to hold an evidentiary hearing limited to the issue of whether the trial court had subject-matter jurisdiction over a plaintiff’s claim that a dunning letter violated the federal Fair Debt Collection Practices Act.
A debt collector sent a consumer a collection letter that stated the date and the total balance of the debt but didn’t indicate whether the amount may increase due to accruing interest. On that basis, the consumer sued and the debt collector moved to dismiss the complaint, arguing that the plaintiff lacked standing to sue and failed to state a claim upon which relief can be granted under Fed. R. Civ. P. 12(b)(6).
The trial court held that the consumer had sufficiently alleged standing because “the violation she alleged amounted to a concrete injury by itself.” Nevertheless, the trial court agreed with the debt collector on the merits and dismissed the complaint. The consumer appealed.
On appeal, the Seventh Circuit explained that it was “presented with one question about subject‐matter jurisdiction (whether [the consumer] has Article III standing to sue), and one question about the merits of the parties’ dispute (whether [the consumer’s] complaint states a claim upon which relief can be granted).” The Court, however, never reached the merits “because jurisdiction is a threshold matter that needs to be further assessed on remand.”
In the words of the Court, “[b]ecause standing is an essential ingredient of subject-matter jurisdiction, it must be secured at each stage of the litigation. At the pleading stage, ‘general factual allegations of injury resulting from the defendant’s conduct may suffice.’”
The Court explained that the defense of lack of subject-matter jurisdiction under Rule 12(b)(1) may be either a facial or a factual attack. “A facial attack tests whether the allegations, taken as true, support an inference that the elements of standing exist. In this way, a facial attack does not challenge the alleged facts themselves. But a factual attack does, testing the existence of jurisdictional facts underlying the allegations. Accordingly, a plaintiff undergoing only a facial attack enjoys treatment of her allegations as true, but that benefit does not carry into the context of a factual challenge. In that context, the court may consider and weigh evidence outside the pleadings to determine whether it has power to adjudicate the action.”
The Court pointed out that although the debt collector did not make clear “whether it was launching a facial or factual attack on [the plaintiff’s] allegations,” the debt collector did make “a factual assertion that conflicts with an inference one could reasonably draw from [the consumer’s] complaint: while [the consumer’s] allegations support an inference that interest was accruing on the debt, the collector asserted that interest was not accruing.”
The Court noted that an FDCPA plaintiff must allege and establish “that the statutory violation harmed him” or that it “presented an appreciable risk of harm to the underlying concrete interest that Congress sought to protect.” Accordingly, the Seventh Circuit turned to address “the key question” of whether the consumer suffered or faced the risk of suffering “a concrete injury from the collection letter’s lack of information about whether the debt amount was increasing from the accrual of interest?”
The Court reasoned that “[t]he nonreceipt of information to which a plaintiff is entitled under a statute may amount to a concrete injury, but only if it impairs the plaintiff’s ability to use [that information] for a substantive purpose that the statute envisioned. In other words, a bare procedural violation, divorced from any concrete harm, does not satisfy the injury-in-fact requirement of Article III.”
The Seventh Circuit determined that the consumer’s “allegations may support an inference that she suffered a concrete injury” because she alleged that the letter did not contain information to which she was entitled, “which resulted in a misleading or inaccurate statement of the debt’s amount.” For example, the court noted, had she known whether interest was accruing it may have affected how she prioritized which debts to pay.
Accordingly, the Seventh Circuit vacated the judgment and remanded the case for an evidentiary hearing on whether the consumer had standing to sue.
Seventh Circuit Holds Confusion and Hiring an Attorney is Inadequate for Art. III Standing
Brunett v. Convergent Outsourcing, Inc., 982 F.3d 1067 (7th Cir. 2020)
The U.S. Court of Appeals for the Seventh Circuit recently held that dismissal for lack of subject matter jurisdiction was appropriate where a collection letter did not include a false statement and the consumer conceded that the letter had not injured her, causing only some “confusion” that led her to retain counsel.
The consumer received a letter from a debt collector demanding repayment of outstanding debt. In the letter, the debt collector offered to accept 50% of the balance in satisfaction of the debt and offered the consumer the opportunity to discuss other available options. The letter also informed the consumer that if more than $600 of the debt was forgiven, the collector would be required to report the forgiven amounts to the Internal Revenue Service as taxable income on a Schedule 1099-C in accordance with federal law. The amount of the debt was $1,012.
The consumer filed a putative class action complaint against the debt collector on behalf of herself and all other recipients of similar letters, alleging that the statement about IRS reporting violated 15 U.S.C. §1692e(5) and (10) for threatening action that could not be legally taken and making a false representation.
At summary judgment, the trial court considered that the consumer had offered to pay the debt collector $5 a month. Because that amount was less than the interest accruing on the debt, the court equated it to a request to forgive the entire debt which could have triggered the IRS reporting. Accordingly, the trial court granted summary judgment in the debt collector’s favor and the consumer appealed.
The Seventh Circuit began by discussing the consumers’ Article III standing, citing several decisions holding that a plaintiff who lacks a concrete injury cannot sue under the FDCPA simply because a statement in a letter is incorrect or misleading.
Here, the consumer testified at her deposition that while the letter had confused her, it did not injure her. It was undisputed that she did not pay any amounts not owed, and the “statement about the possibility of a report to the IRS did not affect her credit rating or discourage anyone from doing business with her.”
Addressing these facts, the court explained that “[a] debtor confused by a dunning letter may be injured if she acts, to her detriment, on that confusion—if, for example, the confusion leads her to pay something she does not owe, or to pay a debt with interest running at a low rate when the money could have been used to pay a debt with interest running at a higher rate. But the state of confusion is not itself an injury. If it were, then everyone would have standing to litigate about everything.”
Additionally, the fact that the consumer’s confusion led her to retain counsel did not change the Court’s evaluation because “A desire to obtain legal advice is not a reason for universal standing.”
For these reasons, the Seventh Court concluded that the consumer lacked Article III standing and vacated the trial court’s judgment with instructions to dismiss for lack of subject-matter jurisdiction.
Seventh Circuit Explains Article III Standing Requires More than Annoyance
Gunn v. Thrasher, Buschmann & Voelkel, P.C., 982 F.3d 1069 (7th Cir. 2020)
The U.S. Court of Appeals for the Seventh Circuit recently held that a debt collection letter that references a legal remedy that could be pursued but is ultimately not pursued is not itself a sufficient basis to confer Article III standing.
A husband and wife (“consumers”) stopped paying their homeowners’ association dues. The association hired a law firm, which sent a collection letter that stated “[i]f the Creditor has recorded a mechanic’s lien, covenants, mortgage or security agreement, it may seek to foreclose such mechanic’s lien, covenants, mortgage, or security agreement.” The collection law firm later filed a lawsuit against the consumers to collect the debt, but the only claim asserted in the collection lawsuit was a breach of contract and not to foreclose.
The consumers sued the law firm, alleging the letter was false and misleading and violated subsections 1692e(2), (4), (5) and (10) of the FDCPA because “the law firm would have found it too costly to pursue foreclosure to collect a $2,000 debt.”
The trial court dismissed the complaint, “ruling that a true statement about the availability of legal options cannot be condemned under the [FDCPA] just because the costs of collection may persuade a law firm to seek one remedy (damages) rather than another (foreclosure).”
On appeal, the Seventh Circuit did not reach the merits, instead directing “the parties to file supplemental briefs addressing the question whether plaintiffs have standing to sue” under Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), and Casillas v. Madison Avenue Associates, Inc., 926 F.3d 329 (7th Cir. 2019).
The consumers argued that “they were annoyed or intimidated by the letter, which as a matter of law satisfies the constitutional injury requirement,” citing Gadelhak v. AT&T Services, Inc., 950 F. 3d 458 (7th Cir. 2020).
The Seventh Circuit disagreed and distinguished Gadelhak because it involved “uninvited and unintelligible text messages, which intruded on the plaintiffs’ seclusion,” but here the consumers did not allege that “the law firm’s letter was a forbidden invasion of privacy.” Instead, the consumers’ “claim is that legally sound language in an otherwise proper letter violated the Act. Nothing in Gadelhak implies that this has ever been deemed a concrete injury.”
Annoyance, indignation, infuriation, disgust or aggravation are not enough. The Seventh Circuit explained the issue as follows:
Consider the upshot of an equation between annoyance and injury. Many people are annoyed to learn that governmental action may put endangered species at risk or cut down an old-growth forest. Yet the Supreme Court has held that, to litigate over such acts in federal court, the plaintiff must show a concrete and particularized loss, not infuriation or disgust. . . Indeed, it is hard to imagine that anyone would file any lawsuit without being annoyed (or worse). Litigation is costly for both the pocketbook and peace of mind. Few people litigate for fun. Yet the Supreme Court has never thought that having one’s nose out of joint and one’s dander up creates a case or controversy. No one can doubt that the plaintiff in Spokeo was sore annoyed. If that were enough, however, then the very fact that a suit had been filed would show the existence of standing, and the need to have a concrete injury that could be cured by a favorable judicial decision would be abolished.
Because the plaintiffs did not allege that the “contested sentence in the defendant’s letter caused them any concrete harm,” the trial court’s judgment was vacated, and the case was remanded with instruction to dismiss for want of subject-matter jurisdiction.
Seventh Circuit: No Harm or Appreciable Risk of Harm, No Standing
Larkin v. Fin. Sys. of Green Bay, 982 F.3d 1060 (7th Cir. 2020)
The U.S. Court of Appeals for the Seventh Circuit recently concluded that bare procedural violations alleged by collection letter recipients failed to satisfy the “injury-in-fact” requirement to confer standing under Article III as the consumers’ complaint did not allege that the purported FDCPA violations injured them in any concrete way, tangible or intangible.
In March 2017, a debt collector sent a dunning letter to a consumer regarding debt related to medical services. The letter stated: “You want to be worthy of the faith put in you by your creditor. . . We are interested in you preserving a good credit rating with the above creditor.”
In August and September 2017, another consumer received three similar dunning letters from the debt collector, which, respectively, included the following statements: (1) “Your creditor is interested in you preserving a good credit rating with them”; (2) “You do not want to lose our confidence. You want to be worthy of the faith put in you by your creditor”; and (3) “Your creditor has placed your bill for collection. To avoid errors and to clear your credit record with the above creditor, send or bring your payment to our office, or pay online.”
The consumers, both represented by the same law firm, filed nearly identical class-action lawsuits against the debt collector alleging that the collection letters violated the FDCPA, 15 U.S.C. § 1692, et seq., by containing false, deceptive or misleading statements in violation of § 1692e, and that the statements amount to an unfair or unconscionable means of collecting a debt in violation of § 1692f.
The debt collector moved to dismiss the consumers’ complaints, arguing that the complaint was untimely and failed to state a claim, challenging the consumers’ standing. The trial court judge concluded that the consumers had standing and timely filed suit but dismissed the complaints for failing to state a claim, holding as a matter of law that the statements within the collection letters did not violate §§ 1692e or 1692f.
The consumers appealed, and the Seventh Circuit consolidated the cases because they presented identical questions of law.
On appeal, the Seventh Circuit initially discussed the consumers’ Article III standing to bring their claims in federal court. To establish standing, a plaintiff has the burden to establish that she or he 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 ruling.”
Regarding “injury in fact,” the Court explained that “a plaintiff must show that he or she suffered an invasion of a legally protected interest’ that is concrete and particularized and actual or imminent, not conjectural or hypothetical. The key question here is whether [the consumers] have alleged an injury that is both concrete and particularized.”
Here, the Seventh Circuit found that the consumers only generally alleged that certain statements in the collection letters were violative, but neither complaint alleged any resulting harm or “appreciable risk of harm.”
Because the consumers failed to allege that the debt collector’s FDCPA violation injured them in any concrete way, as required under Article III, the Seventh Circuit concluded that their suits should have been dismissed for lack of standing.
Accordingly, the Court modified the judgments to reflect a jurisdictional dismissal and affirmed the trial court’s judgment as modified.
Seventh Circuit: Evidence of “Specific Facts” Required for Article III Standing
Spuhler v. State Collection Serv., 983 F.3d 282 (7th Cir. 2020)
The U.S. Court of Appeals for the Seventh Circuit recently vacated judgment in favor of consumers and certification of a proposed class for claims that a debt collector violated sections 1692e and 1692f of the federal Fair Debt Collection Practices Act (FDCPA) by excluding a statement that interest would accrue on the debts in their collection letters.
Husband and wife consumers incurred medical debts that a debt collector sought to collect on behalf of the medical care provider. The debt collector mailed letters to the consumers providing the debts’ sums but omitting a statement that interest would accrue on the debts.
The consumers filed a putative class action complaint against the debt collector on behalf of themselves and a proposed class of all recipients of the collection letters alleging that the letters’ omissions of a statement that interest would accrue on the debts violated the FDCPA, 15 U.S.C. § 1692, et seq., by containing false, deceptive, or misleading statements in violation of § 1692e, and that the statements amounted to an unfair or unconscionable means of collecting a debt in violation of § 1692f.
The trial court entered summary judgment in the consumers’ favor and certified a class. This appeal followed.
On appeal, the debt collector argued: “(1) the consumers lack standing to sue based on the letters’ lack of a statement about interest; (2) the consumers are otherwise not entitled to judgment as a matter of law because no statement about interest was required under the FDCPA; and (3) class certification was improper.”
As a threshold issue, the Seventh Circuit explained that to establish standing, a plaintiff must establish: “(1) the plaintiff suffered a concrete and particularized injury in fact; (2) the injury is fairly traceable to the challenged conduct; and (3) the injury is likely to be redressed by a favorable judicial decision.”
The debt collector argued that the consumers lacked standing for failing to allege a concrete injury in fact. However, the Seventh Circuit found this argument “misplaced because it relies on the standard for demonstrating standing at the pleading stage: whether the plaintiffs clearly alleged facts that plausibly suggest they have standing.” Instead, the applicable standard at the summary judgment phase “is whether the plaintiffs have supplied evidence of ‘specific facts’ that, taken as true, show each element of standing.”
The consumers argued the collection letters’ failure to include a statement that the debts would accrue interest was misleading in violation of sections 1692e(2)(A) and 1692f of the FDCPA and was enough, by itself, to establish a concrete injury necessary for standing. However, for a concrete injury to result from the purported FDCPA violation, the Court reasoned that the collection letters’ exclusion of a statement about accruing interest must have detrimentally affected the debtors’ handling of their debts.
Here, the consumers failed to present any record evidence that the absence of the statement affected how they responded to the collection letters or managed their debts, or even took any action to seek information whether the debts were accruing interest.
For these reasons, the Seventh Circuit concluded that the consumers’ claims were non-justiciable, as they failed to set forth evidence of specific facts demonstrating they suffered a concrete injury necessary for standing.
Accordingly, the trial court judgment in favor of the consumers and certifying a class was vacated and remanded for proceedings consistent with this opinion.