Plaintiff
Case Analysis
Jan.
25, 2006
Even
though the plaintiff prevailed on the appeal, the decision is
a mixed bag, providing both favorable and unfavorable precedent
to both plaintiffs and defendants.
For
plaintiffs, the court did not merely reject the district court's
conclusion that a plaintiff's status as a "professional plaintiff"
renders her unfit to represent a class, the court recognized that
such status could be a plus.
The
court wrote, "What the district judge did not explain, though,
is why 'professional' is a dirty word. It implies experience,
if not expertise. The district judge did not cite a single decision
supporting the proposition that someone whose rights have been
violated by 50 different persons may sue only a subset of the
offenders. Neither does GMACM."
Thus,
should a plaintiff's attorney develop a novel theory about why
a common practice of creditors may violate the FCRA, counsel need
not worry that a case may be dismissed merely because the attorney
only represents one plaintiff who files lots of lawsuits (apparently,
Murray, her husband, and their four adult children are the named
plaintiffs in more than 50 lawsuits under the FCRA filed by the
same firm).
As
the court noted, this would not work in securities litigation,
where the plaintiff with the biggest stake controls the litigation.
Nor would any such rule be sensible in FCRA litigation. Damages
are nominal for all those in the class; what few plaintiffs suffer
actual damages would be far better served by opting out of the
class litigation anyway.
In
addition, had the court not denounced the district court's second
reason for denying certification — the absence of a claim
for compensatory damages — class litigation under the FCRA
would be impossible.
GMACM
also advanced another theory which, had the court accepted it,
would have operated as a bar to any class litigation under the
FCRA.
One
of the issues in this case was whether GMACM used credit information
to make a "firm offer of credit" — defined in the
FCRA as "any offer of credit or insurance to a consumer that
will be honored if the consumer is determined, based on information
in a [credit] report on the consumer, to meet the specific criteria
used to select the consumer for the offer." 15 U.S.C. 1681a(l).
GMACM
maintained that the issue of whether a "firm offer of credit"
has been made must be viewed from the prospective of each recipient,
rather than from that of the creditor.
Rejecting
this interpretation, the court wrote, "In order to avoid
class certification, GMACM has adopted a position that would make
it impossible for any potential lender to know ex ante whether
it is entitled to obtain credit information. Any recipient could
appear, assert that the offer was worthless given his financial
circumstances, and obtain damages if not an injunction. Such a
rule would cripple the statutory regime by making offers of credit
so risky that any prudent, law-abiding firm would have to withdraw
from the business."
Thus,
the court's decision ensures that class action litigation under
the FCRA is feasible.
However,
the decision also makes it difficult to obtain a settlement.
In
order for any settlement to pass muster under the court's standard,
it may be prohibitively high for any reasonable defendant to agree
to it.
GMACM
was willing to pay $950,000 to settle what the trial court at
least considered a "technical" violation of the law
— almost twice the $500,000 maximum damages that could be
awarded in a class action based on the Fair Debt Collection Practices
Act or the Truth in Lending Act.
Even
this amount, however, would haven given the members of the class
other than Murray less than 1 percent of the minimum statutory
damages of $100.
For
a settlement to provide each class member even the minimum statutory
damages would require a settlement of $120 million.
Admittedly,
the court stated that a settlement under the FCRA need not provide
each class member the minimum: "risk that the class will
lose should the suit go to judgment on the merits justifies a
compromise that affords a lower award with certainty," citing
In re Mexico Money Transfer Litigation, 267 F.3d 743 (7th Cir.
2001).
The
court added, "But if the reason other class members get relief
worth about 1% of the minimum statutory award is that the suit
has only a 1% chance of success, … shouldn't the suit be
dismissed as frivolous and no one receive a penny? If, however,
the chance of success is materially greater than 1%, as the proposed
payment to Murray implies, then the failure to afford effectual
relief to any other class member make the deal look like a sellout."
Even
if the defendant were to double its offer, the court would assume
that the suit has only a 2 percent chance of success, which presumably
would still suggest that the suit is frivolous.
Thus,
it may well turn out that, in class litigation under the FCRA,
any settlement is invariably either: (1) ruinously high for the
defendant to agree to pay; or (2) a "sellout" of the
other class members. If the objective in bringing such a suit
is a lucrative settlement, rather than judgment on the merits,
the decision may be more damaging than helpful.
-
David Ziemer
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David
Ziemer can be reached by email.
