The Fair Debt Collection Practices Act (FDCPA), which regulates the conduct of debt collectors, authorizes plaintiffs suing over violations to recover statutory damages of up to $1,000. Because these amounts can rapidly add up to exorbitant numbers in a class action for very minor, technical violations, Congress capped the total amount of statutory damages that may be sought for the absent class members in a class action at the lesser of $500,000 or 1 percent of the debt collector’s net worth. 15 U.S.C. § 1692k(a)(2)(B).
Now imagine that you’re a plaintiff’s lawyer who has stumbled across what appears to be a very widespread FDCPA violation committed by a national debt collector—say, an error in the standard dunning letter sent to debtors across the country. Why would you ever file a single nationwide class action in which the class recovery tops out at a half- million dollars (or less, depending upon the defendant’s assets)—which means that your fees in a settlement effectively would be capped at a third or a fourth of that amount—when you can file dozens, fifty, or a hundred smaller class actions in which you could recover the same amount in each case?
Of course, any such maneuver would be a transparent evasion of FDCPA’s cap on aggregate statutory damages. And it would frustrate Congress’s goal of protecting debt collectors from being bankrupted by FDCPA class actions. Nonetheless, in LaRocque v. TRS Recovery Services Inc., No. 2:11-cv-91-DGH (D. Me. Jan. 2, 2013), a district court held that the nothing in the FDCPA prevents plaintiffs from atomizing their class actions in order to recover the statutory cap in a series of individual suits.
In LaRocque, the plaintiff—or perhaps her granddaughter, who was a paralegal at a FDCPA class action firm—noticed that a debt-collection letter she had received regarding a bounced check arguably violated the FDCPA. The plaintiff then filed a class action on behalf of a putative class of recipients of similar letters in Maine, and—after that class was certified—filed state-specific class actions in four other federal courts. In the case in Maine, the defendants moved to expand the Maine-only class into a nationwide class, arguing that allowing the plaintiffs to pursue a series of single-state classes would circumvent the FDCPA’s cap on statutory damages.
The court denied the request, noting that FDCPA’s cap on statutory damages is phrased differently than the later-enacted cap in the Truth in Lending Act, which specifies that the cap applies “in any class action or series of class actions.” 15 U.S.C. § 1640(a)(2)(B) (emphasis added). Previously, the Seventh Circuit also had concluded that FDCPA’s damages cap doesn’t require plaintiffs to seek certification of a nationwide rather than a single-state class. Mace v. Van Ru Credit Corp., 109 F.3d 338 (7th Cir. 1997). But in that case, the Seventh Circuit observed that its holding might have to be revisited if a plaintiff ever actually brought “multiple or serial class actions to recover for the same misconduct.” Id. at 344. The district court in LaRocque, however, declined to analyze the issue substantively because other district courts presented with it hadn’t done so either.
So what should a defendant do if targeted by a wave of small class actions designed to avoid FDCPA’s cap on total damages in a class action? One approach would be to raise the issue that the Seventh Circuit left undecided in Mace and argue that the FDCPA should be read to bar plaintiffs from evading it by subdividing nationwide or multi-state class actions into a series of smaller class actions. Indeed, otherwise nothing would stop plaintiffs from bringing a separate class action for the smallest number of people that would satisfy the numerosity requirement. This tactic brings to mind Chief Justice’s hypothetical during oral argument in Standard Fire Insurance Co. v. Knowles—the case on whether plaintiffs can avoid removal under CAFA by stipulating that the class recovery would be less than the $5 million amount-in-controversy requirement—of a lawyer filing one class action for people “whose names begin with A to K” and another for “people whose names begin L to Z.”
Alternatively, the defendant could reframe the argument as a challenge to the superiority of an artificially small class action. Rule 23(b)(3) permits class certification only if the proposed class “is superior to other available methods for fairly and efficiently adjudicating the controversy,” and requires the court to consider (among other things) “the extent and nature of any litigation concerning the controversy already begun by or against class members” and “the desirability or undesirability of concentrating the litigation of the claims in the particular forum.” Fed. R. Civ. P. 23(b)(3)(B)-(C). In a FDCPA class action, litigating a wave of mini-class actions would be less efficient than a single nationwide class action and would increase the defendant’s liability—perhaps by 50 times or more—in ways that Congress did not intend.
If neither of these approaches succeeds, a defendant could argue that the court should exercise its discretion under FDCPA to reduce the amount of statutory damages awarded in consideration of the size of the class and the pendency of actions in other jurisdictions.