Phillips v. Asset Acceptance, LLC, No. 13-2251 (7th Cir. 2013)
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Plaintiff was sued by Asset Acceptance, a debt collector, for a debt arising from her purchase of natural gas for household use. She sued, claiming that Asset Acceptance sued after the statute of limitations on the creditor’s claim had run, in violation of the Fair Debt Collection Practices Act, 15 U.S.C. 1692. Plaintiff moved to certify a class of debtors sued, after the limitations period, by Asset Acceptance for debts from sale of natural gas to consumers. The district judge waited 25 months and denied the motion. The class would have 793 members, of whom 343 reside in Illinois; 290 were sued four to five years after the claims accrued and 45 were sued more than five years after accrual. The judge shrank the class to 45, then to 23, ruling that suing to collect a debt but failing to serve the defendant did not violate the Act even if the suit was untimely, and concluded that 23 was too small a number to justify a class action. The Seventh Circuit reversed, finding that all 343 Illinois residents were proper class members because the applicable statute of limitations is four years. Certification need not be limited to Illinois residents or to claims under the federal Act.
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In the United States Court of Appeals For the Seventh Circuit ____________________ No. 13 2251 GWENDOLYN PHILLIPS, Plaintiff Appellant, v. ASSET ACCEPTANCE, LLC, Defendant Appellee. ____________________ Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 09 C 7993 Gary S. Feinerman, Judge. ____________________ ARGUED NOVEMBER 8, 2013 DECIDED DECEMBER 2, 2013 ____________________ Before POSNER, ROVNER, and WILLIAMS, Circuit Judges. POSNER, Circuit Judge. We have granted the plaintiff s pe tition for leave to appeal the district court s denial of her mo tion to certify a class. The plaintiff, a consumer, was sued by Asset Acceptance, a debt collector that is the defendant in this case, for a debt arising from her purchase of natural gas for household use. She riposted with the present suit, which charges that Asset 2 No. 13 2251 Acceptance sued her after the statute of limitations on the creditor s claim had run. If this is true, Asset Acceptance s suit violated the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seq.; see §§ 1692e, 1692f; Huertas v. Galaxy Asset Mgmt., 641 F.3d 28, 32 33 (3d Cir. 2011) (per curiam); Harvey v. Great Seneca Financial Corp., 453 F.3d 324, 332 33 (6th Cir. 2006); Herkert v. MRC Receivables Corp., 655 F. Supp. 2d 870, 875 76 (N.D. Ill. 2009). The complaint contains supplemental claims under Illinois and other states laws, making similar allegations. The reason for outlawing stale suits to collect consumer debts is well explained in Kimber v. Federal Financial Corp., 668 F. Supp. 1480, 1487 (M.D. Ala. 1987): As with any defendant sued on a stale claim, the pas sage of time not only dulls the consumerʹs memory of the circumstances and validity of the debt, but heightens the probability that she will no longer have personal records detailing the status of the debt. Indeed, the unfairness of such conduct is particularly clear in the consumer context where courts have imposed a heightened standard of care that sufficient to protect the least sophisticated con sumer. Because few unsophisticated consumers would be aware that a statute of limitations could be used to defend against lawsuits based on stale debts, such consumers would unwittingly acquiesce to such lawsuits. And, even if the consumer realizes that she can use time as a defense, she will more than likely still give in rather than fight the lawsuit because she must still expend energy and re sources and subject herself to the embarrassment of going into court to present the defense; this is particularly true in light of the costs of attorneys today. No. 13 2251 3 Phillips moved to certify a plaintiff class consisting of debtors sued by Asset Acceptance for debts arising from the sale of natural gas to consumers sued, as Phillips had been sued, after the statute of limitations had run. She had filed her suit at the tail end of 2009 and her motion for class certi fication in April of the following year. By March 2011 the motion was ripe for the district judge to rule on, but for un explained reasons he didn t rule for 25 more months. When finally he did, he denied the motion, precipitating the peti tion for leave to appeal. According to data compiled for use in briefing the mo tion, the class that the plaintiff wants certified has 793 mem bers, of whom 343 reside in Illinois; there is as yet virtually no information about the others. Of the 343, 290 were sued between four and five years after the claims against them accrued (debt collection claims accrue on the date that the debt sued on became delinquent), and 45 were sued more than five years after accrual. We don t know the situation of the remaining 8 Illinois debtors (343 (290 + 45) = 8), though in its brief filed in the district court opposing class certifica tion the defendant said they d been sued within four years of accrual. Of the 45, 23 were served and 22 not; the corre sponding figures for the 290 are 93 and 197 but the served/not served figures for the 290 played no part in the district court s analysis. The statute of limitations applicable to the 335 (343 8) Il linoisans was either four or five years; the plaintiff says four, the defendant five. Indisputably the plaintiff was sued more than five years after the claim against her accrued. There fore, the district judge reasoned, she was indifferent to whether the statute of limitations was four or five years the 4 No. 13 2251 suit against her was untimely in either event and she thus lacked an adequate incentive to litigate on behalf of the 290 class members who were victims of untimely suits only if the statute of limitations is four years. So the judge discarded the 290, which shrank the class to 45 and then he shrank it further, to 23, by ruling that suing to collect a debt but failing to serve the defendant does not violate the Fair Debt Collec tion Practices Act even if the suit is untimely. No service, no harm, he thought, because without service the court in which a suit is filed does not obtain jurisdiction over the de fendant. The judge capped his analysis by ruling that 23 was too small a number of claimants to justify a class action; with a number so small, joinder by the plaintiff, he ruled, would be an adequate alternative to a class action. This ruling knocked out the Illinois state law claims, but not necessarily the fed eral ones, as they are not limited to Illinois residents remember that the total membership of the proposed class is 793, and thus fewer than half are Illinoisans. But because there was as yet no information about the Ausländers (such as how many of them had been sued more than 5 years after their debts had become delinquent), the judge would not ex clude the possibility that the federal claims (that is, the claims based on the Fair Debt Collection Practices Act) were sufficiently numerous to justify certification. But presumably in that event though the judge didn t mention this wrin kle either the named plaintiff (Phillips) would have to be replaced by another class member, one who unlike Phillips had been sued within five years of the accrual of the credi tor s claim, or the other class member would have to be made a second class representative. No. 13 2251 5 We are skeptical that Phillips is not an adequate repre sentative of the debtors sued more than four but fewer than five years after the creditors claims accrued, just because her claim is solid whether the statute of limitations is four years or five. To question her adequacy is to be unrealistic about the role of the class representative in a class action suit. The role is nominal. Dechert v. Cadle Co., 333 F.3d 801, 802 03 (7th Cir. 2003); Culver v. City of Milwaukee, 277 F.3d 908, 910 (7th Cir. 2002); cf. Amchem Products, Inc. v. Windsor, 521 U.S. 591, 625 26 (1997). The class representative receives modest compensation (what is called an incentive fee or incen tive award ) for what usually are minimal services in the class action suit, see Espenscheid v. DirectSat USA, LLC, 688 F.3d 872, 876 77 (7th Cir. 2012); Theodore Eisenberg & Geof frey P. Miller, Incentive Awards to Class Action Plaintiffs: An Empirical Study, 53 UCLA L. Rev. 1303, 1308 (2006) which is in fact entirely managed by class counsel. For class action attorneys are the real principals and the class repre sentative/clients their agents in class action suits. 1 William B. Rubenstein, Newberg on Class Actions § 3:52, p. 327 (5th ed. 2011); see Mars Steel Corp. v. Continental Illinois Nat l Bank & Trust Co., 834 F.2d 677, 678 (7th Cir. 1987); Deposit Guaranty Nat l Bank v. Roper, 445 U.S. 326, 339 (1980); Martin H. Re dish, Class Actions and the Democratic Difficulty: Rethink ing the Intersection of Private Litigation and Public Goals, 2003 U. Chi. Legal F. 71, 105. If the suit is successful, they re ceive much greater compensation than the class representa tive(s). But Phillips s (modest) services to the class will be great er, and her incentive award likely therefore to be greater if the suit is successful, the more complex the class is. And it will be more complex if the class includes the four year as 6 No. 13 2251 well as the five year debtors. So she does have an incentive to assist in the claims of the four year debtors, even though any attorneys fees awarded by the court (if they win) will dwarf her compensation. A greater concern is that if Phillips has nothing to gain from establishing that the governing statute of limitations is 4 years, her claim is not typical of the claims of the entire class, as also required by Fed. R. Civ. P. 23(a)(3); see General Telephone Co. of Southwest v. Falcon, 457 U.S. 147, 155 56 (1982). Were there doubt about Phillips s adequacy as class representative and given that there are grounds for doubt about the typicality of her claim the judge could have cre ated a subclass consisting of the four year class members and directed class counsel to designate a representative for it. There was no reason to refuse to certify a class. Moreover, if the statute of limitations is four years, all the Illinois class members (and probably the rest of the 793 class members as well) are in the same boat sued after the statute of limita tions on the creditors claims had run. In that event the issue of typicality (along with the non issue of adequacy) will evaporate. So the judge, if unwilling (as he was) to appoint a second class representative, should have ruled on whether the statute of limitations was four years or five. The defendant argues that it would have been wrong for the judge to do so because statute of limitations is a merits issue rather than one of class action procedure. In this case, actually, it s both, because resolving it would determine the composition of the class and might (if the answer shrank the class to a size at which a joinder of plaintiffs would be a fea sible alternative) determine whether the suit could be main tained as a class action at all. See Amgen Inc. v. Connecticut No. 13 2251 7 Retirement Plans & Trust Funds, 133 S. Ct. 1184, 1194 95 (2013); Wal Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 52 (2011); American Honda Motor Co. v. Allen, 600 F.3d 813, 815 (7th Cir. 2010) (per curiam); Szabo v. Bridgeport Machines, Inc., 249 F.3d 672, 676 77 (7th Cir. 2001). Since it is a pure ques tion of law, the district judge could answer it without requir ing additional discovery or resolving factual disputes. And for the same reason we can rule on it. The defendant argues, no, the district judge is entitled to rule on it first. That s wrong. Appellate courts decide pure questions of law that is, questions of law the answers to which do not depend on resolving factual disputes without deference to the answers given by trial judges ( de novo, as the cases say). Pierce v. Underwood, 487 U.S. 552, 557 58 (1988); Superl Sequoia Ltd. v. Carlson Co., 615 F.3d 831, 833 (7th Cir. 2010); 9C Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2588, pp. 440 58 (3d ed. 2008). There is no obligation to allow a district court to opine on an issue when the appellate court has no obligation to defer, to even the slightest extent, to the district court s view of the matter. With the focus of the litigation to date on debt collection suits against Illinois residents, the choice is between Illinois four year statute of limitations for suits on sale contracts, 810 ILCS 5/2 725(1), and its five year statute of limitations for suits on unwritten contracts. 735 ILCS 5/13 205. It s true though ignored by the parties that the statute of limitations for suits on written contracts is ten years, 735 ILCS 5/13 206, and the natural gas contracts on which the defendant s debt collection suits were based are written. But both the five year and the ten year statutes of limitations have an excep tion for contracts governed by section 2 725 of the Uniform 8 No. 13 2251 Commercial Code (codified for Illinois in 810 ILCS 5/2 725), the four year statute. So that s the one that governs sales contracts. The defendant argues that a sale of natural gas pursuant to utility contracts, the type of contract involved in this case, is a mixed goods and services sale; natural gas to be usable must be delivered, and the usual mode of delivery is by pip ing it into the user s premises. Mixed goods and services sales are treated as sales of services when the element of ser vice predominates, Belleville Toyota v. Toyota Motor Sales, U.S.A., Inc., 770 N.E.2d 177, 194 95 (Ill. 2002), and sales of services are not subject to UCC § 2 725 because Article 2 is limited ( unless the context otherwise requires ) to transac tions in goods. 810 ILCS 5/2 102. Sales of goods, however, being transactions in goods, are governed by Article 2, and specifically by section 2 725 and the UCC defines natural gas as a good. 810 ILCS 5/2 107(1); see Prenalta Corp. v. Colo rado Interstate Gas Co., 944 F.2d 677, 678, 687 (10th Cir. 1991); Pennzoil Co. v. FERC, 645 F.2d 360, 387 (5th Cir. 1981); Energy Marketing Services, Inc. v. Homer Laughlin China Co., 186 F.R.D. 369, 371, 374 (S.D. Ohio 1999), affirmed, 229 F.3d 1151 (6th Cir. 2000); Stanton v. National Fuel Gas Co., 1 Pa. D. & C. 4th 223, 233 34 (Com. Pl. 1987); In re Pilgrim s Pride Corp., 421 B.R. 231, 240 41 (Bankr. N.D. Tex. 2009). The drafters must have been aware that natural gas is usually delivered to homes and other places that use natural gas in pipes. So a good can be delivered in a pipe. The defendant argues that it sued some of the class members to collect debts for both gas and electric service, and there is a split of authority over whether electric service (like water service) should be considered the sale of a good No. 13 2251 9 or of a service. Compare GFI Wisconsin, Inc. v. Reedsburg Util ity Comm n, 440 B.R. 791, 797 802 (W.D. Wis. 2010), and Helvey v. Wabash County REMC, 278 N.E.2d 608, 609 10 (Ind. App. 1972), with In re Pilgrimʹs Pride Corp., supra, 421 B.R. at 238 40, and Williams v. Detroit Edison Co., 234 N.W.2d 702, 705 06 (Mich. App. 1975). This is not true of the sale to Phil lips, however, or the sales to any other Illinois class mem bers. As far as the record indicates, the only utility company serving Illinois customers that the defendant purchased debts from to collect, a company called Nicor, sells only gas. Anyway it should make no difference whether class mem bers were sued just to collect money owing for the purchase of gas or money owing for the purchase of electricity as well. The two costs are separated on the customer s bill. All the class members, therefore, are in the same boat, having been sued more than four years after their debts ac crued unless the judge was right to carve out debtors who were not served with the untimely complaints. His ground was that if there s no service, the debtor defendant has noth ing to fear. That s true sometimes, but not always probably not often. [F]iling a complaint may cause actual harm to the debtor: a pending legal action, even pre service, could be a red flag to the debtor s other creditors and anyone who runs a background or credit check, including landlords and em ployers. The debt collector may also use the pending legal action to pressure a debtor to pay back the debt informally, without serving the complaint precisely the type of unfair practice prohibited by the FDCPA. See 15 U.S.C. § 1692e(5) ( The threat to take any action that cannot legally be taken or that is not intended to be taken. ). Tyler v. DH Capital Mgmt., Inc., No. 13 5021, 2013 WL 5942072, at *6 (6th Cir. Nov. 7, 2013). 10 No. 13 2251 But even if no debtors were ever harmed by being sued but not served, the district judge would have been wrong to exclude from the class the debtors who were not served. Proof of injury is not required when the only damages sought are statutory. Murray v. GMAC Mortgage Corp., 434 F.3d 948, 952 53 (7th Cir. 2006); Bartlett v. Heibl, 128 F.3d 497, 499 (7th Cir. 1997); Baker v. G.C. Services Corp., 677 F.2d 775, 780 81 (9th Cir. 1982). And those appear to be the only dam ages sought in the federal portion of this case. The Fair Debt Collection Practices Act does not specify the amount of stat utory damages to be awarded, but it imposes ceilings: in class actions the named plaintiff may receive no more than $1,000 and the class as a whole no more than the lesser of ei ther $500,000 or 1 percent of the debt collector s net worth. 15 U.S.C. § 1692k(a)(2)(B). But the controlling consideration, so far as any potential difficulty in computing damages to class members for violation of the Fair Debt Collection Prac tices Act is concerned, is that there does not appear to be any ground for awarding a different amount to different class members. Actual damages are, however, sought in at least one of the supplemental state law claims (the Illinois claim and may be sought in others as well), and that s a complicating factor, as actual damages are bound to vary across class members. But we said in Butler v. Sears, Roebuck & Co., 727 F.3d 796, 800 01 (7th Cir. 2013), that a class action limited to determining liability on a class wide basis, with separate hearings to determine if liability is established the dam ages of individual class members, or homogeneous groups of class members, is permitted by Rule 23(c)(4) [of the Feder al Rules of Civil Procedure] and will often be the sensible way to proceed. ¦ It would drive a stake through the heart No. 13 2251 11 of the class action device, in cases in which damages were sought rather than an injunction or a declaratory judgment, to require that every member of the class have identical damages. If the issues of liability are genuinely common is sues, and the damages of individual class members can be readily determined in individual hearings, in settlement ne gotiations, or by creation of subclasses, the fact that damages are not identical across all class members should not pre clude class certification. Otherwise defendants would be able to escape liability for tortious harms of enormous ag gregate magnitude but so widely distributed as not to be remediable in individual suits. Another complicating factor in this case, however, is that different states in which class members reside may differ with respect to their laws governing suits against debt col lectors. But whether because of these or any other factors any or all of the supplemental state law claims should be re tained in this class action, compartmentalized by the crea tion of subclasses, or relinquished altogether, is not before us. To conclude: all 343 Illinois residents appear to be proper class members, adequately represented by plaintiff Phillips because the applicable statute of limitations is four years, so that all the debt collection suits against the class members were time barred and hence violated the Fair Debt Collec tion Practices Act (and perhaps Illinois law as well, though we do not opine on that question) unless it should turn out that the defendant can dock in the safe harbor of 15 U.S.C. § 1692k(c) ( a debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was 12 No. 13 2251 not intentional and resulted from a bona fide error notwith standing the maintenance of procedures reasonably adapted to avoid any such error ); or that the defendant has defens es, such as equitable tolling or equitable estoppel, to the bar of the statute of limitations. But all that remains for the dis trict judge to do regarding certification is to determine the proper scope of the class. It need not be limited to Illinois residents or to claims under the Fair Debt Collection Practic es Act. But how far it extends (and whether subclasses should be created for residents of different states because of differences among state laws) remains to be determined. The denial of class certification is reversed and the case returned to the district court for further proceedings con sistent with this opinion. REVERSED AND REMANDED.
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