Phillips v. Asset Acceptance, LLC

• Decision Date: 02 December 2013
• Docket Number: No. 13–2251.,13–2251.
• Parties: Gwendolyn PHILLIPS, Plaintiff–Appellant, v. ASSET ACCEPTANCE, LLC, Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

736 F.3d 1076

Gwendolyn PHILLIPS, Plaintiff–Appellant,

v.ASSET ACCEPTANCE, LLC, Defendant–Appellee.

No. 13–2251.

United States Court of Appeals,Seventh Circuit.

Argued Nov. 8, 2013.

Decided Dec. 2, 2013.

Daniel A. Edelman, Edelman Combs Latturner & Goodwin, Chicago, IL, for Plaintiff–Appellant.

Theodore W. Seitz, Dykema Gossett PLLC, Lansing, MI, for Defendant–Appellee.

Before POSNER, ROVNER, and WILLIAMS, Circuit Judges.

POSNER, Circuit Judge.

We have granted the plaintiff's petition for leave to appeal the district court's denial of her motion 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 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 passage of time not only dulls the consumer's 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 consumer. 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 resources 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.

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 certification in April of the following year. By March 2011 the motion was ripe for the district judge to rule on, but for unexplained reasons he didn't rule for 25 more months. When finally he did, he denied the motion, precipitating the petition for leave to appeal.

According to data compiled for use in briefing the motion, the class that the plaintiff wants certified has 793 members, 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 certification the defendant said they'd been sued within four years of accrual. Of the 45, 23 were served and 22 not; the corresponding 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) Illinoisans 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. Therefore, the district judge reasoned, she was indifferent to whether the statute of limitations was four or five years—the 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 Collection 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 defendant.

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 federal 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 exclude 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 wrinkle—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 creditor's claim, or the other class member would have to be made a second class representative.

We are skeptical that Phillips is not an adequate representative 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, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997). The class representative receives modest compensation (what is called an “incentive fee” or “incentive 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 & Geoffrey 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 representative/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, 100 S.Ct. 1166, 63 L.Ed.2d 427 (1980); Martin H. Redish, “Class Actions and the Democratic Difficulty: Rethinking the Intersection of Private Litigation and Public Goals,” 2003 U. Chi. Legal F. 71, 105. If the suit is successful, they receive much greater compensation than the class representative(s).

But Phillips's (modest) services to the class will be greater, 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 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 four 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, 102 S.Ct. 2364, 72 L.Ed.2d 740 (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 created 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 limitations 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 feasible alternative) determine whether the suit could be maintained as a class action at all. See Amgen Inc. v. Connecticut Retirement Plans...