McMahon v. LVNV Funding, LLC

• Decision Date: 08 December 2015
• Docket Number: No. 15–8018.,15–8018.
• Parties: Scott McMAHON, Plaintiff–Petitioner, v. LVNV FUNDING, LLC, et al., Defendants–Respondents.
• Court: U.S. Court of Appeals — Seventh Circuit

807 F.3d 872

Scott McMAHON, Plaintiff–Petitioner,

v.LVNV FUNDING, LLC, et al., Defendants–Respondents.

No. 15–8018.

United States Court of Appeals, Seventh Circuit.

Submitted Sept. 9, 2015.

Decided Dec. 8, 2015.

Daniel A. Edelman, Edelman Combs Latturner & Goodwin, LLC, Chicago, IL, for Petitioner.

Joel D. Bertocchi, David M. Schultz, Hinshaw & Culbertson LLP, Chicago, IL, for Respondent.

Before WOOD, Chief Judge, and FLAUM and SYKES, Circuit Judges.

WOOD, Chief Judge.

Scott McMahon, the plaintiff in this putative class action arising under the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692 et seq., sought to certify a class of persons in Illinois who had received misleading dunning letters from defendant LVNV Funding, LLC. (There are other defendants, but for simplicity we refer to them collectively as LVNV.) After the district court declined to certify the class, McMahon petitioned this court under Federal Rule of Civil Procedure 23(f) for permission to appeal that decision. We grant McMahon's petition and proceed to the merits, because the parties' comprehensive submissions—together with the record in the district court—suffice to decide this limited question. We conclude that the district court's decision to deny class certification was erroneous and thus that the case must be sent back to the district court for further proceedings on the class allegations. See Pella Corp. v. Saltzman, 606 F.3d 391, 393 (7th Cir.2010) ; Allen v. Int'l Truck & Engine Corp., 358 F.3d 469, 470 (7th Cir.2004) ; see also Johnson v. Pushpin Holdings, LLC, 748 F.3d 769, 771 (7th Cir.2014).

I

The gist of McMahon's claim is that LVNV violated the FDCPA when it sought to collect or settle debts that are not legally enforceable because the statute of limitations has run. McMahon alleges that LVNV's practice was to send dunning letters containing language that would mislead an unsophisticated consumer into believing that the debt is legally enforceable. We note that this is McMahon's second appeal in this case. See McMahon v. LVNV Funding, LLC, 744 F.3d 1010 (7th Cir.2014) (McMahon I ). His first appeal was prompted by the district court's dismissal of his class claims under Rule 12(b)(6) and the court's conclusion that his individual claims were rendered moot by a settlement offer. In McMahon I, we reversed the district court's judgment because the offer of settlement he received did not promise a full resolution of the matter and thus did not moot his interest in the case. See 744 F.3d at 1019.¹ As we explained before, dunning letters such as the one McMahon received "misrepresented the legal status of the debts, in violation of the FDCPA," because an "unsophisticated consumer" who read such a dunning letter "could have been led to believe that her debt was legally enforceable." Id. at 1021. Therefore, we concluded that the class allegations had been incorrectly dismissed. Id. at 1020.

Following his first appeal, McMahon moved in the district court for class certification. He described his proposed "Class A" as follows:

(a) all individuals in Illinois (b) to whom LVNV ... (c) sent a letter seeking to collect a debt that referred to a "settlement" (d) which debt was (i) a credit card debt on which the last payment had been made more than five years prior to the letter, or (ii) a debt arising out of the sale of goods (including gas) on which the last payment had been made more than four years prior to the letter (e) which letter was sent on or after February 28, 2011 and on or before March 19, 2012, (f) where the individual after receipt of the letter, (i) made a payment, (ii) filed suit, or (iii) responded by requesting verification or contesting the debt.

(Class A also included subclasses that are irrelevant for purposes of this Rule 23(f) petition.) McMahon sought certification of this class under Rule 23(b)(3), which requires the district court to find "that the questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy." FED.R.CIV.P. 23(b)(3).

The district court was satisfied that the proposed class met the numerosity, commonality, typicality, and adequacy requirements of Federal Rule of Civil Procedure 23(a). But it concluded that the class nonetheless could not be certified, because of what it saw as a failure to meet the requirements of Rule 23(b)(3). In particular, the court held that issues common to the class did not predominate over issues affecting individual class members. It based this conclusion on the fact that the proposed class includes persons seeking actual damages—namely, those who paid a part of the debt after receiving a dunning letter—and that the case therefore eventually would involve issues of individual causation and damages. The court stated that even if "the amount of damages due each class member is ‘capable of ministerial determination,’ causation, i.e., determining whether class members paid the debt because of the letter, out of moral compulsion, or for some other reason, is not." And given that the proposed class was estimated to have 3,000 members, the court continued, "the individual issues will dwarf the issues common to the class, making this case unsuitable for class certification." McMahon moved for reconsideration of the order denying class certification, but his motion was denied.

II

A

In his petition under Rule 23(f), McMahon argues that the district court erred by concluding that "the need for individual damages determinations justifies the denial of class certification." An interlocutory appeal is appropriate, he says, because the district court's conclusion is directly at odds with our precedent. Review of the order denying class certification thus (in his view) "will facilitate development of the law because the ... decision is an open invitation to defendants to concoct spurious ‘individual issues' as to damages." McMahon also represents that the court's denial of class certification will doom the case because his individual claim is too small to justify the cost of litigation. We find these arguments persuasive. Because it appears that the denial of class status is likely to be fatal to this litigation and that an appeal may promote the development of the law, we grant McMahon's petition for interlocutory review. See Hughes v. Kore of Ind. Enter., Inc., 731 F.3d 672, 674 (7th Cir.2013) ; Pella Corp., 606 F.3d at 393 ; Blair v. Equifax Check Servs., Inc., 181 F.3d 832, 834–35 (7th Cir.1999).

B

On the merits, we agree with McMahon that the district court exceeded the bounds of its discretion when it denied class certification. As McMahon points out, the court's analysis is inconsistent with this court's decisions. Its reasoning suggests that the existence of individual issues of causation automatically bars class certification under Rule 23(b)(3). That overstates the case. Although "[p]roximate cause ... is necessarily an individual issue," we have explained that "the need for individual proof alone does not necessarily preclude class certification." Pella Corp., 606 F.3d at 394 ; see Suchanek v. Sturm Foods, Inc., 764 F.3d 750, 759 (7th Cir.2014) (concluding that district court committed "error of law" by denying class certification where district court's reason for denial was that "[t]he problem with the proposed class here is that showing reliance or causation—as required to establish liability—requires an investigation of each purchaser" (internal quotation marks omitted)); see also Bell v. PNC Bank, Nat'l Ass'n, 800 F.3d 360, 381 (7th Cir.2015) ("[O]ur cases demonstrate that commonality as to every issue is not required for class certification."); Mullins v. Direct Digital, LLC, 795 F.3d 654, 671 (7th Cir.2015) ("It has long been recognized that the need for individual damages determinations at [a] later stage of the litigation does not itself justify the denial of certification."); Arreola v. Godinez, 546 F.3d 788, 801 (7th Cir.2008) ( "[T]he need for individual damages determinations does not, in and of itself, require denial of [a] motion for certification.").

It is well established that, if a case requires determinations of individual issues of causation and damages, a court may "bifurcate the case into a liability phase and a damages phase." Mullins, 795 F.3d at 671 ; see Butler v. Sears, Roebuck & Co., 727 F.3d 796, 800 (7th Cir.2013) ("[A] class action limited to determining liability on a class-wide basis, with separate hearings to determine—if liability is established—the damages of individual class members, or homogeneous groups of class members, is permitted by Rule 23(c)(4) and will often be the sensible way to proceed."), cert. denied, ––– U.S. ––––, 134 S.Ct. 1277, 188 L.Ed.2d 298 (2014).

Another reason to reject the district court's analysis is that it is internally inconsistent. The court stated that the amount of each class member's actual damages is "capable of ministerial determination" yet that the question of causation is not. But a plaintiff must prove causation to establish actual damages. See Crabill v. Trans Union, L.L.C., 259 F.3d 662, 664 (7th Cir.2001) (explaining that, under Fair Credit Reporting Act, "a plaintiff cannot obtain an award of...