Decision in Spuhler v. State Collection Service Inc. is a prime example, in concert with several other very recent 7th Circuit opinions issued in the last few weeks, that it isn’t just the theoretical perspective of the “unsophisticated consumer” that matters when evaluating a FDCPA claim. Editor’s note: This article is available for members only.
12/22/2020 17:00
By Patrick Newman
If a tree falls in the woods, but no one is around to hear it, does it make a sound? Philosophers might ponder the metaphysical implications of the question. A lawyerly philosopher might even utter the vexing and oft maligned, “it depends.”
Unfortunately, Fair Debt Collection Practices Act litigation—particularly letter challenges—can feel like a philosophical thought experiment, untethered from reality with unclear standards and inconsistent rulings.
Fortunately, several courts are beginning to take a less abstract and more pragmatic approach to deciding these claims. The 7th Circuit Court of Appeals’ recent decision in Spuhler v. State Collection Service Inc. is a prime example.
The Spuhler court considered the following FDCPA “thought experiment:” if a consumer challenges a collection letter because it does not specifically state whether interest is accruing on the debt, but (as the court put it), the consumer fails to present any “evidence that the absence of a statement about interest had any effect on how the [consumer] responded to the letter or managed their debts,” does the consumer have standing to sue under Article III of the U.S. Constitution?
Unlike the Spuhlers’ philosophical lawyers, the 7th Circuit unequivocally answered “no.”
The Spuhler consumers alleged three claims regarding the challenged letter:
(1) The letter attempted to collect interest allegedly not allowed under Wisconsin law;
(2) The letter failed to “break out” principal from interest; and
(3) The letter failed to communicate the “amount of the debt” because it did not explicitly inform the consumer that interest was accruing.
The district court, relying on existing 7th Circuit precedent, easily disposed of the first two claims on State Collection’s motion for summary judgment. On the remaining claim, the district court concluded that a jury must decide whether it was deceptive or misleading not to include an interest statement in the letter, and thus denied summary judgment on that issue.
The district court then certified a class after ruling that the Spuhlers did in fact have standing, notwithstanding State Collection’s challenges to class certification as well as to the merits of the consumers’ claims given the consumers lacked any actual injury.
Because the district court had not properly analyzed the interest statement claim, State Collection brought a motion for reconsideration of the summary judgment motion. The district court granted the motion to reconsider, but the Spuhler saga then took an odd twist. In reconsidering the motion, the court took it upon itself to grant judgment sua sponte (i.e., of the court’s own volition, without a request from the consumers) to the Spuhlers, even though they never brought a motion for summary judgment (and in fact had insisted that a trial was necessary in opposing State Collection’s motions for summary judgment and for reconsideration).
Next, and despite failing to enter an award of damages for the Spuhlers or the class, the district court described its judgment on reconsideration as “final.” This “finality” designation then compelled State Collection to take an immediate appeal. Based on this very odd district court record, the 7th Circuit understandably determined that the judgment was far from “final” and dismissed the appeal.
Back in the district court, the Spuhlers moved for attorneys’ fees of more than $200,000. Based on State Collection’s opposition, the district court reduced the attorneys’ fees award by nearly two-thirds to a more “modest” five-figure sum.
But the case was still far from over. After the parties addressed the damages issue and judgment was once again entered, State Collection renewed its challenge (1) to the Spuhlers’ standing, (2) the merits of the interest statement claim, and (3) the district court’s certification of a class, all through a second appeal to the 7th Circuit.
This time the 7th Circuit zeroed in on standing. Standing is what the courts call a “threshold issue.” Without standing, a litigant is precluded from having the merits (or lack thereof) of their alleged claim considered by the court. In other words, if the plaintiff lacks standing, all other issues in the case are irrelevant. Accordingly, federal courts decide the standing issue first to determine if the court has jurisdiction to address the merits.
The 7th Circuit reviewed the well-developed record (including thorough depositions, the complaint allegations themselves, and statements by the consumers’ counsel during oral argument) and concluded that the Spuhlers had failed to present any evidence of an actual injury based on the alleged lack of an interest statement in the challenged letter.
For example, the appellate court noted that Kyle Spuhler admitted he had never seen the challenged letter prior to his deposition. And while Nichole Spuhler had seen the letter, she never sought any information from State Collection about interest. As the 7th Circuit put it, “[t]he Spuhlers presented no evidence, for example, that they paid a different, lower-interest-rate debt thinking that the debts mentioned in the letter would not accrue interest at all. Nor did they present evidence that they took action to clarify any confusion over whether the debts were accruing interest.”
Without evidence of an actual injury beyond the claimed statutory infraction, the Spuhlers lacked standing. Therefore, the 7th Circuit vacated the district court’s judgment with instructions to dismiss the case.
The Spuhler decision, in concert with several other very recent 7th Circuit opinions issued in the last few weeks, underscores that it isn’t just the theoretical perspective of the “unsophisticated consumer” that matters when evaluating a FDCPA claim. Instead, even if the unsophisticated consumer might be “misled” or “deceived” by a challenged letter, the actual plaintiff must plead—and prove—an actual injury-in-fact, beyond the claimed statutory infraction.
We are thankful more and more courts are insisting that the claimed injury be based in reality and mere claim of “confusion” just won’t cut it anymore. This is welcome news to an industry beset by abstract, philosophical claims conjured up by consumer lawyers with little regard to whether the plaintiff was actually harmed.
Newman is a shareholder with Bassford Remele in Minneapolis.