The district court abused its discretion when it denied certification of a class of plaintiffs alleging FDCPA violations based on the mortgage servicer’s post-discharge collection efforts where the servicer’s defense that the Bankruptcy Code’s discharge injunction precluded the claim applied to all claims of the purported class members. Sellers v. Rushmore Loan Management Services, No. 15-1106 (11th Cir. Oct 29, 2019).
After the Sellerses moved out of their home and obtained a chapter 7 discharge, the mortgage servicer, Rushmore, continued to send them monthly statements listing an ever-increasing amount due on their mortgage. The Sellerses filed suit in the district court alleging that Rushmore’s continued collection efforts violated the FDCPA and the Florida Consumer Collection Practices Act (FCCPA) by falsely representing its right to collect the discharged debt. In addition, the Sellerses sought to certify a class of consumers subject to the same conduct. In its answer to the complaint, Rushmore argued against class certification and raised the affirmative defense that the claims were preempted/precluded by the Bankruptcy Code’s discharge injunction provision.
The district court declined to certify the class, finding that the issue of whether the Code preempted/precluded the purported class’s claims was a matter of individualized consideration. Its decision rested on the finding that the preclusive effect of the Bankruptcy Code was a function of the applicability of section 524(j), which permits a debt collector to collect payments in lieu of foreclosure from a debtor whose personal liability was discharged in bankruptcy but who continues to live on the property. The district court found that the issue of preclusion would affect only debtors to whom section 524(j) applied.
On appeal to the Eleventh Circuit, the Sellerses argued that the district court abused its discretion when it found that individual questions were predominate thereby precluding class certification under F.R.C.P. 23(b)(3). The circuit court noted that once the threshold standard of commonality of issues set forth in Rule 23(a)(2) is met, a plaintiff seeking class certification under Rule 23(b)(3) must meet the more demanding requirement of establishing that those common issue “predominate over any questions affecting only individual members.” Under this standard, “certification is inappropriate when after adjudication of the classwide issues, plaintiffs must still introduce a great deal of individualized proof or argue a number of individualized legal points to establish most or all of the elements of their individualized claims.”
The circuit court held that the district court erred when it found that the applicability or non-applicability of section 524(j) to individual class member claims precluded class certification. Turning to the allegations in the complaint and Rushmore’s defense to those allegations, the court reasoned that the plaintiff’s claim that Rushmore’s monthly statements constituted false or misleading representations as to the status of the debts applied to all members of the purported class. Likewise, Rushmore’s defense that the claims were subject to the Bankruptcy Code’s discharge injunction, was common to all the class plaintiffs. The court found that Rushmore’s distinction between debtors who remained in their homes and those who vacated their homes was a red herring for class certification purposes because the preclusive effect of the Code, if it existed at all, would exist for debtors without regard to whether they remained in their homes.
The court concluded that the “district court erred because the legal question of whether the Bankruptcy Code precludes or displaces any remedy available under the FDCPA and FCCPA for a claim that a creditor engaged in false or deceptive conduct by trying to collect a debt in violation of a discharge injunction is common to all class members.”
The court cautioned that in finding that the district court erred in denying class certification, it did not reach a conclusion as to whether the Bankruptcy Code in fact precluded the substantive claims under the FDCPA and FCCPA. It merely held that, contrary to the district court’s holding, resolution of that issue would apply to the class as whole.
Tags: Class Certification, FDCPA, Preemption
