Last week, I wrote extensively about a proposed bill that would limit Minnesotans’ ability to bring class action lawsuits against business that commit consumer fraud. Apparently, that bill is not enough for some anti-consumer forces because two other bills have been introduced that will also negatively impact consumer rights here in Minnesota.
The first bill seeks to shorten the statute of limitations for restraint of trade violations, which includes things like price fixing, collusion, market allocation, and discriminatory business practices. The statute of limitations, of course, is the time limit to bring a lawsuit for a violation of the law. Currently, the statute of limitations for restraint of trade violations is four years. The new bill would shorten this time period to two years. The obvious effect of this bill would be to significantly limit the liability of businesses that commit restraint of trade violations.
The bill also proposes to reduce the statute of limitations for other types of cases–such as breach of contract claims–from six years to four years. You could make an argument that this second provision could potentially benefit consumers because most debt collection lawsuits are brought under a breach of contract theory. This may have been true a few years ago when debt buyers often waited five or six years–while interest continued to accrue at outrageous rates–to bring a collection lawsuit. This tactic artificially inflated the balances that consumers were being sued for. But since the recession, creditors have been bringing lawsuits much faster in an effort to get bad debt off of their books. Because of this change in debt buyers’ litigation strategy, any benefit of shortening the statute of limitations for debt collection claims is greatly outweighed by the negative consumer impact that shortening the statute of limitations in restraint of trade cases will have.
The second anti-consumer bill making the rounds at the Capitol seeks to limit attorney fees in cases where the consumer’s damages are relatively small. In other words, it will limit the attorney fees in virtually every individual consumer rights claim. The bill will force judges to consider the amount of the damages award when determining the reasonableness of the attorney fees being sought. Some quick background: most consumer law statutes provide for a very small amount of statutory damages. For example, the Fair Debt Collection Practices Act mandates statutory damages of no more than $1,000, no matter how egregious the violation. No lawyer is going to bring a lawsuit to recover a mere $1,000. The resulting lack of private enforcement would only encourage debt collectors to violate the law. When it enacted the FDCPA–and other similar consumer protection laws–Congress recognized this problem. To fix it, Congress included a provision in the FDCPA that requires a defendant that loses the case to pay for the consumer’s attorney fees. This allows consumer attorneys to be paid a reasonable fee for litigating a complicated case, which encourages more attorneys to handle cases where consumers’ rights have been violated. And remember, only a losing defendant has to pay–the fee-shifting provision kicks in only in cases that the consumer wins.
The new bill changes this dynamic. If the bill is passed, attorney fee awards in consumer law cases would likely be significantly reduced because of the small damage awards provided by most consumer law statutes. Some may argue that this makes sense. After all, why should an attorney make $10,000 in fees if his consumer client only gets $1,000 in damages. But here’s the problem with this argument: both parties control the amount of attorney fees spent in a case. A defendant being sued under a consumer statute with a fee-shifting provision knows at the outset that engaging in scorched-earth litigation could potentially increase its liability. I’ve been involved in cases where the defendant refused to concede even the most obvious issue and ignored my suggestions aimed at keeping everyone’s fees and costs lower. Certainly defendants have the right to mount any defense that they choose, but it’s wrong to blame consumers alone for attorney fee awards that are much greater than the damage awards. And then there’s this: defense attorneys get paid their entire fee, even when they lose the case. Why should consumer attorneys have their fees limited when they win the case?
These two proposals, in addition to the proposal to limit consumer fraud class actions, appear to be part of a concerted effort to eviscerate consumer protections in Minnesota and give businesses free reign to run roughshod over consumers. Taken as a whole, the bills will severely limit dishonest businesses’ financial liability by limiting class action lawsuits. They will shorten the time period to bring certain types of consumer claims, significantly limiting businesses’ exposure to liability. Perhaps most importantly, by tying attorney fee awards to damages, the proposed legislation will give consumer attorneys three choices: (1) bring the lawsuit, but litigate it half-ass in anticipation of a low attorney fee award; (2) take the case, litigate it properly, and get hosed on attorney fees; or (3) not take the case at all.
The proponents of these bills will undoubtedly argue that they’re designed to create a more business-friendly environment in Minnesota and create jobs. Like all Minnesotans, I’m in favor of a business climate that creates jobs. But I refuse to believe that only way for existing Minnesota businesses to increase revenue and add employees is to limit consumer protections so that businesses have a green light to engage in fraudulent business practices. I also have a hard time believing that businesses are leaving Minnesota in droves–or choosing not to set-up here in the first place–because our consumer protection laws are too draconian. So I can’t really imagine how eviscerating consumer protections will create new jobs. Forgive me for being cynical, but I think the point of this anti-consumer crusade is to fatten businesses’ bottom lines, not create jobs for unemployed Minnesotans. I’m assuming that the pro-business Republicans that control the Minnesota legislature will eventually pass these proposed bills in some form. I just hope Governor Dayton will keep Minnesota’s common-sense consumer protection laws strong and veto the anti-consumer bills.
Yesterday, Minnesota Attorney General Lori Swanson sued Midland Funding, one of the nation’s largest debt-buyers, over robo-signed affidavits. Here’s more from the press release:
The Attorney General alleges that Midland aggressively filed thousands of lawsuits against individual citizens for collection of old, purchased debt, often supporting those lawsuits with “robo-signed” affidavits generated at its St. Cloud offices. Midland filed the robo-signed affidavits in state courts in Minnesota and around the country to obtain judgments against individual citizens.
“Robo-signing” is the practice of signing off on mass-produced, computer-generated legal documents without reading them or verifying the accuracy of the contents in order to speed up the collection process. In recent months, the mortgage industry has come under intense national scrutiny for supporting mortgage foreclosures in court with “robo-signed” affidavits. Like the mortgage industry, some debt buyers, including Midland, have used false, robo-signed affidavits to support their debt collections lawsuits.
Although robo-signing is widespread in the debt collection business, all of the attention until now has been focused on mortgage lenders’ use of the practice. It will be interesting to see whether Midland capitulates early or whether they engage Swanson’s office in lengthy and drawn-out litigation.
Press Release | Office of the Minnesota Attorney General | March 28, 2011
A bill was recently introduced in the Minnesota Legislature that seeks to make it more difficult for consumers to bring class action lawsuits against companies that engage in deceptive practices and fraud. A class action, of course, is a way for individual consumers to join together to fight back against wrongdoing by large corporations. Most individual consumer fraud claims involve a very small amount of damages, often only hundreds of dollars, if that. Very few people will take the trouble to bring a lawsuit over such a small amount of money and even fewer lawyers would be willing to handle such a case. But in a class action lawsuit, all of the consumers affected by the corporation’s illegal conduct can band together as a class and sue the corporation collectively. So say there’s 1,000 people in the class, and each class member has damages of $100. Well, the potential damages in that case could be up to a million dollars. Because of the potential for significant damages, a class action lawsuit can serve as a important deterrent against widespread wrongdoing.
The proposed bill, as it’s currently worded, makes three significant changes to existing Minnesota law. First, each individual member of the class action must prove that she relied on the deceptive act in buying the product or service. Second, the bill limits damages only to “out-of-pocket” losses, which are defined as the difference between the amount the consumer paid for the product and the amount it’s actually worth. Finally, the bill allows the defendant to appeal a court’s decision to certify the class, which will stop the case indefinitely while the appeal plays out.
At first glance, these changes may seem insignificant, or even commonsensical. But consider this hypothetical: a local Minnesota clothing company introduces a new winter coat. Despite being the warmest and most stylish winter coat on the market, initial sales are sluggish. So the company comes up with a brilliant new marketing strategy: they’ll put a tag on each coat that says “Made in Minnesota.” They don’t make any other changes to the coat. The price is exactly the same, it’s carried in the exact sames stores and catalogs, it’s advertised the same way, etc. The only thing different is the “Made in Minnesota” tag. Since we Minnesotans tend to be pretty provincial, sales go through the roof. Hundreds of thousands of Minnesotans rush out to buy the coat, proud to support a Minnesota company that, in the age of globalization, makes its products here in Minnesota. But what the company doesn’t tell people is that the coat isn’t really made in Minnesota, it’s made in China. A few people find out about this and are justifiably pissed off. So they hire a lawyer and start a class action lawsuit against company for consumer fraud on behalf of all the Minnesotans who bought the coat because of company’s misrepresentation.
Under existing Minnesota law, the class members would have to prove that they relied on the coat company’s misrepresentation when they purchased the coat. How would they do this? They may be able to offer a market study of the sales of the coat before the “Made in Minnesota” tag was added and sales of it after. The study would show that the spike in sales occurred right after the tag was added to the coat and that, other than falsely representing that the coat was made in Minnesota, the product didn’t change in any way (obviously, I’m simplifying this a bit, but you get the point). A reasonable jury could very well find that this evidence showed that the consumers that purchased the coat after the tag was added only did so because of the false tag. In fact, this is how many consumer class actions work. The class proves reliance through some form of evidence other than requiring each individual class member to prove that they relied on the misrepresentation.
But the bill working its way through the Legislature seeks to change this standard. The bill would require that each individual class member has to prove that they relied on the misrepresentation or the suit couldn’t go forward. In a large class action, like the one in my hypothetical, it would be extremely unwieldy–and probably impossible–to prove each of the hundreds of thousands of individuals in the class relied on the misrepresentation.
And even if the suit could go forward, the defendant corporation would be able to stall the lawsuit for a long time by filing an appeal of the court’s decision to grant the consumers class status. Under the bill, an interlocutory appeal stops the litigation while the appeal process plays out, which could be several years. And even if the class stuck together during this potentially lengthy delay and won at trial, the consumers in my hypothetical wouldn’t be entitled to any damages. Remember, as the bill is worded, damages can only be recovered if the consumers prove that the they paid more for the product than it was actually worth. In my hypothetical, there probably isn’t any difference between what the coat is worth with the “Made in Minnesota” tag and without the tag. Other than the tag, it’s the exact same product. But the existence of the tag unjustly inflated the coat company’s profits because its blatantly false “Made in Minnesota” claim induced hundreds of thousands of Minnesotans to buy it. But instead of having to answer financially for their unethical marketing ploy, under the new bill the coat company would get off scot-free.
So while the proposed bill is seemingly innocuous, it basically neuters any ability to bring a class action for consumer fraud. First, it makes it extremely difficult to prove that the class relied on the misrepresentation. And even if the class can clear this first hurdle, the bill makes it very difficult to obtain meaningful damages. It’s the “heads I win, tails you lose” approach. Nothing is left to chance. It’s not enough that big businesses have unrivaled wealth and political power, they also have to rig one of the only things–consumer class actions–that holds them accountable for wrongdoing. It’s like the New York Yankees playing a Little League team. Only the Yankees also set up the rules so that they can’t lose.
In its current form, the bill essentially gives businesses a license to lie to and cheat Minnesota consumers. It’s possible (hey, anything’s possible) that the proposed bill is just poorly-considered and that the harmful consumer consequences are lost on its sponsors. But I suspect that the people behind this bill know exactly what they’re doing.
Why debt collectors are wrong to label FDCPA law firms as “lawsuit mills”
March 10, 2011 by Todd Murray · Leave a Comment
There’s a fairly well-known passage in The Adventures of Huckleberry Finn where Huck, after patiently enduring the Widow Douglas’ attempts to “sivilize” him by reading him passages from the Bible, asks the Widow if he can take break to smoke a cigarette. The Widow refuses, scolding Huck that smoking is a mean, nasty habit. Huck immediately points out the obvious hypocrisy in the Widow’s disapproval of cigarettes, noting that the Widow “took snuff, too; of course that was all right, because she done it herself.”
For the last few years, debt collectors have engaged in a relentless public relations campaign against consumer lawyers that far exceeds the hypocrisy in the Widow’s admonition to Huck. A recent example is a Denver Post article that bemoans the rise in Fair Debt Collection Practices lawsuits. The article alleges that the FDCPA has “morphed into little more than fodder for lawsuit mills cranking out hundreds of cases yearly–thousands nationally–enriching the lawyers filing them and minimally helping the consumers for whom the laws were written.” What I find most interesting about this argument, which is often repeated by debt collectors and their allies, is that debt collectors themselves file hundreds of thousands of collection lawsuits each year.
In my former life as a debt collection attorney, for example, my medium-sized collection firm alone issued between 500 and 1,000 collection lawsuits per month. A 2008 Minneapolis Star Tribune article revealed that debt collectors filed approximately 51,000 lawsuits in 2008 (up from 36,000 in 2007), and that was just in Minnesota. Consumer bankruptcy attorney Jay Fleischman notes that in New York, debt buyers “filed over 450,000 lawsuits–in New York City alone–between January 2006 and July 2008. That’s about 300,000 such cases brought each year in a single metropolitan area.” Yet debt collectors are accusing FDCPA lawyers, who file a couple thousand lawsuits a year, of being overly litigious. That’s like Jenna Jameson calling a girl who just lost her virginity a slut.
Now, I know what some of you are thinking: despite her own tobacco use, wasn’t the Widow Douglas right to warn Huck Finn about cigarettes? And isn’t it also possible that, despite their appalling hypocrisy, debt collectors are right about these “mill” consumer law firms lining their pockets by churning out frivolous FDCPA lawsuits? Possibly, but I doubt it.
First, all of the FDCPA attorneys that I know work in either solo or very small firms, which, of course, is the complete opposite of a “mill.” Second, I can tell you from experience that being a FDCPA lawyer is hardly lucrative; certainly not as lucrative as, say, defending large debt collectors. And I screen each of my potential FDCPA cases very carefully. If I get the impression that my potential client is not telling the truth or that they set up or provoked the debt collector, I won’t take the case. And since I, like just about every other FDCPA lawyer, take FDCPA cases on a contingency fee, I’m only interested in cases where there is strong, if not airtight, evidence of a violation. I’m not interested in risking my own money or time to pursue a case where liability will be difficult to prove. Every FDCPA lawyer that I’ve met is just as cautious. So I have a really hard time believing that there’s an army of unscrupulous consumer lawyers out there harassing innocent debt collectors with waves of frivolous FDCPA lawsuits.
The much more logical explanation for the supposed increase in FDCPA lawsuits is that debt collectors are resorting to more aggressive–and illegal–tactics as they pursue debtors with less money to pay due to the poor economy. The Denver Post article quotes Charity Olson, an attorney that defends debt collectors in FDCPA cases, who argues that “I can call 10 collectors right now and I can get a dialogue in all of them that would have a basis for a suit.” Ms. Olson apparently meant this as an indictment of consumers and consumer lawyers. But really, what does it say about the debt collectors that she represents that virtually every conversation with a debt collector will result in an FDCPA violation? Debt collectors and their allies love to lecture debtors about taking “personal responsibility” for paying their debts. Maybe instead of hypocritically blaming consumers and consumer lawyers for the increased FDCPA litigation, they should follow their own advice and clean up their act.
Consumers dealing with debt collectors become stuck in a vicious cycle of lawsuits | Denver Post | February 27, 2011
Consumer Financial Protection Agency launches new website
February 8, 2011 by Todd Murray · Leave a Comment
The much-debated Consumer Financial Protection Agency recently launched its new website. The site, which is unlike any other government website that I’ve seen, seems to be incredibly user-friendly and packed with a lot of good information and tips. The website also has all of the social media bells and whistles, including a blog and links to the Agency’s presence on all of the commonly used social networks. Consumers can even send their thoughts, questions, or concerns to the CFPA by sending a message through Twitter or uploading a YouTube video. Check it out here: