Plaintiff Case Analysis

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Even though the plaintiff prevailed on the appeal, the decision is a mixed bag, providing both favorable and unfavorable precedent to both plaintiffs and defendants.

For plaintiffs, the court did not merely reject the district court’s conclusion that a plaintiff’s status as a "professional plaintiff" renders her unfit to represent a class, the court recognized that such status could be a plus.

The court wrote, "What the district judge did not explain, though, is why ‘professional’ is a dirty word. It implies experience, if not expertise. The district judge did not cite a single decision supporting the proposition that someone whose rights have been violated by 50 different persons may sue only a subset of the offenders. Neither does GMACM."

Thus, should a plaintiff’s attorney develop a novel theory about why a common practice of creditors may violate the FCRA, counsel need not worry that a case may be dismissed merely because the attorney only represents one plaintiff who files lots of lawsuits (apparently, Murray, her husband, and their four adult children are the named plaintiffs in more than 50 lawsuits under the FCRA filed by the same firm).

As the court noted, this would not work in securities litigation, where the plaintiff with the biggest stake controls the litigation. Nor would any such rule be sensible in FCRA litigation. Damages are nominal for all those in the class; what few plaintiffs suffer actual damages would be far better served by opting out of the class litigation anyway.

In addition, had the court not denounced the district court’s second reason for denying certification — the absence of a claim for compensatory damages — class litigation under the FCRA would be impossible.

GMACM also advanced another theory which, had the court accepted it, would have operated as a bar to any class litigation under the FCRA.

One of the issues in this case was whether GMACM used credit information to make a "firm offer of credit" — defined in the FCRA as "any offer of credit or insurance to a consumer that will be honored if the consumer is determined, based on information in a [credit] report on the consumer, to meet the specific criteria used to select the consumer for the offer." 15 U.S.C. 1681a(l).

GMACM maintained that the issue of whether a "firm offer of credit" has been made must be viewed from the prospective of each recipient, rather than from that of the creditor.

Rejecting this interpretation, the court wrote, "In order to avoid class certification, GMACM has adopted a position that would make it impossible for any potential lender to know ex ante whether it is entitled to obtain credit information. Any recipient could appear, assert that the offer was worthless given his financial circumstances, and obtain damages if not an injunction. Such a rule would cripple the statutory regime by making offers of credit so risky that any prudent, law-abiding firm would have to withdraw from the business."

Thus, the court’s decision ensures that class action litigation under the FCRA is feasible.

However, the decision also makes it difficult to obtain a settlement.

In order for any settlement to pass muster under the court’s standard, it may be prohibitively high for any reasonable defendant to agree to it.

GMACM was willing to pay $950,000 to settle what the trial court at least considered a "technical" violation of the law — almost twice the $500,000 maximum damages that could be awarded in a class action based on the Fair Debt Collection Practices Act or the Truth in Lending Act.

Even this amount, however, would haven given the members of the class other than Murray less than 1 percent of the minimum statutory damages of $100.

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For a settlement to provide each class member even the minimum statutory damages would require a settlement of $120 million.

Admittedly, the court stated that a settlement under the FCRA need not provide each class member the minimum: "risk that the class will lose should the suit go to judgment on the merits justifies a compromise that affords a lower award with certainty," citing In re Mexico Money Transfer Litigation, 267 F.3d 743 (7th Cir. 2001).

The court added, "But if the reason other class members get relief worth about 1% of the minimum statutory award is that the suit has only a 1% chance of success, … shouldn’t the suit be dismissed as frivolous and no one receive a penny? If, however, the chance of success is materially greater than 1%, as the proposed payment to Murray implies, then the failure to afford effectual relief to any other class member make the deal look like a sellout."

Even if the defendant were to double its offer, the court would assume that the suit has only a 2 percent chance of success, which presumably would still suggest that the suit is frivolous.

Thus, it may well turn out that, in class litigation under the FCRA, any settlement is invariably either: (1) ruinously high for the defendant to agree to pay; or (2) a "sellout" of the other class members. If the objective in bringing such a suit is a lucrative settlement, rather than judgment on the merits, the decision may be more damaging than helpful.

– David Ziemer

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David Ziemer can be reached by email.