'Professional plaintiff' fit to represent class

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The fact that a plaintiff has repeatedly been the named plaintiff in class actions is not grounds to hold that she is unfit to serve as the named plaintiff and class representative, the Seventh Circuit held on Jan. 17.

Shortly after her debts had been discharged in bankruptcy, Nancy Murray received a credit solicitation from GMAC Mortgage (GMACM), which had learned her name and address by asking credit bureaus to forward information about potential borrowers who met specified criteria.

GMACM offered Murray a loan to be secured by a mortgage on her home. Deluged by offers from creditors, Murray showed them to a lawyer, who concluded that GMACM had violated the Fair Credit Reporting Act (FCRA) in two ways: GMACM had not made the "firm offer of credit" that is essential when a potential lender accesses someone’s credit history without that person’s consent; and GMACM’s offer did not include a "clear and conspicuous" notice of the recipient’s right to close her credit information to all who lacked her prior consent.

Murray filed suit in Illinois federal court, proposing to represent a class of about 1.2 million recipients of similar offers from GMACM and demanding statutory damages, which range from $100 to $1,000 per person. She also filed similar suits against other lenders, represented by the same attorneys.

While waiting for the judge to decide whether the suit could proceed as a class action, the parties reached a tentative settlement. However, the district judge refused to read it, stating that this would be a waste of time because he had decided that Murray could not represent the class.

The district court gave four reasons for declining to certify the class: (1) counsel did not try to cut a deal for Murray personally; (2) the complaint seeks statutory but not compensatory damages; (3) statutory damages, if awarded to a class, would be ruinously high; and (4) Murray is a "professional plaintiff" unfit to represent a class.

The Seventh Circuit accepted interlocutory appeal and reversed, in an opinion by Judge Frank H. Easterbrook.

Explaining the first reason for denying class certification, the district court had written, "Murray’s interests are antagonistic to other class members’ interests because Murray may desire to settle her claim alone. Murray might be able to recover more funds individually with fewer complications if she settled individually."

However, the Seventh Circuit found that just the opposite was true. Under the tentative settlement, GMACM agreed to put up a fund of $950,000: Murray would get the first $3,000; the remaining class members (1.2 million) and counsel would divide the rest. Money not claimed would be distributed to Murray’s lawyers and to charity.

The Seventh Circuit found the settlement inequitable, because it gave Murray three times the statutory maximum of $1,000, while the others don’t even get 1 percent of the $100 minimum. Contradicting the district court’s stated reason for denying certification; the Seventh Circuit noted, "Oddly, this is the sort of tactic that the district judge chastised counsel for not employing on Murray’s behalf."

The court added, "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, then how could Murray personally accept 300% of the statutory maximum? And, if the chance of success really is only 1%, 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 makes the deal look like a sellout. Thus it may well be that Murray is not a good champion, that her law firm (Edelman, Combs, Latturner & Goodwin, LLC) is not an appropriate counsel, or both. But this is the opposite of the district judge’s reason (recall that the judge wanted Murray to jettison the class for personal benefit), so this consideration cannot sustain the decision."

The court also rejected the district court’s second reason — that Murray should have sought compensatory damages for herself a
nd all class members rather than statutory damages — finding that such reasoning "would make consumer class actions impossible."

The court found, "an effort to determine a million consumers’ individual losses would make the suit unmanageable. Yet individual losses, if any, are likely to be small — a modest concern about privacy, a slight chance that information would leak out and lead to identity theft. That actual loss is small and hard to quantify is why statutes such as the Fair Credit Reporting Act provide for modest damages without proof of injury."

The court concluded, "Refusing to certify a class because the plaintiff decides not to make the sort of person-specific arguments that render class treatment infeasible would throw away the benefits of consolidated treatment."

The court also rejected the district court’s third reason — that statutory damages, if awarded, would be ruinously high for GMACM.

The court concluded, "The reason that damages can be substantial, however, does not lie in an ‘abuse’ of Rule 23; it lies in the legislative decision to authorize awards as high as $1,000 per person, combined with GMACM’s decision to obtain the credit scores of more than a million persons (cite omitted)."

The court noted that the FCRA, unlike other consumer statutes, does not limit the aggregate award to any class.

The court wrote, "The district judge sought to curtail the aggregate damages for violations he deemed trivial. Yet it is not appropriate to use procedural devices to undermine laws of which a judge disapproves. Maybe suits such as this will lead Congress to amend the Fair Credit Reporting Act; maybe not. While a statute remains on the books, however, it must be enforced rather than subverted."

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The court acknowledged that an award could be unconstitutionally excessive, but found it better to apply constitutional limits after a class is certified, reasoning, "Reducing recoveries by forcing everyone to litigate independently — so that constitutional bounds are not tested, because the statute cannot be enforced by more than a handful of victims — has little to recommend it."

Finally, the court rejected the district court’s denial of class certification because it found Murray and the rest of her family to be "professional plaintiffs."

The court distinguished Murray from "professional plaintiffs" in the securities context — those who buy one share in many corporations, with the intent that, when one falls, the plaintiff can attempt to extract a payoff by filing a proposed class action.

The court noted that Congress has prevented this, in securities litigation, by insisting that the investors with the largest stakes control the litigation; the FCRA, however, lacks any such requirement.

Distinguishing Murray from the sort of plaintiffs that Congress sought to limit in the securities field, the court wrote, "Murray just opened the mail as it arrived. She did not invite any of the offers or entrap any potential creditor into accessing her credit history. Her decision to sue everyone who accessed that credit history without her consent, rather than just a few, does not injure any other potential borrower. Nothing about the frequency of Murray’s litigation implies that she is less suited to represent others than is a person who received and sued on but a single offer."

Accordingly, the court vacated the decision of the district court and remanded for further proceedings.

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David Ziemer can be reached by email.