Lau v. Arrow Financial Servs., LLC

Citations: 245 F.R.D. 620; 2007 U.S. Dist. LEXIS 73136; 2007 WL 2840390Docket: No. 06 C 3141

Court: District Court, N.D. Illinois; September 28, 2007; Federal District Court

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Plaintiff Thomas H. Lau filed a lawsuit against Arrow Financial Services, LLC, alleging violations of the Fair Debt Collection Practices Act (FDCPA), specifically 15 U.S.C. § 1692, et seq. Arrow objected to Magistrate Judge Ashman's Report and Recommendation (R.R.) to certify Lau's class and subclass motions. The Court fully adopted the R.R. and granted the motion for certification.

Lau had previously filed for bankruptcy in 1993, resulting in the discharge of his debts, including one to Parisian, a retailer. In 2006, Arrow purchased a portfolio of delinquent accounts from Parisian and, despite employing Lexis-Nexis/Banko to identify uncollectible accounts, failed to recognize Lau's account as uncollectible due to its bankruptcy status, as the search only covered the past ten years.

Arrow sent Lau a collection letter demanding payment for the discharged debt, which included a statement about the purchase of the account and a notice regarding disputing the debt. After Lau disputed the debt with Arrow, he was asked to provide proof of his bankruptcy. Lau claims Arrow violated FDCPA sections 1692(e) and (g) by attempting to collect a non-existent debt, using misleading language in the collection letter, and demanding proof of bankruptcy.

Lau seeks to certify a class of individuals from whom Arrow attempted to collect similar debts discharged in bankruptcy since June 8, 2005, along with a subclass of those who notified Arrow of their bankruptcy discharge within the validation period and were also asked for proof of bankruptcy.

The Court is tasked with a de novo review of the portions of the Report and Recommendation (R. R.) to which Arrow objects, as stipulated by 28 U.S.C. 636(b)(1). It has the authority to accept, reject, or modify the R. R., as well as to gather additional evidence or return the matter to the magistrate judge with directives. To certify a class, the Court must ensure that the plaintiff meets the four requirements of Rule 23(a): numerosity, commonality, typicality, and adequacy of representation. Additionally, the plaintiff must satisfy one of the conditions of Rule 23(b), specifically that common questions of law or fact dominate over individual issues and that a class action is a superior method for resolving the dispute.

Arrow contends that Magistrate Judge Ashman improperly granted the plaintiffs' class certification motion due to several reasons: the lack of necessary factual inquiry for certification, inability to objectively identify class members, insufficient evidence of numerosity, atypical claims of the plaintiff compared to the class, and failure to show that common issues predominate over individual ones. The Court will examine each of these objections.

Arrow's first point critiques the Magistrate Judge for not conducting the factual investigation required by the Seventh Circuit in Szabo v. Bridgeport Machs. Inc., which necessitates judges to undertake factual and legal inquiries under Rule 23 before allowing a case to proceed as a class action. The Szabo decision also indicated the need for a preliminary inquiry into the merits if some considerations under Rule 23(b)(3) overlap with the substantive issues. However, subsequent rulings in this district have interpreted this preliminary inquiry as limited, focusing on the procedural suitability for class treatment rather than the merits of the claims.

The class definition must meet two conditions: it must be identifiable, and the named representative must be included within the proposed class. Arrow argues that the proposed class fails to satisfy these requirements, claiming the class members cannot be readily identified and that subclass criteria are subjective. The Court rejects these arguments.

Plaintiff is not required to identify each class member for class certification, but the proposed class must be sufficiently defined to establish its existence. An identifiable class can be determined through objective criteria, while definitions relying on subjective criteria, such as class members' state of mind, will not qualify for certification. Arrow argues that the class definition is inadequate due to the administrative burden of identifying members whose debts were discharged in bankruptcy; however, this does not render the definition insufficient, as courts have previously certified classes requiring record investigations. The Court concludes that the proposed class can be defined without delving into the merits of individual claims, relying instead on two objective criteria: receipt of a debt collection letter and confirmation of bankruptcy discharge.

The subclass definition is also deemed sufficient, based on two criteria: contesting the debt within thirty days and receiving a demand for proof of bankruptcy from Arrow. Although Arrow claims it cannot objectively determine which members received such demands, it admits that its collectors requested bankruptcy-related information from debtors. Additionally, Arrow's representative confirmed a policy for collectors to ask for proof from debtors asserting their debts were discharged, undermining Arrow's objection.

Regarding numerosity, plaintiffs do not need to specify the exact number of class members, but must demonstrate that joinder is impractical rather than speculative. Courts can make reasonable inferences to satisfy this requirement, but some evidence of the class's existence must be provided; mere speculation is inadequate.

The Court evaluates the impracticality of joinder based on factors such as class size, geographic distribution of members, and the potential need for relitigation of common issues, referencing Gomez and Ringswald. A class typically requires more than 40 members to satisfy numerosity under Rule 23. Despite Arrow's arguments that its records do not clarify whether Parisian account holders had their debts discharged, the plaintiff demonstrated that seventy individuals met the class criteria through an analysis of public bankruptcy records. Consequently, Magistrate Judge Ashman supported the conclusion that numerosity is satisfied.

Regarding the subclass, Arrow contended that the identified twenty-six members were insufficient. However, the Court noted that Arrow's records indicated repeated requests for bankruptcy proof, countering Arrow's claims. Moreover, precedent exists for certifying classes of similar sizes, as seen in Riordan and Allen. Therefore, both the class and subclass meet the numerosity requirement.

For typicality, claims must arise from the same events or practices, and while factual distinctions may exist, as long as the claims share essential characteristics, typicality is established. The plaintiffs’ claims stem from alleged violations of the FDCPA, which aligns with the claims of class members. Arrow’s assertion that the experiences of debtors were too varied to establish typicality was dismissed, as the underlying legal theory remains consistent across claims.

Differences in the language used by Arrow’s debt collectors do not undermine the typicality of the claims presented by the plaintiff, as established by Arrow's account notes. These records indicate that collectors were consistently requesting proof of debt discharge from consumers, which maintains a common legal and factual basis among class members. The court distinguishes this case from Payton v. County of Carroll, where individual circumstances varied significantly, leading to a denial of class certification. Here, the key issues revolve around whether Arrow improperly attempted to collect debts and demanded bankruptcy proof, which do not rely on individualized factors. 

Judge Ashman’s findings indicate that common questions predominate over individual ones, satisfying the predominance requirement for class certification. The evidence needed is objective and class-wide, involving whether members received specific communications from Arrow. Arrow's argument that individual testimony is necessary to establish claims is countered by the court's reference to legal standards that deem unpublished orders non-precedential. Consequently, the court fully adopts Judge Ashman’s recommendations and grants the plaintiffs' amended motion to certify the class and subclass, noting that 358 individuals meet the class definition as identified by Arrow.