The Supreme Court of Missouri recently held that a trial court abused its discretion by certifying an overly broad class with a class representative whose claims against the debt collector defendant were not typical of the class.
More specifically, the class definition was deemed overbroad because approximately 87 percent of the class members’ claims were either precluded by final deficiency judgments, or estopped by their failure to disclose the claims in bankruptcy, and the class representative failed to meet typicality requirements, because she did not suffer the same alleged injury as the class members.
A copy of the opinion in State ex rel. General Credit Acceptance Co. v. Honorable David L. Vincent III is available at: Link to Opinion.
A consumer defaulted on payments owed pursuant to an auto financing installment agreement that was assigned to a collection company.
The collector provided the consumer written notice of the default and instructions on how to cure it, but the consumer failed to do so, and voluntarily surrendered her vehicle to the collector. The collector mailed a presale notice to the consumer informing the consumer that her vehicle would be sold in compliance with the Missouri Uniform Commercial Code (UCC). The collector sold the vehicle and mailed the consumer a post-sale notice of her deficiency balance.
The consumer filed a putative class action lawsuit in Missouri circuit court, alleging that the collector violated statutory notice requirements relating to the repossession of collateral and collected unlawful interest following default and repossession of same, causing harm to the proposed class members’ credit, character, and general reputation.
The complaint sought statutory and actual damages, injunctions preventing the collector from collecting deficiency judgments against the class and compelling it to return any such collected money, and a declaration that the collector’s right to cure, pre-sale and post-sale notice forms (collectively, the “UCC Notices”) violate Missouri law.
Over the collector’s objections, the trial court certified two classes with the consumer as the sole class representative.
The first class included all named Missouri borrowers or buyers whose loan was owned by the collector and who had the possession of their collateral taken by the collector voluntarily or involuntarily, and the second class was comprised of “all persons from Class 1 who had the possession of their collateral taken by [the collector] involuntarily.”
The collector petitioned for permission to appeal the certification order, which was denied by the court of appeals. The collector then filed the underlying petition for writ of prohibition to the Supreme Court, arguing that the trial court abused its discretion by certifying the class because individual issues predominated.
A preliminary writ of prohibition was issued, and this opinion followed.
Initially, as to the claims concerning the sufficiency of the collector’s UCC Notices, the Missouri Supreme Court noted that the collector failed to establish that the trial court abused its discretion by concluding that common liability issues predominate, because the class claims are based upon interpretation of form contracts—the collector’s UCC Notices—and determination of whether they violated any statutory provisions, a “classic case for treatment as a class action.” McKeage v. TMBC, LLC, 847 F. 3d 992, 999 (8th Cir. 2017).
However, the Missouri Supreme Court declined to opine as to whether the issue of damages will be suitable for class treatment if a class is certified consistent with its opinion.
Next, the Missouri Supreme Court considered whether the certified class was overbroad and encompassed “more than a relatively small number of uninjured putative members.” State ex rel. Coca-Cola Co. v. Nixon, 249 S.W.3d 855, 861-62 (Mo. banc 2008).
Noting that the “nature and extent” of prior litigation involving individual class members is necessary to determine whether the Rule 52.08 class certification requirements are satisfied, the Court was tasked with considering the preclusive effect of class members’ prior deficiency judgments and bankruptcy proceedings.
First examining the effect of the prior deficiency judgments, the Missouri Supreme Court noted that although the class action suit was “not instituted for the express purpose of annulling the judgment,” its requested relief would serve to nullify and undermine the deficiency judgment previously entered against approximately 60 percent of class members, raising issues of res judicata and collateral estoppel.
Thus, because a portion of the relief sought in the putative class action suit was to nullify deficiency judgments in the collector’s favor, the Court concluded that those claims were precluded as impermissible collateral attacks on final deficiency judgments entered against them, and barred by res judicata. Flanary v. Rowlett, 612 S.W.2d 47, 50 (Mo. App. 1981) (declaratory judgment action constituted an impermissible collateral attack upon final decree of dissolution); Wright v. Bartimus Frickleton Robertson & Gorny PC, 364 S.W.3d 558, 564 (Mo. App. 2011) (Res judicata “includes within its ambit… a prohibition against collateral attack on a judgment.”).
Next, the Court turned to the effect of the approximately 27 percent of the class members whose debts owed to the collector were discharged in bankruptcy following repossession of their vehicles.
The Missouri Supreme Court’s statistical sampling indicated that few, if any, class members disclosed the claims they now assert against the collector in their schedule of assets filed with the bankruptcy court, as required under section 11 U.S.C. 521 of the Bankruptcy Code. Therefore, the Court held, those class members were estopped from asserting their claims against the collector in the class action. Strable at 422-423, 426.
In sum, because approximately 87 percent of the individual class members had no unresolved claim against the collector, as their claims were either precluded by deficiency judgments or were extinguished in bankruptcy, the Missouri Supreme Court concluded that the current class definition was overly broad, but “may be modified consistent with the precepts of . . . Rule 52.08 in order to remove the uninjured putative members.” Coca-Cola, 249 S.W. 3d at 861-862.
The Court further held that the class failed to satisfy the typicality requirement, as the consumer did not suffer the same alleged injury as the class members, because (i) unlike the second class, which consisted of consumers whose vehicles were repossessed involuntarily, the consumer voluntarily surrendered her vehicle to the collector, and; (ii) the consumer requested damages in the amount of any wrongfully obtained judgment and injunctive relief to return money collected for deficiency judgments and associated charges, yet the collector did not obtain a deficiency judgment against her. Gen. Tel. Co. of Sw. v. Falcon, 457 U.S. 147, 156 (1982) (“To satisfy the typicality requirement, the class representative “must be a part of the class and possess the same interest and suffer the same injury as the class members.”
Accordingly, the Missouri Supreme Court held that the trial court abused its discretion by certifying an overly broad class with a class representative whose claims were not typical of the class. Accordingly, the preliminary writ of prohibition was made permanent, and the trial court was directed to withdraw its certification of the class as presently defined and take no further action inconsistent with the Supreme Court’s instant opinion.
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This article courtesy of Maurice Wutscher LLP’s Consumer Financial Services Blog and was written by Christopher P. Hahn.