The United States Court of Appeals for the Seventh Circuit granted summary judgment in favor of Home Depot in a case limiting the application of the Wisconsin Consumer Act. Plaintiffs had argued that Home Depot’s failure to remove a credit card charge of $9,761.64 on a Home Depot credit card issued by Citibank violated sections 427.104(1)(c), 427.104(1)(j), and 427.108 of the Act. The Court affirmed the lower court and ruled that the Act did not create a cause of action for the plaintiffs against Home Depot.
In 2002, plaintiffs applied for and received a Home Depot co-branded credit card issued by Citibank. The card could only be used for Home Depot purchases. Plaintiffs entered into an agreement with Dr. Lee Krahenbuhl such that Krahenbuhl would purchase the materials for and build a log cabin and plaintiffs’ company would resell the cabin. Krahenbuhl used his own Home Depot/Citibank credit card to purchase a log cabin package. These materials were delivered to and signed for by plaintiff or an authorized representative of their company. Plaintiffs and Krahenbuhl terminated their relationship and Krahenbuhl disputed the $9,761.64 charge on his account. Citibank investigated the charge and transferred the charge from Krahenbuhl to the plaintiffs’ Home Depot account. Plaintiffs claim that they did not become aware of the transferred charge until a year later. The balance accrued interest and eventually grew to approximately $21,000. Plaintiffs were unable to pay and their credit deteriorated.
Plaintiffs brought suit, alleging that Home Depot violated sections 427.104(1)(c), 427.104(1)(j), and 427.108 of the Act. Section 427.104(1)(c) of the Act prohibits a debt collector from threatening to enforce a right with knowledge or reason to know that the right does not exist. Section 427.104(1)(j) of the Act prohibits the disclosure of or the threat to disclose information adversely affecting the reputation for creditworthiness with the knowledge or reason to know that the information is false. Section 421.108 of the Act creates a general obligation of good faith in every agreement or duty involving a consumer credit transaction.
The Court stated that the “critical issue” of the case was “whether or not the [plaintiffs] presented sufficient evidence upon which a jury could conclude that Home Depot was acting to collect a debt.” It found that the statute “at a minimum” required some attempt by Home Depot to collect the debt. In this case, the Court found that Citibank, not Home Depot, was owed the debt. Although the credit card had Home Depot’s name on it, the Court found that Home Depot did not extend any credit to the plaintiffs and did not have an agency relationship with Citibank. Thus, a “reasonable jury could not conclude that Home Depot violated the Wisconsin Consumer Act.”
The Seventh Circuit Court of Appeals recently issued an opinion in two related class action suits involving the Fair Debt Collection Practices Act (FDCPA) (15 U.S.C. §§ 1692-1692p) – DeKoven v. Plaza Assoc. and Kubert v. Aid Assoc. Plaintiffs complain about “dunning letters” sent to them by debt collectors. The letters state in relevant part: (1) that the debt collectors are authorized to offer the debtor the opportunity to settle the account for 65% of the balance due and that the offer is valid for a period of 35 days, and (2) if the debtor disputes the validity of the debt, the debtor may provide “satisfactory proof” that the account is in error. Plaintiffs claim that the statement that “the offer is valid for 35 days” would be understood by many consumers to mean that it is their last chance to settle, i.e., that it is final offer.
As to the second statement, Plaintiffs claim that it is misleading because it implies that to “dispute” a claim, a debtor must furnish “proof” which is not required under the FDCPA. The district court granted summary judgment to the Defendants after having rejected the survey evidence of Plaintiffs and the Seventh Circuit affirmed. Specifically, the “survey evidence” was confusing, unclear and in some instances, did not have enough persons in the control group from which a reliable extrapolation could be made. The Seventh Circuit reiterated the “vital” importance of control groups in surveys to determine whether a debt collector is confusing debtors and noted that FDCPA suits “repeatedly come to grief” due to flaws in the surveys conducted by plaintiff’s experts. Therefore, the Seventh Circuit suggested that district courts consider exercising their authority to appoint a neutral expert to conduct FDCPA surveys, but also stated that it was not suggesting that defendants should be made to contribute to the cost of such a survey.
In a January 28, 2010 opinion, Midwest Title Loans, Inc. v. Mills, the Seventh Circuit has affirmed a permanent injunction issued by the district court invalidating a section of Indiana’s version of the Uniform Consumer Credit Code for violating the Commerce Clause of the U.S. Constitution.
Indiana added a provision to the Code in 2007 called the “territorial application” provision. It states that a loan is deemed to occur in Indiana if a resident of the state “enters into a consumer sale, lease or loan transaction with a creditor … in another state and the creditor …has advertised or solicited sales, leases, or loans in Indiana by any means ….” If the territorial application provision is triggered, the lender becomes subject to the Code and is bound by its restrictions, including a ceiling on the annual interest rate that a lender may charge.
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Robert Duff began representing James and Christy Gastineau approximately three years after they filed suit in the Southern District of Indiana raising Fair Debt Collection Practices Act (“FDCPA”) claims. Duff was the third attorney to represent the Gastineaus in the case. Although Duff claimed that he had thirteen years of litigation and consumer law experience, his only other FDCPA case resulted in a default judgment. In the Gastineaus’ case, Duff’s representation began after substantial discovery and motion practice had already been completed. Nonetheless, Duff successfully negotiated a $45,000 settlement on the first scheduled day of trial. Duff requested a fee award in excess of $140,000, based in part on his hourly rate of $250 per hour. Citing Duff’s lack of experience and late entry into the case, the District Court reduced Duff’s hourly rate to $150 per hour and cut the number of hours he was allowed to recover. Duff appealed.
The Seventh Circuit observed that the calculation of attorney’s fees is driven by the ”lodestar method,” which is simply the mutliplication of a reasonable hourly rate by the number of hours reasonably expended by the attorney. Further, the Seventh Circuit noted that the federal district court’s have the discretion to adjust the result of the lodestar method based on factors such as the complexity of the legal issues, the degree of success, and the public interest advanced by the litigation.
In affirming the District Court, the Seventh Circuit noted that, particularly because of Duff’s late entry into the proceedings, the case “should have been a relatively straightforward FDCPA action.” Further, the Seventh Circuit held that the District Court did not commit clear error when it concluded that a substantial portion of the hours Duff billed on the case — over 500 total — were for learing the law. In closing, the Seventh Circuit found that “[t]his is clearly the case of an experienced district judge that considered the various factors in setting a reasonable attorney’s fee and provided a sufficient explanation.” Based on this, the Seventh Circuit found no abuse of discretion.
The Seventh Circuit has affirmed the dismissal of a Truth in Lending Act (“TILA”) claim in Sales v. Urankar, et al. In Sales, the plaintiff alleged that he entered into a retail installment contract for the purchase of truck that violated TILA because it was conditioned on the plaintiff’s agreement to a service contract or extended warranty. The district court dismissed the complaint.
In the Seventh Circuit, the plaintiff relied on cases involving financing conditioned on the inclusion of insurance products or service contracts which were alleged to have violated TILA because the products and contracts were not included as part of the finance charges in the TILA disclosures. The Seventh Circuit, however, rejected the plaintiff’s analogy to that line of cases, finding that the plaintiff failed to “identify any information required by TILA that defendants failed to disclose.”
The Seventh Circuit designated the Sales decision as a “Nonprecedential Decision.” Pursuant to Federal Rule of Appellate Procedure 32.1, however, federal courts may not prohibit citation to this or other similarly designated decisions.