On January 13, 2014, the Eighth Circuit overturned, on interlocutory appeal pursuant to Fed. R. Civ. P. 23(f), a district court’s order certifying four classes of Nebraska consumers, who alleged that Credit Management Services Inc. (“CMS”) and its in-house counsel violated the Fair Debt Collection Practices Act. This is notable not only for the fact that the Eighth Circuit granted review. Writing for the panel, Judge Loken revoked the district court’s certification order, finding that the district court abused its discretion in certifying the class without conducing a “rigorous analysis . . . of what the parties move prove” and that Rule 23 requires.

The plaintiffs alleged that CMS and four in-house lawyers violated the FDCPA, by sending standard-form collection complaints and discovery requests. Plaintiffs alleged that the standard-form pleadings violated various provisions of the FDCPA, making them unfair or deceptive or practices that also violate Nebraska consumer protection laws.

The court started its analysis by noting that a preliminary inquiry at the class certification stage may require the district court to resolve factual disputes, even when the disputes overlap with the merits of the case.  Thus, class certification was only appropriate here if the standard-form complaints and discovery requests that CMS sent to putative class members were violative of the FDCPA and Nebraska consumer protection laws “on their face,” as the plaintiffs had alleged.  The district court erred, the court said, when it concluded that the predominant common question was whether the defendants sent each putative class member a standard-form complaint and discovery request, which violated the FDCPA and Nebraska law.  Rather, the court failed to conduct a “rigorous analysis” of what the plaintiffs must prove in order to prevail on their facial invalidity theories, the panel said. “Our task, then, is to fill this void which requires separate analyses of the legal theories attacking the standard form complaints and discovery requests.”

The court noted that it had recently “surveyed the complex question of FDCPA liability for litigation activities in a non-class action” and found that a debt collector’s fact allegations in state court are not false and misleading, in violation of the FDCPA, simply because the claims were not adequately supported in the collection action.  Instead, this analysis depends on a number of particularized factors.  In the class certification context, however, “these complexities—ignored by the plaintiffs and not addressed by the district court—are highly relevant to a rigorous analysis of the well-traveled Rule 23 inquiries into commonality, typicality, adequate representation of the class, predominance, and superiority.”

The court went on to explain that two scenarios were possible. First, if plaintiffs’ theory of liability proved wrong under the FDCPA and Nebraska law, then plaintiffs would lose on the theory attacking the standard-form complaints, and prompt resolution on summary judgment motions would have obviated the need for class certification.  Second, if plaintiff’s theory of state law was correct, many individualized issues would be required in order to solve class members’ claims.  As a result, the court held, the “records pertaining to every state court collection suit must be reviewed. . . .”

Finally, the panel ruled that the district court erred in ruling that plaintiffs’ separate claims against the in-house lawyers did not affect class certification.  The court noted that (1) only one in-house lawyer singed the standard-form pleadings, and that (2) these “debt-ridden young lawyers” have little net worth.  The court indicated that the class members may have had a stronger claim against the individual attorney who actually singed the pleadings in that consumer’s collection lawsuit.  “Thus, by alleging that impecunious individual defendants are jointly and severally liable to all members of the largest possible classes, plaintiffs created an issue of class action superiority that cannot be ignored at the class certification stage.”

Some helpful takeaways for federal court practitioners: At the class certification stage, raising only a few “common questions” is not enough to certify a class, particularly when the answers to those common questions do not generate common answers capable of resolving the litigation.   In addition, where individual issues appear, it may be necessary for the court to resolve factual disputes at or before the class certification stage, even though they overlap the merits of the case.  As was shown in the Powers decision, often times those individualized inquires make class certification untenable.