The Wisconsin Supreme Court has dealt a blow to class action lawyers, finding their targets can avoid lengthy and costly litigation if they take a simple preliminary step.
The justices last week ruled in Gudex v. Franklin Collection Service that class certification under the Wisconsin Consumer Act is not available when a defendant makes an appropriate settlement offer to just the named plaintiff – even though the offered relief does not apply to the entire class.
The case involved allegations that Franklin Collection Service attempted to collect a debt against Heather Gudex by sending her a letter that included statements like, “IF YOU ARE NOT PAYING THIS ACCOUNT, CONTACT YOUR ATTORNEY REGARDING OUR POTENTIAL REMEDIES, AND YOUR DEFENSES” and “[w]hen this letter was mailed no attorney has personally reviewed your account.”
Gudex alleged the letter caused her confusion and anxiety as to whether she was about to be sued and led her to bring a class action lawsuit against Franklin under both the WCA and the federal Fair Debt Collection Practices Act on behalf of herself and other recipients of Franklin’s letter.
According to Gudex, Franklin was attempting to collect $51.13 she allegedly owed to AT&T.
The case proceeded under the WCA alone after discovery into Franklin’s financial statements revealed that Gudex could sue for greater statutory damages under the WCA rather than the FDCPA. The WCA prohibits plaintiffs from recovering WCA damages if they bring a federal action based on the same claims.
In response to Gudex’s demand for damages under the WCA, Franklin offered to settle the claim by paying Gudex actual damages and the WCA statutory damages of $1,000 in addition to entering a voluntary stipulation that Franklin would stop sending out collection notices using the same language.
Gudex rejected this offer and instead moved for class certification, which the trial court approved based on Franklin’s failure to offer settlement to the entire class.
Gudex also claimed that Franklin’s offer was not appropriate under the WCA because it failed to offer costs, attorneys fees and punitive damages.
In granting class certification, the trial court reasoned that barring the class would make class actions for damages “unduly difficult” because a defendant could avoid class liability by offering settlement only to the plaintiff and not the potential class. The Court of Appeals agreed.
The Supreme Court disagreed, however, and, in a 6-1 opinion written by Justice Brian Hagedorn that focused on a plain reading of the WCA, reversed the Court of Appeals and sent the case back to the trial court.
The WCA carefully “establishes a series of processes and conditions attendant to a class action,” Hagedorn wrote.
Among these are a requirement of notice of claims by the plaintiff to defendant before bringing a class claim. Once received, the WCA provides that an action for damages may not be “maintained… if an appropriate remedy … is given, or agreed to be given within a reasonable time,” by the defendant “to such party” within 30 days of receipt of the required notice.
The “party” to whom the defendant must offer the appropriate remedy “is Gudex, and Gudex alone,” not the entire class, the majority held.
In her lone dissent, Justice Susan Crawford argued that the majority’s view would defeat the legislative intent of the WCA by allowing “a defendant to avoid a consumer class action for damages by ‘picking off’ the representative plaintiff.”
“With a defendant having at its disposal this powerful, inexpensive, court-created tool for avoiding consumer class actions for damages, it is hard to imagine how any consumer class action for damages will be maintained,” Justice Crawford wrote.
That may be so, the majority argued, but a “better view of the statutory policy choice is that the legislature chose to incentivize making an affected customer whole as quickly as possible, while still preserving access to the class action lawsuit if the customer does not receive an appropriate remedy.”
Left unaddressed by the Court, as the dissent noted, is whether Gudex’s federal class claim is extinguished. “Although the majority doesn’t address it, the certification of the class for claims asserted under the FDCPA arguably stands,” Justice Crawford stated.
The case was sent back to the trial court to proceed on the remaining claims.
