Opinion
Case No. 01 C 1943
March 28, 2002
ORDER
Plaintiff Stephanie Rogers brings this putative class action against defendant Norman Wexler, d/b/a Wexler and Wexler, alleging violations of the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq. Currently pending are Rogers' motion for class certification, Fed.R.Civ.P. 23, and Wexler's motion to dismiss, Fed.R.Civ.P. 12(b)(6). As explained below, the court denies both motions.
I. Background
For the purposes of the motion to dismiss, the facts in the complaint are accepted as true. Lachmund v. ADM Investor Servs., Inc., 110 F.3d 467, 470 n. 2 (7th Cir. 1999). However, no such presumption applies to facts relating to class certification. Szabo v. Bridgeport Machs., Inc., 249 F.3d 672, 675-77 (7th Cir. 2001).
The complaint alleges that the standard attorney's fee award in default collection cases in Cook County Circuit Court is $350. If a collection attorney wants more than $350, he or she may file an itemized petition justifying a larger award. Without such a petition, the court generally reduces the fee award to $350, but the large volume of cases means that some higher fee requests may slip through. Also, debtors sometimes agree to pay the full amount, including the requested attorney's fees, before judgment is entered.
On or about April 12, 1998, Rogers wrote a check to the Empress Casino Hammond Corporation ("Empress") "for purposes of entertainment." (Compl. ¶ 17.) After Rogers' bank dishonored the check, Empress, through its attorney Wexler, sued Rogers in the Circuit Court of Cook County. The lawsuit sought recovery of the value of the check, other costs not at issue here, and $600 in attorney's fees. Consistent with Wexler's standard practice, he filed no itemized fee petition. When the court entered default judgment in favor of Empress on December 27, 2000, it sua sponte reduced the attorney's fee award to $350. Rogers filed the instant action alleging that Wexler's demand for excessive attorney's fees constituted an unfair and deceptive debt collection practice, in violation of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692e, f. The putative plaintiff class consists of all natural persons who were sued by Wexler and from whom Wexler sought in excess of $350 without filing a fee petition, where either the court entered a judgment disallowing the excess or the debtor agreed to pay without a court ruling on the issue of attorney's fees.
Although the complaint is limited to Wexler's demand for attorney's fees, in Rogers' response to the dismissal motion, she asserts that Wexler failed to provide her proper written notice of the debt as required by Indiana law. See Ind. Code § 35-43-5-5(e); id. § 26-2-7-6. Rogers argues that noncompliance with state law means that the debt was not "expressly authorized by the agreement creating the debt or permitted by law," 15 U.S.C. § 1392f(1), so that Wexler's attempt at collection violated the FDCPA.
Wexler's collection suit was brought under Indiana law, presumably because Empress is located in Indiana, although neither party addresses the choice-of-law question. Because resolution of this motion does not depend on differences between Illinois and Indiana law, the court reserves the question of which state's law applies.
II. Analysis
A. Motion to Dismiss
A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure does not test the merits of plaintiff's claims, but instead tests only the legal sufficiency of the complaint. Pickerel v. City of Springfield, 45 F.3d 1115, 1118 (7th Cir. 1995). "A court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King Spalding, 467 U.S. 69, (1984). Consistency in this context means more than logical possibility. Because the complaint must "provide the defendant with fair notice of the claim," Scott v. City of Chicago, 195 F.3d 950, 951 (7th Cir. 1999), a plaintiff cannot avoid dismissal by citing new facts and legal theories the relevance of which a defendant could not reasonably be expected to have discerned based on the complaint. Cf. Car Carriers v. Ford Motor Co., 745 F.2d 1101, 1107 (7th Cir. 1984) ("[I]t is axiomatic that the complaint may not be amended by the briefs in opposition to a motion to dismiss."). In practice, "a complaint . . . must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory." Sutliff, Inc. v. Donovan Cos., 727 F.2d 648, 654 (7th Cir. 1984) (quoting In re Plywood Antitrust Litig., 655 F.2d 627, 641 (5th Cir. 1981)). Citing the incorrect legal theory is not fatal to a complaint so long as the allegations provide the defendant with reasonable notice of an alternative, viable theory. Daniels v. USS Agri-Chems., 965 F.2d 376, 381 (7th Cir. 1992).
This case could serve as a useful teaching example of these general principles. Wexler argues that the complaint must be dismissed because: (1) Rogers' debt is to a casino for gambling and therefore not covered by the FDCPA; (2) state law permits the recovery of attorney's fees without an itemized fee petition; (3) Rogers' claim that defendant failed to provide written notice of the debt under state law was not raised in the complaint and therefore should not be considered for purposes of its Rule 12(b)(6) motion. The court evaluates these arguments in turn.
1. Rogers' Debt Is Covered by the FDCPA
The FDCPA defines a covered debt as "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes. . . ." 15 U.S.C. § 1692a(5). Wexler contends that a bad check issued to a casino for gambling falls outside this definition. His first argument in support of this contention has two premises: (1) intentionally writing a bad check, a criminal offense in both Illinois and Indiana, is analogous to theft; and (2) courts have held that a thief's obligation to pay for stolen goods is outside the scope of the FDCPA. Even assuming that Rogers wrote the check knowing it would be dishonored (a fact which does not appear in the complaint), the problem with this argument is that the Seventh Circuit has specifically rejected it. See Keele v. Wexler, 149 F.3d 589, 595-96 (7th Cir. 1998); Bass v. Stolper, Koritzinsky, Brewster Neider, S.C., 111 F.3d 1322, 1329-30 (7th Cir. 1997).
Wexler's second argument is that the purpose of gambling is to make money, so gambling is a business, not personal, activity. This argument has some appeal, although probably not as a per se rule. Everyone knows that the odds favor the house, so gambling for a living (if one plays by the rules) is not a rational activity. This is not to say that professional gamblers do not exist, but nothing in the complaint suggests that Rogers is one of them. Wexler's argument, however, trips on a lower step. As noted above, Rogers alleges that the check was issued "for purposes of entertainment." Wexler would have the court assume from the fact the check was issued to a casino that Rogers used the proceeds to gamble. But it is equally consistent with the complaint to assume that Rogers bought food, drinks, fuzzy dice, or other gift shop memorabilia. At this stage of the proceedings, the court must draw all reasonable inferences in favor of Rogers, Pickerel, 45 F.3d at 1118, so the court assumes that she used the money for some unquestionably "non-business" purpose of this type. Bass, 111 F.3d at 1325.
B. State Law Permits the Recovery of Reasonable Attorney's Fees
Wexler's second argument is a winner but does not justify dismissal. The pertinent FDCPA provision prohibits "[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law." 15 U.S.C. § 1692f(1) (emphasis added). Both Illinois and Indiana law permit the recovery of attorney's fees. See 720 ILCS 5/17-1a; Ind. Code § 26-2-7-5. Neither state requires any documentation to support an attorney's fee request. That the Cook County Circuit Court sets a default cap at $350 does not affect a debt collector's statutory rights and obligations. The collection of attorney's fees above $350, without documentation, is "permitted by law" and therefore does not constitute an automatic violation of the FDCPA.
The logic of this argument is impeccable. Judge Manning accepted the same argument in Barajas v. Wexler, No. 00-C-3825, slip op. at 10 (N.D.Ill. Mar. 28, 2001), noting that the Illinois statute "does not place any restriction on the amount of the fees that may be collected nor does it require any documentation be provided to the debtor prior to requesting the fees." This court agrees with the result reached by Judge Manning, but does not agree that there are no limits on the amount of fees that may be collected. There is an implicit requirement in the statute that an attorney's fee request be bona fide and reasonable. See Clark v. Whiten, 508 So.2d 1105, 1108 (Miss. 1997) (finding "implicit in [a] statute [that provided for the taxing of `the cost of . . . legal services'] the further requirements that the costs so taxed be reasonable and necessary"); cf. Bostic v. Bowen, 691 F. Supp. 1176, 1176 (N.D.Ill. 1988) (Shadur, J.) ("[E]very court is legally obligated to review the reasonableness of lawyers' fees whenever it has occasion to approve them. Accordingly the [contract] must be viewed as containing the same implicit requirement of reasonableness as the explicit requirement of [the parallel statute]."). Otherwise, a debt collector could avoid the statutory limit on treble damages by simply recasting some portion of sought-after damages as attorney's fees. Because Judge Manning denied on other grounds the defendant's motion to dismiss in Barajas, she had no occasion to consider whether the plaintiff may have stated a claim on this particular theory. In contrast, the no-fee-petition theory is the only one relied upon by Rogers in the complaint, so the critical question for Rule 12(b)(6) purposes becomes whether the facts alleged put Wexler on notice of a claim that the attorney's fee request in Rogers' case was not bona fide and reasonable.
Indiana law is explicit on this point, allowing for "reasonable attorney's fees incurred." Ind. Code § 26-2-7-5.
The complaint gives Wexler reasonable notice of such a claim. Rogers alleges that the Cook County Circuit Court generally limits attorney's fee awards to $350 in default collection cases. This strongly suggests that the circuit court considers $350 to be as much as an attorney can reasonably charge for his services in this type of case, absent special circumstances. Rogers also alleges that "Wexler does not keep track of his time" and "routinely demands . . . more than $350 in attorney's fees." (Compl. ¶¶ 8, 9.) The allegedly wrongful conduct is demanding too much in attorney's fees. Admittedly, Rogers does not specifically allege that the $600 fee was unreasonable or in bad faith, but one can reasonably infer such claims from the aforementioned allegations. Thus, the complaint contained at least "inferential allegations respecting all the material elements necessary to sustain a recovery under [a] viable legal theory." Sutliff, 727 F.2d at 654. Rogers' reliance on an incorrect legal theory is not fatal because the complaint gives Wexler reasonable notice of an alternative, viable theory. Daniels, 965 F.2d at 381.
3. Rogers' Notice Theory Relies on Facts Not "Consistent" with the Complaint
In Rogers' response to the motion to dismiss, she asserts a new charge against Wexler. According to Rogers, the Illinois and Indiana statutes both require written notice of a dishonored check before a collection action may be brought, but the specific notice requirements differ. The Indiana statute apparently allows fewer days within which to pay the amount of the check to avoid additional liability. Compare Ind. Code § 26-2-7-8 (full amount of the check within 10 days), with 720 ILCS 5/17-1a (amount of the check within 30 days). Here, Wexler gave notice pursuant to the Illinois statute, but filed the collection suit under Indiana law. Because the notice given failed to comply with Indiana law and notice is a precondition to liability, Rogers argues, collection of her debt was not "permitted by law" under the FDCPA.
This theory may or may not have merit, but Wexler could not have reasonably foreseen it based on the complaint. There is simply no mention of the statutory notice requirements or the notice actually given to Rogers. No pre-filing correspondence between Wexler and Rogers appears in the exhibits to the complaint. To be sure, nothing in the complaint directly contradicts Rogers' new allegations, so these allegations are in some sense "consistent" with the complaint. But not in the relevant sense. New allegations of fact are "consistent" for Rule 12(b)(6) purposes only if their relevance is reasonably foreseeable based on the allegations in the complaint. Notice pleading may not require much, but it does require notice. A complaint must give the defendant enough information to prepare a defense. Here, the complaint gave no fair warning that Wexler's written notice to Rogers would be at issue. This theory of recovery is therefore dismissed without prejudice.
B. Class Certification
Rogers' motion for class certification is denied. The burden is on the putative class representative to demonstrate that all the requirements for class certification are satisfied. Retired Chicago Police Ass'n v. City of Chicago, 7 F.3d 584, 596 (7th Cir. 1993). One requirement for the type of class Rogers moves to have certified is "that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members." Fed.R.Civ.P. 23(b)(3).
Because the court rejects the legal theory underlying Rogers' class allegations, the motion for class certification is arguably moot. The fact that Wexler did not file a fee petition, an element of Rogers' class definition, is of no legal relevance. However, the complaint alleges that Wexler never files a fee petition, which, if true, would render this restriction on the class entirely superfluous. Even accepting this allegation as true, the motion for class certification fails because Rogers has not shown that common questions predominate over individual ones. To prevail in any particular case, Rogers will have to show that Wexler's attorney's fee request was not bona fide or reasonable. Rogers presents no evidence concerning Wexler's standard hourly rate or the amount of time he actually spends on collection default judgment cases. At most, Rogers shows that Wexler seeks $600 across the board. This amount is not so much higher than the $350 fee routinely awarded by the Cook County Circuit Court as to create a presumption of bad faith or unreasonableness. From all the evidence that Rogers has thus far provided, it appears that the question of reasonableness is the only issue left to be decided and will require individual-specific examination. Thus, Rogers fails to meet the predominance requirement and her motion for class certification is denied.