Federal Court Agrees with Debt Collectors; Holds Two Hunstein Copycat Plaintiffs Have Standing in Federal Court

No, that headline is not a typo. In two cases, in what could easily be confused for a live-action version of Gary Larson's comic "The Far Side," the consumers, represented by the law firm of Edelman, Combs, Latturner & Goodwin LLC argued they did not have the requisite standing to have their cases heard in federal court. In response, the debt collectors argued the consumers had met the requirements for standing in federal court. The two cases are Keller v. Northstar Location Svcs, Case Number 21-cv-3389 (N.D. Ill 2021), Thomas v. Unifin, Inc. Case Number 21-cv-3037 (N.D. Ill 2021).

Background:

2021 has certainly been an active year for impactful case law. In April 2021, the 11^th Circuit published its decision in Hunstein, inviting a flurry of copycat cases nationwide. In June of 2021, the Supreme Court published its decision in Transunion, causing an increase in defendants seeking dismissals based on consumers’ lack of standing to bring actions in federal court. While these two cases dealt with two different issues, as the year has progressed, they have become increasingly intertwined in deciding where and whether a consumer can bring a claim for an alleged ‘Hunstein’ violation.

So far, we’ve seen the legal concepts addressed Hunstein and Transunion come together where a defendant debt collector has asked a court to find Hunstein plaintiffs lack standing because they have not alleged a concrete injury in fact (see the original Transunion article for a run-down of injury in fact). For example, in July, the Eastern District of New York dismissed six Hunstein copycat cases and questioned Hunstein’s viability after the Transunion decision.

In an interesting recent twist, debt collectors in Keller and Thomas (defended by two different law firms) argued that the Hunstein copycat plaintiffs indeed had met the standing requirements for federal court. It was the consumers who argued they lacked standing! In each case, on August 20, 2021, Judge Sharon Coleman in the Northern District of Illinois found in favor of the debt collectors holding the consumers had standing in federal court. 

Why would a debt collector ask the court to find a consumer has standing in federal court?

First, it’s essential to recognize that standing to bring a case in federal court derives from Article III of the U.S. Constitution; the same standing limitations do not bind state courts. Also, a dismissal for lack of standing is a procedural function; it is not a ruling on the case’s merits. Therefore, just because a plaintiff does not have standing to bring a case in federal court does not preclude that same plaintiff from filing the same lawsuit in state court. As noted recently in this article authored by Manny Newburger of Barron & Newburger, PC., there are various reasons a defendant might want to have a case heard in federal court over state court. In such instances, where federal court is a better venue for a defendant, that defendant may choose, and may even have to fight, to have that case heard in federal court.

The cases:

In Keller and Thomas, the consumers filed Hunstein copycat lawsuits in the state court of Illinois. In each case, the defendants used a civil procedure mechanism called removal to shift the cases from state court to federal court. After removal to federal court, the consumers asked the court to shift the case back down to state court alleging the consumers lacked standing in federal court. To keep the cases in federal court, the defendant debt collectors argued the opposite: that the consumers met the requirements for standing in federal court.

After hearing arguments, Judge Coleman rejected the consumers' arguments that the line of Seventh Circuit cases regarding standing required the cases to be sent back to state court. Instead, she found in favor of the debt collectors, holding that the consumers met the federal Court standing requirements, even where the consumers did not seek actual damages. In reaching this conclusion, Judge Coleman relied on the Hunstein opinion itself, which found that disclosing information to a third-party letter vendor constituted an injury in fact because it closely mirrored the common law tort of invasion of privacy and public disclosure of private facts. As such, Judge Coleman held that each case would remain in federal court since the consumers had standing to bring the actions in that venue.

insideARM Perspective:

Reading these cases felt a little bit like being in the Upside Down. The arguments looked the same, they read the same, but everything was a little off; the plaintiffs’ counsel made arguments we typically see from defense counsel and vice versa. Arguing in favor of standing in federal court was likely a strategic decision by defense counsel to have the case heard in a venue that might be more suited to hear the case. After all, state courts are typically not known for having an intricate understanding of the FDCPA.

Again, it’s important to remember that standing is procedural; it does not impact the case’s merits. Arguing that a consumer has standing to bring an action in federal court based on the allegations of the complaint does not mean that defense counsel agreed or admitted that there is any merit to the consumers' allegations. It simply means the defendants wanted to have the case heard in federal court and advocated for that position.

Another interesting takeaway from these cases is we now have district court opinions on both sides of the argument.  As such, debt collectors who find themselves on the receiving end of the Hunstein copycat cases can have real discussions with their counsel about whether state court or federal court is the correct venue to defend.  

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