Limited Federal Jurisdiction over FDCPA Claims Post-Transunion
In 2023, plaintiffs who filed lawsuits in federal court often found themselves on the losing side of many decisions discussing the existence of Article III federal jurisdiction over FDCPA claims. For example, in both Choice v. Kohn Law Firm, S.C. and Pucillo v. National Credit System, Inc., the U.S. Court of Appeals for the Seventh Circuit affirmed the dismissal of plaintiffs’ debt collection claims, holding that “confusion” caused by a debt collector’s conduct was not enough to establish a concrete injury and a “case or controversy” under Article III of the U.S. Constitution. Choice v. Kohn L. Firm, S.C., No. 21-2288 (7th Cir. 2023); Pucillo v. Nat’l Credit Sys., Inc., No. 21-3131 (7th Cir. 2023).
In another notable case, Bassett v. Credit Bureau Services, Inc., the U.S. Court of Appeals for the Eighth Circuit vacated a trial court’s judgment entered after trial in favor of the named plaintiff and certified class—which was obtained after seven years of litigation—because the plaintiff had failed to allege a concrete injury, and therefore the court lacked Article III standing under Transunion. No. 21-2864 (8th Cir. 2023).
Furthermore, 2023 decisions have established that even class actions placing more than $5 million in controversy are exempt from federal jurisdiction if they do not meet the stringent Transunion jurisdictional requirements. That is because, as the U.S. Court of Appeals for the Second Circuit confirmed this year in Krasner v. Cedar Realty Trust, Inc., any congressionally enacted jurisdictional statute (like CAFA) can only operate “[w]ithin the bounds of Article III.” No. 23-1262, at 6 (2d Cir. 2023).
The recent case of Yeh v. Twitter, Inc., provides one striking example of the consequences of limited federal jurisdiction post-Transunion, and its interplay with CAFA. No. 4:23-CV-01790-HSG, 2023 WL 8429799 (N.D. Cal. Dec. 4, 2023). Yeh was one of a number of similar consumer lawsuits filed against Twitter under CAFA in the past few years. After several federal actions were consolidated in California federal court, Twitter successfully moved to dismiss, arguing lack of a concrete injury and standing under Article III and Transunion. While that motion was pending, Yeh—represented by the same plaintiff’s lawyers who filed in federal court—filed a “substantively identical” complaint in state court. Twitter then removed the state action to federal court under CAFA. Even though Twitter had statutory standing to remove under CAFA, the district court remanded, reasoning that no case or controversy existed under Article III—ironically resulting in a multimillion-dollar class action case stuck in state court, despite undisputably meeting CAFA’s requirements.
Practical Implications
The post-Transunion trend of enforcing limited federal jurisdiction carries substantial practical implications for the FDCPA practitioner—implications that bear on both whether plaintiffs should file in state or federal court and whether defendants should seek removal of state-court FDCPA cases.
Implications for plaintiffs. A plaintiff filing in federal court bears the burden of proving that federal jurisdiction exists under Article III. But that burden is flipped if the case is first filed in state court, in which case a defendant seeking to remove an FDCPA case to federal court is, post-Transunion, placed in the awkward position of bearing the burden of showing that the allegations against it involve a concrete injury to the plaintiff, such that the plaintiff’s claim presents an Article III case or controversy.
If the FDCPA defendant fails to carry its burden, then the state-filed case winds up back in state court—instead of being dismissed—because “a failure of federal subject-matter jurisdiction means only that the federal courts have no power to adjudicate the matter. State courts are not bound by the constraints of Article III.” Linton v. Axcess Fin. Servs., Inc., No. 23-CV-01832-CRB, 2023 WL 4297568, at *4 n.3 (N.D. Cal. June 30, 2023).
Many states have less stringent standing requirements than Article III. For example, whether a party has “standing” and can proceed in Maryland court simply depends on whether the complaint states a cause of action. See State Ctr., LLC v. Lexington Charles Ltd. P’ship, No. 12 (Md. Sept. 2013). In Michigan, “a litigant has standing whenever there is a legal cause of action.” Lansing Sch. Educ. Ass’n v. Lansing Bd. of Educ., 487 Mich. 349, 372 (Mich. 2010). Similarly, in Virginia, to have standing, “the plaintiff must possess the ‘legal right’ to bring the action, which depends on the provisions of the relevant statute.” Small v. Fed. Nat’l Mortg. Ass’n, 747 S.E.2d 817, 820 (Va. 2013). And Pennsylvania has “repeatedly recognized that the fact that a party lacks standing does not by itself deprive this Court of jurisdiction over the action, as it necessarily would under Article III of the federal Constitution.” Hous. Auth. of Chester v. Pa. State Civ. Serv. Comm’n, 556 Pa. 621, 632 (1999).
As a result, if the relevant state has standing requirements that are less demanding than those imposed by Article III post-Transunion, plaintiffs should consider filing in state court if there is any doubt about federal jurisdiction. Doing so may provide insurance against the scenario presented in Bassett, where seven years of litigation, a certified class, and a judgment were all lost, and the case dismissed, for want of federal jurisdiction. In contrast, if jurisdiction is later found to be lacking where a case is filed in state court and removed, the case is merely remanded to state court—not dismissed.
Implications for defendants. For defendants, the post-Transunion trend of limited jurisdiction over FDCPA claims provides opportunities to obtain dismissal (without prejudice) of purely statutory damage claims filed in federal court; but that opportunity carries with it the risks exemplified by Yeh, where the defendant’s arguments that Article III jurisdiction did not exist over federally filed cases spelled the demise of its later attempt to remove the same type of case from state court.
Furthermore, a defendant who fails to carry its burden on removal could not only wind up back in state court but also be on the hook for the plaintiff’s costs and attorney fees. See O’Boyle v. Unifin, Inc., No. 23-CV-870-PP, 2023 WL 6579205, at *7 (E.D. Wis. Oct. 10, 2023) (requiring defendant to pay plaintiff’s costs and fees for removing an FDCPA case that did not qualify as a case or controversy under Article III).
Conclusion
Whatever side of the “v.” you are on, one thing is for sure—the post-Transunion trend of courts’ narrowed view of federal jurisdiction is fundamentally altering the litigation landscape. In particular, it could have unforeseen implications for exclusive state-court litigation of many federal claims, including class-action claims that otherwise could be removed under CAFA.