Missouri v. Portfolio Recovery Assoc., Inc., 09-1641, 2010 WL 675153 (E.D. Mo Feb. 24, 2010).

The State of Missouri filed a state court action alleging that defendant debt collection companies violated the Missouri Merchandising Practices Act (MMPA). The defendants removed under CAFA, and, naturally, the plaintiff filed a Motion to Remand.

The State was the only named plaintiff, but it claimed that the State and any Missouri citizens who were similarly situated were damaged by the defendants’ unfair and deceptive collection practices.  

The AG acted through Mo.Rev.Stat § 407.100 which allows the AG to seek an injunction, “whenever it appears to the attorney general that a person has engaged in, is engaging in, or is about to engage in any method, act, use, practice or solicitation, or any combination thereof, declared to be unlawful by this chapter…” Among other things, the AG alleged that the defendants purchased debts discharged in bankruptcy and continued to attempt to collect them. The State sought injunctive relief, civil penalties, and orders that the defendant make restitution to the State and its consumers who were harmed.

The defendants removed, arguing that this action qualified as a “class action” under CAFA, in that it is a representative action with diversity of citizenship that necessarily will involve more than 100 plaintiffs and over $5 million in controversy. The plaintiff argued the converse position, and the Court agreed. 

The defendants’ argument seemed to make sense, but it did not persuade the Court. They argued that if the plaintiff is awarded restitution, under the MMPA it will be payable to the individual consumers who were harmed. Therefore, they argued, the consumers are the real parties in interest, not the State. The State countered by arguing that the MMPA is not the equivalent of Rule 23 and that the State is the proper party in interest, as it has an interest in protecting its citizens from consumer fraud.

Because this issue had been rarely discussed, there is a limited amount of case law to review. The Court thoroughly examined State of Louisiana, ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418 (5th Cir. 2008) for guidance, which was cited for support by the defendants. Cadwell involved a parens patriae action filed by Louisiana’s attorney general and a number of private law firms against a number of insurance companies and their affiliates. The suit was filed under the Louisiana Monopolies Act and alleged that the defendants had colluded to fix prices of repair services under insurance policies. After removal by the defendants, the federal court agreed that the case qualified as a “class action” or “mass action” under CAFA. The Fifth Circuit affirmed the removal on interlocutory appeal, and found that because the plaintiffs were seeking treble damages, the policyholders were the real parties in interest, not the named plaintiffs, therefore the case qualified as a “mass action” under CAFA. In concluding, the Fifth Circuit envisioned the policyholders being joined in the action.

The Missouri Court found Caldwell distinguishable. The defendants did not allege that this case was a “mass action,” but a “class action.” In Caldwell, the Fifth Circuit declined to address whether or not that case qualified as a “class action.” Further, the defendants did not maintain that the consumers must be joined in the suit, which the MMPA does not require. Most importantly, the Missouri Court found that the Fifth Circuit’s opinion was “counter to the Supreme Court’s directive that removal statutes are to be ‘strictly construed,’ … especially those that undermine the authority of the state.” The Court found the dissent in Cadwell to be more persuasive and better reasoned.

Judge Southwick, who wrote the dissent in Caldwell, held, as the Missouri court did as well, that the Louisiana Monopolies Act – and similarly, the MMPA – are not rules similar to Rule 23, which is what is required for a proper class action under CAFA. The MMPA does not require that the AG certify a class to properly bring a suit on behalf of Missouri’s citizens. Also, although the defendants do not allege it, this case would not be considered a “mass action” because the AG did not join 99 additional plaintiffs, as required under CAFA.

The defendants were also unsuccessful at removing the case under federal bankruptcy law.