The Fair Debt Collection Practices Act (FDCPA) places a cap on class action damages. Specifically, class action damages cannot exceed the lesser of 1% of the defendant’s net worth or $500,000. On August 20, 2018, the Ninth Circuit reviewed a yet unaddressed question: which side bears the burden of proof to show a defendant’s net worth? According to Tourgeman v. Nelson & Kennard et al., Case No. 16-56190 (9th Cir. Aug. 20, 2018), this burden lies with the plaintiff.
Factual and Procedural Background
Appellant David Tourgeman incurred a debt with Dell Financial Services, who later sold the debt to Collins Financial Services. Collins then retained Nelson & Kennard to file a collection suit against appellant. Nelson & Kennard attempted to reach appellant by mail, but never received a response to their letter. The firm then filed a complaint with the court to collect on the account.
Appellant filed a putative class action complaint against Nelson & Kennard alleging that both the letter and the complaint violated the FDCPA. This matter bounced back and forth between the district court and the Ninth Circuit on questions of liability. Ultimately, the matter went to trial on two issues: class action damages and the bona fide error defense. Appellant, who was then the plaintiff, did not present any evidence regarding Nelson & Kennard’s net worth during the trial.
Appellant attempted to argue that Neslon & Kennard bore the burden of proof to show its net worth. Disagreeing with appellant, the district court found that the plaintiff in a FDCPA action bears this burden, a decision that appellant appealed.
The Ninth Circuit agreed with the district court and concluded that the burden of proof to show a defendant's net worth in the context of FDCPA class action damages rests with the plaintiff. In reaching this conclusion, the court looked at general principles of law and the language of the statute itself.
Generally, the judicial system imposes the burden of proof on the party seeking relief, which is the plaintiff. There are certain instances where the burden of proof shifts to the defendant, but that is generally limited to when the defendant wants to plead that an affirmative defense or exception applies to the case. The instant case does not fall within any of the latter categories , so the Ninth Circuit concluded that the burden rests with the plaintiff.
One other way that the burden of proof may shift is if the statute calls for it. Since the FDCPA caps class action damages at the lesser of 1% of net worth or $500,000, the court found that the statute “requires the factfinder to determine the defendant's net worth in calculating statutory damages. In other words, Congress made evidence of the defendant's net worth a prerequisite to establishing statutory damages.” The court went on to say that Congress would have written the statute differently if it intended the burden of proof to shift. For example, the statute wording would have been “$500,000 unless the defendant establishes…”
The court was unconvinced by appellant’s argument that Nelson & Kennard should have produced evidence regarding its net worth at trial because it has better access to that information. The court noted that plaintiffs' attorneys have a fairly easy route to acquiring a debt collector’s financial information through different litigation discovery tools such as interrogatories and requests for production of documents. In this case, appellant received Nelson & Kennard’s financial information through discovery, so at the time trial went forward the information was already in appellant’s hand.
Based on the above, the Ninth Circuit concluded that the plaintiff bears the burden of proof to show a defendant’s net worth.
The court’s decision here is well reasoned. If a plaintiff wants damages from a defendant, then it is the plaintiff’s job to prove both that defendant is liable and what amount of damages is appropriate. To require a defendant to prove how much the damages against him should be is like forcing him to walk himself down the plank.
One small portion of the court’s decision discusses how appellant attempted to argue that litigation costs would increase and discovery battles would be inevitable if the plaintiff bore the burden of proof to show a debt collector’s net worth, an argument the court denied. This observation stands out specifically because discovery was conducted in this case and the financial information was produced after the court entered a protective order. This allegedly burdensome work was already done and yet appellant still presented none of it at trial despite it being available.
On a procedural note, if defendant has a claim against plaintiff that arises from the same transaction or occurrence, then the courts require defendant to file what is called a counterclaim within the same action for the sake of judicial economy. In other words, the courts would prefer to address all issues in one court case than in multiple cases across their docket. If the defendant files a counterclaim, then he steps into the role of a plaintiff for those particular claims. An example in the debt collection context would be if a debt collector files a collection suit against a consumer and, within that suit, the consumer files a FDCPA counterclaim against the debt collector. In that situation, even though the consumer is a defendant within the suit, he steps into the role of a plaintiff for the FDCPA counterclaim and thus bear the burden of proof.