CROA Class Action Against LLF Denied: Iosello

Persons Performing Ilegal "Credit Repair" and Liability For Such Acts
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David A. Szwak
Posts: 4126
Joined: Tue Jul 26, 2005 4:15 am

CROA Class Action Against LLF Denied: Iosello

Post by David A. Szwak »

Iosello v. Lawrence,
Slip Copy, 2005 WL 2007147, N.D.Ill., Aug 18, 2005

Plaintiff filed a class action complaint alleging violations of the Credit Repair Organizations Act ("CROA"), 15 U.S.C. § 1679 et seq., and the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA"), 815 ILL. COMP. STAT. 505/2 et seq. Before the Court is plaintiff's objection to Magistrate Judge Michael T. Mason's Report and Recommendation in which he recommends that plaintiff's motion for class certification be denied. For the following reasons, the Court adopts Magistrate Judge Mason's Report and Recommendation and denies plaintiff's motion to certify a class.

FACTS
In this class action, Christopher Iosello has sued Victor Lawrence d/b/a Lexington Law Firm ("Lexington") alleging that Lexington's business practices do not comply with the CROA or ICFA. He alleges that he contracted with Lexington Law Firm for credit repair services via the Internet, mail and telephone during 2002. (Second Am. Compl. ¶ 6.) The terms of the contract were set forth on an Internet site maintained by Lexington. (Id. ¶ 6; id. Exs. A & B.) Plaintiff paid approximately $145.00 to Lexington for credit repair services pursuant to such contract, which was refunded in full by Lexington. (Id. ¶ 8.) Plaintiff alleges that Lexington's contract violates the CROA in three ways: (1) it has insufficient and improper disclosures; (2) it makes false or misleading representations; and (3) it contains an unlawful payment scheme. (Id. ¶¶ 11-44.) Plaintiff further alleges that the CROA violations also constitute violations of the ICFA as deceptive and unfair business practices. (Id. ¶¶ 53-59.)
He alleges that Lexington's procedures do not comply with three separate statutorily required disclosure statements of the CROA. First, plaintiff alleges that Lexington's written disclosure statement does not mirror the language and direction of 15 U.S.C. § 1679c(a) and (b). Second, plaintiff alleges that Lexington's contract cancellation disclosure does not comply with 15 U.S.C. § 1679d(b)(4). Third, plaintiff alleges that Lexington does not properly disclose the right of consumers to cancel their contract as required by a "Notice of Cancellation" under 15 U.S.C. § 1679e.
Fourth, plaintiff alleges that Lexington made false or misleading representations in violation of the CROA, 15 U.S.C. § 1679d(a)(3), which states that no person may "make or use any untrue or misleading representation of the services of the credit repair organization." These allegations center on claims that Lexington's website, contract and disclosures imply it will write letters on a Lexington letterhead signed by a Lexington attorney, but instead Lexington sends letters to credit bureaus in its customers' names. (Id. ¶¶ 21-26.)
Finally, plaintiff alleges that Lexington's fee structure, charging a $75.00 file initialization fee and $35.00 per month charge for services performed thereafter, violates several provisions of the CROA. Plaintiff alleges this violates 15 U.S.C. § 1679b(b), which states that "[n]o credit repair organization may charge or receive any money or other valuable consideration for the performance of any service which the credit repair organization has agreed to perform for any consumer before such service is fully performed." (Id. ¶¶ 27-34.) Plaintiff also alleges that Lexington's fee structure does not disclose, in writing, "the total amount of all payments to be made by the consumer to the credit repair organization or to any other person" as required by 15 U.S.C. § 1679d(b)(1). (Id. ¶¶ 35-40.) In addition, plaintiff alleges that Lexington's estimated length of period to perform does not comply with 15 U.S.C. § 1679d(b)(2)(B). (Id. ¶¶ 41-42.)
*2 Plaintiff's Second Amended Complaint also alleges two class action claims. Plaintiff's CROA claim is brought on behalf of a class consisting of all persons who contracted with Lexington on or after a date five years prior to the filing of this action. (Id. ¶ 45.) Plaintiff's ICFA claim is brought on behalf of a class consisting of all persons with an Illinois address who contracted with Lexington on or after a date three years prior to the filing of this action. (Id.)
Plaintiff seeks certification of two classes. The CROA Class is defined as "all consumers who paid a fee to, or were charged a fee by, Lexington Law Firm or Victor Lawrence for the purpose of challenging inaccurate, misleading, or unverifiable negative items on their credit reports between Feb. 10, 1998 and the present." (Pl.'s Mot. Incorporating Mem. Supp. Mot. Class Certification ("Pl.'s Obj.") at 2.) The ICFA Class is defined as "all consumers located in Illinois who paid a fee to Lexington Law Firm or Victor Lawrence for the purpose of challenging inaccurate, misleading, or unverifiable negative items on their credit reports between Feb. 10, 2000 and the present." (Id.)

DISCUSSION
Federal Rule of Civil Procedure ("Rule") 72 provides for the referral of pretrial matters to a magistrate judge. Fed. R. Civ. P. 72. However, a motion for class certification may not be decided independently by a federal magistrate judge. 28 U.S.C. § 636(b)(1)(A). Accordingly, the district court has the authority to make the final determination on the motion and must "make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." 28 U.S.C. § 636(b)(1).
For a class to be certified, the party seeking certification must first satisfy each of the four requirements of Rule 23(a): "(1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class." Fed. R. Civ. P. 23(a). Once these requirements are satisfied, the plaintiff must also satisfy one of Rule 23(b)'s requirements. Cwiak v. Flint Ink Corp., 186 F.R.D. 494, 496 (N.D.Ill.1999). Because plaintiff has moved to certify the classes under Rule 23(b)(3), plaintiff must show that "questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy." Fed. R. Civ. P. 23(b)(3). A failure of any of the requirements of Rule 23 results in a denial of class certification. Gen. Tel. Co. v. Falcon, 457 U.S. 147, 161, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982).
Plaintiff objects to Magistrate Judge Mason's recommendation regarding the absence of numerosity, typicality and commonality under Rule 23(a). Specifically, plaintiff raises three objections: (1) Magistrate Judge Mason's determination that "plaintiff has not provided sufficient proof of numerosity was premature because plaintiff's objection to the Magistrate's prior recommendation denying plaintiff's motion to compel information about the class members had not yet been resolved," (2) notwithstanding the previous objection, plaintiff argues it has submitted sufficient evidence of numerosity, and (3) the requirements of typicality and commonality are met because defendant "does not dispute the terms of the standard form contract plaintiff is challenging, and the majority of plaintiff's claims are ... dependent on the terms of Lexington's form contract and Lexington's standard business practices." (Pl.'s Obj. at 1-2.)
A. Discovery Issues at the Time of Magistrate Judge Mason's 10/8/04 Report and Recommendation Have Since Been Resolved
*3 On July 1, 2004, the day after discovery closed, plaintiff moved to compel discovery of documents plaintiff now claims are essential to establishing numerosity. On that same day, Magistrate Judge Mason denied plaintiff's motion to compel or alternatively for rule to show cause. Plaintiff then sought review of that order by this Court, and such review remained pending as of October 8, 2004, the date of Magistrate Judge Mason's Report and Recommendation to deny class certification. Plaintiff contends that "it was erroneous for Judge Mason to deny class certification for failure to provide sufficient information regarding class size, given the fact that plaintiff's objection was still pending." (Pl.'s Obj. at 7.)
However, on December 13, 2004, this Court rejected plaintiff's objections to Magistrate Judge Mason's July 1, 2004 denial of plaintiff's motion to compel or alternatively for rule to show cause and ruled:
[W]ith regard to Magistrate Judge Mason's denial of Iosello's Motion to Compel, or Alternatively for Rule to Show Cause on July 1, 2004, the Court finds no error. Magistrate Judge Mason's Memorandum Opinion and Order of March 1, 2004 compelled Defendant to respond to specific interrogatories and document production requests. (Mem. Op. & Order of 3/1/04 at 6.) However, Magistrate Judge Mason clearly ordered Plaintiff to redraft and resubmit interrogatories 2, 3, and 4 to Defendant. (Id. at 2, 6.) In essence, the Motion to Compel was granted as to the inapplicability of the attorney-client privilege. (Id. at 2.) However, it is clear that Magistrate Judge Mason deemed interrogatories 2, 3, and 4 too broad and ordered them narrowed. (Id.) Thus, he could not have compelled a response to an interrogatory that had not yet been drafted.
Plaintiff combined interrogatories 2, 3, and 4, resulting in the completely new interrogatory 4a, and submitted it to Defendant as required. Defendant did not reply to the newly drafted interrogatory. For over two months Plaintiff did not compel Defendant's reply or seek any clarification from the Court. In fact, it was Defendant who moved for clarification on the newly drafted 4a on June 16, 2004. Plaintiff, with the end of discovery looming, waited until July 1, 2004 to notice-up a motion in order to compel such an answer. Plaintiff incorrectly states that the Magistrate Judge and this Court have compelled the defendant to answer interrogatory 4a (Pl.'s Obj. Mag.'s Ruling at 4.) Therefore, Plaintiff's argument of law of the case must fail because interrogatory 4a was not in existence at the time of the Memorandum Opinion and Order of March 1, 2004. Thus, this Court could not have addressed it in its May 24, 2004 Memorandum Opinion and Order in which it rejected Defendant's objections regarding Magistrate Judge Mason's March 1, 2004 order.
This Court holds that Magistrate Judge Mason was well within his discretion to enforce the cut-off date of discovery, to find the motion to compel untimely, and to hold that interrogatory 4a had at no time been compelled. Accordingly, the Court rejects Iosello's objections to Magistrate Judge Mason's ruling of July 1, 2004.
*4 (Order of 12/13/04.) Thus, plaintiff's objection to Magistrate Judge Mason's Report and Recommendation regarding the denial of class certification might have been meritorious only if the scope of discovery had changed. However, after December 13, 2004, the status of discovery was exactly as it was on October 8, 2004, the date of Magistrate Judge Mason's Report and Recommendation regarding the denial of class certification. Plaintiff's objections regarding discovery issues were fully addressed and rejected by this Court on December 13, 2004. Therefore, plaintiff's objection to Magistrate Judge Mason's October 8, 2004 Report and Recommendation based on unresolved discovery issues is without merit. [FN1]


FN1. In addition, it is important to note that plaintiff had eight months for completion of discovery, which included the Court's granting of two extensions of the discovery deadline. Plaintiff waited until after
close of discovery to bring to the attention of the Court any issues regarding Lexington's alleged unresponsiveness to discovery requests. The fault must be laid at plaintiff's own door because the Court must always be allowed to enforce the cut-off dates of discovery. Landis v. N. Am. Co., 299 U.S. 248, 254, 57 S.Ct. 163, 81 L.Ed. 153 (1936) (the court has power to "control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants.")


B. Insufficient Evidence of Numerosity under Rule 23(a).
Plaintiff has not met his burden to establish the numerosity requirement of Rule 23(a)(1), which requires that the class be "so numerous that joinder of all members is impracticable." Fed. R. Civ. P. 23(a)(1). In establishing numerosity, plaintiffs "are not required to specify the exact number of persons in the class, but cannot rely on conclusory allegations that joinder is impractical or on speculation as to the size of the class in order to prove numerosity." Marcial v. Coronet Ins. Co., 880 F.2d 954, 957 (7th Cir.1989) (internal citations omitted).
In this case, plaintiff contends that Lexington had 80,000 clients for credit repair during the years of the proposed class period. (Pl.'s Obj. at 4.) Plaintiff then opines that because the alleged CROA violations involve defendant's standard contract and business procedures, the number of potential class members must exceed the forty generally required to satisfy the numerosity requirement. (Id.) However, plaintiff has made no factual showing that any of Lexington's other 80,000 clients were subjected to any of these same alleged CROA violations. At best, plaintiff compiles inference upon inference to argue that
f an even number of clients were signed up every year, Lexington had over 13,000 clients per year. Thus, even if Lexington made material changes to the pages in dispute in its contract and/or website, every singe day, there would be at least 36 people who saw the same website and entered the same contract as Mr. Iosello did.
(Id. at 7.) Although this Court may rely on common sense assumptions or reasonable inferences in determining numerosity for class certification, Ringswald v. County of DuPage, 196 F.R.D. 509, 512 (N.D.Ill.2000), plaintiff's speculative calculations as to the number of potential class members who may have viewed the same web pages on any given day or may have signed the same contract are insufficient to satisfy his burden of establishing numerosity, see Jenkins v. Mercantile Mortgage Co., 231 F.Supp.2d 737, 744 (N.D.Ill.2002). In Jenkins, the plaintiff argued that defendant was "a business of substantial size that uses printed form documents to engage in the practice of retaining funds for government distribution, and that this use of forms allows [the Court] to infer the existence of a sufficiently large class of plaintiffs." Id. The Jenkins court rejected this argument as too speculative to support class certification stating that although defendant used a form with the plaintiff and other customers, it did not inherently follow that a number of plaintiffs in the proposed class must exist. Id.
*5 A plaintiff's failure to put forth sufficient or even minimal evidence of numerosity is enough to deny a motion for class certification. See Retired Chi. Police Ass'n v. City of Chi., 7 F.3d 584, 596 (7th Cir.1993) (stating all four elements of Rule 23(a) must be satisfied in order to certify the class). However, even if plaintiff were able to establish numerosity, which he does not, the Court would still deny the motion to certify the class because he has not established typicality or commonality. The Court will address those elements as well.
C. Insufficient Evidence of Typicality and Commonality under Rule 23(a).
Plaintiff objects to Magistrate Judge Mason's recommendation regarding the absence of typicality as required under Rule 23(a)(3). Under Rule 23(a), the class representative is required to show that either his claims or defenses are typical of those of the class. Fed. R. Civ. P. 23(a)(3). "A plaintiff's claim is typical if it arises from the same event or practice or course of conduct that gives rise to the claims of other class members and his or her claims are based on the same legal theory." De La Fuente v. Stokely-Van Camp. Inc., 713 F.2d 225, 232 (7th Cir.1983). Typicality may be found even where "there are factual distinctions between the claims of the named plaintiffs and those of other class members." Id. "Instead, we look to the defendant's conduct and the plaintiff's legal theory to satisfy Rule 23(a)(3)." Rosario v. Livaditis, 963 F.2d 1013, 1018 (7th Cir.1992). A plaintiff's claims are not typical if "proving them does not necessarily prove all the proposed class members' claims." Calkins v. Fid. Bond & Mortgage Co., No. 94 C 5971, 1998 WL 719569, at *2 (N.D.Ill. Oct.8, 1998). Moreover, general allegations in support of a motion for certification are presumed true, Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 177-78, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974), but a litigant may not rest on mere conclusory allegations, and must make a minimal factual showing that the conditions for certification exist, Young v. Lehigh Corp., No. 80 C 4376, 1989 WL 117960, at *16 (N.D.Ill. Sept.28, 1989).
In this case, plaintiff purports to define the classes as all consumers who paid or were charged a fee by Lexington for the purpose of challenging inaccurate, misleading or unverifiable negative items on their credit reports. Although plaintiff alleges these violations are representative of Lexington's standard business procedures, there is no attempt to limit the proposed class to Lexington clients who entered the same (even a substantially similar) contract or viewed the same web pages as the plaintiff.
This Court finds, for all of the reasons that Magistrate Judge Mason did, that plaintiff has failed to meet his burden to put forth sufficient evidence of typicality. Plaintiffs have not sufficiently established that the allegations of systematic disclosure violations, false or misleading representations, and payment violations apply to the proposed class of all Lexington consumers. Further, this Court agrees with Magistrate Judge Mason that
*6 t is entirely possible that members of the proposed class entered into contracts which did not contain any of the CROA violations alleged in plaintiff's complaint. As a result, it is impossible to determine whether plaintiff's claims arise from the same practice or course of conduct as the class members' claims.
Iosello v. Lawrence, No. 03 C 987, 2004 WL 2304548, at *2 (N.D.Ill. Oct. 12, 2004). In short, plaintiff has failed to show that he is typical of all Lexington consumers.
Additionally, plaintiff objects to Magistrate Judge Mason's recommendation regarding the absence of commonality as required under Rule 23(a)(3). Under Rule 23(a)(2), there must be questions of law or fact common to the class. Fed. R. Civ. P. 23(a)(2). However, "[n]ot all factual or legal questions raised in the litigation need to be common so long as at least one issue is common to all class members." McDonald v. Washington Mut. Bank, No. 99 C 6884, 2000 WL 875416, at *2 (N.D.Ill. June 26, 2000). Generally, the commonality requirement is met when there is a common nucleus of operative fact. Rosario, 963 F.2d at 1018.
For similar reasons as to why plaintiff failed to meet the requirement of typicality, this Court finds that plaintiff failed to set forth any factual showing that Lexington's alleged violations were imposed on the proposed class. Plaintiff argues that the common question, predominating all other issues, is whether Lexington's standard operating procedures violated the CROA or ICFA. Indeed, the use of form contracts does create an ideal situation for certifying a class action. Keele v. Wexler, 149 F.3d 589, 594 (7th Cir.1998) ("When viewed in light of Rule 23, claims arising from interpretations of a form contract appear to present the classic case for treatment as a class action ....") (internal quotations omitted). In Keele v. Wexler, the court certified a class action based on form letters for debt collection under the Fair Debt Collection Practices Act. Id. at 592. However, the class in Keele was defined as "all Colorado residents who have received collection letters from defendants within the relevant time period." Id. (emphasis added). Again, however, plaintiff has not established any factual support for the contention that all Lexington consumers who paid or were charged a fee for the purpose of challenging inaccurate, misleading, or unverifiable negative items on their credit reports were subjected to the same or substantially similar contract, relied on or viewed the same web pages as the plaintiff, or were subjected to any of the alleged CROA violations. Therefore, plaintiff's has failed to establish commonality regarding the classes as defined, as required under Rule 23(a)(2).

CONCLUSION
For the foregoing reasons, the Court adopts the Report and Recommendation of Magistrate Judge Michael T. Mason in full and therefore denies plaintiff's motion for class certification [doc. no. 126-1].
*7 SO ORDERED
N.D.Ill.,2005.
Iosello v. Lawrence
Slip Copy, 2005 WL 2007147 (N.D.Ill.)
David A. Szwak
Posts: 4126
Joined: Tue Jul 26, 2005 4:15 am

Earlier Decision: Same Case: Iosello

Post by David A. Szwak »

Iosello v. Lawrence,
Not Reported in F.Supp.2d, 2004 WL 2304548, N.D.Ill., Oct 12, 2004

Plaintiff, Christopher Iosello, filed a class action complaint against Victor Lawrence, d/b/a Lexington Law Firm, alleging violations of the Credit Repair Organizations Act (15 U.S.C. § 1679 et seq.) and the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS § 505/2 et seq.). Plaintiff also filed a motion for class certification. The District Court referred the matter of class certification to us for a report and recommendation. For the following reasons, we recommend that the District Court deny plaintiff's motion for class certification.
Background
Plaintiff's Second Amended Complaint alleges that during 2002, he contracted with Lexington Law Firm ("Lexington") for credit repair services, via the Internet, mail and telephone. Plaintiff's contract terms were set forth on a website maintained by Lexington. Those terms are attached to the Second Amended Complaint as Exhibits A and B. Plaintiff alleges that Lexington's business practices do not comply with the Credit Repair Organizations Act ("CROA") or the Illinois Consumer Fraud and Deceptive Business Practices Act ("ICFA"). Plaintiff claims that Lexington's contract violates the CROA in multiple respects. In particular, plaintiff alleges three categories of CROA violations: (1) insufficient and improper disclosures; (2) false and misleading representations; and (3) payment violations (requiring an initial retainer fee prior to sending credit repair letters). Plaintiff further alleges that the CROA violations also constitute violations of the ICFA.
Plaintiff's complaint also alleges two class action claims. Plaintiff's CROA claim is brought on behalf of a class consisting of all persons who contracted with Lexington within five years prior to the filing of this action. Plaintiff's ICFA claim is brought on behalf of a class consisting of all persons with an Illinois address who contracted with Lexington within three years prior to the filing of this action.
Plaintiff's class certification motion requests certification of two classes against defendant Victor Lawrence, d/b/a Lexington Law Firm. Plaintiff defines the two classes as follows:
The CROA Class is defined as "all consumers who paid a fee to, or were charged a fee by, Lexington Law Firm or Victor Lawrence for the purpose of challenging inaccurate, misleading or unverifiable negative items on their credit reports between Feb. 10, 1998 and the present."
The ICFA Class is defined as "all consumers located in Illinois who paid a fee to, or were charged a fee by, Lexington Law Firm or Victor Lawrence for the purpose of challenging inaccurate, misleading or unverifiable negative items on their credit reports between Feb. 10, 2000 and the present."
Analysis
In order for a class to be certified under Federal Rule of Civil Procedure 23, the named plaintiff must demonstrate that the four requirements of Rule 23(a) are satisfied. Retired Chicago Police Ass'n v. City of Chicago, 7 F.3d 584, 596 (7th Cir.1993). The four requirements of Rule 23(a) are: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class. Fed.R.Civ.P. 23(a). All of these elements are prerequisites to certification and failure to meet any one of them precludes certification as a class. Retired Chicago Police, 7 F.3d at 596.
*2 Both the 23(a)(2) commonality and 23(a)(3) typicality requirements are closely related. Rosario v. Livadits, 963 F.2d 1013, 1018 (7th Cir.1992). Rule 23(a)(2) requires that the class have common questions of law or fact. Rule 23(a)(3) requires that the claims of the class representative be typical of the claims of the class. Indeed, the class representative's claims must have the same essential characteristics as the claims of the class. Retired Chicago Police, 7 F.3d at 597 (citing De La Fuente v. Stokely-Van Camp, Inc., 713 F.2d 225, 232 (7th Cir.1983)). "A plaintiff's claim is typical if it arises from the same event or practice or course of conduct that gives rise to the claims of other class members and his or her claims are based on the same legal theory." Retired Chicago Police, 7 F.3d at 597.
Here, plaintiff's claims are based on his contract with Lexington. In his class certification motion, plaintiff argues that the primary questions in this action are whether Lexington's contracts comply with the CROA and whether the systematic violations of the CROA are deceptive or unfair under the ICFA. All of the CROA violations plaintiff alleges in his complaint arise out of plaintiff's contract with Lexington and the disclosures plaintiff viewed on Lexington's website. However, the CROA and the ICFA classes as defined are not limited to individuals who entered into the same contract as the plaintiff or to individuals who reviewed and relied on the same web pages as the plaintiff. Instead, the classes include (with certain time period and location restrictions) all consumers who paid or were charged a fee by Lexington for the purpose of challenging inaccurate, misleading or unverifiable negative items on their credit reports.
Plaintiff contends that each credit repair customer has been subjected to one or more of the alleged CROA violations. While allegations in support of a motion for certification generally are presumed true, the plaintiff may not rest on mere conclusory allegations, and must make a minimal factual showing that the conditions for certification exist. Panache Broadcasting v. Richardson Elecs., 1995 U.S. Dist. LEXIS 14462, *19 (N.D.Ill., September 27, 1995). Here, plaintiff has made no factual showing that the conditions for certification exist. In particular, plaintiff has failed to establish that any of the proposed class members entered into contracts that contained the same alleged CROA disclosure violations, false representations or payment violations as the plaintiff's contract. It is entirely possible that members of the proposed class entered into contracts which did not contain any of the CROA violations alleged in plaintiff's complaint. As a result, it is impossible to determine whether plaintiff's claims arise from the same practice or course of conduct as the class members' claims.
Because plaintiff has not demonstrated that his claims arise from the same practice or course of conduct as the class members' claims, plaintiff has failed to establish that his claims are typical of the claims of the class. Plaintiff also failed to establish the commonality requirement because a plaintiff who does not meet the typicality requirement does not have a claim common to the class. Seidat v. Allied Interstate, Inc., 2003 U.S. Dist. LEXIS 10413, *9 (N.D. Ill., June 18, 2003) (recognizing that a plaintiff who does not meet the typicality requirement does not have a claim common to the class and consequently, such a plaintiff fails to meet the commonality requirement).
*3 Furthermore, plaintiff has not met his burden to establish the Rule 23(a)(1) numerosity requirement. A plaintiff cannot satisfy the numerosity requirement without demonstrating that persons other than himself are similarly situated. Jenkins v. Mercantile Mortg. Co., 231 F.Supp.2d 737, 744 (N.D.Ill.2002). Plaintiff argues that Lexington had 80,000 clients over the past several years and therefore, Lexington had more than 40 clients for credit repair services during the class period. However, plaintiff made no factual showing that any other Lexington clients were subjected to the same CROA violations as plaintiff alleges in his complaint. Therefore, plaintiff has not shown that persons other than himself are similarly situated. Additionally, a party seeking class certification cannot rely on speculation as to the size of the class to satisfy the numerosity requirement. Id. (recognizing that the mere fact that the defendant had many other customers did not necessarily mean other class members existed).
Because plaintiff failed to establish the Rule 23(a) numerosity, commonality and typicality requirements, plaintiff's motion for class certification must be denied. Plaintiff's failure to satisfy the Rule 23(a) requirements obviates the need to discuss whether plaintiff satisfied the requirements of Rule 23(b).
Conclusion
This Court recommends that the District Court deny plaintiff's motion for class certification because plaintiff failed to satisfy the requirements of Rule 23(a). Specific written objections to this report and recommendation may be served and filed within 10 business days from the date that this order is served. Fed.R.Civ.P. 72. Failure to file objections with the District Court within the specified time will result in a waiver of the right to appeal all findings, factual and legal, made by this Court in the report and recommendation. Lorentzen v. Anderson Pest Control, 64 F.3d 327, 330 (7th Cir.1995).
N.D.Ill.,2004.
Iosello v. Lawrence
Not Reported in F.Supp.2d, 2004 WL 2304548 (N.D.Ill.)
David A. Szwak
Posts: 4126
Joined: Tue Jul 26, 2005 4:15 am

Yet Another Earlier Decision: Same Case:Iosello

Post by David A. Szwak »

Iosello v. Lexington Law Firm,
Not Reported in F.Supp.2d, 2003 WL 21920237, N.D.Ill., Aug 12, 2003

Plaintiff Christopher Iosello and defendants Lexington Law Firm ("LLF") and Victor Lawrence, principal officer and owner have filed written objections, pursuant to Fed.R.Civ.P. 72, to Magistrate Judge Mason's Report and Recommendation ("R & R") entered on July 18, 2003. In his complaint, the plaintiff alleged a violation of the Credit Repair Organizations Act (15 U.S.C. § 1679) ("CROA"). In his R & R Magistrate Judge Mason considered a motion to dismiss for improper service pursuant to Fed.R.Civ.P. 12(b)(5) and a motion to dismiss for lack of personal jurisdiction pursuant to Fed.R.Civ.P. 12(b)(2). In addition, the defendants argued that the CROA does not apply to attorneys performing credit repair. Magistrate Judge Mason recommended that this Court grant the motion to dismiss, based on the fact that Defendants were never properly served. He also recommended that this Court has personal jurisdiction over the defendants, were they ever to be served properly and that the defendants are, in fact, subject to the CROA. For the reasons set forth below, this Court adopts Magistrate Judge Mason's R & R in full. Additionally, the Court grants Plaintiff's Motion to Extend Deadline for Service, but denies Plaintiff's Motion for Leave to Make Service by Alternative Means.

FACTS
This matter arises out of Mr. Iosello's transaction of business with LLF. During 2002, Mr. Iosello, a resident of Chicago, Illinois, contracted with LLF, located in Salt Lake City, Utah, for credit repair services. (Compl.¶ 10.) Plaintiff learned about and entered into contract with LLF through its website. (Id.) Throughout the relationship, plaintiff interacted with LLF via Internet, mail and telephone. (Id.) Because he was not satisfied with the service, plaintiff requested his money back. (Id. ¶ 12.) Plaintiff alleges in the complaint that his contract with LLF did not comply with the requirements of CROA because (1) it failed to include in writing the total amount of all payments to be made by the consumer to the credit repair organization or to any other person and (2) it did not include a "Notice of Cancellation" form in duplicate. (Id. ¶ 11.) These alleged violations prompted plaintiff to request compensatory and punitive damages, attorney's fees and expenses and other appropriate relief. However, defendants contend that they were never properly served, that this Court lacks personal jurisdiction and that attorneys are not subject to the CROA, and therefore, they move to dismiss the action pursuant to Fed.R.Civ.P. 12(b)(5), 12(b)(2) and 12(b)(6) respectively.

DISCUSSION
When written objections are filed regarding a magistrate judge's R & R, the district court is required to conduct a de novo review of those portions of the R & R at which specific objections are aimed. See 28 U.S.C. § 636(b)(1)(B); Fed.R.Civ.P. 72(b). Nevertheless, de novo review does not require a de novo hearing; the district court is not required to conduct another hearing to review the magistrate judge's findings and credibility determinations. See United States v. Raddatz, 447 U.S. 667, 675 (1980); Goffman v. Gross, 59 F.3d 668, 671 (7th Cir.1995); United States v. Severson, 49 F.3d 268, 273 (7th Cir.1995). Rather, the district court has discretion to "accept, reject, modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C. § 636(b)(1)(B) (2002). If the district court is satisfied with the magistrate judge's findings and recommendations, it may in its discretion treat those findings and recommendations as its own. Raddatz, 447 U.S. at 675.

A. Service of Process
Once a defendant has challenged the sufficiency of service of process with a motion to dismiss under Fed.R.Civ.P. 12(b)(5), the burden is upon the plaintiff to make a prima facie showing that there was proper service. Trotter v. Oppenheimer & Co., No. 96 C 1238, 1997 WL 102531, at *2 (N.D.Ill. Mar. 4, 1997). According to Fed.R.Civ.P. 4, service upon an individual within a United States judicial district may be effected:
(1) pursuant to the law of the state in which the district court is located, or in which service is effected; or (2) by delivering a copy of the summons and of the complaint to the individual personally or by leaving copies thereof at the individual's dwelling house or usual place of abode with some person of suitable age and discretion then residing therein or by delivering a copy of the summons and complaint to an agent authorized by appointment or by law to receive service or process.
Fed.R.Civ.P. 4(e). The first section of Fed.R.Civ.P. 4(e) points out that service is proper pursuant to the law of the state in which the district court is located, (Illinois) or in which service is effected (Utah). While the Utah service rules are the same as Fed.R.Civ.P. 4(e)(2), in Illinois, someone may be served: (1) by leaving a copy of the summons with the defendant personally, [or] (2) by leaving a copy at the defendant's usual place of abode, with some person of the family or a person residing there, of the age of 13 years or upwards, and informing that person of the contents of the summons, provided the officer or other person making service shall also send a copy of the summons in a sealed envelope with postage fully prepaid, addressed to the defendant at his or her usual place of abode. 735 ILCS 5/2-203(a). In this case, plaintiff served defendants by having a process server leave a copy of the summons and complaint with a receptionist at LLF. (Def's. Mem. Supp. Mot. Dismiss at 1.) Defendant Victor Lawrence was never served personally; a copy of the summons was never left at his home; a copy of the summons was never sent to his home. Therefore, in the event plaintiff was attempting to serve Lawrence as an individual, this attempt failed.

There is however, a question as to whether LLF was properly served. Magistrate Judge Mason came to the conclusion that service was not proper and it is that aspect of the R & R to which plaintiff objects. While the complaint alleges that LLF is a corporation, defendants contend that it is a sole proprietorship and this contention is uncontested by the plaintiff. Under Utah law, a sole proprietorship is served in the same way as a corporation. U.C.A.1953 § 42- 2-11. According to Utah R. Civ. P. 4, service on a corporation may be effected by delivering a copy of the summons and the complaint to an officer, a managing or general agent, or other agent authorized by appointment or by law to receive service of process and, if the agent is one authorized by statute to receive service and the statute so requires, by also mailing a copy of the summons and the complaint to the defendant. If no such officer or agent can be found within the state, and the defendant has, or advertises or holds itself out as having, an office or place of business within the state or elsewhere, or does business within the state or elsewhere, then upon the person in charge of such office or place of business. Utah R. Civ. P. 4(d)(1)(E). In Illinois, a corporation may be served by (1) leaving a copy of the complaint and summons with the corporation's registered agent or any officer or agent found anywhere within the state; or (2) in any other manner permitted by law. 735 ILCS 5/2-204. Plaintiff suggests that a receptionist who is in charge of receiving papers for a corporation is a proper agent for service of process. "Generally, the sheriff's return is prima facie evidence of service which can be set aside only by clear and satisfactory evidence." Island Terrace Apartments v. Keystone Serv. Co., Division of Cole Coin Operated Laundry Equip., Inc., 341 N.E.2d 41, 43-4 (Ill.App.1975). However, when a corporation is the defendant, the sheriff's return is not conclusive as to the fact of agency. Id. Most likely agency is not within the personal knowledge of the officer and therefore, it may be disputed by a denial. Id. "Where the agency of the person named on the return is disputed, the defendant has the burden of proving that the individual served was not a proper person to receive service." Id .

Defendants have explained that Victor Lawrence is the registered agent of LLF. (Def's. Mem. Supp. Mot. Dismiss at 1.) Defendants also contend that the receptionist was not a general or managing agent and was not authorized by law or by appointment to receive service on behalf of Mr. Lawrence or LLF. (Def's.Decl.¶ 4.) Plaintiff argues that case law demonstrates a receptionist is a proper person to receive service. In A-Z Equipment Co. v. Moody, the Court held that service was proper when the summons was left with the secretary on duty. 410 N.E.2d 438, 441 (Ill.App.Ct.1980). However, in that case, the defendant's office was also his residence. Id. at 440-1. Additionally, in Sarkissian v. Chicago Board of Education, the Court held a receptionist was a proper person to receive service, but in that case, the evidence established that the Board had delegated authority to her to accept service through a regular custom or practice. 776 N.E.2d 195, 208 (Ill.2d 2002). Plaintiff also argues that the service was valid because the defendant had timely notice of the action, but "a defendant's actual notice of the litigation ... is insufficient to satisfy Rule 4's requirements." Mid-Continent Wood Prods., Inc. v. Harris, 936 F.2d 297, 301 (7th Cir.1991). This Court finds that Mr. Lawrence's uncontested declaration fulfills his burden to establish that the receptionist was not a proper person to receive service. The Seventh Circuit has made it clear that "a liberal construction of the rules of service of process 'cannot be utilized as a substitute for the plain legal requirement as to the manner in which service of process may be had." ' Mid-Continent, 936 F.2d at 300 (quoting United States v. Mollenhauer Labs., Inc., 267 F.2d 260, 262 (7th Cir.1959)). It is clear that plaintiff has not met the strict standards for service of process in this instance. Therefore, this Court accepts Magistrate Judge Mason's R & R on this issue.

B. Personal Jurisdiction [FN1]

FN1. Although dismissal of the complaint for improper service is a threshold issue, this Court feels compelled to analyze defendants' remaining arguments, because they will be at issue if plaintiff is able to effect proper service in the future, especially in light of the fact that the Court grants plaintiff an extension of time in which to do so.

It is the plaintiff's burden to make a prima facie showing of personal jurisdiction. See, e.g., Central States v. Reimer Express World Corp., 230 F.3d 934, 939 (7th Cir.2000); Kohler Co. v. Kohler Int'l, Ltd., 196 F.Supp.2d 690, 695 (N.D.Ill.2002); Quantum Color Graphics, LLC v. Fan Ass'n Event Photo GMBH, 185 F.Supp.2d 897, 902 (N.D.Ill.2002). In analyzing personal jurisdiction, the Court considers all facts in the complaint as true unless refuted by the defendant in an affidavit. Kohler Co. v. Kohler Int'l, 196 F.Supp.2d at 695; Jones v. Sabis Educ. Sys., Inc., 52 F.Supp.2d 868, 883 (N.D.Ill.1999). Once a fact is challenged by an affidavit from the defendant, the plaintiff has an obligation to provide an additional affidavit supporting his or her contention. Id. In the end, all disputed facts will be resolved in the plaintiff's favor. See id.

On this issue, Magistrate Judge Mason recommended that this Court find it does have jurisdiction over the defendants. One of defendants' objections is directed at that aspect of the R & R. Specifically, defendants suggest that Magistrate Judge Mason's rationale for finding personal jurisdiction was flawed with regard to "(1) identifying the contacts Mr. Lawrence had with Illinois; (2) analyzing whether these contacts meet constitutional minimums; (3) analyzing whether, although minimum contacts are found, exercising jurisdiction sufficiently comports with fairness and justice; (4) whether the cause of action "arises out of" any of the defendant's constitutionally sufficient contacts with the forum." (Def's. Objections R & R at 4.) However, this Court agrees with Magistrate Judge Mason, and for the reasons set forth below, accepts his R & R on this issue.
Specific jurisdiction gives a court personal jurisdiction over a non-resident defendant who has sustained minimum contacts with the forum. Euromarket Designs, Inc. v. Crate & Barrel Ltd., 96 F.Supp.2d 824, 833 (N.D.Ill.2000). To establish specific jurisdiction, a plaintiff must show that (1) bringing a defendant into court comports with due process guarantees of the Constitution, and that (2) the defendant is amenable to service of process. See, e.g., United States v. De Ortiz, 910 F.2d 376, 381 (7th Cir.1990); Berthold Types Ltd. v. European Mikrograf Corp., 102 F.Supp.2d 928, 930 (N.D.Ill.2000); Euromarket, 96 F.Supp.2d at 833-34.

Amenability to service of process can be established by showing that the defendant is subject to this court's jurisdiction under the Illinois long-arm statute, 735 ILCS 5/2-209. Euromarket, 96 F.Supp.2d at 834. The long-arm statute provides, inter alia, that jurisdiction is authorized "on any other basis now or hereafter permitted by the Illinois Constitution and the Constitution of the United States." 735 ILCS 5/2-209(c). Therefore, the inquiry collapses into a due process inquiry--whether bringing defendants into this court's jurisdiction would comport with due process requirements of the federal and Illinois constitutions. Berthold, 102 F.Supp.2d at 930; Euromarket, 96 F.Supp.2d at 834. Both constitutions explain that the court must assess the nature and number of contacts that defendant has had with the forum state (Illinois). See., e.g., Rollins v. Ellwood, 565 N.E.2d 1302, 1316 (Ill.1990). The court must evaluate whether defendant has purposefully established minimum contacts with Illinois and whether those contacts would make personal jurisdiction reasonable and fair under the circumstances. See, e.g., Burger King Corp. v. Rudzewicz, 471 U.S. 462, 476-77 (1985); RAR, Inc. v. Turner Diesel, Ltd., 107 F.3d 1272, 1277 (7th Cir.1997); Berthold, 102 F.Supp.2d at 931. Specific jurisdiction also requires that the action arise out of the defendants minimum contacts with the forum state. Berthold, 102 F.Supp.2d at 931; Euromarket, 96 F.Supp.2d at 834.

Plaintiff suggests that this Court has personal jurisdiction over defendants because Lawrence and LLF established minimum contacts with Illinois when they interacted with plaintiff regarding credit repair services. Defendant argues that the interaction was actually unilateral activity conducted by plaintiff, and therefore, there was no "purposeful availment." (Def's. Objections R & R at 5.) However, it is hard to believe that an "interaction" can be unilateral. Plaintiff's declaration states that he filled out a form and entered into a contract with LLF online through defendants' website and that communication went back and forth between plaintiff and LLF over email and the telephone. (Pl's.Decl.¶ 2-6.)

While the issue of what type of Internet activity is sufficient to establish personal jurisdiction has not been addressed by the Seventh Circuit, there is an emerging standard. See, e.g., Berthold, 102 F.Supp.2d at 932; Euromarket, 96 F.Supp.2d at 837; Int'l Star Registry of Ill. v. Bowman-Haight Ventures, Inc ., No. 98 C 6823, 1999 WL 300285, at *4 (N.D.Ill. May 6, 1999). Courts in this district have adopted a three-part sliding scale approach to determine what level of website interaction subjects a defendant to personal jurisdiction. Id. The three categories of Internet activity are (1) those in which the defendant clearly transacts business in foreign jurisdictions over the Internet; (2) those in which the defendant has simply posted information on the Internet with a passive site, but has no further communication with potential customers via the Internet; and (3) those in which the defendant operates an interactive website that allows the defendant and potential customers in foreign jurisdictions to communicate regarding the defendant's goods or services. Id. Using this approach, the likelihood that personal jurisdiction can be constitutionally exercised is proportionate to the nature and quality of activity that a defendant conducts over the Internet. Id. This framework allows courts to appropriately exercise personal jurisdiction over those defendants who fall into the first category by actively conducting business over the Internet. Id. However, courts may not exercise jurisdiction over defendants who fall into the second category of passively providing information to potential customers. See, e.g., Berthold, 102 F.Supp.2d at 933; Euromarket, 96 F.Supp.2d at 838; Int'l Star Registry of Ill. v. Bowman-Haight Ventures, Inc., No. 98 C 6823, 1999 WL 300285, at *5. Lastly, courts may exercise jurisdiction over defendants who fall into the third category by providing an interactive website where a user can exchange information with the host computer. Id.
Applying this framework, defendants' website is sufficiently interactive to bring them within the jurisdiction of this Court. Not only do defendants exchange information with customers over the Internet, but defendants also transact business through the website. This activity is enough to establish minimum contacts with the forum state, and this dispute arises out of those contacts. Although defendants assert that this sliding scale approach is improper and invalid, this Court believes is an effective way to determine whether Internet activity is sufficient to establish minimum contacts in a specific jurisdiction analysis. Additionally, this Court sees no reason why its exercise of jurisdiction would offend the traditional notions of fair play and substantial justice. See, e.g., Burger King, 471 U.S. at 476-77; RAR, Inc., 107 F.3d at 1277; Berthold, 102 F.Supp.2d at 931. Therefore, this Court accepts Magistrate Judge Mason's R & R as to this issue.

[b18]C. Credit Repair Organizations Act
Defendants contend that the CROA does not pertain to lawyers and that a motion to dismiss should be granted on that ground. Magistrate Judge Mason disagreed with defendants and suggested that the CROA does pertain to lawyers-- and any other person--acting in the manner of a credit repair organization, unless specifically exempted by the text of the CROA. This is another aspect of the R & R to which Defendant objects. Defendant asserts that controlling case law establishes an exemption for lawyers performing credit repair services and that Congress did not intend to regulate lawyers with the CROA. For the reasons set forth below, this Court rejects defendants' objections and adopts the R & R as to this issue. 15 U.S.C. § 1679 is the CROA. Section a(3)(B) of that Act provides explicit exceptions to the definition of a "credit repair organization." Lawyers are not listed in the list of exemptions and there is no other statutory clause exempting lawyers from the CROA. Furthermore, 15 U.S.C. § 1679a(3)(A) provides that for the purposes of this statute, a credit repair organization is any person who uses any instrumentality of interstate commerce or the mails to sell, provide, or perform (or represent that such person can or will sell, provide, or perform) any service, in return for the payment of money or other valuable consideration, for the express or implied purpose of (i) improving any consumer's credit record, credit history, or credit rating; or (ii) providing advice or assistance to any consumer with regard to any activity or service described in clause (i).

The fact that the statute names "any person" and does not include lawyers in its list of exceptions, suggests that there was no intention to protect lawyers from this regulation. Magistrate Judge Mason's R & R is accepted as to this issue as well.
In sum, the Court adopts Magistrate Judge Mason's R & R in its entirety. The Court holds that: (1) the service of process on Victor Lawrence and LLF was improper; (2) the Court has personal jurisdiction over both defendants; and (3) the CROA applies to lawyers.

In addition, plaintiff has moved for an extension of time in which to effect service of process which this Court, in its discretion, grants. Plaintiff has also moved for leave to make service by alternative means, which the Court denies without prejudice, because plaintiff has failed to make a sufficient showing that defendants have attempted to evade service. Simply filing a motion to dismiss for improper service and refusing to waive service do not constitute an evasion of service.[/b18]
CONCLUSION
For the reasons set forth above, this court adopts Magistrate Judge Mason's R & R. The Court grants defendants' Rule 12(b)(5) motion to dismiss for improper service [11-2], denies defendants' Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction [11-1], and denies defendants' Rule 12(b)(6) motion to dismiss for failure to state a claim [11-3]. In addition, the Court, in its discretion, grants plaintiff's motion to extend deadline for service within 20 days of the date of this Memorandum Opinion and Order and the Court denies without prejudice plaintiff's motion for leave to make service by alternative means. Plaintiff's motion for certification of the class [3-1] is stricken without prejudice until service of process has been effected.
SO ORDERED

N.D.Ill.,2003.
Iosello v. Lexington Law Firm
Not Reported in F.Supp.2d, 2003 WL 21920237 (N.D.Ill.)
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