The article below was published in The National List of Attorneys July 2012 Quarterly eNewsletter
 

Where Did "Cost of Doing Business" Lawsuits Go?

By Tim Collins, Associate Director of Compliance, Hyundai Capital America

It was not that long ago that the Fair Debt Collections Practices Act (FDCPA) lawsuits we all received were boilerplate complaints, and we could make them go away for $500 to $2,000. It was easier to just settle them and move on with running our businesses. At that time, a few plaintiff attorneys had a cottage industry, and these kinds of lawsuits were the cost of doing business. This was the time before “letter” cases like Goswami, Foti message lawsuits, informal demands, and Telephone Consumer Protection Act (TCPA) claims. Today, these lawsuits make up a skyscraper industry, where plaintiffs’ counsel are making a tremendous amount of money, most of the time at the expense of their own clients. This article covers how the changes occurred, and what we can do to take control of runaway litigation.
 

When did this happen?
The changes occurred sometime in late 2007 and early 2008, when FDCPA lawsuits jumped dramatically, from an average of around four thousand cases a year to just over six thousand. This trend continued into 2009 and did not start to level off until 2011. The graph below shows a year over year comparison from 2009 to 2012 by month, with the trend continuing to increase, but now with an astronomical jump in TCPA and Fair Credit Reporting Act (FCRA) litigation.

What caused the growth in number of cases?
The FCRA and TCPA numbers for the first half of 2012 are truly shocking. We are on track to set new record highs in both TCPA and FCRA claims, while FDCPA lawsuits appear to be leveling off at around twelve thousand federally-filed lawsuits a year. Our research points to numerous factors that spurred this growth. They include the following:

• Plaintiff attorney Boot Camps training new attorneys on the easy money in FDCPA
• Increases in the number of consumers with past-due debt
• Using plaintiffs to the fullest extent possible
• Internet advertising by plaintiff’s counsel
• Increase use of class action lawsuits
   

The “why” is very simple—money and lots of it. With the average settlement now around $3,500 to $4,500, and big firms filing +800 cases a year and settling most of them very early on, we can see that money is one of the biggest drivers in the changes we are seeing today. If you take a major plaintiff’s counsel firm and assume they settle half of what they file, that means some of them are easily bringing in well into the seven figures.
 

How are some new trends affecting the changes?
A scary trend we are seeing is that some firms have dramatically reduced the number of lawsuits. While this may appear to be good news, we don’t believe this to be the case. According to some of their websites, they are greatly expanding their operations, and this makes us believe their business models may have changed to informal litigation demands sent mostly by email. One firm we are tracking went from filing 750 lawsuits in 2010 to 500 in 2011 and is on track to file only 100 lawsuits this year. Yet their own website shows them adding new attorneys and entering new jurisdictions. As scary as that is, it is not as frightening as the way they are acquiring new clients.
 

Back in the day, a frustrated consumer who was angry because of the way they were treated would walk into a law office or call an attorney out of the yellow pages. That attorney would either take the case or refer it to one of the known players that did FDCPA work.  Plaintiff’s counsel would file the same generic lawsuit that they used for all of their cases, and we would settle the case as a cost of doing business. These cases may even have included debt forgiveness as part of the settlement, ending any future FDCPA claims with that account. Once our check had cleared, the plaintiff’s counsel would close his or her file and move on to the next client. Those were the days.

How some firms are finding clients now is truly amazing. Today, it is incredibly easy to use the internet to find clients, and law firms are increasing their chances by doing all kinds of web advertising, including buying Google Adwords that include the law firm’s name. When was the last time you typed your law firm’s name into Google? Who was listed in the very first spot? If you are not buying Google Adwords, it was not your firm. Was it a website like Attorneys for Consumers? Look at the very bottom of the website to find out who is now working together and pooling their money to make sure that, when someone does a search on your business name, their plaintiff law firm comes up first.

Plaintiff firms are spending thousands of dollars on Internet websites and advertising to drive so many consumers to them that they are no longer meeting or talking with their clients. According to some blog postings of actual plaintiffs, they do not even know a lawsuit was filed until they get a $250 check from the plaintiff firm or a notice to appear for a deposition or trial. Furthermore, there is no desire to even help the plaintiff resolve the debt. These attorneys are making it very clear they do not represent the consumer on the debt. This would go against their own interest, because who wants a onetime client when you can ‘help’ them the next time they are called or receive a collection letter. Check out “Consumers dealing with debt collectors become stuck in a vicious cycle of lawsuits” for more details. With more clients and more lawsuits and informal demands, one would think the settlement amounts would drop or at worst stay the same, but it has done the exact opposite.

How do the trends in class action suits affect the current situation?
We think this can be explained partially by the use of class action letters and Foti-type cases. Cursory analysis of past class action cases reveals that the majority of class action lawsuits are dismissed prior to class certification and, more than likely, are settled on an individual basis. Until a class action claim certifies a class, it is only an individual case. So there is no reason to pay higher attorney fees to plaintiff’s counsel to settle the individual claim. Yet most do. Using this tactic alone, plaintiff counsels are able to use the fear of a massive class action lawsuit to dramatically increase the settlement amount. Often times, several different plaintiff law firms will be listed on the complaint to also instill fear and urgency in the defendant to settle rather quickly or face paying for attorney fees for all of the firms standing before you. Foti class actions even ushered in a whole new level for settlement amounts when some of these cases were settled on a class basis by publishing the notice to the class in a newspaper, with almost all class members never receiving a penny. Today we are seeing TCPA class actions and individual TCPA cases pushing settlement amounts to untold heights.
 

As we can see, we are no longer dealing with a cottage industry, but with technologically sophisticated organizations driven by mass volumes sourced from the internet. With the new trend to just send informal email demands, we will quickly lose the ability to know what the other side is doing and on what scale. Plaintiffs’ counsel will have no incentive to change, if we continue to respond the way that we have always responded and hope they will eventually leave us alone. If we want to slow down and reverse these current trends, we must change.

How can you help to affect change and protect your law firm?
You can affect change by building a robust, helpful website that allows frustrated consumers a place to be heard by a team dedicated to responding to their complaints in a timely fashion. You can set up a Google Adwords account that lists the name of your firm and all the phone numbers you use. You can scrub your accounts before you start collecting on them by using WebRecon, which can also watch your portfolio and tell you if a consumer starts filing FDCPA and other consumer-type cases. If you get an informal demand, do a quick search to see if there are any other cases with this plaintiff. If plaintiff’s counsel has not filed a lawsuit, think about ignoring the demand. They know a lot of organizations are scrubbing their files for litigious consumers, and as soon as they file a lawsuit, it is going to show up in WebRecon’s database. A known plaintiff is no longer valuable if no one is calling them. Finally, if you get sued or receive an informal demand, report the consumer information to WebRecon’s Bureau of Litigant Data. The more we know about what the other side is doing, the better we can respond and develop new tactics of our own. While this may seem overwhelming, it doesn’t have to be. We have helped our clients do all of this and more, and we can help you too.
 

If we prevent one lawsuit, we have saved ourselves at least $3,500, and maybe even stopped ourselves from becoming a target for one of the big plaintiff firms. With the amount of money involved increasing and plaintiff counsel willingness to continue to find ways to increase their profits, mostly at the expense of their own clients, we need to continue to monitor and share what we know in order to make it unprofitable for them to sue us. Please feel free to share what you know by emailing me at tim@optimizedlegal.com or calling us at (760) 933-9007. 

If you want to learn more about how you can protect your law firm, contact Optimized Legal Solutions by visiting our website at http://optimizedlegalsolutions.com/. We are holding our last Litigation Prevention Workshop of the year on September 19th and 20th in sunny San Diego, and the seats are already filling up. We look forward to seeing or hearing from you soon.
 

About the author

Tim Collins is the Associate Director of Compliance for Hyundai Capital America in charge of designing and implementing HCAs corporate governance and compliance programs. Prior to HCA he was VP of Risk Management and General Counsel for ARS National Services, Inc., where he managed three departments that reduced legal and business exposure in a highly regulated and litigious industry. Before joining ARS National Services, Inc., Tim was Legal Counsel with Midland Credit Management Corporation where he established their litigation outsourcing program. He has over twenty years of experience in the collections industry including firsthand experience in litigating cases and winning at trial. Tim approaches risk and litigation with innovative “outside the box” strategies and has mastered the ability to forecast unforeseen industry risks with pinpoint accuracy. He is the current Chair of the ACA International MAP Committee, past president of the Association of Corporate Counsel-San Diego Chapter, and teaches a seminar on In-House Corporate Practice at the University of San Diego Law School. Tim is also a Principal of Optimized Legal Solutions, LLC, which provides litigation management consulting and workshops to organizations that want to reduce their risk and litigation exposure, yet still be able to produce sustainable profits.