Midland Funding, LLC v. Giles

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MIDLAND FUNDING, LLC v. JOSEPH GILES

Nos. 21-304, 21-305

Court of Appeals of Louisiana, Third Circuit

December 15, 2021

APPEAL FROM THE THIRTY-THIRD JUDICIAL DISTRICT COURT PARISH OF ALLEN, NO. C-2016-334 HONORABLE ERROL DAVID DESHOTELS, JR. DISTRICT JUDGE

J Craig Jones

COUNSEL FOR DEFENDANT-APPELLEE:

Joseph Giles

Craig R. Hill

COUNSEL FOR DEFENDANT-APPELLEE:

Joseph Giles

Matthew W. McDade

Balch & Bingham LLP

COUNSEL FOR PLAINTIFF-APPELLANT:

Midland Funding, LLC

Court composed of Elizabeth A. Pickett, Billy Howard Ezell, and D. Kent Savoie, Judges.

Pickett, Judge.

Midland Funding, LLC appeals the trial court's judgment denying its motion to strike the debtor's motion for class action certification and granting the debtor's request for certification of his class action. Midland also seeks review of the trial court's denial of its exceptions of peremption, no right of action, no cause of action, res judicata, and improper cumulation of actions. For the following reasons, we reverse the trial court's judgment.

FACTS AND PROCEDURAL BACKGROUND

In November 2015, Synchrony Bank assigned to Midland Funding, LLC, a debt incurred by Joseph Giles on a WalMart credit card issued to him. On August 16, 2016, Midland filed suit against Mr. Giles to collect that debt. In December 2016, Midland obtained a default judgment against Mr. Giles in the amount of $2, 460.25, together with all costs of the proceeding.

On May 30, 2019, Mr. Giles filed a reconventional demand against Midland asserting that Midland did not have a lender license, as required by the Louisiana Consumer Credit Law (LCCL), La.R.S. 9:3510-3577.5, when it obtained the default judgment against him. Mr. Giles sought to have: (1) Midland's judgment against him annulled; (2) his credit card debt declared null and void; (3) Midland enjoined from continuing collection activities with regard to accounts similar to his; and (4) damages and other relief as provided by the LCCL. Mr. Giles also asserted a class action complaint against Midland to allow other debtors against whom Midland sought to collect on assigned debts without having first obtained the appropriate license required by the LCCL. In October 2019, Mr. Giles filed a motion to have the trial court grant his request for class certification.

Midland answered Mr. Giles' petition, denying his claims. It also filed a number of peremptory, declinatory, and dilatory exceptions in which it sought to thwart Mr. Giles' claims on a number of grounds, and a motion to strike his class action and certification allegations. Midland asserts that it is registered as a "notification filer" under La.R.S. 9:3563-3565 which governs collection agencies or debt collectors. It does not originate loans, credit, or other financial products. Instead, it purchases and then collects debts made by other financial institutions. On September 18, 2014, the Louisiana Office of Financial Institutions informed Midland that the LCCL had newly-added provisions requiring that it be issued a lender license by January 1, 2015. That same day, Midland applied for a lender license. Midland asserts that despite its frequent communication with the Office of Financial Institutions, its lender license was not granted until November 22, 2017.

After conducting a hearing, the trial court denied Midland's exceptions and its motion to strike Mr. Giles' class action and certification allegations and granted Mr. Giles' request for class certification. Midland appealed the judgment's grant of class certification, as provided by La.Code Civ.P. art. 592(A)(3)(c), and filed a writ application seeking to have the trial court's denial of its exceptions reversed. We consolidated the two matters for consideration in this appeal.

ASSIGNMENTS OF ERROR

Midland asserts the following assignments of error in its appellate brief:

I. The trial court erred in granting class certification for the following three reasons:

A. The class action vehicle is not superior.

B. Individual inquiries, not common questions of law or fact, predominate.

C. Giles is not an adequate or typical class representative.

Midland asserts two assignments of errors in its writ application:

I. The trial court erred in overruling Midland's Peremptory Exceptions, denying its request to dismiss the Petition[.]

II. The trial court erred in failing to enforce the Class Action Waiver to Giles' Account and the accounts of many putative class members.

DISCUSSION

Peremptory Exceptions

We address Midland's assigned errors regarding the trial court's denial of its peremptory exceptions first because they may be dispositive of other issues argued by Midland.

Midland asserts that the trial court erred in denying its exception of peremption with regard to Mr. Giles' claim to annul its judgment against him. Midland's exception is based on La.Code Civ.P. art. 2004 which provides that "[a] final judgment obtained by fraud or ill practices may be annulled[ ]" if "[a]n action to annul . . . [is] brought within one year of the discovery by the plaintiff in the nullity action of the fraud or ill practices." Article 2004 governs relatively null judgments.

Mr. Giles urges, however, that Midland's judgment is absolutely null based on a provision of the LCCL that declares certain consumer credit transactions are null, void, and unenforceable. The trial court agreed for reasons other than those asserted by Mr. Giles that Midland's judgment is absolutely null and denied the exception. For these reasons, the merits of Midland's exception of peremption is intertwined with its exception of no right of action, and we address the exception of no right of action first.

No Right of Action

Midland asserts that Mr. Giles does not have a right of action under the LCCL to recover the relief he seeks. The peremptory exception of no right of action, La.Code Civ.P. art 927(A)(6), is based on La.Code Civ.P. art. 681, which provides that "an action can be brought only by a person having a real and actual interest which he asserts."

A peremptory "exception of no right of action is a threshold procedural device used to terminate a suit brought by a person who has no legally recognized right to enforce the right asserted." Joseph v. Hosp. Serv. Dist. No. 2 of Par. of St. Mary, 05-2364, p. 4 (La. 10/15/06), 939 So.2d 1206, 1210. Thus, "[t]he exception of no right of action serves to question whether the plaintiff in the particular case is a member of the class of persons that has a legal interest in the subject matter of the litigation." Badeaux v. Sw. Computer Bureau, Inc., 05-612[, ] pp. 6-7 (La. 3/17/06), 929 So.2d 1211, 1217.

Nat'l Collegiate Student Loan Tr. 2006-1 v. Thomas, 21-90, p. 5 (La.App. 3 Cir. 6/2/21), 322 So.3d 374, 377-78 (alteration in original).

Appellate review of the denial of an exception of no right of action is de novo because it presents an issue of law. Washington Mut. Bank v. Monticello, 07-1018 (La.App. 3 Cir. 2/6/08), 976 So.2d 251, writ denied, 08-530 (La. 4/25/08), 978 So.2d 369. When reviewing questions of law, appellate courts simply review whether the lower court was legally correct or incorrect. Foster v. ConAgra Poultry Co., 95-793 (La.App. 3 Cir. 2/14/96), 670 So.2d 471, writ denied, 96-645 (La. 4/26/96), 672 So.2d 674.

Mr. Giles argues that Midland's judgment is "unenforceable" and "uncollectible" under the LCCL because its judgment against Mr. Giles was "absolutely null." The trial court agreed, citing Articles 7, 2030, and 2032 of the Louisiana Civil Code. Article 7 provides: "Persons may not by their juridical acts derogate from laws enacted for the protection of the public interest. Any act in derogation of such laws is an absolute nullity." Article 2030 states:

A contract is absolutely null when it violates a rule of public order, as when the object of a contract is illicit or immoral. A contract that is absolutely null may not be confirmed.

Absolute nullity may be invoked by any person or may be declared by the court on its own initiative.

Lastly, La.Civ.Code art. 2032 provides, in pertinent part: "Action for annulment of an absolutely null contract does not prescribe."

The cornerstone of Mr. Giles' claims is that Midland's suit and judgment against him violate La.R.S. 9:3518.4(A) (emphasis added), which states, in pertinent part:

(1) A consumer credit transaction as defined by R.S. 9:3516(13) . . . shall be null, void, unenforceable, and uncollectible as being contrary to the policy of this state if the creditor has not obtained a license, if required by this Chapter or R.S. 9:3578.1 et seq., at the time the transaction is made.

(2) The creditor shall forfeit all loans or transactions proceeds, fees, charges, and other amounts paid in association with the transaction or loan.

Mr Giles argues that Midland is a creditor under this provision and that Midland's licensure violation renders its judgment against him "null, void, unenforceable, and uncollectible" and "contrary to public policy." These arguments misapply the definition of "creditor" to Midland. "Creditor" has two definitions under the LCCL. It is defined in the alternative with the term "extender of credit" as including "a seller in a consumer credit sale . . . or transaction made with the use of a seller credit card . . . or a lender credit card transaction." La.R.S. 9:3516(18). "Creditor" is also defined as "a subsequent assignee or transferee of the consumer's obligation[.]" Id. For purposes of Section 3518.4(A), Midland is only a creditor or extender of credit if it is a seller or lender in a consumer credit transaction. Mr. Giles has not argued or presented evidence that Midland is either a seller or a lender. Specifically, he has not established that Midland was a creditor,...