Você está na página 1de 184

FDCPA AND LEGAL ETHICS ISSUES FOR COLLECTION ATTORNEYS

MANUEL H. NEWBURGER Barron & Newburger, P.C. 1212 Guadalupe, Suite 104 Austin, Texas 78701-1837 (512) 476-9103 Fax: (512) 279-0310 mnewburger@bn-lawyers.com

State Bar of Texas STATE BAR COLLEGE TH 14 ANNUAL SUMMER SCHOOL July 19-21, 2012 Galveston Island CHAPTER 15
Copyright Manuel H. Newburger 2012

Manuel H. Newburger BARRON & NEWBURGER, P.C. 1212 Guadalupe, Suite 104 Austin, Texas 78701-1837 (512) 476-9103 Fax: (512) 279-0310 BIOGRAPHICAL INFORMATION Manuel H. (Manny) Newburger is the Vice-President of Barron & Newburger, P.C., and practices in the firms Austin office. He is also the President of Fair Debt Consultants, LLC, and an Adjunct Professor at the University of Texas School of Law, where he has taught consumer protection law since 1999. He has repeatedly been recognized by Law & Politics and Texas Monthly magazines as a Texas Super Lawyer, and he is a Fellow of the American College of Consumer Financial Services Lawyers Mr. Newburger received a B.A. in history from Trinity University in 1980 and his J.D. in 1983 from the University of the Texas School of Law. He has been licensed to practice law in both Texas and Colorado, and he is admitted to practice before the United States Supreme Court, the United States Courts of Appeals for the Second, Fifth, Seventh, Eighth, and Ninth Circuits, all United States District Courts in Texas, and the United States District Courts for the Eastern and Western Districts of Wisconsin, the Northern District of Illinois, the Northern and Southern Districts of Indiana, the District of Colorado, and the Western District of Tennessee. He is certified as a specialist in Consumer and Commercial Law by the Texas Board of Legal Specialization, and his practice is almost exclusively in the areas of consumer and commercial law. Mr. Newburger is a past Chair of the Consumer Law Section of the State Bar of Texas, and the Texas State Bar's Advisory and Exam Commissions on board certification in consumer law. He is a member of the Commercial Law League of America, and he served for four years as Chairman of the Fair Debt Collection Practices Act Committee of that organization and subsequently as the Chair Emeritus of that committee. He testified as the Leagues representative before a United States Congressional Subcommittee regarding the Fair Debt Collection Practices Act at the last oversight hearing held on the Act. A frequent speaker at Continuing Legal Education Programs around the United States, Mr. Newburger has a nationally-based consumer law practice in the area of fair debt collection practices. He has been quoted in articles on FDCPA issues in the National Law Journal, Lawyers Weekly USA, and The Texas Lawyer, and in 1995, he represented the Commercial Law League of America as an amicus curiae in Heintz v. Jenkins, 514 U.S. 291, 115 S.Ct. 1489 (1995), White v. Goodman, 200 F.3d 1016 (7th Cir. 2000), Koons Buick Pontiac GMC, Inc. v. Nigh, 543 U.S. 50, 125 S. Ct. 460,160 L. Ed. 2d 389 (2004), and Riviere v. Banner Chevrolet, Inc., 184 F.3d 457 (5th Cir. 1999). Mr. Newburger is the co-author of M. Newburger and B. Barron, Fair Debt Collection Practices: Federal and State Law and Regulation (Sheshunoff & Pratt 2002), M. Newburger and B. Barron, The Guide to Fair Debt Collection Practices Laws in the United States (Faulkner & Gray 2000), as well as a number of published articles on consumer law. He was a member of the manual committee for the Texas Collection Manual Third Edition (State Bar of Texas 2000), and a contributing author to the Manual of Credit and Commercial Laws (National Association of Credit Management 2002) and The Practice of Consumer Law (National Consumer Law Center) (Chapter 13). Mr. Newburger was a recipient of the State Bar of Texas 1999 Frank J. Scurlock Award for voluntary legal services to the poor, the 2006 J. Chrys Dougherty Award from Volunteer Legal Services of Central Texas, the 2005 Don Kramer Award from the National Association of Retail Collection Attorneys, and the 2008 Presidents Cup from the Commercial Law League of America..

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

TABLE OF CONTENTS FDCPA AND LEGAL ETHICS ISSUES FOR COLLECTION ATTORNEYS (ARTICLE) ....................................... 1

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

PART 1 LETTER ISSUES A. General Validation Notice Concerns

15 U.S.C. 1692g. Validation of debts (a) Notice of debt; contents. Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing-(1) the amount of the debt; (2) the name of the creditor to whom the debt is owed; (3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector; (4) a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector; and (5) a statement that, upon the consumer's written request within the thirty-day period, the debt collector will provide the consumer with the name and address of the original creditor, if different from the current creditor. (b) Disputed debts. If the consumer notifies the debt collector in writing within the thirty-day period described in subsection (a) that the debt, or any portion thereof, is disputed, or that the consumer requests the name and address of the original creditor, the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt or a copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor, is mailed to the consumer by the debt collector. Collection activities and communications that do not otherwise violate this title may continue during the 30-day period referred to in subsection (a) unless the consumer has notified the debt collector in writing that the debt, or any portion of the debt, is disputed or that the consumer requests the name and address of the original creditor. Any collection activities and communication during the 30-day period may not overshadow or be inconsistent with the disclosure of the consumer's right to dispute the debt or request the name and address of the original creditor.

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

(c) Admission of liability. The failure of a consumer to dispute the validity of a debt under this section may not be construed by any court as an admission of liability by the consumer. (d) Legal pleadings. A communication in the form of a formal pleading in a civil action shall not be treated as an initial communication for purposes of subsection (a). (e) Notice provisions. The sending or delivery of any form or notice which does not relate to the collection of a debt and is expressly required by the Internal Revenue Code of 1986 [26 USCS 1 et seq.], title V of GrammLeach-Bliley Act [15 USCS 6801 et seq.], or any provision of Federal or State law relating to notice of data security breach or privacy, or any regulation prescribed under any such provision of law, shall not be treated as an initial communication in connection with debt collection for purposes of this section. 1. Graziano v. Harrison, 950 F.2d 107 (3rd Cir. 1991).

2. Camacho v. Bridgeport Financial, Inc., 430 F.3d 1078 (9th Cir. 2005). 3. Jerman v. Carlisle, 2011 U.S. Dist. LEXIS 40771 (N.D. Ohio Apr. 13, 2011):

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Karen L. Jerman, Plaintiff, vs. Carlisle, McNellie, Rini, Kramer & Ulrich, et al., Defendants. CASE NO. 1:06 CV 1397 UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF OHIO, EASTERN DIVISION 2011 U.S. Dist. LEXIS 40771 April 13, 2011, Decided April 14, 2011, Filed Facts PRIOR HISTORY: Jerman v. Carlisle, 271 F.R.D. 572, 2010 U.S. Dist. LEXIS 132034 (N.D. Ohio, 2010) COUNSEL: [*1] For Karen L. Jerman, Plaintiff: Edward A. Icove, LEAD ATTORNEY, Icove Legal Group, Cleveland, OH; O. Randolph Bragg, LEAD ATTORNEY, Horwitz, Horwitz & Associates, Chicago, IL; Stephen R. Felson, Cincinnati, OH. For Carlisle, McNellie, Rini, Kramer & Ulrich, Adrienne S. Foster, Defendants: George S. Coakley, LEAD ATTORNEY, James O'Connor, Jr., Reminger & Reminger, Cleveland, OH; Todd M. Jackett, Reminger & Reminger - Cleveland, Cleveland, OH. JUDGES: PATRICIA A. GAUGHAN, United States District Judge. OPINION BY: PATRICIA A. GAUGHAN OPINION Memorandum of Opinion and Order Introduction This matter is before the Court upon Plaintiff's Motion for Summary Judgment (Doc. 53) and Defendant's Motion for Partial Summary Judgment on Damages (Doc. 54). This case arises under the federal Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692 et seq. The issue is whether plaintiff and the class should be awarded additional damages under the statute. For the following reasons, plaintiff's motion is granted as to the underlying claim and denied as to damages. Defendant's motion is granted. The United States Supreme Court has set forth the following relevant facts and procedural history: Respondents [defendants] in this case [*2] are a law firm, Carlisle, McNellie, Rini, Kramer & Ulrich, L.P.A., and one of its attorneys, Adrienne S. Foster (collectively Carlisle). In April 2006, Carlisle filed a complaint in Ohio state court on behalf of a client, Countrywide Home Loans, Inc. Carlisle sought foreclosure of a mortgage held by Countrywide in real property owned by petitioner [plaintiff] Karen L. Jerman. The complaint included a "Notice," later served on Jerman, stating that the mortgage debt would be assumed to be valid unless Jerman disputed it in writing. Jerman's lawyer sent a letter disputing the debt, and Carlisle sought verification from Countrywide. When Countrywide acknowledged that Jerman had, in fact, already paid the debt in full, Carlisle withdrew the foreclosure lawsuit. Jerman then filed her own lawsuit seeking class certification and damages under the FDCPA, contending that Carlisle violated 1692g by stating that her debt would be assumed valid unless she disputed it in writing. 1 While acknowledging a division of authority on the question, the District Court held that Carlisle had violated 1692g by requiring Jerman to dispute the debt in

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

writing. 2 The court ultimately granted summary judgment [*3] to Carlisle, however, concluding that 1692k(c) shielded it from liability because the violation was not intentional, resulted from a bona fide error, and occurred despite the maintenance of procedures reasonably adapted to avoid any such error. The Court of Appeals for the Sixth Circuit affirmed. Acknowledging that the Courts of Appeals are divided regarding the scope of the bona fide error defense, and that the "majority view is that the defense is available for clerical and factual errors only," the Sixth Circuit nonetheless held that 1692k(c) extends to "mistakes of law." The Court of Appeals found "nothing unusual" about attorney debt collectors maintaining "procedures" within the meaning of 1692k(c) to avoid mistakes of law. Noting that a parallel bona fide error defense in the Truth in Lending Act (TILA), 15 U.S.C. 1640(c), expressly excludes legal errors, the court observed that Congress has amended the FDCPA several times since 1977 without excluding mistakes of law from 1692k(c). 3 [The United States Supreme Court] granted certiorari to resolve the conflict of authority as to the scope of the FDCPA's bona fide error defense.

2 The District Court distinguished, for instance, Graziano v. Harrison, 950 F.2d 107, 112 (3rd Cir. 1991), which held a consumer's dispute of a debt under 1692g must be in writing to be effective. Noting that district courts within the Sixth Circuit had reached different results, and distinguishing one unpublished Sixth Circuit decision which Carlisle suggested approved a form with an in-writing requirement, the court adopted the reasoning from Camacho v. Bridgeport Financial, Inc., 430 F.3d 1078, 1080-1082 (9th Cir. 2005), and held that the plain language of 1692g does not impose an "in writing" requirement on consumers. 3 Because the question was not raised on appeal, the Court of Appeals did not address whether Carlisle's inclusion of the "in writing" requirement [*5] violated 1692g. We likewise express no view about whether inclusion of an "in writing" requirement in a notice to a consumer violates 1692g, as that question was not presented in the petition for certiorari. Compare Graziano, supra, at 112 (reading 1692g(a)(3) to require that "any dispute, to be effective, must be in writing"), with Camacho, supra, at 1082 (under 1692g(a)(3), "disputes need not be made in writing"). The Supreme Court reversed the judgment of the Sixth Circuit and held that the bona fide error defense 4 in the FDCPA does not apply to a violation of the Act resulting from a debt collector's incorrect interpretation of the legal requirements of the FDCPA. 4 The Act's bona fide error defense states, "A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error." 15 U.S.C. 1692k(c). This matter is now before the Court upon the parties' cross-motions for summary judgment on damages. Discussion

Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 130 S.Ct. 1605, 176 L. Ed. 2d 519 (2010) [*4] (footnotes in the original). 1 Section 1692g(a)(3) requires a debt collector, within five days of an "initial communication" about the collection of a debt, to send the consumer a written notice containing, inter alia, "a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector."

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Plaintiff moves for summary judgment [*6] on two bases: the merits of the underlying FDCPA cause of action and the amount of statutory damages under 15 U.S.C. 1692k(a)(2)(B). Defendants move for partial summary judgment on the basis that neither Jerman nor her class is entitled to an award of additional damages under the statute. Thus, as the motions address the same issues they will be considered simultaneously. First, plaintiff seeks summary judgment in her favor on the issue previously decided by this Court, i.e., defendants' form validation notice violates the FDCPA insofar as it states that disputes must be made in writing. Defendants do not dispute that the Court's ruling remains the law of the case. The Court agrees that plaintiff is entitled to summary judgment on the merits of the underlying claim since the issue of whether the "in writing" requirement violates the Act was never presented on appeal. Second, plaintiff contends that the Court 5 should award the maximum amount of statutory damages up to the statutory cap, i.e., $1,000.00 to Ms. Jerman and $13,052.35 to the class. In its own motion and in opposing plaintiff's motion, defendants assert that the Court should not award additional damages to Ms. Jerman and [*7] the class. 5 It is undisputed that this issue is for the Court, not the jury, and the Act grants discretion to the district court in assessing statutory damages. See 15 U.S.C. 1692k(a)(2)(A) (providing statutory damages shall be awarded as the court may allow), 15 U.S.C. 1692k(b) (providing that in determining the amount of liability, the court shall consider the factors). Plaintiff does not seek actual damages under 15 U.S.C. 1692k(a)(1) 6, but seeks an award of statutory damages under 15 U.S.C. 1692k(a)(2)(B), which states that in the case of a class action, the representative (named plaintiff) of the class may be awarded "additional damages" up to $1,000 as provided in 1692k(a)(2)(A) and that class members may be awarded "such amount as the court may allow ... without regard to a minimum individual recovery, not to exceed the lesser of $500,000 or 1 per centum of the net worth of the debt collector."1692k(a)(2)(B)(ii).

6 The parties have stipulated, "Neither Plaintiff nor the class are seeking 'actual damages' under 15 U.S.C. 1692k(a)(1)." (Doc. 44 1) Thus, the Court has the authority to award Ms. Jerman any amount up to $1,000. As to the class members 7, the parties have [*8] stipulated herein that the net worth of the debt collector (i.e., the Law Firm) is $1,305,225.17. (Doc. 44) Because one percent of the net worth ($13,052.25) is less is less than $500,000, the maximum class recovery is $13,052.25. 7 The stipulated potential class is 4,211. In making its determination in a class action, the Court considers the following statutory factors, "among other relevant factors": the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, the resources of the debt collector, the number of persons adversely affected, and the extent to which the debt collector's noncompliance was intentional.

15 U.S.C. 1692k(b)(2). Plaintiff maintains that consideration of the factors weigh in favor of awarding the maximum statutory damages. Defendants disagree. (1) frequency and persistence noncompliance by the debt collector of

Plaintiff contends that defendants' noncompliance was frequent and persistent given that in the course of one year, defendants sent 4,211 (one to each class member) letters which violated the FDCPA. Defendants assert that the frequency of noncompliance was once, and the persistence was zero because only a single validation [*9] notice was sent to Ms. Jerman and each class member, and no one was badgered or harassed in connection with the notices. Defendants maintain that the Court cannot judge frequency and persistence on the total number of validation notices sent. First, defendants contend that there was no persistence because it was impossible for the Law Firm to know that the words "in writing"

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

would be found to violate the statute. Defendants point to this Court's determination that the Law Firm's violation was not intentional, it resulted from a bona fide error, and occurred despite the maintenance of procedures reasonably adapted to avoid any such error. On appeal, plaintiff only contested whether the bona fide error defense applied to mistakes of law, and whether a question of fact remained as to whether defendants maintained procedures reasonably adapted to avoid the violation. The Sixth Circuit affirmed and also found that defendants maintained procedures adapted to avoid legal error relating to the "in-writing" requirement. The United States Supreme Court reviewed only the scope of the FDCPA's bona fide error defense. Thus, defendants assert, because it is the law of the case that the violation [*10] (noncompliance) was unintentional and made in good faith after maintaining procedures to avoid the error, there could have been no persistence in wrongful conduct. Such wrongful conduct was only determined to be so after the lawsuit was filed, and when the Law Firm received the lawsuit it deleted the "in writing" words from the validation notice. For the reasons discussed below with regard to factor number five, the Court finds that its determination concerning whether defendants acted intentionally has not been reversed. Second, defendants argue that because one of the factors listed in 1692k(b)(2) is "the number of persons adversely affected,"the "frequency and persistence of noncompliance" factor must refer to something other than the number of persons adversely affected. Consequently, plaintiff's assertion that the total number of notices sent (one to each class member) equates to frequency of conduct would render the terms superfluous of each other. Rather, defendants contend, because the "number of persons adversely affected" logically refers to the number of individuals who received the validation notice, the "frequency and persistence of noncompliance" must mean something different. [*11] The only logical alternative is that it refers to the consistency of the debt collector's actions with respect to the individual debtor. Plaintiff counters that defendants' position is "preposterous" given that not only did the Law Firm send 4,211 letters which violated the Act to class members, but it also violated the law for approximately 11 years prior to the filing of this

action with the first 10 years of consumers not being class members due to the FDCPA's one year statute of limitations. The Court can reasonably infer, it asserts, that thousands of consumers received the illegal notice. Defendants deny that they violated the law for 11 years prior to the filing of the action, but instead only when this Court decided that the words "in writing" constituted a violation. Plaintiff also contends that accepting defendants' argument would encourage debt collectors violating the FDCPA to do so on as wide a scale as possible and then argue that thousands of violations are the same as one and the consumer should therefore take no money for stopping them. For the following reasons, the Court does not find that defendants' noncompliance was frequent and persistent. The Court agrees with [*12] defendants' arguments with regard to the persistence factor. Although one notice was sent to each member of the class, there is no evidence that anyone was was badgered or harassed. Additionally, while the FDCPA is a strict liability statute, meaning that a consumer may recover statutory damages if the debt collector violates the Act, Federal Home Loan Mtg. Corp. v. Lamar, 503 F.3d 504 (6th Cir. 2007), there was no persistence on defendants' part because the Law Firm could not have known that this Court would find that the words "in writing" violated the statute. The Court also agrees with defendants' contentions regarding the frequency factor. Given that another factor to be considered is "the number of persons adversely affected," it would not make sense to accept plaintiff's position that frequency also refers to the number of persons who received the notice. More likely, frequency would refer to the Law Firm's actions with respect to Jerman and each member of the class. As stated earlier, each only received one notice. Plaintiff cites to Kelly v. Montgomery Lynch & Associates, Inc., 2007 U.S. Dist. LEXIS 93656, 2007 WL 4562913 (N.D.Ohio Dec. 19, 2007), in support of its assertion that because defendants violated [*13] the law for another ten years during which those affected are not class members due to the applicable one year statute of limitations, the Court can reasonably infer that thousands of customers received the illegal notice. Apparently, this lends credence to the notion that defendants' noncompliance was frequent. Plaintiff points to Kelly's recognition that "general knowledge and common sense"

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

govern in determining numerosity in a FDCPA class action. While the latter statement of the law may be true, it does not mean that this Court should consider defendants' actions in the prior ten years in determining frequency and persistence, especially given that the Court had not determined that the letter violated the law at that point. Plaintiff additionally points to Donnelly v. NCO Financial Systems, Inc., 263 F.R.D. 500 (N.D.Ill. 2009), for the proposition that because defendants sent the notice to parties in this action (the class) and not strangers to the litigation, each notice must be considered a violation. Donnelly recognized, in deciding a motion to compel, that "Courts in this jurisdiction have found that there is nothing in the clear language of the FDCPA which suggests that - in [*14] an individual action, as opposed to a class action - a court looks to a debt collector's practices regarding persons other than the plaintiff in determining the 'frequency and persistence of noncompliance.'" While it is true that courts do not consider, in individual actions, the defendant's conduct with respect to other consumers who are not plaintiffs in the action, this does not mean that in class actions the court considers consumers other than those in the class. Merely because in class actions the court considers all the defendant's conduct toward each member of the class, this does not equate to frequent conduct given that, as concluded herein, frequency cannot mean the same as the "number of persons adversely affected." In fact, plaintiff's argument in this regard is consistent with defendants' argument that case law establishes that "frequency and persistence" in [*15] individual actions refers to defendant's conduct towards the individual debtor- with several letters to the same debtor being found to constitute frequency and persistence. Application in a class action would mean that the Court looks to the amount of notices sent to plaintiff and each of the individual class members. Finally, plaintiff points to Richard v. Oak Tree Group, Inc., 2008 U.S. Dist. LEXIS 95002, 2008 WL 5060319 (W.D.Mich. 2008), for the proposition that courts distinguish between "frequency and persistence" in individual and class actions. Defendants cite to the same case in support of their own argument. Indeed, the reasoning set forth in that case (adopting Dewey v. Associated Collectors, Inc., 927 F.Supp. 1172 (W.D.Wis.1996) ) has been accepted here:

In setting forth the factors that courts should consider in awarding statutory damages for violations of the act, 1692k(b) makes a distinction between individual actions and class actions. Courts are to consider the "frequency and persistence of noncompliance by the debt collector" in each type of action. In class actions, courts are to consider "the number of persons adversely affected" as well. 1692k(b)(2). If the term "the number of persons adversely [*16] affected" is to have meaning, it must be something additional to the "frequency and persistence of noncompliance." Otherwise, the term would be superfluous and contradict the familiar statutory canon that an interpretation should give meaning to all components of a statute. Applying this canon, I find that "frequency and persistence of noncompliance" does not pertain to actions taken by a debt collector in other cases but only to the consistency of the debt collector's actions with respect to the debtor bringing suit. If Congress had intended courts to address the issue of a debt collector's comprehensive business activities in individual actions, it would have included "the number of persons adversely affected" or other similar language as a relevant factor in subpart (1) of 1692k(b). It appears that Congress recognized the inefficiency of delving into such matters in cases where statutory damages are limited to $1000.

The Court finds that plaintiff fails to establish that defendants' noncompliance was frequent and persistent. 2. Nature of the Noncompliance

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Defendants contend that the nature of noncompliance was trivial, technical, and harmless 8 as evidenced by the fact that plaintiff [*17] and the class suffered no actual damages. Furthermore, defendants point out that some cases have found that an "in writing" requirement does not harm the debtor, but actually increases a debtor's protection under the statute. 8 The Supreme Court's dissent in Jerman found the violation to be technical and harmless. Plaintiff asserts that the noncompliance misinformed the consumer of the right to dispute the debt orally, making it more difficult to dispute the debt and exercise its rights under the FDCPA. Plaintiff cites to Camacho v. Bridgeport Financial, Inc., 430 F.3d 1078 (9th Cir. 2005), which found that "an oral dispute triggers multiple statutory protections." There, the Ninth Circuit found that requiring a dispute to be in writing could cause harm to the debtor by depriving it of certain statutory rights: Oral dispute of a debt precludes the debt collector from communicating the debtor's credit information to others without including the fact that the debt is in dispute (15 U.S.C. 1692e(8) ... Additionally, if a consumer owes multiple debts and makes a payment, the debt collector is prohibited from applying such payment to a debt which is in dispute. (15 U.S.C. 1692h) Moreover, [*18] a debtor's oral notification to a debt collector entitles a debtor to relief under 1692c(a)(1), which bars communication with a debtor at a time or place known or which should be known to be inconvenient to the consumer.

testimony, in pursuing foreclosures against plaintiffs the Law Firm, 1. did not communicate defaults or credit information of any kind to third parties; 2. did not accept partial payments of debt, but rather, only accepted full reinstatements and full payoffs directed to particular loan accounts; and 3. did not telephone borrowers except to return a borrower's call at the telephone number left by that borrower.

Nor, defendants assert, has plaintiff produced evidence of such harm. Plaintiff argues that defendants' assertion in this regard is equivalent to telling consumers that while they have been deprived of their statutory right to dispute a debt orally, they should not worry because other provisions [*19] of the FDCPA will not be violated. Plaintiff asserts that this flouts the statute's purpose in imposing damages so as to discourage debt collectors from violating the law. Moreover, plaintiff or the class members would not have known when they received the notice that the Law Firm would make an effort not to cause further harm to them. As to defendants' assertion that they do not accept partial payments on debts, plaintiffs contend that this is nonsensical in this context given Camacho's reference to "multiple debts," and the Law Firm does not claim that a consumer with two debts must pay them off together or not at all- an unlikely position taken by any debt collector. Finally, while the Law Firm states that it does not telephone borrowers, which would mean that it does not communicate with them "at a time or place known or which should be known to be inconvenient to the consumer," it admits that it "returns a borrower's call" which would still require it to refrain from violating this prohibition. Given the importance of the right to orally dispute a debt as stated in Camacho, supra, the Court is not prepared to find that defendants' noncompliance was trivial, and yet the fact there [*20] is no readily apparent harm that was caused, this factor does not weigh in either party's favor.

Id. at 1082 (internal citations and quotations omitted). Defendants assert that while Camacho recognized that an "in writing" requirement could potentially cause harm to the debtor, none of this potential harm occurred here because, as evidenced by Richard McNellie's affidavit

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

(3) the resources of the debt collector As previously discussed, the parties have stipulated to defendants' net worth of $1,305,225.17. If warranted, Jerman would recover a maximum of $1,000, and the class a maximum of $13,052.25. Plaintiffs assert that the maximum award would not seriously impair the Law Firm's ability to remain in existence. Defendants, however, assert that given the good faith nature of the violation and the lack of resultant harm, even a nominal award would unjustly punish the Law Firm when this Court has found that no procedure could have lead it to know that the Court would find an FDCPA violation in the notice sent to plaintiff. Plaintiff also contends that the maximum amount that could be awarded is minor considering the litigation costs that both sides have incurred up to this point. Defendants maintain that litigation costs are irrelevant because they are not a statutory factor, nor should they be used as a comparison to conclude that additional damages would be considered "minor." If the Court were to consider such, defendants assert, it should note that Jerman's [*21] initial settlement demand and her subsequent appeals possibly fueled the costs. Plaintiff urges the Court to ignore the latter argument given the "modest" settlement proposal, and the Act's need for sophisticated consumers to bring private actions against those who violate it. Although the Court agrees with defendants that plaintiff's litigations costs should not be considered, the award sought by plaintiffs would not have a severe impact on the Law Firm's ability to operate. As stated above, due to the strict liability nature of the statute, damages may be awarded even in the absence of actual damages for defendants' violation of the statute. (4) the number of persons adversely affected Defendants contend that while 4,211 Ohio consumers were sent the notice, none was adversely affected- as this necessarily follows from Jerman's concession that no actual damages were suffered by her or the class. Plaintiff and the class have not presented evidence that they were adversely affected, harmed, or damaged by the notice. Plaintiff points out that the amount of actual damages is not a statutory factor to be

considered, nor are actual damages a prerequisite to an award of statutory damages. Plaintiff [*22] also contends that actual damages are not precluded for class members given that the parties only stipulated that Ms. Jerman is not "seeking" actual damages for herself or the class. If any class member has actual damages, he may opt out of the class. Plaintiff further asserts that given the fact that the Law Firm sent the notices for 11 years prior to the filing of this lawsuit, a reasonable inference exists that thousands of consumers received the notice. Thus, all these people, who are not class members, were affected. Defendants note that plaintiff avoids the word "adversely" while merely repeatedly stating the number of people "affected." Defendants contend that whether class members may opt out is irrelevant given that if they do so, they will no longer be plaintiffs in the lawsuit. Plaintiff additionally argues that there is no way to tell how many recipients of the notice were intimidated into waiving their dispute rights, but the FDCPA is designed to be enforced by consumers acting as private attorneys general and, to that end, Congress clearly intended to build some deterrent into the Act. Defendants urge the Court to reject plaintiff's attempt to only show the number of people [*23] which may have been affected. And, despite plaintiff's statement that "there is no way to tell" the number of people adversely affected, defendants assert that the Court can tell by recognizing plaintiff's stipulation that neither she nor the class suffered actual damages. This Court agrees with defendants that plaintiff fails to show the number of persons adversely affected. (5) the extent to which the debt collector's noncompliance was intentional Defendants initially assert that a court may consider a debt collector's good faith misinterpretation of the law when deciding the issue of additional damages. Defendants point to language in the Jerman opinion which they maintain shows that the Supreme Court preserved a court's ability to consider a debt collector's "good faith misinterpretation of the law" when determining an award of additional damages even though it precluded mistakes of law from the bona fide error defense:

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Carlisle perceives an inconsistency between our reading of the term "intentional" in that provision [bona fide error defense provision] and the instruction in 1692k(b) that a court look to whether "noncompliance was intentional" in assessing statutory additional damages. [*24] But assuming 1692k(b) encompasses errors of law, we see no conflict, only congruence, in reading the Act to permit a court to adjust statutory damages for a good-faith misinterpretation of law, even where a debt collector is not entitled to the categorical protection of the bona fide error defense.

an FDCPA violation in the validation notice sent to plaintiff.

(Doc. 31 at 15, 17) On appeal to the Sixth Circuit, plaintiff argued: (1) the district court erred in concluding that the FDCPA's bona fide error defense may apply to mistakes of law, and (2) even if the defense does apply to mistakes of law, the district court erred in concluding that Defendants were entitled to summary judgment on the defense, because a question of fact remains as to whether Defendants maintained procedures reasonably calculated to avoid the violation.

Jerman, 130 S.Ct. at 1619. On this basis, defendants contend, while a court can no longer consider a debt collector's good faith misinterpretation of the law to excuse its strict liability under the Act, it may consider its good faith misinterpretation of the law in deciding whether to award additional damages. This Court agrees. Defendants contend that the noncompliance was not intentional. In good faith, the Law Firm relied on existing case law in misinterpreting the requirements of the FDCPA. That misinterpretation only became so after this Court's initial ruling. According to defendants, this Court's original determination that there was no intentional violation is the law of the case because it was not disturbed on appeal. Specifically, defendants point to the following language in this Court's June 20, 2007 Memorandum of Opinion and Order: [B]ecause the statute was not unambiguous and [*25] the law was not settled (and appeared to even favor defendants in this Circuit), defendants' violation was not intentional. *** [G]iven the unsettled law that existed on this issue, no procedure could have lead defendants to know that this Court would find

Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 538 F.3d 469, 472 (6th Cir. 2008). As such, defendants maintain that plaintiff did not contest this Court's findings that the violation was not intentional or that it resulted from a bona fide good faith error. 9 The Sixth Circuit determined that the bona fide error defense in the FDCPA applies to mistakes of law, and the Law Firm maintained procedures [*26] reasonably adapted to avoid legal error relating to the written-dispute requirement. On appeal to the United States Supreme Court, one issue was presented: This case presents the question whether the 'bona fide error' defense in 1692k(c) applies to a violation resulting from a debt collector's mistaken interpretation of the legal requirements of the FDCPA.

Jerman, 130 S.Ct. 1608. Thus, defendants assert that the issue of the Law Firm's lack of intent was not appealed to the Supreme Court. 9 As the Sixth Circuit recognized, "To qualify for the bona fide error defense, a debt collector must prove by a preponderance of the evidence that: (1) the violation was unintentional; (2) the violation was a result of a bona fide error; and (3) the debt collector maintained procedures reasonably adapted to avoid

10

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

any such error." Jerman, 538 F.3d at 476477. On appeal, Jerman only argued that there was a genuine issue of material fact regarding the third prong. Id. Plaintiff disagrees and asserts that the Supreme Court expressly rejected defendants' intention argument when it stated: The parties disagree about whether a "violation" resulting from a debt collector's misinterpretation of the legal requirements [*27] of the FDCPA can ever be "not intentional" under 1692k(c). Jerman contends that when a debt collector intentionally commits the act giving rise to the violation (here, sending a notice that included the "in writing" language), a misunderstanding about what the Act requires cannot render the violation "not intentional," given the general rule that mistake or ignorance of law is no defense. Carlisle and the dissent, in contrast, argue that nothing in the statutory text excludes legal errors from the category of "bona fide error[s]" covered by 1692k(c) and note that the Act refers not to an unintentional "act" but rather an unintentional "violation." The latter term, they contend, evinces Congress' intent to impose liability only when a party knows its conduct is unlawful. Carlisle urges us, therefore, to read 1692k(c) to encompass "all types of error," including mistakes of law. Brief for Respondents 7.

This Court agrees with defendants in this regard. This Court originally found that the bona fide error defense applies to mistakes of law, and that the three prongs of that defense were satisfied- including that the violation was not intentional. Plaintiff appealed to the Sixth Circuit challenging whether the bona fide error defense applied to mistakes of law, and whether defendants proved the third prong of the bona fide error defense test, i.e., whether defendants maintained procedures reasonably adapted to avoid any legal error as to the written-dispute requirement. On appeal to the Supreme Court, the only issue was whether the bona fide error defense applied to mistakes of law. As the Supreme Court concluded that the defense did not apply in such a situation, it did not examine whether or not the Law Firm's violation in this case was intentional, i.e., one of the requisites for finding that a defendant qualifies for the bona fide error defense. This Court [*29] found that the violation was not intentional. 10 Because this issue was not presented on appeal, it has been left undisturbed. 10 Plaintiff argues at length that the Law Firm's actions in maintaining the "in writing" requirement show that the violation was intentional. Some of these arguments were set forth to the Court in the original motion for summary judgment. The Court need not address these contentions as it is concluding that the original finding was not disturbed on appeal. In sum, the Court finds that the frequency and persistence of noncompliance by the debt collector weighs in defendants' favor, the nature of the noncompliance is neutral, the resources of the debt collector weigh in plaintiff's favor, and the number of persons adversely affected as well as the extent to which the debt collector's noncompliance was intentional weigh in defendants' favor. Because the factors tilt in defendants' favor, additional damages will not be awarded to plaintiff. (6) other relevant factors Plaintiff 11 urges the Court to consider the reasonableness of awarding the statutory maximum, i.e., $1,000 to Jerman and $13,052.25 (or a little over $3.00 per class member). Plaintiff notes the dual [*30] purpose in statutory damages- to create a deterrent to unlawful conduct by debt collectors and to

We decline to adopt the expansive reading of 1692k(c) that Carlisle proposes. Id. at 1611. On this basis, plaintiff contends that the issue of unintentional/intentional was expressly presented and expressly decided in a higher court. As plaintiff also recognizes, however, given [*28] that the FDCPA is a strict liability statute, the Supreme Court's quote here shows that the Act imposes liability for any failure to comply without regard to the debt collector's intent because ignorance of the law is no excuse.

11

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

provide an incentive for private individuals to go to court to enforce compliance even where actual damages are non-existent or hard to quantify. Plaintiff maintains that in this case the damages sought are reasonable given the small amount ($3.00) to be awarded each class member and that cutting the class members' award to zero would send a message to other debt collectors that the risk of taking an aggressive view of the law is minimal while the benefits can be great. Plaintiff surmises that the Law Firm saved money by not setting up a system to receive and process in-person or telephonic disputes of consumers' debts for 11 years. As for Ms. Jerman, the maximum statutory damages is reasonable given her persistence in prosecuting the case. 11 The Court need not address the other relevant factors proposed by defendants as it has already found in their favor. Defendants ask the Court to reject plaintiff's assertion that it should consider the reasonableness of an amount which is potentially recoverable. Defendants contend that the concept of reasonableness is already embedded in the "amount" [*31] of damages provided by 1692k(a). Under that section, the Court has discretion to determine actual damages sustained (none here), additional damages from $0 to $1,000 for Ms. Jerman, and additional damages from $0 to $13,025 for the class. Given that these are relatively nominal, defendants assert that Congress has already determined that the range of additional damages is prima facie reasonable. On this basis, the issue is not whether the "amount" in the two ranges is reasonable, but whether plaintiff has proven the right to any damages under the statutory factors. Additionally, as to Ms. Jerman, defendants assert that her "persistence" in prosecuting the case is irrelevant, and that her costs and attorney's fees are covered elsewhere in the Act. As to the class, defendants point out that plaintiff presents no evidence to support the assertion that the Law Firm was unable to receive oral disputes

over the 11 years, or that it saved money. Rather, defendants assert that the evidence shows that it did have telephones during this time frame, and spoke with debtors who called regarding their foreclosure cases. Defendants also dispute plaintiff's characterization of the Law Firm's interpretation [*32] of the "in writing" requirement as "aggressive," especially given that this Court found that it acted reasonably. Further, while acknowledging that statutory damages may be awarded in the absence of actual damages, defendants note that the Act sets no minimum damages. Thus, additional damages are not automatic. And, defendants contend, where there are no actual damages and no evidence of an intent to engage in abusive and deceptive debt collection practices, additional damages are not warranted. This Court agrees with the arguments set forth by defendants in this regard. Plaintiff has not demonstrated that this Court should weigh the reasonableness of the additional damages as a relevant factor to be considered. Additionally, although plaintiff contends that an award of a little over $3.00 to each class member is clearly reasonable, it is difficult to conclude that it would actually be of any consequence to the recipients. Conclusion For the foregoing reasons, Plaintiff's Motion for Summary Judgment is granted as to the underlying claim and denied as to damages. Defendant's Motion for Partial Summary Judgment on Damages is granted. Therefore, "additional damages"will not be awarded. IT [*33] IS SO ORDERED. Dated: 4/13/11 /s/ Patricia A. Gaughan PATRICIA A. GAUGHAN United States District Judge

4. Dragon v. I.C. Sys., 483 F. Supp. 2d 198 (D. Conn. 2007):

12

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

PATRICIA DRAGON, Plaintiff, v. I.C. SYSTEM, INC., Defendant. Civil No. 3:05cv00771 (JBA) UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT 483 F. Supp. 2d 198; 2007 U.S. Dist. LEXIS 27522

April 12, 2007, Decided April 13, 2007, Filed PRIOR HISTORY: Dragon v. I.C. Sys., 241 F.R.D. 424, 2007 U.S. Dist. LEXIS 20239 (D. Conn., Mar. 21, 2007) [*200] Aff., Pl. Ex. 3 [Doc. # 35-4] at 1; Nov. 14, 2004 DFS bill, Pl. Ex. 3 [Doc. # 35-4] at 6.) Thereafter, defendant debt collector ICS, retained by DFS, sent plaintiff two billing letters. The first, dated January 18, 2005, was in the amount of $ 136.64 (Jan. 18, 2005 ICS bill, Pl. Ex. 3 [Doc. # 35-4] at 5); the second, dated March 16, 2005, was for $ 198.46 (Mar. 16, 2005 ICS bill, Pl. Ex. 3 [Doc. # 35-4] at 10). Both statements included the following language: Your account with Dell Financial Services is past due. We have been asked by Dell Financial Services to begin debt collection activity. . . . We are a debt collector attempting to collect a debt . . . Unless you notify us within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, we will assume this debt it valid. If you notify us in writing within 30 days after receiving this notice that the debt or any portion thereof is disputed, we will: obtain verification [**3] of the debt (or obtain a copy of a judgment, if there is one) and mail you a copy of such judgment or verification. If you make a written request within 30 days after receiving this notice, we will provide you with the name and address of the original creditor, if different from the current creditor.

COUNSEL: [**1] For Patricia Dragon, Plaintiff: Joanne S. Faulkner, LEAD ATTORNEY, Law Offices of Joanne Faulkner, New Haven, CT. For IC Sys Inc, Defendant: Jonathan D. Elliot, LEAD ATTORNEY, Zeldes, Needle & Cooper, Bridgeport, CT. JUDGES: JANET BOND ARTERTON, United States District Judge. OPINION BY: JANET BOND ARTERTON OPINION [*199] Substituted Ruling on Plaintiff's Motion for Partial Summary Judgment [Doc. # 35] Plaintiff Patricia Dragon's Complaint [Doc. # 1] against defendant I.C. System, Inc. ("ICS") claims inter alia violation of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. 1692, arising from defendant's efforts to collect on a debt allegedly owed by plaintiff to Dell Financial Services ("DFS"). By her Motion for Partial Summary Judgment [Doc. # 35], Ms. Dragon seeks summary judgment on defendant's liability for violation of the FDCPA (Count One). Plaintiff's Motion will be granted in part. I. Factual Background In September 2004, plaintiff purchased a Dell personal computer which arrived by mail in defective condition, and which plaintiff mailed back on October 5, 2004. (Pl. letter to Rollins, Pl. Ex. 3 [Doc. # 35-4] at 7.) Although [**2] Dell had promised to absorb the shipping charges, Dell Financial Services mistakenly billed plaintiff for that cost, which as of November 14, 2004 was $ 92.58 (inclusive of a $ 10.000 late fee). (Pl.

(Jan. 18, 2005 ICS bill, Pl. Ex. 3; Mar. 16, 2005 ICS bill, Pl. Ex. 3.) Plaintiff's Dell account number 6879450119022494011 appeared on the November bill from DFS and the two letters from defendant. The first collection letter from defendant dated January 18, 2005 included, in addition to plaintiff's Dell account number, ICS internal account number F0206996295151I0 ("first ICS account number"); in the March 16, 2005 billing letter, a different internal account number,

13

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

F0208655455153G0 ("second ICS account number"), appeared. On January 23, 2005, plaintiff sent two letters of complaint to Dell: one to President and CEO of Dell, Inc. Kevin B. Rollins (Pl. letter to Rollins, Pl. Ex. 3), and the other to Dell Chairman Michael S. Dell (Pl. letter to Dell, Pl. Ex. 3 [Doc. # 35-4] at 8). Plaintiff then retained counsel, Attorney John C. Wirzbicki, who sent a letter dated February 2, 2005 to [**4] defendant stating: "I represent Ms. Dragon in connection with [account # 6879450119022494011]. Please be advised that Ms. Dragon disputes this debt. . . . Please direct all further communications to me. Please obtain verification of this debt and forward it to me." (Wirzbicki letter, Pl. Ex. 3 [Doc. # 35-4] at 9.) The requested verification was never sent. From the activity log of plaintiff's first ICS account number, on February 7, 2005 a "disputed flag"/"ATTY DISPUTE" is shown, after which date no further letters were sent or phone calls made to plaintiff as of March 15, 2005. (First ICS account log, Def. Ex. A [Doc. # 40].) Defendant ICS has a "front-end team" responsible for collecting on an account during its first 120 days, and a "back-end team" which collects on an account from day 121 to day 180. (Def. 56(a)(2) [Doc. # 41] P 13.) While the first ICS account number is a front-end account known by its numerical shorthand designation "9629" (Beckstrom-Ehlers Dep. at 33, Pl. Ex. 4(a) [Doc. # 35-5] at 13), the parties dispute the significance of the second ICS account number in relation to ICS's divided "team" responsibilities: plaintiff maintains that the second [**5] ICS account number on the March 16 letter represents the transfer of her initial account to the back-end team; defendant relying heavily on the deposition and affidavit of Shelley Beckstrom-Ehlers, supervisor of ICS's Dell collection team in the first half of 2005 (BeckstromEhlers Aff. P 3, Def. Exs. [Doc. # 40] at 4) - urges that the second ICS account indicated the initiation [*201] of a new, separate debt placement by Dell but admits that the second ICS account was "cross-referenced to the first placement" (Def. 56(a)(2) P 14). On April 28, 2005, DFS sent plaintiff a letter apologizing for having billed her "in the amount of $ 82.58" and informing her that she no longer had an account balance and that her account dispute was closed. (Apr. 28, 2005 DFS letter, Pl. Ex. 3 [Doc. # 35-4] at 11.) Plaintiff moves for summary judgment on liability based on defendant's non-disclosure of the amount of debt, defendant's contact with her after receiving an attorney dispute letter, and defendant's attempt to collect on a disputed debt before verification of that debt was provided. Defendant denies any wrongdoing, asserting a statutory "bona fide error" defense.

II. Standard Summary [**6] judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits . . . show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). A party seeking summary judgment "bears the burden of establishing that no genuine issue of material fact exists and that the undisputed facts establish [its] right to judgment as a matter of law." Gibbs-Alfano v. Burton, 281 F.3d 12, 18 (2d Cir. 2002). The duty of the court is to determine whether there are issues to be tried and in making that determination, the Court must draw all factual inferences in favor of the party opposing the motion, viewing the factual disputes among materials such as affidavits, exhibits, and depositions in the light most favorable to that party. Phaneuf v. Fraikin, 448 F.3d 591, 595 (2d Cir. 2006). "If reasonable minds could differ as to the import of the evidence . . . and if there is any evidence in the record from any source from which a reasonable inference in the nonmoving party's favor [**7] may be drawn, the moving party simply cannot obtain a summary judgment." R.B. Ventures, Ltd. v. Shane, 112 F.3d 54, 59 (2d Cir. 1997) (internal quotation, citation, and alteration omitted). The nonmoving party, in order to defeat summary judgment, must come forward with evidence that would be sufficient to support a jury verdict in his or her favor, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986), not merely "some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). III. Discussion Plaintiff moves for summary judgment under multiple provisions of the FDCPA. It is undisputed that plaintiff is a "consumer" and defendant a "debt collector" for purposes of the FDCPA. Although "the Act imposes strict liability, . . . a debt collector may escape liability if it can demonstrate by a preponderance of the evidence that 'its violation [of the Act] was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.'" Russell v. Equifax A.R.S., 74 F.3d 30, 33-34 (2d Cir. 1996). [**8] A. Non-disclosure of amount of debt Under the FDCPA, a debt collector may not falsely represent "the character, amount, or legal status of any debt," "use [] any false representation . . . to

14

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

collect or attempt to collect any debt," or fail to provide the consumer with written notice containing the amount of the debt. 15 U.S.C. 1692e(2), (10), 1692g(a)(1). Plaintiff contends that defendant violated these provisions by "asserting flatly in the notice required by 1692g that the Balance Due was a sum certain . . . since defendant was hired to collect a balance that it knew would increase on a per diem [*202] basis, and monthly, by the amount of interest accrued and late charges." (Pl. Mem. at 7.) By contrast, defendant asserts that its "letter made no representations about the balance being fixed or whether the balance sought to be collected might be different at any later date. . . . The amount sought in the letter was the precise amount which had been placed for collection by I.C.'s client, Dell Financial, the same amount which, if paid, would have satisfied the demand in full and would have caused the account to be closed." (Def. Opp. Mem. at 5.) [**9] After DFS first informed plaintiff in November 2004 that she owed $ 92.58, defendant ICS's first communication to plaintiff, which plaintiff challenges for failure to properly disclose the amount due on the account, was a January 18, 2005 letter stating: Your account with Dell Financial Services is past due. We have been asked by Dell Financial Services to begin debt collection activity. If you would like to make payment arrangements please call 1-877-2213940. We would like to give you the opportunity to clear this debt. Please make your check or money order payable to Dell Financial Services . . .

balance is not the debt; it is only part of the debt; the Act requires statement of the debt" and held that the collector should have "state[d] the total amount due interest and other charges as well as principal - on the date the dunning letter was sent. We think the statute required this." Id. at 875. Accordingly, Miller found that: the following statement satisfies the debt collector's duty to state the amount of the debt in cases like this where the amount varies from date to date: "As of the date of this letter you owe $ [the exact amount due]. Because of interest, late charges, and other charges that may vary from day to day, the amount due on the day you pay may be greater. Hence, if you pay the amount shown above, an adjustment may be necessary after we receive your check, in which event we will inform you before depositing the check for collection. For further information, write [**11] the undersigned or call 1-800-[phone number]."

Id. at 876. While plaintiff contends that defendant should have used this "safe harbor" language in its collection notice, Miller clarified that it did "not hold that a debt collector must use this form of words to avoid violating the statute; but if he does, and (to repeat an essential qualification) does not add other words that confuse the message, he will as a matter of law have discharged his duty to state clearly the amount due." Id. Nevertheless, while the first notice stated generally "BALANCE DUE: $ 136.64," it did not state the effective date as of which this amount would suffice to pay off the debt in full, 1 nor did [*203] it acknowledge, as the record now reveals, that the amount to pay the debt in full could vary on the basis of account adjustment by Dell to reflect accrued interest and/or other fees and charges. (See Def. Opp. Mem. at 6 ("At the time of the letter and in the absence of an account adjustment by Dell, I.C. System could collect, but was under no requirement to collect, anything more than the amount originally placed for collection."); Beckstrom-Ehlers Aff. P 21 ("Dell periodically [**12] updates its account to reflect interest or other charges which have accrued after Dell's initial placement. Account balances are not adjusted on a daily basis. Dell typically provides updates monthly.").)

(Jan. 18, 2005 ICS bill, Pl. Ex. 3.) The letter also provided, "Principal Owed: $ 136.64; BALANCE DUE: $ 136.64." (Id.) Plaintiff refers to the decision authored by Judge Posner in Miller v. McCalla, Raymer, Padrick, Cobb, Nichols & Clark, L.L.C., 214 F.3d 872, 875-76 (7th Cir. 2000), finding that a debt collector violated 1692g(a)(1) by listing in its letter the unpaid principal balance of the loan, exclusive of "accrued but unpaid interest, unpaid late charges, escrow advances or other charges for preservation and protection of the lender's [**10] interest in the property, as authorized by your loan agreement," and adding: "The amount to reinstate or pay off your loan changes daily. You may call our office for complete reinstatement and payoff figures." The Seventh Circuit found that "[t]he unpaid principal

15

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

1 The cases interpreting Miller have held it to "requir[e] that the total amount of the debt be stated as the total amount due on the date a collection letter is sent," Jackson v. Aman Collection Serv., No. IP 01-0100-C-T/K, 2001 U.S. Dist. LEXIS 22238 (S.D. Ind. Dec. 14, 2001) (emphasis added); Chuway v. Nat'l Action Finan. Servs. Inc., 362 F.3d 944 (7th Cir. 2004); Smith v. GC Servs., L.P., No. 03 C 1017, 2003 U.S. Dist. LEXIS 2003, 2003 WL 22208027 (N.D. Ill. Sept. 23, 2003) (denying defendant debt collector's motion for summary judgment where "balance due" did not include "accrued interest," which, if referring to "interest that had already accrued" as opposed to future interest, would violate the FDCPA); Jolly v. Shapiro, 237 F. Supp. 2d 888 (N.D. Ill. 2002) (granting defendant debt collector summary judgment because notice stated amount of debt as of specific date); accord Shea v. Codilis, No. 99 C 0057, 2000 U.S. Dist. LEXIS 4202 (N.D. Ill. 2000); Ingram v. Corporate Receivables, Inc., No. 02 C 6608, 2003 U.S. Dist. LEXIS 7475 (N.D. Ill. May 5, 2003) (denying debt collector's motion to dismiss plaintiff's 1692g(a)(1) "amount" claim based on dunning notice's failure to "provide a specific statement as to the effective date of the stated amount due"). [**13] Thus, while the circumstances of this case are not identical to those in Miller, where no "balance due" amount was given and an 800-number was provided, or those in Goins v. JBC & Assocs., P.C., 352 F. Supp. 2d 262 (D. Conn. 2005), where the collection notice failed to inform the plaintiff that the claimed debt was based on debts owed to merchants other than the one identified, and also stated the maximum obtainable statutory damages that could be awarded against plaintiff in a civil action, this case is nevertheless one where not only did the collection notice not specifically indicate the date as of which the "BALANCE DUE" amount was the full amount of the debt, it also was potentially misleading for the "least sophisticated consumer" who could readily conclude that the total amount stated as due ($ 136.64) was due at any time, when in fact it was not and was subject to adjustment by Dell on a periodic basis. 2 Accordingly, plaintiff's Motion for Summary Judgment on this violation will be granted. 2 Indeed, as of March 16, 2005, not two months after the initial collection notice, plaintiff received a subsequent notice indicating that the "BALANCE DUE" had been adjusted upward to $ 198.46.

[**14] B. Direct communication with plaintiff after receipt of attorney dispute letter Under the FDCPA, "a debt collector may not communicate with a consumer in connection with the collection of any debt . . . if the debt collector knows the consumer is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney's name and address." 15 U.S.C. 1692c(a)(2). "In order to prevail under 1692c(a)(2), plaintiff[] must prove that defendant contacted [her] when it had 'actual knowledge that [she] was represented by an attorney.'" Jones v. Weiss, 95 F. Supp. 2d 105, 108 (N.D.N.Y. 2000). As plaintiff acknowledges, "[c]ourts have construed the 'knowledge' component of 1692c(a)(2) to require that a debt collector possess 'actual knowledge' that the debtor was represented by an attorney." Micare [*204] v. Foster & Garbus, 132 F. Supp. 2d 77, 80 (N.D.N.Y. 2001). At the same time, a debt collector may not defeat the purposes of the FDCPA by "not seeking out information regarding the debtor's representation by counsel," id., and the debt collector must have actual knowledge that [**15] "the debtor is represented by counsel 'with respect to such debt,'" Graziano v. Harrison, 950 F.2d 107, 113 (3d Cir. 1991). Plaintiff contends that ICS's database indicated that she was represented by counsel on her first account number, which was linked to the second, and that her social security and Dell account numbers were tied to both ICS accounts. From this, plaintiff argues, the necessary inference is that defendant had "actual knowledge" of its FDCPA violation by contacting plaintiff on a debt for which she was represented by counsel. According to defendant, it was not aware that its two internal collection account numbers reflected the same debt, and thus when collecting on the second did not know plaintiff was already represented by counsel for that debt. The record does not demonstrate undisputedly that ICS knew that its second collection account number represented a separate debt of plaintiff's to Dell. See Masuda v. Thomas Richards & Co., 759 F. Supp. 1456, 1464 (C.D. Cal. 1991) (finding genuine issue of material fact as to whether collector knew that consumer was represented with respect to debts assigned to collector after [**16] date of attorney letter, noting "[s]hould a second debt from the same consumer be assigned to the debt collector . . . the collector might be unaware of the previous file on that debtor and would not know whether the consumer was represented by an attorney with respect to all future debts"). While defendant's activity log shows that on March 15, 2005, when the second ICS account was

16

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

"received," it was marked as "Tied by D[e]bt[or] SSN" to the first account (First account log, Def. Ex. A, at 5), and the printout of "Window 6" (the data window showing "the debits and the credits of late fees and interest" "available to [defendant's staff] looking at the account by pushing in the number 6 and enter") on plaintiff's first ICS account shows a summary log of both plaintiff's first and second ICS accounts (see Window 6, Pl. Ex. 4(b) [Doc. # 35-6] at 7; BeckstromEhlers Dep. at 50, Pl. Ex. 4(a)), this evidence does not place beyond dispute whether an ICS collector viewing plaintiff's second account knew that the debt being collected was identical to that earlier flagged as disputed. Thus, there is a genuine dispute of material fact for trial as to whether ICS engaged in collection [**17] efforts on its second account number while having actual knowledge that it represented the same debt as under plaintiff's first account number, with respect to which ICS indisputably knew that plaintiff was represented by counsel. Accordingly, plaintiff's Motion for Summary Judgment on this claimed violation must be denied. C. Collection after debt verification request "If the consumer notifies the debt collector in writing within the [initial] thirty-day period . . . that the debt, or any portion thereof, is disputed . . . the debt collector shall cease collection of the debt, or any disputed portion thereof, until the debt collector obtains verification of the debt . . . and a copy of such verification . . . is mailed to the consumer by the debt collector." 15 U.S.C. 1692g(b). Unlike 1692c(a), 1692g requires no intent; strict liability is imposed. See Russell, 74 F.3d at 34. "When determining whether 1692g has been violated, an objective standard, measured by how the 'least sophisticated consumer' would interpret the [*205] notice received from the debt collector, is applied." Id. It is undisputed that defendant never [**18] responded to plaintiff's attorney's request for debt verification from Dell. However, defendant maintains that, although "the dispute letter was conveyed to Dell," "[b]etween February 8, 2005 and March 15, 2005, Dell provided no validation of plaintiff's debt to I.C. for I.C. to pass along to the plaintiff," and thus defendant, in keeping with its policies, "refrained from further collection efforts and ultimately returned the account to Dell" and terminated it. (Beckstrom-Ehlers Aff. P P 11, 13, Def. Exs.) Notwithstanding defendant's explanation of how or why the second notice was generated with plaintiff's second ICS account, defendant does not dispute that both of its account numbers for plaintiff pertained to the same debt of

plaintiff to Dell, which was disputed, and that it never obtained and mailed verification of the debt to plaintiff's counsel. As noted above, liability is strict an unsophisticated consumer (indeed, even a sophisticated consumer) would have viewed the second notice from ICS as a collection effort with respect to the Dell debt plaintiff's counsel had provided notice she was disputing. Accordingly, there is no genuine issue of material fact for trial as [**19] to this claim, and plaintiff's Motion for Summary Judgment on this violation will be granted. D. Defendant's bona fide error defense Conceding that plaintiff's second ICS account "represented an update of the same underlying account [as] the first" (Def. Mem. at 1), defendant claims the protection of the bona fide error defense in 15 U.S.C. 1692k(c): "A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error." Defendant would thus bear the burden of establishing this defense at trial and plaintiff here, in moving for summary judgment, bears the burden of demonstrating an absence of evidence to support an essential element of the defense. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986) ("In moving for summary judgment against a party who will bear the ultimate burden of proof at trial, the movant's burden of establishing that there is no genuine issue of material [**20] fact in dispute will be satisfied if he or she can point to an absence of evidence to support an essential element of the non-moving party's claim."). Defendant relies on the bona fide error defense only with respect to its communication with plaintiff after receiving the attorney dispute letter and its collection attempts before obtaining debt verification. While, as discussed supra, there is a genuine dispute as to whether the claimed FDCPA violations were knowing or intentional, there is no dispute that defendant did not maintain procedures reasonably adapted to avoid the error(s) resulting in those violations. Although defendant generally claims that it "had procedures in place which should have prevented re-placement with it of the underlying account" (Def. Opp. Mem. at 11), it fails to define "placement" or specifically how such procedures are "reasonably adapted" to avoid error. Beckstrom-Ehlers states that, "The procedures in place [] intended to result in the cessation of collection activities on accounts where the dispute has been

17

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

received and has been forwarded to Dell . . . provide that the account not come back to I.C. without validation of the debt to be [*206] forwarded [**21] to the debtor" (Beckstrom-Ehlers Aff. P 18), and defendant has proffered evidence indicating its procedures for flagging an account as disputed and/or to indicate representation by an attorney. However, as Beckstrom-Ehlers admits, defendant allowed Dell to make "an entirely new placement of the account, with a different balance than the original balance on the first placement" such that "it was as though it was an entirely new debt" (id. P 19). In fact, defendant's practice of using different internal debt collection account numbers for the same debt (and the same Dell account number) "almost invited" the error which occurred in this case. See Teel v. Thorp Credit Inc. of Ill., 609 F.2d 1268, 1270 (7th Cir. 1979) (forms utilized by collector "almost invited this variety of error"); see also Goins, 352 F. Supp. 2d at 273-74 (granting motion for partial summary judgment for plaintiff on defendant's bona fide error defense where defendant claimed that it had procedures in place "to avoid further communications with the consumer when [it] learns that the consumer is represented by counsel or has filed bankruptcy protection," where the Court found that when the [**22] collector received new debts owed, it did not create a new account based on the new debt, but "merged old information from [plaintiff's] 'master' account" and as a result sought to collect in its notice purportedly relating to the new claim debts that were "the subject of two lawsuits against defendants in which plaintiff was represented by counsel," and defendant proffered "no explanation about how the procedures were reasonably adapted to

avoid merging 'held' accounts, or how the selection of a form letter referring to 'prior communications' could reflect 'maintenance of procedures reasonably adapted to avoid' processing 'held' accounts"). Defendant has simply failed to proffer evidence of any procedures maintained to avoid subsequent placements of debts already in its system from appearing as "entirely new debt[s]," thus permitting collection efforts notwithstanding that the consumer has already notified defendant of his/her representation by an attorney and/or dispute of the claimed debt. Accordingly, as defendant has not "demonstrate[d] that [it] maintain[ed] . . . procedures designed to prevent billing errors, and that [it] reasonably relied on the accuracy of the [**23] information provided to it by [Dell] regarding unpaid bills," Howe v. Reader's Digest Asso., 686 F. Supp. 461, 467 (S.D.N.Y. 1988); see also Smith v. Transworld Systems, Inc., 953 F.2d 1025, 1030 (6th Cir. 1992), plaintiff is granted summary judgment on the bona fide error defense. IV. Conclusion Accordingly, plaintiff's Motion for Summary Judgment on Count One of her Complaint [Doc. # 35] is GRANTED IN PART and DENIED IN PART. IT IS SO ORDERED. /s/ JANET BOND ARTERTON United States District Judge Dated at New Haven, Connecticut, this 12th day of April, 2007.

B. 1.

Meaningful Involvement - Where We Have Been Clomon v. Jackson, 988 F.2d 1314 (2d Cir. 1993).\:

18

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

CHRIST CLOMON, Plaintiff-Appellee, v. PHILIP D. JACKSON, DefendantAppellant. Docket No. 92-7942 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT 988 F.2d 1314; 1993 U.S. App. LEXIS 4965 January 6, 1993, Argued March 17, 1993, Decided PRIOR HISTORY: [**1] Appeal from a judgment of the United States District Court for the District of Connecticut, Peter C. Dorsey, Judge, granting summary judgment for the plaintiff in an action under the Fair Debt Collection Practices Act, 15 U.S.C. 1692-1692p. Held that mass-produced collection letter bearing facsimile of attorney's signature constitutes false or misleading communication in violation of 15 U.S.C. 1692e where attorney did not review debtor's file or the collection letter itself before the letter was sent. DISPOSITION: Affirmed. his name and a facsimile of his signature without first reviewing the collection letters or the files of the persons to whom the letters were sent. We affirm. BACKGROUND The appellant, Philip D. Jackson, is an attorney employed on a part-time basis as general counsel for a debt collection agency, NCB Collection Services ("NCB"). The agency collects debts on behalf of American Family Publishers ("AFP"), an organization engaged in the business of selling magazine subscriptions. This case arises out of an attempt by NCB to collect a debt of $ 9.42 allegedly owed to AFP by the appellee, Christ Clomon. NCB issues debt collection letters on behalf of AFP to approximately one million debtors each year through a computerized mass-mailing system. Under this system, AFP provides NCB with computer tapes containing information about delinquent [**3] accounts. NCB then transfers this information from the tapes to its own computer system, which inserts each debtor's name, address, account number, and balance due into a form letter requesting payment of the debt. The computer system then causes each letter to be printed, folded, and inserted into a window envelope for mailing. If a debtor does not respond to the initial collection letter, the computer automatically produces and mails additional letters according to a predetermined schedule. The collection agency maintains a program for assessing the reliability of its computer data, but no employee of the agency reviews the file of any individual debtor until the debtor responds to the agency's demands for payment. Clomon received a series of six form letters from NCB regarding her $ 9.42 debt to AFP. The first of these letters was sent on a form bearing the logo of NCB and the name of "Althea Thomas, Account Supervisor." The remaining five letters were sent on letterhead containing the following words in the top margin:

COUNSEL: PHILIP D. JACKSON, Freeport, New York (Ciaravino, Jackson & Tedeschi), for DefendantAppellant, Pro Se. IRA MITZNER, Washington, D.C. (Dickstein, Shapiro & Morin, Of Counsel). JOANNE S. FAULKNER, New Haven, Connecticut, for Plaintiff-Appellee. JUDGES: Before: KEARSE and WINTER, Circuit Judges, and CABRANES, District Judge. * * The Honorable Jose A. Cabranes, Chief Judge of the United States District Court for the District of Connecticut, sitting by designation. OPINION BY: JOSE A. CABRANES OPINION [*1316] JOSE A. CABRANES, District Judge: Philip D. Jackson appeals from a judgment of the United States District Court for the [**2] District of Connecticut (Peter C. Dorsey, Judge) granting summary judgment against him in an action for damages under the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. 1692-1692p. The district court held that Jackson violated the FDCPA when he authorized the sending of debt collection letters bearing

19

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

[*1317] P.D. Jackson, G.C. Offices of General Counsel

appropriate measures provided under the law to further implement the collection of your seriously past due account.

Attorney-at-Law 336 Atlantic Avenue .... East Rockaway, N.Y. 11518 In addition, each of these letters bore [**4] the following signature line: P.D. JACKSON, ATTORNEY AT LAW GENERAL COUNSEL NCB COLLECTION SERVICES The information in the letterhead and at the signature line was accurate, at least in a literal sense. Jackson is indeed an attorney, admitted to practice in the State of New York. He is employed as general counsel of NCB Collection Services, albeit on a parttime basis, for which he receives an annual salary of approximately $ 24,000. The address of NCB Collection Services in New York State is 336 Atlantic Avenue, East Rockaway, New York 11518. The letters were not, however, actually signed by Jackson or by any other person: each letter bore a mechanically reproduced facsimile of the signature of "P.D. Jackson." The letters "signed" by Jackson were delivered to Clomon over a period of more than two months, from March 1991 to early June of that year. The letters contained a variety of threatening statements in an apparent effort to induce Clomon to pay the amount she owed. The following statements are representative of the letters' contents: You have 30 days before we take any additional steps deemed appropriate regarding your outstanding balance . . . . .... Acting as General Counsel for NCB Collection Services, I have told them that they can lawfully undertake collection activity to collect your debt . . .. Your account was referred to us with instructions to pursue this matter to the furthest extent we deem appropriate.

.... Accordingly, the disposition of your account has been scheduled for immediate review and/or further action as deemed appropriate.

.... Because of your failure to make any effort to pay your lawful debt . . . we may find it necessary to recommend to your creditor that appropriate action be taken to satisfy the debt.

.... Based [**5] on information made available to us, we must recommend that your creditor proceed with such further action as the circumstances may indicate to dispose of this outstanding balance.

.... After NCB reviews your collection file and previous correspondence sent you, I am suggesting we take the

Jackson asserts, and Clomon does not dispute, that he personally approved the form letters used by NCB and that he also approved [**6] the procedures according to which those letters were sent. Jackson acknowledges, however, that he did not have any direct personal involvement in the mailing of letters to Clomon (or to any other debtor): he never reviewed Clomon's file; he never reviewed or signed any letter that was sent in his name to Clomon; he never gave advice to AFP about how to address particular circumstances of Clomon's case; and he never received any instructions from AFP about what steps to take against Clomon. In short, Jackson never considered the particular circumstances of Clomon's case prior to the mailing of the letters and he never participated personally in the mailing. In a complaint filed on September 23, 1991, Clomon alleged that Jackson had violated the FDCPA

20

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

in authorizing NCB to issue the collection letters that she received. The district court denied Jackson's motion for judgment on the pleadings on May 4, 1992. While that motion was still pending, the parties submitted cross-motions for summary judgment. The district court issued a written ruling granting summary judgment for Clomon on May 11, 1992. The court then granted, over objection, Clomon's motion for the maximum statutory damages [**7] of $ 1000. The court found no actual damages. On appeal, Jackson contends that the district court erred [*1318] (1) in finding that his conduct violated 15 U.S.C. 1692e, (2) in awarding statutory damages in the amount of $ 1,000, and (3) in denying his motion for judgment on the pleadings. DISCUSSION A. Ruling on Judgment Cross-Motions for Summary

The FDCPA establishes a general prohibition against the use of "false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. 1692e. The sixteen subsections of 1692e set forth a non-exhaustive list of practices that fall within this ban. These subsections include: (3) The false representation or implication that any individual is an attorney or that any communication is from an attorney.

standard based on the "least sophisticated consumer." This standard has been widely adopted by district courts in this circuit. See, e.g., Johnson v. NCB Collection Services, 799 F. Supp. 1298, 1306 (D. Conn. 1992); Rabideau v. Management Adjustment Bureau, 805 F. Supp. 1086, 1094 (W.D.N.Y. 1992); Britton v. Weiss, 1989 U.S. Dist. LEXIS 14610, at * 6 (N.D.N.Y. Dec. 18, 1989); cf. Riveria v. MAB Collections, Inc., 682 F. Supp. 174, 178 (W.D.N.Y. 1988) (using "unsophisticated consumer" standard). This standard has also been adopted by all [**9] federal appellate courts that have considered the issue. See Smith v. Transworld Systems, Inc., 953 F.2d 1025, 1028 (6th Cir. 1992); Graziano v. Harrison, 950 F.2d 107, 111 (3d Cir. 1991); Jeter v. Credit Bureau, Inc., 760 F.2d 1168, 1174-75 (11th Cir. 1985); Baker v. G.C. Services Corp., 677 F.2d 775, 778 (9th Cir. 1982). But see Blackwell v. Professional Business Services, Inc., 526 F. Supp. 535, 538 (N.D. Ga. 1981) (applying "reasonable consumer" standard). We now adopt the least-sophisticated consumer standard for application in cases under 1692e. In doing so, however, we examine in some detail the purposes served by this standard as well as the extent of the liability that it creates. The basic purpose of the least-sophisticatedconsumer standard is to ensure that the FDCPA protects all consumers, the gullible as well as the shrewd. This standard is consistent with the norms that courts have traditionally applied in consumerprotection law. More than fifty years ago, the Supreme Court noted that the fact that a false statement [**10] may be obviously false to those who are trained and experienced does not change its character, nor take away its power to deceive others less experienced. There is no duty resting upon a citizen to suspect the honesty of those with whom he transacts business. Laws are made to protect the trusting as well as the suspicious.

.... (10) The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.

Id. Because the list in the sixteen subsections is nonexhaustive, a debt collection practice can be a "false, deceptive, or misleading" practice [**8] in violation of 1692e even if it does not fall within any of the subsections of 1692e. A single violation of 1692e is sufficient to establish civil liability under the FDCPA. See 15 U.S.C. 1692k (establishing civil liability for "any debt collector who fails to comply with any provision of this subchapter"). 1. The "Least Sophisticated Consumer" Standard The most widely accepted test for determining whether a collection letter violates 1692e is an objective

Federal Trade Commission v. Standard Education Society, 302 U.S. 112, 116, 82 L. Ed. 141, 58 S. Ct. 113 (1937) (finding encyclopedia-selling scheme in violation of Federal Trade Commission Act). We subsequently sounded the same theme in our consumer-protection cases, holding that the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. 41 et seq., was not made "'for the protection of experts, but for the public----that vast multitude which includes the ignorant, the unthinking and the credulous.'" [*1319]

21

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Charles of the Ritz Distributors Corp. v. Federal Trade Commission, 143 F.2d 676, 679 (2d Cir. 1944), quoting Florence Manufacturing Co. v. J.C. Dowd & Co., 178 F. 73, 75 (2d Cir. 1910). This basic principle of consumer-protection law took on its modern formulation [**11] several years later, when we held that "in evaluating the tendency of language to deceive, the [Federal Trade] Commission should look not to the most sophisticated readers but rather to the least." Exposition Press, Inc. v. Federal Trade Commission, 295 F.2d 869, 872 (2d Cir. 1961). In recent years, as courts have incorporated the jurisprudence of the FTC Act into their interpretations of the FDCPA, the language of Exposition Press has gradually evolved into what we now know as the least-sophisticatedconsumer standard. See, e.g., Jeter, 760 F.2d at 117475; Baker, 677 F.2d at 778. To serve the purposes of the consumer-protection laws, courts have attempted to articulate a standard for evaluating deceptiveness that does not rely on assumptions about the "average" or "normal" consumer. This effort is grounded, quite sensibly, in the assumption that consumers of below-average sophistication or intelligence are especially vulnerable to fraudulent schemes. The least-sophisticatedconsumer standard protects these consumers in a variety of ways. First, courts have held that collection [**12] notices violate the FDCPA if the notices contain language that "overshadows" or "contradicts" other language that informs consumers of their rights. See Graziano, 950 F.2d at 111 (notice of right to respond within thirty days is not effectively communicated when presented in conjunction with contradictory demand for payment within ten days); see also Swanson v. Southern Oregon Credit Service, Inc., 869 F.2d 1222, 1225 (9th Cir. 1988) (same). In addition, courts have found collection notices misleading where they employ formats or typefaces which tend to obscure important information that appears in the notice. See Baker, 677 F.2d at 778 (required information must be "large enough to be easily read and sufficiently prominent to be noticed"). Finally, courts have held that collection notices can be deceptive if they are open to more than one reasonable interpretation, at least one of which is inaccurate. See Dutton v. Wolhar, 809 F. Supp. 1130 (D. Del. 1992) ("least sophisticated debtor is not charged with gleaning the more subtle of the two interpretations" [**13] of collection notice); Britton, 1989 U.S. Dist. LEXIS 14610, at * 6 (deceptiveness of collection notices "should be assessed in terms of the impression likely to be left on the unsophisticated consumer"). It should be emphasized that in crafting a norm that protects the naive and the credulous the courts

have carefully preserved the concept of reasonableness. See Rosa v. Gaynor, 784 F. Supp. 1, 3 (D. Conn. 1989) (FDCPA "does not extend to every bizarre or idiosyncratic interpretation" of a collection notice but "does reach a reasonable interpretation of a notice by even the least sophisticated"). Indeed, courts have consistently applied the least-sophisticated-consumer standard in a manner that protects debt collectors against liability for unreasonable misinterpretations of collection notices. One court has held, for example, that collection notices are not deceptive simply because certain essential information is conveyed implicitly rather than explicitly. See Transworld Systems, 953 F.2d at 1028-29 (collection notice that does not expressly inform debtors of right to contest portion of [**14] debt is not misleading, because that right is "implicit" in right to challenge entire debt). Other courts have held that even the "least sophisticated consumer" can be presumed to possess a rudimentary amount of information about the world and a willingness to read a collection notice with some care. See Johnson, 799 F. Supp. at 1306-07 (finding that "even the least sophisticated debtor knows that a 'Revenue Department' may be part of a department store or other commercial creditor just as it may be a governmental body"); Gaetano v. Payco of Wisconsin, Inc., 774 F. Supp. 1404, 1411 (D. Conn. 1990) (approving collection notice even though required disclosures were printed only on the back of the notice, since language on the [*1320] front directed consumers to read the reverse). We do not, of course, have occasion here to adopt other courts' interpretations of the least-sophisticatedconsumer standard. But the existence of this substantial body of law demonstrates that the least-sophisticatedconsumer standard effectively serves its dual purpose: it (1) ensures the protection of all consumers, even the naive and the trusting, against [**15] deceptive debt collection practices, and (2) protects debt collectors against liability for bizarre or idiosyncratic interpretations of collection notices. 2. Violations of Section 1692e In the proceedings below, the district court based its decision to grant summary judgment on its determination that Jackson had violated subsection (3) of 1692e. The court determined that Jackson violated subsection (3) when he approved collection letters which falsely implied that he had been retained for the purpose of collecting a particular person's debt. Jackson now contends that the court erred in holding that such conduct violated subsection (3). Specifically, Jackson insists that the letters at issue here complied with subsection (3) because they accurately state that he is an attorney and that the letters are from him. He

22

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

also argues that the letters' overstatement of the degree of an attorney's involvement in individual debtors' cases does not violate subsection (3) or any other provision of 1692e. We find these arguments unpersuasive. At the outset, it should be emphasized that the use of any false, deceptive, or misleading representation in a collection letter violates [**16] 1692e---regardless of whether the representation in question violates a particular subsection of that provision. See 15 U.S.C. 1692e (specifying certain prohibited acts "without limiting the general application of the foregoing" language). Given the broad sweep of this provision, it would be possible to uphold the district court's decision to grant summary judgment for the plaintiff even if the facts did not establish a violation of subsection (3). We find, however, that the district court properly concluded that the record establishes a violation of subsection (3). We note that the record also establishes a violation of subsection (10) and of the general ban in 1692e. First, the use of Jackson's letterhead and signature on the collection letters was sufficient to give the least sophisticated consumer the impression that the letters were communications from an attorney. This impression was false and misleading because in fact Jackson did not review each debtor's file; he did not determine when particular letters should be sent; he did not approve the sending of particular letters based upon the recommendations of others; and he did not [**17] see particular letters before they were sent----indeed, he did not even know the identities of the persons to whom the letters were issued. In short, the fact that Jackson played virtually no day-to-day role in the debt collection process supports the conclusion that the collection letters were not "from" Jackson in any meaningful sense of that word. Consequently, the facts of this case establish a violation of subsection (3) of 1692e. See Masuda v. Thomas Richards & Co., 759 F. Supp. 1456, 1460-61 (C.D. Cal. 1991) (finding violation of subsection (3) where collection letter falsely implied that attorney had personally reviewed debtor's file); cf. Anthes v. Transworld Systems, Inc., 765 F. Supp. 162, 166-67 (D. Del. 1991) (finding no violation of subsection (3) where collection letter was sent directly from attorney's office and attorney reviewed information provided by debt collection agency "to independently determine whether one of his letters should be sent"). We also note that the language used in the collection letters was sufficient to cause the least sophisticated consumer to believe that Jackson himself [**18] had considered individual debtors' files and had made judgments about how to collect individual debts.

The letters stated that Jackson was "suggesting" certain measures be taken "to further implement the collection of your seriously past due account"; that Jackson had received "instructions" from his client "to pursue this matter to the furthest extent we deem appropriate"; [*1321] that Jackson had "told" his client that it could "lawfully undertake collection activity to collect your debt"; and that Jackson had "scheduled" Clomon's debt for "immediate review and/or further action as deemed appropriate." In short, the collection letters would have led many consumers, and certainly the least sophisticated consumer, to believe that an attorney had personally considered the debtor's case before the letters were sent. This language was false or misleading because, as noted above, Jackson played virtually no day-to-day role in the debt collection process----and certainly did not engage in any discussion with NCB or AFP about how to collect Clomon's debt. Consequently, the facts of this case establish a violation of subsection (10) of 1692e. See Pipiles v. Credit Bureau of Lockport, Inc., 886 F.2d 22, 25-26 (2d Cir. 1989) [**19] (finding violation of subsection (10) where collection letter falsely implied that some action would be taken); see also Gaetano, 774 F. Supp. at 1415 (finding violation of subsection (10) where defendant attempted to collect a debt when prohibited from doing so by state law). In sum, the facts of this case provide ample grounds for the district court's conclusion that Jackson violated 1692e. It is clear that Jackson's conduct constituted a violation of subsection (3), which prohibits the false representation that a collection letter is a "communication . . . from an attorney." The record also establishes that Jackson's conduct constituted a violation of subsection (10), which prohibits "the use of any false representation or deceptive means to collect" a debt from a consumer. Finally, we note that the misrepresentations contained in these letters could also be characterized as violations of the general ban in 1692e on the use of any "false, deceptive, or misleading representation or means in connection with the collection of any debt." 1 1 On appeal, Jackson addressed two additional potential bases for the court's summary judgment ruling. Jackson argued (1) that he never violated 15 U.S.C. 1692j, which forbids the use of forms that create the false impression that anyone other than the creditor is involved in the collection effort, and (2) that he did not violate the FDCPA in sending collection notices to Connecticut without being admitted to practice in that state. Because the district court's decision to grant summary judgment was proper, we need not consider whether these

23

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

additional grounds existed for that court's decision. [**20] In reaching this conclusion, we are mindful of the appellant's concern regarding the economic necessity of mass mailing in the debt collection industry. It is apparent that mass mailing may sometimes be the only feasible means of contacting a large number of delinquent debtors, particularly when many of those debtors owe relatively small sums. But it is also true that the FDCPA sets boundaries within which debt collectors must operate. No mass mailing technique is permissible--regardless of how effective it might be--if that technique constitutes a false, deceptive, or misleading communication. As we have found here, the use of an attorney's signature on a collection letter implies that the letter is "from" the attorney who signed it; it implies, in other words, that the attorney directly controlled or supervised the process through which the letter was sent. We have also found here that the use of an attorney's signature implies--at least in the absence of language to the contrary--that the attorney signing the letter formed an opinion about how to manage the case of the debtor to whom the letter was sent. In a mass mailing, these implications are frequently false: the attorney whose [**21] signature is used might play no role either in sending the letters or in determining who should receive them. For this reason, there will be few, if any, cases in which a mass-produced collection letter bearing the facsimile of an attorney's signature will comply with the restrictions imposed by 1692e. B. Ruling on Motion for "Additional Damages" The FDCPA provides that "any debt collector who fails to comply with any provision of this subchapter with respect to any person" is liable to such person. 15 U.S.C. 1692k. The statute further provides that upon a finding of liability a court [*1322] may award an individual plaintiff actual damages in compensation for the harm suffered as a result of the violation, "additional damages" not to exceed $ 1,000, and reasonable costs and attorney's fees. See 15 U.S.C. 1692k(a)(1)-(3). In this case, Clomon requested no actual damages and the district court awarded none. The court did, however, grant Clomon's motion for $ 1,000 in "additional damages." The court also awarded Clomon $ 2,975 for attorney's fees and $ 120 for costs. On appeal, Jackson objects only to [**22] the award of "additional damages." The decision on whether to award "additional damages" and on the size of any such award is committed to the sound discretion of the district court. See Pipiles, 886 F.2d at 27 (FDCPA gives district courts "ample discretion" in assessing damages); see also Emanuel v. American Credit Exchange, 870 F.2d 805, 809 (2d Cir. 1989) (decision

to award "additional damages" is "discretionary"). The district court must, however, consider the frequency and persistence of noncompliance by the debt collector, the nature of such noncompliance, the extent to which such noncompliance was intentional, and other relevant factors in deciding the amount of any "additional damages" awarded. See 15 U.S.C. 1692k(b). In arguing that the district court's award of "additional damages" was an abuse of discretion, Jackson contends that his noncompliance with 1692e was unintentional and in good faith. Jackson asserts that he approved the collection letters at issue here in reliance upon "authoritative interpretations" of the law by the Federal Trade Commission ("FTC") and [**23] by the district court in Howe v. Reader's Digest Association, Inc., 686 F. Supp. 461 (S.D.N.Y. 1988). This argument is not persuasive. First, the language of 1692e is, by itself, sufficient to make it clear that these collection letters violated the FDCPA. Section 1692e establishes a broad ban on all false and misleading means of debt collection, and it is clear that these letters misrepresented the nature of Jackson's involvement in the debt collection process. Second, the fact that the FTC received copies of these letters and expressed no disapproval of them is not evidence that the FTC "authoritatively interpreted" the letters as lawful or even that the FTC gave the letters its "tacit approval." 2 On the contrary, as the defendant himself acknowledged in a deposition in this matter, the FTC routinely receives copies of letters such as these without issuing statements evaluating the letters' lawfulness. As an attorney responsible for ensuring compliance with laws enforced by the FTC, Jackson should have been familiar with this well-established practice and therefore cannot contend that he believed the FTC's silence indicated approval of these letters. [**24] Finally, the decision in Howe v. Reader's Digest Association, Inc., supra, does not state or imply that the practices at issue here would be permitted by the FDCPA. The Howe decision does hold that a debt collector can rely on the records of a creditor in determining whether to send collection letters. See id. at 467. But nothing in that decision releases or purports to release an attorney from the obligation to make some determination about a debtor's account prior to the issuance of a collection letter bearing the attorney's signature. More to the point, nothing in that decision releases or purports to release any debt collector from the obligation under 1692e not to use false or misleading communications as a debt-collecting device. 2 The record indicates that copies of these notices were provided to the FTC by AFP, the magazine subscriptions company that employed

24

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Jackson to collect Clomon's debt. Although the evidence in the record is incomplete, it appears that AFP provided the notices as part of an agreement arising out of an investigation of AFP by the FTC for possible violations of the FDCPA. Jackson makes no attempt to describe the circumstances of this agreement, and he provides no evidence that the agreement entailed any review or evaluation of the notices by the FTC--much less any action or inaction of the FTC that could be said to confer an imprimatur on these collection letters. [**25] In sum, we find sufficient grounds for the district court's conclusion that Jackson knew or should have known that these [*1323] collection letters violated 1692e. For that reason, the court's decision

to award statutory damages of $ 1,000 was amply justified. C. Ruling on Motion for Judgment on the Pleadings Jackson also challenges so much of the judgment as reflects the district court's denial of his motion for judgment on the pleadings. Although we agree that the pleadings here were scant, the district court's refusal to dismiss the action was not an abuse of discretion. In any event, the undisputed facts as presented on the summary judgment motion served as a basis to deem the complaint amended to conform with the proof pursuant to Fed. R. Civ. P. 15(b). CONCLUSION For the reasons stated above, the judgment of the district court is affirmed.

2.

Avila v. Rubin, 84 F. 3d 222 (7th Cir. 1996):


RAUL AVILA, on behalf of himself and all others similarly situated, PlaintiffAppellee, v. ALBERT G. RUBIN and VAN RU CREDIT CORPORATION, Defendants-Appellants. Nos. 95-2881, 95-2895, Nos. 95-3905, 95-3978, (Consolidated) UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT 84 F.3d 222; 1996 U.S. App. LEXIS 11415 April 11, 1996, Argued May 16, 1996, Decided

PRIOR HISTORY: [**1] Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 94 C 3234. Suzanne B. Conlon, Judge. DISPOSITION: AFFIRMED.

Kendall Griffith, David M. Schultz, HINSHAW & CULBERTSON, Chicago, IL, USA. For RAUL AVILA, on behalf of himself and all others similarly situated, No. 95-2895, Plaintiff - Appellee: Daniel A. Edelman, Cathleen M. Combs, Tara G. Redmond, J. Eric VanderArend, Michelle A. Weinberg, EDELMAN & COMBS, Chicago, IL, USA. Joanne Faulkner, New Haven, CT, USA. For VAN RU CREDIT CORPORATION, Nos. 952895, 95-3905, Defendant - Appellant: Daniel P. Shapiro, Michael J. Small, Steven A. Levy, GOLDBERG, KOHN, BELL, BLACK, ROSENBLOOM & MORITZ, Chicago, IL, USA. For RAUL AVILA, on behalf of himself and all others similarly [**2] situated, No. 95-3905, Plaintiff Appellee: Daniel A. Edelman, Cathleen Combs, Tara

COUNSEL: For RAUL AVILA, on behalf of himself and all others similarly situated, No. 95-2881, Plaintiff - Appellee: Daniel A. Edelman, J. Eric VanderArend, Michelle A. Weinberg, O. Randolph Bragg, Tara L. Goodwin, Cathleen C. Cohen, James O. Latturner, EDELMAN & COMBS, Chicago, IL, USA. Joanne Faulkner, New Haven, CT, USA. For ALBERT G. RUBIN, No. 95-2881, Defendant Appellant: George W. Spellmire, Bruce L. Carmen, D.

25

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

G. Redmond, J. Eric VanderArend, Michelle A. Weinberg, O. Randolph Bragg, EDELMAN & COMBS, Chicago, IL, USA. Joanne Faulkner, New Haven, CT, USA. For RAUL AVILA, on behalf of himself and all others similarly situated, No. 95-3978, Plaintiff - Appellee: Daniel A. Edelman, J. Eric VanderArend, Michelle A. Weinberg, O. Randolph Bragg, Tara L. Goodwin, EDELMAN & COMBS, Chicago, IL, USA. Joanne Faulkner, New Haven, CT, USA. For ALBERT G. RUBIN, No. 95-3978, Defendant Appellant: George W. Spellmire, Bruce L. Carmen, David M. Schultz, HINSHAW & CULBERTSON, Chicago, IL, USA. JUDGES: Before BAUER, CUDAHY, and EVANS, Circuit Judges. OPINION BY: EVANS OPINION [*224] EVANS, Circuit Judge. Can a person, licensed to practice law, be in violation of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692 et seq., for sending dunning collection letters that purport to be from an "attorney"? This is one of two interesting questions we address today in this case involving Raul Avila (and a class of similarly situated persons), the Van Ru Credit Corporation, and Albert G. Rubin, an attorney-at-law from Skokie, Illinois. [**3] As Joe Friday would say, let's get to the facts. We will, but unlike Sergeant Friday, it won't be "just the facts" as we'll mix in some observations and findings along the way. Avila is a student loan debtor living in Connecticut. Van Ru Credit Corporation is a collection agency in Skokie, Illinois. Rubin is an Illinois attorney. Although we were told at oral argument that Rubin and the Van Ru agency are separate, they actually seem to be as closely intertwined as lovers during an embrace. Here's the situation from which, we think, that conclusion is justified. Rubin founded Van Ru and owns 80 percent of its corporate stock. The remainder is owned by Van Ru's president, who is Rubin's son. Rubin is Van Ru's chief executive officer, draws a large salary from the company, and, until eight years ago, managed Van Ru's day-to-day collection activities. Rubin is involved in the creation and modification of form letters, the most critical part of the debt collection operation.

In addition to his duties at Van Ru, Rubin has a law office which he calls Rubin & Associates. Rubin & Associates is located on the third floor of the "Van Ru Building." The Van Ru Building is owned by Van Ru Credit [**4] Services, Inc., and Rubin owns 75 percent of this firm. Rubin & Associates splits the third-floor space of the building with Van Ru. Rubin & Associates is comprised of Rubin, one other attorney, and some 35 "legal assistant collectors." The primary business of Rubin & Associates is to send form letters to delinquent debtors urging them to pay their debts and to refer the files of delinquent debtors to other attorneys for litigation. Neither Rubin nor the other attorney in his office actually litigates in Connecticut, and it is unclear (but we think doubtful) whether they litigate anywhere. Rubin & Associates receives all its business from Van Ru after Van Ru's efforts to collect debts are unsuccessful. Van Ru pays Rubin & Associates a monthly retainer for work that Rubin & Associates does on debtor accounts. Rubin personally maintains offices in both the Van Ru and Rubin & Associates offices. Rubin works at Van Ru around 20 hours a week and spends some 30 hours each week working at Rubin & Associates. Van Ru and Rubin & Associates use the same computer system and internal account number to identify files. Van Ru and Rubin & Associates also utilize the same automated telephone dialing [**5] system to call delinquent debtors; employees from both entities sit next to each other when using the system. Van Ru and Rubin & Associates receive mail at the same post office box. Van Ru and Rubin & Associates use the same printer for their respective form letters. The two also use the same machine to fold and process form letters in preparation for mailing. The mailing machine processes Van Ru and Rubin & Associates letters simultaneously, resulting in stacks of mixed letters ready for mailing. The letters of both Van Ru and Rubin & Associates are placed in identical envelopes. The printer and mailing machine are operated, and the letters are handled, by employees of Pegasus Data Systems, Inc., a company located at the same address as Van Ru and Rubin & Associates. Rubin owns 50 percent of Pegasus. Although Van Ru and Rubin & Associates utilize the same computer system, Van Ru employees do not issue Rubin & Associates letters or input data into a debtor's file after it is transferred to Rubin & Associates. Once a file is referred to Rubin & Associates, Van Ru's employees generally do not pursue collection activities against the debtor. [*225] Avila allegedly owes money on a student loan [**6] to his creditor, the Connecticut Student Loan Foundation. The foundation has a written

26

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

contract with Van Ru and an oral agreement with Rubin for debt collection services. The foundation forwarded Avila's account for collection to Van Ru via electronic data transmission. As is its practice, the foundation did not forward underlying documentation about Avila's loan. Van Ru sent Avila two demand or "dunning" letters in an attempt to collect the debt. Avila did not respond. Van Ru then "referred" Avila's account to Rubin & Associates. Rubin & Associates then cranked out three dunning letters to Avila on attorney letterhead in an attempt to collect the debt. The five form letters are the basis for this suit, filed by Avila (as a class action) against Van Ru and Rubin. Now let's look at the letters. The first letter (we'll call it exhibit A), dated November 22, 1993, tells Avila that Van Ru intends to collect his debt. It informs Avila of his right to dispute the validity of the debt within 30 days. Ten days later, on December 2, 1993, Van Ru sent Avila a second letter, exhibit B, which demanded that Avila "commence immediate repayment of [the] loan" and threatened that "if payment is [**7] not received, a civil suit may be initiated against you by your creditor." The next three letters, which we'll call exhibits C, D, and E, were sent by Rubin & Associates on the following letterhead: Albert G. Rubin, Ltd. Attorney at Law P.O. Box 1010 Skokie, IL 60076-8010 1-800-766-7887

Mr. Rubin reviews and approves the general form used [**8] on letters sent by Rubin & Associates. He does not, however, personally prepare, sign, or review any of the letters sent to targets, including Avila. This is understandable, for Rubin would probably be in the hospital with a severe case of writer's cramp if he did because some 270,000 such letters go out each year. That, by the way, comes out to 1,062 per working day, 133 per working hour. The letters from attorney Rubin are actually the product of a nonattorney "legal assistant collector" who directs the computer to generate a letter on Rubin's attorney letterhead. Legal assistant collectors are provided with a training manual developed by Rubin to help them determine when an attorney debt collection letter is warranted. According to Rubin, the collectors use their "skill, judgment, and training" to determine when a letter should be sent. Claiming that the letters, exhibits A-E, were violations of the FDCPA, 1 Avila filed this suit in the spring of 1994. Class certification, not challenged here, was granted, and discovery continued until the parties filed joint motions for summary judgment on liability. Avila's motion carried the day as Rubin was held liable to the class under [**9] 1692g and 1692e(3) and (9) of the FDCPA, and Van Ru was found liable as well under 1692g. Van Ru and Avila stipulated to damages of $ 20,000 and judgment in that amount was entered. Then, following a bench trial on the issue of statutory damages, judgment was entered for Avila against Rubin for $ 84,983. Rubin and Van Ru appeal. 1 A state claim under the Connecticut Unfair Trade Practices Act was abandoned. [*226] The rules for granting summary judgment and our standard of review are well-known and need not be repeated. Suffice to say that the facts are not in dispute and only questions of law are present which we review on a clean slate. A "validation notice" is required by law to be present in letters seeking to collect debts. FDCPA, 15 U.S.C. 1692g. Essentially, the notice required by 1692g must tell the target that she has 30 days to dispute the validity of all or a portion of the debt. If not disputed, the collector may assume the debt to be valid. After some anguish, we held in Gammon v. GC Servs. Ltd. Partnership, [**10] 27 F.3d 1254, 1257 (7th Cir. 1994), that claims against debt collectors under the FDCPA are to be viewed through the eyes of the "unsophisticated consumer." We rejected what may be viewed as a somewhat lesser standard--the "least sophisticated consumer," used by other courts. We reiterate our standard today, but we don't want to be

Exhibit C, dated January 4, 1994, tells Avila of his right to dispute or verify the debt. This information is immediately followed by the sentences: "If the above does not apply to you, we shall expect payment or arrangement for payment within ten (10) days from the date of this letter. If payment is not received, a civil suit may be initiated against you by your creditor for repayment of your loan . . . ." Exhibit A, the first letter from Van Ru, also contained this statement. Exhibits D and E are letters from Rubin demanding payment from Avila and threatening a civil suit if payment is not forthcoming. Exhibits D and E do not notify Avila of a right to dispute the debt. Exhibits C through E are mass-produced collection letters "signed" with a mechanically reproduced facsimile of the signature of attorney "Albert G. Rubin."

27

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

involved in the splitting of split hairs. Anyway it's viewed, the standard is low, close to the bottom of the sophistication meter. Exhibits A and C, the first letters sent by Van Ru and Rubin, included the required 30-day debt verification notice. Both, however, followed the notice with the confusing statement we previously noted: "If the above does not apply to you, we shall expect payment or arrangement for payment to be made within ten (10) days from the date of this letter." The letter from Van Ru followed up on this statement by telling the debtor that "this will avoid additional proceedings by our firm." The letter from Rubin followed up the statement by saying, "If payment is not received, a civil suit may be initiated against you by the creditor for repayment of your loan . . . ." We think that telling a debtor he has 30 days [**11] to dispute the debt and following that with a statement that "if the above does not apply" you have ten days to pay up or real trouble will start is entirely inconsistent, and a failure to comply, with the FDCPA. We think the unsophisticated consumer would be scratching his head upon receipt of such a letter. He wouldn't have a clue as to what he was supposed to do before real trouble begins. A debt validation notice, to be valid, must be effective, and it cannot be cleverly couched in such a way as to eviscerate its message. To protect the uninformed, the naive, and the trusting--the sort of people who easily fit under the umbrella of the "unsophisticated consumer"--the notice cannot be as misleading and tricky as the one used here by Van Ru and Rubin. We think the validation notice was clearly overshadowed by the language that followed on its heels. So, like the district court, we believe that both Rubin and Van Ru are guilty of not complying with 1692g of the FDCPA. Before leaving this topic and moving on to the lawyering charges against Rubin, we need to address a point upon which the two defendants want to hang their hats. The defendants contend that Gammon fundamentally changed [**12] the standard for evaluating FDCPA violations. They assert that under the "unsophisticated consumer" standard, Avila must submit extrinsic evidence, such as a survey, showing that a significant proportion of his class believed that the validation notice was contradicted. For support, they cite Judge Easterbrook's concurrence in Gammon. The letter at issue in Gammon contained a literally true statement with a possibly misleading implication. In the final paragraph of his concurrence, Judge Easterbrook suggests that on remand the plaintiff in Gammon should show that a "significant fraction" of addressees of the letter were deceived, "for if showing a handful of misled debtors were enough, we would as

a practical matter be using the 'least sophisticated consumer' doctrine." Gammon, 27 F.3d at 1260 (Easterbrook, J. concurring). Judge Easterbrook also suggested that trademark cases might aid the district court in determining the existence and extent of any misunderstanding flowing from the literally true statement. The defendants interpret Judge Easterbrook's comments to mean that a heightened standard for FDCPA violations now exists in this circuit and that every FDCPA plaintiff must submit [**13] extrinsic evidence that a significant proportion of collection [*227] notice addressees were deceived by the notice. They are reading far too much into Judge Easterbrook's observations. Gammon does not significantly change the substance of the "least sophisticated consumer" standard as it had been routinely applied by courts. Instead, Gammon concluded that the term "unsophisticated consumer" is a simpler and less confusing formulation of a standard designed to protect those of below-average sophistication or intelligence. As a result, the court stated "we will use the term, 'unsophisticated,' instead of the phrase, 'least sophisticated,' to describe the hypothetical consumer whose reasonable perceptions will be used to determine if collection messages are deceptive or misleading." Gammon, 27 F.3d at 1257. The new terminology reconciles the former standard's literal meaning with its application. Id. As Avila correctly observes, the unsophisticated consumer standard is a distinction without much of a practical difference in application. Judge Easterbrook's concurrence is consistent with this analysis. Judge Easterbrook notes that the newly named standard looks to a "hypothetical" unsophisticated [**14] consumer in the same sense that the reasonable person of tort law is hypothetical. Gammon, 27 F.3d at 1259. Because the letter in Gammon was literally true but possibly misleading, Judge Easterbrook suggests that the plaintiff on remand should show that a significant number of the letter's addressees interpreted the statement in the letter in a way that violates FDCPA. The implication the defendants urge is that this is the only way a plaintiff can demonstrate that a reasonable, unsophisticated consumer would be deceived by the statement. We think not. We also think the defendants' reliance on false advertising cases from trademark law is unavailing here. Section 43(a)(2) of the Lanham Act prohibits statements that are (1) literally false and (2) statements that, while literally not false or ambiguous, convey a false impression or are misleading in context. See Abbott Laboratories v. Mead Johnson & Co., 971 F.2d 6, 13 (7th Cir. 1992). The general rule is that if a

28

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

statement is literally false, the court may grant relief without reference to the reaction of buyers or consumers of the product. On the other hand, if a statement is not literally false, the court may find that it is impliedly [**15] misleading only if presented with evidence of actual consumer deception. Id. at 14. Avila claims Van Ru contradicted the validation notice and that Rubin both contradicted the validation notice and improperly sent attorney form letters. These claims resemble a literally false statement more than an ambiguous but potentially misleading statement. Just as the analysis involved in evaluating a literally false statement turns on whether the statement is true or false, the language in the collection letters either contradicts the validation notice or it does not. We think Avila's claims are distinguishable from those in Gammon. There, the collection agency stated it had provided the systems for a major branch of the federal government to use in collecting delinquent taxes. Gammon, 27 F.3d at 1257. This statement was literally true, but we held that a consumer might interpret it as implying that the debt collector was affiliated with the United States, in violation of FDCPA. Id. at 1258. Unlike Avila's claims, Gammon involved a literally true statement with the potential for deception. The statements involved here, because they are inconsistent and contradictory, are more akin to a literally [**16] false statement in the context of a trademark case. Accordingly, our finding that the defendants violated 1692g, without reference to evidence of actual consumer confusion, is appropriate. We move now to the attorney letters, exhibits C, D, and E, noting first that 1692e of the FDCPA provides: A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section: .... (3) The false representation or implication that any individual is an attorney or that any communication is from an attorney. .... [*228] (9) The use or distribution of any written communication . . . which creates a false impression as to its source, authorization, or approval.

Avila contends that the three letters from Rubin constitute a false, deceptive, or misleading representation because the letters are not "from an attorney" as that term has been defined for the purposes of 1692e(3) of FDCPA. Rubin's dunning letters implore Avila to pay his debt. The form letters, as we noted, are mass-produced and are [**17] mechanically signed "Albert G. Rubin" under his "attorney" letterhead. As we also noted, 270,000 letters of this sort went out in the year prior to the filing of this suit. The leading case on whether mass-produced mailings by an attorney violate the proscriptions of FDCPA is Clomon v. Jackson, 988 F.2d 1314 (2d Cir. 1993). The facts of Clomon are similar to those presented here. In Clomon, a debt collection agency mailed dunning letters to debtors after receiving accounts on computer tape from the creditor. An attorney was employed part-time as general counsel for the agency. The agency's computer system caused each letter to be printed, folded, and placed in an envelope for mailing. The plaintiff received six form letters from the agency. The first letter was sent on the letterhead of an "account supervisor." The remaining five were sent on the attorney letterhead of the general counsel for the agency. Although the general counsel was indeed an attorney and employed by the agency, the letters were not actually signed by the attorney; instead, they bore the mechanically reproduced facsimile of his signature. The attorney letters implored the debtor to pay up and threatened legal [**18] action if payment was not forthcoming. Clomon, 988 F.2d at 1316-17. The attorney in Clomon personally approved the "form" of the letters and "approved the procedures according to which those letters were sent." Id. at 1317. The attorney had no direct personal involvement in the mailing of the letters to the plaintiff or to any other debtor. In short, the attorney "never considered the particular circumstances of Clomon's case prior to the mailing of the letters and he never participated personally in the mailing." Id. at 1317. The Second Circuit held that the use of the attorney's letterhead and his signature on the collection letters was sufficient to give the consumer (the court used the "least sophisticated" consumer) the false impression that the letters were communications from an attorney. Id. at 1320. The letters were false and misleading because although the attorney's name and signature were on them, they were not "from" the attorney in any meaningful sense of the word. Id. In reaching its conclusion, the court found significant the

29

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

fact that the attorney did not review each debtor's file, did not determine when particular letters should be sent, did not approve the sending [**19] of particular letters based upon the recommendations of others, did not see particular letters before they were sent, and did not know the identities of the persons to whom the letters were issued. Id. Accordingly, it held that sending attorney dunning letters in this manner violated 1692e(3). Clomon establishes that an attorney sending dunning letters must be directly and personally involved in the mailing of the letters in order to comply with the strictures of FDCPA. This may include reviewing the file of individual debtors to determine if and when a letter should be sent or approving the sending of letters based on the recommendations of others. See Clomon, 988 F.2d at 1320. Given these requirements, Clomon concluded that "there will be few, if any, cases in which a mass-produced collection letter bearing the facsimile of an attorney's signature will comply with the restrictions imposed by section 1692e." Id. at 1321. The undisputed facts in our case establish that Rubin has no real involvement in the mailing of dunning letters to debtors. Like the attorney in Clomon, he has a cozy relationship with the "referring" collection agency. Rubin is not personally or directly involved [**20] in deciding when or to whom a dunning letter should be sent. There is no true "judgment" being rendered here by a real attorney. Like the attorney in Clomon, Rubin did not review the debtor's file; he did not determine when particular letters [*229] should be sent; he did not approve the sending of particular letters based upon the recommendation of others; he did not see particular letters before they were sent; and he did not even know the identities of the debtors to whom the letters were sent. Instead, Rubin said at his deposition that letters are only brought to his attention for advice and guidance when there is "some unusual problem or something different [or] out of the ordinary comes up." Given these undisputed facts, Judge Conlon in the district court correctly concluded that Rubin violated 1692e(3) and (9) because his collection letters create the false and misleading impression that the communications were from an attorney when, in fact, they were not really "from" an attorney in any meaningful sense of the word. An unsophisticated consumer, getting a letter from an "attorney," knows the price of poker has just gone up. And that clearly is the reason why the dunning campaign [**21] escalates from the collection agency, which might not strike fear in the heart of the

consumer, to the attorney, who is better positioned to get the debtor's knees knocking. A letter from an attorney implies that a real lawyer, acting like a lawyer usually acts, directly controlled or supervised the process through which the letter was sent. That's the essence of the connotation that accompanies the title of "attorney." A debt collection letter on an attorney's letterhead conveys authority. Consumers are inclined to more quickly react to an attorney's threat than to one coming from a debt collection agency. It is reasonable to believe that a dunning letter from an attorney threatening legal action will be more effective in collecting a debt than a letter from a collection agency. The attorney letter implies that the attorney has reached a considered, professional judgment that the debtor is delinquent and is a candidate for legal action. And the letter also implies that the attorney has some personal involvement in the decision to send the letter. Thus, if a debt collector (attorney or otherwise) wants to take advantage of the special connotation of the word "attorney" in the minds [**22] of delinquent consumer debtors to better effect collection of the debt, the debt collector should at least ensure that an attorney has become professionally involved in the debtor's file. Any other result would sanction the wholesale licensing of an attorney's name for commercial purposes, in derogation of professional standards: [A] lawyer has been given certain privileges by the state. Because of these privileges, letters . . . purporting to be written by attorneys have a greater weight than those written by laymen. But such privileges are strictly personal, granted only to those who are found through personal examination to measure up to the required standards. Public policy therefore requires that whatever correspondence purports to come from a lawyer in his official capacity must be at least passed upon and approved by him. He cannot delegate this duty of approval to one who has not been given the right to exercise the functions of a lawyer.

American Bar Association, Formal Opinion 68 (1932). The defendants make two final arguments. First, they claim that mass mailing is economically efficient and necessary in the debt collection industry. This argument has [**23] been rejected by several courts. See Clomon, 988 F.2d at 1321. As Clomon stated, "no

30

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

mass mailing technique is permissible--regardless of how effective it might be-- if that technique constitutes a false, deceptive, or misleading communication." Id. An attorney's signature implies the attorney has formed a professional judgment about the debtor's case; these implications will frequently be false in a mass mailing situation. Id. Second, the defendants argue that holding Rubin liable will effectively condemn the use of paralegals and assistants in a law office. This argument is untenable. As Judge Conlon noted: Paralegals do not (or should not) engage in the practice of law. Paralegals do not intake a new client, decide whether a lawsuit is warranted, prepare unreviewed pleadings, stamp the attorney's signature, and file the lawsuit, all without the considered approval of the attorney. Attorneys personally supervise and review paralegals' [*230] work, consider the case, and approve the recommendations or work.

Albert G. Rubin, acting as an attorney, was not the real "source" of the letters in this case. The true source of the "attorney" letters was the collection agent who pressed [**24] a button on the agency's computer. "Albert G. Rubin & Associates, Ltd." is a collection agency, not a law firm at all in any real sense of the term. The "law firm" does not have a retainer agreement with plaintiff's creditor. No attorney working in the "law firm" ever files a lawsuit or goes to court on behalf of a client. We agree with the district court and with the Second Circuit in Clomon. Rubin was correctly found to be on the wrong side of the FDCPA. As a final matter, Rubin takes a stab at challenging the amount of damages set by the district court. We have considered his objection and find it to be without merit. Accordingly, the judgments of the district court are AFFIRMED.

3.

Greco v. Trauner, Cohem & Thomas, LLP, 412 F.3d 360 (2d Cir. 2005):
ANDREW A. GRECO, on behalf of himself and all others similarly situated, Plaintiff-Appellant, v. TRAUNER, COHEN & THOMAS, L.L.P., ROBERT TRAUNER, MICHAEL J. COHEN AND RUSSELL S. THOMAS, DefendantsAppellees. Docket No. 04-4605-cv UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT 412 F.3d 360; 2005 U.S. App. LEXIS 11835 May 26, 2005, Argued June 21, 2005, Decided

PRIOR HISTORY: [**1] Appeal from the dismissal of a complaint alleging violations of the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. 1692 et seq. Held that because the debt collection letter contained disclaimers sufficient to bar, as a matter of law, any recovery under FDCPA, dismissal was appropriate. Greco v. Trauner, Cohen & Thomas, L.L.P., 2004 U.S. Dist. LEXIS 28197 (W.D.N.Y., July 12, 2004)

DAVID M. SCHULTZ, Hinshaw & Culbertson LLP (Matthew R. Henderson & Nancy G. Lischer, on the brief), Chicago, IL, for Defendants-Appellees. JUDGES: Before: CALABRESI, KATZMANN, and B.D. PARKER, Circuit Judges. OPINION BY: CALABRESI OPINION

COUNSEL: LAWRENCE KATZ, Katz & Kleinman PLLC, Uniondale, NY, for Plaintiff-Appellant.

[*361] CALABRESI, Circuit Judge: Plaintiff-appellant Andrew A. Greco ("Greco") appeals the dismissal of his complaint pursuant to Rule

31

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

12(c) of the Federal Rules of Civil Procedure. Greco brought suit under the Fair Debt Collection Practices Act, 15 U.S.C. 1692 et seq. ("FDCPA"), against defendants-appellees Robert Trauner, Michael J. Cohen, and Russell S. Thomas, along with their law firm, Trauner, Cohen & Thomas, L.L.P. (collectively, "the defendants" or "the law firm"). On the [**2] basis of the pleadings and the attachments thereto, see Fed. R. Civ. P. 12(c), the district court found that no FDCPA violation could possibly have occurred. For the reasons that follow, we affirm. I. BACKGROUND On November 20, 2002, Greco received a debt collection letter (also known as a "dunning letter") from the defendants. The letter, printed on Trauner, Cohen & Thomas, L.L.P. letterhead, read as follows: Dear Andrew A Greco: The firm of Trauner, Cohen & Thomas is a law partnership representing financial institutions in the area of creditors rights. In this regard, this office represents the above named BANK OF AMERICA who has placed this matter, in reference to an original account with [sic] for collection and such action as necessary to protect our client. At this time, no attorney with this firm has personally reviewed the particular circumstances of your account. However, if you fail to contact this office, our client may consider additional remedies to recover the balance due. If you have any questions regarding this matter, please contact this office at 404.233.1900 or toll free at 1.888.696.1900 [**3] between the hours of 8 A.M. and 9 P.M. on Friday, and 8 A.M. to 2 P.M. on Saturday. Very truly yours, Trauner, Cohen & Thomas, LLP CONSUMER NOTICE PURSUANT TO 15 U.S.C. SECTION 1692g You are hereby given notice of the following information concerning the above referenced debt. 1. Unless, within 30 days after receipt of this notice you dispute the

validity of the debt, or any portion thereof, the debt will be assumed to be valid by the creditor and by this Firm. 2. If you notify us in writing within said 30 days that the debt, or any portion thereof is disputed, we will obtain verification of the debt, or a copy of any judgment against you, and we will mail such verification to you. 3. In addition, upon your written request within said 30 days, this Firm will provide the name and address of the original creditor if the original creditor is different from the current creditor. 4. This firm is attempting to collect a debt on behalf of the creditor and any information obtained will be used for that purpose. YOUR RIGHTS UNDER FEDERAL LAW TO REQUEST VERIFICATION OF YOUR OBLIGATION TO OUR CLIENT WITHIN 30 DAYS [**4] MUST BE ASSERTED IN WRITING AND IS [*362] NOT AFFECTED BY OUR REQUEST THAT YOU CONTACT OUR OFFICE BY TELEPHONE.

The letter was not signed by any individual attorney. The firm's name, however, was printed as a signature block. On July 23, 2003, plaintiff filed suit against defendants (both as a law firm and as individuals), alleging that the above-mentioned communication violated the FDCPA. Specifically, Greco alleged that the letter violated two separate FDCPA provisions. 1 First, he asserted that the letter misleadingly represented the level of attorney involvement, thereby violating, in violation of 1692e's general ban on deceptive practices in connection with debt collection, 1692e(3)'s ban on falsely representing that an individual is an attorney, and 1692e(10)'s ban on deceptive means to collect a debt. Second, Greco claimed that the letter's disclosure statement - because it stated that the debtor's failure to dispute the debt would result in both the debt collector and the creditor (as opposed to the debt collector alone) assuming the debt to be valid - misled debtors as to their rights, in violation of 1692g. Greco requested statutory damages for each [**5] purported violation of FDCPA. He also sought to certify a class of persons receiving similar debt collection letters.

32

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

1 The FDCPA, provides, in relevant part, as follows: 1692e. False or misleading representations A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section: *** (3) The false representation or implication that any individual is an attorney or that any communication is from an attorney. *** (10) The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer. *** 1692g. Validation of debts (a) Notice of debt; contents. Within five days after the initial communication with a consumer in connection with the collection of any debt, a debt collector shall, unless the following information is contained in the initial communication or the consumer has paid the debt, send the consumer a written notice containing ... (3) a statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof,

the debt will be assumed to be valid by the debt collector....

15 U.S.C. 1692e, g. [**6] The district court determined, as a matter of law, that the letter was not misleading in its representation of attorney involvement, or in its explication of the debtor's rights, and hence that it could not support Greco's claims for relief under FDCPA. First, the district court determined that the letter did not misstate the level of attorney participation, because the letter prominently stated in normal typeface that "at this time, no attorney with this firm has personally reviewed the particular circumstances of your account," and merely advised the creditor that "if you fail to contact this office, our client may consider additional remedies to recover the balance due." Thus, the district court reasoned, even the least sophisticated of debtors would understand that, while this was a letter from a law firm, no attorney had specifically examined the recipient's account information, and hence no attorney had yet recommended filing a [*363] lawsuit against the creditor. Second, with respect to the disclosure statement, the court noted that the letter's language almost identically tracked the words of the FDCPA itself. The only change was the statement that the creditor, in addition to the [**7] debt collector, would assume that the debt was valid if the debt collector was not notified of a dispute within 30 days. The court concluded that this statement would not mislead recipients, because the letter's language "does not create confusion about the debtor's right to contest the debt within thirty days." Having reached these conclusions on the basis of the complaint and the attached debt collection letter, the court dismissed the complaint in its entirety. This appeal followed. II. DISCUSSION We review a dismissal under Fed. R. Civ. P. 12(c) using the same de novo standard applicable to dismissals pursuant to Fed. R. Civ. P. 12(b)(6). See, e.g., Ad-Hoc Comm. of Baruch Black and Hispanic Alumni Ass'n v. Bernard M. Baruch College, 835 F.2d 980, 982 (2d Cir. 1987). Thus, accepting the allegations contained in the complaint as true and drawing all reasonable inferences in favor of the plaintiff, a complaint should not be dismissed under Rule 12(c) unless it "appears beyond doubt that the plaintiff can prove no set of facts in support of his

33

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

claim which would entitle him [**8] to relief." Id. (internal quotation marks omitted). Congress enacted FDCPA in order "to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses." 15 U.S.C. 1692(e). To achieve this goal, and to protect the most vulnerable population of debtors from abusive and misleading practices, we have construed FDCPA to require that debt collection letters be viewed from the perspective of the "least sophisticated consumer." Clomon v. Jackson, 988 F.2d 1314, 131819 (2d Cir. 1993). We have observed, however, that "in crafting a norm that protects the naive and the credulous the courts have carefully preserved the concept of reasonableness," id., and that some courts have held that "even the least sophisticated consumer can be presumed to possess a rudimentary amount of information about the world and a willingness to read a collection notice with some care." Id. (internal quotation marks omitted) (citing Johnson v. NCB Collection Services, 799 F. Supp. 1298, 1306-07 (D. Conn. 1992), [**9] and Gaetano v. Payco of Wisconsin, Inc., 774 F. Supp. 1404, 1411 (D. Conn. 1990)). In this way, our Circuit's "least sophisticated consumer" standard is an objective analysis that seeks to protect "the naive" from abusive practices, id. at 1320, while simultaneously shielding debt collectors from liability for "bizarre or idiosyncratic interpretations" of debt collection letters, id.. A. False Representation of Attorney Involvement Greco's primary argument is that the defendants violated FDCPA by sending a debt collection letter, signed by the law firm and on law firm stationary, thereby implying that the firm had analyzed the debtor's case and had rendered legal advice to the creditor concerning that case. Specifically, Greco asserts that "an attorney cannot send a collection letter without being meaningfully involved as an attorney within the collection process." In support of that assertion, Greco cites our decision in Clomon v. Jackson, 988 F.2d 1314 (2d Cir. 1993), where we stated: [*364] The use of an attorney's signature on a collection letter implies that the letter is "from" the attorney who signed it; it implies, in [**10] other words, that the attorney directly controlled or supervised the process through which the letter was sent. . . .

The use of an attorney's signature implies - at least in the absence of language to the contrary - that the attorney signing the letter formed an opinion about how to manage the case of the debtor to whom the letter was sent. In a mass mailing, these implications are frequently false: the attorney whose signature is used might play no role either in sending the letters or in determining who should receive them. For this reason, there will be few, if any, cases in which a mass-produced collection letter bearing the facsimile of an attorney's signature will comply with the restrictions imposed by 1692e.

Id. at 1321 (emphasis added). He also cites Miller v. Wolpoff & Abramson, L.L.P., 321 F.3d 292 (2d Cir. 2003), in which several law firms were sued after sending a debt collection letters on firm letterhead, without any review of the recipient's individual case. In Miller we recognized that "although there is no dispute that [the defendant law firms] are law firms, or that the letters sent by those firms were 'from' [**11] attorneys in the literal sense of that word, some degree of attorney involvement is required before a letter will be considered 'from an attorney' within the meaning of the FDCPA." Id. at 301. Because "the letters sent by [the defendant law firms] were form letters generated by a computerized debt collection system without any meaningful attorney involvement in the process," id. (emphasis added), we there vacated an award of summary judgment to the defendants. Greco argues that here, as in Clomon and Miller, the letter's presentation, its letterhead, and its signature block over-represented, in violation of 1692e, the level of attorney involvement. Greco's claim rests on a misunderstanding of the FDCPA's requirements, and of our prior explications of that statute. One cannot, consistent with FDCPA, mislead the debtor regarding meaningful "attorney" involvement in the debt collection process. But it does not follow that attorneys may participate in this process only by providing actual legal services. In fact, attorneys can participate in debt collection in any number of ways, without contravening the FDCPA, so long as their status as attorneys [**12] is not misleading. Put another way, our prior precedents demonstrate that an attorney can, in fact, send a debt

34

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

collection letter without being meaningfully involved as an attorney within the collection process, so long as that letter includes disclaimers that should make clear even to the "least sophisticated consumer" that the law firm or attorney sending the letter is not, at the time of the letter's transmission, acting as an attorney. In Miller and Clomon, we established that a letter sent on law firm letterhead, standing alone, does represent a level of attorney involvement to the debtor receiving the letter. And if the attorney or firm had not, in fact, engaged in that implied level of involvement, the letter is, therefore, misleading within the meaning of the FDCPA. But of course, the implied level of attorney involvement is just that - implied. The letter's representation to the debtor is a consequence of the letter's content and presentation. And so, in these cases, we observed that a properly constructed letter with different presentation or content might connote far less actual attorney involvement, thereby satisfying the FDCPA's requirements. See [**13] Miller, 321 F.3d at 301 ("'The use of an attorney's signature implies - at least in the absence of language to the contrary - that the attorney [*365] signing the letter formed an opinion about how to manage the case of the debtor to whom the letter was sent.'") (quoting Clomon, 988 F.2d at 1321) (emphasis added). In contradistinction to the letters at issue in Clomon and Miller, 2 the defendants' letter included a clear disclaimer explaining the limited extent of their involvement in the collection of Greco's debt. The defendants stated that, although "this office represents the above named BANK OF AMERICA" in the collection of Greco's debt, "at this time, no attorney with this firm has personally reviewed the particular circumstances of your account." Nothing else in the letter confused or contravened this disclaimer of attorney involvement. In light of the disclaimer, we agree with the district court that the least sophisticated consumer, upon reading this letter, must be taken to understand that no attorney had yet evaluated his or her case, or made recommendations regarding the validity of the creditor's claims. Accordingly, the district [**14] court was correct to conclude, as a matter of law, that the defendants had not used any "false, deceptive, or misleading representation or means in connection with the collection of any debt," 15 U.S.C. 1692e, including the "false representation or implication that any individual is an attorney or that any communication is from an attorney," 15 U.S.C. 1692e(3), with meaningful involvement as an attorney in the debtor's case. 2 In Clomon, the debt collection letter was signed (digitally, as part of a mass mailing) by a

particular attorney, who stated that "your account was referred to us with instructions to pursue this matter to the furthest extent we deem appropriate. . . . Acting as General Counsel for NCB Collection Services, I have told them that they can lawfully undertake collection activity to collect your debt." Clomon, 988 F.2d at 1317 (omission in original). The obvious implication of the letter was that the undersigned attorney had personally reviewed the debtor's file, and had suggested a legal course of action to recover the debt. In Miller, the letter stated, "Please be advised that we represent the above-named creditor who claims you have a delinquent balance as stated above. After you have read the important notice on the reverse side of this letter, if appropriate please call our office to resolve this matter. When paying the balance in full or if you are unable to call our office, check one of the options below and return the bottom portion of this letter in the self-addressed envelope provided for your convenience. Very truly yours, WOLPOFF & ABRAMSON, L.L.P." Miller, 321 F.3d at 296. Significantly, the debt collection letter in Miller contained no language whatsoever to mitigate the impression that an attorney had evaluated the debtor's case with an eye towards filing a lawsuit. [**15] B. Disclosure of the Debtor's Rights Greco also asserts that the defendants violated the FDCPA by inadequately and misleadingly explaining the debtor's rights, in violation of 1692g, which requires that debt collection letters include a "statement that unless the consumer, within thirty days after receipt of the notice, disputes the validity of the debt, or any portion thereof, the debt will be assumed to be valid by the debt collector." 15 U.S.C. 1692g(a)(3). Greco points out that the defendants, in their letter, stated not only that the debt collector would assume the debt as valid if no protest was lodged within thirty days of receipt, but also that the creditor would make the same assumption. This addition, he argues, is so confusing as to frustrate the FDCPA's informationdelivery functions. We disagree with Greco's characterization of the letter's overall message, and fail to see how the defendants' addition to the letter's disclosure statement would mislead or deceive in any way. The letter's language tracks the statute almost verbatim; only the reference to "creditor" differs [*366] from the FDCPA itself. When read by the least [**16] sophisticated debtor, nothing in the letter's current wording would discourage a debtor from contesting the

35

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

debt within the thirty day window. (To the contrary, the effect of the "creditor" addition, if any, could only be additional encouragement to contest the debt.) Nor could the letter be read, in any reasonable fashion, to suggest that the creditor's rights somehow change after thirty days. Quite simply, we do not see how the addition reduces the veracity or lucidity of the letter's disclosure statement. Cf. Bartlett v. Heibl, 128 F.3d 497, 499-502 (7th Cir. 1997) (holding that, where the collection letter supplemented the required statutory disclosure with the claim that the debtor's failure to contact the debt collector within one week would result

in legal action being commenced, the recipient would be confused as to how long he or she had to contest the debt's validity, and hence that 1692g had been violated by the addition). We agree, then, with the district court's conclusion that the letter's language satisfied the disclosure requirements set out in 1692g. III. CONCLUSION In light of the letter's language, the district court was correct to [**17] determine, as a matter of law, that no FDCPA claim could lie. The judgment of the district court is AFFIRMED.

4.

Gonzalez v. Kay, 577 F.3d 600 (5th Cir. 2009):


JOSE GONZALEZ, Plaintiff-Appellant v. MITCHELL N. KAY; LAW OFFICES OF MITCHELL N. KAY, P.C., Defendants-Appellees No. 08-20544 UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT 577 F.3d 600; 2009 U.S. App. LEXIS 17194

August 3, 2009, Filed SUBSEQUENT HISTORY: US Supreme Court certiorari denied by Kay v. Gonzalez, 2010 U.S. LEXIS 1200 (U.S., Feb. 22, 2010) PRIOR HISTORY: [**1] Appeal from the United States District Court for the Southern District of Texas. Gonzalez v. Kay, 2008 U.S. Dist. LEXIS 53645 (S.D. Tex., June 11, 2008) [*601] PRADO, Circuit Judge: Plaintiff-Appellant Jose Gonzalez ("Gonzalez") allegedly failed to pay his Sprint PCS Wireless cell phone bills, totaling $ 448.97. Sprint turned the consumer debt over to US Asset Management Services, Inc. ("US Asset"), which in turn used the services of Defendants-Appellees Mitchell N. Kay ("Kay") and the Law Offices of Mitchell N. Kay, P.C. ("the Kay Law Firm") to collect the debt. The Kay Law Firm sent a collection letter to Gonzalez, which Gonzalez asserts violated the Fair Debt Collection Practices Act ("FDCPA" or the "Act"), 15 U.S.C. 1692e. The district court dismissed Gonzalez's case for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). We reverse. I. FACTUAL BACKGROUND Gonzalez owed [**2] US Assets $ 448.97 based on a consumer debt he initially owed to Sprint PCS Wireless. 1 US Assets [*602] turned to the Kay Law Firm to collect the debt. On November 21, 2007, the Kay Law Firm sent a collection letter to Gonzalez. 2 The letter was printed on the Kay Law Firm's letterhead, but it was not signed. The letterhead states, "admitted in New York & Washington, D.C.," which the parties agree is a representation that Kay was

COUNSEL: For JOSE GONZALEZ, Plaintiff Appellant: Matthew Brian Probus, Wauson Probus, Sugar Land, TX. For MITCHELL N KAY, LAW OFFICES OF MITCHELL N KAY, PC, Defendants - Appellees: David Craig Brinker, Henslee Schwartz LLP, Dallas, TX; Erik V. Larson, Henslee Schwartz LLP, Houston, TX. JUDGES: Before JOLLY, PRADO, and SOUTHWICK, Circuit Judges. E. GRADY JOLLY, Circuit Judge, dissenting. OPINION BY: PRADO OPINION

36

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

admitted to practice law in these jurisdictions. The front of the letter states, Please be advised that your account, as referenced above, is being handled by this office. We have been authorized to offer you the opportunity to settle this account with a lump sum payment, equal to 65% of the balance due - which is $ 291.83! Unless you notify this office within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days from receiving this notice, this office will: Obtain verification of the debt or obtain a copy of a judgment and mail you a copy of such judgment or verification. If you request this office in writing within 30 days [**3] after receiving this notice, this office will provide you with the name and address of the original creditor, if different from the current creditor.

appeal."). Regardless, the two letters are virtually identical. On the back, the letter states, in the same font and typeface as the text on the front, This [**4] communication is from a debt collector and is an attempt to collect a debt. Any information obtained will be used for that purpose. Notice about Electronic Check Conversion: Sending an eligible check with this payment coupon authorizes us to complete the payment by electronic debit. If we do, the checking account will be debited in the amount shown on the check -- as soon as the same day we receive the check -- and the check will be destroyed. At this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account.

After a large white blank space, the bottom of the letter directs the recipient to "PLEASE ADDRESS ALL PAYMENTS TO" the "Law Offices of Mitchell N. Kay, P.C." Immediately below the payment information, the letter states, "Notice: Please see reverse side for important information." A box surrounds this notice. Below the notice box is a detachable payment stub. 1 Gonzalez actually disputed whether he owed the debt, but that issue is irrelevant to this appeal. 2 In his brief, Gonzalez also mentions a similar letter that the Kay Law Firm sent him on January 8, 2008. However, he never referenced the latter letter in his complaint, so we may not consider it. See Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 338 (5th Cir. 2008) ("Because the court reviews only the well-pleaded facts in the complaint, it may not consider new factual allegations made outside the complaint, including those made on

Kay and the Kay Law Firm assert that this "disclaimer" language is sufficient to notify Gonzalez that lawyers were not involved in the debt collection. The parties agree that neither Kay nor any lawyers in his firm reviewed Gonzalez's file or were actively involved in sending the letter. Instead, Gonzalez asserted in his complaint that the letter was deceptive in that the Kay Law Firm "pretended to be a law firm with a lawyer handling collection of the Account when in fact no lawyer was handling the Account or actively handling the file." Gonzalez essentially contends that the Kay Law Firm is not actually a law firm at all but [**5] instead is a debt collection [*603] agency that uses the imprimatur of a law firm to intimidate debtors into paying their debts. II. JURISDICTION REVIEW AND STANDARD OF

Gonzalez brought suit, alleging that the Kay Law Firm's debt collection letter violated the FDCPA. Relying upon the disclaimer, the district court entered a final judgment dismissing the case pursuant to Rule 12(b)(6), meaning that this court has jurisdiction under 28 U.S.C. 1291. "This court reviews a district court's dismissal under Rule 12(b)(6) de novo, accepting all wellpleaded facts as true and viewing those facts in the light most favorable to the plaintiffs." Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 338 (5th Cir.

37

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

2008) (internal quotation marks omitted). "Factual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). The Supreme Court recently expounded upon the Twombly standard, explaining that "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face. n'" Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009) (quoting Twombly, 550 U.S. at 570). [**6] "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. It follows that "where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged--but it has not 'show[n]'--'that the pleader is entitled to relief.'" Id. at 1950 (quoting FED. R. CIV. P. 8(a)(2)). When deciding whether a debt collection letter violates the FDCPA, this court "must evaluate any potential deception in the letter under an unsophisticated or least sophisticated consumer standard." Goswami v. Am. Collections Enter., Inc., 377 F.3d 488, 495 (5th Cir. 2004); Taylor v. Perrin, Landry, deLaunay & Durand, 103 F.3d 1232, 1236 (5th Cir. 1997). We must "assume that the plaintiffdebtor is neither shrewd nor experienced in dealing with creditors." Goswami, 377 F.3d at 495. "At the same time we do not consider the debtor as tied to the very last rung on the [intelligence or] sophistication ladder." Id. (internal quotation marks omitted) (alteration in original). "This standard serves the dual purpose of protecting all consumers, [**7] including the inexperienced, the untrained and the credulous, from deceptive debt collection practices and protecting debt collectors against liability for bizarre or idiosyncratic consumer interpretations of collection materials." Taylor, 103 F.3d at 1236. III. DISCUSSION Congress enacted the FDCPA "to eliminate abusive debt collection practices by debt collectors, to ensure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses." 15 U.S.C. 1692(e). The FDCPA provides, "A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt." Id. 1692e. The statute then lists several activities that violate the FDCPA. See id. 1692e(1)-(16). Gonzalez

claims that Kay and the Kay Law Firm violated subsections (3) and (10). Subsection (3) prohibits "[t]he false representation or implication that any individual is an attorney or that any communication is from an attorney." Id. 1692e(3). Subsection (10) prohibits "[t]he use of any false representation or [*604] deceptive [**8] means to collect or attempt to collect any debt or to obtain information concerning a consumer." Id. 1692e(10). There is no dispute that Gonzalez is a "consumer" under the FDCPA and that Kay and the Kay Law Firm are "debt collectors" under the Act. See id. 1692a(3), (6). A debt collector who violates the FDCPA is liable for actual damages, additional damages of up to $ 1,000, and attorneys' fees. See id. 1692k. There are sound policy reasons for the FDCPA's prohibition on a debt collector sending a collection letter that is seemingly from an attorney. Judge Evans of the Seventh Circuit adroitly explained the intimidation inherent in this type of communication: An unsophisticated consumer, getting a letter from an "attorney," knows the price of poker has just gone up. And that clearly is the reason why the dunning campaign escalates from the collection agency, which might not strike fear in the heart of the consumer, to the attorney, who is better positioned to get the debtor's knees knocking.

Avila v. Rubin, 84 F.3d 222, 229 (7th Cir. 1996). A letter from a lawyer implies that the lawyer has become involved in the debt collection process, and the fear of a lawsuit is likely to intimidate [**9] most consumers. "Thus, if a debt collector (attorney or otherwise) wants to take advantage of the special connotation of the word 'attorney' in the minds of delinquent consumer debtors to better effect collection of the debt, the debt collector should at least ensure that an attorney has become professionally involved in the debtor's file." Id. In the alternative, a lawyer acting as a debt collector must notify the consumer, through a clear and prominent disclaimer in the letter, that the lawyer is wearing a "debt collector" hat and not a "lawyer" hat when sending out the letter. See Greco v. Trauner, Cohen & Thomas, L.L.P., 412 F.3d 360, 361-62 (2d Cir. 2005). In Taylor, this court reversed the award of summary judgment to a defendant law firm under facts that were similar to those in the present case. Taylor, 103 F.3d at 1237. The collection letter in question included a facsimile of the lawyer's signature under the

38

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

law firm's letterhead, informed consumers that the creditor had retained the law firm to collect the debt, and stated that the creditor had instructed the law firm to file suit against the debtor if the debtor did not pay the debt within ten days. Id. However, the summary [**10] judgment evidence demonstrated that the lawyer and law firm were not at all involved in reviewing past due accounts or sending the letters. Id. In reversing the award of summary judgment to the law firm/debt collector, we held that "a debt collector, who uses a mass-produced collection letter using the letterhead and facsimile signature of a lawyer who is not actually participating in the collection process, violates 1692e(3)." Id. at 1238. In reaching this conclusion, we relied upon the Second Circuit's decision in Clomon v. Jackson, 988 F.2d 1314, 1321 (2d Cir. 1993). In Clomon, the Second Circuit held that a lawyer violated the FDCPA when he "authorized the sending of debt collection letters bearing his name and a facsimile of his signature without first reviewing the collection letters or the files of the persons to whom the letters were sent." Id. at 1316. This court in Taylor quoted the following passage from Clomon: "The use of an attorney's signature on a collection letter implies that the letter is 'from' the attorney who signed it; it implies, in other words, that the attorney directly controlled or supervised the process through which the letter was sent . . . . The use [**11] of an attorney's signature [*605] implies--at least in the absence of language to the contrary--that the attorney signing the letter formed an opinion about how to manage the case of the debtor to whom the letter was sent . . . . There will be few, if any, cases in which a massproduced collection letter bearing the facsimile of an attorney's signature will comply with the restrictions imposed by 1692e."

The Second Circuit more recently decided another FDCPA case that explains how a lawyer, acting as a debt collector, can avoid liability by including a clear and prominent disclaimer in the collection letter. See Greco, 412 F.3d at 365. In Greco, the consumer received a letter printed on a law firm's letterhead but [**12] with no signature except for the firm's name in the signature block. Id. at 361. The letter stated that the law firm represented the creditor for "collection and such action as necessary to protect our client." Id. The letter also contained the following disclaimer: "At this time, no attorney with this firm has personally reviewed the particular circumstances of your account. However, if you fail to contact this office, our client may consider additional remedies to recover the balance due." Id. The consumer filed suit, alleging that the letter violated Sections 1692e(3) and (10) of the FDCPA. Id. at 362. The district court dismissed the case under Federal Rule of Civil Procedure 12(c) (motion for judgment on the pleadings), determining as a matter of law that the letter did not violate the FDCPA. Id. The Second Circuit affirmed, concluding that the disclaimer explained the limited extent of any attorney involvement in collecting the debt. Id. at 365. The court provided this important guidance: [A]ttorneys can participate in debt collection in any number of ways, without contravening the FDCPA, so long as their status as attorneys is not misleading. Put another way, our prior precedents [**13] demonstrate that an attorney can, in fact, send a debt collection letter without being meaningfully involved as an attorney within the collection process, so long as that letter includes disclaimers that should make clear even to the "least sophisticated consumer" that the law firm or attorney sending the letter is not, at the time of the letter's transmission, acting as an attorney.

Id. at 364. 103 F.3d at 1238 (quoting Clomon, 988 F.2d at 1321) (omissions in Taylor) (alterations omitted). The court in Clomon highlighted several factors that were important to its decision that the lawyer violated the FDCPA, e.g., that the letter was on the law firm's letterhead, included the lawyer's signature, and contained language stipulating that the lawyer had considered the individual debtors' files and had made judgments on how to collect the debts. Clomon, 988 F.2d at 1320-21. The Sixth and Third Circuits also have provided some recent guidance on this issue. In Kistner v. Law Offices of Michael P. Margelefsky, LLC, 518 F.3d 433, 440-41 (6th Cir. 2008), the Sixth Circuit concluded that there was a fact issue as to whether the letter in question was deceptive and misleading given that there were factors that cut both ways. Specifically, the letter was printed on the law firm's letterhead and made repeated references to a law firm, but it also stated that it was from a "debt collector" and was "signed" by an

39

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

unnamed "Account Representative." Id. at 440. Similarly, the Third Circuit ruled in Rosenau v. Unifund Corp., 539 F.3d 218, 223-24 (3d Cir. 2008), that the "least sophisticated debtor" could reasonably conclude that a letter, which came from the debt collector's "Legal [**14] Department," suggested current attorney involvement. Finally, the Middle District of Florida recently denied summary judgment to the [*606] Kay Law Firm after considering a letter that is virtually identical to the one in this case. See Brazier v. Law Offices of Mitchell N. Kay, P.C., No. 8:08-cv-156, 2009 U.S. Dist. LEXIS 22557, 2009 WL 764161, at *3 (M.D. Fla. Mar. 19, 2009). The court determined that the use of the law firm's letterhead and the placement of the disclaimer on the back made the question of whether the letter was deceptive a factual dispute for the jury to decide. Id. In particular, the court highlighted the contradiction between the law firm letterhead on the front and the disclaimer on the back of the letter. 2009 U.S. Dist. LEXIS 22557, [WL] at *2. The court distinguished Greco by noting that the Second Circuit in Greco analyzed the language of the disclaimer, not its placement. 2009 U.S. Dist. LEXIS 22557, [WL] at*3. In sum, the main difference between the cases is whether the letter included a clear, prominent, and conspicuous disclaimer that no lawyer was involved in the debt collection at that time. There are some letters that, as a matter of law, are not deceptive based on the language and placement of a disclaimer. At the other end of the spectrum, there [**15] are letters that are so deceptive and misleading as to violate the FDCPA as a matter of law, especially when they do not contain any disclaimer regarding the attorney's involvement. In the middle, there are letters that include contradictory messages and therefore present closer calls. The courts in Taylor, Clomon, Kistner, and Rosenau ruled in favor of the plaintiff when the letter was on law firm letterhead, did not include any disclaimer, and (in Taylor and Clomon) included the signature of an attorney, even though the letter may have stated that it was from a "debt collector." Similarly, the court in Brazier ruled against the Kay Law Firm when analyzing virtually the exact same letter as here because the disclaimer, on the back of the letter, was not clear and prominent and contradicted the law firm's letterhead on the front. By contrast, the court in Greco ruled in favor of the law firm because the letter stated, in the body of the text, that no lawyer had personally reviewed the file. 3 3 Several district court cases also have relied upon the existence--or lack thereof--of a clear

disclaimer in a debt collection letter. See Martsolf v. JBC Legal Group, P.C., No. 1:04CV-1346, 2008 U.S. Dist. LEXIS 6876, 2008 WL 275719, at *10 (M.D. Pa. Jan. 30, 2008) [**16] (finding liability under the FDCPA in part because "[t]he letters do not include a disclaimer stating that no attorney has personally reviewed the debt"); Navarro v. Eskanos & Adler, No. C 06-02231 WHA, 2007 U.S. Dist. LEXIS 15046, 2007 WL 549904, at *6 (N.D. Cal. Feb. 20, 2007) (denying summary judgment because, inter alia, "[t]he letter contains no disclaimer of an attorney's involvement"); Miller v. Wolpoff & Abramson, L.L.P., 471 F. Supp. 2d 243, 248 (E.D.N.Y. 2007) (noting that a lawyer need not show "meaningful involvement" to avoid liability for sending a letter if "a debt collection letter is signed by an attorney but includes a disclaimer about the extent to which attorneys are involved in reviewing individual debtors' cases"); Pujol v. Universal Fid. Corp., No. 03 CV 5524, 2004 U.S. Dist. LEXIS 10556, 2004 WL 1278163, at *5 (E.D.N.Y. June 9, 2004) (dismissing case because the least sophisticated consumer would not believe that the attorney had individually reviewed the file given the language in the letter stating, "I have not, nor will I, review each detail of your account status, unless you so request"). Here, the letter was printed on the law firm's letterhead, but it was unsigned. On the back, the letter indicated that it was [**17] from a "debt collector" and included the sentence, "At this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account." This is the exact same disclaimer that the court in Greco found dispositive. See Greco, 412 F.3d at 361. However, the disclaimer in Greco was part of the body of the letter on the front page; a consumer who read the main text of the letter would necessarily learn that the law firm was sending the letter but that no attorneys had reviewed the file. In contrast, the [*607] "least sophisticated consumer" reading the letter from the Kay Law Firm would not learn that the letter was from a debt collector unless the consumer turned the letter over to read the "legalese" on the back. The disclaimer on the back of the letter completely contradicted the message on the front of the letter--that the creditor had retained the Kay Law Firm and its lawyers to collect the debt. That is, the disclaimer on the back may not have been effective. There was also ample room on the front of the letter to include this disclaimer so as to clearly articulate to the consumer the nature of the law firm's involvement. Accordingly, this letter falls

40

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

[**18] in that middle ground in which the letter is neither deceptive as a matter of law nor not deceptive as a matter of law. Because the "least sophisticated consumer" reading this letter might be deceived into thinking that a lawyer was involved in the debt collection, the district court prematurely dismissed Gonzalez's complaint. We acknowledge that this is a close case, which is why further inquiry at the district court is necessary. Based only on the allegations in the complaint and the letter itself, reasonable minds can differ as to whether this letter is deceptive. Although the mere presence of disclaimer language might be dispositive in certain circumstances, the context and placement of that disclaimer is also important. We do not construe the disclaimer in isolation but must analyze whether the letter is misleading as a whole. We caution lawyers who send debt collection letters to state clearly, prominently, and conspicuously that although the letter

is from a lawyer, the lawyer is acting solely as a debt collector and not in any legal capacity when sending the letter. The disclaimer must explain to even the least sophisticated consumer that lawyers may also be debt collectors [**19] and that the lawyer is operating only as a debt collector at that time. Debt collectors acting solely as debt collectors must not send the message that a lawyer is involved, because this deceptively sends the message that the "price of poker has gone up." IV. CONCLUSION We hold that the district court erred in concluding that Gonzalez failed to state a claim for relief that Kay and the Kay Law Firm violated the FDCPA. We therefore REVERSE the district court's judgment and REMAND for further proceedings. REVERSED and REMANDED.

5. Lesher v. Law Offices of Mitchell N. Kay, PC, 650 F.3d 993 (3d Cir. 2011):
DARWIN LESHER v. LAW OFFICES OF MITCHELL N. KAY, PC; MITCHELL N. KAY, Law Offices of Mitchell N. Kay, PC, Appellant No. 10-3194 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT 650 F.3d 993; 2011 U.S. App. LEXIS 12463 April 13, 2011, Argued June 21, 2011, Filed SUBSEQUENT HISTORY: Related proceeding at Hayner v. Law Offices of Mitchell N. Kay, P.C., 2011 U.S. Dist. LEXIS 124388 (W.D. Pa., Oct. 27, 2011) US Supreme Court certiorari denied by, Motion granted by Law Offices of Mitchell N. Kay v. Lesher, 2012 U.S. LEXIS 967 (U.S., Jan. 23, 2012) PRIOR HISTORY: [**1] On Appeal from the United States District Court for the Middle District of Pennsylvania. (D.C. Civil No. 109-cv-00578). District Judge: Hon. J. Andrew Smyser. Lesher v. Law Office of Mitchell N. Kay, P.C., 724 F. Supp. 2d 503, 2010 U.S. Dist. LEXIS 58263 (M.D. Pa., 2010) COUNSEL: Joann Needleman, Esq. (Argued), Maurice & Needleman, Philadelphia, PA, Counsel for Appellant. Cary L. Flitter, Esq., Theodore E. Lorenz, Esq. (Argued), Andrew M. Milz, Esq., Lundy, Flitter, Beldecos & Berger, Narberth, PA; Lawrence J. Rosenn, Esq., Krevsky & Rosen, Harrisburg, PA; Deanna L. Saracco, Esq., Enola, PA, Counsel for Appellee. Tomio B. Narita, Esq., Simmonds & Narita, San Francisco, CA, Counsel for National Association of Retail, Collection Attorneys, Amicus Appellant. Richard J. Perr, Esq., Fineman, Krekstein & Harris, Philadelphia, PA, Counsel for ACA International, Amicus Appellant.

41

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

JUDGES: BEFORE: FISHER, JORDAN, and COWEN, Circuit Judges. JORDAN, Circuit Judge, dissenting. OPINION BY: COWEN OPINION [*994] COWEN, Circuit Judge. Darwin Lesher filed a complaint in the United States District Court for the Middle District of Pennsylvania alleging that debt-collection letters he received from the Law Offices of Mitchell N. Kay (the "Kay Law Firm") were deceptive under the Fair Debt Collection Practices Act (the "FDCPA" or the "Act"). The District [*995] Court agreed [**2] and granted Lesher's motion for summary judgment. The Kay Law Firm now appeals from the District Court's order. For the reasons that follow, we will affirm. I. Background The Kay Law Firm is a law firm that acts as a debt collector. On January 11, 2009, the Kay Law Firm sent a letter to Lesher seeking to recover a debt he owed to Washington Mutual on a home equity loan. The letter was %presented on the Kay Law Firm's letterhead, which displays the words "Law Offices of Mitchell N. Kay, P.C." in large characters at the top of the page. (A040.) The letter, after referencing Lesher's account with Washington Mutual, states as follows: Please be advised that your account, as referenced above, is being handled by this office. We have been authorized to offer you the opportunity to settle this account with a lump sum payment, equal to 75% of the balance due--which is $9,080.52! Unless you notify this office within 30 days after receiving this notice that you dispute the validity of this debt or any portion thereof, this office will assume this debt is valid. If you notify this office in writing within 30 days from receiving this notice that you dispute the validity of this debt or any portion thereof, [**3] this office will: Obtain verification of the debt or obtain a copy of a judgment and mail you a copy of such judgment or verification.

If you request this office in writing within 30 days after receiving this notice, this office will provide you with the name and address of the original creditor, if different from the current creditor. You are invited to visit our website www.lawofmnk.com to resolve this debt privately, or to write to us or to update your personal information. (Id.)1 After a large blank space, the letter directs Lesher to "PLEASE ADDRESS ALL PAYMENTS TO" the "Law Offices of Mitchell N. Kay, P.C." at their New York address. (Id.) Immediately below the address, the letter states: "Notice: Please see reverse side for important information." (Id.) A box surrounds this notice, below which is a detachable payment stub. 1 Paragraphs 3, 4, and 5 of the letter are the disclosures required by 15 U.S.C. 1692g(a)(3), (4), and (5). On the back, the letter sets forth four "notices," including the following two: This communication is from a debt collector and is an attempt to collect a debt. Any information obtained will be used for that purpose. At this point in time, no attorney with [**4] this firm has personally reviewed the particular circumstances of your account. (A041.)2 2 The other two notices inform the recipient that: (1) if he is entitled to protection under the United States Bankruptcy Code, the letter is not an attempt to collect, assess, or recover a claim in violation of the Bankruptcy Code; and (2) if the debtor sends a check with the payment coupon, the Kay Law Firm will complete the payment by electronic debit and destroy the check. (A041.) On February 15, 2009, the Kay Law Firm sent a second letter to Lesher. This letter was not printed on the same letterhead, but instead stated in smaller characters at the top that it was from the "Law Offices of Mitchell N. Kay, P.C." (A042.) The letter offers the choice of a six-month repayment plan or a settlement,

42

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

and again [*996] instructs the reader to "see reverse side for important information." (Id.) The back of the letter sets forth the same disclaimers as the first letter. (A043.) In March 2009, shortly after receiving these letters, Lesher filed a complaint in the District Court against the Kay Law Firm. In the complaint, Lesher alleged that the letters violated, inter alia, section 1692e of the FDCPA, 15 U.S.C. 1692e (1996), [**5] by misleading him to believe that an attorney was involved in collecting his debt, and that the attorney could, and would, take legal action against him.3 3 The complaint, which was twice amended, included additional claims arising under 15 U.S.C. 1692d, 1692f, 1692g, 1692j, and 1692n. However, Lesher moved for summary judgment as to his claims under 1692e and g only. The District Court granted summary judgment with respect to his 1692e claim, but denied summary judgment with respect to his 1692g claim. Lesher decided not to pursue his remaining claims. The only issue presently before this Court is whether the District Court erred in granting summary judgment in Lesher's favor on his 1692e claim. Following discovery, the parties filed crossmotions for summary judgment. Upon review, the District Court found that the January 11 and February 15, 2009 letters plainly implied that an attorney was involved in the collection, and implicitly threatened legal action, in violation of 1692e.4 Viewing the letters from the perspective of the "least sophisticated debtor," the District Court rejected the Kay Law Firm's contention that the disclaimers on the back of the letters mitigated [**6] the impression of potential legal action. The District Court awarded Lesher $1,000 in damages. See 15 U.S.C. 1692k(a)(2)(A). 4 The District Court did not specify whether it was finding a violation of 1692e generally, or violations of subsections (3) or (5), or both. The Kay Law Firm now appeals from the District Court's order.5 5 The National Association of Retail Collection Attorneys (the "NARCA") and the Association of Credit and Collection Professionals (the "ACA") have submitted amici briefs in support of the Kay Law Firm's appeal. II. Jurisdiction and Standard of Review

The District Court had jurisdiction over this matter pursuant to 28 U.S.C. 1331 and 15 U.S.C. 1692k(d). We have jurisdiction over this appeal pursuant to 28 U.S.C. 1291. We review a District Court's order granting summary judgment de novo. EBC, Inc. v. Clark Bldg. Sys., Inc., 618 F.3d 253, 262 (3d Cir. 2010).6 6 The District Court assumed that whether a communication is false and misleading under the FDCPA is a question of law, and neither party challenges this aspect of the District Court's decision on appeal. III. Discussion A. FDCPA Background Congress enacted the FDCPA in 1977 in response to the "abundant evidence [**7] of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors." 15 U.S.C. 1692(a). At that time, Congress was concerned that "[a]busive debt collection practices contribute to the number of personal bankruptcies, to material instability, to the loss of jobs, and to invasions of individual privacy." Id. Congress explained that the purpose of the Act was not only to eliminate abusive debt collection practices, but also to "insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged." Id. 1692(e). After determining that the existing consumer protection laws were inadequate, id. 1692(b), Congress gave consumers [*997] a private cause of action against debt collectors who fail to comply with the Act. Id. 1692k. Because the FDCPA is a remedial statute, we construe its language broadly so as to effect its purpose. Brown v. Card Serv. Ctr.. 464 F.3d 450, 453 (3d Cir. 2006) (citations omitted). Accordingly, we analyze communications from lenders to debtors from the perspective of the "least sophisticated debtor." Id. at 454. "The basic purpose of the least-sophisticated [debtor] standard is to [**8] ensure that the FDCPA protects all consumers, the gullible as well as the shrewd. This standard is consistent with the norms that courts have traditionally applied in consumerprotection law." Id. at 453 (quoting Clomon v. Jackson, 988 F.2d 1314, 1318 (2d Cir. 1993)). "'Laws are made to protect the trusting as well as the suspicious.'" Brown, 464 F.3d at 453 (quoting Federal Trade Comm'n v. Standard Educ. Soc'y, 302 U.S. 112, 116, 58 S. Ct. 113, 82 L. Ed. 141, 25 F.T.C. 1715 (1937)). Bearing this in mind, we note that although the "least sophisticated debtor" standard is a low standard,

43

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

it "prevents liability for bizarre or idiosyncratic interpretations of collection notices by preserving a quotient of reasonableness and presuming a basic level of understanding and willingness to read with care." Wilson v. Quadramed Corp., 225 F.3d 350, 354-55 (3d Cir. 2000) (internal quotation marks and citation omitted). "Even the least sophisticated debtor is bound to read collection notices in their entirety." Campuzano-Burgos v. Midland Credit Mgmt., 550 F.3d 294, 299 (3d Cir. 2008) B. Section 1692e of the FDCPA Lesher claims that the January 11 and February 15, 2009 letters that he received from the Kay Law Firm violate section 1692e of the FDCPA, [**9] which prohibits the use of "false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. 1692e. The sixteen subsections of section 1692e set forth a non-exhaustive list of practices that fall within this ban. These subsections include: (3) The false representation or implication that any individual is an attorney or that any communication is from an attorney. ... (5) The threat to take any action that cannot legally be taken or that is not intended to be taken.

In that case, Card Service Center ("CSC") sent the plaintiff a letter informing her that, unless she made arrangements to pay her debt within five days, the matter "could" result in referral of the account to CSC's attorney, and "could" result in "a legal suit being filed." Id. at 451-52. The plaintiff sued, claiming that because CSC had no intention of referring her account to an attorney, and no intention of filing a law suit, the letter violated section 1692e's ban on false, misleading, or deceptive communications.Id. at 452. Specifically, Brown claimed that the letter violated subsection (5), which prohibits collection letters from "threat[ening] to take any action that cannot legally be taken or that is not intended to be taken." 15 U.S.C. 1692e(5). The district court dismissed the complaint, determining that because "[t]he [**11] letter neither states nor implies that legal action is imminent, only that it is possible," the plaintiff had failed to state a section 1692e(5) violation. Id. at 454. 7 The Kay Law Firm emphasizes that its January 11 and February 15, 2009 letters were "settlement letters," not "dunning letters." While we recognize the distinction between letters that provide an opportunity for settlement in a conciliatory manner and those that contain more hostile demands for payment, we note that both types of communications must comply with 15 U.S.C. 1692e. See Campuzano-Burgos, 550 F.3d at 299-300. Therefore, we fail to see the significance in the distinction here. Upon review, we disagreed, and held that the facts alleged, if proven, could show that the CSC letter was "deceptive" or "misleading" under section 1692e because, in our view, it would be deceptive under the FDCPA for CSC "to assert that it could take an action that it had no intention of taking and has never or very rarely taken before." Id. at 454-55 (emphasis in original). More recently, this Court considered whether a collection letter falsely implied that it was from a lawyer in violation of section 1692e(3) because it was signed by [**12] the "Legal Department" of a collection agency even though none of the employees in that department were lawyers. In that case, Rosenau v. Unifund Corp., 539 F.3d 218 (3d Cir. 2008), Unifund sent a collection letter to the plaintiff demanding payment on a debt he owed to a third party. Id. at 219. The letter stated as follows: If we are unable to resolve this issue within 35 days we may refer this matter to an attorney in your area for legal

15 U.S.C. 1692e. Because the list of the sixteen subsections is non-exhaustive, a debt collection practice can be a "false, deceptive, or misleading" practice in violation of section 1692e even if it does not fall within any of the subsections. See Clomon, 988 F.2d at 1318. C. Section 1692e Case Law To determine whether the District Court properly construed section 1692e of the FDCPA, we look to both our own prior opinions, and to opinions from our sister circuits, discussing section 1692e of the FDCPA. Although we have not had occasion to consider whether the precise type of debt-collection letters at issue in this case violates section 1692e,7 we have considered [*998] whether other [**10] debtcollection letters comply with this subsection of the Act. For example, in Brown v. Card Service Center, 464 F.3d 450 (3d Cir. 2006), we considered whether a letter from a debt collection agency that warned the debtor of potential legal action violated section 1692e.

44

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

consideration. If suit is filed and if judgment is rendered against you, we will collect payment utilizing all methods legally available to us, subject to your rights below . . . This communication is from a debt collector. This is an attempt to collect a debt . . . .

Id. at 220. The letter was signed by the "Unifund Legal Department," which, despite its name, was comprised of solely non-lawyer employees. Id. Viewing the letter from the perspective of the least sophisticated debtor, we concluded that a debtor receiving the letter might reasonably infer that it was from an attorney even though it was not. Id. at 223. We rejected the idea that the statement that the letter was "from a debt collector" nullified the implication that the letter was from [**13] an attorney because, in our view, the categories of "debt collector" and "attorney" are not mutually exclusive. Id. We also disagreed with the district court's conclusion that the letter could not reasonably be interpreted to be from an attorney because it stated that Unifund might refer the matter to an attorney; we noted that lawyers often refer cases to one another and that this aspect of the letter would not necessarily dispel the impression that the letter was sent by a lawyer employed in Unifund's legal department. Id.8 8 This Court's most recent opinion concerning section 1692e is Campuzano-Burgos v. Midland Credit Mgmt., 550 F.3d 294 (3d Cir. 2008), in which we considered whether a collection agency violated section 1692e by sending out letters that were signed by the agency's executives even though none of those executives was personally involved in sending the letters. Id. at 297. We held that the letters, as a whole, were not deceptive under section 1692e because they did not objectively appear to be letters from a corporate executive to an individual; in our view, even the least sophisticated debtor, "possessing some common sense and a willingness to read the entire document [**14] with care, would not have believed that he had received a personal communication" from an executive. Id. at 301. [*999] Several of our sister circuit courts have also analyzed the application of section 1692e to debtcollection letters from attorneys. The leading case on whether mass-produced debt-collection mailings by an attorney violate the proscriptions of the FDCPA is Clomon v. Jackson, 988 F.2d 1314 (2d Cir. 1993). In Clomon, a debt collection agency mailed several form collection letters to the plaintiff that were printed on

the attorney letterhead of the agency's general counsel, and bore the mechanically reproduced facsimile of his signature. Id. at 1316. Although the attorney approved the form of the letters, and the procedures according to which those letters were sent, the attorney had no direct personal involvement in the mailing of the letters. Id. at 1317. The letters contained a variety of threatening statements designed to induce the plaintiff to pay the amount she owed, such as the following: "After [this collection agency] reviews your collection file and previous correspondence sent you, I am suggesting we take the appropriate measures provided under the law to further [**15] implement the collection of your seriously past due account." Id. The Second Circuit held that the use of the attorney's letterhead and his signature on the collection letters was sufficient to give the debtor the false impression that the letters were communications from an attorney in violation of 1692e(3). Id. at 1320. The Court held that the letters were false and misleading because they were not "from" the attorney in any meaningful sense of the word. Id. In reaching this conclusion, the Court found significant the fact that the attorney did not review each debtor's file, did not determine when particular letters should be sent, did not approve the sending of particular letters based upon the recommendations of others, did not see particular letters before they were sent, and did not know the identities of the persons to whom the letters were issued. Id.; see also Miller v. Wolpoff & Abramson, LLP, 321 F.3d 292, 301 (2d Cir. 2003) (explaining that "[a]lthough there is no dispute that [the defendant law firms] are law firms, or that the letters sent by those firms were 'from' attorneys in the literal sense of that word, some degree of attorney involvement is required before a [**16] letter will be considered 'from an attorney' within the meaning of the FDCPA"). The Seventh Circuit reached the same conclusion about a similar letter in Avila v. Rubin, 84 F.3d 222 (7th Cir. 1996). There, as in Clomon, the plaintiff had received a series of mass-produced collection letters printed on the letterhead of a law office and including the mechanically reproduced signature of an attorney. Id. at 225. Several of the letters informed the plaintiff that, "[i]f payment is not received, a civil suit may be initiated against you by your creditor." Id. Although the named attorney had approved the general form letter, he did not personally prepare, sign, or review any of the letters sent to the plaintiff; instead, a "legal assistant collector" actually produced the letter using training materials developed by the attorney. Id. The plaintiff claimed that these letters violated [*1000] 1692e(3) because the letters were not really "from an attorney." Id. at 229.

45

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

The Seventh Circuit agreed and held that an attorney sending a collection letter must be directly and personally involved in the mailing of the letters in order to comply with the strictures of the FDCPA. Id. The Court explained as [**17] follows: An unsophisticated consumer, getting a letter from an "attorney," knows the price of poker has just gone up. And that clearly is the reason why the dunning campaign escalates from the collection agency, which might not strike fear in the heart of the consumer, to the attorney, who is better positioned to get the debtor's knees knocking. A letter from an attorney implies that a real lawyer, acting like a lawyer usually acts, directly controlled or supervised the process through which the letter was sent. That's the essence of the connotation that accompanies the title of "attorney." A debt collection letter on an attorney's letterhead conveys authority. Consumers are inclined to more quickly react to an attorney's threat than to one coming from a debt collection agency. It is reasonable to believe that a dunning letter from an attorney threatening legal action will be more effective in collecting a debt than a letter from a collection agency. The attorney letter implies that the attorney has reached a considered, professional judgment that the debtor is delinquent and is a candidate for legal action. And the letter also implies that the attorney has some personal involvement [**18] in the decision to send the letter. Thus, if a debt collector (attorney or otherwise) wants to take advantage of the special connotation of the word "attorney" in the minds of delinquent consumer debtors to better effect collection of the debt, the debt collector should at least ensure that an attorney has become professionally involved in the debtor's file. Any other result would sanction the wholesale licensing of an attorney's name for commercial purposes, in derogation of professional standards[.]

that collection letters from defendant attorney violated 1692e(3) and (10) because the attorney was not meaningfully involved in the decision to send the letters). The Second Circuit later clarified its holding in Clomon to explain that an attorney, acting as a debt collector, could avoid liability by including a clear and prominent disclaimer in the collection letter. The collection letter at issue in that case, Greco v. Trauner, Cohen & Thomas, LLP, 412 F.3d 360 (2d Cir. 2005), was printed on the letterhead of "Trauner, Cohen & Thomas, LLP," and [**19] stated in pertinent part as follows: The firm of Trauner, Cohen & Thomas is a law partnership representing financial institutions in the area of creditors rights. In this regard, this office represents the above named BANK OF AMERICA who has placed this matter, in reference to an original account with [sic] for collection and such action as necessary to protect our client. At this time, no attorney with this firm has personally reviewed the particular circumstances of your account. However, if you fail to contact this office, our client may consider additional remedies to recover the balance due. ... Very truly yours, Trauner, Cohen & Thomas, LLP

Id. at 361. The plaintiff, relying on Clomon, claimed that Trauner, Cohen & Thomas had violated the FDCPA by sending [*1001] a debt collection letter, signed by the law firm and on law firm stationary, thereby implying that the firm had analyzed the debtor's case and rendered legal advice to the creditor when it had not. Id. at 363. The Second Circuit held that the letter did not violate the FDCPA because, unlike the letter at issue in Clomon, it included a clear disclaimer explaining the limited extent of the law firm's involvement in the collection action. [**20] Id. at 364-65. The Court elaborated on its previous holding as follows: One cannot, consistent with the FDCPA, mislead the debtor regarding meaningful "attorney" involvement in

Id. at 229; see also Nielsen v. Dickerson, 307 F.3d 623, 635-38 (7th Cir 2002) (relying on Avila to conclude

46

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

the debt collection process. But it does not follow that attorneys may participate in this process only by providing actual legal services. In fact, attorneys can participate in debt collection in any number of ways, without contravening the FDCPA so long as their status as attorneys is not misleading. Put another way, our prior precedents demonstrate that an attorney can, in fact, send a debt collection letter without being meaningfully involved as an attorney within the collection process, so long as that letter includes disclaimers that should make clear even to the "least sophisticated consumer" that the law firm or attorney sending the letter is not, at the time of the letter's transmission, acting as an attorney.

Although the district court dismissed the complaint for failure to state a claim, see Fed. R. Civ. P. 12(b)(6), the Fifth Circuit held that dismissal was premature because the "least sophisticated debtor" might be deceived into thinking that a lawyer was involved in the debt collection despite the disclaimer. After reviewing the reasoning in (among other cases) Clomon, Rosenau, and Greco, the Court explained that, in its view, "the main difference between the cases is whether the letter included a clear, prominent, and conspicuous disclaimer [*1002] that no lawyer was involved in the debt collection at that time." Id. at 606. According to the Court: There are some letters that, as a matter of law, are not deceptive based on the language and placement of a disclaimer. At the other end of the spectrum, there are letters that are so deceptive and misleading as to violate the FDCPA as a matter of law, especially when they do not contain any disclaimer [**23] regarding the attorney's involvement. In the middle, there are letters that include contradictory messages and therefore present closer calls.

Id. at 364 (emphasis in original). Because the letter at issue in Greco included a disclaimer that, "[a]t this time, no attorney with this firm has personally reviewed the particular circumstances of your account," the Court concluded that the defendant law firm had not made a "false representation [**21] or implication that any individual is an attorney or that any communication is from an attorney with meaningful involvement as an attorney in the debtor's case." Id. at 365 (internal quotation marks and citation omitted). Notably, the Fifth Circuit recently considered the legality of a debt collection letter from the Kay Law Firm that appears to be the exact same form letter that was sent to Lesher on January 11, 2009. In Gonzalez v. Kay, 577 F.3d 600 (5th Cir. 2009), the Kay Law Firm sent a collection letter to the plaintiff demanding payment of $448.97 on a consumer debt. Id. at 601. The letter, like the January 11, 2009 letter at issue here, was printed on the Kay Law Firm's letterhead. Id at 602. The letter also contained the same language regarding the debtor's right to contest the debt, and included, on the back, the disclaimer that, "[a]t this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account." Id. The plaintiff brought suit under 1692e, claiming that the letter was deceptive in that the Kay Law Firm "pretended to be a law firm with a lawyer handling collection of the Account when in fact no lawyer was handling the [**22] Account or actively handling the file." Id. According to the plaintiff, the Kay Law Firm is not actually a law firm at all, but a debt collection agency that uses the imprimatur of a law firm to intimidate debtors into paying their debts. Id. at 60203.

Id. The Fifth Circuit concluded that this letter fell within the middle ground because, unlike the letter in Greco in which the disclaimer was part of the body of the text on the front page, the disclaimer here was on the back. Id. Thus, according to the Fifth Circuit, the least sophisticated debtor would not learn that the letter was from a debt collector unless he turned the letter over to read the "legalese" on the back. Id. at 607. Accordingly, the Court remanded the matter to the district court for further development of the record. Id. In so doing, the Court added the following precautions to attorney-debt-collectors: We caution lawyers who send debt collection letters to state clearly, prominently, and conspicuously that although the letter is from a lawyer, the lawyer is acting solely as a debt collector and not in any legal capacity when sending the letter. The disclaimer must explain to even the least sophisticated consumer that lawyers may also be debt collectors and that the lawyer is operating only as a debt collector at that time. [**24] Debt collectors acting solely as debt collectors must not send the message that a lawyer is involved, because this

47

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

deceptively sends the message that the "price of poker has gone up."

Id. D. Applying the Least Sophisticated Standard to the Kay Law Firm's Letters Debtor

The District Court in this case relied on Brown, Rosenau, Greco, and Gonzalez to conclude that the Kay Law Firm's January 11 and February 15, 2009 letters were misleading under section 1692e of the FDCPA. The District Court found that the least sophisticated debtor, upon receiving these letters, would believe that they had been sent by an attorney who might pursue legal action if he did not pay the debt.9 The District Court acknowledged that the letters included a disclaimer notifying Lesher that an attorney had not reviewed his account, but found that the disclaimer did not mitigate the impression of potential legal action. The Kay Law Firm now challenges the District Court's decision.10 9 According to the District Court: A consumer is reasonably expected to believe that a law firm is comprised of attorneys and that it does legal work. In the context of a consumer debt, a reasonable perception of consumers is that if a consumer [**25] debt is being handled on behalf of the lender by a law firm and if the amount of money that the law firm is seeking (or some lesser settlement amount) is not paid, then the lawyer(s) will use the legal process with which they are familiar and for the use of which they are specifically trained to obtain a mandatory order of payment, which order will be enforceable by penalties within the power of courts to impose. The implication that a communication to a consumer concerning a debt is from an attorney has a particular and well-known and well-understood effect. That is explicitly recognized in and incorporated into 1692e.

Lesher v. Law Office of Mitchell N. Kay, P.C., 724 F. Supp. 2d 503, 509 (M.D. Pa. 2010). 10 Specifically, the Kay Law Firm argues that, contrary to the District Court's conclusion, the letters: (a) complied with section 1692e(3) because they were indeed from an attorney; (b) complied with section 1692e(5) because they did not threaten legal action; and (c) were not otherwise "false, deceptive, or misleading." We need not reach the question of whether the Kay Law Firm's letters to Lesher violate sections 1692e(3) and (5) because we conclude that they violate section 1692e's [**26] general prohibition against "false, deceptive, or misleading" communications. [*1003] We agree with the District Court that the Kay Law Firm's letters violate section 1692e's general prohibition against "false, deceptive, or misleading" communications because they falsely imply that an attorney, acting as an attorney, is involved in collecting Lesher's debt. In our view, the least sophisticated debtor, upon receiving these letters, may reasonably believe that an attorney has reviewed his file and has determined that he is a candidate for legal action. We do not believe that such a reading would be "bizarre or idiosyncratic." Wilson, 225 F.3d at 354-55 (internal quotation marks and citation omitted). Nor do we believe that the disclaimers included in the letters, which are printed on the backs, make clear to the least sophisticated debtor that the Kay Law Firm is acting solely as a debt collector and not in any legal capacity in sending the letters. First, in our view, the statement that "[a]t this point in time, no attorney with this firm has personally reviewed the particular circumstances of your account" does little to clarify the Kay Law Firm's role in collecting the debt because it completely [**27] contradicts the message sent on the front of the letters--that the creditor retained a law firm to collect the debt.11 Moreover, as we noted in Rosenau, the statement that the letters were "from a debt collector" is a statutorily required notification that "should not be viewed as nullifying any implication that the letter is from an attorney." See 539 F.3d at 223 (explaining that "[b]oth common sense and case law confirm . . . that the categories of 'debt collector' and 'attorney' are not mutually exclusive"). 11 We recognize that the Second Circuit held in Greco that the language in this disclaimer sufficiently explained the limited role that the attorneys played in collecting the plaintiff's debt. See 412 F.3d at 366. In viewing the Kay Law Firm letters at issue here, however, we are

48

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

not convinced that this disclaimer, which-unlike in Greco--was printed on the back of the letters, effectively mitigated the impression of attorney involvement. See Gonzalez, 577 F.3d at 607 (distinguishing the letter in Greco from the Kay Law Firm's letter based on the position and context of the disclaimer). As the Seventh Circuit observed in Avila, "[a]n unsophisticated consumer, getting a letter from [**28] an 'attorney,' knows the price of poker has just gone up." 84 F.3d at 229. For this reason, we believe that it was misleading and deceptive for the Kay Law Firm to raise the specter of potential legal action by using its law firm title to collect a debt when the firm was not acting in its legal capacity when it sent the letters. We

need not decide whether an attorney debt-collector who sends out a collection letter on attorney letterhead might, under appropriate circumstances, comply with the strictures of the Act by including language that makes clear that the attorney was not, at the time of the letter's transmission, acting in any legal capacity. The only question before us today is whether the Kay Law Firm's January 11 and February 15, 2009 letters to Lesher comply with the Act. For the reasons set forth above, we hold that they do not. IV. Conclusion We will affirm the District Court's order granting summary judgment in Lesher's [*1004] favor with respect to his 15 U.S.C. 1692e claim.

6. NJ. Ethics Advisory Opinion 48 -- N.J.L.J. -(June --, 2012) Issued by UPLC and ACPE May 30, 2012 COMMITTEE ON THE UNAUTHORIZED PRACTICE OF LAW ADVISORY COMMITTEE ON PROFESSIONAL ETHICS Appointed by the Supreme Court of New Jersey JOINT OPINION OPINION 48 COMMITTEE ON THE UNAUTHORIZED PRACTICE OF LAW OPINION 725 ADVISORY COMMITTEE ON PROFESSIONAL ETHICS Debt Collection Practices Reaffirming UPLC Opinion 8 and ACPE Opinions 259 and 506 The Supreme Court requested the Committee on the Unauthorized Practice of Law (UPLC) and the Advisory Committee on Professional Ethics (ACPE) to review UPLC Opinion 8 and ACPE Opinions 259 and 506 in light of current methods used by collections firms and consider whether modification to the opinions may be appropriate. The Committees hereby reaffirm the basic holdings of these opinions. The Committees further reaffirm that, before sending a debt collection letter, lawyers must exercise professional judgment by independently evaluating collection demands and determining that proceedings to enforce collection are warranted. The Court requested the Committees to review these opinions after it imposed discipline on a New Jersey lawyer for having lent his name and letterhead to a

49

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

collection agency in exchange for a monthly fee. The lawyer permitted the collection agency to use his law firm letterhead and status as an attorney. Collection agency employees, not the lawyer, exercised judgment in collection efforts. The collection agency was found to have engaged in the unauthorized practice of law and the lawyer was found to have violated RPC 5.5(a)(2) (assisting a nonlawyer in the unauthorized practice of law) and RPC 8.4(c) (conduct involving dishonesty, fraud, deceit, or misrepresentation). As the UPL Committee expressly stated forty years ago in Opinion 8, 95 N.J.L.J. 105 (February 10, 1972), when a collection agency sends a letter to a debtor threatening legal action or implying that the collection letter is sent at the direction of a lawyer, the agency is engaging in the unauthorized practice of law. In contrast, when a law firm sends a debtor a collection letter, the recipient has reason to believe that there has been an evaluation by an attorney of the claim asserted with a determination by the attorney that proceedings to enforce collection are warranted. In accordance with these principles, the ACPE thereafter issued two opinions, ACPE Opinion 259, 96 N.J.L.J. 754 (June 21, 1973), and Opinion 506, 110 N.J.L.J. 408 (October 7, 1982), expressly stating that a lawyer may not lend law firm letterhead to clients to write and send collection letters. The ACPE concluded in those opinions that a lawyer who lends letterhead to clients is engaging in conduct involving dishonesty, fraud, deceit, or misrepresentation, in violation of RPC 8.4(c). This issue was also addressed by the American Bar Association in 1976. ABA Informal Ethics Opinion 1368, Mass Mailing of Form Collection Letters (July 15, 1976). The inquiring lawyer represented a large retail organization that sold consumer goods on credit. The lawyer drafted three form letters seeking payment from debtors for amounts past due and stated that the letters will be prepared and dispatched under his direct supervision but that he will not review any account to determine its validity before any of the letters is sent. He will rely on the clients written certification that the debts on each list furnished are justly due. The ABA concluded that it is not enough that the lawyer rely upon the clients certification of the validity of the account. The lawyer must take responsibility for the reasonable accuracy of each letter and must exercise due care that no letter misstates a fact with respect to the account of the debtor. The ABA stressed that the lawyer must accept[] full professional responsibility for the collection effort; independent judgment [is] required to see that each letter sent is accurate and appropriate as to the account of the debtor when it is sent. The UPLC and ACPE agree with this ABA opinion. Exercising independent professional judgment is a fundamental and indispensable element of the practice of law. A lawyer who fails to exercise independent professional judgment has abdicated the practice of law, has

50

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

demonstrated a lack of competence, and has committed gross negligence, in violation of RPC 1.1(a).1 When a lawyer does not properly supervise nonlawyer staff, or the supervision is merely illusory, the nonlawyers are engaging in unauthorized practice of law. In re Opinion No. 24 of the Committee on the Unauthorized Practice of Law, 128 N.J. 114, 127 (1992). Similarly, when a lawyer permits his or her nonlawyer staff, or a client, to send collection letters that the lawyer has not personally reviewed under the professional standard set forth above, the lawyer has assisted in the unauthorized practice of law in violation of RPC 5.5(a)(2)2, and engaged in deceptive conduct in violation of RPC 8.4(c).3 While the New Jersey ethics rules and the federal Fair Debt Collection Practices Act, 15 U.S.C.A. Section 1692 et seq. (FDCPA), are distinct bodies of law, developments in FDCPA case law touch on the analysis of the practice (and unauthorized practice) of law. FDCPA cases differentiate between lawyers acting in a lawyer capacity which would require the exercise of professional judgment and meaningful involvement in the collection matter and lawyers not acting in a lawyer capacity, acting as a lay debt collector. Hence, FDCPA case law provides that when a law firm sends a debtor a collection letter and clearly explains that no lawyer has reviewed the file, the law firm is not acting in a lawyer capacity but, rather, is acting as a mere lay debt collector. See, e.g., Gonzalez v. Kay, 577 F.3d 600, 607 (5th Cir. 2009) (The disclaimer must explain to even the least sophisticated consumer that lawyers may also be debt collectors and that the lawyer is operating only as a debt collector at that time); Miller v. Wolpoff & Abramson, 321 F.3d 292, 301 (2nd Cir. 2003) (some degree of attorney involvement is required before a letter will be considered from an attorney within the meaning of the FDCPA); Avila v. Rubin, 84 F.3d 222, 229 (7th Cir. 1996) (The attorney letter implies that the attorney has reached a considered, professional judgment that the debtor is delinquent and is a candidate for legal action); Lesher v. Law Offices of Mitchell N. Kay, PC, 650 F.3d 993, 1003 (3d Cir. 2011), cert. den. __ U.S. __ (2012) (the recipient of a demand letter sent by a law firm may reasonably believe that an attorney has reviewed his file and has determined that he is a candidate for legal action). While the FDCPA arguably permits a law firm to send debt collection letters in a lay capacity, New Jersey ethics rules have always prohibited the practice. The ACPE, in Opinion 657, 130 N.J.L.J. 656 (February 24, 1992), 1 N.J.L. 129 (February 17, 1992), found that a lawyer may engage in both a legal and a nonlegal business provided the two businesses are entirely separate, in physically distinct locations, and there is no joint advertising or marketing or demonstration of a relationship between the two businesses. Hence, while a lawyer may engage in a nonlegal or lay debt collection business, a lawyer may not operate that nonlegal business from a law firm. Therefore, a New Jersey law firm may not engage in the lay debt collection business.

51

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Since the UPL Committee issued Opinion 8 in 1972, it has been clear that lawyers who send collection letters are engaged in the practice of law. A lawyer cannot disclaim the fact that he or she is engaging in the practice of law when using law firm letterhead. A lawyer who has not reviewed the file, made appropriate inquiry, and exercised professional judgment has engaged in an incompetent and grossly negligent practice of law in violation of RPC 1.1(a). A lawyer who permits office staff, or a client, to send collection letters when the lawyer has not individually reviewed the file, made appropriate inquiry, and exercised professional judgment, is assisting in unauthorized practice of law in violation of RPC 5.5(a)(2) and engaging in deceitful conduct in violation of RPC 8.4(c). Accordingly, UPLC Opinion 8 and ACPE Opinions 259 and 506 are hereby reaffirmed. A lawyer who fails to exercise professional judgment by independently evaluating collection demands and determining that proceedings to enforce collection are warranted before sending a debt collection letter on law firm letterhead fails to satisfy ethical requirements of competence and has committed gross negligence. RPC 1.1(a) (Competence) provides that [a] lawyer shall not . . . [h]andle or neglect a matter entrusted to the lawyer in such manner that the lawyers conduct constitutes gross negligence.
1

RPC 5.5(a)(2) (Lawyers Not Admitted to the Bar of this State and the Lawful Practice of Law) provides that [a] lawyer shall not . . . assist a person who is not a member of the bar in the performance of activity that constitutes the unauthorized practice of law.
2

RPC 8.4(c) (Misconduct) provides that [i]t is professional misconduct for a lawyer to . . . engage in conduct involving dishonesty, fraud, deceit or misrepresentation.
3

52

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

C. 1.

Meaningful Involvement - Where We Are Going (Everything Old Is New Again) Nielsen v. Dickerson, 307 F.3d 623 (7th Cir. 2002).
ANN L. NIELSEN, Plaintiff-Appellee, v. DAVID D. DICKERSON, et al., Defendants-Appellants. Nos. 00-2780, 00-2781 UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT 307 F.3d 623; 2002 U.S. App. LEXIS 21098 February 12, 2001, Argued October 9, 2002, Decided

PRIOR HISTORY: [**1] Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. 1999 U.S. Dist. LEXIS 8334. Charles P. Kocoras, Chief Judge. Nielsen v. Dickerson, 1999 U.S. Dist. LEXIS 13931. DISPOSITION: affirmed. Judgment of the district court

COUNSEL: For Ann. L. Nielsen, Plaintiff - Appellee (00-2780, 00-2781): Daniel A. Edelman, EDELMAN, COMBS & LATTURNER, Chicago, IL USA. Cathleen M. Combs, EDELMAN, COMBS & LATTURNER, Chicago, IL USA. For David D. Dickerson, DAVID D. DICKERSON & ASSOCIATES, Defendants - Appellants (00-2780): Christine L. Olsen, HINSHAW & CULBERTSON, Chicago, IL USA. For Household Credit Services, Incorporated, Defendant - Appellant (00-2781): Kathleen L. Roach, SIDLEY, AUSTIN, BROWN & WOOD, Chicago, IL USA. JUDGES: Before CUDAHY, WILLIAMS, Circuit Judges. OPINION BY: ROVNER OPINION [*625] ROVNER, Circuit Judge. After receiving a letter from attorney David D. Dickerson advising her that the balance on her GM credit card account was ROVNER, and

past due, plaintiff Ann L. Nielsen filed a class action suit against Dickerson and others pursuant to the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. 1692 et seq. Nielsen asserted that Dickerson's letter, which was sent to thousands of delinquent creditors like her, falsely suggested that an attorney had become actively involved in GM's debt collection efforts, when in fact Dickerson had done little more than lend his name and firm letterhead to the debt collection effort. [*626] See 15 U.S.C. 1692e(3) and (10), 1692j(a). After certifying a class comprised of all Illinois residents who had received letters from Dickerson's firm, 1999 U.S. Dist. LEXIS 8334, 1999 WL 350649, Judge Kocoras granted summary judgment in favor of the plaintiffs, 1999 U.S. Dist. LEXIS 13931,1999 WL 754566. [**2] We affirm. I. A. Household Bank (SB), N.A. ("Household Bank" or the "Bank"), issued GM credit cards to Nielsen and the other class members. The Bank's affiliate, Household Credit Services, Inc. ("Household"), which operated under the trade name "GM Card," serviced the Bank's credit card portfolio by, among other activities, maintaining the individual credit accounts and rendering collection services. Dickerson is licensed to practice law in Virginia and has done so for more than 30 years. He heads a small firm, David D. Dickerson & Associates, comprised of himself, two other attorneys, and some twenty to twenty-five staff assistants. (We shall refer to Dickerson and his firm collectively as "Dickerson.") For more than 25 years, Dickerson has provided legal services in connection with debt collection activities,

53

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

and Dickerson has acquired a certain expertise in debt collection law, including the FDCPA. He keeps current on the FDCPA, and seeks to ensure that he and his staff do not violate the statute, by maintaining membership in two debt collection organizations, attending seminars, and reading monthly publications concerning state and federal debt collection law. He [**3] also oversees the training of his staff, maintains office manuals outlining debt collection procedures, has his staff review a videotaped presentation regarding the FDCPA, conducts regular meetings with his staff, and, on occasion, has fired employees who deviate from his established collection procedures. In April 1997, after Dickerson made a presentation to Household about the FDCPA and the types of legal services his firm could provide, Household engaged Dickerson to aid it in the collection of delinquent GM Card accounts. Dickerson signed a nine-page Legal Collection Services Agreement pursuant to which he agreed to exercise due diligence and to render legal services consistent with applicable federal, state, and local laws--including the FDCPA. Dickerson had provided legal services to other creditors in addition to Household. The "legal service" that Dickerson provided to Household pursuant to this agreement consisted primarily of issuing a form "past due" letter--that Dickerson himself had drafted before he was engaged by Household--to delinquent GM Card holders after the firm had performed certain checks on the information supplied to it by Household. By the terms of the agreement, [**4] Household approved the initial form of Dickerson's letter and reserved the right to approve any changes thereto. Household itself never suggested any changes to the letter, however. Periodically, Household would forward to Dickerson a computer disk containing delinquent account data. The data included each debtor's account number, name, address, account balance, and the amount past due. After reformatting the data into its own system, the firm pulled the data up onto a computer screen to check for any obvious gaps or errors in the data. In the absence of such faults, the firm then transmitted the data to Contact U.S.A., a printing and mailing service, which printed a hard copy of the data and sent the hard copy back to Dickerson. Upon receipt of the printed copy, someone in Dickerson's office would stamp the document with a [*627] small checklist that Dickerson and his staff would initial to reflect completion of the three-level review of the data that they conducted. Pursuant to that review, the firm made sure that duplicate letters were not sent to the same debtor and also flagged any instances in which Household had provided it with incomplete or

inaccurate debtor information. The firm [**5] also checked the data against an inhouse database of recent bankruptcy declarations compiled from bankruptcy notices that it received on a regular basis, in order to stop letters from being sent to debtors who had declared bankruptcy. The firm's computer also checked the data to flag debtors who lived in one of three "prohibited" states--West Virginia, Colorado, and Connecticut--to which Dickerson did not send letters; staff members were also instructed to eyeball the data for these same states as a safeguard against computer error. An attorney conducted the final level of this review and sometimes one of the first two levels. Dickerson himself reviewed nearly all of the printouts of the pertinent data, although his review was admittedly quite brief. (Dickerson indicated that he spent approximately two minutes reviewing a page listing the data on forty overdue accounts, which suggests that he devoted only a few seconds to each account.) Upon completion of the tripartite review, an acknowledgment report listing the debtors to whom a delinquency letter would be sent was forwarded to Household; a separate report also identified any debtors to whom the firm had decided a letter should [**6] not be sent based on its review of the data. The firm then waited for at least twenty-four hours before taking any further action, giving Household the opportunity to make corrections. (If Household flagged a mistake in the report, a letter would not be sent to that debtor.) At the expiration of the waiting period, the firm then forwarded the appropriate data to Contact U.S.A., which printed and mailed the letters on firm letterhead with a facsimile of Dickerson's signature. Beyond checking the Household account data in the manner we have just described, Dickerson did not make an individualized assessment of the status or validity of the debt or the propriety of sending delinquency letters to the account debtors referred to him by Household; nor was the law firm the only party to perform these checks. Household selected the accounts that were referred to the firm for delinquency letters; and before transmitting an account to Dickerson, Household not only reviewed the pertinent account information, but screened each account for deceased or bankrupt debtors and those who lived in prohibited states. The firm's own review of the referred accounts was confined to the information supplied [**7] by Household. Dickerson did periodically review the standard GM Cardmember and Disclosure Agreement; and he had sufficiently familiarized himself with Household's method of handling the GM card portfolio to know generally how long the accounts had been delinquent and what steps Household had taken to collect on those accounts by the time they were referred to him. But Household did not supply

54

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Dickerson with a copy of a debtor's file, nor did Dickerson have access to Household's account system. Thus, beyond conducting facial checks of the data he was provided and checking that data to screen out debtors who were bankrupt or who lived in prohibited states, Dickerson relied on Household's judgment as to the validity and delinquency of the debt. Indeed, Dickerson never requested additional information from Household before instructing the mailing service to issue a delinquency letter. Dickerson "assumed that many demands for payment have [*628] been made on the debtor and that legal action is contemplated if it appears that these debtors will not pay amicably and have the means to satisfy a judgment," he wrote in the standard letter accompanying the acknowledgment reports he sent to Household. [**8] R. 30 Ex. D. "It is understood that these are accurate and valid claims for the amounts stated and that any information indicating that the debtors dispute any part(s) of the debt have been furnished to this office." Id. After Dickerson's review of Household's account data was complete and the firm had forwarded the data to Contact U.S.A. for printing and mailing, the mailing service itself performed a final computerized check of the data to ensure that the letters were sent to the correct addresses and reflected the correct overdue balances and that duplicate letters were not sent to the same debtor. The letter that Dickerson sent to delinquent GM Card holders stated as follows: [*629] DAVID D. DICKERSON AND ASSOCIATES A PROFESSIONAL CORPORATION ATTORNEYS COUNSELORS AT LAW AND

However, if you notify us in writing within the thirty day period that all or part of the debt is disputed, we will obtain verification of the debt or a copy of a judgment and mail a copy of such verification or judgment to you. Also, upon your written request within the thirty day period, we will provide you with the name and address of the original creditor, if different from the current creditor. This is an attempt to collect a debt. Any information obtained will be used for that purpose. If you do not dispute this debt or any portion thereof, please do one of the following: 1. Make payment to my client GM Card, or 2. Call GM Card at (800) 557-5620 ext. 3740 to discuss payment arrangements.

Very truly yours, David D. Dickerson & Associates By: [Facsimile signature] David D. Dickerson, Esq.

R. 11 Ex. A (emphasis in original). A payment coupon addressed to GM Card was attached at the bottom of the letter. As the text of Dickerson's letter reveals, debtors were advised either to make payment directly to "GM Card" (Household's trade name) or, if they wished to discuss payment arrangements, to call "GM Card" directly [**10] at the indicated 800 number. Calls placed to that number were taken by Household's inhouse collection personnel, who were instructed to handle the calls [*630] themselves and not to refer inquiries to Dickerson. Dickerson's letterhead naturally included his firm's telephone number, however, and the letter did instruct cardholders to notify "us"-presumably meaning Dickerson--in writing if they disputed part or all of the debt. As a result, Dickerson's firm regularly did receive written and telephonic inquires and responses from cardholders and their attorneys. However, he was not empowered to resolve matters on Household's behalf and did not do so. Where a written response was received, a firm

[Firm Address, Telephone Number, and Fax Number] [Debtor Name and Address] [Date, Account Number, Balance, and Past Due Amount] Dear [Debtor]: My client, GM Card, has requested that I write to you concerning your delinquent account. Unless you dispute the validity of all or part of the debt within thirty days after receiving this notice, the debt will be assumed [**9] to be valid by us.

55

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

employee would generate one of six form transmittal letters to Household highlighting the nature of the response (e.g., the debtor's declaration of bankruptcy, her inability to pay the debt, her dispute of the debt, and so on). 1 Dickerson himself reviewed and signed each transmittal letter, which was then sent to Household with the debtor's response enclosed. 2 A copy of the transmittal letter, which indicated that the debtor was to deal with Household directly, was sent to the debtor as well. Telephone [**11] calls to Dickerson's office were handled in a similar manner. Such calls were routed to Dickerson himself or, if he was unavailable, to his voice mail. In either instance, debtors were advised to submit a written response. As with the written responses, Dickerson forwarded the telephonic responses to Household for disposition (often by way of a phone call from Dickerson to a Household employee). 3 Dickerson took no further action once the responses were handed over to Household. Household never asked Dickerson to pursue a judgment on its behalf, although Dickerson routinely did so for other clients. Household, not Dickerson, handled any requests for verification of the debt. 1 To a very limited extent, certain of these form letters contained generic "advice" to Household as to how it should handle the debtor's response. For example, the form letter used for a response indicating that the debtor had declared bankruptcy reminded Household that federal law required it to cease and desist any further contact with that debtor. See R. 46 Ex. C (collecting examples of transmittal letters). 2 On occasion, if a particular debtor's situation was unique, Dickerson drafted a specific transmittal letter regarding that situation. [**12] 3 Dickerson testified that when debtors or their representatives (including their attorneys) contacted him by telephone, he attempted to answer their questions and to be of assistance to the extent that he could. The record does not reveal the nature of any information or assistance that he may have provided, however. Thirty days after Household referred a delinquent account to Dickerson, the firm returned the account to Household. 4 Household paid Dickerson a flat fee of $ 2.45 per account irrespective of the effect (if any) that his letter had upon the debtor. Dickerson in turn paid Contact U.S.A. ninety-nine cents per letter for its services. Dickerson received approximately 2,000 accounts per month from Household. Dickerson typically spent two to three hours per day working on

Household matters, and he performed the bulk of the work done by his firm on such matters. 4 Household did not discontinue its own efforts to collect an overdue account--including phone calls to the debtor to solicit payment on the account--while the matter was pending in Dickerson's office. [**13] On or about January 7, 1998, Dickerson sent Nielsen (a Chicago resident) a delinquency letter concerning her GM Card account. As of that date, the balance on her account was more than 120 days past due, and she had not responded to Household's previous attempts to resolve the delinquency. When Nielsen received and read Dickerson's letter, she noted that he was a lawyer and assumed that she might [*631] be sued on her unpaid debt. Nielsen did not, however, respond to the letter. Four months after she received it, she declared bankruptcy. The bankruptcy court discharged her debts on August 28, 1998. B. Nielsen subsequently filed this suit on behalf of herself and other GM Card holders who had received delinquency letters from Dickerson. Judge Kocoras certified a class that included every GM cardholder residing at an address within Illinois to whom Dickerson had sent a letter between September 22, 1997 and July 15, 1999. Informational notices regarding the class suit were sent to some 3,504 individuals. Subsequently, on the parties' cross-motions for summary judgment, Judge Kocoras granted summary judgment in favor of Nielsen. At the outset Judge Kocoras determined that Dickerson [**14] and Household each qualified as a "debt collector" that could be held liable under the FDCPA for misleading communications with debtors. It was undisputed that Dickerson and his firm regularly engaged in efforts to collect the debts of others. Dickerson thus satisfied the principal criterion for "debt collector" status. 1999 U.S. Dist. LEXIS 13931, 1999 WL 754566, at *3; see 15 U.S.C. 1692a(6). Household, by contrast, had not undertaken to collect anyone's debts but its own, and so would not normally constitute a debt collector under the statute. See id.; e.g., Aubert v. American Gen. Fin., Inc., 137 F.3d 976, 978 (7th Cir. 1998). However, pursuant to what is known as the "false name" exception to this rule, a creditor or an affiliate of a creditor who uses someone else's name so as to suggest to the debtor that a third party is involved in the debt collection process, when in fact that party is not involved, can be treated as a "debt collector" under the FDCPA. Id.; see Maguire v. Citicorp Retail Servs., Inc., 147 F.3d 232, 235 (2nd

56

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Cir. 1988). Based on his ultimate determination that Dickerson played no genuine role as an attorney [**15] in Household's debt collection efforts, Judge Kocoras reasoned that Dickerson's letter to Nielsen and the other class members was in reality from Household, and that Household was simply using Dickerson's name to suggest that he and his firm were involved in the attempt to collect Household's debts. On that basis, Judge Kocoras found that Household should also be treated as a "debt collector" that could be held liable to the extent that Dickerson's letter was false or misleading. 1999 U.S. Dist. LEXIS 13931, 1999 WL 754566, at *3. The judge then turned to Dickerson's letter and considered whether that letter falsely implied that an attorney had been engaged to help Household collect on the overdue GM Card accounts, in violation of section 1692e(3). Our opinion in Avila v. Rubin, 84 F.3d 222, 228-29 (7th Cir. 1996), recognized that a delinquency letter from an attorney conveys authority and implies that the attorney supervised or actually controlled the procedures by which the letter had been sent. Thus, Judge Kocoras reasoned, an attorney must have direct and personal involvement in the mailing of the letter--e.g., by reviewing the file to determine whether the letter should be sent, [**16] or by approving the mailing based on recommendations of others--in order for it not to mislead the recipient as to the nature of his involvement with the debt. 1999 U.S. Dist. LEXIS 13931, 1999 WL 754566, at *3, citing Avila, 84 F.3d at 228. Dickerson contended that he was so involved: his firm engaged in a three-level review of the information supplied by Household before each letter was sent; and, by his own account, Dickerson himself worked two to three hours each day reviewing the 2,000 accounts that Household referred to him every month. [*632] Judge Kocoras viewed the firm's "review" as no more than a deceptive "veneer of compliance" with FDCPA, however. 1999 U.S. Dist. LEXIS 13931, 1999 WL 754566, at *4. A letter like Dickerson's suggests that the attorney writing the letter is familiar with the facts of the case and is prepared to pursue the case himself, the judge pointed out. Id. In fact, Dickerson lacked this level of involvement with the debt: Household did not forward debtor files to Dickerson, but only so much information as Dickerson needed to complete his form letter to each debtor; that letter directed the debtor to contact Household, not Dickerson; and Dickerson had not even created [**17] the letter specifically for Household, but simply had employed a customizable form created before Household became his client. Id. Moreover, Dickerson's "review" of the information supplied by Household was superficial: Dickerson and his staff

merely proofread the data for incorrect amounts and typographical errors; they did not independently analyze contracts or any other information regarding the debtor. Id. In other words, none of the information that Dickerson reviewed enlightened him as to the particular circumstances of a debtor and his account before he sent a delinquency letter to that debtor. Id. In short, Dickerson was not exercising "independent, trained legal judgment on the validity of a claim." Id. What happened after Dickerson's letter was sent likewise indicated to the judge that Dickerson was not meaningfully involved in the effort to collect Household's debts. Household did not inform Dickerson whether it received a response to his letter. Id. n. 1. As for the responses that Dickerson himself received, the judge found that his handling of those responses was insufficient to suggest anything more than "a surface veneer of compliance with the [**18] FDCPA . . . ." 1999 U.S. Dist. LEXIS 13931, [WL] at *5. Moreover, Dickerson had never pursued a judgment on Household's behalf, nor had Household ever asked him to do so. 1999 U.S. Dist. LEXIS 13931, [WL] at *4. "We find this lack of litigation activity contradicts the impression given to an unsophisticated consumer; namely, that if she does not pay, the attorney sending her the collection letter will pursue a collection suit against her." Id. "The key factor, however, is that the letters themselves are objectionable." 1999 U.S. Dist. LEXIS 13931, [WL] at *5. Dickerson merely sent each debtor a form letter "modified to reflect the meager information provided to [him] by Household Credit." Id. Furthermore, Dickerson did not sign the letters before they were issued; instead, Contract U.S.A. printed the letters, affixed a facsimile of Dickerson's signature to them, and mailed them. In Clomon v. Jackson, 988 F.2d 1314, 1321 (2nd Cir. 1993), the Second Circuit suggested that mass mailings prepared in this manner will frequently be false to the extent that they suggest that an attorney was directly involved in the process by which the letter was prepared and sent and that she had formed a professional opinion as to how the individual debtor's [**19] case should be handled. "For this reason, there will be few, if any cases in which a mass-produced collection letter bearing the facsimile of an attorney's signature will comply with the restrictions imposed by 1692e." Id. This court's opinion in Avila cited this passage from Clomon approvingly, Judge Kocoras noted. 1999 U.S. Dist. LEXIS 13931, 1999 WL 754566, at *5; see Avila, 84 F.3d at 228, quoting Clomon, 988 F.2d at 1321. In conjunction with the "reams" of other evidence of noncompliance with the FDCPA, "[Dickerson's] letter clearly demonstrates a lack of

57

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

involvement and an extraordinary abdication of legal duties by the Dickerson defendants in a large-scale, bulk operation." 1999 U.S. Dist. LEXIS 13931, 1999 WL 754566, at *5. [*633] Judge Kocoras therefore concluded as a matter of law that Dickerson's minimal involvement in the process by which the letter was sent to class members rendered the letter misleading in violation of section 1692e(3). Although the letter was prepared on his letterhead and included a facsimile of his signature, "the letters were not from him in any meaningful sense of the word." 1999 U.S. Dist. LEXIS 13931, 1999 WL 754566, at *5. Because the letter, in [**20] Judge Kocoras' view, falsely implied to the debtor that an attorney had become professionally involved in the collection of his or her debt, he believed that it also violated section 1692e(10)'s proscription of the use of any false representation or deceptive means to collect, or attempt to collect, a debt. 1999 U.S. Dist. LEXIS 13931, 1999 WL 754566, at *6. Finally, Judge Kocoras determined that Dickerson was additionally liable under the "flat-rating" provision of the FDCPA, section 1692j, which renders it unlawful to design, compile, and furnish any form knowing it would be used to create a false belief in the debtor that someone other than the creditor is participating in an effort to collect his debt, when in fact such person is not participating. The classic "flatrater" effectively sells his letterhead to the creditor, often in exchange for a per-letter fee, so that the creditor can prepare its own delinquency letters on that letterhead. See White v. Goodman, 200 F.3d 1016, 1018 (7th Cir. 2000). Use of a third party's letterhead gives the delinquency letters added intimidation value, as it suggests that a collection agency or some other party is now on the debtor's back. [**21] See id. Here, of course, Dickerson did not literally hand over his letterhead to Household. Yet, as Judge Kocoras had already determined with respect to section 1692e(3) and (10), Dickerson's letter to Nielsen and the other class members was not genuinely from him in the professional sense. This was sufficient, in the judge's view, to render Dickerson additionally liable under section 1692j. 1999 U.S. Dist. LEXIS 13931, 1999 WL 754566, at *6. Judge Kocoras rejected the view of some courts that a defendant can either be a debt collector for purposes of liability under section 1692e or a flat-rater for purposes of section 1692j, but not both. He reasoned that liability under section 1692j attached when the defendant wrote or otherwise originated the form letter, knowing that it would be used to deceive consumers into believing that a third party had joined forces with the creditor to collect the

delinquent debt. Id. "It is undisputed that the Dickerson defendants are responsible for creating the misleading and improper dunning letters at issue, and thus they are also liable under 1692j." Id. In the wake of the summary judgment ruling on liability, the parties reached a settlement as to [**22] damages, pursuant to which the defendants reserved the right to appeal the liability ruling. The defendants agreed to pay a total of $ 250,000, of which $ 1,500 was paid to Nielsen as the named plaintiff, $ 85,000 was paid to class counsel, and the remainder was divided pro rata among the other members of the class. The district court approved the settlement in an order issued on June 8, 2000. R. 79. II. The appellants contend that the district court's summary judgment ruling was erroneous in four respects. First, they dispute Household's status as a "debt collector." Contrary to the district judge's finding, they assert that Dickerson in fact did participate meaningfully in the collection of Household's debts. Consequently, they argue, Household did not falsely employ Dickerson's name in the effort to collect its own debts and cannot be treated as a "debt collector" for purposes of liability under section 1692e(3) and (10). [*634] Second, in the appellants' view, the facts did not permit the district court to conclude, as a matter of law, that Dickerson had no meaningful involvement in the process by which the delinquency letters were sent to class members. To the contrary, [**23] they see the record as being "replete" with evidence of Dickerson's involvement, so much so that the district court should have granted summary judgment in their favor on this point. Third, appellants contend that Dickerson cannot be held liable as a "flat-rater" under section 1692j. The same party cannot be both a debt collector and a flat-rater, they reason. That point aside, they emphasize that Dickerson did more than print the delinquency letters in exchange for a flat fee. For that reason, they believe that the court erred in holding Dickerson liable under this provision as a matter of law. Fourth, the appellants point out that the district court failed to consider whether Household should escape liability under the bona fide error defense recognized in the statute. See 15 U.S.C. 1692k(c). Household asserts that it hired a reputable, independent law firm that in turn represented and agreed in writing that its procedures would comply with the FDCPA (and those procedures were not obviously deficient, in Household's view). Consequently, Household argues, any error that it made in securing Dickerson's involvement in its debt collections efforts [**24] should be excused as a bona fide error.

58

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

A. Household's liability as a "debt collector" Because the FDCPA defines a "debt collector" as a person who endeavors to collect the debts owed to "another," 15 U.S.C. 1692a(6), creditors who are attempting to collect their own debts generally are not considered debt collectors under the statute. Aubert, 137 F.3d at 978. However, pursuant to the "false name" exception to this exclusion, a creditor will be deemed a debt collector if "in the process of collecting his own debts, [the creditor] uses any name other than his own which would indicate that a third person is collecting or attempting to collect such debts." 1692a(6). The district court concluded that Household had "used Dickerson's name and letterhead" to give Household's debtors the false impression that someone other than Household--more particularly, an attorney--had become involved in the effort to collect the amounts that these debtors owed to Household. 1999 U.S. Dist. LEXIS 13931, 1999 WL 754566, at *3. That determination, of course, rests on the court's threshold finding that Dickerson was not meaningfully involved in the collection of Household's [**25] debts. See id. Because we agree, for the reasons we note below, that Dickerson was not genuinely involved in the effort to collect Household's debts and that the letter he sent to Household's debtors was not truly "from" Dickerson, we also agree that Household should be treated as a "debt collector" for purposes of liability under section 1692e(3) and (10). B. Violations of section 1692(e)(3) and (10) The FDCPA broadly prohibits a debt collector from using "any false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. 1692e. The statute proceeds to identify sixteen, nonexclusive instances of conduct that would constitute a violation of this prohibition. Two of these are relevant here: *** (3) The false representation or implication that any individual is an attorney or that any communication is from an attorney. *** [*635] (10) The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer. *** Id. 15 U.S.C. 1692e. There is no dispute that Dickerson is an attorney; the [**26] question instead is whether his letter to Households debtors was genuinely "from" Dickerson. The district court concluded that it was not, reasoning that Dickerson, as a legal professional, was not involved in Household's debt collection process in any meaningful sense. 1999 U.S. Dist. LEXIS 13931, 1999 WL 754566, at *5. Based on the undisputed facts, we agree. As we recognized in Avila, a debt collection letter that is issued on an attorney's letterhead and over his signature conveys the notion that the attorney has "directly controlled or supervised the process through which the letter was sent"--i.e., that he has assessed the validity of the debt, is prepared to take legal action to collect on that debt, and has, accordingly, decided that a letter should be sent to the debtor conveying that message. 84 F.3d at 229. "The attorney letter implies that the attorney has reached a considered, professional judgment that the debtor is delinquent and is a candidate for legal action." Id. It is this implicit message that "gets the debtor's knees knocking" and makes the attorney letter a particularly effective method of debt collection. Id. If, however, the letter to the debtor is [**27] not the product of the attorney's professional judgment--if he has not independently determined that the debt is ripe for legal action by reviewing the debtor's file, for example; if he has not exercised discretion in deciding whether and when the letter should be sent to a given debtor; if he does not see the individual letter before it is sent--then the letter is misleading. Id. at 228-29. Attorney letters prepared en masse are frequently false for want of such judgment. Id. at 229. In order to avoid that falsehood, the attorney must have genuine involvement in the process through which the letter was sent to the debtor. Id. If a debt collector (attorney or otherwise) wants to take advantage of the special connotation of the word "attorney" in the minds of delinquent consumer debtors to better effect collection of the debt, the debt collector should at the least ensure that an attorney has become professionally involved in the debtor's file. Any other result would sanction the wholesale licensing of an attorney's name for commercial purposes, in derogation of professional standards . . . .

59

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

The undisputed facts make clear [**28] that Dickerson neither made a "considered, professional judgment" that Nielsen or any other class member was delinquent on her debt and a candidate for legal action nor meaningfully involved himself in the decision to send the dunning letter to any individual debtor. Consequently, the letters he sent to class members were not truly "from" him. Dickerson is therefore liable under 1692e(3) and (10) for the misleading nature of the letters. First, Dickerson did not make the decision to send a letter to a debtor; Household did. Household regularly forwarded lists of delinquent debtors to Dickerson so that he might issue delinquency letters to these debtors. As Judge Kocoras observed, Household provided Dickerson only so much information about a debtor as Dickerson required in order to complete the letter. 1999 U.S. Dist. LEXIS 13931, 1999 WL 754566, at *4, *5. To the extent that Dickerson eliminated some names from the list of delinquent debtors that Household provided (based on anything more than obvious gaps or errors in Household's information), the record suggests [*636] that he did so based solely on the discovery that the debtor had declared bankruptcy, had already been sent a letter, or lived in one [**29] of three states which would not permit a letter of the kind that Dickerson had prepared. As we note below, this was purely a categorical assessment rather than one calling for an individualized, discretionary assessment by Dickerson. Finally, Household reserved the right to sign off on the issuance of Dickerson's letters. After Dickerson had finalized the list of debtors to whom letters were to be sent, that list was forwarded to Household. Dickerson then took no further action for a period of twenty-four hours, giving Household the chance to make any changes that it wished. Only then did Dickerson transmit the list to Contact U.S.A. for printing and mailing. Second, in no sense did Dickerson "become professionally involved in the debtor's file." Avila, 84 F.3d at 229. Household did not provide Dickerson with debtor files, nor did it grant Dickerson access to its account system. The only information that Household provided to Dickerson was the debtor's account number, name, address, account balance, and amount past due. Dickerson had familiarized himself with the GM Cardmember and Disclosure Agreement, had a general understanding of the internal procedures that Household [**30] followed in administering the GM Card portfolio, and knew what steps Household had taken to collect on overdue accounts and how long those accounts had been delinquent before they were referred to him for collection. But Dickerson did not

undertake to make a professional judgment as to the delinquency and validity of any individual cardholder's debt before he issued a letter to that debtor, nor could he have rendered such a judgment based on the limited information with which Household provided him. As Dickerson himself stated: . . . David D. Dickerson and Associates . . . assume that many demands for payment have been made on the debtor and that legal action is contemplated if it appears that these debtors will not pay amicably and have the means to satisfy a judgment. It is understood that these are accurate and valid claims for the amounts stated and that any information indicating that the debtors dispute any part(s) of the debt have been furnished to this office. . . .

R. 30 Ex. D (emphasis added). Third, Dickerson's tripartite "review" of the debtor information supplied by Household, even to the extent that it was performed by an attorney at one [**31] or more levels, did not call for the exercise of professional judgment. The most substantive aspect of this review involved checking an internal database to determine whether a debtor had declared bankruptcy and running a computer check (supplemented by eyeball review) to screen out debtors who lived in certain pre-determined, prohibited states. These were purely "yes/no" assessments that involved no exercise of discretion; indeed, Household itself verified that a debtor had not died or declared bankruptcy and did not live in a prohibited state before it forwarded the debtor's name to Dickerson for issuance of a dunning letter. Aside from this, Dickerson's review was aimed at identifying missing data, typographical errors, and debtors whom he had already sent letters. The ministerial nature of Dickerson's review is confirmed by his own deposition testimony. Dickerson testified that in the course of reviewing a list of 148 delinquent accounts, he spent approximately two minutes per page of forty accounts-approximately three seconds per account, in other words. R. 46 Ex. A at 161-62. The brevity of that [*637] review lays bare its cursory nature. See Boyd v. Wexler, 275 F.3d 642 (7th Cir. 2001), [**32] cert. denied, 71 U.S.L.W. 3116 (U.S. Oct. 7, 2002) (No. 0298). Fourth, although Dickerson composed the dunning letter, it was a form letter that his firm, with the assistance of Contact U.S.A., prepared and issued en

60

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

masse. The letter was personalized only to the extent that it contained each debtor's account number, name, address, account balance, and the amount of the overdue debt--all information supplied by Household. The letter reflects no individualized assessment of the individual debtor's circumstances or her liability. For that matter, the form itself was not even one that Dickerson had written for Household; he had composed the letter before he took on Household as a client. Our point is not that a form letter rules out the possibility of an attorney's genuine, professional involvement in the collection of a debt. But along with the other evidence we highlight, the numbers (recall that Household referred Dickerson an average of some 2,000 accounts per month) and assembly-line fashion in which Dickerson's letter was issued betray the purely nominal nature of his participation in the collection process. The fact that he wrote the form does nothing to prove [**33] his professional involvement in the debtor's file. We also note that Household approved the form and reserved the right to approve any modifications to that form. Fifth, Dickerson played barely more than a ministerial role in handling the responses to his letter. The letter instructed the debtor to make payment to GM Card (and included a payment coupon for that purpose) or to contact GM Card (via a toll-free number that connected the caller to Household personnel) in order to discuss payment arrangements. Dickerson's letterhead did include his firm's telephone number and address; the text of the letter also indicated that the debtor should contact "us" (presumably Dickerson) if the debtor disputed the validity of the debt or wished to be provided with the name and address of the original creditor (if different from GM Card). Consequently, a certain number of debtors did contact Dickerson rather than Household. When the debtor replied by letter, Dickerson and his staff categorized the communication and forwarded it to Household for handling with an appropriate cover letter alerting Household to the type of response the firm had received from the debtor; a copy of the cover letter was [**34] sent to the debtor so as to alert the debtor that Household would be handling the matter. Phone calls were handled in essentially the same manner, although according to Dickerson, he attempted to answer questions and be of help to the extent that he could. But Dickerson typically could not provide the debtors with any information about his or her individual account beyond that included in Dickerson's letter; nor was the firm authorized to negotiate a payment plan, settle, or otherwise dispose of the debt. Household itself ultimately handled all debtor responses to Dickerson's letter, including those forwarded to it by way of

Dickerson. There is no evidence that Dickerson ever substantively handled the responses himself. Sixth, Household paid Dickerson a flat fee of $ 2.45 per letter regardless of the result (if any) that the letter produced. The fixed and quite modest nature of Dickerson's remuneration strongly suggests that Household was paying for the marquee value of Dickerson's name rather than his professional assistance in the collection of its debts. Seventh, Dickerson never took legal action in pursuit of Household's debts. By [*638] the terms of the agreement between them, the [**35] firm was not authorized to take such action except upon Household's direction. Although the firm took regularly filed suits on behalf of other clients, Household never asked Dickerson to do so on its behalf. In sum, although an unsophisticated consumer would have construed Dickerson's letter to reflect an attorney's professional judgment that her debt was delinquent and ripe for legal action, see Avila, 84 F.3d at 229, in fact Dickerson had made no such assessment. Dickerson knew nothing about the debtor and her potential liability beyond what Household had conveyed to him; and Household provided Dickerson only the bare information that Dickerson required in order to complete the blanks in his form letter. Here, as in Avila, Dickerson, in his capacity as an attorney, was not the true source of the letter. 84 F.3d at 230. The letter thus ran afoul of 1692e(3) and (10). We acknowledge that Dickerson took some steps that distinguish his involvement in the process by which letters were sent to debtors from the level of attorney involvement in Avila and similar cases. Dickerson reviewed the master contract governing GM Card accounts (compare Sonmore v. CheckRite Recovery Servs., Inc., 187 F. Supp. 2d 1128, 1135 (D. Minn. 2001), [**36] where the attorney did not review "a single file or document relating to the debt"); he looked at the minimal information that Household provided regarding each overdue account, and therefore knew the identities of debtors who were to receive the letters (compare Avila, 84 F.3d at 229, Clomon, 988 F.2d at 1320, and Taylor v. Perrin, Landry, deLaunay & Durand, 103 F.3d 1232, 1235 (5th Cir. 1997), where the attorneys did not even know to whom their letters were being sent); he checked the debtor information for typographical errors and to weed out debtors who had already received a letter from him, had declared bankruptcy, or lived in a prohibited state (compare Clomon, 988 F.2d at 1320, where the attorney "played virtually no day-to-day role in the debt collection process"); and he handled letters and phone calls received by his firm to the extent of

61

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

categorizing them and forwarding them to Household (contrast Laubach v. Arrow Serv. Bureau, Inc., 987 F. Supp. 625, 631 (N.D. Ill. 1997), finding that company did not qualify as a "debt collector" where, inter alia, it was not involved with follow-up to [**37] delinquency letter). In these minor respects, Dickerson may have been "more" involved in the process by which letters were sent to the debtors than his counterparts in such cases as Avila and Clomon, but his involvement still fell markedly short of what those cases require. His efforts, as Judge Kocoras aptly remarked, amounted to no more than a "veneer" of compliance with the FDCPA. Avila's central requirement is crystal clear: an attorney must have some professional involvement with the debtor's file if a delinquency letter sent under his name is not to be considered false or misleading in violation of section 1692e(3) and (10). 84 F.3d at 229; see also Boyd, 275 F.3d at 646. Whatever Dickerson may have done, he had no such involvement with the file of any debtor slated to receive his form letter and played no meaningful role in the decision to send a debtor such a letter. Dickerson made no independent, professional assessment of the delinquency and validity of any debt, he did not select the debtors to whom a letter would be sent, and he did not make any assessment as to whether a debt was a candidate for legal action. He "reviewed" printouts [**38] of the debtor information supplied by Household, but only in the sense of literally looking at the data and checking for errors. He removed certain debtors from the recipient list, but not based [*639] on any individualized assessment of a debtor's delinquency or other pertinent circumstances; he and his firm simply identified debtors who had declared bankruptcy, had already received a letter from him, or who lived in "prohibited" states--a screening process little different from the checks that Household and Contact U.S.A. themselves performed. Moreover, contrary to the impression his letter would have given the unsophisticated debtor, Dickerson had not been engaged and was not prepared to take legal action in pursuit of the debt: he had no authority to negotiate a payment plan, settle, or otherwise dispose of any debt; he did not handle debtor responses to his letter beyond categorizing and forwarding them to Household; and he was never asked to and did not take legal action to collect on any debt. The details of this case may differ in minor respects, but in all material respects this case is on all fours with Avila. Just as in Avila, the form letter issued on an attorney's letterhead [**39] and in his name was not "from" the attorney, qua attorney, in any meaningful sense. The violation of section 1692e(3) and (10) is inescapable. Having reached that conclusion, the actual source of the letter is obvious. It was Household that selected

the debtors to whom Dickerson's letter was to be sent. It was Household that provided the information that Dickerson needed regarding the identity of the debtor and the amount of his or her delinquency in order complete the letter. It was Household on which Dickerson relied for the determination that the debtor was indeed delinquent and therefore an appropriate recipient of the letter. It was Household that reserved the right to approve issuance of the letters. It was ultimately Household that handled all responses to Dickerson's letter. And it was Household that decided what further action (including legal action) would be taken in the wake of Dickerson's letter. For these and the other reasons we have discussed, Household was the true source of Dickerson's letter. Because it issued that letter under Dickerson's name, giving debtors the false impression that a third party (Dickerson) was involved in collecting the debt, Household [**40] is a debt collector pursuant to section 1692a(6), and therefore shares Dickerson's liability for the violations of section 1692e(3) and (10). C. Flat-Rating liability under section 1692j Section 1692j(a) of the FDCPA makes it illegal for a person to "to design, compile, and furnish any form knowing that such form would be used to create the false belief in a consumer that a person other than the creditor of such consumer is participating in the collection of or in an attempt to collect a debt such consumer allegedly owes such creditor, when in fact such person is not so participating." 15 U.S.C. 1692j(a). This provision bars the practice commonly known as "flat-rating," in which an individual sends a delinquency letter to the debtor portraying himself as a debt collector, when in fact he has no real involvement in the debt collection effort; in effect, the individual is lending his name to the creditor for its intimidation value, often in exchange for a "flat" rate per letter. See White v. Goodman, supra, 200 F.3d at 1017. We have already concluded that Dickerson did not meaningfully participate in Household's debt collection efforts; [**41] he may therefore seem to be a natural candidate for flat-rating liability pursuant to section 1692j, particularly given the manner in which Household compensated his firm. There is some question, however, whether the same party may be held liable both as a "debt collector" and a "flat-rater". In order to qualify as a debt collector, [*640] an individual must have some involvement in the effort to collect another's debts. See 15 U.S.C. 1692a(6). The premise of liability under section 1692j, however, is that the "flat-rater" is not involved in debt collection. Thus, some courts have concluded that liability as a debt collector forecloses liability as a flat-rater. E.g.,

62

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Randle v. GC Servs. L. P., 48 F. Supp. 2d 835, 841 (N.D. Ill. 1999); Anthes v. Transworld Sys., Inc., 765 F. Supp. 162, 168 (D. Del. 1991). It is unnecessary for us to resolve this question. 1692j(b) provides that a flat-rater "shall be liable to the same extent and in the same manner as a debt collector . . . ." We have already sustained Judge Kocoras' determination that Dickerson is liable as a debt collector for violations of section 1692e(3) and (10). [**42] An additional finding that Dickerson is also liable pursuant to 1692j would have no impact on the judgment against him. See Clomon, 988 F.2d at 1318 ("[a] single violation of 1692e is sufficient to establish civil liability under the FDCPA"). Accordingly, we do not resolve this question. D. Household's Bona Fide Error Defense Section 1692k(c) provides: A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.

court did not address Household's invocation of section 1692k(c). Nielsen contends that Household is foreclosed from asserting a bona fide error defense because the mistake that Household and Dickerson made was one of legal interpretation; in Nielsen's view, the statute does not immunize defendants for mistakes of law. There is a split of authority among the circuits as to whether the bona fide error defense applies to mistakes of law. The majority view is that the defense is only available for clerical and factual errors. See, e.g., Picht v. Jon R. Hawks, Ltd., 236 F.3d 446, 451-52 (8th Cir. 2001); Pipiles v. Credit Bureau of Lockport, Inc., 886 F.2d 22, 27 (2nd Cir. 1989); Baker v. G.C. Servs. Corp., 677 F.2d 775, 779 (9th Cir. 1982); see also . [**44] Johnson v Riddle, 2002 U.S. App. LEXIS 18328, 305 F.3d 1107, 2002 WL 2029304, at *10 n. 14 (10th Cir. Sept. 5, 2002) (collecting cases). The Ninth Circuit's opinion in Baker, the first appellate precedent on this point, looked principally to the cases that had uniformly construed the Truth-in-Lending Act's ("TILA") bona fide error provision, 15 U.S.C. 1640(c), not to immunize legal errors. 677 F.2d at 779. The TILA provision, however, expressly states that "an error of legal judgment with respect to a person's obligations under this subchapter [*641] is not a bona fide error." 1640(c) (emphasis supplied). It also includes an illustrative list of errors that would constitute bona fide errors, including "clerical, calculation, computer malfunction and programming, and printing errors." Id. By contrast, the FDCPA's provision does not expressly remove legal mistakes from the realm of errors that can be considered bona fide, nor does it in any other way illustrate what types of mistakes can or cannot be deemed bona fide. Noting the distinction between the two statutory provisions, "a growing minority" of courts, Johnson, 2002 U.S. Dist. LEXIS 18328, 2002 WL 2029304, at *10, including [**45] the Tenth Circuit, have concluded that mistakes of law can be considered bona fide errors under section 1692k(c). 305 F.3d 1107, 2002 U.S. App. LEXIS 18328, WL at *10-* 11 & n. 14 (so holding and collecting cases). Our own opinion in Jenkins v. Heintz, 124 F.3d 824, 832 n. 7 (7th Cir. 1997), cert. denied, 523 U.S. 1022, 118 S. Ct. 1304, 140 L. Ed. 2d 469 (1998), likewise notes that nothing in the language of the FDCPA bona fide error provision limits the reach of the defense to clerical errors and other mistakes not involving the exercise of legal judgment. Yet, as Jenkins itself pointed out, there was no evidence that the mistake at issue in that case actually had involved the exercise of any legal judgment. Id. at 832. Consequently, we did not have occasion to further illuminate whether and when legal errors constitute bona fide errors under section 1692k(c).

Household contends that its own violation of the FDCPA, if any, was unintentional and resulted from a bona fide error in its efforts to comply with the statute and the cases interpreting it. Further, Household hired an independent and reputable attorney, knowing that he attended seminars on the FDCPA, subscribed to and read materials to keep abreast of FDCPA developments, and trained his employees with internal compliance manuals. Dickerson represented that the system he put in place [**43] was in full compliance with the FDCPA, and the detailed procedures he used--including a threepart review process, checks against databases, additional verification, and follow-up debtor communications--gave every appearance of being . . . in compliance.

Appellants' Opening Br. at 35-36. In granting summary judgment in favor of the plaintiff class, the district

63

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Assuming, consistent with our observations in Jenkins, that a legal mistake can qualify as a bona fide error under the FDCPA, a second question presents itself. Section 1692k(c) requires the debt collector to prove, inter alia, that its violation of the FDCPA "was not intentional." In this respect, the [**46] bona fide error provisions of TILA and the FDCPA are virtually identical; TILA too requires proof that "the violation was not intentional." 15 U.S.C. 1640(c). In Haynes v. Logan Furniture Mart, Inc., 503 F.2d 1161, 1166-67 (7th Cir. 1974), we held that the relevant intent was the defendant's intent to commit the act determined to be a violation of TILA, not an intent to commit a violation of the statute. Thus, so long as the act found to be a violation of TILA is deliberate, the bona fide error defense is unavailable. Id. If the same holds true for the FDCPA, the bona fide error defense would likewise be unavailable to Household: Household's actions were not inadvertent; rather, it intended to use Dickerson in the very manner that we have found to violate the FDCPA. See id. Whether or not the FDCPA's bona fide error provision should be interpreted in this manner is open to debate, however. The Sixth Circuit has concluded that a debt collector may avoid liability via the bona fide error defense by showing that it did not intend to violate the statute: "The debt collector must only show that the violation was unintentional, not that [**47] the communication itself was unintentional." Lewis v. ACB Bus. Servs. Inc., 135 F.3d 389, 402 (6th Cir. 1998). And, as Judge Tinder has pointed out, although the pertinent language of the two statutes is the same, there are other differences between them that may support differing constructions. See Frye v. Bowman, Heintz, Boscia & Vician, P. C., 193 F. Supp. 2d 1070, 1087-88 (S.D. Ind. 2002). This question, which the parties have not addressed, is not one that we need decide here. We shall again assume that Household may avail itself of the bona fide error defense because it had no intent to violate the FDCPA, although its actions were deliberate. What dooms Household's bona fide error defense is that its actions, along with Dickerson's, were in plain contravention of our opinion in Avila. See, e.g., Hulshizer v. [*642] Global Credit Servs., Inc., 728 F.2d 1037, 1038 (8th Cir. 1984) (per curiam) (finding no basis to invoke the bona fide error defense where "the language of the statute [was] unambiguous and [the creditor's] disregard of that language [was] undisputed"); see also Janet Flaccus, Fair Debt Collection Practices Act [**48] : Lawyers and the Bona Fide Error Defense, 2001 ARK. L. NOTES 95 (2001) (arguing that the bona fide error defense should be available when the law is unsettled, but not when it is reasonably clear). Avila, which was decided nearly a

year before Household retained Dickerson, made clear that an attorney must have some professional involvement with the debtor's file in order for the presence of his name on a delinquency not to be misleading. 84 F.3d at 229. Many of the very omissions that we highlighted in Avila were present here: Neither Dickerson nor any member of his staff reviewed the debtor's file, see 84 F.3d at 228; Dickerson did not make the decision whether to send any particular debtor a delinquency letter, 84 F.3d at 228-29; Dickerson's letters were mass produced and mechanically signed, 84 F.3d at 228, 229; and Household never engaged Dickerson to file suit or take other legal action in pursuit of a debt, 84 F.3d at 230. Here, as in Avila, Dickerson made no independent, professional assessment that the debt was delinquent, that the debt was a candidate for legal action, and that the debtor should [**49] be sent a delinquency letter. See 84 F.3d at 228-29. Here, as in Avila, Dickerson, acting as an attorney, was not the true source of the letter. 84 F.3d at 230. It was Household that selected debtors for receipt of Dickerson's letter; it was Household that supplied the information Dickerson required (and only such information as he required) to complete the letter; it was Household that had final say over the recipient list; it was Household that handled the responses to Dickerson's letter; and it was Household (presumably with legal assistance that it obtained from a firm other than Dickerson's) that took legal action as necessary to enforce the debt. As we discussed earlier, the minor additional steps that Dickerson took to involve himself in the process of preparing and sending the letters were, in Judge Kocoras' words, a mere "veneer" of compliance with the FDCPA. Dickerson's actions complied neither with the spirit nor the letter of Avila; no reasonable attorney, and for that matter, no reasonable creditor or debt collector, having read our opinion, could have failed to appreciate this. Whatever steps Dickerson took to familiarize himself [**50] with the law, including precedents like Avila, obviously were inadequate. Having hired Dickerson, and having itself participated in a process by which delinquency letters were sent to debtors on Dickerson's letterhead without his meaningful involvement in the process--indeed, having signed a contract with Dickerson which spelled out that very process (see R. 53, Exhibits in Support of Household's Motion for Summary Judgment, Ex. 4 P 1)--Household cannot avail itself of the bona fide error defense. III. For the reasons we have discussed, we AFFIRM the district court's decision to grant summary judgment in favor of the plaintiff class.

64

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

2.

Boyd v. Wexler, 275 F.3d 642 (7th Cir. 2001):

Birgetta A. Davis Boyd and Charlene Harrison, Plaintiffs-Appellants, v. Norman P. Wexler, doing business as Wexler and Wexler, Defendant-Appellee. No. 01-1809 UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT 275 F.3d 642; 2001 U.S. App. LEXIS 27262 November 2, 2001, Argued December 28, 2001, Decided SUBSEQUENT HISTORY: [**1] Petition for Rehearing and Petition for Rehearing En Banc Denied April 18, 2002, Reported at: 2002 U.S. App. LEXIS 17762. Writ of certiorari denied: Wexler v. Boyd, 2002 U.S. LEXIS 6500 (U.S. Oct. 7, 2002). PRIOR HISTORY: Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 00 C 2555. Ruben Castillo, Judge. Boyd v. Wexler, 2000 U.S. Dist. LEXIS 19582 (N.D. Ill. Nov. 17, 2000). DISPOSITION: Reversed. minimum showing required to defeat a motion for summary judgment. The Act forbids a debt collector, which Wexler is conceded to be, to "use any false, deceptive, or misleading representation or means in connection with the collection of any debt," 15 U.S.C. 1692e, including "the false representation or implication that any individual is an attorney or that any communication is from an attorney." 15 U.S.C. 1692e(3). A lawyer who merely rents his letterhead to a collection agency violates the Act, 15 U.S.C. 1692j(a); Taylor v. Perrin, Landry, deLaunay & Durand, 103 F.3d 1232, 1235-38 (5th Cir. 1997); cf. White v. Goodman, 200 F.3d 1016, 1018 (7th Cir. 2000), [**2] for in such a case the lawyer is allowing the collection agency to impersonate him. The significance of such impersonation is that a debtor who receives a dunning letter signed by a lawyer will think that a lawyer reviewed the claim and determined that it had at least colorable merit; so if no lawyer did review the claim, the debtor will have been deceived and the purpose of the Act therefore thwarted. Similarly, a lawyer who, like Wexler, is a debt collector violates section 1692e(3) (and also section 1692e(10), which forbids "the use of any false representation or deceptive means to collect or attempt to collect any debt") if he sends a dunning letter that he has not reviewed, since his lawyer's letterhead then falsely implies that he has reviewed the creditor's claim. Avila v. Rubin, 84 F.3d 222, 228-29 (7th Cir. 1996); United States v. National Financial Services, Inc., 98 F.3d 131, 135-37 (4th Cir. 1996); Clomon v. Jackson, 988 F.2d 1314, 1320-21 (2d Cir. 1993). "A debt collection letter on an attorney's letterhead conveys authority and credibility." Crossley v. Lieberman, 868 F.2d 566, 570 (3d Cir. 1989).

COUNSEL: For BIRGETTA A. DAVIS BOYD, CHARLENE HARRISON, Plaintiffs - Appellants: Daniel A. Edelman, EDELMAN, COMBS & LATTURNER, Chicago, IL USA. For NORMAN P. WEXLER, Defendant - Appellee: Michael S. Loeffler, MECKLER, BULGER & TILSON, Chicago, IL USA. JUDGES: Before Posner, Ripple, and Evans, Circuit Judges. OPINION BY: Posner OPINION [*644] Posner, Circuit Judge. This appeal from the grant of summary judgment to the defendant, a lawyer named Norman Wexler, presents questions regarding both the meaning of the Fair Debt Collection Practices Act, 15 U.S.C. 1692 et seq., and the

65

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

The plaintiffs received [**3] dunning letters signed "Wexler & Wexler," the name under which the defendant practices law. The suit charges that no lawyer in fact reviewed the claims made in the letters before they were mailed. The defendant moved for summary judgment and supported the motion with his affidavit. The affidavit states that a lawyer reviews every individual file before the initial collection letter (the letters to the plaintiffs were initial, not follow-up, letters) is sent, that he himself reviewed the plaintiffs' files before approving the sending of collection letters to them, and that in every collection case handled by his office a lawyer "reviews each and every document in the client's file to insure the correctness of the data and the claim, paying strict attention to the various statutes of limitation which may apply . . . [and] to make sure that we comply with state requirements, such as the need for actual presence in the state, a collection agency license or a license to practice law in the state." If the lawyer approves the claim, a form letter is prepared "for review and approval [by him] before [it is] allowed to go into the mail." If "after reviewing the case file . . . the attorney [**4] is unable to verify that the client is making a valid claim, the case is pulled out and discussed with our client." So far, so good. But pretrial discovery revealed that in a recent eight-and-a-half-month period Wexler's firm sent out 439,606 pieces of mail, which according to the deposition testimony of one of the firm's lawyers consisted overwhelmingly of collection [*645] letters. That is an average of 51,718 a month. So Wexler's firm must be large--but no, it turns out to have only three lawyers, although it has 45 other employees. Of the three lawyers, two, including the defendant, appear to be engaged in managing the firm and all three engage in normal litigation activities (Wexler's affidavit states that his firm "routinely engages in litigation with regards [sic] to collection matters"), leaving little time for them to be reviewing the routine collection activity that generates the vast bulk of the mailings. In addition, Wexler is constantly changing the form letter. We are amused (though we doubt the recipients were) by one of the variants, which Wexler dropped after being sued on account of it: "YOU ARE ABOUT TO BE TREATED IN A MANNER THAT WILL CAUSE YOU TO THINK TWICE BEFORE [**5] YOU WRITE ANOTHER WORTHLESS CHECK. OUR CLIENT HAS INSTRUCTED THAT WE NOTIFY YOU THAT YOU ARE GOING TO BE SUED UNLESS REPAYMENT IS FORTHCOMING AT ONCE." Keele v. Wexler, 149 F.3d 589, 591 (7th Cir. 1998). Suppose that each of the three lawyers in Wexler's firm devotes four hours a day to reviewing collection

files and authorizing the mailing of dunning letters and that the process of review and authorization takes an average of 15 minutes per file. That comes to 16 collection letters a day per lawyer, which is fewer than 50 collection letters a day for all three lawyers or, assuming a five-day work week, fewer than 1,000 letters a month for the entire firm--if it is really true that each lawyer follows the review and authorization procedure set forth in Wexler's affidavit. To say the least, it is difficult to see how the firm could send out fifty times that number of letters yet still have a lawyer review the file and the letter in every one. And it gets worse. The volume of mail sent by the firm varies from week to week, and in one particularly busy week in June 2000 the firm sent out 23,342 pieces of mail--93 times the maximum number consistent with 15-minute review. [**6] What is more, Wexler stated at his deposition that he personally is responsible for reviewing most of the collection letters; if he reviewed all of them himself, the estimate of 93 times the maximum consistent with 15-minute review would soar to 279 times. Our 15-minute estimate may be too high, but it could be cut in three, or for that matter in 15, without explaining the volume of collection letters. The district judge, in explaining why despite this evidence he granted summary judgment for Wexler, characterized Wexler's affidavit as "uncontradicted and unrefuted." This characterization was possible only because the judge gave no weight at all to the volume of mail, stating that "mathematical inferences about the volume of letters sent are not probative of [Wexler's] state of mind." State of mind is not the issue. The issue is credibility, the truthfulness of the affidavit; Wexler might think he reviewed the two plaintiffs' files carefully yet be mistaken. Circumstantial evidence can create an issue of credibility. United States v. Arias, 238 F.3d 1, 3-5 (1st Cir. 2001); United States v. Drones, 218 F.3d 496, 504 (5th Cir. 2000); United States v. Premises Known as 717 South Woodward Street, 2 F.3d 529, 534 (3d Cir. 1993); [**7] United States v. Bouquett, 820 F.2d 165, 167 (6th Cir. 1987). Suppose a witness testifies that he saw a person draw a gun, but there is evidence that a truck was blocking the witness's line of sight. This would be circumstantial evidence that created an issue of the witness's credibility (though not necessarily of his state of mind-he might have thought he saw a gun, but have been mistaken). And so it is here. Wexler's [*646] testimony was made incredible, or at least highly implausible, by the evidence of the volume of mail, especially when that evidence is viewed against the background of his testimony that he personally reviewed the plaintiffs' files. The letters to the two plaintiffs were mailed in February and March 2000,

66

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

respectively. They are very short form letters seeking unexceptional amounts of money; there is nothing memorable about them. Wexler gave his deposition in September, almost six months later--by which time, if his affidavit can be believed, close to 100,000 additional collection matters had passed through his hands. The volume of mail not only undermines Wexler's affidavit, but is evidence from which a reasonable jury could infer that the letters to the [**8] plaintiffs were not in fact reviewed by Wexler or any other lawyer. Wexler argues that the plaintiffs did not conduct enough discovery, that they should have broken down the 439,606 figure into initial collection letters, followup collection letters, and noncollection mailings (such as receipts), and should have further broken down the figure for initial collection letters between bouncedcheck matters, requiring minimal lawyer review, and other matters, requiring more review. We do not agree that the plaintiffs had to do this in order to create a genuine issue of material fact regarding the defendant's compliance with the Fair Debt Collection Practices Act. Remember that there is testimony by one of the firm's lawyers that the overwhelming bulk of the mailings consist of collection letters. Granted that some of them are follow-up collection letters, which require less review than initial collection letters, and bouncedcheck collection letters, which also may require less review than other collection letters, we do not see how these facts could be thought to put a big dent in our 15minute estimate, which is the sort of estimate that a reasonable jury might make and from which damaging [**9] inferences concerning the veracity of Wexler's affidavit and the review of the dunning letters sent the plaintiffs by his firm arise. Before a follow-up letter can be responsibly approved by a lawyer, he must inspect the file to determine that there has been no partial payment or other response from the debtor, and, if interest on the debt is sought by the creditor, to determine how much interest is owing. See Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, and Clark, L.L.C., 214 F.3d 872, 875-76 (7th Cir. 2000). This can be a complicated calculation. Duffy v. Landberg, 215 F.3d 871, 875 (8th Cir. 2000). In the case of a bounced-check follow-up letter, if statutory penalties are sought the lawyer must determine whether the grace period for making good on such a check has expired. See 810 ILCS 5/3-806. No doubt the initial review of a bounced-check matter takes little time, but it is hard to believe that bounced checks are so common that they could account for the bulk of these enormous mailings. An illuminating omission from the defendant's evidence is any indication of how often, if ever, his

review of a collection file leads him to refuse to approve [**10] a dunning letter and to take the matter up with the client. If this happens often, it would bolster his claim to be engaged in a process of meaningful review of clients' referrals--but it would also dramatize how little time he has to review collection files, since refusal of a referral and ensuing discussion with the client about the refusal must take more than 15 minutes. One of the other lawyers in the firm acknowledged at his deposition that "we get cases all the time where individuals claim that their checks were stolen and that there were forgeries," and he said that in each of those cases the firm would follow up, for example by sending [*647] the debtor a forgery affidavit to fill out. A lawyer would have to review the affidavit to determine whether to send a follow-up letter to the affiant. A further difficulty with the defendant's argument that an unknown fraction of the letters are follow-up rather than initial collection letters is that in a deposition given in a similar case just a few months before his affidavit in this case, Wexler stated that if the debtor doesn't pay up after receiving the initial collection letter, the firm forthwith institutes legal proceedings unless [**11] the debtor has either died or declared bankruptcy. If this is true (it can't be--it is unbelievable that Wexler's firm would be authorized by the client to file suit no matter how trivial the amount of the unpaid debt--but he can hardly gain a forensic benefit from making an incredible admission), there are few follow-up letters and an enormous number of legal proceedings. Those proceedings would leave the lawyers with no time to review what must be a colossal number of files. The most practical, intuitive, and readily applied criterion for granting summary judgment is whether, if the evidence gathered in discovery were the evidence presented at trial, the party moving for summary judgment (Wexler) would be entitled to judgment as a matter of law because no reasonable jury could render a verdict for the opposing party (the two plaintiffs). E.g., Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250-52, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986); Wallace v. SMC Pneumatics, Inc., 103 F.3d 1394, 1399 (7th Cir. 1997); Russell v. Acme-Evans Co., 51 F.3d 64, 70 (7th Cir. 1995); Huang v. BP Amoco Corp., 271 F.3d 560, 564 (3d Cir. 2001). A reasonable [**12] jury could infer from the evidence as we have summarized it that the defendant violated the Fair Debt Collection Practices Act by rubber stamping his clients' demands for payment, thus misrepresenting to the recipients of his dunning letters that a lawyer had made a minimally responsible determination that there was probable cause to believe that the recipient actually owed the

67

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

amount claimed by the creditor. A reasonable jury informed of the size of the firm and the duties of the three lawyers, which leave them little time for review of collection files, informed also of the circumstances from which an estimate can be made of the time that it takes a lawyer to review such a file with sufficient care to be able to make a responsible professional judgment that a legally collectible debt is owing, and informed finally of the enormous mass of mailings, most apparently of collection letters, in relation to the number and available time of Wexler's tiny legal staff, could rationally conclude that Wexler's claim to have reviewed these plaintiffs' files was false, that he had not reviewed them (nor had any other lawyer), and therefore that he had violated the Act. These inferences are not [**13] certain, because no matter how perfunctory the firm's normal review of creditor files and dunning letters, it is always possible that Wexler for obscure reasons did actually review these two plaintiffs' files. But certainty of winning at trial is obviously not a precondition to getting a trial. We need not determine in this case the minimum amount of lawyer review required to avoid misleading the debtor into thinking that a lawyer has made a responsible professional judgment about the existence of a legally enforceable debt. No reported decisions address that issue and it may not have to be resolved in this case. For if the jury believes the plaintiffs, Wexler gave their dunning letters no review at all, while if it believes Wexler, he gave it more than enough review. We say "more than enough" because the Act can be complied with by delegation of part of the review process to a paralegal or even to a computer program, see Avila v. Rubin, supra, 84 F.3d at 229-30; [*648] ABA Model Rule of Professional Conduct 5.3

(materially identical to Illinois Rule of Professional Conduct 5.3), provided the ultimate professional judgment concerning the existence of a valid debt is reserved [**14] to the lawyer. Avila v. Rubin, supra, 84 F.3d at 225, 229; Clomon v. Jackson, supra, 988 F.2d at 1317, 1321. "An attorney's signature implies the attorney has formed a professional judgment about the debtor's case." Avila v. Rubin, supra, 84 F.3d at 229; see ABA Model Rule of Professional Conduct Rule 5.5(b) and comment 1 (materially identical to Illinois Rule of Professional Conduct 5.5(b)). In an age of specialization, professionals are not to be criticized for identifying subroutines that paraprofessionals can adequately perform under a professional's supervision. But Wexler does not argue that he has delegated some of the review tasks (for example, ascertaining whether the amount of the claim submitted by the client is the same as the amount that appears on the form letter prepared by the nonlawyer collection agents whom Wexler employs) to nonlawyers; he argues that he performs all these tasks himself, implying that if he is not telling the truth, no one performs them. We can leave for a future case the determination of the point at which delegation is so extensive or review so perfunctory that the lawyer's supposed authorship of the dunning [**15] letter becomes a deception, not because there was no review but because it was too meager to be meaningful. We are not suggesting a 15minute minimum; we used that assumption merely to illustrate that a rational jury might find, given the volume of mail, that it was unlikely that Wexler had actually reviewed the plaintiffs' files before authorizing dunning letters to be sent to them. Reversed.

3.

Ethics, Management, and Client Pressure Rule 3.01 Meritorious Claims and Contentions

A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless the lawyer reasonably believes that there is a basis for doing so that is not frivolous. Comment: 1. The advocate has a duty to use legal procedure for the fullest benefit of the client's cause, but also a duty not to abuse legal procedure. The law, both procedural and substantive, affects the limits within which an advocate may

68

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

proceed. Likewise, these Rules impose limitations on the types of actions that a lawyer may take on behalf of his client. See Rules 3.02-3.06, 4.01-4.04, and 8.04. However, the law is not always clear and never is static. Accordingly, in determining the proper scope of advocacy, account must be taken of the law's ambiguities and potential for change. 2. All judicial systems prohibit, at a minimum, the filing of frivolous or knowingly false pleadings, motions or other papers with the court or the assertion in an adjudicatory proceeding of a knowingly false claim or defense. A filing or assertion is frivolous if it is made primarily for the purpose of harassing or maliciously injuring a person. It also is frivolous if the lawyer is unable either to make a good faith argument that the action taken is consistent with existing law or that it may be supported by a good faith argument for an extension, modification or reversal of existing law. 3. A filing or contention is frivolous if it contains knowingly false statements of fact. It is not frivolous, however, merely because the facts have not been first substantiated fully or because the lawyer expects to develop vital evidence only by discovery. Neither is it frivolous even though the lawyer believes that the client's position ultimately may not prevail. In addition, this Rule does not prohibit the use of a general denial or other pleading to the extent authorized by applicable rules of practice or procedure. Likewise, a lawyer for a defendant in any criminal proceeding or for the respondent in a proceeding that could result in commitment may so defend the proceeding as to require that every element of the case be established. 4. A lawyer should conform not only to this Rules prohibition of frivolous filings or assertions but also to any more stringent applicable rule of practice or procedure. For example, the duties imposed on a lawyer by Rule 11 of the Federal Rules of Civil Procedure exceed those set out in this Rule. A lawyer must prepare all filings subject to Rule 11 in accordance with its requirements. See Rule 3.04(c)(1). Rule 4.01 Truthfulness in Statements to Others In the course of representing a client a lawyer shall not knowingly: (a) make a false statement of material fact or law to a third person; or (b) fail to disclose a material fact to a third person when disclosure is necessary to avoid making the lawyer a party to a criminal act or knowingly assisting a fraudulent act perpetrated by a client. Comment:

69

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

False Statements of Fact 1. Paragraph (a) of this Rule refers to statements of material fact. Whether a particular statement should be regarded as one of material fact can depend on the circumstances. For example, certain types of statements ordinarily are not taken as statements of material fact because they are viewed as matters of opinion or conjecture. Estimates of price or value placed on the subject of a transaction are in this category. Similarly, under generally accepted conventions in negotiation, a party's supposed intentions as to an acceptable settlement of a claim may be viewed merely as negotiating positions rather than as accurate representations of material fact. Likewise, according to commercial conventions, the fact that a particular transaction is being undertaken on behalf of an undisclosed principal need not be disclosed except where non-disclosure of the principal would constitute fraud. 2. A lawyer violates paragraph (a) of this Rule either by making a false statement of law or material fact or by incorporating or affirming such a statement made by another person. Such statements will violate this Rule, however, only if the lawyer knows they are false and intends thereby to mislead. As to a lawyer's duty to decline or terminate representation in such situations, see Rule 1.15. Failure to Disclose A Material Fact 3. Paragraph (b) of this Rule also relates only to failures to disclose material facts. Generally, in the course of representing a client a lawyer has no duty to inform a third person of relevant or material facts, except as required by law or by applicable rules of practice or procedure, such as formal discovery. However, a lawyer must not allow fidelity to a client to become a vehicle for a criminal act or a fraud being perpetrated by that client. Consequently a lawyer must disclose a material fact to a third party if the lawyer knows that the client is perpetrating a crime or a fraud and the lawyer knows that disclosure is necessary to prevent the lawyer from becoming a party to that crime or fraud. Failure to disclose under such circumstances is misconduct only if the lawyer intends thereby to mislead. 4. When a lawyer discovers that a client has committed a criminal or fraudulent act in the course of which the lawyer's services have been used, or that the client is committing or intends to commit any criminal or fraudulent act, other of these Rules require the lawyer to urge the client to take appropriate action. See Rules 1.02(d), (e), (f); 3.03(b). Since the disclosures called for by paragraph (b) of this Rule will be necessary only if the lawyer's attempts to counsel his client not to commit the crime or fraud are unsuccessful, a lawyer is not authorized to make them without having first undertaken those other remedial actions. See also Rule 1.05.

70

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Fraud by a Client 5. A lawyer should never knowingly assist a client in the commission of a criminal act or a fraudulent act. See Rule 1.02(c). 6. This rule governs a lawyer's conduct during "the course of representing a client." If the lawyer has terminated representation prior to learning of a client's intention to commit a criminal or fraudulent act, paragraph (b) of this Rule does not apply. See "Fraud" under TERMINOLOGY. 4. In re Taylor, 655 F.3d 274 (3d Cir. 2011).
In re: NILES C. TAYLOR; ANGELA J. TAYLOR, Debtors; ROBERTA A. DEANGELIS, Acting United States Trustee, Appellant No. 10-2154 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT 655 F.3d 274; 2011 U.S. App. LEXIS 17651; Bankr. L. Rep. (CCH) P82,062; 66 Collier Bankr. Cas. 2d (MB) 147 March 22, 2011, Argued August 24, 2011, Opinion Filed PRIOR HISTORY: [**1] On Appeal from the District Court for the Eastern District of Pennsylvania. (No. 09-cv-02479, 07-cv15385 (bankruptcy)). District Judge: Honorable John P. Fullam. In re Taylor, 2010 U.S. Dist. LEXIS 16080 (E.D. Pa., Feb. 18, 2010)

OPINION [*277] Fuentes, Circuit Judge The United States Trustee, Region 3 ("Trustee"), appeals the reversal by the District Court of sanctions originally imposed in the bankruptcy court on attorneys Mark J. Udren and Lorraine Doyle, the Udren Law Firm, and HSBC for violations of Federal Rule of Bankruptcy Procedure 9011. For the reasons given below, we will reverse the District Court and affirm the bankruptcy court's imposition of sanctions with respect to Lorraine Doyle, the Udren Law Firm, and HSBC.1 However, [**2] we will affirm the District Court's reversal of the bankruptcy court's sanctions with respect to Mark J. Udren. 1 Although HSBC was sanctioned by the bankruptcy court, it did not participate in this appeal. I.

COUNSEL: Frederic J. Baker, Esq., Robert J. Schneider, Esq., George M. Conway, Esq., United States Department of Justice, Office of the United States Trustee, Philadelphia, PA; Ramona Elliott, Esq., P. Matthew Sutko, Esq., John P. Sheahan, Esq. (argued), United States Department of Justice, Executive Office for United States Trustees, Washington, DC, Attorneys for Appellant. Jonathan J. Bart, Esq. (argued), Wilentz Goldman & Spitzer, P.A., Philadelphia, PA, Attorney for Appellees. JUDGES: Before: FUENTES, SMITH and VAN ANTWERPEN, Circuit Judges. OPINION BY: Fuentes

A. Background This case is an unfortunate example of the ways in which overreliance on computerized processes in a

71

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

high-volume practice, as well as a failure on the part of clients and lawyers alike to take responsibility for accurate knowledge of a case, can lead to attorney misconduct before a court. It arises from the bankruptcy proceeding of Mr. and Ms. Niles C. and Angela J. Taylor. The Taylors filed for a Chapter 13 bankruptcy in September 2007. In the Taylors' bankruptcy petition, they listed the bank HSBC, which held the mortgage on their house, as a creditor. In turn, HSBC filed a proof of claim in October 2007 with the bankruptcy court. We are primarily concerned with two pleadings that HSBC's attorneys filed in [*278] the bankruptcy court--(1) the request for relief from the automatic stay which would have permitted HSBC to pursue foreclosure proceedings despite the Taylors' bankruptcy filing and (2) the response to the Taylors' objection to HSBC's proof of claim. We are also concerned [**3] with the attorneys' conduct in court in connection with those pleadings. We draw our facts from the findings of the bankruptcy court. 1. The proof of claim (Moss Codilis law firm) To preserve its interest in a debtor's estate in a personal bankruptcy case, a creditor must file with the court a proof of claim, which includes a statement of the claim and of its amount and supporting documentation. Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440, 447, 124 S. Ct. 1905, 158 L. Ed. 2d 764 (2004); Fed. R. Bank. P. 3001; Official Bankruptcy Form 10. In October 2007, HSBC filed such a proof of claim with respect to the Taylors' mortgage. To do so, it used the law firm Moss Codilis.2 Moss retrieved the information on which the claim was based from HSBC's computerized mortgage servicing database. No employee of HSBC reviewed the claim before filing. 2 Moss Codilis is not involved in the present appeal. However, it is worth noting that the firm has come under serious judicial criticism for its lax practices in bankruptcy proceedings. "In total, [the court knows] of 23 instances in which [Moss Codilis] has violated [court rules] in this District alone." In re Greco, 405 B.R. 393, 394 (Bankr. S.D. Fla. 2009); see also In re Waring, 401 B.R. 906 (Bankr. N.D. Ohio 2009). This [**4] proof of claim contained several errors: the amount of the Taylors' monthly payment was incorrectly stated, the wrong mortgage note was attached, and the value of the home was understated by about $100,000. It is not clear whether the errors

originated in HSBC's database or whether they were introduced in Moss Codilis's filing.3 3 HSBC ultimately corrected these errors in an amended court filing. 2. The motion for relief from stay At the time of the bankruptcy proceeding, the Taylors were also involved in a payment dispute with HSBC. HSBC believed the Taylors' home to be in a flood zone and had obtained "forced insurance" for the property, the cost of which (approximately $180/month) it passed on to the Taylors. The Taylors disputed HSBC's position and continued to pay their regular mortgage payment, without the additional insurance costs.4 HSBC failed to acknowledge that the Taylors were making their regular payments and instead treated each payment as a partial payment, so that, in its records, the Taylors were becoming more delinquent each month. 4 This dispute has now been resolved in favor of the Taylors. (App. 199.) Ordinarily, the filing of a bankruptcy petition imposes an automatic [**5] stay on all debt collection activities, including foreclosures. McCartney v. Integra Nat'l Bank North, 106 F.3d 506, 509 (3d Cir. 1997). However, pursuant to 11 U.S.C. 362(d)(1), a secured creditor may file for relief from the stay "for cause, including the lack of adequate protection of an interest in property" of the creditor, in order to permit it to commence or continue foreclosure proceedings. Because of the Taylors' withheld insurance payments, HSBC's records indicated that they were delinquent. Thus, in January 2008, HSBC retained the Udren Firm to seek relief from the stay. Mr. Udren is the only partner of the Udren Firm; Ms. Doyle, who appeared for the Udren Firm in the Taylors' case, is a managing attorney at the firm, with twenty-seven years of experience. HSBC [*279] does not deign to communicate directly with the firms it employs in its high-volume foreclosure work; rather, it uses a computerized system called NewTrak (provided by a third party, LPS) to assign individual firms discrete assignments and provide the limited data the system deems relevant to each assignment.5 The firms are selected and the instructions generated without any direct human involvement. The firms so [**6] chosen generally do not have the capacity to check the data (such as the amount of mortgage payment or time in arrears) provided to them by NewTrak and are not expected to communicate with other firms that may have done related work on the matter. Although it is technically possible for a firm hired through NewTrak

72

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

to contact HSBC to discuss the matter on which it has been retained, it is clear from the record that this was discouraged and that some attorneys, including at least one Udren Firm attorney, did not believe it to be permitted. 5 LPS is also not involved in the present appeal, as the bankruptcy court found that it had not engaged in wrongdoing in this case. However, both the accuracy of its data and the ethics of its practices have been repeatedly called into question elsewhere. See, e.g., In re Wilson, 2011 Bankr. LEXIS 1213, 2011 WL 1337240 at *9 (Bankr. E.D.La. Apr. 6, 2011) (imposing sanctions after finding that LPS had issued "sham" affidavits and perpetrated fraud on the court); In re Thorne, 2011 Bankr. LEXIS 2398, 2011 WL 2470114 (Bankr. N.D. Miss. June 16, 2011); In re Doble, 2011 Bankr. LEXIS 1449, 2011 WL 1465559 (Bankr. S.D. Cal. Apr. 14, 2011). In the Taylors' case, NewTrak provided the Udren Firm with only the loan number, the Taylors' [**7] name and address, payment amounts, late fees, and amounts past due. It did not provide any correspondence with the Taylors concerning the flood insurance dispute. In January 2008, Doyle filed the motion for relief from the stay. This motion was prepared by nonattorney employees of the Udren Firm, relying exclusively on the information provided by NewTrak. The motion said that the debtor "has failed to discharge arrearages on said mortgage or has failed to make the current monthly payments on said mortgage since" the filing of the bankruptcy petition. (App. 65.) It identified "the failure to make . . . post-petition monthly payments" as stretching from November 1, 2007 to January 15, 2008, with an "amount per month" of $1455 (a monthly payment higher than that identified on the proof of claim filed earlier in the case by the Moss firm) and a total in arrears of $4367. (App. 66.) (It did note a "suspense balance" of $1040, which it subtracted from the ultimate total sought from the Taylors, but with no further explanation.) It stated that the Taylors had "inconsequential or no equity" in the property.6 Id. The motion never mentioned the flood insurance dispute. 6 The U.S. Trustee now points [**8] out that the motion also claimed that the Taylors were not making payments to other creditors under their bankruptcy plan and argues that this claim was false as well. Since the bankruptcy court

did not make any findings with respect to this issue, we will not consider it. Doyle did nothing to verify the information in the motion for relief from stay besides check it against "screen prints" of the NewTrak information. She did not even access NewTrak herself. In effect, she simply proofread the document. It does not appear that NewTrak provided the Udren Firm with any information concerning the Taylors' equity in their home, so Doyle could not have verified her statement in the motion concerning the lack of equity in any way, even against a "screen print." At the same time as it filed for relief from the stay, the Udren Firm also served the Taylors with a set of requests for admission (pursuant to Federal Rule of Bankruptcy Procedure 7036, incorporating [*280] Federal Rule of Civil Procedure 36) ("RFAs"). The RFAs sought formal and binding admissions that the Taylors had made no mortgage payments from November 2007 to January 2008 and that they had no equity in their home. In February 2008, the [**9] Taylors filed a response to the motion for relief from stay, denying that they had failed to make payments and attaching copies of six checks tendered to HSBC during the relevant period. Four of them had already been cashed by HSBC.7 7 It is not clear from the briefing whether the last two checks, for February and March 2008, had actually been submitted to HSBC at the time the motion was filed; appellees deny that they were. However, appellees do not dispute that checks for October and November 2007 and January 2008 had been cashed. 3. The claim objection and the response to the claim objection In March 2008, the Taylors also filed an objection to HSBC's proof of claim. The objection stated that HSBC had misstated the payment due on the mortgage and pointed out the dispute over the flood insurance. However, the Taylors did not respond to HSBC's RFAs. Unless a party responds properly to a request for admission within 30 days, the "matter is [deemed] admitted." Fed. R. Civ. P. 36(a)(3). In the same month, Doyle filed a response to the objection to the proof of claim. The response did not discuss the flood insurance issue at all. However, it stated that "[a]ll figures contained in the proof [**10] of claim accurately reflect actual sums expended . . . by Mortgagee . . . and/or charges to which Mortgagee is contractually entitled and which the Debtors are

73

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

contractually obligated to pay." (App. 91.) This was indisputably incorrect, because the proof of claim listed an inaccurate monthly mortgage payment (which was also a different figure from the payment listed in Doyle's own motion for relief from stay). 4. The claim hearings In May 2008, the bankruptcy court held a hearing on both the motion for relief and the claim objection. HSBC was represented at the hearing by a junior associate at the Udren Firm, Mr. Fitzgibbon. At that hearing, Fitzgibbon ultimately admitted that, at the time the motion for relief from the stay was filed, HSBC had received a mortgage payment for November 2007, even though both the motion for stay and the response to the Taylors' objection to the proof of claim stated otherwise.8 Despite this, Fitzgibbon urged the court to grant the relief from stay, because the Taylors had not responded to HSBC's RFAs (which included the "admission" that the Taylors had not made payments from November 2007 to January 2008). It appears from the record that Fitzgibbon initially [**11] sought to have the RFAs admitted as evidence even though he knew they contained falsehoods. (App. 101-102.)9 8 Appellees concede that, by the time the May hearing was held, HSBC had received all of the relevant checks. 9 Appellees now claim that "[i]t is clear from the record, that Mr. Fitzgibbon honestly disclosed to the Court that these checks had just been received by [the] Udren [Firm] and that the only issue was that of flood insurance." (App'ee Br. 16.) However, this disclosure did not occur until after Fitzgibbon had attempted to enter the RFAs, which made contrary claims, as evidence, and debtor's counsel raised the issue. As the bankruptcy court described it, "[Fitzgibbon] first argued that I should rule in HSBC's favor . . . On probing by the court, he acknowledged that as of the date of the continued hearing, he had learned that [the Taylors] had made every payment." (App. 196, emphasis added.) In a Rule 9011/11 proceeding such as the present one, one would expect the challenged parties to be scrupulously careful in their representations to the court. [*281] The bankruptcy court denied the request to enter the RFAs as evidence, noting that the firm "closed their eyes to the fact that [**12] there was evidence that . . . conflicted with the very admissions that they asked me [to deem admitted]. They . . . had that evidence [that the assertions in its motion were not

accurate] in [their] possession and [they] went ahead like [they] never saw it." (App. 108-109.) The court noted: Maybe they have somebody there churning out these motions that doesn't talk to the people that--you know, you never see the records, do you? Somebody sends it to you that sent it from somebody else.

(App. 109.) "I really find this motion to be in questionable good faith," the court concluded. (App. 112.) After the hearing, the bankruptcy court directed the Udren Firm to obtain an accounting from HSBC of the Taylors' prepetition payments so that the arrearage on the mortgage could be determined correctly. At the next hearing, in June 2008, Fitzgibbon stated that he could not obtain an accounting from HSBC, though he had repeatedly placed requests via NewTrak. He told the court that he was literally unable to contact HSBC-his firm's client--directly to verify information which his firm had already represented to the court that it believed to be true. At the end of the June 2008 hearing, the court told Fitzgibbon: [**13] "I'm issuing an order to show cause on your firm, too, for filing these things . . . without having any knowledge. And filing answers . . . without any knowledge." (App. 119.) Thereafter, the court entered an order sua sponte dated June 9, 2008, directing Fitzgibbon, Doyle, Udren, and others to appear and give testimony concerning the possibility of sanctions. 5. The sanctions hearings The order stated that the purpose of the hearing included "to investigate the practices employed in this case by HSBC and its attorneys and agents and consider whether sanctions should issue against HSBC, its attorneys and agents." (App 96-98.) Among those practices were "pressing a relief motion on admissions that were known to be untrue, and signing and filing pleadings without knowledge or inquiry regarding the matters pled therein." Id. The order noted that "[t]he details are identified on the record of the hearings which are incorporated herein." Id. In ordering Doyle to appear, the order noted that "the motion for relief, the admissions and the reply to the objection were prepared over Doyle's name and signature." Id. However, this order was not formally identified as "an order to show cause."

74

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

The [**14] bankruptcy court held four hearings over several days, making in-depth inquiries into the communications between HSBC and its lawyers in this case, as well as the general capabilities and limitations of a system like NewTrak. Ultimately, it found that the following had violated Rule 9011: Fitzgibbon, for pressing the motion for relief based on claims he knew to be untrue; Doyle, for failing to make reasonable inquiry concerning the representations she made in the motion for relief from stay and the response to the claim objection; Udren and the Udren Firm itself, for the conduct of its attorneys; and HSBC, for practices which caused the failure to adhere to Rule 9011. Because of his inexperience, the court did not sanction Fitzgibbon. However, it required Doyle to take 3 CLE credits in professional responsibility; Udren himself to be trained in the use of NewTrak and to [*282] spend a day observing his employees handling NewTrak; and both Doyle and Udren to conduct a training session for the firm's relevant lawyers in the requirements of Rule 9011 and procedures for escalating inquiries on NewTrak. The court also required HSBC to send a copy of its opinion to all the law firms it uses in bankruptcy [**15] proceedings, along with a letter explaining that direct contact with HSBC concerning matters relating to HSBC's case was permissible.10 10 Taylor's counsel was also ultimately sanctioned and removed from the case. Counsel did not perform competently, as is evidenced by the Taylors' failure to contest HSBC's RFAs. She also made a number of inaccurate statements in her representations to the court. However, it is clear that her conduct did not induce the misrepresentations by HSBC or its attorneys. As the bankruptcy court correctly noted, "the process employed by a mortgagee and its counsel must be fair and transparent without regard to the quality of debtor's counsel since many debtors are unrepresented and cannot rely on counsel to protect them." (App. 214.) B. The District Court's Decision Udren, Doyle, and the Udren Firm (but not HSBC) appealed the sanctions order to the District Court, which ultimately overturned the order. The District Court's decision was based on three considerations: that the confusion in the case was attributable at least as much to the actions of Taylor's counsel as to Doyle, Udren, and the Udren Firm; that the bankruptcy court seemed more concerned with "sending [**16] a message" to the bar concerning the use of

computerized systems than with the conduct in the particular case; and that, since Udren himself did not sign any of the filings containing misrepresentations, he could not be sanctioned under Rule 9011. Although HSBC had not appealed, the District Court overturned the order with respect to HSBC, as well. The United States trustee then appealed the District Court's decision to this court.11 11 The bankruptcy court had jurisdiction under 28 U.S.C. 157(a). The District Court had jurisdiction under 28 U.S.C. 158(a)(1), except as discussed below. We have jurisdiction under 28 U.S.C. 158(d). II. Rule 9011 of the Federal Rules of Bankruptcy Procedure, the equivalent of Rule 11 of the Federal Rules of Civil Procedure, requires that parties making representations to the court certify that "the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support." Fed. R. Bank. P. 9011(b)(3).12 A party must reach this conclusion based on "inquiry reasonable under the circumstances." Fed. R. Bank. P. 9011(b). The concern of Rule 9011 is not the truth or falsity of the representation [**17] in itself, but rather whether the party making the representation reasonably believed it at the time to have evidentiary support. In determining whether a party has violated Rule 9011, the court need not find that a party who makes a false representation to the court acted in bad faith. "The imposition of Rule 11 sanctions . . . requires only a showing of objectively unreasonable conduct." Fellheimer, Eichen & Braverman, P.C. v. Charter Tech., Inc., 57 F.3d 1215, 1225 (3d Cir. 1995). We apply an abuse of discretion standard in reviewing the decision of the bankruptcy court. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S. Ct. 2447, 110 L. Ed. 2d 359 (1990). However, we review its factual findings for clear error. Stern v. Marshall, U.S. , 131 S. Ct. 2594, 2627, [*283] 180 L. Ed. 2d 475 (2011) (Breyer, J., dissenting). 12 "[C]ases decided pursuant to [Fed. R. Civ. P. 11] apply to Rule 9011." In re Gioioso, 979 F.2d 956, 960 (3d Cir. 1992). In this opinion, we focus on several statements by appellees: (1) in the motion for relief from stay, the statements suggesting that the Taylors had failed to make payments on their mortgage since the filing of their bankruptcy petition and the identification of the months in which and the [**18] amount by which they were supposedly delinquent; (2) in the motion for relief

75

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

from stay, the statement that the Taylors had no or inconsequential equity in the property; (3) in the response to the claim objection, the statement that the figures in the proof of claim were accurate; and, (4) at the first hearing, the attempt to have the requests for admission concerning the lack of mortgage payments deemed admitted. As discussed above, all of these statements involved false or misleading representations to the court.13 13 Appellees expend great energy in questioning the factual findings of the bankruptcy court, but we, like the District Court before us, see no error. A. Alleged literal truth As an initial matter, the appellees' insistence that Doyle's and Fitzgibbon's statements were "literally true" should not exculpate them from Rule 9011 sanctions. First, it should be noted that several of these claims were not, in fact, accurate. There was no literal truth to the statement in the request for relief from stay that the Taylors had no equity in their home. Doyle admitted that she made that statement simply as "part of the form pleading," and "acknowledged having no knowledge of the value [**19] of the property and having made no inquiry on this subject." (App. 215.) Similarly, the statement in the claim objection response that the figures in the original proof of claim were correct was false. Just as importantly, appellees cite no authority, and we are aware of none, which permits statements under Rule 9011 that are literally true but actually misleading. If the reasonably foreseeable effect of Doyle's or Fitzgibbon's representations to the bankruptcy court was to mislead the court, they cannot be said to have complied with Rule 9011. See Williamson v. Recovery Ltd. P'ship, 542 F.3d 43, 51 (2d Cir. 2008) (a party violates Rule 11 "by making false, misleading, improper, or frivolous representations to the court") (emphasis added). In particular, even assuming that Doyle's and Fitzgibbon's statements as to the payments made by the Taylors were literally accurate, they were misleading. In attempting to evaluate whether HSBC was justified in seeking a relief from the stay on foreclosure, the court needed to know that at least partial payments had been made and that the failure to make some of the rest of the payments was due to a bona fide dispute over the amount due, not simple [**20] default. Instead, the court was told only that the Taylors had "failed to make regular mortgage payments" from November 1, 2007 to January 15, 2008, with a mysterious notation concerning a "suspense balance" following. (App. 214-

15.) A court could only reasonably interpret this to mean that the Taylors simply had not made payments for the period specified. As the bankruptcy court found, "[f]or at best a $540 dispute, the Udren Firm mechanically prosecuted a motion averring a $4,367[] post-petition obligation, the aim of which was to allow HSBC to foreclose on [the Taylors'] house." (App. 215.) Therefore, Doyle's and Fitzgibbon's statements in question were either false or misleading. B. Reasonable inquiry We must, therefore, determine the reasonableness of the appellees' inquiry [*284] before they made their false representations. Reasonableness has been defined as "an objective knowledge or belief at the time of the filing of a challenged paper that the claim was wellgrounded in law and fact." Ford Motor Co. v. Summit Motor Prods., Inc., 930 F.2d 277, 289 (3d Cir. 1991) (internal quotations omitted). The requirement of reasonable inquiry protects not merely the court and adverse parties, [**21] but also the client. The client is not expected to know the technical details of the law and ought to be able to rely on his attorney to elicit from him the information necessary to handle his case in the most effective, yet legally appropriate, manner. In determining reasonableness, we have sometimes looked at several factors: "the amount of time available to the signer for conducting the factual and legal investigation; the necessity for reliance on a client for the underlying factual information; the plausibility of the legal position advocated; . . . whether the case was referred to the signer by another member of the Bar . . . [; and] the complexity of the legal and factual issues implicated." Mary Ann Pensiero, Inc. v. Lingle, 847 F.2d 90, 95 (3d Cir. 1988). However, it does not appear that the court must work mechanically through these factors when it considers whether to impose sanctions. Rather, it should consider the reasonableness of the inquiry under all the material circumstances. "[T]he applicable standard is one of reasonableness under the circumstances." Bus. Guides, Inc. v. Chromatic Commc'ns Ents., Inc., 498 U.S. 533, 551, 111 S. Ct. 922, 112 L. Ed. 2d 1140 (1991); accord Garr v. U.S. Healthcare, Inc., 22 F.3d 1274, 1279 (3d Cir. 1994). Central [**22] to this case, then, is the degree to which an attorney may reasonably rely on representations from her client. An attorney certainly "is not always foreclosed from relying on information from other persons." Garr, 22 F.3d 1278. In making statements to the court, lawyers constantly and appropriately rely on information provided by their clients, especially when the facts are contained in a client's computerized records. It is difficult to imagine how attorneys might function were they required to

76

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

conduct an independent investigation of every factual representation made by a client before it could be included in a court filing. While Rule 9011 "does not recognize a 'pure heart and empty head' defense," In re Cendant Corp. Derivative Action Litig., 96 F. Supp. 2d 403, 405 (D.N.J. 2000), a lawyer need not routinely assume the duplicity or gross incompetence of her client in order to meet the requirements of Rule 9011. It is therefore usually reasonable for a lawyer to rely on information provided by a client, especially where that information is superficially plausible and the client provides its own records which appear to confirm the information. However, Doyle's behavior was unreasonable, [**23] both as a matter of her general practice and in ways specific to this case. First, reasonable reliance on a client's representations assumes a reasonable attempt at eliciting them by the attorney. That is, an attorney must, in her independent professional judgment, make a reasonable effort to determine what facts are likely to be relevant to a particular court filing and to seek those facts from the client. She cannot simply settle for the information her client determines in advance-- by means of an automated system, no less--that she should be provided with. Yet that is precisely what happened here. "[I]t appears," the bankruptcy court observed, "that Doyle, the manager of the Udren Firm bankruptcy department, had no relationship with the client, HSBC." (App. 202.) By working solely with NewTrak, a system which no one at the Udren [*285] Firm seems to have understood, much less had any influence over, Doyle permitted HSBC to define--perilously narrowly--the information she had about the Taylors' matter. That HSBC was not providing her with adequate information through NewTrak should have been evident to Doyle from the face of the NewTrak file. She did not have any information concerning the [**24] Taylors' equity in the home, though she made a statement specifically denying that they had any. More generally, a reasonable attorney would not file a motion for relief from stay for cause without inquiring of the client whether it had any information relevant to the alleged cause, that is, the debtor's failure to make payments. Had Doyle made even that most minimal of inquiries, HSBC presumably would have provided her with the information in its files concerning the flood insurance dispute, and Doyle could have included that information in her motion for relief from stay--or, perhaps, advised the client that seeking such a motion would be inappropriate under the circumstances.

With respect to the Taylors' case in particular, Doyle ignored clear warning signs as to the accuracy of the data that she did receive. In responding to the motion for relief from stay, the Taylors submitted documentation indicating that they had already made at least partial payments for some of the months in question. In objecting to the proof of claim, the Taylors pointed out the inaccuracy of the mortgage payment listed and explained the circumstances surrounding the flood insurance dispute. Although Doyle [**25] certainly was not obliged to accept the Taylors' claims at face value, they indisputably put her on notice that the matter was not as simple as it might have appeared from the NewTrak file. At that point, any reasonable attorney would have sought clarification and further documentation from her client, in order to correct any prior inadvertent misstatements to the court and to avoid any further errors. Instead, Doyle mechanically affirmed facts (the monthly mortgage payment) that her own prior filing with the court had already contradicted. Doyle's reliance on HSBC was particularly problematic because she was not, in fact, relying directly on HSBC. Instead, she relied on a computer system run by a third-party vendor. She did not know where the data provided by NewTrak came from. She had no capacity to check the data against the original documents if any of it seemed implausible. And she effectively could not question the data with HSBC. In her relationship with HSBC, Doyle essentially abdicated her professional judgment to a black box. None of the other factors discussed in the Mary Ann Pensiero case which are applicable here affect our analysis of the reasonableness of appellees' actions. [**26] This was not a matter of extreme complexity, nor of extraordinary deadline pressure. Although the initial data the Udren Firm received was not, in itself, wildly implausible, it was facially inadequate. In short, then, we find that Doyle's inquiry before making her representations to the bankruptcy court was unreasonable. In making this finding, we, of course, do not mean to suggest that the use of computerized databases is inherently inappropriate. However, the NewTrak system, as it was being used at the time of this case, permits parties at every level of the filing process to disclaim responsibility for inaccuracies. HSBC has handed off responsibility to a third-party maintainer, LPS, which, judging from the results in this case, has not generated particularly accurate records. LPS apparently regards itself as a mere conduit of information. Appellees, the attorneys and final link in the [*286] chain of transmission of this information to the court, claim reliance on NewTrak's records. Who,

77

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

precisely, can be held accountable if HSBC's records are inadequately maintained, LPS transfers those records inaccurately into NewTrak, or a law firm relies on the NewTrak data without further investigation, [**27] thus leading to material misrepresentations to the court? It cannot be that all the parties involved can insulate themselves from responsibility by the use of such a system. In the end, we must hold responsible the attorneys who have certified to the court that the representations they are making are "well-grounded in law and fact." C. Notice Doyle, Udren, and the Udren Firm also argue on appeal that they had insufficient notice that they were in danger of sanctions.14 Rule 9011 directs that a court "[o]n its own initiative . . . may enter an order describing the specific conduct that appears to violate [the rule] and directing an attorney . . . to show cause why it has not violated [the rule]." Fed. R. Bank. P. 9011(c)(1)(B). Due process in the imposition of Rule 9011 sanctions requires "particularized notice." Jones v. Pittsburgh Nat'l Corp., 899 F.2d 1350, 1357 (3d Cir. 1990). The meaning of "particularized notice" has not been rigorously defined in this circuit. In Fellheimer, we noted that this requirement was met where the sanctioned party "was provided with sufficient, advance notice of exactly which conduct was alleged to be sanctionable." Fellheimer, 57 F.3d at 1225. In Simmerman v. Corino, 27 F.3d 58, 64 (3d Cir. 1994), [**28] we held that "the party sought to be sanctioned is entitled to particularized notice including, at a minimum, 1) the fact that Rule 11 sanctions are under consideration, 2) the reasons why sanctions are under consideration . . . ." 14 Any claim regarding a due process right to notification of the form of sanctions being considered has been waived by appellees, as it was not raised in their papers, either here or in the district court. United States v. Pelullo, 399 F.3d 197, 222 (3d Cir. 2005). The bankruptcy court's June order was clearly in substance an order to show cause, even if it was not specifically captioned as such. The more difficult question is whether the court adequately described "the specific conduct that appear[ed] to violate" Rule 9011, so as to give sufficient notice of "exactly which conduct was alleged to be sanctionable." As mentioned above, the court's June order identified "pressing a relief motion on admissions that were known to be untrue, and signing and filing pleadings without knowledge or inquiry regarding the matters pled therein" as the conduct the court wished to investigate.

(App. 119) The judge also told Fitzgibbon, "I'm issuing an order to show cause [**29] on your firm, too, for filing these things . . . without having any knowledge. And filing answers . . . without any knowledge." Id. The June order also made specific reference to "the motion for relief, the admissions and the reply to the objection." In these particular circumstances, the notice given to appellees was sufficient to put them on notice as to which aspects of their conduct were considered sanctionable. At that point in the case, the Udren Firm lawyers had only filed three substantive papers with the court--totaling six (substantive) pages--and the court found all of them problematic. Appellees' claim that they believed that the only issue at the time of the hearing was Fitzgibbon's inability to contact HSBC is simply not plausible in light of the language of the June order and the bankruptcy court's statements at the hearing, which were incorporated by reference into the June order. In a case in which more extensive [*287] docket activity had taken place, the bankruptcy court's order might not have been sufficient to inform appellees as to which of their filings were sanctionable, but, given the unusual circumstances here, it was. But see Martens v. Thomann, 273 F.3d 159, 178 (2d Cir. 2001) [**30] (requiring specific identification of individual challenged statements to uphold imposition of sanctions). D. The Udren Firm and Udren's individual liability We also find that it was appropriate to extend sanctions to the Udren Firm itself. Rule 11 explicitly allows the imposition of sanctions against law firms. Fellheimer, 57 F.3d 1215 at 1223 n.5. In this instance, the bankruptcy court found that the misrepresentations in the case arose not simply from the irresponsibility of individual attorneys, but from the system put in place at the Udren Firm, which emphasized high-volume, high-speed processing of foreclosures to such an extent that it led to violations of Rule 9011. However, we do not find that responsibility for these failures extends specifically to Udren, whose involvement in this matter was limited to his role as sole shareholder of the firm. E. The District Court's reversal of sanctions against HSBC Ordinarily, of course, a party which does not appeal a decision by a district court cannot receive relief with respect to that decision. "[T]he mere fact that a [party] may wind up with a judgment against one [party] that is not logically consistent with an unappealed judgment against [**31] another is not

78

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

alone sufficient to justify taking away the unappealed judgment in favor of a party not before the court." Repola v. Morbark Indus., Inc., 980 F.2d 938, 942 (3d Cir. 1992). However, "where the disposition as to one party is inextricably intertwined with the interests of a non-appealing party," it may be "impossible to grant relief to one party without granting relief to the other." United States v. Tabor Court Realty Corp., 943 F.2d 335, 344 (3d Cir. 1991). In Tabor Court Realty, a contract dispute, the assignee of a property had failed to appeal a decision, while the assignor had (and had ultimately prevailed). Given that the dispute was over the disposition of the property, it was impossible to grant relief to the assignor without also granting relief to the assignee. In this instance, whether the lawyers at the Udren Firm violated Rule 9011 is a question analytically distinct from whether HSBC was responsible for any violations of Rule 9011. A court might find that HSBC was responsible for violations, whereas, say, Udren himself was not. It was entirely possible for HSBC to comply with the sanctions ordered (a letter to its firms informing them that they are permitted [**32] to consult with HSBC) without affecting the interests of the lawyers at the Udren Firm. Therefore, the interests of the lawyers at the Udren Firm and HSBC were not "inextricably intertwined," and the District Court lacked jurisdiction to reverse the sanctions against HSBC. F. Alternative basis for the District Court's decision In reversing the bankruptcy court's decision, the District Court focused on that court's apparent attention to the broader problems of high-volume bankruptcy practice in imposing sanctions. It is true that the bankruptcy judge noted that appellees were not the first attorneys to run into these sorts of difficulties in her court. But she nonetheless made individualized findings of wrong-doing after four days of hearings and issued sanctions thoughtfully chosen to prevent the recurrence of problems at the Udren Firm [*288] based on what she had learned of practices there.

Insofar as she considered the effect of the sanctions on the future conduct of other attorneys appearing before her, such considerations were permissible. After all, "the prime goal [of Rule 11 sanctions] should be deterrence of repetition of improper conduct." Waltz v. County of Lycoming, 974 F.2d 387, 390 (3d Cir. 1992). G. [**33] Conclusion We appreciate that the use of technology can save both litigants and attorneys time and money, and we do not, of course, mean to suggest that the use of databases or even certain automated communications between counsel and client are presumptively unreasonable. However, Rule 11 requires more than a rubber-stamping of the results of an automated process by a person who happens to be a lawyer. Where a lawyer systematically fails to take any responsibility for seeking adequate information from her client, makes representations without any factual basis because they are included in a "form pleading" she has been trained to fill out, and ignores obvious indications that her information may be incorrect, she cannot be said to have made reasonable inquiry. Therefore, we find that the bankruptcy court did not abuse its discretion in imposing sanctions on Doyle or the Udren Firm itself. However, it did abuse its discretion in imposing sanctions on Udren individually. III. For the foregoing reasons, we will reverse the District Court with respect to Doyle and the Udren Firm, affirming the bankruptcy court's imposition of sanctions. With respect to HSBC, as discussed previously, the [**34] District Court lacked jurisdiction to reverse the sanctions, as do we; therefore, we vacate the District Court's order with respect to that party, leaving the sanctions imposed by the bankruptcy court in place. We will affirm the District Court with respect to Udren individually, reversing the bankruptcy's court imposition of sanctions.

Rule 5.02 Responsibilities of a Supervised Lawyer A lawyer is bound by these rules notwithstanding that the lawyer acted under the supervision of another person, except that a supervised lawyer does not violate these rules if that lawyer acts in accordance with a supervisory lawyers reasonable resolution of an arguable question of professional conduct.

79

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Comment: 1. Rule 5.02 embodies the fundamental concept that every lawyer is a trained, mature, licensed professional who has sworn to uphold ethical standards and who is responsible for the lawyer's own conduct. Accordingly, a lawyer is not relieved from compliance with these rules because the lawyer acted under the supervision of an employer or other person. In some situations, the fact that a lawyer acted at the direction or order of another person may be relevant in determining whether the lawyer had the knowledge required to render the conduct a violation of these rules. The fact of supervision may also, of course, be a circumstance to be considered by a grievance committee or court in mitigation of the penalty to be imposed for violation of a rule. 2. In many law firms and organizations, the relatively inexperienced lawyer works as an assistant to a more experienced lawyer or is directed, supervised or given guidance by an experienced lawyer in the firm. In the normal course of practice the senior lawyer has the responsibility for making the decisions involving professional judgment as to procedures to be taken, the status of the law, and the propriety of actions to be taken by the lawyers. Otherwise a consistent course of action could not be taken on behalf of clients. The junior lawyer reasonably can be expected to acquiesce in the decisions made by the senior lawyer unless the decision is clearly wrong. 3. Rule 5.02 takes a realistic attitude toward those prevailing modes of practice by lawyers not engaged in solo practice. Accordingly, Rule 5.02 provides the supervised lawyer with a special defense in a disciplinary proceeding in which the lawyer is charged with having violated a rule of professional conduct. The supervised lawyer is entitled to this defense only if it appears that an arguable question of professional conduct was resolved by a supervising lawyer and that a resolution made by the supervising lawyer was a reasonable resolution. The resolution is a reasonable one, even if it is ultimately found to be officially unacceptable, provided it would have appeared reasonable to a disinterested, competent lawyer based on the information reasonably available to the supervising lawyer at the time the resolution was made. Supervisory lawyer as used in Rule 5.02 should be construed in conformity with prevailing modes of practice in firms and other groups and, therefore, should include a senior lawyer who undertakes to resolve the question of professional propriety as well as a lawyer who more directly supervises the supervised lawyer. 4. By providing such a defense to the supervised lawyer, Rule 5.02 recognizes that the inexperienced lawyer working under the direction or supervision of an employer or senior attorney is not in a favorable position to disagree with reasonable decisions made by the experienced lawyer. Often, the only choices available to the supervised lawyer would be to accept the decision made by the senior lawyer or to resign or otherwise lose the employment. This provision of

80

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Rule 5.02 also recognizes that it is not necessarily improper for the inexperienced lawyer to rely, reasonably and in good faith, upon decisions made in unclear matters by senior lawyers in the organization. 5. The defense provided by this Rule is available without regard to whether the conduct in question was originally proposed by the supervised lawyer or another person. Nevertheless, the supervised lawyer is not permitted to accept an unreasonable decision as to the propriety of professional conduct. The Rule obviously provides no defense to the supervised lawyer who participates in clearly wrongful conduct. Reliance can be placed only upon a reasonable resolution made by the supervisory lawyer. 6. The protection afforded by Rule 5.02 to a supervised lawyer relates only to professional disciplinary proceedings. Whether a similar defense may exist in actions in tort or for breach of contract is a question beyond the scope of the Texas Disciplinary Rules of Professional Conduct. 5. D. In re Rivera, 342 B.R. 435 (Bankr. D.N.J. 2006). Threats of Suit

RULE 4.1: TRUTHFULNESS IN STATEMENTS TO OTHERS 1. Brown v. Card Serv. Ctr., 464 F.3d 450 (3d Cir. 2006).

81

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

ELIZABETH BROWN, ON BEHALF OF HERSELF AND ALL OTHERS SIMILARLY SITUATED, formerly known as ELIZABETH SCHENCK, Appellant v. CARD SERVICE CENTER; CARDHOLDER MANAGEMENT SERVICES. No. 05-4160 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT 464 F.3d 450; 2006 U.S. App. LEXIS 24579 June 1, 2006, Argued September 29, 2006, Filed PRIOR HISTORY: [**1] On Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. No. 05-cv-0498). District Judge: Honorable William H. Yohn, Jr. Brown v. Card Serv. Ctr., 2005 U.S. Dist. LEXIS 12810 (E.D. Pa., June 27, 2005) to state a claim upon which relief could be granted. We disagree, and for the reasons that follow we vacate the District Court's judgment and remand for further proceedings. I. Background Card Service Center and Cardholder Management Services (collectively, "CSC") are debt-collection firms. In February of 2004, CSC sent Brown a collection letter (the "CSC Letter") demanding payment of a delinquent credit card balance of $ 1,874, which it stated was due. The letter threatened referral of Brown's account to CSC's attorney if payment was not made within five days. In relevant part, the letter reads: You are requested to contact the Recovery Unit of the Card Service Center ... to discuss your account. Refusal to cooperate could result in a legal suit being filed for collection of the account. You now have five (5) days to make arrangements for payment of this account. Failure on your part to cooperate [*452] could result in our forwarding this account to our [**3] attorney with directions to continue collection efforts.

COUNSEL: Cary L. Flitter, (Argued), Lundy, Flitter, Beldecos & Berger, P.C., Narberth, PA;David A. Searles, Donovan Searles, LLC, Philadelphia, PA, Attorneys for Appellant. Thomas W. Dymek, Stradley, Ronon, Stevens & Young, LLP, Philadelphia, PA; Thomas J. Cahill, Joshua M. Rubins (Argued), Daniel G. Gurfein, Satterlee Stephens Burke & Burke LLP, New York, NY, Attorneys for Appellees. JUDGES: Before: AMBRO, GREENBERG, Circuit Judges. OPINION BY: FUENTES OPINION [*451] OPINION OF THE COURT FUENTES, Circuit Judge. Seeking to recover what it considered a bad debt, Card Service Center sent Elizabeth Brown a collection letter telling her that unless she made arrangements to pay within five days, the matter "could" result in referral of the account to an attorney and "could" result in "a legal suit being filed." Brown sued, claiming that because Card Service Center had no intention of referring her account to an attorney and no intention of filing a law suit, the letter violates the Fair Debt Collection Practices Act's ban on false, [**2] misleading or deceptive communications. The District Court dismissed Brown's suit, concluding that because "[t]he letter neither states nor implies that legal action is imminent, only that it is possible," Brown had failed FUENTES, and

(JA 1.) Though Brown did not make arrangements for payment on her delinquent account within five days, CSC did not institute a suit or otherwise enlist an attorney to assist with its collection efforts. Rather, Brown's decision not to comply with CSC's request resulted only in her receiving additional debt-collection letters from CSC. In February of 2005, Brown filed suit against CSC in the United States District Court for the Eastern

82

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

District of Pennsylvania on behalf of herself and all other similarly situated Pennsylvania consumers. In her complaint Brown alleged that the CSC Letter contained "false and misleading" statements "designed to coerce and intimidate the consumer ... by false threat" and that the complaint suggested a deadline for debtor action that was "false and overstated." (Amend Compl. PP 11, 13, 15.) In support of this claim, Brown alleged that the 5-day deadline was illusory because CSC never intended to bring suit against her or to refer her debt-or that of the members of her putative class-to an attorney. In response to the complaint, CSC filed a motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure [**4] to dismiss the complaint for failure to state a claim under the Fair Debt Collection Practices Act (the "FDCPA" or the "Act"), 15 U.S.C. 1692 et seq. The District Court granted the motion without prejudice in June of 2005. The District Court's order dismissing the complaint, which was amended by a second order in August of 2005, granted Brown through the end of September to conduct further investigation so that she might amend her complaint, with the caveat that if she failed to do so, the June dismissal would automatically become a dismissal with prejudice. Brown opted not to amend her complaint, and the dismissal became final. This appeal followed. II. Jurisdiction and Standard of Review The District Court had jurisdiction over this matter pursuant to 28 U.S.C. 1331 and 15 U.S.C. 1692k(d). We have jurisdiction pursuant to 28 U.S.C. 1291. We exercise plenary review over the grant of a motion to dismiss. Delaware Nation v. Pennsylvania, 446 F.3d 410, 415 (3d Cir. 2006). When considering an appeal from a Rule 12(b)(6) dismissal, we must accept all [**5] well-pled allegations in the complaint as true and draw all reasonable inferences in favor of the nonmoving party. In re Rockefeller Ctr. Props. Secs. Litig., 311 F.3d 198, 215 (3d Cir.2002). In doing so, we must determine whether the plaintiff may be entitled to relief under any reasonable reading of the complaint. Pinker v. Roche Holdings, Ltd., 292 F.3d 361, 374 n.7 (3d Cir.2002). III. Analysis Brown maintains that the CSC Letter ran afoul of 1692e of the FDCPA, which reads in relevant part: 1692e. False representations or misleading

representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section: ... (5) The threat to take any action that cannot legally be taken or that is not intended to be taken.

Because CSC qualifies as a "debt collector" under the Act, see 15 U.S.C. 1692a(6), [*453] to the extent the CSC Letter is "false, deceptive, or misleading" or constitutes a "threat to take [**6] any action ... not intended to be taken," it violates 1692e. A. FDCPA Background Congress enacted the FDCPA in 1977 after noting the "abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by many debt collectors." 15 U.S.C. 1692(a). At the time the Act was being considered, Congress was concerned that "[a]busive debt collection practices contribute to the number of personal bankruptcies, to marital instability, to the loss of jobs, and to invasions of individual privacy." Id. A significant purpose of the Act is not only to eliminate abusive practices by debt collectors, but "to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged." 15 U.S.C. 1692(e). In its findings Congress observed that "[e]xisting laws and procedures" enacted to remedy the injuries occasioned by abusive debt collectors "are inadequate to protect consumers." 15 U.S.C. 1692(b). Accordingly, the Act provides consumers with a private cause of action against debt collectors who fail to comply with the Act. 15 U.S.C. 1692k [**7] . A prevailing plaintiff under the Act is entitled to an award of damages, costs of suit and reasonable attorneys' fees. Id. Because the FDCPA is a remedial statute, Hamilton v. United Healthcare of La., 310 F.3d 385, 392 (5th Cir. 2002), we construe its language broadly, so as to effect its purpose, See Stroh v. Director, OWCP, 810 F.2d 61, 63 (3d Cir. 1987). Accordingly, in considering claims under another provision of the FDCPA, we have held that certain communications from lenders to debtors should be analyzed from the

A debt collector may not use any false, deceptive, or misleading

83

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

perspective of the "least sophisticated debtor." See Wilson v. Quadramed Corp., 225 F.3d 350, 354 (applying the perspective of the least sophisticated debtor to the notice provision of the Act, 1692g) (citation omitted); Graziano v. Harrison, 950 F.2d 107, 111 (3d Cir. 1991) ("Statutory notice under the Act is to be interpreted from the perspective of the 'least sophisticated debtor.'"). Analyzing lender-debtor communications from this perspective is consistent with "basic consumerprotection principles." United States v. Nat'l Fin. Servs., 98 F.3d 131, 136 (4th Cir. 1996). [**8] As the Second Circuit has observed, "[t]he basic purpose of the least-sophisticated consumer standard is to ensure that the FDCPA protects all consumers, the gullible as well as the shrewd. This standard is consistent with the norms that court shave traditionally applied in consumer-protection law." 1 Clomon v. Jackson, 988 F.2d 1314, 1318 (2d Cir. 1993). That it may be obvious to specialists or the particularly sophisticated that a given statement is false or inaccurate does nothing to diminish that statement's "power to deceive others less experienced." Federal Trade Comm'n v. Standard Educ. Soc'y, 302 U.S.112, 116, 58 S. Ct. 113, 82 L. Ed. 141, 25 F.T.C. 1715 (1937). As Justice Black has observed, our laws "are made to protect the trusting as well as the suspicious," and this is particularly the case within the realm of consumer protection laws. Id. Bearing all of this in mind, [*454] we conclude that any lender-debtor communications potentially giving rise to claims under the FDCPA, such as the CSC Letter, should be analyzed from the perspective of the least sophisticated debtor. 1 For our purposes, "least sophisticated debtor" and "least sophisticated consumer" can be used interchangeably. Our analysis of the least sophisticated debtor/consumer standard focuses on the level of sophistication, rather than whether the purported debtor actually owes the debt claimed. See Graziano, 920 F.2d at 111 n.5 (noting the distinction in terminology, but ultimately deciding to employ "least sophisticated debtor" in a Third Circuit FDCPA case). [**9] The least sophisticated debtor standard requires more than "simply examining whether particular language would deceive or mislead a reasonable debtor" because a communication that would not deceive or mislead a reasonable debtor might still deceive or mislead the least sophisticated debtor. Quadramed, 225 F.3d at 354 (internal quotation marks and citation omitted). This lower standard comports with a basic purpose of the FDCPA: as

previously stated, to protect "all consumers, the gullible as well as the shrewd," "the trusting as well as the suspicious," from abusive debt collection practices. However, while the least sophisticated debtor standard protects naive consumers, "it also prevents liability for bizarre or idiosyncratic interpretations of collection notices by preserving a quotient of reasonableness and presuming a basic level of understanding and willingness to read with care." Quadramed, 225 F.3d at 354-55 (internal quotation marks and citation omitted).
2

2 Other Courts of Appeals have also approached the adjudication of matters under the Act from the perspective of the least sophisticated debtor or consumer. See, e.g., Swanson v. Southern Or. Credit Serv., 869 F.2d 1222, 1226-30(9th Cir. 1988) (adopting the least sophisticated debtor standard in a case relating to FDCPA claims under 1692a, 1692c and 1692e); Bentley v. Great Lakes Collection Bureau, 6 F.3d 60, 62 (2d Cir. 1993) ("We apply an objective test based on the understanding of the 'least sophisticated consumer' in determining whether a collection letter violates section 1692e."); Smith v. Transworld Sys., 953 F.2d 1025, 1028-30 (6th Cir. 1992)(applying the least sophisticated consumer standard in a case relating to FDCPA claims under 1692e and 1692g); Jeter v. Credit Bureau, 760 F.2d 1168, 1175 (11th Cir. 1985) (adopting the least sophisticated consumer standard in addressing FDCPA claims under the 1692d and 1692e; Nat'l Fin. Servs., 98 F.3d at 135-36, 139 (citing with approval the district court's application of the least sophisticated consumer standard to a debtor's 1692e claim). [**10] B. Applying the Least Sophisticated Debtor Standard to the CSC Letter In its thorough analysis, the District Court determined that, even accepting all of Brown's factual allegations as true and drawing all reasonable inferences in her favor, no reasonable reading of her complaint could entitle her to relief. In reaching this conclusion, the District Court emphasized that the CSC Letter employed the conditional term "could" as opposed to the affirmative term "will." 3 The District Court observed that the CSC Letter "neither states nor implies that legal action is imminent, only that it is possible." Brown v. Card Serv. Ctr., No. 05-cv-0498, 2005 U.S. Dist. LEXIS 12810, at *23 (E.D. Pa. Jun. 27, 2005). As a result, the District Court concluded that the CSC Letter "poses no 'threat' pursuant to 1692e(5),

84

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

and because the letter simply advises plaintiff of options available to CSC, the letter is not 'false, deceptive, or misleading' under 1692e, even if action were not intended to be taken." Id. The District Court found the CSC Letter in compliance with the FDCPA because it merely stated what CSC could do, if it so chose. The District Court drew a [**11] sharp contrast between the CSC Letter and debt-collection letters that other courts [*455] have held to be in violation of the Act because those letters made false claims about what debt collectors would do if a given debtor failed to respond. See, e.g., Crossley v. Lieberman, 868 F.2d 566, 567 (3d Cir. 1989) (finding an FDCPA violation where a letter falsely stated, "Unless I receive payment in full within one week from the date of this letter, I will be compelled to proceed with suit against you."). Though we express no opinion as to whether the language of the CSC Letter constitutes a "threat" under 1692e(5), we believe that the facts as alleged in Brown's complaint, if proven, could render the CSC Letter a "deceptive" or "misleading" communication, in violation of 1692e. 3 For example, the CSC Letter states, "[r]efusal to cooperate could result in a legal suit being filed for collection of the account" and "Failure on your part to cooperate could result in our forwarding this account to our attorney with directions to continue collection efforts" (emphases added). [**12] We disagree with the District Court because we conclude that it would be deceptive under the FDCPA for CSC to assert that it could take an action that it had no intention of taking and has never or very rarely taken before. The CSC Letter highlights two possible outcomes for debtors failing to respond within five days: the commencement of a lawsuit or the referral of the debt to CSC's attorney. In her complaint, Brown alleges that CSC never intended to file a suit against her for collection, never had any intention of referring her case to its attorney, and that as a matter of course, CSC does not "refer class member's [sic] alleged debts to their attorney for prosecution, but only refer[s] the alleged debt(s) to another collection agency." (Amend Compl. P 17) In light of these allegations, Brown has stated a claim under 1692e upon which relief can be granted. Upon reading the CSC Letter, the least sophisticated debtor might get the impression that litigation or referral to a CSC lawyer would be imminent if he or she did not respond within five days. We do not believe that such a reading would be "bizarre or idiosyncratic," see Quadramed, 225 F.3d 350 at 354, [**13] and we thus conclude that further

proceedings are warranted to determine if such a reading is "reasonable" in light of the facts of this case. A debt collection letter is deceptive where "it can be reasonably read to have two or more different meanings, one of which is inaccurate." Id. (citation omitted). If Brown can prove, after discovery that CSC seldom litigated or referred debts such as Brown's and those of the putative class members to an attorney, a jury could conclude that the CSC Letter was deceptive or misleading vis-a-vis the least sophisticated debtor. The Federal Trade Commission's commentary (the "FTC Commentary") to the FDCPA further supports this conclusion. The FTC Commentary observes that a debt collector "may state that a certain action is possible, if it is true that such action is legal and is frequently taken by the collector or creditor with respect to similar debts," but where the debt collector "has reason to know there are facts that make the action unlikely in the particular case, a statement that the action was possible would be misleading." 53 Fed. Reg. 50097, 50106 (1988). In other words, were it proven that the CSC had reason to know that the legal [**14] action described in its letter to Brown was unlikely, its statement in the CSC Letter that it was possible could be deemed misleading. In this sense, the facts alleged by Brown fall squarely within the scope of the behavior proscribed by the FTC language. Though the FTC Commentary does not have the force of law and is "not entitled to deference in FDCPA cases except perhaps to the extent [its] logic is persuasive," Dutton v. Wolpoff & Abramson, 5 F.3d 649, 654 (3d Cir. 1993), in the context of this case we [*456] find it persuasive. 4 We are therefore satisfied that the facts pled by Brown, if proven, state a claim upon which a court might grant relief. 4 We note that Kaltenbach v. Richards, 464 F.3d 524, 2006 U.S. App. LEXIS 23275, No. 05-30132, 2006 WL 2588994,*2 (5th Cir. Sept. 11, 2006) supports our decision to defer to the FTC's persuasive interpretation in this case. We are mindful, however, that the standard applied in Kaltenbach is more deferential than ours in Dutton v. Wolpoff & Abramson, 5 F.3d 649, 654 (3d Cir. 1993). Kaltenbach relies on Fifth Circuit precedent that courts "must defer to [an] agency's interpretation of a statute that it administers if (1) Congress has not spoken directly to the issue; and (2) the agency's interpretation is based on a permissible construction of the statute." Kaltenbach, 2006 U.S. App. LEXIS 23275, at *7, 2006 WL 2588994, *2 (citing Walton v. Rose Mobile Homes, 298 F.3d 470, 475 (5th Cir. 2002)) (internal quotation marks omitted).

85

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

[**15] Accordingly, because a court "may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations," Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 81 L. Ed.

2d 59 (1984), the District Court erred in dismissing Brown's complaint. We therefore vacate the judgment of the District Court and remand for further proceedings consistent with this opinion.

2.

Alfaro v. Client Services, Inc., 2012 U.S. Dist. LEXIS 48436 (D.N.J. 2012)
CENOBIA ALFARO, Plaintiff, v. CLIENT SERVICES, INC., Defendant. Civil Action No. 11-05463 (CCC) UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY 2012 U.S. Dist. LEXIS 48436

April 5, 2012, Decided April 5, 2012, Filed NOTICE: NOT FOR PUBLICATION COUNSEL: [*1] For CENOBIA ALFARO, Plaintiff: YAAKOV SAKS, LAW OFFICES OF MATTHEW E. ROSE, FORT LEE, NJ. For CLIENT SERVICES, INC., Defendant: DANIEL STEVEN STRICK, LUCAS & CAVALIER LLC, PHILADELPHIA, PA. JUDGES: CLAIRE C. CECCHI, United States Distrcit Judge. OPINION BY: CLAIRE C. CECCHI OPINION CECCHI, District Judge: I.INTRODUCTION This matter comes before the Court by way of Defendant Client Services, Inc.'s ("Defendant") motion to dismiss Plaintiff Cenobia Alfaro's ("Plaintiff") Complaint (the "Complaint") pursuant to Federal Rule of Civil Procedure 12(b)(6). The Court has considered the submissions made in support of and in opposition to the instant motion.1 No oral argument was heard. Fed. R. Civ. P. 78. For the following reasons, Defendant's Motion to Dismiss is granted and Plaintiff's Complaint is dismissed without prejudice. 1 The Court considers any new arguments not presented by the parties in their papers or at oral argument to be waived. See Brenner v. Local 514, United Bhd. of Carpenters & Joiners, 927 F.2d 1283, 1298 (3d Cir. 1991) ("It is well established that failure to raise an issue in the district court constitutes a waiver of the argument."). II.BACKGROUND Plaintiff commenced this action by filing a Complaint on [*2] August 2, 2011, against Defendant in the Superior Court of New Jersey, Law Division, Special Civil Part, Hudson County alleging violations of the Fair Debt Collections Practices Act, 15 U.S.C. 1692 et seq. ("FDCPA"). (Not. of Rem. Ex. A.) On September 21, 2011, Defendant removed the action to federal court and filed this motion to dismiss on September 27, 2011. Plaintiff opposes Defendant's motion. In the Complaint, Plaintiff alleges that Defendant violated 15 U.S.C. 1692e(2), 1692e(5), 1692e(10), and 1692j(a).2 (Id.) The facts asserted in the Complaint are sparse; however, the general allegations of the Complaint are as follows: Plaintiff is a "consumer" and Defendant is a "debt collector" attempting to collect a "debt" within the meaning of the FDCPA. (Id. 4-6.) On unspecified dates, Defendant sent Plaintiff two collection letters for two different balance amounts. (Id. 7.) The letters, which are not attached as exhibits to the Complaint, stated that Plaintiff's account had been placed with Defendant "in a Prelegal status for payment in full." (Id. 12.) The letters were nearly identical in all respects and differed only with regard to

86

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

the balance amounts and reference [*3] numbers listed. (Id. 8-9.) The letters did not contain original account numbers. (Id. 9.) The Complaint asserts that the letters were "intended to be deceptive regarding the current debt ownership status of . . . the original creditor" and misrepresent "the amount owed, if indeed any debt exists." (Id. 13-14.) 2 In section two of the opposition brief, Plaintiff attempts to expand on the Complaint by alleging a violation of 1692e(3). The Complaint itself, however, does not include any such allegation. It is well established that party cannot amend his complaint in a brief submitted in opposition to a motion to dismiss. Federico v. Home Depot, 507 F.3d 188, 201-02 (3d Cir. 2007). Accordingly, the Court will not consider this claim. III.LEGAL STANDARD "A pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). In deciding a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), a court is required to accept as true all allegations in the complaint and to view all reasonable inferences that can be drawn therefrom in the light most favorable to the plaintiff. Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 1384 (3d Cir. 1994). [*4] To survive a motion to dismiss, a complaint must state a plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1950, 173 L. Ed. 2d 868 (2009). The complaint need not provide detailed factual allegations, however, a plaintiff's obligation to provide the grounds of his entitlement to relief "requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). Thus, assuming that the factual allegations in the complaint are true, those "allegations must be enough to raise a right to relief above a speculative level." Id. IV.DISCUSSION A. 1692e(2)(A) Pursuant to 15 U.S.C. 1692e(2)(A), a debt collector may not falsely represent "the character, amount, or legal status of any debt." In the Complaint, Plaintiff asserts that Defendant is liable for misrepresenting the amount of the alleged debt. Plaintiff does not state how much Defendant contends is owed, or the actual amount of the debt.3 Instead, the

Complaint merely concludes that Defendant "is misrepresenting the amount owed." (Not. of Rem. Ex. A 14.) The purpose of Rule 8 [*5] is to ensure that a defendant receives fair notice of what the claim is and the grounds upon which it rests. Bell Atl. Corp., 550 U.S. at 555 (citation omitted). Here, Plaintiff presents no facts regarding the claim and simply concludes that Defendant is liable for violating 1692e(2)(A). Accordingly, Plaintiff's claim is dismissed without prejudice for failure to state a claim upon which relief can be granted. See Espinal v. West Asset Mgmt., Inc., Civ. No. 11-5799, 2011 U.S. Dist. LEXIS 136664 (D.N.J. Nov. 22, 2011) (dismissing similar claim on same grounds); Pineda v. West Asset Mgmt., Inc., Civ. No. 11-5191, 2011 U.S. Dist. LEXIS 145973 (D.N.J. Dec. 20, 2011) (same). 3 The Complaint also raises the possibility that no debt actually exists. (Not. of Rem. Ex. A 14. ("Defendant Client Services, Inc. is misrepresenting the amount owed, if indeed any debt exists.")) This seems to contradict Plaintiff's earlier assertion that "Defendant attempted to collect a debt that falls within the definition of 'debt' for purposes of 15 U.S.C. 1692a(5)." (Id. 6.) However, for the reasons stated above, regardless of whether a contradiction exists, Plaintiff's claim fails; therefore, the Court [*6] will not address this issue. B. 1692e(5) 15 U.S.C. 1692e(5) prohibits a debt collector from threatening "to take any action that cannot legally be taken or that is not intended to be taken." 15 U.S.C. 1692e(5). Plaintiff claims that in each of the letters received, Defendant stated that Plaintiff's account had been placed with their organization "in a Prelegal status for payment in full." (Not. of Rem. Ex. A 12.) Plaintiff alleges that Defendant's use of the term "prelegal" implicitly threatened legal action when, in fact, no such action was contemplated. In response, Defendant argues that the term "pre-legal" "is not akin to a representation the communication is from an attorney and CSI did not threaten to take any action which cannot legally be taken." (Reply Br. at 2.) Defendant goes on to state that "CSI did not state it was a law firm or licensed to practice law in New Jersey. The letter did not include any false or deceptive information. The letter does not state the account has been assigned to an attorney or law firm or that a lawsuit has been filed." (Id.) To determine whether a debt collector's communications threaten litigation in a manner that

87

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

violates the FDCPA, [*7] a court must analyze the language of the letters from the perspective of the least sophisticated consumer. Huertas v. Galaxy Asset Mgmt., 641 F.3d 28, 33 (3d Cir. 2011); See Forman v. Academy Collection Service, Inc., 388 F. Supp. 2d 199 (S.D.N.Y. 2005) (ruling that letter indicating a matter was in pre-legal status did not mislead even the least sophisticated consumer). As stated previously, the facts asserted in the Complaint are sparse, and Plaintiff did not attach copies of the letters as exhibits to the Complaint. Thus, the Court is unable to refer to the letters themselves to determine whether Defendant's words constitute a threat to take legal action. Moreover, the only text that Plaintiff cites to in support of the 1692e(5) claim is the phrase "pre-legal status." It is not possible for the Court to discern whether Defendant's letter violated 1692e(5) when Plaintiff pleads only a snippet of its contents and does not allege any facts in support of the claim. As such, the Complaint fails to set forth sufficient facts to support a claim under 1692e(5). Plaintiff's 1692e(5) is therefore dismissed without prejudice. C. 1692e(10) Plaintiff asserts that Defendant is liable for [*8] violating 15 U.S.C. 1692e(10) by failing to provide an account number and listing two differing balances. 15 U.S.C. 1692e(10) prohibits the use of "deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer." Once again, Plaintiff fails to allege any facts to support the assertion that the letters were deceptive, nor does Plaintiff provide the actual amounts listed in the letters; instead, Plaintiff merely concludes that Defendant utilized deceptive tactics. As mentioned previously, the purpose of Rule 8 is to ensure that a defendant receives fair notice of what the claim is and the grounds upon which it rests. Bell Atl. Corp., 550 U.S. at 555 (citation omitted). Here, Plaintiff presents no facts regarding the claim and simply concludes that Defendant is liable for violating 1692e(10). Accordingly, Plaintiff's claim is dismissed without prejudice for failure to state a claim upon which relief can be granted. D. 1692j(a) 15 U.S.C. 1692j(a) prohibits the use of collection forms that create the false impression that a third party, other than the creditor, is involved in the collection of the debt at issue. Pineda v. West Asset Mgmt., Inc., Civ. No. 11-5191, 2011 U.S. Dist. LEXIS 145973, at *6 (D.N.J. Dec. 20, 2011) [*9] (citing Orenbuch v. North Shore Health Sys., Inc., 250 F. Supp. 2d 145, 149-150 (E.D.N.Y. 2003)). "It is designed to address the abusive practice known as 'flat rating,' in which a

collection agency sells to creditors 'dunning letters' bearing the agency's letterhead but is not actually involved in the collection of the debt, thus giving the debtor a misleading sense of urgency regarding payment." Id. In the Complaint, Plaintiff asserts that the collection letters received were written to deceive the consumer as to whether the original creditor FIA Card Services (FIA) still owned the debt in violation of 1692j(a). Plaintiff, however, does not allege that Defendant had not actually been retained by FIA or that Defendant was otherwise not involved in the effort to collect the debt. As such, the Complaint fails to allege facts that could plausibly state a claim under 1692j(a).4 Plaintiff's 1692j(a) claim is therefore dismissed without prejudice. See id. at *7 (holding it impossible to conclude that a letter stating that a debtor's account had been assigned to a collection agency "created the false impression that a party other than the creditor was attempting to collect the debt [*10] when such a person was not in fact participating"); see also Pagan v. United Recovery Sys., L.P., Civ. No. 11-5994, 2010 U.S. Dist. LEXIS 2130, (Jan. 6, 2012) (dismissing 1692j(a) claim on the same grounds as the instant case). 4 In the opposition brief, Plaintiff attempts to expand on the 1692j(a) claim by stating that upon information and belief, Defendant purchased the debt from FIA and that FIA was not involved the collection of the debt. Plaintiff alleges that the collection letter misled Plaintiff into falsely believing that FIA was involved in the collection of the debt in violation of 1692j(a). (Pl. Br. at 1.) The Complaint itself, however, contains no such allegations. "Of course, it is well-established that a party cannot amend his complaint in a brief submitted in opposition to a motion to dismiss." Pineda, 2011 U.S. Dist. LEXIS 145973, at *8 (citing Federico v. Home Depot, 507 F.3d 188, 201-02 (3d Cir. 2007). "Moreover, even if such additional facts had been pled in the Complaint, the Court questions whether the Complaint would state a claim for violation of 1692j(a), as this provision 'only applies to situations were [sic] a third party provides a creditor with dunning [*11] letters.'" Id. (quoting Anthes v. Transworld Sys. Inc., 765 F. Supp. 162, 168 (D.Del 1991)). V.CONCLUSION For the reasons set forth above, Plaintiff's complaint is dismissed in its entirety without prejudice. Since this Court cannot determine whether an amendment to the Complaint would cure the deficiency

88

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

indicated above, this Court will not automatically grant Plaintiff leave to amend. See Phillips v. County of Allegheny, 515 F.3d 224, 236 (3d Cir. 2008); see also Foman v. Davis, 371 U.S. 178, 83 S. Ct. 227, 9 L. Ed. 2d 222 (1962) (holding that leave to amend under Rule 15(a) should be freely given in the absence of any declared reason such as the futility of the proposed amendment). Instead, Plaintiff may file a motion for leave to amend the Complaint. The parties will be

given the opportunity to brief the issue of whether the proposed amendment would be futile. An appropriate Order accompanies this Opinion. DATED: April 5, 2012 /s/ Claire C. Cecchi CLAIRE C. CECCHI, U.S.D.J.

E.

Debtors Represented by Counsel

1692c. Communication in connection with debt collection (a) Communication with the consumer generally. Without the prior consent of the consumer given directly to the debt collector or the express permission of a court of competent jurisdiction, a debt collector may not communicate with a consumer in connection with the collection of any debt-*** (2) if the debt collector knows the consumer is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney's name and address, unless the attorney fails to respond within a reasonable period of time to a communication from the debt collector or unless the attorney consents to direct communication with the consumer; or *** 1. 2. Dragon v. I.C. Sys., 483 F. Supp. 2d 198 (D. Conn. 2007) Schmitt v. FMA Alliance, 398 F.3d 995 (8th Cir. 2005).
Paul J. Schmitt, Plaintiff-Appellant, v. FMA Alliance, doing business as FMA Alliance, Ltd.; FMA Alliance, Limited Partnership; FMA Alliance, L.P., a State of Texas Limited Partnership, Defendant-Appellee. No. 03-4057 UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT 398 F.3d 995; 2005 U.S. App. LEXIS 2026 November 19, 2004, Submitted February 9, 2005, Filed PRIOR HISTORY: [**1] Appeal from the United States District Court for the District of Minnesota. DISPOSITION: Affirmed.

COUNSEL: For Paul J. Schmitt, PlaintiffAppellant: William C. Michelson, MARSO & MICHELSON, Minneapolis, MN.

89

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15


For FMA ALLIANCE, LTD. doing business as FMA Alliance, Ltd.; FMA ALLIANCE, Limited Partnership; FMA ALLIANCE, L.P., a State of Texas Limited Partnership, Defendant-Appellee: Michael August Klutho, Christopher Morris, BASSFORD & REMELE, Minneapolis, MN. JUDGES: Before MURPHY, MELLOY, Circuit Judges. OPINION [*996] PER CURIAM. Paul J. Schmitt incurred a debt to First Bank U.S.A. ("First Bank"). He failed to pay the debt and he retained an attorney named William Michelson. Michelson informed First Bank that he represented Schmitt on January 10, 2001, and again on April 5, 2001. In both notices, Michelson advised First Bank that Schmitt was unable to pay the debt, that Schmitt was advised of his Chapter 7 bankruptcy rights, and that First Bank should advise its collection agency of Schmitt's representation. Sometime after receiving Michelson's second notice, however, First Bank transferred Schmitt's account to the Defendants (collectively, "FMA") to collect from Schmitt. Thereafter, on July 9, 2002, FMA [**2] sent a letter directly to Schmitt seeking immediate payment, warning that interest will accrue on his account, and naming First Bank as the creditor. Schmitt filed a complaint charging that the July 9th letter from FMA violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. 1692c(a)(2), which prohibits a debt collector from contacting a debtor where the collection agency "knows" the consumer is represented by an attorney. The Magistrate Judge ("MJ") construed 1692c(a)(2) to require actual knowledge and reasoned that although First Bank actually knew of Schmitt's representation, FMA did not. See Report and Recommendation of Chief Magistrate Judge Jonathan Lebedoff ("R&R") at 7-8. The district court 1 conducted a de novo review, adopted the MJ's recommendation, and dismissed the com [*997] plaint without prejudice. See Order dated Nov. 14, 2003. Schmitt now appeals. 1 The Honorable Joan N. Ericksen, United States District Judge for the District of Minnesota, presiding. [**3] The FDCPA governs communication in connection with debt collection and states that LAY, and

(a) . . . Without the prior consent of the consumer given directly to the debt collector or the express permission of a court of competent jurisdiction, a debt collector may not communicate with a consumer in connection with the collection of any debt . . . (2) if the debt collector knows the consumer is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney's name and address . . . .

15 U.S.C. 1692c(a)(2) (emphasis added). The FDCPA is a consumer protection statute that was created in response to abusive, deceptive, and unfair debt collection practices. Some courts have construed the term "knows" to require actual knowledge; others have held that the term refers to actual or implied knowledge. See, e.g., Powers v. Prof'l Credit Servs., 107 F. Supp. 2d 166, 169 (N.D.N.Y. 2000) (creditor's actual knowledge can be imputed to collection agent "when the creditor has such knowledge and fails to convey it to . . . the debt collector"); but cf. Randolph v. I.M.B.S., Inc., 368 F.3d 726, 729 (7th Cir. 2004) [**4] (stating that creditors' knowledge is not imputed to debt collectors). Our circuit has not yet addressed this issue. In this case, Schmitt's complaint premised FMA's liability on the theory that a creditor's actual knowledge of a debtor's representation is imputed to its agent (i.e., the debt collection agency). Since First Bank possessed actual knowledge of Schmitt's representation prior to transferring collection of the debt to FMA, Schmitt argued that First Bank's actual knowledge should be imputed to FMA. In response, FMA brought a motion to dismiss under Fed. R. Civ. Pro. 12(b)(6), claiming the FDCPA requires a plaintiff to plead that the debt collector had actual knowledge of the plaintiff's representation. We affirm the district court's dismissal of Schmitt's complaint without prejudice and hold that a plaintiff must plead actual knowledge under the FDCPA in order to state a claim upon which relief may be granted.

90

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15


The theory of implied knowledge contradicts established agency law, which dictates that while the knowledge of the agent is imputed to the principal, the converse is not true. See S.O.G.-San Ore-Gardner v. Missouri P. R. Co., 658 F.2d 562, 567 (8th Cir. 1981) [**5] (stating that an agent cannot be imputed with information which the principal failed to disclose); Siharath v. Citifinancial Servs. (In re Siharath), 285 B.R. 299, 304 (Bankr. D. Minn. 2002) (holding that while an agent's knowledge is imputed to the principal due to the identity of interests that is presumed when an agent acts within the scope of an agency relation, this rule "does not operate in the converse, and the agent cannot be imputed with the information which its principal has failed to give it"); Waswick v. Stutsman County Bank (In re Waswick), 212 B.R. 350, 353 & n.3 (Bankr. D. N.D. 1997) . Schmitt acknowledges this general principle of agency law, but claims that the FDCPA creates a specific exception to this rule. He highlights two cases to support his position: Powers, supra, and Micare v. Foster & Garbus, 132 F. Supp. 2d 77 (N.D.N.Y. 2001). In Powers, the court concluded that the FDCPA imposed a duty on the creditor to convey the material facts of the matter to the debt collector, including information regarding the attorney's representation of the debtor. See 107 F. Supp. 2d at 169. [**6] In Micare, the court [*998] held that a creditor's knowledge could be imputed to the debt collector where the collector knew of the plaintiff's representation prior to transferring the file to the collector. See 132 F. Supp. 2d at 80. The Micare court reasoned that "although the FTC Commentary [on the FDCPA] states that knowledge will not 'automatically' be imputed to the debt collector, it does not state that such knowledge cannot be imputed." Id. at 80. We decline to follow either Powers or Micare and embrace the FDCPA as a special exception to general agency law. First, there is no textual basis within the statute to suggest that an exception to such a well-settled rule was intended. Second, "[a] distinction between creditors and debt collectors is fundamental to the FDCPA, which does not regulate creditors' activities at all." Randolph, 368 F.3d at 729. Thus, we have no authority to place a duty upon First Bank. Third, even if the FDCPA creates an exception allowing a principal's knowledge to be imputed to the agent under narrow circumstances, it is not clear on this record whether the relationship between a creditor [**7] and its debt collector is one of principal-agent. For instance, Schmitt claimed that FMA was the agent of First Bank, but in Randolph, the court stated that "debt collectors are independent contractors . . . ." Id. Even if we hold as Schmitt requests, it appears we would not necessarily find the nexus for liability that Schmitt seeks. Accordingly, the decision of the district court is AFFIRMED.

Rule 4.02 Communication with One Represented by Counsel (a) In representing a client, a lawyer shall not communicate or cause or encourage another to communicate about the subject of the representation with a person, organization or entity of government the lawyer knows to be represented by another lawyer regarding that subject, unless the lawyer has the consent of the other lawyer or is authorized by law to do so. (b) In representing a client a lawyer shall not communicate or cause another to communicate about the subject of representation with a person or organization a lawyer knows to be employed or retained for the purpose of conferring with or advising another lawyer about the subject of the representation, unless the lawyer has the consent of the other lawyer or is authorized by law to do so. (c) For the purpose of this rule, "organization or entity of government" includes: (1) those persons presently having a managerial responsibility with an organization or entity of government that relates to the subject of the

91

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

representation, or (2) those persons presently employed by such organization or entity and whose act or omission in connection with the subject of representation may make the organization or entity of government vicariously liable for such act or omission. (d) When a person, organization, or entity of government that is represented by a lawyer in a matter seeks advice regarding that matter from another lawyer, the second lawyer is not prohibited by paragraph (a) from giving such advice without notifying or seeking consent of the first lawyer. Comment: 1. Paragraph (a) of this Rule is directed at efforts to circumvent the lawyer-client relationship existing between other persons, organizations or entities of government and their respective counsel. It prohibits communications that in form are between a lawyer's client and another person, organization or entity of government represented by counsel where, because of the lawyer's involvement in devising and controlling their content, such communications in substance are between the lawyer and the represented person, organization or entity of government. 2. Paragraph (a) does not, however, prohibit communication between a lawyer's client and persons, organizations, or entities of government represented by counsel, as long as the lawyer does not cause or encourage the communication without the consent of the lawyer for the other party. Consent may be implied as well as expressed, as, for example, where the communication occurs in the form of a private placement memorandum or similar document that obviously is intended for multiple recipients and that normally is furnished directly to persons, even if known to be represented by counsel. Similarly, that paragraph does not impose a duty on a lawyer to affirmatively discourage communication between the lawyer's client and other represented persons, organizations or entities of government. Furthermore, it does not prohibit client communications concerning matters outside the subject of the representation with any such person, organization, or entity of government. Finally, it does not prohibit a lawyer from furnishing a "second opinion" in a matter to one requesting such opinion, nor from discussing employment in the matter if requested to do so. But see Rule 7.02. 3. Paragraph (b) of this Rule provides that unless authorized by law, experts employed or retained by a lawyer for a particular matter should not be contacted by opposing counsel regarding that matter without the consent of the lawyer who retained them. However, certain governmental agents or employees such as police may be contacted due to their obligations to the public at large.

92

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

4. In the case of an organization or entity of government, this Rule prohibits communications by a lawyer for one party concerning the subject of the representation with persons having a managerial responsibility on behalf of the organization that relates to the subject of the representation and with those persons presently employed by such organization or entity whose act or omission may make the organization or entity vicariously liable for the matter at issue, without the consent of the lawyer for the organization or entity of government involved. This Rule is based on the presumption that such persons are so closely identified with the interests of the organization or entity of government that its lawyers will represent them as well. If, however, such an agent or employee is represented in the matter by his or her own counsel that presumption is inapplicable. In such cases, the consent by that counsel to communicate will be sufficient for purposes of this Rule. Compare Rule 3.04(f). Moreover, this Rule does not prohibit a lawyer from contacting a former employee of a represented organization or entity of a government, nor from contacting a person presently employed by such an organization or entity whose conduct is not a matter at issue but who might possess knowledge concerning the matter at issue.

F. Pleadings and Discovery 1. O'Rourke v. Palisades Acquisition XVI, LLC, 635 F.3d 938 (7th Cir. 2011).
MICHAEL O'ROURKE, individually and on behalf of a class, Plaintiff-Appellant, v. PALISADES ACQUISITION XVI, LLC, and PALISADES COLLECTION, LLC, Defendants-Appellees. No. 10-1376 UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT 635 F.3d 938; 2011 U.S. App. LEXIS 5295 September 30, 2010, Argued March 17, 2011, Decided SUBSEQUENT HISTORY: Rehearing denied by, Rehearing, en banc, denied by O'Rourke v. Palisades Acquisition XVI, LLC, 2011 U.S. App. LEXIS 9989 (7th Cir. Ill., May 12, 2011) US Supreme Court certiorari denied by O'Rourke v. Palisades Acquisition, 2012 U.S. LEXIS 1024 (U.S., Jan. 23, 2012) PRIOR HISTORY: [**1] Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 08 C 00430--Charles R. Norgle, Sr., Judge.

JUDGES: Before FLAUM, MANION, and TINDER, Circuit Judges. OPINION BY: MANION OPINION [*939] MANION, Circuit Judge. Michael O'Rourke had a large outstanding balance on his credit card. Over the years, the unpaid debt was sold to

93

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

several debt collectors and finally to Palisades Acquisition XVI. It sought but failed to collect on the debt and eventually sued O'Rourke in state court. Attached to the complaint was an exhibit that closely resembled a credit card statement listing the balance he owed and placing Palisades in the place of the issuer. O'Rourke sued in federal court claiming that the attachment violated the Fair Debt Collection Practices Act, 15 U.S.C. 1692 ("the Act"). Unlike most lawsuits under the Act, he claimed that the attachment was actionable because it was meant to mislead the state court judge. The district court granted summary judgment for Palisades and O'Rourke appeals. The Act regulates communications directed at the consumer; since it does not extend to communications that are allegedly meant to mislead the judge in a state court action, we affirm. I. In [**2] 2001, O'Rourke owed several thousand dollars on his Citibank credit card but, for reasons unknown, he never paid the bill. Over time, he mistakenly assumed that the debt was barred by the statute of limitations. Then one day he received a collection notice from a law firm representing the debt's new owner, Palisades. He ignored it. Several months later, he received a summons and complaint with some exhibits attached. One of the exhibits was a statement that looked like a credit card bill, complete with a statement closing date several months before the complaint was filed, and it listed Palisades as the issuing party. Despite looking authentic, it was not an actual copy of a credit card statement. And Palisades admits that it never sent the statement to O'Rourke before filing the suit. O'Rourke eventually hired a lawyer, and on the day of trial, Palisades voluntarily dismissed the case. After Palisades dismissed its suit, O'Rourke sued it in federal court claiming that the exhibit violated the Fair Debt Collection Practices Act, 15 U.S.C. 1692. Unlike most cases filed under the Act, O'Rourke doesn't claim that the statement was materially deceptive to him or to the unsophisticated [**3] consumer. Instead, he claims that the statement is materially false, deceptive, and misleading to a state court judge, specifically one who is viewing it in the context of granting a default judgment. O'Rourke frames his argument around the overburdened court system in Cook County, Illinois, the problems inherent in the debt collection business, and Palisades's chicanery. He claims that in Cook County-- where Palisades filed its complaint--there are over 100,000 contract-claim cases filed every year, where parties sue over bad debts. This massive volume

of cases is divided between seven full-time judges, giving each over 14,000 of these cases a year, with most of them being resolved by default judgments. A judgment, of course, changes the nature of the obligation; the debt collector can now create a judgment lien on real estate, and enable other collection methods, including garnishing the debtor's wages. [*940] Debt collectors who work on very thin profit margins rely on these default judgments for two reasons. The first is that it is too expensive to actually litigate the case, especially when the debt is relatively small and previous collection efforts have failed. So, when a party actually [**4] defends against the suit, the debt collector simply dismisses the suit--Palisades did precisely this with O'Rourke. The second reason is that they cannot always establish the debt. Like the current mortgage problem that dominates the headlines, these debts are packaged from the original owner and sold to debt collectors in a portfolio; if the portfolio is large enough, sometimes it's split among several debt collectors. And sometimes, the debt is packaged again and sold to a second or third debt collector--Palisades was the fourth successive assignee of O'Rourke's debt. This poses difficulties for everyone. The packaging and re-packaging of the debt can keep the debt collector from ever being able to verify the original debt. It can also affect the debtor: as in this case, the same debt is sold to multiple parties with each attempting to collect on it, sometimes at the same time. Thus, with the costs of litigation and the difficulties establishing the debt, when a debt collector cannot get payment through phone calls and letters and it has to go to court, the debt collector will often rely on default judgments as the last resort. In most cases when a defendant fails to appear and answer [**5] the allegations in a properly pleaded complaint, those allegations are deemed admitted and default judgment is entered for the plaintiff. But the Illinois Rules of Civil Procedure also provide that even in the event the defendant fails to appear and plead, "the court may in either case, require proof of the allegations of the pleadings upon which relief is sought." 735 ILCS 5/2-1301(d). Although it is unclear how often courts exercise their discretion and require proof of the allegations in the complaint, it does happen. E.g., Universal Cas. Co. v. Lopez, 376 Ill. App. 3d 459, 876 N.E.2d 273, 278, 315 Ill. Dec. 273 (Ill. App. Ct. 2007); Colonial Penn Ins. Co. v. Tachibana, 53 Ill. App. 3d 981, 369 N.E.2d 177, 179, 11 Ill. Dec. 723 (Ill. App. Ct. 1977). Naturally, with the difficulties outlined above, debt collectors want to avoid having to prove their damages to the court, so they attempt to fully establish all the

94

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

facts with the complaint and the exhibits. In Illinois, one way that a plaintiff can establish a debt is through the account-stated theory or method. Under that method, when a party receives a bill or account statement and does not object to it within a reasonable time, the bill or statement serves as evidence of both an agreement to pay and the account's [**6] accuracy. Delta Consulting Grp, Inc. v. R. Randle Constr., Inc., 554 F.3d 1133, 1138 (7th Cir. 2009) (citing W.E. Erickson, Constr., Inc. v. Congress-Kenilworth Corp., 132 Ill. App. 3d 260, 477 N.E.2d 513, 520, 87 Ill. Dec. 536 (1985)). With this understanding, the statement attached to the complaint in this case takes on an added significance. It explains why the statement would be dated for six months before the complaint was filed and why it was, in fact, never sent to O'Rourke: Palisades apparently wanted to give the judge the impression that O'Rourke had received the statement and never objected. Thus, a judge who examines the complaint and the attached statement trusting it to be authentic would believe that there is no reason to exercise his discretion and require additional proof of the debt. While this reflects negatively on Palisades's debtcollection practices, the question is not whether this dubious method is an acceptable means of practicing law. Nor is the question whether the attached [*941] statement would have misled the unsophisticated consumer. Rather, the question O'Rourke presents is whether this statement, which O'Rourke alleges was meant to deceive the state court judge, is actionable under the Act. No other [**7] question was raised on appeal and no cross-appeal was filed, so we are limiting our analysis to what the parties have argued. 1 1 Nothing in the opinion states or should be read to address whether the Act applies to the entire judicial process. That question was left open in Beler v. Blatt, Hasenmiller, Leibsker & Moore, LLC, 480 F.3d 470, 473 (7th Cir. 2007), where we observed, without holding, that the Act's protections may not stretch into formal legal pleadings. Id. at 473. This case does not force us to revisit the question and answer whether it does. Instead, this opinion addresses the question presented: whether the Act covers filings that are meant to deceive a state court judge. II. We review de novo the district court's granting of summary judgment. Ruth v. Triumph P'ships, 577 F.3d 790, 795 (7th Cir. 2009). And we may affirm on any

ground that appears in the record. Bivens v. Trent, 591 F.3d 555, 559 (7th Cir. 2010). On appeal, O'Rourke continues to claim that the exhibit is materially false and would mislead the Cook County judge handling his case; thus, it violates 1692e. That section is broadly written and prohibits the use of "any false, deceptive, or misleading representation[s] [**8] or means in connection with the collection of any debt." 15 U.S.C. 1692e. It then has a non-exhaustive list of conduct that violates the Act. O'Rourke specifically alleges that the misleading credit card statement violates 1692e(2)(A) and (10). The first subsection prohibits the false representation of "the character, amount, or legal status of any debt." The second prohibits "[t]he use of any false representation or deceptive means to collect or attempt to collect any debt." Nothing in those subsections or in 1692e states that the Act applies to statements made to judges, but at the same time, the Act's language is not specifically limited to statements directed at consumers. Yet when read in light of the Act's purpose and numerous provisions, the prohibitions are clearly limited to communications directed to the consumer and do not apply to state judges. The Act is meant "to protect consumers against debt collection abuses." 15 U.S.C. 1692(e). To accomplish this purpose, 1692e broadly prohibits a debt collector from using "any false, deceptive, or misleading representation or means in connection with the collection of any debt." Id. 1692e. Many of the specific instances [**9] of conduct that violate this Section are protections for consumers. They keep consumers from being intimidated or tricked by debt collectors. 2 With this focus on the consumer, we have noted that "[t]he purpose of the Fair Debt [*942] Collection Practices Act is to protect consumers." Muha v. Encore Receivable Mgmt., Inc., 558 F.3d 623, 627 (7th Cir. 2009). And its provisions revolve around its purpose: "The statute is designed to provide information that helps consumers to choose intelligently." Hahn v. Triumph P'ships LLC, 557 F.3d 755, 757 (7th Cir. 2009). Naturally we have used that understanding of the Act to interpret 1692e, holding that to be actionable a misleading statement must have the ability to influence a consumer's decision. Hahn, 557 F.3d at 758 ("A statement cannot mislead unless it is material, so a false but non-material statement is not actionable."); accord Miller v. Javitch, Block & Rathbone, 561 F.3d 588, 596 (6th Cir. 2009). 2 E.g., 15 U.S.C. 1692e(2); id. 1692e(4); id. 1692e(5); id. 1692e(10) (using "false representations and deceptive means to collect or attempt to collect a debt or information about a consumer"); id. 1692e(11) (prohibiting debt

95

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

collectors [**10] from failing to "disclose in the initial written communication with the consumer . . . that the debt collector is attempting to collect a debt"); see also Kropelnicki v. Siegel, 290 F.3d 118, 127 (2d Cir. 2002) (noting "[t]he FDCPA establishes certain rights for consumers whose debts are placed in the hands of professional debt collectors for collection, and requires that such debt collectors advise the consumers whose debts they seek to collect of specified rights."(quotation omitted) (emphasis added)); Christian Stueben, Judge or Jury? Determining Deception or Misrepresentation Under Fair Debt Collection Practices Act, 78 Fordham L. Rev. 3107, 3112-14 (2010) (outlining how the purpose of the Act is to protect consumers). Our cases focus on the consumer, and we have rejected attempts to stretch the Act beyond its text and purpose. See Tinsley v. Integrity Financial Partners, Inc., 634 F.3d 416, No. 10-2045, 2011 U.S. App. LEXIS 2803, 2011 WL 477486 (7th Cir. Feb. 11, 2011). In Tinsley, when the debtor was contacted about a debt, he found an attorney, who wrote a letter to the debt collector stating that Tinsley had no assets and asking that all future communications be sent to the attorney. The debt collector [**11] complied and sent the next letter to the attorney. Tinsley then sued. His argument was premised on the fact that the Act prevents any further communication once a "consumer" maintains that he refuses to pay the debt. 15 U.S.C. 1692c(c). Tinsley argued that the additional communications sent to his attorney--at his direction-violated the Act. He claimed that under the Act his attorney should be treated the same as a consumer. In rejecting this argument, we held that such an interplay between the subsections of the Act rendered it "gibberish," and called it an "implausible understanding" of the Act. 2011 U.S. App. LEXIS 2803, [WL] at 4-5. Unequivocally we held that under 1692c, a lawyer representing a debtor is not a consumer. Coming back to the question on appeal of whether the Act covers false statements made to judges, we turn to the Act's language. Section 1692e states: "A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt." The text says nothing of to whom the representation has to be made for it to be actionable. Although the section's language has no specific limits, it cannot be so open-ended as to include, for example, [**12] a misleading letter sent to the wrong address. See David v. FMS Services, 475 F.

Supp.2d 447, 448 (S.D.N.Y. 2007). There must be a limiting principle. The concurrence disagrees. First, it believes we should resolve this case with reference to the unsophisticated consumer standard, because at least in the district court below O'Rourke claimed that Palisades intended to deceive and mislead the court and the debtor; thus, even if the document wasn't created with him in mind, he was an indirect recipient. Post at 24. Second, it believes that communications meant to deceive judges fall under the Act, because 1692e does not exclude any "class of persons" from the Act's protection. Id. at 23. The concurrence reasons that state courts are a "medium through which debt collection information is conveyed to consumers," id. at 24, and since state court judges can play "an extremely consequential role in the debt collection process," filings meant to deceive the judge should also be covered under the Act. Id. But even under the concurrence's position there would be classes of persons excluded from the Act's protections. Instead of focusing on the "consumer," courts would have to determine whether [**13] the person plays an inconsequential, a consequential, or "an extremely consequential role" in the process. [*943] And that is unnecessary. The Act does not extend its protection beyond the consumer; there is no reference to anyone else in the process who may have a consequential, let alone extremely consequential role in the debt-collection process. Instead of relying on the concurrence's reasoning, the Act's purpose and focus provide a clear limiting principle. See Norman J. Singer, 2B Sutherland Statutory Construction, 54:5 (7th ed. 2008); Gomez v. United States, 490 U.S. 858, 864, 109 S. Ct. 2237, 104 L. Ed. 2d 923 (1989) (noting the Act should be read in light of its purpose). The Act is meant to protect consumers. Muha, 558 F.3d at 627. A consumer is "any natural person obligated or allegedly obligated to pay any debt." 15 U.S.C. 1692a(3). The definition applies to every subsection of the Act. As a general matter, the Act and its protections do not extend to third parties. Although courts have extended the Act's prohibitions to some statements made to a consumer's attorney, Evory v. RJM Acquisitions Funding L.L.C., 505 F.3d 769, 773-75 (7th Cir. 2007), and to others who can be said to stand in the consumer's shoes, Wright v. Fin. Serv. of Norwalk, Inc., 22 F.3d 647, 650 (6th Cir. 1997) [**14] (en banc) (holding that executrix could sue because the Act applies to anyone who "stand[s] in the shoes of the debtor [with] the same authority as the debtor to open and read the letters of the debtor"), none has extended the Act to persons who do not have a special

96

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

relationship with the consumer. In fact, the Eighth Circuit rejected an argument that the Act applied to representations that were not directed to the consumer: "The weight of authority applying section 1692e does so in the context of a debt collector making a false, deceptive, or misleading representation to the plaintiff." Volden v. Innovative Financial Systems, Inc., 440 F.3d 947, 954 (8th Cir. 2006) (emphasis in the original) (the false statements at issue were not made to the consumer but between a check guarantee company and a returned-check processor). Thus, the Act is limited to protecting consumers and those who have a special relationship with the consumer--such that the Act is still protecting the consumer--from statements that would mislead these consumers. The Act is not similarly interested in protecting third parties. Id.; see also Guerrero v. RJM Acquisitions, LLC, 499 F.3d 926, 934 (9th Cir. 2007) (noting [**15] "Congress did not view attorneys as susceptible to the abuses that spurred the need for the legislation"). By drawing the line at communications directed at consumers--"any natural person obligated or allegedly obligated to pay any debt"--and those who stand in their shoes, the Act fits its purpose: protecting consumers. This gives consumers the full breadth of protection that the Act permits and keeps us from reading into the Act whatever implausible ends O'Rourke's lawyers can conjure up. This also avoids the arbitrary "class designation" of whether the third party has "an extremely consequential role in the debt collection process." And it keeps us safe from the practical difficulty of parsing claims about whether a communication directed at a third party is actionable. 3 Thus, we read [*944] the Act's protections as extending to consumers and those who stand in the consumer's shoes and no others. 3 For example, if we accept O'Rourke's argument, we would stretch an Act that is meant to protect the "unsophisticated consumer" and place its protections on a judge, a judge who has been to law school, who is likely an accomplished attorney before ascending to the bench, and who is presumed knowledgeable [**16] of the law due to his position on the bench--in other words, a sophisticated individual. And just as we have crafted standards for the "unsophisticated consumer" and the "competent lawyer," Evory, 505 F.3d at 773-75, we would then have to craft a test for whether a communication would confuse or mislead the sophisticated judge, and so on with each group of persons involved in the debt-collection process. The practical futility of judging such claims reinforces the

holding of this case: The Act does not extend its protections to third parties who do not stand in the shoes of the consumer. The question then becomes whether judges stand in the shoes of the consumer, such that the Act's protections should be read to extend to them. Judges do not have a special relationship with consumers. They stand as impartial decision-makers in the discharge of their office. 28 U.S.C. 453; 705 ILCS 35/2. They are neither a consumer's advocate nor his adversary; their role is to ensure that the process is followed. They have no special relationship with the consumer; thus, the Act's protections do not extend to communications that could mislead them. III. Because nothing in the Act's text extends its protections [**17] to anyone but consumers and those who have a special relationship with the consumer, we hold that the Fair Debt Collection Practices Act does not extend to communications that would confuse or mislead a state court judge. Accordingly, the judgment of the district court is AFFIRMED. CONCUR BY: Tinder CONCUR TINDER. Circuit Judge, concurring in the result. I agree with my colleagues' ultimate conclusion that summary judgment was properly granted against plaintiff-appellant O'Rourke and in favor of Palisdes. I write separately because I believe the holding of the majority opinion--that the "Fair Debt Collection Practices Act does not extend to communications that would confuse or mislead a state court judge," ante at 13--paints with a brush broader than necessary to resolve the issues presented here and in doing so potentially creates tension with the text of the Fair Debt Collection Practices Act (FDCPA or "the Act") and the case law of our sister circuits. If the question before us is "whether the Act covers filings that are meant to deceive a state court judge," ante at 6 n.1; see also id. at 6, 9, 13, I think the answer should be that even assuming it does, O'Rourke's claim fails. As the majority explains, [**18] O'Rourke built his case on a document that was attached to the complaint in a collection suit filed against him in a Cook County, Illinois, court. O'Rourke argued in the district court below that the document was misleading under the Act both to him as a consumer and to the Cook County judge who would have decided his case if it had not been dismissed. In this court, he confines his argument to the deceptive effect the document could

97

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

have had on the judge. I mention this narrowing strategy because, in my view, O'Rourke failed to produce evidence that the document was false, misleading or deceptive to either a consumer or a judge. I think we can avoid deciding the more difficult question of whether a false statement made to a judge is proscribed by the Act by affirming the district court's assessment that O'Rourke's claim lacks sufficient evidentiary support. I. O'Rourke weaves allegations that the document at issue was misleading and deceptive into a broader narrative that it was patently false. His conflation of claims is not analytically problematic; we have recognized [*945] the overlapping nature of FDCPA claims relating to the false, misleading, and deceptive nature of documents. In Wahl v. Midland Credit Mgmt., Inc., 556 F.3d 643, 645-46 (7th Cir. 2009), [**19] we linked false to misleading, observing, "If a statement would not mislead the unsophisticated consumer, it does not violate the FDCPA--even if it is false in some technical sense." See also Muha v. Encore Receivable Mgmt., Inc., 558 F.3d 623, 627 (7th Cir. 2009) (quoting Wahl for this proposition); Hahn v. Triumph P'ships LLC, 557 F.3d 755, 758 (7th Cir. 2009) same); cf. Evory v. RJM Acquisitions Funding, L.L.C., 505 F.3d 769, 775 (7th Cir. 2007) (holding that statements that mislead or deceive the "competent lawyer" may also violate the FDCPA). We have likewise noted that " '[m]isleading' is similar to 'deceptive,' except that it can be innocent; one intends to deceive, but one can mislead through inadvertence." Evory, 505 F.3d at 775. The upshot is that to demonstrate actionable falsity in a debt collection communication, an FDCPA plaintiff must also demonstrate that unsophisticated consumers would be misled or deceived by the statement at issue. See Ruth v. Triumph P'ships, 577 F.3d 790, 800 (7th Cir. 2009) ("[Plaintiff] could not prevail in the district court simply by proving that statements in the notice were false. Whether they were false or not, she had to prove that an [**20] unsophisticated consumer would be deceived or misled by them."); Durkin v. Equifax Check Servs., Inc., 406 F.3d 410, 414 (7th Cir. 2005) (explaining the "unsophisticated consumer" standard). In some circumstances, we require FDCPA plaintiffs to produce extrinsic evidence to make this demonstration. As we explained in Ruth, plaintiffs who come forward with a document or statement that is clearly misleading or deceptive on its face are entitled to summary judgment on the basis of the document or statement alone. See Ruth, 577 F.3d at 801 (noting that there is no need for plaintiffs to "prove what is already

clear"). But when the document or statement at issue is "not plainly misleading or deceptive but might possibly mislead or deceive the unsophisticated consumer," id. at 800, "plaintiffs may prevail only by producing extrinsic evidence, such as consumer surveys, to prove that unsophisticated consumers do in fact find the challenged statements misleading or deceptive," id. O'Rourke has not produced anything showing that he or anyone else was misled, deceived, or otherwise duped by the document at issue. That would not pose an obstacle to his recovery if the document was on its face clearly [**21] misleading or deceptive. See id. at 801. But in my view the document is not. O'Rourke's theory is that the document is misleading because it appears as though it was sent to him, like a credit card statement, long before the suit against him was initiated, when in fact, it was not. O'Rourke points to the document's display of his address and a "Statement Closing Date" of July 5, 2007. The address and date might lead an unsophisticated consumer to believe that the document had been sent to him previously, but maybe not. "Statement Closing Date" is not the equivalent of "Statement Sent On," "Statement Prepared On," a post office cancellation mark, or a "sent" stamp. "Our past cases indicate that summary judgment may be avoided by showing that the letter, on its face, will 'confuse a substantial number of recipients.'" Williams v. OSI Educ. Servs., Inc., 505 F.3d 675, 678 (7th Cir. 2007) (quoting Taylor v. Cavalry Inv., L.L.C., 365 F.3d 572, 575 (7th Cir. 2004)). I do not doubt that it is possible that the document could lead someone to believe it was designed to appear as though it was sent to O'Rourke around July 5, 2007. But that is not the only [*946] reasonable conclusion one could reach [**22] on the face of the document, so more needed to be shown before summary judgment for O'Rourke would have been warranted. See Ruth, 577 F.3d at 801. Given the document's potential to cause confusion, it cannot be considered so clearly compliant with the FDCPA on its face that summary judgment for Palisades can be granted on that basis alone. See id. at 800 (discussing cases in which we granted summary judgment for debt collectors because the challenged documents or statements "plainly, on their face, [were] not misleading or deceptive"); see also Wahl, 556 F.3d at 646; Barnes v. Advanced Call Ctr. Techs., LLC, 493 F.3d 838, 841 (7th Cir. 2007). There is some traction to O'Rourke's claim that the document appears to have been sent to him in July 2007, and there may be even more traction to his contention that the document looks so much like a credit card statement that consumers might conclude that it was one. Cf. Hartman v. Great Seneca Fin. Corp., 569 F.3d 606, 613 (6th Cir. 2009)

98

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

(noting that a similar document attached to a state court complaint gave rise to a "genuine issue of material fact as to whether this document would mislead the least sophisticated consumer"). A grant of summary [**23] judgment for Palisades on the face of the document alone would thus be improper. See Ruth, 577 F.3d at 800. I am left to conclude that the document at issue falls somewhere in the middle of these extremes: it is not so misleading on its face as to warrant immediate summary judgment for O'Rourke, but it is not so clear (and not misleading) on its face as to warrant immediate summary judgment for Palisades. I acknowledge that this document has a "potential for deception of the unsophisticated," Evory, 505 F.3d at 776, but because this court is not an "expert[ ] in the knowledge and understanding of unsophisticated consumers facing demands by debt collectors," id., O'Rourke "may prevail only by producing extrinsic evidence . . . to prove that unsophisticated consumers do in fact find the challenged statements misleading or deceptive," Ruth, 577 F.3d at 800. O'Rourke attempted to meet this burden by submitting a purported expert report from an attorney who had experience with debt collection suits in Cook County Circuit Court. After reviewing fifty-eight cases brought by Palisades and thirty-seven collection cases brought by non-party debt collector Midland Funding, LLC, O'Rourke's proposed [**24] expert presented two opinions: "(1) In most cases brought by or on behalf of Debt Buyers, an ex parte default judgment results without a prove-up on damages. (2) Attaching a statement of account to the complaint creates the appearance that the document was sent to the debtor prior to the litigation which was not objected to giving rise to an Account Stated." The district court concluded that neither of the opinions was predicated on reliable methodology and excluded the report on that basis. See Ammons v. Aramark Uniform Servs., Inc., 368 F.3d 809, 816 (7th Cir. 2004) ("In determining whether evidence is reliable, the district judge must determine whether . . . the methodology underlying the expert's conclusions is reliable." (quotation omitted)). This was plainly not an abuse of discretion, see Myers v. Ill. Cent. R.R., 629 F.3d 639, 641 (7th Cir. 2010) ("[W]e review for an abuse of discretion the district court's decision to exclude the expert testimony."), for the proposed expert did not employ any sort of accepted evaluative framework, such as statistics, a control group, or even a true random sample. O'Rourke did not bring any other evidence to the table. He therefore was unable [**25] to create a genuine issue of material [*947] fact for trial. See Williams, 505 F.3d at 678. He tried to get around his

failure of proof by arguing that the document was primarily directed at the court. Therefore, he contended, "a survey of unsophisticated consumers makes no sense." Appellant's Br. 20, 28-29. It is true that we have applied a different standard-that of the "competent lawyer"--when assessing FDCPA claims brought in response to statements made to lawyers rather than consumers. See Evory, 505 F.3d at 775. We have not identified a standard for judges, though we have hinted that if one exists it would likewise be higher than that applied to the unsophisticated consumer. See Beler v. Blatt, Hasenmiller, Leibsker & Moore, LLC, 480 F.3d 470, 473 (7th Cir. 2007) ("Whatever shorthand appeared in the complaint--the payments system through which credit-card slips flow is complex, and even many lawyers don't grasp all of its details--was harmless rather than an effort to lead anyone astray. It was the judge, not [the debtor], who had to be able to determine to whom the debt was owed . . . ."); see also Evory, 505 F.3d at 775 ("A sophisticated person is less likely to be either deceived or [**26] misled than an unsophisticated one."). If the FDCPA indeed supports O'Rourke's theory of judicial deception, we would seem to be confronted with the crucial question of which standard, unsophisticated consumer, competent lawyer, or something else, should apply. The events here do not require us to even begin down that rabbit hole, however. 1 It would be unreasonable to hold judges, like competent lawyers, to a standard lower than that to which we hold the "uninformed, naive, or trusting," Gammon v. GC Servs. Ltd. P'ship, 27 F.3d 1254, 1257 (7th Cir. 1994), unsophisticated consumer who occupies the "lowest quartile . . . of consumer competence," Evory, 505 F.3d at 774. The way I see it, then, the unsophisticated consumer standard effectively serves as a floor beneath which our analysis will in any event have no cause to descend. And that is what dooms O'Rourke here, for he has not produced evidence showing that even an unsophisticated consumer would be misled or deceived by the statement. If he cannot make that minimal showing, he is necessarily unable to demonstrate that individuals held to a higher standard of competence would be misled or deceived. The lack of evidentiary proof stymies [**27] O'Rourke no matter how the document's audience?and the standard to which it is held-- is characterized. So even though there is a case to be made that the statement equally targeted the court and O'Rourke, see Donohue v. Quick Collect, Inc., 592 F.3d 1027, 1032 (9th Cir. 2010) (holding that a consumer was the audience of a complaint that was served on him); see also 735 Ill. Comp. Stat. 5/2-201, 5/2-203 (requiring service of state court complaint and

99

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

summons on defendants); Appellee's Br. 3 ("[T]he purpose of the statement was to provide information to a debtor served with a collection complaint."), O'Rourke's retreat from that argument in this forum is of no matter. 1 The majority cautions that consideration of whether materials submitted to judges are violative of the FDCPA could require the crafting of a "judge test," and perhaps others, see ante at 12 & n.3, leading a parade of horribles down the road to "practical futility," id. at 12 n.3. At least with respect to judges, I respectfully disagree. Federal courts are wellsuited to determine whether statements submitted to judges in collection cases are likely to mislead or deceive them. II. As the preceding section demonstrates, this [**28] case can be resolved without expanding [*948] our extensive FDCPA precedent. I respectfully submit that the categorical exclusion of documents provided to state court judges from the purview of the FDCPA goes beyond what is necessary to find that summary judgment was properly granted here. My colleagues correctly emphasize that the purpose of the FDCPA is to protect consumers. See ante at 7-9. I am not convinced, though, that the Act necessarily should be read to exclude misleading documents submitted to a court from its proscriptions. By its terms, the FDCPA aims "to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses." 15 U.S.C. 1692(e). This language is quite expansive; the Sixth Circuit has characterized the Act as "extraordinarily broad." Hartman, 569 F.3d at 611 (quoting Barany-Snyder v. Weiner, 539 F.3d 327, 33233 (6th Cir. 2008)). The provision under which O'Rourke proceeds, 15 U.S.C. 1692e, is similarly unbounded in its proscription of false or misleading [**29] representations: "A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt." In my view, the use of the judicial process is unquestionably a means by which debts are collected, and I struggle to find in the language of the statute any reason why statements or representations made during the use of the judicial process should be categorically excluded from its ambit. Indeed, we recognized in Evory that 1692d-1692f "do not designate any class

of persons, such as lawyers, who can be abused, misled, etc., by debt collectors with impunity." Evory, 505 F.3d at 773. Holding that state court judges are necessarily outside the scope of the FDCPA would seem to create such a "class of persons." While we deferred for another day the "decision whether 1692e covers the process of litigation" in Beler, 480 F.3d at 473, in two earlier cases, Gearing v. Check Brokerage Corp., 233 F.3d 469 (7th Cir. 2000), and Veach v. Sheeks, 316 F.3d 690 (7th Cir. 2003), we treated the allegations of a state court pleading (a civil complaint, and, in Veach, an attachment to it) as being within the ambit of the FDCPA without any hesitation. [**30] Indeed, in Gearing we concluded that a debt collector who falsely averred in a state court complaint that it was subrogated to another party "gave a false impression as to the legal status it enjoyed," and held that the false representation was violative of 15 U.S.C. 1692e(2) and (10), the very subparts of 1692e that O'Rourke alleges are implicated here. Gearing, 233 F.3d at 472. Similarly, in Veach, we used the unsophisticated consumer standard to conclude that a debt collector violated 15 U.S.C. 1692e when it stated in a small claims court complaint and attached documentation that a debtor owed a sum that included yet-unawarded treble damages, court costs, and attorneys' fees. See Veach, 316 F.3d at 692-93. Of course, it does not appear that the parties in Gearing or Veach disputed the applicability of the Act to the allegations in documents filed in state court, so I don't contend that the majority opinion in our case is in direct conflict with these decisions; they will simply remain as anomalous results. See Hughes v. United Air Lines, Inc., 634 F.3d 391, No. 10-1129, 2011 U.S. App. LEXIS 2372, 2011 WL 383046, at *3 (7th Cir. Feb. 8, 2011). And the majority appropriately distinguishes Evory, in which [**31] we held that statements debt collectors make to consumers' attorneys are actionable under the FDCPA, see Evory, 505 F.3d at 774-75: it notes that attorneys effectively "stand in [*949] the consumer's shoes," ante at 11. It is true that judges do not stand in consumers' shoes, but aren't state courts a medium through which debt collection information is conveyed to consumers? See 15 U.S.C. 1692a(2). Again, recall that O'Rourke received the document at issue only after it was provided to the court. And it came to him as a part of the packet of materials associated with a lawsuit that could result in a judgment against him. I respectfully suggest that the language of the Act may be expansive enough to prohibit misleading submissions to a court, that is, to a court which can impose liability on the debtor. Cf. Wright v. Fin. Serv. of Norwalk, Inc., 22 F.3d 647, 649 (6th Cir. 1994) (en

100

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

banc) ("Unlike other sections of the act where relief is limited to 'consumers,' under 1692e a debt collection practice need not offend the alleged debtor before there is a violation of the provision."). Contra ante at 11-12 ("[T]he Act is limited to protecting consumers and those who have a special relationship [**32] with the consumer?such that the Act is still protecting the consumer--from statements that would mislead these consumers."). A judge can play an extremely consequential role in the debt collection process. 2 This supports the notion that an effort to induce a judge to enter a judgment based on a false, misleading, or deceptive document ought to be considered an abusive practice under the Act. 2 This is not to say I contend, as the majority suggests, ante at 10, that the extent of an individual's role in the debt collection process should be used to determine whether the FDCPA's scope is wide enough to encompass statements directed primarily at that individual. My point is that courts, unlike third parties who have contracts with debt collectors that are unrelated to the debt collection process, see Volden v. Innovative Fin. Sys., Inc., 440 F.3d 947, 950, 954 (8th Cir. 2006), are unquestionably "connect[ed]" to debt collectors' collection efforts, 15 U.S.C. 1692e. That such a statement is made to a court holding the power to enter a judgment adverse to the consumer also bears on whether such a statement would be material. See Hahn, 557 F.3d at 757-58. Applying 15 U.S.C. 1692e in this [**33] way should not "stretch" it "beyond its text and purpose." Ante at 9. While we recently emphasized in Tinsley v. Integrity Fin. Partners, Inc., 634 F.3d 416, No. 102045, 2011 U.S. App. LEXIS 2803, 11 WL 477486 (7th Cir. Feb. 11, 2011), the conceptual, definitional, and practical importance of distinguishing "consumers" from "attorneys" and other third parties, we did so in the context of 15 U.S.C. 1692c, which regulates debt collectors' communications with "consumers," period. Section 1692e is not so limited. Indeed, the Sixth Circuit has noted, en banc, that 1692c "appears to be the most restrictive of the FDCPA's provisions. The

other provisions [including 1692e, the provision at issue here], are not limited to 'consumers' and thus are broader than 1692c." Wright, 22 F.3d at 649 n.1. Courts and judges need not be equated with "consumers" to be encompassed within the language of 1692e, which generally prohibits debt collectors from using "any false, deceptive, or misleading representation[s] or means in connection with the collection of any debt." Restricting our understanding of the FDCPA to exclude communications to judges also has the potential to put us at loggerheads with some of our sister [**34] circuits. In a case involving a questionable statement virtually identical to the one at issue here, see Hartman, 569 F.3d at 610, 612, the Sixth Circuit reversed a district court's grant of summary judgment in favor of the defendants, concluding that the plaintiffs had raised a genuine issue of material fact as to whether the statement was misleading or deceptive to the least sophisticated consumer. Id. at 613. The Ninth Circuit, which does not go as far as we do in recognizing an FDCPA cause of action for statements sent to lawyers, see [*950] Guerrero v. RJM Acquisitions, LLC, 499 F.3d 926, 935-36 (9th Cir. 2007), nonetheless expressly has held that "a complaint served directly on a consumer to facilitate debt-collection efforts is a communication subject to the requirements of 1692e and 1692f," Donohue v. Quick Collect, Inc., 592 F.3d 1027, 103132 (9th Cir. 2010). I recognize that we are not bound by the holdings of other circuits, United States v. Clark, 538 F.3d 803, 812 (7th Cir. 2008), but we frequently look to them as informative and persuasive authority. I also find it instructive that no other circuit, even those unwilling to interpret the FDCPA to reach statements made to [**35] lawyers, contra Evory, 505 F.3d at 775, has concluded that the FDCPA can never reach statements made to courts or judges. Answering the question of whether 1692e covers the papers filed in a state court collection suit is unnecessary here, just as it was in Beler, 480 F.3d at 473. Even assuming it does, judgment was properly entered against O'Rourke. I therefore concur in the result.

2. McCollough v. Johnson, Rodenburg & Lauinger, LLC, 637 F.3d 939 (9th Cir. 2011):

101

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

TIMOTHY MCCOLLOUGH, Plaintiff-Appellee, v. JOHNSON, RODENBURG & LAUINGER, LLC, Defendant-Appellant. No. 09-35767 UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT 637 F.3d 939; 2011 U.S. App. LEXIS 4072 July 29, 2010, Argued and Submitted, Billings, Montana March 4, 2011, Filed PRIOR HISTORY: [**1] Appeal from the United States District Court for the District of Montana. D.C. No. 1:07-cv-00166-CSO. Carolyn S. Ostby, Magistrate Judge, Presiding. McCollough v. Johnson, 645 F. Supp. 2d 917, 2009 U.S. Dist. LEXIS 69881 (D. Mont., 2009) DISPOSITION: AFFIRMED. Tim McCollough, a former school custodian, opened a credit card account with [**2] Chemical Bank sometime around 1990. Chemical Bank merged with the Chase Manhattan Bank ("Chase Manhattan") in 1996 and continued business under the Chase Manhattan name. McCollough continued to make purchases on the account. McCollough and his wife fell behind on their credit card bills after he allegedly suffered a brain injury at work and she underwent surgery. When McCollough made his last payment on the Chase Manhattan account in 1999, an unpaid balance of approximately $3,000 remained. In 2000, Chase Manhattan "charged off" the account on its books. Collect America, Ltd. ("Collect America"), 1 through its subsidiary, CACV of Colorado, Ltd. ("CACV"), is a purchaser of bad debt portfolios-typically, debts that have been charged off by the primary lender. CACV purchases the debts; Collect America attempts collection. 1 Collect America is now known as "SquareTwo Financial." In 2001, CACV purchased McCollough's delinquent account from Chase Manhattan. CACV sued McCollough in 2005 for $3,816.80 in state court to collect the debt. Acting pro se, McCollough replied that the "statute of limitations is up." Two weeks later, CACV dismissed the case. CACV documented service of the complaint and [**3] McCollough's response in its electronic files. In 2006, Collect America retained JRL, a law firm specializing in debt collection, to pursue collection of McCollough's outstanding debt. Although JRL is a North Dakota law firm, some of its lawyers are admitted to practice in Montana. Charles [*945] Denby was the JRL attorney who handled the law firm's collection cases for Montana. During the period from January 2007 through July 2008, JRL filed 2,700 collection lawsuits in Montana. On an average day,

COUNSEL: John H. Boyer, Fred Simpson, and Jessie Lundbert, Missoula, Montana, for the appellant. John Heenan, Billings, Montana, and Richard Rubin, Santa Fe, New Mexico, for the appellee. JUDGES: Before: Sandra Day O'Connor, Associate Justice, * Sidney R. Thomas and William A. Fletcher, Circuit Judges. Opinion by Judge Thomas. * The Honorable Sandra Day O'Connor, Associate Justice of the United States Supreme Court (Ret.), sitting by designation pursuant to 28 U.S.C. 294(a). OPINION BY: Sidney R. Thomas OPINION [*944] THOMAS, Circuit Judge: Debt collection law firm Johnson, Rodenburg & Lauinger ("JRL" or "the law firm") appeals from the entry of summary judgment against it under the federal Fair Debt Collection Practices Act ("FDCPA"), and from a subsequent jury verdict awarding damages under the FDCPA, the Montana Unfair Trade Practices and Consumer Protection Act ("MCPA"), and state torts of malicious prosecution and abuse of process. We have jurisdiction pursuant to 28 U.S.C. 1291 and we affirm. I

102

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

JRL filed five lawsuits in the state; on one day, JRL filed 40 lawsuits. JRL attorney Lisa Lauinger testified that approximately 90% of the collection lawsuits resulted in a default judgment. The contract between JRL and Collect America contained the following disclaimer: "Collect America makes no warranty as to the accuracy or validity of data provided." In addition, the contract expressly made JRL "responsible to determine [its] legal and ethical ability to collect these accounts." CACV transmitted information about McCollough's account to JRL using debt collection software. CACV also sent the law firm the electronic file. The law firm's screening procedures flagged a statute of limitations problem [**4] with McCollough's debt. On January 4, 2007, JRL account manager Grace Lauinger wrote to CACV: "It appears that the Statute of Limitations has expired on this file as of August 21, 2005. If you can provide us with an instrument in writing to extend the Statute of Limitations." The next day, JRL recorded in the electronic file that "*** NO DEMAND HAS GONE OUT ON THIS FILE *** THIS IS THE COLLECT AMERICA BATCH THAT WE ARE HAVING PROBLEMS W[ITH]." On January 23, 2007, CACV responded to JRL attorney Lisa Lauinger in an email entitled "sol extended" that McCollough had made a $75 partial payment on June 30, 2004, and inquired: "Do you need any info from me on this one?" Based on that payment date, the five-year statute of limitations on the claim against McCollough would not have expired until 2009. See Colo. Nat'l Bank of Denver v. Story, 261 Mont. 375, 862 P.2d 1120, 1122 (Mont. 1993) (holding that Montana's five-year statute of limitation on an account stated commences running from the date of the last payment). However, the information was incorrect: McCollough had not made a partial payment on June 30, 2004. Rather, as reflected in the electronic file, the event that took place on June 30, 2004, was [**5] the return of court costs to CACV for a collection complaint and summons that CACV had prepared in 2003. Lisa Lauinger did not respond to CACV's offer to provide additional documentation of the event. On April 17, 2007, JRL filed a collection complaint signed by JRL attorney Charles Dendy against McCollough in Montana state court. The complaint sought judgment for an account balance of $3,816.80, interest of $5,536.81, attorney's fees of $481.68, and court costs of $120.00.

Dendy later testified that he reviewed the information in the electronic file before filing suit. At that point, the electronic file indicated the 2000 chargeoff date; a June 30, 2004, entry indicating the return of court costs; an entry showing that CACV had previously sued McCollough; and an entry indicating that McCollough had pled a statute of limitations defense in response. Dendy admitted that he made no inquiry into whether a partial payment occurred on June 30, 2004. Instead, he explained: "In this case I relied upon the information that was provided by the client." On June 13, 2007, McCollough filed a pro se answer to the complaint, asserting a statute of limitations defense: FORGIVE MY SPELLING I HAVE A HEAD [**6] INJURY AND WRITING DOSE NOT COME EASY (1) THE STACUT OF LIMITACION'S IS UP, I HAVE NOT HAD ANY [*946] DEALINGS WITH ANY CREDITED CARD IN WELL OVER 8 1/2 YEARS (2) I AM DISABLED I GET 736.00 A MONTH S.S.I. . . . (3) WHEN WORKERS COMP STOPED PAYING I RAN OUT OF MONEY, CHASE WOULD NOT WORK WITH ME, THEY PASSED IT ON TO COLLECTOR'S - THEY LIED TO ME, THEY INSULTED ME, THEY USED BAD LANGUAGE, THEY CALLED AROUND THE CLOCK, SO I COULD NOT REST, THEY GOT ME SO WOUND UP AND CONFUSED THE HEALING OF MY HEAD INJURY STOPED! THEY WERE HURTING ME, SO I HAD TO STOP DEALING WITH THEM SO I COULD RECOVER, IM STILL RECOVERING. THE PAIN THEY COSSED AND NEW MED BILLS ARE WORTH MORE THEN THE MONEY THEY WANT. (4) THIS IS THE THIRED TIME THEY HAVE BROUGHT ME TO COURT ON THIS ACCOUNT, . . . WHEN WILL IT STOP DO I HAVE TO SUE THEM SO I CAN LIVE QUIETLY IN PAIN

103

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

One month later, McCollough also telephoned Dendy and left a message indicating that he would be seeking summary judgment on the basis of the statute of limitations. Dendy noted on July 11, 2007, "[w]e need to get what the client has for docs on hand." The following day, Grace Lauinger sent an email to Collect America asking for documentation. Collect America responded: [**7] "[b]ecause of the age of the account, we can't get any more statements (other than what has been sent to you)." Dendy continued to prosecute the suit. On August 6, 2007, CACV informed Grace Lauinger that McCollough had not made a partial payment on June 30, 2004, as previously stated; rather, the entry on that date "was actually unused costs by another office, not payment." Grace Lauinger testified that she scanned the email into the electronic file to which Dendy had access and that she did not recall whether she directly conveyed the new information to Dendy. Dendy testified that he did not learn of this information until later. He continued to prosecute the suit. In October 2007, Dendy served on McCollough a list of twenty-two requests for admission that included the following: 11. Prior to initiation of this suit, Defendant Tim M. McCollough has never notified plaintiff or any other party in interest in this action of any disputes regarding said Chase Manhattan Bank credit card. .... 14. There are no facts upon which Defendant Tim M. McCollough relies as a basis for defense in this action. .... 17. [**8] Every statement or allegation contained in plaintiff's Complaint is true and correct. .... 21. Defendant Tim M. McCollough made a payment on said Chase Manhattan Bank credit card on or about June 30, 2004 in the amount of $75.00.

admitted if McCollough did not respond within thirty days. McCollough retained counsel and timely denied all of the requests. Continuing to prosecute the collection case, Dendy issued a subpoena to Chase in November 2007 seeking production of the operative records from McCollough's account. Chase responded a month later that it had no records of the account. [*947] On December 7, 2007, Dendy sent to CACV an email marked "URGENT." The email read: An attorney has appeared in this action and has served discovery requests. . . . The attorney is one who is anti purchased debt and who attempts to run up costs in an attempt to secure a large cost award against plaintiff. . . . Please provide me with copies of everything you can get for documentation as soon as possible. We need to request everything available from the original creditor, not [**9] just the things that you normally request, etc. Application, statements, cardmember agreement, copies of payments, copies of correspondence. Please have the requests expedited if possible.

CACV emailed in response: For this file we are not able to get any more media. The retention rate is seven years from [charge-off], which was 10/2000. I have sent you all the docs we have.

CACV also called JRL to explain that the last payment McCollough had made on the account preceded the 2000 charge-off. That afternoon, CACV instructed Dendy to dismiss the suit "asap" because of the "SOL problem." JRL then moved for dismissal with prejudice and the state court dismissed the action. McCollough sued JRL in federal district court alleging violations of the FDCPA and the MCPA, along with state law claims for malicious prosecution and abuse of process.

The requests for admission did not include an explanation that, under Montana Rule of Civil Procedure 36(a), the requests would be deemed

104

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

On cross-motions for summary judgment, the district court found that the following facts were established: (1) On April 17, 2007, JRL filed a time-barred law-suit against McCollough. (2) By August 6, 2007, JRL had information from its client demonstrating that the lawsuit was timebarred. (3) JRL prosecuted the time-barred lawsuit against McCollough until December [**10] 7, 2007.

to ensure that debt collectors who abstain from such practices are not competitively disadvantaged; and to promote consistent state action to protect consumers. 15 U.S.C. 1692(e); Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, ___ U.S. ___, ___, 130 S. Ct. 1605, 1608-09, 176 L. Ed. 2d 519 (2010). The statute defines a "debt collector" as one who "regularly collects . . . debts owed or due or asserted to be owed or due another," 15 U.S.C. 1692a(6), and covers lawyers who regularly collect debts through litigation, Heintz, 514 U.S. at 293-94. A Although the FDCPA is a strict liability statute, it excepts from liability those debt collectors who satisfy the "narrow" bona fide error defense. Reichert v. Nat'l Credit Sys., Inc., 531 F.3d 1002, 1005 (9th Cir. 2008) [**12] (quotation omitted). That defense provides that: A debt collector may not be held liable in any action brought under [the FDCPA] if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.

The district court granted McCollough partial summary judgment on his FDCPA claims. The case was then tried to a jury over the course of three days. At trial, lay witnesses Keri Henan and Ken Lucero testified about their experiences being sued by JRL. Michael Eakin, a consumer law attorney with Montana Legal Services, testified about the rapid growth of debt-collection lawsuits in Montana and about JRL's role in that trend; he also testified that "a vast majority" of JRL's lawsuits against debtors result in default judgments because JRL tries its cases without consideration for the pro se status of most of its defendant-debtors. James Patten, a Montana collection lawyer, described the importance of reasonable pre-suit investigation and testified that it was JRL's "factory" approach of "mass producing default judgments," rather than any mistake, that caused JRL to prosecute the time-barred debt and pursue unlawful attorney's fees against McCollough. The jury found in favor of McCollough on all remaining claims and awarded him the $1,000 statutory maximum for violations of the FDCPA; $250,000 for emotional distress; and $60,000 in punitive damages. JRL filed motions for a new trial [**11] and amendment of the judgment to reduce the emotional distress damage award. When the district court denied these motions, JRL timely appealed. II The district court properly granted summary judgment against JRL on the FDCPA claims. The FDCPA prohibits debt collectors from engaging in various [*948] abusive and unfair practices. See Heintz v. Jenkins, 514 U.S. 291, 292-93, 115 S. Ct. 1489, 131 L. Ed. 2d 395 (1995). The statute was enacted to eliminate abusive debt collection practices;

15 U.S.C. 1692k(c). "The bona fide error defense is an affirmative defense, for which the debt collector has the burden of proof." Reichert, 531 F.3d at 1006 (citing Fox v. Citicorp. Credit Servs, Inc., 15 F.3d 1507, 1514 (9th Cir. 1994)). Thus, to qualify for the bona fide error defense, the defendant must prove that (1) it violated the FDCPA unintentionally; (2) the violation resulted from a bona fide error; and (3) it maintained procedures reasonably adapted to avoid the violation. The district court correctly concluded that JRL's bona fide error defense failed as a matter of law. JRL argues that it maintained adequate preventive procedures by utilizing a system to flag potential statute of limitations problems. However, the procedures that support a valid bona fide error defense must be ""reasonably adapted' to avoid the specific error [**13] at issue.'" Reichert, 531 F.3d at 1006 (quoting Johnson v. Riddle, 443 F.3d 723, 729 (10th Cir. 2006)). JRL's error in this case was not its failure to catch time-barred cases; indeed, JRL initially spotted the limitations period problem and sent a letter to CACV requesting "an instrument in writing to extend" the limitations period. Instead, JRL erred by relying without verification on CACV's representation and by

105

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

overlooking contrary information in its electronic file. JRL thus presented no evidence of procedures designed to avoid the specific errors that led to its filing and maintenance of a time-barred collection suit against McCollough. Cf. Jenkins v. Heintz, 124 F.3d 824, 834 (7th Cir. 1997) (debt collectors maintained "extensive systems" and "elaborate procedures . . . to avoid collecting unauthorized charges," and "insist[ed] that their client[s] verify under oath that each of the charges was true and correct"). JRL contends that its reliance on CACV's representation about a June 30, 2004, partial payment created a question of fact for the jury on its bona fide error defense. However, the bona fide error defense "does not protect a debt collector whose reliance on a creditor's [**14] representation is unreasonable." Reichert, 531 F. 3d at 1006 (citing Clark v. Capital Credit & Collection Servs., Inc., 460 F.3d 1162, 1177 (9th Cir. 2006)). Unwarranted reliance on a client is not a procedure to avoid error. Indeed, in Reichert, we held that "[t]he fact that the creditor provided accurate [*949] information in the past cannot, in and of itself, establish that reliance in the present case was reasonable and act as a substitute for the maintenance of adequate procedures to avoid future mistakes." 531 F.3d at 1007; see also Turner v. J.V.D.B. & Assocs., Inc., 330 F.3d 991, 996 (7th Cir. 2003) (suggesting that one "reasonable preventive measure[ ]" to avoid mistakes is "an agreement with . . . creditor-clients that debts are current"); Turner v. J.V.D.B. & Assocs., Inc., 318 F. Supp. 2d 681, 686 (N.D. Ill. 2004) (on remand from the Seventh Circuit in the above cited case, determining that an "understanding and/or agreement" that the client would only furnish reliable information would have been necessary to showing reasonable reliance). The undisputed evidence established that JRL's reliance on CACV's email was unreasonable as a matter of law. First, Collect America's contract [**15] with JRL expressly disclaimed "the accuracy or validity of data provided" and instructed that JRL was "responsible to determine [its] legal and ethical ability to collect" the account. Second, the electronic file confirmed that the event that took place on June 30, 2004, was the return of "unused costs" rather than a partial payment. Third, the electronic file also indicated that McCollough had asserted a statute of limitations defense to a collection action filed against him in 2005 over the same debt. Finally, McCollough informed JRL that the debt fell outside the limitations period both in his answer to JRL's complaint and in a phone call. For these reasons, the district court properly concluded that JRL's reliance on its client was unreasonable as a matter of law. Cf. Hyman v. Tate,

362 F.3d 965, 967-68 (7th Cir. 2004) (reliance was reasonable where debt collector and creditor-client had "understanding" that client would not forward accounts in bankruptcy; error was made in 0.01% of cases; and debt collector immediately ceased collection efforts upon notice from debtor of the mistake); Smith v. Transworld Sys., Inc., 953 F.2d 1025, 1032 (6th Cir. 1992) (the FDCPA "does not require [**16] an independent investigation of the debt referred for collection" where, for example, the debt collector's "referral form, completed and signed by [the creditorclient], include[d] specific instructions to claim only amounts legally due and owing"). The district court properly granted summary judgment on JRL's bona fide error defense. B The district court did not err in granting McCollough's motion for summary judgment on his claim that JRL violated the FDCPA by requesting attorney's fees in its underlying state collection complaint. JRL does not dispute the district court's determination that the pursuit of unauthorized attorney's fees in a collection suit violates both 1692f(1) and 1692e(2) of the FDCPA. Section 1692f(1) prohibits the use of "unfair or unconscionable means to collect or attempt to collect any debt," including "[t]he collection of any amount (including any interest, fee, charge, or expense . . .) unless such amount is expressly authorized by the agreement creating the debt or permitted by law." See Reichert, 531 F.3d at 1005-07 (violation of 1692f(1) arising from a debt collector's imposition of an unlawful charge for attorney's fees). Section 1692e(2) prohibits [**17] the use of "any false, deceptive, or misleading representation or means in connection with the collection of any debt," including "[t]he false representation of . . . (A) the character, amount, or legal status of any debt; or (B) any . . . compensation which may be lawfully received by any debt collector for the collection of a debt." See Clark, 460 [*950] F.3d at 1174-77 (possible violation of 1692e(2) arising from misstatement of an account balance); Foster v. DBS Collection Agency, 463 F. Supp. 2d 783, 802 (S.D. Ohio 2006) (holding debt collectors violated 1692e(2) by seeking attorney's fees not permitted by state law); Strange v. Wexler, 796 F. Supp. 1117, 1118 (N.D. Ill. 1992) (same). JRL argues that the district court erred in two respects. First, JRL characterizes the district court's decision as holding that it violated the FDCPA by requesting attorney's fees with-out having proof of its

106

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

entitlement to those fees at the time it filed the complaint. In support, JRL cites the Sixth Circuit's opinion in Harvey v. Great Seneca Fin. Corp., 453 F.3d 324, 333 (6th Cir. 2006), which held that no FDCPA violation occurs when a creditor files a valid debt collection action in court without [**18] having in its possession adequate proof of its claim. However, in contrast to Harvey, JRL's collection action in this case was invalid because JRL presented no admissible evidence establishing its entitlement to collect the fees at the time of the summary judgment motion -- not at the time it filed suit. Second, JRL argues that summary judgment was inappropriate because a genuine issue of material fact existed over whether JRL had a contractual entitlement 2 to seek attorney's fees from McCollough. Before the district court, JRL presented a credit card agreement purportedly belonging to McCollough. JRL now admits that the agreement was not McCollough's and does not contest the district court's exclusion of the evidence. 2 JRL does not challenge the district court's determination that Montana law did not itself authorize the request for attorney's fees. JRL contends that it presented evidence that attorney's fees are permitted under all cardmember agreements, even if it was not able to obtain McCollough's specific agreement. JRL argues that its failure to produce a cardmember agreement applicable to McCollough was not fatal, and that the issue should have gone to the jury for its determination [**19] as to whether McCollough's agreement contained such a provision. The district court correctly concluded that JRL failed to meet its burden to show a genuine issue for trial because it presented no admissible evidence of a contract authorizing a fee award. The FDCPA prohibits "[t]he collection of any amount . . . unless such amount is expressly authorized by the agreement creating the debt or permitted by law." 15 U.S.C. 1692f(1) (emphasis added). JRL produced no evidence of express authorization of its fee request from McCollough; the presentation of generic evidence that all credit cards contain attorney's fees provisions was insufficient to create a genuine issue of material fact for the jury. The district court correctly granted summary judgment on the claim. C The district court properly held that JRL's requests for admission violated the FDCPA as a matter of law. 1

As a threshold matter, JRL contends that the FDCPA should not be read to cover discovery procedures such as requests for admission, 3 although JRL concedes that the FDCPA covers both the filing of complaints, Donohue v. Quick Collect, Inc., 592 F.3d 1027, 1031-32 (9th Cir. 2010), and the service of settlement letters [*951] during [**20] the course of litigation, Heintz, 514 U.S. at 293. Our precedents do not support such a distinction. Rather, the FDCPA "applies to the litigating activities of lawyers." Heintz, 514 U.S. at 294. The Supreme Court's reasoning in Heintz was twofold. First, the Court reasoned that lawyers who collect debts through litigation plainly fall within the statutory language defining "'debt collector[s]'" to include those who "'regularly collec[t] or attemp[t] to collect, directly or indirectly, [consumer] debts owed or due or asserted to be owed or due another.'" Id. (quoting 15 U.S.C. 1692a(6) (alterations in original)). Second, the Court observed that an earlier version of the FDCPA provided an exemption for lawyers, but that Congress had since repealed that exemption. See id. at 294-95; Pub. L. No. 95-109, 803(6)(F), 91 Stat. 874, 875 (1977) (exempting from the definition of the term "debt collector" "any attorney-at-law collecting a debt as an attorney on behalf of and in the name of a client"); Pub. L. No. 99-361, 100 Stat. 768 (1986) (repealing the exemption); see also 15 U.S.C. 1692a(6)(A)-(F) (listing current exceptions to the definition of "debt collector," none of which cover [**21] attorneys). 3 JRL's own actions in this case belie its theory. In the very requests for admission at issue, it stated at the bottom: "This is an attempt to collect a debt." We have reached similar conclusions in two cases. First, in the pre-Heintz case of Fox, we held that the FDCPA applies to attorneys engaged in "purely legal activities" and thus covers the filing of an application for a writ of garnishment. See 15 F.3d at 1511-12; see also id. at 1512 ("There is simply no mention of attorneys in the current definition of 'debt collector' or its exceptions; nor is there any distinction drawn between legal and non-legal activities."). More recently, in Donohue, we applied Heintz and held that the FDCPA covers the service upon a debtor of a complaint to facilitate debt-collection efforts. 592 F.3d at 1031-32. We reasoned in Donohue that "[t]o limit the litigation activities that may form the basis of FDCPA liability to exclude complaints . . . would require a nonsensical narrowing of the common understanding of the word 'litigation.'" Id. at 1032 (rejecting a distinction between "lawyers acting in the capacity of debt collectors and those litigating"). There is no principled distinction [**22] to be drawn

107

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

between these types of litigation activities and written discovery. Our sister circuits agree. The Fourth Circuit has held that the FDCPA applies specifically to statements in written discovery documents. See Sayyed v. Wolpoff & Abramson, 485 F.3d 226, 228, 230-32 (4th Cir. 2007) (holding that the FDCPA applies to allegedly erroneous statements made by the defendant law firm in interrogatories and a summary judgment motion during the course of a state court collection suit) (collecting cases). JRL asserts that failure to exclude discovery procedures from FDCPA coverage would hinder attorneys' ability to litigate cases. Instead, JRL contends that remedies for improper discovery tactics lie in court rules for civil procedure, and asserts that if its requests for admission complied with the applicable state rules, they ought not subject it to liability under the FDCPA. However, Congress enacted the FDCPA expressly because prior laws for redressing "abusive, deceptive, and unfair debt collection practices" were "inadequate to protect consumers." 15 U.S.C. 1692(a), (b). The statute preempts state laws "to the extent that those laws are inconsistent with any provision of [the [**23] FDCPA]." 15 U.S.C. 1692n. Moreover, policy reasoning provides no authority to override the clear statutory language of Congress. "[O]ur obligation is to apply the statute as Congress wrote it." Hubbard v. United States, 514 U.S. 695, 703, 115 S. Ct. 1754, 131 L. Ed. 2d 779 (1995) (quotation omitted); see Jerman, 130 S. Ct. [*952] at 1622 (finding it unremarkable that "the FDCPA imposes some constraints on a lawyer's advocacy on behalf of a client"); Sayyed, 485 F.3d at 234 (concluding that, by a simple reading of its text, the FDCPA covers litigation activities, including discovery); Fox, 15 F.3d at 1512 ("The plain language of the statute unambiguously precludes any continued doctrine of special treatment for attorneys under the FDCPA."); see also Heintz, 514 U.S. at 296-97 (allowing for the possibility that the FDCPA may contain some "additional, implicit, exception[s]" to account for the potential conflicts that may arise in the application of the FDCPA to litigation activities). In short, the FDCPA does not exclude from its coverage the service of requests for admission. 2 The district court correctly held that JRL's service of false requests for admission violated the FDCPA as a matter of law. The FDCPA prohibits a debt [**24] collector from using either "unfair or unconscionable means to collect . . . any debt," 15 U.S.C. 1692f, or "any false, deceptive, or misleading . . . means in

connection with the collection of any debt," id. 1692e. The FDCPA measures a debt collector's behavior according to an objective "least sophisticated debtor" standard. Clark, 460 F.3d at 1171. This standard "'ensure[s] that the FDCPA protects all consumers, the gullible as well as the shrewd . . . the ignorant, the unthinking, and the credulous.' " Id. (quoting Clomon v. Jackson, 988 F.2d 1314, 1318-19 (2d Cir. 1993) (alteration and ellipsis in original)). The FDCPA imposes strict liability on creditors, including liability "for violations that are not knowing or intentional." Reichert, 531 F.3d at 1005. JRL's requests for admission asked McCollough to admit facts that were not true: that he had never disputed the debt, that he had no defense, that every statement in JRL's complaint was true, and that he had actually made a payment on or about June 30, 2004. JRL had information in its possession that demonstrated the untruthfulness of the requested admissions. The requests for admission did not include an explanation that, [**25] under Montana Rule of Civil Procedure 36(a), the requests would be deemed admitted if McCollough did not respond within thirty days. Because we consider the debt collector's conduct from the standpoint of the least sophisticated debtor, we must conclude that the service of requests for admission containing false information upon a pro se defendant without an explanation that the requests would be deemed admitted after thirty days constitutes "unfair or unconscionable" or "false, deceptive, or misleading" means to collect a debt. Here, JRL effectively requested that McCollough admit JRL's entire case against him and concede all defenses. The least sophisticated debtor cannot be expected to anticipate that a response within thirty days was required to prevent the court from deeming the requests admitted. The district court properly granted summary judgment on this claim. D JRL also challenges the district court's denial of its motions for partial summary judgment and judgment as a matter of law on McCollough's claims under the MCPA. However, given our resolution of the FDCPA claims, we need not reach this issue. The damages McCollough would receive on his MCPA claims are already available [**26] to him through his FDCPA claims. Like the FDCPA, the MCPA authorizes actual damages, attorney's fees, and costs. Compare 15 U.S.C. 1692k(a)(1), (3) with Mont. Code Ann. 30-14133(1), (3). While the MCPA also [*953] permits the court in its discretion to award treble damages and any other equitable relief that it considers proper, id. 30-

108

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

14-133(1), the district court declined to grant McCollough such relief. McCollough and amicus curia the State of Montana have conceded that if the FDCPA claims are upheld, it is not necessary to reach the MCPA issues. If we were to consider the issues, ours would not be a definitive construction of the statute: that prerogative belongs to the Montana Supreme Court. See Ticknor v. Choice Hotels Int'l, Inc., 265 F.3d 931, 939 (9th Cir. 2001) ("federal courts are bound by the pronouncements of the state's highest court on applicable state law" and "[w]here the state's highest court has not decided an issue, the task of the federal courts is to predict how the state high court would resolve it" (quotation omitted)). Thus, we need not, and do not, reach the MCPA issues. See Webb v. Sloan, 330 F.3d 1158, 1166-67 (9th Cir. 2003) (declining to reach state law [**27] issues where verdict could be sustained on federal grounds). III We review for abuse of discretion a district court's decision to admit evidence. Boyd v. City and County of San Francisco, 576 F.3d 938, 943 (9th Cir. 2009). We reverse only if we are " 'convinced firmly that the reviewed decision lies beyond the pale of reasonable justification under the circumstances.'" Id. (quoting Harman v. Apfel, 211 F.3d 1172, 1175 (9th Cir. 2000)). "A party seeking reversal for evidentiary error must show that the error was prejudicial, and that the verdict was more probably than not affected as a result." Id. (quotation omitted). A The district court did not abuse its discretion in admitting the very brief testimony of individual debtors Keri Henan and Ken Lucero concerning their experiences of being sued by JRL. JRL argues that the testimony was irrelevant under Federal Rule of Evidence 401 and that it should have been excluded on that basis. Alternatively, JRL contends that the probative value of the evidence was substantially outweighed by the danger of unfair prejudice and thus that the evidence should have been excluded under Rule 403. Rule 401 defines relevant evidence as "evidence having any [**28] tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." See United States v. Curtin, 489 F.3d 935, 943 (9th Cir. 2007) (en banc). If evidence is relevant, it is generally admissible under Federal Rule of Evidence 402. See id. However,

relevant evidence must be excluded if its probative value is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury. Fed. R. Evid. 403. The district court did not abuse its discretion in concluding that the testimony of JRL's conduct in similar cases was relevant to show intent, absence of mistake, malice, willfulness, and reprehensibility. Pursuant to the FDCPA, McCollough had to prove that JRL's violations were "intentional" to obtain the maximum amount of FDCPA statutory damages and to counter JRL's bona fide error defense. 15 U.S.C. 1692k(b)(1) (requiring consideration, among other relevant factors, of "the extent to which such noncompliance was intentional"); id. at 1692k(c) (bona fide error defense). McCollough's malicious prosecution and abuse of process claims required proof [**29] of malice and willfulness. See Plouffe v. Mont. Dep't of Pub. Health & Human Servs., 2002 MT 64, 309 Mont. 184, 45 P.3d 10, 14 (Mont. 2002) (malicious prosecution); [*954] Hughes v. Lynch, 2007 MT 177, 338 Mont. 214, 164 P.3d 913, 919 (Mont. 2007) (abuse of process). Finally, McCollough's entitlement to punitive damages depended on a showing of reprehensibility. See State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 419, 123 S. Ct. 1513, 155 L. Ed. 2d 585 (2003) (requiring consideration of whether the defendant's "conduct involved repeated actions or was an isolated incident"). In addition, JRL defended its conduct on the basis that it simply made a series of mistakes in prosecuting the time-barred lawsuit. Thus, the district court did not abuse its discretion in admitting the testimony. B JRL contends that the district court abused its discretion in admitting expert testimony from attorneys Michael Eakin and James Patten regarding JRL's collection practices in other cases. However, it failed to preserve this claim for appeal by failing to object at trial. United States v. Archdale, 229 F.3d 861, 864 (9th Cir. 2000) (holding that filing a motion in limine is insufficient to preserve an issue for appeal absent a further objection at trial). Here, JRL filed a motion in limine [**30] challenging admission of the evidence, but the district court denied JRL's motion to exclude the experts' testimony "with leave to renew any objections at trial" and thus did not issue an ultimate ruling on the evidence. JRL did not reassert the objections at trial. JRL thus failed to preserve its objection under Archdale. JRL also claims error in the district court's admission of Exhibit #106, a list of all the lawsuits JRL had filed in the State of Montana from January 2007

109

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

through July 2008. However, defense counsel opened the door to consideration of this evidence when he questioned Patten about the number of lawsuits filed during that period. Byrd v. Maricopa County Sheriff's Dept., 629 F.3d 1135, 2011 WL 13920 at *11 n.10 (9th Cir. 2011) (en banc). A party's preemptive use of evidence at trial before its introduction by the opposing party constitutes a waiver of the right to challenge the admissibility of the evidence on appeal. See Ohler v. United States, 529 U.S. 753, 757-59, 120 S. Ct. 1851, 146 L. Ed. 2d 826 (2000); United States v. Decoud, 456 F.3d 996, 1011 (9th Cir. 2006). JRL also failed to preserve its claim on appeal that the district court erred in allowing the attorney expert testimony [**31] and the list of cases to be presented at the liability and general damage portions of the trial, rather than at the punitive damages stage. IV The district court did not abuse its "broad discretion" in formulating the jury instructions. Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 213 (9th Cir. 1988). JRL first argues that the district court abused its discretion by admitting Exhibit #106 and the testimony of Henan, Lucero, Eakin, and Patten without instructing the jury to limit its use of the evidence to the issue of reprehensibility, and to award punitive damages only for JRL's conduct toward McCollough. JRL argues that the admission of the evidence without proper limiting instructions violated JRL's due process rights. However, JRL failed to preserve this issue on appeal because it did not request an instruction limiting the jury's use of the evidence at trial. Accordingly, the issue is waived. See id. ("[I]f an appellant does not request an instruction at trial, the issue is not preserved on appeal."). JRL likewise argues that it is entitled to a new trial on the ground that the district court instructed the jury that it had previously found JRL's requests for admission to be "abusive, [**32] unfair, or unconscionable," [*955] rather than by simply stating its legal conclusion that JRL violated the FDCPA. However, JRL did not raise this objection at trial. Indeed, JRL conceded that the instruction correctly summarized the district court's prior order and objected only because it disagreed with the court's prior order. Thus, this challenge is also waived. See id. V The district court did not err in denying JRL's motion for judgment as a matter of law on McCollough's state law malicious prosecution and

abuse of process claims. 4 "A jury's verdict must be upheld if it is supported by substantial evidence, which is evidence adequate to support the jury's conclusion, even if it is also possible to draw a contrary conclusion." Harper v. City of Los Angeles, 533 F.3d 1010, 1021 (9th Cir. 2008) (quotation omitted). Substantial evidence supports the jury's findings of liability on both state law claims. 4 JRL also argues that the district court erred in denying its motion for summary judgment on these issues. However, that decision is not reviewable on appeal. Ortiz v. Jordan, ___ U.S. ___, 131 S. Ct. 884, 178 L. Ed. 2d 703, 2011 WL 197801 at *2 (2011). A To sustain an action for malicious prosecution under Montana [**33] law, a plaintiff must establish six separate elements: (1) a judicial proceeding was commenced and prosecuted against the plaintiff; (2) the defendant was responsible for instigating, prosecuting or continuing such proceeding; (3) there was a lack of probable cause for the defendant's acts; (4) the defendant was actuated by malice; (5) the judicial proceeding terminated favorably for the plaintiff; and (6) the plaintiff suffered damage.

Plouffe, 45 P.3d at 14. JRL contends that McCollough did not present substantial evidence of elements (3) and (4): lack of probable cause and malice. Probable cause exists when a party "reasonably believes in the existence of the facts upon which the claim is based, and . . . correctly or reasonably believes that under those facts the claim may be valid under the applicable law." Hughes, 164 P.3d at 918 (quotation omitted). Probable cause is "determined . . . on the basis of the facts known to the party initiating the legal action." Plouffe, 45 P.3d at 15. McCollough presented substantial evidence that JRL did not reasonably believe in the existence of a June 30, 2004, partial payment that would have rendered its suit timely. JRL's electronic file indicated [**34] that the suit was time-barred. CACV expressly disclaimed the accuracy of the account information it gave JRL. Lisa Lauinger ignored the offer of additional "info from me on this one" when she accepted CACV's unsupported statement. Grace Lauinger initially

110

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

requested supporting documentation from CACV "to extend the Statute of Limitations," but did not follow up when none was submitted. JRL continued to prosecute the collection case for four months after having been explicitly told by CACV that the June 30, 2004, partial payment never occurred. These facts provide substantial evidence to support the jury's conclusion that JRL sued McCollough without reasonably believing in the suit's timeliness and thus without probable cause. Substantial evidence also supports the jury's finding of malice. The Montana Supreme Court has not yet defined "malice" in the context of a malicious prosecution action. In Plouffe, the Montana Supreme Court cited two possible definitions from Montana law. See 45 P.3d at 17. Montana's punitive damages statute provides: [*956] A defendant is guilty of actual malice if the defendant has knowledge of facts or intentionally disregards facts that create a high probability of [**35] injury to the plaintiff and: (a) deliberately proceeds to act in conscious or intentional disregard of the high probability of injury to the plaintiff; or (b) deliberately proceeds to act with indifference to the high probability of injury to the plaintiff.

Mont. Code Ann. 1-1-204(3). Moreover, a rebuttable presumption of malice arose when the jury found an absence of probable cause. Plouffe, 45 P.3d at 17-18. Substantial evidence supports the jury's findings of both a lack of probable cause and malice. Accordingly, the district court properly denied JRL's motion for judgment as a matter of law on McCollough's malicious prosecution claim. B To sustain an action for abuse of process under Montana law, a plaintiff must establish two elements: "(1) an ulterior purpose; and (2) a willful act in the use of the process not proper in the regular conduct of the proceeding." Hughes, 164 P.3d at 919 (quotation omitted). Those elements are satisfied where, as here, evidence indicates that the litigant willfully filed a lawsuit "with an ulterior purpose of extracting money from [the opposing party] that he did not owe," and that the litigant "had no valid legal claim against [the opposing party] and knew it, but filed an action . . . nonetheless." Seipel v. Olympic Coast Invs., 2008 MT 237, 344 Mont. 415, 188 P.3d 1027, 1032 (Mont. 2008). Substantial [**37] evidence supports the jury's finding of liability on this claim. McCollough presented evidence that JRL filed suit to extract money from McCollough that it could not legally obtain in a collection action and that it filed a baseless action with knowledge that it had no legal claim. McCollough presented evidence that JRL filed and pursued a timebarred lawsuit against him, even though JRL's own electronic file indicated that the suit was time-barred. McCollough presented evidence that JRL continued to prosecute the collection case for four months after having been explicitly told by CACV that the June 30, 2004, payment was not grounds for extending the statute of limitations. McCollough presented evidence that JRL sought attorney's fees without confirming that McCollough had a contractual fee obligation. The jury could have inferred from this evidence that JRL's purpose in filing the lawsuit was to coerce McCollough to pay awards and fees to which it and CACV were not entitled. The [*957] jury's abuse of process verdict was supported by substantial evidence, and the district court properly denied JRL's motion for judgment as a matter of law. VI The district court properly denied JRL's motion [**38] for a new trial or amendment of the judgment based on the jury's $250,000 award for actual damages due to emotional distress. In reviewing the district court's denial of a motion for a new trial for abuse of

Mont. Code Ann. 27-1-221(2). Alternatively, Mont. Code Ann. 1-1-204(3) defines "malice" as "a wish to vex, annoy, or injure another person or an intent to do a wrongful act." Under either definition, "the plaintiff is not required to prove the subjective intent of the defendant to establish a prima facie case for malicious prosecution." Plouffe, 45 P.3d at 18. Moreover, a rebuttable presumption of malice arises if the jury finds an absence of probable cause. Id. at 17-18. Here, substantial evidence supported the jury's finding under either definition. McCollough presented evidence that JRL knew of or intentionally disregarded facts concerning the timeliness of its collection action. JRL's conduct created a high probability of injury to McCollough, yet JRL deliberately acted in disregard of such injury. See Mont. Code Ann. 27-1-221(2). Likewise, the evidence of JRL's conduct toward McCollough -- as well as the testimony of Henan, [**36] Lucero, Eakin, and Patten -- supports an inference that JRL acted with a "wish to . . . injure another person or an intent to do a wrongful act."

111

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

discretion, we defer to a jury's finding of the appropriate amount of damages unless the award is "grossly excessive or monstrous, clearly not supported by the evidence, or based only on speculation or guesswork." Del Monte Dunes at Monterey, Ltd. v. City of Monterey, 95 F.3d 1422, 1435 (9th Cir. 1996) (citation omitted). We "may not assess the credibility of witnesses in determining whether substantial evidence exists to support the jury's verdict." Gilbrook v. City of Westminster, 177 F.3d 839, 856 (9th Cir. 1999) (citation omitted). The FDCPA provides for the award of actual damages. See 15 U.S.C. 1692k(a)(1). At trial, McCollough presented evidence of emotional distress through his own testimony and testimony from a clinical psychologist, Dr. Donna Veraldi, who examined McCollough in July 2008. At the close of the evidence, the trial judge issued the following jury instructions with respect to damages available under the FDCPA: Actual damages include damages for personal humiliation, [**39] embarrassment, mental anguish and emotional distress. There is no fixed standard or measure in the case of intangible items such as humiliation, embarrassment, mental anguish or emotional distress. Mental and emotional suffering and distress pass under various names such as mental anguish, nervous shock and the like. It includes all highly unpleasant mental reactions such as fright or grief, shame, humiliation, embarrassment, anger, chagrin, disappointment, worry and nausea. The law does not set a definite standard by which to calculate compensation for mental and emotional suffering and distress. Neither is there any requirement that any witness express an opinion about the amount of compensation that is appropriate for the kind of law. The law does require, however, that when making an award for mental and emotional suffering and distress you should exercise calm and reasonable judgment. The compensation must be just and reasonable.

JRL argues that the $250,000 award was "clearly not supported by the evidence" and "based on speculation and guess-work." In support, JRL contends that the evidence "boils down to [McCollough's] testimony that he [**40] was mad . . . and had to lie down"; his testimony concerning pre-existing symptoms that had not worsened due to JRL's conduct; and Dr. Veraldi's testimony about the effects she would hypothetically expect of stress on someone with McCollough's conditions. However, ample evidence exists in the record to support the jury's award. See Zhang v. Am. Gem Seafoods, Inc., 339 F.3d 1020, 1039-41 (9th Cir. 2003) (upholding emotional damages of a similar amount based solely on the plaintiff's testimony). Dr. Veraldi described McCollough's condition after he suffered a head injury in 1990 and explained that he suffered from mixed personality disorder and multiple other afflictions, including post-traumatic stress disorder. Dr. Veraldi further testified that the lawsuit was a significant stress factor in McCollough's life, and noted that McCollough is "somebody who is a more vulnerable individual in negotiating the world," and thus "more vulnerable to any [*958] types of problems." She explained that the adverse impacts of JRL's lawsuit may have worsened McCollough's existing symptoms of headaches, anxiety, paranoia, and difficulty relating to others. McCollough testified as to the adverse impact of being [**41] sued by JRL, including the anxiety, stress, and anger that he felt and the "down time" and severe headaches that he suffered as a result. McCollough testified that the lawsuit JRL prosecuted against him "definitely" caused him anxiety, increasing his temper, pain, adrenaline, and conflict with his wife. McCollough acknowledged his disabling pre-existing condition but characterized the impact of JRL's lawsuit on him as "the straw that broke the camel's back." He thought that the lawsuit was "frivolous" and "an insult," and that he was "being shoved around." We thus must conclude that the award was not based on speculation and guesswork, but rather on the jury's valuation of McCollough's emotional distress. Contrary to JRL's assertions, In re First Alliance Mortgage Co., 471 F.3d 977 (9th Cir. 2006), does not compel a different result. There, the jury improperly arrived at its damage award by averaging the estimates of the parties' damage experts. 471 F.3d at 1002-03. No analogous calculation error is evident on this record. JRL also argues that the $250,000 award was based on an improper desire to punish JRL for its conduct. However, the jury returned both an emotional distress damages [**42] award and a punitive damages

JRL did not object to either instruction.

112

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

award; no evidence indicates that the jury improperly blurred the distinction between the two awards. Substantial evidence supports the jury's emotional distress damage award. The district court properly denied JRL's motion for a new trial or amendment of the judgment. VII

The district court properly granted summary judgment on the FDCPA claims. The district court did not abuse its discretion in its evidentiary rulings or in formulating jury instructions. Substantial evidence supports the jury's verdict. We affirm the judgment of the district court. AFFIRMED.

PART 2 TELEPHONE ISSUES A. Voice Mail

1692e. False or misleading representations A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section: *** (11) The failure to disclose in the initial written communication with the consumer and, in addition, if the initial communication with the consumer is oral, in that initial oral communication, that the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose, and the failure to disclose in subsequent communications that the communication is from a debt collector, except that this paragraph shall not apply to a formal pleading made in connection with a legal action. *** 1. Hosseinzadeh v. M.R.S. Assocs., Inc., 387 F. Supp. 2d 1104 (C.D. Cal. 2005). 2. Foti v. NCO Fin. Sys., 424 F. Supp. 2d 643 (S.D.N.Y. 2006).

3. Edwards v. Niagara Credit Solutions, Inc., 584 F.3d 1350 (11th Cir. 2009):

113

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

BRENDA EDWARDS, Plaintiff-Appellee, versus NIAGARA CREDIT SOLUTIONS, INC., a New York corporation, Defendant-Appellant. No. 08-17006 UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT 584 F.3d 1350; 2009 U.S. App. LEXIS 22500; 22 Fla. L. Weekly Fed. C 179

October 14, 2009, Decided October 14, 2009, Filed SUBSEQUENT HISTORY: Subsequent appeal at, Costs and fees proceeding at Edwards v. Niagara Credit Solutions, Inc., 2009 U.S. App. LEXIS 28695 (11th Cir. Ga., Dec. 30, 2009) PRIOR HISTORY: [**1] Appeal from the United States District Court for the Northern District of Georgia. D. C. Docket No. 0702396-CV-BBM-1. Edwards v. Niagara Credit Solutions, Inc., 586 F. Supp. 2d 1346, 2008 U.S. Dist. LEXIS 95040 (N.D. Ga., 2008) DISPOSITION: AFFIRMED. apocryphal, but the debt collection agency in this case offers up much the same logic to explain why it violated the Fair Debt Collection Practices Act: it was necessary to violate the Act in order to comply with the Act. 1 See Bruce O. Solheim, The Vietnam War Era: A Personal Journey 80 (2006). I. Brenda Edwards owed money to the Consumer Shopping Network. Her past due account was assigned to Niagara Credit Solutions, Inc. for collection. Niagara is a debt collection [**2] agency subject to the provisions of the Fair Debt Collection Practices Act, 15 U.S.C. 1692, et seq. It attempts to collect debts by sending letters and making phone calls to debtors. As part of its collection efforts, Niagara left over a dozen messages on Edwards' answering machine from July through October 2007. In September 2007, Niagara left a pre-recorded message on her machine stating: "This is an important message for Edwards Brenda. [sic] Please return this message at 1-800-3810416, between the hours of 8 a.m. and 9 p.m. eastern standard time. It is important that you reach our office." The next month Niagara left another message on her answering machine: "This message is intended for Brenda Edwards. Please contact Jennifer [last name not clear] at 1-800-381-0416, my extension is 220. When returning my call have your file number available, it's 1250740." At the time of those events Niagara had a welldefined policy about messages that it left on debtors' answering machines. That policy was to: leave a message asking the debtor to call back about an important matter; provide Niagara's phone number; supply the real first name of the person calling on behalf of Niagara; and give [**3] any reference number assigned to the account. Niagara purposefully left out of the messages any information disclosing that they were from Niagara Credit Solutions, Inc. or a debt

COUNSEL: For Niagra Credit Solutions, Inc., Appellant: Robl, Michael D., Thomerson Spears & Robl, LLC, DECATUR, GA. For Edwards, Brenda, Appellee: Skaar, Kris, Skaar & Feagle, LLP, MARIETTA, GA. For Appellee: Feagle, James Marvin Skaar & Feagle, LLP, DECATUR, GA. JUDGES: Before CARNES, FAY and ALARCON *, Circuit Judges. * Honorable Arthur L. Alarcon, United States Circuit Judge for the Ninth Circuit, sitting by designation. OPINION BY: CARNES OPINION [*1351] CARNES, Circuit Judge: In an oft-repeated statement from the Vietnam War, an unidentified American military officer reputedly said that "we had to destroy the village to save it." 1 That oxymoronic explanation may be

114

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

collector or that the call had been made for the purpose of collecting a debt. The Fair Debt Collection Practices Act specifically requires that a debt collector disclose in all communications with a debtor that the message is from a debt collector. See 15 U.S.C. 1692e(11). Niagara deliberately chose not to comply with that requirement because it feared that doing so would risk violating another provision of the Act, which generally forbids an agency from communicating about the debt with a third party. See 15 U.S.C. 1692c(b). It was concerned that answering machine messages [*1352] might be played by or within the hearing of a family member or roommate, who would then know that a collection agency was calling the debtor. II. In September 2007 Edwards filed a complaint against Niagara alleging that the messages it left on her answering machine violated 1692e(11) of the Fair Debt Collection Practices Act, as well as 1692d(6) (requiring meaningful disclosure of the caller's identity). She sought an award of statutory [**4] damages, costs, and attorney's fees and moved for summary judgment. Niagara asserted a number of defenses, including the bona fide error defense contained in 1692k(c). The district court granted summary judgment in favor of Edwards after concluding, among other things, that the messages Niagara left violated 1692d(6) and 1692e(11) and that the bona fide error defense did not apply. Niagara concedes at this stage that the messages it left violated 1692e(11) and is only challenging the district court's conclusion that it is not protected by the bona fide error defense. 2 The issue before us is whether a debt collector is entitled to the bona fide error defense when it intentionally violates one provision of the Act in order to avoid the risk of violating another provision. 2 Niagara has waived any argument that the messages did not also violate 1692d(6). Although it made such an argument in the district court, Niagara failed to include that argument in the initial brief it filed in this Court. Even though Niagara asserted at oral argument that it had not violated 1692d(6), that assertion comes too late to preserve the issue. See McFarlin v. Conseco Servs.,LLC, 381 F.3d 1251, 1263 (11th Cir. 2004) [**5] ("A party is not allowed to raise at oral argument a new issue for review."); Marek v. Singletary, 62 F.3d 1295, 1298 n.2 (11th Cir. 1995) ("Issues not clearly raised in the briefs are considered abandoned."). Nevertheless, we will not rely on the waiver because Niagara's concession that it

violated one provision of the Act is enough; an additional violation does not affect our analysis. III. The Fair Debt Collection Practices Act was enacted by Congress "to eliminate abusive debt collection practices by debt collectors" and "to protect consumers against debt collection abuses." 15 U.S.C. 1692(e). Congress found abusive practices by debt collectors to be "serious and widespread." Russell v. Equifax A.R.S., 74 F.3d 30, 33 (2d Cir. 1996). The Act provides a civil cause of action against any debt collector who fails to comply with the requirements of the Act, including 1692e(11). See 15 U.S.C. 1692k(a). A debt collector can be held liable for an individual plaintiff's actual damages, statutory damages up to $ 1,000, costs, and reasonable attorney's fees. 15 U.S.C. 1692k(a)(1)-(3). The Act, however, provides debt collectors with an affirmative defense called the "bona fide error" [**6] defense, which insulates them from liability even when they have failed to comply with the Act's requirements. Johnson v. Riddle, 443 F.3d 723, 727 (10th Cir. 2006). The defense is found in 15 U.S.C. 1692k(c), which provides: A debt collector may not be held liable in any action brought under this subchapter if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.

A debt collector asserting the bona fide error defense must show by a preponderance of the evidence that its violation of [*1353] the Act: (1) was not intentional; (2) was a bona fide error; and (3) occurred despite the maintenance of procedures reasonably adapted to avoid any such error. Johnson, 443 F.3d at 727-28. The failure to meet any one of those three requirements is fatal to the defense. Niagara cannot make the first required showing. Section 1692e(11) requires a debt collector "to disclose in subsequent communications that the communication is from a debt collector." 15 U.S.C. 1692e(11). 3 By its own admission, Niagara deliberately decided not to disclose [**7] in the messages it left that the caller was a debt collector. Its failure to disclose was intentional.

115

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

3 All the communications alleged in this case were "subsequent communications" within the meaning of 1692e(11). Niagara has also failed to meet the second requirement of the bona fide error defense, which is that the violation actually be a "bona fide" error. Taking Niagara at its word, it was concerned that disclosing that the call was from a debt collector could result in a violation of 15 U.S.C. 1692c(b), which prohibits a debt collector from communicating with third parties about the consumer's debt. 4 Niagara feared that leaving a message on a debtor's machine stating that it was from a debt collector calling to collect a debt might be viewed as a violation of 1692c(b) if the message were overheard by or played in the presence of someone other than the debtor, such as a family member or roommate. We do not need to decide whether that concern is well-grounded in the law. Even if there would be a violation of 1692c(b) in those circumstances, involving fewer than all of the messages left on answering machines, Niagara's violation of 1692e(11) with every message it left cannot [**8] be said to be a bona fide error. 4 Section 1692c(b) provides: "Except as provided in section 1692b of this title, without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector." As used in the Act "bona fide" means that the error resulting in a violation was "made in good faith; a genuine mistake, as opposed to a contrived mistake." Kort v. Diversified Collection Servs., Inc., 394 F.3d 530, 538 (7th Cir. 2005); see also Black's Law Dictionary 186 (8th ed. 2004) (defining "bona fide" as "1. Made in good faith; without fraud or deceit" and "2. Sincere; genuine"); Garcia v. Vanguard Car Rental

USA, Inc., 540 F.3d 1242, 1246 (11th Cir. 2008) ("When statutory terms are undefined, we typically infer that Congress intended them to have their common and ordinary meaning, [**9] unless it is apparent from context that the disputed term is a term of art."). To be considered a bona fide error, the debt collector's mistake must be objectively reasonable. Johnson, 443 F.3d at 729 ("[I]n effect, [the bona fide] component serves to impose an objective standard of reasonableness upon the asserted unintentional violation." (second alteration in original) (internal quotation marks omitted)). Just as it is not reasonable to destroy a village in order to save it, neither is it reasonable to violate an Act in order to comply with it. It was not reasonable for [*1354] Niagara to violate 1692e(11) of the Fair Debt Collection Practices Act with every message it left in order to avoid the possibility that some of those messages might lead to a violation of 1692c(b). Niagara complains that if it is not permitted to leave out of its answering machine messages the disclosure required by 1692e(11), the result will be that it cannot leave any messages on answering machines. That assumes an answering machine message that includes the disclosure required by 1692e(11), if heard by a third party, would violate 1692c(b). We have not decided that issue, but even if Niagara's assumption [**10] is correct, the answer is that the Act does not guarantee a debt collector the right to leave answering machine messages. Because Niagara has failed to meet either of the first two requirements of the bona fide error defense of 1692k(c), we need not decide whether it also has failed to meet the third one, which requires the maintenance of procedures reasonably designed to avoid the violation of the Act. Although the district court's grant of summary judgment to Edwards was based on that ground, we can and do affirm on different grounds. See Cuddeback v. Fla. Bd. of Educ., 381 F.3d 1230, 1235 (11th Cir. 2004) ("This court may affirm [summary] judgment on any legal ground, regardless of the grounds . . . relied upon by the district court."). AFFIRMED.

4. Berg v. Merchs. Ass'n Collection Div., 586 F. Supp. 2d 1336 (S.D. Fla. 2008):

116

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

THOMAS E. BERG, JR., Plaintiff, vs. MERCHANTS ASSOCIATION COLLECTION DIVISION, INC., d/b/a MAF COLLECTION SERVICES, Defendant. CASE NO. 08-60660-CIV-DIMITROULEAS UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA 586 F. Supp. 2d 1336; 2008 U.S. Dist. LEXIS 94023

October 31, 2008, Decided October 31, 2008, Entered

COUNSEL: [**1] For Thomas E. Berg, Jr., Plaintiff: Donald A. Yarbrough, LEAD ATTORNEY, Fort Lauderdale, FL. For Merchants Association Collection Division, Inc., doing business as MAF Collection Services, Defendant: Joan Carlos Wizel, LEAD ATTORNEY, Lydecker Diaz Lee Behar Berga & de Zayas, Miami, FL; Onier Llopiz, LEAD ATTORNEY, Lydecker Lee Behar Berga & de Zayas, Miami, FL. JUDGES: WILLIAM P. DIMITROULEAS, United States District Judge. Magistrate Judge Rosenbaum. OPINION BY: WILLIAM P. DIMITROULEAS OPINION

residence in seeking to collect on an alleged debt. (Complaint, PP 7-8.) At least 11 times within a year, the Defendant allegedly left the following message: [*1339] Hello. This message is for Thomas Berg. If you are not the person requested, disconnect this recording now. By continuing to listen to this recording you acknowledge you are the person requested. This is MAF Collection Services. We are expecting your call at 1-800-749-7710. This is an attempt to collect a debt. Any information obtained will be used for that purpose. 1-800-749-7710.

(Complaint, P 8). [*1338] ORDER DENYING DEFENDANT'S MOTION TO DISMISS THE COMPLAINT WITH PREJUDICE THIS CAUSE is before the Court upon the Defendant Merchant Association Collection Division, Inc.'s Motion to Dismiss the Complaint with Prejudice [DE 11] filed on June 24, 2008. The Court has carefully considered the Motion, the Plaintiff Thomas E. Berg, Jr.'s Opposition to Defendant's Motion to Dismiss [DE 18] filed on August 5, 2008, the Defendant's Reply Memorandum in Support of its Motion to Dismiss with Prejudice [DE 19] filed on August 15, 2008, and is otherwise fully advised in the premises. I. BACKGROUND Plaintiff alleges that the Defendant Merchant Association Collection Division, Inc. d/b/a MAF Collection Services ("MAF") left pre-recorded messages [**2] on Plaintiff's voice mail at his Plaintiff alleges that his father (Thomas E. Berg, Sr.), step-mother, stepmother's ex-spouse, girlfriend, and neighbor all heard the message in the Plaintiff's home on one or more occasions. (Complaint, P 11). Also, Plaintiff alleges that the Defendant knew or had reason to know that other persons besides the Plaintiff might hear the messages, and that Defendants never had authority to communicate with third parties regarding the debt. Plaintiff claims that these messages are in violation of the federal Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692c(b), and the Florida Consumer Collection [**3] Practices Act (FCCPA), Fla. Stat. 559.55. Plaintiff seeks damages and attorney's fees for violation of the FDCPA (Count I), damages and attorney's fees for violation of the FCCPA (Count II), and a permanent injunction to prevent the Defendant from further communications that violate the FDCPA and FCCPA (Count III). II. DISCUSSION

117

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

In its Motion to Dismiss, the Defendant argues that the messages described in the Complaint do not fall within the statutory restrictions on debt collectors' communications with third parties when left at the debtor's home voice mail. Defendant also argues that to interpret the statutory provisions as prohibiting such communications would render the statute unconstitutional under the First Amendment. Finally, Defendant contends that the Count III must be dismissed because the FDCPA does not make equitable relief available to private litigants. Plaintiff counters that a plaintiff need only claim that third parties heard the messages in order to state a claim. Plaintiff also claims that the risk that third parties may hear voice mail messages at a debtor's home required the Defendant to use another method to communicate with the Plaintiff about the debt. Plaintiff [**4] asserts that the Defendant's arguments are actually a fact-based "bona fide error defense" inappropriate for this stage of litigation. A. Motion to Dismiss Standard When a defendant files a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), the Court must determine if the Plaintiff in the complaint has alleged "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1974, 167 L. Ed. 2d 929 (2007) (abrogating Conley v. Gibson, 355 U.S. 41, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957)). Plaintiffs must "raise a right to relief above the speculative level" and "nudge[] their claims across the line from conceivable to plausible." Twombly, 127 S. Ct. at 1965, 1974. The allegations of the claim must be taken as true and must be read to include any theory on which the plaintiff may recover. See Linder v. Portocarrero, 963 F.2d 332, 336 (11th Cir. 1992) (citing Robertson v. Johnston, 376 F.2d 43 (5th Cir. 1967)). B. Plaintiff Has Stated a Claim under the FCCPA Defendant stated that it limited its analysis to the FDCPA because Fla. Stat. 559.77(5) states that "[i]n construing this section, due consideration and great weight shall be given to [**5] the interpretations of the Federal Trade Commission and the federal courts relating to the federal Fair [*1340] Debt Collection Practices Act." However, that provision related only to the section on civil remedies, 559.77. Section 559.552 gives the relationship between the FCCPA and FDCPA, where it states that the FCCPA gives additional consumer protections without limiting the FDCPA. Fla. Stat. 559.552. Thus, we interpret the

FCCPA third-party communications separately from the FDCPA provision.

provision

In order to bring a claim under Fla. Stat. 559.77(5), a Plaintiff must assert "(1) that there was a disclosure of information to a person other than a member of the debtor's family, (2) that such person does not have a legitimate business need for the information, and (3) that such information has affected the debtor's reputation." Heard v. Mathis, 344 So. 2d 651, 655 (Fla. 1st DCA 1977). The Plaintiff here has alleged specifically that there was a disclosure of information to his neighbor and girlfriend among others, that those third persons did not have a legitimate business need for the information, and that the information affected the Plaintiff's reputation. (Complaint, PP 8, 11, [**6] 12, 14, 15, 21). Therefore, Plaintiff has sufficiently alleged a claim under the FCCPA in Count II of his Complaint. C. Plaintiff Has Stated a Claim under the FDCPA Defendant does not dispute that the messages are communications under the FDCPA, but asserts that the plain language of 1692c(b) does not prohibit debt collectors from leaving voice mail messages in a debtor's home. The Defendant maintains as well that it was not the intent of Congress for the FDCPA to prohibit the voice mail messages of the type at issue here. The Defendant also contends that the previous rulings of other courts have suggested that these voice mail messages would not run afoul of the FDCPA. 1. Plain Language of the FDCPA A court's starting point in statutory interpretation is the statute's language. Cmty. for Creative NonViolence v. Reid, 490 U.S. 730, 739, 109 S. Ct. 2166, 104 L. Ed. 2d 811 (1989); Ford v. Moore, 296 F.3d 1035, 1038 (11th Cir. 2002). Where the text is unambiguous, the interpretation ends. Am. Bankers Ins. Group v. United States, 408 F. 3d 1328, 1332 (11th Cir. 2005). Unless defined otherwise, "words are given their ordinary, plain meaning." Id. Only in the rare case where the plain meaning of the text gives an absurd result [**7] is there a narrow exception to following the plain, unambiguous meaning of a statute. United States v. Nix, 438 F.3d 1284, 1286 (11th Cir. 2006). Section 1692c(b) requires that debt collectors communicating with third parties may not reveal that the consumer owes a debt: Communications with third parties. Except as provided in section 804 [15 U.S.C. 1692b], without the prior consent of the consumer given directly to the

118

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.

15 U.S.C. 1692c(b). The definition of communications in the FDCPA is "the conveying of information regarding a debt directly or indirectly to any person through any medium." 1692a(2). Courts generally consider pre-recorded messages [*1341] and voice mail messages from debt collectors to be "communications," even if the messages do not state what [**8] the calls are regarding. See e.g., Belin v. Litton Loan Servicing, LP, 2006 U.S. Dist. LEXIS 47953 *12 (M.D. Fla. July 14, 2006) (holding that messages left on the debtor's answering machine were "communications" under the FDCPA); Foti v. NCO Fin. Sys., 424 F. Supp. 2d 643, 655-56 (S.D.N.Y. 2006) (holding that a voice mail message is a "communication" under the FDCPA); Hosseinzadeh v. M.R.S. Assocs., Inc., 387 F. Supp.2d 1104, 1115-16 (C.D. Cal. 2005) (same); but see Biggs v. Credit Collections, Inc., 2007 U.S. Dist. LEXIS 84793 *12-13 (W.D. Okla. Nov. 15, 2007) (ruling that a voice mail message by a debt collector was not a communication because it contained no information regarding a debt). Contact of the consumer's family members by debt collectors falls within the scope of 1692c(b), with the exception of the consumer's wife, or parent if the consumer is a minor. 1692c(d); West v. Costen, 558 F. Supp. 564, 576 (W.D. Va. 1983) (granting summary judgment when the debt collector spoke to consumer's grandparents, parents, daughter, and uncle regarding the consumer's debt). Although debt collectors are to refrain from mentioning the debt when communicating with third parties, they [**9] must indicate to the consumer their identity, that the debt collector is attempting to collect a debt, and that any information obtained would be used for that purpose. 1692d(6), 1692e(11). This warning is sometimes referred to as the "mini-Miranda." E.g., Barrows v. Chase Manhattan Mortgage Corp., 465 F. Supp. 2d 347, 359-60 (D.N.J. 2006). Defendants argue that the statute, by its plain language, does not include voice mail messages left at the debtor's home as "communicat[ing] in connection

with any debt with any person other than the consumer." 1692c(b). The Defendant emphasizes the forewarning it included in the message, directing anyone other than the Plaintiff to disconnect. However, it is not clear that this forewarning necessarily removes the messages from the statutory restrictions on communicating with third parties. The FDCPA definition of "communication" includes "conveying information regarding a debt directly or indirectly to any person through any medium." 1692a(2). Furthermore, the statute states that "prior consent of the consumer" must be "given directly to the debt collector" before the debt collector may communicate with third parties. 1692c(b). With this [**10] fairly broad definition of communication and the need for direct prior consent for communications with third parties, the Court cannot hold that the plain language of the statute excludes the Defendant's communications. 2. Legislative History and FTC Interpretations Defendants also maintain that the legislative history of the FDCPA and the FTC interpretation show that the restrictions of 1692c(b) do not apply to voice mail messages left at the debtor's residence. The purpose of the FDCPA is to "eliminate abusive practices, not disadvantage ethical debt collectors, and promote consistent state action." S. Rep. No. 95-382 at 7 (1977) as reprinted in 1977 U.S.C.C.A.N. 1695, 1701. Among the needs the Senate listed for the legislation is collection abuse in the form of "disclosing a consumer's personal affairs to friends, neighbors, or an employer." Id. The Senate noted that the "legislation strongly protects the consumer's right to privacy by prohibiting a debt collector from communicating the consumer's personal affairs to third persons," while recognizing the "legitimate need to seek the whereabouts of missing debtors." Id. at 4. [*1342] About 1692c in particular, the Senate wrote that "[t]here [**11] is general prohibition on contacting any third parties (other than to obtain location information)," with some exceptions not relevant here. Id. at 7. Congress did not appear to address directly the situation here. The statute itself uses language that is significantly broader, by defining communications to include indirect conveying of information. 1692c. The legislative history offers little guidance on a situation as this one where the third party receives the information, in the home of the consumer, after receiving a warning that the information is intended only for the consumer. Congress charged the Federal Trade Commission (FTC) with the authority to enforce the FDCPA, but did not give the FTC the authority to promulgate rules

119

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

and regulations. 1692l. Therefore, FTC interpretations on the FDCPA "should be accorded considerable weight," but are not binding on courts. Hawthorne v. Mac Adjustment, 140 F.3d 1367, 1372 n.2 (11th Cir. 1998). The Defendant notes an FTC Staff Opinion Letter stating that the purpose of 1692c(b) was to "prevent unscrupulous debt collectors from embarrassing consumers and invading their privacy be revealing the existence of their debt to friends, neighbors [**12] or other third parties." FTC Staff Opinion Letter Borowski Nov. 6, 1992, available at http://www.ftc.gov/os/statutes/fdcpa/letters/borowski.ht m. This letter suggests that 1692c(b) was intended to prevent debt collectors from purposely shaming debtors in front of others, rather than generally protecting a consumer's right to privacy. However, the FTC gave this opinion in the context of a debt collector communicating with one holder of a joint account concerning bad checks from the joint account written by the other joint account holder. 1 Id. We find more relevant the FTC Staff Commentary, where the FTC stated that "[a] debt collector does not violate this provision when an eavesdropper overhears a conversation with the consumer, unless the debt collector has reason to anticipate the conversation will be overheard." Federal Trade Commission Staff Commentary on the Fair Debt Collection Practices Act, 53 Fed. Reg. 50104 (Dec. 13, 1988). The example given here by the FTC suggests that the FDCPA is violated by debt collectors who leave messages for consumers while aware that the message may be heard by others. 1 The FTC wrote a similar statement in the context of answering a question of [**13] whether a debt collector may give information to a debtor's survivors when the survivors already know of the debt and are contacting the debt collectors for the amount in order to resolve it. FTC Staff Opinion Letter Fisher Aug. 6, 1992, available at http://www.ftc.gov/os/statutes/fdcpa/letters/fish er.htm. Only one case to this Court's knowledge has specifically ruled on whether leaving messages on the debtor's home answering machines, heard by third parties, was a violation of 1692c(b). F.T.C. v. Check Enforcement, 2005 U.S. Dist. LEXIS 34349, 2005 WL 1677480 *8 (D.N.J. 2005). The court in Check Enforcement found it to be a violation without discussion. Id. Courts have found violations of the FDCPA when debt collectors have left messages for debtors without leaving the "mini-Miranda". E.g., Hossenzadeh v. M.R.S. Associates, Inc., 387 F. Supp. 2d 1104, 1112 (C.D. Cal. 2005); see also Belin v.

Litton Loan Servicing, LP 2006 U.S. Dist. LEXIS 47953, 2006 WL 1992410 *4-5 (M.D. Fla. 2006) (finding that the plaintiff had stated a claim under the FDCPA when the debt collector left a message on a third person's answering machine asking the debtor to call back, but not revealing that the call was in regards to a debt). [*1343] Other courts, while not facing [**14] the same issue before us, have given conflicting opinions on the closely related issue of automated messages. For example, the court in Joseph v. J.J. Mac Intyre Cos. addressed automated calls to the debtor's home, where there would be a risk of someone other than the debtor answering and hearing the message (a risk similar to the situation here). 281 F. Supp. 2d 1156, 1164 (N.D. Cal. 2003). Joseph stated that while the "disclosure during an automated call could compromise the debtor's privacy if another party such [sic] a neighbor or relative inside the home picks up the debtor's phone and hears the automated call, the possible compromise of privacy is less likely and more remote than where e.g., the [debt collector] indicates the nature of the collection notice on the outside of an envelope sent by mail for the world to see." Id. (internal citations omitted) (comparing 1692c(b) to 1692f(7)-(8), which restrict what information debt collectors may put on the outside of mailing envelopes). Joseph went on to state that Congress's concern was "deliberate disclosure of the debtor's status to third parties." Id. The court in Foti v. NCO Fin. Sys. Inc., without reaching the question, [**15] acknowledged that Joseph established some authority that it may be possible for automated messages at a debtor's home to comply with both 1692d(6) and 1692e(11) requirements of disclosure and 1692c(b) restrictions on communications with third parties. 424 F. Supp. 2d 643, 660 n.26 (S.D.N.Y. 2006). But Foti found that debt collectors who use automated messages do so at the peril of violating the FDCPA, either by not leaving enough information for the debtor in violation of 1692d(6) and 1692e(11), or by leaving too much information for a possible third party in violation of 1692c(b). See id. at 658-59. Debt collectors have no entitlement to use automated messages to reach debtors, and courts have no obligation to harmonize different provisions of the FDCPA so that debt collectors may use an inherently risky method of communication. See id. at 659-60 (citing Russell v. Equifax A.R.S., 74 F.3d 30, 35 (2nd Cir. 1996)). Voice mail messages left at the debtor's home pose similar risks as automated messages. 2 In this case, the Defendant left messages at the Plaintiff's home with a warning to the listener to disconnect if the listener was not the Plaintiff, and that continuing to [**16] listen to

120

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

the message indicates that the listener was Plaintiff Thomas Berg. This warning would perhaps persuade other persons from continuing to listen to the message. However, nothing in the message would alert the Plaintiff to disconnect if he were to listen to the message in the presence of others. Even if by leaving the warning, the Defendant had taken reasonable precautions to prevent third persons from continuing to play the messages themselves, the Plaintiff could claim that the Defendant could still reasonably anticipate that third persons would overhear the message while the Plaintiff played it. Also, the FDCPA specifically requires that prior consent for third party communication be given directly to the debt collector by the consumer. 1692c(b). A third party, or the debtor in the presence of a third party, continuing to listen to the message in spite of the warning does not qualify as prior consent directly to the debt collector. Therefore, the Court cannot say that the Plaintiff has failed to state a claim upon which relief can be granted when the Defendant left [*1344] messages on the Plaintiff's voice mail that third persons heard. 2 The messages at issue here automated. The [**17] risk of another person listening to or overhearing the message would, of course, be identical whether the message left was automated or left by a live caller. The Court is aware that this ruling will make it difficult, though perhaps not impossible, for debt collectors to comply with all of 1692c(b), 1692d(6), and 1692e(11) at once in a message left on the consumer's voice mail. However, we follow reasoning similar to Foti to find no reason that a debt collector has an entitlement to use this particular method of communication. Debt collectors have other methods to reach debtors including postal mail, in-person contact, and speaking directly by telephone. D. Interpretation of This Claim as a Violation of 1692c(b) Does Not Render the FDCPA Unconstitutional Defendant argues that the FDCPA must be found unconstitutional if it is to be interpreted to prohibit the communications described in the Plaintiff's complaint, because such a ruling would effectively make it impossible for debt collectors to leave messages on debtors' answering machine while conforming to the FDCPA. According to the Defendant, the restrictions on debt collector's speech to debtors on their answering machines violate [**18] the First Amendment regardless of whether the restrictions are considered content-based, content-neutral, or commercial speech. The Court declines to rule that its decision today is a

complete prohibition of messages regarding debt collection left on debtors' voice mail, but will nonetheless address the Defendant's First Amendment concerns. Laws are content-based if they "by their terms distinguish favored speech from disfavored speech on the basis of the ideas or views expressed." KH Outdoor, LLC v. City of Trussville, 458 F.3d 1261, 1269 (11th Cir. 2006) (quoting Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 643, 114 S. Ct. 2445, 129 L. Ed. 2d 497 (1994)). A content-based restriction is "subject to strict scrutiny, meaning that it is constitutional only if it constitutes the least restrictive means of advancing a compelling government interest." Solantic, LLC v. City of Neptune Beach, 410 F.3d 1250, 1258 (11th. Cir. 2005). Content-neutral restrictions are subject to intermediate scrutiny, so they must be "narrowly tailored to serve a significant governmental interest," and they must "leave open ample alternative channels of communications." DA Mortg., Inc. v. City of Miami Beach, 486 F.3d 1254, 1256 (11th Cir. 2007) [**19] (citing Ward v. Rock Against Racism, 491 U.S. 781, 791, 109 S. Ct. 2746, 105 L. Ed. 2d 661 (1989)). The Court disagrees with the proposition that the communications restrictions of the FDCPA amount to restrictions based on the ideas or views expressed, and therefore deserve the highest scrutiny under the First Amendment. Such a finding would lead to strict scrutiny analysis of any legislation requiring discretion in information disclosure by debt collectors, financial institutions, medical personnel, or others dealing with sensitive personal information. As the Supreme Court stated, "speech on matters of purely private concern is of less First Amendment concern." Dun & Bradstreet v. Greenmoss Builders, 472 U.S. 749, 759, 105 S. Ct. 2939, 86 L. Ed. 2d 593 (comparing issues of public concern, which receive special First Amendment protection, with the issuance of credit reports, which did not). Like the credit reports of Dun & Broadstreet, the information here is solely of interest to the speaker and its specific audience and is not a matter of public concern. See also Trans Union Corp. v. FTC, 345 U.S. App. D.C. 301, 245 F.3d 809, 818 (D.C. Cir. 2001) (finding that lists of names and addresses of compiled and sold by a consumer reporting agency were akin to the credit reports of [**20] Dun & Broadstreet and did not [*1345] merit strict scrutiny protection). The FDCPA restrictions at issue here, then, do not fall under strict scrutiny analysis. Under intermediate scrutiny, the restrictions would be constitutional if they are "narrowly tailored to serve a significant governmental interest." DA Mortg., Inc. v. City of Miami Beach, 486 F.3d 1254, 1256 (11th Cir. 2007). Abusive debt collection practices and invasion

121

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

of privacy are concerns Congress intended to address by enactment of FDCPA. 1692(a); S. Rep 95-382 at 7 (1977) as reprinted in 1977 U.S.C.C.A.N. 1695, 1701. Both are significant governmental interests. The Defendant argues it is "nonsensical" to rule that the total prohibition on debt collectors from leaving messages on debtors' voice mail is narrowly tailored to address harassing or abusive collection practices. The invasion of privacy, however, was also a stated goal of Congress. 1692(a); S. Rep 95-382 at 7. Section 1692c(b) is intended to prevent debt collectors from revealing information about a consumer's debt to third persons. Leaving a message at the debtor's home, where another third person may retrieve or overhear it, is a substantial risk of communication [**21] to third parties that 1692c(b) the FDCPA was intended to prevent. Prohibiting voice mail messages is narrowly tailored to prevent that risk, though it may not be, nor does it need to be, the "least restrictive" means as would be required under strict scrutiny analysis. Debt collectors have several alternative channels of communication available to them, including live conversation via telephone, in person communication, and postal mail. In the messages particular to this case, ruling that Plaintiffs have stated a claim under the FDCPA does not offend the First Amendment. As discussed above, the inclusion of the warning by the Defendant would not alert the Plaintiff that he should disconnect the message before private and potentially embarrassing information would be revealed to others in hearing range. Thus, a prohibition of these particular messages is narrowly tailored to serve the significant governmental interest of protecting consumers' privacy. Again, Defendant has alternative channels of communication available. E. Whether Any Violation by the Defendant Was Intentional is an Issue of Fact Defendant argues that under 1692k(c), which establishes the "bona fide error" defense, [**22] the messages should be held not to be violations as a matter of law. Section 1692k(c) states that a "debt collector may not be held liable . . . if the debt collector shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of

procedures reasonably adapted to avoid any such error." The "preponderance of evidence" language in 1692k(c) contemplates a factual inquiry. The content of the messages at issue may suggest that a violation was unintentional. However, Plaintiff has alleged that the Defendant either knew or had reason to know that third parties might hear the message. Thus, there is a factual dispute as to the Defendant's intent, and the Court will not rule on this factual issue based only on the pleadings. F. Plaintiff May Seek Injunctive Relief under the FCCPA Defendant argues that Count III of the Plaintiff's Complaint seeking injunctive relief should be dismissed because the FDCPA does not provide such relief to private litigants. Plaintiff did not respond to this portion of Defendant's argument in his Response. [*1346] Count III of the Plaintiff's Complaint seeks injunctive relief under both the [**23] FCCPA and the FDCPA. Defendant is correct that the FDCPA does not authorize injunctive relief to private litigants. Sibley v. Fulton Dekalb Collection Service, 677 F.2d 830, 834 (11th Cir. 1982). However, the FCCPA states that a "court may, in its discretion, award punitive damages and may provide such equitable relief as it deems necessary or proper, including enjoining the defendant from further violations of this part." Fla. Stat. 559.77(2). Florida has granted specific statutory authority for a plaintiff to seek injunctive relief under the FCCPA. Thus, the Plaintiff has stated a claim upon which relief may be granted in Count III. III. CONCLUSION Accordingly, it is ORDERED AND ADJUDGED that the Defendant's Motion to Dismiss the Complaint with Prejudice [DE 11] is hereby DENIED. DONE AND ORDERED in Chambers at Fort Lauderdale, Broward County, Florida, this 31st day of October, 2008. /s/ William P. Dimitrouleas WILLIAM P. DIMITROULEAS United States District Judge

5. Biggs v. Credit Collections, Inc., 2007 U.S. Dist. LEXIS 84793 (W.D. Okla. Nov. 15, 2007):

122

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

BRANDON DALE BIGGS, et al., Plaintiffs, vs. CREDIT COLLECTIONS, INC., Defendants. Case No. CIV-07-0053-F UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA 2007 U.S. Dist. LEXIS 84793

November 15, 2007, Decided November 15, 2007, Filed COUNSEL: [*1] For Brandon Dale Biggs, Diana Beth Biggs, on behalf of themselves and all others similarly situated, Plaintiffs: Christopher J Petersen, Joseph B Miner, Little Miner & Petersen, Oklahoma City, OK. For Credit Collections Inc, an Oklahoma corporation, Jane Doe, an individual also known as Debra Denton, John Doe, also known as Robert Sullivan, Defendants: Colin H Tucker, Rhodes Hieronymus Jones Tucker & Gable, Tulsa, OK. JUDGES: STEPHEN P. FRIOT, UNITED STATES DISTRICT JUDGE. OPINION BY: STEPHEN P. FRIOT OPINION ORDER "Plaintiffs' Brandon Dale Biggs and Diana Beth Biggs Motion for Summary Judgment," filed October 1, 2007, is before the court and ready for determination. (Doc. no. 21.) Standards Under Rule 56(c), Fed. R. Civ. P., summary judgment shall be granted if the record shows that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The moving party has the burden of showing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). A genuine issue of material fact exists when "there is sufficient evidence favoring the non-moving party for a jury to return a verdict for that party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986). [*2] In determining whether a genuine issue of a material fact exists, the evidence is to be taken in the light most favorable to the nonmoving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 26 L. Ed. 2d 142 (1970). All reasonable inferences to be drawn from the undisputed facts are to be determined in a light most favorable to the non-movant. United States v. Agri Services, Inc., 81 F.3d 1002, 1005 (10th Cir. 1996). Once the moving party has met its burden, the opposing party must come forward with specific evidence, not mere allegations or denials, demonstrating that there is a genuine issue for trial. Posey v. Skyline Corp., 702 F.2d 102, 105 (7th Cir. 1983). Discussion This is an action brought by individual consumers for alleged violations of the Fair Debt Collection Practices Act, 15 U.S.C. 1692 et seq., (the Act). The express purposes of the Act are three-fold: to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent state action to protect consumers against debt collection abuses. Johnson v. Riddle, 305 F.3d 1107, 1117 (10th Cir. 2002) [*3] (quoting 1692(e)). Because the Act is a remedial statute, it should be construed liberally in favor of the consumer. Id. With respect to alleged violations of the Act, the court applies an objective standard measured by how the least sophisticated consumer would interpret communications from a debt collector. See, Dikeman v. National Educators, Inc., 81 F.3d 949, 954 (10th Cir. 1996) (considering an earlier version of 1692e(11); noting "the Act is for consumer protection and the disclosure requirement is designed to protect such consumers as may not have the sophistication to appreciate the significance of debt collection communications"); Ferree v. Marianos, 129 F.3d 130 [published in full-text format at 1997 U.S. App. LEXIS 30361, *1-*2] (10th Cir. 1997) (unpublished opinion

123

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

cited here pursuant to the requirements of Tenth Circuit Rule 36.3; noting other circuits apply the least sophisticated consumer test, and applying the test in that decision). This standard requires the court to consider how the least sophisticated consumer -- one not having the astuteness of a lawyer or even the sophistication of the average, everyday, common consumer -- understands the notice he receives. Id. Some courts, including the Tenth Circuit, have indicated [*4] that the factual context of any given communication may be material to a determination of whether a violation of 1692e(11)'s disclosure requirements occurred in a particular instance. See, e.g., Dikeman, 81 F.3d at 954 ("context" and "situation" considered in determining whether violation of the prior version of 1692e(11) occurred; communications were with an attorney representing a consumer; disclosure to the attorney that the debt collector was attempting to collect a debt, and that information obtained would be used for that purpose, would have been "a pointless formality" and was not required by 1692e(11)); Foti v. NCO Financial Systems, Inc. 424 F. Supp. 2d 643, 670 (S.D. N.Y. 2006) (no violation with respect to January 26 call returned by a consumer to a debt collector in which the debt collector never explicitly stated he was a debt collector, but in which it was clear from the entirety of the conversation that even the least sophisticated consumer would have understood the call concerned collection of a debt); Ferree, 129 F.3d 130 [published in full-text format at 1997 U.S. App. LEXIS 30361, *2] (in considering a different potential violation under the FDCPA, no violation found when information was provided as an attachment because [*5] even the least sophisticated consumer receiving two communications in the same envelope would examine the entire contents of the envelope); Pressley v. Capital Credit & Collection Service, 760 F.2d 922, 925 (9th Cir. 1985) (under the previous version of 1692e(11), court noted the follow-up notice in question only "demand[ed] payment as earlier requested"; court reasoned that the notice "is not a 'communication' within which the disclosure required by 15 U.S.C. 1692e(11) must be made"). 1 1 Plaintiffs' cases, cited (at doc. no. 21, p. 7) for the proposition that disclosures must be provided in all communications following the initial contact, construe a prior version of 1692e(11). The earlier version provided that "the failure to disclose clearly in all communications made to collect a debt or to obtain information about a consumer, that the debt collector is attempting to collect a debt and that any information obtained will be used for

that purpose," constituted a violation. The current version of the statute, enacted in 1996, places different disclosure requirements on initial communications and on subsequent communications. In this action, the specific sections of the Act which [*6] the complaint alleges were violated are 1692e(5), (10) and (11), and 1692f. (The complaint also alleges other claims, including claims that defendants' actions were intentional, grossly negligent, and that there was a failure to properly educate and train debt collectors.) Although plaintiffs' motion asks for summary judgment in plaintiffs' favor on all claims, the motion presents developed argument with respect to only one set of claims -- claims involving defendants' alleged failure to disclose in subsequent communications (as opposed to initial communications) with the consumer that communications were from debt collectors, in violation of 1692e(11). 2 The pertinent portion of 1692e(11) provides that a debt collector's "failure to disclose in subsequent communications that the communication is from a debt collector" constitutes a violation of the Act. 2 Although plaintiffs' motion refers to claims based on allegedly misleading or otherwise improper practices by the defendants, the "Argument and Authorities" portion of plaintiffs' moving brief clearly focuses on defendants' alleged failure to give the subsequent communication disclosure provided for in 1692e(11). To the extent [*7] that plaintiffs may have intended to press for summary judgment on any claims not discussed in the text of this order, their motion is denied because they have failed to show there are no genuine issues of material fact with respect to such claims. 1. The first call which plaintiffs contend violated the subsequent communication disclosure requirement occurred on October 17, 2006. It is undisputed this call was placed by defendant Robert Sullivan (debt collector) to plaintiff Diana Beth Biggs (consumer), at Ms. Biggs' place of employment. Neither plaintiffs' statement of proposed undisputed material facts (UMF), nor Ms. Biggs' affidavit, expressly contends that, in this particular call, Mr. Sullivan failed to state that he was a debt collector. (See pls' UMF No. 3 pertaining to this call, and Biggs' aff. at doc. no. 21, Ex. 1.) Furthermore, the content of the call as described in Ms. Biggs' affidavit suggests that the obvious purpose of the October 17 call from Mr. Sullivan to Ms. Biggs was debt collection. No transcript of this call has been

124

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

submitted. Mr. Sullivan's answers to interrogatories (doc. no. 22, Ex. 7) suggest there may be disputed facts as to whether disclosures were given [*8] in this conversation. Based on this record, plaintiffs have not shown that they are entitled to judgment as a matter of law with respect to their claim that the call from Mr. Sullivan to Diana Beth Biggs on October 17, 2006, violated 1692e(11). 2. The next call in issue also occurred on October 17, 2006. It is undisputed this call was placed by plaintiff Brandon Dale Biggs, who called the defendants' office. Based on the undisputed transcript attached to plaintiffs' motion (Tr. at doc. no. 21, Ex. 4), Mr. Biggs first reached a phone operator for defendant Credit Collections, Inc.; the operator then advised Mr. Biggs that Robert Sullivan (with whom Diana Beth Biggs had spoken the day before) was at lunch; and Mr. Biggs' call was then passed to defendant Debra Denton. It is undisputed that during this call no one expressly identified themselves to Mr. Biggs as a debt collector. In response to this last point, defendants argue that the statutory language of 1692e(11) only requires disclosure when the subsequent communication is literally "from a debt collector." Because Mr. Biggs placed this call to the collection agency, defendants contend no subsequent communication disclosure was required. [*9] Section 1692e(11)'s requirement to disclose that subsequent communications are "from" a debt collector makes sense when viewed alongside 1692e(11)'s requirements concerning initial communications between a debt collector and a consumer. In the initial communication the debt collector must disclose that "the debt collector is attempting to collect a debt and that any information obtained will be used for that purpose...." Assuming these initial disclosures are given, it is reasonable to presume that if a consumer then contacts a debt collector, the debt collector need not again identify himself as a debt collector. It may be for this reason that the statute requires the disclosure that subsequent communications are "from a debt collector." The observation that Congress' choice of the word "from" makes sense in the context of the statute, does not mean, however, that Congress intended disclosures are not required whenever subsequent communications occur that are initiated by the consumer. It is easy to imagine circumstances in which a caller might return a call to a debt collector but be uncertain about who he is calling or why. The disclosure required in the initial communication may [*10] not have been given. If the initial disclosure was given, it might have been given

days, weeks or months before the subsequent communication occurred. In light of the requirement that the Act be interpreted liberally in favor of the consumer, the court rejects defendant's contention that 1692(e) does not apply to subsequent communications when such communications are initiated by the consumer. Rejection of the defendant's position does not, however, entitle plaintiffs to summary judgment with respect to their non-disclosure claim based on the October 17 call placed by Mr. Biggs. Although the purposes of the Act require a liberal construction of 1692e(11) so as to protect the least sophisticated consumer, that purpose does not require patently unnecessary identification in subsequent communications when there are facts to suggest (as the transcript does here) that the consumer placed the call knowing who he was calling and understanding that he was speaking with a debt collector regarding debt collection. (Tr. at doc. no. 21, Ex. 4) If that is the case here, then requiring the debt collector to interrupt the conversation with Mr. Biggs to interject that he was a debt collector might [*11] have been merely "a pointless formality," to quote Dikeman, 81 F.3d at 954. Moreover, defendants contend that the plaintiffs entrapped them with respect to statements made by the defendants regarding potential garnishment. This entrapment defense is another disputed circumstance that is relevant to a determination of whether a disclosure violation occurred during this call. On this record, plaintiffs have not shown that they are entitled to summary judgment with respect to their claim that defendants violated 1692e(11) during the call placed by Mr. Biggs on October 17, 2006. 3. The next call in question was made on October 18, 2007, by Diana Beth Biggs, who called Robert Sullivan with Credit Collections, Inc. For reasons previously stated, the court rejects defendants' position that the statute does not apply because the call was not from the debt collector. Based on the undisputed transcript of this call, Mr. Sullivan failed to expressly identify himself as a debt collector during this call. (Tr. at doc. no. 21, Ex. 3.) The transcript suggests, however, that Ms. Biggs knew Mr. Sullivan was a debt collector. (Doc. no. 21, Ex. 3, p. 1.) Therefore, for the same reasons as apply to the [*12] October 18 call placed by Mr. Biggs, the court concludes that plaintiffs have not shown they are entitled to summary judgment on their claim that defendants violated 1692e(11) during the October 18, 2006 call placed by Ms. Biggs. 4.

125

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

The other communications in issue are described by plaintiffs as: "Messages left on the answering machine of BRANDON DALE BIGGS and DIANA BETH BIGGS by Defendant, JOHN DOE, a/k/a ROBERT SULLIVAN." Plaintiffs complain that in these voice-mail messages defendants "did not provide the necessary oral warnings mandated by the FDCPA ('This communication is from a debt collector.')" (Doc. no. 21, p. 5, UMF No. 6.) The arguments and evidence suggest it is likely that a number of messages were left, but transcripts of only two voice-mail messages are submitted by plaintiffs in support of this claim. (Tr. at doc. no. 21, Ex. 5.) Defendants concede the two transcribed voice-mail messages do not disclose that they are from a debt collector. Defendants argue, however, that such voicemail messages do not constitute "communications" within the meaning of 1692e(11). The statutory definition of "communication" is found in 15 U.S.C. 1692a(2). As defined there, "[t]he term [*13] 'communication' means the conveying of information regarding a debt directly or indirectly to any person through any medium." Decisions cited in the parties' briefs from a variety of courts conclude that voice-mail messages constitute "communications" for purposes of 1692e. However, that is not the end of the matter, as to the voice-mail messages in question here. Words matter -- in this instance, the words of the voice mails and the words of the statutory definition of a "communication." The transcript of the voice mail messages demonstrates that the voice mails "convey[ed]" no "information regarding a debt." 3 No amount of liberal construction can broaden the statutory language to encompass the words recorded in

these voice mails. Summary judgment will be denied as to the voice mails shown by the transcripts attached as Exhibit 5 to plaintiffs' motion. 3 In this respect, the statutory language is oddly narrow. The statutory definition does not include messages or communications that do not impart (or are not at least intended to impart) information about a debt. The voice mails at issue here would have been encompassed by a definition that included "a communication in furtherance [*14] of any attempt to collect a debt." 5. Defendants also argue that plaintiffs are not entitled to summary judgment on any of their claims, because plaintiffs have not shown that the individual defendants (as opposed to the corporate defendant) are liable for the conduct in question. As an alternative ground for denying plaintiffs' motion, the court notes its agreement with the defendants on this point. Conclusion After careful consideration of the parties' submissions, the record, and the relevant legal authorities, plaintiffs' motion for summary judgment is DENIED. Dated this 15th day of November, 2007. /s/ Stephen P. Friot STEPHEN P. FRIOT UNITED STATES DISTRICT JUDGE

6.

Marx v. General Revenue Corp., 668 F.3d 1174 (10th Cir. 2011):
OLIVEA MARX, Plaintiff - Appellant, v. GENERAL REVENUE CORPORATION, an Ohio corporation, Defendant - Appellee, KEVIN COBB, Defendant. No. 10-1363 UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT 668 F.3d 1174; 2011 U.S. App. LEXIS 25284; 81 Fed. R. Serv. 3d (Callaghan) 479

December 21, 2011, Filed PRIOR HISTORY: [**1] APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO. (D.C. No. 1:08-CV-02243-RPM-CBS). Marx v. General Revenue Corp., 2010 U.S. Dist. LEXIS 81556 (D. Colo., July 15, 2010) DISPOSITION: AFFIRMED.

126

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

COUNSEL: David M. Larson, Colorado Springs, Colorado, for Plaintiff - Appellant. Steven Wienczkowski (and Adam L. Plotkin of Adam L. Plotkin, P.C., with him on the brief), Denver, Colorado, for Defendant - Appellee. JUDGES: Before KELLY, LUCERO, and GILMAN*, Circuit Judges. Lucero, J. dissenting. * The Honorable Ronald Lee Gilman, United States Circuit Court Judge, Sixth Circuit, sitting by designation. OPINION BY: KELLY OPINION [*1176] KELLY, Circuit Judge. Plaintiff-Appellant Olivea Marx appeals from the district court's judgment in favor of DefendantAppellee General Revenue Corporation ("GRC"). After a bench trial, the district court found no violation of the Fair Debt Collection Practices Act ("FDCPA") and awarded costs to GRC in the amount of $4,543. We have jurisdiction under 28 U.S.C. 1291, and we affirm. Background Ms. Marx defaulted on her student loan. In September 2008, her guarantor, EdFund, a division of the California Student Aid Commission, hired GRC to collect on the account. In October 2008, Ms. Marx sued GRC, alleging abusive and threatening phone calls in violation of the FDCPA. Aplt. App. 11-16. GRC [**2] then made an offer of judgment, which Ms. Marx did not accept. Aplt. App. 114-116. She amended her complaint in March 2009 to add a claim that GRC violated the FDCPA by sending a facsimile to her workplace that requested information about her employment status. Aplt. App. 23-31. The district court, after a one-day trial in May 2010, found that the challenged collection practices were not abusive and threatening given its view of what actually occurred. Aplt. App. 352-357. She does not appeal these findings. Instead, she contests the court's conclusion that the facsimile did not violate the FDCPA's provision against debt-collector communications with third parties. The facsimile was sent in September 2008 to Ms. Marx's employer as part of GRC's inquiry into Marx's eligibility for wage garnishment. When a GRC agent

called Ms. Marx's employer to verify her employment status, the agent was told to make the request in writing. Aplt. App. 217-18. GRC sent its standard employment verification form. This form displays GRC's name, logo, address, and phone number, and bears an "ID" number representing GRC's internal account number for Ms. Marx. The form indicates that its purpose is to "verify [**3] [e]mployment" and to "[request] employment information"; blanks are left for the employer to fill in the individual's employment status, date of hire, corporate payroll address, and position, and to note whether the individual works fullor part-time. Aplt. App. 113. On appeal, Ms. Marx argues that GRC violated the FDCPA by sending the facsimile and claims that the district court erred in: (1) finding that a facsimile sent by GRC did not constitute a "communication" under the FDCPA; (2) awarding GRC costs pursuant to Fed. R. Civ. P. 54(d); and (3) permitting (in the alternative) an award of costs following GRC's offer of judgment pursuant to Fed. R. Civ. P. 68. [*1177] Discussion A. Whether the "Communication" Facsimile Constitutes a

Our review of the district court's factual findings is for clear error; legal conclusions are reviewed de novo. Keys Youth Servs., Inc. v. City of Olathe, 248 F.3d 1267, 1274 (10th Cir. 2001). We view the record in its entirety in the light most favorable to the district court's findings, accepting those findings, if plausible, even though we might have weighed the evidence differently. Anderson v. City of Bessemer, 470 U.S. 564, 573-74, 105 S. Ct. 1504, 84 L. Ed. 2d 518 (1985). The FDCPA was enacted [**4] "to eliminate abusive debt collection practices by debt collectors, to insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged, and to promote consistent State action to protect consumers against debt collection abuses." 15 U.S.C. 1692(e). The law provides, among other things, that a "debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer." 15 U.S.C. 1692c(b). A "communication" is defined as the "conveying of information regarding a debt directly or indirectly to any person through any medium." 15 U.S.C. 1692a(2). The facsimile in question is not a "communication" under the FDCPA. A third-party "communication," to be such, must indicate to the recipient that the message relates to the collection of a

127

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

debt; this is simply built into the statutory definition of "communication." This fax cannot be construed as "conveying" information "regarding a debt." Nowhere does it expressly reference debt; it speaks only of "verify[ing] [e]mployment." Nor could it reasonably be construed to imply a debt. In order to substantiate the claim that the facsimile [**5] "conveys" information "regarding a debt," either "directly or indirectly," Ms. Marx had the burden of proving such a conveyance; the standard is not whether the facsimile could have had such an implication. No testimony shows that Ms. Marx suffered any actual harm (such as embarrassment or a denial of promotion) or that her employer was aware that the facsimile in any way concerned a default on a student loan. Aplt. App. 180-185; 199-200. Ms. Marx did not call any witnesses from her employer's office to testify as to what they inferred from the facsimile. Aplt. App. 355. Instead, she argues that the existence of a debt was implied by the ID or account number that appeared on the facsimile; this, she claims, makes it a "communication." Aplt. Br. at 4-5. GRC, however, designed the form precisely to avoid such an implication. When asked at trial why the faxed form contained an ID number, the agent who sent it testified: "One of the first things we're taught in training is you can never imply debt to a third party. ID could be a-just an identification number to an application, or whatever. We don't ever say account when we're speaking with an authorized third party." Aplt. App. 221. GRC [**6] conceded at oral argument that if its corporate name had somehow disclosed the nature of its business, the case would different. But absent any evidentiary showing that Ms. Marx's employer either knew or inferred that the facsimile involved a debt, the facsimile does not satisfy the statutory definition of a "communication." A party may seek to verify employment status (without hinting at a debt) for any number of reasons, including as part of processing a mortgage, conducting a background check before hiring, or determining eligibility for an extension of credit. Because we find that the facsimile did not constitute a "communication" within the ambit of the FDCPA, we need not consider whether GRC violated [*1178] 1692c(b)'s prohibition against debt-collector "communicat[ions]" with third parties. B. Costs The district court awarded costs pursuant to Federal Rules of Civil Procedure 54(d)(1) and 68(d). We review an award of costs for an abuse of discretion. Rodriguez v. Whiting Farms, Inc., 360 F.3d 1180, 1190 (10th Cir. 2004). Whether costs provisions even apply

is a legal question reviewed de novo. Scottsdale Ins. Co. v. Tolliver, 636 F.3d 1273, 1276 (10th Cir. 2011). 1. Costs under Rule 54(d) Rule 54(d)(1) [**7] provides that "[u]nless a federal statute, these rules, or a court order provides otherwise, costs--other than attorney's fees--should be allowed to the prevailing party." Fed. R. Civ. P. 54(d)(1). The FDCPA also contains a costs provision: [I]n the case of any successful action to enforce the foregoing liability, [the defendant is liable for] the costs of the action, together with a reasonable attorney's fee as determined by the court. On a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney's fees reasonable in relation to the work expended and costs. 15 U.S.C. 1692k(a)(3).

Ms. Marx argues that the "plain language of the FDCPA is clear" that "costs may only be awarded to a Defendant upon a finding that the Plaintiff brought the case in bad faith and for the purpose of harassment." Aplt. Br. at 10. We are told this is so because (1) a statute of specific effect should supersede a general one, Aplt. Br. at 10; (2) the FDCPA costs provision postdates Rule 54, Aplt. Br. at 10; and (3) the FDCPA is a "remedial" statute that ought to be construed liberally in favor of the plaintiff, [**8] a conclusion allegedly supported by passages in the Act's legislative history, Aplt. Br. at 11. We disagree. After careful review, we hold that 1692k(a)(3), properly construed, unambiguously provides for two cost-shifting scenarios: one for a prevailing plaintiff and the other for a prevailing defendant. When a plaintiff prevails, he or she recovers costs and reasonable attorney's fees. Anchondo v. Anderson, Crenshaw & Assocs., 616 F.3d 1098, 1107 (10th Cir. 2010). When a defendant prevails and the court finds that the suit was brought in bad faith and for the purpose of harassment, then (in the court's discretion) that defendant may also recover attorney's fees. Smith v. Argent Mortg. Co., 331 Fed. App'x. 549, 559 (10th Cir. 2009). This much is undisputed. The issue here is whether a prevailing defendant can be awarded costs in a FDCPA suit without a finding that the plaintiff brought the action in bad faith and for the purpose of harassment. This requires us to consider whether 1692k(a)(3) supersedes Rule 54(d). We hold

128

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

that it does not, and that this Defendant is entitled to a recovery of costs pursuant to Rule 54(d). In "ascertaining the plain meaning of [a] statute, the court [**9] must look to the particular statutory language at issue, as well as the language and design of the statute as a whole." K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291, 108 S. Ct. 1811, 100 L. Ed. 2d 313 (1988). We read the bad-faith-and-harassment provision of 1692k(a)(3) to indicate two separate pecuniary awards for a defendant who prevails against a suit brought in bad faith and for the purpose of harassment: (1) "attorney's fees reasonable in relation to the work expended" and (2) "costs." Attorney's fees and costs are legally distinct categories of monetary allowances made to [*1179] successful litigants (with different standards, as we discuss below). We are disinclined, therefore, to read the word "costs" as being subject to "reasonable in relation to." In other words, we do not read the provision as allowing attorney's fees so long as they are reasonable in relation to the costs incurred by the party, the construction largely argued for by GRC. Congress has full power to statutorily supersede any or all of the Rules, but "unless the congressional intent to do so clearly appears, subsequently enacted statutes ought to be construed to harmonize with the Rules, if feasible." U.S. v. Gustin-Bacon Div., Certainteed Prods. Corp., 426 F.2d 539, 542 (10th Cir. 1970). [**10] Our interpretation ensures that 1692k(a)(3) accords with the Rule 54(d) award for costs to a prevailing party. The successful-plaintiff provision also provides for the "costs" of the action, in addition to reasonable attorney's fees. But if Rule 54(d) already gives the prevailing party his costs, why bother mentioning it here? We believe 1692k(a)(3)--in both its prevailing-plaintiff and bad-faith provisions--merely recognizes that the prevailing party is entitled to receive the costs of suit as a matter of course. Nothing in the language of the statute purports to exclude Rule 54(d) costs from being taxed and awarded in FDCPA suits. The presumption that a prevailing party is entitled to costs is, in our legal system, a venerable one. "Costs have usually been allowed to the prevailing party, as incident to the judgment, since the statute 6 Edw. I, c. 1, 2, and the same rule was acknowledged in the courts of the States, at the time the judicial system of the United States was organized...." Buckhannon Bd. & Care Home, Inc., v. W.V. Dep't. of Health & Human Res., 532 U.S. 598, 611, 121 S. Ct. 1835, 149 L. Ed. 2d 855 (2001) (quoting The Baltimore, 75 U.S. 377, 8 Wall. 377, 388, 19 L. Ed. 463 (1869)) (Scalia, J., concurring). A clear showing of legislative [**11]

intent is needed before we find that Rule 54(d) is displaced by a statute. Attorney's fees, by contrast, under the American Rule, are paid by each party. Congress has legislated exceptions for prevailing plaintiffs in actions to enforce federal rights. See, e.g., Civil Rights Attorney's Fee Awards Act, 42 U.S.C. 1988(b) ("the court, in its discretion, may allow the prevailing party, other than the United States, a reasonable attorney's fee as part of the costs"); Fair Labor Standards Act, 29 U.S.C. 216(b) (the "court in such action shall, in addition to any judgment awarded to the plaintiff or plaintiffs, allow a reasonable attorney's fee to be paid by the defendant, and costs of the action"); Copyright Act, 17 U.S.C. 505 ("the court may also award a reasonable attorney's fee to the prevailing party as part of the costs"); Presidential and Executive Office Accountability Act, 28 U.S.C. 3905(a) (to "a prevailing party...the court may award attorney's fees, expert fees, and any other costs"). Other statutes (following the common law) make an exception to the American Rule for suits brought in bad faith or for purposes of vexation or harassment, or suits known to be meritless. See, [**12] e.g., 28 U.S.C. 1875(d)(2) (awarding "reasonable attorney's fees as part of the costs" to employers who successfully defend against suits that are "frivolous, vexatious, or brought in bad faith" by employees claiming to have been punished for jury service); 15 U.S.C. 1693m(f) (awarding attorney's fees to defendants prevailing over suits "brought in bad faith or for purposes of harassment" in suits over electronic fund transfers); 42 U.S.C. 11113 (awarding attorney's fee to physiciandefendants who defeat claims under "professional review" law that are "frivolous, unreasonable, without foundation, or in bad faith"). [*1180] But that a plaintiff's bad faith should obligate him to pay his opponent's attorney's fees hardly suggests that his good faith should relieve him of paying his opponent's costs. As observed in Pacheco v. Mineta, 448 F.3d 783, 794 (5th Cir. 2006): Every circuit to expressly address the question in a published opinion--the Fourth, Sixth, Seventh, Ninth and Tenth--has ruled that good faith, by itself, cannot defeat the operation of Rule 54(d)(1). Teague v. Bakker, 35 F.3d 978, 996 (4th Cir. 1994) ("[T]he mere fact that a suit may have been brought in good faith is alone [**13] insufficient to warrant a denial of costs in favor of a prevailing defendant"); Cherry v. Champion, 186 F.3d 442, 446

129

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

(4th Cir. 1999) ("[A] party's good faith, standing alone, is an insufficient basis for refusing to assess costs against that party."); White & White, Inc. v. American Hosp. Supply Corp., 786 F.2d 728, 731 (6th Cir. 1986) ("Good faith without more, however, is an insufficient basis for denying costs to a prevailing party"); Coyne-Delany v. Capital Development Board of Illinois, 717 F.2d 385, 390 (7th Cir. 1983) ("The losing party's good faith and proper conduct of the litigation is not enough...."); National Information Services, Inc. v. TRW, Inc., 51 F.3d 1470, 1472-73 (9th Cir. 1995), overruled on other grounds by Association of Mexican-American Educators v. State of California, 231 F.3d 572, 593 (9th Cir.2000) (en banc) (overruling National Information Systems but only to the extent it held that "only misconduct may support the denial of costs to a prevailing party"); AeroTech, Inc. v. Estes, 110 F.3d 1523, 1527 (10th Cir.1997).

U.S.C.C.A.N. at 1702. Putting these passages together, the legislative history could suggest that the FDCPA's costs provision is the exclusive grantor of costs in FDCPA suits--or it could suggest nothing of the sort. In any event, our holding is that irrespective of the mention of "costs" in 1692k(a)(3), costs can still be awarded under Rule 54(d). The Report nowhere indicates that the FDCPA's cost provision was intended to displace this long-standing rule of civil procedure. The fact that the FDCPA postdates Rule 54, or that the FDCPA should be construed "liberally," does not change this result. "[A] statute which adopts an expression which has received a long and consistent judicial interpretation in similar contexts is not a likely candidate for ambiguity." [*1181] Miller, 836 F.2d at 1283. Laws under the same title of the U.S. Code employ variants of the language in this provision. See, e.g., 15 U.S.C. 1693m(f) ("On a finding by the court that an unsuccessful action under this section was brought in bad faith or for purposes of harassment, the court shall award to the defendant attorney's fees reasonable in relation to the work expended and costs."); [**16] 15 U.S.C. 15c(d)(2) ("the court may, in its discretion, award a reasonable attorney's fee to a prevailing defendant upon a finding that the State attorney general has acted in bad faith, vexatiously, wantonly, or for oppressive reasons"); 15 U.S.C. 78u(h)(8) ("the court shall award the costs of the action and attorney's fees to the Commission if the presiding judge or magistrate judge finds that the customer's claims were made in bad faith"); 15 U.S.C. 4304(a)(1) (the court shall "award to a substantially prevailing claimant the cost of suit attributable to such claim, including a reasonable attorney's fee"). Some provisions mention "costs"; some do not; some mention attorney's fees as part of the costs. But with one exception, no circuit has found that any of these provisions displaced Rule 54(d). The exception is Rouse v. Law Offices of Rory Clark, 603 F.3d 699 (9th Cir. 2010), heavily relied upon by Ms. Marx. The Ninth Circuit held that a "prevailing defendant cannot be awarded costs under the FDCPA unless the plaintiff brought the action in bad faith and for the purpose of harassment." Id. at 701. For the reasons explained above, we do not find the holding that Rule 54(d) [**17] is superseded by the FDCPA's 1692k(a)(3) persuasive. We might point out that the Ninth Circuit itself adhered to a different logic in Quan v. Computer Sciences Corp., 623 F.3d 870 (9th Cir. 2010), where it considered the question of whether Rule 54(d)(1) was "supplanted" by 29 U.S.C. 1132(g)(1), ERISA's costs-and-attorney's-fees provision ("the court in its discretion may allow a reasonable attorney's fee and

The only way to relieve Ms. Marx of GRC's entitlement to costs is a legal conclusion that the FDCPA prevents the application of Rule 54(d) [**14] in this case. The legislative history on that point, cited by Ms. Marx, is neutral at best. "When there is a conflict between portions of legislative history and the words of a statute, the words of the statute represent the constitutionally approved method of communication, and it would require 'unequivocal evidence' of legislative purpose as reflected in the legislative history to override the ordinary meaning of the statute." Miller v. C.I.R., 836 F.2d 1274, 1283 (10th Cir. 1988). The FDCPA's Senate Report, in discussing the civil liability provisions, explains that "[i]n order to protect debt collectors from nuisance lawsuits, if the court finds that an action was brought by a consumer in bad faith and for harassment, the court may award the debt collector reasonable attorney's fees and costs." S. Rep. No. 95382, at 5 (1977), as reprinted in 1977 U.S.C.C.A.N. 1695, 1700. According to Ms. Marx, this indicates Congress's intent to award costs only upon a showing of bad faith. Yet in the subsequent "summary" of its provisions, the Report says: "Where a court finds that a suit was brought by a consumer in bad faith and for harassment, the court may award reasonable attorney's fees [**15] to the defendant." Id. at 8; 1977

130

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

costs of action to either party"). That court held that " 1132(g)(1) does not plainly 'provide otherwise' than Rule 54(d)(1) for the award of costs to a prevailing party. To 'provide otherwise' than Rule 54(d)(1), the statute or rule would have to bar an award of costs to a prevailing party. Section 1132(g)(1), however, in no way precludes an award of costs to a prevailing party...." Id. at 888. The Rouse court observed that the FDCPA is part of the larger statutory scheme of the Consumer Credit Protection Act ("CCPA"), 15 U.S.C. 1601-1693r. The court compared the FDCPA cost provision to analogues under the CCPA, in particular the Fair Credit Reporting Act ("FCRA"), 15 U.S.C. 1681-1681x, which provides, in 1681n(c) and 1681o(b), that upon a court's finding "that an [**18] unsuccessful pleading, motion, or other paper filed in connection with an action under this section was filed in bad faith or for purposes of harassment, the court shall award to the prevailing party attorney's fees reasonable in relation to the work expended in responding to the pleading, motion, or other paper." The court explained that, among the CCPA statutes, "only the FDCPA and the FCRA provide for prevailing defendants," and concluded that since the FDCPA uses the word "costs" and the FCRA does not, Congress must have meant to "condition" an award of costs to a prevailing FDCPA defendant on a showing of "bad faith." Rouse, 603 F.3d at 706. But in fact there is another CCPA law that delivers costs to prevailing defendants. The Electronic Funds Transfer Act, 15 U.S.C. 1693-1693r, provides, in 1693m(f): "On a finding by the court [*1182] that an unsuccessful action under this section was brought in bad faith or for purposes of harassment, the court shall award to the defendant attorney's fees reasonable in relation to the work expended and costs." The language here as to attorney's fees and costs is identical to that of the FDCPA. We do not find the Ninth Circuit's reliance on the [**19] distinction it drew to be persuasive. Finally, an award of attorney's fees upon a finding that a suit was brought in bad faith and for the purpose of harassment is obviously intended to penalize a party that brings such a suit; it stands to reason that a finding of bad faith should be required by the FDCPA before an award of attorney's fees is made. An award of costs under Rule 54(d), however, is "presumptive." Mitchell v. City of Moore, Okla., 218 F.3d 1190, 1204 (10th. Cir. 2000). Parties are well aware of this and it is common for parties settling a case to insert the phrase "each party to bear its own costs." Without such agreement, however, to deny a prevailing party its costs is "in the nature of a severe penalty," such that there "must be some apparent reason to penalize the

prevailing party if costs are to be denied." Klein v. Grynberg, 44 F.3d 1497, 1507 (10th Cir. 1995). Absent some clear and specific statutory command, it does not seem proper to hold that a party should be penalized for proving that it committed no violation of law. In sum, Rule 54(d) requires that courts award costs to the prevailing party unless a federal statute provides otherwise. We find that there is [**20] nothing in the language of 1692k(a)(3) that should prevent Rule 54(d)'s normal operation. 2. Costs under Rule 68(d) The district court concluded that costs were awardable pursuant to Rule 68(d). Under this rule, if a defendant makes a formal offer of settlement, and the plaintiff rejects it but later obtains a judgment less favorable than the one offered him or her, the plaintiffofferee "must pay the costs incurred after the offer was made." Fed. R. Civ. P. 68(d). In November 2008, three weeks after Ms. Marx's complaint was filed, GRC made an offer of judgment of $1,500 plus Ms. Marx's costs and attorney's fees on claims where fee shifting was available. Aplt. App. 114. The offer was not accepted and lapsed by its own terms. We agree with Ms. Marx (but for reasons different than those argued) that the court erred in awarding the prevailing defendant its costs under this rule. Rule 68 applies only where the district court enters judgment in favor of a plaintiff for an amount less than the defendant's settlement offer. Scottsdale Ins. Co. v. Tolliver, 636 F.3d 1273, 1281 (10th Cir. 2011); Delta Air Lines, Inc. v. August, 450 U.S. 346, 352, 101 S. Ct. 1146, 67 L. Ed. 2d 287 (1981) (Rule 68 "applies only to offers made by [**21] the defendant and only to judgments obtained by the plaintiff" and is "simply inapplicable" when the defendant obtains the judgment). Nonetheless, since GRC's costs were properly awarded pursuant to Rule 54(d), the error is harmless. C. The Dissent The dissent claims that we "engraft" an additional element onto the definition of "communication" when we require that the recipient of the alleged "communication" know or be able to infer that a debt is concerned. But we think such a requirement is implicit in the word "convey." To convey is to impart, to make known. If one drafts a letter full of unlawful collection threats, but never mails it, nothing is conveyed. So, too, if the "communication" is in Sanskrit. The fax here never used the words "debt," "collector," "money," "obligation," or "payment." The dissent instead relies on the account number, but [*1183] what does this

131

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

convey? It is a jumble of numbers, designed for internal identification purposes, the functional equivalent of a bar code. By contrast, if the employer knew the collection agency from experience, a communication could occur. Or, as in Austin v. Great Lakes Collection Bureau, 834 F.Supp. 557 (D. Conn. 1993), a plaintiff could [**22] prove a "communication" with testimony from an office secretary stating that it was "clear from the questions she asked that [the collector] was calling about a debt or judgment." Id. at 558. The substance of the supposed infraction here is manifestly not the sort of conduct the FDCPA is meant to quell. The district court and magistrate cases cited by the dissent exemplify this as well as any. In one, a collector called twenty-one times in the seven days. Ramirez v. Apex Fin. Mgmt., LLC., 567 F. Supp. 2d 1035 (N.D. Ill. 2008). In another, an agent impersonated the debtor's brother to secure a return call. Thomas v. Consumer Adjustment Co., Inc., 579 F. Supp. 2d. 1290, 1292 (E.D. Mo. 2008). In four of the six cases the defendant never disputed that it made a "communication." Here, however, we have a single fax, innocuous, nondescript, and harmless, which GRC sent only to gather information needed to weigh a statutory right of garnishment. The ban on communicating with third parties like employers is meant to protect debtors from harassment, embarrassment, loss of job, denial of promotion. Ms. Marx, by contrast, was unable to testify that anyone at her office had any idea what the fax concerned. [**23] GRC took pains to ensure this result. Moreover, every one of the dissent's cases is a ruling on a 12(b)(6) or summary judgment motion, which means that those courts lacked precisely what we have: a trial at which the plaintiff conceded on the stand that she has no evidence that her employer suspected that the fax concerned a debt. The dissent also argues that our reading of the term "communication" renders 1692b(5) "superfluous." Apparently this is so because 1692b(5) prohibits "communication" that "relates to the collection of debt" and yet we hold above that "communication" by definition always concerns conveying information about debt. But we only heed the statute's own definition of "communication," in 1692a(2): The term "communication" means the conveying of information regarding a debt directly or indirectly to any person through any medium.

It may seem redundant, but if canons of construction are to be invoked, the appropriate one is that of ex abundanti cautela (abudance of caution), which teaches that Congress may on occasion repeat language in order to emphasize it. Fort Stewart Schools v. FLRA, 495 U.S. 641, 646, 110 S. Ct. 2043, 109 L. Ed. 2d 659 (1990). "The canon requiring a court to give effect to each [**24] word 'if possible'" is not absolute; it "is sometimes offset by the canon that permits a court to reject words 'as surplusage' if inadvertently inserted or if repugnant to the rest of the statute." Chickasaw Nation v. United States, 534 U.S. 84, 94, 122 S. Ct. 528, 151 L. Ed. 2d 474 (2001) (emphasis in original) (internal quotation marks omitted) (affirming this court's interpretation of a provision in the Indian Gaming Regulatory Act even though that interpretation made the provision's incorporation of chapter 35 of the Internal Revenue Code superfluous). A court should not apply the superfluity canon unless it first determines that the term being construed is ambiguous. Lamie v. United States Tr., 540 U.S. 526, 536, 124 S. Ct. 1023, 157 L. Ed. 2d 1024 (2004) (holding that the plain meaning of the Bankruptcy Code's standards for awarding professional fees controlled even though such a reading [*1184] made the word "attorney" in the provision at issue "surplusage"). Here, as discussed above, we believe that the statutory definition of the key term "communication" is unambiguous. Although we concede that the plain meaning of the term renders 1692b(5) superfluous, we decline to avoid such a result by creating an ambiguity where none exists. Simply because a "statute [**25] is awkward . . . does not make it ambiguous on the point at issue." Lamie, 540 U.S. at 534. Moreover, the dissent's assertion that information regarding a debt is "conveyed" to a third party even if the third party has no way of ascertaining that fact strikes us as totally inconsistent with, i.e., "repugnant to," the FDCPA's express purpose "to eliminate abusive debt collection practices." 15 U.S.C. 1692(e). Finally, with regard to the awarding of costs to GRC under Rule 54(d) of the Federal Rules of Civil Procedure, the dissent fails to acknowledge that the FDCPA's costs provision (15 U.S.C. 1692k(a)(3)) clearly separates the awarding of costs to the prevailing party from the awarding of attorney's fees. Only the latter is linked to a finding that the action has been brought by the plaintiff in bad faith. To the extent that the dissent relies on the Ninth Circuit case of Rouse v. Law Offices of Rory Clark, 603 F.3d 699 (9th Cir. 2010), in concluding otherwise, we find Rouse's analysis unpersuasive for the reasons stated earlier. And the dissent's reliance on the Second Circuit's

132

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

similar decision in Emanuel v. American Credit Exchange, 870 F.2d 805 (2d Cir. 1989), is even more unpersuasive [**26] because Emanuel's discussion on the costs issue, by the dissent's own concession, was dicta. See id. at 808-09. That "dicta" was in fact barely that: it simply restates 1692k(a)(3) without analysis and contains no application. AFFIRMED. DISSENT BY: Lucero DISSENT Lucero, J. dissenting In affirming the district court, the majority holds that two provisions of the Fair Debt Collection Practices Act ("FDCPA") are wholly superfluous. Such a reading violates central canons of statutory interpretation. Accordingly, I respectfully dissent. I Under the FDCPA, a debt collector generally may not communicate with a consumer's employer. The act states: Except as provided in section 1692b of this title, without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy, a debt collector may not communicate, in connection with the collection of any debt, with any person other than a consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.

that a "consumer owes any debt" nor "indicate[] that the debt collector is in the debt collection business or that the communication relates to the collection of a debt." 1692b(2), (5). A debt collector must "identify himself, state that he is confirming or correcting location information concerning the consumer, and, only if expressly requested, identify his employer." 1692b(1). And a debt collector may "not communicate by post card." 1692b(4). Although these restrictions may appear overlyformalistic, Congress included them for a specific reason. Citing "abundant evidence of the use of abusive, deceptive, and [**28] unfair debt collection practices," Congress enacted the FDCPA to "insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged." 1692(a), (e). By mandating that debt collectors hew closely to a set script, Congress barred those companies inclined to push the limit from gaining a competitive edge. There can be no dispute that the fax at issue in this case went beyond the form Congress mandated. It included GRC's name, logo, and address, along with GRC's internal "ID" number for Marx's account. It requested the employer's address and corporate payroll address, and Marx's employment status, date of hire, full time/part time status, and the name of her position. Such questions go well beyond a request for "location information" as defined in the FDCPA. The majority does not consider whether GRC exceeded the permissible scope of the safe harbor provision because it concludes that the fax was not a "communication." The FDCPA defines "communication" as "the conveying of information regarding a debt directly or indirectly to any person through any medium." 1692a(2). Marx's account number at GRC plainly constitutes "information [**29] regarding a debt." Id. Just as a bank account number is information regarding a bank account, a debt collection agency account number is information regarding a debt. And there can be no doubt that this information was "convey[ed]" to Marx's employer when GRC faxed it. The majority asks what the account number conveys, (see Majority Op. 16), but that is not the proper question. Instead, the issue is whether the fax conveyed information regarding a debt. It did: it conveyed the debt collection agency account number. Although the fax at issue meets the written definition of "communication" under the FDCPA, the majority engrafts an additional element onto that definition. It holds that a "communication" must convey information regarding a debt and indicate to the

15 U.S.C. 1692c(b) (emphasis [**27] added). As the foregoing provision indicates, third-party communications are prohibited by the FDCPA, except those that fit within a safe harbor provision. Section 1692b allows a debt collector to "communicat[e] with any person other than the consumer for the purpose of acquiring location information about the consumer." The term "location information" is limited to "a consumer's place of abode and his telephone number at such place, or his place of employment." 1692a(7). And the safe harbor provision contains numerous other restrictions. A debt collector may not state [*1185]

133

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

recipient of the correspondence that the message relates to the collection of a debt. (See Majority Op. 5 ("[A]bsent any evidentiary showing that Ms. Marx's employer either knew or inferred that the facsimile involved a debt, the facsimile does not satisfy the statutory definition of a 'communication.'").)1 But this extra requirement [*1186] is not contained in the statutory text, and its addition to the FDCPA's definition of "communication" [**30] violates several rules of statutory construction. 1 In adding an extra condition to the statutory definition of "communication," the majority joins a handful of district courts that appear to have done the same. See Biggs v. Credit Collections, Inc., No. CIV-07-0053, 2007 U.S. Dist. LEXIS 84793 (W.D. Okla. Nov. 15, 2007) (unpublished); Horkey v. J.V.D.B. & Assocs., Inc., 179 F. Supp. 2d 861 (N.D. Ill. 2002); Padilla v. Payco Gen. Am. Credits, Inc., 161 F. Supp. 2d 264 (S.D.N.Y. 2001); Fava v. RRI, Inc., No. 96-CV-629, 1997 U.S. Dist. LEXIS 5630 (N.D.N.Y. April 24, 1997) (unpublished). Those cases, however, are outliers. A majority of courts to have considered the issue have not adopted this narrowed definition. See ShandPistilli v. Prof'l Account Servs., No. 10-CV1808, 2010 U.S. Dist. LEXIS 75056 (E.D. Pa. July 26, 2010) (unpublished); Thomas v. Consumer Adjustment Co., 579 F. Supp. 2d 1290 (E.D. Mo. 2008); Ramirez v. Apex Fin. Mgmt., 567 F. Supp. 2d 1035 (N.D. Ill. 2008); Foti v. NCO Fin. Sys., Inc., 424 F. Supp. 2d 643 (S.D.N.Y. 2006); Henderson v. Eaton, No. 01-0138, 2001 U.S. Dist. LEXIS 13243 (E.D. La. Aug. 23, 2001) (unpublished); West v. Nationwide Credit, Inc., 998 F. Supp. 642 (W.D.N.C. 1998). First, [**31] the plain text of the FDCPA does not require that the recipient of a communication infer that the message relates to debt collection. "Where statutory language is clear and unambiguous, that language is controlling and courts should not add to that language." Pueblo of San Ildefonso v. Ridlon, 103 F.3d 936, 939 (10th Cir. 1996). Congress selected specific language in defining "communication," and that language does not require that the recipient recognize the communication relates to debt collection. Supplementing the definition is particularly inappropriate in this instance because the FDCPA is to "be construed liberally in favor of the consumer." Johnson v. Riddle, 305 F.3d 1107, 1117 (10th Cir. 2002) (citation omitted). Congress explicitly specified the manner in which debt collectors may contact third parties; it is not our role to expand on the statute.

Second, the majority's interpretation contravenes the rule that if "Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion." Russello v. United States, 464 U.S. 16, 23, 104 S. Ct. 296, 78 L. Ed. 2d 17 (1983) [**32] (quotation omitted); see also Anderson v. United Tel. Co. of Kan., 933 F.2d 1500, 1502 (10th Cir. 1991) ("[T]he legislature's use of two different terms is presumed to be intentional."). Another provision of the FDCPA contains the language the majority interlineates into the definition of "communication." The FDCPA's safe harbor provision bars a debt collector from "indicat[ing] that the debt collector is in the debt collection business or that the communication relates to the collection of a debt." 1692b(5) (emphasis added). If Congress intended to limit communications to those messages that imply the existence of a debt, it would have used the language contained in 1692b(5). Third, and perhaps most importantly, the majority's construction renders 1692b(5) superfluous. As a rule, "we construe statutes, where possible, so as to avoid rendering superfluous any parts thereof." Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501 U.S. 104, 112, 111 S. Ct. 2166, 115 L. Ed. 2d 96 (1991) (citation omitted). If the term "communication" refers by definition only to correspondence that implies a debt is being collected, then 1692b(5) is entirely redundant; there would be no reason to expressly prohibit a debt collector from [**33] "indicat[ing] . . . that the communication relates to the collection of a debt," 15 U.S.C. 1692b(5). Several well-reasoned district court opinions have rejected the majority's interpretation on precisely this basis. See Henderson, 2001 U.S. Dist. LEXIS 13243, at *7 ("[Section 1692b] would make no sense if defendant's argument were correct that a letter to a third party seeking location information must indicate a debt collection purpose in order to be subject to the Act."); West, 998 F. Supp. at 645 ("Because a narrow interpretation of section 1692c(b) would render other portions of the statute 'superfluous,' the court concludes that section 1692c(b) should be broadly interpreted to prohibit a debt collector, in connection with the collection [*1187] of any debt, from conveying any information relating to a debt to a third party . . . ."); see also Thomas, 579 F. Supp. 2d at 1297 (noting the superfluity issue). The majority's holding that a "communication" must indicate to the recipient that a debt exists strays from the plain text of the statute and violates several canons of statutory construction. GRC sought more than "location information" and Marx's account

134

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

number at GRC, regardless [**34] of whether it was referred to as an "ID" number, is "information regarding a debt" that was "convey[ed]" to Marx's employer without her permission. 1692a(2). Accordingly, the fax fits within the plain text definition of "communication" and was prohibited under the FDCPA. See 1692c(b). The district court's contrary conclusion should be reversed. II Because I would reverse the district court, I would not reach the issue of costs. However, I disagree with the majority's conclusion with respect to Rule 54(d) as well. Rule 54(d) permits the prevailing party in a civil action to recover costs "[u]nless a federal statute, these rules, or a court order provides otherwise." Fed. R. Civ. P. 54(d)(1). The FDCPA provides otherwise. It states: "On a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment, the court may award to the defendant attorney's fees reasonable in relation to the work expended and costs." 1692k(a)(3). This language is clear and unambiguous: A district court may award costs to a defendant "[o]n a finding by the court that an action under this section was brought in bad faith and for the purpose of harassment." Id. [**35] The only sensible reading of this statute is that the district court may only award costs to a defendant upon such a finding. See Youren v. Tintic Sch. Dist., 343 F.3d 1296, 1308 (10th Cir. 2003) ("Under the doctrine of expressio unius est exclusio alterius, to

'express or include one thing implies the exclusion of the other, or of the alternative.'" (quoting Black's Law Dictionary (7th ed. 1999))). To read it otherwise is to suggest Congress passed a statute permitting a cost award conditioned upon a finding of bad faith, but intended to permit cost awards without a finding of bad faith. In other words, the majority concludes again that a portion of the FDCPA is mere surplusage. But see Astoria Fed. Sav. & Loan Ass'n, 501 U.S. at 112. Both the Ninth and Second Circuits have stated that 1692k(a)(3) permits an award of costs only upon a finding of bad faith--though the latter did so in dicta. See Rouse v. Law Offices of Rory Clark, 603 F.3d 699, 701 (9th Cir. 2010) ("[A] prevailing defendant cannot be awarded costs under the FDCPA unless the plaintiff brought the action in bad faith and for the purpose of harassment."); Emanuel v. Am. Credit Exch., 870 F.2d 805, 809 (2d Cir. 1989) ("[S]ection 1692k(a)(3) [**36] permits a court to award reasonable attorney's fees and costs only upon a finding that an action under this section was brought in bad faith and for the purpose of harassment." (quotation omitted)). Until today, no circuit had ruled otherwise. The FDCPA clearly permits an award of costs against a plaintiff only upon a finding that the plaintiff brought a claim in bad faith and for the purpose of harassment. The district court made no such finding here. Accordingly, its award of costs should be reversed regardless of the merits of Marx's claim. [*1188] III For the foregoing reasons, I respectfully dissent.

B. 1.

Call Frequency Foti v. NCO Fin. Sys., 424 F. Supp. 2d 643 (S.D.N.Y. 2006).

2. Edwards v. Niagara Credit Solutions, Inc., 584 F.3d 1350 (11th Cir. 2009).

CASE Carman, v. The CBE Group, Inc., 2011 U.S. Dist. LEXIS 29730 (D. Kan. March 23, 2011) Tucker v. CBE Group,

FREQUENCY

OUTCOME

0-4 times a day at home and 0-3 times a day at work The defendant made 57 calls

Summary judgment for Defendant Summary judgment for

135

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Inc., 710 F. Supp. 2d 1301, (M.D. Fla. 2010)

to the home of the plaintiff (the debtors father) over an unspecified period, including seven calls in one day, but the defendant never actually spoke to the plaintiff, was never asked to cease calling, and never called back the same day after it had left a message. The defendant made 20 to 50 Saltzman v. I.C. Systems, Inc., 2009 U.S. unsuccessful calls and 10 to Dist. LEXIS 90681 20 successful calls over (E.D. Mi. 2009) roughly a month. Plaintiffs alleged that: (1) over an 8 month period, Defendants made approximately 350 calls in an attempt to collect on their debt; (2) Defendants Pugliese v. Prof. Recovery Serv., Inc., contacted Plaintiffs several No. 09-12262, 2010 times every day; (3) U.S. Dist. LEXIS Defendants continued to call 64111, 2010 WL Plaintiffs constantly after 2632562, at *10 (E.D. Plaintiffs repeatedly asked Mich. June 29, 2010). Defendants to cease Katz v. Capital One, 2010 U.S. Dist. LEXIS Defendant Allied placed no 25579 (E.D. Va. Mar. more than two calls to 18, 2010) plaintiff in a single day Defendant made 69-72 call Jiminez v. Accounts attempts a 115 day period. Receivable Management, Inc., No. All attempts were 09-9070, 2010 U.S. unsuccessful, and the Dist. LEXIS 141780, defendant never spoke with

Defendant

Summary judgment for Defendant1

Summary judgment for Defendant

Summary judgment for Defendant

Summary judgment for Defendant

1 The district court granted summary judgment noting that the "significant disparity between the number of phone calls placed by Defendant and the number of actual successful conversations with Plaintiff . . . suggest[s] a 'difficulty of reaching Plaintiff, rather than an intent to harass. The case at bar has similar characteristics.

136

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

2010 WL 5829206, at *5 (C.D. Cal. Nov. 15, 2010)

anyone. All call attempts were made between 8:00 a.m. and 6:00 p.m. ARM attempted to contact Plaintiff more than two times in a single day on only one occasion, when it made three calls. Plaintiff claimed that she was called "daily" or "close to daily. The Court notes that the volume of calls initially received by Plaintiff, 29 calls in February and 27 calls in March, appear somewhat high. However, beginning in April, the number of calls significantly taper off, such that the call volume from April through November do not appear notably high and certainly cannot be characterized as occurring on a "daily" basis.

Arteaga v. Asset Acceptance, LLC, 733 F. Supp. 2d 1218 (C.D. Cal. 2010)

Summary judgment for defendant

Waite v. Fin. Recovery Servs., Inc., No. 09-cv02336-T-33AEP, 2010 U.S. Dist. LEXIS 133438 , 2010 WL 5209350, at *3 (M.D. Fla. Dec. 16, 2010)

Summary judgment for Defendant

137

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

C.

Texting
JONATHAN STEWART, Plaintiff, XRIMZ, LLC and FIRST CHOICE FINANCIAL, INC., a/k/a 1st CHOICE FINANCIAL, INC., Defendants, CIVIL ACTION NO. 3:10-CV-2147 UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF PENNSYLVANIA 2011 U.S. Dist. LEXIS 27988

March 18, 2011, Decided March 18, 2011, Filed SUBSEQUENT HISTORY: Claim dismissed by Stewart v. Xrimz, LLC, 2011 U.S. Dist. LEXIS 74752 (M.D. Pa., July 12, 2011) PRIOR HISTORY: Stewart v. XRimz, LLC, 2010 U.S. Dist. LEXIS 113656 (M.D. Pa., Oct. 26, 2010) COUNSEL: [*1] For Jonathan Stewart, Plaintiff: Brent F. Vullings, LEAD ATTORNEY, Warren & Vullings, LLP, Jenkintown, PA. For XRIMZ, LLC, First Choice Financial, Inc., a/k/a 1st Choice Financial, Inc., Defendants: Daniel T. Brier, Myers Brier & Kelly, LLP, Scranton, PA; Nicholas F. Kravitz, Myers, Brier & Kelly, LLP, Scranton, PA. JUDGES: A. Richard Caputo, United States District Judge. OPINION BY: A. Richard Caputo OPINION MEMORANDUM Presently before the Court is Defendants' Motion to Dismiss Plaintiff's Amended Complaint. (Doc. 10.) For the reasons stated below, the Motion will be granted in part and denied in part. BACKGROUND Plaintiff's Complaint alleges as follows. Plaintiff Stewart is a citizen of Pennsylvania currently residing at 131 North Meade Street, Wilkes Barre, PA. Defendant XRimz, LLC, is a Limited Liability Corportation who has as its sole member Burton L. Albert, who is a citizen of Virginia. XRimz's business is the selling of automobile parts and accessories, particularly custom automobile wheels and related parts. Defendant First Choice Financial, Inc., a/k/a 1st Choice Financial, Inc. is a Virginia corporation with its principal place of business in Virginia. Defendant First Choice Financial is engaged in the business [*2] of collecting consumer debts via the telephone and mail. On or around August 4, 2010, Plaintiff purchased a set of automobile wheels from Defendant XRimz for the amount of two-thousand five-hundred and fifty-six dollars ($2,556.00). Plaintiff financed the purchase through Defendant First Choice Financial. After receiving the wheels, Plaintiffs contacted Defendant XRimz and told them that his financial situation had changed and that he no longer wanted the wheels. Defendant XRimz told Plaintiff he could not return them and that if they were not paid for in full, XRimz would file suit. Plaintiff made one payment by money order. "Defendants" then began harassing the Plaintiff the day after Plaintiff missed his next payment. Defendant XRimz contacted Plaintiff by phone pretending to be police officers and told Plaintiff he would be arrested if he did not pay what was owed on the wheels. Defendant XRimz then began "relentlessly" contacting Plaintiff through a series of harassing phone calls. Defendant XRimz's employees, "Talieitha Shareef," "Ken Dudley," "Terry Hale," "Robert Cunningham," and "Vanessa" all contacted Plaintiff and left text messages. On or around October 6, 2010, Defendant [*3] XRimz called Plaintiff eight times pretending to be Virginia police investigating the Plaintiff. During one of the phone calls on that date, "Robert Cunningham" told Plaintiff he was a "worthless scumbag" and "should die." Defendants also sent Plaintiff a number of text messages accusing the Plaintiff of "mail order fraud." Also on October 6, 2010, at 4:59 P.M., an XRimz employee texted Plaintiff and told him: "you are nothing more than a

138

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

common thief you are a disgrace to society you should go hang yourself." Plaintiff received another text message at 5:00 P.M. from an XRimz employee telling him to "go to the nearest bridge and jump off." At 5:35, Plaintiff received a text message from Defendants stating that XRimz and First Choice Financial had begun legal proceedings to retrieve the wheels, that Plaintiff was under investigation for fraud, and that the wheels would be repossessed and Plaintiff's wages garnished until the balance on the wheels had been paid. Plaintiff also received "earlier" texts in which Defendants called him a "scumbag" and threatened to "whoop that ass whiteboy." Plaintiff filed his initial Complaint on October 18, 2010. (Doc. 1.) Plaintiff did not plead subject-matter [*4] jurisdiction properly, and was directed by the Court to re-file a properly amended complaint. Plaintiff then filed his Amended Complaint on October 28, 2010. (Doc. 3.) In his Amended Complaint, Plaintiff brings claims against Defendants for: violation of the Pennsylvania Fair Credit Extension Uniformity Act ("FCEUA") (Count I); violation of the Pennsylvania Uniform Trade Practices & Consumer Protection Law ("UTPCPL") (Count II); Intentional Infliction of Emotional Distress (Count III); and Invasion of Privacy\False Light (Count IV). Defendants filed a Motion to Dismiss Plaintiff's Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(b)(1) on December 30, 2010. (Doc. 10.) The Motion has been briefed by both sides and is ripe for review. LEGAL STANDARDS I. Motion to Dismiss Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a complaint, in whole or in part, for failure to state a claim upon which relief can be granted. Dismissal is appropriate only if, accepting as true all the facts alleged in the complaint, a plaintiff has not pleaded "enough facts to state a claim to relief that is plausible on its face," Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007), [*5] meaning enough factual allegations "'to raise a reasonable expectation that discovery will reveal evidence of'" each necessary element, Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556); see also Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993) (requiring a complaint to set forth information from which each element of a claim may be inferred). In light of Federal Rule of Civil Procedure 8(a)(2), the statement need only "'give the defendant fair notice of what the ... claim is and the grounds upon which it rests.'" Erickson v. Pardus, 551 U.S. 89, 93, 127 S. Ct. 2197, 167 L. Ed.

2d 1081 (2007) (per curiam) (quoting Twombly, 550 U.S. at 555). "[T]he factual detail in a complaint [must not be] so undeveloped that it does not provide a defendant [with] the type of notice of claim which is contemplated by Rule 8." Phillips, 515 F.3d at 232; see also Airborne Beepers & Video, Inc. v. AT&T Mobility LLC, 499 F.3d 663, 667 (7th Cir. 2007). In deciding a motion to dismiss, the Court should consider the allegations in the complaint, exhibits attached to the complaint, and matters of public record. See Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993). [*6] The Court may also consider "undisputedly authentic" documents when the plaintiff's claims are based on the documents and the defendant has attached copies of the documents to the motion to dismiss. Id. The Court need not assume the plaintiff can prove facts that were not alleged in the complaint, see City of Pittsburgh v. W. Penn Power Co., 147 F.3d 256, 263 & n.13 (3d Cir. 1998), or credit a complaint's "'bald assertions'" or "'legal conclusions,'" Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997) (quoting In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1429-30 (3d Cir. 1997)). "While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950, 173 L. Ed. 2d 868 (2009). When considering a Rule 12(b)(6) motion, the Court's role is limited to determining if a plaintiff is entitled to offer evidence in support of her claims. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 40 L. Ed. 2d 90 (1974). The Court does not consider whether a plaintiff will ultimately prevail. See id. A defendant bears the burden of establishing that a plaintiff's complaint fails to state a claim. See Gould Elecs. v. United States, 220 F.3d 169, 178 (3d Cir. 2000). II. [*7] Fed. R. Civ. P. 12(b)(1) Federal Rule of Civil Procedure 12(b)(1) provides that a court may dismiss a complaint for "lack of subject-matter jurisdiction." Fed. R. Civ. P. 12(b)(1). A motion to dismiss under Rule 12(b) (1) therefore challenges the power of a federal court to hear a claim or case. See Petruska v. Gannon Univ., 462 F.3d 294, 302 (3d Cir.2006). In the face of a 12(b)(1) motion, the plaintiff has the burden to "convince the court it has jurisdiction." Gould Elecs., Inc. v. United States, 220 F.3d 169, 178 (3d Cir.2000); see also Kehr Packages v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir.1991) ("When subject matter jurisdiction is challenged under Rule 12(b)(1), the plaintiff must bear the burden of persuasion.").

139

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Motions under Rule 12(b)(1) may take one of two forms. A "facial" attack "contests the sufficiency of the pleadings." Common Cause of Pa. v. Pennsylvania, 558 F.3d 249, 257 (3d Cir.2009) (quoting Taliaferro v. Darby Twp. Zoning Bd., 458 F.3d 181, 187-88 (3d Cir.2006)). The court assumes the veracity of the allegations in the complaint but must examine the pleadings to ascertain whether they present an action within the court's jurisdiction. United States ex rel. Atkinson v. Pa. Shipbuilding Co., 473 F.3d 506, 514 (3d Cir.2007). [*8] The court should grant such a motion only if it appears with certainty that assertion of jurisdiction would be improper. Empire Kosher Poultry, Inc. v. United Food & Commercial Workers Health & Welfare Fund of Ne. Pa., 285 F.Supp.2d 573, 577 (M.D.Pa.2003); see also Kehr Packages, 926 F.2d at 1408-09. If the complaint is merely deficient as pleaded, the court should grant leave to amend before dismissal with prejudice. See Shane v. Fauver, 213 F.3d 113, 116-17 (3d Cir.2000). In contrast, a "factual" attack argues that, although the pleadings facially satisfy jurisdictional prerequisites, one or more of the allegations is untrue, rendering the controversy outside the court's jurisdiction. Carpet Group Int'l v. Oriental Rug Imps. Ass'n, Inc., 227 F.3d 62, 69 (3d Cir.2000); Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir.1977). In such circumstances, the court is both authorized and required to evaluate the merits of the disputed allegations because "the trial court's ... very power to hear the case" is at issue. Mortensen, 549 F.2d at 891; see also Atkinson, 473 F.3d at 514. In the motion sub judice, the government presents a facial attack on the court's subject matter [*9] jurisdiction; the court will analyze the contested claim accordingly. DISCUSSION I. Defendant's Fed. R. Civ. P. 12(b)(1) Motion Defendant's Motion to Dismiss pursuant to Fed. R. Civ. P. 12(b)(1) will be denied. 28 U.S.C.A. 1332(a) states: "[t]he district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between . . . citizens of different States . . .." For purposes of diversity jurisdiction, "the sum claimed by the plaintiff controls if the claim is apparently made in good faith." Onyiuke v. Cheap Tickets, Inc., No. 09891, 2009 U.S. Dist. LEXIS 121170, 2009 WL 5218064 at *3 (D.N.J. Dec. 31, 2009) (quoting St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288, 58 S. Ct. 586, 82 L. Ed. 845 (1938)). To justify dismissal for lack of subject matter jurisdiction, "[i]t

must appear to a legal certainty that the claim is really for less than the jurisdictional amount." 2009 U.S. Dist. LEXIS 121170, [WL] at *3 (quoting St. Paul Mercury Indem. Co., 303 U.S. at 289). Furthermore, "[i]n determining the amount in controversy, claims for punitive damages generally must be included in the computation." Carlough v. Amchem Prods., Inc., 834 F. Supp. 1437, 1457 (E.D. Pa. 1993) [*10] (citing Bell v. Preferred Life Assur. Soc'y, 320 U.S. 238, 240, 64 S. Ct. 5, 88 L. Ed. 15 (1943)). Here, Defendants claim that the amount in controversy requirement has not been met. This is equivalent to a "facial" attack on Plaintiff's pleadings. Plaintiff has brought suit under an array of state common and statutory laws, including the FCEUA, the UTPCPL, and intentional infliction of emotional distress. While the initial debt was only two-thousand five-hundred and fifty-six dollars ($2,556.00), Plaintiff is seeking treble damages and attorney's fees on his FCEUA and UTPCPL claims. Plaintiff is also seeking punitive damages relating to his intentional infliction of emotional distress claim of up to three-hundred and fifty-thousand dollars ($350,000) or five times the compensatory damages, whichever is greater. While that figure is certainly extremely high given the facts presented in the Complaint, Defendants haven't shown that the Plaintiff's claims were not brought in good faith or demonstrated to a legal certainty that Plaintiff's claims are really for less than the jurisdictional amount. II. Plaintiff's FCEAU Claim Plaintiffs' FCEAU claim will not be dismissed. The Fair Debt Collection Practices Act ("FDCPA") [*11] provides a remedy for consumers who have been subjected to abusive, deceptive or unfair debt collection practices by debt collectors. Pollice v. Nat'l Tax Funding, L.P., 225 F.3d 379, 400 (3d Cir.2000) (citing Zimmerman v. HBO Affiliate Group, 834 F.2d 1163, 1167 (3d Cir.1987)). The FDCPA prohibits debt collectors from harassing or abusing debtors, or using of "false, deceptive, or misleading representations" in connection with the collection of a debt. 15 U.S.C.A. 1692d and 1692e. It defines "debt collector" as "any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another." 15 U.S.C.A. 1692a. The FCEAU is "Pennsylvania's analogue" to the FDCPA and it applies to both debtors and creditors. Gigli v. Palisades Collection, LLC, No. 3:CV-06-1428, 2008 U.S. Dist. LEXIS 62684, 2008 WL 3853295 at *11 (M.D. Pa. Aug. 14, 2008). The

140

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

FCEAU states that it is a violation of the FCEAU for a debt collector to violate any provision of the FDCPA. 73 P.S. 2270.4(a). With respect to creditors, the FCEAU [*12] specifically prohibits harrassing or abusing the debtor or using false or misleading representations in connection with the collection of a debt. 73 P.S. 2270.4(b)(4) and (5). Here, Plaintiff claims that the Defendant XRimz's employees made a series of harassing and abusive phone calls and sent a number of abusive text messages to Plaintiff while attempting to collect the outstanding balance on the wheels purchased by Plaintiff. The employees also called Plaintiff pretending to be police officers and told Plaintiff he was under investigation for fraud. The alleged behavior of the XRimz employees, as debt collectors, falls squarely within the practices prohibited by the FDCPA and FCEAU. Because Plaintiff alleges that the employees were working as the agents for and under the direction of Defendant First Choice Financial, it would also liable for the use of these practices under the FCEAU. III. Plaintiff's UTPCPL Claim Plaintiff's UTPCPL claim will be dismissed because Plaintiff has not pled reliance. The UTPCPL prohibits any person from engaging in "[u]nfair methods of competition and unfair or deceptive acts or practices," 73 P.S. 201-3, and provides a non-exhaustive list of specific [*13] forbidden acts, Id. 201-2(4). The Pennsylvania Supreme Court has instructed that courts "construe [the statute] liberally to effect its object of preventing unfair or deceptive practices." Creamer v. Monumental Properties Inc., 459 Pa. 450, 329 A.2d 812 (1974). The statute further makes available a private cause of action for "[a]ny person who purchases or leases goods or services ... and thereby suffers any ascertainable loss ..., as a result of the use or employment by any person of a method, act or practice declared unlawful." 73 P.S. 201-9.2(a). Because the loss must occur "as a result" of unlawful conduct under the UTPCPL, "a private plaintiff pursuing a claim under the statute must prove justifiable reliance" on the unlawful conduct, not merely that the wrongful conduct caused plaintiff's injuries. Hunt v. U.S. Tobacco Co., 538 F.3d 217, 221 (3d Cir.2008); see also Yocca v. Pittsburgh Steelers Sports, Inc., 578 Pa. 479, 854 A.2d 425 (2004) (holding that for any UTPCPL claim plaintiff must show that he (1) "justifiably relied on [a] defendant's wrongful conduct or representation" and (2) "suffered harm as a result of that reliance"). Moreover, "a plaintiff bringing an action under the UTPCPL must prove [*14] ... reliance and causation with respect to all subsections of the UTPCPL," upon which plaintiff

brings a claim. Santana Prods., Inc. v. Bobrick Washroom Equip., Inc., 401 F.3d 123, 136 (3d Cir.2005) (emphasis added) (citing Weinberg v. Sun Co., 565 Pa. 612, 777 A.2d 442 (2001)). Here, Plaintiff alleges that Defendants misrepresented at various points that they were police officers investigating Plaintiff and that Plaintiff was going to go to jail for fraud, along with other false representations. However, the Amended Complaint contains no allegations that Plaintiff relied on these misrepresentations or that he suffered any loss as a result of his reliance on these misrepresentations. As a result, this claim will be dismissed. IV. Plaintiff's Intentional Infliction of Emotional Distress Plaintiff's Intentional Infliction of Emotional Distress claim will be dismissed. "To prove a claim of intentional infliction of emotional distress, the following elements must be established: (1) the conduct must be extreme and dangerous; (2) it must be intentional or reckless; (3) it must cause emotional distress; (4) that distress must be severe." Hoy v. Angelone, 456 Pa.Super. 596, 691 A.2d 476 (1997). Extreme and outrageous conduct [*15] is conduct which is "so outrageous in character, and so extreme in degree, as to go beyond all possibly bounds of decency, and to be regarded as atrocious, and utterly intolerable in civilized society." Strickland v. Univ. of Scranton, 700 A.2d 979, 987 (Pa. Super. Ct.1997). Generally, "the case is one in which the recitation of the facts to an average member of the community would arouse his resentment against the actor, and lead him to exclaim, 'outrageous'!" Id. Furthermore, "in order to state a claim under which relief can be granted for the tort of intentional infliction of emotional distress, the plaintiffs must allege physical injury." Hart v. O'Malley, 436 Pa. Super. 151, 647 A.2d 542 (1994); see also Mann v. Brenner, No. 1:06-cv-1715, 2008 U.S. Dist. LEXIS 87339, 2008 WL 4491950, at *7 (M.D.Pa. Sept.30, 2008). Here, while Defendants' alleged conduct was clearly quite crude, Plaintiff has not pled any physical injury stemming from the alleged phone calls. As a result, Plaintiff has failed to allege that the distress caused by the calls and texts was sufficiently severe to survive a motion to dismiss. V. Plainitiff's Claim for False Light Invasion of Privacy Plaintiff's Claim for False Light Invasion of Privacy will be [*16] dismissed because Plaintiff has

141

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

not alleged that the comments Defendants allegedly made about him were publicized. Under Pennsylvania law, the tort of false light invasion of privacy is defined as: [o]ne who gives publicity to a matter concerning another that places the other before the public in a false light is subject to liability to the other for invasion of his privacy, if (a) the false light in which the other was placed would be highly offensive to a reasonable person, and (b) the actor had knowledge of or acted in reckless disregard as to the falsity of the publicized matter and the false light in which the other would be placed.

For the reasons stated above, Defendants' Motion to Dismiss (Doc. 10) will be granted in part and denied in part. An appropriate order follows. 3/18/11 Date /s/ A. Richard Caputo A. Richard Caputo United States District Judge ORDER NOW, this 18th day of March, 2011, IT IS HEREBY ORDERED that Defendants' Motion to Dismiss (Doc. 10) is GRANTED in part and DENIED in part as follows: (1) Defendants' Motion to Dismiss Plaintiff's Amended Complaint pursuant to Fed. R. Civ. P. 12(b)(1) is DENIED. (2) Defendants' Defendants' Motion to Dismiss Plaintiff's FCEUA claim is DENIED. (3) Defendants' Motion to Dismiss Plaintiff's UTPCPL claim is GRANTED. (4) Defendants' Motion to Dismiss Plaintiff's Intentional Infliction of Emotional Distress claim is GRANTED. (5) Defendants' Motion to Dismiss Plaintiff's False Light Invasion of Privacy Claim is GRANTED.

Curran v. Children's Serv. Ctr. of Wyoming County, Inc., 578 A.2d 8, 12, 396 Pa. Super. 29 (Pa.Super.1990) (quoting Restatement (Second) of Torts 652E). "Publicity," as an element of the tort of invasion of privacy, "means that the matter is made public, by communicating it to the public at large, or to so many persons that the matter must be regarded as substantially certain to become one of public knowledge." Curran, 578 A.2d at 12 (quoting Restatement (Second) of Torts, 652D, comment a). Here, there are no allegations in Plaintiff's Amended Complaint that the statements [*17] made by the XRimz employees about the Plaintiff were made public, or communicated to anyone besides the Plaintiff. As a result, the "publicity" element is absent from Plaintiff's allegations and this claim will therefore be dismissed. CONCLUSION

/s/ A. Richard Caputo A. Richard Caputo United States District Judge

D.

Time of Day

1692c. Communication in connection with debt collection (a) Communication with the consumer generally. Without the prior consent of the consumer given directly to the debt collector or the express permission of a court of competent jurisdiction, a debt collector may not communicate with a consumer in connection with the collection of any debt--

142

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

(1) at any unusual time or place or a time or place known or which should be known to be inconvenient to the consumer. In the absence of knowledge of circumstances to the contrary, a debt collector shall assume that the convenient time for communicating with a consumer is after 8 o'clock antimeridian and before 9 o'clock postmeridian, local time at the consumer's location; *** 1. The Inevitability of the Problem a. Cell phone exclusive use is on the rise. b. Cell phone plans provide no reason to change number when 2. Dialer Issues a. Appropriate Programming. b. Business Impact. 3. E. Handling Mistakes. TCPA

47 U.S.C. 227. Restrictions on use of telephone equipment *** (b) Restrictions on use of automated telephone equipment. (1) Prohibitions. It shall be unlawful for any person within the United States, or any person outside the United States if the recipient is within the United States-(A) to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice-(i) to any emergency telephone line (including any "911" line and any emergency line of a hospital, medical physician or service office, health care facility, poison control center, or fire protection or law enforcement agency); (ii) to the telephone line of any guest room or patient room of a hospital, health care facility, elderly home, or similar establishment; or (iii) to any telephone number assigned to a paging service, cellular telephone service, specialized mobile radio service, or other radio common carrier service, or any service for which the called party is charged for the call;

143

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

(B) to initiate any telephone call to any residential telephone line using an artificial or prerecorded voice to deliver a message without the prior express consent of the called party, unless the call is initiated for emergency purposes or is exempted by rule or order by the Commission under paragraph (2)(B); *** (D) to use an automatic telephone dialing system in such a way that two or more telephone lines of a multi-line business are engaged simultaneously. *** (3) Private right of action. A person or entity may, if otherwise permitted by the laws or rules of court of a State, bring in an appropriate court of that State-(A) an action based on a violation of this subsection or the regulations prescribed under this subsection to enjoin such violation, (B) an action to recover for actual monetary loss from such a violation, or to receive $ 500 in damages for each such violation, whichever is greater, or (C) both such actions. If the court finds that the defendant willfully or knowingly violated this subsection or the regulations prescribed under this subsection, the court may, in its discretion, increase the amount of the award to an amount equal to not more than 3 times the amount available under subparagraph (B) of this paragraph. *** (e) Prohibition on provision of inaccurate caller identification information. (1) In general. It shall be unlawful for any person within the United States, in connection with any telecommunications service or IP-enabled voice service, to cause any caller identification service to knowingly transmit misleading or inaccurate caller identification information with the intent to defraud, cause harm, or wrongfully obtain anything of value, unless such transmission is exempted pursuant to paragraph (3)(B). (2) Protection for blocking caller identification information. Nothing in this subsection may be construed to prevent or restrict any person from blocking the capability of any caller identification service to transmit caller identification information. *** (5) Penalties. (A) Civil forfeiture. (i) In general. Any person that is determined by the Commission, in accordance with paragraphs (3) and (4) of section 503(b) [47 USCS 503(b)], to have violated this subsection shall be liable to the United States for a forfeiture penalty. A forfeiture penalty

144

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

under this paragraph shall be in addition to any other penalty provided for by this Act. The amount of the forfeiture penalty determined under this paragraph shall not exceed $ 10,000 for each violation, or 3 times that amount for each day of a continuing violation, except that the amount assessed for any continuing violation shall not exceed a total of $ 1,000,000 for any single act or failure to act. (ii) Recovery. Any forfeiture penalty determined under clause (i) shall be recoverable pursuant to section 504(a) [47 USCS 504(a)]. (iii) Procedure. No forfeiture liability shall be determined under clause (i) against any person unless such person receives the notice required by section 503(b)(3) [47 USCS 503(b)(3)] or section 503(b)(4) [47 USCS 503(b)(4)]. (iv) 2-year statute of limitations. No forfeiture penalty shall be determined or imposed against any person under clause (i) if the violation charged occurred more than 2 years prior to the date of issuance of the required notice or notice or apparent liability. (B) Criminal fine. Any person who willfully and knowingly violates this subsection shall upon conviction thereof be fined not more than $ 10,000 for each violation, or 3 times that amount for each day of a continuing violation, in lieu of the fine provided by section 501 [47 USCS 501] for such a violation. This subparagraph does not supersede the provisions of section 501 [47 USCS 501] relating to imprisonment or the imposition of a penalty of both fine and imprisonment. (6) Enforcement by States. *** (8) Definitions. For purposes of this subsection: (A) Caller identification information. The term "caller identification information" means information provided by a caller identification service regarding the telephone number of, or other information regarding the origination of, a call made using a telecommunications service or IPenabled voice service. (B) Caller identification service. The term "caller identification service" means any service or device designed to provide the user of the service or device with the telephone number of, or other information regarding the origination of, a call made using a telecommunications service or IPenabled voice service. Such term includes automatic number identification services. (C) IP-enabled voice service. The term "IP-enabled voice service" has the meaning given that term by section 9.3 of the Commission's regulations (47 C.F.R. 9.3), as those regulations may be amended by the Commission from time to time. *** Mims v. Arrow Fin. Servs. LLC, 132 S. Ct. 740, 181 L. Ed. 2d 881 (2012).

145

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

LEXSEE 23 FCC RCD 559, 565 In the Matter of Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991; Request of ACA International for Clarification and Declaratory Ruling CG Docket No. 02-278 RELEASE-NUMBER: FCC 07-232 FEDERAL COMMUNICATIONS COMMISSION 23 FCC Rcd 559; 2008 FCC LEXIS 56; 43 Comm. Reg. (P & F) 877 January 4, 2008, Released December 28, 2007, Adopted
ACTION: [**1] DECLARATORY RULING JUDGES: By the Commission OPINION BY: DORTCH OPINION: [*559] I. INTRODUCTION 1. In this Declaratory Ruling, we address a Petition for Expedited Clarification and Declaratory Ruling filed by ACA International (ACA). n1 In this ruling, we clarify that autodialed and prerecorded message calls to wireless numbers that are provided by the called party to a creditor in connection with an existing debt are permissible as calls made with the "prior express consent" of the called party. n2 II. BACKGROUND A. Telephone Consumer Protection Act of 1991 2. On December 20, 1991, Congress enacted the Telephone Consumer Protection Act (TCPA), n3 as codified in section 227 of the Communications Act of 1934, as amended, in an effort to address a growing number of telephone marketing calls and certain telemarketing practices Congress found to be an invasion of consumer privacy. n4 In relevant part, the TCPA regulates the use of automated [*560] telephone equipment. n5 Specifically, section 227(b)(1)(A) prohibits the use of any automatic telephone dialing system n6 to call any telephone number assigned to a cellular telephone service absent an emergency purpose or the "prior express consent of the called party." n7 The TCPA also makes it unlawful to place a non-emergency telephone call to a residential line "using an artificial or prerecorded voice" without the recipient's consent unless the call is "exempted by rule or order of the Commission under paragraph (2)(B)." n8 Paragraph (2)(B), in turn, authorizes the n2 Debt collection calls are regulated primarily by the Federal Trade Commission and are subject to the requirements of the Fair Debt Collection Practices Act (FDCPA), which prohibits abusive, deceptive, and otherwise improper collection practices by third-party collectors. 15 U.S.C. 1692 et seq. [**2]

n1 ACA International Petition for an Expedited Clarification and Declaratory Ruling filed October 4, 2005 (Petition). ACA describes itself as an international trade organization of credit and collection companies that provide a wide variety of accounts receivable management services. ACA represents approximately 5,800 company members ranging from credit grantors, collection agencies, attorneys, and vendor affiliates.

146

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Commission to enact limited exemptions from this ban, including an exemption for calls "that are not made for a commercial purpose" or "do not include the transmission [**3] of any unsolicited advertisement." n9

n3 Telephone Consumer Protection Act of 1991, Pub. L. No. 102-243, 105 Stat. 2394 (1991), codified at 47 U.S.C. 227 (TCPA). The TCPA amended Title II of the Communications Act of 1934, 47 U.S.C. 201 et seq. n4 The TCPA directs the Commission, after comparing and evaluating "alternative methods," to adopt rules concerning the need to protect residential telephone subscribers' privacy rights to avoid receiving telephone solicitations to which they object." 47 U.S.C. 227(c)(1)-(4). n5 47 U.S.C. 227(b). n6 Under the TCPA, the term "automatic telephone dialing system" means "equipment which has the capacity -- (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers." 47 U.S.C. 227(a)(1). n7 47 U.S.C. 227(b)(1)(A). ("It shall be unlawful for any person within the United States or any person outside the United States if the recipient is within the United States--(A) to make any call (other than a call made for emergency purposes or made with the prior express consent of the called party) using any automatic telephone dialing system or an artificial or prerecorded voice--(i) to any emergency telephone line (including any "911" line and any emergency line of a hospital, medical physician or service office, health care facility, poison control center, or fire protection or law enforcement agency); (ii) to the telephone line of any guest room or patient room of a hospital, health care facility, elderly home, or similar establishment; or (iii) to any telephone number assigned to a paging service, cellular telephone service, specialized mobile radio service, or other radio common carrier service, or any service for which the called party is charged for the call[.]"). [**4]

It shall be unlawful for any person within the United States or any person outside the United States if the recipient is within the United States--(B) to initiate any telephone call to any residential telephone line using an artificial or prerecorded voice to deliver a message without the prior express consent of the called party, unless the call is initiated for emergency purposes or is exempted by rule or order by the Commission under paragraph (2)(B)[.] Id. See also 47 C.F.R. 64.1200(a)(2).

n9 47 U.S.C. 227(b)(2)(B)(i) and (ii). Subsection (2)(B) states: The Commission shall prescribe regulations to implement the requirements of this subsection. In implementing the requirements of this subsection, the Commission -(B) may, by rule or order, exempt from the requirements of paragraph (1)(B) of this subsection, subject to such conditions as the Commission may prescribe -- (i) calls that are not made for a commercial purpose; and (ii) such classes or categories of calls made for commercial purposes as the Commission determines--(I) will not adversely affect the privacy rights that this section is intended to protect; and (II) do not include the transmission of any unsolicited advertisement... 47 U.S.C. 227(b)(2)(B).

n8 47 U.S.C. 227(b)(1)(B). Subsection 227(b)(1)(B) provides:

[**5] 3. Section 227(b)(2)(B) authorizes the Commission to exempt noncommercial and certain other classes of calls from the prohibition on prerecorded messages to residences. By comparison, section 227(b)(2)(C) gives the Commission authority to exempt from the prohibition on autodialed or prerecorded message calls to wireless numbers

147

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

contained in section 227(b)(1)(A)(iii) only those "calls to [*561] a telephone number assigned to a cellular telephone service that are not charged to the called party, subject to such conditions as the Commission may prescribe as necessary in the interest of the privacy rights the provision is intended to protect." n10

n10 47 U.S.C. 227(b)(2)(C). B. Commission's TCPA rules 4. The Commission first adopted rules implementing the TCPA in 1992. n11 Under these rules, calls delivering artificial or prerecorded messages to residences were prohibited, absent the express consent of the called party. n12 Exempted from this prohibition were certain categories [**6] of calls that the Commission determined did not adversely affect consumers' privacy rights. n13 In the 1992 TCPA Order, the Commission concluded that an express exemption for debt collection calls to residences was unnecessary as such calls fall within the exemptions adopted for commercial calls which do not transmit an unsolicited advertisement and for established business relationships. n14 In addition, the Commission adopted rules prohibiting the use of autodialed and prerecorded message calls to cell phone numbers which incorporated the language of the TCPA virtually verbatim. n15

their cellular subscribers prior to initiating autodialer and artificial prerecorded message calls for which the cellular subscriber is not charged. 1992 TCPA Order, 7 FCC Rcd at 8775, para. 45. ("... neither TCPA nor the legislative history indicates that Congress intended to impede communications between radio common carriers and their customers regarding the delivery of customer services by barring calls to cellular subscribers for which the subscriber is not called [sic]"). However, the Commission determined that market research calls delivered by autodialers to cellular customers were prohibited by the TCPA absent the prior express consent of the subscriber. Id. at para. 45. 5. In 1995, the Commission released a Memorandum Opinion and Order addressing petitions for reconsideration of the 1992 TCPA Order. n16 Among other things, the Commission clarified that: [**8] 1) prerecorded debt collection calls are exempted from Section 227(b)(1)(B) of the TCPA which [*562] prohibits prerecorded or artificial voice messages to residences; n17 and 2) debt collection calls not directed to randomly or sequentially generated telephone numbers do not require an identification message. n18

n11 Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, CC Docket No. 92-90, Report and Order, 7 FCC Rcd 8752 (1992) (1992 TCPA Order); see also 47 C.F.R. 64.1200. n12 47 C.F.R. 64.1200(a)(2). n13 1992 TCPA Order, 7 FCC Rcd at 8769-73, paras. 32-39. These exemptions included calls that are: 1) not made for a commercial purpose; 2) made for a commercial purpose but not do include the transmission of any unsolicited advertisement, 3) made to any person with whom the caller has an established business relationship; or 4) made by a tax-exempt nonprofit organization. [**7]

n14 1992 TCPA Order, 7 FCC Rcd at 8773, para. 39. n15 See 47 C.F.R. 64.1200(a)(1). The Commission also determined that cellular carriers need not obtain additional consent from

n16 Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, CC Docket No. 92-90, Memorandum Opinion and Order, 10 FCC Rcd 12391, 12397-98, para. 14 (1995) (1995 TCPA Reconsideration Order). n17 1995 TCPA Reconsideration Order, 10 FCC Rcd at 12400, para. 17 ("We have specifically noted that 'prerecorded debt collection calls [are] exempt from the prohibitions on [prerecorded] calls to residences as ... commercial calls ... which do not transmit an unsolicited advertisement'" (citing 1992 TCPA Order, 7 FCC Rcd at 8773, para. 39)). n18 See 1995 TCPA Reconsideration Order, 10 FCC Rcd at 12400-01, paras. 17 and 19. See also 1992 TCPA Order, 7 FCC Rcd at 8773, para. 39 ("With respect to concerns regarding compliance with both the [Fair Debt Collection Practices Act] and our rules in prerecorded message calls, we emphasize that the identification requirements will not apply to debt collection calls because such calls are not autodialer calls (i.e., dialed using a random or sequential number generator) and hence are not subject to the identification requirements for

148

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

prerecorded messages in 64.1200(e)(4) of our rules"). [**9] 6. In 2002, the Commission initiated a rulemaking proceeding to determine whether the Commission's rules needed to be revised to more effectively carry out Congress's directives in the TCPA. n19 On July 3, 2003, the Commission revised and clarified the existing rules under the TCPA and adopted new rules to provide consumers with several options for avoiding unwanted telephone solicitations. n20

used. n22 Finally, the Commission found that a [*563] predictive dialer n23 falls within the meaning and statutory definition of "automatic telephone dialing [**11] equipment" and the intent of Congress. n24

n19 Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, Notice of Proposed Rulemaking and Memorandum Opinion and Order, 17 FCC Rcd 17459, CG Docket No. 02-278 and CC Docket No. 92-90 (2002) (2002 NPRM). In the 2002 NPRM, and as relevant here, the Commission sought specific comment on the definition of "automatic telephone dialing system," and whether it was necessary to identify the technologies section 227 is designed to address. The Commission also asked whether a predictive dialer is subject to the ban on calls to emergency lines, health care facilities, paging services, and any service for which the called party is charged for the call. 2002 NPRM, 17 FCC Rcd at 17473-75, paras. 23 and 26. [**10]

n21 2003 TCPA Order, 18 FCC Rcd at 14115, para. 165. See 47 U.S.C. 227(b)(1), which contains exceptions for calls made for emergency purposes or made with the prior express consent of the called party. n22 Id. The Commission also noted that callers have no way to determine how consumers are charged for their wireless service. Id. n23 The Commission explained in its 2003 TCPA Order that "a predictive dialer is equipment that dials numbers and, when certain computer software is attached, also assists telemarketers in predicting when a sales agent will be available to take calls. The hardware, when paired with certain software, has the capacity to store or produce numbers and dial those numbers at random, in sequential order, or from a database of numbers... [i]n most cases, telemarketers program the numbers to be called into the equipment, and the dialer calls them at rate to ensure that when a consumer answers the phone, a sales person is available to take the call." See 2003 TCPA Order, 18 FCC Rcd at 14091, para. 131. [**12]

n20 Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, CG Docket No. 02-278, Report and Order, 18 FCC Rcd 14014 (2003) (2003 TCPA Order). 7. In particular, the Commission clarified the rules on autodialed and prerecorded message calls to wireless telephone numbers. Specifically, the Commission affirmed that it is unlawful "to make any call using an automatic telephone dialing system or an artificial or prerecorded message to any wireless telephone number." n21 Noting that Congress found that automated or prerecorded telephone calls were a greater nuisance and invasion of privacy than live solicitation calls, and that such calls can be costly and inconvenient, the Commission determined that the TCPA and its rules prohibit such calls to wireless numbers. The Commission also recognized that wireless customers are charged for incoming calls whether they pay in advance or after the minutes are

n24 2003 TCPA Order, 18 FCC Rcd at 14093, para. 133. C. ACA Petition 8. On October 4, 2005, ACA filed a petition seeking clarification that the prohibition against autodialed or prerecorded calls to wireless telephone numbers in 47 C.F.R. 64.1200(a)(1)(iii) does not apply to creditors and collectors when calling wireless telephone numbers to recover payments for goods and services received by consumers. n25 ACA maintains that the TCPA was enacted to curtail the "onslaught of telemarketing calls," and that the use of autodialers to attempt to recover payments is not telemarketing. n26 According to ACA, the Commission has always interpreted the autodialer restriction so as not to apply to debt collection calls. n27 On April 5, 2006, the Commission sought comment on ACA's petition. n28 In a supplemental filing on April 26, 2006, ACA argues that the Commission's determination that predictive dialers fall within the meaning of the

149

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

statutory definition of "automated telephone dialing equipment" was incorrect and conflicts with the language of the TCPA. n29 The majority [**13] [*564] of comments filed were from creditors and collectors who support ACA's petition. n30 Consumer groups and individual consumers also filed comments, most of whom opposed ACA's petition. n31

III. DISCUSSION A. TCPA Autodialer Prohibition and Prior Express Consent 9. Although the TCPA generally prohibits autodialed calls to wireless phones, it also provides an exception for autodialed and prerecorded message [**15] calls for emergency purposes or made with the prior express consent of the called party. n32 Because we find that autodialed and prerecorded message calls to wireless numbers provided by the called party in connection with an existing debt are made with the "prior express consent" of the called party, n33 we clarify that such calls are permissible. We conclude that the provision of a cell phone number to a creditor, e.g., as part of a credit application, reasonably evidences prior express consent by the cell phone subscriber to be contacted at that number regarding the debt. In the 1992 TCPA Order, the Commission determined that "persons who knowingly release their phone numbers have in effect given their invitation or permission to be called at the number which they have given, absent instructions to the contrary." n34 The legislative history in the TCPA provides support for this interpretation. Specifically, the House report on what ultimately became section 227 states that: [t]he restriction on calls to emergency lines, pagers, and the like does not apply when the called party has provided the telephone number of such a line to the caller for use in normal business [**16] communications. n35

n25 See supra note 1. See also Petition at 12. n26 Petition at 11-12. n27 Petition at 14-20 (citing statements from the Commission that debt collection calls constitute neither telephone solicitations nor include unsolicited advertisements). n28 Consumer & Governmental Affairs Bureau Seeks Comment on ACA International's Petition for an Expedited Clarification and Declaratory Ruling Concerning the Telephone Consumer Protection Act (TCPA) Rules, Public Notice, 21 FCC Rcd 3600 (2006). Comments were due May 11, and replies were due May 22, 2006. See 71 Fed. Reg. 24634 (April 26, 2006). n29 ACA International's Supplemental Submission to Petition for an Expedited Clarification and Declaratory Ruling, filed April 26, 2006 (Supplemental Submission). For purposes of this Declaratory Ruling, we treat ACA's supplemental petition as part of its original petition. [**14]

n30 See, e.g., American Bankers Association and Consumer Bankers Association Comments (arguing that the relief requested by ACA should be extended to include all calls made using predictive dialers to wireless telephone numbers of existing customers), American Financial Services Association Comments, Chase Home Finance LLC Comments, Credit Management, LP Comments, Global Acceptance Credit Company Comments, Equinox Collection Service, Inc. Comments, National Association of Retail Collection Attorneys Comments. See also AT&T Comments, Direct Marketing Association Comments, Verizon Comments. n31 See, e.g., Electronic Privacy Information Center (EPIC) Comments, National Association of State Utility Consumer Advocates (NASUCA) Comments, Robert Biggerstaff Comments, Office of the Indiana Attorney General Comments, Privacy Rights Clearinghouse Comments.

n32 47 U.S.C. 227(b)(1)(A). n33 See, e.g., Verizon Comments and AT&T Comments. n34 See 1992 TCPA Order, 7 FCC Rcd at 8769, para. 31 (citing House Report, 102-317, 1st Sess., 102nd Cong. (1991) at 13, "noting that in such instances the called party has in essence requested the contact by providing the caller with their telephone number for use in normal business communications"). The Commission also noted, however, that if a caller's number is "captured" by a Caller ID or an ANI device without notice to the residential telephone subscriber, the caller cannot be considered to have given an invitation or permission to receive autodialer or prerecorded voice message calls. Id.

150

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

n35 H.R. Rep. 102-317 at 17. 10. We emphasize that prior express consent is deemed to be granted only if the wireless number was provided by the consumer to the creditor, and that such number was provided during the [*565] transaction that resulted in [**17] the debt owed. n36 To ensure that creditors and debt collectors call only those consumers who have consented to receive autodialed and prerecorded message calls, we conclude that the creditor should be responsible for demonstrating that the consumer provided prior express consent. The creditors are in the best position to have records kept in the usual course of business showing such consent, such as purchase agreements, sales slips, and credit applications. n37 Should a question arise as to whether express consent was provided, the burden will be on the creditor to show it obtained the necessary prior express consent. Similarly, a creditor on whose behalf an autodialed or prerecorded message call is made to a wireless number bears the responsibility for any violation of the Commission's rules. Calls placed by a third party collector on behalf of that creditor are treated as if the creditor itself placed the call. n38

11. We also reiterate that the plain language of section 227(b)(1)(A)(iii) prohibits the use of autodialers to make any call to a wireless number in the absence of an emergency or the prior express consent of the called party. n39 We note that this prohibition applies regardless of the content of the call, and is not limited only to calls that [**19] constitute "telephone solicitations." n40 However, we agree with ACA and other commenters that calls solely for the purpose of debt collection are not telephone solicitations and do not constitute telemarketing. n41 Therefore, calls regarding debt collection or to recover payments are not subject to the TCPA's separate restrictions on "telephone solicitations." n42

n36 See Petition at 5 ("The purpose of these telephone communications is to recover payment for obligations owed to creditors... They are limited to customers of creditors who have received a product without payment. Typically the telephone number is provided by the customer for purposes or receiving calls, for example, as part of a credit application"). [**18]

n39 47 U.S.C. 227(b)(1)(A)(iii). See also 2003 TCPA Order, 18 FCC Rcd at 14115, para. 165. n40 See 47 U.S.C. 227(b)(1)(A)(iii). See also 137 Cong. Rec. S18781-02, S18785 (Nov. 27, 1991) (Statement from Senator Pressler that "[t]his bill also allows hospitals, police stations, fire stations, and owners of paging and cellular equipment to eliminate all unsolicited calls"). n41 In the 2003 TCPA Order, the Commission stated that "the act of 'terminating' an established business relationship will not hinder or thwart creditors' attempts to reach debtors by telephone, to the extent that debt collection calls constitute neither telephone solicitations nor include unsolicited advertisements." See 2003 TCPA Order, 18 FCC Rcd at 14079, para. 113 n.358. [**20]

n37 We encourage creditors to include language on credit applications and other documents informing the consumer that, by providing a wireless telephone number, the consumer consents to receiving autodialed and prerecorded message calls from the creditor or its third party debt collector at that number. See, e.g., EPIC Comments at 5 (creditors should be directed to obtain express authorization from customers in writing). n38 A third party collector may also be liable for a violation of the Commission's rules. In addition, prior express consent provided to a particular creditor will not entitle that creditor (or third party collector) to call a consumer's wireless number on behalf of other creditors, including on behalf of affiliated entities.

n42 See 47 C.F.R. 64.1200(e). For example, the National Do-Not-Call List does not apply to calls that do not fall within the definition of "telephone solicitation" as defined in section 227(a)(3). These include surveys, market research, and political or religious speech calls. See 2003 TCPA Order, 18 FCC Rcd at 1403940, para. 37. [*566] B. Predictive Dialers 12. In this Declaratory Ruling, we affirm that a predictive dialer constitutes an automatic telephone dialing system and is subject to the TCPA's restrictions on the use of autodialers. In its Supplemental Submission, ACA argues that the Commission erred in concluding that the term "automatic telephone dialing system" includes a predictive dialer. n43 ACA states

151

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

that debt collectors use predictive dialers to call specific numbers provided by established customers, n44 and that a predictive dialer meets the definition of autodialer only when it randomly or sequentially generates telephone numbers, not when it dials numbers from customer telephone lists.

n43 Supplemental Submission at 4-18. See also supra note 23. [**21]

n44 Supplemental Submission at 6, 10. 13. As noted above, the Commission first sought comment on predictive dialers in 2002 and asked whether using a predictive dialer is subject to the TCPA's autodialer restrictions. n45 The Commission found that, based on the statutory definition of "automatic telephone dialing system," n46 the TCPA's legislative history, and current industry practice and technology, a predictive dialer falls within the meaning and definition of autodialer and the intent of Congress. n47 The Commission noted that the evolution of the teleservices industry had progressed to the point where dialing lists of numbers was far more cost effective, but that the basic function of such dialing equipment, had not changed--the capacity to dial numbers without human intervention. The Commission noted that it expected such automated dialing technology to continue to develop and that Congress had clearly anticipated that the FCC might need to consider changes in technology. n48

from dialing emergency numbers, health care facilities, telephone numbers assigned to wireless services, and any other numbers for which the consumer is charged for the call. Such practices were determined by Congress to threaten public safety and inappropriately shift costs to consumers. Most importantly, the Commission said that, to find that calls to emergency numbers, health care facilities, and wireless numbers are permissible when the dialing equipment is paired with predictive dialing software and a database of numbers, but prohibited when the equipment operates [**23] independently of such lists, would be inconsistent with the avowed purpose of the TCPA and the intent of Congress in protecting consumers from such calls. n50 ACA raises no new [*567] information about predictive dialers that warrants reconsideration of these findings. n51 With this ruling, however, creditors and debt collectors may use predictive dialers to call wireless phones, provided the wireless phone number was provided by the subscriber in connection with the existing debt. n52 We note, however, that where the subscriber has not made the number available to the creditor regarding the debt, we expect debt collectors to be able to utilize the same methods and resources that telemarketers have found adequate to determine which numbers are assigned to wireless carriers, n53 and to comply with the TCPA's prohibition on telephone calls using an autodialer or an artificial or prerecorded voice message to wireless numbers. n54

n45 2002 NPRM, 17 FCC Rcd at 17475, para. 26. [**22] [**24] n46 See supra note 6. n47 2003 TCPA Order, 18 FCC Rcd at 1409293, para 133. n48 See 2003 TCPA Order, 18 FCC Rcd at 14091-92, para. 132 (citing 137 Cong. Rec. S18784 (1991) (statement of Sen. Hollings) ("The FCC is given the flexibility to consider what rules should apply to future technologies as well as existing technologies"). 14. Moreover, the Commission noted that the TCPA does not ban the use of automated dialing technology. n49 It merely prohibits such technologies

n49 Debt collectors may use autodialing technology to call wireline numbers. Debt collection calls fall within the exemption for prerecorded calls that are commercial, but do not include an unsolicited advertisement. See 1995 TCPA Reconsideration Order, 10 FCC Rcd at 12400, para. 17.

n50 2003 TCPA Order, 18 FCC Rcd at 1409293, para. 133. n51 See Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, CG Docket No. 02-278, Second Order on Reconsideration, 20 FCC Rcd 3788 (2005) (declining to reconsider the Commission's rules on predictive dialers and abandoned calls). n52 See supra para. 9. n53 See 2003 TCPA Order, 18 FCC Rcd at 14117, para. 170. See also Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991, Order, 19

152

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

FCC Rcd 19215 (2004) (establishing a limited safe harbor period from the prohibition on placing automatic telephone dialing system (autodialed) or prerecorded message calls to wireless numbers when such calls are made to numbers that have been recently ported from wireline service to wireless service). n54 See 2003 TCPA Order, 18 FCC Rcd at 14117, para. 170. See also DMA Wireless Number Suppression List at http://preference.thedma.org/products/wireless.shtml. Neustar also has available a service that provides data on numbers ported from wireline to wireless service on a daily basis. See http://www.tcpacompliance.com/. ACA contends that the use of such databases is "inherently deficient" and not a viable solution for ACA members. See Supplemental Submission at 29. [**25] IV. PROCEDURAL MATTERS 15. To request materials in accessible formats (such as Braille, large print, electronic files, or audio format), send an e-mail to fcc504@fcc.gov or call the Consumer & Governmental Affairs Bureau at 202-4180530 (voice), 202-418-0432 (TTY). This Declaratory Ruling can also be downloaded in Word and Portable Document Format at http://www.fcc.gov/cgb/policy. V. ORDERING CLAUSES 16. Accordingly, IT IS ORDERED that, pursuant to Sections 1-4, 227, and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C. 151-154, 227 and 303(r); and Section 64.1200 of the Commission's rules, 47 C.F.R. 64.1200, this Declaratory Ruling in CG Docket No. 02-278 IS ADOPTED as set forth herein. [*568] 17. IT IS FURTHER ORDERED that the Request for Clarification filed by ACA International in CG Docket 02-278 on October 4, 2005 and supplemented by ACA on April 26, 2006, IS GRANTED insofar as ACA seeks clarification that autodialed and prerecorded message calls to wireless numbers that are provided by the called party to a creditor in connection with an existing debt are permissible as calls made with the "prior express consent" of the [**26] called party, AND in all other respects, IS DENIED. Marlene H. Dortch

Secretary

153

Chapter 15

PART 3 DAMAGES ISSUES IN FDCPA CASES

Case
Edwards v. National Business Factors, 897 F. Supp. 455 (D. Nev. 1995)

Alleged Violations
Defendant threatened suit if payment was not received within 5 days of its validation notice.

Damage Award

Zero actual damages, $1,000 in statutory damages

Baker v. G. C. Services Corp., 677 F.2d th 775 (9 Cir. 1982) (from D. Oregon)

The collector falsely threatened legal action and by failed to inform debtor that he could dispute a portion of his debt.

Zero actual damages, $100 in statutory damages

Harvey v. United Adjusters, 509 F. Supp. 1218 (D. Ore. 1981)

The defendant violated section 1692c by corresponding with the plaintiff while she was represented by counsel, section 1692g by not providing proper notice and section 1692d by sending the June 1979 notice to the plaintiff. 15 U.S.C.S. 1692e, 1692f, 1692g. False threats of suit, collection fees, and attorneys fees.

Zero actual damages, $500 in statutory damages

FDCPA and Legal Ethics Issues for Collection Attorneys

Mejia v. Marauder Corp., 2007 U.S. Dist. LEXIS 21313 (N.D.Cal. 2007)

No actuals sought, $250 in statutory damages

Robert Burns and Betty Kline v. Anderson, Crenshaw & Associates, LLC Case No. 07cv-01192 (D. Colorado 2008)

Baruch v. Healthcare Recaivable management, Inc., 2007 U.S. Dist. LEXIS 80429 (EDNY 2007)

Couple on fixed income (Burns dying from emphysema) allegedly subjected to false threats of suit, false threat to obtain a judgment, threats to injure credit and to add attorneys fees and costs to the debt. Conduct was alleged to be a campaign of abusive and unlawful collection tactics. Plaintiffs alleged headaches, anger, frustration, trouble sleeping, emotional distress, humiliation, embarrassment, damage to self-esteem. Plaintiff, an indigent Medicaid patient, alleged that he was greatly upset by calls, letters, and threats regarding suit and credit injury. Plaintiff requested $100,000 in actual damages, claiming that he could not sleep, . .. got very depressed and . . . went to many doctors." He "was prescribed anti-depressant medication and sleeping pills."

Zero actual damages and zero statutory damages

$5,000 in actual damages, $1,000 in statutory damages

154

Chapter 15

He also averred that the defendant's acts caused him heart problems, requiring him to see cardiologists and get MRI's, which were aggravated whenever defendant called. As a result, plaintiff avers, he was forced [*9] to file for disability and his quality of life has suffered.
Cooper v. Ellis Crosby & Assoc., Inc., 2007 WL 1322380(D.Conn. 2007)

Gervais v. O'Connell, Harris & Assoc., Inc., 297 F. Supp.2d 435 (D. Conn. 2003)

FDCPA and Legal Ethics Issues for Collection Attorneys

Chiverton v. Fed. Fin. Group, Inc., 399 F. Supp.2d 96 (D. Conn. 2005)

An employee of the defendant debt collection agency called plaintiff at work, identified himself as an investigator for a bank, and threatened to have her arrested if she did not pay $4,300 within two hours of the call. He also threatened to notify her supervisor and subpoena her work hard drive. Plaintiff testified that she suffered anxiety, embarrassment, inconvenience, and worry as a result. Over the period of a week an employee of the defendant debt collection agency hounded plaintiff for payment on three credit cards, misrepresenting that he was an attorney and other facts. Plaintiff, who had suffered several heart attacks and a stroke, sent payment to the defendant, per the employee's instructions. Plaintiff testified that he was confused and fearful both of losing his assets and of having another heart attack and stroke. An employee of the defendant collection agency harassed each of the two plaintiffs over a period of several months. Beginning in July 1999, defendant called the first plaintiff, Chiverton, at work seeking to collect a debt that Chiverton had previously satisfied. Chiverton told defendant that and sent documentation as proof. Two weeks later, defendant called Chiverton again, and again Chiverton told defendant the debt had been satisfied and faxed documentation as proof. In October 1999, a representative of defendant called again. Chiverton said he was not allowed to take personal calls at work, but the collector continued to call, and on one occasion called several times in succession. As Chiverton was a fiscal supervisor with the Department of Defense and awaiting a commission as a second lieutenant, he was forced to tell his supervisor and was fearful his commission would be affected. As to the second plaintiff, Collier, the collector called her at least 20 times between November 1999 and January 2000. He also called Collier's grandson and daughter about the debt, and threatened her

$3,000 in actual damages.

$1,500 in actual damages for emotional distress

$5,000 each in actual damages, $1,000 in statutory damages

155

Chapter 15

with arrest. Collier testified that Deer's conduct caused her embarrassment, anxiety and shame.

Teng v. Metropolitan Retail Assoc., 851 F. Supp. 61 (EDNY 1994)

Maddox v. The Martin Company, LLC, 2006 U.S. Dist. LEXIS 28549 (S.D.Ohio 2006)

FDCPA and Legal Ethics Issues for Collection Attorneys

Smith v. Law Offices of Mitchell N. Kay, 124 Bankr. 182 (D.Del. 1991),

The defendant called plaintiff's place of employment several times in a single day, and, as it was plaintiff's day off, requested plaintiff's home number from plaintiff's supervisor under the ruse of needing to get an urgent, personal message to plaintiff. An employee of defendant also called plaintiff's home later that night, identifying himself as a City Marshall, and threatening to come take away his furniture. Plaintiff was repeatedly contacted regarding her nieces debt. Messages referred to a Sheriff's seizure order and a subpoena for a deposition and threatened dispatching the Sheriff to your home with the proper documentation to serve you, in order to appear regarding these pending charges. A later message stated: We will also be speaking to the prosecutor about a possible theft by deception by hiding the collateral. I'll await your phone call upon receipt of this message, otherwise we will proceed forward with prosecution. We can criminally as well as civilly False threats of legal action, wage garnishment, and sequestration of property. At the time of the threats the husband was suffering from a long-term disability and the wife was pregnant.

$1,000 in actual damages, $1,--- in statutory damages

Zero actual damages, $500 in statutory damages

Thornton v. Wolpoff & Abramson, L.L.P., 2008 U.S. App. LEXIS 1604 (11th cir. 2008) (appeal from N.D.GA.)

Plaintiff alleged that she was harassed in connection with a credit card debt that was actually owed by her ex-husband.

A jury award of $ 15,000 in actual damages for emotional distress was held to be grossly excessive and reduced to the sum of $ 3,000 Plaintiff sought $1,000 in actual damages and substantial actual damages. Jury awarded $1.00

156

Chapter 15

Sasscer v. Donnelly, 2011 U.S. Dist. LEXIS 148288 (M.D.Pa. 2011)

Claims under FDCPA and Pennsylvania law for suing in the wrong venue. Plaintiff also alleged invasion of privacy by intrusion upon seclusion.

Plaintiff sought $1,100 and was awarded $400.

Penny v, Williams & Fudge, Inc., 2012 U.S. Dist. LEXIS 4571 (M.D. Fla. 2012).

Warren v. Specified Credit Association Inc. 2012 U.S. Dist. LEXIS 43430 (D.N.J. March 28, 2012)

FDCPA and Legal Ethics Issues for Collection Attorneys

157

Plaintiff testified at trial to a whole manner of conduct, including, among other things, that he received between 50 and 70 calls from Defendant to collect a debt which he told them he did not owe; that he received calls at work, including a message left at his desk phone that stated: "Come on Frank, pick up or I'm going to have to call your employer at the 4000 extension again", and that Defendant was calling Plaintiff's relatives, leaving messages like, "Rick is trying to reach you," or "Theresa is trying to reach you," which got back to his ill wife, causing embarrassment and stress. Plaintiff received a voicemail on his cellular phone left by a a collector who stated that he was "calling regarding Case 176625." No 1692d(6) and 1692e(11) disclosures.

Jury awarded $500. Fees through trial cut by about 2/3.

Zero actual damages; $100 in statutory damages.

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

Part 4 Additional Ethics Concerns for Collection Attorneys A. Unauthorized Practice of Law Rule 5.05 Unauthorized Practice of Law A lawyer shall not: (a) practice law in a jurisdiction where doing so violates the regulation of the legal profession in that jurisdiction; or (b) assist a person who is not a member of the bar in the performance of activity that constitutes the unauthorized practice of law. Comment: 1. Courts generally have prohibited the unauthorized practice of law because of a perceived need to protect individuals and the public from the mistakes of the untrained and the schemes of the unscrupulous, who are not subject to the judicially imposed disciplinary standards of competence, responsibility and accountability. 2. Neither statutory nor judicial definitions offer clear guidelines as to what constitutes the practice of law or the unauthorized practice of law. All too frequently, the definitions are so broad as to be meaningless and amount to little more than the statement that the practice of law is merely whatever lawyers do or are traditionally understood to do. The definition of the practice of law is established by law and varies from one jurisdiction to another. Whatever the definition, limiting the practice of law to members of the bar protects the public against rendition of legal services by unqualified persons. 3. Rule 5.05 does not attempt to define what constitutes the unauthorized practice of law but leaves the definition to judicial development. Judicial development of the concept of law practice should emphasize that the concept is broad enough but only broad enough to cover all situations where there is rendition of services for others that call for the professional judgment of a lawyer and where the one receiving the services generally will be unable to judge whether adequate services are being rendered and is, therefore, in need of the protection afforded by the regulation of the legal profession. Competent professional judgment is the product of a trained familiarity with law and legal processes, a disciplined, analytical approach to legal problems and a firm ethical commitment; and the essence of the professional judgment of the lawyer is the lawyer's

158

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

educated ability to relate the general body and philosophy of law to a specific legal problem of a client. 4. Paragraph (b) of Rule 5.05 does not prohibit a lawyer from employing the services of paraprofessionals and delegating functions to them. So long as the lawyer supervises the delegated work, and retains responsibility for the work, and maintains a direct relationship with the client, the paraprofessional cannot reasonably be said to have engaged in activity that constitutes the unauthorized practice of law. See Rule 5.03. Likewise, paragraph (b) does not prohibit lawyers from providing professional advice and instructions to nonlawyers whose employment requires knowledge of law. For example, claims adjusters, employees of financial institutions, social workers, abstractors, police officers, accountants, and persons employed in government agencies are engaged in occupations requiring knowledge of law; and a lawyer who assists them to carry out their proper functions is not assisting the unauthorized practice of law. In addition, a lawyer may counsel nonlawyers who wish to proceed pro se, since a nonlawyer who represents himself or herself is not engaged in the unauthorized practice of law. 5. Authority to engage in the practice of law conferred in any jurisdiction is not necessarily a grant of the right to practice elsewhere, and it is improper for a lawyer to engage in practice where doing so violates the regulation of the practice of law in that jurisdiction. However, the demands of business and the mobility of our society pose distinct problems in the regulation of the practice of law by individual states. In furtherance of the public interest, lawyers should discourage regulations that unreasonably impose territorial limitations upon the right of a lawyer to handle the legal affairs of a client or upon the opportunity of a client to obtain the services of a lawyer of his or her choice. B. Supervision of Associates, Appearance Counsel, and Staff 1692e. False or misleading representations A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section: (3) The false representation or implication that any individual is an attorney or that any communication is from an attorney. *** (10) The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer. Rule 5.01 Responsibilities of a Partner or Supervisory Lawyer

159

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

A lawyer shall be subject to discipline because of another lawyer's violation of these rules of professional conduct if: (a) The lawyer is a partner or supervising lawyer and orders, encourages, or knowingly permits the conduct involved; or (b) The lawyer is a partner in the law firm in which the other lawyer practices, is the general counsel of a government agency's legal department in which the other lawyer is employed, or has direct supervisory authority over the other lawyer, and with knowledge of the other lawyer's violation of these rules knowingly fails to take reasonable remedial action to avoid or mitigate the consequences of the other lawyer's violation. Comment: 1. Rule 5.01 conforms to the general principle that a lawyer is not vicariously subjected to discipline for the misconduct of another person. Under Rule 8.04, a lawyer is subject to discipline if the lawyer knowingly assists or induces another to violate these rules. Rule 5.01(a) additionally provides that a partner or supervising lawyer is subject to discipline for ordering or encouraging another lawyer's violation of these rules. Moreover, a partner or supervising lawyer is in a position of authority over the work of other lawyers and the partner or supervising lawyer may be disciplined for permitting another lawyer to violate these rules. 2. Rule 5.01(b) likewise is concerned with the lawyer who is in a position of authority over another lawyer and who knows that the other lawyer has committed a violation of a rule of professional conduct. A partner in a law firm, the general counsel of a government agency's legal department, or a lawyer having direct supervisory authority over specific legal work by another lawyer, occupies the position of authority contemplated by Rule 5.01(b). 3. Whether a lawyer has direct supervisory authority over the other lawyer in particular circumstances is a question of fact. In some instances, a senior associate may be a supervising attorney. 4. The duty imposed upon the partner or other authoritative lawyer by Rule 5.01(b) is to take reasonable remedial action to avoid or mitigate the consequences of the other lawyer's known violation. Appropriate remedial action by a partner or other supervisory lawyer would depend on many factors, such as the immediacy of the partner's or supervisory lawyer's knowledge and involvement, the nature of the action that can reasonably be expected to avoid or mitigate injurious consequences, and the seriousness of the anticipated consequences. In some circumstances, it may be sufficient for a junior partner to

160

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

refer the ethical problem directly to a designated senior partner or a management committee. A lawyer supervising a specific legal matter may be required to intervene more directly. For example, if a supervising lawyer knows that a supervised lawyer misrepresented a matter to an opposing party in negotiation, the supervisor as well as the other lawyer may be required by Rule 5.01(b) to correct the resulting misapprehension. 5. Thus, neither Rule 5.01(a) nor Rule 5.01(b) visits vicarious disciplinary liability upon the lawyer in a position of authority. Rather, the lawyer in such authoritative position is exposed to discipline only for his or her own knowing actions or failures to act. Whether a lawyer may be liable civilly or criminally for another lawyer's conduct is a question of law beyond the scope of these rules. 6. Wholly aside from the dictates of these rules for discipline, a lawyer in a position of authority in a firm or government agency or over another lawyer should feel a moral compunction to make reasonable efforts to ensure that the office, firm, or agency has in effect appropriate procedural measures giving reasonable assurance that all lawyers in the office conform to these rules. This moral obligation, although not required by these rules, should fall also upon lawyers who have intermediate managerial responsibilities in the law department of an organization or government agency. 7. The measures that should be undertaken to give such reasonable assurance may depend on the structure of the firm or organization and upon the nature of the legal work performed. In a small firm, informal supervision and an occasional admonition ordinarily will suffice. In a large firm, or in practice situations where intensely difficult ethical problems frequently arise, more elaborate procedures may be called for in order to give such assurance. Obviously, the ethical atmosphere of a firm influences the conduct of all of its lawyers. Lawyers may rely also on continuing legal education in professional ethics to guard against unintentional misconduct by members of their firm or organization. Rule 5.03 Responsibilities Regarding Nonlawyer Assistants With respect to a non-lawyer employed or retained by or associated with a lawyer: (a) a lawyer having direct supervisory authority over the nonlawyer shall make reasonable efforts to ensure that the person's conduct is compatible with the professional obligations of the lawyer; and (b) a lawyer shall be subject to discipline for the conduct of such a person that would be a violation of these rules if engaged in by a lawyer if: (1) the lawyer orders, encourages, or permits the conduct involved; or

161

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

(2) the lawyer: (i) is a partner in the law firm in which the person is employed, retained by, or associated with; or is the general counsel of a government agency's legal department in which the person is employed, retained by or associated with; or has direct supervisory authority over such person; and (ii) with knowledge of such misconduct by the nonlawyer knowingly fails to take reasonable remedial action to avoid or mitigate the consequences of that person's misconduct. Comment: 1. Lawyers generally employ assistants in their practice, including secretaries, investigators, law student interns, and paraprofessionals. Such assistants act for the lawyer in rendition of the lawyer's professional services. A lawyer should give such assistants appropriate instruction and supervision concerning the ethical aspects of their employment, particularly regarding the obligation not to disclose information relating to representation of the client, and should be responsible for their work product. The measures employed in supervising non-lawyers should take account of the fact that they do not have legal training and are not subject to professional discipline. 2. Each lawyer in a position of authority in a law firm or in a government agency should make reasonable efforts to ensure that the organization has in effect measures giving reasonable assurance that the conduct of nonlawyers employed or retained by or associated with the firm or legal department is compatible with the professional obligations of the lawyer. This ethical obligation includes lawyers having supervisory authority or intermediate managerial responsibilities in the law department of any enterprise or government agency. C. Affidavits Rule 3.03 Candor Toward the Tribunal (a) A lawyer shall not knowingly: (1) make a false statement of material fact or law to a tribunal; (2) fail to disclose a fact to a tribunal when disclosure is necessary to avoid assisting a criminal or fraudulent act;

162

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

(3) in an ex parte proceeding, fail to disclose to the tribunal an unprivileged fact which the lawyer reasonably believes should be known by that entity for it to make an informed decision; (4) fail to disclose to the tribunal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel; or (5) offer or use evidence that the lawyer knows to be false. (b) If a lawyer has offered material evidence and comes to know of its falsity, the lawyer shall make a good faith effort to persuade the client to authorize the lawyer to correct or withdraw the false evidence. If such efforts are unsuccessful, the lawyer shall take reasonable remedial measures, including disclosure of the true facts. (c) The duties stated in paragraphs (a) and (b) continue until remedial legal measures are no longer reasonably possible. Comment: 1. The advocates task is to present the clients case with persuasive force. Performance of that duty while maintaining confidences of the client is qualified by the advocates duty of candor to the tribunal. Factual Representations by Lawyer 2. An advocate is responsible for pleadings and other documents prepared for litigation, but is usually not required to have personal knowledge of matters asserted therein, for litigation documents ordinarily present assertions by the client, or by someone on the clients behalf, and not assertions by the lawyer. Compare Rule 3.01. However, an assertion purporting to be on the lawyers own knowledge, as in an affidavit by the lawyer or a representation of fact in open court, may properly be made only when the lawyer knows the assertion is true or believes it to be true on the basis of a reasonably diligent inquiry. There are circumstances where failure to make a disclosure is the equivalent of an affirmative misrepresentation. The obligation prescribed in Rule 1.02(c) not to counsel a client to commit or assist the client in committing a fraud applies in litigation. See the Comments to Rules 1.02(c) and 8.04(a). Misleading Legal Argument 3. Legal argument based on a knowingly false representation of law constitutes dishonesty toward the tribunal. A lawyer is not required to make a disinterested exposition of the law, but should recognize the existence of pertinent legal

163

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

authorities. Furthermore, as stated in paragraph (a)(4), an advocate has a duty to disclose directly adverse authority in the controlling jurisdiction which has not been disclosed by the opposing party. The underlying concept is that legal argument is a discussion seeking to determine the legal premises properly applicable to the case. Ex Parte Proceedings 4. Ordinarily, an advocate has the limited responsibility of presenting one side of the matters that a tribunal should consider in reaching a decision; the conflicting position is expected to be presented by the opposing party. However, in an ex parte proceeding, such as an application for a temporary restraining order, there is no balance of presentation by opposing advocates. The object of an ex parte proceeding is nevertheless to yield a substantially just result. The judge has an affirmative responsibility to accord the absent party just consideration. The lawyer for the represented party has the correlative duty to make disclosures of unprivileged material facts known to the lawyer if the lawyer reasonably believes the tribunal will not reach a just decision unless informed of those facts. Anticipated False Evidence 5. On occasion a lawyer may be asked to place into evidence testimony or other material that the lawyer knows to be false. Initially in such situations, a lawyer should urge the client or other person involved to not offer false or fabricated evidence. However, whether such evidence is provided by the client or by another person, the lawyer must refuse to offer it, regardless of the clients wishes. As to a lawyers right to refuse to offer testimony or other evidence that the lawyer believes is false, see paragraph 15 of this Comment. 6. If the request to place false testimony or other material into evidence came from the lawyers client, the lawyer also would be justified in seeking to withdraw from the case. See Rules 1.15(a)(1) and (b)(2), (4). If withdrawal is allowed by the tribunal, the lawyer may be authorized under Rule 1.05(c)(7) to reveal the reasons for that withdrawal to any other lawyer subsequently retained by the client in the matter; but normally that Rule would not allow the lawyer to reveal that information to another person or to the tribunal. If the lawyer either chooses not to withdraw or is not allowed to do so by the tribunal, the lawyer should again urge the client not to offer false testimony or other evidence and advise the client of the steps the lawyer will take if such false evidence is offered. Even though the lawyer does not receive satisfactory assurances that the client or other witness will testify truthfully as to a particular matter, the lawyer may use that person as a witness as to other matters that the lawyer believes will not result in perjured testimony. Past False Evidence

164

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

7. It is possible, however, that a lawyer will place testimony or other material into evidence and only later learn of its falsity. When such testimony or other evidence is offered by the client, problems arise between the lawyers duty to keep the clients revelations confidential and the lawyers duty of candor to the tribunal. Under this Rule, upon ascertaining that material testimony or other evidence is false, the lawyer must first seek to persuade the client to correct the false testimony or to withdraw the false evidence. If the persuasion is ineffective, the lawyer must take additional remedial measures. 8. When a lawyer learns that the lawyers services have been improperly utilized in a civil case to place false testimony or other material into evidence, the rule generally recognized is that the lawyer must disclose the existence of the deception to the court or to the other party, if necessary rectify the deception. See paragraph (b) and Rule 1.05(h). See also Rule 1.05(g). Such a disclosure can result in grave consequences to the client, including not only a sense of betrayal by the lawyer but also loss of the case and perhaps a prosecution for perjury. But the alternative is that the lawyer would be aiding in the deception of the tribunal or jury, thereby subverting the truth-finding process which the adversary system is designed to implement. See Rule 1.02(c). Furthermore, unless it is clearly understood that the lawyer will act upon the duty to disclose the existence of false evidence, the client can simply reject the lawyers advice to reveal the false evidence and insist that the lawyer keep silent. Thus the client could in effect coerce the lawyer into being a party to fraud on the court. Perjury by a Criminal Defendant 9. Whether an advocate for a criminally accused has the same duty of disclosure has been intensely debated. While it is agreed that in such cases, as in others, the lawyer should seek to persuade the client to refrain from suborning or offering perjurious testimony or other false evidence, there has been dispute concerning the lawyers duty when that persuasion fails. If the confrontation with the client occurs before trial, the lawyer ordinarily can withdraw. Withdrawal before trial may not be possible, however, either because trial is imminent, or because the confrontation with the client does not take place until the trial itself, or because no other counsel is available. 10. The proper resolution of the lawyers dilemma in criminal cases is complicated by two considerations. The first is the substantial penalties that a criminal accused will face upon conviction, and the lawyers resulting reluctance to impair any defenses the accused wishes to offer on his own behalf having any possible basis in fact. The second is the right of a defendant to take the stand should he so desire, even over the objections of the lawyer. Consequently, in any criminal case where the accused either insists on testifying when the lawyer knows that the testimony is perjurious or else surprises the lawyer with such testimony at

165

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

trial, the lawyers effort to rectify the situation can increase the likelihood of the clients being convicted as well as opening the possibility of a prosecution for perjury. On the other hand, if the lawyer does not exercise control over the proof, the lawyer participates, although in a merely passive way, in deception of the court. 11. Three resolutions of this dilemma have been proposed. One is to permit the accused to testify by a narrative without guidance through the lawyer's questioning. This compromises both contending principles; it exempts the lawyer from the duty to disclose false evidence but subjects the client to an implicit disclosure of information imparted to counsel. Another suggested resolution is that the advocate be entirely excused from the duty to reveal perjury if the perjury is that of the client. This solution, however, makes the advocate a knowing instrument of perjury. 12. The other resolution of the dilemma, and the one this Rule adopts, is that the lawyer must take a reasonable remedial measure which may include revealing the clients perjury. A criminal accused has a right to the assistance of an advocate, a right to testify and a right of confidential communication with counsel. However, an accused should not have a right to assistance of counsel in committing perjury. Furthermore, an advocate has an obligation, not only in professional ethics but under the law as well, to avoid implication in the commission of perjury or other falsification of evidence. False Evidence Not Introduced by the Lawyer 13. A lawyer may have introduced the testimony of a client or other witness who testified truthfully under direct examination, but who offered false testimony or other evidence during examination by another party. Although the lawyer should urge that the false evidence be corrected or withdrawn, the full range of obligation imposed by paragraphs (a)(5) and (b) of this Rule do not apply to such situations. A subsequent use of that false testimony or other evidence by the lawyer in support of the clients case, however, would violate paragraph (a)(5). Duration of Obligation 14. The time limit on the obligation to rectify the presentation of false testimony or other evidence varies from case to case but continues as long as there is a reasonable possibility of taking corrective legal actions before a tribunal. Refusing to Offer Proof Believed to be False 15. A lawyer may refuse to offer evidence that the lawyer reasonably believes is untrustworthy, even if the lawyer does not know that the evidence is false. That discretion should be exercised cautiously, however, in order not to impair the

166

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

legitimate interests of the client. Where a client wishes to have such suspect evidence introduced, generally the lawyer should do so and allow the finder of fact to assess its probative value. A lawyers obligations under paragraphs (a)(2), (a)(5) and (b) of this Rule are not triggered by the introduction of testimony or other evidence that is believed by the lawyer to be false, but not known to be so. Rule 3.04 Fairness in Adjudicatory Proceedings A lawyer shall not: (a) unlawfully obstruct another party's access to evidence; in anticipation of a dispute unlawfully alter, destroy or conceal a document or other material that a competent lawyer would believe has potential or actual evidentiary value; or counsel or assist another person to do any such act. (b) falsify evidence, counsel or assist a witness to testify falsely, or pay, offer to pay, or acquiesce in the offer or payment of compensation to a witness or other entity contingent upon the content of the testimony of the witness or the outcome of the case. But a lawyer may advance, guarantee, or acquiesce in the payment of: (1) expenses reasonably incurred by a witness in attending or testifying; (2) reasonable compensation to a witness for his loss of time in attending or testifying; (3) a reasonable fee for the professional services of an expert witness. (c) except as stated in paragraph (d), in representing a client before a tribunal: (1) habitually violate an established rule of procedure or of evidence; (2) state or allude to any matter that the lawyer does not reasonably believe is relevant to such proceeding or that will not be supported by admissible evidence, or assert personal knowledge of facts in issue except when testifying as a witness; (3) state a personal opinion as to the justness of a cause, the credibility of a witness, the culpability of a civil litigant or the guilt or innocence of an accused, except that a lawyer may argue on his analysis of the evidence and other permissible considerations for any position or conclusion with respect to the matters stated herein;

167

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

(4) ask any question intended to degrade a witness or other person except where the lawyer reasonably believes that the question will lead to relevant and admissible evidence; or (5) engage in conduct intended to disrupt the proceedings. (d) knowingly disobey, or advise the client to disobey, an obligation under the standing rules of or a ruling by a tribunal except for an open refusal based either on an assertion that no valid obligation exists or on the client's willingness to accept any sanctions arising from such disobedience. (e) request a person other than a client to refrain from voluntarily giving relevant information to another party unless: (1) the person is a relative or an employee or other agent of a client; and (2) the lawyer reasonably believes that the person's interests will not be adversely affected by refraining from giving such information. Comment: 1. The procedure of the adversary system contemplates that the evidence in a case is to be marshalled competitively by the contending parties. Fair competition in the adversary system is secured by prohibitions against destruction or concealment of evidence, improperly influencing witnesses, obstructive tactics in discovery procedures, and the like. 2. Documents and other evidence are often essential to establish a claim or defense. The right of a party, including the government, to obtain evidence through discovery or subpoena is an important procedural right. The exercise of that right can be frustrated if relevant material is altered, concealed or destroyed. Applicable law in many jurisdictions, including Texas, makes it an offense to destroy material for the purpose of impairing its availability in a pending proceeding or one whose commencement can be foreseen. See Texas Penal Code, 37.09(a)(1), 37.10(a)(3). See also 18 U.S.C. 1501-1515. Falsifying evidence is also generally a criminal offense. Id. 37.09(a)(2), 37.10 (a)(1), (2). Paragraph (a) of this Rule applies to evidentiary material generally, including computerized information. 3. Paragraph (c)(1) subjects a lawyer to discipline only for habitual abuses of procedural or evidentiary rules, including those relating to the discovery process. That position was adopted in order to employ the superior ability of the presiding tribunal to assess the merits of such disputes and to avoid inappropriate resort to disciplinary proceedings as a means of furthering tactical litigation objectives. A lawyer in good conscience should not engage in even a single intentional violation

168

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

of those rules, however, and a lawyer may be subject to judicial sanctions for doing so. 4. Paragraph (c) restates the traditional Texas position regarding the proper role of argument and comment in litigation. The obligations imposed by that paragraph to avoid seeking to influence the outcome of a matter by introducing irrelevant or improper considerations into the deliberative process are important aspects of a lawyer's duty to maintain the fairness and impartiality of adjudicatory proceedings. 5. By the same token, the advocate's function is to present evidence and argument so that the cause may be decided according to law. Refraining from abusive or disruptive conduct is a corollary of the advocate's right to speak on behalf of litigants. A lawyer may stand firm against abuse by a tribunal but should avoid reciprocation. 6. Paragraph (d) prohibits the practice of a lawyer not disclosing a client's actual or intended noncompliance with a standing rule or particular ruling of an adjudicatory body or official to other concerned entities. It provides instead that a lawyer must openly acknowledge the client's noncompliance. 7. Paragraph (d) also prohibits a lawyer from disobeying, or advising a client to disobey, any such obligations unless either of two circumstances exists. The first is the lawyer's open refusal based on an assertion that no valid obligation exists. In order to assure due regard for formal rulings and standing rules of practice or procedure, the lawyer's assertion in this regard should be based on a reasonable belief. The second circumstance is that a lawyer may acquiesce in a client's position that the sanctions arising from noncompliance are preferable to the costs of compliance. This situation can arise in criminal cases, for example, where the court orders disclosure of the identity of an informant to the defendant and the government decides that it would prefer to allow the case to be dismissed rather than to make that disclosure. A lawyer should consult with a client about the likely consequences of any such act of disobedience should the client appear to be inclined to pursue that course; but the final decision in that regard rests with the client. D. Settlement Agreements Rule 5.06 Restrictions on Right to Practice A lawyer shall not participate in offering or making:

169

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

(a) a partnership or employment agreement that restricts the rights of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement; or (b) an agreement in which a restriction on the lawyer's right to practice is part of the settlement of a suit or controversy, except that as part of the settlement of a disciplinary proceeding against a lawyer an agreement may be made placing restrictions on the right of that lawyer to practice. Comment: 1. An agreement restricting the rights of partners or associates to practice after leaving a firm not only limits their professional autonomy but also limits the freedom of clients to choose a lawyer. Paragraph (a) prohibits such agreements except for restrictions incident to provisions concerning retirement benefits for service with the firm. 2. Paragraph (b) prohibits a lawyer from agreeing not to represent other persons in connection with settling a claim on behalf of a client. Rule 4.03 Dealing with Unrepresented Person In dealing on behalf of a client with a person who is not represented by counsel, a lawyer shall not state or imply that the lawyer is disinterested. When the lawyer knows or reasonably should know that the unrepresented person misunderstands the lawyer's role in the matter, the lawyer shall make reasonable efforts to correct the misunderstanding. Comment: An unrepresented person, particularly one not experienced in dealing with legal matters, might assume that a lawyer is disinterested in loyalties or is a disinterested authority on the law even when the lawyer represents a client. During the course of a lawyer's representation of a client, the lawyer should not give advice to an unrepresented person other than the advice to obtain counsel. With regard to the special responsibilities of a prosecutor, see Rule 3.09. 1. Kuehn v. Cadle Co., 335 Fed. Appx. 827 (11th Cir. Fla. 2009)
BONNIE KUEHN, Plaintiff-Appellee, versus THE CADLE COMPANY, INC., Defendant-Appellant. No. 08-16547 Non-Argument Calendar

170

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT 335 Fed. Appx. 827; 2009 U.S. App. LEXIS 12479

June 10, 2009, Decided June 10, 2009, Filed

171

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15


NOTICE: PLEASE REFER TO FEDERAL RULES OF APPELLATE PROCEDURE RULE 32.1 GOVERNING THE CITATION TO UNPUBLISHED OPINIONS. PRIOR HISTORY: [**1] Appeal from the United States District Court for the Middle District of Florida. D.C. Docket No. 04-00432-CV-OC-10-GRJ. Kuehn v. Cadle Co., 2007 U.S. Dist. LEXIS 25764 (M.D. Fla., Apr. 6, 2007) DISPOSITION: AFFIRMED. summary judgment on those claims, [*829] which the district court granted in part and denied in part. 1 1 The district court sua sponte granted summary judgment to Cadle on those claims for which it denied Kuehn's summary judgment motion. (R.3-87 at 12 n.13.) Cadle now appeals the final judgment entered in favor of Kuehn. II. CONTENTIONS OF THE PARTIES AND ISSUES ON APPEAL First, Cadle argues on appeal that the district court erred in denying its motion to dismiss. Specifically, Cadle argues that the Amended Complaint was barred by the one-year statute of limitations, and that the district court abused its discretion in concluding that the Amended Complaint related back to the filing of the original Complaint. Kuehn responds that the district court did not abuse its discretion in concluding that the requirements of Fed. R. Civ P. 15(c)(1) were met, and that the Amended Complaint therefore related back to the time of the filing of the original Complaint. Second, Cadle argues that the district court erred in granting in part Kuehn's motion for summary judgment, as the issue [**3] of whether a dunning letter violated 15 U.S.C. 1692e(10) is a jury question under Eleventh Circuit precedent. Kuehn responds that a jury question is only presented when there is a factual dispute as to the deceptiveness of the dunning letter. Here, contends Kuehn, there was no such dispute, and thus summary judgment was appropriate. In this appeal we determine whether the district court abused its discretion in concluding that the Amended Complaint related back to the filing of the original Complaint. Additionally, we determine whether the dunning letter's alleged violation of 15 U.S.C. 1692e(10) should have been submitted to a jury. III. STANDARD OF REVIEW We review a district court's application of Rule 15(c)'s relation-back doctrine for an abuse of discretion. Powers v. Graff, 148 F.3d 1223, 1226 (11th Cir. 1998) (citations omitted). We review for clear error "the findings of fact

COUNSEL: For Cadle Company, Inc., Appellant: Dale T. Golden, Golden & Scaz, PLLC, TAMPA, FL. For Bonnie Kuehn, Appellee: Brian W. Warwick, Janet R. Varnell, Varnell & Warwick, PA, The Villages, FL. JUDGES: Before BLACK, BARKETT and COX, Circuit Judges. OPINION [*828] PER CURIAM: I. BACKGROUND Bonnie Kuehn received a dunning letter printed on Cadleway Properties, Inc. letterhead. Kuehn brought a putative class action against Cadleway, alleging that the letter violated the Truth in Lending Act, 15 U.S.C. 1601 et seq., and the Fair Debt Collection Practices Act, 15 U.S.C. 1692 et seq. After the statute of limitations had run, Kuehn filed an Amended Complaint naming The Cadle Company, and not Cadleway, as the Defendant, and alleging that it was Cadle who had sent the offending letter. Cadle moved to dismiss the Amended Complaint, arguing, among other things, that it was barred by the one-year statute of limitations, and did not relate back to the filing of the original Complaint because it added a new Defendant. The district court denied Cadle's motion. As the litigation progressed, class action [**2] certification was denied and Kuehn narrowed her claims to violations of the Fair Debt Collection Practices Act. She moved for

172

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15


necessary for application of the rule." Id. (citations omitted). We review de novo the district court's grant of summary judgment. Boim v. Fulton County Sch. Dist., 494 F.3d 978, 982 (11th Cir. 2007). IV. DISCUSSION Cadle argues that Kuehn's mistake in initially suing Cadleway instead of Cadle is "not the [**4] type of mistake contemplated by Rule 15(c)(3)." (Appellant's Br. at 12.) Cadle argues that relation back is only appropriate under Rule 15(c) when "the plaintiff sues the correct party but misidentifies that party." (Id. at 18.) Cadle contends that Kuehn stated in her papers opposing Cadleway's Motion to Dismiss that Cadle might be the party who sent the letter, and therefore Kuehn knew Cadle was the correct party to sue, could have amended her Complaint within the statute-of-limitations period, and her failure to do so precludes application of the relation-back doctrine. Cadle does not dispute that the other requirements of the relation-back doctrine are satisfied, (Appellant's Reply Br. at 1 n.1), and so we address only whether Kuehn's mistake satisfies the requirement of Rule 15(c)(1)(C)(ii). Kuehn's mistake as to the correct party to sue, Cadleway or Cadle, is the type of mistake contemplated by Rule 15(c)(1)(C)(ii). In Itel Capital Corp. v. [*830] Cups Coal Co., 707 F.2d 1253 (11th Cir. 1983), we concluded that there was no abuse of discretion when the district court permitted the relation back of an amended complaint which added a defendant who was at the heart of the conduct at issue [**5] and who was a 97% owner of the originally named defendant. Id. at 1258. We noted that, "In reaching this conclusion, we read the word 'mistake' in Rule 15(c) liberally." Id. at 1258 n.9 (citation omitted). Here, Kuehn sued the company named on the letter giving rise to the lawsuit. The district court found that, upon learning that the letter was not sent by the company listed on the letter, but by another closely-related company, Kuehn immediately amended her Complaint. 2 (R.2-39 at 16.) The district court did not abuse its discretion in concluding that the Amended Complaint related back to the time of the filing of the original Complaint. 2 Cadle cites Kuehn's opposition to its Motion to Dismiss as evidence that the district court's finding is clearly erroneous. (Appellant's Br. at 10-11.) Having reviewed the record evidence Cadle cites, we conclude the district court's finding was not clearly erroneous. Cadle next argues that the district court erred in granting summary judgment in part to Kuehn on her Fair Debt Collection Practices Act claim. In particular, Cadle argues that the district court erred in concluding that the dunning letter violated 15 U.S.C. 1692e(10) as a matter of [**6] law. Cadle argues that we held in Jeter v. Credit Bureau, Inc., 760 F.2d 1168, 1176 (11th Cir. 1985) that the issue of whether a dunning letter violates 15 U.S.C. 1692e(10) is an issue for a jury and should not be decided as a matter of law. In Jeter, we did not hold that whether a dunning letter violates 15 U.S.C. 1692e(10) is always a question for a jury. Rather, we held that if there are two sets of reasonable inferences that could be drawn from a dunning letter, and one set of inferences would result in a violation of 15 U.S.C. 1692e(10), while the other would not, it was appropriate for a jury to decide which set of inferences to draw. 760 F.2d at 1176. In this case, the dunning letter stated: Also enclosed is an IRSgenerated W-9 to certify your Tax Identification Number (TIN). For individuals, this is your Social Security Number. Please complete this form indicating the above account number, and sign and return it to us as soon as possible. You are subject to a $ 50 penalty imposed by the IRS under 26 U.S.C. 6723 if you fail to furnish a TIN.

(R.1-14, Ex. A at 1.) The letter clearly states that the failure to provide a TIN would subject Kuehn to a $ 50 penalty imposed by [**7] the IRS. Cadle admits that this is only true if it had to file a 1099-C, and nothing had yet occurred that made filing a 1099-C necessary. 3 (R.3-78 at 11.) Only one inference is possible from the dunning letter, and that is that the failure to complete the enclosed W-9 form and return it to Cadle would subject Kuehn to a $ 50 penalty imposed by the IRS. But, that is misleading.

173

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15


3 Cadle cites 26 C.F.R. 1.6050P1(e)(7)(ii) for the proposition that it was required to warn Kuehn that a failure to provide a TIN subjected her to a $ 50 penalty. (R.3-78 at 11.) The regulation does not support Cadle's argument. It states that the warning must be included in a letter soliciting a TIN only after the occurrence of an identifiable event. 26 C.F.R. 1.6050P-1(e)(7)(ii). An identifiable event is one that triggers a requirement to file a 1099-C. Id. at 1.6050P-1(a). But, Cadle admits that nothing had occurred yet (i.e. there was no identifiable event) that triggered its requirement to file a 1099-C. (R.3-78 at 12.) [*831] Cadle's threat that Kuehn's failure to supply her TIN would subject her to a penalty imposed by the IRS violates 15 U.S.C. 1692e(10) as a matter of law. 15 U.S.C. 1692(e) states: A [**8] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section: ***

(10) The use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer.

Here, the threat that Kuehn would be subject to an IRS penalty for failure to furnish her TIN was a misleading statement that was used in an attempt to obtain her TIN. Cadle violated the statute as a matter of law. The district court correctly entered summary judgment for Kuehn on this claim. V. CONCLUSION The district court did not abuse its discretion in concluding that the Amended Complaint related back to the time of the filing of the original Complaint. Additionally, the district court properly granted summary judgment in part to Kuehn. We affirm the judgment of the district court. AFFIRMED.

2. Posso v. ASTA Funding Inc., 2007 U.S. Dist. LEXIS 83741 (N.D. Ill. Nov. 9, 2007)

174

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15

CONSUELO POSSO, Plaintiff, v. ASTA FUNDING INC., Defendant. No. 07 C 4024 UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION 2007 U.S. Dist. LEXIS 83741

November 9, 2007, Decided November 9, 2007, Filed

COUNSEL: [*1] For Consuelo Posso, Plaintiff: O. Randolph Bragg, LEAD ATTORNEY, Horwitz, Horwitz & Associates, Chicago, IL; Craig M. Shapiro, Horwitz, Horwitz & Associates, Ltd., Chicago, IL. For ASTA Funding, Inc., doing business as Palisades Collection, LLC., Defendant: James R. Bedell, Moss & Barnett, PA, Minneapolis, MN; James Michael True, Messer & Stilp, Ltd., Chicago, IL; Joseph Shaw Messer, Messer & Stilp, Chicago, IL. JUDGES: Samuel Der-Yeghiayan, States District Court Judge. OPINION BY: Samuel Der-Yeghiayan OPINION MEMORANDUM OPINION SAMUEL DER-YEGHIAYAN, District Judge This matter is before the court on Defendant ASTA Funding Inc.'s ("ASTA") motion for judgment on the pleadings. For the reasons stated below, we grant ASTA's motion. BACKGROUND Plaintiff Consuelo Posso ("Posso") alleges that, during 2003, she contracted with AT&T Wireless ("AT&T") to provide her with cellular telephone service. Posso alleges that she accumulated a debt to AT&T in the amount of $ 4,642.93 ("Debt"). Posso alleges that ASTA purchased the debt from AT&T in December 2004 and became her creditor regarding the Debt. On March 28, 2006, a lawsuit was allegedly filed against Posso, on behalf of ASTA, in the Circuit Court of Cook County, to United

collect [*2] the Debt. Subsequently, the parties allegedly reached a settlement of the Debt whereby the lawsuit would be dismissed with prejudice in exchange for a single payment of $ 2,300.00 ("Settlement"). Posso alleges that the Settlement required her to pay $ 2,342.93 less than the original amount of the Debt, which was allegedly $ 4,642.93. Posso alleges that on May 5, 2006, she made a payment of $ 2,300.00 and that the remainder of her debt was cancelled. Posso alleges that ASTA was not awarded reimbursement for any court costs or interest by either the state court or as part of the Settlement. Posso alleges that several months after the Settlement and the cancellation of her debt, ASTA issued an Internal Revenue Service FORM 1099-C ("Tax Form") to the Internal Revenue Service ("IRS") and to Posso. Posso alleges that the Tax Form represented that ASTA had cancelled the Debt for Posso in the amount of $ 3,226.04. Posso alleges that this representation was false since the amount of the debt actually cancelled was allegedly $ 2,342.93. Thus, Posso alleges that the Tax Form had inflated the cancelled debt by $ 883.11. Posso alleges that the inflated representation by ASTA to the IRS caused an [*3] increase in Posso's personal tax liability. Posso alleges that, by issuing the Tax Form, ASTA communicated inaccurate credit information which was known or which should have been known to be false. In a one-count complaint, Posso claims that ASTA's actions violated the Fair Debt Collection Practices Act, 15 U.S.C. 1692, et seq. ("FDCPA"). ASTA brings the instant motion for judgment on the pleadings claiming that its actions could not have been in violation of the FDCPA since the Debt had already been collected.

175

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15


LEGAL STANDARD A party is permitted under Federal Rule of Civil Procedure 12(c) to move for judgment on the pleadings after the parties have filed the complaint and the answer. Fed. R. Civ. P. 12(c); Northern Indiana Gun & Outdoor Shows, Inc. v. City of South Bend, 163 F.3d 449, 452 (7th Cir. 1998). The courts apply the Rule 12(b) motion to dismiss standard for Rule 12(c) motions and thus the court may "grant a Rule 12(c) motion only if 'it appears beyond doubt that the plaintiff cannot prove any facts that would support his claim for relief.'" Id. (quoting Craigs, Inc. v. General Elec. Capital Corp., 12 F.3d 686, 688 (7th Cir. 1993)). The court, in ruling on a motion for judgment [*4] on the pleadings, must "accept as true all well-pleaded allegations," Forseth v. Village of Sussex, 199 F.3d 363, 364 (7th Cir. 2000), and "view the facts in the complaint in the light most favorable to the nonmoving party. . . ." Northern Indiana Gun & Outdoor Shows, Inc., 163 F.3d at 452 (quoting GATX Leasing Corp. v. National Union Fire Ins. Co., 64 F.3d 1112, 1114 (7th Cir. 1995)). The main difference between a Rule 12(b) motion and a Rule 12(c) motion is that a Rule 12(b) motion may be filed before the answer to the complaint is filed, whereas, a Rule 12(c) motion may be filed "after the pleadings are closed but within such time as not to delay the trial." Id. n.3. A court may rule on a motion for judgment on the pleadings under Rule 12(c) based upon a review of the pleadings alone. Id. at 452. The pleadings include the complaint, the answer, and any written instruments attached as exhibits, such as affidavits, letters, contracts, and loan documentation. Id. at 452-53. In ruling on a motion for judgment on the pleadings, a "district court may take into consideration documents incorporated by reference to the pleadings . . . [and] may also take judicial notice of matters of public [*5] record." United States v. Wood, 925 F.2d 1580, 1582 (7th Cir. 1991). If the court considers matters outside the pleadings, the court should convert the motion for judgment on the pleadings into a motion for summary judgment. Northern Indiana Gun & Outdoor Shows, Inc., 163 F.3d at 453 n.5. DISCUSSION Posso argues that by issuing the Tax Form, ASTA violated 15 U.S.C. 1692e ("Section 1692e"), which prohibits a debt collector from using any "false, deceptive, or misleading representation or means in connection with the collection of any debt." 15 U.S.C. 1692e. Section 1692e provides examples of prohibited conduct in subsequent subsections without limiting its application to such examples. Id. Posso claims that ASTA's action in issuing the Tax Form qualifies as generally prohibited conduct under Section 1692e and explicitly prohibited conduct under two of the examples provided in subsections following Section 1692e. First, Posso claims that ASTA's action constituted "[t]he false representation of . . . the character, amount or legal status of any debt." 15 U.S.C. 1692e(2)(A) ("Section 1692e(2)(A)"). Second, Posso claims that ASTA's action was an act of "communicating or threatening [*6] to communicate to any person credit information which is known or which should be known to be false, including failure to communicate that a disputed debt is disputed." 15 U.S.C. 1692e(8) ("Section 1692e(8)"). We note that Posso characterizes her claims as allegations of the violations of "three sections of the FDCPA," presumably referring to Sections 1692e, 1692e(2)(A), and 1692e(8) separately. (Ans. 3). Some courts have chosen to treat the subsections of Section 1692e as separate claims. See e.g., Miller v. Javitch, Block & Rathbone, L.L.P., 397 F.Supp.2d 991, 1000-01 (N.D. Ind. 2005). However, the language of Section 1692e clearly states that Section 1692e(2)(A) and Section 1692e(8) are non-exhaustive examples of unlawful conduct under Section 1692e. See 15 U.S.C. 1692e (stating that "[w]ithout limiting the general application to the foregoing, the following [conduct described in subsections] is a violation of [Section 1692c]"), Thus, we will treat Posso's claim as an allegation of a single violation of Section 1692e. However, if Posso can state a claim under either Section 1692e(2)(A) or Section 1692e(8), it would be deemed to be a stated claim for a violation under Section 1692e. Section 1692e [*7] limits its prohibition to actions by debt collectors "in connection with the collection of any debt." 15 U.S.C. 1692e (emphasis added). In her complaint, Posso makes it clear that ASTA issued the Tax Form after the Settlement cancelled the Debt. (Compl. Par. 31). Thus, at the outset, we must resolve the issue of whether Section 1692e of the FDCPA can be applied to actions by creditors after an intervening act such as a settlement has cancelled the debt and has terminated debt collection process. In its motion for judgment on the

176

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15


pleadings, ASTA asserts that even if the Tax Form did falsely inflate the value of the cancelled debt, it could not have been a violation of Section 1692e since the Settlement had terminated the Debt and the issuing of the Tax Form could not be considered in connection to an attempt to collect on the no-longer-existing Debt. (MJP Mem. 3-9). We agree. Neither party has pointed to Seventh Circuit precedent regarding the question of whether post-debt collection conduct by a debt collector could be considered to be "in connection with the collection of any debt" for the purposes of Section 1692e. However, it is evident from the plain language and the purpose of [*8] the FDCPA that Congress did not intend post-debt collection actions that are in no way related to an attempt to recover a debt, such as the alleged conduct in this case, to be covered under Section 1692e. Congress enacted the FDCPA to address what they viewed to be "abundant evidence of the use of abusive, deceptive, and unfair debt collection practices by debt collectors." 15 U.S.C. 1692(a)(emphasis added). Congress' stated purpose for enacting the FDCPA was to "eliminate abusive debt collection practices by debt collectors." 15 U.S.C. 1692(c). In its stated purpose for enacting the FDCPA, Congress said nothing in regard to the actions by debt collectors after debts have been satisfied and debt collection proceedings have concluded. It is evident from the Congressional findings and declaration of purpose section of the FDCPA, that Congress intended the FDCPA to address ongoing debt collection processes. This is consistent with the language of Section 1692e, which only prohibits debt-collector conduct "in connection with the collection of a debt." 15 U.S.C. 1692e (emphasis added). When a debt is extinguished there is no debt and there can be no debt collection. Consequently, any [*9] action by a former debtcollector, however improper, could not be deemed to be "in connection" to a present debt collection proceeding. In this case, Posso's own complaint makes it abundantly clear that there was no debt collection proceeding and Posso had no obligation to ASTA at the time that ASTA issued the Tax Form, Posso's complaint states that the Settlement had been negotiated and finalized, the Settlement amount had been paid, the state court case against Posso had been dismissed, and the remainder of the debt had been cancelled, all months before ASTA allegedly issued the Tax Form. (Compl. Par. 2331). Consequently, under the plain language of Section 1692e, ASTA's actions could not be considered an unlawful action "in connection" with the collection of Posso's Debt. We note that, even though ASTA's alleged conduct regarding the Tax Form is not prohibited under the FDCPA, Congress did not leave Posso without remedy. If Posso's allegations are true, that ASTA inflated the amount of the cancelled debt on the Tax Form, she has other avenues of relief such as to dispute the amount of cancelled debt with the IRS to reduce her unwarranted tax liability or to bring suit against ASTA [*10] under other provisions of law. Furthermore, if ASTA did falsely inflate the value of the cancelled debt, ASTA could be subject to penalties for false reporting under 26 U.S.C. 6721-6724. Posso argues that because the Tax Form allegedly had information relating to her debt, it constitutes conduct "in connection with the collection of [her] debt." (Ans. 13-14). However, such an argument ignores the obvious distinction between an action tangentially related to the debt itself and an action "in connection with the collection of the debt." 15 U.S.C. 1692e (emphasis added). On the face of Posso's complaint, it is clear that the Debt had been collected and all of the issues relating to the Debt collection had been resolved long before ASTA allegedly issued the tax form. Posso states that if Section 1692e only covers actions related to ongoing collection proceedings then organizations such as ASTA would have "carte blanche permission to commit any violation the [sic] FDCPA if the consumer has paid part or all of the debt. . . ." (Ans. 14). We stress that debt collectors would certainly be covered under the FDCPA if only part of the debt had been paid and collection proceedings are still [*11] ongoing. We also note that, even when actions are not covered under the FDCPA, organizations would not have carte blanche to commit alleged acts that, as in this case, might otherwise be covered under another section of federal law. However, as is demonstrated by the language and purpose of the FDCPA, actions taken by former debt collectors that are after debt proceedings have terminated, are unrelated to the ongoing collection of a debt, and are separated by an intervening act of settlement, do not fall under Section 1692e. Therefore, Posso has not stated a claim under Section 1692e or any of its

177

FDCPA and Legal Ethics Issues for Collection Attorneys

Chapter 15


subsections and ASTA is entitled to judgment on the pleadings. Even if we were to find that there could be situations where the post-collection actions of a former debt collector could be covered under the FDCPA, it is abundantly clear on the face of Posso's complaint that the alleged actions of ASTA were not related to the collection of the Debt, rather they were related to the contract that settled her debt. In this case, the Settlement was an intervening act and it is clear that ASTA's alleged filing of the Tax Form was related to that intervening act and not "in connection to" the preceding [*12] debt collection. 15 U.S.C. 1692e, Posso's complaint demonstrates that ASTA's tax form was issued for the purpose of providing the IRS with information regarding the debt it cancelled for the previous tax year. (Compl. Par. 31-32). This information relates not to the collection of the debt, but rather to the amount of the debt cancelled pursuant to the Settlement. (Compl. Par. 31-32). Thus, ASTA's alleged action is not covered under the explicit language of Section 1692e. 15 U.S.C. 1692e. Therefore, we grant ASTA's motion. CONCLUSION Based on the foregoing analysis, we grant ASTA's motion for judgment on the pleadings. /s/ Samuel Der-Yeghiayan Samuel Der-Yeghiayan United States District Court Judge Dated: November 9, 2007

178