Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

GULLEY v. MARKOFF & KRASNY (December 22, 2011)

In 2008, the City of Chicago imposed fines on Victor Gulley for Municipal Code violations. Gulley did not pay the fines because he no longer owned the real property associated with the violations. The City retained the law firm of Markoff & Krasny to collect the fines. Gulley brought suit against Markoff & Krasny pursuant to the Fair Debt Collection Practices Act alleging a number of specific statutory violations. The law firm moved to dismiss the complaint on the ground that the fines were not "debts" under the Act. Judge Gettleman (N.D. Ill.) agreed. Gully appeals.

In their opinion, Seventh Circuit Judges Flaum, Kanne, and Sykes affirmed. In affirming, the Court relied on: a) the language of the Act, which states that a "debt" must arise out of a transaction in which the subject of the transaction is "primarily for personal, family, or household purposes" b) the FTC (which is entitled not to Chevron deference but to respectful consideration in this context), which specifically excludes fines from the definition of "debts," and c) the consistent findings of district courts (no Court of Appeals has addressed the issue in a written opinion) excluding fines from FDCPA coverage.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

CARTER v. AMC (May 13, 2011)

Jackson Square Properties owns the Riverstone Apartments in Bolingbrook Illinois. AMC, LLC managed the building on its behalf. AMC brought suit in state court to evict tenant Geaneice Carter. Although AMC prevailed at the trial court level, the appellate court reversed on the ground that AMC failed to give proper notice. One judge on the panel also concluded that AMC violated the Fair Debt Collection Practices Act. Carter brought suit in federal court seeking damages for AMC's violation of the Act. Judge Gettleman (N.D. Ill.) dismissed the complaint on the ground that AMC was not a "debt collector" under the Act because it collected money owed to itself. Carter appeals.

In their opinion, Chief Judge Easterbrook and Judges Kanne and Sykes affirmed. The Court rejected Carter's position that AMC's violation of the Act was established in state court. Not only is the opinion of one judge on a three-judge panel not enough to resolve an issue, but even the one judge who expressed an opinion acknowledged that the resolution of that issue was not necessary for the court's decision. Collateral estoppel applies only when an issue is necessarily decided. The Court then pointed out an incorrect factual assumption made by both the state court and the district court. Both assumed that AMC was the lessor. In fact, it is clear that Jackson Square Properties is the lessor and AMC is its agent. AMC can therefore not escape liability under the Act as the lessor. But AMC can also escape liability if it is attempting to collect a debt it "obtained" from another and the debt was not in default when AMC obtained it. The Court noted that several courts of appeals have concluded that a mortgage loan servicer "obtains" the bank's debt. Although no court of appeals has considered the lessor situation, many district courts have and have concluded that a lease servicer "obtains" the debt when the lease is signed. The FTC staff has also concluded, albeit not in a regulation or advisory opinion, that a lease servicer "obtains" the debt when it becomes the agent. The agent is not a debt collector under the Act unless the rent was in arrears at that time. The Court therefore concluded that AMC obtained the debt when it acquired the authority to collect the rent. Since Carter was not in arrears at that time, AMC is not a debt collector under the Act.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

O’ROURKE v. PALISADES ACQUISITION XVI (March 17, 2011)

Michael O'Rourke accumulated several thousand dollars of debt on his credit card but never paid it. In fact, he assumed the statute of limitations barred any payment obligations. So, when lawyers for Palisades Acquisition XVI, the debt's owner, sent him a collection notice, he ignored it. Palisades filed suit in state court and attached an exhibit that appeared to be, but was not, a credit card bill issued by Palisades to O'Rourke. Palisades eventually dismissed the state court case. O'Rourke brought suit against Palisades in federal court, alleging that the exhibit violated the Fair Debt Collection Practices Act. His theory was that Palisades included the exhibit in order to mislead the state court judge into thinking that it was an accurate statement of the actual debt. Judge Norgle (N.D. Ill.) granted summary judgment to Palisades. O’Rourke appeals.

In their opinion, Judges Flaum, Manion, and Tinder (concurring in the result) affirmed. The Court stated that the Act prohibits both the false representation of a debt's "character, amount, or legal status" and the use of deceptive means to collect a debt. On its face, the Act does not say whether it includes statements made to a state court judge. The Court concluded that it did not. The Act is intended to protect consumers. Courts have extended its protection to third parties only when there is a special relationship (e.g., attorney, executrix) with a consumer. The Court held that the Act only applies to statements directed to consumers, and those with a special relationship to a consumer. Since a state court judge is an impartial decision-maker, the exhibit is not a covered communication.

Judge Tinder concurred in the result but disagreed with the Court’s rationale. He noted that the language of the Act is quite expansive, that its goal is to reduce abusive debt collection practices, and that state judges are powerful participants in the debt collection process. Why, then, should a false and misleading court submission not be a violation of the Act? Judge Tinder did not answer that question because he did not believe it necessary or prudent. Even assuming that the Act applies to communications to judges, O'Rourke loses. Because the exhibit was not misleading on its face, O'Rourke was required to submit extrinsic evidence. Although he submitted an expert report, the trial court excluded it. Without any extrinsic evidence, O'Rourke is unable to establish a genuine issue of material fact and summary judgment for Palisades was proper.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

TINSLEY v. INTEGRITY FINANCIAL PARTNERS (February 11, 2011)

Integrity Financial Partners (IFP) is a debt collector and was trying to collect a debt from Christopher Tinsley. Tinsley retained a lawyer and had the lawyer send a letter to IFP advising them that Tinsley refused to pay the debt and had no assets. The lawyer further requested that all collection efforts cease and advised IFP to "direct all future communications to our office." When IFP called the lawyer and requested payment, Kinsley filed suit under the Fair Debt Collection Practices Act. Chief Judge Holderman (N.D. Ill.) granted summary judgment to the defendants. Tinsley appeals.

In their opinion, Chief Judge Easterbrook and Judges Manion and Hamilton affirmed. The Court began with § 1692(c)(c) of the Act. That section prohibits any communication by a debt collector with the “consumer" when it is advised that the consumer refuses to pay the debt or asks for no further communication on the debt. Tinsley argues that the prohibition on communicating with the consumer applies equally to communicating with the consumers attorney, his agent. Tinsley relies on the section of the Act that defines "communication" as conveying information directly or indirectly. Surely, he argues, communication with one’s lawyer is an indirect communication to the client. The Court noted that Tinsley's argument had been accepted by at least one district court and had apparently not been considered at the appellate court level. Although expressing some attraction to the argument at a superficial level, the Court reconsidered after it put the section in context. For example, subsections (a) and (b) of the Act are written in such a way that they would make no sense if a consumer and his lawyer were interchangeable. Furthermore, the Court noted that it is unlikely that Congress intended to prohibit all communication with a consumer’s lawyer. Finally, the Act’s definition of consumer does not include lawyer. Taking the Act as a whole, together with its purposes, the Court concluded that IFP's communication with Tinsley's lawyer was not prohibited by the Act.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

GBUREK v. LITTON LOAN SERVICING (July 27, 2010)

Camille Gburek’s mortgage was serviced by Litton Loan Servicing. As of December 2007, Gburek was in default. She received two letters that month, one from Litton and one from Titanium Solutions on behalf of Litton. Neither letter demanded payment. The Litton letter offered to "discuss foreclosure alternatives" and "help preserve your homeownership." It requested financial information to help it consider its options. The Titanium Solutions letter also requested personal financial information and also offered to assist Gburek to find a way to avoid foreclosure. Gburek filed a class action under the Fair Debt Collection Practices Act. She alleges that each of the communications to her, as well as the communication between Litton and Titanium Solutions, violated the Act. Judge Shadur (N.D. Ill.) dismissed the complaint for failure to state a claim, concluding that the communications were not made "in connection with the collection of any debt" as required by the Act. Gburek appeals.

In their opinion, Judges Bauer, Flaum, and Sykes reversed and remanded. The Court noted that there are two threshold requirements for the FDCPA to apply. The first, that the defendant is a "debt collector," is conceded. The second, whether the communication at issue was "made in connection with the collection of any debt," is the issue on appeal. The Court looked to three of its prior decisions for guidance -- Bailey, Horkey, and Ruth. Bailey concluded that a communication was not "made in connection" because the debtor was not in default, any threats contained in the letter were prospective, and the communication contained no payment demand. The lack of payment demand was simply one factor in the analysis. Horkey concluded that the act did apply, even without an explicit demand for payment, when the reason for the communication was to induce the debtor to settle the debt. Finally, Ruth concluded that the Act applied to a privacy notice that was sent with a collection letter. The Court focused on the relationship between the parties and the fact that the communications were sent together. Thus, the Court emphasized that there is no bright line rule with respect to a demand requirement. Several factors are relevant in the analysis -- whether there is an explicit payment demand, the purpose and context of the communications, and the relationship between the parties. The Court applied the principles to each of the three communications at issue to determine whether the allegations were sufficient to survive the motion to dismiss. With respect to each of the letters sent to Gburek, the Court found that their context and content brought them within the Act. Gburek was in default and both letters sought financial information and her cooperation in discussing alternatives to foreclosure. The communication between Litton and Titanium Solutions is likewise "made in connection." It is clear that Litton engaged Titanium Solutions for the sole purpose of assisting it in collecting the debt. The Court declined to address any of the substantive issues with respect to the alleged violations in that they were not adequately developed on appeal.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

DEKOVEN v. PLAZA ASSOCIATES (March 17, 2010)

Plaza Associates is a well-known debt collection agency. It sent two collection letters to DeKoven stating that it had the authority to offer a lump-sum settlement but that the offer would only be "valid for a period of thirty-five (35) days." In a different letter to a plaintiff in a related suit, Plaza Associates included the DeKoven statement and also stated that a recipient who disputed the validity of the debt with "satisfactory proof" should provide that information to Plaza. The plaintiffs filed suit under the Fair Debt Collection Practices Act. They complained about the "35 day" language and the "satisfactory proof" language. The former, they complain, might be construed by some as a final offer -- when in fact it is not. The latter, they complain, might be construed by some that a recipient must have "proof" to dispute the validity of the debt. Both plaintiffs retained the same survey expert. The expert conducted a survey but the judges in both cases considered it inadmissible. In both cases, the court below entered summary judgment for Plaza Associates. In both cases, the plaintiff appeals.

In their opinion, Judges Posner, Flaum, and Williams affirmed. The Court reviewed the circumstances of the survey. The expert surveyed 160 people in a shopping mall near Chicago. One half of the people were given the letter with both challenged clauses -- the others (the “control group”) were shown a letter with neither clause. The survey respondents were then asked a series of questions about the letters. The Court agreed with the district court in finding numerous flaws in the survey: the composition of the response group, the content of the original oral questions, and the content of the "control group" letter, among others. The Court noted that many Fair Debt Collection Practices Act cases fail because of survey flaws. It suggested that district courts consider exercising their authority to use a court-appointed expert in FDCPA cases.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

RUTH v. TRIUMPH PARTNERSHIPS (August 17, 2009)

Triumph Partnerships purchases defaulted debt. Its sister company, Triumph Asset Services ("TAS"), is a debt collection agency. In early 2006, TAS sent letters out to a number of individuals who owed debts purchased by Triumph. The letter notified the recipient that Triumph had purchased the debt and that TAS was attempting to collect it. Sent with the notice was a separate document from Triumph stating that it collected and could share certain information about the debtor. It also provided an opportunity for the debtor to “opt out,” or instruct Triumph not to share certain information. Alice Ruth was one of the recipients of the letter. Ruth brought a class action against Triumph and TAS, alleging that the mailing violated the Fair Debt Collection Practices Act ("FDCPA") in that it made a false statement in connection with the collection of a debt and threatened to take illegal action. The district court granted summary judgment to the defendants, concluding that Ruth was required to present extrinsic evidence to prove that an unsophisticated debtor would consider the notice a communication in connection with the collection of a debt and would view it as a threat to take illegal action. Ruth appeals.

In their opinion, Judges Ripple, Sykes and Lawrence reversed and remanded. The Court first addressed Triumph's argument that it was not a "debt collector" and therefore not subject to the FDCPA. Citing its recent McKinney decision, the Court rejected that argument. Under McKinney (see my earlier post), the FDCPA status of a party that attempts to collect a debt that it acquired from another party depends on whether the debt was in default at the time it was acquired. Since the debts here were in default at the time they were acquired by Triumph, Triumph is a debt collector. The Court moved to the heart of the matter -- whether the mailing violated the FDCPA as a matter of law. The FDCPA violation has two elements -- the notice had to be sent "in connection with the collection of any debt" and the notice had to be false, misleading or had to threaten to take an illegal action. With respect to the "in connection with" element, the Court concluded, in a matter of first impression, that the standard is an objective one and need not be proven by extrinsic evidence. On the facts of the case, the Court stated that any reasonable fact finder would conclude that the notice was sent in connection with the attempt to collect a debt. With respect to the false/deceptive/illegal action element, the Court stated that Ruth must do more than prove a false statement -- she must prove that the statement would mislead or deceive an unsophisticated consumer. She need not, however, offer extrinsic evidence on that point in every case. Extrinsic evidence is required in those situations where the statement is possibly misleading or deceptive. Here, the Court concluded that a consumer could reach only one reasonable conclusion -- that the defendants claimed a right to disclose certain information. Since the defendants conceded that such a sharing, without consent, would have violated the FDCPA, the notice was an illegal threat as a matter of law. Finally, the Court had to address defendants' bona fide error defense. That defense protects a debt collector from liability when a violation is unintentional, is the result of a bona fide error and occurs notwithstanding the defendant's maintenance of reasonable procedures to avoid the error. That Court concluded that the defense is available for errors of law, if at all, when the debt collector relies on the opinion of an attorney or other expert in the field. Although Triumph claimed it relied on a pamphlet prepared by an attorney, the Court concluded that that was well short of the "reasonable procedures" required by the FDCPA.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

SCHLACHER v. LAW OFFICES OF PHILLIP J. ROTCHE AND ASSOCIATES (August 3, 2009)

Jean Schlacher got a root canal but fell behind in payments to her dentist. Her dentist obtained a judgment against her. Again, Schlacher fell behind on her payments on the judgment. The debt-collection law firm representing the dentist became quite abusive and threatening. Jean sought legal advice. Unfortunately, due to various lawyers' schedules and skill sets, she ended up with four different lawyers assisting her in her Fair Debt Collection Practices Act ("FDCPA") suit against the law firm. Fortunately, the suit was resolved in a short time, before any discovery, for a total of $6,500. Unfortunately, the parties were unable to agree on a fee award. The plaintiff petitioned for fees in excess of $12,000. The defendants objected to the attorneys’ hours and rates. The court awarded $6,500 in fees. Schlacher appeals.

In their opinion, Judges Rovner, Wood and Williams affirmed. The Court first rejected the plaintiff’s argument that the district court abused its discretion in awarding an amount in fees equal to the amount of the judgment. The Court explained that the district court reduced the requested amount because of its view that the work of the four attorneys was duplicative and excessive. The fact that the court noticed a coincidence that the amount of the fee equaled the amount of the judgment is irrelevant. The Court also rejected the argument that the lower court's fee award was an abuse of discretion because of its lack of specific findings and calculations. When a fee award is substantial, the Court cautioned that a district court must be precise in its calculations. Here, when the amount is not substantial, less precision is required. The court questioned the hourly rates for several of the attorneys because of their lack of experience in FDCPA cases, noted the lack of complexity in the case, and believed that one attorney would have been sufficient. That explanation is sufficient to sustain the award.

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

MUHA v. ENCORE RECEIVABLE MANAGEMENT, INC. (March 10, 2009)

Charlotte Muha, representing a class of credit card debtors, brought an action under the Fair Debt Collection Practices Act ("FDCPA") against Encore Receivable Management, Inc. The complaint alleged that Encore violated the FDCPA by stating, in a debt collection letter, that "your original agreement with the above mentioned creditor has been revoked." Plaintiffs allege that that statement is false. The plaintiffs also claim that the statement is misleading and confusing and sought to introduce a survey to support that allegation. The lower court excluded the survey and granted summary judgment to Encore. Plaintiffs appeal.

In their opinion, Judges Posner, Kanne and Tinder affirmed in part, reversed in part and remanded. The Court first upheld the lower court's exclusion of the survey. It concluded that the survey was improper both because the questions and answers were leading and because there was no control group that was shown the letter without the language in question. Notwithstanding the exclusion of the survey (and notwithstanding the admission at oral argument that plaintiffs could not prove damages without the survey), the Court held that plaintiffs could be entitled to statutory damages. The plaintiffs have the burden of proving that the statement was misleading. Although a survey may be the best evidence of that, is not the only potential evidence. The recipients of the letter itself may testify, allowing the judge to infer that the letter is misleading within the meaning of the FDCPA. The Court then addressed the merits of the falsity argument. The issue, it stated, was not the falsity of the statement. The Court concluded that the statement obviously meant that the credit card privileges of the recipient have been revoked. Nevertheless, the plaintiffs are entitled to attempt to prove that the statement is misleading. The Court found that the statement was confusing and noted that confusing language can have an intimidating effect on an unsophisticated consumer. It did not think the evidence was so clear on that point so as to entitle the plaintiff to summary judgment, however. It reversed and remanded for further proceedings. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

HAHN v. TRIUMPH PARTNERSHIPS LLC (March 4, 2009)

Triumph Partnerships acquired some overdue credit card debt from a bank, including a debt owed by Marylou Hahn. Triumph sent a letter to Hahn, stating that she had an "amount due" of $1051.91 and that she had "interest due" of $82.64. Hahn filed suit under the Fair Debt Collection Practices Act. Hahn alleged, and Triumph conceded, that the $82.64 represented the interest that had accrued only since Triumph acquired the debt. The $1051.91 included interest that had accrued prior to Triumph's acquisition of the debt. Hahn alleged, therefore, that the statement was a false representation of the debt and prohibited by the Fair Debt Collection Practices Act. The District Court granted summary judgment to Triumph. Hahn appeals.

In their opinion, Chief Judge Easterbrook and Judges Flaum and Manion affirmed. The Court concluded that the letter contained no false representation. It held that an “amount” that is due can include principle, interest and other components. The Court specifically pointed out that the letter did not assert that the $82.64 was the totality of the interest that had accrued on the debt since its inception. Since the statement was not false, the Court held that it does not violate the Fair Debt Collection Practices Act. Alternatively, the court affirmed on the ground that the statement was immaterial. The Court held that materiality is an element in a §1692e action. Since the letter accurately reported the debt and accurately computed the debt, whether it segregated the post-acquisition interest was immaterial. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

WAHL v. MIDLAND CREDIT MANAGEMENT, INC. (February 23, 2009)

Barbara Wahl accumulated a small balance on her credit card. When she stopped using it, the balance was less than $100. Unfortunately, Wahl incurred some huge medical bills and never paid off the credit card. By the time the card issuer turned it over to Midland Credit Management, Inc. (“Midland”) in 2005 for collection, the balance (with interest and late fees) had risen to $1149.09. In February 2005, Midland sent a letter to Wahl and offered to settle for a 25% discount. When Wahl did not accept the offer, Midland sent letters again in April and August. In each of those letters, Midland included an itemization of the amount owed. In each, it referred to the $1149.09 as the “principal balance” and the rest as “accrued interest.” Wahl filed a class action under the Fair Debt Collection Practices Act (“FDCPA”). She alleged that Midland’s inclusion of interest charged by the card issuer before the debt was purchased by Midland as part of the stated “principal balance” was false and a violation of the FDCPA. The district court certified the class and granted summary judgment to Midland. Wahl appeals.

In their opinion, Judges Bauer, Evans and Williams affirmed. The Court first took issue with Wahl’s assertion of law that a collection letter which is false, even if not deceptive, is a FDCPA violation. The Court stated that a collection letter does not violate the FDCPA unless it would confuse the unsophisticated consumer – even if is false. The Court went further, though. It determined that the letters were not false. Since Midland had acquired the debt from the issuer, the Court decided that the $1140.09 was all “principal” from Midland’s perspective. Finally, the Court applied the unsophisticated consumer test and found that there was “no way” that the language of the letter could be confusing.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

SEEGER v. AFNI, INC. (December 8, 2008)

AFNI is a debt collector. Cingular is (or was) a cellular telephone service provider. Cingular contracts with individuals to provide telephone service. It typically includes in its contracts a provision that its customer is obligated to pay the fees of a collection agency and other costs Cingular incurs in enforcing its rights under the contracts. In 2004-05, Cingular sold some delinquent customer accounts to AFNI. AFNI sent collection letters to plaintiff Seeger and others. The letters stated that the recipient was responsible for collection fees. In 2005, Seeger and other plaintiffs filed suit. They alleged that AFNI’s actions violated the Fair Debt Collection Practices Act (“FDCPA”) and the Wisconsin Consumer Act (“WCA”). The district court certified a class and granted summary judgment to the class. It held that AFNI’s action violated both the FDCPA and WCA because the owner of a debt is not allowed to impose a collection fee for its own benefit (as opposed to that it pays a third-party collector). AFNI appeals.

In their opinion, Judges Bauer, Cudahy and Wood affirmed. The Court agreed that AFNI could prevail if the fee was allowed either by the contract or by Wisconsin law. It turned first to the law. Wisconsin does permit recovery of losses that are the natural and probable result of a breach of contract. The Court noted, however, that the record was silent on the issue of AFNI’s cost of debt collection and could not support a characterization of the fee as a form of allowable damages. Turning to the contracts, the Court agreed with the court below that the contracts allowed Cingular only to collect fees it “incurred” in collecting a debt. The way the parties structured their arrangement, neither Cingular nor AFNI “incurred” any collection fees. Finally, the Court addressed AFNI’s argument that it was entitled to the bona fide defense in the FDCPA. The Court identified a growing split in the circuits on the issue of whether the bona fide defense applies to mistakes of law. It did not express an opinion on that issue, however. Rather. it decided that AFNI did not maintain reasonable procedures to prevent the error, which is an element of the defense.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

KELLEY v. MED-1 SOLUTIONS  (November 25, 2008)

Brian Kelley received medical treatment at St. Vincent Carmel Hospital (“St. Vincent”). When Kelley failed to pay for the services, St. Vincent hired Med-1 Solutions, LLC (“Med-1”) to collect the amounts due. Although St. Vincent always owned the debt, it gave Med-1 the right to collect it. Med-1 sued Kelley in an Indiana small claims court. It attached documents to the small claims court form which indicated that the debt was owed to St. Vincent. Med-1 also attached Kelley’s financial responsibility form he had signed prior to receiving medical treatment. That form provided for payment of “reasonable attorney fees” if the debt was assigned to a collection agency. St. Vincent paid Med-1’s fees and costs and a percentage of the amount collected. Med-1’s in-house attorneys received a percentage of the attorney fees collected by Med-1. Med-1 obtained a judgment against Kelley for $892.09. Kelley and several others in a similar situation brought suit against Med-1, its owner, and its in-house attorneys. Plaintiffs alleged violations of the Fair Debt Collection Practices Act (“FDCPA”), claiming that Med-1 was not entitled to attorney fees and that its claims that it was were false and deceptive. The district court dismissed the complaint. Plaintiffs appeal.

In their opinion, Judges Bauer, Flaum and Williams affirmed. The issue before the Court was whether the case was controlled by the Rooker-Feldman doctrine. That doctrine, taken from two Supreme Court decisions, Rooker v. Fidelity Trust Co. and District of Columbia Court of Appeals v. Feldman, prohibits a lower federal court review of a decision of a state court. Plaintiffs attempted to avoid the application of Rooker-Feldman by characterizing their complaint as one attacking defendants’ representations and requests for attorneys fees, not the actual state court judgment awarding the fees. The Court did not accept the distinction. It concluded that if it found that defendants were not entitled to fees and therefore violated the FDCPA, it was also determining that the state court judgments were in error. The Court next addressed the “reasonable opportunity” exception to the Rooker-Feldman doctrine. Plaintiffs contended that they were unable to raise their FDCPA claims in the Indiana small claims venue. The Court disagreed. The plaintiffs could have transferred their case out of the small claims venue and litigated their FDCPA claims. The Court concluded that plaintiffs had a “reasonable opportunity” to litigate their claims and their complaint was properly dismissed. In addition, the Court questioned the continued viability of the “reasonable opportunity” exception since the Supreme Court’s decision in Exxon Mobil Corp. v. Saudi Basic Industries.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

MCKINNEY v. CADLEWAY PROPERTIES, INC. (November 13, 2008)

Versia McKinney’s sewer backed up in her Chicago home in 1996 and caused substantial damage. McKinney took out a disaster assistance loan of $5200 from the Small Business Administration (“SBA”). At some point, McKinney stopped making payments on the loan. The SBA sold the loan. It eventually was sold to Cadleway Properties, Inc. (“Cadleway”). Cadleway sent McKinney a letter in September 2004. The letter informed McKinney that Cadleway had purchased the debt and that McKinney should make payments to Cadleway. The back of the letter contained a “Validation of Debt Notice” intended to comply with the Fair Debt Collection Practices Act (the “Act”). The notice stated that: a) McKinney owed $4,370.02, b) McKinney had 30 days to tell Cadleway that she disputed the debt, and c) Cadleway would assume the debt was valid if McKinney did not so dispute. At the bottom of the form, McKinney was asked to confirm the amount of the balance as stated by Cadleway or to state what she believed to be the correct balance. McKinney filed an action against Cadleway alleging that the notice letter violated the Act. She only sought statutory damages and attorney’s fees. The court below held that: a) the obligation was a “debt” under the Act, b) Cadleway was a “debt collector” under the Act, and c) the notice letter was confusing on its face to an unsophisticated consumer and therefore in violation of the Act. The court granted summary judgment to McKinney. Cadleway appeals.

In their opinion, Judges Manion (concurring in part and concurring in the judgment), Rovner (concurring in part, dissenting in part), and Sykes reversed and remanded. The Court stated that the purpose of the Act was to protect consumers from deceptive and unfair debt collection practices. It applies only to “debt collectors,” as that term is defined in the Act. The substantive section relevant to McKinney’s complaint is the requirement that a debt collector notify a consumer of her right to dispute the validity of, and receive a verification of, the debt. The Court first addressed Cadleway’s status as a “debt collector.” The majority on that issue (Sykes and Rovner) relied on the language of the Act and the Court’s prior decision in Schlosser to hold that Cadleway was a debt collector. The Court stated that the terms “debt collector” and “creditor” in the Act are mutually exclusive. The determinative factor in deciding which term applies to Cadleway is whether the debt was in default at the time Cadleway acquired it. Since McKinney’s debt was in default, Cadleway was a debt collector. With respect to the notice, the majority on that issue (Sykes and Manion) stated that the Act requires the debt collector to provide an initial communication with certain disclosures to the consumer. The Act requires no particular form but the disclosures must not be confusing to the “unsophisticated consumer.” Normally, the majority noted, the plaintiff would bring forth evidence of confusion. Here, McKinney introduced no extrinsic evidence of confusion. In fact, McKinney testified that she herself was not confused by the notice. The majority conceded that a notice letter could be so clearly confusing on its face that summary judgment could be granted. However, it did not believe that McKinney’s notice was such a case. The Court specifically addressed the balance confirmation request that the district court had found to be confusing. The majority found the notice to be clear. It simply asked McKinney to confirm the amount of the debt or dispute it. The notice complied with the Act. The Court remanded with instructions to enter judgment for Cadleway.

Judge Manion concurred in part and concurred in the judgment. Judge Manion agreed with the Court’s opinion on the validity of the notice letter. He noted that, given the outcome on that issue, the Court need not have resolved the “debt collector” issue. Having done so, however, Judge Manion wrote to express his disagreement with the resolution of that issue. The exclusionary language in the definition of “creditor” and the definition of “debt collector” in the Act refer to a person who collects a debt “for another” or “due another,” respectively. Cadleway was not collecting the debt for another. Cadleway purchased the debt and was collecting it for its own account. Judge Manion conceded that Schlosser held that the person holding the debt was a “debt collector” in similar circumstances. He pointed out, however, that the issue of collecting for another never came up. Judge Manion would not have been found Cadleway to be a “debt collector.”

Judge Rovner also wrote separately, concurring in part and dissenting in part. Judge Rovner concurred with the majority’s resolution of the “debt collector” issue without additional comment. She disagreed with the resolution of the validity of the notice letter, however. Judge Rovner found the letter “clearly confusing” on its face. She focused solely on the balance confirmation request section. Judge Rovner found the paragraph confusing, particularly to a consumer who may believe she owes something but has no records or other way of computing a different amount. The letter implies that the confirmation is obligatory, and also implies that failure to do so will damage one’s credit rating. Under the terms of the Act, the creditor can simply respond that she disputes the debt collector’s proffered total. Judge Rovner found the letter different from, and at least to some degree contrary to, the terms of the Act and therefore a violation of the Act.

• Email This
• Print
• Comments
• Trackbacks
• Share Link