Consumers and their counsel often argue that a debt collector has not properly “verified” a debt under section 1692g(b) of the FDCPA unless the collector has provided the consumer with detailed evidence of the debt, like a signed contract, charge slips, monthly account statements or other documentary evidence showing the details of the debt. But this is not what the law requires. The standard for debt validation is actually very minimal. A collector can discharge its duty to verify a debt simply by sending the debtor a written notice confirming that the amount the collector is demanding is what the creditor claims is owed. Nothing further is required.
The FDCPA provides that when a collector receives a written request for verification of the debt within thirty days of the date the consumer receives the section 1692g notice, the collector must stop further collection efforts until verification of the debt is mailed to the consumer. Section 1692g(b) of the FDCPA provides in relevant part as follows: “[T]he 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, . . . and a copy of such verification or judgment, . . . is mailed to the consumer by the debt collector.” See 15 U.S.C. § 1692g(b).
The statute does not define the term “verification of the debt” and this can leave collectors wondering about exactly what is required of them. The circuit courts that have addressed this issue have held that a collector can satisfy its duty to verify the debt under section 1692g(b) of the FDCPA by providing the debtor written confirmation of the amount that the creditor claims is owed. See Clark v. Capital Credit & Collection Services, Inc., 460 F. 3d 1162, 1173-1174 (9th Cir. 2006); Chaudhry v. Gallerizzo, 174 F.3d 394, 406 (4th Cir. 1999).
As the Chaudhry court observed, Congress did not implement the verification requirements of section 1692g(b) as a mechanism to allow consumers to demand that collectors provide them detailed evidence of the debt. The goal of section 1692g(b) was much more modest:
Consistent with the legislative history, verification is only intended to eliminate the ... problem of debt collectors dunning the wrong person or attempting to collect debts which the consumer has already paid. (Citation). There is no concomitant obligation to forward copies of bills or other detailed evidence of the debt.
See Chaudhry, 174 F. 3d at 406. In Clark, the Ninth Circuit followed Chaudhry, and rejected the consumer’s argument that in order to verify a debt, a collector must provide copies of bills or other detailed evidence. The Clark court stated:
[V]erification of a debt involves nothing more than the debt collector confirming in writing that the amount being demanded is what the creditor is claiming is owed.
See Clark, 460 F.3d at 1173-74 (citations omitted).
Collectors may find that providing consumers with further documentation of the debt, beyond the minimum verification requirements, will assist them in their collection efforts. But their failure to do so will not run afoul of section 1692g(b) of the FDCPA.
Tuesday, March 30, 2010
Wednesday, March 24, 2010
Why Foti Raises Serious Problems Under The First Amendment
I. Introduction
In Foti v. NCO Financial Systems, Inc., 424 F. Supp. 2d 643 (S.D.N.Y. 2006) (“Foti”), the District Court for the Southern District of New York held that if a debt collector leaves a message on a debtor’s answering machine that merely invites a return phone call, the message amounts to a “communication” within the meaning of the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seq. (the “FDCPA” or the “Act”). The court also held that the voicemail message must state it is from a “debt collector” in order to comply with section 1692e(11) of the Act. See Foti, 424 F. Supp. 2d at 669.
The FDCPA was designed to protect a debtor’s privacy, however, so the Act generally prohibits collectors from communicating information about a debt to third parties. See, e.g., 15 U.S.C. § 1692c(b). Given that parties other than the debtor (such as a roommate, parent or guest) may retrieve or hear a collector’s voice mail message, any message which states that it is from a “debt collector” necessarily puts the collector at risk of violating the prohibition on third party disclosure set forth in section 1692c(b) of the Act.
The Foti court was wrong. A debt collector’s use of a truthful, non-threatening voicemail message that requests a return phone call constitutes a valid form of commercial speech, and is therefore entitled to protection under the First Amendment. By holding that such a message is a “communication” under the FDCPA, the Foti court interpreted the Act in a manner that unreasonably restricts valid commercial speech. Given the Supreme Court’s express prohibition on interpreting any statute in a manner that raises serious constitutional problems (see Debartolo v. Florida Gulf Coast Build. & Constr. Trades Council, 485 U.S. 568, 575 (1988)), the holding of Foti must be rejected.
II. A Collector’s Voicemail Messages Is Valid Commercial Speech
In Foti, the collector left a message on the debtor’s answering machine that stated:
Good day, we are calling from NCO Financial Systems regarding a personal business matter that requires your immediate attention. Please call back 1-866-701-1275 once again please call back, toll-free, 1-866-701-1275, this is not a solicitation.
See Foti, 424 F. Supp. 2d at 648.
The message was valid commercial speech. The Supreme Court has defined commercial speech as any “expression related solely to the economic interests of the speaker and its audience.” See Central Hudson v. Public Serv. Comm. Of New York, 447 U.S. 557, 562 (1980). Debt collectors generally act on behalf of creditors who have an existing economic relationship with the debtor, or on behalf of entities who purchase delinquent accounts after they have gone into default. When a collector leaves a message for a debtor requesting a return call, that message is a form of expression that relates to the parties’ economic interests.
It is true that commercial speech is entitled to less protection than other forms of expression. No regulation that restricts commercial speech can survive, however, unless it directly advances a substantial governmental interest and is not more extensive than necessary to serve that interest.
The holding that the message in Foti was a “communication” under the FDCPA places an unreasonable restraint a collector’s lawful commercial speech.
III. The Foti Decision Improperly Construes The FDCPA In A Manner That Prohibits Or Unreasonably Restricts Valid Commercial Speech
Statutes should not be construed in a manner that will raise serious constitutional problems. A “cardinal principle” of statutory construction is that “where an otherwise acceptable construction of a statute would raise serious constitutional problems, the Court will construe the statute to avoid such problems unless such construction is plainly contrary to the intent of Congress.” See Debartolo v. Florida Gulf Coast Build. & Constr. Trades Council, 485 U.S. 568, 575 (1988) (citing N.L.R.B. v. Catholic Bishop of Chicago, 440 U.S. 490, 499-501, 504 (1979). This rule, which is sometimes referred to as the “canon of constitutional avoidance,” has been described as “a tool for choosing between competing plausible interpretations of a statutory text, resting on the reasonable presumption that Congress did not intend the alternative which raises serious constitutional doubts.” See Clark v. Martinez, 543 U.S. 371, 381 (2005).
Thus, in Debartolo, when a proposed interpretation of a provision of the National Labor Relations Act would have prohibiting peaceful handbilling, thereby raising serious First Amendment issues, the Court concluded that “we must independently inquire whether there is another interpretation, not raising these serious constitutional concerns, that may fairly be ascribed to” the statute. See Debartolo, 485 U.S. at 577. After concluding the statute was “open to a construction that obviates deciding” the constitutional issues, and finding no “clear indication” in the legislative history that Congress intended to prohibit the peaceful handbilling at issue, the Court affirmed the lower court’s reversal of the NLRB’s ruling. Id. at 578, 583-88.
The Foti court erred by interpreting the definition of a “communication” under the FDCPA in a manner that raises serious constitution problems. Foti held that 1) a voicemail message that does not mention a debt but simply invites a return call from a debtor is a “communication” within the meaning of section 1692a(2) of the FDCPA, and 2) that such a message must state that it is from a “debt collector” under section 1692e(11) of the Act. See Foti, 424 F. Supp. 2d at 665-66, 669. But the voicemail message in Foti was not a “communication” because it did not convey “information regarding a debt directly or indirectly to any person.” See 15 U.S.C. § 1692a(2) (defining “communication”) (emphasis supplied). Since no information “regarding a debt” was conveyed by the message, there was no “communication.” Further, a voicemail message cannot recite that it is from a “debt collector” without risking a violation of the Act’s prohibition on third party disclosure. See 15 U. S. C. § 1692c(2). By interpreting the Act in this manner, the Foti court imposed an unreasonable restraint on the use of voicemail messages.
The Foti court should not have construed the FDCPA in a way that effectively bans truthful, non-threatening voicemail messages, unless the court found a “clear expression of an affirmative intention of Congress” to do so. See Catholic Bishop, 440 U.S. at 504. Nothing in the plain language of the FDCPA or its legislative history suggests that Congress intended this result.
The FDCPA was passed by Congress in 1977 in an effort to protect consumers from threats, harassment, abuse and other deceptive practices that might be utilized by unscrupulous debt collectors. See 15 U.S.C. § 1692. The legislative history that the objective of the Act was to eliminate debt collection practices such as:
threats of violence; obscene language; the publishing of 'shame lists;' harassing or anonymous telephone calls; impersonating a government official or attorney; misrepresenting the consumer's legal rights; simulating court process; obtaining information under false pretenses; collecting more than is legally owing; and misusing postdated checks.
See Sen. Rep. No. 382, 95th Cong. 2d Sess. 4, reprinted in 1977 U.S.C.C.A.N. 1695, 1698 (internal quotation marks omitted).
Congress also took great pains to design a regulatory scheme that would do more to protect the consumer’s privacy during the collection process. See 15 U.S.C. § 1692(a) (“Abusive debt collection practices contribute to . . . invasions of individual privacy.”). With very limited exceptions, collectors are prohibited from disclosing the existence of a debt to any third parties. Id. § 1692c(b). Although collectors may contact third parties to obtain certain location information, collectors must carefully avoid disclosing the existence of the debt during that process. Id. § 1692b. Collectors may not publish lists of consumers with unpaid debts. Id. § 1692d(3). To avoid third party disclosure, collectors may not communicate about a debt by post card, nor may they use language on an envelope which indicates a collection letter is enclosed. Id. §§ 1692f(7), 1692f(8).
Thus, the focus of the Act is the prevention of harassment and abuse and the protection of consumer privacy. Nothing in the Act or its legislative history evinces a Congressional intent to regulate voicemail messages that merely seek a return call from a debtor. Rather, as the Ninth Circuit recently observed,
The purpose of the FDCPA is to protect vulnerable and unsophisticated debtors from abuse, harassment and deceptive collection practices. . . . Congress was concerned with disruptive, threatening, and dishonest tactics. The Senate Report accompanying the Act cites practices such as ‘threats of violence, telephone calls at unreasonable hours [and] misrepresentation of consumer’s legal rights.’ (Citation). In other words, Congress seems to have contemplated the type of actions that would intimidate unsophisticated individuals and which, in the words of the Seventh Circuit, ‘would likely disrupt a debtor’s life.’ (Citation).
Guerrero v. RJM Acquisitions LLC, 499 F.3d 926, 938-39 (9th Cir. 2007) (emphasis added). Congress specifically stated that one purpose of the Act was to “insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged . . . .” See 15 U.S.C. § 1692.
The most reasonable interpretation of the FDCPA – and the one which avoids the serious constitutional problems raised by Foti – is that the voicemail message at issue in Foti did not convey any “information regarding a debt directly or indirectly to any person” (see 15 U.S.C. § 1692a(2)), and therefore was not a “communication” within the meaning of the FDCPA.
The Foti court suggested that if the collector’s voicemail message was not considered a “communication” under the FDCPA, this might “create a significant loophole” that could undermine the protections afforded by the Act. See Foti, 424 F. Supp. 2d at 657. But no such “loophole” exists. The message itself does not harm the debtor, and the debtor can elect not to return the call. If the debtor returns the call and an actual “communication” occurs, the collector would be obliged to comply with all provisions of the Act, including disclosing that it is a “debt collector” consistent with section 1692e(11).
The “loophole” theory also ignores the other sections of the Act which protect the debtor. The collector cannot cause a phone to ring repeatedly or continuously with the intent to harass or annoy any person. See 15 U.S.C. § 1692d(5). The collector cannot utilize any false, deceptive, or misleading representation or means to collect a debt, nor can it employ any unfair or unconscionable means to collect. See 15 U.S.C. §§ 1692e, 1692f. A debtor retains the power to stop all communications from a collector by informing the collector in writing that the debtor refuses to pay the debt, or that the debtor wishes the collector to cease further communications. See 15 U.S.C. § 1692c(c).
IV. Conclusion
Debt collectors engage in protected commercial speech when they leave truthful, non-threatening voicemail messages that simply invite a return phone call from the debtor. Such messages do not constitute “communications” under the FDCPA because they do not convey information “regarding a debt” to anyone. By ruling that such messages constitute “communications” and therefore must recite that they are from “debt collectors,” the Foti court put all collectors who leave messages at risk of violating the Act’s third party disclosure requirements, thereby placing an unreasonable restriction on valid commercial speech. The Foti court violated the Supreme Court’s holding in Debartolo by construing the FDCPA in a manner that raises serious constitutional problems under the First Amendment.
Endnotes:
1. The Act defines a “communication” as follows: “The term ‘communication’ means the conveying of information regarding a debt directly or indirectly to any person through any medium.” See 15 U.S.C. § 1692a(2).
2. Since the Foti decision issued, numerous other court have reached similar conclusions. See, e.g., Baker v. Allstate Fin. Srvs., Inc., 554 F. Supp. 2d 945 (D. Minn. 2008);Anchondo v. Anderson, Crenshaw & Assocs., 583 F.Supp.2d 1278, 1281-82 (D.N.M. 2008);Edwards v. Niagara Credit Solutions, Inc., 586 F.Supp.2d 1346, 1351-53 (N.D. Ga. 2008), aff’d on other grounds, 584 F. 3d 1350 (2009); Ramirez v. Apex Fin. Mgmt., LLC, 567 F.Supp.2d 1035, 1041(N.D. Ill. 2008).
3. There are certain limited exceptions to the prohibition on third party disclosure, which are not relevant here. See, e.g., 15 U.S.C. §§ 1692b, 1692c(b).
4. For example, in Berg v. Merchs. Ass’n Collection Div., 586 F. Supp. 2d 1336 (S.D. Fla. 2008), the defendant left a message on the plaintiff’s voice mail machine which stated that it was “an attempt to collect a debt.” Id. at 1339. The debtor sued under section 1692c(b) of the FDCPA, alleging the message was overheard by his father, step-mother, step-mother’s ex-spouse, girlfriend and neighbor. Id. Even though the collector had attempted to prevent disclosure, by warning any third parties to stop listening, the court refused to grant the collector’s motion to dismiss. Id. at 1441-44.
5. Although the voicemail message left by the collector in Foti was a form of expression that related to the economic interest of the parties and was therefore entitled to First Amendment protection, as discussed herein, that message did not communicate any information directly or indirectly “regarding a debt” to anyone, and the Foti court therefore erred when it held the message was a “communication” within the meaning of section 1692a(2) of the Act.
6. The existence of this business relationship with the debtor is also a significant factor in distinguishing Foti from the facts presented by Mainstream Marketing Services, Inc. v. FTC, 358 F. 3d 1228 (10th Cir. 2004). Mainstream Marketing upheld a ban on most telemarketing calls made to consumers who had registered their phone numbers on the national “do-not-call” registry, noting that “individuals are not required to welcome unwanted speech into their own homes . . .” Id. at 1237-38, 1246. But the restrictions on “unsolicited calls from commercial telemarketers” at issue in Mainstream Marketing did not apply to companies with an “established business relationship” with the consumer. Id. at 1234 and n.7.
7. While the Supreme Court has noted that the Constitution “protects commercial speech from unwarranted governmental regulation,” the Court has also noted that the Constitution “accords a lesser protection to commercial speech than to other constitutionally guaranteed expression.” Central Hudson, 447 U. S. at 563.
8. The Court in Central Hudson articulated the test as follows: “At the outset, we must determine whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, we ask whether the asserted governmental interest is substantial. If both inquiries yield positive answers, we must determine whether the regulation directly advances the governmental interest asserted, and whether it is not more extensive than is necessary to serve that interest.” Central Hudson, 447 U.S. at 566.
9. See also Solid Waste Agency of Northern Cook County v. Un. St. Army Corps of Engrs, 531 U.S. 159, 172-74 (2001) (rejecting interpretation of Clean Water Act that would raise “serious constitutional issues” relating to the reach of the Commerce Clause); Jones v. United States, 590 U.S. 848, 857-58 (rejecting interpretation of federal arson statute that raised serious constitutional issues regarding the scope of the Commerce Clause: “where a statute is susceptible of two constructions, by one of which grave and doubtful constitutional questions arise and by the other of which such questions are avoided, our duty is to adopt the latter. (citation)”).
10.Similarly, if a collector elected to leave a voicemail message that did convey information concerning the debt directly or indirectly, that message would constitute a “communication” and would need to comply with the statute.
11.The forgoing is provided for informational purposes only and should not be construed as legal advice given by the author or by Simmonds & Narita LLP. Transmission of this information is not intended to create an attorney-client relationship, nor should it be viewed as a substitute for obtaining legal advice from a licensed attorney. Parties should not rely upon the foregoing without first engaging their own legal counsel to obtain advice.
In Foti v. NCO Financial Systems, Inc., 424 F. Supp. 2d 643 (S.D.N.Y. 2006) (“Foti”), the District Court for the Southern District of New York held that if a debt collector leaves a message on a debtor’s answering machine that merely invites a return phone call, the message amounts to a “communication” within the meaning of the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692 et seq. (the “FDCPA” or the “Act”). The court also held that the voicemail message must state it is from a “debt collector” in order to comply with section 1692e(11) of the Act. See Foti, 424 F. Supp. 2d at 669.
The FDCPA was designed to protect a debtor’s privacy, however, so the Act generally prohibits collectors from communicating information about a debt to third parties. See, e.g., 15 U.S.C. § 1692c(b). Given that parties other than the debtor (such as a roommate, parent or guest) may retrieve or hear a collector’s voice mail message, any message which states that it is from a “debt collector” necessarily puts the collector at risk of violating the prohibition on third party disclosure set forth in section 1692c(b) of the Act.
The Foti court was wrong. A debt collector’s use of a truthful, non-threatening voicemail message that requests a return phone call constitutes a valid form of commercial speech, and is therefore entitled to protection under the First Amendment. By holding that such a message is a “communication” under the FDCPA, the Foti court interpreted the Act in a manner that unreasonably restricts valid commercial speech. Given the Supreme Court’s express prohibition on interpreting any statute in a manner that raises serious constitutional problems (see Debartolo v. Florida Gulf Coast Build. & Constr. Trades Council, 485 U.S. 568, 575 (1988)), the holding of Foti must be rejected.
II. A Collector’s Voicemail Messages Is Valid Commercial Speech
In Foti, the collector left a message on the debtor’s answering machine that stated:
Good day, we are calling from NCO Financial Systems regarding a personal business matter that requires your immediate attention. Please call back 1-866-701-1275 once again please call back, toll-free, 1-866-701-1275, this is not a solicitation.
See Foti, 424 F. Supp. 2d at 648.
The message was valid commercial speech. The Supreme Court has defined commercial speech as any “expression related solely to the economic interests of the speaker and its audience.” See Central Hudson v. Public Serv. Comm. Of New York, 447 U.S. 557, 562 (1980). Debt collectors generally act on behalf of creditors who have an existing economic relationship with the debtor, or on behalf of entities who purchase delinquent accounts after they have gone into default. When a collector leaves a message for a debtor requesting a return call, that message is a form of expression that relates to the parties’ economic interests.
It is true that commercial speech is entitled to less protection than other forms of expression. No regulation that restricts commercial speech can survive, however, unless it directly advances a substantial governmental interest and is not more extensive than necessary to serve that interest.
The holding that the message in Foti was a “communication” under the FDCPA places an unreasonable restraint a collector’s lawful commercial speech.
III. The Foti Decision Improperly Construes The FDCPA In A Manner That Prohibits Or Unreasonably Restricts Valid Commercial Speech
Statutes should not be construed in a manner that will raise serious constitutional problems. A “cardinal principle” of statutory construction is that “where an otherwise acceptable construction of a statute would raise serious constitutional problems, the Court will construe the statute to avoid such problems unless such construction is plainly contrary to the intent of Congress.” See Debartolo v. Florida Gulf Coast Build. & Constr. Trades Council, 485 U.S. 568, 575 (1988) (citing N.L.R.B. v. Catholic Bishop of Chicago, 440 U.S. 490, 499-501, 504 (1979). This rule, which is sometimes referred to as the “canon of constitutional avoidance,” has been described as “a tool for choosing between competing plausible interpretations of a statutory text, resting on the reasonable presumption that Congress did not intend the alternative which raises serious constitutional doubts.” See Clark v. Martinez, 543 U.S. 371, 381 (2005).
Thus, in Debartolo, when a proposed interpretation of a provision of the National Labor Relations Act would have prohibiting peaceful handbilling, thereby raising serious First Amendment issues, the Court concluded that “we must independently inquire whether there is another interpretation, not raising these serious constitutional concerns, that may fairly be ascribed to” the statute. See Debartolo, 485 U.S. at 577. After concluding the statute was “open to a construction that obviates deciding” the constitutional issues, and finding no “clear indication” in the legislative history that Congress intended to prohibit the peaceful handbilling at issue, the Court affirmed the lower court’s reversal of the NLRB’s ruling. Id. at 578, 583-88.
The Foti court erred by interpreting the definition of a “communication” under the FDCPA in a manner that raises serious constitution problems. Foti held that 1) a voicemail message that does not mention a debt but simply invites a return call from a debtor is a “communication” within the meaning of section 1692a(2) of the FDCPA, and 2) that such a message must state that it is from a “debt collector” under section 1692e(11) of the Act. See Foti, 424 F. Supp. 2d at 665-66, 669. But the voicemail message in Foti was not a “communication” because it did not convey “information regarding a debt directly or indirectly to any person.” See 15 U.S.C. § 1692a(2) (defining “communication”) (emphasis supplied). Since no information “regarding a debt” was conveyed by the message, there was no “communication.” Further, a voicemail message cannot recite that it is from a “debt collector” without risking a violation of the Act’s prohibition on third party disclosure. See 15 U. S. C. § 1692c(2). By interpreting the Act in this manner, the Foti court imposed an unreasonable restraint on the use of voicemail messages.
The Foti court should not have construed the FDCPA in a way that effectively bans truthful, non-threatening voicemail messages, unless the court found a “clear expression of an affirmative intention of Congress” to do so. See Catholic Bishop, 440 U.S. at 504. Nothing in the plain language of the FDCPA or its legislative history suggests that Congress intended this result.
The FDCPA was passed by Congress in 1977 in an effort to protect consumers from threats, harassment, abuse and other deceptive practices that might be utilized by unscrupulous debt collectors. See 15 U.S.C. § 1692. The legislative history that the objective of the Act was to eliminate debt collection practices such as:
threats of violence; obscene language; the publishing of 'shame lists;' harassing or anonymous telephone calls; impersonating a government official or attorney; misrepresenting the consumer's legal rights; simulating court process; obtaining information under false pretenses; collecting more than is legally owing; and misusing postdated checks.
See Sen. Rep. No. 382, 95th Cong. 2d Sess. 4, reprinted in 1977 U.S.C.C.A.N. 1695, 1698 (internal quotation marks omitted).
Congress also took great pains to design a regulatory scheme that would do more to protect the consumer’s privacy during the collection process. See 15 U.S.C. § 1692(a) (“Abusive debt collection practices contribute to . . . invasions of individual privacy.”). With very limited exceptions, collectors are prohibited from disclosing the existence of a debt to any third parties. Id. § 1692c(b). Although collectors may contact third parties to obtain certain location information, collectors must carefully avoid disclosing the existence of the debt during that process. Id. § 1692b. Collectors may not publish lists of consumers with unpaid debts. Id. § 1692d(3). To avoid third party disclosure, collectors may not communicate about a debt by post card, nor may they use language on an envelope which indicates a collection letter is enclosed. Id. §§ 1692f(7), 1692f(8).
Thus, the focus of the Act is the prevention of harassment and abuse and the protection of consumer privacy. Nothing in the Act or its legislative history evinces a Congressional intent to regulate voicemail messages that merely seek a return call from a debtor. Rather, as the Ninth Circuit recently observed,
The purpose of the FDCPA is to protect vulnerable and unsophisticated debtors from abuse, harassment and deceptive collection practices. . . . Congress was concerned with disruptive, threatening, and dishonest tactics. The Senate Report accompanying the Act cites practices such as ‘threats of violence, telephone calls at unreasonable hours [and] misrepresentation of consumer’s legal rights.’ (Citation). In other words, Congress seems to have contemplated the type of actions that would intimidate unsophisticated individuals and which, in the words of the Seventh Circuit, ‘would likely disrupt a debtor’s life.’ (Citation).
Guerrero v. RJM Acquisitions LLC, 499 F.3d 926, 938-39 (9th Cir. 2007) (emphasis added). Congress specifically stated that one purpose of the Act was to “insure that those debt collectors who refrain from using abusive debt collection practices are not competitively disadvantaged . . . .” See 15 U.S.C. § 1692.
The most reasonable interpretation of the FDCPA – and the one which avoids the serious constitutional problems raised by Foti – is that the voicemail message at issue in Foti did not convey any “information regarding a debt directly or indirectly to any person” (see 15 U.S.C. § 1692a(2)), and therefore was not a “communication” within the meaning of the FDCPA.
The Foti court suggested that if the collector’s voicemail message was not considered a “communication” under the FDCPA, this might “create a significant loophole” that could undermine the protections afforded by the Act. See Foti, 424 F. Supp. 2d at 657. But no such “loophole” exists. The message itself does not harm the debtor, and the debtor can elect not to return the call. If the debtor returns the call and an actual “communication” occurs, the collector would be obliged to comply with all provisions of the Act, including disclosing that it is a “debt collector” consistent with section 1692e(11).
The “loophole” theory also ignores the other sections of the Act which protect the debtor. The collector cannot cause a phone to ring repeatedly or continuously with the intent to harass or annoy any person. See 15 U.S.C. § 1692d(5). The collector cannot utilize any false, deceptive, or misleading representation or means to collect a debt, nor can it employ any unfair or unconscionable means to collect. See 15 U.S.C. §§ 1692e, 1692f. A debtor retains the power to stop all communications from a collector by informing the collector in writing that the debtor refuses to pay the debt, or that the debtor wishes the collector to cease further communications. See 15 U.S.C. § 1692c(c).
IV. Conclusion
Debt collectors engage in protected commercial speech when they leave truthful, non-threatening voicemail messages that simply invite a return phone call from the debtor. Such messages do not constitute “communications” under the FDCPA because they do not convey information “regarding a debt” to anyone. By ruling that such messages constitute “communications” and therefore must recite that they are from “debt collectors,” the Foti court put all collectors who leave messages at risk of violating the Act’s third party disclosure requirements, thereby placing an unreasonable restriction on valid commercial speech. The Foti court violated the Supreme Court’s holding in Debartolo by construing the FDCPA in a manner that raises serious constitutional problems under the First Amendment.
Endnotes:
1. The Act defines a “communication” as follows: “The term ‘communication’ means the conveying of information regarding a debt directly or indirectly to any person through any medium.” See 15 U.S.C. § 1692a(2).
2. Since the Foti decision issued, numerous other court have reached similar conclusions. See, e.g., Baker v. Allstate Fin. Srvs., Inc., 554 F. Supp. 2d 945 (D. Minn. 2008);Anchondo v. Anderson, Crenshaw & Assocs., 583 F.Supp.2d 1278, 1281-82 (D.N.M. 2008);Edwards v. Niagara Credit Solutions, Inc., 586 F.Supp.2d 1346, 1351-53 (N.D. Ga. 2008), aff’d on other grounds, 584 F. 3d 1350 (2009); Ramirez v. Apex Fin. Mgmt., LLC, 567 F.Supp.2d 1035, 1041(N.D. Ill. 2008).
3. There are certain limited exceptions to the prohibition on third party disclosure, which are not relevant here. See, e.g., 15 U.S.C. §§ 1692b, 1692c(b).
4. For example, in Berg v. Merchs. Ass’n Collection Div., 586 F. Supp. 2d 1336 (S.D. Fla. 2008), the defendant left a message on the plaintiff’s voice mail machine which stated that it was “an attempt to collect a debt.” Id. at 1339. The debtor sued under section 1692c(b) of the FDCPA, alleging the message was overheard by his father, step-mother, step-mother’s ex-spouse, girlfriend and neighbor. Id. Even though the collector had attempted to prevent disclosure, by warning any third parties to stop listening, the court refused to grant the collector’s motion to dismiss. Id. at 1441-44.
5. Although the voicemail message left by the collector in Foti was a form of expression that related to the economic interest of the parties and was therefore entitled to First Amendment protection, as discussed herein, that message did not communicate any information directly or indirectly “regarding a debt” to anyone, and the Foti court therefore erred when it held the message was a “communication” within the meaning of section 1692a(2) of the Act.
6. The existence of this business relationship with the debtor is also a significant factor in distinguishing Foti from the facts presented by Mainstream Marketing Services, Inc. v. FTC, 358 F. 3d 1228 (10th Cir. 2004). Mainstream Marketing upheld a ban on most telemarketing calls made to consumers who had registered their phone numbers on the national “do-not-call” registry, noting that “individuals are not required to welcome unwanted speech into their own homes . . .” Id. at 1237-38, 1246. But the restrictions on “unsolicited calls from commercial telemarketers” at issue in Mainstream Marketing did not apply to companies with an “established business relationship” with the consumer. Id. at 1234 and n.7.
7. While the Supreme Court has noted that the Constitution “protects commercial speech from unwarranted governmental regulation,” the Court has also noted that the Constitution “accords a lesser protection to commercial speech than to other constitutionally guaranteed expression.” Central Hudson, 447 U. S. at 563.
8. The Court in Central Hudson articulated the test as follows: “At the outset, we must determine whether the expression is protected by the First Amendment. For commercial speech to come within that provision, it at least must concern lawful activity and not be misleading. Next, we ask whether the asserted governmental interest is substantial. If both inquiries yield positive answers, we must determine whether the regulation directly advances the governmental interest asserted, and whether it is not more extensive than is necessary to serve that interest.” Central Hudson, 447 U.S. at 566.
9. See also Solid Waste Agency of Northern Cook County v. Un. St. Army Corps of Engrs, 531 U.S. 159, 172-74 (2001) (rejecting interpretation of Clean Water Act that would raise “serious constitutional issues” relating to the reach of the Commerce Clause); Jones v. United States, 590 U.S. 848, 857-58 (rejecting interpretation of federal arson statute that raised serious constitutional issues regarding the scope of the Commerce Clause: “where a statute is susceptible of two constructions, by one of which grave and doubtful constitutional questions arise and by the other of which such questions are avoided, our duty is to adopt the latter. (citation)”).
10.Similarly, if a collector elected to leave a voicemail message that did convey information concerning the debt directly or indirectly, that message would constitute a “communication” and would need to comply with the statute.
11.The forgoing is provided for informational purposes only and should not be construed as legal advice given by the author or by Simmonds & Narita LLP. Transmission of this information is not intended to create an attorney-client relationship, nor should it be viewed as a substitute for obtaining legal advice from a licensed attorney. Parties should not rely upon the foregoing without first engaging their own legal counsel to obtain advice.
Wednesday, March 17, 2010
How To Combat Frivolous FDCPA Lawsuits: Tapping Into Section 1927 And The Court's Inherent Powers
[Note: this post is adapted from an article authored by Tomio Narita and originally published in the March 2010 MAP Bulletin]
Debt collectors have witnessed an incredible increase in the number of FDCPA cases filed in federal courts across the country. Let’s face it: some of these cases have merit, and they are a natural result of increasing collection volume. It would be irresponsible to conclude that just because the number of new FDCPA cases has skyrocketed, all of the new cases must be nuisance lawsuits.
But many of the FDCPA suits that are filed are frivolous, and many have been filed by consumer law firms that appear to specialize in a high-volume, cookie-cutter approach to litigation. What can collectors do about the cases that are so clearly without merit that they should never have been filed? How can a defendant fight back when a consumer attorney has refused to abandon a case long past the point where a reasonable attorney would have simply dismissed it? In situations where a plaintiff’s counsel has needlessly increased the cost of litigation, do debt collectors have any recourse?
Your first thought might be to file a motion for sanctions against an attorney under Rule 11 of the Federal Rules of Civil Procedure. Although Rule 11 can be an important way to combat frivolous action, the rule has limitations on its scope and it includes a “safe harbor” mechanism that can make a fee motion cumbersome to pursue. You might also consider section 1692k(a)(3) of the FDCPA, which allows a defendant to recover its reasonable costs and attorney’s fees where an action was filed “in bad faith and for the purpose of harassment,” but last year the Ninth Circuit clarified that counsel for a debtor cannot be held liable under that section. See Hyde v. Midland Credit Management, Inc., 567 F.3d 1137 (9th Cir. 2009). Where, then, can a collector turn when a frivolous FDCPA case has been recklessly pursued by an attorney who refuses to dismiss it?
Collectors should remember that a federal court has two important tools for sanctioning attorneys who pursue frivolous cases or who engage in bad faith litigation tactics: namely, 28 U.S.C. § 1927 and the court’s “inherent authority.” In the right circumstances, motions filed under section 1927 and the court’s inherent authority can be an effective way for collectors to fight back.
Sanctions under section 1927 are proper when an attorney has recklessly and knowingly abused the judicial process. Any attorney . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct. 28 U.S.C. § 1927. As the Supreme Court has explained, section 1927
"does not distinguish between winners and losers, or between plaintiffs and defendants. The statute is indifferent to the equities of a dispute and to the values advanced by the substantive law. It is concerned only with limiting the abuse of court processes."
Roadway Express, Inc. v. Piper, 447 U.S. 752, 762 (1980).
In extreme cases, the record may show that a consumer attorney has engaged in bad faith conduct while pursuing an FDCPA action. But the Ninth Circuit has confirmed that a bad faith finding is not required to support a sanctions award under section 1927. See B.K.B. v. Maui Police Dep’t, 276 F.3d 1091, 1107 (9th Cir. 2002). Sanctions may be imposed under section 1927 against an attorney who merely acts recklessly. See also Gomez v. Vernon, 255 F.3d 1118, 1134 (9th Cir. 2001) (“Section 1927 requires a finding of recklessness or bad faith.”).
A motion under section 1927 can also be combined with a motion for sanctions under the court’s “inherent power.” Every district court has certain “inherent” powers, including the power to “levy sanctions in response to abusive litigation practices.” See Roadway Express, 447 U.S. at 765. This inherent power to sanction parties or attorneys is not displaced by other statutes or rules that allow a court to impose sanctions, such as section 1927 or Rule 11. See Chambers v. NASCO, Inc., 501 U.S. 32, 42-43 (1991). “The inherent powers of federal courts are those that ‘are necessary to the exercise of all others.’ Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 648 (9th Cir. 1997), quoting Roadway Express, 447 U.S. at 764.
The inherent powers of a court include the power to sanction an attorney for “bad faith” conduct by directing the attorney to pay the fees incurred by the opposing party. See Roadway Express, 447 U.S. at 765-66 (“If a court may tax counsel fees against a party who has litigated in bad faith, it certainly may assess those expenses against counsel who willfully abuse judicial processes.”). Bad faith conduct, however, is not required: conduct that is “‘tantamount to bad faith’ is sanctionable,” as well. B.K.B., 276 F.3d at 1108; accord Fink v. Gomez, 239 F.3d 989, 993-94 (9th Cir. 2001); Gomez v. Vernon, 255 F.3d at 1134 (no clear error “in finding conduct tantamount to bad faith” and imposing sanctions under inherent authority where attorney knowingly disregarded advice of state bar counsel regarding receipt of privileged materials).
Reckless conduct, combined with an improper purpose or knowing misconduct, is sanctionable under the court’s inherent powers. See B.K.B., 276 F.3d at 1107-08; see also Fink, 239 F.3d at 994 (sanctions permitted where attorney acts with “recklessness when combined with an additional factor such as frivolousness, harassment, or an improper purpose”); In Re Itel Secs. Litig., 791 F.2d 672, 675 (9th Cir. 1986) (sanctions proper where counsel “willfully abused judicial process or otherwise conducted litigation in bad faith.”).
An attorney may act in “bad faith” even when pursuing a colorable claim. In circumstances where the entire action was not “filed” in bad faith, an award of fees may be based upon counsel’s bad faith conduct during the litigation. See Roadway Express, 447 U.S. at 766. The Ninth Circuit has held that a finding of bad faith “does not require that the legal and factual basis for the action prove totally frivolous; where a litigant is substantially motivated by vindictiveness, obduracy, or mala fides, the assertion of a colorable claim will not bar the assessment of attorney’s fees. (Citation).” In Re Itel Secs. Litig., 791 F.2d at 675; see also Fink, 239 F.3d at 992 (“Itel teaches that sanctions are justified when a party acts for an improper purpose – even if the act consists of making a truthful statement or a non-frivolous argument or objection.”).
When exercising it inherent authority, a district court is also free to consider an attorney’s conduct in other litigation. See Artese v. Academy Collection Serv., Inc., 2000 WL 133733, at *4 (D. Conn. Jan. 18, 2000); see also Johnson v. Commissioner of Internal Revenue, 289 F.3d 452, 456-57 (7th Cir. 2002) (“The Tax Court was not required to ignore Izen’s bad conduct in other cases; indeed it would have been remiss not to consider it.”). In Itel, although the objections filed by counsel were not frivolous, the Ninth Circuit affirmed the district court’s conclusion that they were asserted in bad faith and solely to gain an advantage in other pending litigation. See Itel, 791 F.2d at 675-76. Similarly, in Fink, the Ninth Circuit held that an attorney’s reckless misstatements of fact and law in the case before the district court could amount to bad faith if the statements were made for the purpose of gaining a tactical advantage in a separate action. See Fink, 239 F.3d at 994.
Collectors are understandably frustrated by the onslaught of FDCPA litigation they are facing, and by the tactics employed by certain consumer attorneys. Keep in mind that consumer lawyers, like defense lawyers, are entitled to be vigorous advocates for their clients, and that motions for sanctions are not appropriate for every case. But for those extreme cases where a collector can demonstrate that a consumer attorney has engaged in bad faith or reckless litigation tactics, collectors should consider fighting back by filing motions under section 1927 or the court’s inherent powers.
Debt collectors have witnessed an incredible increase in the number of FDCPA cases filed in federal courts across the country. Let’s face it: some of these cases have merit, and they are a natural result of increasing collection volume. It would be irresponsible to conclude that just because the number of new FDCPA cases has skyrocketed, all of the new cases must be nuisance lawsuits.
But many of the FDCPA suits that are filed are frivolous, and many have been filed by consumer law firms that appear to specialize in a high-volume, cookie-cutter approach to litigation. What can collectors do about the cases that are so clearly without merit that they should never have been filed? How can a defendant fight back when a consumer attorney has refused to abandon a case long past the point where a reasonable attorney would have simply dismissed it? In situations where a plaintiff’s counsel has needlessly increased the cost of litigation, do debt collectors have any recourse?
Your first thought might be to file a motion for sanctions against an attorney under Rule 11 of the Federal Rules of Civil Procedure. Although Rule 11 can be an important way to combat frivolous action, the rule has limitations on its scope and it includes a “safe harbor” mechanism that can make a fee motion cumbersome to pursue. You might also consider section 1692k(a)(3) of the FDCPA, which allows a defendant to recover its reasonable costs and attorney’s fees where an action was filed “in bad faith and for the purpose of harassment,” but last year the Ninth Circuit clarified that counsel for a debtor cannot be held liable under that section. See Hyde v. Midland Credit Management, Inc., 567 F.3d 1137 (9th Cir. 2009). Where, then, can a collector turn when a frivolous FDCPA case has been recklessly pursued by an attorney who refuses to dismiss it?
Collectors should remember that a federal court has two important tools for sanctioning attorneys who pursue frivolous cases or who engage in bad faith litigation tactics: namely, 28 U.S.C. § 1927 and the court’s “inherent authority.” In the right circumstances, motions filed under section 1927 and the court’s inherent authority can be an effective way for collectors to fight back.
Sanctions under section 1927 are proper when an attorney has recklessly and knowingly abused the judicial process. Any attorney . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct. 28 U.S.C. § 1927. As the Supreme Court has explained, section 1927
"does not distinguish between winners and losers, or between plaintiffs and defendants. The statute is indifferent to the equities of a dispute and to the values advanced by the substantive law. It is concerned only with limiting the abuse of court processes."
Roadway Express, Inc. v. Piper, 447 U.S. 752, 762 (1980).
In extreme cases, the record may show that a consumer attorney has engaged in bad faith conduct while pursuing an FDCPA action. But the Ninth Circuit has confirmed that a bad faith finding is not required to support a sanctions award under section 1927. See B.K.B. v. Maui Police Dep’t, 276 F.3d 1091, 1107 (9th Cir. 2002). Sanctions may be imposed under section 1927 against an attorney who merely acts recklessly. See also Gomez v. Vernon, 255 F.3d 1118, 1134 (9th Cir. 2001) (“Section 1927 requires a finding of recklessness or bad faith.”).
A motion under section 1927 can also be combined with a motion for sanctions under the court’s “inherent power.” Every district court has certain “inherent” powers, including the power to “levy sanctions in response to abusive litigation practices.” See Roadway Express, 447 U.S. at 765. This inherent power to sanction parties or attorneys is not displaced by other statutes or rules that allow a court to impose sanctions, such as section 1927 or Rule 11. See Chambers v. NASCO, Inc., 501 U.S. 32, 42-43 (1991). “The inherent powers of federal courts are those that ‘are necessary to the exercise of all others.’ Primus Auto. Fin. Servs., Inc. v. Batarse, 115 F.3d 644, 648 (9th Cir. 1997), quoting Roadway Express, 447 U.S. at 764.
The inherent powers of a court include the power to sanction an attorney for “bad faith” conduct by directing the attorney to pay the fees incurred by the opposing party. See Roadway Express, 447 U.S. at 765-66 (“If a court may tax counsel fees against a party who has litigated in bad faith, it certainly may assess those expenses against counsel who willfully abuse judicial processes.”). Bad faith conduct, however, is not required: conduct that is “‘tantamount to bad faith’ is sanctionable,” as well. B.K.B., 276 F.3d at 1108; accord Fink v. Gomez, 239 F.3d 989, 993-94 (9th Cir. 2001); Gomez v. Vernon, 255 F.3d at 1134 (no clear error “in finding conduct tantamount to bad faith” and imposing sanctions under inherent authority where attorney knowingly disregarded advice of state bar counsel regarding receipt of privileged materials).
Reckless conduct, combined with an improper purpose or knowing misconduct, is sanctionable under the court’s inherent powers. See B.K.B., 276 F.3d at 1107-08; see also Fink, 239 F.3d at 994 (sanctions permitted where attorney acts with “recklessness when combined with an additional factor such as frivolousness, harassment, or an improper purpose”); In Re Itel Secs. Litig., 791 F.2d 672, 675 (9th Cir. 1986) (sanctions proper where counsel “willfully abused judicial process or otherwise conducted litigation in bad faith.”).
An attorney may act in “bad faith” even when pursuing a colorable claim. In circumstances where the entire action was not “filed” in bad faith, an award of fees may be based upon counsel’s bad faith conduct during the litigation. See Roadway Express, 447 U.S. at 766. The Ninth Circuit has held that a finding of bad faith “does not require that the legal and factual basis for the action prove totally frivolous; where a litigant is substantially motivated by vindictiveness, obduracy, or mala fides, the assertion of a colorable claim will not bar the assessment of attorney’s fees. (Citation).” In Re Itel Secs. Litig., 791 F.2d at 675; see also Fink, 239 F.3d at 992 (“Itel teaches that sanctions are justified when a party acts for an improper purpose – even if the act consists of making a truthful statement or a non-frivolous argument or objection.”).
When exercising it inherent authority, a district court is also free to consider an attorney’s conduct in other litigation. See Artese v. Academy Collection Serv., Inc., 2000 WL 133733, at *4 (D. Conn. Jan. 18, 2000); see also Johnson v. Commissioner of Internal Revenue, 289 F.3d 452, 456-57 (7th Cir. 2002) (“The Tax Court was not required to ignore Izen’s bad conduct in other cases; indeed it would have been remiss not to consider it.”). In Itel, although the objections filed by counsel were not frivolous, the Ninth Circuit affirmed the district court’s conclusion that they were asserted in bad faith and solely to gain an advantage in other pending litigation. See Itel, 791 F.2d at 675-76. Similarly, in Fink, the Ninth Circuit held that an attorney’s reckless misstatements of fact and law in the case before the district court could amount to bad faith if the statements were made for the purpose of gaining a tactical advantage in a separate action. See Fink, 239 F.3d at 994.
Collectors are understandably frustrated by the onslaught of FDCPA litigation they are facing, and by the tactics employed by certain consumer attorneys. Keep in mind that consumer lawyers, like defense lawyers, are entitled to be vigorous advocates for their clients, and that motions for sanctions are not appropriate for every case. But for those extreme cases where a collector can demonstrate that a consumer attorney has engaged in bad faith or reckless litigation tactics, collectors should consider fighting back by filing motions under section 1927 or the court’s inherent powers.
Is Donohue The Death Knell For Technical FDCPA Violations?
[Note: this post has previously appeared as an article authored by Tomio Narita published in the February 2010 MAP Bulliten]
In its recent opinion, Donohue v. Quick Collect, Inc., 592 F.3d 1027 (9th Cir. 2010), the Ninth Circuit joined the Seventh Circuit and the Sixth Circuit, holding that a false and misleading statement does not violate sections 1692e or 1692f of the FDCPA unless the statement is “material.” See Donohue, 592 F.3d at 1033-34. Does Donohue mark the end of the era of hyper-technical FDCPA violations? While it is probably too early for collection professionals to celebrate, the Donohue case provides strong additional support for notion that technical FDCPA violations are on their way out.
The plaintiff in Donohue asserted a highly-technical alleged violation of the FDCPA. She claimed the collector violated the Act by serving her with a state court complaint which sought the “sum of $270.99, together with interest thereon of 12% per annum . . . in the amount of $32.89.” The collector was entitled to collect the $32.89, but that figure did not actually reflect 12% interest on the principal balance due. Rather, the $32.89 figure was comprised of $24.07 in pre-assignment finance charges (properly assessed by the original creditor) and $8.82 in post-assignment interest calculated at the 12% annual rate. Thus, the statement in the collection complaint was technically false. Id. at 1032.
Despite this, the Ninth Circuit ruled that the collection complaint did not violate the FDCPA. The complaint “sought recovery of sums to which Quick Collect was clearly and lawfully entitled” even though it incorrectly labeled the $32.89 amount sought as 12% interest on principal, instead of finance charges imposed by the creditor and post-assignment interest. Id. at 1033. Following the Seventh Circuit’s decisions in Hahn v. Triumph Partnerships LLC, 557 F.3d 755 (7th Cir. 2009), and Wahl v. Midland Credit Mgmt., Inc., 556 F.3d 643, 646 (7th Cir. 2009), as well as the Sixth Circuit’s decision in Miller v. Javitch, Block & Rathbone, 561 F.3d 588, 596 (6th Cir. 2009), the Ninth Circuit held that a false and misleading statement is not actionable under the FDCPA unless it is “material.” The Court stated: “We now conclude that false but non-material representations are not likely to mislead the least sophisticated consumer and therefore are not actionable under §§ 1692e or 1692f.” See Donohue, 592 F.3d at 1033.
The Ninth Circuit’s holding that only material misstatements violate the FDCPA is consistent with the remedial nature of the Act, because “immaterial statements, by definition, do not affect a consumer’s ability to make intelligent decisions.” Id. The Court noted that:
"In assessing FDCPA liability, we are not concerned with mere technical falsehoods that mislead no one, but instead with genuinely misleading statements that may frustrate a consumer’s ability to intelligently choose his or her response. Here, the statement in the Complaint did not undermine Donohue’s ability to intelligently choose her action concerning her debt."
Id. at 1034. As the Ninth Circuit observed: “Even if the Complaint had separated $32.89 into interest and finance charges, we can conceive of no action Donohue could have taken that was not already available to her on the basis of the information in the Complaint—nor has Donohue articulated any different action she might have chosen.” Id.
Under Donohue, a consumer must demonstrate “materiality” by showing how an allegedly false or misleading statement could have impacted the least sophisticated debtor’s ability to make intelligent choices. Although the court stopped short of adding a “reasonable reliance” requirement, similar to common law fraud, Donohue does require plaintiffs to explain how the least sophisticated consumer might have changed their position as a result of the allegedly false and misleading statement. Highly-technical violations of the FDCPA will rarely qualify as “material” under Donohue because the language used by the collector will not “frustrate a consumer’s ability to intelligently chose a response” to the collector’s communication. Donohue, 592 F.3d at 1034.
The FDCPA was passed to prevent truly “abusive, deceptive and unfair debt collection practices” (see 15 U.S.C. § 1692(a)), not as method for consumers and their attorneys to seize upon meaningless misstatements contained in letters and collection complaints. Circuit courts across the country, including the Ninth Circuit, are recognizing this by holding that technically false statements do not violate the FDCPA unless they are “material” to the collection process. Collectors facing highly-technical FDCPA claims have a powerful new ally in Donohue.
In its recent opinion, Donohue v. Quick Collect, Inc., 592 F.3d 1027 (9th Cir. 2010), the Ninth Circuit joined the Seventh Circuit and the Sixth Circuit, holding that a false and misleading statement does not violate sections 1692e or 1692f of the FDCPA unless the statement is “material.” See Donohue, 592 F.3d at 1033-34. Does Donohue mark the end of the era of hyper-technical FDCPA violations? While it is probably too early for collection professionals to celebrate, the Donohue case provides strong additional support for notion that technical FDCPA violations are on their way out.
The plaintiff in Donohue asserted a highly-technical alleged violation of the FDCPA. She claimed the collector violated the Act by serving her with a state court complaint which sought the “sum of $270.99, together with interest thereon of 12% per annum . . . in the amount of $32.89.” The collector was entitled to collect the $32.89, but that figure did not actually reflect 12% interest on the principal balance due. Rather, the $32.89 figure was comprised of $24.07 in pre-assignment finance charges (properly assessed by the original creditor) and $8.82 in post-assignment interest calculated at the 12% annual rate. Thus, the statement in the collection complaint was technically false. Id. at 1032.
Despite this, the Ninth Circuit ruled that the collection complaint did not violate the FDCPA. The complaint “sought recovery of sums to which Quick Collect was clearly and lawfully entitled” even though it incorrectly labeled the $32.89 amount sought as 12% interest on principal, instead of finance charges imposed by the creditor and post-assignment interest. Id. at 1033. Following the Seventh Circuit’s decisions in Hahn v. Triumph Partnerships LLC, 557 F.3d 755 (7th Cir. 2009), and Wahl v. Midland Credit Mgmt., Inc., 556 F.3d 643, 646 (7th Cir. 2009), as well as the Sixth Circuit’s decision in Miller v. Javitch, Block & Rathbone, 561 F.3d 588, 596 (6th Cir. 2009), the Ninth Circuit held that a false and misleading statement is not actionable under the FDCPA unless it is “material.” The Court stated: “We now conclude that false but non-material representations are not likely to mislead the least sophisticated consumer and therefore are not actionable under §§ 1692e or 1692f.” See Donohue, 592 F.3d at 1033.
The Ninth Circuit’s holding that only material misstatements violate the FDCPA is consistent with the remedial nature of the Act, because “immaterial statements, by definition, do not affect a consumer’s ability to make intelligent decisions.” Id. The Court noted that:
"In assessing FDCPA liability, we are not concerned with mere technical falsehoods that mislead no one, but instead with genuinely misleading statements that may frustrate a consumer’s ability to intelligently choose his or her response. Here, the statement in the Complaint did not undermine Donohue’s ability to intelligently choose her action concerning her debt."
Id. at 1034. As the Ninth Circuit observed: “Even if the Complaint had separated $32.89 into interest and finance charges, we can conceive of no action Donohue could have taken that was not already available to her on the basis of the information in the Complaint—nor has Donohue articulated any different action she might have chosen.” Id.
Under Donohue, a consumer must demonstrate “materiality” by showing how an allegedly false or misleading statement could have impacted the least sophisticated debtor’s ability to make intelligent choices. Although the court stopped short of adding a “reasonable reliance” requirement, similar to common law fraud, Donohue does require plaintiffs to explain how the least sophisticated consumer might have changed their position as a result of the allegedly false and misleading statement. Highly-technical violations of the FDCPA will rarely qualify as “material” under Donohue because the language used by the collector will not “frustrate a consumer’s ability to intelligently chose a response” to the collector’s communication. Donohue, 592 F.3d at 1034.
The FDCPA was passed to prevent truly “abusive, deceptive and unfair debt collection practices” (see 15 U.S.C. § 1692(a)), not as method for consumers and their attorneys to seize upon meaningless misstatements contained in letters and collection complaints. Circuit courts across the country, including the Ninth Circuit, are recognizing this by holding that technically false statements do not violate the FDCPA unless they are “material” to the collection process. Collectors facing highly-technical FDCPA claims have a powerful new ally in Donohue.
Subscribe to:
Posts (Atom)