Compliance Digest – June 21

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Every week, brings you the most important news in the industry. But, with compliance-related articles, context is king. That’s why the brightest and most knowledgable compliance experts are sought to offer their perspectives and insights into the most important news of the day. Read on to hear what the experts have to say this week.

Judge Holds Debt Buyer Liable for Actions of Collector in Partially Granting Plaintiff’s MSJ in FDCPA Case

On remand from the Ninth Circuit Court of Appeals, a District Court judge in Oregon has partially granted a plaintiff’s motion for summary judgment, ruling that a debt buyer who places accounts with a debt collector can be held vicariously liable for the actions of the debt collector, because the debt buyer “bear[s] the burden” of monitoring the activities of the debt collector when collecting debts on the debt buyer’s behalf. More details here.

WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: For 15 years or so there has been an ongoing dispute in FDCPA litigation on whether debt buyers are vicariously liable for the conduct of collection agencies handling their accounts. The issue typically turns on whether there is a principal-agent relationship between them. There are different types of relationships in connection with purchased debt. Some owners are completely passive, some have intermediaries between them and the agencies collecting the debt, and some are quite active in the debt collection process. The results of this analysis have varied, not surprisingly.

McAdory v. M.N.S. & Associates and DNF Associates is a recent Oregon District Court analysis of the issue. Plaintiff and the debt buyer defendant both moved for summary judgment. The court did a fairly thorough review of the relevant legal concepts and status of the law, including law outside of its jurisdiction. As is typical, it then turned to the contract between the parties, the relevant facts on how they conduct business, and the knowledge or involvement in the conduct that forms the basis of the claim. 

The contract said that M.N.S. was an independent contractor of D.N.F.  The Court, however, held that DNF retained the right to control MNS to the degree necessary to establish a principal-agent relationship. It then reviewed the agency concepts of “implied actual authority,” “apparent authority,” and “ratification.” The facts were sufficient to hold D.N.F. vicariously liable for its debt collector’s conduct.

The case is a pretty easy read and provides a good overview of the law. It also can help debt buyers and agencies understand what will impact a vicarious liability analysis and, perhaps, guide how they conduct business.


Judge Partially Grants MSJ For Defendant in FDCPA Case Over BK Filing

A Magistrate Court judge in Indiana has partially granted a defendant’s motion for summary judgment, but denied other claims it violated the Fair Debt Collection Practices Act by sending a collection letter to individuals who had filed for bankruptcy protection and had requested that the defendant stop communicating with them. More details here.

WHAT THIS MEANS, FROM JUDD PEAK OF CAPITAL ACCOUNTS: This case poses an interesting set of facts and addresses the need for lock-down scrub processes in your collections strategy. A consumer bankruptcy filing (actually, a lot of them) was missed because erroneous programming caused collection letters to be sent before the scrub took place. Obviously, that’s not the sequence that the process should follow (otherwise, why even perform scrubs?) and a bug/glitch/boo-boo in the system caused it to break. Does that establish a bona fide error for the collection agency? The judge seemed to allow for the possibility, but the ugly side of a bona fide error defense is that it is not dispositive early in litigation (i.e., upon a motion to dismiss or for summary judgment). Rather, there are inherently fact questions that must be answered – usually by a jury at trial. The cost of litigation through trial alone often makes the bona fide error defense untenable. 

In this matter, I’m not even sure that a programming error would qualify as a bona fide error.  In normal circumstances, the bona fide error defense is available where the collection agency has a formal policy or procedure, takes measures to incorporate that policy (e.g., through training) and a rogue employee acts improperly nevertheless. That doesn’t strike me as the same situation where the programming in a collection software platform was done erroneously. I hope I am wrong. Regardless, I think the important lesson is to install quality assurance monitoring systems to ensure all processes are operating properly. 

Ninth Circuit Reverses Ruling in FDCPA Case Over Type of Debt

Anyone who has been in this industry for more than a hot minute knows that the Fair Debt Collection Practices Act applies to any debt in which the subject of the transaction is for primarily personal, family, or household purposes. But every now and then a case comes along where the type of debt in question is more of a square peg that can’t be pounded into that round hole of a definition. The Ninth Circuit Court of Appeals was faced with just such a case, and determined that a District Court judge erred in ruling that the FDCPA did not apply to a property that was purchased by the plaintiffs and being rented out, saying that the judge did not look closely enough at whether the transaction was for commercial or consumer purposes. More details here.

WHAT THIS MEANS, FROM DAIVD SHAVER OF SURDYK, DOWD & TURNER: An individual’s intent when entering into a transaction is something to be considered when evaluating whether an obligation arising from that transaction meets the definition of “debt” under the FDCPA.

The issue in Glawe concerned unpaid dues owed to a homeowner’s association.  While the Glawes used the property within the association as rental property, Mr. Glawe gave deposition testimony indicating that, at the time of purchase, he and his wife intended to use the property as their retirement home at some point in the future.  In reversing the trial court’s grant of summary judgment to the defendant law firm and the attorneys who sued the Glawes for the unpaid association dues (which gave rise to Mr. Glawe’s FDCPA claims in the instant case), the Ninth Circuit was persuaded by the possibility that the transaction giving rise to the Glawes’ obligation to pay the dues – the purchase of the property itself – was consumer (personal retirement home) and not commercial (rental income generator) in nature.

When engaged in litigation, ARM defendants should be thorough in their evaluation of the underlying obligation and how it came into existence.  ARM defendants should also be careful when an individual claims to have had an intent that appears inconsistent with the weight of the evidence as such statements may or may not be sufficient to create an issue of fact for trial.

Judge Grants Motion for Defendant in FCRA Case Over Disputed Tradeline

A District Court judge in Alabama has granted a defendant’s motion for judgment on the pleadings after it was sued for allegedly violating the Fair Credit Reporting Act because it referenced a monthly payment amount on a tradeline that had been closed and where the balance was $0 when furnishing information to the credit reporting agencies. More details here.

WHAT THIS MEANS, FROM ETHAN OSTROFF OF TROUTMAN PEPPER: This a great decision on this recurring theory of reporting a scheduled monthly payment after an account is closed with a $0 balance.  The law firm representing the plaintiff, Credit Repair Lawyers of America, is one of the highest volume filers of FCRA cases nationwide, including on this theory that they repeat often in lawsuits. One of interesting aspects of this decision is that the court determined it was able to consider the key documents that were not attached to the Complaint but were attached by the Defendant to its motion. This is one of the core issues in being able to file a dispositive motion on this theory that stands a good chance of being granted, as typically this law firm purposefully omits key factual information and documents from its complaints in order to get into discovery with the hopes of obtaining a low dollar cost of defense settlement instead of going through motion practice.

Another interesting tidbit about this case is that, after the briefing concluded but before this decision, the lawyers representing the Plaintiff all sought to withdraw from the case claiming a complete breakdown in their relationship with Plaintiff. This comes on the heels of State of Michigan’s Attorney Discipline Board issuing an Order on April 27, 2021 resulting in one of the lawyers at Credit Repair Lawyers of America having his license to practice in Michigan suspended for 90 days, effective May 26, 2021, paying restitution to some of his firm’s former clients, and informing every court in which he is representing a client in litigation of his disqualification from the practice of law. A copy of the Order can be found here:

Judge Grants MSJ for Defendant in FDCPA Case Over Collection Letter

A District Court judge in New York has granted a defendant’s motion for summary judgment after it was sued for a laundry list of alleged violations of the Fair Debt Collection Practices Act in a letter that was sent to the plaintiff while also declining a motion from the plaintiff to strike an affidavit and supporting evidence that was submitted by the defendant. More details here.

WHAT THIS MEANS, FROM JONATHAN ROBBIN OF J. ROBBIN LAW: In what continues to be a growing trend in the Second Circuit (and EDNY specifically) towards granting judgment on unsupported claims, here, the Court granted judgment on Plaintiff’s typical attorney manufactured laundry list of FDCPA violations. The central issue though was whether the collection letter correctly stated the amount owed and the current creditor. Judge Matsumoto held that even an unsophisticated consumer could read the letter, which clearly identified the amount owed and who the current creditor was. The Court rejected Plaintiff’s unsupported argument that the debt wasn’t hers. Although Plaintiff argued that she did not incur the debt and that the defendant did not come forward with any evidence establishing the existence of the debt, the Court held it was Plaintiff who still maintains the burden of demonstrating through admissible evidence the debt is not hers. Judge Matsumoto disagreed with Plaintiff’s attempt to switch the burden to the Defendant to demonstrate that it was Plaintiff’s debt. In short, Defendants in FDCPA cases must remember that the burden to prove its case rests with the Plaintiff and as a result must prevent attorney’s from attempting to switch that burden without properly proving its case.

Appeals Court Reverses Lower Court Ruling, Affirms Avila Disclosure Not Required When Making Settlement Offer

The Second Circuit Court of Appeals has overturned a lower court’s decision and remanded a case back to a District Court judge to enter judgment in favor of a defendant in a Fair Debt Collection Practices Act case, ruling that the defendant did not have to notify the plaintiff that the balance owed may be increasing due to interest and fees when making a settlement offer in a collection letter. More details here.

WHAT THIS MEANS, FROM BRIT SUTTELL OF BARRON & NEWBURGER: With this case the Second Circuit Court of Appeals took the opportunity to highlight an additional safe harbor from Avila v. Riexinger & Assocs., LLC, 817 F.3d 72 (2d Cir. 2016). The industry is well aware of the interest disclosure, but, just as importantly, “a debt collector will not be subject to liability under Section 1692e for failing to disclose that the consumer’s balance may increase due to interest and fees if the collection notice … clearly states that the holder of the debt will accept payment in the amount set forth in full satisfaction of the debt if payment is made by a specified date.”  Id., at 77. This is important because, although debt collectors are required to put the amount owed in the initial validation notice, debt collectors are not required to put the balance on each letter it sends to a consumer. Therefore, a settlement letter (that is not the initial validation notice) which states a settlement amount due by a particular date is not false or misleading to the extent the underlying may be accruing interest. This ruling may be particularly helpful to debt collection law firms collecting on judgments, many of which accrue post-judgment statutory interest.

I’m thrilled to announce that Bedard Law Group is the new sponsor for the Compliance Digest. Bedard Law Group, P.C. – Compliance Support – Defense Litigation – Nationwide Complaint Management – Turnkey Speech Analytics. And Our New BLG360 Program – Your Low Monthly Retainer Compliance Solution. Visit, email John H. Bedard, Jr., or call (678) 253-1871.

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