Compliance Digest – October 25

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 www.bedardlawgroup.com, email John H. Bedard, Jr., or call (678) 253-1871.

Every week, AccountsRecovery.net 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 Grants MSJ in FDCPA Case Over Mis-Identified Consumer

An interesting Fair Debt Collection Practices Act case out of Minnesota involving a creditor who mis-spelled a customer’s first and last name when placing the account with a law firm for collection, a customer who changed her name before filing for bankruptcy protection, and a law firm that may or may not do enough collection work to be defined as a collector under the FDCPA. Ultimately, a District Court judge granted the defendant’s motion for summary judgment, applying a Second Circuit test to determine that the law firm did not engage in enough debt collection work to conclude that it “regularly” collects or attempts to collect debts owed to someone else. More details here.

WHAT THIS MEANS, FROM CHRISTOPHER MORRIS OF BASSFORD REMELE: Defendant law firm filed a small claims lawsuit against a consumer who recently filed bankruptcy, resulting in the expected FDCPA claim, but also more unusual common law claims for malicious prosecution and abuse of process. Considering the FDCPA claim, the district court spent 17 pages analyzing the often amorphous question of whether the law firm “regularly” collects debts due another as necessary for the statute to apply. Even though the law firm had included a mini-Miranda notice in its communication to the consumer, the Court concluded that because the 5 lawyer firm assigned no personnel specifically to work on debt collection, did not market itself as having a debt collection practice, and was infrequently engaged in consumer debt collection (except for a brief period with a single client), there was no basis to conclude that the law firm “regularly” collects debts. The court also granted summary judgment to the law firm on the common law claims, given that the mistaken small claims filing resulted not from malicious intent but from an error caused by inaccurate information received from its client.

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Judge Grants Default Judgment For Plaintiff in FDCPA Case, But Denies Request for $25k in Emotional Distress Damages

Receiving one phone call and six messages from a collector after notifying it that she was being represented by an attorney is not enough to warrant the $25,000 in emotional distress being sought by the plaintiff in a Fair Debt Collection Practices Act case, ruled a Magistrate Judge, saying that the amount was “pulled out of thin air.” The judge granted the plaintiff’s motion for default judgment in the case, awarding $7,000 in statutory damages and attorney’s fees, but denied the request for emotional distress damages. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: The question posed is what does this decision mean. Not sure. On the one hand the Court clearly thinks that asking for $25,000 for leaving several text messages is over the top. On the other hand, my reading of the decision tells me that if the Plaintiff had asked for just a $1,000 or so, and provided some details or perhaps an Affidavit from a spouse, co-worker or close friend, the Judge might have been awarded actual damages. Read: “The undersigned finds no basis to award $ 25,000 for distress allegedly caused by a phone call and six text messages without any supporting documentation in the record.” Defendant got lucky since it had no ability to challenge any submissions by the Plaintiff. 

A better question is whether this case could have been settled for less than $7,242.50, had they kept their attorney on. Would a Rule 68 Offer of Judgment been the better way to go?  Last question, the case lingered on for over a year and then Defense counsel withdrew which led to the default ad default judgment, what’s that about?

Judge Awards Plaintiff $70k in Damages, Attorney’s Fees in FDCPA Case

A District Court judge in Ohio has awarded a plaintiff more than $70,000 in damages and attorney fees after a default judgment was entered against a defendant in a Fair Debt Collection Practices Act case that accused the defendant of not properly identifying itself as a debt collector in conversations between the two and for allegedly using derogatory language toward the plaintiff. More details here.

WHAT THIS MEANS, FROM SHANNON MILLER OF MAURICE WUTSCHER: In Pastain v. Internal Credit Systems, Inc., a District Court Judge in the Southern District of Ohio granted in part the Plaintiff’s application for damages and award for attorney’s fees and costs, awarding the Plaintiff damages and fees and costs against the defendant, Internal Credit Systems, Inc. (“ICS”) who failed to respond in opposition to the application. 

The Plaintiff had sued ICS for violations of the FDCPA because of alleged harassing telephone calls related to attempts to collect a gym membership debt. Specifically, the plaintiff had alleged that during several telephone calls with ICS’s principal, Mr. Lachman, she had been threatened with “jail time” and had been subject to derogatory language. After granting in part summary judgement for the Plaintiff and ICS’s counsel twice moving to withdrawal the Court had entered judgement by default against ICS and the application for damages was filed thereafter.

Pursuant to 15 U.S.C. § 1692k(a)(1) and considering the record before it, the Court awarded the Plaintiff $1,000 in statutory damages and then turned to the Plaintiff’s request for actual damages which sought $25,000 for emotion distress. Citing that the Sixth Circuit Court of Appeals has, when discussing whether actual damages are awardable for emotional distress, has neutrally cited in-circuit cases that have awarded such damages, the Court awarded the Plaintiff $10,000 in damages. The Court noted that, based on the only evidence before it, Mr. Lachman had threatened the Plaintiff with jail time and called her a “brat” and a “bitch” during two calls and held that “Lachman’s gratuitous use of foul and derogatory language would qualify as ‘inherently degrading’ to Plaintiff” supported an award of emotional distress damages.

Moving to Plaintiff’s request for fees and costs, and noting that there had been no objection by ICS to the request as they failed to respond, the Court awarded fees of $58,917.25 and costs of $1,393.61 largely in part to what the Court considered ICS’s “resistance to resolution and multiple changes of counsel” and because “the volume of attorney’s fees is largely a product of Defendant’s own conduct.”

The take-away for the industry is to always be an active participation in litigation. Here, and after delving into the requests to withdrawal as counsel, it appears that disputes over allegedly unpaid bills for legal fees provided ultimately resulted in ICS’s precarious position of failing to obtain new counsel. Lacking counsel, ICS either was unaware of, or simply ignored, certain orders of the Court and the Plaintiff’s application for damages, resulting in a default judgement and a significant award to the Plaintiff. 

Plaintiff in a Hunstein Copycat Class Action Does Not Have Standing to Sue in Federal Court, NDIL Judge Rules

In a case that is being defended by David Schultz and the team at Hinshaw Culbertson, a District Court judge in Illinois has granted a plaintiff’s motion to remand a Hunstein class action lawsuit back to state court, disagreeing with the Eleventh Circuit Court of Appeals’s ruling in the case and determining that the plaintiff lacked standing to pursue his claim in federal court. More details here.

WHAT THIS MEANS, FROM DALE GOLDEN OF GOLDEN SCAZ GAGAIN: Edelman, Combs may have done the ARM industry a huge favor here. In most cases where federal court jurisdiction is challenged, the plaintiff is the party claiming an Article III injury exists. But in Quaglia the defendant — in response to the Edelman, Combs attempt to get the case remanded to state court — argued its disclosure of information to a letter vendor “harmed” the plaintiff thereby creating Article III jurisdiction. The defendant cited Hunstein to support its position. The court however disagreed and instead found the more recent In re FDCPA Mailing Vendor Cases ruling from the Eastern District of New York more persuasive. And that’s where the opinion in Quaglia got more interesting.

While ultimately finding it lacked jurisdiction, the court made no bones about the fact it did not believe that sending debtor information to a letter vendor violates § 1692c(b). In reaching that conclusion, the court noted that the legislative history of the FDCPA indicated the statute was necessary because of “abuses such as … disclosing a consumer’s personal affairs to friends, neighbors, or an employer.” Given that language, the court found it “is difficult to imagine Congress intended for the FDCPA to extend so far as to prevent debt collectors from enlisting the assistance of mailing vendors to perform ministerial duties … especially when so much of the process is presumably automated.”

The court also relied on footnote 6 in the Supreme Court’s ruling in Transunion vs. Ramirez that “[m]any American courts did not … necessarily recognized disclosures to printing vendors as actionable publications.” And it cited a 2008 ruling from the Colorado Supreme Court that “a debt collector[’s] de minimus communication with a third party [] cannot reasonably be perceived as a threat to the consumer’s privacy or reputation.” It also cited the Seventh Circuit’s 2000 ruling in White v. Goodman finding joinder of a letter vendor in a FDCPA case frivolous. Because the ruling builds off the In re FDCPA Mailing Vendor Cases ruling, cites Ramirez and prior precedent from the Seventh Circuit, it certainly provides fertile ground for defendants in FDCPA cases — outside the Eleventh Circuit — to argue that Hunstein was simply wrongly decided. And it creates some additional ammunition in the fight for an en banc rehearing in Hunstein.

Judge Denies Defendant’s Motion for Fees and Costs in FDCPA Case

A District Court judge in Wisconsin has denied a defendant’s motion for fees and costs in a Fair Debt Collection Practices Act case, even though it won a summary judgment ruling and the plaintiff admitted owing the debt, not writing the dispute letters himself, and never following up to make sure the dispute letters were received, determining that the plaintiff did not act in bad faith when proceeding with his case. More details here.

WHAT THIS MEANS, FROM RICK PERR OF KAUFMAN DOLOWICH & VOLUCK: Barring the most egregious conduct by the plaintiff herself, a federal district judge is extremely unlikely to ever award a successful agency its attorney’s fees under the FDCPA. It is just not going to happen and agencies and lawyers alike need to temper their expectations when it comes to fee shifting toward the defendant agency. Section 1692k(a)(3) has been generally held to apply to fee shifting directly against the plaintiff, not the plaintiff’s lawyers. Most judges are simply not inclined to sanction the litigant. Litigate to win the case, and maybe litigate to cause the plaintiff’s attorney to waste time and effort on a case for which he is not going to recover a single penny, but don’t litigate a case because you think you are going to be reimbursed by the plaintiff when you prevail.

CFPB Announces Leadership Changes on Chopra’s First Day on the Job

On his first full day on the job at the Consumer Financial Protection Bureau, former Acting Director Mick Mulvaney brought donuts with him, ostensibly for the protestors he expected to be there to oppose his appointment. Encountering none, Mulvaney ended up giving the donuts his new employees. There aren’t any reports of protestors or donuts on Rohit Chopra’s first day on the job as the new Director of the CFPB yesterday, but he did not waste any time starting to put his stamp on the agency. The CFPB yesterday announced a series of leadership changes, promoting two long-serving executives and bringing back two others. More details here.

WHAT THIS MEANS, FROM HELEN MAC MURRAY OF MAC MURRAY & SHUSTER: Did someone let Richard Cordray back into the building? A Chopra-led CFPB will likely bear some of the same hallmarks that the Cordray term did. Expect aggressive enforcement actions, robust rulemaking and walking lockstep with the Biden administration, if not leading the way.

Ex-Collection Agency CEO Pleads Guilty in Pay-to-Play Scandal

The former owner of a collection agency pleaded guilty yesterday to one count of making payments to support the former Circuit Court Clerk of Cook County, Illinois, while the company he ran entered into a deferred prosecution agreement and will pay a $225,000 fine. Donald Donagher, who ran Penn Credit Corp., will be sentenced on January 21. More details here.

WHAT THIS MEANS, FROM LAURIE NELSON OF AUTOSCRIBE: First, as we look at this case, it is essential to point out how this is tied to a more well-known case—the case of Dorothy Brown, former Cook County Circuit Court Clerk. The in-depth investigation that the feds undertook on Dorothy Brown’s dealings brought to light the illegal actions of this plaintiff, CEO of Penn Credit Corp. To discover that the CEO targeted other court clerks while alarming is not surprising.  Pay-to-play is the all-too-common practice of an individual or business entity making campaign contributions or making gifts to a  public official with the hope of gaining a  lucrative government contract. 

However, if the feds did not investigate Dorothy Brown so thoroughly, would these acts have gone unnoticed? Unfortunately, the answer may be yes. Like all industries, bribery and back door dealings can happen, and all should report any suspicious actions to authorities. Debt Collection companies may have one of the most significant incentives of doing all that can be done to win government contracts as government agencies usually don’t have to work within the confines of consumer protection laws – opening the door for collection agencies to charge higher fees and use even more aggressive tactics. The obligation to report any suspicious behavior should fall on those targeted and those who see such dealings occurring in their place of employment. We all need to do what we can to make sure illegal transactions such as those that happened, in this case, are stopped.

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 www.bedardlawgroup.com, email John H. Bedard, Jr., or call (678) 253-1871.


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