Compliance Digest – June 27

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.

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.

Appeals Court Upholds Creditor’s Right to Collect After Issuing 1099-C Notice to Plaintiff

The Court of Appeals for the Third Circuit has upheld a lower court’s dismissal of a class action alleging a defendant violated state law in New Jersey by attempting to collect on a debt after it had issued a 1099-C notice to the plaintiff to cover the amount of the debt that was discharged. More details here.

WHAT THIS MEANS, FROM LORAINE LYONS OF MALONE FROST MARTIN: Plaintiff alleged the issuance of the Form 1099-C required the cancellation or actual discharge of the underlying judgment debt. Not so, said the District Court in granting, and the Third Circuit in affirming, the Defendant’s Motion to Dismiss.

The Circuit Court found the Defendant-creditor’s filing of the Form 1099-C was filed in compliance with IRS regulations, and the issuance of the Form 1099-C does not necessitate discharging the underlying debt. Hence, Plaintiff’s claim, the issuance of the 1099-C required the cancellation of the debt, failed as a matter of law. Words do matter.


Judge Grants MSJ for Defendant in FDCPA Case Over Early Out Collection Efforts

A District Court judge in Illinois has granted a defendant’s motion for summary judgment after it was sued for allegedly violating the Fair Debt Collection Practices Act, ruling that the defendant was engaged in early-out collections and that it was not attempting to collect on a debt that was in default when it contacted the plaintiff. More details here.

WHAT THIS MEANS, FROM PATRICK NEWMAN OF BASSFORD REMELE: The corpses of both the “commit your policies and procedures to writing” and “carefully examine your creditor-client contracts” horses have taken a beating in this space on plenty of occasions. Nonetheless, this case is worth noting because it puts truth to both take-home messages in an industry-favorable decision.

The defense’s solid presentation of an “early out” contract and the defendant’s policies and explanation for how it services debts not in default carried the day. Absorb this well-defended case into your approach to creditor agreements and internal policies and procedures!

Judge Grants MTD in FDCPA Case Over Assigned Claim

A District Court judge in Oklahoma has dismissed another complaint filed by an individual attempting to claim that an alleged violation of the Fair Debt Collection Practices Act that occurred against someone had been assigned to the individual, ruling that tort claims — which include FDCPA violations — are not legally assignable. More details here.

WHAT THIS MEANS, FROM ETHAN OSTROFF OF TROUTMAN PEPPER: This District Court reiterated that pure tort claims, including FDCPA violations, are not legally assignable under Oklahoma law. Judge Robin J. Cauthron explained that “a claim for violation of the FDCPA could exist absent any contract and thus it is a pure tort claim,” and Oklahoma law only allows for the assignment of claims arising from contracts or subrogation. In granting the collection agency’s Motion to Dismiss, Judge Cauthron concluded that a FDCPA claim based on the furnishing of inaccurate information to consumer reporting agencies is a pure tort claim not assignable to a third party.

It is long-established common law in Oklahoma that pure tort claims are non-assignable as a matter of public policy. Going forward, the critical question for defending these cases will be the applicable state law that determines whether an assigned claim is framed as a tort arising from a contract or as a pure tort existing regardless of any contractual relationship between the assignor and the original creditor. Even though the assignor in Dotson “may have had a contract with Verizon and that as a result of that contract there was some alleged violation of the FDCPA, [this] does not equate to [Plaintiff’s] tort claim arising in contract.” Debt collectors may be able to defeat assigned FDCPA claims by showing that a FDCPA violation merely could exist even in the absence of a contract, making such claims non-assignable pure tort claims under the laws of many states.

We will be keeping a close eye on whether the plaintiffs’ bar adopts new strategies to respond to this ruling in an effort to frame FDCPA claims as arising out of contracts rather than torts. And stay tuned, as the plaintiff in Dotson has filed a Notice of Appeal with the Tenth Circuit.

Appeals Court Rules Sending Text Messages Confers Consent to be Contacted

The Court of Appeals for the Ninth Circuit has affirmed a lower court’s ruling that an individual’s text messages sent to a financial institution constitute providing expressed consent to be contacted on a mobile phone via an automated telephone dialing system under the Telephone Consumer Protection Act, but that the lower court abused its discretion in determining that attorney’s fees meet the definition of “costs.” More details here.

WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: This is another common sense decision by the 9th Circuit Court of Appeals. Yes, I said the 9th Circuit. Recently, we have seen a good slate of good decisions from the 9th Circuit in the last two years. (See Meier v. Allied Interstate LLC, which basically puts the nail in the coffin as to TCPA autodialer claims).

As the 9th Circuit has said in the past, and as I have discussed in numerous TCPA Webinars, the knowing release of a cell phone number to a business without instructions to the contrary grants that business consent under the TCPA to contact the cell number via automatic telephone dialing systems and prerecorded messages. Here, notorious serial filer plaintiff Craig Moskowitz texted defendant ABS to ABS’ short code through his cell phone number 10 times and thus provided his cell phone number voluntarily 10 times. ABS then texted back. Binding precedential case law in the 9th Circuit had already held that providing a telephone number to a business as part of telephone communications to that business constitutes express consent under the TCPA to a responsive contact from that business within the scope of that communication. Plaintiff’s TCPA case was DOA!!! Another loss for this noxious serial filer.

It just keeps on getting better for businesses these days.

Appeals Court Reverses Ruling in Favor of Collection Law Firm

The Court of Appeals for the Sixth Circuit has overturned a lower court’s ruling in favor of a collection law firm that was sued for attempting to collect a debt from the spouse of the actual debtor, ruling that the law firm did not exhaust all of its efforts to collect from the actual debtor first, under state law in Ohio. More details here.

WHAT THIS MEANS, FROM CAREN ENLOE OF SMITH DEBNAM: The Sixth Circuit’s decision in Snyder v. Finley & Co., L.P.A. should catch the attention of collection attorneys everywhere not only for its application to the FDCPA in the context of litigation but also for its use of a quasi Rule 11 standard for § 1692e violations. Section 1692e prohibits a debt collector from making any false, deceptive or misleading representation in connection with collection of a debt.   Rule 11 of the Rules of Civil Procedure states that by signing a pleading the attorney certifies to the best of his knowledge that the claims, defenses, and other legal contentions are warranted by existing law or by a non-frivolous argument for extending, modifying, or reversing existing law or for establishing new law. 

In Snyder, the consumer alleged that the collection law firm violated the FDCPA when it sued the consumer and her husband to recover her husband’s criminal-defense legal fees. The consumer’s liability in the collection lawsuit was based upon Ohio’s Necessaries Statute. The trial court in that action dismissed the claims against the consumer and the creditor’s appeal of that dismissal was dismissed as interlocutory. The lawsuit against the husband remains pending and presumably, the appeal as to the consumer will be revisited after the lawsuit is resolved.

In its review of the FDCPA litigation, the Sixth Circuit applied a quasi-Rule 11 standard as to whether the legal contention was objectively baseless at the time it was made. Importantly, the Sixth Circuit then reversed the district court noting that the parties and district court’s focus on whether attorneys’ fees constitute “necessaries” was misplaced and held that the lawsuit did not comply with the Necessaries Statute’s procedural conditions precedent – specifically, that the creditor has exhausted its debt collection efforts against the debtor before attempting to collect from a spouse. In other words, a pleading deficiency. 

The decision should be of some concern to collection attorneys for a couple of reasons. First, collection attorneys should take note of the application of a quasi-Rule 11 standard under § 1692e and the importance of carefully pleading claims which are outside the traditional breach of contract claims to ensure they can withstand the scrutiny. Secondly, the Sixth Circuit’s (as well as the District Court’s) decision to adjudicate FDCPA claims based upon ongoing litigation is troublesome and premature. Finally, the standard applied by the Sixth Circuit crosses swords with Rule 11 which allows for nonfrivolous arguments for extending, modifying or reversing existing law or for establishing new law.  The Sixth Circuit’s application, here, does not appear to allow for the same.

Class-Action Filed Against Collector For Allegedly Ignoring Validation Request

A class-action complaint has been filed in federal court in Massachusetts, accusing a company of violating the Fair Debt Collection Practices Act by not responding to a dispute request that was submitted by an individual after receiving a collection letter from the defendant. More details here.

WHAT THIS MEANS, FROM CARLOS ORTIZ OF POLSINELLI: The plaintiff filed a putative class action claiming that the defendant violated section 1692g(b) of the FDCPA when it allegedly failed to provide the plaintiff with verification of the account balance after the plaintiff timely disputed its validity in writing. According to the complaint, the defendant allegedly continued collection activity despite its receipt of the dispute. The plaintiff alleged that she sent the dispute via email to the defendant within thirty days of the initial communication.

Under 1692g(b), a collection agency is required to cease collection efforts immediately upon receipt of the dispute. This requirement to immediately cease collection efforts until verification of the account balance is sent to the debtor is applicable for only the thirty day period following the initial communication. Yet, immediately ceasing collection efforts can be almost impossible for collection agencies unless there are procedures in place for receiving correspondence from debtors, identifying a dispute and isolating the disputed accounts until verification of the account balance is sent to the debtor. Thus, collection agencies should consider whether the best practice is to refrain from collection efforts until after the thirty day period following the initial communication has passed and no dispute is received.

Judge Denies MTD in Hunstein Copycat Case

A District Court judge in Washington has denied a defendant’s motion to dismiss after it was sued for allegedly communicating information about a debt with an unauthorized third party that printed and mailed a collection letter to the plaintiff, ruling that the language of the Fair Debt Collection Practices Act “bars debt collectors from communicating consumer-debt related information to mail vendors” which could be a blow to anyone defending itself against Hunstein claims across the country. More details here.

WHAT THIS MEANS, FROM CHUCK DODGE OF HUDSON COOK: Notwithstanding the absence of any indicia of consumer harm from the practice of using a letter vendor, the Hunstein case continues to haunt debt collectors who outsource that administrative task. The Plaintiff’s claims in this case survive a motion to dismiss, with final adjudication on the law and facts yet to come. But in this decision, the District Court in Washington rejects a number of arguments made in most Hunstein copycat case defenses: providing information to the letter vendor electronically to populate a letter template (electronically) and mail the letter is not a “communication;” that the agency relationship between the debt collector and letter vendor makes the communication permissible; and that the Transunion v. Ramirez SCOTUS decision on standing says the consumer has to articulate a harm in order to bring a claim. The court rejects the debt collector’s argument and focuses on the statute. And because 15 USCA § 1692c(b) prohibits debt collectors from “communicat[ing], in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector,” and that list does not include letter vendors or other agents, the court found the “communication” from the debt collector to its vendor impermissible. As courts continue to decide cases on each side of this question, we await the 11th Circuit’s decision on Hunstein following the en banc hearing this past February and hope for useful precedent. In the interim, it remains risky for debt collectors to continue to use letter vendors in jurisdictions, now including Washington state, where courts have issued decisions agreeing with Hunstein.

Class Action Accuses Collector of Violating FDCPA via Text Message

A class-action complaint has been filed in federal court in North Carolina accusing a collector of violating the Fair Debt Collection Practices Act by sending a text message to a consumer that created “a false sense of urgency” because of how it was worded, and for not identifying itself as a debt collector when it was contacted by the plaintiff. More details here.

WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: When I first heard of a new FDCPA complaint filed over a text I thought it must involve Regulation F issues. It does not. There is no reference to the new rules. However. Rivera v Capital Link Management packs a lot of issues in it. One class count is over the text and how it lacks numerous items one might expect in a collection communication (for instance, Evory settlement safe harbor and a reference to “debt collector”). The other count is over comments made in a collection call (for instance, about a “mediation” service and “legal documents”).

This is only a complaint. I had to remind myself of that a few times. The defendant likely has explanations and we’ll follow it to see what they are. In the least, the pleading highlights one of the risks of texts: how do you format the communication to cover needed content? That is a discussion that goes well beyond this short blurb.

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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