Compliance Digest – July 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, 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.

Judge Grants MSJ in FDCPA Case Involving Hunstein Claim

A District Court judge in Illinois has granted a defendant’s motion for summary judgment in a Fair Debt Collection Practices Act case, illustrating why it’s a good decision sometimes to take the extra steps of going through discovery instead of attempting to win on a motion to dismiss, while also potentially providing some ammunition for anyone fighting Hunstein lawsuits. More details here.

WHAT THIS MEANS, FROM PATRICK NEWMAN OF BASSFORD REMELE: Indulge me in a golf metaphor. I was taught at a young age that if you’re playing for money, you win or lose on the first tee when you pick the rules for the game. In other words, understanding the relative strengths and weaknesses of your game — as well as your opposition’s — at an early stage and using them to devise your strategy is critical to on-course success. Equally true in litigating cases under a fee-shifting statute!

It is evident from the selected litigation strategy in this case that the defendant and its counsel considered these factors from the beginning. The decision to engage in discovery and present facts to the court on summary judgment, rather than fire off an ill-advised motion to dismiss (on which the court is required by rule to accept all well pleaded facts as true), paid off. They picked apart the plaintiff in deposition, put together a great fact record for summary judgment, and got the W.

Internalize these strategic insights; implement them; get more wins (on the course or in the courtroom)!


Judge Grants MTD in FDCPA Case Involving Hunstein Claim

A District Court judge in New York has granted a defendant’s motion to dismiss in a Fair Debt Collection Practices Act case, ruling the plaintiff lacked standing to file claims that the defendant violated the statute’s third-party disclosure provisions by using a third party to print and mail a collection letter. More details here.

WHAT THIS MEANS, FROM LAUREN BURNETTE OF MESSER STRICKLER BURNETTE: While the Eleventh Circuit continues its en banc reevaluation of the original Hunstein claim, other federal courts around the country have for the most part rejected the concept that this type of claim causes concrete harm. But remember, when a federal district court determines it lacks Article III standing and dismisses a claim for lack of subject matter jurisdiction, this is not a dismissal on the merits—rather, it merely means the federal district court, as a court of limited jurisdiction, can’t adjudicate the claim. Assuming their claims are still timely, consumers can simply re-file their claims in state court—and in some areas of the country, consumers are doing just that. It is becoming increasingly clear that a merits-based evaluation of the Hunstein theory of liability is more likely to occur in state rather than federal court, and defendants would do well to examine their state’s laws to begin evaluating their available defenses.

Judge Denies Motion to Compel Arbitration in FDCPA Case

A District Court judge in California has denied a defendant’s motion to compel arbitration in a Fair Debt Collection Practices Act case, ruling that the collection law firm’s actions were independent of the original creditor, and thus not subject to the original agreement’s arbitration clause. More details here.

WHAT THIS MEANS, FROM ETHAN OSTROFF OF TROUTMAN PEPPER: In this case, the applicable South Dakota law governing the agreement at issue says that a nonsignatory to an arbitration agreement can compel arbitration when a plaintiff alleges “substantial interdependent and concerted misconduct” between that nonsignatory and signatory. However, the court found that because Estrada did not allege “substantial interdependent and concerted misconduct” between the signatory-creditor and the nonsignatory-defendant collection law firm, the plaintiff’s claims against the defendant were therefore independent of her claims against her original creditor, and, thus, the collection law firm could not compel arbitration. 

The court refused to infer that law firm and the original creditor worked “in concert,” even though Estrada alleged that the original creditor retained the law firm to collect the debt on its behalf. The law firm argued that as an “agent” of the original creditor, it could enforce the arbitration provision between Estrada and the original signatory-creditor. However, the court reasoned that “South Dakota treats the ability of agents to compel arbitration as a species of equitable estoppel,” and that there is “no freestanding agency theory in South Dakota law.”

Under South Dakota’s equitable estoppel law, a nonsignatory can enforce an agreement when “all the claims against the nonsignatory defendants are based on alleged substantially interdependent and concerted misconduct by both the nonsignatories and one or more of the signatories to the contract.” The court ruled that “the presence of allegations common to both the signatory and nonsignatory is not enough to satisfy the concerted-misconduct test. Further, because Estrada did not allege that the nonsignatory worked in concert with the signatory, equitable estoppel did not apply under South Dakota law.

The compliance takeaway from Estrada is for debt collectors to determine the legal implications of any state law provisions governing the underlying agreements between consumers and original creditors. The arbitration provision involved in Estrada was governed by not only federal law, but also South Dakota law. The court rejected the motion to compel arbitration based entirely on the unique requirements of South Dakota equitable estoppel. Nonsignatory defendants, especially collection agencies assisting original creditors, would be wise to investigate the potential federal and state laws on which future litigation could turn.  

Collection Agency Wins MSJ Against S.C. AG in Anti-Spoofing Lawsuit

A big win for the industry, thanks to Chad Echols and David Grassi from The Echols Firm, which won a summary judgment ruling from a District Court judge in South Carolina yesterday against the state Attorney General, with the judge ruling that a state law governing the spoofing of phone numbers is pre-empted by federal legislation and violates the Constitution’s Commerce Clause. More details here.

WHAT THIS MEANS, FROM DAVID KAMINSKI OF CARLSON & MESSER: This excellent ruling concerned South Carolina’s anti-spoofing law that required anyone who calls into South Carolina using a South Carolina number on their Caller ID to have a local presence in that state. Defendant URS was sued for violating that law.

The state had previously been defeated on a motion to dismiss, when the Attorney General claimed that URS had no standing (under Article III of the Constitution) to sue under the statute. Then, the Federal District Court ruled on the ultimate question in the case: Whether or not the South Carolina anti-spoofing statute was unconstitutional and conflicted with the Federal Truth in Caller ID Act. The Court’s recent ruling that South Carolina’s anti-spoofing statute is unconstitutional represents a great win for the industry. This is where the Court has used common sense in its decision reasoning that South Carolina’s anti-spoofing statute went too far because it attempted to regulate communications beyond the borders of South Carolina and thus violated the interstate commerce clause, and was preempted by the Federal Truth in Caller ID Act.

One down and so many more to go. The fights continue!!

Judge Grants TRO Against Defendant in FDCPA Case

It’s uncommon to see court rulings that relate to debt collection efforts that are ongoing, but that’s what we have in this situation. A District Court judge in Illinois has granted a plaintiffs’ motion for a temporary restraining order and preliminary injunction that orders the defendant in a Fair Debt Collection Practices Act case to stop engaging in abusive communications toward the plaintiffs. More details here.

WHAT THIS MEANS, FROM MIKE FROST OF MALONE FROST MARTIN: A lesson to be learned from this case is simply to restrict all communications or debt collection attempts to any named plaintiff regarding the underlying debt until the case is resolved. Here, the defendant continued collection activity on the account when pending litigation surrounded the very actions that the plaintiff alleged violated the law.  Regardless of whether the account being collected is a business or personal debt that should not change the defendants position in pausing collection activity on the subject account until the alleged illegal conduct is considered by the court.

WHAT THIS MEANS, FROM JOHN REDDING OF ALSTON & BIRD: Oh come on! As if we don’t have enough trouble with people’s perception of debt collectors, plaintiffs in this action have alleged the defendant refused to stop calling even after being told the debtors were represented by counsel … and after acknowledging the debt didn’t belong to the plaintiffs but instead to their son! But it gets better. Defendant allegedly called the plaintiffs after speaking with their counsel, used abusive language, harangued plaintiffs’ employees and cost them business, and just acted poorly all around.  

As a result, and in a move that should surprise exactly nobody, the court issued a TRO and preliminary injunction prohibiting defendants from (i) contacting plaintiffs except through counsel, (ii) contacting plaintiffs’ family members, (iii) contacting plaintiffs’ business associates or employees. It also ordered defendants comply with the FDCPA. The court, in granting the TRO, noted the injunction was necessary “to protect Plaintiffs from plainly illegal conduct” and that requiring the defendants comply with law did not impose any additional burden on them (at least it shouldn’t). While there are never any guaranties in litigation, this one’s not starting out well for the defendant. 

Judge Partially Grants MTD in FDCPA Case Over Lack of License

A District Court judge in New Jersey has granted a defendant’s motion to dismiss on one count it violated the Fair Debt Collection Practices Act, but otherwise denied the motion it violated the statute by placing a debt to be collected without having a proper license to do so. More details here.


WHAT THIS MEANS, FROM RICK PERR OF KAUFMAN DOLOWICH & VOLUCK: The case focuses on whether a New Jersey consumer loan license is required by a passive debt buyer which utilizes an independent collection agency to collects its portfolio. While NJ federal courts suggest an expanded reading of the state statute requiring a license, a recent NJ state court held that such a license was not required for debt buyers collecting paper and not themselves making loans. The federal court here declined to adhere to the state court opinion as it was a trial court opinion and not an appellate court opinion. 

Agency Sued for Not Using Proper Condition Code

A complaint has been filed against a collection agency, accusing it of violating the Fair Credit Reporting Act and the Fair Debt Collection Practices Act by using the wrong condition codes when furnishing information about the debt to the credit reporting agencies. More details here.

WHAT THIS MEANS, FROM DAVID SHAVER OF SURDYK DOWD & TURNER: Though everyone in the ARM industry knows that consumers will sue agencies (and others) for just about anything, and the filing of a complaint certainly doesn’t equate to a finding of liability or a violation of the FDCPA or FCRA, agencies can help protect themselves from having to defend complaints like the one filed in Wright v. AR Resources by continuing to report disputed accounts using the “XB” compliance condition code even after investigating and responding to a prior dispute. Of course, every account and dispute should be analyzed individually and agencies should report the compliance condition code that accurately reflects the factual circumstances presented for that account at the time of reporting.

However, unless consumers explicitly state that they no longer dispute an account or what is being reported by the agency, it is often the case that the consumer still disputes the account (or what is being reported) and that the “XB” compliance condition code still applies to best reflect the consumer’s ongoing, active dispute. An agency’s investigation of and response to a prior dispute does not necessarily mean that the consumer shares the agency’s view of the situation and, as agencies who credit report accounts know all too well, consumers will sometimes continue to submit the same dispute over and over again, thereby reflecting the ongoing nature of the dispute and the appropriateness of continuing to use the “XB” compliance condition code when reporting.

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.

Check Also

FCC Banishes Telecom Company After Not Addressing Robocall Rules

The Federal Communications Commission yesterday announced it had excommunicated a telecom company for failing to …

Leave a Reply

Your email address will not be published.