Compliance Digest – September 19

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 Rules Third-Party Disclosure Violations Only Apply to Consumers

The Eighth Circuit Court of Appeals has upheld a lower court’s ruling in favor of a defendant that was sued by an attorney for violating the Fair Debt Collection Practices Act because he was sent a letter identifying him as the attorney for a consumer named in the letter, when, in fact, he was not representing the consumer. More details here.

WHAT THIS MEANS, FROM STACY RODRIGUEZ OF ACTUATE LAW: In Magdy v. I.C. System, Inc., the Eighth Circuit Court of Appeals affirmed the dismissal of an FDCPA third-party disclosure lawsuit due to lack of standing. But, it is not what you might assume based on the last year of reading Article III standing arguments in the Hunstein context. In this case, Article III standing was not disputed. Instead, the Court found the plaintiff lacked statutory standing, entitling the defendant to a judgment as a matter of law.

Here, the debt collector sent a collection letter to a bankruptcy attorney identifying the attorney as counsel for the debtor. This allegedly was a mistake. Upon confirming that he had never represented this debtor, the bankruptcy attorney sued the debt collector for a violation of 15 U.S.C. § 1692c(b), which prohibits a debt collector from communicating with a third party in connection with the collection of a debt. The attorney, however, did not purport to bring the claim on behalf of the debtor whose debt information allegedly was disclosed, but on his own behalf. The attorney claimed that he was injured by this violation because the process of confirming that this debtor was not, in fact, a client consumed the attorney’s time and resources. 

The Eastern District of Missouri rejected this claim, granting the debt collector’s motion for judgment on the pleadings. On appeal, the Eighth Circuit affirmed, determining that “a third-party attorney unaffiliated with the relevant consumer” does not “fall[] within the class of plaintiffs that Congress has authorized to sue under § 1692c(b),” such that the case must be dismissed even though the debt collector had failed to comply with the FDCPA. The Court did not foreclose the possibility that other sections of the FDCPA may provide a cause of action for persons other than consumers, but found that “the purpose of § 1692c(b) is to protect consumers alone” and “not third parties.” Instead of remanding the case back to state court where it originally was filed, as may occur as part of an Article III standing decision, the Eighth Circuit confirmed that a statutory standing ruling is merits-based and not merely jurisdictional. 

It is nice to see the Eighth Circuit rein in the recent effort of the plaintiff’s bar to expand the scope of 1692c(b), the FDCPA’s third party disclosure provision. This case is a good example of how persistence and a determination to see a defense  through to the end can pay off and benefit the entire industry with a clear and favorable opinion.


Appeals Court Denies Defendant’s Attempt to Reduce Attorney Fee Award in FDCPA Case

The Court of Appeals for the Ninth Circuit has denied a collection agency’s appeal of the attorney’s fees awarded to plaintiff’s counsel by a District Court judge in a Fair Debt Collection Practices Act case, rejecting a number of arguments made by the agency why the award should be reduced. More details here.

WHAT THIS MEANS, FROM CARLOS ORTIZ OF POLSINELLI: In this FDCPA action, the Ninth Circuit affirmed a district court’s award of attorney’s fees awarded to the plaintiff in the amount of $53,604. The plaintiff accepted the defendant collection agency’s offer to settle, and the district court entered judgment more than two years after the commencement of the lawsuit. A term of the offer of settlement was for the court to decide reasonable attorney’s fees and costs. The $53,604 award of attorney’s fees included a reduction of approximately 17.2% based on the district court agreeing with a number of the defendant’s objections to plaintiff’s fee petition.

One of the defendant’s primary arguments on appeal was that the attorney’s fees award should be reduced because it included time prior to when the plaintiff’s attorneys were admitted pro hac vice. In disagreeing with that argument, the Ninth Circuit reasoned that while the plaintiff’s attorneys were not initially admitted in that jurisdiction, they eventually did apply for admission and were admitted and there was no reason to believe they would not have been admitted ‘as a matter of course’ had they applied at the outset of litigation.

Arguing over attorney’s fees is often a very difficult task, and defendants may ended up spending more money than what they save. Here, the offer of settlement was entered more than two years after the case started. While it is unclear why that amount of time had passed before the case was settled, it often is in a defendant’s best financial interests to attempt to resolve a FDCPA case early into the litigation to avoid disputes over large amount of attorney’s fees, if possible.

Judge Grants MSJ for Defendant in Case Over Social Security Number

A District Court judge in Illinois has granted a defendant’s motion for summary judgment in a Fair Debt Collection Practices Act case involving how the defendant, and the original creditor, came to be in possession of the plaintiff’s husband’s Social Security number. More details here.

WHAT THIS MEANS, FROM CHRIS MORRIS OF BASSFORD REMELE: This case illustrates the importance of obtaining admissible evidence to present to the Court at the summary judgment stage. In this FDCPA claim, plaintiff alleged that a collection agency defendant falsely represented it verified a disputed debt by obtaining the consumer’s social security number from the creditor, Comcast (a third party to the case). Plaintiff contended that Comcast denied during a phone call with her that it provided a full social security number to the collection agency.  But the Court refused to consider the Plaintiff’s characterizations of Comcast’s statements on that phone call, because it was “pure hearsay”, and Plaintiff did not obtain any documents or testimony from Comcast or the agency supporting Plaintiff’s characterization of that phone call. The Court thus granted summary judgment to the agency.

Judge Denies MTD in FDCPA Case Over Disputed Debt

A District Court judge in Washington has denied a defendant’s motion to dismiss, ruling that the plaintiff’s notification that she was disputing the debt invalidated the defendant’s representation that the plaintiff had not appeared in an underlying collection lawsuit, thus negating the Fair Debt Collection Practices Act’s one-year statute of limitations. More details here.

WHAT THIS MEANS, FROM STEFANIE JACKMAN OF TROUTMAN PEPPER: Although unfortunate, the timing of the default judgment motion filing here that concerned the court was very likely the result of an unintentional, process-related internal disconnect and not any sort of desire to confuse the consumer. But that doesn’t change the reality that the defendant now faces litigating and resolving the plaintiff’s FDCPA claim on an aged judgment that now is a cost center, as opposed to a revenue source. This case highlights the importance of continuing to invest resources into internal account systems to enhance and support the ability of such systems in managing account-related developments. Functionality that records account events and updates real-time to systemically stop and adjust related activities on the account is critical in preventing issues that can result in lost revenue and lost opportunity to the company.

Appeals Court Dismisses Hunstein for Lack of Standing

The Court of Appeals for the Eleventh Circuit issued its long-awaited ruling in Hunstein v. Preferred Collection & Management Services today, dismissing the case because the plaintiff lacked standing to sue in federal court. More details here.

WHAT THIS MEANS, FROM MITCH WILLIAMSON OF BARRON & NEWBURGER: Woo Hoo, we won, we won. The witch is dead! Except not really.

Since there have already been a million webinars-seminars-coffee klatches (perhaps I exaggerate a bit) discussing the import of the Hunstein decision and its effect on life as we know it, I’d like to offer a more simple and direct perspective. It changes nothing. It changes nothing. 

It only took one month after the TransUnion decision for District Judge Gary R. Brown, of the Eastern District of New York, to grab six newly filed cases before him and dismiss them sua sponte for lack of Article III standing (no concrete damages). Those cases were subsequently re-filed in state court within a week or two. Since then, federal judges across the country latched onto that exercise in judicial activism and realized they finally found the golden ticket, a way to cut down on the number of pesky FDCPA cases on their docket, which truth be told were not their favorites. We are also seeing these review expand to non-letter vendor cases. Letter cases are ripe for this treatment.

Let there be no mistake, letter vendor cases are not going away, as least for the immediate future. It will take time and decisions directed to the merits of the claims before that happens. As a result, the new normal is that we will see a large percentage, if not the majority, of new claims. 3rd party vendor or otherwise, are being filed in the state courts. It started last summer and has continued to grow. This can either be good or bad, depending both on the particular state, and county/jurisdiction within the state. This will be a boots on the ground appraisal for local counsel. 

Another takeaway is that from now on ALL complaints have to be scrutinized regarding damages in those cases where only statutory damages are sought. Being able to establish that there were no real damages and therefore a case is meritless may well resonate in some state courts where judges will frequently rule based on their gut as opposed to prior federal decisions. 

Pair of NDIL Hunstein Cases Remanded Back to State Court for Lack of Standing

While there may be people in the industry celebrating that the Hunstein case was dismissed by the Eleventh Circuit Court of Appeals yesterday, a pair of recently issued rulings from the Northern District of Illinois illustrate that the fight over the use of letter vendors to print and mail collection letters is not over — it’s just being relocated to state court instead. More details here.

WHAT THIS MEANS, FROM DAVID SCHULTZ OF HINSHAW CULBERTSON: These two cases from the Northern District of Illinois repeat what many other district courts and the majority of the 11th Circuit have held: the “Hunstein” theory does not rise to the level of injury Article III requires. If the plaintiff’s bar prosecutes the theory further, it will likely be in state courts unless another Circuit Court of Appeals holds differently than the 11th Circuit.

We will see if the theory continues to be litigated. If so, I am fine defending them in state courts. There is a strong argument that Supreme Court in Transunion rejected the theory. The Hunstein concurrence explained that “[w]hen the Supreme Court rejected the mail-vendor argument for Article III standing as unpreserved, it also alternatively rejected it as ‘unavailing.’ ” TransUnion, 141 S. Ct. at 2210 n.6. We are bound by that alternative rationale. See Bravo, 532 F.3d at 1162.

Thus, in state court, we can point to the fact that federal courts have regularly held that the theory does not rise to the level of an “injury.” I think a state court will be influenced by that when making a merits ruling. We also can cite to the Supreme Court Transunion opinion and the Hunstein concurrence to argue the theory should be rejected. There is further support to reject the theory. In sum, the defense has a lot of ammunition to take on the letter vendor theory.

Judge Denies Motion to Remand FDCPA Case Over Text Messages, Voicemails Back to State Court

A District Court judge in California has denied a motion to remand a Fair Debt Collection Practices Act class-action lawsuit back to state court, ruling that the content of text messages and voicemails sent to the plaintiff by the defendant establish standing for the plaintiff’s claim to remain in federal court. More details here.

WHAT THIS MEANS, FROM CHUCK DODGE OF HUDSON COOK: This is yet another in a long line of cases where the plaintiff’s standing is at issue, but there is a twist. The plaintiff in this case argued that she did not have Article III standing to allow her case to go forward in federal court. The plaintiff had filed her Rosenthal Act and FDCPA claims in California state court, and the defendant removed to federal court. Evidently not feeling confident that she would prevail on her claims in federal court, the plaintiff moved for a remand to state court.  In her complaint she had alleged that the defendant’s text messages and voicemails were unwelcome, that they lacked a Mini-Miranda notice, that they misled her about whether the defendant would file suit and that they created a false sense of urgency. The Court, looking at other FDCPA cases, found that those allegations, if proven, would constitute a concrete harm sufficient to establish Article III standing. Plaintiff walked a pretty fine line in this motion, potentially undermining her claims for damages by saying there was no concrete or substantive harm from the alleged messages that would be sufficient for Article III standing.  The court finished its short analysis by noting that the plaintiff’s claims were not just procedural, and that they address substantive harms the FDCPA was designed to redress for consumers.  So the court denied the motion, and the case will proceed in federal court.

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

Second Circuit Rules CFPB Funding Structure is Constitutional in Affirming CID Against Collection Law Firm

The Court of Appeals for the Second Circuit today issued a ruling that upheld a …

Leave a Reply

Your email address will not be published. Required fields are marked *