Saturday, December 11, 2010

FYI: 11th Cir Says Payment Through Internet-Based Intermediary Was FDCPA "Debt"

The United States Court of Appeals for the Eleventh Circuit recently held that the reversal of payment and related fees charged by an internet-based payment intermediary to its customer after a third-party's payment was determined to be fraudulent was a "debt" under the Fair Debt Collection Practices Act 15 U.S.C. §§ 1692 et seq. ("FDCPA"), and the Florida Consumer Collection Practices Act, Fla. Stat. §§ 559.72 et seq. ("FCCPA").
A copy of the opinion is available at:
Plaintiff-debtor received the proceeds from the sale of a laptop through internet-based intermediary PayPal.  PayPal subsequently discovered that the laptop purchaser's payment was fraudulent, and demanded Plaintiff-debtor reimburse PayPal for the payment and related fees pursuant to the PayPal User Agreement.  PayPal then employed Defendant-debt collector to pursue the funds when Plaintiff-debtor refused to reimburse the payment and fees.  Plaintiff-debtor brought suit against Defendant-debt collector, alleging that the collection efforts constituted a form of harassment and contained false and misleading representations in violation of the FDCPA, FCCPA, and for common law invasion of privacy by intrusion.
Defendant-debt collector moved for summary judgment on all counts, arguing Plaintiff-debtor's obligation to PayPal did not constitute a "debt" under the FDCPA or the FCCPA, and that Plaintiff-debtor did not plead sufficient facts to maintain the claim of invasion of privacy.  The District Court granted the motion as to the privacy claim but not the FDCPA and FCCPA.  Plaintiff-debtor was awarded damages and fees at trial.  Defendant-debt collector appealed the lower court's denial of its motion for summary judgment, and the Appellate Court affirmed.
As you may recall, "to recover under both the FDCPA and the FCCPA (a Florida state analogue to the federal FDCPA), a plaintiff must make a threshold showing that the money being collected qualifies as a 'debt.'" The FDCPA and the FCCPA identically define "debt" as: "any obligation or alleged obligation of a consumer to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes, whether or not such obligation has been reduced to judgment. 15 U.S.C. § 1692a(5) and Fla. Stat. § 559.55(1) (emphasis added).  "Accordingly, the FDCPA and FCCPA apply only to payment obligations of a (1) consumer arising out of a (2) transaction in which the money, property, insurance, or services at issue are (3) primarily for personal, family, or household purposes."
Analyzing the case before it under the three prongs, the Eleventh Circuit first held that Plaintiff-debtor was a "consumer," reasoning that Plaintiff-debtor was a purchaser of PayPal's services.  In addition, "the mere fact that Plaintiff-debtor consumes PayPal's services in order to facilitate a separate sale does not thereby negate his consumer status with respect to PayPal."
The Eleventh Circuit next held that a "transaction" occurred for purposes of the FDCPA and FCCPA.  "At a minimum, a 'transaction' under the FDCPA must involve some kind of business dealing or other consensual obligation." In this case, Plaintiff-debtor "had utilized PayPal's services in a transaction and, according to the terms of that transaction, was under a contractual obligation to repay the money."   In addition, Plaintiff-debtor's "transaction with PayPal did not cease upon the transfer of funds to his account; rather, he remained under a continuing contractual obligation to refund any invalidated payments—an obligation which arose from the transaction itself." 
Rejecting Defendant-debt collector's argument, the Court distinguished the case before it from previous cases in which erroneous credits to customers' accounts by banks were held not to be "transactions" under the FDCPA.  In those cases, there is was no indication "that the debtors had a contractual obligation dictating their liability in the event of any overpayment."
Lastly, the Defendant-debt collector argued on appeal that the subject transaction was for commercial purposes and therefore the Plaintiff-debtor did not satisfy the requirement that the services provided be "primarily for personal, family, or household purposes."  However, Defendant-debt "was not clearly raised" in Defendant-debt collector's initial brief, and therefore the Court deemed the issue waived. 
Notwithstanding the waiver, the Eleventh Circuit held the third prong was satisfied because the Plaintiff-debtor did "not run a business and specifically registered his PayPal account as a 'personal account,' which the User Agreement defines as an account 'used for non-business purposes and used primarily for personal, family, or household purposes.'"
Let me know if you have any questions.  Thanks.


Ralph T. Wutscher

Kahrl Wutscher LLP

The Loop Center Building

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Chicago, Illinois  60602
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