Monday, December 15, 2014

FYI: SD Fla Holds "Estimated Fees" in Reinstatement/Payoff Quote Did Not Violate FDCPA or Parallel State Law

The U.S Court District Court for the Southern District of Florida recently entered summary judgment in favor of a servicer and against a borrower, ruling that a reinstatement or payoff letter that contained itemized estimated legal fees that the servicer did not actually incur did not violate the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et. seq. (“FDCPA”) or the Florida Consumer Collection Practices Act, Fla. Stat. § 559.55, et. seq. (“FCCPA”).


In so ruling, the district court found that the reinstatement letter, which contained clearly separated incurred legal fees and estimated future legal fees, did not violate § 1692f(1) or § 1692e of the FDCPA or § 559.72(9) of the FCCPA.


A copy of the Court’s order attached.


This action concerns a loan a bank extended to the borrower in April of 2004.  The borrower signed a promissory note which was secured by a mortgage on his real property.  The borrower defaulted on the loan in August of 2012.  The servicer began servicing the loan in October of 2012. The servicer retained a foreclosure law firm.


In August of 2013, the borrower requested to reinstate the mortgage.  On September 4, 2013, the servicer sent a letter to the borrower stating that “the reinstatement amount if received between 9/4/2013 and 9/27/2013 is $15,569.64.”  Under the heading “Reinstatement Amount,” the servicer provided borrower with an itemized list of charges. These charges included $1,125 for “Legal Fees F/C” under the heading “Actual Charges Through 9/27/2013” and $3,175 for “Estimated Legal/Attorney” under the heading “Estimated Charges Through 9/27/2013.”


The borrower paid the full $15,569.64 to servicer on September 26, 2013, and filed this action on October 3, 2013 alleging violations of the FDCPA and FCCPA.  The servicer had not incurred the estimated legal fees at the time the borrower made his reinstatement payment and sent a refund check to borrower for $3,175 on November 14, 2013.  At the close of discovery, the parties filed cross-motions for summary judgment.


In support of his summary judgment motion, the borrower argued that there is no genuine issue of material fact that servicer committed “textbook violations” of the FDCPA, 15 U.S.C.§ 1692f(1), and the FCCPA, Fla. Stat. § 559.72(9), when the servicer sent borrower a dunning letter which included $3,175.00 for “estimated legal fees,” i.e., fees for services that had not been rendered.  The borrower cited to an Eleventh Circuit case in support of its FDCPA argument, Bradley v. Franklin Connection Service, Inc., 739 F.3d 606 (11th Cir. 2014), and cited to a Florida trial court opinion in support of his FCCPA argument. See Banner v. Wells Fargo Bank, No. 502007CA0008, 2011 WL 7501176, at *1 (Fla. 15th Cir. Ct. Oct. 25, 2011)).


In response and in support of its own summary judgment motion, the servicer argued that no violations occurred because borrower agreed to pay reasonable attorney’s fees, and the dunning letter included $1,125 in legal fees already incurred and clearly indicated that the remaining $3,175 in fees were “estimated.” See Miller v. McCalla, Raymer, Padrick, Cobb, Nichols, and Clark, L.L.C., 214 F.3d 872 (7th Cir. 2000).


At issue in the cross-motions for summary judgment was the appropriateness of the servicer charging “estimated legal fees.”


The district court began by noting that it was undisputed that on September 4, 2013, servicer sent a letter to borrower stating that the requested payoff amount was “good through 9/27/2013.”  It was also undisputed that the borrower testified that he understood that the $3,175 amount was an “estimated” legal fee, which he paid, and later received a refund of that exact amount. The borrower did not dispute the particular amount of $3,175, or how the figure was calculated.


The district court also observed that the servicer’s Corporate Representative testified that “because the reinstatement quote is good for an amount in the future, they have to include a cost that is about to happen in the future, as well.  That’s where the $3,175 came to.” Additionally, the corporate representative explained that the fee agreement with the foreclosure firm occurs “per stages of foreclosure,” and the $1,125 represented the fees for the first step of the foreclosure, and borrower was “about to enter in the next step, and that’s why the . . . $3,175 was quoted.”  The representative further explained that the foreclosure never entered into the next step “because [borrower] reinstated the loan fully.”


The district court found that these facts, in addition to the language of the agreement, were the material facts for deciding the cross-motions for summary judgment.


As you may recall, the FDCPA provides, in pertinent part: “a debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section: (1) the collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” 15 U.S.C. § 1692f(1).


Also, the FDCPA provides that “[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692f(1).


The FDCPA further provides that “[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.” 15 U.S.C. § 1692e. “The false representation of (A) the character, amount, or legal status of any debt; or (B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt” also constitute violations of the FDCPA. 15 U.S.C. § 1692e(2).


The relevant portion of the FCCPA provides: “[i]n collecting consumer debts, no person shall: . . . (9) Claim, attempt, or threaten to enforce a debt when such person knows that the debt is not legitimate, or assert the existence of some other legal right when such person knows that the right does not exist.” Fla. Stat. § 559.72(9).


Significantly, the relevant mortgage provides in pertinent part that:


9. Protection of Lender’s Interest in the Property and Rights Under this Security Instrument. If (a) Borrower fails to perform the covenants and agreements contained in this Security Instrument . . . then Lender may do and pay for whatever is reasonable or appropriate to protect Lender’s interest in the Property and rights under this Security Instrument, including protecting and/or assessing the value of the Property, and securing and/or repairing the Property. Lender’s actions can include, but are not limited to: (a) paying any sums secured by a lien which has priority over this Security Instrument; (b) appearing in court; and (c) paying reasonable attorneys’ fees to protect its interest in the Property and/or rights under this Security Instrument. . . All amounts disbursed by Lender under this Section 9 shall become additional debt of the Borrower secured by this Security Instrument. These amounts shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from Lender to Borrower requesting payment.


Also, with regard to bringing a default current, the mortgage provides:


19. Borrower’s Right to Reinstate After Acceleration. If Borrower meets certain conditions, Borrower shall have the right to have enforcement of this Security Instrument discontinued . . . Those conditions are that Borrower: (a) pays Lender all sums which then would be due under this Security Instrument and the Note as if no acceleration had occurred; (b) cures any default of any other covenants or agreements; (c) pays all expenses incurred in enforcing this Security Instrument, including, but not limited to, reasonable attorneys’ fees, property inspection and valuation fees, and other fees incurred for the purpose of protecting Lender’s interest in the Property and rights under this Security Instrument; and (d) takes such action as Lender may reasonably require to assure that Lender’s interest in the Property and rights under the Security Instrument, and Borrower’s obligation to pay the sums secured by this Security Instrument, shall continue unchanged. . . Upon reinstatement by Borrower, this Security Instrument and obligations secured hereby shall remain fully effective as if no acceleration had occurred.


The district court first addressed the borrower’s contention that Bradley v. Franklin Connection Service, Inc., 739 F.3d 606 (11th Cir. 2014) supports his argument that the servicer violated the FDCPA.  In Bradley, the plaintiff agreed with a medical service provider that “if this account is not paid when due, and the hospital should retain an attorney or collection agency for collection, I agree to pay all costs of collection including reasonable interest, reasonable attorney’s fees (even if suit is filed) and reasonable collection agency fees.”  Once the plaintiff did not pay, the medical services provider retained a collection agency, and the collection contract between them, which did not involve the plaintiff, added a 33-and-1/3% collection fee to the balance owed before the account was transferred to the collection agency. 


The Eleventh Circuit in Bradley held this violated the FDCPA because “there was no express agreement” between the plaintiff and the medical services provider “allowing for collection of the 33-and-1/3% fee.” Bradley, 739 F.3d at 610. In so holding, the Court explained that “it is the nature of the agreement between [the plaintiff and the medical services provider], not simply the amount of the fee that is important here.” The Court agreed that “the collection fee he paid violates [Section 1692f] of the FDCPA because the fee was really liquidated damages rather than the actual cost of collection,” and the plaintiff “agreed to pay the actual costs of collection; he did not agree to pay a percentage above the amount of his outstanding debt that was unrelated to the actual costs to collect that debt.”


The district court distinguished Bradley because here, the imposition of the $3,175 had a direct relation to the actual costs to collect the debt.  The letter sent to borrower indicated that the $3,175 was the amount for legal fees that the servicer estimated would be incurred between the date of the letter, Sept. 4, 2013, and the date the statement was good through—Sept. 27, 2013.  The borrower paid servicer $15,569.64 — an amount which included the estimated $3,175 — on Sept. 26, 2013, with the understanding that these attorneys’ fees were indeed an estimate.


The district court then stated that with the benefit of hindsight, the borrower asserts that the servicer never incurred these fees.  However, at the time servicer was called upon to state the amount of the debt on Sept. 4, 2013, servicer did not have the benefit of hindsight— and indicated, in a manner that borrower admits he understood, that it estimated incurring $3,175 in legal fees.


This estimate applied to the period between Sept. 4, 2013 and Sept. 27, 2013, a period of time during which the foreclosure could have proceeded and borrower would have incurred $3,175. The Court held this was authorized under the mortgage, as the servicer’s actions were reasonably required to assure the loan owner’s interests.


The Court also held that the fact that servicer’s estimation was not exact does not mean that it violated the FDCPA and FCCPA in the Sept. 4, 2013 letter — where the servicer clearly, and accurately, marked those fees as “estimates.” Compare Kaymark v. Bank of America, N.A., 11 F. Supp. 3d 496, 513-14 (W.D. Pa. 2014) (holding no FDCPA violation occurred where debt collector “itemized fees and costs that were yet-to-be-incurred on work that was yet-to-be-performed” in foreclosure complaint and rejecting “hypertechnical argument that the contract only provides for reasonable incurred charges for serviced performed”), and Elyazidi v. SunTrust Bank, Civ. No. DKC 13-2204, 2014 WL 824129, at *5-*7 (D. Maryland Feb. 28, 2014) (FDCPA complaint failed to state claim where “the assertions in documents attached to the warrant in debt as to the amount owed as attorneys’ fees were merely estimates of what would be due at the conclusion of the case.”), with McLaughlin v. Phelan Hallinan & Schmieg, LLP, 756 F.3d 240, 246 (3d Cir. 2014) (FDCPA complaint stated claim where Defendant did not distinguish between estimated amounts and accrued amounts: “[i]f [Defendant] wanted to convey that the amounts in the Letter were estimates, then it could have said so. It did not. Instead, its language informs the reader of the specific amounts due for specific items as of a particular date.”).


The Court also found no genuine issue of material fact regarding whether the pertinent communications satisfy the “least-sophisticated consumer” standard. See LeBlanc v. Unifund CCR Partners, 601 F.3d 1185, 1193-94 (11th Cir. 2010). Not only did borrower concede that he knew the amount was estimated, but his Reply references a phone call borrower made to servicer “to complain about the jump in his reinstatement amount from $12,000.00 to over $15,000.00.” The Court noted the borrower “was specifically advised this was due to the placement of the attorney fees at issue.”


The district court also distinguished LeBlanc from this action. The plaintiff in LeBlanc sued after receiving a dunning letter from a debt collector which contained the following warning: “if we are unable to resolve this issue within 35 days we may refer this matter to an attorney in your area for legal consideration. If suit is filed and if judgment is rendered against you, we will collect payment utilizing all methods legally available to us, subject to your rights below.” The Eleventh Circuit explained that a least-sophisticated consumer could read the letter in two ways: (1) “more informative than threatening and did not threaten imminent legal action,” or (2) “an overt or thinly-veiled threat of suit.” The Court emphasized though the letter used conditional language, such as “if” and “may,” when discussing “the event of suit, the tone of the letter shifts to more forceful language . . . we will collect payment utilizing all methods legally available to us.” Id. (emphasis in original). The Eleventh Circuit found that the parties reasonably disagreed on the proper inferences that can be drawn from the debt collector’s letter, and thus, the issue was for the trier of fact.


In this case, the letter separated the incurred charges from the estimated charges, and specifically labelled which charges were estimated and which were incurred.  The Court noted that the parties cannot reasonably disagree that any inference can be drawn from the dunning letter other than that the $3,175 in fees were estimated. Cf. Pettway v. Harmon Law Offices, P.C., No. 03-CV-10932-RGS, 2005 WL 2365331, at *7 (D. Mass. Sept. 27, 2005) (letter “failed to clearly segregate what was owed from would become due and owing” created genuine issue of material fact for “least sophisticated debtor” standard); Fields v. Wilber Law Firm, P.C., 383 F.3d 562, 565-66 (7th Cir. 2004) (reversing district court’s dismissal for failure to state a claim of FDCPA claims because “nowhere did [Defendant] explain that it was seeking attorneys’ fees of $250,” and “the unsophisticated consumer would not necessarily understand that [Defendant] was seeking $250 in attorneys’ fees, an amount allowed, but not specified, by the contract.”).


The district court also rejected the borrower argument’s the phone conversation misled him into paying the full reinstatement amount because the phone call was made just one day after the date of the dunning letter—September 5, 2013.  The district court found no basis for the assertion that the clarity of whether the $3,175 would be incurred was any different during the September 5, 2013 phone call than at the time servicer estimated the legal fees in the September 4, 2013 dunning letter.


The district court further found that the record does not contain evidence that anything during the September 5, 2013 phone call could have changed the only inference that can be gained from the dunning letter—that the $3,175 in fees were estimated. Thus, this is a case where “the only issue is the application of law to the undisputed facts,” making summary judgment appropriate. See Caceres v. McCalla Raymer, LLC, 755 F.3d 1299, 1304 (11th Cir. 2014) (holding as a matter of law that a dunning letter “would not mislead the least sophisticated consumer” where letter substituted “creditor” for “debt collector” because “the debt collector is obviously the agent of the creditor.”).


Finally, turning to the question of the borrower’s FCCPA claim, because the Court found no genuine issue of material fact regarding whether the servicer violated the FDCPA, the Court reached the same conclusion for the borrower’s FCCPA claim under Florida law. See Fla. Stat. § 559.77(5) (“In applying and construing this section, due consideration and great weight shall be given to the interpretations of the Federal Trade Commission and the federal courts relating to the federal Fair Debt Collection Practices Act.”) (citing 15 U.S.C. § 1692, et seq.).


Accordingly, the district court entered summary judgment in favor of the servicer and against the borrower on all of the borrower’s FDCPA and FCCPA claims.





Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
(312) 551-9320
(312) 284-4751
(312) 493-0874


Admitted to practice law in Illinois



            McGinnis Wutscher Beiramee LLP





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