The U.S. Court of Appeals for the Eleventh Circuit recently held that a fine imposed by a home owners association (HOA) for violating its governing documents is a "debt" for purposes of the Florida Consumer Collection Practices Act (FCCPA).
In addition, distinguishing rulings under the federal Fair Debt Collection Practices Act (FDCPA), the Court held that vicarious liability under the FCCPA is not limited to principals who are themselves debt collectors.
A copy of the opinion is available at: Link to Opinion
A husband and wife owned a home subject to an HOA's governing documents, which included the HOA's articles of incorporation, bylaws, and a recorded declaration of covenants and restrictions. The governing documents conferred on the association the right to levy fines for violations of the declaration of covenants and restrictions, which became a lien of the subject property.
The HOA gave notice to the owners that they violated the governing documents by doing unapproved construction, relocating a fence and removing plants. After a hearing, the HOA levied the maximum $1,000 fine allowed by Fla. Stat. § 720.305(2).
The homeowners refused to pay the fine and sued the HOA, its management company and the association's attorney, alleging that five letters sent by them between May and December of 2013 violated the federal Fair Debt Collection Practices Act ("FDCPA") and the FCCPA.
The district court granted the motion for summary judgment filed by the HOA and its management company, holding that the HOA's fine was not a "debt" under the FCCPA and, in addition, that the HOA could not be held vicariously liable for its management company's FCCPA violations. The owners appealed.
On appeal, the Eleventh Circuit first addressed whether an HOA's fine is a "debt" for purposes of the FCCPA, rejecting the HOA's argument that the fine was not a debt because it arose under the governing documents.
The Court reasoned that both the FDCPA and its Florida state analogue, the FCCPA, require a threshold showing "that the debt must arise out of a consumer transaction." "[U]nder both statutes, a debt is '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."
The Eleventh Circuit then looked to its prior rulings distinguishing between a transaction arising from a consumer contract, which is debt under the FDCPA, from an obligation arising solely by operation of law, which is not.
As an example of a debt arising from a consumer contract, the Court cited Brown v. Budget Rent-A-Car Sys., Inc., in which it held that a rental company's attempt to collect $825 from a driver that rented a truck and had an accident is a debt under the FDCPA.
By contrast, in Hawthorne v. Mac Adjustment, Inc., the Eleventh Circuit held that an obligation to pay damages arising from an accident was not a debt under the FDCPA because no "'contract, business or consensual arrangement' existed between the torfeasor and the injured party." The Court summarized that "[i]n essence, our jurisprudence in this area of law can be distilled into the principle that FDCPA and FCCPA 'debts' arise from actual—as opposed to social—contracts."
The Eleventh Circuit rejected as unpersuasive, "contrary to our precedent and inconsistent with the remedial purpose of the FDCPA and FCCPA" the cases cited by the management company and HOA holding that government imposed fines are not "debts" because they dealt with "payment obligations that only arose by operation of law."
In the case at bar, however, the Court noted that "the homeowners' obligation arises from a contract — the governing documents — that explicitly treats HOA fines as assessments." The Court reasoned that the HOA's assessments "stem directly from the consensual home-purchase transaction. When a home buyer must contractually agree to pay homeowners' assessments in order to purchase a home, that home buyer takes on 'debts' for those assessments under the FCCPA."
The Eleventh Circuit found that because the governing documents provided that the fine would be deemed "an individual assessment," such "contractual language renders the fine in this case a 'debt' subject to the FCCPA." In addition, "[b]y agreeing to the terms of the governing documents, the homeowners acknowledged that a failure to comply with HOA requirements could result in a fine that would be deemed and treated as an individual assessment. Thus their obligation to pay an assessment for a claimed beach of the governing documents arose out of an underlying consumer transaction."
Thus, the Court held that the trial erred in dismissing the claims against the HOA and its management company "on the ground that the collection letters were not governed by the FCCPA."
The Eleventh Circuit also addressed the trial court's dismissal of the homeowners' claims against the HOA stemming from the HOA's two letters demanding payment of the fine and the HOA's attorney's three letters demanding payment of the fine and other fees.
First, the Court concluded that the trial court incorrectly held that the HOA was not liable under the FCCPA as it was not a "debt collector" because, unlike the FDCPA, the FCCPA is not limited to "debt collectors," but to any "person" collecting debts.
Second, the Eleventh Circuit held that the trial court incorrectly ruled that the association could not be vicariously liable for the FCCPA violations of its management company and attorney "because such vicarious liability only extends to principals who are themselves debt collectors." The Court acknowledged that although cases decided under the FDCPA have so held, such cases "rest on the observation that FDCPA liability is expressly limited to 'debt collectors … [but] the FCCPA has no such express limitation." Thus, cases dealing with vicarious liability under the FDCPA "are inapposite."
The Court concluded that whether the HOA here could be vicariously liable for the FCCPA violations of its agents was a question of Florida agency law, which the trial court did not address on summary judgment.
Accordingly, the Court declined to decide this issue on appeal and reversed the trial court's summary judgment in favor of the management company, vacated the summary judgment in the HOA's favor, and remanded to the district court for further proceedings.
Ralph T. Wutscher
Maurice Wutscher LLP
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