Saturday, October 8, 2016

FYI: Fla App Ct (2nd DCA) Holds Safe Harbor for Unpaid HOA/COA Assessments Does Not Require Mortgagee to Own Note or Mortgage

The District Court of Appeal of Florida, Second District, recently held that a mortgagee is entitled to the safe harbor limiting liability for unpaid condominium assessments under section 718.116 of the Florida Condominium Act, even though the mortgagee holds, but does not own, the note and mortgage.

 

A copy of the opinion is available at:  Link to Opinion

 

A mortgagee filed foreclosure action, naming the condominium association (COA) as a party defendant. The mortgagee alleged in the complaint that it was "the holder of the note and mortgage and the servicer for the owner of the note and mortgage, acting on behalf of and with the authority of the owner."

 

The trial court entered summary judgment in the mortgagee's favor, and later the mortgagee was the highest bidder at the foreclosure sale, taking title to the property. It then asked for an estoppel letter from the COA reflecting any unpaid assessments, but the parties could not agree on the amount.

 

The COA sued to foreclose its lien on the property for unpaid assessments and the mortgagee counterclaimed, seeking declaratory relief. The trial court granted the mortgagee's motion for summary judgment, reasoning the mortgagee was entitled as a matter of law to the limitation of liability provided by section 718.116 of the Act. The COA appealed.

 

On appeal, the Court began by examining "the limited liability or safe harbor provision of section 718.116, [which] provides that '[t]he liability of a first mortgagee or its successor or assignees who acquire title to a unit by foreclosure or by deed in lieu of foreclosure for the unpaid assessments that became due before the mortgagee's acquisition of title is limited to the lesser of' unpaid common expenses and regular assessments accrued during the twelve months before the acquisition of title or 'one percent of the original mortgage debt.'"  Fla. Stat. § 718.116(1)(b),  In order for the safe harbor to apply, the mortgagee must also join the association in its foreclosure action.

 

The COA argued that the safe harbor provision did not apply because it interpreted the "'first mortgagee or its successor or assignees' as necessitating ownership of loan."

 

Analyzing the text of section 718.116, the Appellate Court reasoned, using traditional principles of statutory construction, that while the Florida Condominium Act does not define "first mortgagee," other statutes and the Court's recent ruling in Bank of Am. N.A. v. Kipps Colony II Condo. Ass'n  clarify that "a first mortgagee is the holder of the mortgage lien with priority over all other mortgages."

 

The Appellate Court noted that the safe harbor provision does, however, defines "successor or assignee" as including "only a subsequent holder of the first mortgage" and "[r]eading the statute as a whole and giving effect 'to every word, phrase, sentence, and part of the statute,' the first mortgagee must be a prior holder of the priority mortgage."

 

The parties did not dispute that the mortgagee did not own the note and mortgage when its final judgment foreclosing the mortgage was entered. It was also undisputed from the record that the mortgagee was not the originating lender and that other entities held the note and mortgage before the mortgagee, meaning it would be entitled to the protection of the safe harbor provision as a "successor or assignee" "only if ownership of the note and mortgage is not a requirement for subsequent holdership."

 

The Court reasoned that "[u]nlike a note, a mortgage is not a negotiable instrument to which Florida's Uniform Commercial Code (UCC) definition of holder applies." Turning to the plain and ordinary meaning of the word "holder" as reflected in two dictionaries, the Court explained that "[b]ased on these definitions, a holder of a non-negotiable instrument may be an owner or a possessor of the instrument." In addition, the Court pointed out that the same conclusion would be reached under the UCC's definition of "holder" as "[t]he person in possession of the [note] that is payable either to bearer or to an identified person that is the person in possession."

 

The Appellate Court concluded that "ownership is not essential to a successor or assignee's entitlement to limited liability under section 718.116(1)(b)" and its conclusion "is bolstered by the fact that the legislature did not use the word owner to restrict limited liability to only owners of the first mortgage (or note)."

 

The Court distinguished two Fifth District Court of Appeal rulings relied upon in varying degrees by both parties because both "are procedurally distinguishable and neither of them answers the legal question before this court" before concluding that "a successor or assignee of the first mortgage otherwise entitled to the limited liability of section 718.116(1)(b) need not also be an owner of the note and mortgage at the time of foreclosure."

 

Accordingly, the trial court's order granting summary judgment in the mortgagee's favor was affirmed.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Friday, October 7, 2016

FYI: 11th Cir Holds Bankruptcy "Surrender" Requires Debtor to Give Up All Rights in Collateral

The U.S. Court of Appeals for the Eleventh Circuit recently held that the word "surrender" in the Bankruptcy Code, 11 U.S.C. § 521(a)(2), requires that debtors relinquish all of their rights to the collateral.

 

In so ruling, the Court ordered the borrowers to "surrender" their house to the mortgagee in a foreclosure action, and held that the bankruptcy court had the authority to compel the borrowers to fulfill their mandatory duty under 11 U.S.C. § 521(a)(2) not to oppose a foreclosure action in state court.

A copy of the opinion is available at:  Link to Opinion

 

A mortgagee filed a foreclosure action, which the borrowers opposed.  The borrowers filed for bankruptcy, admitting that they owned the house, that the house was collateral for the mortgage, that the mortgage was valid, and that the balance of the mortgage exceeded the value of the house.

 

The borrowers also filed a statement of intention, 11 U.S.C. § 521(a)(2), to surrender the house. Because the house had a negative value, the bankruptcy trustee abandoned it back to borrowers under 11 U.S.C. § 554. Borrowers continued to live in the house while they contested the foreclosure action.

 

The mortgagee filed a motion to compel surrender in the bankruptcy court.  The mortgagee argued that the borrowers' opposition to the foreclosure action contradicted their statement of intention to surrender the house.  The borrowers argued that their opposition to the foreclosure action was not inconsistent with surrendering the house.

 

The bankruptcy court granted the mortgagee's motion to compel surrender and ordered borrowers to stop opposing the foreclosure action. The bankruptcy court explained that if borrowers did not comply with its order, it might "enter an order vacating [their] discharge." 

 

The district court affirmed the bankruptcy court's ruling on appeal, and borrowers then appealed to the U.S. Court of Appeals for the Eleventh Circuit.  The Eleventh Circuit affirmed.

First, the Eleventh Circuit explained that section 521(a)(2) prevents debtors who surrender their property from opposing a foreclosure action in state court. Second, it explained that the bankruptcy court had the authority to order borrowers to stop opposing their foreclosure action.

 

Section 521(a)(2) states a bankruptcy debtor's responsibilities when his schedule of assets and liabilities includes mortgaged property:

 

(a) The debtor shall ...

(2) if an individual debtor's schedule of assets and liabilities includes debts which are secured by property of the estate—

(A) within thirty days after the date of the filing of a petition under chapter 7 of this title or on or before the date of the meeting of creditors, whichever is earlier, or within such additional time as the court, for cause, within such period fixes, file with the clerk a statement of his intention with respect to the retention or surrender of such property and, if applicable, specifying that such property is claimed as exempt, that the debtor intends to redeem such property, or that the debtor intends to reaffirm debts secured by such property; and

(B) within 30 days after the first date set for the meeting of creditors under section 341(a), or within such additional time as the court, for cause, within such 30-day period fixes, perform his intention with respect to such property, as specified by subparagraph (A) of this paragraph; except that nothing in subparagraphs (A) and (B) of this paragraph shall alter the debtor's or the trustee's rights with regard to such property under this title, except as provided in section 362(h).

 

11 U.S.C. § 521(a)(2).

 

Subsection (A) requires the debtor to file a statement of intention about what he plans to do with the collateral for his debts. See Fed. R. Bankr. P. 1007(b)(2). The statement of intention must declare one of four things: the collateral is exempt, the debtor will surrender the collateral, the debtor will redeem the collateral, or the debtor will reaffirm the debt. See In re Taylor, 3 F.3d 1512, 1516 (11th Cir. 1993). After the debtor issues his statement of intention, subsection (B) requires him to perform the option he declared. Id.

 

The question that Eleventh Circuit faced was whether borrowers satisfied their declared intention to surrender their house under section 521(a)(2)(B).

 

To answer that question, the Court had to decide to whom borrowers had to surrender their property and whether surrender requires them to acquiesce to a creditor's foreclosure action. The district court and the bankruptcy court concluded that the borrowers violated section 521(a)(2) by opposing bank's foreclosure action after filing a statement of intention to surrender their house.

 

The Eleventh Circuit agreed with both the district court and the bankruptcy court that section 521(a)(2) requires debtors who file a statement of intent to surrender to surrender the property both to the trustee and to the creditor. Even if the trustee abandons the property, the borrowers' duty to surrender the property to the creditor remains.

 

The Court held that interpreting the word "surrender" to refer only to the trustee of the bankruptcy estate rendered section 521(a)(2) superfluous in connection with section 521(a)(4). Under the surplusage canon, no provision "should needlessly be given an interpretation that causes it to duplicate another provision." Antonin Scalia & Bryan A. Garner, Reading Law 174 (2012).

 

Section 521(a)(4) states that "[t]he debtor shall ... surrender to the trustee all property of the estate." 11 U.S.C. § 521(a)(4). The Eleventh Circuit concluded that because section 521(a)(4) already requires the debtor to surrender all of his property to the trustee so the trustee can decide, for example, whether to liquidate it or abandon it, section 521(a)(2) must refer to some other kind of surrender.

 

The Court observed that when the bankruptcy code intends that a debtor must surrender his property either to the creditor or the trustee, it says so. On the one hand, the Court noted that although section 1325(a)(5)(C) states that "the debtor surrenders the property securing such claim to such holder," which clearly contemplates surrender to a creditor, Congress did not use that language in Section 521(a)(4). On the other hand, section 521(a)(4) states that "[t]he debtor shall ... surrender to the trustee all property of the estate," which clearly contemplates surrender to the trustee. Congress did not use that language in Section 521(a)(2) either.

 

The Court observed that what Congress said in section 521(a)(2) is "surrender," without specifying to whom the surrender is made, but noted that the lack of an object made sense because a debtor who decides to surrender his collateral must surrender it to both the trustee and the creditor. The debtor first surrenders it to the trustee (under § 521(a)(4)) who decides whether to liquidate it under Section § 704(a)(1), or abandon it under Section § 554. If the trustee abandons it, then the debtor surrenders it to the creditor under § 521(a)(2).

The Court observed that the word "surrender" in section 521(a)(2) is used with reference to the words "redeem" and "reaffirm," and those words plainly refer to creditors. The Court further noted that a debtor "redeems" property by paying the creditor a particular amount, and "reaffirms" a debt by renegotiating it with the creditor. 11 U.S.C. §§ 524(c), 722.

 

Because context is a primary determinant of meaning, the Court concluded that the word "surrender" likely refers to a relationship with a creditor as well, noting that it said as much in dicta in In re Taylor, 3 F.3d 1512, 1516 (11th Cir. 1993).

 

Additionally, the Court observed that other provisions of the Bankruptcy Code that provide a remedy to creditors when a debtor violates section 521(a)(2) suggest that the word "surrender" does not refer exclusively to the trustee.

 

The Court also noted that the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109–8, § 305, 119 Stat. 23, added two sections to the Bankruptcy Code that provide remedies for creditors with respect to personal property. 11 U.S.C. §§ 362(h), 521(d).

 

Section 362(h) punishes a debtor who violates section 521(a)(2) by lifting the automatic stay to allow the creditor to pursue other remedies against the debtor immediately. Section 362(h) allows the trustee of the bankruptcy estate to override this remedy, but only if the trustee moves the court to "order[ ] appropriate adequate protection of the creditor's interest." Id. § 362(h)(2).  In addition, section 521(d) allows a creditor to consider the debtor in default because he declared bankruptcy if the debtor violates section 521(a)(2).

 

The Court held as irrelevant the fact that these remedies apply only to personal property, noting that section 521(a)(2) uses the generic word "property" and draws no distinction between real and personal property.

 

The Eleventh Circuit further noted that Congress provided additional remedies for creditors secured by personal property, but the contextual clue remains the same: these remedies for creditors reflect an obvious point about section 521(a)(2) -- it is a provision that affects and protects the rights of creditors.

 

The Court also agreed with the bankruptcy court and the district court that "surrender" requires debtors to drop their opposition to a foreclosure. Although the bankruptcy code does not define the word "surrender," the Court gave it its "contextually appropriate ordinary meaning."

 

The Eleventh Circuit noted that Webster's New International Dictionary defined "surrender" as "to give or deliver up possession of (anything) upon compulsion or demand", and the Oxford English Dictionary defined "surrender" as "to give up (something) out of one's own possession or power into that of another who has or asserts a claim to it," but held that this meaning was not contextually appropriate. The Court noted that when the Bankruptcy Code means "physically turn over property," it uses the word "deliver" instead of "surrender." The Court cited as examples 11 U.S.C. §§ 542(a), 543(b)(1) and § 727(d)(2), which uses the phrase "deliver or surrender," suggesting they are different.

 

The Eleventh Circuit also noted that Black's Law Dictionary defines "surrender" as "[t]he giving up of a right or claim," noting that Webster's New International Dictionary defines it as "to give up completely; to resign; relinquish; as, to surrender a right, privilege, or advantage."

 

The Court noted approvingly that this meaning describes a legal relationship, as opposed to a physical action, which makes sense in the context of section 521(a)(2) — a provision that describes other legal relationships like "reaffirmation" and "redemption," and was in line with existing authorities, citing In re Pratt, 462 F.3d 14, 18–19 (1st Cir. 2006); In re White, 487 F.3d 199, 205 (4th Cir. 2007); and In re Plummer, 513 B.R. 135, 143–44 (Bankr. M.D. Fla. 2014).

 

Relying on In re White, 487 F.3d at 206, the Court concluded that because "surrender" means "giving up of a right or claim," debtors who surrender their property can no longer contest a foreclosure action.

 

The Eleventh Circuit also held that, when the debtors act to preserve their rights to the property "by way of adversarial litigation," they have not "relinquish[ed] ... all of their legal rights to the property, including the rights to possess and use it."

 

In addition, relying on In re Elowitz, 550 B.R. 603, 607 (Bankr. S.D. Fla. 2016), the Eleventh Circuit observed that ordinarily, when debtors surrender property to a creditor, the creditor obtains it immediately and is free to sell it: "[I]n order for surrender to mean anything in the context of § 521(a)(2), it has to mean that ... debtor[s] ... must not contest the efforts of the lienholder to foreclose on the property." Otherwise, the Court noted, debtors could obtain a discharge in bankruptcy based, in part, on their sworn statement to surrender and enjoy possession of the collateral indefinitely while hindering and prolonging the state court process.

 

The Eleventh Circuit held that the hanging paragraph in section 521(a)(2) does not give the debtor the right to oppose a foreclosure action. The hanging paragraph states that "nothing in subparagraphs (A) and (B) of this paragraph shall alter the debtor's or the trustee's rights with regard to such property under this title, except as provided in section 362(h)."

 

Noting that the key words for purposes of this dispute are "under this title," the Court of Appeals held that the hanging paragraph means that section 521(a)(2) does not affect the debtor's or the trustee's bankruptcy rights. The hanging paragraph spells out an order of operations. It does not mean that a debtor who declares he will surrender his property can then undo his surrender after the bankruptcy is over and the creditor initiates a foreclosure action.

 

The Eleventh Circuit also held that the outcome was not unfair. During the bankruptcy proceedings, the borrowers declared that they would surrender the property, that the mortgage was valid, and that bank had the right to foreclose, such that compelling borrowers to stop opposing the foreclosure action only required them to honor that declaration.

 

Relying on In re Guerra, 544 B.R. 707, 710 (Bankr. M.D. Fla. 2016), the Eleventh Circuit observed that in bankruptcy, as in life, a person does not get to have his cake and eat it too: borrowers may not say one thing in bankruptcy court and another thing in state court, thereby making a mockery of the legal system by taking inconsistent positions. 

 

Section 521(a)(2) requires a debtor to either redeem, reaffirm, or surrender collateral to the creditor. Having chosen to surrender, the Eleventh Circuit held that the debtor must drop his opposition to the creditor's subsequent foreclosure action.  The Court held that, because the borrowers filed a statement of intention to surrender their house, they cannot contest the foreclosure action.

 

For the first time on appeal, the borrowers argued that even if they breached their duty to surrender under section 521(a)(2), the only remedy available to the bankruptcy court was to lift the automatic stay for bank, which would allow the mortgagee to foreclose on the house in the ordinary course.

 

Although the mortgagee moved strike this portion of borrowers' briefs, the Eleventh Circuit chose to address the argument, and reject it.  The Court held that bankruptcy courts are not limited to lifting the automatic stay. Bankruptcy courts have broad powers to remedy violations of the mandatory duties section 521(a)(2) imposes on debtors. Section 105(a), which includes section 521(a)(2), states that bankruptcy courts can "issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title."

 

Relying on Marrama v. Citizens Bank of Mass., 549 U.S. 365, 375 (2007), which held that bankruptcy judges have broad authority to take any action that is necessary or appropriate to prevent an abuse of process, the Eleventh Circuit held that a debtor who promises to surrender property in bankruptcy court and then, once his debts are discharged, breaks that promise by opposing a foreclosure action in state court has abused the bankruptcy process.

 

Finally, the Eleventh Circuit noted that if a bankruptcy court could only lift the automatic stay, then debtors could violate section 521(a)(2) with impunity. Because the automatic stay is always lifted at the end of the bankruptcy proceedings, the Eleventh Circuit noted this remedy does nothing to punish debtors who lie to the bankruptcy court about their intent to surrender property.

 

Although a creditor may be able to invoke the doctrine of judicial estoppel in state court to force debtors to keep a promise made in bankruptcy court, its availability does not affect the statutory authority of bankruptcy judges to remedy abuses that occur in their courts.  Accordingly, the Court concluded that there is nothing strange about bankruptcy judges entering orders that command a party to do something in a non-bankruptcy proceeding, because bankruptcy courts regularly exercise jurisdiction to tell parties what they can or cannot do in a non-bankruptcy forum.

 

The Eleventh Circuit held that, just as the bankruptcy court may order creditors who violate the automatic stay to take corrective action in the non-bankruptcy litigation, the bankruptcy court may order debtors to withdraw their affirmative defenses and dismiss their counterclaim in a foreclosure case.

 

Accordingly, the Court held that the bankruptcy court had the authority to compel the borrowers to fulfill their mandatory duty under section 521(a)(2) not to oppose the foreclosure action in state court, affirmed the order compelling borrowers to surrender their home to the mortgagee, and denied as moot the mortgagee's motion to strike.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

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and

 

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Wednesday, October 5, 2016

FYI: 11th Confirms Third-Party Garnishments Not Subject to FDCPA Venue Provision

The U.S. Court of Appeals for the Eleventh Circuit recently held that the federal Fair Debt Collection Practices Act's ("FDCPA") venue provision did not apply to post-judgment action garnishment proceedings.

 

A copy of the opinion is available at: Link to Opinion

 

A debt collector filed a collection action.  In compliance with the FDCPA's venue provision, the debt collector brought that action in Fulton County, Georgia, where the debtor resided. 

 

After obtaining a judgment against the debtor in that action, the debt collector initiated a garnishment proceeding against the debtor's bank to collect on the judgment.  As required by Georgia law, it brought the garnishment action in Cobb County, Georgia, where the bank, as the garnishee, was located. 

 

In response to the garnishment action, the debtor filed suit against the debt collector alleging that it violated the FDCPA by bringing the garnishment action in a judicial district other than the one in which the debtor resided or signed the underlying contract. 

 

The district court dismissed the debtor's complaint.  The debtor appealed.  The only question on appeal was whether the FDCPA's venue provision applies to post-judgment garnishment proceedings.

 

As you may recall, the venue provision in the FDCPA requires that "[a]ny debt collector who brings any legal action on a debt against any consumer shall . . . bring such action only in the judicial district or similar legal entity — (A) in which such consumer signed the contract sued upon; or (B) in which such consumer resides at the commencement of the action." 15 U.S.C. § 1692i(a)(2).

 

The Eleventh Circuit first noted that there was no binding precedent on this issue in its circuit because previous rulings on this issue were unpublished and unpublished opinions are nonbinding.  The Court did not analyze the unpublished decision in its circuit, but instead highlighted three decisions in other circuits on this issue. 

 

First, the Court summarized the facts and reasoning of the First Circuit's opinion in Smith v. Solomon & Solomon, PC, 714 F.3d 73 (1st Cir. 2013), which involved post-judgment enforcement proceedings under Massachusetts' trustee process.  The First Circuit found that the Massachusetts trustee process action is geared toward compelling the trustee to act, not the debtor.  The First Circuit concluded that because post-judgment enforcement proceedings under Massachusetts law did not qualify as a legal action "against the consumer," the FDCPA venue provision did not apply to them.

 

Next, the Court analyzed the Eighth Circuit's opinion in Hageman v. Barton, 817 F.3d 611 (8th Cir. 2016), which involved post-judgment enforcement proceedings under Illinois law.  Following the First Circuit's lead, the Eighth Circuit looked to the state statutes governing Illinois' garnishment proceedings. Like Massachusetts, Illinois requires the judgment-creditor to direct its summons against the consumer's employer and required the employer to respond to and comply with any garnishment order.  The Eighth Circuit concluded that because a post-judgment garnishment action under Illinois law did not amount to an action against the consumer, the FDCPA's venue provision did not apply to it.

 

The Court then briefly mentioned the Ninth Circuit's opinion in Fox v. Citicorp Credit Services, Inc., 15 F.3d 1507, 1515 (9th Cir. 1994), concerning the venue provisions in the FDCPA under Arizona law.  The Eleventh Circuit found the Fox opinion to hold little persuasive value because the opinion did not discuss the "against any consumer" language in the FDCPA or whether its venue provision applied to actions directed at third parties rather than consumers.

 

Turning to the present matter, the Eleventh Circuit first noted that the FDCPA's venue provision language states that it only applies to legal actions "against any consumer." 15 U.S.C. § 1692i(a).  Consequently, whether the provision applies to Georgia garnishment proceedings depends on whether those proceedings are legal actions "against any consumer."

 

The Eleventh Circuit held that a Georgia garnishment proceeding was not an action "against a consumer" under Georgia law.  In support, the Court cited the procedural requirements of the garnishment process in Georgia.  In Georgia, the judgment creditor directs its summons to the garnishee (not the consumer), Ga. Code § 18- 4-8(a), and it requires the garnishee (not the consumer) to file an answer, Ga. Code § 18-4-10(a).  Moreover, the governing statute specifically provides that "[a] garnishment proceeding is an action between the plaintiff [judgment-creditor] and garnishee."  Ga. Code § 18-4-15(a). 

 

The Court found that the process is fundamentally an action against the garnishee, not the consumer, despite the fact that in Georgia a consumer may become a party to the garnishment by filing a claim with the clerk of court.  Consequently, the Eleventh Circuit held, the FDCPA's venue provision did not apply to post-judgment garnishment proceedings under Georgia law and the debtor's FDCPA claim failed.

 

After stating its ruling, the Eleventh Circuit found it appropriate to discuss the debtor's arguments to the contrary.  First, the Court did not find persuasive the debtor's canon of construction argument.  In short, the Court did not agree that the term "against any consumer" modified only the term "debt" and not the term legal action.  The Court believed instead that "against any consumer" modified "legal action," and the FDCPA venue provision applied to a "legal action . . . against any consumer."

 

The Court also did not adopt the debtor's policy argument.  The debtor argued that excluding post-judgment garnishment proceedings from the FDCPA's coverage undermines the venue provision's purpose to prevent debt collectors from filing suits in distant and inconvenient forums, thereby depriving consumers of the opportunity to defend themselves against debt-collection lawsuits.  The Eleventh Circuit was satisfied that a consumer would not lose his opportunity to defend himself from a debt-collection lawsuit because the original suit to collect on the debt had to occur in a forum that was convenient for the consumer.  The Court pointed out that the Federal Trade Commission's reading of the FDCPA supported this reasoning.

 

Last, the Eleventh Circuit did not find persuasive the debtor's federalism argument that the meaning of federal law should not hinge on state law definitions.  The Court asserted that although federal law governs the interpretation of a federal statute, federal law sometimes adopts state law as the federal rule of decision.  This is more than appropriate when a national rule is unnecessary to protect the statute's federal interests.  The Court found in this matter that the interpretation of the venue provision is consistent with the statute's purpose.

 

Accordingly, the Eleventh Circuit affirmed the district court's dismissal. 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia   |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

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Sunday, October 2, 2016

FYI: 8th Cir Rejects FDCPA Claims Regarding Follow Up Calls for Location Information, Alleged Harassment

The U.S. Court of Appeals for the Eighth Circuit recently held that a debt collector did not violate the federal Fair Debt Collection Practices Act ("FDCPA") for making subsequent telephone calls to a person other than the consumer regarding the location of the debtor, because the debt collector reasonably believed that the person's initial response was incomplete.

 

In so ruling, the Eighth Circuit held as a matter of law that fourteen calls over a period of approximately two months did not rise to the level of harassment prohibited under FDCPA, at 15 U.S.C. § 1692d(5). 

 

A copy of the opinion is available at:  Link to Opinion

 

A credit card company hired a debt collector to collect a consumer's credit card debt. The credit card company provided the debt collector with three telephone contact numbers for the consumer, two cell phone numbers with Minnesota area codes, where the consumer apparently resided, and a North Dakota landline that was the home phone number of an individual, the consumer's father.  The consumer had not lived with her father for nearly two decades. 

 

Beginning December 18, 2013, and continuing through January 20, 2014, the debt collector called the individual's landline number twelve times without a response.  The individual's caller ID revealed that the debt collector had called but not the reason for the call.  His phone did not record voicemail messages.

 

On January 20, 2014, the individual returned the twelfth call from the debt collector. He spoke to an employee, the person in charge of the consumer's collection file.  In a recorded conversation, the individual asked why he was called because he was not on any of his daughter's accounts.  The employee said she could not discuss the file with him and then said either, "She has her phone number. We can get in contact with her and take yours out," or, "If you have her phone number, we can get in contact with her and take yours out." The individual responded, "Ah, let me call her and find out what she's been getting."

 

After that conversation, the debt collector called the individual twice more, one autodialed call, and once when his number came up on the employee's call list.  The debt collector's employee testified that this call was a mistake, as she had intended to remove the individual's phone number from the file after the January 20 call.  The debt collector made no further calls to the individual.

 

The individual brought suit against the debt collector asserting violations of the FDCPA for the two unanswered calls made after the January 20 conversation.   The district court granted summary judgment to the debt collector, and the individual appealed. 

 

On appeal, the Eighth Circuit first addressed the individual's claim under FDCPA section 1692b(3).  As you may recall, this section prohibits any debt collector from communicating with any person other than the consumer more than once for the purpose of acquiring location information about the consumer unless requested to do so by such person or unless the debt collector reasonably believes that the earlier response of such person is erroneous or incomplete and that such person now has correct or complete location information.  15 U.S.C. § 1692b(3).

 

The Court of Appeals accepted the individual's position that it was reasonable to infer that the debt collector called the individual to acquire information about the consumer.  At issue then was whether the debt collector "reasonably believed" that the individual did not provide a complete response in his January 20 communication with the debt collector's employee.  

 

The Eighth Circuit first ruled that the reasonableness of a debt collector's conduct under FDCPA section 1692b(3) is an objective legal standard.  The Court then reviewed the substance of the January 20 communication.  The Court found that the individual did not refuse to provide location information or state that he could not provide it.  The individual did not even say that the consumer could not be reached at the number the debt collector called.  The individual simply said he wanted to call his daughter and check with her before responding further.

 

Under these circumstances, the Court of Appeals agreed with the district court that it was objectively reasonable for the debt collector to believe that the individual, as the parent of the consumer, had or could obtain location information about his daughter, permitting a follow-up call to learn if he had acquired or was now willing to provide "correct or complete location information," as allowed under 15 U.S.C. § 1692b(3).  Consequently, the Eighth Circuit held that summary judgment was proper as to this claim. 

 

Next, the Court of Appeals analyzed the individual's claim under FDCPA section 1692d(5).  As you may recall, this section prohibits a debt collector from causing a telephone to ring or engaging any person in telephone conversation repeatedly or continuously with the intent to annoy, abuse, or harass any person at the called number. 

 

The individual did not preserve on appeal the merits as to whether the communications were legally harassing, but instead argued that summary judgment was improper because there was a material issue of fact as to the debt collector's intent in making the telephone calls. 

 

The Eighth Circuit did not delve into the individual's argument that there was a material issue of fact as to intent.  Instead, the Court found, as a matter of law, that no reasonable jury could find that the debt collector's fourteen calls over the period of approximately two months rose to the level of harassment prohibited under FDCPA section 1692d(5). 

 

Accordingly, the Eighth Circuit affirmed the judgment of the district court. 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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Email: rwutscher@MauriceWutscher.com

 

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