The U.S. Court of Appeals for the Ninth Circuit recently affirmed a
judgment against a debt collector under the federal Fair Debt Collection
Practices Act, 15 U.S.C § 1692, et seq. ("FDCPA"), and on the consumer's
state law malicious prosecution and abuse of process claims, holding that:
(1) the debt collector's bona fide error defense failed as a matter of
law;
(2) the debt collector improperly sought attorneys fees, as it could not
prove the contract at issue allowed for the recovery of such fees;
(3) the debt collector's false requests for admission in the underlying
collection action violated the FDCPA;
(4) the lower court properly allowed testimony from other consumers
relating to the defendant debt collector;
(5) the lower court properly denied the debt collector's summary judgment
motion on the state law malicious prosecution and abuse of process claims;
and
(6) the lower court properly allowed the jury's award for actual damages
due to emotional distress to stand.
A copy of the opinion is attached.
Plaintiff-Consumer's ("Consumer") delinquent credit card account was sold
by the credit issuer to Collect America ("Debt Buyer"). Debt Buyer
brought a state court action to recover the unpaid balance, but later
dismissed the case after the Consumer asserted that the statute of
limitations had run on the action.
Debt Buyer then retained the defendant debt collection firm, Johnson,
Rodenburg & Lauinger ("Collection Firm"), to pursue the delinquent
account, which it did until December 7, 2007, when it was instructed to
dismiss the case by Debt Buyer due to the statute of limitations issue.
The Consumer brought suit against the Collection Firm in federal court'
alleging violations of the FDCPA, as well as state law claims for
malicious prosecution and abuse of process. The district court granted
partial summary judgment to the Consumer on the FDCPA claims. The
remaining claims were tried to a jury, which found in favor of the
Consumer for the violations of the FDCPA and state laws, as well as for
emotional distress and punitive damages. The district court denied the
Collection Firm's motions for a new trial and amendment of the judgment to
reduce the emotional damage award, and the Collection Firm appealed. The
Ninth Circuit affirmed the lower court on all issues.
The Ninth Circuit held that the lower court properly held that the
Collection Firm's bona fide error defense failed as a matter of law. As
you may recall, to qualify for the bona fide error defense, the defendant
must prove, among other things, that "it maintained procedures reasonably
adapted to avoid the violation." In addition, "the procedures that
support a valid bona fide error defense must be 'reasonably adapted' to
avoid the specific error at issue."
In this case, Debt Buyer incorrectly informed the Collection Firm that the
statute of limitations had not run, and the Collection Firm proceeded to
prosecute the action without verifying the information from Debt Buyer.
The Court reasoned that the Collection Firm "erred by relying without
verification on Debt Buyer's representation and by overlooking contrary
information in its electronic file." At summary judgment, the Collection
Firm "presented no evidence of procedures designed to avoid the specific
errors that led to its filing and maintenance of a time-barred collection
suit" against the Consumer. The Collection Firm argued that its reliance
on Debt Buyer's representation was a question of fact for the jury.
However, the Ninth Circuit held that the undisputed evidence established
that the Collection Firm's reliance on the Debt Buyer's information was
"unreasonable as a matter of law," and therefore that the lower court
properly granted summary judgment on the Collection Firm's bona fide error
defense.
The Ninth Circuit also held that the Collection Firm violated the FDCPA by
requesting attorney's fees in the state collection complaint. As you may
recall, the "FDCPA prohibits '[t]he collection of any amount . . . unless
such amount is expressly authorized by the agreement creating the debt or
permitted by law.'" 15 U.S.C. § 1692f(1). In addition, Section 1692e(2)
prohibits the use of "any false, deceptive, or misleading representation
or means in connection with the collection of any debt," including "[t]he
false representation of . . . (A) the character, amount, or legal status
of any debt; or (B) any . . . compensation which may be lawfully received
by any debt collector for the collection of a debt."
In this case, the Ninth Circuit held that the Collection Firm's collection
action was invalid because the Collection Firm "presented no admissible
evidence establishing its entitlement to collect the fees at the time of
the summary judgment motion — not at the time it filed suit." Moreover,
the Ninth Circuit held that the Collection Firm "produced no evidence of
express authorization of its fee request from Consumer" and the Collection
Firm's "presentation of generic evidence that all credit cards contain
attorney's fees provisions was insufficient to create a genuine issue of
material fact for the jury."
The lower court also properly held that the Collection Firm's service of
false requests for admission also violated the FDCPA as a matter of law.
The Ninth Circuit agreed, holding that "the FDCPA does not exclude from
its coverage the service of requests for admission." The Court next held
that, considering "the debt collector's conduct from the standpoint of the
least sophisticated consumer," the Collection Firm's requests to admit
were an "unfair or unconscionable" or "false, deceptive, or misleading"
means to collect a debt in violation of the FDCPA. See 15 U.S.C. § 1692f.
The Court reasoned that the Collection Firm's requests to admit asked the
Consumer to "admit facts that were not true," and "did not include an
explanation that, under Montana Rule of Civil Procedure 36(a), the
requests would be deemed admitted if [the Consumer] did not respond within
thirty days."
The lower court did not abuse its discretion in admitting brief testimony
from other individual consumers who had been sued by the same Collection
Firm because the Collection Firm's "conduct in similar cases was relevant
to show intent, absence of mistake, malice, willfulness, and
reprehensibility." The Court reasoned that the Consumer had to prove that
the Collection Firm's violations were "intentional" to obtain the maximum
amount of FDCPA statutory damages and to counter the Collection Firm's
bona fide error defense, that the malicious prosecution and abuse of
process claims required proof of malice and willfulness, and that the
Consumer's entitlement to punitive damages depended on a showing of
reprehensibility.
The Court also affirmed the lower court's denial of the Collection Firm's
motion for judgment as a matter of law on Consumer's state law malicious
prosecution and abuse of process claims. The Ninth Circuit noted that a
malicious prosecution claim under Montana law requires, among other
things, "lack of probable cause for the defendant's acts" and that "the
defendant was actuated by malice." As for probable cause, the Ninth
Circuit held that the Consumer presented "substantial evidence" that the
Collection Firm did not reasonably believe that its collection action was
timely. The Court also held that the Collection Firm had acted with
"malice," reasoning that the Consumer "presented substantial evidence"
that the Collection Firm "knew of or intentionally disregarded facts
concerning the timeliness of its collections action," and that the
Collection Firm "acted with a wish to injure another person or an intent
to do a wrongful act."
The Ninth Circuit further noted that a Montana abuse of process claim is
satisfied where "evidence indicates that the litigant willfully filed a
lawsuit with an ulterior purpose of extracting money from the opposing
party that it did not owe." In this case, the Ninth Circuit held that the
Collection Firm "filed a baseless action with knowledge that it had no
legal claim," and "continued to prosecute the collection case for four
months after having been explicitly told by [the Debt Buyer] that the June
30, 2004, payment was not grounds for extending the statute of
limitations."
Finally, the Court affirmed the lower court's denial of the Collection
Firm's motion for a new trial or amendment of the judgment, based upon the
jury's award for actual damages due to emotional distress. The Ninth
Circuit held that a court "defers to a jury's finding of the appropriate
amount of damages unless the award is 'grossly excessive or monstrous,
clearly not supported by the evidence, or based only on speculation or
guesswork.'" The Court reasoned that "ample evidence exists in the record
to support the jury's award," including expert testimony that the
underlying collection suit "may have worsened" the Consumer's existing
symptoms of "headaches, anxiety, paranoia, and difficulty relating to
others."
Ralph T. Wutscher
Kahrl 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@kw-llp.com
http://www.kw-llp.com
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 are available on the internet, in searchable format, at:
http://updates.kw-llp.com
The information transmitted (including attachments) is covered by the Electronic Communications Privacy Act, 18 U.S.C. 2510-2521, is intended only for the person(s) or entity/entities to which it is addressed and may contain confidential and/or privileged material. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information by persons or entities other than the intended recipient(s) is prohibited. If you received this in error, please contact the sender and delete the material from any computer.
Notice Under U.S. Treasury Department Circular 230: To the extent that this e-mail communication and the attachment(s) hereto, if any, may contain written advise concerning or relating to a Federal (U.S.) tax issue, United States Treasury Department Regulations (Circular 230) require that we (and we do hereby) advise and disclose to you that, unless we expressly state otherwise in writing, such tax advise is not written or intended to be used, and cannot be used by you (the addressee) or other person(s), for purposes of (1) avoiding penalties imposed under the United States Internal Revenue Code or (2) promoting, marketing or recommending to any other person(s) the (or any of the) transaction(s) or matter(s) addressed, discussed or referenced herein. Each taxpayer should seek advice from an independent tax advisor with respect to any Federal tax issue(s), transaction(s) or matter(s) addressed, discussed or referenced herein based upon his, her or its particular circumstances.
