The U.S. Court of Appeals for the Fourth Circuit recently held that a Rule 68 offer did not moot an action against a debt collector, because the debt collector's offer was conditional and the amount of damages suffered by the plaintiff was uncertain.
A copy of the opinion is available at:
Defendant-appellee, a law firm ("law firm") attempted to collect a debt on behalf of a lender. Plaintiff-appellant borrower (the "borrower") received a telephone message from an employee of the law firm, wherein the caller did not identify the law firm as a debt collector. The borrower requested validation of the debt, and informed the law firm in writing that she was represented by counsel. Subsequent to that notice, the law firm contacted the borrower directly, in writing.
The borrower then sued the law firm, alleging several violations of the federal Fair Debt Collection Practices Act ("FDCPA"). The law firm filed a timely offer of judgment pursuant to Federal Rule of Civil Procedure 68 ("Rule 68"). That offer included statutory damages, costs, attorney's fees and actual damages "in the amount of $250.00, or an amount determined by the Court upon Plaintiff's submission of affidavits or other evidence of actual damage."
When the borrower did not accept that offer, the law firm moved to dismiss the borrower's complaint on the grounds that it was moot, and on the grounds that the borrower alleged only "minor technical violations" which resulted from the law firm's "bona fide error."
The lower court granted the law firm's motion to dismiss on the grounds that the borrower did not allege a material violation of the FDCPA, and did not establish that the law firm "knowingly and willfully" violated the same. The borrower appealed.
As you may recall, when a defendant unequivocally offers a plaintiff all of the relief sought by that plaintiff, the offer renders the action moot. See, e.g., Obrien v. Ed Donnelly Enters., Inc., 575 F.3d 567, 575 (6th Cir. 2009). On appeal, the Fourth Circuit began by considering whether the action was moot, due to the law firm's Rule 68 offer. The Court concluded that it was not, due to several shortcomings of that offer.
Specifically, because the lower court did not hold any evidentiary hearings on the amount of actual damages suffered by the borrower, the Fourth Circuit stated that it could not hold that "borrower could not possibly recover more than $250 if the case proceeded to a jury trial." Therefore, with the amount of actual damages suffered by the plaintiff uncertain, the Fourth Circuit held that the law firm's offer of $250 did not moot the action.
The Fourth Circuit also found fault with the offer to base the amount of actual damages on a determination by the lower court. The Court noted that extensive case law provides that, to moot an action, a Rule 68 offer must be "unconditional" and "unequivocal." Here, however, the Fourth Circuit held that the Rule 68 offer was conditioned on what the lower court might or might not do.
The Fourth Circuit also emphasized that the Federal Rules of Civil Procedure entitled the borrower to the right to have a jury determine her statutory damages. It noted, however, that if it accepted the law firm's Rule 68 offer, a "savvy defendant" could "avoid submitting the contested issue of actual damages to a jury by offering to substitute the district court as a fact finder."
Consequently, the Fourth Circuit held that the law firm's Rule 68 offer did not moot the borrower's action.
Next, the Court considered whether the lower court properly dismissed the borrower's complaint. It began by examining the borrower's allegations 15 U.S.C. 1692e(11), noting that that section requires debt collectors "to disclose...that the communication is from a debt collector." The borrower also alleged a violation of section 1692c(a)(2), which prohibits a debt collector from "communicat[ing] with a consumer in connection with the collection of any debt . . . if the debt collector knows the consumer is represented by an attorney with respect to such debt and has knowledge of, or can readily ascertain, such attorney's name and address."
The Fourth Circuit observed that the "material misrepresentation" requirement relied on by the lower court applies to actions based on "false representations," but not to actions based on a debt collector's failure to disclose its status. Therefore, the Fourth Circuit held that the lower court erred in holding that the borrower failed to allege a violation of section 1692e(11).
Finally, the Court considered the borrower's allegations that the law firm contacted her directly, after having been informed that she was represented by counsel. Noting that the FDCPA prohibits communicating with a borrower if the debt collector knows that borrower is represented by counsel, the Fourth Circuit again held that the district court erred in holding that the borrower failed to allege a violation of section 1692c(a)(2).
Therefore, the Fourth Circuit reversed the judgment of the lower court.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
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Email: RWutscher@mtwllp.com
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