Wednesday, March 28, 2012

FYI: 8th Cir Rules In Favor of Debt Collector on Allegations of False Court Filings

The U.S. Court of Appeals for the Eighth Circuit recently held that dismissal of federal Fair Debt Collection Practices Act allegations for alleged factual misrepresentations by a debt collection law firm to a state court during the course of debt-collection proceedings was proper, where evidence supported the debt collector's case and was thus not misleading or otherwise an abuse of the debt collection process.  
A copy of the opinion is available at: 
A divorce agreement between Plaintiff-appellant ("Debtor") and her husband allegedly acknowledged that they held a joint credit card account and that a debt was owed on the account.  The divorce agreement allegedly specified that the husband alone was responsible for payments on the debt.  
However, attempting to collect on that debt, a debt collection law firm ("Law Firm") filed suit against the Debtor in Minnesota state court on behalf of the creditor credit card company.  The Debtor and the Law Firm each moved for summary judgment. The Debtor submitted an affidavit stating that the credit card company had no evidence showing that the Debtor ever applied for or received a credit card, agreed to pay the debt allegedly owed, or received any benefit from the credit card.
The Law Firm filed a memorandum and affidavit in support of it motion stating that the Debtor assented to the terms of the credit card account by, among other things, using the credit card and making partial payments on the account.   
The state court granted summary judgment for the Debtor, ruling that the credit card company had failed to produce evidence that the Debtor had agreed to the terms of the credit card account or benefitted from the use of the credit card, and because her former husband had agreed to be responsible for the debt in the divorce agreement.   
The Debtor subsequently filed an action in federal court alleging that the defendant Law Firm violated the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692d-f ("FDCPA"), by allegedly making false statements and misrepresentations in its various filings in the state court action.  The Debtor's complaint also included state law claims for harassment, abuse of process, and malicious prosecution, and sought treble damages for violation of a Minnesota statute regarding deceit by an attorney. 
The federal district court granted summary judgment in favor of the Law Firm and dismissed the FDCPA claims, ruling that because the representations made in the state court filings were made to the court and not directly to the Debtor, there was no actionable claim under section 1692e of the FDCPA.  The district court also dismissed the claims based on alleged harassment and unconscionable practices, because the divorce agreement sufficiently linked the debtor to the debt to defeat allegations that the Law Firm had engaged in unconscionable means of collecting the debt.  The Debtor appealed, and the Eighth Circuit affirmed on different grounds.
As you may recall, the FDCPA prohibits a debt collector from:  engaging in harassment or abuse, 15 U.S.C. § 1692d; using any false, deceptive, or misleading representations in connection with the collection of a debt, 15 U.S.C. § 1692e; or, using unfair or unconscionable means to collect a debt.  15 U.S.C. §§ 1692f.
Noting that courts have struggled to define precisely how a debt collection lawyer's representations during debt collection litigation violate the "conduct-regulating provisions" of the FDCPA, the Eighth Circuit recognized that the district court reasonably concluded that the Eighth Circuit's decision in Volden v. Innovative Fin. Systems, Inc., 440 F.3d 947, 954 (8th Cir. 2006), required dismissal of the Debtor's section 1692e claims, as the alleged misrepresentation was made to the state court rather than directly to the plaintiff.  See, e.g., Jerman v. Carlisle, Mcnellie, Rini, Kramer & Ulrich, LPA, 130 S. Ct 1605, 1622 (2010)('conduct-regulating provisions should not be assumed to compel absurd results when applied to debt collecting attorneys"); Heintz v. Jenkins, 514 U.S. 291, 296-97, 299 (1995) (FDCPA applies to attorneys regularly engaged in debt collection litigation, but the preservation of creditors' judicial remedies may require "additional, implicit, exceptions" to certain provisions). 
In so doing, however, the Court declined to follow the district court's broad ruling that false statements not made directly to a consumer debtor are never actionable under Section 1692e.  Instead, in light of the cautionary language in the Supreme Court's opinion in Heintz, the Eighth Circuit chose to adopt a case-by-case approach in order to correctly apply the FDCPA's prohibitions to attorneys engaged in debt collection litigation.
In this case, the Court noted that the alleged false statements appeared in summary judgment filingsand did not:  (a) contain any assertions not already known to the Debtor's attorneys;  (b) mislead the court or anyone else; or  (c) cause the Debtor to rely to her detriment on the factual accuracy of those pleadings. 
The Court also found it significant that shortly after the filing of the district court case, the credit card company located records showing that the Debtor, contrary to her prior assertions, had written a check to make a payment on the disputed account.  Thus, the Court held that all the Debtor's FDCPA claims failed because that evidence provided factual support for the pleadings filed in the state court action, even if the state action turned out to be unsuccessful for the creditor.
Finally, the Eighth Circuit upheld the dismissal of the state law claims based on the alleged deceitful action of the Law Firm in pursuing a supposedly baseless debt collection action, because these claims had not been raised in the state-court proceeding where the deceit allegedly occurred.   

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
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