Sunday, March 11, 2012

FYI: 9th Cir Upholds Ruling Against Debt Collector, Including Owner of Debt Collector Personally Liable Under FDCPA

The U.S. Court of Appeals for the Ninth Circuit recently held that:  (1) debt collection letters erroneously stating that interest and legal fees were owing on a debt violated the federal Fair Debt Collection Practices Act, where governing state law did not permit such fees; (2) the sole owner of a debt collection company was a "debt collector" and personally liable for violating the FDCPA, because he was personally involved in the improper debt collection process, and (3) the Court of Appeals lacked jurisdiction to hear an appeal of post-judgment awards of damages and attorney's fees, where a notice of appeal purporting to "amend" a prior notice of appeal was untimely filed.
Plaintiff individual allegedly wrote two checks to a gambling casino located in Nevada.  Both checks bounced.  The casino assigned its claim based on the dishonored checks to a debt collection company ("Company"), which allegedly sent a total of eight debt collection letters to the Plaintiff seeking payment on the debt. 
After receiving the first debt collection letter, the Plaintiff allegedly sent a certified letter to the Company disputing the debt and refusing to pay.  The Company allegedly continued to attempt collection on the debt by sending additional debt collection letters.  Plaintiff sent the Company a second letter disputing the debt and refusing to pay, but the Company allegedly continued to send further debt collection letters.  The numerous collection letters varied as to the exact amount the Plaintiff owed, and certain letters allegedly stated that under California law Plaintiff owed treble damages, interest, returned-check charges, and/or attorney fees in addition to principal.
The Plaintiff filed suit in district court in California, naming both the Company and its sole owner ("Owner") as defendants (collectively the "Debt Collectors").  The complaint alleged among other things that the Debt Collectors violated the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., by sending false and misleading debt collection letters to the Plaintiff.   The parties filed cross motions for summary judgment. 
The district court ruled that the Company violated the FDCPA by falsely claiming in its letters that it was entitled to treble damages, interest, and legal fees under California law, because Nevada law applied to the debt and Nevada law did not permit the collection of interest and legal fees.  The district court also ruled that the Owner qualified as a "debt collector," and was therefore personally liable for the FDCPA violations.  The district court entered summary judgment in favor of the Plaintiff.  The Debt Collectors filed a timely notice of appeal after the entry of summary judgment. 
Just over a week after the entry of summary judgment, the Plaintiff moved to amend the judgment to include $1000 in statutory damages, which the district court granted.   Then, more than six months after the entry of summary judgment, the Plaintiff filed a petition for attorney's fees, and the district court awarded over $24,000 in attorney's fees and costs.
Subsequently, the Debt Collectors unsuccessfully moved to vacate and dismiss the action due to the death of the Plaintiff.  The court allowed Plaintiff's son to be substituted as representative of the deceased plaintiff.  In response, the Debt Collectors filed an "amended notice of appeal" 34 days after the date of the order of substitution.  The "amended" notice of appeal purported to amend the initial, timely filed notice of appeal to also include appeals of the post-judgment awards of damages, attorney's fees, and costs.   
The Ninth circuit affirmed the grant of summary judgment against the Debt Collectors, and dismissed the appeal relating to the post-judgment awards of damages and attorney's fees for lack of jurisdiction.
As you may recall, the FDCPA defines a "debt collector" in part as any person who regularly collects debts owed or asserted to be owed to another and prohibits the use of any false, deceptive or misleading representation in connection with the collection of any debt.  15 U.S.C. §§ 1692a(6), 1692e.  With certain exceptions, the FDCPA also prohibits contacting any debtor who has notified a debt collector in writing that the consumer refuses to pay a debt and allows a Plaintiff to recover statutory damages.  15 U.S.C. § 1692c(c), 1692e.   
In addition, Nevada law prohibits debt collectors from collecting interest or fees unless such amounts have been added to the principal before the debt collector received the item for collection.  Nev. Rev. Stat.  §  649.375(2)(a)(2011).  Nevada law also limits the amount of damages available to a debt collector for each check written with insufficient funds on deposit.  Nev. Rev. Stat. 41.620(1).
Applying Nevada law, the Ninth Circuit ruled that, because the letters applied the wrong state's laws, and erroneously stated that the Plaintiff owed fees and interest and further overstated the amount of damages, the letters were false and misleading and therefore violated Section 1692e of the FDCPA.  The Court also ruled that the Company violated section 1692c(c) in continuing to send collection letters to the Plaintiff after the Plaintiff disputed the debt and refused to pay.
The Ninth Circuit declined to address the Debt Collectors' argument that they were not liable under the FDCPA because the incorrect statements in the debt collection letters were the result of a bona fide error as to which state's law governed the debt.  Because this argument was raised for the first time on appeal, the Ninth Circuit considered the defense waived.
The Ninth Circuit also considered whether the Owner of the Company could be held personally liable under the FDCPA.  In so doing, the Court considered whether the Owner qualified as a "debt collector" for purposes of the FDCPA and as such whether the Owner "was personally involved in at least one violation of the FDCPA."  Agreeing with the district court, the Ninth Circuit concluded that the Owner satisfied the FDCPA's definition of a debt collector, and that the Owner was personally involved in the collection attempts against the Plaintiff through his act of signing a letter falsely stating that the Plaintiff owed interest on the principal.  The Court also noted that the Owner had sent the collection letter after he had received, and signed for, the Plaintiff's certified letter disputing the debt and refusing to pay.  Thus, the court ruled that such personal involvement in the collection efforts rendered the Owner personally liable.
The Ninth Circuit also ruled that the Debt Collectors failed to timely file a notice appealing the awards of statutory damages and attorney's fees and permitting the substitution of plaintiff.  Noting the mandatory and jurisdictional nature of notices of appeal, the Court ruled that the doctrine of "relation back" does not apply to an amended notice of appeal as it does to the filing of a complaint.  Compare FRCP 15(c)(1)(amendments to complaint "relate back" to the date of original complaint if the amended pleading arises out of same transaction or occurrence) with FRAP 3 and 4(appellant has 30 days to file notice of appeal).  As the Court observed, the Debt Collectors waited beyond the 30 day deadline to file an "amended" notice of appeal.  The Court accordingly ruled that it lacked jurisdiction to hear appeals of those orders.

Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
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