FYI: 6th Cir Reverses Dismissal of FDCPA Claim of Improper Text Viewable Through Envelope Window

The U.S. Court of Appeals for the Sixth Circuit recently reversed the dismissal of a consumer's Fair Debt Collection Practices Act ("FDCPA") claim based on debt collection information that was visible through a transparent window on two debt collection letters.

 

In so ruling, the Sixth Circuit held that the letters attached to the complaint did not contradict the factual allegations essential to the consumer's claim and the complaint contained enough factual content that allowed the court to draw the reasonable inference that the defendant was liable for the misconduct alleged.

 

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

 

The consumer allegedly received two collection letters that had a "glassine window[,] through which the words 'Collection Bureau'" were "written on the inward side of the paper page inside the envelopes and allegedly visible through each envelope's glassine window." In addition, she alleged that "someone looking at the envelopes in normal lighting can clearly read … the message: 'call our toll-free Consumer Service Hotline at 1-866 … United Collection Bureau, Inc. Compliance Department … account number on all communications.'"

 

The consumer sued the collection agency alleging that the collection letters violated the FDCPA and the Ohio Consumer Sales Practices Act ("CSPA"). The collection agency moved to dismiss. The trial court granted the motion and dismissed both claims with prejudice.

 

The consumer appealed, arguing that:  (1) the trial court's "finding that the exhibits contradicted the [complaint's] factual assertions was an improper finding of fact reserved for the jury"; (2) "impermissible language clearly visible from the exterior of an envelope violates 15 U.S.C. § 1692f(8) regardless of its location on the mailing"; and (3) the trial court "improperly applied the 'least sophisticated consumer' standard in finding that the contested language cannot be clearly read without unusual strain or effort because the language is upside down and backwards when the envelopes are held right-side up."

 

The Sixth Circuit concluded that the trial court erred in granting the debt collector's motion to dismiss.

 

The Court reasoned first that the FDCPA must be construed broadly to effectuate its remedial purpose of addressing "what Congress perceived to be a widespread problem in debt collection practices[.]"

 

In order to accomplish this end, "the Act imposes various procedural and substantive obligations on debt collectors[,]" one of which is §1692f(8), which prohibits a debt collector from using "unfair or unconscionable means to collect or attempt to collect any debt[,] including "[us]ing any language or symbol, other than the debt collector's address, on any envelope when communicating with a consumer by use of the mails … except that a debt collector may use his business name if such name does not indicate that he is in the debt collection business."

 

The Sixth Circuit then explained that its task was to "determine whether language appearing through a glassine window of an envelope falls with the boundaries of §1692f(8)'s protection."

 

Relying on the Third Circuit's opinion in Douglass v. Convergent, which "held that §1692f(8) indeed prohibits debt collectors from including markings that are visible through a glassine or otherwise transparent window of an envelope that reveal that the contents of a letter pertain to debt collection[,]" as well as the Federal Trade Commission's staff commentary on that section and trial court opinions, the Court found that "the words 'Collection Bureau" signal that the Letters pertain to collection of a debt. That is expressly barred by §1692f(8)."

 

The Sixth Circuit reasoned that "this type of 'disclosure implicates a core concern animating the FDCPA—the invasion of privacy'—and accordingly is not benign … [because it] contravenes §1692f(8)'s purpose of preventing embarrassment …." Accordingly, it "adopt[ed] the position that §1692f(8) applies to curtail language or symbols showing a communication pertains to collection of a debt that is visible through a glassine window of an envelope."

 

Turning to appellant's argument that the trial court erred by dismissing her complaint based on contradictions between the letters attached to the Complaint and its allegations, the Court explained the rule that "if the 'pleadings internally contradict verifiable facts central to [a plaintiff's] claims, that makes [the plaintiff's] allegations implausible.'"

 

After reviewing the facts alleged in the complaint and exhibits thereto, the Court disagreed with the trial court's conclusion "that the exhibits sufficient contradict the factual assertions central to [plaintiff's] claim …" because the lower court applied the legal standard applicable to a motion to dismiss incorrectly.

 

"Rather than viewing the factual allegations in the complaint in the light most favorable to [plaintiff] and determining whether the evidence presented in the exhibits contradicts those facts, the district court summarily concluded that the contested language was not 'clearly visible' and could not be read 'without unusual strain or effort[.]'"

 

The Sixth Circuit also disagreed with the trial court's determinations that the "least sophisticated consumer" could not read the disputed language "without unusual strain or effort because those words are printed on the opposite side of the Letters and are upside-down and backwards[.]'"

 

First, it found that the letter attached to the complaint did not "utterly discredit" plaintiff's "assertion that the language is clearly visible."

 

Because the words "Collection Bureau" were "at least moderately visible[,]" and the trial court "should have viewed these exhibits with the understanding that there is always some disparity in the quality of a copy versus the actual paper[,]" the Sixth Circuit concluded that "the contested language is 'at best—barely legible[,]' we find that the exhibits show that the contested language is 'at worst—barely legible.'"

 

Accordingly, the Sixth Circuit held that "it is reasonable to conclude that discovery will reveal that the Letters, when viewed in normal lighting, display clearly visible language that indicates that the communications pertain to collection of a debt." Accordingly, the exhibits to the complaint did not "contradict her assertion that the words "Collection Bureau" are clearly visible."

 

The Court then found that the trial court "also improperly applied the least sophisticated consumer standard in coming to its conclusion[,] reasoning that "[a] person handling or viewing one of the Letter could easily rotate the letter to read the words 'Collection Bureau.' … Thus, the nature of the Letters would be apparent on the face of the envelope to anyone handling the mail. … To hold otherwise would obstruct 'Congress's intent to screen from public view information pertinent to the debt collection … and would permit an end-run around §1692f(8) by clever envelope, paper, or font selection."

 

The Sixth Circuit also disagreed with the trial court's finding "that barring visible text printed on the Letters would lead to absurd results" because, as urged by the appellant/consumer, "a narrow construction of §1692f(8) would create absurd results by allowing debt collectors to print whatever they want on the inside of the letter, no matter how obvious from the outside, as long as they do not print it on the envelope."

 

The Court could not "disregard a business name that shows on the face of a debt collection letter … merely because it is written on the inward contents of a letter. … [T]his understanding best promotes the elimination of abusive debt collection practices without causing a competitive disadvantage to debt collectors that refrain from using such practices."

 

Turning to the consumer's remaining state law claim, the Sixth Circuit held that since the trial court dismissed plaintiff's "CSPA claim for failure to state a claim under the FDCPA, our FDCPA analysis applies equally to her CSPA claim for remand purposes."

 

Thus, the trial court's judgment was reversed and the case remanded for further proceedings.  

 

 

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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FYI: Maryland High Court Holds Private Litigants Cannot Bar AG or CFPB from Separately Suing on Same Claims

The Maryland Court of Appeals recently held victims on whose behalf money is collected or property is recovered by the Maryland Consumer Protection Division of the Attorney general's Office (CPD) or federal Consumer Financial Protection Bureau (CFPB) have no authority, through a private settlement, whether or not approved by a court, to preclude the CPD or CFPB from pursuing their own remedies.

 

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

 

The Maryland Consumer Protection Division (CPD) filed an enforcement action alleging a structured-settlement-factoring company ("SSFC") engaged in unfair or deceptive trade practices in supposed violation of CL B' 13-303. The CPD sought to enjoin SSFC from continuing their alleged misconduct, to restore to the assignors the future stream of structured settlement payments, and to compensate them, through restitution and disgorgement, for the value of the structured settlement payments that had been assigned and already paid to the SSFC.

 

Two months later, a putative class-action lawsuit (Private Lawsuit) was filed on behalf assignors alleging the same fraudulent conduct on the part of SSFC in the CPD matter.

 

Six months after that, the federal Consumer Financial Protection Bureau (CFPB), filed a similar action against SSFC, for the same misconduct and seeking essentially the same relief as the CPD.

 

The parties in the Private Lawsuit were able to negotiate a settlement while the CPD and CFPB actions still were pending, and filed a joint motion for preliminary approval of a class action settlement.

 

The Stipulation of Settlement took account of the pending CPD and CFPB actions and effectively precluded the settlement class plaintiffs from receiving any benefit from those actions, including requiring the class members to release all claims that may be obtained by CPD or CFPB, enjoining class members from receiving any benefits from those claims, transferring to SSFC any benefits or recovery of those claims, and allowing SSFC to terminate the settlement if the CPD or CFPB " does not provide in writing, its agreement to dismiss its respective lawsuit with prejudice upon a Final Approval Order or either [CPD] or [CFPB] opposes the Court's Final Approval."

 

The CPD moved to intervene and stay the Private lawsuit and argued that its case, through disgorgement and restitution, offered the plaintiffs a restoration of the full structured settlement benefits that, as the result of extrinsic fraud committed by agents of SSFC, the plaintiffs had assigned to SSFC.

 

Both sides in the Private Lawsuit opposed CPD's motion, denying that "CPD could achieve through restitution or disgorgement restoration of the structured settlement benefits on the allegation that the judgments approving the assignments were void."

 

The court granted CPD's motion to intervene but denied its motion to stay noting CPD's argument went to the fairness of the settlement which was not before the court.

 

CPD filed an opposition to certification of the settlement class and to the settlement agreement.  However, the court signed an order certifying the class and approving the settlement.

 

After approval of the settlement in the Private Lawsuit, the SSFC moved for summary judgment in the CPD action, which the court granted based on its conclusion that CPD's claim for restitution was barred by res judicata. The court did allow the claims for injunctive relief and civil penalties to proceed.

 

The Court of Special Appeals affirmed in part and reversed in part the judgment of the trial court holding that the trial court "correctly allowed CPD to intervene in the [Private Lawsuit] and concluded that, overall, the settlement was procedurally fair. It did not rule on whether the settlement was substantively fair."  The dispositive holding was that the settlement improperly interfered with CPD's and CFPB's enforcement authority because the settlement effectively preempted a major portion of the claims of being pursued by CPD and CFPB.

 

Both the parties appealed.

 

The Maryland Court of Appeals addressed two questions (1) may class members release and assign to others their right to receive money or property sought for their benefit by CPD or CFPB through those agencies' separate enforcement actions; (2) was the settlement procedurally and substantively fair?

 

The Court started by identifying the three options for enforcing the Maryland Consumer Protection Act:  (1) civil and criminal penalties against the "merchants;"  (2) victims bringing civil actions for damages (as happened in the Private Lawsuit); (3) remedies that CPD may pursue both to protect the public, directly or indirectly, and to provide relief to individual victims.

 

SSFC argued that victims should have the right to choose their remedy, all three remedies are essentially same, and plaintiffs have no right to double recovery through multiple remedies.

 

The Maryland Court of Appeals noted that the Maryland Consumer Protection Act does not mention "disgorgement"  nor does it define "restitution."  The connection between those terms was supplied by the court in Consumer Protection v. Consumer Pub. in which the court first explored the purpose and meaning of the then relatively new Maryland Consumer Protection Act. The critical holding in Consumer Pub. is the distinction between civil damages and disgorgement/restitution. The purpose of civil damages is to compensate the defrauded party and the purpose of disgorgement/restitution is to not only restore the defrauded party but also deny the fraudulent party any benefits of its wrongful conduct.

 

While the Court found some merit in the "general proposition that a victim on whose behalf money is collected or property is recovered by CPD ordinarily has the right to disclaim any interest in it and that a double recovery of civil damages exceeding the loss suffered ordinarily is not permitted", the Court held that "restitution through disgorgement is not in the nature of civil damages, and a plaintiff may recover more than his or her actual loss."

 

"[B]ecause restitution through disgorgement has a punitive element to it, it partakes of a public remedy, not just a personal one, especially when pursued by a government agency authorized by statute to pursue it."

 

Applying Consumer Pub. here, the Maryland Court of Appeals held that, although consumers have a right to disclaim any recovery on their behalf by CPD, "they have no authority, through a private settlement, whether or not approved by a court, to preclude CPD from pursuing its own remedies" as that "would directly contravene the statutory authority of CPD to sanction Access for its wrongful conduct."

 

The Court held this alone requires the trial court's approval of the settlement to be reversed and remanded to the trial court for further proceedings finding the CPD's cross appeal regarding the fairness of the current settlement moot.

 

 

 

 

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   |   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.

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Financial Services Law Updates

 

and

 

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and

 

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California Finance Law Developments