FYI: 11th Cir Holds Disclosing Consumer Information to Third Party Letter Vendors Violates FDCPA

The U.S. Court of Appeals for the Eleventh Circuit recently held that the transmission of consumer information to a letter vendor constitutes a communication with an unauthorized third party in connection with the collection of a debt in violation of the federal Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. § 1692c(b).

 

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

 

The collector electronically transmitted information about the consumer and his debt to its letter vendor, which then used that information to create and send a letter to the consumer.

 

Standing to Bring the 1692c(b) Claim

 

Before addressing the merits of the consumer's claim, the Eleventh Circuit examined whether the consumer had standing to pursue that claim. The Court noted that the consumer could not establish standing based upon a tangible harm, as he failed to allege one. The consumer was also unable to establish standing based on an impending risk of significant harm.

 

Therefore, the Court looked to whether the consumer was able to identify a statutory violation that gave rise to an intangible, yet still concrete, injury.

 

When determining whether a statuary violation confers Article III standing, the Eleventh Circuit noted that courts consider history and the judgment of Congress. After reviewing the history of American and English common law, the Court found that the alleged injury was sufficiently analogous to the tort of invasion of privacy. The Court also found that the judgment of Congress supported standing because "invasions of individual privacy" were among the harms that Congress explicitly targeted in enacting the FDCPA.

 

You might recall that the Eleventh Circuit recently addressed whether a consumer had standing to assert claims under § 1692e and § 1692f regarding the absence of a statute-of-limitations revival warning in a collection letter. Trichell v. Midland Credit Mgmt., Inc., 964 F.3d 990 (11th Cir. 2020). The Court in Trichell held that the consumer did not have standing to pursue those claims because, among other things, he was not actually misled by the letter.

 

The Eleventh Circuit distinguished its decision in Trichell by explaining that the § 1692e claim asserted in that case bore an insufficiently close relationship to the most analogous common-law tort (fraudulent or negligent misrepresentation).

 

Also, the Court noted that there is no evidence that Congress intended to address, as the Court put it in Trichell, "misleading communication[s] that fail to mislead."  However, Congress specifically identified invasions of privacy as one of the harms against which the FDCPA was directed.

Accordingly, the Eleventh Circuit held that the consumer had standing to pursue his § 1692c(b) claim.

 

Providing Information to a Letter Vendor States a Claim Under 1692c(b)

 

Moving to the merits of the consumer's claim, the Eleventh Circuit noted that the collector did not dispute that its transmittal of information to the letter vendor was a "communication" as that term is defined at 15 U.S.C. § 1692a(2).

 

This concession meant that the Court only needed to decide whether that communication was made "in connection with the collection of any debt" in violation of 15 U.S.C. § 1692c(b).

 

The Eleventh Circuit first determined that the phrase "in connection with" and the word "connection" are both broadly defined and require only a relationship or association. From there, the Court arrived at the "inescapable" conclusion that the collector's transmittal of data (including consumer name, creditor name, and account balance) to the letter vendor was related to or associated with the consumer's debt and, therefore, was "in connection with the collection" of that debt.

 

The collector asserted three arguments in support of its position that the transmittal to its letter vendor was not "in connection with the collection of any debt." The Court rejected all three.

 

The collector first argued, citing prior Eleventh Circuit decisions, that a communication is not in connection with the collection of a debt unless it includes a demand for payment. The Court rejected this argument and explained that its prior cases implying such a requirement addressed alleged violations of § 1692e, not § 1692c(b). The Court also noted that § 1692c(b) contains exceptions for communications with certain third parties, such as credit reporting agencies, to which no demand for payment would be directed. Those exceptions would be redundant if a communication had to include a demand for payment to be "in connection with the collection of any debt" under § 1692c(b).

 

The collector next argued that the Eleventh Circuit should apply a multi-factor balancing test used by the Sixth Circuit in evaluating whether a communication was "in connection with the collection of any debt" under § 1692e. The Eleventh Circuit again noted the linguistic and operational differences between § 1692e and § 1692c(b) in rejecting this argument.

 

Compliance Conundrum

 

At the risk of oversimplifying the third argument, the collector essentially argued that numerous debt collectors use letter vendors yet there were no court rulings holding that the use of letter vendors violates the FDCPA.

 

In rejecting this argument, the Eleventh Circuit observed that this case might be the first to decide whether a collector violates § 1692c(b) by transmitting information to a letter vendor.

 

The Court understood that its interpretation of § 1692c(b) "runs the risk of upsetting the status quo in the debt-collection industry," that it could be extended beyond the use of letter vendors, and that it "may well require debt collectors (at least in the short term) to in-source many of the services that they had previously outsourced, potentially at great cost."

 

However, the Eleventh Circuit believed that the plain language of the statute compelled its holding.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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: Ill App Ct (1st Dist) Holds Assignment of Medical Lien to Funding Company Unlawful

The Appellate Court of Illinois First District, Sixth Division, recently reversed in part and affirmed in part a trial court's dismissal of a putative class action plaintiff's claim that one of the defendants, a healthcare provider from whom the plaintiff received medical treatment following a personal injury, attempted to unlawfully assign its statutory lien against the plaintiff's personal injury settlement to the other defendant, a financial services company and non-healthcare provider.

 

The Court held that the plaintiff had adequately alleged that the defendants' improper use of the lien procedure deprived her of a right she would otherwise have enjoyed -- namely, the right to presently possess her settlement proceeds -- and remanded back to the trial court for further proceedings.

 

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

 

In 2016, the plaintiff suffered personal injuries in a vehicular accident and sought treatment from the first defendant, a provider of physical therapy services. In 2017, the first defendant sent a notice of medical lien to the plaintiff's personal injury attorney.

 

In the notice of medical lien, the first defendant claimed a lien in the amount of $11,943.00, the charges for healthcare services provided to the plaintiff, against any recovery she might obtain from the unnamed party or parties responsible for her injuries.

 

A little over two months later, the plaintiff's attorney received another letter from the first defendant, stating in part, "we have partnered with [the second defendant, a billing company] to manage the medical receivable(s) listed" and "from this day forward we ask that you correspond with them as it relates to obtaining lien satisfaction payoff amounts."

 

On the same day, the plaintiff's attorney received a new notice of medical lien from the second defendant, which stated that "the second defendant is now the billing company for the above and has taken assignment for a medical lien in the amount of $11,943.00 for services rendered to [the plaintiff]."

 

Seeking to represent a nationwide class of similarly situated individuals who, in or after 2013, had been served with notices regarding liens purportedly assigned to the second defendant, the plaintiff asserted claims against the defendants for (1) violation of the Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/1 et seq.), (2) unjust enrichment, (3) injunctive relief, (4) negligence, (5) negligent misrepresentation, and (6) declaratory relief.

 

The plaintiff alleged that by serving unauthorized notices of assigned liens, the defendants had misrepresented or concealed from her and the proposed class that (1) the first defendant had no authority to assign its liens and (2) the second defendant, as a non-health care provider, had no authority to serve or present notice of a lien under 10(e) of the Health Care Services Lien Act (Lien Act) to the Plaintiff for payment.

 

The trial court granted the defendants' motion to dismiss. With respect to her consumer fraud claim, the trial court concluded, among other things, that any omission on the defendants' part regarding the legality of the lien assignment was immaterial because the plaintiff still owed money for the services she had received. The trial court also concluded that, absent any attempt to enforce the lien, the defendants had not been unjustly enriched at the plaintiff's expense. And the trial court agreed with the defendants that the plaintiff's claims for negligence and negligent misrepresentation were barred by the economic loss doctrine.

 

The trial court also dismissed the plaintiff's equitable claims, noting that an injunction is "not a [separate] cause of action." Plaintiff's request for declaratory relief was also improper, the trial court concluded, because she was asking the court "to determine [that] what ha[d] already occurred was wrong, not to… set the stage for going forward." The trial court believed that "[t]he most straightforward way to address this" was for the plaintiff to avail herself of the lien adjudication procedure provided for in the Lien Act. 

 

After the trial court denied her motion to vacate or reconsider and her motion to amend the complaint, the plaintiff timely appealed.

 

The plaintiff's claims stemmed from her allegation that section 10(e) of the Lien Act prohibits the assignment of health care services liens to third parties. Section 10(e) provides that "[p]ayments under [health care services] liens shall be made directly to the health care professionals and health care providers," 770 ILCS 23/10(e). Section 10(e) lacks any provision expressly allowing for the assignment of such liens.

 

In support of this reading of the statute, the plaintiff cited Wilson v. F.B. McAfoos & Co., 344 Ill. App. 3d 452, 457 (2003), where the court held that liens under the Physicians Lien Act (770 ILCS 80/0.01 et seq.), a precursor to the Lien Act, were not assignable as a matter of law. Wilson, 344 Ill. App. 3d at 457.

 

The Appellate Court agreed with the plaintiff's reading of the Lien Act and noted that the defendants and the trial court appear to have also recognized that a lien assignment from the first to the second defendant would have been invalid.

 

However, in the trial court's view, this would not give rise to a claim if the plaintiff suffered no harm from the assertion of an invalid assignment. The First Appellate District, however, held that the plaintiff properly alleged that she was damaged by the fact that an invalid lien was used to deprive her of money that she was entitled to possess (subject to the right of the holder of the debt to take other legal action to collect it) because as long as that lien was pending, her lawyer was required to hold that money in his IOLTA account.

 

The Appellate Court concluded that this is the sort of harm that equitable relief is intended to address. A party seeking a permanent injunction must demonstrate "(1) a clear and ascertainable right in need of protection, (2) irreparable harm if injunctive relief is not granted, and (3) no adequate remedy at law." Sparks v. Gray, 334 Ill. App. 3d 390, 395 (2002).

 

The Appellate Court reasoned that the plaintiff had alleged a clear and ascertainable right to the present possession of her encumbered settlement funds that is in need of protection. The Court believed that if the plaintiff could prove her allegations, then she would clearly be entitled to hold onto those funds while the matter of her debt was ascertained. And, in the Court's view, the lien adjudication procedure in section 30 of the Lien Act (770 ILCS 23/30) does not provide the plaintiff with an adequate remedy at law because nowhere has it been suggested that she could recoup the time value associated with the encumbrance of her funds through such a procedure.

 

The defendants argued that because the plaintiff alleged harm, and not just the threat of future harm, declaratory relief is unavailable to her. In support of this argument, they cited BMO Harris, N.A. v. Jackson Towers Condominium Ass'n, 2018 IL App (1st) 170781, where the court noted that "[t]he declaratory judgment process allows the circuit court to address a controversy after a dispute arises but before steps are taken that give rise to a claim for damages or other relief," so that the parties to the dispute may "learn the consequences of their action before acting." Id. ¶ 24.

 

The plaintiff in BMO Harris was a bank that elected to pay disputed post-sale assessments following a mortgage foreclosure sale and then, after the fact, sue for a declaration that it had no obligation to do so. Id. ¶ 1. However, the Appellate Court distinguished BMO Harris from this matter because, here, the plaintiff sought not an after-the-fact finding of liability, but a declaration of her existing rights to the settlement funds that had been withheld from her.

 

Therefore, the Appellate Court held that the trial court improperly dismissed the plaintiff's equitable claims for injunctive and declaratory relief. 

 

The Appellate Court did agree with the trial court's dismissal of the plaintiff's non-equitable claims, namely consumer fraud, unjust enrichment, negligence, and negligent misrepresentation.

 

However, the Court observed that the trial court only dismissed these claims with prejudice because it believed that the plaintiff was incapable of alleging harm flowing from the defendants' communications. Because the Court disagreed with that conclusion, and because the details of the defendants' transaction were unclear but likely to be revealed through discovery, the Court concluded that dismissal of these claims should be without prejudice. See Morr-Fitz, Inc. v. Blagojevich, 231 Ill. 2d 474, 488 (2008) ("[A] cause of action should not be dismissed with prejudice unless it is clear that no set of facts can be proved under the pleadings which would entitle plaintiffs to relief").

 

Because the Appellate Court concluded that the plaintiff's initial complaint adequately stated claims for injunctive and declaratory relief, it felt no need to consider whether the trial court erred in denying her leave to amend those claims. 

 

Accordingly, the Appellate Court reversed the trial court's dismissal of the plaintiff's claims for injunctive and declaratory relief and affirmed the dismissal of her claims for consumer fraud, unjust enrichment, negligence, and negligent misrepresentation.

 

However, because the Appellate Court believed it possible that grounds for successfully amending one or more of the dismissed claims could arise during discovery, dismissal of those claims was without prejudice. The Appellate Court remanded the case back to the trial court for further proceedings consistent with its ruling.

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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: 3rd Cir Holds No FDCPA Violation When Non-Interest Bearing Debt Itemized "$0.00" for Interest

The U.S. Court of Appeals for the Third Circuit recently affirmed the dismissal of class action complaint alleging that a collection letter's itemization of a debt as including "$0.00" in interest and fees — when the debt could not accrue interest or fees — violated the federal Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq. (FDCPA).

 

In so ruling, the Third Circuit concluded that the inclusion of line items listing $0.00 in the form letter's interest and fees columns did not mislead the consumer to believe that he may owe interest or fees in the future in violation of the FDCPA's prohibition on deceptive (§ 1692e) and unfair or unconscionable (§ 1692f) means of collecting consumer debts, even under the court's hypothetical "least sophisticated consumer" standard.

 

Of note, the federal Consumer Financial Protection Bureau filed an amicus brief in support of the consumer in this appeal.

 

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

 

A consumer ("Consumer") received a letter (the "Collection Letter") from a debt collector which sought to collect past due amounts on behalf of a creditor who acquired the debt. 

 

The Letter included a table itemizing the debt into four columns providing (i) the principal balance of the debt ($1,088.34), (ii) interest ($0.00), (iii) "Fees Coll. Costs" ($0.00), and (iv) total balance ($1,088.34).  The letter concluded that Hopkins owed $1,088.34 on the debt and offered to "resolve this debt in full" if he paid a reduced amount of $761.84.

 

The Consumer filed a putative class action complaint against the debt Collector and creditor (collectively, the "Debt Collectors") alleging that the Letter's inclusion of the table with itemized columns for interest and fees violated sections 1692e and 1692f of the FDCPA. 

 

Specifically, the Consumer claimed that because the debt was static and purportedly could not accrue interest or fees, that assigning a "$0.00" value to those columns falsely implied that interest and fees could accrue and increase the total debt over time.

 

Upon consideration of the Debt Collectors' motion to dismiss, the trial court dismissed the Consumer's complaint with prejudice, reasoning that the Letter neither "leave[s] the least sophisticated consumer in doubt of the nature and legal status of the underlying debt" nor "impede[s] the consumer's ability to respond to or dispute collection."  The Consumer appealed.

 

On appeal, the lone issue before the Third Circuit was whether or not the Letter's inclusion of a table denoting "$0.00" in interest and collection fees falsely implied that interest and collection fees were materially likely to accrue in violation of FDCPA's prohibitions on deceptive (§ 1692e) and unfair or unconscionable (§ 1692f) means of collecting consumer debts.

 

Initially, the Third Circuit noted that other federal appellate courts recently addressed similar claims. 

 

In Degroot v. Client Services, Inc., 977 F.3d 656 (7th Cir. 2020), the Seventh Circuit held that listed a debt as including $0.00 in interest and fees "mere[ly] rais[ed] . . . an open question about future assessment of other charges," and did not mislead the unsophisticated consumer.  Id. at 660–61. 

 

Likewise, in Salinas v. R.A. Rogers, Inc., 952 F.3d 680 (5th Cir. 2020), the Fifth Circuit analyzed concluded that a dunning letter's inclusion of $0.00 due in interest and fees and the statement that "in the event there is interest or other charges accruing on your account, the amount due may be greater than the amount shown above after the date of this notice" did not violate the FDCPA "from the perspective of an unsophisticated or least sophisticated consumer" Id. at 683–84 & n.3.

 

Here, the Consumer attempted to distinguish these cases, arguing that the Third Circuit's "lease sophisticated debtor" standard is more forgiving than the "unsophisticated debtor" standard under which these cases were decided. 

 

The Third Circuit disagreed, noting that its framework is "functionally equivalent to the unsophisticated debtor standard on which claims like [the Consumer's] have foundered.  Jensen v. Pressler & Pressler, 791 F.3d 413, 419 & n.3 (3d Cir. 2015) (noting that it is "sometimes referred to as the 'least sophisticated consumer' or 'unsophisticated debtor' standard"). 

 

Finding the rationale of the Fifth Circuit in Salinas and Seventh Circuit in Degroot persuasive, the Third Circuit similarly concluded that the Letter did not violate the FDCPA by itemizing $0.00 in interest and fees on his static debt.

 

The Third Circuit further concluded that affirmation of dismissal was appropriate even if confined to "least-sophisticated-debtor" case law which assumes that even naïve consumers possess a "quotient of reasonableness" consistent with "a basic level of understanding and willingness to read with care."   Wilson v. Quadramed Corp., 225 F.3d 350, 354–55 (3d Cir. 2000) (citation omitted).  

 

First, the Court noted that the Second Circuit rejected similar claims under a "least sophisticated consumer" standard in Taylor v. Financial Recovery Services, Inc., 886 F.3d 212 (2d Cir. 2018), holding that letters seeking to collect static debts that "stated their respective balances due without discussing interest or fees" were not misleading to "the least sophisticated consumer." 

 

Moreover, the Third Circuit reasoned that its "FDCPA case law does not support attributing to the least sophisticated debtor simultaneous naïveté and heightened discernment" as the Consumer attempted here by acknowledging that the Letter was a "mass-produced, computer-generated form letter[]," yet purportedly failing to understand that listing $0.00 in each of the form letter's interest and fees columns was an "inapplicable vestige[] of a template letter." 

 

Because the Consumer failed to state an FDCPA claim under the court's "least sophisticated debtor" standard, dismissal of the class action complaint was affirmed.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 6^th 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   |   Tennessee   |   Texas   |   Washington, DC

 

 

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