Sunday, June 26, 2022

FYI: 6th Cir Holds "Objectively Baseless" Debt Collection Lawsuit Violated FDCPA

The U.S. Court of Appeals for the Sixth Circuit recently ruled that a debt collector violated the federal Fair Debt Collection Practices Act (FDCPA) when it sued a debtor's wife to recover her husband's legal fees under Ohio's Necessaries Statute.


In so ruling, the Sixth Circuit held that:


(a) the debt collection lawsuit brought first against the debtor's wife violated Ohio Supreme Court precedent, and therefore was objectively baseless; and


(b) bringing a claim against a party under circumstances where the state supreme court has explicitly held the party cannot be held liable is a violation of the FDCPA.


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


Prior to the litigation giving rise to the appeal, the defendant debt collector (Debt Collector) filed a debt collection action against the plaintiff spouse (Spouse) and her husband (Debtor) seeking to recover unpaid attorney's fees owed by Debtor.


Debt Collector asserted a "spousal obligation to support" claim against Spouse pursuant to Ohio's Necessaries Statute which permits the collection of certain debts from one spouse that were incurred by the other.


Spouse filed a lawsuit alleging violations of the FDCPA, arguing that Creditor's lawsuit against her for legal fees incurred by Debtor was "objectively baseless."  The parties filed cross-motions for summary judgment and the trial court resolved the motions in favor of Debt Collector.  The Spouse appealed.


As you may recall, under the FDCPA, "[a] debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt."  15 U.S.C. §1692e.  A violation of the FDCPA occurs when the debt collector's action or representation is materially misleading or false. Wallace v.  Wash.  Mut.  Bank,  F.A.,  683  F.3d  323,  326–27  (6th  Cir.  2012), and has the purpose of inducing payment by the debtor. Grden v. Leikin Ingber & Winters PC, 643 F.3d 169, 173 (6th Cir. 2011).


The Sixth Circuit noted that advancing a debt collection claim that is ultimately unsuccessful does not, in and of itself, rise to an FDCPA violation. Heintz v. Jenkins, 514 U.S. 291, 296 (1995). However, a litigation filing containing a material misstatement of state law that is "false, deceptive, or misleading" at the time it is made can constitute an FDCPA violation. Van Hoven v. Buckles & Buckles, P.L.C., 947 F.3d 889, 893-94 (6th Cir. 2020) (quoting 15 U.S.C. § 1692e).


The Sixth Circuit distinguished between what constitutes a non-winning debt collection claim that violates the FDCPA and one that does not. "A lawyer does not 'misrepresent' the law by advancing a reasonable legal position later proved wrong." Id. at 896. However, if the "legal contention was objectively baseless at the time it was made", it is "legally indefensible and groundless in law" and violates the FDCPA. Id.


The Sixth Circuit noted that the Ohio Necessaries Statute provides that a "married person must support the person's self and spouse," and if one is "unable to do so, the spouse of the married person must assist in the support so far as the spouse is able." Ohio Rev. Code § 3103.03(A).


The parties and the trial court focused on whether attorneys' fees constituted "necessaries" under the statute. The trial court found that Debt Collector's claim was "at the very least, arguable" as the Supreme Court of Ohio has held that certain attorneys' fees' are recoverable against a spouse. See Wolf v. Friedman, 253 N.E.2d 761, 765-67 (Ohio 1969); Blum v. Blum, 223 N.E.2d 819, 820-21 (Ohio 1967).


However, the Sixth Circuit held that the issue of whether attorneys' fees are included under the Ohio Necessaries Statute as irrelevant, as Debt Collector's lawsuit failed to comply with the statute's threshold procedural requirements.

In an earlier case, the Ohio Supreme Court held that "each married person retains primary responsibility for supporting himself or herself from his or her own income or property," and a "nondebtor spouse becomes liable only if the debtor spouse does not have the assets to pay for his or her necessaries." Embassy Healthcare v. Bell, 122 N.E.3d 117, 121 (Ohio 2018). Thus, the Sixth Circuit noted, Embassy Healthcare requires a creditor to first exhaust its debt collection efforts against the debtor before it can attempt to collect from the spouse.


Specifically, the Ohio Supreme Court held in Embassy Health that "[a] creditor must…first seek satisfaction of its claim from the assets of the spouse who incurred the debt. [The Ohio Necessaries Statute] does not impose joint liability on a married person for the debts of his or her spouse." Id.


The Sixth Circuit found the ruling in Embassy Health established that the debt collection lawsuit brought first against Spouse was objectively baseless. The Court further held that bringing a claim against a party under circumstances where the state supreme court has explicitly held the party cannot be held liable is a violation of the FDCPA.


Thus, the Sixth Circuit reversed the trial court's judgment, and remanded with instructions to enter judgment in favor of Spouse.




Ralph T. Wutscher
Maurice Wutscher LLP
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