The U.S. Court of Appeals for the Ninth Circuit recently held that a plaintiff had Article III standing to assert claims for violation of the federal Fair Debt Collection Practices Act (“FDCPA”) based on communications he did not receive, because the alleged violation of his statutory right not to be the target of misleading debt collection communications constituted a cognizable injury.
The Court also held the plaintiff had statutory standing under the FDCPA despite not having received the alleged communications. The Court further held that the misidentification of a debt’s original creditor in a dunning letter and a subsequently filed court complaint constitutes a material misrepresentation in violation of the FDCPA.
Plaintiff consumer (“Debtor”) purchased a computer from the Manufacturer. At the time of the purchase, Debtor resided in New Mexico, but had the computer shipped to his parents’ home in California. Debtor financed the computer’s purchase through the Manufacturer’s financial services plan and Manufacturer then sold and assigned the finance agreement (the “Debt”). Debtor claims he paid the Loan in full within 2 years of purchasing the computer, but Manufacturer’s records indicated otherwise.
The Debt was charged off and sold to defendant Creditor (“Creditor”). Creditor transferred the Loan to its affiliated collection agency (“Collection Agency”), which mailed three dunning letters to Debtor. Collection Agency then referred Debtor’s file to Defendant law firm (“Law Firm”), which also sent a dunning letter to Debtor. Every dunning letter was mailed to Debtor’s parents’ California residence rather than Debtor’s New Mexico residence.
After receiving no response to the letters, Law Firm initiated an action in state court (the “state complaint”). It was during this litigation that Debtor first learned the dunning letters had been mailed to his parents’ California residence. Law Firm subsequently dismissed the state complaint.
Debtor filed the instant action against Creditor, Law Firm, and Collection Agency alleging FDCPA violations as well as several state law violations. Specifically, Debtor asserted the following FDCPA claims: (1) the letters at issue misidentified the Loan’s original creditor in violation of 15 U.S.C. § 1692e; and (2) the attorney who signed Law Firm’s dunning letter was not “meaningfully involved” in evaluating Debtor’s case in violation of 15 U.S.C. § 1692e(3). Debtor sought statutory damages only, and conceded he suffered no pecuniary loss.
After surviving a motion to dismiss, the court certified a class of consumer plaintiffs. Law Firm, Creditor, and Collection Agency then filed a motion for summary judgment, which was granted. Debtor’s appeal followed. It should be noted that Collection Agency and Creditor did not appear for the purposes of Debtor’s appeal.
As you may recall, 15 U.S.C. § 1692k provides that “any debt collector who fails to comply with any provision of this subchapter with respect to any person is liable to such person.”
Additionally, 15 U.S.C. § 1692e states that “a debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt.”
On appeal, Law Firm argued that Debtor lacked statutory and Article III standing because Debtor never actually received any of the dunning letters.
As to statutory standing, Law Firm argued the FDCPA does not provide a cause of action for a consumer in Debtor’s position, despite the broad language of 15 U.S.C. § 1692k(a). As to Article III standing, Law Firm argued that even if Debtor has standing under the FDCPA, Article III forbids it as consumers who never receive the offending collection communications have not suffered an “injury in fact.”
As you may recall, in order for a plaintiff to have standing he or she must have suffered an “injury in fact,” meaning “an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical. Lujan v. Defenders of Wildlife, 504 U.S. 560 (1975).
An Article III injury in fact “may exist solely by virtue of ‘statutes creating legal rights, the invasion of which creates standing.’” Id. at 578 quoting Warth v. Seldin, 422 U.S. 490, 500 (1975). However, there are two constitutional limitations on Congress’s ability to confer Article III standing. “First, a plaintiff ‘must be among the injured, in the sense that she alleges the defendants violated her statutory rights.’” Robins v. Spokeo, Inc., 742 F.3d 409, 413 (9th Cir. 2014) quoting Beaudry v. TeleCheck Servs., Inc., 579 F.3d 702, 707 (6th Cir. 2009). “Second, the statutory right at issue must protect against ‘individual, rather than collective, harm.’” Id. (quoting Beaudry, 579 F.3d at 707).
The gravamen of Law Firm’s Article III standing argument was that Debtor was not truly “among the injured.” Specifically, Law Firm contended that Debtor did not suffer an “actual injury” because he never received the dunning letters that contained the alleged misleading representations. Law Firm further argued that a consumer who does not receive a dunning letter cannot suffer pecuniary or emotional harm, “nor can such a consumer be hindered in deciding how to respond to the effort to collect the debt.”
The Ninth Circuit disagreed. Relying on Havens Realty Corp. v. Coleman, 455 U.S. 363, (1982) (“Havens”), the Court explained it is not necessary to suffer pecuniary or emotional harms in finding “injury in fact.” In Havens, the Court held that an African-American, who posed as an apartment hunter, possessed standing to bring suit for violations of the Fair Housing Act (“FHA”) based on the defendants’ false representations that no apartments in a particular housing complex were available, even though the plaintiff had no intention of actually renting an apartment from the defendants. Id. at 374. The Havens Court concluded that the plaintiff had Article III standing because the alleged injury to his statutorily created right to truthful housing information was a cognizable injury regardless of whether the plaintiff had any intention to reside in the defendants’ housing complex. Id. The Havens’ plaintiff possessed standing not because she had been “deprived . . . of the benefits that result from living in an integrated community,” but because her “statutorily created right to truthful housing information” had been infringed. Id. at 374-75.
Applying the Havens’ holding to Debtor’s appeal, the Court explained the injury Debtor suffered “was a violation of his right not to be the target of misleading debt collection communications.” This supposed violation of an alleged statutory right constituted a cognizable injury under Article III. According to the Ninth Circuit, when the injury in fact is a violation of a statutory right inferred from the existence of a private cause of action, the remaining elements of standing are usually met, and thus the Court held that Debtor had constitutional standing. See Robins v. Spokeo, Inc., 742 F.3d 409, 414 (9th Cir. 2014).
The Court next addressed whether Debtor had statutory standing under the FDCPA. The issue the Court examined was whether 15 U.S.C. § 1692e’s “use of any false, deceptive, or misleading representation. . . with respect to any person” language created a requirement that the person to whom the representation was addressed to actually had to receive it.
Law Firm contended that the term “representation” required the presence of two parties, the party making the representation and the party to whom the representation is made.
In response, the Court stated the FDCPA’s text is aimed at a debt collector’s conduct, rather than its effect on the consumer. Specifically, the Court stated that a debt collector violates the FDCPA just by sending a consumer a misleading letter and it is irrelevant whether some interceding condition -- including non-receipt of the letter, the consumer’s failure to read it, or the fact that the consumer is savvy enough not to be misled by it -- renders the misleading letter ineffective.
The Ninth Circuit next examined the FDCPA’s statutory construction to determine whether a debt collector’s conduct must have some effect on a consumer before a consumer has standing to bring an FDCPA action.
The Court began by explaining a consumer possesses a cause of action under the FDCPA even when a defendant’s conduct does not cause a consumer to suffer any pecuniary or emotional harm. Further, the Court stated the FDCPA does not even require that a plaintiff actually be misled or deceived by the debt collector’s representations, but rather “liability depends on whether the hypothetical ‘least sophisticated debtor’ likely would be misled.” See Gonzales v. Arrow Fin. Servs., LLC, 660 F.3d 1055, 1061 & n.2 (9th Cir. 2011). The Court also noted the FDCPA awards successful consumers with both statutory damages and attorney fees meaning Congress “clearly intended that private enforcement actions would be the primacy enforcement tool of the Act.” Baker v. G.C. Servs. Corp., 677 F.2d 775, 780–81 (9th Cir. 1982).
The Court thus held the FDCPA’s broad regulatory purpose is “effectuated by measuring the lawfulness of a debt collector’s conduct not by its impact on the particular consumer who happens to bring a lawsuit, but rather on its likely effect on the most vulnerable consumers -- the hypothetical ‘least sophisticated debtor’ -- in the marketplace.” Therefore, Debtor had statutory standing under the FDCPA despite never receiving any of the dunning letters at the time they were sent.
After determining Debtor had standing under Article III and the FDCPA, the Court turned its attention to Debtor’s actual FDCPA claims.
When assessing FDCPA liability the court is not “concerned with mere technical falsehoods that mislead no one, but instead with genuinely misleading statements that may frustrate a consumer’s ability to intelligently choose his or her response.” Donohue v. Quick Collect, Inc., 592 F.3d 1027, 1034 (9th Cir. 2010).
As to the three dunning letters sent by Collection Agency, Debtor alleged that they falsely identified the Loan’s original creditor and listed the incorrect account number. Thus, the issue for the Court was whether the misidentification of the original creditor, and to a lesser extent, listing the incorrect account number, constituted a violation of 15 U.S.C. § 1692e.
Law Firm argued that the erroneous identification of Debtor’s original creditor did not violate the FDCPA because it was not material. In support of its argument, Law Firm argued that the first two dunning letters referenced the computer Debtor bought and this was sufficient to inform even the least sophisticated debtor about the subject matter of the collection effort. Law Firm further argued that if a consumer is genuinely puzzled by the mention of the incorrect original creditor, he or she could place a call to acquire additional information or to dispute the debt.
The Ninth Circuit again disagreed, holding that, in the context of debt collection, the identity of a consumer’s original creditor “is a critical piece of information, and therefore its false identification in a dunning letter would be likely to mislead some consumers in a material way.” According to the Ninth Circuit, the factual errors contained in a Creditor’s dunning letter could easily cause the least sophisticated debtor to suffer a disadvantage in determining how to respond to a debt collector’s collection effort.
The Court provided an example whereby a consumer reasonably contacted the misidentified original creditor listed in the letter to attempt to obtain any records pertaining to the consumer’s debt. However, the incorrectly listed original creditor would not have any responsive records or information and could not aid in identifying the correct original creditor. According to the Ninth Circuit, even if the consumer eventually determined who the correct creditor was, the delay would have “cost him some portion of the thirty days that the FDCPA grants to consumers before having to respond to a collection notice, lest the debt collector be entitled to assume the validity of the debt.”
Thus, the Ninth Circuit held that the misidentification of Debtor’s original creditor would likely mislead consumers in a way that deprives them of their right to “understand, make informal decisions about, and participate fully and meaningfully in the debt collection process.” Clark v. Capital Credit & Collection Servs. Inc., 460 F.3d 1162, 1171 (9th Cir. 2006). As a result, the Court held that Collection Agency’s dunning letters contained misleading material statements that triggered liability under the FDCPA.
Law Firm attempted to argue that a confused consumer could place a phone call to the debt collector to clear up any confusion. The Court disregarded this argument stating “consumers are under no obligation to seek explanation of confusing or misleading language in debt collection letters.” Gonzales, 660 F.3d at 1062. Moreover, allowing such an interpretation would eliminate the FDCPA’s prohibition of misleading representations, and a court “must avoid a construction which renders any language of the enactment superfluous.” Security Pac. Nat’l Bank v. Resolution Trust Corp., 63 F.3d 900, 904 (9th Cir. 1995).
The Court then turned its attention to the state court complaint filed by Law Firm. The state court complaint contained the same misrepresentations as Collection Agency’s dunning letters in that it referenced the incorrect original creditor. Based upon its determination that the Collection Agency’s dunning letters violated the FDCPA, the Court held the state court complaint constituted an FDCPA violation as well. This was despite the fact the state court complaint twice referenced the correct original creditor.
The Court next examined whether Law Firm’s dunning letter violated the FDCPA. This letter did reference the incorrect original creditor, but did not label it as the original creditor. Instead, the letter listed the incorrect account number and original creditor in the “Re:” line item atop the body of the letter.
Law Firm argued its dunning letter was less misleading than the dunning letters sent by Collection Agency due to the absence of a label providing the original creditor’s information and the fact it identified Creditor. The Ninth Circuit disagreed with the Law Firm’s argument stating its letter was even more misleading than Collection Agency’s dunning letters because it lists Creditor as a “client” as opposed to the owner of the debt and again referenced the incorrect original creditor in the “Re:” subject line. The Court explained that these mistakes give “the least sophisticated debtor even less of a clue as to how to investigate the claim being made against him, making it more likely that the consumer will waste valuable time and suffer confusion in his efforts to formulate a response.” Therefore, according to the Ninth Circuit, Law Firm’s letter violated the FDCPA.
Debtor independently argued that Law Firm’s dunning letter violated the FDCPA because the lawyer who signed it was not “meaningfully involved,” and thus violated 15 U.S.C. § 1692e(3). The Court declined to address this argument as it had already determined that Law Firm’s dunning letter contained material misrepresentations in violation of the FDCPA. Thus, the Court determined there was no need to address Debtor’s “meaningful involvement” claim as a “violation of a single FDCPA provision is sufficient to establish liability,” Gonzales, 660 F.3d at 1064 n.6.
Accordingly, the Court reversed the district court’s granting of summary judgment and instructed that judgment be entered in favor of Debtor.
Eric Tsai
McGinnis Wutscher Beiramee LLP
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