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7th Circuit holds consumers can be expected to read second page of two-page collection letter, affirms dismissal of FDCPA action
On December 7, the U.S. Court of Appeals for the 7th Circuit affirmed the dismissal of a consumer’s class action against a debt collection company for allegedly violating the FDCPA by indicating “additional important information” was on the back of the first page when the required validation notice was actually on the front of the second page. According to the opinion, the consumer alleged the debt collection notice “misleads the unsophisticated consumer by telling him that important information is on the back, but instead providing the validation notice on the front of the second page, thereby ‘overshadowing’ the consumer’s rights” under the FDCPA. The debt collector moved to dismiss the action for failure to state a claim and the district court granted the dismissal and declined to allow the consumer leave to amend the complaint.
On appeal, the 7th Circuit determined that the location of the validation notice—which “is clear, prominent, and readily readable”—did not overshadow the consumer’s FDCPA rights or misrepresent the importance of the notice, notwithstanding the language on the first page indicating the important information would be on the back of the first page, not on the top of the second page. The 7th Circuit explained, “The FDCPA does not say a debt collector must put the validation notice on the first page of a letter. Nor does the FDCPA say the first page of a debt-collection letter must point to the validation notice if it is not on the first page. Nor does the FDCPA say a debt collector must tell a consumer the validation notice is important. Nor does the FDCPA say a debt collector may not tell a consumer that other information is important.” The appellate court rejected the consumer’s unsophisticated consumer argument, concluding that "[e]ven an unsophisticated consumer—maybe especially one—can be expected to read page two of a two-page collection letter." Moreover, the appellate court upheld the denial of the consumer’s request to amend her complaint, noting that no proposed amendment would push the plaintiff’s “original claim into the realm of plausibility.”
On November 7, the U.S. Court of Appeals for the 7th Circuit affirmed a grant of summary judgment in favor of a mortgage servicer. The court, noting the District Court had concluded there was insufficient evidence to support a claim the servicer had violated RESPA, affirmed the lower court decision that even if such a violation had occurred, the homeowner plaintiff failed to demonstrate any actual harm from the servicer’s alleged failure to fully respond to his qualified written request (QWR). According to the opinion, in November 2012, a state court entered a judgment of foreclosure against a homeowner who struggled to make payments on his mortgage loan; and after numerous reschedulings due to bankruptcy filings, a sheriff sale was set to be conducted in October 2016. In August 2016, the homeowner sent a letter to his mortgage servicer with “twenty-two wide-ranging questions about his account.” The mortgage servicer treated the letter as a QWR under RESPA, acknowledged receipt of the letter and stated it would provide a substantive response by September 30, the deadline under the statute. Two days prior to the statutory deadline, the homeowner and his wife filed a lawsuit against the mortgage servicer, alleging violations of RESPA and Wisconsin law for failing to respond to the QWR, which they argued, would have provided information to assist in their fight against forthcoming sheriff’s sale. The mortgage servicer mailed a response on September 30, consisting of a three-page letter and 58 pages of attachments, which addressed “most of [the homeowner]’s questions to some degree, but not all of them,” and also invited further information from the homeowner to consider further responses. The district court granted the mortgage servicer’s motion for summary judgment, concluding that the homeowner failed to provide evidence the mortgage servicer violated RESPA or state law and failed to show how any alleged failure, even had it occurred, caused harm.
On appeal, the 7th Circuit determined the homeowner had standing to sue the mortgage servicer but his wife did not, as she had no legal interest in the property. As for the alleged RESPA violation, assuming such a violation occurred, the court concluded that the homeowner failed to establish an actual harm that resulted from the mortgage servicer’s alleged violation. Specifically, the appeals court disagreed with the homeowner that the fees paid to an attorney to review the mortgage servicer’s response “could be a cost incurred as a result of an alleged violation” of RESPA. The appeals court also rejected claims of damages for physical and emotional distress because the homeowner’s “stress had essentially nothing to do with any arguable RESPA violations.”
On October 22, the U.S. Court of Appeals for the 7th Circuit held that the availability of class or collective arbitration within an employment agreement is a threshold “question of arbitrability” that must be decided by a court. According to the opinion, an employee filed class and collection action claims against her employer for wage and hour violations. The district court compelled arbitration pursuant to an agreement between the employee and her employer but struck as unlawful a waiver clause that forbid class or collective arbitration of any claim. The case proceeded to arbitration and the arbitrator issued an award of over $10 million in damages to the employee and the other 174 claimants who had opted-in to the arbitration proceeding. The employer appealed the award, arguing that the waiver of collective arbitration provision was valid, rendering the collective arbitration in violation of the employment agreement.
On appeal, the 7th Circuit reversed and remanded the case to the district court, pointing to the Supreme Court’s recent decision in Epic Systems Corp. v. Lewis, which upheld the validity of similar provisions. (Epic held that “an arbitration agreement does not violate the National Labor Relations Act when it requires plaintiffs to pursue employment-related claims in single claimant arbitrations.”). The plaintiff also argued, however, that despite the presence of the waiver, the arbitration agreement still permitted collective arbitration. This left open the question of who interprets the agreement to determine whether collection arbitration applies—the arbitrator or the court. The 7th Circuit found for the latter, concluding that the availability of class or collective arbitration is a threshold question of arbitrability and therefore a district court, and not the arbitrator should decide its permissibility.
On October 18, the U.S. Court of Appeals for the 7th Circuit held that an individual is a “qualified consumer” under the FDCPA, even when he is alleged by debt collectors to owe debts that he claims he does not owe. According to the opinion, a credit card was fraudulently opened in the plaintiff appellant’s name and was charged off, after default, to a debt collector who filed suit in an attempt to collect the debt. After the small-claims collection case was dismissed, the plaintiff appellant sued the debt collector for alleged violations of the FDCPA and the Illinois Collection Agency Act. The district court dismissed the action, holding that, to be a “consumer” under FDCPA, the individual must “allege he actually owed a debt.” On appeal, the 7th Circuit reversed. It held that the plain language of FDCPA covers individuals “allegedly obligated to pay” a debt, which includes “obligations alleged by the debt collector as well.” As a result, individuals who are alleged by debt collectors to owe debts are consumers under the FDCPA, even if they deny having any connection to the debt or any obligation to pay it.
On October 18, the U.S. Court of Appeals for the 7th Circuit affirmed summary judgment for a mortgage servicer, holding that the plaintiff homeowners failed to show racial discrimination in violation of the Equal Credit Opportunity Act (ECOA) when the servicer required the homeowners to bring the prior loan current before assuming it. According to the opinion, the homeowners purchased a home from the previous homeowner with an existing mortgage. Soon after the purchase, the homeowners learned that the previous owner had stopped making his mortgage payments and that the bank had begun to foreclose on the home. After receiving notice of foreclosure, the homeowners tried repeatedly to assume the previous owner’s mortgage which the mortgage servicer conditioned on the homeowners bringing the loan current. Unable to do so, the homeowners sued, bringing various state and federal law claims, including under ECOA, after an employee of the servicer allegedly made a remark that implied that the homeowners were not being allowed to assume the loan because of their race. The district court rejected the claims and entered summary judgment for the mortgage servicer.
On appeal, the 7th Circuit affirmed, concluding that the homeowners failed to counter the servicer’s representation that they never produced a complete application. Moreover, the court held that the alleged statement, which attributed the servicer’s decision to a race, was vague and “require[d] too much speculation to conclude that their race” was a determining factor in the requirement to satisfy the outstanding loan payments, a requirement that was otherwise consistent with the loan agreement.
7th Circuit holds, without written appearance by attorney, law firm did not violate FDCPA by serving debtor directly
On August 21, the U.S. Court of Appeals for the 7th Circuit held that a law firm did not violate the FDCPA by serving a debtor a default motion because his attorney had not yet become the “attorney of record” under Illinois Supreme Court Rule 11 (Rule 11). According to the opinion, after being sued by the law firm on a creditor’s behalf, the debtor appeared pro se and later retained an attorney to represent her. The law firm moved for summary judgment and served the motion to the debtor and to the debtor’s new attorney, who had not yet filed a written appearance. The debtor alleged the law firm violated the FDCPA by contacting her while represented by counsel. The lower court entered summary judgment in favor of the debtor. Disagreeing with the lower court, the 7th Circuit reversed, finding that Rule 11 gave “‘express’ judicial ‘permission’ to serve the default motion directly on [the debtor]” from “a court of competent jurisdiction” as required by the FDCPA— which prohibits a debt collector from directly contacting a debtor who is represented by counsel absent “express permission” ." The panel noted that Illinois precedent makes it clear that under Rule 11, a lawyer can only become an attorney of record by filing a written appearance or other pleading with the court. Because a written appearance had not yet been made, the panel reasoned, Rule 11 expressly permitted the law firm to serve the debtor directly and therefore, the firm did not violate the FDCPA.
7th Circuit reverses district court, holds settlement with debt collector moots claims against law firm
On August 13, the U.S. Court of Appeals for the 7th Circuit vacated a district court’s decision, holding that a consumer who settled with a debt collector is not entitled to pursue Fair Debt Collection Practices Act statutory damages claims against the debt collector’s law firm. Under the single recovery for a single injury principle, a consumer can only obtain one recovery for a single injury “regardless of how many defendants could be liable for that single injury, or how many different theories of recovery could apply to that single injury.” In this instance, the consumer settled the claim with the debt collector for $5,000 plus release of the consumer’s original debt. The consumer later sued the debt collector’s law firm, spending over $69,000 on attorneys’ fees to argue that the law firm filed suit to collect the debt in the wrong court. While the district court ordered the law firm to pay the attorneys’ fees to the consumer, the 7th Circuit reversed, holding that the settlement with the creditor rendered the consumer’s claim against the law firm moot and thus the consumer could not recover attorneys’ fees or costs.
On August 10, the U.S. Court of Appeals for the 7th Circuit affirmed a lower court’s ruling that a company (defendant) that performed inspections for a mortgage servicer is not a “debt collector” under the Fair Debt Collection Practices Act (FDCPA) and was not liable for claims brought by a putative class of homeowners. According to the opinion, the defendant entered into a contract with the mortgage servicer to perform inspections to determine whether properties were still occupied for homes with defaulted mortgage payments of 45 days or more if the servicer was unable to contact the homeowner directly. When performing the inspections, the defendants left door hangers on the plaintiffs’ properties containing instructions to contact the mortgage servicer, which the plaintiffs claimed violated the FDCPA's disclosure requirements, including the requirement to disclose the creditor’s name, the amount owed, and that the debtor can dispute the debt. However, the lower court ruled—and the appellate court affirmed—that the defendant was not a “debt collector” for purposes of the FDCPA. The court found that the activities did not constitute direct debt collection because the door hangers did not demand payment and did not reference the underlying debt. The court also held that the defendant was not engaged in “indirect” debt collection, agreeing with the characterization of the lower court that the activities were more akin to those of a “messenger” than those of an “indirect” debt collector.
On May 2, the U.S. Court of Appeals for the 7th Circuit affirmed four district court decisions granting summary judgment in favor of consumers who alleged a debt collector violated the Fair Debt Collection Practices Act (FDCPA) by communicating debts to credit reporting agencies without indicating the debts were disputed. According to the opinion, the debt collector sent the four consumers a debt validation notice regarding an alleged credit card debt. More than 30 days later, a local legal aid organization sent the debt collector’s general counsel a notice of representation for each of the four consumers, noting, “the amount reported is not accurate.” After the attorney letters were sent, the debt collector reported the debts to the credit reporting agencies. The consumers each filed a separate action in district court alleging a violation of the FDCPA, and each district court granted the consumer summary judgment, finding the debt collector did not handle the letters properly. In the consolidated appeal, the 7th Circuit agreed with the district courts, holding that the actions of the debt collector were “a clear violation of the statute” as each attorney letter stated the amount was inaccurate and the debt collector still reported the debts without noting they were disputed. While the panel noted that there is no clear definition of “dispute” under the FDCPA, the court concluded, “there is simply no other way to interpret [the] language” of the attorney letter, rejecting the debt collector’s “bona fide error defense.”
On March 22, the U.S. District Court for the Western District of Louisiana denied the Defense Finance and Accounting Service’s (DFAS), a federal government agency within the Department of Defense, motion to dismiss a private action under the Fair Credit Reporting Act (FCRA) based on a lack of subject matter jurisdiction as a result of sovereign immunity. The court found that FCRA’s definition of person includes “government or governmental subdivision or agency,” and therefore, waives the United States’ sovereign immunity under FCRA. The court did not agree with DFAS’ position that the terms “government or governmental subdivision or agency” are too broad to constitute a wavier of sovereign immunity. In support of its position, the court cited a decision by the U.S. Court of Appeals for the 7th Circuit providing that the FCRA “unequivocally waives the United States’ sovereign immunity from damages for violations under the FCRA.”
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